10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended November 1, 2008

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

ANNTAYLOR STORES CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	13-3499319
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
7 Times Square, New York, NY	10036
(Address of principal executive offices)	(Zip Code)

(212) 541-3300

(Registrant’s telephone number, including area code)

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

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

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

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 17, 2008
Common Stock, $.0068 par value	57,135,532

INDEX TO FORM 10-Q

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Condensed Consolidated Statements of Operations for the Quarters and Nine Months Ended November 1, 2008 and November 3, 2007 (unaudited)
	Condensed Consolidated Balance Sheets at November 1, 2008, February 2, 2008 and November 3, 2007 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 1, 2008 and November 3, 2007 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	31
PART II. OTHER INFORMATION
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 6.	Exhibits	37
SIGNATURES		38
EXHIBIT INDEX		39

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 AnnTaylor Stores Corporation (the “Company”) concerning future events that involve risks and uncertainties, including:

• the Company’s ability to predict accurately client fashion preferences;

• competitive influences and decline in the demand for merchandise offered by the Company;

• the Company’s ability to successfully execute brand extensions and new concepts;

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

• the Company’s ability to secure and protect trademarks and other intellectual property rights in the United States and/or foreign countries;

• general economic conditions, including the impact of higher fuel and energy prices, a downturn in the retail industry or changes in levels of store traffic;

• continuation of lowered levels of consumer spending resulting from the worldwide economic downturn, lowered levels of consumer confidence and higher levels of unemployment;

• the behavior of financial markets, including fluctuations in interest rates and the value of the U.S. dollar against foreign currencies, or restrictions on the transfer of funds;

• the commercial and consumer credit environment;

• continued volatility and further deterioration of the capital markets;

• fluctuation in the Company’s level of sales and earnings growth;

• the Company’s ability to locate new store sites or negotiate favorable lease terms for additional stores or for the lease renewal or expansion of existing stores;

• risks associated with the performance and operations of the Company’s Internet operations;

• a significant change in the regulatory environment applicable to the Company’s business;

• risks associated with the possible inability of the Company, particularly through its sourcing and logistics functions, to operate within production and delivery constraints and the Company’s dependence on a single distribution facility;

• the uncertainties of sourcing associated with the current quota environment, including changes in sourcing patterns resulting from the elimination of quota on apparel products and the re-imposition of quotas in certain categories, and other possible trade law or import restrictions;

• risks associated with the Company’s reliance on foreign sources of production, including financial or political instability in any of the countries in which the Company’s goods are manufactured;

• risks associated with a failure by independent manufacturers to comply with the Company’s quality, product safety and social practices requirements;

• the potential impact of natural disasters and public health concerns, particularly on the Company’s foreign sourcing offices and manufacturing operations of the Company’s vendors;

• acts of war or terrorism in the United States or worldwide;

• work stoppages, slowdowns or strikes;

• the Company’s ability to hire, retain and train key personnel;

• the Company’s ability to successfully upgrade and maintain its information systems, including adequate system security controls;

• the Company’s ability to continue operations in accordance with its business continuity plan in the event of an interruption;

• the Company’s ability to achieve the results of its restructuring program, including the risk that the benefits expected from the restructuring program will not be achieved or may take longer to achieve than expected; and

• changes in management’s assumptions and projections concerning costs and timing in execution of the restructuring program.

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.

ANNTAYLOR STORES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Quarters and Nine Months Ended November 1, 2008 and November 3, 2007

(unaudited)

	Quarters Ended					Nine Months Ended
	November 1, 2008			November 3, 2007		November 1, 2008		November 3, 2007
	(in thousands, except per share amounts)
Net sales	$	527,216		$	600,949	$	1,711,194	$	1,795,709
Cost of sales		270,060			264,106		828,911		836,817
Gross margin		257,156			336,843		882,283		958,892
Selling, general and administrative expenses		257,511			268,958		788,032		789,438
Restructuring and asset impairment charges		19,893			1,300		26,761		2,200
Operating (loss) income		(20,248	)		66,585		67,490		167,254
Interest income		311			1,450		1,571		6,197
Interest expense		325			620		1,025		1,597
(Loss) income before income taxes		(20,262	)		67,415		68,036		171,854
Income tax (benefit) provision		(6,815	)		26,656		26,336		67,948
Net (loss) income	$	(13,447	)	$	40,759	$	41,700	$	103,906
Earnings per share:
Basic (loss) earnings per share	$	(0.24	)	$	0.67	$	0.72	$	1.63
Weighted average shares outstanding		56,252			60,930		57,697		63,629
Diluted (loss) earnings per share	$	(0.24	)	$	0.66	$	0.72	$	1.61
Weighted average shares outstanding, assuming dilution		56,252			61,533		57,943		64,438

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

4

ANNTAYLOR STORES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

November 1, 2008, February 2, 2008 and November 3, 2007

(unaudited)

	November 1, 2008			February 2, 2008			November 3, 2007
	(in thousands)
Assets
Current assets
Cash and cash equivalents	$	80,687		$	134,025		$	94,046
Short-term investments		—			9,110			24,257
Accounts receivable		23,421			16,944			29,160
Merchandise inventories		274,450			250,697			289,740
Deferred income taxes		33,925			29,161			22,895
Prepaid expenses and other current assets		61,406			67,954			62,999
Total current assets		473,889			507,891			523,097
Property and equipment, net		545,958			561,270			585,125
Goodwill		286,579			286,579			286,579
Deferred financing costs, net		1,370			288			379
Deferred income taxes		25,840			23,314			19,852
Other assets		20,051			14,413			13,351
Total assets	$	1,353,687		$	1,393,755		$	1,428,383
Liabilities and Stockholders’ Equity
Current liabilities
Trade notes and accounts payable	$	118,835		$	125,388		$	124,866
Accrued salaries and bonus		26,103			13,000			14,297
Accrued tenancy		44,693			44,945			45,502
Gift certificates and merchandise credits redeemable		38,043			54,564			35,891
Accrued expenses and other current liabilities		89,698			74,979			96,677
Total current liabilities		317,372			312,876			317,233
Deferred lease costs		224,646			230,052			229,431
Deferred income taxes		1,633			1,960			1,406
Other liabilities		18,560			9,383			10,034
Commitments and contingencies
Stockholders’ equity
Common stock, $.0068 par value; 200,000,000 shares authorized; 82,476,328, 82,288,607 and 82,255,479 shares issued, respectively		561			560			559
Additional paid-in capital		788,638			781,048			776,433
Retained earnings		808,108			766,408			773,079
Accumulated other comprehensive loss		(4,230	)		(3,460	)		—
		1,593,077			1,544,556			1,550,071
Treasury stock, 25,358,195, 21,408,843 and 20,556,835 shares respectively, at cost		(801,601	)		(705,072	)		(679,792	)
Total stockholders’ equity		791,476			839,484			870,279
Total liabilities and stockholders’ equity	$	1,353,687		$	1,393,755		$	1,428,383

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

5

ANNTAYLOR STORES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended November 1, 2008 and November 3, 2007

(unaudited)

	Nine Months Ended
	November 1, 2008			November 3, 2007
	(in thousands)
Operating activities:
Net income	$	41,700		$	103,906
Adjustments to reconcile net income to net cash provided by operating activities
Deferred income taxes		(7,626	)		2,706
Depreciation and amortization		93,639			87,329
Loss on disposal and write-down of property and equipment		2,761			3,312
Non-cash compensation expense		9,023			16,435
Non-cash interest and other non-cash items		438			635
Non-cash restructuring and asset impairment charges		11,024			—
Tax (deficiency) benefit from exercise/vesting of stock awards		(512	)		2,062
Changes in assets and liabilities:
Accounts receivable		(6,477	)		(12,671	)
Merchandise inventories		(23,753	)		(56,134	)
Prepaid expenses and other current assets		6,548			(8,654	)
Other non-current assets and liabilities, net		(5,495	)		19,785
Trade notes and accounts payable and accrued expenses		(7,101	)		(4,607	)
Net cash provided by operating activities		114,169			154,104
Investing activities:
Purchases of marketable securities		(927	)		(49,175	)
Sales of marketable securities		9,277			25,200
Purchases of property and equipment		(83,194	)		(92,520	)
Net cash used for investing activities		(74,844	)		(116,495	)
Financing activities:
Proceeds from the issuance of common stock pursuant to Associate Discount Stock Purchase Plan		2,095			2,815
Proceeds from exercise of stock options		3,864			12,744
Excess tax benefits from stock-based compensation		365			2,150
Repurchases of common and restricted stock		(103,208	)		(321,832	)
Proceeds from financing of fixed assets and related costs		7,578			—
Repayments of fixed asset financing and capital lease obligations		(2,032	)		—
Payments of deferred financing cost		(1,325	)		—
Net cash used for financing activities		(92,663	)		(304,123	)
Net decrease in cash		(53,338	)		(266,514	)
Cash and cash equivalents, beginning of period		134,025			360,560
Cash and cash equivalents, end of period	$	80,687		$	94,046
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	758		$	1,268
Income taxes	$	35,541		$	67,796
Property and equipment acquired through capital lease	$	1,638		$	—
Accrual for purchases of property and equipment	$	9,570		$	19,138

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

6

ANNTAYLOR STORES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation

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 significant intercompany accounts and transactions have been eliminated.

The results of operations for the 2008 interim period shown in the Condensed Consolidated Financial Statements (unaudited) are not necessarily indicative of results to be expected for Fiscal 2008.

Deferred income taxes previously included in prepaid and other current assets, other assets and other liabilities on the Condensed Consolidated Balance Sheet as of November 3, 2007 have been reclassified to separate line items to conform to the November 1, 2008 and February 2, 2008 presentation. Restructuring expenses previously included in selling, general and administrative expenses on the Condensed Consolidated Statements of Operations for the quarter and nine months ended November 3, 2007 have been reclassified to conform to the presentation for the quarter and nine months ended November 1, 2008.

The February 2, 2008 Condensed Consolidated Balance Sheet has been derived from the audited Consolidated Balance Sheet of AnnTaylor Stores Corporation (the “Company”).

Detailed footnote information is not included in this Report. 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, 2008.

2. Recent Accounting Pronouncements

Recently Issued Standards

In June 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”) No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP-EITF No. 03-6-1”). Under FSP-EITF No. 03-6-1, unvested share-based payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing earnings per share. FSP-EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. The Company does not expect the adoption of FSP-EITF No. 03-6-1 to have any impact on the determination or reporting of its earnings per share.

In May 2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”). SFAS No. 162 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 accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and concludes that the GAAP hierarchy should be directed toward the entity and not its auditor, and reside in the accounting literature established by the FASB as opposed to the American Institute of Certified Public Accountants (“AICPA”) Statement on Auditing Standards No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to U.S. Auditing Standards (“AU”) Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company is in the process of evaluating SFAS No. 162 and does not expect it to have any impact on its consolidated financial statements.

7

ANNTAYLOR STORES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

2. Recent Accounting Pronouncements (continued)

Recently Issued Standards (continued)

In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP No. 142-3”). FSP No. 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 No. 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. 141(revised 2007), Business Combinations, (“SFAS No. 141(R)”), and other U.S. GAAP. FSP No. 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, and interim periods within those fiscal years and should be applied prospectively to intangible assets acquired after the effective date. Early adoption is prohibited. The Company is in the process of evaluating FSP No. 142-3 and does not expect it to have a significant impact on its consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – An Amendment of SFAS No. 133 (“SFAS No. 161”). SFAS No. 161 seeks to improve financial reporting for derivative instruments and hedging activities by requiring enhanced disclosures regarding their impact on financial position, financial performance, and cash flows. To achieve this increased transparency, SFAS No. 161 requires (1) disclosure of the fair value of derivative instruments and gains and losses in a tabular format; (2) disclosure of derivative features that are credit risk-related; and (3) cross-referencing within the footnotes. SFAS No. 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application permitted. The Company is in the process of evaluating the new disclosure requirements under SFAS No. 161, but does not expect adoption of SFAS No. 161 to have an impact on its consolidated financial statements.

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

8

ANNTAYLOR STORES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

2. Recent Accounting Pronouncements (continued)

Recently Adopted Standards

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115. SFAS No. 159 allows companies the choice to measure many financial instruments and certain other items at fair value. This gives a company the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company adopted SFAS No. 159 on February 3, 2008. The adoption of SFAS No. 159 did not have any impact on the Company’s condensed consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. On February 12, 2008, the FASB issued FASB Staff Position 157-2, Effective Date of FASB Statement No. 157 (“FSP FAS No. 157-2”) that partially deferred the effective date of SFAS No. 157 for one year for non-financial assets and non-financial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. SFAS No. 157 does not require any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of SFAS No. 157 are to be applied prospectively as of the beginning of the fiscal year in which it is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. Notwithstanding the effective date deferral discussed above, SFAS No. 157 is partially effective for fiscal years beginning after November 15, 2007. The Company adopted SFAS No. 157 on February 3, 2008. See Note 3, “Fair Value Measurements” for further discussion.

On October 10, 2008, the FASB issued FASB FSP FAS No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, which clarifies the application of SFAS No. 157 as it relates to the valuation of financial assets in a market that is not active for those financial assets. FSP FAS No. 157-3 is effective immediately and includes those periods for which financial statements have not been issued. The adoption of FSP FAS No. 157-3, although applicable to the Company’s investment in auction rate securities, did not have an impact on the Company’s condensed consolidated financial statements.

3. Fair Value Measurements

Effective February 3, 2008, the Company adopted SFAS No. 157, which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Company’s adoption of SFAS No. 157 did not have a material impact on its consolidated financial statements.

SFAS No. 157 establishes 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.

9

ANNTAYLOR STORES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

3. Fair Value Measurements (continued)

The table below segregates all financial assets and liabilities 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. FSP FAS No. 157-2 delayed the effective date for all nonfinancial assets and liabilities until January 1, 2009, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis.

	November 1, 2008		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Deferred compensation plan assets (a)	$	1,675	$	1,675	$	—	$	—
Auction rate securities (b)		5,202		—		—		5,202
Total assets	$	6,877	$	1,675	$	—	$	5,202

(a) The Company maintains a self-directed, non-qualified deferred compensation plan structured as a rabbi trust for certain executives and other highly compensated employees. The investment assets of the rabbi trust are valued using quoted market prices multiplied by the number of shares held in the trust.

(b) At November 1, 2008, the Company had $6.0 million invested in auction rate securities with a fair market value of $5.2 million. As a result of the deterioration of the credit markets, auctions for these securities failed during the first nine months of Fiscal 2008. Consequently, fair value measurements have been estimated using an income-approach model (discounted cash-flow analysis). 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. On November 14, 2008, the Company entered into an agreement with UBS AG (“UBS”), one of its investment providers, related to its $6.0 million investment in auction rate securities purchased from UBS. Under the terms of the agreement, the Company will receive certain auction rate security rights from UBS. See Note 5, “Investments” for further discussion of the Company’s auction rate securities.

The following table provides a reconciliation of the beginning and ending balances for the quarter and nine months ended November 1, 2008 of the Company’s investment in auction rate securities, as these assets are measured at fair value using significant unobservable inputs (Level 3):

	Level 3
	Quarter Ended			Nine Months Ended
	November 1, 2008			November 1, 2008
	(in thousands)
Balance at beginning of period	$	5,588		$	—
Transfers in and/or (out) of Level 3 (1)		—			6,000
Total losses realized/unrealized included in earnings		—			—
Total losses included in other comprehensive income		(386	)		(798	)
Purchases, sales, issuances and settlements, net		—			—
Balance as of November 1, 2008	$	5,202		$	5,202

(1) Based on the deteriorated market conditions affecting the Company’s investment in auction-rate securities classified as available-for-sale, the Company changed its fair value measurement methodology from quoted prices in active markets to a discounted cash flow model during the first quarter of Fiscal 2008. Accordingly, these securities were valued using Level 3 inputs.

10

ANNTAYLOR STORES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

4. Restructuring

In Fiscal 2007, the Company initiated a multi-year strategic restructuring program (the “January 2008 Program”) designed to enhance profitability and improve overall operating effectiveness. The restructuring program included closing 117 underperforming stores over a three-year period, reducing the Company’s corporate staff by approximately 13% and undertaking a broad-based productivity initiative that included, among other things, the strategic procurement of non-merchandise goods and services.

On November 6, 2008, the Company announced additional actions building upon its January 2008 Program. These additional actions included an organizational streamlining resulting in the elimination of approximately 260 positions in the corporate and divisional organizations and the additional non-cash write-down of store assets, and were designed to further reduce the Company’s cost structure and enhance its operational efficiency.

The Company now expects total one-time pre-tax expenses associated with its restructuring initiatives in the range of $65 to $70 million, including approximately $59 million in costs recognized since the January 2008 Program was initiated. The Company expects to incur an additional $4 million in restructuring costs in the fourth quarter of fiscal 2008 with the balance to be incurred in fiscal 2009 and fiscal 2010.

In connection with its restructuring initiatives, the Company recorded restructuring charges of $19.9 million and $26.8 million, respectively, during the quarter and nine months ended November 1, 2008. These costs related to the write-down of store assets, severance and other costs related to the restructuring. During the quarter and nine months ended November 3, 2007, the Company recorded restructuring charges of $1.3 million and $2.2 million, respectively, for consulting and other costs related to the restructuring. The restructuring and asset impairment charges are included as a separate line item on the Company’s Condensed Consolidated Statements of Operations.

The following table details information related to restructuring charges recorded during the quarter ended November 1, 2008:

	Asset Impairment			Severance and Related Costs			Other Restructuring Costs			Total
	(in thousands)
Balance at August 2, 2008	$	—		$	(1,649	)	$	(1,869	)	$	(3,518	)
Restructuring provision		(7,766	)		(11,128	)		(999	)(1)		(19,893	)
Subtotal		(7,766	)		(12,777	)		(2,868	)		(23,411	)
Cash payments		—			916			193			1,109
Non-cash adjustments		7,766			—			(105	)		7,661
Balance at November 1, 2008	$	—		$	(11,861	)	$	(2,780	)	$	(14,641	)

(1) Included in this amount is $0.6 million of costs related to consulting services. The consulting services are a direct result of executing the Company’s strategic plan to streamline operations and rationalize its cost structure.

11

ANNTAYLOR STORES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

4. Restructuring (continued)

The following table details information related to restructuring charges recorded during the nine months ended November 1, 2008:

	Asset Impairment			Severance and Related Costs			Other Restructuring Costs			Total
	(in thousands)
Balance at February 2, 2008	$	—		$	(4,227	)	$	(500	)	$	(4,727	)
Restructuring provision		(10,480	)		(11,525	)		(4,756	)(1)		(26,761	)
Subtotal		(10,480	)		(15,752	)		(5,256	)		(31,488	)
Cash payments		—			3,891			1,932			5,823
Non-cash adjustments		10,480			—			544			11,024
Balance at November 1, 2008	$	—		$	(11,861	)	$	(2,780	)	$	(14,641	)

(1) Included in this amount is $2.0 million of costs related to consulting services. The consulting services are a direct result of executing the Company’s strategic plan to streamline operations and rationalize its cost structure.

5. Investments

At November 1, 2008, February 2, 2008 and November 3, 2007, the Company had $6.0 million, $15.0 million and $24.0 million, respectively, invested in auction rate securities with a fair market value of $5.2 million, $15.0 million and $24.0 million, respectively. In accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, these auction rate securities are classified as available-for-sale and are carried at fair market value.

During the first nine months of Fiscal 2008, auctions related to these securities failed. The Company believes it is likely that these auctions will continue to be unsuccessful in the near term. Unsuccessful auctions limit the short-term liquidity of these investments; therefore the Company has recorded its investment in auction rate securities as long-term, included in other assets, on its Condensed Consolidated Balance Sheets as of November 1, 2008. At February 2, 2008 the Company included $9.0 million in auction rate securities that settled subsequent to February 2, 2008 in short-term investments; its remaining $6.0 million was included in other assets in its Condensed Consolidated Balance Sheet. While recent failures in the auction process have affected the Company’s ability to access these funds in the near term, it does not believe that the underlying securities or collateral have been permanently affected. The Company has earned and expects to continue to earn interest at the prevailing rates on its remaining investment in auction rate securities.

During the quarter and nine months ended November 1, 2008, the Company recorded temporary impairment charges of approximately $0.4 million and approximately $0.8 million, respectively, to accumulated other comprehensive loss related to its investment in auction rate securities. The $5.2 million net carrying value as of November 1, 2008 represents the Company’s best estimate of the fair value of these investments based on currently available information on that date.

On November 14, 2008, the Company entered into an agreement with UBS, one of its investment providers, related to its $6.0 million investment in auction rate securities purchased from UBS. Under the terms of the agreement, the Company will receive certain auction rate security rights from UBS. These rights enable the Company to sell its auction rate securities back to UBS at par value at anytime during the two year period beginning June 30, 2010. The auction rate securities will continue to accrue and pay interest until the time the Company exercises its rights. If the Company does not exercise its rights by July 2, 2012 they will expire and UBS will have no further obligation to the Company. Under the agreement the Company releases UBS from all claims related to the securities except consequential damages and agrees not serve as a class action representative or receive benefits under any class action settlement or investor fund. UBS has the right to purchase the auction rate securities at par value, without prior notice, from the Company any time after November 14, 2008

12

ANNTAYLOR STORES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

5. Investments (continued)

The investments held in trust for the Company’s Non-Qualified Deferred Compensation Plan are treated as trading securities and are classified as a long-term asset on the Company’s Condensed Consolidated Balance Sheets included in other assets. Unrealized holding gains and losses on trading securities are included in interest income on the Company’s Condensed Consolidated Statements of Operations.

6. Earnings Per Share

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

	Quarters Ended
	November 1, 2008							November 3, 2007
	(in thousands, except per share amounts)
	Net (Loss) Income			Shares	Per Share Amount			Net Income		Shares	Per Share Amount
Basic (Loss) Earnings per Share	$	(13,447	)	56,252	$	(0.24	)	$	40,759	60,930	$	0.67
Effect of Dilutive Securities		—		—					—	603
Diluted (Loss) Earnings per Share	$	(13,447	)	56,252	$	(0.24	)	$	40,759	61,533	$	0.66

	Nine Months Ended
	November 1, 2008					November 3, 2007
	(in thousands, except per share amounts)
	Net Income		Shares	Per Share Amount		Net Income		Shares	Per Share Amount
Basic Earnings per Share	$	41,700	57,697	$	0.72	$	103,906	63,629	$	1.63
Effect of Dilutive Securities		—	246				—	809
Diluted Earnings per Share	$	41,700	57,943	$	0.72	$	103,906	64,438	$	1.61

Options to purchase 3,586,260 shares and 3,110,516 shares of common stock during the quarter and nine months ended November 1, 2008, respectively, and 1,612,582 shares and 610,686 shares of common stock during the quarter and nine months ended November 3, 2007 were excluded from the above computations of weighted-average shares for diluted earnings per share. This was due to the antidilutive effect of the options’ exercise prices as compared to the average market price of the common shares during those periods. For the loss during the quarter ended November 1, 2008, no effect was given to potentially dilutive securities, since the effect would be antidilutive. In addition, 193,333 shares and 225,667 shares of unvested restricted stock were excluded from the above calculations for the quarters and nine months ended November 1, 2008 and November 3, 2007, respectively, due to contingencies placed on their vesting which had not been satisfied as of those dates.

13

ANNTAYLOR STORES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

7. Share-based Payments

Stock Incentive Plans

During the quarter and nine months ended November 1, 2008, the Company recognized approximately $0.4 million and $8.9 million, respectively, in total share-based compensation expense. During the quarter and nine months ended November 3, 2007, the Company recognized approximately $3.8 million and $16.2 million, respectively, in total share-based compensation expense. As of November 1, 2008, there was $13.0 million of unrecognized compensation cost related to unvested options, which is expected to be recognized over a remaining weighted-average vesting period of 2.3 years. As of November 1, 2008, there was $11.5 million of unrecognized compensation cost related to unvested restricted stock awards, which is expected to be recognized over a remaining weighted-average vesting period of 2.0 years.

Stock Options

The following table summarizes stock option activity for the quarter and nine months ended November 1, 2008:

	Quarter Ended				Nine Months Ended
	November 1, 2008				November 1, 2008
	Shares		Weighted - Average Exercise Price		Shares		Weighted - Average Exercise Price
Options outstanding at beginning of period	3,717,058		$	27.89	3,698,949		$	28.65
Granted	157,000			23.77	945,633			23.91
Forfeited or expired	(224,925	)		29.99	(838,787	)		30.23
Exercised	(62,873	)		20.62	(219,535	)		17.60
Options outstanding at November 1, 2008	3,586,260		$	27.71	3,586,260		$	27.71
Vested and exercisable at November 1, 2008	1,893,794		$	26.54	1,893,794		$	26.54
Options expected to vest at November 1, 2008	1,208,225		$	31.60	1,208,225		$	31.60

The weighted-average fair value of options granted during the quarters ended November 1, 2008 and November 3, 2007, estimated as of the grant date using the Black-Scholes option pricing model, was $9.71 and $10.27 per share, respectively. The weighted-average fair value of options granted during the nine months ended November 1, 2008 and November 3, 2007, estimated as of the grant date using the Black-Scholes option pricing model, was $8.90 and $12.03 per share, respectively.

The fair value of options granted under the Company’s stock option plans was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Quarters Ended				Nine Months Ended
	November 1, 2008		November 3, 2007		November 1, 2008		November 3, 2007
Expected volatility	47.0	%	34.1	%	42.6	%	33.0	%
Risk-free interest rate	2.9	%	4.1	%	2.5	%	4.4	%
Expected life (years)	4.2		4.4		4.2		4.4
Dividend yield	—		—		—		—

14

ANNTAYLOR STORES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

7. Share-based Payments (continued)

Restricted Stock

The following table summarizes restricted stock activity for the quarter ended November 1, 2008:

	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 August 2, 2008	678,920		$	32.07	213,333		$	28.91
Granted	62,000			24.18	—			—
Vested	(81,917	)		20.63	—			—
Forfeited	(69,826	)		28.63	(20,000	)		30.67
Restricted stock awards at November 1, 2008	589,177		$	33.23	193,333		$	28.72

The following table summarizes restricted stock activity for the nine months ended November 1, 2008:

	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, 2008	729,052		$	32.27	225,667		$	32.78
Granted	339,624			24.37	124,000			25.02
Vested	(293,746	)		22.88	—			—
Forfeited	(185,753	)		29.63	(156,334	)		31.64
Restricted stock awards at November 1, 2008	589,177		$	33.23	193,333		$	28.72

In April 2008, 99,000 shares of performance-based restricted stock were granted and are included in the above table for the nine months ended November 1, 2008 assuming an achievement level of 100% of the performance target. These awards vest over a three year period based on achievement of a performance target set annually for each tranche of the grant. Based on Company performance, grantees may earn 75% to 125% of the shares granted with respect to each tranche. If at least a 75% achievement level is not met, grantees will not earn any shares with respect to that tranche. In addition, the Company modified previously granted unvested awards of performance-based restricted stock to include vesting terms based on achievement levels from 75% to 100% of target. No charge was required for this modification. These awards are likewise included in the above table assuming an achievement level of 100% of the performance target. Grantees may earn 75% to 100% of the shares granted with respect to each tranche, based on the Company’s performance. If a 75% achievement level is not met, grantees will not earn any shares with respect to that tranche. During the third quarter of Fiscal 2008, achievement of the targets for the 2008 tranche of these awards was deemed improbable; as such, all related compensation cost was reversed.

15

ANNTAYLOR STORES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

8. Debt and Capital Leases

Credit Facility

On April 23, 2008, AnnTaylor, Inc. and certain of its subsidiaries entered into a Third Amended and Restated $250 million senior secured revolving credit facility (the “Credit Facility”) with Bank of America N.A. and a syndicate of lenders, which amended Ann Taylor, Inc.’s then existing $175 million senior secured revolving credit facility scheduled to expire in November 2008. At AnnTaylor, Inc.’s option, the Credit Facility provides for an increase in the total facility and the aggregate commitments thereunder up to $350 million, subject to obtaining commitments for the requested increased amount. The Credit Facility expires on April 23, 2013 (unless terminated earlier) and may be used by AnnTaylor, Inc. and certain of its subsidiaries for working capital, letters of credit and other general corporate purposes.

Maximum availability for loans and letters of credit under the Credit Facility is governed by a monthly borrowing base, determined by the application of specified advance rates against certain eligible assets. There were no borrowings outstanding under the Credit Facility at any point during the nine months ended November 1, 2008 or as of the date of this filing. Commercial and standby letters of credit outstanding under the Credit Facility totaled approximately $36.6 million, $111.1 million and $106.4 million as of November 1, 2008, February 2, 2008 and November 3, 2007, respectively, leaving a remaining available balance for loans and letters of credit of $213.4 million, $63.9 million and $68.6 million, respectively.

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

Capital Lease

On August 25, 2008, the Company entered into a capital lease relating to certain computer equipment with a four year term. The following table presents leased assets by major class:

	November 1, 2008
	(in thousands)
Computer Equipment	$	1,638
		1,638
Less accumulated depreciation and amortization		—
Net property and equipment	$	1,638

The computer equipment was not placed in service as of November 1, 2008. The Company had no capital leases at February 2, 2008 or November 3, 2007.

16

ANNTAYLOR STORES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

8. Debt and Capital Leases (continued)

Capital Lease (continued)

Future minimum lease payments under the capital lease as of November 1, 2008 are as follows:

Fiscal Year	(in thousands)
2008	$	71
2009		424
2010		424
2011		424
2012		247
Thereafter		—
Total		1,590
Less weighted average interest rate of 1.8% on capital lease		53
Total principal payable including no amounts accrued for interest	$	1,537

Other

Included in accrued expenses and other current liabilities and other liabilities on the Condensed Consolidated Balance Sheet at November 1, 2008 were $4.2 million and $3.7 million, respectively, related to borrowings for the purchase of fixed assets. There were no such borrowings at February 2, 2008 or November 3, 2007.

9. Employee Benefits

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

	Quarters Ended						Nine Months Ended
	November 1, 2008			November 3, 2007			November 1, 2008			November 3, 2007
	(in thousands)						(in thousands)
Net periodic pension cost:
Service cost	$	—		$	1,013		$	—		$	4,063
Interest cost		483			437			1,483			1,586
Expected return on plan assets		(536	)		(694	)		(1,736	)		(2,144	)
Amortization of prior service cost		—			7			—			57
Amortization of actuarial loss		(33	)		(85	)		37			265
Curtailment gain		—			(1,062	)		—			(857	)
Net periodic pension cost	$	(86	)	$	(384	)	$	(216	)	$	2,970

The Company was not required to make and did not make any contributions to its pension plan during the nine months ended November 1, 2008 and November 3, 2007.

17

ANNTAYLOR STORES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

10. Securities Repurchase Program

In August 2007, the Company’s Board of Directors approved a $300 million securities repurchase program (the “August 2007 Program”). Under the August 2007 Program, purchases of shares of the Company’s common stock may be made from time to time, subject to market conditions and at prevailing market prices, through open market purchases or in privately negotiated transactions. Repurchased shares of common stock increase treasury shares available for general corporate and other purposes. During the nine months ended November 1, 2008, the Company repurchased 4,108,183 shares of its common stock at a cost of approximately $100.8 million. There were no repurchases made under the August 2007 program during the quarter ended November 1, 2008.

11. Goodwill

The recent deterioration in the financial and housing markets and resulting impact on consumer confidence and discretionary spending has had a significant impact on the retail industry, particularly for women’s specialty apparel retailers. The effect this has had on the Company’s business and the impact on its quoted market price and market capitalization could be an indicator under SFAS No. 142 that a reduction in the Company’s fair value has occurred. Accordingly, the Company performed an interim test of goodwill impairment in accordance with SFAS No. 142, based on a weighting of (1) a discounted cash flow analysis using updated forward-looking projections of estimated future operating results and (2) a guideline company methodology under the market approach using revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples. Based on the results of this testing, management concluded that the Company’s fair value exceeded its carrying value at November 1, 2008 and accordingly, determined that its recorded goodwill was not impaired as of November 1, 2008. The Company will perform its annual test for goodwill impairment during the fourth quarter of Fiscal 2008. Continued deterioration of the Company’s business could result in goodwill impairment.

12. Income Taxes

The following table shows the Company’s effective income tax rate for the quarters and nine months ended November 1, 2008 and November 3, 2007:

	Quarters Ended				Nine Months Ended
	November 1, 2008		November 3, 2007		November 1, 2008		November 3, 2007
Effective income tax rate	33.6	%	39.5	%	38.7	%	39.5	%

The Company’s effective income tax rate decreased for the quarter ended November 1, 2008 primarily due to the benefit associated with the quarterly loss, offset by the negative impact of permanent adjustments and a true-up to the year-to-date projected effective tax rate.

The Company’s effective income tax rate decreased for the nine months ended November 1, 2008 primarily due to the impact of state income tax refunds and settlements and the reversal of a reserve recorded in the fourth quarter of Fiscal 2007 for non-deductible executive compensation resulting from an IRS ruling in the first quarter of Fiscal 2008.

18

ANNTAYLOR STORES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

13. Comprehensive Income

The components of comprehensive (loss) income are shown below (in thousands):

	Quarters Ended						Nine Months Ended
	November 1, 2008			November 3, 2007			November 1, 2008			November 3, 2007
Net (loss) income	$	(13,447	)	$	40,759		$	41,700		$	103,906
Add back amortization of actuarial loss, net of taxes of approximately $(12) and $(36), respectively, and approximately $10 and $112, respectively		(21	)		(49	)		27			153
Add back amortization of prior service costs, net of taxes of approximately $3 and $24, respectively		—			4			—			33
Recognition of prior service cost and unrecognized gains and losses due to curtailment, net of taxes of $2,048, respectively		—			2,384			—			5,187
Temporary impairment of available-for-sale securities (see Note 5)		(386	)		—			(798	)		—
Comprehensive (loss) income	$	(13,854	)	$	43,098		$	40,929		$	109,279

14. Legal Proceedings

The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. Although the amount of any liability that could arise with respect to these actions cannot be accurately predicted, in 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.

19

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

General

AnnTaylor Stores Corporation (the “Company”, “we”, “us” and “our”), through its wholly owned subsidiaries, is a leading national specialty retailer of women’s apparel, shoes and accessories sold primarily under the “Ann Taylor”, “Loft” and “Ann Taylor Loft” (“LOFT”), “Ann Taylor Factory” and “LOFT Outlet” brands. The Ann Taylor brand is focused on updated classic, yet stylish, professional and special occasion dressing that is sophisticated and versatile and always of high quality. The LOFT brand is focused on fashionable updated classics that are relaxed and casual and that offer good quality and value. Ann Taylor Factory and LOFT Outlet stores offer factory-direct product exclusively in the outlet environment. As of November 1, 2008, we operated 966 stores in 46 states, the District of Columbia and Puerto Rico, and also Online stores at www.anntaylor.com and www.anntaylorLOFT.com. Unless the context indicates otherwise, all references herein to the Company, we, us and our include the Company and its wholly owned subsidiaries.

Management Overview

The third quarter of fiscal 2008 was a difficult one for the Company. Softening macroeconomic conditions, including the dramatic deterioration in financial markets and consumer confidence as the quarter progressed, weighed heavily on consumer spending—particularly for discretionary women’s apparel merchandise. As a result, our sales slowed considerably during the quarter, and our profit margins also declined due to aggressive promotional activity to keep inventory turning. In response to the overall softness, we continued to aggressively manage expenses and inventory levels and announced the expansion of our multi-year strategic restructuring program to further reduce the Company’s cost structure. We also took actions to maintain a strong, debt-free balance sheet with a solid cash position.

Net sales for the quarter declined 12.3% to $527.2 million, reflecting a 19.4% decrease in comparable store sales, primarily due to the impact of the current recessionary environment on top-line sales, partially offset by square footage growth and higher internet sales. By division, net sales at LOFT declined 11.4% for the quarter, driven by a 15.4% decrease in comparable store sales, partially offset by the benefit of new stores. At Ann Taylor, net sales were down 25.3%, with comparable store sales down 24.8%.

In terms of overall performance, the softness in the macro environment impacted our results at all divisions. However, the Ann Taylor division was disproportionately impacted by the crisis in the financial market and uncertainty regarding corporate layoffs, both of which added additional pressure to the division’s professional client base. In addition, the division continues to struggle with a product assortment that lacks the relevancy and versatility our client wants and needs right now. Ann Taylor did a good job managing its inventory levels in the quarter and entered the fourth quarter of 2008 with in-store inventory per square foot down 18% versus year-ago.

Our LOFT division was also negatively impacted by the softness in the overall macro environment, although we believe LOFT product is much improved versus last year and the value proposition that the brand represents is compelling in this difficult economy. The division did a good job managing through inventory during the quarter and entered the fourth quarter of 2008 with in-store inventory per square foot down 14% versus year-ago.

Our Factory business was also impacted by the macroeconomic slowdown, with traffic trends and other in-store metrics under pressure. Nevertheless, the division managed through the softness well and did a good job maximizing gross margin throughout the quarter. Results at LOFT Outlet, which was launched in July 2008, are in-line with expectations. We plan to open an additional two stores before year-end to end the year with 14 LOFT Outlet stores.

During the quarter, we did not repurchase any shares of our common stock, reflecting management’s decision to maintain a strong balance sheet and preserve cash during the current uncertain environment. At the end of the third quarter, we had $159 million remaining under our $300 million share repurchase authorization.

20

Key Performance Indicators

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

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

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

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

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

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

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

Results of Operations

The following table sets forth data from our consolidated statement of operations expressed as a percentage of net sales:

	Quarters Ended				Nine Months Ended
	November 1, 2008		November 3, 2007		November 1, 2008		November 3, 2007
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	51.2		43.9		48.4		46.6
Gross margin	48.8		56.1		51.6		53.4
Selling, general and administrative expenses	48.8		44.8		46.1		44.0
Restructuring costs	3.8		0.2		1.6		0.1
Operating (loss) income	(3.8	)	11.1		3.9		9.3
Interest income	0.1		0.2		0.1		0.4
Interest expense	0.1		0.1		0.1		0.1
(Loss) income from before income taxes	(3.8	)	11.2		3.9		9.6
Income tax (benefit) provision	(1.3	)	4.4		1.5		3.8
Net (loss) income	(2.5	)%	6.8	%	2.4	%	5.8	%

21

The following table sets forth selected data from our consolidated statement of operations expressed as a percentage change from the comparable prior period.

	Quarters Ended				Nine Months Ended
	November 1, 2008		November 3, 2007		November 1, 2008		November 3, 2007
	increase (decrease)				increase (decrease)
Net sales	(12.3	)%	6.1	%	(4.7	)%	3.7	%
Operating income	(130.4	)%	7.9	%	(59.6	)%	(13.5	)%
Net income	(133.0	)%	3.8	%	(59.9	)%	(14.4	)%

Sales and Store Data

The following table sets forth certain sales and store data:

	Quarters Ended						Nine Months Ended
	November 1, 2008			November 3, 2007			November 1, 2008			November 3, 2007
Net sales (in thousands)
Total Company	$	527,216		$	600,949		$	1,711,194		$	1,795,709
Ann Taylor		159,549			213,454			542,885			652,602
LOFT		263,047			296,886			857,147			881,132
Other		104,620			90,609			311,162			261,975
Comparable store sales percentage increase(decrease) (a)
Total Company		(19.4	)%		(0.4	)%		(11.6	)%		(3.4	)%
Ann Taylor		(24.8	)%		(4.4	)%		(16.7	)%		(2.2	)%
LOFT		(15.4	)%		(0.3	)%		(8.0	)%		(6.9	)%
Average dollars per transaction
Total Company	$	70.73		$	82.18		$	74.50		$	79.11
Ann Taylor		80.50			87.73			86.40			94.47
LOFT		64.44			76.36			68.43			71.71
Average units per transaction
Total Company		2.41			2.38			2.39			2.38
Ann Taylor		2.16			1.98			2.11			2.07
LOFT		2.40			2.48			2.43			2.46
Average unit retail sold
Total Company	$	29.35		$	34.53		$	31.17		$	33.24
Ann Taylor		37.27			44.31			40.95			45.64
LOFT		26.85			30.79			28.16			29.15
Net sales per average gross square foot (b)
Total Company	$	94		$	114		$	309		$	344
Ann Taylor		87			115			293			347
LOFT		86			102			281			309

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Sales and Store Data (Continued)

	Quarters Ended				Nine Months Ended
	November 1, 2008		November 3, 2007		November 1, 2008		November 3, 2007
Total store square footage at end of period (in thousands) (b)
Total Company	5,651		5,371
Ann Taylor	1,841		1,905
LOFT	3,071		2,961
Number of:
Stores open at beginning of period	959		887		929		869
New stores	15		38		63		60
Closed stores	(8	)	(4	)	(26	)	(8	)
Stores open at end of period	966		921		966		921
Expanded stores	—		4		8		10

(a) A store is included in comparable store sales in its thirteenth month of operation. A store with a square footage change of more than 15% is treated as a new store for the first year following its reopening.

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

Net sales decreased 12.3% and 4.7% during the quarter and nine months ended November 1, 2008, respectively, over the comparable 2007 periods. The decrease in net sales for both periods was primarily due to a decrease in comparable store sales, which was partially offset by sales at new stores and continued growth at our Online and Ann Taylor Factory businesses. The decrease in comparable store sales for both periods was primarily due to weak traffic across all divisions and lower AUR and DPT due to increased promotional activity. By division, Ann Taylor’s net sales decreased $53.9 million, or 25.3%, and $109.7 million or 16.8% for the quarter and nine months ended November 1, 2008, respectively. At LOFT, net sales decreased $33.8 million, or 11.4%, and $24.0 million or 2.7% for the quarter and nine months ended November 1, 2008.

Cost of Sales and Gross Margin

The following table shows cost of sales and gross margin in dollars and the related gross margin percentages for the quarters and nine months ended November 1, 2008 and November 3, 2007:

	November 1, 2008			November 3, 2007			November 1, 2008			November 3, 2007
	(dollars in thousands)						(dollars in thousands)
Cost of sales	$	270,060		$	264,106		$	828,911		$	836,817
Gross margin	$	257,156		$	336,843		$	882,283		$	958,892
Gross margin as a percentage of net sales		48.8	%		56.1	%		51.6	%		53.4	%

The decrease in gross margin as a percentage of net sales for the quarter ended November 1, 2008 as compared to the comparable 2007 period was due primarily to lower gross margin rates on non-full price sales across all divisions resulting from increased promotional activity.

The decrease in gross margin as a percentage of net sales for the nine months ended November 1, 2008 as compared to the comparable 2007 period was due to lower gross margin rates on non-full price sales at Ann Taylor and LOFT resulting from increased promotional activity.

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Selling, General and Administrative Expenses

The following table shows selling, general and administrative expenses in dollars and as a percentage of net sales for the quarters and nine months ended November 1, 2008 and November 3, 2007:

	November 1, 2008			November 3, 2007			November 1, 2008			November 3, 2007
	(dollars in thousands)						(dollars in thousands)
Selling, general and administrative expenses	$	257,511		$	268,958		$	788,032		$	789,438
Percentage of net sales		48.8	%		44.8	%		46.1	%		44.0	%

The decrease in selling, general and administrative expenses for the quarter ended November 1, 2008 as compared to the comparable 2007 period primarily reflects lower fixed costs related to our store operations, restructuring program savings and a reduction in performance-based compensation expense.

The decrease in selling, general and administrative expense for the nine months ended November 1, 2008 as compared to the comparable 2007 period was due to lower fixed costs related to our store operations and restructuring program savings, partially offset by planned investments in our new LOFT Outlet concept.

Restructuring and Asset Impairment Charges

The following table shows restructuring and asset impairment charges in dollars and as a percentage of net sales for the quarters and nine months ended November 1, 2008 and November 3, 2007:

	Quarters Ended						Nine Months Ended
	November 1, 2008			November 3, 2007			November 1, 2008			November 3, 2007
	(dollars in thousands)						(dollars in thousands)
Restructuring and asset impairment charges	$	19,893		$	1,300		$	26,761		$	2,200
Percentage of net sales		3.8	%		0.2	%		1.6	%		0.1	%

See “Liquidity and Capital Resources” and Note 4, “Restructuring” in the Notes to Condensed Consolidated Financial Statements for further discussion.

Interest Income

The following table shows interest income in dollars and as a percentage of net sales for the quarters and nine months ended November 1, 2008 and November 3, 2007:

	Quarters Ended						Nine Months Ended
	November 1, 2008			November 3, 2007			November 1, 2008			November 3, 2007
	(dollars in thousands)						(dollars in thousands)
Interest income	$	311		$	1,450		$	1,571		$	6,197
Percentage of net sales		0.1	%		0.2	%		0.1	%		0.4	%

Interest income decreased for both the quarter and nine months ended November 1, 2008 due to a lower cash balance primarily resulting from our stock repurchase activity over the past year, as well as lower interest rates.

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Interest Expense

The following table shows interest expense in dollars and as a percentage of net sales for the quarters and nine months ended November 1, 2008 and November 3, 2007:

	Quarters Ended						Nine Months Ended
	November 1, 2008			November 3, 2007			November 1, 2008			November 3, 2007
	(dollars in thousands)						(dollars in thousands)
Interest expense	$	325		$	620		$	1,025		$	1,597
Percentage of net sales		0.1	%		0.1	%		0.1	%		0.1	%

Interest expense includes various charges, the largest of which are fees related to our Credit Facility. See “Liquidity and Capital Resources” and Note 8, “Debt and Capital Leases” in the Notes to Condensed Consolidated Financial Statements for further discussion of our Credit Facility.

Income Taxes

The following table shows our effective income tax rate for the quarters and nine months ended November 1, 2008 and November 3, 2007:

	Quarters Ended				Nine Months Ended
	November 1, 2008		November 3, 2007		November 1, 2008		November 3, 2007
Effective income tax rate	33.6	%	39.5	%	38.7	%	39.5	%

The effective income tax rate decreased for the quarter ended November 1, 2008 primarily due to the benefit associated with the quarterly loss, offset by the negative impact of permanent adjustments and a true-up to the year-to-date projected effective tax rate.

The effective income tax rate decreased for the nine months ended November 1, 2008 primarily due to the impact of state income tax refunds and settlements and the reversal of a reserve recorded in the fourth quarter of Fiscal 2007 for non-deductible executive compensation resulting from an IRS ruling in the first quarter of Fiscal 2008.

Liquidity and Capital Resources

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

	November 1, 2008		February 2, 2008		November 3, 2007
	(dollars in thousands)
Working capital	$	156,517	$	195,015	$	205,864
Current ratio		1.49:1		1.62:1		1.65:1

Operating Activities

The decrease in cash provided by operating activities for the nine months ended November 1, 2008, compared with nine months ended November 1, 2007, was primarily due to lower net income partially offset by a decrease in cash used for the purchase of merchandise inventories and a decrease in other non-current assets and liabilities, a decrease in prepaid expenses and other current assets. The decrease in prepaid and other current assets was driven by a decrease in deferred construction allowances.

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Investing Activities

Cash used for investing activities was $74.8 million for the nine months ended November 1, 2008, compared with $116.5 million for the nine months ended November 3, 2007. The change in cash used for investing activities was primarily due to a net decrease in cash used for the purchase of marketable securities and a decrease in cash used for the purchase of property and equipment.

At November 1, 2008, February 2, 2008 and November 3, 2007, we had $6.0 million, $15.0 million and $24.0 million, respectively, invested in auction rate securities, with a fair value of $5.2 million, $15.0 million and $24.0 million, respectively. In accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, these auction rate securities are classified as available-for-sale and are carried at fair market value.

During the first nine months of Fiscal 2008, auctions related to these securities failed. We believe it is likely that these auctions will continue to be unsuccessful in the near term. Unsuccessful auctions limit the short-term liquidity of these investments; therefore we have recorded our investment in auction rate securities as long-term, included in other assets, on our Condensed Consolidated Balance Sheets as of November 1, 2008. At February 2, 2008, the Company included $9.0 million in auction rate securities that settled subsequent to February 2, 2008 in short-term investments; its remaining $6.0 million was included in other assets in its Condensed Consolidated Balance Sheet. While recent failures in the auction process have affected our ability to access these funds in the near term, we do not believe that the underlying securities or collateral have been permanently affected. We have earned and expect to continue to earn interest at the prevailing rates on our remaining investment in auction rate securities.

During the quarter and nine months ended November 1, 2008, we recorded temporary impairment charges of approximately $0.4 million and $0.8 million, respectively, to accumulated other comprehensive loss related to our investment in auction rate securities. The $5.2 million net carrying value as of November 1, 2008 represents our best estimate of the fair value of these investments based on currently available information on that date.

On November 14, 2008, we entered into a settlement agreement with UBS AG (“UBS”), one of our investment providers, related to our $6.0 million investment in auction rate securities purchased from UBS. Under the terms of the settlement, we will receive auction rate security rights from UBS. These rights enable us to sell our auction rate securities back to UBS at par value at anytime during the two year period beginning June 30, 2010. The auction rate securities will continue to accrue and pay interest until such time we exercise our rights. If we do not exercise our rights by July 2, 2012 they will expire and UBS will have no further obligation to us. The agreement releases UBS from all claims related to the securities except consequential damages. UBS has the right to purchase the auction rate securities at par value, without prior notice, from us any time after the acceptance date. We are currently evaluating the accounting for the settlement agreement.

Financing Activities

Cash used for financing activities was $92.7 million for the nine months ended November 1, 2008, compared with $304.1 million for the nine months ended November 3, 2007. The decrease in cash used for financing activities was primarily the result of lower stock repurchase activity and a decrease in proceeds from the exercise of stock options.

On April 23, 2008, AnnTaylor, Inc. and certain of its subsidiaries entered into a Third Amended and Restated $250 million senior secured revolving credit facility (the “Credit Facility”) with Bank of America N.A. and a syndicate of lenders, which amended Ann Taylor, Inc.’s then existing $175 million senior secured revolving credit facility scheduled to expire in November 2008. At AnnTaylor, Inc.’s option, the Credit Facility provides for an increase in the total facility and the aggregate commitments thereunder up to $350 million, subject to obtaining commitments for the requested increased amount. The Credit Facility expires on April 23, 2013 (unless terminated earlier) and may be used by AnnTaylor, Inc. and certain of its subsidiaries for working capital, letters of credit and other general corporate purposes.

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Maximum availability for loans and letters of credit under the Credit Facility is governed by a monthly borrowing base, determined by the application of specified advance rates against certain eligible assets. There were no borrowings outstanding under the Credit Facility at any point during nine months ended November 1, 2008 or as of the date of this filing. Commercial and standby letters of credit outstanding under the Credit Facility totaled approximately $36.6 million, $111.1 million and $106.4 million as of November 1, 2008, February 2, 2008 and November 3, 2007, respectively, leaving a remaining available balance for loans and letters of credit of $213.4 million, $63.9 million and $68.6 million, respectively. See Note 8, “Debt”, in the Notes to Condensed Consolidated Financial Statements for further discussion of the Credit Facility.

The Credit Facility permits the payment of cash dividends by the Company (and dividends by AnnTaylor, Inc. to fund such cash dividends) subject to certain Liquidity (as defined in the Credit Facility) and other conditions as set forth in Credit Facility. Certain of our subsidiaries are also permitted to: pay dividends to us to fund certain taxes owed by us; fund ordinary operating expenses not in excess of $500,000 in any fiscal year; repurchase common stock held by employees not in excess of $100,000 in any fiscal year (with certain stated exceptions); and for certain other stated purposes (subject to certain exceptions).

Other

On November 6, 2008, we announced additional actions building upon our multi-year strategic restructuring program first announced in Fiscal 2007 (the “January 2008 Program”). These additional actions include an organizational streamlining resulting in the elimination of approximately 260 positions in the corporate and divisional organizations and the additional non-cash write-down of store assets, and were designed to further reduce our cost structure and enhance our operational efficiency. We expect total ongoing annualized savings under the program to reach $80 to $90 million.

We now expect total one-time pre-tax expenses associated with our restructuring initiatives in the range of $65 to $70 million, including approximately $59 million in costs recognized since the January 2008 Program was initiated. We expect to incur an additional $4 million in restructuring costs in the fourth quarter of fiscal 2008 with the balance to be incurred in fiscal 2009 and fiscal 2010.

Recent distress in the financial markets has resulted in declines in consumer confidence and spending, extreme volatility in securities prices, diminished liquidity and credit availability and declining valuations of certain investments. We have assessed the implications of these factors on our current business and have responded with an addition to our expanded strategic restructuring program noted above, scaled back planned capital expenditures for Fiscal 2009 and have implemented a conservative approach to discretionary spending, including our stock repurchase program. If the national or global economy or credit market conditions in general were to deteriorate further in the future, it is possible that such changes could put additional negative pressure on consumer spending and affect our cash flows. Although we currently do not have any borrowings under our Credit Facility, tightening of the credit markets could make it more difficult for us to enter into agreements for new indebtedness or obtain funding through the issuance of our securities. The effects of these changes could also require us to make additional changes to our current plans and strategy. Additionally, although our levels of net cash provided by operating activities may be negatively affected by general economic conditions, we believe that we will continue to generate positive cash flow from operations, which, along with our available cash, will provide the means needed to fund our operations. At November 1, 2008 substantially all of our cash was invested in money market funds. These money market funds invest entirely in US Treasury Securities.

As a result of losses experienced in global equity markets, our pension funds are likely to have a negative return for 2008, which in turn would create increased pension costs in 2009. Our pension plan is invested in readily-liquid investments, primarily equity and debt securities. Continued deterioration in the financial markets may require us to make a contribution to our pension plan in Fiscal 2009.

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The recent deterioration in the financial and housing markets and resulting impact on consumer confidence and discretionary spending has had a significant impact on the retail industry, particularly for women’s specialty apparel retailers. The effect this has had on our business and the impact on its quoted market price and market capitalization could be an indicator under SFAS No. 142 that a reduction in our fair value has occurred. Accordingly, we performed an interim test of goodwill impairment in accordance with SFAS No. 142, based on a weighting of (1) a discounted cash flow analysis using updated forward-looking projections of estimated future operating results and (2) a guideline company methodology under the market approach using revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples. Based on the results of this testing, we concluded that our fair value exceeded its carrying value at November 1, 2008 and accordingly, determined that its recorded goodwill was not impaired as of November 1, 2008. We will perform our annual test for goodwill impairment during the fourth quarter of Fiscal 2008. Continued deterioration of our business could result in goodwill impairment.

We will perform our annual test for goodwill impairment during the fourth quarter of Fiscal 2008. As noted in Note 11, “Goodwill”, in the Notes to Condensed Consolidated Financial Statements, continued deterioration of the Company’s business, quoted market price or market capitalization could result in goodwill impairment.

Contractual Obligations

We have included a summary of our Contractual Obligations in our annual report on Form 10-K, for the fiscal year ended February 2, 2008. Since that time, we entered into a capital lease and two equipment financing agreements outside of the ordinary course of business, as discussed in Note 8 of the Condensed Consolidated Financial Statements.

Critical Accounting Policies

Management has determined that our most critical accounting policies are those related to merchandise inventory valuation, asset impairment, income taxes and stock-based compensation. We continue to monitor our accounting policies to ensure proper application of current rules and regulations. There have been no significant changes to these policies as discussed in our Annual Report on Form 10-K for the fiscal year ended February 2, 2008.

Recent Accounting Pronouncements

Recently Issued Standards

In June 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”) No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP-EITF No. 03-6-1”). Under FSP-EITF No. 03-6-1, unvested share-based payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing earnings per share. FSP-EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. We do not expect the adoption of FSP-EITF No. 03-6-1 to have any impact on the determination or reporting of our earnings per share.

In May 2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”). SFAS No. 162 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 accordance with Generally Accepted Accounting Principles (“GAAP”) and concludes that the GAAP hierarchy should be directed toward the entity and not its auditor, and reside in the accounting literature established by the FASB as opposed to the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to U.S. Auditing Standards (“AU”) Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. We are in the process of evaluating SFAS No. 162 and do not expect it to have any impact on our consolidated financial statements.

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In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP No. 142-3”). FSP No. 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 No. 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. 141(revised 2007), Business Combinations, (“SFAS No. 141(R)”) and other U.S. GAAP. FSP No. 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, 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 No. 142-3 but do not expect it to have any significant 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 SFAS No. 133 (“SFAS No. 161”). SFAS No. 161 seeks to improve financial reporting for derivative instruments and hedging activities by requiring enhanced disclosures regarding the impact on financial position, financial performance, and cash flows. To achieve this increased transparency, SFAS No. 161 requires (1) disclosure of the fair value of derivative instruments and gains and losses in a tabular format; (2) disclosure of derivative features that are credit risk-related; and (3) cross-referencing within the footnotes. SFAS No. 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application permitted. We are in the process of evaluating the new disclosure requirements under SFAS No. 161, but we do not expect adoption of SFAS No. 161 to have an impact on our consolidated financial statement.

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

Recently Adopted Standards

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

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. On February 12, 2008, the FASB issued FASB Staff Position 157-2, Effective Date of FASB Statement No. 157, that partially deferred the effective date of SFAS No. 157 for one year for non-financial assets and non-financial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. SFAS No. 157 does not require any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of SFAS No. 157 are to be applied prospectively as of the beginning of the fiscal year in which it is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. Notwithstanding the potential effective date deferral discussed above, SFAS No. 157 is partially effective for fiscal years beginning after November 15, 2007. See Note 3, “Fair Value Measurements” in the Notes to Condensed Consolidated Financial Statements for further discussion.

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On October 10, 2008, the FASB issued FSP FAS No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, which clarifies the application of SFAS No. 157 as it relates to the valuation of financial assets in a market that is not active for those financial assets. FSP FAS No. 157-3 is effective immediately and includes those periods for which financial statements have not been issued. The adoption of FSP FAS No. 157-3, although applicable to our investment in auction rate securities, did not have an impact on our condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We have significant amounts of cash and cash equivalents (money market funds) 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. At November 1, 2008 substantially all of our cash was invested in money market funds. These money market funds invest entirely in US Treasury Securities.

Generally, less than 20% of our financial instruments have a fixed rate of return and are therefore subject to interest rate risk. Any fixed rate investments (such as auction rate securities) will decline in value if interest rates increase. Due to the short duration of these financial instruments and the percentage of the Company’s investment portfolio they comprise, a change of 100 basis points in interest rates would not have a material effect on the Company’s financial condition.

At November 1, 2008, February 2, 2008 and November 3, 2007, we had $6.0 million, $15.0 million and $24.0 million, respectively, invested in auction rate securities with a fair market value of $5.2 million, $15.0 million and $24.0 million, respectively. In accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, these auction rate securities are classified as available-for-sale and are carried at fair market value.

During the first nine months of Fiscal 2008, auctions related to these securities failed. We believe it is likely that these auctions will continue to be unsuccessful in the near term. Unsuccessful auctions limit the short-term liquidity of these investments; therefore we have recorded our investment in auction rate securities as long-term, included in other assets, on our Condensed Consolidated Balance Sheets as of November 1, 2008. At February 2, 2008, the Company included $9.0 million in auction rate securities that settled subsequent to February 2, 2008 in short-term investments; its remaining $6.0 million was included in other assets in its Condensed Consolidated Balance Sheet. While recent failures in the auction process have affected our ability to access these funds in the near term, we do not believe that the underlying securities or collateral have been permanently affected. We have earned and expect to continue to earn interest at the prevailing rates on our remaining investment in auction rate securities.

During the quarter and nine months ended November 1, 2008, we recorded temporary impairment charges of approximately $0.4 million and $0.8 million, respectively, to accumulated other comprehensive loss related to our investment in auction rate securities. The $5.2 million net carrying value as of November 1, 2008 represents our best estimate of the fair value of these investments based on currently available information on that date.

On November 14, 2008, we entered into a settlement agreement with UBS AG (“UBS”), one of our investment providers, related to our $6.0 million investment in auction rate securities purchased from UBS. Under the terms of the settlement, we will receive auction rate security rights from UBS. These rights enable us to sell our auction rate securities back to UBS at par value at anytime during the two year period beginning June 30, 2010. The auction rate securities will continue to accrue and pay interest until such time we exercise our rights. If we do not exercise our rights by July 2, 2012 they will expire and UBS will have no further obligation to us. The agreement releases UBS from all claims related to the securities except consequential damages. UBS has the right to purchase the auction rate securities at par value, without prior notice, from us any time after the acceptance date. We are currently evaluating the accounting for the settlement agreement.

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As a result of losses experienced in global equity markets, our pension funds are likely to have a negative return for 2008, which in turn would create increased pension costs in 2009. Our pension plan is invested in readily-liquid investments, primarily equity and debt securities. Continued deterioration in the financial markets may require us to make a contribution to our pension plan in Fiscal 2009.

Item 4. Controls and Procedures.

Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, the Company has conducted an evaluation 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 (the “Exchange Act”)) as of the end of the period covered by this report (the “Evaluation Date”). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s reports filed or submitted under the Exchange Act.

There was no change in the Company’s internal control over financial reporting during the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1A. Risk Factors.

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

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

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

The effect of competitive pressures from other retailers

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

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

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

The effect of general economic conditions and the current financial crisis

The Company’s performance is subject to worldwide economic conditions and their impact on levels of consumer spending, which have recently deteriorated significantly and may remain depressed for the foreseeable future. Some of the factors impacting discretionary consumer spending include general economic conditions, employment, consumer debt, reductions in net worth based on recent severe market declines, residential real estate and mortgage markets, taxation, fuel and energy prices, interest rates, consumer confidence and other macroeconomic factors. Consumer purchases of discretionary items, including our merchandise, generally decline during recessionary periods and other periods where disposable income is adversely affected. The downturn in the economy may continue to affect consumer purchases of our merchandise and adversely impact our results of operations and continued growth. In addition, continued declines in our profitability could result in a charge to earnings for the impairment of goodwill, which would not affect our cash flow but could decrease our earnings or increase our losses, and our stock price could be adversely affected.

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The recent distress in the financial markets has resulted in extreme volatility in security prices and diminished liquidity and credit availability, and there can be no assurance that our liquidity will not be affected by changes in the financial markets and the global economy. Although we currently do not have any borrowings under our Credit Facility, tightening of the credit markets could make it more difficult for us to access funds, refinance our existing indebtedness, enter into agreements for new indebtedness or obtain funding through the issuance of the Company’s securities. In addition, the current credit crisis is having a significant negative impact on businesses around the world, and the impact of this crisis on our major suppliers cannot be predicted. The inability of key suppliers to access liquidity, or the insolvency of key suppliers, could lead to their failure to deliver our merchandise.

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.

Fluctuation in our level of sales and earnings growth and stock price

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

Our stock price has experienced, and could continue to experience in the future, substantial volatility as a result of many factors, including recent global economic conditions, broad market fluctuations and public perception of the prospects for the women’s apparel industry.

Our ability to achieve the results of our restructuring program

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

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

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

Our ability to maintain the value of our brand

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

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Our reliance on foreign sources of production

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

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

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

• imposition of duties, taxes, and other charges on imports;

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

• financial or political instability in any of the countries in which our goods are manufactured;

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

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

• potential recalls for any merchandise that does not meet our quality standards; and

• disruption of imports by labor disputes and local business practices.

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

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

Our reliance on third party manufacturers

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

Manufacturer compliance with our social practices requirements

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

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Our reliance on key management

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

Our ability to successfully upgrade and maintain our information systems

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

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

Our dependence on a single distribution facility

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

Risks associated with Internet sales

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

• reliance on third party computer hardware/software and order fulfillment providers;

• rapid technological change;

• diversion of sales from our stores;

• liability for online content;

• violations of state or federal privacy laws;

• credit card fraud;

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

• telecommunications failures and electronic break-ins and similar disruptions.

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

Our ability to execute brand extensions and new concepts

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

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Effects of war, terrorism or other catastrophes

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

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

The following table sets forth information concerning purchases made by the Company of its common stock for the periods indicated:

	Total Number of Shares Purchased (a)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Program
	(in thousands)
August 3, 2008 to August 30, 2008	1,099	$	24.30	—	$	159,083
August 31, 2008 to October 4, 2008	31,659		21.00	—		159,083
October 5, 2008 to November 1, 2008	1,892		11.74	—		159,083
	34,650			—

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

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Item 6. Exhibits

Exhibit Number	Description
*10.1	Confidentiality, Non-solicitation of Associates and Non-competition Agreement, dated November 6, 2008, between the Company and Gary Muto.
*10.2	Letter Agreement, executed November 1, 2008, between the Company and Gary Muto.
*10.3	Letter Agreement, executed October 23, 2008, between the Company and Adrienne Lazarus.
*10.4	AnnTaylor Stores Corporation Special Severance Plan, as amended through August 21, 2008.
*31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed electronically herewith.

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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.

	AnnTaylor Stores Corporation
Date: November 21, 2008	By:	/s/    Kay Krill
		Kay Krill President & Chief Executive Officer (Principal Executive Officer)
Date: November 21, 2008	By:	/s/    Michael J. Nicholson
		Michael J. Nicholson Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

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Exhibit Index

Exhibit Number	Description
*10.1	Confidentiality, Non-solicitation of Associates and Non-competition Agreement, dated November 6, 2008, between the Company and Gary Muto.
*10.2	Letter Agreement, executed November 1, 2008, between the Company and Gary Muto.
*10.3	Letter Agreement, executed October 23, 2008, between the Company and Adrienne Lazarus.
*10.4	AnnTaylor Stores Corporation Special Severance Plan, as amended through August 21, 2008.
*31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed electronically herewith.

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EX-10.1

Exhibit 10.1

CONFIDENTIALITY, NON-SOLICITATION OF ASSOCIATES AND NON-COMPETITION AGREEMENT

As an associate of Ann Taylor, Inc. (the “Company”), you will have access to or may develop trade secrets, intellectual property, and other confidential and proprietary information of the Company. Therefore, in consideration of your employment and your eligibility for the payments described in Paragraph 2 below, and in recognition of the highly competitive nature of the Company’s business, you agree as follows:

1. Protection of Confidential Information.

(a) You acknowledge that your employment by the Company involves your obtaining knowledge of Confidential Information (as defined below) regarding the business and affairs of the Company.

(b) Accordingly, you agree that:

(i) except in compliance with legal process, you will keep secret all Confidential Information and other confidential matters of the Company which are not otherwise in the public domain and will not disclose them to anyone outside of the Company, wherever located (other than to a person to whom disclosure is reasonably necessary or appropriate in connection with the performance of your duties as an employee of the Company), either during or after your employment, except with the prior written consent of the Chief Executive Officer or the General Counsel of the Company. In the event that you are required to disclose any Confidential Information or other confidential matters of the Company to comply with legal process, you shall provide reasonable advance notice of such legal process to the General Counsel of the Company prior to disclosure of any Confidential Information or confidential matters and will not challenge the Company’s standing or ability to seek an order of protection or otherwise seek to prevent or limit disclosure pursuant to such legal process consistent with applicable law;

(ii) you will deliver promptly to the Company on termination of your employment or at any other time the Company may so request, all memoranda, notes, records, customer lists, reports and other documents (whether in paper or electronic form and all copies thereof) relating to the business of the Company and all other Company property which you obtained or developed while employed by, or otherwise serving or acting on behalf of, the Company and which you may then possess or have under your control, whether directly or indirectly; and

(iii) you will not use Confidential Information for your personal benefit or for the benefit of another person or entity.

(c) For purposes of this Agreement, “Confidential Information” refers to information of the Company (including its affiliated companies) or its suppliers, technology service providers, licensors, clients, and employees, including without limitation information relating to designs, products, processes, formulas, merchandising, real estate strategy, contract terms, client lists, sourcing information and strategies, technology, marketing plans, advertising, corporate assessments and strategic plans, financial and statistical information, accounting information, pricing and business affairs, associate compensation and relative skills and abilities, which have been or are disclosed or available to you and which are either designated at the time of disclosure as confidential or which you know or have reason to know are confidential, regardless of the form or media in which such information is disclosed.

2. Non-solicitation of Associates; Non-competition.

(a) During your employment and for a period of 12 months after your separation from the Company for any reason whatsoever, whether voluntary or involuntary (the “Non-Solicitation Period”), you shall not directly or indirectly, (1) solicit, induce, or attempt to influence any associate at the director level or above to leave his or her employment with the Company or (2) hire or attempt to hire any associate of the Company at the director level or above, directly or indirectly through a new employer or other person or entity, to join you in the pursuit of any business activity (whether or not such activity involves engaging or participating in a business that competes, or plans to compete, with the Company or any of its products). Should you violate this provision, in addition to the other remedies the Company may pursue hereunder, the Non-Solicitation Period will be extended by the number of months you were in violation of this Paragraph 2(a) and you shall have no further rights under Paragraphs 2(c), 2(d) and 2(e).

(b) During your employment and for a period of 12 months after your separation from the Company for any reason whatsoever, whether voluntary or involuntary (the “Non-Competition Period”), you shall not, directly or

indirectly, without the prior written consent of the Company, work for, be employed, affiliated, engaged or associated with or contribute to the efforts (as an employee, owner, stockholder, partner, director, officer, consultant or otherwise) of a business that is, or plans to be, a Competitor (as defined herein) of the Company at the time of termination. As used herein, “Competitor” means a business or other entity engaged in the manufacture, design and/or sale of women’s apparel in the United States. Should you violate this provision, in addition to the other remedies the Company may pursue hereunder, the Non-Competition Period will be extended by the number of months you were in violation of this Paragraph 2(b) and you shall have no further rights under Paragraphs 2(c), 2(d) and 2(e). Notwithstanding the foregoing, passive ownership of less than 2% of any class of securities of a public company shall not violate this Section 2(b).

(c) If you are terminated by the Company without cause (as defined Paragraph 2(f) below, “Cause”) or if you resign from your employment, during the Non-Competition Period the Company shall pay you an amount equivalent to your base salary times 1.5 (“Separation Pay”), payable in substantially equal installments in accordance with the Company’s regular payroll cycle, and you will continue to receive all benefits under the Company’s medical, dental and vision benefit plans to the same extent as if you were an employee of the Company. If you resign from your employment, the Company may waive the provisions of Paragraph 2(b) or shorten the Non-Competition Period by providing you written notice of the waiver or the shortened Non-Competition Period within 10 business days of your resignation, in which case (i) you will only be bound by the restrictions in Paragraph 2(b) above during the shortened Non-Competition Period (but will continue to remain bound by the restrictions in Paragraphs 1 and 2(a) above), and (ii) the Company will have no obligation to pay you Separation Pay or continue your benefits if it waives the provisions of Paragraph 2(b) above or if the Company shortens the Non-Competition Period pursuant to this Paragraph 2(c), the Company will only pay you a pro rata portion of the Separation Pay as prorated in proportion to the shortened Non-Competition Period and continue your benefits only during the shortened Non-Competition Period.

(d) If you are terminated by the Company without Cause and have never been a “Section 162(m) Employee” (as defined below), in addition to the Separation Pay you will also be entitled to an amount equal to your targeted bonus under the Management Performance Compensation Plan (“AMIP”) (or if the AMIP Plan is not then in effect, under the annual cash bonus plan in effect at the time of the termination of your employment), for the season in which you are terminated (or year in which you are terminated if the bonus plan target for you is then an annual target). For those associates who in any year have been or become “covered employees” within the meaning of Section 162(m) (“Section 162(m) Employee”) of the Internal Revenue Code of 1986, as amended (the “Code”), thereafter if you are terminated by the Company without Cause, you will also be eligible for a bonus under the AMIP Plan (or if the AMIP Plan is not then in effect, under the annual cash bonus plan in effect at the time of the termination of your employment), for the season in which you are terminated (or year in which you are terminated if the bonus plan target for you is then an annual target) as if you had remained an active associate for the season or entire year, as the case may be, such bonus to be based upon actual performance for such season or fiscal year. The Company will pay the AMIP bonus, if any, payable under this Paragraph 2(d) when bonuses are paid to other Company executives under the AMIP Plan, or the annual cash bonus plan in effect at the time of termination.

(e) If you are terminated by the Company without Cause, you will also receive payment of all monies earned but not yet vested under the Restricted Cash feature of the AMIP Plan, including monies earned or to be earned in the season in which you are terminated (or year in which you are terminated if the restricted cash feature target for you is then an annual target) as if you had remained an active associate for the season or entire year, as the case may be, such bonus to be based upon actual performance for such season or fiscal year. The Company will pay the earned monies in the restricted cash feature of the AMIP Plan, if any, in accordance with the payment schedule for active associates.

(f) For purposes of this Agreement, “Cause” shall be defined as: (1) conviction for the commission of any act or acts constituting a felony under the laws of the United States or any state thereof; (2) action toward the Company involving dishonesty; (3) refusal to abide by or follow reasonable written directions of the CEO, which does not cease within ten business days after such written notice regarding such refusal has been given to you by the CEO; (4) gross nonfeasance which does not cease within ten business days after written notice regarding such nonfeasance has been given to you by the CEO; or (5) failure to comply with the provisions of Paragraphs 1, 2(a) or 2(b) of this Agreement, or other willful conduct which is intended to have and does have a material adverse impact on the Company.

(g) In order to receive Separation Pay and the continued benefits described in Paragraph 2(c) and the payments described in Paragraph 2(d) and 2(e) above, you will be required to sign a separation agreement that is satisfactory to the Company and includes, but is not limited to, a general waiver and release of all claims and potential claims against the Company and a non-disparagement provision. You must sign the separation agreement within 22 days of receiving it.

(h) To the extent required by Section 409A of the Code, and applicable guidance issued thereunder, payments under Paragraphs 2(c), 2(d) and 2(e) that would otherwise be payable during the six-month period immediately following your termination of employment by the Company shall instead be paid on the first business day after the expiration of such six-month period.

(i) Notwithstanding any other provision of this Agreement to the contrary, in the event you fail to comply with Paragraphs 1, 2(a) or 2(b) above, all of your rights hereunder to any future payments or benefits as described in Paragraphs 2(c), 2(d) and 2(e) above, and all rights with respect to any unexercised stock options you may have shall be forfeited; provided that, the foregoing shall not apply if such failure of compliance with Paragraphs 2(a) or 2(b) commences following an Acceleration Event (as defined in the Company’s 2003 Equity Incentive Plan).

3. If you commit a breach of any of the provisions of Paragraphs 1 and 2 of this Agreement, the Company shall have the right to have such provisions specifically enforced and to seek temporary, preliminary and/or permanent injunctive relief, without limitation to any available forms of equitable or other relief to which the Company may be entitled, by any court having jurisdiction without the necessity of posting a bond or other security. You hereby acknowledge and agree that any such breach or anticipatory or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company.

4. Intellectual Property. You acknowledge that all discoveries, innovations, designs and useful ideas that you may originate which relate to or would be useful to the Company’s business, including those developed on your own time, shall vest in the Company on the date they are originated and shall become the exclusive property of the Company. Without additional consideration, you further agree that you will sign all necessary applications with respect to such property which the Company may prepare at its own expense.

5. Severability & Governing Law. All provisions of this Agreement are severable. If any provision of this Agreement or the application of any provision of the Agreement is determined to be invalid or unenforceable to any extent or for any reason, all other provisions of this Agreement will remain in full force and effect and will continue to be enforceable to the fullest extent permitted by law, except that if the restraints in Paragraph 2(b) are held invalid or unenforceable in their entirety the Company shall have no obligation to make the payments or provide the benefits specified in Paragraphs 2(c), 2(d) and 2(e). In the event that any provision herein is deemed invalid or unenforceable, you agree that the Court shall modify the provision so as to make it enforceable to the fullest extent permitted by law. This Agreement shall be governed by the laws of the State of New York, applicable to contracts and to be performed therein, without regard to its conflicts of laws principles.

6. Waiver. The failure of the Company to enforce any terms, provisions or covenants of this Agreement shall not be construed as a waiver of the same or of the right of the Company to enforce the same. Waiver by the Company of any breach or default by you (or by any other associate) of any term or provision of this Agreement (or any similar agreement between the Company and you or any other associate) shall not operate as a waiver of any other breach or default.

7. Entire Agreement. Except as set forth in the next sentence, you hereby agree that this Agreement supersedes any other agreement you may have with the Company with respect to severance, non-solicitation of associates and non-competition. In the event a Change in Control (as defined in the AnnTaylor Stores Corporation Special Severance Plan) occurs prior to the termination of your employment, you will be eligible for benefits pursuant to the terms of such Special Severance Plan (as then in effect) and this Agreement shall become null and void, other than the provisions set forth in Paragraph 1.

8. At-Will Employment. Nothing in this Agreement constitutes a contract of continuing employment. Your employment is and will continue to be “at-will” which means it is for no fixed term or duration and either you or the Company may terminate the employment relationship at any time with or without cause and for any reason or no reason, with or without prior notice. Please sign below to indicate your agreement to the terms and conditions of this Agreement.

9. Nothing in this Agreement shall affect or impair any rights you may have to indemnification for attorneys’ fees, costs and/or expenses pursuant to applicable statutes, D&O insurance, Certificates of Incorporation and Bylaws of the Company, its affiliates or subsidiaries.

Please sign and return this Agreement on or before your first day of employment.

ANN TAYLOR:		ASSOCIATE:
BY:	/s/    Mark G. Morrison	/s/    Gary Muto
	Mark G. Morrison Executive Vice President, Human Resources Date: 11-6-08	Gary Muto President, Ann Taylor LOFT Date:

EX-10.2

Exhibit 10.2

October 8, 2008

Gary Muto

20 Pheasant Lane

Greenwich, CT 06830

Dear Gary,

We are very pleased to offer you an opportunity to join Ann Taylor in the position of President, Ann Taylor LOFT. By joining our organization, you will be contributing to our mission of creating fashionable, feminine, and emotionally compelling brands, which address the ever-evolving lifestyles of women through all of our divisions.

Your anticipated start date is to be determined and you will be reporting to me. Specific terms and conditions of this offer are as follows:

Compensation

• Your starting salary will be $900,000, to be paid semi-monthly. Please note that all payments will be subject to required withholding for federal, state and local taxes. You will earn a bonus of $1,000,000, to be paid on or about April 15, 2009. This bonus is to be repaid in full if you voluntarily leave within one year of its payment.

• Fiscal Year 2008 bonus eligibility will be 70% of your base salary prorated from your date of hire. Under the 2008 Ann Taylor Incentive Plan, the bonus, is based on seasonal results and paid on a seasonal basis for associates in your position. This potential bonus will be determined by corporate (30%) and ATL (70%) operating profit targets under the Ann Taylor Incentive Plan with payout to be made at the sole discretion of the company. Your 2008 bonus is guaranteed to be paid minimally at 100% of your prorated target.

• We are granting you 65,000 stock options. These options vest over a four (4) year period at 25% increments per year on each anniversary date of grant. You will receive a letter outlining the terms within 30 days from your hire date.

• We are granting you 55,000 shares of Restricted Common Stock. The restrictions on these shares lapse over a four (4) year period in 25% increments.

• You are eligible in the future to participate in stock options and restricted stock programs. Exact grant amounts will be determined during future grant cycles.

• Fiscal Year 2008 eligibility in the restricted cash feature of the Ann Taylor Incentive Plan with a target of 85% of your base salary prorated from your date of hire. Under this feature, the bonus is based on seasonal results. This potential bonus will be determined by corporate operating profit targets under the Ann Taylor Incentive Plan. If the bonus is earned, the payout will be deferred for a 3 year period. During the 3 year period the final value of the deferral will be based on the average growth or decline of corporate net income. If you are not employed on the date of the payout at the end of the 3 year period you will forfeit the entire bonus.

Paid Time Off

• Your annual Paid Time Off (PTO) entitlement is 25 days. For 2008, you are eligible for 7 days.

Benefits

• You will be eligible for medical, dental, vision, life and disability insurance under the Ann Taylor, Inc. Welfare Benefit Plan available on a contributory basis after 30 days of service.

• You are eligible to participate in the Ann Taylor, Inc. 401K plan on the 1st of the month following 30 days of service. If you do not make an election to participate, you will automatically be enrolled in the plan 60 days from your date of hire at a deferral rate of 3%. You will be eligible to receive a match under the plan after one year of service. You have the option at any time to opt out of the plan or to change your contribution election.

• You are eligible to participate in our discounted stock purchase plan available on set enrollment dates during the year

• An Associate discount of 40% is available on all full-price and non full-price merchandise

• Our discounted stock purchase plan is available on set enrollment dates during the year

• You will be eligible to receive a free Annual Executive Health Exam

• You will be eligible for Financial Planning Services from Charles Schwab which includes retirement planning and equity compensation consultation.

• You will be eligible to enroll in the Ann Taylor Deferred Compensation Program in early December 2008. You can elect to defer up to 50% of your 2009 base salary and up to 100% of your 2009 ATIP bonus. In addition, you can elect to contribute up to 6% of your earnings above $230,000 which would receive a match under the plan after one year of service.

All payments described in this letter will be subject to applicable payroll and income tax withholding and other applicable deductions.

Induction

On your first day at 9:00 a.m., you are invited to attend an Induction to Ann Taylor. This will be held at the following address:

7 Times Square Tower

Broadway, between 41st and 42nd Street

(proceed to the Sky Lobby reception desk on 5)

New York, NY 10036

The terms and conditions of your employment with Ann Taylor are governed by the laws of New York State and standard company policies. This means that the offer of employment is contingent upon you satisfactorily meeting all pre-employment requirements including background check, proof of your eligibility to work in the United States and execution of the enclosed Confidentiality, Non-Solicitation of Associates and Non-Competition Agreement.

Please understand that this letter is not a contract of continuing employment. Your employment by Ann Taylor is “Employment At Will”, which means for no fixed term, and either you or Ann Taylor may terminate the employment relationship at any time and for any reason.

Please review the terms and conditions of employment outlined in this letter, sign and date the acknowledgment on the following page, and return all pages of this letter in the self-addressed stamped envelope. We have provided an additional copy for your records.

Please also note that you will receive an e-mail from donot-reply@anntaylor.com which contains a link for you to access the balance of your new hire documents electronically. Please complete your new hire documents prior to your start date. On your first day of employment, you will be required to provide documentation that proves you are eligible to work in the United States in order to complete the Form I-9. A complete list of acceptable documents will be available to you once you complete section 1 of the Form I-9 as part of your electronic new hire documents.

Ann Taylor values the unique talents that each new hire brings to our organization. We look forward to welcoming you to our team, and providing you with the opportunity to grow professionally in a supportive environment. If you have any questions regarding this offer, please contact me.

Sincerely,

/s/    Kay Krill

Kay Krill

President, CEO, Ann Taylor Stores Corporation

Acceptance of Offer

My signature below confirms acceptance of the offer of employment and my understanding of the terms and conditions associated with it. This signature also confirms that there are no oral promises associated with this offer that are not reflected in this letter. I further acknowledge that I have received, read, and agree to all pre-employment conditions and policies.

Signature: /s/    Gary Muto Date: 11/1/08

Enclosed:

– Benefits Reflections Guide

– Background Check Consent Form** and Summary of Rights

– Confidentiality, Non-Solicitation of Associates and Non-Competition Agreement

**Return this signed form along with the signed Offer Letter

EX-10.3

Exhibit 10.3

PERSONAL AND CONFIDENTIAL

October 22, 2008

Ms. Adrienne Lazarus

220 Riverside Blvd, Apt 21B

New York, NY 10069

Dear Adrienne:

This will confirm the agreement between you and AnnTaylor, Inc. (hereafter referred to as the “Company”) regarding your separation from the Company.

1. We agree that your date of separation from employment with the Company is August 12, 2008 (the “Separation Date”). You hereby resign as an Officer and/or Director of all subsidiaries, parents and affiliates of the Company, effective as of August 12, 2008.

2. In consideration of this Agreement, and the general release set forth herein, the Company agrees to provide you severance compensation in accordance with and subject to the terms of the Confidentiality, Non-Solicitation of Associates and Non-Competition Agreement (the “Confidentiality Agreement”) you executed in June 2008 and this Agreement. That severance compensation is described in Schedule A, attached hereto.

3. You acknowledge that the Company’s payment of the severance compensation described in paragraph 2 and in Schedule A is good and sufficient consideration for your execution of this Agreement and general release and that you would not be entitled to any severance compensation in the absence of this Agreement.

4. In consideration of the additional compensation described in this Agreement, you hereby voluntarily, fully and unconditionally release and forever discharge the Company, its benefit plans, its present and former parent corporation(s), subsidiaries, affiliates and otherwise related entities and their respective incumbent and former employees, directors, plan administrators, officers and agents, individually and in their official capacities (collectively, the “Releasees”), from any and all charges, actions, causes of action, claims, demands, debts, dues, bonds, accounts, covenants, contracts, liabilities, or damages of any nature whatsoever, whether now known or unknown, to whomever made, which you or your heirs, executors, administrators, successors or assigns ever had, now have or may have against any or all of the Releasees for or by reason of any cause, nature or thing whatsoever, arising out of or related to your employment

with the Company or the termination of such employment occurring up to and including the date on which you sign this Agreement, including, by way of example and without limiting the broadest application of the foregoing, any actions, causes of action, or claims under any contract or federal, state or local decisional law, statutes, regulations or constitutions, any claims for notice, pay in lieu of notice, wrongful dismissal, breach of contract, defamation or other tortious conduct, discrimination on the basis of actual or perceived disability, age, sex, race or any other factor (including, without limitation, any claim pursuant to Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991; the Americans with Disabilities Act of 1990; the Family Medical Leave Act of 1993; the Age Discrimination in Employment Act of 1967, as amended; Sections 1981 through 1988 of Title 42 of the United States Code; the Equal Pay Act of 1963; The National Labor Relations Act; The Vocational Rehabilitation Act; The Occupational Safety and Health Act of 1970; The Employee Retirement Income Security Act of 1974 (“ERISA”) (except for any vested benefits under any tax qualified benefit plan); The Consolidated Omnibus Budget Reconciliation Act of 1985; The Immigration Reform and Control Act, as amended; The Workers Adjustment and Retraining Notification Act; The Sarbanes-Oxley Act of 2002; The Fair Credit Reporting Act; New York State Human Rights Law; New York Rights of Persons With Disabilities; New York Confidentiality of Records of Genetic Tests; New York Whistleblower; New York Statutory Provision Regarding Retaliation/Discrimination for Filing a Workers’ Compensation Claim; New York Smokers’ Rights Law; New York Equal Pay Law; New York Equal Rights Law; The New York State Labor Relations Act; the general regulations of the New York State Division of Human Rights; The New York State Labor Law; The New York Wage Hour and Wage Payment Laws; The New York Minimum Wage Law, as amended; The New York City Administrative Code, Title 8, Chapter 1; The New York City Civil Rights Law; The New York Occupational Safety and Health Laws; The New York Non-Discrimination for Legal Activities Law; the New York City Administrative Code and Charter, as amended); and any claim pursuant to any other applicable employment standards or human rights legislation or for severance pay, salary, bonus, incentive or additional compensation, vacation pay, interest and/or attorney’s fees.

You acknowledge that this general release is not made in connection with an exit incentive or other employment termination program offered to a group or class of employees. You acknowledge that this Agreement does not limit your right, where applicable, to file or participate in an investigative proceeding of any federal, state or local governmental agency. To the extent permitted by law, you agree that if such an administrative claim is made, you shall not be entitled to recover any individual monetary relief or other individual remedies. If you have made or should hereafter make any complaint, charge, claim, allegation or demand, or commence or threaten to commence any action, complaint, charge, claim or proceeding, against any or all of the Releasees for or by reason of any cause, matter or thing whatsoever existing up to and including the date on which you sign this Agreement, this Agreement may be raised as, and shall constitute a

complete bar to, any such action, complaint, charge, claim, allegation or proceeding, and, subject to a favorable ruling by a tribunal of final jurisdiction, the Releasees shall recover from you, and you shall pay to the Releasees, all costs incurred by them, including their attorneys’ fees, as a consequence of any such action, complaint, charge, claim, allegation or proceeding except as prohibited by applicable law or the Age Discrimination in Employment Act of 1967, as amended; provided, however, that this shall not limit you from enforcing your rights under this Agreement and in the event any action is commenced to enforce your rights under this Agreement, each party shall bear its own legal fees and expenses.

5. You represent that you have not brought against the Company or the Company’s parents, subsidiaries, affiliates or any of the Releasees, any complaints, charges, claims, actions or proceedings arising out of your employment by the Company or any other matter arising on or prior to the date hereof.

6. You hereby confirm that you have returned to the Company all Company property in your possession, including, without limitation, laptop computers, blackberries, cellular telephones, credit cards and door and file keys.

7. You acknowledge and agree that you remain bound by the provisions of Paragraphs 1 (Protection of Confidential Information) and 2 (Non-Solicitation of Associates; Non-Competition) of the Confidentiality Agreement.

8. You are advised to consult with an attorney of your choosing prior to signing this Agreement and the acknowledgement described in Paragraph 9 below. You confirm that you have the right and have been given the opportunity to review this Agreement and such acknowledgement and, specifically, the release set forth in paragraph 4 and the representations and agreements set forth in paragraph 5, with an attorney of your choice. You also understand and agree that you have entered into this Agreement and such acknowledgement freely and voluntarily.

9. You have twenty-one days to consider the terms of this Agreement. In addition, once you have signed this Agreement, you will have 7 additional days from the date you sign it to revoke your consent. To revoke your consent to this Agreement, you must clearly communicate in writing your decision to do so to the Executive Vice President, Human Resources of the Company (at the address shown at the end of this letter) within the 7-day period. This Agreement will not become effective until 7 days after the date you have signed it, as indicated on the last page hereof. Such latest day is considered to be the “Effective Date” of this Agreement. You acknowledge that you have consulted with an attorney prior to the execution of this Agreement or you have determined of your own free will not to consult with an attorney. If you do not sign this Agreement within the twenty-one day period, the offer of the severance compensation set forth in this Agreement will be automatically rescinded and become null and void.

10. You agree to keep the terms of your severance compensation and this Agreement confidential, other than as necessary to consult with your legal or tax advisors, and your family, or as required by law or in conjunction with a tax audit.

11. You agree that you have been paid and/or have received all compensation and wages to which you may be entitled. You affirm that you have been granted any leave to which you were entitled under the Family and Medical Leave Act or related state or local leave or disability accommodation laws.

12. Neither the offer of this Agreement nor the Agreement itself will be construed as an admission that the Company or its employees, representatives or agents failed in any way to act properly or lawfully in connection with your employment and/or the cessation of your employment. To the contrary, the Company specifically denies any wrongful or unlawful treatment towards you.

13. All provisions and portions of this Agreement are severable. If any provision or portion of this Agreement or the application of any provision or portion of the Agreement will be determined to be invalid or unenforceable to any extent or for any reason, all other provisions and portions of this Agreement will remain in full force and effect and will continue to be enforceable to the fullest and greatest extent permitted by law.

14. The terms in this letter and the Confidentiality Agreement constitute the entire agreement between us and may not be altered or modified other than in a writing signed by you and the Company. You represent that in executing this Agreement you do not rely and have not relied upon any representation or statement not set forth herein made by the Company or any of its agents, representatives, attorneys or Releasees with respect to the subject matter, basis or effect of this Agreement, or otherwise.

15. This Agreement will be governed by the laws of the State of New York, without reference to its choice of law rules.

16. In no event shall you be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to you under any of the provisions of this Agreement, nor shall the amount of any payment hereunder be reduced by any compensation earned by you as a result of subsequent employment.

17. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, administrators, representatives, executors, successors and assigns, including but not limited to (i) with respect to the Company, any entity with which the Company may merge or consolidate or to which the Company may sell all or substantially all of its assets, and (ii) with respect to the Employee, her executors, administrators, heirs and legal representatives.

If this letter correctly sets forth our understanding, please so signify by signing and dating the enclosed copy of this letter and returning it to the Executive Vice President, Human Resources, AnnTaylor, Inc., 7 Times Square, New York, New York 10036.

Very truly yours,

AnnTaylor, Inc.

By:	/s/    Mark G. Morrison
	Mark G. Morrison
	Executive Vice President, Human Resources

AGREED TO AND ACCEPTED:

/s/    Adrienne Lazarus

Adrienne Lazarus

Dated: October 23, 2008

SCHEDULE A

1. Severance Pay

• Amount of Severance Pay: $1,162,500.00, less applicable taxes and deductions.

• Payment Start Date and Method of Payment: The Severance Pay will be paid in the following manner:

• As soon as practicable after the six month period following your Separation Date (on or about February 15, 2009), you will receive a payment of ($656,250.00).

• Following this initial payment, you will receive the remaining Severance Pay ($506,250.00) in 12 substantially equal semi-monthly installments and in the same manner as the Company’s regular payroll practice

2. Medical, Dental and Vision Benefits – For a period of 12 months following your Separation Date, you will continue to receive benefits under the Company’s medical, dental and vision benefit plans to the same extent as if you were an active associate. At the end of this 12 month period, you may elect to continue your benefits under COBRA at your own expense.

3. AMIP Bonus – You will be eligible to receive a bonus for the Spring 2008 season as if you had remained an active associate. This bonus of $70,875, less applicable taxes and deductions, is based upon actual performance for the season and will be paid as soon as practicable after the Effective Date. The additional banked amount from the Spring 2008 bonus ($29,768, less applicable taxes and deductions) will be paid in March 2009. You will be eligible to receive a bonus under the AMIP Plan for the Fall 2008 season as if you had remained an active associate for the entire season. This bonus, if any, will be based upon actual performance for the season and will be paid in March 2009.

4. Restricted Cash Feature – You will receive payment of all monies earned but not yet vested under the Restricted Cash Feature of the AMIP Plan, including monies earned in the Fall 2008 season, as if you had remained an active associate for the entire season. This bonus will be based upon actual performance for the season. The Company will pay the earned monies in the Restricted Cash Feature in accordance with the payment schedule for active associates.

5. Outplacement

• You are eligible to receive 12 months of outplacement services as selected by the Company. You must begin to utilize the outplacement services within the first 12 months after your Separation Date.

/s/    Mark G. Morrison	10/27/08
Mark G. Morrison	Date
Executive Vice President, Human Resources
/s/    Adrienne Lazarus	10/23/08
Adrienne Lazarus	Date

EX-10.4

Exhibit 10.4

ANNTAYLOR STORES CORPORATION

SPECIAL SEVERANCE PLAN, AS AMENDED

AnnTaylor Stores Corporation, a Delaware corporation (the “Company”), hereby adopts the AnnTaylor Stores Corporation Special Severance Plan (the “Plan”) for the benefit of certain employees of the Company and its subsidiaries, on the terms and conditions hereinafter stated.

The Plan, as set forth herein, is intended to help retain qualified employees, maintain a stable work environment and provide economic security to certain employees of the Company in the event of a Qualifying Termination (as defined herein). The Plan, as a “severance pay arrangement” within the meaning of Section 3(2)(B)(i) of ERISA, is intended to be excepted from the definitions of “employee pension benefit plan” and “pension plan” set forth under Section 3(2) of ERISA, and is intended to meet the descriptive requirements of a plan constituting a “severance pay plan” within the meaning of regulations published by the Secretary of Labor at Title 29, Code of Federal Regulations, ss. 2510.3-2(b).

SECTION 1. DEFINITIONS. As hereinafter used:

1.1 “Affiliate” shall mean any corporation, directly or indirectly, through one or more intermediaries, controlling, controlled by or under common control with the Company.

1.2 “Annual Compensation” shall mean (i) the Severed Employee’s current rate of base salary (determined immediately prior to the Qualifying Termination and without regard to any decrease in such salary constituting Good Reason), plus (ii) the average of the Severed Employee’s annual bonuses earned in respect of the three full fiscal years (or the number of full years worked with the Company, if fewer than three) immediately preceding the year in which the Change in Control occurs or, if higher, in which the Qualifying Termination occurs.

1.3 “Board” shall mean the Board of Directors of the Company.

1.4 “Cause” shall mean, with respect to a termination of the Employee’s employment with the Company, (i) the willful and continued failure by the Employee to substantially perform the Employee’s duties with the Company (other than by reason of physical or mental incapacity) or (ii) the conviction of the Employee for the commission of a felony involving moral turpitude.

1.5 “Change in Control” shall be deemed to have occurred if:

(I) any “person”, as such term is used in Sections 13(d) and 14(d) of the Exchange Act, other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or (C) any corporation owned, directly or indirectly, by the stockholders of the Company (in substantially the

same proportion as their ownership of shares), (a “Person”) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding voting securities;

(II) during any period of not more than two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (I), (III) or (IV) of this Section 1.5) whose election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof;

(III) there is consummated a merger or consolidation of the Company with any other entity, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or parent entity) 50% or more of the combined voting power of the voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner (as defined in clause (I) above), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities; or

(IV) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets (or any transaction having a similar effect).

1.6 “Code” shall mean the Internal Revenue Code of 1986, as it may be amended from time to time.

1.7 “Committee” shall mean the Compensation Committee of the Board.

1.8 “Company” shall mean AnnTaylor Stores Corporation, a Delaware corporation, or any successor thereto.

1.9 “Disability” shall mean a physical or mental condition causing the Employee to be unable to substantially perform his or her duties with the Company, including, without limitation, such condition entitling him or her to benefits under any sick pay or disability income policy or program of the Company.

1.10 “Effective Date” shall mean January 1, 2000.

1.11 “Employee” shall mean any employee of the Company or any direct or indirect subsidiary of the Company who is a Level I, Level II, Level III or Level IV Employee.

1.12 “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.

1.13 “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

1.14 “Good Reason” shall mean any of the following acts or omissions that take place on or after the occurrence of a Change in Control: (i) the material diminution in the Employee’s duties or authority; (ii) a change of the Employee’s place of employment by more than fifty (50) miles; or (iii) a reduction in the Employee’s salary or bonus opportunity; provided, however, that clause (i) above shall only be applicable to an Employee who is as a Level I or Level II Employee.

1.15 “Level I Employee” shall mean an Employee who has the title of (i) President of the AnnTaylor Stores, LOFT or AnnTaylor Factory divisions of the Company, or (ii) Executive Vice President of the Company or any direct or indirect subsidiary of the Company.

1.16 “Level II Employee” shall mean an Employee who has the title of Senior Vice President of the Company or any direct or indirect subsidiary of the Company.

1.17 “Level III Employee” shall mean an Employee who has the title of Vice President of the Company or any direct or indirect subsidiary of the Company.

1.18 “Level IV Employee” shall mean an Employee who is a Director-level employee of the Company or any direct or indirect subsidiary of the Company (including District Managers and Merchandising Managers).

1.19 “Person” shall mean any individual, entity or group, within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act.

1.20 “Plan Administrator” shall mean the person or persons designated by the Committee or by the Board to administer the Plan.

1.21 “Potential Change in Control” shall be deemed to occur in the event that, after the Effective Date, the Company enters into an agreement, the consummation of which would result in a Change in Control or the Company, or any Person publicly announces an intention to take or to consider taking action which, if consummated, would constitute a Change in Control.

1.22 “Qualifying Termination” shall mean a termination of an Employee’s employment following a Change in Control and on or before such Employee’s Qualifying Termination Date, either (i) by the Company without Cause or (ii) by the Employee for Good Reason. Severance Benefits will not be paid in the event of termination of an

Employee’s employment by reason of retirement or death, by the Company for Cause or Disability or by the Employee without Good Reason. A termination of employment will not be deemed to have occurred upon (1) the transfer of the Employee to employment with an Affiliate of the Company if the Affiliate assumes the Company’s responsibilities under the Plan with respect to the Employee or (2) the divestiture of a business with which the Employee is primarily associated if the Employee is offered comparable employment by the successor company and such successor company assumes the Company’s responsibilities under the Plan with respect to such Employee.

1.23 “Qualifying Termination Date” shall mean the date occurring twenty-four (24) months following a Change in Control.

1.24 “Severance Benefits” shall mean the payments and benefits provided to Severed Employees pursuant to Section 2.1 and 2.2 hereof.

1.25 “Severance Date” shall mean the date on which an Employee incurs a Qualifying Termination.

1.26 “Severance Multiple” shall mean:

(a) with respect to Level I Employees, two and one-half;

(b) with respect to Level II employees, two;

(c) with respect to Level III Employees, one and one-half; and

(d) with respect to Level IV Employees, one.

1.27 “Severed Employee” shall mean an Employee who has incurred a Qualifying Termination.

Additional definitions are set forth within the Plan and shall have the meanings ascribed to them in the Plan.

SECTION 2. BENEFITS.

2.1 (a) Subject to Section 2.4 hereof and to subsections (b) and (c) of this Section 2.1, each Severed Employee shall be entitled to receive from the Company an amount equal to the product of (i) the Severed Employee’s Annual Compensation and (ii) the Severed Employee’s Severance Multiple (the “Severance Amount”). The Severance Amount shall be paid to such Severed Employee in a lump sum as soon as practicable following the first date on which the Release referred to in Section 2.4 hereof is no longer revocable, but in no event later than the last day of the “applicable 2 ¹/2 month period”, as such term in defined in Treasury Regulation § 1.409A-1(b)(4)(i)(A).

(b) Notwithstanding the foregoing, if a Change in Control under the Plan does not constitute a “change in the ownership or effective control of the corporation or in the

ownership of a substantial portion of the assets of the corporation” (within the meaning of Section 409A of the Code and applicable guidance issued thereunder), then in the case of a Severed Employee who is either (i) a participant in the AnnTaylor Stores Corporation Severance Plan or (ii) party to an individual agreement with the Company providing for non-Change in Control-related severance payments which are payable other than in a lump sum, the Severance Amount under this Plan shall be paid to the Severed Employee in substantially equal monthly installments over a number of years corresponding to the Severed Employee’s Severance Multiple.

(c) Notwithstanding the foregoing, to the extent required by Section 409A of the Code and applicable guidance issued thereunder, the payment of amounts under this Section 2.1 to a Severed Employee who is a “specified employee” (within the meaning of said Section 409A) shall not be made until the expiration of six (6) months following the Severed Employee’s Severance Date.

(d) The Severance Amount that a Severed Employee receives under this Plan shall not be taken into account for purposes of determining benefits under any other qualified or nonqualified plans of the Company.”

2.2 Subject to Section 2.4 hereof, commencing on the date immediately following the Severed Employee’s Severance Date and continuing for the period set forth below (the “Welfare Benefit Continuation Period”), the Company shall provide each Severed Employee and anyone entitled to claim under or through such Severed Employee with all Company-paid benefits under any group health plan and life insurance plan of the Company (as in effect immediately prior to the such Severed Employee’s Severance Date or, if more favorable to the Severed Employee, immediately prior to the Change in Control) for which employees of the Company and its subsidiaries are eligible, to the same extent as if such Severed Employee had continued to be an employee of the Company or any subsidiary thereof during the Welfare Benefit Continuation Period. To the extent that the Severed Employee’s participation in Company benefit plans is not practicable, the Company shall arrange to provide, at the Company’s sole expense, the Severed Employee and anyone entitled to claim under or through such Severed Employee with equivalent health and life insurance benefits under an alternative arrangement during the Welfare Benefit Continuation Period. The coverage period for purposes of the group health continuation requirements of Section 4980B of the Code shall commence at the expiration of the Welfare Benefit Continuation Period. For purposes of this Section 2.2, the Welfare Benefit Continuation Period shall be the product of (a) the Severed Employee’s Severance Multiple and (b) twelve months. Notwithstanding the foregoing, to the extent required by Section 409A of the Code and applicable guidance issued thereunder, the provision of benefits under this Section 2.2 to a Severed Employee who is a “specified employee” (within the meaning of said Section 409A) shall not commence until the expiration of six (6) months following the Severed Employee’s Severance Date, at which time the Company shall provide such benefits in respect of such six-month period (including by way of reimbursement of expenses incurred by such Severed Employee during such period in respect of the provision of such benefits).

2.3 In the event of a claim by an Employee as to the amount or timing of any payment or benefit under the Plan, such Employee shall present the reason for his or her claim in writing to the Plan Administrator. The Plan Administrator shall, within thirty (30) days after receipt of such written claim, send a written notification to the Employee as to its disposition. In the event the claim is wholly or partially denied, such written notification shall (i) state the specific reason or reasons for the denial, (ii) make specific reference to pertinent Plan provisions on which the denial is based, (iii) provide a description of any additional material or information necessary for the Employee to perfect the claim and an explanation of why such material or information is necessary, and (iv) set forth the procedure by which the Employee may appeal the denial of his or her claim. In the event an Employee wishes to appeal the denial of his or her claim, he or she may request a review of such denial by making application in writing to the Plan Administrator within fifteen (15) days after receipt of such denial. Such Employee (or his or her duly authorized legal representative) may, upon written request to the Plan Administrator, review any documents pertinent to his or her claim, and submit in writing issues and comments in support of his or her position. Within thirty (30) days after receipt of a written appeal (unless special circumstances, such as the need to hold a hearing, require an extension of time, but in no event more than thirty (30) days after such receipt), the Plan Administrator shall notify the Employee of the final decision. The final decision shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and specific references to the pertinent Plan provisions on which the decision is based.

2.4 No Employee shall be eligible to receive Severance Benefits under Section 2.1 or 2.2 above, unless, within forty-five (45) days following such Employee’s Severance Date, he or she first executes a Release (substantially in the form of Exhibit A hereto) in favor of the Company and others set forth on said Exhibit A, relating to all claims or liabilities of any kind relating to his or her employment with the Company or a subsidiary thereof and the termination of the Employee’s employment. In the event that a Severed Employee’s Severance Date occurs within fifty two (52) days before the end of a calendar year, the provision of Severance Benefits (other than continued life insurance benefits under Section 2.2) to such Severed Employee shall not commence until January 1 of the next calendar year.

2.5 The Company shall pay to each Employee all reasonable legal fees and expenses incurred by such Employee in seeking in good faith to obtain or enforce any right or benefit provided under this Plan (other than any such fees and expenses incurred in pursuing any claim determined to be frivolous by an arbitrator or by a court of competent jurisdiction).

2.6 (a) In the event that any payment or benefit received or to be received hereunder by a Severed Employee who is a Level I Employee or a Level II Employee (a “Severed Executive”) would be subject (in whole or in part) to the tax (the “Excise Tax”) imposed under Section 4999 of the Code, the Company shall pay to the Severed Executive such additional amounts (the “Gross-Up Payment”) as may be necessary to

place the Severed Executive in the same after-tax position in which he or she would have been had no portion of the Total Payments (as hereinafter defined) been subject to the Excise Tax. The Gross-Up Payment shall be paid as soon as practicable following determination of the Excise Tax (but in no event later than the end of the calendar year following the calendar year in which the Excise Tax is paid). For purposes of the Plan, “Total Payments” shall mean any payments made or benefits provided in connection with a Change in Control of the Company or the termination of the Severed Executive’s employment, whether such payments or benefits are received pursuant to the terms of this Plan or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control of the Company or any person affiliated with the Company or such person.

(b) In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder, the Severed Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to the reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Severed Executive to the extent that such repayment results in a reduction in Excise Tax and/or federal, state or income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder (including by reason of any payment the existence of which cannot be determined as the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Severed Executive with respect of such excess) at the time that the amount of such excess if finally determined. The Severed Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments.

SECTION 3. PLAN ADMINISTRATION.

3.1 The Plan shall be interpreted, administered and operated by the Plan Administrator, which shall have complete authority, in its sole discretion subject to the express provisions of the Plan, to determine who shall be eligible for Severance Benefits, to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, and to make all other determinations necessary or advisable for the administration of the Plan.

3.2 All questions of any character whatsoever arising in connection with the interpretation of the Plan or its administration or operation shall be submitted to and settled and determined by the Plan Administrator in an equitable and fair manner in accordance with the procedure for claims and appeals described in Section 2.3 hereof.

3.3 The Plan Administrator may delegate any of its duties hereunder to such person or persons from time to time as it may designate.

3.4 The Plan Administrator is empowered, on behalf of the Plan, to engage accountants, legal counsel and such other personnel as it deems necessary or advisable to assist it in the performance of its duties under the Plan. The functions of any such persons engaged by the Plan Administrator shall be limited to the specified services and duties for which they are engaged, and such persons shall have no other duties, obligations or responsibilities under the Plan. Such persons shall exercise no discretionary authority or discretionary control respecting the management of the Plan. All reasonable expenses thereof shall be borne by the Company.

SECTION 4. PLAN MODIFICATION OR TERMINATION.

The Plan may be amended or terminated by the Board at any time; provided, however, that (i) no termination or amendment of the Plan may reduce the Severance Benefits payable under the Plan to an Employee if the Employee’s termination of employment with the Company has occurred prior to such termination of the Plan or amendment of its provisions and (ii) during the pendency of a Potential Change in Control and following a Change in Control, the Plan may not be terminated and may not be amended without the consent of each affected Employee, if such amendment would be adverse to the interests of any Employee.

SECTION 5. GENERAL PROVISIONS.

5.1 Except as otherwise provided herein or by law, none of the payments, benefits or rights of any Employee shall be subject to any claim of any creditor, and, in particular, to the fullest extent permitted by law, all such payments, benefits and rights shall be free from attachment, garnishment, trustee’s process, or any other legal or equitable process available to any creditor of such Employee. No Employee shall have the right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits or payments which he or she may expect to receive, contingently or otherwise, under this Plan.

5.2 Neither the establishment of the Plan, nor any modification thereof, nor the creation of any fund, trust or account, nor the payment of any benefits shall be construed as giving any Employee, or any person whomsoever, the right to be retained in the service of the Company or any subsidiary thereof, and all Employees shall remain subject to discharge to the same extent as if the Plan had never been adopted.

5.3 If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provisions had not been included.

5.4 This Plan shall be binding upon the heirs, executors, administrators, successors and assigns of the parties, including each Employee, present and future, and any successor to the Company.

5.5 The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan.

5.6 The Plan shall not be funded. No Employee shall have any right to, or interest in, any assets of the Company which may be applied by the Company to the payment of benefits or other rights under this Plan.

5.7 Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of giving a receipt therefor shall be deemed paid when paid to such person’s guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Company, its subsidiaries, the Plan Administrator and all other parties with respect thereto. If a Severed Employee dies prior to the payment of all benefits due such Severed Employee, such unpaid amounts shall be paid to the executor, personal representative or estate of such Employee.

5.8 Any notice or other communication required or permitted pursuant to the terms hereof shall have been duly given when delivered or mailed by United States mail, first class, postage prepaid, addressed to the intended recipient at his, her or its last known address.

5.9 This Plan shall be construed and enforced according to the laws of the State of Delaware, without giving effect to its principles of conflicts of law, to the extent not preempted by federal law, which shall otherwise control.

EXHIBIT A

RELEASE AGREEMENT

In consideration of the payments and benefits provided for in the annexed AnnTaylor Stores Corporation Special Severance Plan (the “Plan”), and the release from [insert employee’s name] (the “Employee”) set forth herein, AnnTaylor Stores Corporation (the “Company”) and the Employee agree to the terms of this Release Agreement. Capitalized terms used and not defined in this Release Agreement shall have the meanings assigned thereto in the Plan.

1. The Employee acknowledges and agrees that the Company is under no obligation to offer the Employee the payments and benefits set forth in the annexed Plan, unless the Employee consents to the terms of this Release Agreement within forty-five (45) days following the Employee’s severance date.

2. The Employee voluntarily, knowingly and willingly releases and forever discharges the Company and its Affiliates, together with its and their respective officers, directors, partners, shareholders, employees and agents, and each of its and their predecessors, successors and assigns (collectively, “Releasees”), from any and all charges, complaints, claims, promises, agreements, controversies, causes of action and demands of any nature whatsoever that the Employee or his/her executors, administrators, successors or assigns ever had, now have or hereafter can, shall or may have against Releasees by reason of any matter, cause or thing whatsoever arising prior to the time of signing of this Release Agreement by the Employee. The release being provided by the Employee in this Release Agreement includes, but is not limited to, any rights or claims relating in any way to the Employee’s employment relationship with the Company or any its Affiliates, or the termination thereof, or under any statute, including the federal Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1990, the Americans with Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974, the Family and Medical Leave Act of 1993, each as amended, and any other federal, state or local law or judicial decision.

3. The Employee acknowledges and agrees that he/she shall not, directly or indirectly, seek or further be entitled to any personal recovery in any lawsuit or other claim against the Company or any other Releasee based on any event arising out of the matters released in paragraph 2.

4. Nothing herein shall be deemed to release (i) any of the Employee’s rights under the Plan or (ii) any of the vested benefits that the Employee has accrued prior to the date this Release Agreement is executed by the Employee under the employee benefit plans and arrangements of the Company or any of its Affiliates.

5. In consideration of the Employee’s release set forth in paragraph 2, the Company knowingly and willingly releases and forever discharges the Employee from any and all charges, complaints, claims, promises, agreements, controversies, causes of action and demands of any nature whatsoever that the Company now has or hereafter can, shall or may have against him/her by reason of any matter, cause or

thing whatsoever arising prior to the time of signing of this Release Agreement by the Company, provided, however, that nothing herein is intended to release any claim the Company may have against the Employee for any illegal conduct.

6. The Employee acknowledges that the Company has advised him/her to consult with an attorney of his/her choice prior to signing this Release Agreement. The Employee represents that, to the extent he/she desires, he/she has had the opportunity to review this Release Agreement with an attorney of his/her choice.

7. The Employee acknowledges that he/she has been offered the opportunity to consider the terms of this Release Agreement for a period of at least forty-five (45) days, although he/she may sign it sooner should he/she desire. The Employee further shall have seven additional days from the date of signing this Release Agreement to revoke his/her consent hereto by notifying, in writing, the General Counsel of the Company. This Release Agreement will not become effective until seven days after the date on which the Employee has signed it without revocation.

Dated:
	[Employee Name]
	ANNTAYLOR STORES CORPORATION
	By:
	Title:

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kay Krill, certify that:

1. I have reviewed this quarterly report on Form 10-Q of AnnTaylor Stores Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 21, 2008	/s/    Kay Krill
		Kay Krill President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael J. Nicholson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of AnnTaylor Stores Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 21, 2008	/s/    Michael J. Nicholson
	Michael J. Nicholson Executive Vice President, Chief Financial Officer and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of AnnTaylor Stores Corporation (the “Company”) on Form 10-Q for the period ended November 1, 2008 as filed with the Securities and Exchange Commission (the “Report”), we, Kay Krill, Chief Executive Officer of the Company, and Michael J. Nicholson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of each of our knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 21, 2008	/s/    Kay Krill
	Kay Krill
	Chief Executive Officer
Date: November 21, 2008	/s/    Michael J. Nicholson
	Michael J. Nicholson
	Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to AnnTaylor Stores Corporation and will be retained by AnnTaylor Stores Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.