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SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549

FORM 10-K
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(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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ACT OF 1934.
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FOR THE FISCAL YEAR ENDED FEBRUARY 1, 2003


OR
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|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
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COMMISSION FILE NO. 1-10738


ANNTAYLOR STORES CORPORATION
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(Exact name of registrant as specified in its charter)

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


142 WEST 57TH STREET, NEW YORK, NY 10019
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(Address of principal executive offices) (Zip Code)


(212) 541-3300
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(Registrant's telephone number, including area code)

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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

Title of Each Class Name of each exchange on which registered
COMMON STOCK, THE NEW YORK STOCK EXCHANGE
$.0068 PAR VALUE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE.

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

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

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes X No .
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The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant as of August 3, 2002 was $1,010,119,568.

The number of shares of the registrant's common stock outstanding as of
February 28, 2003 was 44,581,888.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant's Proxy Statement for the Registrant's 2003
Annual Meeting of Stockholders to be held on May 1, 2003 are incorporated by
reference into Part III.


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1

PART I




ITEM 1. BUSINESS
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GENERAL

AnnTaylor Stores Corporation (the "Company"), through its wholly owned
subsidiaries, is a leading national specialty retailer of better quality
women's apparel, shoes and accessories sold primarily under the "Ann Taylor"
and "Ann Taylor Loft" brand names. The Company believes that "Ann Taylor" is
a highly recognized national brand that defines a distinct fashion point of
view. Ann Taylor merchandise represents classic styles, updated to reflect
current fashion trends. The Company's stores offer a full range of career
and casual separates, dresses, tops, weekend wear, shoes and accessories,
coordinated as part of a total wardrobing strategy. This total wardrobing
strategy is reinforced by an emphasis on client service. Ann Taylor sales
associates are trained to assist clients in merchandise selection and
wardrobe coordination, helping them achieve the "Ann Taylor look" while
reflecting the clients' personal styles. Unless the context indicates
otherwise, all references herein to the Company include the Company and its
wholly owned subsidiaries.

As of February 1, 2003, the Company operated 584 retail stores in 42
states, the District of Columbia and Puerto Rico under the names Ann Taylor,
Ann Taylor Loft and Ann Taylor Factory Stores. The Company's 350 Ann Taylor
stores compete in the "better"-priced market. Approximately 62% of these
stores are located in regional malls, 26% are located in village shops, and
12% are located in downtown areas. The Company believes that the client base
for its Ann Taylor stores consists primarily of relatively affluent,
fashion-conscious women from the ages of 25 to 55, and that the majority of
its clients are professional women with limited time to shop, who are
attracted to Ann Taylor by its focused merchandising and total wardrobing
strategies, personalized client service, efficient store layouts and
continual flow of new merchandise.

As of February 1, 2003, the Company operated 207 Ann Taylor Loft
stores. Approximately 52% of these stores are located in regional malls, 33%
are located in lifestyle centers, with the remaining 15% located in downtown
and mill locations. Ann Taylor Loft stores compete in the
"upper-moderate"-priced market. Ann Taylor Loft is designed for women with a
more relaxed lifestyle and work environment, who appreciate the Ann Taylor
style but are more price sensitive. Merchandise is created uniquely for
these stores and is sold under the Ann Taylor Loft label. The first Ann
Taylor Loft stores opened by the Company were located in factory outlet
centers. In 1998, the Company began opening Ann Taylor Loft stores outside
the factory outlet environment, in regional malls, lifestyle centers and
urban and village street locations. During Fiscal 2002, the Company
converted 18 Ann Taylor Loft stores located in outlet centers to Ann Taylor
Factory stores. Management believes that Ann Taylor Loft represents a
significant opportunity for the Company to compete in the
upper-moderate-priced women's apparel market. See "Stores and Expansion" and
"Competition" below.

At February 1, 2003, the Company also operated 27 Ann Taylor Factory
stores in factory outlet centers, including the 18 Ann Taylor Loft stores
located in factory outlet centers that were converted during Fiscal 2002.
Ann Taylor Factory stores serve as a brand-appropriate clearance vehicle for
merchandise from both Ann Taylor and Ann Taylor Loft stores. Additionally,
Ann Taylor Factory stores handle an assortment of current season styles
created uniquely for these stores and sold under the Ann Taylor Factory store
label.

In Fiscal 2000, the Company launched anntaylor.com (the "Online
Store"), making Ann Taylor merchandise available for direct retail sale to
clients over the Internet. The Online Store was designed as an extension of
the in-store experience and offers a wide selection of each season's Ann
Taylor collection. The Company believes that the Online Store further builds
the Ann Taylor brand and enhances the Company's relationships with clients,
as well as creates the opportunity for sales to new and existing clients.

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In January 2003, the Company launched anntaylorloft.com. The site
currently offers clients a search vehicle for locating stores, as well as the
opportunity to sign up to receive catalogs and other promotional materials
via regular mail or email. The site is scheduled for e-commerce in early
2004.


MERCHANDISE DESIGN AND PRODUCTION

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

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

The Company sources merchandise from approximately 239 manufacturers and
vendors, none of which accounted for more than 6% of the Company's
merchandise purchases in Fiscal 2002. The Company's merchandise is
manufactured in over 24 countries, with approximately 25% of the Company's
merchandise manufactured in China, 13% in Hong Kong, 12% in the Philippines,
and 10% in Korea. Any event causing a sudden disruption of manufacturing or
imports from China, Hong Kong, the Philippines or Korea, including the
imposition of additional import restrictions, could have a material adverse
effect on the Company's operations. Substantially all of the Company's
foreign purchases are negotiated and paid for in U.S. dollars.

The Company cannot predict whether any of the foreign countries in which
its products are currently manufactured or any of the countries in which the
Company may manufacture its products in the future will be subject to future
or increased import restrictions by the U.S. government, including the
likelihood, type or effect of any trade restriction. Trade restrictions,
including increased tariffs or quotas, against apparel, footwear or other
items sold by the Company could affect the importation of such merchandise
generally and could increase the cost or reduce the supply of merchandise
available to the Company and adversely affect the Company's business,
financial condition, results of operations and liquidity. The Company's
merchandise flow may also be adversely affected by financial or political
instability in any of the countries in which its goods are manufactured or
acts of war or terrorism in the United States or worldwide, if it affects the
production, shipment or receipt of merchandise from such countries.
Merchandise flow may also be adversely affected by significant fluctuation in
the value of the U.S. dollar against foreign currencies or restrictions on
the transfer of funds. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Statement Regarding Forward Looking Disclosures".

The Company does not maintain any long-term or exclusive commitments or
arrangements to purchase merchandise from any single supplier. The Company
believes it has good relationships with its suppliers and that, subject to
the discussion above, there will continue to be adequate sources to produce a
sufficient supply of quality goods in a timely manner and on satisfactory
economic terms.


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INVENTORY CONTROL AND MERCHANDISE ALLOCATION

The Company's planning departments analyze each store's size, location,
demographics, sales and inventory history to determine the quantity of
merchandise to be purchased for and the allocation of merchandise to the
Company's stores. Upon receipt, merchandise is allocated to achieve an
emphasis that is suited to each store's client base. Merchandise typically
is sold at its original marked price for several weeks, with the length of
time varying by item. The Company reviews its inventory levels on an
on-going basis in order to identify slow-moving merchandise styles and broken
assortments (items no longer in stock in a sufficient range of sizes) and
uses markdowns to clear this merchandise. Markdowns may be used if inventory
exceeds client demand for reasons of design, seasonal adaptation or changes
in client preference, or if it is determined that the inventory will not sell
at its currently marked price. Marked-down items remaining unsold are moved
periodically to the Company's Ann Taylor Factory stores, where additional
markdowns may be taken.

In Fiscal 2002, inventory turned 4.4 times compared to 4.7 times in
Fiscal 2001 and 4.9 times in Fiscal 2000. Inventory turnover is determined
by dividing cost of sales by the average of the cost of inventory at the
beginning and the end of the period, excluding inventory associated with the
Company's sourcing division. Sourcing division inventory consists
principally of finished goods in transit from factories.

The Company's comprehensive merchandising information system,
implemented in Fiscal 2000, provides improved systems support for the
Company's merchandising functions. This system serves as the Company's central
source of information regarding merchandise items, inventory management,
purchasing, replenishment, receiving and distribution.

The Company uses a centralized distribution system, under which nearly
all merchandise is distributed to the Company's stores through its
distribution center, located in Louisville, Kentucky. See "Information
Systems" and "Properties". Merchandise is shipped by the distribution center
to the Company's stores several times each week.


STORES AND EXPANSION

An important aspect of the Company's business strategy is a real estate
expansion program designed to reach new clients through the opening of new
stores. The Company opens new stores in markets that it believes have a
sufficient concentration of its target clients. The Company also adds
stores, or expands the size of existing stores, in markets where the Company
already has a presence, as market conditions warrant and sites become
available. Store locations are determined on the basis of various factors,
including geographic location, demographic studies, anchor tenants in a mall
location, other specialty stores in a mall or specialty center location or in
the vicinity of a village location, and the proximity to professional offices
in a downtown or village location. Stores opened in factory outlet centers
are located in factory outlet malls in which co-tenants generally include a
significant number of outlet or discount stores operated under nationally
recognized upscale brand names. Store size also is determined on the basis
of various factors, including geographic location, demographic studies, and
space availability.

As of February 1, 2003, the Company operated 584 stores throughout the
United States, the District of Columbia and Puerto Rico, of which 350 were
Ann Taylor stores, 207 were Ann Taylor Loft stores, and 27 were Ann Taylor
Factory stores.

The average Ann Taylor store is approximately 5,000 square feet in
size. The Company also has three flagship Ann Taylor stores in New York
City, San Francisco and Chicago, which represent the fullest assortment of
Ann Taylor merchandise. In Fiscal 2002, the Company opened 10 Ann Taylor
stores that averaged approximately 5,000 square feet. In Fiscal 2003, the
Company plans to open approximately 10-15 Ann Taylor stores, which are
expected to average approximately 4,600 square feet.


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Ann Taylor Loft stores average approximately 6,000 square feet. In
Fiscal 2002, the Company opened 39 Ann Taylor Loft stores that averaged
approximately 5,500 square feet. In Fiscal 2003, the Company expects to open
approximately 60-65 Ann Taylor Loft stores, which are expected to average
approximately 5,500 square feet.

As previously mentioned, the Company converted 18 Ann Taylor Loft stores
located in outlet centers to Ann Taylor Factory stores during Fiscal 2002.
The Company's 27 Ann Taylor Factory stores average approximately 9,200 square
feet.

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

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



TOTAL NO. NO.
STORES NO. STORES STORES STORES NO. STORES OPEN
OPEN AT OPENED DURING EXPANDED CLOSED AT END OF
BEGINNING FISCAL YEAR DURING DURING FISCAL YEAR
OF FISCAL -------------- FISCAL FISCAL ------------------------
FISCAL YEAR YEAR ATS ATFS ATL YEAR(a) YEAR(a) ATS ATFS(b) ATL(b) TOTAL
- ----------- ---- --- ---- --- ------- ------- --- ------- ------ -----
1998..... 324 26 --- 19 8 4 306 13 46 365
1999..... 365 18 --- 29 8 7 319 11 75 405
2000..... 405 18 --- 63 4 8 332 13 133 478
2001..... 478 10 --- 57 6 7 342 10 186 538
2002..... 538 10 --- 39 -- 3 350 27 207 584


(a) All stores expanded and all stores closed were ATS stores, except
that in 2002, one store closed was an ATFS store, in 2001; five stores
closed were ATFS stores, and two stores closed were ATL stores; in 2000,
two stores closed were ATL stores and one store closed was an ATFS store;
and in 1998 one store closed was an ATFS store. In addition, two stores
closed in 2000 and four stores closed in 1999 were ATS stores that were
replaced in the same locations with new ATL stores.

(b) In 2002, 2001 and 2000, 18, two and three ATL stores located in factory
outlet malls were converted to ATFS stores, respectively.

The Company believes that its existing store base is a significant
strategic asset of its business. The Company's stores are located in some of
the most productive retail centers in the United States. In addition, the
Company believes that it is among the tenants most highly desired by real
estate developers because of its strong Ann Taylor brand franchise and its
high average sales per square foot productivity ($434 per square foot in
Fiscal 2002).

The Company has invested approximately $192 million in its store base
since the beginning of Fiscal 1998; approximately 54% of its stores are
either new or have been remodeled, as a result of an expansion or relocation,
in the last five years.

The Company's Fiscal 2002 real estate expansion plan resulted in an
increase in the Company's total store square footage of approximately 248,000
square feet (net of store closings), or 8.1%, from approximately 3,057,000
square feet at the end of Fiscal 2001 to approximately 3,305,000 square feet
at the end of Fiscal 2002. In Fiscal 2003, the Company intends to increase
store square footage by approximately 400,000 square feet, or 12%,
representing approximately 10-15 new Ann Taylor stores, the expansion or
relocation of approximately 7 existing Ann Taylor stores, and approximately
60-65 new Ann Taylor Loft stores.

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Capital expenditures for the Company's Fiscal 2002 store expansion
program, net of landlord construction allowances, totaled approximately $31
million, including expenditures for store refurbishing and refixturing. The
Company expects that capital expenditures for its Fiscal 2003 store expansion
program, net of landlord construction allowances, will be approximately $65
million, including expenditures for store refurbishing and refixturing.

The Company's ability to continue to increase store square footage will
be dependent upon, among other things, general economic and business
conditions affecting consumer confidence and spending, the availability of
desirable locations and the negotiation of acceptable lease terms. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Statement
Regarding Forward Looking Disclosures".


INFORMATION SYSTEMS

During Fiscal 2002, work began on an integrated store and merchandise
planning system, which will provide for better distribution of merchandise to
the Company's stores, as well as improve inventory management. This system
is expected to be operational in Fiscal 2003. During Fiscal 2001, the
Company completed the renovation project at its distribution center, located
in Louisville, Kentucky, to optimize physical capacity and decrease the
amount of time it takes to get merchandise to the stores. During this
project, the Company replaced the software of the sorting equipment to
provide for greater operational stability of the equipment and improved
accuracy of product distribution. Additionally, the Company implemented a
warehouse management system which integrates the receiving, picking, sorting,
packing and shipping systems. This allows the work to be more effectively
managed in the distribution center. The integration of the receiving system
in the warehouse management system with the core merchandising system
establishes the platform for future receiving enhancements. In Fiscal 2000,
the Company implemented its core merchandising information system referred to
above under "Inventory Control and Merchandise Allocation".



CUSTOMER CREDIT

Clients may pay for merchandise with cash, personal checks, the Ann
Taylor credit card, or other credit cards issued by third parties. Credit
card sales were 84.1% of net sales in Fiscal 2002, 82.4% of net sales in
Fiscal 2001 and 82.1% of net sales in Fiscal 2000. In Fiscal 2002, 12.0% of
net sales were made with the Ann Taylor credit card, and 72.1% were made with
third-party credit cards.

On February 4, 2002, the Company sold its proprietary credit card
portfolio to World Financial Network National Bank (the "Bank") and
contracted with Alliance Data Systems Corporation ("ADS"), the Bank's
affiliated servicer, to provide private label credit card services to
proprietary Ann Taylor credit card customers. During Fiscal 2002, the
Company experienced an increase in sales made with the Ann Taylor credit card
as a percent of total net sales. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources".


BRAND BUILDING AND MARKETING

The Company believes that its Ann Taylor and Ann Taylor Loft brands are
among its most important assets. The ability of the Company to evolve these
brands continuously to appeal to the changing needs and priorities of their
distinct target client bases is a key source of its competitive advantage.
All aspects of brand development for both retail concepts, including product

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design, store merchandising and shopping environments, channels of distribution,
and marketing and advertising, are controlled by the Company. The Company
continues to invest in the development of these brands through, among other
things, client research, advertising, in-store marketing, direct mail marketing,
and its internet presence. The Company also makes investments to enhance the
overall client experience through the opening of new stores, the expansion and
remodeling of existing stores, and a focus on client service.

The Company believes it is strategically important to communicate on a
regular basis directly with its current client base and with potential
clients, through national and regional advertising, as well as through direct
mail marketing and in-store presentation. Marketing expenditures as a
percentage of sales were 2.2% in Fiscal 2002, 2.6% in Fiscal 2001 and 2.6% in
Fiscal 2000.


TRADEMARKS AND SERVICE MARKS

The "AnnTaylor" and "AnnTaylor Loft" trademarks are registered with the
United States Patent and Trademark Office and with the trademark registries
of many foreign countries. The Company's rights in the "AnnTaylor" and
"AnnTaylor Loft" marks are a significant part of the Company's business, as
the Company believes those trademarks are well known in the women's retail
apparel industry. Accordingly, the Company intends to maintain its
"AnnTaylor" and "AnnTaylor Loft" marks and related registrations and
vigorously protect its trademarks against infringement.


COMPETITION

The women's retail apparel industry is highly competitive. The
Company's stores compete with certain departments in national or local
department stores, and with other specialty store chains, independent retail
stores, catalog and internet businesses that offer similar categories of
merchandise. The Company believes that its focused merchandise selection,
exclusive fashions, personalized service, wardrobing advice and convenience
distinguish it from other apparel retailers. Many of the Company's
competitors are considerably larger and have substantially greater financial,
marketing and other resources than the Company and there is no assurance that
the Company will be able to compete successfully with them in the future.


EMPLOYEES

As of February 1, 2003, the Company had approximately 10,900 employees,
of whom 2,800 were full-time salaried employees, 1,500 were full-time hourly
employees and 6,600 were part-time hourly employees working less than 30
hours per week. None of the Company's employees are represented by a labor
union. The Company believes that its relationship with its employees is
good.


AVAILABLE INFORMATION

The Company makes available on its website at
http://investor.anntaylor.com, free of charge, copies of its annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 as soon as reasonably
practicable after filing such material electronically with, or otherwise
furnishing it to, the United States Securities and Exchange Commission (the
"SEC").

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STATEMENT REGARDING FORWARD-LOOKING DISCLOSURES

Sections of this annual report on Form 10-K contain various
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", "believe" and similar expressions. These forward-looking
statements reflect the Company's current expectations concerning future
events, and actual results may differ materially from current expectations or
historical results. Any such forward-looking statements are subject to
various risks and uncertainties, including failure by the Company to predict
accurately client fashion preferences; decline in the demand for merchandise
offered by the Company; competitive influences; changes in levels of store
traffic or consumer spending habits; effectiveness of the Company's brand
awareness and marketing programs; general economic conditions or a downturn
in the retail industry; the inability of the Company to locate new store
sites or negotiate favorable lease terms for additional stores or for the
expansion of existing stores; lack of sufficient consumer interest in the
Company's Online Store; a significant change in the regulatory environment
applicable to the Company's business; an increase in the rate of import
duties or export quotas with respect to the Company's merchandise; financial
or political instability in any of the countries in which the Company's goods
are manufactured; acts of war or terrorism in the United States or worldwide;
work stoppages, slowdowns or strikes; and other factors set forth in the
Company's filings with the SEC. The Company does not assume any obligation
to update or revise any forward-looking statements at any time for any
reason. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Statement Regarding Forward-Looking Disclosures".


ITEM 2. PROPERTIES
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As of February 1, 2003, the Company operated 584 stores, all of which
were leased. Store leases typically provide for initial terms of ten years,
although some leases have shorter or longer initial periods. Some of the
leases grant the Company the right to extend the term for one or two
additional five-year periods. Some leases also contain early termination
options, which can be exercised by the Company under specific conditions.
Most of the store leases require the Company to pay a specified minimum rent,
plus a contingent rent based on a percentage of the store's net sales in
excess of a specified threshold. Most of the leases also require the Company
to pay real estate taxes, insurance and certain common area and maintenance
costs. The current terms of the Company's leases, including renewal options,
expire as follows:

FISCAL YEARS LEASE NUMBER OF
TERMS EXPIRE STORES
------------ ------

2003 - 2005....................117
2006 - 2008....................148
2009 - 2011....................172
2012 and later.................147

Ann Taylor leases corporate offices at 142 West 57th Street in New York
City, containing approximately 140,000 square feet and approximately 93,000
square feet of office space at 1372 Broadway in New York City. The leases
for these premises expire in 2006 and 2010, respectively. The Company also
leases office space in New Haven, Connecticut, containing approximately
39,000 square feet. This lease expires in October 2004.

Ann Taylor's wholly owned subsidiary, AnnTaylor Distribution Services,
Inc., owns its 256,000 square foot distribution center located in Louisville,
Kentucky. Nearly all Ann Taylor merchandise is distributed to the Company's
stores through this facility. The parcel on which the Louisville
distribution center is located comprises approximately 20 acres and could
accommodate possible future expansion of the facility.

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ITEM 3. LEGAL PROCEEDINGS
- -------

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


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

None.

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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------

The Company's common stock is listed and traded on the New York Stock
Exchange under the symbol ANN. The number of holders of record of common stock
at February 28, 2003 was 575. The following table sets forth the high and low
sale prices for the common stock on the New York Stock Exchange for the periods
indicated.

In April 2002, the Company's Board of Directors approved a 3-for-2 split
of the Company's common stock, in the form of a stock dividend. One
additional share of Common stock for every two shares owned was distributed
on May 20, 2002 to stockholders of record at the close of business on May 2,
2002. All share and per share amounts for all periods presented in this
report have been restated to reflect the stock split.

MARKET PRICE
------------
HIGH LOW
---- ---
FISCAL YEAR 2002
Fourth quarter........................$ 25.75 $17.84
Third quarter......................... 30.07 19.74
Second quarter........................ 33.19 20.57
First quarter......................... 31.85 24.54

FISCAL YEAR 2001
Fourth quarter........................$ 26.23 $15.87
Third quarter......................... 23.80 14.07
Second quarter........................ 26.19 19.50
First quarter......................... 20.60 15.50

The Company has never paid cash dividends on its common stock. As a
holding company, the Company's ability to pay dividends is dependent upon the
receipt of dividends or other payments from its subsidiaries, including the
Company's direct wholly owned subsidiary AnnTaylor, Inc. ("Ann Taylor"). The
payment of dividends by Ann Taylor to the Company is subject to certain
restrictions under Ann Taylor's Credit Facility described below under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources". The payment of cash dividends
on its common stock by the Company is also subject to certain restrictions
contained in the Company's guarantee of Ann Taylor's obligations under the
Credit Facility. Any determination to pay cash dividends in the future will
be at the discretion of the Company's Board of Directors and will be
dependent upon the Company's consolidated results of operations, financial
condition, contractual restrictions and other factors deemed relevant at that
time by the Company's Board of Directors.


ITEM 6. SELECTED FINANCIAL DATA
- ------

The following historical consolidated income statement and consolidated
balance sheet information has been derived from the audited consolidated
financial statements of the Company. The Company's consolidated statements
of income, stockholders' equity and cash flows for each of the three fiscal
years ended February 1, 2003, February 2, 2002 and February 3, 2001 and
consolidated balance sheets as of February 1, 2003 and February 2, 2002, as
audited by Deloitte & Touche LLP, independent auditors, appear elsewhere in
this document. The information set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements and notes thereto of
the Company included elsewhere in this document. All references to years are
to the fiscal year of the Company, which ends on the Saturday nearest January
31 in the following calendar year. All fiscal years for which financial
information is set forth below had 52 weeks, except the fiscal year ended
February 3, 2001 which had 53 weeks.

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FISCAL YEARS ENDED
-------------------------------------------------------------------------
FEB. 1, FEB. 2, FEB. 3, JAN. 29, JAN. 30,
2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SQUARE FOOT DATA AND PER SHARE DATA)
CONSOLIDATED INCOME STATEMENT INFORMATION:

Net sales ........................................... $ 1,380,966 $ 1,299,573 $ 1,232,776 $ 1,084,519 $ 911,939
Cost of sales ....................................... 633,473 651,808 622,036 536,014 455,724
--------- --------- --------- --------- ---------
Gross margin ........................................ 747,493 647,765 610,740 548,505 456,215
Selling, general and administrative expenses ........ 612,479 576,584 501,460 414,315 350,522
Retirement of assets (a) ........................... --- --- --- --- 3,633
Amortization of goodwill (b) ........................ --- 11,040 11,040 11,040 11,040
--------- --------- --------- --------- ---------
Operating income .................................... 135,014 60,141 98,240 123,150 91,020
Interest income ..................................... 3,279 1,390 2,473 4,378 2,241
Interest expense (c) ................................ 6,886 6,869 7,315 11,814 20,358
--------- --------- --------- --------- ---------
Income before income taxes and
extraordinary loss .................................. 131,407 54,662 93,398 115,714 72,903
Income tax provision ................................ 51,249 25,557 41,035 50,221 33,579
--------- --------- --------- --------- ---------
Income before extraordinary loss .................... 80,158 29,105 52,363 65,493 39,324
Extraordinary loss (d) .............................. --- --- --- 962 ---
--------- --------- --------- --------- ---------
Net income .......................................... $ 80,158 $ 29,105 $ 52,363 $ 64,531 $ 39,324
========= ========= ========= ========= =========

Basic earnings per share before
extraordinary loss (e) .............................. $ 1.81 $ 0.67 $ 1.22 $ 1.50 $ 1.02
Extraordinary loss per share (d) (e) ................ --- --- --- 0.02 ---
--------- --------- --------- --------- ---------
Basic earnings per share (e) ........................ $ 1.81 $ 0.67 $ 1.22 $ 1.48 $ 1.02
========= ========= ========= ========= =========

Diluted earnings per share before
extraordinary loss (e) .............................. $ 1.72 $ 0.67 $ 1.17 $ 1.38 $ 0.96
Extraordinary loss per share (d) (e) ................ --- --- --- 0.02 ---
--------- --------- --------- --------- ---------
Diluted earnings per share (e) ...................... $ 1.72 $ 0.67 $ 1.17 $ 1.36 $ 0.96
========= ========= ========= ========= =========

Weighted average shares outstanding (in 000s) (e) ... 44,248 43,325 42,912 43,532 38,573
Weighted average shares outstanding,
assuming dilution (in 000s) (e) ..................... 48,301 43,661 46,830 49,273 46,509

CONSOLIDATED OPERATING INFORMATION:
Percentage increase (decrease) in comparable
store sales (f) ..................................... (3.9)% (6.1)% (0.5)% 8.4% 7.9%
Net sales per gross square foot (g) ................. $ 434 $ 452 $ 496 $ 502 $ 474
Number of stores:
Open at beginning of period ......................... 538 478 405 365 324
Opened during the period ............................ 49 67 81 47 45
Expanded during the period .......................... --- 6 4 8 8
Closed during the period ............................ 3 7 8 7 4
Open at the end of the period ....................... 584 538 478 405 365
Total store square footage at end of period ......... 3,305,000 3,057,000 2,695,000 2,280,000 2,038,000
Capital expenditures ................................ $ 45,450 $ 83,693 $ 83,310 $ 53,409 $ 45,131
Depreciation and amortization including
goodwill (b) ........................................ $ 47,686 $ 54,569 $ 46,073 $ 41,387 $ 39,823
Working capital turnover (h) ........................ 5.6x 7.2x 7.6x 6.8x 6.3x
Inventory turnover (i) .............................. 4.4x 4.7x 4.9x 4.8x 5.0x

CONSOLIDATED BALANCE SHEET INFORMATION
(AT END OF PERIOD):
Working capital (j) ................................. $ 304,076 $ 190,798 $ 172,767 $ 151,368 $ 168,708
Goodwill, net (b) ................................... 286,579 286,579 297,619 308,659 319,699
Total assets ........................................ 1,010,826 883,166 848,115 765,117 775,417
Total debt .......................................... 121,652 119,530 117,610 115,785 105,157
Preferred securities ................................ --- --- --- --- 96,624
Stockholders' equity ................................ 714,418 612,129 574,029 515,622 432,699

(Footnotes on following page)

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11




(Footnotes for preceding page. Unless otherwise noted, all per share
information is presented on a diluted basis.)

(a) A charge of $3,633,000 ($2,180,000 net of income tax benefit) was
recorded in Fiscal 1998 for the retirement of certain assets in connection
with the renovation of the Company's corporate offices.

(b) The Company acquired Ann Taylor in a leveraged buyout in 1989. As a
result of that transaction, $380,250,000, representing the excess of the
allocated purchase price over the fair value of the Company's net assets,
was recorded as goodwill and has been amortized on a straight-line basis
through the end of Fiscal 2001 using an assumed 40 year life. In
addition, as a result of the September 1996 acquisition of the operations
that became the Company's sourcing division, the Company recorded goodwill
of $38,430,000 that has been amortized on a straight-line basis through
the end of Fiscal 2001 using an assumed 25 year life. The Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets" on February 3, 2002. SFAS No. 142 requires
that ratable amortization of goodwill be replaced with periodic tests of
the goodwill's impairment. The Company tests goodwill for impairment
annually, during February, and has determined that the carrying value of
its goodwill at February 1, 2003 is not impaired.

(c) Includes non-cash interest expense of $4,261,000, $4,140,000, $4,247,000,
$3,026,000, and $1,290,000, in Fiscal 2002, 2001, 2000, 1999, and 1998,
respectively, from amortization of deferred financing costs and, in Fiscal
2002, 2001, 2000, and 1999 accretion of original issue discount.

(d) In Fiscal 1999, Ann Taylor incurred an extraordinary loss of $1,603,000
($962,000, or $0.02 per share, net of income tax benefit) in connection
with the redemption of its outstanding 8-3/4% Subordinated Notes due 2000.

(e) In May 2002, the Company effected a 3 for 2 stock split of its common
stock. All share and per share amounts in the financial information have
been restated to reflect the split.

(f) Comparable store sales are calculated by excluding the net sales of a
store for any month of one period if the store was not also open during
the same month of the prior period. A store that is expanded by more than
15% is treated as a new store for the first year following the opening of
the expanded store. In addition, in a year with 53 weeks, sales in the
last week of that year are not included in determining comparable store
sales; therefore, comparable store sales for Fiscal 2000 reflect a 52-week
period.

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

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

(i) Inventory turnover is determined by dividing cost of sales by the average
of the cost of inventory at the beginning and end of the period (excluding
inventory associated with the Company's sourcing division).

(j) Includes current portion of long-term debt of $1,250,000, $1,400,000,
$1,300,000, and $1,206,000, at the end of Fiscal 2001, 2000, 1999 and
1998, respectively. There was no current portion at the end of Fiscal
2002.


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12


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


SALES

The following table sets forth certain sales and store data for the
periods indicated:




FISCAL YEAR
-------------------------------------------
2002 2001 2000
---- ---- ----
(52 weeks) (52 weeks) (53 weeks)

Net sales ($000) ....................... $ 1,380,966 $ 1,299,573 $ 1,232,776

Total net sales increase
percentage (52-week basis) ......... 6.3% 6.8% 12.2%

Total comparable store sales decrease
percentage (52-week basis) ......... (3.9)% (6.1)% (0.5)%

Net sales per average gross
square foot ........................ $ 434 $ 452 $ 496

Total store square footage
at end of period ................... 3,305,000 3,057,000 2,695,000

Number of:
New stores ......................... 49 67 81
Expanded stores .................... --- 6 4
Closed stores ...................... 3 7 8
Total stores open at end of period . 584 538 478


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


RESULTS OF OPERATIONS

The following table sets forth consolidated income statement data
expressed as a percentage of net sales for the periods indicated:

FISCAL YEAR
--------------------------
2002 2001 2000
----- ----- -----

Net sales ........................ 100.0% 100.0% 100.0%
Cost of sales .................... 45.9 50.2 50.5
----- ----- -----
Gross margin ................. 54.1 49.8 49.5
Selling, general and
administrative expenses....... 44.3 44.4 40.7
Amortization of goodwill ......... --- 0.8 0.9
----- ----- -----
Operating income ............. 9.8 4.6 7.9
Interest income .................. 0.2 0.1 0.2
Interest expense ................. 0.5 0.5 0.6
----- ----- -----
Income before income taxes........ 9.5 4.2 7.5
Income tax provision ............. 3.7 2.0 3.3
----- ----- -----
Net income ....................... 5.8% 2.2% 4.2%
===== ===== =====

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13



FISCAL 2002 COMPARED TO FISCAL 2001

The Company's net sales increased to $1,380,966,000 from $1,299,573,000
in Fiscal 2001, an increase of $81,393,000, or 6.3%. Comparable store sales
for Fiscal 2002 decreased 3.9%, compared to a comparable store sales decrease
of 6.1% in Fiscal 2001. By division, Fiscal 2002 comparable store sales
decreased 5.3% for Ann Taylor and 1.0% for Ann Taylor Loft. The increase in
net sales was primarily attributable to the opening of new stores, partially
offset by the decrease in comparable store sales in Fiscal 2002. Management
believes that the decrease in comparable store sales was, in part, the result
of client dissatisfaction with certain of the Company's product offerings and
merchandise assortment available in Ann Taylor stores in the Fall 2002
season. Sales were also impacted by an overall reduction in client spending
caused by the current economic environment.

Gross margin as a percentage of net sales increased to 54.1% in Fiscal
2002 from 49.8% in Fiscal 2001. The increase in gross margin is the combined
result of higher full price sales and higher margin rates achieved on full
price and non-full price sales at both divisions. Fiscal 2001 gross margin
was impacted by approximately $4,100,000 in pre-tax nonrecurring charges,
which related to the inventory write-off associated with the discontinuation
of the Ann Taylor cosmetics line, and inventory costs associated with
canceling certain Fall 2001 and Spring 2002 merchandise orders.

Selling, general and administrative expenses were $612,479,000, or 44.3%
of net sales in Fiscal 2002, compared to $576,584,000, or 44.4% of net sales,
in Fiscal 2001. Lower internet costs and reduced marketing spending were
offset by an increase in the provision for management performance bonus and
higher tenancy expenses. Fiscal 2001 selling, general and administrative
expenses included approximately $12,900,000 in pre-tax nonrecurring charges.
Approximately $7,200,000 of this amount related to the write-down of certain
anntaylor.com assets, based upon projected cash flows, which were not deemed
adequate to support the carrying value of the assets associated with this
ongoing business. An additional $3,300,000 related to the cost, net of
insurance proceeds, of settling a class action lawsuit. The remaining
$2,400,000 represented the write-off of certain fixed assets related to the
discontinuation of the Ann Taylor cosmetics line, and severance costs
associated with reductions made in the Company's store and home office
workforce.

Operating income increased to $135,014,000, or 9.8% of net sales in
Fiscal 2002, from $60,141,000, or 4.6% of net sales, in Fiscal 2001. There
was no goodwill amortization recorded in Fiscal 2002, in accordance with SFAS
No. 142, which the Company adopted in February 2002. The Company recorded
goodwill amortization of $11,040,000, or 0.8% of net sales, during Fiscal
2001.

Interest income was $3,279,000 in Fiscal 2002, compared to $1,390,000 in
Fiscal 2001. The increase was primarily attributable to higher cash on hand
during Fiscal 2002 compared to Fiscal 2001, partially offset by lower
interest rates.

Interest expense was $6,886,000 in Fiscal 2002, compared to $6,869,000
in Fiscal 2001. The weighted average interest rate on the Company's
outstanding indebtedness at February 1, 2003 was 3.75%.

The income tax provision was $51,249,000, or 39.0% of income before
income taxes in Fiscal 2002, compared to $25,557,000, or 46.8% of income
before income taxes in Fiscal 2001. The decrease in the effective income tax
rate is primarily the result of non-deductible goodwill expense incurred in
Fiscal 2001, which, as previously discussed, was not recorded in Fiscal 2002.

As a result of the foregoing factors, the Company had net income of
$80,158,000, or 5.8% of net sales for Fiscal 2002, compared to net income of
$29,105,000, or 2.2% of net sales, for Fiscal 2001.


13
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14


FISCAL 2001 COMPARED TO FISCAL 2000

The Company's net sales increased to $1,299,573,000 over $1,232,776,000
in Fiscal 2000, an increase of $66,797,000, or 5.4%. Comparable store sales
for Fiscal 2001 decreased 6.1%, compared to a decrease of 0.5% in Fiscal
2000. Total sales for Fiscal 2001 were up 6.8% from $1,216,808,000 for the
52-week period ended January 27, 2001. The sales increase was primarily
attributable to the opening of new stores and the expansion of existing
stores, partially offset by the decrease in comparable store sales in Fiscal
2001. Management believes that the decrease in comparable store sales was,
in part, the result of client dissatisfaction with certain of the Company's
product offerings and merchandise assortment available in Ann Taylor stores
in the Spring 2001 season. Sales were also impacted by an overall reduction
in client spending caused by the current economic environment, as well as the
impact of the events of September 11, 2001.

Gross margin as a percentage of net sales increased to 49.8% in Fiscal
2001 from 49.5% in Fiscal 2000. The increase in gross margin reflects higher
margin rates achieved on full price and non-full price sales at both
divisions, offset, in part, by higher promotional sales activity in Fiscal
2001 compared to the prior year, and the affect on gross margin of a pre-tax
nonrecurring charge recorded in the fourth quarter of Fiscal 2001. In the
fourth quarter of Fiscal 2001, the Company incurred an approximate $4,100,000
pre-tax nonrecurring charge affecting gross margin, which related to the
inventory write-off associated with the discontinuation of the Ann Taylor
cosmetics line, and inventory costs associated with canceling certain Fall
2001 and Spring 2002 merchandise orders.

Selling, general and administrative expenses were $576,584,000, or 44.4%
of net sales, in Fiscal 2001, compared to $501,460,000, or 40.7% of net
sales, in Fiscal 2000. The increase in selling, general and administrative
expenses as a percentage of net sales was primarily attributable to the
impact of a pre-tax nonrecurring charge recorded during the fourth quarter of
Fiscal 2001, decreased leverage on fixed expenses resulting from negative
comparable store sales, and increases in tenancy and Loft store operations
expenses due to expansion. In the fourth quarter of Fiscal 2001, the Company
incurred an approximate $12,900,000 pre-tax nonrecurring charge affecting
selling, general and administrative costs. Approximately $7,200,000 of the
nonrecurring charge related to the write-down of certain anntaylor.com
assets, based upon projected cash flows, which were not deemed adequate to
support the carrying value of the assets associated with this ongoing
business. An additional $3,300,000 related to the cost, net of insurance
proceeds, of settling a class action lawsuit. The remaining $2,400,000
represented the write-off of certain fixed assets related to the
discontinuation of the Ann Taylor cosmetics line, and severance costs
associated with reductions made in the Company's store and home office
workforce. During the first quarter of Fiscal 2000, the Company incurred a
pre-tax nonrecurring charge of approximately $8,500,000 in connection with an
extensive review conducted with the Company's financial and legal advisors of
various strategic approaches to enhance shareholder value. In the fourth
quarter of Fiscal 2000, the Company recorded a nonrecurring pre-tax charge of
$2,200,000 relating to the costs of the Company's obligations under a former
executive's employment contract with the Company, in connection with the
executive's resignation in January 2001.

Operating income decreased to $60,141,000, or 4.6% of net sales, in
Fiscal 2001, from $98,240,000, or 7.9% of net sales, in Fiscal 2000.
Amortization of goodwill was $11,040,000, or 0.8% of net sales, in Fiscal
2001, compared to $11,040,000, or 0.9% of net sales, in Fiscal 2000.
Operating income without giving effect to such amortization was $71,181,000,
or 5.4% of net sales, in Fiscal 2001 and $109,280,000, or 8.8% of net sales,
in Fiscal 2000.

Interest income was $1,390,000 in Fiscal 2001, compared to $2,473,000 in
Fiscal 2000. The decrease was primarily attributable to lower cash on hand
and lower interest rates during Fiscal 2001 compared to Fiscal 2000.

Interest expense was $6,869,000 in Fiscal 2001, compared to $7,315,000
in Fiscal 2000. The weighted average interest rate on the Company's
outstanding indebtedness at February 2, 2002 was 3.75%.

14
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15

The income tax provision was $25,557,000, or 46.8% of income before
income taxes in Fiscal 2001, compared to $41,035,000, or 43.9% of income
before income taxes in Fiscal 2000. The effective tax rates for both periods
were higher than the statutory rates, primarily as a result of non-deductible
goodwill expense.

As a result of the foregoing factors, the Company had net income of
$29,105,000, or 2.2% of net sales, for Fiscal 2001, compared to net income of
$52,363,000, or 4.2% of net sales, for Fiscal 2000.


CHANGES IN FINANCIAL POSITION

Accounts receivable decreased to $10,367,000 at the end of Fiscal 2002
from $65,598,000 at the end of Fiscal 2001, a decrease of $55,231,000, or
84.2%. This decrease was primarily attributable to the sale of the Company's
proprietary credit card accounts receivable.

Merchandise inventories increased to $185,484,000 at February 1, 2003
from $180,117,000 at February 2, 2002, an increase of $5,367,000 or 3.0%.
Merchandise inventories at February 1, 2003 and February 2, 2002 included
approximately $41,771,000 and $37,558,000, respectively, of inventory
associated with the Company's sourcing division, which is principally
finished goods in transit from factories. The increase in merchandise
inventories is primarily due to inventory purchased to support new stores
opened since the beginning of the year. Total store square footage increased
to approximately 3,305,000 square feet at February 1, 2003 from approximately
3,057,000 square feet at February 2, 2002. Merchandise inventory on a
per-square-foot basis, excluding inventory associated with the Company's
sourcing division, was approximately $43 at the end of Fiscal 2002, compared
to $47 at the end of Fiscal 2001. Inventory turned 4.4 times in Fiscal 2002,
compared to 4.7 times in Fiscal 2001, excluding inventory associated with the
Company's sourcing division. Inventory turnover is determined by dividing
cost of sales by the average of the cost of inventory at the beginning and
end of the period (excluding inventory associated with the sourcing division).

Accounts payable increased to $57,058,000 at the end of Fiscal 2002 from
$52,011,000 at the end of Fiscal 2001, an increase of $5,047,000, or 9.7%.
The increase in accounts payable is primarily due to the timing of payments
to vendors.

Accrued liabilities increased to $94,137,000 at the end of Fiscal 2002
from $82,007,000 at the end of Fiscal 2001, an increase of $12,130,000, or
14.8%. The increase in accrued liabilities is primarily attributable to an
increase in the provision for management performance bonus.


LIQUIDITY AND CAPITAL RESOURCES

The Company's primary source of working capital is cash flow from
operations. The following table sets forth material measures of the Company's
liquidity:

FISCAL YEAR
---------------------------
2002 2001 2000
---- ---- ----
(DOLLARS IN THOUSANDS)

Cash provided by operating activities $159,047 $ 78,579 $ 77,422
Working capital ...................... $304,076 $190,798 $172,767
Current ratio ........................ 3.01:1 2.41:1 2.22:1
Debt to equity ratio ................. .17:1 .20:1 .20:1


Cash provided by operating activities in Fiscal 2002, as presented on
the consolidated statements of cash flows, primarily resulted from earnings,
non-cash charges and increases in accounts payable and accrued liabilities,
partially offset by an increase in merchandise inventories.

15

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16


On April 30, 2001, Ann Taylor entered into an Amended and Restated
$175,000,000 senior secured revolving Credit Facility (the "Credit Facility")
with Bank of America N.A. and a syndicate of lenders. This Credit Facility
was amended on December 20, 2001 and on August 29, 2002 to adjust certain
ratio provisions, and amend certain definitions used in the calculation of
ratios required in the Credit Facility. The Credit Facility matures on April
29, 2004.

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.
Based on this calculation, the maximum amount available for loans and letters
of credit under the Credit Facility at February 1, 2003 was $175,000,000.
Commercial and standby letters of credit outstanding under the Credit
Facility as of February 1, 2003 were approximately $97,114,000. Loans
outstanding under the Credit Facility at any time may not exceed $75,000,000.
In addition, the Credit Facility requires that the outstanding loan balance
be reduced to zero for a 30-day period each calendar year. There were no
loans outstanding at any time during Fiscal 2002.

Amounts outstanding under the Credit Facility bear interest at a rate
equal to, at Ann Taylor's option, the Bank of America Base Rate, defined as
the higher of (a) the Federal Funds Rate plus one-half of 1% and (b) the
Prime Rate for such day, or Eurodollar Rate; plus, in either case, a margin
ranging from 0.25% to 2.00%. Ann Taylor is also required to pay the lenders
a quarterly commitment fee on the unused revolving loan commitment amount at
a rate ranging from 0.30% to 0.50% per annum. Fees for outstanding
commercial and standby letters of credit range from 0.50% to 0.875% and from
1.25% to 2.00%, respectively. Premiums ranging from 0.125% to 0.50% may
apply to all interest and commitment fees, depending on the calculated
Leverage ratio.

The Credit Facility contains financial and other covenants, including
limitations on indebtedness, liens and investments, restrictions on dividends
or other distributions to stockholders and maintenance of certain financial
ratios including specified levels of tangible net worth.

The lenders have been granted a pledge of the common stock of Ann Taylor
and certain of its subsidiaries, and a security interest in substantially all
other tangible and intangible assets, including trademarks, inventory, store
furniture and fixtures, of Ann Taylor and its subsidiaries, as collateral for
Ann Taylor's obligations under the Credit Facility.

Dividends and distributions are restricted by the Credit Facility. The
Company has never paid cash dividends on its common stock.

During Fiscal 1999, the Company completed the issuance of an aggregate
of $199,072,000 principal amount at maturity of its Convertible Subordinated
Debentures due 2019 ("Convertible Debentures"). The Convertible Debentures
were sold at an original issue price of $552.56 per $1,000 principal amount
at maturity of Debenture. Cash interest is payable on the principal amount
at maturity of the Convertible Debentures at the rate of 0.55% per annum.
This interest rate and the accrual of original issue discount represent a
yield to maturity on the Convertible Debentures of 3.75%. The Convertible
Debentures are convertible at the option of the holders thereof initially
into 18.117 shares of the Company's common stock per $1,000 principal amount
at maturity of Debenture. The Convertible Debentures may be redeemed at the
Company's option on or after June 18, 2004. In addition, the Company is
obligated to purchase on specified purchase dates, beginning June 18, 2004
and each five years thereafter, at specified Put Prices plus accrued cash
interest to the purchase date, any outstanding Convertible Debentures for
which a written notice has been received from the holder. The Company's
obligations with respect to the Convertible Debentures are guaranteed on a
subordinated basis by Ann Taylor.

During Fiscal 2002 the seven-year mortgage loan related to the Company's
distribution center land and building in Louisville, Kentucky was paid in
full. Ann Taylor and its wholly owned subsidiary, AnnTaylor Distribution
Services, Inc., were parties to the $7,000,000 seven-year mortgage loan.

The Company's capital expenditures totaled $45,450,000, $83,693,000 and
$83,310,000 in Fiscal 2002, 2001 and 2000, respectively. Capital
expenditures were primarily attributable to the Company's store expansion,
renovation and refurbishment programs, as well as the investment the Company
made in certain information systems and the Company's corporate offices.
These expenditures also include, in Fiscal 2001 and Fiscal 2000, capital
expenditures related to the Company's Internet e-commerce Web site, and


16
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17


related enhancements to the material handling system at the Company's
distribution center. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Fiscal 2001 Compared to Fiscal 2000"
for information regarding the asset write-off associated with the Company's
Online Store. The Company expects its total capital expenditure requirements
in Fiscal 2003 will be approximately $85,000,000, including capital for new
store construction for a planned square footage increase of approximately
400,000 square feet, or 12%, as well as capital to support continued
investments in information systems and a refurbishment program for its
existing store base. The actual amount of the Company's capital expenditures
will depend in part on the number of stores opened, expanded and refurbished
and on the amount of construction allowances the Company receives from the
landlords of its new or expanded stores. See "Business--Stores and
Expansion".

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

Future minimum lease payments under non-cancelable operating leases as
of February 1, 2003 are as follows:

FISCAL YEAR (IN THOUSANDS)
-----------

2003.................................. $ 145,759
2004.................................. 144,982
2005.................................. 136,510
2006.................................. 115,689
2007.................................. 106,621
2008 and thereafter................... 386,832
----------
Total................................. $1,036,393
==========


On September 9, 1999, the Company announced a securities repurchase
program authorized by its Board of Directors, pursuant to which the Company
was authorized to purchase up to $40,000,000 of the Company's common stock
and/or Convertible Debentures, through open market purchases and privately
negotiated transactions. In January 2000, the Board of Directors authorized
a $50,000,000 increase in the securities repurchase program, bringing the
total amount of securities that could have been repurchased under the program
to $90,000,000. In the third and fourth quarters of Fiscal 1999, the Company
repurchased an aggregate of 4,518,750 shares of its common stock, for an
aggregate repurchase price of $89,900,000 (exclusive of brokerage
commissions), pursuant to this program. All of the repurchased shares became
treasury shares available for general corporate and other purposes. No
Convertible Debentures were purchased.

In August 2002, the Company's Board of Directors authorized a $50
million securities repurchase program. The repurchase program is subject to
compliance with the Company's revolving credit agreement. Pursuant to this
program, purchases of shares of the Company's Common Stock and/or its
Convertible Debentures due 2019 may be made from time to time, subject to
market conditions and at prevailing market prices, through open market
purchases or in privately negotiated transactions. Repurchased shares of
Common Stock will become treasury shares available for general corporate and
other purposes. Repurchased Convertible Debentures will be cancelled. The
Company repurchased 300,000 shares of its common stock during February 2003
in connection with this securities repurchase program, at a total cost of
approximately $5,900,000.

In order to finance its operations and capital requirements, the Company
expects to use internally generated funds and trade credit and funds
available to it under the Credit Facility. The Company believes that cash
flow from operations and funds available under the Credit Facility are
sufficient to enable it to meet its ongoing cash needs for its business, as
presently conducted, for the foreseeable future.

17
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18


On February 4, 2002, the Company sold its proprietary credit card
portfolio to World Financial Network National Bank (the "Bank"). The
associated gain of $2,095,000 is reported in selling, general and
administrative expenses in the Consolidated Statements of Income for Fiscal
2002. In connection with the sale, the Company contracted with Alliance Data
Systems Corporation ("ADS"), the Bank's affiliated servicer, to provide
private label credit card services to proprietary Ann Taylor credit card
clients. Under the terms of the transaction, ADS will manage the Ann Taylor
credit card program, and pay the Company a percentage of all collected
finance charges.

The Company is party to a 3-year contract for services to provide
training to store associates, and maintenance and support for related
software. Payments under this contract total $6,500,000 in each of Fiscal
2003 and Fiscal 2004, and $5,000,000 in Fiscal 2005.

Substantially all full-time employees of the Company are covered under a
noncontributory defined benefit pension plan. The Company's funding
obligations and liability under the terms of the plan are determined using
certain actuarial assumptions, including a discount rate of 6.75% and an
expected long-term rate of return on plan assets of 8.5%. The discount rate
selected was determined based on the change in the Moody's Aa corporate bond
yields, which have decreased by 59 basis points over the course of Fiscal
2002. On this basis, the discount rate utilized was adjusted from 7.50% at
February 2, 2002 to 6.75% at February 1, 2003. The market-related value of
plan assets for determining pension expense is equal to the fair value of
plan assets, recognizing gains or losses as they occur. Plan assets as of
February 1, 2003 are allocated 50% in equities, 33% in bond related funds and
17% in short-term investments. For purposes of developing long-term rates of
return, it was assumed that the short-term investments were reallocated to
equities, yielding assumed long-term rates of return of 10% and 6% for
equities and bond-related funds, respectively. In selecting an expected
long-term rate of return on plan assets, consideration was given to the
Company's historical annual rate of return over a 7-year period, which
averaged 8.8% per year. In light of this, and in view of current market
conditions, the expected long-term rate of return on plan assets utilized was
reduced from 9.0% for the fiscal year ended February 1, 2003 to 8.5% for the
fiscal year ending January 31, 2004.

In April 2002, the Company's Board of Directors approved a 3-for-2 stock
split of the Company's common stock in the form of a stock dividend. One
additional share of common stock for every two shares owned was distributed
on May 20, 2002 to stockholders of record at the close of business on May 2,
2002. See Note 2 of the Condensed Consolidated Financial Statements for
adjusted shares and per share data reflecting the issuance of additional
shares in connection with the stock split.

On May 18, 2000, the Board of Directors of the Company adopted a
Stockholder Rights Plan, pursuant to which Rights were distributed as a
dividend at the rate of one Right for each share of common stock of the
Company held by stockholders of record as of the close of business on May 30,
2000. As a result of the 3-for-2 split of the Company's common stock on May
20, 2002, each share of common stock now represents two-thirds of a Right.
Each Right entitles stockholders to buy one unit of a share of a new series
of preferred stock for $125. Under certain circumstances, if a person or
group acquires beneficial ownership of 15% or more of the Voting Power of the
Company as represented by the Company's common stock, or commences a tender
or exchange offer upon consummation of which such person or group would
beneficially own 15% or more of the Voting Power of the Company as
represented by the Company's common stock, holders of the Rights (other than
the person or group triggering their exercise) will be able to purchase, in
exchange for the $125 exercise price, shares of the Company's common stock or
of any company into which the Company is merged having a value of $250. The
Rights will expire on May 18, 2010.

The Company is self-insured for expenses related to its employee point
of service medical and dental plans, and its worker's compensation plan, up
to certain thresholds. Claims filed, as well as claims incurred but not
reported, are accrued based on management's estimates, using information
received from plan administrators, historical analysis, and other relevant
data. Management believes that it has taken reasonable steps to ensure that
the Company is adequately accrued for costs incurred related to these
programs at February 1, 2003.


18
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19


RECENT ACCOUNTING PRONOUNCEMENTS

Effective February 3, 2002 the Company adopted SFAS No. 142, "Goodwill
and Other Intangible Assets". SFAS No. 142 requires that ratable
amortization of goodwill be replaced by periodic tests for impairment within
six months of the date of adoption, and then on a periodic basis thereafter.
Based on the impairment testing performed in February 2003, management
determined that there was no impairment loss related to the net carrying
value of the Company's recorded goodwill.

In July 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which
provides accounting requirements for retirement obligations associated with
tangible long-lived assets. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. The adoption of SFAS No. 143 has not had a
significant impact on the Company's consolidated financial statements.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement addresses
accounting and reporting for the impairment or disposal of long-lived assets,
other than goodwill, including discontinued operations. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. The adoption
of SFAS No. 144 has had no impact on the Company's consolidated financial
statements.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". SFAS No. 145 primarily affects the reporting
requirements and classification of gains and losses from the extinguishment
of debt, rescinds the transitional accounting requirements for intangible
assets of motor carriers, and requires that certain lease modifications with
economic effects similar to sale-leaseback transactions be accounted for in
the same manner as sale-leaseback transactions. SFAS No. 145 is effective
for financial statements issued after April 2002, with the exception of the
provisions affecting the accounting for lease transactions, which should be
applied for transactions entered into after May 15, 2002, and the provisions
affecting classification of gains and losses from the extinguishment of debt,
which should be applied in fiscal years beginning after May 15, 2002.
Management has determined that the adoption of SFAS No. 145 will have no
immediate impact on the Company's consolidated financial statements, but will
evaluate in future periods the classification of any debt extinguishment
costs in accordance with APB Opinion No. 30 "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions".

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 requires
companies to recognize costs associated with exit or disposal activities when
they are incurred, rather than at the date of a commitment to an exit or
disposal plan. Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are associated
with a restructuring, discontinued operation, plant closing, or other exit or
disposal activity. Previous accounting guidance was provided by Emerging
Issues Task Force ("EITF") No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)". SFAS No. 146 replaces EITF No.
94-3, and is required to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. The Company adopted SFAS No.
146 during the fourth quarter of Fiscal 2002 with no material impact on the
Company's consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123". FASB Statement No. 148 amends FASB Statement No. 123 to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, FASB Statement No. 148 amends the disclosure requirements of FASB
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
statement is effective for fiscal years ending after December 15, 2002. The
Company has considered the optional fair value method accounting allowed
under SFAS No. 148 and has elected to continue using the intrinsic value method
under which no compensation costs have been recognized for stock based
19
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20


compensation. The Company has adopted the amended disclosure requirements of
SFAS No. 148. Pro forma net income and earnings per share as if the fair value
based method had been applied are presented in the Summary of Significant
Accounting Policies in Note 1 of the Consolidated Financial Statements.

In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN No. 45 clarifies and
expands on existing disclosure requirements for guarantees, and clarifies
that a guarantor is required to recognize, at the inception of the guarantee,
a liability equal to the fair value of the obligation undertaken in issuing
the guarantee. The initial recognition and measurement provisions of FIN No.
45 are applicable on a prospective basis for guarantees issued or modified
after December 31, 2002. The disclosure requirements of FIN No. 45 are
effective for financial statements issued after December 15, 2002. The
Company adopted FIN No. 45 during the fourth quarter of Fiscal 2002 with no
material impact on the Company's consolidated financial statements.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities - an Interpretation of Accounting Research Bulletin No.
51". FIN No. 46 requires unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the entities do not
effectively disperse the risks and rewards of ownership among their owners
and other parties involved. The provisions of FIN No. 46 are applicable
immediately to all variable interest entities created after January 31, 2003
and variable interest entities in which a company obtains an interest after
that date. For variable interest entities created before January 31, 2003,
the provisions of this interpretation are effective July 1, 2003. Management
is currently evaluating the provisions of this interpretation, and does not
believe that it will have a significant impact on the Company's consolidated
financial statements.


CRITICAL ACCOUNTING POLICIES

On December 12, 2001, the United States Securities and Exchange
Commission (the "SEC") issued Financial Reporting Release ("FRR") No. 60,
"Cautionary Advice Regarding Disclosure About Critical Accounting Policies",
which encourages the identification and disclosure of the most critical
accounting policies applied in the preparation of a company's financial
statements. In response to FRR No. 60, management has determined that the
Company's most critical accounting policies are those related to merchandise
inventory valuation, intangible asset impairment, and income taxes. These
policies are further described in the Notes to the Consolidated Financial
Statements, and in relevant sections of this discussion and analysis.

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

Pursuant to the adoption of SFAS No. 142 in February 2002, management
performed impairment testing which considered the Company's net discounted
future cash flows in determining whether an impairment charge related to the
carrying value of the Company's recorded goodwill was necessary, and
concluded that there was no such impairment loss. This will be reevaluated
annually, or more frequently if necessary, using similar testing. In the
case of long-lived tangible assets, if the undiscounted future cash flows
related to the long-lived assets are less than the assets' carrying value, a
similar impairment charge would be considered. Management's estimate of
future cash flows is based on historical experience, knowledge, and market
data. These estimates can be affected by factors such as those outlined in
the Statement Regarding Forward-Looking Disclosures.

20
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21


The Company follows SFAS No. 109 "Accounting for Income Taxes," which
requires the use of the liability method. Deferred tax assets and
liabilities are recognized based on the differences between the financial
statement carrying value of existing assets and liabilities and their
respective tax bases. Inherent in the measurement of these deferred balances
are certain judgments and interpretations of existing tax law and other
published guidance as applied to the Company's operations. No valuation
allowance has been provided for deferred tax assets, since management
anticipates that the full amount of these assets should be realized in the
future. The Company's effective tax rate considers management's judgment of
expected tax liabilities in the various taxing jurisdictions within which it
is subject to tax. The Company has also been involved in both foreign and
domestic tax audits. At any given time, many tax years are subject to audit
by various taxing authorities.

Management believes these critical accounting policies represent the
more significant judgments and estimates used in the preparation of the
Company's consolidated financial statements.


STATEMENT REGARDING FORWARD-LOOKING DISCLOSURES

Sections of this Annual Report on Form 10-K, including the preceding
Management's Discussion and Analysis of Financial Condition and Results of
Operations, contain various 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", "believe" and similar expressions.
These forward-looking statements reflect the Company's current expectations
concerning future events, and actual results may differ materially from
current expectations or historical results. Any such forward-looking
statements are subject to various risks and uncertainties, including failure
by the Company to predict accurately client fashion preferences; decline in
the demand for merchandise offered by the Company; competitive influences;
changes in levels of store traffic or consumer spending habits; effectiveness
of the Company's brand awareness and marketing programs; general economic
conditions or a downturn in the retail industry; the inability of the Company
to locate new store sites or negotiate favorable lease terms for additional
stores or for the expansion of existing stores; lack of sufficient consumer
interest in the Company's Online Store; a significant change in the
regulatory environment applicable to the Company's business; an increase in
the rate of import duties or export quotas with respect to the Company's
merchandise; financial or political instability in any of the countries in
which the Company's goods are manufactured; acts of war or terrorism in the
United States or worldwide; work stoppages, slowdowns or strikes; and other
factors set forth in the Company's filings with the SEC. The Company does
not assume any obligation to update or revise any forward-looking statements
at any time for any reason.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------

The Company maintains the majority of its cash and cash equivalents in
financial instruments with original maturity dates of three months or less.
These financial instruments are subject to interest rate risk and will
decline in value if interest rates increase. Due to the short duration of
these financial instruments, a change of 100 basis points in interest rates
would not have a material effect on the Company's financial condition.

The Company's outstanding long-term debt as of February 1, 2003 bears
interest at fixed rates; therefore, the Company's consolidated results of
operations would only be affected by interest rate changes to the extent that
fluctuating rate loans are outstanding under the Credit Facility. As of
February 1, 2003, the Company has no such amounts outstanding. The effect of
interest rate changes on the Company would depend on the amount of
indebtedness outstanding at the time and the amount of such change.


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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------

The following consolidated financial statements of the Company for the
years ended February 1, 2003, February 2, 2002 and February 3, 2001 are
included as a part of this Report (See Item 15):

Consolidated Statements of Income for the fiscal years ended February 1,
2003, February 2, 2002 and February 3, 2001.

Consolidated Balance Sheets as of February 1, 2003 and February 2, 2002.

Consolidated Statements of Stockholders Equity for the fiscal years
ended February 1, 2003, February 2, 2002 and February 3, 2001.

Consolidated Statements of Cash Flows for the fiscal years ended
February 1, 2003, February 2, 2002 and February 3, 2001.

Notes to Consolidated Financial Statements.


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


None.

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23

PART III
--------



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------

The information required by this item is incorporated herein by
reference to the Sections entitled "Election of Class III Directors",
"Executive Officers", "Audit Committee Report" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy Statement for its 2003
Annual Meeting of Stockholders.

The Company has Business Conduct Guidelines that apply to all Ann Taylor
associates, including its chief executive officer, chief financial officer,
and principal accounting officer/controller. A copy of the Company's
Business Conduct Guidelines is attached to this Annual Report on Form 10-K
and will also be available at http://investor.anntaylor.com. Any future
-----------------------------
changes or amendments to the Business Conduct Guidelines, and any waiver that
applies to the Company's chief executive officer, chief financial officer, or
principal accounting officer/controller, will also be posted on
http://investor.anntaylor.com.


ITEM 11. EXECUTIVE COMPENSATION
- -------

The information required by this item is incorporated herein by
reference to the Sections entitled "Compensation of Directors and Related
Matters", "Compensation Committee Interlocks and Insider Participation in
Compensation Decisions" and "Executive Compensation" in the Company's Proxy
Statement for its 2003 Annual Meeting of Stockholders.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------

The information required by this item is incorporated herein by
reference to the Sections entitled "Beneficial Ownership of Common Stock" and
"Equity Compensation Plan Information" in the Company's Proxy Statement for
its 2003 Annual Meeting of Stockholders.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------

The information required by this item is incorporated herein by
reference to the Section entitled "Compensation Committee Interlocks and
Insider Participation in Compensation Decisions" in the Company's Proxy
Statement for its 2003 Annual Meeting of Stockholders.


ITEM 14. 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-14(c) and 15d-14(c) under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) as of a date within 90 days of the
filing of this annual 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 were no significant changes in the Company's internal controls or in
other factors that could significantly affect such controls subsequent to the
Evaluation Date, including any corrective actions with regard to significant
deficiencies and material weaknesses.

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24

PART IV
-------



ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
--------

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

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

Independent Auditors' Report; Consolidated Statements of Income
for the fiscal years ended February 1, 2003, February 2, 2002 and
February 3, 2001; Consolidated Balance Sheets as of February 1,
2003 and February 2, 2002; Consolidated Statements of Stockholders'
Equity for the fiscal years ended February 1, 2003, February 2,
2002 and February 3, 2001; Consolidated Statements of Cash Flows
for the fiscal years ended February 1, 2003, February 2, 2002
and February 3, 2001; Notes to Consolidated Financial
Statements.


2. Schedules other than the above have been omitted because they
are either not applicable or the required information has been
disclosed in the consolidated financial statements or notes thereto.

3. The exhibits filed as a part of this Annual Report are listed in the
exhibit index below.


(b) Reports on Form 8-K:

The Company filed the following report on Form 8-K during the
quarter ended February 1, 2003:

Date of Report Item(s) Reported
-------------- ----------------
1/23/03 Item 5 and Item 7

(c) Exhibit Index.


EXHIBIT NUMBER
- --------------

3.1 Restated Certificate of Incorporation of the Company. Incorporated by
reference to Exhibit 3.1 to the Form 10-Q of the Company for the
Quarter ended May 1, 1999 filed on June 11, 1999.

3.1.1 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation of the Company, dated May 18, 1999. Incorporated by
reference to Exhibit 3.1 to the Form 10-Q of the Company for the
Quarter ended May 1, 1999 filed on June 11, 1999.

3.2 By-Laws of the Company. Incorporated by reference to Exhibit 3.2
to the Form 10-Q of the Company for the Quarter ended November 2,
1991 filed on December 17, 1991 (Registration No. 33-28522).

4.1 Indenture, dated as of June 18, 1999, between the Company, Ann
Taylor, and the Bank of New York, as Trustee relating to the
Company's Convertible Subordinated Debentures due 2019.
Incorporated by reference to Exhibit 4.01 to the Registration
Statement of the Company filed on September 13, 1999
(Registration No. 333-86955).

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25


EXHIBIT NUMBER
- --------------

4.2 Registration Rights Agreement, dated as of June 18, 1999, between
the Company, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith and Banc America Securities LLC. Incorporated by reference
to Exhibit 4.02 to the Registration Statement of the Company
filed on September 13, 1999 (Registration No. 333-86955).

4.3 Rights Agreement, dated as of May 18, 2000, between AnnTaylor
Stores Corporation and Continental Stock Transfer & Trust
Company. Incorporated by reference to Exhibit 4 of Form 8-K of
the Company filed on May 23, 2000.

10.1 Lease, dated as of March 17, 1989, between Carven Associates and Ann
Taylor concerning the West 57th Street headquarters.
Incorporated by reference to Exhibit 10.21 to the Registration
Statement of the Company and Ann Taylor filed on May 3, 1989
(Registration No. 33-28522).

10.1.1 First Amendment to Lease, dated as of November 14, 1990, between
Carven Associates and Ann Taylor. Incorporated by reference to
Exhibit 10.17.1 to the Registration Statement of the Company
filed on April 11, 1991 (Registration No. 33-39905).

10.1.2 Second Amendment to Lease, dated as of February 28, 1993, between
Carven Associates and Ann Taylor. Incorporated by reference to
Exhibit 10.17.2 to the Annual Report on Form 10-K of the Company
filed on April 29, 1993.

10.1.3 Extension and Amendment to Lease dated as of October 1, 1993,
between Carven Associates and Ann Taylor. Incorporated by
reference to Exhibit 10.11 to the Form 10-Q of Ann Taylor for the
Quarter ended October 30, 1993 filed on November 26, 1993.

10.1.4 Modification of Amendment and Extension to Lease, dated as of April
14, 1994 between Carven Associates and Ann Taylor. Incorporated
by reference to Exhibit 10.15.4 to the Annual Report on Form 10-K
of the Company filed on April 28, 1995.

10.1.5 Fifth Amendment to Lease, dated as of March 14, 1995, between
Carven Associates and Ann Taylor. Incorporated by reference to
Exhibit 10.15.5 to the Annual Report on Form 10-K of the Company
filed on April 28, 1995.

10.1.6 Sixth Amendment to Lease, dated as of January 5, 1996, between
Pacific Metropolitan Corporation and Ann Taylor. Incorporated by
reference to Exhibit 10.8.6 to the Annual Report on Form 10-K of
the Company filed on April 30, 1998.

10.1.7 Seventh Amendment to Lease, dated as of June 5, 1996, between
Pacific Metropolitan Corporation and Ann Taylor. Incorporated by
reference to Exhibit 10.8.7 to the Annual Report on Form 10-K of
the Company filed on April 30, 1998.

10.1.8 Eighth Amendment to Lease, undated, between Pacific Metropolitan
Corporation and Ann Taylor. Incorporated by reference to Exhibit
10.8.8 to the Annual Report on Form 10-K of the Company filed on
April 30, 1998.

10.1.9 Ninth Amendment to Lease, dated as of May 13, 1997, between Pacific
Metropolitan Corporation and Ann Taylor. Incorporated by
reference to Exhibit 10.8.9 to the Annual Report on Form 10-K of
the Company filed on April 30, 1998.

10.1.10 Tenth Amendment to Lease, dated as of May 21, 1997, between Pacific
Metropolitan Corporation and Ann Taylor. Incorporated by
reference to Exhibit 10.8.10 to the Annual Report on Form 10-K of
the Company filed on April 30, 1998.

25
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26

EXHIBIT NUMBER
- --------------

10.1.11 Eleventh Amendment to Lease, dated as of May 15, 1998, between
Pacific Metropolitan Corporation and Ann Taylor. Incorporated by
reference to Exhibit 10.3.11 to the Annual Report on Form 10-K of
the Company filed on March 29, 1999.

10.1.12 Sublease Agreement, dated as of February 23, 1999, between
Societe Air France (formerly known as Compagnie Nationale Air
France) and Ann Taylor. Incorporated by reference to Exhibit
10.2.12 to the Annual Report on Form 10-K of the Company filed on
April 18, 2000.

10.2 Tax Sharing Agreement, dated as of July 13, 1989, between the
Company and Ann Taylor. Incorporated by reference to Exhibit
10.24 to Amendment No. 2 to the Registration Statement of the
Company and Ann Taylor filed on July 13, 1989 (Registration No.
33-28522).

+10.3 The AnnTaylor Stores Corporation 1992 Stock Option and Restricted
Stock and Unit Award Plan, Amended and Restated as of February
23, 1994 ("1992 Plan"). Incorporated by reference to Exhibit
10.15 to the Annual Report on Form 10-K of the Company filed on
May 1, 1997.

+10.3.1 Amendment to the AnnTaylor Stores Corporation 1992 Plan, as
approved by stockholders on June 18, 1997. Incorporated by
reference to Exhibit 10.15.1 to the Form 10-Q of the Company for
the Quarter ended August 2, 1997 filed on September 12, 1997.

+10.3.2 Amendment to the AnnTaylor Stores Corporation 1992 Plan dated as
of January 16, 1998. Incorporated by reference to Exhibit 10 of
Form 8-K of the Company filed on March 12, 1998.

+10.3.3 Amendment to the AnnTaylor Stores Corporation 1992 Plan dated as
of May 12, 1998. Incorporated by reference to Exhibit 10.16.3 to
the Form 10-Q of the Company for the Quarter ended April 2, 1998
filed on June 16, 1998.

+10.3.4 Amendment to the AnnTaylor Stores Corporation 1992 Plan dated as
of March 10, 2000. Incorporated by reference to Exhibit 10.8.4
to the Annual Report on Form 10-K of the Company filed on April
18, 2000.

*+10.4 The AnnTaylor Stores Corporation 2000 Stock Option and Restricted
Stock Award Plan (the "2000 Plan").

+10.4.1 First Amendment to the 2000 Plan, adopted January 29, 2002.
Incorporated by reference to Exhibit 10.18.1 to the Annual Report
on Form 10-K of the Company filed on April 4, 2002.

+10.5 AnnTaylor Stores Corporation 2002 Stock Option and Restricted Stock
and Unit Award Plan. Incorporated by reference to Exhibit 10.9
to the Annual Report on Form 10-K of the Company filed on April
4, 2002.

+10.6 AnnTaylor Stores Corporation Amended and Restated Management
Performance Compensation Plan, as approved by stockholders on
June 18, 1997. Incorporated by reference to Exhibit 10.16 to the
Form 10-Q of the Company for the Quarter ended August 2, 1997
filed on September 12, 1997.

+10.6.1 Amendment to the AnnTaylor Stores Corporation Amended and
Restated Management Performance Compensation Plan dated as of
March 12, 1998. Incorporated by reference to Exhibit 10.17.1 to
the Annual Report on Form 10-K of the Company filed on April 30,
1998.


26
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27


EXHIBIT NUMBER
- --------------

+10.6.2 Amendment to the AnnTaylor Stores Corporation Amended and
Restated Management Performance Compensation Plan, dated as of
March 10, 2000. Incorporated by reference to Exhibit 10.9.2 to
the Annual Report on Form 10-K of the Company filed on April 18,
2000.

+10.7 AnnTaylor Stores Corporation Deferred Compensation Plan ("Deferred
Compensation Plan"). Incorporated by reference to Exhibit 10.33
to the Annual Report on Form 10-K of the Company filed on April
28, 1995.

+10.7.1 Amendment to the Deferred Compensation Plan as approved by the
Board of Directors on August 11, 1995. Incorporated by reference
to Exhibit 10.33.1 to the Form 10-Q of the Company for the
Quarter ended July 29, 1995 filed on September 11, 1995.

+10.7.2 Amendment to the Deferred Compensation Plan, effective as of
January 1, 2002. Incorporated by reference to Exhibit 10.11.2 to
the Annual Report on Form 10-K of the Company filed on April 4,
2002.

10.8 Amended and Restated Credit Agreement, dated as of April 30, 2001,
among AnnTaylor, Inc., as Borrower, Bank of America, N.A., as
Administrative Agent, The CIT Group/Business Credit, Inc.,
Firstar Bank, N.A., and Transamerica Business Capital
Corporation, as Co-Agents, The Chase Manhattan Bank and First
Union National Bank, as Syndication Agents, Fleet National Bank,
as Documentation Agent, and Bank of America, N.A., The Chase
Manhattan Bank, and First Union National Bank, as Issuing Banks
and the Lenders from time to time party thereto. Incorporated by
reference to Exhibit 10.18 to the Form 10-Q of the Company for
the Quarter ended May 5, 2001 filed on June 18, 2001.

10.8.1 Amendment No. 1 to Credit Agreement, dated as of December 20,
2001, by and among AnnTaylor, Inc., the Guarantors and Bank of
America, N.A., as Administrative Agent for each of the Lenders
pursuant to the Credit Agreement. Incorporated by reference to
Exhibit 10.1 on Form 8-K of the Company filed on January 10, 2002.

10.8.2 Amendment No. 2 to the Credit Agreement, dated as of August 29,
2002, by and among AnnTaylor, Inc., the Guarantors and Bank of
America, N.A., as Administrative Agent for each of the Lenders
pursuant to the Credit Agreement. Incorporated by reference to
Exhibit 10.1 on Form 8-K of the Company filed on September 4,
2002.

+10.9 AnnTaylor Stores Corporation Long-Term Cash Incentive Compensation
Plan, as approved by stockholders on June 17, 1998. Incorporated
by reference to Exhibit A to the Proxy Statement dated May 1,
1998 filed on May 6, 1998.

+10.9.1 Amendment to the AnnTaylor Stores Corporation Long-Term Cash
Incentive Compensation Plan, dated as of March 10, 2000.
Incorporated by reference to Exhibit 10.16.1 to the Annual Report
on Form 10-K of the Company filed on April 18, 2000.

+10.10 AnnTaylor Stores Corporation Special Severance Plan, dated as of
March 10, 2000. Incorporated by reference to Exhibit 10.18 to
the Annual Report on Form 10-K of the Company filed on April 18,
2000.

27
================================================================================
28

EXHIBIT NUMBER
- --------------

+10.11 Employment Agreement dated as of February 1, 1994 between the
Company and Sally Frame Kasaks. Incorporated by reference to
Exhibit 10.8 to the Form 10-Q of the Company for the Quarter
ended October 29, 1994 filed on December 12, 1994.

+10.12 Employment Agreement, dated as of January 29, 2002, between the
Company and J. Patrick Spainhour. Incorporated by reference to
Exhibit 10.5 to the Annual Report on Form 10-K of the Company
filed on April 4, 2002.

+10.13 Employment Agreement, dated as of March 7, 2001, between the
Company and Barry Erdos ("Erdos Agreement"). Incorporated by
reference to Exhibit 10.17 to the Annual Report on Form 10-K of
the Company filed on April 5, 2001.

+10.13.1 Amendment, dated as of June 1, 2001, to the Erdos Agreement.
Incorporated by reference to Exhibit 10.17.1 to the Form 10-Q of
the Company for the Quarter ended May 5, 2001 filed on June 18,
2001.

+10.13.2 Amendment No. 2, dated as of November 25, 2001, to the Erdos
Agreement. Incorporated by reference to Exhibit 10.19.2 to the
Annual Report on Form 10-K of the Company filed on April 4, 2002.

+10.14 Employment Agreement, dated as of April 24, 2001, between the
Company and Kim Roy ("Roy Agreement"). Incorporated by reference
to Exhibit 10.19 to the Form 10-Q of the Company for the Quarter
ended May 5, 2001 filed on June 18, 2001.

+10.14.1 Amendment No. 1, dated as of November 25, 2001 to the Roy
Agreement. Incorporated by reference to Exhibit 10.20.1 to the
Annual Report on Form 10-K of the Company filed on April 4, 2002.

+10.15 Employment Agreement, dated as of May 3, 2001, between the Company
and Katherine Lawther Krill ("Krill Agreement"). Incorporated by
reference to Exhibit 10.20 to the Form 10-Q of the Company for
the Quarter ended May 5, 2001 filed on June 18, 2001.

+10.15.1 Amendment No. 1, dated as of November 25, 2001, to the Krill
Agreement. Incorporated by reference to Exhibit 10.21.1 to the
Annual Report on Form 10-K of the Company filed on April 4, 2002.

*14 Business Conduct Guidelines.

*21 Subsidiaries of the Company.

*23 Consent of Deloitte & Touche LLP.

*99.1 Certification of chief executive officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.

*99.2 Certification of chief financial officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.

* Filed electronically herewith.
+ Management contract or compensatory plan or arrangement.

28
================================================================================
29

SIGNATURES
----------


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

ANNTAYLOR STORES CORPORATION


By: /s/J. Patrick Spainhour
---------------------------
J. Patrick Spainhour
Chairman and Chief Executive Officer

Date: March 14, 2003
--------------------

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


/s/ J. Patrick Spainhour Chairman, Chief Executive March 14, 2003
- --------------------------- Officer and Director --------------
J. Patrick Spainhour Date


/s/ Barry Erdos Senior Executive Vice President, March 14, 2003
- --------------------------- Chief Operating Officer --------------
Barry Erdos and Director Date


/s/ James M. Smith Senior Vice President, March 14, 2003
- --------------------------- Chief Financial Officer --------------
James M. Smith and Treasurer Date


/s/ Sallie A. DeMarsilis Vice President and Controller March 14, 2003
- --------------------------- --------------
Sallie A. DeMarsilis Date


/s/ Gerald S. Armstrong Director March 14, 2003
- --------------------------- --------------
Gerald S. Armstrong Date


/s/ James J. Burke, Jr. Director March 14, 2003
- --------------------------- --------------
James J. Burke, Jr. Date


/s/ Wesley E. Cantrell Director March 14, 2003
- --------------------------- --------------
Wesley E. Cantrell Date


/s/ Robert C. Grayson Director March 14, 2003
- --------------------------- --------------
Robert C. Grayson Date


/s/ Ronald W. Hovsepian Director March 14, 2003
- --------------------------- --------------
Ronald W. Hovsepian Date


/s/ Rochelle B. Lazarus Director March 14, 2003
- --------------------------- --------------
Rochelle B. Lazarus Date


/s/ Hanne M. Merriman Director March 14, 2003
- --------------------------- --------------
Hanne M. Merriman Date


29

================================================================================
30

CERTIFICATION
-------------



I, J. Patrick Spainhour, certify that:

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

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures 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 annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

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

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.




Date: March 14, 2003 /s/J. Patrick Spainhour
-------------- -----------------------
J. Patrick Spainhour
Chairman and Chief Executive
Officer

30
================================================================================
31

CERTIFICATION
-------------



I, James M. Smith, certify that:

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

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures 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 annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

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

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.




Date: March 14, 2003 /s/ James M. Smith
-------------- ------------------
James M. Smith
Senior Vice President,
Chief Financial Officer and
Treasurer

31

================================================================================
32


ANNTAYLOR STORES CORPORATION
----------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------




PAGE NO.
--------

Independent Auditors' Report............................. 33

Consolidated Financial Statements:

Consolidated Statements of Income for
the fiscal years ended
February 1, 2003, February 2, 2002
and February 3, 2001.............................. 34

Consolidated Balance Sheets as of
February 1, 2003 and February 2, 2002............. 35

Consolidated Statements of Stockholders'
Equity for the fiscal years ended
February 1, 2003, February 2, 2002
and February 3, 2001............................. 36

Consolidated Statements of Cash Flows
for the fiscal years ended
February 1, 2003, February 2, 2002
and February 3, 2001............................. 37

Notes to Consolidated Financial Statements......... 38

32

================================================================================
33

INDEPENDENT AUDITORS' REPORT
----------------------------



To the Stockholders of
ANNTAYLOR STORES CORPORATION:

We have audited the accompanying consolidated financial statements of
AnnTaylor Stores Corporation and its subsidiaries, listed in the accompanying
index. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company and its
subsidiaries at February 1, 2003 and February 2, 2002 and the results of
their operations and their cash flows for each of the three fiscal years in
the period ended February 1, 2003 in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for goodwill to conform to Statement
of Financial Accounting Standards No. 142.


/s/ DELOITTE & TOUCHE LLP


Deloitte & Touche LLP
New York, New York
February 28, 2003


33

================================================================================
34


ANNTAYLOR STORES CORPORATION
----------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE FISCAL YEARS ENDED FEBRUARY 1, 2003, FEBRUARY 2, 2002 AND
FEBRUARY 3, 2001






FISCAL YEARS ENDED
---------------------------------------
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
2003 2002 2001
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Net sales .................... $1,380,966 $1,299,573 $1,232,776

Cost of sales ................ 633,473 651,808 622,036
---------- ---------- ----------
Gross margin ................. 747,493 647,765 610,740
Selling, general and
administrative expenses .. 612,479 576,584 501,460
Amortization of goodwill ..... -- 11,040 11,040
---------- ---------- ----------
Operating income ............. 135,014 60,141 98,240
Interest income .............. 3,279 1,390 2,473
Interest expense ............. 6,886 6,869 7,315
---------- ---------- ----------
Income before income taxes ... 131,407 54,662 93,398
Income tax provision ......... 51,249 25,557 41,035
---------- ---------- ----------
Net income ............... $ 80,158 $ 29,105 $ 52,363
========== ========== ==========


Basic earnings per share.. $ 1.81 $ 0.67 $ 1.22
========== ========== ==========
Diluted earnings per share $ 1.72 $ 0.67 $ 1.17
========== ========== ==========




See accompanying notes to consolidated financial statements.

34

================================================================================
35

ANNTAYLOR STORES CORPORATION
----------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
FEBRUARY 1, 2003 AND FEBRUARY 2, 2002





FEBRUARY 1, FEBRUARY 2,
2003 2002
---------- -----------
ASSETS (IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Current assets
Cash and cash equivalents ....................... $ 212,821 $ 30,037
Accounts receivable, net ........................ 10,367 65,598
Merchandise inventories ......................... 185,484 180,117
Prepaid expenses and other current assets........ 46,599 50,314
---------- -----------
Total current assets ........................ 455,271 326,066
Property and equipment, net ....................... 247,115 250,735
Goodwill, net ..................................... 286,579 286,579
Deferred financing costs, net ..................... 4,170 5,044
Other assets ...................................... 17,691 14,742
---------- -----------
Total assets ................................ $1,010,826 $ 883,166
========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ................................ $ 57,058 $ 52,011
Accrued salaries and bonus ...................... 27,567 12,121
Accrued tenancy ................................. 10,808 10,151
Gift certificates and merchandise
credits redeemable ....................... 25,637 21,828
Accrued expenses ................................ 30,125 37,907
Current portion of long-term debt ............... --- 1,250
---------- -----------
Total current liabilities ................... 151,195 135,268
Long-term debt, net ............................... 121,652 118,280
Deferred lease costs and other liabilities ........ 23,561 17,489

Stockholders' equity
Common stock, $.0068 par value;
120,000,000 shares authorized;
48,932,860 and 48,275,957
shares issued, respectively ................... 332 328
Additional paid-in capital ...................... 500,061 484,582
Retained earnings ............................... 296,113 218,600
Deferred compensation on restricted stock ....... (3,968) (9,296)
---------- -----------
792,538 694,214
Treasury stock, 4,050,972 and
4,210,232 shares
respectively, at cost .................... (78,120) (82,085)
---------- -----------
Total stockholders' equity .................. 714,418 612,129
---------- -----------
Total liabilities and stockholders' equity .. $1,010,826 $ 883,166
========== ===========




See accompanying notes to consolidated financial statements.


35
================================================================================
36


ANNTAYLOR STORES CORPORATION
----------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE FISCAL YEARS ENDED FEBRUARY 1, 2003, FEBRUARY 2, 2002 AND
FEBRUARY 3, 2001
(IN THOUSANDS)




COMMON STOCK ADDITIONAL RESTRICTED TREASURY
------------------ PAID-IN RETAINED STOCK -------------------
SHARES AMOUNT CAPITAL EARNINGS AWARDS SHARES AMOUNT
------ --------- --------- -------- --------- ----- ---------

Balance at January 29, 2000 ..... 47,397 $ 322 $ 470,307 $137,623 $ (2,246) 4,542 $ (90,384)
Net income ...................... --- --- --- 52,363 --- --- ---
Exercise of stock options and
related tax benefit .......... 165 1 2,912 --- --- --- ---
Activity related to common
stock issued as employee
incentives ................... 27 -- 144 --- 523 (24) 434
Issuance of common stock pursuant
to Associate Discount Stock
Purchase Plan ................ 162 1 2,030 (1) --- --- ---
------ --------- --------- -------- --------- ----- ---------

Balance at February 3, 2001 ..... 47,751 324 475,393 189,985 (1,723) 4,518 (89,950)
Net income ...................... --- --- --- 29,105 --- --- ---
Exercise of stock options and
related tax benefit .......... 264 2 4,535 (431) --- (57) 1,386
Activity related to common
stock issued as employee
incentives ................... 156 1 2,941 (59) (7,573) (251) 6,479
Issuance of common stock pursuant
to Associate Discount Stock
Purchase Plan ................ 105 1 1,713 --- --- --- ---
------ --------- --------- -------- --------- ----- ---------

Balance at February 2, 2002 ..... 48,276 328 484,582 218,600 (9,296) 4,210 (82,085)
Net income ...................... --- --- --- 80,158 --- --- ---
Exercise of stock options and
related tax benefit .......... 387 2 9,504 (2,768) --- (314) 8,039
Activity related to common
stock issued as employee
incentives ................... 142 1 3,616 123 5,328 155 (4,074)
Issuance of common stock pursuant
to Associate Discount Stock
Purchase Plan ................ 128 1 2,359 --- --- --- ---
------ --------- --------- -------- --------- ----- ---------
Balance at February 1, 2003 ..... 48,933 $ 332 $ 500,061 $296,113 $ (3,968) 4,051 $ (78,120)
====== ========= ========= ======== ========= ===== =========







See accompanying notes to consolidated financial statements.


36
================================================================================
37

ANNTAYLOR STORES CORPORATION
----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE FISCAL YEARS ENDED FEBRUARY 1, 2003, FEBRUARY 2, 2002 AND
FEBRUARY 3, 2001


FISCAL YEARS ENDED
--------------------------------------------
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
2003 2002 2001
--------- --------- ---------
(IN THOUSANDS)
Operating activities:

Net income ........................................ $ 80,158 $ 29,105 $ 52,363
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization of deferred compensation ......... 5,931 1,841 1,133
Amortization of goodwill ...................... --- 11,040 11,040
Deferred income taxes ......................... 12,008 (5,115) (3,863)
Depreciation and amortization ................. 47,687 43,529 35,033
Gain on sale of proprietary credit card ....... (2,095) --- ---
Loss on disposal and write-down of property
and equipment ............................. 1,384 9,483 1,884
Non-cash interest ............................. 4,261 4,140 4,247
Provision for loss on accounts receivable ..... --- 1,443 1,154
Tax benefit from exercise of stock options .... 3,548 981 797
Changes in assets and liabilities:
Accounts receivable ......................... (475) (8,750) (457)
Merchandise inventories ..................... (5,367) (9,486) (30,605)
Prepaid expenses and other current assets ... (898) 6,948
(12,106)
Other non-current assets and liabilities, net (4,272) (2,303) (3,918)
Accounts payable and accrued expenses ....... 17,177 (4,277) 20,721
--------- --------- ---------
Net cash provided by operating activities ......... 159,047 78,579 77,422
--------- --------- ---------
Investing activities:
Proceeds from sale of proprietary credit card ..... 57,800 --- ---
Purchases of property and equipment ............... (45,450) (83,693) (83,310)
--------- --------- ---------
Net cash provided (used) by investing activities .. 12,350 (83,693) (83,310)
--------- --------- ---------
Financing activities:
Issuance of common stock pursuant to Associate
Discount Stock Purchase Plan ..................... 2,359 1,714 2,030
Payment of financing costs ........................ (15) (1,583) (45)
Payments on mortgage .............................. (1,250) (1,401) (1,300)
Proceeds from exercise of stock options ........... 10,293 4,459 2,084
--------- --------- ---------
Net cash provided by financing activities ......... 11,387 3,189 2,769
--------- --------- ---------
Net increase (decrease) in cash ...................... 182,784 (1,925) (3,119)
Cash, beginning of year .............................. 30,037 31,962 35,081
--------- --------- ---------
Cash, end of year .................................... $ 212,821 $ 30,037 $ 31,962
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest ............ $ 1,307 $ 2,504 $ 2,418
========= ========= =========
Cash paid during the year for income taxes ........ $ 40,088 $ 19,170 $ 43,393
========= ========= =========



See accompanying notes to consolidated financial statements.

37

================================================================================
38

ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company is a leading national specialty retailer of better quality
women's apparel, shoes and accessories sold principally under the Ann Taylor
and Ann Taylor Loft brand names. Its principal market consists of the United
States. The Company sells its products through traditional retail stores and
over the Internet through its Online Store.


BASIS OF PRESENTATION

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


FISCAL YEAR

The Company follows the standard fiscal year of the retail industry,
which is a 52-or 53-week period ending on the Saturday closest to January 31
of the following calendar year. All fiscal years presented include 52 weeks,
except the fiscal year ended February 3, 2001, which included 53 weeks.


USE OF ESTIMATES

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


REVENUE RECOGNITION

The Company records revenue as merchandise is sold to clients. The
Company's policy with respect to gift certificates is to record revenue as
the certificates are redeemed for merchandise. Prior to their redemption,
the certificates are recorded as a liability. Amounts related to shipping
and handling billed to clients in a sales transaction are classified as
revenue and the costs related to shipping product to clients (billed and
unbilled) are classified as cost of goods sold. Reserves for estimated
discounts, returns and allowances are provided when sales are recorded.


CASH AND CASH EQUIVALENTS

Cash and short-term highly liquid investments with original maturity
dates of three months or less are considered cash or cash equivalents.


MERCHANDISE INVENTORIES

Merchandise inventories are valued at the lower of average cost or
market, at the individual item level.


38
================================================================================
39


ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-------------------------------------------------------



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

COST OF SALES

Cost of sales is comprised of direct inventory costs for merchandise
sold, including all costs to transport merchandise from third party suppliers
to the Company's distribution center.


STORE PRE-OPENING COSTS

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


PROPERTY AND EQUIPMENT

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

Building............................40 years
Leasehold improvements..............3-10 years or term of lease, if shorter
Furniture, fixtures and equipment...2-10 years
Software............................5 years


DEFERRED RENT OBLIGATIONS

Rent expense under non-cancelable operating leases with scheduled rent
increases and landlord incentives is accounted for on a straight-line basis
over the lease term. The excess of straight-line rent expense over scheduled
payment amounts and landlord incentives is recorded as a deferred liability.


DEFERRED FINANCING COSTS

Deferred financing costs are being amortized using the interest method
over the term of the related debt. Accumulated amortization at February 1,
2003 and February 2, 2002 was $4,458,000 and $3,569,000, respectively.


FINANCE SERVICE CHARGE INCOME

Income from finance service charges relating to customer receivables,
which is deducted from selling, general and administrative expenses, amounted
to $1,820,000, $9,354,000 and $8,614,000 in Fiscal 2002, Fiscal 2001, and
Fiscal 2000, respectively.

On February 4, 2002, the Company sold its proprietary credit card
portfolio to World Financial Network National Bank. The associated gain of
$2,095,000 is reported in selling, general and administrative expenses in the
Consolidated Statements of Income. In connection with the sale, the Company
contracted with Alliance Data Systems ("ADS") to provide private label credit
card services to proprietary Ann Taylor credit card clients. ADS pays the
Company a percentage of all collected finance charges.

39

================================================================================
40

ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-------------------------------------------------------



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

GOODWILL AND OTHER LONG-LIVED ASSETS

The Company acquired Ann Taylor in a leveraged buyout in 1989. As a result
of that transaction, $380,250,000, representing the excess of the allocated
purchase price over the fair value of the Company's net assets, was recorded as
goodwill and has been amortized on a straight-line basis through the end of
Fiscal 2001 using an assumed 40 year life. In addition, as a result of the
September 1996 acquisition of the operations that became the Company's sourcing
division, the Company recorded goodwill of $38,430,000 that has been amortized
on a straight-line basis through the end of Fiscal 2001 using an assumed 25 year
life. The Company adopted Statement of Financial Accounting Standards ('"SFAS"')
No. 142, "Goodwill and Other Intangible Assets" on February 3, 2002. SFAS No.
142 requires that ratable amortization of goodwill be replaced with periodic
tests of the goodwill's impairment. The Company performed impairment testing
which considered the Company's net discounted future cash flows to determine
whether an impairment charge related to the carrying value of the Company's
recorded goodwill was necessary, and concluded that there was no such impairment
loss at February 1, 2003. This will be reevaluated annually, or more frequently
if necessary, using similar testing. In the case of long-lived tangible assets,
if the undiscounted future cash flows related to the long-lived assets are less
than the assets' carrying value, a similar impairment charge would be
considered. Management's estimate of future cash flows is based on historical
experience, knowledge, and market data.

Net Income and earnings per share for Fiscal 2001 and Fiscal 2000, adjusted
to exclude the after-tax effect of goodwill amortization, are as follows:

FISCAL YEARS ENDED
------------------------
FEBRUARY 2, FEBRUARY 3,
2002 2001
------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)

Reported net income .......................... $29,105 $52,363
Goodwill amortization ........................ 10,645 10,642
------- -------
Adjusted net income .......................... $39,750 $63,005
======= =======

Basic earnings per share:
As reported ................................. $ 0.67 $ 1.22
Goodwill amortization ....................... 0.25 0.25
------- -------
Adjusted basic earnings per share ........... $ 0.92 $ 1.47
======= =======

Diluted earnings per share:
As reported ................................. $ 0.67 $ 1.17
Goodwill amortization ....................... 0.23 0.23
------- -------
Adjusted diluted earnings per share ......... $ 0.90 $ 1.40
======= =======



ADVERTISING

Costs associated with the production of advertising, such as printing
and other costs, are expensed as incurred. Costs associated with
communicating advertising that has been produced, such as magazine ads, are
expensed when the advertising first takes place. Costs of direct mail
catalogs and postcards are expensed when the advertising arrives in clients'
homes. Advertising costs were $30,600,000, $34,000,000 and $32,000,000 in
Fiscal 2002, 2001 and 2000, respectively.


40
================================================================================
41

ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-------------------------------------------------------


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK-BASED AWARDS

The Company accounts for stock-based awards and employees' purchase
rights under the Stock Purchase Plan using the intrinsic value-based method
of accounting in accordance with Accounting Principles Board Opinion No. 25,
under which no compensation cost is recognized for stock option awards
granted at fair market value and employees' purchase rights under the
Associate Discount Stock Purchase Plan (see Note 8). Had compensation costs
of option awards and employees' purchase rights been determined under a fair
value alternative method as stated in SFAS No. 148 "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123", the Company would have been required to prepare a fair
value model for such options and employees' purchase rights, and record such
amount in the consolidated financial statements as compensation expense.
Restricted stock awards result in the recognition of deferred compensation.
Deferred compensation is shown as a reduction of stockholders' equity and is
amortized to operating expenses over the vesting period of the stock award.
Pro forma stock based employee compensation costs, net income and earnings
per share, as they would have been recognized if the fair value method had
been applied to all awards, are presented in the table below. See Note 8 for
the weighted average assumptions used in determining the fair value of option
grants.

FISCAL YEARS ENDED
---------------------------------------
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
2003 2002 2001
---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Net income:
As reported ...................... $ 80,158 $ 29,105 $ 52,363
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of
related tax effects ............ (3,790) (3,514) (2,535)
---------- ---------- ----------
Pro forma ........................ $ 76,368 $ 25,591 $ 49,828
========== ========== ==========


Basic earnings per share:
As reported ...................... $ 1.81 $ 0.67 $ 1.22
========== ========== ==========
Pro forma ........................ $ 1.73 $ 0.59 $ 1.16
========== ========== ==========
Diluted earnings per share:
As reported ...................... $ 1.72 $ 0.67 $ 1.17
========== ========== ==========
Pro forma ........................ $ 1.64 $ 0.59 $ 1.12
========== ========== ==========


DEFERRED COMPENSATION

Restricted stock awards result in the recognition of deferred
compensation. Deferred compensation is shown as a reduction of stockholders'
equity and is amortized to operating expenses over the vesting period of the
stock award.


INCOME TAXES

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


41
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42

ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-------------------------------------------------------



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES (CONTINUED)

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


SEGMENTS

The Company's brands have been aggregated into one reportable segment,
given the similarity of the economic characteristics between the operations
represented by its brands.


COMPREHENSIVE INCOME

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


RECLASSIFICATION

Certain Fiscal 2001 and Fiscal 2000 amounts have been reclassified to
conform to the Fiscal 2002 presentation.


RECENT ACCOUNTING PRONOUNCEMENTS

Effective February 3, 2002 the Company adopted SFAS No. 142, "Goodwill
and Other Intangible Assets". SFAS No. 142 requires that ratable
amortization of goodwill be replaced by periodic tests for impairment within
six months of the date of adoption, and then on a periodic basis thereafter.
Based on the impairment testing performed in February 2003, management
determined that there was no impairment loss related to the net carrying
value of the Company's recorded goodwill.

In July 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which
provides accounting requirements for retirement obligations associated with
tangible long-lived assets. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. The adoption of SFAS No. 143 has not had a
significant impact on the Company's consolidated financial statements.

42

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43

ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-------------------------------------------------------



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement addresses
accounting and reporting for the impairment or disposal of long-lived assets,
other than goodwill, including discontinued operations. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. Management has
determined that the adoption of SFAS No. 144 has had no impact on the
Company's consolidated financial statements.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". SFAS No. 145 primarily affects the reporting
requirements and classification of gains and losses from the extinguishment
of debt, rescinds the transitional accounting requirements for intangible
assets of motor carriers, and requires that certain lease modifications with
economic effects similar to sale-leaseback transactions be accounted for in
the same manner as sale-leaseback transactions. SFAS No. 145 is effective
for financial statements issued after April 2002, with the exception of the
provisions affecting the accounting for lease transactions, which should be
applied for transactions entered into after May 15, 2002, and the provisions
affecting classification of gains and losses from the extinguishment of debt,
which should be applied in fiscal years beginning after May 15, 2002.
Management has determined that the adoption of SFAS No. 145 will have no
immediate impact on the Company's consolidated financial statements, but will
evaluate in future periods the classification of any debt extinguishment
costs in accordance with APB Opinion No. 30 "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions".

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 requires
companies to recognize costs associated with exit or disposal activities when
they are incurred, rather than at the date of a commitment to an exit or
disposal plan. Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are associated
with a restructuring, discontinued operation, plant closing, or other exit or
disposal activity. Previous accounting guidance was provided by Emerging
Issues Task Force ("EITF") No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)". SFAS No. 146 replaces EITF No.
94-3, and is required to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. The Company adopted SFAS No.
146 during the fourth quarter of Fiscal 2002 with no material impact on the
Company's consolidated financial statements.

In December 2002, the FASB issued SFAS No.148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123". FASB Statement No. 148 amends FASB Statement No. 123 to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, FASB
Statement No. 148 amends the disclosure requirements of FASB Statement No. 123
to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The statement is effective for
fiscal years ending after December 15, 2002. The Company has considered the
optional fair value method accounting allowed under SFAS No. 148 and has elected
to continue using the intrinsic value method under which no compensation costs
have been recognized for stock based compensation. The Company has adopted the
amended disclosure requirements of SFAS No. 148. Pro forma net income and
earnings per share as if the fair value based method had been applied are
presented in Note 1 of the Consolidated Financial Statements above.

43
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44


ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-------------------------------------------------------




1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN No. 45 clarifies and
expands on existing disclosure requirements for guarantees, and clarifies
that a guarantor is required to recognize, at the inception of the guarantee,
a liability equal to the fair value of the obligation undertaken in issuing
the guarantee. The initial recognition and measurement provisions of FIN No.
45 are applicable on a prospective basis for guarantees issued or modified
after December 31, 2002. The disclosure requirements of FIN No. 45 are
effective for financial statements issued after December 15, 2002. The
Company adopted FIN No. 45 during the fourth quarter of Fiscal 2002 with no
material impact on the Company's consolidated financial statements.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities - an Interpretation of Accounting Research Bulletin No.
51". FIN No. 46 requires unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the entities do not
effectively disperse the risks and rewards of ownership among their owners
and other parties involved. The provisions of FIN No. 46 are applicable
immediately to all variable interest entities created after January 31, 2003
and variable interest entities in which a company obtains an interest after
that date. For variable interest entities created before January 31, 2003,
the provisions of this interpretation are effective July 1, 2003. Management
is currently evaluating the provisions of this interpretation, and does not
believe that it will have a significant impact on the Company's consolidated
financial statements.


2. LONG-TERM DEBT

The following table summarizes long-term debt outstanding at February 1,
2003 and February 2, 2002:

FEBRUARY 1, 2003 FEBRUARY 2, 2002
------------------- --------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------- ------- ------- -------
(IN THOUSANDS)
Mortgage .................. $ --- $ --- $ 1,250 $ 1,250
Convertible Debentures, net 121,652 122,810 118,280 115,084
------- ------- ------- -------
Total debt ......... 121,652 122,810 119,530 116,334
Less current portion ...... -- -- 1,250 1,250
------- ------- ------- -------
Total long-term debt $121,652 $122,810 $118,280 $115,084
======== ======== ======== ========

In accordance with the requirements of SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments", the Company determined the estimated
fair value of its financial instruments using quoted market information, as
available. As judgment is involved, the estimates are not necessarily
indicative of the amounts the Company could realize in a current market
exchange.

44
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45

ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-------------------------------------------------------


2. LONG-TERM DEBT (CONTINUED)

On April 30, 2001, Ann Taylor entered into an Amended and Restated
$175,000,000 senior secured revolving Credit Facility (the "Credit Facility")
with Bank of America N.A. and a syndicate of lenders. This Credit Facility
was amended on December 20, 2001 and on August 29, 2002 to adjust certain
ratio provisions, and amend certain definitions used in the calculation of
ratios required in the Credit Facility. The Credit Facility matures on April
29, 2004.

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.
Based on this calculation, the maximum amount available for loans and letters
of credit under the Credit Facility at February 1, 2003 was $175,000,000.
Commercial and standby letters of credit outstanding under the Credit
Facility as of February 1, 2003 were approximately $97,114,000. Loans
outstanding under the Credit Facility at any time may not exceed $75,000,000.
In addition, the Credit Facility requires that the outstanding loan balance
be reduced to zero for a 30-day period each calendar year. There were no
loans outstanding at any time during fiscal 2002.

Amounts outstanding under the Credit Facility bear interest at a rate
equal to, at Ann Taylor's option, the Bank of America Base Rate, defined as
the higher of (a) the Federal Funds Rate plus one-half of 1% and (b) the
Prime Rate for such day, or Eurodollar Rate; plus, in either case, a margin
ranging from 0.25% to 2.00%. Ann Taylor is also required to pay the lenders
a quarterly commitment fee on the unused revolving loan commitment amount at
a rate ranging from 0.30% to 0.50% per annum. Fees for outstanding
commercial and standby letters of credit range from 0.50% to 0.875% and from
1.25% to 2.00%, respectively. Premiums ranging from 0.125% to 0.50% may
apply to all interest and commitment fees, depending on the calculated
Leverage ratio.

The Credit Facility contains financial and other covenants, including
limitations on indebtedness, liens and investments, restrictions on dividends
or other distributions to stockholders and maintenance of certain financial
ratios including specified levels of tangible net worth.

The lenders have been granted a pledge of the common stock of Ann Taylor
and certain of its subsidiaries, and a security interest in substantially all
other tangible and intangible assets, including accounts receivable,
trademarks, inventory, store furniture and fixtures, of Ann Taylor and its
subsidiaries, as collateral for Ann Taylor's obligations under the Credit
Facility.

During Fiscal 1999, the Company completed the issuance of an aggregate
of $199,072,000 principal amount at maturity of its Convertible Subordinated
Debentures due 2019 ("Convertible Debentures"). The Convertible Debentures
were sold at an original issue price of $552.56 per $1,000 principal amount
at maturity of Debenture. Cash interest is payable on the principal amount
at maturity of the Convertible Debentures at the rate of 0.55% per annum.
This interest rate and the accrual of original issue discount represent a
yield to maturity on the Convertible Debentures of 3.75%. The Convertible
Debentures are convertible at the option of the holders thereof initially
into 18.117 shares of the Company's common stock per $1,000 principal amount
at maturity of Debenture. The Convertible Debentures may be redeemed at the
Company's option on or after June 18, 2004. In addition, the Company is
obligated to purchase on specified purchase dates, beginning June 18, 2004
and each five years thereafter, at specified Put Prices plus accrued cash
interest to the purchase date, any outstanding Convertible Debentures for
which a written notice has been received from the holder. The Company's
obligations with respect to the Convertible Debentures are guaranteed on a
subordinated basis by Ann Taylor.

During Fiscal 2002, the seven year mortgage loan related to the
Company's distribution center land and building in Louisville, Kentucky was
paid in full. Ann Taylor and its wholly owned subsidiary, AnnTaylor
Distribution Services, Inc., were parties to the $7,000,000 seven-year
mortgage loan.

45
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46

ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-------------------------------------------------------


3. PREFERRED SECURITIES

In April and May of Fiscal 1996, the Company completed the sale of an
aggregate of $100,625,000 of 8-1/2% Company-Obligated Mandatorily Redeemable
Convertible Preferred Securities (the "preferred securities") issued by its
financing vehicle, AnnTaylor Finance Trust, a Delaware business trust (the
"Trust"). On June 29, 1999, the Trust redeemed all of the outstanding
preferred securities. All but $100,000 of the liquidation amount of the
preferred securities was tendered for conversion into an aggregate of
7,675,076 shares of Company common stock prior to the redemption date, at a
conversion price of $13.10 per share of common stock, or 3.817 shares of
common stock per $50 liquidation amount of the security. Holders of
preferred securities that were not tendered for conversion received 105.95%
of the liquidation amount of the preferred securities redeemed, plus accrued
distributions.


4. ALLOWANCE FOR DOUBTFUL ACCOUNTS

As a result of the February 2002 sale of the Company's proprietary
credit card portfolio, as further described in Note 1, the Company no longer
maintains an allowance for doubtful accounts, since the balance in accounts
receivable at February 1, 2003 represents credit card accounts receivable due
from third-party processors. A summary of activity in the allowance for
doubtful accounts for the fiscal years ended February 2, 2002 and February 3,
2001 is as follows:

FISCAL YEARS ENDED
-----------------------------------
FEBRUARY 2, 2002 FEBRUARY 3, 2001
---------------- ----------------
(IN THOUSANDS)
Balance at beginning of year ............ $ 621 $ 666
Provision for loss on accounts receivable 1,443 1,154
Accounts written off .................... (1,501) (1,199)
------ ------
Balance at end of year .................. $ 563 $ 621
====== ======

5. COMMITMENTS AND CONTINGENCIES

LEASES

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

Future minimum lease payments under non-cancelable operating leases as
of February 1, 2003 are as follows:

FISCAL YEAR (IN THOUSANDS)
------------
2003.................................. $ 145,759
2004.................................. 144,982
2005.................................. 136,510
2006.................................. 115,689
2007.................................. 106,621
2008 and thereafter................... 386,832
-----------
Total................................. $ 1,036,393
===========

46

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47

ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-------------------------------------------------------



5. COMMITMENTS AND CONTINGENCIES (CONTINUED)

LEASES (CONTINUED)

Rent expense for the fiscal years ended February 1, 2003, February 2,
2002 and February 3, 2001 was as follows:

FISCAL YEARS ENDED
-------------------------------------------
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
2003 2002 2001
-------- -------- --------
(IN THOUSANDS)

Minimum rent ....................... $123,322 $107,858 $ 91,482
Percentage rent..................... 1,617 2,006 3,534
-------- -------- --------
Total ......................... $124,939 $109,864 $ 95,016
======== ======== ========


OTHER

The Company is party to a 3-year contract for services to provide
training to store associates, and maintenance and support for related
software. Payments under this contract total $6,500,000 in each of Fiscal
2003 and Fiscal 2004, and $5,000,000 in Fiscal 2005.

The Company has been named as a defendant in several legal actions
arising from its normal business activities. Although the amount of any
liability that could arise with respect to these actions cannot be accurately
predicted, in the opinion of the Company, any such liability will not have a
material adverse effect on the consolidated financial position, consolidated
results of operations, or liquidity of the Company.


6. NET INCOME PER SHARE

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

In April 2002, the Company's Board of Directors approved a 3-for-2 split
of the Company's common stock, in the form of a stock dividend. One
additional share of common stock for every two shares owned was distributed
on May 20, 2002 to stockholders of record at the close of business on May 2,
2002. Shares outstanding, as well as basic and diluted earnings per share
(restated for the effect of the stock split) follow:



FISCAL YEARS ENDED
-------------------------------------------------------------------------------------------
FEBRUARY 1, 2003 FEBRUARY 2, 2002 FEBRUARY 3, 2001
--------------------------- -------------------------- -------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

PER PER PER
SHARE SHARE SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ------ ----- ------- ------ ----- ------- ------ -----

BASIC EARNINGS PER SHARE
- ------------------------
Income available
to common stockholders $80,158 44,248 $1.81 $29,105 43,325 $0.67 $52,363 42,912 $1.22

EFFECT OF DILUTIVE
SECURITIES
- ----------
Stock options and
restricted stock ...... --- 447 --- 336 --- 312
Convertible Debentures ... 2,848 3,606 --- --- 2,644 3,606
------- ------ ------- ------ ------- ------
DILUTED EARNINGS PER SHARE
- --------------------------
Income available
to common stockholders $83,006 48,301 $1.72 $29,105 43,661 $0.67 $55,007 46,830 $1.17
======= ====== ===== ======= ====== ===== ======= ====== =====



47
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48

ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-------------------------------------------------------


6. NET INCOME PER SHARE (CONTINUED)

Options to purchase 1,088,874, 3,113,160 and 1,440,510 shares of common
stock were excluded from the above computations of weighted average shares
for diluted earnings per share for Fiscal 2002, 2001 and 2000, respectively.
This was due to the antidilutive effect of the options' exercise prices as
compared to the average market price of the common shares during those
periods. Additionally, conversion of the Convertible Debentures into common
stock is excluded from the computation of diluted earnings per share for
Fiscal 2001, due to the antidilutive effect of the conversion for that period.


7. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

FISCAL YEARS ENDED
---------------------------
FEBRUARY 1, FEBRUARY 2,
2003 2002
-------- --------
(IN THOUSANDS)
Land and building ............................ $ 10,040 $ 9,415
Leasehold improvements ....................... 171,404 161,210
Furniture and fixtures ....................... 277,917 246,731
Construction in progress ..................... 19,134 20,181
-------- --------
478,495 437,537
Less accumulated depreciation and amortization 231,380 186,802
-------- --------
Net property and equipment ............... $247,115 $250,735
======== ========


8. OTHER EQUITY AND STOCK INCENTIVE PLANS

COMMON STOCK

In April 2002, the Company's Board of Directors approved a 3-for-2 stock
split of the Company's common stock in the form of a stock dividend. One
additional share of common stock for every two shares owned was distributed
on May 20, 2002 to stockholders of record at the close of business on May 2,
2002. See Note 6 of the Consolidated Financial Statements for adjusted
shares and per share data reflecting the issuance of additional shares in
connection with the stock split.

PREFERRED STOCK

At February 1, 2003, February 2, 2002 and February 3, 2001, there were
2,000,000 shares of preferred stock, par value $0.01, authorized and unissued.

REPURCHASE PROGRAM

During the third quarter of Fiscal 1999, the Company's Board of
Directors authorized a program under which the Company was authorized to
purchase up to $40,000,000 of the Company's common stock and/or Convertible
Debentures through open market purchases and/or in privately negotiated
transactions. On January 10, 2000, the Board of Directors increased the
amount of securities that could be purchased under the program to
$90,000,000. As of January 29, 2000, 4,518,750 shares of the Company's
common stock had been repurchased for an aggregate purchase price of
$89,900,000 (exclusive of brokerage commissions), completing the securities
repurchase program. All of the repurchased shares became treasury shares and
may be used for general corporate or other purposes. No Convertible
Debentures were purchased.

In August 2002, the Company's Board of Directors authorized a $50
million securities repurchase program. The repurchase program is subject to


48
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49

ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-------------------------------------------------------

8. OTHER EQUITY AND STOCK INCENTIVE PLANS (CONTINUED)

REPURCHASE PROGRAM (CONTINUED)

compliance with the Company's revolving credit agreement. Pursuant to this
program, purchases of shares of the Company's Common Stock and/or its
Convertible Debentures due 2019 may be made from time to time, subject to market
conditions and at prevailing market prices, through open market purchases or in
privately negotiated transactions. Repurchased shares of Common Stock will
become treasury shares and may be used for general corporate and other purposes.
Repurchased Convertible Debentures will be cancelled. The Company repurchased
300,000 shares of its common stock during February 2003 in connection with this
securities repurchase program, at a total cost of approximately $5,900,000.

ASSOCIATE DISCOUNT STOCK PURCHASE PLAN

In Fiscal 1999, the Company established an Associate Discount Stock
Purchase Plan (the "Stock Purchase Plan"). In Fiscal 2002, an additional
600,000 shares of the Company's common stock were reserved for issuance under
the Stock Purchase Plan. Under the terms of the Stock Purchase Plan,
eligible employees may purchase shares of the Company's common stock
semiannually, at a price equal to the lower of 85% of the closing price of
the Company's common stock on the grant date or the purchase date of each
semi-annual stock purchase period. Participating employees pay for their
stock purchases under the Stock Purchase Plan by authorizing limited payroll
deductions of up to a maximum of 15% of their compensation. During Fiscal
2002, Fiscal 2001 and Fiscal 2000, 79,320, 105,032 and 161,907 shares
respectively were issued pursuant to the Stock Purchase Plan, at an average
price per share of $19.94, $16.33 and $12.53, respectively. No shares of
common stock were issued pursuant to the Stock Purchase Plan prior to Fiscal
2000. At February 1, 2003, there were 628,741 shares available for future
issuance under this Stock Purchase Plan.


STOCK INCENTIVE PLANS

In 1992 the Company established a stock option plan (the "1992 Plan"),
which was amended and restated in 1994 to include restricted stock and unit
awards. In Fiscal 2000, the Company established a stock option and
restricted stock award plan (the "2000 Plan") and in Fiscal 2001, the Company
established a stock option and restricted stock and unit award plan (the
"2002 Plan"). Under the 2000 Plan, the number of shares of common stock as to
which options and restricted stock may be granted from time to time may not
exceed 1,500,000, of which no more than 375,000 may be granted as restricted
stock. Under the 2002 Plan, the number of shares of common stock as to which
options and restricted stock may be granted from time to time may not exceed
3,000,000 shares, of which no more than 525,000 may be granted as restricted
stock. Each of the 1992, 2000 and 2002 Plans also includes an acceleration
clause by which all options not exercisable by their terms will, upon the
occurrence of certain events, become exercisable. At February 1, 2003, there
were 2,633,437 shares reserved for issuance under the 1992 Plan, 1,128,739
shares reserved for issuance under the 2000 Plan, and 3,000,000 shares
reserved for issuance under the 2002 Plan. Under the terms of all plans, the
exercise price of any option may not be less than 100% of the fair market
value of the common stock on the date of grant.

Stock options granted prior to 1994 generally vest over a five year
period, with 20% becoming exercisable immediately upon grant of the option
and 20% per year for the next four years. Stock options granted since 1994
generally vest either (i) over a four year period, with 25% becoming
exercisable on each of the first four anniversaries of the grant, or (ii) in
seven or nine years with accelerated vesting upon the achievement of
specified earnings or stock price targets within a five-year period. In
general, stock options granted under all of the plans expire ten years from
the date of grant. At February 1, 2003, there were no shares available for
future grant under the 1992 Plan, 170,250 shares available for future grant
under the 2000 Plan, and 1,388,250 shares available for future grant under
the 2002 Plan.


49
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50

ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-------------------------------------------------------



8. OTHER EQUITY AND STOCK INCENTIVE PLANS (CONTINUED)

STOCK INCENTIVE PLANS (CONTINUED)


The following table summarizes stock option transactions for the fiscal
years ended February 1, 2003, February 2, 2002 and February 3, 2001:

WEIGHTED
AVERAGE NUMBER
OPTION PRICES PRICE OF SHARES
------------- ----- ---------

Options outstanding at January 29, 2000 $ 7.67 - $31.79 $21.32 2,698,022
Granted ............................. $11.25 - $25.75 $15.81 1,306,350
Exercised ........................... $ 9.46 - $24.17 $12.81 (165,089)
Canceled ............................ $ 9.46 - $29.87 $17.41 (454,790)
---------
Options outstanding at February 3, 2001 $ 7.67 - $31.79 $20.14 3,384,493
Granted.............................. $16.69 - $25.30 $22.43 2,826,150
Exercised............................ $ 9.46 - $23.59 $14.09 (320,355)
Canceled............................. $10.33 - $30.00 $20.62 (402,567)
---------
Options outstanding at February 2, 2002 $ 7.67 - $31.79 $21.65 5,487,721
Granted.............................. $22.85 - $30.59 $27.98 180,000
Exercised............................ $ 7.67 - $29.50 $16.01 (701,339)
Canceled............................. $14.00 - $29.50 $22.59 (504,962)
---------
Options outstanding at February 1, 2003 $ 7.67 - $31.79 $22.69 4,461,420
=========


Options for 1,792,177, 1,094,978 and 947,681 shares were exercisable as
of February 1, 2003, February 2, 2002 and February 3, 2001, respectively, and
had a weighted average exercise price of $23.03, $17.97 and $16.36 per share,
respectively.

The following table summarizes information concerning options
outstanding and exercisable at February 1, 2003:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- ------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE(YEARS) PRICE EXERCISABLE PRICE
- ------------------------ ----------- ----------- -------- ----------- -------
$ 9.67 - $12.71 288,600 3.8 $10.93 284,850 $10.93
$12.72 - $15.89 107,307 5.7 $14.29 76,182 $14.20
$15.90 - $19.07 1,099,795 7.4 $17.08 208,798 $16.75
$19.08 - $22.25 280,244 4.3 $20.67 90,994 $20.60
$22.26 - $25.43 1,596,600 8.9 $25.22 362,737 $25.22
$25.44 - $28.61 196,000 8.1 $27.21 65,250 $27.20
$28.62 - $31.79 892,874 6.2 $29.52 703,366 $29.55
--------- --- ----- --------- -----
$ 9.67 - $31.79 4,461,420 7.3 $22.69 1,792,177 $23.03
========= === ===== ========= =====


50
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51

ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-------------------------------------------------------


8. OTHER EQUITY AND STOCK INCENTIVE PLANS (CONTINUED)

STOCK INCENTIVE PLANS (CONTINUED)

The weighted average fair values of options at their grant date during
Fiscal 2002, 2001, and 2000, where the exercise price equaled the market
price on the date of grant, were $15.95, $12.91, and $9.03, respectively.
The estimated fair value of each option grant is calculated using the
Black-Scholes option-pricing model, with the following weighted average
assumptions:

FISCAL YEARS ENDED
----------------------------------------------------
FEBRUARY 1, 2003 FEBRUARY 2, 2002 FEBRUARY 3, 2001
---------------- ---------------- ----------------
Expected volatility ........ 74.7% 82.2% 69.7%
Risk-free interest rate..... 1.7% 5.6% 5.9%
Expected life (years)....... 4.0 4.5 4.0
Dividend yield ............. -- -- --

The 1992 Plan and 2002 Plan also include restricted stock and unit
awards. A unit represents the right to receive the cash value of a share of
common stock on the date the restrictions on the unit lapse. The
restrictions on grants generally lapse over a four-year period from the date
of the grant. In the event a grantee terminates employment with the Company,
any restricted stock or restricted units remaining subject to restrictions
are forfeited. During Fiscal 2000, 2001 and 2002, certain executives were
awarded restricted common stock. The resulting unearned compensation
expense, based upon the market value on the date of grants, was charged to
stockholders' equity and is being amortized over the restricted period.

The following table summarizes restricted stock activity and its impact
on net income for the years ended February 1, 2003, February 2, 2002 and
February 3, 2001.


FISCAL YEARS ENDED
--------------------------------------
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
2003 2002 2001
------- ------- -------
(DOLLARS IN THOUSANDS)

Shares outstanding - beginning of period 557,127 161,753 161,587
Shares granted ......................... 36,150 481,500 192,750
Shares vested .......................... (172,627) (12,501) (53,334)
Shares forfeited ....................... (15,375) (73,625) (139,250)
------- ------- -------
Shares outstanding - end of period ..... 405,275 557,127 161,753
======= ======= =======
Compensation expense ................... $ 5,937 $ 1,855 $ 1,210
======= ======= =======

STOCKHOLDER RIGHTS PLAN

On May 18, 2000, the Board of Directors of the Company adopted a
Stockholder Rights Plan, pursuant to which Rights were distributed as a
dividend at the rate of one Right for each share of common stock of the
Company held by stockholders of record as of the close of business on May 30,
2000. As a result of the 3-for-2 split of the Company's common stock on May
20, 2002, each share of common stock now represents two-thirds of a Right.
Each Right entitles stockholders to buy one unit of a share of a new series
of preferred stock for $125. Under certain circumstances, if a person or
group acquires beneficial ownership of 15% or more of the Voting Power of the
Company as represented by the Company's common stock, or commences a tender
or exchange offer upon consummation of which such person or group would
beneficially own 15% or more of the Voting Power of the Company as
represented by the Company's common stock, holders of the Rights (other than
the person or group triggering their exercise) will be able to purchase, in
exchange for the $125 exercise price, shares of the Company's common stock or
of any company into which the Company is merged having a value of $250. The
Rights will expire on May 18, 2010.

51
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52

ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-------------------------------------------------------



9. INCOME TAXES

The provision for income taxes for the fiscal years ended February 1,
2003, February 2, 2002 and February 3, 2001 consists of the following:

FISCAL YEARS ENDED
------------------------------------------
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
2003 2002 2001
------- ------- -------
(IN THOUSANDS)
Federal:
Current....................... $32,959 $27,492 $38,082
Deferred...................... 10,467 (4,359) (3,047)
------- ------- -------
Total federal............... 43,426 23,133 35,035
------- ------- -------
State and local:
Current....................... 5,726 2,589 6,476
Deferred...................... 1,569 (756) (817)
------- ------- -------
Total state and local....... 7,295 1,833 5,659
------- ------- -------
Foreign:
Current....................... 577 591 471
Deferred...................... (49) --- (130)
------- ------- -------
Total foreign............... 528 591 341
------- ------- -------
Total......................... $51,249 $25,557 $41,035
======= ======= =======


The reconciliation between the provision for income taxes and the
provision for income taxes at the federal statutory rate for the fiscal years
ended February 1, 2003, February 2, 2002 and February 3, 2001 is as follows:


FISCAL YEARS ENDED
-------------------------------------
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
2003 2002 2001
--------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGES)

Income before income taxes .............. $ 131,407 $ 54,662 $ 93,398
Federal statutory rate .................. 35% 35% 35%
--------- --------- ---------
Provision for income taxes
at federal statutory rate ............ $ 45,993 $ 19,132 $ 32,689
State and local income taxes,
net of federal income tax benefit .... 5,364 2,916 4,751
Non-deductible amortization of goodwill . --- 3,500 3,500
Earnings of foreign subsidiaries ........ (89) 29 78
Other ................................... (19) (20) 17
--------- --------- ---------
Provision for income taxes .............. $ 51,249 $ 25,557 $ 41,035
========= ========= =========



The tax effects of significant items comprising the Company's deferred
tax assets as of February 1, 2003 and February 2, 2002 are as follows:


FEBRUARY 1, 2003 FEBRUARY 2, 2002
---------------- ----------------
(IN THOUSANDS)
Current:
Inventory............................ $ 5,585 $ 5,929
Accrued expenses..................... 2,540 6,666
Real estate.......................... (2,928) (2,819)
------ ------
Total current......................... $ 5,197 $ 9,776
======= =======
Noncurrent:
Accrued expenses..................... $ 1,108 $ ---
Depreciation and amortization........ (10,282) (1,970)
Rent expense......................... 6,950 6,057
Other................................ (332) 765
------ ------
Total noncurrent...................... $(2,556) $ 4,852
======= =======

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53

ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-------------------------------------------------------



9. INCOME TAXES (CONTINUED)

Income taxes provided reflect the current and deferred tax consequences
of events that have been recognized in the Company's consolidated financial
statements or tax returns. U.S. federal income taxes are provided on
unremitted foreign earnings, except those that are considered permanently
reinvested, which at February 1, 2003 amounted to approximately $7,008,000.
However, if these earnings were not considered permanently reinvested, under
current law, the incremental tax on such undistributed earnings would be
approximately $2,161,000.


10. RETIREMENT PLANS

SAVINGS PLAN

Ann Taylor maintains a defined contribution 401(k) savings plan for
substantially all full-time employees of Ann Taylor and its subsidiaries.
Participants may contribute to the plan an aggregate of up to 10% of their
annual earnings. Ann Taylor makes a matching contribution of 50% with
respect to the first 3% of each participant's annual earnings contributed to
the plan. Ann Taylor's contributions to the plan for Fiscal 2002, Fiscal
2001 and Fiscal 2000 were $972,000, $950,000 and $792,000, respectively.


PENSION PLAN

Substantially all full-time employees of the Company are covered under a
noncontributory defined benefit pension plan, which calculates benefits based
on a career average formula. The Company's funding policy for the plan is to
contribute annually the amount necessary to provide for benefits based on
accrued service and projected pay increases. Plan assets consist primarily
of cash, equity and fixed income securities.

The Company's funding obligations and liability under the terms of the
plan are determined using certain actuarial assumptions, including a discount
rate of 6.75% and an expected long-term rate of return on plan assets of
8.5%. The discount rate selected was determined based on the change in the
Moody's Aa corporate bond yields, which have decreased by 59 basis points
over the course of Fiscal 2002. On this basis, the discount rate utilized
was adjusted from 7.50% at February 2, 2002 to 6.75% at February 1, 2003.
The market-related value of plan assets for determining pension expense is
equal to the fair value of plan assets, recognizing gains or losses as they
occur. Plan assets as of February 1, 2003 are allocated 50% in equities, 33%
in bond related funds and 17% in short-term investments. For purposes of
developing long-term rates of return, it was assumed that the short-term
investments were reallocated to equities, yielding assumed long-term rates of
return of 10% and 6% for equities and bond-related funds, respectively. In
selecting an expected long-term rate of return on plan assets, consideration
was given to the Company's historical annual rate of return over a 7-year
period, which averaged 8.8% per year. In light of this, and in view of
current market conditions, the expected long-term rate of return on plan
assets utilized was reduced from 9.0% for the fiscal year ended February 1,
2003 to 8.5% for the fiscal year ending January 31, 2004.

53
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54

ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-------------------------------------------------------


10. RETIREMENT PLANS (CONTINUED)

PENSION PLAN (CONTINUED)

The following table provides information for the pension plan at
February 1, 2003, February 2, 2002 and February 3, 2001:

FISCAL YEARS ENDED
-------------------------------------------
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
2003 2002 2001
------- ------- ------
(IN THOUSANDS)
Change in benefit obligation:
Benefit obligation,
beginning of year............. $ 9,023 $ 6,782 $4,954
Service cost..................... 2,116 1,524 1,206
Interest......................... 735 523 442
Actuarial loss................... 2,458 1,458 879
Benefits paid.................... (1,422) (1,264) (699)
------- ------- ------
Benefit obligation,
end of year................... $12,910 $ 9,023 $6,782
======= ======= ======

Change in plan assets:
Fair value of plan assets,
beginning of year............. $ 9,127 $ 9,644 $9,489
Actual return on plan assets..... (1,339) (1,091) 854
Employer contribution ........... 9,522 1,838 ---
Benefits paid.................... (1,422) (1,264) (699)
------- ------- ------
Fair value of plan assets,
end of year................... $15,888 $ 9,127 $9,644
======= ======= ======
Funded status (fair value
of plan assets less
benefit obligation)........... $ 2,978 $ 104 $2,862
Unrecognized net actuarial
(gain) loss................... 7,268 2,710 (763)
Unrecognized prior service cost.. 44 51 57
------- ------- ------
Prepaid benefit cost............. $10,290 $ 2,865 $2,156
======= ======= ======


Net pension cost includes the following components:

FISCAL YEARS ENDED
----------------------------------------
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
2003 2002 2001
------- ------- -------
(IN THOUSANDS)

Service cost ......................... $ 2,116 $ 1,524 $ 1,206
Interest cost ........................ 735 523 442
Expected return on assets ............ (1,021) (924) (831)
Amortization of prior losses (gains).. 261 --- (1)
Amortization of prior service cost ... 6 6 6
------- ------- -------
Net periodic pension cost ............ $ 2,097 $ 1,129 $ 822
======= ======= =======


For the fiscal years ended February 1, 2003, February 2, 2002 and
February 3, 2001, the following actuarial assumptions were used:

FISCAL YEARS ENDED
-------------------------------------
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
2003 2002 2001
---- ---- ----

Discount rate............................. 7.50% 7.75% 8.25%
Long-term rate of return on assets........ 9.00% 9.00% 9.00%
Rate of increase in future compensation... 4.00% 4.00% 4.00%

54
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55

ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-------------------------------------------------------



11. QUARTERLY FINANCIAL DATA (UNAUDITED)


QUARTER
---------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
( IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL 2002
Net sales..................... $345,392 $343,143 $340,218 $352,213
Gross margin.................. 186,563 181,178 196,458 183,294
Net income.................... $ 20,922 $18,202 $24,911 $ 16,123

Basic earnings per share...... $ 0.48 $ 0.41 $ 0.56 $ 0.36
Diluted earnings per share.... $ 0.45 $ 0.39 $ 0.53 $ 0.35


In the fourth quarter of Fiscal 2002, the Company incurred a pre-tax
nonrecurring charge related to the severance costs associated with a former
executive's employment agreement with the Company. In addition, the Company
changed its vacation vesting policy in January 2003, which resulted in pre-tax
savings. The combined effect of these items on fourth quarter pre-tax income
resulted in a savings of $1,700,000.



QUARTER
----------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL 2001
Net sales ....................... $307,090 $310,292 $310,804 $371,387
Gross margin .................... 159,652 152,003 167,875 168,235
Net income (loss) ............... $ 10,944 $ 6,399 $ 12,094 $ (332)

Basic earnings (loss) per share . $ 0.25 $ 0.15 $ 0.28 $ (0.01)
Diluted earnings (loss) per share $ 0.25 $ 0.15 $ 0.27 $ (0.01)


In the fourth quarter of Fiscal 2001, the Company incurred an approximate
$17,000,000 pre-tax nonrecurring charge. Approximately $4,100,000 of this
amount related to the inventory write-off associated with the discontinuation
of the Ann Taylor cosmetics line, and inventory costs associated with
canceling certain Fall 2001 and Spring 2002 merchandise orders. Approximately
$7,200,000 related to the write-down of certain anntaylor.com assets, based
upon projected cash flows, which were not deemed adequate to support the
carrying value of the assets associated with this ongoing business. An
additional $3,300,000 related to the cost, net of insurance proceeds, of
settling a class action lawsuit. The remaining $2,400,000 represented the
write-off of certain fixed assets related to the discontinuation of the Ann
Taylor cosmetics line, and severance costs associated with reductions made in
the Company's store and home office workforce.


The sum of the quarterly per share data may not equal the annual amounts
due to changes in the weighted average shares and share equivalents
outstanding. Conversion of the Convertible Debentures into common stock is
not included in the computation of diluted earnings per share for the second
and fourth quarters of Fiscal 2001 due to the antidilutive effect of the
conversion.


55