ANN INC. - FORM 10-Q - May 18, 2012

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EXCEL - IDEA: XBRL DOCUMENT - ANN INC.	Financial_Report.xls
EX-32.1 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ANN INC.	exhibit321-q12012.htm
EX-31.1 - CEO CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ANN INC.	exhibit311-q12012.htm
EX-31.2 - CFO CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ANN INC.	exhibit312-q12012.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended April 28, 2012



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

For the transition period from to

Commission file number 1-10738

ANN INC.

(Exact name of registrant as specified in its charter)



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



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

(212) 541-3300

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

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

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

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



Class		Outstanding as of May 14, 2012
Common Stock, $.0068 par value		48,785,441

Table of Contents

INDEX TO FORM 10-Q




		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statements of Operations for the Quarters Ended April 28, 2012 and April 30, 2011 (unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income for the Quarters Ended April 28, 2012 and April 30, 2011 (unaudited)	5

	Condensed Consolidated Balance Sheets at April 28, 2012, January 28, 2012 and April 30, 2011 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the Quarters Ended April 28, 2012 and April 30, 2011 (unaudited)	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

PART II. OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 6.	Exhibits	23

SIGNATURES		24

EXHIBIT INDEX		25

Table of Contents

Statement Regarding Forward-Looking Disclosures

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


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


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


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


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


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


•	the Company's ability to successfully execute brand goals, objectives and new concepts;


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


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


•	the depressed levels of consumer spending and consumer confidence resulting from the worldwide economic downturn and financial crisis;


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

•

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


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


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


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


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


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


•	the effect of competitive pressures from other retailers;


•	the effect of continued uncertainty in the global economy on the Company's liquidity and capital resources;


•	the Company's dependence on its Louisville distribution center and third-party distribution facilities and transportation companies, including any significant interruptions due to work stoppages, slowdowns or strikes by employees of the third-party vendors that it utilizes;


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


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


•	the Company's dependence on shopping malls and other retail centers to attract customers;


•	the impact of potential consolidation of commercial and retail landlords on the Company's ability to negotiate favorable rental terms;


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


•	the impact of climate change on the Company's business.

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

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ANN INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Quarters Ended April 28, 2012 and April 30, 2011

(unaudited)



	Quarter Ended
	April 28, 2012		April 30, 2011
	(in thousands, except per share amounts)
Net sales	$	560,411	$	523,628
Cost of sales	243,040		223,676
Gross margin	317,371		299,952
Selling, general and administrative expenses	272,018		254,033
Operating income	45,353		45,919
Interest income	555		235
Interest expense	335		280
Income before income taxes	45,573		45,874
Income tax provision	16,841		18,560
Net income	$	28,732	$	27,314
Earnings per share:
Basic earnings per share	$	0.59	$	0.52

Weighted average shares outstanding	47,922		52,082

Diluted earnings per share	$	0.58	$	0.51

Weighted average shares outstanding, assuming dilution	48,677		53,089

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

Table of Contents

ANN INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Quarters Ended April 28, 2012 and April 30, 2011

(unaudited)



	Quarter ended
	April 28, 2012		April 30, 2011
	(in thousands)
Net income	$	28,732	$	27,314

Other comprehensive income, before tax:
Amortization of net loss included in net periodic pension benefit cost	175		24
Other comprehensive income, before tax	175		24
Income tax expense/(benefit) on other comprehensive income items	80		(38		)
Other comprehensive income, net of tax	95		62
Comprehensive income	$	28,827	$	27,376

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

Table of Contents

ANN INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

April 28, 2012, January 28, 2012 and April 30, 2011

(unaudited)



	April 28, 2012			January 28, 2012			April 30, 2011
	(in thousands, except share amounts)
Assets
Current assets
Cash and cash equivalents	$	106,154		$	150,208		$	104,295
Accounts receivable	29,783			19,591			28,126
Merchandise inventories	243,516			213,447			223,628
Refundable income taxes	9,240			11,965			26,511
Deferred income taxes	31,891			30,999			26,163
Prepaid expenses and other current assets	63,123			49,107			58,169
Total current assets	483,707			475,317			466,892
Property and equipment, net	361,646			360,890			342,811
Deferred income taxes	23,579			39,134			26,950
Other assets	13,606			12,340			12,704
Total assets	$	882,538		$	887,681		$	849,357
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	103,628		$	94,157		$	100,734
Accrued salaries and bonus	18,770			16,122			15,533
Current portion of long-term performance compensation	29,151			19,373			14,575
Accrued tenancy	41,951			41,435			42,523
Gift certificates and merchandise credits redeemable	43,259			50,750			41,264
Accrued expenses and other current liabilities	68,242			64,060			61,567
Total current liabilities	305,001			285,897			276,196
Deferred lease costs	158,866			159,435			163,439
Deferred income taxes	1,367			1,320			966
Long-term performance compensation, less current portion	17,902			42,122			23,296
Other liabilities	28,555			35,030			23,314
Commitments and contingencies
Stockholders’ equity
Common stock, $.0068 par value; 200,000,000 shares authorized; 82,563,516 shares issued	561			561			561
Additional paid-in capital	808,126			811,707			794,924
Retained earnings	602,990			574,257			515,005
Accumulated other comprehensive loss	(5,223		)	(5,318		)	(2,316		)
Treasury stock, 33,790,075, 33,284,631 and 30,514,994 shares, respectively, at cost	(1,035,607		)	(1,017,330		)	(946,028		)
Total stockholders’ equity	370,847			363,877			362,146
Total liabilities and stockholders’ equity	$	882,538		$	887,681		$	849,357

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

Table of Contents

ANN INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Quarters Ended April 28, 2012 and April 30, 2011

(unaudited)



	Quarter Ended
	April 28, 2012			April 30, 2011
	(in thousands)
Operating activities:
Net income	$	28,732		$	27,314
Adjustments to reconcile net income to net cash provided by/(used for) operating activities:
Deferred income taxes	14,630			6,410
Depreciation and amortization	23,302			23,026
Loss on disposal and write-down of property and equipment	387			212
Stock-based compensation	3,361			6,003
Non-cash interest and other non-cash items	(150		)	(41		)
Tax benefit from exercise/vesting of stock awards	4,975			5,931
Changes in assets and liabilities:
Accounts receivable	(10,192		)	(10,595		)
Merchandise inventories	(30,069		)	(30,003		)
Prepaid expenses and other current assets	(14,016		)	(802		)
Refundable income taxes	2,725			120
Other non-current assets and liabilities, net	(3,639		)	4,037
Accounts payable and accrued expenses	(10,941		)	(33,208		)
Net cash provided by/(used for) operating activities	9,105			(1,596		)
Investing activities:
Purchases of marketable securities	(1,314		)	(366		)
Sales of marketable securities	17			—
Purchases of property and equipment	(27,936		)	(27,629		)
Net cash used for investing activities	(29,233		)	(27,995		)
Financing activities:
Proceeds from the issuance of common stock pursuant to the Associate Discount Stock Purchase Plan	723			780
Proceeds from exercise of stock options	9,493			5,198
Excess tax benefits from stock-based compensation	5,353			6,818
Repurchases of common and restricted stock	(39,044		)	(104,897		)
Repayments of fixed asset financing and capital lease obligations	(360		)	(456		)
Change in trade payable program obligation, net	(91		)	(201		)
Net cash used for financing activities	(23,926		)	(92,758		)
Net decrease in cash	(44,054		)	(122,349		)
Cash and cash equivalents, beginning of period	150,208			226,644
Cash and cash equivalents, end of period	$	106,154		$	104,295
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	260		$	221
Cash paid during the period for income taxes	$	10,162		$	7,405
Accrual for purchases of property and equipment	$	14,507		$	17,972

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

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ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


1.	Basis of Presentation

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

The results of operations for the 2012 interim period presented in the Condensed Consolidated Financial Statements (unaudited) are not necessarily indicative of results to be expected for Fiscal 2012.

The January 28, 2012 Condensed Consolidated Balance Sheet has been derived from the audited Consolidated Balance Sheets of ANN INC. (the “Company”) included in its Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

Detailed footnote information is not included in this report. The financial information set forth herein should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2012.


2.	Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, Presentation of Comprehensive Income. ASU 2011-05 amended ASC 220-10, Comprehensive Income, and requires that all changes in comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements, and also requires the presentation of reclassification adjustments from other comprehensive income to net income on the face of the financial statements. In December 2011, the FASB issued ASU 2011-12, Presentation of Comprehensive Income, which indefinitely deferred the requirement of ASU 2011-05 related to presentation of reclassification adjustments from other comprehensive income to net income on the face of the financial statements. No other requirements of ASU 2011-05 were impacted by ASU 2011-12. ASU 2011-05, as modified by ASU 2011-12, became effective and was adopted by the Company in the first quarter of Fiscal 2012 by presenting separate but consecutive statements. See the Condensed Consolidated Statements of Comprehensive Income for more information.


3.	Fair Value Measurements

ASC 820-10, Fair Value Measurements and Disclosures, establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:


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


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


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

Table of Contents

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)


3.	Fair Value Measurements (Continued)

The following tables segregate all financial assets and liabilities of the Company that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine fair value at the measurement date:



	April 28, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Non-qualified deferred compensation plan assets (1)	$	5,906	$	1,655	$	4,251	$	—
Total assets	$	5,906	$	1,655	$	4,251	$	—

	January 28, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Non-qualified deferred compensation plan assets (1)	$	4,149	$	1,309	$	2,840	$	—
Total assets	$	4,149	$	1,309	$	2,840	$	—



	April 30, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Non-qualified deferred compensation plan assets (1)	$	3,313	$	397	$	2,916	$	—
Total assets	$	3,313	$	397	$	2,916	$	—


(1)	The Company maintains a self-directed, non-qualified deferred compensation plan structured as a rabbi trust for certain executives at the vice-president level and above. The investment assets of the rabbi trust are valued based on quoted market prices.

At April 28, 2012, the Company believes that the carrying value of cash and cash equivalents, receivables and payables approximates fair value, due to the short maturity of these financial instruments.


4.	Net Income Per Share

Basic earnings per share is calculated by dividing net income associated with common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share assumes the issuance of additional shares of common stock by the Company upon exercise of all outstanding stock options and contingently issuable securities if the effect is dilutive, in accordance with the treasury stock method discussed in ASC 260-10, Earnings Per Share.

The determination and reporting of earnings per share requires the inclusion of time and performance-based restricted stock as participating securities, since they have the right to share in dividends, if declared, equally with common shareholders. During periods of net income, participating securities are allocated a proportional share of net income determined by dividing total weighted average participating securities by the sum of total weighted average common shares and participating securities (“the two-class method”). During periods of net income, participating securities have the effect of diluting both basic and diluted earnings per share. During periods of net loss, no effect is given to participating securities, since they do not share in the losses of the Company.

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ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

4. Net Income Per Share (Continued)

The following table presents a reconciliation of basic and diluted earnings per share for the quarters ended April 28, 2012 and April 30, 2011:



	Quarter Ended
	April 28, 2012					April 30, 2011
	(in thousands, except per share amounts)
Basic Earnings per Share:	Net Income		Shares	Per Share Amount		Net Income		Shares	Per Share Amount
Net income	$	28,732				$	27,314
Less net income associated with participating securities	438					460
Basic earnings per share	$	28,294	47,922	$	0.59	$	26,854	52,082	$	0.52
Diluted Earnings per Share:
Net income	$	28,732				$	27,314
Less net income associated with participating securities	431					451
Effect of dilutive securities			755					1,007
Diluted earnings per share	$	28,301	48,677	$	0.58	$	26,863	53,089	$	0.51

For the quarters ended April 28, 2012 and April 30, 2011, non-participating securities (stock options) representing 2,075,450 and 1,716,033 shares of common stock, respectively, were excluded from the above computations of weighted average shares for diluted earnings per share due to their antidilutive effect, since their exercise prices exceeded the average market price of the common shares during those periods. In addition, non-participating securities (performance-based restricted units) representing 24,667 and 28,250 shares of common stock, respectively, were excluded from the above computations of weighted average shares for diluted earnings per share, due to the fact that they are contingently issuable securities whose measurement period had not concluded as of those dates.


5.	Equity and Incentive Compensation Plans

Stock Incentive Plans

During the quarters ended April 28, 2012 and April 30, 2011, the Company recognized approximately $3.4 million and $6.0 million, respectively, in total stock-based compensation expense. As of April 28, 2012, there was $11.9 million, $11.8 million, and $1.9 million of unrecognized compensation cost related to unvested stock options, unvested restricted stock awards and unvested restricted unit awards, respectively, which is expected to be recognized over a remaining weighted average vesting period of 2.3 years, 2.4 years and 0.9 years, respectively. Restricted stock award grants, restricted unit award vestings and shares underlying stock option exercises during the quarter ended April 28, 2012, were issued out of treasury stock. Restricted stock awards forfeited, as well as shares returned to cover employee tax withholding obligations related to stock option exercises and restricted stock award vestings were returned to treasury stock during the quarter ended April 28, 2012.

Stock Options

The following table summarizes stock option activity for the quarter ended April 28, 2012:



	Shares		Weighted Average Exercise Price
Options outstanding at January 28, 2012	4,498,817		$	22.18
Granted (1)	514,750		27.85
Exercised	(714,381	)	13.29
Forfeited or expired	(165,760	)	26.27
Options outstanding at April 28, 2012	4,133,426		$	24.26

Vested and exercisable at April 28, 2012	2,792,183		$	25.20

Options expected to vest in the future as of April 28, 2012	974,281		$	25.31


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

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ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)


5.	Equity and Incentive Compensation Plans (Continued)

Stock Options (Continued)

The weighted average fair value of options granted during the quarters ended April 28, 2012 and April 30, 2011, estimated as of the grant date using the Black-Scholes option pricing model, was $12.36 and $13.22 per share, respectively. The fair value of options granted was estimated using the following assumptions during the quarters ended April 28, 2012 and April 30, 2011:



	Quarter Ended
	April 28, 2012		April 30, 2011
Expected volatility	54.6	%	57.1	%
Risk-free interest rate	0.9	%	1.8	%
Expected life (years)	4.40		4.54
Dividend yield	—		—

The Company estimates the volatility of its common stock on the date of grant based on an average of its historical common stock volatility and the implied volatility of publicly traded options on its common stock.

Restricted Stock

The following table summarizes restricted stock activity for the quarter ended April 28, 2012:



	Time - Based					Performance - Based
	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Restricted stock awards at January 28, 2012	523,096			$	18.40	247,003			$	17.13
Granted	261,375		⁽¹⁾	27.85		146,500		⁽²⁾	27.85
Vested	(283,199	)		12.37		(81,364	)		10.44
Forfeited	(27,087	)		25.12		(94,467	)		14.90
Restricted stock awards at April 28, 2012	474,185			$	26.83	217,672			$	27.81


(1)	Of this amount, 257,375 shares vest equally in each of March 2013, 2014 and 2015 and 4,000 shares vest equally in each of March 2013 and 2014.


(2)	These shares vest over a three-year period based on achievement of performance targets set bi-annually for each tranche of the grant. Based on Company performance, grantees may earn 50% to 150% of the shares granted with respect to each tranche. If the Company does not achieve the minimum threshold goal associated with such shares, grantees will not earn any shares with respect to that tranche.

Restricted Units

The following table summarizes restricted unit activity for the quarter ended April 28, 2012:



	Time - Based				Performance - Based
	Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value
Restricted unit awards at January 28, 2012	175,353		$	19.58	98,670		$	19.58
Vested	(86,165	)	19.58		(27,871	)	19.58
Forfeited	(7,836	)	19.58		(21,462	)	19.58
Restricted unit awards at April 28, 2012	81,352		$	19.58	49,337		$	19.58

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ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)


5.	Equity and Incentive Compensation Plans (Continued)

Long-Term Performance Compensation

The Company maintains a long-term cash incentive program, the Restricted Cash Program (“RCP”) for vice-presidents and above. During the quarters ended April 28, 2012 and April 30, 2011, the Company recognized $4.9 million and $5.6 million in compensation expense under the RCP, a portion of which results from updates in the Company's estimates such as forfeiture rates and expectations around the Company's corporate net income performance over the mandatory three-year deferral period. As of April 28, 2012, there was $38.4 million of unrecognized compensation cost under the RCP, which is expected to be recognized over a remaining weighted average deferral period of 2.3 years.


6.	Debt and Other Financing Arrangements

Credit Facility

On April 23, 2008, the Company’s wholly-owned subsidiary AnnTaylor, Inc. and certain of its subsidiaries entered into a Third Amended and Restated $250 million senior secured revolving credit facility with Bank of America N.A. and a syndicate of lenders (the “Credit Facility”), which amended its then existing $175 million senior secured revolving credit facility which was due to expire in November 2008. On February 28, 2012, the Company amended the Credit Facility to make certain technical, non-substantive modifications. The Credit Facility provides the Company with an option to increase the total facility and the aggregate commitments thereunder up to $350 million, subject to the lenders’ agreement to increase their commitment for the requested amount. The Credit Facility expires on April 23, 2013 and may be used for working capital, letters of credit and other general corporate purposes. The Credit Facility contains an acceleration clause which, upon the occurrence of an Event of Default, which includes, but is not limited to, a Material Adverse Effect, as defined in the Credit Facility, may cause any outstanding borrowings to become immediately due and payable.

The maximum availability for loans and letters of credit under the Credit Facility is governed by a monthly borrowing base, determined by the application of specified percentages of certain eligible assets. Commercial and standby letters of credit outstanding under the Credit Facility totaled approximately $12.1 million, $16.7 million and $14.7 million as of April 28, 2012, January 28, 2012 and April 30, 2011, respectively, leaving a remaining available balance for loans and letters of credit of $204.8 million, $146.4 million and $184.0 million, respectively. There were no borrowings outstanding under the Credit Facility at April 28, 2012, January 28, 2012, April 30, 2011 or May 18, 2012, the date of this filing.

Amounts outstanding under the Credit Facility bear interest at a rate equal to, at the option of AnnTaylor, Inc., 1) the Base Rate, defined as the higher of (i) the federal funds rate plus a margin of 0.5% and (ii) the Bank of America prime rate, or 2) the LIBOR Rate (as defined in the Credit Facility), plus a margin of 1.25% to 1.75%, depending on the Average Daily Availability as defined in the Credit Facility. In addition, AnnTaylor, Inc. is required to pay the lenders a monthly commitment fee on the unused revolving loan commitment at a rate ranging from 0.325% to 0.375% per annum also depending on the Average Daily Availability. Fees for outstanding commercial and standby letters of credit range from 0.50% to 0.75% and from 1.25% to 1.75%, respectively. The Credit Facility contains financial and other covenants, including limitations on indebtedness and liens, and a fixed charge coverage ratio covenant that is triggered if certain liquidity thresholds are not met.

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

The lenders have been granted a pledge of the common stock of AnnTaylor, Inc. and certain of its subsidiaries, and a security interest in substantially all real and personal property (other than leasehold interests) and other assets of AnnTaylor, Inc. and certain of its subsidiaries, as collateral for its obligations under the Credit Facility.

Other

The Company contracted with a third-party financing company to initiate payments to certain of its vendors. Under this financing arrangement ("the Trade Payable Program"), the financing company makes accelerated and discounted payments to the Company’s vendors and the Company, in turn, makes its regularly-scheduled full vendor payments to the financing company. As of April 28, 2012, January 28, 2012 and April 30, 2011 there was $3.1 million, $3.2 million and $3.2 million outstanding, respectively, under the Trade Payable Program, included in “Accrued expenses and other current liabilities” on the Company’s Condensed Consolidated Balance Sheets.

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ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)


7.	Employee Benefits

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



	Quarter Ended
	April 28, 2012			April 30, 2011
	(in thousands)
Net periodic pension cost:
Interest cost	$	437		$	416
Expected return on plan assets	(377		)	(428		)
Amortization of actuarial loss	175			24
Net periodic pension cost	$	235		$	12

The Company froze its noncontributory defined benefit pension plan in October 2007. The Company was not required to make and did not make any contributions to its pension plan during the quarters ended April 28, 2012 and April 30, 2011.


8.	Securities Repurchase Program

On March 8, 2011, the Company’s Board of Directors approved a $200 million expansion of the Company’s existing securities repurchase program (the “Repurchase Program”), bringing the total authorized under the Repurchase Program to $600 million. The Repurchase Program will expire when the Company has repurchased all securities authorized for repurchase thereunder, unless terminated earlier by the Company’s Board of Directors. Purchases of shares of common stock may be made from time to time, subject to market conditions and at prevailing market prices, through open market purchases or in privately negotiated transactions. Repurchased shares of common stock increase treasury shares available for general corporate purposes. During the quarters ended April 28, 2012 and April 30, 2011, the Company repurchased 1,460,712 and 4,197,097 shares of its common stock, respectively, through open market purchases under the Repurchase Program at a cost of $35.0 million and $100.0 million, respectively. As of April 28, 2012 and May 18, 2012, the date of this filing, approximately $149.1 million remained available for share repurchases under the Repurchase Program.


9.	Legal Proceedings

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

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

General

ANN INC., through its wholly-owned subsidiaries, is a leading national specialty retailer of women’s apparel, shoes and accessories sold primarily under the “Ann Taylor” and “LOFT” brands. Unless the context indicates otherwise, all references to “we,” “our,” “us” and “the Company” refer to ANN INC. and its wholly-owned subsidiaries.

Ann Taylor is an aspirational luxury brand that offers modern style while remaining true to its legacy as a destination for every generation of working women, with timeless wear-now and wear-to-work fashion of impeccable quality at compelling prices. LOFT provides versatile, accessible and affordable fashion that delivers feminine appeal, special and unexpected details, and a flattering fit, making our client’s style aspirations attainable.

Our Ann Taylor and LOFT brands offer a full range of career and casual separates, dresses, tops, weekend wear, shoes and accessories, coordinated as part of a strategy to provide modern styles that are versatile across all occasions and needs. We also offer updated past season best sellers from the Ann Taylor and LOFT merchandise collections at our Ann Taylor Factory and LOFT Outlet stores, respectively. In addition to our stores, our clients can shop online at www.anntaylor.com and www.LOFT.com (together, our “Online Stores”) or by phone at 1-800-DIAL-ANN and 1-888-LOFT-444. As of April 28, 2012, we operated 947 stores in 46 states, the District of Columbia and Puerto Rico.

Management Overview

During the first quarter of Fiscal 2012, we maintained strong sales momentum and productivity in all channels of the LOFT brand, while at Ann Taylor, we delivered top-line growth in our e-commerce and Factory channels. In the Ann Taylor stores channel, we significantly reduced promotional activity as we focused on reinforcing the aspirational appeal of the brand, which resulted in a higher gross margin rate and lower comparable sales compared with the first quarter of 2011. At both brands, we continued to further enhance profitable sales growth through our real estate strategy, including the continued roll-out of our more productive Ann Taylor new store format, execution of our small- and mid-market strategy for LOFT stores and further expansion of LOFT Outlet. We were also successful in our continued efforts to manage product costs by implementing sourcing strategies that mitigated inflation in commodity and labor costs.

Our efforts in these areas resulted in a 7.0% increase in total net sales, to $560.4 million, a 3.8% increase in comparable sales and a strong 56.6% gross margin rate. This, combined with the impact of our share repurchase activity, contributed to a 14% increase in diluted earnings per share to $0.58, up from $0.51 in the first quarter of Fiscal 2011.

At the Ann Taylor brand, total comparable sales decreased 6.9%. Comparable sales in the Ann Taylor stores channel decreased 15.5%, primarily reflecting the impact of our strategy to significantly reduce promotional activity and inventory levels, as well as merchandise assortments that did not yet reflect the benefits of the pricing mix, assortment and allocation enhancements that are scheduled to roll out as we progress through 2012. This decrease was partially offset by comparable sales growth of 9.6% in the Ann Taylor e-commerce channel and 0.7% at Ann Taylor Factory. Due to higher full-price sell-through in the Ann Taylor stores channel, gross margin rate performance improved as compared to both the fourth and first quarters of Fiscal 2011. Looking ahead to the back half of Fiscal 2012, we are evolving our merchandise offering to include more depth in key fashion items and a greater breadth of the assortment at more approachable price points, as well as having all stores reflect the merchandise allocation strategy that had formerly only been available in our new format stores.

The LOFT brand achieved strong results during the first quarter of Fiscal 2012, building on its strong momentum by continuing to deliver feminine, casual, high-quality fashion at great value. LOFT's merchandise assortments were well-received across all categories and all channels of the brand, resulting in an overall comparable sales increase of 11.3%. By channel, LOFT stores delivered a 10.0% comparable sales increase, driven by compelling fashion and balanced merchandise assortments. Strong product offerings also drove comparable sales performance at LOFT.com and LOFT Outlet, which increased 29.1% and 6.1%, respectively. LOFT's sales productivity, combined with solid gross margin rate performance relative to the strong gross margin rate achieved last year, contributed to an increase in overall gross margin dollars for the quarter. Looking forward, we believe that the brand is well-positioned to continue to drive profitable growth.

Throughout the quarter, we remained committed to enhancing shareholder value and maintaining a healthy balance sheet and cash position. During the first quarter of Fiscal 2012, we repurchased approximately 1.5 million shares of our common stock at a cost of $35 million, and closed the quarter with $106 million in cash and no bank debt. We also continued to closely manage our inventory levels and ended the quarter with total inventory per square foot, excluding e-commerce, up 3%, in line with our overall comparable sales performance.

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Our real estate strategy continues to be focused on supporting our brands' objectives to enhance the overall productivity and profitability of our fleet through the roll-out of new format stores at both Ann Taylor and LOFT, a continued expansion in the factory/outlet channel, as well as continued execution of selective store closures. During the quarter, we opened two new format Ann Taylor stores, four LOFT stores and one LOFT Outlet store and closed eight underperforming Ann Taylor stores, four LOFT stores and one LOFT Outlet store. For the full year of fiscal 2012, we expect to open or downsize a total of 40 Ann Taylor stores in our highly productive and profitable new format. Together with the existing new format stores, these stores will represent nearly one-third of the Ann Taylor store fleet by year-end. In addition, we expect to open two Ann Taylor Factory stores. At LOFT, we plan to open a total of 25 LOFT stores and 20 LOFT Outlet stores in Fiscal 2012.

Overall, our businesses experienced growth in net sales, net income and diluted earnings per share during the first quarter of Fiscal 2012 as compared to the prior year. Our initiatives for Fiscal 2012 are aligned with our focus on further strengthening our connection with our client. Ann Taylor and LOFT are strong brands that offer great fashion, service, quality, value and personalization, along with an engaging client experience across all channels. This, combined with the planned launch of our multi-channel shopping experience in the latter part of Fiscal 2012, positions us to be there for her wherever and whenever she chooses to shop. We also have plans to expand our brands internationally, through our planned entry into Canada and the addition of international shipping capabilities in our e-commerce channels in late 2012 or early 2013.

Key Performance Indicators

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

•

Comparable sales – Comparable sales provide a measure of existing store sales performance. A store is included in comparable sales in its thirteenth month of operation. A store with a square footage change of greater than 15% is treated as a new store for the first year following its reopening. Sales from our Online Stores are also included in comparable sales. In a fiscal year with 53 weeks, sales in the last week of that year are excluded from comparable sales.

•

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


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


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


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


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

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Results of Operations

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



	Quarter Ended
	April 28, 2012		April 30, 2011
Net sales	100.0	%	100.0	%
Cost of sales	43.4	%	42.7	%
Gross margin	56.6	%	57.3	%
Selling, general and administrative expenses	48.5	%	48.5	%
Operating income	8.1	%	8.8	%
Interest income	0.1	%	—	%
Interest expense	0.1	%	0.1	%
Income before income taxes	8.1	%	8.7	%
Income tax provision	3.0	%	3.5	%
Net income	5.1	%	5.2	%

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



	Quarter Ended
	April 28, 2012		April 30, 2011
	increase
Net sales	7.0	%	10.0	%
Operating income	(1.2	)%	18.6	%
Net income	5.2	%	20.8	%

Sales and Store Data

The following table sets forth certain brand sales and store data:



	Quarter Ended
	April 28, 2012				April 30, 2011
	Sales		Comp %		Sales		Comp %
Sales and Comps	($ in thousands)
Ann Taylor brand
Ann Taylor Stores	$	109,597	(15.5	)%	$	125,379	13.7	%
Ann Taylor e-commerce	32,614		9.6	%	29,461		43.1	%
Subtotal	142,211		(10.3	)%	154,840		18.3	%
Ann Taylor Factory	70,165		0.7	%	68,035		9.2	%
Total Ann Taylor brand	$	212,376	(6.9	)%	$	222,875	15.3	%
LOFT brand
LOFT Stores	$	262,388	10.0	%	$	239,099	(1.0	)%
LOFT e-commerce	36,486		29.1	%	28,293		32.8	%
Subtotal	298,874		12.0	%	267,392		1.7	%
LOFT Outlet	49,161		6.1	%	33,361		15.7	%
Total LOFT brand	$	348,035	11.3	%	$	300,753	2.4	%
Total Company	$	560,411	3.8	%	$	523,628	7.8	%

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Sales and Store Data (Continued)



	Quarter Ended
	April 28, 2012		April 30, 2011
Sales Related Metrics
Average Dollars Per Transaction ("DPT")
Ann Taylor brand	$	83.03	$	89.40
LOFT brand	67.86		66.93
Average Units Per Transaction ("UPT")
Ann Taylor brand	2.35		2.45
LOFT brand	2.68		2.58
Average Unit Retail ("AUR")
Ann Taylor brand	$	35.33	$	36.49
LOFT brand	25.32		25.94
Net Sales Per Average Gross Square Foot (1)
Ann Taylor Stores	$	76	$	86
Ann Taylor Factory	102		101
LOFT Stores	91		82
LOFT Outlet	95		101


(1)	Net sales per average gross square foot is determined by dividing net sales for the period by the average monthly gross square footage for the period. Unless otherwise indicated, references herein to square feet are to gross square feet, rather than net selling space. Sales from our Online Stores are excluded from the net sales per average gross square foot calculations.



	Quarter Ended
	April 28, 2012				April 30, 2011
	Stores		Square Feet		Stores		Square Feet
	(square feet in thousands)
Stores and Square Footage
Ann Taylor brand
Ann Taylor Stores	274		1,416		266		1,450
Ann Taylor Factory	99		691		96		690
Total Ann Taylor brand	373		2,107		362		2,140
LOFT brand
LOFT Stores	500		2,898		500		2,917
LOFT Outlet	74		519		61		437
Total LOFT brand	574		3,417		561		3,354
Total Company	947		5,524		923		5,494
Number Of:
Stores open at beginning of period	953		5,584		896		5,284
New stores (1)	7		36		32		244
Downsized stores (2)	—		(25	)	—		(4	)
Closed stores	(13	)	(71	)	(5	)	(30	)
Stores open at end of period	947		5,524		923		5,494


(1)	During the quarter ended April 28, 2012, we opened two new Ann Taylor stores, four new LOFT stores, and one new LOFT Outlet store. During the quarter ended April 30, 2011, we opened four new Ann Taylor Factory stores, three new LOFT stores and 25 new LOFT Outlet stores.


(2)	During the quarter ended April 28, 2012, we downsized three Ann Taylor stores, three Ann Taylor Factory stores, one LOFT store and one LOFT Outlet store . During the quarter ended April 30, 2011, we downsized one Ann Taylor store.

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Net sales increased approximately $36.8 million, or 7.0%, during the quarter ended April 28, 2012 over the comparable 2011 period, with comparable sales increasing 3.8%. This comparable sales gain built on the 7.8% increase in comparable sales experienced during the first quarter of Fiscal 2011.

By brand, Ann Taylor's net sales decreased $10.5 million, or 4.7%, for the quarter ended April 28, 2012, with comparable sales decreasing 6.9% as compared to the comparable 2011 period. While we experienced higher levels of full-price sell-through at the Ann Taylor stores channel as a result of our efforts to scale back promotional activity, the merchandise mix did not yet fully reflect the brand's updated pricing strategy, assortment and allocation enhancements. This contributed to lower DPTs and a 15.5% decrease in comparable sales at Ann Taylor stores. The brand's e-commerce business experienced another quarter of top-line growth, with comparable sales increasing 9.6%, driven by a double-digit increase in traffic and higher conversion. Ann Taylor Factory also delivered a 0.7% increase in comparable sales, driven by higher conversion and UPTs.

At the LOFT brand, net sales increased $47.3 million, or 15.7% for the quarter ended April 28, 2012, with comparable sales increasing 11.3% as compared to the comparable 2011 period. LOFT's top-line performance was driven by increases in traffic, conversion and DPTs. At LOFT stores, clients responded positively to the brand's entire merchandise assortment, with all regions delivering strong top-line results, and contributing to a 10.0% increase in comparable sales. The brand's e-commerce channel experienced a 29.1% increase in comparable sales, driven by higher traffic and conversion and strong client response to our merchandise offering across all categories. LOFT Outlet also experienced significant growth this quarter, with comparable sales up 6.1%, the eleventh consecutive quarter of comparable sales growth in this channel, driven by increases in conversion and UPTs.

Cost of Sales and Gross Margin

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



	Quarter Ended
	April 28, 2012			April 30, 2011
	(dollars in thousands)
Cost of sales	$	243,040		$	223,676
Gross margin	$	317,371		$	299,952
Percentage of net sales	56.6		%	57.3		%

Gross margin as a percentage of net sales for the quarter ended April 28, 2012 as compared to the comparable 2011 period decreased to 56.6%, from 57.3% last year. The year-over-year decrease in gross margin rate performance was primarily due to lower gross margin rates achieved on non-full price sales at LOFT, which impacted LOFT's overall gross margin rate performance relative to last year's strong gross margin rate. This was partially offset by lower levels of promotional activity in the Ann Taylor stores channel versus the first quarter of Fiscal 2011, which contributed to the channel's higher full-price sell-through and gross margin rate performance as compared to last year.

Selling, General and Administrative Expenses

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



	Quarter Ended
	April 28, 2012			April 30, 2011
	(dollars in thousands)
Selling, general and administrative expenses	$	272,018		$	254,033
Percentage of net sales	48.5		%	48.5		%

Selling, general and administrative expenses increased $18.0 million during the quarter ended April 28, 2012 as compared to the comparable 2011 period primarily due to higher payroll and occupancy costs related to our year-over-year store growth, an increase in variable costs related to higher net sales and expenses related to the execution of our business strategies. Selling, general and administrative expenses as a percentage of net sales were flat to last year, at 48.5%. While we experienced increased cost leverage as a result of higher net sales compared with the first quarter of Fiscal 2011, this benefit was offset by an increase in expenses associated with our year-over-year store growth and other expenses supporting the expansion of our business.

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Income Taxes

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



	Quarter Ended
	April 28, 2012			April 30, 2011
	(dollars in thousands)
Income tax provision	$	16,841		$	18,560
Effective income tax rate	37.0		%	40.5		%

Our effective income tax rate changed as compared to the comparable 2011 period primarily due to tax positions that are considered effectively settled as well as changes in the mix of earnings in various state taxing jurisdictions and certain other discrete items. We expect our full year tax rate to be approximately 40%.

Liquidity and Capital Resources

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



	April 28, 2012		January 28, 2012		April 30, 2011
	(dollars in thousands)
Working capital	$	178,706	$	189,420	$	190,696
Current ratio	1.59:1		1.66:1		1.69:1

Operating Activities

Cash provided by operating activities was $9.1 million for the quarter ended April 28, 2012, compared with cash used for operating activities of $1.6 million for the quarter ended April 30, 2011. This increase was primarily due to higher net income adjusted for non-cash expenses and lower short-term incentive compensation payouts. These increases were partially offset by an increase in cash used for inventory purchases, increased payouts under our long-term incentive compensation plan and higher accounts receivable balances consistent with increases in sales.

Merchandise inventories increased approximately $19.9 million, or 8.9%, at April 28, 2012 compared to April 30, 2011. On a per-square-foot basis, excluding e-commerce, merchandise inventories increased approximately 3% over the prior year period, consistent with the increase in comparable sales.

Investing Activities

Cash used for investing activities was $29.2 million for the quarter ended April 28, 2012, compared with $28.0 million for the quarter ended April 30, 2011. Cash used for investing activities was primarily driven by capital expenditures related to our store expansion and refurbishment projects during the period.

Financing Activities

Cash used for financing activities was $23.9 million for the quarter ended April 28, 2012, compared with $92.8 million for the quarter ended April 30, 2011. Cash used for financing activities was primarily for the repurchase of $35.0 million of our common stock during the quarter ended April 28, 2012 and $100.0 million during the quarter ended April 30, 2011 under our share repurchase program, partially offset by the impact of excess tax benefits related to stock-based compensation and cash inflows related to exercise of options during each of the periods.

On April 23, 2008, our wholly-owned subsidiary AnnTaylor, Inc. and certain of its subsidiaries entered into a Third Amended and Restated $250 million senior secured revolving credit facility with Bank of America N.A. and a syndicate of lenders (the “Credit Facility”), which amended its then existing $175 million senior secured revolving credit facility which was due to expire in November 2008. On February 28, 2012, we amended the Credit Facility to make certain technical, non-substantive modifications. The 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 percentages of certain eligible assets. The remaining available balance for loans and letters of credit was $204.8 million, $146.4 million and $184.0 million as of April 28, 2012, January 28, 2012 and April 30, 2011, respectively.

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On March 8, 2011, our Board of Directors approved a $200 million expansion of our existing securities repurchase program (the “Repurchase Program”), bringing the total authorized under the Repurchase Program to $600 million. The Repurchase Program will expire when we have repurchased all securities authorized for repurchase thereunder, unless terminated earlier by our Board of Directors. Purchases of shares of common stock may be made from time to time, subject to market conditions and at prevailing market prices, through open market purchases or in privately negotiated transactions. Repurchased shares of common stock increase treasury shares available for general corporate purposes. During the quarters ended April 28, 2012 and April 30, 2011, we repurchased 1,460,712 and 4,197,097 shares of our common stock, respectively, through open market purchases under the Repurchase Program at a cost of approximately $35.0 million and $100.0 million, respectively. As of April 28, 2012 and May 18, 2012, the date of this filing, approximately $149.1 million remained available for share repurchases under the Repurchase Program.

Other

At April 28, 2012, substantially all of our cash and cash equivalents were invested in deposit accounts at FDIC-insured banks. All of our deposit account balances are currently FDIC insured and will remain so through December 31, 2012 as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

On October 1, 2007, we froze our noncontributory defined benefit pension plan (the “Pension Plan”). As a result of a lower discount rate and a lower expected rate of return, which is consistent with changes in the the underlying asset allocation of the Pension Plan made in Fiscal 2011, pension expense for Fiscal 2012, excluding any potential settlement charges, is projected to be higher than pension expense in Fiscal 2011, excluding settlement charges. Our Pension Plan is invested in readily liquid investments, primarily debt and equity securities. Any deterioration in the financial markets or changes in discount rates may require us to make a contribution to our Pension Plan in Fiscal 2012.

Critical Accounting Policies

Management has determined that our most critical accounting policies are those related to merchandise inventory valuation, asset impairment, income taxes and stock and incentive-based compensation. We continue to monitor our accounting policies to ensure proper application of current rules and regulations. There have been no significant changes to these policies as discussed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, Presentation of Comprehensive Income. ASU 2011-05 amended ASC 220-10, Comprehensive Income, and requires that all changes in comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements, and also requires the presentation of reclassification adjustments from other comprehensive income to net income on the face of the financial statements. In December 2011, the FASB issued ASU 2011-12, Presentation of Comprehensive Income, which indefinitely deferred the requirement of ASU 2011-05 related to presentation of reclassification adjustments from other comprehensive income to net income on the face of the financial statements. No other requirements of ASU 2011-05 were impacted by ASU 2011-12. ASU 2011-05, as modified by ASU 2011-12, became effective and was adopted in the first quarter of Fiscal 2012 by presenting separate but consecutive statements. See the Condensed Consolidated Statements of Comprehensive Income for more information.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We have significant amounts of cash and cash equivalents invested in deposit accounts at FDIC-insured banks. All of our deposit account balances are currently FDIC insured and will remain so through December 31, 2012 as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

AnnTaylor Inc.’s Credit Facility allows for investments in financial instruments with original maturity dates of up to 360 days. As of April 28, 2012, we did not hold any investments that did not qualify as cash and cash equivalents.

Item 4. Controls and Procedures.

The Company conducted an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

During the first quarter of Fiscal 2012, there were no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

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

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



	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program ⁽²⁾	Approximate Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Program
					(in thousands)
January 29, 2012 to February 25, 2012	931,737	$	23.63	930,700	$	162,095
February 26, 2012 to March 31, 2012	674,025	25.25		530,012	149,084
April 1, 2012 to April 28, 2012	544	28.35		—	149,084
	1,606,306			1,460,712


(1)	Includes 145,594 shares of restricted stock purchased in connection with employee tax withholding obligations under the employee equity compensation plans, which are not purchases under the Company’s publicly announced program.


(2)	On March 8, 2011, our Board of Directors approved a $200 million expansion of our existing securities repurchase program (the “Repurchase Program”) to a total of $600 million. The Repurchase Program will expire when we have repurchased all securities authorized for repurchase thereunder, unless terminated earlier by our Board of Directors.

We purchased 1,460,712 shares under the Repurchase Program during the first quarter of Fiscal 2012. As of April 28, 2012 and May 18, 2012, the date of this filing, approximately $149.1 million remained available for future repurchases under the Repurchase Program.

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Item 6. Exhibits



Exhibit Number	Description

31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1°	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS‡	XBRL Instance

101.SCH‡	XBRL Taxonomy Extension Schema

101.CAL‡	XBRL Taxonomy Extension Calculation

101.DEF‡	XBRL Taxonomy Extension Definition

101.LAB‡	XBRL Taxonomy Extension Labels

101.PRE‡	XBRL Taxonomy Extension Presentation



*	Filed electronically herewith.



°	Furnished electronically herewith.



‡	Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

Table of Contents

SIGNATURES

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



		ANN INC.

Date:	May 18, 2012	By:	/s/ Kay Krill
			Kay Krill
			President and Chief Executive Officer
			(Principal Executive Officer)



Date:	May 18, 2012	By:	/s/ Michael J Nicholson
			Michael J. Nicholson
			Executive Vice President,
			Chief Financial Officer and Treasurer
			(Principal Financial Officer)

Table of Contents

Exhibit Index



Exhibit Number		Description

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1°		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS‡		XBRL Instance

101.SCH‡		XBRL Taxonomy Extension Schema

101.CAL‡		XBRL Taxonomy Extension Calculation

101.DEF‡		XBRL Taxonomy Extension Definition

101.LAB‡		XBRL Taxonomy Extension Labels

101.PRE‡		XBRL Taxonomy Extension Presentation



*	Filed electronically herewith.



°	Furnished electronically herewith.



‡	Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company