ANN INC.

Presentation to the Board

September
2014

Table of contents
2

Situation overview
Relevant overview of the Company
Financial sponsor transaction
Corporate transaction
Potential buyers & transaction summary
Other alternatives (status quo, levered recapitalization and
acquisition)
Conclusion & next steps

Table of contents
3

Situation overview
Relevant overview of the Company
Financial sponsor transaction
Corporate transaction
Potential buyers & transaction summary
Other alternatives (status quo, levered recapitalization and
acquisition)
Conclusion & next steps

Engine Capital LP
4

Engine Capital LP is a value-oriented special situations fund that invests both actively
and passively in companies undergoing change.
Engine Capital was launched on July 1, 2013, by Arnaud Ajdler and is currently
managing just under $150 million in assets.
Significant experience investing in specialty apparel retailers and consumer
companies
Significant experience working with companies on strategic, operational, corporate
governance, and M&A matters from within the boardroom and from the outside
Relevant experience includes:

Chairman of Destination Maternity (Nasdaq: DEST)

Former board member of Charming Shoppes (Nasdaq: CHRS) until its sale to Ascena Retail Group
(Nasdaq: ASNA)
Former board member of OCharleys (Nasdaq: CHUX) until its sale to Fidelity National Financial (Nasdaq:
FNF)
Former board member of Topps (Nasdaq: TOPP) until its sale to Madison Dearborn
Former or current board member of Hill International (Nasdaq: HIL), Stewart Information Systems
(Nasdaq: STC), and Imvescor Restaurant Group (TSX: IRG)

Red Alder LLC

5

Red Alder LLC (Red Alder) is an SEC-registered investment adviser based in New
York City that focuses on event-driven, value-oriented investment opportunities.
Red Alders hedge funds were launched on September 1, 2012 by Schuster Tanger
and Joshua Packwood and are currently managing around $150 million in assets.
Significant experience investing in special situations and corporate actions;
representative events include demutualizations, levered recaps, M&A, MLP & REIT
conversions, restructurings, and spins.
Recent active engagement with companies on strategic, operational, and corporate
governance matters, such as board reconstitutions, includes:
Speed Commerce, Inc. (Nasdaq: SPDC): reached settlement agreement on
7/14/2014, whereby Red Alder, among other terms, placed two well-qualified
directors onto the board and removed one
LSB Industries, Inc. (NYSE: LXU): reached settlement agreement on 4/3/2014,
whereby Red Alder and Engine Capital LP agreed to withdraw its director
nominations notice in support of a simultaneous settlement agreement by
Starboard Value LP that replaced three directors with three new well-qualified
directors and established a four-person Strategic Committee of the Board

Situation overview
6

ANN is a great Company with two great brands that is currently undervalued. The
Board has levers within its control to create value compared to the status quo.
Engine Capital LP and Red Alder LLC (We) own in excess of 1% of ANN and are
publicly urging the Board to review all strategic alternatives, including a sale of the
Company.
Since publicly releasing our letter to ANNs Board, the stock is up more than 10% and
more than 10 million shares have traded, indicating that shareholders agree with our
strongly recommended course of action and that investors are buying shares on the
assumption that the Board will act accordingly.
We have spoken to a number of shareholders and not a single shareholder disagrees
with our strong recommendation that ANN immediately conduct a strategic
alternatives review. The consensus is that the status quo is not sustainable and that
exploring a sale makes sense. We think some of these shareholders may have even
shared similar views with ANN management and/or the Board.

The board owes it to the shareholders to explore strategic alternatives and see what
someone would be willing to pay for the Company. Large, long-term ANN shareholder

Valuation range
7

In this presentation, we analyze different options for ANN and conclude that a sale is the best option.

52-week range

$30.71

Status quo

$43.61

$37.00

Levered recapitalization

$40.00

$42.00

Financial sponsor
transaction

$49.00

$50.00

$55.00

Corporate transaction

$25.00

$60.00

$30.00

$35.00

$40.00

$45.00

$50.00

$55.00

$60.00

Status quo and levered recapitalization range represent 2015 and 2016 stock prices discounted back to 1/30/2015.

$65.00

$65.00

$70.00

Sell-side analysts agree

8

we believe a sale would be in the best interest of ANNs shareholders,

likely providing a significant premium to the pre-announcement stock
price Richard Jaffe, Stifel (8/26/14)

We also believe the company could be encouraged to pursue a sale to a

strategic acquirer. With meaningful synergies, an acquirer could pay a
significant premium and still generate significant accretion. Liz Dunn,
Macquarie Equities Research (4/14)

Board of directors
9

We are particularly concerned about the board dynamics in light of the fact that 4-5
directors are retired and may view ANNs board compensation as their retirement
income.
We are also concerned that 4 directors have been on the Board for more than 9 years,
which could impair their objectivity. In particular, we note that James Burke has been
on the Board for 25 years.
We question whether the Boards interests are directly aligned with the best interests
of shareholders. Specifically, we note that independent directors only own 0.43% of
the Company, yet receive a combined $1.5 million in annual Board compensation.
A majority of the Board is up for reelection at the next annual meeting, which we
expect to be held in May or June of 2015.

James J. Burke, Jr.

Dale W. Hilpert
Ronald W. Hovsepian
Linda A. Huett
Michael C. Plansky
Stacey Rauch
Daniel W. Yih

Age
62
71
53
69
64
56
55

# years on
the board
25
10
16
9
3
3
7

Occupation
Retired / managing own capital
Retired since 2006
CEO of a technology company
Retired since 2006
Retired since 2009
Retired since 2010
COO Starwood Capital Group

2013 board
compensation
$195,001
$200,001
$349,997
$186,815
$205,523
$180,001
$185,001
$1,502,339

ANN stock
ownership
42,878
38,348
28,255
31,924
14,697
16,534
25,744
198,380

% ownership of
ANN
0.09%
0.08%
0.06%
0.07%
0.03%
0.04%
0.06%
0.43%

Term expires in
May/June
2015
2015
2015
2015
2016
2015
2016

Insider transactions
10

Over the last 48 months, the independent directors have sold more than $10 million of
stock at an average price of $31.57 per share. There has been minimal insider buying.
How can this Board argue that a sale at $52.50 per share would undervalue ANN and is
not the best outcome for the shareholders in light of their recent sales of ANN shares
at much lower prices?
Purchases last 48 months
# shares $ amount average price
0
0
NA
James J. Burke, Jr.
0
0
NA
Dale W. Hilpert
0
0
NA
Ronald W. Hovsepian
0
0
NA
Linda A. Huett
0
0
NA
Michael C. Plansky
0
0
NA
Stacey Rauch
14,400
467,257
$32.45
Daniel W. Yih
14,400
467,257
$32.45
Total

Sales last 48 months

# shares
$ amount average price
235,337
7,249,437
$30.80
16,875
672,638
$39.86
48,609
1,548,248
$31.85
0
0
NA
0
0
NA
0
0
NA
22,000
721,125
$32.78
322,821
10,191,448
$31.57

We continue to request the formation of a special committee of independent directors and, in

particular, request that the Committee be led by Daniel Yih. As C.O.O. of Starwood Capital, we
think that Mr. Yih has the requisite financial expertise. Moreover, his experience as a senior
executive of a leading private equity firm would be invaluable to the process. We also doubt
that Mr. Yihs decision would be influenced by the lost income caused by a sale of ANN.

Why now?
11

The unusually favorable credit markets have created an environment where buyers are able to
pay up for assets given their ability to obtain financing at very attractive rates.

Source: PitchBook 3Q 2014 U.S. PE BREAKDOWN

Table of contents
12

Situation overview
Relevant overview of the Company
Financial sponsor transaction
Corporate transaction
Potential buyers & transaction summary
Other alternatives (status quo, levered recapitalization and
acquisition)
Conclusion & next steps

ANN is an ideal private equity target

13

Consistent performance (see slide 14 below)

Margin opportunity

Long-term target of double digit EBIT margin compared to LTM EBIT margin of 6.3%
Significant supply chain opportunity leading to further store productivity and margin gains

Growing free cash flow

Capital expenditures will decrease significantly over the next few years, as most of the
stores are new or have recently been renovated.

Significant growth opportunities (see slide 15 below)

Well-recognized brand & very strong customer loyalty

Size

Not too big, yet large enough to move the needle for large private equity firms

Consistent performance
14

Gross margins consistently between 52%

and 54% (because of strict inventory
guidelines and a strong sourcing
organization) with upside potential
based on management initiatives.

Excluding the 2008/2009 period, EBITDA

margins around 11% with upside
potential based on management
initiatives (target of double digit EBIT
margin)

Significant growth opportunities

15

Lou & Grey

Omnichannel

Significant opportunity to expand ANNs iconic brands internationally (beyond

managements current efforts in Canada and Mexico)
Many other specialty apparels are expanding internationally using a capital light model.

New channels

Further improvement of mobile capabilities and integration of online and store

environments to create true omnichannel experience.

International expansion

Third concept is currently being launched

Our analysis indicates that Lou & Grey could contribute meaningfully to ANNs EBITDA
over the long term.

Opportunity to open ANN stores within a store in select department stores in the US
and internationally

NYC relocation

New York lease is coming due in 2019 there may be a significant opportunity to reduce
cost through a relocation outside Manhattan; we question why the Company needs to
rent 300,000 sq. ft. in Times Square, Manhattan
Tax rate is higher than peers and could potentially be reduced outside of NYC

Financial model base case scenario

16

This model does not incorporate the growth opportunities highlighted in the prior slide. We
would expect a management presentation to potential buyers to include these opportunities
with more granularity leading to upside to our numbers.
Income statement

2014

Cash flow statement

2015

2016

2017

2018

Projected
2019

2,662
4.0%

2,742
3.0%

2,825
3.0%

2,909
3.0%

2,997
3.0%

Sales
Growth Rate

2,560

Gross Profit

1,331

1,404

1,454

1,503

1,557

1,613

52.0%

52.7%

53.0%

53.2%

53.5%

53.7%

1,175

1,214

1,245

1,274

1,306

1,339

as % of Sales

45.9%

45.6%

45.4%

45.1%

44.9%

44.7%

EBITDA
as % of Sales

268
10.5%

306
11.5%

329
12.0%

353
12.5%

378
13.0%

405
13.5%

Depreciation
as % of Sales

(112)
4.4%

(116)
4.4%

(120)
4.4%

(124)
4.4%

(127)
4.4%

(131)
4.4%

EBIT
as % of Sales

156
6.1%

190
7.1%

209
7.6%

229
8.1%

251
8.6%

273
9.1%

Taxes
Net Income
as % of Sales

(62)
94
3.7%

(75)
115
4.3%

(83)
127
4.6%

(91)
139
4.9%

(99)
152
5.2%

(108)
165
5.5%

Gross Margin
SG&A

Source: Capital IQ; Engine Capital & Red Alders analysis

Projected
EBITDA

2014

2015

2016

2017

2018

2019

268

306

329

353

378

405

- Interest
- Tax
- Change in Working Capital
as % of change in sales
- Capex
as % of Sales
Free Cash Flow

0.0

0.0

0.0

0.0

0.0

(75)

(83)

(91)

(99)

(108)

(2)

(1)

(1)

(1)

(1)

1.5%

1.5%

1.5%

1.5%

1.5%

(100)

(103)

(106)

(109)

(113)

3.8%

3.8%

3.8%

3.8%

3.8%

130

142

155

169

183

We assume ANN reaches a 9.1% EBIT

margin in 2019 vs. managements target
of double digit EBIT margins.

Table of contents
17

Situation overview
Relevant overview of the Company
Financial sponsor transaction
Corporate transaction
Potential buyers & transaction summary
Other alternatives (status quo, levered recapitalization and
acquisition)
Conclusion & next steps

LBO model
18

We would expect a financial sponsor to reduce capital expenditures (capex) further. Out of conservatism
and to be consistent with the other alternatives, we have kept capex at 3.8% of sales.
At $52.50 per share, a financial sponsor would realize a 19.9% IRR. We think this IRR is conservative as the
financial model does not incorporate the growth opportunities highlighted in slide 12.
Cash flow statement

IRR
Exit Multiple
7.0x
7.5x
8.0x

ANN purchase price

$50.00
$52.50
$55.00
21.0%
17.7%
14.9%
23.3%
19.9%
17.1%
25.4%
22.0%
19.1%

Projected

2014

2015

2016

2017

2018

2019

268.0

306.2

329.1

353.1

378.2

404.5

- Interest

(77.9)

(72.5)

(66.1)

(58.6)

(50.1)

- Tax

(44.2)

(54.0)

(64.5)

(76.0)

(88.2)

- Change in Working Capital

(1.5)

(1.2)

(1.2)

(1.3)

(1.3)

as % of change in sales

1.5%

1.5%

1.5%

1.5%

1.5%

(100.0)

(103.0)

(106.1)

(109.3)

(112.6)

as % of Sales

3.8%

3.8%

3.8%

3.8%

3.8%

FCF for Debt Service

82.6

98.4

115.1

133.1

152.4

1,257.4

1,159.0

1,043.9

910.8

758.5

EBITDA

- Capex

Transaction financing
Sources
Senior Debt
Equity
Total sources

1,340.0
917.0
2,257.0

Uses
ANN equity @ $52.50
Refinance existing net debt
Transaction fees

2,457.0
(225.0)
25.0

Total uses

2,257.0

Debt Repayment Schedule

Senior Debt

1,340.0

Assumptions include leverage at 5x LTM EBITDA, cost of debt of 6.0%,

closing on 1/30/2015, and $75 million in free cash flow generated in Q3
and Q4.

Financial sponsor transaction multiples

19

Financial sponsor transactions

Date
Dec-13
May-13
Mar-13
Nov-12
Aug-12
Jun-12
Nov-10
Oct-10
Aug-09
Jul-07
May-07
Mar-07
Nov-06
Jan-06
Dec-05

Target
The Jones Group
rue21
Hot Topic
Cole Haan
David's Bridal
Savers
J Crew
Gymboree
Charlotte Russe
Deb Shops
Express
Claire's
David's Bridal
Burlington Coat
Tommy Hilfiger

Acquirer
Sycamore Partners
Apax Partners
Sycamore Partners
Apax Partners
Clayton, Dubillier & Rice
TPG/LGP
TPG/LGP
Bain Capital
Advent
Lee Equity
Golden Gate Capital
Apollo
Leonard Green & Partners (LGP)
Bain Capital
Apax Partners

Deal Value
2,200
996
550
570
1,050
1,800
2,700
1,761
320
259
755
2,739
750
1,958
1,547
Median
Average

Based on prior private equity transactions, we think ANN would

trade between 8 and 9x EBITDA, implying a price between $50
to $55 per share, consistent with our LBO model.

EV/ LTM EBITDA

8.8x
9.6x
8.6x
11.1x
9.0x
11.0x
9.0x
8.2x
7.6x
7.8x
9.0x
9.0x
9.0x
7.2x
7.9x
9.0x
8.9x

Table of contents
20

Situation overview
Relevant overview of the Company
Financial sponsor transaction
Corporate transaction
Potential buyers & transaction summary
Other alternatives (status quo, levered recapitalization and
acquisition)
Conclusion & next steps

Potential strategic interest

21

Synergies for a strategic buyer would make a potential acquisition highly compelling.
A couple of specialty apparel retailers have developed M&A and integration
expertise and have built a shared service model that allow them to extract very
meaningful cost savings from horizontal acquisitions.
In this uncertain retail environment, this type of acquisition can create significant
value for both the acquirer and the target with limited risk.
Three recent retail transactions highlight this trend:

Acquisition of Charming Shoppes by Ascena Retail group

Acquisition of Zale by Signet Group
Acquisition of Jos. A. Bank by Mens Wearhouse

Our analysis indicates that a potential strategic buyer could extract $150 million of
cost savings from ANN.
For illustrative purposes, we show that Chicos could pay up to $67.50 for ANN shares
and it would still be 20% accretive for Chicos EPS (assuming 2x leverage).
If Chicos paid $60 per share for ANN and assuming 2x leverage and $100 million of
synergies, the deal would be 30.5% EPS accretive for Chicos.
An international retailer could also significantly accelerate ANN growth overseas.

Cost synergies case studies

22

MW / JOSB cost synergies

Sourcing & merchandising

Store operations
G&A
E-commerce, advertising
Other
Total

Synergies % Savings
30
6.8%
14
1.6%
46
56.9%
14
3.3%
TBD
104

10.9%

Comments
% COGS
% total operating costs
% G&A
% selling & marketing
High end of management estimates
includes another 46m of synergies
% total operating costs

SIG / ZLC cost synergies

Sourcing & purchasing

SG&A
Other / operations
Total

Synergies % Savings
81
9.4%
33
3.4%
24
1.3%
138
7.6%

Comments
% COGS
% SG&A
% total operating costs
% total operating costs

Notes:
(1) Mens Wearhouse and Signet deals closed on 6/18/14 and 5/29/14, respectively. Synergy figures are current management estimates.
(2) Other/operations of ~$49m for ZLC includes revenue and cost synergies in undisclosed amounts. We assumed 50% are attributable to cost synergies.
(3) % savings represent estimated savings divided by LTM cost items immediately prior to the acquisition. SIG synergies updated to midpoint of 8/28/14
revised synergy estimates

Potential cost synergies for ANNs acquirer

23

Potential ANN cost synergies

Sales
Cost of goods sold
Gross profit

LTM
2,520
1,192
1,328

SG&A
EBIT

1,171
158

Total operating costs

2,362

Potential synergies

Product
Sourcing &
Store
Purchasing Operations

SG&A

6.8%

3.4%

1.3%

Total

Assumptions

80

% savings JOSB deal

40

% savings ZLC deal

32

% savings ZLC deal

152

$152 million of synergies represent 6.4% of ANN total operating costs. This compares
to synergies of 10.9% and 7.6% of total operating costs for JOSB and ZLC, respectively.

Out of conservatism, we are estimating $100 million in potential cost synergies.

An acquisition by CHS would be highly accretive

24

Chicos EPS accretion

LTM Leverage
1.5x
2.0x
2.5x

$50.00
43.1%
48.5%
54.8%

Pro forma LTM P&L

ANN purchase price

$55.00
$60.00
$65.00
34.6%
26.9%
20.1%
38.9%
30.5%
23.1%
44.0%
34.6%
26.4%

$70.00
14.0%
16.4%
19.1%

Sales
COGS
Gross profit
Gross Margin

Pro forma ownership & transaction financing

Pro forma ownership
# CHS shares
CHS shares issued for ANN shares
Pro forma # CHS shares
Sources
Cash
Senior Debt
Issuance of CHS shares
Total sources

Uses
ANN equity @ $60
Financing fees
Fees & exp.
Total uses

# shares
150.7
92.0
242.7

259.0
1,100.6
1,472.7
2,832.3

2,808.0
11.0
13.3
2,832.3

Ownership %
62.1%
37.9%
100.0%

LTM numbers
CHS
ANN
2,618.5
2,520.0
1,210.5
1,191.8
1,408.0
1,328.2

Adjustments Pro Forma

5,138.5
(60.0)
2,342.3
2,796.2

53.8%

52.7%

1,234.7
173.3

1,170.7
157.5

6.6%

6.3%

Interest expense
PBT

-0.2
173.5

1.1
156.4

Tax expense
Net income
# shares outstanding
EPS
EPS accretion

65.1
108.4
150.7
0.72

61.8
94.6
46.8
2.02

0.0x

0.0x

2.00x

3.59x

3.61x

4.70x

SG&A
EBIT
EBIT Margin

Credit metrics
Total debt / LTM EBITDA
Adj. debt / LTM
EBITDAR

54.4%

(40.0)

2,365.4
430.8
8.4%

59.6

92.0

60.5
370.3
142.4
228.0
242.7
0.94
30.5%

Assumptions include $100 million in synergies (60% COGS; 40% SG&A), cost of debt of 5.5%,
and CHS stock issued at $16 per share.

Corporate transaction multiples

25

Corporate transactions

Date
Mar-14
Feb-14
Feb-14
Jan-13
May-12
May-12
Aug-11

Target
Jos. A. Bank
Eddie Bauer
Zale Corporation
Intermix
Collective Brands
Charming Shoppes
Boston Proper

Acquirer
Men's Wearhouse
Jos. A. Bank
Signet
Gap
Wolverine / Golden Gate
Ascena Retail Group
Chico's

Deal Value
1,800
825
1,425
130
1,781
886
205
Median
Average

Based on prior corporate transactions, we think ANN would

trade between 10 and 11x EBITDA, implying a price between
$60 and $65 per share, consistent with our accretion model.

EV/ LTM EBITDA

10.6x
13.1x
18.5x
9-10x
8.6x
10.9x
10.0x
10.8x
12.0x

Table of contents
26

Situation overview
Relevant overview of the Company
Financial sponsor transaction
Corporate transaction
Potential buyers & transaction summary
Other alternatives (status quo, levered recapitalization and
acquisition)
Conclusion & next steps

Potential buyers
27

There is a long list of potential buyers . The names below represent the most obvious ones. We
are confident J.P. Morgan will come up with an appropriate list of potential buyers.
Financial sponsors

Golden Gate Capital

Significant retail experience

Tommy Hilfiger, Rue21, New Look

Significant retail experience

Davids Bridal, J. Crew

TPG
KKR
Blackstone

Highly accretive transaction

M&A experience
Shared service model

J. Crew

Highly accretive transaction

M&A experience
Shared service model

Ascena Retail Group

Significant retail experience

Gymboree, Burlington Coat

Leonard Green & Partners

Significant retail experience

Quasi strategic given MAST ownership

Chicos

Bain Capital

Significant retail experience

Owns 9.5% of ANN

Apax Partners

Sycamore Partners

Strategic buyers

Highly accretive transaction

Both companies are based in NYC
Mr. Drexler (CEO of J. Crew) worked at ANN

Fast Retailing

Highly accretive transaction

Desire to expand in the US

Transaction summary
28

ANN is a very attractive asset for a financial sponsor and could be a very
compelling acquisition for a strategic party.
A sale to a financial sponsor would likely take place between $50.00 to $55.00 per
share, implying a 40% premium to the unaffected price of $37.52 on August 22,
2014, before we publicly released our letter to ANNs board.
While less likely, a strategic buyer could pay significantly more than financial
sponsors because of the significant synergies.
For illustrative purposes, we highlight that Chicos could pay up to $67.50 per share
for ANN and it would still be 20% EPS accretive for CHS shareholders.
Unless the Board instructs J.P. Morgan to solicit bids, we will never know .

Table of contents
29

Situation overview
Relevant overview of the Company
Financial sponsor transaction
Corporate transaction
Potential buyers & transaction summary
Other alternatives (status quo, levered recapitalization and
acquisition)
Conclusion & next steps

Status quo
30

Under the status quo scenario, the stock price of ANN discounted to present doesnt reach $50 per share.
A sale of ANN today is vastly superior.
Income statement, EPS & stock price calculation
Projected
2019

2014

2015

2016

2017

2018

EBIT
as % of Sales

156.0
6.1%

189.7
7.1%

209.1
7.6%

229.5
8.1%

250.9
8.6%

273.4
9.1%

Interest
Profit Before Taxes
Tax
Net Income
Free Cash Flow

0.0
156.0
(61.6)
94.4
75.0

0.0
189.7
(74.9)
114.8
129.7

0.0
209.1
(82.6)
126.5
142.3

0.0
229.5
(90.7)
138.8
155.1

0.0
250.9
(99.1)
151.8
168.5

0.0
273.4
(108.0)
165.4
182.7

# shares BOP
46.8
# shares EOP
45.0
Average # shares
45.9
EPS
2.06
Stock price at 14x (BOP)
Price discounted to 1/30/2015

45.0
41.8
43.4
2.64
$37.03
$37.03

41.8
38.6
40.2
3.15
$44.07
$39.35

38.6
35.7
37.1
3.74
$52.33
$41.72

35.7
33.0
34.3
4.42
$61.88
$44.05

33.0
30.6
31.8
5.20
$72.85
$46.30

Assumptions include a discount rate of 12%, 100% of free cash flow used to buy back shares, $75 million of free cash flow generated in
Q3 and Q4 of 2014, and $150 million on the Companys balance sheet. BOP stands for beginning of period. EOP stands for end of period.

Levered recapitalization
31

While a levered recapitalization creates value compared to the status quo, a sale today would deliver more
short and long-term value with significantly less risk.
Income statement, EPS & stock price calculation

2014

2015

2016

2017

2018

Projected
2019

EBIT
as % of Sales

156.0
6.1%

189.7
7.1%

209.1
7.6%

229.5
8.1%

250.9
8.6%

273.4
9.1%

Interest
Profit Before Taxes
Taxes
Net Income
Free Cash Flow

(7.5)
148.5
(58.7)
89.8
70.5

(30.0)
159.7
(63.1)
96.6
111.6

(30.0)
179.1
(70.7)
108.4
124.1

(30.0)
199.5
(78.8)
120.7
136.9

(30.0)
220.9
(87.3)
133.7
150.4

(30.0)
243.4
(96.2)
147.3
164.5

33.5
30.8
32.1
3.01
$42.09
$42.09

30.8
28.4
29.6
3.66
$51.26
$45.77

28.4
26.2
27.3
4.43
$61.96
$49.39

26.2
24.1
25.2
5.31
$74.40
$52.96

24.1
22.3
23.2
6.35
$88.87
$56.48

# shares BOP
46.8
# shares EOP
33.5
Average # shares
40.1
EPS
Stock price at 14x (BOP)
Price discounted to 1/30/2015

Assumptions include a tender offer on 10/1/2014 for 13.3 million ANN shares at $45 per share funded by $600 million senior debt at 5%,
no additional share repurchases in 2014, 100% of free cash flow in following years used to buy back shares, and a discount rate of 12%.
BOP stands for beginning of period. EOP stands for end of period.

Levered recapitalization accretion

32

EPS accretion

EPS (status quo)

EPS (levered recapitalization)
Accretion

2015
$2.64
$3.01
13.7%

2016
$3.15
$3.66
16.3%

2017
$3.74
$4.43
18.4%

Stock price at beginning of year

Stock price Status Quo (BOP)

Stock price Levered Recap (BOP)
Difference

2015
$37.03
$42.09
13.7%

2016
$44.07
$51.26
16.3%

2017
$52.33
$61.96
18.4%

As indicated on the left, a conservatively

levered recapitalization is around 15%
EPS accretive relative to the status quo.
That said, when discounted back to
1/30/2015, the resulting stock prices are
still inferior to the likely outcome of a
sale without taking into account
execution risk.

Stock price discounted to 1/30/2015

Stock price Status Quo (1/30/2015)

Stock price Levered Recap (1/30/2015)
Difference

2015
$37.03
$42.09
13.7%

2016
$39.35
$45.77
16.3%

2017
$41.72
$49.39
18.4%

Assumptions include a tender offer on 10/1/2014 for 13.3 million ANN shares at $45 per share funded by $600 million senior debt at 5%,
no additional share repurchases in 2014, 100% of free cash flow in following years used to buy back shares, and a discount rate of 12%.
Stock price calculated using a 14x price to earnings ratio. BOP stands for beginning of period.

Acquisition
33

Unlike other specialty retailers (like CHS or ASNA, for example) that have developed
M&A and integration expertise through the development of a shared service model,
ANN has never executed an acquisition in the past. Acquisitions are not the Companys
core competence and are fraught with execution risks.

These M&A retailers are positioning themselves as holding companies with a

portfolio of different brands. This has an impact on the DNA of the Company. We do
not think that ANN views itself as a holding company and neither do we.

An acquisition would complicate the business. One of the knocks on ANN over the
years has been that when one of the divisions works, the other does not. An
acquisition would merely compound this problem.

Shareholders agree with our recommended course of action and would rather see the
Company be the target than the acquirer.

Table of contents
34

Situation overview
Relevant overview of the Company
Financial sponsor transaction
Corporate transaction
Potential buyers & transaction summary
Other alternatives (status quo, levered recapitalization and
acquisition)
Conclusion & next steps

Valuation range
35

In this presentation, we analyze different options for ANN and conclude that a sale is the best option.

52-week range

$30.71

Status quo

$43.61

$37.00

Levered recapitalization

$40.00

$42.00

Financial sponsor
transaction

$49.00

$50.00

$55.00

Corporate transaction

$25.00

$60.00

$30.00

$35.00

$40.00

$45.00

$50.00

$55.00

$60.00

Status quo and levered recapitalization range represent 2015 and 2016 stock prices discounted back to 1/30/2015.

$65.00

$65.00

$70.00

Conclusion and next steps

36

Based on shareholders feedback, we think that the Board has heard from a number of
shareholders that the status quo is untenable.
Based on our analysis, a sale would maximize value while minimizing risks for
shareholders. While not as optimal as a sale, a levered recapitalization is better than
the status quo.
We urge the Company to acknowledge publicly that it is reviewing all strategic
alternatives and, in particular, actively soliciting bids from financial sponsors and
strategic parties as part of a robust sale process. We also request the formation of a
special committee of independent directors led by Mr. Yih.
Millions of shares are trading based on incomplete information.
A leak has already taken place with a Reuters story about J.P. Morgan having been
hired to evaluate strategic alternatives, although it is not clear what J.P. Morgan
has been hired to do.
A public announcement will put a floor on the stock and increase the likelihood of
a successful transaction.

Certain information regarding this investor presentation

37

This Investor Presentation does not constitute a recommendation to any shareholder as to any investment or other decision
by such shareholder. We have not made any independent evaluation or appraisal of the assets, liabilities or solvency of the
Company. We have not been retained by the Company or any other person to prepare this analysis and have not received any
compensation therefore. The information presented herein reflects our best judgment as of the date of this Investor
Presentation and reflects assumptions we believe to be reasonable based on currently available information. However, it
does not purport to address all potential alternatives, the relative merits of different alternatives or all risks, uncertainties or
assumptions associated therewith.
The disclosure in this Investor Presentation is necessarily based on economic, market, financial and other conditions as they
existed, and on the information publicly available to us, as of the date we prepared this Investor Presentation and, except to
the extent required by law, we undertake no obligation to update or otherwise revise these materials. The analyses included
herein are not necessarily indicative of future actual values and future results, which may be significantly more or less
favorable than suggested by such analyses. We make no representation herein as to the price at which the Companys
common stock will trade at any future time. Such trading prices may be affected by a number of factors, including but not
limited to changes in prevailing interest rates and other factors which generally influence the price of securities, adverse
changes in the current capital markets, and the occurrence of adverse changes in the financial condition, business, assets,
results of operations or prospects of the Company or in the industries it participates in. In connection with the views
expressed herein, we reviewed certain financial and other information that was publicly available to us from SEC filings of the
Company and others, conference calls of Company management and industry competitors, Wall Street analyst reports,
industry publications and other sources. In the analysis of the Company in this Investor Presentation, we have relied upon
and assumed, without independent verification, the accuracy and completeness of all of the financial and other information
that was available to us from publicly available sources, and do not assume any responsibility or liability therefor. Any
estimates and projections for the Company reflected herein involve numerous and significant subjective determinations,
which may or may not prove to be correct. No representation or warranty, expressed or implied, is made as to the accuracy or
completeness of any such information and nothing contained herein is, or shall be relied upon as, a representation, whether
as to the past or the future.