Ascena Retail Group, Inc. Notes to Consolidated Financial Information (Unaudited)

Note 1. Basis of Presentation

Charming Acquisition

On June 14, 2012, the Company acquired Charming Shoppes, Inc. and its related family of retail brands (collectively, “Charming”) for an aggregate cash purchase price of $882.1 million (the “Charming Acquisition”). Accordingly, both the fourth quarter and full year of Fiscal 2012 only include the results of operations for Charming for a 45-day period from the date of acquisition.

Discontinued Operations

In connection with the Charming Acquisition, certain acquired businesses have been classified as a component of discontinued operations within the consolidated financial statements.

In particular, the Company announced, contemporaneously with the closing of the acquisition of Charming Shoppes, its intent to cease operating the acquired Fashion Bug business. The Fashion Bug business, consisting of approximately 600 retail stores, ceased operations in February 2013.

In addition, the Company also announced, contemporaneously with the closing of the acquisition of Charming Shoppes, its intent to sell the acquired Figi’s business, which markets food and specialty gift products. The Company recently entered into an agreement to sell the principal net assets of the Figi’s business, which is expected to close during the first quarter of Fiscal 2014.

Those businesses have been classified as discontinued operations within the unaudited consolidated financial statements. As such, assets and liabilities relating to discontinued operations have been segregated and separately disclosed in the balance sheet as of the end of each period. In turn, operating results for those businesses have also been segregated and reported separately in the statement of operations for Fiscal 2013 and Fiscal 2012.

Reclassifications

Certain immaterial reclassifications have been made to the prior period’s financial information in order to conform to the current period’s presentation.

Note 2. Use of Non-GAAP Financial Measures

To provide investors information to assist them in assessing the Company’s ongoing operations on a comparable basis, the Company has provided Fiscal 2013 and Fiscal 2012 financial measures in this press release that reflect certain acquisition-related integration, restructuring and transaction costs in connection with the Charming Acquisition. Additionally, the Company also incurred in Fiscal 2013 certain charges related to the extinguishment of debt and accelerated depreciation of certain assets that will ultimately be displaced by the Company’s supply chain and technology integration efforts. Management believes that all of such costs are not indicative of the Company’s underlying operating performance. Throughout this release, the term “reported” refers to information prepared in accordance with accounting principles generally accepted in the United States (GAAP), while the term “adjusted” refers to non-GAAP financial information adjusted to exclude certain costs. All information below is presented for the Company’s continuing operations.
 
(in millions, except per share amounts)   Fourth Quarter  

Full Year
FY 2013

FY2013

Income before income taxes
 

Income taxes
 

Net income
 

Diluted net income per common share

Income before income taxes
 

Income taxes
 

Net income
 

Diluted net income per common share

Reported basis – continuingoperations
$56.8   $18.5   $38.3   $0.23 $242.6   $87.4   $155.2   $0.95
Adjustments:

Non-recurring inventory purchaseaccounting adjustments
-- -- -- -- 19.9 7.4 12.5 0.08

Acquisition-related integration andrestructuring costs
14.5 5.4 9.1 0.06 34.6 12.8 21.8 0.13

Accelerated depreciation related tointegration
14.2 5.3 8.9 0.05 14.2 5.3 8.9 0.05
Loss on extinguishment of debt --   --   --   -- 9.3   3.5   5.8   0.04
Adjusted basis – continuing operations $85.5   $29.2   $56.3   $0.34 $320.6   $116.4   $204.2   $1.25

 
  Fourth Quarter  

Full Year
FY 2012

FY2012

Income before income taxes
 

Income taxes
 

Net income
 

Diluted net income per common share

Income before income taxes
 

Income taxes
 

Net income
 

Diluted net

income per

common share
Reported basis – continuing operations $22.0   $10.8   $11.2   $0.07 $279.0   $107.2   $171.8   $1.08
Adjustments:

Non-recurring inventory purchaseaccounting adjustments
13.5 5.1 8.4 0.05 13.5 5.1 8.4 0.05

Acquisition-related integration andrestructuring costs
25.4 4.2 21.2 0.13 25.4 4.2 21.2 0.13
Acquisition-related transaction costs 7.2   0.9   6.3   0.04 14.0   3.4   10.6   0.07
Adjusted basis – continuing operations $68.1   $21.0   $47.1   $0.29 $331.9   $119.9   $212.0   $1.33
 

Gross margin:
(in millions)     Fourth Quarter   Full Year
FY 2013   FY 2012 FY 2013   FY 2012
Reported basis $671.6   $501.6 $2,648.1   $1,878.6
Adjustments:

Non-recurring inventory purchaseaccounting adjustments
--   13.5 19.9   13.5
Adjusted basis $671.6   $515.1 $2,668.0   $1,892.1
 

Operating income:
(in millions)   Fourth Quarter   Full Year
FY 2013   FY 2012 FY 2013   FY 2012
Reported basis $58.3   $30.8 $265.3   $292.6
Adjustments:

Non-recurring inventory purchaseaccounting adjustments
-- 13.5 19.9 13.5

Acquisition-related integration andrestructuring costs
14.5 25.4 34.6 25.4

Accelerated depreciation related tointegration
14.2   -- 14.2   --
Adjusted basis $87.0   $69.7 $334.0   $331.5

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