##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  FORM 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended
    February 3, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF
    THE SECURITIES EXCHANGE ACT OF 1934For the Transition Period
    from          to   Commission File Number 1-12552
  THE TALBOTS, INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

41-1111318State or other jurisdiction
    of
    incorporation or organization

(I.R.S. Employer
    Identification No.)   One Talbots Drive, Hingham, Massachusetts 02043
 (Address of principal executive
    offices)
  Registrants telephone number, including area code
 781-749-7600
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of each class

Name of exchange on which registeredCommon stock, $.01 par value


New York Stock Exchange   Securities registered pursuant to section 12(g) of the
    Act:
 None
 (Title of class)
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ
      Documents
    Incorporated by Reference
  Form 10-K.




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##### 



The
    Talbots, Inc.
  Annual
    Report on
    Form 10-K
    for the Fiscal Year Ended February 3, 2007
  
  PagePART IItem 1.

Business


2Item 1A.

Risk
    Factors


12Item 1B.

Unresolved Staff
    Comments


17Item 2.

Properties


17Item 3.

Legal
    Proceedings


18Item 4.

Submission of
    Matters to a Vote of Security Holders


18PART IIItem 5.

Market for the
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


18Item 6.

Selected Financial
    Data


20Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


20Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk


37Item 8.

Financial
    Statements and Supplementary Data


37Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


37Item 9A.

Controls and
    Procedures


38Item 9B.

Other
    Information


41PART IIIItem 10.

Directors,
    Executive Officers and Corporate Governance


41Item 11.

Executive
    Compensation


41Item 12.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


41Item 13.

Certain
    Relationships and Related Transactions, and Director
    Independence


41Item 14.

Principal
    Accounting Fees and Services


41PART IVItem 15.

Exhibits, Financial
    Statement Schedules


42Ex-23.1 Consent of Deloitte & Touche LLPEx-31.1 Section 302 Certification of CEOEx-31.2 Section 302 Certification of CFOEx-32.1 Section 906 Certification of CEO & CFO   1




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##### Table of Contents



PART I  Item 1.
    Business.  General
    Talbots brand.
    J. Jill brand.
       2




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Form 10-K.
  Operating
    Strategy
    Talbots Brand. Maintain its strong
    competitive position in the classic niche by providing
    consistently classic womens, childrens, and
    mens apparel, accessories and shoes. head-to-toe.
  Maintain its posture as a limited promotion
    retailer. end-of-season end-of-season
  J. Jill Brand. Continue to make refinements
    to its product in order to broaden the appeal of the
    brands merchandise.
  Total Company.  Continue to operate as a branded
    high quality merchandise retailer.
    Continue to capitalize on its complementary store, catalog,
    and online operations.
 3




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Continue to provide superior customer
    service.
  Offer a broad mix of store location types.
  Merchandising,
    Inventory Control and Distribution
  Merchandising
  head-to-toe.
  Branded Merchandise Design and Purchasing.
    Sourcing.
   4




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##### Table of Contents



Inventory
    Control and Distribution
    Expansion
        
    J. Jill brand.  In May 2006, the Company
    acquired J. Jill, which originated operations in 1987. In its
    early years, J. Jill was a multi-brand single channel market
    sourced retailer. It subsequently changed its strategic
    direction to become a single brand multi-channel private label
    retailer. In 1999, J. Jill began opening retail stores and
    launched its website jjill.com. With the acquisition of J. Jill,
    the Company acquired 205 retail stores and a direct marketing
    business. As of February 3, 2007, there were 239 J. Jill
    apparel stores open in the United States. J. Jill offers misses
    and petites concepts in its retail stores, and misses, petites,
    woman, and talls in its catalogs and website.
    Talbots Petites.  In 1984, the Company began
    offering Talbots brand merchandise in petites sizes in its
    catalogs, and in 1985 the Company opened its first Talbots
    Petites store. As of February 3, 2007, there were 5




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##### Table of Contents



297 Talbots Petites stores open, including four stores in
    Canada. Virtually every item of womens apparel in the
    Talbots catalog and online is offered in both misses and petites
    sizes.  
    Talbots Kids.  In 1989, the Company presented
    Talbots Kids merchandise in a separate catalog dedicated to
    apparel for boys and girls. The first Talbots Kids store opened
    in 1990. During 1995, Talbots expanded the Talbots Kids
    merchandise by offering an assortment of infant and toddler
    apparel. As of February 3, 2007, there were 67 Talbots Kids
    stores open. During 2006, four separate Talbots Kids catalogs
    were circulated nationally.
    Talbots Accessories & Shoes.  In 1994,
    the Company introduced Talbots Accessories & Shoes in
    two catalogs devoted to this category. The Company opened its
    first Talbots Accessories & Shoes stores in 1995 and
    operated 39 stores as of February 3, 2007. A limited
    collection of this merchandise is offered in each major catalog
    and on-line, in virtually all stores and, in 2006, in two
    separate catalogs.
    Talbots Woman.  In 1998, the Company introduced
    Talbots Woman, a large size concept, which offers the same
    classic styling, high quality, and fit as the Companys
    misses and petites concepts to customers wearing sizes 12W to
    24W. It was introduced as a department in seven existing Talbots
    Misses stores, as one separate store adjacent to other Talbots
    concept stores, and in two nationally circulated catalogs. In
    2001, the Company expanded the concept with the introduction of
    Talbots Woman Petites, which focuses on fuller figured women
    54 and under. As of February 3, 2007, there
    were 131 Talbots Woman stores open, including three stores in
    Canada. All 131 Talbots Woman stores also offer Talbots Woman
    Petites. Assortments of both Talbots Woman and Talbots Woman
    Petites are also available through the Companys catalogs,
    online, and as separate departments within 42 Talbots Misses
    stores.
    Talbots Collection.  Also in 1998, the Company
    introduced Talbots Collection, which was developed for those
    customers seeking an upper-tier, well-defined selection of
    apparel featuring more luxurious fabrics and sophisticated
    styling. Talbots Collection is currently presented as a separate
    department in 104 existing Talbots Misses stores. In the fall of
    2003, the Company opened its first Talbots Collection store and
    a second store was opened in 2005. Also during 2005, the Company
    introduced Collection Petites in 45 stores and Collection Shoes
    in 35 stores. An assortment of Talbots Collection merchandise is
    also available through the Talbots brand catalogs and online.
    The Company continues to use the Talbots Collection concept to
    test new fabrics and fashion trends, which may later be
    incorporated into the core Talbots lines.
    Talbots Mens.  In the fall of 2002, the Company
    introduced its Talbots Mens concept in a separate catalog. The
    line features classic sportswear and dress furnishings with an
    emphasis on detail and quality, consistent with the
    Companys other concepts. In the spring of 2003, the
    Company opened its first three Talbots Mens stores and as of
    February 3, 2007, there were 12 Talbots Mens stores open.
    During 2006, Talbots Mens merchandise was also presented in two
    separate catalogs and online.    Stores
     6




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Direct
    Marketing Business
       7




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Customer
    Credit
        Management
    Information Systems
    point-of-sale
   8




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Seasonality
    Advertising
    Competition
      Employees
   9




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##### Table of Contents



Executive
    Officers of the Company
    Name

Age

PositionArnold B. Zetcher


66


Chairman of the Board, President
    and Chief Executive OfficerPhilip H. Kowalczyk


46


President of The J. Jill Group,
    Inc.Harold B. Bosworth, Jr.


57


Executive Vice President, Chief
    Merchandising Officer, Talbots BrandMichele M. Mandell


59


Executive Vice President, Stores,
    Talbots BrandRichard T.
    OConnell, Jr.


56


Executive Vice President, Legal
    and Real Estate, and SecretaryJohn Fiske, III


42


Senior Vice President, Human
    ResourcesPaul V. Kastner


55


Senior Vice President,
    International, Talbots Brand, and Strategic Planning, Assistant
    Treasurer and Assistant SecretaryEdward L. Larsen


62


Senior Vice President, Finance,
    Chief Financial Officer and TreasurerAndrea M. McKenna


50


Senior Vice President, Marketing
    and Catalog Development, Talbots BrandBruce Lee Prescott


51


Senior Vice President, Direct
    Marketing, Talbots Brand, and Customer ServiceRandy Richardson


48


Senior Vice President, Information
    ServicesBruce C. Soderholm


64


Senior Vice President, Operations          10




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Available
    Information
  Form 10-K, Form 10-Q, Form 8-K,
 11




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(781) 741-4500, e-mail
  Item 1A.
    Risk
    Factors  Form 10-K,
  and/or
  The
    success of the business depends on the Companys ability to
    respond to constantly changing fashion trends and consumer
    demands.
    The
    retail apparel industry is highly competitive.
    
    anticipating and responding to changing consumer demands;
    maintaining favorable brand recognition;
    developing high quality merchandise in sizes, colors, and styles
    that appeal to consumers;
    appropriately managing inventory levels;
    sourcing merchandise efficiently;
    effectively marketing the Companys products to
    consumers; and
    pricing the Companys merchandise appropriately.   12




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The
    Company may not be able to successfully reposition J.
    Jills operations.
    
    Implement key design changes to the J. Jill brand merchandise
    that will lead to increased sales;
    Appropriately price the J. Jill brand merchandise;
    Open J. Jill brand stores in locations where operations will be
    profitable;
    Successfully integrate back office functions, including
    operational, financial, and management systems and controls in a
    timely manner; and
    Execute strategies for the J. Jill brand without adversely
    impacting the existing Talbots brand.    The
    Company cannot assure the successful implementation of its
    growth strategy.
    The
    Company incurred substantial debt to finance the J. Jill
    acquisition.
      Restrictions
    in the Companys Acquisition Loan Agreement may limit its
    activities.
    
    incur additional indebtedness,
    make investments, 13




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
    create liens,
    sell assets,
    enter into sale and leaseback transactions, and
    consolidate, or merge.    The
    Company cannot assure a successful search for
    Mr. Zetchers successor as Chief Executive
    Officer.
    The
    Company experiences fluctuations in comparable store sales
    results.
      The
    Company experiences fluctuations in operating
    results.
  period-to-period
  If the
    Company fails to maintain the value of its brands, sales are
    likely to decline.
   14




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The
    Company cannot assure that it will be successful in introducing
    new business concepts that will result in increased
    profitability for the Company.
    The
    Company cannot assure that Internet sales will continue to
    achieve sales and profitability growth.
    The
    Company could be adversely affected if any of its distribution
    centers are shut down.
  and/or
  Talented
    personnel are critical to the Companys
    success.
    The
    Companys overseas merchandise purchasing strategy makes it
    vulnerable to a number of risks.
   15




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##### Table of Contents




    political instability;
    imposition of new legislation relating to import quotas that may
    limit the quantity of goods that may be imported into the
    U.S. from countries in a region where the Company does
    business;
    imposition of duties, taxes, and other charges on imports;
    natural disasters and public health concerns;
    potential delays or disruption in shipping and related pricing
    impacts; and
    local business practices and political issues, including issues
    relating to compliance with domestic or international labor
    standards.    A
    downturn in the economy may affect consumer purchases of
    discretionary items which could adversely affect the
    Companys sales.
    
    general business conditions;
    interest rates;
    the availability of consumer credit;
    taxation;
    employment levels;
    political conditions such as war, terrorism and political
    unrest; and
    consumer confidence in future economic conditions.    A
    major failure of the Companys information systems could
    harm the business.
   16




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The
    market price of the Companys common stock is
    volatile.
    Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties.    GrossLocation

Square Feet


Primary Function

InterestHingham, Massachusetts


313,000


Talbots brand headquarters

Own (44 acres)Quincy, Massachusetts


126,869


J. Jill brand headquarters

LeaseLakeville, Massachusetts


933,000


Talbots brand distribution center

Own (115 acres)Tilton, New Hampshire


573,000


J. Jill brand operations,
    distribution center, and telemarketing

Own (360 acres)Tampa, Florida


51,736


Systems center

LeaseKnoxville, Tennessee


37,656


Telemarketing

LeaseNew York, New York


41,462


Product development office

LeaseHong Kong


10,455


Talbots brand merchandise
    production office

LeaseIndia


3,913


J. Jill brand merchandise
    production office

LeaseLincoln, Rhode Island


9,645


Credit and banking facilities

LeaseOntario, Canada


1,350


Canadian regional office

LeaseLondon, U.K.


270


U.K. management office

Lease1,364 Stores throughout the U.S.,
    Canada and U.K.


5,358,963


Retail stores

Own and lease (a)     (a)
    
    The Company owns the property for five of its 1,364 stores.     17




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Years Lease

Number ofTerms Expire

Store Leases(a)(b)2007-2008


562009-2011


1622012-2014


2302015 and later


512     (a)
    
    Certain leases have more than one store included within the
    leased premises.(b)
    
    Includes 37 executed leases related to future stores not yet
    opened at February 3, 2007.  Item 3.
    Legal
    Proceedings.    Item 4.
    Submission
    of Matters to a Vote of Security Holders.   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities.           18




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Stock
    Performance Graph
    Comparison
    of Cumulative Five-Year Total Return of The Talbots, Inc.,
    S&P 500 Index, and Dow Jones General Retailers
    Index
  
  Base

Indexed ReturnsPeriod

for the Years EndedCompany/Index

2/1/02

1/31/03

1/30/04

1/28/05

1/27/06

2/2/07The Talbots, Inc.

$
100.00


$
72.59


$
91.99


$
74.18


$
82.74


$
61.77S&P 500 Index

$
100.00


$
77.54


$
104.34


$
109.91


$
122.69


$
141.09Dow Jones U.S. General
    Retailers Index

$
100.00


$
72.62


$
98.80


$
105.21


$
111.44


$
122.43  19




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##### Table of Contents



Item 6.
    Selected
    Financial Data.      Year EndedFebruary 3,


January 28,


January 29,


January 31,


February 1,2007


2006


2005


2004


2003(53 weeks)


(52 weeks)


(52 weeks)


(52 weeks)


(52 weeks)(In thousands, except per share data)Statement of Earnings
    Information:Net sales

$
2,231,033


$
1,808,606


$
1,697,843


$
1,594,790


$
1,568,835Net income


31,576



93,151



95,366



102,891



118,859Net income per shareBasic

$
0.60


$
1.76


$
1.73


$
1.82


$
2.02Diluted

$
0.59


$
1.72


$
1.70


$
1.78


$
1.97Weighted average number of shares
    of common stock outstandingBasic


52,651



52,882



54,969



56,531



58,724Diluted


53,485



54,103



56,252



57,901



60,191Cash dividends per share

$
0.51


$
0.47


$
0.43


$
0.39


$
0.35Balance Sheet
    Information:Working capital

$
262,609


$
376,204


$
324,759


$
330,011


$
287,957Total assets


1,748,688



1,146,144



1,062,130



1,018,647



926,158Total long-term debt, including
    current portion


469,643



100,000



100,000



100,000



100,000Stockholders equity


643,311



626,968



588,588



604,911



558,253   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.    53-week 52-week 53-week 52-week 52-week
     20




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Business
    Overview
        52-week 52-week
         21




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Results
    of Operations
   22




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##### Table of Contents



Year EndedFebruary 3,


January 28,


January 29,2007


2006


2005Net sales


100.0
%


100.0
%


100.0
%Cost of sales, buying and
    occupancy expenses


65.9
%


63.8
%


64.4
%Selling, general and
    administrative expenses


30.7
%


27.8
%


27.3
%Operating income


3.4
%


8.4
%


8.4
%Interest expense, net


1.1
%


0.2
%


0.1
%Income before taxes


2.3
%


8.2
%


8.3
%Income taxes


0.9
%


3.0
%


2.6
%Net income


1.4
%


5.2
%


5.6
%   2006
    Compared to 2005
  Net
    Sales
    February 3,


January 28,2007


2006Net retail store sales: Talbots
    brand

$
1,603.8


$
1,543.6Net retail store sales: J. Jill
    brand


241.8



Net direct marketing sales: total
    Company


385.4



265.0Total net sales

$
2,231.0


$
1,808.6     Talbots
    Brand Retail Stores
   23




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##### Table of Contents



J.
    Jill Brand Retail Stores
    Direct
    Marketing Sales
    Cost of
    Sales, Buying, and Occupancy Expenses
   24




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Selling,
    General and Administrative Expenses
  Share-Based Payment
  Accounting for Stock Issued to Employees Accounting for Stock-Based
    Compensation
      Net
    Interest Expense
   25




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Income
    Tax Expense
    Acquisition
    Related Costs
      2005
    Compared to 2004
           26




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##### Table of Contents



Seasonality
    and Quarterly Fluctuations
      Fiscal Quarter EndedApril 29,


July 29,


October 28,


February 3,2006


2006


2006


2007Net sales


100.0
%


100.0
%


100.0
%


100.0
%Cost of sales, buying and
    occupancy expenses


60.1
%


69.9
%


63.1
%


69.0
%Selling, general and
    administrative expenses


29.9
%


30.0
%


33.2
%


29.7
%Operating income


10.0
%


0.1
%


3.7
%


1.3
%   Fiscal Quarter EndedApril 30,


July 30,


October 29,


January 28,2005


2005


2005


2006Net sales


100.0
%


100.0
%


100.0
%


100.0
%Cost of sales, buying and
    occupancy expenses


59.2
%


66.4
%


62.0
%


67.1
%Selling, general and
    administrative expenses


28.3
%


26.8
%


30.3
%


26.2
%Operating income


12.6
%


6.8
%


7.7
%


6.7
%    27




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Liquidity
    and Capital Resources
             28




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29




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Critical
    Accounting Policies
      Inventory Markdown Reserve. end-of-season
          Sales Return Reserve.
 30




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Customer Loyalty Program.
      Retirement Plans. st
     31




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Impairment of Long-lived Assets. Accounting for the Impairment or Disposal of Long-Lived
    Assets
    Impairment of Goodwill and Other Intangible
    Assets. Goodwill and Other Intangible
    Assets
  Income Taxes.
 32




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Accounting for Uncertainty in Income Taxes  an
    Interpretation of FASB Statement No. 109 Accounting for Income Taxes
  Stock  Based Compensation.
  Purchase Price Allocation. Business Combinations
 33




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Contractual
    Commitments
    Less Than


1 to 3


3 to 5


More ThanContractual Obligations

Total


1 Year


Years


Years


5 YearsLong-term debt, including
    estimated interest payments*

$
527,029


$
105,661


$
295,658


$
125,710


$
Line of credit agreements,
    including estimated interest payments*


46,305



46,305











Letter of credit agreements


180,533



180,533











Operating leases:Real estate


1,189,466



177,856



347,270



304,147



360,193Equipment


26,593



6,023



18,161



2,272



137Merchandise purchases


391,430



391,430











Construction contracts


12,379



12,379











Other contractual commitments


36,476



23,640



12,081



755



Long-term obligations:Non-qualified retirement plans


40,338



7,479



4,792



6,322



21,745Total Commitments

$
2,450,549


$
951,306


$
677,962


$
439,206


$
382,075     *
    
    Interest payments were estimated using the Companys
    current borrowing rates as of February 3, 2007.  Long-term debt, lines of credit, and letters of
    credit.
    10-year 20-year
   34




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Operating Leases.
  Merchandise Purchases.
  Construction Contracts.
  Other Contractual Commitments.
  Long-Term Obligations.
    Inflation
    and Changing Prices
    Exchange
    Rates
   35




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New
    Accounting Pronouncements
  Employers Accounting for Defined Benefit Pensions and
    Other Postretirement Plans, An Amendment of FASB Statements
    No. 87, 88, 106, and 132(R)
  Considering the Effects of Prior
    Year Misstatements when Quantifying Misstatements in Current
    Year Financial Statements
  , Accounting for Uncertainty in Income
    Taxes  an Interpretation of FASB Statement
    No. 109
  No. 06-3, Disclosure Requirements for Taxes Assessed by a Government
    Authority on Revenue-Producing Transactions No. 06-3). 06-3 06-3 06-3
  Forward-looking
    Information
     36




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Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk.        Item 8.
    Financial
    Statements and Supplementary Data.    INDEX
  PageReport of Independent Registered
    Public Accounting Firm


F-2Consolidated Statements of
    Earnings for the Years Ended February 3, 2007,
    January 28, 2006, and January 29, 2005


F-3Consolidated Balance Sheets as of
    February 3, 2007 and January 28, 2006


F-4Consolidated Statements of Cash
    Flows for the Years Ended February 3, 2007,
    January 28, 2006, and January 29, 2005


F-5Consolidated Statements of
    Stockholders Equity for the Years Ended February 3,
    2007, January 28, 2006, and January 29, 2005


F-6Notes to Consolidated Financial
    Statements


F-7   Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure.   37




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Item 9A.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
    Form 10-K, Rules 13a-15(e) 15d-15(e)
  Managements
    Annual Report on Internal Control Over Financial
    Reporting
  Rules 13a-15(f) 15d-15(f)
        Changes
    in Internal Controls over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
 38




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REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      Internal
    Control  Integrated Framework
        Internal
    Control  Integrated Framework Internal Control  Integrated Framework
 39




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Share-Based Payment Employers Accounting for
    Defined Benefit Pension and Other Postretirement Plans, an
    amendment of FASB Statements No. 87, 88, 106, and
    132(R).
  
    40




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Item 9B.
    Other
    Information.   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance.      Item 11.
    Executive
    Compensation.    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence.    Item 14.
    Principal
    Accounting Fees and Services.   41




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##### Table of Contents



PART IV Item 15.  Exhibits,
    Financial Statement Schedules.  Financial Statements:
              Financial Statement Schedules:
    Exhibits:
    (2)

Plan of Acquisition,
    Reorganization, Arrangement, Liquidation or Succession2.1





Agreement and Plan of Merger, by
    and among The Talbots, Inc., Jack Merger Sub, Inc. and The J.
    Jill Group, Inc., dated February 5, 2006(33)(3)

Articles of Incorporation and
    By-laws.3.1





Certificate of Incorporation, as
    amended, of Talbots.(1)(11)(13)3.2





By-laws of Talbots.(1)(4)

Instruments Defining the Rights
    of Security Holders, including Indentures.4.1





Form of Common Stock Certificate
    of Talbots.(1)(10)

Material Contracts10.1





Stockholders Agreement, dated as
    of November 18, 1993, between Talbots and AEON U.S.A.,
    Inc.(2)10.2





Revolving Credit Agreement, dated
    as of January 25, 1994, between Talbots and The Bank of
    Tokyo-Mitsubishi UFJ Trust Company, as
    amended.(2)(4)(7)(18)(20)(27)(36)(47)10.3





Revolving Credit Agreement, dated
    as of January 25, 1994, between Talbots and The Norinchukin
    Bank, as amended.(2)(6)(7)(16)(20)(40)10.4





Revolving Credit Agreement, dated
    as of January 25, 1994, between Talbots and Sumitomo Mitsui
    Banking Corporation (formerly The Sakura Bank, Limited), as
    amended.(2)(6)(10)(14)(18)(27)(36)(47)10.5





Credit Agreement between Talbots
    and The Bank of Tokyo-Mitsubishi UFJ Trust Company, dated as of
    April 17, 1998, as amended.(6)(9)(16)(21)(31)(39)10.6





Letter Agreement, dated as of
    March 1, 2004, concerning credit facilities, between
    Talbots and Fleet National Bank.(37)10.7





Letter Agreement, dated
    August 11, 1998, concerning credit facilities, between HSBC
    Corporate Banking, Marine Midland Bank and Talbots.(17)(23)10.8





Trademark Purchase and License
    Agreement, dated as of November 26, 1993, between AEON Co.
    Ltd., (as successor in interest to JUSCO (Europe) B.V.) and The
    Classics Chicago, Inc.(2)10.9





Services Agreement, dated as of
    November 18, 1993, between Talbots Japan Co., Ltd. and
    Talbots.(2)10.10





Stock Purchase Agreement, dated as
    of November 26, 1993, between Talbots and AEON U.S.A.(2) 42




---



##### Table of Contents



10.11





License Agreement, dated as of
    November 26, 1993, between The Classics Chicago, Inc.,
    Talbots, Talbots International Retailing Limited, Inc., Talbots
    (Canada), Inc. and Talbots (U.K.) Retailing Limited.(2)10.12





Tax Allocation Agreement, dated as
    of November 18, 1993, between AEON U.S.A., Talbots, Talbots
    International Retailing Limited, Inc., Talbots (U.K.) Retailing
    Limited and The Classics Chicago, Inc.(2)10.13





The Talbots, Inc. Pension Plan for
    Salaried Employees, as amended and restated January 1,
    1989, including amendments through January 1, 1994.(3)*10.14





The Talbots, Inc. Retirement
    Savings Voluntary Plan, as amended and restated.(2)(3)(10)*10.15





Services Agreement, dated as of
    October 29, 1989, between Talbots and AEON U.S.A.(3)10.16





Amendment to License Agreement,
    dated January 29, 1997, among The Classics Chicago, Inc.,
    Talbots, Talbots International Retailing Limited, Inc., Talbots
    (Canada), Inc., and Talbots (U.K.) Retailing, Ltd.(5)10.17





The Talbots, Inc. Supplemental
    Retirement Plan, as amended.(1)(2)(12)*10.18





The Talbots, Inc. Supplemental
    Savings Plan, as amended.(1)(2)(12)*10.19





The Talbots, Inc. Deferred
    Compensation Plan, as amended.(1)(2)12)*10.20





The Talbots, Inc. Amended and
    Restated 1993 Executive Stock Based Incentive Plan.(13)*10.21





Employment Agreement, dated as of
    October 22, 1993, between Arnold B. Zetcher and Talbots, as
    amended through May 25, 2005.(2)(3)(34)*10.22





Change in Control Agreements
    between Talbots and certain officers of Talbots.(2)(3)*10.23





Consulting and Advisory Services
    Contract between AEON (U.S.A.), Inc. and Talbots dated as of
    November 1, 1999.(8)10.24





The Talbots, Inc. Restated
    Directors Stock Plan as amended through March 5, 2005.(11)*10.25





Revolving Loan Credit
    Agreement, dated April 17, 2003, between Mizuho Corporate
    Bank, Ltd. and Talbots.(16)(20)(41)(52)10.26





Employment Agreement, dated
    January 30, 2003, between Harold B. Bosworth and
    Talbots.(16)*10.27





The Talbots, Inc. 2003 Executive
    Stock Based Incentive Plan.(15)*10.28





Revolving Loan Credit
    Agreement, dated January 28, 2004, between Talbots and
    Mizuho Corporate Bank, Ltd.(18)(27)(29)(47)10.29





Amended Repurchase Program, dated
    as of April 29, 2005, between Talbots and AEON (U.S.A.),
    Inc.(19)10.30





The Talbots, Inc. Directors
    Deferred Compensation Plan restated as of May 27, 2004.(22)*10.31





Form of The Talbots, Inc. 2003
    Executive Stock Based Incentive Plan Nonqualified Stock Option
    Agreement.(24)*10.32





Form of The Talbots, Inc. 2003
    Executive Stock Based Incentive Plan Restricted Stock
    Agreement.(24)*10.33





Form of Restricted Stock Unit
    Award under The Talbots, Inc. Restated Directors Stock Plan.(35)*10.34





The Talbots, Inc. Management
    Incentive Plan Performance Criteria.(25)(35)(45)*10.35





Employment Agreement, dated
    November 3, 2004, between Philip H. Kowalczyk and The
    Talbots, Inc.(26)*10.36





Uncommitted Letter of Credit
    Facility Letter dated February 15, 2006 between The
    Talbots, Inc. and Bank of America.(28)10.37





Uncommitted Lines of Credit Letter
    dated February 15, 2006 between The Talbots, Inc. and Bank
    of America.(28)10.38





The Talbots, Inc. Executive Base
    Salary Review.(35)*10.39





Revolving Loan Credit
    Agreement by and between The Talbots, Inc. and Mizuho
    Corporation, Ltd. dated February 2, 2006.(30)10.40





The Talbots, Inc. Umbrella
    Supplemental Retirement Plan effective as of May 25, 2005
    between The Talbots, Inc. and Arnold B. Zetcher.(34)*10.41





Form of Option Agreement pursuant
    to The Talbots, Inc. Restated Director Stock Plan.(49)*10.42





Sixth Amended and Restated Loan
    Agreement dated May 3, 2006 between The J. Jill Group, Inc.
    and Citizens Bank of Massachusetts, HSBC Bank USA, National
    Association, and TD Banknorth, N.A.(38)10.43





Third Amendment to Lease
    Agreement, made as of May 3, 2006, by and between National
    Fire Protection Association and The J. Jill Group, Inc.(38) 43




---



##### Table of Contents



10.44





Guarantee of Lease, made as of
    May 3, 2006, by The Talbots, Inc. to National Fire
    Protection Association.(38)10.45





Uncommitted Letter of Credit
    Facility dated June 28, 2006 between The Talbots, Inc., The
    J. Jill Group, Inc., J.J. Company, Inc., J. Jill LLC, and J.
    Jill GP (collectively Talbots) and Bank of
    America.(42)10.46





Term Loan Agreement, dated as of
    July 24, 2006, among The Talbots, Inc., the lenders from
    time to time party thereto and Mizuho Corporate Bank, Ltd., as
    arranger and administrative agent.(43)10.47





Letter Agreement concerning credit
    facilities between HSBC and Talbots dated July 20, 2006.(44)10.48





Amendment No. 1 to Employment
    Agreement of Philip H. Kowalczyk, by and between The Talbots,
    Inc. and Philip H. Kowalczyk, dated May 3, 2006.(38)(50)*10.49





Amendment No. 3 to Employment
    Agreement, by and between The Talbots, Inc. and Arnold B.
    Zetcher dated September 28, 2006.(46)*10.50





Grant Agreement by and among The
    Talbots, Inc., The J. Jill Group, Inc., and Olga L. Conley dated
    May 8, 2006.(46)*10.51





Change in Control Agreement by and
    between The Talbots, Inc. and Olga L. Conley.(46)*10.52





Uncommitted Letter of Credit
    Facility dated February 23, 2007 between The Talbots, Inc.,
    The J. Jill Group, Inc., J. J. Company, Inc., J. Jill LLC, J.
    Jill GP and Bank of America.(48)10.53





Uncommitted Line of Credit
    Facility dated February 23, 2007 between The Talbots, Inc.
    and Bank of America.(48)10.54





Uncommitted Line of Credit
    Facility dated March 26, 2007 between The Talbots, Inc. and
    Bank of America.(51)10.55





Uncommitted Letter of Credit
    Facility dated March 26, 2007 between The Talbots, Inc.,
    The J. Jill Group, Inc., J.J. Company, Inc., J. Jill LLC,
    J. Jill GP and Bank of America.(51)     *
    
    Management contract and compensatory plan or arrangement.  (11)
    
    Statement re: Computation of Per Share Earnings.11.1
    
    Incorporated by reference to Note 16, Net Income Per
    Share, of the Companys consolidated financial
    statements for the fiscal year ended February 3, 2007,
    included in this Report.(21)
    
    Subsidiaries.21.1
    
    Incorporated by reference to Note 2, Summary of
    Significant Accounting Policies  Principals of
    Consolidation, of Talbots consolidated financial
    statements for the fiscal year ended February 3, 2007
    included in this report.(23)
    
    Consents of Experts and Counsel.23.1
    
    Consent of Independent Registered Public Accounting Firm,
    Deloitte & Touche LLP.(32)(31)
    
    31.1    Certification by Arnold B. Zetcher,
    Chairman, President and Chief Executive Officer.(32)  31.2
    
    Certification by Edward L. Larsen, Senior Vice President,
    Finance, Chief Financial Officer and Treasurer.(32)  (32)
    
    32.1    Certification of CEO and CFO
    Pursuant to 18 U.S.C. Section 1350, as Adopted
    Pursuant to Section 906 of the Sarbanes-Oxley Act of
    2002.(32)    1
    
    Incorporated by reference to the exhibits filed with Talbots
    Registration Statement on
    Form S-1
    (No. 33-69082),
    which Registration Statement became effective November 18,
    1993.2
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 26, 1994.3
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 27, 1995.4
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated December 23, 1995.5
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated May 1, 1997.6
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated May 1, 1998.7
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 29, 1999.8
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated July 1, 1999.9
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated November 24, 1999.10
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 25, 2000. 44




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##### Table of Contents



11
    
    Incorporated by reference to Exhibit A to the Company Proxy
    Statement dated April 21, 2005.12
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 12, 2001.13
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated September 6, 2001.14
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated March 13, 2003.15
    
    Incorporated by reference to the exhibits filed with Talbots
    2003 Proxy Statement dated April 22, 2003.16
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated July 24, 2003.17
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated December 19, 2003.18
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated February 24, 2004.19
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 29, 2005.20
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 12, 2005.21
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated June 4, 2004.22
    
    Incorporated by reference to the exhibits filed with Quarterly
    Report on
    Form 10-Q
    dated September 8, 2004.23
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated February 9, 2006.24
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated November 18, 2004.25
    
    Incorporated by reference to the Current Report on
    Form 8-K
    dated December 2, 2004.26
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated December 23, 2004.27
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated January 26, 2005.28
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated February 22, 2006.29
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated January 20, 2006.30
    
    Incorporated by reference to the exhibit filed with Current
    Report on
    Form 8-K
    dated February 2, 2006.31
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 6, 2005.32
    
    Filed with this
    Form 10-K.33
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K/A
    dated February 5, 2006.34
    
    Incorporated by reference to the exhibits filed with the Current
    Report on
    Form 8-K
    dated August 18, 2005.35
    
    Incorporated by reference to the Current Report on
    Form 8-K
    dated March 3, 2005 and the exhibits filed therewith.36
    
    Incorporated by reference to the exhibits filed with the Current
    Report on
    Form 8-K
    dated January 26, 2006.37
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 1, 2004.38
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated May 3, 200639
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 7, 2006.40
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 17, 2006.41
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 18, 2006.42
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated July 7, 2006.43
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated July 24, 2006.44
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated July 27, 2006.45
    
    Incorporated by reference to the Current Report on
    Form 8-K
    dated September 13, 2006.46
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated September 22, 2006.47
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated January 24, 200748
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated February 23, 2007.49
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated May 25, 2006.50
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K/A
    dated May 3, 2006.51
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated March 26, 2007.52
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated March 22, 2007. 45




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##### Table of Contents



SIGNATURES
      The Talbots, Inc.
  By:
    /s/  EDWARD
    L. LARSEN   Senior Vice President, Finance
 Chief Financial Officer and Treasurer
 (Principal Financial and Accounting Officer)
    /s/  Arnold
    B. ZetcherArnold
    B. ZetcherChairman of the Board, President and
    Chief Executive Officer (Principal Executive Officer)

/s/  John
    W. GleesonJohn
    W. GleesonDirectorTsutomu
    KajitaDirector

Motoya
    OkadaDirector/s/  Gary
    M. PfeifferGary
    M. PfeifferDirector

Yoshihiro
    SanoDirector/s/  Susan
    M. SwainSusan
    M. SwainDirector

/s/  Isao
    TsurutaIsao
    TsurutaDirector  46




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##### Table of Contents



INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageReport of
    Independent Registered Public Accounting Firm


F-2Consolidated
    Statements of Earnings for the Years Ended February 3,
    2007, January 28, 2006, and January 29, 2005


F-3Consolidated
    Balance Sheets as of February 3, 2007 and January 28,
    2006


F-4Consolidated
    Statements of Cash Flows for the Years Ended February 3,
    2007, January 28, 2006 and January 29, 2005


F-5Consolidated
    Statements of Stockholders Equity for the Years Ended
    February 3, 2007, January 28, 2006 and
    January 29, 2005


F-6Notes to
    Consolidated Financial Statements


F-7  F-1




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Share-Based Payment Employers Accounting
    for Defined Benefit Pension and Other Postretirement Plans, an
    amendment of FASB Statements No. 87, 88, 106, and
    132(R).
  Internal Control 
    Integrated Framework
  
    F-2




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##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF EARNINGS
 Amounts
    in thousands except per share data
  Year EndedFebruary 3,


January 28,


January 29,2007


2006


2005(53 weeks)


(52 weeks)


(52 weeks)Net Sales

$
2,231,033


$
1,808,606


$
1,697,843Costs and ExpensesCost of sales, buying and occupancy


1,470,554



1,153,734



1,093,023Selling, general and administrative


685,438



502,724



462,705Operating Income


75,041



152,148



142,115InterestInterest expense


31,542



4,480



2,616Interest income


7,023



1,374



506Interest Expense  net


24,519



3,106



2,110Income Before Taxes


50,522



149,042



140,005Income Taxes


18,946



55,891



44,639Net Income

$
31,576


$
93,151


$
95,366Net Income Per ShareBasic

$
0.60


$
1.76


$
1.73Diluted

$
0.59


$
1.72


$
1.70Weighted Average Number of Shares
    of Common Stock OutstandingBasic


52,651



52,882



54,969Diluted


53,485



54,103



56,252    F-3




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##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
 Amounts
    in thousands except share data
  February 3,


January 28,2007


2006ASSETSCurrent Assets:Cash and cash equivalents

$
35,923


$
103,020Customer accounts
    receivable  net


204,619



209,749Merchandise inventories


352,652



246,707Deferred catalog costs


11,606



6,021Due from affiliates


5,672



7,892Deferred income taxes


28,752



14,115Prepaid and other current assets


53,185



33,157Total current assets


692,409



620,661Property and equipment 
    net


533,216



387,536Goodwill


247,490



35,513Trademarks


154,984



75,884Other intangible
    assets  net


92,038



Deferred income taxes






6,407Other assets


28,551



20,143Total Assets

$
1,748,688


$
1,146,144LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable

$
113,884


$
85,343Accrued income taxes


31,684



37,909Accrued liabilities


158,763



121,205Notes payable to banks


45,000



Current portion of long-term debt


80,469



Total current liabilities


429,800



244,457Long-term debt less current portion


389,174



100,000Deferred rent under lease
    commitments


133,025



110,864Deferred income taxes


61,537



Other liabilities


91,841



63,855CommitmentsStockholders Equity:Common stock, $0.01 par
    value; 200,000,000 authorized; 78,567,387 shares and
    77,861,128 shares issued, respectively, and
    53,999,261 shares and 53,359,556 shares outstanding,
    respectively


786



779Additional paid-in capital


464,701



455,221Retained earnings


787,483



783,397Accumulated other comprehensive
    loss


(26,202
)


(16,682
)Deferred compensation






(13,403
)Treasury stock, at cost;
    24,568,126 shares and 24,501,572 shares, respectively


(583,457
)


(582,344
)Total stockholders equity


643,311



626,968Total Liabilities and
    Stockholders Equity

$
1,748,688


$
1,146,144    F-4




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##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
    Amounts in thousands
  Year EndedFebruary 3,


January 28,


January 29,2007


2006


2005(53 weeks)


(52 weeks)


(52 weeks)CASH FLOWS FROM OPERATING
    ACTIVITIES:Net income

$
31,576


$
93,151


$
95,366Adjustments to reconcile net
    income to net cash provided by operating activities:Depreciation and amortization


121,203



90,127



85,109Amortization of debt issuance costs


325







Deferred rent


22,173



930



7,073Compensation expense related to
    stock options


12,492







Compensation expense related to
    issuance of restricted stock awards and other stock transactions


5,504



8,417



4,868Loss on disposal of property and
    equipment


1,464



215



335Tax benefit from options exercised


1,109



3,947



2,484Excess tax benefit from options
    exercised


(1,156
)






Deferred income taxes


(16,786
)


(12,086
)


3,777Changes in assets and liabilities
    (net of effects of acquisition):Customer accounts receivable


5,124



(10,494
)


(16,502
)Merchandise inventories


(58,491
)


(8,167
)


(67,784
)Deferred catalog costs


520



(903
)


(669
)Due from affiliates


2,220



1,181



973Prepaid and other current assets


1,441



(3,521
)


(603
)Accounts payable


20,074



20,685



14,338Income taxes payable


3,083



10,717



12,090Accrued liabilities


(20,421
)


10,837



9,132Other assets


(7,146
)


(1,920
)


(4,799
)Other liabilities


10,084



8,322



10,035Net cash provided by operating
    activities


134,392



211,438



155,223CASH FLOWS FROM INVESTING
    ACTIVITIES:Acquisition of The J. Jill Group,
    Inc., net of cash acquired


(493,946
)






Additions to property and equipment


(104,208
)


(72,684
)


(92,668
)Proceeds from disposal of property
    and equipment


612







Maturities of marketable securities


16,729







Net cash used in investing
    activities


(580,813
)


(72,684
)


(92,668
)CASH FLOWS FROM FINANCING
    ACTIVITIES:Borrowings under notes payable


490,000







Payment of notes payable


(85,358
)






Proceeds from options exercised


3,785



7,731



7,345Excess tax benefit from options
    exercised


1,156







Debt issuance costs


(1,414
)






Cash dividends


(27,490
)


(25,334
)


(23,859
)Purchase of treasury stock


(1,113
)


(49,993
)


(99,986
)Net cash provided by (used in)
    financing activities


379,566



(67,596
)


(116,500
)EFFECT OF EXCHANGE RATE CHANGES
    ON CASH


(242
)


51



101NET (DECREASE) INCREASE IN CASH
    AND CASH EQUIVALENTS


(67,097
)


71,209



(53,844
)CASH AND CASH EQUIVALENTS,
    BEGINNING OF YEAR


103,020



31,811



85,655CASH AND CASH EQUIVALENTS, END
    OF YEAR

$
35,923


$
103,020


$
31,811    F-5




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##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
 Amounts
    in thousands except share data
  AccumulatedAdditional





Other











TotalCommon Stock


Paid-In


Retained


Comprehensive


Deferred


Treasury


Comprehensive


StockholdersShares


Amount


Capital


Earnings


Income (Loss)


Compensation


Stock


Income


EquityBALANCE AT JANUARY 31, 2004
    (52 weeks)


76,245,075


$
762


$
411,874


$
644,073


$
(14,601
)

$
(6,154
)

$
(431,043
)





$
604,911Cash dividends paid














(23,859
)


















(23,859
)Common stock issued as unvested
    stock award


298,075



3



10,105











(10,108
)










Unvested stock units issued










1,108











(1,108
)










Compensation expense related to
    unvested common stock awards






















4,964











4,964Stock options exercised, including
    tax benefit


396,984



4



9,825























9,829Purchase of 3,222,423 shares
    of common stock


























(99,986
)






(99,986
)Purchase of 24,475 shares of
    unvested common stock awards






















585



(681
)






(96
)Comprehensive income:Net income














95,366














$
95,366



95,366Translation adjustment


















(401
)










(401
)


(401
)Change in minimum pension and
    postretirement liabilities, net of tax


















(2,140
)










(2,140
)


(2,140
)Comprehensive income






























92,825BALANCE AT JANUARY 29, 2005
    (52 weeks)


76,940,134



769



432,912



715,580



(17,142
)


(11,821
)


(531,710
)






588,588Cash dividends paid














(25,334
)


















(25,334
)Common stock issued as unvested
    stock award


322,425



3



9,844











(9,844
)










3Unvested stock units issued










844











(844
)










Forfeited unvested stock units










(79
)










79











Compensation expense related to
    unvested common stock awards










32











8,669











8,701Stock options exercised, including
    tax benefit


598,569



7



11,668























11,675Purchase of 1,663,430 shares
    of common stock


























(49,993
)






(49,993
)Purchase of 21,675 shares of
    vested and unvested common stock awards






















358



(641
)






(283
)Comprehensive income:Net income














93,151















93,151



93,151Translation adjustment


















(138
)










(138
)


(138
)Change in minimum pension and
    postretirement liabilities, net of tax


















598











598



598Comprehensive income






























93,611BALANCE AT JANUARY 28, 2006
    (53 weeks)


77,861,128



779



455,221



783,397



(16,682
)


(13,403
)


(582,344
)






626,968Cash dividends paid














(27,490
)


















(27,490
)Common stock issued as stock award


439,091



4



























4Adoption of SFAS No. 123R










(13,403
)










13,403











Compensation expense related to
    stock options










12,492























12,492Compensation expense related to
    unvested common stock awards










5,504























5,504Stock options exercised, including
    tax benefit


267,168



3



4,887























4,890Purchase of 66,554 shares of
    vested and unvested common stock awards


























(1,113
)






(1,113
)Adoption of SFAS No. 158


















(17,345
)














(17,345
)Comprehensive income:Net income














31,576















31,576



31,576Translation adjustment


















(315
)










(315
)


(315
)Change in minimum pension and
    postretirement liabilities, net of tax


















8,140











8,140



8,140Comprehensive income





























$
39,401BALANCE AT FEBRUARY 3,
    2007


78,567,387


$
786


$
464,701


$
787,483


$
(26,202
)

$
0


$
(583,457
)





$
643,311    F-6




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 Amounts
    in thousands except share and per share data
  1.
    Description
    of Business      2.
    Summary
    of Significant Accounting Policies  Use of Estimates 
  Principles of Consolidation 
  Fiscal Year  53-week 53-week 13-week 14-week 14-week 52-week
  Cash and Cash Equivalents 
  Marketable securities  available-for-sale
  Customer Accounts Receivable 
 F-7




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
    Customer Loyalty Program 
  Merchandise Inventories  (first-in,
  Property and Equipment 
  Description

YearsBuildings

10-50Fixtures and equipment

3-10Software

3-7Leasehold improvements

3-10
    or term of lease, if shorter     Preopening Expenses 
  Goodwill and Other Intangible Assets 
   F-8




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
   Impairment of Long-lived Assets 
  Grantor Trust 
  Deferred Rent Obligations 
  Fair Value of Financial Instruments 
  Foreign Currency Translation 
  Revenue Recognition  point-of-sale
  Cost of Sales, Buying and Occupancy 
  Selling, General and Administrative expenses 
 F-9




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
    Finance Charge Income 
  Advertising 
  Income Taxes 
  Stock-Based Compensation  Share-Based Payment modified-prospective Accounting for Stock Issued to Employees Accounting for Stock-Based
    Compensation stock-based
  Comprehensive Income  Employers
    Accounting for Defined Benefit Pension and Other Postretirement
    Plans  An Amendment of FASB Statements No. 87,
    88, 106 and 132(R)
 F-10




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
    Basic and Diluted Net Income Per Share 
  Supplemental Cash Flow Information 
  New Accounting Pronouncements 
  Considering the
    Effects of Prior Year Misstatements when Quantifying
    Misstatements in Current Year Financial Statements
  , Accounting for Uncertainty in Income
    Taxes  an Interpretation of FASB Statement
    No. 109 Accounting for
    Income Taxes
 F-11




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
   No. 06-3, Disclosure Requirements for Taxes Assessed by a Government
    Authority on Revenue-Producing Transactions No. 06-3). 06-3 06-3 06-3
  3.
    Acquisition
    of J. Jill    Business Combinations
    As ofMay 3, 2006Cash

$
30,445Deferred income taxes


19,475Other current assets


91,837Property and equipment


154,553Goodwill


211,977Trademarks


79,100Other intangible assets


100,185Total assets acquired

$
687,572Current liabilities

$
55,662Deferred income taxes


95,699Other long-term liabilities


11,820Total liabilities assumed

$
163,181Net assets acquired

$
524,391Consideration:Cash on hand

$
118,320Cash obtained through debt
    financing


400,000Acquisition costs


6,071Total Consideration

$
524,391  F-12




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
          No. 95-3, Recognition of Liabilities in Connection with a Purchase
    Combination
    February 3,


January 28,2007


2006Net sales

$
2,341,016


$
2,256,910Net income

$
20,731


$
70,336Net income per share:Basic

$
0.39


$
1.33Diluted

$
0.39


$
1.30  F-13




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
  4.
    Goodwill
    and Intangible Assets    DirectStores


Marketing


ConsolidatedBalance at January 28, 2006

$
35,513


$



$
35,513Increase due to J. Jill
    acquisition (see Note 3)


160,453



51,524



211,977Balance at February 3, 2007

$
195,966


$
51,524


$
247,490       AccumulatedGross


Amortization


NetFebruary 3, 2007Trademarks

$
154,984


$



$
154,984Customer relationships


84,200



(4,723
)


79,477Leasehold interests


11,740



(1,836
)


9,904Non-compete agreements


4,900



(2,243
)


2,657Total

$
255,824


$
(8,802
)

$
247,022         February 3,2007Cost of sales, buying, and
    occupancy

$
1,246Selling, general, and
    administrative


6,965Total

$
8,211       Amount2007

$
10,9622008


10,0242009


10,3202010


10,5172011


9,717Thereafter


40,498Total

$
92,038  F-14




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
  5.
    Equity
    Transactions          6.
    Stock-Based
    Compensation  2003
    Executive Stock Based Incentive Plan
     F-15




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
     Amended
    and Restated Directors Plan
          Adoption
    of SFAS No. 123R
  modified-prospective
    February 3,


January 28,


January 29,2007


2006


2005Cost of sales, buying and occupancy

$
2,594


$



$
Selling, general and administrative


15,402



8,417



4,868Total

$
17,996


$
8,417


$
4,868  F-16




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
    Accounting
    for Stock Issued to Employees, Accounting for Stock-Based Compensation
      Fiscal Year EndedJanuary 28,


January 29,2006


2005Net income, as reported

$
93,151


$
95,366Add: stock-based compensation
    included in reported net income, net of related tax effects


5,266



3,042Deduct: total stock-based
    compensation expense determined under fair value based method,
    net of related tax effects


(13,702
)


(12,706
)Pro forma net income

$
84,715


$
85,702Earnings per share:Basic-as reported

$
1.76


$
1.73Basic-pro forma

$
1.60


$
1.56Diluted-as reported

$
1.72


$
1.70Diluted-pro forma

$
1.56


$
1.52  F-17




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
  option-pricing
  Fiscal Year EndedFebruary 3,


January 28,


January 29,2007


2006


2005Weighted average risk-free
    interest rate


4.7
%


4.0
%


3.7
%Weighted average expected life of
    option grants


4.5 years



4.2 years



6.0 yearsWeighted average expected
    volatility of underlying stock


41.8
%


47.9
%


54.8
%Weighted average expected dividend
    payment rate, as a percentage of the stock price on the date of
    grant


2.0
%


1.5
%


1.3
%         Stock
    Option Activity
    WeightedAverageNumber of


Exercise PriceShares


per ShareOutstanding at beginning of year


7,908,596


$
28.74Granted


1,092,600



25.33Exercised


(267,168
)


14.15Forfeited


(41,403
)


28.97Expired


(253,695
)


39.37Outstanding at end of year


8,438,930


$
28.44Exercisable at end of year


6,412,945


$
28.40  F-18




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
    Options Outstanding


Options ExercisableNumber of


Weighted


Weighted


Number of


WeightedOptions


Average


Average


Options


AverageRange of Exercise Prices

Outstanding


Remaining Life


Exercise Price


Exercisable


Exercise Price$ 7.41  $10.22


130,336



1.0 years


$
7.43



130,336


$
7.43$10.23  $15.33


371,223



1.7 years



12.47



371,223



12.47$15.34  $20.45


1,991,169



3.1 years



18.97



1,972,769



18.97$20.46  $25.56


1,828,152



7.7 years



25.24



804,352



25.00$25.57  $30.68


244,100



6.6 years



27.26



185,499



27.55$30.69  $35.79


1,846,900



7.5 years



32.75



936,400



33.16$35.80  $40.90


1,077,050



5.1 years



35.91



1,062,366



35.89$40.91  $46.01


2,000



4.2 years



41.85



2,000



41.85$46.02  $51.13


948,000



4.0 years



47.03



948,000



47.038,438,930



5.4 years


$
28.44



6,412,945


$
28.40     Unvested
    Stock Awards Activity
    WeightedAverageNumber of


Market PriceShares


per shareUnvested at beginning of year


913,500


$
30.36Granted


458,091



25.28Vested


(147,138
)


25.44Forfeited


(20,026
)


29.54Unvested at end of year


1,204,427


$
29.45     7.
    Related
    Party and Affiliates   F-19




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
        8.
    Accounts
    Receivable    February 3,


January 28,2007


2006Due from customers

$
206,819


$
212,149Less allowance for doubtful
    accounts


(2,200
)


(2,400
)Customer accounts receivable, net

$
204,619


$
209,749       Year EndedFebruary 3,


January 28,


January 29,2007


2006


2005Balance, beginning of year

$
2,400


$
2,700


$
2,700Charges to costs and expenses


1,360



2,208



2,649Charge-offs, net of recoveries


(1,560
)


(2,508
)


(2,649
)Balance, end of year

$
2,200


$
2,400


$
2,700  F-20




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
  9.
    Property
    and Equipment    February 3,


January 28,2007


2006Land

$
22,817


$
10,817Buildings


88,267



67,521Fixtures and equipment


435,755



368,397Software


50,830



46,300Leasehold improvements


420,046



298,845Leasehold interests






681Construction in progress


18,132



9,018Property and
    equipment-gross


1,035,847



801,579Less accumulated depreciation and
    amortization


(502,631
)


(414,043
)Property and
    equipment-net

$
533,216


$
387,536     10.
    Accrued
    Liabilities    February 3,


January 28,2007


2006Gift cards, merchandise credits,
    sales return reserve and other customer related liablilities

$
74,351


$
60,888Employee compensation, related tax
    and benefits


38,300



33,757Taxes other than income and
    withholding


14,329



9,723Other accrued liabilities


31,783



16,837Total accrued liabilities

$
158,763


$
121,205     Year EndedFebruary 3,


January 28,


January 29,2007


2006


2005Sales return reserve balance,
    beginning of year

$
10,283


$
9,184


$
8,002Balance acquired from J. Jill at
    fair value


5,561







Provision for merchandise returns


427,311



378,697



358,279Merchandise returned


(432,074
)


(377,598
)


(357,097
)Sales return reserve balance, end
    of year

$
11,081


$
10,283


$
9,184  F-21




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
  11.  Debt
    February 3,


January 28,2007


2006Acquisition loan

$
360,000


$
Revolving Credit


100,000



100,000Tilton facility loan


9,643



Total long-term debt


469,643



100,000Less current maturities


(80,469
)


Long term-debt, less current
    portion

$
389,174


$
100,000   Long-term Debt 
      10-year 20-year
 F-22




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
   Line of Credit (Notes payable to banks) 
  Letters of Credit 
    Long-TermDebt2007

$
80,4692008


180,7952009


88,3792010


80,0002011


40,000Total

$
469,643  F-23




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
  12.
    Income
    Taxes    February 3,


January 28,


January 29,2007


2006


2005Domestic

$
44,838


$
140,567


$
134,797Foreign


5,684



8,475



5,208Total

$
50,522


$
149,042


$
140,005     February 3,


January 28,


January 29,2007


2006


2005Currently payable:Federal

$
32,823


$
59,667


$
34,564State


1,212



5,802



4,569Foreign


1,691



3,007



1,812Total currently payable


35,726



68,476



40,945Deferred:Federal


(13,695
)


(9,650
)


4,498State


(3,253
)


(1,914
)


(903
)Foreign


168



(1,021
)


99Total deferred


(16,780
)


(12,585
)


3,694Total income tax expense

$
18,946


$
55,891


$
44,639  F-24




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
    February 3, 2007


January 28, 2006Assets


Liabilities


Total


Assets


Liabilities


TotalUnited States:Current:Merchandise inventories

$
17,624


$



$
17,624


$
8,084


$



$
8,084Deferred catalog costs






(2,286
)


(2,286
)






(806
)


(806
)Accrued vacation pay


5,713







5,713



5,338







5,338Net operating loss carryforward


6,151







6,151











Other


4,145



(2,668
)


1,477



3,842



(2,442
)


1,400Total current


33,633



(4,954
)


28,679



17,264



(3,248
)


14,016Noncurrent:Depreciation and amortization






(58,643
)


(58,643
)






(38,201
)


(38,201
)Lease commitments


12,586







12,586



14,650







14,650Deferred compensation


26,099







26,099



18,161







18,161Minimum pension liability


15,843







15,843



9,706







9,706Identifiable intangible






(59,604
)


(59,604
)


1,070







1,070Other


1,302







1,302











Total noncurrent


55,830



(118,247
)


(62,417
)


43,587



(38,201
)


5,386Foreign:Current:Merchandise inventories


49







49



75







75Other


24







24



24







24Total current


73







73



99







99Noncurrent:Depreciation and amortization


880







880



1,021







1,021Total noncurrent


880







880



1,021







1,021Total deferred income taxes

$
90,416


$
(123,201
)

$
(32,785
)

$
61,971


$
(41,449
)

$
20,522        F-25




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
          February 3, 2007


January 28, 2006


January 29, 2005Tax


Rate


Tax


Rate


Tax


RateTax at federal stautory rate

$
17,683



35.0
%

$
52,165



35.0
%

$
49,002



35.0
%Adjustments resulting from:State income taxes, net of federal
    tax benefit


1,422



2.8



2,527



1.7



2,383



1.7Foreign tax


(130
)


(0.3
)


214



0.1



1,812



1.3Tax audit resolution


















(7,835
)


(5.6
)In kind donations


(1,314
)


(2.5
)














Other


1,285



2.5



985



0.7



(723
)


(0.5
)Actual tax expense

$
18,946



37.5
%

$
55,891



37.5
%

$
44,639



31.9
%   13.
    Segment
    and Geographic Information         F-26




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
      February 3, 2007Stores


Direct Marketing


TotalNet Sales

$
1,845,647


$
385,386


$
2,231,033Direct profit


202,829



71,270



274,099   January 28, 2006Stores


Direct Marketing


TotalNet Sales

$
1,543,645


$
264,961


$
1,808,606Direct profit


231,572



57,807



289,379   January 29, 2005Stores


Direct Marketing


TotalNet Sales

$
1,454,650


$
243,193


$
1,697,843Direct profit


223,481



48,507



271,988     Talbots brand

$
1,603,774J. Jill brand


241,873Total

$
1,845,647     February 3,


January 28,


January 29,2007


2006


2005Total direct profit for reportable
    segments

$
274,099


$
289,379


$
271,988Less: indirect expenses


199,058



137,231



129,873Operating income


75,041



152,148



142,115Interest
    expense-net


24,519



3,106



2,110Income before taxes


50,522



149,042



140,005Income taxes


18,946



55,891



44,639Consolidated net income

$
31,576


$
93,151


$
95,366    F-27




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
     February 3,


January 28,


January 29,2007


2006


2005Sales:United States

$
2,167,656


$
1,749,110


$
1,640,518Foreign


63,377



59,496



57,325Total consolidated revenues

$
2,231,033


$
1,808,606


$
1,697,843Long-lived assets:United States

$
1,022,569


$
492,669


$
507,662Foreign


5,159



6,264



8,848Total long-lived assets

$
1,027,728


$
498,933


$
516,510     14.
    Benefit
    Plans    Before





AfterAdoption of


Adoption of


Adoption ofSFAS No. 158


SFAS No. 158


SFAS No. 158Other assets

$
29,807


$
(1,256
)

$
28,551Total assets

$
1,749,944


$
(1,256
)

$
1,748,688Deferred income taxes

$
73,100


$
(11,563
)

$
61,537Other liabilities


64,189



27,652



91,841Accumulated other comprehensive
    loss


(8,857
)


(17,345
)


(26,202
)Total liabilities and
    stockholders equity

$
1,749,944


$
(1,256
)

$
1,748,688   Defined
    Benefit Plans
  st
 F-28




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
   st
  st
    PostretirementPension Plan


SERP


Medical PlansFebruary 3,


January 28,


February 3,


January 28,


February 3,


January 28,2007


2006


2007


2006


2007


2006Change in benefit
    obligations:Projected benefit obligations at
    beginning of year

$
137,601


$
118,939


$
20,765


$
14,007


$
10,052


$
6,691Service cost


10,543



9,923



453



778



378



767Interest cost


7,575



7,056



1,045



971



204



389Actuarial loss (gain)


(13,397
)


3,215



(2,492
)


1,609



(1,037
)


2,377Benefits paid, net


(1,904
)


(1,532
)


(109
)


(92
)


(136
)


(172
)Plan change














3,492



(8,156
)


Projected benefit obligations at
    end of year

$
140,418


$
137,601


$
19,662


$
20,765


$
1,305


$
10,052Changes in
    assets:Fair value at beginning of year

$
84,041


$
69,749


$



$



$



$
Actual return on plan assets


5,523



1,824















Employer contributions


12,000



14,000



109



92



137



172Benefits paid


(1,904
)


(1,532
)


(109
)


(92
)


(137
)


(172
)Fair value at end of year

$
99,660


$
84,041


$



$



$



$
    F-29




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
     PostretirementPension Plan


SERP


Medical PlansFebruary 3,


January 28,


February 3,


January 28,


February 3,


January 28,2007


2006


2007


2006


2007


2006Funded status:Plan assets (greater)/less than
    projected benefit obligations

$
40,757


$
53,560


$
19,653


$
20,765


$
1,293


$
10,052Unrecognzied net prior service
    costs


N/A



(399
)


N/A



(2,311
)


N/A



Unrecognized net (loss)/gain


N/A



(55,449
)


N/A



(5,810
)


N/A



(3,869
)Net amounts recognized in the
    consolidated balance sheet:

$
40,757


$
(2,288
)

$
19,653


$
12,644


$
1,293


$
6,183Net amounts recognized in
    the consolidated balance sheet consist of:Other assets (non-current)

$
(238
)


N/A


$




N/A


$




N/AOther liabilities (non-current)


40,995



N/A



19,653



N/A



1,293



N/AAccrued benefit liability included
    in other liabilities


N/A



19,869



N/A



17,456



N/A



6,183Prepaid benefit cost included in
    other assets


N/A







N/A







N/A



Intangible assets included in
    other assets


N/A



(399
)


N/A



(2,303
)


N/A



Accumulated other comprehensive
    income, pre-tax


N/A



(21,758
)


N/A



(2,509
)


N/A



Net amounts recognized in the
    consolidated balance sheets

$
40,757


$
(2,288
)

$
19,653


$
12,644


$
1,293


$
6,183Net amounts recognized in
    accumulated other comprehensive income consist of:Net actuarial loss

$
24,419



N/A


$
1,834



N/A


$
1,414



N/APrior service cost (credit)


174



N/A



579



N/A



(4,664
)


N/ANet amounts recognized in
    accumulated other comprehensive income, net of tax

$
24,593



N/A


$
2,413



N/A


$
(3,250
)


N/A  F-30




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
    Pension Plan


SERPFebruary 3,


January 28,


February 3,


January 28,2007


2006


2007


2006Projected benefit obligation

$
140,418


$
137,601


$
19,662


$
20,765Accumulated benefit obligation

$
109,169


$
103,910


$
17,847


$
17,463Fair value of plan assets

$
99,660


$
84,041


$



$
     Year EndedFebruary 3,


January 28,


January 29,2007


2006


2005Service expense-benefits earned
    during the period

$
10,543


$
9,923


$
8,040Interest expense on projected
    benefit obligation


7,575



7,056



5,900Expected return on plan assets


(8,160
)


(7,105
)


(5,957
)Net amortization and deferral


4,092



4,741



3,167Net pension expense

$
14,050


$
14,615


$
11,150     Year EndedFebruary 3,


January 28,


January 29,2007


2006


2005Service expense-benefits earned
    during the period

$
453


$
778


$
721Interest expense on projected
    benefit obligation


1,045



971



731Net amortization and deferral


1,596



1,667



323Net SERP expense

$
3,094


$
3,416


$
1,775     Year EndedFebruary 3,


January 28,


January 29,2007


2006


2005Service expense-benefits earned
    during the period

$
378


$
767


$
652Interest expense on accumulated
    postretirement benefit obligation


204



389



341Net amortization and deferral


(686
)


97



65Net postretirement medical expense

$
(104
)

$
1,253


$
1,058      F-31




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
    Year EndedFebruary 3,


January 28,


January 29,2007


2006


2005Pension Plan &
    SERP:Discount rate


5.50%



5.75%



6.25%Discount rate used to determine
    projected benefit obligation at end of year


6.00%



5.50%



5.75%Expected long-term rate of return
    on plan assets (Pension Plan only)


9.00%



9.00%



9.00%Rate of future compensation
    increases


4.00%



4.00%



4.00%Rate of future compensation
    increases used to determine projected benefit obligation at end
    of year


4.00%



4.00%



4.00%Postretirement Medical
    Plans:Discount rate


5.50%



5.75%



6.25%Discount rate used to determine
    projected benefit obligation at end of year


6.00%



5.50%



5.75%Initial healthcare cost trend
    rate-projected benefit obligations


11.00%



12.00%



10.00%Initial healthcare cost trend
    rate-periodic expense


12.00%



8.00%



10.00%Ultimate health care cost trend
    rate


5.00%



5.00%



5.00%      F-32




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
       1% Increase


1% DecreaseEffect on total of service and
    interest expense components

$
114


$
92Effect on the accumulated
    postretirement benefit obligation

$
340


$
279     Target


December 31, 2006


December 31, 2005Allocation


Amount


Percent


Amount


PercentEquity securites


70
%

$
72,517



73
%

$
59,239



70
%Debt securities


30
%


23,534



24
%


23,301



28
%Cash and money market






3,609



3
%


1,501



2
%Total





$
99,660



100
%

$
84,041



100
%     Pension





PostretirementPlan


SERP


Medical PlansExpected benefit payments:2007

$
2,194


$
1,224


$
2142008


2,427



1,206



2022009


2,687



1,186



1792010


3,055



1,253



1452011


3,490



1,227



742012 to 2016


30,077



7,216



512       Pension





PostretirementPlan


SERP


Medical PlansNet actuarial loss

$
2,363


$
116


$
516Prior service cost

$
70


$
901


$
(1,696
)   Defined
    Contribution Plans
   F-33




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
      15.
    Commitments    Contractual Obligations

Total


2007


2008


2009


2010


2011


ThereafterOperating leases:Real estate

$
1,189,466


$
177,856


$
176,951


$
170,319


$
161,596


$
142,551


$
360,193Equipment


26,593



6,023



13,863



4,298



2,145



127



137Merchandise purchases


391,430



391,430



















Construction contracts


12,379



12,379



















Other contractual commitments


36,476



23,640



10,104



1,977



418



337



Total Commitments

$
1,656,344


$
611,328


$
200,918


$
176,594


$
164,159


$
143,015


$
360,330   Operating Leases 
  Merchandise Purchases 
  Construction Contracts 
  Other Contractual Commitments 
 F-34




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
   16.
    Net
    Income Per Share    Year EndedFebruary 3,


January 28,


January 29,2007


2006


2005(In thousands)Shares for computation of basic
    net income per share


52,651



52,882



54,969Effect of stock compensation plans


834



1,221



1,283Shares for computation of diluted
    net income per share


53,485



54,103



56,252   17.
    Quarterly
    Results (unaudited)    Fiscal 2006 Quarter EndedApril 29,


July 29,


October 28,


February 3,2006


2006


2006


2007(13 weeks)


(13 weeks)


(13 weeks)


(14 weeks)Net sales

$
453,012


$
571,377


$
568,640


$
638,004Gross profit


180,812



172,128



209,973



197,566Net income


27,356



(3,858
)


8,061



17Net income per shareBasic

$
0.52


$
(0.07
)

$
0.15


$
0.00Diluted

$
0.51


$
(0.07
)

$
0.15


$
0.00Weighted average number of shares
    of common stock outstanding (in thousands)Basic


52,620



52,222



52,854



52,892Diluted


53,669



52,222



53,718



53,820Cash dividends declared per share

$
0.12


$
0.13


$
0.13


$
0.13Market price dataHigh

$
28.25


$
25.58


$
30.00


$
28.74Low

$
23.50


$
17.38


$
20.00


$
23.01   F-35




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
  Fiscal 2005 Quarter EndedApril 30,


July 30,


October 29,


January 28,2005


2005


2005


2006(13 weeks)


(13 weeks)


(13 weeks)


(13 weeks)Net sales

$
446,531


$
449,577


$
426,330


$
486,168Gross profit


182,252



151,017



161,871



159,732Net income


34,519



18,876



19,979



19,777Net income per shareBasic

$
0.64


$
0.36


$
0.38


$
0.38Diluted

$
0.63


$
0.35


$
0.37


$
0.37Weighted average number of shares
    of common stock outstanding (in thousands)Basic


53,647



52,714



52,722



52,447Diluted


54,881



54,034



53,936



53,598Cash dividends declared per share

$
0.11


$
0.12


$
0.12


$
0.12Market price dataHigh

$
32.90


$
34.30


$
34.85


$
29.26Low

$
25.55


$
25.40


$
24.52


$
26.09  F-36