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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 1934    
|  
|   |  | For the Fiscal Year Ended January 29, 2005                                                  
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the Transition Period
    from           to                                             

Commission File Number 1-12552


THE TALBOTS, INC.


(Exact name of registrant as specified in its charter)


|                                                                 |  |                                         
|---------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                         |  | 41-1111318                              
|State 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 registered
|                             |  |                                     
|Common stock, $.01 par value |  | New York Stock Exchange             

Securities registered pursuant to section 12(g) of the
Act:


None


(Title of class)


þ o


o


þ o






Documents Incorporated by Reference












---










The Talbots, Inc.


Annual Report on Form 10-K for the Fiscal Year Ended
January 29, 2005


|                                           |  |                                                                                                                          |  |      |    |  |  | 
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------ |  | ---- | -- |  |  | 
|                                           |  |                                                                                                                          |  | Page |   
|                                           |  |                                                                                                                          |  |      |   
|PART I                                    
|Item 1.                                    |  | Business                                                                                                                 |  |      | 2  | 
|Item 2.                                    |  | Properties                                                                                                               |  |      | 13 | 
|Item 3.                                    |  | Legal Proceedings                                                                                                        |  |      | 14 | 
|Item 4.                                    |  | Submission of Matters to a Vote of Security
    Holders                                                                  |  |      | 14 | 
|PART II                                   
|Item 5.                                    |  | Market for the Registrants Common
    Equity, Related Stockholder Matters and Issuer Purchases of
    Equity Securities |  |      | 14 | 
|Item 6.                                    |  | Selected Financial Data                                                                                                  |  |      | 15 | 
|Item 7.                                    |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                |  |      | 15 | 
|Item 7A.                                   |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                           |  |      | 27 | 
|Item 8.                                    |  | Financial Statements and Supplementary
    Data                                                                          |  |      | 27 | 
|Item 9.                                    |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                                 |  |      | 28 | 
|Item 9A.                                   |  | Controls and Procedures                                                                                                  |  |      | 28 | 
|Item 9B.                                   |  | Other Information                                                                                                        |  |      | 32 | 
|PART III                                  
|Item 10.                                   |  | Directors and Executive Officers of the
    Registrant                                                                   |  |      | 32 | 
|Item 11.                                   |  | Executive Compensation                                                                                                   |  |      | 32 | 
|Item 12.                                   |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                       |  |      | 32 | 
|Item 13.                                   |  | Certain Relationships and Related
    Transactions                                                                       |  |      | 32 | 
|Item 14.                                   |  | Principal Accounting Fees and Services                                                                                   |  |      | 32 | 
|PART IV                                   
|Item 15.                                   |  | Exhibits, Financial Statement Schedules                                                                                  |  |      | 33 | 
|Ex-23.1 Consent of Deloitte & Touche LLP  
|Ex-31.1 Certification of Arnold B. Zetcher
|Ex-31.2 Certification of Edward L. Larsen 
|Ex-32.1 Certification of C.E.O. and C.F.O.



1



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PART I




|        |          
|------- | ---------
|Item 1. | Business.

General
















2



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Strategy




Market Niche in Classic Apparel.


Talbots Brand.




Limited Promotion Retailer.


3



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Complementary Store, Catalog and Online Operations.








Customer Service.


Broad Mix of Store Locations.


Merchandising




4



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Branded Merchandise Design and Purchasing.








Sourcing.










5



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Expansion












6



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Stores










7



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Talbots Catalog and Online Business












Customer Credit




8



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Inventory Control and Merchandise Distribution






Management Information Systems








9



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Seasonality




Competition






Employees




Executive Officers of the Company




|                          |  |     |    |  |          |                                                                          
|------------------------- |  | --- | -- |  | -------- | -------------------------------------------------------------------------
|Name                      |  | Age |    |  | Position
|                          |  |     |    |  |         
|Arnold B. Zetcher         |  |     | 64 |  |          | Chairman of the Board, President and Chief Executive Officer             
|Harold B. Bosworth, Jr.   |  |     | 55 |  |          | Executive Vice President, Chief Merchandising Officer                    
|Philip H. Kowalczyk       |  |     | 44 |  |          | Executive Vice President, Chief Administrative Officer                   
|Michele M. Mandell        |  |     | 57 |  |          | Executive Vice President, Stores                                         
|Paul V. Kastner           |  |     | 53 |  |          | Senior Vice President, International and Strategic Planning              
|Edward L. Larsen          |  |     | 60 |  |          | Senior Vice President, Finance, Chief Financial Officer and
    Treasurer
|Andrea M. McKenna         |  |     | 48 |  |          | Senior Vice President, Marketing and Catalog Development                 
|Richard T. OConnell, Jr. |  |     | 54 |  |          | Senior Vice President, Legal and Real Estate and Secretary               
|Bruce Lee Prescott        |  |     | 49 |  |          | Senior Vice President, Direct Marketing and Customer Service             
|Randy Richardson          |  |     | 46 |  |          | Senior Vice President, Information Services                              
|Bruce C. Soderholm        |  |     | 62 |  |          | Senior Vice President, Operations                                        
|Stuart M. Stolper         |  |     | 65 |  |          | Senior Vice President, Human Resources                                   

10



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11



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Available Information








12



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|        |            
|------- | -----------
|Item 2. | Properties.



|                                                  |  |             |           |  |                  |                               |          |                 
|------------------------------------------------- |  | ----------- | --------- |  | ---------------- | ----------------------------- | -------- | ----------------
|                                                  |  | Gross       |           |  |                  |                               |         
|Location                                          |  | Square Feet |           |  | Primary Function |                               | Interest
|                                                  |  |             |           |  |                  |                               |         
|Hingham, Massachusetts                            |  |             | 313,000   |  |                  | Company headquarters          |          | Own (44 acres)  
|Lakeville, Massachusetts                          |  |             | 933,000   |  |                  | Distribution center           |          | Own (115 acres) 
|Tampa, Florida                                    |  |             | 38,437    |  |                  | Systems center                |          | Lease           
|Knoxville, Tennessee                              |  |             | 37,656    |  |                  | Telemarketing                 |          | Lease           
|New York, New York                                |  |             | 41,462    |  |                  | Product development office    |          | Lease           
|Hong Kong                                         |  |             | 10,455    |  |                  | Merchandise production        |          | Lease           
|Lincoln, Rhode Island                             |  |             | 9,645     |  |                  | Credit and banking facilities |          | Lease           
|Ontario, Canada                                   |  |             | 1,350     |  |                  | Canadian regional office      |          | Lease           
|London, U.K.                                      |  |             | 270       |  |                  | U.K. management office        |          | Lease           
|1,049 Stores throughout the U.S., Canada and U.K. |  |             | 4,203,074 |  |                  | Retail stores                 |          | Own and lease(a)






|    |                                                        
|--- | -------------------------------------------------------
|(a) | Talbots owns the property for five of its 1,049 stores.







|               |  |                    |     | 
|-------------- |  | ------------------ | --- | 
|Years Lease    |  | Number of          |    
|Terms Expire   |  | Store Leases(a)(b) |    
|               |  |                    |    
|2005-2006      |  |                    | 32  | 
|2007-2009      |  |                    | 78  | 
|2010-2012      |  |                    | 161 | 
|2013 and later |  |                    | 409 | 






|    |                                                                                 
|--- | --------------------------------------------------------------------------------
|(a) | Certain leases have more than one store included within the
    leased premises.



|    |  |                                                                                             
|--- |  | --------------------------------------------------------------------------------------------
|(b) |  | Includes 30 executed leases related to future stores not yet
    opened at January 29, 2005.

13



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|        |                   
|------- | ------------------
|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.









|                     |  |                     |       |               |          |                     |                  |                 |                 |                  |           |  |  |   |   | 
|-------------------- |  | ------------------- | ----- | ------------- | -------- | ------------------- | ---------------- | --------------- | --------------- | ---------------- | --------- |  |  | - | - | 
|                     |  |                     |       |               |          |                     |                  | Approximate    
|                     |  |                     |       |               |          | Total Number of     |                  |                 | Dollar Value of
|                     |  |                     |       |               |          | Shares Purchased as |                  |                 | Shares that may
|                     |  |                     |       | Average Price |          |                     | Part of Publicly |                 |                 | yet be Purchased
|                     |  | Total Number of     |       |               | Paid per |                     |                  | Announced Plans |                 |                  | Under the
|Period               |  | Shares Purchased(1) |       |               | Share    |                     |                  | or Programs     |                 |                  | Programs 
|                     |  |                     |       |               |          |                     |                  |                 |                 |                  |          
|10/31/04 to 11/27/04 |  |                     |      |               |          | $                   |                 |                 |                 |                  |          |  |  |   |  | 
|11/28/2004 to 1/1/05 |  |                     |      |               |          |                     |                 |                 |                 |                  |          |  |  |   |  | 
|1/2/05 to 1/29/05    |  |                     | 3,000 |               |          |                     | 0.01             |                 |                 |                  |          |  |  |   |  | 
|                     |  |                     |       |               |          |                     |                  |                 |                 |                  |           | 
|Total                |  |                     | 3,000 |               |          | $                   | 0.01             |                 |                 |                  |          |  |  | $ |  | 
|                     |  |                     |       |               |          |                     |                  |                 |                 |                  |           | 






|    |                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Repurchases were made in connection with the Companys
    payment of the par value of restricted stock forfeited by
    employees prior to vesting under the Companys equity
    compensation plans.

14



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|        |                         
|------- | ------------------------
|Item 6. | Selected Financial Data.



|                                                              |                   |                                       |           |        |             |   |           |             |  |   |             |        |  |             |           |        |  |   |           |        | 
|------------------------------------------------------------- | ----------------- | ------------------------------------- | --------- | ------ | ----------- | - | --------- | ----------- |  | - | ----------- | ------ |  | ----------- | --------- | ------ |  | - | --------- | ------ | 
|                                                              |                   | Year Ended                            |          
|                                                              |                   |                                       |          
|                                                              |                   | January 29,                           |           |        | January 31, |   |           | February 1, |  |   | February 2, |        |  | February 3, |          
|                                                              |                   | 2005                                  |           |        | 2004(1)     |   |           | 2003(1)     |  |   | 2002(1)     |        |  | 2001(1)     |          
|                                                              |                   | (52 weeks)                            |           |        | (52 weeks)  |   |           | (52 weeks)  |  |   | (52 weeks)  |        |  | (53 weeks)  |          
|                                                              |                   |                                       |           |        |             |   |           |             |  |   |             |        |  |             |          
|                                                              |                   | (in thousands, except per share data) |          
|Statement of Earnings Information:                            |                   |                                       |           |        |             |   |           |             |  |   |             |        |  |             |           |        |  |   |           |       
|Net sales                                                     |                   | $                                     | 1,697,843 |        |             | $ | 1,594,790 |             |  | $ | 1,568,835   |        |  | $           | 1,595,214 |        |  | $ | 1,589,760 |       
|Net income                                                    |                   |                                       | 95,366    |        |             |   | 102,891   |             |  |   | 118,859     |        |  |             | 125,560   |        |  |   | 114,755   |       
|Net income per share                                          |                   |                                       |           |        |             |   |           |             |  |   |             |        |  |             |           |        |  |   |           |       
|                                                              | Basic             |                                       | $         | 1.73   |             |   | $         | 1.82        |  |   | $           | 2.02   |  |             | $         | 2.04   |  |   | $         | 1.86   | 
|                                                              | Assuming dilution |                                       | $         | 1.70   |             |   | $         | 1.78        |  |   | $           | 1.97   |  |             | $         | 1.98   |  |   | $         | 1.79   | 
|Weighted average number of shares of common stock outstanding |                   |                                       |           |        |             |   |           |             |  |   |             |        |  |             |           |        |  |   |           |       
|                                                              | Basic             |                                       |           | 54,969 |             |   |           | 56,531      |  |   |             | 58,724 |  |             |           | 61,459 |  |   |           | 61,823 | 
|                                                              | Assuming dilution |                                       |           | 56,252 |             |   |           | 57,901      |  |   |             | 60,191 |  |             |           | 63,439 |  |   |           | 63,995 | 
|Cash dividends per share                                      |                   | $                                     | 0.43      |        |             | $ | 0.39      |             |  | $ | 0.35        |        |  | $           | 0.31      |        |  | $ | 0.27      |       
|Balance Sheet Information:                                    |                   |                                       |           |        |             |   |           |             |  |   |             |        |  |             |           |        |  |   |           |       
|Working capital                                               |                   | $                                     | 324,759   |        |             | $ | 330,011   |             |  | $ | 287,957     |        |  | $           | 299,270   |        |  | $ | 325,455   |       
|Total assets                                                  |                   |                                       | 1,062,130 |        |             |   | 1,018,647 |             |  |   | 926,158     |        |  |             | 880,571   |        |  |   | 900,161   |       
|Total long-term debt, including current portion               |                   |                                       | 100,000   |        |             |   | 100,000   |             |  |   | 100,000     |        |  |             | 100,000   |        |  |   | 100,000   |       
|Stockholders equity                                          |                   |                                       | 588,588   |        |             |   | 604,911   |             |  |   | 558,253     |        |  |             | 560,353   |        |  |   | 544,690   |       











|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations.



Restatement of Financial Statements Pertaining to Lease
Accounting






15



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Reclassification Pertaining to Customer Loyalty Program






Business Overview






16



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Results of Operations








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|                                             |  |             |       |   |             |  |       |             |  |  |       |  
|-------------------------------------------- |  | ----------- | ----- | - | ----------- |  | ----- | ----------- |  |  | ----- | -
|                                             |  | Year Ended  |      
|                                             |  |             |      
|                                             |  | January 29, |       |   | January 31, |  |       | February 1, | 
|                                             |  | 2005        |       |   | 2004        |  |       | 2003        | 
|                                             |  |             |       |   |             |  |       |             | 
|Net sales                                    |  |             | 100.0 | % |             |  | 100.0 | %           |  |  | 100.0 | %
|Cost of sales, buying and occupancy expenses |  |             | 64.4  | % |             |  | 62.4  | %           |  |  | 61.1  | %
|Selling, general and administrative expenses |  |             | 27.3  | % |             |  | 27.1  | %           |  |  | 26.6  | %
|Operating income                             |  |             | 8.4   | % |             |  | 10.5  | %           |  |  | 12.3  | %
|Interest expense, net                        |  |             | 0.1   | % |             |  | 0.1   | %           |  |  | 0.2   | %
|Income before taxes                          |  |             | 8.3   | % |             |  | 10.3  | %           |  |  | 12.1  | %
|Income taxes                                 |  |             | 2.6   | % |             |  | 3.9   | %           |  |  | 4.5   | %
|Net income                                   |  |             | 5.6   | % |             |  | 6.5   | %           |  |  | 7.6   | %

Fiscal 2004 Compared to Fiscal 2003








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Fiscal 2003 Compared to Fiscal 2002










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Seasonality and Quarterly Fluctuations






|                                             |  |                      |       |   |           |  |       |             |  |  |             |   |  |  |       |  
|-------------------------------------------- |  | -------------------- | ----- | - | --------- |  | ----- | ----------- |  |  | ----------- | - |  |  | ----- | -
|                                             |  | Fiscal Quarter Ended |      
|                                             |  |                      |      
|                                             |  | May 1,               |       |   | July 31,  |  |       | October 30, |  |  | January 29, |  
|                                             |  | 2004                 |       |   | 2004      |  |       | 2004        |  |  | 2005        |  
|                                             |  |                      |       |   |           |  |       |             |  |  |             |  
|Net sales                                    |  |                      | 100.0 | % |           |  | 100.0 | %           |  |  | 100.0       | % |  |  | 100.0 | %
|Cost of sales, buying and occupancy expenses |  |                      | 57.5  | % |           |  | 66.8  | %           |  |  | 62.8        | % |  |  | 69.6  | %
|Selling, general and administrative expenses |  |                      | 29.4  | % |           |  | 26.7  | %           |  |  | 28.3        | % |  |  | 25.0  | %
|Operating income                             |  |                      | 13.1  | % |           |  | 6.5   | %           |  |  | 8.9         | % |  |  | 5.4   | %
|                                            
|                                             |  | Fiscal Quarter Ended |      
|                                             |  |                      |      
|                                             |  | May 3,               |       |   | August 2, |  |       | November 1, |  |  | January 31, |  
|                                             |  | 2003                 |       |   | 2003      |  |       | 2003        |  |  | 2004        |  
|                                             |  |                      |       |   |           |  |       |             |  |  |             |  
|Net sales                                    |  |                      | 100.0 | % |           |  | 100.0 | %           |  |  | 100.0       | % |  |  | 100.0 | %
|Cost of sales, buying and occupancy expenses |  |                      | 58.6  | % |           |  | 65.8  | %           |  |  | 58.1        | % |  |  | 67.0  | %
|Selling, general and administrative expenses |  |                      | 29.0  | % |           |  | 26.4  | %           |  |  | 28.2        | % |  |  | 25.0  | %
|Operating income                             |  |                      | 12.4  | % |           |  | 7.8   | %           |  |  | 13.7        | % |  |  | 8.0   | %





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Liquidity and Capital Resources










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Critical Accounting Policies






Inventory Markdown Reserve.




22



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Sales Return Reserve.






Customer Loyalty Program.






Retirement Plans.


23



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Allowance for Doubtful Accounts.




24



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Income Taxes.


Contractual Commitments




|                              |                                |       |           |           |        |   |         |         |  |        |         |         |           |         |         |         |  |   |         |         | 
|----------------------------- | ------------------------------ | ----- | --------- | --------- | ------ | - | ------- | ------- |  | ------ | ------- | ------- | --------- | ------- | ------- | ------- |  | - | ------- | ------- | 
|                              |                                |       |           | Less than |        |   | 1 to 3  |         |  | 3 to 5 |         |         | More than |        
|Contractual Obligations       |                                | Total |           |           | 1 Year |   |         | Years   |  |        | Years   |         |           | 5 Years |        
|                              |                                |       |           |           |        |   |         |         |  |        |         |         |           |         |        
|Long-term debt                |                                | $     | 100,000   |           |        | $ |        |         |  | $      | 100,000 |         |           | $       |        |         |  | $ |        |        
|Letter-of-credit agreements   |                                |       | 112,080   |           |        |   | 112,080 |         |  |        |         |         |           |         |         |         |  |   |         |        
|Operating leases:             |                                |       |           |           |        |   |         |         |  |        |         |         |           |         |         |         |  |   |         |        
|                              | Real estate                    |       |           | 929,998   |        |   |         | 126,618 |  |        |         | 246,223 |           |         |         | 214,571 |  |   |         | 342,586 | 
|                              | Equipment                      |       |           | 9,902     |        |   |         | 5,550   |  |        |         | 4,058   |           |         |         | 294     |  |   |         |         | 
|Merchandise purchases         |                                |       | 329,536   |           |        |   | 329,536 |         |  |        |         |         |           |         |         |         |  |   |         |        
|Construction contracts        |                                |       | 10,534    |           |        |   | 10,534  |         |  |        |         |         |           |         |         |         |  |   |         |        
|Other contractual commitments |                                |       | 26,358    |           |        |   | 11,455  |         |  |        | 14,618  |         |           |         | 285     |         |  |   |         |        
|Long-term obligations:        |                                |       |           |           |        |   |         |         |  |        |         |         |           |         |         |         |  |   |         |        
|                              | Non-qualified retirement plans |       |           | 29,748    |        |   |         | 3,460   |  |        |         | 4,421   |           |         |         | 3,982   |  |   |         | 17,885  | 
|                              |                                |       |           |           |        |   |         |         |  |        |         |         |           |         |        
|Total Commitments             |                                | $     | 1,548,156 |           |        | $ | 599,233 |         |  | $      | 369,320 |         |           | $       | 219,132 |         |  | $ | 360,471 |        
|                              |                                |       |           |           |        |   |         |         |  |        |         |         |           |         |        

Long-Term Debt -and Letters of Credit.


Operating Leases.


Merchandise Purchases.


Construction Contracts.


25



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Other Contractual Commitments.


Long-Term Obligations.




Inflation and Changing Prices




Exchange Rates




New Accounting Pronouncements




Forward-looking Information




26



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|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk.












|        |                                             
|------- | --------------------------------------------
|Item 8. | Financial Statements and Supplementary Data.



INDEX


|                                                                                                                                                          |  |      |     | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                                          |  | Page |    
|                                                                                                                                                          |  |      |    
|Report of Independent Registered Public Accounting Firm                                                                                                   |  |      | F-2 | 
|Consolidated Statements of Earnings for the Years Ended
    January 29, 2005, January 31, 2004 (restated) and
    February 1, 2003 (restated)             |  |      | F-3 | 
|Consolidated Balance Sheets as of January 29, 2005 and
    January 31, 2004 (restated)                                                                    |  |      | F-4 | 
|Consolidated Statements of Cash Flows for the Years Ended
    January 29, 2005, January 31, 2004 (restated) and
    February 1, 2003 (restated)           |  |      | F-5 | 
|Consolidated Statements of Stockholders Equity for the
    Years Ended January 29, 2005, January 31, 2004
    (restated) and February 1, 2003 (restated) |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                                                                                |  |      | F-7 | 

27



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure.








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Disclosure Controls and Procedures








Managements Annual Report on Internal Control Over
Financial Reporting






28



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Changes in Internal Controls over Financial Reporting






29



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


















30



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31



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|         |                   
|-------- | ------------------
|Item 9B. | Other Information.






PART III







|         |                                                    
|-------- | ---------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant.










|         |                        
|-------- | -----------------------
|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.








|         |                                        
|-------- | ---------------------------------------
|Item 14. | Principal Accounting Fees and Services.



32



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##### Table of Contents






PART IV







|         |                                         
|-------- | ----------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules.

Financial Statements:




| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | Consolidated Statements of Earnings for the Years Ended
    January 29, 2005, January 31, 2004 (restated) and
    February 1, 2003 (restated)            
|
| | Consolidated Balance Sheets as of January 29, 2005 and
    January 31, 2004 (restated)                                                                   
|
| | Consolidated Statements of Cash Flows for the Years Ended
    January 29, 2005, January 31, 2004 (restated) and
    February 1, 2003 (restated)          
|
| | Consolidated Statements of Stockholders Equity for the
    Years Ended January 29, 2005, January 31, 2004
    (restated) and February 1, 2003 (restated)
|
| | Notes to Consolidated Financial Statements                                                                                                               
|
| | Report of Independent Registered Public Accounting Firm                                                                                                  

Financial Statement Schedules:




Exhibits:




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)                                          

Instruments Defining the Rights of Security Holders,
including Indentures.


| |   |    |  |                                                
| | - | -- |  | -----------------------------------------------
| | 4 | .1 |  | Form of Common Stock Certificate of Talbots.(1)

Material Contracts.


| |    |     |  |                                                                                                                                                                                                     
| | -- | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .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 Trust Company,
    as amended.(2)(4)(7)(18)(20)(27)                                  
|
| | 10 | .3  |  | Revolving Credit Agreement, dated as of January 25, 1994,
    between Talbots and The Norinchukin Bank, as
    amended.(2)(6)(7)(16)(20)                                                            
|
| | 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)
|
| | 10 | .5  |  | Credit Agreement between Talbots and The Bank of
    Tokyo-Mitsubishi, Ltd., dated as of April 17, 1998, as
    amended.(6)(16)(21)(31)                                                             
|
| | 10 | .6  |  | Letter Agreement, dated as of March 1, 2004, concerning
    credit facilities, between Talbots and Fleet National Bank.(19)                                                                         
|
| | 10 | .7  |  | Letter Agreement, dated August 11, 1998, concerning credit
    facilities, between HSBC Corporate Banking, Marine Midland Bank
    and Talbots.(17)                                                 
|
| | 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)                                                                                                     

33



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##### 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 by Amendment
    No. 1, dated May 11, 1994.(2)(3)*                                                               
|
| | 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 dated
    May 25, 2000.(11)*                                                                                                                                               
|
| | 10 | .25 |  | Revolving Loan Credit Agreement, dated April 17, 2003,
    between Mizuho Corporate Bank, Ltd. and Talbots.(16)(20)                                                                                                        
|
| | 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)                                                                                                       
|
| | 10 | .29 |  | Amended Repurchase Program, dated as of March 31, 2004,
    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 |  | Letter Agreement, dated October 2, 2004, concerning credit
    facilities between HSBC and Talbots.(23)                                                                                                                    
|
| | 10 | .32 |  | Form of The Talbots, Inc. 2003 Executive Stock Based Incentive
    Plan Nonqualified Stock Option Agreement.(24)*                                                                                                          
|
| | 10 | .33 |  | Form of The Talbots, Inc. 2003 Executive Stock Based Incentive
    Plan Restricted Stock Agreement.(24)*                                                                                                                   
|
| | 10 | .34 |  | Form of Restricted Stock Unit Award under The Talbots, Inc.
    Restated Directors Stock Plan.(29)*                                                                                                                        
|
| | 10 | .35 |  | The Talbots, Inc. Management Incentive Plan Performance
    Criteria.(25)(29)*                                                                                                                                             
|
| | 10 | .36 |  | Employment Agreement, dated November 3, 2004, between
    Philip H. Kowalczyk and The Talbots, Inc.(26)*                                                                                                                   
|
| | 10 | .37 |  | Uncommitted Letter of Credit Facility Letter dated
    February 25, 2005 between The Talbots, Inc. and Bank of
    America.(28)                                                                                            
|
| | 10 | .38 |  | Uncommitted Lines of Credit Letter dated February 25, 2005
    between The Talbots, Inc. and Bank of America.(28)                                                                                                          
|
| | 10 | .39 |  | The Talbots, Inc. Executive Base Salary Review.(29)*                                                                                                                                                                       






34



---



##### Table of Contents



Statement re: Computation of Per Share Earnings.


| |    |    |  |                                                                                                                                                                                            
| | -- | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 11 | .1 |  | Incorporated by reference to Note 16, Net Income Per
    Share, of Talbots consolidated financial statements for
    the fiscal year ended January 29, 2005, included in this
    Report.

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 January 29, 2005,
    included in this report.

Consents of Experts and Counsel.


| |    |    |  |                                                                                         
| | -- | -- |  | ----------------------------------------------------------------------------------------
| | 23 | .1 |  | Consent of Independent Registered Public Accounting Firm,
    Deloitte & Touche LLP.(30)

| |      |  |  |      |  |                                                                                                                                                   
| | ---- |  |  | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
| | (31) |  |  | 31.1 |  | Certification by Arnold B. Zetcher, Chairman, President and
    Chief Executive Officer.(30)                                                      
|
| |      |  |  | 31.2 |  | Certification by Edward L. Larsen, Senior Vice President,
    Finance, Chief Financial Officer and Treasurer.(30)                                 
|
| | (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.(30)






| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 (File No. 001-12552) dated
    April 26, 1994.                                                          
|
| | 3 | Incorporated by reference to the exhibits filed with Current
    Report on Form 8-K (File No. 001-12552) dated
    April 27, 1995.                                                          
|
| | 4 | Incorporated by reference to the exhibits filed with Current
    Report on Form 8-K (File No. 001-12552) 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.      
|  
|11 | Incorporated by reference to the exhibits filed with Current
    Report on Form 8-K dated June 12, 2000.       
|  
|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 September 3, 2004.   
|  
|20 | Incorporated by reference to the exhibits filed with Current
    Report on Form 8-K dated April 29, 2004.      
|  
|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.

35



---



##### Table of Contents





|   |                                                                                                             
|-- | ------------------------------------------------------------------------------------------------------------
|23 | Incorporated by reference to the exhibits filed with Current
    Report on Form 8-K dated October 15, 2004. 
|  
|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 exhibits filed with 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 February 1, 2005. 
|  
|28 | Incorporated by reference to the exhibits filed with Current
    Report on Form 8-K dated March 3, 2005.    
|  
|29 | Incorporated by reference to the exhibits filed with Current
    Report on Form 8-K dated March 9, 2005.    
|  
|30 | Filed with this Form 10-K.                                                                                  
|  
|31 | Incorporated by reference to the exhibits filed with Current
    Report on Form 8-K dated April 6, 2005.    

36



---



##### Table of Contents






SIGNATURES








| |                  
| | -----------------
| | The Talbots, Inc.



| |    |                     
| | -- | --------------------
| | By | /s/ Edward L. Larsen

| |                                             
| | --------------------------------------------
| |                                             
| | Edward L. Larsen                            
| | Senior Vice President, Finance              
| | Chief Financial Officer and Treasurer       
| | (Principal Financial and Accounting Officer)



|                                                                                                                                                                                                   |  |  |  |                                                                                                       
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ------------------------------------------------------------------------------------------------------
|/s/ Arnold B. Zetcher-----------------------------------------------------
    Arnold B. ZetcherChairman of the Board, President
    and Chief Executive Officer
    (Principal Executive Officer) |  |  |  | -----------------------------------------------------
    Motoya OkadaDirector                        
|                                                                                                                                                                                                  
|                                                                                                                                                                                                  
|-----------------------------------------------------
    Toshiji TokiwaDirector                                                                                                                   |  |  |  | /s/ Gary M. Pfeiffer-----------------------------------------------------
    Gary M. PfeifferDirector
|                                                                                                                                                                                                  
|                                                                                                                                                                                                  
|/s/ John W. Gleeson-----------------------------------------------------
    John W. GleesonDirector                                                                                               |  |  |  | /s/ Susan M. Swain-----------------------------------------------------
    Susan M. SwainDirector    
|                                                                                                                                                                                                  
|                                                                                                                                                                                                  
|/s/ Elizabeth T. Kennan-----------------------------------------------------
    Elizabeth T. KennanDirector                                                                                       |  |  |  | -----------------------------------------------------
    Isao TsurutaDirector                        
|                                                                                                                                                                                                  
|                                                                                                                                                                                                  
|-----------------------------------------------------
    Yoichi KimuraDirector                                                                                                                    |  |  |  |                                                                                                       

37



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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                                                                                                              |  |      |     | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                                              |  | Page |    
|                                                                                                                                                              |  |      |    
|Report of Independent Registered Public
    Accounting Firm                                                                                                   |  |      | F-2 | 
|Consolidated Statements of Earnings for the
    Years Ended January 29, 2005, January 31, 2004
    (restated) and February 1, 2003 (restated)                 |  |      | F-3 | 
|Consolidated Balance Sheets as of
    January 29, 2005 and January 31, 2004 (restated)                                                                        |  |      | F-4 | 
|Consolidated Statements of Cash Flows for
    the Years Ended January 29, 2005, January 31, 2004
    (restated) and February 1, 2003 (restated)               |  |      | F-5 | 
|Consolidated Statements of
    Stockholders Equity for the Years Ended January 29,
    2005, January 31, 2004 (restated) and February 1,
    2003 (restated) |  |      | F-6 | 
|Notes to Consolidated Financial
    Statements                                                                                                                |  |      | F-7 | 

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






















F-2



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF EARNINGS


Dollar amounts in thousands except per share data


|                                                                                 |                                     |             |           |               |             |   |               |             |  |   |           |         | 
|-------------------------------------------------------------------------------- | ----------------------------------- | ----------- | --------- | ------------- | ----------- | - | ------------- | ----------- |  | - | --------- | ------- | 
|                                                                                 |                                     | Year Ended  |          
|                                                                                 |                                     |             |          
|                                                                                 |                                     | January 29, |           |               | January 31, |   |               | February 1, | 
|                                                                                 |                                     | 2005        |           |               | 2004        |   |               | 2003        | 
|                                                                                 |                                     |             |           |               |             |   |               |             | 
|                                                                                 |                                     |             |           | (as restated, |             |   | (as restated, |            
|                                                                                 |                                     |             |           | see Note 3)   |             |   | see Note 3)   |            
|Net Sales                                                                        |                                     | $           | 1,697,843 |               |             | $ | 1,594,790     |             |  | $ | 1,568,835 |        
|Costs and Expenses                                                               |                                     |             |           |               |             |   |               |             |  |   |           |        
|                                                                                 | Cost of sales, buying and occupancy |             |           | 1,093,023     |             |   |               | 995,765     |  |   |           | 958,575 | 
|                                                                                 | Selling, general and administrative |             |           | 462,705       |             |   |               | 432,424     |  |   |           | 417,360 | 
|                                                                                 |                                     |             |           |               |             |   |               |             | 
|Operating Income                                                                 |                                     |             | 142,115   |               |             |   | 166,601       |             |  |   | 192,900   |        
|Interest                                                                         |                                     |             |           |               |             |   |               |             |  |   |           |        
|                                                                                 | Interest expense                    |             |           | 2,616         |             |   |               | 2,402       |  |   |           | 3,262   | 
|                                                                                 | Interest income                     |             |           | 506           |             |   |               | 307         |  |   |           | 409     | 
|                                                                                 |                                     |             |           |               |             |   |               |             | 
|Interest Expense  net                                                           |                                     |             | 2,110     |               |             |   | 2,095         |             |  |   | 2,853     |        
|                                                                                 |                                     |             |           |               |             |   |               |             | 
|Income Before Taxes                                                              |                                     |             | 140,005   |               |             |   | 164,506       |             |  |   | 190,047   |        
|Income Taxes                                                                     |                                     |             | 44,639    |               |             |   | 61,615        |             |  |   | 71,188    |        
|                                                                                 |                                     |             |           |               |             |   |               |             | 
|Net Income                                                                       |                                     | $           | 95,366    |               |             | $ | 102,891       |             |  | $ | 118,859   |        
|                                                                                 |                                     |             |           |               |             |   |               |             | 
|Net Income Per Share                                                             |                                     |             |           |               |             |   |               |             |  |   |           |        
|                                                                                 | Basic                               |             | $         | 1.73          |             |   | $             | 1.82        |  |   | $         | 2.02    | 
|                                                                                 |                                     |             |           |               |             |   |               |             | 
|                                                                                 | Assuming Dilution                   |             | $         | 1.70          |             |   | $             | 1.78        |  |   | $         | 1.97    | 
|                                                                                 |                                     |             |           |               |             |   |               |             | 
|Weighted Average Number of Shares of Common Stock Outstanding
    (in thousands) |                                     |             |           |               |             |   |               |             |  |   |           |        
|                                                                                 | Basic                               |             |           | 54,969        |             |   |               | 56,531      |  |   |           | 58,724  | 
|                                                                                 |                                     |             |           |               |             |   |               |             | 
|                                                                                 | Diluted                             |             |           | 56,252        |             |   |               | 57,901      |  |   |           | 60,191  | 
|                                                                                 |                                     |             |           |               |             |   |               |             | 



F-3



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


Dollar amounts in thousands except share data


|                                           |                                                                                                                                                                                                        |                            |           |               |             |   |           |          |         | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | --------- | ------------- | ----------- | - | --------- | -------- | ------- | 
|                                           |                                                                                                                                                                                                        | January 29,                |           |               | January 31, |  
|                                           |                                                                                                                                                                                                        | 2005                       |           |               | 2004        |  
|                                           |                                                                                                                                                                                                        |                            |           |               |             |  
|                                           |                                                                                                                                                                                                        |                            |           | (as restated, |            
|                                           |                                                                                                                                                                                                        |                            |           | see Note 3)   |            
|ASSETS                                    
|Current Assets:                            |                                                                                                                                                                                                        |                            |           |               |             |   |           |         
|                                           | Cash and cash equivalents                                                                                                                                                                              |                            | $         | 31,811        |             |   | $         | 85,655   |        
|                                           | Customer accounts receivable  net                                                                                                                                                                     |                            |           | 199,256       |             |   |           | 182,686  |        
|                                           | Merchandise inventories                                                                                                                                                                                |                            |           | 238,544       |             |   |           | 170,447  |        
|                                           | Deferred catalog costs                                                                                                                                                                                 |                            |           | 5,118         |             |   |           | 4,449    |        
|                                           | Due from affiliates                                                                                                                                                                                    |                            |           | 9,073         |             |   |           | 10,046   |        
|                                           | Deferred income taxes                                                                                                                                                                                  |                            |           | 14,006        |             |   |           | 13,664   |        
|                                           | Prepaid and other current assets                                                                                                                                                                       |                            |           | 29,589        |             |   |           | 29,207   |        
|                                           |                                                                                                                                                                                                        |                            |           |               |             |  
|                                           |                                                                                                                                                                                                        | Total current assets       |           |               | 527,397     |   |           |          | 496,154 | 
|Property and equipment  net               |                                                                                                                                                                                                        |                            | 405,114   |               |             |   | 397,672   |         
|Goodwill  net                             |                                                                                                                                                                                                        |                            | 35,513    |               |             |   | 35,513    |         
|Trademarks  net                           |                                                                                                                                                                                                        |                            | 75,884    |               |             |   | 75,884    |         
|Other assets                               |                                                                                                                                                                                                        |                            | 18,222    |               |             |   | 13,424    |         
|                                           |                                                                                                                                                                                                        |                            |           |               |             |  
|Total Assets                               |                                                                                                                                                                                                        | $                          | 1,062,130 |               |             | $ | 1,018,647 |         
|                                           |                                                                                                                                                                                                        |                            |           |               |             |  
|                                          
|LIABILITIES AND STOCKHOLDERS EQUITY      
|Current Liabilities:                       |                                                                                                                                                                                                        |                            |           |               |             |   |           |         
|                                           | Accounts payable                                                                                                                                                                                       |                            | $         | 65,070        |             |   | $         | 50,058   |        
|                                           | Accrued income taxes                                                                                                                                                                                   |                            |           | 27,196        |             |   |           | 15,043   |        
|                                           | Accrued liabilities                                                                                                                                                                                    |                            |           | 110,372       |             |   |           | 101,042  |        
|                                           |                                                                                                                                                                                                        |                            |           |               |             |  
|                                           |                                                                                                                                                                                                        | Total current liabilities  |           |               | 202,638     |   |           |          | 166,143 | 
|Long-term debt                             |                                                                                                                                                                                                        |                            | 100,000   |               |             |   | 100,000   |         
|Deferred rent under lease commitments      |                                                                                                                                                                                                        |                            | 109,946   |               |             |   | 102,846   |         
|Deferred income taxes                      |                                                                                                                                                                                                        |                            | 5,670     |               |             |   | 3,060     |         
|Other liabilities                          |                                                                                                                                                                                                        |                            | 55,288    |               |             |   | 41,687    |         
|Commitments                                |                                                                                                                                                                                                        |                            |           |               |             |   |           |         
|Stockholders Equity:                      |                                                                                                                                                                                                        |                            |           |               |             |   |           |         
|                                           | Common stock, $0.01 par value; 200,000,000 authorized;
    76,940,134 shares and 76,245,075 shares issued,
    respectively, and 54,123,667 shares and
    56,675,506 shares outstanding, respectively |                            |           | 769           |             |   |           | 762      |        
|                                           | Additional paid-in capital                                                                                                                                                                             |                            |           | 432,912       |             |   |           | 411,874  |        
|                                           | Retained earnings                                                                                                                                                                                      |                            |           | 715,580       |             |   |           | 644,073  |        
|                                           | Accumulated other comprehensive loss                                                                                                                                                                   |                            |           | (17,142       | )           |   |           | (14,601  | )      
|                                           | Deferred compensation                                                                                                                                                                                  |                            |           | (11,821       | )           |   |           | (6,154   | )      
|                                           | Treasury stock, at cost; 22,816,467 shares and
    19,569,569 shares, respectively                                                                                                                     |                            |           | (531,710      | )           |   |           | (431,043 | )      
|                                           |                                                                                                                                                                                                        |                            |           |               |             |  
|                                           |                                                                                                                                                                                                        | Total stockholders equity |           |               | 588,588     |   |           |          | 604,911 | 
|                                           |                                                                                                                                                                                                        |                            |           |               |             |  
|Total Liabilities and Stockholders Equity |                                                                                                                                                                                                        | $                          | 1,062,130 |               |             | $ | 1,018,647 |         
|                                           |                                                                                                                                                                                                        |                            |           |               |             |  



F-4



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


Dollar amounts in thousands


|                                                                                      |                                                                          |                                  |         |               |             |   |               |             |        |   |          |          |        |  
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | -------------------------------- | ------- | ------------- | ----------- | - | ------------- | ----------- | ------ | - | -------- | -------- | ------ | -
|                                                                                      |                                                                          | Year Ended                       |        
|                                                                                      |                                                                          |                                  |        
|                                                                                      |                                                                          | January 29,                      |         |               | January 31, |   |               | February 1, |       
|                                                                                      |                                                                          | 2005                             |         |               | 2004        |   |               | 2003        |       
|                                                                                      |                                                                          |                                  |         |               |             |   |               |             |       
|                                                                                      |                                                                          |                                  |         | (as restated, |             |   | (as restated, |            
|                                                                                      |                                                                          |                                  |         | see Note 3)   |             |   | see Note 3)   |            
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                 |                                                                          |                                  |         |               |             |   |               |             |        |   |          |         
|Net income                                                                            |                                                                          | $                                | 95,366  |               |             | $ | 102,891       |             |        | $ | 118,859  |         
|Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                                          |                                  |         |               |             |   |               |             |        |   |          |         
|                                                                                      | Depreciation and amortization                                            |                                  |         | 82,769        |             |   |               | 75,987      |        |   |          | 67,721   |       
|                                                                                      | Deferred rent                                                            |                                  |         | 7,073         |             |   |               | 15,543      |        |   |          | 10,683   |       
|                                                                                      | Amortization of restricted stock awards and other stock
    transactions |                                  |         | 4,868         |             |   |               | 1,616       |        |   |          | 634      |       
|                                                                                      | Loss on disposal of property and equipment                               |                                  |         | 2,675         |             |   |               | 1,615       |        |   |          | 3,021    |       
|                                                                                      | Tax benefit from options exercised                                       |                                  |         | 2,484         |             |   |               | 4,658       |        |   |          | 4,870    |       
|                                                                                      | Deferred income taxes                                                    |                                  |         | 3,777         |             |   |               | 4,324       |        |   |          | 10,634   |       
|                                                                                      | Changes in other assets                                                  |                                  |         | (4,799        | )           |   |               | (4,021      | )      |   |          | (469     | )     
|                                                                                      | Changes in other liabilities                                             |                                  |         | 10,035        |             |   |               | 6,086       |        |   |          | 728      |       
|                                                                                      | Changes in current assets and liabilities:                               |                                  |         |               |             |   |               |             |        |   |          |          |       
|                                                                                      |                                                                          | Customer accounts receivable     |         |               | (16,502     | ) |               |             | (1,373 | ) |          |          | (8,938 | )
|                                                                                      |                                                                          | Merchandise inventories          |         |               | (67,784     | ) |               |             | 5,403  |   |          |          | 8,913  |  
|                                                                                      |                                                                          | Deferred catalog costs           |         |               | (669        | ) |               |             | 1,428  |   |          |          | 2,464  |  
|                                                                                      |                                                                          | Due from affiliates              |         |               | 973         |   |               |             | (1,253 | ) |          |          | 825    |  
|                                                                                      |                                                                          | Prepaid and other current assets |         |               | (603        | ) |               |             | 95     |   |          |          | (712   | )
|                                                                                      |                                                                          | Accounts payable                 |         |               | 14,338      |   |               |             | 1,654  |   |          |          | (569   | )
|                                                                                      |                                                                          | Income taxes payable             |         |               | 12,090      |   |               |             | 3,458  |   |          |          | 10,569 |  
|                                                                                      |                                                                          | Accrued liabilities              |         |               | 9,132       |   |               |             | 12,730 |   |          |          | 8,138  |  
|                                                                                      |                                                                          |                                  |         |               |             |   |               |             |       
|                                                                                      | Net cash provided by operating activities                                |                                  |         | 155,223       |             |   |               | 230,841     |        |   |          | 237,371  |       
|                                                                                      |                                                                          |                                  |         |               |             |   |               |             |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                 |                                                                          |                                  |         |               |             |   |               |             |        |   |          |         
|Additions to property and equipment                                                   |                                                                          |                                  | (92,668 | )             |             |   | (108,985      | )           |        |   | (114,143 | )       
|Proceeds from disposal of property and equipment                                      |                                                                          |                                  |        |               |             |   | 900           |             |        |   | 6        |         
|                                                                                      |                                                                          |                                  |         |               |             |   |               |             |       
|                                                                                      | Net cash used in investing activities                                    |                                  |         | (92,668       | )           |   |               | (108,085    | )      |   |          | (114,137 | )     
|                                                                                      |                                                                          |                                  |         |               |             |   |               |             |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                 |                                                                          |                                  |         |               |             |   |               |             |        |   |          |         
|Proceeds from options exercised                                                       |                                                                          |                                  | 7,345   |               |             |   | 10,132        |             |        |   | 5,567    |         
|Cash dividends                                                                        |                                                                          |                                  | (23,859 | )             |             |   | (22,136       | )           |        |   | (20,612  | )       
|Purchase of treasury stock                                                            |                                                                          |                                  | (99,986 | )             |             |   | (51,338       | )           |        |   | (101,488 | )       
|                                                                                      |                                                                          |                                  |         |               |             |   |               |             |       
|                                                                                      | Net cash used in financing activities                                    |                                  |         | (116,500      | )           |   |               | (63,342     | )      |   |          | (116,533 | )     
|                                                                                      |                                                                          |                                  |         |               |             |   |               |             |       
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                                               |                                                                          |                                  | 101     |               |             |   | 675           |             |        |   | 559      |         
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  |                                                                          |                                  | (53,844 | )             |             |   | 60,089        |             |        |   | 7,260    |         
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                          |                                                                          |                                  | 85,655  |               |             |   | 25,566        |             |        |   | 18,306   |         
|                                                                                      |                                                                          |                                  |         |               |             |   |               |             |       
|CASH AND CASH EQUIVALENTS, END OF YEAR                                                |                                                                          | $                                | 31,811  |               |             | $ | 85,655        |             |        | $ | 25,566   |         
|                                                                                      |                                                                          |                                  |         |               |             |   |               |             |       



F-5



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


Dollar amounts in thousands except share data


(As restated, see note 3)


|                            |                                                             |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         |         |              |   |         |               |         |   |               |         |   |        |          |          |   |  |   |         |         |   |         |          |         |  
|--------------------------- | ----------------------------------------------------------- | ----------------------------------------------- | ---------- | ---------- | ---------- | - | --- | -------- | - | ------------- | -------- | ------- | - | -------- | ------- | ------- | ------------ | - | ------- | ------------- | ------- | - | ------------- | ------- | - | ------ | -------- | -------- | - |  | - | ------- | ------- | - | ------- | -------- | ------- | -
|                            |                                                             |                                                 |            |            |            |   |     |          |   | Accumulated   |          |         |   |          |         |         |              |   |        
|                            |                                                             |                                                 |            |            |            |   |     | Other    |   |               |          |         |   |          |         |         |             
|                            |                                                             | Common Stock                                    |            |            | Additional |   |     |          |   | Comprehensive |          |         |   |          |         |         |              |   | Total   |              
|                            |                                                             |                                                 |            |            | Paid-In    |   |     | Retained |   |               | Income   |         |   | Deferred |         |         | Treasury     |   |         | Comprehensive |         |   | Stockholders |        
|                            |                                                             | Shares                                          |            |            | Amount     |   |     | Capital  |   |               | Earnings |         |   | (Loss)   |         |         | Compensation |   |         | Stock         |         |   | Income        |         |   | Equity |         
|                            |                                                             |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         |         |              |   |         |               |         |   |               |         |   |        |         
|Balance at February 2, 2002 |                                                             |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         |         |              |   |         |               |         |   |               |         |   |        |          |          |   |  |   |         |         |   |         |         
|                            | (as previously reported)                                    |                                                 |            | 74,935,856 |            |   | $   | 749      |   |               | $        | 378,955 |   |          | $       | 472,594 |              |   | $       | (5,508        | )       |   | $             | (697    | ) |        | $        | (278,217 | ) |  |   |         |         |   | $       | 567,876  |        
|                            | Prior years adjustment (see Note 3)                         |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         | (7,523  | )            |   |         |               |         |   |               |         |   |        |          |          |   |  |   |         |         |   |         | (7,523   | )      
|                            |                                                             |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         |         |              |   |         |               |         |   |               |         |   |        |         
|Balance at February 2, 2002 |                                                             |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         |         |              |   |         |               |         |   |               |         |   |        |          |          |   |  |   |         |         |   |         |         
|                            | (as restated, see Note 3)                                   |                                                 |            | 74,935,856 |            |   |     | 749      |   |               |          | 378,955 |   |          |         | 465,071 |              |   |         | (5,508        | )       |   |               | (697    | ) |        |          | (278,217 | ) |  |   |         |         |   |         | 560,353  |        
|                            | Cash dividends paid                                         |                                                 |            |           |            |   |     |         |   |               |          |        |   |          |         | (20,612 | )            |   |         |              |         |   |               |        |   |        |          |         |   |  |   |         |         |   |         | (20,612  | )      
|                            | Amortization of restricted stock awards                     |                                                 |            |           |            |   |     |         |   |               |          |        |   |          |         |        |              |   |         |              |         |   |               | 619     |   |        |          |         |   |  |   |         |         |   |         | 619      |        
|                            | Stock options exercised, including tax benefit              |                                                 |            | 333,743    |            |   |     | 4        |   |               |          | 10,432  |   |          |         |        |              |   |         |              |         |   |               |        |   |        |          |         |   |  |   |         |         |   |         | 10,436   |        
|                            | Purchase of 3,210,761 shares of common stock                |                                                 |            |           |            |   |     |         |   |               |          |        |   |          |         |        |              |   |         |              |         |   |               |        |   |        |          | (101,488 | ) |  |   |         |         |   |         | (101,488 | )      
|                            | Other equity transactions                                   |                                                 |            | 414        |            |   |     |         |   |               |          | 15      |   |          |         |        |              |   |         |              |         |   |               |        |   |        |          |         |   |  |   |         |         |   |         | 15       |        
|                            | Comprehensive income:                                       |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         |         |              |   |         |               |         |   |               |         |   |        |          |          |   |  |   |         |         |   |         |          |        
|                            |                                                             | Net income (as restated, see Note 3)            |            |            |           |   |     |          |  |               |          |         |  |          |         |         | 118,859      |   |         |               |        |   |               |         |  |        |          |          |  |  |   | $       | 118,859 |   |         |          | 118,859 |  
|                            |                                                             | Translation adjustment                          |            |            |           |   |     |          |  |               |          |         |  |          |         |         |             |   |         |               | 1,347   |   |               |         |  |        |          |          |  |  |   |         | 1,347   |   |         |          | 1,347   |  
|                            |                                                             | Change in minimum pension liability, net of tax |            |            |           |   |     |          |  |               |          |         |  |          |         |         |             |   |         |               | (11,276 | ) |               |         |  |        |          |          |  |  |   |         | (11,276 | ) |         |          | (11,276 | )
|                            |                                                             |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         |         |              |   |         |               |         |   |               |         |   |        |         
|                            | Comprehensive income (as restated, see Note 3)              |                                                 |            |           |            |   |     |         |   |               |          |        |   |          |         |        |              |   |         |              |         |   |               |        |   |        |          |         |   |  |   | 108,930 |         |   |         |          |        
|                            |                                                             |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         |         |              |   |         |               |         |   |               |         |   |        |         
|Balance at February 1, 2003 |                                                             |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         |         |              |   |         |               |         |   |               |         |   |        |          |          |   |  |   |         |         |   |         |         
|                            | (as restated, see Note 3)                                   |                                                 |            | 75,270,013 |            |   |     | 753      |   |               |          | 389,402 |   |          |         | 563,318 |              |   |         | (15,437       | )       |   |               | (78     | ) |        |          | (379,705 | ) |  |   |         |         |   |         | 558,253  |        
|                            | Cash dividends paid                                         |                                                 |            |           |            |   |     |         |   |               |          |        |   |          |         | (22,136 | )            |   |         |              |         |   |               |        |   |        |          |         |   |  |   |         |         |   |         | (22,136  | )      
|                            | Common stock issued as restricted stock award               |                                                 |            | 307,125    |            |   |     | 3        |   |               |          | 7,677   |   |          |         |        |              |   |         |              |         |   |               | (7,677  | ) |        |          |         |   |  |   |         |         |   |         | 3        |        
|                            | Amortization of restricted stock awards                     |                                                 |            |           |            |   |     |         |   |               |          |        |   |          |         |        |              |   |         |              |         |   |               | 1,601   |   |        |          |         |   |  |   |         |         |   |         | 1,601    |        
|                            | Stock options exercised, including tax benefit              |                                                 |            | 667,523    |            |   |     | 6        |   |               |          | 14,783  |   |          |         |        |              |   |         |              |         |   |               |        |   |        |          |         |   |  |   |         |         |   |         | 14,789   |        
|                            | Purchase of 1,805,358 shares of common stock                |                                                 |            |           |            |   |     |         |   |               |          |        |   |          |         |        |              |   |         |              |         |   |               |        |   |        |          | (51,338  | ) |  |   |         |         |   |         | (51,338  | )      
|                            | Other equity transactions                                   |                                                 |            | 414        |            |   |     |         |   |               |          | 12      |   |          |         |        |              |   |         |              |         |   |               |        |   |        |          |         |   |  |   |         |         |   |         | 12       |        
|                            | Comprehensive income:                                       |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         |         |              |   |         |               |         |   |               |         |   |        |          |          |   |  |   |         |         |   |         |          |        
|                            |                                                             | Net income (as restated, see Note 3)            |            |            |           |   |     |          |  |               |          |         |  |          |         |         | 102,891      |   |         |               |        |   |               |         |  |        |          |          |  |  |   |         | 102,891 |   |         |          | 102,891 |  
|                            |                                                             | Translation adjustment                          |            |            |           |   |     |          |  |               |          |         |  |          |         |         |             |   |         |               | 2,577   |   |               |         |  |        |          |          |  |  |   |         | 2,577   |   |         |          | 2,577   |  
|                            |                                                             | Change in minimum pension liability, net of tax |            |            |           |   |     |          |  |               |          |         |  |          |         |         |             |   |         |               | (1,741  | ) |               |         |  |        |          |          |  |  |   |         | (1,741  | ) |         |          | (1,741  | )
|                            |                                                             |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         |         |              |   |         |               |         |   |               |         |   |        |         
|                            | Comprehensive income (as restated, see Note 3)              |                                                 |            |           |            |   |     |         |   |               |          |        |   |          |         |        |              |   |         |              |         |   |               |        |   |        |          |         |   |  |   | 103,727 |         |   |         |          |        
|                            |                                                             |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         |         |              |   |         |               |         |   |               |         |   |        |         
|Balance at January 31, 2004 |                                                             |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         |         |              |   |         |               |         |   |               |         |   |        |          |          |   |  |   |         |         |   |         |         
|                            | (as restated, see Note 3)                                   |                                                 |            | 76,245,075 |            |   |     | 762      |   |               |          | 411,874 |   |          |         | 644,073 |              |   |         | (14,601       | )       |   |               | (6,154  | ) |        |          | (431,043 | ) |  |   |         |         |   |         | 604,911  |        
|                            | Cash dividends paid                                         |                                                 |            |           |            |   |     |         |   |               |          |        |   |          |         | (23,859 | )            |   |         |              |         |   |               |        |   |        |          |         |   |  |   |         |         |   |         | (23,859  | )      
|                            | Common stock issued as restricted stock award               |                                                 |            | 298,075    |            |   |     | 3        |   |               |          | 10,105  |   |          |         |        |              |   |         |              |         |   |               | (10,108 | ) |        |          |         |   |  |   |         |         |   |         |         |        
|                            | Restricted stock units issued                               |                                                 |            |           |            |   |     |         |   |               |          | 1,108   |   |          |         |        |              |   |         |              |         |   |               | (1,108  | ) |        |          |         |   |  |   |         |         |   |         |         |        
|                            | Amortization of restricted stock awards                     |                                                 |            |           |            |   |     |         |   |               |          |        |   |          |         |        |              |   |         |              |         |   |               | 4,964   |   |        |          |         |   |  |   |         |         |   |         | 4,964    |        
|                            | Stock options exercised, including tax benefit              |                                                 |            | 396,984    |            |   |     | 4        |   |               |          | 9,825   |   |          |         |        |              |   |         |              |         |   |               |        |   |        |          |         |   |  |   |         |         |   |         | 9,829    |        
|                            | Purchase of 3,222,423 shares of common stock                |                                                 |            |           |            |   |     |         |   |               |          |        |   |          |         |        |              |   |         |              |         |   |               |        |   |        |          | (99,986  | ) |  |   |         |         |   |         | (99,986  | )      
|                            | Purchase of 24,475 shares of restricted common stock awards |                                                 |            |           |            |   |     |         |   |               |          |        |   |          |         |        |              |   |         |              |         |   |               | 585     |   |        |          | (681     | ) |  |   |         |         |   |         | (96      | )      
|                            | Comprehensive income:                                       |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         |         |              |   |         |               |         |   |               |         |   |        |          |          |   |  |   |         |         |   |         |          |        
|                            |                                                             | Net income                                      |            |            |           |   |     |          |  |               |          |         |  |          |         |         | 95,366       |   |         |               |        |   |               |         |  |        |          |          |  |  |   |         | 95,366  |   |         |          | 95,366  |  
|                            |                                                             | Translation adjustment                          |            |            |           |   |     |          |  |               |          |         |  |          |         |         |             |   |         |               | (401    | ) |               |         |  |        |          |          |  |  |   |         | (401    | ) |         |          | (401    | )
|                            |                                                             | Change in minimum pension liability, net of tax |            |            |           |   |     |          |  |               |          |         |  |          |         |         |             |   |         |               | (2,140  | ) |               |         |  |        |          |          |  |  |   |         | (2,140  | ) |         |          | (2,140  | )
|                            |                                                             |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         |         |              |   |         |               |         |   |               |         |   |        |         
|                            | Comprehensive income                                        |                                                 |            |           |            |   |     |         |   |               |          |        |   |          |         |        |              |   |         |              |         |   |               |        |   |        |          |         |   |  | $ | 92,825  |         |   |         |          |        
|                            |                                                             |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         |         |              |   |         |               |         |   |               |         |   |        |         
|Balance at January 29, 2005 |                                                             |                                                 | 76,940,134 |            |            | $ | 769 |          |   | $             | 432,912  |         |   | $        | 715,580 |         |              | $ | (17,142 | )             |         | $ | (11,821       | )       |   | $      | (531,710 | )        |   |  |   |         |         | $ | 588,588 |         
|                            |                                                             |                                                 |            |            |            |   |     |          |   |               |          |         |   |          |         |         |              |   |         |               |         |   |               |         |   |        |         



F-6



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Dollar 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 


Cash and Cash Equivalents 


Customer Accounts Receivable 


Customer Loyalty Program 


F-7



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data




Merchandise Inventories 


Property and Equipment 


|                       |  |       |                                   | 
|---------------------- |  | ----- | --------------------------------- | 
|Description            |  | Years |                                  
|                       |  |       |                                  
|Buildings              |  |       | 1050                             | 
|Fixtures and equipment |  |       | 310                              | 
|Software               |  |       | 37                               | 
|Leasehold improvements |  |       | 310 or term of lease, if shorter | 
|Leasehold interests    |  |       | 1720                             | 





Preopening Expenses 


Goodwill 


Trademarks 


Grantor Trust 


F-8



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##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data


Deferred Rent Obligations 


Fair Value of Financial Instruments 


Foreign Currency Translation 


Revenue Recognition 


Cost of Sales, Buying and Occupancy 


Selling, General and Administrative Expenses 


Finance Charge Income 


Advertising 


Income Taxes 


F-9



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data




Stock-Based Compensation 


|                                                                                                                        |  |                   |         |   |             |   |         |             |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------- | - | ------- | ----------- |  | - | ------- | -
|                                                                                                                        |  | Fiscal Year Ended |        
|                                                                                                                        |  |                   |        
|                                                                                                                        |  | January 29,       |         |   | January 31, |   |         | February 1, | 
|                                                                                                                        |  | 2005              |         |   | 2004        |   |         | 2003        | 
|                                                                                                                        |  |                   |         |   |             |   |         |             | 
|Net income, as reported                                                                                                 |  | $                 | 95,366  |   |             | $ | 102,891 |             |  | $ | 118,859 |  
|Add: stock-based compensation included in reported net income,
    net of related tax effects                           |  |                   | 3,042   |   |             |   | 880     |             |  |   | 345     |  
|Deduct: total stock-based compensation expense determined under
    fair value based method, net of related tax effects |  |                   | (12,706 | ) |             |   | (15,027 | )           |  |   | (19,004 | )
|                                                                                                                        |  |                   |         |   |             |   |         |             | 
|Pro forma net income                                                                                                    |  | $                 | 85,702  |   |             | $ | 88,744  |             |  | $ | 100,200 |  
|                                                                                                                        |  |                   |         |   |             |   |         |             | 
|Earnings per share:                                                                                                     |  |                   |         |   |             |   |         |             |  |   |         |  
|Basic-as reported                                                                                                       |  | $                 | 1.73    |   |             | $ | 1.82    |             |  | $ | 2.02    |  
|                                                                                                                        |  |                   |         |   |             |   |         |             | 
|Basic-pro forma                                                                                                         |  | $                 | 1.56    |   |             | $ | 1.57    |             |  | $ | 1.71    |  
|                                                                                                                        |  |                   |         |   |             |   |         |             | 
|Diluted-as reported                                                                                                     |  | $                 | 1.70    |   |             | $ | 1.78    |             |  | $ | 1.97    |  
|                                                                                                                        |  |                   |         |   |             |   |         |             | 
|Diluted-pro forma                                                                                                       |  | $                 | 1.52    |   |             | $ | 1.53    |             |  | $ | 1.66    |  
|                                                                                                                        |  |                   |         |   |             |   |         |             | 



|                                                         |                                                                                                              |                   |           |     |             |  |            |             |   |  |            |     |  
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | ----------------- | --------- | --- | ----------- |  | ---------- | ----------- | - |  | ---------- | --- | -
|                                                         |                                                                                                              | Fiscal Year Ended |          
|                                                         |                                                                                                              |                   |          
|                                                         |                                                                                                              | January 29,       |           |     | January 31, |  |            | February 1, |  
|                                                         |                                                                                                              | 2005              |           |     | 2004        |  |            | 2003        |  
|                                                         |                                                                                                              |                   |           |     |             |  |            |             |  
|Weighted average risk free interest rate                 |                                                                                                              |                   | 3.7       | %   |             |  | 4.0        | %           |   |  | 5.2        | %  
|Weighted average expected life of option grants          |                                                                                                              |                   | 6.0 years |     |             |  | 6.15 years |             |   |  | 6.25 years |    
|Weighted average expected volatility of underlying stock |                                                                                                              |                   | 54.8      | %   |             |  | 50.0       | %           |   |  | 58.0       | %  
|                                                         | Weighted average expected dividend payment rate, as a percentage
    of the stock price on the date of grant |                   |           | 1.3 | %           |  |            | 1.5         | % |  |            | 1.0 | %

Comprehensive Income 


Basic and Diluted Net Income Per Share 


F-10



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data




Supplemental Cash Flow Information 


New Accounting Pronouncements 




|   |                                    
|-- | -----------------------------------
|3. | Restatement of Financial Statements









F-11



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data








|                                           |  |            |         |  |             |   |         |          |  |   |           | 
|------------------------------------------ |  | ---------- | ------- |  | ----------- | - | ------- | -------- |  | - | --------- | 
|                                           |  | Previously |         |  |             |   |        
|As of January 31, 2004                     |  | Reported   |         |  | Adjustments |   |         | Restated | 
|                                           |  |            |         |  |             |   |         |          | 
|Property and equipment, net                |  | $          | 337,417 |  |             | $ | 60,255  |          |  | $ | 397,672   | 
|Total Assets                               |  |            | 958,392 |  |             |   | 60,255  |          |  |   | 1,018,647 | 
|Deferred rent under lease commitments      |  |            | 23,897  |  |             |   | 78,949  |          |  |   | 102,846   | 
|Deferred income taxes                      |  |            | 10,540  |  |             |   | (7,480  | )        |  |   | 3,060     | 
|Retained earnings                          |  |            | 655,288 |  |             |   | (11,215 | )        |  |   | 644,073   | 
|Total stockholders equity                 |  |            | 616,126 |  |             |   | (11,215 | )        |  |   | 604,911   | 
|Total Liabilities and Stockholders Equity |  | $          | 958,392 |  |             | $ | 60,255  |          |  | $ | 1,018,647 | 



|                                    |                   |             |         |      |             |   |        |          |   |   |         |      | 
|----------------------------------- | ----------------- | ----------- | ------- | ---- | ----------- | - | ------ | -------- | - | - | ------- | ---- | 
|                                    |                   | Previously  |         |      |             |   |       
|Year Ended January 31, 2004         |                   | Reported(1) |         |      | Adjustments |   |        | Restated |  
|                                    |                   |             |         |      |             |   |        |          |  
|Cost of sales, buying and occupancy |                   | $           | 992,778 |      |             | $ | 2,987  |          |   | $ | 995,765 |     
|Operating Income                    |                   |             | 169,588 |      |             |   | (2,987 | )        |   |   | 166,601 |     
|Income Before Taxes                 |                   |             | 167,493 |      |             |   | (2,987 | )        |   |   | 164,506 |     
|Income Taxes                        |                   |             | 62,810  |      |             |   | (1,195 | )        |   |   | 61,615  |     
|Net Income                          |                   | $           | 104,683 |      |             | $ | (1,792 | )        |   | $ | 102,891 |     
|Net Income Per Share                |                   |             |         |      |             |   |        |          |   |   |         |     
|                                    | Basic             |             | $       | 1.85 |             |   | $      | (0.03    | ) |   | $       | 1.82 | 
|                                    | Assuming Dilution |             | $       | 1.81 |             |   | $      | (0.03    | ) |   | $       | 1.78 | 

|                                    |                   |             |         |      |             |   |        |          |   |   |         |      | 
|----------------------------------- | ----------------- | ----------- | ------- | ---- | ----------- | - | ------ | -------- | - | - | ------- | ---- | 
|                                    |                   | Previously  |         |      |             |   |       
|Year Ended February 1, 2003         |                   | Reported(1) |         |      | Adjustments |   |        | Restated |  
|                                    |                   |             |         |      |             |   |        |          |  
|Cost of sales, buying and occupancy |                   | $           | 955,408 |      |             | $ | 3,167  |          |   | $ | 958,575 |     
|Operating Income                    |                   |             | 196,067 |      |             |   | (3,167 | )        |   |   | 192,900 |     
|Income Before Taxes                 |                   |             | 193,214 |      |             |   | (3,167 | )        |   |   | 190,047 |     
|Income Taxes                        |                   |             | 72,455  |      |             |   | (1,267 | )        |   |   | 71,188  |     
|Net Income                          |                   | $           | 120,759 |      |             | $ | (1,900 | )        |   | $ | 118,859 |     
|Net Income Per Share                |                   |             |         |      |             |   |        |          |   |   |         |     
|                                    | Basic             |             | $       | 2.06 |             |   | $      | (0.04    | ) |   | $       | 2.02 | 
|                                    | Assuming Dilution |             | $       | 2.01 |             |   | $      | (0.04    | ) |   | $       | 1.97 | 






|    |                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Previously reported numbers reflect the impact of the
    reclassification discussed within this Note 3 under the
    caption Reclassification of Customer Loyalty Program.

F-12



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data




|                                          |  |            |         |   |             |   |         |          |  |   |          |  
|----------------------------------------- |  | ---------- | ------- | - | ----------- | - | ------- | -------- |  | - | -------- | -
|                                          |  | Previously |         |   |             |   |        
|Year Ended January 31, 2004               |  | Reported   |         |   | Adjustments |   |         | Restated | 
|                                          |  |            |         |   |             |   |         |          | 
|Depreciation and amortization             |  | $          | 65,893  |   |             | $ | 10,094  |          |  | $ | 75,987   |  
|Deferred rent                             |  |            | 3,170   |   |             |   | 12,373  |          |  |   | 15,543   |  
|Deferred income taxes                     |  |            | 5,519   |   |             |   | (1,195  | )        |  |   | 4,324    |  
|Net cash provided by operating activities |  |            | 211,361 |   |             |   | 19,480  |          |  |   | 230,841  |  
|Additions to property and equipment       |  |            | (89,505 | ) |             |   | (19,480 | )        |  |   | (108,985 | )
|Net cash used in investing activities     |  | $          | (88,605 | ) |             | $ | (19,480 | )        |  | $ | (108,085 | )

|                                          |  |            |         |   |             |   |         |          |  |   |          |  
|----------------------------------------- |  | ---------- | ------- | - | ----------- | - | ------- | -------- |  | - | -------- | -
|                                          |  | Previously |         |   |             |   |        
|Year Ended February 1, 2003               |  | Reported   |         |   | Adjustments |   |         | Restated | 
|                                          |  |            |         |   |             |   |         |          | 
|Depreciation and amortization             |  | $          | 59,113  |   |             | $ | 8,608   |          |  | $ | 67,721   |  
|Deferred rent                             |  |            | 1,136   |   |             |   | 9,547   |          |  |   | 10,683   |  
|Deferred income taxes                     |  |            | 11,901  |   |             |   | (1,267  | )        |  |   | 10,634   |  
|Net cash provided by operating activities |  |            | 222,383 |   |             |   | 14,988  |          |  |   | 237,371  |  
|Additions to property and equipment       |  |            | (99,155 | ) |             |   | (14,988 | )        |  |   | (114,143 | )
|Net cash used in investing activities     |  | $          | (99,149 | ) |             | $ | (14,988 | )        |  | $ | (114,137 | )

Reclassification of Customer Loyalty Program




|   |                                     
|-- | ------------------------------------
|4. | Goodwill and Other Intangible Assets





|   |                    
|-- | -------------------
|5. | Equity Transactions





F-13



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##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data








|                                 |  |                  |         |          |                  |   |       |                  |          |  |                 |   |  |           |       |  |                 |  |          |   |  |   |      | 
|-------------------------------- |  | ---------------- | ------- | -------- | ---------------- | - | ----- | ---------------- | -------- |  | --------------- | - |  | --------- | ----- |  | --------------- |  | -------- | - |  | - | ---- | 
|                                 |  | Year Ended       |        
|                                 |  |                  |        
|                                 |  | January 29, 2005 |         |          | January 31, 2004 |   |       | February 1, 2003 |         
|                                 |  |                  |         |          |                  |   |       |                  |         
|                                 |  |                  |         | Weighted |                  |   |       |                  | Weighted |  |                 |   |  | Weighted  |      
|                                 |  | Number of        |         |          | average market   |   |       | Number of        |          |  | average market  |   |  | Number of |       |  | average market  | 
|                                 |  | shares           |         |          | price per share  |   |       | shares           |          |  | price per share |   |  | shares    |       |  | price per share | 
|                                 |  |                  |         |          |                  |   |       |                  |          |  |                 |   |  |           |       |  |                 | 
|Outstanding at beginning of year |  |                  | 301,950 |          |                  | $ | 17.02 |                  |          |  | 132,934         |   |  | $         | 7.89  |  |                 |  | 265,867  |   |  | $ | 7.89 | 
|Granted                          |  |                  | 298,075 |          |                  |   | 33.92 |                  |          |  | 307,125         |   |  |           | 25.00 |  |                 |  |         |   |  |   |     | 
|Vested                           |  |                  |        |          |                  |   |      |                  |          |  | (122,934        | ) |  |           | 7.48  |  |                 |  | (132,933 | ) |  |   | 7.89 | 
|Forfeited                        |  |                  | (24,475 | )        |                  |   | 27.85 |                  |          |  | (15,175         | ) |  |           | 12.90 |  |                 |  |         |   |  |   |     | 
|                                 |  |                  |         |          |                  |   |       |                  |          |  |                 |   |  |           |       |  |                 | 
|Outstanding at end of year       |  |                  | 575,550 |          |                  | $ | 29.50 |                  |          |  | 301,950         |   |  | $         | 17.02 |  |                 |  | 132,934  |   |  | $ | 7.89 | 
|                                 |  |                  |         |          |                  |   |       |                  |          |  |                 |   |  |           |       |  |                 | 





|   |              
|-- | -------------
|6. | Stock Options



F-14



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data








|                |  |                     |           |  |                     |  |           |                |  |   |             |  |  |                |           |  |  |   |       | 
|--------------- |  | ------------------- | --------- |  | ------------------- |  | --------- | -------------- |  | - | ----------- |  |  | -------------- | --------- |  |  | - | ----- | 
|                |  | Options Outstanding |           |  | Options Exercisable | 
|                |  |                     |           |  |                     | 
|                |  | Number of           |           |  | Weighted            |  |           | Weighted       |  |   | Number of   |  |  | Weighted       |          
|Range of        |  | options             |           |  | average             |  |           | average        |  |   | options     |  |  | average        |          
|exercise prices |  | outstanding         |           |  | remaining life      |  |           | exercise price |  |   | exercisable |  |  | exercise price |          
|                |  |                     |           |  |                     |  |           |                |  |   |             |  |  |                |          
|$ 7.41  $10.22 |  |                     | 350,004   |  |                     |  | 3.0 years |                |  | $ | 7.42        |  |  |                | 350,004   |  |  | $ | 7.42  | 
|$10.23  $15.33 |  |                     | 844,892   |  |                     |  | 3.2 years |                |  |   | 12.92       |  |  |                | 844,892   |  |  |   | 12.92 | 
|$15.34  $20.45 |  |                     | 2,087,271 |  |                     |  | 5.0 years |                |  |   | 18.96       |  |  |                | 2,087,271 |  |  |   | 18.96 | 
|$20.46  $25.56 |  |                     | 869,368   |  |                     |  | 8.0 years |                |  |   | 24.99       |  |  |                | 294,191   |  |  |   | 24.96 | 
|$25.57  $30.67 |  |                     | 236,950   |  |                     |  | 8.1 years |                |  |   | 27.54       |  |  |                | 86,013    |  |  |   | 28.51 | 
|$30.68  $35.79 |  |                     | 940,850   |  |                     |  | 9.0 years |                |  |   | 33.94       |  |  |                | 39,781    |  |  |   | 33.99 | 
|$35.80  $40.90 |  |                     | 1,186,382 |  |                     |  | 6.9 years |                |  |   | 35.93       |  |  |                | 793,642   |  |  |   | 35.89 | 
|$40.91  $46.01 |  |                     | 2,000     |  |                     |  | 6.2 years |                |  |   | 41.85       |  |  |                | 2,000     |  |  |   | 41.85 | 
|$46.02  $51.13 |  |                     | 1,060,999 |  |                     |  | 5.7 years |                |  |   | 47.02       |  |  |                | 1,060,999 |  |  |   | 47.02 | 
|                |  |                     |           |  |                     |  |           |                |  |   |             |  |  |                |          
|                |  |                     | 7,578,716 |  |                     |  | 6.0 years |                |  | $ | 27.16       |  |  |                | 5,558,793 |  |  | $ | 25.67 | 
|                |  |                     |           |  |                     |  |           |                |  |   |             |  |  |                |          

F-15



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data




|                                 |  |                  |           |          |                  |   |       |                  |          |  |                 |   |  |           |       |  |                 |  |           |   |  |   |       | 
|-------------------------------- |  | ---------------- | --------- | -------- | ---------------- | - | ----- | ---------------- | -------- |  | --------------- | - |  | --------- | ----- |  | --------------- |  | --------- | - |  | - | ----- | 
|                                 |  | Year Ended       |          
|                                 |  |                  |          
|                                 |  | January 29, 2005 |           |          | January 31, 2004 |   |       | February 1, 2003 |         
|                                 |  |                  |           |          |                  |   |       |                  |         
|                                 |  |                  |           | Weighted |                  |   |       |                  | Weighted |  |                 |   |  | Weighted  |      
|                                 |  | Number of        |           |          | average option   |   |       | Number of        |          |  | average option  |   |  | Number of |       |  | average option  | 
|                                 |  | shares           |           |          | price per share  |   |       | shares           |          |  | price per share |   |  | shares    |       |  | price per share | 
|                                 |  |                  |           |          |                  |   |       |                  |          |  |                 |   |  |           |       |  |                 | 
|Outstanding at beginning of year |  |                  | 7,111,071 |          |                  | $ | 25.97 |                  |          |  | 6,994,111       |   |  | $         | 25.37 |  |                 |  | 6,002,857 |   |  | $ | 22.72 | 
|Granted                          |  |                  | 1,048,250 |          |                  |   | 33.52 |                  |          |  | 1,011,100       |   |  |           | 25.37 |  |                 |  | 1,391,000 |   |  |   | 35.36 | 
|Exercised                        |  |                  | (396,984  | )        |                  |   | 18.50 |                  |          |  | (667,523        | ) |  |           | 15.18 |  |                 |  | (333,743  | ) |  |   | 16.68 | 
|Forfeited                        |  |                  | (183,621  | )        |                  |   | 35.82 |                  |          |  | (226,617        | ) |  |           | 36.71 |  |                 |  | (66,003   | ) |  |   | 38.40 | 
|                                 |  |                  |           |          |                  |   |       |                  |          |  |                 |   |  |           |       |  |                 | 
|Outstanding at end of year       |  |                  | 7,578,716 |          |                  | $ | 27.16 |                  |          |  | 7,111,071       |   |  | $         | 25.97 |  |                 |  | 6,994,111 |   |  | $ | 25.37 | 
|                                 |  |                  |           |          |                  |   |       |                  |          |  |                 |   |  |           |       |  |                 | 
|Exercisable at end of year       |  |                  | 5,558,793 |          |                  | $ | 25.67 |                  |          |  | 4,971,856       |   |  | $         | 23.12 |  |                 |  | 3,843,720 |   |  | $ | 18.92 | 
|                                 |  |                  |           |          |                  |   |       |                  |          |  |                 |   |  |           |       |  |                 | 



|   |                             
|-- | ----------------------------
|7. | Related Party and Affiliates







F-16



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data




|   |                    
|-- | -------------------
|8. | Accounts Receivable



|                                     |  |             |         |   |             |   |         |  
|------------------------------------ |  | ----------- | ------- | - | ----------- | - | ------- | -
|                                     |  | January 29, |         |   | January 31, |  
|                                     |  | 2005        |         |   | 2004        |  
|                                     |  |             |         |   |             |  
|Due from customers                   |  | $           | 201,956 |   |             | $ | 185,386 |  
|Less allowance for doubtful accounts |  |             | (2,700  | ) |             |   | (2,700  | )
|                                     |  |             |         |   |             |  
|Customer accounts receivable, net    |  | $           | 199,256 |   |             | $ | 182,686 |  
|                                     |  |             |         |   |             |  





|                               |  |             |        |   |             |   |        |             |  |   |        |  
|------------------------------ |  | ----------- | ------ | - | ----------- | - | ------ | ----------- |  | - | ------ | -
|                               |  | Year Ended  |       
|                               |  |             |       
|                               |  | January 29, |        |   | January 31, |   |        | February 1, | 
|                               |  | 2005        |        |   | 2004        |   |        | 2003        | 
|                               |  |             |        |   |             |   |        |             | 
|Balance, beginning of year     |  | $           | 2,700  |   |             | $ | 2,600  |             |  | $ | 2,300  |  
|Charges to costs and expenses  |  |             | 2,649  |   |             |   | 3,202  |             |  |   | 3,416  |  
|Charge-offs, net of recoveries |  |             | (2,649 | ) |             |   | (3,102 | )           |  |   | (3,116 | )
|                               |  |             |        |   |             |   |        |             | 
|Balance, end of year           |  | $           | 2,700  |   |             | $ | 2,700  |             |  | $ | 2,600  |  
|                               |  |             |        |   |             |   |        |             | 



|   |                       
|-- | ----------------------
|9. | Property and Equipment



|                                               |  |             |          |   |             |   |          |  
|---------------------------------------------- |  | ----------- | -------- | - | ----------- | - | -------- | -
|                                               |  | January 29, |          |   | January 31, |  
|                                               |  | 2005        |          |   | 2004        |  
|                                               |  |             |          |   |             |  
|Land                                           |  | $           | 10,817   |   |             | $ | 10,561   |  
|Buildings                                      |  |             | 68,029   |   |             |   | 68,318   |  
|Fixtures and equipment                         |  |             | 354,008  |   |             |   | 318,354  |  
|Software                                       |  |             | 43,481   |   |             |   | 39,746   |  
|Leasehold improvements                         |  |             | 288,862  |   |             |   | 258,355  |  
|Leasehold interests                            |  |             | 726      |   |             |   | 969      |  
|Construction in progress                       |  |             | 14,509   |   |             |   | 17,903   |  
|                                               |  |             |          |   |             |  
|Property and equipment-gross                   |  |             | 780,432  |   |             |   | 714,206  |  
|Less accumulated depreciation and amortization |  |             | (375,318 | ) |             |   | (316,534 | )
|                                               |  |             |          |   |             |  
|Property and equipment-net                     |  | $           | 405,114  |   |             | $ | 397,672  |  
|                                               |  |             |          |   |             |  



F-17



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data




|    |                    
|--- | -------------------
|10. | Accrued Liabilities



|                                                                                                        |  |             |         |  |             |   |         | 
|------------------------------------------------------------------------------------------------------- |  | ----------- | ------- |  | ----------- | - | ------- | 
|                                                                                                        |  | January 29, |         |  | January 31, |  
|                                                                                                        |  | 2005        |         |  | 2004        |  
|                                                                                                        |  |             |         |  |             |  
|Gift certificates, merchandise credits, sales return reserve and
    other customer related liabilities |  | $           | 52,704  |  |             | $ | 46,911  | 
|Employee compensation, related tax and benefits                                                         |  |             | 30,759  |  |             |   | 29,496  | 
|Taxes other than income and withholding                                                                 |  |             | 9,354   |  |             |   | 8,223   | 
|Other accrued liabilities                                                                               |  |             | 17,555  |  |             |   | 16,412  | 
|                                                                                                        |  |             |         |  |             |  
|Total accrued liabilities                                                                               |  | $           | 110,372 |  |             | $ | 101,042 | 
|                                                                                                        |  |             |         |  |             |  



|                                                |  |             |          |   |             |   |          |             |  |   |          |  
|----------------------------------------------- |  | ----------- | -------- | - | ----------- | - | -------- | ----------- |  | - | -------- | -
|                                                |  | Year Ended  |         
|                                                |  |             |         
|                                                |  | January 29, |          |   | January 31, |   |          | February 1, | 
|                                                |  | 2005        |          |   | 2004        |   |          | 2003        | 
|                                                |  |             |          |   |             |   |          |             | 
|Sales return reserve balance, beginning of year |  | $           | 8,002    |   |             | $ | 7,398    |             |  | $ | 7,561    |  
|Provision for merchandise returns               |  |             | 358,279  |   |             |   | 310,511  |             |  |   | 294,067  |  
|Merchandise returned                            |  |             | (357,097 | ) |             |   | (309,907 | )           |  |   | (294,230 | )
|                                                |  |             |          |   |             |   |          |             | 
|Sales return reserve balance, end of year       |  | $           | 9,184    |   |             | $ | 8,002    |             |  | $ | 7,398    |  
|                                                |  |             |          |   |             |   |          |             | 



|    |     
|--- | ----
|11. | Debt

Long-Term
Debt 




|            |         |  |               |  |       |          |  |  |              | 
|----------- | ------- |  | ------------- |  | ----- | -------- |  |  | ------------ | 
|Outstanding |         |  | Interest Rate |  |       | Maturity | 
|            |         |  |               | 
|$           | 18,000  |  |               |  | 2.86% |          |  |  | April 2006   | 
|            | 14,000  |  |               |  | 2.87% |          |  |  | April 2006   | 
|            | 14,000  |  |               |  | 3.58% |          |  |  | April 2006   | 
|            | 12,000  |  |               |  | 3.09% |          |  |  | April 2006   | 
|            | 18,000  |  |               |  | 3.56% |          |  |  | January 2007 | 
|            | 10,000  |  |               |  | 3.72% |          |  |  | January 2007 | 
|            | 8,000   |  |               |  | 3.81% |          |  |  | January 2007 | 
|            | 6,000   |  |               |  | 3.01% |          |  |  | January 2007 | 
|            |         |  |               |  |       |          |  |  |              | 
|$           | 100,000 |  |               |  |       |          |  |  |              | 
|            |         |  |               |  |       |          |  |  |              | 

Line of Credit Facility 


F-18



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data




Letters of Credit 




|    |             
|--- | ------------
|12. | Income Taxes



|         |  |             |         |  |             |   |         |             |  |   |         | 
|-------- |  | ----------- | ------- |  | ----------- | - | ------- | ----------- |  | - | ------- | 
|         |  | Year Ended  |        
|         |  |             |        
|         |  | January 29, |         |  | January 31, |   |         | February 1, | 
|         |  | 2005        |         |  | 2004        |   |         | 2003        | 
|         |  |             |         |  |             |   |         |             | 
|Domestic |  | $           | 134,797 |  |             | $ | 158,431 |             |  | $ | 186,123 | 
|Foreign  |  |             | 5,208   |  |             |   | 6,075   |             |  |   | 3,924   | 
|         |  |             |         |  |             |   |         |             | 
|Total    |  | $           | 140,005 |  |             | $ | 164,506 |             |  | $ | 190,047 | 
|         |  |             |         |  |             |   |         |             | 



|                         |         |             |        |        |             |   |        |             |   |   |        |        | 
|------------------------ | ------- | ----------- | ------ | ------ | ----------- | - | ------ | ----------- | - | - | ------ | ------ | 
|                         |         | Year Ended  |       
|                         |         |             |       
|                         |         | January 29, |        |        | January 31, |   |        | February 1, |  
|                         |         | 2005        |        |        | 2004        |   |        | 2003        |  
|                         |         |             |        |        |             |   |        |             |  
|Currently payable:       |         |             |        |        |             |   |        |             |   |   |        |       
|                         | Federal |             | $      | 34,564 |             |   | $      | 51,747      |   |   | $      | 54,547 | 
|                         | State   |             |        | 4,569  |             |   |        | 5,585       |   |   |        | 5,907  | 
|                         | Foreign |             |        | 1,812  |             |   |        | 107         |   |   |        |       | 
|                         |         |             |        |        |             |   |        |             |  
|Total currently payable  |         |             | 40,945 |        |             |   | 57,439 |             |   |   | 60,454 |       
|                         |         |             |        |        |             |   |        |             |  
|Deferred:                |         |             |        |        |             |   |        |             |   |   |        |       
|                         | Federal |             |        | 4,597  |             |   |        | 6,965       |   |   |        | 8,386  | 
|                         | State   |             |        | (903   | )           |   |        | (1,009      | ) |   |        | 981    | 
|                         | Foreign |             |        |       |             |   |        | (1,780      | ) |   |        | 1,367  | 
|                         |         |             |        |        |             |   |        |             |  
|Total deferred           |         |             | 3,694  |        |             |   | 4,176  |             |   |   | 10,734 |       
|                         |         |             |        |        |             |   |        |             |  
|Total income tax expense |         | $           | 44,639 |        |             | $ | 61,615 |             |   | $ | 71,188 |       
|                         |         |             |        |        |             |   |        |             |  

F-19



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data




|                            |                               |                  |        |        |                  |   |         |         |   |   |        |         |   |             |        |        |       |   |         |         |   |   |        |         |  
|--------------------------- | ----------------------------- | ---------------- | ------ | ------ | ---------------- | - | ------- | ------- | - | - | ------ | ------- | - | ----------- | ------ | ------ | ----- | - | ------- | ------- | - | - | ------ | ------- | -
|                            |                               | January 29, 2005 |        |        | January 31, 2004 |  
|                            |                               |                  |        |        |                  |  
|                            |                               | Assets           |        |        | Liabilities      |   |         | Total   |   |   | Assets |         |   | Liabilities |        |        | Total |  
|                            |                               |                  |        |        |                  |   |         |         |   |   |        |         |   |             |        |        |       |  
|United States:              |                               |                  |        |        |                  |   |         |         |   |   |        |         |   |             |        |        |       |   |         |         |   |   |        |        
|Current:                    |                               |                  |        |        |                  |   |         |         |   |   |        |         |   |             |        |        |       |   |         |         |   |   |        |        
|                            | Merchandise inventories       |                  | $      | 8,960  |                  |   | $       |        |   |   | $      | 8,960   |   |             | $      | 8,094  |       |   | $       |        |   |   | $      | 8,094   |  
|                            | Deferred catalog costs        |                  |        |       |                  |   |         | (1,297  | ) |   |        | (1,297  | ) |             |        |       |       |   |         | (664    | ) |   |        | (664    | )
|                            | Accrued vacation pay          |                  |        | 5,004  |                  |   |         |        |   |   |        | 5,004   |   |             |        | 4,350  |       |   |         |        |   |   |        | 4,350   |  
|                            | Other                         |                  |        | 3,571  |                  |   |         | (2,232  | ) |   |        | 1,339   |   |             |        | 2,138  |       |   |         | (254    | ) |   |        | 1,884   |  
|                            |                               |                  |        |        |                  |   |         |         |   |   |        |         |   |             |        |        |       |  
|Total current               |                               |                  | 17,535 |        |                  |   | (3,529  | )       |   |   | 14,006 |         |   |             | 14,582 |        |       |   | (918    | )       |   |   | 13,664 |        
|                            |                               |                  |        |        |                  |   |         |         |   |   |        |         |   |             |        |        |       |  
|Noncurrent:                 |                               |                  |        |        |                  |   |         |         |   |   |        |         |   |             |        |        |       |   |         |         |   |   |        |        
|                            | Depreciation and amortization |                  |        |       |                  |   |         | (44,833 | ) |   |        | (44,833 | ) |             |        |       |       |   |         | (33,562 | ) |   |        | (33,562 | )
|                            | Lease commitments             |                  |        | 15,336 |                  |   |         |        |   |   |        | 15,336  |   |             |        | 13,954 |       |   |         |        |   |   |        | 13,954  |  
|                            | Deferred rent                 |                  |        | 1,885  |                  |   |         |        |   |   |        | 1,885   |   |             |        | 1,654  |       |   |         |        |   |   |        | 1,654   |  
|                            | Deferred compensation         |                  |        | 11,093 |                  |   |         |        |   |   |        | 11,093  |   |             |        | 5,208  |       |   |         |        |   |   |        | 5,208   |  
|                            | Minimum pension liability     |                  |        | 10,105 |                  |   |         |        |   |   |        | 10,105  |   |             |        | 8,679  |       |   |         |        |   |   |        | 8,679   |  
|                            | Other                         |                  |        | 744    |                  |   |         |        |   |   |        | 744     |   |             |        | 1,007  |       |   |         |        |   |   |        | 1,007   |  
|                            |                               |                  |        |        |                  |   |         |         |   |   |        |         |   |             |        |        |       |  
|Total noncurrent            |                               |                  | 39,163 |        |                  |   | (44,833 | )       |   |   | (5,670 | )       |   |             | 30,502 |        |       |   | (33,562 | )       |   |   | (3,060 | )      
|                            |                               |                  |        |        |                  |   |         |         |   |   |        |         |   |             |        |        |       |  
|Total deferred income taxes |                               | $                | 56,698 |        |                  | $ | (48,362 | )       |   | $ | 8,336  |         |   | $           | 45,084 |        |       | $ | (34,480 | )       |   | $ | 10,604 |        
|                            |                               |                  |        |        |                  |   |         |         |   |   |        |         |   |             |        |        |       |  





F-20



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data




|                            |                                                |                  |        |        |                  |  |      |                  |   |   |        |       |   |     |      |      |      |   |        |       |  |  |      |     | 
|--------------------------- | ---------------------------------------------- | ---------------- | ------ | ------ | ---------------- |  | ---- | ---------------- | - | - | ------ | ----- | - | --- | ---- | ---- | ---- | - | ------ | ----- |  |  | ---- | --- | 
|                            |                                                | Year Ended       |       
|                            |                                                |                  |       
|                            |                                                | January 29, 2005 |        |        | January 31, 2004 |  |      | February 1, 2003 |  
|                            |                                                |                  |        |        |                  |  |      |                  |  
|                            |                                                | Tax              |        |        | Rate             |  |      | Tax              |   |   | Rate   |       |   | Tax |      |      | Rate |  
|                            |                                                |                  |        |        |                  |  |      |                  |   |   |        |       |   |     |      |      |      |  
|Expected tax expense        |                                                | $                | 49,002 |        |                  |  | 35.0 | %                |   | $ | 57,577 |       |   |     | 35.0 | %    |      | $ | 66,517 |       |  |  | 35.0 | %  
|Adjustments resulting from: |                                                |                  |        |        |                  |  |      |                  |   |   |        |       |   |     |      |      |      |   |        |       |  |  |      |    
|                            | State income taxes, net of federal tax benefit |                  |        | 2,383  |                  |  |      | 1.7              |   |   |        | 4,154 |   |     |      | 2.5  |      |   |        | 4,477 |  |  |      | 2.4 | 
|                            | Foreign tax                                    |                  |        | 1,812  |                  |  |      | 1.3              |   |   |        | 107   |   |     |      | 0.1  |      |   |        |      |  |  |      |    | 
|                            | Tax audit resolution                           |                  |        | (7,835 | )                |  |      | (5.6             | ) |   |        |      |   |     |      |     |      |   |        |      |  |  |      |    | 
|                            | Other                                          |                  |        | (723   | )                |  |      | (0.5             | ) |   |        | (223  | ) |     |      | (0.1 | )    |   |        | 194   |  |  |      | 0.1 | 
|                            |                                                |                  |        |        |                  |  |      |                  |   |   |        |       |   |     |      |      |      |  
|Actual tax expense          |                                                | $                | 44,639 |        |                  |  | 31.9 | %                |   | $ | 61,615 |       |   |     | 37.5 | %    |      | $ | 71,188 |       |  |  | 37.5 | %  
|                            |                                                |                  |        |        |                  |  |      |                  |   |   |        |       |   |     |      |      |      |  



|    |                                   
|--- | ----------------------------------
|13. | Segment and Geographic Information











F-21



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data




|              |  |                  |           |  |         |   |         |       |  |   |           | 
|------------- |  | ---------------- | --------- |  | ------- | - | ------- | ----- |  | - | --------- | 
|              |  | January 29, 2005 |          
|              |  |                  |          
|              |  | Stores           |           |  | Catalog |   |         | Total | 
|              |  |                  |           |  |         |   |         |       | 
|Net Sales     |  | $                | 1,454,650 |  |         | $ | 243,193 |       |  | $ | 1,697,843 | 
|Direct profit |  |                  | 223,481   |  |         |   | 48,507  |       |  |   | 271,988   | 

|              |  |                  |           |  |         |   |         |       |  |   |           | 
|------------- |  | ---------------- | --------- |  | ------- | - | ------- | ----- |  | - | --------- | 
|              |  | January 31, 2004 |          
|              |  |                  |          
|              |  | Stores           |           |  | Catalog |   |         | Total | 
|              |  |                  |           |  |         |   |         |       | 
|Net Sales     |  | $                | 1,363,036 |  |         | $ | 231,754 |       |  | $ | 1,594,790 | 
|Direct profit |  |                  | 248,593   |  |         |   | 48,132  |       |  |   | 296,725   | 

|              |  |                  |           |  |         |   |         |       |  |   |           | 
|------------- |  | ---------------- | --------- |  | ------- | - | ------- | ----- |  | - | --------- | 
|              |  | February 1, 2003 |          
|              |  |                  |          
|              |  | Stores           |           |  | Catalog |   |         | Total | 
|              |  |                  |           |  |         |   |         |       | 
|Net Sales     |  | $                | 1,328,573 |  |         | $ | 240,262 |       |  | $ | 1,568,835 | 
|Direct profit |  |                  | 266,693   |  |         |   | 45,466  |       |  |   | 312,159   | 



|                                            |  |             |         |  |             |   |         |             |  |   |         | 
|------------------------------------------- |  | ----------- | ------- |  | ----------- | - | ------- | ----------- |  | - | ------- | 
|                                            |  | Year Ended  |        
|                                            |  |             |        
|                                            |  | January 29, |         |  | January 31, |   |         | February 1, | 
|                                            |  | 2005        |         |  | 2004        |   |         | 2003        | 
|                                            |  |             |         |  |             |   |         |             | 
|Total direct profit for reportable segments |  | $           | 271,988 |  |             | $ | 296,725 |             |  | $ | 312,159 | 
|Less: indirect expenses                     |  |             | 129,873 |  |             |   | 130,124 |             |  |   | 119,259 | 
|                                            |  |             |         |  |             |   |         |             | 
|Operating income                            |  |             | 142,115 |  |             |   | 166,601 |             |  |   | 192,900 | 
|Interest expense-net                        |  |             | 2,110   |  |             |   | 2,095   |             |  |   | 2,853   | 
|                                            |  |             |         |  |             |   |         |             | 
|Income before taxes                         |  |             | 140,005 |  |             |   | 164,506 |             |  |   | 190,047 | 
|Income taxes                                |  |             | 44,639  |  |             |   | 61,615  |             |  |   | 71,188  | 
|                                            |  |             |         |  |             |   |         |             | 
|Consolidated net income                     |  | $           | 95,366  |  |             | $ | 102,891 |             |  | $ | 118,859 | 
|                                            |  |             |         |  |             |   |         |             | 



F-22



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##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data




|                            |  |             |           |  |             |   |           |             |  |   |           | 
|--------------------------- |  | ----------- | --------- |  | ----------- | - | --------- | ----------- |  | - | --------- | 
|                            |  | January 29, |           |  | January 31, |   |           | February 1, | 
|                            |  | 2005        |           |  | 2004        |   |           | 2003        | 
|                            |  |             |           |  |             |   |           |             | 
|Sales:                      |  |             |           |  |             |   |           |             |  |   |           | 
|United States               |  | $           | 1,640,518 |  |             | $ | 1,541,149 |             |  | $ | 1,519,516 | 
|Foreign                     |  |             | 57,325    |  |             |   | 53,641    |             |  |   | 49,319    | 
|                            |  |             |           |  |             |   |           |             | 
|Total consolidated revenues |  | $           | 1,697,843 |  |             | $ | 1,594,790 |             |  | $ | 1,568,835 | 
|                            |  |             |           |  |             |   |           |             | 
|Long-Lived Assets:          |  |             |           |  |             |   |           |             |  |   |           | 
|United States               |  |             | 507,662   |  |             |   | 501,072   |             |  |   | 470,580   | 
|Foreign                     |  |             | 8,848     |  |             |   | 7,996     |             |  |   | 6,912     | 
|                            |  |             |           |  |             |   |           |             | 
|Total long-lived assets     |  | $           | 516,510   |  |             | $ | 509,068   |             |  | $ | 477,492   | 
|                            |  |             |           |  |             |   |           |             | 





|    |              
|--- | -------------
|14. | Benefit Plans







F-23



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data




|                                                    |                                                                                         |              |         |         |             |                        |        |             |   |   |             |         |   |             |        |         |             |   |       |        |   |   |       |        |  
|--------------------------------------------------- | --------------------------------------------------------------------------------------- | ------------ | ------- | ------- | ----------- | ---------------------- | ------ | ----------- | - | - | ----------- | ------- | - | ----------- | ------ | ------- | ----------- | - | ----- | ------ | - | - | ----- | ------ | -
|                                                    |                                                                                         | Year Ended   |        
|                                                    |                                                                                         |              |        
|                                                    |                                                                                         |              |         |         |             | Postretirement Medical |       
|                                                    |                                                                                         | Pension Plan |         |         | SERP        |                        |        | Plan        |  
|                                                    |                                                                                         |              |         |         |             |                        |        |             |  
|                                                    |                                                                                         | January 29,  |         |         | January 31, |                        |        | January 29, |   |   | January 31, |         |   | January 29, |        |         | January 31, |  
|                                                    |                                                                                         | 2005         |         |         | 2004        |                        |        | 2005        |   |   | 2004        |         |   | 2005        |        |         | 2004        |  
|                                                    |                                                                                         |              |         |         |             |                        |        |             |   |   |             |         |   |             |        |         |             |  
|Change in benefit obligation:                       |                                                                                         |              |         |         |             |                        |        |             |   |   |             |         |   |             |        |         |             |   |       |        |   |   |       |       
|Projected benefit obligations at beginning of year  |                                                                                         | $            | 92,886  |         |             | $                      | 72,015 |             |   | $ | 11,497      |         |   | $           | 9,306  |         |             | $ | 4,660 |        |   | $ | 3,622 |       
|                                                    | Service cost                                                                            |              |         | 8,040   |             |                        |        | 6,610       |   |   |             | 721     |   |             |        | 630     |             |   |       | 652    |   |   |       | 453    |  
|                                                    | Interest cost                                                                           |              |         | 5,900   |             |                        |        | 4,939       |   |   |             | 731     |   |             |        | 641     |             |   |       | 341    |   |   |       | 253    |  
|                                                    | Actuarial loss                                                                          |              |         | 13,437  |             |                        |        | 10,331      |   |   |             | 1,076   |   |             |        | 924     |             |   |       | 1,260  |   |   |       | 507    |  
|                                                    | Benefits paid, net                                                                      |              |         | (1,324  | )           |                        |        | (1,009      | ) |   |             | (18     | ) |             |        | (4      | )           |   |       | (222   | ) |   |       | (175   | )
|                                                    |                                                                                         |              |         |         |             |                        |        |             |   |   |             |         |   |             |        |         |             |  
|Projected benefit obligations at end of year        |                                                                                         | $            | 118,939 |         |             | $                      | 92,886 |             |   | $ | 14,007      |         |   | $           | 11,497 |         |             | $ | 6,691 |        |   | $ | 4,660 |       
|                                                    |                                                                                         |              |         |         |             |                        |        |             |   |   |             |         |   |             |        |         |             |  
|Changes in assets:                                  |                                                                                         |              |         |         |             |                        |        |             |   |   |             |         |   |             |        |         |             |   |       |        |   |   |       |       
|                                                    | Fair value at beginning of year                                                         |              | $       | 58,512  |             |                        | $      | 42,925      |   |   | $           |        |   |             | $      |        |             |   | $     |       |   |   | $     |       |  
|                                                    | Actual return on plan assets                                                            |              |         | 4,561   |             |                        |        | 8,596       |   |   |             |        |   |             |        |        |             |   |       |       |   |   |       |       |  
|                                                    | Employer contributions                                                                  |              |         | 8,000   |             |                        |        | 8,000       |   |   |             |        |   |             |        |        |             |   |       |       |   |   |       |       |  
|                                                    | Benefits paid                                                                           |              |         | (1,324  | )           |                        |        | (1,009      | ) |   |             |        |   |             |        |        |             |   |       |       |   |   |       |       |  
|                                                    |                                                                                         |              |         |         |             |                        |        |             |   |   |             |         |   |             |        |         |             |  
|                                                    | Fair value at end of year                                                               |              | $       | 69,749  |             |                        | $      | 58,512      |   |   | $           |        |   |             | $      |        |             |   | $     |       |   |   | $     |       |  
|                                                    |                                                                                         |              |         |         |             |                        |        |             |   |   |             |         |   |             |        |         |             |  
|Funded Status:                                      |                                                                                         |              |         |         |             |                        |        |             |   |   |             |         |   |             |        |         |             |   |       |        |   |   |       |       
|                                                    | Funded status                                                                           |              | $       | (49,190 | )           |                        | $      | (34,374     | ) |   | $           | (14,007 | ) |             | $      | (11,497 | )           |   | $     | (6,691 | ) |   | $     | (4,660 | )
|                                                    | Unrecognized prior service cost                                                         |              |         | 632     |             |                        |        | 864         |   |   |             | 148     |   |             |        | 175     |             |   |       |       |   |   |       |       |  
|                                                    | Unrecognized net loss (gain)                                                            |              |         | 51,461  |             |                        |        | 39,563      |   |   |             | 4,531   |   |             |        | 3,752   |             |   |       | 1,574  |   |   |       | 380    |  
|                                                    | Accrued contributions                                                                   |              |         |        |             |                        |        |            |   |   |             | 7       |   |             |        |        |             |   |       | 19     |   |   |       |        |  
|                                                    |                                                                                         |              |         |         |             |                        |        |             |   |   |             |         |   |             |        |         |             |  
|                                                    | Prepaid (accrued) cost                                                                  |              | $       | 2,903   |             |                        | $      | 6,053       |   |   | $           | (9,321  | ) |             | $      | (7,570  | )           |   | $     | (5,098 | ) |   | $     | (4,280 | )
|                                                    |                                                                                         |              |         |         |             |                        |        |             |   |   |             |         |   |             |        |         |             |  
|Amounts recognized on the balance sheet consist of: |                                                                                         |              |         |         |             |                        |        |             |   |   |             |         |   |             |        |         |             |   |       |        |   |   |       |       
|                                                    | Accrued benefit cost                                                                    |              | $       | (22,106 | )           |                        | $      | (15,203     | ) |   | $           | (10,354 | ) |             | $      | (9,050  | )           |   | $     | (5,098 | ) |   | $     | (4,280 | )
|                                                    | Intangible asset                                                                        |              |         | 632     |             |                        |        | 864         |   |   |             | 148     |   |             |        | 175     |             |   |       |       |   |   |       |       |  
|                                                    | Additional minimum pension liability (reflected in shareholders
    equity, net of tax) |              |         | 24,377  |             |                        |        | 20,392      |   |   |             | 885     |   |             |        | 1,305   |             |   |       |       |   |   |       |       |  
|                                                    |                                                                                         |              |         |         |             |                        |        |             |   |   |             |         |   |             |        |         |             |  
|                                                    | Prepaid (accrued) cost                                                                  |              | $       | 2,903   |             |                        | $      | 6,053       |   |   | $           | (9,321  | ) |             | $      | (7,570  | )           |   | $     | (5,098 | ) |   | $     | (4,280 | )
|                                                    |                                                                                         |              |         |         |             |                        |        |             |   |   |             |         |   |             |        |         |             |  



F-24



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##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data




|                               |  |              |         |  |             |   |        |             |  |   |             |  |  |   |        | 
|------------------------------ |  | ------------ | ------- |  | ----------- | - | ------ | ----------- |  | - | ----------- |  |  | - | ------ | 
|                               |  | Pension Plan |         |  | SERP        |  
|                               |  |              |         |  |             |  
|                               |  | January 29,  |         |  | January 31, |   |        | January 29, |  |   | January 31, | 
|                               |  | 2005         |         |  | 2004        |   |        | 2005        |  |   | 2004        | 
|                               |  |              |         |  |             |   |        |             |  |   |             | 
|Projected benefit obligation   |  | $            | 118,939 |  |             | $ | 92,886 |             |  | $ | 14,007      |  |  | $ | 11,497 | 
|Accumulated benefit obligation |  | $            | 91,855  |  |             | $ | 73,715 |             |  | $ | 10,360      |  |  | $ | 9,050  | 
|Fair value of plan assets      |  | $            | 69,749  |  |             | $ | 58,512 |             |  | $ |            |  |  | $ |       | 



|                                                  |  |             |        |   |             |   |        |             |  |   |        |  
|------------------------------------------------- |  | ----------- | ------ | - | ----------- | - | ------ | ----------- |  | - | ------ | -
|                                                  |  | Year Ended  |       
|                                                  |  |             |       
|                                                  |  | January 29, |        |   | January 31, |   |        | February 1, | 
|                                                  |  | 2005        |        |   | 2004        |   |        | 2003        | 
|                                                  |  |             |        |   |             |   |        |             | 
|Service expense-benefits earned during the period |  | $           | 8,040  |   |             | $ | 6,610  |             |  | $ | 5,151  |  
|Interest expense on projected benefit obligation  |  |             | 5,900  |   |             |   | 4,939  |             |  |   | 4,125  |  
|Expected return on plan assets                    |  |             | (5,957 | ) |             |   | (5,149 | )           |  |   | (4,294 | )
|Net amortization and deferral                     |  |             | 3,167  |   |             |   | 2,005  |             |  |   | 735    |  
|                                                  |  |             |        |   |             |   |        |             | 
|Net pension expense                               |  | $           | 11,150 |   |             | $ | 8,405  |             |  | $ | 5,717  |  
|                                                  |  |             |        |   |             |   |        |             | 



|                                                  |  |             |       |  |             |   |       |             |  |   |       | 
|------------------------------------------------- |  | ----------- | ----- |  | ----------- | - | ----- | ----------- |  | - | ----- | 
|                                                  |  | Year Ended  |      
|                                                  |  |             |      
|                                                  |  | January 29, |       |  | January 31, |   |       | February 1, | 
|                                                  |  | 2005        |       |  | 2004        |   |       | 2003        | 
|                                                  |  |             |       |  |             |   |       |             | 
|Service expense-benefits earned during the period |  | $           | 721   |  |             | $ | 630   |             |  | $ | 516   | 
|Interest expense on projected benefit obligation  |  |             | 731   |  |             |   | 641   |             |  |   | 557   | 
|Net amortization and deferral                     |  |             | 323   |  |             |   | 271   |             |  |   | 212   | 
|                                                  |  |             |       |  |             |   |       |             | 
|Net SERP expense                                  |  | $           | 1,775 |  |             | $ | 1,542 |             |  | $ | 1,285 | 
|                                                  |  |             |       |  |             |   |       |             | 



|                                                                  |  |             |       |  |             |   |     |             |  |   |     |  
|----------------------------------------------------------------- |  | ----------- | ----- |  | ----------- | - | --- | ----------- |  | - | --- | -
|                                                                  |  | Year Ended  |      
|                                                                  |  |             |      
|                                                                  |  | January 29, |       |  | January 31, |   |     | February 1, | 
|                                                                  |  | 2005        |       |  | 2004        |   |     | 2003        | 
|                                                                  |  |             |       |  |             |   |     |             | 
|Service expense-benefits earned during the period                 |  | $           | 652   |  |             | $ | 453 |             |  | $ | 358 |  
|Interest expense on accumulated postretirement benefit obligation |  |             | 341   |  |             |   | 252 |             |  |   | 217 |  
|Net amortization and deferral                                     |  |             | 65    |  |             |   |    |             |  |   | (7  | )
|                                                                  |  |             |       |  |             |   |     |             | 
|Net postretirement medical expense                                |  | $           | 1,058 |  |             | $ | 705 |             |  | $ | 568 |  
|                                                                  |  |             |       |  |             |   |     |             | 





F-25



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##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data






|                                                                                                        |  |             |       |   |             |  |       |             |  |  |      |  
|------------------------------------------------------------------------------------------------------- |  | ----------- | ----- | - | ----------- |  | ----- | ----------- |  |  | ---- | -
|                                                                                                        |  | Year Ended  |      
|                                                                                                        |  |             |      
|                                                                                                        |  | January 29, |       |   | January 31, |  |       | February 1, | 
|                                                                                                        |  | 2005        |       |   | 2004        |  |       | 2003        | 
|                                                                                                        |  |             |       |   |             |  |       |             | 
|Pension Plan & SERP:                                                                                    |  |             |       |   |             |  |       |             |  |  |      |  
|Discount rate                                                                                           |  |             | 6.25  | % |             |  | 6.75  | %           |  |  | 7.50 | %
|Discount rate used to determine projected benefit obligation at
    end of year                         |  |             | 5.75  | % |             |  | 6.25  | %           |  |  | 6.75 | %
|Expected long-term rate of return on plan assets                                                        |  |             | 9.00  | % |             |  | 9.00  | %           |  |  | 9.00 | %
|Rate of future compensation increases                                                                   |  |             | 4.00  | % |             |  | 4.00  | %           |  |  | 4.50 | %
|Rate of future compensation increases used to determine
    projected benefit obligation at end of year |  |             | 4.00  | % |             |  | 4.00  | %           |  |  | 4.00 | %
|Postretirement Medical Plan:                                                                            |  |             |       |   |             |  |       |             |  |  |      |  
|Discount rate                                                                                           |  |             | 6.25  | % |             |  | 6.75  | %           |  |  | 7.50 | %
|Discount rate used to determine projected benefit obligation at
    end of year                         |  |             | 5.75  | % |             |  | 6.25  | %           |  |  | 6.75 | %
|Initial healthcare cost trend rate                                                                      |  |             | 10.00 | % |             |  | 12.00 | %           |  |  | 9.00 | %
|Ultimate health care cost trend rate                                                                    |  |             | 5.00  | % |             |  | 5.00  | %           |  |  | 5.00 | %





F-26



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##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data








|                                                            |  |             |     |  |             |   |     | 
|----------------------------------------------------------- |  | ----------- | --- |  | ----------- | - | --- | 
|                                                            |  | 1% Increase |     |  | 1% Decrease |  
|                                                            |  |             |     |  |             |  
|Effect on total of service and interest expense components  |  | $           | 141 |  |             | $ | 118 | 
|Effect on the accumulated postretirement benefit obligation |  | $           | 852 |  |             | $ | 719 | 



|                      |       |            |    |                   |        |   |                   |         |  |  |        |     |   |         |        |        |  |  |    |     |  
|--------------------- | ----- | ---------- | -- | ----------------- | ------ | - | ----------------- | ------- |  |  | ------ | --- | - | ------- | ------ | ------ |  |  | -- | --- | -
|                      |       |            |    | December 31, 2004 |        |   | December 31, 2003 |        
|                      |       | Target     |    |                   |        |   |                   |         | 
|                      |       | Allocation |    |                   | Amount |   |                   | Percent |  |  | Amount |     |   | Percent |       
|                      |       |            |    |                   |        |   |                   |         |  |  |        |     |   |         |       
|Equity securities     |       |            | 70 | %                 |        | $ | 50,875            |         |  |  | 73     | %   |   | $       | 42,966 |        |  |  | 73 | %  
|Debt securities       |       |            | 30 | %                 |        |   | 16,931            |         |  |  | 24     | %   |   |         | 12,237 |        |  |  | 21 | %  
|Cash and money market |       |            |    |                   |        |   | 1,943             |         |  |  | 3      | %   |   |         | 3,309  |        |  |  | 6  | %  
|                      |       |            |    |                   |        |   |                   |         |  |  |        |     |   |         |       
|                      | Total |            |    |                   |        |   | $                 | 69,749  |  |  |        | 100 | % |         | $      | 58,512 |  |  |    | 100 | %
|                      |       |            |    |                   |        |   |                   |         |  |  |        |     |   |         |       



|                                    |  |              |        |  |      |                |       |              |  |   |       | 
|----------------------------------- |  | ------------ | ------ |  | ---- | -------------- | ----- | ------------ |  | - | ----- | 
|                                    |  |              |        |  |      | Postretirement |      
|                                    |  | Pension Plan |        |  | SERP |                |       | Medical Plan | 
|                                    |  |              |        |  |      |                |       |              | 
|Expected Company contributions 2005 |  | $            | 8,000  |  |      | $              | 76    |              |  | $ | 273   | 
|Expected plan payments:             |  |              |        |  |      |                |       |              |  |   |       | 
|2005                                |  | $            | 1,565  |  |      | $              | 136   |              |  | $ | 267   | 
|2006                                |  |              | 1,757  |  |      |                | 583   |              |  |   | 322   | 
|2007                                |  |              | 1,986  |  |      |                | 739   |              |  |   | 380   | 
|2008                                |  |              | 2,203  |  |      |                | 726   |              |  |   | 442   | 
|2009                                |  |              | 2,527  |  |      |                | 762   |              |  |   | 487   | 
|2010 to 2014                        |  |              | 18,342 |  |      |                | 4,247 |              |  |   | 3,767 | 



F-27



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##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data




|    |            
|--- | -----------
|15. | Commitments



|                        |             |             |           |         |        |   |         |         |        |   |         |         |       |      |         |         |       |   |         |            |     |   |         |         |   |   |         |         |   | 
|----------------------- | ----------- | ----------- | --------- | ------- | ------ | - | ------- | ------- | ------ | - | ------- | ------- | ----- | ---- | ------- | ------- | ----- | - | ------- | ---------- | --- | - | ------- | ------- | - | - | ------- | ------- | - | 
|Contractual Obligations |             | Total       |           |         | 2005   |   |         | 2006    |        |   | 2007    |         |       | 2008 |         |         | 2009  |   |         | Thereafter |    
|                        |             |             |           |         |        |   |         |         |        |   |         |         |       |      |         |         |       |   |         |            |    
|Operating leases:       |             |             |           |         |        |   |         |         |        |   |         |         |       |      |         |         |       |   |         |            |     |   |         |         |   |   |         |        
|                        | Real estate |             | $         | 929,998 |        |   | $       | 126,618 |        |   | $       | 126,992 |       |      | $       | 119,231 |       |   | $       | 110,358    |     |   | $       | 104,213 |   |   | $       | 342,586 |  
|                        | Equipment   |             |           | 9,902   |        |   |         | 5,550   |        |   |         | 3,312   |       |      |         | 746     |       |   |         | 260        |     |   |         | 34      |   |   |         |        |  
|Merchandise purchases   |             |             | 329,536   |         |        |   | 329,536 |         |        |   |        |         |       |      |        |         |       |   |        |            |     |   |        |         |   |   |        |        
|Construction contracts  |             |             | 10,534    |         |        |   | 10,534  |         |        |   |        |         |       |      |        |         |       |   |        |            |     |   |        |         |   |   |        |        
|Other contractual       |             |             |           |         |        |   |         |         |        |   |         |         |       |      |         |         |       |   |         |            |     |   |         |         |   |   |         |        
|                        |             | commitments |           |         | 26,358 |   |         |         | 11,455 |   |         |         | 7,608 |      |         |         | 7,010 |   |         |            | 285 |   |         |         |  |   |         |         |  | 
|                        |             |             |           |         |        |   |         |         |        |   |         |         |       |      |         |         |       |   |         |            |    
|Total Commitments       |             | $           | 1,306,328 |         |        | $ | 483,693 |         |        | $ | 137,912 |         |       | $    | 126,987 |         |       | $ | 110,903 |            |     | $ | 104,247 |         |   | $ | 342,586 |        
|                        |             |             |           |         |        |   |         |         |        |   |         |         |       |      |         |         |       |   |         |            |    

Operating Leases


Merchandise Purchases


Construction Contracts


Other Contractual Commitments


F-28



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data




|    |                     
|--- | --------------------
|16. | Net Income Per Share



|                                                       |  |                |        |  |             |  |        |             |  |  |        | 
|------------------------------------------------------ |  | -------------- | ------ |  | ----------- |  | ------ | ----------- |  |  | ------ | 
|                                                       |  | Year Ended     |       
|                                                       |  |                |       
|                                                       |  | January 29,    |        |  | January 31, |  |        | February 1, | 
|                                                       |  | 2005           |        |  | 2004        |  |        | 2003        | 
|                                                       |  |                |        |  |             |  |        |             | 
|                                                       |  | (In thousands) |       
|Shares for computation of basic net income per share   |  |                | 54,969 |  |             |  | 56,531 |             |  |  | 58,724 | 
|Effect of stock compensation plans                     |  |                | 1,283  |  |             |  | 1,370  |             |  |  | 1,467  | 
|                                                       |  |                |        |  |             |  |        |             | 
|Shares for computation of diluted net income per share |  |                | 56,252 |  |             |  | 57,901 |             |  |  | 60,191 | 
|                                                       |  |                |        |  |             |  |        |             | 



|    |                              
|--- | -----------------------------
|17. | Quarterly Results (unaudited)



|                                                              |                                 |                           |         |        |          |   |         |             |  |   |             |        |  |   |         |        | 
|------------------------------------------------------------- | ------------------------------- | ------------------------- | ------- | ------ | -------- | - | ------- | ----------- |  | - | ----------- | ------ |  | - | ------- | ------ | 
|                                                              |                                 | Fiscal 2004 Quarter Ended |        
|                                                              |                                 |                           |        
|                                                              |                                 | May 1,                    |         |        | July 31, |   |         | October 30, |  |   | January 29, |       
|                                                              |                                 | 2004                      |         |        | 2004     |   |         | 2004        |  |   | 2005 (1)    |       
|                                                              |                                 |                           |         |        |          |   |         |             |  |   |             |       
|Net sales                                                     |                                 | $                         | 412,181 |        |          | $ | 401,553 |             |  | $ | 413,384     |        |  | $ | 470,725 |       
|Gross profit, as previously reported                          |                                 |                           | 174,907 |        |          |   | 133,270 |             |  |   | 154,636     |        |  |   | 142,968 |       
|Gross profit, as restated                                     |                                 |                           | 175,113 |        |          |   | 133,161 |             |  |   | 153,578     |        |  |   | 142,968 |       
|Net income, as previously reported                            |                                 |                           | 33,341  |        |          |   | 19,416  |             |  |   | 27,606      |        |  |   | 15,379  |       
|Net income, as restated                                       |                                 |                           | 33,464  |        |          |   | 19,351  |             |  |   | 27,171      |        |  |   | 15,379  |       
|Net income per share                                          |                                 |                           |         |        |          |   |         |             |  |   |             |        |  |   |         |       
|                                                              | Basic, as previously reported   |                           | $       | 0.59   |          |   | $       | 0.35        |  |   | $           | 0.51   |  |   | $       | 0.29   | 
|                                                              | Basic, as restated              |                           | $       | 0.59   |          |   | $       | 0.35        |  |   | $           | 0.50   |  |   | $       | 0.29   | 
|                                                              | Diluted, as previously reported |                           | $       | 0.58   |          |   | $       | 0.34        |  |   | $           | 0.50   |  |   | $       | 0.28   | 
|                                                              | Diluted, as restated            |                           | $       | 0.58   |          |   | $       | 0.34        |  |   | $           | 0.49   |  |   | $       | 0.28   | 
|Weighted average number of shares of common stock outstanding |                                 |                           |         |        |          |   |         |             |  |   |             |        |  |   |         |       
|                                                              | Basic                           |                           |         | 56,374 |          |   |         | 55,581      |  |   |             | 54,376 |  |   |         | 53,547 | 
|                                                              | Diluted                         |                           |         | 57,876 |          |   |         | 57,034      |  |   |             | 55,364 |  |   |         | 54,625 | 
|Cash dividends per share                                      |                                 | $                         | 0.10    |        |          | $ | 0.11    |             |  | $ | 0.11        |        |  | $ | 0.11    |       
|Market price data                                             |                                 |                           |         |        |          |   |         |             |  |   |             |        |  |   |         |       
|                                                              | High                            |                           | $       | 36.74  |          |   | $       | 39.81       |  |   | $           | 30.69  |  |   | $       | 29.80  | 
|                                                              | Low                             |                           | $       | 32.29  |          |   | $       | 29.82       |  |   | $           | 24.79  |  |   | $       | 25.33  | 






|    |                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts for the quarter ended January 29, 2005 were not
    previously reported or restated; as such, the amounts do not
    differ.

F-29



---



##### Table of Contents



THE TALBOTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Dollar amounts in thousands except share and per share
data


|                                                              |                                 |                           |         |        |           |   |         |             |  |   |             |        |  |   |         |        | 
|------------------------------------------------------------- | ------------------------------- | ------------------------- | ------- | ------ | --------- | - | ------- | ----------- |  | - | ----------- | ------ |  | - | ------- | ------ | 
|                                                              |                                 | Fiscal 2003 Quarter Ended |        
|                                                              |                                 |                           |        
|                                                              |                                 | May 3,                    |         |        | August 2, |   |         | November 1, |  |   | January 31, |       
|                                                              |                                 | 2003                      |         |        | 2003      |   |         | 2003        |  |   | 2004        |       
|                                                              |                                 |                           |         |        |           |   |         |             |  |   |             |       
|Net sales                                                     |                                 | $                         | 389,151 |        |           | $ | 382,079 |             |  | $ | 400,889     |        |  | $ | 422,671 |       
|Gross profit, as previously reported                          |                                 |                           | 160,701 |        |           |   | 131,151 |             |  |   | 168,858     |        |  |   | 141,034 |       
|Gross profit, as restated                                     |                                 |                           | 160,998 |        |           |   | 130,772 |             |  |   | 167,965     |        |  |   | 139,293 |       
|Net income, as previously reported                            |                                 |                           | 29,400  |        |           |   | 18,519  |             |  |   | 34,794      |        |  |   | 21,970  |       
|Net income, as restated                                       |                                 |                           | 29,578  |        |           |   | 18,292  |             |  |   | 34,096      |        |  |   | 20,926  |       
|Net income per share                                          |                                 |                           |         |        |           |   |         |             |  |   |             |        |  |   |         |       
|                                                              | Basic, as previously reported   |                           | $       | 0.52   |           |   | $       | 0.33        |  |   | $           | 0.62   |  |   | $       | 0.39   | 
|                                                              | Basic, as restated              |                           | $       | 0.52   |           |   | $       | 0.32        |  |   | $           | 0.60   |  |   | $       | 0.37   | 
|                                                              | Diluted, as previously reported |                           | $       | 0.51   |           |   | $       | 0.32        |  |   | $           | 0.60   |  |   | $       | 0.38   | 
|                                                              | Diluted, as restated            |                           | $       | 0.51   |           |   | $       | 0.32        |  |   | $           | 0.59   |  |   | $       | 0.36   | 
|Weighted average number of shares of common stock outstanding |                                 |                           |         |        |           |   |         |             |  |   |             |        |  |   |         |       
|                                                              | Basic                           |                           |         | 56,995 |           |   |         | 56,390      |  |   |             | 56,363 |  |   |         | 56,378 | 
|                                                              | Diluted                         |                           |         | 58,074 |           |   |         | 57,746      |  |   |             | 57,966 |  |   |         | 57,771 | 
|Cash dividends per share                                      |                                 | $                         | 0.09    |        |           | $ | 0.10    |             |  | $ | 0.10        |        |  | $ | 0.10    |       
|Market price data                                             |                                 |                           |         |        |           |   |         |             |  |   |             |        |  |   |         |       
|                                                              | High                            |                           | $       | 29.16  |           |   | $       | 33.65       |  |   | $           | 38.15  |  |   | $       | 33.10  | 
|                                                              | Low                             |                           | $       | 23.02  |           |   | $       | 26.01       |  |   | $           | 31.97  |  |   | $       | 29.35  | 

F-30



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