##### Table of Contents





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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended
    February 2, 2008oro

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

41-1111318State or other jurisdiction
    of
    incorporation or organization

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

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


New York Stock Exchange   Securities registered pursuant to section 12(g) of the
    Act:
 None
 (Title of class)
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  12b-2
  Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o

Smaller reporting
    company o(Do not check if a smaller reporting company)   Rule 12b-2 o þ
      Documents
    Incorporated by Reference
  Form 10-K.




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##### 





The
    Talbots, Inc.
  Annual
    Report on
    Form 10-K
    for the Fiscal Year Ended February 2, 2008
  PagePART IItem 1.


Business


2Item 1A.


Risk Factors


14Item 1B.


Unresolved Staff Comments


22Item 2.


Properties


22Item 3.


Legal Proceedings


23Item 4.


Submission of Matters to a Vote of Security
    Holders


23PART IIItem 5.


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


23Item 6.


Selected Financial Data


25Item 7.


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


25Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


50Item 8.


Financial Statements and Supplementary Data


51Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


51Item 9A.


Controls and Procedures


51Item 9B.


Other Information


53PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


53Item 11.


Executive Compensation


53Item 12.


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


53Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


53Item 14.


Principal Accounting Fees and Services


53PART IVItem 15.


Exhibits, Financial Statement Schedules


54EX-10.38 The Talbots, Inc. Deferred Compensation Plan, as amendedEX-10.64 Offer Letter between The Talbots, Inc. and Paula Bennett, dated January 3, 2008EX-10.65 Change in Control Agreement between The Talbots, Inc. and Paula Bennett, dated January 28, 2008EX-10.66 Severance Agreement between The Talbots, Inc. and Paula Bennett, dated January 28, 2008EX-10.67 Offer Letter between The Talbots, Inc. and Basha Cohen, dated December 11, 2007EX-10.68 Change in Control Agreement between The Talbots, Inc. and Basha Cohen, dated December 17, 2007EX-10.69 Severance Agreement between The Talbots, Inc. and Basha Cohen, dated December 17, 2007EX-10.70 Offer Letter between The Talbots, Inc. and Lori Wagner, dated February 19, 2008EX-10.71 Change in Control Agreement between The Talbots, Inc. and Lori Wagner, dated March 24, 2008EX-10.72 Severance Agreement between The Talbots, Inc. and Lori Wagner, dated March 24, 2008EX-21.1 List of Subsidiaries of The Talbots, Inc.EX-23.1 Consent of Independent Registered Public Accounting Firm, Deloitte & Touche LLP.EX-31.1 Certification of Trudy F. Sullivan, President and Chief Executive OfficerEX-31.2 Certification of Edward L. Larsen, Senior Vice President, Finance, Chief Financial Officer and TreasurerEX-32.1 Certifications by Trudy F. Sullivan, President and Chief Executive Officer and Edward L. Larsen, Senior Vice President, Finance, Chief Financial Officer and Treasurer, pursuant to Section 906   1




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##### Table of Contents



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




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##### Table of Contents



Description
    of Operations
    Retail
    Stores
        U.S.
    Retail Stores in 838 locations
  Number of


Approximate Average StoreStores


Size (Square Feet)Talbots Misses


541



4,710Talbots Petites


298



2,620Talbots Accessories and Shoes


37



1,820Talbots Woman


142



2,970Talbots Collection


2



1,940Talbots Outlet


24



11,500Talbots Mens


12



4,210Talbots Kids


63



3,490J. Jill Misses


258



3,840J. Jill Petites


4



2,010J. Jill Outlet


9



3,790Total


1,390  3




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##### Table of Contents



Foreign
    Retail Stores in 24 locations
  Number of


Approximate Average StoreStores


Size (Square Feet)Talbots Misses  Canada


20



4,440Talbots Petites  Canada


4



2,270Talbots Woman  Canada


3



3,020Talbots Outlet  Canada


1



5,100Talbots Misses  United Kingdom


3



6,42031         Form 10-K.
  Direct
    Marketing
         4




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##### Table of Contents



Form 10-K.
  Operating
    Strategy
            Brand
    Improvements:
  Talbots brand 
  
    Build a lifestyle brand that creates synergy between refined and
    casual product mix.
    Create brand icons, including hardware, trims, signature prints,
    and legacy items. 5




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##### Table of Contents




    Focus on color and fabric by developing seasonal color palettes
    that flow and build month to month to ensure newness;
    establishing core fabrics by business and price matrix; and
    developing strong vendor partnerships to develop exclusive
    fabrics.
    Focus on accessories by reworking fashion accessories and
    footwear mix to ensure common end-use for the consumer.
    Redesign merchandise flow with consistent merchandise and
    marketing messages across all channels.  J. Jill brand 
  
    Build a more compelling and versatile product offering that is
    focused, age appropriate, and fashion relevant in style and
    color, with a consistent fit that is reflective of the J. Jill
    unique selling proposition of easy sophistication for every day.
    Create an integrated multi-channel operating model with
    consistent merchandise and marketing messages across all
    channels.
    Increase customer acquisition and response by optimizing the
    brands multi-channels with deep direct customer contact
    and prospecting, improve creative design of catalog and on the
    web, and enhance web functionality.
    Build brand awareness, overcome awareness deficits, and improve
    productivity present in key markets through a highly targeted
    direct mail effort.
    Ensure appropriate number of unique product offerings while
    increasing the number of wardrobing options for each style.
    Gain extensive customer insight through intense customer
    research providing quantitative and qualitative data to assist
    in offering products that the customer desires.  Operational
    Improvements:
  Reduce the Companys cost structure.
  Improve gross margin across brands.
  Reduce capital spending.
  Close underperforming stores.
 6




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Increase prospecting and frequency of direct
    mail.
  Continue to capitalize on its complementary store, catalog,
    and online operations.
  Continue to provide superior customer
    service.
  Merchandising,
    Inventory Control and Distribution
  Merchandising
  head-to-toe.
  Branded Merchandise Design and Purchasing.
  Talbots brand.
  J. Jill brand.
  Sourcing.
 7




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##### Table of Contents



Offshore SourcesHong Kong

India

Eralda

Other

Total

U.S.Product

Liaison

(Exclusive

Offshore

Offshore

BasedBrand

Office

Office

Agent)

Sources

Sources

SourcesTalbots


32
%


0
%


25
%


21
%


78
%


22
%J. Jill


0
%


15
%


3
%


69
%


87
%


13
%     Inventory
    Control and Distribution
    Expansion
      Beginning








Acquired


End ofFiscal Year

of Year


Opened


Closed


Business


Year2003


886



96



(5
)






9772004


977



75



(3
)






1,0492005


1,049



50



(16
)






1,0832006


1,083



84



(8
)


205
(a)


1,3642007


1,364



75



(18
)






1,421     (a)
    
    Represents the stores acquired in the J. Jill acquisition on
    May 3, 2006. 8




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##### Table of Contents




    J. Jill brand.In May 2006, the Company acquired the J.
    Jill brand, which originated operations in 1987. In its early
    years, J. Jill was a multi-brand single-channel market sourced
    retailer. It subsequently changed its strategic direction to
    become a single brand multi-channel private label retailer. In
    1999, J. Jill began opening retail stores and launched its
    website jjill.com. With the acquisition of J. Jill, the Company
    acquired 205 retail stores and a direct marketing business. As
    of February 2, 2008, there were 271 J. Jill stores open in
    the United States. J. Jill offers misses and petites sizes in
    its retail stores, and misses, petites, woman, and tall sizes in
    its catalogs and on its website.    
    Talbots Petites.  In 1984, the Company began
    offering Talbots brand merchandise in petites sizes in its
    catalogs, and in 1985 the Company opened its first Talbots
    Petites store. As of February 2, 2008, there were 302
    Talbots Petites stores open, including four stores in Canada.
    Virtually every item of womens apparel in the Talbots
    catalog and online is offered in both misses and petites sizes.
    Talbots Accessories & Shoes.  In
    1994, the Company introduced Talbots Accessories &
    Shoes in two catalogs devoted to this category. The Company
    opened its first Talbots Accessories & Shoes stores in
    1995. As of February 2, 2008, there were 37 Talbots
    Accessories & Shoes stores. A limited collection of
    this merchandise is offered in each major catalog and online, in
    virtually all stores and, in 2007, in two separate catalogs.    
    Talbots Woman.  In 1998, the Company introduced
    Talbots Woman, a large size concept, which offers the same
    classic styling, high quality and fit as the Companys
    misses and petites concepts to customers wearing sizes 12W to
    24W. It was introduced as a department in seven existing Talbots
    Misses stores, as one separate store adjacent to other Talbots
    concept stores, and in two nationally circulated catalogs. In
    2001, the Company expanded the concept with the introduction of
    Talbots Woman Petites, which focuses on fuller figured women
    54 and under. As of February 2, 2008, there
    were 145 Talbots Woman stores open, including three stores in
    Canada. All 145 Talbots Woman stores also offer Talbots Woman
    Petites. Assortments of both Talbots Woman and Talbots Woman
    Petites are also available through the Companys catalogs,
    online, and as separate departments within 52 Talbots Misses
    stores.    
    Talbots Collection.  Also in 1998, the Company
    introduced Talbots Collection, which was developed for those
    customers seeking an upper-tier, well-defined selection of
    apparel featuring more luxurious fabrics and sophisticated
    styling. Talbots Collection is currently presented as a separate
    department in 112 existing 9




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##### Table of Contents



Talbots Misses stores. In the fall of 2003, the Company opened
    its first Talbots Collection store and a second store was opened
    in 2005. Also during 2005, the Company introduced Collection
    Petites and Collection Shoe departments in its Misses stores. As
    of February 2, 2008, there were 68 stores that had
    Collection Petite departments and 35 stores that had Collection
    Shoe departments. An assortment of Talbots Collection
    merchandise is also available through the Talbots brand catalogs
    and online. The Company continues to use the Talbots Collection
    concept to test new fabrics and fashion trends, which may later
    be incorporated into the core Talbots lines.    
    Talbots Premium-level Outlets.  Talbots is
    currently evaluating premium-level outlet opportunities. As the
    Company improves its inventory management, its need for pure
    liquidation vehicles is expected to diminish. The Company plans
    to design merchandise for sale in its outlet locations and
    expects to target a new customer segment. The premium-level
    outlet opportunity will allow the brand to create an assortment
    tailored to this customer, while still preserving the
    Companys ability to liquidate surplus merchandise as
    needed. The Company has begun exploring this initiative, with
    potential stores to open beginning in fiscal 2009.      Customer
    Credit
       10




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Management
    Information Systems
    point-of-sale
    Seasonality
    Advertising
    Competition
      Employees
   11




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##### Table of Contents



Principal
    Officers of the Company
    Name

Age

PositionTrudy F. Sullivan*


58


President and Chief Executive OfficerPhilip H. Kowalczyk*


47


Chief Operating OfficerMichael Smaldone


43


Chief Creative Officer, Talbots brandPaula Bennett*


58


President, J. Jill brandBasha Cohen*


47


Executive Vice President, Chief Merchandising Officer, Talbots
    brandMichele M. Mandell*


60


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


57


Executive Vice President, Legal and Real Estate, and SecretaryLori Wagner*


43


Executive Vice President, Chief Marketing Officer, Talbots brandJohn Fiske, III*


44


Senior Vice President, Human ResourcesPaul V. Kastner


56


Senior Vice President, International, Talbots brand, and
    Strategic PlanningEdward L. Larsen*


63


Senior Vice President, Finance, Chief Financial Officer and
    TreasurerBruce Lee Prescott


52


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


49


Senior Vice President, Information Services     *
    
    Executive officers of the Company.  direct-to-consumer
       12




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Available
    Information
  Form 10-K, Form 10-Q, Form 8-K,
 13




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##### Table of Contents



(781) 741-4500, e-mail
  Item 1A.
    Risk
    Factors  Form 10-K,
  and/or
  The
    continued worsening of the U.S. economy has and can be expected
    to have a material negative impact on consumer purchases of
    discretionary items, which can be expected to continue to have a
    material adverse impact on the Companys level of sales and
    profitability.
    
    general business conditions;
    interest rates;
    the availability of consumer credit;
    taxation;
    employment levels;
    political conditions such as war, terrorism and political unrest;
    consumer confidence in future economic conditions;
    real estate market; and
    increasing energy prices.   14




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The
    Company expects to purchase a substantial part of its
    merchandise inventory going forward through open
    account purchase terms from its vendors, without the use
    of letter of credit facilities, which in the past have been used
    for these purchases.
          The
    Companys capital resources required to fund its working
    capital requirements, capital expenditures, debt service and
    operations are dependent upon cash flows from operations, cash
    on hand, credit extended from merchandise vendors, and
    availability under its credit facilities, and these cash
    resources may be negatively impacted by many factors, some of
    which are beyond the control of the Company.
      
    achieving the Companys sales plan for the year;
    achieving the Companys operating cash flow plan for the
    year, particularly during merchandise inventory
    build-ups in
    advance of the principal selling seasons;
    continuation of merchandise purchases on open account purchase
    terms from merchandise vendors at expected levels;
    replacement of the Companys letter of credit facilities at
    levels sufficient to purchase adequate merchandise inventory
    from any vendors who require letters of credit for merchandise
    purchases;
    the Companys ability to obtain any necessary increases in
    its line of credit facilities if needed to fund operating plans;
    the Companys ability to reduce any cash spending in the
    amounts and at the times needed if borrowings available, cash on
    hand, and available credit are not sufficient to fund existing
    operating plans, merchandise purchases, planned capital
    expenditures and strategic initiatives;
    successfully executing the Companys strategic initiatives,
    including anticipated lower inventory levels and timing,
    expected operating expense reductions and other cost reductions,
    the success of the new promotional cadence for the Talbots
    brand, reduced markdown exposure and improved gross margins, the
    successful closing of the Talbots Kids and Talbots Mens business
    concepts, and the closing of other announced underperforming
    stores, including all stores within the United Kingdom;
    the impact of the continued deterioration in the economic
    environment, including continued negative impact on
    U.S. consumer discretionary spending, current residential
    real estate downturn, the disruption and 15




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##### Table of Contents




    the Companys ability to continue to satisfy its financial
    covenants under its existing debt agreements.    The
    successful and timely execution of the Companys strategic
    plan is critical to the Companys short- term and long-
    term profitability.
      The
    success of the business depends on the Companys ability to
    respond to constantly changing fashion trends and consumer
    demands.
    The
    Company incurred substantial debt to finance the J. Jill
    acquisition. The Companys business may not generate
    significant cash flow to meet these obligations and the debt
    agreement restrictions may limit the Companys
    activities.
   16




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##### Table of Contents




    incur additional indebtedness,
    make investments,
    create liens,
    sell assets,
    enter into sale and leaseback transactions, and
    consolidate, or merge.        The
    Company may not be able to maintain proper inventory
    levels.
     17




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##### Table of Contents



The
    retail apparel industry is highly competitive.
    
    anticipating and responding to changing consumer demands;
    maintaining favorable brand recognition;
    developing high quality merchandise in sizes, colors, and styles
    that appeal to consumers;
    appropriately managing inventory levels;
    sourcing merchandise efficiently;
    effectively marketing the Companys products to
    consumers; and
    pricing the Companys merchandise appropriately.    The
    Company may not be able to successfully reposition J.
    Jills operations.
    
    implement key design changes to the J. Jill brand merchandise
    that will lead to increased sales;
    appropriately price the J. Jill brand merchandise;
    open J. Jill brand stores in locations where operations will be
    profitable; and
    refine and unify the J. Jill brands marketing and
    promotional programs.    The
    Company cannot assure that its change in growth strategy will
    result in improved profitability.
     18




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##### Table of Contents



Talented
    personnel are critical to the Companys success. The
    Company cannot assure that the current management team or the
    additions to the Companys executive leadership team will
    result in increased profitability for the Company.
    The
    Company experiences fluctuations in comparable store sales
    results.
      The
    Company experiences fluctuations in operating
    results.
      If the
    Company fails to maintain the value of its brands, sales are
    likely to decline.
   19




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##### Table of Contents



The
    Company cannot assure that Internet sales will continue to
    achieve sales and profitability growth.
    The
    Company could be adversely affected if any of its distribution
    centers are shut down.
  and/or
  The
    Companys overseas merchandise purchasing strategy makes it
    vulnerable to a number of risks.
    
    political instability;
    imposition of new legislation relating to import quotas that may
    limit the quantity of goods that may be imported into the
    U.S. from countries in a region where the Company does
    business;
    imposition of duties, taxes, and other charges on imports;
    natural disasters and public health concerns;
    potential delays or disruption in shipping and related pricing
    impacts; and
    local business practices and political issues, including issues
    relating to compliance with domestic or international labor
    standards.   20




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##### Table of Contents



A
    major failure of the Companys information systems could
    harm the business.
    The
    Company has experienced significant variability between its
    expectations and outlook for sales and profitability and its
    actual results.
    The
    market price of the Companys common stock is
    volatile.
    Greater
    level of returns than anticipated could adversely affect the
    Companys operations.
    The
    Company cannot provide assurance that it will continue to pay
    dividends.
       21




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##### Table of Contents



Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties.    GrossLocation

Square Feet


Primary Function

InterestHingham, Massachusetts


313,000


Talbots brand headquarters

Own (44 acres)Quincy, Massachusetts


126,869


J. Jill brand headquarters

LeaseLakeville, Massachusetts


933,000


Talbots brand distribution center and fulfillment center

Own (115 acres)Tilton, New Hampshire


573,000


J. Jill brand distribution center, fulfillment center,
    and telemarketing center

Own (360 acres)Tampa, Florida


51,736


Systems center

LeaseKnoxville, Tennessee


37,656


Telemarketing center

LeaseNew York, New York


55,697


Product development office

LeaseHong Kong


10,455


Talbots brand merchandise production office

LeaseIndia


3,913


Merchandise production liaison office

LeaseLincoln, Rhode Island


9,645


Credit and banking facilities

LeaseOntario, Canada


1,350


Canadian regional office

LeaseLondon, U.K.


270


U.K. management office

Lease1,421 Stores in 862 locations throughout the U.S., Canada, and
    U.K.


5,543, 767


Retail stores

Own and lease (a)     (a)
    
    The Company owns the property for five of its 1,421 stores.        Years Lease

Number ofTerms Expire

Store Leases(a)(b)2008-2009


692010-2012


2252013-2015


2152016 and later


492  22




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##### Table of Contents



(a)
    
    Certain leases have more than one store included within the
    leased premises.(b)
    
    Includes 43 executed leases related to future stores not yet
    opened at February 2, 2008.  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 DollarValue of Shares thatTotal Number of


Average Price


May Yet BeShares


Paid per


Purchased Under thePeriod

Purchased(1)


Share


Programs(2)November 4, 2007 through December 1, 2007





$



$
16,746December 2, 2007 through January 5, 2008


12,000



0.01



17,626January 6, 2008 through February 2, 2008


325



0.01



18,423Total


12,325


$
0.01


$
18,423      (1)
    
    The Company repurchased 12,325 shares in connection with
    stock forfeited by employees upon termination prior to vesting
    under the Companys equity compensation plan, at an
    acquisition price of $0.01 per share.(2)
    
    As of February 2, 2008, there were 1,842,298 shares of
    nonvested stock that were subject to buyback at $0.01 per share,
    or $18,423 in the aggregate, that the Company has the option to
    repurchase if the employee terminates employment prior to
    vesting.   23




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##### Table of Contents



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

Indexed ReturnsPeriod

for the Years EndedCompany/Index

1/31/03

1/30/04

1/28/05

1/27/06

2/2/07

2/1/08The Talbots, Inc.


100.00


$
126.72


$
102.19


$
113.98


$
98.87


$
39.72S&P 500 Index


100.00


$
134.57


$
141.76


$
158.24


$
181.97


$
178.69Dow Jones U.S. General Retailers Index


100.00


$
136.04


$
144.87


$
153.45


$
168.59


$
151.45     24




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##### Table of Contents



Item 6.
    Selected
    Financial Data.    Year EndedFebruary 2,


February 3,


January 28,


January 29,


January 31,2008


2007


2006


2005


2004(52 weeks)


(53 weeks)


(52 weeks)


(52 weeks)


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

$
2,289,296


$
2,231,033


$
1,808,606


$
1,697,843


$
1,594,790Net (loss) income


(188,841
)(1)


31,576



93,151



95,366



102,891Net (loss) income per shareBasic

$
(3.56
)

$
0.60


$
1.76


$
1.73


$
1.82Diluted

$
(3.56
)

$
0.59


$
1.72


$
1.70


$
1.78Weighted average number of shares of common stock outstandingBasic


53,006



52,651



52,882



54,969



56,531Diluted


53,006



53,485



54,103



56,252



57,901Cash dividends per share

$
0.52


$
0.51


$
0.47


$
0.43


$
0.39Balance Sheet Information:Working capital

$
208,803


$
262,609


$
376,204


$
324,759


$
330,011Total assets


1,502,979



1,748,688



1,146,144



1,062,130



1,018,647Total long-term debt, including current portion


389,027



469,643



100,000



100,000



100,000Stockholders equity


454,779



643,311



626,968



588,588



604,911      (1)
    
    In the fourth quarter of 2007, the Company recorded an
    impairment charge of $149.6 million before an income tax
    benefit of $5.8 million relating to its acquired goodwill
    and trademark, as well as pretax restructuring charges of
    $9.3 million.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.         25




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##### Table of Contents



Business
    Overview
    Strategic
    review of the Company and new leadership
      Talbots brand 
  J. Jill brand 
    
    Beginning in November 2007, the Talbots brand implemented a new
    markdown cadence strategy which allows for markdowns on a
    monthly basis ensuring markdown products at a more relevant time
    for the customer and designed to improve gross margins through
    better product flow.
    The Company plans to reduce its current cost structure by
    maintaining tighter expense controls, including reducing
    marketing spending, improving inventory management and inventory
    turns, improving utilization of corporate assets, and
    right-sizing the organization across brands.
    The Company intends to drive improved gross margins by a
    combination of managing leaner inventories, better product flow
    and healthy regular price selling, and implementing a price
    optimization software tool by the third quarter of 2008.
    In 2008, the Company plans to close approximately 95
    underperforming stores in 2008, including all remaining 75
    stores within the Companys Talbots Kids and Talbots Mens
    business concepts and all three stores within the United
    Kingdom. The Company believes that it should concentrate on its
    Talbots brand core concepts (Misses, Woman, and Petites) and has
    identified approximately 15 of the Kids and Mens store locations
    to date as convertible to other concepts. The Company is
    committed to continually assessing individual stores
    profitability and to closing or converting stores in the future
    as appropriate.
    The Company is reducing its capital spending in 2008, especially
    relating to store openings and renovations. Capital spending on
    store openings and renovations is expected to decrease by
    approximately 25% in comparison with 2007. The Company plans on
    opening approximately 46 new stores, including 27 under the 26




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##### Table of Contents



Talbots brand name and 19 under the J. Jill brand name, in
    comparison to 75 stores opened in 2007, including 43 under the
    Talbots brand name and 32 under the J. Jill brand name.    The J.
    Jill brand and the effects of the acquisition on the
    Companys results
           27




---



##### Table of Contents



The
    effect of Talbots brand on the Companys
    results
      The
    Companys direct marketing business
    Looking
    ahead to 2008 and beyond
     28




---



##### Table of Contents



Results
    of Operations
       29




---



##### Table of Contents



Year EndedFebruary 2,


February 3,


January 28,2008


2007


2006Net sales


100.0
%


100.0
%


100.0
%Cost of sales, buying and occupancy expenses


67.9



65.8



63.8Selling, general and administrative expenses


33.1



30.7



27.8Impairment of goodwill and trademark


6.5







Impairment of store assets


0.2



0.1



Restructuring charges


0.4







Operating (loss) income


(8.1
)


3.4



8.4Interest expense, net


1.5



1.1



0.2(Loss) Income before taxes


(9.6
)


2.3



8.2Income taxes (benefit )


(1.4
)


0.9



3.0Net (loss) income


(8.2
)%


1.4
%


5.2
%   2007
    Compared to 2006
  Net
    Sales
    February 2,


February 3,2008


2007Net retail store sales: Talbots brand

$
1,533.8


$
1,603.8Net retail store sales: J. Jill brand


327.6



241.8Net direct marketing sales: total Company


427.9



385.4Total net sales

$
2,289.3


$
2,231.0     Talbots
    Brand Retail Stores
     30




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##### Table of Contents



J.
    Jill Brand Retail Stores
        Direct
    Marketing Sales
    Cost of
    Sales, Buying, and Occupancy Expenses
   31




---



##### Table of Contents



Selling,
    General and Administrative Expenses
        Impairment
    of Goodwill and Trademark
  Goodwill and Other Intangible
    Assets
  Impairment
    of Store Assets
   32




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##### Table of Contents



Restructuring
    Charges
        Net
    Interest Expense
     33




---



##### Table of Contents



Income
    Tax (Benefit) Expense
    Acquisition
    Related Costs
              2006
    Compared to 2005
  Net
    Sales
    February 3,


January 28,2007


2006Net retail store sales: Talbots brand

$
1,603.8


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


241.8



Net direct marketing sales: total Company


385.4



265.0Total net sales

$
2,231.0


$
1,808.6    34




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##### Table of Contents



Talbots
    Brand Retail Stores
      J.
    Jill Brand Retail Stores
    Direct
    Marketing Sales
    Cost of
    Sales, Buying, and Occupancy Expenses
   35




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##### Table of Contents



Selling,
    General and Administrative Expenses
  Share-Based Payment
  Accounting for Stock Issued to Employees Accounting for Stock-Based
    Compensation
    Net
    Interest Expense
   36




---



##### Table of Contents



Income
    Tax Expense
    Acquisition
    Related Costs
      Seasonality
    and Quarterly Fluctuations
      Fiscal Quarter EndedMay 5,


August 4,


November 3,


February 2,2007


2007


2007


2008Net sales


100.0
%


100.0
%


100.0
%


100.0
%Cost of sales, buying and occupancy expenses


62.7



71.4



65.5



71.7Selling, general and administrative expenses


34.3



30.7



35.6



31.9Impairment of goodwill and trademarks














25.5Impairment of store assets










0.4



0.5Restructuring charges














1.6Operating (loss) income


3.0
%


(2.1
)%


(1.5
)%


(31.2
)%   Fiscal Quarter EndedApril 29,


July 29,


October 28,


February 3,2006


2006


2006


2007Net sales


100.0
%


100.0
%


100.0
%


100.0
%Cost of sales, buying and occupancy expenses


60.1



69.9



63.1



69.0Selling, general and administrative expenses


29.9



30.0



33.2



9.7Operating income


10.0
%


0.1
%


3.7
%


21.3
%    37




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##### Table of Contents



Liquidity
    and Capital Resources
       38




---



##### Table of Contents



paid-in-capital,
       39




---



##### Table of Contents



2007


2006


2005Net cash provided by operating activities

$
225,385


$
134,392


$
211,438Net cash used in investing activities


(84,812
)


(580,813
)


(72,684
)Net cash (used in) provided by financing activities


(152,456
)


379,566



(67,596
)Cash and cash equivalents, end of year

$
25,476


$
35,923


$
103,020     Cash
    provided by operating activities
        Cash
    used in investing activities
   40




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##### Table of Contents



Cash
    (used in) provided by financing activities
      Future
    cash flows
     41




---



##### Table of Contents



Critical
    Accounting Policies
      Inventory Markdown Reserve.
        Sales Return Reserve.
   42




---



##### Table of Contents



Customer Loyalty Program.
      Retirement Plans. st
     43




---



##### Table of Contents



Impairment of Long-lived Assets. Accounting for the Impairment or Disposal of Long-Lived
    Assets
   44




---



##### Table of Contents



Impairment of Goodwill and Other Intangible
    Assets.
            Income Taxes.
   45




---



##### Table of Contents



Stock-Based Compensation.
       46




---



##### Table of Contents



Contractual
    Commitments
    Less Than


1 to 3


3 to 5


More ThanContractual Obligations

Total


1 Year


Years


Years


5 YearsLong-term debt, including estimated interest payments*

$
418,832


$
94,945


$
261,397


$
62,490


$
Letter of credit agreements


158,365



158,365











Operating leases:Real estate


1,110,536



183,086



351,345



276,942



299,163Equipment


14,094



5,678



7,881



515



20Merchandise purchases


470,200



470,200











Construction contracts


12,737



12,737











Other contractual commitments


41,232



27,043



14,189







Long-term obligations:Non-qualified retirement plans


38,991



5,826



9,774



5,907



17,484Total Commitments

$
2,264,987


$
957,880


$
644,586


$
345,854


$
316,667     *
    
    Interest payments were estimated using the Companys
    current borrowing rates as of February 2, 2008.  Long-term debt.
     47




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##### Table of Contents



10-year 20-year
  Line of Credit (Notes payable to banks).
  Letters of Credit.
  Operating Leases.
  Merchandise Purchases.
  Construction Contracts.
  Other Contractual Commitments.
  Long-Term Obligations.
   48




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##### Table of Contents



Unrecognized Tax Benefits.
  Inflation
    and Changing Prices
    Exchange
    Rates
    New
    Accounting Pronouncements
  Employers Accounting for Defined Benefit Pensions and
    Other Postretirement Plans, An Amendment of FASB Statements
    No. 87, 88, 106, and 132(R)
  Fair Value Measurements
  The Fair Value Option for
    Financial Assets and Financial Liabilities
 49




---



##### Table of Contents



Forward-looking
    Information
        Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk.       50




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data.    INDEX
  PageReport of Independent Registered Public Accounting Firm


F-2Consolidated Statements of Operations for the Years Ended
    February 2, 2008, February 3, 2007, and
    January 28, 2006


F-3Consolidated Balance Sheets as of February 2, 2008 and
    February 3, 2007


F-4Consolidated Statements of Cash Flows for the Years Ended
    February 2, 2008, February 3, 2007, and
    January 28, 2006


F-5Consolidated Statements of Stockholders Equity for the
    Years Ended February 2, 2008, February 3, 2007, and
    January 28, 2006


F-6Notes to Consolidated Financial Statements


F-7   Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure.    Item 9A.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
    Form 10-K, Rules 13a-15(e) 15d-15(e)
  Managements
    Annual Report on Internal Control Over Financial
    Reporting
  Rules 13a-15(f) 15d-15(f)
      Changes
    in Internal Controls over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
 51




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal Control  Integrated Framework
        Internal Control  Integrated Framework
  Accounting for
    Uncertainty in Income Taxes  an interpretation of
    FASB Statement No. 109
  
    52




---



##### Table of Contents



Item 9B.
    Other
    Information.   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance.      Item 11.
    Executive
    Compensation.    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence.    Item 14.
    Principal
    Accounting Fees and Services.   53




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##### Table of Contents



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





Plan of Acquisition, Reorganization, Arrangement, Liquidation
    or Succession.2.1





Agreement and Plan of Merger, by and among The Talbots, Inc.,
    Jack Merger Sub, Inc. and The J. Jill Group, Inc., dated
    February 5, 2006.(31)(3)





Articles of Incorporation and By-laws.3.1





Certificate of Incorporation, as amended, of Talbots.(1)(12)(15)3.2





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





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





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





Material 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 UFJ Trust
    Company, as amended.(2)(4)(8)(19)(21)(26)(34)(44)10.3





Termination Agreement dated as of April 13, 2007 between The
    Talbots, Inc. and The Bank of Tokyo-Mitsubishi, Ltd. regarding
    the Credit Agreement dated as of January 25, 1994.(50)10.4





Credit Agreement between Talbots and The Bank of
    Tokyo-Mitsubishi UFJ Trust Company, dated as of April 17, 1998,
    as amended.(7)(10)(17)(22)(30)(36)10.5





Termination Agreement dated as of April 13, 2007 between The
    Talbots, Inc. and The Bank of Tokyo-Mitsubishi, Ltd. regarding
    the Credit Agreement dated as of April 17, 1998.(50)10.6





Credit Agreement dated as of March 28, 2007 between The Talbots,
    Inc. and The Bank of Tokyo-Mitsubishi, Ltd., as amended.(50)(66)10.7





Revolving Credit Agreement, dated as of January 25, 1994,
    between Talbots and The Norinchukin Bank, as
    amended.(2)(7)(8)(17)(21)(37)(50)10.8





Revolving Credit Agreement, dated as of January 25, 1994,
    between Talbots and Sumitomo Mitsui Banking Corporation
    (formerly The Sakura Bank, Limited), as
    amended.(2)(7)(11)(16)(19)(26)(34)(44)(63)(69)10.9





Continuing Commercial Letter of Credit and Security Agreement
    dated May 15, 1996 between Talbots and HSBC.(5)10.10





Letter Agreement concerning credit facilities between HSBC and
    The Talbots, Inc. and The J. Jill Group, Inc., dated July 20,
    2006.(41) 54




---



##### Table of Contents



10.11





Letter Agreement concerning credit facilities between HSBC and
    The Talbots, Inc. and The J. Jill Group, Inc., dated July 16,
    2007.(54)10.12





Letter Agreement concerning credit facilities between HSBC and
    The Talbots, Inc. and The Talbots Group Limited Partnership,
    dated January 31, 2008.(62)10.13





Sixth Amended and Restated Loan Agreement dated May 3, 2006
    between The J. Jill Group, Inc. and Citizens Bank of
    Massachusetts, HSBC Bank USA, National Association, and TD
    Banknorth, N.A.(35)10.14





Third Amendment to Lease Agreement, made as of May 3, 2006, by
    and between National Fire Protection Association and The J. Jill
    Group, Inc.(35)10.15





Guarantee of Lease, made as of May 3, 2006, by The Talbots, Inc.
    to National Fire Protection Association.(35)10.16





Revolving Loan Credit Agreement, dated April 17, 2003, between
    Mizuho Corporate Bank, Ltd. and Talbots.(17)(21)(38)(48)10.17





Revolving Loan Credit Agreement, dated January 28, 2004, between
    Talbots and Mizuho Corporate Bank, Ltd.(19)(26)(28)(44)(64)10.18





Revolving Loan Credit Agreement by and between The Talbots, Inc.
    and Mizuho Corporation, Ltd. dated February 2, 2006.(29)10.19





Term Loan Agreement, dated as of July 24, 2006, among The
    Talbots, Inc., the lenders from time to time party thereto and
    Mizuho Corporate Bank, Ltd., as arranger and administrative
    agent, as amended.(40)(52)(60)(67)10.20





Guaranty (in connection with the Term Loan Agreement dated as of
    July 24, 2006) dated December 31, 2007, made by The Talbots
    Group, Limited Partnership, in favor of each of the Lenders and
    Mizuho Corporate Bank, Ltd., as arranger and administrative
    agent for the Lenders.(67)10.21





General Financing Agreement between The Talbots, Inc. and Mizuho
    Corporate Bank, Ltd., dated as of August 24, 2007.(57)10.22





Amended and Restated Promissory Note between The Talbots, Inc.
    and Mizuho Corporate Bank, Ltd., dated January 28, 2008.(65)10.23





Uncommitted Letter of Credit Facility dated June 28, 2006
    between The Talbots, Inc., The J. Jill Group, Inc., J.J.
    Company, Inc., J. Jill LLC, and J. Jill GP (collectively
    Talbots) and Bank of America.(39)10.24





Uncommitted Lines of Credit Letter dated February 15, 2006
    between The Talbots, Inc. and Bank of America.(27)10.25





Uncommitted Line of Credit facility dated March 26, 2007 between
    The Talbots, Inc. and Bank of America.(47)(61)10.26





Uncommitted Letter of Credit facility dated March 26, 2007
    between The Talbots, Inc., The J. Jill Group, Inc., J.J.
    Company, Inc., J. Jill LLC, J. Jill GP and Bank of America.(47)10.27





Stock Purchase Agreement, dated as of November 26, 1993, between
    Talbots and AEON U.S.A.(2)10.28





Amended Repurchase Program, dated as of April 29, 2005, between
    Talbots and AEON (U.S.A.), Inc.(20)10.29





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)10.30





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)10.31





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.(6)10.32





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)10.33





Services Agreement, dated as of October 29, 1989, between
    Talbots and AEON U.S.A.(3)10.34





Services Agreement, dated as of November 18, 1993, between
    Talbots Japan Co., Ltd. and Talbots.(2)10.35





Consulting and Advisory Services Contract between AEON (U.S.A.),
    Inc. and Talbots dated as of November 1, 1999.(9)10.36





The Talbots, Inc. Supplemental Retirement Plan, as
    amended.(1)(2)(14)*10.37





The Talbots, Inc. Supplemental Savings Plan, as
    amended.(1)(2)(14)* 55




---



##### Table of Contents



10.38





The Talbots, Inc. Deferred Compensation Plan, as
    amended.(1)(2)(14)(70)*10.39





The Talbots, Inc. Amended and Restated 1993 Executive Stock
    Based Incentive Plan.(15)*10.40





The Talbots, Inc. 2003 Executive Stock Based Incentive Plan, as
    amended through March 2, 2007.(51)*10.41





Form of The Talbots, Inc. 2003 Executive Stock Based Incentive
    Plan Nonqualified Stock Option Agreement.(68)*10.42





Form of The Talbots, Inc. 2003 Executive Stock Based Incentive
    Plan Restricted Stock Agreement.(68)*10.43





Form of The Talbots, Inc. 2003 Executive Stock Based Incentive
    Plan Restricted Stock Agreement (prior form).(24)*10.44





Form of The Talbots, Inc. 2003 Executive Stock Based Incentive
    Plan Nonqualified Stock Option Agreement (prior form).(24)*10.45





The Talbots, Inc. Directors Deferred Compensation Plan restated
    as of May 27, 2004.(23)*10.46





The Talbots, Inc. Restated Directors Stock Plan as amended
    through March 5, 2005.(13)*10.47





Form of Restricted Stock Unit Award under The Talbots, Inc.
    Restated Directors Stock Plan.(33)*10.48





Form of Option Agreement pursuant to The Talbots, Inc. Restated
    Director Stock Plan.(45)*10.49





The Talbots, Inc. Management Incentive Plan Performance
    Criteria.(42)(53)*10.50





Summary of executive officer annual cash incentive program
    (Management Incentive Plan and Turnaround Incentive Plan) and
    long-term equity incentive program structure for 2008.(68)*10.51





Employment Agreement by and between The Talbots, Inc. and Trudy
    F. Sullivan, dated August 6, 2007.(56)*10.52





Restricted Stock Agreement by and between The Talbots, Inc. and
    Trudy F. Sullivan, dated August 7, 2007.(56)*10.53





Stock Option Agreement by and between The Talbots, Inc. and
    Trudy F. Sullivan, dated August 7, 2007.(56)*10.54





Employment Agreement, dated as of October 22, 1993, between
    Arnold B. Zetcher and Talbots, amended through September 28,
    2006.(2)(3)(32)(43)*10.55





The Talbots, Inc. Umbrella Supplemental Retirement Plan
    effective as of May 25, 2005 between The Talbots, Inc. and
    Arnold B. Zetcher.(32)*10.56





Compensation arrangements in connection with transition of
    Arnold B. Zetcher.(55)*10.57





Employment Agreement, dated January 30, 2003, between Harold B.
    Bosworth and Talbots.(17)*10.58





Employment Agreement by and between The Talbots, Inc. and Philip
    H. Kowalczyk, dated November 20, 2007.(59)*10.59





Term Sheet between The Talbots, Inc. and Philip H. Kowalczyk,
    dated October 4, 2007, subsequently superseded by definitive
    employment agreement signed on November 20, 2007.(58)*10.60





Employment Agreement, dated November 3, 2004, between Philip H.
    Kowalczyk and The Talbots, Inc., amended through May 3, 2006,
    subsequently superseded by definitive employment agreement
    signed on November 20, 2007.(25)(35)(46)*10.61





Restricted Stock Agreement by and between The Talbots, Inc. and
    Philip H. Kowalczyk, dated November 20, 2007.(59)*10.62





Grant Agreement by and between The Talbots, Inc. and John Fiske
    III, dated March 1, 2007.(52)*10.63





Change in Control Agreement by and between The Talbots, Inc. and
    John Fiske III, effective April 1, 2007.(52)*10.64





Offer Letter between The Talbots, Inc. and Paula Bennett, dated
    January 3, 2008.(70)*10.65





Change in Control Agreement between The Talbots, Inc. and Paula
    Bennett, dated January 28, 2008.(70)*10.66





Severance Agreement between The Talbots, Inc. and Paula Bennett,
    dated January 28, 2008.(70)*10.67





Offer Letter between The Talbots, Inc. and Basha Cohen, dated
    December 11, 2007.(70)*10.68





Change in Control Agreement between The Talbots, Inc. and Basha
    Cohen, dated December 17, 2007.(70)*10.69





Severance Agreement between The Talbots, Inc. and Basha Cohen,
    dated December 17, 2007.(70)*10.70





Offer Letter between The Talbots, Inc. and Lori Wagner, dated
    February 19, 2008.(70)* 56




---



##### Table of Contents



10.71





Change in Control Agreement between The Talbots, Inc. and Lori
    Wagner, dated March 24, 2008.(70)*10.72





Severance Agreement between The Talbots, Inc. and Lori Wagner,
    dated March 24, 2008.(70)*10.73





Grant Agreement by and among The Talbots, Inc., The J. Jill
    Group, Inc., and Olga L. Conley dated May 8, 2006.(43)*10.74





Change in Control Agreement by and between The Talbots, Inc. and
    Olga L. Conley.(43)*10.75





Change in Control Agreements between Talbots and certain
    officers of Talbots.(2)(3)*10.76





Severance Agreement by and between The Talbots, Inc. and each of
    Richard T. OConnell, Jr., John Fiske, III, Paul V.
    Kastner, Andrea M. McKenna, Bruce Lee Prescott and Randy
    Richardson (forms of) and Edward L. Larsen and Michele M.
    Mandell, dated August 6, 2007.(56)*     *
    
    Management contract and compensatory plan or arrangement.  (11)
    
    Statement re: Computation of Per Share Earnings.11.1
    
    Incorporated by reference to Note 17, Net Income Per
    Share, of the Companys consolidated financial
    statements for the fiscal year ended February 2, 2008,
    included in this Report.(21)
    
    Subsidiaries.21.1
    
    List of Subsidiaries of The Talbots, Inc.(70)(23)
    
    Consents of Experts and Counsel.23.1
    
    Consent of Independent Registered Public Accounting Firm,
    Deloitte & Touche LLP.(70)(31)
    
    Rule 13a-14(a)/15d-14(a)
    Certifications.  31.1
    
    Certification of Trudy F. Sullivan, President and Chief
    Executive Officer of the Company, pursuant to Securities
    Exchange Act
    Rule 13a-14(a).(70)31.2
    
    Certification of Edward L. Larsen, Senior Vice President,
    Finance, Chief Financial Officer and Treasurer of the Company,
    pursuant to Securities Exchange Act
    Rule 13a-14(a).(70)  (32)
    
    Section 1350 Certifications.  32.1
    
    Certifications pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of The Sarbanes-Oxley Act
    of 2002, by Trudy F. Sullivan, President and Chief Executive
    Officer of the Company and Edward L. Larsen, Senior Vice
    President, Finance, Chief Financial Officer and Treasurer of the
    Company.(70)    1
    
    Incorporated by reference to the exhibits filed with Talbots
    Registration Statement on
    Form S-1
    (No. 33-69082),
    which Registration Statement became effective November 18,
    1993.2
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 26, 1994 (SEC file number reference
    001-12552).3
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 27, 1995 (SEC file number reference
    001-12552).4
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated December 23, 1995 (SEC file number reference
    001-12552).5
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated May 15, 1996 (SEC file number reference
    001-12552).6
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated May 1, 1997 (SEC file number reference
    001-12552).7
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated May 1, 1998 (SEC file number reference
    001-12552).8
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 29, 1999 (SEC file number reference
    001-12552).9
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated July 1, 1999 (SEC file number reference
    001-12552).10
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated November 24, 1999 (SEC file number reference
    001-12552). 57




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##### Table of Contents



11
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 25, 2000 (SEC file number reference
    001-12552).12
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated May 24, 2000 (SEC file number reference
    001-12552).13
    
    Incorporated by reference to the 2005 Proxy Statement
    (Exhibit A) dated April 21, 2005.14
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated March 6, 2001 (SEC file number reference
    001-12552).15
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated September 6, 2001 (SEC file number reference
    001-12552).16
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated March 13, 2003 (SEC file number reference
    001-12552).17
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated July 24, 2003.18
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated December 19, 2003.19
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated February 24, 2004.20
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 29, 2005.21
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 12, 2005.22
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated June 4, 2004.23
    
    Incorporated by reference to the exhibits filed with Quarterly
    Report on
    Form 10-Q
    for the period ended July 31, 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 23, 2004.26
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated January 26, 2005.27
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated February 22, 2006.28
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated January 20, 2006.29
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated February 2, 2006.30
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 6, 2005.31
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K/A
    dated February 5, 2006.32
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated August 18, 2005.33
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated March 3, 2005.34
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated January 26, 2006.35
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated May 3, 2006.36
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 7, 2006.37
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 17, 2006.38
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 18, 2006.39
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated July 7, 2006.40
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated July 24, 2006.41
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated July 27, 2006.42
    
    Incorporated by reference to the Current Report on
    Form 8-K
    dated September 13, 2006.43
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated September 22, 2006.44
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated January 24, 200745
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated May 25, 2005.46
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K/A
    dated May 3, 2006.47
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated March 26, 2007.48
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated March 22, 2007.49
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated March 29, 2007.50
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 19, 2007. 58




---



##### Table of Contents



51
    
    Incorporated by reference to the 2007 Proxy Statement
    (Exhibit A) dated April 23, 2007.52
    
    Incorporated by reference to the exhibits filed with Quarterly
    Report on
    Form 10-Q
    for the period ended May 5, 2007.53
    
    Incorporated by reference to the Current Report on
    Form 8-K
    dated March 1, 2007.54
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated July 30, 2007.55
    
    Incorporated by reference to the Current Report on
    Form 8-K
    dated August 6, 2007.56
    
    Incorporated by reference to the exhibits filed with Quarterly
    Report on
    Form 10-Q
    for the period ended August 4, 2007.57
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated August 27, 2007.58
    
    Incorporated by reference to the exhibits filed with Quarterly
    Report on
    Form 10-Q
    for the period ended November 3, 2007.59
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated November 20, 2007.60
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated November 26, 2007.61
    
    Incorporated by reference to the Current Report on
    Form 8-K
    dated December 5, 2007.62
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated February 8, 2008.63
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated February 1, 2008.64
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated January 23, 2008.65
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated January 28, 2008.66
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated January 4, 2008.67
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated December 31, 2007.68
    
    Incorporated by reference to the Current Report on
    Form 8-K
    dated February 28, 2008 and the exhibits filed therewith.69
    
    Incorporated by reference to the Current Report on
    Form 8-K
    dated March 13, 2008.70
    
    Filed with this
    Form 10-K. 59




---



##### Table of Contents



SIGNATURES
      The Talbots, Inc.
  By:
    /s/  Edward
    L. Larsen   Senior Vice President, Finance
 Chief Financial Officer and Treasurer
 (Principal Financial and Accounting Officer)
    /s/  Trudy
    F. SullivanTrudy
    F. Sullivan President and
    Chief Executive Officer (Principal Executive Officer)

/s/  John
    W. GleesonJohn
    W. GleesonDirectorTsutomu
    Kajita Director

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

Yoshihiro
    SanoDirector/s/  Susan
    M. SwainSusan
    M. Swain Director

/s/  Isao
    TsurutaIsao
    TsurutaDirector  60




---



##### Table of Contents



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


F-2Consolidated Statements of Operations for the
    Years Ended February 2, 2008, February 3, 2007, and January 28,
    2006


F-3Consolidated Balance Sheets as of February 2,
    2008 and February 3, 2007


F-4Consolidated Statements of Cash Flows for the
    Years Ended February 2, 2008, February 3, 2007 and January 28,
    2006


F-5Consolidated Statements of Stockholders
    Equity for the Years Ended February 2, 2008, February 3, 2007
    and January 28, 2006


F-6Notes to Consolidated Financial Statements


F-7   F-1




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Accounting for Uncertainty in Income
    Taxes  an interpretation of FASB Statement
    No. 109 Share-Based Payment
  Internal Control  Integrated Framework
  
    F-2




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
 Amounts
    in thousands except per share data
  Year EndedFebruary 2,


February 3,


January 28,2008


2007


2006(52 weeks)


(53 weeks)


(52 weeks)Net Sales

$
2,289,296


$
2,231,033


$
1,808,606Costs and ExpensesCost of sales, buying and occupancy


1,553,994



1,469,223



1,153,734Selling, general and administrative


757,842



685,438



502,724Impairment of goodwill


134,000







Impairment of trademark


15,600







Impairment of store assets


4,977



1,331



Restructuring charges


9,275







Operating (Loss) Income


(186,392
)


75,041



152,148InterestInterest expense


35,927



31,542



4,480Interest income


1,362



7,023



1,374Interest Expense  net


34,565



24,519



3,106(Loss) Income Before Taxes


(220,957
)


50,522



149,042Income Tax (Benefit) Expense


(32,116
)


18,946



55,891Net (Loss) Income

$
(188,841
)

$
31,576


$
93,151Net (Loss) Income Per ShareBasic

$
(3.56
)

$
0.60


$
1.76Diluted

$
(3.56
)

$
0.59


$
1.72Weighted Average Number of Shares of Common Stock OutstandingBasic


53,006



52,651



52,882Diluted


53,006



53,485



54,103    F-3




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
 Amounts
    in thousands except share data
  February 2,


February 3,2008


2007ASSETSCurrent Assets:Cash and cash equivalents

$
25,476


$
35,923Customer accounts receivable  net


210,853



204,619Merchandise inventories


329,104



352,652Deferred catalog costs


11,420



11,606Due from affiliates


3,040



5,672Deferred income taxes


25,084



28,752Prepaid and other current assets


46,870



53,185Total current assets


651,847



692,409Property and equipment  net


486,733



533,216Goodwill


113,490



247,490Trademarks


139,384



154,984Other intangible assets  net


80,980



92,038Other assets


30,545



28,551Total Assets

$
1,502,979


$
1,748,688LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable

$
171,830


$
113,884Accrued income taxes


4,829



31,684Accrued liabilities


185,735



158,763Current portion of long-term debt


80,650



80,469Notes payable to banks






45,000Total current liabilities


443,044



429,800Long-term debt less current portion


308,377



389,174Deferred rent under lease commitments


144,569



133,025Deferred income taxes


5,646



61,537Other liabilities


146,564



91,841CommitmentsStockholders Equity:Common stock, $0.01 par value; 200,000,000 authorized;
    79,755,443 shares and 78,567,387 shares issued, and
    54,921,777 shares and 53,999,261 shares outstanding


797



786Additional paid-in capital


485,629



464,701Retained earnings


565,805



787,483Accumulated other comprehensive loss


(13,474
)


(26,202
)Treasury stock, at cost: 24,833,666 shares and 24,568,126
    shares


(583,978
)


(583,457
)Total stockholders equity


454,779



643,311Total Liabilities and Stockholders Equity

$
1,502,979


$
1,748,688    F-4




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##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 Amounts
    in thousands
  Year EndedFebruary 2,


February 3,


January 28,2008


2007


2006(52 weeks)


(53 weeks)


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

$
(188,841
)

$
31,576


$
93,151Adjustments to reconcile net (loss) income to net cash provided
    byoperating activities:Impairment of goodwill and trademark


149,600







Impairment of store assets, including $1,028 relating to the
    closing of Talbots Kids and Talbots Mens included in
    restructuring


6,005



1,331



Depreciation and amortization


130,521



121,203



90,127Amortization of debt issuance costs


271



325



Deferred rent


11,401



22,173



930Compensation expense related to stock options


10,946



12,492



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


8,296



5,504



8,417Loss on disposal of property and equipment


3,932



133



215Tax benefit from options exercised


347



1,109



3,947Excess tax benefit from options exercised


(347
)


(1,156
)


Deferred income taxes


(39,556
)


(16,786
)


(12,086
)Changes in assets and liabilities:Customer accounts receivable


(6,087
)


5,124



(10,494
)Merchandise inventories


24,257



(58,491
)


(8,167
)Deferred catalog costs


186



520



(903
)Due from affiliates


2,632



2,220



1,181Prepaid and other current assets


15,289



1,441



(3,521
)Accounts payable


58,960



20,074



20,685Income taxes payable


(423
)


3,083



10,717Accrued liabilities


26,846



(20,421
)


10,837Other assets


(2,265
)


(7,146
)


(1,920
)Other liabilities


13,415



10,084



8,322Net cash provided by operating activities


225,385



134,392



211,438CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property and equipment


(84,905
)


(104,208
)


(72,684
)Proceeds from disposal on property and equipment


93



612



Acquisition of The J. Jill Group, Inc., net of cash acquired






(493,946
)


Maturities of marketable securities






16,729



Net cash used in investing activities


(84,812
)


(580,813
)


(72,684
)CASH FLOWS FROM FINANCING ACTIVITIES:(Payments) proceeds on working capital lines of credit
    (notes payable), net


(45,000
)


45,000



Payments on long-term borrowings


(80,469
)


(40,358
)


Proceeds from financing related to acquisition






400,000



Proceeds from options exercised


1,550



3,785



7,731Excess tax benefit from options exercised


347



1,156



Debt issuance costs






(1,414
)


Cash dividends


(28,363
)


(27,490
)


(25,334
)Purchase of treasury stock


(521
)


(1,113
)


(49,993
)Net cash (used in) provided by financing activities


(152,456
)


379,566



(67,596
)EFFECT OF EXCHANGE RATE CHANGES ON CASH


1,436



(242
)


51NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS


(10,447
)


(67,097
)


71,209CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR


35,923



103,020



31,811CASH AND CASH EQUIVALENTS, END OF YEAR

$
25,476


$
35,923


$
103,020    F-5




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##### Table of Contents



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





Other











TotalCommon Stock


Paid-in


Retained


Comprehensive


Deferred


Treasury


Comprehensive


StockholdersShares


Amount


Capital


Earnings


Loss


Compensation


Stock


(Loss) Income


EquityBALANCE AT JANUARY 29, 2005 (52 weeks)


76,940,134


$
769


$
432,912


$
715,580


$
(17,142
)

$
(11,821
)

$
(531,710
)





$
588,588Cash dividends paid














(25,334
)


















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


322,425



3



9,844











(9,844
)










3Nonvested stock units issued










844











(844
)










Forfeited nonvested stock units










(79
)










79











Compensation expense related to nonvested common stock awards










32











8,669











8,701Stock options exercised, including tax benefit


598,569



7



11,668























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


























(49,993
)






(49,993
)Purchase of 21,675 shares of nonvested common stock awards






















358



(641
)






(283
)Comprehensive income:Net income














93,151














$
93,151



93,151Translation adjustment


















(138
)










(138
)


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


















598











598



598Comprehensive income





























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


77,861,128



779



455,221



783,397



(16,682
)


(13,403
)


(582,344
)






626,968Cash dividends paid














(27,490
)


















(27,490
)Common stock issued as stock award


439,091



4



























4Adoption of SFAS No. 123R










(13,403
)










13,403











Compensation expense related to stock options










12,492























12,492Compensation expense related to nonvested common stock awards










5,504























5,504Stock options exercised, including tax benefit


267,168



3



4,887























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


























(1,113
)






(1,113
)Adoption of SFAS No. 158


















(17,345
)














(17,345
)Comprehensive income:Net income














31,576














$
31,576



31,576Translation adjustment


















(315
)










(315
)


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


















8,140











8,140



8,140Comprehensive income





























$
39,401BALANCE AT FEBRUARY 3, 2007 (52 weeks)


78,567,387



786



464,701



787,483



(26,202
)






(583,457
)






643,311Adjustment to retained earnings upon the adoption of
    FIN No. 48














(4,674
)


















(4,674
)Cash dividends paid










(200
)


(28,163
)


















(28,363
)Common stock issued as stock award


1,014,336



10



























10Compensation expense related to stock options










10,946























10,946Compensation expense related to nonvested common stock awards










8,296























8,296Stock options exercised, including tax benefit


173,720



1



1,886























1,887Purchase of 265,540 shares of vested and nonvested common
    stock awards


























(521
)






(521
)Comprehensive (loss) income:Net loss














(188,841
)













$
(188,841
)


(188,841
)Translation adjustment


















2,528











2,528



2,528Change in pension and postretirement liabilities, net of tax


















10,200











10,200



10,200Comprehensive loss





























$
(176,113
)BALANCE AT FEBRUARY 2, 2008


79,755,443


$
797


$
485,629


$
565,805


$
(13,474
)

$



$
(583,978
)





$
454,779    F-6




---



##### Table of Contents



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




---



##### Table of Contents



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

YearsBuildings

10-50Fixtures and equipment

3-10Software

3-7Leasehold improvements

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




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
            Impairment of Long-lived Assets 
  Grantor Trust 
  Deferred Rent Obligations  build-out
 F-9




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
    Fair Value of Financial Instruments 
  Foreign Currency Translation 
  Revenue Recognition 
  Gift Cards and Merchandise Credits 
  Cost of Sales, Buying and Occupancy 
  Selling, General and Administrative expenses 
  Finance Charge Income 
  Advertising 
 F-10




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
    Income Taxes 
  Accounting for
    Uncertainty in Income Taxes an interpretation of FASB
    Statement No. 109
  Stock-Based Compensation  Share-Based Payment Accounting for Stock
    Issued to Employees Accounting
    for Stock-Based Compensation
  Comprehensive (Loss) Income  Employers
    Accounting for Defined Benefit Pension and Other Postretirement
    Plans  An Amendment of FASB Statements
    No. 87, 88, 106 and 132(R)
   F-11




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
    Basic and Diluted Net (Loss) Income Per Share 
  Supplemental Cash Flow Information 
  Reclassifications 
  New Accounting Pronouncements 
  Fair Value Measurements
 F-12




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
  The Fair Value Option for
    Financial Assets and Financial Liabilities
  3.
    Acquisition
    of J. Jill  Business Combinations
  Recognition of Liabilities in Connection
    with a Purchase Combination
  4.
    Goodwill
    and Intangible Assets    DirectStores


Marketing


ConsolidatedBalance at January 28, 2006

$
35,513


$



$
35,513Increase due to J. Jill acquisition


160,453



51,524



211,977Balance at February 3, 2007


195,966



51,524



247,490Impairment charge


(95,900
)


(38,100
)


(134,000
)Balance at February 2, 2008

$
100,066


$
13,424


$
113,490    F-13




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
    February 2, 2008WeightedAverageUseful


February 3, 2007Accumulated





Economic





AccumulatedGross


Amortization


Net


Life


Gross


Amortization


NetTrademarks

$
139,384


$



$
139,384



indefinite


$
154,984


$



$
154,984Customer relationships


84,200



(11,381
)


72,819



12



84,200



(4,723
)


79,477Leasehold interests


11,085



(2,924
)


8,161



8



11,740



(1,836
)


9,904Non-Compete agreements














2



4,900



(2,243
)


2,657Total

$
234,669


$
(14,305
)

$
220,364






$
255,824


$
(8,802
)

$
247,022         Year EndedFebruary 2,


February 3,2008


2007Cost of sales, buying, and occupancy

$
1,743


$
1,246Selling, general, and administrative


9,315



6,965Total

$
11,058


$
8,211     Amount2008

$
10,0162009


10,2572010


10,5072011


9,7092012


8,793Thereafter


31,698Total

$
80,980  F-14




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
  5.
    Restructuring
    Charges, including the Closure of the Talbots Kids and Talbots
    Mens Business Concepts        Corporate-Wide


Closing of Talbots Kids and Mens StoresLease





AssetSeverance


Consulting


Other


Severance


exit


Other


writedowns


TotalCharges

$
904


$
2,732


$
264


$
628


$
421


$
872


$
3,454


$
9,275Cash payment


(226
)


(1,200
)






(19
)


(320
)


(497
)






(2,262
)Non-cash charges










(264
)






276







(3,454
)


(3,442
)$
678


$
1,532


$



$
609


$
377


$
375


$



$
3,571     6.
    Equity
    Transactions   F-15




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
        7.
    Stock-Based
    Compensation  Amended
    and Restated 2003 Executive Stock Based Incentive
    Plan
       F-16




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
  Amended
    and Restated Directors Plan
          Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation
    Year EndedFebruary 2,


February 3,


January 28,2008


2007


2006Cost of sales, buying and occupancy

$
1,695


$
2,594


$
Selling, general, and administrative


17,547



15,402



8,417Compensation expense related to stock-based awards


19,242



17,996



8,417Less: Income tax benefit


7,699



7,200



3,368Net compensation expense related to stock-based awards

$
11,543


$
10,796


$
5,049    F-17




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
        January 28,2006Net income, as reported

$
93,151Add: stock-based compensation included in reported net income,
    net of related tax effects


5,266Deduct: total stock-based compensation expensed determined under
    fair value based method, net of related tax effects


(13,702
)Pro forma net income

$
84,715Earnings per share:Basic-as reported

$
1.76Basic-pro forma

$
1.60Diluted- as reported

$
1.72Diluted- pro forma

$
1.56   Stock
    Options
    Year EndedFebruary 2,


February 3,


January 28,2008


2007


2006Weighted average risk-free interest rate


4.5
%


4.7
%


4.0
%Weighted average expected life of option grants


4.6 years



4.5 years



4.2 yearsWeighted average expected volatility of underlying stock


38.5
%


41.8
%


47.9
%Weighted average expected dividend payment rate, as a percentage
    of the stock price on the date of grant


2.4
%


2.0
%


1.5
%    F-18




---



##### Table of Contents



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


WeightedAverage


Average Remaining


AggregateNumber of


Exercise Price


Contractual Term


IntrinsicShares


per Share


(In Years)


ValueOutstanding at beginning of year


8,438,930


$
28.44Granted


1,695,200



23.75Exercised


(173,720
)


10.83Forfeited


(384,707
)


26.34Expired


(83,997
)


34.37Outstanding at end of year


9,491,706


$
27.96



5.0


$
173Exercisable at end of year


7,146,058


$
28.97



3.7


$
143     Nonvested
    Stock Awards and RSUs
    WeightedAverage GrantNumber of


Date Fair ValueShares


per ShareNonvested at beginning of year


1,204,427


$
29.04Granted


1,036,336



21.04Vested


(65,890
)


25.28Forfeited


(244,575
)


28.45Nonvested at end of year


1,930,298


$
24.95       8.
    Related
    Party and Affiliates   F-19




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
        9.
    Accounts
    Receivable    February 2,


February 3,2008


2007Due from customers

$
213,553


$
206,819Less allowance for doubtful accounts


(2,700
)


(2,200
)Customer accounts receivable, net

$
210,853


$
204,619       Year EndedFebruary 2,


February 3,


January 28,2008


2007


2006Balance, beginning of year

$
2,200


$
2,400


$
2,700Charges to costs and expenses


3,443



1,360



2,208Charge-offs, net of recoveries


(2,943
)


(1,560
)


(2,508
)Balance, end of year

$
2,700


$
2,200


$
2,400  F-20




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
  10.
    Property
    and Equipment    February 2,


February 3,2008


2007Land

$
22,747


$
22,817Buildings


89,264



88,267Fixtures and equipment


458,420



435,755Software


55,893



50,830Leasehold improvements


444,189



420,046Construction in progress


21,096



18,132Property and
    equipment-gross


1,091,609



1,035,847Less accumulated depreciation and amortization


(604,876
)


(502,631
)Property and
    equipment-net

$
486,733


$
533,216     11.
    Accrued
    Liabilities    February 2,


February 3,2008


2007Gift cards, merchandise credits, sales return reserve and other
    customer related liabilities

$
80,635


$
74,351Employee compensation, related tax and benefits


38,965



38,300Taxes other than income and withholding


11,427



14,329Other accrued liabilities


54,708



31,783Total accrued liabilities

$
185,735


$
158,763     Year EndedFebruary 2,


February 3,


January 28,2008


2007


2006Sales return reserve balance, beginning of year

$
11,081


$
10,283


$
9,184Balance acquired from J. Jill at fair value






5,561



Provision for merchandise returns


448,005



427,311



378,697Merchandise returned


(445,895
)


(432,074
)


(377,598
)Sales return reserve balance, end of year

$
13,191


$
11,081


$
10,283  F-21




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
  12.
    Debt    February 2,


February 3,2008


2007Acquisition Debt

$
280,000


$
360,000Revolving Credit Agreements


80,000



100,000Term Loan


20,000



Tilton Facility Loan


9,027



9,643Total long-term debt


389,027



469,643Less current maturities


(80,650
)


(80,469
)Long term-debt, less current portion

$
308,377


$
389,174   Long-term Debt 
  paid-in-capital,
   F-22




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
      10-year 20-year
  Line of Credit (Notes payable to banks) 
  Letters of Credit 
    Long-TermDebt2008

$
80,6502009


168,3772010


80,0002011


40,0002012


20,000Total

$
389,027  F-23




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
  13.
    Income
    Taxes    February 2,


February 3,


January 28,2008


2007


2006Domestic

$
(225,343
)

$
44,838


$
140,567Foreign


4,386



5,684



8,475Total

$
(220,957
)

$
50,522


$
149,042     February 2,


February 3,


January 28,2008


2007


2006Currently payable:Federal

$
6,562


$
32,823


$
59,667State






1,212



5,802Foreign


1,216



1,691



3,007Total currently payable


7,778



35,726



68,476Deferred:Federal


(32,335
)


(13,695
)


(9,650
)State


(7,525
)


(3,253
)


(1,914
)Foreign


(34
)


168



(1,021
)Total deferred


(39,894
)


(16,780
)


(12,585
)Total income tax (benefit) expense

$
(32,116
)

$
18,946


$
55,891     February 2, 2008


February 3, 2007


January 28, 2006Tax


Rate


Tax


Rate


Tax


RateTax at federal stautory rate

$
(77,335
)


35.0
%

$
17,683



35.0
%

$
52,165



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


(4,802
)


2.2



1,422



2.8



2,527



1.7Foreign tax










(130
)


(0.3
)


214



0.1Officer compensation


1,640



(0.7
)Foreign income inclusion


3,529



(1.6
)














Goodwill impairment


46,900



(21.2
)In kind donations


(1,248
)


0.5



(1,314
)


(2.5
)






Other


(800
)


0.3



1,285



2.5



985



0.7Actual tax (benefit) expense

$
(32,116
)


14.5
%

$
18,946



37.5
%

$
55,891



37.5
%    F-24




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
  Deferred
    tax assets (liabilities)
    February 2, 2008


February 3, 2007Assets


Liabilities


Total


Assets


Liabilities


TotalUnited States:Current:Merchandise inventories

$
15,089


$



$
15,089


$
17,624


$



$
17,624Deferred catalog costs






(3,157
)


(3,157
)






(2,286
)


(2,286
)Accrued vacation pay


6,029







6,029



5,713







5,713Net operating loss carryforward














6,151







6,151Other


9,802



(2,752
)


7,050



4,145



(2,668
)


1,477Total current


30,920



(5,909
)


25,011



33,633



(4,954
)


28,679Noncurrent:Depreciation and amortization






(49,758
)


(49,758
)






(58,643
)


(58,643
)Lease commitments


12,179







12,179



12,586







12,586Stock and deferred compensation


41,617







41,617



26,099







26,099Pension liability


9,044







9,044



15,843







15,843Net operating loss carryforward


3,327







3,327











Charitable contribution carryforward


2,911







2,911











Identifiable intangible






(49,300
)


(49,300
)






(59,604
)


(59,604
)Deferred taxes associated with unrecognized tax benefits
    (FIN No. 48)


23,251







23,251











Other


168







168



1,302







1,302Total noncurrent


92,497



(99,058
)


(6,561
)


55,830



(118,247
)


(62,417
)Foreign:Current:Merchandise inventories


49







49



49







49Other


24







24



24







24Total current


73







73



73







73Noncurrent:Depreciation and amortization


915







915



880







880Total noncurrent

$
915


$



$
915


$
880


$



$
880      F-25




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
  Uncertain
    tax positions
        Balance as of February 4, 2007

$
41,545Decreases related to prior year tax positions


(3,293
)Increases related to current year tax positions


711Decreases related to settlements with taxing authorities


(761
)Decreases related to lapsing of statutue of limitations


(294
)Balance as of February 2, 2008

$
37,908       14.
    Segment
    and Geographic Information     F-26




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
        February 2, 2008Stores


Direct Marketing


TotalNet sales

$
1,861,426


$
427,870


$
2,289,296Direct profit


125,094



67,045



192,139Depreciation and amortization


101,942



1,075



103,017   February 3, 2007Stores


Direct Marketing


TotalNet sales

$
1,845,647


$
385,386


$
2,231,033Direct profit


202,829



71,270



274,099Depreciation and amortization


94,076



875



94,951   January 28, 2006Stores


Direct Marketing


TotalNet sales

$
1,543,645


$
264,961


$
1,808,606Direct profit


231,572



57,807



289,379Depreciation and amortization


77,635



1,282



78,917       Year EndedFebruary 2, 2008


February 3, 2007Talbots brand

$
1,533,762


$
1,603,774J. Jill brand


327,664



241,873Total

$
1,861,426


$
1,845,647  F-27




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
    Year EndedFebruary 2,


February 3,


January 28,2008


2007


2006Total direct profit for reportable segments

$
192,139


$
274,099


$
289,379Less: indirect expenses, including impairment charges


378,531



199,058



137,231Operating (loss) income


(186,392
)


75,041



152,148Interest
    expense-net


34,565



24,519



3,106(Loss) Income before taxes


(220,957
)


50,522



149,042Income tax (benefit) expense


(32,116
)


18,946



55,891Consolidated net (loss) income

$
(188,841
)

$
31,576


$
93,151       Year EndedFebruary 2,


February 3,


January 28,2008


2007


2006Sales:United States

$
2,226,356


$
2,167,656


$
1,749,110Foreign


62,940



63,377



59,496Total consolidated revenues

$
2,289,296


$
2,231,033


$
1,808,606Long-lived assets:United States

$
816,930


$
1,022,569


$
492,669Foreign


3,657



5,159



6,264Total long-lived assets

$
820,587


$
1,027,728


$
498,933     15.
    Benefit
    Plans   F-28




---



##### Table of Contents



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


SERP


Medical PlansFebruary 2,


February 3,


February 2,


February 3,


February 2,


February 3,2008


2007


2008


2007


2008


2007Change in benefit obligations:Projected benefit obligations at beginning of year

$
140,418


$
137,601


$
19,662


$
20,765


$
1,305


$
10,052Service cost


9,742



10,543



478



453



2



378Interest cost


8,615



7,575



1,140



1,045



82



204Actuarial loss (gain)


(9,730
)


(13,397
)


(1,020
)


(2,492
)


(237
)


(1,037
)Benefits paid, net


(2,354
)


(1,904
)


(138
)


(109
)


(176
)


(136
)Plan change


















255



(8,156
)Projected benefit obligations at end of year

$
146,691


$
140,418


$
20,122


$
19,662


$
1,231


$
1,305Changes in assets:Fair value at beginning of year

$
99,660


$
84,041


$



$



$



$
Actual return on plan assets


12,844



5,523















Employer contributions






12,000



138



109



176



137Benefits paid


(2,354
)


(1,904
)


(138
)


(109
)


(176
)


(137
)Fair value at end of year

$
110,150


$
99,660


$



$



$



$
  F-29




---



##### Table of Contents



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


SERP


Medical PlansFebruary 2,


February 3,


February 2,


February 3,


February 2,


February 3,2008


2007


2008


2007


2008


2007Funded status:Plan assets (greater)/less than projected benefit obligations

$
36,540


$
40,757


$
20,084


$
19,653


$
1,225


$
1,293Net amounts recognized in the consolidated balance sheet:

$
36,540


$
40,757


$
20,084


$
19,653


$
1,225


$
1,293Net amounts recognized in the consolidated balance sheet
    consist of:Other assets (non-current)

$



$
(238
)

$



$



$



$
Other liabilities (non-current)


36,540



40,995



20,084



19,653



1,225



1,293Net amounts recognized in the consolidated balance sheets

$
36,540


$
40,757


$
20,084


$
19,653


$
1,225


$
1,293Net amounts recognized in accumulated other comprehensive
    income consist of:Net actuarial loss

$
14,841


$
24,419


$
1,170


$
1,834


$
1,030


$
1,414Prior service cost (credit)


133



174



39



579



(3,647
)


(4,664
)Net amounts recognized in accumulated other comprehensive
    income, net of tax

$
14,974


$
24,593


$
1,209


$
2,413


$
(2,617
)

$
(3,250
)     Pension Plan


SERPFebruary 2,


February 3,


February 2,


February 3,2008


2007


2008


2007Projected benefit obligation

$
146,691


$
140,418


$
20,122


$
19,662Accumulated benefit obligation

$
115,070


$
109,169


$
17,681


$
17,847Fair value of plan assets

$
110,150


$
99,660


$



$
  F-30




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
    Year EndedFebruary 2,


February 3,


January 28,2008


2007


2006Service expense-benefits earned during the period

$
9,742


$
10,543


$
9,923Interest expense on projected benefit obligation


8,615



7,575



7,056Expected return on plan assets


(9,331
)


(8,160
)


(7,105
)Net amortization and deferral


2,795



4,092



4,741Net pension expense

$
11,821


$
14,050


$
14,615     Year EndedFebruary 2,


February 3,


January 28,2008


2007


2006Service expense-benefits earned during the period

$
478


$
453


$
778Interest expense on projected benefit obligation


1,140



1,045



971Net amortization and deferral


960



1,596



1,667Net SERP expense

$
2,578


$
3,094


$
3,416     Year EndedFebruary 2,


February 3,


January 28,2008


2007


2006Service expense-benefits earned during the period

$
2


$
378


$
767Interest expense on accumulated postretirement benefit obligation


82



204



389Net amortization and deferral


(1,090
)


(686
)


97Net postretirement medical expense (credit)

$
(1,006
)

$
(104
)

$
1,253    F-31




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
    Year EndedFebruary 2,


February 3,


January 28,2008


2007


2006Pension Plan:Discount rate


6.00
%


5.50
%


5.75
%Discount rate used to determine projected benefit obligation at
    end of year


6.50
%


6.00
%


5.50
%Expected long-term rate of return on plan assets


9.00
%


9.00
%


9.00
%Rate of future compensation increases


4.00
%


4.00
%


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


4.00
%


4.00
%


4.00
%SERP:Discount rate


6.00
%


5.50
%


5.75
%Discount rate used to determine projected benefit obligation at
    end of year


6.25
%


6.00
%


5.50
%Rate of future compensation increases


4.00
%


4.00
%


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


4.00
%


4.00
%


4.00
%Postretirement Medical Plans:Discount rate


6.00
%


5.50
%


5.75
%Discount rate used to determine projected benefit obligation at
    end of year


6.25
%


6.00
%


5.50
%Initial healthcare cost trend rate-projected benefit obligations


10.00
%


11.00
%


12.00
%Initial healthcare cost trend rate-periodic expense


11.00
%


12.00
%


8.00
%Ultimate health care cost trend rate


5.00
%


5.00
%


5.00
%      F-32




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##### Table of Contents



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


December 31, 2007


December 31, 2006Allocation


Amount


Percent


Amount


PercentEquity securites, including $12,093 of foreign securities


70
%

$
78,070



71
%

$
72,517



73
%Debt securities


30
%


26,907



24



23,534



24Cash and money market






5,173



5



3,609



3Total





$
110,150



100
%

$
99,660



100
%     Pension





PostretirementPlan


SERP


Medical PlansExpected benefit payments:2008

$
2,576


$
1,239


$
832009


2,947



1,258



552010


3,409



1,280



282011


3,962



1,311



2012


4,665



1,359



2013 to 2017


38,530



7,731



       Pension



PostretirementPlan

SERP

Medical PlansNet actuarial loss

$
956


$



$
480Prior service cost

$
69


$
28


$
(1,696
)  F-33




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##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
      16.
    Commitments    ContractualObligations

Total


2008


2009


2010


2011


2012


ThereafterOperating leases:Real estate

$
1,110,536


$
183,086


$
180,025


$
171,320


$
152,486


$
124,456


$
299,163Equipment


14,094



5,678



4,991



2,890



397



118



20Merchandise purchases


470,200



470,200



















Construction contracts


12,737



12,737



















Other contractual commitments


41,232



27,043



12,103



2,086











Total Commitments

$
1,648,799


$
698,744


$
197,119


$
176,296


$
152,883


$
124,574


$
299,183   Operating Leases
  Merchandise Purchases
  Construction Contracts
 F-34




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##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
  Other Contractual Commitments
  17.
    Net
    (loss) Income Per Share    Year EndedFebruary 2,


February 3,


January 28,2008


2007


2006(In thousands)Shares for computation of basic net (loss) income per share


53,006



52,651



52,882Effect of stock compensation plans






834



1,221Shares for computation of diluted net (loss) income per share


53,006



53,485



54,103   18.
    Quarterly
    Results (unaudited)    Fiscal 2007 Quarter EndedMay 5,


August 4,


November 3,


February 2,2007


2007


2007


2008(13 weeks)


(13 weeks)


(13 weeks)


(13 weeks)Net sales

$
573,556


$
572,331


$
556,012


$
587,397Gross profit


213,941



163,318



191,931



166,112Net income (loss)


5,240



(13,316
)


(9,387
)


(171,378
)(1)Net income (loss) per shareBasic

$
0.10


$
(0.25
)

$
(0.18
)

$
(3.23
)Diluted

$
0.10


$
(0.25
)

$
(0.18
)

$
(3.23
)Weighted average number of sharesof common stock outstanding (in
    thousands)Basic


52,928



52,980



53,032



53,085Diluted


53,908



52,980



53,032



53,085Cash dividends declared per share

$
0.13


$
0.13


$
0.13


$
0.13Market price dataHigh

$
26.18


$
25.70


$
24.97


$
16.35Low

$
20.95


$
19.58


$
13.66


$
6.96     (1)
    
    The net loss in the fourth quarter of 2007 includes an
    impairment charge of $149,600 before an income tax benefit of
    $5,834, relating to the Companys acquired goodwill and
    trademark, as well as pretax restructuring charges of $9,275.  F-35




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts
    in thousands except share and per share data
  Fiscal 2006 Quarter EndedApril 29,


July 29,


October 28,


February 3,2006


2006


2006


2006(13 weeks)


(13 weeks)


(13 weeks)


(14 weeks)Net sales

$
453,012


$
571,377


$
568,640


$
638,004Gross profit


180,812



172,128



209,973



197,556Net income


27,356



(3,858
)


8,061



17Net income per shareBasic

$
0.52


$
(0.07
)

$
0.15


$
0.00Diluted

$
0.51


$
(0.07
)

$
0.15


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


52,620



52,222



52,854



52,892Diluted


53,669



52,222



53,718



53,820Cash dividends declared per share

$
0.12


$
0.13


$
0.13


$
0.13Market price dataHigh

$
28.25


$
25.58


$
30.00


$
28.74Low

$
23.50


$
17.38


$
20.00


$
23.01  F-36