##### 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
    January 28, 2006oro

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)
  þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 þ o o
  Rule 12b-2 o þ
      Documents
    Incorporated by Reference
  Form 10-K.




---



##### 



The
    Talbots, Inc.
  Annual Report on
    Form 10-K
    for the Fiscal Year Ended January 28, 2006
  PagePART IItem 1.

Business


2Item 1A.

Risk Factors


11Item 1B.

Unresolved Staff
    Comments


14Item 2.

Properties


15Item 3.

Legal
    Proceedings


15Item 4.

Submission of
    Matters to a Vote of Security Holders


16PART IIItem 5.

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


16Item 6.

Selected Financial
    Data


17Item 7.

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


17Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk


28Item 8.

Financial
    Statements and Supplementary Data


29Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


29Item 9A.

Controls and
    Procedures


29Item 9B.

Other
    Information


32PART IIIItem 10.

Directors and
    Executive Officers of the Registrant


32Item 11.

Executive
    Compensation


32Item 12.

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


32Item 13.

Certain
    Relationships and Related Transactions


33Item 14.

Principal
    Accounting Fees and Services


33PART IVItem 15.

Exhibits, Financial
    Statement Schedules


33EX-21.1 Consent of Deloitte & Touche LLPEX-31.1 Section 302 CEO CertificationEX-31.2 Section 302 CFO CertificationEX-32.1 Section 906 CEO & CFO Certification   1




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##### Table of Contents



PART I  Item 1.
    Business.   General
            Form 10-K.
  52-week 53-week 52-week 52-week 52-week
  Hart-Scott-Rodino
 2




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##### Table of Contents



Operating
    Strategy
    
    Maintain its strong competitive position in the classic niche
    by providing consistently classic womens, childrens,
    and mens apparel, accessories and
    shoes.  Talbots offers a variety of key basic and
    fashion items and a complementary assortment of accessories and
    shoes to enable customers to assemble complete outfits. An
    important aspect of the Companys marketing strategy is
    wardrobing the customer from
    head-to-toe.
    The Company believes that consistently emphasizing timeless
    styles helps to create a loyal customer base and reduces the
    risk that its apparel, accessories and shoes will be affected by
    sudden changes in fashion trends.
    Continue to operate as a branded high quality merchandise
    retailer.  The clothing assortment under the
    Talbots brand exceeded 99% of inventory purchased during 2005.
    Sales of branded merchandise provide the Company with a higher
    gross margin than it believes would be obtained on other
    merchandise and establishes Talbots identity as a brand of
    womens, childrens, and mens classic apparel.    
    Maintain its posture as a limited promotion
    retailer.  The Company positions itself as a
    limited-promotion retailer. Talbots typically holds only four
    sale events a year in its stores, consisting of two
    end-of-season
    clearance sales and two mid-season clearance sales. The Company
    plans to add a fifth minor clearance sales event during 2006.
    All mid-season and
    end-of-season
    store sale events are held in conjunction with catalog and
    Internet sales events. No other major clearance sale events are
    typically held. However, the Company does offer a variety of
    traffic and sales driving events through its stores, catalog,
    and website, which complement its traditional sale calendar. The
    Company believes that its strategy of limiting its promotional
    events reinforces the integrity of its regular prices.
    Continue to capitalize on its complementary store, catalog,
    and online operations.  The Companys
    strategy is to operate its stores, catalogs, and website as an
    integrated business and to provide the same personalized service
    to its customers regardless of whether merchandise is purchased
    through its stores, catalogs, or online. The Company believes
    that the synergy across these distribution channels offers an
    important convenience to its customers, provides a competitive
    advantage to the Company, and is an important element in
    identifying new store sites and the testing of new business
    concepts.    
    Continue to provide superior customer
    service.  The Company believes that it provides
    store, catalog, and online customers with an extraordinarily
    high level of customer service. The Company is committed to
    constantly improving customer service by enhancing its training
    programs to ensure that sales and customer 3




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
    Offer a broad mix of store location types.  The
    Company believes that providing a broad mix of store location
    types helps insulate it from changes in customer shopping
    patterns and allows it to offer locations that are convenient to
    its customers. As of January 28, 2006, the Company had 43%
    of its stores in specialty centers, 36% in malls, 10% in village
    locations, 7% as freestanding stores, 2% in outlet locations,
    and 2% in urban locations.  Merchandising,
    Inventory Control and Distribution
  Merchandising
  head-to-toe.
  Branded Merchandise Design and
    Purchasing.
    Sourcing.
      Inventory
    Control and Distribution
   4




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Expansion
      
    Talbots Petites.  In 1984, Talbots began
    offering merchandise in petites sizes in its catalogs, and in
    1985 the Company opened its first Talbots Petites store. As of
    January 28, 2006, 290 Talbots Petites stores were open,
    including four stores in Canada. Virtually every item of
    womens apparel in the Talbots catalog and online is
    offered in both misses and petites sizes.
    Talbots Kids.  In 1989, the Company presented
    Talbots Kids merchandise in a separate catalog dedicated to
    apparel for boys and girls. The first Talbots Kids store opened
    in 1990. During 1995, Talbots expanded the Talbots Kids
    merchandise by offering an assortment of infants and toddlers
    apparel. As of January 28, 2006, 69 Talbots Kids stores
    were open. Also in 2005, four separate Talbots Kids catalogs
    were circulated nationally.
    Talbots Accessories & Shoes.  During
    1994, Talbots introduced Talbots Accessories & Shoes in
    two catalogs devoted to this category. The Company opened its
    first Talbots Accessories & Shoes stores in 1995 and
    operated 40 stores as of January 28, 2006. A limited
    collection of this merchandise is offered in each major catalog
    and on-line, in virtually all stores and, in 2005, 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 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 January  28, 2006, 112
    Talbots Woman stores were open, including three stores in
    Canada. All 112 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
    and online.
    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. It is currently presented as a separate department in
    104 existing Talbots Misses stores. In the fall of 2003, the
    Company opened its first Talbots Collection store and a second
    store was opened during 2005. Also during 2005, the Company
    introduced Collection Petites in 45 stores and Collection Shoes
    in 35 stores. An assortment of Talbots Collection merchandise is
    also available through the Companys catalog 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 Misses and Petites lines.
    Talbots Mens.  In the fall of 2002, the Company
    introduced its Talbots Mens concept in a separate catalog. The
    line features classic sportswear and dress furnishings with an
    emphasis on detail and quality, consistent with the
    Companys other concepts. In the spring of 2003, the
    Company opened its first three Talbots Mens stores and as of
    January 28, 2006, 12 Talbots Mens stores were open. During
    2005, Talbots Mens merchandise was also presented in two
    separate catalogs and online. 5




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Stores
          Talbots
    Direct Marketing Business
     6




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Customer
    Credit
      Management
    Information Systems
    point-of-sale
 7




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Seasonality
    Advertising
    Competition
  head-to-toe
    Employees
   8




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##### Table of Contents



Executive
    Officers of the Company
    Name

Age

PositionArnold B. Zetcher


65


Chairman of the Board, President
    and Chief Executive OfficerHarold B. Bosworth, Jr.


56


Executive Vice President, Chief
    Merchandising OfficerPhilip H. Kowalczyk


45


Executive Vice President, Chief
    Administrative OfficerMichele M. Mandell


58


Executive Vice President, StoresPaul V. Kastner


54


Senior Vice President,
    International and Strategic PlanningEdward L. Larsen


61


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


49


Senior Vice President, Marketing
    and Catalog DevelopmentRichard T.
    OConnell, Jr.


55


Senior Vice President, Legal and
    Real Estate, and SecretaryBruce Lee Prescott


50


Senior Vice President, Direct
    Marketing and Customer ServiceRandy Richardson


47


Senior Vice President, Information
    ServicesBruce C. Soderholm


63


Senior Vice President, OperationsStuart M. Stolper


66


Senior Vice President, Human
    Resources            9




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Available
    Information
  Form 10-K, Form 10-Q, Form 8-K, Form 10-K,
  1-800-SEC-0330.
   10




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##### Table of Contents



(781) 741-4500, e-mail
  Item 1A.
    Risk
    Factors   The
    success of the business depends on the Companys ability to
    respond to constantly changing fashion trends and consumer
    demands.
    The
    retail apparel industry is highly competitive.
    
    anticipating and responding to changing consumer demands;
    maintaining favorable brand recognition;
    developing classic high quality products in sizes, colors, and
    styles that appeal to consumers;
    sourcing merchandise efficiently; and
    effectively marketing the Companys products to consumers.    The
    Company cannot assure the successful implementation of its
    growth strategy.
    The
    Company may not be able to successfully integrate J. Jills
    operations.
   11




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Hart-Scott-Rodino
  The
    Company plans to incur substantial debt to finance its planned
    J. Jill acquisition.
    The
    Company experiences fluctuations in comparable store sales
    results.
      The
    Company experiences fluctuations in operating
    results.
  period-to-period
  If the
    Company fails to maintain the value of its brand, sales are
    likely to decline.
   12




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The
    Company cannot assure that it will be successful in introducing
    new business concepts that will result in increased
    profitability for the Company.
    The
    Company cannot assure that Internet sales will continue to
    achieve sales and profitability growth.
    The
    Company depends on one distribution center.
  and/or
  Talented
    personnel are critical to the Companys
    success.
    The
    Companys overseas merchandise purchasing strategy makes it
    vulnerable to a number of risks.
    
    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; and
    local business practice and political issues, including issues
    relating to compliance with domestic or international labor
    standards.   13




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A
    downturn in the economy may affect consumer purchases of
    discretionary items which could adversely affect the
    Companys sales.
    
    general business conditions;
    interest rates;
    the availability of consumer credit;
    taxation;
    employment levels;
    political conditions such as war, terrorism and political
    unrest; and
    consumer confidence in future economic conditions.    A
    major failure of the Companys information systems could
    harm the business.
    The
    market price of the Companys common stock is
    volatile.
    Item 1B.
    Unresolved
    Staff Comments.   14




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##### Table of Contents



Item 2.
    Properties.    GrossLocation

Square Feet


Primary Function

InterestHingham, Massachusetts


313,000


Company headquarters

Own (44 acres)Lakeville, Massachusetts


933,000


Distribution center

Own (115 acres)Tampa, Florida


38,437


Systems center

LeaseKnoxville, Tennessee


37,656


Telemarketing

LeaseNew York, New York


41,462


Product development office

LeaseHong Kong


10,455


Merchandise production

LeaseLincoln, Rhode Island


9,645


Credit and banking facilities

LeaseOntario, Canada


1,350


Canadian regional office

LeaseLondon, U.K.


270


U.K. management office

Lease1,083 Stores throughout the U.S.,
    Canada and U.K


4,297,284


Retail stores

Own and lease(a)     (a)
    
    Talbots owns the property for five of its 1,083 stores.        Years Lease

Number ofTerms Expire

Store Leases(a)(b)2006-2007


452008-2010


802011-2013


1572014 and later


403     (a)
    
    Certain leases have more than one store included within the
    leased premises.(b)
    
    Includes 18 executed leases related to future stores not yet
    opened at January 28, 2006.  Item 3.
    Legal
    Proceedings.   15




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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.          ApproximateTotal Number of


Dollar Value ofShares Purchased as


Shares that mayAverage Price


Part of Publicly


yet be PurchasedTotal Number of


Paid per


Announced Plans


Under thePeriod

Shares Purchased (1)


Share


or Programs


Programs(2)10/30/05 to 11/26/05


1,200


$
25.57






$
8,68011/27/05 to 12/31/05














8,6801/1/06 to 1/28/06


1,500



0.01







8,665Total


2,700


$
11.37






$
8,665     (1)
    
    Repurchases of 1,200 shares were made in connection with
    the vesting of certain stock awards under the Companys
    Restated Directors Plan. Repurchases of 1,500 shares were
    made in connection with the Companys payment of the par
    value of restricted stock forfeited by employees prior to
    vesting under the Companys equity compensation plans, at
    an acquisition price of $0.01 per share.(2)
    
    As of January 28, 2006, there were 866,500 shares of
    unvested restricted stock that were subject to buyback at
    $0.01 per share, or $8,665 in the aggregate, that the
    Company has the option to repurchase if the employee terminates
    prior to vesting. 16




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##### Table of Contents



Item 6.
    Selected
    Financial Data.    Year EndedJanuary 28,


January 29,


January 31,


February 1,


February 2,2006


2005


2004


2003


2002(52 weeks)


(52 weeks)


(52 weeks)


(52 weeks)


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

$
1,808,606


$
1,697,843


$
1,594,790


$
1,568,835


$
1,595,214Net income


93,151



95,366



102,891



118,859



125,560Net income per shareBasic

$
1.76


$
1.73


$
1.82


$
2.02


$
2.04Diluted

$
1.72


$
1.70


$
1.78


$
1.97


$
1.98Weighted average number of shares
    of common stock outstandingBasic


52,882



54,969



56,531



58,724



61,459Diluted


54,103



56,252



57,901



60,191



63,439Cash dividends per share

$
0.47


$
0.43


$
0.39


$
0.35


$
0.31Balance Sheet
    Information:Working capital

$
376,204


$
324,759


$
330,011


$
287,957


$
299,270Total assets


1,146,144



1,062,130



1,018,647



926,158



880,571Total long-term debt, including
    current portion


100,000



100,000



100,000



100,000



100,000Stockholders equity


626,968



588,588



604,911



558,253



560,353   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.     Business
    Overview
     17




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18




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##### Table of Contents



Results
    of Operations
              Year EndedJanuary 28,


January 29,


January 31,2006


2005


2004Net sales


100.0
%


100.0
%


100.0
%Cost of sales, buying and
    occupancy expenses


63.8
%


64.4
%


62.4
%Selling, general and
    administrative expenses


27.8
%


27.3
%


27.1
%Operating income


8.4
%


8.4
%


10.5
%Interest expense, net


0.2
%


0.1
%


0.1
%Income before taxes


8.2
%


8.3
%


10.3
%Income taxes


3.0
%


2.6
%


3.9
%Net income


5.2
%


5.6
%


6.5
%  19




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##### Table of Contents



2005
    Compared to 2004
                  2004
    Compared to 2003
     20




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##### Table of Contents



Seasonality
    and Quarterly Fluctuations
      Fiscal Quarter EndedApril 30,


July 30,


October 29,


January 28,2005


2005


2005


2006Net sales


100.0
%


100.0
%


100.0
%


100.0
%Cost of sales, buying and
    occupancy expenses


59.2
%


66.4
%


62.0
%


67.1
%Selling, general and
    administrative expenses


28.3
%


26.8
%


30.3
%


26.2
%Operating income


12.6
%


6.8
%


7.7
%


6.7
%   21




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##### Table of Contents



Fiscal Quarter EndedMay 1,


July 31,


October 30,


January 29,2004


2004


2004


2005Net sales


100.0
%


100.0
%


100.0
%


100.0
%Cost of sales, buying and
    occupancy expenses


57.5
%


66.8
%


62.8
%


69.6
%Selling, general and
    administrative expenses


29.4
%


26.7
%


28.3
%


25.0
%Operating income


13.1
%


6.5
%


8.9
%


5.4
%       Liquidity
    and Capital Resources
      year-over-year.
   22




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Critical
    Accounting Policies
     23




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##### Table of Contents



Inventory Markdown Reserve. end-of-season
      Sales Return Reserve.
      Customer Loyalty Program.
   24




---



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Retirement Plans.
              Allowance for Doubtful Accounts.
 25




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Income Taxes.
  Contractual
    Commitments
    Less than


1 to 3


3 to 5


More thanContractual
    Obligations

Total


1 year


Years


Years


5 YearsLong-term debt

$
100,000


$



$
100,000


$



$
Letter of credit agreements


141,159



141,159











Operating leases:Real estate


884,811



131,017



246,621



216,941



290,232Equipment


8,499



4,564



3,205



492



238Merchandise purchases


482,901



482,901











Construction contracts


8,759



8,759











Other contractual commitments


41,915



19,444



21,885



586



Long-term obligations:Non-qualified retirement plans


39,524



4,832



6,177



6,515



22,000Total Commitments

$
1,707,568


$
792,676


$
377,888


$
224,534


$
312,470   Long-Term Debt and Letters of Credit.
  Operating Leases.
 26




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##### Table of Contents



Merchandise Purchases.
  Construction Contracts.
  Other Contractual Commitments.
  Long-Term Obligations.
    Inflation
    and Changing Prices
    Exchange
    Rates
    New
    Accounting Pronouncements
  Share-Based Payment. Accounting for Stock-Based
    Compensation Accounting for Stock Issued to
    Employees
 27




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Accounting for Conditional Asset
    Retirement Obligations Accounting for Asset Retirement Obligations.
  No. 05-6 (EITF 05-6), Determining the Amortization Period for Leasehold
    Improvements Purchased After Lease Inception or Acquired in a
    Business Combination. EITF 05-6
  Forward-looking
    Information
          Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk.      28




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


F-2Consolidated Statements of
    Earnings for the Years Ended January 28, 2006,
    January 29, 2005, and January 31, 2004


F-3Consolidated Balance Sheets as of
    January 28, 2006 and January 29, 2005


F-4Consolidated Statements of Cash
    Flows for the Years Ended January 28, 2006,
    January 29, 2005, and January 31, 2004


F-5Consolidated Statements of
    Stockholders Equity for the Years Ended January 28,
    2006, January 29, 2005, and January 31, 2004


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)
 29




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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)
 30




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REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
        Internal
    Control  Integrated Framework
        Internal
    Control  Integrated Framework Internal Control  Integrated Framework
         31




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Item 9B.
    Other
    Information.   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant.      Item 11.
    Executive
    Compensation.    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.    Equity Compensation Plans
  (c)(a)





Number of SecuritiesNumber of Securities


(b)


Remaining Availableto be Issued


Weighted-Average


for Further Issuance UnderUpon Exercise of


Exercise Price of


Equity Compensation PlansOutstanding Options,


Outstanding Options,


(Excluding SecuritiesPlan Category

Warrants, and Rights


Warrants, and Rights


Reflected in
    Column(a))Equity compensation plans approved
    by security holders


7,955,596


$
28.76



4,160,087Equity compensation plans not
    approved by security holders










Total


7,955,596


$
28.76



4,160,087  32




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Item 13.
    Certain
    Relationships and Related Transactions.    Item 14.
    Principal
    Accounting Fees and Services.   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.(33)(3)

Articles of Incorporation and
    By-laws.3.1





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





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

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





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

Material
    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)(7)(18)(20)(27)(37)10.3

Revolving Credit Agreement, dated
    as of January 25, 1994, between Talbots and The Norinchukin
    Bank, as amended.(2)(6)(7)(16)(20) 33




---



##### Table of Contents



10.4

Revolving Credit Agreement, dated
    as of January 25, 1994, between Talbots and Sumitomo Mitsui
    Banking Corporation (formerly The Sakura Bank, Limited), as
    amended.(2)(6)(10)(14)(18)(27)(37)10.5

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

Letter Agreement, dated as of
    March 1, 2004, concerning credit facilities, between
    Talbots and Fleet National Bank.(19)10.7

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

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

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

Stock Purchase Agreement, dated as
    of November 26, 1993, between Talbots and AEON U.S.A.(2)10.11

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Letter Agreement, dated
    February 2, 2006, concerning credit facilities between HSBC
    and Talbots.(23)10.32

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

Form of The Talbots, Inc. 2003
    Executive Stock Based Incentive Plan Restricted Stock
    Agreement.(24)* 34




---



##### Table of Contents



10.34

Form of Restricted Stock Unit
    Award under The Talbots, Inc. Restated Directors Stock Plan.(36)*10.35

The Talbots, Inc. Management
    Incentive Plan Performance Criteria.(25)(36)*10.36

Employment Agreement, dated
    November 3, 2004, between Philip H. Kowalczyk and The
    Talbots, Inc.(26)*10.37

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

Uncommitted Lines of Credit Letter
    dated February 15, 2006 between The Talbots, Inc. and Bank
    of America.(28)10.39

The Talbots, Inc. Executive Base
    Salary Review.(36)*10.40

Revolving Loan Credit
    Agreement by and between The Talbots, Inc. and Mizuho
    Corporation, Ltd. dated February 2, 2006.(30)10.41

The Talbots, Inc. Umbrella
    Supplemental Retirement Plan effective as of May 25, 2005
    between The Talbots, Inc. and Arnold B. Zetcher.(34)*10.42

Form of Option Agreement pursuant
    to The Talbots, Inc. Restated Director Stock Plan.(35)*     *
    
    Management contract and compensatory plan or arrangement.  (11)

Statement re: Computation of
    Per Share Earnings.11.1

Incorporated by reference to
    Note 14, Net Income Per Share, of Talbots
    consolidated financial statements for the fiscal year ended
    January 28, 2006, included in this Report.(21)

Subsidiaries.21.1

Incorporated by reference to
    Note 2, Summary of Significant Accounting
    Policies  Principles of Consolidation, of
    Talbots consolidated financial statements for the fiscal year
    ended January 28, 2006, included in this report.(23)

Consents of Experts and
    Counsel.23.1

Consent of Independent Registered
    Public Accounting Firm, Deloitte & Touche LLP.(32)(31)


31
.1

Certification by Arnold B.
    Zetcher, Chairman, President and Chief Executive Officer.(32)31
.2

Certification by Edward L. Larsen,
    Senior Vice President, Finance, Chief Financial Officer and
    Treasurer.(32)(32)


32
.1

Certification of CEO and CFO
    Pursuant to 18 U.S.C. Section 1350, as Adopted
    Pursuant to Section 906 of the Sarbanes-Oxley Act of
    2002.(32)     1
    
    Incorporated by reference to the exhibits filed with Talbots
    Registration Statement on
    Form S-1
    (No. 33-69082),
    which Registration Statement became effective November 18,
    1993.2
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 26, 1994.3
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 27, 1995.4
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated December 23, 1995.5
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated May 1, 1997.6
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated May 1, 1998.7
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 29, 1999.8
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated July 1, 1999.9
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated November 24, 1999.10
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 25, 2000.11
    
    Incorporated by reference to Exhibit A to the Company Proxy
    Statement dated April 21, 2005.12
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 12, 2001.13
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated September 6, 2001.14
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated March 13, 2003.15
    
    Incorporated by reference to the exhibits filed with Talbots
    2003 Proxy Statement dated April 22, 2003. 35




---



##### Table of Contents



16
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated July 24, 2003.17
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated December 19, 2003.18
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated February 24, 2004.19
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 29, 2005.20
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 12, 2005.21
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated June 4, 2004.22
    
    Incorporated by reference to the exhibits filed with Quarterly
    Report on
    Form 10-Q
    dated September 8, 2004.23
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated February 9, 2006.24
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated November 18, 2004.25
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated December 2, 2004.26
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated December 23, 2004.27
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated January 26, 2005.28
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated February 22, 2006.29
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated January 20, 2006.30
    
    Incorporated by reference to the exhibit filed with Current
    Report on
    Form 8-K
    dated February 2, 2006.31
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated April 6, 2005.32
    
    Filed with this
    Form 10-K.33
    
    Incorporated by reference to the exhibits filed with Current
    Report on
    Form 8-K
    dated February 5, 2006.34
    
    Incorporated by reference to the exhibits filed with the Current
    Report on
    Form 8-K
    dated August 18, 2005.35
    
    Incorporated by reference to the exhibits filed with the Current
    Report on
    Form 8-K
    dated May 25, 2005.36
    
    Incorporated by reference to the exhibits filed with the Current
    Report on
    Form 8-K
    dated March 3, 2005.37
    
    Incorporated by reference to the exhibits filed with the Current
    Report on
    Form 8-K
    dated January 26, 2006. 36




---



##### Table of Contents



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

Motoya
    OkadaDirectorToshiji
    TokiwaDirector

/s/  Gary
    M. PfeifferGary
    M. PfeifferDirector/s/  John
    W. GleesonJohn
    W. GleesonDirector

/s/  Susan
    M. SwainSusan
    M. SwainDirectorTsutomu
    KajitaDirector

/s/  Isao
    TsurutaIsao
    TsurutaDirector  37




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##### Table of Contents



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


F-2Consolidated
    Statements of Earnings for the Years Ended January 28,
    2006, January 29, 2005, and January 31, 2004


F-3Consolidated
    Balance Sheets as of January 28, 2006 and January 29,
    2005


F-4Consolidated
    Statements of Cash Flows for the Years Ended January 28,
    2006, January 29, 2005 and January 31, 2004


F-5Consolidated
    Statements of Stockholders Equity for the Years Ended
    January 28, 2006, January 31, 2005 and
    January 31, 2004


F-6Notes to
    Consolidated Financial Statements


F-7  F-1




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Internal
    Control  Integrated Framework
       F-2




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF EARNINGS
    Amounts in thousands except per share data
  Year EndedJanuary 28,


January 29,


January 31,2006


2005


2004Net Sales

$
1,808,606


$
1,697,843


$
1,594,790Costs and ExpensesCost of sales, buying and occupancy


1,153,734



1,093,023



995,765Selling, general and administrative


502,724



462,705



432,424Operating Income


152,148



142,115



166,601InterestInterest expense


4,480



2,616



2,402Interest income


1,374



506



307Interest
    Expense  net


3,106



2,110



2,095Income Before Taxes


149,042



140,005



164,506Income Taxes


55,891



44,639



61,615Net Income

$
93,151


$
95,366


$
102,891Net Income Per ShareBasic

$
1.76


$
1.73


$
1.82Diluted

$
1.72


$
1.70


$
1.78Weighted Average Number of Shares
    of Common StockOutstandingBasic


52,882



54,969



56,531Diluted


54,103



56,252



57,901    F-3




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##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  CONSOLIDATED BALANCE SHEETS
    Amounts in thousands except share data
  January 28,


January 29,2006


2005ASSETSCurrent Assets:Cash and cash equivalents

$
103,020


$
31,811Customer accounts
    receivable  net


209,749



199,256Merchandise inventories


246,707



238,544Deferred catalog costs


6,021



5,118Due from affiliates


7,892



9,073Deferred income taxes


14,115



14,006Prepaid and other current assets


33,157



29,589Total current assets


620,661



527,397Property and
    equipment  net


387,536



405,114Deferred income taxes


6,407



Goodwill  net


35,513



35,513Trademarks  net


75,884



75,884Other assets


20,143



18,222Total Assets

$
1,146,144


$
1,062,130LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable

$
85,343


$
65,070Accrued income taxes


37,909



27,196Accrued liabilities


121,205



110,372Total current liabilities


244,457



202,638Long-term debt


100,000



100,000Deferred rent under lease
    commitments


110,864



109,946Deferred income taxes






5,670Other liabilities


63,855



55,288CommitmentsStockholders Equity:Common stock, $0.01 par
    value; 200,000,000 authorized; 77,861,128 shares and
    76,940,134 shares issued, respectively, and
    53,359,556 shares and 54,123,667 shares outstanding,
    respectively


779



769Additional paid-in capital


455,221



432,912Retained earnings


783,397



715,580Accumulated other comprehensive
    loss


(16,682
)


(17,142
)Deferred compensation


(13,403
)


(11,821
)Treasury stock, at cost;
    24,501,572 and 22,816,467 shares, respectively


(582,344
)


(531,710
)Total stockholders equity


626,968



588,588Total Liabilities and
    Stockholders Equity

$
1,146,144


$
1,062,130    F-4




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##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF CASH FLOWS
    Amounts in thousands
  Year EndedJanuary 28,


January 29,


January 31,2006


2005


2004CASH FLOWS FROM OPERATING
    ACTIVITIES:Net income

$
93,151


$
95,366


$
102,891Adjustments to reconcile net
    income to net cash provided by operating activities:Depreciation and amortization


90,127



85,109



77,582Deferred rent


930



7,073



15,543Amortization of restricted stock
    awards and other stock transactions


8,417



4,868



1,616Loss on disposal of property and
    equipment


215



335



20Tax benefit from options exercised


3,947



2,484



4,658Deferred income taxes


(12,086
)


3,777



4,324Changes in other assets


(1,920
)


(4,799
)


(4,021
)Changes in other liabilities


8,322



10,035



6,086Changes in current assets and
    liabilities:Customer accounts receivable


(10,494
)


(16,502
)


(1,373
)Merchandise inventories


(8,167
)


(67,784
)


5,403Deferred catalog costs


(903
)


(669
)


1,428Due from affiliates


1,181



973



(1,253
)Prepaid and other current assets


(3,521
)


(603
)


95Accounts payable


20,685



14,338



1,654Income taxes payable


10,717



12,090



3,458Accrued liabilities


10,837



9,132



12,730Net cash provided by operating
    activities


211,438



155,223



230,841CASH FLOWS FROM INVESTING
    ACTIVITIES:Additions to property and equipment


(72,684
)


(92,668
)


(108,985
)Proceeds from disposal of property
    and equipment










900Net cash used in investing
    activities


(72,684
)


(92,668
)


(108,085
)CASH FLOWS FROM FINANCING
    ACTIVITIES:Proceeds from options exercised


7,731



7,345



10,132Cash dividends


(25,334
)


(23,859
)


(22,136
)Purchase of treasury stock


(49,993
)


(99,986
)


(51,338
)Net cash used in financing
    activities


(67,596
)


(116,500
)


(63,342
)EFFECT OF EXCHANGE RATE CHANGES
    ON CASH


51



101



675NET INCREASE (DECREASE) IN CASH
    AND CASH EQUIVALENTS


71,209



(53,844
)


60,089CASH AND CASH EQUIVALENTS,
    BEGINNING OF YEAR


31,811



85,655



25,566CASH AND CASH EQUIVALENTS, END
    OF YEAR

$
103,020


$
31,811


$
85,655    F-5




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##### Table of Contents



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





Other











TotalCommon Stock


Paid-In


Retained


Comprehensive


Deferred


Treasury


Comprehensive


StockholdersShares


Amount


Capital


Earnings


Income (Loss)


Compensation


Stock


Income


EquityBALANCE AT FEBRUARY 1,
    2003


75,270,013


$
753


$
389,402


$
563,318


$
(15,437
)

$
(78
)

$
(379,705
)





$
558,253Cash dividends paid














(22,136
)


















(22,136
)Common stock issued as restricted
    stock award


307,125



3



7,677











(7,677
)










3Amortization of restricted stock
    awards






















1,601











1,601Stock options exercised, including
    tax benefit


667,523



6



14,783























14,789Purchase of 1,805,358 shares
    of common stock


























(51,338
)






(51,338
)Other equity transactions


414







12























12Comprehensive income:Net income














102,891














$
102,891



102,891Translation adjustment


















2,577











2,577



2,577Change in minimum pension
    liability, net of tax


















(1,741
)










(1,741
)


(1,741
)Comprehensive income






























103,727BALANCE AT JANUARY 31,
    2004


76,245,075



762



411,874



644,073



(14,601
)


(6,154
)


(431,043
)






604,911Cash dividends paid














(23,859
)


















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


298,075



3



10,105











(10,108
)










Restricted stock units issued










1,108











(1,108
)










Amortization of restricted stock
    awards






















4,964











4,964Stock options exercised, including
    tax benefit


396,984



4



9,825























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


























(99,986
)






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






















585



(681
)






(96
)Comprehensive income:Net income














95,366















95,366



95,366Translation adjustment


















(401
)










(401
)


(401
)Change in minimum pension
    liability, net of tax


















(2,140
)










(2,140
)


(2,140
)Comprehensive income






























92,825BALANCE AT JANUARY 29,
    2005


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 stock award


322,425



3



9,844











(9,844
)










3Restricted stock units issued










844











(844
)










Forfeited restricted stock units










(79
)










79











Amortization of 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
    restricted common stock awards






















358



(641
)






(283
)Comprehensive income:Net income














93,151















93,151



93,151Translation adjustment


















(138
)










(138
)


(138
)Change in minimum pension
    liability, net of tax


















598











598



598Comprehensive income





























$
93,611BALANCE AT JANUARY 28,
    2006


77,861,128


$
779


$
455,221


$
783,397


$
(16,682
)

$
(13,403
)

$
(582,344
)





$
626,968    F-6




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##### 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 
  Cash and Cash Equivalents 
  Customer Accounts
    Receivable 
  Customer Loyalty Program 
  Merchandise
    Inventories  (first-in,
 F-7




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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
    Property and Equipment 
  Description

YearsBuildings

10-50Fixtures and equipment

3-10Software

3-7Leasehold improvements

3-10
    or term of lease, if shorterLeasehold interests

17-20       Preopening Expenses 
  Goodwill and Intangible
    Assets 
  Grantor Trust 
  Deferred Rent
    Obligations 
 F-8




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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
    Fair Value of Financial
    Instruments 
  Foreign Currency Translation 
  Revenue Recognition  point-of-sale
  Cost of Sales, Buying and
    Occupancy 
  Selling, General and Administrative
    expenses 
  Finance Charge Income 
  Advertising 
  Income Taxes 
 F-9




---



##### Table of Contents



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


January 29,


January 31,2006


2005


2004Net income, as reported

$
93,151


$
95,366


$
102,891Add: stock-based compensation
    included in reported net income, net of related tax effects


5,266



3,042



880Deduct: total stock-based
    compensation expense determined under fair value based method,
    net of related tax effects


(13,702
)


(12,706
)


(15,027
)Pro forma net income

$
84,715


$
85,702


$
88,744Earnings per share:Basic-as reported

$
1.76


$
1.73


$
1.82Basic-pro forma

$
1.60


$
1.56


$
1.57Diluted-as reported

$
1.72


$
1.70


$
1.78Diluted-pro forma

$
1.56


$
1.52


$
1.53     Fiscal Year EndedJanuary 28,


January 29,


January 31,2006


2005


2004Weighted average risk free
    interest rate


4.0
%


3.7
%


4.0
%Weighted average expected life of
    option grants


4.2 years



6.0 years



6.2 yearsWeighted average expected
    volatility of underlying stock


47.9
%


54.8
%


50.0
%Weighted average expected dividend
    payment rate, as a percentage of the stock price on the date of
    grant


1.5
%


1.3
%


1.5
%   Comprehensive Income 
  Basic and Diluted Net Income Per
    Share 
 F-10




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts in thousands except share and per share data
    Supplemental Cash Flow
    Information 
  Reclassifications 
  New Accounting Pronouncements  Share-Based Payment. Accounting for Stock-Based
    Compensation Accounting for Stock Issued to
    Employees
  Accounting for Conditional Asset
    Retirement Obligations Accounting for Asset Retirement Obligations.
  No. 05-6 (EITF 05-6), Determining the Amortization Period for Leasehold
    Improvements Purchased After Lease Inception or Acquired in a
    Business Combination. EITF 05-6
  3.
    Equity
    Transactions     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
        Year EndedJanuary 28, 2006


January 29, 2005


January 31, 2004Weighted





Weighted





WeightedAverage





Average





AverageNumber of


Market Price


Number of


Market Price


Number of


Market PriceShares


per Share


Shares


per Share


Shares


per ShareOutstanding at beginning of year


575,550


$
29.50



301,950


$
17.02



132,934


$
7.89Granted


311,425



31.62



298,075



33.92



307,125



25.00Vested


















(122,934
)


7.48Forfeited


(20,475
)


29.82



(24,475
)


27.85



(15,175
)


12.90Outstanding at end of year


866,500


$
30.26



575,550


$
29.50



301,950


$
17.02      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
   4.
    Stock
    Options        Options Outstanding


Options ExercisableNumber of


Weighted


Weighted


Number of


WeightedOptions


Average


Average


Options


AverageRange of Exercise
    Prices

Outstanding


Remaining Life


Exercise Price


Exercisable


Exercise Price$ 7.41  $10.22


149,336



2.0 years


$
7.43



149,336


$
7.43$10.23  $15.33


569,890



2.5 years



12.71



569,890



12.71$15.34  $20.45


2,005,603



4.0 years



18.97



2,005,603



18.97$20.46  $25.56


823,703



7.0 years



25.00



544,446



25.00$25.57  $30.68


240,400



6.5 years



27.62



151,914



27.99$30.69  $35.79


1,889,616



8.5 years



32.75



346,455



33.96$35.80  40.90


1,178,049



5.7 years



35.93



1,148,681



35.90$40.91  $46.01


2,000



5.3 years



41.85



2,000



41.85$46.02  $51.13


1,049,999



4.7 years



47.02



1,049,999



47.027,908,596



5.7 years


$
28.74



5,968,324


$
27.93  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
     Year EndedJanuary 28, 2006


January 29, 2005


January 31, 2004Weighted





Weighted





WeightedAverage





Average





AverageNumber of


Option Price


Number of


Option Price


Number of


Option PriceShares


per Share


Shares


per Share


Shares


per ShareOutstanding at beginning of year


7,578,716


$
27.16



7,111,071


$
25.97



6,994,111


$
25.37Granted


983,500



31.60



1,048,250



33.52



1,011,100



25.37Exercised


(598,569
)


12.91



(396,984
)


18.50



(667,523
)


15.18Forfeited


(55,051
)


35.18



(183,621
)


35.82



(226,617
)


36.71Outstanding at end of year


7,908,596


$
28.74



7,578,716


$
27.16



7,111,071


$
25.97Exercisable at end of year


5,968,324


$
27.93



5,558,793


$
25.67



4,971,856


$
23.12   5.
    Related
    Party and Affiliates       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
   6.
    Accounts
    Receivable    January 28,


January 29,2006


2005Due from customers

$
212,149


$
201,956Less allowance for doubtful
    accounts


(2,400
)


(2,700
)Customer accounts receivable, net

$
209,749


$
199,256       Year EndedJanuary 28,


January 29,


January 31,2006


2005


2004Balance, beginning of year

$
2,700


$
2,700


$
2,600Charges to costs and expenses


2,208



2,649



3,202Charge-offs, net of recoveries


(2,508
)


(2,649
)


(3,102
)Balance, end of year

$
2,400


$
2,700


$
2,700   7.
    Property
    and Equipment    January 28,


January 29,2006


2005Land

$
10,817


$
10,817Buildings


67,521



68,029Fixtures and equipment


368,397



354,008Software


46,300



43,481Leasehold improvements


298,845



288,862Leasehold interests


681



726Construction in progress


9,018



14,509Property and equipment-gross


801,579



780,432Less accumulated depreciation and
    amortization


(414,043
)


(375,318
)Property and equipment-net

$
387,536


$
405,114    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
   8.
    Accrued
    Liabilities    January 28,


January 29,2006


2005Gift cards, merchandise credits,
    sales return reserve and other customer related liabilities

$
60,888


$
52,704Employee compensation, related tax
    and benefits


33,757



30,759Taxes other than income and
    withholding


9,723



9,354Other accrued liabilities


16,837



17,555Total accrued liabilities

$
121,205


$
110,372     Year EndedJanuary 28,


January 29,


January 31,2006


2005


2004Sales return reserve balance,
    beginning of year

$
9,184


$
8,002


$
7,398Provision for merchandise returns


378,697



358,279



310,511Merchandise returned


(377,598
)


(357,097
)


(309,907
)Sales return reserve balance, end
    of year

$
10,283


$
9,184


$
8,002   9.
    Debt  Long-Term Debt 
    Outstanding

Interest Rate

Maturity$
18,000



4.96
%


April 200714,000



4.98
%


April 200714,000



5.42
%


April 200712,000



5.20
%


April 200718,000



5.39
%


January 200810,000



5.54
%


January 20088,000



5.63
%


January 20086,000



5.14
%


January 2008$
100,000   Line of Credit Facility 
 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
     Letters of Credit 
  10.
    Income
    Taxes    Year EndedJanuary 28,


January 29,


January 31,2006


2005


2004Domestic

$
140,567


$
134,797


$
158,431Foreign


8,475



5,208



6,075Total

$
149,042


$
140,005


$
164,506     Year EndedJanuary 28,


January 29,


January 31,2006


2005


2004Currently payable:Federal

$
59,667


$
34,564


$
51,747State


5,802



4,569



5,585Foreign


3,007



1,812



107Total currently payable


68,476



40,945



57,439Deferred:Federal


(9,650
)


4,498



6,965State


(1,914
)


(903
)


(1,009
)Foreign


(1,021
)


99



(1,780
)Total deferred


(12,585
)


3,694



4,176Total income tax expense

$
55,891


$
44,639


$
61,615  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, 2006


January 29, 2005Assets


Liabilities


Total


Assets


Liabilities


TotalUnited States:Current:Merchandise inventories

$
8,084


$



$
8,084


$
8,960


$



$
8,960Deferred catalog costs






(806
)


(806
)






(1,297
)


(1,297
)Accrued vacation pay


5,338







5,338



5,004







5,004Other


3,842



(2,442
)


1,400



3,571



(2,232
)


1,339Total current


17,264



(3,248
)


14,016



17,535



(3,529
)


14,006Noncurrent:Depreciation and amortization






(38,201
)


(38,201
)






(42,960
)


(42,960
)Lease commitments


14,650







14,650



15,249







15,249Deferred compensation


18,161







18,161



11,093







11,093Minimum pension liability


9,706







9,706



10,105







10,105Other


1,070







1,070



744







744Total noncurrent


43,587



(38,201
)


5,386



37,191



(42,960
)


(5,769
)Foreign:Current:Merchandise inventories


75







75











Other


24







24











Total current


99







99











Noncurrent:Depreciation and amortization


1,021







1,021



99







99Total noncurrent


1,021







1,021



99







99Total deferred income taxes

$
61,971


$
(41,449
)

$
20,522


$
54,825


$
(46,489
)

$
8,336      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
     Year EndedJanuary 28, 2006


January 29, 2005


January 31, 2004Tax


Rate


Tax


Rate


Tax


RateExpected tax expense

$
52,165



35.0
%

$
49,002



35.0
%

$
57,577



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


2,527



1.7



2,383



1.7



4,154



2.5Foreign tax


214



0.1



1,812



1.3



107



0.1Tax audit resolution










(7,835
)


(5.6
)






Other


985



0.7



(723
)


(0.5
)


(223
)


(0.1
)Actual tax expense

$
55,891



37.5
%

$
44,639



31.9
%

$
61,615



37.5
%   11.
    Segment
    and Geographic Information           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
     January 28, 2006Stores


Direct Marketing


TotalNet Sales

$
1,543,645


$
264,961


$
1,808,606Direct profit


231,572



57,807



289,379   January 29, 2005Stores


Direct Marketing


TotalNet Sales

$
1,454,650


$
243,193


$
1,697,843Direct profit


223,481



48,507



271,988   January 31, 2004Stores


Direct Marketing


TotalNet Sales

$
1,363,036


$
231,754


$
1,594,790Direct profit


248,593



48,132



296,725     Year EndedJanuary 28,


January 29,


January 31,2006


2005


2004Total direct profit for reportable
    segments

$
289,379


$
271,988


$
296,725Less: indirect expenses


137,231



129,873



130,124Operating income


152,148



142,115



166,601Interest expense-net


3,106



2,110



2,095Income before taxes


149,042



140,005



164,506Income taxes


55,891



44,639



61,615Consolidated net income

$
93,151


$
95,366


$
102,891    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
     January 28,


January 29,


January 31,2006


2005


2004Sales:United States

$
1,749,110


$
1,640,518


$
1,541,149Foreign


59,496



57,325



53,641Total consolidated revenues

$
1,808,606


$
1,697,843


$
1,594,790Long-Lived Assets:United States


492,669



507,662



501,072Foreign


6,264



8,848



7,996Total long-lived assets

$
498,933


$
516,510


$
509,068     12.
    Benefit
    Plans       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
     Year EndedPension Plan


SERP


Postretirement Medical
    PlanJanuary 28,


January 29,


January 28,


January 29,


January 28,


January 29,2006


2005


2006


2005


2006


2005Change in benefit obligation:Projected benefit obligations at
    beginning of year

$
118,939


$
92,886


$
14,007


$
11,497


$
6,691


$
4,660Service cost


9,923



8,040



778



721



767



652Interest cost


7,056



5,900



971



731



389



341Actuarial loss


3,215



13,437



1,609



1,076



2,377



1,260Benefits paid, net


(1,532
)


(1,324
)


(92
)


(18
)


(172
)


(222
)Plan Change










3,492











Projected benefit obligations at
    end
    of year

$
137,601


$
118,939


$
20,765


$
14,007


$
10,052


$
6,691Changes in assets:Fair value at beginning of year

$
69,749


$
58,512


$



$



$



$
Actual return on plan assets


1,824



4,561















Employer contributions


14,000



8,000



92



18



172



222Benefits paid


(1,532
)


(1,324
)


(92
)


(18
)


(172
)


(222
)Fair value at end of year

$
84,041


$
69,749


$



$



$



$
Funded Status:Funded status

$
(53,560
)

$
(49,190
)

$
(20,765
)

$
(14,007
)

$
(10,052
)

$
(6,691
)Unrecognized prior service cost


399



632



2,303



148







Unrecognized net loss / (gain)


55,449



51,461



5,810



4,531



3,855



1,574Accrued contributions










8



7



14



19Prepaid / (accrued) cost

$
2,288


$
2,903


$
(12,644
)

$
(9,321
)

$
(6,183
)

$
(5,098
)Amounts recognized on the balance
    sheet consist of:Accrued benefit cost

$
(19,869
)

$
(22,106
)

$
(17,456
)

$
(10,354
)

$
(6,183
)

$
(5,098
)Intangible asset


399



632



2,303



148







Additional minimum pension
    liability (reflected in shareholders equity, net of tax)


21,758



24,377



2,509



885







Prepaid / (accrued) cost

$
2,288


$
2,903


$
(12,644
)

$
(9,321
)

$
(6,183
)

$
(5,098
)    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
     Pension Plan


SERPJanuary 28,


January 29,


January 28,


January 29,2006


2005


2006


2005Projected benefit obligation

$
137,601


$
118,939


$
20,765


$
14,007Accumulated benefit obligation

$
103,910


$
91,855


$
17,463


$
10,360Fair value of plan assets

$
84,041


$
69,749


$



$
     Year EndedJanuary 28,


January 29,


January 31,2006


2005


2004Service expense-benefits earned
    during the period

$
9,923


$
8,040


$
6,610Interest expense on projected
    benefit obligation


7,056



5,900



4,939Expected return on plan assets


(7,105
)


(5,957
)


(5,149
)Net amortization and deferral


4,741



3,167



2,005Net pension expense

$
14,615


$
11,150


$
8,405     Year EndedJanuary 28,


January 29,


January 31,2006


2005


2004Service expense-benefits earned
    during the period

$
778


$
721


$
630Interest expense on projected
    benefit obligation


971



731



641Net amortization and deferral


1,667



323



271Net SERP expense

$
3,416


$
1,775


$
1,542     Year EndedJanuary 28,


January 29,


January 31,2006


2005


2004Service expense-benefits earned
    during the period

$
767


$
652


$
453Interest expense on accumulated
    postretirement benefit obligation


389



341



252Net amortization and deferral


97



65



Net postretirement medical expense

$
1,253


$
1,058


$
705    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
        Year EndedJanuary 28,


January 29,


January 31,2006


2005


2004Pension Plan &
    SERP:Discount rate


5.75%



6.25%



6.75%Discount rate used to determine
    projected benefit obligation at end of year


5.50%



5.75%



6.25%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%Postretirement Medical
    Plan:Discount rate


5.75%



6.25%



6.75%Discount rate used to determine
    projected benefit obligation at end of year


5.50%



5.75%



6.25%Initial healthcare cost trend
    rate- projected benefit obligations


12.00%



10.00%



12.00%Initial healthcare cost trend
    rate-periodic expense


8.00%



10.00%



8.50%Ultimate health care cost trend
    rate


5.00%



5.00%



5.00%      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
        1% Increase


1% DecreaseEffect on total of service and
    interest expense components

$
218


$
175Effect on the accumulated
    postretirement benefit obligation

$
1,642


$
1,342     Target


December 31, 2005


December 31, 2004Allocation


Amount


Percent


Amount


PercentEquity securites


70
%

$
59,239



70
%

$
50,875



73
%Debt securities


30
%


23,301



28
%


16,931



24
%Cash and money market






1,501



2
%


1,943



3
%Total





$
84,041



100
%

$
69,749



100
%     PostretirementPension Plan


SERP


Medical PlanExpected Company contributions 2006

$
14,000


$
623


$
232Expected plan payments:2006

$
1,722


$
623


$
2322007


1,964



1,214



2932008


2,239



1,196



3592009


2,533



1,240



4332010


2,918



1,325



5382011 to 2015


25,412



7,312



4,072    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
    13.
    Commitments    Contractual
    Obligations

Total


2006


2007


2008


2009


2010


ThereafterOperating leases:Real estate

$
884,811


$
131,017


$
127,013


$
119,608


$
112,389


$
104,552


$
290,232Equipment


8,499



4,564



2,025



1,180



339



153



238Merchandise purchases


482,901



482,901



















Construction contracts


8,759



8,759



















Other contractual commitments


41,915



19,444



10,720



11,165



302



284



Total Commitments

$
1,426,885


$
646,685


$
139,758


$
131,953


$
113,030


$
104,989


$
290,470   Operating Leases 
  Merchandise Purchases 
  Construction Contracts 
  Other Contractual Commitments 
 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
   14.
    Net
    Income Per Share    Year EndedJanuary 28,


January 29,


January 31,2006


2005


2004(In thousands)Shares for computation of basic
    net income per share


52,882



54,969



56,531Effect of stock compensation plans


1,221



1,283



1,370Shares for computation of diluted
    net income per share


54,103



56,252



57,901   15.
    Quarterly
    Results (unaudited)    Fiscal 2005 Quarter
    EndedApril 30,


July 30,


October 29,


January 28,2005


2005


2005


2006Net sales

$
446,531


$
449,577


$
426,330


$
486,168Gross profit


182,252



151,017



161,871



159,732Net income


34,519



18,876



19,979



19,777Net income per shareBasic

$
0.64


$
0.36


$
0.38


$
0.38Diluted

$
0.63


$
0.35


$
0.37


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


53,647



52,714



52,722



52,447Diluted


54,881



54,034



53,936



53,598Cash dividends declared per share

$
0.11


$
0.12


$
0.12


$
0.12Market price dataHigh

$
32.90


$
34.30


$
34.85


$
29.26Low

$
25.55


$
25.40


$
24.52


$
26.09   F-27




---



##### Table of Contents



THE
    TALBOTS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 Amounts in thousands except share and per share data
  Fiscal 2004 Quarter
    EndedMay 1,


July 31,


October 30,


January 29,2004


2004


2004


2005Net sales

$
412,181


$
401,553


$
413,384


$
470,725Gross profit


175,113



133,161



153,578



142,968Net income


33,464



19,351



27,171



15,379Net income per shareBasic

$
0.59


$
0.35


$
0.50


$
0.29Diluted

$
0.58


$
0.34


$
0.49


$
0.28Weighted average number of shares
    of common stock outstanding (in thousands)Basic


56,374



55,581



54,376



53,547Diluted


57,876



57,034



55,364



54,625Cash dividends declared per share

$
0.10


$
0.11


$
0.11


$
0.11Market price dataHigh

$
36.74


$
39.81


$
30.69


$
29.80Low

$
32.29


$
29.82


$
24.79


$
25.33   16.
    Subsequent
    Events  Hart-Scott-Rodino
 F-28