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-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RXq27TmW6EWMBu+99aimSlI2WJrCq7mmgNSbj3L6cUWLkwo1APxVRpxFwABzHUBW Ui7X00OpwE+4Z4nSdYKbtw== 0000950123-09-069933.txt : 20091210 0000950123-09-069933.hdr.sgml : 20091210 20091210172859 ACCESSION NUMBER: 0000950123-09-069933 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20091031 FILED AS OF DATE: 20091210 DATE AS OF CHANGE: 20091210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TALBOTS INC CENTRAL INDEX KEY: 0000912263 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [5621] IRS NUMBER: 411111318 STATE OF INCORPORATION: DE FISCAL YEAR END: 0129 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12552 FILM NUMBER: 091234634 BUSINESS ADDRESS: STREET 1: ONE TALBOTS DRIVE CITY: HINGHAM STATE: MA ZIP: 02043 BUSINESS PHONE: 7817497600 MAIL ADDRESS: STREET 1: ONE TALBOTS DRIVE CITY: HINGHAM STATE: MA ZIP: 02043 10-Q 1 b78431e10vq.htm THE TALBOTS, INC. e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


		For the quarterly period ended October 31, 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


		For the transition period from __________ to __________

Commission File Number: 1-12552

THE TALBOTS, INC.

(Exact name of registrant as specified in its charter)


Delaware		41-1111318

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Talbots Drive, Hingham, Massachusetts 02043

(Address of principal executive offices)

Registrant’s telephone number, including area code 781-749-7600

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



	Class			Outstanding as of December 09, 2009
	Common Stock, $0.01 par value			55,039,102


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

Condensed Consolidated Statements of Operations (unaudited) for the Thirteen and Thirty-Nine Weeks Ended October 31, 2009 and November 1, 2008			3

Condensed Consolidated Balance Sheets (unaudited) as of October 31, 2009, January 31, 2009, and November 1, 2008			4

Condensed Consolidated Statements of Cash Flows (unaudited) for the Thirty-Nine Weeks Ended October 31, 2009 and November 1, 2008			5

Notes to Condensed Consolidated Financial Statements (unaudited)			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23

Item 3. Quantitative and Qualitative Disclosures About Market Risk			36

Item 4. Controls and Procedures			37

PART II — OTHER INFORMATION

Item 1. Legal Proceedings			38

Item 1A. Risk Factors			38

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			40

Item 6. Exhibits			40

Signatures			41
EX-2.1 Amendment No. 1 to Asset Purchase Agreement and Parent Disclosure Schedule, dated as of July 2, 2009
EX-2.2 Amendment No. 2 to Asset Purchase Agreement, dated as of September 30, 2009
EX-10.1 Offer Letter between The Talbots, Inc. and John Fiske, III, dated as of March 20, 2009, executed on September 20, 2009
EX-10.2 Severance Agreement between The Talbots, Inc. and John Fiske, III, dated as of March 20, 2009, executed on September 20, 2009
EX-10.3 Summary of The Talbots, Inc. Executive Medical Plan dated June 19, 2007
EX-31.1 Section 302 Certification of Chief Executive Officer
EX-31.2 Section 302 Certification of Chief Financial Officer
EX-32.1 Section 906 Certification of Chief Executive Officer and Chief Financial Officer

THE TALBOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Amounts in thousands except per share data


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 31,			November 1,			October 31,			November 1,
	2009			2008			2009			2008
Net Sales	$	308,891		$	357,275		$	919,707		$	1,167,258

Costs and Expenses
Cost of sales, buying and occupancy		185,591			244,504			616,986			769,717
Selling, general and administrative		99,216			127,318			304,919			382,444
Restructuring charges		389			1,505			9,660			10,148
Impairment of store assets		1,320			2,223			1,351			2,576


Operating Income (Loss) from Continuing Operations		22,375			(18,275	)		(13,209	)		2,373

Interest
Interest expense		7,236			4,965			21,836			15,506
Interest income		34			61			253			246


Interest Expense — net		7,202			4,904			21,583			15,260


Income (Loss) Before Taxes from Continuing Operations		15,173			(23,179	)		(34,792	)		(12,887	)

Income Tax Benefit		(291	)		(8,416	)		(10,957	)		(4,679	)


Income (Loss) from Continuing Operations		15,464			(14,763	)		(23,835	)		(8,208	)

Loss from Discontinued Operations, net of taxes		(911	)		(155,996	)		(9,666	)		(185,918	)


Net Income (Loss)	$	14,553		$	(170,759	)	$	(33,501	)	$	(194,126	)


Basic Net Income (Loss) per share:
Continuing Operations	$	0.29		$	(0.28	)	$	(0.44	)	$	(0.15	)
Discontinued Operations		(0.02	)		(2.91	)		(0.18	)		(3.48	)

Net Income (Loss)	$	0.27		$	(3.19	)	$	(0.62	)	$	(3.62	)


Diluted Net Income (Loss) per share:
Continuing Operations	$	0.28		$	(0.28	)	$	(0.44	)	$	(0.15	)
Discontinued Operations		(0.02	)		(2.91	)		(0.18	)		(3.48	)

Net Income (Loss)	$	0.26		$	(3.19	)	$	(0.62	)	$	(3.62	)


Weighted Average Number of Shares of Common Stock Outstanding:

Basic		53,856			53,489			53,768			53,411


Diluted		55,081			53,489			53,768			53,411


Cash Dividends Paid Per Share	$	—		$	0.13		$	—		$	0.39

See notes to condensed consolidated financial statements.

THE TALBOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Amounts in thousands except share data


	October 31,			January 31,			November 1,
	2009			2009			2008
ASSETS
Current Assets:
Cash and cash equivalents	$	72,005		$	16,718		$	21,841
Customer accounts receivable — net		182,725			169,406			206,772
Merchandise inventories		165,892			206,593			226,343
Deferred catalog costs		7,751			4,795			10,192
Due from affiliates		1,789			376			279
Deferred income taxes		—			—			50,788
Income tax refundable		—			26,646			—
Prepaid and other current assets		49,579			35,277			50,761
Assets held for sale — current		—			109,966			256,150

Total current assets		479,741			569,777			823,126
Property and equipment — net		233,653			277,363			288,783
Goodwill		35,513			35,513			35,513
Trademarks		75,884			75,884			75,884
Deferred income taxes		—			—			53,695
Other assets		14,912			12,756			22,680

Total Assets	$	839,703		$	971,293		$	1,299,681


LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current Liabilities:
Accounts payable	$	103,407		$	122,034		$	144,222
Accrued liabilities		150,674			148,356			132,445
Notes payable to banks		141,100			148,500			106,500
Current portion of long-term debt		80,000			70,377			116,542
Current portion of related party debt		8,506			—			—
Liabilities held for sale — current		—			94,190			95,070

Total current liabilities		483,687			583,457			594,779
Long-term debt less current portion		20,000			238,000			212,000
Related party debt less current portion		241,494			20,000			—
Deferred rent under lease commitments		124,126			115,282			118,838
Deferred income taxes		28,456			28,456			—
Other liabilities		132,501			164,195			136,891
Commitments
Stockholders’ (Deficit) Equity:
Common stock, $0.01 par value; 200,000,000 authorized; 81,473,215 shares, 81,125,526 shares, and 80,937,126 shares issued, respectively, and 55,068,373 shares, 55,376,371 shares, and 55,292,511 shares outstanding, respectively		815			811			809
Additional paid-in capital		497,311			492,932			493,363
Retained (deficit) earnings		(52,779	)		(19,278	)		343,105
Accumulated other comprehensive loss		(50,028	)		(67,079	)		(14,659	)
Treasury stock, at cost; 26,404,842 shares, 25,749,155 shares, and 25,644,615 shares, respectively		(585,880	)		(585,483	)		(585,445	)

Total stockholders’ (deficit) equity		(190,561	)		(178,097	)		237,173

Total Liabilities and Stockholders’ (Deficit) Equity	$	839,703		$	971,293		$	1,299,681

See notes to condensed consolidated financial statements.

THE TALBOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Amounts in thousands


	Thirty-Nine Weeks Ended
	October 31,			November 1,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(33,501	)	$	(194,126	)
Loss from discontinued operations, net of tax		(9,666	)		(185,918	)

Net loss from continuing operations		(23,835	)		(8,208	)
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities:
Depreciation and amortization		57,087			63,464
Impairment of store assets		1,351			2,576
Amortization of debt issuance costs		2,320			267
Deferred rent		(7,978	)		1,096
Compensation expense related to stock-based awards		4,277			6,826
Loss (gain) on disposal of property and equipment		76			(21	)
Deferred income taxes		(10,226	)		(12,193	)
Tax expense from options exercised		—			76
Excess tax benefit from options exercised		—			(122	)
Changes in assets and liabilities:
Customer accounts receivable		(13,176	)		3,733
Merchandise inventories		41,137			21,393
Deferred catalog costs		(2,956	)		(3,943	)
Due from affiliates		(1,413	)		2,761
Prepaid and other current assets		(12,887	)		(22,010	)
Income tax refundable		26,646			—
Accounts payable		(17,719	)		(971	)
Accrued income taxes		—			(3,445	)
Accrued liabilities		(16,179	)		(24,943	)
Other assets		(676	)		8,425
Other liabilities		(5,041	)		(5,548	)

Net cash provided by operating activities		20,808			29,213

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment		(17,106	)		(32,258	)
Proceeds from disposal of property and equipment		61			2,555

Net cash used in investing activities		(17,045	)		(29,703	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from working capital notes payable, net		—			106,500
Proceeds from working capital notes payable		8,000			—
Payments on working capital notes payable		(15,400	)		—
Proceeds from related party borrowings		230,000			—
Payments on long-term borrowings		(208,351	)		(60,374	)
Payment of debt issuance costs		(1,833	)		(827	)
Purchase of treasury stock		(397	)		(1,467	)
Proceeds from options exercised		—			887
Excess tax benefit from options exercised		—			122
Cash dividends		—			(21,562	)

Net cash provided by financing activities		12,019			23,279

EFFECT OF EXCHANGE RATE CHANGES ON CASH		537			(249	)

CASH FLOWS FROM DISCONTINUED OPERATIONS:
Operating activities		(26,103	)		(7,578	)
Investing activities		63,827			(18,541	)
Effect of exchange rate changes on cash		29			(61	)

		37,753			(26,180	)


NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		54,072			(3,640	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		16,551			24,280
DECREASE IN CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS		1,382			1,201

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	72,005		$	21,841

See notes to condensed consolidated financial statements.

THE TALBOTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

With respect to the unaudited condensed consolidated financial statements set forth herein, all adjustments, which consist only of normal recurring adjustments necessary to present a fair statement of the results for the interim periods, have been included. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the fiscal year ended January 31, 2009 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”). All material intercompany accounts and transactions have been eliminated in consolidation. Subsequent events have been evaluated through December 10, 2009, the date of issuance of these condensed consolidated financial statements.

2. MANAGEMENT’S PLAN AND RECENT EVENTS

The Company believes that the economic recession has had a significant impact on its business during 2008 and in 2009 to date, and anticipates that macroeconomic pressures will continue to impact consumer spending throughout the balance of 2009 and potentially beyond. Despite the challenging retail economic environment, the Company has achieved profitability in the third quarter 2009 following five consecutive quarters of operating losses.

During 2008, the Company launched a comprehensive review of its entire business to develop a long-range strategy to strengthen the Company and to improve its operating performance. The Company’s primary objective was to reinvigorate its core Talbots brand and to streamline its operations. As a result, the Company made the decision to exit its Talbots Kids, Mens and U.K. operations. Beginning with the third quarter of 2008, the results of these businesses were reported as discontinued operations. These strategic initiatives have resulted in significant restructuring and impairment charges in 2008 and in 2009 to date. The Company’s restructuring charges primarily relate to activities intended to reduce costs.

The implementation of the Company’s strategic plan began before the economic downturn that occurred in fall 2008. Earlier this year the Company made adjustments to its initiatives in response to the weakening economic environment, including actions designed to further streamline its organization, further reduce its cost structure and better optimize gross margin performance through stronger inventory management and improved initial mark-ups resulting from changes to its supply chain practices. Additionally, on July 2, 2009, it sold certain assets of its J. Jill business and exited activities associated with the J. Jill business, other than the remaining lease obligations for closed stores and corporate office space.

A summary of the Company’s initiatives and actions taken to date intended to improve operating results, many of which the Company believes will continue to provide benefits into the fourth quarter 2009 and beyond are as follows:

	•		In 2008, the Company completed the closing of its Kids, Mens, and U.K. businesses.

	•		In October 2008, the Board of Directors approved a plan to sell the J. Jill business. On June 7, 2009, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”), with Jill Acquisition LLC (the “Purchaser”), an affiliate of Golden Gate Capital, pursuant to which, the Purchaser agreed to acquire and assume from the Company certain assets and liabilities relating to the J. Jill business. On July 2, 2009, the Company completed the sale (the “Transaction”). For additional details regarding the Transaction, see Note 4.

	•		Reduction in the Company’s corporate headcount. In June 2008 management reduced corporate headcount by approximately 9% across multiple locations at all levels. In February 2009 and in June 2009 management further reduced corporate headcount by approximately 17% and 20%, respectively.

	•		Reduction in hours worked in its stores, distribution center and call center.

	•		Elimination of matching contributions to its 401(k) plan for 2009, increased employee health care contributions for 2009, the elimination of merit increases for 2009 and the freezing of its defined benefit pension plans.

	•		Broad-based non-employee overhead actions resulting in cost savings, primarily in the areas of administration, marketing and store operations.

	•		In September 2009, the Company entered into a buying agency agreement with an affiliate of Li & Fung Limited, a Hong Kong-based global consumer goods exporter (“Li & Fung”), who effective September 2009, is acting as the exclusive global apparel sourcing agent for substantially all Talbots apparel. The exclusive agency does not cover certain other products (including swimwear, intimate apparel, sleepwear, footwear, fashion accessories, jewelry and handbags) as to which Li & Fung will act as Talbots non-exclusive buying agent at Talbots discretion. As a result of this agreement, the Company closed its Hong Kong and India sourcing offices and reduced its corporate sourcing headcount.

	•		In 2009, the Company expects to reduce gross capital expenditures (excluding construction allowances received from landlords) by approximately 51.5% from 2008 spend levels of $44.7 million, which represented a 22.4% reduction from 2007 levels.

	•		In February 2009, the Company’s Board of Directors approved the indefinite suspension of the Company’s quarterly cash dividend.

As of October 31, 2009, the Company had a working capital deficit of $3.9 million and a stockholders’ deficit of $190.6 million. As of December 10, 2009, the Company has material debt obligations coming due in the next four months, with the majority of these maturities due in December 2009. The Company has undertaken several financing actions in 2008 and in 2009 to date to address the Company’s liquidity. These actions consisted of the following:

	•		In July 2008, the Company entered into a $50.0 million unsecured subordinated working capital term loan facility with AEON (U.S.A.). The facility is scheduled to mature in January 2012 and requires interest-only payments until maturity. As of October 31, 2009, the Company is fully borrowed under this facility.

	•		During the fourth quarter of 2008 and the first quarter of 2009, the Company converted all of its working capital lines of credit, amounting to $165.0 million in the aggregate, to committed lines with maturities in late December 2009.

	•		In February 2009, the Company entered into a $200.0 million term loan facility agreement with AEON which was used to repay all outstanding indebtedness under its acquisition debt agreement related to its 2006 acquisition of J. Jill. The acquisition debt agreement required quarterly principal payments of $20.0 million. The $200.0 million term loan from AEON is an interest-only loan and is renewable at the Company’s option every six months until the maturity date. The Company has exercised its option to extend this loan to February 2010, and intends to exercise its options for at least the next 12 months. This loan contains no financial covenants and, subject to the Company exercising each of its extension options, will mature in February 2012. See Note 14 concerning the agreements entered into by the Company on December 8, 2009 and under which, subject to satisfaction of all conditions to and consummation of such transactions, all of the Company’s outstanding AEON indebtedness and bank indebtedness would be satisfied.

	•		In February 2009, AEON guaranteed the Company’s outstanding debt under its existing working capital lines of credit totaling $165.0 million, its existing revolving credit facilities totaling $52.0 million, and its existing $48.0 million term loan facilities. In April 2009, AEON also agreed (i) that it would continue to provide a guaranty for a refinancing of any of that debt which matures on and before April 16, 2010 and (ii) if the lenders failed to agree to refinance that debt which matures on or before April 16, 2010, or if any other condition occurred that required AEON to make a payment under its existing guaranty, AEON would make a loan to the Company, due on or after April 16, 2010 and within the limits of AEON’s existing loan guaranty, to avoid any deficiency in the Company’s

			financial resources caused by any such failure to refinance that debt. The Company has outstanding short-term bank indebtedness of $221.1 million under credit facilities as of October 31, 2009 which terminate between late December 2009 and April 2010, which have not been extended or refinanced. The Company will rely on this AEON April 9, 2009 financial support commitment, in combination with using the Company’s existing $150.0 million AEON secured revolving credit facility, which has not been drawn on to date and which matures in April 2010, for the repayment of this short-term bank indebtedness. The Company is in discussions with AEON concerning the terms of this additional financing.

	•		In April 2009, AEON also agreed to support the Company’s working capital improvement initiatives for the Company’s merchandise payables management and that it will use commercially reasonable efforts to provide the Company with financial support through loans or guarantees up to $25.0 million only if, and to the extent that, it may possibly fall short in achieving its targeted cash flow improvement for fall 2009 merchandise payables. As of December 10, 2009, the Company did not require such loans or guarantees for its fall 2009 merchandise payables.

	•		In April 2009, the Company entered into a $150.0 million secured revolving loan facility with AEON. The facility matures upon the earlier of (i) April 17, 2010 or (ii) the consummation of one or more securitization programs or structured loans by the Company or its subsidiaries in an aggregate amount equivalent to the revolving loan commitment amount, approved in advance by AEON and in form and substance satisfactory to AEON. Subject to all borrowing conditions, amounts may be borrowed, repaid, and re-borrowed under the facility prior to its maturity date, and may be used for working capital and other general corporate purposes. As of December 10, 2009, the Company had not borrowed any funds under this facility.

	•		The Company has eliminated all financial covenants from its debt agreements.

On December 8, 2009, the Company entered into agreements (collectively, the “BPW Transactions”) which, in the aggregate, and subject to satisfaction of all conditions to and consummation of these transactions, will substantially reduce its indebtedness and significantly delever its balance sheet, consisting of three related transactions: (i) an Agreement and Plan of Merger between Talbots and BPW Acquisition Corp. (“BPW”) pursuant to which a wholly-owned subsidiary of the Company will merge with and into BPW with BPW surviving as a wholly-owned subsidiary of the Company, in exchange for the Company’s issuance of Talbots common stock to BPW stockholders; (ii) the retirement of all Talbots common stock currently held by AEON (U.S.A.), Inc. (“AEON (U.S.A.)”), the Company’s majority shareholder and a wholly-owned subsidiary of AEON Co., Ltd. (“AEON”), and the repayment of all of the Company’s then outstanding AEON debt and outstanding bank debt; and (iii) a third party loan commitment for a new $200.0 million senior secured revolving credit facility. The consummation of the transactions are subject to a number of conditions and there can be no assurance all conditions will be satisfied. If for any reason the transactions are not consummated, the Company would be dependent on its ability to adequately address its short-term and longer term indebtedness or other liquidity needs. The Company would continue to review all alternatives to address its debt structure and cash needs. There can be no assurance that these alternatives, if needed, would be successfully implemented, in which case it could materially adversely affect the Company, its liquidity and results of operations. These transactions are described further in Note 14.

As of December 10, 2009, the Company has material debt obligations coming due in the next four months, with the majority due in December 2009, and the Company’s revolving loan facility with AEON expires in April 2010. See Note 10 for further details and descriptions of the above financing actions. See Note 14 concerning the agreements entered into by the Company on December 8, 2009 related to repayment of the Company’s outstanding indebtedness.

3. SIGNIFICANT ACCOUNTING POLICIES

Recently Adopted Accounting Pronouncements

In July 2009, the Company implemented the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) as the source of authoritative Generally Accepted Accounting Principles (“GAAP”) for nongovernmental entities. The ASC does not change GAAP but rather takes the numerous individual pronouncements that previously constituted GAAP and reorganizes them into accounting topics, and displays all topics using a consistent structure. The adoption of ASC did not have any effect on the Company’s consolidated financial statements.

In May 2009, the Company adopted new guidance on subsequent events (included within ASC 855 Subsequent Events) which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but prior to the issuance of the financial statements. In response to this guidance, management has evaluated subsequent events through December 10, 2009, which is the date that the Company’s consolidated financial statements were filed with the SEC.

In April 2009, the FASB issued additional guidance on fair value measurements (included within ASC 825, Financial Instruments). The application of this guidance requires disclosures about fair value of financial instruments in interim as well as in annual financial statements. The adoption of this guidance on August 1, 2009 did not have a material impact on the Company’s consolidated financial statements.

In June 2008, the FASB issued additional guidance on the earnings per share impact of unvested share-based awards with participation rights in distributed earnings (included within ASC 260, Earnings Per Share). The guidance clarifies that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to be included in the computation of earnings per share under the two-class method. Including these shares in the Company’s earnings per share calculation during periods of net income may have the effect of reducing both its basic and diluted earnings per

share amounts. However, in periods of net loss, no effect is given to the participating securities since they do not have an obligation to share in the losses of the Company. The application of this guidance is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. The guidance also requires retroactive application to previously reported earnings per share amounts. The Company’s adoption of this guidance on February 1, 2009 did not impact the reported (loss) income per share for any of the periods included in this report.

In February 2008, the FASB issued additional guidance on fair value measurements (included within ASC 820, Fair Value Measurements and Disclosures). The guidance delays the effective date of the application of the guidance to fiscal years beginning after November 15, 2008 for all nonfinancial assets and nonfinancial liabilities that are recognized at fair value in the financial statements on a nonrecurring basis. The Company adopted the application of this guidance effective February 1, 2009. See Note 11, Fair Value Measurements, for additional disclosures required under the guidance for non-financial assets and liabilities recognized or disclosed at fair value in the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In June 2009, the FASB issued guidance on the transfer of financial assets. The guidance was issued to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets, the effects of such a transfer on its financial position, financial performance and cash flows, and provide information as to a transferor’s continuing involvement, if any, in transferred financial assets. The guidance is effective for the Company’s fiscal year beginning January 31, 2010. The Company is in the process of evaluating the impact, if any, the guidance will have on its consolidated financial statements.

In December 2008, the FASB issued additional guidance on disclosure of the assets of a defined benefit pension or other postretirement plan (included within ASC 715, Compensation—Retirement Benefits). The guidance requires more detailed disclosures about the assets of a defined benefit pension or other postretirement plan and is effective for fiscal years ending after December 15, 2009. Since the guidance only requires enhanced disclosures the adoption of the application will not have an impact on the Company’s consolidated financial statements.

4. DISCONTINUED OPERATIONS

The Company’s discontinued operations include the Talbots Kids, Mens, and U.K. businesses, all of which ceased operations in 2008, and the J. Jill business, which was sold on July 2, 2009. Their operating results have been classified as discontinued operations within the Company’s condensed consolidated statements of operations for all periods presented.

On June 7, 2009, the Company entered into a Purchase Agreement with the Purchaser for the sale of the J. Jill business, pursuant to which the Purchaser agreed to acquire and assume from the Company certain assets and liabilities relating to the J. Jill business. On July 2, 2009, the Company completed the sale for a cash purchase price of $75.0 million less $8.1 million of adjustments based on estimated working capital at closing and other adjustments of $0.6 million as provided in the Purchase Agreement, resulting in cash received from the Purchaser of $66.3 million. This cash purchase price is subject to further post-closing adjustments, including final closing working capital, as provided in the Purchase Agreement. As part of the J. Jill assets sold to the Purchaser pursuant to the Purchase Agreement, the Purchaser also became entitled to $1.9 million of cash and cash equivalents, which were part of the transfer of the purchased assets, resulting in net cash proceeds of $64.4 million. The final working capital adjustment will likely be settled in the fourth quarter of 2009 and is not expected to have a material impact on the consolidated financial statements.

Under the terms of the Purchase Agreement, the Purchaser is obligated for liabilities that arise after the closing under assumed contracts, which include leases for 205 J. Jill stores assigned to the Purchaser as part of the Transaction and a sublease through December 2014 of approximately 63,943 square feet of space at the Company’s 126,869 square foot leased office facility in Quincy, MA used for the J. Jill offices. Certain subsidiaries of the Company remain contingently liable for obligations and liabilities transferred to the Purchaser as part of the Transaction including those related to leases and other obligations transferred to and assumed by the Purchaser, as to which obligations and liabilities the Company now relies on the Purchaser’s creditworthiness as a counterparty. If any material defaults were to occur which the Purchaser does not satisfy or fully indemnify us against, it could have a material negative impact on the Company’s financial condition and results of operations. The Company has

accrued a guarantee liability for the estimated exposure related to these guarantees, which is subject to future adjustment and could vary materially from estimated amounts.

Under the terms of the Company’s $200.0 million term loan agreement with AEON, the Company is subject to certain mandatory prepayment obligations including payment of net sale proceeds after selling costs and amounts for other costs to settle obligations and liabilities related to the sale and disposal of the J. Jill business. The final payment is subject to final working capital adjustments as well as the outcome of ongoing negotiations with landlords to settle J. Jill lease liabilities. The Company expects to finalize the net proceeds that will be used to pay down a portion of the $200.0 million term loan in accordance with the loan agreement in the fourth quarter 2009. It currently estimates this payment to be approximately $8.5 million.

During the thirteen and thirty-nine weeks ended October 31, 2009, the Company recorded a $0.3 million and $6.0 million loss on the sale and disposal of the J. Jill business, respectively. The loss recorded in the third quarter 2009 is due to working capital adjustments and adjustments to the estimated lease liabilities recorded in connection with the sale and disposal of the J. Jill business relating to lease terminations of the J. Jill stores that were not sold, and Quincy office space that is not being subleased or used. Lease termination costs are recorded at the time a store is closed or existing space is vacated. Total cash expenditures to settle lease liabilities cannot yet be finally determined and will depend on the outcome of ongoing negotiations with third parties. As a result, such costs may vary materially from current estimates and management’s assumptions and projections may change materially. While the Company will endeavor to negotiate the amount of remaining lease obligations, there is no assurance it will reach acceptable negotiated lease settlements.

The calculation of estimated lease liabilities includes the discounted effects of future minimum lease payments from the date of closure to the end of the remaining lease term, net of estimated sub-lease income that could be reasonably obtained for the properties or through lease termination settlements. The Company recorded estimated lease termination liabilities as of August 1, 2009 relating to exit activities associated with discontinued operations, including Quincy office space not being subleased or used, J. Jill stores not sold, and closed Kids and Mens stores, of $41.4 million. During the third quarter of 2009 the Company made cash payments of approximately $11.6 million, recorded charges of $4.5 million which include accretion of interest and increases in reserves, and recorded other income due to favorable settlements of estimated lease liabilities of $5.2 million, resulting in a total estimated liability of $29.1 million as of October 31, 2009. Of this liability, approximately $12.3 million is expected to be paid out within the next 12 months and is included within accrued liabilities in the Company’s consolidated financial statements as of October 31, 2009.

Operating results of the J. Jill business for all periods presented have been classified as discontinued operations in the Company’s condensed consolidated financial statements. The assets and liabilities of the J. Jill business are stated at estimated fair value less estimated costs to sell and are classified in the Company’s condensed consolidated balance sheets as current assets and current liabilities held for sale for all prior periods presented.

The operating results of the J. Jill business and the results of Talbots Kids, Mens and U.K. businesses, which have been presented as discontinued operations, are as follows:


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 31,			November 1,			October 31,			November 1,
	2009			2008			2009			2008
	(in thousands)
Net sales	$	1		$	109,020		$	178,297		$	369,489


Loss from discontinued operations before income taxes		(612	)		(211,145	)		(3,639	)		(259,494	)
Income tax benefit		—			(55,149	)		—			(73,576	)

Loss from discontinued operations		(612	)		(155,996	)		(3,639	)		(185,918	)

Loss on disposal		(299	)		—			(6,027	)		—

Loss from discontinued operations	$	(911	)	$	(155,996	)	$	(9,666	)	$	(185,918	)

Discontinued operations reported during the thirteen and thirty-nine weeks ended October 31, 2009 do not reflect an income tax benefit, as the Company recorded a valuation allowance for substantially all of its deferred

taxes and incurred losses in both continuing and discontinued operations. Income tax benefits allocated to discontinued operations during the thirteen and thirty-nine weeks ended November 1, 2008 represents the incremental effect of tax benefits attributable to these operations.

Presented below is a summarized balance sheet for the J. Jill assets and liabilities held for sale.


	October 31,		January 31,		November 1,
	2009		2009		2008
			(in thousands)
Merchandise inventories	$	—	$	50,250	$	57,185
Other current assets		—		9,217		16,865
Property and equipment — net		—		15,899		117,400
Trademarks		—		30,200		32,100
Other intangible assets — net		—		4,400		32,600

Assets held for sale — current	$	—	$	109,966	$	256,150


Accounts payable	$	—	$	30,262	$	28,936
Accrued liabilities		—		26,890		31,329
Deferred rent under lease commitments		—		35,327		33,000
Other liabilities		—		1,711		1,805

Liabilities held for sale — current	$	—	$	94,190	$	95,070

5. RESTRUCTURING CHARGES

As part of the Company’s strategic plan to strengthen the business, the Company has implemented several initiatives, including reducing headcount and employee benefit costs, shuttering non-core businesses, and reducing office space among others, during 2008 and 2009 to date. In February 2009, the Company reduced its corporate headcount by 17%, and in June 2009 the Company further reduced its corporate headcount by 20% including the elimination of open positions. In August 2009, the Company reorganized its global sourcing activities and entered into a buying agency agreement with Li & Fung, whereby effective September 2009, Li & Fung is acting as the exclusive global apparel sourcing agent for substantially all Talbots apparel. In connection with this reorganization, the Company closed its Hong Kong and India sourcing offices and reduced its corporate sourcing headcount.

In connection with these initiatives, the Company incurred $0.4 million and $1.5 million of restructuring charges during the thirteen weeks ended October 31, 2009 and November 1, 2008, respectively, and $9.7 million and $10.1 million of restructuring charges during the thirty-nine weeks ended October 31, 2009 and November 1, 2008, respectively.

Below is a roll-forward of the restructuring liabilities, which are included within accrued liabilities in the Company’s condensed consolidated balance sheets as of October 31, 2009 and November 1, 2008:


				Corporate - Wide
	Strategic Initiatives
				Lease			Non-cash
	Severance			Related			Charges (Income)			Total
				(in thousands)
Balance at January 31, 2009	$	10,882		$	—		$	—		$	10,882
Charges (income)		8,390			2,109			(839	)		9,660
Cash payments		(15,811	)		(543	)		—			(16,354	)
Non-cash items		—			(641	)		839			198

Balance at October 31, 2009	$	3,461		$	925		$	—		$	4,386


				Corporate - Wide
	Strategic Initiatives
							Non-cash
	Severance			Consulting			Charges (Income)			Total
	(in thousands)
Balance at February 2, 2008	$	678		$	1,532		$	—		$	2,210
Charges (income)		7,983			4,054			(1,889	)		10,148
Cash payments		(3,924	)		(5,586	)		—			(9,510	)
Non-cash items		—			—			1,889			1,889

Balance at November 1, 2008	$	4,737		$	—		$	—		$	4,737

The non-cash items primarily consist of adjustments to stock-based compensation expense related to stock awards forfeited by terminated employees. Of the $4.4 million remaining balance of restructuring liabilities at October 31, 2009, $2.4 million is expected to be paid during 2009, $1.4 million is expected to be paid in 2010, and $0.6 million is expected to be paid in years 2011 through 2016.

6. INCOME TAXES

The Company provides for income taxes during interim periods based on the estimated effective tax rate for the full year. Cumulative adjustments to the Company’s estimates are recorded in the interim period in which a change in the estimated annual effective tax rate is determined. Discrete tax events are accounted for in the period in which they occur.

A valuation allowance was established during the fourth quarter of 2008 for substantially all deferred tax assets based on all available evidence including the Company’s recent history of losses. Forming a conclusion that a valuation allowance is not needed when cumulative losses exist requires a sufficient amount of positive evidence to support recovery of the deferred tax assets. As a result of the Company’s evaluation, the Company concluded that there was insufficient positive evidence to overcome the more objective negative evidence related to its cumulative losses to support recovery of its deferred tax assets. Accordingly, the Company continues to provide for a full valuation allowance.

The tax benefit for the third quarter 2009 is due to adjustments to the liabilities for uncertain tax positions plus additional tax benefit on the other comprehensive income recognized during the quarter as discrete items. The tax benefit for year-to-date 2009 is primarily due to the Company, during the first quarter of 2009, allocating a tax benefit of approximately $10.6 million to continuing operations with a corresponding provision included within other comprehensive income recognized during the quarter. The Company remeasured its pension obligation as a result of the Company’s decision to freeze all future benefits under its Pension Plans during the first quarter of 2009. The remeasurement resulted in the Company recording a gain in its other comprehensive income and the tax provision on the other comprehensive income was recognized. There were no material adjustments to the Company’s recorded liability for unrecognized tax benefits in aggregate during the thirteen and thirty-nine weeks ended October 31, 2009.

7. COMPREHENSIVE INCOME (LOSS)

The following is the Company’s comprehensive income (loss) for the thirteen and thirty-nine weeks ended October 31, 2009 and November 1, 2008:


	Thirteen Weeks Ended
	October 31,			November 1,
	2009			2008
	(in thousands)
Net income (loss)	$	14,553		$	(170,759	)
Other comprehensive loss:
Foreign currency translation adjustment, net of tax benefit of $0.6 million and $0.6 million, respectively		(371	)		(709	)
Change in pension and postretirement plan liabilities, net of tax expense of $0.0 million and $0.0 million, respectively		(175	)		(25	)

Comprehensive income (loss)	$	14,007		$	(171,493	)


	Thirty-Nine Weeks Ended
	October 31,			November 1,
	2009			2008
	(in thousands)
Net loss	$	(33,501	)	$	(194,126	)
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax (benefit) expense of $(0.6) million and $0.9 million, respectively		1,102			(1,540	)
Change in pension and postretirement plan liabilities, net of tax expense of $10.8 million and $0.3 million, respectively		15,949			355

Comprehensive loss	$	(16,450	)	$	(195,311	)

8. STOCK-BASED COMPENSATION

The Company records stock compensation expense over the term of the award, net of estimated forfeitures. Adjustments to the estimated forfeiture rates are recorded when estimates are updated or conditions change. The condensed consolidated statements of operations for the thirteen and thirty-nine weeks ended October 31, 2009 and November 1, 2008 include the following stock-based compensation expense (income) related to stock option awards, nonvested stock awards, and restricted stock units (“RSUs”):


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 31,			November 1,			October 31,			November 1,
	2009			2008			2009			2008
				(in thousands)
Cost of sales, buying and occupancy	$	154		$	(349	)	$	572		$	(301	)
Selling, general and administrative		1,994			3,534			4,544			9,016
Restructuring charges		(27	)		(226	)		(839	)		(1,889	)


Compensation expense related to stock-based awards	$	2,121		$	2,959		$	4,277		$	6,826

Due to greater than expected terminations that occurred during the thirty-nine weeks ended October 31, 2009 and November 1, 2008, the Company revised its estimate of expected forfeitures of stock based awards. During the thirty-nine weeks ended October 31, 2009 and November 1, 2008, the Company recognized $2.1 million and $2.7 million, respectively, as a reduction of compensation expense as a result of a change in forfeiture rates.

When the termination is a direct result of the Company’s strategic business plan, the benefit is recorded within restructuring charges in the Company’s condensed consolidated statements of operations. During the thirty-nine weeks ended October 31, 2009 and November 1, 2008, the Company recorded a net benefit of $0.8 million and

$1.9 million, respectively, in restructuring charges to account for the revision in estimated forfeiture rates relating to its restructuring activities.

Stock Options

The Company measures the fair value of stock options on the date of grant by using the Black-Scholes option-pricing model. The estimated weighted average fair value of options granted during the thirty-nine weeks ended October 31, 2009 and November 1, 2008 was $1.73 and $3.26 per option, respectively. Key assumptions used to apply this pricing model were as follows:


	Thirty-Nine Weeks Ended
	October 31,			November 1,
	2009			2008
Weighted average risk free interest rate		2.0	%		2.7	%
Weighted average expected life of option grants	4.8 years			5.3 years
Weighted average expected volatility of underlying stock		83.8	%		47.6	%
Expected dividend rate		0.0	%		4.9	%

A summary of stock option activity during the thirty-nine weeks ended October 31, 2009 is presented below:


				Weighted		Weighted
				Average		Average Remaining		Aggregate
	Number of			Exercise Price		Contractual Term		Intrinsic
	Shares			per share		(in years)		Value
								(in thousands)
Outstanding at January 31, 2009		9,410,953		$	27.24
Granted		1,775,050			2.63
Exercised		—			—
Forfeited		(342,130	)		12.78
Expired		(318,238	)		15.35

Outstanding at October 31, 2009		10,525,635		$	23.92		3.5	$	11,201

Excercisable at October 31, 2009		8,316,503		$	28.77		2.0	$	13

Nonvested Stock Awards and RSUs

A summary of nonvested stock award and RSU activity for the thirty-nine weeks ended October 31, 2009 is presented below:


				Weighted
				Average Grant
	Number of			Date Fair Value
	Shares			Per Share
Nonvested at January 31, 2009		2,003,660		$	16.28
Granted		369,689			3.04
Vested		(407,784	)		19.30
Forfeited		(526,900	)		15.05

Nonvested at October 31, 2009		1,438,665		$	12.47

9. NET INCOME (LOSS) PER SHARE

The weighted average shares used in computing basic and diluted net income (loss) per share are presented below.


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 31,		November 1,		October 31,		November 1,
	2009		2008		2009		2008
	(in thousands)
Shares for computation of basic net income (loss) from continuing operations per share		53,856		53,489		53,768		53,411
Effect of stock compensation plans		1,225		—		—		—

Shares for computation of diluted net income (loss) from continuing operations per share		55,081		53,489		53,768		53,411

The computation of diluted net income (loss) per share excludes the following awards since the net effect would be antidilutive:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 31,		November 1,		October 31,		November 1,
	2009		2008		2009		2008
Stock Options		8,852,069		9,398,955		10,525,635		9,398,955
Nonvested stock and RSU awards		—		1,986,509		1,438,665		1,986,509

Total		8,852,069		11,385,464		11,964,300		11,385,464

10. DEBT

A summary of outstanding debt is as follows:


	October 31,			January 31,			November 1,
	2009			2009			2008
	(in thousands)
Acquisition Debt	$	—		$	200,000		$	220,000
Revolving Credit Agreements		52,000			80,000			80,000
Term Loans		48,000			20,000			20,000
Related Party Debt		250,000			20,000			—
Working Capital Lines of Credit (Notes payable to banks)		141,100			148,500			106,500
Tilton Facility Loan		—			8,377			8,705

Total debt		491,100			476,877			435,205
Less current maturities		(229,606	)		(218,877	)		(223,205	)

Long term-debt, less current portion	$	261,494		$	258,000		$	212,000

Acquisition Debt — In February 2006, the Company entered into a $400.0 million bridge loan agreement in connection with its acquisition of J. Jill. Pursuant to the Acquisition Debt agreement, the Company borrowed $400.0 million to be repaid no later than July 27, 2011. On July 27, 2006, the bridge loan was converted into a term loan (the “Acquisition Debt”). The Acquisition Debt was a senior unsecured obligation of the Company.

In February 2009, the Company entered into a $200.0 million term loan facility agreement with AEON (“AEON Loan”). The funds received from the AEON Loan were used to repay all of the outstanding indebtedness under the Acquisition Debt agreement in February 2009.

The AEON Loan is an interest-only loan until maturity. Interest on the AEON Loan is at a variable rate equal to LIBOR plus 6.00% (LIBOR is the six month London interbank offer rate expressed as a percentage rate per annum). At October 31, 2009, the interest rate was 6.77%. Interest on the AEON Loan is payable semi-annually in arrears. No loan facility fee is payable as part of the AEON Loan. The AEON Loan initially matured on August 31, 2009. During the continuing term of the loan, the Company has the option to extend the maturity for additional six month periods, up to the third anniversary of the loan closing date, which is February 27, 2012. The Company has extended the maturity date of this loan to February 26, 2010 and intends to extend the maturity for at least the next 12 months; therefore the debt is classified as non-current on the condensed consolidated balance sheet. The AEON Loan is subject to mandatory prepayment as follows: (a) 50% of excess cash flow (as defined in the agreement), (b) 100% of net cash proceeds of a sale of the J. Jill business and 75% of net cash proceeds on any other asset sales or dispositions, and (c) 100% of net cash proceeds of any non-related party debt issuances and 50% of net cash proceeds of any equity issuances (subject to such exceptions as to debt or equity issuances as the lender may agree to). The AEON Loan may be voluntarily prepaid, in whole or in part, at par plus accrued and unpaid interest and any break funding loss incurred upon not less than three business days’ prior written notice, at the option of the Company at any time. Upon any voluntary or mandatory prepayment, the Company will reimburse the lender for costs associated with early termination of any currency hedging arrangements related to the loan. The Company expects to finalize the net proceeds from the sale of the J. Jill business that will be used to pay down a portion of the $200.0 million term loan in accordance with the loan agreement in the fourth quarter 2009. It currently estimates this payment to be approximately $8.5 million. Under the terms of the AEON Loan agreement, the Company may not incur, assume, guarantee or otherwise become or remain liable with respect to any indebtedness other than permitted indebtedness as defined in the agreement. Written consent of the lender in its discretion will be required prior to incurrence of indebtedness, liens, fundamental changes including mergers and consolidations, dispositions of property including sales of stock of subsidiaries, dividends and other restricted payments, investments, transactions with affiliates and other related parties, sale leaseback transactions, swap agreements, changes in fiscal periods, negative pledge clauses, and clauses restricting subsidiary distributions, all on terms set forth in the agreement. The Company is also limited in its ability to purchase or make commitments for capital expenditures in excess of amounts approved by AEON as lender. The AEON Loan contains no financial covenants. See Note 14 concerning the agreements entered into by the Company on December 8, 2009 and under which, subject to satisfaction of all conditions to and consummation of such transactions, all of the Company’s outstanding AEON indebtedness and bank indebtedness would be satisfied.

Revolving Credit Agreements — As of October 31, 2009, the Company had revolving credit agreements with two banks (the “Revolving Credit Agreements”) that provide for maximum available borrowings of $52.0 million. Interest on the revolving credit facilities are at variable rates of LIBOR plus 0.625% for two $18.0 million loans and Fed Funds plus 0.75% for a $16.0 million loan, and are set at the Company’s option, for periods of one, three, or six months payable in arrears. At October 31, 2009, the weighted average interest rate on the loans was 1.5%. Of the $52.0 million outstanding under the Revolving Credit Agreements as of October 31, 2009, $34.0 million is due in January 2010, and $18.0 million is due in April 2010. See Note 14 concerning the agreements entered into by the Company on December 8, 2009 related to the repayment of the Company’s outstanding indebtedness.

Term Loans — As of October 31, 2009, the Company had $48.0 million in term loans outstanding with two banks: a $28.0 million loan which matures in December 2009 and a $20.0 million loan which matures in April 2012. Interest on the $28.0 million loan is payable monthly and the borrowing rate is set monthly at a rate determined by the lender to be its effective cost of funds plus 1%. At October 31, 2009 the borrowing rate was 1.3%. Interest on the $20.0 million term loan is due every six months and is fixed at 5.9% for the remaining interest periods through April 2012. See Note 14 concerning the agreements entered into by the Company on December 8, 2009 related to the repayment of the Company’s outstanding indebtedness.

Related Party Term Loan with AEON (U.S.A.) — In July 2008, the Company entered into a $50.0 million unsecured subordinated working capital term loan credit facility with AEON (U.S.A.) (the “AEON Facility”). The AEON Facility is scheduled to mature and AEON (U.S.A.)’s commitment to provide borrowings under the AEON Facility would expire on January 28, 2012. Under the terms of the AEON Facility, the financing is the unsecured general obligation of the Company and is subordinated to the Company’s other financial institution indebtedness existing as of the closing date. The AEON Facility may be used by the Company and its subsidiaries for general working capital and other appropriate general corporate purposes. Interest on outstanding principal under the AEON Facility is at a rate equal to three-month LIBOR plus 5.0% (5.3% at October 31, 2009). The Company was required to pay an upfront commitment fee of 1.5% (or $0.8 million) to AEON (U.S.A.) at the time of execution and

closing of the loan credit facility agreement. The Company is required to pay a fee of 0.5% per annum on the undrawn portion of the commitment, payable quarterly in arrears. The AEON Facility had originally included covenants relating to the Company and its subsidiaries that were substantially the same in all material respects as under the Acquisition Debt. In March 2009, an amendment was executed between the Company and AEON (U.S.A.) to remove the financial covenants from the facility. As of October 31, 2009, the Company had $50.0 million in borrowings outstanding under the AEON Facility. See Note 14 concerning the agreements entered into by the Company on December 8, 2009 related to repayment of the Company’s outstanding indebtedness.

Working Capital Lines of Credit (Notes payable to banks) — The Company has $165.0 million of working capital lines of credit with four banks as of October 31, 2009 and November 1, 2008. The lines are committed through late December 2009. Each borrowing bears interest for interest periods of six months or less as mutually established by the Company and the respective lenders, with such interest payable on the last day of each interest period or, in the event that the interest period exceeds three months, three months after the first day of the interest period. The interest rate is a rate determined by the respective lenders to be their effective cost of funds plus an amount not lower than 0.625% and not higher than 1.3%. At October 31, 2009 and November 1, 2008, the Company had $141.1 million and $106.5 million, respectively, outstanding on these facilities. The weighted average interest rate on the outstanding loans was 1.2% at October 31, 2009.

Secured Revolving Loan Facility with AEON — In April 2009, the Company entered into a $150.0 million secured revolving loan facility with AEON. Interest under this facility is one month LIBOR plus 6.0%. The facility matures upon the earlier of (i) April 17, 2010 or (ii) the consummation of one or more securitization programs or structured loans by the Company or its subsidiaries in an aggregate amount equivalent to the revolving loan commitment amount, approved in advance by AEON and in form and substance satisfactory to AEON. Amounts may be borrowed, repaid, and re-borrowed under the facility prior to its maturity date, and may be used for working capital and other general corporate purposes, including vendor payments. The facility is secured by the Company’s Talbots charge card receivables, its corporate facility in Hingham, MA and its Lakeville, MA distribution facility. The Company has agreed to keep the mortgaged properties in good repair, reasonable wear and tear expected, and will ensure that at least $135.0 million of Talbots charge card receivables are owed to the Company and that at least 90% of such Talbots charge card receivables are eligible receivables as defined in the agreement, and arise in the ordinary course of business, and are owed free and clear of all liens, except permitted liens, measured as of the last day of any calendar month. The Company will need to obtain AEON’s written consent as lender prior to, among other things, incurring indebtedness, fundamental changes (including mergers, consolidation, etc.), disposing of property (including sales of stocks of subsidiaries), payments or investments, undertaking transactions with affiliates and other related parties, consummating sale leaseback transactions, swap agreements, negative pledges, and clauses restricting subsidiary distributions and lines of business, all set forth in the agreement. The facility requires payment of an upfront fee of 1.0% of the commitment prior to borrowing. The facility also provides for prepayment and loan maturity in the event the Company was to consummate certain qualified transactions, such as securitization or sale of its Talbots charge card portfolio or certain asset collateralizations. This facility has no financial covenants. The Company’s ability to draw on the facility is subject to various borrowing conditions set forth in the credit agreement including no events of default, the absence of any material adverse effect, solvency conditions, accuracy of all representations and warranties, compliance with covenants, and other borrowing conditions. As of December 10, 2009, the Company had not borrowed any funds under this facility. See Note 14 concerning the agreements entered into by the Company on December 8, 2009 related to repayment of the Company’s outstanding indebtedness.

AEON Guarantees — In February 2009, AEON guaranteed the Company’s outstanding debt under its existing working capital facilities totaling $165.0 million, and under its revolving credit and term loan facilities totaling $100.0 million. In April 2009, AEON also agreed (i) that it would agree to continue to provide a guaranty for a refinancing of any of that debt, which matures on and before April 16, 2010 and (ii) if the lender failed to agree to refinance that debt which matures on or before April 16, 2010, or if any other condition occurred that required AEON to make a payment under its existing guaranty, AEON would make a loan to the Company, due on or after April 16, 2010 and within the limits of AEON’s existing loan guaranty, to avoid any deficiency in the Company’s financial resources caused by such failure to refinance that debt. The Company has outstanding short-term bank indebtedness of $221.1 million under credit facilities as of October 31, 2009 which terminate between late December 2009 and April 2010, which have not been extended or refinanced. The Company will rely on this AEON April 9, 2009 financial support commitment, in combination with using the Company’s existing $150.0 million AEON secured revolving credit facility, which has not been drawn on to date and which matures in April 2010, for the repayment of this short-term bank indebtedness. The Company is in discussions with AEON concerning the terms of this additional financing.

In April 2009, AEON also agreed to support the Company’s working capital improvement initiatives for the Company’s merchandise payables management and that it will use commercially reasonable efforts to provide the Company with financial support through loans or guarantees up to $25.0 million only if, and to the extent that, it may possibly fall short in achieving its targeted cash flow improvement for fall 2009 merchandise payables. As of December 10, 2009, the Company did not require such loans or guarantees for its fall 2009 merchandise payables.

Tilton Loan Facility — As part of the J. Jill acquisition in 2006, the Company assumed a real estate loan (the “Tilton Facility Loan”). The Tilton Facility Loan was collateralized by a mortgage lien on the operations, fulfillment and distribution center in Tilton, New Hampshire. Payments of principal and interest on the Tilton Facility Loan, a 10-year loan, were due monthly, based on a 20-year amortization, with a balloon payment of the remaining balance payable on June 1, 2009. The interest rate on the Tilton Facility Loan was fixed at 7.3% per annum. The loan balance of approximately $8.2 million was paid in full on June 1, 2009.

Letters of Credit —The Company’s letter of credit agreements of $265.0 million held at February 2, 2008, which were used primarily for the purchase of merchandise inventories, were canceled during 2008. In July 2008, the Company executed an addendum to its financing agreement with one bank, allowing the Company to utilize its existing $75.0 million short term working capital line of credit facility with the bank for letters of credit. The available capacity under this $75.0 million short term working capital line of credit facility, which matures in late December 2009, is reduced by any letters of credit outstanding. For periods following the term of this working capital facility, the Company will need to seek alternative letter of credit facilities, as needed, which cannot be assured. At October 31, 2009, January 31, 2009, and November 1, 2008 the Company held $13.8 million, $14.8 million, and $5.1 million, respectively, of outstanding letters of credit.

11. FAIR VALUE MEASUREMENTS

The Company adopted guidance for fair value measurements (included within ASC 820, Fair Value Measurements and Disclosures) as of February 3, 2008, with the exception of the application of the guidance to nonrecurring nonfinancial assets and nonfinancial liabilities that was delayed. Nonrecurring nonfinancial assets and nonfinancial liabilities for which the Company has not applied the provisions of include those that were measured at fair value for the purpose of impairment testing for goodwill, indefinite lived intangible assets, and long-lived assets. On February 1, 2009, the Company adopted the application of the guidance for nonrecurring nonfinancial assets and nonfinancial liabilities that had been delayed.

This guidance established a three-tier fair value hierarchy, which classifies fair value measurements based on the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company did not have any financial or nonfinancial assets or liabilities carried at fair value as of October 31, 2009 that are subject for disclosure within the three-tier hierarchy except as noted below.

The following table summarizes assets measured at fair value on a nonrecurring basis subsequent to initial recognition:


			Fair Value Measurements Using
			Quoted Prices		Significant				Three months
			in Active		Other		Significant		ended
			Markets for		Observable		Unobservable		October 31,
			Identical Assets		Inputs		Inputs		2009
	31-Oct-09		(Level 1)		(Level 2)		(Level 3)		Total Losses
	in thousands
Long-lived assets	$	1,320	$	—	$	—	$	1,320	$	1,320

Total	$	1,320	$	—	$	—	$	1,320	$	1,320

The Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the

carrying amount. The amount of impairment loss is based upon the fair value of the long-lived asset compared to the carrying value.

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, notes payable, and long-term debt. The carrying value of cash, accounts receivable, and accounts payable approximates their fair market values due to their short-term nature. The estimated fair value of the Company’s debt could differ materially from its carrying value. The Company believes it is impracticable to determine the fair value of the debt as of October 31, 2009 due to the uncertainty surrounding the ultimate approval of the pending transactions (see Note 14) and the Company’s liquidity situation. The Company has recorded its investments in life insurance policies at their cash surrender value. The Company’s pension plan assets are disclosed in accordance with guidance in Note 15, Benefit Plans, of its 2008 Annual Report on Form 10-K.

12. SEGMENT INFORMATION

The following is the Stores Segment and Direct Marketing Segment information for the Company for the thirteen and thirty-nine weeks ended October 31, 2009 and November 1, 2008:


	Thirteen Weeks Ended
	October 31, 2009						November 1, 2008
	(in thousands)
			Direct						Direct
	Stores		Marketing		Total		Stores		Marketing		Total

Net sales	$	255,429	$	53,462	$	308,891	$	303,475	$	53,800	$	357,275
Direct profit		31,629		16,984		48,613		14,776		5,974		20,750


	Thirty-Nine Weeks Ended
	October 31, 2009						November 1, 2008
					(in thousands)
			Direct						Direct
	Stores		Marketing		Total		Stores		Marketing		Total

Net sales	$	766,665	$	153,042	$	919,707	$	982,848	$	184,410	$	1,167,258
Direct profit		57,824		28,063		85,887		101,786		31,278		133,064

The following reconciles direct profit to income (loss) from continuing operations for the thirteen and thirty-nine weeks ended October 31, 2009 and November 1, 2008:


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 31,			November 1,			October 31,			November 1,
	2009			2008			2009			2008
				(in thousands)
Total direct profit for reportable segments	$	48,613		$	20,750		$	85,887		$	133,064
Less: indirect expenses		26,238			39,025			99,096			130,691

Operating income (loss) from continuing operations		22,375			(18,275	)		(13,209	)		2,373
Interest expense, net		7,202			4,904			21,583			15,260

Income (loss) before taxes from continuing operations		15,173			(23,179	)		(34,792	)		(12,887	)
Income tax (benefit) expense		(291	)		(8,416	)		(10,957	)		(4,679	)

Income (loss) from continuing operations	$	15,464		$	(14,763	)	$	(23,835	)	$	(8,208	)

13. EMPLOYEE BENEFIT PLANS

In February 2009, the Company announced its decision to discontinue future benefits being earned under the Pension Plan and Supplemental Executive Retirement Plan (“SERP”) effective May 1, 2009. As a result of the decision, the assets and liabilities under the plans were remeasured as of February 28, 2009. The remeasurement resulted in a decrease to other liabilities of $25.9 million and $1.1 million for the Pension Plan and SERP, respectively, and an increase to other comprehensive income of $15.5 million and $0.6 million, net of tax, for the Pension Plan and SERP, respectively.

The components of the Pension Plan expense are as follows:


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 31,			November 1,			October 31,			November 1,
	2009			2008			2009			2008
				(in thousands)
Service expense earned during the period	$	—		$	2,388		$	—		$	7,106
Interest expense on projected benefit obligation		2,282			2,455			6,694			7,181
Expected return on plan assets		(1,840	)		(2,656	)		(5,668	)		(7,607	)
Curtailment loss		—			—			124			—
Prior service cost net amortization		1			17			5			51
Net amortization of loss		252			388			716			866

Net pension expense	$	695		$	2,592		$	1,871		$	7,597

The components of the SERP expense are as follows:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 31,		November 1,		October 31,			November 1,
	2009		2008		2009			2008
			(in thousands)
Service expense earned during the period	$	—	$	86	$	—		$	313
Interest expense on projected benefit obligation		292		323		874			947
Curtailment (gain) loss		—		—		(451	)		7
Prior service cost net amortization		—		5		—			19
Net amortization of loss		—		—		—			14

Net SERP expense	$	292	$	414	$	423		$	1,300

The components of the Postretirement Medical Plan expense are as follows:


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 31,			November 1,			October 31,			November 1,
	2009			2008			2009			2008
				(in thousands)
Service expense earned during the period	$	—		$	(1	)	$	—		$	1
Interest expense on accumulated post- retirement benefit obligation		11			3			15			11
Curtailment gain		—			—			(442	)		—
Prior service cost net amortization		(383	)		(424	)		(1,133	)		(848	)
Net amortization of loss		137			119			357			(65	)

Net postretirement medical credit	$	(235	)	$	(303	)	$	(1,203	)	$	(901	)

As a result of the decision to discontinue future benefits being earned under the Pension Plan and SERP, there is no service expense recorded for 2009.

During the thirteen and thirty-nine weeks ended October 31, 2009, the Company was required to make contributions of $0.1 million and $3.8 million, respectively, to the Pension Plan. The Company expects to make required contributions of $0.3 million to the Pension Plan during the remainder of 2009. During the thirteen and thirty-nine weeks ended November 1, 2008, the Company was required to make contributions of $2.9 million and $8.4 million, respectively. The Company did not make any voluntary contributions to the Pension Plan during the thirteen and thirty-nine weeks ended October 31, 2009 and November 1, 2008, respectively. Included within other liabilities in the Company’s condensed consolidated balance sheets are net projected benefit obligations in excess of plan assets for the Pension Plan, SERP and Postretirement Medical Plan. The net benefit obligations in excess of plan assets for the Pension Plan are $59.8 million, $88.3 million, and $34.9 million at October 31, 2009, January 31, 2009 and November 1, 2008, respectively.

14. SUBSEQUENT EVENTS

On December 8, 2009, the Company entered into agreements (collectively, the “BPW Transactions”) which, in the aggregate, and subject to satisfaction of all conditions to and the consummation of such BPW Transactions, will substantially reduce its level of outstanding indebtedness and significantly delever its balance sheet, consisting of three related transactions:

(i)

An Agreement and Plan of Merger between the Company and BPW, pursuant to which a wholly-owned subsidiary of the Company will merge with and into BPW with BPW surviving as a wholly-owned subsidiary of the Company, in exchange for the Company’s issuance of Talbots common stock to BPW stockholders. BPW is a publicly-traded special purpose acquisition company. The floating exchange ratio mechanism under the merger agreement provides that BPW shareholders will receive a range of 0.9000 to 1.3235 Talbots shares for each BPW share, determined by dividing $11.25 by the volume weighted average price per share of Talbots common stock for the 15 trading days ending 5 trading days prior to the BPW stockholder vote on approval of the transaction;

(ii)		The retirement of all Talbots common stock currently held by the Company’s majority stockholder, AEON (U.S.A.), and the repayment of all of the Company’s then outstanding AEON indebtedness and outstanding bank indebtedness. Following completion of the transaction, AEON will hold no Talbots debt or equity (other than one million warrants for Talbots common stock with an exercise price equal to the market price of such common stock at closing of the transactions);

(iii)		A third party loan commitment for up to a new $200.0 million senior secured revolving credit facility, the proceeds of which, subject to satisfaction of all conditions to and the consummation of such credit facility, will be used to fund the transactions and for the Company’s ongoing working capital needs.

The Company’s transaction with BPW will be effected by means of an Agreement and Plan of Merger, pursuant to which, upon consummation, BPW will merge with, and into, a subsidiary of Talbots. Under the terms of the transaction:

	•		Talbots will receive gross cash proceeds sufficient to consummate the transactions contemplated by the Agreement and Plan of Merger.

	•		BPW common shares would be exchanged for the equivalent of $11.25 per BPW share in Talbots common stock through a floating exchange ratio of 0.9000 to 1.3235 Talbots shares for each BPW share.

	•		BPW public warrants will be exchanged for Talbots common stock, or new Talbots warrants with a 5 year term and a strike price equal to the product of 1.3 times the volume weighted average price per share of Talbots common stock for the 15 trading days ending 5 trading days prior to the BPW stockholder vote, subject to certain proration terms providing that 50% of such BPW public warrants are converted into Talbots warrants and 50% of BPW public warrants are converted into Talbots common stock; depending upon the Talbots common stock volume weighted average price per share during the relevant period, the BPW public warrants would be converted into a maximum of 2.3 million shares of Talbots common stock and 23.2 million Talbots warrants.

In addition, the Company entered into an agreement with AEON pursuant to which, upon consummation, the Company will repay all AEON outstanding indebtedness and outstanding bank indebtedness guaranteed by AEON, totaling $491.1 million, and retire AEON’s 29.9 million shares of Talbots common stock, for total cash consideration of $491.1 million and one million Talbots warrants granted to AEON with an at market strike price determined at closing.

BPW will call a special meeting of its stockholders to vote to approve the transaction and to vote to approve an extension of the term of BPW’s existence beyond its existing expiration date of February 26, 2010. If BPW stockholders approve the transaction and the extension, Talbots will commence an exchange offer for the exchange of BPW warrants for Talbots common stock or Talbots warrants as described above. AEON as the Company’s majority stockholder, has approved the issuance of Talbots common stock in the transaction and no further vote of the Company’s stockholders will be required to complete the transaction.

The transaction is subject to customary closing conditions, including expiration or termination of any applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. In addition, the transaction is conditioned upon, among other conditions, the following:

	•		The approval of the transaction by BPW shareholders;

	•		Holders of at least 90% of BPW’s public warrant holders agreeing to exchange their warrants for Talbots common stock or Talbots warrants as described above;

	•		Consummation of the debt financing described above or alternative financing providing for net proceeds of no less than $200 million.

The above BPW acquisition, AEON transaction and secured revolving credit facility are related and dependent on, and subject to, satisfaction of all conditions to closing and consummation concurrently of all of these transactions, as to which there can be no assurance. The foregoing is a general summary of the BPW Transactions and is subject in all respect to the terms and conditions of all of the applicable agreements for these transactions, which will be filed by the Company with the SEC on Current Report on Form 8-K.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the notes thereto appearing elsewhere in this document, as well as our 2008 Annual Report on Form 10-K.

We conform to the National Retail Federation’s fiscal calendar. The thirteen weeks ended October 31, 2009 and November 1, 2008 are referred to as the third quarter 2009 and 2008, respectively. The thirty-nine weeks ended October 31, 2009 and November 1, 2008 are referred to herein as year-to-date 2009 and 2008, respectively.

Operating results discussed below are from continuing operations, which include our Talbots women’s apparel retail stores, surplus stores, upscale outlet stores and direct marketing sales channels. Results from our Talbots Kids, Mens, and U.K. businesses, which we closed in 2008, and the J. Jill business, which we sold in July 2009, have been classified as discontinued operations for all periods presented and are discussed separately below.

Comparable stores are those that were open for at least one full fiscal year. When a significant amount of square footage is added adjacent to or in close proximity to an existing comparable Talbots retail store, that Talbots retail store is excluded from the computation of comparable store sales for a period of 13 months to preserve the comparability of sales results.

Recent Developments

On December 8, 2009, we entered into agreements (collectively, the “BPW Transactions”) which, in the aggregate, and subject to satisfaction of all conditions to and consummation of these transactions, will substantially reduce our indebtedness and significantly delever our balance sheet, consisting of three related transactions: (i) an Agreement and Plan of Merger between Talbots and BPW Acquisition Corp. (“BPW”) pursuant to which a wholly-owned subsidiary of Talbots will merge with and into BPW with BPW surviving as a wholly-owned subsidiary of Talbots, in exchange for our issuance of Talbots common stock to BPW stockholders; (ii) the retirement of all Talbots common stock currently held by AEON (U.S.A.), Inc. (“AEON (U.S.A.)”) our majority shareholder and a wholly-owned subsidiary of AEON Co., Ltd. (“AEON”), and the repayment of all of our then outstanding AEON debt and outstanding bank debt; and (iii) a third party loan commitment for a new $200 million senior secured revolving credit facility. The consummation of the transactions are subject to a number of conditions and there can be no assurance all conditions will be satisfied. If for any reason the transactions are not consummated, we would be dependent on our ability to adequately address our short-term and longer term indebtedness or other liquidity needs. We would continue to review all alternatives to address our debt structure and cash needs. There can be no assurance that these alternatives, if needed, would be successfully implemented, in which case it could materially adversely affect our Company, our liquidity and results of operations. These transactions are described further in Note 14 to our condensed consolidated financial statements.

We believe that the economic recession has had a significant impact on our business during 2008 and in 2009 to date, and anticipate that macroeconomic pressures will continue to impact consumer spending throughout the balance of 2009 and likely beyond. Despite the challenging retail economic environment, we have achieved profitability in the third quarter 2009 following five consecutive quarters of operating losses, reflecting significant progress in executing our strategic plan to improve operating performance. Key initiatives that drove this improvement were in the areas of improved merchandise, brand building, inventory management, expense control and sourcing practices.

The implementation of our strategic plan began before the economic downturn occurred in fall 2008. Earlier this year we made adjustments to our initiatives in response to the weakening economic environment, including actions designed to further streamline our organization, further reduce our cost structure and better optimize gross margin performance through stronger inventory management and improved initial mark-ups, resulting from changes to our supply chain practices. We experienced significant benefits in our 2009 third quarter operating results from these actions.

We have been measuring our progress by monitoring sequential improvements in our performance. For example, beginning with the first quarter 2008, we experienced a sharp downturn in sales that continued over the next four quarters. However, in the second quarter 2009, sales began to stabilize and we achieved a modest increase in sales in the third quarter 2009 compared to sales in the second quarter 2009.

Throughout the year we also have steadily reduced our inventory levels, while shifting the mix of our inventory toward a stronger presentation of full price versus markdown product. This was a significant change in our inventory composition compared to the spring season and the prior year. Our goal in the third quarter 2009 was to be far less promotional compared to 2008 and to present the customer with a strong presentation of fresh, full-price merchandise. As a result, we experienced a healthy improvement in full price selling, particularly in September and October, which contributed to a stronger than anticipated gross margin in the third quarter 2009.

We have also made significant improvements in our sourcing practices, which have resulted in ongoing improvement in initial mark-up (“IMU”) year-to-date. In the third quarter 2009, we improved gross margin by

$10.5 million compared to the prior year period, despite a $48.4 million decrease in net sales compared to the prior year. In August 2009, we entered into a buying agency agreement with an affiliate of Li & Fung Limited (“Li & Fung”), a Hong Kong-based global consumer goods exporter, which effective September 2009 is acting as our exclusive global apparel sourcing agent for substantially all Talbots apparel. The exclusive agency does not cover certain other products (including swimwear, intimate apparel, sleepwear, footwear, fashion accessories, jewelry and handbags) as to which Li & Fung will act as our non-exclusive buying agent at our discretion. As a result of this agreement, we reduced operating expenses in the third quarter 2009, as we have downsized our internal sourcing organization as well as closed our sourcing offices in Hong Kong and India. We anticipate it will further benefit IMU in 2010 when Li & Fung is fully engaged in the complete sourcing process.

We established a goal of reducing annualized expenses by $150.0 million by the end of fiscal 2010. Approximately 80% of this reduction is expected to be realized in SG&A. We reduced SG&A by approximately $19.5 million in first quarter 2009, $30.0 million in the second quarter 2009, and another $28.1 million in third quarter 2009 resulting in total reductions in SG&A of $77.5 million in year-to-date 2009 as compared to the prior year. These reductions reflect significant progress toward achieving our $150.0 million annualized expense savings goal. As a result, by the end of fiscal 2009, we anticipate we will be close to achieving our fiscal 2010 goal of $150.0 million in annualized cost savings.

Progress on all of these initiatives has produced a significant improvement in our third quarter 2009 operating results, resulting in income from continuing operations of $15.5 million for the third quarter 2009. These strategic improvements can be seen by our sequential improvement in narrowing operating losses from continuing operations. In the fourth quarter 2008 our operating loss from continuing operations declined $94.7 million compared to the fourth quarter 2007. We reduced that decline in operating loss from continuing operations to $54.5 million in the first quarter 2009 compared to first quarter 2008, and further reduced the decline to $1.7 million in the second quarter 2009 compared to the second quarter 2008. In the third quarter 2009 we experienced an improvement in operating income from continuing operations of $40.7 million compared to the third quarter 2008.

A summary of our initiatives and actions taken to date to improve operating results, many of which we believe will continue into the fourth quarter 2009 and beyond are as follows:

	•		Reduction in our corporate headcount. In June 2008 we reduced corporate headcount by approximately 9% across multiple locations at all levels. In February 2009 and in June 2009 we further reduced corporate headcount by approximately 17% and 20%, respectively.

	•		Reduction in hours worked in our stores, distribution center and call center.

	•		Elimination of matching contributions to our 401(k) plan for 2009, increased employee health care contributions for 2009, the elimination of merit increases for 2009 and the freezing of our defined benefit pension plans.

	•		Broad-based non-employee overhead actions resulting in cost savings, primarily in the areas of administration, marketing and store operations.

We anticipate that the initiatives outlined above will continue to benefit our operating results in the fourth quarter 2009. We currently anticipate sequential improvement in IMU and SG&A expenses, and a continuation of stabilized top line sales; however, due to significantly increased promotional activity and seasonality that historically occurs during our fourth quarter, as well as the continuing potential impact of economic factors, the expected improvement in gross margin and other benefits are expected to be reduced for the fourth quarter 2009 compared to the third quarter 2009.

While we believe that all of these initiatives will continue to provide ongoing benefits, there can be no assurance that our actions will be sufficient to produce operating profits or positive operating cash flows. The current economic environment has been characterized by a significant decline in consumer discretionary spending and we expect these economic conditions to continue throughout 2009 and possibly beyond. We believe that continued improved operating results depend on our ability to access sufficient sources of liquidity to satisfy our debt, working capital needs and other cash requirements, continue to respond to a difficult economic environment, execute on our strategic initiatives and cost reduction programs, design and deliver customer-appropriate merchandise, and source our products on a competitive and cost efficient basis. Further discussion of our efforts to improve our cash flow position are included in the Liquidity and Capital Resources section below.

Results of Continuing Operations

The following table sets forth the percentage relationship to net sales of certain items in our condensed consolidated statements of operations for the periods shown below:


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 31,			November 1,			October 31,			November 1,
	2009			2008			2009			2008
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales, buying and occupancy expenses		60.1	%		68.4	%		67.1	%		65.9	%
Selling, general and administrative expenses		32.1	%		35.6	%		33.2	%		32.8	%
Restructuring charges		0.1	%		0.4	%		1.1	%		0.9	%
Impairment of store assets		0.4	%		0.6	%		0.2	%		0.2	%
Operating (loss) income from continuing operations		7.3	%		-5.0	%		-1.6	%		0.2	%
Interest expense, net		2.3	%		1.4	%		2.3	%		1.3	%
Income (loss) before taxes from continuing operations		5.0	%		-6.4	%		-3.9	%		-1.1	%
Income tax benefit		-0.1	%		-2.3	%		-1.2	%		-0.4	%
Income (loss) from continuing operations		5.1	%		-4.1	%		-2.7	%		-0.7	%

Net Sales

Net sales consist of store sales and direct marketing sales. Direct marketing sales include our catalog and Internet channels. The following table shows net store sales, net direct marketing sales, and comparable stores sales for the thirteen and thirty-nine weeks ended October 31, 2009 and November 1, 2008 (in millions):


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 31,			November 1,			October 31,			November 1,
	2009			2008			2009			2008
Net store sales	$	255.4		$	303.5		$	766.7		$	982.8
Net direct marketing sales		53.5			53.8			153.0			184.4

Total net sales	$	308.9		$	357.3		$	919.7		$	1,167.2


Comparable store sales		-15.9	%		-13.9	%		-22.8	%		-10.9	%

Net sales during the third quarter 2009 declined by $48.4 million, or 13.5%, compared to net sales during the third quarter 2008. Our third quarter 2009 net sales results were slightly better than expected, driven by improved full-price selling. Net sales during the thirty-nine weeks ended October 31, 2009 declined by $247.5 million, or 21.2%, compared to net sales during the thirty-nine weeks ended November 1, 2008.

Store Sales

Store sales during the third quarter 2009 declined by $48.1 million, or 15.8%, compared to store sales during the third quarter 2008. We experienced a 9.5% decline in customer traffic and a 5.1% decline in the rate of converting traffic to transactions, which resulted in a 14.1% decline in the number of transactions. Additionally, we experienced a 1.2% decline in units per transaction and a 0.5% decline in average unit retail, which resulted in a 1.8% decline in dollars per transaction.

We have reason to believe that customer perception of our merchandise is improving despite the decline that we experienced in sales and certain other related metrics. Market research we conducted during the quarter indicates that our best customers, those who spend the most money shopping with us, gave our merchandise its highest rating in recent years. Our lower spenders gave our merchandise its highest rating in recent years as well, although not as high of a rating as our best customers.

Year-to-date 2009 store sales declined by $216.1 million, or 22.0%, compared to year-to-date 2008. We experienced a 13.7% decline in customer traffic and a 3.9% decline in the rate of converting traffic to transactions,

which resulted in a 17.1% decline in the number of transactions. Additionally, we experienced a 5.1% decline in units per transaction and a 1.8% decline in average unit retail, which resulted in a 6.9% decline in dollars per transaction. The sales metrics reflect the lackluster customer shopping behaviors that we experienced in the first half of 2009, that are partially a result of the uncertain economic environment.

As of October 31, 2009, we operated a total of 589 retail stores with gross and selling square footage of approximately 4.2 million square feet and 3.2 million square feet, respectively. This represents a decrease in gross and selling square footage of 2.6% from November 1, 2008 when we operated 595 retail stores with gross and selling square footage of 4.3 million square feet and 3.3 million square feet, respectively.

Direct Marketing Sales

Direct marketing sales during the third quarter 2009 declined by $0.3 million, or 0.1%, compared to net sales during the third quarter 2008. The percentage of our net sales derived from direct marketing increased to 17.3% during the third quarter 2009 from 15.1% during the third quarter 2008. We have driven the increase in the percentage of business coming from the direct marketing channel by more aggressively selling and promoting direct marketing sales that originate in our stores via red-line phones, which are direct lines to our telemarketing center. Internet sales during the third quarter 2009 represented 68% of our direct marketing sales excluding store originated sales, compared to 63% during the third quarter of 2008. We invested in a new Internet platform that went live in August 2009 offering our customer an enhanced shopping experience via our website with many additional features available. We believe this new website contributed to the increase in Internet sales as a percentage of direct marketing.

Year-to-date 2009 net sales declined by $31.4 million, or 17.0%, compared to year-to-date 2008. The decline in direct marketing sales is reflective of similar shopping behavior that impacted stores; however, the percentage of our net sales derived from direct marketing increased to 16.6% during year-to-date 2009 from 15.8% during year-to-date 2008. Internet sales during year-to-date 2009 represented 67% of our total direct marketing sales excluding store originated sales, compared to 58% during year-to-date 2008.

Cost of Sales, Buying and Occupancy Expenses

The following table shows cost of sales, buying, and occupancy expenses in dollars (in millions) and as a percentage of net sales for the thirteen and thirty-nine weeks ended October 31, 2009 and November 1, 2008:


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 31,			November 1,			October 31,			November 1,
	2009			2008			2009			2008
Cost of sales, buying, and occupancy expenses	$	185.6		$	244.5		$	617.0		$	769.7
Percentage of net sales		60.1	%		68.4	%		67.1	%		65.9	%

Cost of sales, buying and occupancy expenses decreased 830 basis points in the third quarter 2009 as compared to the third quarter 2008. This decrease is primarily a result of an approximate 1,000 basis point reduction in cost of sales, of which 980 basis points are a result of improvement in pure merchandise gross margin, reflecting the benefits of the improvement in our sourcing business practices as well as strong inventory management. The improvement in cost of sales is offset by a 150 basis point increase in occupancy costs, and a 20 basis point increase in buying costs, both of which reflected reductions in actual costs compared to the third quarter 2008 despite having risen as a percentage of net sales.

Year-to-date 2009 cost of sales, buying and occupancy expenses increased 120 basis points over the prior year. This increase is primarily a result of an approximate 290 basis point increase in occupancy costs, and an approximate 90 basis point increase in buying costs, both of which reflected reductions in actual costs compared to the prior year despite having risen as a percentage of net sales. These increases are offset by a 260 basis point reduction in cost of sales, primarily due to improvement in pure merchandise gross margin, reflecting the benefits of the change in our sourcing business practices.

Selling, General, and Administrative Expenses

The following table shows selling, general, and administrative expenses (“SG&A”) in dollars (in millions) and as a percentage of net sales for the thirteen and thirty-nine weeks ended October 31, 2009 and November 1, 2008:


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 31,			November 1,			October 31,			November 1,
	2009			2008			2009			2008
Selling, general, and administrative expenses	$	99.2		$	127.3		$	304.9		$	382.4
Percentage of net sales		32.1	%		35.6	%		33.2	%		32.8	%

SG&A decreased 350 basis points in the third quarter 2009 compared to the third quarter 2008. This represents a decline in SG&A expenses of $28.1 million, or 22.1%, from the prior year. Year-to-date 2009 SG&A expense increased 40 basis points over the prior year; however SG&A expenses during year-to-date 2009 decreased by $77.5 million, or 20.3%, compared to year-to-date 2008.

We established a goal of reducing annual expenses by $150.0 million by the end of fiscal 2010. Approximately 80% of this reduction is expected to be realized in SG&A. Our reductions in SG&A in the third quarter and year-to-date 2009 over the prior periods represent the significant progress we have made toward achieving this goal. Primarily our expense reductions during the third quarter and year-to-date 2009 were realized in payroll and employee benefits, with the balance in other corporate overhead expenses. By the end of fiscal 2009, we anticipate we will be close to achieving our fiscal 2010 goal of $150.0 million in annualized cost savings.

Restructuring Charges

The following table shows restructuring expenses in dollars (in millions) and as a percentage of net sales for the thirteen and thirty-nine weeks ended October 31, 2009 and November 1, 2008:


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 31,			November 1,			October 31,			November 1,
	2009			2008			2009			2008
Restructuring expenses	$	0.4		$	1.5		$	9.7		$	10.1
Percentage of net sales		0.1	%		0.4	%		1.1	%		0.9	%

The restructuring charges incurred in the third quarter 2009 primarily relate to the reorganization of our global sourcing activities which resulted in us entering into a buying agency agreement with Li & Fung effective September 2009, whereby Li & Fung is acting as our exclusive global apparel sourcing agent for substantially all Talbots apparel. As a result of this reorganization, we closed our Hong Kong and India sourcing offices as well as reduced our corporate sourcing headcount.

The year-to-date 2009 restructuring charges primarily relate to severance costs due to the corporate headcount reductions announced in June 2009, estimated costs to settle lease liabilities for a portion of our Tampa, Florida data center that is no longer being used, and costs associated with the reorganization of our global sourcing activities as described above.

The restructuring charges in the third quarter and year-to-date 2008 primarily relate to severance and consulting costs.

Impairment of Store Assets

The following table shows impairment of store assets in dollars (in millions) and as a percentage of net sales for the thirteen and thirty-nine weeks ended October 31, 2009 and November 1, 2008:


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 31,			November 1,			October 31,			November 1,
	2009			2008			2009			2008
Impairment of store assets	$	1.3		$	2.2		$	1.4		$	2.6
Percentage of net sales		0.4	%		0.6	%		0.2	%		0.2	%

As part of our strategic initiatives, we are closely monitoring stores to identify stores that are underperforming and closing stores when appropriate. When we determine that a store is underperforming or is to be closed, we reassess the expected future cash flows of the store, which in some cases results in an impairment charge.

Net Interest Expense

The following table shows net interest expense and average total debt outstanding in dollars (in millions) and the average interest rate on borrowings for the thirteen and thirty-nine weeks ended October 31, 2009 and November 1, 2008:


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 31,			November 1,			October 31,			November 1,
	2009			2008			2009			2008
Net interest	$	7.2		$	4.9		$	21.6		$	15.3
Average total debt outstanding		491.2			441.2			502.3			463.6
Average interest rate on borrowings		4.5	%		3.7	%		4.6	%		3.7	%

Net interest expense for the third quarter and the thirty-nine weeks ended October 31, 2009 increased from the same periods in 2008 due to higher average borrowing levels and higher average interest rates.

Income Tax Benefit

The following table shows our income tax benefit in dollars (in millions) and our effective tax rate for the thirteen and thirty-nine weeks ended October 31, 2009 and November 1, 2008:


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 31,			November 1,			October 31,			November 1,
	2009			2008			2009			2008
Income tax benefit	$	(0.3	)	$	(8.4	)	$	(11.0	)	$	(4.7	)
Effective tax rate		-1.9	%		36.3	%		31.5	%		36.3	%

Our effective tax rate decreased in the thirteen and thirty-nine weeks ended October 31, 2009 as compared to the same periods of the prior year due to a valuation allowance recorded in 2009.

We provide for income taxes during interim periods based on the estimated effective tax rate for the full year. Cumulative adjustments to our estimates are recorded in the interim period in which a change in the estimated annual effective tax rate is determined. Discrete tax events are accounted for in the period in which they occur.

A valuation allowance was established during the fourth quarter of 2008 for substantially all deferred tax assets based on all available evidence including our recent history of losses. We concluded that there remains insufficient positive evidence to overcome the more objective negative evidence related to our cumulative losses to support recovery of our deferred tax assets. Accordingly, we continue to provide for a full valuation allowance.

The tax benefit for the third quarter 2009 is due to adjustments to the liabilities of uncertain tax positions plus additional tax benefit on the other comprehensive income recognized during the quarter. The tax benefit for year-to-date 2009 is primarily due to an allocated tax benefit of approximately $10.6 million to continuing operations with a corresponding provision included within other comprehensive income recognized during the first quarter of 2009. We remeasured our pension obligation as a result of our decision to freeze all future benefits under our Pension Plans during the first quarter of 2009. The remeasurement resulted in us recording a gain in our other comprehensive income and the tax provision on the other comprehensive income was recognized. There were no material adjustments to our recorded liability for unrecognized tax benefits in aggregate during the thirteen and thirty-nine weeks ended October 31, 2009.

DISCONTINUED OPERATIONS

In 2008, we announced our decision to discontinue our Talbots Kids and Mens businesses. In April 2008, we announced our decision to discontinue our U.K. business. A strategic review of our Company had concluded that these businesses did not demonstrate the potential to deliver an acceptable long-term return on investment. As of the end of the third quarter 2008, all Talbots Kids, Mens, and U.K. businesses ceased operations and all stores were closed. Their operating results have been classified as discontinued operations within our condensed consolidated statements of operations for all periods presented.

On October 30, 2008, our Board of Directors approved a plan to sell the J. Jill business. On June 7, 2009, we entered into an Asset Purchase Agreement with Jill Acquisition LLC (the “Purchaser”), pursuant to which the Purchaser agreed to acquire and assume from us certain assets and liabilities relating to the J. Jill business. On July 2, 2009, we completed the sale (“the Transaction”). See Liquidity and Capital Resources section below for further discussion.

Operating results of the J. Jill business for all periods presented have been classified as discontinued operations in our condensed consolidated financial statements. The assets and liabilities of the J. Jill business are stated at estimated fair value less estimated direct costs to sell and are classified in our condensed consolidated balance sheets as current assets and current liabilities held for sale for all prior periods presented.

Liquidity and Capital Resources

We require substantial liquidity to satisfy our short-term and longer term debt maturities, address our level of outstanding indebtedness and leverage, implement our strategic turnaround efforts and operate our business, and we are dependent on our ability to address and resolve our short-term and longer term debt maturities and other liquidity needs. We finance our working capital needs, operating costs, capital expenditures, strategic initiatives and restructurings, and debt and interest payment requirements through cash generated by operations, access to working capital and other third party and AEON credit facilities, and credit from our vendors under open account purchases. The substantial deterioration in the U.S. economy and decline in consumer discretionary spending had a significant impact on our sales, operating profits and cash flows in 2008 and into 2009 to date, which we expect to continue. For the thirty-nine weeks ended October 31, 2009 and November 1, 2008 our cash flows provided by operating activities from our continuing operations were $20.8 million and $29.2 million, respectively. As of October 31, 2009, we had a working capital deficit of $3.9 million and a stockholders’ deficit of $190.6 million. A continuation or further deterioration in global economic conditions would continue to have a further negative impact on our business. We expect that the current conditions in the global economy will continue during the remainder of 2009 and beyond. In response, and with our focus now on our Talbots brand, in late 2008, we began to implement a series of key initiatives designed to streamline our organization, reduce our cost structure and optimize our gross margin performance through strong inventory management and improved initial mark-ups resulting from changes to our supply chain practices. We also undertook several financing actions in 2008 and 2009 to improve our liquidity position. These actions consisted of the following:

	•		In July 2008, we entered into a $50.0 million unsecured subordinated working capital term loan agreement with AEON (U.S.A.), which matures in January 2012 and requires interest-only payments until maturity. We are fully borrowed under this facility.

	•		During the fourth quarter of 2008 and the first quarter of 2009, we converted all of our working capital lines of credit, amounting to $165.0 million in the aggregate, to committed lines of credit with maturities in late December 2009.

	•		In February 2009, we entered into a $200.0 million term loan facility agreement with AEON which was

used to repay all outstanding indebtedness under our acquisition debt agreement related to our 2006 acquisition of J. Jill. This acquisition debt agreement required quarterly principal payments of $20.0 million. The $200.0 million term loan from AEON is an interest-only loan and is renewable at our option every six months during the continuing term of this loan agreement, until the maturity date. We have exercised our option to extend this loan to February 2010 and intend to extend the maturity for at least the next 12 months. This loan contains no financial covenants, and subject to our exercising each of our extension options during the continuing term of this loan agreement, would mature in February 2012. See Short-Term Maturities and Current Liquidity section below. We are subject to certain mandatory prepayment obligations including payment of net sale proceeds after selling costs and amounts for other costs to settle obligations and liabilities related to the sale and disposal of the J. Jill business. We expect to finalize the net proceeds from the sale of the J. Jill business that will be used to pay down a portion of the $200.0 million term loan in accordance with the loan agreement in the fourth quarter 2009. We currently estimate this payment to be approximately $8.5 million. See Note 14 to our condensed consolidated financial statements concerning the agreements entered into by the Company on December 8, 2009 relating to the repayment our outstanding indebtedness.

	•		In February 2009, AEON guaranteed our outstanding debt under our existing working capital lines of credit totaling $165.0 million, our existing revolving credit facilities totaling $52.0 million, and our existing $48.0 million term loan facilities. In April 2009, AEON also agreed (i) that it would continue to provide a guaranty for a refinancing of any of that debt which matures on and before April 16, 2010 and (ii) if the lenders failed to agree to refinance that debt which matures on or before April 16, 2010, or if any other condition occurred that required AEON to make a payment under the existing guaranty, AEON would make a loan to us, due on or after April 16, 2010 and within the limits of AEON’s existing loan guaranty, to avoid any deficiency in our financial resources caused by any such failure to refinance or extend maturities. We have outstanding short-term bank indebtedness of $221.1 million under credit facilities as of October 31, 2009 which terminate between late December 2009 and April 2010, which have not been extended or refinanced. We will rely on this AEON April 9, 2009 financial support commitment, in combination with using our existing $150.0 million AEON secured revolving credit facility, which has not been drawn on to date and which matures in April 2010, for the repayment of this short-term bank indebtedness. We are in discussions with AEON concerning the terms of this additional financing.

	•		In April 2009, AEON also agreed to support our working capital improvement initiatives for our merchandise payables management and that it would use commercially reasonable efforts to provide us with financial support through loans or guarantees up to $25.0 million only if, and to the extent that, we may possibly fall short in achieving our targeted cash flow improvement for fall 2009 merchandise payables. As of December 10, 2009, we did not require such loans or guarantees for our fall 2009 merchandise payables.

	•		In April 2009, we entered into a $150.0 million secured revolving loan facility with AEON. The facility matures upon the earlier of (i) April 17, 2010 or (ii) the consummation of one or more securitization programs or structured loans by us or our subsidiaries in an aggregate amount equivalent to the revolving loan commitment amount, approved in advance by AEON and in form and substance satisfactory to AEON. Subject to all borrowing conditions, amounts may be borrowed, repaid, and re-borrowed under the facility prior to its maturity date and may be used for working capital and other general corporate purposes. As of December 10, 2009, we had not borrowed any funds under this facility.

	•		We have eliminated all financial covenants from our debt agreements.

	•		On December 8, 2009, we entered into agreements (collectively, the “BPW Transactions”) which, in the aggregate, and subject to satisfaction of all conditions to and consummation of these transactions, will substantially reduce our indebtedness and significantly delever our balance sheet, consisting of three related transactions: (i) an Agreement and Plan of Merger between Talbots and BPW pursuant to which a wholly-owned subsidiary of Talbots will merge with and into BPW with BPW surviving as a wholly-owned subsidiary of Talbots, in exchange for our issuance of Talbots common stock to BPW stockholders; (ii) the retirement of all Talbots common stock currently held by our majority stockholder, AEON (U.S.A.), and the repayment of all of our then outstanding AEON debt and outstanding bank debt; and (iii) a third party loan commitment for a new $200.0 million senior secured revolving credit facility. The consummation of the transactions are subject to a number of conditions and there can be no assurance all conditions will be satisfied. If for any reason the transactions are not consummated, we would be dependent on our ability to adequately address our short-term and longer term indebtedness or other liquidity needs. We would continue to review all alternatives to address our debt structure and cash needs. There can be no assurance that these alternatives, if needed, would be successfully implemented, in which case it could materially adversely affect our Company, our liquidity and results of operations. These transactions are described further in Note 14 to our condensed consolidated financial statements.

			We have the following debt obligations due in the near term under our revolving credit facilities and term loans:

	•		$28.0 million in December 2009

	•		$34.0 million in January 2010, and

•

$18.0 million in April 2010.

We also have third party working capital facilities, for $165.0 million, with commitment expiration dates in late December 2009. Our revolving loan facility with AEON expires in April 2010. Payment of all of the above indebtedness has been guaranteed to each lender by AEON.

We have taken the following actions to address current economic conditions and operating performance:

	•		In 2008, we completed the closing of our Kids, Mens, and U.K. businesses. These businesses were not considered strategic to our ongoing operations.

	•		In July 2009, we completed the sale of the J. Jill business for a cash purchase price of $75.0 million less working capital adjustments as provided in the Purchase Agreement, resulting in net cash received from the Purchaser of $64.4 million. This net cash purchase price is subject to further post-closing adjustments, including final closing working capital, as provided in the Purchase Agreement. The final working capital adjustment will likely be determined in the fourth quarter 2009.

	•		We established a goal of reducing annual expenses by $150.0 million by the end of fiscal 2010. Approximately 80% of this reduction is expected to be realized in SG&A. By the end of fiscal 2009, we anticipate we will be close to achieving our fiscal 2010 goal of $150.0 million in annualized cost savings,

	•		We also took the following actions intended to improve gross margins:

	•		Changed the promotional cadence to monthly markdowns rather than our historical four clearance sales events per year.

	•		We are holding a leaner inventory position, concentrating on better product flow and content, and we adopted a new price optimization tool.

	•		Entered into a buying agency agreement in August 2009 with Li & Fung, who effective September 2009 is acting as the exclusive global apparel sourcing agent for substantially all our apparel. We believe this relationship with Li & Fung will allow us to simplify and centralize our sourcing activities, which we anticipate during the term of this arrangement will further reduce our cost of goods sold and internal operating expenses and improve our time to market.

	•		In 2009, we expect to reduce our gross capital expenditures (excluding construction allowances received from landlords) by approximately 51.5% from 2008 spend levels which were $44.7 million.

	•		Our Board of Directors approved the indefinite suspension of our quarterly cash dividend in February 2009.

Under our 2009 financial plan we have forecasted substantial cost savings from many of these initiatives based on a number of significant assumptions which if achieved would improve our cash flow. Assuming that we are successful in executing these strategic and realignment initiatives, there can be no assurance that our assumptions or expectations will prove to be accurate or that the results achieved will be sufficient to negate the impact of the current economic conditions on our operating results.

Because economic conditions and discretionary consumer spending are not expected to substantially improve in the near term, we expect to continue to consider further realignment and rationalization initiatives and actions to further reduce and adjust our costs relative to our sales and operating results. We currently plan to close approximately 23 underperforming Talbots stores in 2009, a number of which relate to store leases that expire during 2009 or pursuant to existing early termination right provisions. We also continue to review store performance and expect to continue to close underperforming stores. While we endeavor to negotiate the amount of remaining lease obligations on store closings, there is no assurance we will reach acceptable negotiated lease settlements, particularly in the current economic environment. As a result, costs to close underperforming stores can be expected to be significant and may vary materially from forecasts. Our 2009 financial plan also includes projected store lease expense reductions through discussions and negotiations with our landlords, although there can be no assurance that these efforts will be successful.

During the thirteen and thirty-nine weeks ended October 31, 2009, we recorded a $0.3 million and $6.0 million loss on the sale and disposal of the J. Jill business, respectively. The loss recorded in the third quarter 2009 is due to working capital adjustments and adjustments to the estimated lease liabilities recorded in connection with the sale and disposal of the J. Jill business relating to lease terminations of the J. Jill stores that were not sold, and

Quincy office space that is not being subleased or used. Lease termination costs are recorded at the time a store is closed or existing space is vacated. The calculation of such liabilities includes the discounted effects of future minimum lease payments from the date of closure to the end of the remaining lease term, net of estimated sub-lease income that could be reasonably obtained for the properties or through lease termination settlements. Total cash expenditures to settle lease liabilities cannot yet be finally determined and will depend on the outcome of ongoing negotiations with third parties. As a result, such costs may vary materially from current estimates and management’s assumptions and projections may change materially. While we will endeavor to negotiate the amount of remaining lease obligations, there is no assurance we will reach acceptable negotiated lease settlements.

Under the terms of the Purchase Agreement for the J. Jill business, the Purchaser is obligated for liabilities that arise after the closing under assumed contracts, which include leases for 205 J. Jill stores assigned to the Purchaser as part of the Transaction and a sublease through December 2014 of approximately 63,943 square feet of space at our 126,869 square foot leased office facility in Quincy, MA used for the J. Jill offices. Certain of our subsidiaries remain contingently liable for obligations and liabilities transferred to the Purchaser as part of the Transaction including those related to leases and other obligations transferred to and assumed by the Purchaser, as to which obligations and liabilities we now rely on the Purchaser’s creditworthiness as a counterparty. If any material defaults were to occur which the Purchaser does not satisfy or fully indemnify us against, it could have a material negative impact on our financial condition and results of operations. We have accrued a guarantee liability for the estimated exposure related to these guarantees, which is subject to change. Total actual amounts may vary materially from estimated amounts.

There can be no assurance that the current economic downturn and our sales trends and operating results may not continue longer than we expect, or may not take longer to recover than we have planned, or that we may not achieve such targeted cost savings and cash improvement goals. As a result there can be no certainty our cash needs may not be greater than we anticipate or have planned for. Our ability to meet cash needs and to satisfy our operating and other non-operating costs will depend upon our satisfactorily addressing and resolving our short-term maturities, level of indebtedness and other liquidity needs, our future operating performance, execution on our strategic initiatives and cost reduction programs, and general economic conditions. Additional matters that could impact our liquidity include any further deterioration in the global economy, lower than expected sales, and any unforeseen cash or operating requirements.

All of our merchandise is manufactured to our specifications by third-party suppliers and intermediary vendors, most of whom are located outside the United States. Historically, a significant portion of our merchandise purchases had been pursuant to and secured by letter of credit arrangements in favor of our foreign suppliers and vendors and their credit sources. Beginning in 2008, we moved substantially all of our merchandise vendors to open account purchase terms with payments approximately 45 days after shipment. In order to more effectively manage our accounts payable and cash positions due to our sales trends and cash needs, during the second half of 2008 and into 2009 we extended many of our accounts payable to approximately 60 days or more. Under the terms of our new agreement with Li & Fung, Li & Fung has agreed to seek to secure or maintain extended payment terms and without the requirement of letters of credit, which cannot be assured. While these extended payment terms to our vendors have not to date resulted in material interruption in merchandise supply, there can be no assurance that due to any payment timing or liquidity concern vendors may not require or condition sale or shipment of merchandise on earlier or more stringent payments terms or require letters of credit or other forms of security, which impacts our liquidity and could impact our timely receipt of merchandise.

Short-Term Maturities and Current Liquidity

While our operating results improved significantly during the third quarter, we are dependent on our ability to adequately address our short-term maturing debt as well as our longer term indebtedness, level of debt and other liquidity needs. As reported on December 8, 2009, we have entered into agreements which, if consummated, would substantially improve our liquidity, reduce our indebtedness and significantly delever our balance sheet. The closing is currently expected to occur in the first fiscal quarter of 2010, which would not address our near term debt maturities. The transactions are subject to a number of conditions, a number of which are beyond our control. Until consummation, we will continue to assess our debt maturities and liquidity needs.

We have outstanding short-term bank indebtedness of $221.1 million under bank credit facilities as of October 31, 2009 which terminate between late December 2009 and April 2010, which have not been extended or refinanced. All of this bank indebtedness is guaranteed to the lenders by AEON. Under AEON’s April 9, 2009 financial support commitment to us, in the event our bank lenders have not refinanced that short-term bank indebtedness, AEON agreed to provide short-term financing to us to satisfy this bank indebtedness which matures on or before April 16, 2010, in order to avoid any lack of our financial resources. We will rely on this AEON

financial support commitment, in combination with using our existing $150.0 million AEON secured credit facility, which has not been drawn on to date, for the repayment of this short-term bank indebtedness. This AEON financing will be due in April 2010.

We are discussing with AEON proposed arrangements under its April 9, 2009 commitment to finance our short-term maturing bank debt. To satisfy this commitment, AEON has proposed to increase the aggregate principal amount under our existing AEON $150.0 million secured facility, which has not been drawn on to date, to a total amount sufficient to repay this short-term bank debt. To the extent we would use all borrowing availability under that $150.0 million AEON secured facility to repay this short-term bank debt, we would not be able to use that facility for any working capital or other cash needs. In addition, if there is additional borrowing capacity under that facility for working capital or other cash needs, that facility expires in April 2010. In either case, unless we have another credit facility available for any working capital or other cash requirements, we would need to rely on our existing cash flows and other internal cash resources for our future operating needs and other cash requirements. There can be no assurance that our available cash flows and other internal cash resources will at all times be sufficient for our future cash needs, and any insufficiency would have a material adverse impact on our business, liquidity and results of operations.

We will need to replace our AEON financing due in April 2010, our existing $150.0 million secured revolving credit facility, which expires in April 2010, and any outstanding bank indebtedness that may be due in April 2010. If we are not able to replace our maturing indebtedness due in April 2010, we would not have sufficient funds to repay that indebtedness and our business, liquidity and results of operations would be materially adversely impacted. We will also need to replace our longer term AEON indebtedness totaling $250.0 million due at various dates to 2012 (see Note 10 to our condensed consolidated financial statements) and bank indebtedness of $20.0 million which matures in 2012, which is guaranteed by AEON.

On December 8, 2009, we entered into agreements (collectively, the “BPW Transactions”) which consist of three related transactions: (i) an Agreement and Plan of Merger between Talbots and BPW pursuant to which a wholly-owned subsidiary of Talbots will merge with and into BPW with BPW surviving as a wholly-owned subsidiary of Talbots, in exchange for our issuance of Talbots common stock to BPW stockholders; (ii) the retirement of all Talbots common stock currently held by our majority stockholder, AEON (U.S.A.), and the repayment of all of our then outstanding AEON debt and outstanding bank debt; and (iii) a third party loan commitment for a new $200.0 million senior secured revolving credit facility. These transactions are described further in Note 14 to our condensed consolidated financial statements.

Upon the completion of these transactions we would satisfy all outstanding short-term and longer term outstanding AEON debt and bank debt, would significantly reduce our level of debt, and would significantly delever our balance sheet. There can be no assurance that all conditions to the closing and consummation of these transactions will be satisfied and that these transactions will be consummated. If for any reason we are unable to consummate these BPW Transactions, it would have a material adverse impact on our business, liquidity and results of operations. In such case, we would need to continue to explore all of our strategic and financing alternatives and other options to sufficiently and timely address our debt structure, our short-term and longer term indebtedness and our other cash needs. We cannot provide assurance that these would be successfully resolved at the times or in the amounts needed.

Cash Flows

The following is a summary of cash flows from continuing operations (in thousands) for the thirty-nine weeks ended October 31, 2009 and November 1, 2008:


	October 31,			November 1,
	2009			2008
Net cash provided by operating activities	$	20,808		$	29,213
Net cash used in investing activities		(17,045	)		(29,703	)
Net cash provided by financing activities		12,019			23,279

Net cash provided by discontinued operations for the thirty-nine weeks ended October 31, 2009 was $37.8 million and net cash used by discontinued operations for the thirty-nine weeks ended November 1, 2008 was $26.2 million. The below discussion on cash flows refers to cash flows from continuing operations only.

Cash provided by operating activities

Cash provided by operating activities was $20.8 million during the thirty-nine weeks ended October 31, 2009 compared to $29.2 million during the thirty-nine weeks ended November 1, 2008. The decrease of $8.4 million is primarily due to our loss from continuing operations of $23.8 million during the thirty-nine weeks ended October 31, 2009. The decline was substantially offset by a lower investment in working capital, primarily inventory, and receipt of a $26.6 million income tax refund received in the first quarter of 2009.

The change in inventory levels was a result of our strategy to maintain leaner inventories to improve our gross margins. Total inventories at October 31, 2009 were $165.9 million, down $60.4 million or 26.7% from November 1, 2008. We are comfortable with our planned apparel inventory levels for the remainder of the fall season with our improved product flow enabling us to operate on a lower inventory level compared to last year.

Cash used in investing activities

Cash used in investing activities was $17.0 million during the thirty-nine weeks ended October 31, 2009 compared to $29.7 million during the thirty-nine weeks ended November 1, 2008, an improvement of $12.7 million. Cash flows used in investing activities were primarily related to purchases of property and equipment. Cash used for purchases of property and equipment during the thirty-nine weeks ended October 31, 2009 was $17.1 million compared to $32.3 million during the thirty-nine weeks ended November 1, 2008. This $15.2 million decline in expenditures was a result of our planned decline in spending on new store openings, store renovations, and information technology due to the uncertain economic environment of late 2008 continuing into 2009. During the thirty-nine weeks ended October 31, 2009, we opened 11 new stores, and closed nine others. Included in these openings were 10 upscale outlet stores opened in the second and third quarters of 2009. We expect to open one additional upscale outlet store during the remainder of 2009. We will reduce our capital spending for 2009. We expect to spend approximately $21.7 million in gross capital expenditures in 2009 primarily to support the rollout of our new upscale outlet stores which commenced opening in May 2009, a platform refresh of our e-commerce site, and renovation and refurbishment of certain of our existing store bases. This would reflect a decrease of approximately 51.5% in net capital expenditures from fiscal 2008 expenditures.

Cash provided by financing activities

Cash provided by financing activities was $12.0 million during the thirty-nine weeks ended October 31, 2009 compared to $23.3 million during the thirty-nine weeks ended November 1, 2008. The decrease in cash provided by financing activities in 2009 was due to a lesser amount of net borrowings in 2009 compared to 2008, partially offset by the benefits of the suspension of the quarterly dividend payment that was approved by our Board of Directors in February 2009. During the thirty-nine weeks ended November 1, 2008, we paid $21.6 million in dividends. The dividends in 2008 were paid at a rate of $0.13 per share.

Critical Accounting Policies

In our 2008 Annual Report on Form 10-K, we identified the critical accounting policies upon which the consolidated financial statements were prepared as those relating to the inventory markdown reserve, sales return reserve, customer loyalty program, retirement plans, impairment of long-lived assets, impairment of goodwill and other intangible assets, income taxes, and stock-based compensation. There have been no changes to our critical accounting policies for the quarter ended October 31, 2009.

Contractual Obligations

For a discussion of our contractual obligations, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2008 Form 10-K. In connection with our disposition of the J. Jill brand business, (a) we transferred to the Purchaser 205 J. Jill store leases and subleased through December 2014 approximately 63,943 square feet of J. Jill office space, which at July 2, 2009 totaled $142.2 million in future aggregate lease payments extending to various dates in 2019 and as to which we remain contingently obligated, as transferor or sublessor, for the continued satisfaction by the Purchaser and (b) we retained 75 J. Jill store leases and approximately 62,926 square feet of office space, which at July 2, 2009 totaled $62.5 million in future aggregate lease payments extending to various dates in 2019, and we are currently in the process of seeking to settle these remaining liabilities. There were no other material changes to our contractual obligations during the thirty-nine weeks ended October 31, 2009. See the Short-Term Maturities and Current Liquidity section above for additional information regarding the timing and amounts of our outstanding debt.

New Accounting Pronouncements

New accounting standards recently adopted and not yet adopted are discussed in Note 3, Significant Accounting Policies, to our condensed consolidated financial statements.

Forward-looking Information

This Report contains forward-looking information within the meaning of The Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “achieve,” “plan,” “look,” “believe,” “anticipate,” “outlook,” “will,” “would,” “should,” “potential” or similar statements or variations of such terms. All of the information concerning our future liquidity, future financial performance and results, future credit facilities and availability, future cash flows and cash needs, and other future financial performance or financial position, as well as our assumptions underlying such information, constitute forward-looking information. Our forward looking statements are based on a series of expectations, assumptions, estimates and projections about the Company, are not guarantees of future results or performance, and involve substantial risks and uncertainty, including assumptions and projections concerning our liquidity, internal plan, regular-price and markdown selling, operating cash flows, and credit availability for all forward periods. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the following risks and uncertainties:

	•		our ability to satisfy all of the conditions to the consummation of all of the BPW Transactions;

	•		BPW’s ability to obtain the necessary support of its stockholders to approve the BPW Transactions, including the risk that the exercise of conversion rights by BPW’s stockholders, together with transaction costs incurred by BPW, may cause the balance of the BPW trust account to fall below the level necessary to consummate the transaction;

	•		BPW’s and our ability to obtain the necessary participation of BPW warrant holders in the exchange of BPW warrants for Talbots stock or warrants;

	•		our ability to satisfy all of the conditions to the $200 million credit commitment provided by the proposed third party lender or, failing that, to obtain sufficient alternative financing on a timely basis;

	•		sufficiency and availability of proceeds of the BPW trust account following any exercise by stockholders of their conversion rights and the incurrence of transaction expenses;

	•		the continuing material impact of the deterioration in the U.S. economic environment over the past two years on our business, continuing operations, liquidity, financing plans, and financial results, including substantial negative impact on consumer discretionary spending and consumer confidence, substantial loss of household wealth and savings, the disruption and significant tightening in the U.S. credit and lending markets, and potential long-term unemployment levels;

	•		agreement and consummation of any transaction to address financing and long term strategic objectives;

	•		our level of indebtedness and our ability to refinance or otherwise address our short-term maturities, on the terms or in amounts needed to satisfy these maturities and to address our longer-term maturities, as well as our working capital, strategic initiatives and other cash requirements;

	•		any lack of sufficiency of available cash flows and other internal cash resources to satisfy all future operating needs and other Company cash requirements;

	•		finalization of all arrangements and satisfaction of all conditions to AEON commitment to finance near term indebtedness, including negotiation and preparation of loan documentation, any confirmatory due diligence, perfection of all liens, sufficiency of collateral, and satisfaction of all other borrowing conditions;

	•		satisfaction of all borrowing conditions under all AEON and third party credit facilities including no events of default, accuracy of all representations and warranties, solvency conditions, absence of material adverse effect or change, and all other borrowing conditions;

	•		risk of any default under our credit facilities;

	•		our ability to achieve our 2009 financial plan for operating results, working capital, liquidity and cash flows;

	•		risks associated with the appointment of and transition to a new exclusive global merchandise buying agent and that the anticipated benefits and cost savings from this arrangement may not be realized or may take longer to realize than expected, and risk that upon any cessation of the relationship for any reason we would be able to successfully transition to an internal or other external sourcing function;

	•		our ability to continue to purchase merchandise on open account purchase terms at existing or future expected levels and with extended payment of accounts payable and risk that suppliers could require earlier or immediate payment or other security due to any payment concern or timing;

	•		risks and uncertainties in connection with any need to source merchandise from alternate vendors;

	•		any disruption in our supply of merchandise;

	•		our ability to successfully execute, fund, and achieve our supply chain initiatives, anticipated lower inventory levels, cost reductions, and our other initiatives;

	•		the risk that anticipated benefits from the sale of the J. Jill brand business may not be realized or may take longer to realize than expected and the risk that estimated or anticipated costs, charges and liabilities to settle and complete the transition and exit from and disposal of the J. Jill brand business, including both retained obligations and contingent risk for assigned obligations, may materially differ from or be materially greater than anticipated;

	•		the success and customer acceptance of our merchandise offerings;

	•		future store closings and success of and necessary funding for closing underperforming stores;

	•		risk of impairment of goodwill and other intangible and long-lived assets;

	•		risk of actual liabilities or assessments exceeding estimated amounts in any litigation or administrative proceeding; and

	•		the risk of continued compliance with NYSE continued listing conditions.

All of our forward-looking statements are as of the date of this Report only. In each case, actual results may differ materially from such forward-looking information. The Company can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Report or included in our other periodic reports filed with the SEC could materially and adversely affect our continuing operations and our future financial results, cash flows, prospects, and liquidity. Except as required by law, the Company does not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections, or other circumstances affecting such forward-looking statements occurring after the date of this Report, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Report which modify or impact any of the forward-looking statements contained in this Report will be deemed to modify or supersede such statements in this Report.

In addition to the information set forth in this Report, you should carefully consider the risk factors and risks and uncertainties included in our Annual Report on Form 10-K and other periodic reports filed with the SEC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. We do not enter into financial instruments for trading purposes.

At October 31, 2009, we had outstanding variable rate borrowings of $200.0 million under our $200.0 million term loan facility with AEON, $52.0 million under our revolving credit facilities, $48.0 million under term loans with other third party lenders, $50.0 million under a term loan from AEON (U.S.A.), and $141.1 million under our $165.0 million working capital facilities. The impact of a hypothetical 10% adverse change in interest rates for this variable rate debt would have caused an additional interest expense charge of $0.4 million for the quarter ended October 31, 2009.

We enter into certain purchase obligations outside the United States which are predominately settled in U.S. dollars and, therefore, we have only minimal exposure to foreign currency exchange risks. We do not hedge against foreign currency risks and believe that the foreign currency exchange risk is not material. In addition, we operated 21 stores in Canada as of October 31, 2009. We believe that our foreign currency translation risk is

immaterial, as a hypothetical 10% strengthening or weakening of the U.S. dollar relative to the applicable foreign currency would not materially affect our results of operations or cash flow.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

We have established disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision, and with the participation of, our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of October 31, 2009. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of October 31, 2009 because of the existence of the material weakness identified during our assessment of internal control over financial reporting as of January 31, 2009 and reported in our fiscal 2008 Annual Report on Form 10-K.

As previously reported, during our evaluation as of January 31, 2009, we identified the following material weakness in internal control over financial reporting: we had ineffective operation of controls to ensure non routine, complex transactions and events were properly accounted for in accordance with accounting principles generally accepted in the United States of America. As a result of this identified weakness, material adjustments were identified and recorded in our books and records related to accounts associated with income taxes. While this weakness exists, income taxes and other accounts affected by non routine, complex transactions may be materially impacted.

We are in the process of remediating this material weakness through the following actions:

	•		Expanding training for tax, accounting and finance personnel to further develop the knowledge base resident within the Company and ensure the adequacy of qualified, trained staff to address complex, non routine transactions;

	•		Further enhancing procedures to help ensure that the proper accounting for all complex, non routine transactions is researched, detailed in memoranda and reviewed by senior management prior to recording;

	•		Strengthening the communication and collaboration amongst the various departments within the Company; and

	•		Supplementing our internal resources with external advisors with specialized expertise as non routine or complex issues arise.

This material weakness is not fully remediated as of October 31, 2009 and will not be considered remediated until the remedial procedures have operated for an appropriate period, have been tested, and management has concluded that they are operating effectively.

Changes in Internal Control over Financial Reporting

Our Chief Executive Officer and Chief Financial Officer have also concluded that there have been no changes in our internal control over financial reporting during the quarter ended October 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Company is periodically named as a defendant in various lawsuits, claims and pending actions and is exposed to tax risks. If a potential loss arising from these lawsuits, claims, actions and non-income tax issues is probable and reasonably estimable, the Company records the estimated liability based on circumstances and assumptions existing at the time in accordance with Statement of Financial Accounting Standards Board No. 5, “Accounting for Contingencies” (ASC 450-20). For potential income tax related issues the Company records estimated liabilities in accordance with Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (ASC-740). While the Company believes the recorded liabilities are adequate, there are inherent limitations in projecting the outcome of these matters and in the estimation process whereby future actual liabilities may exceed projected liabilities, which could have a material adverse effect on the Company’s financial condition and results of operations.

The Company is subject to tax in various domestic and international jurisdictions and, as a matter of course, is regularly audited by federal, state and foreign tax authorities. During the third quarter of 2009, the Massachusetts Appellate Tax Board rendered an adverse decision on certain tax matters of the Company. As a result, the Company made a payment to the Massachusetts Department of Revenue on the assessment which did not have a material impact on our third quarter 2009 earnings. The Company is actively appealing the decision.

Item 1A. Risk Factors.

In addition to the risk factors discussed below and the other information set forth in this Report, careful consideration should be given to the risk factors discussed in Part I, Item 1A, “Risk Factors” in our 2008 Annual Report on Form 10-K, any of which could materially affect our business, operations, financial position, liquidity and future results. The risks described in this Report and in our 2008 Annual Report on Form 10-K are important to an understanding of the statements made in this Report, in our other filings with the SEC, and in any other discussion of our business. These risk factors, which contain forward-looking information, should be read in conjunction with Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included in this Report. The risks described in this Report and in our 2008 Annual Report on Form 10-K are not intended to be exhaustive and are not the only risks facing the Company.

We need to adequately resolve our financing needs.

Under AEON’s April 9, 2009 financial support commitment to us, in the event our bank lenders have not refinanced our short-term bank indebtedness, AEON agreed to provide short-term financing to the Company, due on April 16, 2010, to satisfy bank indebtedness due on or before April 16, 2010, in order to avoid any lack of our financial resources. We will rely on this AEON financial support commitment, in combination with using our existing $150.0 million AEON secured revolving credit facility, which has not been drawn on to date and which matures in April 2010, for the repayment of this short-term bank indebtedness. We also have $250.0 million of other outstanding AEON indebtedness scheduled to mature at various dates up to 2012, as well as $20.0 million of other bank indebtedness scheduled to mature in 2012, which is guaranteed by AEON.

We need a source of liquidity to repay our outstanding AEON indebtedness and non- AEON indebtedness maturing in April 2010 as well as for our indebtedness maturing after April 2010. If we are unable to obtain replacement funding for this indebtedness, we would not have the existing funds to repay that indebtedness.

A failure to pay any indebtedness when due would be a default and could also result in the acceleration of the maturity of our other debt, any of which would have a material adverse effect on our business, operations, liquidity and results of operations.

Any failure by us to adequately and timely address our short-term debt maturities as well as our longer term indebtedness, high level of debt, and our other cash needs would have a material and adverse impact on our business, financial condition, operations, sales, supply of merchandise and results of operations.

We also need credit facilities which will be available for our working capital needs and our other cash requirements. Without adequate working capital facilities, there can be no assurance that our available cash flows and other internal cash resources will be sufficient at all times for our future operating needs or other cash requirements.

We currently utilize one of our existing credit facilities for standby letters of credit. At October 31, 2009 we had $13.8 million in outstanding standby letters of credit which expire up through December 2009. This credit facility matures in December 2009 and we need to seek an alternate source for letters of credit as needed. No assurance can be given that a letter of credit facility will be available.

On December 8, 2009, we entered into agreements (collectively, the “BPW Transactions”) which, in the aggregate, and subject to satisfaction of all conditions to consummation of these transactions, would be used to repay all of our outstanding AEON indebtedness and outstanding bank indebtedness, significantly reduce our level of indebtedness and significantly delever our balance sheet. The consummation of the BPW Transactions is subject to a significant number of conditions, many of which are outside of our control, and there can be no assurance that all of these conditions will be satisfied or that these transactions will be consummated. In addition, one of the conditions to the consummation of these transactions is the availability and funding of a senior secured facility in an amount of not less than $200.0 million and we cannot be assured that we will satisfy all conditions to such financing.

Our ability to continue to achieve our turnaround strategy is dependent on many factors, many of which are outside of our control.

Our ability to achieve our turnaround strategy and continue our improvement in operating results and to address our financing needs depends upon a significant number of factors, many of which are beyond our control, including:

	•		our ability to adequately and timely address our financing needs and our general liquidity needs, and the impact on our sales and operating results of any uncertainty concerning our short-term and longer term financing needs;

	•		impact of uncertainties associated with the BPW Transactions while pending and satisfaction of all conditions to consummation;

	•		sufficiency at all times of available cash flows and other internal and external cash resources for all future operating needs and all other cash needs;

	•		the continuation or any further worsening of economic conditions;

	•		adequate and uninterrupted supply of merchandise and continuation of merchandise purchases on open account purchase terms from merchandise vendors at expected levels and with extended invoice payment dates;

	•		achieving our sales and cash flow plans for 2009 and 2010, including the success of our 2009 holiday selling season;

	•		whether our strategic initiatives and cost saving actions will continue to improve our results, operating efficiencies, and cash flows;

	•		effective inventory management and maintaining adequate levels of customer-appropriate inventory; and

	•		our ability to adjust our operating plans in response to changing conditions.

We cannot provide assurance that any of these or other factors, plans and initiatives will be resolved or occur in our favor and, if not, our business, financial results, liquidity, sales and results of operations could be materially and adversely impacted.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

A summary of the repurchase activity under certain equity programs for the thirteen weeks ended October 31, 2009 is set forth below:


					Approximate Dollar
					Value of Shares
	Total Number of		Average Price Paid		that may yet be Purchased under the
Period	Shares Purchased(1)		per share		Equity Award Programs (2)

August 2, 2009 through August 29, 2009		32,577	$	0.15	$	13,164
August 30, 2009 through October 3, 2009		23,800		0.01		12,912
October 4, 2009 through October 31, 2009		1,776		11.47		13,087


Total		58,153	$	0.44	$	13,087


1.		We repurchased 55,675 shares in connection with stock forfeited by employees prior to vesting under our equity compensation plan, at an acquisition price of $0.01 per share.

		We also repurchased 2,478 shares of common stock from certain employees to cover tax withholding obligations from the vesting of stock, at a weighted average acquisition price of $10.03 per share.

2.		As of October 31, 2009, there were 1,308,665 shares of nonvested stock that were subject to buyback at $0.01 per share, or $13,086.65 in the aggregate, that we have the option to repurchase if employment is terminated prior to vesting.

Item 6. Exhibits.


2.1		Amendment No. 1 to Asset Purchase Agreement and Parent Disclosure Schedule, dated as of July 2, 2009, by and among The Talbots, Inc., The Talbots Group, Limited Partnership, J. Jill, LLC, Birch Pond Realty Corporation, and Jill Acquisition LLC.(1)

2.2		Amendment No. 2 to Asset Purchase Agreement, dated as of September 30, 2009, by and among The Talbots, Inc., The Talbots Group, Limited Partnership, J. Jill, LLC, Birch Pond Realty Corporation, and Jill Acquisition LLC.(1)

10.1		Offer Letter between The Talbots, Inc. and John Fiske, III, dated as of March 20, 2009, executed on September 20, 2009. (1)

10.2		Severance Agreement between The Talbots, Inc. and John Fiske, III, dated as of March 20, 2009, executed on September 20, 2009. (1)

10.3		Summary of The Talbots, Inc. Executive Medical Plan dated June 19, 2007 (1)

31.1		Certification of Trudy F. Sullivan, President and Chief Executive Officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a).(1)

31.2		Certification of Michael Scarpa, Chief Operating Officer, Chief Financial Officer and Treasurer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a).(1)

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 Michael Scarpa, Chief Operating Officer, Chief Financial Officer and Treasurer of the Company.(1)


(1)		Filed with this Form 10-Q.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Dated: December 10, 2009
	THE TALBOTS, INC.
	By:	/s/ Michael Scarpa
		Michael Scarpa
		Chief Operating Officer, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

EX-2.1 2 b78431exv2w1.htm EX-2.1 AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT AND PARENT DISCLOSURE SCHEDULE, DATED AS OF JULY 2, 2009 exv2w1

Exhibit 2.1

AMENDMENT NO. 1 TO
ASSET PURCHASE AGREEMENT AND
PARENT DISCLOSURE SCHEDULE

THIS AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT AND PARENT DISCLOSURE SCHEDULE, is made as of July 2, 2009 (this “Amendment”), by and among The Talbots, Inc., a Delaware corporation (“Parent”), The Talbots Group, Limited Partnership, a Massachusetts limited partnership (“TGLP”), J. Jill, LLC, a New Hampshire limited liability company (“J. Jill”), and Birch Pond Realty Corporation, a Delaware corporation (“Birch Pond” and, together with TGLP, J. Jill and Parent, each a “Seller” and, collectively, the “Sellers”), and Jill Acquisition LLC, a Delaware limited liability company (“Buyer”).

AGREEMENT

Section 1. Definitions. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed thereto in that certain Asset Purchase Agreement, dated as of June 7, 2009 (the “Agreement”), by and among the Sellers and Buyer.

Section 2. Amendment of the Agreement. The Agreement is hereby amended as follows:

2.1. Section 5.6(b) of the Agreement is hereby amended by restating the ultimate sentence of such Section as follows:

Parent and Buyer agree that, during the period beginning on the Closing Date and ending on July 31, 2009, continued medical and dental coverage shall be provided to Transferred Employees (and their eligible beneficiaries) who elect to receive such coverage as set forth in the Transition Services Agreement.

Section 3. Amendment of the Parent Disclosure Schedule. The Parent Disclosure Schedule, dated as of June 7, 2009 (the “Parent Disclosure Schedule”), by and among the Sellers and Buyer, is hereby amended as follows:

3.1. Section 2.2(a)(viii) of the Parent Disclosure Schedule is hereby amended by appending the following to such Section:

238. Software License and Services Agreement, dated March 25, 2005, between TGLP and Aspect Communications Corporation.

239. Special Inventory Agreement for J. Jill Hold In Stock — Bill on Release, dated December 21, 2008, between J. Jill and Gateway Business Communications, Inc.

3.2. Section 2.2(a)(viii) of the Parent Disclosure Schedule is hereby amended by deleting the following item 31 (“Master Terms and Conditions, dated March 26, 2007, between J. Jill and Overture Services, Inc., as amended or supplemented”) and item 33 (“Promotion and Integration Agreement, dated August 12, 2002, between J. Jill and Yahoo! Inc.”) from such Section.

3.3. Section 3.3(a) of the Parent Disclosure Schedule is hereby amended by deleting item 21 (“Master Terms and Conditions, dated March 26, 2007, between J. Jill and Overture Services, Inc.”) and item 23 (“Promotion and Integration Agreement, dated August 12, 2002, between J. Jill and Yahoo! Inc.”) from such Section.

3.4. Section 5.6(b) of the Parent Disclosure Schedule is hereby amended by deleting the following item 4 (“[Former Employee]”) from such Section.

3.5. Section 5.20 of the Parent Disclosure Schedule is hereby amended by deleting the following item 19 (“Software License and Services Agreement, dated March 25, 2005, between TGLP and Aspect Communications Corporation*”) from such Section.

3.6. Section 5.20 of the Parent Disclosure Schedule is hereby amended by deleting the following item 20 (“Statement of Work and Pricing Proposal for Aspect eWorkforce Management v.7.2, dated May 18, 2009, between TGLP and Aspect Software, Inc.*”) from such Section.

3.7. Section 5.20A of the Parent Disclosure Schedule is hereby amended by deleting the following item 18 (“Software License and Services Agreement, dated March 25, 2005, between TGLP and Aspect Communications Corporation”) from such Section.

3.8. Section 5.20A of the Parent Disclosure Schedule is hereby amended by deleting the following item 20 (“Statement of Work and Pricing Proposal for Aspect eWorkforce Management v.7.2, dated May 18, 2009, between TGLP and Aspect Software, Inc.*”) from such Section.

Section 4. Miscellaneous.

4.1. Effect of Amendment. The execution, delivery and effectiveness of this Amendment shall not constitute a waiver or amendment of any provision of the Agreement or the Parent Disclosure Schedule, except as specifically set forth herein. Except as modified by this Amendment, the Agreement and the Parent Disclosure Schedule shall continue in full force and effect.

4.2. Counterparts. This Amendment may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Any facsimile copies hereof or signature hereon shall, for all purposes, be deemed originals.

4.3. Entire Agreement. This Amendment embodies the entire agreement and understanding among the parties hereto and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, in each case, relating to the subject matter hereof.

4.4. References. Reference to any of this Amendment, the Agreement or the Parent Disclosure Schedule shall be a reference to the Agreement or the Parent Disclosure Schedule, as applicable, as amended hereby and as further amended, modified, restated, supplemented or extended from time to time.

Section 5. Applicable Law. This Amendment shall be governed by and construed under the Laws of the State of New York (without regard to the conflict of law principles thereof). Each of the Parties irrevocably agrees that any legal action or proceeding with respect to this Amendment or for recognition and enforcement of any judgment in respect hereof shall be brought and determined in the United States District Court for the Southern District of New York or if such legal action or proceeding may not be brought in such court for jurisdictional purposes, in the Supreme Court of New York. Each of the Parties hereby (a) irrevocably submits with regard to any such action or proceeding to the exclusive personal jurisdiction of the aforesaid courts in the event any dispute arises out of this Amendment and waives the defense of sovereign immunity, (b) agrees that it shall not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court or that such action is brought in an inconvenient forum and (c) agrees that it shall not bring any action relating to this Amendment in any court other than any New York state or federal court sitting in New York, New York.

IN WITNESS WHEREOF, this Amendment has been duly executed and delivered by each Party as of the date first written above.


SELLERS: THE TALBOTS, INC.
By:	/s/ Richard T. O’Connell, Jr.
	Name:	Richard T. O’Connell, Jr.
	Title:	Executive Vice President, Real Estate, Legal, Store Planning & Design and Construction, and Secretary

THE TALBOTS GROUP, LIMITED PARTNERSHIP
By:	/s/ Richard T. O’Connell, Jr.
	Name:	Richard T. O’Connell, Jr.
	Title:	Executive Vice President, Real Estate, Legal, Store Planning & Design and Construction, and Secretary

J. JILL, LLC
By:	/s/ Richard T. O’Connell, Jr.
	Name:	Richard T. O’Connell, Jr.
	Title:	Manager

BIRCH POND REALTY CORPORATION
By:	/s/ Richard T. O’Connell, Jr.
	Name:	Richard T. O’Connell, Jr.
	Title:	Executive Vice President and Assistant Secretary

S-1


BUYER: JILL ACQUISITION LLC
By:	/s/ Joshua Olshansky
	Name:	Joshua Olshansky
	Title:	Vice President

S-2

EX-2.2 3 b78431exv2w2.htm EX-2.2 AMENDMENT NO. 2 TO ASSET PURCHASE AGREEMENT, DATED AS OF SEPTEMBER 30, 2009 exv2w2

Exhibit 2.2

Jill Acquisition LLC
c/o Golden Gate Private Equity, Inc.
One Embarcadero Center
39th Floor
San Francisco, California 94111

September 30, 2009

The Talbots, Inc.
One Talbots Drive
Hingham, Massachusetts 02043
Attention: General Counsel
Telecopy: (914) 934-9136

Dear Sir or Madam:

We refer to that certain Asset Purchase Agreement, dated as of June 7, 2009, as amended July 2, 2009 (the “Agreement”), by and among The Talbots, Inc., a Delaware corporation (“Parent”), The Talbots Group, Limited Partnership, a Massachusetts limited partnership (“TGLP”), J. Jill, LLC, a New Hampshire limited liability company (“J. Jill”), and Birch Pond Realty Corporation, a Delaware corporation ( “Birch Pond” and, together with TGLP, J. Jill and Parent, each a “Seller” and, collectively, the “Sellers”), and Jill Acquisition LLC, a Delaware limited liability company (“Buyer”). Capitalized terms used in this letter agreement without definition shall have the respective meanings ascribed thereto in the Agreement.

Each of the Sellers and Buyer agree that Section 2.4(a) of the Agreement is hereby amended by deleting the words “ninety (90) days” in the first sentence of such section and inserting in lieu thereof the words “one hundred twenty (120) days”.

Each of the Sellers and Buyer agree that Section 6.2 of the Agreement is hereby amended by deleting the words “one hundred twenty (120) days” in the first sentence of such section and inserting in lieu thereof the words “one hundred fifty (150) days”.

Except as expressly provided herein, this letter agreement shall not constitute an amendment, modification or waiver of any provision of the Agreement, which shall continue and remain in full force and effect in accordance with its terms (as amended by this letter agreement).

This letter agreement shall be governed by and construed under the Laws of the State of New York (without regard to the conflict of law principles thereof).

This letter agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Any facsimile copies hereof or signature hereon shall , for all purposes, be deemed originals,


Sincerely, JILL ACQUISITION LLC
By:	/s/ David Biese
	Name:	David Biese
	Title:	CFO

Accepted and agreed to as of the date first above-written:

THE TALBOTS, INC.


By:	/s/ Michael Scarpa
	Name:	Michael Scarpa
	Title:	COO & CFO

THE TALBOTS GROUP, LIMITED PARTNERSHIP
By:	/s/ Michael Scarpa
	Name:	Michael Scarpa
	Title:	COO & CFO

J. JILL, LLC
By:	/s/ Michael Scarpa
	Name:	Michael Scarpa
	Title:	COO & CFO

BIRCH POND REALTY CORPORATION
By:	/s/ Michael Scarpa
	Name:	Michael Scarpa
	Title:	President


cc:		Dewey & LeBoeuf LLP 1301 Avenue of the Americas New York, New York 10019 Attention: Morton A. Pierce, Esq. Chang-Do Gong, Esq. Telecopy: (212) 259-6333

Day Pitney LLP
200 Campus Drive
Florham Park, New Jersey 07932
Attention: Warren J. Casey, Esq.
Telecopy: (973) 966-1015

Kirkland & Ellis LLP
555 California Street
San Francisco, California 94104
Attention: Mikaal Shoaib, Esq.
Nathan Shinn, Esq.
Telecopy: 415-439-1500

EX-10.1 4 b78431exv10w1.htm EX-10.1 OFFER LETTER BETWEEN THE TALBOTS, INC. AND JOHN FISKE, III, DATED AS OF MARCH 20, 2009, EXECUTED ON SEPTEMBER 20, 2009 exv10w1

Exhibit 10.1

The Talbots, Inc.

March 20, 2009

By Hand Delivery
John Fiske, III
c/o The Talbots, Inc.
One Talbots Drive
Hingham, Massachusetts 02043

Dear John,

On behalf of The Talbots, Inc. (including its subsidiaries, “Talbots” or the “Company”), we are pleased to offer you the position of Executive Vice President, Chief Stores Officer in accordance with the following:

Base Salary, Benefits and Perquisites

•		Your initial salary will be at the rate of $530,000 per annum (effective as of March 20, 2009). Your salary will be paid to you on a bi-weekly basis. Your first review for a possible salary increase based on demonstrated job performance will be scheduled for the first quarter of FY 2010 and annually thereafter.

•		You are eligible to participate in the Company’s medical and dental benefit plans currently in effect and generally available at the time to Talbots senior executives, subject to plan terms and eligibility conditions. You are also eligible to participate in all other benefit plans currently in effect and generally available at the time to Talbots senior executives, subject to plan terms and eligibility conditions. Plans are subject to modification or termination by the Company in its discretion. You will accrue paid time off on a weekly basis throughout the year at a rate of 4.62 hours per week. You are also eligible for all perquisites at a level commensurate with the executive vice president level at Talbots as in effect from time to time, including any auto allowance and reimbursement of financial planning expenses. Perquisites will not be grossed up for taxes. You are also a party to a Change in Control Agreement, dated March 1, 2007 (the “Change in Control Agreement”), which remains in effect unmodified by this Offer Letter or the Severance Agreement (as defined below).

•		You will report directly to the chief executive officer or chief operating officer (or persons performing the similar role or function).

•		Your position and title is Executive Vice President, Chief Stores Officer, effective March 20, 2009.

John Fiske, III
March 20, 2009
Page 2

Annual Incentive Award Opportunity

•

You will be eligible for participation in any annual incentive plan of the Company as may be in effect from time to time. Your target award opportunity under any annual incentive plan of the Company will be 75% of your base salary. Any annual incentive award opportunity for which you may be eligible for fiscal 2009, if any 2009 incentive program is established, will be based on your current target award opportunity as provided immediately above and will not be prorated between such target award opportunity as stated above and your immediately prior target award opportunity, all subject to the terms and conditions of any such 2009 incentive program.

Equity Compensation

•		You will be eligible to receive such equity incentive compensation as may be awarded from time to time by the Company’s Compensation Committee of the Board of Directors (the “Compensation Committee”) pursuant to The Talbots, Inc. 2003 Executive Stock Based Incentive Plan as same may be amended or superseded from time to time (“Equity Plan”). All incentive awards granted to you will be subject to the terms of the Equity Plan.

•		In connection with your promotion to this position, you were eligible and received a one-time restricted stock award for 158,189 shares of Common Stock of the Company, $0.01 par value per share (“Common Stock”) pursuant to and subject to the terms and conditions of a Restricted Stock Award Agreement executed by the Company and you. The effective date of grant of the restricted stock award was April 30, 2009. Subject to the terms of the Restricted Stock Award Agreement, the award will vest over a three-year period as follows: 25% on the first anniversary of the effective date of grant; 25% on the second anniversary of the effective date of grant; and 50% on the third anniversary of the effective date of grant.

•		You understand and agree that the number and timing of any future equity awards to you will be subject to Compensation Committee’s sole discretion.

Severance

•

It is understood and agreed that either you or Talbots may terminate the employment relationship at any time and for any reason upon giving thirty days’ prior written notice. Your eligibility for severance benefits will be pursuant to and subject to the terms and conditions of your Severance Agreement being executed between you and the Company at the same time and attached hereto as Exhibit A (the “Severance Agreement”). The Severance Agreement supersedes the severance agreement between you and the Company dated as of June 15, 2008. Subject to the terms and conditions of the Severance Agreement, in the event of a termination of your employment by the Company without Cause (as defined in the Severance Agreement) or by you for Good Reason (as defined in the Severance Agreement), you would be entitled to receive 1.5 times your annual base salary and 18 months benefits continuation, subject to the Company’s receipt of a release and waiver as required by the Severance Agreement.

John Fiske, III
March 20, 2009
Page 3

Restrictive Covenants

•		Confidentiality. You agree that you will not, at any time during or following your employment, directly or indirectly, without the express prior written consent of the Company, disclose or use any Confidential Information of the Company. “Confidential Information” will include all information concerning the Company or any parent, subsidiary, affiliate, employee, customer or supplier or other business associate of the Company or any affiliate (including but not limited to any trade secrets or other confidential, proprietary or private matters), which has been or is received by you or in your possession whether from the Company, or from any parent, subsidiary, affiliate or customer or supplier or other business associate of the Company or otherwise, or developed by you during the term of your employment, and which is not known or generally available to the public.

•		Non-Disparagement. You agree that, for a period of one year after termination or cessation of your employment for any reason, you will not take action or make any statement, written or oral, which is intended to materially disparage the Company or its business. Notwithstanding anything to the contrary contained herein or in the Severance Agreement, neither this provision nor the same provision in the Severance Agreement shall apply to accurate statements by you in your prosecution or defense of any action or proceeding by or against the Company in any court or other tribunal of competent jurisdiction, including arbitration and mediation, nor shall it apply to accurate statements by you in any testimony given pursuant to subpoena or other process issued by a court or other tribunal of competent jurisdiction.

•		Non-Solicitation. You agree that, for a period of one year after the termination or cessation of your employment for any reason, you will not directly or indirectly solicit, attempt to hire, or hire any employee of the Company (or any person who may have been employed by the Company during the last year of your employment with the Company), or actively assist in such hiring by any other person or business entity or encourage, induce or attempt to induce any such employee to terminate his or her employment with the Company.

•		Non-Competition. You agree that throughout your employment, and for a period of eighteen (18) months after termination or cessation of employment for any reason, you will not work directly or indirectly in any capacity or perform any services (including as an officer, director, employee, agent, advisor, in any consulting capacity or as an independent contractor) for any person, partnership, division, corporation or other entity in any business in competition with the principal businesses carried on by the Company in any jurisdiction in which the Company actively conducts business, including for illustrative purposes only and not limited to, Ann Taylor, Gap Inc., Chico’s FAS, J. Crew, J. Jill, Coldwater Creek, Polo Ralph Lauren or Nordstroms (or any of their affiliated brands, subsidiaries or successors).

•		You acknowledge, with the advice of legal counsel, that you understand the foregoing non-competition agreement and other restrictive covenants, that they are binding and

John Fiske, III
March 20, 2009
Page 4

		enforceable against you, and that these provisions are fair, reasonable, and necessary for the protection of the Company’s business.

•		In addition to all other rights and remedies of the Company under this offer letter or otherwise, upon any breach of any of the restrictive covenants set forth under the “Confidentiality,” “Non-Solicitation” and “Non-Competition” provisions above, which is not cured within 10 calendar days following written notice to you from the Company, such notice to be provided in the same manner as set forth in Paragraph 6(h) of the Severance Agreement, the Company will have the right to terminate any severance payment and benefits provided pursuant to this offer letter (including all related agreements) or any other or successor severance agreement covering you and the Company will also have the right to recover any severance payment and benefits previously paid under this offer letter or such other related agreements or any other or successor severance agreement covering you.

Definition

•		“Cause” will have the meaning set forth in the Severance Agreement.

•		“Good Reason” will have the meaning set forth in the Severance Agreement.

Arbitration; Mediation

•

Any dispute, controversy or claim between the parties arising out of or relating to this offer letter or all related agreements referenced herein, will be settled by arbitration conducted in The Commonwealth of Massachusetts (before a single arbitrator who shall be a former federal or state court judge), in accordance with the Commercial Rules of the American Arbitration Association then in force, and each party shall bear their own expenses including attorneys’ fees; provided, however, you acknowledge that in the event of a violation of the restrictive covenants set forth above, the Company would suffer irreparable damages and will be entitled to obtain from a state or federal court in The Commonwealth of Massachusetts or a federal or state court of any other state or jurisdiction, temporary, preliminary or permanent injunctive relief (without the necessity of posting any bond or other security), which rights will be in addition to any other rights or remedies to which it may be entitled. You hereby irrevocably consent to the exclusive jurisdiction of any federal court or state court located in The Commonwealth of Massachusetts, and you hereby agree that process in any suit, action or proceeding may be served anywhere in the world in the same manner as provided for notices to a party as provided in the Severance Agreement. Moreover, nothing in this provision prevents you from filing, cooperating with, or participating in any proceeding before the EEOC or a state Fair Employment Practices Agency relating to discrimination or bias (except that you acknowledge that you may not recover any monetary benefits in connection with any such proceeding). The decision of the arbitrator conducting any such arbitration proceedings will be in writing, will set forth the basis therefor and such arbitrator’s decision or award will be final and binding upon the Company and you. The Company and you will abide by all awards rendered in such arbitration proceedings, and all such awards may be enforced and executed upon in any court having jurisdiction over the party against whom or which enforcement of such award is sought. Notwithstanding the

John Fiske, III
March 20, 2009
Page 5

foregoing, the Company and you agree that, prior to submitting a dispute under this offer letter to arbitration, the parties agree to submit, for a period of sixty (60) days, to voluntary mediation before a jointly selected neutral third party mediator under the auspices of JAMS, Boston, Massachusetts, Resolution Center (or any successor location), pursuant to the procedures of JAMS International Mediation Rules conducted in The Commonwealth of Massachusetts (however, such mediation or obligation to mediate will not suspend or otherwise delay any termination or other action of the Company or affect the Company’s other rights).

Taxes

•

Notwithstanding anything to the contrary in this offer letter or the related agreements referenced herein or in any other severance agreement or severance arrangement between you and the Company, including without limitation the Severance Agreement and the Change in Control Agreement (for purposes of this subsection, all collectively referred to as the “agreements”), it is the intention of the parties that each of such agreements comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and any regulations or other guidance issued thereunder, and the agreements and the payments of any benefits thereunder will be operated and administered accordingly. Specifically, but not by limitation, you agree that if, at the time of termination of employment, the Company is considered to be publicly traded and you are considered to be a specified employee, as defined in Section 409A of the Code (and as determined as of December 31 preceding your termination of employment, unless your termination of employment occurs prior to April 30, in which case the determination will be made as of the second preceding December 31), then some or all of such payments to be made under the agreements as a result of your termination of employment will be deferred for no more than 6 months following such termination of employment, if and to the extent the delay in such payments is necessary in order to comply with the requirements of Section 409A of the Code after utilizing the short-term deferral and involuntary separation pay plan regulations. Upon expiration of such 6 month period (or, if earlier, your death), any payments so withheld will be distributed to you, with a payment of interest thereon credited at a rate of prime plus 1% (with such prime rate to be determined as of the actual payment date). Notwithstanding anything contained in this agreement to the contrary, the Company acknowledges that, for purposes of Section 409A of the Code, each and every payment made under this agreement shall be deemed a separate payment and not a series of payments. The foregoing provisions of this subsection are hereby incorporated into and made a part of the Severance Agreement and the Change in Control Agreement.

Release and Waiver

•

The Company’s obligation to make the payments and provide the benefits to you under or in connection with this offer letter or the related agreements referenced herein, or under any other severance agreement or severance arrangement (including, without limitation, under the Severance Agreement or the Change in Control Agreement) will be conditioned upon and subject to your delivery to the Company of an executed release (which will be

John Fiske, III
March 20, 2009
Page 6

effective when such release is no longer subject to revocation) of any and all claims against the Company, its parent entities, affiliates, employee benefit plans and fiduciaries (to the extent permissible under ERISA), and their respective officers, employees, directors, agents and representatives satisfactory in form and content to the Company’s counsel.

Miscellaneous

•		This offer letter together with all related agreements referenced herein (collectively, the “Documents”) constitute the entire understanding between you and the Company and cannot be modified, altered or waived unless it is done in a writing signed by both you and the Company. If there is any conflict between the terms of these Documents and any other document related to your employment, the terms of these Documents will control. This offer letter is governed by the laws of The Commonwealth of Massachusetts (other than its rules for conflicts of laws). This offer letter is personal in nature to the Company and your rights and obligations under this offer letter may not be assigned by you. This offer letter shall be binding upon and inure to the benefit of the parties hereto and their successors (including successors by merger, consolidation, sale or similar transaction, permitted assigns, executors, administrators, personal representatives and heirs).

•		It is the intention of the parties that the provisions of this offer letter will be enforced to the fullest extent permissible under the laws and public policies of each state and jurisdiction in which such enforcement is sought, but that the unenforceability (or the modification to conform with such laws or public policies) of any provisions hereof, will not render unenforceable or impair the remainder of this offer letter. Accordingly, if any provision of this offer letter will be determined to be invalid or unenforceable, either in whole or in part, this offer letter will be deemed amended to delete or modify, as necessary, the offending provisions and to alter the balance of this offer letter in order to render the same valid and enforceable to the fullest extent permissible.

•		You represent that the information (written or oral) provided to the Company by you or your representatives in connection with obtaining employment or in connection with your former employments, work history, circumstances of leaving your former employments and educational background is true and complete.

•		All reasonable legal fees and expenses incurred by the Executive in negotiating and entering into this offer letter, up to $7,500, will be paid by the Company after the Company’s receipt of the invoices therefor.

•		If you wish to accept our offer as outlined above, please sign and return this letter to me. The enclosed copy is for your records.

John Fiske, III
March 20, 2009
Page 7

John, we are thrilled that you have accepted this new role at Talbots, and we are confident that you will continue to contribute to the Company’s success!


Very truly yours,
/s/ Trudy F. Sullivan
Trudy F. Sullivan
President and Chief Executive Officer

Accepted and agreed this 21 day of September, 2009
/s/ John Fiske, III
John Fiske, III

EX-10.2 5 b78431exv10w2.htm EX-10.2 SEVERANCE AGREEMENT BETWEEN THE TALBOTS, INC. AND JOHN FISKE, III, DATED AS OF MARCH 20, 2009, EXECUTED ON SEPTEMBER 20, 2009 exv10w2

Exhibit 10.2

Exhibit A

SEVERANCE AGREEMENT

This Severance Agreement (the “Agreement”) is made as of March 20, 2009, between The Talbots, Inc., a Delaware corporation (together with its subsidiaries, the “Company”) and John Fiske, III (the “Executive”). This Agreement sets forth the agreement of the parties relating to the severance arrangements for the Executive under certain circumstances. Capitalized terms used in this Agreement are defined in Section 7 hereof.

1. Severance Pay and Associated Benefits Upon a Qualified Termination.

(a) Severance Benefits. In the event of a Qualified Termination, and subject to the terms of this Agreement, the Company will provide to the Executive the payments and benefits described in this Section 1 (collectively, the “Severance Benefits”).

(b) Severance Pay. Subject to the terms of this Agreement, in the event of a Qualified Termination, the Company will pay to the Executive severance pay in the gross amount equal to 1.5 times the Executive’s annual base salary in effect immediately prior to such termination (the “Severance Payment”), payable in equal installments in accordance with normal Company payroll practices over a 18 month period beginning immediately following the Termination Date (the “Severance Period”).

(c) Benefits Continuation. Subject to the terms of this Agreement, upon any such Qualified Termination, the Company will also arrange for the Executive to continue to participate (through COBRA or otherwise), on substantially the same terms and conditions as in effect for the Executive (including any required employee contribution) immediately prior to such termination, in the medical and dental programs provided to the Executive immediately prior to such termination until the earlier of (i) the end of the Severance Period, or (ii) such time as the Executive is eligible to be covered by comparable benefits of a subsequent employer. The Executive agrees to notify the Company promptly if and when the Executive begins employment with another employer and if and when the Executive becomes eligible to participate in any benefit or other welfare plans, programs or arrangements of another employer. Executive agrees that any automobile/housing allowance or other personal benefits provided by the Company to the Executive immediately prior to such termination will cease as of the Termination Date. The Company, however, may choose to make any separate arrangements with the Executive to assist with the transfer of any such benefits.

(d) Retirement Benefits. Nothing in this Agreement will modify or otherwise limit any of the Executive’s rights and benefits as may exist under the terms of any qualified, nonqualified or supplemental retirement, 401(k), savings or deferred compensation plans of the Company (excluding any severance or severance compensation plans) (“Retirement Plans”), nor

will any benefits or amounts payable under any such Retirement Plans reduce or offset any Severance Benefits afforded to the Executive under this Agreement.

(e) Equity Awards.

(i) If in the event of a Qualified Termination the Executive still holds one or more options to purchase shares of Company stock which have not expired and have not been fully exercised, the Executive (or his or her heirs or estate), at any time within 3 years after the Termination Date (but in no event after the option has expired), may exercise any such options with respect to any shares as to which the Executive could have exercised the options on the Termination Date.

(ii) The Executive agrees that until the expiration of 6 months from the Termination Date, the Executive will not engage in the purchase or sale of the Company’s common stock (including without limitation any “cashless exercise” of any stock options involving the sale of any Company common stock as part of such option exercise) during any trading window “blackout” or “quiet period” applicable to management level employees (“Quiet Period”); provided that in no event shall the Executive be prohibited from making a purchase or sale of the Company’s stock or exercising stock options for the Company’s stock if such sale, purchase or exercise is made pursuant to a written plan for trading securities within the meaning of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (a “10b5-1 Trading Plan”), and such 10b5-l Trading Plan is consistent with the Company’s insider trading policy and has been approved by the Company. The Executive acknowledges that the Company reserves the right to modify the Quiet Period from time to time in its sole and absolute discretion. The Company will provide the Executive with notice of Quiet Periods and changes thereto at the time it provides such notice to the Company’s management level employees. In addition, the Executive agrees to notify the Company’s General Counsel prior to exercising any options or trading in the Company’s common stock within such 6 month period following the Termination Date to ascertain whether such transaction would violate any Quiet Period covered by this subsection (e)(ii).

(f) Withholdings. The Company may deduct from the Executive’s Severance Payment and any other payments otherwise due to the Executive, such withholding taxes and similar governmental payments and charges as may be required.

(g) Timing for Payment; Section 409A Restrictions. Notwithstanding anything in this Agreement to the contrary, it is the intention of the parties that this Agreement comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and any regulations or other guidance issued thereunder, and this Agreement and the payments of any benefits hereunder will be operated and administered accordingly. Specifically, but not by limitation, the Executive agrees that if, at the time of termination of employment, the Company is considered to be publicly traded and the Executive is considered to be a specified employee, as defined in Section 409A of the Code (and as determined as of December 31 preceding the Executive’s termination of employment, unless the Executive’s termination of employment occurs prior to April 30, in which case the determination will be made as of the second preceding December 31), then some or all of such payments to be made under this Agreement as a result of the Executive’s termination of employment will be deferred for no more than 6 months following

such termination of employment, if and to the extent the delay in such payments is necessary in order to comply with the requirements of Section 409A of the Code after utilizing the short-term deferral and involuntary separation pay plan regulations. Upon expiration of such 6 month period (or, if earlier, the Executive’s death), any payments so withheld hereunder from the Executive hereunder will be distributed to the Executive, with a payment of interest thereon credited at a rate of prime plus 1% (with such prime rate to be determined as of the actual payment date). Notwithstanding anything contained in this Agreement to the contrary, the Company acknowledges that, for purposes of Section 409A of the Code, each and every payment made under this Agreement shall be deemed a separate payment and not a series of payments.

2. Release and Waiver.

The Company’s obligation to make the payments and provide the benefits to the Executive as set forth in Section 1 above will be conditioned upon and subject to the Executive having delivered to the Company an executed hilt and unconditional release (which will be effective when such release is no longer subject to revocation) of any and all claims against the Company, its parent entities, affiliates, employee benefit plans and fiduciaries (to the extent permissible under ERISA), and their respective officers, employees, directors, agents and representatives satisfactory in form and content to the Company’s counsel.

3. Cooperation.

In connection with a Qualified Termination or any other termination of the Executive’s employment, the Executive agrees to reasonably cooperate with the Company prior to and in the 60 day period immediately following the Termination Date, subject to the Executive’s other commitments, in promptly transitioning the Executive’s duties and activities within the Company to the person or persons designated by the Company to receive them.

4. Nondisparagement; Non-Solicitation; Confidentiality.

(a) Nondisparagement. In connection with a Qualified Termination or any other termination of the Executive’s employment, Executive agrees not to take action or make any statement, written or oral, in the 1 year period following the Termination Date which is intended to materially disparage the Company or its business.

(b) Non-Solicitation. The Executive agrees that, during the 1 year period following a Qualified Termination or any other termination of the Executive’s employment, the Executive will not directly or indirectly solicit, attempt to hire, or hire any employee of the Company (or any person who may have been employed by the Company during the last year of the term of the Executive’s employment with the Company), or actively assist in such hiring by any other person or business entity or encourage, induce or attempt to induce any such employee to terminate his or her employment with the Company.

(c) Confidentiality. The Executive will not in any manner following a Qualified Termination or any other termination of the Executive’s employment, directly or indirectly, without the express prior written consent of the Company, disclose or use any Confidential Information of the Company. “Confidential Information” will include all information concerning the Company or any parent, subsidiary, affiliate, employee, customer or

supplier or other business associate of the Company or any affiliate (including but not limited to any trade secrets or other confidential, proprietary or private matters), which has been or is received by the Executive from the Company, or from any parent, subsidiary, affiliate or customer or supplier or other business associate of the Company, or is otherwise in the possession of the Executive and which is not known or generally available to the public.

5. Remedies.

The Executive acknowledges and affirms that money damages cannot adequately compensate the Company for any breach by the Executive of Section 4 of this Agreement and that the Company is entitled to equitable relief (without posting any bond) in any federal or state court in Massachusetts or other court of competent jurisdiction to prevent or otherwise restrain any actual or threatened breach of the provisions of said Section and/or compel specific performance of, or other compliance with, the terms thereof.

6. Miscellaneous.

(a) At-Will Employment. This Agreement is not a contract to employ the Executive for a definite time period, and is not intended to be and does not constitute a contract or part of a contractual agreement for continued employment, either express or implied, between the Company and the Executive, it being acknowledged that the Executive’s employment is “at will” and that either the Executive or the Company may terminate the employment relationship at any time, for any or no reason, with or without Cause and with or without prior notice, but subject to the Executive’s rights to Severance Benefits under the terms provided hereunder.

(b) Successors and Assigns. This Agreement and all of the provisions hereof shall be binding upon, and inure to the benefit of, the parties hereto and their successors (including successors by merger, consolidation, sale or similar transaction, permitted assigns, executors, administrators, personal representatives, heirs and distributees). This Agreement is personal in nature and the rights and obligations of the Executive under this Agreement shall not be assigned or transferred by the Executive.

(d) Governing Law. This Agreement shall be interpreted in accordance with the substantive laws of The Commonwealth of Massachusetts and without regard to any conflict of laws provisions.

(e) Effect on Other Agreements Modification. This Agreement constitutes the entire agreement between the Executive and the Company with respect to the subject matter of this Agreement and supersedes the severance agreement between the Executive and the Company dated as of June 15, 2008 (which is hereby terminated and of no further force or effect). This Agreement may be modified only in a writing signed by both parties. For as long as this Agreement is in effect, to the degree there is any conflict between the severance payments and benefit provisions to which the Executive is then entitled under this Agreement and those of any other written agreement which continues to be in effect between the Company and the Executive, such conflict shall be resolved by the Company in good faith by affording the

Executive the more favorable severance payments and benefits contained in any such agreement. Notwithstanding the foregoing, nothing herein relieves the Executive from the obligation to comply with the restrictive covenants of all such agreements or from the consequences of noncompliance therewith regardless under which agreement the severance payments and severance benefits may be deemed to have been made. Furthermore, for purposes of clarification only, if an Executive receives severance pay and benefits under one agreement, the Executive shall not be entitled to severance pay or benefits under any other agreement, plan or arrangement.

(f) Execution. This Agreement may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, and all such counterparts together shall constitute but one and the same instrument.

(g) Term of Agreement. This Agreement shall be effective upon execution and shall remain in effect at all times during the Executive’s employment with the Company, unless expressly amended or superseded in writing by the parties hereto.

(h) Notices. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or when mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:

To the Company:

The Talbots, Inc.
One Talbots Drive
Hingham, Massachusetts 02043
Attention: Senior Vice President/Human Resources

with a copy to:

The Talbots, Inc.
211 South Ridge Street
Rye Brook, New York 10573
Attn: General Counsel

To the Executive:

John Fiske, III
[Home Address]

7. Definitions.

For purposes of this Agreement, the following terms shall have the meanings indicated below:

(a) “Cause” for termination by the Company of the Executive’s employment shall mean (i) any material breach by the Executive of this Agreement or any other agreement to which the Executive and the Company are both parties (which is not cured within 45 days following written notice from the Company), (ii) any act or omission to act by the Executive which may have a material and adverse effect on the Company’s business or on the Executive’s ability to perform services for the Company, including, without limitation, the commission of any crime involving moral turpitude or any felony, or (iii) any material misconduct or material neglect of duties by the Executive in connection with the business or affairs of the Company.

(b) “Code” shall have the meaning given that term in Section 1(g) hereof.

(c) “Disability” shall mean the Executive’s inability, because of physical or mental illness or injury, substantially to perform his or her duties of his or her position as a result of physical incapacity for a continuous period of at least six (6) months. Any dispute at to the Executive’s incapacitation shall be resolved by an independent physician selected by the Company’s Board of Directors and reasonably acceptable to the Executive or his or her legal representative, whose determination shall be final and binding upon both the Executive and the Company.

(d) “Executive” shall mean the individual named in the first paragraph of this Agreement.

(e) “Good Reason” for termination by the Executive of the Executive’s employment shall be a termination based on one or more of the following events occurring without the Executive’s express written consent: (a) a substantial adverse reduction in the Executive’s overall responsibilities as an executive, other than during any period of illness or incapacity, such that the Executive no longer has the title of, or serves as, a senior executive of the Company; (b) a material reduction by the Company in the Executive’s annual base salary as in effect on the date hereof or as the same may be increased from time to time; or (c) the Company’s requiring that the Executive’s principal place of business be at an office located more than 35 miles from the site of the Executive’s then principal place of business, except for relocation to the Company’s then principal headquarters location or for required travel on the Company’s business, including regular travel to and from the Company’s corporate headquarters and its other locations; which, with respect to subsections (a) through (c) above, is not remedied by the Company within 45 days of receipt of written notice of such event delivered by the Executive to the Company; provided, that the Executive may only exercise his or her right to terminate employment for Good Reason within the 90 day period immediately following the occurrence of any of the events described in subsections (a) through (c) above.

(f) “Qualified Termination” shall mean the Executive’s employment by the Company is terminated, (i) by the Executive for Good Reason or (ii) by the Company for any reason other than for Cause, death, Disability, or retirement at or after age 65.

(g) “Quiet Period” shall have the meaning given that term in Section 1(e)(ii) hereof.

(h) “Retirement Plans” shall have the meaning given that term in Section 1(d) hereof.

(i) “Severance Benefits” shall have the meaning given that term in Section 1(a) hereof.

(j) “Severance Payment” shall have the meaning given that term in Section 1(b) hereof.

(k) “Severance Period” shall have the meaning given that term in Section 1(b) hereof.

(1) “Termination Date” shall mean the date that the Executive’s employment with the Company terminates for any reason or no reason.

[signature page follows]

IN WITNESS WHEREOF, the parties have executed this Severance Agreement as of the date first above written.


	THE TALBOTS, INC.
	By:	/s/ Trudy F. Sullivan
		Duly Authorized


	EXECUTIVE
	/s/ John Fiske, III
	John Fiske, III
	EVP, Chief Stores Officer

EX-10.3 6 b78431exv10w3.htm EX-10.3 SUMMARY OF THE TALBOTS, INC. EXECUTIVE MEDICAL PLAN DATED JUNE 19, 2007 exv10w3

Exhibit 10.3

In response to your request concerning Medical and Dental coverage at the time of retirement and continuing thereafter, we hereby provide you with this outline of the benefits that will apply for each of you upon your retirement.

Coverage and Costs

Each of these executives is currently eligible for “retirement” from the Company (age 55 and 10 or more years of service). Following separation from employment by each of the above Talbots executives and continuing for their life and for their spouse’s life, each of Mr. Zetcher, Mr. O’Connell and Mr. Stolper (and their spouses) are entitled to receive their current medical and dental benefit coverage from the Company as detailed in Attachment A. (Attachment A, together with this memorandum, constitutes the Summary Plan Description for this medical and dental plan.) We call this the Retiree Executive Medical Plan.

As with the current medical and dental coverage for each of these executives under the existing Talbots Executive Medical Plan (which we call the Executive Medical Plan), there are no deductible amounts or contribution or co-pay obligations with respect to this coverage under the Retiree Executive Medical Plan.

Background

The benefit coverage under the Retiree Executive Medical Plan is intended to be the same coverage as the existing medical and dental coverage under the Executive Medical Plan which is in effect and required to be provided by the Company for each of these executives during their employment with Talbots. The Talbots Executive Medical Plan only covers these three executives and is different than the medical and dental coverage for all other Talbots executives because of their status as General Mills officers who agreed to continue following the Jusco acquisition of Talbots.

The medical and dental coverage under the existing Executive Medical Plan for each of these executives is intended to be generally consistent with the coverage which was in effect for each of them when they were part of the General Mills Specialty Retail Group executive team at the time Talbots was acquired by Jusco from General Mills Inc. in 1988. At the time of the 1988 acquisition of Talbots from General Mills, the then senior executive team of the General Mills Specialty Retail Group, in exchange for their continuing under Jusco following the acquisition, were promised that Talbots would guarantee continuing coverage to this group of executives on the same terms and conditions as the executives had under the executive medical and dental coverage at General Mills. The General Mills plan included retiree coverage with no contribution, co-pay or deductible.

The only current continuing Talbots executives who were part of the General Mills Specialty Retail Group at the time of the 1988 Jusco acquisition of Talbots are Mr. Zetcher, Mr. O’Connell and Mr. Stolper. Consequently, this coverage will be provided to each of these executives and their spouses during their Talbots employment and during retirement. The

principal difference from their current coverage under the Executive Medical Plan is that upon becoming entitled to Medicare coverage as a Talbots retiree, Medicare will become the primary payor.

Notwithstanding anything in this Summary Plan Description or in any plan document to the contrary, upon and following your “Retirement” from the Company (as defined below):

	•		For your life, you will continue to be in the Class of Eligible Employees designated in the Retiree Executive Medical Plan and you will be entitled to the benefit coverage described therein

	•		For your spouse (including your spouse at the time of your death), she will be entitled to coverage under the Retiree Executive Medical Plan for her life

	•		For any other of your Dependents, coverage under the Retiree Executive Medical Plan will continue so long as they continue to be your Dependent (as defined)

“Retirement” means leaving active employment with the Employer at any time and for any reason following age 55 and ten (10) years of service.

Coverage for the executives and their spouses, on the terms discussed above, is considered to be fully vested, based upon consideration already rendered, and accordingly the benefits provided under the Retiree Executive Medical Plan (and the fact that there is no cost to

the executives or their spouses) may not be modified or terminated. Furthermore, the fundamental nature of the plan is that its benefits (including the value of the coverage thereunder) are intended not to be taxable to the executive or his spouse.

In the event any of these executives becomes covered by another employer’s medical, health or dental benefit coverage, then on a “coverage-by-coverage” basis, the other employer’s coverage would be primary to the Company’s coverage while that other employer’s coverage was in effect.

The Company will be responsible for maintaining all eligibility or other plan documentation for these executives. In the event the Company cancels or modifies its current policies for this coverage with CIGNA, the benefit coverage under the Retiree Executive Medical Plan will be continued under other one or more other insurance policies. As noted above, the Summary Plan Description (of which the memorandum shall be deemed a part) for this retiree medical and dental plan is attached. In the event of any conflict or inconsistency between the terms of this memorandum and the attached plan documents, the terms of this memorandum are intended to control.

EX-31.1 7 b78431exv31w1.htm EX-31.1 SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER exv31w1

Exhibit 31.1

I, Trudy F. Sullivan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Talbots, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 10, 2009


/s/ Trudy F. Sullivan
Trudy F. Sullivan
President and Chief Executive Officer

EX-31.2 8 b78431exv31w2.htm EX-31.2 SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER exv31w2

Exhibit 31.2

I, Michael Scarpa, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Talbots, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 10, 2009


/s/ Michael Scarpa
Michael Scarpa
Chief Operating Officer, Chief Financial Officer and Treasurer

EX-32.1 9 b78431exv32w1.htm EX-32.1 SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER exv32w1

Exhibit 32.1

CERTIFICATIONS 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

In connection with this Quarterly Report on Form 10-Q of The Talbots, Inc. (the “Company”) for the quarter ended October 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company hereby certifies, pursuant to 18 U.S.C. (section) 1350, as adopted pursuant to (section) 906 of the Sarbanes-Oxley Act of 2002, that to the best of his or her knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: December 10, 2009


/s/ Trudy F. Sullivan
Trudy F. Sullivan
President and Chief Executive Officer

/s/ Michael Scarpa
Michael Scarpa
Chief Operating Officer, Chief Financial Officer and Treasurer

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Arnold B. Zetcher
Stuart M. Stolper
Richard T. O’Connell

Date: June 19, 2007

Gary Osborne, Managing Director
Compensation and Benefits
The Talbots, Inc.

Subject:

The Talbots, Inc. Retiree Medical/Dental Benefit Coverage for Arnold Zetcher, Richard O’Connell and Stuart Stolper