8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)             April 12, 2012        

        THE TALBOTS, INC.        

(Exact Name of Registrant as Specified in Charter)

Delaware	1-12552	41-1111318
(State or other jurisdiction of incorporation)	Commission File No.	(I.R.S. Employer Identification No.)

One Talbots Drive, Hingham, Massachusetts	02043
(Address of principal executive offices)	(Zip Code)

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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

INFORMATION TO BE INCLUDED IN THE REPORT

Section 2 – Financial Information

Item 2.02 Results of Operations and Financial Condition.

Attached and being furnished as Exhibit 99.1 is a copy of the Company’s press release dated April 12, 2012, reporting Talbots financial results for the fourth quarter and full fiscal year 2011.

To supplement the Company’s financial results presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), the Company uses, and has also included in the attached press release, certain non-GAAP financial measures. These non-GAAP financial measures should not be considered in isolation, or as a substitute for, or superior to, financial measures calculated in accordance with GAAP and are used solely to provide supplemental information together with our reported GAAP amounts. These non-GAAP financial measures may also be calculated differently from similar measures disclosed by other companies.

To ease the use and understanding of our non-GAAP financial measures, the Company provides a detailed reconciliation of such non-GAAP financial measures and identifies each of the exclusions in arriving at the Company’s adjusted (non-GAAP) amounts.

In the accompanying press release, the Company includes fiscal 2011 and fiscal 2010 results from continuing operations and operating income which exclude the following special items: impairment and restructuring charges, merger-related costs, costs associated with executive retirement, costs associated with the evaluation of strategic alternatives, cumulative gift card breakage income adjustment, the impact of a change in tax estimate, and costs associated with the store re-image initiative. The Company also provides certain outlook for first quarter selling, general and administrative expenses excluding any special charges, which the Company is not able to reasonably calculate at this time.

Management uses these financial measures, together with GAAP results, as an additional tool in assessing the impact and results of the Company’s ongoing strategic initiatives, evaluating historical core operating performance and any potential trends in the Company’s core operating performance, assessing management performance, and assessing operating performance against other companies. Management believes that these financial measures are helpful to investors as an additional tool to further facilitate an investor’s understanding and evaluation of the Company’s operating performance, as these measures identify items which management believes impact comparability and which are not necessarily indicative of ongoing core operating performance.

Material limitations of these financial measures are: (i) such measures do not reflect actual GAAP amounts and adjust for special items which impact the corresponding GAAP amounts, such as GAAP margins, GAAP income and GAAP earnings per share, as applicable; (ii) such measures may involve actual cash outlays or inflows which impact cash flows; (iii) the

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changes in tax estimate impact our expected potential tax-related liabilities to be satisfied from future cash flows; (iv) a majority of merger-related costs reflect actual cash outlays; (v) impairment charges reflect an actual decrease in the carrying value of one or more assets based on current estimates of the fair value of those assets; (vi) charges related to the Company’s store re-image initiative reflect non-cash accelerated depreciation and disposal costs; and (vii) restructuring charges, costs associated with executive retirement and costs associated with the evaluation of strategic alternatives include cash outlays which impact cash flows. All of the above may be material to an investor’s understanding of the Company’s financial position. Management compensates for these limitations by clarifying that these measures are only supplemental to the reported GAAP operating metrics and should not be considered in isolation, and by providing the directly comparable GAAP financial measure.

Exclusion of items in the Company’s non-GAAP measures should not be considered as an inference that these items are unusual, infrequent or non-recurring.

Section 9 – Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

99.1 Press Release of The Talbots, Inc. dated April 12, 2012.

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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 hereunto duly authorized.

	THE TALBOTS, INC.
Dated: April 12, 2012	By:	/s/ Michael Scarpa
	Name: Title:	Michael Scarpa Chief Operating Officer, Chief Financial Officer and Treasurer

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EX-99.1

Exhibit 99.1

The Talbots, Inc.

TALBOTS REPORTS FOURTH QUARTER AND FISCAL YEAR 2011 RESULTS

Board of Directors Continues to Evaluate Full Range of Strategic Alternatives

Hingham, MA, April 12, 2012 — The Talbots, Inc. (NYSE:TLB) today reported results for the fourth quarter and fiscal year ended January 28, 2012.

Fourth quarter loss from continuing operations was $53.2 million, or $0.77 per share, compared to last year’s loss from continuing operations of $2.8 million, or $0.04 per share. Adjusted fourth quarter loss from continuing operations was $36.2 million, or $0.52 per share, excluding special items of $17.1 million, or $0.25 per share, compared to last year’s adjusted loss from continuing operations of $9.6 million, or $0.14 per share.

Fiscal year 2011 loss from continuing operations was $111.8 million, or $1.62 per share, compared to last year’s income from continuing operations of $7.6 million, or $0.11 per share. Adjusted full year 2011 loss from continuing operations was $81.8 million, or $1.19 per share, excluding special items of $30.0 million, or $0.43 per share, compared to last year’s adjusted income from continuing operations of $40.6 million, or $0.61 per share.

A full reconciliation of GAAP to non-GAAP (“adjusted”) items is included with this release.

Trudy F. Sullivan, Talbots President and Chief Executive Officer, said, “Our fourth quarter performance reflects an aggressive promotional and markdown strategy in a challenging retail environment. This resulted in a sequential improvement in both customer traffic and sales trends compared to the third quarter. We were able to clear through excess merchandise to better position ourselves for spring, ending the year with total inventories up approximately 4%. We remain focused on enhancing our product and executing our key strategic initiatives, as the Board continues its evaluation of a full range of strategic alternatives.”

Fourth Quarter 2011 Operating Results:

• Operating loss was $53.6 million, compared to approximately break-even in the prior year.

• Adjusted operating loss, excluding special items of $21.3 million, was $32.3 million, a decrease of $25.5 million, compared to prior year’s adjusted operating loss of $6.8 million.

• Net sales decreased 1.1% to $289.4 million, compared to $292.6 million in the same period last year.

• Consolidated comparable sales, which includes stores, Internet, catalog and red-line sales, were approximately flat compared to the prior year, with both December and January positive at 1.6% and 3.2%, respectively. Consolidated comparable sales exclude stores closed or scheduled to close under the Company’s store rationalization plan.

• Store sales increased 1.5% to $244.3 million, compared to $240.8 million in the same period last year. Comparable store sales increased 1.9%, excluding stores closed or scheduled to close under the Company’s store rationalization plan.

• Direct marketing sales, which include Internet, catalog and red-line sales, decreased 13.0% in the quarter to $45.1 million, compared to $51.8 million in the same period last year.

• Cost of sales, buying and occupancy as a percent of net sales increased 510 basis points compared to last year. This increase was due to a 570 basis point deterioration in merchandise margin, resulting from higher levels of markdown and promotional activity, partially offset by a 60 basis point improvement in buying and occupancy costs as a percent of net sales.

• Selling, general & administrative (SG&A) expenses as a percent of net sales increased 920 basis points from the prior year to 38.6%. On a dollar basis SG&A increased $25.8 million over the prior year period to $111.8 million. After adjusting for approximately $13 million in a one-time cumulative adjustment to gift card breakage income and the reversal of incentive compensation expense recorded in the fourth quarter last year, fourth quarter 2011 SG&A reflected higher planned marketing expense and was impacted by a total of $9.7 million in net expense obligations in connection with certain executive postemployment benefits and legal and advisory fees associated with the Company’s exploration of strategic alternatives, partially offset by tax-related penalty expense reversals.

Full Year 2011 Results:

• Operating loss was $102.6 million, a decrease of $134.0 million, compared to the prior year’s operating income of $31.4 million.

• Adjusted operating loss, excluding special items of $34.2 million, was $68.3 million, a decrease of $127.2 million, or 216.0%, compared to the prior year.

• Net sales were $1,141.3 million for the fifty-two week period, compared to $1,213.1 million in the prior year.

• Consolidated comparable sales decreased 5.6%, which includes stores, Internet, catalog and red-line sales. Consolidated comparable sales exclude stores closed or scheduled to close under the Company’s store rationalization plan.

• Store sales were $942.9 million, compared to $991.4 million in the prior year. Comparable store sales declined 5.0%, excluding stores closed or scheduled to close under the Company’s store rationalization plan.

• Direct marketing sales, which include Internet, catalog and red-line sales, decreased 10.5% to $198.4 million, compared to $221.7 million last year.

• Cost of sales, buying and occupancy as a percent of net sales increased 850 basis points compared to last year, due to an 830 basis point deterioration in merchandise margin related to increased markdowns and promotional activity, and a 20 basis point increase in buying and occupancy expenses as a percent of net sales.

• Selling, general & administrative (SG&A) expenses as a percent of net sales increased 380 basis points from the prior year to 36.2%. This increase was primarily due to planned incremental marketing expenses, certain executive postemployment benefits and legal and advisory fees associated with the Company’s exploration of strategic alternatives, partially offset by reductions in management incentive compensation and tax-related penalty expense reversals. Additionally, SG&A in fiscal 2010 reflects approximately $6.3 million in a one-time cumulative adjustment to gift card breakage income.

• Total inventory increased 4.2% to $164.7 million, compared to $158.0 million at the end of fiscal 2011, in part due to timing of early receipts.

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• Total outstanding debt under our revolving credit facility was $116.5 million, an increase of $90.9 million, compared to $25.5 million at the end of last year.

• Under the trade payables arrangement, entered into on September 1, 2011 with its exclusive sourcing agent, Li & Fung, the Company ended the year with $21.8 million in trade payables financing.

• During 2011, the Company opened 18 Talbots upscale outlets, closed 69 Talbots stores and ended the year with 517 stores, comprised of 544 locations.

Key Initiatives Update

Financing

On February 29, 2012, the Company and Li & Fung agreed to extend the trade payables arrangement established September 1, 2011, under its existing terms and conditions, to August 31, 2012, with an option to renew for an additional six month period upon the mutual agreement of the Company and Li & Fung. This arrangement continues to be subject to earlier termination as set forth under the terms of the original agreement. While this arrangement is in effect, the Company will have the ability to extend payment terms for an additional 30 days for merchandise purchases sourced by Li & Fung up to $50 million outstanding at any time. Li & Fung may also open letters of credit on behalf of Talbots for certain of its future merchandise purchases.

As announced on February 16, 2012, the Company also entered into a new $75 million secured term loan led by Wells Fargo Bank, National Association. In connection with this transaction, Talbots also amended its existing $200 million secured revolving credit facility with GE Capital Corporation. Both the term loan and the amended credit facility are scheduled to mature on February 16, 2017.

Expense Management

As part of Talbots ongoing plan to maintain close scrutiny of operating costs and pursue opportunities to lower expenses, the Company has identified and implemented approximately $40 million in expected annualized cost savings toward its $50 million anticipated annualized cost reduction initiative announced on December 1, 2011. The Company expects to complete its cost reduction initiative by the end of fiscal 2012.

As previously disclosed, the Company expects capital expenditures for fiscal 2012 to be approximately $30.0 million as it continues with investments in its key strategic initiatives, specifically expansion of its upscale outlet business, store reimage and upgrades of certain IT systems.

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Store Reimage Initiative

The Company completed the refresh of approximately 50 locations in fiscal 2011. At the end of fiscal 2011, the Company completed the refresh and re-image of approximately 70 locations, including consolidations and downsizings, or approximately 15% of its current store base.

Store Rationalization Plan

The Company closed 47 locations, including 38 full stores, during the fourth quarter of fiscal 2011 and has closed 82 locations, including 69 full stores, during fiscal 2011 as part of its store rationalization plan. The Company continues to expect to close approximately 110 locations in total, including 15 to 20 consolidations, through fiscal 2013. Approximately 30 locations are planned for closure through fiscal 2012 and into early fiscal 2013. The Company will look to close additional stores opportunistically.

The locations that have closed or are planned for closure contributed approximately $21.2 million in sales and $1.2 million in operating loss in the fourth quarter of 2011, including $3.1 million in restructuring charges. Last year’s fourth quarter contribution was approximately $24.7 million in sales and approximately $0.2 million in operating loss There were no restructuring charges attributable to these locations in the fourth quarter of 2010.

The locations that have closed or are planned for closure contributed approximately $84.6 million in sales and $12.5 million in operating loss in fiscal 2011, including $9.7 million in restructuring charges and $1.3 million in impairment of store assets. Last year’s contribution was approximately $95.0 million in sales and approximately $4.8 million in operating income, including $0.4 million in impairment of store assets.

The Company Continues to Explore Strategic Alternatives

As announced on December 20, 2011, Talbots Board of Directors is exploring a full range of strategic alternatives to maximize value for all Talbots stockholders. Pending that evaluation, the Company will continue to pursue its long range plan. In addition, the Board of Directors continues its previously announced search for a successor President and Chief Executive Officer.

The Board has not set a definitive timetable for the completion of its evaluation and the Company stated that there can be no assurance of any transaction as a result of the Board’s review. The Company does not intend to discuss the status of the evaluation or provide interim updates.

Perella Weinberg Partners is acting as financial advisor and Dewey & LeBoeuf LLP is acting as legal counsel to Talbots in connection with the Board’s evaluation of strategic alternatives.

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First Quarter 2012 Comments

First quarter total sales are expected to be approximately $272 million, down approximately 9.6% compared to the same period last year, due in part to the impact of fiscal 2011 store closings as a result of the Company’s store rationalization plan. First quarter to date consolidated comparable sales, which include stores, Internet, catalog and red-line sales, are down approximately 5.4%, which does not reflect the anticipated positive effect of the Easter shift later in April. The Company expects cost of sales, buying and occupancy as a percent of net sales to be approximately flat to down 100 basis points compared to the same period last year. Selling, general and administrative (SG&A) expenses are expected to be approximately $91 million in the first quarter fiscal 2012, net of any special charges.

The above outlook is based on the Company’s internal assumptions and estimates, is subject to its accompanying forward-looking statement and is not a guarantee of future performance or financial condition.

Conference Call Details

As previously announced, Talbots will host a conference call Monday, April 16, 2012, at 4:30 p.m. local time to discuss fourth quarter and full year 2011 results and comments on first quarter fiscal 2012. To listen to the live call, please dial (866) 336-2423, passcode “TLB” or log on to www.thetalbotsinc.com/ir/ir.asp. The call will be archived on its web site www.thetalbotsinc.com for a period of twelve months. In addition, an audio replay of the call will be available shortly after its conclusion and archived through April 19, 2012. This archived call may be accessed by dialing (800) 585-8367; passcode 71824301.

The Talbots, Inc. is a leading specialty retailer and direct marketer of women’s apparel, shoes and accessories. At the end of the fourth quarter of 2011, the Company operated 517 Talbots stores in 46 states and Canada. Talbots brand on-line shopping site is located at www.talbots.com.

CONTACT: The Talbots, Inc.

Julie Lorigan

Senior Vice President, Investor and Media Relations

(781) 741-7775

FTI Consulting, Inc.

Leigh Parrish, Rachel Rosenblatt

Investor and Media Relations

(212) 850-5651, (212) 850-5697

Forward-looking Information

This Press Release 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,” “projected,” “believe,” “anticipate,” “outlook,” “will,” “would,” “should,” “intend,” “potential” or other similar statements or variations of such terms. All of the information concerning our future liquidity, future net sales, gross profit margins and other future results, achievement of operating plan or forecasts for future periods, sources and availability of

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credit and liquidity, future cash flows and cash needs, success and results of strategic initiatives, the outcome of exploring strategic alternatives, anticipated cost savings and other reduced spending 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 internal operating plan, regular-price, promotional and markdown selling, operating cash flows, liquidity and sources and availability of credit 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:

• the ability to achieve our operating and strategic plans for operating results, working capital and cash flows;

• the risks associated with our efforts to maintain our traditional customer and expand to attract new customers;

• the risks associated with competitive pricing pressures and the current increased promotional environment;

• the ability to reduce spending as needed;

• the ability to access on satisfactory terms, or at all, adequate financing and other sources of liquidity, as and when necessary, to fund our continuing operations, working capital needs, strategic and cost reduction initiatives and other cash needs and to obtain further increases in our debt facilities, extend and continue our trade payables arrangement with our exclusive sourcing agent and obtain other or additional debt or credit facilities or other internal or external liquidity sources if cash flows from operating activities or other capital resources are not sufficient for our cash requirements at any time or times;

• the ability to successfully increase our customer traffic and the success and customer acceptance of our merchandise offerings in our stores, on our website and in our catalogs;

• the satisfaction of all borrowing conditions under our debt facilities including accuracy of all representations and warranties, no defaults or events of default, absence of material adverse effect or change and all other borrowing conditions;

• the risks associated with our efforts to successfully implement, adjust as appropriate and achieve the benefits of our strategic initiatives including store rationalization, store re-imaging, information technology reinvestments, store segmentation, upscale outlet expansion and any other future initiatives that we may undertake;

• the ability to attract and retain talented and experienced executives that are necessary to execute our strategic initiatives;

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

• any impact to or disruption in our supply of merchandise;

• the continuing impact of the U.S. economic environment on our business, continuing operations, liquidity and financial results, including any negative impact on consumer discretionary spending, substantial loss of household wealth and savings and continued high unemployment levels;

• the ability to continue to purchase merchandise on open account purchase terms at existing or future expected levels and with acceptable payment terms and the risk that suppliers could require earlier or immediate payment or other security due to any payment concerns;

• the ability to accurately estimate and forecast future regular-price, promotional and markdown selling and other future financial results and financial position;

• any negative publicity concerning the specialty retail business in general or our business in particular;

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• the risk of any further increases in postretirement benefit and funding obligations;

• 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 business, including both retained obligations and contingent risk for assigned obligations, may be materially greater than anticipated;

• the risk of material impairment of our goodwill, trademarks or long-lived assets;

• the risks associated with our efforts in transforming our information technology systems to meet our changing business systems and operations, including the ability to maintain adequate system security controls;

• any significant interruption or disruption in the operation of our distribution facility or the domestic and international transportation infrastructure;

• the risks and uncertainties associated with the outcome of current and future litigation, claims, tax audits and tax and other proceedings and the risk that actual liabilities, assessments or other financial impact will exceed any estimated, accrued or expected amounts or outcomes; and

• the risks associated with any uncertainties arising related to our ongoing review of strategic alternatives.

All of our forward-looking statements are as of the date of this Press Release only. In each case, actual results may differ materially from such forward-looking information. We 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 Press Release or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the SEC could materially and adversely affect our continuing operations and our future financial results, cash flows, available credit, prospects and liquidity. Except as required by law, we do 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 Press Release, 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 Press Release which modify or impact any of the forward-looking statements contained in this Press Release will be deemed to modify or supersede such statements in this Press Release.

In addition to the information set forth in this Press Release, you should carefully consider the risk factors and risks and uncertainties included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012 and other periodic reports filed with the SEC.

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THE TALBOTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Amounts in thousands except per share data

	Thirteen Weeks Ended						Fifty-Two Weeks Ended
	January 28, 2012			January 29, 2011			January 28, 2012			January 29, 2011
Net sales	$	289,388		$	292,558		$	1,141,250		$	1,213,060
Costs and expenses
Cost of sales, buying and occupancy		219,634			207,215			807,533			755,232
Selling, general and administrative		111,756			85,969			412,995			393,477
Restructuring charges		8,672			324			16,194			5,640
Impairment of store assets		2,939			869			6,223			1,420
Merger-related costs		—			(1,795	)		885			25,855
Operating (loss) income		(53,613	)		(24	)		(102,580	)		31,436
Interest
Interest expense		(956	)		1,726			7,166			18,902
Interest income		6			11			56			75
Interest expense, net		(962	)		1,715			7,110			18,827
(Loss) income before taxes		(52,651	)		(1,739	)		(109,690	)		12,609
Income tax expense		586			1,090			2,135			5,039
(Loss) income from continuing operations		(53,237	)		(2,829	)		(111,825	)		7,570
(Loss) income from discontinued operations		(18	)		23			(64	)		3,245
Net (loss) income	$	(53,255	)	$	(2,806	)	$	(111,889	)	$	10,815
Basic (loss) earnings per share:
Continuing operations	$	(0.77	)	$	(0.04	)	$	(1.62	)	$	0.11
Discontinued operations		—			—			—			0.05
Net (loss) earnings	$	(0.77	)	$	(0.04	)	$	(1.62	)	$	0.16
Diluted (loss) earnings per share:
Continuing operations	$	(0.77	)	$	(0.04	)	$	(1.62	)	$	0.11
Discontinued operations		—			—			—			0.05
Net (loss) earnings	$	(0.77	)	$	(0.04	)	$	(1.62	)	$	0.16
Weighted average shares outstanding:
Basic		69,151			68,527			69,010			65,790
Diluted		69,151			68,527			69,010			66,844

THE TALBOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

Amounts in thousands

	January 28, 2012		January 29, 2011
Cash and cash equivalents	$	8,739	$	10,181
Customer accounts receivable, net		141,902		145,472
Merchandise inventories		164,734		158,040
Other current assets		30,035		37,419
Total current assets		345,410		351,112
Property and equipment, net		169,765		186,658
Goodwill		35,513		35,513
Trademarks		75,884		75,884
Other assets		17,610		19,349
Total Assets	$	644,182	$	668,516
Accounts payable	$	99,272	$	91,855
Trade payables financing		21,771		—
Accrued liabilities		132,685		137,824
Revolving credit facility		116,450		25,516
Total current liabilities		370,178		255,195
Deferred rent under lease commitments		75,410		93,440
Deferred income taxes		28,456		28,456
Other liabilities		154,163		107,839
Stockholders' equity		15,975		183,586
Total Liabilities and Stockholders' Equity	$	644,182	$	668,516

THE TALBOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Amounts in thousands

	Fifty-Two Weeks Ended
	January 28, 2012			January 29, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(111,889	)	$	10,815
(Loss) income from discontinued operations		(64	)		3,245
(Loss) income from continuing operations		(111,825	)		7,570
Depreciation and amortization		54,559			61,501
Stock-based compensation		10,499			14,461
Amortization of debt issuance costs		2,166			3,118
Impairment of store assets		6,223			1,420
Gift card breakage income		122			(6,940	)
Non-cash gain on settlement of shareholder litigation		—			(1,045	)
Deferred and other items		(17,312	)		(13,370	)
Changes in:
Customer accounts receivable		3,566			18,187
Merchandise inventories		(6,709	)		(15,116	)
Accounts payable		6,681			(12,317	)
Accrued liabilities		(2,481	)		4,245
All other working capital		(10,787	)		(7,576	)
Net cash (used in) provided by operating activities		(65,298	)		54,138
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment		(43,953	)		(28,805	)
Proceeds from disposal of property and equipment		629			15
Cash acquired in merger with BPW Acquisition Corp.		—			332,999
Net cash (used in) provided by investing activities		(43,324	)		304,209
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving credit facility		1,856,600			1,651,638
Payments on revolving credit facility		(1,765,666	)		(1,626,122	)
Payments on related party borrowings		—			(486,494	)
Change in trade payables financing, net		21,771			—
Payment of debt issuance costs		(118	)		(6,163	)
Payment of equity issuance costs		—			(3,594	)
Proceeds from warrants exercised		—			19,042
Proceeds from options exercised		95			752
Purchase of treasury stock		(2,351	)		(2,030	)
Net cash provided by (used in) financing activities		110,331			(452,971	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		(694	)		607
CASH FLOWS FROM OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS		(2,457	)		(8,577	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,442	)		(102,594	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		10,181			112,775
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	8,739		$	10,181

SEC Regulation G

THE TALBOTS, INC. AND SUBSIDIARIES

Reconciliation of GAAP (loss) income from continuing operations to

non-GAAP ("adjusted") (loss) income from continuing operations (unaudited)

Amounts in thousands except per share amounts

	For the 13 weeks ended January 28, 2012						For the 13 weeks ended January 29, 2011
Loss from continuing operations	$	(53,237	)	$	(0.77	)	$	(2,829	)	$	(0.04	)
Restructuring charges (a)		8,672			0.13			324			—
Impairment of store assets (a)		2,939			0.04			869			0.01
Merger-related costs (a)		—			—			(1,795	)		(0.02	)
Executive retirement (a) (b)		7,967			0.11			—			—
Evaluation of strategic alternatives (a) (c)		2,494			0.04			—			—
Cumulative effect of change in estimate, gift card breakage (a) (d)		—			—			(6,285	)		(0.09	)
Change in tax estimate (e)		(4,957	)		(0.07	)		—			—
Store re-image initiative (a) (f)		(36	)		—			141			—
Adjusted loss from continuing operations	$	(36,158	)	$	(0.52	)	$	(9,575	)	$	(0.14	)
	For the 52 weeks ended January 28, 2012						For the 52 weeks ended January 29, 2011
(Loss) income from continuing operations	$	(111,825	)	$	(1.62	)	$	7,570		$	0.11
Restructuring charges (a)		16,194			0.23			5,640			0.09
Impairment of store assets (a)		6,223			0.09			1,420			0.02
Merger-related costs (a)		885			0.01			25,855			0.39
Executive retirement (a) (b)		7,967			0.11			—			—
Evaluation of strategic alternatives (a) (c)		2,494			0.04			—			—
Cumulative effect of change in estimate, gift card breakage (a) (d)		—			—			(6,285	)		(0.09	)
Change in tax estimate (e)		(4,957	)		(0.07	)		5,546			0.08
Store re-image initiative (a) (f)		1,213			0.02			833			0.01
Adjusted (loss) income from continuing operations	$	(81,806	)	$	(1.19	)	$	40,579		$	0.61
Reconciliation of GAAP operating (loss) income to non-GAAP ("adjusted") operating (loss) income (unaudited)
Amounts in thousands
	For the 13 weeks ended January 28, 2012						For the 13 weeks ended January 29, 2011
Operating loss		$(53,613)						$(24)
Restructuring charges		8,672						324
Impairment of store assets		2,939						869
Merger-related costs		—						(1,795)
Executive retirement (b)		7,967						—
Evaluation of strategic alternatives (c)		2,494						—
Cumulative effect of change in estimate, gift card breakage (d)		—						(6,285)
Change in tax estimate (e)		(728)						—
Store re-image initiative (f)		(36)						141
Adjusted operating loss		$(32,305)						$(6,770)
	For the 52 weeks ended January 28, 2012						For the 52 weeks ended January 29, 2011
Operating (loss) income		$(102,580)						$31,436
Restructuring charges		16,194						5,640
Impairment of store assets		6,223						1,420
Merger-related costs		885						25,855
Executive retirement (b)		7,967						—
Evaluation of strategic alternatives (c)		2,494						—
Cumulative effect of change in estimate, gift card breakage (d)		—						(6,285)
Change in tax estimate (e)		(728)						—
Store re-image initiative (f)		1,213						833
Adjusted operating (loss) income		$68,332						$58,899

(a) No tax effect was attributed to these adjustments as the Company realized only a nominal ordinary effective tax rate in the period and no ordinary federal income tax expense, due to the continued maintenance of a full valuation allowance against its net deferred tax assets excluding deferred tax liabilities for non-amortizing intangibles. No discrete tax items during the period were related to these adjustments.

(b) In December 2011, the Company announced the planned retirement of its President and Chief Executive Officer, Trudy Sullivan. In accordance with her employment agreements, her retirement entitles her to certain separation pay, special equity award vesting conditions and continued benefit coverage in certain circumstances. The amount recorded represents the Company's best estimate of its obligation to Ms. Sullivan upon her retirement.

(c) In December 2011, the Company's Board of Directors announced its plan to explore a full range of strategic alternatives to maximize value for Talbots stockholders. Costs incurred related to this process include certain third party legal and advisory costs.

(d) In the fourth quarter of 2010, the Company began to recognize income from the breakage of gift cards when the likelihood of redemption of the gift card is considered remote. Related to this change in estimate, the Company recorded a cumulative adjustment of $6.3 million for estimated gift card breakage from prior years' gift card issuances.

(e) During the second quarter of 2010 and the fourth quarter of 2011, the Company changed its estimates related to certain previously existing uncertain tax positions, based on new information. The adjusted tax, interest and penalty expense recorded represents the Company's best estimate of potential exposure.

(f) In the second quarter of 2010, the Company began its store re-image initiative. Costs incurred related to the initiative include accelerated depreciation of leasehold improvements and other costs associated with property disposed of under the program.

THE TALBOTS, INC. AND SUBSIDIARIES

Additional Store Metrics

Store Count (unaudited)
	January 29, 2011		Openings		Closings			Conversions			January 28, 2012
Retail		521		—		(66	)		—			455
Upscale Outlets		28		18		(1	)		(2	)		43
Surplus Outlets		19		—		(2	)		2			19
Total		568		18		(69	)		—			517
Location Count (including individual store concepts) (unaudited)
	January 29, 2011		Openings		Closings			Conversions			January 28, 2012
Retail		561		—		(79	)		—			482
Upscale Outlets		28		18		(1	)		(2	)		43
Surplus Outlets		19		—		(2	)		2			19
Total		608		18		(82	)		—			544

Total Store Selling Square Footage (unaudited)
Amounts in thousands
	January 29, 2011		January 28, 2012
Retail		2,870		2,587
Upscale Outlets		101		146
Surplus Outlets		149		154
Total		3,120		2,887