UNITED STATES ~~SECURITIES~~ ~~AND EXCHANGE COMMISSION~~

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~October~~April 2928, ~~2011~~2012

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

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

~~Registrant’s~~(Address ~~telephone~~of ~~number,~~principal ~~including~~executive ~~area~~offices) ~~code 781-749-7600~~

~~Indicate~~Registrant’s bytelephone 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)number, ~~and~~including ~~(2) has~~area ~~been subject~~code ~~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 S781-~~T during the preceding 12 months (or for such shorter period~~749-7600 ~~that the registrant was required to submit and post such files). Yes þ No o~~

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. x Yes ¨ 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 x No ¨

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

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

The number of shares outstanding of the registrant’s common stock as of ~~December~~May 131, ~~2011~~2012: 70,~~507~~275,~~286~~103 shares.

PARTTable Iof — FINANCIAL INFORMATION Contents

~~Item 1.~~PART ~~Financial~~I ~~Statements.~~ - FINANCIAL INFORMATION

Consolidated Statements of Operations for the Thirteen and Thirty-Nine Weeks Ended October 29, 2011 and October 30, 2010			2
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets as of October 29, 2011, January 29, 2011 and October 30, 2010			3
Consolidated Statements of Operations for the Thirteen Weeks Ended April 28, 2012 and April 30, 2011			2
Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended October 29, 2011 and October 30, 2010			4
Consolidated Statements of Comprehensive Income for the Thirteen Weeks Ended April 28, 2012 and April 30, 2011			3
Notes to Condensed Consolidated Financial Statements			5
Condensed Consolidated Balance Sheets as of April 28, 2012, January 28, 2012 and April 30, 2011			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended April 28, 2012 and April 30, 2011			5
Item 3. Quantitative and Qualitative Disclosures About Market Risk			37
Notes to Condensed Consolidated Financial Statements			6
Item 4. Controls and Procedures			37
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
PART II — OTHER INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk			39
Item 1. Legal Proceedings			38
Item 4. Controls and Procedures			39
Item 1A. Risk Factors			39
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			39
Item 1. Legal Proceedings			39
Item 5. Other Information			40
Item 1A. Risk Factors			40
Item 6. Exhibits			40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			43
Signatures			41
Item 6. Exhibits			43
EX-31.1
Signatures			46
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

THE TALBOTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ~~Amounts~~ ~~in thousands except per share data~~

	Thirteen Weeks Ended					Thirty-Nine Weeks Ended
	October 29,			October 30,		October 29,			October 30,
	2011			2010		2011			2010
Net sales	$	279,460		$	299,099	$	851,862		$	920,502
Costs and expenses:
Cost of sales, buying and occupancy		186,232			171,395		587,899			548,017
Selling, general and administrative		105,017			106,294		301,239			307,508
Restructuring charges		4,252			245		7,522			5,316
Impairment of store assets		2,067			545		3,284			551
Merger-related costs		—			787		885			27,650
Operating (loss) income		(18,108	)		19,833		(48,967	)		31,460
Interest:
Interest expense		3,507			2,371		8,122			17,176
Interest income		15			22		50			64
Interest expense, net		3,492			2,349		8,072			17,112
(Loss) income before taxes		(21,600	)		17,484		(57,039	)		14,348
Income tax expense		542			510		1,549			3,949
(Loss) income from continuing operations		(22,142	)		16,974		(58,588	)		10,399
Income (loss) from discontinued operations		102			74		(46	)		3,222
Net (loss) income	$	(22,040	)	$	17,048	$	(58,634	)	$	13,621
Basic (loss) earnings per share:
Continuing operations	$	(0.32	)	$	0.24	$	(0.85	)	$	0.16
Discontinued operations		—			—		—			0.04
Net (loss) earnings	$	(0.32	)	$	0.24	$	(0.85	)	$	0.20
Diluted (loss) earnings per share:
Continuing operations	$	(0.32	)	$	0.24	$	(0.85	)	$	0.15
Discontinued operations		—			—		—			0.04
Net (loss) earnings	$	(0.32	)	$	0.24	$	(0.85	)	$	0.19
Weighted average shares outstanding:
Basic		69,106			68,424		68,963			64,878
Diluted		69,106			69,442		68,963			66,008

Amounts in thousands except per share data


	Thirteen Weeks Ended
	April 28,			April 30,
	2012			2011
Net sales	$	275,915		$	301,310

Costs and expenses:
Cost of sales, buying and occupancy		175,338			193,965
Selling, general and administrative		92,569			99,811
Restructuring charges		2,364			2,265
Impairment of store assets		—			1,217
Merger-related costs		—			885

Operating income		5,644			3,167

Interest:
Interest expense		4,641			2,044
Interest income		8			16

Interest expense, net		4,633			2,028

Income before taxes		1,011			1,139
Income tax (benefit) expense		(175	)		231

Income from continuing operations		1,186			908
Loss from discontinued operations		(93	)		(169	)

Net income	$	1,093		$	739

Basic earnings per share:
Continuing operations	$	0.02		$	0.01
Discontinued operations		—			—

Net earnings	$	0.02		$	0.01

Diluted earnings per share:
Continuing operations	$	0.02		$	0.01
Discontinued operations		—			—

Net earnings	$	0.02		$	0.01

Weighted average shares outstanding:
Basic		69,401			68,709

Diluted		69,713			69,276

See notes to condensed consolidated financial statements.

THE TALBOTS, INC. AND SUBSIDIARIES

~~CONDENSED~~ CONSOLIDATED ~~BALANCE~~STATEMENTS ~~SHEETS~~ OF COMPREHENSIVE INCOME (UNAUDITED) ~~Amounts~~ ~~in thousands~~

	October 29,			January 29,			October 30,
	2011			2011			2010
ASSETS
Current Assets:
Cash and cash equivalents	$	19,254		$	10,181		$	2,384
Customer accounts receivable, net		161,364			145,472			171,059
Merchandise inventories		209,435			158,040			184,699
Deferred catalog costs		5,321			4,184			5,386
Prepaid and other current assets		33,426			33,235			52,085
Total current assets		428,800			351,112			415,613
Property and equipment, net		180,291			186,658			192,115
Goodwill		35,513			35,513			35,513
Trademarks		75,884			75,884			75,884
Other assets		16,611			19,349			19,523
Total Assets	$	737,099		$	668,516		$	738,648
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	113,738		$	91,855		$	96,525
Trade payables financing		39,411			—			—
Accrued liabilities		130,922			137,824			151,281
Revolving credit facility		124,941			25,516			68,751
Total current liabilities		409,012			255,195			316,557
Deferred rent under lease commitments		81,329			93,440			99,278
Deferred income taxes		28,456			28,456			28,456
Other liabilities		88,201			107,839			109,285
Commitments and contingencies
Stockholders’ Equity:
Common stock, $0.01 par value; 200,000,000 shares authorized; 98,284,611 shares, 97,247,847 shares and 97,181,614 shares issued, respectively; and 70,511,172 shares, 70,261,905 shares and 70,461,156 shares outstanding, respectively		983			972			972
Additional paid-in capital		867,932			860,819			858,178
Retained deficit		(96,509	)		(37,875	)		(35,069	)
Accumulated other comprehensive loss		(50,897	)		(51,216	)		(51,130	)
Treasury stock, at cost; 27,773,439 shares, 26,985,942 shares and 26,720,458 shares, respectively		(591,408	)		(589,114	)		(587,879	)
Total stockholders’ equity		130,101			183,586			185,072
Total Liabilities and Stockholders’ Equity	$	737,099		$	668,516		$	738,648

Amounts in thousands


	Thirteen Weeks Ended
	April 28,			April 30,
	2012			2011
Net income	$	1,093		$	739

Other comprehensive (loss) income:
Translation adjustment		(2	)		445
Change in pension and postretirement plan liabilities		648			235

Comprehensive income	$	1,739		$	1,419

See notes to condensed consolidated financial statements.

THE TALBOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~STATEMENTS~~BALANCE OFSHEETS ~~CASH FLOWS~~ (UNAUDITED) ~~Amounts~~ ~~in thousands~~

	Thirty-Nine Weeks Ended
	October 29,			October 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(58,634	)	$	13,621
(Loss) income from discontinued operations		(46	)		3,222
(Loss) income from continuing operations		(58,588	)		10,399
Adjustments to reconcile (loss) income from continuing operations to net cash used in operating activities:
Depreciation and amortization		41,513			46,897
Stock-based compensation		6,688			11,485
Amortization of debt issuance costs		1,627			2,551
Impairment of store assets		3,284			551
(Gain) loss on disposal of property and equipment		(294	)		229
Deferred rent		(11,776	)		(8,093	)
Gift card breakage income		(399	)		—
Changes in assets and liabilities:
Customer accounts receivable		(15,876	)		(7,428	)
Merchandise inventories		(51,383	)		(41,870	)
Deferred catalog costs		(1,137	)		1,299
Prepaid and other current assets		(1,090	)		(5,402	)
Due from related party		—			959
Income tax refundable		—			2,006
Accounts payable		19,930			(7,621	)
Accrued liabilities		(5,635	)		10,634
Other assets		1,111			(530	)
Other liabilities		(18,715	)		(24,148	)
Net cash used in operating activities		(90,740	)		(8,082	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment		(34,843	)		(18,739	)
Proceeds from disposal of property and equipment		341			15
Cash acquired in merger with BPW Acquisition Corp.		—			332,999
Net cash (used in) provided by investing activities		(34,502	)		314,275
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving credit facility		1,391,400			1,185,238
Payments on revolving credit facility		(1,291,975	)		(1,116,487	)
Payments on related party borrowings		—			(486,494	)
Change in trade payables financing, net		39,411			—
Payment of debt issuance costs		—			(6,080	)
Payment of equity issuance costs		—			(3,594	)
Proceeds from warrants exercised		—			19,042
Proceeds from options exercised		1			652
Purchase of treasury stock		(2,294	)		(1,840	)
Net cash provided by (used in) financing activities		136,543			(409,563	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		(603	)		369
CASH FLOWS FROM OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS		(1,625	)		(7,390	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		9,073			(110,391	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		10,181			112,775
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	19,254		$	2,384

Amounts in thousands


	April 28,			January 28,			April 30,
	2012			2012			2011
ASSETS
Current Assets:
Cash and cash equivalents	$	22,381		$	8,739		$	8,569
Customer accounts receivable, net		159,046			141,902			164,282
Merchandise inventories		166,168			164,734			177,134
Deferred catalog costs		3,230			3,801			5,563
Prepaid and other current assets		22,563			26,234			48,265

Total current assets		373,388			345,410			403,813

Property and equipment, net		165,559			169,765			181,595
Goodwill		35,513			35,513			35,513
Trademarks		75,884			75,884			75,884
Other assets		24,093			17,610			18,970

Total Assets	$	674,437		$	644,182		$	715,775

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	74,596		$	99,272		$	97,790
Trade payables financing		—			21,771			—
Accrued liabilities		132,895			132,685			122,314
Revolving credit facility		122,924			116,450			86,800
Current portion of term loan		2,000			—			—

Total current liabilities		332,415			370,178			306,904
Term loan		73,000			—			—
Deferred rent under lease commitments		71,603			75,410			88,742
Deferred income taxes		28,456			28,456			28,456
Other liabilities		149,906			154,163			105,512

Commitments and contingencies

Stockholders’ Equity:
Common stock, $0.01 par value; 200,000,000 shares authorized; 98,346,783 shares, 98,327,700 shares and 98,224,083 shares issued, respectively; and 70,289,134 shares, 70,466,307 shares and 70,713,766 shares outstanding, respectively		983			983			982
Additional paid-in capital		873,747			871,837			864,139
Retained deficit		(148,671	)		(149,764	)		(37,136	)
Accumulated other comprehensive loss		(114,970	)		(115,616	)		(50,536	)
Treasury stock, at cost; 28,057,649 shares, 27,861,393 shares and 27,510,317 shares, respectively		(592,032	)		(591,465	)		(591,288	)

Total stockholders’ equity		19,057			15,975			186,161

Total Liabilities and Stockholders’ Equity	$	674,437		$	644,182		$	715,775

See notes to condensed consolidated financial statements.

THE TALBOTS, INC. AND SUBSIDIARIES ~~NOTES~~ ~~TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Amounts in thousands


	Thirteen Weeks Ended
	April 28,			April 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,093		$	739
Loss from discontinued operations		(93	)		(169	)

Income from continuing operations		1,186			908
Adjustments to reconcile income from continuing operations to net cash used in operating activities:
Depreciation and amortization		11,118			13,893
Stock-based compensation		1,910			2,894
Amortization of debt issuance costs		606			549
Impairment of store assets		—			1,217
(Gain) loss on disposal of property and equipment		(45	)		99
Deferred rent		(3,037	)		(4,264	)
Gift card breakage income		(1,404	)		(165	)
Changes in assets and liabilities:
Customer accounts receivable		(17,125	)		(18,759	)
Merchandise inventories		(1,383	)		(18,921	)
Deferred catalog costs		571			(1,379	)
Prepaid and other current assets		3,692			(15,462	)
Accounts payable		(25,311	)		5,417
Accrued liabilities		928			(14,478	)
Other assets		(182	)		(170	)
Other liabilities		(3,850	)		(1,982	)

Net cash used in operating activities		(32,326	)		(50,603	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment		(6,900	)		(9,697	)
Proceeds from disposal of property and equipment		45			—

Net cash used in investing activities		(6,855	)		(9,697	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving credit facility		495,950			507,200
Payments on revolving credit facility		(489,476	)		(445,916	)
Change in trade payables financing, net		(21,771	)		—
Borrowings on term loan		75,000			—
Payment of debt issuance costs		(5,858	)		—
Proceeds from options exercised		—			1
Purchase of treasury stock		(567	)		(2,174	)

Net cash provided by financing activities		53,278			59,111

EFFECT OF EXCHANGE RATE CHANGES ON CASH		19			368
CASH FLOWS FROM OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS		(474	)		(791	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		13,642			(1,612	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		8,739			10,181

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	22,381		$	8,569

See notes to condensed consolidated financial statements.

THE TALBOTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.	Basis of Presentation

The condensed consolidated financial statements of The Talbots, Inc. and its subsidiaries (“Talbots” or the “Company”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2928, ~~2011~~2012.

The unaudited condensed consolidated financial statements include the accounts of Talbots and its wholly-owned subsidiaries. All intercompany transactions and balances of subsidiaries have been eliminated in consolidation. In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair presentation of the results for the reported interim periods. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year or any other interim period.

2.	Summary of Significant Accounting Policies and Other Information

There have been no material changes to the significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2928, ~~2011~~2012.

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-08, Testing Goodwill for Impairment. ASU 2011-08 amends Accounting Standards Codification (“ASC”) 350-20, Goodwill, by providing entities which are testing goodwill for impairment with the option of performing a qualitative assessment before calculating the fair value of the reporting unit. If the entity determines, on the basis of qualitative factors, that it is more likely than not that the fair value of the reporting unit exceeds the carrying amount, further testing of goodwill for impairment would not need to be performed. The ASU does not change how goodwill is calculated or assigned to reporting units, revise the requirement to test goodwill annually for impairment or amend the requirement to test goodwill for impairment between annual tests if events or circumstances warrant; however, the ASU does revise the examples of events and circumstances that an entity should consider in its assessment. The Company adopted ASU 2011-08 ~~will~~in ~~be effective for~~ the ~~Company~~first ~~for~~quarter ~~interim and annual periods beginning after December 15, 2011, with early adoption~~of ~~permitted~~2012. The ~~Company does not expect the~~ adoption of this ASU todid not have ~~any~~a material impact on ~~its~~ the Company’s condensed consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. ASU 2011-05 amends ASC 220, Comprehensive Income, by requiring entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements, removing the option to present the components of other comprehensive income as part of the statement of stockholders’ equity. The items that must be reported in other ~~comprehensive~~ comprehensive income were not changed. In December 2011, the FASB issued ASU No. 2011-0512, ~~will~~Deferral beof ~~effective~~the Effective Date for Amendments to the ~~Company~~Presentation ~~for~~of ~~fiscal~~Reclassifications ~~years,~~of ~~and interim~~Items ~~periods~~Out ~~within~~of ~~those~~Accumulated ~~years,~~Other ~~beginning~~Comprehensive ~~after~~Income ~~December~~in Accounting Standards Update No. ~~15,~~2011-05. ASU 2011-12 ~~and~~amends ~~must~~ASU be2011-05 ~~applied~~by indefinitely deferring the requirement under ASU 2011-05 to present reclassification adjustments out of accumulated other comprehensive income by a component in both ~~retrospectively~~the statement in which net income is presented and the statement in which other comprehensive income is presented. The Company isadopted ~~evaluating~~ASU ~~its~~2011-05, ~~presentation~~with ~~options~~retrospective ~~under~~application ~~this~~as required, except for the components of ASU; ~~however~~2011-05 ~~these~~which were ~~changes~~indefinitely ~~are~~deferred ~~not~~by ~~expected~~ASU to2011-12 and has included in these condensed consolidated financial statements separate unaudited statements of comprehensive income. The adoption of this ASU did not impact the ~~consolidated~~Company’s condensed consolidated financial statements other than ~~the~~this change in presentation.

In6 May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 amends ASC 820, Fair Value Measurement, by expanding existing disclosure requirements for fair value measurements and modifying certain definitions in the guidance, which may change how the fair value measurement guidance of ASC 820 is applied. ASU 2011-04 will be effective for the Company for interim and

~~annual~~In ~~periods~~May ~~beginning~~2011, ~~after~~the ~~December~~FASB issued ASU No. 152011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 amends ASC 820, Fair Value Measurement, by expanding existing disclosure requirements for fair value measurements and ~~must~~modifying becertain ~~applied~~definitions ~~prospectively~~in the guidance, which may change how the fair value measurement guidance of ASC 820 is applied. The Company ~~is evaluating~~adopted ASU 2011-04 in the ~~impact~~first ~~that~~quarter of 2012. The adoption of this ~~ASU~~standard ~~may~~did ~~have~~not onimpact ~~its~~the Company’s condensed consolidated financial statements in the first quarter of 2012 because the Company did not record any fair value remeasurements requiring disclosure in the period; however, the Company expects to include additional disclosures relative to fair value remeasurements, specifically impairments of store assets, as a result of the adoption of this ASU if ~~any~~such remeasurements become necessary in a future period.

Supplemental Cash Flow Information

Interest paid for the ~~thirty-nine~~thirteen weeks ended ~~October~~April 2928, ~~2011~~2012 and ~~October~~April 30, ~~2010~~2011 was $72.6 million and $172.7 5 million, respectively. Income taxes paid for the ~~thirty-nine~~thirteen weeks ended ~~October 29~~April 28, ~~2011~~2012 and ~~October~~April 30, ~~2010~~2011 were $30.8 million and $5.1 .7 million respectively. In the ~~thirty-nine~~thirteen weeks ended ~~October~~ 29April 28, ~~2011~~2012, the Company made additions to property and equipment of $84.26 million and recorded $1.0 million of deferred financing costs related to the execution of the Company’s term loan facility and the amendment to the Company’s revolving credit facility which remained unpaid and recorded in accounts payable and accrued liabilities as of ~~October 29~~April 28, ~~2011~~2012.

3.	Recent Events and Management’s Plans

The Company’s ~~results~~recent ~~for~~operating ~~the~~losses ~~thirty-nine~~have ~~weeks~~challenged ~~ended~~its ~~October 29~~capital resources, ~~2011~~and, ~~reflect~~as ~~difficulties~~a ~~in improving~~result, ~~net sales and~~ the ~~impact~~Company ofhas ~~aggressive~~been ~~promotional~~exploring strategic ~~activity~~alternatives onas ~~gross~~well ~~profit~~as ~~margins. These~~implementing ~~difficulties~~certain ~~have~~measures ~~challenged~~which ~~the~~seek ~~Company’s~~to improve profitability and ~~capital~~increase ~~resources; and as a result,~~ the ~~Company~~ ~~has~~level ~~begun~~of tocash ~~implement~~available ~~certain~~for ~~additional~~funding ~~measures,~~operations ~~aimed at improving profitability~~ and ~~maintaining~~ ~~flexibility~~working in capital ~~resources~~needs.

~~Management~~Merger ~~expects~~Agreement to operate the business and execute its strategic initiatives principally with funds generated from operations and the Company’s external sources of credit under its revolving credit facility and credit extended from its vendors and sourcing agent. See Note 13, Debt, and Trade Payables Arrangement. While management expects to see a continuation of challenging net sales and gross profit margin trends throughout the remainder of the fiscal year, the Company’s operating plan for fiscal 2012 contemplates improvements in its net sales, operating results and cash flows from operations, when compared to the results for fiscal 2011, as management progresses with the implementation of its cost reduction and other strategic initiatives. The ability to achieve the Company’s operating plan is based on a number of assumptions which involve significant judgment and estimate of future performance. While the Company’s strategic initiatives are designed to improve sales and operating results, they are still in their early stages, and the Company’s overall operating results have fluctuated significantly. As a result, the Company’s cash flows and other sources of liquidity may not at all times be sufficient for the Company’s cash requirements. Management will continue to monitor the Company’s performance and liquidity, and if management believes operating results will be below its expectations or if management determines at any time that it is appropriate or necessary to obtain additional liquidity, management will take further steps intended to improve the Company’s financial position, such as by modifying the operating plan, seeking to further reduce costs and adjust cash spend or evaluating alternatives and opportunities to obtain additional sources of liquidity. Management cannot assure that any of these actions would be sufficient or available or, if available, available on favorable terms.

On May 30, 2012, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with TLB Holdings LLC, a Delaware limited liability company (the “Parent”), and TLB Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of the Parent (the “Sub”), which are both affiliates of Sycamore Partners Management LLC. Pursuant to the Merger Agreement, upon the terms and subject to the conditions thereof, the Sub will, among other things, commence a tender offer, within ten business days of the execution of the Merger Agreement, to purchase all of the outstanding shares of common stock of the Company at a price of $2.75 per share, without interest, net to the seller thereof in cash, on the terms and subjection to the conditions set forth in the Merger Agreement. Refer to Note 15, Subsequent Events, for additional information regarding this transaction.

New Term Loan Agreement and Extension of Credit Facility

In February 2012, the Company entered into a new $75.0 million secured term loan facility (the “Term Loan”) and, concurrently, amended its existing revolving credit facility (the “Amended Credit Facility”). Refer to Note 11, Debt, for additional information regarding the Term Loan and Amended Credit Facility.

Cost Reduction Initiative

In December 2011, the Company announced a cost reduction initiative with a goal of reducing annual costs and expenses by approximately $50.0 million across all areas of the business by the end of fiscal 2012. ~~With~~Key components of this initiative, ~~the~~which ~~Company~~seeks ~~will seek~~ to continue to improve ~~its~~the Company’s financial results and ~~capital~~financial ~~flexibility~~position, ~~while focusing strategic reinvestment in those areas of the business that are expected to generate meaningful returns. Key components of this initiative~~ include:

•

Lowering levels of marketing spend, including the suspension of national advertising and television campaigns in the near-term;

• Exploring and implementing process efficiencies and structural streamlining across all areas of the business, including reducing corporate headcount by approximately 9.0% in December 2011 and reducing supporting headcount at the Company’s call center and distribution center by approximately 16.0% in April 2012; and

•7 Implementing a store payroll rationalization program whereby the Company will seek to adjust the composition of its store workforce and reduce store payroll hours by managing to improved productivity standards, aided by the implementation of a workforce management system.

•

Implementing a store payroll rationalization program whereby the Company is seeking to adjust the composition of its store workforce and reduce store payroll hours by managing to improved productivity standards, aided by a structural store headcount reduction and the implementation of a workforce management system.

In conjunction with these direct cost reductions, the Company announced a decrease in the level of planned capital expenditures for fiscal 2012 and is planning reductions in the level of merchandise inventory commitments in fiscal 2012 which should also contribute to lower levels of logistics, handling and shipping costs.

~~The~~In ~~Company~~addition ~~expects~~ to the ~~incur~~components ~~approximately~~of ~~$3.5 million~~the incost ~~restructuring~~reduction ~~charges~~initiative, ~~related~~in tofiscal 2011 the ~~corporate~~ ~~headcount~~Company ~~reduction~~began ~~component~~executing ofon its ~~cost~~store ~~reduction~~rationalization ~~initiative~~plan, ~~and~~a isprogram ~~still~~designed ~~evaluating the~~to ~~expected~~increase ~~costs~~the productivity of ~~any~~the ~~additional~~Company’s ~~components~~store ofsquare ~~this~~footage ~~initiative,~~by ifevaluating ~~any.~~the Company’s ~~The~~store ~~Company~~portfolio ~~anticipates that~~on ita ~~will~~market-by-market ~~realize~~basis ~~savings~~and ~~related~~closing, consolidating or downsizing certain selected locations. Refer to ~~actions~~Note ~~taken~~4, ~~under~~Restructuring, ~~this~~for ~~initiative~~further ~~beginning~~information inincluding ~~the~~key ~~next fiscal~~components ~~year.~~of this plan and progress to-date.

In addition to the components of the cost reduction initiative, in fiscal 2011 the Company began executing on its store rationalization plan, a program designed to increase the productivity of the Company’s store square footage by evaluating the Company’s store portfolio on a market-by-market basis and closing, consolidating or downsizing certain selected locations. See Note 5, Restructuring, for further information including key components of this plan and progress to-date.

Trade Payables Arrangement

On September 1, 2011, the Company entered into an arrangement with its exclusive global apparel sourcing agent, whereby the Company is able to extend payment terms for merchandise purchases sourced by its exclusive agent. Under this arrangement, the Company’s sourcing agent settles the Company’s merchandise accounts payable with the vendors organized under the buying agency agreement as they become due and extends the Company’s payment obligation up to an additional 30 days, at which time the Company is obligated to reimburse its sourcing agent the full amount of merchandise accounts payable due plus pay accrued fees and interest. The amount of payables due under this arrangement is not to exceed $50.0 million at any time.

6Fees are calculated and payable monthly on amounts outstanding under this arrangement at a rate of 1.0% per month. Additional fees may be charged on amounts overdue under this arrangement at a rate of 2.0% per month, calculated on a daily basis. This arrangement became effective for amounts that were or became due beginning on September 1, 2011 and was extended on February 29, 2012 to August 31, 2012, with an option to renew for an additional six month period upon the mutual agreement of the Company and its sourcing agent. This arrangement is subject to suspension or earlier termination as provided in the arrangement, including any termination by the Company’s sourcing agent in its discretion upon 28 days notice at any time. In addition, the Company’s sourcing agent agreed to extend letters of credit, on behalf and at the request of the Company, to vendors organized under the buying agency agreement for certain merchandise purchases, which may be suspended at the discretion of the sourcing agent. The Company had no accounts payables extended under this arrangement as of April 28, 2012. As of January 28, 2012, $21.8 million of the Company’s accounts payable were extended under this arrangement, included as trade payables financing in the Company’s condensed consolidated balance sheet. Additionally, the Company had outstanding letters of credit issued by its sourcing agent of $3.7 million and $7.1 million as of April 28, 2012 and January 28, 2012, respectively. During the thirteen weeks ended April 28, 2012, the Company recorded $0.9 million of fees and interest under these arrangements included in interest expense in the consolidated statement of operations.

~~Table~~Management’s ofPlans ~~Contents~~

~~Fees~~Management ~~are~~expects ~~calculated~~to ~~and~~operate ~~payable~~the ~~monthly~~business onand ~~amounts~~execute ~~outstanding~~its strategic ~~under~~initiatives ~~this~~principally ~~arrangement~~with atfunds agenerated ~~rate~~from ~~of 1.0%~~operations ~~per~~and ~~month.~~the ~~Additional~~Company’s ~~fees~~external ~~may~~sources beof ~~charged~~credit onunder ~~amounts~~its ~~overdue~~existing ~~under~~credit ~~this~~facility ~~arrangement~~and atcredit aextended ~~rate of~~from ~~2.0%~~its ~~per~~vendors ~~month,~~and ~~calculated~~sourcing onagent aand ~~daily~~anticipates ~~basis.~~that ~~This~~the ~~arrangement~~Company ~~became~~will have ~~effective~~sufficient ~~for~~internal ~~amounts~~and ~~that are~~external orsources ~~became~~of ~~due~~liquidity ~~beginning~~to onfund ~~September 1,~~operations ~~2011~~ and ~~continues~~anticipated ~~until~~working ~~February 29,~~capital ~~2012,~~and ~~with~~other ~~an option~~expected tocash ~~renew~~needs for anthe ~~additional~~next ~~six~~twelve ~~month~~months. ~~period~~This expectation depends upon the ~~mutual~~Company’s ~~agreement~~future ofoperating performance, the ~~Company~~achievement ~~and~~of its ~~sourcing~~ ~~agent.~~operating ~~This~~plan ~~arrangement~~and isinternal ~~subject~~forecast, toincluding ~~suspension~~the orabsence ~~earlier~~of ~~termination~~any asunforeseen ~~provided~~cash inrequirements, ~~the arrangement~~expected borrowing availability, ~~including~~the ~~any~~continued ~~termination~~credit byand working capital support of the Company’s ~~sourcing~~vendors and sourcing agent ~~upon~~and ~~28 days~~the ~~notice~~absence atof any ~~time~~ significant deterioration in general economic conditions. InThe ~~addition,~~ability to achieve the Company’s ~~sourcing~~operating ~~agent~~plan ~~agreed~~is tobased ~~extend~~on ~~letters~~a number of ~~credit,~~assumptions onwhich ~~behalf~~involve significant judgment and estimates of future operating atperformance ~~the~~and ~~request~~credit ofavailability ~~the~~which ~~Company,~~cannot tobe ~~vendors~~assured. ~~organized~~Management ~~under~~will continue to monitor the ~~buying~~Company’s ~~agency~~performance ~~agreement~~and ~~for~~liquidity, ~~certain merchandise~~and ~~purchases~~if needed, ~~which~~management ~~may~~would beseek ~~suspended~~to attake ~~the~~further ~~discretion~~steps ofintended to improve the ~~sourcing~~Company’s financial ~~agent.~~position Asand ~~of October 29,~~liquidity ~~2011,~~and ~~$39.4 million~~mitigate ofany potential shortfall in the Company’s ~~accounts~~available ~~payable~~working ~~were~~capital, ~~extended~~such ~~under~~as ~~this arrangement~~by modifying the operating plan, ~~included~~seeking asto ~~trade~~further ~~payables~~reduce ~~financing~~costs, inadjusting ~~the~~cash ~~Company’s~~spend, ~~condensed~~capital ~~consolidated~~expenditures ~~balance~~and working ~~sheet~~capital, ~~and~~pursuing ~~the~~additional ~~Company~~financing ~~had~~if ~~outstanding~~available, ~~letters~~seeking ofadditional credit ~~issued~~support byor ~~its~~evaluating ~~sourcing~~other ~~agent~~alternatives to obtain additional sources of ~~$3.8 million.~~liquidity, ~~During~~subject to the ~~thirteen~~terms and ~~thirty-nine~~conditions ~~weeks~~of ~~ended~~the ~~October 29,~~Company’s ~~2011,~~existing ~~the~~debt ~~Company~~facilities ~~recorded~~and ~~$0.6 million~~the limitations of ~~fees~~the ~~and~~Merger ~~interest~~Agreement. ~~under~~Management cannot assure that any of these ~~arrangements~~actions ~~included~~would inbe ~~interest~~sufficient ~~expense~~or inavailable ~~the~~or, if available, available on favorable or satisfactory terms. Refer to Note 11, Debt and Trade Payables ~~statement~~Arrangement for additional information regarding the Company’s external sources of ~~operations.~~credit Noand ~~amounts~~Note ~~were~~15, ~~overdue~~Subsequent ~~under~~Events, ~~this~~for ~~arrangement~~additional ~~during~~information regarding the ~~quarter~~limitations of the Merger Agreement.

Stockholder Rights Plan

Effective August 1, 2011, the Company’s Board of Directors unanimously voted to adopt a stockholder rights plan, dated August 1, 2011, between the Company and Computershare Trust Company, N.A., as rights agent, (the “Rights Plan”) and directed the issuance and declared a dividend of one common share purchase right (a “Right” and collectively, the “Rights”) for each outstanding share of common stock, par value of $0.01 per share, of the Company outstanding as of the close of business on August 12, 2011. Initially, no separate certificate representing the Rights will be issued.

Under the Rights Plan, the Rights would be distributed upon the earlier to occur of (i) the tenth business day following a public announcement indicating that a person or group of affiliated or associated persons (an “Acquiring Person”) has acquired beneficial ownership of 10.0% or more of the Company’s outstanding common stock or such earlier date as a majority of the Board of Directors becomes aware of such acquisition or (ii) the tenth business day (or such later date as the Board of Directors may determine prior to such time as any person or group becomes an Acquiring Person) following the commencement of, or first public announcement of an intention to commence, a tender or exchange offer the consummation of which would result in a person or group becoming the beneficial owner of 10.0% or more of the then outstanding common stock (the “Distribution Date”). The Rights are not exercisable until the Distribution Date. After the Distribution Date, each Right will entitle the holder to purchase from the Company one share of common stock at a purchase price of $24.00 per common share (the “Purchase Price”), subject to adjustment. Following the existence of an Acquiring Person, all Rights that are or were beneficially owned by any Acquiring Person will be null and void.

If a person or group becomes an Acquiring Person (with certain limited exceptions), each holder of a Right will thereafter have the right to receive, upon exercise, common stock (or, in certain circumstances, other securities of the Company, cash or assets of the Company) having a value equal to two times the Purchase Price. Also, in the event at any time after a person becomes an Acquiring Person, if the Company consolidates or merges with any other person or engages in other specified transactions, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the Purchase Price. At any time after any person or group becomes an Acquiring Person and prior to the acquisition by such person or group of 50.0% or more of the outstanding common stock, the Board of Directors may exchange the Rights (other than Rights owned by such person or group which have become void), in whole or in part, at an exchange ratio of one share of common stock per Right (subject to adjustment).

On August 1, 2021, the Rights Plan will terminate automatically and the Rights will expire, unless this date is amended or unless the Rights are earlier redeemed or exchanged by the Company, in each case, as described in the agreement. The foregoing is a general summary and is qualified in its entirety by reference to the detailed terms and conditions set forth in the Rights Plan.

Until the Rights become exercisable, they will not have any impact on the Company’s outstanding shares.

4. Merger with BPW Acquisition Corp. and Related Transactions

On April 7, 2010, the Company completed a series of transactions (collectively, the “BPW Transactions”) which, in the aggregate, substantially reduced its indebtedness and significantly deleveraged 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 merged with and into BPW in exchange for the issuance of Talbots common stock and warrants to BPW stockholders; (ii) the repurchase and retirement of all shares of Talbots common stock held by AEON (U.S.A.), Inc. (“AEON (U.S.A.)”), the Company’s then majority shareholder, totaling 29.9 million shares; the issuance of warrants to purchase one million shares of Talbots common stock to AEON (U.S.A.) and the repayment of all of the Company’s outstanding debt with AEON Co., Ltd. (“AEON”) and AEON (U.S.A.) at its principal value plus accrued interest and other costs for total consideration of $488.2 million; and (iii) the execution of a third party senior secured revolving credit facility which provides borrowing capacity up to $200.0 million, subject to availability and satisfaction of all borrowing conditions.

BPW was a special purpose acquisition company with approximately $350.0 million in cash held in a trust account for the benefit of its shareholders to be used in connection with a business combination. BPW had no significant commercial operations, and its only significant pre-combination assets were cash and cash equivalents which were already recognized at fair value. The Company recorded the shares of common stock and warrants issued in the merger at the fair value of BPW’s net monetary assets received on April 7, 2010. The net monetary assets received in the transaction, consisting solely of cash and cash equivalents, were $333.0 million, after payment of all prior BPW obligations. No goodwill or intangible assets were recorded in the transaction.

In connection with the merger, the Company issued 41.5 million shares of Talbots common stock and warrants to purchase 17.2 million shares of Talbots common stock (the “Talbots Warrants”) for 100% ownership of BPW. Approximately 3.5 million BPW warrants that did not participate in the warrant exchange offer (the “Non-Tendered Warrants”) remained outstanding at the closing of the merger. Additionally, in connection with the merger, the Company repurchased and retired the 29.9 million shares of Talbots common stock held by AEON (U.S.A.), the former majority shareholder, in exchange for warrants to purchase one million shares of Talbots common stock (the “AEON Warrants”). As a result of the BPW Transactions, the Company became subject to annual limitations on the use of its existing net operating losses (“NOLs”).

With the consummation and closing of the BPW merger, the Company repaid all outstanding AEON and AEON (U.S.A.) indebtedness on April 7, 2010 at its principal value plus accrued interest and other costs for total cash consideration of $488.2 million. As the AEON and AEON (U.S.A.) debt extinguishment transaction was between related parties, the difference between the carrying value and the repayment price was recorded as an equity transaction. Accordingly, the Company recorded no gain or loss on the extinguishment and the difference between the repayment price and the net carrying value, consisting of $1.7 million of unamortized deferred financing costs, was recorded to additional paid-in capital.

Further in connection with the consummation and closing of the BPW merger, the Company executed a senior secured revolving credit agreement with third party lenders which provides borrowing capacity up to $200.0 million, subject to availability and satisfaction of all borrowing conditions. See Note 13, Debt, for further information including key terms of this credit agreement.

Merger-related costs are those expenses incurred in order to effect the merger, including advisory, legal, accounting, valuation and other professional or consulting fees as well as certain general and administrative costs incurred by the Company as a direct result of the closing of the BPW Transactions, including an incentive award given to certain executives and members of management, contingent upon the successful closing of the BPW Transactions. The incentive portion of merger-related costs was awarded in restricted stock units and cash for efforts related to the closing of the BPW Transactions. The cash bonus awarded was paid in the first quarter of 2010 in connection with the consummation of the BPW Transactions. The restricted stock units awarded cliff vested 12 months from the completion of the BPW Transactions. Legal expenses classified as merger-related costs include both those costs incurred to execute the merger as well as those costs incurred related to subsequent merger-related legal proceedings. Other costs primarily include printing and mailing expenses related to proxy solicitation and incremental insurance expenses related to the transactions. The Company has recorded total merger-related expenses of $35.0 million. In the thirteen weeks ended October 30, 2010, the Company updated its estimate of legal expenses incurred related to these proceedings under its indemnification obligations with the other parties to this matter, resulting in a credit to merger-related accounting and legal expenses in the third quarter of 2010. Approximately $7.7 million of costs incurred in connection with the execution of the senior secured revolving credit facility were recorded as deferred financing costs and included in

~~other~~If ~~assets in~~ the ~~condensed~~proposed ~~consolidated~~Merger ~~balance~~is ~~sheet.~~consummated, ~~These costs are being amortized to interest expense over~~ the ~~three~~Company’s ~~and~~liquidity ~~one-half~~requirements ~~year life of the facility. Approximately $3.6 million of costs incurred in connection with the registration~~ and ~~issuance~~sources of ~~the common stock and warrants~~liquidity ~~were~~could ~~charged~~be tosignificantly ~~additional paid-in capital~~changed.

~~Details~~4. ~~of the merger-related costs recorded in the thirteen and thirty-nine weeks ended October 29, 2011 and October 30, 2010 are as follows:~~ Restructuring

	Thirteen Weeks Ended					Thirty-Nine Weeks Ended
	October 29,		October 30,			October 29,		October 30,
	2011		2010			2011		2010
	(In thousands)
Investment banking	$	—	$	—		$	—	$	14,255
Accounting and legal		—		(431	)		—		6,219
Financing incentive compensation		—		1,210			885		5,638
Other costs		—		8			—		1,538
Merger-related costs	$	—	$	787		$	885	$	27,650

In March 2011, the Company announced the acceleration of its store rationalization plan, a program designed to increase the productivity of the Company’s store square footage by evaluating the Company’s store portfolio on a market-by-market basis and closing, consolidating or downsizing certain selected locations. This evaluation includes consideration of factors such as the overall size of each market, current performance and growth potential of each store and market and available lease expirations, lease renewals and other lease termination opportunities. As a result of this evaluation, the Company identified approximately 110 locations, including full stores and attached store concepts, for closure, including 15 to 20 locations as consolidation or downsizing opportunities. The Company has adopted a staged approach to closing, consolidating and downsizing these locations to better match its existing lease opportunities with the majority of the locations closed in fiscal 2011 and the remaining locations expected to close throughout fiscal 2012 and into fiscal 2013. The Company expects to record total non-recurring restructuring charges of approximately $13.5 million related to this plan and, through April 28, 2012, has incurred $10.5 million in related charges and closed 90 locations, including 74 full stores. In the thirteen weeks ended April 28, 2012, the Company incurred restructuring charges of $0.8 million in lease exit and related costs for certain locations closed or expected to be closed under this plan. In the thirteen weeks ended April 30, 2011, the Company incurred restructuring charges of $2.3 million, primarily comprised of lease exit, severance and related costs for certain locations expected to be closed under this plan.

~~The~~In ~~following~~January ~~pro~~2012, ~~forma~~the ~~summary~~Company ~~financial~~approved ~~information~~a ~~presents~~plan ~~the~~to ~~operating~~reduce ~~results of~~ the ~~combined~~ ~~company~~headcount ~~assuming~~of ~~the~~its ~~merger~~stores ~~and~~in ~~related~~order ~~events,~~to ~~including~~reform the ~~repurchase~~structure ofand ~~common~~improve ~~stock held~~the byproductivity ~~AEON (U.S.A.) and repayment~~ of ~~all~~its ~~outstanding~~stores. ~~indebtedness~~In ~~owed~~the tothirteen ~~AEON~~weeks ~~and~~ended ~~AEON (U.S.A.)~~April 28, ~~and~~2012, the ~~execution~~Company ofrecorded ~~the~~an ~~senior~~additional ~~secured~~$0.4 ~~revolving~~million ~~credit~~in ~~agreement,~~severance ~~had~~costs ~~been~~related ~~completed~~to onthis ~~January 31,~~action ~~2010,~~which ~~the~~was ~~beginning~~completed ofin ~~Talbots’~~March ~~fiscal year ended January 29, 2011~~2012.

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 30, 2010				October 30, 2010
	Actual		Pro Forma		Actual		Pro Forma
	(In thousands, except per share data)
Net sales	$	299,099	$	299,099	$	920,502	$	920,502
Operating income		19,833		19,833		31,460		24,588
Income from continuing operations		16,974		16,974		10,399		8,787
Earnings per share — continuing operations:
Basic	$	0.24	$	0.24	$	0.16	$	0.13
Diluted	$	0.24	$	0.24	$	0.15	$	0.12
Weighted average shares outstanding:
Basic		68,424		68,424		64,878		67,670
Diluted		69,442		69,442		66,008		68,800

In April 2012, as part of the structural streamlining of the Company’s cost reduction initiative, the Company reduced the headcount of its call center and its distribution center by approximately 16.0%, collectively, or 62 positions, recording $0.7 million in severance costs in the thirteen weeks ended April 28, 2012. An additional $0.5 million in restructuring charges were recorded in the thirteen weeks ended April 28, 2012 related to previously announced corporate and store restructuring actions.

~~Based~~The onfollowing ~~the~~is ~~nature~~a summary of the ~~BPW~~activity ~~entity,~~and ~~there~~liability ~~was~~balances norelated ~~revenue~~to orrestructuring ~~earnings~~for ~~associated~~the ~~with~~thirteen ~~BPW~~weeks ~~included~~ended inApril 28, ~~the~~2012 ~~consolidated~~and ~~statements~~April 30, of2011: ~~operations.~~

5. Restructuring


	Corporate - Wide
	Strategic Initiatives
				Lease -
	Severance			Related			Total
	(In thousands)
Balance at January 28, 2012	$	5,846		$	6,974		$	12,820
Charges		1,481			883			2,364
Cash payments		(3,681	)		(2,563	)		(6,244	)

Balance at April 28, 2012	$	3,646		$	5,294		$	8,940

In March 2011, the Company announced the acceleration of its store rationalization plan, a program designed to increase the productivity of the Company’s store square footage by evaluating the Company’s store portfolio on a market-by-market basis and closing, consolidating or downsizing certain selected locations. This evaluation includes consideration of factors such as overall size of each market, current performance and growth potential of each store and available lease expirations, lease renewals and other lease termination opportunities. As a result of this evaluation, the Company identified approximately 110 locations, including full stores and attached store concepts, for closure, including 15 to 20 locations as consolidation or downsizing opportunities. The Company has adopted a staged approach to closing, consolidating and downsizing these locations to best match its existing lease opportunities with the majority of the locations expected to close in fiscal 2011 and the remaining locations expected to close throughout fiscal 2012 and into fiscal 2013. The scope and timing of closures, consolidations and downsizings under this plan remains dynamic as the Company continues to perform ongoing evaluations of its portfolio and continues the process of negotiating acceptable termination arrangements with associated third parties. The Company expects to record total non-recurring restructuring charges of approximately $14.0 million related to this plan. In the


	Corporate - Wide
	Strategic Initiatives
				Lease -
	Severance			Related			Total
	(In thousands)
Balance at January 29, 2011	$	215		$	3,781		$	3,996
Charges		1,847			418			2,265
Cash payments		(410	)		(437	)		(847	)

Balance at April 30, 2011	$	1,652		$	3,762		$	5,414

~~thirteen~~Of ~~and~~the ~~thirty-nine~~$8.9 ~~weeks~~million ~~ended~~in ~~October 29,~~restructuring ~~2011,~~liabilities ~~the~~as ~~Company incurred restructuring charges~~ of ~~$4.3~~April ~~million~~28, ~~and~~2012, $76.5 million, ~~respectively,~~expected ~~primarily~~to ~~comprised~~be paid ofwithin ~~lease~~the ~~exit~~next twelve months, ~~severance~~is included in accrued liabilities and ~~related~~ ~~costs~~accounts ~~for~~payable, ~~certain~~and ~~locations~~the ~~closed~~remaining or$2.4 million, expected to be ~~closed~~paid ~~under~~thereafter ~~this~~through ~~plan and~~2014, ~~through~~is ~~October 29, 2011,~~included ~~closed~~in 35deferred ~~locations,~~rent ~~including~~under 31lease ~~full~~commitments ~~stores~~and other liabilities.

~~In the thirty-nine weeks ended October 30, 2010, the Company recorded $~~5.~~3 million~~ of restructuring charges primarily related to the consolidation of the Company’s Madison Avenue, New York flagship location in which the Company reduced active leased floor space and wrote down certain assets and leasehold improvements no longer used in the redesigned layStock-~~out.~~ Based Compensation

~~The~~Total ~~following~~stock-based iscompensation aexpense ~~summary~~related ofto ~~the~~stock ~~activity~~options, nonvested stock awards, restricted stock units (“RSUs”) and performance ~~liability~~stock ~~balances~~units ~~related~~(“PSUs”) towas ~~restructuring~~$1.9 million and $2.9 million for the ~~thirty-nine~~ thirteen weeks ended ~~October~~ April 2928, ~~2011~~2012 and ~~October~~April 30, ~~2010:~~ 2011, respectively.

	Corporate - Wide
	Strategic Initiatives
				Lease -
	Severance			Related			Total
	(In thousands)
Balance at January 29, 2011	$	215		$	3,781		$	3,996
Charges		2,545			4,977			7,522
Cash payments		(1,091	)		(2,624	)		(3,715	)
Non-cash items		62			—			62
Balance at October 29, 2011	$	1,731		$	6,134		$	7,865

	Corporate - Wide
	Strategic Initiatives
				Lease -
	Severance			Related			Total
	(In thousands)
Balance at January 30, 2010	$	3,089		$	784		$	3,873
Charges		1,164			4,152			5,316
Cash payments		(3,605	)		(846	)		(4,451	)
Non-cash items		26			(44	)		(18	)
Balance at October 30, 2010	$	674		$	4,046		$	4,720

The non-cash items primarily consist of changes to stock-based compensation expense related to terminated employees and the write-off of certain leasehold improvements and lease liability adjustments. Of the $7.9 million in restructuring liabilities at October 29, 2011, $5.5 million, expected to be paid within the next twelve months, is included in accrued liabilities and accounts payable and the remaining $2.4 million, expected to be paid thereafter through 2014, is included in deferred rent under lease commitments.

6. Stock-Based Compensation

Total stock-based compensation expense related to stock options, nonvested stock awards and restricted stock units (“RSUs”) was $1.5 million and $3.7 million for the thirteen weeks ended October 29, 2011 and October 30, 2010, respectively, and $6.7 million and $11.5 million for the thirty-nine weeks ended October 29, 2011 and October 30, 2010, respectively.

Stock-based compensation expense is classified in the consolidated statements of operations as follows:

	Thirteen Weeks Ended						~~Thirty-Nine Weeks Ended~~
	October 29,			October 30,			October 29,			October 30,
	April 28,			April 30,
	2011			2010			2011			2010
	2012			2011
	(In thousands)			~~(In thousands)~~
Cost of sales, buying and occupancy	$	~~328~~330		$	~~283~~273		$	~~894~~		$	~~667~~
Selling, general and administrative		1,~~273~~580			21,~~263~~736			~~4,971~~			~~7,546~~
Restructuring charges		(62	)		(26	)		(62	)		(26	)
Merger-related costs		—			885
Merger-related costs		—			1,210			885			3,298
Total	$	1,910		$	2,894
Total	$	1,539		$	3,730		$	6,688		$	11,485

Stock Options

The weighted-average fair value of options granted during ~~the~~thirteen ~~thirty-nine~~ weeks ended ~~October~~April ~~29, 2011 and October~~ 30, ~~2010~~2011, estimated as of the grant date using the Black-Scholes option pricing model, was $4.1832 ~~and~~per ~~$10~~option.40 ~~per~~There were ~~option~~no options granted during the thirteen weeks ended April 28, ~~respectively~~2012. Key assumptions used to apply this pricing model were as follows:

	Thirty-Nine Weeks Ended
	Thirteen WeeksEnded
	October 29,			October 30,
	April 30, 2011
	2011			2010
Risk-free interest rate		2.8	%
Risk-free interest rate		2.8	%		3.1	%
Expected life of options		6.9 years
Expected life of options		6.9 years			6.8 years
Expected volatility of underlying stock		81.2	%
Expected volatility of underlying stock		81.5	%		79.7	%
Expected dividend yield		0.0	%
Expected dividend yield		0.0	%		0.0	%

The following is a summary of stock option activity for the ~~thirty-nine~~thirteen weeks ended ~~October~~April 2928, ~~2011~~ 2012:

				Weighted		Weighted
	Number ofShares			WeightedAverageExercise Priceper Share		WeightedAverage RemainingContractual Term(In Years)		AggregateIntrinsicValue
				Average		Average Remaining		Aggregate
	Number of			Exercise Price		Contractual Term		Intrinsic
	Shares			per Share		(In Years)		Value
								(In thousands)
Outstanding at January 29, 2011		7,115,641		$	25.17
Outstanding at January 28, 2012		5,135,237		$	16.39
Granted		1,415,422			5.64
Forfeited or expired		(1,156,301	)		30.03
Exercised		(400	)		2.36
Outstanding at April 28, 2012		3,978,936		$	12.42		6.0	$	712
Forfeited or expired		(3,175,893	)		31.15
Exercisable at April 28, 2012		2,745,105		$	15.60		5.0	$	496
Outstanding at October 29, 2011		5,354,770		$	16.47		5.1	$	426
Exercisable at October 29, 2011		3,628,559		$	21.66		3.3	$	286

As of ~~October~~April 2928, ~~2011~~2012, there was $4.2 .3 million of unrecognized compensation cost related to stock options that are expected to vest. These costs are expected to be recognized over a weighted average period of 1.9 years.

11 10

Nonvested Stock Awards, RSUs and ~~RSUs~~ PSUs

The following is a summary of nonvested stock awards and RSU activity for the ~~thirty-nine~~thirteen weeks ended ~~October~~April 2928, ~~2011~~2012:

				Weighted
	Number ofShares			WeightedAverage GrantDate Fair Valueper Share
				Average Grant
Nonvested at January 28, 2012		1,419,086		$	9.44
	Number of			Date Fair Value
Vested		(557,360	)		8.57
	Shares			per Share
Forfeited		(8,928	)		10.36
Nonvested at January 29, 2011		2,367,214		$	11.34
Nonvested at April 28, 2012		852,798		$	8.95
Granted		681,447			5.64
Vested		(1,098,089	)		12.23
Forfeited		(398,835	)		7.81
Nonvested at October 29, 2011		1,551,737		$	9.11

AsThe oftable ~~October 29,~~above ~~2011~~does not include 1,836,730 ~~there~~PSUs ~~was~~outstanding ~~$7.6 million~~as of ~~unrecognized~~April 28, ~~compensation~~2012, ~~cost~~at ~~related~~a toweighted average grant date ~~nonvested~~fair ~~stock~~value ~~awards~~per ~~and~~share ~~RSUs~~of ~~that~~$3.08, ~~are~~at ~~expected~~the totarget ~~vest~~level of achievement. These ~~costs~~PSUs are ~~expected~~subject to ~~be recognized~~performance ~~over~~conditions athat ~~weighted~~have ~~average~~not ~~period~~been met as of ~~1.4~~April ~~years~~28, 2012.

7As of April 28, 2012, there was $8.2 ~~Income~~million ~~Taxes~~of unrecognized compensation cost related to nonvested stock awards and PSUs that are expected to vest. These costs are expected to be recognized over a weighted average period of 2.1 years.

~~The Company’s effective income tax rate, including discrete items, was (2~~6.~~7%)~~ and 27.5% for the thirty-nine weeks ended October 29, 2011 and October 30, 2010, respectively. The effective income tax rate is based upon the estimated income or loss for the year, the estimated composition of the income or loss in different jurisdictions and discrete adjustments for settlements of tax audits or assessments, the resolution or identification of tax position uncertainties and non-deductible costs associated with the merger. Income tax expense for the thirty-nine weeks ended October 29, 2011 and October 30, 2010 was impacted primarily by changes in estimates related to previously existing uncertain tax positions based on new information. Taxes

The Company’s ~~continues~~effective toincome ~~provide~~tax arate, ~~full~~including ~~valuation~~discrete ~~allowance~~items, ~~against~~was ~~its~~(17.3%) and ~~net~~20.3% ~~deferred~~for the thirteen weeks ended April 28, 2012 and April 30, 2011, respectively. The effective income tax ~~assets~~rate is based upon the estimated income or loss for the year, the estimated composition of the income or loss in different jurisdictions and discrete adjustments for ~~excluding~~settlements ~~deferred~~of tax ~~liabilities~~audits or assessments and the resolution or identification of tax position uncertainties. The income tax benefit recorded for ~~non-amortizing~~the ~~intangibles~~thirteen weeks ended April 28, ~~due~~2012 tois ~~insufficient~~primarily ~~positive~~comprised of discrete adjustments related to ~~evidence~~effective ~~that~~settlements of certain state tax audits in the ~~deferred~~period. Income tax ~~assets~~expense ~~will~~for bethe ~~realized~~thirteen weeks ended April 30, 2011 was primarily a function of the Company’s applicable effective rates and the results of operations within certain jurisdictions in the ~~future~~respective periods.

InThe ~~fiscal~~Company ~~2010,~~continues asto provide a ~~result~~full ofvaluation ~~the~~allowance ~~BPW~~against ~~Transactions,~~its ~~the~~net ~~Company~~deferred ~~recorded~~tax assets, anexcluding ~~increase~~deferred ~~in its unrecognized~~ tax ~~benefits~~liabilities offor ~~approximately~~non-amortizing ~~$20.0 million~~intangibles, ~~that~~due ~~reduced~~to ainsufficient ~~portion~~positive ofevidence that the ~~Company’s net~~ deferred tax assets ~~before~~will ~~consideration~~be ofrealized ~~any~~in ~~valuation~~the ~~allowance~~future. ~~The~~No ~~Company~~income ~~submitted a Private Letter Ruling request related to this~~ tax ~~position~~(benefit) ~~during~~expense ~~fiscal 2010 which~~ was ~~granted~~allocated in to the ~~first~~other ~~quarter~~components of comprehensive ~~2011.~~income Asin athe ~~result~~thirteen ofweeks ~~this~~ended ~~favorable outcome~~April 28, ~~the~~2012 ~~Company~~and ~~recorded a decrease in its unrecognized tax benefits of approximately $20.0~~April ~~million~~30, in2011 ~~the~~as ~~first~~a ~~quarter~~result of ~~2011 which increased~~ the ~~Company’s~~full ~~net deferred tax assets before consideration of any~~ valuation allowance.

87. 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 to Jill Acquisition LLC (the “Purchaser”) on July 2, 2009. The operating results of these businesses have been classified as discontinued operations for all periods presented, and the cash flows from discontinued operations have been separately presented in the condensed consolidated statements of cash flows.

The ~~income (~~loss~~) from~~ from discontinued operations for the thirteen ~~and thirty-nine~~ weeks ended ~~October 29~~April 28, ~~2011~~2012 includes on-going lease and other liability adjustments related to the J. Jill, Talbots Kids and Mens businesses, offset by favorable adjustments to ~~other~~certain ~~assets and~~ lease liabilities. ~~including~~The ~~the~~loss ~~first~~from ~~quarter~~discontinued ofoperations ~~2011~~for ~~settlement~~the ofthirteen ~~one~~weeks ofended ~~the~~April 30, ~~two~~2011 ~~remaining~~includes J.on-going ~~Jill~~lease ~~store~~and ~~leases~~other ~~not assumed~~liability byadjustments ~~the~~related ~~Purchaser~~to in the ~~sale of~~ J. Jill., ~~The~~Talbots ~~income~~Kids ~~from discontinued operations for the thirteen~~ and ~~thirty-nine~~Mens ~~weeks ended October 30~~businesses, ~~2010~~partially ~~includes~~offset by favorable adjustments to ~~other~~ ~~assets,~~certain ~~sales tax liabilities and estimated~~ lease liabilities including the ~~second~~first quarter of ~~2010~~ 2011 settlement of aone ~~portion~~ of the ~~vacant~~two ~~Quincy,~~remaining ~~Massachusetts office space previously used for the~~ J. ~~Jill~~ ~~business and the first quarter of 2010 settlement of four J.~~ Jill store leases not assumed by the Purchaser in the sale of J. Jill~~, partially offset by on-going lease and other liability adjustments related to the J~~. ~~Jill, Talbots Kids and Mens businesses.~~ The ~~income (~~loss) from discontinued operations for the thirteen ~~and thirty-nine~~ weeks ended ~~October~~ April 2928, ~~2011~~2012 and ~~October~~April 30, ~~2010~~2011 reflects no net income tax expense (benefit).

As of January 28, 2012, the Company had remaining recorded lease-related liabilities from discontinued operations of $5.1 million. During the thirteen weeks ended April 28, 2012, the Company made cash payments of approximately $0.5 million and recorded a net favorable lease liability adjustment of $0.1 million, resulting in a total estimated remaining recorded liability of

$4.5 million as of April 28, 2012. Of this $4.5 million liability, $2.3 million, expected to be paid within the next twelve months, is included in accrued liabilities, and the remaining $2.2 million, expected to be paid thereafter through 2019, is included in deferred rent under lease commitments.

8.	Earnings Per Share

Basic earnings per share is computed by dividing income available for common stockholders by the weighted average number of common shares outstanding. During periods of income, participating securities are allocated a proportional share of income determined by dividing total weighted average participating securities by the sum of the total weighted average common shares and participating securities (the “two-class method”). The Company’s nonvested stock and director restricted stock units (“RSUs”) participate in any dividends declared by the Company and are therefore considered participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income. During periods of loss, no loss is allocated to participating securities since they have no contractual obligation to share in the losses of the Company. Diluted earnings per share is computed after giving consideration to the dilutive effect of warrants, stock options and management RSUs that are outstanding during the period, except where such non-participating securities would be anti-dilutive.

Basic and diluted earnings per share from continuing operations were computed as follows:


	Thirteen Weeks Ended
	April 28,		April 30,
	2012		2011
	(In thousands, except per share data)
Basic earnings per share:
Income from continuing operations	$	1,186	$	908
Less: income associated with participating securities		18		21

Income available for common stockholders	$	1,168	$	887

Weighted average shares outstanding		69,401		68,709
Basic earnings per share - continuing operations	$	0.02	$	0.01


	Thirteen Weeks Ended
	April 28,		April 30,
	2012		2011
	(In thousands, except per share data)
Diluted earnings per share:
Income from continuing operations	$	1,186	$	908
Less: income associated with participating securities		18		21

Income available for common stockholders	$	1,168	$	887

Weighted average shares outstanding		69,401		68,709
Effect of dilutive securities		312		567

Diluted weighted average shares outstanding		69,713		69,276
Diluted earnings per share - continuing operations	$	0.02	$	0.01

AtThe ~~January 29,~~following ~~2011,~~common ~~the~~stock ~~Company~~equivalents ~~had~~were ~~remaining~~excluded ~~recorded lease-related liabilities~~ from ~~discontinued operations of $6.3 million. During~~ the ~~thirty-nine~~calculation ~~weeks~~of ~~ended~~earnings ~~October 29,~~per ~~2011,~~share ~~the Company made~~because ~~cash~~their ~~payments~~inclusion ofwould ~~approximately~~have ~~$2.1 million~~been ~~and~~anti-dilutive ~~recorded~~for ~~additional~~the ~~net~~thirteen ~~expense~~week ~~related~~periods toended ~~lease liability adjustments of $1.4~~April ~~million~~28, ~~resulting~~2012 inand ~~a total estimated remaining recorded liability of $5.6~~April ~~million as of October 29~~30, 2011.: Of this $5.6 million liability, $2.4 million, expected to be paid within the next twelve months, is included in accrued liabilities, and the remaining $3.2 million, expected to be paid thereafter through 2019, is included in deferred rent under lease commitments.

9. (Loss) Earnings Per Share


	Thirteen Weeks Ended
	April 28,		April 30,
	2012		2011
	(In thousands)
Stock options		2,985		5,121
Warrants		19,152		19,152

		22,137		24,273

~~Basic~~The ~~(loss) earnings per share is computed by dividing (loss) income available for common stockholders by the weighted average number of common~~ shares ~~outstanding.~~underlying ~~During periods of income, participating securities are allocated a proportional share of income determined by dividing total weighted average participating securities by~~ the ~~sum of the total weighted average common shares and participating securities (the “two-class method”). The~~ Company’s ~~nonvested~~performance stock ~~and~~unit ~~director restricted~~awards ~~stock~~have ~~units~~been ~~(“RSUs”)~~excluded ~~participate~~from ~~in any dividends declared by~~ the ~~Company~~calculation ~~and are therefore considered participating securities. Participating securities have the effect~~ of ~~diluting~~ ~~both basic and diluted~~ earnings per share ~~during~~because ~~periods of income. During periods of loss, no loss is allocated to participating securities since they have no contractual obligation to share in~~ the ~~losses~~ ofperformance ~~the~~condition ~~Company.~~has ~~Diluted~~not ~~earnings~~been ~~per~~achieved ~~share~~as ~~is computed after giving consideration to the dilutive effect~~ of ~~warrants~~April 28, ~~stock options and management RSUs that are outstanding during the period, except where such non-participating securities would be anti-dilutive~~2012.

~~Basic~~9. ~~and~~Fair ~~diluted~~Value ~~(loss) earnings per share from continuing operations were computed as follows:~~ Measurements

	Thirteen Weeks Ended					Thirty-Nine Weeks Ended
	October 29,			October 30,		October 29,			October 30,
	2011			2010		2011			2010
	(In thousands, except per share data)
Basic (loss) earnings per share:
(Loss) income from continuing operations	$	(22,142	)	$	16,974	$	(58,588	)	$	10,399
Less: income associated with participating securities		—			489		—			311
(Loss) income available for common stockholders	$	(22,142	)	$	16,485	$	(58,588	)	$	10,088
Weighted average shares outstanding		69,106			68,424		68,963			64,878
Basic (loss) earnings per share — continuing operations	$	(0.32	)	$	0.24	$	(0.85	)	$	0.16

The Company classifies fair value based measurements on a three-level hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: Level 1, quoted market prices in active markets for identical assets or liabilities; Level 2, observable inputs other than quoted market prices included in Level 1 such as quoted market prices for markets that are not active or other inputs that are observable or can be corroborated by observable market data; and Level 3, unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

	Thirteen Weeks Ended					Thirty-Nine Weeks Ended
	October 29,			October 30,		October 29,			October 30,
	2011			2010		2011			2010
	(In thousands, except per share data)
Diluted (loss) earnings per share:
(Loss) income from continuing operations	$	(22,142	)	$	16,974	$	(58,588	)	$	10,399
Less: income associated with participating securities		—			482		—			306
(Loss) income available for common stockholders	$	(22,142	)	$	16,492	$	(58,588	)	$	10,093
Weighted average shares outstanding		69,106			68,424		68,963			64,878
Effect of dilutive securities		—			1,018		—			1,130
Diluted weighted average shares outstanding		69,106			69,442		68,963			66,008
Diluted (loss) earnings per share — continuing operations	$	(0.32	)	$	0.24	$	(0.85	)	$	0.15

The Company’s financial instruments as of April 28, 2012 and January 28, 2012 consisted primarily of cash and cash equivalents, customer accounts receivable, investments in the Company’s irrevocable grantor’s trust (“Rabbi Trust”) that holds assets intended to fund benefit obligations under the Company’s Supplemental Savings Plan, Deferred Compensation Plan and Director Deferred Compensation Plan, accounts payable, trade payables financing, its revolving credit facility and its term loan, as applicable. The Company believes the carrying value of cash and cash equivalents, customer accounts receivable and accounts payable approximates the fair value due to the short-term nature of these instruments. The money market investments in the Rabbi Trust are recorded at fair value based on quoted market prices in active markets for identical assets (Level 1 measurements) and are not significant to the total value of the Rabbi Trust. The investments in life insurance policies held in the Rabbi Trust are recorded at their cash surrender values, which is consistent with settlement value and is not a fair value measurement. The Company believes that the carrying value of its revolving credit facility and term loan approximates fair value as of April 28, 2012 as the interest rates are market-based variable rates and were set with the third party lenders during the first quarter of 2012.

The Company monitors the performance and productivity of its store portfolio and closes stores when appropriate. When it is determined that a store is underperforming or is likely to be closed, the Company reassesses the recoverability of the store’s long-lived assets, which in some cases results in an impairment charge. In the thirteen weeks ended April 30, 2011, the Company performed impairment analyses on the assets of certain stores, primarily triggered by the Company’s accelerated store rationalization plan. There were no impairments of store assets recorded in the thirteen weeks ended April 28, 2012.

The following ~~common~~table ~~stock~~summarizes ~~equivalents~~the ~~were~~non-financial ~~excluded~~assets ~~from~~that ~~the~~were ~~calculation~~measured ofat ~~(loss) earnings~~fair ~~per share~~value ~~because~~on ~~their~~a ~~inclusion~~non-recurring basis ~~would~~in ~~have~~performing ~~been~~these ~~anti-dilutive~~analyses for the thirteen ~~and~~weeks ~~thirty-nine week periods~~ ended ~~October~~April ~~29, 2011 and October~~ 30, ~~2010~~2011:

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
			Fair Value Measurements Using
	October 29,		October 30,		October 29,		October 30,
	Total		Quoted MarketPrices in ActiveMarkets forIdentical Assets(Level 1)		ObservableInputs Otherthan QuotedMarketPrices (Level 2)		SignificantUnobservableInputs (Level 3)		Impairment ofStore AssetsThirteenWeeks Ended April 30, 2011
	2011		2010		2011		2010
	(In thousands)
			(In thousands)
Long-lived assets held and used	$	884	$	—	$	—	$	884	$	1,217
Nonvested stock		1,454		—		1,454		—
Total	$	884	$	—	$	—	$	884	$	1,217
Nonvested director RSUs		42		—		42		—
Stock options		5,355		5,681		5,355		5,681
Warrants		19,152		18,243		19,152		18,243
		26,003		23,924		26,003		23,924

10The Company estimates the fair value of these store assets using an income approach which is based on estimates of future operating cash flows at the store level. ~~Comprehensive~~These ~~(Loss)~~estimates, ~~Income~~which include estimates of future net store sales, direct store expenses and non-cash store adjustments, are based on the experience of management, including historical store operating results and management’s knowledge and expectations. These estimates are affected by factors that can be difficult to predict, such as future operating results, customer activity and future economic conditions.

~~The~~10. ~~following~~Customer ~~illustrates~~Accounts ~~the Company’s total comprehensive (loss) income for the thirteen and thirty-nine weeks ended October 29~~Receivable, ~~2011 and October 30, 2010:~~ net

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 29,			October 30,			October 29,			October 30,
	2011			2010			2011			2010
				(In thousands)
Net (loss) income	$	(22,040	)	$	17,048		$	(58,634	)	$	13,621
Other comprehensive (loss) income:
Translation adjustment		(805	)		85			(386	)		446
Change in pension and postretirement liabilities		235			(132	)		705			(397	)
Comprehensive (loss) income	$	(22,610	)	$	17,001		$	(58,315	)	$	13,670

Customer accounts receivable, net are as follows:

The other components of comprehensive (loss) income reflect no income tax (benefit) expense for the periods presented as the Company continues to maintain a valuation allowance for substantially all of its net deferred tax assets due to insufficient positive evidence that the deferred tax assets would be realized in the future.


	April 28,			January 28,
	2012			2012
	(In thousands)
Customer accounts receivable	$	161,046		$	143,902
Less: allowance for doubtful accounts		(2,000	)		(2,000	)

Customer accounts receivable, net	$	159,046		$	141,902

~~11.~~The ~~Fair~~Company ~~Value~~records ~~Measurements~~finance charge income (including interest and late fees) on the outstanding balances of its customer accounts receivable. In the thirteen weeks ended April 28, 2012, the Company recorded finance charge income of $8.9 million.

The allowance ~~Company~~for ~~classifies~~doubtful ~~fair~~accounts ~~value~~is based ~~measurements~~ on a ~~three-level~~calculation ~~hierarchy~~ that ~~prioritizes the~~includes ~~inputs~~a ~~used~~number ~~to measure fair value. This hierarchy requires entities to maximize the use~~ of ~~observable~~ ~~inputs~~factors ~~and~~such ~~minimize~~as ~~the~~historical ~~use~~collection ofrates, ~~unobservable~~a ~~inputs.~~percentage ~~The three levels~~ of ~~inputs~~outstanding ~~used~~customer ~~to measure~~account ~~fair value are as follows: Level 1~~balances, ~~quoted~~historical ~~market prices in active markets for identical assets or liabilities; Level 2~~write-offs, ~~observable~~write-off ~~inputs~~forecasts ~~other~~and ~~than~~write-off ~~quoted market prices included in Level~~and 1recovery ~~such~~trends. asIn ~~quoted~~determining ~~market~~the ~~prices~~appropriate ~~for~~allowance ~~markets~~balance, ~~that~~the ~~are~~Company ~~not~~considers, ~~active~~among or other ~~inputs that are observable or can be corroborated by observable market data; and Level 3~~factors, ~~unobservable~~both ~~inputs~~the ~~that~~aging ~~are supported~~of bythe ~~little~~past-due oroutstanding nocustomer ~~market~~accounts ~~activity~~receivable ~~and~~as ~~that~~well ~~are~~as ~~significant to~~ the ~~fair~~credit ~~value~~quality of the ~~assets or~~outstanding ~~liabilities,~~customer ~~including certain pricing models, discounted cash flow methodologies and similar~~accounts ~~techniques that use significant unobservable inputs~~receivable.

~~The~~As ~~Company’s~~of ~~financial instruments at October~~April 2928, ~~2011~~2012 and January 2928, ~~2011 consisted primarily of cash and cash equivalents~~2012, customer accounts receivable, ~~investments~~were inaged ~~the~~as ~~Company’s~~follows: irrevocable grantor’s trust (“Rabbi Trust”) that holds assets intended to fund benefit obligations under the Company’s Supplemental Retirement Savings Plan and Deferred Compensation Plan, accounts payable and its revolving credit facility. The Company believes the carrying value of cash and cash equivalents, customer accounts receivable and accounts payable approximates the fair value due to their short-term nature. The money market investments in the Rabbi Trust are recorded at fair value based on quoted market prices in active markets for identical assets (Level 1 measurements) and are not significant to the total value of the Rabbi Trust. The investments in life insurance policies held in the Rabbi Trust are recorded at their cash surrender values, which is consistent with settlement value


	April 28,			January 28,
	2012			2012
	(Percentage of gross customer accounts receivable)
Current		93.5	%		91.1	%
Up to 60 days past due		5.4	%		7.4	%
61-120 days past due		0.7	%		0.9	%
121-180 days past due		0.4	%		0.6	%

~~and~~ the balance is ~~not~~written aoff ~~fair~~at ~~value~~the ~~measurement~~next cycle billing date. The Company ~~believes~~ceases ~~that~~to accrue late fees on a balance once the ~~carrying~~balance ~~value~~reaches of120 ~~its~~days ~~revolving credit~~past ~~facility~~due ~~approximates~~or ~~fair~~in ~~value~~certain atother ~~October~~financial circumstances. As of April 2928, ~~2011~~2012 and January 2928, ~~2011~~2012, as the ~~interest rates~~Company ~~are~~had ~~market-based~~recorded ~~variable~~gross ~~rates~~customer accounts receivable of $0.2 million and ~~were~~$0.4 ~~re-set~~million, ~~with~~respectively, ~~the~~which ~~third~~have ~~party~~been ~~lenders~~deemed ~~during~~uncollectible ~~the~~and ~~third~~have ceased to accrue finance ~~quarter~~charge income and $1.0 million and $1.2 million, respectively, of ~~2010~~gross customer accounts receivable which are 90 days or more past due and upon which finance charge income continued to be accrued.

The Company ~~monitors~~performs ~~the~~an ~~performance~~on-going ~~and~~evaluation ~~productivity~~ of ~~its~~the ~~store~~credit ~~portfolio~~quality ~~and~~of ~~closes~~its ~~stores~~outstanding ~~when appropriate.~~customer ~~When~~accounts ~~it is determined that a store is underperforming or is to be closed~~receivable, ~~the~~based ~~Company reassesses~~on the ~~recoverability~~Talbots ~~of the store~~credit cardholders’s ~~long-lived~~respective ~~assets,~~credit ~~which~~risk inscores. ~~some~~The ~~cases~~Company ~~results~~utilizes in an ~~impairment~~ ~~charge.~~industry Instandard ~~the~~credit ~~thirty-nine~~risk ~~weeks~~score ~~ended~~model ~~October 29,~~as ~~2011,~~its ~~the~~credit ~~Company~~quality ~~performed impairment~~indicator ~~analyses~~and onupdates ~~the~~its ~~assets~~cardholder ofcredit ~~certain~~risk ~~stores,~~score ~~triggered~~information bytwice ~~both~~per ~~actions~~fiscal ~~under~~year. ~~the~~As ~~Company’s store rationalization plan and reviews~~ of ~~the stores’ operating results. In the thirteen weeks~~April 28, ~~ended~~2012 ~~October~~and January 3028, ~~2010~~2012, ~~the~~customer ~~Company~~accounts ~~performed~~receivable ~~impairment~~were ~~analyses~~allocated ~~on the assets of certain stores, triggered~~ by ~~the~~credit ~~Company’s~~quality ~~expectation~~indicator to(credit ~~close~~risk ~~certain~~score) ~~store~~as ~~locations.~~ follows:

The following tables summarize the non-financial assets that were measured at fair value on a non-recurring basis in performing these analyses for the thirteen weeks ended October 29, 2011 and October 30, 2010:


	April 28,		January 28,
	2012		2012
	(In thousands)
Greater than or equal to 700	$	104,312	$	89,107
600 - 699		38,406		37,527
Less than or equal to 599		15,948		15,149
Other		2,380		2,119

Customer accounts receivable	$	161,046	$	143,902

			Fair Value Measurements Using
					Observable				Impairment of
			Quoted Market		Inputs Other				Store Assets
			Prices in Active		than Quoted		Significant		Thirteen
			Markets for		Market		Unobservable		Weeks Ended
			Identical Assets		Prices		Inputs		October 29,
	Total		(Level 1)		(Level 2)		(Level 3)		2011
	(In thousands)
Long-lived assets held and used	$	1,076	$	—	$	—	$	1,076	$	2,067
Total	$	1,076	$	—	$	—	$	1,076	$	2,067

The other customer accounts receivable in the table above include reconciling amounts of the most recent days’ net sales not yet posted to customer accounts, unapplied payments and the balance of Canadian customer accounts receivable for which the Company does not maintain credit risk score information.

			Fair Value Measurements Using
					Observable				Impairment of
			Quoted Market		Inputs Other				Store Assets
			Prices in Active		than Quoted		Significant		Thirteen
			Markets for		Market		Unobservable		Weeks Ended
			Identical Assets		Prices		Inputs		October 30,
	Total		(Level 1)		(Level 2)		(Level 3)		2010
	(In thousands)
Long-lived assets held and used	$	1,371	$	—	$	—	$	1,371	$	545
Total	$	1,371	$	—	$	—	$	1,371	$	545

Changes in the balance of the allowance for doubtful accounts are as follows:

The following table summarizes the non-financial assets that were measured at fair value on a non-recurring basis in performing these analyses for the thirty-nine weeks ended October 29, 2011:


	Thirteen Weeks Ended
	April 28, 2012			April 30, 2011
	(In thousands)
Balance, beginning of year	$	2,000		$	4,400
Provision		1,101			370
Write-offs		(1,437	)		(1,063	)
Recoveries, net		336			293

Balance, end of period	$	2,000		$	4,000

			Fair Value Measurements Using
					Observable				Impairment of
			Quoted Market		Inputs Other				Store Assets
			Prices in Active		than Quoted		Significant		Thirty-Nine
			Markets for		Market		Unobservable		Weeks Ended
			Identical Assets		Prices		Inputs		October 29,
	Total		(Level 1)		(Level 2)		(Level 3)		2011
	(In thousands)
Long-lived assets held and used	$	2,175	$	—	$	—	$	2,175	$	3,284
Total	$	2,175	$	—	$	—	$	2,175	$	3,284

Write-offs include the principal amount of losses, including accrued and unpaid finance charges, and recoveries, net include current period collections on previously written-off balances. These amounts combined represent net write-offs.

11.

Debt

The Company’s outstanding debt as of April 28, 2012 and January 28, 2012 is as follows:


	April 28,		January 28,
	2012		2012
	(In thousands)
Revolving credit facility	$	122,924	$	116,450
Term loan		75,000		—

~~The~~Revolving ~~Company~~Credit ~~estimates~~Facility the fair value of these store assets using an income approach which is based on estimates of future operating cash flows at the store level. These estimates, which include estimates of future net store sales, direct store expenses and non-cash store adjustments, are based on the experience of management, including historical store operating results and management’s knowledge and expectations. These estimates are affected by factors that can be difficult to predict, such as future operating results, customer activity and future economic conditions. Additional insignificant store impairments were recorded in the prior quarters of 2010 and reported in the thirty-nine weeks ended October 30, 2010.

12On April 7, 2010, the Company executed a senior secured revolving credit facility with third party lenders (the “Credit Facility”). ~~Customer~~The ~~Accounts~~Credit ~~Receivable~~Facility is an asset-based revolving credit facility, including a $25.0 million letter of credit sub-facility, that permitted the Company to borrow up to the lesser of (a) $200.0 million or (b) the borrowing base, calculated as a percentage of the value of eligible credit card receivables and the net orderly liquidation value of eligible private label credit card receivables, the net orderly liquidation value of eligible inventory in the United States and the net orderly liquidation value of eligible in-transit inventory from international vendors (subject to certain caps and limitations), net of all reserves as specifically set forth in the agreement, minus the lesser of (x) $20.0 million and (y) 10% of the borrowing base. In addition, under and subject to the terms of the facility, the lenders also have the right to establish certain additional reserves against borrowing availability if the lenders determine, in good faith and in the exercise of reasonable business judgment from the perspective of a secured asset-based lender, that additional reserves are necessary. Loans made pursuant to this agreement, in fiscal 2011 and until its amendment on February 16, 2012, carried interest, at the Company’s election, at either (a) the higher of the LIBOR rate for the applicable interest period or the three-month LIBOR plus 3.0% to 3.5%, depending on certain availability thresholds, or (b) the base rate plus 2.0% to 2.5%, depending on certain availability thresholds, with the base rate established at a prime rate pursuant to the terms of the agreement. Until the agreement was amended, on February 16, 2012, the Company paid a fee of 50 to 75 basis points on the unused portion of the commitment and outstanding letters of credit, if any, monthly in arrears in accordance with the formulas set forth in the agreement.

~~Customer~~On ~~accounts~~February 16, ~~receivable~~2012 the Company amended the revolving credit facility (the “Amended Credit Facility”). The Amended Credit Facility modified certain key terms of the Credit Facility, including (i) extending the maturity date; (ii) modifying the identified pledged collateral; (iii) reducing the applicable interest rates by 50 basis points to either (x) the higher of the LIBOR rate for the applicable interest period or the three-month LIBOR plus 2.5% to 3.0%, or (y) the base rate plus 1.5% to 2.0%, in each case depending upon certain availability thresholds; (iv) adjusting the fee structure on the unused portion of the commitment to 37.5 to 50 basis points, in accordance with the formulas set forth in the agreement; and (v) increasing the amount of the supplementary term loan allowable under the provisions of the agreement from $50.0 million to $75.0 million which permitted the concurrent execution of the Company’s secured term loan facility. The Amended Credit Facility permits the Company to borrow up to the lesser of (a) $200.0 million and (b) the result of (i) 85.0% of the value of (1) eligible credit card receivables, (2) the net orderly liquidation value of eligible private label credit card receivables, (3) the net orderly liquidation value of eligible in-transit inventory from international vendors (subject to certain caps and limitations) and (4) the net orderly liquidation value of eligible inventory in the United States (the amount calculated in this clause (b) less reserves from time to time established by the lenders), minus (ii) the greater of (1) $17.5 million and (2) the lesser of (x) 10.0% of the aggregate revolving loan commitment under the Amended Credit Facility and (y) 10.0% of the borrowing base and minus (iii) certain availability reserves established under the terms of the secured term loan. Borrowing under the Amended Credit Facility will also be subject to several additional limitations under the provisions of the Company’s secured term loan facility. Refer to Term Loan for additional information regarding these provisions. If the commitments under the Amended Credit Facility are reduced or terminated prior to February 16, 2013, the Company will incur a penalty of 1.0% on the amount of any such reduction, except in certain circumstances as ~~follows:~~specified in the agreement. There are no penalties on reductions on or after February 16, 2013. Interest on borrowings is payable monthly in arrears. As of April 28, 2012, the Company’s effective interest rate under the Amended Credit Facility was 3.3%, and the Company had additional borrowing availability of up to $69.5 million.

	October 29,			January 29,
	2011			2011
	(In thousands)
Customer accounts receivable	$	163,364		$	149,872
Less: allowance for doubtful accounts		(2,000	)		(4,400	)
Customer accounts receivable, net	$	161,364		$	145,472

Under the Amended Credit Facility, amounts are borrowed and repaid on a daily basis through a control account arrangement. Cash received from customers is swept on a daily basis into a control account in the name of the agent for the lenders. Subject to the terms of the agreement, the Company is permitted to maintain a certain amount of cash in disbursement accounts, including certain amounts to satisfy current liabilities incurred in the ordinary course of business. Amounts may be borrowed and re-borrowed, subject to the satisfaction or waiver of all borrowing conditions, including, without limitation, perfected liens on collateral, accuracy of all representations and warranties, the absence of a default or an event of default and other borrowing conditions, all subject to certain exclusions as set forth in the agreement.

The ~~allowance~~agreement ~~for~~matures ~~doubtful accounts is based~~ on aFebruary 16, ~~calculation~~2017, ~~that~~subject ~~includes~~to aearlier ~~number~~termination ~~of factors such~~ as ~~historical~~set ~~collection~~forth ~~rates,~~in athe ~~percentage~~agreement. ofThe ~~outstanding customer account balances,~~entire ~~historical~~principal ~~write-offs~~amount ~~and~~of ~~write-off~~loans ~~forecasts.~~under In the ~~third~~facility ~~quarter~~and ofany ~~2011,~~outstanding ~~the~~letters ~~Company~~of ~~refined its~~credit ~~approach~~will tobe ~~estimating~~due ~~its~~on ~~allowance~~the ~~for~~maturity ~~doubtful~~date. ~~accounts~~Loans bymay ~~giving~~be ~~more~~voluntarily ~~weight~~prepaid toat ~~recent write-off~~any ~~and~~time ~~recovery~~at ~~trends.~~the ~~This~~Company’s ~~adjustment~~option, ~~which~~in ~~management~~whole ~~believes~~or ~~more~~in ~~closely~~part, ~~aligns~~at ~~the balance~~par ofplus ~~the~~accrued ~~allowance~~and ~~for~~unpaid interest ~~doubtful~~and ~~accounts~~any ~~with~~break ~~its~~funding ~~best~~loss ~~estimate~~incurred. ofThe ~~customer~~Company ~~accounts receivable~~is ~~likely~~required to ~~result~~make inmandatory arepayments ~~write-off, resulted~~ in athe ~~reduction~~event of ~~the~~receipt ~~allowance for doubtful accounts~~ of ~~approximately~~net ~~$1.3 million~~proceeds infrom ~~the~~asset ~~third~~dispositions, ~~quarter~~receipt of ~~2011,~~net ~~with~~proceeds ~~improvements~~from in the ~~aging~~ issuance of ~~the~~securities ~~Company’s~~and ~~customer accounts receivable further contributing~~ to ~~reductions in~~ the ~~allowance for~~extent ~~doubtful~~that ~~accounts in the period.~~its outstanding

In determining the appropriate allowance balance, the Company considers, among other factors, both the aging of the past-due outstanding customer accounts receivable as well as the credit quality of the outstanding customer accounts receivable.

As of October 29, 2011 and January 29, 2011, customer accounts receivable were aged as follows:

	October 29,			January 29,
	2011			2011
	(Percentage of gross customer accounts receivable)
Current		92.1	%		90.4	%
Up to 60 days past due		6.6	%		8.1	%
61-120 days past due		0.8	%		1.0	%
121-180 days past due		0.5	%		0.5	%

Customer accounts receivable are deemed to be uncollectible either when they are contractually 180 days past due or when events or circumstances, such as customer bankruptcy, fraud or death, suggest that collection of the amounts due under the account is unlikely. Once an account is deemed to be uncollectible, the Company ceases to accrue interest on the balance and the balance is written off at the next cycle billing date. The Company ceases to accrue late fees on a balance once the balance reaches 120 days past due or in certain other financial circumstances. At October 29, 2011 and January 29, 2011, the Company had recorded gross customer accounts receivable of $0.3 million and $0.4 million, respectively, which have been deemed uncollectible and have ceased to accrue finance charge income and $1.2 million of gross customer accounts receivable which are 90 days or more past due and upon which finance charge income continued to be accrued.

~~The~~ indebtedness ~~Company~~under ~~performs~~the anAmended ~~on-going~~Credit ~~evaluation~~Facility ofexceeds ~~the~~its ~~credit~~maximum ~~quality~~borrowing availability at any time. Upon any voluntary or mandatory prepayment of ~~its~~borrowings outstanding ~~customer accounts~~at ~~receivable,~~the ~~based~~LIBOR rate on ~~the~~a day ~~Talbots~~that ~~credit~~is ~~cardholders’~~not ~~respective~~the ~~credit~~last ~~risk~~day ~~scores.~~of ~~The Company~~the ~~utilizes~~respective aninterest ~~industry~~period, ~~standard~~the ~~credit~~Company ~~risk~~will ~~score~~reimburse ~~model~~the aslenders ~~its~~for ~~credit~~any ~~quality~~resulting ~~indicator.~~loss ~~As of~~or ~~October 29,~~expense ~~2011~~that ~~and~~the ~~January 29,~~lenders ~~2011,~~may ~~customer~~incur. ~~accounts~~Amounts ~~receivable~~voluntarily ~~were~~repaid ~~allocated~~prior byto ~~credit quality~~the ~~indicator~~maturity ~~(credit~~date ~~risk~~may ~~score)~~be ~~as follows:~~re-borrowed.

	October 29,		January 29,
	2011		2011
	(In thousands)
Greater than or equal to 700	$	107,793	$	93,011
600 - 699		38,019		38,832
Less than or equal to 599		14,802		15,135
Other		2,750		2,894
Customer accounts receivable	$	163,364	$	149,872

The Company and certain of its subsidiaries have executed a guaranty and security agreement pursuant to which all obligations under the Amended Credit Facility are fully and unconditionally guaranteed on a joint and several basis. Additionally, pursuant to the security agreement, all obligations are secured by (i) a second lien mortgage on the Company’s Hingham, Massachusetts headquarters facility and Lakeville, Massachusetts distribution facility, (ii) a second priority perfected lien on certain intellectual property, equipment and fixtures and (iii) a first priority perfected lien and security interest in the remaining assets of the Company or any guarantor from time to time. In connection with the lenders’ security interest in the proprietary Talbots credit card program, Talbots and certain of its subsidiaries have also executed an access and monitoring agreement that requires the Company to comply with certain monitoring and reporting obligations to the agent with respect to such program, subject to applicable law.

The ~~other~~Company ~~customer~~may ~~accounts~~not ~~receivable~~create, assume or suffer to exist any lien securing indebtedness incurred after the closing date of the Amended Credit Facility subject to certain limited exceptions set forth in the agreement. ~~table~~The ~~above~~Amended ~~include~~Credit ~~reconciling~~Facility ~~amounts~~contains negative covenants prohibiting the Company, with certain exceptions, from among other things, incurring indebtedness and contingent obligations, as defined, making loans, investments, intercompany loans and capital contributions, declaring or making any dividend payment except for dividend payments or distributions payable solely in stock or stock equivalents, and disposing of property or assets. The Company has agreed to keep the ~~most~~mortgaged ~~recent~~properties ~~days’~~in ~~net~~good ~~sales~~repair, ~~not~~reasonable ~~yet~~wear ~~posted~~and tear excepted. The agreement also provides for events of default, including failure to ~~customer~~repay ~~accounts~~principal and interest when due and failure to perform or comply with the provisions or covenants of the agreement, ~~unapplied~~an ~~payments~~event of default on other third party obligations and any change in control of the ~~balance~~Company (as defined in the agreement to include, among other things, any person or group acquiring 50.0% or more of the total voting power of the ~~Canadian~~Company’s ~~customer~~securities, ~~accounts~~the ~~receivable~~replacement ~~for~~of ~~which~~a majority of the Company’s Board of Directors under certain circumstances and certain mergers or other extraordinary transactions). Should the Company default in its obligations under the Amended Credit Facility, the lenders could declare an event of default, terminate borrowing under the facility and declare all indebtedness under the facility immediately due and payable, and if outstanding indebtedness is not immediately satisfied from cash resources, realize on all collateral pledged to secure such indebtedness. The agreement does not ~~maintain~~contain ~~credit~~any ~~risk~~financial ~~score information~~covenant tests.

~~Changes~~As inpart of the ~~balance~~Amended ofCredit Facility, the ~~allowance~~Company and the lenders have entered into (a) a Master Agreement for ~~doubtful~~Documentary ~~accounts~~Letters ~~are~~of asCredit ~~follows:~~and (b) a Master Agreement for Standby Letters of Credit (each a “Master Agreement”), pursuant to which the lenders will provide either documentary or standby letters of credit at the request of the Company to various beneficiaries on the terms set forth in the applicable Master Agreement, subject to any applicable limitations set forth in the Amended Credit Facility.

	Allowance for
	Doubtful Accounts
	(In thousands)
Balance at January 29, 2011	$	4,400
Provision		542
Write-offs		(2,020	)
Recoveries, net		578
Balance at July 30, 2011	$	3,500
Provision		(311	)
Write-offs		(1,483	)
Recoveries, net		294
Balance at October 29, 2011	$	2,000

The Company had borrowings of $122.9 million and $116.5 million outstanding under the Amended Credit Facility and Credit Facility, respectively, as of April 28, 2012 and January 28, 2012, respectively. Borrowings under the Amended Credit Facility are classified as a current liability as the Amended Credit Facility requires repayment of outstanding borrowings with substantially all cash collected by the Company and contains a subjective acceleration clause. Such provisions do not affect the final maturity date of the Amended Credit Facility.

~~Write-offs~~As ~~include~~of April 28, 2012, the ~~principal~~Company ~~amount~~had $0.8 million in outstanding letters of ~~losses,~~credit ~~including~~related ~~accrued~~to merchandise purchases and ~~unpaid~~letter ~~finance~~of ~~charges~~credit availability of up to $24.2 million under the Master Agreements, ~~and~~ ~~recoveries~~included as part of its total additional borrowing availability under the Amended Credit Facility, ~~net~~subject ~~include~~to ~~current~~all borrowing ~~period~~capacity ~~collections~~restrictions onincluded ~~previously~~under ~~written-off~~the ~~balances~~facility. ~~These amounts~~The ~~combined~~Company ~~represent~~had ~~net~~only ~~write-offs~~an insignificant amount of outstanding letters of credit under this facility as of January 28, 2012.

~~13.~~Term ~~Debt~~ Loan

On ~~April~~February 716, ~~2010~~2012, ~~in connection with~~ the ~~consummation~~Company ~~and~~entered ~~closing~~into ofa ~~the~~new ~~merger~~$75.0 ~~with~~million ~~BPW, the~~secured ~~Company~~term ~~executed~~loan ~~a senior secured revolving credit~~ facility ~~with third party lenders~~ (the “~~Credit Facility~~Term Loan”). The ~~Credit~~Term ~~Facility~~Loan is ansecured ~~asset-based~~by ~~revolving~~a ~~credit~~first ~~facility,~~lien ~~including~~on acertain ~~$25.0 million letter~~ of ~~credit sub-facility, that permits~~ the Company’s toreal ~~borrow~~estate upand toon ~~the~~intellectual ~~lesser~~property, ofequipment ~~(a) $200.0 million~~and ~~or (b) the borrowing base~~fixtures, ~~calculated~~and as a ~~percentage~~second oflien ~~the~~on ~~value of eligible credit card receivables and~~ the ~~net~~Company’s ~~orderly~~remaining ~~liquidation value of eligible private label credit card~~assets. ~~receivables,~~Funding ~~the net orderly liquidation value~~ of ~~eligible inventory in~~ the ~~United~~loan ~~States~~was ~~and the net orderly liquidation value of eligible in-transit inventory from international vendors (~~subject to ~~certain caps and limitations)~~to, ~~net~~among ofother ~~all reserves as specifically set forth in the agreement~~things, ~~minus~~ the ~~lesser~~granting of ~~(x)~~liens ~~$20.0 million~~ and ~~(y) 10%~~mortgages ofin ~~the~~favor ~~borrowing base. In addition, under and subject to the terms~~ of the ~~facility, the~~ lenders ~~also have the right to establish certain additional reserves against borrowing availability if the lenders determine, in good faith~~ and in the ~~exercise of reasonable business judgment from the perspective of a secured asset-based lender, that additional reserves are necessary. Loans made pursuant to this agreement carried interest, at the~~ Company’s ~~election,~~evidencing ~~at either (a) the three-month LIBOR plus 4~~$100.0% tomillion ~~4.5%~~of ~~depending on certain~~ availability ~~thresholds or (b) the base rate plus 3.0% to 3.5% depending~~ on ~~certain availability thresholds, with~~ the ~~base~~closing ~~rate~~date ~~established at a prime rate pursuant to the terms~~ of the ~~agreement. On~~Term ~~August 31,~~Loan ~~2010,~~after ~~the~~giving ~~Company~~effect ~~entered into a First Amendment~~ to the ~~Credit~~proceeds ~~Agreement with the~~of ~~lenders (~~the ~~“First~~Term ~~Amendment”),~~Loan ~~which~~and ~~modified~~ the ~~following~~Amended ~~terms under the~~ Credit Facility:. The ~~(i) reduced~~Term ~~the~~Loan ~~interest~~contains ~~rates~~several byadditional ~~one~~limitations ~~hundred basis points~~ on ~~loan~~the ~~amounts~~aggregate ~~under~~amount ~~the~~that ~~Credit~~may ~~Facility for~~be ~~loans~~borrowed ~~provided~~under by the ~~lenders~~Amended toCredit ~~either (a) three-month LIBOR plus 3~~Facility.0% toFirst, ~~3.5%~~if ~~or (b)~~the

outstanding principal amount of the ~~base~~Term ~~rate~~Loan ~~plus~~exceeds 2(A) the sum of (i) 15.0% toof 2the value of eligible credit card receivables, (ii) 15.50% of the net orderly liquidation value of eligible private label credit card receivables, (iii) 65.0% of the net orderly liquidation value of eligible in-transit ~~each~~inventory ~~case~~from ~~depending~~international onvendors ~~certain~~(not ~~availability~~to ~~thresholds;~~exceed $10.0 million), (iiiv) ~~adjusted~~ 15.0% of the ~~fee~~net ~~structure~~orderly onliquidation value of eligible inventory in the ~~unused~~United ~~portion~~States, (v) 30.0% of the ~~commitment~~then ~~and~~appraised ~~reduced~~value byof ~~one-half~~certain ~~the rates~~eligible ~~applicable~~real property (not to ~~documentary~~exceed ~~letters~~$15.0 million) plus (vi) 37.5% of ~~credit;~~the ~~and~~net forced liquidation value of intellectual property (~~iii~~not to exceed $15.0 million) minus (B) ~~extended~~reserves ~~the~~from time ~~period~~to ~~during~~time ~~which~~implemented by the lenders; then an additional availability reserve, in the amount of such excess, must be taken against the borrowing base under the Amended Credit Facility. Second, the Term aLoan ~~prepayment~~requires ~~premium~~that ~~will~~the aggregate amount available under the Amended Credit Facility’s borrowing base at no time be ~~assessed~~less ~~upon~~than the ~~reduction~~greater orof ~~termination~~(i) $17.5 million and (ii) the lesser of (x) 10.0% of the aggregate revolving loan ~~commitments~~commitment ~~from~~under ~~April 7,~~the ~~2011~~Amended toCredit ~~April~~Facility and (y) 7,10.0% ~~2012~~of the borrowing base. ~~Interest~~Third, onif ~~borrowings~~availability isunder ~~payable~~the ~~monthly~~Amended ~~in arrears~~Credit Facility falls below $20.0 ~~The~~million, ~~Company~~or ~~pays~~after athe ~~fee~~occurrence of 50certain events, an additional availability reserve of up to 75$10.0 ~~basis~~million ~~points~~must onbe taken against the ~~unused~~borrowing ~~portion~~base ofunder the ~~commitment and~~Amended ~~outstanding~~Credit ~~letters~~Facility ofunless ~~credit,~~otherwise ifagreed ~~any,~~to ~~monthly~~by inthe ~~arrears~~lenders. inThe ~~accordance~~Company ~~with~~also agreed not to permit borrowing availability under the ~~formulas~~Amended ~~set forth~~Credit inFacility to be less than the ~~First~~minimum ~~Amendment~~borrowing base specified under that facility. AsIn addition, under and subject to the terms of ~~October 29,~~the ~~2011~~facility, the ~~Company’s~~Term ~~effective~~Loan ~~interest~~lenders ~~rate~~have the right to establish certain additional reserves against borrowing availability under the Amended Credit Facility ~~was~~if ~~3.9%~~the Term Loan lenders determine, in good faith and in the ~~Company~~exercise ~~had~~of ~~additional~~reasonable ~~borrowing~~business ~~availability~~judgment from the perspective of upa tosecured ~~$69~~asset-based lender, that additional reserves are necessary.~~3 million.~~

~~Under~~In ~~the~~accordance ~~Credit~~with ~~Facility,~~the ~~amounts~~provisions ~~are~~of ~~borrowed~~the ~~and~~Term ~~repaid~~Loan, onthe aCompany ~~daily~~must ~~basis~~repay ~~through~~the aTerm ~~control account~~Loan ~~arrangement~~in $0.5 ~~Cash~~million ~~received~~installments ~~from customers is swept~~ on athe ~~daily~~last ~~basis~~day ~~into~~of aJanuary, ~~control account~~April, inJuly ~~the~~and ~~name~~October of ~~the~~each ~~agent~~year ~~for~~and the ~~lenders.~~remaining ~~Subject~~balance toon the ~~terms~~maturity ofdate. ~~the~~The ~~agreement,~~Term ~~the~~Loan ~~Company~~matures ~~is permitted~~on toFebruary 16, ~~maintain~~2017, asubject ~~certain~~to ~~amount~~earlier oftermination ~~cash~~as set forth in ~~disbursement~~the ~~accounts,~~agreement. The ~~including~~Company ~~certain~~is ~~amounts~~ required to ~~satisfy~~make ~~current~~mandatory ~~liabilities~~repayments, subject ~~incurred~~to in the ~~ordinary~~terms ~~course~~ of ~~business.~~the ~~Amounts may be borrowed and re-borrowed~~agreements, ~~subject~~in to the ~~satisfaction~~event orof ~~waiver~~receipt of ~~all~~net ~~borrowing~~proceeds ~~conditions,~~from ~~including, without~~the ~~limitation~~loss, ~~perfected~~condemnation ~~liens~~or ondisposition ~~collateral, accuracy~~ of ~~all~~certain ~~representations and warranties~~assets, ~~the~~ ~~absence~~receipt of anet ~~default~~proceeds orfrom anthe ~~event~~issuance of ~~default~~securities and other ~~borrowing~~events ~~conditions, all subject to certain exclusions as~~ set forth in the agreement.

The ~~agreement~~Term ~~matures~~Loan oncarries ~~October 7,~~interest ~~2013,~~at ~~subject~~LIBOR toplus ~~earlier termination as set forth in the agreement~~10.0%. ~~The~~Interest ~~entire principal amount of loans~~ under the ~~facility~~Term ~~and~~Loan ~~any~~is ~~outstanding~~payable ~~letters~~monthly ~~of credit~~in ~~will~~arrears. beIf ~~due on~~ the ~~maturity~~Term ~~date.~~Loan ~~Loans~~is ~~may be voluntarily~~ prepaid ~~at any time at the Company’s option~~, in whole or in part, ateither ~~par~~voluntarily ~~plus~~or ~~accrued~~mandatorily, ~~and~~prior ~~unpaid~~to ~~interest~~the ~~and~~maturity ~~any~~date, ~~break funding~~the ~~loss~~Company ~~incurred.~~must ~~The~~pay ~~Company~~a ispenalty ~~required~~of: to(a) 4.0% ~~make~~on ~~mandatory~~amounts ~~repayments~~prepaid inprior to the ~~event~~first ofanniversary ~~receipt~~ of ~~net~~the ~~proceeds~~closing ~~from~~date; ~~asset~~(b) 2.0% ~~dispositions,~~on ~~receipt~~amounts ofprepaid ~~net~~on ~~proceeds from~~ the ~~issuance~~first anniversary of ~~securities and to~~ the ~~extent~~closing ~~that~~date ~~its~~through ~~outstanding indebtedness under~~ the ~~Credit~~second ~~Facility~~anniversary ~~exceeds~~of ~~its~~the ~~maximum borrowing~~closing ~~availability~~date; atand ~~any time~~(c) 1.0% ~~Upon~~on ~~any~~amounts ~~voluntary~~prepaid oron ~~mandatory~~the ~~prepayment~~second anniversary of ~~borrowings outstanding at~~ the ~~LIBOR~~closing ~~rate~~date onthrough athe ~~day~~third ~~that~~anniversary isof ~~not~~ the ~~last~~closing ~~day~~date. ofThere ~~the~~is ~~respective~~no ~~interest~~penalty ~~period,~~on amounts ~~the~~prepaid ~~Company~~on ~~will~~or ~~reimburse~~after the ~~lenders~~third ~~for~~anniversary ~~any~~of ~~resulting~~the ~~loss~~closing ordate. ~~expense~~As ~~that~~of ~~the~~April 28, ~~lenders~~2012, ~~may incur.~~the ~~Amounts~~Company’s ~~voluntarily~~effective ~~repaid~~interest ~~prior~~rate tounder the ~~maturity~~Term ~~date~~Loan ~~may~~was ~~be re-borrowed~~10. 8%.

The Company and certain of its subsidiaries have executed a guaranty and security agreement pursuant to which all obligations under the ~~Credit~~Term ~~Facility~~Loan are fully and unconditionally guaranteed on a joint and several basis. Additionally, pursuant to the security agreement, all obligations are secured by (i) a first priority perfected lien and security interest in ~~substantially~~ ~~all~~the ~~assets~~intellectual property, equipment and fixtures of the Company ~~and~~or any guarantor from time to time, ~~and~~ (ii) a first lien mortgage on the Company’s Hingham, Massachusetts headquarters facility and Lakeville, Massachusetts distribution facility. Inand ~~connection~~(iii) a ~~with~~second ~~the~~priority ~~lenders’~~perfected lien and security interest in the remaining ~~proprietary~~assets ~~Talbots credit~~of ~~card~~the ~~program,~~Company ~~Talbots~~or ~~and~~any ~~certain~~guarantor offrom ~~its~~time ~~subsidiaries~~to ~~have~~time. In ~~also~~connection ~~executed~~with anthe ~~access~~lenders’ ~~and monitoring~~security ~~agreement~~interest ~~that~~in ~~requires~~the proprietary Talbots credit card program, the Company tomust comply with certain monitoring and reporting obligations, toconsistent with the ~~agent~~monitoring ~~with~~and ~~respect~~reporting toobligations ~~such~~under ~~program,~~the ~~subject~~Amended toCredit ~~applicable law~~Facility.

~~The~~Under ~~Company~~the ~~may~~terms ~~not~~of the agreement, neither the borrowers nor any of their subsidiaries may create, assume or suffer to exist any lien securing indebtedness incurred after the closing date of the ~~Credit~~Term ~~Facility~~Loan subject to certain limited exceptions set forth in the agreement. The agreement ~~Credit Facility~~ contains negative covenants prohibiting the Company, with certain exceptions, from, among other things, incurring indebtedness and contingent obligations, ~~as defined,~~ making ~~loans,~~ investments, intercompany loans and capital contributions, ~~declaring or making any dividend payment except for dividend payments or distributions payable solely in stock or stock equivalents,~~ and disposing of property or assets. The Company has agreed to keep the mortgaged properties in good repair, reasonable wear and tear excepted. The agreement contains ~~also~~customary representations, warranties and covenants relating to the Company and its subsidiaries. The agreement provides for events of default, including failure to repay principal and interest when due and failure to perform or comply with the provisions or covenants of the agreement, an event of default on certain other third party obligations (including any event or condition which should cause amounts outstanding under the Amended Credit Facility to become due and payable prior to its stated maturity) and any change in control of the Company (as defined in the agreement to include, among other things, any person or group acquiring 50.0% or more of the total voting power of the Company’s securities, the replacement of a majority of the Company’s Board of Directors under certain circumstances and certain mergers or other extraordinary transactions). Should the Company default in its obligations under the ~~Credit~~Term ~~Facility~~Loan, the lenders could declare an event of default, terminate borrowing under the facility and declare all indebtedness under the facility immediately due and payable, and if outstanding indebtedness is not immediately satisfied from cash resources, realize on all collateral pledged to secure such indebtedness. The agreement does not contain any financial covenant tests.

Concurrent with the execution of the First Amendment, the Company and the lenders entered into (a) a Master Agreement for Documentary Letters of Credit and (b) a Master Agreement for Standby Letters of Credit (each a “Master Agreement”), pursuant to which the lenders will provide either documentary or standby letters of credit at the request of the Company to

~~various~~ declare ~~beneficiaries~~an onevent ~~the~~of ~~terms~~default ~~set~~and ~~forth~~declare inall indebtedness under the ~~applicable~~loan ~~Master~~immediately ~~Agreement~~due and payable and, ~~subject~~if tooutstanding ~~any~~indebtedness is not immediately satisfied from cash resources, realize on ~~applicable~~all ~~limitations~~collateral ~~set~~pledged ~~forth~~to insecure ~~the~~such ~~Credit~~indebtedness. ~~Facility~~The agreement does not contain any financial covenant tests.

The Company ~~had~~incurred approximately ~~borrowings of~~ $~~124~~7.9 7 million ~~and~~of ~~$25.5 million~~costs ~~outstanding~~in ~~under~~connection with the execution of the Credit Facility which were recorded as ofdeferred ~~October 29,~~financing ~~2011~~costs ~~and~~in ~~January 29,~~other ~~2011,~~assets ~~respectively~~in the condensed consolidated balance sheet. ~~Borrowings~~In ~~under~~connection with the ~~Credit~~execution of the Amended Credit Facility ~~are~~and ~~classified~~the asTerm aLoan, ~~current~~the ~~liability~~Company incurred an additional $7.0 million of costs which were recorded as deferred financing costs in other assets in the ~~Credit~~condensed ~~Facility~~consolidated ~~requires~~balance ~~repayment~~sheet. The remaining deferred financing costs of the ~~outstanding~~Credit ~~borrowings~~Facility, together with ~~substantially~~the ~~all~~deferred ~~cash~~financing ~~collected~~costs byof the ~~Company~~Amended Credit Facility and ~~contains~~Term ~~a subjective~~Loan, ~~acceleration~~are ~~clause.~~being ~~Such~~amortized ~~provisions~~to dointerest ~~not~~expense ~~affect~~over the ~~final~~five ~~maturity~~year ~~date~~life of the ~~Credit Facility~~debt facilities. As of April 28, 2012, $10.0 million of deferred financing costs remained in other assets in the condensed consolidated balance sheet.

~~The Company incurred approximately $7~~12.~~7 million~~ ofBenefit costs in connection with the execution of the Credit Facility which were recorded as deferred financing costs in other assets in the condensed consolidated balance sheet. These costs are being amortized to interest expense over the three and one-half year life of the facility. As of October 29, 2011, $4.1 million of deferred financing costs remained in other assets in the condensed consolidated balance sheet. Plans

As of October 29, 2011 and January 29, 2011, the Company had $0.6 million and $9.1 million, respectively, in outstanding letters of credit related to merchandise purchases and, as of October 29, 2011, letter of credit availability of up to $24.4 million under the Master Agreements, included as part of its total additional borrowing availability under the Credit Facility, subject to all borrowing capacity restrictions included under the facility.

14. Benefit Plans

In February 2009, the Company announced its decision to discontinue future benefits being earned under its non-contributory defined benefit pension plan (“Pension Plan”) and Supplemental Executive Retirement Plan (“SERP”) effective May 1, 2009. Additionally, as of January 2011, the Company’s postretirement medical plan is completely self-funded. The Company continues to sponsor a separate executive postretirement medical plan.

The components of net pension expense for the thirteen ~~and thirty-nine~~ weeks ended ~~October~~April 2928, ~~2011~~ 2012 and ~~October~~April 30, ~~2010~~2011 are as follows:

Thirteen Weeks Ended

~~Thirty-Nine Weeks Ended~~

October 29,

October 30,

October 29,

October 30,

April 28,

April 30,

2011

2010

2011

2010

2012

2011

(In thousands)

Interest expense on projected benefit obligation

2,~~513~~512

2,~~371~~463

~~7,454~~

~~7,049~~

Expected return on plan assets

(2,~~435~~331

)

(2,~~394~~443

)

~~(7,319~~

)

~~(7,194~~

)

Net amortization and deferral

~~206~~587

~~139~~209

~~623~~

~~383~~

Net pension expense

~~284~~768

~~116~~229

~~758~~

~~238~~

The components of net SERP expense for the thirteen ~~and thirty-nine~~ weeks ended ~~October~~April 2928, ~~2011~~ 2012 and ~~October~~April 30, ~~2010~~2011 are as follows:

	Thirteen Weeks Ended				~~Thirty-Nine Weeks Ended~~
	October 29,		October 30,		October 29,		October 30,
	April 28,		April 30,
	2011		2010		2011		2010
	2012		2011
	(In thousands)
Interest expense on projected benefit obligation	$	~~285~~247	$	~~288~~277	$	~~841~~	$	~~842~~
Net amortization and deferral		2950		2026		82		47
Net SERP expense	$	~~314~~297	$	~~308~~303	$	~~923~~	$	~~889~~

The components of net postretirement medical expense for the thirteen weeks ended April 28, 2012 and April 30, 2011 are as follows:


	Thirteen Weeks Ended
	April 28,		April 30,
	2012		2011
	(In thousands)
Interest expense on accumulated postretirement benefit obligation	$	15	$	15
Net amortization and deferral		9		51

Net postretirement medical expense	$	24	$	66

The Company was required to make contributions to the Pension Plan of $3.0 million and $1.9 million during the thirteen weeks ended April 28, 2012 and April 30, 2011, respectively. The Company expects to make required contributions of $14.2 million to the Pension Plan during the remainder of 2012. The Company did not make any voluntary contributions to the Pension Plan during the thirteen weeks ended April 28, 2012 and April 30, 2011.

~~The~~13. ~~components~~Legal ~~of net postretirement medical expense (credit) for the thirteen and thirty-nine weeks ended October 29, 2011 and October 30, 2010 are as follows:~~ Proceedings

	Thirteen Weeks Ended					Thirty-Nine Weeks Ended
	October 29,		October 30,			October 29,		October 30,
	2011		2010			2011		2010
			(In thousands)
Interest expense on accumulated postretirement benefit obligation	$	16	$	17		$	46	$	52
Prior service cost amortization		—		(380	)		—		(1,140	)
Net amortization and deferral		50		130			152		391
Net postretirement medical expense (credit)	$	66	$	(233	)	$	198	$	(697	)

On February 3, 2011, a purported Talbots shareholder filed a putative class action captioned Washtenaw County Employees’ Retirement System v. The Talbots, Inc. et al., Case No. 1:11-cv-10186-NMG, in the United States District Court for the District of Massachusetts against Talbots and certain of its officers. The complaint, purportedly brought on behalf of all purchasers of Talbots common stock from December 8, 2009 through and including January 11, 2011, asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and sought, among other things, damages and costs and expenses. On July 27, 2011, the lead plaintiff filed an amended complaint which continues to assert claims under Sections 10(b) and 20(a) alleging certain false and misleading statements and alleged omissions related to Talbots’ financial condition, inventory management and business prospects. The amended complaint alleges that these actions artificially inflated the market price of Talbots common stock during the class period, thus purportedly harming investors. On October 17, 2011, Talbots and the remaining defendants filed a motion to dismiss all of the claims asserted in the amended complaint pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act of 1995. A hearing on the motion to dismiss is scheduled for June 12, 2012. The Company believes that these claims are without merit and intends to defend against them vigorously. At this time, the Company cannot reasonably predict the outcome of these proceedings or an estimate of damages, if any.

~~The~~On ~~Company~~February 24, ~~was~~2011, ~~required~~a putative toTalbots ~~make~~shareholder ~~contributions~~filed toa ~~the~~derivative ~~Pension~~action ~~Plan~~in ofMassachusetts $5Superior Court, captioned Greco v.6 Sullivan, et al., Case No. ~~million~~11-0728 BLS, against certain of Talbots’ officers and $1directors.6 The complaint, which purports to ~~million~~be ~~during~~brought ~~the~~on ~~thirteen~~behalf ~~weeks~~of ~~ended~~Talbots, ~~October 29~~asserts claims for breach of fiduciary duties, ~~2011~~insider trading, abuse of control, waste of corporate assets and ~~October 30~~unjust enrichment and seeks, ~~2010~~among other things, ~~respectively~~damages, equitable relief and ~~$9.3 million~~ costs and $3expenses.~~6 million~~ ~~during~~The complaint alleges that the ~~thirty-nine~~defendants ~~weeks~~either ~~ended~~caused ~~October 29,~~or ~~2011~~neglected ~~and~~to ~~October 30~~prevent, ~~2010,~~ ~~respectively.~~due ~~The~~to ~~Company~~mismanagement ~~expects~~or failure to ~~make~~provide ~~required~~effective ~~contributions~~oversight, the issuance of $1false and misleading statements and omissions regarding the Company’s financial condition.8 The complaint alleges that the defendants’ actions injured the Company insofar as they (a) ~~million~~caused Talbots to waste corporate assets through incentive-based bonuses for senior management, (b) subjected the Company to ~~Pension~~significant ~~Plan~~potential ~~during~~civil liability and legal costs and (c) damaged the ~~remainder~~Company through a loss of ~~2011~~market capitalization as well as goodwill and other intangible benefits. The Company ~~did~~believes ~~not~~that ~~make~~these ~~any~~claims ~~voluntary~~are ~~contributions~~without to merit and, with the other ~~Pension~~defendants, ~~Plan~~intends ~~during~~to ~~the~~defend ~~thirteen~~against orthem ~~thirty-nine~~vigorously. ~~weeks~~At ~~ended~~this ~~October 29~~time, ~~2011~~the ~~and~~Company ~~October 30, 2010~~cannot reasonably predict the outcome of these proceedings.

15On December 12, 2011, a purported Talbots shareholder filed a putative class action captioned Lowe v. ~~Legal~~Pfeiffer, ~~Proceedings~~C.A. No. 7104-VCN, in the Delaware Court of Chancery against Talbots and the members of its Board of Directors. The complaint, purportedly brought on behalf of all public shareholders of Talbots common stock, alleges breach of fiduciary duties against the Board of Directors (and, as against Talbots, aiding and abetting the Board of Director’s breach) by not properly considering the unsolicited takeover proposal received on December 6, 2011 from a third party, not apprising themselves of the true value of Talbots or the benefits of any potential transaction and generally not taking steps necessary to comply with their fiduciary obligations. The complaint demands, among other things, injunctive relief directing the Board of Directors to exercise their fiduciary duties to obtain a transaction in the best interest of Talbots shareholders, costs and fees. On May 8, 2012, a Stipulation and Order of Dismissal was granted by the Delaware Court of Chancery, and all claims pending in this action were dismissed without prejudice.

On ~~February~~May 310, ~~2011~~2012, a purported Talbots shareholder filed a putative class action captioned ~~Washtenaw~~ ~~County~~Leach ~~Employees’ Retirement System~~ v. ~~The Talbots~~Pfeiffer, ~~Inc~~C. ~~et al~~A.~~, Case~~ No. ~~1:11~~ 7513-~~cv-10186-NMG~~CS, in the ~~United~~Delaware ~~States District~~ Court ~~for the District~~ of ~~Massachusetts~~Chancery against ~~Talbots~~ ~~and certain of its officers. The complaint, purportedly brought on behalf of all purchasers of~~ Talbots ~~common stock from December 8, 2009 through~~ and ~~including~~the ~~January 11,~~members ~~2011, asserted claims under Sections 10(b) and 20(a)~~ of ~~the~~its ~~Securities~~Board ~~Exchange Act~~ of ~~1934 and Rule 10b-5 promulgated thereunder and sought, among other things, damages and costs and expenses~~Directors. On July 27, 2011, the lead plaintiff filed an amended complaint which continues to assert claims under Sections 10(b) and 20(a) alleging certain false and misleading statements and alleged omissions related to Talbots’ financial condition, inventory management and business prospects. The ~~amended~~ complaint alleges ~~that~~breach ~~these~~of ~~actions~~fiduciary ~~artificially~~duties ~~inflated~~against the ~~market~~Board ~~price~~ of ~~Talbots~~Directors ~~common~~in ~~stock~~connection ~~during the~~with ~~class period, thus purportedly harming investors. On October 17, 2011,~~ the ~~Company~~proposed ~~and~~acquisition ~~the remaining defendants filed a motion to dismiss all~~ of the ~~claims asserted in the amended complaint~~ ~~pursuant~~outstanding toshares ~~Rules 9(b) and 12(b)(6)~~ of the ~~Federal~~Company’s ~~Rules~~common ofstock ~~Civil~~by ~~Procedure~~a ~~and~~third ~~the Private Securities Litigation Reform Act of 1995~~party. The Company believes that these claims are without merit and intends to defend against them vigorously. At this time, the Company cannot reasonably predict the outcome of these proceedings or an estimate of damages, if any.

On ~~February 24~~or about June 4 and 5, ~~2011~~2012, atwo ~~putative~~purported Talbots ~~shareholder~~shareholders filed aputative ~~derivative~~class actions ~~action~~ in ~~Massachusetts Superior~~the Delaware Court, ~~captioned~~of ~~Greco~~Chancery v.against ~~Sullivan~~Talbots, etthe ~~al.,~~members ~~Case~~of ~~No. 11-0728~~its ~~BLS,~~Board ~~against certain~~ of ~~Talbots’~~ ~~officers~~Directors ~~and~~including ~~directors.~~its ~~The~~Chief ~~complaint~~Executive Officer, ~~which~~Sycamore ~~purports~~Partners, toTLB beHoldings ~~brought~~LLC onand ~~behalf~~TLB ofMerger ~~Talbots, asserts~~Sub ~~claims~~Inc. ~~for~~captioned ~~breach~~(i) ~~of fiduciary duties~~Schwartz, ~~insider~~et ~~trading,~~al. ~~abuse~~v. ofThe ~~control~~Talbots, ~~waste of~~ ~~corporate assets and unjust enrichment~~Inc., ~~and~~et ~~seeks~~al., ~~among~~C.A. ~~other~~No. ~~things~~7589-CS, ~~damages, equitable relief~~ and ~~costs~~(ii) ~~and~~Wilkin ~~expenses~~v. The ~~complaint~~Talbots, ~~alleges~~Inc., ~~that~~et ~~the defendants either caused or neglected to prevent~~al., ~~through~~C.A. ~~mismanagement~~No. or7594. ~~failure~~The tocomplaints ~~provide~~assert ~~effective~~claims ~~oversight,~~for ~~the~~breaches ~~issuance~~ of ~~false~~fiduciary duties and ~~misleading~~ ~~statements~~aiding and ~~omissions~~abetting ~~regarding~~breaches ~~the~~of ~~Company’s~~fiduciary ~~financial~~duties ~~condition.~~in ~~The~~connection ~~complaint alleges~~with ~~that~~ the negotiation ~~defendants’~~and ~~actions~~approval ~~injured~~of the ~~Company~~Merger ~~insofar~~Agreement. asThe ~~they~~plaintiffs ~~(a) caused~~seek ~~Talbots~~injunctive, ~~to waste~~declaratory, ~~corporate~~rescissory ~~assets~~and ~~through~~monetary ~~incentive-based bonuses for senior management~~relief, ~~(b) subjected~~including ~~the Company~~an order to ~~significant~~enjoin ~~potential civil liability and legal costs and (c) damaged~~ the ~~Company through~~consummation ~~a loss~~ of ~~market~~the ~~capitalization~~transactions ascontemplated ~~well~~in asthe ~~goodwill~~Merger ~~and other intangible benefits~~Agreement. The ~~Company~~ Company believes that these claims are without merit and, ~~with the other defendants,~~ intends to defend against them vigorously. At this time, the Company cannot reasonably predict the outcome of these proceedings or an estimate of damages, if any.

1614. Segment Information

The Company has two separately managed and reported business segments —– stores and direct marketing.

The following is certain segment information for the thirteen ~~and thirty-nine~~ weeks ended ~~October 29~~April 28, ~~2011~~2012 and ~~October~~ April 30, ~~2010~~2011:

Thirteen Weeks Ended

October 29, 2011

October 30, 2010

April 28, 2012

April 30, 2011

Direct

Stores

Marketing

Total

Stores

Marketing

Total

(In thousands)

~~(In thousands)~~

Net sales

~~229~~218,~~819~~874

4957,~~641~~041

~~279~~275,~~460~~915

~~242~~240,~~136~~755

5660,~~963~~555

~~299~~301,~~099~~310

Direct profit

419,~~146~~272

815,~~290~~160

1234,~~436~~432

3416,~~700~~360

16,~~853~~197

5132,~~553~~557

	Thirty-Nine Weeks Ended
	October 29, 2011						October 30, 2010
			Direct						Direct
	Stores		Marketing		Total		Stores		Marketing		Total
					(In thousands)
Net sales	$	698,554	$	153,308	$	851,862	$	750,579	$	169,923	$	920,502
Direct profit		17,930		22,613	$	40,543		117,173		47,445	$	164,618

Direct profit is calculated as net sales less cost of goods sold and direct expenses such as certain payroll, occupancy and other direct costs. The following reconciles direct profit to income from continuing operations for the thirteen weeks ended April 28, 2012 and April 30, 2011. Indirect expenses include unallocated corporate overhead and related expenses.

Direct profit is calculated as net sales less cost of goods sold and direct expenses such as certain payroll, occupancy and other direct costs. The following reconciles direct profit to (loss) income from continuing operations for the thirteen and thirty-nine weeks ended October 29, 2011 and October 30, 2010. Indirect expenses include unallocated corporate overhead and related expenses.


	Thirteen Weeks Ended
	April 28,			April 30,
	2012			2011
	(In thousands)
Direct profit	$	34,432		$	32,557
Less: Indirect expenses		26,424			26,240
Restructuring charges		2,364			2,265
Merger-related costs		—			885

Operating income		5,644			3,167
Interest expense, net		4,633			2,028

Income before taxes		1,011			1,139
Income tax (benefit) expense		(175	)		231

Income from continuing operations	$	1,186		$	908

	Thirteen Weeks Ended					Thirty-Nine Weeks Ended
	October 29,			October 30,		October 29,			October 30,
	2011			2010		2011			2010
				(In thousands)
Direct profit	$	12,436		$	51,553	$	40,543		$	164,618
Less: Indirect expenses		26,292			30,688		81,103			100,192
Restructuring charges		4,252			245		7,522			5,316
Merger-related costs		—			787		885			27,650
Operating (loss) income		(18,108	)		19,833		(48,967	)		31,460
Interest expense, net		3,492			2,349		8,072			17,112
(Loss) income before taxes		(21,600	)		17,484		(57,039	)		14,348
Income tax expense		542			510		1,549			3,949
(Loss) income from continuing operations	$	(22,142	)	$	16,974	$	(58,588	)	$	10,399

15.

Subsequent Events

17On May 30, 2012, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with TLB Holdings LLC, a Delaware limited liability company (the “Parent”), and TLB Merger Sub Inc., ~~Subsequent~~a ~~Events~~Delaware corporation and wholly-owned subsidiary of the Parent (the “Sub”), which are both affiliates of Sycamore Partners Management LLC (“Sycamore”). Pursuant to the Merger Agreement, upon the terms and subject to the conditions thereof, the Sub will, among other things, commence a tender offer (the “Offer”), within ten business days of the execution of the Merger Agreement, to purchase all of the outstanding shares of Talbots common stock at a price of $2.75 per share, without interest, net to the seller thereof in cash, on the terms and subject to the conditions set forth in the Merger Agreement. Upon the completion of the Offer, if successful and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, the Sub will merge with and into The Talbots, Inc. (the “Merger”), with The Talbots, Inc. surviving the Merger as a wholly-owned subsidiary of the Parent. The Merger Agreement also provides that the Merger may be consummated regardless of whether the Offer is completed; but if the Offer is not completed, the Merger will only be able to be consummated after the stockholders of the Company have adopted the Merger Agreement at a meeting of stockholders and subject to the satisfaction or waiver of other conditions to the consummation of the Merger as set forth in the Merger Agreement. In the Merger, each outstanding share of Talbots common stock, other than shares of Talbots common stock owned by the Parent or the Sub, by the Company as treasury stock or by stockholders who have validly exercised their appraisal rights under Delaware law, will be converted automatically into a right to receive $2.75 in cash, without interest.

OnConsummation ~~December~~of 5,the ~~2011,~~Merger is subject to the ~~Company~~satisfaction ~~announced~~or ~~that~~waiver ~~its~~of ~~President~~a ~~and~~number ~~Chief~~of ~~Executive~~conditions, ~~Officer~~including, ~~Trudy~~among ~~Sullivan~~other things, ~~will retire~~satisfaction ~~from~~of ~~the~~minimum ~~Company~~tender onconditions; the ~~date~~expiration ~~that~~or termination of the ~~Company’s~~applicable ~~Board~~waiting ofperiods ~~Directors~~under ~~appoints~~the aHart-Scott-Rodino ~~successor~~Antitrust ~~President~~Improvements ~~and~~Act ~~Chief~~of ~~Executive~~1976, ~~Officer~~as oramended; ~~such~~non-disapproval ~~earlier~~of ~~date~~the asOffice of the ~~Board~~Comptroller of ~~Directors~~the ~~determines,~~Currency ~~which~~under the Change in ~~either~~Bank ~~case~~Control ~~will~~Act beof ~~no later~~the ~~than~~acquisition ~~June~~of ~~30,~~control ~~2012~~of (Talbots Classics National Bank by the ~~“Retirement~~Parent ~~Date”).~~and Asits ~~previously~~affiliates, ~~reported~~as applicable; receipt of a letter from the ~~Company~~Pension ~~and~~Benefit ~~Ms.~~Guaranty ~~Sullivan~~Corporation ~~entered~~stating ~~into~~that it has concluded its investigation of the transaction; a ~~separation~~minimum ~~agreement~~level ~~dated~~of ~~December~~borrowing 4,availability ~~2011. Ms.~~being ~~Sullivan~~maintained ~~will~~under ~~continue~~the toCompany’s ~~serve~~existing asrevolving ~~President,~~credit ~~Chief~~facility ~~Executive~~as ~~Officer~~determined pursuant to the Merger Agreement and arelated ~~member~~agreements; ofand the ~~Board~~Parent’s receipt of ~~Directors~~proceeds ~~until~~of, ~~the~~or ~~Retirement Date.~~ appropriate confirmation of, applicable debt financings

~~Item 2~~ either directly or indirectly through the Sub or the Company, among other closing conditions. ~~Management’s~~The ~~Discussion~~Merger Agreement also contains customary representations, warranties and ~~Analysis~~covenants of ~~Financial~~the ~~Condition~~parties and, pending the consummation of the Merger, subjects the Company to significant limitations and ~~Results~~restrictions on the ordinary conduct of ~~Operations~~its business without the consent of Sycamore, including making capital expenditures in excess of an approved budget; opening new stores; closing store locations, other than most of the locations included in the Company’s previously announced store rationalization plan; hiring executives, including a successor President and Chief Executive Officer; establishing new or additional financing; incurring indebtedness or liens; disposing of assets and other matters.

The ~~Talbots,~~Merger ~~Inc.~~Agreement contains ~~(“we,”~~certain ~~“us,”~~termination ~~“our,”~~rights ~~“Talbots”~~for orboth the “Company”) ~~is a specialty retailer~~ and ~~direct~~ ~~marketer~~the ofParent, ~~women’s apparel~~including, ~~accessories~~among ~~and~~others, ~~shoes~~if ~~sold almost exclusively under~~ the ~~Talbots brand.~~Merger ~~The Talbots brand vision~~ is ~~“tradition~~not ~~transformed”~~consummated ~~and focuses~~ on ~~honoring~~or ~~the~~before ~~classic heritage~~October 24, of2012 ~~our~~or, ~~brand~~with ~~while~~respect ~~emphasizing a relevant and innovative approach~~ to ~~style~~the ~~that~~Company, isin ~~both modern~~accordance ~~and~~with ~~timeless.~~the Weterms, ~~have two primary sales channels: stores~~ and ~~direct~~subject ~~marketing,~~to ~~which~~the ~~consists~~conditions ofset ~~our~~forth ~~Internet~~in ~~business,~~the atMerger ~~www.talbots.com~~Agreement, ~~our~~in ~~catalog~~the ~~business~~event ~~and~~that ~~our~~the ~~in-store red-line~~Company ~~phones.~~receives Asa ofsuperior ~~October 29~~proposal, ~~2011,~~as wedefined ~~operated 534 stores~~ in the ~~United~~Merger ~~States and 17 stores in Canada~~Agreement. WeUpon ~~conform~~termination toof the ~~National~~Merger ~~Retail~~Agreement ~~Federation’s~~under ~~fiscal~~certain ~~calendar.~~circumstances ~~The~~specified ~~thirteen~~in ~~weeks~~the ~~ended October 29,~~Merger ~~2011 and October 30~~Agreement, ~~2010 are referred to as~~ the ~~third quarter of 2011 and 2010,~~ ~~respectively.~~Company ~~Unless~~would ~~the~~be ~~context~~required ~~indicates otherwise, all references herein~~ to ~~the~~pay ~~Company,~~significant ~~we,~~termination us fees and ~~our,~~to ~~include~~reimburse the ~~Company~~Parent’s ~~and~~expenses ~~its~~in ~~wholly-owned~~an ~~subsidiaries~~agreed amount.

~~Our~~In ~~management~~connection with the Company’s ~~discussion~~entering ~~and~~into ~~analysis~~the ofMerger ~~our~~Agreement, ~~financial~~the ~~condition~~Board ~~and~~of ~~results~~Directors of ~~operations~~the ~~are based~~Company ~~upon~~adopted ~~our~~and ~~unaudited~~approved ~~condensed~~Amendment ~~consolidated~~No. 1 ~~financial~~to ~~statements~~the ~~included~~Company’s instockholder ~~this~~rights ~~Quarterly Report~~plan, ondated ~~Form~~August 1, ~~10-Q~~2011, ~~which~~between ~~have~~the ~~been~~Company ~~prepared~~and Computershare byTrust usCompany, inN.A., ~~accordance~~as ~~with~~rights ~~accounting~~agent ~~principles generally~~(the ~~accepted~~“Rights inPlan”). ~~the~~The ~~United~~effect ~~States~~ of ~~America,~~Amendment orNo. 1 ~~GAAP,~~is ~~for~~to ~~interim~~permit ~~periods~~the ~~and~~execution ~~with Regulation S-X~~of ~~promulgated under~~ the ~~Securities~~Merger ~~Exchange~~Agreement ~~Act~~and ofthe ~~1934,~~performance asand ~~amended.~~consummation ~~This~~of ~~discussion and~~the ~~analysis~~transactions ~~should~~pursuant beto ~~read~~the inMerger Agreement, ~~conjunction~~including ~~with~~the ~~these~~Merger, ~~unaudited~~without ~~condensed~~triggering ~~consolidated~~the ~~financial statements~~separation asor ~~well~~exercise asof inthe ~~conjunction~~preferred ~~with~~share ~~our~~purchase ~~Annual~~rights ~~Report~~or onany ~~Form~~adverse ~~10-K~~event ~~for~~under the ~~fiscal~~Rights ~~year ended January 29, 2011~~Plan.

~~Management~~For ~~Overview~~further information on the Merger, the Merger Agreement and related agreements, please refer to the Current Report on Form 8-K filed on June 1, 2012 and the Merger Agreement filed as an exhibit thereto. The foregoing description of the Merger and Amendment No.1 to the Company’s stockholder rights plan does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Merger Agreement and related agreements. The Merger Agreement contains representations and warranties the Company, Parent and Sub made to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the contract among the Company, Parent and Sub and may be subject to important qualifications and limitations agreed to by the Company, Parent and Sub in connection with the negotiated terms. Moreover, some of those representations and warranties may not be accurate or complete as of any specified date, may be subject to a contractual standard of materiality different from those generally applicable to shareholders or may have been used for purposes of allocating risk among the Company, Parent and Sub rather than establishing matters as facts.

The thirty-nine weeks ended October 29, 2011 were challenging as we primarily worked to clear slow-moving merchandise and re-engage with our customer through aggressive promotional activity across all sales channels. Accordingly, our year-to-date net sales were down 7.5% year-over-year, and our gross profit margins were down 950 basis points year-over-year. These challenges were faced across both segments, with stores and direct marketing reporting declines in net sales and significant declines in direct profit from operations year-over-year. We ended the quarter with merchandise inventories of $209.4 million, an increase of 13.4% compared to the same period of the prior year, with comparatively more inventory units on-hand due to lower than anticipated sales volume and earlier timing of holiday receipts.

Throughout the third quarter of 2011, we saw increasingly positive momentum in our customer’s response to our merchandise assortment; and, in the last month of the third quarter of 2011, we applied an effective combination of promotional strategies to a merchandise assortment that better resonated with our customer, due to adjustments made to targeted merchandise categories, driving an increase of 8.2% in comparable store sales on improved customer traffic, conversion rates and transaction counts year-over-year. In the remainder of the fiscal year, we will seek to replicate this combination with our holiday assortments and planned promotions while working to improve profitability. Additionally, we will continue to seek to drive net sales improvements through targeted merchandise improvements, continued training and development of associate selling skills and the implementation of an incentive compensation program within our stores. Despite the sales improvement seen in the last month of the third quarter, we expect that we may continue to face challenges as we continue to work to evolve our merchandise assortment and strengthen our customer retention and customer acquisition focused marketing initiatives, in what we expect may be a difficult period of U.S. consumer confidence. Further, as we are planning to continue to employ an aggressive promotional strategy for the remainder of the year, in an on-going effort to re-engage with our core customer in a highly competitive promotional environment, and continue to seek to re-align our merchandise inventory position, we expect that our gross profit margins will continue to be adversely affected.

The difficulties that we have faced in improving our net sales and the impact that promotional activities have had on our gross profit margins have challenged our profitability and capital resources. In the third quarter, and into the fourth quarter, of fiscal 2011, we have begun to implement certain measures aimed at improving our profitability and maintaining flexibility in our capital resources. These measures are expected to supplement our previously disclosed strategic initiatives which we believe will ultimately deliver productivity and profitability improvements to our business. In the thirty-nine weeks ended October 29, 2011, we marked the following progress in the execution and implementation of these initiatives:

• We approved the acceleration of our store rationalization plan, identifying approximately 110 locations, including full stores and attached store concepts, for closure, including 15 to 20 locations as consolidation or downsizing opportunities. Through October 29, 2011, we closed 35 locations, including 31 full stores, under this plan and expect to close an additional approximately 50 locations over the remainder of fiscal 2011. With the implementation of this

accelerated plan, we reassessed the recoverability of the assets of the stores included in this plan, recording associated impairments of store assets of $1.3 million. We expect to incur approximately $14.0 million in related restructuring charges over the two year term of this plan. Through October 29, 2011, we recorded $7.5 million in restructuring charges, primarily consisting of lease exit, severance and related costs incurred under this plan. We expect to continue to execute store closures under the store rationalization plan as announced and will continue to evaluate our store portfolio. • We completed the full rebuild of two additional stores under our store re-image initiative and progressed with renovations of 47 additional locations. By the end of fiscal 2011, we expect to have completed re-image renovations and updates at approximately 70 locations, representing approximately 0.5 million selling square feet or 15.9% of our remaining store base. Although we have renovated only a limited number of stores to-date, net sales at these locations, particularly our renovated premium stores, have, on average, outperformed the comparable store base to-date. This initiative accounted for $15.4 million in capital expenditures year-to-date. Going forward, we will continue to evaluate the results achieved by our renovated stores as well as the scope, execution and capital requirements of any future phases of our store re-image initiative. • We continued the process of upgrading our information technology systems under our three-year information technology systems strategic plan, advancing the development of our merchandise financial planning, assortment planning and allocation and accounting and financial systems, with our JDA allocation tool, Oracle store clustering tool and upgraded Oracle financial systems launching to-date. The systems that we have implemented year-to-date have contributed to the successful launch of certain business development strategies, including our direct fulfill channel, whereby improved, system inventory transparency allows customer Internet orders to be fulfilled from store locations when the requested items are no longer available in the direct marketing inventory. This new channel, which launched in September 2011, contributed approximately $Item 2.8 million in net sales through October 29, 2011. Our information technology strategic plan accounted for $4.9 million in capital expenditures year-to-date. While we expect to progress with the upgrade and implementation of certain other key systems over the course of the next year, certain systems upgrades and other projects are expected to be delayed into future periods. • Our enhanced, coordinated marketing campaign progressed with the launch of our spring 2011 national advertising campaign and our fall 2011 television advertising campaign, representing an incremental $4.3 million in marketing expenses year-over-year; however, over the past year, we experienced a slight decrease in our customer database. We expect that our brand building efforts will take time to gain traction and translate into increased customer base, customer traffic and net sales. In the remainder of the fiscal year, we expect to continue to invest in our national campaigns, while allocating a portion of our planned marketing spend to targeted customer transfer and retention efforts in key markets impacted by our store rationalization plan and increased catalog circulation. In the next fiscal year, as we seek to reduce our overall costs and expenses, we expect to lower our marketing spend and focus our marketing efforts on our core, direct-to-customer campaigns, suspending investment in national advertising and television campaigns in the near-term. • Allocation of product to our stores continued along our segmentation strategy, as we continued to refine the mix and assortment of merchandise across the store categories and adjusted the store category classification of certain store locations, where appropriate, increasing the allocation of premium fashion product across our store base. The refinement of this allocation and these classifications will continue as we evaluate the results of this strategy and as we progress through our store rationalization plan. • We continued the expansion of our upscale outlets, opening 14 new locations year-to-date and ending the period with 39 upscale outlets compared to 27 upscale outlets at October 30, 2010. We continue to be encouraged by our customersManagement’s ~~response~~Discussion ~~to these locations, which have generated positive comparable sales results year-to-date in 2011,~~ and ~~expect~~Analysis ~~to open four additional upscale outlets over the remainder~~ of ~~fiscal~~Financial 2011. This expansion accounted for $6.4 million in capital expenditures year-to-date. We expect to continue this expansion in the coming year. • In September 2011, we entered into an arrangement with our exclusive global apparel sourcing agent, whereby we are able to extend payment terms for merchandise purchases sourced by our exclusive agent. In addition our sourcing agent agreed to extend letters of credit, on behalf Condition and atResults ~~the request~~ of ~~the~~Operations ~~Company, to vendors organized under our~~

The Talbots, Inc. (“we,” “us,” “our,” “Talbots” or the “Company”) is a specialty retailer and direct marketer of women’s apparel, accessories and shoes sold almost exclusively under the Talbots brand. The Talbots brand vision is “tradition transformed” and focuses on honoring the classic heritage of our brand while emphasizing a relevant and innovative approach to style that is both modern and timeless. We have two primary sales channels: stores and direct marketing. Our stores channel consists of retail stores, upscale outlets, surplus outlets and our direct fulfill from stores system. As of April 28, 2012, we operated 502 stores in the United States and 14 stores in Canada, collectively comprised of 540 locations, including individual store concepts. Our direct marketing channel consists of our Internet business, at www.talbots.com, our catalog business and our in-store red-line phones. We conform to the National Retail Federation’s fiscal calendar. The thirteen weeks ended April 28, 2012 and April 30, 2011 are referred to as the first quarter of 2012 and 2011, respectively. Unless the context indicates otherwise, all references herein to the Company, we, us and our, include the Company and its wholly-owned subsidiaries.

Our management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared by us in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim periods and with Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. This discussion and analysis should be read in conjunction with these unaudited condensed consolidated financial statements as well as in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

Management Overview – Financial Condition and Results of Operations

As we began 2012, we focused our efforts on seeking to drive customer traffic and sales conversions while working to improve our profitability, productivity and available capital resources through ongoing refinements to our merchandise assortment, better working capital management and continued progress in our cost reduction and other strategic initiatives and transactions. The reductions in our store portfolio, combined with actions taken and planned reductions under our cost reduction initiative, contributed to improved gross profit margins and operating income, despite the decline in total net sales in the first quarter of 2012. We expect to remain focused on these efforts, continuing to refine our merchandise assortment and seeking to identify opportunities to improve our working capital management, productivity and profitability, going forward.

In the thirteen weeks ended April 28, 2012, our total net sales declined 8.4% largely due to reductions in our store portfolio under our store rationalization plan. On a comparable store basis, we saw improvements in our sales conversion rates on flat customer traffic, primarily due to the impact of our direct fulfill from stores system; though comparable store sales decreased 2.2% on comparatively lower units sold, units per transaction and dollars per transaction. We were additionally able to drive increased customer traffic and sales conversions in our Internet channel, though Internet sales also realized similar reductions in units per order and average order values. Our promotional activities, in addition to supporting traffic and conversion, also contributed to slight improvements in our customer database year-over-year.

Since the acceleration of our store rationalization plan, in March 2011, we have closed 90 locations, including 74 full stores. This reduction has contributed to lower levels of rent expense and depreciation expense in occupancy costs and, along with gains in merchandise margin, helped to drive a 90 basis point improvement in our year-over-year gross profit margin. In December 2011, we announced a cost reduction initiative with a goal of reducing annual costs and expenses by approximately $50.0 million across all areas of the business by the end of fiscal 2012 while focusing our strategic reinvestment in those areas of the business that are expected to generate meaningful returns.

Key components of this initiative include:

•

Lowering levels of marketing spend, including suspending national advertising and television campaigns in the near-term and focusing planned marketing spend on targeted campaigns which seek to grow our customer database;

•

Exploring and implementing process efficiencies and structural streamlining across all areas of the business, including reducing corporate headcount by approximately 9.0% in December 2011 and reducing supporting headcount at our call center and distribution center by approximately 16.0% in April 2012; and

•

Implementing a store payroll rationalization program whereby we are seeking to adjust the composition of our store workforce and reduce store payroll hours by managing to improved productivity standards, aided by a structural store headcount reduction and the implementation of a workforce management system.

Actions taken and reductions implemented under the cost reduction initiative to-date, combined with structural decreases resulting from our store rationalization plan, offset declines in net sales and allowed us to improve year-over-year first quarter profitability, with a $2.5 million improvement in operating income in the first quarter of 2012 compared to the same period of the prior year.

~~buying~~In ~~agency~~conjunction ~~agreement~~with ~~for~~these ~~certain~~direct ~~merchandise~~cost ~~purchases.~~reductions, ~~This~~we ~~arrangement~~announced ~~has~~a ~~provided~~decrease usin ~~with~~the ~~greater~~level ~~flexibility~~of inplanned ~~planning~~capital expenditures for fiscal 2012 and ~~managing~~are ~~our~~planning ~~capital~~reductions ~~resources.~~in ~~See~~the ~~Liquidity~~level ~~and~~of ~~Capital~~merchandise ~~Resources~~inventory —commitments ~~Trade~~in ~~Payables~~fiscal ~~Arrangement~~2012 ~~for~~which ~~additional~~should ~~information~~also ~~regarding~~contribute ~~this~~to ~~arrangement.~~lower •levels ~~Subsequent~~of tologistics, ~~the~~handling ~~third~~and ~~quarter~~shipping costs. Lower levels of ~~2011~~merchandise inventory purchases year-to-date, in ~~December~~addition ~~2011~~to contributing to improvements in our merchandise margin year-over-year, wehave ~~announced~~allowed aus ~~cost~~to ~~reduction~~better ~~initiative~~manage ~~with~~our ainvestment ~~goal~~in ofworking ~~reducing~~capital, ~~annual~~with ~~costs~~cash ~~and~~used ~~expenses~~in byoperating ~~approximately~~activities decreasing $5018.03 million year-over-year ~~across~~and ~~all~~partially ~~areas~~contributing ofto ~~the~~year-over-year ~~business~~reductions byin the ~~end~~amount of ~~fiscal~~cash ~~2012.~~flows ~~With~~from ~~this~~financing ~~initiative,~~activities. Though we ~~will~~expect ~~seek~~ to ~~continue~~invest toless, ~~improve~~year-over-year, in our ~~financial and~~ capital ~~flexibility~~expenditures, ~~while~~we ~~focusing~~have ~~our~~continued ~~strategic~~to ~~reinvestment~~invest in ~~those~~ areas of the business that are expected to generate meaningful returns. ~~Key~~We ~~components~~continued to invest in the expansion of ~~this~~our upscale outlets which have continued to generate positive comparable sales results in the first quarter of 2012, contributing $2.0 million in capital expenditures and opening four new locations in the first quarter of 2012, ending the period with 47 upscale outlets, compared to 34 upscale outlets at April 30, 2011. We continued to invest in our store re-image initiative, ~~include:~~contributing $1.9 million in capital expenditures; and we continued to invest in upgrades to our information technology systems, contributing $1.7 million in capital expenditures and launching our Oracle merchandise financial planning and workforce management systems in the first quarter of 2012.

oWhile ~~Lower~~these ~~levels~~changes ofhave ~~marketing~~sought ~~spend~~to improve our cash flows from operations, ~~including~~we ~~the~~additionally ~~suspension~~supplemented our ofcapital ~~national~~resources ~~advertising~~with ~~and~~a ~~television~~new ~~campaigns~~$75.0 inmillion ~~the~~secured ~~near-~~term; oloan ~~Exploring~~(the “Term Loan”) and ~~implementing~~extended ~~process~~our ~~efficiencies~~existing ~~and~~credit ~~structural~~facility ~~streamlining~~(the ~~across~~“Amended ~~all~~Credit ~~areas~~Facility”), ofamong ~~the~~other ~~business~~key provision amendments. Our Term Loan and Amended Credit Facility extend through February 16, ~~including~~2017, ~~reducing~~subject ~~corporate~~to ~~headcount~~earlier bytermination ~~approximately~~as 9set forth in the agreement.0% Additionally, in ~~December~~February ~~2011~~2012, we and oour ~~Implementing~~sourcing aagent ~~store~~agreed ~~payroll~~to ~~rationalization~~extend ~~program~~our ~~whereby~~trade wepayables ~~will~~arrangement, ~~seek~~under its existing terms and conditions, to ~~adjust~~August 31, 2012. With the ~~composition~~additional offunding ~~our~~received ~~store~~from ~~workforce~~our ~~and~~Term ~~reduce~~Loan, ~~store~~we ~~payroll~~repaid ~~hours~~the byamounts ~~managing~~outstanding tounder ~~improved~~the ~~productivity~~trade ~~standards,~~payables ~~aided~~arrangement byand ended the ~~implementation~~period ofwith ano ~~workforce~~accounts ~~management~~payables ~~system~~extended under this arrangement.

InManagement ~~conjunction~~Overview ~~with~~– ~~these~~Subsequent ~~direct~~Event cost reductions, we announced a decrease in the level of planned capital expenditures for fiscal 2012 and are planning reductions in our level of merchandise inventory commitments in fiscal 2012 which should also contribute to lower levels of logistics, handling and shipping costs. We expect to incur approximately $3.5 million in restructuring charges related to the corporate headcount reduction component of our cost reduction initiative and are still evaluating the expected costs of any additional components of this initiative, if any. We anticipate that we will realize savings related to actions taken under this initiative beginning in the next fiscal year.

~~The~~On ~~following~~May 30, ~~table~~2012, ~~sets~~we ~~forth~~entered into an Agreement and Plan of Merger (the ~~percentage~~“Merger ~~relationship~~Agreement”) with TLB Holdings LLC, a Delaware limited liability company (the “Parent”), and TLB Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of the Parent (the “Sub”), which are both affiliates of Sycamore Partners Management LLC (“Sycamore”). Pursuant to the Merger Agreement, upon the terms and subject to the conditions thereof, the Sub will, among other things, commence a tender offer (the “Offer”), within ten business days of the execution of the Merger Agreement, to purchase all of the outstanding shares of Talbots common stock at a price of $2.75 per share, without interest, net ~~sales~~to the seller thereof in cash, on the terms and subject to the conditions set forth in the Merger Agreement. Upon the completion of the Offer, if successful and subject to the satisfaction or waiver of certain ~~items~~conditions set forth in ~~our~~the Merger Agreement, the Sub will merge with and into The Talbots, Inc. (the “Merger”), with The Talbots, Inc. surviving the Merger as a wholly-owned subsidiary of the Parent. The Merger ~~consolidated~~Agreement ~~statements~~also provides that the Merger may be consummated regardless of ~~operations~~whether ~~for~~the Offer is completed; but if the ~~periods~~Offer ~~shown~~is ~~below:~~not completed, the Merger will only be able to be consummated after Talbots’ stockholders have adopted the Merger Agreement at a meeting of stockholders and subject to the satisfaction or waiver of other conditions to the consummation of the Merger as set forth in the Merger Agreement. In the Merger, each outstanding share of Talbots common stock, other than shares of Talbots common stock owned by the Parent or the Sub, by Talbots as treasury stock or by stockholders who have validly exercised their appraisal rights under Delaware law, will be converted automatically into a right to receive $2.75 in cash, without interest.

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 29,			October 30,			October 29,			October 30,
	2011			2010			2011			2010
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales, buying and occupancy		66.6	%		57.3	%		69.0	%		59.5	%
Selling, general and administrative		37.6	%		35.5	%		35.4	%		33.4	%
Restructuring charges		1.5	%		0.1	%		0.9	%		0.6	%
Impairment of store assets		0.8	%		0.2	%		0.4	%		0.1	%
Merger-related costs		0.0	%		0.3	%		0.1	%		3.0	%
Operating (loss) income		(6.5)	%		6.6	%		(5.8)	%		3.4	%
Interest expense, net		1.2	%		0.8	%		0.9	%		1.9	%
(Loss) income before taxes		(7.7)	%		5.8	%		(6.7)	%		1.5	%
Income tax expense		0.2	%		0.1	%		0.2	%		0.4	%
(Loss) income from continuing operations		(7.9)	%		5.7	%		(6.9)	%		1.1	%

Consummation of the Merger is subject to the satisfaction or waiver of a number of conditions, including, among other things, satisfaction of minimum tender conditions; the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; non-disapproval of the Office of the Comptroller of the Currency under the Change in Bank Control Act of the acquisition of control of Talbots Classics National Bank by the Parent and its affiliates, as applicable; receipt of a letter from the Pension Benefit Guaranty Corporation stating that it has concluded its investigation of the transaction; a minimum level of borrowing availability being maintained under our existing revolving credit facility as determined pursuant to the Merger Agreement and related agreements; and the Parent’s receipt of proceeds of, or appropriate confirmation of, applicable debt financings either directly or indirectly through the Sub or the Company, among other closing conditions. The Merger Agreement also contains customary representations, warranties and covenants of the parties and, pending the consummation of the Merger, subjects us to significant limitations and restrictions on the ordinary conduct of our business without the consent of Sycamore, including making capital expenditures in excess of an approved budget; opening new stores; closing store locations, other than most of the locations included in our previously announced store rationalization plan; hiring executives, including a successor President and Chief Executive Officer; establishing new or additional financing; incurring indebtedness or liens; disposing of assets and other matters.

For further information on the Merger, the Merger Agreement and related agreements, please refer to the Current Report on Form 8-K filed on June 1, 2012 and the Merger Agreement filed as an exhibit thereto. The foregoing description of the Merger does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Merger Agreement and related agreements.

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


	April 28,			April 30,
	2012			2011
Net sales		100.0	%		100.0	%
Cost of sales, buying and occupancy		63.5	%		64.4	%
Selling, general and administrative		33.6	%		33.1	%
Restructuring charges		0.9	%		0.7	%
Impairment of store assets		0.0	%		0.4	%
Merger-related costs		0.0	%		0.3	%
Operating income		2.0	%		1.1	%
Interest expense, net		1.7	%		0.7	%
Income before taxes		0.3	%		0.4	%
Income tax (benefit) expense		(0.1	)%		0.1	%
Income from continuing operations		0.4	%		0.3	%

Net Sales

The following is a comparison of net sales for the thirteen ~~and thirty-nine~~ weeks ended ~~October~~April 2928, ~~2011~~ 2012 and ~~October~~April 30, ~~2010~~2011:

	Thirteen Weeks Ended							~~Thirty-Nine Weeks Ended~~
	October 29,		October 30,					October 29,		October 30,
	April 28,		April 30,
	2011		2010		Decrease			2011		2010		Decrease
	2012		2011		Decrease
	(In millions)		~~(In millions)~~							~~(In millions)~~
Net store sales	$	~~229~~218.89	$	~~242~~240.18	$	(1221.39	)	$	~~698.6~~	$	~~750.6~~	$	~~(52.0~~	)
Net direct marketing sales		4957.70		5760.05		(7.3.5	)		~~153.3~~		~~169.9~~		~~(16.6~~	)
Total	$	~~279~~275.59	$	~~299~~301.13	$	(1925.64	)	$	~~851.9~~	$	~~920.5~~	$	~~(68.6~~	)

Our net sales results for the thirteen ~~and thirty-nine~~ weeks ended ~~October~~April 2928, ~~2011~~2012 reflect a $9.~~9 million,~~6 ~~or 4.0%, decrease and a $55.1~~ million, or 7.3.8%, decrease in consolidated comparable sales compared to the same periods of the prior year,. ~~respectively~~Consolidated comparable sales include sales of comparable stores as well as direct marketing sales.

We refined our approach to evaluating comparable sales in the first quarter of 2011 to reflect changing industry trends as well as the impact of our strategic initiatives. We introduced the metric of consolidated comparable sales, in addition to comparable store sales, and updated the calculation of comparable store metrics to exclude those stores expected to be closed under our store rationalization plan.

Comparable stores are those stores, excluding surplus outlets and stores designated for closure, consolidation or downsizing under our store rationalization plan, which are open for at least 13 full months. When the square footage of a store is increased or decreased by at least 15.0%, the store is excluded from the computation of comparable store metrics for a period of 13 full months. Consolidated comparable sales include sales of comparable stores as well as direct marketing sales.

In September 2011, we launched our direct fulfill channel, whereby improved, system inventory transparency allows customer Internet orders to be fulfilled from store locations when the requested items are no longer available in the direct marketing inventory. This new channel contributed approximately $2.8 million in net sales through October 29, 2011 and is reflected in comparable store sales when the order is fulfilled by a comparable store.

Store Sales

Net store sales for the thirteen and thirty-nine weeks ended October 29, 2011 reflect a $4.4 million, or 2.4%, decrease and a $42.7 million, or 7.3%, decrease in comparable store sales compared to the same periods of the prior year, respectively. These decreases are primarily due to weaker than anticipated customer response to our spring, summer and early fall merchandise assortments, with units sold, units per transaction and dollars per transaction trending down year-over-year. Accordingly, these merchandise assortments have been subject to significant promotional activity in order to clear these slower-moving goods. In the third quarter of 2011, we employed a better coordinated approach to our fall promotional activity which drove year-over-year improved conversion rates, resulting in increases in the number of transactions, while increasing our year-over-year average unit retail. These third quarter improvements served to partially mitigate year-over-year deterioration in the number of transactions and average unit retail realized in the thirty-nine weeks ended October 29, 2011.

Sales metrics for comparable stores for the third quarter of 2011 were as follows: customer traffic decreased 3.6% year-over-year, yet the rate of converting traffic to transactions increased 7.7%, contributing to a 3.8% increase in the number of transactions per store. Units per transaction were down 8.2% which, combined with a 2.4% increase in average unit retail, contributed to a 6.1% decrease in dollars per transaction over the comparable fiscal 2010 period.

Sales metrics for comparable stores for the thirty-nine weeks ended October 29, 2011 were as follows: customer traffic decreased 5.1% year-over-year, yet the rate of converting traffic to transactions increased 2.5%, contributing to a 2.7% decrease in the number of transactions per store. Units per transaction were down 3.4% which, combined with a 1.8% decrease in average unit retail, contributed to a 5.2% decrease in dollars per transaction over the comparable fiscal 2010 period.

In September 2011, we launched our direct fulfill from stores channel, whereby improved system inventory transparency allows customer Internet orders to be fulfilled from store locations when the requested items are no longer available in the direct marketing inventory. This channel contributed approximately $5.5 million in net sales in the thirteen weeks ended April 28, 2012 and is reflected in comparable store sales when the order is fulfilled by a comparable store.

Store Sales

Declines in net store sales for the thirteen weeks ended April 28, 2012 are primarily correlated to a 9.4% reduction in our store selling square footage year-over-year. Comparable store sales represent only $4.2 million of the decrease, or a comparable store sales decrease of 2.2%, on comparatively lower units sold, units per transaction and dollars per transaction, partially offset by improved conversion rates and an increased number of transactions, while we maintained our year-over-year average unit retail.

Sales metrics for comparable stores for the first quarter of 2012, including the impact of sales transactions recorded via our direct fulfill from stores system, were as follows: customer traffic was flat year-over-year, yet the conversion rate increased 5.8%, contributing to a 5.9% increase in the number of transactions per store. Units per transaction were down 7.9% which, combined with a flat average unit retail, contributed to a 7.7% decrease in dollars per transaction compared to the first quarter of 2011.

Direct Marketing Sales

Direct marketing sales in the ~~third~~first quarter of ~~2011~~2012 decreased 125.98% compared to the ~~third~~first quarter of ~~2010~~2011, ~~and~~while the percentage of our net sales derived from direct marketing ~~decreased~~increased ~~slightly~~to ~~from 19~~20.17% infrom ~~the third quarter of 2010 to 17~~20.81% in the ~~third~~first quarter of 2011. Our direct marketing ~~sales~~ sales decrease isreflects ~~primarily~~both ~~due~~declines ~~to reductions~~ in red-line phone sales ~~year-over-year~~, with ~~higher levels and~~ a better allocation of merchandise inventories in our store locations reducing red-line phone demand., ~~Internet~~and ~~sales~~the ~~also~~transfer ~~decreased~~of ~~slightly~~certain ~~with~~Internet ~~promotional~~demand ~~activity~~to ~~successfully~~store ~~driving increased~~sales ~~orders~~via ~~but~~our ~~lower~~direct ~~units per order, with Internet average order values down 9.1% compared~~fulfill tofrom ~~the~~stores ~~third quarter of 2010~~system. Year-over-year, Internet sales as a percentage of total direct marketing sales ~~increased~~ todeclined 74from 75.5% in the ~~third~~first quarter of 2011 ~~from~~to 6772.21% in the ~~third~~first quarter of ~~2010,~~2012 ~~driven~~with ~~by increases~~increased inInternet traffic and transaction counts not able to fully offset lower units per order. As a result, ~~reflecting~~Internet ~~continued~~average ~~changing~~order ~~trends~~values inwere ~~consumer purchasing~~down ~~behavior~~3. 7% compared to the first quarter of 2011.

Year-to-date direct marketing sales decreased 9.8% compared to the same period of the prior year, driven by weaker than anticipated customer response to our spring, summer and early fall merchandise assortments with comparative decreases in red-line phone sales year-over-year having the most significant impact, while the percentage of our net sales derived from direct marketing was flat. Year-to-date Internet sales were flat, while Internet sales as a percentage of total direct marketing sales increased to 77.2% in the thirty-nine weeks ended October 29, 2011 from 70.0% in the thirty-nine weeks ended October 30, 2010, reflecting continued changing trends in consumer purchasing behavior.

Cost of Sales, Buying and Occupancy

The following is a comparison of cost of sales, buying and occupancy for the thirteen ~~and thirty-nine~~ weeks ended ~~October~~April 2928, ~~2011~~2012 and ~~October~~April 30, ~~2010~~2011:

	Thirteen Weeks Ended									~~Thirty-Nine Weeks Ended~~
	October 29,			October 30,						October 29,			October 30,
	April 28,			April 30,
	2011			2010			Increase			2011			2010			Increase
	2012			2011			Decrease
	(In millions)			~~(In millions)~~						~~(In millions)~~
Cost of sales, buying and occupancy	$	~~186~~175.23		$	~~171~~194.40		$	14(18.87	)	$	~~587.9~~		$	~~548.0~~		$	~~39.9~~
Percentage of net sales		6663.65	%		5764.34	%		9(0.39	)%		~~69.0~~	%		~~59.5~~	%		~~9.5~~	%

In the ~~third~~first quarter of ~~2011~~2012, net sales declines of $1925.6 4 million ~~combined~~were ~~with~~partially offset by cost of sales, buying and occupancy ~~increases~~declines of $1418.8 7 million, resulting in a ~~930~~90 basis point ~~decline~~improvement in gross profit margin to 3336.45% from 4235.76% in the ~~third~~first quarter of ~~2010~~2011. This ~~decline~~improvement in gross profit margin was driven by ~~deterioration~~improvements in ~~our~~occupancy ~~merchandise margin~~expenses, which decreased ~~was~~90 ~~down 890~~ basis points, ~~due~~as ~~to aggressive~~a ~~and~~percentage ~~accelerated~~of ~~markdown~~net ~~and~~sales, ~~promotional~~due ~~pressure~~to ona ~~our~~combination ~~sales~~of aslower werent ~~sought~~expense toon ~~increase traffic,~~a ~~re-engage~~smaller ~~with~~store ~~our~~base ~~core~~and ~~customer,~~lower ~~drive~~depreciation ~~sales~~expense. ~~and~~Merchandise ~~clear~~margin ~~slower-moving~~improved ~~merchandise~~60 ~~to better~~basis ~~align~~points, ~~our~~on ~~inventory~~slight ~~levels~~improvements ~~with~~in ~~sales~~both ~~trends.~~our ~~Occupancy~~markon and markdown ~~buying~~rates ~~expenses~~due, ~~though~~in ~~reduced year-over-year~~part, ~~primarily due~~ to lower ~~rent~~levels ~~expense~~of onmerchandise ainventory ~~smaller~~purchases. ~~store~~This ~~base,~~merchandise ~~increased~~margin 30improvement ~~basis points~~offset ~~and~~a 1060 basis ~~points,~~point ~~respectively,~~increase in buying expenses as a percentage of net sales ~~due to negative leverage from the decline in net sales~~.

Year-to-date in 2011, net sales declines of $68.6 million combined with cost of sales, buying and occupancy increases of $39.9 million, resulting in a 950 basis point decline in gross profit margin to 31.0% from 40.5% in the same period of the prior year. Year-to-date declines in gross profit margin are consistent with third quarter of 2011 trends in gross profit margin, with aggressive markdown and promotional pressure on our sales having the greatest impact. The decline was driven by deterioration in merchandise margin, which was down 900 basis points. Occupancy and buying expenses, though reduced year-over-year, primarily due to lower rent and depreciation expense, increased 30 basis points and 20 basis points as a percentage of net sales, respectively, due to negative leverage from the decline in net sales.

In the remainder of the year, we expect gross profit margins to continue to be impacted by markdown and promotional activity, changes to our mix of product and higher raw material and labor costs.

Selling, General and Administrative

The following is a comparison of selling, general and administrative for the thirteen ~~and thirty-nine~~ weeks ended ~~October~~April 2928, ~~2011~~2012 and ~~October~~April 30, ~~2010~~2011:

	Thirteen Weeks Ended									~~Thirty-Nine Weeks Ended~~
	October 29,			October 30,			(Decrease)			October 29,			October 30,			(Decrease)
	April 28,			April 30,			(Decrease)
	2011			2010			Increase			2011			2010			Increase
	2012			2011			Increase
	(In millions)			~~(In millions)~~									~~(In millions)~~
Selling, general and administrative	$	~~105~~92.06		$	~~106~~99.38		$	(17.32	)	$	~~301.2~~		$	~~307.5~~		$	~~(6.3~~	)
Percentage of net sales		3733.6	%		3533.51	%		20.15	%		~~35.4~~	%		~~33.4~~	%		~~2.0~~	%

Selling, general and administrative in the ~~third~~first quarter of ~~2011~~2012 ~~was~~decreased ~~flat~~$7.2 million compared to the ~~third~~ first quarter of 2011 ~~2010.~~despite ~~Year~~the addition of incremental performance-~~to-date~~based compensation, for which no comparable compensation was recorded in ~~2011,~~the ~~selling~~same period of the prior year, ~~general~~as ~~and~~well ~~administrative~~as ~~results~~the ~~primarily reflect~~addition ~~reductions~~of $2.5 million in ~~certain~~incremental ~~components~~costs ofin ~~performance-based~~the ~~management~~first ~~incentive~~quarter ~~compensation,~~of ~~offset~~2012 byrelated ~~incremental~~to ~~marketing~~our ~~expenses~~exploration of strategic alternatives and the planned retirement of our President and Chief Executive Officer. This decrease was primarily ~~associated~~due ~~with~~to actions taken and planned reductions under our ~~national~~cost ~~advertising~~reduction initiative and the ~~television~~impact ~~campaigns~~of a comparatively smaller store base as a result of our store rationalization plan.

WeWhile we expect selling, general and administrative expenses ~~for~~in ~~the~~fiscal ~~fourth~~2012 ~~quarter~~to ofcontinue ~~2011~~ to bebenefit ~~impacted~~from by the ~~recording~~actions oftaken ~~certain~~under ~~severance~~our ~~and~~cost ~~related~~reduction ~~expense~~ initiative, ~~obligations~~we inhave ~~connection~~incurred ~~with~~and ~~the~~expect ~~planned~~that ~~retirement~~we ofwill ~~our~~continue ~~President~~to incur additional incremental legal and ~~Chief~~consulting ~~Executive~~expenses ~~Officer,~~related asto ~~announced~~our exploration onof ~~December~~strategic 5alternatives, ~~2011~~including expenses related to the proposed Merger transaction.

Restructuring Charges

The following is a comparison of restructuring charges for the thirteen ~~and thirty-nine~~ weeks ended ~~October~~ April 2928, ~~2011~~2012 and ~~October~~April 30, ~~2010~~2011:

	Thirteen Weeks Ended									~~Thirty-Nine Weeks Ended~~
	October 29,			October 30,						October 29,			October 30,
	April 28,			April 30,
	2011			2010			Increase			2011			2010			Increase
	2012			2011			Increase
	(In millions)			~~(In millions)~~									~~(In millions)~~
Restructuring charges	$	4.2.4		$	0.2.3		$	4.0.1		$	~~7.5~~		$	~~5.3~~		$	~~2.2~~
Percentage of net sales		10.59	%		0.17	%		10.42	%		~~0.9~~	%		~~0.6~~	%		~~0.3~~	%

Restructuring charges incurred ~~year-to-date~~ in ~~2011~~the first quarter of 2012 primarily include supporting headcount reductions at our call center and distribution center, effected in April 2012; lease exit, ~~severance~~ and related costs incurred under our store rationalization plan, ~~whereas~~and ~~restructuring~~adjustments ~~charges incurred year-~~to~~-date~~ inour ~~2010~~structural ~~primarily~~store ~~relate~~headcount toreduction, ~~the~~effected ~~consolidation~~in ofMarch ~~our~~2012. ~~Madison~~Restructuring ~~Avenue,~~charges ~~New~~in ~~York~~the ~~flagship~~first ~~location.~~quarter ~~We expect to record total restructuring charges~~ of ~~approximately~~2011 ~~$14.0 million, comprised~~primarily ofinclude lease exit, severance and related costs, ~~through~~incurred ~~fiscal~~under ~~2013 related to~~ our ~~announced~~ store rationalization plan.

InWe ~~December 2011,~~expect ~~we announced a cost reduction initiative with a goal of reducing annual costs and~~to ~~expenses~~incur by approximately $501.0 7 million ~~across~~in ~~all~~additional ~~areas~~restructuring ofcharges during the ~~business.~~remainder ~~This initiative includes a corporate headcount reduction~~ of ~~approximately~~fiscal ~~9.0%~~2012 ~~effected~~related ~~in December 2011. We expect~~ to ~~incur approximately $3.5 million in restructuring charges in~~ the ~~fourth~~continued ~~quarter~~execution of ~~2011~~our ~~related to~~store ~~this~~rationalization ~~action~~plan.

Impairment of Store Assets

We regularly monitor the performance and productivity of our store portfolio and close stores when appropriate. When we determine that a store is underperforming or is likely to be closed, we reassess the recoverability of the store’s long-lived assets, which in some cases can result in an impairment charge. ~~When~~In aassessing ~~store~~the ~~is identified~~recoverability ~~for~~of ~~impairment~~a ~~analysis~~store’s long-lived assets, we estimate the fair value of the store assets using an income approach which is based on estimates of future operating cash flows at the store level. These estimates, which include estimates of future net store sales, direct store expenses and non-cash store adjustments, are based on the experience of management, including historical store operating results and management’s knowledge and expectations. These estimates are affected by factors that can be difficult to predict, such as future operating results, customer activity and future economic conditions.

In the third quarters of 2011 and 2010, we recorded impairment of store assets of $2.1 million and $0.5 million, respectively, with impairment analyses in the third quarter of 2011 triggered by reviews of our stores’ operating results as well as actions

~~under our store rationalization plan and impairment analyses in the third quarter of 2010 triggered by our expectation to close certain store locations.~~ In the ~~thirty-nine~~thirteen weeks ended ~~October~~April 2930, 2011, we recorded impairment of store assets of $~~3.3 million, including a first quarter of 2011 impairment of store assets of $~~1.2 million, primarily triggered by our accelerated store rationalization plan,. ~~in addition~~We todid ~~the~~not ~~$2.1 million~~record any impairment of store assets ~~recorded~~ in the ~~third~~thirteen ~~quarter of 2011. Additional insignificant store impairments were recorded in the prior quarters of 2010 and reported in the thirty-nine~~ weeks ended ~~October~~April 3028, ~~2010~~2012.

Merger-Related Costs

In the ~~thirty-nine~~thirteen weeks ended ~~October~~April 2930, 2011 ~~and October 30~~, ~~2010,~~ we incurred $0.9 ~~million and~~ ~~$27.7~~ million, ~~respectively,~~ of merger-related costs in connection with our acquisition of BPW~~. These~~, ~~costs~~consisting ~~primarily~~solely ~~consist~~ of ~~investment~~stock-based ~~banking,~~compensation ~~professional~~expense ~~services~~related ~~fees~~to ~~and~~ an equity-based incentive award given to certain executives and members of senior management as a result of the closing of this transaction.

Goodwill and Other Intangible Assets

We evaluate goodwill and trademarks for impairment on an annual basis at the reporting unit level on the first day of each fiscal year, and more frequently if events occur or circumstances change ~~which~~ which indicate that the goodwill or trademarks should be evaluated. We performed our annual impairment tests for fiscal ~~2011~~2012 and fiscal ~~2010~~2011 as of January 3029, ~~2011~~2012 and January 3130, ~~2010~~2011, respectively, using a combination of an income approach and market value approach. ~~These~~which ~~tests~~ collectively contemplate our ~~market value,~~ operating results and financial position, forecasted operating results, changes and expected changes in our store portfolio, industry trends, market uncertainty and comparable industry multiples. As a result of these analyses, we determined that no impairment of our goodwill or trademarks existed. We evaluated events and circumstances through the ~~third~~first quarter of ~~2011~~ 2012 and did not identify any conditions which indicated that the goodwill or trademarks should be re-evaluated. We continue to monitor events and circumstances that may require goodwill and trademarks to be evaluated including any volatility in our market capitalization.

Interest Expense, net

The following is a comparison of net interest expense for the thirteen ~~and thirty-nine~~ weeks ended ~~October~~ April 2928, ~~2011~~2012 and ~~October~~April 30, ~~2010~~2011:

	Thirteen Weeks Ended						~~Thirty-Nine Weeks Ended~~
	October 29,		October 30,				October 29,		October 30,
	April 28,		April 30,
	2011		2010		Increase		2011		2010		Decrease
	2012		2011		Increase
	(In millions)		~~(In millions)~~						~~(In millions)~~
Interest expense, net	$	34.56	$	2.30	$	1.2.6	$	~~8.1~~	$	~~17.1~~	$	~~(9.0~~	)

Net interest expense in the thirteen weeks ended ~~October~~April 2928, ~~2011~~2012 increased from the same period in ~~2010~~2011 due to ~~a combination of~~ increased ~~tax-related interest expense, increased~~ debt-related interest expense and the addition of $0.6 9 million in interest expense related to our trade payables arrangement. ~~Year-over-year,~~First ~~third~~ quarter ~~tax~~debt-related interest expense increased ~~primarily~~ ~~due~~as toour ~~interest~~weighted ~~expense~~average ondebt aoutstanding ~~discrete~~increased ~~tax~~from $79.3 ~~adjustment~~million ~~recorded~~ in the ~~third~~first quarter of 2011 to $168.8 ~~Third~~million ~~quarter~~in ~~debt-related~~the ~~interest~~first ~~expense~~quarter ~~increased~~of as2012, and our ~~weighted~~effective ~~average~~interest ~~debt outstanding~~rate increased from ~~$70~~3.~~9 million~~6% in the ~~third~~first quarter of ~~2010~~2011 to ~~$121~~6.~~5 million~~2% in the ~~third~~ first quarter of ~~2011,~~2012. ~~with~~The ~~reductions~~increases in outstanding debt and our effective interest rate, ~~from~~are 4primarily correlated to our new $75.4%0 inmillion secured term loan which carries interest with a higher rate margin than our revolving credit facility. With the ~~third quarter~~addition of ~~2010~~the tofive ~~3.8%~~year secured term loan in the ~~third~~ first quarter of ~~2011~~2012, ~~partially~~we ~~off~~expect net interest expense to be higher year-~~setting~~over-year ~~this~~for ~~increase~~the remainder of fiscal 2012. See Liquidity and Capital Resources —– Term Loan and Liquidity and Capital Resources - Trade Payables Arrangement for further information regarding ~~the trade~~these ~~payables arrangement~~arrangements.

~~Net~~Income ~~interest~~Tax ~~expense~~(Benefit) ~~for~~Expense the thirty-nine weeks ended October 29, 2011 decreased from the same period of the prior year due to reductions in debt-related interest expense and tax-related interest expense. Year-over-year, debt-related interest expense decreased as the weighted average debt outstanding decreased from $179.5 in the thirty-nine weeks ended October 30, 2010 to $100.4 million in the thirty-nine weeks ended October 29, 2011 and effective interest rates decreased from 5.7% year-to-date in 2010 to 3.7% year-to-date in 2011. Reductions in tax-related interest expense are correlated to the recording of significant discrete tax adjustments in the second quarter of 2010, for which no similar discrete adjustments have been recorded year-to-date in fiscal 2011.

The following is a comparison of income tax (benefit) expense for the thirteen weeks ended April 28, 2012 and April 30, 2011:


	Thirteen Weeks Ended
	April 28,			April 30,
	2012			2011		Decrease
	(In millions)
Income tax (benefit) expense	$	(0.2	)	$	0.2	$	(0.4	)

For the thirteen weeks ended April 28, 2012 and April 30, 2011, our effective income tax rate, including discrete items, was (17.3%) and 20.3%, respectively. The effective income tax rate is based upon the estimated income or loss for the year, the estimated composition of the income or loss in different jurisdictions and discrete adjustments for settlements of tax audits or

assessments and the resolution or identification of tax position uncertainties. The income tax benefit recorded for the thirteen weeks ended April 28, 2012 is primarily comprised of discrete adjustments related to effective settlements of certain state tax audits in the period. Income ~~Tax~~tax ~~Expense~~expense for the thirteen weeks ended April 30, 2011 was primarily a function of our applicable effective rates and the results of operations within certain jurisdictions in the respective periods.

The following is a comparison of income tax expense for the thirteen and thirty-nine weeks ended October 29, 2011 and October 30, 2010:

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 29,		October 30,				October 29,		October 30,
	2011		2010		Decrease		2011		2010		Decrease
			(In millions)						(In millions)
Income tax expense	$	0.5	$	0.5	$	—	$	1.5	$	3.9	$	(2.4	)

For the thirty-nine weeks ended October 29, 2011 and October 30, 2010, our effective income tax rate, including discrete items, was (2.7%) and 27.5%, respectively. The effective income tax rate is based upon the estimated income or loss for the year, the estimated composition of the income or loss in different jurisdictions and discrete adjustments for settlements of tax audits or assessments, the resolution or identification of tax position uncertainties and non-deductible costs associated with the merger. Income tax expense for the thirteen and thirty-nine weeks ended October 29, 2011 and October 30, 2010 was impacted primarily by changes in estimates related to previously existing uncertain tax positions based on new information and the recording of an additional uncertain tax position.

We continue to provide a full valuation allowance against our net deferred tax assets, excluding deferred tax liabilities for non-amortizing intangibles, due to insufficient positive evidence that the deferred tax assets will be realized in the future.

Discontinued Operations

Our 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. The operating results of these businesses have been classified as discontinued operations for all periods presented, and the cash flows from discontinued operations have been separately presented in the condensed consolidated statements of cash flows.

The ~~income (~~loss~~) from~~ from discontinued operations for the thirteen ~~and thirty-nine~~ weeks ended ~~October 29~~April 28, ~~2011~~2012 includes on-going lease and other liability adjustments related to the J. Jill, Talbots Kids and Mens businesses, offset by favorable adjustments to ~~other~~certain ~~assets and~~ lease liabilities ~~including the first quarter of 2011 settlement of one of the two remaining J~~. ~~Jill store leases.~~ The ~~income~~loss from discontinued operations for the thirteen ~~and thirty-nine~~ weeks ended ~~October~~April 30, ~~2010~~ 2011 includes ~~favorable~~on-going ~~adjustments~~lease toand other ~~assets,~~liability ~~sales~~adjustments ~~tax~~related ~~liabilities~~to ~~and estimated lease liabilities including~~ the ~~second~~J. ~~quarter~~Jill, ofTalbots ~~2010~~Kids ~~settlement~~and ofMens ~~a portion of the vacant Quincy~~businesses, ~~Massachusetts~~ ~~office~~partially ~~space~~offset ~~previously~~by ~~used~~favorable ~~for~~adjustments ~~the~~to certain J.lease ~~Jill~~liabilities ~~business~~including ~~and~~ the first quarter of ~~2010~~ 2011 settlement of ~~four~~one ~~leases~~ of the ~~retained~~two ~~and~~remaining ~~closed~~ J. Jill ~~retail~~store ~~locations,~~leases ~~partially~~not ~~offset~~assumed by ~~on-going~~ ~~lease~~the ~~and~~Purchaser ~~other~~in ~~liability~~the ~~adjustments~~sale ~~related~~of ~~to the~~ J. Jill~~, Talbots Kids and Mens businesses~~.

Liquidity and Capital Resources

Our recent operating losses ~~year-to-date~~ have challenged our capital resources, ~~with~~and, ~~net~~as ~~cash~~a ~~used~~result, ~~in operating~~we ~~activities~~have ~~for~~begun ~~the~~to ~~thirty-nine~~implement ~~weeks~~certain ~~ended~~measures ~~October 29,~~which ~~2011~~seek ~~increasing~~to ~~$82.6 million~~improve ~~over the~~our ~~comparable~~profitability ~~period~~and ofincrease the ~~prior~~level ~~year~~of ~~and~~cash ~~the~~available ~~amount~~for ~~outstanding~~funding ~~under~~operations ~~our~~and ~~revolving~~working ~~credit~~capital ~~facility increasing $56~~needs.~~2 million~~ ~~over the same period of the prior year.~~

We are primarily ~~finance~~financing our working capital needs, operating costs, capital expenditures, strategic initiatives, restructurings, debt, interest and other payment requirements through cash generated by operations, our existing credit facility and credit from vendors and our sourcing agent. We seek to manage borrowing and availability under our ~~Credit~~credit ~~Facility~~facility by monitoring the timing of inventory commitments, inventory receipts and vendor payments. In the first quarter of 2012, we supplemented our capital resources with a new $75.0 million secured term loan (the “Term Loan”) and extended our existing credit facility (the “Amended Credit Facility”), among other key provision amendments. Our Term Loan and Amended Credit Facility ~~extends~~extend through ~~October~~ February 716, ~~2013~~2017, subject to earlier termination as set forth in the ~~agreement~~agreements. Additionally, in February 2012, we and our sourcing agent agreed to extend our trade payables arrangement, under its existing terms and conditions, to August 31, 2012.

~~This~~We ~~year~~have ~~continues~~continued ato ~~transition~~implement ~~period~~phases ~~for~~of ~~the~~our ~~Company~~transformation and turnaround strategy and are adjusting these steps, as weneeded, ~~continue~~as tothe ~~implement~~circumstances, ~~our transformation~~environment and ~~turnaround~~needs ~~strategy~~of the Company evolve. The success of our strategy and, accordingly, our ability to generate improved results and sufficient cash from operations depend upon our ability to consistently deliver merchandise that is appealing to our customer on a competitive and profitable basis, effectively manage our costs, regularly access adequate sources of liquidity to satisfy our working capital and other operating cash requirements at all times and successfully fund and execute our operating, cost reduction and strategic initiatives.

We expect to continue to face inconsistent sentiment in U.S. consumer confidence and the continued pressures of an aggressively promotional competitive environment. As we remain focused on driving customer traffic and conversions, we expect to continue to employ a competitive promotional strategy and, as a result, expect that our gross profit margins may continue to be affected by such pressures. We will continue to seek to mitigate further impact to our gross profit margins and continue to seek to improve our profitability through reductions in our level of merchandise inventory commitments as well as store and corporate cost reductions, however we cannot assure that these actions will enable us to achieve our operating plan for sales, operating income or operating cash flows for the year.

~~other~~Revolving ~~operating~~Credit ~~cash~~Facility ~~requirements at all times and successfully fund and execute our operating, cost reduction and strategic initiatives.~~

~~Merger~~On ~~with~~February 16, ~~BPW~~2012, we amended our existing revolving credit facility (the “Amended Credit Facility”). The Amended Credit Facility is an asset-based revolving credit facility (including a $25.0 million letter of credit sub-facility) that permits us to borrow up to the lesser of (a) $200.0 million and ~~Related~~(b) the ~~Financing~~result ~~Transactions~~of (i) 85.0% of the value of (1) eligible credit card receivables, (2) the net orderly liquidation value of eligible private label credit card receivables, (3) the net orderly liquidation value of eligible in-transit inventory from international vendors (subject to certain caps and limitations) and (4) the net orderly liquidation value of eligible inventory in the United States (the amount calculated in this clause (b) less reserves from time to time established by the lenders), minus (ii) the greater of (1) $17.5 million and (2) the lesser of (x) 10.0% of the aggregate revolving loan commitment under the Amended Credit Facility and (y) 10.0% of the borrowing base and minus (iii) certain availability reserves established under the terms of the secured term loan. In addition, under and subject to the terms of the facility, the lenders also have the right to establish certain additional reserves against borrowing availability if the lenders determine, in good faith and in the exercise of reasonable business judgment from the perspective of a secured asset-based lender, that additional reserves are necessary. Borrowing under the Amended Credit Facility will also be subject to several additional limitations under the provisions of our secured term loan facility. Refer to Term Loan for additional information regarding these provisions. If the commitments under the Amended Credit Facility are reduced or terminated prior to February 16, 2013, we will incur a penalty of 1.0% on the amount of any such reduction, except in certain circumstances as specified in the agreement. There are no penalties on reductions on or after February 16, 2013.

OnLoans ~~April 7,~~made ~~2010,~~pursuant weto ~~completed~~this aagreement ~~series~~carry ~~of transactions (collectively~~interest, ~~the~~at ~~“BPW~~our ~~Transactions”) which~~election, inat either (a) the ~~aggregate,~~higher ~~substantially~~of ~~reduced~~the ~~our~~LIBOR ~~indebtedness~~rate ~~and~~for ~~significantly~~the ~~deleveraged~~applicable ~~our balance~~interest ~~sheet,~~period ~~consisting~~or ofthe three-month ~~related~~LIBOR ~~transactions:~~plus ~~(i) an~~2.5% ~~Agreement~~to ~~and Plan of Merger~~3.0% ~~between~~depending ~~Talbots~~on ~~and~~certain ~~BPW~~availability ~~Acquisition~~thresholds, ~~Corp.~~or (~~“BPW”~~b) the ~~pursuant~~base torate ~~which~~plus a1.5% ~~wholly-owned~~to ~~subsidiary~~2.0,%, ~~of the~~depending ~~Company~~on ~~merged~~certain ~~with~~availability ~~and~~thresholds, ~~into~~with ~~BPW~~the inbase ~~exchange~~rate ~~for~~established ~~the~~at ~~issuance~~a ofprime ~~Talbots~~rate ~~common~~pursuant ~~stock and warrants~~ to ~~BPW stockholders; (ii)~~ the ~~repurchase~~terms ~~and retirement~~ of ~~all~~the ~~shares~~agreement. ofInterest ~~Talbots~~on ~~common~~borrowings ~~stock~~is ~~held~~payable bymonthly ~~AEON~~in (Uarrears.~~S.A.),~~ ~~Inc.~~We ~~(“AEON~~pay ~~(U.S.A.)”),~~a ~~our~~fee ~~then~~of ~~majority~~37.5 ~~shareholder;~~to ~~the~~50 ~~issuance~~basis ~~of warrants~~points toon ~~purchase~~the ~~one~~unused ~~million~~portion ~~shares~~ of ~~Talbots~~the ~~common~~commitment ~~stock~~and tooutstanding ~~AEON~~letters ~~(U.S.A.)~~of ~~and~~credit, ~~the~~if ~~repayment of~~any, ~~all~~monthly ofin ~~our~~arrears ~~outstanding~~in ~~debt~~accordance with ~~AEON~~formulas ~~Co.,~~set ~~Ltd.~~forth ~~(“AEON”)~~in ~~and~~the ~~AEON (U~~agreement.~~S.A.)~~ atAs ~~its~~of ~~principal~~April 28, ~~value~~2012, ~~plus~~our ~~accrued~~effective interest ~~and~~rate ~~other~~under ~~costs~~the ~~for~~Amended ~~total~~Credit ~~cash~~Facility ~~consideration~~was ~~of $488~~3.~~2 million;~~3%, and ~~(iii) the~~ ~~execution~~we ofhad aadditional ~~third party senior secured revolving credit facility which provides~~ borrowing ~~capacity~~availability of up to $~~200~~69.~~0 million,~~5 ~~subject to availability and satisfaction of all borrowing conditions~~million.

InAmounts ~~connection~~are ~~with~~borrowed ~~the~~and ~~merger,~~repaid weon ~~issued~~a 41daily basis through a control account arrangement.~~5 million~~ ~~shares~~Cash ofreceived ~~Talbots~~from ~~common~~customers ~~stock~~is ~~and~~swept ~~warrants to~~on ~~purchase~~a ~~17.2 million~~daily ~~shares~~basis ofinto ~~Talbots~~a ~~common~~control ~~stock~~account (in the ~~“Talbots~~name ~~Warrants”)~~of ~~for~~the ~~100%~~agent ~~ownership~~for the lenders. Subject to the terms of ~~BPW.~~the ~~Approximately~~agreement, ~~3.5 million~~we ~~BPW~~are ~~warrants~~permitted ~~that~~to ~~did~~maintain ~~not~~a ~~participate~~certain amount of cash in ~~the~~disbursement ~~warrant~~accounts, ~~exchange offer~~including ~~(the~~certain ~~“Non-Tendered~~amounts ~~Warrants”)~~to ~~remained~~satisfy ~~outstanding~~our atcurrent liabilities incurred in the ~~closing~~ordinary course of ~~the~~our ~~merger~~business. Amounts may ~~Additionally,~~be inborrowed ~~connection~~and ~~with~~re-borrowed, subject to the ~~merger~~satisfaction or waiver of all borrowing conditions, weincluding, ~~repurchased~~without limitation, perfected liens on collateral, accuracy of all representations and ~~retired~~warranties, the ~~29.9 million~~absence ~~shares~~of a default or an event of ~~Talbots~~default ~~common~~and ~~stock~~other ~~held~~borrowing byconditions, ~~AEON~~all ~~(U.S.A.),~~subject ~~our~~to ~~former~~certain ~~majority~~exclusions ~~shareholder,~~as set forth in ~~exchange~~the agreement. We require sufficient borrowing capacity under our Amended Credit Facility for our working capital and other cash needs. Our borrowing ~~warrants~~availability under the Amended Credit Facility will fluctuate during the course of the year, due to, ~~purchase~~among ~~one~~other ~~million~~reasons, ~~shares~~seasonal changes in our levels of ~~Talbots~~inventory ~~common~~and ~~stock~~accounts ~~(the~~receivable ~~“AEON~~as ~~Warrants”).~~well as changes in third party appraisal values of our inventory and accounts receivable.

~~Further~~The inagreement ~~connection~~matures ~~with~~on ~~the~~February 16, ~~consummation and closing of the BPW merger~~2017, wesubject ~~executed~~to aearlier ~~senior secured~~termination ~~revolving~~as ~~credit~~set ~~agreement~~forth ~~with~~in ~~third party lenders (~~the ~~“Credit Facility”)~~ agreement. The ~~Credit Facility~~entire isprincipal anamount ~~asset-based~~of ~~revolving~~loans ~~credit~~under the facility ~~(including~~and aany ~~$25.0 million~~outstanding ~~letter~~letters of credit ~~sub-facility)~~ ~~that~~will ~~permits~~be usdue toon ~~borrow up to~~ the ~~lesser~~maturity ~~of (a) $200~~date.~~0 million~~ ~~and~~Loans ~~(b) the borrowing~~may ~~base,~~be ~~calculated~~voluntarily asprepaid aat ~~percentage~~any oftime ~~the~~at ~~value~~our ~~of eligible credit card receivables and the net orderly liquidation value of eligible private label credit card receivables~~option, ~~the net orderly liquidation value of eligible inventory~~ in ~~the~~whole ~~United~~or ~~States and the net orderly liquidation value of eligible~~ in~~-transit~~ ~~inventory~~part, ~~from~~at ~~international~~par ~~vendors~~plus ~~(subject~~accrued ~~to certain caps~~ and ~~limitations),~~unpaid ~~net~~interest ~~of all reserves as specifically set forth in the agreement, minus the lesser of (x) $20.0 million~~ and ~~(y) 10%~~any ofbreak ~~the~~funding ~~borrowing~~loss ~~base~~incurred. InWe ~~addition,~~are ~~under~~required ~~and subject~~ to ~~the~~make ~~terms~~mandatory ~~of the~~repayments ~~facility,~~in the ~~lenders~~event ~~also~~of ~~have~~receipt ~~the~~of ~~right~~net toproceeds ~~establish~~from ~~certain~~asset ~~additional reserves against borrowing availability if the lenders determine~~dispositions, inreceipt ~~good faith and in the exercise~~ of ~~reasonable business~~net ~~judgment~~proceeds from the ~~perspective~~issuance of asecurities ~~secured~~and ~~asset-based lender, that additional reserves are necessary. Loans made pursuant~~ to ~~this~~the ~~agreement~~extent ~~carry~~that ~~interest, at~~ our outstanding ~~election,~~indebtedness atunder ~~either (a)~~ the ~~three-month~~Amended ~~LIBOR~~Credit ~~plus~~Facility ~~3.0%~~exceeds toour ~~3.5%,~~maximum ~~depending~~borrowing ~~on certain~~ availability ~~thresholds~~at orany ~~(b) the base rate plus 2~~time.0% toUpon ~~2.5%,~~any ~~depending~~voluntary onor ~~certain~~mandatory ~~availability~~prepayment ~~thresholds,~~of ~~with~~borrowings ~~the~~outstanding ~~base rate established~~ at athe ~~prime~~LIBOR rate ~~pursuant to the terms of the agreement. Interest~~ on ~~borrowings is payable monthly in arrears. We pay~~ a ~~fee~~day ofthat 50is tonot ~~75 basis points on~~ the ~~unused~~last ~~portion~~day of the ~~commitment~~respective ~~and~~interest ~~outstanding letters of credit~~period, ifwe ~~any,~~will ~~monthly~~reimburse ~~in arrears in accordance with formulas set forth in~~ the ~~agreement,~~lenders asfor ~~amended.~~any Asresulting ofloss ~~October 29,~~or ~~2011,~~expense ~~our~~that ~~effective~~the ~~interest rate~~lenders ~~was~~may 3incur.~~9%,~~ ~~and~~Amounts wevoluntarily ~~had~~repaid ~~additional~~prior ~~borrowing~~to ~~availability~~the ofmaturity update tomay ~~$69~~be re-borrowed.~~3 million.~~

~~Amounts~~The ~~are~~Company ~~borrowed~~ and ~~repaid~~certain onof aour ~~daily~~subsidiaries ~~basis~~have ~~through~~executed a ~~control~~guaranty ~~account~~and ~~arrangement.~~security ~~Cash received~~agreement ~~from~~pursuant ~~customers~~to iswhich ~~swept~~all onobligations aunder ~~daily~~the ~~basis~~Amended ~~into~~Credit Facility aare ~~control~~fully ~~account~~and inunconditionally ~~the~~guaranteed ~~name~~on ofa ~~the~~joint ~~agent for~~and ~~the~~several ~~lenders~~basis. ~~Subject~~Additionally, pursuant to the ~~terms~~security ~~of the~~ agreement, weall obligations are ~~permitted~~secured toby ~~maintain~~ (i) a ~~certain amount~~second oflien ~~cash~~mortgage inon ~~disbursement~~our ~~accounts~~Hingham, ~~including~~Massachusetts ~~certain~~headquarters ~~amounts~~facility ~~to satisfy our current~~and ~~liabilities~~Lakeville, ~~incurred~~Massachusetts indistribution ~~the~~facility, ~~ordinary~~(ii) a ~~course~~second ofpriority ~~our~~perfected ~~business.~~lien ~~Amounts~~on ~~may~~certain beintellectual ~~borrowed and re-borrowed~~property, ~~subject~~equipment toand ~~the~~fixtures ~~satisfaction~~and or(iii) a ~~waiver~~first ofpriority ~~all~~perfected ~~borrowing~~lien ~~conditions,~~and ~~including,~~security ~~without limitation,~~interest ~~perfected~~in ~~liens~~the onremaining ~~collateral,~~assets ~~accuracy~~ of ~~all representations and warranties,~~ the ~~absence~~Company ~~of a default~~ or anany ~~event~~guarantor offrom ~~default~~time ~~and~~to ~~other~~time. ~~borrowing~~In ~~conditions,~~connection ~~all~~with ~~subject~~the tolenders’ ~~certain exclusions~~security asinterest ~~set forth~~ in ~~the~~our ~~agreement.~~proprietary WeTalbots ~~require~~credit ~~sufficient~~card ~~borrowing~~program, ~~capacity~~Talbots ~~under~~and ~~our~~certain ~~Credit Facility~~of ~~for~~ our ~~working~~subsidiaries ~~capital~~have ~~and~~also ~~other~~executed ~~cash~~an ~~needs.~~access ~~Our~~and ~~borrowing~~monitoring ~~availability~~agreement ~~under the Credit~~that ~~Facility~~requires ~~will~~us ~~fluctuate during the course of the year, due~~ to, ~~among~~comply ~~other~~with ~~reasons,~~certain ~~seasonal changes~~monitoring ~~in our levels of inventory~~ and ~~accounts~~reporting ~~receivable~~obligations asto ~~well~~the asagent ~~changes~~with inrespect ~~third~~to ~~party appraisal~~such ~~values~~program, ofsubject ~~our~~to ~~inventory~~applicable ~~and accounts receivable~~law.

The agreement matures on October 7, 2013, subject to earlier termination as set forth in the agreement. The entire principal amount of loans under the facility and any outstanding letters of credit will be due on the maturity date. Loans may be voluntarily prepaid at any time at our option, in whole or in part, at par plus accrued and unpaid interest and any break funding loss incurred. We are required to make mandatory repayments in the event of receipt of net proceeds from asset dispositions, receipt of net proceeds from the issuance of securities and to the extent that our outstanding indebtedness under the Credit

~~Facility~~We ~~exceeds~~may ~~our~~not ~~maximum~~create, ~~borrowing~~assume ~~availability~~or atsuffer to exist any ~~time~~lien securing indebtedness incurred after the closing date of the Amended Credit Facility, subject to certain limited exceptions set forth in the agreement. ~~Upon~~The Amended Credit Facility contains negative covenants prohibiting us, with certain exceptions, from among other things, incurring indebtedness and contingent obligations, as defined, making loans, investments, intercompany loans and capital contributions, declaring or making any ~~voluntary~~dividend payment except for dividend payments or ~~mandatory~~distributions payable solely in stock or stock equivalents, and ~~prepayment~~disposing of ~~borrowings~~property ~~outstanding~~or atassets. We have agreed to keep the ~~LIBOR~~mortgaged ~~rate~~properties onin agood ~~day~~repair, ~~that~~reasonable iswear ~~not~~and ~~the~~tear ~~last~~excepted. ~~day~~The agreement also provides for events of ~~the respective~~default, including failure to repay principal and interest ~~period~~when due, failure weto ~~will~~perform ~~reimburse~~or comply with the ~~lenders~~provisions ~~for~~or covenants of the agreement, an event of default on other third party obligations and any ~~resulting~~change ~~loss~~in orcontrol ~~expense~~of ~~that~~ the ~~lenders~~Company ~~may~~(as ~~incur~~defined in the agreement to include, among other things, any person or group acquiring 50.0% ~~Amounts~~or ~~voluntarily~~more ~~repaid~~of ~~prior~~the tototal voting power of our securities, the ~~maturity~~replacement ~~date~~of ~~may~~a bemajority ~~re-borrowed~~of our Board of Directors under certain circumstances and certain mergers or other extraordinary transactions). The agreement does not contain any financial covenant tests.

~~The~~Our ~~Company~~ability ~~and~~to ~~certain~~satisfy of our ~~subsidiaries~~debt ~~have executed a guaranty and security agreement pursuant to which all~~ obligations ~~under~~depends ~~the Credit Facility are fully and unconditionally guaranteed~~ on aour ~~joint~~financial and ~~several~~operating ~~basis~~performance. ~~Additionally,~~Should ~~pursuant to the security agreement, all~~we ~~obligations~~default ~~are secured by (i) a first priority perfected lien and security interest~~ in ~~substantially~~ ~~all~~our ~~assets~~obligations ofunder the ~~Company~~Amended ~~and~~Credit ~~any~~Facility, ~~guarantor~~the ~~from~~lender ~~time~~could todeclare ~~time~~an ~~and~~event ~~(ii) a~~of ~~first~~default, ~~lien mortgage~~terminate onborrowing ~~our~~under ~~Hingham,~~the ~~Massachusetts headquarters~~ facility and ~~Lakeville,~~declare ~~Massachusetts distribution~~all ~~facility.~~indebtedness Inunder ~~connection with~~ the ~~lenders’~~facility ~~security~~immediately ~~interest~~due inand ~~our proprietary Talbots credit card program~~payable, ~~Talbots~~ and ~~certain~~if ~~of our subsidiaries have also executed an access and~~outstanding ~~monitoring~~indebtedness ~~agreement~~is ~~that~~not ~~requires~~immediately ussatisfied tofrom ~~comply~~cash ~~with~~resources, ~~certain~~realize ~~monitoring~~on ~~and~~all ~~reporting~~collateral ~~obligations to~~pledged ~~the agent with respect~~ to secure such ~~program, subject to applicable law~~indebtedness.

WeOur ~~may~~borrowing base ~~not~~under ~~create,~~our ~~assume~~Amended orCredit ~~suffer~~Facility tois ~~exist~~determined ~~any~~based ~~lien~~on, ~~securing~~among ~~indebtedness~~other ~~incurred~~factors, ~~after~~ the ~~closing~~ ~~date~~values ofat ~~the~~any ~~Credit~~point ~~Facility~~in ~~subject~~time toof ~~certain~~our ~~limited~~customer ~~exceptions~~accounts ~~set~~receivable ~~forth~~and inmerchandise ~~the agreement.~~inventories ~~The~~as ~~Credit~~calculated ~~Facility~~under ~~contains~~our ~~negative~~Amended ~~covenants~~Credit ~~prohibiting~~Facility. ~~us,~~These ~~with~~values ~~certain exceptions,~~are ~~from~~directly ~~among~~impacted ~~other~~by ~~things,~~our ~~incurring~~sales ~~indebtedness and contingent obligations~~performance, asinventory ~~defined~~commitments, ~~making loans,~~seasonal ~~investments,~~changes ~~intercompany~~in ~~loans~~our ~~and~~levels ~~capital~~of ~~contributions,~~inventory ~~declaring~~and oraccounts ~~making~~receivable ~~any~~as ~~dividend payment~~well ~~except~~as ~~for~~changes ~~dividend~~in ~~payments~~third orparty ~~distributions~~appraisal ~~payable~~values ~~solely~~of inour ~~stock~~inventory ~~or stock equivalents,~~ and ~~disposing~~accounts ~~of property or assets~~receivable. We ~~have~~rely ~~agreed~~on ~~to keep~~ the ~~mortgaged properties in good~~ ~~repair,~~sufficiency ~~reasonable~~of ~~wear~~our ~~and~~borrowing ~~tear~~availability ~~excepted. The agreement also provides~~ for ~~events~~our ofworking ~~default, including~~capital ~~failure~~needs. toIf ~~repay~~our ~~principal~~borrowing ~~and~~availability ~~interest~~under ~~when~~our ~~due,~~Amended ~~failure~~Credit toFacility ~~perform~~is orat ~~comply~~any ~~with~~time ~~the provisions~~less orthan ~~covenants of~~ the ~~agreement,~~minimum anamount ~~event~~required ofby ~~default~~our onAmended ~~other~~Credit ~~third~~Facility ~~party obligations~~ and ~~any~~ ~~change~~Term ~~in control of the Company (as defined in the agreement to include~~Loan, ~~among~~which ~~other things,~~we ~~any~~cannot ~~person~~at orall ~~group~~times ~~acquiring~~assure, ~~50.0%~~we orwould ~~more~~not ofbe ~~the~~able ~~total~~to ~~voting~~borrow ~~power~~under ~~of our securities,~~ the ~~replacement~~ ofAmended aCredit ~~majority~~Facility ofand ~~our~~would ~~Board~~be ofin ~~Directors~~default under ~~certain~~both ~~circumstances~~debt ~~and~~facilities, ~~certain~~which, ~~mergers or~~if ~~other extraordinary transactions). Should~~ we ~~default~~were inunable ~~our~~to ~~obligations~~satisfy ~~under~~ the ~~Credit Facility,~~amounts ~~the~~outstanding ~~lender~~or ~~could~~obtain ~~declare~~a anwaiver ~~event~~from ofour ~~default~~lenders, ~~terminate~~would allow ~~borrowing~~the ~~under~~lenders ~~the~~to ~~facility~~realize ~~and declare~~on all ~~indebtedness~~collateral pledged under ~~the~~our ~~facility~~debt ~~immediately~~facilities ~~due~~which ~~and~~would ~~payable,~~have ~~and~~a ifmaterial ~~outstanding indebtedness~~adverse iseffect ~~not~~on ~~immediately~~our ~~satisfied from cash resources~~business, ~~realize~~our onability ~~all collateral pledged~~ to ~~secure~~ ~~such~~achieve ~~indebtedness.~~our ~~The~~plan, ~~agreement~~our ~~does~~financial ~~not~~position ~~contain~~and ~~any~~our ~~financial covenant tests~~liquidity.

We and the lenders have entered into a letter of credit sub-facility under our Amended Credit Facility pursuant to which the lenders will provide either documentary or standby letters of credit, at our request, to various beneficiaries on the terms set forth in the applicable agreement, subject to any applicable limitations set forth in the Amended Credit Facility.

As of ~~October~~April 2928, ~~2011~~2012, we had borrowings of $~~124~~122.9 million outstanding under the Amended Credit Facility, $0.8 million in outstanding letters of credit related to merchandise purchases ~~of $0.6 million~~ under the letter of credit sub-facility and additional letter of credit availability of up to $24.4 2 million under the sub-facility which is included as part of our total additional borrowing availability under ~~the~~ the Amended Credit Facility, subject to all borrowing capacity restrictions included under the facility.

~~Subject~~Term toLoan all conditions as set forth in the Credit Facility, including the Credit Facility lenders’ satisfaction with the terms of any proposed term loan and with an inter-creditor agreement with the term loan lender, we have the ability to obtain a term loan agreement in an aggregate principal amount not to exceed $50.0 million, subject to certain limitations, which may be secured by certain of our intellectual property and real estate.

~~Trade~~On ~~Payables~~February 16, ~~Arrangement~~2012, we entered into a new $75.0 million secured term loan facility (the “Term Loan”). The Term Loan is secured by a first lien on certain of our real estate and on intellectual property, equipment and fixtures, and a second lien on our remaining assets. Funding of the loan was subject to, among other things, the granting of liens and mortgages in favor of the lenders and the Company evidencing $100.0 million of availability on the closing date of the Term Loan after giving effect to the proceeds of the Term Loan and the Amended Credit Facility. The Term Loan contains several additional limitations on the aggregate amount that may be borrowed under the Amended Credit Facility. First, if the outstanding principal amount of the Term Loan exceeds (A) the sum of (i) 15.0% of the value of eligible credit card receivables, (ii) 15.0% of the net orderly liquidation value of eligible private label credit card receivables, (iii) 65.0% of the net orderly liquidation value of eligible in-transit inventory from international vendors (not to exceed $10.0 million), (iv) 15.0% of the net orderly liquidation value of eligible inventory in the United States, (v) 30.0% of the then appraised value of certain eligible real property (not to exceed $15.0 million) plus (vi) 37.5% of the net forced liquidation value of intellectual property (not to exceed $15.0 million) minus (B) reserves from time to time implemented by the lenders; then an additional availability reserve, in the amount of such excess, must be taken against the borrowing base under the Amended Credit Facility. Second, the Term Loan requires that the aggregate amount available under the Amended Credit Facility’s borrowing base at no time be less than the greater of (i) $17.5 million and (ii) the lesser of (x) 10.0% of the aggregate revolving loan commitment under the Amended Credit Facility and (y) 10.0% of the borrowing base. Third, if availability under the Amended Credit Facility falls below $20.0 million, or after the occurrence of certain events, an additional availability reserve of up to $10.0 million must be taken against the borrowing base under the Amended Credit Facility unless otherwise agreed to by the lenders. We also agreed not to permit borrowing availability under the Amended Credit Facility to be less than the minimum borrowing base specified under that facility. In addition, under and subject to the terms of the facility, the Term Loan lenders have the right to establish certain additional reserves against borrowing availability under the Amended Credit Facility if the Term Loan lenders determine, in good faith and in the exercise of reasonable business judgment from the perspective of a secured asset-based lender, that additional reserves are necessary.

On September 1, 2011, as part of our operating plan and in order to seek to increase the level and flexibility of cash available for funding operations and working capital needs, we entered into an arrangement with our exclusive global apparel sourcing agent, whereby we are able to extend payment terms for merchandise purchases sourced by our exclusive agent. Under this arrangement, our sourcing agent settles our merchandise accounts payable with the vendors organized under the buying agency agreement as they become due and extends our payment obligation up to an additional 30 days, at which time we are obligated to reimburse our sourcing agent the full amount of merchandise accounts payable due plus pay accrued fees and interest. The amount of payables due under this arrangement is not to exceed $50.0 million at any time. Fees are calculated and payable monthly on amounts outstanding under this arrangement at a rate of 1.0% per month. Additional fees may be charged on amounts overdue under this arrangement at a rate of 2.0% per month, calculated on a daily basis. This arrangement became effective for amounts that are or became due beginning on September 1, 2011 and continues until February 29, 2012, with an option to renew for an additional six month period upon the mutual agreement of the Company and our sourcing agent, which

weIn ~~cannot~~accordance ~~assure.~~with ~~This~~the ~~arrangement~~provisions isof ~~subject~~the toTerm ~~suspension~~Loan, orwe ~~earlier~~must ~~termination~~repay ~~as provided in~~ the ~~arrangement,~~Term ~~including~~Loan ~~any~~in ~~termination~~$0.5 bymillion ~~our~~installments on ~~sourcing~~the ~~agent~~last ~~upon~~day ~~28 days~~of ~~notice~~January, ~~at any time. In addition~~April, ~~our~~July ~~sourcing~~and ~~agent~~October ~~agreed to extend letters~~ of ~~credit,~~each onyear ~~behalf~~ and at the ~~request~~remaining ~~of the~~balance ~~Company,~~on tothe ~~vendors~~maturity ~~organized~~date. ~~under~~The ~~the~~Term ~~buying~~Loan ~~agency~~matures ~~agreement~~on ~~for~~February 16, ~~certain merchandise purchases~~2017, ~~which~~subject ~~may~~to beearlier ~~suspended~~termination atas ~~the~~set ~~discretion~~forth ofin the ~~sourcing agent~~agreement. We Asare ofrequired ~~October 29, 2011,~~to ~~$39.4 million~~make ofmandatory ~~our~~repayments, ~~accounts~~subject ~~payable~~to ~~were~~the ~~extended~~terms ~~under~~of ~~this~~the ~~arrangement~~agreements, ~~and~~in wethe ~~had~~event ~~outstanding letters~~ of ~~credit~~receipt ~~issued~~of bynet ~~our~~proceeds ~~sourcing~~from ~~agent~~the ofloss, ~~$3.8 million.~~condemnation ~~During~~or ~~the~~disposition ~~thirteen~~of ~~and~~certain ~~thirty-nine weeks~~assets, ~~ended~~receipt ~~October 29,~~of ~~2011,~~net weproceeds ~~recorded~~from ~~$0.6 million~~the issuance of ~~fees~~securities and ~~interest~~other ~~under~~events ~~these~~set ~~arrangements.~~forth Noin ~~amounts were overdue under this arrangement during~~ the ~~quarter~~agreement.

~~Outlook~~The Term Loan carries interest at LIBOR plus 10.0%. Interest under the Term Loan is payable monthly in arrears. If the Term Loan is prepaid, in whole or in part, either voluntarily or mandatorily, prior to the maturity date, we must pay a penalty of: (a) 4.0% on amounts prepaid prior to the first anniversary of the closing date; (b) 2.0% on amounts prepaid on the first anniversary of the closing date through the second anniversary of the closing date; and (c) 1.0% on amounts prepaid on the second anniversary of the closing date through the third anniversary of the closing date. There is no penalty on amounts prepaid on or after the third anniversary of the closing date. As of April 28, 2012, our effective interest rate under the Term Loan was 10.8%.

WeThe ~~expect~~Company ~~that~~and certain of our ~~primary~~subsidiaries ~~uses~~have ofexecuted ~~cash~~a inguaranty ~~the~~and ~~next~~security ~~twelve~~agreement ~~months~~pursuant ~~will~~to bewhich ~~concentrated~~all inobligations ~~funding operations,~~under ~~strategic~~the ~~initiatives~~Term ~~and~~Loan ~~working~~are ~~capital~~fully ~~needs.~~and ~~Additionally,~~unconditionally weguaranteed ~~may~~on bea ~~required~~joint toand ~~make~~several ~~payments~~basis. Additionally, ~~over~~pursuant to the ~~next~~security ~~twelve~~agreement, ~~months~~all ~~regarding~~obligations ~~certain~~are ~~tax~~secured ~~matters~~by ~~which~~(i) a ~~have~~first ~~been~~priority ~~subject~~perfected ~~to appeal~~lien and ~~are~~security ~~pending~~interest ~~final~~in ~~resolution~~the ~~and~~intellectual ~~the~~property, ~~outcome~~equipment and fixtures of ~~potential~~the ~~negotiations.~~Company Weor ~~primarily~~any guarantor ~~finance~~from ~~our~~time ~~working~~to ~~capital needs~~time, ~~operating~~(ii) a ~~costs,~~first ~~capital~~lien ~~expenditures,~~mortgage ~~strategic~~on ~~initiatives~~our Hingham, ~~restructurings~~ Massachusetts headquarters facility and ~~debt~~Lakeville, ~~interest~~Massachusetts distribution facility and ~~other~~(iii) a ~~payment~~second ~~requirements~~priority ~~through~~perfected ~~cash~~lien ~~generated~~and bysecurity interest in the remaining assets ~~operations,~~of ~~our~~the ~~existing~~Company or any guarantor from time to time. In connection with the lenders’ security interest in the proprietary Talbots credit ~~facility~~card program, we must comply with certain monitoring and ~~credit~~reporting ~~from~~obligations, ~~vendors~~consistent with the monitoring and ~~our~~reporting ~~sourcing~~obligations ~~agent~~under the Amended Credit Facility.

InUnder ~~light~~the terms of ~~our~~the ~~operating~~agreement, ~~performance~~neither inthe borrowers nor any of their subsidiaries may create, assume or suffer to exist any lien securing indebtedness incurred after the ~~thirty-nine~~closing ~~weeks~~date ~~ended~~of ~~October~~the Term Loan subject to certain limited exceptions set forth in the agreement. 29The agreement contains negative covenants prohibiting us, ~~2011~~with certain exceptions, wefrom, ~~are~~among other things, incurring indebtedness and contingent obligations, making investments, intercompany loans and capital contributions and disposing of property or assets. We have agreed to keep the mortgaged properties in good repair, reasonable wear and tear excepted. The agreement contains customary representations, warranties and covenants relating to the Company and our subsidiaries. The agreement provides for events of default, including failure to repay principal and interest when due and failure to perform or comply with the ~~process~~provisions or covenants of ~~implementing~~the ~~measures~~agreement, an event of default on certain other third party obligations (including any event or condition which ~~will~~should ~~seek~~cause amounts outstanding under the Amended Credit Facility to ~~improve~~become ~~our~~due ~~profitability~~and payable prior to its stated maturity) and ~~increase~~any change in control of the Company (as defined in the agreement to include, among other things, any person or ~~level~~group ~~and~~acquiring ~~flexibility~~50.0% or more of ~~cash~~the ~~available~~total ~~for~~voting ~~funding~~power ~~operations~~of our securities, the replacement of a majority of our Board of Directors under certain circumstances and ~~working~~certain ~~capital~~mergers ~~needs~~or other extraordinary transactions). The agreement does not contain any financial covenant tests.

•Our Inability ~~December~~to ~~2011,~~satisfy weour ~~announced~~debt aobligations ~~cost~~depends ~~reduction~~on ~~initiative~~our ~~with~~financial ~~a goal of reducing annual costs~~ and ~~expenses~~operating ~~by approximately $50~~performance.0 ~~million~~Should we ~~across~~default ~~all~~in ~~areas~~our ofobligations under the ~~business~~Term byLoan, the ~~end~~lenders ofcould ~~fiscal~~declare ~~2012.~~an ~~With~~event ~~this~~of ~~initiative,~~default weand ~~will~~declare ~~seek~~all toindebtedness ~~continue~~under tothe ~~improve~~loan ~~our~~immediately ~~financial~~due and ~~capital~~payable ~~flexibility~~and, ~~while~~if ~~focusing~~outstanding ~~our~~indebtedness ~~strategic~~is ~~reinvestment~~not inimmediately ~~those~~satisfied ~~areas~~from ofcash resources, ~~the~~realize ~~business~~on ~~that~~all ~~are~~collateral ~~expected~~pledged to ~~generate~~secure ~~meaningful~~such ~~returns~~indebtedness. ~~Key components of this initiative include:~~

oTrade ~~Lower~~Payables ~~levels~~Arrangement of marketing spend, including the suspension of national advertising and television campaigns in the near-term; o Exploring and implementing process efficiencies and structural streamlining across all areas of the business, including reducing corporate headcount by approximately 9.0% in December 2011 and o Implementing a store payroll rationalization program whereby we will seek to adjust the composition of our store workforce and reduce store payroll hours by managing to improved productivity standards, aided by the implementation of a workforce management system.

			In conjunction with these direct cost reductions, we announced a decrease in the level of planned capital expenditures for fiscal 2012 and are planning reductions in our level of merchandise inventory commitments in fiscal 2012 which should also contribute to lower levels of logistics, handling and shipping costs.
			We expect to incur approximately $3.5 million in restructuring charges related to the corporate headcount reduction component of our cost reduction initiative and are still evaluating the expected costs of any additional components of this initiative, if any. We anticipate that we will realize savings related to actions taken under this initiative beginning in the next fiscal year.
	•		Additionally, we are working to improve our net sales and productivity with certain of our strategic initiatives, including our store rationalization plan, store re-image initiative, information technology systems upgrades, segmentation strategy and upscale outlet expansion. We will continue to closely evaluate the results of the phases of these initiatives implemented to-date and adjust our execution of these initiatives as needed. We remain committed to these strategic initiatives and the productivity and profitability improvements that we expect these initiatives will ultimately deliver and expect to continue to allocate our capital resources to the continuing implementation of these initiatives as practicable, focusing our investment on the areas which are expected to generate meaningful returns. These initiatives are all in their early stages, and the benefits anticipated from these strategic initiatives may take longer than expected to be realized.

Fees are calculated and payable monthly on amounts outstanding under this arrangement at a rate of 1.0% per month. Additional fees may be charged on amounts overdue under this arrangement at a rate of 2.0% per month, calculated on a daily basis. This arrangement became effective for amounts that were or became due beginning on September 1, 2011 and was extended on February 29, 2012 to August 31, 2012, with an option to renew for an additional six month period upon the mutual agreement of the Company and our sourcing agent. This arrangement is subject to suspension or earlier termination as provided

	•		We continue to work to evolve our merchandise assortment; and throughout the third quarter of 2011, we saw increasingly positive momentum in our customer’s response to our product offering, particularly in merchandise categories targeted for adjustment in the second half of fiscal 2011, which helped to drive net sales improvements in the last month of the quarter. The evolution and refinement of our merchandise assortment is an on-going process that will continue to be a key focus area.
	•		In September 2011, we entered into an arrangement with our exclusive global apparel sourcing agent, whereby we have the option to extend payment terms for merchandise purchases sourced by our exclusive agent. In addition our sourcing agent agreed to extend letters of credit, on behalf and at the request of the Company, to vendors organized under our buying agency agreement for certain merchandise purchases. This arrangement has provided us with greater flexibility in planning and managing our capital resources. See Trade Payables Arrangement for additional information regarding this arrangement.

in the arrangement, including any termination by our sourcing agent in its discretion upon 28 days notice at any time. In addition, our sourcing agent agreed to extend letters of credit, on behalf and at the request of the Company, to vendors organized under the buying agency agreement for certain merchandise purchases, which may be suspended at the discretion of our sourcing agent. As of April 28, 2012, we had outstanding letters of credit issued by our sourcing agent of $3.7 million and no accounts payable extended under this arrangement. During the thirteen weeks ended April 28, 2012, we recorded $0.9 million of fees and interest under these arrangements.

~~Our~~Outlook cash and cash equivalents were $19.3 million and working capital was $19.8 million as of October 29, 2011. Based on our assumptions, including achieving our internal forecast and operating plan for improved net sales, operating results and cash flows for the next twelve months, our anticipated borrowing availability under the Credit Facility, our anticipated credit from vendors and our sourcing agent and the improvements to the Company’s capital composition as a result of the BPW Transactions, we anticipate that the Company will have sufficient internal and external sources of liquidity to fund operations and anticipated working capital and other expected cash needs for at least the next twelve months. This expectation depends upon our future operating performance, the achievement of our operating plan and internal forecast, including the absence of any unforeseen cash requirements, our expected borrowing availability, the continued support of our vendors and sourcing agent at existing levels and the absence of any significant deterioration in economic conditions.

~~While~~We we expect tothat ~~see~~our primary auses ~~continuation~~ of ~~challenging~~cash ~~net~~in ~~sales and gross profit margin trends throughout~~ the ~~remainder~~next oftwelve ~~the~~months ~~fiscal~~will ~~year,~~be ~~our~~concentrated ~~operating plan for fiscal 2012 contemplates improvements~~ in ~~our~~funding ~~net sales~~operations, ~~operating~~strategic ~~results~~initiatives and ~~cash~~working ~~flows~~capital ~~from~~needs. ~~operations~~Additionally, ~~when~~we ~~compared~~may ~~to our~~be ~~results~~required ~~for~~to ~~fiscal~~make ~~2011,~~payments asover ~~we progress with~~ the ~~implementation~~next oftwelve ~~our~~months ~~cost~~regarding ~~reduction~~certain ~~and~~tax ~~other~~matters ~~strategic~~which ~~initiatives.~~have ~~Our~~been ~~ability~~subject to ~~achieve~~appeal ~~our~~and ~~operating~~are ~~plan~~pending isfinal ~~based~~resolution onand athe ~~number~~outcome of ~~assumptions~~ ~~which~~potential ~~involve~~negotiations, ~~significant judgment~~ and ~~estimate of future performance, which we cannot assure~~ will ~~occur.~~be Asrequired ato ~~result,~~make wesignificant ~~cannot~~payments ~~assure~~to ~~that~~fund ~~cash flows and other sources of liquidity will at all times be sufficient for~~ our ~~cash~~Pension ~~requirements~~Plan. We ~~will~~expect ~~continue~~ to ~~monitor~~primarily ~~our performance~~finance ~~and liquidity, and if we believe operating results will be below~~ our ~~expectations~~working orcapital weneeds, ~~determine~~operating atcosts, ~~any~~capital ~~time~~expenditures, ~~that~~strategic itinitiatives, isrestructurings ~~appropriate~~and ~~or necessary to obtain additional liquidity~~debt, weinterest ~~will take~~and ~~further~~other ~~steps~~payment ~~intended~~requirements tothrough ~~improve~~cash ~~our~~generated ~~financial~~by ~~position~~operations, ~~such as by modifying~~ our ~~operating plan,~~Amended ~~seeking~~Credit toFacility ~~further reduce costs~~ and ~~adjust~~credit ~~cash~~from ~~spend~~vendors ~~or evaluating alternatives~~ and ~~opportunities~~ toour ~~obtain~~sourcing ~~additional sources of liquidity~~agent. ~~We cannot assure that any of these actions~~ ~~would be sufficient or available or, if available, available on favorable terms.~~

In light of our recent operating performance, we have been exploring strategic alternatives as well as implementing measures which seek to improve our profitability and increase the level of cash available for funding operations and working capital needs.

•

In February 2012, we entered into a new $75.0 million secured term loan facility (the “Term Loan”) and, concurrently, amended our existing revolving credit facility (the “Amended Credit Facility”) to extend its maturity date to February 16, 2017, subject to earlier termination as set forth in the agreement, among other key provision amendments. Refer to Term Loan and Amended Credit Facility for additional information.

•

In February 2012, we and our exclusive global apparel sourcing agent agreed to extend an arrangement, originally entered into in September 2011, whereby we have the option to extend payment terms for merchandise purchases sourced by our exclusive agent. In addition our sourcing agent agreed to extend letters of credit, on behalf and at the request of the Company, to vendors organized under our buying agency agreement for certain merchandise purchases. This arrangement has provided us with greater flexibility in planning and managing our capital resources. See Trade Payables Arrangement for additional information regarding this arrangement.

•

In December 2011, we announced a cost reduction initiative with a goal of reducing annual costs and expenses by approximately $50.0 million across all areas of the business by the end of fiscal 2012. Key components of this initiative, which seeks to continue to improve our financial results and financial position, include:

•

Lower levels of marketing spend, including the suspension of national advertising and television campaigns in the near-term;

•

Exploring and implementing process efficiencies and structural streamlining across all areas of the business, including reducing corporate headcount by approximately 9.0% in December 2011 and reducing supporting headcount at the Company’s call center and distribution center by approximately 16.0% in April 2012; and

•

Implementing a store payroll rationalization program whereby we are seeking to adjust the composition of our store workforce and reduce store payroll hours by managing to improved productivity standards, aided by the implementation of a workforce management system.

In conjunction with these direct cost reductions, we announced a decrease in the level of planned capital expenditures for fiscal 2012 and are planning reductions in our level of merchandise inventory commitments in fiscal 2012 which should also contribute to lower levels of logistics, handling and shipping costs.

•

Additionally, we have been working to improve our net sales and productivity with certain of our strategic initiatives, including our store rationalization plan, store re-image initiative, information technology systems upgrades, segmentation strategy and upscale outlet expansion. We will continue to closely evaluate the results of the phases of these initiatives implemented to-date and adjust our execution of these initiatives as needed. We remain committed to these strategic initiatives and the productivity and profitability improvements that we expect these initiatives will ultimately deliver and expect to continue to allocate our capital resources to the continuing implementation of these initiatives as practicable, focusing our investment on the areas which are expected to generate meaningful returns. However, in the interim period prior to the completion of the Merger, we are subject to significant limitations and restrictions on the ordinary conduct of our business without the consent of Sycamore, including making capital expenditures in excess of an approved budget; opening new stores; closing store locations, other than most of the locations included in our previously announced store rationalization plan and other matters impacting the normal operation of our business, which limits the amount of our spending on our strategic initiatives as well as certain actions we might otherwise expect to take during this period in executing on our strategic initiatives. We are still in the process of executing our strategic initiatives, and the benefits anticipated from these strategic initiatives may take longer than expected to be realized.

Our cash and cash equivalents were $22.4 million and working capital was $41.0 million as of April 28, 2012. Based on our assumptions, including achieving our internal forecast and operating plan for improved net sales, operating results, cost savings and cash flows for the next twelve months, our anticipated borrowing availability under the Amended Credit Facility and our anticipated credit from vendors and our sourcing agent, we anticipate that the Company will have sufficient internal and external sources of liquidity to fund operations and anticipated working capital and other expected cash needs for the next twelve months. This expectation depends upon our future operating performance, the achievement of our operating plan and internal forecast, including the absence of any unforeseen cash requirements, our expected borrowing availability, the continued credit and working capital support of our vendors and our sourcing agent throughout this period and the absence of any significant deterioration in economic conditions.

Our operating plan assumes that our comparable sales, operating results and cash flows from operations will improve significantly in fiscal 2012. Our ability to improve our comparable sales, operating results and cash flows from operations depends upon a significant number of factors, including improving and sustaining customer acceptance of our merchandise. While we believe we have improved our merchandise assortments, our past merchandise misses have negatively impacted customer perception of our brand, which could take more time to rebuild than anticipated, even with improved merchandise assortments. Our operating results improved for the thirteen weeks end April 28, 2012, although they were not at the level planned. The expected positive impact of our strategic initiatives may also take longer to realize than anticipated and the benefits from these initiatives may not be achieved in the time and amounts expected. We have also forecasted substantial cost savings from our cost reduction initiative, which will reduce our cash spend but could potentially negatively impact other initiatives to improve our business. For example, our planned reductions in marketing spend in fiscal 2012 may impact our brand awareness, customer acquisition efforts and sales, and our expected reduced inventory commitments, which we anticipate will help to reduce markdown exposure, may impact our merchandise available for sale and could impact the achievement of our operating plan.

Our ability to achieve our operating plan is based on a number of assumptions which involve significant judgment and estimates of future operating performance, credit sources and borrowing availability which cannot at all times be assured. Our actual results may differ materially. If our future sales and other operating results are not at the level planned, or if they were to deteriorate, it would adversely impact our expected cash flows and liquidity. As a result, our cash flows and other sources of liquidity may not at all times be sufficient for our future cash requirements. We will continue to monitor our performance and liquidity, and if needed, we would seek to take further steps intended to improve our financial position and liquidity and mitigate any potential shortfall in our available working capital, such as by modifying our operating plan, seeking to further reduce costs, adjusting cash spend, capital expenditures and working capital, pursuing additional financing if available, seeking additional credit support or evaluating other alternatives to obtain additional sources of liquidity, subject to the terms and conditions of our existing debt facilities and the restrictions and limitations of the Merger Agreement. We cannot assure that any of these actions would be sufficient or available or, if available, available on favorable or satisfactory terms.

Additionally, since its inception in September 2011, we have relied on our trade payables arrangement with our exclusive global apparel sourcing agent, and, at present, our expected sources of future credit include this trade payables arrangement. The trade payables arrangement is subject to suspension or termination at the discretion of our sourcing agent upon 28 days notice at any time, as provided in the arrangement. There can be no assurance that our sourcing agent will not exercise its right to suspend or terminate this arrangement as a result of any uncertainty arising from the proposed Merger or for any other reason. If this arrangement were to be suspended or terminated, it could result in a shortfall in our cash available for working capital. Separately, we may seek to work directly with certain of our larger vendors on securing payable terms similar to the payable terms of our trade payables arrangement, although there can be no assurance that we will be successful in securing these terms.

The consummation of the proposed Merger is subject to numerous conditions, many of which are outside of our control, and will likely impact our operating plan; strategic initiatives; liquidity requirements and sources of liquidity. In addition, pending the consummation of the Merger, we are subject to a significant number of limitations and restrictions on the ordinary conduct of our business, as previously described in Management Overview – Subsequent Event, and are also prohibited from seeking alternative transactions. Pending the consummation of the Merger, we expect to continue to seek to execute on our operating plan and cost reduction initiative which are intended to improve our profitability and financial position.

Our strategic review process, commenced by our Board of Directors in December 2011, solicited strategic transaction proposals including potential acquisition and financial transaction proposals and resulted in the proposed Merger with Sycamore. If for any reason the proposed Merger with Sycamore is not consummated, a further strategic acquisition or financial transaction may not be available to us on acceptable terms or at all.

Cash Flows

The following is a summary of cash flows from continuing operations for the ~~thirty-nine~~thirteen weeks ended ~~October~~ April 2928, ~~2011~~2012 and ~~October~~April 30, ~~2010~~2011:

	October 29,			October 30,
	April 28,			April 30,
	2011			2010
	2012			2011
	(In millions)
Net cash used in operating activities	$	(9032.73	)	$	(850.16	)
Net cash (used in) provided by investing activities		(34.5	)		314.3
Net cash used in investing activities		(6.9	)		(9.7	)
Net cash provided by (used in) financing activities		136.5			(409.6	)
Net cash provided by financing activities		53.3			59.1

Cash used in operating activities

Cash used in operating activities was $9032.7 3 million during the ~~thirty-nine~~thirteen weeks ended ~~October~~April 2928, ~~2011~~ 2012 compared to $850.1 6 million during the ~~thirty-nine~~thirteen weeks ended ~~October~~April 30, ~~2010~~2011. Cash used in operating activities in ~~the~~both ~~thirty-nine~~periods ~~weeks~~presented ~~ended October 29, 2011~~ is the result of acomparative ~~loss~~increases in ~~the year-to-date~~cash ~~period~~used in working capital changes, partially offset by earnings excluding non-cash items, ~~combined~~in ~~with~~the period to-date. The comparative decrease period-over-period in cash used in operating activities is due to improvements in our working capital ~~changes~~management, ~~whereas~~ ~~cash~~reflected ~~used~~in the planned reductions in ~~operating~~merchandise ~~activities~~inventories as part of our cost reduction initiative; comparative differences in the ~~thirty~~timing of our quarter-~~nine~~end ~~weeks~~date ~~ended~~in ~~October 30,~~relation ~~2010~~to ismonthly prepaid rent and changes in the ~~result~~ composition of ~~cash~~accrued ~~used~~liabilities insettled ~~working~~year-over-year. ~~capital~~These changes, were partially offset by ~~earnings~~reductions ~~excluding~~in ~~non-cash~~our accounts payable, partially due to lower levels of purchases ~~items~~under inour cost reduction initiative and the ~~period-to-date.~~timing ~~The~~of ~~$82~~inventory receipts.6

33 Cash used in investing activities

Cash used in investing activities relates solely to purchases of property and equipment in both periods presented and reflects continued investment in our store re-image initiative, our information technology systems and our expansion of upscale outlets, with four new locations opening in the thirteen weeks ended April 28, 2012.

~~million~~Cash ~~comparative~~provided ~~decrease~~by infinancing ~~cash from operating~~ activities ~~is due to an $82.0 million reduction in earnings (loss) excluding non-cash items, with cash used in working capital changes flat year-over-year.~~

Cash ~~(used~~provided by financing activities was $53.3 million during the thirteen weeks ended April 28, 2012 compared to $59.1 million during the thirteen weeks ended April 30, 2011. The comparative decrease in) cash provided by ~~investing~~financing activities reflects a full repayment of all accounts payable extended under our trade payables arrangement following the receipt of proceeds from our new secured term loan and is correlated to year-over-year improvements in our cash used in operating activities.

Cash used in investing activities relates solely to purchases of property and equipment in both periods presented. Cash used for additions to property and equipment during the thirty-nine weeks ended October 29, 2011 was $34.8 million compared to $18.7 million during the thirty-nine weeks ended October 30, 2010. This increased level of capital expenditures in 2011 reflects our progress in the roll-out of our store re-image initiative, investments in our information technology systems and expansion of our upscale outlets, with 14 new locations opening in the thirty-nine weeks ended October 29, 2011.

Cash provided by investing activities of $333.0 million during the thirty-nine weeks ended October 30, 2010 represents cash and cash equivalents acquired in the merger with BPW on April 7, 2010. See Merger with BPW and Related Financing Transactions for further information regarding this transaction.

Cash provided by (used in) financing activities

Cash provided by financing activities was $136.5 million during the thirty-nine weeks ended October 29, 2011 compared to cash used in financing activities of $409.6 million during the thirty-nine weeks ended October 30, 2010. This change is primarily correlated to an outstanding debt increase in the thirty-nine weeks ended October 29, 2011 compared to an outstanding debt reduction in the thirty-nine weeks ended October 30, 2010, which reflects the full repayment of $486.5 million in related party debt under the BPW Transactions. Further, in the thirty-nine weeks ended October 29, 2011, we extended $39.4 million of accounts payable under our trade payables arrangement. See Trade Payables Arrangement for further information. Net cash borrowings in both periods presented were made under our Credit Facility. The increase in the net amount borrowed under the Credit Facility during the thirty-nine weeks ended October 29, 2011, compared to the same period of the prior year, corresponds to the reduction in cash flows from operations in the comparative periods. See Merger with BPW and Related Financing Transactions for additional information regarding this facility.

Critical Accounting Policies

Our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our condensed consolidated financial statements. Management has determined that our most critical accounting policies are those relating to the ~~inventory~~sales ~~markdown~~ return reserve, gift card breakage, ~~sales~~stock-based ~~return reserve~~compensation, ~~customer~~income ~~loyalty program~~taxes, ~~retirement~~inventory ~~plans~~markdown reserve, long-lived assets, goodwill and ~~other~~indefinite-lived ~~intangible~~trademarks ~~assets, income taxes~~ and ~~stock-based~~retirement ~~compensation~~plans. There have been no significant changes to our critical accounting policies discussed in our Annual Report on Form 10-K for the fiscal year ended January 2928, ~~2011.~~ 2012.

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-08, Testing Goodwill for Impairment. ASU 2011-08 amends Accounting Standards Codification (“ASC”) 350-20, Goodwill, by providing entities which are testing goodwill for impairment with the option of performing a qualitative assessment before calculating the fair value of the reporting unit. If the entity determines, on the basis of qualitative factors, that it is more likely than not that the fair value of the reporting unit exceeds the carrying amount, further testing of goodwill for impairment would not need to be performed. The ASU does not change how goodwill is calculated or assigned to reporting units, revise the requirement to test goodwill annually for impairment or amend the requirement to test goodwill for impairment between annual tests if events or circumstances warrant; however, the ASU does revise the examples of events and circumstances that an entity should consider in its assessment. We adopted ASU 2011-08 ~~will~~in bethe ~~effective~~first ~~for us~~quarter ~~for~~of ~~interim and annual periods beginning after December 15, 2011, with early adoption permitted~~2012. WeThe ~~do not expect the~~ adoption of this ASU todid not have ~~any~~a material impact on our condensed consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. ASU 2011-05 amends ASC 220, Comprehensive Income, by requiring entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements, removing the option to present the components of other comprehensive income as part of the statement of stockholders’ equity. The items that must be reported in other comprehensive income were not changed. In December 2011, the FASB issued ASU No. 2011-0512, ~~will~~Deferral beof ~~effective~~the ~~for~~Effective usDate for ~~fiscal~~Amendments ~~years,~~to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 amends ASU 2011-05 by indefinitely deferring the requirement under ASU 2011-05 to present reclassification adjustments out of accumulated other comprehensive income by a component in both the statement in which net income is presented and ~~interim~~the ~~periods~~statement in ~~within~~which ~~those~~other ~~years~~comprehensive income is presented. We adopted ASU 2011-05, with retrospective application as required, except for the components of ASU 2011-05 which were indefinitely deferred by ASU 2011-12 and have included in these condensed consolidated financial statements separate unaudited statements of comprehensive income. The adoption of this ASU did not impact our condensed consolidated financial statements other than this change in presentation.

34In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 amends ASC 820, Fair Value Measurement, by expanding existing disclosure requirements for fair value measurements and modifying certain definitions in the guidance, which may change how the fair value measurement guidance of ASC 820 is applied. We adopted ASU 2011-04 in the first quarter of 2012. The adoption of this standard did not impact our condensed consolidated financial statements in the first quarter of 2012 because we did not record any fair value remeasurements requiring disclosure in the period; however, we expect to include additional disclosures relative to fair value remeasurements, specifically impairments of store assets, as a result of the adoption of this ASU if such remeasurements become necessary in a future period.

beginning after December 15, 2011 and must be applied retrospectively. We are evaluating our presentation options under this ASU; however these changes are not expected to impact our consolidated financial statements other than the change in presentation.

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 amends ASC 820, Fair Value Measurement, by expanding existing disclosure requirements for fair value measurements and modifying certain definitions in the guidance, which may change how the fair value measurement guidance of ASC 820 is applied. ASU 2011-04 will be effective for us for interim and annual periods beginning after December 15, 2011 and must be applied prospectively. We are evaluating the impact that this ASU may have on our consolidated financial statements, if any.

Recent Regulatory Changes

In May 2009, the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “Credit CARD Act”) was signed into law which resulted in new restrictions on credit card pricing, finance charges and fees, customer billing practices, payment allocation and also imposed additional disclosure requirements. Certain provisions of this legislation became effective in August 2010 and, as a result, we implemented new procedures to our credit card business practices and systems to ensure compliance with these rules. Income from our credit operations could be adversely affected as we adjust our practices to current and future regulations related to the Credit CARD Act.

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) was enacted, which is intended to govern the practices and increase oversight of financial institutions and other participants in the financial markets. The Reform Act also creates a new federal agency, the Consumer Financial Protection Bureau, to supervise and enforce consumer lending laws and expands state authority over consumer lending. We expect numerous rules to be adopted in order to implement the provisions of the Reform Act. The potential impacts to our business and results of operations are uncertain at this time.

Contractual Obligations

There were no material changes to our contractual obligations during the ~~thirty-nine~~thirteen weeks ended ~~October~~ April 2928, ~~2011~~2012. For a complete discussion of our contractual obligations, please refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our ~~2010~~ Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

Forward-looking Information

This Quarterly Report on Form 10-Q 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 similar statements or variations of such terms. All of the information concerning our future liquidity, future net sales, gross profit margins and other future ~~financial performance and~~ results, achievement of operating plan or forecasts for future periods, sources and availability of credit and liquidity, future cash flows and cash needs, success and results of strategic initiatives, anticipated cost savings and other reduced spending, ~~and~~ other future financial performance or financial position and the outcome of our strategic review process, including anticipated timing of filings and approvals relating to the proposed Merger, the expected timing of the completion of the proposed Merger, the ability to complete the proposed Merger considering the various closing conditions, 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 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~~ risks associated with ~~our~~any ~~efforts~~uncertainties toarising ~~successfully~~related ~~implement,~~to ~~adjust as appropriate and achieve~~ the ~~benefits~~proposed ofMerger ~~our~~with ~~current strategic initiatives including store segmentation~~Sycamore, ~~store~~which ~~re-imaging,~~is ~~store~~subject ~~rationalization,~~to ~~enhanced~~numerous ~~marketing,~~conditions ~~information~~which ~~technology reinvestments, upscale outlet expansion and any other future initiatives that~~ we ~~may~~cannot ~~undertake;~~assure •will ~~the~~be ~~ability to achieve our operating and strategic plans for operating results, working capital and cash flows~~satisfied;

35 • the risks associated with any adverse impact the proposed Merger with Sycamore or any uncertainties arising related to the proposed Merger with Sycamore could have on our business, including any potential impacts to our operating plan and strategic initiatives; our relationships with our employees, vendors, exclusive sourcing agent or others with whom we do business; our ability to consider or implement alternative transactions or business plans or our business in general;

•

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 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 continue and extend our trade payables arrangement with our exclusive sourcing agent;

•

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 ~~access~~attract onand ~~satisfactory~~retain ~~terms,~~talented ~~or at all, adequate financing~~ and ~~other~~experienced ~~sources~~executives ofthat ~~liquidity,~~are ~~as and when~~ necessary, to ~~fund~~execute our ~~continuing operations, working capital needs,~~ strategic ~~and cost reduction~~ initiatives and other cash needs, and to obtain further increases in our Credit Facility, extend and continue our trade payables arrangement with our sourcing agent and obtain other or additional credit facilities or other internal or external liquidity sources if cash flows from operations or other capital resources are not sufficient for our cash requirements at any time or times;

• the satisfaction of all borrowing conditions under our Credit Facility 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 maintain our traditional customer and expand to attract new customers; • the risks associated with competitive pricing pressures and the current increased promotional environment; • the risks associated with our on-going efforts to adequately manage the increase in various input costs, including increases in the price of raw materials, higher labor costs in countries of manufacture and any significant increases in the price of fuel, which impacts our freight costs; • the ability to reduce spending as needed; • the continuing material 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 attract and retain talented and experienced executives that are necessary to execute our strategic initiatives; • the ability to accurately estimate and forecast future regular-price, promotional and markdown selling and other future financial results and financial position; • the risks associated with our appointment of an exclusive global ~~merchandise~~apparel ~~buying~~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 ~~the~~this relationship, for any reason, we would be unable to successfully transition to an internal or other external sourcing function; • the risks and uncertainties in connection with any need to source merchandise from alternate vendors; • any impact to or disruption in our supply of merchandise; • the ability to successfully execute, fund and achieve the expected benefits of our supply chain initiatives; • any significant interruption or disruption in the operation of our distribution facility or the domestic and international transportation infrastructure; • 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 materially differ from or be materially greater than anticipated; • any future store closings and the success of and necessary funding for closing underperforming stores; • any negative publicity concerning the specialty retail business in general or our business in particular; • the risk of impairment of goodwill and other intangible or long-lived assets; • the risk 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; • the risks associated with any further decline in our stock price, including satisfaction of NYSE continued listing criteria which requires the average closing price of our common stock to be greater than $1.00 over 30 consecutive trading days and minimum levels of market capitalization and

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

~~Table~~• the continuing impact of ~~Contents~~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 ~~risks~~ability ~~and~~to ~~uncertainties~~continue ~~associated~~to ~~with~~purchase ~~the~~merchandise ~~outcome~~on ofopen ~~current~~account ~~and~~purchase ~~future~~terms ~~litigation,~~at ~~claims,~~existing ~~tax~~or ~~audits~~future ~~and~~expected ~~tax~~levels and ~~other~~with ~~proceedings~~acceptable payment terms and the risk that ~~actual~~suppliers ~~liabilities,~~could ~~assessments~~require earlier or ~~other~~immediate ~~financial~~payment ~~impact~~or ~~will~~other ~~exceed~~security ~~any~~due ~~estimated,~~to ~~accrued~~any orpayment ~~expected amounts or outcomes.~~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;

•

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;

•

any risk of noncompliance with applicable banking and related laws and regulations impacting our ability to extend credit to our customers;

•

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 further decline in the market price of our common stock, including satisfaction of New York Stock Exchange continued listing criteria which requires the average closing price of our common stock to be greater than $1.00 over 30 consecutive trading days and certain minimum levels of market capitalization.

All of our forward-looking statements are as of the date of this Quarterly Report 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 Quarterly Report 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 Quarterly 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 Quarterly Report which modify or impact any of the forward-looking statements contained in this Quarterly Report will be deemed to modify or supersede such statements in this Quarterly Report.

In38 addition to the information set forth in this Quarterly Report, 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 29, 2011 and other periodic reports filed with the SEC.

In addition to the information set forth in this Quarterly Report, 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.

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.

AtAs ~~October~~of April 2928, ~~2011~~2012, we had outstanding variable rate borrowings of $~~124~~122.9 million under our Amended Credit Facility and $75.0 million under our Term Loan. The impact of a hypothetical 10.0% adverse change in interest rates for ~~this~~these variable rate debt facilities would have resulted in additional expense of approximately $0.1 3 million for the quarter ended ~~October~~April 2928, ~~2011~~2012. Our Pension Plan assets are ~~commonly~~generally invested in readily-liquid investments, primarily equity and debt securities. Generally, any deterioration in the financial markets or changes in discount rates may ~~require~~affect usthe tolevel ~~make~~of contributions athat ~~contribution~~we are required to make to our Pension Plan.

We enter into certain purchase obligations outside the United States which are predominately settled in U.S. dollars and, therefore, we believe that 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 1714 stores in Canada as of ~~October~~ April 2928, ~~2011~~2012. We believe that our foreign currency translation risk is immaterial, as a hypothetical 10.0% 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

The Company has established disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) 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 (our Chief Executive Officer) and principal financial officer (our Chief Financial Officer), to allow timely decisions regarding required disclosure.

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of April 28, 2012.

achieving their objectives. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of October 29, 2011.

Changes in Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II —- OTHER INFORMATION

Item 1. Legal Proceedings

AsOn ~~previously disclosed, on~~ February 3, 2011, a purported Talbots shareholder filed a putative class action captioned Washtenaw County Employees’ Retirement System v. The Talbots, Inc. et al., Case No. 1:11-cv-10186-NMG, in the United States District Court for the District of ~~Massachusetts~~ Massachusetts against Talbots and certain of its officers. The complaint, purportedly brought on behalf of all purchasers of Talbots common stock from December 8, 2009 through and including January 11, 2011, asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and sought, among other things, damages and costs and expenses. On July 27, 2011, the lead plaintiff filed an amended complaint which continues to assert claims under Sections 10(b) and 20(a) alleging certain false and misleading statements and alleged omissions related to Talbots’ financial condition, inventory management and business prospects. The amended complaint alleges that these actions artificially inflated the market price of Talbots common stock during the class period, thus purportedly harming investors. On October 17, 2011, Talbots and the remaining defendants filed a motion to dismiss all of the claims asserted in the amended complaint pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act of 1995. We believe that these claims are without merit and intend to defend against them vigorously. At this time, we cannot reasonably predict the outcome of these proceedings or an estimate of damages, if any.

Talbots common stock from December 8, 2009 through and including January 11, 2011, asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and sought, among other things, damages and costs and expenses. On July 27, 2011, the lead plaintiff filed an amended complaint which continues to assert claims under Sections 10(b) and 20(a) alleging certain false and misleading statements and alleged omissions related to Talbots’ financial condition, inventory management and business prospects. The amended complaint alleges that these actions artificially inflated the market price of Talbots common stock during the class period, thus purportedly harming investors. On October 17, 2011, Talbots and the remaining defendants filed a motion to dismiss all of the claims asserted in the amended complaint pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act of 1995. A hearing on the motion to dismiss is scheduled for June 12, 2012. We believe that these claims are without merit and intend to defend against them vigorously. At this time, we cannot reasonably predict the outcome of these proceedings or an estimate of damages, if any.

On February 24, 2011, a putative Talbots shareholder filed a derivative action in Massachusetts Superior Court, captioned Greco v. Sullivan, et al., Case No. 11-0728 BLS, against certain of Talbots’ officers and directors. The complaint, which purports to be brought on behalf of Talbots, asserts claims for breach of fiduciary duties, insider trading, abuse of control, waste of corporate assets and unjust enrichment, and seeks, among other things, damages, equitable relief and costs and expenses. The complaint alleges that the defendants either caused or neglected to prevent, due to mismanagement or failure to provide effective oversight, the issuance of false and misleading statements and omissions regarding the Company’s financial condition. The complaint alleges that the defendants’ actions injured the Company insofar as they (a) caused Talbots to waste corporate assets through incentive-based bonuses for senior management, (b) subjected the Company to significant potential civil liability and legal costs and (c) damaged the Company through a loss of market capitalization as well as goodwill and other intangible benefits. We believe that these claims are without merit and, with the other defendants, intend to defend against them vigorously. At this time, we cannot reasonably predict the outcome of these proceedings.

On December 12, 2011, a purported Talbots shareholder filed a putative class action captioned Lowe v. Pfeiffer, C.A. No. 7104-VCN, in the Delaware Court of Chancery against Talbots and the members of its Board of Directors. The Compliant, purportedly brought on behalf of all public shareholders of Talbots common stock, alleges breach of fiduciary duties against the Board of Directors (and, as against Talbots, aiding and abetting the Board of Director’s breach) by not properly considering the unsolicited takeover proposal received on December 6, 2011 from a third party, not apprising themselves of the true value of Talbots or the benefits of any potential transaction and generally not taking steps necessary to comply with their fiduciary obligations. The compliant demands, among other things, injunctive relief directing the Board of Directors to exercise their fiduciary duties to obtain a transaction in the best interest of Talbots shareholders, costs and fees. On May 8, 2012, a Stipulation and Order of Dismissal was granted by the Delaware Court of Chancery, and all claims pending in this action were dismissed without prejudice.

On May 10, 2012, a purported Talbots shareholder filed a putative class action captioned Leach v. Pfeiffer, C.A. No. 7513-CS, in the Delaware Court of Chancery against Talbots and the members of its Board of Directors. The complaint alleges breach of fiduciary duties against the Board of Directors in connection with the proposed acquisition of the outstanding shares of Talbots’ common stock by a third party. We believe that these claims are without merit and intend to defend against them vigorously. At this time, we cannot reasonably predict the outcome of these proceedings or an estimate of damages, if any.

On or about June 4 and 5, 2012, two purported Talbots shareholders filed putative class actions in the Delaware Court of Chancery against Talbots, the members of its Board of Directors including its Chief Executive Officer, Sycamore Partners, TLB Holdings LLC and TLB Merger Sub Inc. captioned (i) Schwartz, et al. v. The Talbots, Inc., et al., C.A. No. 7589-CS, and (ii) Wilkin v. The Talbots, Inc., et al., C.A. No. 7594. The complaints assert claims for breaches of fiduciary duties and aiding and abetting breaches of fiduciary duties in connection with the negotiation and approval of the Merger Agreement. The plaintiffs seek injunctive, declaratory, rescissory and monetary relief, including an order to enjoin the consummation of the transactions contemplated in the Merger Agreement. We believe that these claims are without merit and intend to defend against them vigorously. At this time, we cannot reasonably predict the outcome of these proceedings or an estimate of damages, if any.

We are periodically named as a defendant in various lawsuits, claims and pending actions and are exposed to tax risks. If a potential loss arising from these lawsuits, claims and pending actions is probable and reasonably estimable, we record the estimated liability based on circumstances and assumptions existing at the time. While we believe any 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 our financial condition and results of operations.

We are subject to tax in various domestic and international jurisdictions and, as a matter of course, are regularly audited by federal, state and foreign tax authorities. During the third quarter of 2009, the Massachusetts Appellate Tax Board (the “ATB”) rendered an adverse decision on certain tax matters of Talbots, which was then affirmed by the Massachusetts Appeals Court on March 29, 2011. On June 8, 2011, the Supreme Judicial Court of Massachusetts denied our request for further appellate review of this case. In order to pursue the original appeal, we were required to make payments to the Massachusetts Department of Revenue on the assessment rendered on those tax matters. As of October 29, 2011, approximately $0.4 million related to this assessment remains to be paid. An additional assessment, relating to a subsequent period, has also been appealed

to the ATB covering similar issues. Payment of this assessment has been stayed until our appeals are resolved. These assessments have been adequately reserved in our condensed consolidated financial statements.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, careful consideration should be given to the following risk factors as well as the risk factors discussed in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended January 2928, ~~2011~~2012, any of which could materially affect our business, operations, financial position or future results. The risks described herein and in our Annual Report on Form 10-K for the fiscal year ended January 29 28, ~~2011~~2012 are important to an understanding of the statements made in this Quarterly 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 Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the condensed consolidated financial statements and related notes included in this Quarterly Report.

~~Our~~40 ~~stockholder rights plan could make it more difficult for a third party to acquire control of our company which could have a negative effect on the price of our common stock.~~

We adopted a stockholder rights plan which could discourage potential acquisition proposals and could delay or prevent a change in control of our company. These deterrents could also adversely affect the price of our common stock.

The unsolicited offer we recently received to acquire the Company may create uncertainty that could adversely impact our business.

On December 6, 2011 we received an unsolicited offer from Sycamore Partners to acquire the Company. This unsolicited proposal could potentially expose us to a number of risks, including fluctuations in our stock price; potential limitations on our ability to execute our business plans and strategic initiatives; difficulties in hiring, retaining and motivating key personnel; any negative reaction of our suppliers, sourcing agent or landlords during this process and any attendant difficulties in maintaining or extending relationships or arrangements in response to such unsolicited proposal including our financing or other arrangements with our sourcing agent, leases, and other ongoing relationships; incurrence of increased costs associated with this proposal including outside consultant, advisor and legal fees; and the impact of any distraction caused by this proposal on our employees. The occurrence of any one or more of the above could have an adverse impact on our business, financial results, liquidity and financial condition.

If for any reason we do not meet the NYSE continued listing requirements, our common stock could be delisted.

The continued listing requirements of the New York Stock Exchange (“NYSE”) require, among other things, that the average closing price of our common stock be above $1.00 for over 30 consecutive trading days as well as that our market capitalization meet certain minimum levels. We generally would have a specified period of time to cure any non-compliance, and we would intend to take steps to cure any such non-compliance should we fall below the NYSE’s requirements. However if at the end of any cure period, we were unable to satisfy the NYSE criteria for continued listing, our common stock would be subject to delisting, which may reduce the liquidity and market price of our common stock and reduce the number of investors willing to hold or acquire our common stock.

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

A summary of our repurchase activity under certain equity programs for the thirteen weeks ended October 29, 2011 is set forth below:

					Approximate Dollar Value
	Total Number of		Average		of Shares that May Yet Be
	Shares		Price Paid		Reacquired Under the
Period	Reacquired (1)		per Share		Equity Award Programs (2)
July 31, 2011 through August 27, 2011		7,754	$	1.58	$	16,644
August 28, 2011 through October 1, 2011		9,695		0.43		16,561
October 2, 2011 through October 29, 2011		196,111		0.06		14,539
Total		213,560	$	0.13	$	14,539

(1)		We reacquired 204,655 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.
		Our equity program generally requires employees to tender shares in order to satisfy the employee’s tax withholding obligations from the vesting of their restricted stock. During the period, we repurchased 8,905 shares of common stock from certain employees to cover tax withholding obligations from the vesting of stock at a weighted average acquisition price of $2.85 per share.
(2)		As of October 29, 2011, there were 1,453,932 shares of nonvested stock that were subject to buyback at $0.01 per share, or $14,539.32 in the aggregate, that we have the option to reacquire if the holders’ employment is terminated prior to vesting.

other discussion of our business. These risk factors, which contain forward-looking information, should be read in conjunction with Item 5.2, ~~Other~~Management’s ~~Information~~Discussion and Analysis of Financial Condition and Results of Operations, and the condensed consolidated financial statements and related notes included in this Quarterly Report.

AsThe ~~previously~~proposed ~~reported,~~merger ~~the~~with ~~Company’s~~affiliates ~~Board~~ of ~~Directors~~Sycamore ~~approved~~Partners ~~amended~~Management, ~~and~~L.L.C. ~~restated~~is ~~by-laws~~subject ~~of the~~to ~~Company~~numerous ~~(“By-laws”)~~conditions onwhich ~~May 19,~~we ~~2011,~~cannot ~~which~~assure ~~among~~will ~~other~~be ~~items,~~satisfied. ~~clarify~~In ~~and~~addition, ~~add~~in ~~procedural~~the ~~and informational~~interim ~~requirements~~period ~~for~~prior ~~advance~~to the ~~notice~~consummation of ~~director~~the ~~nominations~~proposed ~~in Sections 1.13 and 1.14~~Merger, ~~and~~ ~~accordingly,~~we ~~made~~are ~~corresponding~~subject ~~changes~~ to ~~the~~significant ~~By-law~~limitations ~~references~~and inrestrictions ~~its~~on ~~Policy Regarding~~ the ~~Selection~~ ofconduct ~~New Director Candidates and Shareholder Nomination~~ of ~~Director~~our ~~Candidates~~business ~~(“Policy”) to~~even ~~incorporate~~in ~~such applicable By-law changes into~~ the ~~Policy~~ordinary course.

On May 30, 2012, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with TLB Holdings LLC, a Delaware limited liability company (the “Parent”), and TLB Merger Sub Inc., a Delaware corporation (the “Sub”), which are both affiliates of Sycamore Partners Management LLC (“Sycamore”). The consummation of the proposed Merger is subject to numerous conditions, many of which are outside of our control, and there can be no assurance that all conditions to the transaction will be satisfied and that the transaction will be consummated or be consummated in the timeframe or manner currently anticipated. For example, there could be a failure of one or more closing conditions to the consummation of the Merger. We cannot assure that all closing conditions as set forth in the Merger Agreement will be satisfied, including, the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; non-disapproval of the Office of the Comptroller of the Currency under the Change in Bank Control Act of the acquisition of control of Talbots Classics National Bank by the Parent and its affiliates, as applicable; receipt of a letter from the Pension Benefit Guaranty Corporation stating that it has concluded its investigation of the transaction; a minimum level of borrowing availability being maintained under our existing revolving credit facility; and the Parent’s receipt of proceeds of, or appropriate confirmation of, applicable debt financings; among other closing conditions. We also cannot assure that our shareholders will tender a sufficient number of shares of our common stock for the consummation of the Merger or, if applicable, that our shareholders will approve the Merger, or that applicable regulators will approve or will not take action which could lead to a delay or termination of the Merger or that other events may not occur resulting in a delay or termination of the Merger.

Any delay in closing the Merger or any termination of the Merger could have a material adverse effect on our business, including potential impacts to our operating plan and strategic initiatives; our relationships with our employees, vendors, exclusive sourcing agent or others with whom we do business; and our ability to consider or implement alternative transactions or business plans or our business in general. Additionally, any delay in closing the Merger or any termination of the Merger could negatively impact the market price of our common stock, to the extent that the market price of our common stock reflects an assumption that the Merger will be consummated.

We have also incurred and will continue to incur costs for professional services and other matters related to the proposed Merger, many of which costs are payable by us whether or not the proposed Merger is consummated. In addition, if the Merger is terminated under certain circumstances specified in the Merger Agreement, we would be required to pay a significant termination fee and reimburse certain of the Parent’s expenses.

Pending the consummation of the Merger, we are subject to significant limitations and restrictions on the ordinary conduct of our business without the consent of Sycamore, including making capital expenditures in excess of an approved budget; opening new stores; closing store locations, other than most of the locations included in our previously announced store rationalization plan; hiring executives, including a successor President and Chief Executive Officer; establishing new or additional financing; incurring indebtedness or liens; disposing of assets and other matters, all of which could significantly impact the normal operation of our business and limit the amount of our spending on our strategic initiatives as well as certain actions we might otherwise expect to take during this period in executing on our strategic initiatives. Under the terms of the Merger, we are also prohibited from seeking alternative transactions.

Our business could be adversely impacted as a result of any uncertainty related to the proposed Merger.

The proposed Merger could cause disruptions to our business or business relationships, which could have an adverse impact on our financial condition, results of operations and cash flows. For example:

•

we may incur losses of revenue occasioned by the distraction of management during process or as a result of developments or actions relating to it;

•

we may experience limitations on our ability to execute effectively upon our business plans because of competing demands on management’s time and attention;

•

our employees may experience uncertainty about their future roles with us, which might adversely affect our ability to retain and hire key personnel and other employees; and

•

we may encounter difficulties in maintaining relationships or arrangements with key suppliers, our exclusive sourcing agent, landlords and other parties whose actions have significant influence over our business.

We cannot assure that we will achieve our operating plan or that we will at all times have sufficient sources of liquidity for our future cash needs.

Our operating plan contemplates significant improvement in our comparable sales, operating results and cash flows in fiscal 2012. However, we are in a transition period, and our ability to achieve our operating plan is subject to a number of assumptions which involved significant judgments and estimates of future operating performance, credit sources and borrowing availability, which cannot at all times be assured. If our future sales and other operating results are not at the level planned, or if they were to deteriorate, it would adversely impact our expected cash flows and liquidity and increase the risk of a potential shortfall in our working capital. We cannot assure that our past trends in sales and operating results may not take longer to recover and sustain than we have planned or expect or that we will achieve our operating plan.

Additionally, since its inception in September 2011, we have relied on our trade payables arrangement with our exclusive global apparel sourcing agent, and, at present, our expected sources of future credit include this trade payables arrangement. The trade payables arrangement is subject to suspension or termination at the discretion of our sourcing agent upon 28 days notice at any time, as provided in the arrangement. There can be no assurance that our sourcing agent will not exercise its right to suspend or terminate this arrangement as a result of any uncertainty arising from this proposed Merger or for any other reason. If this arrangement were to be suspended or terminated, it could result in a shortfall in our cash available for working capital needs.

As a result, our cash from operations and credit from external sources may not at all times be sufficient for all of our future cash requirements. In the event that our cash from operations and credit from external sources is not sufficient for our cash requirements, we would seek to take actions designed to improve our liquidity and evaluate other alternatives to obtain supplemental sources of liquidity, although there can be no assurance that any of these actions would be sufficient or available or, if available, available on favorable or satisfactory terms, any of which could materially and adversely impact our business, financial results, liquidity and financial position. In addition, any need to further reduce our cash spending and manage cash use, which could increase if we do not achieve our expected improvements in comparable sales, may also limit us in taking actions that we otherwise may believe would improve our operating performance or be needed to achieve our operating plan.

Our level of indebtedness may adversely affect our business and results of operations and may require the use of our available cash resources to meet interest and principal repayment obligations, which could impact our ability to reinvest in other areas of our business.

As of April 28, 2012, we had $122.9 million outstanding under our revolving credit facility. Additionally, on February 16, 2012, we entered into a new $75.0 million secured term loan facility. Our future payment obligations on these facilities may adversely impact our results of operations and cash flows. For example, our outstanding debt:

•

requires a significant portion of our cash flows from operating activities to be used for interest and principal repayments, reducing working capital and general liquidity;

•

limits our ability to obtain additional financing for working capital, capital expenditures, debt service requirements or general corporate purposes or refinancing of our debt;

•

limits our ability to reinvest in our business and invest in strategic initiatives;

•

makes us more vulnerable to negative changes in economic conditions; and

•

places us at a competitive disadvantage compared to other retailers who may have proportionately less debt.

Our ability to satisfy our debt and other financial obligations depends on our financial and operating performance. A decrease in cash flows from operating activities could make it more difficult to service our indebtedness and other obligations. If our cash flows and capital resources are insufficient to satisfy our debt obligations at any time, and we are unable to obtain waivers or amendments from the lenders or to refinance our indebtedness, we would be in default under these debt facilities.

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

A summary of our repurchase activity under certain equity programs for the thirteen weeks ended April 28, 2012 is set forth below:


Period	Total Number of Shares Reacquired (1)		Average Price Paid per Share		Approximate Dollar Value of Shares that May Yet Be Reacquired Under the Equity Award Programs (2)
January 29, 2012 through February 25, 2012		103,669	$	2.93	$	10,314
February 26, 2012 through March 31, 2012		25,920		2.77		9,633
April 1, 2012 through April 28, 2012		66,667		2.88		7,741

Total		196,256	$	2.89	$	7,741

(1)	We reacquired 8,928 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.

Our equity program generally requires employees to tender shares in order to satisfy their tax withholding obligations from the vesting of their nonvested stock. During the period, we repurchased 187,328 shares of common stock from certain employees to cover tax withholding obligations from the vesting of stock at a weighted average acquisition price of $3.03 per share.

(2)	As of April 28, 2012, there were 774,076 shares of nonvested stock that were subject to buyback at $0.01 per share, or $7,740.76 in the aggregate, that we have the option to reacquire if the holders’ employment is terminated prior to vesting.

Item 6. Exhibits

4.1		Rights Agreement, dated as of August 1, 2011, between The Talbots, Inc. and Computershare Trust Company, N.A., as Rights Agent. (1)
2.1		Agreement and Plan of Merger, dated May 30, 2012, by and among The Talbots, Inc., TLB Holdings LLC and TLB Merger Sub Inc. (Incorporated by reference to the exhibits filed with the Current Report on Form 8-K filed on June 1, 2012.)
31.1		Certification of Trudy F. Sullivan, President and Chief Executive Officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a). (2)
4.1		Amendment No. 1 to Rights Agreement, dated May 30, 2012, between The Talbots, Inc. and Computershare Trust Company, N.A. (Incorporated by reference to the exhibits filed with the Current Report on Form 8-K filed on June 1, 2012.)
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). (2)
10.1		Amended and Restated Credit Agreement, dated February 16, 2012, by and among The Talbots, Inc., The Talbots Group, Limited Partnership, Talbots Classics Finance Company, Inc., each as a borrower, the subsidiaries of The Talbots, Inc. from time to time party thereto, as guarantors, and General Electric Capital Corporation, as agent for the financial institutions from time to time party thereto, and as a lender. (Incorporated by reference to the exhibits filed with the Current Report on Form 8-K filed on February 17, 2012.)
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. (2)
10.2		Amended and Restated Guaranty and Security Agreement, dated February 16, 2012, by and among The Talbots, Inc., Talbots Classics Finance Company, Inc., The Talbots Group, Limited Partnership and certain other parties thereto, in favor of General Electric Capital Corporation, as administrative agent for the lenders and each other secured party. (Incorporated by reference to the exhibits filed with the Current Report on Form 8-K filed on February 17, 2012.)
101.INS		XBRL Instance Document. (3)
101.SCH		XBRL Schema Document. (3)
101.CAL		XBRL Calculation Linkbase Document. (3)
101.LAB		XBRL Labels Linkbase Document. (3)
101.PRE		XBRL Presentation Linkbase Document. (3)
101.DEF		XBRL Definition Linkbase Document. (3)

(1)		Incorporated by reference to the Current Report on Form 8-K filed on August 2, 2011.
(2)		Filed with this Form 10-Q.
(3)		Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.


10.3		Term Loan Agreement, dated February 16, 2012, by and among The Talbots, Inc., The Talbots Group, Limited Partnership, Talbots Classics Finance Company, Inc., each as a borrower, the subsidiaries of The Talbots, Inc. from time to time party thereto, as guarantors, Wells Fargo Bank, National Association, as administrative agent for the financial institutions from time to time parties thereto, and as a lender, GA Capital, LLC, as syndication agent and GB Merchant Partners, LLC, as documentation agent. (Incorporated by reference to the exhibits filed with the Current Report on Form 8-K filed on February 17, 2012.)

10.4		Guaranty and Security Agreement, dated February 16, 2012, by and among The Talbots, Inc., Talbots Classics Finance Company, Inc., The Talbots Group, Limited Partnership and certain other parties thereto, in favor of Wells Fargo Bank, National Association, as administrative agent for the lenders and each other secured party. (Incorporated by reference to the exhibits filed with the Current Report on Form 8-K filed on February 17, 2012.)

10.5		Amended and Restated Private Label Credit Card Access and Monitoring Agreement, dated February 16, 2012, by and among The Talbots, Inc., each other credit party as defined in the Amended and Restated Credit Agreement, Talbots Classics National Bank, General Electric Capital Corporation and Wells Fargo Bank, National Association. (Incorporated by reference to the exhibits filed with the Current Report on Form 8-K filed on February 17, 2012.)

10.6		Intercreditor Agreement, dated February 16, 2012, by and among General Electric Capital Corporation, in its capacity as administrative agent for the Amended and Restated Credit Agreement, Wells Fargo Bank, National Association, in its capacity as administrative agent for the Term Loan Agreement, The Talbots, Inc., Talbots Classics Finance Company, Inc., The Talbots Group, Limited Partnership and certain other parties thereto. (Incorporated by reference to the exhibits filed with the Current Report on Form 8-K filed on February 17, 2012.)

10.7		Offer Letter between The Talbots, Inc. and Deirdre FitzGerald, dated March 7, 2011; Severance Agreement between The Talbots, Inc. and Deirdre FitzGerald, dated March 7, 2011 and Change in Control Agreement between The Talbots, Inc. and Deirdre FitzGerald, dated April 10, 2012. (Filed with this Form 10-Q.) *

10.8		Amendment, dated February 29, 2012, to The Talbots, Inc. 2003 Executive Stock Based Incentive Plan, as amended. (Filed with this Form 10-Q.) *

10.9		Form of The Talbots, Inc. 2003 Executive Stock Based Incentive Plan, as amended through February 29, 2012, Performance Stock Unit Award Agreement. (Filed with this Form 10-Q.) *

10.10		Clarification and Modification Agreements between The Talbots, Inc. and Michael Scarpa, Benedetta I. Casamento, Richard T. O’Connell, Jr., Gregory I. Poole and Lori Wagner, dated March 8, 2012. (Filed with this Form 10-Q.) *

10.11		Form of The Talbots, Inc. non-employee director annual awards, as part of annual director compensation for fiscal 2012. (Filed with this Form 10-Q.) *

10.12		Global Trademark Protection and Cooperation Agreement, dated March 15, 2012, between The Talbots, Inc., The Talbots Group, Limited Partnership and AEON Co., Ltd. (Filed with this Form 10-Q.)

31.1		Certification of Trudy F. Sullivan, President and Chief Executive Officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a). (Filed with this Form 10-Q.)

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). (Filed with this Form 10-Q.)

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. (Filed with this Form 10-Q.)

101.INS		XBRL Instance Document. ¥


101.SCH		XBRL Schema Document. ¥

101.CAL		XBRL Calculation Linkbase Document. ¥

101.LAB		XBRL Labels Linkbase Document. ¥

101.PRE		XBRL Presentation Linkbase Document. ¥

101.DEF		XBRL Definition Linkbase Document. ¥

*	Management contract and compensatory plan or arrangement.

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

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~~ June 87, ~~2011~~ 2012


THE TALBOTS, INC.

By:		/s/ Michael Scarpa
		Michael Scarpa
		Chief Operating Officer,
		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)

41 46

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