UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

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

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

Commission File Number: 1-12552

THE TALBOTS, INC.

Delaware (State or other jurisdiction of incorporation or organization)		41-1111318 (I.R.S. Employer Identification No.)

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

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

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

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

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

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

The number of shares outstanding of the registrant’s common stock as of December 1, 2010: 70,467,344 shares.

 

 

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Statements of Operations for the Thirteen and Thirty-Nine Weeks Ended October 30, 2010 and October 31, 2009			2
Condensed Consolidated Balance Sheets as of October 30, 2010, January 30, 2010 and October 31, 2009			3
Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended October 30, 2010 and October 31, 2009			4
Notes to Unaudited Condensed Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures About Market Risk			34
Item 4. Controls and Procedures			35
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 6. Exhibits			36
Signatures			38
EX-31.1
EX-31.2
EX-32.1

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 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
Net sales		$	299,099			$	308,891			$	920,502			$	919,707
Costs and expenses
Cost of sales, buying and occupancy			171,395				185,591				548,017				616,986
Selling, general and administrative			106,294				99,216				307,508				304,919
Merger-related costs			787				—				27,650				—
Restructuring charges			245				389				5,316				9,660
Impairment of store assets			545				1,320				551				1,351
Operating income (loss)			19,833				22,375				31,460				(13,209	)
Interest
Interest expense			2,371				7,236				17,176				21,836
Interest income			22				34				64				253
Interest expense, net			2,349				7,202				17,112				21,583
Income (loss) before taxes			17,484				15,173				14,348				(34,792	)
Income tax expense (benefit)			510				(291	)			3,949				(10,957	)
Income (loss) from continuing operations			16,974				15,464				10,399				(23,835	)
Income (loss) from discontinued operations, net of taxes			74				(911	)			3,222				(9,666	)
Net income (loss)		$	17,048			$	14,553			$	13,621			$	(33,501	)
Basic earnings (loss) per share:
Continuing operations		$	0.24			$	0.29			$	0.16			$	(0.44	)
Discontinued operations			—				(0.02	)			0.04				(0.18	)
Net earnings (loss)		$	0.24			$	0.27			$	0.20			$	(0.62	)
Diluted earnings (loss) per share:
Continuing operations		$	0.24			$	0.28			$	0.15			$	(0.44	)
Discontinued operations			—				(0.02	)			0.04				(0.18	)
Net earnings (loss)		$	0.24			$	0.26			$	0.19			$	(0.62	)
Weighted average shares outstanding:
Basic			68,424				53,856				64,878				53,768
Diluted			69,442				55,081				66,008				53,768

See notes to condensed consolidated financial statements.

THE TALBOTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Amounts in thousands

		October 30,				January 30,				October 31,
		2010				2010				2009
ASSETS
Current Assets:
Cash and cash equivalents		$	2,384			$	112,775			$	72,005
Customer accounts receivable, net			171,059				163,587				182,725
Merchandise inventories			184,699				142,696				165,892
Deferred catalog costs			5,386				6,685				7,751
Prepaid and other current assets			52,085				48,139				49,579
Due from related party			—				959				1,789
Income tax refundable			—				2,006				—
Total current assets			415,613				476,847				479,741
Property and equipment, net			192,115				220,404				233,653
Goodwill			35,513				35,513				35,513
Trademarks			75,884				75,884				75,884
Other assets			19,523				17,170				14,912
Total Assets		$	738,648			$	825,818			$	839,703
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Accounts payable		$	96,525			$	104,118			$	103,407
Accrued liabilities			151,281				148,177				150,674
Revolving credit facility			68,751				—				—
Current portion of related party debt			—				486,494				8,506
Notes payable to banks			—				—				141,100
Current portion of long-term debt			—				—				80,000
Total current liabilities			316,557				738,789				483,687
Related party debt less current portion			—				—				241,494
Long-term debt less current portion			—				—				20,000
Deferred rent under lease commitments			99,278				111,137				124,126
Deferred income taxes			28,456				28,456				28,456
Other liabilities			109,285				133,072				132,501
Commitments and contingencies
Stockholders’ Equity (Deficit):
Common stock, $0.01 par value; 200,000,000 authorized; 97,181,614 shares, 81,473,215 shares, and 81,473,215 shares issued, respectively, and 70,461,156 shares, 55,000,142 shares, and 55,068,373 shares outstanding, respectively			972				815				815
Additional paid-in capital			858,178				499,457				497,311
Retained deficit			(35,069	)			(48,690	)			(52,779	)
Accumulated other comprehensive loss			(51,130	)			(51,179	)			(50,028	)
Treasury stock, at cost; 26,720,458 shares, 26,473,073 shares, and 26,404,842 shares, respectively			(587,879	)			(586,039	)			(585,880	)
Total stockholders’ equity (deficit)			185,072				(185,636	)			(190,561	)
Total Liabilities and Stockholders’ Equity (Deficit)		$	738,648			$	825,818			$	839,703

See notes to condensed consolidated financial statements.

THE TALBOTS, INC. AND SUBSIDIARIES

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

		Thirty-Nine Weeks Ended
		October 30,				October 31,
		2010				2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	13,621			$	(33,501	)
Income (loss) from discontinued operations, net of tax			3,222				(9,666	)
Income (loss) from continuing operations			10,399				(23,835	)
Adjustments to reconcile income (loss) from continuing operations to net cash (used in) provided by operating activities:
Depreciation and amortization			46,897				57,087
Stock-based compensation			11,485				4,277
Amortization of debt issuance costs			2,551				2,320
Impairment of store assets			551				1,351
Loss on disposal of property and equipment			229				76
Deferred rent			(8,093	)			(7,978	)
Deferred income taxes			—				(10,226	)
Changes in assets and liabilities:
Customer accounts receivable			(7,428	)			(13,176	)
Merchandise inventories			(41,870	)			41,137
Deferred catalog costs			1,299				(2,956	)
Prepaid and other current assets			(5,402	)			(12,887	)
Due from related party			959				(1,413	)
Income tax refundable			2,006				26,646
Accounts payable			(7,621	)			(17,719	)
Accrued liabilities			10,634				(16,179	)
Other assets			(530	)			(676	)
Other liabilities			(24,148	)			(5,041	)
Net cash (used in) provided by operating activities			(8,082	)			20,808
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment			(18,739	)			(17,106	)
Proceeds from disposal of property and equipment			15				61
Cash acquired in merger with BPW Acquisition Corp			332,999				—
Net cash provided by (used in) investing activities			314,275				(17,045	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving credit facility			1,185,238				—
Payments on revolving credit facility			(1,116,487	)			—
Proceeds from related party borrowings			—				230,000
Payments on related party borrowings			(486,494	)			—
Proceeds from working capital notes payable			—				8,000
Payments on working capital notes payable			—				(15,400	)
Payments on long-term borrowings			—				(208,351	)
Payment of debt issuance costs			(6,080	)			(1,833	)
Payment of equity issuance costs			(3,594	)			—
Proceeds from warrants exercised			19,042				—
Proceeds from options exercised			652				—
Purchase of treasury stock			(1,840	)			(397	)
Net cash (used in) provided by financing activities			(409,563	)			12,019
EFFECT OF EXCHANGE RATE CHANGES ON CASH			369				537
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Operating activities			(7,390	)			(26,103	)
Investing activities			—				63,827
Effect of exchange rate changes on cash			—				29
			(7,390	)			37,753
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS			(110,391	)			54,072
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			112,775				16,551
INCREASE IN CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS			—				1,382
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	2,384			$	72,005

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 year ended January 30, 2010.

The unaudited condensed consolidated financial statements include the accounts of Talbots and its wholly-owned subsidiaries. All intercompany transactions and balances 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 30, 2010.

Recent Accounting Pronouncements

In October 2009, the FASB issued ASU 2009-13, Multiple Deliverable Revenue Arrangements. ASU 2009-13 amends ASC 605-10, Revenue Recognition, and addresses accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit, and provides guidance on how to measure and allocate arrangement consideration to one or more units of accounting. ASU 2009-13 is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted, but certain requirements must be met. The Company does not expect the adoption of ASU 2009-13 will have any impact on its condensed consolidated financial statements.

In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures. ASU 2010-06 amends ASC 820-10, Fair Value Measurements and Disclosure, and requires new disclosures surrounding certain fair value measurements. ASU 2010-06 is effective for the first interim or annual reporting period beginning on or after December 15, 2009, except for certain disclosures about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3 fair value measurements, which are effective for the first interim and annual reporting periods beginning on or after December 15, 2010. During fiscal 2010, the Company adopted the disclosure requirements effective for the first interim or annual reporting period beginning on or after December 15, 2009. The Company intends to adopt the remaining disclosure requirements when they become effective in the first quarter of fiscal 2011. The Company does not expect the additional disclosure requirements of ASU 2010-06 will have any impact on its condensed consolidated financial statements.

In July 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which requires additional disclosures about the credit quality of financing receivables, including credit card receivables, and the allowance for doubtful accounts. The provisions of this ASU are effective beginning with the Company’s annual report for the year ending January 29, 2011. The Company is still evaluating the impact of this ASU on its condensed consolidated financial statements, however, it is disclosure-only in nature.

Supplemental Cash Flow Information

Interest paid for the thirty-nine weeks ended October 30, 2010 and October 30, 2009 was $17.7 million and $15.9 million, respectively. Income taxes paid for the thirty-nine weeks ended October 30, 2010 and October 30, 2009 was $5.1 million and $1.6 million respectively.

3. 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 Company’s issuance of Talbots common stock and warrants to BPW stockholders; (ii) the repurchase and retirement of all Talbots common stock held by AEON (U.S.A.), Inc. (“AEON (U.S.A.)”), the Company’s then majority shareholder; the issuance of warrants to purchase one million shares of Talbots common stock and the repayment of all of the Company’s outstanding AEON Co., Ltd. (“AEON”) and AEON (U.S.A.) debt; and (iii) the execution of a new senior secured revolving credit facility.

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. Accordingly, the Company concluded that BPW was a business and acquisition accounting applied. The acquisition method of accounting requires the determination of the accounting acquirer.

The Company considered the following principal facts and circumstances to determine the accounting acquirer: (i) the purpose of the merger was to assist the Company with the refinancing of its business and Talbots initiated the transaction; (ii) the Company is the larger of the two combining entities and is the remaining operating company; (iii) Talbots’ continuing Board of Directors retained a majority of the seats on the combined company’s Board of Directors; (iv) BPW has no appointment rights after the initial consent to appoint three additional Board members; (v) the Company’s existing senior management team has continued as senior management of the combined company; and (vi) the terms of the exchange provided BPW shareholders with a premium over the market price of BPW shares of common stock prior to the announcement of the merger. Based on these facts and other considerations, the Company determined that Talbots was the accounting acquirer.

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. Pursuant to an agreement entered into during the merger process on December 8, 2009 (the “Sponsors’ Agreement”) between Talbots and the sponsors of BPW, Perella Weinberg Partners Acquisition LP and BPW BNYH Holdings LLC (together, the “Sponsors”), the Sponsors agreed not to transfer the shares of Talbots common stock held by them for 180 days after the completion of the merger, subject to certain exceptions and unless otherwise agreed to be waived by Talbots in whole or in part. Additionally, in connection with the merger, the Company repurchased and retired the 29.9 million shares 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”).

The following summarizes the changes to stockholders’ (deficit) equity including the impact of the BPW Transactions at October 30, 2010:

																		Accumulated
										Additional								Other								Total
		Common Stock								Paid-In				Retained				Comprehensive				Treasury				Stockholders’
(In thousands except share data)		Shares				$ Amount				Capital				Deficit				Loss				Stock				(Deficit) Equity
Balance at January 30, 2010			81,473,215			$	815			$	499,457			$	(48,690	)		$	(51,179	)		$	(586,039	)		$	(185,636	)
Merger and related BPW Transactions:
Issuance of common stock and warrants in merger with BPW			41,469,003				415				332,584				—				—				—				332,999
Issuance of warrants to repurchase and retire common stock held by AEON (U.S.A.)			(29,921,829	)			(299	)			299				—				—				—				—
Equity issuance costs			—				—				(3,594	)			—				—				—				(3,594	)
Extinguishment of related party debt			—				—				(1,706	)			—				—				—				(1,706	)
Total merger-related			11,547,174				116				327,583				—				—				—				327,699
Exercise of Non-Tendered Warrants			2,538,946				25				19,017				—				—								19,042
Exercise of stock options			197,329				2				650				—				—				—				652
Stock-based compensation			1,424,950				14				11,471				—				—				—				11,485
Purchase of 247,385 shares of vested and nonvested common stock awards			—				—				—				—				—				(1,840	)			(1,840	)
Net income			—				—				—				13,621				—				—				13,621
Translation adjustment			—				—				—				—				446								446
Change in pension and postretirement liabilities			—				—				—				—				(397	)			—				(397	)
Balance at October 30, 2010			97,181,614			$	972			$	858,178			$	(35,069	)		$	(51,130	)		$	(587,879	)		$	185,072

The Talbots Warrants are immediately exercisable at $14.85 per warrant for one share of Talbots common stock, have a stated term of five years from the date of issuance, April 9, 2010, and beginning after April 9, 2011, are subject to accelerated expiration under certain conditions including, at the Company’s discretion, if the trading value of Talbots common stock exceeds $19.98 per share for 20 of 30 consecutive trading days in a period ending not more than 15 days prior to notice of such acceleration. The warrants may be exercised on a cashless basis. These warrants began trading on NYSE Amex in April 2010. Approximately 17.2 million Talbots Warrants were outstanding at October 30, 2010.

The Non-Tendered Warrants have an exercise price of $7.50 per warrant for 0.9853 share of Talbots common stock. Approximately 2.5 million Non-Tendered Warrants were exercised for total cash proceeds of $19.0 million immediately following the transaction. The 0.9 million Non-Tendered Warrants that remained outstanding at October 30, 2010 are not exercisable for one year from the April 7, 2010 effective date of the merger, do not have anti-dilution rights, were de-listed from NYSE Amex concurrent with the merger and expire February 26, 2015.

The AEON Warrants are immediately exercisable at $13.21 per share for one share of Talbots common stock, have a stated term of five years from the date of issuance, April 7, 2010, and beginning after April 7, 2011, are subject to accelerated expiration under certain conditions including, at the Company’s discretion, if the trading value of Talbots common stock exceeds $23.12 per share for 20 of 30 consecutive trading days in a period ending not more than 15 days prior to notice of such

acceleration. The warrants may be exercised on a cashless basis. One million AEON Warrants were outstanding at October 30, 2010.

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 new 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 11, Debt, for further information including key terms of this credit agreement.

As a result of the BPW Transactions, the Company became subject to annual limitations on the use of its existing net operating losses (“NOL”) and created an uncertain tax position that reduced a substantial portion of the Company’s NOL. Accordingly, the Company recorded an increase in unrecognized tax benefits of approximately $20.0 million that will reduce net deferred tax assets before consideration of any valuation allowance.

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 merger, including an incentive award given to certain executives and members of management, contingent upon the successful closing of the BPW merger. The incentive portion of merger-related costs was awarded in restricted stock units and cash for efforts related to the closing of the BPW merger. The cash bonus awarded was paid in the first quarter of 2010 in connection with the consummation of the BPW merger. The restricted stock units awarded will cliff vest 12 months from the completion of the BPW merger. Other costs primarily include printing and mailing expenses related to proxy solicitation and incremental insurance expenses related to the transaction. The Company estimates total merger-related costs of approximately $37.1 million, of which $8.2 million and $27.7 million were expensed in fiscal 2009 and the thirty-nine weeks ended October 30, 2010, respectively. Approximately $1.2 million of merger-related costs are estimated to be incurred in future periods related to the incentive award. In addition, the Company expects to continue to incur merger-related legal expenses as a result of the legal proceedings discussed in Note 13, Legal Proceedings. 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 new senior secured revolving credit facility were recorded as deferred financing costs and included in other assets on the condensed consolidated balance sheet. These costs are being amortized to interest expense over the three and one-half year life of the facility. Approximately $3.6 million of costs incurred in connection with the registration and issuance of the common stock and warrants were charged to additional paid-in capital.

Details of the merger-related costs recorded in the thirteen and thirty-nine weeks ended October 30, 2010 are as follows:

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

The following pro forma summary financial information presents the operating results of the combined company assuming the merger and related events, including the repurchase of common stock held by AEON (U.S.A.) and repayment of all outstanding indebtedness owed to AEON and AEON (U.S.A.) and the execution of the new senior secured revolving credit

agreement, had been completed on February 1, 2009, the beginning of Talbots’ fiscal year ended January 30, 2010. The $1.2 million of estimated future merger-related costs are not reflected in the pro forma information in accordance with the rules for preparation of pro forma statement of operations data.

		Thirteen Weeks Ended
		October 30, 2010								October 31, 2009
		Actual				Pro Forma				Actual				Pro Forma
		(In thousands, except per share data)
Net sales		$	299,099			$	299,099			$	308,891			$	308,891
Operating income			19,833				19,833				22,375				22,146
Income from continuing operations			16,974				16,974				15,464				19,651
Earnings from continuing operations per share:
Basic		$	0.24			$	0.24			$	0.29			$	0.30
Diluted		$	0.24			$	0.24			$	0.28			$	0.29
Weighted average shares outstanding:
Basic			68,424				68,424				53,856				65,403
Diluted			69,442				69,442				55,081				66,628

		Thirty-Nine Weeks Ended
		October 30, 2010								October 31, 2009
		Actual				Pro Forma				Actual				Pro Forma
		(In thousands, except per share data)
Net sales		$	920,502			$	920,502			$	919,707			$	919,707
Operating income (loss)			31,460				24,588				(13,209	)			(13,812	)
Income (loss) from continuing operations			10,399				8,787				(23,835	)			(10,254	)
Earnings (loss) from continuing operations per share:
Basic		$	0.16			$	0.13			$	(0.44	)		$	(0.16	)
Diluted		$	0.15			$	0.12			$	(0.44	)		$	(0.16	)
Weighted average shares outstanding:
Basic			64,878				67,670				53,768				65,315
Diluted			66,008				68,800				53,768				65,315

Based on the nature of the BPW entity, there was no revenue or earnings associated with BPW included in the consolidated statements of operations for the thirteen or thirty-nine weeks ended October 30, 2010.

4. Restructuring

In late 2007, management developed a strategic business plan focused on the following areas: brand positioning, productivity, store growth and productivity, non-core concepts, distribution channels, the J. Jill business and other operating matters. In response to declines in the U.S. and global economy in late 2008 and 2009, management directed its focus to those areas which would reduce costs and streamline the organization, while continuing to redefine the brand and make product improvements. The actions taken during 2009 and 2010 included reducing headcount and employee benefit costs, shuttering or disposing of non-core businesses, and reducing office and retail space when determined to no longer coincide with the vision of the brand or the needs of the business, among other steps.

In the thirty-nine weeks ended October 30, 2010, the Company recorded $5.3 million of restructuring expense 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 lay-out. In the thirty-nine weeks ended October 31, 2009, the Company recorded $9.7 million of restructuring expense primarily due to costs associated with the closing of the Company’s Hong Kong and India sourcing offices as well as reductions in the Company’s corporate sourcing headcount in the third quarter of 2009, estimated lease termination costs for the portion of the Company’s Tampa, Florida data center that ceased to be used in July 2009, and severance expense due to corporate headcount reductions in the first quarter of 2009.

The following is a summary of the activity and liability balances related to restructuring for the thirty-nine weeks ended October 30, 2010 and October 31, 2009:

		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

		Corporate - Wide
		Strategic Initiatives
						Lease -
		Severance				Related				Total
		(In thousands)
Balance at January 31, 2009		$	10,882			$	—			$	10,882
Charges			7,551				2,109				9,660
Cash payments			(15,811	)			(543	)			(16,354	)
Non-cash items			839				(641	)			198
Balance at October 31, 2009		$	3,461			$	925			$	4,386

The non-cash items primarily consist of the write-off of certain leasehold improvements, lease adjustments and changes to stock-based compensation expense related to terminated employees. Of the $4.7 million in restructuring liabilities at October 30, 2010, $2.0 million, expected to be paid within the next twelve months, is included in accrued liabilities and the remaining $2.7 million, expected to be paid thereafter through 2014, is included in deferred rent under lease commitments.

5. Stock-Based Compensation

Total stock-based compensation expense related to stock options, nonvested stock awards and restricted stock units (“RSUs”) was $3.7 million and $2.1 million for the thirteen weeks ended October 30, 2010 and October 31, 2009, respectively, and $11.5 million and $4.3 million for the thirty-nine weeks ended October 30, 2010 and October 31, 2009, respectively.

The compensation expense was classified in the consolidated statements of operations as follows:

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		October 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
						(In thousands)
Cost of sales, buying and occupancy		$	283			$	154			$	667			$	572
Selling, general and administrative			2,263				1,994				7,546				4,544
Merger-related costs			1,210				—				3,298				—
Restructuring charges			(26	)			(27	)			(26	)			(839	)
Total		$	3,730			$	2,121			$	11,485			$	4,277

Stock Options

The weighted-average fair value of options granted during the thirty-nine weeks ended October 30, 2010 and October 31, 2009, estimated as of the grant date using the Black-Scholes option pricing model, was $10.40 and $1.73 per option, respectively. Key assumptions used to apply this pricing model were as follows:

		Thirty-Nine Weeks Ended
		October 30,				October 31,
		2010				2009
Risk-free interest rate			3.1	%			2.0	%
Expected life of options		6.8 years				4.8 years
Expected volatility of underlying stock			79.7	%			83.8	%
Expected dividend yield			0.0	%			0.0	%

The following is a summary of stock option activity for the thirty-nine weeks ended October 30, 2010:

						Weighted				Weighted
						Average				Average Remaining				Aggregate
		Number of				Exercise Price				Contractual Term				Intrinsic
		Shares				per Share				(In Years)				Value
														(In thousands)
Outstanding at January 30, 2010			10,402,019			$	24.06
Granted			92,385				14.26
Exercised			(197,329	)			3.30
Forfeited or expired			(3,010,517	)			22.85
Outstanding at October 30, 2010			7,286,558			$	25.00				3.4			$	9,893
Exercisable at October 30, 2010			6,003,547			$	29.32				2.3			$	2,630

As of October 30, 2010, there was $1.8 million of unrecognized compensation cost related to stock options that are expected to vest.

Nonvested Stock Awards and RSUs

The following is a summary of nonvested stock awards and RSU activity for the thirty-nine weeks ended October 30, 2010:

						Weighted
						Average Grant
		Number of				Date Fair Value
		Shares				per Share
Nonvested at January 30, 2010			1,330,890			$	12.62
Granted			1,766,651				11.67
Vested			(519,548	)			16.38
Forfeited			(101,129	)			10.82
Nonvested at October 30, 2010			2,476,864			$	11.23

As of October 30, 2010, there was $12.3 million of unrecognized compensation cost related to nonvested stock awards and RSUs that are expected to vest, excluding merger-related awards discussed in Note 3, Merger with BPW Acquisition Corp. and Related Transactions.

6. Income Taxes

The Company’s effective income tax rate, including discrete items, was 27.5% and 31.5% for the thirty-nine weeks ended October 30, 2010 and October 31, 2009, 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 in the applicable quarterly periods for settlements of tax audits or assessments, the resolution or identification of tax position uncertainties and non-deductible costs associated with the merger. Income taxes for the thirteen weeks ended October 30, 2010 and October 31, 2009 are primarily functions of the Company’s applicable effective rates and the results of operations in the respective periods. Income tax expense for the thirty-nine weeks ended October 30, 2010 was impacted primarily by changes in estimates related to previously existing uncertain tax positions based on new information recorded in the second quarter of 2010. Income taxes for the thirty-nine weeks ended October 31, 2009 were primarily impacted by the intraperiod tax allocation arising from other comprehensive income recognized from the remeasurement of the Company’s Pension Plan and Supplemental Executive Retirement Plan obligations due to the Company’s decision to freeze future benefits under the plans effective as of May 1, 2009, which resulted in an allocated tax benefit of $10.6 million to continuing operations and an off-setting tax expense included in other comprehensive income.

The Company continues to provide a full valuation allowance against its 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.

The BPW Transactions, completed on April 7, 2010, subject the utilization of the Company’s net operating loss carryover to a limitation under U.S. tax laws. In addition, as a result of the closing of the BPW Transactions in April 2010, the Company’s gross unrecognized tax benefit increased by $20.0 million. This increase results in a reduction to net deferred tax assets before consideration of any valuation allowance.

7. 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”) for net proceeds of $64.3 million 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, including the proceeds from the sale, have been separately presented in the statements of cash flows.

The results of discontinued operations for the thirteen and thirty-nine weeks ended October 30, 2010 and October 31, 2009 are as follows:

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		October 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
						(In thousands)
Net sales		$	—			$	1			$	—			$	178,297
Loss from operations			(122	)			(612	)			(238	)			(3,639	)
Gain (loss) on disposal			196				(299	)			3,460				(6,027	)
Income (loss) from discontinued operations		$	74			$	(911	)		$	3,222			$	(9,666	)

The loss from operations includes on-going liability adjustments related to the Talbots Kids and Mens businesses and, for the thirty-nine weeks ended October 31, 2009, the operating results of the J. Jill business prior to disposal. The gain on disposal for the thirteen weeks ended October 30, 2010 includes approximately $0.4 million of favorable adjustments to estimated sales tax liabilities, partially offset by $0.2 million of accretion of existing lease liabilities. The gain on disposal for the thirty-nine weeks ended October 30, 2010 includes these net adjustments as well as approximately $2.4 million of favorable adjustments to estimated lease liabilities, due to the settlement of a portion of the former J. Jill office space in Quincy, Massachusetts and four J. Jill store leases not assumed by the Purchaser in the J. Jill sale, and approximately $0.9 million of favorable adjustments to other assets. The loss on disposal recorded in the thirteen and thirty-nine weeks ended October 31, 2009 primarily reflects the loss on disposal recorded at the closing of the J. Jill sale in 2009.

The results for the periods presented reflect no income tax expense (benefit) as the Company recorded a valuation allowance for substantially all of its deferred taxes due to insufficient positive evidence that the deferred tax assets would be realized in the future.

Pursuant to the purchase and sale agreement in the sale of J. Jill, the Purchaser agreed to assume certain assets and liabilities relating to the J. Jill business, including purchasing 205 of the 280 J. Jill stores held at the time of purchase. The 75 J. Jill stores that were not sold were closed. As of October 30, 2010, the Company had settled the lease liabilities of 73 of the 75 stores not acquired by the Purchaser. Lease termination costs were initially estimated and recorded at the time the stores were closed, or existing space vacated, and are adjusted subsequently, as necessary, when new information suggests that actual costs may vary from initial estimates. Income and loss recorded in the periods subsequent to disposal are due to working capital adjustments and modifications to the estimated lease liabilities relating to the stores that were not sold and the Quincy, Massachusetts office space that is not being subleased or used. Total cash expenditures to settle the lease liabilities for the remaining two unsold stores will depend on the outcome of negotiations with third parties. As a result, actual costs to terminate these leases may vary from current estimates and management’s assumptions and projections may change.

At January 30, 2010, the Company had remaining recorded lease-related liabilities from discontinued operations of $16.7 million. During the thirty-nine weeks ended October 30, 2010, the Company made cash payments of approximately $7.5 million, recorded other income due to favorable settlements of estimated lease liabilities of $2.4 million and recorded additional expense related to liability adjustments of $0.3 million, resulting in a total estimated remaining recorded liability of $7.1 million as of October 30, 2010. Of these liabilities, approximately $3.6 million is expected to be paid out within the next 12 months and is included within accrued liabilities as of October 30, 2010.

8. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing income (loss) 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 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 restricted stock units that are outstanding during the period, except where such non-participating securities would be antidilutive.

Basic and diluted earnings (loss) per share from continuing operations were computed as follows (in thousands, except per share amounts):

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		October 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
		(In thousands, except per share data)
Basic earnings (loss) per share:
Income (loss) from continuing operations		$	16,974			$	15,464			$	10,399			$	(23,835	)
Less: income associated with participating securities			489				110				311				—
Income (loss) associated with common stockholders		$	16,485			$	15,354			$	10,088			$	(23,835	)
Weighted average shares outstanding			68,424				53,856				64,878				53,768
Basic earnings (loss) per share — continuing operations		$	0.24			$	0.29			$	0.16			$	(0.44	)

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		October 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
		(In thousands, except per share data)
Diluted earnings (loss) per share:
Income (loss) from continuing operations		$	16,974			$	15,464			$	10,399			$	(23,835	)
Less: income associated with participating securities			482				110				306				—
Income (loss) associated with common stockholders		$	16,492			$	15,354			$	10,093			$	(23,835	)
Weighted average shares outstanding			68,424				53,856				64,878				53,768
Effect of dilutive securities			1,018				1,225				1,130				—
Diluted weighted average shares outstanding			69,442				55,081				66,008				53,768
Diluted earnings (loss) per share — continuing operations		$	0.24			$	0.28			$	0.15			$	(0.44	)

The following common stock equivalents were excluded from the calculation of earnings (loss) per share because their inclusion would have been anti-dilutive for the thirteen and thirty-nine week periods ended October 30, 2010 and October 31, 2009:

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		October 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
Nonvested stock			—				—				—				1,308,665
Nonvested director RSUs			—				—				—				130,000
Stock options			5,681,523				8,852,069				5,681,523				10,525,635
Warrants			18,242,750				—				18,242,750				—
			23,924,273				8,852,069				23,924,273				11,964,300

9. Comprehensive Income (Loss)

The following illustrates the Company’s total comprehensive income (loss) for the thirteen and thirty-nine weeks ended October 30, 2010 and October 31, 2009:

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		October 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
						(In thousands)
Net income (loss)		$	17,048			$	14,553			$	13,621			$	(33,501	)
Other comprehensive income (loss):
Translation adjustment			85				(371	)			446				1,102
Change in pension and postretirement plan liabilities			(132	)			(175	)			(397	)			15,949
Total comprehensive income (loss)		$	17,001			$	14,007			$	13,670			$	(16,450	)

The translation adjustments and the changes in pension and postretirement plan liabilities for the thirteen and thirty-nine weeks ended October 30, 2010 reflect no income tax expense (benefit) as the Company continues to maintain a valuation allowance for substantially all of its deferred taxes due to insufficient positive evidence that the deferred tax assets would be realized in the future. The translation adjustments for the thirteen and thirty-nine weeks ended October 31, 2009 reflect an income tax benefit of $0.6 million due to the intraperiod tax allocation to the translation adjustments to-date. The change in pension and postretirement plan liabilities for the thirty-nine weeks ended October 31, 2009 include recorded tax expense of $10.8 million related to the curtailment of the Company’s pension and postretirement plans in the first quarter of 2009, while there was no tax expense (benefit) allocated to the change in pension and postretirement plan liabilities for the thirteen weeks ended October 31, 2009.

10. Fair Value Measurements

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.

The Company’s financial instruments at October 30, 2010 consist primarily of cash and cash equivalents, 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 Retirement Savings Plan and Deferred Compensation Plan, accounts payable and debt. The Company believes the carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates their fair values 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 and is not a fair value measurement. The Company believes that the carrying value of debt approximates fair value at October 30, 2010 as the interest rates are market-based variable rates and were re-set with the third-party lenders during the quarter.

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 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 October 30, 2010, the Company performed impairment analyses on the assets of certain stores, primarily triggered by the Company’s expectation to close certain store locations over the next three years. In the thirteen weeks ended October 31, 2009, the Company performed impairment analyses on the assets of certain stores, primarily triggered by reviews of the stores’ operating results. 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 thirteen week periods ended October 30, 2010 and October 31, 2009:

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

						Fair Value Measurements Using
						Quoted Market				Observable								Impairment of
		Net Carrying				Prices in Active				Inputs Other				Significant				Store Assets,
		Value at				Markets for				than Quoted				Unobservable				Thirteen Weeks
		October 31,				Identical Assets				Market Prices				Inputs				Ended October 31,
		2009				(Level 1)				(Level 2)				(Level 3)				2009
Long-lived assets held and used		$	2,617			$	—			$	—			$	2,617			$	1,320
Total		$	2,617			$	—			$	—			$	2,617			$	1,320

The 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. 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, its knowledge and expectations. These estimates can be 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 and reported in the thirty-nine weeks ended October 30, 2010 and October 31, 2009.

11. Debt

A summary of outstanding debt at October 30, 2010 and January 30, 2010 is as follows:

		October 30,				January 30,
		2010				2010
		(In thousands)
Revolving credit facility		$	68,751			$	—
Related party debt			—				486,494
Total		$	68,751			$	486,494

Revolving Credit Facility

On April 7, 2010, in connection with the consummation and closing of the merger with BPW, the Company executed a senior secured revolving credit facility with third-party lenders (the “Credit Facility”). The Credit Facility is an asset-based revolving credit facility, including a $25.0 million letter of credit sub-facility, that permits 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), as set forth in the agreement, minus the lesser of (x) $20.0 million and (y) 10% of the borrowing base. Loans made pursuant to the immediately preceding sentence carried interest, at the Company’s election, at either (a) the three-month LIBOR plus 4.0% to 4.5% depending on availability thresholds or (b) the base rate plus 3.0% to 3.5% depending

on certain availability thresholds, with the base rate established at a prime rate pursuant to the terms of the agreement. On August 31, 2010, the Company entered into a First Amendment to the Credit Agreement with the lenders (the “First Amendment”), which modified the following terms under the Credit Facility: (i) reduced the interest rates by one hundred basis points on loan amounts under the Credit Facility for loans provided by the lenders to either (a) three-month LIBOR plus 3.0% to 3.5%, or (b) the base rate plus 2.0% to 2.5%, in each case depending on certain availability thresholds; (ii) adjusted the fee structure on the unused portion of the commitment and reduced by one-half the rates applicable to documentary letters of credit; and (iii) extended the time period during which a prepayment premium will be assessed upon the reduction or termination of the revolving loan commitments from April 7, 2011 to April 7, 2012. Interest on borrowings is payable monthly in arrears. The Company pays 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 First Amendment. As of October 30, 2010, the Company’s effective interest rate under the Credit Facility was 3.9%, and the Company had additional borrowing availability of up to $124.5 million.

Under the 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. The Company is permitted to maintain a certain amount of cash in disbursement accounts, including such amounts necessary to satisfy current liabilities incurred in the ordinary course of business. Amounts may be borrowed and re-borrowed from time to time, 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 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 the Company’s option, in whole or in part, at par plus accrued and unpaid interest and any break funding loss incurred. The Company is 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 its outstanding indebtedness under the Credit Facility exceeds its maximum borrowing availability at any time. Upon any voluntary or mandatory prepayment of borrowings outstanding at the LIBOR rate on a day that is not the last day of the respective interest period, the Company will reimburse the lenders for any resulting loss or expense that the lenders may incur. Amounts voluntarily repaid prior to the maturity date may be re-borrowed.

The Company and certain of its subsidiaries have executed a guaranty and security agreement pursuant to which all obligations under the 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 first priority perfected lien and security interest in substantially all assets of the Company and 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. In connection with the lenders’ security interest in the proprietary Talbots charge 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 Company may not create, assume or suffer to exist any lien securing indebtedness incurred after the closing date of the Credit Facility subject to certain limited exceptions set forth in the agreement. The Credit Facility contains negative covenants prohibiting the Company, with certain exceptions, from among other things, incurring indebtedness and contingent obligations, making 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 also provides for events of default, including failure to repay principal and interest when due and failure to perform or violation of the provisions or covenants of the agreement. 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 beneficiaries on the terms set forth in the applicable Master Agreement, subject to any applicable limitations set forth in the Credit Facility.

The Credit Facility is the Company’s only outstanding debt agreement at October 30, 2010. Of the $125.0 million borrowed under the Credit Facility at its inception, approximately $68.8 million was outstanding at October 30, 2010. Borrowings under this Credit Facility have been classified as a current liability as the 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 Credit Facility.

The Company incurred approximately $7.7 million of costs in connection with the execution of the Credit Facility which were recorded as deferred financing costs in other assets on the condensed consolidated balance sheet. These costs are being amortized to interest expense over the three and one-half year life of the facility.

At October 30, 2010, the Company had $1.2 million in outstanding letters of credit and letter of credit availability of up to $23.8 million under the Master Agreement, included as part of its total additional borrowing availability under the Credit Facility, subject to borrowing capacity restrictions described therein. The Company had no letters of credit outstanding at January 30, 2010 under the Company’s prior credit facilities.

Related Party Debt

The Company’s related party debt as of January 30, 2010 was comprised of the following:

	•		$245.0 million outstanding on a $250.0 million secured revolving loan facility with AEON;
	•		$191.5 million outstanding on a $200.0 million term loan facility with AEON; and
	•		$50.0 million outstanding on a $50.0 million term loan with AEON (U.S.A.).

In connection with the consummation and closing of the merger with BPW and the execution of the Credit Facility, the Company repaid all outstanding related party indebtedness on April 7, 2010. Since the debt extinguishment was between related parties, the Company recorded no gain or loss on the extinguishment and the difference between the reacquisition price and the net carrying value of the debt, consisting of $1.7 million of unamortized deferred financing costs, was recorded as a capital transaction by a charge to additional paid-in capital.

12. 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. As a result of the decision, the assets and liabilities under the plans were remeasured as of February 28, 2009. The remeasurement resulted in a decrease to other liabilities of $25.4 million and $2.0 million for the Pension Plan and SERP, respectively, and an increase to other comprehensive income of $15.2 million and $1.2 million, net of tax, for the Pension Plan and SERP, respectively.

The components of net pension expense for the Pension Plan for the thirteen and thirty-nine weeks ended October 30, 2010 and October 31, 2009 are as follows:

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		October 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
						(In thousands)
Interest expense on projected benefit obligation		$	2,371			$	2,282			$	7,049			$	6,694
Expected return on plan assets			(2,394	)			(1,840	)			(7,194	)			(5,668	)
Curtailment loss			—				—				—				124
Prior service cost net amortization			—				1				—				5
Net amortization and deferral			139				252				383				716
Net pension expense		$	116			$	695			$	238			$	1,871

The components of net SERP expense for the thirteen and thirty-nine weeks ended October 30, 2010 and October 31, 2009 are as follows:

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		October 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
						(In thousands)
Interest expense on projected benefit obligation		$	288			$	292			$	842			$	874
Curtailment gain			—				—				—				(451	)
Net amortization and deferral			20				—				47				—
Net SERP expense		$	308			$	292			$	889			$	423

The components of net postretirement medical expense (credit) for the thirteen and thirty-nine weeks ended October 30, 2010 and October 31, 2009 are as follows:

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		October 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
						(In thousands)
Interest expense on accumulated postretirement benefit obligation		$	17			$	11			$	52			$	15
Curtailment gain			—				—				—				(442	)
Prior service cost amortization			(380	)			(383	)			(1,140	)			(1,133	)
Net amortization and deferral			130				137				391				357
Net postretirement medical credit		$	(233	)		$	(235	)		$	(697	)		$	(1,203	)