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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarter Ended JULY 30, 1999
OR
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 1-9769
LANDS' END, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2512786
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Lands' End Lane, Dodgeville, WI 53595
(Address of principal executive (Zip code)
offices)
Registrant's telephone number, 608-935-9341
including area code
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.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of September 7, 1999:
Common stock, $.01 par value 30,149,420 shares outstanding
LANDS' END, INC. & SUBSIDIARIES
INDEX TO FORM 10-Q
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Financial Statements
Consolidated Statements of Operations for the
Three Months Ended July 30, 1999, and
July 31, 1998..................................... 3
Consolidated Statements of Operations for the
Six Months Ended July 30, 1999, and
July 31, 1998..................................... 4
Consolidated Balance Sheets at July 30, 1999,
January 29, 1999, and July 31, 1998............... 5
Consolidated Statements of Cash Flows for the
Six Months Ended July 30, 1999, and
July 31, 1998..................................... 6
Notes to Consolidated Financial Statements........... 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 11-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 17
Item 4. Submission of Matters to a Vote of
Security Holders.................................. 17
Item 6. Exhibits and Reports on Form 8-K..................... 17
Signature..................................................... 18
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended
July 30, July 31,
1999 1998
(Unaudited)
Net sales $254,616 $239,194
Cost of sales 136,400 123,716
Gross profit 118,216 115,478
Selling, general and
administrative expenses 109,429 114,794
Reversal of non-recurring charge (275) -
Income from operations 9,062 684
Other income (expense):
Interest expense (358) (1,993)
Interest income 36 -
Other (1,672) 1,212
Total other expense (1,994) (781)
Income (loss) before income taxes 7,068 (97)
Income tax provision (benefit) 2,615 (36)
Net income (loss) $ 4,453 $ (61)
Basic earnings per share $ 0.15 $ 0.00
Diluted earnings per share $ 0.14 $ 0.00
Basic weighted average shares
outstanding 30,057 30,504
Diluted weighted average shares
outstanding 30,783 30,801
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
3
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Six months ended
July 30, July 31,
1999 1998
(unaudited)
Net sales $544,225 $507,781
Cost of sales 300,575 267,563
Gross profit 243,650 240,218
Selling, general and
administrative expenses 225,715 231,077
Reversal of non-recurring charge (1,598) -
Income from operations 19,533 9,141
Other income (expense):
Interest expense (967) (2,999)
Interest income 38 1
Other (1,204) 2,026
Total other expense (2,133) (972)
Income before income taxes 17,400 8,169
Income tax provision 6,438 3,022
Net income $ 10,962 $ 5,147
Basic earnings per share $ 0.37 $ 0.17
Diluted earnings per share $ 0.36 $ 0.17
Basic weighted average shares outstanding 30,032 30,724
Diluted weighted average shares outstanding 30,656 31,069
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
4
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
July 30, Jan. 29, July 31,
1999 1999 1998
(unaudited) (audited) (unaudited)
Assets
Current assets:
Cash and cash equivalents $ 6,270 $ 6,641 $ 5,016
Receivables, net 13,060 21,083 12,087
Inventory 189,983 219,686 318,439
Prepaid advertising 17,964 21,357 22,364
Other prepaid expenses 6,311 7,589 5,459
Deferred income tax benefit 17,947 17,947 12,613
Total current assets 251,535 294,303 375,978
Property, plant and equipment, at cost:
Land and buildings 102,437 102,018 94,256
Fixtures and equipment 158,675 154,663 139,780
Leasehold improvements 4,774 5,475 5,551
Construction in progress - - 5,126
Total property, plant and equipment 265,886 262,156 244,713
Less-accumulated depreciation
and amortization 110,961 101,570 92,544
Property, plant and equipment, net 154,925 160,586 152,169
Intangibles, net 949 1,030 937
Total assets $407,409 $455,919 $529,084
Liabilities and shareholders' investment
Current liabilities:
Lines of credit $ 23,950 $ 38,942 $177,256
Accounts payable 70,979 87,922 85,524
Reserve for returns 4,027 7,193 3,610
Accrued liabilities 42,458 54,392 26,688
Accrued profit sharing 469 2,256 246
Income taxes payable 1,754 14,578 3,159
Total current liabilities 143,637 205,283 296,483
Deferred income taxes 8,133 8,133 8,747
Shareholders' investment:
Common stock, 40,221 shares issued 402 402 402
Donated capital 8,400 8,400 8,400
Additional paid-in capital 28,665 26,994 26,661
Deferred compensation (293) (394) (912)
Accumulated other comprehensive income 1,801 2,003 56
Retained earnings 417,358 406,396 380,358
Treasury stock, 10,156, 10,317 and
9,984 shares at cost, respectively (200,694) (201,298) (191,111)
Total shareholders' investment 255,639 242,503 223,854
Total liabilities and shareholders'
investment $407,409 $455,919 $529,084
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
5
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
July 30, July 31,
1999 1998
(unaudited)
Cash flows from (used for) operating activities:
Net income $ 10,962 $ 5,147
Adjustments to reconcile net income to net
cash flows from operating activities-
Reversal of non-recurring charge (1,598) -
Depreciation and amortization 10,275 9,582
Deferred compensation expense 101 135
Loss on disposal of fixed assets 538 1,217
Changes in current assets and liabilities:
Receivables, net 8,023 3,356
Inventory 29,703 (77,285)
Prepaid advertising 3,393 (3,851)
Other prepaid expenses 1,278 (374)
Accounts payable (16,943) 1,781
Reserve for returns (3,166) (2,518)
Accrued liabilities (9,922) (8,655)
Accrued profit sharing (1,787) (4,040)
Income taxes payable (12,824) (17,318)
Other (202) (819)
Net cash flows from (used for) operating activities 17,831 (93,642)
Cash flows used for investing activities:
Cash paid for capital additions (5,486) (29,178)
Net cash flows used for investing activities (5,486) (29,178)
Cash flows from (used for) financing activities:
Proceeds from (payments of) short-term debt (14,992) 144,819
Exercise of stock options 1,671 204
Purchases of treasury stock (4,504) (23,872)
Issuance of treasury stock 5,109 347
Net cash flows from (used for) financing activities (12,716) 121,498
Net decrease in cash and cash equivalents (371) (1,322)
Beginning cash and cash equivalents 6,641 6,338
Ending cash and cash equivalents $ 6,270 $ 5,016
Supplemental cash flow disclosures:
Interest paid $ 958 $ 2,674
Income taxes paid 18,516 20,033
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
6
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Interim financial statements
The condensed consolidated financial statements included herein have been
prepared by Lands' End, Inc. (the company), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission, and in the
opinion of management contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the company believes that the disclosures are adequate
to make the information presented not misleading. The results of operations
for the interim periods disclosed within this report are not necessarily
indicative of future financial results. These consolidated financial
statements are condensed and should be read in conjunction with the financial
statements and the notes thereto included in the company's latest Annual
Report on Form 10-K, which includes financial statements for the year ended
January 29, 1999.
2. Reclassification
Certain financial statement amounts have been reclassified to be consistent
with the current presentation.
3. Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting For Derivative Instruments and Hedging Activities". This
statement addresses the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. The provisions of SFAS No. 133, as amended by SFAS 137, are
effective for fiscal years beginning after June 15, 2000. The company
intends to adopt this standard as of the beginning of the third quarter of
fiscal 2000.
4. Earnings per share
The following table discloses the computation of the diluted earnings per
share and the basic earnings per share.
Three months ended Six months ended
July 30, July 31, July 30, July 31,
(In thousands, except per 1999 1998 1999 1998
share data)
Net income (loss) $ 4,453 $ (61) $10,962 $ 5,147
Average shares of common
stock outstanding 30,057 30,504 30,032 30,724
Incremental shares from assumed
exercise of stock options 726 297 624 345
Diluted weighted average shares
of common stock outstanding 30,783 30,801 30,656 31,069
Basic earnings per share $ 0.15 $ 0.00 $ 0.37 $ 0.17
Diluted earnings per share $ 0.14 $ 0.00 $ 0.36 $ 0.17
7
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Comprehensive income
In accordance with Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", the following table presents the company's
comprehensive income (000's):
Three months ended Six months ended
July 30, July 31, July 30, July 31,
1999 1998 1999 1998
Net income (loss) $ 4,453 $ (61) $10,962 $ 5,147
Change in cumulative
translation adjustments, net 544 (691) (202) (819)
Total comprehensive income
(loss) $ 4,997 $ (752) $10,760 $ 4,328
6. Non-recurring charge and related reversal
During fiscal year 1999, in connection with changes in executive management,
the company announced a Plan designed to reduce administrative and
operational costs stemming from duplicative responsibilities and certain
non-profitable operations. This Plan included the reduction of staff
positions, the closing of three outlet stores, the liquidation of the
Willis & Geiger operations and the termination of a licensing agreement with
MontBell Co. Ltd. A non-recurring charge of $12.6 million was recorded in
fiscal 1999 related to these matters.
Below is a summary of related costs for the periods ended July 30, 1999.
Balance Costs Charges Balance
(In thousands) 1/29/99 Incurred Reversed 7/30/99
Severance costs $ 6,700 $(3,674) $ 0 $ 3,026
Asset impairments 3,199 (1,447) (1,111) 641
Facility exit costs
and other 2,590 (2,052) (487) 51
Total $12,489 $(7,173) $(1,598) $ 3,718
During the six months ended July 30, 1999, the company executed the Plan and
incurred costs totaling $7.2 million. In addition, there was a reversal of
$1.6 million of the reserves recorded in fiscal 1999. Those included $0.5
million for better than expected lease termination settlements related to
two store closings, and $1.1 million for better than anticipated sell-through
of Willis & Geiger inventory liquidations. Based on these two factors, there
was an addition to net income of $1.0 million, or $0.03 per share in the
first half of fiscal 2000.
8
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Segment disclosure
The company organizes and manages its three business segments (core, specialty
and international) based on type of catalog, which focuses on specific
customer needs and markets served. Certain catalogs are combined for purposes
of assessing financial performance. The company evaluates the performance of
its business segments based on operating profit.
The core segment consist of adult apparel in the regular monthly and
prospecting catalogs, Beyond Buttondowns catalog, and First Person Singular
catalog. The specialty segment includes Kids, Corporate Sales, and Coming
Home catalogs. The international segment is composed of foreign-based
operations in Japan, the United Kingdom, and Germany.
Segment sales represent sales to external parties. Sales from the Internet,
export sales shipped from the United States, and liquidation sales are
included in the respective business segments. Segment operating profit is
revenue less direct and allocable operating expenses, which includes interest
expense and interest income. Segment identifiable assets are those that are
directly used in or identified with segment operations. "Other" includes
corporate expenses, intercompany eliminations, and other income and deduction
items that are not allocated to segments.
Pertinent financial data by operating segment for the periods ended
July 30, 1999, and July 31, 1998 are as follows (in thousands):
Quarter ended July 30, 1999
Inter- Consoli-
Core Specialty national Other dated
Net sales $150,736 $ 71,652 $ 32,228 $ - $254,616
Operating profit (loss) 2,590 6,283 (149) (1,656) 7,068
Identifiable assets 239,483 115,981 51,945 - 407,409
Depreciation and
amortization 2,956 1,404 573 - 4,933
Capital expenditures 2,595 1,251 526 - 4,372
Interest expense 143 67 148 - 358
Interest income $ 12 $ 6 $ 18 $ - $ 36
Quarter ended July 31, 1998
Inter- Consoli-
Core Specialty national Other dated
Net sales $152,017 $ 60,369 $ 26,808 $ - $239,194
Operating profit (loss) 40 698 (478) (357) (97)
Identifiable assets 337,285 134,694 57,105 - 529,084
Depreciation and
amortization 3,344 1,310 471 - 5,125
Capital expenditures 8,908 3,511 6,031 - 18,450
Interest expense 1,102 436 455 - 1,993
9
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six months ended July 30, 1999
Inter- Consoli-
Core Specialty national Other dated
Net sales (2) $325,224 $157,504 $ 61,497 $ - $544,225
Operating profit
(loss) (1)(2) 6,879 13,867 (2,147) (1,199) 17,400
Identifiable assets 239,483 115,981 51,945 - 407,409
Depreciation and
amortization 6,136 2,971 1,168 - 10,275
Capital expenditures 3,229 1,564 693 - 5,486
Interest expense 419 203 345 - 967
Interest income $ 13 $ 7 $ 18 $ - $ 38
Six months ended July 31, 1998
Inter- Consoli-
Core Specialty national Other dated
Net sales (2) $321,600 $128,430 $ 57,751 $ - $507,781
Operating profit
(loss) (2) 6,109 3,921 (1,447) (414) 8,169
Identifiable assets 337,285 134,694 57,105 - 529,084
Depreciation and
amortization 6,204 2,478 900 - 9,582
Capital expenditures 13,989 5,587 9,602 - 29,178
Interest expense 1,535 613 851 - 2,999
Interest income $ 1 $ - $ - $ - $ 1
(1) Includes a reversal of non-recurring charges of $1.2 million and $0.4
million allocated to the specialty and core segments, respectively.
(2) First quarter of fiscal 2000 and 1999 have been restated to conform to
second quarter presentation for both years.
10
Item 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS
Results of Operations
Three Months Ended July 30, 1999, compared with
Three Months Ended July 31, 1998
The company's net sales for its second quarter ended July 30, 1999, totaled
$254.6 million, up 6.4 percent from sales of $239.2 million in the same
quarter last year. Most of the sales growth during the quarter just ended
came from the company's specialty business segment, represented by the
Corporate Sales, Kids and Coming Home catalogs, and from the international
business segment. Sales from the core business segment were relatively flat.
In particular, sales from the core monthly catalogs were lower, due to a
reduction in the number of pages circulated, but productivity, or sales per
page, increased. Sales on the company's Internet site www.landsend.com were
about two and one-half times those in the same quarter last year. In the
most recent fiscal year, Internet sales were $61 million, about 4.5 percent
of total net sales. For the first five weeks of the third quarter of fiscal
2000, the net sales are trending up approximately 5 percent.
Gross profit in this year's second quarter was $118.2 million, or 46.4 percent
of net sales, compared with $115.5 million, or 48.3 percent of net sales, in
the second quarter of the prior year. The decline in gross profit margin was
mainly due to steeper markdowns on liquidated merchandise and lower initial
markups. Liquidations of excess inventory were about 10 percent of net sales
in the quarter just ended, compared with 8 percent in the prior year.
Selling, general and administrative (SG&A) expenses in the quarter just ended
decreased 4.7 percent to $109.4 million, compared with $114.8 million for
last year's second quarter. As a percentage of sales, SG&A was 43.0 percent,
compared with 48.0 percent in the same period last year. The decrease in the
SG&A ratio during the quarter was due to greater catalog productivity, or
sales per page; lower paper prices; lower salaries and wages; and also from
decreases in outside consulting services that are primarily related to the
company's Y2K compliance efforts. These were partially offset by increased
bonus and profit sharing expense due to a higher profit level in the quarter
just ended.
During the quarter just ended, interest expense was $0.4 million, compared
with about $2 million in the same quarter last year. Lower inventory, coupled
with fewer capital expenditures and purchases of treasury stock, resulted in a
decrease in the company's borrowings on short-term lines of credit, which
stood at $24 million at the end of the quarter, compared with $177 million a
year ago.
Inventory at the end of the quarter was $190 million, down 40 percent from
$318 million in the prior year. Our fulfillment rate for the quarter was down
from last year, and we shipped 84 percent of items at the time of order
placement.
Net income for the quarter just ended was $4.5 million, and diluted earnings
per share were $0.14, compared with a loss of $61 thousand and break-even
earnings per share in the second quarter last year. The quarter just ended
includes $1.0 million in foreign currency exchange losses (after-tax),
compared with a $0.8 million foreign currency exchange gain (after-tax) in the
same quarter last year. Foreign currency exchange gains or losses occur due
to currency market movements and the company's hedging strategy.
11
Six Months Ended July 30, 1999, compared with
Six Months Ended July 31, 1998
The company's net sales in the first six months of fiscal 2000 increased 7.2
percent to $544.2 million from $507.8 million in the same period last year.
The increase in net sales was due primarily to the same factors disclosed
above for the three months ended July 30, 1999.
Gross profit of $243.7 million for the first six months of fiscal 2000
increased 1.4 percent from $240.2 million in the same six-month period last
year. As a percentage of net sales, gross profit decreased from 47.3 percent
in fiscal 1999 to 44.8 percent in fiscal 2000. The decrease in gross profit
was due to higher sales of liquidated merchandise, at steeper markdowns and
lower initial markups.
Selling, general and administrative expenses decreased 2.3 percent to $225.7
million in the first six months of fiscal 2000 from $231.1 million in the same
period last year. As a percentage of net sales, selling, general and
administrative expenses decreased to 41.5 percent in fiscal 2000 from 45.5
percent in fiscal 1999. The decrease in the SG&A ratio in the first half of
fiscal 2000 was the result of greater catalog productivity, or sales per page;
lower paper prices; lower salaries and benefit costs; lower shipping costs;
and decreases in outside consulting services that were mainly related to the
company's Y2K compliance efforts. These were partially offset by increased
bonus and profit sharing expense.
Net income in the first half of fiscal 2000 was up 113 percent to $11.0
million, or $0.36 per share, compared with $5.1 million, or $0.17 per share in
the first six months of the prior year. This year's first half includes an
addition to net income (after-tax) of $1.0 million, or $0.03 per share, from
the reversal of a portion of the non-recurring charge taken last year. This
was due to better-than-anticipated sell-through of Willis & Geiger
liquidations and favorable lease terminations related to two store closings.
Seasonality of business
The company's business is highly seasonal. Historically, a disproportionate
amount of the company's net sales and a majority of its profits have been
realized during the fourth quarter. If the company's sales were materially
different from seasonal norms during the fourth quarter, the company's annual
operating results could be materially affected. In addition, as the company
continues to refine its marketing efforts by experimenting with the timing of
its catalog mailings, quarterly results may fluctuate. Accordingly, results
for the individual quarters are not necessarily indicative of the results to
be expected for the entire year.
Outlook
In the last half of fiscal 1999, worldwide circulation of catalogs and pages
was greatly increased in our efforts to reduce inventory levels. In the last
half of this current fiscal year, we plan to reduce circulation by about 20
percent to eliminate unprofitable mailings. As a result, we expect that sales
for the upcoming 6-month period may be flat compared to the prior year,
particularly in the fourth quarter, but we also anticipate that the reduction
in circulation will have a positive impact on our profitability rate by
reducing SG&A expenses.
12
Liquidity and capital resources
To date, the bulk of the company's working capital needs have been met through
funds generated from operations and from short-term bank loans. The company's
principal need for working capital has been to meet peak inventory
requirements associated with its seasonal sales pattern. In addition, the
company's resources have been used to make asset additions and to purchase
treasury stock.
At July 30, 1999, the company had unsecured domestic credit facilities
totaling $180 million, of which about $14 million had been used. The company
also maintains foreign credit lines for use in foreign operations totaling the
equivalent of approximately $52 million as of July 30, 1999, of which $10
million was used.
Since fiscal 1990, the company's board of directors has authorized the company
from time to time to purchase a total of 12.7 million shares of treasury
stock. As of September 7, 1999, 11.6 million shares have been purchased, and
there is a balance of 1.1 million shares available to the company. The
company purchased 0.1 million shares of treasury stock during the six months
ended July 30, 1999. Currently the company is anticipating limited treasury
stock purchases for the second half of fiscal 2000.
Capital expenditures for fiscal 2000 are currently planned to be about $26
million, of which $5 million had been expended through July 30, 1999. Major
projects to date as of July 30, 1999, pertained mainly to new computer
hardware and software. The company believes that its cash flow from
operations and borrowings under its current credit facilities will provide
adequate resources to meet its treasury stock purchases, capital requirements
and operational needs for the foreseeable future.
Other matters
Year 2000
The "Year 2000" issue refers to the possibility that some date-sensitive
computer software will not correctly interpret "00" references, possibly
resulting in processing errors or system failures. We do not manufacture or
sell any products that could encounter Year 2000 problems. However, the Year
2000 issue could affect computers that we use for entering orders from
customers, for monitoring business information such as customer lists and
inventory positions, and for other business processes, as well as
microprocessors embedded in equipment used in our warehouses and other
facilities. In addition, the Year 2000 issue could affect third parties on
which we depend, such as our product vendors and suppliers of telephone
communications, credit card processing, Internet support, product shipment,
package delivery, catalog production and distribution, and other important
services. Our facilities also depend on basic infrastructure items such as
electricity and water utilities. Computer errors or failures in any of these
areas have the potential to disrupt our business operations.
We began to address the Year 2000 issue in 1996 and established a Year 2000
project office in 1997. The project office works with our information systems
department and outside consultants to identify and assess the Year 2000
readiness of our internal computer systems and microprocessors and, where
appropriate, to remediate and test them. The project office is also working
with our buyers, quality assurance and other personnel to assess the readiness
13
of our suppliers to deal with the Year 2000 issue. The principal activities
of our Year 2000 project office are as follows:
Internal Systems: Most of the software that is critical to our business runs
on mainframe computers in a MVS operating environment, as well as on a few
mid-range computers. Certain less important functions are performed on a
mainframe computer in a VM operating environment. We have completed
substantially all of the identification, assessment, remediation and unit
testing efforts.
A substantial amount of the mainframe remediation and unit testing work has
been performed by a consulting firm. Another firm has completed its
assessment and recommendation for integration testing, which is underway and
is currently expected to be substantially complete by the third quarter of
1999. However, due to the less critical nature of certain operations
performed in the VM environment, further remediation in that area, as well as
related unit and integration testing, is expected to continue throughout 1999
on a selectively prioritized basis, and some of these functions may not be
remediated.
We completed an inventory and assessment of hardware and software associated
with personal computers in 1998. We have also completed the remediation of
all critical PC components, and currently expect to complete all PC
remediation by the end of the third quarter of fiscal year 2000.
We have also identified and assessed the microprocessors used in our
warehouses and other facilities in the United States, Japan and the United
Kingdom. We have not identified significant problems in this area and have
substantially completed all remediation in this area.
Suppliers: Our Year 2000 project office is working closely with other
departments, including our merchandising, inventory and quality assurance
staff, to track the Year 2000 readiness of our principal product vendors
through written questionnaires, telephone calls and on-site visits. Among
other things, we are evaluating the readiness of vendors' manufacturing
processes and business operations and their ability to perform electronic data
interchange with us. In addition, we are evaluating the vulnerability of
vendors to possible interruption of the supply of key components of their
products, such as fabric, buttons and zippers.
Our evaluation of product vendors is focused on 44 suppliers that collectively
account for more than 85 percent of our unit volume of product purchases. Out
of that group, we currently believe that approximately 98 percent are either
Year 2000-ready or making substantial progress and should continue to be
monitored, while approximately 2 percent may experience problems that will
need to be addressed further in contingency planning. In addition, we have
successfully verified and tested electronic data interchange with all product
vendors.
We have also identified approximately 112 suppliers of services and
infrastructure items that are most important to our business operations. Each
of these service providers has been assigned a business leader who is
responsible for ensuring the Year 2000 assessment information is current as
well as establishing contingency plans as needed. We currently believe that
approximately 90 percent are either compliant or making substantial progress,
while 10 percent may experience Year 2000-related problems and merit increased
monitoring and contingency planning. With respect to our most critical
14
telecommunications, catalog production and delivery providers, we have had
extensive contacts with them and received substantial information concerning
their Year 2000 readiness, and have identified no significant problems that
are likely to be encountered.
We currently have less comfort regarding foreign suppliers and infrastructure
issues, especially in Asia, than we do in the domestic environment. Foreign
service suppliers are very important to our business because approximately 55
percent of our products are manufactured abroad. In many cases we are
currently unable to assess the extent of Year 2000 problems that may be
encountered. We continue to monitor these suppliers based on our business
exposure in each country.
Contingency Planning: Initial contingency plans were completed in March 1999.
These plans address business critical processes and functions and third-party
issues that may place our operations at risk. We expect to review and modify
these contingency plans throughout 1999.
Based on the activities of our Year 2000 project office, we currently expect
that our most important computer systems will be able to function adequately
into the next century. While some disruptions are likely to occur with
internal systems and at least a few product vendors, we believe the most
probable scenario is that there will not be a systemic failure of important
services or infrastructure that will materially disrupt our operations as a
whole. Moreover, in view of the strong seasonality of our business, any
disruptions that do occur are likely to take place in the off-peak selling
period following the 1999 holiday season. However, our expectations in this
regard are forward-looking in nature and are necessarily subject to the many
uncertainties that relate to the Year 2000 issue, especially as it affects our
suppliers and other third parties over whom we have little or no control. If
our remediation, supplier evaluation and contingency planning efforts are not
successful, there could be a material adverse effect on our business, results
of operations or financial condition. We currently believe that the greatest
area of risk in this regard relates to foreign supply and infrastructure
issues such as the ability to ship products produced in other countries. In
addition, our sales volume could be adversely affected if widespread Year 2000
problems in our domestic or foreign markets were to result in a general
slowdown of economic activity and consumer demand.
Cost: The total cost of our Year 2000 efforts is expected to be about $21-22
million, which is being expensed as incurred except for about $1 million of
hardware replacement costs that have been or will be capitalized. About $3.4
million of the total amount was incurred through the end of fiscal 1998 and
approximately an additional $8.9 million in fiscal 1999. The costs incurred
during the first two quarters of fiscal year 2000 amounted to roughly $5
million. We currently expect a total amount of about $8.2 million of
expenditures will be incurred in fiscal 2000, and about $1 million in
fiscal 2001. The timing and amount of these future expenditures are
forward-looking and subject to uncertainties relating to our ongoing
assessment of the Year 2000 issue and appropriate remediation efforts,
contingency plans and responses to any problems that may arise. Our
Year 2000 expenses have been paid out of our annual budgets for
information services. Accordingly, other technology development projects have
been delayed to the extent that resources have been devoted to the Year 2000
project.
15
Market risk
The company uses derivative financial instruments to manage its foreign
currency exposures. The company does not hold or issue financial instruments
for trading purposes. For information pertaining to foreign currency risk,
reference is made to Item 7 of the Management's Discussion and Analysis of
Consolidated Financial Statements in the company's fiscal year 1999 Annual
Report on Form 10-K. There has been no material change in market risk
exposures that affect the quantitative and qualitative disclosures presented
as of January 29, 1999.
Statements regarding forward-looking information
Statements in this release that are not historical are forward looking,
including, without limitation, statements about goals for Internet sales,
anticipated cost savings, and possible circulation reductions and their
anticipated effects on sales or profits. As such, these statements are
inherently subject to a number of risks and uncertainties. Future results may
be materially different from those expressed or implied by these statements
due to various factors that may occur. Such factors include, but are not
limited to the following: general economic or business conditions, both
domestic and foreign; continued growth rates for e-commerce shopping; the
company's ability to attract customers to the Internet; technology
developments and their availability and cost; customer response to product
offerings and initiatives; costs associated with printing and mailing
catalogs; dependence on consumer seasonal buying patterns; and fluctuations in
foreign currency exchange rates.
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings presently pending, except for
routine litigation incidental to the business, to which Lands' End,
Inc., is a party or of which any of its property is the subject.
Items 2 and 3 are not applicable and have been omitted.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders for
the quarter ended July 30, 1999, other than those disclosed in the
Form 10-Q for the quarter ended April 30, 1999, reporting the
results of the company's annual meeting.
Item 5. is not applicable and has been omitted
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Table Exhibit
Number Description Number
10 Amended and Restated Stock
Option Plan of the company 1
10 Amended and Restated Non-employee
Director Stock Option Plan 2
(b) Report on Form 8-K
A report on Form 8-K was filed July 20, 1999,
reporting a meeting with members of the
financial community in New York, New York,
on Thursday, May 20, 1999.
17
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, its duly authorized officer and chief financial officer.
LANDS' END, INC.
Date: September 7, 1999 By /s/ STEPHEN A. ORUM
Stephen A. Orum
Executive Vice President,
and Chief Financial Officer
18
Exhibit 10.1
LANDS' END, INC. STOCK OPTION PLAN
PART 1: IDENTIFICATION OF THE PLAN
1.1 Title. The Plan described herein shall be known as the
"Lands' End, Inc. Stock Option Plan" and is referred to herein as the
"Plan."
1.2 Purpose. The purpose of the Plan is to provide officers and
key employees of Lands' End, Inc. (the"Company") with additional
incentive to increase their efforts on the Company's behalf and to
remain in or enter into the employ of the Company by granting such
employees from time to time, at the discretion of the Committee:
(a) incentive stock options (within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the
"Code")) to purchase shares of common stock of the
Company ("Company Shares"), and
(b) nonqualified stock options (meaning all options granted
under the Plan which are not designated by the Committee
at the time of grant as incentive stock options) to
purchase Company Shares.
By virtue of the benefits available under the Plan, employees who are
responsible for the future growth and continued success of the Company
have an opportunity to participate in the appreciation in the value of
Company Shares, which furnishes such employees with an additional
incentive to work for and contribute to such appreciation through the
growth and success of the Company.
1.3 Adoption and Restatement of the Plan. The Lands' End, Inc.
1990 Stock Option Plan was adopted by the Company's Board of Directors
on November 27, 1990 and approved by the Company's shareholders on May
15, 1991. The Lands' End, Inc. 1990 Stock Option Plan was amended and
restated by the Company's Board of Directors on October 22, 1991 and
December 9, 1991 (at which time it was renamed the Lands' End, Inc.
Second Amended and Restated 1990 Stock Option Plan) which amendments
were approved by the Company's shareholders on May 20, 1992. The Lands'
End, Inc. 1990 Second Amended and Restated Stock Option Plan was further
amended and restated by the Company's Board of Directors on December 10,
1993 and April 15, 1994 (at which time it was renamed the Lands' End,
Inc. Stock Option Plan), which amendments were approved by the Company's
shareholders on May 18, 1994. The Lands' End, Inc. Stock Option Plan
was further amended and restated by the Company's Board of Directors on
April 7, 1995, which amendment was approved by the Company's
shareholders on May 17, 1995, was further amended and restated by the
Company's Board of Directors on October 27, 1998 and January 29, 1999
(the "1999 Plan Amendment"), which amendment was approved by the
Company's shareholders on May 19, 1999, and was further amended and
restated by the Company's Board of Directors on August 24, 1999.
1.4 Company Shares Reserved for the Plan. There is reserved for
issuance upon the exercise of options to be granted under the Plan and
aggregate of 5,500,000 Company Shares, which may be authorized and
unissued shares or treasury shares and which number is subject to
adjustment as provided in Section 5.4.
PART 2: ADMINISTRATION OF THE PLAN
2.1 Committee's Membership and Powers. The Plan will be
administered by a committee of the Board of Directors of the Company
(the "Committee") consisting of two or more Directors as the Board may
designate from time to time, none of whom has been eligible to receive
a benefit under this Plan or under any other plan of the Company
entitling participants to acquire stock, stock options or stock
appreciation rights for a period of at least one year prior to
appointment. The members of the Committee must be "disinterested
persons" as that term is defined in Rule 16b-3 of the Securities and
Exchange Commission and "outside directors" as that term is defined in
Section 162(m) of the Code. No person who is appointed as a member of
the Committee shall be entitled to receive any benefit under the Plan
for a period of at least one year following the termination of such
person's membership on the Committee. The Committee shall have the
power to construe and interpret this Plan, to make all factual
determinations hereunder and to establish the terms of any incentive
stock options or nonqualified stock options granted hereunder. The
determinations of the Committee shall be made in accordance with their
judgment as to the best interests of the Company and its shareholders
and in accordance with the purpose of the Plan. A majority of members
of the Committee shall constitute a quorum, and all determinations of
the Committee shall be made by a majority of its members. Any
determination of the Committee under the Plan may be made without
notice or meeting of the Committee, by a writing signed by all of the
Committee members. The initial members of the Committee are David
Heller and John Latter.
2.2 Indemnification. Service on the Committee shall constitute
service as a Director of the Company so that members of the Committee
shall be entitled to indemnification and reimbursement as Directors of
the Company to the full extent provided for at any time by law, the
Company's Certificate of Incorporation, the Company's By-Laws and in
any insurance policy or other agreement intended for the benefit of
the Company's Directors.
PART 3: PLAN PARTICIPANTS
Participants will consist of such officers and key employees of
the Company as the Committee in its sole discretion determines from
time to time. Designation of a participant in any year shall not
require the Committee to designate such person to receive a benefit in
any other year or to receive the same type or amount of benefit as
granted to the participant in any other year or as granted to any
other participant in any year. The Committee shall consider such
factors as its deems pertinent in selecting participants and in
determining the type and amount of their respective benefits.
PART 4: TERMS AND CONDITIONS OF OPTIONS
4.1 Grant Date. An option shall be deemed to have been granted
under the Plan on the date (the "Grant Date") designated by the
Committee at the time it shall approve such option as the Grant Date
of such option, provided that the Committee may not designate a Grant
Date with respect to any option which is earlier than the date on
which the granting of such option is approved by the Committee.
4.2 Option Price. The option price per Company Share shall be
fixed by the Committee at or before the time the Committee approves
the granting of the option. However, except as provided in the
following sentence, no option shall have an option price per Company
Share of less than 100 percent of the fair market value of a Company
Share on the Grant Date of the option. At its discretion, the
Committee may issue options to a participant who, in accordance with
section 5.8 hereof, has voluntarily surrendered and canceled a prior
option at a price per Company Share equal to or greater than the price
per Company Share of the prior option. For this purpose "fair market
value" of a Company Share as of any date shall be equal to the last
per share sales price reported for a Company Share for such date in
The Wall Street Journal or, if no sales of Company Shares are reported
for such date in The Wall Street Journal, for the next succeeding date
for which sales of Company Shares are so reported in The Wall Street
Journal. If sales of Company Shares are not reported for any date in
The Wall Street Journal, then the "fair market value" of a Company
Share as of any date shall be determined in such manner as shall be
prescribed in good faith by the Committee.
4.3 Term and Exercisability of Options. Options may "vest" and
become exercisable in one or more installments upon the passage of a
specified period of time as the Committee shall in each case determine
in its sole discretion when the option is granted; however no option
may be exercised later than December 31 of the year in which the tenth
anniversary of the Grant Date of such option occurs (or any earlier
date which is the last day of the term of the option). The Committee
shall have authority, in its sole discretion, to accelerate the
vesting and exercisability of all or part of any option granted
hereunder and, subject to Section 4.5 hereof, to establish
restrictions or limitations with respect to the exercise of options,
including, but not limited to, the period during which options may be
exercised.
4.4 Special Incentive Stock Option Terms. The terms of each
incentive stock option granted under the Plan shall include those
terms which are required by Section 422 of the Code and such other
terms not inconsistent therewith as the Committee may determine. Each
option which is designated by the Committee as an incentive stock
option shall be considered to have contained from the outset such
terms and provisions as shall be necessary to entitle such intended
incentive stock option to the tax treatment afforded by the Code to
incentive stock options under Section 422 of the Code. If any
agreement covering such an intended incentive stock option granted
under the Plan does not explicitly include any terms required to
entitle such intended incentive stock option to the tax treatment
afforded by the Code to incentive stock options, then all of such
required terms and provisions shall be considered implicit in such
agreement and such intended incentive stock option shall be considered
to have been granted subject to such required terms and conditions.
In accordance with Section 422 of the Code, the aggregate fair market
value (determined as of the grant date) of the Company Shares with
respect to which incentive stock options are exercisable for the first
time by a participant in any given calendar year shall not exceed
$100,000.
4.5 Termination of Employment. Unless otherwise determined by
the Committee, if a participant ceases to be employed by the Company
for reasons other than his disability (as described in clause (c)
below), retirement on or after his normal retirement date or death,
the option (or any remaining unexercised portion thereof) shall
terminate effective as of the date of the participant's termination of
employment and no portion of the terminated option shall be
exercisable after than date. Unless otherwise determined by the
Committee, if a participant's termination of employment is a result of
his retirement, death or disability, the following provisions shall
apply with respect to such option:
(a) If the participant's termination of employment is on
account of his retirement at or after his normal
retirement date, any unexercised portion of the option
shall be exercisable during the 12 months following the
retirement date (unless earlier terminated) and shall
terminate on the first anniversary of the date of the
termination of his employment (or such earlier time
when the option would otherwise expire or terminate on
its own terms) whether or not such option or options
were exercisable on the retirement date under the
provisions of the applicable agreements relating
thereto. To the extent that any such unexercised
portion of the option is not exercised within three
months following the date of termination of employment,
it cannot be exercised as an incentive stock option but
only as a nonqualified stock option.
(b) If the participant's termination of employment is on
account of his death, any vested but unexercised
portion of the option shall be exercisable during the
12 months following the date of death (unless earlier
terminated) and shall terminate on the first
anniversary of the date of death (or such earlier time
when the option would otherwise expire or terminate on
its own terms). Vested options may be exercised by the
participant's estate or any person who acquired the
right to exercise the option by bequest, inheritance or
the laws of descent and distribution.
(c) If the participant's termination of employment is on
account of his disability, any vested but unexercised
portion of the option shall be exercisable during the
six months following the termination of employment
(unless earlier terminated) and shall terminate on the
180th day following the termination of his employment
(or such earlier time when the option would otherwise
expire or terminate on its own terms). In such event,
vested options may be exercised by the participant or
his guardian. For this purpose a participant shall be
considered "disabled" if the Committee determines in
good faith that he is unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be
expected to result in death or which has lasted or can
be expected to last for a continuous period of not less
than twelve months.
4.6 Method of Exercising Options. An option may be exercised
only by a written notice to the Company accompanied by payment of the
full option price which, in the discretion of the Committee, may be
made in any one or any combination of the following: cash, certified
or official bank check, or delivery of Company Share certificates
endorsed in blank or accompanied by executed stock powers evidencing
Company Shares whose value shall be deemed to be the "fair market
value" (as determined in accordance with Section 4.2 hereof) on the
date of exercise of such Company Shares.
4.7 Maximum Grant. In accordance with Section 162(m) of the
Code, the maximum number of Company Shares with respect to which
options may be granted to any one participant in any twelve month
period is 1,000,000 (as proportionately adjusted for all stock splits,
stock dividends and other recapitalizations occurring after the Latest
Restatement Date).
PART 5: GENERAL PROVISIONS
5.1 Option Agreement. No person shall have any rights under any
option granted under this Plan unless and until the Company and the
person to whom such options shall have been granted shall have
executed and delivered an agreement expressly granting the option to
such person and containing provisions setting forth the terms of the
option.
5.2 Shareholder Rights. A participant shall not have any
dividend, voting or other shareholder rights by reason of a grant of
an option prior to the issuance of any Company Shares pursuant to the
proper exercise of all or any portion of such option.
5.3 Transferability of Options.
(a) Permitted Transfers. Other than by will or the laws of
descent and distribution, each Option granted under
this Plan shall be transferable only to a member of a
participant's Family Group (the "Permitted
Transferees") and only if not transferred for value. A
Permitted Transferee may make subsequent transfers to
any person who would also be a Permitted Transferee of
the participant. If a participant or Permitted
Transferee transfers an Option pursuant to this Section
5.3, he or she must give the Company prompt written
notice of such transfer and the transfer shall only be
effective upon the Company's receipt of such notice.
An Option shall be exercisable during the participant's
lifetime only by such participant, his or her guardian
in the event of disability or, upon transfer, the
Permitted Transferee. "Family Group" means any child,
stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-
in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, including adoptive
relationships, any person sharing the participant's
household (other than a tenant or employee), a trust in
which these persons have more than fifty percent of the
beneficial interest, a foundation in which these
persons (or the participant) control the management of
the assets, and any other entity in which these persons
(or the participant) own more than fifty percent of the
voting interests. The following transactions are not
prohibited transfers for value: (i) a transfer under a
domestic relations order in settlement of marital
property rights; and (ii) a transfer to an entity in
which more than fifty percent of the voting interests
are owned by family members (or the participant) in
exchange for an interest in that entity.
(b) Death. In the event of the death of a participant,
exercise shall be made only:
(i) by the executor or administrator of the estate of
the deceased participant or the person or persons
to whom the deceased participant's rights under
the benefit shall pass by will or the laws of
descent and distribution; and
(ii) to the extent that the deceased participant was
entitled thereto at the date of his death.
5.4 Adjustments. In the event that the Committee shall
determine that any dividend or other distribution (whether in the form
of cash, Company Shares, other securities or other property),
recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, combination, split-up, spin-off, repurchase or
exchange of Company Shares or other securities of the Company,
issuance of warrants or other rights to purchase Company Shares or
other securities of the Company, or other similar corporate
transaction or event affects the Company Shares such that an
adjustment is determined by the Committee to be appropriate in order
to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any
or all of (a) the number and type of Company Shares (or other
securities or property) which thereafter may be made the subject of
options, (b) the number and type of Company Shares (or other
securities or property) subject to outstanding options, and (c) the
grant, purchase, or exercise price with respect to any options, or, if
deemed appropriate, make provision for a cash payments to the holder
of an outstanding option.
5.5 Withholding of Taxes. The Company shall be entitled, if the
Committee (or any financial officer designated by it) considers it
necessary or desirable, to withhold (or secure payment from the
participant in lieu of withholding) the amount of any withholding or
other payment required of the Company under the tax withholding
provisions of the Code, any state's income tax act or any other
applicable law with respect to any Company Shares issuable under such
participant's exercised options, and the Company may defer issuance
unless indemnified to its satisfaction with respect to payment of such
withholding or other tax. Subject to such rules as the Committee may
adopt, participants may satisfy this obligation, in whole or in part,
by an election to have the number of Company Shares received upon
exercise of any option reduced by a number of Company Shares having a
"fair market value" (as determined in accordance with Section 4.2
hereof) equal to the amount of the required withholding to be so
satisfied or to surrender to the Company previously held Company
Shares having an equivalent fair market value.
5.6 No Employment Rights Conferred. Nothing in the Plan or in
any option granted under the Plan shall confer any right on an
employee to continue in the employ of the Company or shall interfere
in any way with the right of the Company at any time to terminate his
employment with or without cause or to adjust his compensation.
5.7 Disposition of Company Shares.
(a) Unless otherwise specifically authorized by the
Committee, participants may not dispose of, sell or
otherwise transfer any Company Shares acquired upon
exercise of options granted under the Plan for a period
of six months following the Grant Date.
(b) As a condition of participation in the Plan, each
participant agrees that he will give prompt notice to
the Committee of any disposition of Company Shares
acquired upon the exercise of an incentive stock
option if such disposition occurs within either two
years after the Grant Date of an incentive stock option
or one year after the receipt of such Company Shares by
the participant following his exercise of the incentive
stock option.
5.8 Cancellation of Options. By express written agreement a
participant and the Committee may agree that any previously granted
option is thereby cancelled as of the date of the agreement and, at
its discretion, the Committee may subsequently grant to such a
participant who has voluntarily surrendered and cancelled a prior
option one or more new or substitute similar or different options
under the Plan.
5.9 Continued Availability of Company Shares Under Unexercised
Options. If an option granted under the Plan terminates or expires
without being wholly exercised or if Company Shares as to which an
option has been exercised shall for any reason not be issued, a new
option may be granted under the Plan covering the number of Company
Shares to which such termination, expiration, failure to issue or
reacquisition related.
5.10 No Strict Construction. No rule of strict construction
shall be applied against the Company, the Committee or any other
person in the interpretation of any of the terms of the Plan, any
option agreement or any option granted under the Plan or any rule or
procedure established by the Committee.
5.11 Choice of Law. Each option granted under the Plan shall be
considered to be a contract under the laws of the State of Wisconsin
and, for all purposes, the Plan and each option granted under the Plan
shall be construed in accordance with and governed by the laws of the
State of Wisconsin.
5.12 Successors. This Plan is binding on and will inure to the
benefit of any successor to the Company, whether by way of merger,
consolidation, purchase or otherwise.
5.13 Severability. If any provision of the Plan or an option
agreement shall be held illegal or invalid for any reason, such
illegality or invalidity shall not affect the remaining provisions of
the Plan or such agreement, and the Plan and such agreement shall each
be construed and enforced as if the invalid provisions had never been
set forth herein.
5.14 Performance Compensation. All options granted under the
Plan are intended to qualify as "performance-based compensation"
within the meaning of Section 162(m) of the Code. In the event that
any provision of the Plan would cause any option granted under the
Plan to be treated as other than "performance-based compensation"
within the meaning of Section 162(m) of the Code, the Plan shall be
deemed automatically amended to the extent necessary to cause all
options granted under the Plan to be treated as "performance-based
compensation" within the meaning of Section 162(m) of the Code.
PART 6: AMENDMENT AND TERMINATION
6.1 Amendment. The Board of Directors may amend the Plan from
time to time, in its sole discretion, but no amendment shall:
(a) without a participant's consent impair his rights to
any option theretofore granted; or
(b) Without the authorization and approval of the Company's
shareholders (i) increase the maximum number of Company
Shares which may be issued in the aggregate under the
Plan, except as provided in subsection 5.4 (ii) extend
the termination date of the Plan or of any option
granted under the Plan, (iii) enlarge the class of
employees eligible to receive options under the Plan or
(iv) create "material changes" to the Plan for purposes
of Section 162(m) of the Internal Revenue Code.
6.2 Termination. The Board of Directors may terminate the Plan
at any time with respect to Company Shares for which options have not
theretofore been granted. Unless earlier terminated, the Plan will
terminate at the close of business on December 31, 2004. Following
the termination of the Plan, no further options may be granted under
the Plan; however, all options which prior to the Plan termination
have not expired, terminated or been exercised or surrendered may be
exercised thereafter in accordance with their terms and the terms
hereof, and the Committee shall continue to have its full powers under
the Plan, except with respect to the granting of options under the
Plan.
Exhibit 10.2
LANDS' END, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
I. Identification of the Plan
1.1 Title. The Plan described herein shall be known as the "Non-
Employee Director Stock Option Plan" of Lands' End, Inc. (the "Company")
and is referred to herein as the "Plan." The Plan is hereby established
as of the date of the annual meeting of the Company's stockholders
("Annual Meeting") held on May 14, 1997 (the "Effective Date").
1.2 Purpose. The Board of Directors of the Company believes it
is in the best interest of the Company to encourage stock ownership by
members of the Board of Directors of the Company who are not also
employed by the Company ("Non-Employee Directors") in order to further
align the interests of the Non-Employee Directors with those of the
shareholders. The Plan will provide additional means for the Company to
attract and retain qualified individuals as members of the Board of
Directors of the Company and to promote such alignment of interests by
granting Non-Employee Directors from time to time nonqualified stock
options ("Options") to purchase shares of common stock of the Company
("Company Shares"). By virtue of the benefits available under the Plan,
Non-Employee Directors will have an opportunity to participate in any
future appreciation in the value of Company Shares, which will furnish
such Non-Employee Directors with an additional incentive to work for and
contribute to the growth and success of the Company.
1.3 Adoption and Restatement of the Plan. The Lands' End, Inc.
Non-Employee Director Stock Option Plan was adopted by the Company's
Board of Directors on February 18, 1997 and approved by the Company's
shareholders on May 14, 1997. The Lands' End, Inc. Non-Employee
Director Stock Option Plan was amended and restated by the Company's
Board of Directors on August 24, 1999.
1.4 Company Shares Reserved for the Plan. There is reserved for
issuance upon the exercise of Options to be granted under the Plan an
aggregate of 400,000 Company Shares, which may be authorized and
unissued shares or treasury shares and which number is subject to
adjustment for events occurring after the Effective Date as provided in
Section 5.4.
II Administration of the Plan.
2.1 Committee's Membership and Powers. The Plan will be
administered by a committee of the Board of Directors of the Company
(the "Committee") consisting of two or more members of the Board of
Directors of the Company ("Directors") as the Board of Directors of the
Company (the "Board") may designate from time to time. All questions of
interpretation of the Plan or of any Option shall be determined by the
Committee, and such determination shall be final and binding upon all
persons having an interest in the Plan or such Option. Notwithstanding
any other provision herein to the contrary, the Committee shall have no
authority, discretion, or power to select the Non-Employee Directors who
will receive Options, to set the exercise price of the Options, to
determine the number of Company Shares to be subject to an Option or the
time at which an Option shall be granted, to establish the duration of
an Option, or to alter any other terms or conditions specified in the
Plan, except in the sense of administering the Plan subject to the
provisions of the Plan. The initial members of the Committee are
Michael J. Smith and William E. Ferry.
2.2 Indemnification. Service on the Committee shall constitute
service as a Director so that members of the Committee shall be entitled
to indemnification and reimbursement as Directors to the full extent
provided for at any time by law, the Company's Certificate of
Incorporation, the Company's By-Laws and in any insurance policy or
other agreement intended for the benefit of the Directors.
III. Plan Participants. An Option shall be granted only to a person
who, at the time of the grant, is a Non-Employee Director. A Non-
Employee Director who receives a grant of an Option is referred to
herein as a "participant."
IV. Terms and Conditions of Options. Options shall be nonstatutory
stock options; that is, options which are not treated as incentive stock
options within the meaning of Section 422(b) of the Internal Revenue
Code of 1986, as amended (the "Code"). Options shall be evidence by
option agreements specifying the number of Company Shares covered
thereby, in such form as the Board shall from time to time establish
(the "Option Agreements"). Option Agreements may incorporate all or any
of the terms of the Plan by reference and shall comply with and be
subject to the following terms and conditions.
4.1 Automatic Grant of Options. Subject to execution by a Non-
Employee Director of the appropriate Option Agreement, Options shall be
granted automatically and without further action of the Board, as
follows:
(a) Initial Option. Each person who is a Non-Employee
Director immediately after the Annual Meeting on the
Effective Date shall be granted, on the Effective Date,
an Option to purchase twenty thousand (20,000) Company
Shares (an "Initial Option"). Any Non-Employee Director
who receives the Initial Option will be eligible to
receive the Annual Option commencing with the Annual
Meeting in 2000. The Initial Option shall vest and
become exercisable as follows:
(i) Time Vesting. Subject to the terms and conditions
of the Initial Option and subject to Section
4.1(a)(ii) below, the Initial Option shall vest and
become exercisable as to (A) 50% of the Company
Shares covered thereby on the Effective Date; (B)
another 25% of the Company Shares covered thereby
immediately after the Annual Meeting in 1998,
provided that such person is a Director on such
date; and (C) another 25% of the Company Shares
covered thereby immediately after the Annual
Meeting in 1999, provided that such person is a
Director on such date.
(ii) Acceleration for Death or Disability. If the
participant ceases to be a Non-Employee Director as
a result of his or her death or "disability", the
Initial Option shall immediately vest and become
exercisable as to all of the Company Shares covered
thereby as of the date of such termination. For
this purpose a participant shall be considered
"disabled" if the Committee determines in good
faith that he or she is unable to engage in any
substantial gainful activity by reason of any
medically determinable physical or mental
impairment which can be expected to result in death
or which has lasted or can be expected to last for
a continuous period of not less than 12 months.
(b) Annual Option. Commencing immediately after the Annual
Meeting in 1998, each Non-Employee Director shall be
granted, immediately after such Annual Meeting and each
Annual Meeting thereafter where such person remains a
Non-Employee Director, an Option to purchase five
thousand (5,000) Company Shares (an "Annual Option");
provided, however, that any Non-Employee Director who
receives the Initial Option will be eligible to receive
the Annual Option commencing with the Annual Meeting in
2000. Each Annual Option shall vest and become
exercisable immediately upon the grant of such Annual
Option.
(c) Interim Option. If a new Non-Employee Director is
elected after the effective Date and not on the date of
an Annual Meeting (whether to fill a vacancy or newly-
created director position), he or she shall be granted,
on the date he or she is elected, an Option (an "Interim
Option") to purchase a number of Company Shares equal to
five thousand (5,000) times a fraction, the numerator of
which is the number of complete months from the date the
Non-Employee Director is elected until the then
anticipated date of the next Annual Meeting and the
denominator of which is twelve (12). Each Interim
Option shall vest and become exercisable immediately
upon the grant of such Interim Option.
(d) Right to Decline Option. Notwithstanding the foregoing,
any person may elect not to receive an Option by so
notifying the Company, orally or in writing, no later
than the day prior to the date such Option would
otherwise be granted. A person so declining an Option
shall receive no payment or other consideration in lieu
of such declined Option. A person who has declined an
Option may revoke such election by delivering written
notice of such revocation to the Board no later than the
day prior to the date such Option would be granted.
4.2 Terms of Options. Each Option shall expire and not be
exercisable after the first to occur of (i) December 31 of the year in
which the tenth anniversary of the Grant Date of such Option occurs
and (ii) three years after the Non-Employee Director ceases to be a
Director of the Company for any reason.
4.3 Option Price. The Option price per Company Share shall be
100 percent of the fair market value of a Company Share on the date
the Option is granted (the "Grant Date"). For this purpose "fair
market value" of a Company Share as of any date shall be equal to the
last per share sales price reported for a Company Share for such date
in The Wall Street Journal or, if no sales of Company Shares are
reported for such date in The Wall Street Journal, for the next
succeeding date for which sales of Company Shares are so reported in
The Wall Street Journal. If sales of Company Shares are not reported
for any date in The Wall Street Journal, then the "fair market value"
of a Company Share as of any date shall be determined in such manner
as shall be prescribed in good faith by the Committee.
4.4 Method of Exercising Options. An Option may be exercised
only by a written notice to the Company accompanied by payment of the
full Option price which may be made in any one or any combination of
the following: cash, certified or official bank check, or delivery of
Company Share certificates endorsed in blank or accompanied by
executed stock powers evidencing Company Shares whose value shall be
deemed to be the "fair market value" (as determined in accordance with
Section 4.3 hereof) on the date of exercise of such Company Shares.
V. General Provisions
5.1 Option Agreement. No person shall have any rights under
any Option granted under this Plan unless and until the Company and
the person to whom such Options shall have been granted shall have
executed and delivered an agreement expressly conferring the grant of
the Option to such person and containing provisions setting forth the
terms of the Option.
5.2 Shareholder Rights. A participant shall not have any
dividend, voting or other shareholder rights by reason of a grant of
an Option prior to the issuance of any Company Shares pursuant to the
proper exercise of all or any portion of such Option.
5.3 Transferability of Options.
(a) Permitted Transfers. Other than by will or the laws
of descent and distribution, each Option granted under
this Plan shall be transferable only to a member of a
participant's Family Group (the "Permitted
Transferees") and only if not transferred for value.
A Permitted Transferee may make subsequent transfers
to any person who would also be a Permitted Transferee
of the participant. If a participant or Permitted
Transferee transfers an Option pursuant to this
Section 5.3, he or she must give the Company prompt
written notice of such transfer and the transfer shall
only be effective upon the Company's receipt of such
notice. An Option shall be exercisable during the
participant's lifetime only by such participant, his
or her guardian in the event of disability or, upon
transfer, the Permitted Transferee. "Family Group"
means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse,
sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, any
person sharing the participant's household (other than
a tenant or employee), a trust in which these persons
have more than fifty percent of the beneficial
interest, a foundation in which these persons (or the
participant) control the management of the assets and
any other entity in which these persons (or the
participant) own more than fifty percent of the voting
interests. The following transactions are not
prohibited transfers for value: (i) a transfer under a
domestic relations order in settlement of marital
property rights; and (ii) a transfer to an entity in
which more than fifty percent of the voting interests
are owned by family members (or the participant) in
exchange for an interest in that entity.
(b) Death. In the event of the death of a participant,
exercise of any Option that has not been previously
transferred shall be made only by the executor or
administrator of the estate of the deceased
participant or the person or persons to whom the
deceased participant's rights under the benefit shall
pass by will or the laws of descent and distribution
and only to the extent that the deceased participant
was entitled thereto at the date of his or her death.
5.4 Adjustments. In the event that the Committee shall
determine that any dividend or other distribution (whether in the form
of cash, Company Shares, other securities or other property),
recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, combination, split-up, spin-off, repurchase or
exchange of Company Shares or other securities of the Company,
issuance of warrants or other rights to purchase Company Shares or
other securities of the Company, or other similar corporate
transaction or event affects the Company Shares such that an
adjustment is determined by the Committee to be appropriate in order
to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any
or all of (a) the number and type of Company Shares (or other
securities or Property) which thereafter may be made the subject of
Options, (b) the number and type of Company Shares (or other
securities or Property) subject to outstanding Options, and (c) the
grant, purchase, or exercise price with respect to any Options, or, if
deemed appropriate, make provision for a cash payment to the holder of
an outstanding Option.
5.5 Withholding of Taxes. The Company shall be entitled, if
the Committee (or any financial officer designated by it) considers it
necessary or desirable, to withhold (or secure payment from the
participant in lieu of withholding) the amount of any withholding or
other payment required of the Company under the tax withholding
provisions of the Code, any state's income tax act or any other
applicable law with respect to any Company Shares issuable under such
participant's exercised Options, and the Company may defer issuance
unless indemnified to its satisfaction with respect to payment of such
withholding or other tax. Subject to such rules as the Committee may
adopt, participants may satisfy this obligation, in whole or in part,
by an election to have the number of Company Shares received upon
exercise of any Option reduced by a number of Company Shares having a
"fair market value" (as determined in accordance with Section 4.3
hereof) equal to the amount of the required withholding to be so
satisfied or to surrender to the Company previously held Company
Shares having an equivalent fair market value.
5.6 No Directorship Rights Conferred. Nothing in the Plan or
in any Option granted under the Plan shall confer any right on a Non-
Employee Director to continue as a Director or shall interfere in any
way with any right or power to remove him or her from the Board in
accordance with applicable law and the Company's Articles of
Incorporation and Bylaws.
5.7 Disposition of Company Shares. Unless otherwise
specifically authorized by the Committee, participants may not dispose
of, sell or otherwise transfer any Company Shares acquired upon
exercise of Options granted under the Plan for a period of six months
following the Grant Date.
5.8 Continued Availability of Company Shares Under Unexercised
Options. If an Option granted under the Plan terminates or expires
without being wholly exercised or if Company Shares as to which an
Option has been exercised shall for any reason not be issued, a new
Option may be granted under the Plan covering the number of Company
Shares to which such termination, expiration, failure to issue or
reacquisition related.
5.9 Intent to Comply with Rule 16b-3. It is the intent of the
Company that the Plan comply in all respects with Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, that any ambiguities or
inconsistencies in construction of the Plan be interpreted to give
effect to such intention and that if any provision of the Plan is
found not to be in compliance with Rule 16b-3, such provision shall be
deemed null and void to the extent required to permit the Plan to
comply with Rule 16b-3.
5.10 No Strict Construction. No rule of strict construction
shall be applied against the Company, the Committee or any other
person in the interpretation of any of the terms of the Plan, any
Option agreement or any Option granted under the Plan or any rule or
procedure established by the Committee.
5.11 Choice of Law. Each Option granted under the Plan shall be
considered to be a contract under the laws of the State of Delaware
and, for all purposes, the Plan and each Option granted under the Plan
shall be construed in accordance with and governed by the laws of the
State of Delaware.
5.12 Successors. This Plan is binding on and will inure to the
benefit of any successor to the Company, whether by way of merger,
consolidation, purchase or otherwise.
5.13 Severability. If any provision of the Plan or an Option
Agreement shall be held illegal or invalid for any reason, such
illegality or invalidity shall not affect the remaining provisions of
the Plan or such agreement, and the Plan and such agreement shall each
be construed and enforced as if the invalid provisions had never been
set forth therein.
VI. Amendment and Termination.
6.1 Amendment. The Board of Directors may amend the Plan from
time to time, in its sole discretion, but no amendment shall:
(a) without a participant's consent impair his or her
rights to any Option theretofore granted; or
(b) without the authorization and approval of the
Company's shareholders (i) increase the maximum number
of Company Shares which may be issued in the aggregate
under the Plan, except as provided in Section 5.4 (ii)
extend the termination date of the Plan or of any
Option granted under the Plan or (iii) enlarge the
class of persons eligible to receive Options under the
Plan.
6.2 Termination. The Board of Directors may terminate the Plan
at any time with respect to Company Shares for which Options have not
theretofore been granted. Unless earlier terminated, the Plan will
terminate at the close of business on the day following the Annual
Meeting in 2006. Following the termination of the Plan, no further
Options may be granted under the Plan; however, all Options which
prior to the Plan termination have not expired, terminated or been
exercised or surrendered may be exercised thereafter in accordance
with their terms and the terms hereof, and the Committee shall
continue to have its full powers under the Plan.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND THE CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> JAN-28-2000 JAN-29-1999
<PERIOD-END> JUL-30-1999 JUL-31-1998
<CASH> $6,270 $5,016
<SECURITIES> 0 0
<RECEIVABLES> 13,060 12,087
<ALLOWANCES> 0 0
<INVENTORY> 189,983 318,439
<CURRENT-ASSETS> 251,535 375,978
<PP&E> 265,886 244,713
<DEPRECIATION> 110,961 92,544
<TOTAL-ASSETS> 407,409 529,084
<CURRENT-LIABILITIES> 143,637 296,483
<BONDS> 0 0
0 0
0 0
<COMMON> 402 402
<OTHER-SE> 255,237 223,452
<TOTAL-LIABILITY-AND-EQUITY> 407,409 529,084
<SALES> 544,225 507,781
<TOTAL-REVENUES> 544,225 507,781
<CGS> 300,575 267,563
<TOTAL-COSTS> 300,575 267,563
<OTHER-EXPENSES> 1,383 375
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 967 2,999
<INCOME-PRETAX> 17,400 8,169
<INCOME-TAX> 6,438 3,022
<INCOME-CONTINUING> 10,962 5,147
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> $10,962 $5,147
<EPS-BASIC> $0.37 $0.17
<EPS-DILUTED> $0.36 $0.17
</TABLE>
