RELATED PARTY

According to forms Schedule 13D (Amendment No. 2) filed on April 8, 2014 and December 2, 2013 with the SEC by ESL Investments, Inc. and its investment affiliates, including Edward S. Lampert (collectively, “ESL”), ESL beneficially owned significant portions of both the Company's and Sears Holdings Corporation's outstanding shares of common stock. Therefore Sears Holdings Corporation, the Company's former parent company, is considered a related party both prior to and subsequent to the Separation.

Prior to the Separation, Sears Holdings Corporation (including all of its non-Lands’ End subsidiaries) and the Company entered into various agreements: (i) to support the Lands’ End Shops at Sears; (ii) to provide various general corporate services; and (iii) to allow for the use of intellectual property or services. The amounts charged to the Company by Sears Holdings do not necessarily reflect the costs of obtaining the services from unaffiliated third parties or of the Company providing the applicable services itself. Management believes such costs are reasonable; however, the Condensed Consolidated and Combined Financial Statements contained herein may not be indicative of the Company’s financial position, operating results, and cash flows in the future, or what they would have been if it had been a standalone company during all periods presented. Unless indicated otherwise, the fees and expense charged are included in Selling and administrative expense in the Condensed Consolidated and Combined Statements of Comprehensive Operations.

In connection with the Separation, we entered into various agreements with Sears Holdings which, among other things, (i) govern specified aspects of our relationship following the Separation, especially with regards to the Lands’ End Shops at Sears, and (ii) establish terms pursuant to which subsidiaries of Sears Holdings Corporation are providing services to us.

References to and descriptions of the agreements below represent the agreements entered into as part of the Separation. For descriptions of the agreements and the related allocation methodologies prior to the Separation, refer to Note 11 - Related Party in our 2013 Annual Report on Form 10-K.

The components of the transactions between the Company and Sears Holdings are as follows:

Lands’ End Shops at Sears

Related party costs charged by Sears Holdings to the Company related to Lands’ End Shops at Sears are as follows:



	13 Weeks Ended
(in thousands)	May 2, 2014		May 3, 2013
Rent, CAM and occupancy costs	$	6,811	$	7,005
Retail services, store labor	7,647		8,327
Supply chain costs	131		657
Financial services and payment processing	727		673
Total expenses	$	15,316	$	16,662
Number of Lands’ End Shops at Sears at period end	251		276

Rent, CAM and Occupancy Costs

The Company rents space in store locations owned or leased by Sears Roebuck and Co. (“Sears Roebuck”), a subsidiary of Sears Holdings Corporation. The agreements include a cost per square foot for rent, common area maintenance (“CAM”) and occupancy costs. The lease terms for the individual store locations generally terminate effective January 31, 2018, 2019, or 2020.

Retail Services, Store Labor

The Company contracts with Sears Roebuck to provide hourly labor and required systems and tools to service customers in the Lands’ End Shops at Sears. This includes dedicated staff to directly engage with customers and allocated overhead. The dedicated staff undergoes specific Lands’ End brand training. Required tools include point-of-sale, price lookup and labor scheduling systems.

Supply Chain Costs

The Company contracts with Sears Roebuck to provide logistics, handling, transportation and other services, primarily based upon inventory units processed, to assist in the flow of merchandise from vendors to the Lands’ End Shops at Sears locations.

Financial Services and Payment Processing

The Company contracts with Sears Holdings Management Corporation (“SHMC”), a subsidiary of Sears Holdings Corporation, to provide retail financing and payment solutions, primarily based upon customer credit card activity, including third-party payment acceptance, credit cards and gift cards.

General Corporate Services

Related party costs charged by Sears Holdings to the Company for general corporate services are as follows:



	13 Weeks Ended
(in thousands)	May 2, 2014		May 3, 2013
Sourcing	$	1,861	$	1,730
Shop Your Way	1,014		1,540
Shared services	133		89
Co-location and services	6		6
Total expenses	$	3,014	$	3,365

Sourcing

The Company contracts with Sears Holdings Global Sourcing, Ltd., a subsidiary of Sears Holdings Corporation, to provide agreed upon buying agency services in foreign territories from where the Company purchases merchandise. These services, primarily based upon inventory levels, include quality-control functions, regulatory compliance, delivery schedule tracking, product claims management and new vendor identification. These amounts are included in Cost of sales in the Condensed Consolidated and Combined Statements of Comprehensive Operations.

Shop Your Way

The Company contracts with SHMC to participate in Sears Holdings’ Shop Your Way (“SYW”) member loyalty program. Customers earn points on purchases which may be redeemed to pay for future purchases. SHMC charges the Company an expense as customers earn points. In 2014, as customers redeem points on purchases, a redemption expense is paid to SHMC. All SYW member loyalty program expenses are recorded in Cost of sales in the Condensed Consolidated and Combined Statements of Comprehensive Operations. In 2013, as customers redeemed points on purchases, Sears Holdings reimbursed the Company through a redemption credit. The redemption credit was $2.0 million for the 13 weeks ended May 3, 2013 and was included in Merchandise sales and services, net in the Condensed Consolidated and Combined Statements of Comprehensive Operations.

Shared Services

The Company contracts with SHMC to provide certain shared corporate services. These shared services include financing services (which includes use of the Private Label Letter of Credit program), treasury services (including tax and risk management), insurance coverage, shipping costs and compliance.

Co-Location and Services

The Company contracts with SHMC to host and support certain redundant information technology hardware, software and operations at the Sears Data Center in Troy, Michigan for disaster mitigation and recovery efforts.

Use of Intellectual Property or Services

Related party revenue charged by the Company to Sears Holdings for the use of intellectual property or services is as follows:



(in thousands)	13 Weeks Ended
	May 2, 2014		May 3, 2013
Royalty income	$	12	$	13
Call center services	226		295
Gift card revenue	241		223
Credit card revenue	248		283
Total income	$	727	$	814

Royalty Income

The Company entered into a licensing agreement with SHMC whereby royalties are paid in consideration for sharing or use of intellectual property. Royalties received under this agreement are included in Merchandise sales and services, net in the Condensed Consolidated and Combined Statements of Comprehensive Operations.

Call Center Services

The Company has entered into a contract with SHMC to provide call center services in support of Sears Holdings’ SYW member loyalty program. This income is net of agreed upon costs directly attributable for the Company providing these services. The income is included in Merchandise sales and services, net and costs are included in Selling and administrative expenses in the Condensed Consolidated and Combined Statements of Comprehensive Operations.

Gift Card Revenue

The Company has entered into a contract with SHC Promotions LLC (“SHCP”), a subsidiary of Sears Holdings Corporation, to provide gift certificates, gift cards and store credits (“Credits”) for use by the Company. The Company offers Credits for sale on behalf of SHCP and redeems such items on the Company’s Internet websites, retail stores and other retail outlets for merchandise. The Company receives a commission fee on the face value for each Credit it sells, and a payment from Sears Holdings for certain Lands' End-branded Credits that are redeemed by Sears Holdings for non-Lands' End merchandise. The Company pays a transaction/redemption fee to SHCP for each Credit the Company redeems. The income net of associated expenses is included in Merchandise sales and services, net in the Condensed Consolidated and Combined Statements of Comprehensive Operations.

Credit Card Revenue

The Company has entered into a contract with SHMC to provide credit cards for customer sales transactions. The Company earns revenue based on the dollar volume of merchandise sales and receives a fee based on the generation of new credit card accounts. This income is included in Merchandise sales and services, net in the Condensed Consolidated and Combined Statements of Comprehensive Operations.

Additional Balance Sheet Information

At May 2, 2014, the Company included $4.6 million and $9.5 million in Accounts receivable, net and Accounts payable, respectively, in the Condensed Consolidated and Combined Balance Sheets to reflect amounts due from and owed to Sears Holdings. At May 2, 2014, a $13.7 million receivable was recorded by the Company in Other assets in the Condensed Consolidated and Combined Balance Sheets to reflect the indemnification by Sears Holdings Corporation of the pre-Separation uncertain tax positions for which Sears Holdings Corporation is responsible.