UNITED STATES
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 Quarterly Period Ended August 29, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 002-90139
LEVI STRAUSS & CO.
(Exact Name of Registrant as Specified in Its Charter)
| DELAWARE | 94-0905160 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
1155 Battery Street, San Francisco, California 94111
(Address of Principal Executive Offices)
(415) 501-6000
(Registrant’s Telephone Number, Including Area Code)
None
(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report)
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 by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ¨ No x |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock $.01 par value—37,278,238 shares outstanding on October 12, 2004
INDEX TO FORM 10-Q
August 29, 2004
| Page Number | ||||
| PART I—FINANCIAL INFORMATION | ||||
| Item 1. |
||||
| Consolidated Balance Sheets as of August 29, 2004 and November 30, 2003 |
3 | |||
| 4 | ||||
| Consolidated Statements of Cash Flows for the Nine Months Ended August 29, 2004 and August 24, 2003 |
5 | |||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
33 | ||
| Item 3. |
56 | |||
| Item 4. |
56 | |||
| PART II—OTHER INFORMATION | ||||
| Item 1. |
58 | |||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
58 | ||
| Item 3. |
58 | |||
| Item 4. |
59 | |||
| Item 5. |
59 | |||
| Item 6. |
60 | |||
| 61 | ||||
2
LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
| August 29, 2004 |
November 30, 2003 |
|||||||
| ASSETS | ||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 286,194 | $ | 203,940 | ||||
| Restricted cash |
2,053 | — | ||||||
| Trade receivables, net of bad debt allowance of $21,102 in 2004 and $26,956 in 2003 |
563,112 | 555,106 | ||||||
| Inventories |
539,126 | 680,068 | ||||||
| Deferred tax assets, net of valuation allowance of $25,281 in both 2004 and 2003 |
131,827 | 131,827 | ||||||
| Other current assets |
92,102 | 104,176 | ||||||
| Total current assets |
1,614,414 | 1,675,117 | ||||||
| Property, plant and equipment, net of accumulated depreciation of $473,085 in 2004 and $491,121 in 2003 |
419,987 | 486,714 | ||||||
| Goodwill, net of accumulated amortization of $151,569 in 2004 and in 2003 |
199,905 | 199,905 | ||||||
| Other intangible assets, net of accumulated amortization of $35,022 in 2004 and $36,349 in 2003 |
44,645 | 44,722 | ||||||
| Non-current deferred tax assets, net of valuation allowance of $324,269 in both 2004 and 2003 |
490,021 | 490,021 | ||||||
| Other assets |
77,028 | 87,283 | ||||||
| Total Assets |
$ | 2,846,000 | $ | 2,983,762 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: |
||||||||
| Current maturities of long-term debt and short-term borrowings |
$ | 81,615 | $ | 34,700 | ||||
| Current maturities of capital lease |
1,367 | — | ||||||
| Accounts payable |
224,329 | 296,188 | ||||||
| Restructuring reserves |
67,530 | 96,406 | ||||||
| Accrued liabilities |
204,527 | 244,520 | ||||||
| Accrued salaries, wages and employee benefits |
261,413 | 195,129 | ||||||
| Accrued taxes |
118,010 | 29,863 | ||||||
| Total current liabilities |
958,791 | 896,806 | ||||||
| Long-term debt, less current maturities |
2,222,947 | 2,281,729 | ||||||
| Long-term capital lease, less current maturities |
5,295 | — | ||||||
| Postretirement medical benefits |
498,713 | 555,008 | ||||||
| Pension liability |
231,313 | 250,814 | ||||||
| Long-term employee related benefits |
158,328 | 193,188 | ||||||
| Long-term tax liabilities |
40,377 | 143,082 | ||||||
| Other long-term liabilities |
33,667 | 32,576 | ||||||
| Minority interest |
24,126 | 23,731 | ||||||
| Total liabilities |
4,173,557 | 4,376,934 | ||||||
| Stockholders’ Deficit: |
||||||||
| Common stock—$.01 par value; 270,000,000 shares authorized; 37,278,238 shares issued and outstanding |
373 | 373 | ||||||
| Additional paid-in capital |
88,808 | 88,808 | ||||||
| Accumulated deficit |
(1,334,997 | ) | (1,384,818 | ) | ||||
| Accumulated other comprehensive loss |
(81,741 | ) | (97,535 | ) | ||||
| Total stockholders’ deficit |
(1,327,557 | ) | (1,393,172 | ) | ||||
| Total Liabilities and Stockholders’ Deficit |
$ | 2,846,000 | $ | 2,983,762 | ||||
The accompanying notes are an integral part of these financial statements.
3
LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
| Three Months Ended August 29, 2004 |
Three Months Ended August 24, 2003 |
Nine Months Ended August 29, 2004 |
Nine Months Ended August 24, 2003 |
|||||||||||||
| Net sales |
$ | 994,626 | $ | 1,083,748 | $ | 2,915,763 | $ | 2,892,803 | ||||||||
| Cost of goods sold |
538,179 | 686,487 | 1,638,377 | 1,742,194 | ||||||||||||
| Gross profit |
456,447 | 397,261 | 1,277,386 | 1,150,609 | ||||||||||||
| Selling, general and administrative expenses |
300,540 | 343,472 | 894,965 | 1,003,767 | ||||||||||||
| Long-term incentive compensation plan expense (reversal) |
10,735 | (129,127 | ) | 37,066 | (139,262 | ) | ||||||||||
| Other operating income |
(11,593 | ) | (10,280 | ) | (29,626 | ) | (27,348 | ) | ||||||||
| Restructuring charges, net of reversals |
28,117 | 2,610 | 108,158 | (5,776 | ) | |||||||||||
| Operating income |
128,648 | 190,586 | 266,823 | 319,228 | ||||||||||||
| Interest expense |
64,252 | 62,524 | 197,687 | 185,549 | ||||||||||||
| Other expense (income), net |
10 | (3,125 | ) | 2,458 | 51,673 | |||||||||||
| Income before taxes |
64,386 | 131,187 | 66,678 | 82,006 | ||||||||||||
| Income tax expense |
17,821 | 135,500 | 16,857 | 186,200 | ||||||||||||
| Net income (loss) |
$ | 46,565 | $ | (4,313 | ) | $ | 49,821 | $ | (104,194 | ) | ||||||
The accompanying notes are an integral part of these financial statements.
4
LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
| Nine Months Ended |
||||||||
| August 29, 2004 |
August 24, 2003 |
|||||||
| Cash Flows from Operating Activities: |
||||||||
| Net income (loss) |
$ | 49,821 | $ | (104,194 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: |
||||||||
| Depreciation and amortization |
45,237 | 46,610 | ||||||
| Non-cash asset write-offs associated with reorganization initiatives |
34,997 | 10,968 | ||||||
| Gain on dispositions of property, plant and equipment |
(612 | ) | (185 | ) | ||||
| Unrealized foreign exchange gains |
(13,643 | ) | (20,145 | ) | ||||
| (Increase) decrease in trade receivables |
(11,699 | ) | 68,437 | |||||
| Decrease (increase) in inventories |
133,621 | (198,879 | ) | |||||
| Decrease (increase) in other current assets |
13,154 | (26,903 | ) | |||||
| Decrease in other non-current assets |
11,617 | 24,590 | ||||||
| (Decrease) increase in accounts payable and accrued liabilities |
(92,342 | ) | 34,628 | |||||
| Increase in net deferred taxes |
— | (188,232 | ) | |||||
| Decrease in restructuring reserves |
(28,877 | ) | (52,713 | ) | ||||
| Addition to deferred tax valuation allowance |
— | 282,448 | ||||||
| Increase (decrease) in accrued salaries, wages and employee benefits |
68,131 | (97,579 | ) | |||||
| Increase (decrease) in accrued taxes |
20,360 | (91,352 | ) | |||||
| Decrease in long-term employee related benefits |
(95,919 | ) | (140,258 | ) | ||||
| (Decrease) increase in other long-term liabilities |
(32,671 | ) | 34,870 | |||||
| Other, net |
1,572 | (492 | ) | |||||
| Net cash provided by (used for) operating activities |
102,747 | (418,381 | ) | |||||
| Cash Flows from Investing Activities: |
||||||||
| Purchases of property, plant and equipment |
(10,866 | ) | (50,937 | ) | ||||
| Proceeds from sale of property, plant and equipment |
6,672 | 10,105 | ||||||
| Cash inflow (outflow) from net investment hedges |
1,544 | (20,901 | ) | |||||
| Net cash used for investing activities |
(2,650 | ) | (61,733 | ) | ||||
| Cash Flows from Financing Activities: |
||||||||
| Proceeds from issuance of long-term debt |
— | 1,448,660 | ||||||
| Repayments of long-term debt |
(10,069 | ) | (955,388 | ) | ||||
| Net (decrease) increase in short-term borrowings |
(2,678 | ) | 8,082 | |||||
| Debt issuance costs |
(2,069 | ) | (44,878 | ) | ||||
| Increase in restricted cash |
(2,053 | ) | (23,427 | ) | ||||
| Other, net |
(996 | ) | — | |||||
| Net cash (used for) provided by financing activities |
(17,865 | ) | 433,049 | |||||
| Effect of exchange rate changes on cash |
22 | 1,264 | ||||||
| Net increase (decrease) in cash and cash equivalents |
82,254 | (45,801 | ) | |||||
| Beginning cash and cash equivalents |
203,940 | 96,478 | ||||||
| Ending cash and cash equivalents |
$ | 286,194 | $ | 50,677 | ||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid during the period for: |
||||||||
| Interest |
$ | 198,807 | $ | 158,837 | ||||
| Income taxes |
35,564 | 166,396 | ||||||
| Restructuring initiatives |
102,188 | 41,147 | ||||||