Levi Strauss & Co. Announces Fourth-Quarter & Fiscal-Year 2012 Financial Results

Levi Strauss & Co. Announces Fourth-Quarter & Fiscal-Year 2012 Financial Results

Reports Higher Cash Flow, Higher Net Income and Lower Net Debt Despite Decline in Revenues

Gross Margin Improves in Fourth Quarter


SAN FRANCISCO--(BUSINESS WIRE)-- Levi Strauss & Co. (LS&Co.) today announced financial results for the fourth quarter and fiscal year ended November 25, 2012.

Highlights include:

($ millions)

Three Months Ended
Nov. 25, 2012

Three Months Ended
Nov. 27, 2011

Fiscal Year Ended
Nov. 25, 2012

Fiscal Year Ended
Nov. 27, 2011

Net revenues

$1,297

$1,344

$4,610

$4,762

Net income

$53

$44

$144

$138

On a reported basis, fourth-quarter and full-year net revenues declined 3 percent from the prior year. Excluding the impact of currency, fourth-quarter net revenues declined 2 percent and full-year net revenues were down less than 1 percent from the prior year. For both periods, increased sales from company-operated retail stores in the Americas and Europe were offset by the adverse impact of slowing economic conditions in Asia, as well as strategic choices taken during the third quarter to exit certain businesses in the Americas and Asia.

Operating income for both the fourth quarter and full year were flat to 2011. In the fourth quarter of 2012, improvements in gross margin were reinvested primarily into advertising activities.

Fourth quarter and full-year net income increased 20 percent and four percent from the prior year, respectively, primarily reflecting lower tax expense due to a tax benefit the company recorded in the fourth quarter.

"In 2012, we made some tough choices and executed significant changes to set the company on a path towards driving sustainable profitable growth," said Chip Bergh, president and chief executive officer. "We have a largely new leadership team, sharper strategies and a new organization model designed to win in the marketplace. We're focused on driving our profitable core businesses, expanding beyond the core to develop a more balanced portfolio, becoming a best-in-class retailer and making our cost structure more competitive."

Fourth Quarter 2012 Highlights

  • Gross profit in the fourth quarter was $649 million compared with $624 million for the same period in 2011. Gross margin for the fourth quarter was 50 percent of net revenues compared with 46 percent of net revenues in the fourth quarter of 2011. The gross margin improvement reflected increased sales from the company's retail stores, a decline in sales to lower-margin channels and lower cotton costs.

  • Selling, general and administrative (SG&A) expenses for the fourth quarter increased to $558 million compared with $532 million in the same period of 2011, primarily reflecting increased advertising activities in some markets and a difference in timing of campaigns.

  • Lower income tax expense, which benefitted net income, resulted from a tax benefit of $27 million that the company recorded in conjunction with reaching an agreement with the State of California on state tax refund claims involving tax years 1986 through 2004.

Regional Overview

Regional net revenues for the fourth quarter were as follows:

% Increase

Net Revenues
($ millions)

Three Months
Ended November
25, 2012

Three Months
Ended November
27, 2011

As Reported

Constant
Currency

Americas

$818

$807

1%

1%

Europe

$294

$306

(4)%

2%

Asia Pacific

$186

$231

(20)%

(18)%

  • In the Americas, the net revenue increase was driven by higher sales in Levi's® brand retail stores across outlet and online channels. Wholesale net revenues declined, reflecting fewer sales to lower-margin channels and the company's third-quarter decision to license the Levi's® brand boys business.

  • Net revenues in Europe increased on a constant-currency basis, reflecting growth of the company-operated retail network. Sales to traditional wholesale channels declined, reflecting the ongoing depressed retail environment, most notably in southern Europe.

  • The net revenue decline in Asia Pacific reflected high channel inventories and challenging market conditions. The company's decision in the third quarter of 2012 to phase out the Denizen® brand in Asia also contributed to the decline in revenues.

Fiscal Year 2012 Highlights

  • Gross profit for the fiscal year was $2,199 million compared with $2,292 million in 2011, reflecting unfavorable currency effects and the company's decision to phase out the Denizen® brand in Asia. Gross margin of 48 percent of revenues in 2012 reflected a slight decline from the prior year. Excluding unfavorable currency effects and the impact of the Denizen® brand phase-out, gross margin improved due to increased revenue from company-operated stores, the decline in sales to lower-margin channels and the benefit of the lower cost of cotton.

  • SG&A expenses declined to $1,865 million for 2012 compared with $1,956 million in the prior year, primarily due to favorable currency effects and lower advertising and promotion expenses.

  • Operating income for 2012 was $334 million compared to $336 million the prior year, primarily due to unfavorable currency effects. On a constant-currency basis, higher operating income primarily reflected lower expenses.

Cash Flow and Balance Sheet

The company ended the fourth quarter with cash and cash equivalents of $406 million and unused availability under its credit facility of $534 million. Cash provided by operating activities improved to $531 million for 2012, primarily reflecting reduced purchases and lower cost of inventory, as well as lower operating costs. Higher cash flow during 2012 enabled the company to pay off all borrowings against its credit facility. Net debt was $1.3 billion at the end of fiscal 2012 as compared to $1.8 billion at the end of fiscal 2011.

Investor Conference Call

The company's fourth-quarter and full-year 2012 investor conference call will be available through a live audio webcast at http://www.levistrauss.com/investors today, February 7, 2013, at 1 p.m. PST/4 p.m. EST or via the following phone numbers: 800-891-4735 in the United States and Canada, or 973-200-3066 internationally; I.D. No. 90792730. A replay is available on the website the same day and will be archived for one month. A telephone replay also is available through February 14, 2013, at 800-585-8367; I.D. No.90792730.

Forward Looking Statements

This news release contains, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.We have based these forward-looking statements on our current assumptions, expectations and projections about future events.We use words like "believe," "will," "so we can," "when," "anticipate," "intend," "estimate," "expect," "project" and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these words.These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements.Investors should consider the information contained in our filings with the U.S.Securities and Exchange Commission (the "SEC"), including our Annual Report on Form 10-K for the fiscal year ended 2012, especially in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections.Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements.In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this news release may not occur.You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date of this news release.We are not under any obligation and do not intend to make publicly available any update or other revisions to any of the forward-looking statements contained in this news release to reflect circumstances existing after the date of this news release or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.

About Levi Strauss & Co.

Levi Strauss & Co. is one of the world's largest brand-name apparel companies and a global leader in jeanswear. The company designs and markets jeans, casual wear and related accessories for men, women and children under the Levi's®, Dockers®, Signature by Levi Strauss & Co.™, and Denizen® brands. Its products are sold in more than 110 countries worldwide through a combination of chain retailers, department stores, online sites, and a global footprint of approximately 2,300 franchised and company-operated stores. Levi Strauss & Co.'s reported fiscal 2012 net revenues were $4.6 billion. For more information, go to http://levistrauss.com.

LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

November 25,

November 27,

2012

2011

ASSETS

(Dollars in thousands)

Current Assets:

Cash and cash equivalents

$

406,134

$

204,542

Trade receivables, net of allowance for doubtful accounts of $20,738 and $22,684

500,672

654,903

Inventories:

Raw materials

5,312

7,086

Work-in-process

9,558

9,833

Finished goods

503,990

594,483

Total inventories

518,860

611,402

Deferred tax assets, net

116,224

99,544

Other current assets

136,483

172,830

Total current assets

1,678,373

1,743,221

Property, plant and equipment, net of accumulated depreciation of $782,766 and $731,859

458,807

502,388

Goodwill

239,971

240,970

Other intangible assets, net

59,909

71,818

Non-current deferred tax assets, net

612,916

613,161

Other non-current assets

120,101

107,997

Total assets

$

3,170,077

$

3,279,555

LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' DEFICIT

Current Liabilities:

Short-term debt

$

59,759

$

154,747

Current maturities of capital leases

1,760

1,714

Accounts payable

225,726

204,897

Other accrued liabilities

263,575

256,316

Accrued salaries, wages and employee benefits

223,850

235,530

Accrued interest payable

5,471

9,679

Accrued income taxes

16,739

9,378

Total current liabilities

796,880

872,261

Long-term debt

1,669,452

1,817,625

Long-term capital leases

262

1,999

Postretirement medical benefits

140,958

140,108

Pension liability

492,396

427,422

Long-term employee related benefits

62,529

75,520

Long-term income tax liabilities

40,356

42,991

Other long-term liabilities

60,869

51,458

Total liabilities

3,263,702

3,429,384

Commitments and contingencies

Temporary equity

7,883

7,002

Stockholders' Deficit:

Levi Strauss & Co. stockholders' deficit

Common stock—$.01 par value; 270,000,000 shares authorized; 37,392,343 shares and 37,354,021 shares issued and outstanding

374

374

Additional paid-in capital

33,365

29,266

Retained earnings

273,975

150,770

Accumulated other comprehensive loss

(414,635

)

(346,002

)

Total Levi Strauss & Co. stockholders' deficit

(106,921

)

(165,592

)

Noncontrolling interest

5,413

8,761

Total stockholders' deficit

(101,508

)

(156,831

)

Total liabilities, temporary equity and stockholders' deficit

$

3,170,077

$

3,279,555

The notes accompanying our consolidated financial statements in our Form 10-K are an integral part of these consolidated financial statements.

LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

Year Ended

Year Ended

Year Ended

November 25,

November 27,

November 28,

2012

2011

2010

(Dollars in thousands)

Net revenues

$

4,610,193

$

4,761,566

$

4,410,649

Cost of goods sold

2,410,862

2,469,327

2,187,726

Gross profit

2,199,331

2,292,239

2,222,923

Selling, general and administrative expenses

1,865,352

1,955,846

1,841,562

Operating income

333,979

336,393

381,361

Interest expense

(134,694

)

(132,043

)

(135,823

)

Loss on early extinguishment of debt

(8,206

)

(248

)

(16,587

)

Other income (expense), net

4,802

(1,275

)

6,647

Income before income taxes

195,881

202,827

235,598

Income tax expense

54,922

67,715

86,152

Net income

140,959

135,112

149,446

Net loss attributable to noncontrolling interest

2,891

2,841

7,057

Net income attributable to Levi Strauss & Co.

$

143,850

$

137,953

$

156,503

The notes accompanying our consolidated financial statements in our Form 10-K are an integral part of these consolidated financial statements.

LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended

Year Ended

Year Ended

November 25,

November 27,

November 28,

2012

2011

2010

(Dollars in thousands)

Cash Flows from Operating Activities:

Net income

$

140,959

$

135,112

$

149,446

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

122,608

117,793

104,896

Asset impairments

27,031

5,777

6,865

Gain on disposal of property, plant and equipment

(351

)

(2

)

(248

)

Unrealized foreign exchange gains

(3,146

)

(5,932

)

(17,662

)

Realized (gain) loss on settlement of forward foreign exchange contracts not designated for hedge accounting

(8,508

)

9,548

16,342

Employee benefit plans' amortization from accumulated other comprehensive loss

1,412

(8,627

)

3,580

Employee benefit plans' curtailment (gain) loss, net

(2,391

)

129

106

Noncash (gain) loss on extinguishment of debt, net of write-off of unamortized debt issuance costs

(3,643

)

226

(13,647

)

Amortization of deferred debt issuance costs

4,323

4,345

4,332

Stock-based compensation

5,965

8,439

6,438

Allowance for doubtful accounts

5,024

4,634

7,536

Deferred income taxes

19,853

16,153

31,113

Change in operating asse