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 MAY 28, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 333-36234
LEVI STRAUSS & CO.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 94-0905160
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) 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 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 July 7, 2000
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LEVI STRAUSS & CO.
INDEX TO FORM 10-Q
MAY 28, 2000
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PAGE
Number
------
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of May 28, 2000 and November 28, 1999................ 3
Consolidated Statements of Income for the Three and Six Months Ended
May 28, 2000 and May 30, 1999..................................................... 4
Consolidated Statements of Cash Flows for the Six Months Ended May 28, 2000
and May 30, 1999.................................................................. 5
Notes to Consolidated Financial Statements.......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................ 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......................... 19
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds........................................... 20
Item 6. Exhibit and Reports on Form 8-K..................................................... 20
SIGNATURES..................................................................................... 21
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2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
May 28, November 28,
2000 1999
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents...................................................... $ 128,363 $ 192,816
Trade receivables, net of allowance for doubtful accounts of $27,271 in 2000
and $30,017 in 1999.......................................................... 625,912 759,273
Income taxes receivable........................................................ 10,566 70,000
Inventories:
Raw materials.............................................................. 117,287 137,082
Work-in-process............................................................ 97,868 100,523
Finished goods............................................................. 372,976 433,882
---------- ----------
Total inventories....................................................... 588,131 671,487
Deferred tax assets............................................................ 261,808 300,972
Other current assets........................................................... 153,594 172,195
---------- ----------
Total current assets............................................... 1,768,374 2,166,743
Property, plant and equipment, net of accumulated depreciation of $500,493 in
2000 and $548,437 in 1999.......................................................... 579,324 685,026
Goodwill and other intangibles, net of accumulated amortization of $159,588 in
2000 and $158,052 in 1999.......................................................... 269,805 275,318
Non-current deferred tax assets...................................................... 465,924 478,235
Other assets ........................................................................ 73,279 60,195
---------- ----------
Total Assets....................................................... $3,156,706 $3,665,517
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current maturities of long-term debt and short-term borrowings................. $ 232,165 $ 233,992
Accounts payable............................................................... 201,891 262,389
Restructuring reserves......................................................... 107,546 258,784
Accrued liabilities............................................................ 391,762 415,273
Accrued salaries, wages and employee benefits.................................. 183,467 194,130
Accrued taxes.................................................................. --- 2,548
---------- ----------
Total current liabilities.......................................... 1,116,831 1,367,116
Long-term debt, less current maturities.............................................. 2,070,556 2,430,617
Long-term employee related benefits.................................................. 330,334 325,518
Postretirement medical benefits...................................................... 549,380 541,815
Long-term tax liability.............................................................. 241,542 241,542
Other long-term liabilities.......................................................... 18,940 20,696
Minority interest ................................................................... 23,153 26,775
---------- ----------
Total liabilities.................................................. 4,350,736 4,954,079
---------- ----------
Stockholders' Deficit:
Common stock--$.01 par value; authorized 270,000,000 shares; issued and
outstanding: 37,278,238 shares.............................................. 373 373
Additional paid-in capital..................................................... 88,812 88,812
Accumulated deficit............................................................ (1,285,073) (1,395,256)
Accumulated other comprehensive income......................................... 1,858 17,509
---------- ----------
Total stockholders' deficit........................................ (1,194,030) (1,288,562)
---------- ----------
Total Liabilities and Stockholders' Deficit........................ $3,156,706 $3,665,517
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
May 28, May 30, May 28, May 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales........................................................ $1,149,044 $1,227,910 $2,231,481 $2,506,232
Cost of goods sold............................................... 661,469 737,303 1,293,911 1,551,976
---------- ---------- ---------- ----------
Gross profit.................................................. 487,575 490,607 937,570 954,256
Marketing, general and administrative expenses................... 367,417 407,677 689,528 826,762
Excess capacity/restructuring charges............................ --- 11,780 --- 405,885
---------- ---------- ---------- ----------
Operating income (loss)....................................... 120,158 71,150 248,042 (278,391)
Interest expense................................................. 60,989 43,819 117,771 86,976
Other income, net................................................ (10,100) (20,931) (39,241) (37,058)
---------- ---------- ---------- ----------
Income (loss) before taxes.................................... 69,269 48,262 169,512 (328,309)
Income tax expense (benefit)..................................... 24,245 17,857 59,329 (121,474)
---------- ---------- ---------- ----------
Net income (loss)............................................. $ 45,024 $ 30,405 $ 110,183 $ (206,835)
========== ========== ========== ==========
Earnings (loss) per share--basic and diluted..................... $ 1.21 $ 0.82 $ 2.96 $ (5.55)
========== ========== ========== ==========
Weighted-average common shares outstanding....................... 37,278,238 37,278,238 37,278,238 37,278,238
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
----------------
May 28, May 30,
2000 1999
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)............................................................... $110,183 $(206,835)
Adjustments to reconcile net cash provided by operating activities:
Depreciation and amortization........................................... 44,225 72,554
Unrealized foreign exchange gains....................................... (11,969) (21,404)
Decrease in trade receivables........................................... 102,978 184,063
Decrease in income taxes receivables.................................... 59,434 ---
Decrease (increase) in inventories...................................... 50,936 (38,824)
Decrease in other current assets........................................ 7,488 14,461
Decrease (increase) in net deferred tax assets.......................... 45,404 (174,221)
Decrease in accounts payable and accrued liabilities.................... (38,104) (132,400)
(Decrease) increase in restructuring reserves........................... (151,238) 155,906
Decrease in accrued salaries, wages and employee benefits............... (5,661) (6,732)
(Decrease) increase in accrued taxes.................................... (1,505) 6,243
(Decrease) increase in long-term employee benefits...................... (1,539) 55,510
Other, net.............................................................. (57,449) 33,481
-------- ---------
Net cash provided by (used for) operating activities............ 153,183 (58,198)
-------- ---------
Cash Flows from Investing Activities:
Purchases of property, plant and equipment.............................. (12,403) (32,091)
Proceeds from sale of property, plant and equipment..................... 101,651 11,406
Gains on net investment hedges.......................................... 47,840 28,865
Other, net.............................................................. 56 836
-------- ---------
Net cash provided by investing activities....................... 137,144 9,016
-------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt................................ 300,983 864,565
Repayments of long-term debt............................................ (655,783) (810,460)
Net decrease in short-term borrowings................................... 2,227 15,363
Other, net.............................................................. --- 3
-------- ---------
Net cash (used for) provided by financing activities............ (352,573) 69,471
-------- ---------
Effect of exchange rate changes on cash......................................... (2,207) (4,063)
-------- ---------
Net(decrease)increase in cash and cash equivalents.............................. (64,453) 16,226
Beginning cash and cash equivalents............................................. 192,816 84,565
-------- ---------
Ending cash and cash equivalents................................................ $128,363 $ 100,791
======== =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest................................................................ $102,669 $ 88,155
Income taxes............................................................ 17,222 46,845
Restructuring initiatives............................................... 151,238 249,979
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
<PAGE>
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: PREPARATION OF FINANCIAL STATEMENTS
The unaudited consolidated financial statements of Levi Strauss & Co. and
subsidiaries ("LS&CO." or "Company") are prepared in conformity with generally
accepted accounting principles for interim financial information. In the opinion
of management, all adjustments necessary for a fair presentation of the
financial position and operating results for the periods presented have been
included. All such adjustments are of a normal recurring nature. These unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements of LS&CO. for the year ended November 28, 1999
included in the registration statement on Form S-4 under the Securities Act of
1933 filed by LS&CO. with the Securities and Exchange Commission (the "SEC") on
May 4, 2000 as amended by Amendment No. 1 filed by LS&CO. with the SEC on May
17, 2000.
The consolidated financial statements include the accounts of LS&CO. and
its subsidiaries. All inter-company transactions have been eliminated.
Management believes that, along with the following information, the disclosures
are adequate to make the information presented herein not misleading. Certain
prior year amounts have been reclassified to conform to the current
presentation. The results of operations for the three and six months ended May
28, 2000 may not be indicative of the results to be expected for the year ending
November 26, 2000.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). In June 1999, the FASB delayed
the effective date of SFAS 133 to fiscal years beginning after June 15, 2000.
The Company will adopt SFAS 133 and its subsequent amendments the first day of
fiscal year 2001. SFAS 133 establishes accounting and reporting standards for
derivative instruments including certain derivative instruments embedded in
other contracts and for hedging activities. In summary, SFAS 133 requires all
derivatives to be recognized as assets or liabilities at fair value. Fair value
adjustments are made either through earnings or equity, depending upon the
exposure being hedged and the effectiveness of the hedge. The Company has not
yet quantified all effects of adopting SFAS 133 on its financial statements.
However, the adoption of SFAS 133 could increase volatility in earnings and
other comprehensive income or result in certain changes in the Company's
business practices. The Company currently has an implementation team in place
that is determining the method of implementation and evaluating the effects of
adopting SFAS 133 and its subsequent amendments.
NOTE 2: COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
The following is a summary of the components of total comprehensive income
(loss); net of related income taxes:
Three Months Ended Six Months Ended
------------------ ----------------
May 28, May 30, May 28, May 30,
2000 1999 2000 1999
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Net income (loss)............................................. $ 45,024 $30,405 $110,183 $(206,835)
Other comprehensive income (loss):
Foreign currency translation adjustments...................... (19,482) 1,795 (15,651) 33,301
-------- ------- -------- ----------
Total comprehensive income (loss)............................. $ 25,542 $32,200 $ 94,532 $ (173,534)
======== ======= ======== ==========
</TABLE>
6
<PAGE>
LEVI STRAUSS & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Unaudited)
NOTE 3: EXCESS CAPACITY/RESTRUCTURING RESERVES
NORTH AMERICA PLANT CLOSURES
In view of declining sales, the need to bring manufacturing capacity in
line with sales projections and the need to reduce costs, the Company decided to
close some of its owned and operated production facilities in North America
starting in 1997. The Company announced in 1997 the closure of ten manufacturing
facilities and a finishing center in the U.S. which were closed during 1998 and
displaced approximately 6,400 employees. The table below displays the activity
and liability balances of this reserve.
In 1998, the Company announced the closure of two more finishing centers in
the U.S. that were closed during 1999 and displaced approximately 990 employees.
The table below displays the activity and liability balances of this reserve.
The Company announced in February 1999 plans to close 11 manufacturing
facilities in North America that resulted in an initial charge of $394.1
million. The 11 manufacturing facilities were closed during 1999 and
approximately 5,900 employees were displaced. The table below displays the
activity and liability balances of this reserve.
<TABLE>
<CAPTION>
1997 NORTH AMERICA PLANT CLOSURES
Balance Balance
11/28/99 Reductions 5/28/00
-------- ---------- -------
<S> <C> <C> <C>
(Dollars in Thousands)
Severance and employee benefits........................................ $ 8,790 $ (4,741) $ 4,049
Asset write-offs....................................................... 10,655 (1,838) 8,817
Other restructuring costs.............................................. 1,913 (333) 1,580
-------- -------- -------
Total............................................................... $ 21,358 $ (6,912) $14,446
======== ======== =======
<CAPTION>
1998 NORTH AMERICA PLANT CLOSURES
Balance Balance
11/28/99 Reductions 5/28/00
-------- ---------- -------
<S> <C> <C> <C>
(Dollars in Thousands)
Severance and employee benefits........................................ $ 2,683 $ (2,159) $ 524
Asset write-offs....................................................... 9,713 (3,571) 6,142
Other restructuring costs.............................................. 1,193 (480) 713
-------- -------- -------
Total............................................................... $ 13,589 $ (6,210) $ 7,379
======== ======== =======
<CAPTION>
1999 NORTH AMERICA PLANT CLOSURES
Balance Balance
11/28/99 Reductions 5/28/00
-------- ---------- -------
<S> <C> <C> <C>
(Dollars in Thousands)
Severance and employee benefits........................................ $109,755 $(73,733) $36,022
Asset write-offs....................................................... 37,563 (10,275) 27,288
Other restructuring costs.............................................. 28,526 (1,175) 27,351
-------- -------- -------
Total............................................................... $175,844 $(85,183) $90,661
======== ======== =======
</TABLE>
7
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LEVI STRAUSS & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Unaudited)
CORPORATE REORGANIZATION INITIATIVES
Starting in 1998, the Company instituted various overhead reorganization
initiatives to reduce overhead costs and consolidate operations. The
reorganization initiative instituted in 1998 displaced approximately 770
employees. The table below displays the activity and liability balances of this
reserve.
In conjunction with the above plan to institute overhead reorganization
initiatives, the Company recorded charges of $11.8 million and $37.1 million
during the second and fourth quarters of 1999, respectively, that were estimated
to displace approximately 930 employees. As of May 28, 2000, approximately 625
employees were displaced. The table below displays the activity and liability
balances of this reserve.
<TABLE>
<CAPTION>
1998 CORPORATE REORGANIZATION INITIATIVES
Balance Balance
11/28/99 Reductions 5/28/00
-------- ---------- -------
<S> <C> <C> <C>
(Dollars in Thousands)
Severance and employee benefits..................................... $ 3,204 $(2,308) $ 896
Asset write-offs.................................................... 3,044 (1,608) 1,436
Other restructuring costs........................................... 6,412 (179) 6,233
------- ------- ------
Total............................................................ $12,660 $(4,095) $8,565
======= ======= ======
<CAPTION>
1999 CORPORATE REORGANIZATION INITIATIVES
Balance Balance
11/28/99 Reductions 5/28/00
-------- ---------- -------
<S> <C> <C> <C>
(Dollars in Thousands)
Severance and employee benefits..................................... $43,550 $(29,489) $14,061
Other restructuring costs........................................... 1,680 (412) 1,268
------- -------- -------
Total............................................................ $45,230 $(29,901) $15,329
======= ======== =======
</TABLE>
EUROPE REORGANIZATION AND PLANT CLOSURES
In 1998, the Company announced plans to close two manufacturing and two
finishing facilities, and reorganize operations throughout Europe, displacing
approximately 1,650 employees. These plans were prompted by decreased demand for
denim jeans products and a resulting over-capacity in the Company's European
owned and operated plants. The production facilities were closed by the end of
1999 and as of May 28, 2000, approximately 1,630 employees were displaced. The
table below displays the activity and liability balances of this reserve.
In conjunction with the above plans in Europe, the Company announced in
September 1999 plans to close a production facility, and reduce capacity at a
finishing facility in the United Kingdom with an estimated displacement of 960
employees. The production facility closed in December 1999 and as of May 28,
2000, approximately 845 employees were displaced. The table below displays the
activity and liability balances of this reserve.
8
<PAGE>
<TABLE>
<CAPTION>
LEVI STRAUSS & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Unaudited)
1998 EUROPE REORGANIZATION AND PLANT CLOSURES
Balance Balance
11/28/99 Reductions 5/28/00
-------- ---------- -------
<S> <C> <C> <C>
(Dollars in Thousands)
Severance and employee benefits................................... $10,653 $(5,890) $4,763
Asset write-offs.................................................. 3,396 (2,180) 1,216
------- -------- ------
Total.......................................................... $14,049 $(8,070) $5,979
======= ======= ======
<CAPTION>
1999 EUROPE REORGANIZATION AND PLANT CLOSURES
Balance Balance
11/28/99 Reductions 5/28/00
-------- ---------- -------
<S> <C> <C> <C>
(Dollars in Thousands)
Severance and employee benefits................................... $38,413 $(29,187) $ 9,226
Asset write-offs.................................................. 4,474 (2,008) 2,466
Other restructuring costs......................................... 2,012 (1,152) 860
------- -------- -------
Total.......................................................... $44,899 $(32,347) $12,552
======= ======== =======
</TABLE>
Reductions consist of payments for severance and employee benefits and the
other restructuring costs, as well as actual losses on disposals of assets. The
balance of severance and employee benefits and other restructuring costs are
included under restructuring reserves on the balance sheet. The balance of asset
write-offs is categorized as a non-cash reduction to property, plant and
equipment on the balance sheet.
NOTE 4: FINANCING
NOTES EXCHANGE OFFER
In May 2000, the Company filed a registration statement on Form S-4 under
the Securities Act of 1933, as amended (the "Securities Act") with the SEC
relating to an exchange offer of its 6.80% notes due 2003 and 7.00% notes due
2006. The exchange offer gave holders of these notes the opportunity to exchange
these old notes, which were issued on November 6, 1996 under Rule 144A of the
Securities Act, for new notes that are registered under the Securities Act of
1933. The new notes are identical in all material respects to the old notes
except that the new notes are registered.
The exchange offer ended on June 20, 2000. As a result of the exchange
offer, all but $20 thousand of the $350.0 million aggregate principal amount of
6.80% old notes due 2003 were exchanged for the 6.80% exchange notes due 2003;
and all $450.0 million aggregate principal amount of the 7.00% old notes due
2006 were exchanged for the 7.00% exchange notes due 2006.
The Company was not obligated by any agreement including its credit
facility agreements to engage in the exchange offer. The Company initiated the
exchange offer to give holders of these notes the opportunity to exchange the
old notes for registered notes.
9
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LEVI STRAUSS & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Unaudited)
2000 CREDIT FACILITY AGREEMENTS
On January 31, 2000 the Company amended three of its credit facility
agreements and entered into one new agreement to reflect its current financial
position and extend maturity dates. The new financing package consists of four
separate agreements: (1) a new $450.0 million bridge loan to fund working
capital and support letters of credit, foreign exchange contracts and
derivatives, (2) an amended $300.0 million revolving credit facility, extending
the existing bridge facility, (3) an amended $545.0 million 364-day credit
facility, and (4) an amended $584.0 million 5-year credit facility.
Simultaneously with entering into these agreements, the Company terminated a
domestic receivables-backed securitization financing.
All four facilities are secured by domestic receivables, domestic
inventories, certain domestic equipment, trademarks, other intellectual
property, 100% of the stock in domestic subsidiaries, 65% of the stock of
certain foreign subsidiaries and other assets. The maturity date for all credit
facilities is January 31, 2002. Borrowings under the bank credit facilities bear
interest at LIBOR or the agent bank's base rate plus an incremental borrowing
spread. For the bridge facility, the spread is 3.00% over LIBOR or 1.75% over
the base rate. For each of the three amended facilities, the spread is 3.25%
over LIBOR or 2.00% over the base rate.
In addition, if by February 1, 2001 the Company has not completed one or
more private or public capital-raising transactions yielding net proceeds of at
least $300.0 million, which are required to be used to reduce commitments under
the bank credit facilities, LS&CO. will be required to pay its lenders an
additional borrowing spread of 1.00% on outstanding borrowings under the bank
credit facilities, plus a one-time additional fee of 2.00% of total commitments
as of January 31, 2001. The Company's borrowing spread will be increased by
0.25% quarterly until those capital-raising transactions are completed.
The credit agreements contain customary covenants restricting the Company's
activities as well as those of its subsidiaries, including limitations on the
Company's and its subsidiaries' ability to sell assets; engage in mergers; enter
into operating leases or capital leases; enter into transactions involving
related parties, derivatives or letters of credit; enter into intercompany
transactions; incur indebtedness or grant liens or negative pledges on the
Company's assets; make loans or other investments; pay dividends or repurchase
stock or other securities; guaranty third party obligations; make capital
expenditures; and make changes in the Company's corporate structure. The credit
agreements also contain financial covenants that the Company must satisfy on an
ongoing basis, including a maximum leverage ratio, a minimum coverage ratio and
a minimum earnings base calculation. The Company was in compliance with
financial covenants required by the credit facility agreements as of May 28,
2000.
CUSTOMER SERVICE CENTER EQUIPMENT FINANCING
In December 1999 the Company entered into a secured financing transaction
consisting of a five-year credit facility secured by owned equipment at Customer
Service Centers located in Nevada, Mississippi and Kentucky. The amount financed
in December 1999 is $89.5 million, comprised of a $59.5 million tranche
("Tranche 1") and a $30.0 million tranche ("Tranche 2"). Borrowings under
Tranche 1 have a fixed interest rate equal to the yield of a four-year Treasury
note plus an incremental borrowing spread. Borrowings under Tranche 2 have a
floating quarterly interest rate equal to the 90 day LIBOR plus an incremental
borrowing spread based on the Company's leverage ratio at that time. Proceeds
from the borrowings were used to reduce the commitment amounts of the
then-existing credit facilities.
10
<PAGE>
LEVI STRAUSS & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Unaudited)
RECEIVABLES SECURITIZATION AGREEMENTS
In February 2000, several of the Company's European subsidiaries entered
into receivable securitization financing agreements with several lenders. Once
operational matters are resolved, those subsidiaries may borrow up to $125.0
million under these agreements. Currently, the subsidiaries have not made any
borrowings under the facilities, which must be used to reduce the commitment
levels under the Company's bank credit facilities. Borrowings would be
collateralized by a security interest in the receivables of these subsidiaries.
The Company and its Japanese subsidiary are currently negotiating a similar
receivables-backed securitization financing agreement that the Company expects
to complete by the end of September 2000.
INTEREST RATE SWAPS & OPTIONS
The Company is exposed to interest rate risk. It is the Company's policy
and practice to use derivative instruments, primarily interest rate swaps and
options, to manage and reduce interest rate exposures.
At May 28, 2000, the Company had interest rate swap transactions
outstanding with a total notional principal amount of $425.0 million, to convert
floating rate liabilities to fixed rates, and $375.0 million to convert fixed
rate liabilities to floating rates. These swap transactions effectively change
the Company's interest rates on part of its debt to fixed rates that range from
6.25% to 7.00% and floating rates that range from 5.95% to 6.64%, depending on
their maturities, the latest of which is in 2006. The Company has also entered
into interest rate option structures (caps & floors) to reduce or neutralize the
exposure to changes in variable interest rates. The structures represent an
outstanding amount of $225.0 million and cover a series of variable cash flows
through August 2001.
The Company is exposed to credit loss in the event of nonperformance by the
counterparties to the interest swap transactions. However, the Company believes
these counterparties are creditworthy financial institutions and does not
anticipate nonperformance.
NOTE 5: COMMITMENTS AND CONTINGENCIES
FOREIGN EXCHANGE CONTRACTS
At May 28, 2000, the Company had U.S. dollar forward currency contracts to
sell the aggregate equivalent of $703.0 million and other contracts to buy the
aggregate equivalent of $475.4 million of various foreign currencies. The
Company also had Euro forward currency contracts to buy the aggregate equivalent
of $10.2 million and other contracts to sell the aggregate equivalent of $22.4
million of various foreign currencies. Additionally, the Company had option
contracts to sell the aggregate equivalent of $753.3 million and to buy the
aggregate equivalent of $243.8 million of various foreign currencies. These
contracts are at various exchange rates and expire at various dates through May
2001.
The Company's market risk is generally related to fluctuations in the
currency exchange rates. The Company is exposed to credit loss in the event of
nonperformance by the counterparties to the foreign exchange contracts. However,
the Company believes these counterparties are creditworthy financial
institutions and does not anticipate nonperformance.
11
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LEVI STRAUSS & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Unaudited)
NOTE 6: FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of certain financial instruments has been
determined by the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is required in
interpreting market data. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
The carrying amount and estimated fair value (in each case including
accrued interest) of the Company's financial instrument assets and (liabilities)
at May 28, 2000 and November 28, 1999 are as follows:
<TABLE>
May 28, 2000 November 28, 1999
------------ -----------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----- ---------- ----- ----------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
DEBT INSTRUMENTS:
Credit facilities.................................. $(1,197,223) $(1,197,223) $(1,424,449) $(1,424,449)
Yen-denominated eurobond placement................. (184,085) (157,266) (189,274) (148,113)
Notes offering..................................... (799,123) (583,500) (798,640) (626,307)
Receivables-backed securitization.................. -- -- (215,836) (215,836)
Industrial development revenue refunding
bond............................................ (10,042) (10,042) (10,030) (10,030)
Customer service center equipment financing........ (89,839) (89,839) -- --
CURRENCY AND INTEREST RATE HEDGES:
Foreign exchange forward contracts................. $ 11,678 $ 10,909 $ 16,972 $ 16,932
Foreign exchange option contracts.................. 8,499 8,650 7,806 2,288
Interest rate swap contracts....................... (723) (13,686) (2,224) (4,839)
Interest rate option contracts..................... (250) 707 -- --
</TABLE>
Quoted market prices or dealer quotes are used to determine the estimated
fair value of foreign exchange contracts, option contracts and interest rate
swap contracts. Dealer quotes and other valuation methods, such as the
discounted value of future cash flows, replacement cost, and termination cost
have been used to determine the estimated fair value for long-term debt and the
remaining financial instruments. The carrying values of cash and cash
equivalents, trade receivables, current assets, current and non-current
maturities of long-term debt, short-term borrowings and taxes approximate fair
value.
The fair value estimates presented herein are based on information
available to the Company as of May 28, 2000 and November 28, 1999. Although the
Company is not aware of any factors that would substantially affect the
estimated fair value amounts, such amounts have not been updated since those
dates and, therefore, the current estimates of fair value at dates subsequent to
May 28, 2000 and November 28, 1999 may differ substantially from these amounts.
Additionally, the aggregation of the fair value calculations presented herein do
not represent and should not be construed to represent the underlying value of
the Company.
12
<PAGE>
<TABLE>
<CAPTION>
LEVI STRAUSS & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Unaudited)
NOTE 7: BUSINESS SEGMENT INFORMATION
Asia All
Americas Europe Pacific Other Consolidated
-------- ------ ------- ----- ------------
<S> <C> <C> <C> <C> <C>
(Dollars in Thousands)
THREE MONTHS ENDED MAY 28, 2000:
Net sales....................................... $762,113 $278,657 $108,274 $ -- $1,149,044
Earnings contribution........................... 95,120 60,764 13,142 -- 169,026
Interest expense................................ -- -- -- 60,989 60,989
Corporate and other (income) expense, net....... -- -- -- 38,768 38,768
Income before income taxes...................... -- -- -- -- 69,269
THREE MONTHS ENDED MAY 30, 1999:
Net sales....................................... $801,785 $337,280 $88,845 $ -- $1,227,910
Earnings contribution........................... 70,471 63,278 11,417 -- 145,166
Excess capacity/restructuring charge............ -- -- -- 11,780 11,780
Interest expense................................ -- -- -- 43,819 43,819
Corporate and other (income) expense, net....... -- -- -- 41,305 41,305
Income before income taxes...................... -- -- -- -- 48,262
Asia All
Americas Europe Pacific Other Consolidated
-------- ------ ------- ----- ------------
(Dollars in Thousands)
SIX MONTHS ENDED MAY 28, 2000:
Net sales....................................... $1,452,642 $581,660 $197,179 $ -- $2,231,481
Earnings contribution........................... 172,099 141,773 26,553 -- 340,425
Interest expense................................ -- -- -- 117,771 117,771
Corporate and other (income) expense, net....... -- -- -- 53,142 53,142
Income before income taxes...................... -- -- -- -- 169,512
SIX MONTHS ENDED MAY 30, 1999:
Net sales....................................... $1,621,608 $714,255 $170,369 $ -- $2,506,232
Earnings contribution........................... 136,412 159,363 21,373 -- 317,148
Excess capacity/restructuring charge............ -- -- -- 405,885 405,885
Interest expense................................ -- -- -- 86,976 86,976
Corporate and other (income) expense, net....... -- -- -- 152,596 152,596
Loss before income taxes........................ -- -- -- -- (328,309)
</TABLE>
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected items
in our consolidated statements of operations, expressed as a percentage of net
sales (amounts may not total due to rounding).
<TABLE>
Three Months Ended Six Months Ended
------------------ ----------------
May 28, 2000 May 30, 1999 May 28, 2000 May 30, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
MARGIN DATA:
Net sales................................................ 100.0% 100.0% 100.0% 100.0%
Cost of goods sold....................................... 57.6 60.0 58.0 61.9
----- ----- ----- -----
Gross profit............................................. 42.4 40.0 42.0 38.1
Marketing, general and administrative expenses........... 32.0 33.2 30.9 33.0
Excess capacity/restructuring charges.................... -- 1.0 -- 16.2
----- ----- ----- -----
Operating income (loss).................................. 10.5 5.8 11.1 (11.1)
Interest expense......................................... 5.3 3.6 5.3 3.5
Other income, net........................................ (0.8) (1.7) (1.8) (1.5)
----- ----- ----- -----
Income (loss) before taxes............................... 6.0 3.9 7.6 (13.1)
Income tax expense (benefit)............................. 2.1 1.4 2.7 (4.8)
----- ----- ----- -----
Net income (loss)........................................ 3.9% 2.5% 4.9% (8.3)%
===== ===== ===== =====
NET SALES SEGMENT DATA:
Geographic
Americas........................................ 66.3% 65.3% 65.1% 64.7%
Europe.......................................... 24.3 27.5 26.1 28.5
Asia Pacific.................................... 9.4 7.2 8.8 6.8
</TABLE>
Summary. Net sales decreased 6.4% for the three months ended May 28, 2000
and 11.0% for the six months ended May 28, 2000 as compared to the same periods
in 1999, due to lower average selling prices and year-to-date volume declines.
Although net sales levels decreased from the prior year periods, the rate of
decrease shows signs of slowing as indicated by the lower decrease for the three
month period ended May 28, 2000, compared to the six month period ended May 28,
2000. Additionally, volume for the three months ended May 28, 2000 was flat
compared to the prior year period. We believe that product innovation, marketing
initiatives and improved production and shipping execution against product
demand contributed to the slowing decline in sales. In addition, denim fashion
trends around the world appear to be returning to a more traditional basic jeans
style, which contributed to the slowing decline of net sales.
Improvements in product mix and sourcing arrangements offset some of the
sales decline effects as gross margin for the three months ended May 28, 2000
rose to 42.4% and gross margin for the six months ended May 28, 2000 rose to
42.0%.
Operating income for the three months ended May 28, 2000 of $120.2 million
and for the six months ended May 28, 2000 of $248.0 million improved over the
prior year periods due to improved gross margins, better management of
marketing, general and administration costs and the impact of the restructuring
initiatives on prior year reported results. Excluding the effects of the
restructuring initiatives on prior year results, operating income for three
months ended May 28,2000 would have increased approximately 45%, compared to the
same period in 1999 and operating income for the six months ended May 28, 2000
would have increased approximately 95% compared to the first half of 1999.
14
<PAGE>
Net Sales. Net sales for the three months ended May 28, 2000 decreased 6.4%
to $1.1 billion, as compared to $1.2 billion in the same period in 1999. Net
sales for the six months ended May 28, 2000 decreased 11.0% to $2.2 billion as
compared to $2.5 billion in the same period in 1999. If currency exchange rates
where unchanged from the prior year periods, net sales for the three months
ended May 28, 2000 would have declined approximately 5% compared to the prior
year period and net sales for the six months ended May 28, 2000 would have
declined approximately 9% from the prior year period.
In addition to overall flat volume for the three months ended May 28, 2000,
and volume decreases for the six months ended May 28, 2000, compared to the
prior year periods, average unit selling prices decreased due to the translation
effects of the stronger U.S. dollar and a higher proportion of closeout sales.
The majority of the closeout sales were in line with our efforts to clear
inventories of slow-moving or obsolete fashion products. Despite flat overall
total company volume, our Europe division experienced quarterly volume sales
declines. The year-to-date volume declines were in our Americas and Europe
divisions, while the Asia Pacific region reported increased volume in
comparison to the prior year period.
In the Americas, net sales for the three months ended May 28, 2000 of
$762.1 million decreased 4.9% from the prior year period, primarily due to lower
average unit selling prices. Lower average unit selling prices resulted from a
higher proportion of closeout sales. Net sales for the six months ended May 28,
2000 of $1.5 billion decreased 10.4% from the previous year period due primarily
to a drop in volume in the first quarter of 2000 and a higher proportion of
closeouts. Consumers in the Americas continue to demonstrate interest in other
types of bottoms, including khaki casual pants. However, the denim market is
showing indications of stabilization and consumer demand appears to be shifting
more towards basic denim products. In addition, we are beginning to benefit from
improved relationships with retail customers.
In Europe, net sales for the three months ended May 28, 2000 decreased
17.4% to $278.7 million, as compared to $337.3 million in the same period in
1999. Net sales for the six months ended May 28, 2000 decreased 18.6% to $581.7
million, as compared to $714.3 million in the prior year period. The net sales
decreases were primarily due to a decline in volume, a higher percentage of
closeouts and the reporting impacts of the stronger U.S. dollar exchange rate.
If exchange rates were unchanged from the prior year periods, the reported net
sales decreases would have been approximately 11% for the current quarter and
10% year-to-date.
In our Asia Pacific region, net sales for the three months ended May 28,
2000 increased 21.9% to $108.3 million, as compared to $88.8 million in the same
period of 1999. Net sales for the six months ended May 28, 2000 increased 15.7%
to $197.2 million, as compared to $170.4 million in the prior year period. The
increase is primarily driven by consistent volume increases across most markets,
particularly Japan, and the effects of translation to U.S. dollar reported
results. If exchange rates were unchanged from the prior year periods, the
reported net sales increases would have been approximately 16% for the current
quarter and 10% year-to-date. Japan experienced good core product sales at
retail and consumer interest in new product innovations.
Gross Profit. Gross profit for the three months ended May 28, 2000 totaled
$487.6 million compared with $490.6 in the prior year period. Gross profit as a
percentage of net sales, or gross margin for the three months ended May 28, 2000
increased to 42.4%, as compared to 40.0% in the same period of 1999. Gross
profit for the six months ended May 28, 2000 totaled $937.6 million compared to
$954.3 million in the first half of last year. Gross margin for the six months
ended May 28, 2000 increased to 42.0%, as compared to 38.1% for the prior year
period. In addition to an improved product mix, gross margin also benefited from
the use of less expensive production sourcing options and less plant downtime as
a result of the restructuring initiatives.
15
<PAGE>
Marketing, general and administrative expenses. Marketing, general and
administrative expenses for the three months ended May 28, 2000 decreased 9.9%
to $367.4 million, as compared to $407.7 million in the same period last year.
Marketing, general and administrative expenses as a percentage of sales for the
three months ended May 28, 2000 decreased 1.2 percentage points to 32.0% as
compared to 33.2% in the same period in 1999. Marketing, general and
administrative expenses for the six months ended May 28, 2000 decreased 16.6% to
$689.5 million, as compared to $826.8 million in the same period last year.
Marketing, general and administrative expenses as a percentage of sales for the
six months ended May 28, 2000 decreased 2.1 percentage points to 30.9% as
compared to 33.0% in the same period in 1999.
These decreases are primarily due to our cost containment efforts, lower
salaries and related expenses resulting from headcount reductions, lower sales
volume-related expenses, lower advertising expenses and lower information
technology expenses associated with minimal year 2000 compliance costs in 2000.
These decreases were partially offset by increased costs for employee incentive
plans. Based on performance against internal plans used for determining
incentive compensation, we anticipate that costs for employee incentive plans
will continue to increase in the second half of 2000.
Advertising expense for the three months ended May 28, 2000 decreased 10.9%
to $107.2 million as compared to $120.3 million in the same period last year.
Advertising expense as a percentage of sales for the three months ended May 28,
2000 decreased 0.5 percentage points to 9.3% as compared to 9.8% in the same
period in 1999. Advertising expense for the six months ended May 28, 2000
decreased 19.0% to $189.0 million as compared to $233.5 million in the same
period in 1999. Advertising expense as a percentage of sales for the six months
ended May 28, 2000 decreased 0.8 percentage points to 8.5% as compared to 9.3%
in the same period in 1999. The decreases in advertising expense as a percentage
of sales for the three and six month periods of 2000 compared to the prior year
periods were primarily due to timing and therefore we anticipate advertising
expense to be higher in the second half than the first half of 2000.
Marketing, general and administrative expenses as a percentage of sales are
expected to be higher in the second half than the first half of 2000 due to
anticipated increased costs for employee incentive plans and advertising
expense.
Excess capacity/restructuring charges. For the three months ended May 28,
2000, we recorded no excess capacity/restructuring charges, as compared to
charges of $11.8 million in the same period in 1999. For the six months ended
May 28, 2000, we recorded no charges, as compared to charges of $405.9 million
in the same period in 1999. These charges were associated with our corporate
overhead restructuring charges during the three months ended May 30, 1999 and
plant closures in North America during the three months ended February 28, 1999.
Interest expense. Interest expense for the three months ended May 28, 2000
increased 39.2% to $61.0 million as compared to $43.8 million in the same period
last year. Interest expense for the six months ended May 28, 2000 increased
35.4% to $117.8 million as compared to $87.0 million in the same period in 1999.
These increases were due to a higher average cost of borrowing resulting from
higher interest rates associated with the new credit facility and equipment
financing agreements and higher market interest rates.
Other income, net. Other income, net for the three months ended May 28,
2000 decreased 51.7% to $10.1 million as compared to $20.9 million in the same
period last year. Other income, net for the six months ended May 28, 2000
increased 5.9% to $39.2 million as compared to $37.1 million in the same period
in 1999. The decrease for the second quarter period was primarily due to lower
net gains on foreign currency contracts. The increase for the six-month period
was primarily attributable to a $26.1 million gain in the first quarter of 2000
for the sale of two office buildings in San Francisco located next to our
corporate headquarters, partially offset by lower net gains on foreign currency
contracts. Net currency gains are primarily due to the fluctuations of various
currencies in relation to our foreign currency hedging positions.
16
<PAGE>
Income tax expense (benefit). Income tax expense for the three months ended
May 28, 2000 increased 35.8% to $24.2 million as compared to $17.9 million in
the same period last year. Income tax expense for the six months ended May 28,
2000 was $59.3 million as compared to an income tax benefit of $121.5 million in
the same period in 1999. Our effective tax rate for the second quarter and
six-month period in 2000 was 35% compared to 37% for the same periods in 1999.
The lower tax rate in 2000 was due to a reassessment of potential tax
settlements. The effective tax rate for 1999 differs from the statutory federal
income tax rate of 35% primarily due to state income taxes and foreign losses
with no recorded tax benefit. The income tax benefit for the six-month period in
1999 was generated primarily from the pre-tax loss that resulted from the
restructuring charges of $405.9 million during the period.
RESTRUCTURING AND EXCESS CAPACITY REDUCTION
Since 1997, we have closed 29 of our owned and operated production and
finishing facilities in North America and Europe and instituted restructuring
initiatives in order to reduce costs, eliminate excess capacity and align our
sourcing strategy with changes in the industry and in consumer demand. (See Note
3 to the Consolidated Financial Statements.)
Following is a table that summaries the plant closures and restructuring
charges for the years 1997 - 1999, the resulting cash and non-cash reductions
and their balances as of May 28, 2000.
<TABLE>
Balance as of
Initial Cash Non-cash May 28,
Provision Reductions Reductions 2000
--------- ----------- ---------- ----
<S> <C> <C> <C> <C>
(Dollars in Thousands)
1997 North America Plant Closures.................................. $ 386,792 $333,487 $38,859 $ 14,446
1998 North America Plant Closures.................................. 82,073 55,367 19,327 7,379
1999 North America Plant Closures.................................. 394,105 275,904 27,540 90,661
1998 Corporate Restructuring Initiatives........................... 61,062 49,906 2,591 8,565
1999 Corporate Restructuring Initiatives........................... 48,889 33,560 -- 15,329
1998 Europe Restructuring and Plant Closures....................... 107,523 92,734 8,810 5,979
1999 Europe Restructuring and Plant Closures....................... 54,689 40,103 2,034 12,552
---------- -------- ------- --------
Total as of May 28, 2000........................................ $1,135,133 $881,061 $99,161 $154,911
========== ======== ======= ========
</TABLE>
The balance of the above reserves as of May 28, 2000 was $154.9 million, of
which $47.4 million was a non-cash item and categorized as a reduction to
property, plant and equipment on the balance sheet, while the remaining balance
of $107.5 million was included in restructuring reserves on the balance sheet
and will be paid in cash. Approximately $50.0 million of this balance is
expected to be paid by the end of fiscal year 2000, with the remaining balance
expected to be paid in 2001.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements have been to fund working capital and
capital expenditures. We have historically relied on internally generated funds
and bank borrowings to finance our operations. As of May 28, 2000, total cash
and cash equivalents were $128.4 million, a $27.6 million increase over the
$100.8 million cash balance reported as of May 30, 1999 and a decrease of $64.5
million from the $192.8 million reported as of November 28, 1999.
17
<PAGE>
Our capital spending in the first six months of 2000 was $12.4 million, as
compared to $32.1 million in the first six months of 1999. As a result of our
shift in sourcing base toward outsourcing, plant closures in 1998 and 1999 and
the consolidation of office space, we expect to have reduced capital spending
than in the past. Our capital expenditure plan for fiscal year 2000 contemplates
$50.0 million in expenditures, primarily for maintenance and purchase of equip-
ment at our remaining manufacturing facilities and distribution centers and
for computer systems.
Cash provided by/used for operations. Cash provided by operating activities
for the six months ended May 28, 2000 was $153.2 million, as compared to a use
of cash of $58.2 million in the same period in 1999. Inventory decreased during
the six-month period in 2000 due to our inventory initiatives, which included
tighter inventory control, lead-time reduction and a program to dispose of
second quality and closeout inventory. Income taxes receivable decreased during
the six-month period in 2000 due to income tax refunds of $66.3 million received
in March 2000 associated with a carryback of a net operating loss reported on
our 1999 income tax return. Net deferred tax assets and restructuring reserves
decreased during the six-month period in 2000 primarily due to spending related
to the restructuring initiatives. Accrued salaries, wages, and employee
benefits, and long-term employee benefits decreased during the six-month period
in 2000 as a result of the reduced number of employees and timing differences.
Cash provided by investing activities. Cash provided by investing
activities during the six months ended May 28, 2000 increased to $137.1 million,
as compared to $9.0 million during the same period in 1999. The increase in 2000
resulted primarily from proceeds received on increased sales of property, plant
and equipment, higher realized gains on net investment hedges and lower
purchases of property, plant and equipment. The higher proceeds received on the
sale of property, plant and equipment was primarily attributable to a sale in
February 2000 of two office buildings in San Francisco located adjacent to our
corporate headquarters.
Cash provided by/used for financing activities. Cash used for financing
activities for the six months ended May 28, 2000 was $352.6 million, as compared
to a source of cash of $69.5 million in the same period in 1999. The use of cash
in 2000 was due to continued debt repayments on existing debt.
YEAR 2000
We experienced no material disruption in customer or supplier
relationships, revenue patterns or customer buying patterns during the first
half of 2000 as a result of the year 2000 problem. There have been no losses of
revenue and we do not believe that any future contingencies related to year 2000
would have a material impact on our business.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). In June 1999, the FASB delayed
the effective date of SFAS 133 to fiscal years beginning after June 15, 2000. We
will adopt SFAS 133 and its subsequent amendments the first day of fiscal year
2001. We have not yet quantified all effects of adopting SFAS 133 on our
financial statements. However, the adoption of SFAS 133 could increase
volatility in earnings and other comprehensive income or result in certain
changes in our business practices. We currently have an implementation team in
place that is determining the method of implementation and evaluating the
effects of adopting SFAS 133 and its subsequent amendments. (See Note 1 to the
Consolidated Financial Statements.)
18
<PAGE>
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
This Form 10-Q includes forward-looking statements about sales performance
and trends, fashion trends, product mix, inventory position and management,
expense levels including overhead and advertising expense, debt repayment and
liquidity, customer orders, retail relationships and developments including
sell-through, presentation of product at retail and marketing collaborations,
and marketing and advertising initiatives. We have based these forward-looking
statements on our current assumptions, expectations and projections about future
events. When used in this document, the words "believe," "anticipate," "intend,"
"estimate," "expect," "appear," "project"and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements
contain these words.
These forward-looking statements are subject to risks and uncertainties
including, without limitation, risks related to the impact of competitive
products; changing fashion trends; dependence on key distribution channels,
customers and suppliers; our supply chain executional performance; ongoing
competitive pressures in the apparel industry; changing international retail
environments; changes in the level of consumer spending or preferences in
apparel; trade restrictions; political or financial instability in countries
where our products are manufactured; and other risks detailed in our
registration statement on Form S-4 filed with the Securities and Exchange
Commission (the "SEC") on May 4, 2000 as amended by Amendment No. 1 filed on May
17, 2000, and our other filings with the SEC. Our actual results might differ
materially from historical performance or current expectations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Note 6 to the Consolidated Financial Statements and the Liquidity and
Capital Resources section under Management's Discussion and Analysis of
Financial Condition and Results of Operations.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In May 2000, we filed a registration statement on Form S-4 with the SEC
relating to an exchange offer of our 6.80% notes due 2003 and 7.00% notes due
2006. The exchange offer gave holders of these notes the opportunity to exchange
these old notes, which were issued on November 6, 1996 under Rule 144A of the
Securities Act, for new notes that are registered under the Securities Act of
1933. The new notes are identical in all material respects to the old notes
except that the new notes are registered. The Company and Citibank, N.A. as
trustee, entered into a supplemental indenture dated as of May 16, 2000, in
connection with the exchange offer. The supplemental indenture provided for the
issuance of the new, registered notes and confirmed that transfer restrictions
in the indenture would not apply to the new notes.
The exchange offer ended on June 20, 2000. As a result of the exchange
offer, all but $20 thousand of the $350.0 million aggregate principal amount of
6.80% old notes due 2003 were exchanged for the 6.80% exchange notes due 2003;
and all $450.0 million aggregate principal amount of the 7.00% old notes due
2006 were exchanged for the 7.00% exchange notes due 2006.
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K:
(a) EXHIBIT:
27 Financial data schedule
(b) REPORTS ON FORM 8-K:
Current Report on Form 8-K on May 19, 2000 to correct inadvertent
errors in the prospectus dated May 17, 2000 included in the
registration statement on Form S-4, Registration No. 333-36234, filed
with the SEC on May 4, 2000.
Current Report on Form 8-K on June 20, 2000 in connection with our
registration statement on Form S-4, Registration No. 333-36234, to
incorporate by reference into such registration statement an earnings
release dated June 20, 2000.
20
<PAGE>
SIGNATURES
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 thereunto duly authorized.
Date: July 7, 2000 Levi Strauss & Co.
------------------
(Registrant)
By: /s/ William B. Chiasson
----------------------
William B. Chiasson
Senior Vice President and Chief Financial Officer
21
<PAGE>
DocumentIDW/454408v1-2-
<TABLE>
<S> <C>
Exhibit 27
</TABLE>
