DELAWARE | 002-90139 | 94-0905160 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
¨ | Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240. 13e-4(c)) |
ITEM 2.02. | Results of Operations and Financial Condition. |
ITEM 9.01. | Financial Statements and Exhibits. |
99.1 | Press release, dated February 7, 2018, announcing Levi Strauss & Co.’s fourth quarter and fiscal year 2017 financial results. |
LEVI STRAUSS & CO. | |||
DATE: | February 7, 2018 | By: | /s/ GAVIN BROCKETT |
Name: | Gavin Brockett | ||
Title: | Senior Vice President and Global Controller |
Investor Contact: | Edelita Tichepco | Media Contact: | Avery Vaught | |||
Levi Strauss & Co. | Levi Strauss & Co. | |||||
(415) 501-1953 | (415) 501-2214 | |||||
Investor-relations@levi.com | newsmediarequests@levi.com |
Three Months Ended | % Increase (Decrease) As Reported | Fiscal Year Ended | % Increase (Decrease) As Reported | |||||||||||||||||||
($ millions) | November 26, 2017 | November 27, 2016 | November 26, 2017 | November 27, 2016 | ||||||||||||||||||
Net revenues | $ | 1,466 | $ | 1,299 | 13 | % | $ | 4,904 | $ | 4,553 | 8 | % | ||||||||||
Net income attributable to LS&Co. | $ | 116 | $ | 96 | 20 | % | $ | 281 | $ | 291 | (3 | )% | ||||||||||
Adjusted EBIT | $ | 157 | $ | 146 | 7 | % | $ | 481 | $ | 480 | — | % |
• | Net revenues grew 13 percent on a reported basis in the fourth quarter and grew 11 percent excluding $22 million in favorable currency translation. For the full year, reported revenue grew 8 percent and 7 percent in constant currency, excluding $11 million in favorable currency translation. |
• | Direct-to-consumer revenues grew 20 percent for the fourth quarter and 15 percent for the full year on performance and expansion of the retail network, as well as e-commerce growth. The company had 53 more company-operated stores at the end of fiscal 2017 than it did at the end of fiscal 2016. Wholesale reported revenues grew 10 percent for the fourth quarter, reflecting higher revenues from the Americas and Europe, and grew 5 percent for the full year primarily reflecting growth in Europe. |
• | Fourth quarter net income of $116 million grew 20 percent primarily reflecting higher EBIT and lower taxes due to additional net foreign tax credits as well as the favorable impact of foreign operations as compared to 2016. |
• | Full-year net income declined 3 percent primarily due to a $23 million loss on early extinguishment of debt as a result of debt refinancing activities this year, net losses on foreign exchange contracts, reflecting the appreciation of most foreign currencies against the US dollar during the year, partially offset by lower taxes reflecting additional foreign tax credits and the release of a valuation allowance on deferred tax assets of foreign subsidiaries. |
• | Adjusted EBIT grew 7 percent in the fourth quarter reflecting higher revenues and gross margins. For the full year, Adjusted EBIT was flat, as higher revenues and gross margins were offset by higher costs related to the expansion of the company's direct-to-consumer business, increased advertising investments and higher compensation expense reflecting stronger company performance. A reconciliation of Adjusted EBIT is provided at the end of this press release. |
• | On a reported basis, gross margin for the fourth quarter was 53.4 percent of revenues compared with 50.7 percent in the same quarter of fiscal 2016, reflecting the margin benefit from revenue growth in the direct-to-consumer channel and international business. |
• | Selling, general and administrative (SG&A) expenses for the fourth quarter were $634 million compared with $518 million in the same quarter of fiscal 2016. The increase in costs reflects the expansion of the company's direct-to-consumer business, higher advertising expenses and higher compensation expense reflecting stronger company performance. |
• | Operating income of $150 million in the fourth quarter was up from $143 million in the same quarter of 2016, primarily reflecting higher gross profit, partially offset by higher SG&A. |
Net Revenues | Operating Income* | |||||||||||||||||||||
Three Months Ended | % Increase (Decrease) | Three Months Ended | % Increase (Decrease) | |||||||||||||||||||
($ millions) | November 26, 2017 | November 27, 2016 | November 26, 2017 | November 27, 2016 | ||||||||||||||||||
Americas | $ | 855 | $ | 799 | 7 | % | $ | 181 | $ | 167 | 9 | % | ||||||||||
Europe | $ | 374 | $ | 292 | 28 | % | $ | 38 | $ | 31 | 24 | % | ||||||||||
Asia | $ | 237 | $ | 209 | 13 | % | $ | 22 | $ | 17 | 28 | % |
• | In the Americas, net revenues grew 7 percent on a reported and constant currency basis, reflecting higher revenues across both wholesale and direct-to-consumer channels in the U.S., Canada and Mexico. The increase in operating income reflects higher net revenues partially offset by higher selling and advertising investments. |
• | In Europe, excluding favorable currency effects of $18 million, net revenues grew 21 percent reflecting broad-based growth across all markets and channels, including strong growth in the women's and tops business. Operating income growth of 24 percent reflects improved leverage driven by higher net revenues. |
• | In Asia, net revenues grew 13 percent on a reported and constant currency basis, reflecting direct-to-consumer expansion and performance. Operating income growth reflects higher revenues and franchisee support provided in the fourth quarter of 2016, partially offset by an increase in selling expenses related to retail expansion. |
• | On a reported basis, gross margin for the fiscal year was 52.3% compared with 51.2% in fiscal 2016, primarily reflecting strong growth in international and retail revenues, favorable transaction impact of currency and sourcing savings. |
• | SG&A expenses for the fiscal year were $2,096 million compared with $1,867 million in fiscal 2016. Higher costs primarily reflected expansion of the company's retail network and investment in its ecommerce business, increased advertising investments and higher incentive compensation expense reflecting the company's performance. |
• | Operating income of $467 million for the fiscal year was up from $462 million in 2016, reflecting global revenue growth and higher gross margins, partially offset by continued investments in the direct-to-consumer business and increased investments in advertising. |
Net Revenues | Operating Income* | |||||||||||||||||||||
Year Ended | % Increase (Decrease) | Year Ended | % Increase (Decrease) | |||||||||||||||||||
($ millions) | November 26, 2017 | November 27, 2016 | November 26, 2017 | November 27, 2016 | ||||||||||||||||||
Americas | $ | 2,774 | $ | 2,683 | 3 | % | $ | 529 | $ | 508 | 4 | % | ||||||||||
Europe | $ | 1,312 | $ | 1,091 | 20 | % | $ | 199 | $ | 155 | 28 | % | ||||||||||
Asia | $ | 818 | $ | 778 | 5 | % | $ | 78 | $ | 81 | (3 | )% |
• | In the Americas, net revenues grew 3 percent on a reported and constant currency basis, primarily reflecting the performance and expansion of our company-operated retail network and strong performance in our Signature® and Denizen® brands. This was offset by lower wholesale revenues in the United States in our Dockers® brand. The increase in operating income reflects higher net revenues and gross margins partially offset by higher selling and advertising expenses. |
• | In Europe, excluding favorable currency effects of $13 million, net revenues grew 19 percent reflecting broad-based growth across all markets and channels. Operating income growth of 28 percent reflects higher net revenues and gross margins, partially offset by higher selling expenses to support growth and higher investments in advertising. |
• | In Asia, excluding unfavorable currency effects of $2 million, net revenues grew 5 percent, primarily reflecting direct-to-consumer expansion and performance. Operating income declined 3 percent, primarily reflecting higher selling costs to support retail expansion, including ecommerce. |
November 26, 2017 | November 27, 2016 | ||||||
(Dollars in thousands) | |||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 633,622 | $ | 375,563 | |||
Trade receivables, net of allowance for doubtful accounts of $11,726 and $11,974 | 485,485 | 479,018 | |||||
Inventories: | |||||||
Raw materials | 3,858 | 2,454 | |||||
Work-in-process | 3,008 | 3,074 | |||||
Finished goods | 752,530 | 710,653 | |||||
Total inventories | 759,396 | 716,181 | |||||
Other current assets | 115,889 | 115,385 | |||||
Total current assets | 1,994,392 | 1,686,147 | |||||
Property, plant and equipment, net of accumulated depreciation of $951,249 and $856,588 | 424,463 | 393,605 | |||||
Goodwill | 237,327 | 234,280 | |||||
Other intangible assets, net | 42,893 | 42,946 | |||||
Deferred tax assets, net | 537,923 | 523,101 | |||||
Other non-current assets | 117,694 | 107,017 | |||||
Total assets | $ | 3,354,692 | $ | 2,987,096 | |||
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY | |||||||
Current Liabilities: | |||||||
Short-term debt | $ | 38,451 | $ | 38,922 | |||
Accounts payable | 289,505 | 270,293 | |||||
Accrued salaries, wages and employee benefits | 227,251 | 180,740 | |||||
Restructuring liabilities | 786 | 4,878 | |||||
Accrued interest payable | 6,327 | 5,098 | |||||
Accrued income taxes | 16,020 | 9,652 | |||||
Other accrued liabilities | 299,286 | 252,160 | |||||
Total current liabilities | 877,626 | 761,743 | |||||
Long-term debt | 1,038,860 | 1,006,256 | |||||
Long-term capital leases | 16,524 | 15,360 | |||||
Postretirement medical benefits | 89,248 | 100,966 | |||||
Pension liability | 314,525 | 354,461 | |||||
Long-term employee related benefits | 90,998 | 73,243 | |||||
Long-term income tax liabilities | 20,457 | 20,150 | |||||
Other long-term liabilities | 77,031 | 63,796 | |||||
Total liabilities | 2,525,269 | 2,395,975 | |||||
Commitments and contingencies | |||||||
Temporary equity | 127,035 | 79,346 | |||||
Stockholders’ Equity: | |||||||
Levi Strauss & Co. stockholders’ equity | |||||||
Common stock — $.01 par value; 270,000,000 shares authorized; 37,521,447 shares and 37,470,158 shares issued and outstanding | 375 | 375 | |||||
Additional paid-in capital | — | 1,445 | |||||
Retained earnings | 1,100,916 | 935,049 | |||||
Accumulated other comprehensive loss | (404,381 | ) | (427,314 | ) | |||
Total Levi Strauss & Co. stockholders’ equity | 696,910 | 509,555 | |||||
Noncontrolling interest | 5,478 | 2,220 | |||||
Total stockholders’ equity | 702,388 | 511,775 | |||||
Total liabilities, temporary equity and stockholders’ equity | $ | 3,354,692 | $ | 2,987,096 |
Year Ended | |||||||||||
November 26, 2017 | November 27, 2016 | November 29, 2015 | |||||||||
(Dollars in thousands) | |||||||||||
Net revenues | $ | 4,904,030 | $ | 4,552,739 | $ | 4,494,493 | |||||
Cost of goods sold | 2,341,301 | 2,223,727 | 2,225,512 | ||||||||
Gross profit | 2,562,729 | 2,329,012 | 2,268,981 | ||||||||
Selling, general and administrative expenses | 2,095,560 | 1,866,493 | 1,823,863 | ||||||||
Restructuring, net | — | 312 | 14,071 | ||||||||
Operating income | 467,169 | 462,207 | 431,047 | ||||||||
Interest expense | (68,603 | ) | (73,170 | ) | (81,214 | ) | |||||
Loss on early extinguishment of debt | (22,793 | ) | — | (14,002 | ) | ||||||
Other income (expense), net | (26,992 | ) | 18,223 | (25,433 | ) | ||||||
Income before income taxes | 348,781 | 407,260 | 310,398 | ||||||||
Income tax expense | 64,225 | 116,051 | 100,507 | ||||||||
Net income | 284,556 | 291,209 | 209,891 | ||||||||
Net income attributable to noncontrolling interest | (3,153 | ) | (157 | ) | (455 | ) | |||||
Net income attributable to Levi Strauss & Co. | $ | 281,403 | $ | 291,052 | $ | 209,436 |
Year Ended | |||||||||||
November 26, 2017 | November 27, 2016 | November 29, 2015 | |||||||||
(Dollars in thousands) | |||||||||||
Net income | $ | 284,556 | $ | 291,209 | $ | 209,891 | |||||
Other comprehensive income (loss), before related income taxes: | |||||||||||
Pension and postretirement benefits | 30,125 | (22,925 | ) | 38,785 | |||||||
Net investment hedge (losses) gains | (59,945 | ) | (829 | ) | 385 | ||||||
Foreign currency translation gains (losses) | 40,256 | (30,380 | ) | (28,791 | ) | ||||||
Unrealized gains (losses) on marketable securities | 3,379 | 143 | (575 | ) | |||||||
Total other comprehensive income (loss), before related income taxes | 13,815 | (53,991 | ) | 9,804 | |||||||
Income tax benefit (expense) related to items of other comprehensive (loss) income | 9,223 | 6,211 | (13,602 | ) | |||||||
Comprehensive income, net of income taxes | 307,594 | 243,429 | 206,093 | ||||||||
Comprehensive income attributable to noncontrolling interest | (3,258 | ) | (625 | ) | (383 | ) | |||||
Comprehensive income attributable to Levi Strauss & Co. | $ | 304,336 | $ | 242,804 | $ | 205,710 |
Levi Strauss & Co. Stockholders | |||||||||||||||||||||||
Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interest | Total Stockholders' Equity | ||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||
Balance at November 30, 2014 | $ | 374 | $ | — | $ | 528,209 | $ | (375,340 | ) | $ | 1,212 | $ | 154,455 | ||||||||||
Net income | — | — | 209,436 | — | 455 | 209,891 | |||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | (3,726 | ) | (72 | ) | (3,798 | ) | ||||||||||||||
Stock-based compensation and dividends, net | 1 | 16,674 | (66 | ) | — | — | 16,609 | ||||||||||||||||
Reclassification to temporary equity | — | (10,961 | ) | 19,842 | — | — | 8,881 | ||||||||||||||||
Repurchase of common stock | — | (2,422 | ) | (1,753 | ) | — | — | (4,175 | ) | ||||||||||||||
Cash dividends paid | — | — | (50,000 | ) | — | — | (50,000 | ) | |||||||||||||||
Balance at November 29, 2015 | 375 | 3,291 | 705,668 | (379,066 | ) | 1,595 | 331,863 | ||||||||||||||||
Net income | — | — | 291,052 | — | 157 | 291,209 | |||||||||||||||||
Other comprehensive (loss) income, net of tax | — | — | — | (48,248 | ) | 468 | (47,780 | ) | |||||||||||||||
Stock-based compensation and dividends, net | — | 9,649 | (40 | ) | — | — | 9,609 | ||||||||||||||||
Reclassification to temporary equity | — | (10,563 | ) | — | — | — | (10,563 | ) | |||||||||||||||
Repurchase of common stock | — | (932 | ) | (1,631 | ) | — | — | (2,563 | ) | ||||||||||||||
Cash dividends paid | — | — | (60,000 | ) | — | — | (60,000 | ) | |||||||||||||||
Balance at November 27, 2016 | 375 | 1,445 | 935,049 | (427,314 | ) | 2,220 | 511,775 | ||||||||||||||||
Net income | — | — | 281,403 | — | 3,153 | 284,556 | |||||||||||||||||
Other comprehensive income, net of tax | — | — | — | 22,933 | 105 | 23,038 | |||||||||||||||||
Stock-based compensation and dividends, net | 2 | 25,878 | (70 | ) | — | — | 25,810 | ||||||||||||||||
Reclassification to temporary equity | — | (13,575 | ) | (34,114 | ) | — | — | (47,689 | ) | ||||||||||||||
Repurchase of common stock | (2 | ) | (13,748 | ) | (11,352 | ) | — | — | (25,102 | ) | |||||||||||||
Cash dividends paid | — | — | (70,000 | ) | — | — | (70,000 | ) | |||||||||||||||
Balance at November 26, 2017 | $ | 375 | $ | — | $ | 1,100,916 | $ | (404,381 | ) | $ | 5,478 | $ | 702,388 |
Year Ended | |||||||||||
November 26, 2017 | November 27, 2016 | November 29, 2015 | |||||||||
(Dollars in thousands) | |||||||||||
Cash Flows from Operating Activities: | |||||||||||
Net income | $ | 284,556 | $ | 291,209 | $ | 209,891 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 117,387 | 103,878 | 102,044 | ||||||||
Unrealized foreign exchange (gains) losses | 24,731 | (5,853 | ) | (371 | ) | ||||||
Realized (gain) loss on settlement of forward foreign exchange contracts not designated for hedge accounting | 5,773 | (17,175 | ) | (14,720 | ) | ||||||
Employee benefit plans’ amortization from accumulated other comprehensive loss and settlement losses | 30,125 | 14,991 | 16,983 | ||||||||
Loss on extinguishment of debt, net of write-off of unamortized debt issuance costs | 22,793 | — | 3,448 | ||||||||
Stock-based compensation | 25,809 | 9,333 | 15,137 | ||||||||
Deferred income taxes | (486 | ) | 66,078 | 58,386 | |||||||
Other, net | 8,005 | 2,813 | 1,575 | ||||||||
Change in operating assets and liabilities: | |||||||||||
Trade receivables | 3,981 | 6,150 | 4,060 | ||||||||
Inventories | (14,409 | ) | (121,379 | ) | 28,566 | ||||||
Other current assets | 1,828 | (22,944 | ) | (3,061 | ) | ||||||
Other non-current assets | (6,862 | ) | (9,103 | ) | (21,375 | ) | |||||
Accounts payable and other accrued liabilities | 35,714 | 43,040 | (80,224 | ) | |||||||
Restructuring liabilities | (4,274 | ) | (17,290 | ) | (36,711 | ) | |||||
Income tax liabilities | 2,478 | 7,653 | (9,680 | ) | |||||||
Accrued salaries, wages and employee benefits and long-term employee related benefits | (9,408 | ) | (49,880 | ) | (44,714 | ) | |||||
Other long-term liabilities | (1,800 | ) | 5,029 | (10,902 | ) | ||||||
Net cash provided by operating activities | 525,941 | 306,550 | 218,332 | ||||||||
Cash Flows from Investing Activities: | |||||||||||
Purchases of property, plant and equipment | (118,778 | ) | (102,950 | ) | (104,579 | ) | |||||
Proceeds from sale of assets | 160 | 17,427 | 9,026 | ||||||||
Proceeds on settlement of forward foreign exchange contracts not designated for hedge accounting | (5,773 | ) | 17,175 | 14,720 | |||||||
Net cash used for investing activities | (124,391 | ) | (68,348 | ) | (80,833 | ) | |||||
Cash Flows from Financing Activities: | |||||||||||
Proceeds from issuance of long-term debt | 502,835 | — | 500,000 | ||||||||
Repayments of long-term debt | (525,000 | ) | (36,092 | ) | (525,001 | ) | |||||
Proceeds from senior revolving credit facility | — | 180,000 | 345,000 | ||||||||
Repayments of senior revolving credit facility | — | (279,000 | ) | (346,000 | ) | ||||||
Proceeds from short-term credit facilities | 35,333 | 29,154 | 23,936 | ||||||||
Repayments of short-term credit facilities | (29,764 | ) | (18,219 | ) | (21,114 | ) | |||||
Other short-term borrowings, net | (6,231 | ) | 13,475 | (12,919 | ) | ||||||
Payment of debt extinguishment costs | (21,902 | ) | — | — | |||||||
Payment of debt issuance costs | (10,366 | ) | — | (4,605 | ) | ||||||
Repurchase of common stock, including shares surrendered for tax withholdings on equity exercises | (25,102 | ) | (2,563 | ) | (4,175 | ) | |||||
Dividend to stockholders | (70,000 | ) | (60,000 | ) | (50,000 | ) | |||||
Other financing, net | (1,536 | ) | (304 | ) | (17 | ) | |||||
Net cash used for financing activities | (151,733 | ) | (173,549 | ) | (94,895 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | 8,242 | (7,661 | ) | (22,288 | ) | ||||||
Net increase in cash and cash equivalents | 258,059 | 56,992 | 20,316 | ||||||||
Beginning cash and cash equivalents | 375,563 | 318,571 | 298,255 | ||||||||
Ending cash and cash equivalents | $ | 633,622 | $ | 375,563 | $ | 318,571 | |||||
Noncash Investing Activity: | |||||||||||
Property, plant and equipment acquired and not yet paid at end of period | $ | 22,664 | $ | 19,903 | $ | 23,958 | |||||
Property, plant and equipment additions due to build-to-suit lease transactions | 19,888 | — | — | ||||||||
Supplemental disclosure of cash flow information: | |||||||||||
Cash paid for interest during the period | $ | 52,097 | $ | 67,052 | $ | 77,907 | |||||
Cash paid for income taxes during the period, net of refunds | 54,602 | 57,148 | 61,456 |
Year Ended | |||||||
November 26, 2017 | November 27, 2016 | ||||||
(Dollars in millions) | |||||||
Most comparable GAAP measure: | |||||||
Net cash provided by operating activities | $ | 525.9 | $ | 306.6 | |||
Non-GAAP measure: | |||||||
Net cash provided by operating activities | $ | 525.9 | $ | 306.6 | |||
Purchases of property, plant and equipment | (118.8 | ) | (103.0 | ) | |||
Proceeds on settlement of forward foreign exchange contracts not designated for hedge accounting | (5.8 | ) | 17.2 | ||||
Payment of debt extinguishment costs | (21.9 | ) | — | ||||
Repurchase of common stock, including shares surrendered for tax withholdings on equity exercises | (25.1 | ) | (2.6 | ) | |||
Dividends to stockholders | (70.0 | ) | (60.0 | ) | |||
Free cash flow | $ | 284.3 | $ | 158.2 |
November 26, 2017 | November 27, 2016 | ||||||
(Dollars in millions) | |||||||
Most comparable GAAP measure: | |||||||
Total long-term and short-term debt | $ | 1,077.3 | $ | 1,045.2 | |||
Non-GAAP measure: | |||||||
Total long-term and short-term debt | $ | 1,077.3 | $ | 1,045.2 | |||
Cash and cash equivalents | (633.6 | ) | (375.6 | ) | |||
Net debt | $ | 443.7 | $ | 669.6 |
Three Months Ended | Year Ended | ||||||||||||||
November 26, 2017 | November 27, 2016 | November 26, 2017 | November 27, 2016 | ||||||||||||
(Dollars in millions) | (unaudited) | ||||||||||||||
Most comparable GAAP measure: | |||||||||||||||
Net income | $ | 117.2 | $ | 96.2 | $ | 284.6 | $ | 291.2 | |||||||
Non-GAAP measure: | |||||||||||||||
Net income | $ | 117.2 | $ | 96.2 | $ | 284.6 | $ | 291.2 | |||||||
Income tax expense | 21.7 | 39.3 | 64.2 | 116.1 | |||||||||||
Interest expense | 16.3 | 18.7 | 68.6 | 73.2 | |||||||||||
Loss on early extinguishment of debt | — | — | 22.8 | — | |||||||||||
Other income (expense), net | (5.4 | ) | (11.5 | ) | 27.0 | (18.2 | ) | ||||||||
Restructuring and related charges, severance and asset impairment charges, net | 7.2 | 3.3 | 13.4 | 17.6 | |||||||||||
Pension and postretirement benefit plan curtailment and net settlement (gains) losses, net | — | 0.2 | 0.3 | (0.1 | ) | ||||||||||
Adjusted EBIT | $ | 157.0 | $ | 146.2 | $ | 480.9 | $ | 479.8 |
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