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. |
LEVI STRAUSS & CO. | |||
DATE: | October 9, 2018 | By: | /s/ GAVIN BROCKETT |
Name: | Gavin Brockett | ||
Title: | Senior Vice President and Global Controller | ||
(Principal Accounting Officer and Duly Authorized Officer) |
Exhibit Number | Description | |
99.1 |
Investor Contact: | Aida Orphan | Media Contact: | Amber McCasland | |||
Levi Strauss & Co. | Levi Strauss & Co. | |||||
(415) 501-6194 | (415) 501-7777 | |||||
Investor-relations@levi.com | newsmediarequests@levi.com |
• | Third Quarter Reported Revenue up 10% on Growth Across All Regions |
• | Net Income up 45% and Adjusted EBIT up 10% |
Three Months Ended | % Increase | ||||||||||
($ millions) | August 26, 2018 | August 27, 2017 | As Reported | ||||||||
Net revenues | $ | 1,394 | $ | 1,268 | 10 | % | |||||
Net income | $ | 130 | $ | 90 | 45 | % | |||||
Adjusted EBIT | $ | 162 | $ | 147 | 10 | % |
• | Gross margin for the third quarter was 53.2 percent of net revenues compared with 51.8 percent in the same quarter of fiscal 2017, reflecting the margin benefit from revenue growth in the global direct-to-consumer channel. |
• | Selling, general and administrative expenses (SG&A) were $583 million compared with $510 million in the same quarter of fiscal 2017. SG&A as a percent of net revenues grew 160 basis-points compared to the same quarter of fiscal 2017 primarily reflecting higher selling and planned advertising expenses. Higher incentive compensation expenses in the quarter were offset by an adjustment made in the third quarter of 2017 to correct the timing of stock compensation accruals for retirement eligible employees. |
• | Operating income for the third quarter of 2018 of $159 million was up 8 percent for the third quarter compared to the same quarter of fiscal 2017 reflecting the revenue growth and higher gross margins, partially offset by higher SG&A. |
Net Revenues | Operating Income * | |||||||||||||||||||||
Three Months Ended | % Increase | Three Months Ended | % Increase | |||||||||||||||||||
($ millions) | August 26, 2018 | August 27, 2017 | August 26, 2018 | August 27, 2017 | ||||||||||||||||||
Americas | $ | 793 | $ | 739 | 7 | % | $ | 163 | $ | 156 | 4 | % | ||||||||||
Europe | $ | 406 | $ | 348 | 17 | % | $ | 77 | $ | 62 | 25 | % | ||||||||||
Asia | $ | 196 | $ | 182 | 8 | % | $ | 15 | $ | 11 | 30 | % |
• | In the Americas, excluding unfavorable currency effects of $8 million, net revenues grew 9 percent reflecting higher revenues across wholesale and direct-to-consumer channels across the region. The region's operating income increased 4 percent reflecting higher net revenues, partially offset by direct-to-consumer and advertising expenses this quarter. |
• | In Europe, excluding unfavorable currency effects of $3 million, net revenues grew 17 percent reflecting continued broad-based growth across wholesale and direct-to-consumer channels, with the strongest growth in women's and tops. The region's operating income grew 25 percent reflecting higher revenues and gross margins partially offset by direct-to-consumer and advertising investments. |
• | In Asia, excluding unfavorable currency effects of $4 million, net revenues grew 10 percent reflecting growth across all channels. The region's operating income grew 30 percent reflecting higher revenues and higher gross margins, partially offset by direct-to-consumer investments. |
(Unaudited) | |||||||
August 26, 2018 | November 26, 2017 | ||||||
(Dollars in thousands) | |||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 612,506 | $ | 633,622 | |||
Trade receivables, net of allowance for doubtful accounts of $9,113 and $11,726 | 487,240 | 485,485 | |||||
Inventories: | |||||||
Raw materials | 3,527 | 3,858 | |||||
Work-in-process | 2,883 | 3,008 | |||||
Finished goods | 931,843 | 752,530 | |||||
Total inventories | 938,253 | 759,396 | |||||
Other current assets | 157,982 | 118,724 | |||||
Total current assets | 2,195,981 | 1,997,227 | |||||
Property, plant and equipment, net of accumulated depreciation of $967,765 and $951,249 | 420,008 | 424,463 | |||||
Goodwill | 236,492 | 237,327 | |||||
Other intangible assets, net | 42,850 | 42,893 | |||||
Deferred tax assets, net | 400,778 | 537,923 | |||||
Other non-current assets | 121,568 | 118,005 | |||||
Total assets | $ | 3,417,677 | $ | 3,357,838 | |||
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY | |||||||
Current Liabilities: | |||||||
Short-term debt | $ | 35,790 | $ | 38,451 | |||
Accounts payable | 361,702 | 289,505 | |||||
Accrued salaries, wages and employee benefits | 249,889 | 227,251 | |||||
Restructuring liabilities | 463 | 786 | |||||
Accrued interest payable | 17,206 | 6,327 | |||||
Accrued income taxes | 36,473 | 16,020 | |||||
Other accrued liabilities | 340,498 | 300,730 | |||||
Total current liabilities | 1,042,021 | 879,070 | |||||
Long-term debt | 1,026,055 | 1,038,860 | |||||
Long-term capital leases | 15,762 | 16,524 | |||||
Postretirement medical benefits | 81,172 | 89,248 | |||||
Pension liability | 191,134 | 314,525 | |||||
Long-term employee related benefits | 97,038 | 90,998 | |||||
Long-term income tax liabilities | 8,048 | 20,457 | |||||
Other long-term liabilities | 77,183 | 78,733 | |||||
Total liabilities | 2,538,413 | 2,528,415 | |||||
Commitments and contingencies | |||||||
Temporary equity | 225,090 | 127,035 | |||||
Stockholders’ Equity: | |||||||
Levi Strauss & Co. stockholders’ equity | |||||||
Common stock — $.01 par value; 270,000,000 shares authorized; 37,615,303 shares and 37,521,447 shares issued and outstanding | 376 | 375 | |||||
Accumulated other comprehensive loss | (413,721 | ) | (404,381 | ) | |||
Retained earnings | 1,060,158 | 1,100,916 | |||||
Total Levi Strauss & Co. stockholders’ equity | 646,813 | 696,910 | |||||
Noncontrolling interest | 7,361 | 5,478 | |||||
Total stockholders’ equity | 654,174 | 702,388 | |||||
Total liabilities, temporary equity and stockholders’ equity | $ | 3,417,677 | $ | 3,357,838 |
Three Months Ended | Nine Months Ended | ||||||||||||||
August 26, 2018 | August 27, 2017 | August 26, 2018 | August 27, 2017 | ||||||||||||
(Dollars in thousands) (Unaudited) | |||||||||||||||
Net revenues | $ | 1,394,153 | $ | 1,268,391 | $ | 3,983,580 | $ | 3,438,237 | |||||||
Cost of goods sold | 652,591 | 611,762 | 1,833,017 | 1,658,663 | |||||||||||
Gross profit | 741,562 | 656,629 | 2,150,563 | 1,779,574 | |||||||||||
Selling, general and administrative expenses | 582,953 | 510,309 | 1,741,331 | 1,462,263 | |||||||||||
Operating income | 158,609 | 146,320 | 409,232 | 317,311 | |||||||||||
Interest expense | (15,697 | ) | (14,476 | ) | (45,659 | ) | (52,305 | ) | |||||||
Loss on early extinguishment of debt | — | — | — | (22,793 | ) | ||||||||||
Other (expense) income, net | (3,032 | ) | (14,734 | ) | 1,044 | (32,413 | ) | ||||||||
Income before income taxes | 139,880 | 117,110 | 364,617 | 209,800 | |||||||||||
Income tax expense | 10,299 | 27,631 | 176,633 | 42,477 | |||||||||||
Net income | 129,581 | 89,479 | 187,984 | 167,323 | |||||||||||
Net loss (income) attributable to noncontrolling interest | 543 | (1,487 | ) | (1,940 | ) | (1,672 | ) | ||||||||
Net income attributable to Levi Strauss & Co. | $ | 130,124 | $ | 87,992 | $ | 186,044 | $ | 165,651 |
Three Months Ended | Nine Months Ended | ||||||||||||||
August 26, 2018 | August 27, 2017 | August 26, 2018 | August 27, 2017 | ||||||||||||
(Dollars in thousands) (Unaudited) | |||||||||||||||
Net income | $ | 129,581 | $ | 89,479 | $ | 187,984 | $ | 167,323 | |||||||
Other comprehensive income (loss), before related income taxes: | |||||||||||||||
Pension and postretirement benefits | 3,347 | 3,693 | 9,864 | 11,153 | |||||||||||
Net investment hedge gains (losses) | 8,645 | (27,930 | ) | 14,772 | (57,570 | ) | |||||||||
Foreign currency translation (losses) gains | (15,483 | ) | 18,051 | (30,055 | ) | 46,638 | |||||||||
Unrealized gains on marketable securities | 282 | 276 | 456 | 2,151 | |||||||||||
Total other comprehensive (loss) income, before related income taxes | (3,209 | ) | (5,910 | ) | (4,963 | ) | 2,372 | ||||||||
Income taxes (expense) benefit related to items of other comprehensive income | (2,050 | ) | 9,287 | (4,433 | ) | 15,460 | |||||||||
Comprehensive income, net of income taxes | 124,322 | 92,856 | 178,588 | 185,155 | |||||||||||
Comprehensive loss (income) attributable to noncontrolling interest | 700 | (1,561 | ) | (1,883 | ) | (1,573 | ) | ||||||||
Comprehensive income attributable to Levi Strauss & Co. | $ | 125,022 | $ | 91,295 | $ | 176,705 | $ | 183,582 |
Nine Months Ended | |||||||
August 26, 2018 | August 27, 2017 | ||||||
(Dollars in thousands) (Unaudited) | |||||||
Cash Flows from Operating Activities: | |||||||
Net income | $ | 187,984 | $ | 167,323 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 92,130 | 85,618 | |||||
Unrealized foreign exchange (gains) losses | (13,827 | ) | 36,717 | ||||
Realized loss (gain) on settlement of forward foreign exchange contracts not designated for hedge accounting | 20,446 | (184 | ) | ||||
Employee benefit plans’ amortization from accumulated other comprehensive loss and settlement loss | 9,865 | 11,153 | |||||
Loss on early extinguishment of debt | — | 22,793 | |||||
Stock-based compensation | 15,025 | 21,910 | |||||
Other, net | 3,678 | 4,146 | |||||
Provision for (benefit from) deferred income taxes | 127,626 | (7,447 | ) | ||||
Change in operating assets and liabilities: | |||||||
Trade receivables | (11,692 | ) | 45,642 | ||||
Inventories | (202,822 | ) | (77,758 | ) | |||
Other current assets | (36,122 | ) | (4,947 | ) | |||
Other non-current assets | (6,045 | ) | (3,747 | ) | |||
Accounts payable and other accrued liabilities | 111,164 | 23,022 | |||||
Restructuring liabilities | (306 | ) | (3,559 | ) | |||
Income tax liabilities | 11,479 | 16,042 | |||||
Accrued salaries, wages and employee benefits and long-term employee related benefits | (101,758 | ) | (42,599 | ) | |||
Other long-term liabilities | (2,066 | ) | 326 | ||||
Net cash provided by operating activities | 204,759 | 294,451 | |||||
Cash Flows from Investing Activities: | |||||||
Purchases of property, plant and equipment | (99,260 | ) | (75,793 | ) | |||
(Payments) proceeds on settlement of forward foreign exchange contracts not designated for hedge accounting | (20,446 | ) | 184 | ||||
Net cash used for investing activities | (119,706 | ) | (75,609 | ) | |||
Cash Flows from Financing Activities: | |||||||
Proceeds from issuance of long-term debt | — | 502,835 | |||||
Repayments of long-term debt | — | (525,000 | ) | ||||
Proceeds from short-term credit facilities | 27,737 | 23,898 | |||||
Repayments of short-term credit facilities | (24,196 | ) | (20,382 | ) | |||
Other short-term borrowings, net | 49 | (10,255 | ) | ||||
Payment of debt extinguishment costs | — | (21,902 | ) | ||||
Payment of debt issuance costs | — | (10,110 | ) | ||||
Repurchase of common stock, including shares surrendered for tax withholdings on equity award exercises | (53,773 | ) | (13,292 | ) | |||
Dividend to stockholders | (45,000 | ) | (35,000 | ) | |||
Other financing, net | (580 | ) | (3,196 | ) | |||
Net cash used for financing activities | (95,763 | ) | (112,404 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | (10,406 | ) | 9,288 | ||||
Net (decrease) increase in cash and cash equivalents | (21,116 | ) | 115,726 | ||||
Beginning cash and cash equivalents | 633,622 | 375,563 | |||||
Ending cash and cash equivalents | $ | 612,506 | $ | 491,289 | |||
Noncash Investing Activity: | |||||||
Property, plant and equipment acquired and not yet paid at end of period | $ | 13,093 | $ | 10,951 | |||
Property, plant and equipment additions due to build-to-suit lease transactions | 2,750 | 4,459 | |||||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for interest during the period | $ | 27,511 | $ | 29,570 | |||
Cash paid for income taxes during the period, net of refunds | 67,221 | 32,944 |
Nine Months Ended | |||||||
August 26, 2018 | August 27, 2017 | ||||||
(Dollars in millions) | |||||||
(Unaudited) | |||||||
Most comparable GAAP measure: | |||||||
Net cash provided by operating activities | $ | 204.8 | $ | 294.5 | |||
Non-GAAP measure: | |||||||
Net cash provided by operating activities | $ | 204.8 | $ | 294.5 | |||
Purchases of property, plant and equipment | (99.3 | ) | (75.8 | ) | |||
(Payments) proceeds on settlement of forward foreign exchange contracts not designated for hedge accounting | (20.4 | ) | 0.2 | ||||
Payment of debt extinguishment costs | — | (21.9 | ) | ||||
Repurchase of common stock, including shares surrendered for tax withholdings on equity award exercises | (53.8 | ) | (13.3 | ) | |||
Dividend to stockholders | (45.0 | ) | (35.0 | ) | |||
Free cash flow | $ | (13.7 | ) | $ | 148.7 |
August 26, 2018 | November 26, 2017 | ||||||
(Dollars in millions) | |||||||
(Unaudited) | |||||||
Most comparable GAAP measure: | |||||||
Total debt | $ | 1,061.8 | $ | 1,077.3 | |||
Non-GAAP measure: | |||||||
Total debt | $ | 1,061.8 | $ | 1,077.3 | |||
Cash and cash equivalents | (612.5 | ) | (633.6 | ) | |||
Net debt | $ | 449.3 | $ | 443.7 |
Three Months Ended | Nine Months Ended | ||||||||||||||
August 26, 2018 | August 27, 2017 | August 26, 2018 | August 27, 2017 | ||||||||||||
(Dollars in millions) | |||||||||||||||
(Unaudited) | |||||||||||||||
Most comparable GAAP measure: | |||||||||||||||
Net income | $ | 129.6 | $ | 89.5 | $ | 188.0 | $ | 167.3 | |||||||
Non-GAAP measure: | |||||||||||||||
Net income | 129.6 | 89.5 | 188.0 | 167.3 | |||||||||||
Income tax expense | 10.3 | 27.6 | 176.6 | 42.5 | |||||||||||
Interest expense | 15.6 | 14.5 | 45.6 | 52.3 | |||||||||||
Loss on early extinguishment of debt | — | — | — | 22.8 | |||||||||||
Other (income) expense, net | 3.1 | 14.7 | (1.0 | ) | 32.4 | ||||||||||
Restructuring and related charges, severance and other, net | 2.9 | 0.9 | 4.0 | 6.2 | |||||||||||
Pension and postretirement benefit plan curtailment and net settlement losses, net | — | 0.1 | (0.1 | ) | 0.3 | ||||||||||
Adjusted EBIT | $ | 161.5 | $ | 147.3 | $ | 413.1 | $ | 323.8 |
Three Months Ended | Nine Months Ended | ||||||||||||||||||||
August 26, 2018 | August 27, 2017 | % Increase | August 26, 2018 | August 27, 2017 | % Increase | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Net revenues: | |||||||||||||||||||||
Total revenues | |||||||||||||||||||||
As reported | $ | 1,394.2 | $ | 1,268.4 | 9.9 | % | $ | 3,983.6 | $ | 3,438.3 | 15.9 | % | |||||||||
Impact of foreign currency | — | (14.4 | ) | * | — | 76.0 | * | ||||||||||||||
Constant-currency | $ | 1,394.2 | $ | 1,254.0 | 11.2 | % | $ | 3,983.6 | $ | 3,514.3 | 13.4 | % | |||||||||
Americas | |||||||||||||||||||||
As reported | $ | 792.9 | $ | 738.6 | 7.4 | % | $ | 2,119.8 | $ | 1,918.7 | 10.5 | % | |||||||||
Impact of foreign currency | — | (7.8 | ) | * | — | (0.5 | ) | * | |||||||||||||
Constant-currency | $ | 792.9 | $ | 730.8 | 8.5 | % | $ | 2,119.8 | $ | 1,918.2 | 10.5 | % | |||||||||
Europe | |||||||||||||||||||||
As reported | $ | 405.7 | $ | 348.0 | 16.6 | % | $ | 1,225.3 | $ | 938.7 | 30.5 | % | |||||||||
Impact of foreign currency | — | (2.5 | ) | * | — | 64.2 | * | ||||||||||||||
Constant-currency | $ | 405.7 | $ | 345.5 | 17.4 | % | $ | 1,225.3 | $ | 1,002.9 | 22.2 | % | |||||||||
Asia | |||||||||||||||||||||
As reported | $ | 195.6 | $ | 181.8 | 7.6 | % | $ | 638.5 | $ | 580.9 | 9.9 | % | |||||||||
Impact of foreign currency | — | (4.1 | ) | * | — | 12.3 | * | ||||||||||||||
Constant-currency | $ | 195.6 | $ | 177.7 | 10.1 | % | $ | 638.5 | $ | 593.2 | 7.6 | % |
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