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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 26, 2000
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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (paragraph 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of the
Form 10-K or any amendment to this Form 10-K. [x]
The Company is privately held. Nearly all of its common equity is owned by
members of the families of several descendants of the Company's founder, Levi
Strauss. There is no trading in the common equity and therefore an aggregate
market value based on sales or bid and asked prices is not determinable.
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 February 1,
2001
Documents incorporated by reference: None
LEVI STRAUSS & CO.
TABLE OF CONTENTS TO FORM 10-K
FOR FISCAL YEAR ENDING NOVEMBER 26, 2000
PART I
PAGE
Item 1. Business...................................................................................... 3
Item 2. Properties.................................................................................... 12
Item 3. Legal Proceedings............................................................................. 13
Item 4. Submission of Matters to a Vote of Security Holders........................................... 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................... 14
Item 6. Selected Financial Data....................................................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ......... 17
Item 7A.Quantitative and Qualitative Disclosures About Market Risk...................................... 33
Item 8. Financial Statements and Supplementary Data................................................... 38
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 72
PART III
Item 10. Directors and Executive Officers of the Registrant............................................ 73
Item 11. Executive Compensation........................................................................ 77
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 81
Item 13. Certain Relationships and Related Transactions................................................ 85
ITEM IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................. 86
SIGNATURES.............................................................................................. 92
Financial Statement Schedules........................................................................... 94
Supplemental Information................................................................................ 95
2
PART I
ITEM 1. BUSINESS
OVERVIEW
We are one of the world's leading branded apparel companies with sales in
more than 80 countries. We design and market jeans and jeans-related pants,
casual and dress pants, shirts, jackets and related accessories for men, women
and children under our Levi's(R), Dockers(R) and Slates(R) brands. Our products
are distributed in the United States primarily through chain retailers and
department stores and abroad primarily through department stores and specialty
retailers. We also maintain a network of approximately 750 franchised or
independently owned stores dedicated to our products outside the United States
and operate a small number of company-owned stores.
LEVI'S(R) BRAND DOCKERS(R) BRAND SLATES(R) BRAND
--------------- ---------------- ---------------
PRODUCTS: Men's, women's and kids'-- Men's, women's and boys'-- Men's and women's-- dress
jeans, jeans-related products, casual pants, shorts, pants, skirts, tops, jackets,
knits and woven tops, outerwear skirts, knit and woven outerwear and accessories
and accessories tops, outerwear and
accessories
GEOGRAPHIC MARKETS: Men's and women's-- global Men's and women's-- global Men's and women's-- U.S.
Kids'-- primarily U.S. Boys'-- U.S. only only
PERCENTAGE OF 2000
NET SALES: 75% 23% 2%
Our business is currently organized into three geographic divisions: the
Americas, consisting of the United States, Canada and Latin America; Europe,
including the Middle East and Africa; and Asia Pacific. Our operations in the
United States are conducted primarily through Levi Strauss & Co., while our
operations outside the United States are conducted primarily through foreign
subsidiaries owned directly or indirectly by Levi Strauss & Co. In 2000, we had
net sales of $4.6 billion, of which the Americas, Europe and Asia Pacific
accounted for 68%, 24% and 8%, respectively. In 1999, we had net sales of $5.1
billion.
OUR BUSINESS STRATEGY
Our primary strategic goals are to continue stabilizing our business and
position it for profitable growth. We believe achievement of these objectives
will help us increase our financial strength and flexibility and meet our goal
of regaining investment grade ratings on our debt securities. To achieve these
goals, we have several key business strategies.
REINVIGORATE OUR BRANDS THROUGH BETTER PRODUCT INNOVATION AND INCREASED CONSUMER
AND CHANNEL RELEVANCE.
We believe that an integrated presentation of new and innovative products
and marketing programs targeted to specific consumer and retail segments is
crucial to generating consumer demand and increasing sales for our products. We
intend to:
o focus on continually updating our core products and creating new
products, such as our Levi's(R) Engineered Jeans(TM), that incorporate
design innovations, new fabrics and new finishes and that draw on our
long heritage of originality in product design and fabrication;
o design and market products that are relevant to our various consumer
segments ranging from teenagers and trend initiators who demand
fashion-forward styles, to urban professionals who desire
sophisticated casual wear, as well as to the broad group of consumers
who want mainstream, quality branded jeanswear and khaki pants for
everyday and business wear;
o take advantage of consumer recognition of our brands and market
opportunities by expanding our product offerings in women's apparel,
tops and licensed merchandise such as outerwear, shoes and belts;
o capitalize on our global brand recognition and marketing capabilities
by adopting successful products and design concepts developed in one
region and introducing them to other geographic markets in which we
operate;
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o target our product offerings to specific distribution channels in
order to reach discrete consumer segments, create differentiation for
our retail customers and between our brands, strengthen our position
in our existing channels and address shifts in retail distribution
channels in both the United States and Europe; and
o develop product-focused marketing programs using both traditional
advertising vehicles such as television, print and point-of-sale
materials and other vehicles such as concert sponsorships, product
placement and Internet sites.
ACHIEVE OPERATIONAL EXCELLENCE.
We are implementing strategies and processes for more effectively
anticipating and fulfilling product demand and replenishing core items. We
intend to:
o improve the coordination of our design, merchandising, forecasting,
sourcing and logistics processes to reduce product lead times, ensure
product availability and improve fill rates;
o improve the linkage of product supply to consumer demand and our
ability to ship product orders in a timely manner;
o focus on working capital control through improved forecasting,
inventory management and product mix; and
o improve our product sourcing and operating efficiencies to further
reduce product costs and control operating expenses.
IMPROVE OUR RELATIONSHIPS WITH OUR CUSTOMERS AND UPGRADE THE PRESENTATION OF OUR
PRODUCT AT RETAIL.
We distribute our products in a wide variety of retail formats around the
world including chain and department stores, franchise stores dedicated to our
brands and specialty retailers. Through better relationships and collaborative
business planning with our customers, we must ensure that the right products are
available and in-stock at retail and are presented in ways that enhance brand
appeal and attract consumers. We intend to:
o engage in more collaborative planning and performance monitoring
processes with our retail customers to achieve better product
presentation, assortment and inventory management;
o improve the presentation of our product at retail through new
retailing formats, better fixturing and visual merchandising, on-floor
merchandising services and other sales-area upgrade programs;
o implement an outlet strategy through new accounts and expanded product
offerings without incurring capital expenditures;
o increase the number of franchised or other retail formats dedicated to
our Dockers(R) brand products outside the United States in order to
present the brand in a focused, image-enhancing environment.
OUR BRANDS AND PRODUCTS
We market a broad line of branded jeanswear, casual wear and dress pants
that appeal to diverse demographic groups in markets around the world. Through a
number of sub-brands and product lines under the Levi's(R), Dockers(R) and
Slates(R) brands, we target specific consumer segments and provide product
differentiation for our retail customers in our selected distribution channels.
We focus on creating new, innovative products relevant to our target consumers,
as well as ensuring that our core, traditional products are updated with new
finishes, fabrications and colors. We strive to leverage our global brand
recognition, product design and marketing capabilities to take products and
design concepts developed in one region and introduce them in other geographic
markets.
4
LEVI'S(R) BRAND
We market jeans and jeans-related products under the Levi's(R) brand around
the world. Since their invention in 1873, Levi's(R) jeans have become one of the
most successful and widely recognized brands in the history of the apparel
industry. In fiscal year 2000, sales of our Levi's(R) brand products represented
approximately 75% of our net sales, and accounted for approximately 67% of net
sales in the Americas, approximately 91% of net sales in Europe and
approximately 95% of net sales in Asia Pacific.
Our Levi's(R) brand features a wide range of product offerings including:
o RED TAB(TM) PRODUCTS. Our Red Tab(TM) product line, identified by our
Tab Device trademark on the back pocket, encompasses a variety of
basic jeans with different silhouettes, fits, fabrics (including denim
and corduroy) and finishes intended to appeal to a wide range of
consumers. Our core line is anchored by the classic 501(R) button-fly
jean, named by Time Magazine as the "Best Fashion of the Century" in
its December 31, 1999 edition. We distribute Red Tab(TM) products
worldwide through many of our distribution channels.
o LEVI'S(R) ENGINEERED JEANS(TM). Developed in Europe, Levi's(R)
Engineered Jeans(TM) represent our reinvention of the blue jean and
the first international jeanswear launch in our history. These jeans
are ergonomically engineered to fit the body's contours and have a
three-dimensional shape that we believe provides innovative design,
unique style, superior comfort and ease of movement. We target
Levi's(R) Engineered Jeans(TM) to 15- to 24-year-olds in Asia, Europe
and the Americas primarily through independent retailers, specialty
stores and Original Levi's Store(R) retail shops.
o SILVERTAB(R) PRODUCTS. Our Silvertab(R) line targets 15- to
19-year-olds and offers a more fashion-forward product range featuring
technologically advanced fabrics, such as microfiber, nylon ripstop
and "oily" canvas and innovative finishes for denim jeans. We
distribute Silvertab(R) products primarily through department stores
and Original Levi's Store(R) retail shops in the Americas.
o OTHER PRODUCTS. Other Levi's(R) brand products include: Levi's(R)
Vintage Clothing for jean "aficionados", a premium line available
through high-end specialty stores and independent retailers in Europe,
Asia and the United States; the Levi's(R) Red(TM) collection, a
European-developed product designed to reflect both our heritage and
modern design concepts; L2(R) brand that targets 15- to 24-year-old
suburban youth who want fashionable products at value pricing that are
distributed through chain stores in the United States and in Asia;
and, in conjunction with Philips Electronics NV, Levi's(R) ICD+(TM)
(Levi's(R) Industrial Clothing Division+(TM)) in Europe features an
innovative line of jackets that integrate wearable electronics with
fashion.
DOCKERS(R) BRAND
We market casual clothing, primarily pants and tops, under the Dockers(R)
brand, in more than 40 countries. We launched the brand in 1986 to address an
emerging consumer interest in khaki pants. We believe that the Dockers(R) brand,
through its product offering and marketing, played a major role in the
resurgence of khaki pants and the movement toward casual attire in the workplace
by helping create a standard for business casual clothing. According to a 2000
report by the Society for Human Resource Managers, approximately 80% of U.S.
workplaces today allow casual business wear at least one day a week. In fiscal
year 2000, sales of Dockers(R) brand products represented approximately 23% of
our net sales, accounting for approximately 31% of net sales in the Americas,
approximately 9% of net sales in Europe and approximately 5% of net sales in
Asia Pacific.
Our Dockers(R) brand offerings are primarily targeted to men and women ages
25 to 39 and include:
o DOCKERS(R) BRAND. Dockers(R) brand products are the core line of the
brand. They include a broad range of casual khaki pants and are
complemented by a variety of tops and seasonal pant products in a
range of fits, fabrics, colors and styles. We distribute these
products in the Americas, Europe and Asia through a variety of
channels, including department stores and chain stores.
o DOCKERS(R) PREMIUM. The Dockers(R) Premium pant line provides a range
of cotton pants constructed from premium fabrics with sophisticated
details in a range of finishes, fits, styles and colors. We distribute
these products through department stores in the United States.
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o DOCKERS(R) RECODE(TM). In Spring 2000, we launched the Dockers(R)
Recode(TM) sub-brand exclusively in U.S. department stores in order to
appeal to more fashion-involved consumers who want modern casual
clothes. A slightly more fashion-
forward line of pants and tops, the sub-brand consists of
cotton-blended fabrications in a sophisticated color spectrum. In Fall
2000, we expanded the collection with an offering of sweaters,
outerwear, shoes and belts marketed by our licensees.
o DOCKERS(R) K-1 KHAKIS. The brand's first global product launch,
Dockers(R) K-1 Khakis is a premium khaki pant inspired by the
authentic army khaki and made from the original Cramerton(R) army
cloth. In Fall 2000, we introduced a complete collection with new
colors and fabrics in shirts, sweaters, belts, outerwear and a variety
of pants, all inspired by military and antique workwear themes. We
distribute Dockers(R) K-1 Khakis through specialty and department
stores in Europe, Asia and the Americas, but will discontinue this
line in the United States in 2001 in order to heighten our focus on
other Dockers(R) lines.
o OTHER PRODUCTS. Our other Dockers(R) product lines include Exact(TM) A
Dockers(R) Brand, a collection of more refined casual dress styling
available through chain stores; and Dockers(R) D(TM) products, a new
boys' line distributed in the United States targeted towards boys ages
4 to 14. We work with established licensees to develop and market
complementary products under the Dockers(R) brand, including outerwear
and leather goods, men's and women's footwear, men's sweaters, hosiery
and golf apparel.
SLATES(R) BRAND
We market modern, sophisticated clothes for men and women under the
Slates(R) brand in the United States. Launched in Fall 1996, the Slates(R) brand
became a leading men's dress pant brand at department stores by the end of 1997.
Our Slates(R) brand offerings include:
o MEN'S SLATES(R). The men's Slates(R) brand collection of pants,
shirts, sweaters and outerwear, combines contemporary styles with
modern fabrics and colors. We position the brand between casual pants
and tailored clothing and design and market it to meet the 25- to
34-year-old consumer's desire for a younger and more sophisticated
casual look. This brand is distributed to department stores and
specialty stores.
o WOMEN'S SLATES(R). In Fall 2000, we added a new line of women's
dress-casual clothing to the Slates(R) brand. The "Slates(R) Janet
Howard(R)" line, designed by Janet Howard, targets women ages 24 to 35
with a designer-inspired line of dress pants, skirts, tops, sweaters
and dress jackets. We distribute this line of products to higher-end
department stores to fill a gap between the classic and contemporary
women's apparel categories.
o OTHER PRODUCTS. For men's products, we produce the pants in the
Slates(R) line and work with established licensees to develop and
market complementary products under the Slates(R) brand, including a
broad assortment of knit and woven tops, dress shirts, sweaters,
hosiery and outerwear and, planned for Spring 2001, ties, sportcoats
and suit separates.
SALES, DISTRIBUTION AND CUSTOMERS
We distribute our products on a worldwide basis through selected retail
channels, including chain stores, department stores, specialty stores, dedicated
franchised stores, outlets, Internet sites and mail-order catalogs. Our
distribution strategy focuses on:
o improving the presentation of our products at retail through
introducing new retailing formats, executing new fixturing, visual
merchandising and other sales-area upgrade programs and providing
on-floor merchandising services; and
o strengthening our relationships with our retail customers through more
collaborative planning and performance monitoring processes, providing
sub-brands and products to specific distribution channels in order to
create points of differentiation for our customers and providing them
with products targeted for their core consumers.
6
AMERICAS
In the Americas, we distribute our products through national and regional
chains, department stores, specialty stores and Original Levi's Store(R) and
Dockers(R) Store retail shops. We have approximately 3,000 retail customers
operating more than 16,800 locations in the United States and Canada. Sales of
Levi's(R), Dockers(R) and Slates(R) products to our top five and top 10
customers in the United States accounted for approximately 36% and 48% of our
total net sales in fiscal year 2000, and approximately 54% and 70% of our
Americas net sales in fiscal year 2000, as compared to approximately 34% and 46%
of our total net sales in fiscal year 1999, and approximately 51% and 69% of our
Americas net sales in fiscal year 1999. Our top 10 customers in 2000, on both an
Americas and total company basis, were Designs, Inc., Dillards, Inc., Federated
Department Stores, Inc., Goody's Family Clothing, Inc., J.C. Penney, Kohl's
Corporation, The May Department Stores Company, the Mervyn's unit of Target,
Sears, Roebuck & Co. and Specialty Retailers. J.C. Penney is the only customer
that represented more than 10% of our total net sales, accounting for 12%, 11%
and 12% of our total net sales in fiscal years 2000, 1999 and 1998,
respectively. We also target limited distribution premium products like
Levi's(R) Vintage Clothing to independent, image-conscious specialty stores in
major metropolitan areas who cater to more fashion-forward, trend-influential
consumers.
EUROPE
Our European customers include large department stores, such as Corte
Ingles in Spain, Galeries Lafayette in France and Karstadt Quelle AG in Germany;
dedicated, single-brand Original Levi's Store(R) and Dockers(R) Store retail
shops; mail order accounts; and a substantial number of independent retailers
operating either a single or small group of jeans-focused stores or general
clothing stores. We depend for nearly half our European sales on these
independent retailers, who are under increasing pressure from both vertically
integrated specialty stores and department stores. The more varied and
fragmented nature of European retailing means that we are less dependent on
major customers than we are in the United States. In fiscal year 2000, our top
10 European customers accounted for approximately 10% of our total European net
sales.
ASIA PACIFIC
In Asia Pacific, we generate over half of our sales through the specialty
store channel, which includes multi-brand as well as independently owned
Original Levi's Store(R) retail shops. The rest of our products are sold through
department stores and general merchandise stores. As in Europe, the varied and
fragmented nature of Asian retailing means we are less dependent on individual
customers in the region. Our Asia Pacific business is heavily weighted toward
Japan, which represented approximately 63% of our 2000 net sales in the region.
DEDICATED STORES
We have a network of approximately 750 franchised or other independently
owned stores selling Levi's(R) brand or Dockers(R) brand products under the
"Original Levi's Store(R)", "Levi's(R) Store" and "Dockers(R) Store" names in
Europe, Asia, Canada and Latin America. These dedicated-format stores are
strategically important as vehicles for demonstrating the breadth of our product
line, enhancing brand image and generating sales. These stores also are an
important distribution channel in newer and smaller markets in Eastern Europe,
Asia Pacific and Latin America. We own and operate a small number of stores
dedicated to the Levi's(R) brand, including stores in the United States located
in New York, Chicago, Orange County, San Francisco, San Diego, Boston and
Seattle and in Europe in London, Milan, Paris and Berlin.
We also own in the United States and Japan, and license third parties in
the United States and abroad to operate outlet stores for the disposition of
closeout, irregular and return goods. Sales in fiscal year 2000 through our
outlet channels in the United States represented approximately 8% of our
Americas net sales and approximately 5% of our total net sales. We use the
outlet store channel to support our brands by moving closeout and irregular
goods as quickly as possible through the stores and by reducing the flow of
goods to channels that are not consistent with brand image and distribution
strategies. In order to better meet consumer needs and to participate
effectively in the value distribution channel, we supplement the product
offering to the outlet and related stores in the United States by producing
selected basic products, including jeans, khaki pants and denim shirts,
specifically for those stores.
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INTERNET
We operate web sites devoted to each of the Levi's(R), Dockers(R) and
Slates(R) brands as marketing vehicles to enhance consumer understanding of our
brands. We do not sell products directly to consumers through the Internet. In
the United States, our products are currently sold online through specifically
authorized Internet sites that meet our standards, such as www.macys.com,
operated by Federated, and www.jcpenney.com, operated by J.C. Penney. In Europe,
authorized dealers and mail order accounts who meet our standards relating to
customer service, return policy, site content, trademark use and other matters
may sell our products to consumers through their own Internet sites.
ADVERTISING AND PROMOTION
We make substantial investments in advertising, retail and promotion
activities in support of our brands to increase consumer relevance and to drive
consumer demand. We expensed approximately $402.7 million, or 8.7% of total net
sales, on these activities in fiscal year 2000. We advertise through a broad mix
of media, including television, national publications, billboards and other
outdoor vehicles. We execute both global and region-specific marketing programs
to achieve consistent brand positioning while allowing flexibility to optimize
program execution in local markets. Examples of our global marketing initiatives
include our sponsorships of World AIDS Day and advertising campaigns associated
with the global launch of Levi's(R) Engineered Jeans(TM).
Our marketing strategy focuses on:
o developing clear consumer value propositions that drive product
development and messaging in order to differentiate our brands and
products;
o developing integrated marketing programs that effectively coordinate
product launches and promotions with specific traditional and
non-traditional advertising and retail point of sales activities;
o creating superior quality, product-focused advertising; and
o enhancing presentation of product at retail through innovative retail
initiatives.
We are increasing our use of less traditional marketing vehicles, including
event and music sponsorships, product placement in television shows, music
videos and films and alternative marketing techniques, including street-level
and nightclub events and similar targeted, small-scale activities. Recent
activities include cosponsoring with Sears the fall tour of the Grammy award
winner Christina Aguilera. The multi-program "Make Them Your Own"(TM) campaign
for the Levi's(R) brand in the United States, launched in summer 2000, features
print and television advertising, interactive online activities and a customized
tractor-trailer featuring games, product displays, video "style-cam", and
karaoke that travels to concert venues and retail locations.
COMPETITION
The worldwide apparel industry is highly competitive and fragmented. We
compete in all of our markets with numerous designers, manufacturers, private
labels and specialty store retailers, both domestic and foreign. The success of
our business depends on our ability to shape and stimulate consumer tastes and
demands by producing innovative, attractive, and competitively priced fashion
products. In fashion-sensitive markets, such as the jeans and casual wear
markets, barriers to entry are sufficiently low so that talented designers and
others can become meaningful competitors soon after establishing a new label. We
believe that the primary factors upon which we compete are:
o anticipating and responding to changing consumer demands in a timely
manner;
o maintaining favorable brand recognition;
o developing innovative, high-quality products in sizes, colors and
styles that appeal to consumers;
o pricing products;
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o providing strong and effective marketing support;
o creating an acceptable value proposition for retail customers;
o ensuring product availability and optimizing supply chain efficiencies
with retailers; and
o obtaining sufficient retail floor space and effective presentation of
products at retail.
We believe our competitive strengths include:
o strong worldwide brand recognition;
o competitive product quality and value;
o long-standing relationships with leading department stores and other
chain stores worldwide;
o our network of franchised and other Original Levi's Store(R) and
Dockers(R) Store retail shops in Europe, Asia, Canada and Latin
America; and
o our commitment to ethical conduct and social responsibility.
We believe that the total unit sales of Levi's(R) brand jeans in the United
States is second only to the combined total unit sales in the United States of
VF Corporation's principal jeans brands, Wrangler, Lee and Rustler. We believe
that the total unit sales of Levi's(R) brand jeans on a pan-European basis and
on a pan-Asia Pacific basis is greater than the total unit sales of jeans of any
single brand in those regions and that there is no single competitor offering
multiple brands with greater total sales of jeans in either of those regions.
AMERICAS
We face intense competition across all of our brands from designer labels,
vertically integrated specialty stores, mass merchandisers, private labels and
fashion labels. We sell both basic and fashion-oriented products under the
Levi's(R), Dockers(R) and Slates(R) brands to retailers in diverse channels
across a wide range of retail price points. As a result, we face a wide range of
competitors, including:
o other jeanswear manufacturers, including VF Corporation, marketer of
the Lee, Wrangler and Rustler brands;
o fashion-oriented designer apparel marketers, including Polo Ralph
Lauren Corporation, Calvin Klein, Nautica Enterprises,
Guess?, Inc. and Tommy Hilfiger Corp.;
o vertically integrated specialty stores, including Gap Inc.,
Abercrombie & Fitch, American Eagle Outfitters Inc., J. Crew
and Eddie Bauer, Inc.;
o lower-volume but high visibility fashion-forward jeanswear brands that
appeal to the teenage market, including the FUBU, JNCO, Lucky, MUDD
and Diesel brands;
o casual wear manufacturers, including Haggar Corp., Liz Claiborne, Inc.
and Savane International Corp.;
o retailer private labels, including J.C. Penney's Arizona brand and
Sears' Canyon River Blues and Canyon River Khakis brands; and
o mass merchandisers, including Wal-Mart Stores, Inc., Target and Kmart.
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EUROPE
While there is no one particular brand with a strong pan-European presence,
strong local brands and retailers exist in certain markets, including Diesel in
Italy and Scandinavia, Pepe in Spain and Lee Cooper in France. Zara, Hennes &
Mauritz AB, Energie and other vertically integrated specialty retailers, and
athletic wear firms such as adidas-Salomon, also offer competitive products and
are an increasing competitive force in the market. Our principal U.S.
competitors, including Gap Inc. and VF Corporation, are expanding their
collective presence in Europe. While these U.S. competitors generally lack the
presence in Europe they enjoy in the United States, we believe they view Europe
as a significant growth opportunity, and we anticipate increased competition
from them going forward.
ASIA PACIFIC
Competitors in the jeanswear market consist of both regional brands, such
as Edwin, our principal competitor in Japan, and U.S. brands, including Guess?,
Lee and Wrangler, which offer basic products available in local markets.
Competitors in both jeanswear and casual apparel also include vertically
integrated specialty stores, such as UNIQLO, Gap Inc., Esprit and Eddie Bauer in
Japan, and Giordano, a more value-focused retailer that operates throughout the
region.
SOURCING, MANUFACTURING AND RAW MATERIALS
Our supply chain strategy focuses on improving the linkage of our product
supply to consumer demand and our ability to ship product orders in a timely
manner. We obtain our products from a combination of company-owned facilities
and independent manufacturers. Over the last three years, we shifted our
sourcing base substantially toward outsourcing by closing 29 company-owned
production and finishing facilities in North America and Europe. We believe that
outsourcing allows us to maintain production flexibility while avoiding the
substantial capital expenditures and costs related to maintaining a large
internal production capability.
Each of our operating regions operates a supply chain network that provides
product management, demand-forecasting, quality assurance, manufacturing and
logistics support to our brands. Within each of our brands, merchandisers and
designers create seasonal product plans that are intended to reflect consumer
preferences, market trends and retail customer requirements. During the
development phase, the merchandisers and designers work closely with the product
managers to ensure completion of manufacturing specifications and costing for
each product in the seasonal plan. They also consult with forecast specialists
and sales representatives to determine the potential unit volume for the fashion
and replenishment products in the plan. Once the brand's seasonal plan is
finalized, product managers focus on sourcing the products in the plan.
We purchase the fabric and raw materials used in our business, particularly
denim and twill, from several suppliers, including Cone Mills, Burlington
Industries, Galey & Lord, including its Swift Denim subsidiary and American
Cotton Growers. In addition, we purchase thread, trim, buttons, zippers, snaps
and various other product components from numerous suppliers. We do not have
long-term raw materials or production contracts with any of our principal
suppliers, except for Cone Mills, which is the sole worldwide supplier of the
denim used for our 501(R) jeans, and which supplied approximately 24%, 22% and
24% in 2000, 1999 and 1998, respectively, of the total volume of fabrics we
purchased worldwide. Our contract with Cone Mills provides for a rolling
five-year term unless either Cone Mills or we elect not to extend the agreement,
upon which the agreement will terminate at the end of the then-current term. The
contract also ensures our supply for three years following a change of control
of Cone Mills. We may terminate the Cone Mills contract at any time upon 30 days
notice. We have not experienced any material difficulty in obtaining fabric and
other raw materials to meet production needs in the past.
Our purchased fabrics are shipped directly from fabric manufacturers to our
owned manufacturing plants, to cutting facilities for cutting and shipment on to
third party contractors or directly to third party contractors for garment
construction. In most cases where we use contractors, we retain ownership of the
fabric throughout the manufacturing process. We use numerous independent
manufacturers, principally in Latin America and Asia, for the production of our
garments. We also use contractors who both produce or purchase fabric and sew
the garments. These package contractors represent a small but growing percentage
of our production and enable us to reduce working capital relating to
work-in-process inventories. We typically conduct business with our contractors
on an order-by-order basis. We inspect fabrics and finished goods as part of our
quality control program.
We require all third party contractors who manufacture or finish products
on our behalf to abide by a stringent code of conduct that sets guidelines for
employment practices such as wages and benefits, working hours, health and
safety, working age
10
and disciplinary practices, and for environmental, ethical and legal matters. We
assess working conditions and contractors' compliance with our standards on a
regular basis and implement continuous improvement plans as needed.
We operate 21 dedicated distribution centers in 18 countries. Distribution
center activities include receiving finished goods from our plants and
contractors, inspecting those products and shipping them to our customers. In
some instances, we outsource distribution activities to third party logistics
providers.
TRADEMARKS
We regard our trademarks as our most valuable assets and believe they have
substantial value in the marketing of our products. Levi's(R), Silvertab(R),
501(R), L2(R), Dockers(R), Slates(R), the Arcuate trademark, the Tab Device and
Two Horse are among our core trademarks. We protect these trademarks by
registering them with the U.S. Patent and Trademark Office and with governmental
agencies in other countries where our products are manufactured and sold. We
work vigorously to enforce and protect our trademark rights by engaging in
regular market reviews, helping local law enforcement authorities detect and
prosecute counterfeiters, issuing cease-and-desist letters against third parties
infringing or denigrating our trademarks and initiating litigation as necessary.
We also work with trade groups and industry participants seeking to strengthen
laws relating to the protection of intellectual property rights in markets
around the world. We grant licenses to other parties to manufacture and sell
products with our trademarks in product categories and in geographic areas in
which we do not operate.
SEASONALITY AND BACKLOG
Our sales do not vary substantially by quarter in any of our three regions,
as the apparel industry has become less seasonal due to more frequent selling
seasons and offerings of both basic and fashion oriented merchandise throughout
the year. In addition, all of our orders are subject to cancellation. For those
reasons, our order backlog may not be indicative of future shipments.
SOCIAL RESPONSIBILITY
We have a long-standing corporate culture characterized by ethical conduct
and social responsibility. Our culture and values are reflected in policies and
initiatives that we believe distinguish us from others in the apparel industry.
We were a pioneer in many social and cultural areas:
o We were the first multinational company to develop a comprehensive
code of conduct intended to ensure that workers making our products
anywhere in the world would do so in safe and healthy working
conditions and be treated with dignity and respect.
o Our commitment to social justice is highlighted by a unique initiative
that addresses racial prejudice and seeks to improve race relations by
supporting community organizations working together to eliminate
racism.
o We were among the first companies to offer employee benefits such as
flexible time-off policies and domestic partner benefits.
o We have been a leader in promoting AIDS awareness and education since
1982.
We are active in the communities where we have a presence. We and the Levi
Strauss Foundation jointly contributed $17.2 million during fiscal year 2000 to
community agencies in over 40 countries to support employee volunteerism and
programs in AIDS prevention and care, economic empowerment, youth empowerment
and social justice. In addition, we support more than 75 community involvement
teams worldwide that facilitate employee volunteerism and raise funds for
community projects.
EMPLOYEES
As of November 26, 2000, we employed approximately 17,300 people,
approximately 9,000 of whom were located in the United States. Most of our
production and distribution employees in the United States are covered by
various collective bargaining agreements. Outside the United States, most of our
production and distribution employees are covered by either industry-sponsored
and/or state-sponsored collective bargaining mechanisms. We consider our
relations with our employees to be good and have not recently experienced any
material job actions or labor shortages.
11
ITEM 2. PROPERTIES
We conduct manufacturing, distribution and administrative activities in
owned and leased facilities. We have renewal rights in most of our property
leases. We anticipate that we will be able to extend these leases on terms
satisfactory to us or, if necessary, locate substitute facilities on acceptable
terms. We believe our facilities and equipment are in good condition and are
suitable for our needs. Information about manufacturing, finishing and
distribution facilities and other key operating properties in use as of November
26, 2000 is summarized in the following table:
LOCATION PRIMARY USE LEASED/OWNED
-------- ----------- ------------
UNITED STATES
Little Rock, AR.......................................................... Distribution Owned
Hebron, KY............................................................... Distribution Owned
Canton, MS............................................................... Distribution Owned
Henderson, NV............................................................ Distribution Owned
San Antonio, TX.......................................................... Finishing Owned
San Antonio, TX.......................................................... Manufacturing Owned
San Francisco, CA........................................................ Manufacturing Owned
Blue Ridge, GA........................................................... Manufacturing Owned
Powell, TN............................................................... Manufacturing Owned
Brownsville, TX.......................................................... Manufacturing Owned
El Paso (Kastrin), TX.................................................... Manufacturing Owned
San Benito, TX........................................................... Manufacturing Owned
Westlake, TX............................................................. Data Center Leased
OTHER AMERICAS
Buenos Aires, Argentina.................................................. Distribution Leased
Cotia, Brazil............................................................ Distribution Leased
Rexdale, Canada.......................................................... Distribution Owned
Stoney Creek, Canada..................................................... Manufacturing Owned
Brantford, Canada........................................................ Finishing Leased
Edmonton, Canada......................................................... Manufacturing Leased
Naucalpan, Mexico........................................................ Distribution Leased
EUROPE, MIDDLE EAST AND AFRICA
Schoten, Belgium......................................................... Distribution Leased
Les Ulis, France......................................................... Distribution Leased
Heustenstamm, Germany.................................................... Distribution Owned
Kiskunhalas, Hungary..................................................... Manufacturing, Finishing Owned
and
Distribution
Milan, Italy............................................................. Distribution Leased
Amsterdam, Netherlands................................................... Distribution Leased
Plock, Poland............................................................ Manufacturing and Finishing Leased
Warsaw, Poland........................................................... Distribution Leased
Dundee, Scotland......................................................... Manufacturing Owned
Bellshill, Scotland...................................................... Finishing Owned
Northhampton, U.K........................................................ Distribution Owned
Cape Town, South Africa.................................................. Manufacturing, Finishing Leased
and Distribution
Sabedell, Spain.......................................................... Distribution Leased
Bonmati, Spain........................................................... Manufacturing Owned
Olvega, Spain............................................................ Manufacturing Owned
Helsingborg, Sweden...................................................... Distribution Owned
Corlu, Turkey............................................................ Manufacturing, Finishing Owned
and Distribution
ASIA PACIFIC
Auckland, New Zealand.................................................... Distribution Leased
Adelaide, Australia...................................................... Manufacturing and Owned
Distribution
Bangalore, India......................................................... Distribution Leased
Jawa Barat, Indonesia.................................................... Finishing Leased
Hiratsuka Kanagawa, Japan................................................ Distribution Owned
Makati, Philippines...................................................... Distribution Leased
Makati, Philippines...................................................... Manufacturing Leased
12
Our global headquarters and the headquarters of our Americas business are
both located in leased premises in San Francisco, California. Our Europe and
Asia Pacific headquarters are located in leased premises in Brussels, Belgium
and Singapore. We also lease or own over 110 administrative and sales offices in
44 countries, as well as lease a number of small warehouses in nine countries.
In addition, we have 52 company-operated retail and outlet stores in eight
countries in owned and leased premises, of which 10 stores are outlet stores in
the United States, and 15 stores are located in Poland. We also own or lease
several facilities we formerly operated and have closed.
ITEM 3. LEGAL PROCEEDINGS
We are subject to claims against us, and we make claims against others, in
the ordinary course of our business, including claims arising from the use of
our trademarks and with respect to employment matters. We do not believe that
the resolution of any pending claims will materially adversely affect our
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during our 2000
fiscal fourth quarter.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Our shares of common stock are held by members of the families of
several descendants of our founder, Levi Strauss, and by several former members
of our management. There is no established public trading market for our shares
and none of our shares are convertible into shares of any other class of stock
or other securities.
All shares of our common stock are deposited in a voting trust, a legal
arrangement that transfers the voting power of the shares to a trustee or group
of trustees. The four voting trustees are Peter E. Haas, Sr., Peter E. Haas,
Jr., Robert D. Haas and F. Warren Hellman. The voting trustees have the
exclusive ability to elect and remove directors, amend our by-laws and take
certain other actions which would normally be within the power of stockholders
of a Delaware corporation. Our equity holders who, as a result of the voting
trust, legally hold "voting trust certificates", not stock, retain the right to
direct the trustees on specified mergers and business combinations,
liquidations, sales of substantially all of our assets and specified amendments
to our certificate of incorporation.
The voting trust will last until April 2011, unless the trustees
unanimously decide, or holders of at least two-thirds of the outstanding voting
trust certificates decide, to terminate it earlier. If Robert D. Haas ceases to
be a trustee for any reason, then the question of whether to continue the voting
trust will be decided by the holders. If Peter E. Haas, Sr. ceases to be a
trustee, his successor will be his spouse, Miriam L. Haas. The existing trustees
will select the successors to the other trustees. The agreement among the
stockholders and the trustees creating the voting trust contemplates that, in
selecting successor trustees, the trustees will attempt to select individuals
who share a common vision with the sponsors of the 1996 transaction that gave
rise to the voting trust, represent and reflect the financial and other
interests of the equity holders and bring a balance of perspectives to the
trustee group as a whole. A trustee may be removed if the other three trustees
unanimously vote for removal or if holders of at least two-thirds of the
outstanding voting trust certificates vote for removal.
Our common stock, as noted, and the voting trust certificates, are not
publicly held or traded. All shares and the voting trust certificates are
subject to a stockholders' agreement. The agreement, which expires in April
2016, limits the transfer of shares and certificates to other holders, family
members, specified charities and foundations and to us. The agreement does not
provide for registration rights or other contractual devices for forcing a
public sale of shares, certificates or other access to liquidity. The scheduled
expiration date of the stockholders' agreement is five years later than that of
the voting trust agreement in order to permit an orderly transition from
effective control by the voting trust trustees to direct control by the
stockholders.
We may hold "annual stockholders' meetings" to which all voting trust
certificate holders are invited to attend. These meetings are not a "meeting of
stockholders" in the traditional corporate law sense; under the voting trust
agreement, the trustees, not the voting trust certificate holders, elect the
directors and vote the shares on most other corporate matters. In addition, the
meetings are not official formal meetings, under the voting trust agreement, of
the voting trust certificate holders. Instead, these annual gatherings are
opportunities for the voting trust certificate holders to interact with the
board of directors and management and to learn more about our business.
(b) As of January 1, 2001, there were 164 record holders of voting trust
certificates.
(c) We did not declare or pay any dividends in our two most recent fiscal
years. Our current bank credit facilities prohibit our declaring or paying any
dividends without first obtaining consents from our lenders. In addition in
January 2001, we entered into indentures relating to our 11.625% senior notes
due 2008 that prohibit our paying any dividends unless we meet specific
requirements. For more detailed information about our bank credit facilities and
senior notes, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and Notes to
Consolidated Financial Statements.
14
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected financial data. The following
selected statements of income data and cash flow data for fiscal years 2000,
1999, 1998, 1997 and 1996 and the consolidated statement of balance sheet data
of such periods are derived from our financial statements that have been audited
by Arthur Andersen LLP, independent public accountants.
The financial data set forth below should be read in conjunction with, and
is qualified by reference to, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," our consolidated financial statements and
the related notes to those financial statements, included elsewhere in this
report. Certain prior year amounts have been reclassified to conform to the 2000
presentation.
YEAR ENDED
----------
NOVEMBER 26, NOVEMBER 28, NOVEMBER 29, NOVEMBER 30, NOVEMBER 24,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
STATEMENT OF INCOME DATA:
Net sales........................ $4,645,126 $ 5,139,458 $ 5,958,635 $ 6,861,482 $ 7,136,304
Cost of goods sold............... 2,690,170 3,180,845 3,433,081 3,962,719 4,159,371
---------- ----------- ----------- ----------- -----------
Gross profit..................... 1,954,956 1,958,613 2,525,554 2,898,763 2,976,933
Marketing, general and
administrative expenses........ 1,481,718 1,629,845 1,834,058 2,045,938 2,029,138
Other operating income (32,380) (24,387) (25,310) (26,769) (28,328)
Excess capacity/restructuring (1) (33,144) 497,683 250,658 386,792 --
Global Success Sharing Plan(2) .. -- (343,873) 90,564 114,833 138,963
Special Compensation Charge(3) .. -- -- -- -- 76,983
---------- ----------- ----------- ----------- -----------
Operating income................. 538,762 199,345 375,584 377,969 760,177
Interest expense................. 234,098 182,978 178,035 212,358 145,234
Other (income) expense, net...... (39,016) 7,868 34,849 (18,670) (4,963)
---------- ----------- ----------- ----------- -----------
Income before taxes.............. 343,680 8,499 162,700 184,281 619,906
Income tax expense............... 120,288 3,144 60,198 46,070 154,977
---------- ----------- ----------- ----------- -----------
Net income....................... $ 223,392 $ 5,355 $ 102,502 $ 138,211 $ 464,929
========== =========== ==========- =========== ===========
OTHER FINANCIAL DATA:
EBITDA(4)........................ $ 629,743 $ 319,447 $ 504,357 $ 516,863 $ 889,714
Adjusted EBITDA(5)............... 596,599 473,257 845,579 1,018,488 1,105,660
Capital expenditures............. 27,955 61,062 116,531 121,595 210,466
Ratio of adjusted EBITDA to
interest....................... 2.5x 2.6x 4.7x 4.8x 7.6x
Ratio of earnings to fixed
charges(6)..................... 2.0x 1.0x 1.6x 1.6x 3.8x
STATEMENT OF CASH FLOW
DATA:
Cash flows from operating
activities..................... $ 305,926 $ (173,772) $ 223,769 $ 573,890 $ 494,138
Cash flows from investing
activities..................... 154,223 62,357 (82,707) (76,895) (242,781)
Cash flows from financing
activities..................... (527,062) 224,219 (194,489) (530,302) (1,136,300)
BALANCE SHEET DATA:
Cash and cash equivalents....... $ 117,058 $ 192,816 $ 84,565 $ 144,484 $ 195,852
Working capital.................. 555,062 770,130 637,801 701,535 1,059,940
Total assets..................... 3,205,728 3,670,014 3,867,757 4,012,314 4,167,696
Total debt....................... 2,126,430 2,664,609 2,415,330 2,631,696 3,225,512
Stockholders' deficit(3)......... (1,098,573) (1,288,562) (1,313,747) (1,370,262) (1,481,577)
15
- --------------
(1) We reduced overhead expenses and eliminated excess manufacturing capacity
through extensive restructuring initiatives executed during the past three
years, including closing 29 of our owned and operated production and
finishing facilities in North America and Europe.
(2) Our Global Success Sharing Plan, adopted in 1996, provides for cash
payments to our employees in 2002 if we achieve pre-established financial
targets. We recognized and accrued expenses in 1998, 1997 and 1996 for our
Global Success Sharing Plan. During 1999, we concluded that, based on our
financial performance, the targets under the plan would not be achieved and
that the probability of a payment in 2002 is highly unlikely. As a result,
in 1999 we reversed into income $343.9 million of accrued expenses, less
miscellaneous expenses, previously recorded in connection with the Global
Success Sharing Plan.
(3) The special compensation charge and stockholders' deficit resulted from a
1996 transaction in which our stockholders created new long-term governance
arrangements for us, including the voting trust and stockholders agreement.
In the 1996 transaction, a group of stockholders of our former parent, Levi
Strauss Associates Inc., established a new company, LSAI Holding Corp, to
which they contributed approximately 70% of the outstanding shares of Levi
Strauss Associates Inc. Levi Strauss Associates Inc. was then merged with a
subsidiary of LSAI Holding Corp. In the merger, shares of Levi Strauss
Associates Inc. not contributed to LSAI Holding Corp., including shares
held under several employee benefit and compensation plans, were converted
into the right to receive cash, thereby making Levi Strauss Associates Inc.
a wholly-owned subsidiary of LSAI Holding Corp. Funding for the cash
payments in the merger was provided in part by cash on hand and in part
from proceeds of approximately $3.3 billion of borrowings under bank credit
facilities. The special compensation charge resulted from the impact of the
transaction on various employee plans. In October 1996, Levi Strauss
Associates Inc. and LSAI Holding Corp. were merged into Levi Strauss & Co.
These transactions were accounted for as a reorganization of entities under
common control.
(4) EBITDA equals operating income plus depreciation and amortization expense.
EBITDA is not intended to represent cash flow or any other measure of
performance in accordance with generally accepted accounting principles.
(5) The calculation for adjusted EBITDA is shown below:
YEAR ENDED
----------
NOVEMBER 26, NOVEMBER 28, NOVEMBER 29, NOVEMBER 30, NOVEMBER 24,
2000 1999 1998 1997 1996
---- ----- ---- ---- ----
(DOLLARS IN THOUSANDS)
EBITDA.......................... $629,743 $319,447 $504,357 $ 516,863 $ 889,714
Excess capacity
reduction/restructuring....... (33,144) 497,683 250,658 386,792 --
Global Success Sharing Plan..... -- (343,873) 90,564 114,833 138,963
Special Compensation Charges.... -- -- -- 76,983
-------- -------- -------- ---------- ----------
Adjusted EBITDA................. $596,599 $473,257 $845,579 $1,018,488 $1,105,660
======== ======== ======== ========== ==========
(6) For the purpose of computing the ratio of earnings to fixed charges,
earnings are defined as income from continuing operations before income
taxes, plus fixed charges and less capitalized interest. Fixed charges are
defined as the sum of interest, including capitalized interest, on all
indebtedness, amortization of debt issuance cost and that portion of rental
expense which we believe to be representative of an interest factor.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements, including, in particular,
statements about our plans, strategies and prospects under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." Among these forward looking statements are statements regarding our
anticipated performance in fiscal year 2001, specifically statements relating to
our net sales, gross profit, advertising expense and capital expenditures.
We have based the forward-looking statements herein on our current
assumptions, expectations and projections about future events. When used in this
report, the words "believe," "anticipate," "intend," "estimate," "expect,"
"project" and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain such words.
These forward-looking statements speak only as of the date of this report, and
we do not undertake any obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. Although we believe that the expectations reflected in
these forward-looking statements are reasonable, we can give no assurance that
these expectations will prove to be correct or that we will achieve savings or
other benefits anticipated in the forward-looking statements. We disclose
important factors, some of which may be beyond our control, that could cause
actual results to differ materially from management's expectations in this
report, including, without limitation:
o risks related to the impact of competitive products;
o changing fashion trends;
o dependence on key distribution channels;
o customers and suppliers;
o our supply chain executional performance;
o ongoing competitive pressures in the apparel industry;
o changing international retail environments;
o changes in the level of consumer spending or preferences in apparel;
o trade restrictions; and
o political or financial conditions in countries where our products are
manufactured.
For more information on these and other factors, see "Factors That May
Affect Future Results." We caution prospective investors not to place undue
reliance on these forward-looking statements. All subsequent written and oral
forward-looking statements attributable to us are expressly qualified in their
entirety by the cautionary statements and the risk factors contained throughout
this report.
17
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 foot due to rounding).
YEAR ENDED
----------
NOVEMBER 26, NOVEMBER 28, NOVEMBER 29,
2000 1999 1998
----- ----- -----
Net sales ............................................ 100.0% 100.0% 100.0%
Cost of goods sold.................................... 57.9 61.9 57.6
----- ----- ----
Gross profit.......................................... 42.1 38.1 42.4
Marketing, general and administrative
expenses........................................... 31.9 31.7 30.8
Other operating income................................ (0.7) (0.5) (0.4)
Excess capacity/restructuring charges................. (0.7) 9.7 4.2
Global Success Sharing Plan........................... -- (6.7) 1.5
----- ----- -----
Operating income...................................... 11.6 3.9 6.3
Interest expense...................................... 5.0 3.6 3.0
Other (income) expense, net........................... (0.8) 0.2 0.6
----- ----- -----
Income before taxes................................... 7.4 0.2 2.7
Income tax expense.................................... 2.6 0.1 1.0
----- ----- -----
Net income............................................ 4.8% 0.1% 1.7%
===== ===== =====
NET SALES SEGMENT DATA:
GEOGRAPHIC
Americas......................................... 67.8% 66.6% 66.1%
Europe........................................... 23.8 26.5 27.7
Asia Pacific..................................... 8.4 7.0 6.2
YEAR ENDED NOVEMBER 26, 2000 AS COMPARED TO YEAR ENDED NOVEMBER 28, 1999
NET SALES. Total net sales in fiscal year 2000 decreased 9.6% to $4.6
billion, as compared to $5.1 billion in fiscal year 1999. This decrease reflects
a combination of factors including volume declines, a higher percentage of
closeout sales related to our efforts to clear inventories of slow moving and
obsolete fashion products earlier in the year, and the impact of the
depreciating Euro. Net sales declined in the Americas and Europe regions, but
increased in the Asia Pacific region, as compared to the same period of 1999. If
currency exchange rates were unchanged from the prior year period, net sales for
fiscal year 2000 would have declined approximately 7%.
Although year over year total net sales continued to decline, the rate of
decline narrowed to 9.6% in fiscal 2000 as compared to 13.7% in fiscal 1999 and
13.2% in fiscal 1998. We believe that positive consumer response to our new
product lines, stronger demand for our basic products such as 501(R) jeans in
the U.S. and upgraded core products in Asia, improved product-focused marketing
support, stronger retail relationships and incremental progress in our shipping
execution contributed to the slowing decline in sales. Our narrowing sales
decline, particularly in a difficult retail environment, reflects ongoing
progress in our business turnaround and efforts to improve performance. We
believe we are positioned both operationally and financially to work toward
stabilizing our business in fiscal year 2001 and hope to achieve relatively flat
net sales on a constant currency basis, compared to fiscal year 2000.
In fiscal years 2000 and 1999, we had one customer that represented
approximately 12% and 11%, respectively, of total net sales. No other customer
accounted for more than 10% of total net sales.
In the Americas, net sales decreased 8.0% to $3.1 billion, as compared to
$3.4 billion in fiscal year 1999, due primarily to a drop in volume. Although,
this decrease was partially attributable to a weak apparel retail market,
including difficult back-to-school and holiday seasons, we experienced increased
consumer interest in our Levi's(R) brand product innovations, such as Levi's(R)
Engineered Jeans, and higher volume in Dockers(R) product lines.
18
In Europe, net sales decreased 18.8% to $1.1 billion, as compared to $1.4
billion in fiscal year 1999. Net sales decreased primarily due to a decline in
volume caused by a continued softening of the European apparel market, certain
execution issues in our supply chain, lower average unit selling prices
resulting from a higher percentage of closeouts sales and the reporting impact
of the depreciating Euro. If exchange rates were unchanged from the prior year
period, the reported net sales decrease would have been approximately 8% in
fiscal year 2000 compared to the prior year period.
In the Asia Pacific region, net sales increased 9.5% to $392.4 million, as
compared to $358.4 million in fiscal year 1999. The increase was primarily
driven by volume growth in most markets and the effects of translation to U.S.
dollar reported results. These results were achieved despite falling stock
markets, political turmoil in the Philippines and slowed consumer spending in
Japan. In Japan, which accounts for nearly two-thirds of our business in Asia,
we experienced positive retail and consumer response to our new products and
upgraded core basics. If exchange rates were unchanged from the prior year
period, the reported net sales increase would have been approximately 7% in
fiscal year 2000 compared to the prior year period.
GROSS PROFIT. Gross profit in fiscal year 2000 of $2.0 billion was
relatively flat compared to the previous year. Gross profit as a percentage of
net sales, or gross margin, increased to 42.1% in fiscal year 2000, as compared
to 38.1% in fiscal year 1999. The increase was primarily attributable to a
better product mix, as well as improved sourcing costs and the benefit of cost
reductions resulting from plant closures taken in prior years. Idle capacity
associated with production downtime occurred in 1999 as factory production was
curtailed prior to fully closing some North American and European plants. In
fiscal year 1999 we determined that the sell-off of obsolete goods would
continue in fiscal year 2000 and as a result we marked down inventories
accordingly. This resulted in higher costs of goods sold in fiscal 1999, despite
the recording of a workers' compensation accrual reversal of approximately $21.0
million. We do not anticipate taking any material restructuring charges relating
to additional capacity reductions or reorganization efforts in 2001. We
anticipate that gross margin will continue to be in our target range of 40 to
42% in fiscal year 2001.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses for fiscal year 2000 decreased 9.1% to $1.5 billion, as
compared to $1.6 billion for the same period last year. Marketing, general and
administrative expenses as a percentage of sales for fiscal year 2000 and fiscal
year 1999 were each approximately 32%. The dollar decrease in marketing, general
and administrative expenses was primarily due to our continuing cost containment
efforts, lower salaries and related expenses resulting from prior year
restructuring initiatives, lower sales volume-related expenses, lower
advertising expenses, lower information technology expenses associated with
minimal year 2000 compliance costs in 2000 and an $18.0 million pension
curtailment benefit in fiscal year 2000. These decreases were partially offset
by increased costs for employee incentive plans in fiscal year 2000. The
increase in incentive plans during fiscal year 2000 was due to stronger
performance against financial targets. In addition, marketing general and
administrative expenses in fiscal year 1999 included the benefit from a reversal
of employee incentive costs due to weak performance against financial targets.
Advertising expense for fiscal year 2000 decreased 17.8% to $402.7 million,
as compared to $490.2 million in the same period in 1999. Advertising expense as
a percentage of sales in fiscal year 2000 decreased 0.8 percentage points to
8.7%, as compared to 9.5% for the same period in 1999. The decrease in
advertising expense as a percentage of sales for fiscal year 2000, compared to
the prior year period was consistent with our plans to better focus our
marketing support initiatives and to align them more effectively with new
product introductions and retail presentation. In fiscal year 2001, we expect to
maintain advertising spending in a range of 8 to 9%, as a percentage of sales.
OTHER OPERATING INCOME. For fiscal year 2000, licensing income increased
32.8% from the same period in 1999. The increase was primarily due to more focus
on expanding our brand collection with licensed merchandise such as outerwear,
shoes and belts.
EXCESS CAPACITY/RESTRUCTURING CHARGES. For fiscal year 2000, we reversed
charges of $33.1 million primarily due to periodic reevaluation of estimates
related to the restructuring initiatives. In fiscal year 1999, we recorded
charges of $497.7 million that were associated with our corporate overhead
restructuring initiatives and plant closures in North America and Europe.
GLOBAL SUCCESS SHARING PLAN. In fiscal year 2000, we recorded no expense
for Global Success Sharing Plan. In fiscal year 1999, we reversed into income
$343.9 million of previously recorded expenses associated with the Global
Success Sharing Plan. This reversal of the Global Success Sharing Plan liability
was based on our lower estimate of financial performance through the year 2001
and the determination that payment in 2002 under the Global Success Sharing Plan
is highly unlikely.
OPERATING INCOME. For fiscal year 2000, we recorded operating income of
$538.8 million, as compared to $199.3 million in the same period in 1999. This
increase was due to an improved gross margin, lower marketing, general and
administrative expenses and the reversal of restructuring charges in fiscal year
2000. In addition, reported results in fiscal year 1999 were
19
affected by charges related to the restructuring initiatives, net of benefits
for the Global Success Sharing Plan reversal. Excluding the fiscal year 2000
benefit of $33.1 million related to the reversal of restructuring costs, the
fiscal year 1999 charge of $497.7 million related to restructuring costs and the
$343.9 million benefit related to the Global Success Sharing Plan reversal,
operating income for fiscal year 2000 would have increased approximately 43%
compared to the same period in 1999.
INTEREST EXPENSE. Interest expense for fiscal year 2000 increased 27.9% to
$234.1 million, as compared to $183.0 million for the same period in 1999. This
increase was due to higher interest rates associated with new credit facilities,
customer service center equipment financing agreements and higher market
interest rates.
OTHER INCOME/EXPENSE, NET. For fiscal year 2000 we recorded $39.0 million
of other income, net, as compared to an other expense, net of $7.9 million in
the same period in 1999. The increase for fiscal year 2000 was primarily
attributable to a $26.1 million gain from the sale of two office buildings in
San Francisco located next to our corporate headquarters, an increase in
interest income and net gains in 2000 compared to net losses in 1999 on foreign
currency hedging contracts. Net currency gains and losses are primarily due to
the fluctuations of various currencies in relation to our foreign currency
hedging positions.
INCOME TAX EXPENSE. Income tax expense for fiscal year 2000 was $120.3
million compared to $3.1 million for the same period in 1999. The increase for
fiscal year 2000 was primarily due to higher earnings than in 1999. Our
effective tax rate for fiscal year 2000 was 35%, as compared to 37% for the same
period in 1999. The lower tax rate in 2000 was due to a reassessment of
potential tax settlements.
NET INCOME. Net income for fiscal year 2000 increased by $218.0 million
from $5.4 million in the same period in 1999. Net income for fiscal year 2000
included higher operating income, partially offset by higher interest and tax
expense compared to the same period in 1999. In addition, fiscal year 2000
included a gain from the sale of office buildings and the reversal of
restructuring reserves. The lower net income for the 1999 period was due to the
restructuring charge of $497.7 million, partially offset by the reversal of
incentive compensation and Global Success Sharing Plan accruals. Excluding the
items in both fiscal years 2000 and 1999 for the reversal and charge for
restructuring and Global Success Sharing Plan, net income for fiscal year 2000
would have been $201.8 million, as compared to $102.3 million in the same period
in 1999.
YEAR ENDED NOVEMBER 28, 1999 AS COMPARED TO YEAR ENDED NOVEMBER 29, 1998
NET SALES. Total net sales in fiscal year 1999 decreased 13.7% to $5.1
billion, as compared to $6.0 billion in fiscal year 1998. Net sales declined
worldwide and in each of our regions in Levi's(R) brand basic denim products as
the consumer market trended towards more fashion denim, designer and private
label products, as well as non-denim products. Factors contributing to our
fiscal year 1999 net sales decline for each of our regions were difficulties in
matching production with demand and a higher percentage of closeout sales needed
to reduce the buildup of inventories. In the Americas, net sales decreased 13.2%
to $3.4 billion, as compared to $3.9 billion in fiscal year 1998. In Europe, net
sales decreased 17.6% to $1.4 billion, as compared to $1.7 billion in fiscal
year 1998. In the Asia Pacific region, net sales decreased 3.0% to $358.4
million, as compared to $369.4 million in fiscal year 1998. Changes in foreign
exchange rates had a minimal impact on total net sales. In fiscal years 1999 and
1998, we had one customer that represented approximately 11% and 12%,
respectively, of total net sales. No other customer accounted for more than 10%
of total net sales.
GROSS PROFIT. Gross profit as a percentage of net sales, or gross margin,
decreased to 38.1% in fiscal year 1999, as compared to 42.4% in fiscal year
1998. The decrease was primarily attributable to unfavorable product mix and
increased production downtime. Idle capacity associated with production downtime
occurred in 1999 as factory production was curtailed prior to fully closing some
North American and European plants. In fiscal year 1999 we determined that the
sell-off of obsolete goods would continue in fiscal year 2000 and thus
inventories were marked down accordingly resulting in higher costs of goods
sold.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses for fiscal year 1999 decreased 11.1% to $1.6 billion, as
compared to $1.8 billion in fiscal year 1998. Marketing, general and
administrative expenses as a percentage of net sales in fiscal year 1999
increased to 31.7%, as compared to 30.8% in fiscal year 1998. The dollar
decrease resulted primarily from reduced selling and distribution costs
associated with lower unit volume shipments, decreases in performance-related
incentives and reductions in administrative and overhead expenses associated
with cost reduction efforts. Advertising expenses in fiscal year 1999 increased
5.0% to $490.2 million, as compared to $466.7 million in fiscal year 1998
primarily due to various initiatives we implemented to revitalize our brand.
Advertising initiatives in fiscal year 1999 included worldwide music sponsorship
programs, a new Pan-European marketing campaign and a renewed focus on U.S.
Dockers(R) brand promotions.
20
OTHER OPERATING INCOME. For fiscal year 1999, licensing income decreased
approximately 3.6% from the same period in 1998. The decrease was primarily due
to less licensing opportunities as a result of a reduced market for our brands.
EXCESS CAPACITY REDUCTION/RESTRUCTURING EXPENSES. For fiscal year 1999, we
incurred charges of $497.7 million, as compared to $250.7 million in fiscal year
1998. These charges were associated with the plant closures in North America and
Europe and with our corporate overhead restructuring initiatives.
GLOBAL SUCCESS SHARING PLAN. In fiscal year 1999, we reversed into income
$343.9 million of previously recorded expenses associated with the Global
Success Sharing Plan, as compared to an expense of $90.6 million recognized in
fiscal year 1998. This reversal of the Global Success Sharing Plan liability was
based on our lower estimate of financial performance through the year 2001 and
the determination that payment in 2002 under the Global Success Sharing Plan is
highly unlikely.
OPERATING INCOME. Operating income for fiscal year 1999 decreased 46.9% to
$199.3 million, as compared to $375.6 million in fiscal year 1998. The decrease
from fiscal year 1998 was a result of lower sales and gross profit, partially
offset by lower marketing general and administrative costs. Operating income for
fiscal years 1999 and 1998 was adversely impacted by the North American and
European plant closures and restructuring initiatives totaling $497.7 million in
fiscal year 1999 and $250.7 million in fiscal year 1998. Offsetting this
decrease in fiscal year 1999 was the reversal of the Global Success Sharing Plan
liability totaling $343.9 million, as compared to a charge of $90.6 million in
fiscal year 1998. Excluding the charges for the plant closures and restructuring
initiatives and the reversal and charge for the Global Success Sharing Plan in
fiscal years 1999 and 1998, operating income for fiscal year 1999 would have
decreased to $353.2 million, as compared to $716.8 million in fiscal year 1998.
INTEREST EXPENSE. Interest expense in fiscal year 1999 increased 2.8% to
$183.0 million, as compared to $178.0 million in fiscal year 1998. This increase
was due to higher average debt outstanding throughout most of fiscal year 1999.
The increase in outstanding debt was primarily due to the cash outflows
associated with plant closures and restructuring initiatives.
OTHER EXPENSE, NET. Other expense, net in fiscal year 1999 decreased to
$7.9 million compared to $34.9 million in fiscal year 1998. This decrease was
primarily attributable to net gains on foreign currency contracts in fiscal year
1999, as compared to net losses in fiscal year 1998. Net currency gains and
losses are primarily due to currency fluctuations in relation to our foreign
currency hedging positions.
INCOME TAX EXPENSE. Income tax expense for fiscal year 1999 decreased 94.8%
to $3.1 million, as compared to $60.2 million in fiscal year 1998. The decrease
in income tax expense is consistent with the decrease in income before taxes as
the effective tax rate was 37.0% for both fiscal years.
NET INCOME. Net income for fiscal year 1999 decreased 94.8% to $5.4
million, as compared to $102.5 million in fiscal year 1998. Net income for
fiscal years 1999 and 1998 was adversely impacted by the pre-tax North American
and European plant closures and restructuring initiatives totaling $497.7
million in fiscal year 1999 and $250.7 million in fiscal year 1998. Offsetting
this decrease in fiscal year 1999 was the pre-tax reversal of the Global Success
Sharing Plan liability totaling $343.9 million, as compared to a pre-tax charge
of $90.6 million in fiscal year 1998. Excluding the charges for the plant
closures and restructuring initiatives and the reversal and charge for the
Global Success Sharing Plan in fiscal years 1999 and 1998, net income for fiscal
year 1999 would have decreased by $215.2 million to $102.3 million, as compared
to $317.5 million in fiscal year 1998. The principal causes of this decrease
were lower net sales and lower gross margin, which were partially offset by
lower marketing, general and administrative expenses.
RESTRUCTURING AND EXCESS CAPACITY REDUCTION
The following is a summary of the actions taken and related charges
associated with our excess capacity reductions and other restructuring
activities:
o During September 1999, we announced plans to close one manufacturing
facility and further reduce overhead costs by consolidating operations
in Europe, with an estimated displacement of 960 employees. We
recorded an initial charge to set up a reserve of $54.7 million. The
manufacturing facility was closed in December 1999. In fiscal year
2000, $2.2 million of the remaining reserve balance was reversed due
to the periodic reevaluation resulting from updated estimates and
assumptions. As a result of this reevaluation, a total of 945
employees are estimated to be displaced. As of November 26, 2000, the
balance of this reserve was $6.3 million, and approximately 910
employees had been displaced.
21
o In February 1999, we announced the closure of 11 manufacturing
facilities in North America. Those facilities were closed by the end
of 1999, resulting in the displacement of approximately 5,900
employees. We recorded an initial charge to set up a reserve of $394.1
million in 1999. In fiscal year 2000, $13.3 million of the remaining
reserve balance was reversed due to the periodic reevaluation
resulting from updated estimates and assumptions. Of this reversal,
$7.1 million was primarily associated with employee benefits and was
based upon historical trends and future projections of medical and
other employee benefits. Of this reversal, $6.1 million was primarily
associated with plant closure costs and was based upon historical
trends from previous plant closures. As of November 26, 2000, the
balance in this reserve was $54.6 million.
o In fiscal year 1999, we recorded an initial charge to set up a reserve
of $48.9 million for corporate overhead reorganization initiatives
with an estimated displacement of 930 employees upon completion of the
reorganization. In fiscal year 2000, $9.0 million of the remaining
reserve balance was reversed due to the periodic reevaluation
resulting from updated estimates and assumptions. As a result of this
reevaluation, a total of 730 employees are estimated to be displaced.
As of November 26, 2000, the balance of this reserve was $2.8 million,
and approximately 670 employees had been displaced.
o In fiscal year 1998, we recorded an initial charge to set up a reserve
of $61.1 million for corporate overhead reorganization initiatives and
$82.1 million for the closure of two North American finishing
facilities. The two North America finishing facilities were closed
during 1999. Approximately 770 and 990 employees were displaced in
connection with the reorganization and facility closures,
respectively. In fiscal year 2000, $3.7 million of the remaining
reserve balance for the corporate overhead reorganization initiatives
was reversed due to the periodic reevaluation resulting from updated
estimates and assumptions. Of this reversal, $1.8 million was
primarily associated with employee benefits and was based upon
historical trends and future projections of medical and other employee
benefits. Of this reversal, $1.9 million was primarily associated with
higher sub-lease income than initially projected. In fiscal year 2000,
a small amount of the remaining reserve balance for the North America
finishing facilities was reversed due to the periodic reevaluation
resulting from updated estimates and assumptions. This reversal was
primarily associated with employee benefits and was based upon
historical trends and future projections of medical and other employee
benefits. As of November 26, 2000, the balances of these reserves were
$1.9 million and $2.1 million, respectively.
o In fiscal year 1998, we recorded an initial restructuring charge to
set up a reserve of $107.5 million for reorganization initiatives and
the closure of two manufacturing and two finishing facilities in
Europe with an estimated displacement of 1,650 employees. The two
manufacturing and two finishing facilities were closed in 1999. As of
November 26, 2000, the balance of this reserve was $1.5 million and
approximately 1,645 employees had been displaced.
o In November 1997, we announced the closure of one finishing and 10
manufacturing facilities in North America. Those facilities were
closed by the end of 1998, resulting in the displacement of
approximately 6,400 employees. We recorded an initial charge to set up
a reserve of $386.8 million. In fiscal year 2000, $5.0 million of the
reserve balance was reversed due to the periodic reevaluation
resulting from updated estimates and assumptions. This reversal was
primarily associated with employee benefits that expired during 2000.
As of November 26, 2000, the balance of this reserve was $2.4 million.
The following table summarizes the plant closures and restructuring charges
and the resulting reductions:
BALANCE AS
INITIAL OF
INITIAL ASSET CASH NOVEMBER 26,
PROVISION WRITE-OFFS REDUCTIONS REVERSALS 2000
--------- ---------- ---------- --------- ------------
(DOLLARS IN THOUSANDS)
1997 North American Plant Closures.................................... $ 386,792 $ 42,689 $336,669 $ 4,987 $ 2,447
1998 North American Plant Closures.................................... 82,073 23,399 56,604 13 2,057
1999 North American Plant Closures.................................... 394,105 33,430 292,777 13,281 54,617
1998 Corporate Restructuring Initiatives.............................. 61,062 2,985 52,469 3,735 1,873
1999 Corporate Restructuring Initiatives.............................. 48,889 -- 37,164 8,963 2,762
1998 European Restructuring and Plant Closures........................ 107,523 10,026 95,989 -- 1,508
1999 European Restructuring and Plant Closures........................ 54,689 4,500 41,693 2,165 6,331
---------- -------- -------- ------- -------
Total as of November 26, 2000.................................... $1,135,133 $117,029 $913,365 $33,144 $71,595
========== ======== ======== ======= =======
The majority of the initiatives are expected to be completed by the end of
2001.
22
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements have been to fund working capital and
capital expenditures. One of our business strategies is to focus on working
capital control through improved forecasting, inventory management and product
mix. We are also focusing on controlling operating expenses and using cash
generated from operations to further reduce debt. As of November 26, 2000, total
cash and cash equivalents were $117.1 million, a $75.8 million decrease from the
$192.8 million cash balance reported as of November 28, 1999.
CASH PROVIDED BY/USED FOR OPERATIONS. Cash provided by operating activities
in fiscal year 2000 was $305.9 million, as compared to a use of cash of $173.8
million in the same period in 1999. Although inventory increased, the
composition of our inventory in fiscal year 2000 was more current and relevant
to the marketplace compared to the composition of inventory in the prior year
period. This reflected our efforts to clear out old merchandise from fiscal year
1999. Inventory decreased on the balance sheet due to the translation effects of
foreign currency rates to the U.S. dollar.
Income taxes receivable decreased during fiscal year 2000 primarily 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.
Restructuring reserves and the related net deferred tax assets decreased during
fiscal year 2000 primarily due to spending and accrual reversals related to the
restructuring initiatives. Accrued salaries, wages and employee benefits, and
long-term employee benefits increased during fiscal year 2000 primarily due to
increased accruals for employee incentive plans. Accrued taxes increased and
other long-term liabilities decreased during fiscal year 2000 due to a tentative
settlement with the Internal Revenue Service in connection with an examination
of our income tax returns for the years 1986 to 1989. The change in other, net
during fiscal year 2000 was primarily due to the gain attributable to a sale of
two office buildings in San Francisco located adjacent to our corporate
headquarters.
Cash used by operating activities in fiscal year 1999 was $173.8 million,
as compared to cash provided by operating activities of $223.8 million in fiscal
year 1998. This change was primarily due to increased spending associated with
plant closures and restructuring initiatives and lower sales in fiscal year
1999. The decrease in long-term employee related benefits during fiscal year
1999 primarily reflected the reversal of the prior year's accruals for the
Global Success Sharing Plan and reductions in deferred compensation. Inventory
decreased during fiscal year 1999 primarily due to reduced production levels.
The increase in income tax receivable for fiscal year 1999 reflected an expected
income tax refund based upon a carryback of a net operating loss to be reported
on our income tax return.
CASH PROVIDED BY/USED FOR INVESTING ACTIVITIES. Cash provided by investing
activities during fiscal year 2000 increased to $154.2 million, as compared to
$62.4 million during the same period in 1999. The increase in fiscal year 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 of
two office buildings in San Francisco located adjacent to our corporate
headquarters.
Our capital spending for fiscal year 2000 was $28.0 million, as compared to
$61.1 million for fiscal year 1999 and $116.5 million in fiscal year 1998. We
expect capital spending of approximately $50.0 million in fiscal year 2001,
primarily for maintenance and purchase of equipment at our remaining
manufacturing facilities and distribution centers, and for computer related
equipment throughout the world. As expected, we have dramatically reduced
capital spending following our 1998 and 1999 plant closures.
Cash provided by investing activities in fiscal year 1999 was $62.4
million, as compared to net cash used by investing activities of $82.7 million
in fiscal year 1998. This change was primarily due to an increase in proceeds
from the sale of property, plant and equipment mainly associated with the plant
closures, and lower purchases of property, plant and equipment in fiscal year
1999. In addition, in fiscal year 1999 we had net realized gains on hedging of
our net investments, as compared to net losses in fiscal year 1998.
CASH PROVIDED BY/USED FOR FINANCING ACTIVITIES. Cash used for financing
activities for fiscal year 2000 was $527.1 million, as compared to a source of
cash of $224.2 million in the same period in 1999. Cash was used in fiscal year
2000 for repayment of existing debt.
Cash provided by financing activities in fiscal year 1999 was $224.2
million, as compared to net cash used for financing activities of $194.5 million
in fiscal year 1998. This change was primarily due to an increase in debt
financing in fiscal year 1999.
23
FINANCIAL CONDITION
CREDIT AGREEMENTS. On January 31, 2000, we amended each of our three
existing credit agreements, and we entered into one new $450.0 million bridge
credit agreement (the "2000 Credit Facility"). The financing package consists of
four separate agreements: (1) a new $450.0 million bridge facility 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, we terminated a domestic
receivables-backed securitization financing.
In addition, in December 1999, we entered into a five-year $89.5 million
credit facility secured by most of the equipment located at our distribution
centers in Nevada, Mississippi and Kentucky. The transaction documents include
customary covenants governing our activities, including, among other things,
limitations on our ability to sell, lease, relocate or grant liens on the
equipment held in these customer service centers.
In February 2000, several of our European subsidiaries entered into
receivables securitization financing agreements with several lenders under which
those subsidiaries may borrow up to $125.0 million, subject to specified
operational conditions. The securitization agreements contain customary
termination events for these arrangements, including the subsidiaries' failure
to make payments or otherwise comply with their obligations under the
securitization agreements, bankruptcy events, material adverse changes in
financial position or receivables collection procedures, cross default to other
indebtedness, failure of the portfolio to meet certain performance standards or
a change in control.
On February 1, 2001, we entered into a new $1.05 billion senior secured
credit facility to replace the 2000 Credit Facility on more favorable terms. The
new credit facility consists of a $700 million revolving credit facility and
$350 million of term loans. This new facility reduces our borrowing costs and
extends the maturity of our principal bank credit facility to August 2003.
The new facility is secured in substantially the same manner as the 2000
Credit Facility. Collateral includes: 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. Borrowings under the bank credit
facilities bears interest at LIBOR or the agent bank's base rate plus an
incremental borrowing spread.
The new facility contains customary covenants restricting our activities as
well as those of our subsidiaries, including limitations on us and our
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 our 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
our corporate structure. The credit agreements will also contain financial
covenants that we must satisfy on an ongoing basis, including maximum leverage
ratios and minimum coverage ratios.
Also in January 2001, we issued two series of notes payable, U.S. $380.0
million Dollar Notes and 125.0 million Euro Notes, totaling the equivalent of
$497.5 million to qualified institutional investors. The notes are unsecured
obligations and may be redeemed at any time after January 15, 2004. The notes
are seven-year notes maturing on January 15, 2008. Net proceeds from the
offering were used to repay a portion of the indebtedness outstanding under the
2000 Credit Facility.
The indentures governing the notes contains covenants that limit us and our
subsidiaries' ability to incur additional debt; pay dividends or make other
restricted payments; consummate specified asset sales; enter into transactions
with affiliates; incur liens, impose restrictions on the ability of a subsidiary
to pay dividends or make payments to us and our subsidiaries; merge or
consolidate with any other person; sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of our assets or the assets of our
subsidiaries. If the notes receive and maintain an investment grade rating by
both Standard and Poor's Ratings Service and Moody's Investors Service and we
and our subsidiaries are and remain in compliance with the indentures, then we
and our subsidiaries will not be required to comply with specified covenants
contained in the indenture. (FOR MORE INFORMATION ABOUT OUR CREDIT ARRANGEMENTS,
SEE NOTES 6 AND 18 TO THE CONSOLIDATED FINANCIAL STATEMENTS.)
FOREIGN CURRENCY TRANSLATION
The functional currency for most of our foreign operations is the
applicable local currency. For those operations, assets and liabilities are
translated into U.S. dollars using period-end exchange rates and income and
expense accounts are translated at average monthly exchange rates. The U.S.
dollar is the functional currency for foreign operations in countries with
highly
24
inflationary economies and certain other subsidiaries. The translation
adjustments for these entities are included in other (income) expense, net.
YEAR 2000
We experienced no material disruption in customer or supplier
relationships, revenue patterns or customer buying patterns 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.
EFFECTS OF INFLATION
We believe that the relatively moderate rates of inflation which have been
experienced in the regions where most of our sales occur have not had a
significant effect on our net sales or profitability.
EURO CONVERSION
On January 1, 1999, eleven European Union member states (Germany, France,
the Netherlands, Austria, Italy, Spain, Finland, Ireland, Belgium, Portugal and
Luxembourg) adopted the euro as their common national currency. On January 1,
2001, Greece adopted the euro as its common national currency. Until January 1,
2002, either the euro or a participating country's national currency will be
accepted as legal tender. Beginning on January 1, 2002, euro-denominated bills
and coins will be issued, and by July 1, 2002, only the euro will be accepted as
legal tender.
We have a multi-functional euro project team responsible for ensuring our
ability to operate effectively during the euro transition phase and through
final euro conversion. Our total program costs are not expected to be material.
We have developed marketing and pricing strategies for implementation throughout
the more open European market.
We are currently able to make and receive payments in euros and will
convert financial and information technology systems to be able to use euros as
the base currency in relevant markets prior to January 1, 2002.
Based on the analysis and actions taken to date, we do not expect the euro
conversion to materially affect our consolidated financial position, results of
operations or cash flow.
NEW ACCOUNTING STANDARDS
In September 2000, the Financial Accounting Standards Board ("FASB") issued
SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which replaces SFAS 125, "Accounting for
Transfers and Services of Financial Assets and Extinguishments of Liabilities."
This standard revises the methods for accounting for securitizations and other
transfers of financial assets and collateral as outlined in SFAS 125, and
requires certain additional disclosures. For transfers and servicing of
financial assets and extinguishments of liabilities, this standard will be
effective for our May 27, 2001 quarterly financial statements. However, for
disclosures regarding securitizations and collateral, as well as recognition and
reclassification of collateral, this standard will be effective for our November
25, 2001 annual financial statements. We are currently evaluating the impact of
the adoption of this standard; however, we do not expect the adoption of this
standard to have a material effect on our financial position or results of
operations.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." In June 1999, the FASB delayed the
effective date of SFAS 133 to fiscal years beginning after June 15, 2000. We
adopted SFAS 133 and 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.
FOREIGN EXCHANGE HEDGING
The primary purpose of our foreign exchange hedging activities is to
maximize our U.S. dollar value over the long term. We manage our foreign
currency exposures in a way that makes it unlikely that we will obtain hedge
accounting treatment for all of our exposure management activities upon the
adoption of SFAS 133. We attempt to take a long-term view of managing exposures
on an economic basis, using forecasts to develop exposure positions and engage
in active management of those
25
exposures with the objective of protecting future cash flows and mitigating
risks. We do not hold any derivative instruments for trading purposes.
As a result, not all exposure management activities and foreign currency
derivative instruments will qualify for hedge accounting treatment under SFAS
133. Derivative instruments utilized in these transactions will be valued at
fair value and changes in fair value will be consequently classified into
earnings. Therefore, it is possible that we will experience increased volatility
in earnings.
We use a variety of derivative instruments, including forward, swap and
option contracts, to hedge foreign currency exposures related to sourcing, net
investment positions, royalties and cash management.
The derivative instruments used to hedge sourcing exposure are currently
recorded at their fair value and any changes in fair value are included in
earnings. Under SFAS 133, a majority of these contracts would not qualify for
hedge accounting treatment. We have therefore chosen to continue to mark to
market all sourcing related hedge transactions at their fair value and any
changes in fair value will be recorded in earnings. At November 26, 2000, the
fair value of these derivative instruments hedging sourcing exposure represented
a net asset of $13.7 million, which is recorded on the balance sheet.
We hedge our net investment position in major currencies by using forward,
swap and option contracts. The contracts hedging these net investments are
currently in compliance with SFAS 52, "Foreign Currency Translation," and are
considered net investment hedges. As a result, the related gains and losses are
categorized as cumulative translation adjustment in the other comprehensive
income section of stockholders' deficit. This will continue to be the
methodology going forward for the contracts that qualify for hedge accounting
treatment under SFAS 133. At November 26, 2000, the gains on these hedge
contracts amounted to $1.4 million and are reflected in the cumulative
translation adjustment section of other comprehensive income.
The contracts hedging intercompany royalty flows are currently in
compliance with SFAS 52, "Foreign Currency Translation," and are designated as
net investment hedges. Therefore, the related gains and losses are categorized
as cumulative translation adjustment in the other comprehensive income section
of stockholders' deficit. The transactions hedging intercompany royalty flows
will be considered cash flow hedges according to SFAS 133 rules. Consequently,
gains and losses on the contracts that qualify and are designated for hedge
accounting treatment will be deferred in other comprehensive income until the
underlying royalty flow has been settled. The fair value of these transactions
at November 26, 2000 amounted to a gain of $1.8 million. At the beginning of
fiscal 2001, hedging activity related to outstanding cash flow hedges are valued
at a gain of $1.0 million and will be reclassified into earnings as the
underlying hedged items impact earnings.
The derivative instruments utilized in transactions hedging cash
management exposures are currently and, under SFAS 133, will continue to be
marked to market at their fair value and any changes in fair value are recorded
in earnings.
Under SFAS 133, fair values of forward transactions and of the forward
portion of swap transactions will be calculated using the discounted difference
between the contract forward price and the forward price at the closing date for
the remaining life of the contract. Forward points will no longer be recorded as
assets or liabilities on the balance sheet and amortized over the life of the
contract. Following SFAS 133 valuation principles, option contracts are also
recorded at fair value. Therefore, option premiums will no longer be recorded as
assets or liabilities on the balance sheet and amortized over the life of the
contract. These changes in valuation methods will impact our earnings and the
accumulated other comprehensive income section of stockholders' equity beginning
in fiscal 2001. At adoption of SFAS 133, the earnings impact of these changes in
valuation methods is an estimated gain of $1.3 million. In addition, the
accumulated other comprehensive income section of stockholders' equity will
decrease by approximately $0.7 million.
INTEREST RATE HEDGING
We are exposed to interest rate risk. It is our policy and practice to use
derivative instruments, primarily interest rate swaps and options, to manage and
reduce interest rate exposures. Our policy is to manage interest costs using a
mix of fixed and variable debt.
The fair value of these derivative instruments is not currently recorded
on our financial statements. Under SFAS 133, those interest rate hedging
instruments that do not qualify for hedge accounting treatment will be recorded
on the balance sheet at their fair value. The related changes in fair value will
be included in earnings. The earnings impact of this adjustment is estimated at
a loss of $1.2 million.
26
FACTORS THAT MAY AFFECT FUTURE RESULTS
RISKS RELATING TO OUR SUBSTANTIAL DEBT
WE HAVE SUBSTANTIAL DEBT AND INTEREST PAYMENT REQUIREMENTS THAT MAY RESTRICT OUR
FUTURE OPERATIONS AND IMPAIR OUR ABILITY TO MEET OUR OBLIGATIONS.
Our substantial debt may have important consequences. For instance, it
could:
o make it more difficult for us to satisfy our financial obligations;
o require us to dedicate a substantial portion of any cash flow from
operations to the payment of interest and principal due under our
debt, which will reduce funds available for other business purposes;
o increase our vulnerability to general adverse economic and industry
conditions;
o limit our flexibility in planning for or reacting to changes in our
business and the industry in which we operate;
o place us at a competitive disadvantage compared to some of our
competitors that have less financial leverage; and
o limit our ability to obtain additional financing required to fund
working capital and capital expenditures and for other general
corporate purposes.
All borrowings under our bank credit facilities are, and will continue to
be, at variable rates of interest. As a result, increases in market interest
rates may require a greater portion of our cash flow to be used to pay interest.
Our ability to satisfy our obligations and to reduce our total debt depends
on our future operating performance and on economic, financial, competitive and
other factors, many of which are beyond our control. We cannot provide assurance
that our business will generate sufficient cash flow or that future financings
will be available to provide sufficient proceeds to meet these obligations or to
successfully execute our business strategy.
RESTRICTIONS IN OUR BANK CREDIT FACILITIES AND OUR SENIOR NOTES MAY LIMIT OUR
ACTIVITIES.
Our bank credit facilities and the indentures relating to our 11.625%
senior notes due 2008 contain customary restrictions, including covenants
limiting our ability to incur additional debt, grant liens, make investments,
consolidate, merge or acquire other businesses, sell assets, pay dividends and
other distributions, make capital expenditures and enter into transactions with
affiliates.
We also are required to meet specified financial ratios under the terms of
our bank credit facilities. These restrictions may make it difficult for us to
successfully execute our business strategy or to compete in the worldwide
apparel industry with companies not similarly restricted.
Our bank credit facilities mature in August 2003, at which time we will be
required to refinance our borrowings under those facilities. We cannot assure
you that we will be able to obtain replacement financing at that time or that
any available replacement financing will be on terms acceptable to us. If we are
unable to obtain acceptable replacement financing on or before August 2003, we
will not be able to satisfy our obligations under our bank credit facilities and
may be required to take other actions to avoid defaulting on those facilities,
including selling assets or surrendering assets to our lenders, which would not
otherwise be in our long-term economic interest.
SINCE OUR NOTES ARE EFFECTIVELY SUBORDINATED TO ALL OF OUR SECURED DEBT AND THE
LIABILITIES OF OUR SUBSIDIARIES, WE MAY NOT HAVE SUFFICIENT ASSETS TO PAY
AMOUNTS OWED ON THE NOTES IF A DEFAULT OCCURS.
Our notes due 2003, 2006, and 2008 are general senior unsecured obligations
that rank equal in right of payment with all of our existing and future
unsecured and unsubordinated debt. The notes are effectively subordinated to all
of our secured debt to the extent of the value of the assets securing that debt.
The notes are also structurally subordinated to all obligations of our
subsidiaries.
Because our bank credit facilities are secured obligations, failure to
comply with the terms of our bank credit facilities or our inability to pay our
lenders at maturity would entitle those lenders immediately to foreclose on most
of our assets, including our trademarks and the capital stock of all of our U.S.
and most of our foreign subsidiaries, and the assets of our material U.S.
27
subsidiaries, which serve as collateral. In this event, those secured lenders
would be entitled to be repaid in full from the proceeds of the liquidation of
those assets before those assets would be available for distribution to other
creditors, and, lastly, to the holders of our capital stock.
Holders of the notes are creditors of Levi Strauss & Co. and not of our
subsidiaries. The ability of our creditors to participate in any distribution of
assets of any of our subsidiaries upon liquidation or bankruptcy will be subject
to the prior claims of that subsidiary's creditors, including trade creditors,
and any prior or equal claim of any equity holder of that subsidiary. In
addition, the ability of our creditors to participate in distributions of assets
of our subsidiaries will be limited to the extent that the outstanding shares of
capital stock of any of our subsidiaries are either pledged to secure other
creditors, such as under our bank credit facilities, or are not owned by us. As
a result, creditors receive less, proportionately, than our secured creditors
and the creditors of our subsidiaries.
IF OUR FOREIGN SUBSIDIARIES ARE UNABLE TO DISTRIBUTE CASH TO US WHEN NEEDED, WE
MAY BE UNABLE TO SATISFY OUR OBLIGATIONS UNDER THE NOTES.
We conduct our foreign operations through foreign subsidiaries, which in
fiscal year 2000 accounted for approximately 37% of our net sales. As a result,
we depend in part upon dividends or other intercompany transfers of funds from
our foreign subsidiaries for the funds necessary to meet our debt service
obligations. We only receive the cash that remains after our foreign
subsidiaries satisfy their obligations. Any agreements our foreign subsidiaries
enter into with other parties, as well as applicable laws and regulations
limiting the right and ability of non-U.S. subsidiaries and affiliates to pay
dividends and remit earnings to affiliated companies absent special conditions,
may restrict the ability of our foreign subsidiaries to pay dividends or make
other distributions to us.
RISKS RELATING TO THE INDUSTRY IN WHICH WE COMPETE
WE FACE INTENSE COMPETITION IN THE WORLDWIDE APPAREL INDUSTRY.
We face a variety of competitive challenges from other domestic and foreign
jeanswear marketers, fashion-oriented apparel marketers, specialty retailers and
retailers of private label jeanswear and casual apparel products, some of which
have greater financial and marketing resources than we do. We compete with these
companies primarily on the basis of:
o anticipating and responding to changing consumer demands in a timely
manner;
o maintaining favorable brand recognition;
o developing innovative, high-quality products in sizes, colors and
styles that appeal to consumers;
o appropriately pricing products;
o providing strong and effective marketing support;
o creating an acceptable value proposition for retail customers;
o ensuring product availability and optimizing supply chain efficiencies
with retailers; and
o obtaining sufficient retail floor space and effective presentation of
products at retail.
We also face increasing competition from companies selling apparel products
through the Internet, where we lack a direct, company-operated selling presence.
Increased competition in the worldwide apparel industry, including from
Internet-based competitors, could reduce our sales and prices and adversely
affect our results of operations. In addition, the worldwide apparel industry
has experienced price deflation in recent years. This price deflation is
attributable to increased competition, increased product sourcing to lower cost
countries, growth of the mass merchant channel of distribution and increased
value-consciousness on the part of consumers. This downward pressure on prices
may limit our ability to maintain or improve gross margins. Because of our high
debt level, we may also be less able to respond effectively to these
developments than our competitors who have less financial leverage.
THE SUCCESS OF OUR BUSINESS IS SUBJECT TO CONSTANTLY CHANGING FASHION TRENDS.
Our success depends in large part on our ability to anticipate, identify
and respond to rapidly changing consumer demands and fashion trends in a timely
manner. Any failure on our part to anticipate, identify and respond effectively
to changing consumer demands and fashion trends could adversely affect retail
and consumer acceptance of our products and leave us with a
28
substantial amount of unsold inventory. If that occurs, we may be forced to rely
on markdowns or promotional sales to dispose of excess, slow-moving inventory,
which may harm our business. At the same time, our focus on tight management of
inventory may result, from time to time, in our not having an adequate supply of
products to meet consumer demand and cause us to lose sales, as we experienced
during 2000 with respect to 501(R) jeans in the United States. The exposure of
our business to fashion trends and changes in consumer preferences is heightened
by our recent decision to outsource a substantially larger proportion of our
pants production to offshore manufacturers, as offshore outsourcing may increase
lead times between production decisions and customer delivery.
THE WORLDWIDE APPAREL INDUSTRY IS HEAVILY INFLUENCED BY GENERAL ECONOMIC CYCLES.
Apparel is a cyclical industry that is heavily dependent upon the overall
level of consumer spending. Purchases of apparel and related goods tend to be
highly correlated with cycles in the disposable income of our consumers. As a
result, any substantial deterioration in general economic conditions or
increases in interest rates in any of the regions in which we compete could
adversely affect the sales of our products.
INCREASES IN THE PRICE OF RAW MATERIALS OR THEIR REDUCED AVAILABILITY COULD
INCREASE OUR COST OF SALES AND DECREASE OUR PROFITABILITY.
The principal fabrics used in our business are cotton, synthetics, wools
and blends. The prices we pay for these fabrics are dependent on the market
price for raw materials used to produce them, primarily cotton. The price and
availability of cotton may fluctuate significantly, depending on a variety of
factors, including crop yields. Any raw material price increases could increase
our cost of sales and decrease our profitability unless we are able to pass
higher prices on to our customers. Moreover, any decrease in the availability of
cotton could impair our ability to meet our production requirements in a timely
manner.
OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH IMPORTING PRODUCTS.
We import raw materials and finished garments into all of our operating
regions. Substantially all of our import operations are subject to:
o quotas imposed by bilateral textile agreements between the countries
where our facilities are located and foreign countries;
o customs duties imposed on imported products by the governments where
our facilities are located; and
o penalties imposed for, or adverse publicity relating to, violations by
foreign contractors of labor and wage standards.
In addition, the countries in which our products are manufactured or
imported may from time to time impose additional new quotas, duties, tariffs or
other restrictions on our imports or adversely modify existing restrictions.
Adverse changes in these import costs and restrictions could harm our business.
RISKS RELATING TO OUR BUSINESS
WE MAY BE UNABLE TO REVERSE OR RECOVER FROM RECENT DECLINES IN SALES AND
EARNINGS WHICH HAVE IMPAIRED OUR COMPETITIVE AND FINANCIAL POSITIONS.
Our business has declined in recent years. Specifically, net sales declined
from $7.1 billion in 1996 to $4.6 billion in 2000, a decrease of 35%. Consistent
with these declining financial results, our market research indicates that
during this period we experienced significant brand equity and market position
erosion in all of the regions in which we operate, including a substantial
deterioration in the perception of the Levi's(R) brand by younger consumers. In
addition, our ability to reverse or recover from declines in sales depends in
part on improving our supply chain, including our ability to forecast demand,
plan production, ship complete and timely orders to our retail customers and to
reduce product lead times through better execution and coordination across
business functions from product design to customer delivery. Our declining
business, and the actions we took in response to that decline, prevented us from
repaying the substantial debt we incurred in the 1996 transaction as quickly as
we then intended. As a result, our financial condition remains highly leveraged,
reducing our operating flexibility and impairing our ability to respond to
developments in the worldwide apparel industry as effectively as competitors
that do not have equivalent financial leverage.
29
In response to these trends, we have made substantial strategic,
operational and management changes in the past three years. We do not know
whether those changes will have the desired effect on our worldwide operations
or on the financial results of any of our operating regions.
WE MAY BE UNABLE TO MAINTAIN OR INCREASE OUR SALES THROUGH OUR CURRENT
DISTRIBUTION CHANNELS.
In the United States, chain stores and department stores are currently the
primary distribution channels for our products. We may be unable to increase
sales of our apparel products through these distribution channels, since other
channels, including vertically integrated specialty stores and mass merchants,
now account for most of the growth in jeanswear and casual wear sales in the
United States. Our lack of a substantial presence in the vertically integrated
specialty store market, where companies such as Gap Inc. and Abercrombie & Fitch
Co. compete, weakens our ability to market to younger consumers. Moreover, we do
not sell products to mass merchants in the United States, such as Wal-Mart
Stores, Inc., Target Corporation and Kmart Corporation, a distribution channel
that continues to increase its share of overall retail spending, as well as its
share of jeanswear and casual wear sales.
In Europe we depend heavily on independent jeanswear retailers, which
account for approximately half of our sales in that region. Independent
retailers in Europe have experienced increasing difficulty competing against
large department stores and increasingly prevalent vertically integrated
specialty stores, evidenced, according to our internal research, by decreases in
the last five years in the percentage of total jeanswear sales made by
independent stores. Further declines in the independent retailer channel may
adversely affect the sales of our products in Europe.
We also do not have a large portfolio of company-owned stores and Internet
distribution channels possessed by some of our competitors, including Gap Inc.
and other vertically integrated specialty stores. Although we own a small number
of stores located in selected major urban areas, we operate those stores
primarily as "flagships" for marketing and branding purposes and do not expect
them to produce substantial unit volume or sales. As a result, we have less
control than industry competitors over the distribution and presentation at
retail of our apparel products, which we believe has adversely affected our
performance and could make it more difficult for us to implement our strategy.
A GROUP OF KEY U.S. CUSTOMERS ACCOUNTS FOR A SIGNIFICANT PORTION OF OUR SALES.
Net sales to our 10 largest customers, all of which are located in the
United States, totaled approximately 48% and 46% of net worldwide sales during
fiscal years 2000 and 1999. One customer, J.C. Penney Company, Inc., accounted
for 12% of our fiscal year 2000 net sales and 11% of our fiscal year 1999 net
sales. Moreover, we believe that consolidation in the retail industry has
centralized purchasing decisions and given customers greater leverage over
suppliers like us, and we expect that trend to continue, including in Europe,
Canada and Mexico.
While we have long-standing customer relationships, we do not have
long-term contracts with any of them. As a result, purchases generally occur on
an order-by-order basis, and the relationship, as well as particular orders, can
be terminated by either party at any time. In addition, during the past several
years, various retailers, including some of our customers, have experienced
significant changes and difficulties, including consolidation of ownership,
increased centralization of buying decisions, restructurings, bankruptcies and
liquidations. These and other financial problems of some of our retailers, as
well as general weakness in the retail environment, increase the risk of
extending credit to these retailers. A significant adverse change in a customer
relationship or in a customer's financial position could cause us to limit or
discontinue business with that customer, require us to assume more credit risk
relating to that customer's receivables or limit our ability to collect amounts
related to previous purchases by that customer, all of which could harm our
business and financial condition.
WE RELY ON INDEPENDENT MANUFACTURERS FOR MOST OF OUR PRODUCTION.
Our reliance on independent manufacturers for the majority of our
production could harm our operations. We depend upon our contract manufacturers
to secure a sufficient supply of raw materials and maintain sufficient
manufacturing and shipping capacity. This dependence could subject us to
difficulty in obtaining timely delivery of products of acceptable quality. In
addition, a contractor's failure to ship products to us in a timely manner or to
meet the required quality standards could cause us to miss the delivery date
requirements of our customers. The failure to make timely deliveries may cause
our customers to cancel orders, refuse to accept deliveries, impose
non-compliance charges through invoice deductions or other charge-backs, demand
reduced prices or reduce future orders, any of which could harm our sales,
reputation and overall profitability.
We require contractors to meet our standards in terms of working
conditions, environmental protection and other matters before we are willing to
place business with them. As such, we may not be able to obtain the lowest-cost
production. In addition,
30
any failure by our independent manufacturers to adhere to labor or other laws,
or any divergence of any independent manufacturer's labor practices from those
generally considered ethical in the United States, and the potential negative
publicity relating to any of these events, could harm our business and
reputation.
We do not have long-term contracts with any of our independent
manufacturers, and any of these manufacturers may unilaterally terminate their
relationship with us at any time. In addition, the recent trend in the apparel
industry towards outsourcing has intensified competition for quality
contractors, some of which have long-standing relationships with our
competitors. To the extent we are not able to secure or maintain relationships
with manufacturers that are able to fulfill our requirements, our operations
would be harmed.
WE RELY ON A FEW KEY SUPPLIERS FOR A LARGE PORTION OF OUR FABRIC PURCHASES.
Three vendors, Cone Mills Corporation, Burlington Industries, Inc. and
Galey & Lord, Inc., including its Swift Denim subsidiary, supplied approximately
53% of our total volume of fabric purchases worldwide in 2000. Cone Mills, our
largest supplier, supplies various fabrics to us and is the sole supplier of the
denim used for our 501(R) jeans. Purchases from Cone Mills accounted for
approximately 24% of our total fabric purchases in 2000. Our supply agreement
with Cone Mills provides for a rolling five-year term unless either Cone Mills
or we elect not to extend the agreement, upon which the agreement will terminate
at the end of the then-current term. Cone Mills and we may also terminate the
agreement in the event of bankruptcy or insolvency of the other party or a
material breach by the other that is not cured within a specified time period.
We may also terminate the agreement at any time upon 30 days notice to Cone
Mills. We do not have long-term supply agreements with any other principal
suppliers, and we compete with other apparel companies for supply capacity. We
cannot provide assurance that we will be able to obtain adequate supply if there
occurs a significant disruption in any of our supplier relationships, including
any disruption caused by a change of control, bankruptcy or other financial or
operating difficulty of any of our suppliers, or in the markets for the fabrics
we purchase, including disruptions arising from mill closures or consolidation
resulting from excess industry capacity or otherwise. Any of those disruptions
could impair our ability to deliver products to customers in a timely manner and
harm our business.
WE HAVE RECENTLY MADE SIGNIFICANT CHANGES IN OUR SENIOR MANAGEMENT TEAM, AND OUR
CURRENT SENIOR MANAGEMENT TEAM HAS LIMITED APPAREL INDUSTRY EXPERIENCE.
We have replaced five members of our senior management team with external
hires during the past two years and created one new position. With two
exceptions, none of the recent additions to our management team has prior
experience in the apparel industry. This includes our president and chief
executive officer, Philip Marineau, and the head of our worldwide supply chain,
Karen Duvall. In addition, during that period we made several key internal
appointments, including president of the U.S. Levi's(R) brand, president of the
U.S. Dockers(R) and Slates(R) brands and president of our European business. We
cannot provide assurance that our management team will be able to successfully
execute our strategy, and our business and financial condition may suffer if
they fail to do so.
THE SUCCESS OF OUR BUSINESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN KEY
PERSONNEL.
We compete for the services of qualified personnel. Our inability to retain
and attract qualified personnel or the loss of any of our current key executives
or key members of our design, merchandising or marketing staff could harm our
business. Our ability to retain and attract qualified employees has been
adversely affected by the San Francisco location of our corporate and Americas
headquarters, including the high cost of living and competitive labor market in
the San Francisco and Silicon Valley area. Other factors that have affected our
ability to retain and attract employees include the disruption associated with
our restructuring initiatives, our deteriorating financial position in recent
years and our lack of stock option or other equity-based compensation programs
and resulting reliance on cash incentive programs tied to our financial
performance.
OUR SUCCESS DEPENDS ON THE CONTINUED PROTECTION OF OUR TRADEMARKS AND OTHER
PROPRIETARY INTELLECTUAL PROPERTY RIGHTS.
Our trademarks and other intellectual property rights are important to our
success and competitive position, and the loss or inability to enforce
trademarks and other proprietary intellectual property rights could harm our
business. We devote substantial resources to the establishment and protection of
our trademarks and other proprietary intellectual property rights on a worldwide
basis. We cannot provide assurance that our efforts to establish and protect our
trademarks and other proprietary intellectual property rights will be adequate
to prevent imitation of our products by others or to prevent others from seeking
to block sales of our products. Moreover, we cannot provide assurance that
others will not assert rights in, or ownership of, our trademarks and other
proprietary intellectual property or that we will be able successfully to
resolve those claims. In addition, the laws of some foreign countries may not
allow us to protect our proprietary rights to the same extent as we do in the
United States and other
31
countries. Because our brand recognition is such an important part of our
strategy, we are especially dependent upon the protection of our trademarks.
OUR INTERNATIONAL OPERATIONS EXPOSE US TO POLITICAL AND ECONOMIC RISKS.
In fiscal year 2000, approximately 37% of our net sales were generated
outside the United States, and a substantial amount of our products came from
sources outside of the country of distribution. As a result, we are subject to
the risks of doing business abroad, including:
o political and economic instability;
o exchange controls;
o language and other cultural barriers;
o foreign tax treaties and policies; and
o restrictions on the transfer of funds to or from foreign countries.
Our financial performance on a U.S. dollar denominated basis is also
subject to fluctuations in currency exchange rates. For example, during fiscal
year 2000, changes in foreign currency rates, particularly the Euro, were
primarily responsible for approximately 44% of the net sales decline from the
prior year period for our Europe division. Approximately $131.4 million of the
decrease in total net sales for fiscal year 2000, as compared to the same period
in 1999, was due to the effects of translating non-U.S. currency reported sales
results into U.S. dollars. From time to time we enter into agreements seeking to
reduce our foreign currency exposure, but we cannot provide assurance that our
efforts will be successful.
OUR EARNINGS MAY FLUCTUATE BECAUSE OF OUR EXPOSURE MANAGEMENT POLICIES.
We manage our foreign currency exposures in a way that makes it unlikely
that we will obtain hedge accounting treatment for all of our exposure
management activities upon the adoption of Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities." We take a long-term view of managing our exposures on an
economic basis. We use forecasts to develop exposure positions and engage in
active management of those exposures with the objective of protecting future
cash flows and mitigating risks. As a result, not all of our exposure management
activities and foreign currency derivative instruments will qualify for hedge
accounting treatment under SFAS 133. We would be required to mark to market
those exposure management instruments that do not qualify for hedge accounting
treatment and, as a result, it is possible that we will experience increased
volatility in our earnings. We adopted SFAS 133 and its subsequent amendments on
November 27, 2000.
OUR APPROACH TO CORPORATE GOVERNANCE MAY LEAD US TO TAKE ACTIONS THAT CONFLICT
WITH OUR CREDITORS' INTEREST AS HOLDERS OF NOTES.
All of our common stock is owned by a voting trust described under
"Principal Stockholders." Four voting trustees have the exclusive ability to
elect and remove directors, amend our by-laws and take other actions which would
normally be within the power of stockholders of a Delaware corporation. Although
the voting trust agreement gives the holders of two-thirds of the outstanding
voting trust certificates the power to remove trustees and terminate the voting
trust, three of the trustees, as a group based on their ownership of voting
trust certificates, have the ability to block all efforts by the two-thirds of
the holders of the voting trust certificates to remove a trustee or terminate
the voting trust. In addition, the concentration of voting trust certificate
ownership in a small group of holders, including these three trustees, gives
this group the voting power to block stockholder action on matters for which the
holders of the voting trust certificates are entitled to vote and direct the
trustees under the voting trust agreement.
Our principal stockholders created the voting trust in part to ensure that
we would continue to operate in a socially responsible manner while seeking the
greatest long-term benefit for our stockholders, employees and other
stakeholders and constituencies. We measure our success not only by growth in
economic value, but also by our reputation, the quality of our constituency
relationships and our commitment to social responsibility. As a result, we
cannot provide assurance that the voting trustees will cause us to be operated
and managed in a manner that benefits our creditors or that the interests of the
voting trustees or our principal equity holders will not diverge from our
creditors.
32
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DERIVATIVE FINANCIAL INSTRUMENTS
We are exposed to market risk primarily related to foreign exchange,
interest rates and the price of cotton. We actively manage foreign currency and
interest rate risk with the objective of reducing fluctuations in actual and
anticipated cash flows by entering into a variety of derivative instruments
including spot, forward, options and swaps. We currently do not hedge our
exposure to the price of cotton with derivative instruments.
FOREIGN EXCHANGE RISK
Foreign exchange market risk exposures are primarily related to cash
management activities, raw material and finished goods purchases, net
investments and royalty flows from affiliates.
33
The following table presents notional amounts, average exchange rates and
fair values for forward and swap contracts by currency. All amounts are stated
in U.S. dollar equivalents. The notional amount represents the total net
position outstanding as of the stated date. A positive amount represents a long
position in U.S. dollars, while a negative amount represents a short position in
U.S. dollars, versus the relevant currency. The net position is the sum of all
buy transactions minus the sum of all sell transactions. The unrealized gain
(loss) is the fair value of the outstanding position. The average forward rate
is the forward rate weighted by the total of the transacted amounts. All
transactions will mature before August 2001.
OUTSTANDING FORWARD AND SWAP TRANSACTIONS
(DOLLARS IN THOUSANDS EXCEPT AVERAGE RATES)
AS OF AS OF
NOVEMBER 26, NOVEMBER 28,
CURRENCY DATA 2000 1999
--------- ------ ---- ----
Australian Dollar..................................... Notional amount $ (3,522) $ (16,528)
Unrealized gain (23) 230
Average forward rate 0.52 0.65
Canadian Dollar....................................... Notional amount $(11,021) $ (50,360)
Unrealized gain (41) 64
Average forward rate 1.56 1.46
Euro . ............................................... Notional amount $(69,045) $(137,416)
Unrealized gain 5,439 18,672
Average forward rate 0.83 1.06
British Pound......................................... Notional amount $(65,862) $ (81,591)
Unrealized gain 1,413 675
Average forward rate 1.43 1.62
Japanese Yen.......................................... Notional amount $(54,168) $(115,369)
Unrealized gain (loss) 2,198 (3,175)
Average forward rate 107.57 106.47
Mexican Peso.......................................... Notional amount $ (1,511) $ (7,339)
Unrealized gain (loss) (194) (110)
Average forward rate 9.8 9.47
Swedish Krona......................................... Notional amount $(54,630) $ (94,675)
Unrealized gain 501 655
Average forward rate 10.16 8.32
Other Currencies...................................... Notional amount $ 1,785 $ (10,406)
Unrealized gain (loss) 300 (79)
Average forward rate N/A N/A
-------- ---------
Total Unrealized Gain............................ $ 9,593 $ 16,932
======== =========
The following table presents notional amounts, average strike rates, book
values and fair values of outstanding foreign currency options. All amounts are
stated in U.S. dollar equivalents. The notional amount represents the total net
position outstanding as of the stated date should the option be exercised. A
positive amount represents a long position in U.S. dollars, while a negative
amount represents a short position in U.S. dollars, versus the relevant
currency. The carrying value is the amount reported in our financial statements.
It equals the sum of the non-amortized portion of the option premium and the
intrinsic value of the option. The market value represents the fair value
reported by our counterparties. The average strike rate is weighted by the total
of the notional amounts. All transactions will expire before June 2001.
34
OUTSTANDING OPTIONS TRANSACTIONS
(DOLLARS IN THOUSANDS EXCEPT AVERAGE RATES)
AS OF AS OF
NOVEMBER 26, NOVEMBER 28,
CURRENCY DATA 2000 1999
--------- ----- ---- ----
Australian Dollar.................................. Notional amount $ 12,750 $ 3,585
Carrying value 30 30
Market value 75 (250)
Average strike rate 0.52 0.65
Canadian Dollar.................................... Notional amount $10,000 $30,000
Carrying value 217 6
Market value 158 25
Average strike rate 1.53 1.48
Euro .......................................... Notional amount $634,588 $365,006
Carrying value 5,341 9,374
Market value 5,091 6,181
Average strike rate 0.88 1.06
British Pound...................................... Notional amount (8,444) --
Carrying value -- (2)
Market value -- 53
Average strike rate 1.32 1.61
Hong Kong Dollar................................... Notional amount $ -- $ 3,000
Carrying value -- --
Market value -- (2)
Average strike rate -- 7.93
Japanese Yen....................................... Notional amount $ 20,000 $55,000
Carrying value 1,853 (1,602)
Market value 1,041 (3,749)
Average strike rate 109.18 111.83
Swedish Krona...................................... Notional amount $ -- $ 30,902
Carrying value -- --
Market value -- 30
Average strike rate -- 8.40
Mexican Peso....................................... Notional amount $ 5,000 $ --
Carrying value (77) --
Market value (76) --
Average strike rate 9.84 --
South Africa Rand.................................. Notional amount $ -- $ --
Carrying value (55) --
Market value -- --
Average strike rate 7.69 --
-------- --------
Total Carrying Value.......................... $ 7,309 $ 7,806
======== ========
Total Market Value............................ $ 6,289 $ 2,288
======== ========
35
INTEREST RATE RISK
We have an interest rate risk management policy designed to manage the
interest rate risk on our borrowings by entering into a variety of interest rate
derivatives.
The following table provides information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates. For debt obligations, the table presents principal cash flows
and related weighted average interest rates by expected maturity dates. For
interest rate swaps, the table presents notional amounts and interest rates by
contractual maturity dates. The applicable floating rate index is included for
variable rate instruments. Notional amounts are the amounts outstanding at the
end of the stated period. All amounts are stated in U.S. dollar equivalents.
INTEREST RATE TABLE AS OF NOVEMBER 26, 2000
(DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED)
YEAR ENDED
-----------------------------------------
FAIR
VALUE
2000 2001 2002 2003 2004 2005 2006 2000
--------- ---------- --------- --------- --------- --------- --------- ---------
DEBT INSTRUMENTS
Fixed Rate (US$)...........$ 856,637 $ 850,548 $ 844,774 $ 488,465 $ 481,571 $ 450,000 -- $ 685,031
Average Interest Rate.... 7.05% 7.03% 7.02% 7.15% 7.13% 7.00% -- --
Fixed Rate (Yen 20 billion)$ 184,043 $ 184,043 $ 184,043 $ 184,043 $ 184,043 $ 184,043 $ 184,043 $ 133,945
Average Interest Rate.... 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% --
Variable Rate (US$)........$1,071,185 $1,069,417 $ 68,143 $ 56,889 $ 24,365 -- -- $1,071,185
Average Interest Rate*... 8.85% 8.85% 7.64% 8.06% 9.68% -- -- --
INTEREST RATE DERIVATIVE
FINANCIAL INSTRUMENTS
RELATED TO DEBT
Interest Rate Options
Collar = Locked fixed
payer rate in 6.72%-7.20%
range/Receive variable
3 month LIBOR,
combined with Receive
8.25% fix/Pay variable
3 month LIBOR $ 75,000 $ 75,000 - - - - - $ (85)
Combination Pay fix 7%/
Receive fix 8% vs
variable 3 month LIBOR $ 75,000 $ 75,000 - - - - - $ 2
Combination Pay fix 8.10%/
Pay fix 6.72% vs Receive 3
month LIBOR $ 75,000 $ 75,000 - - - - - $ (170)
Collar = Locked fixed
payer rate in average
6.75%-7.20% range $ 200,000 $ 200,000 - - - - - $ (537)
- --------------
*Assumes no change in short-term interest rates
36
INTEREST RATE TABLE AS OF NOVEMBER 28, 1999
(DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED)
YEAR ENDED FAIR
------------ VALUE
1999 2000 2001 2002 2003 2004 2005 1999
----- ----- ----- ----- ----- ----- ----- -----
DEBT INSTRUMENTS
Fixed Rate (US$)................ $ 800,000 $800,000 $800,000 $800,000 $450,000 $450,000 $450,000 $ 626,307
Average Interest Rate......... 6.91% 6.91% 6.91% 6.91% 7.00% 7.00% 7.00% --
Fixed Rate (Yen 20 billion)..... $ 188,679 $188,679 $188,679 $188,679 $188,679 $188,679 $188,679 $ 148,113
Average Interest Rate......... 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% --
Variable Rate (US$)............. $1,642,836 $631,800 $631,800 -- -- -- -- $1,650,315
Average Interest Rate*........ 6.12% 6.16% 6.16% -- -- -- -- --
INTEREST RATE DERIVATIVE
FINANCIAL INSTRUMENTS RELATED
TO DEBT
Interest Rate Swaps
Payer swaps (Pay fix/Receive
variable)................... $ 425,000 -- -- -- -- -- -- $ (2,119)
Average rate received = US$ 3
month LIBOR................. 5.49% -- -- -- -- -- -- --
Average rate paid............. 6.72% -- -- -- -- -- -- --
Receiver swaps (Receive
fix/Pay variable)........... $ 325,000 $325,000 $325,000 $325,000 $200,000 $200,000 $200,000 $ (1,596)
Average rate received....... 6.91% 6.84% 6.84% 6.84% 6.80% 6.80% 6.80% --
Average rate paid = US$ 3
month LIBOR................. +5.69bp +6.15bp +6.15bp +6.15bp +10.00bp +10.00bp +10.00bp --
Receiver swaps (Receive fix/
Pay variable) with periodic
`Knock-Out' option.......... $ 50,000 $ 50,000 $ 50,000 $ 50,000 -- -- -- $ (1,124)
Average rate received......... 6.58% 6.58% 6.58% 6.58% -- -- -- --
Average rate paid = US$ 6
month LIBOR................. 6.13% -- -- -- -- -- -- --
- --------------
* Assumes no change in short-term interest rates
37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Levi Strauss & Co.:
We have audited the accompanying consolidated balance sheets of Levi
Strauss & Co. (a Delaware corporation) and subsidiaries as of November 26, 2000
and November 28, 1999, and the related consolidated statements of income,
stockholders' deficit and cash flows for each of the three fiscal years in the
period ended November 26, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Levi Strauss & Co. and
subsidiaries as of November 26, 2000 and November 28, 1999, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended November 26, 2000 in conformity with accounting principles
generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II listed in the index of
financial statements (not presented herein) is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
San Francisco, California
January 17, 2001, except with respect to the matters discussed in Note 18, as to
which the date is February 1, 2001.
38
LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
NOVEMBER 26, NOVEMBER 28,
2000 1999
ASSETS ---- ----
Current Assets:
Cash and cash equivalents ............................................................... $ 117,058 $ 192,816
Trade receivables, net of allowance for doubtful accounts of $29,717 in 2000 and
$30,017 in 1999........................................................................ 660,128 759,273
Income taxes receivable.................................................................. -- 70,000
Inventories:
Raw materials........................................................................ 120,760 137,082
Work-in-process...................................................................... 84,871 100,523
Finished goods....................................................................... 446,618 433,882
----------- -----------
Total inventories............................................................... 652,249 671,487
Deferred tax assets...................................................................... 250,817 300,972
Other current assets..................................................................... 168,621 172,195
----------- -----------
Total current assets............................................................ 1,848,873 2,166,743
Property, plant and equipment, net of accumulated depreciation of $495,986 in 2000 and
$548,437 in 1999........................................................................... 574,039 714,523
Goodwill and other intangibles, net of accumulated amortization of $164,826 in 2000 and
$158,052 in 1999........................................................................... 264,956 275,318
Non-current deferred tax assets............................................................... 439,692 453,235
Other assets.................................................................................. 78,168 60,195
----------- -----------
TOTAL ASSETS.................................................................... $ 3,205,728 $ 3,670,014
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current maturities of long-term debt and short-term borrowings........................... $ 231,290 $ 233,992
Accounts payable......................................................................... 268,473 262,389
Restructuring reserves................................................................... 71,595 288,281
Accrued liabilities...................................................................... 395,660 415,273
Accrued salaries, wages and employee benefits............................................ 257,021 194,130
Accrued taxes............................................................................ 69,772 2,548
----------- -----------
Total current liabilities....................................................... 1,293,811 1,396,613
Long-term debt, less current maturities....................................................... 1,895,140 2,430,617
Postretirement medical benefits............................................................... 545,574 541,815
Long-term employee related benefits........................................................... 358,849 325,518
Long-term tax liabilities..................................................................... 166,854 216,542
Other long-term liabilities................................................................... 20,588 20,696
Minority interest ............................................................................ 23,485 26,775
----------- -----------
Total liabilities............................................................... 4,304,301 4,958,576
----------- -----------
Stockholders' Deficit:
Common stock--$.01 par value; 270,000,000 shares authorized; 37,278,238 shares
issued and outstanding................................................................. 373 373
Additional paid-in capital............................................................... 88,808 88,812
Accumulated deficit...................................................................... (1,171,864) (1,395,256)
Accumulated other comprehensive income (loss)............................................ (15,890) 17,509
----------- -----------
Stockholders' deficit........................................................... (1,098,573) (1,288,562)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT..................................... $ 3,205,728 $ 3,670,014
=========== ===========
The accompanying notes are an integral part of these financial statements.
39
LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED YEAR ENDED YEAR ENDED
NOVEMBER 26, NOVEMBER 28, NOVEMBER 29,
2000 1999 1998
---- ---- ----
Net sales.................................................................... $ 4,645,126 $ 5,139,458 $ 5,958,635
Cost of goods sold........................................................... 2,690,170 3,180,845 3,433,081
----------- ----------- -----------
Gross profit............................................................ 1,954,956 1,958,613 2,525,554
Marketing, general and administrative expenses............................... 1,481,718 1,629,845 1,834,058
Other operating income....................................................... (32,380) (24,387) (25,310)
Excess capacity reduction/restructuring...................................... (33,144) 497,683 250,658
Global Success Sharing Plan.................................................. -- (343,873) 90,564
----------- ----------- -----------
Operating income........................................................ 538,762 199,345 375,584
Interest expense............................................................. 234,098 182,978 178,035
Other (income) expense, net.................................................. (39,016) 7,868 34,849
----------- ----------- -----------
Income before taxes..................................................... 343,680 8,499 162,700
Provision for taxes.......................................................... 120,288 3,144 60,198
----------- ----------- -----------
Net income.............................................................. $ 223,392 $ 5,355 $ 102,502
=========== =========== ===========
Earnings per share -- basic and diluted...................................... $ 5.99 $ 0.14 $ 2.75
=========== =========== ===========
Weighted-average common shares outstanding................................... 37,278,238 37,278,238 37,278,238
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
40
LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(DOLLARS IN THOUSANDS)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL DEFICIT INCOME (LOSS) DEFICIT
----- ------- ------- ------------- -------
BALANCE AT NOVEMBER 30, 1997................................... $373 $88,812 $(1,503,113) $ 43,666 $(1,370,262)
---- ------- ------------ -------- -----------
Net income..................................................... -- -- 102,502 -- 102,502
Translation adjustment (net of tax of
$3,811)..................................................... -- -- -- (45,987) (45,987)
---- ------- ------------ -------- -----------
Total comprehensive income..................................... -- -- 102,502 (45,987) 56,515
---- ------- ------------ -------- -----------
BALANCE AT NOVEMBER 29, 1998................................... 373 88,812 (1,400,611) (2,321) (1,313,747)
---- ------- ----------- -------- -----------
Net income..................................................... -- -- 5,355 -- 5,355
Minimum pension liability (net of tax benefit of $457)......... -- -- -- (778) (778)
Translation adjustment (net of tax of
$8,686)..................................................... -- -- -- 20,608 20,608
---- ------- ----------- -------- -----------
Total comprehensive income..................................... -- -- 5,355 19,830 25,185
---- ------- ----------- -------- -----------
BALANCE AT NOVEMBER 28, 1999................................... 373 88,812 (1,395,256) 17,509 (1,288,562)
---- ------- ----------- -------- -----------
Net income..................................................... -- -- 223,392 -- 223,392
Treasury stock................................................. -- (4) -- -- (4)
Minimum pension liability (net of tax of
$457)....................................................... -- -- -- 778 778
Translation adjustment (net of tax of benefit
$21,216).................................................... -- -- -- (34,177) (34,177)
---- ------- ----------- -------- -----------
Total comprehensive income..................................... -- (4) 223,392 (33,399) 189,989
---- ------- ----------- -------- -----------
BALANCE AT NOVEMBER 26, 2000................................... $373 $88,808 $(1,171,864) $(15,890) $(1,098,573)
==== ======= ============ ======== ===========
The accompanying notes are an integral part of these financial statements.
41
LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED
NOVEMBER 26, NOVEMBER 28, NOVEMBER 29,
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 223,392 $ 5,355 $ 102,502
Adjustments to reconcile net cash provided by (used for) operating
activities:
Depreciation and amortization........................................... 90,981 120,102 128,773
Gain on dispositions of property, plant and equipment................... (24,683) (3,802) (1,807)
Unrealized foreign exchange (gains) losses.............................. (5,194) (10,130) 27,219
Decrease in trade receivables........................................... 54,032 57,643 31,806
Decrease (increase) in income taxes receivable.......................... 70,000 (70,000) --
(Increase) decrease in inventories...................................... (20,949) 106,979 45,754
Increase in other current assets........................................ (17,974) (47,284) (29,410)
(Increase) decrease in other long-term assets........................... (22,436) 18,572 5,679
Decrease (increase) in net deferred tax assets.......................... 55,179 29,340 (43,761)
Increase in accounts payable and accrued liabilities.................... 33,073 11,362 31,595
(Decrease) increase in restructuring reserves........................... (216,686) 43,630 (99,452)
Increase (decrease) in accrued salaries, wages and employee benefits.... 70,859 (22,974) (23,404)
Increase (decrease) in accrued taxes.................................... 49,618 (32,640) (22,520)
Increase (decrease) in long-term employee related benefits.............. 43,320 (376,204) 127,823
(Decrease) increase in other long-term liabilities...................... (52,075) 149 (27,893)
Other, net.............................................................. (24,531) (3,870) (29,135)
--------- --------- ---------
Net cash provided by (used for) operating activities............... 305,926 (173,772) 223,769
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................................... (27,955) (61,062) (116,531)
Proceeds from sale of property, plant and equipment.......................... 114,048 69,455 31,185
Decrease (increase) in net investment hedges................................. 67,978 53,736 (2,532)
Other, net ............................................................... 152 228 5,171
--------- --------- ---------
Net cash provided by (used for) investing activities............... 154,223 62,357 (82,707)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt..................................... 376,196 1,462,052 1,959,611
Repayments of long-term debt................................................. (903,371) (1,230,145) (2,037,627)
Net increase (decrease) in short-term borrowings............................. 118 (7,688) (116,437)
Other, net .................................................................. (5) -- (36)
--------- --------- ---------
Net cash (used for) provided by financing activities............... (527,062) 224,219 (194,489)
--------- --------- ---------
Effect of exchange rate changes on cash...................................... (8,845) (4,553) (6,492)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents............... (75,758) 108,251 (59,919)
Beginning cash and cash equivalents.......................................... 192,816 84,565 144,484
--------- --------- ---------
ENDING CASH AND CASH EQUIVALENTS............................................. $ 117,058 $ 192,816 $ 84,565
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................................ $202,355 $ 172,688 $ 167,907
Income taxes............................................................ 56,982 82,675 146,717
Restructuring initiatives............................................... 183,542 416,123 313,700
The accompanying notes are an integral part of these financial statements.
42
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Levi Strauss & Co. and its wholly-
owned and majority-owned foreign and domestic subsidiaries ("LS&CO." or
"Company") are prepared in conformity with generally accepted accounting
principles in the United States ("U.S."). All significant intercompany balances
and transactions have been eliminated. LS&CO. is privately held primarily by
descendants and relatives of its founder, Levi Strauss.
The Company's fiscal year consists of 52 or 53 weeks, ending on the last
Sunday of November in each year. The 2000, 1999 and 1998 fiscal years consisted
of 52 weeks and ended November 26, 2000, November 28, 1999 and November 29,
1998, respectively. The fiscal year end for certain foreign subsidiaries is
November 30 due to certain local statutory requirements. All references to years
relate to fiscal years rather than calendar years.
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
related notes to the financial statements. Changes in such estimates, based on
more accurate future information, may affect amounts reported in future periods.
NATURE OF OPERATIONS
The Company is one of the world's leading branded apparel companies with
operations in more than 40 countries and sales in more than 80 countries. The
Company designs and markets jeans and jeans-related pants, casual and dress
pants, shirts, jackets and related accessories, for men, women and children,
under the Levi's(R), Dockers(R) and Slates(R) brands. The Company markets its
Levi's(R) and Dockers(R) brand products in three geographic regions: the
Americas, Europe and Asia Pacific. The Slates(R) brand products are marketed in
the United States. As of November 26, 2000, the Company employed approximately
17,300 people.
The stockholders' deficit resulted from a 1996 transaction in which the
Company's stockholders created new long-term governance arrangements, including
the voting trust and stockholders agreement. As a result, shares of stock of a
former parent company, Levi Strauss Associates Inc., including shares held under
several employee benefit and compensation plans, were converted into the right
to receive cash. The funding for the cash payments in this arrangement was
provided in part by cash on hand and in part from proceeds of approximately $3.3
billion of borrowings under bank credit facilities. The Company's ability to
satisfy its obligations and to reduce its total debt depends on the Company's
future operating performance and on economic, financial, competitive and other
factors, many of which are beyond the Company's control.
The Company relies on a number of suppliers for its manufacturing
processes, particularly Cone Mills Corporation, which has been and remains the
sole supplier of the denim used for 501(R) jeans through the Company's only
long-term supply contract. In 2000, 1999 and 1998, Cone Mills Corporation
supplied approximately 24%, 22% and 24%, respectively, of the total volume of
fabrics purchased worldwide by the Company. The loss of Cone Mills Corporation
or other principal suppliers could have an adverse effect on the Company's
results of operations.
A group of key U.S. customers accounts for a significant portion of the
Company's total net sales. Net sales to the Company's 10 largest customers, all
of which are located in the United States, total approximately 48, 46 and 43
percent of net worldwide sales during fiscal years 2000, 1999 and 1998,
respectively.
43
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Most of the Company's production and distribution employees in the U.S.
are covered by various collective bargaining agreements. Outside the U.S., most
of the Company's production and distribution employees are covered by either
industry-sponsored and/or state-sponsored collective bargaining mechanisms. The
Company considers its relations with its employees to be good and have not
recently experienced any material job actions or labor shortages.
REVENUE RECOGNITION
Revenue from the sale of product is recognized upon shipment of products to
customers. Allowances for estimated returns and discounts are recognized when
sales are recorded. Provisions for returns and discounts are estimated based on
various market data, historical trends and information from customers. Actual
returns and discounts do not materially differ from estimates.
ADVERTISING COSTS
In accordance with SOP 93-7, "Reporting on Advertising Costs," the Company
expenses advertising costs as incurred. Advertising expense is recorded in
marketing, general and administrative expenses. For fiscal years 2000, 1999 and
1998 total advertising expense was $402.7 million, $490.2 million and $466.7
million, respectively.
OTHER OPERATING INCOME
Other operating income consists principally of licensing fees.
MINORITY INTEREST
Minority interest is included in other (income) expense, net, and includes
a 16.4% minority interest of Levi Strauss Japan K.K. and a 49.0% minority
interest of Levi Strauss Istanbul Konfeksigon.
EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted-average number of common shares outstanding for the period and excludes
the dilutive effect of common shares that could potentially be issued. Diluted
EPS is computed by dividing net income by the weighted-average number of common
shares outstanding plus all potential dilutive common shares. The Company does
not have any potentially dilutive securities. Therefore, basic and diluted EPS
are the same. The weighted-average number of common shares outstanding is
37,278,238 for all periods presented.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents are
stated at amortized cost, which approximates fair market value.
INVENTORY VALUATION
Inventories are valued at the lower of average cost or market value and
include materials, labor and manufacturing overhead. Market value is calculated
on the basis of anticipated selling price less allowances to maintain a targeted
gross margin for each product.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost, less accumulated
depreciation. The cost is depreciated on a straight-line basis over the
estimated useful lives of the related assets. Buildings are depreciated over 40
years, and leasehold improvements are depreciated over the lesser of the life of
the improvement or the initial lease term. Machinery and equipment includes
furniture and fixtures, automobiles and trucks, and computers and are
depreciated over a range from three to twenty years.
44
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company adopted Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," in the first
quarter of fiscal year 2000. SOP 98-1 requires certain costs for computer
software developed or obtained for internal use to be capitalized. Capitalized
software is carried at cost less accumulated amortization and is amortized over
three years on a straight-line basis.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangibles are carried at cost, less accumulated
amortization. Goodwill resulted primarily from a 1985 acquisition of LS&CO. by
Levi Strauss Associates Inc., a former parent company that was subsequently
merged into the Company in 1996. Goodwill is being amortized on a straight-line
basis over 40 years through the year 2025. Other intangibles consist primarily
of tradenames, which were valued as a result of the 1985 acquisition. Tradenames
and other intangibles are being amortized over the estimated useful lives of the
related assets, which range from six to 40 years.
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. ("SFAS")
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," the Company reviews long-lived assets, including
goodwill and other intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the carrying amount of an asset exceeds the expected future
undiscounted cash flows, the Company measures and records an impairment loss for
the excess of the carrying value of the asset over its fair value.
INCOME TAXES
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to reverse.
TRANSLATION ADJUSTMENT
The functional currency for most of the Company's foreign operations is the
applicable local currency. For those operations, assets and liabilities are
translated into U.S. dollars using period-end exchange rates and income and
expense accounts are translated at average monthly exchange rates. Net changes
resulting from such translations are recorded as a separate component of
accumulated other comprehensive income in the consolidated financial statements.
The U.S. dollar is the functional currency for foreign operations in
countries with highly inflationary economies and certain other subsidiaries. The
translation adjustments for these entities are included in other (income)
expense, net.
SELF-INSURANCE
The Company is partially self-insured for workers' compensation and certain
employee health benefits. Accruals for losses are made based on the Company's
claims experience and actuarial assumptions followed in the insurance industry.
Actual losses could differ from accrued amounts.
SECURITIZATIONS
The Company accounts for securitization of receivables in accordance with
SFAS 125, "Accounting for Transfers and Services of Financial Assets and
Extinguishments of Liabilities." (SEE "NEW ACCOUNTING STANDARDS" BELOW ON THE
ISSUANCE OF SFAS 140, "ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL
ASSETS AND EXTINGUISHMENTS OF LIABILITIES.")
INTEREST RATE SWAPS
The Company enters into interest rate swap transactions to manage interest
rate exposures on its debt. Net interest receivable or payable on the swap
transactions is included in interest expense. Gains or losses that result from
the early termination of swap
45
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
agreements are deferred and amortized over the shorter of the original maturity
date of the swap or the remaining term of the associated debt as a component of
interest expense. (SEE "NEW ACCOUNTING STANDARDS" BELOW FOR DISCLOSURE ON THE
ADOPTION OF SFAS 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES.")
FOREIGN EXCHANGE CONTRACTS
The Company enters into foreign exchange contracts to hedge against known
foreign currency denominated exposures, particularly dividends and intercompany
royalties, loans, sourcing and other transactions with its foreign affiliates
and licensees. The accounting treatment of these instruments is dependent on the
exposure being hedged. Forward and swap transactions hedging the Company's cash
management and sourcing exposures are reported at market value, with gains and
losses included in current earnings in other (income) expense, net. Option
premiums on these hedges is amortized straight-line over the life of the option
and is also included in other (income) expense, net. The intrinsic value is used
to mark the option value to market through current earnings.
Forward and swap transactions hedging net investments in foreign affiliates
and royalties are also reported at market value but the market gain or loss is
included in translation adjustment, a component of comprehensive income, which
is included in stockholders' deficit on the balance sheet. Similarly, option
premiums on hedges of net investments and royalties are amortized to the
translation equity account. The intrinsic value of the options is used to mark
the instruments to market at each financial statement date with the change in
value recorded in translation adjustment. At November 26, 2000 and November 28,
1999, the net effect of exchange rate changes related to net investment hedge
transactions was a $57.2 million increase and a $27.0 million increase
respectively, to the translation adjustment. (SEE "NEW ACCOUNTING STANDARDS"
BELOW FOR DISCLOSURE ON THE ADOPTION OF SFAS 133, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES.")
NEW ACCOUNTING STANDARDS
In September 2000, the Financial Accounting Standards Board ("FASB") issued
SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which replaces SFAS 125, "Accounting for
Transfers and Services of Financial Assets and Extinguishments of Liabilities."
This standard revises the methods for accounting for securitizations and other
transfers of financial assets and collateral as outlined in SFAS 125, and
requires certain additional disclosures. For transfers and servicing of
financial assets and extinguishments of liabilities, this standard will be
effective for the Company's May 27, 2001 quarterly financial statements.
However, for disclosures regarding securitizations and collateral, as well as
recognition and reclassification of collateral, this standard will be effective
for the Company's November 25, 2001 annual financial statements. The Company is
currently evaluating the impact of the adoption of this standard; however, it
does not expect the adoption of this standard to have a material effect on its
financial position or results of operations.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." In June 1999, the FASB delayed the
effective date of SFAS 133 to fiscal years beginning after June 15, 2000. The
Company adopted SFAS 133 and 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.
FOREIGN EXCHANGE HEDGING
The primary purpose of the Company's foreign exchange hedging activities is
to maximize the U.S. dollar value of the Company over the long term. The Company
manages its foreign currency exposures in a way that makes it unlikely that it
will obtain hedge accounting treatment for all of its exposure management
activities upon the adoption of SFAS 133. The Company attempts to take a
long-term view of managing exposures on an economic basis, using forecasts to
develop exposure positions and engages in active management of those exposures
with the objective of protecting future cash flows and mitigating risks. The
Company does not hold any derivative instruments for trading purposes.
As a result, not all exposure management activities and foreign currency
derivative instruments will qualify for hedge accounting treatment under SFAS
133. Derivative instruments utilized in these transactions will be valued at
fair value and changes in fair value will be consequently classified into
earnings. Therefore, it is possible that the Company will experience increased
volatility in earnings.
46
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company uses a variety of derivative instruments, including forward,
swap and option contracts, to hedge foreign currency exposures related to
sourcing, net investment positions, royalties and cash management.
The derivative instruments used to hedge sourcing exposure are currently
recorded at their fair value and any changes in fair value are included in
earnings. Under SFAS 133, a majority of these contracts would not qualify for
hedge accounting treatment. The Company has therefore chosen to continue to mark
to market all sourcing related hedge transactions at their fair value and any
changes in fair value will be recorded in earnings. At November 26, 2000, the
fair value of these derivative instruments hedging sourcing exposure represented
a net asset of $13.7 million, which is recorded on the balance sheet.
The Company hedges its net investment position in major currencies by
using forward, swap and option contracts. The contracts hedging these net
investments are currently in compliance with SFAS 52, "Foreign Currency
Translation," and are considered net investment hedges. As a result, the related
gains and losses are categorized as cumulative translation adjustment in the
other comprehensive income section of stockholders' deficit. This will continue
to be the methodology going forward for the contracts that qualify for hedge
accounting treatment under SFAS 133. At November 26, 2000, the gains on these
hedge contracts amounted to $1.4 million and are reflected in the cumulative
translation adjustment section of other comprehensive income.
The contracts hedging intercompany royalty flows are currently in
compliance with SFAS 52, "Foreign Currency Translation," and are designated as
net investment hedges. Therefore, the related gains and losses are categorized
as cumulative translation adjustment in the other comprehensive income section
of stockholders' deficit. The transactions hedging intercompany royalty flows
will be considered cash flow hedges according to SFAS 133 rules. Consequently,
gains and losses on the contracts that qualify and are designated for hedge
accounting treatment will be deferred in other comprehensive income until the
underlying royalty flow has been settled. The fair value of these transactions
at November 26, 2000 amounted to a gain of $1.8 million. At the beginning of
fiscal 2001, hedging activity related to outstanding cash flow hedges are valued
at a gain of $1.0 million and will be reclassified into earnings as the
underlying hedged items impact earnings.
The derivative instruments utilized in transactions hedging cash
management exposures are currently and, under SFAS 133, will continue to be
marked to market at their fair value and any changes in fair value are recorded
in earnings.
Under SFAS 133, fair values of forward transactions and of the forward
portion of swap transactions will be calculated using the discounted difference
between the contract forward price and the forward price at the closing date for
the remaining life of the contract. Forward points will no longer be recorded as
assets or liabilities on the balance sheet and amortized over the life of the
contract. Following SFAS 133 valuation principles, option contracts are also
recorded at fair value. Therefore, option premiums will no longer be recorded as
assets or liabilities on the balance sheet and amortized over the life of the
contract. These changes in valuation methods will impact the Company's earnings
and the accumulated other comprehensive income section of stockholders' equity
beginning in fiscal 2001. At adoption of SFAS 133, the earnings impact of these
changes in valuation methods is an estimated gain of $1.3 million. Additionally
the accumulated other comprehensive income section of stockholders' equity will
decrease by approximately $0.7 million.
INTEREST RATE HEDGING
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. The Company's policy is
to manage interest costs using a mix of fixed and variable debt.
The fair value of these derivative instruments is not currently recorded
on the Company's financial statements. Under SFAS 133, those interest rate
hedging instruments that do not qualify for hedge accounting treatment will be
recorded on the balance sheet at their fair value. The related changes in fair
value will be included in earnings. The earnings impact of this adjustment is
estimated at a loss of $1.2 million.
47
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: EXCESS CAPACITY REDUCTIONS/RESTRUCTURING RESERVES
NORTH AMERICA PLANT CLOSURES
Over the last three years, the Company has closed 29 of its owned and
operated production and finishing facilities in North America and Europe in
order to reduce costs, eliminate excess capacity and align its sourcing strategy
with changes in the industry and in consumer demand. Plant closures were
announced in November 1997, in which ten manufacturing facilities as well as a
finishing center in the U.S. were closed by the end of 1998, displacing
approximately 6,400 employees. The Company recorded an initial charge of $386.8
million in 1997 that consisted of $42.7 million for asset write-offs, $327.8
million for severance and employee benefits and $16.3 million for other
restructuring costs. In fiscal year 2000, $5.0 million of the reserve balance
was reversed due to the periodic reevaluation resulting from updated estimates
and assumptions. This reversal was primarily associated with employee benefits
that expired during 2000. The ending balances for this reserve are displayed in
the table below.
In line with the above plans, the Company announced in November 1998 the
closure of two more finishing centers in the U.S. that were closed by the end of
1999, displacing approximately 990 employees. The Company recorded an initial
charge of $82.1 million in 1998 that consisted of $23.4 million for asset
write-offs, $56.5 million for severance and employee benefits and $2.2 million
for other restructuring costs. In fiscal year 2000, a small amount of the
remaining reserve balance was reversed due to the periodic reevaluation
resulting from updated estimates and assumptions. This reversal was primarily
associated with employee benefits and was based upon historical trends and
future projections of medical and other employee benefits. The ending balances
for this reserve are displayed in the table below.
Also in conjunction with such plans, the Company announced in February 1999
the closure of 11 additional manufacturing facilities in North America that were
closed by the end of 1999, displacing approximately 5,900 employees. The Company
recorded an initial charge of $394.1 million in 1999 that consisted of $33.4
million for asset write-offs, $299.4 million for severance and employee benefits
and $61.3 million for other restructuring costs. In fiscal year 2000, $13.3
million of the remaining reserve balance was reversed due to the periodic
reevaluation resulting from updated estimates and assumptions. Of this reversal,
$7.1 million was primarily associated with employee benefits and was based upon
historical trends and future projections of medical and other employee benefits.
Of this reversal, $6.1 million was primarily associated with plant closure costs
and was based upon historical trends from previous plant closures. The ending
balances of this reserve are displayed in the table below.
1997 NORTH AMERICA PLANT CLOSURES
BALANCE BALANCE BALANCE
AT AT AT
11/29/98 CHARGES REDUCTIONS 11/28/99 REVERSALS REDUCTIONS 11/26/00
-------- ------- ---------- -------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
Severance and employee
benefits................................ $30,582 $ -- $(17,830) $12,752 $(4,987) $(7,544) $ 221
Other restructuring costs.................. 11,863 -- (8,925) 2,938 -- (712) 2,226
------- ---- -------- ------- ------- ------- ------
Total................................. $42,445 $ -- $(26,755) $15,690 $(4,987) $(8,256) $2,447
======= ==== ======== ======= ======= ======= ======
48
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1998 NORTH AMERICA PLANT CLOSURES
BALANCE BALANCE BALANCE
AT AT AT
11/29/98 CHARGES REDUCTIONS 11/28/99 REVERSALS REDUCTIONS 11/26/00
-------- ------- ---------- -------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
Severance and employee
benefits................................. $54,552 $ -- $ (50,407) $4,145 $ (13) $(2,683) $ 1,449
Other restructuring costs................... 1,902 -- (101) 1,801 -- (1,193) 608
------- ---- --------- ------ ------ ------- -------
Total.................................. $56,454 $ -- $ (50,508) $5,946 $ (13) $(3,876) $ 2,057
======= ==== ========= ====== ====== ======= =======
1999 NORTH AMERICA PLANT CLOSURES
BALANCE BALANCE BALANCE
AT AT AT
11/29/98 CHARGES REDUCTIONS 11/28/99 REVERSALS REDUCTIONS 11/26/00
-------- ------- ---------- -------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
Severance and employee
benefits................................. $ -- $299,368 $(183,131) $116,237 $(7,132) $(89,253) $19,852
Other restructuring costs................... -- 61,307 (17,865) 43,442 (6,149) (2,528) 34,765
------- -------- --------- -------- -------- --------- -------
Total.................................. $ -- $360,675 $(200,996) $159,679 $(13,281) $(91,781) $54,617
======= ======== ========= ======== ======== ======== =======
CORPORATE REORGANIZATION INITIATIVES
In 1998, the Company instituted various corporate reorganization
initiatives, displacing approximately 770 employees. The goal of these
initiatives was to reduce overhead costs and consolidate operations. The Company
recorded initial charges of $61.1 million in 1998 that consisted of $3.0 million
for asset write-offs, $50.1 million for severance and employee benefits and $7.9
million for other restructuring costs. In fiscal year 2000, $3.7 million of the
remaining reserve balance was reversed due to the periodic reevaluation
resulting from updated estimates and assumptions. Of this reversal, $1.8 million
was primarily associated with employee benefits and was based upon historical
trends and future projections of medical and other employee benefits. Of this
reversal, $1.9 million was primarily associated with higher sub-lease income
than initially projected. The ending balances for this reserve are displayed in
the table below.
In line with such overhead reorganization initiatives, the Company recorded
additional charges of $48.9 million in 1999 that consisted of $45.0 million for
severance and employee benefits and $3.9 million for other restructuring costs
and an estimated displacement of 930 employees. In fiscal year 2000, $9.0
million of the remaining reserve balance was reversed due to the periodic
reevaluation resulting from updated estimates and assumptions. As a result of
this reevaluation, a total of 730 employees are estimated to be displaced. As of
November 26, 2000, approximately 670 employees had been displaced. The ending
balances for this reserve are displayed in the table below.
1998 CORPORATE REORGANIZATION INITIATIVES
BALANCE BALANCE BALANCE
AT AT AT
11/29/98 CHARGES REDUCTIONS 11/28/99 REVERSALS REDUCTIONS 11/26/00
-------- ------- ---------- -------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
Severance and employee benefits......... $50,139 $ -- $(45,893) $ 4,246 $(1,838) $(2,308) $ 100
Other restructuring costs............... 7,198 -- (786) 6,412 (1,897) (2,742) 1,773
------- ---- -------- ------- ------- ------- ------
Total.............................. $57,337 $ -- $(46,679) $10,658 $(3,735) $(5,050) $1,873
======= ==== ======== ======= ======= ======= ======
49
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1999 CORPORATE REORGANIZATION INITIATIVES
BALANCE BALANCE BALANCE
AT AT AT
11/29/98 CHARGES REDUCTIONS 11/28/99 REVERSALS REDUCTIONS 11/26/00
-------- ------- ---------- -------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
Severance and employee benefits.......... $ -- $44,952 $(1,402) $43,550 $(7,695) $(33,093) $2,762
Other restructuring costs................ -- 3,937 (2,257) 1,680 (1,268) (412) --
------- ------- ------- ------- ------- -------- ------
Total............................... $ -- $48,889 $(3,659) $45,230 $(8,963) $(33,505) $2,762
======= ======= ======= ======= ======= ======== ======
EUROPE REORGANIZATION AND PLANT CLOSURES
In September 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. The Company recorded an initial charge of $107.5 million in 1998
that consisted of $10.0 million for asset write-offs and $97.5 million for
severance and employee benefits. As of November 26, 2000, approximately 1,645
employees had been displaced. The ending balances for this reserve are displayed
in the table below.
In conjunction with such 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, to further reduce overhead costs and
consolidate operations, and to displace approximately 960 employees. The
production facility was closed in December 1999. The Company recorded an initial
charge of $54.7 million in 1999 that consisted of $4.5 million for asset
write-offs, $48.2 million for severance and employee benefits and $2.0 million
for other restructuring costs. In fiscal year 2000, $2.2 million of the
remaining reserve balance was reversed due to the periodic reevaluation
resulting from updated estimates and assumptions. As a result of this
reevaluation, a total of 945 employees are estimated to be displaced. As of
November 26, 2000, approximately 910 employees had been displaced. The ending
balances for this initial charge are displayed in the table below.
1998 EUROPE REORGANIZATION AND PLANT CLOSURES
BALANCE BALANCE BALANCE
AT AT AT
11/29/98 CHARGES REDUCTIONS 11/28/99 REVERSALS REDUCTIONS 11/26/00
-------- ------- ---------- -------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
Severance and employee benefits...... $88,415 $ -- $(77,762) $10,653 $ -- $(9,145) $1,508
------- ----- -------- ------- ---- ------- ------
Total........................... $88,415 $ -- $(77,762) $10,653 $ -- $(9,145) $1,508
======= ===== ======== ======= ==== ======= ======
1999 EUROPE REORGANIZATION AND PLANT CLOSURES
BALANCE BALANCE BALANCE
AT AT AT
11/29/98 CHARGES REDUCTIONS 11/28/99 REVERSALS REDUCTIONS 11/26/00
-------- ------- ---------- -------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
Severance and employee benefits...... $ -- $ 48,160 $(9,747) $38,413 $(2,165) $(30,557) $5,691
Other restructuring costs............ -- 2,029 (17) 2,012 -- (1,372) 640
---- -------- ------- ------- ------- -------- ------
Total........................... $ -- $ 50,189 $(9,764) $40,425 $(2,165) $(31,929) $6,331
==== ======== ======= ======= ======= ======== ======
Severance and employee benefits relate to severance packages, out-placement
and career counseling for employees affected by the plant closures, and
reorganization initiatives. Reductions consist of payments for severance and
employee benefits, other restructuring costs and actual losses on disposal of
assets. The balance of severance and employee benefits and other restructuring
costs are included under restructuring reserves on the balance sheet. The
majority of the initiatives are expected to be completed by the end of 2001.
50
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3: INCOME TAXES
The U.S. and non-U.S. components of income before taxes are as follows:
2000 1999 1998
---- ---- ----
(DOLLARS IN THOUSANDS)
U.S. ...................................................... $185,161 $ 6,025 $ 61,197
Non-U.S. .................................................. 158,519 2,474 101,503
-------- -------- --------
Total................................................. $343,680 $ 8,499 $162,700
======== ======== ========
The provision for taxes consists of the following:
2000 1999 1998
---- ---- ----
(DOLLARS IN THOUSANDS)
Federal-U.S.
Current.................................................... $ (9,417) $(53,441) $(36,879)
Deferred................................................... 23,851 20,589 1,812
-------- ------- -------
$ 14,434 $(32,852) $(35,067)
======== ======== ========
State-U.S.
Current.................................................... $ 3,758 $ (521) $ 458
Deferred................................................... 6,552 776 4,423
-------- -------- --------
$ 10,310 $ 255 $ 4,881
======== ======== ========
Non-U.S.
Current.................................................... $ 62,249 $ 32,663 $132,089
Deferred................................................... 33,295 3,078 (41,705)
-------- -------- --------
$ 95,544 $ 35,741 $ 90,384
======== ======== ========
Total
Current.................................................... $ 56,590 $(21,299) $ 95,668
Deferred................................................... 63,698 24,443 (35,470)
-------- -------- --------
$120,288 $ 3,144 $ 60,198
======== ======== ========
At November 26, 2000, cumulative non-U.S. operating losses of $150.3
million generated by the Company were available to reduce future non-U.S.
taxable income. Approximately $109.5 million of the non-U.S. operating losses
expire between the years 2001 and 2010 and the remainder of the non-U.S. losses
carry-forward indefinitely.
Income taxes due to translation adjustment, recorded in the translation
equity adjustment, was $21.2 million, $8.7 million and $3.8 million for 2000,
1999 and 1998, respectively.
Temporary differences which give rise to deferred tax assets and
liabilities at November 26, 2000 and November 28, 1999 were as follows:
51
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2000 1999
DEFERRED DEFERRED
TAX ASSETS TAX ASSETS
(LIABILITIES) (LIABILITIES)
------------- -------------
(DOLLARS IN THOUSANDS)
Postretirement benefits............................................. $ 207,318 $ 215,361
Employee compensation and benefit plans............................. 159,321 146,261
Inventory........................................................... 55,876 86,311
Depreciation and amortization....................................... (8,765) 4,713
Foreign exchange gains/losses....................................... (36,364) (36,834)
Restructuring and special charges................................... 32,366 102,501
Tax on unremitted non-U.S. earnings................................. 149,174 153,551
State income tax.................................................... (20,693) (21,352)
Foreign losses...................................................... 33,000 30,000
Foreign tax credit carryforward..................................... 78,984 55,745
Alternative minimum tax credit carryforward......................... 26,362 6,845
Other............................................................... 71,930 66,105
Less valuation allowance............................................ (58,000) (55,000)
--------- ---------
$ 690,509 $ 754,207
========= =========
The $58.0 million deferred tax valuation allowance at November 26, 2000
represents the portion of the Company's consolidated deferred tax assets for
which the Company, based upon its projections as of that date, does not believe
that the realization is more likely than not.
The Company's effective income tax rate for fiscal years 2000, 1999 and
1998 differs from the statutory federal income tax rate as follows:
2000 1999 1998
---- ---- ----
Statutory rate.................................................................. 35.0% 35.0% 35.0%
Changes resulting from:
State income taxes, net of federal income tax benefit...................... 2.0 2.0 2.0
Change in valuation allowance.............................................. 0.7 15.2 6.0
Acquisition-related book and tax bases differences......................... 1.1 43.6 2.3
Reversal of prior years' accruals.......................................... (3.6) (55.0) (11.3)
Other, net................................................................. (0.2) (3.8) 3.0
---- ---- ----
Effective rate.................................................................. 35.0% 37.0% 37.0%
==== ==== ====
The consolidated U.S. income tax returns of the Company for 1986 through
1999 are under examination by the Internal Revenue Service ("IRS"). A tentative
settlement agreement covering most issues has been reached with the IRS covering
the years 1986 through 1989. The Company believes it has made adequate provision
for income taxes and interest for all periods under review.
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment ("PP&E") are as follows:
2000 1999
---- ----
(DOLLARS IN THOUSANDS)
Land ........................................................ $ 34,458 $ 48,483
Buildings and leasehold improvements......................... 416,935 566,046
Machinery and equipment...................................... 610,599 643,463
Construction in progress..................................... 8,033 4,968
---------- ----------
Total PP&E.............................................. 1,070,025 1,262,960
Accumulated depreciation..................................... (495,986) (548,437)
---------- ----------
PP&E, net.................................................... $ 574,039 $ 714,523
========== ==========
52
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As a result of the excess capacity reduction and reorganization initiatives
charges (SEE NOTE 2 TO THE CONSOLIDATED FINANCIAL STATEMENTS), the Company
recognized impairment losses in 1999 and 1998 of $37.9 million and $36.4
million, respectively, related to certain plant assets. The impairment losses
were recorded as a reduction of the book value of machinery and equipment in the
table above. The adjustment to net realizable value was determined by estimating
the proceeds realizable on sale or lease of these assets.
As of November 26, 2000, the Company had approximately $12.0 million of
PP&E, net, available for sale.
Depreciation expense for 2000, 1999 and 1998 was $80.2 million, $108.7
million and $114.3 million, respectively.
Construction in progress at November 26, 2000 related to various projects.
It is estimated that approximately $6.0 million in costs will be incurred to
complete these projects in 2001. These projects consist of sales office capital
improvements, sourcing projects, internally developed software and facilities
infrastructure. Construction in progress at November 28, 1999 related to various
projects that were completed and placed into service in 2000.
NOTE 5: GOODWILL AND OTHER INTANGIBLE ASSETS
The components of goodwill and other intangible assets are as follows:
2000 1999
---- ----
(DOLLARS IN THOUSANDS)
Goodwill........................................................... $ 351,474 $ 351,474
Tradenames and other intangibles................................... 78,308 81,896
--------- ---------
Total intangible assets....................................... 429,782 433,370
Accumulated amortization related to goodwill....................... (133,995) (125,208)
Other accumulated amortization..................................... (30,831) (32,844)
--------- ---------
Intangible assets, net............................................. $ 264,956 $ 275,318
========= =========
The Company reduced other intangibles by $3.6 million to remove fully
amortized assets in 2000. In 1999, there was an impairment loss of $13.6 million
related to obsolete technology that was recorded in other (income) expense, net.
Amortization expense for 2000, 1999 and 1998 was $10.8 million, $11.4
million and $14.4 million, respectively.
53
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6: DEBT AND LINES OF CREDIT
Debt and lines of credit are summarized below:
2000 1999
---- ----
(DOLLARS IN THOUSANDS)
LONG-TERM DEBT:
Unsecured:
Credit facilities................................................................ $ -- $1,417,000
Notes:
6.80%, due 2003............................................................. 348,559 348,065
7.00%, due 2006............................................................. 447,207 446,735
Yen-denominated eurobond:
4.25%, due 2016............................................................. 183,486 188,679
---------- ----------
979,252 2,400,479
Secured:
Credit Facilities................................................................ 988,639 --
Customer Service Center Equipment Financing...................................... 85,013 --
European Receivables-backed securitization financing agreement................... 31,148 --
Domestic Receivables-backed securitization financing agreement................... -- 214,000
Industrial development revenue refunding bond.................................... 10,000 10,000
Notes payable, at various rates, due in installments through 2006................ 1,295 6,331
---------- ----------
2,095,347 2,630,810
Current maturities..................................................................... (200,207) (200,193)
---------- ----------
Total.................................................................. $1,895,140 $2,430,617
========== ==========
UNUSED LINES OF CREDIT:
Long-term .................................................................... $ -- $ --
Short-term .................................................................... 469,992 201,689
---------- ----------
Total.................................................................. $ 469,992 $ 201,689
========== ==========
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 (see "1996 Notes Offering" below). 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.
1996 NOTES OFFERING
In 1996, the Company issued two series of notes payable totaling $800.0
million to qualified institutional investors in reliance on Rule 144A under the
U.S. Securities and Exchange Act of 1933 (the "Notes Offering"). The notes are
unsecured obligations of the Company and are not subject to redemption before
maturity. The issuance was divided into two series: $350.0 million seven-year
notes maturing in November 2003 and $450.0 million ten-year notes maturing in
November 2006. The seven- and ten-year notes bear interest at 6.80% and 7.00%
per annum, respectively, payable semi-annually in May and November of each year.
Discounts of $8.2 million on the original issue are being amortized over the
term of the notes using an approximate
54
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
effective-interest rate method. Net proceeds from the Notes Offering were used
to repay a portion of the indebtedness outstanding under a 1996 credit facility
agreement.
YEN-DENOMINATED EUROBOND PLACEMENT
In 1996, the Company issued a 20 billion yen principal amount eurobond
(equivalent to approximately $180.0 million at the time of issuance) due in
November 2016, with interest payable at 4.25% per annum. The bond is redeemable
at the option of the Company at a make-whole redemption price commencing in
2006. Net proceeds from the placement were used to repay a portion of the
indebtedness outstanding under a 1996 credit facility agreement.
CREDIT FACILITIES
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 "2000 Credit Facility"). The financing
package consists of four separate agreements: (1) a new $450.0 million bridge
facility 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, the Company 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. In
February 2001, the Company entered into a new $1.05 billion senior secured
credit facility to replace the 2000 Credit Facility on more favorable terms.
Also in January 2001, the Company issued two series of notes payable totaling
the equivalent of $497.5 million to qualified institutional investors. (SEE NOTE
18 TO THE CONSOLIDATED FINANCIAL STATEMENTS.)
The credit agreements relating to the 2000 Credit Facility 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 November 26, 2000.
55
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 was $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.
EUROPEAN RECEIVABLES SECURITIZATION AGREEMENTS
In February 2000, several of the Company's European subsidiaries entered
into receivable securitization financing agreements with several lenders to
borrow up to $125.0 million. Any borrowings under the facilities must be used to
reduce the commitment levels under the Company's bank credit facilities. During
November 2000, 36.5 million euro (or approximately $30.7 million at time of
borrowing) were borrowed under these agreements at initial interest rates of
6.72%. Interest rates under this agreement are variable based on commercial
paper market conditions, and the debt ratings of the underlying conduit. In
December 2000, an additional 10.4 million euro (equivalent to approximately $9.3
million at time of borrowing) at an initial interest rate of 6.70% was borrowed
under these agreements. Borrowings are collateralized by a security interest in
the receivables of these subsidiaries. These securitizations did not meet the
criteria for sales accounting under SFAS 125 and therefore have been accounted
for as a secured borrowing.
INDUSTRIAL DEVELOPMENT REVENUE REFUNDING BOND
In 1995, the City of Canton, Mississippi issued an industrial development
revenue refunding bond with a principal amount of $10.0 million, and the
proceeds were loaned to the Company to help finance the cost of acquiring a
customer service center in Canton. Interest payments are due monthly at a
variable rate based upon the J.J. Kenny Index, reset weekly at a maximum rate of
13.00%, and the principal amount is due June 1, 2003. The bond is secured by a
letter of credit that expires on June 15, 2001, which the Company has the
opportunity to extend or renew.
DOMESTIC RECEIVABLES-BACKED SECURITIZATION FINANCING AGREEMENT
The Company terminated its domestic receivables-backed securitization
financing agreement in January 2000 in connection with the 2000 Credit Facility
amendment (see above). During April 1999, the Company, through a wholly owned
special purpose entity, Levi Strauss Funding Corp. ("LSFC"), entered into a U.S.
receivables-backed securitization financing agreement. LSFC's sole business
consisted of purchasing receivables from the Company and its affiliates as part
of this financing transaction. LSFC was a separate corporation with its own
separate creditors who, in any liquidation of the Company or its affiliates, was
entitled to be satisfied out of LSFC's assets prior to any value in LSFC being
available to the equity holders of LSFC. Under the terms of the agreement as of
November 28, 1999, borrowings of $214.0 million were collateralized by a
security interest in LSFC's receivables. The maximum amount outstanding varied
based upon the level of eligible receivables as defined under the agreement. The
Company intended to extend the commitment period beyond one year as of November
28, 1999, and therefore borrowings under this agreement were classified as
long-term debt. The net borrowings from this facility were used to repay a
portion of the indebtedness outstanding in the credit facilities during fiscal
year 1999. The fees under this agreement were variable based on outstanding
receivables and the Company's debt ratings. Interest rates ranged from 4.90% to
5.54% with an effective weighted average interest rate of 5.69% during 1999.
56
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PRINCIPAL SHORT-TERM AND LONG-TERM DEBT PAYMENTS
As of November 26, 2000, the required aggregate short-term and long-term
debt principal payments for the next five years and thereafter are as follows:
PRINCIPAL
PAYMENTS
--------
(DOLLARS IN
YEAR THOUSANDS)
----
2001 ........................................ $ 194,763
2002*........................................ 838,629
2003 ........................................ 397,506
2004 ........................................ 8,521
2005 ........................................ 56,202
Thereafter................................... 630,809
----------
Total................................... $2,126,430
==========
- --------------
* The 2000 Credit Facility has payment terms maturing in 2002. The Company
intends and is able to extend these borrowings using various funding vehicles.
In February 2001, the Company entered into a new $1.05 billion senior secured
credit facility to replace the 2000 Credit Facility on more favorable terms.
Also in January 2001, the Company issued two series of notes payable totaling
the equivalent of $497.5 million to qualified institutional investors. (SEE
NOTE 18 TO THE CONSOLIDATED FINANCIAL STATEMENTS.)
SHORT-TERM CREDIT LINES AND STAND-BY LETTERS OF CREDIT
At November 26, 2000, the Company had unsecured and uncommitted short-term
credit lines available totaling $17.5 million at various rates. These credit
arrangements may be canceled by the bank lenders upon notice and generally have
no compensating balance requirements or commitment fees.
At November 26, 2000 and November 28, 1999, the Company had $193.4 million
and $89.4 million, respectively, of standby letters of credit with various
international banks, of which $52.5 million and $70.6 million, respectively,
serves as guarantees by the creditor banks to cover U.S. workers' compensation
claims. In addition, $109.6 million of these standby letters of credit under the
secured bank credit facility support short-term credit lines at November 26,
2000. The Company pays fees on the standby letters of credit. Borrowings against
the letters of credit are subject to interest at various rates.
INTEREST RATE SWAPS
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 November 26, 2000, the Company had no interest rate swap transactions
outstanding. During the fourth quarter of 2000, interest rate swap transactions
outstanding with the total notional principal amount of $425.0 million that
converted floating rate liabilities to fixed rates matured and the Company
terminated $375.0 million of its swap transactions that converted fixed rate
liabilities to floating rates. The Company has entered into interest rate option
structures (caps and floors) to reduce or neutralize the exposure to changes in
variable interest rates. The structures represent an outstanding amount of
$425.0 million and cover a series of variable cash flows through November 2001.
The Company is exposed to credit loss in the event of nonperformance by
the counterparties to the interest rate derivative transactions. However, the
Company believes these counterparties are creditworthy financial institutions
and does not anticipate nonperformance.
57
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INTEREST RATES ON BORROWINGS
The Company's weighted average interest rate on borrowings outstanding
during 2000 and 1999, including the impact of interest rate swap transactions,
was 9.50% and 6.95%, respectively.
NOTE 7: COMMITMENTS AND CONTINGENCIES
FOREIGN EXCHANGE CONTRACTS
At November 26, 2000, the Company had U.S. dollar forward currency
contracts to sell the aggregate equivalent of $621.4 million and to buy the
aggregate equivalent of $363.4 million of various foreign currencies. The
Company also had Euro forward currency contracts to sell the aggregate
equivalent of $58.5 million and to buy the aggregate equivalent of $32.9 million
of various foreign currencies. Additionally, the Company had U.S. dollar option
contracts to sell the aggregate equivalent of $1.3 billion and to buy the
aggregate equivalent of $661.2 million of various foreign currencies. The
Company also had Euro option contracts to buy the foreign currency aggregate
equivalent of $8.4 million. These contracts are at various exchange rates and
expire at various dates through August 2001.
Most option transactions, included in the amounts above, are for the
exchange of Euro and U.S. dollar. At November 26, 2000, the Company had bought
U.S. dollar options to sell the equivalent of $537.2 million against the Euro.
To finance the option premiums related to these options, the Company sold
options having the obligation to buy Euro for an equivalent of $97.3 million
U.S. dollars.
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.
OTHER CONTINGENCIES
In the ordinary course of its business, the Company has pending various
cases involving contractual matters, employee-related matters, distribution
questions, product liability claims, trademark infringement and other matters.
The Company does not believe there are any pending legal proceedings that will
have a material impact on the Company's financial position or results of
operations.
The operations and properties of the Company comply with all applicable
federal, state and local laws enacted for the protection of the environment, and
with permits and approvals issued in connection therewith, except where the
failure to comply would not reasonably be expected to have a material adverse
effect on the Company's financial position or business operations. Based on
current available information, the Company does not consider there to be any
circumstances existing that would be reasonably likely to form the basis of an
action against the Company that could have a material adverse effect on the
Company's financial position or business operations.
58
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8: 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 November 26, 2000 and November 28, 1999 are as follows:
NOVEMBER 26, 2000 NOVEMBER 28,1999
----------------- ----------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
----- ---------- ----- ----------
(DOLLARS IN THOUSANDS)
DEBT INSTRUMENTS:
Credit facilities................................ $(1,000,131) $(1,000,131) $(1,424,449) $(1,424,449)
Yen-denominated eurobond placement............... (184,043) (133,945) (189,274) (148,113)
Notes offering................................... (799,606) (628,000) (798,640) (626,307)
European Receivables-backed securitization....... (31,148) (31,148) -- --
Domestic Receivables-backed securitization....... -- -- (215,836) (215,836)
Industrial development revenue refunding
bond.......................................... (10,036) (10,036) (10,030) (10,030)
Customer service center equipment financing...... (86,901) (86,901) -- --
CURRENCY AND INTEREST RATE HEDGES:
Foreign exchange forward contracts............... $ 9,830 $ 9,593 $ 16,972 $ 16,932
Foreign exchange option contracts................ 7,309 6,289 7,806 2,288
Interest rate swap contracts..................... -- -- (2,224) (4,839)
Interest rate option contracts................... (457) (789) -- --
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, certain 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 November 26, 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
November 26, 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.
59
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9: LEASES
The Company is obligated under operating leases for facilities, office
space and equipment. At November 26, 2000, obligations under long-term leases
are as follows:
MINIMUM
LEASE
PAYMENTS
--------
(DOLLARS IN
THOUSANDS)
2001 ............................................... $ 61,879
2002 ............................................... 58,413
2003 ............................................... 52,885
2004 ............................................... 48,322
2005 ............................................... 45,851
Remaining years..................................... 208,768
--------
Total minimum lease payments................... $476,118
========
The total minimum lease payments on operating leases have not been reduced
by estimated future income of $15.9 million from non-cancelable subleases.
In general, leases relating to real estate include renewal options of up to
approximately 20 years, except for the San Francisco headquarters office lease,
which contains multiple renewal options of up to 78 years. Some leases contain
escalation clauses relating to increases in operating costs. Certain operating
leases provide the Company with an option to purchase the property after the
initial lease term at the then prevailing market value. Rental expense for 2000,
1999 and 1998 was $78.1 million, $86.1 million and $80.2 million, respectively.
NOTE 10: PENSION AND POSTRETIREMENT BENEFIT PLANS
The Company has numerous non-contributory defined benefit retirement plans
covering substantially all employees. It is the Company's policy to fund its
retirement plans based on actuarial recommendations, consistent with applicable
laws and income tax regulations. Plan assets, which may be denominated in
foreign currencies and issued by foreign issuers, are invested in a diversified
portfolio of securities including stocks, bonds, real estate investment funds
and cash equivalents. Benefits payable under the plans are based on either years
of service or final average compensation. The Company retains the right to
amend, curtail or discontinue any aspect of the plans at any time.
The Company also sponsors other retirement plans, primarily for foreign
employees. Expense for these plans in 2000, 1999 and 1998 totaled $5.0 million,
$12.0 million and $7.5 million, respectively.
The Company maintains two plans that provide postretirement benefits,
principally health care, to substantially all domestic retirees and their
qualified dependents. These plans have been established with the intention that
they will continue indefinitely. However, the Company retains the right to
amend, curtail or discontinue any aspect of the plans at any time. Under the
Company's current policies, employees become eligible for these benefits when
they reach age 55 with 15 years of credited service. The plans are contributory
and contain certain cost-sharing features, such as deductibles and coinsurance.
The Company's policy is to fund postretirement benefits as claims and premiums
are paid. In November 2000, the Company announced a plan change for those who
retire after March 31, 1989. These changes were effective January 1, 2001 and
resulted in increased contributions from retirees for medical coverage and the
elimination of any dental subsidies.
The Company instituted early retirement programs offered to those affected
by the Company's excess capacity reduction initiatives and various
reorganization initiatives (SEE NOTE 2 TO THE CONSOLIDATED FINANCIAL
STATEMENTS). A reduced benefit is payable under the programs based on reduced
years of age and service than under the defined benefit retirement plans. These
programs resulted in the recognition of net curtailment gains and losses and
early retirement incentives.
60
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PENSION BENEFITS POSTRETIREMENT BENEFITS
---------------- -----------------------
NOVEMBER 26, NOVEMBER 28, NOVEMBER 26, NOVEMBER 28,
2000 1999 2000 1999
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year........................ $669,440 $631,788 $ 525,065 $ 483,708
Service cost................................................... 18,661 23,743 7,006 7,480
Interest cost.................................................. 43,678 43,154 34,943 33,485
Plan participants' contributions............................... 267 337 1,596 1,140
Plan amendments................................................ -- -- (27,740) --
Actuarial (gain) loss.......................................... (74,274) (23,140) 10,577 9,698
Net curtailment (gain) loss.................................... (18,184) 21,973 -- 13,774
Settlement (gain) loss......................................... (187) 540 -- --
Benefits paid*................................................. (37,341) (28,955) (32,330) (24,220)
-------- -------- --------- ---------
Benefit obligation at end of year.............................. 602,060 669,440 519,117 525,065
-------- -------- --------- ---------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year................. 572,576 500,789 -- --
Actual return on plan assets................................... 91,631 94,976 -- --
Employer contribution.......................................... 12,817 5,429 30,734 23,080
Plan participants' contributions............................... 267 337 1,596 1,140
Benefits paid*................................................. (37,341) (28,955) (32,330) (24,220)
-------- -------- --------- ---------
Fair value of plan assets at end of year....................... 639,950 572,576 -- --
-------- -------- --------- ---------
Funded status.................................................. 37,891 (96,864) (519,117) (525,065)
Unrecognized actuarial gain.................................... (136,913) (9,247) (31,221) (41,724)
Unrecognized prior service cost................................ 13,306 6,737 (27,740) --
-------- -------- --------- ---------
Net amount recognized.......................................... $(85,716) $(99,374) $(578,078) $(566,789)
======== ======== ========= =========
- --------------
* Pension benefits are paid by a trust. Postretirement benefits are paid by the
Company.
PENSION BENEFITS POSTRETIREMENT BENEFITS
---------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Amounts recognized in the consolidated balance sheets Consist of:
Prepaid benefit cost........................................... $ 3,282 $ 1,882 $ -- $ --
Accrued benefit cost (including short-term).................... (95,635) (107,352) (578,078) (566,789)
Intangible asset............................................... 6,637 4,861 -- --
Accumulated other comprehensive income......................... -- 1,235 -- --
--------- --------- --------- ---------
Net amount recognized............................................... $(85,716) $ (99,374) $(578,078) $(566,789)
========= ========= ========= =========
WEIGHTED-AVERAGE ASSUMPTIONS:
Discount rate....................................................... 8.0% 7.0% 8.0% 7.0%
Expected return on plan assets...................................... 9.0% 9.0% -- --
Rate of compensation increase....................................... 6.0% 6.0% -- --
For postretirement benefits measurement purposes, a 9.50% and 4.75%
annual rate of increase in the per capita cost of covered health care and
Medicare Part B benefits, respectively, were assumed for 2000, declining
gradually to 5.50% and 2.75% by the year 2009 and remaining at those rates
thereafter.
61
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PENSION BENEFITS
----------------
2000 1999 1998
---- ---- ----
(DOLLARS IN THOUSANDS)
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost................................................ $18,661 $23,743 $31,553
Interest cost............................................... 43,678 43,154 41,073
Expected return on plan assets.............................. (52,337) (44,871) (42,698)
Amortization of prior service cost.......................... 2,052 2,309 2,947
Recognized actuarial (gain) loss............................ (670) (487) 10
Net curtailment (gain) loss................................. (18,184) 21,973 2,030
Settlement (gain) loss...................................... (187) 540 --
------- ------- -------
Net periodic benefit cost................................... $(6,987) $46,361 $34,915
======= ======= =======
POSTRETIREMENT BENEFITS
-----------------------
2000 1999 1998
---- ---- ----
(DOLLARS IN THOUSANDS)
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost................................................ $ 7,006 $ 7,480 $10,565
Interest cost............................................... 34,943 33,485 35,098
Expected return on plan assets.............................. -- -- --
Amortization of prior service cost.......................... -- -- --
Recognized actuarial gain................................... -- (345) --
Net curtailment loss........................................ -- 13,774 964
------- ------- -------
Net periodic benefit cost................................... $41,949 $54,394 $46,627
======= ======= =======
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $66.2 million, $57.8 million, and $0 million,
respectively, as of November 26, 2000, and $235.0 million, $223.8 million, and
$163.8 million, respectively, as of November 28, 1999.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point change in
assumed health care cost trend rates would have the following effects to
postretirement benefits:
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
-------- --------
(DOLLARS IN THOUSANDS)
Effect on total of service and interest cost components......... $ 5,934 $ (4,894)
Effect on the postretirement benefit obligation................. 60,197 (53,251)
NOTE 11: EMPLOYEE INVESTMENT PLANS
The Company maintains three employee investment plans. The Employee
Investment Plan of Levi Strauss & Co. ("EIP") and the Levi Strauss & Co.
Employee Long-Term Investment and Savings Plan ("ELTIS") are two qualified plans
that cover eligible compensated Home Office employees and U.S. field employees.
The Capital Accumulation Plan of Levi Strauss & Co. ("CAP") is a non-qualified,
self-directed investment program for highly compensated employees (as defined by
the Internal Revenue Code).
Total amounts charged to expense for these plans in 2000, 1999 and 1998
were $12.8 million, $14.4 million and $19.7 million, respectively.
EIP/ELTIS
Under EIP and ELTIS, eligible employees may contribute and direct up to 10%
of their annual compensation to various investments among a series of mutual
funds. The Company may match 50% of the contributions made by employees to all
funds maintained under the qualified plans. Employees are always 100% vested in
the Company match. The ELTIS also includes a company profit sharing provision
with payments made at the sole discretion of the board of directors. The EIP and
the ELTIS
62
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
allow employees a choice of either pre-tax or after-tax contributions. In
December 2000, the Company announced changes to the EIP plan that were effective
January 1, 2001. These changes allow eligible employees to contribute and direct
up to 15% of their annual compensation to various investments among a series of
mutual funds. The Company may continue to match 50% of the contributions made by
employees to all funds maintained under the qualified plans up to the first 10%
of contributions made by employees.
CAP
The CAP allows eligible employees to contribute on an after-tax basis up to
10% of their annual compensation to an individual retail brokerage account. The
Company generally matches 75% of these contributions made by employees in cash
to each employee's account. Employees are always 100% vested in the Company
match. All investment decisions, related commissions and charges, investment
results and tax reporting requirements are the responsibility of the employee,
not the Company. Associated with the changes in the EIP plan above that were
effective January 1, 2001, eligible employees will be eligible to participate in
the CAP plan after reaching certain contribution thresholds in the EIP plan and
salary thresholds.
NOTE 12: EMPLOYEE COMPENSATION PLANS
PARTNERS IN PERFORMANCE PLAN
The Partners in Performance Plan ("PIP") is a program for all salaried
worldwide employees and is intended to align the objectives of employees with
the strategic objectives of the Company and interests of the Company
stockholders.
ANNUAL INCENTIVE PLAN
The Annual Incentive Plan ("AIP"), the short-term portion of PIP, is
intended to reward individual and team contributions to the Company's objectives
during the year. The amount of incentive earned depends upon the performance and
salary grade level of the individual and also depends on corporate, group,
division and affiliate financial results against pre-established targets.
Provisions for AIP are recorded in accrued salaries, wages and employees
benefits. Total amounts charged to expense for 2000 and 1998 were $65.1 million
and $24.9 million, respectively. In 1999, the Company did not meet
pre-established targets for AIP and did not record an expense for 1999.
LONG-TERM INCENTIVE PLANS
Leadership Shares ("LS") is a feature of PIP and was introduced in
early 1999. LS replaced the executive Long-Term Incentive Plan ("LTIP") with
1999 LS grants partially based on individual executive performance during fiscal
year 1998. It places greater emphasis on an individual's ability to contribute
and affect the Company's long-term strategic objectives. LS is a performance
unit plan which grants units or "shares" at an initial value of $0 each. These
"shares" are not stock and do not represent equity interests in the Company.
A competitive level of five-year Company financial performance is
determined by examining expected value growth at other companies. This growth is
then tied to competitive external long-term incentive pay so that the Company
will pay its executives at competitive levels when they achieve competitive
growth. At the end of each fiscal year, a share value will be determined and
communicated to participants. The shares vest in one-third increments at the end
of the third, fourth and fifth fiscal years of the performance period. The
Company accounts for the expense related to LS on a straight-line basis based on
estimates of future performance against plan targets.
LTIP, which previously represented the portion of PIP related to long-term
incentives, ended for all employees during fiscal year 1999 and was replaced by
LS for employees at management levels. These incentives were awarded as
performance units with each grant's unit value measured based on the Company's
three-year cumulative earnings performance and return on investment against
pre-established targets. Awards were based on an individual's grade level,
salary and performance and are paid in one-third annual increments beginning in
the year following the three-year performance cycle of the grant. Existing LTIP
units that were previously granted will be paid out according to the plan
schedule.
63
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Special Long-Term Incentive Plan ("SLTIP") is intended to provide
incentive and reward performance over time for certain key senior employees
above and beyond PIP awards. Awards under this plan have the same grant unit
value, vesting period and pay-out cycle as grants made under LTIP. A Long-Term
Performance Plan ("LTPP"), which awarded grants in 1994 and 1995, finished
paying out in 2000.
Total net amounts charged to expense for these long-term incentive plans in
2000 and 1998 were $72.7 million and $14.9 million, respectively. In 1999, the
Company did not meet some of the pre-established targets for these long-term
incentive plans and therefore reversed a portion of prior year accruals totaling
$32.5 million.
OTHER COMPENSATION PLANS
GLOBAL SUCCESS SHARING PLAN
The Global Success Sharing Plan ("GSSP") was adopted in 1996 and was
designed to allow all eligible employees to share in the Company's future
success by providing a cash payment based on the achievement of pre-established
financial targets. The plan called for an aggregate cash payment, ranging from
3% to 10% of the achieved cumulative cash flow (defined as earnings before
interest, taxes, depreciation, amortization and certain other items) to be paid
by the Company to all eligible employees, assuming a minimum cumulative cash
flow is reached. If the Company were to meet its planned target, an estimated
payment of $758.0 million could be due in 2002 (exclusive of all
employer-related taxes). However, in 1999, the Company lowered its estimate of
financial performance through the year 2001 and determined that payment in 2002
is highly unlikely and therefore the Company did not recognize any GSSP expense
in 2000. In 1999, the Company reversed prior years' GSSP accruals totaling
$343.9 million, less miscellaneous plan expenses. The total amount charged to
expense for this plan in 1998 was $90.6 million.
CASH PERFORMANCE SHARING PLAN
The Cash Performance Sharing Plan awards a cash payment to production
employees worldwide based on a percentage of annual salary and certain earnings
criteria. The largest individual plan is the U.S. Field Profit Sharing Plan that
covers approximately 5,600 U.S. employees. Total amounts charged to expense for
this plan in 2000 were $9.2 million. The Company did not meet certain earnings
criteria established by the plan and therefore no expense was recognized for the
1999 plan. The total amount charged to expense for this plan in 1998 was $6.9
million.
KEY EMPLOYEE RECOGNITION AND COMMITMENT PLAN
The Key Employee Recognition and Commitment Plan ("KEP") was adopted in
1996 and was designed to recognize and reward key employees for making
significant contributions to the Company's future success. Units awarded to
employees under the plan are subject to a four-year vesting period, which
commenced in fiscal 1997. Units are exercisable in one-third increments at the
end of fiscal years 2001 through 2003 upon reaching a certain minimum cumulative
earnings criteria threshold at each fiscal year-end. Employees may elect to
defer the exercise of each one-third increment until final payment in 2004.
Payments may occur earlier under certain circumstances. Unit values will be
directly related to the excess over the threshold of the cumulative cash flow
(defined as earnings before interest, taxes, depreciation, amortization, GSSP
and certain other items) generated by the Company at the end of the fiscal years
2001 through 2003. The Company did not recognize any KEP expense in 2000. In
1999, the Company lowered its estimate of financial performance through the year
2003 and, consequently, decreased the KEP accrual rate to 0% and reversed prior
years KEP accruals totaling $13.6 million. The amount charged to expense for
this plan in 1998 was $5.9 million.
SPECIAL DEFERRAL PLAN
The Special Deferral Plan ("SDP") was adopted during 1996 and was designed
to replace the Company's Stock Appreciation Rights Plan ("SARs"). Existing SARs
were transferred in the SDP at a value of $265 per share. The SDP had grants in
1992 and 1994, both of which were fully vested as of November 26, 2000. The SDP
bases the appreciation/depreciation of units on certain tracked mutual funds or
the prime rate, at the election of the employee.
There were no additional grants under the SDP in 2000 and 1999. During 2000
and 1999, SDP grants exercised resulted in cash disbursements of $9.8 million
and $10.6 million, respectively.
64
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amounts charged (net of forfeitures) to expense for the plan in 2000,
1999 and 1998 were $1.0 million, $(2.3) million and $8.0 million, respectively.
NOTE 13: LONG-TERM EMPLOYEE RELATED BENEFITS
Long-term employee related benefits are as follows:
2000 1999
---- ----
(DOLLARS IN
THOUSANDS)
Workers' compensation....................... $59,307 $64,004
Long-term performance programs.............. 80,549 8,511
Deferred compensation....................... 93,681 105,025
Pension and profit sharing.................. 125,312 147,978
-------- --------
Total.................................. $358,849 $325,518
======== ========
Included in the liability for workers' compensation are accrued expenses
related to the Company's program that provides for early identification and
treatment of employee injuries. Changes in the Company's safety programs,
medical and disability management and the long-term effects of statutory changes
have decreased workers' compensation costs substantially from historical trends.
Provisions for workers' compensation of $13.6 million and $29.7 million were
recorded during fiscal years 2000 and 1999, respectively. Payments and
reclassifications to current liabilities represented a reduction of
approximately $28.0 million in fiscal year 2000 and $33.0 million in fiscal year
1999. Fiscal year 1999 also included a reduction of $21.0 million related to
reversals of previously estimated costs. Long-term performance programs include
accrued liabilities for LS and LTIP (SEE NOTE 12 TO THE CONSOLIDATED FINANCIAL
STATEMENTS).
NOTE 14: COMMON STOCK
The Company has a capital structure consisting of 270,000,000 authorized
shares of common stock, par value $.01 per share, of which 37,278,238 shares are
issued and outstanding.
NOTE 15: RELATED PARTIES
COMPENSATION OF DIRECTORS
Directors of the Company who are also stockholders or employees of the
Company do not receive compensation for their services as directors. Directors
who are not stockholders or employees (Angela Glover Blackwell, James C.
Gaither, Peter A. Georgescu, Patricia Salas Pineda, T. Gary Rogers and G. Craig
Sullivan) receive annual compensation of approximately $62,000. This amount
includes an annual retainer fee of $6,000, meeting fees of $1,000 per meeting
day attended and long-term variable pay in the form of 1,800 LS units, for a
target value of $45,000 per year (SEE NOTE 12 TO THE CONSOLIDATED FINANCIAL
STATEMENTS). In November 2000, the Personnel Committee approved an increase in
directors' annual retainer fee from $6,000 to $36,000. The actual amount for
each of the above payments varies depending on the years of service, the number
of meetings attended and the actual value of the granted units upon vesting.
Directors in their first six years of service receive a cash amount equivalent
to the target value of their long-term variable pay or $45,000. This amount is
decreased by 1/3 each year at the start of actual payments from LTIP. Directors
who are not employees or stockholders also receive travel accident insurance
while on Company business and are eligible to participate in a deferred
compensation plan.
Messrs. Gaither, Georgescu, Rogers, and Sullivan and Ms. Blackwell and Ms.
Pineda each received 1,800 LS units in 2000. Mr. Gaither, Ms. Blackwell and Ms.
Pineda each received 1,800 LS units in 1999. In 2000, Ms. Blackwell, Mr. Gaither
and Ms. Pineda each received payments of $30,637 under LTIP and LTPP combined.
In 1999, Mr. Gaither, Ms. Blackwell and Ms. Pineda each received payments under
LTIP and LTPP of approximately $59,000.
OTHER TRANSACTIONS
F. Warren Hellman, a director of the Company is a general partner of
Hellman & Friedman LLC, an investment banking firm, and has provided financial
advisory services to the Company in the past. However, the Company did not pay
any fees to
65
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Hellman & Friedman LLC during fiscal years 2000, 1999 and 1998. At November 26,
2000 and November 28, 1999, Mr. Hellman and his family, other partners, and
former partners of Hellman & Friedman LLC beneficially owned an aggregate of
less than 5% of the outstanding common stock of the Company.
James C. Gaither, a director of the Company, is a senior counsel of the law
firm Cooley Godward LLP. The firm provided legal services to the Company in
2000, 1999 and 1998 and received in fees approximately $60,000, $165,000 and
$74,000, respectively.
ESTATE TAX REPURCHASE POLICY
The Company has a policy under which it will, subject to certain
conditions, repurchase a portion of the shares offered by the estate of a
deceased stockholder in order to generate funds for payment of estate taxes.
The purchase price will be based on a valuation received from an investment
banking or appraisal firm. Estate repurchase transactions will be subject to,
among other things, compliance with applicable laws governing stock repurchases,
board approval, and restrictions under the Company's credit facilities (SEE NOTE
6 TO THE CONSOLIDATED FINANCIAL STATEMENTS). The policy does not create a
contractual obligation on the Company. No shares have been repurchased under
this policy for 2000, 1999 and 1998.
NOTE 16: BUSINESS SEGMENT INFORMATION
The Company manages its only segment, the apparel business, based on
geographic regions consisting of the Americas, which includes the United States,
Canada and Latin America; Europe, the Middle East and Africa; and Asia Pacific.
All Other consists of functions that are directed by the corporate office and
are not allocated to a specific geographic region. Under Geographic Information
for all periods presented, no other single country other than the United States
had net sales exceeding 10% of consolidated net sales.
The Company designs and markets jeans and jeans-related pants, casual and
dress pants, shirts, jackets and related accessories, for men, women and
children, under the Company's Levi's(R), Dockers(R) and Slates(R) brands. Its
products are distributed in the United States primarily through chain retailers
and department stores and abroad through department stores, specialty retailers
and franchised stores. The Company also maintains a network of approximately 750
franchised or independently owned stores dedicated to its products outside the
United States and operates a small number of company-owned stores in eight
countries. The Company obtains its products from a combination of company-owned
facilities and independent manufacturers.
The Company evaluates performance and allocates resources based on regional
profits or losses. The accounting policies of the regions are the same as those
described in Note 1, "Summary of Significant Accounting Policies." Regional
profits exclude net interest expense, special compensation program expenses,
excess capacity reduction/restructuring charges and expenses that are controlled
at the corporate level. Management financial information for the Company is as
follows:
66
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ASIA
AMERICAS EUROPE PACIFIC ALL OTHER CONSOLIDATED
-------- ------ ------- --------- ------------
(DOLLARS IN THOUSANDS)
2000:
Net sales from external customers......................... $3,148,219 $1,104,522 $392,385 $ -- $4,645,126
Intercompany sales........................................ 65,600 911,489 33,523 -- 1,010,612
Depreciation and amortization expense..................... 64,109 21,151 5,721 -- 90,981
Earnings contribution..................................... 449,900 225,800 55,300 -- 731,000
Interest expense.......................................... -- -- -- 234,098 234,098
Excess capacity reduction/restructuring................... -- -- -- (33,144) (33,144)
Corporate and other expenses.............................. -- -- -- 186,366 186,366
Income before income taxes........................... -- -- -- -- 343,680
Total regional assets..................................... 5,187,778 1,461,877 471,068 -- 7,120,723
Elimination of intercompany assets........................ -- -- -- -- 3,914,994
Total assets......................................... -- -- -- -- 3,205,728
Expenditures for long-lived assets........................ 16,900 8,323 2,732 -- 27,955
UNITED FOREIGN
STATES COUNTRIES CONSOLIDATED
------ --------- ------------
GEOGRAPHIC INFORMATION:
Net sales................................................................. $2,923,799 $1,721,327 $4,645,126
Long-lived assets......................................................... 1,141,523 358,281 1,499,804
ASIA ALL
AMERICAS EUROPE PACIFIC OTHER CONSOLIDATED
-------- ------ ------- ----- ------------
(DOLLARS IN THOUSANDS)
1999:
Net sales from external customers................... $3,420,326 $1,360,782 $358,350 $ -- $5,139,458
Intercompany sales.................................. 50,584 1,045,119 38,923 -- 1,134,626
Depreciation and amortization expense............... 86,078 27,474 6,550 -- 120,102
Earnings contribution............................... 279,900 242,700 28,500 -- 551,100
Interest expense.................................... -- -- -- 182,978 182,978
Excess capacity reduction/restructuring............. -- -- -- 497,683 497,683
Global Success Sharing Plan......................... -- -- -- (343,873) (343,873)
Corporate and other expenses........................ -- -- -- 205,813 205,813
Income before income taxes..................... -- -- -- -- 8,499
Total regional assets............................... 4,701,974 1,625,396 576,533 -- 6,903,903
Elimination of intercompany assets.................. -- -- -- -- 3,233,889
Total assets................................... -- -- -- -- 3,670,014
Expenditures for long-lived assets.................. 36,578 20,518 3,966 -- 61,062
UNITED FOREIGN
STATES COUNTRIES CONSOLIDATED
------ --------- ------------
GEOGRAPHIC INFORMATION:
Net sales................................................................... $3,201,809 $1,937,649 $5,139,458
Long-lived assets........................................................... 1,273,304 423,026 1,696,330
67
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ASIA ALL
AMERICAS EUROPE PACIFIC OTHER CONSOLIDATED
-------- ------ ------- ----- ------------
(DOLLARS IN THOUSANDS)
1998:
Net sales from external customers..................... $3,938,786 $1,650,479 $369,370 $ -- $5,958,635
Intercompany sales.................................... 81,583 1,124,962 45,322 -- 1,251,867
Depreciation and amortization expense................. 93,588 29,607 5,578 -- 128,773
Earnings contribution................................. 420,700 361,700 53,100 -- 835,500
Interest expense...................................... -- -- -- 178,035 178,035
Excess capacity reduction/restructuring............... -- -- -- 250,658 250,658
Global Success Sharing Plan........................... -- -- -- 90,564 90,564
Corporate and other expenses.......................... -- -- -- 153,543 153,543
Income before income taxes....................... -- -- -- -- 162,700
Total regional assets................................. 4,319,535 1,895,210 312,358 -- 6,527,103
Elimination of intercompany assets.................... -- -- -- -- 2,659,345
Total assets..................................... -- -- -- -- 3,867,757
Expenditures for long-lived assets.................... 57,417 54,439 4,675 -- 116,531
UNITED FOREIGN STATES
STATES COUNTRIES CONSOLIDATED
------ --------- ------------
GEOGRAPHIC INFORMATION:
Net sales................................................................... $3,672,295 $2,286,340 $5,958,635
Long-lived assets........................................................... 1,541,011 471,838 2,012,849
For 2000, 1999 and 1998, the Company had one customer that represented
approximately 12%, 11% and 12%, respectively, of net sales. No other customer
accounted for more than 10% of net sales.
68
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17: QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2000
Net sales........................................................ $1,082,437 $1,149,044 $1,127,740 $1,285,905
Cost of goods sold............................................... 632,442 661,469 663,418 732,841
---------- ---------- ---------- ----------
Gross profit..................................................... 449,995 487,575 464,322 553,064
Marketing, general and administrative............................ 322,111 367,417 358,524 433,666
Other operating income........................................... (4,183) (6,265) (10,404) (11,528)
Excess capacity/restructuring.................................... -- -- -- (33,144)
---------- ---------- ---------- ----------
Operating income................................................. 132,067 126,423 116,202 164,070
Interest expense................................................. 56,782 60,989 59,406 56,921
Other income, net................................................ (24,958) (3,835) (1,359) (8,864)
---------- ---------- ---------- ----------
Income before taxes.............................................. 100,243 69,269 58,155 116,013
Income tax expense............................................... 35,084 24,245 20,354 40,605
---------- ---------- ---------- ----------
Net income....................................................... $ 65,159 $ 45,024 $ 37,801 $ 75,408
========= ========== ========== ==========
Earnings per share--basic and diluted............................. $ 1.75 $ 1.21 $ 1.01 $ 2.02
========= ========== ========== ==========
1999
Net sales........................................................ $1,278,322 $1,227,910 $1,226,413 $1,406,813
Cost of goods sold............................................... 814,673 737,303 747,766 881,103
---------- ---------- ---------- ----------
Gross profit..................................................... 463,649 490,607 478,647 525,710
Marketing, general and administrative............................ 419,085 407,677 338,223 464,860
Other operating income........................................... (5,733) (5,349) (5,025) (8,280)
Excess capacity/restructuring.................................... 394,105 11,780 -- 91,798
Global Success Sharing Plan...................................... -- -- -- (343,873)
---------- ---------- ---------- ----------
Operating income (loss).......................................... (343,808) 76,499 145,449 321,205
Interest expense................................................. 43,157 43,819 45,742 50,260
Other (income) expense, net...................................... (10,394) (15,582) 12,164 21,680
---------- ---------- ---------- ----------
Income (loss) before taxes....................................... (376,571) 48,262 87,543 249,265
Income tax expense (benefit)..................................... (139,331) 17,857 32,391 92,227
---------- ---------- ---------- ----------
Net income (loss)................................................ $ (237,240) $ 30,405 $ 55,152 $ 157,038
========== ========== ========== ==========
Earnings (loss) per share--basic and diluted...................... $ (6.36) $ 0.82 $ 1.48 $ 4.21
========== ========== ========== ==========
During the fourth quarter of fiscal 2000, the Company recorded the
reversal of $33.1 million of restructuring costs. This reversal was based on
periodic evaluation of current restructuring assumptions and estimates. (SEE
NOTE 2 TO THE CONSOLIDATED FINANCIAL STATEMENTS.)
Additionally, in connection with physical inventories, actuarial studies
of postretirement benefits and workers' compensation, and reviews of other
liabilities, the Company recorded adjustments related to warranty provisions,
physical inventory provisions and postretirement benefits in the fourth quarter
of fiscal 2000 that resulted in a net increase of approximately 8 percent to
fourth quarter operating income.
69
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 18: SUBSEQUENT EVENTS
SENIOR NOTES OFFERING
On January 18, 2001, the Company issued two series of notes payable
totaling the equivalent of $497.5 million to qualified institutional investors
in reliance on Rule 144A under the Securities Act and outside the U. S. in
accordance with Regulation S under the Securities Act (the "Senior Notes
Offering"). The notes are unsecured obligations of the Company and may be
redeemed at any time after January 15, 2005. The issuance is divided into two
series: U.S. $380.0 million Dollar Notes and 125 million Euro Notes. Both series
of notes are seven-year notes maturing on January 15, 2008 and bear interest at
11.625% per annum, payable semi-annually in January and July of each year. These
notes were offered at a discount of $5.2 million to be amortized over the term
of the notes. Costs representing underwriting fees and other expenses of $14.4
million on the original issue will be amortized over the term of the notes. Net
proceeds from the offering were used to repay a portion of the indebtedness
outstanding under the 2000 Credit Facility.
The indentures governing the notes contain covenants that limit the
Company's and its subsidiaries' ability to incur additional debt; pay dividends
or make other restricted payments; consummate specified asset sales; enter into
transactions with affiliates; incur liens, impose restrictions on the ability of
a subsidiary to pay dividends or make payments to the Company and its
subsidiaries; merge or consolidate with any other person; sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
Company's assets or the assets of the Company's subsidiaries. If the Company
experiences a change in control as defined in the indentures governing the
notes, the Company will be required under the indentures to make an offer to
repurchase the notes at a price equal to 101% of the principal amount plus
accrued and unpaid interest, if any, to the date of repurchase. If the notes
receive and maintain an investment grade rating by both Standard and Poor's
Ratings Service and Moody's Investors Service and the Company and its
subsidiaries are and remain in compliance with the indentures, then the Company
and its subsidiaries will not be required to comply with specified covenants
contained in the indenture.
Under an agreement to be entered into with the initial purchasers of the
notes, the Company will be obligated to file and cause to be effective a
registration statement under the Securities Act with respect to an offer to
exchange the notes for notes registered under the Securities Act with
substantially identical terms to the notes, except that the registered exchange
notes will generally be freely transferable, and, in certain circumstances, to
file and cause to be filed a shelf registration statement with respect to the
resale of the notes. The interest rate on the notes will be subject to increase
under particular circumstances if the Company is not in compliance with these
obligations.
SENIOR SECURED CREDIT FACILITY
On February 1, 2001, the Company entered into a new $1.05 billion senior
secured credit facility to replace the 2000 Credit Facility on more favorable
terms. The new credit facility consists of a $700 million revolving credit
facility and $350 million of term loans. This new facility reduces the Company's
borrowing costs and extends the maturity of the Company's principal bank credit
facility to August 2003.
The new facility is secured in substantially the same manner as the 2000
Credit Facility. Collateral includes: 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. Borrowings under the bank credit
facilities bear interest at LIBOR or the agent bank's base rate plus an
incremental borrowing spread.
The new facility contains 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 maximum leverage ratios and minimum coverage ratios.
70
The following is a pro forma table as of November 26, 2000, of the required
aggregate short-term and long-term debt principal payments for the next five
years and thereafter that includes the senior notes offering and the senior
secured credit facility.
PRINCIPAL
PAYMENTS
--------
(DOLLARS IN
YEAR THOUSANDS)
----
2001 ........................................ $ 77,616
2002 ........................................ 89,637
2003 ........................................ 783,702
2004 ........................................ 8,521
2005 ........................................ 56,202
Thereafter................................... 1,123,190
----------
Total................................... $2,138,868
==========
71
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINAN-
CIAL DISCLOSURE
None
72
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information concerning our directors and executive
officers as of January 1, 2001.
NAME AGE OFFICE AND POSITION
---- --- -------------------
Peter E. Haas, Sr. .................................. 82 Director, Chairman of the Executive Committee
Robert D. Haas....................................... 58 Director, Chairman of the Board of Directors
Philip A. Marineau................................... 54 Director, President and Chief Executive Officer
Angela Glover Blackwell.............................. 55 Director
Robert E. Friedman................................... 51 Director
Tully M. Friedman.................................... 58 Director
James C. Gaither..................................... 63 Director
Peter A. Georgescu................................... 61 Director
Peter E. Haas, Jr. .................................. 53 Director
Walter J. Haas....................................... 51 Director
F. Warren Hellman.................................... 66 Director
Patricia Salas Pineda................................ 49 Director
T. Gary Rogers....................................... 58 Director
G. Craig Sullivan.................................... 60 Director
R. John Anderson..................................... 49 Senior Vice President and President, Levi Strauss Asia Pacific
David G. Bergen...................................... 45 Senior Vice President and Chief Information Officer
William B. Chiasson.................................. 48 Senior Vice President and Chief Financial Officer
Karen Duvall......................................... 37 Senior Vice President, Worldwide Supply Chain
James Lewis.......................................... 50 Senior Vice President and President, Levi Strauss Americas
Joseph Middleton..................................... 45 Senior Vice President and President, Levi Strauss Europe,
Middle East, Africa
Albert F. Moreno..................................... 57 Senior Vice President, General Counsel and Assistant
Secretary
Fred Paulenich....................................... 36 Senior Vice President, Worldwide Human Resources
All members of the Haas family are descendants of our founder, Levi
Strauss. Peter E. Haas, Sr. is the father of Peter E. Haas, Jr. and the uncle of
Robert D. Haas and Walter J. Haas. Robert E. Friedman is a descendant of Daniel
E. Koshland, who joined his brother-in-law, Walter A. Haas, Sr., in our
management in 1922.
PETER E. HAAS, SR. became Chairman of the Executive Committee of our Board
of Directors in 1989 after serving as Chairman of our Board since 1981. He has
been a member of our Board since 1948. He joined us in 1945, became President in
1970 and Chief Executive Officer in 1976. Mr. Haas is a former Director of
American Telephone and Telegraph Co., Crocker National Corporation and Crocker
National Bank.
ROBERT D. HAAS is the Chairman of our Board. He was named Chairman in 1989
and served as Chief Executive Officer from 1984 until 1999. Mr. Haas joined us
in 1973 and served in a variety of marketing, planning and operating positions
before becoming Chief Executive Officer.
PHILIP A. MARINEAU, a director since 1999, is our President and Chief
Executive Officer. Prior to joining us, Mr. Marineau was the President and Chief
Executive Officer of Pepsi-Cola North America from 1997 to 1999. From 1996 to
1997, Mr. Marineau was President and Chief Operating Officer of Dean Foods
Company. From 1972 to 1996, Mr. Marineau held a series of positions at Quaker
Oats Company including President and Chief Operating Officer from 1993 to 1996.
ANGELA GLOVER BLACKWELL, a director since 1994, is founder and president of
PolicyLink, a nonprofit research, advocacy and communications organization
devoted to eliminating poverty and strengthening communities. From 1995 to 1998,
Ms. Blackwell was Senior Vice President of the Rockefeller Foundation where she
oversaw the foundation's domestic and cultural divisions. Ms. Blackwell was the
founder of Oakland, California's Urban Strategies Council, a nonprofit
organization focused on reducing persistent urban poverty.
ROBERT E. FRIEDMAN, a director since 1998, is founder and Chairman of the
Board of the Corporation for Enterprise Development, a Washington, D.C.-based
not-for-profit economic development research, technical assistance and
demonstration
73
organization which he founded in 1979. The Corporation for Enterprise
Development works with public and private policymakers in governments,
international organizations, corporations, private foundations, labor unions and
community groups to design and implement economic development strategies.
TULLY M. FRIEDMAN, a director since 1985, is Chairman and Chief Executive
Officer of Friedman Fleischer & Lowe LLC, a private equity investment firm he
founded in 1997. Formerly, Mr. Friedman was a founding partner of Hellman &
Friedman, a private investment firm formed in 1984. Prior to forming Hellman &
Friedman in 1984, he was a managing director and general partner of Salomon
Brothers Inc. Mr. Friedman currently serves on the board of directors of The
Clorox Company, Mattel, Inc., McKesson Corporation, Archimedes Technology Group,
Brand Farm, Inc. and Advanced Career Technologies, Inc.
JAMES C. GAITHER, a director since 1988, is Managing Director of Sutter
Hill Ventures, a venture capital investment firm and senior counsel of the law
firm of Cooley Godward LLP in San Francisco, California. Prior to joining Cooley
Godward in 1969, he served as law clerk to the Honorable Earl Warren, Chief
Justice of the United States, special assistant to the Assistant Attorney
General in the U.S. Department of Justice and staff assistant to the President
of the United States, Lyndon B. Johnson. Mr. Gaither is currently a director of
Basic American, Inc., Blue Martini Software, Nvidia Corporation and Siebel
Systems, Inc.
PETER A. GEORGESCU, a director since February 2000, is Chairman Emeritus of
Young & Rubicam Inc. (now WPP Group plc), a global advertising agency. Prior to
his retirement in January 2000, Mr. Georgescu served as Chairman and Chief
Executive Officer of Young & Rubicam since 1993 and, prior to that, as President
of Y&R Inc. from 1990 to 1993, Y&R Advertising from 1986 to 1990 and President
of its Young & Rubicam international division from 1982 to 1986. Mr. Georgescu
is currently a director of IFF Corporation and Briggs & Stratton, Inc.
PETER E. HAAS, JR., a director since 1985, is a director or trustee of each
of the Levi Strauss Foundation, Red Tab Foundation, San Francisco Foundation,
The Stern Grove Festival Foundation, Walter and Elise Haas Fund and the Novato
Youth Center Honorary Board. Mr. Haas was one of our managers from 1972 to 1989.
He was Director of Product Integrity of The Jeans Company, one of our former
operating units, from 1984 to 1989. He served as Director of Materials
Management for Levi Strauss USA in 1982 and Vice President and General Manager
in the Menswear Division in 1980.
WALTER J. HAAS, a director since 1995, served as Chairman and Chief
Executive Officer of the Oakland A's Baseball Company from 1993 to 1995,
President and Chief Executive Officer from 1991 to 1993 and in other management
positions with the club from 1980 to 1991.
F. WARREN HELLMAN, a director since 1985, has served as chairman and
general partner of Hellman & Friedman LLC, a private investment firm, since its
inception in 1984. Previously, he was a general partner of Hellman Ferri (now
Matrix Partners) and managing director of Lehman Brothers Kuhn Loeb, Inc. Mr.
Hellman is currently a director of Il Fornaio (America) Corp., DN&E Walter &
Co., WPP Group plc and Sugar Bowl Corporation.
PATRICIA SALAS PINEDA, a director since 1991, is currently Vice President
of Legal, Human Resources, Government Relations and Environmental Affairs and
Corporate Secretary of New United Motor Manufacturing, Inc. She has held this
position since 1996. Prior to assuming that position, she served as General
Counsel from 1990 to 1996. Ms. Pineda is currently a trustee of the RAND
Corporation and a director of the James Irvine Foundation.
T. GARY ROGERS, a director since 1998, is Chairman of the Board and Chief
Executive Officer of Dreyer's Grand Ice Cream, Inc., a manufacturer and marketer
of premium ice cream products. He has held this position since 1977. He serves
as a director of Shorenstein Company, L.P., Stanislaus Food Products and
Gardonjim Farms.
G. CRAIG SULLIVAN, a director since 1998, is Chairman of the Board and
Chief Executive Officer of The Clorox Company, a major consumer products firm.
Prior to his election as Vice Chairman and Chief Executive Officer of Clorox in
1992, Mr. Sullivan was group vice president with overall responsibility for
manufacturing and marketing, the company's laundry and cleaning products in the
United States, the international business, the manufacturing and marketing of
products for the food service industry and the corporate purchasing and
distribution functions.
R. JOHN ANDERSON, President of our Asia Pacific Division since 1998, joined
us in 1979. Mr. Anderson served as General Manager of Levi Strauss Canada and as
President of Levi Strauss Canada and Latin America from 1996 to 1998. He has
held a series of merchandising positions with us in Europe and the United
States, including Vice President, Merchandising and Product Development for the
Levi's(R) brand in 1995.
74
DAVID G. BERGEN, our Chief Information Officer, joined us in November 2000.
He was most recently senior vice president and chief information officer of
CarStation.com. From 1998 to 2000, Mr. Bergen was senior vice president and
chief information officer of LVMH, Inc. Prior to joining LVMH, Inc., Mr. Bergen
held a series of management positions at GAP Inc., including most recently Vice
President of Application Development.
WILLIAM B. CHIASSON, our Senior Vice President and Chief Financial Officer,
joined us in 1998. From 1988 to 1998, Mr. Chiasson held various positions with
Kraft Foods Inc., a subsidiary of Philip Morris Companies, including Senior Vice
President of Finance and Information Systems. Prior to joining Kraft Foods, he
was Vice President and Controller for Baxter Healthcare Corporation, Hospital
Group.
KAREN DUVALL, our Senior Vice President of Worldwide Supply Chain, joined
us in 2000. Ms. Duvall was Vice President of Global Operations for Warner
Lambert Company, a major pharmaceutical firm, from 1997 to 2000. At Warner
Lambert, Ms. Duvall also served as Director of Global Sourcing for Marketing
Services from 1996 to 1997. From 1994 to 1996, Ms. Duvall was a management
consultant at Booz Allen & Hamilton.
JAMES LEWIS, our Senior Vice President and President, Levi Strauss
Americas, joined us in 2000. From 1995 to 2000, Mr. Lewis held various positions
with Liz Claiborne, Inc., including Group President (responsible for all of Liz
Claiborne's operating units), Group President for the Liz Claiborne women's
casual apparel division and Division President for LizWear. Before joining Liz
Claiborne, Mr. Lewis was Senior Vice President, Merchandise, Design and
Production Planning for Haggar Clothing Company for ten years.
JOSEPH MIDDLETON, our Senior Vice President and President of Levi Strauss
Europe, Middle East and Africa since 1999, joined us in 1981. He held the
position of General Manager of the Dockers(R) brand in Europe from 1993 to 1999,
General Manager of Levi Strauss New Zealand from 1990 to 1993 and a variety of
other positions from 1981 to 1990.
ALBERT F. MORENO, our Senior Vice President and General Counsel since 1996,
joined us in 1978. He held the position of Chief Counsel for Levi Strauss North
America from 1994 to 1996 and Deputy General Counsel from 1985 to 1994. He is a
member of the Board of Directors of Xcel Energy, Inc.
FRED PAULENICH, our Senior Vice President of Worldwide Human Resources,
joined us in 2000. Prior to joining us, Mr. Paulenich was Vice President and
Chief Personnel Officer of Pepsi-Cola North America from 1999 to 2000. At
Pepsi-Cola, he has held a series of management positions including Vice
President of Headquarters Human Resources from 1996 to 1998 and Vice President
of Personnel from 1995 to 1996.
OUR BOARD OF DIRECTORS
Our board of directors has 14 members. Directors are elected annually by
the trustees of the voting trust and serve for one-year terms. Directors may be
removed, with or without cause, by the trustees of the voting trust.
COMMITTEES. Our board of directors currently has three committees.
o AUDIT. Our audit committee reviews, with management and with
independent and internal auditors, our accounting and reporting
policies and internal controls, the scope, cost and outcome of the
independent audit and the selection of an auditor.
--Members:Blackwell, T. Friedman, Georgescu, P.E. Haas, Jr., W.J. Haas,
Hellman, Pineda and Sullivan.
o PERSONNEL. Our personnel committee reviews our employee compensation
and benefit programs, approves and monitors incentive programs,
establishes the compensation of and approves the perquisites and
reimbursed expenses for members of senior management and administers a
number of our executive and employee compensation plans.
--Members: R. Friedman, Gaither, Georgescu, Hellman, Pineda, Rogers and
Sullivan.
o CORPORATE ETHICS AND SOCIAL RESPONSIBILITY. Our corporate ethics and
social responsibility committee reviews our efforts to meet our social
responsibilities and to maintain policies, programs and practices that
conform with moral, legal and social standards. In addition, the
corporate ethics and social responsibility committee also reviews our
75
employment practices, our equal employment opportunity compliance and
compliance with our code of worldwide business ethics and recommends
contributions to outside beneficiaries and the Levi Strauss
Foundation.
--Members:Blackwell, R. Friedman, T. Friedman, Gaither, Georgescu, P.E.
Haas, Jr., P.E. Haas, Sr., R.D. Haas, W.J. Haas, Marineau and Rogers.
COMPENSATION. Directors who are also stockholders or employees do not
receive compensation for their services as directors. Directors who are not
stockholders or employees, Mr. Gaither, Ms. Blackwell, Ms. Pineda, Mr. Rogers,
Mr. Sullivan and Mr. Georgescu, receive annual compensation of approximately
$62,000. This amount includes an annual retainer fee of $6,000, meeting fees of
$1,000 per meeting day attended and long-term variable pay in the form of 1,800
Leadership Shares units, for a target value of $45,000 per year. In November
2000, the Personnel Committee approved an increase in directors' annual retainer
to $36,000. The actual amount for each payment varies depending on the years of
service, the number of meetings attended and the actual value of the granted
units upon vesting. Directors, in their first six years of service, receive a
cash amount equivalent to the target value of their long-term variable pay or
$45,000. This amount is decreased by 1/3 each year at the start of actual
payments from the Long-Term Incentive Plan.
Mr. Gaither, Mr. Georgescu, Ms. Blackwell, Ms. Pineda, Mr. Rogers and Mr.
Sullivan each received 1,800 Leadership Shares units in 2000. Mr. Gaither, Ms.
Blackwell and Ms. Pineda each received payments under the Long-Term Incentive
Plan and the Long-Term Performance Plan of approximately $30,637 in 2000.
Directors who are not employees or stockholders are eligible to participate in a
deferred compensation plan.
PERSONNEL COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of our personnel committee in 2000 were Mr. Friedman, Mr.
Gaither, Mr. Georgescu, Mr. Hellman, Ms. Pineda, Mr. Rogers and Mr. Sullivan.
Mr. Hellman is chairman and a general partner of Hellman & Friedman, a
private investment firm that has provided financial advisory services to us in
the past. We did not pay any fees to Hellman & Friedman during fiscal year 2000.
Mr. Gaither is senior counsel of the law firm Cooley Godward LLP. Cooley Godward
provided legal services to us in 2000 and received approximately $60,000 in
fees.
76
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
This table provides compensation information for our chief executive
officer and other executive officers who were our most highly compensated
officers in 2000.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- ------------
ALL OTHER
NAME/PRINCIPAL POSITION YEAR SALARY BONUS (1) LTIP PAYOUTS (2) COMPENSATION (3)
- ------------------------------------------------------------------------------------------------------------------------
Philip A. Marineau 2000 $1,000,000 $2,250,000 $ -- $1,173,761
President and Chief Executive 1999 153,846 -- -- 3,172,234
Officer (4)
Robert D. Haas 2000 1,050,000 1,800,000 -- 78,750
Chairman of the Board 1999 1,248,462 -- 187,000 90,000
William B. Chiasson 2000 475,969 661,650 -- 351,558
Senior Vice President and 1999 450,449 -- -- --
Chief Financial Officer
James Lewis 2000 432,692 412,500 -- 816,243
Senior Vice President and 1999 -- -- -- --
President, Levi Strauss Americas (5)
Albert F. Moreno 2000 351,731 429,550 -- 23,742
Senior Vice President and 1999 299,322 -- 24,959 22,588
General Counsel
__________________
(1) We pay annual bonuses under our Annual Incentive Plan. The Annual Incentive
Plan is intended to reward individual contributions to our objectives
during the year. The amount of incentive earned depends upon the
performance and salary grade level of the individual and also depends on
corporate, group, division and affiliate financial results against
pre-established targets. We did not pay any bonuses for 1999 performance.
(2) These reflect amounts earned during 2000 under our Long-Term Incentive
Plan, a performance unit plan now replaced by our Leadership Shares Plan.
Under the Long-Term Incentive Plan, we granted performance units to
participants with an initial target value. At the end of a three-year
measurement period, we determine the actual per unit value based on our
estimated relative shareholder return and return on investment over that
period. Once valued, we pay out the unit value in cash in equal
installments over a three-year period. Interest at the prime rate is added
to the second and third installments. The amounts shown in the table relate
to the 1998 to 2000 measurement period and will be paid in equal
installments in 2001, 2002 and 2003. Due to performance during this period,
we estimate the current value of the 1998 grant to be $0 per unit. Messrs.
Marineau, Chiasson and Lewis were not employed by us at the time this grant
was made.
(3) For all officers except Mr. Lewis, the amounts shown include contributions
we made on their behalf to our Capital Accumulation Plan. The Capital
Accumulation Plan is a non-qualified investment plan that permits eligible
employees to contribute up to ten percent of their pay, on an after-tax
basis, to an individual retail brokerage account established in the
employee's name. We generally match 75% of the employee's contributions. We
established the Capital Accumulation Plan because Internal Revenue Code
rules limit savings opportunities under tax-qualified plans for a number of
our employees. The 1999 amount shown for Mr. Marineau reflects a $3.0
million signing bonus under his employment agreement and reimbursement of
relocation expenses. The 2000 amount shown for Mr. Marineau reflects
relocation-related income of $1,095,877 as well as a Capital Accumulation
Plan contribution of $77,885. The 2000 amount shown for Mr. Chiasson
reflects a special payment of $326,250 to replace forfeited long-term
grants from a previous employer and a Capital
77
Accumulation Plan match of $25,308. The 2000 amount shown for Mr. Lewis
reflects a hiring bonus of $614,398 and relocation-related expenses of
$201,845.
(4) Mr. Marineau joined us on September 27, 1999.
(5) Mr. Lewis joined us on April 24, 2000.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR (2000)
ESTIMATED FUTURE PAYOUTS (1)
----------------------------------
NUMBER OF LEADERSHIP PERFORMANCE
NAME/PRINCIPAL POSITION SHARES AWARDED PERIOD (2) MINIMUM ($) TARGET
- --------------------------------------------------------------------------------------------------------------------
Philip A. Marineau 980,000 5 years -- $24,500,000
President and Chief Executive
Officer (3)
Robert D. Haas 90,000 5 years -- 2,250,000
Chairman of the Board
William B. Chiasson 108,000 5 years -- 2,700,000
Senior Vice President and
Chief Financial Officer
James Lewis 108,000 5 years -- 2,700,000
Senior Vice President and
President, Levi Strauss Americas (4)
Albert F. Moreno 40,000 5 years -- 1,000,000
Senior Vice President and
General Counsel
__________________
(1) The Leadership Shares Plan is a long-term cash performance unit plan. Under
this plan, we establish a five-year financial performance target for each
grant based on, among other things, our performance and expected
shareholder value growth at comparable companies. The actual value of the
units is determined based on performance against these measures.
Performance at the target level will yield a per unit value of $25. If
performance does not meet a threshold standard, then the units will have no
value. Performance above target yields correspondingly larger unit values;
there is no limit on maximum award potential.
(2) The performance period is five years from the time of award. The awards
vest in one-third increments on the last day of the third, fourth and fifth
fiscal years of the performance period. Unless deferred, we pay the awards
in the year after they vest.
(3) As provided in Mr. Marineau's employment agreement, in February 2000 we
granted him 170,000 Leadership Shares units as his annual grant for the
year. We also granted him an additional 810,000 Leadership Shares units to
compensate him for the potential value of stock options he forfeited upon
leaving his previous employer to join us.
(4) As provided in Mr. Lewis' employment agreement, we granted him 108,000
Leadership Shares units upon his joining us. This award reflects three
elements: a regular annual grant of 42,500 units, a special sign-on grant
of 40,000 units and a replacement for options forfeited upon leaving his
previous employer of 25,500 units.
78
PENSION PLAN TABLE
The following table shows the estimated annual benefits payable upon
retirement under our Home Office Pension Plan, benefit restoration plans and
deferred compensation plan to persons in various compensation and
years-of-service classifications prior to mandatory offset of Social Security
benefits:
- ---------------------------------------------------------------------------------------------------------------
YEARS OF SERVICE
COVERED ------------------------------------------------------------------------------------------
COMPENSATION 5 10 15 20 25 30 35
- ---------------------------------------------------------------------------------------------------------------
150,000 15,000 30,000 45,000 60,000 75,000 76,875 78,750
225,000 22,500 45,000 67,500 90,000 112,500 115,313 118,125
300,000 30,000 60,000 90,000 120,000 150,000 153,750 157,500
375,000 37,500 75,000 112,500 150,000 187,500 192,188 196,875
450,000 45,000 90,000 135,000 180,000 225,000 230,625 236,250
525,000 52,500 105,000 157,500 210,000 262,500 269,063 275,625
600,000 60,000 120,000 180,000 240,000 300,000 307,500 315,000
675,000 67,500 135,000 202,500 270,000 337,500 345,938 354,375
750,000 75,000 150,000 225,000 300,000 375,000 384,375 393,750
825,000 82,500 165,000 247,500 330,000 412,500 422,813 433,125
900,000 90,000 180,000 270,000 360,000 450,000 461,250 472,500
975,000 97,500 195,000 292,500 390,000 487,500 499,688 511,875
1,050,000 105,000 210,000 315,000 420,000 525,000 538,125 551,250
1,125,000 112,500 225,000 337,500 450,000 562,500 576,563 590,625
1,200,000 120,000 240,000 360,000 480,000 600,000 615,000 630,000
1,275,000 127,500 255,000 382,500 510,000 637,500 653,438 669,375
- ---------------------------------------------------------------------------------------------------------------
The table assumes retirement at the age of 65, with payment to the
employee in the form of a single-life annuity. As of year-end 2000, the credited
years of service for Messrs. Marineau, Haas, Chiasson, Lewis and Moreno were 1,
27, 2, 0 and 22, respectively. The 2000 compensation covered by the Pension
Plan, Benefit Restoration Plan and Deferred Compensation Plan for Messrs.
Marineau, Haas, Chiasson, Lewis and Moreno were $1.00 million, $1.05 million,
$475,969, $0 and $351,731, respectively. Mr. Lewis joined us on April 24, 2000
and does not yet have a credited year of service.
EMPLOYMENT AGREEMENTS
PHILIP MARINEAU. We have an employment agreement with Philip Marineau,
our President and Chief Executive Officer. The agreement provides for a minimum
base salary of $1.00 million in accordance with our executive salary policy and
a target annual cash bonus of 90% of base salary, with a maximum bonus of 180%
of base salary. In addition, Mr. Marineau is eligible to participate in all
other executive compensation and benefit programs, including the Leadership
Shares Plan. Under the employment agreement, we made a one-time grant of 810,000
Leadership Shares units to compensate him for the potential value of stock
options he forfeited upon leaving his previous employer to join us. We also
provide under the agreement a supplemental pension benefit to Mr. Marineau.
The agreement terminates in September 2002 but extends automatically
after this date until terminated by either Mr. Marineau or us. We may terminate
the agreement upon Mr. Marineau's death or disability, for cause (as defined in
the agreement), and without cause upon 30 days notice. Mr. Marineau may
terminate the agreement for good reason (as defined in the agreement) or other
than for good reason upon 30 days notice to us. The consequences of termination
depend on the basis for the termination:
o If we terminate without cause or if Mr. Marineau terminates for
good reason, Mr. Marineau will be entitled to: (i) severance
payments equal to three times the sum of his base salary as of the
termination date plus his most recent target or, if greater,
annual bonus, (ii) amounts accrued or earned under our
compensation and benefit plans and (iii) an amount in respect of
the Leadership Shares units granted in the one-time grant
described above.
o If we terminate for cause or if Mr. Marineau terminates for other
than good reason, then the agreement will terminate without our
having further obligations to Mr. Marineau other than for amounts
accrued or earned under
79
our compensation and benefit programs (which does not include
unvested Leadership Shares units or target bonus amounts not
payable as of the date of termination).
o If we terminate for any reason other than cause or if Mr. Marineau
terminates for good reason within 12 months after a change in
control (as defined in the agreement), Mr. Marineau will be
entitled to: (i) severance payments equal to three times the sum
of his base salary as of the termination date plus his most recent
target or, if greater, annual bonus, (ii) amounts accrued or
earned under our compensation and benefit plans, (iii) an amount
in respect of the Leadership Shares units granted in the one-time
grant described above, (iv) full and immediate vesting in all
outstanding Leadership Shares grants; (v) full and immediate
vesting in his supplemental pension benefit; and (vi) if any
amounts paid are treated as parachute payments (as defined in
Section 280G(b)(2) of the Internal Revenue Code), an amount equal
to the applicable excise tax and any taxes on this reimbursement
payment.
JAMES LEWIS. We have an employment agreement with James Lewis, our
Senior Vice President, and President, Levi Strauss Americas. The agreement
provides for a minimum base salary of $750,000 per year with a bonus target
equal to 55% of base salary, and a maximum bonus equal to 110% of base salary.
For fiscal year 2000, which is the first year of Mr. Lewis' employment, he is
guaranteed under the agreement to earn at least his target bonus amount; later
years' bonus payouts are not guaranteed. Under the agreement, Mr. Lewis received
a one-time lump sum of $300,000 net of taxes to assist with relocation expenses.
Mr. Lewis is eligible to participate in all of our executive
compensation and benefit programs, including the Leadership Shares Plan. Under
his employment agreement, Mr. Lewis received 108,000 Leadership Shares units for
his 2000 grant. This award reflects three elements: a signing bonus, a normal
grant for the year and a replacement for options forfeited upon leaving his
previous employer to join us. In addition, in 2001 we will compensate Mr. Lewis
for other incentive amounts he forfeited upon leaving his previous employer.
Under the terms of the agreement, Mr. Lewis will be eligible for a supplemental
pension benefit. If Mr. Marineau leaves us during the first five years of Mr.
Lewis' employment and Mr. Lewis remains with us through that five-year period,
Mr. Lewis will receive an additional five years of credited service under the
supplemental pension benefit.
The agreement has a five-year term ending in April 2005. We may
terminate Mr. Lewis' employment agreement upon death or disability, for cause,
as defined in the agreement, or without cause upon 60 days' notice. Mr. Lewis
may terminate the agreement for good reason, as defined in the agreement, or
other than for good reason upon 60 days' notice to us. The consequences of
termination depend on the basis for the termination:
o If we terminate without cause or if Mr. Lewis terminates for good
reason, Mr. Lewis will be entitled to: (i) severance payments
equal to two times the sum of his base salary as of the
termination date plus his most recent target bonus; (ii) payment
in respect of the vested portions of his Leadership Shares units;
(iii) in the case of termination by Mr. Lewis for good reason,
full and immediate vesting in all outstanding Leadership Shares
units and immediate vesting in his supplemental retirement benefit
unless at the time of termination Mr. Marineau is no longer the
chief executive officer; and (iv) amounts accrued or earned under
our compensation and benefit plans.
o If we terminate for cause or if Mr. Lewis terminates for other
than good reason, then the agreement will terminate without our
having further obligations to Mr. Lewis other than payment of base
salary and accrued vacation pay through the date of termination
and vested amounts under our compensation and benefit plans.
o If within 12 months following a change in control, as defined in
the agreement, we terminate for any reason other than for cause or
if Mr. Lewis terminates due to good reason, Mr. Lewis will be
entitled to: (i) two times the sum of his base salary as of the
termination date plus his most recent target bonus, (ii)
accelerated vesting of his unvested Leadership Shares units; (iii)
full vesting in his supplemental pension benefit; and (iv) amounts
accrued or earned under our compensation and benefit plans. Mr.
Lewis in his sole discretion shall be able to accept these
benefits or choose to have these benefits capped at the Internal
Revenue Service limit in order to avoid excise taxes.
80
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All shares of our common stock are deposited in a voting trust, a legal
arrangement that transfers the voting power of the shares to a trustee or group
of trustees. The four voting trustees are Peter E. Haas, Sr., Peter E. Haas,
Jr., Robert D. Haas and F. Warren Hellman. The voting trustees have the
exclusive ability to elect and remove directors, amend our by-laws and take
certain other actions which would normally be within the power of stockholders
of a Delaware corporation. Our equity holders who, as a result of the voting
trust, legally hold "voting trust certificates", not stock, retain the right to
direct the trustees on specified mergers and business combinations,
liquidations, sales of substantially all of our assets and specified amendments
to our certificate of incorporation.
The voting trust will last until April 2011, unless the trustees
unanimously decide, or holders of at least two-thirds of the outstanding voting
trust certificates decide, to terminate it earlier. If Robert D. Haas ceases to
be a trustee for any reason, then the question of whether to continue the voting
trust will be decided by the holders. If Peter E. Haas, Sr. ceases to be a
trustee, his successor will be his spouse, Miriam L. Haas. The existing trustees
will select the successors to the other trustees. The agreement among the
stockholders and the trustees creating the voting trust contemplates that, in
selecting successor trustees, the trustees will attempt to select individuals
who share a common vision with the sponsors of the 1996 transaction that gave
rise to the voting trust, represent and reflect the financial and other
interests of the equity holders and bring a balance of perspectives to the
trustee group as a whole. A trustee may be removed if the other three trustees
unanimously vote for removal or if holders of at least two-thirds of the
outstanding voting trust certificates vote for removal.
The table on the following page contains information about the beneficial
ownership of our voting trust certificates as of January 1, 2001, by:
o Each of our directors and each of our five most highly compensated
officers;
o Each person known by us to own beneficially more than 5% of our
voting trust certificates; and
o All of our directors and officers as a group.
Under the rules of the Commission, a person is deemed to be a "beneficial
owner" of a security if that person has or shares "voting power", which includes
the power to vote or to direct the voting of the security, or "investment
power", which includes the power to dispose of or to direct the disposition of
the security. A person is also deemed to be a beneficial owner of any securities
of which that person has a right to acquire beneficial ownership within 60 days.
Under these rules, more than one person may be deemed a beneficial owner of the
same securities and a person may be deemed to be a beneficial owner of
securities as to which that person has no economic interest. Except as described
in the footnotes to the table below, the individuals named in the table have
sole voting and investment power with respect to all voting trust certificates
beneficially owned by them, subject to community property laws where applicable.
81
PERCENTAGE OF
NUMBER OF VOTING VOTING TRUST
TRUST CERTIFICATES CERTIFICATES
NAME BENEFICIALLY OWNED OUTSTANDING
---- ------------------- -----------
Peter E. Haas, Sr. ............................................................. 8,376,426(1) 22.47%
Peter E. Haas, Jr. ............................................................. 4,642,472(2) 12.45%
Josephine B. Haas............................................................... 4,103,750(3) 11.01%
Robert D. Haas.................................................................. 3,723,679(4) 9.99%
Evelyn D. Haas.................................................................. 3,515,116(5) 9.43%
Miriam L. Haas.................................................................. 2,980,200(6) 7.99%
Margaret E. Haas................................................................ 2,643,110(7) 7.09%
Robert E. Friedman.............................................................. 1,320,134(8) 3.54%
F. Warren Hellman............................................................... 527,342(9) 1.41%
Walter J. Haas.................................................................. 258,348(10) *
Tully M. Friedman............................................................... 246,196(11) *
James C. Gaither................................................................ -- --
Peter A. Georgescu(12).......................................................... -- --
Angela Glover Blackwell......................................................... -- --
Philip A. Marineau.............................................................. -- --
Patricia Salas Pineda........................................................... -- --
T. Gary Rogers.................................................................. -- --
G. Craig Sullivan............................................................... -- --
William B. Chiasson............................................................. -- --
Directors and executive officers as a group (22 persons)(13).................... 19,094,597 51.22%
__________________
* Represents beneficial ownership of less than 1%.
(1) Includes 670,000 voting trust certificates held by a trust for the
benefit of Josephine B. Haas, former spouse of Mr. Haas. Mr. Haas has
sole voting power and Mrs. Josephine B. Haas has sole investing powers
with respect to those voting trust certificates. Excludes 2,980,200
voting trust certificates held by Mr. Haas' wife, Miriam L. Haas. Also
excludes 3,515,116 voting trust certificates held by a trust for which
Mr. Haas is co-trustee. Mr. Haas disclaims beneficial ownership of those
voting trust certificates.
(2) Includes a total of 2,243,684 voting trust certificates held by Mr. Haas'
wife, children and trusts for the benefit of his children for which Mr.
Haas is trustee; 61,709 voting trust certificates held by trusts, for
which Mr. Haas is trustee, for the benefit of Michael S. Haas; and
148,500 voting trust certificates held by a charitable annuity lead
trust. Mr. Haas disclaims beneficial ownership of all of those voting
trust certificates. Includes 300,272 voting trust certificates held by
the Josephine B. Haas Family Partnership, for which Mr. Haas is managing
general partner.
(3) Includes 721,029 voting trust certificates held by a trust, for which
Mrs. Haas is trustee, for the benefit of Michael S. Haas. Excludes
1,203,255 voting trust certificates held by a trust, for which Mrs. Haas
is co-trustee, for the benefit of Margaret E. Haas. Mrs. Haas disclaims
ownership of all of those voting trust certificates. Includes 300,272
voting trust certificates held by the Josephine B. Haas Family
Partnership, for which Mrs. Haas is a limited partner.
(4) Includes 527,674 voting trust certificates owned by the spouse and
daughter of Mr. Haas and by trusts for the benefit of his daughter. Mr.
Haas disclaims beneficial ownership of those voting trust certificates.
(5) These voting trust certificates are held by the Walter A. Haas, Jr. QTIP
Trust, for which Evelyn D. Haas and Peter E. Haas, Sr. are co-trustees.
(6) Excludes 40,000 voting trust certificates held by Mrs. Haas' sons. Mrs.
Haas disclaims beneficial ownership of those voting trust certificates.
Excludes 7,706,426 voting trust certificates held by Peter E. Haas, Sr.
Mrs. Haas disclaims beneficial ownership of those voting trust
certificates.
(7) Includes 1,439 voting trust certificates held by a trust for the benefit
of Ms. Haas' son. Ms. Haas disclaims beneficial ownership of those voting
trust certificates.
(8) Includes 92,500 voting trust certificates held by Mr. Friedman's children
and by trusts, for which Mr. Friedman is co-trustee, for the benefit of
his children and 195,834 voting trust certificates held by trusts, for
which Mr. Friedman is co-trustee, for the benefit of Mr. Friedman's
nieces and nephew. Mr. Friedman disclaims beneficial ownership of those
voting trust certificates. Includes 1,010,000 voting trust certificates
held by Copper Reservoir, a California limited partnership, for which Mr.
Friedman is a general partner.
82
(9) Excludes 360,314 voting trust certificates held by a trust, for which Mr.
Hellman is co-trustee, for the benefit of the daughter of Robert D. Haas.
Mr. Hellman disclaims beneficial ownership of those voting trust
certificates.
(10) Includes 248,348 voting trust certificates held by trusts, for which Mr.
Haas is trustee or co-trustee, for the benefit of Mr. Haas' children. Mr.
Haas disclaims beneficial ownership of those voting trust certificates.
(11) Includes 24,115 voting trust certificates held by a trust, for which Mr.
Friedman is trustee, for the benefit of Mr. Friedman's former wife, Ann
Barry. Also includes 25,000 voting trust certificates held by The
Friedman Family Partnership. Mr. Friedman disclaims beneficial ownership
of all but 500 of the Friedman Family Partnership voting trust
certificates.
(12) Mr. Georgescu was elected to the Board on February 10, 2000.
(13) As of January 1, 2001, there were 164 record holders of voting trust
certificates.
The percentage of beneficial ownership shown in the table is based on
37,278,238 shares of common stock and related voting trust certificates
outstanding as of January 1, 2001. The business address of all persons listed,
including the trustees under the voting trust, is 1155 Battery Street, San
Francisco, California 94111.
STOCKHOLDERS' AGREEMENT
Our common stock and the voting trust certificates are not publicly held or
traded. All shares and the voting trust certificates are subject to a
stockholders' agreement. The agreement, which expires in April 2016, limits the
transfer of shares and certificates to other holders, family members, specified
charities and foundations and to us. The agreement does not provide for
registration rights or other contractual devices for forcing a public sale of
shares, certificates or other access to liquidity. The scheduled expiration date
of the stockholders' agreement is five years later than that of the voting trust
agreement in order to permit an orderly transition from effective control by the
voting trust trustees to direct control by the stockholders.
ESTATE TAX REPURCHASE POLICY
We have a policy under which we will repurchase a portion of the shares
offered by the estate of a deceased stockholder in order to generate funds for
payment of estate taxes. The purchase price will be based on a valuation
received from an investment banking or appraisal firm. Estate repurchase
transactions are subject to applicable laws governing stock repurchases, board
approval and restrictions under our credit agreements. Our bank credit
facilities prohibit repurchases without the consent of the lenders, and the
indentures relating to our 11.625% notes due 2008 limit our ability to make
repurchases. (SEE NOTE 18 TO THE CONSOLIDATED FINANCIAL STATEMENTS.) The policy
does not create a contractual obligation on our part. We may amend or terminate
this policy at any time. No shares were repurchased under this policy in 2000,
1999 or 1998.
VALUATION POLICY
We have a policy under which we obtain, and make available to our
stockholders, an annual valuation of our voting trust certificates. The policy
provides that we will make reasonable efforts to defend valuations we obtain
which are challenged in any tax or regulatory proceeding involving a stockholder
(including an estate) that used the valuation and that was challenged on that
use. The policy provides that we will not indemnify any stockholder against any
judgment or settlement amounts or expenses specific to any individual
stockholder arising from the use of a valuation. We may amend or terminate this
policy at any time.
VOTING TRUSTEE COMPENSATION
The voting trust agreement provides that trustees who are also beneficial
owners of 1% or more of our stock are not entitled to compensation for their
services as trustees. Trustees who are not beneficial owners of more than 1% of
our outstanding stock may receive such compensation, upon approval of our Board.
All trustees are entitled to reimbursement for reasonable expenses and charges,
which may be incurred in carrying out their duties as trustees. Of the current
trustees, Mr. Hellman beneficially owns less than 1% of our outstanding stock.
He is not currently receiving compensation from us for his service as a trustee.
All of the other trustees each beneficially owns more than 1% of our outstanding
stock.
83
VOTING TRUSTEE INDEMNIFICATION
Under the voting trust agreement, the trustees are not liable to us or to
the holders of voting trust certificates for any actions undertaken in their
capacity as trustees, except in cases of willful misconduct. The voting trust
will indemnify the trustees in respect of actions taken by them under the voting
trust agreement in their capacity as trustees, except in cases of willful
misconduct.
We have agreed to reimburse the voting trust for any amounts paid by the
trust as a result of its indemnity obligation on behalf of the trustees.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by Delaware law, we have included in our certificate of
incorporation a provision to eliminate generally the personal liability of
directors for monetary damages for breach or alleged breach of their fiduciary
duties as directors. In addition, our by-laws provide that we are required to
indemnify our officers and directors under a number of circumstances, including
circumstances in which indemnification would otherwise be discretionary, and we
are required to advance expenses to our officers and directors as incurred in
connection with proceedings against them for which they may be indemnified. In
addition, our board of directors adopted resolutions making clear that officers
and directors of our foreign subsidiaries are covered by these indemnification
provisions. We are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent of ours in which
indemnification would be required or permitted. We believe that these
indemnification provisions are necessary to attract and retain qualified persons
as directors and officers.
Insofar as indemnification for liabilities under the Securities Act may be
granted to directors, officers or persons controlling us under the foregoing
provisions, we have been informed that in the opinion of the Commission this
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
84
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
F. Warren Hellman, one of our directors, is a general partner of Hellman &
Friedman LLC, a private investment firm that has provided financial advisory
services to us in the past. We did not pay any fees to Hellman & Friedman LLC
during the years 2000, 1999 and 1998.
James C. Gaither, one of our directors, is senior counsel of the law firm
Cooley Godward LLP. Cooley Godward provided legal services to us in 2000, 1999
and 1998, for which we paid fees of approximately $60,000, $165,000 and $74,000
in those years.
85
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List the following documents filed as a part of the report:
1. Financial Statements
The following consolidated financial statements of the Company are
included in Item 8:
Report of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Quarterly Financial Data (Unaudited)
2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts.......Form 10-K page 94
All other schedules have been omitted because they are
inapplicable, not required or the information is included in the
Consolidated Financial Statements or Notes thereto.
3. Exhibits
3.1 Restated Certificate of Incorporation of the Registrant.
Previously filed as Exhibit 3.1 to Registrant's Registration
Statement on Form S-4 filed with the Commission on May 3, 2000.
3.2 Bylaws of the Registrant. Previously filed as Exhibit 3.2 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000.
4.1 Indenture, dated as of November 6, 1996, between the Registrant
and Citibank, N.A., relating to the 6.80% Notes due 2003 and
the 7.00% Notes due 2006. Previously filed as Exhibit 4.1 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000.
4.2 Fiscal Agency Agreement, dated as of November 21, 1996, between
the Registrant and Citibank, N.A., relating to 20 billion yen
4.25% bonds due 2016. Previously filed as Exhibit 4.2 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000.
4.3 Lease Intended as Security, dated as of December 3, 1996, among
the Registrant, First Security Bank, National Association as
Agent and named lessors. Previously filed as Exhibit 4.3 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000.
4.4 Supplemental Indenture, dated as of May 16, 2000, between the
Registrant and Citibank, N.A., relating to the 6.80% Notes due
2003 and the 7.00% Notes due 2006. Previously filed as Exhibit
4.4 to Amendment No. 1 to Registrant's Registration Statement
on Form S-4 filed with the Commission on May 17, 2000.
4.5 Purchase Agreement, dated as of January 12, 2001, among the
Registrant and Salomon Smith Barney Inc. and the other Initial
Purchases named therein, relating to the 11.625% US Dollar
Notes due 2008 and the 11.625% Euro Notes due 2008. Filed
herewith.
4.6 Registration Rights Agreement, dated of January 18, 2001, bet-
ween the Registrant and Salomon Smith Barney Inc. and the
other Initial Purchases named therein, relating to the 11.625%
US Dollar Notes due 2008. Filed herewith.
4.7 Registration Rights Agreement, dated of January 18, 2001, bet-
ween the Registrant and Salomon Smith Barney Inc. and the
other Initial Purchases named therein, relating to the 11.625%
Euro Notes due 2008. Filed herewith.
86
4.8 U.S. Dollar Indenture, dated of January 18, 2001, between the
Registrant and Citibank, N.A., relating to the 11.625% US
Dollar Notes due 2008. Filed herewith.
4.9 Euro Indenture, dated of January 18, 2001, between the Regis-
trant and Citibank, N.A., relating to the 11.625% Euro Notes
due 2008. Filed herewith.
9 Voting Trust Agreement, dated as of April 15, 1996, among LSAI
Holding Corp. (predecessor of the Registrant), Robert D. Haas,
Peter E. Haas, Sr., Peter E. Haas, Jr., F. Warren Hellman, as
voting trustees, and the stockholders. Previously filed as
Exhibit 9 to Registrant's Registration Statement on Form S-4
filed with the Commission on May 3, 2000.
10.1 Stockholders Agreement, dated as of April 15, 1996, among LSAI
Holding Corp. (predecessor of the Registrant) and the
stockholders. Previously filed as Exhibit 10.1 to Registrant's
Registration Statement on Form S-4 filed with the Commission on
May 3, 2000.
10.2 Bridge Credit Agreement, dated as of January 31, 2000, among
the Registrant, the Financial Institutions party thereto and
Bank of America, N.A. Previously filed as Exhibit 10.2 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000.
10.3 Pledge and Security Agreement, dated as of January 31, 2000,
between the Registrant and Bank of America, N.A. Previously
filed as Exhibit 10.3 to Registrant's Registration Statement on
Form S-4 filed with the Commission on May 3, 2000.
10.4 Guaranty, dated as of January 31, 2000, between certain subsi-
diaries of the Registrant and Bank of America, N.A. Previously
filed as Exhibit 10.4 to Registrant's Registration Statement on
Form S-4 filed with the Commission on May 3, 2000.
10.5 Limited Waiver, dated as of February 29, 2000, between the
Registrant and Bank of America, N.A. Previously filed as
Exhibit 10.5 to Registrant's Registration Statement on Form S-4
filed with the Commission on May 3, 2000.
10.6 Amended and Restated 1997 364-Day Credit Agreement among the
Registrant, the Lenders party thereto and Bank of America, N.A.
Previously filed as Exhibit 10.6 to Registrant's Registration
Statement on Form S-4 filed with the Commission on May 3, 2000.
10.7 Pledge and Security Agreement, dated as of January 31, 2000,
between the Registrant and Bank of America, N.A. Previously
filed as Exhibit 10.7 to Registrant's Registration Statement on
Form S-4 filed with the Commission on May 3, 2000.
10.8 Guaranty, dated as of January 31, 2000, between certain subsi-
diaries of the Registrant and Bank of America, N.A. Previously
filed as Exhibit 10.8 to Registrant's Registration Statement on
Form S-4 filed with the Commission on May 3, 2000.
10.9 Amended and Restated 1999 180-Day Credit Agreement among the
Registrant, the Lenders parties thereto and Bank of America,
N.A. Previously filed as Exhibit 10.9 to Registrant's
Registration Statement on Form S-4 filed with the Commission on
May 3, 2000.
10.10 Pledge and Security Agreement, dated as of January 31, 2000,
between the Registrant and Bank of America, N.A. Previously
filed as Exhibit 10.10 to Registrant's Registration Statement
on Form S-4 filed with the Commission on May 3, 2000.
10.11 Guaranty, dated as of January 31, 2000, between certain subsi-
diaries of the Registrant and Bank of America, N.A. Previously
filed as Exhibit 10.11 to Registrant's Registration Statement
on Form S-4 filed with the Commission on May 3, 2000.
10.12 Limited Waiver, dated as of February 29, 2000, between the
Registrant and Bank of America, N.A. Previously filed as
Exhibit 10.12 to Registrant's Registration Statement on Form
S-4 filed with the Commission on May 3, 2000.
87
10.13 1997 Second Amended and Restated Credit Agreement, dated as of
January 31, 2000, among the Registrant, the Lenders parties
thereto and Bank of America, N.A. Previously filed as Exhibit
10.13 to Registrant's Registration Statement on Form S-4 filed
with the Commission on May 3, 2000.
10.14 Pledge and Security Agreement, dated as of January 31, 2000,
between the Registrant and Bank of America, N.A. Previously
filed as Exhibit 10.14 to Registrant's Registration Statement
on Form S-4 filed with the Commission on May 3, 2000.
10.15 Guaranty, dated as of January 31, 2000, between certain
subsidiaries of the Registrant and Bank of America, N.A.
Previously filed as Exhibit 10.15 to Registrant's Registration
Statement on Form S-4 filed with the Commission on May 3, 2000.
10.16 Form of European Receivables Agreement, dated February 2000,
between the Registrant and Tulip Asset Purchase Company B.V.
Previously filed as Exhibit 10.16 to Registrant's Registration
Statement on Form S-4 filed with the Commission on May 3, 2000.
10.17 Form of European Servicing Agreement, dated January 2000,
between Registrant and Tulip Asset Purchase Company B.V.
Previously filed as Exhibit 10.17 to Registrant's Registration
Statement on Form S-4 filed with the Commission on May 3, 2000.
10.18 Supply Agreement, dated as of March 30, 1992, and First
Amendment to Supply Agreement, between the Registrant and Cone
Mills Corporation. Previously filed as Exhibit 10.18 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000.
10.19 Home Office Pension Plan. Previously filed as Exhibit 10.19 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000. *
10.20 Employee Investment Plan. Previously filed as Exhibit 10.20 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000. *
10.21 Capital Accumulation Plan. Previously filed as Exhibit 10.21 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000. *
10.22 Special Deferral Plan. Previously filed as Exhibit 10.22 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000. *
10.23 Key Employee Recognition and Commitment Plan. Previously filed
as Exhibit 10.23 to Registrant's Registration Statement on Form
S-4 filed with the Commission on May 3, 2000. *
10.24 Global Success Sharing Plan. Previously filed as Exhibit 10.24
to Registrant's Registration Statement on Form S-4 filed with
the Commission on May 3, 2000. *
10.25 Deferred Compensation Plan for Executives. Previously filed as
Exhibit 10.25 to Registrant's Registration Statement on Form
S-4 filed with the Commission on May 3, 2000. *
10.26 Deferred Compensation Plan for Outside Directors. Previously
filed as Exhibit 10.26 to Registrant's Registration Statement
on Form S-4 filed with the Commission on May 3, 2000. *
10.27 Excess Benefit Restoration Plan. Previously filed as Exhibit
10.27 to Registrant's Registration Statement on Form S-4 filed
with the Commission on May 3, 2000. *
10.28 Supplemental Benefit Restoration Plan. Previously filed as
Exhibit 10.28 to Registrant's Registration Statement on Form
S-4 filed with the Commission on May 3, 2000. *
88
10.29 Leadership Shares Plan. Previously filed as Exhibit 10.29 to
Registrant's Registration Statement on Form S-4 filed with
the Commission on May 3, 2000. *
10.30 Annual Incentive Plan. Previously filed as Exhibit 10.30 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000. *
10.31 Long-Term Incentive Plan. Previously filed as Exhibit 10.31 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000. *
10.32 Long-Term Performance Plan. Previously filed as Exhibit 10.32
to Registrant's Registration Statement on Form S-4 filed with
the Commission on May 3, 2000. *
10.33 Employment Agreement, dated as of September 30, 1999, between
the Registrant and Philip Marineau. Previously filed as Exhibit
10.33 to Registrant's Registration Statement on Form S-4 filed
with the Commission on May 3, 2000. *
10.34 Supplemental Executive Retirement Agreement, dated as of
January 1, 1998, between the Registrant and Gordon Shank.
Previously filed as Exhibit 10.34 to Registrant's Registration
Statement on Form S-4 filed with the Commission on May 3, 2000.
*
10.35 Form of Indemnification Agreement, dated as of November 30,
1995, for members of the Special Committee of Board of
Directors created by the Board of Directors on November 30,
1995. Previously filed as Exhibit 10.35 to Registrant's
Registration Statement on Form S-4 filed with the Commission on
May 3, 2000. *
10.36 Discretionary Supplemental Executive Retirement Plan Arrange-
ment for Selected Executive Officers. Previously filed as
Exhibit 10.36 to Amendment No. 1 to Registrant's Registration
Statement on Form S-4 filed with the Commission on May 17,
2000. *
10.37 Employment Agreement, dated as of May 15, 2000, between the
Registrant and James Lewis. Previously filed as Exhibit 10.37
to Amendment No. 1 to Registrant's Registration Statement on
Form S-4 filed with the Commission on May 17, 2000. *
10.38 First Amendment to Bridge Credit Agreement and Limited Waiver,
dated July 31, 2000, between the Registrant and Bank of
America, N.A. Previously filed as Exhibit 10.1 to Registrant's
Quarterly Report on Form 10-Q filed with the Commission on
September 29, 2000.
10.39 First Amendment to Amended and Restated 1997 364 Day Credit
Agreement and Limited Waiver, dated July 31, 2000, between the
Registrant and Bank of America, N.A. Previously filed as
Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q
filed with the Commission on September 29, 2000.
10.40 First Amendment to Amended and Restated 1999 180 Day Credit
Agreement and Limited Waiver, dated July 31, 2000, between the
Registrant and Bank of America, N.A. Previously filed as
Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q
filed with the Commission on September 29, 2000.
10.41 First Amendment to 1997 Second Amended and Restated Credit
Agreement and Limited Waiver, dated July 31, 2000, between the
Registrant and Bank of America, N.A. Previously filed as
Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q
filed with the Commission on September 29, 2000.
10.42 Amendment to Deferred Compensation Plan for Executives effec-
tive March 1, 2000. Filed herewith. *
10.43 Amendments to Employee Investment Plan effective April 3, 2000.
Filed herewith. *
89
10.44 Amendments to Capital Accumulation Plan effective April 3,
2000. Filed herewith. *
10.45 Amendment to Deferred Compensation Plan for Executives effec-
tive August 1, 2000. Filed herewith. *
10.46 Amendment to Employee Investment Plan effective November 28,
2000. Filed herewith. *
10.47 Amendments to Capital Accumulation Plan, Supplemental Benefit
Restoration Plan, and Employee Investment Plan effective
January 1, 2001. Filed herewith. *
10.48 Amendments to Employee Investment Plan effective January 1,
2001. Filed herewith. *
10.49 Amendment to Capital Accumulation Plan, Plan Document and
Employee Booklet effective January 1, 2001. Filed herewith. *
10.50 Second Amendment to Bridge Credit Agreement and Limited Waiver,
dated September 29, 2000, between the Registrant and Bank of
America, N.A. Filed herewith.
10.51 Second Amendment to Amended and Restated 1997 364 Day Credit
Agreement and Limited Waiver, dated September 29, 2000, between
the Registrant and Bank of America, N.A. Filed herewith.
10.52 Second Amendment to Amended and Restated 1999 180 Day Credit
Agreement and Limited Waiver, dated September 29, 2000, between
the Registrant and Bank of America, N.A. Filed herewith.
10.53 Second Amendment to 1997 Second Amended and Restated Credit
Agreement and Limited Waiver, dated September 29, 2000, between
the Registrant and Bank of America, N.A. Filed herewith.
10.54 Third Amendment to Amended and Restated 1999 180 Day Credit
Agreement, dated as of October 13, 2000, between the Registrant
and Bank of America, N.A. Filed herewith.
10.55 Third Amendment to Amended and Restated 1997 364 Day Credit
Agreement, dated as of October 13, 2000, between the Registrant
and Bank of America, N.A. Filed herewith.
10.56 Third Amendment to 1997 Second Amended and Restated Credit
Agreement, dated as of October 13, 2000, between the
Registrant and Bank of America, N.A. Filed herewith.
10.57 Credit Agreement, dated as of February 1, 2001, among the
Registrant, the Initial Lenders and Issuing Banks named
therein, Bank of America, N.A., as Administrative Agency and
Collateral Agent, Bank of America Securities LLC and Salomon
Smith Barney Inc., as Co-Arrangers and Joint Book Managers,
Citicorp USA, Inc., as Syndication Agent, and The Bank of Nova
Scotia, as Documentation Agent. Filed herewith.
10.58 Pledge and Security Agreement, dated as of February 1, 2001,
among the Registrant, certain subsidiaries of the Registrant
and Bank of American, N.A., as agent. Filed herewith.
10.59 Subsidiary Guaranty, dated as of February 1, 2001, between
certain subsidiaries of the Registrant and Bank of American,
N.A., as agent. Filed herewith.
90
10.60 Forms of Amendments to European Receivables and Servicing
Agreements among Registrant, certain subsidiaries of Registrant
and Tulip Asset Purchase B.V. effective November 22, 2000.
Filed herewith.
12 Statements re: Computation of Ratios. Filed herewith.
21 Subsidiaries of the Registrant. Filed herewith.
24 Power of Attorney. Contained in signature pages hereto.
27 Financial Data Schedule. Filed herewith.
* Management contract, compensatory plan or arrangement.
(b) Reports on Form 8-K
Current Report on Form 8-K on October 24, 2000 filed pursuant to Item 5
of the report, containing a copy of the Company's press release dated
October 24, 2000 and titled "Adverse Market Conditions Prompt Levi
Strauss & Co. to Postpone Private Placement of Senior Notes."
Current Report on Form 8-K on December 27, 2000 filed pursuant to Item 5
of the report, containing a copy of the Company's press release dated
December 26, 2000 and titled "Levi Strauss & Co. Obtains Commitment for
New $1.5 Billion Senior Secured Credit Facility."
Current Report on Form 8-K on January 10, 2001 filed pursuant to Item 5
of the report, containing a copy of the Company's press release dated
January 10, 2001 and titled "Levi Strauss & Co. Fourth-Quarter and
Fiscal 2000 Financial Results Show Substantial Progress in Business
Turnaround."
Current Report on Form 8-K on January 11, 2001 filed pursuant to Item 5
of the report, containing a copy of the Company's press release dated
January 10, 2001 and titled "Levi Strauss & Co. Fourth-Quarter and
Fiscal 2000 Financial Results Show Substantial Progress in Business
Turnaround." In the press release, certain previously reported financial
information for the fourth quarter and fiscal year 1999 was reclassified
to conform to the fiscal year 2000 financial statement presentation.
Current Report on Form 8-K on January 11, 2001 filed pursuant to Item 5
of the report, containing a copy of the Company's press release dated
January 11, 2001 and titled "Levi Strauss & Co. to Relaunch Private
Placement of Senior Notes Due 2008."
Current Report on Form 8-K on February 1, 2001 filed pursuant to Item 5
of the report, containing a copy of the Company's press release dated
February 1, 2001 and titled "Levi Strauss & Co. Receives $1.05 Billion
Senior Secured Credit Facility; Completes $500 Million Bond Offering."
91
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
LEVI STRAUSS & CO.
By: /s/ WILLIAM B. CHIASSON
-----------------------------
William B. Chiasson
Senior Vice President and
Chief Financial Officer
Date: FEBRUARY 1, 2001
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William B. Chiasson, Gary W. Grellman and
Jay A. Mitchell, and each of them, his or her attorney-in-fact with power of
substitution for him or her in any and all capacities, to sign any amendments,
supplements or other documents relating to this Annual Report on Form 10-K he
deems necessary or appropriate, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that such attorney-in-fact or
his substitute may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
SIGNATURE TITLE
--------- -----
/s/ ROBERT D. HAAS Chairman of the Board
- ---------------------------------------------- Date: February 1, 2001
Robert D. Haas
/s/ PHILIP A. MARINEAU Director, President and
- ---------------------------------------------- Chief Executive
Philip A. Marineau Officer
Date: February 1, 2001
/s/ PETER E. HAAS, SR. Director
- --------------------------------------------- Date: February 1, 2001
Peter E. Haas, Sr.
Director
- ---------------------------------------------- Date: February 1, 2001
Angela Glover Blackwell
/s/ ROBERT E. FRIEDMAN Director
- ---------------------------------------------- Date: February 1, 2001
Robert E. Friedman
/s/ TULLY M. FRIEDMAN Director
- ---------------------------------------------- Date: February 1, 2001
Tully M. Friedman
/s/ JAMES C. GAITHER Director
- ---------------------------------------------- Date: February 1, 2001
James C. Gaither
92
SIGNATURE TITLE
--------- -----
/s/ PETER A. GEORGESCU Director
- ---------------------------------------------- Date: February 1, 2001
Peter A. Georgescu
/s/ PETER E. HAAS, JR. Director
- ---------------------------------------------- Date: February 1, 2001
Peter E. Haas, Jr.
/s/ WALTER J. HAAS Director
- ---------------------------------------------- Date: February 1, 2001
Walter J. Haas
/s/ F. WARREN HELLMAN Director
- ---------------------------------------------- Date: February 1, 2001
F. Warren Hellman
/s/ PATRICIA SALAS PINEDA Director
- --------------------------------------------- Date: February 1, 2001
Patricia Salas Pineda
/s/ T. GARY ROGERS Director
- ---------------------------------------------- Date: February 1, 2001
T. Gary Rogers
/s/ G. CRAIG SULLIVAN Director
- ---------------------------------------------- Date: February 1, 2001
G. Craig Sullivan
/s/ GARY W. GRELLMAN Vice President and Controller
- ---------------------------------------------- (Principal Accounting Officer)
Gary W. Grellman Date: February 1, 2001
93
SCHEDULE II
LEVI STRAUSS & CO. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
BALANCE AT ADDITIONS BALANCE AT
ALLOWANCE FOR BEGINNING CHARGED TO DEDUCTIONS END OF
DOUBTFUL ACCOUNTS OF PERIOD EXPENSES TO RESERVES PERIOD
- ----------------- ---------- ---------- ----------- ----------
November 26, 2000 $30,017 $12,171 $12,471 $29,717
======= ======= ======= =======
November 28, 1999 39,987 5,396 15,366 30,017
======= ======= ======= =======
November 29, 1998 31,620 9,762 1,395 39,987
======= ======= ======= =======
94
SUPPLEMENTAL INFORMATION
The Company will furnish an annual report to security holders subsequent to this
filing.
95
EXHIBIT INDEX
3.1 Restated Certificate of Incorporation of the Registrant.
Previously filed as Exhibit 3.1 to Registrant's Registration
Statement on Form S-4 filed with the Commission on May 3, 2000.
3.2 Bylaws of the Registrant. Previously filed as Exhibit 3.2 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000.
4.1 Indenture, dated as of November 6, 1996, between the Registrant
and Citibank, N.A., relating to the 6.80% Notes due 2003 and
the 7.00% Notes due 2006. Previously filed as Exhibit 4.1 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000.
4.2 Fiscal Agency Agreement, dated as of November 21, 1996, between
the Registrant and Citibank, N.A., relating to 20 billion yen
4.25% bonds due 2016. Previously filed as Exhibit 4.2 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000.
4.3 Lease Intended as Security, dated as of December 3, 1996, among
the Registrant, First Security Bank, National Association as
Agent and named lessors. Previously filed as Exhibit 4.3 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000.
4.4 Supplemental Indenture, dated as of May 16, 2000, between the
Registrant and Citibank, N.A., relating to the 6.80% Notes due
2003 and the 7.00% Notes due 2006. Previously filed as Exhibit
4.4 to Amendment No. 1 to Registrant's Registration Statement
on Form S-4 filed with the Commission on May 17, 2000.
4.5 Purchase Agreement, dated as of January 12, 2001, among the
Registrant and Salomon Smith Barney Inc. and the other Initial
Purchases named therein, relating to the 11.625% US Dollar
Notes due 2008 and the 11.625% Euro Notes due 2008. Filed
herewith.
4.6 Registration Rights Agreement, dated of January 18, 2001,
between the Registrant and Salomon Smith Barney Inc. and the
other Initial Purchases named therein, relating to the 11.625%
US Dollar Notes due 2008. Filed herewith.
4.7 Registration Rights Agreement, dated of January 18, 2001,
between the Registrant and Salomon Smith Barney Inc. and the
other Initial Purchases named therein, relating to the 11.625%
Euro Notes due 2008. Filed herewith.
4.8 U.S. Dollar Indenture, dated of January 18, 2001, between the
Registrant and Citibank, N.A., relating to the 11.625% US
Dollar Notes due 2008. Filed herewith.
4.9 Euro Indenture, dated of January 18, 2001, between the
Registrant and Citibank, N.A., relating to the 11.625% Euro
Notes due 2008. Filed herewith.
9 Voting Trust Agreement, dated as of April 15, 1996, among LSAI
Holding Corp. (predecessor of the Registrant), Robert D. Haas,
Peter E. Haas, Sr., Peter E. Haas, Jr., F. Warren Hellman, as
voting trustees, and the stockholders. Previously filed as
Exhibit 9 to Registrant's Registration Statement on Form S-4
filed with the Commission on May 3, 2000.
10.1 Stockholders Agreement, dated as of April 15, 1996, among LSAI
Holding Corp. (predecessor of the Registrant) and the
stockholders. Previously filed as Exhibit 10.1 to Registrant's
Registration Statement on Form S-4 filed with the Commission on
May 3, 2000.
10.2 Bridge Credit Agreement, dated as of January 31, 2000, among
the Registrant, the Financial Institutions party thereto and
Bank of America, N.A. Previously filed as Exhibit 10.2 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000.
96
10.3 Pledge and Security Agreement, dated as of January 31, 2000,
between the Registrant and Bank of America, N.A. Previously
filed as Exhibit 10.3 to Registrant's Registration Statement on
Form S-4 filed with the Commission on May 3, 2000.
10.4 Guaranty, dated as of January 31, 2000, between certain subsi-
diaries of the Registrant and Bank of America, N.A. Previously
filed as Exhibit 10.4 to Registrant's Registration Statement on
Form S-4 filed with the Commission on May 3, 2000.
10.5 Limited Waiver, dated as of February 29, 2000, between the
Registrant and Bank of America, N.A. Previously filed as
Exhibit 10.5 to Registrant's Registration Statement on Form S-4
filed with the Commission on May 3, 2000.
10.6 Amended and Restated 1997 364-Day Credit Agreement among the
Registrant, the Lenders party thereto and Bank of America, N.A.
Previously filed as Exhibit 10.6 to Registrant's Registration
Statement on Form S-4 filed with the Commission on May 3, 2000.
10.7 Pledge and Security Agreement, dated as of January 31, 2000,
between the Registrant and Bank of America, N.A. Previously
filed as Exhibit 10.7 to Registrant's Registration Statement on
Form S-4 filed with the Commission on May 3, 2000.
10.8 Guaranty, dated as of January 31, 2000, between certain subsi-
diaries of the Registrant and Bank of America, N.A. Previously
filed as Exhibit 10.8 to Registrant's Registration Statement on
Form S-4 filed with the Commission on May 3, 2000.
10.9 Amended and Restated 1999 180-Day Credit Agreement among the
Registrant, the Lenders parties thereto and Bank of America,
N.A. Previously filed as Exhibit 10.9 to Registrant's
Registration Statement on Form S-4 filed with the Commission on
May 3, 2000.
10.10 Pledge and Security Agreement, dated as of January 31, 2000,
between the Registrant and Bank of America, N.A. Previously
filed as Exhibit 10.10 to Registrant's Registration Statement
on Form S-4 filed with the Commission on May 3, 2000.
10.11 Guaranty, dated as of January 31, 2000, between certain subsi-
diaries of the Registrant and Bank of America, N.A. Previously
filed as Exhibit 10.11 to Registrant's Registration Statement
on Form S-4 filed with the Commission on May 3, 2000.
10.12 Limited Waiver, dated as of February 29, 2000, between the
Registrant and Bank of America, N.A. Previously filed as
Exhibit 10.12 to Registrant's Registration Statement on Form
S-4 filed with the Commission on May 3, 2000.
10.13 1997 Second Amended and Restated Credit Agreement, dated as of
January 31, 2000, among the Registrant, the Lenders parties
thereto and Bank of America, N.A. Previously filed as Exhibit
10.13 to Registrant's Registration Statement on Form S-4 filed
with the Commission on May 3, 2000.
10.14 Pledge and Security Agreement, dated as of January 31, 2000,
between the Registrant and Bank of America, N.A. Previously
filed as Exhibit 10.14 to Registrant's Registration Statement
on Form S-4 filed with the Commission on May 3, 2000.
10.15 Guaranty, dated as of January 31, 2000, between certain subsi-
diaries of the Registrant and Bank of America, N.A. Previously
filed as Exhibit 10.15 to Registrant's Registration Statement
on Form S-4 filed with the Commission on May 3, 2000.
10.16 Form of European Receivables Agreement, dated February 2000,
between the Registrant and Tulip Asset Purchase Company B.V.
Previously filed as Exhibit 10.16 to Registrant's Registration
Statement on Form S-4 filed with the Commission on May 3, 2000.
97
10.17 Form of European Servicing Agreement, dated January 2000, bet-
ween Registrant and Tulip Asset Purchase Company B.V.
Previously filed as Exhibit 10.17 to Registrant's Registration
Statement on Form S-4 filed with the Commission on May 3, 2000.
10.18 Supply Agreement, dated as of March 30, 1992, and First
Amendment to Supply Agreement, between the Registrant and Cone
Mills Corporation. Previously filed as Exhibit 10.18 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000.
10.19 Home Office Pension Plan. Previously filed as Exhibit 10.19 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000. *
10.20 Employee Investment Plan. Previously filed as Exhibit 10.20 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000. *
10.21 Capital Accumulation Plan. Previously filed as Exhibit 10.21 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000. *
10.22 Special Deferral Plan. Previously filed as Exhibit 10.22 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000. *
10.23 Key Employee Recognition and Commitment Plan. Previously filed
as Exhibit 10.23 to Registrant's Registration Statement on Form
S-4 filed with the Commission on May 3, 2000. *
10.24 Global Success Sharing Plan. Previously filed as Exhibit 10.24
to Registrant's Registration Statement on Form S-4 filed with
the Commission on May 3, 2000. *
10.25 Deferred Compensation Plan for Executives. Previously filed as
Exhibit 10.25 to Registrant's Registration Statement on Form
S-4 filed with the Commission on May 3, 2000. *
10.26 Deferred Compensation Plan for Outside Directors. Previously
filed as Exhibit 10.26 to Registrant's Registration Statement
on Form S-4 filed with the Commission on May 3, 2000. *
10.27 Excess Benefit Restoration Plan. Previously filed as Exhibit
10.27 to Registrant's Registration Statement on Form S-4 filed
with the Commission on May 3, 2000. *
10.28 Supplemental Benefit Restoration Plan. Previously filed as
Exhibit 10.28 to Registrant's Registration Statement on Form
S-4 filed with the Commission on May 3, 2000. *
10.29 Leadership Shares Plan. Previously filed as Exhibit 10.29 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000. *
10.30 Annual Incentive Plan. Previously file as Exhibit 10.30 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000. *
10.31 Long-Term Incentive Plan. Previously filed as Exhibit 10.31 to
Registrant's Registration Statement on Form S-4 filed with the
Commission on May 3, 2000. *
10.32 Long-Term Performance Plan. Previously filed as Exhibit 10.32
to Registrant's Registration Statement on Form S-4 filed with
the Commission on May 3, 2000. *
10.33 Employment Agreement, dated as of September 30, 1999, between
the Registrant and Philip Marineau. Previously filed as Exhibit
10.33 to Registrant's Registration Statement on Form S-4 filed
with the Commission on May 3, 2000. *
10.34 Supplemental Executive Retirement Agreement, dated as of
January 1, 1998, between the Registrant and Gordon Shank.
Previously filed as Exhibit 10.34 to Registrant's Registration
Statement on Form S-4 filed with the Commission on May 3, 2000.
*
98
10.35 Form of Indemnification Agreement, dated as of November 30,
1995, for members of the Special Committee of Board of
Directors created by the Board of Directors on November 30,
1995. Previously filed as Exhibit 10.35 to Registrant's
Registration Statement on Form S-4 filed with the Commission on
May 3, 2000. *
10.36 Discretionary Supplemental Executive Retirement Plan Arrange-
ment for Selected Executive Officers. Previously filed as
Exhibit 10.36 to Amendment No. 1 to Registrant's Registration
Statement on Form S-4 filed with the Commission on May 17,
2000. *
10.37 Employment Agreement, dated as of May 15, 2000, between the
Registrant and James Lewis. Previously filed as Exhibit 10.37
to Amendment No. 1 to Registrant's Registration Statement on
Form S-4 filed with the Commission on May 17, 2000. *
10.38 First Amendment to Bridge Credit Agreement and Limited Waiver,
dated July 31, 2000, between the Registrant and Bank of
America, N.A. Previously filed as Exhibit 10.1 to Registrant's
Quarterly Report on Form 10-Q filed with the Commission on
September 29, 2000.
10.39 First Amendment to Amended and Restated 1997 364 Day Credit
Agreement and Limited Waiver, dated July 31, 2000, between the
Registrant and Bank of America, N.A. Previously filed as
Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q
filed with the Commission on September 29, 2000.
10.40 First Amendment to Amended and Restated 1999 180 Day Credit
Agreement and Limited Waiver, dated July 31, 2000, between the
Registrant and Bank of America, N.A. Previously filed as
Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q
filed with the Commission on September 29, 2000.
10.41 First Amendment to 1997 Second Amended and Restated Credit
Agreement and Limited Waiver, dated July 31, 2000, between the
Registrant and Bank of America, N.A. Previously filed as
Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q
filed with the Commission on September 29, 2000.
10.42 Amendment to Deferred Compensation Plan for Executives effec-
tive March 1, 2000. Filed herewith. *
10.43 Amendments to Employee Investment Plan effective April 3, 2000.
Filed herewith. *
10.44 Amendments to Capital Accumulation Plan effective April 3,
2000. Filed herewith. *
10.45 Amendment to Deferred Compensation Plan for Executives effec-
tive August 1, 2000. Filed herewith. *
10.46 Amendment to Employee Investment Plan effective November 28,
2000. Filed herewith. *
10.47 Amendments to Capital Accumulation Plan, Supplemental Benefit
Restoration Plan, and Employee Investment Plan effective
January 1, 2001. Filed herewith. *
10.48 Amendments to Employee Investment Plan effective January 1,
2001. Filed herewith. *
10.49 Amendment to Capital Accumulation Plan, Plan Document and
Employee Booklet effective January 1, 2001. Filed herewith. *
10.50 Second Amendment to Bridge Credit Agreement and Limited Waiver,
dated September 29, 2000, between the Registrant and Bank of
America, N.A. Filed herewith.
99
10.51 Second Amendment to Amended and Restated 1997 364 Day Credit
Agreement and Limited Waiver, dated September 29, 2000, between
the Registrant and Bank of America, N.A. Filed herewith.
10.52 Second Amendment to Amended and Restated 1999 180 Day Credit
Agreement and Limited Waiver, dated September 29, 2000, between
the Registrant and Bank of America, N.A. Filed herewith.
10.53 Second Amendment to 1997 Second Amended and Restated Credit
Agreement and Limited Waiver, dated September 29, 2000, between
the Registrant and Bank of America, N.A. Filed herewith.
10.54 Third Amendment to Amended and Restated 1999 180 Day Credit
Agreement, dated as of October 13, 2000, between the Registrant
and Bank of America, N.A. Filed herewith.
10.55 Third Amendment to Amended and Restated 1997 364 Day Credit
Agreement, dated as of October 13, 2000, between the Registrant
and Bank of America, N.A. Filed herewith.
10.56 Third Amendment to 1997 Second Amended and Restated Credit
Agreement, dated as of October 13, 2000, between the Registrant
and Bank of America, N.A. Filed herewith.
10.57 Credit Agreement, dated as of February 1, 2001, among the
Registrant, the Initial Lenders and Issuing Banks named
therein, Bank of America, N.A., as Administrative Agency and
Collateral Agent, Bank of America Securities LLC and Salomon
Smith Barney Inc., as Co-Arrangers and Joint Book Managers,
Citicorp USA, Inc., as Syndication Agent, and The Bank of Nova
Scotia, as Documentation Agent. Filed herewith.
10.58 Pledge and Security Agreement, dated as of February 1, 2001,
among the Registrant, certain subsidiaries of the Registrant
and Bank of American, N.A., as agent. Filed herewith.
10.59 Subsidiary Guaranty, dated as of February 1, 2001, between
certain subsidiaries of the Registrant and Bank of American,
N.A., as agent. Filed herewith.
10.60 Forms of Amendments to European Receivables and Servicing
Agreements among Registrant, certain subsidiaries of Registrant
and Tulip Asset Purchase B.V. effective November 22, 2000.
Filed herewith.
12 Statements re: Computation of Ratios. Filed herewith.
21 Subsidiaries of the Registrant. Filed herewith.
24 Power of Attorney. Contained in signature pages hereto.
27 Financial Data Schedule. Filed herewith.
* Management contract, compensatory plan or arrangement.
100