News

Levi Strauss & Co. Announces Third-Quarter 2008 Financial Results

SAN FRANCISCO-(Business Wire)-October 2, 2008 - Levi Strauss & Co. (LS&CO.) today announced financial results for the third quarter ended August 24, 2008 and filed its third quarter 2008 results on Form 10-Q with the Securities and Exchange Commission.

Highlights include:

	Three Months Ended		% Increase
($ millions)	August 24, 2008	August 26, 2007	As Reported
Net revenues	$1,111	$1,051	6%
Net income	$69	$61	14%

Higher net revenues reflected growth in each of the company’s three regions. The increase in net revenues was primarily driven by currency, the addition of brand-dedicated retail stores worldwide and sales growth at existing stores. Revenues were adversely impacted by wholesale customer Chapter 11 filings in the United States during the second and third quarters, and slower performance in certain markets impacted by weakening economic conditions. The net income increase in the third quarter compared to the same period in 2007 primarily reflected lower interest expense.

The ongoing stabilization of the company’s U.S. enterprise resource planning (ERP) system led to improved order fulfillment and lower costs in the third quarter compared to the second quarter.

"I am pleased with our solid third-quarter performance,” said John Anderson, president and chief executive officer. “All three of our regions grew, demonstrating that our global strategies are working even in the face of difficult economic conditions around the world. The Levi’s® brand is performing well globally. And our emerging markets and expanding retail network continue to provide revenue growth.

“Looking at the balance of the year, we are very mindful that economic conditions are deteriorating in many of our key markets around the world. In this challenging environment, we are continuing to invest in the business, including launching our first-ever global Levi’s® 501® campaign,” added Mr. Anderson.

Third Quarter 2008 Highlights

Gross profit in the third quarter increased to $532 million compared with $486 million for the same period in 2007. Gross margin for the third quarter increased to 47.9 percent of revenues compared with 46.3 percent of revenues in the third quarter of 2007. Gross margin benefited from a change in the sales mix, increased company-operated store sales and lower sourcing costs.
Selling, general and administrative (SG&A) expenses for the third quarter increased to $385 million from $343 million in the same period of 2007. Increased expenses in the 2008 period include the effect of currency exchange, higher selling costs related to additional company-operated retail stores and higher expense related to the U.S. ERP stabilization. SG&A in the third quarter of 2007 was positively impacted by a $14 million benefit plan curtailment gain that was not repeated in the 2008 period.
Operating income for the third quarter was $144 million compared with $143 million for the same period of 2007. Higher regional operating income in the 2008 period was partially offset by higher corporate expenses. The increase in corporate expenses was largely a result of lower expenses in the third quarter of 2007 due to the benefit plan curtailment gain.
Interest expense for the third quarter decreased to $37 million compared to $53 million in the third quarter of 2007. The decrease was primarily attributable to lower average interest rates and lower debt levels during the quarter compared to last year.

Regional Overview

Regional net revenues for the quarter were as follows:

			% Increase (Decrease)
Net Revenues ($ millions)	August 24, 2008	August 26, 2007	As Reported	Constant Currency
Americas	$649	$640	1%	1%
Europe	$306	$265	16%	3%
Asia Pacific	$156	$147	6%	3%

Net revenues in the Americas’ region increased slightly, despite the impact of U.S. customer Chapter 11 filings during the second and third quarters. The increase mostly reflected higher sales from company-operated retail stores.
Net revenues in Europe increased on a reported and constant currency basis. The increase in net revenues on a constant currency basis reflected the addition of new company-operated and franchise retail stores, partially offset by weaker wholesale performance in certain markets.
Net revenues in Asia Pacific increased on a reported and constant currency basis. Revenues in the company’s emerging markets in Asia Pacific continued to grow, partially offset by declines in certain of the company’s mature markets in the region.

Balance Sheet and Cash Flow

The company ended the third quarter with cash and cash equivalents of $125 million, a decrease of $31 million from November 25, 2007. Cash provided by operating activities was $151 million for the nine months of 2008, compared with $127 million for the same period in 2007, primarily reflecting lower interest payments, offset by lower operating income during the nine-month period. Total debt was $1.9 billion at the end of the third quarter. During the nine-month period, the company reduced long-term debt by $77 million in addition to paying a $50 million cash dividend to common stockholders during the second quarter.

Investor Conference Call

The company’s third-quarter 2008 investor conference call will be available through a live audio Webcast at www.levistrauss.com/Financials/EarningsWebcasts.aspx today, October 2, 2008, at 1 p.m. PDT/4 p.m. EDT. A replay is available on the Web site the same day and will be archived for one month. A telephone replay also is available through October 9, 2008 at 800-642-1687 in the United States and Canada, or 706-645-9291 internationally; I.D. No. 65542257.

This news release contains, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current assumptions, expectations and projections about future events. We use words like “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these words. These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Investors should consider the information contained in our filings with the U.S. Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the fiscal year ended 2007 and in our intervening quarterly reports on Form 10Q, especially in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections as well as in our Current Reports on Form 8-K. Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this news release may not occur. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date of this news release. We are not under any obligation and do not intend to make publicly available any update or other revisions to any of the forward-looking statements contained in this news release to reflect circumstances existing after the date of this news release or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.

LEVI STRAUSS & CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
		(Unaudited)
		August 24,			November 25,
			2008			2007
ASSETS		(Dollars in thousands)
Current Assets:
Cash and cash equivalents		$	124,752		$	155,914
Restricted cash			3,003			1,871
Trade receivables, net of allowance for doubtful accounts of $19,585 and $14,805			548,308			607,035
Inventories:
Raw materials			21,655			17,784
Work-in-process			15,309			14,815
Finished goods			576,149			483,265
	Total inventories		613,113			515,864
Deferred tax assets, net			138,508			133,180
Other current assets			119,467			75,647
	Total current assets		1,547,151			1,489,511
Property, plant and equipment, net of accumulated depreciation of $632,735 and $605,859			434,853			447,340
Goodwill			205,813			206,486
Other intangible assets, net			42,774			42,775
Non-current deferred tax assets, net			550,112			511,128
Other assets			160,681			153,426
	Total assets	$	2,941,384		$	2,850,666

LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Short-term borrowings		$	23,589		$	10,339
Current maturities of long-term debt			70,875			70,875
Current maturities of capital leases			1,677			2,701
Accounts payable			254,193			243,630
Restructuring liabilities			5,755			8,783
Other accrued liabilities			259,307			248,159
Accrued salaries, wages and employee benefits			188,334			218,325
Accrued interest payable			34,509			30,023
Accrued income taxes			61,182			9,420
	Total current liabilities		899,421			842,255
Long-term debt			1,802,626			1,879,192
Long-term capital leases			7,945			5,476
Postretirement medical benefits			146,024			157,447
Pension liability			148,588			147,417
Long-term employee related benefits			100,460			113,710
Long-term income tax liabilities			57,020			35,122
Other long-term liabilities			68,481			48,123
Minority interest			14,654			15,833
	Total liabilities		3,245,219			3,244,575

Commitments and contingencies (Note 6)
Temporary equity			1,492			4,120

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			50,185			92,650
Accumulated deficit			(337,344	)		(499,093	)
Accumulated other comprehensive income (loss)			(18,541	)		8,041
	Total stockholders' deficit		(305,327	)		(398,029	)
	Total liabilities, temporary equity and stockholders' deficit	$	2,941,384		$	2,850,666

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