LEVI STRAUSS & CO
10-Ks and 10-Qs
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-K
(Mark One)
_____________________________
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended
November 25, 2012
Commission file number: 002-90139
_____________________________
LEVI STRAUSS & CO.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE
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94-0905160
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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1155 Battery Street, San Francisco, California 94111
(Address of Principal Executive Offices) (Zip Code)
(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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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No
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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
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§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 this Form 10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition of “Large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
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No
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The Company is privately held. Nearly all of its common equity is owned by descendants of the family of the Company’s founder, Levi Strauss, and their relatives. 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 —
37,398,181
shares outstanding on
February 4, 2013
Documents incorporated by reference: None
LEVI STRAUSS & CO.
TABLE OF CONTENTS TO FORM 10-K
FOR FISCAL YEAR ENDED
NOVEMBER 25, 2012
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Page
Number
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Item 1.
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Item 1A.
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Item 1B.
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Item 2.
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Item 3.
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Item 4.
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Item 5.
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Item 6.
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Item 7.
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Item 7A.
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Item 8.
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Item 9.
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Item 9A.
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Item 9B.
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Item 10.
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Item 11.
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Item 12.
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Item 13.
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Item 14.
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Item 15.
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Item 1.
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BUSINESS
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Overview
From our California Gold Rush beginnings, we have grown into one of the world's largest brand-name apparel companies. A history of responsible business practices, rooted in our core values, has helped us build our brands and engender consumer trust around the world. Under our brand names, we design, market and sell – directly or through third parties and licensees – products that include jeans, casual and dress pants, tops, shorts, skirts, jackets, footwear, and related accessories for men, women and children.
An Authentic American Icon
Our Levi's
®
brand has become one of the most widely recognized brands in the history of the apparel industry. Its broad distribution reflects the brand's appeal across consumers of all ages and lifestyles. Its merchandising and marketing reflect the brand's core attributes: original, definitive, honest, confident and youthful.
Our Dockers
®
brand was at the forefront of the business casual trend in the United States, offering an alternative to suit dressing and casual wear that led to the American staple – the khaki pant. The brand quickly planted its stake in the marketplace and today, the Dockers
®
brand has evolved around the world as a market leader in the casual pant category.
Our Global Reach
Our products are sold in more than
110
countries, grouped into three geographic regions: Americas, Europe and Asia Pacific. We support our brands throughout these regions through a global infrastructure, developing, sourcing and marketing our products around the world. Although our brands are recognized as authentically “American,” we derive approximately half of our net revenues from outside the United States. A summary of financial information for each geographical region, which comprise our three reporting segments, is found in Note
19
to our audited consolidated financial statements included in this report.
Our products are sold in approximately
50,000
retail locations worldwide, including approximately 2,300 retail stores dedicated to our brands, both franchised and company-operated. We distribute our Levi's
®
and Dockers
®
products primarily through chain retailers and department stores in the United States and primarily through department stores, specialty retailers and franchised stores outside of the United States. Levi's
®
and Dockers
®
products are also sold through our brand-dedicated company-operated stores and through the online stores we operate, as well as the online stores of certain of our key wholesale customers and other third parties. We distribute Signature by Levi Strauss & Co.™ and Denizen
®
brand products primarily through mass channel retailers in the Americas.
Levi Strauss & Co. was founded in San Francisco, California, in 1853 and incorporated in Delaware in 1971. We conduct our operations outside the United States through foreign subsidiaries owned directly or indirectly by Levi Strauss & Co. We have headquarter offices in San Francisco, Brussels and Singapore. Our corporate offices are located at Levi's Plaza, 1155 Battery Street, San Francisco, California 94111, and our main telephone number is (415) 501-6000.
Our common stock is primarily owned by descendants of the family of Levi Strauss and their relatives.
Our Website –
www.levistrauss.com
- contains additional and detailed information about our history, our products and our commitments. Financial news and reports and related information about our company can be found at
http://levistrauss.com/investors/financial-news
. Our Website and the information contained on our Website are not part of this annual report and are not incorporated by reference into this annual report.
1
Our Business Strategies
Our goal is to generate and sustain profitable growth over the long term in order to significantly improve the value of the enterprise. The management team is focused on four key strategies to achieve this goal:
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Drive the profitable core business
. We will focus our resources behind our businesses that we believe will provide long-term, sustained profitability. We consider our core businesses to be the ones that create the most value on a brand, geographic, customer or business-segment basis. These businesses include our men's bottoms business for the Levi's
®
brand globally and the Dockers
®
brand in the United States. We consider our core products, including our 501
®
jean and our Dockers
®
khaki pant, to be key assets. We also consider our key wholesale accounts in the United States and Europe to be vital elements of our long-term growth strategies.
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Expand the reach of our brands.
We intend to grow our two largest brands through new or expanded product categories, consumer segments and geographic markets. We intend to build upon our brand equity and our innovative design and marketing expertise to expand the reach and appeal of our brands globally. For example, we believe we can better serve the female consumer, and that there are significant opportunities in tops, outerwear and accessories. We also believe opportunities remain to expand in emerging and underpenetrated geographic markets.
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Elevate the performance of our dedicated retail channel
. We will continue to expand our consumer reach through brand-dedicated stores globally, whether company-operated stores, dedicated e-commerce sites, franchisee or other dedicated store models. We believe these stores represent an attractive opportunity to establish incremental distribution and sales as well as to showcase the full breadth of our product offerings and deliver a consistent brand experience to the consumer.
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Leverage our global scale to develop a competitive cost structure
. We are focused on improving productivity, managing our controllable cost structure and driving efficiencies through our global supply chain. We will balance our pursuit of improved agility and marketplace responsiveness with our cost management efforts.
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Our Brands and Products
We offer a broad range of products, including jeans, casual and dress pants, tops, shorts, skirts, jackets, footwear and related accessories. Across all of our brands, pants – including jeans, casual pants and dress pants – represented approximately
86%
, 83% and 84% of our total units sold in each of fiscal years
2012
,
2011
and
2010
, respectively. Men's products generated approximately
75%
, 72% and 72% of our total net sales in each of fiscal years
2012
,
2011
and
2010
, respectively.
Levi's
®
Brand
The Levi's
®
brand epitomizes classic American style and effortless cool and is positioned as the original and definitive jeans brand. Since their inception in 1873, Levi's
®
jeans have become one of the most recognizable garments in the world – reflecting the aspirations and earning the loyalty of people for generations. Consumers around the world instantly recognize the distinctive traits of Levi's
®
jeans – the double arc of stitching, known as the Arcuate Stitching Design, and the Red Tab Device, a fabric tab stitched into the back right pocket. Today, the Levi's
®
brand continues to evolve, driven by its distinctive pioneering and innovative spirit. Our range of leading jeanswear and accessories for men, women and children is available in more than
110
countries, allowing individuals around the world to express their personal style.
The Levi's
®
brand encompasses a range of products. Levi's
®
Red Tab™ products are the foundation of the brand, consisting of a wide spectrum of jeans and jeanswear offered in a variety of fits, fabrics, finishes, styles and price points intended to appeal to a broad spectrum of consumers. The line includes the flagship 501
®
jean, the original and best-selling five-pocket jean of all-time. The line also incorporates a full range of jeanswear fits and styles designed specifically for women. Sales of Red Tab™ products represented the majority of our Levi's
®
brand net sales in all three of our regions in fiscal years
2012
,
2011
and
2010
. We also offer premium products around the world including a range of premium pants, tops, shorts, skirts, jackets, footwear, and related accessories.
Our Levi's
®
brand products accounted for approximately 84%, 83% and 81% of our total net sales in fiscal
2012
,
2011
and
2010
, respectively, approximately half of which were generated in our Americas region.
Dockers
®
Brand
The Dockers
®
brand has embodied the spirit of khakis for more than 25 years. Since its introduction in 1986, the brand has been perfecting the khaki and the essential goods to go with them. The brand focuses on men, celebrating the re-emergence of khakis as the go-to versatile pant. The brand also leverages its khaki expertise to deliver a range of women's products targeted at consumers in selected key markets.
2
Our Dockers
®
brand products accounted for approximately 12%, 12% and 15% of our total net sales in fiscal
2012
,
2011
and
2010
, respectively. Although the substantial majority of these net sales were in the Americas region, Dockers
®
brand products are sold in more than 50 countries.
Signature by Levi Strauss & Co.™ Brand and Denizen
®
Brand
In addition to our Levi's
®
and Dockers
®
brands, we offer two brands focused on consumers who seek high-quality, affordable and fashionable jeanswear from a company they trust. We offer denim jeans, casual pants, tops and jackets in a variety of fits, fabrics and finishes for men, women and kids under the Signature by Levi Strauss & Co.™ brand through the mass retail channel in the United States and Canada. The Denizen
®
brand was introduced in Target stores in the United States starting in 2011, and includes a variety of jeans, tops and accessories to complement active lifestyles and to empower consumers to express their aspirations, individuality and attitudes at an affordable price point.
Signature by Levi Strauss & Co.™
brand and Denizen
®
brand products accounted for approximately 4%, 5% and 4% of our total net sales in fiscal years
2012
,
2011
and
2010
, respectively.
Licensing
The appeal of our brands across consumer groups and our global reach enable us to license our Levi's
®
and Dockers
®
trademarks for a variety of product categories in multiple markets in each of our regions, including footwear, belts, wallets and bags, outerwear, sweaters, dress shirts, kidswear, sleepwear and hosiery. We also license our Signature by Levi Strauss & Co.™ and our Denizen
®
trademarks in various markets for certain product categories.
In addition to product category licenses, we enter into regional license agreements with third parties to produce, market and distribute our products in several countries around the world, including various Latin American, Middle Eastern and Asia Pacific countries. Licensing accounted for approximately 2% of our total net revenues in each of fiscal years
2012
,
2011
and
2010
.
We enter into licensing agreements with our licensees covering royalty payments, product design and manufacturing standards, marketing and sale of licensed products, and protection of our trademarks. We require our licensees to comply with our code of conduct for contract manufacturing and engage independent monitors to perform regular on-site inspections and assessments of production facilities.
Sales, Distribution and Customers
We distribute our products through a wide variety of retail formats around the world, including chain and department stores, franchise stores dedicated to our brands, our own company-operated retail network, multi-brand specialty stores, mass channel retailers, and both company-operated and retailer websites.
Multi-brand Retailers
We seek to make our brands and products available where consumers shop, including offering products and assortments that are appropriately tailored for our wholesale customers and their retail consumers. Our products are also sold through authorized third-party online stores. Sales to our top ten wholesale customers accounted for approximately
32%
,
30%
and
33%
of our total net revenues in fiscal years
2012
,
2011
and
2010
, respectively. No customer represented 10% or more of net revenues in any of these years. The loss of any major customer could have a material adverse effect on one or more of our segments or on the company as a whole.
Dedicated Stores
We believe retail stores dedicated to our brands are important for the growth, visibility, availability and commercial success of our brands, and they are an increasingly important part of our strategy for expanding distribution of our products. Our brand-dedicated stores are either operated by us or by independent third parties such as franchisees. In addition to the dedicated stores, we maintain brand-dedicated websites that sell products directly to retail consumers.
Company-operated retail stores
.
Our company-operated online and retail stores, including both mainline and outlet stores, generated approximately 21%, 18% and 15% of our net revenues in fiscal
2012
,
2011
and
2010
, respectively. As of
November 25, 2012
, we had
511
company-operated stores, predominantly Levi's
®
stores, located in
32
countries across our three regions. We had
209
stores in the Americas,
190
stores in Europe and
112
stores in Asia Pacific. During
2012
, we added
56
company-operated stores and closed
43
stores.
3
Franchised and other stores
.
Franchised, licensed, or other forms of brand-dedicated stores operated by independent third parties sell Levi's
®
and Dockers
®
products in markets outside the United States. There were approximately
1,800
of these stores as of
November 25, 2012
, and they are a key element of our international distribution. In addition to these stores, we consider our network of dedicated shop-in-shops located within department stores, which may be either operated directly by us or third parties, to be an important component of our retail distribution in international markets. Outside of the United States, approximately
360
dedicated shop-in-shops were operated directly by us as of
November 25, 2012
.
Seasonality of Sales
We typically achieve our largest quarterly revenues in the fourth quarter, reflecting the “holiday” season, generally followed by the third quarter, reflecting the Fall or “back to school” season. In
2012
, our net revenues in the first, second, third and fourth quarters represented 25%, 23%, 24% and 28%, respectively, of our total net revenues for the year. In
2011
, our net revenues in the first, second, third and fourth quarters represented 24%, 23%, 25% and 28%, respectively, of our total net revenues in the year.
Our fiscal year ends on the last Sunday of November in each year, although the fiscal years of certain foreign subsidiaries end on November 30. Each quarter of fiscal years
2012
,
2011
and
2010
consisted of 13 weeks.
Marketing and Promotion
We root our marketing in globally consistent brand messages that reflect the unique attributes of our brands, including the Levi's
®
brand as the original and definitive jeans brand and the Dockers
®
brand as world's best and most loved khaki. We support our brands with a diverse mix of marketing initiatives to drive consumer demand.
We also market through social media and digital and mobile outlets, event and music sponsorships, product placement in leading fashion magazines and with celebrities, personal sponsorships and endorsements, on the ground efforts such as street-level events and similar targeted “viral” marketing activities.
We also use our websites,
www.levi.com
,
www.dockers.com
,
www.levistrausssignature.com
, and
www.denizen.com
, in relevant markets to enhance consumer understanding of our brands and help consumers find and buy our products.
Sourcing and Logistics
Organization
.
Our global sourcing and logistics organizations are responsible for taking a product from the design concept stage through production to delivery to our customers. Our objective is to leverage our global scale to achieve product development and sourcing efficiencies and reduce total product and distribution costs while maintaining our focus on local service levels and working capital management.
Product procurement
.
We source nearly all of our products through independent contract manufacturers. The remainder are sourced from our company-operated manufacturing and finishing plants, including facilities for our innovation and development efforts that provide us with the opportunity to develop new product styles and finishes. See “Item 2 – Properties” for more information about those manufacturing facilities.
Sources and availability of raw materials
.
The principal fabrics used in our business are cotton, blends, synthetics and wools. The prices we pay our suppliers for our products are dependent in part on the market price for raw materials used to produce them, primarily cotton. The price and availability of cotton may fluctuate substantially, depending on a variety of factors. The price fluctuations impact the cost of our products in future seasons given the lead time of our product development cycle. Fluctuations in product costs can cause a decrease in our profitability if product pricing actions taken in response were to be insufficient or if those actions were to cause our wholesale customers or retail consumers to reduce the volumes they purchase.
Sourcing locations
.
We use numerous independent contract manufacturers located throughout the world for the production and finishing of our garments. We conduct assessments of political, social, economic, trade, labor and intellectual property protection conditions in the countries in which we source our products before placing production in those countries and on an ongoing basis.
In
2012
we sourced products from contractors located in more than 35 countries around the world. We sourced products in North and South Asia, South and Central America (including Mexico and the Caribbean), Europe and Africa. No single country accounted for more than 12% of our sourcing in
2012
.
4
Sourcing practices
.
Our sourcing practices include these elements:
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We require all third-party contractors and subcontractors who manufacture or finish products for us to comply with our code of conduct relating to supplier working conditions as well as environmental and employment practices. We also require our licensees to ensure that their manufacturers comply with our requirements.
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Our code of conduct covers employment practices such as wages and benefits, working hours, health and safety, working age and discriminatory practices, environmental matters such as wastewater treatment and solid waste disposal, and ethical and legal conduct.
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We regularly assess manufacturing and finishing facilities through periodic on-site facility inspections and improvement activities, including use of independent monitors to supplement our internal staff. We integrate review and performance results into our sourcing decisions.
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We disclose the names and locations of our contract manufacturers to encourage collaboration among apparel companies in factory monitoring and improvement. We regularly evaluate and refine our code of conduct processes.
Logistics
.
We operate dedicated distribution centers in a number of countries. For more information, see “Item 2 – Properties.” Distribution center activities include receiving finished goods from our contractors and plants, inspecting those products, preparing them for retail presentation, and shipping them to our customers and to our own stores. Our distribution centers maintain a combination of replenishment and seasonal inventory from which we ship to our stores and wholesale customers. In certain locations around the globe we have consolidated our distribution centers to service multiple countries and brands. Our inventory significantly builds during peaks in seasonal shipping periods. We are constantly monitoring our inventory levels and adjusting them as necessary to meet market demand. In addition, we outsource some of our logistics activities to third-party logistics providers.
Competition
The worldwide apparel industry is highly competitive and fragmented. It is characterized by low barriers to entry, brands targeted at specific consumer segments, many regional and local competitors, and an increasing number of global competitors. Principal competitive factors include:
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developing products with relevant fits, finishes, fabrics, style and performance features;
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maintaining favorable brand recognition and appeal through strong and effective marketing;
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anticipating and responding to changing consumer demands in a timely manner;
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securing desirable retail locations and presenting products effectively at retail;
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providing sufficient wholesale distribution, visibility and availability, and presenting products effectively at wholesale;
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delivering compelling value for the price; and
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generating competitive economics for wholesale customers, including retailers, franchisees, and distributors.
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We face competition from a broad range of competitors at the global, regional and local levels in diverse channels across a wide range of retail price points. Worldwide, a few of our primary competitors include vertically integrated specialty stores operated by such companies such as Gap Inc. and Inditex; jeanswear brands such as those marketed by VF Corporation, a competitor in multiple channels and product lines including through their Wrangler, Lee and Seven for All Mankind brands; khakiwear brands such as Haggar; and athletic wear companies such as adidas Group and Nike, Inc. In addition, each region faces local or regional competition; and in the Americas, retailers' private or exclusive labels such as those from Wal-Mart Stores, Inc. (Faded Glory brand), Target Corporation (Mossimo and Merona brands) and JC Penney (Arizona brand). Many of our regional competitors are also seeking to expand globally through an expanded store footprint and the e-commerce channel. For more information on the factors affecting our competitive position, see “Item 1A – Risk Factors.”
Trademarks
We have more than 5,000 trademark registrations and pending applications in approximately 180 countries worldwide, and we acquire rights in new trademarks according to business needs. Substantially all of our global trademarks are owned by Levi Strauss & Co., the parent and U.S. operating company. We regard our trademarks as our most valuable assets and believe they have substantial value in the marketing of our products. The Levi's
®
, Dockers
®
and 501
®
trademarks, the Arcuate Stitching Design, the Tab Device, the Two Horse
®
Design, the Housemark and the Wings and Anchor Design
are among our core trademarks.
5
We protect these trademarks by registering them with the U.S. Patent and Trademark Office and with governmental agencies in other countries, particularly where our products are manufactured or 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, opposing registration of infringing trademarks, and initiating litigation as necessary. We currently are pursuing approximately 330 infringement matters around the world. 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.
Employees
As of
November 25, 2012
, we employed approximately 17,000 people, approximately 9,700 of whom were located in the Americas, 4,800 in Europe, and 2,500 in Asia Pacific. Approximately 4,400 of our employees were associated with the manufacturing and procurement of our products, 7,300 worked in retail, including seasonal employees, 1,400 worked in distribution and 3,900 were other non-production employees.
History and Corporate Citizenship
Our history and longevity are unique in the apparel industry. Our commitment to quality, innovation and corporate citizenship began with our founder, Levi Strauss, who infused the business with the principle of responsible commercial success that has been embedded in our business practices throughout our more than 150-year history. This mixture of history, quality, innovation and corporate citizenship contributes to the iconic reputations of our brands.
In 1853, during the California Gold Rush, Mr. Strauss opened a wholesale dry goods business in San Francisco that became known as “Levi Strauss & Co.” Seeing a need for work pants that could hold up under rough conditions, he and Jacob Davis, a tailor, created the first jean. In 1873, they received a U.S. patent for “waist overalls” with metal rivets at points of strain. The first product line designated by the lot number “501” was created in 1890.
In the 19
th
and early 20
th
centuries, our work pants were worn primarily by cowboys, miners and other working men in the western United States. Then, in 1934, we introduced our first jeans for women, and after World War II, our jeans began to appeal to a wider market. By the 1960s they had become a symbol of American culture, representing a unique blend of history and youth. We opened our export and international businesses in the 1950s and 1960s. In 1986, we introduced the Dockers
®
brand of casual apparel which revolutionized the concept of business casual.
Throughout this long history, we upheld our strong belief that we can help shape society through civic engagement and community involvement, responsible labor and workplace practices, philanthropy, ethical conduct, environmental stewardship and transparency. We have engaged in a “profits through principles” business approach from the earliest years of the business. Among our milestone initiatives over the years, we integrated our factories two decades prior to the U.S. civil rights movement and federally mandated desegregation, we developed a comprehensive supplier code of conduct requiring safe and healthy working conditions among our suppliers (a first of its kind for a multinational apparel company), and we offered full medical benefits to domestic partners of employees prior to other companies of our size, a practice that is widely accepted today.
Our website –
www.levistrauss.com
– contains additional and detailed information about our history and corporate citizenship initiatives. Our website and the information contained on our website are not part of this annual report and are not incorporated by reference into this annual report.
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Item 1A.
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RISK FACTORS
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Risks Relating to the Industry in Which We Compete
Our revenues are influenced by economic conditions that impact consumer spending.
Apparel is a cyclical industry that is dependent upon the overall level of consumer spending. Our wholesale customers anticipate and respond to adverse changes in economic conditions and uncertainty by reducing inventories and canceling orders. Our brand-dedicated stores are also affected by these conditions which may lead to a decline in consumer traffic to, and spending in, these stores. As a result, factors that diminish consumer spending and confidence in any of the markets in which we compete, particularly deterioration in general economic conditions, volatility in investment returns, high levels and fear of unemployment, increases in energy costs or interest rates, housing market downturns, fear about and impact of pandemic illness, and other factors such as acts of war, acts of nature or terrorist or political events that impact consumer confidence, could reduce our sales and adversely affect our business and financial condition through their impact on our wholesale customers as well as its direct impact on us. The global financial economic downturn that has characterized the past several years has impacted consumer confidence
6
and spending negatively in many markets in which we sell our products. These outcomes and behaviors have, and may continue to, adversely affect our business and financial condition.
Intense competition in the worldwide apparel industry could lead to reduced sales and
prices.
We face a variety of competitive challenges in the worldwide apparel industry from a variety of jeanswear and casual apparel marketers, and competition has increased over the years due to factors such as the international expansion and increased presence of vertically integrated specialty stores; expansion into e-commerce by existing and new competitors; the proliferation of private labels or exclusive labels offered by department stores, chain stores and mass channel retailers; the introduction of jeans and casual apparel by well-known and successful non-apparel brands (such as athletic wear marketers); and the movement of apparel companies who traditionally relied on wholesale distribution channels into their own retail distribution network. Some of these competitors have greater financial and marketing resources than we do and may be able to adapt to changes in consumer preferences or retail requirements more quickly, devote greater resources to the building and sustaining of their brand equity and the marketing and sale of their products. In addition, some of these competitors may not respond to changing sourcing conditions in the same manner we do, and may be able to achieve lower product costs or adopt more aggressive pricing policies than we can. As a result, we may not be able to compete as effectively with them and may not be able to maintain or grow the equity of and demand for our brands. These evolving competitive factors could reduce our sales and adversely affect our business and financial condition.
The success of our business depends upon our ability to offer innovative and updated
products at attractive price points.
The worldwide apparel industry is characterized by constant product innovation due to changing fashion trends and consumer preferences and by the rapid replication of new products by competitors. As a result, our success depends in large part on our ability to develop, market and deliver innovative and stylish products at a pace, intensity, and price competitive with other brands in our segments. In addition, we must create products at a range of price points that appeal to the consumers of both our wholesale customers and our dedicated retail stores. Our development and production cycles take place prior to full visibility into all of these factors for the coming seasons. Failure on our part to forecast consumer demand and market conditions and to regularly and rapidly develop innovative and stylish products and update core products could limit sales growth, adversely affect retail and consumer acceptance of our products, negatively impact the consumer traffic in our dedicated retail stores, leave us with a substantial amount of unsold inventory which we may be forced to sell at discounted prices, and impair the image of our brands. Moreover, our newer products may not produce as high a gross margin as our traditional products and thus may have an adverse effect on our overall margins and profitability.
The worldwide apparel industry is subject to ongoing pricing pressure.
The apparel market is characterized by low barriers to entry for both suppliers and marketers, global sourcing through suppliers located throughout the world, trade liberalization, continuing movement of product sourcing to lower cost countries, and the ongoing emergence of new competitors with widely varying strategies and resources. These factors have contributed, and may continue to contribute, to ongoing pricing pressure and uncertainty throughout the supply chain. Pricing pressure has been exacerbated by the variability of raw material and energy costs in recent years. This pressure could have the following effects:
|
•
|
require us to raise wholesale prices on existing products resulting in decreased sales volume;
|
|
•
|
result in reduced gross margins across our product lines;
|
|
•
|
increase retailer demands for allowances, incentives and other forms of economic support; and
|
|
•
|
increase pressure on us to reduce our production costs and our operating expenses.
|
Any of these factors could adversely affect our business and financial condition.
Increases in the price of raw materials could increase
our cost of goods and negatively impact our financial results.
The principal materials used in our business are cotton, blends, synthetics and wools. The prices we pay our suppliers for our products are dependent in part on the market price for raw materials used to produce them, primarily cotton. The price and availability of cotton may fluctuate substantially, depending on a variety of factors, including demand, acreage devoted to cotton crops and crop yields, weather, supply conditions, transportation costs, energy prices, work stoppages, government regulation and government policy, economic climates, market speculation and other unpredictable factors. Any and all of these factors may be exacerbated by global climate change. Cotton prices suffered from unprecedented variability and uncertainty in 2010 and 2011. Increases in raw material costs, unless sufficiently offset with our pricing actions, have caused and may continue to cause a decrease in our profitability and impact our sales volume. These factors may also have an adverse impact on our cash and working capital needs as well as those of our suppliers.
7
Our business is subject to risks associated with sourcing and manufacturing overseas.
We import both raw materials and finished garments into all of our operating regions. Our ability to import products in a timely and cost-effective manner may be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers, such as port and shipping capacity, labor disputes and work stoppages, political unrest, severe weather, or security requirements in the United States and other countries. These issues could delay importation of products or require us to locate alternative ports or warehousing providers to avoid disruption to our customers. These alternatives may not be available on short notice or could result in higher transportation costs, which could have an adverse impact on our business and financial condition.
Substantially all of our import operations are subject to customs and tax requirements and to tariffs and quotas set by governments through mutual agreements or bilateral actions. In addition, the countries in which our products are manufactured or imported may from time to time impose additional quotas, duties, tariffs or other restrictions on our imports or adversely modify existing restrictions. Adverse changes in these import costs and restrictions, or our suppliers' failure to comply with customs regulations or similar laws, could harm our business.
Our operations are also subject to the effects of international trade agreements and regulations such as the North American Free Trade Agreement, the Dominican-Republic Central America Free Trade Agreement, the Egypt Qualified Industrial Zone program, and the activities and regulations of the World Trade Organization. Although generally these trade agreements have positive effects on trade liberalization, sourcing flexibility and cost of goods by reducing or eliminating the duties and/or quotas assessed on products manufactured in a particular country, trade agreements can also impose requirements that adversely affect our business, such as setting quotas on products that may be imported from a particular country into our key markets such as the United States or the European Union.
Risks Relating to Our Business
We depend on a group of key customers for a significant portion of our revenues. A
significant adverse change in a customer relationship or in a customer's performance
or financial position could harm our business and financial condition.
Sales to our top ten wholesale customers accounted for approximately
32%
,
30%
and
33%
of our total net revenues in fiscal years
2012
,
2011
and
2010
, respectively. No customer represented 10% or more of net revenues in any of these years. While we have long-standing relationships with our wholesale customers, we do not have long-term contracts with them. As a result, purchases generally occur on an order-by-order basis, and the relationship, as well as particular orders, can generally be terminated by either party at any time. If any major customer decreases or ceases its purchases from us, reduces the floor space, assortments, fixtures or advertising for our products or changes its manner of doing business with us for any reason, such actions could adversely affect our business and financial condition. In addition, a customer may revise its strategy to one that shifts its focus away from our typical consumer or that otherwise results in a reduction of its sales of our products generally, negatively impacting our sales through that channel. Also, the performance and financial condition of a wholesale customer may cause us to alter our business terms or to cease doing business with that customer, which could in turn adversely affect our own business and financial condition.
The retail industry in the United States has experienced substantial consolidation over the last decade, and further consolidation may occur. Consolidation in the retail industry typically results in store closures, centralized purchasing decisions, increased customer leverage over suppliers, greater exposure for suppliers to credit risk and an increased emphasis by retailers on inventory management and productivity, any of which can, and have, adversely impacted our net revenues, margins and ability to operate efficiently.
We may be unable to maintain or increase our sales through our primary distribution channels.
In the United States, chain stores and department stores are the primary distribution channels for our Levi's
®
and Dockers
®
products, and the mass channel is the primary distribution channel for Signature by Levi Strauss & Co.™ and Denizen
®
products. Outside the United States, department stores and independent jeanswear retailers have traditionally been our primary distribution channels.
We may be unable to maintain or increase sales of our products through these distribution channels for several reasons, including the following:
|
•
|
The retailers in these channels maintain – and seek to grow – substantial private-label and exclusive offerings as they strive to differentiate the brands and products they offer from those of their competitors.
|
|
•
|
These retailers may also change their apparel strategies and reduce fixture spaces and purchases of brands misaligned with their strategic requirements.
|
8
|
•
|
Other channels, including vertically integrated specialty stores, account for a substantial portion of jeanswear and casual wear sales. In some of our mature markets, these stores have already placed competitive pressure on our primary distribution channels, and many of these stores are now looking to our developing markets to grow their business.
|
Further success by retailer private-labels and vertically integrated specialty stores may continue to adversely affect the sales of our products across all channels, as well as the profitability of our brand-dedicated stores. Additionally, our ability to secure or maintain retail floor space, market share and sales in these channels depends on our ability to offer differentiated products and to increase retailer profitability on our products, which could have an adverse impact on our margins.
During the past several years, we have experienced significant changes in senior management.
The success of our business depends on our ability to attract and retain qualified
and effective senior management.
The composition of our senior management team has changed significantly in recent years. Substantially all of our executive officers joined the Company or changed their role within the Company since September 2011, including our Chief Executive Officer and our Chief Financial Officer. Collective or individual changes in our senior management group could have an adverse effect on our ability to determine and implement our strategies, which in turn may adversely affect our business and results of operations.
We must successfully maintain and/or upgrade our information technology
systems and protect these systems from security breaches.
We rely on
various information technology systems to manage our operations. Over the last several years we have been and continue to implement modifications and upgrades to our systems, including making changes to legacy systems, replacing legacy systems with successor systems with new functionality and acquiring new systems with new functionality. These types of activities subject us to inherent costs and risks associated with replacing and changing these systems, including impairment of our ability to fulfill customer orders, potential disruption of our internal control structure, substantial capital expenditures, additional administration and operating expenses, retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time, and other risks and costs of delays or difficulties in transitioning to new systems or of integrating new systems into our current systems. Our system implementations may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. In addition, the difficulties with implementing new technology systems may cause disruptions in our business operations and have an adverse effect on our business and operations, if not anticipated and appropriately mitigated. Also, cyber attacks on our systems or security breaches could result in the loss off valuable business information, personal information of our customers, consumers or employees, or a disruption of our business operations. If we are not able to maintain our systems in a manner to prevent or mitigate these types of incidents, we may be subject to legal or regulatory risks or reputational harm, and such incidents could have an adverse impact on our business or financial condition.
We currently rely on contract manufacturing of our products. Our inability to secure
production sources meeting our quality, cost, working conditions and other
requirements, or failures by our contractors to perform, could harm our sales,
service levels and reputation.
We source approximately 95% of our products from independent contract manufacturers who purchase fabric and make our products and may also provide us with design and development services. As a result, we must locate and secure production capacity. We depend on independent manufacturers to maintain adequate financial resources, including access to sufficient credit, secure a sufficient supply of raw materials, and maintain sufficient development and manufacturing capacity in an environment characterized by continuing cost pressure and demands for product innovation and speed-to-market. In addition, we do not have material long-term contracts with any of our independent manufacturers, and these manufacturers generally may unilaterally terminate their relationship with us at any time. Finally, we may experience capability-building and infrastructure challenges as we expand our sourcing to new contractors throughout the world.
Our suppliers are subject to the fluctuations in general economic cycles, and the global economic conditions may impact their ability to operate their business. They may also be impacted by the increasing costs of raw materials, labor and distribution, resulting in demands for less attractive contract terms or an inability for them to meet our requirements or conduct their own businesses. The performance and financial condition of a supplier may cause us to alter our business terms or to cease doing business with a particular supplier, or change our sourcing practices generally, which could in turn adversely affect our own business and financial condition.
Our dependence on contract manufacturing could subject us to difficulty in obtaining timely delivery of products of acceptable quality. A contractor's failure to ship products to us in a timely manner or to meet our quality standards, or interference with our ability to receive shipments due to factors such as port or transportation conditions, could cause us to miss the delivery date requirements of our customers. Failing to make timely deliveries may cause our customers to cancel orders, refuse to accept
9
deliveries, impose non-compliance charges, demand reduced prices, or reduce future orders, any of which could harm our sales and margins.
We require contractors to meet our standards in terms of working conditions, environmental protection, security 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, the labor and business practices of apparel manufacturers have received increased attention from the media, non-governmental organizations, consumers and governmental agencies in recent years. Any failure by our independent manufacturers to adhere to labor or other laws or appropriate labor or business practices, and the potential litigation, negative publicity and political pressure relating to any of these events, could harm our business and reputation.
Regulatory developments regarding the use of “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries could affect the sourcing and availability of raw materials used by our suppliers in the manufacture of certain of our products. We may be subject to costs associated with the new regulations, including for the diligence pertaining to the presence of any conflict minerals used in our products and the cost of remediation and other changes to products, processes, or sources of supply as a consequence of such verification activities. The impact of the regulations may result in a limited pool of suppliers who provide conflict free metals, and we cannot assure you that we will be able to obtain products in sufficient quantities or at competitive prices. Also, because our supply chain is complex, we may face reputational challenges with our customers and other stakeholders if we are unable to sufficiently verify the origins for all metals used in the products that we sell.
We are a global company with significant revenues coming from our Europe and Asia Pacific
businesses, which exposes us to political and economic risks as well as the impact of foreign currency fluctuations.
We generated approximately
40%
, 43% and 42% of our net revenues from our Europe and Asia Pacific businesses in
2012
,
2011
and
2010
, respectively. 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 outside of the United States, including:
|
•
|
currency fluctuations, which have impacted our results of operations significantly in recent years;
|
|
•
|
political, economic and social instability;
|
|
•
|
changes in tariffs and taxes;
|
|
•
|
regulatory restrictions on repatriating foreign funds back to the United States; and
|
|
•
|
less protective foreign laws relating to intellectual property.
|
The functional currency for most of our foreign operations is the applicable local currency. As a result, fluctuations in foreign currency exchange rates affect the results of our operations and the value of our foreign assets and liabilities, including debt, which in turn may benefit or adversely affect results of operations and cash flows and the comparability of period-to-period results of operations. In addition, we engage in hedging activities to manage our foreign currency exposures resulting from certain product sourcing activities, some intercompany sales, foreign subsidiaries' royalty payments, earnings repatriations, net investment in foreign operations and funding activities. However, our earnings may be subject to volatility since we do not fully hedge our foreign currency exposures and we are required to record in income the changes in the market values of our exposure management instruments that we do not designate or that do not qualify for hedge accounting treatment. Changes in the value of the relevant currencies may affect the cost of certain items required in our operations as the majority of our sourcing activities are conducted in U.S. Dollars. Changes in currency exchange rates may also affect the relative prices at which we and foreign competitors sell products in the same market. Foreign policies and actions regarding currency valuation could result in actions by the
United States and other countries
to
offset the effects of such fluctuations. Recently, there has been a high level of volatility in foreign currency exchange rates and that level of volatility may continue and may adversely impact our business or financial conditions.
Furthermore, due to our global operations, we are subject to numerous domestic and foreign laws and regulations affecting our business, such as those related to labor, employment, worker health and safety, antitrust and competition, environmental protection, consumer protection, import/export, and anti-corruption, including but not limited to the Foreign Corrupt Practices Act which prohibits giving anything of value intended to influence the awarding of government contracts.
Although we have put into place
policies and procedures aimed at ensuring legal and regulatory compliance, our
employees, subcontractors and agents could take actions that violate these
requirements. Violations of these regulations could subject us to criminal or
civil enforcement actions, any of which could have a material
adverse effect on our business.
As a global company, we are exposed to risks of doing business in foreign jurisdictions and risks relating to U.S. policy with respect to companies doing business in foreign jurisdictions. Legislation or other changes in the U.S. tax laws could increase our U.S. income tax liability and adversely affect our after-tax profitability.
10
Most of the employees in our production and distribution facilities are covered by collective
bargaining agreements, and any material job actions could negatively affect our
results of operations.
In North America, most of our distribution employees are covered by various collective bargaining agreements, and outside North America, most of our production and distribution employees are covered by either industry-sponsored and/or state-sponsored collective bargaining mechanisms. Any work stoppages or other job actions by these employees could harm our business and reputation.
Our licensees may not comply
with our product quality, manufacturing standards, marketing and other requirements.
We license our trademarks to third parties for manufacturing, marketing and distribution of various products. While we enter into comprehensive agreements with our licensees covering product design, product quality, sourcing, manufacturing, marketing and other requirements, our licensees may not comply fully with those agreements. Non-compliance could include marketing products under our brand names that do not meet our quality and other requirements or engaging in manufacturing practices that do not meet our supplier code of conduct. These activities could harm our brand equity, our reputation and our business.
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 of or inability to enforce trademark and other proprietary intellectual property rights could harm our business. We devote substantial resources to the establishment and protection of our trademark and other proprietary intellectual property rights on a worldwide basis. Our efforts to establish and protect our trademark and other proprietary intellectual property rights may not be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products. Unauthorized copying of our products or unauthorized use of our trademarks or other proprietary rights may not only erode sales of our products but may also cause significant damage to our brand names and our ability to effectively represent ourselves to our customers, contractors, suppliers and/or licensees. Moreover, others may seek to assert rights in, or ownership of, our trademarks and other proprietary intellectual property, and we may not be able to successfully resolve those claims. In addition, the laws and enforcement mechanisms of some foreign countries may not allow us to protect our proprietary rights to the same extent as we are able to in the United States and other countries.
We have substantial liabilities and cash requirements associated with postretirement benefits, pension and our deferred compensation plans.
Our postretirement benefits, pension, and our deferred compensation plans result in substantial liabilities on our balance sheet. These plans and activities have and will generate substantial cash requirements for us, and these requirements may increase beyond our expectations in future years based on changing market conditions. The difference between plan obligations and assets, or the funded status of the plans, is a significant factor in determining the net periodic benefit costs of our pension plans and the ongoing funding requirements of those plans. Many variables, such as changes in interest rates, mortality rates, health care costs, investment returns, and/or the market value of plan assets can affect the funded status of our defined benefit pension, other postretirement, and postemployment benefit plans and cause volatility in the net periodic benefit cost and future funding requirements of the plans. Plan liabilities may impair our liquidity, have an unfavorable impact on our ability to obtain financing and place us at a competitive disadvantage compared to some of our competitors who do not have such liabilities and cash requirements.
Earthquakes or other events outside of our control may damage our facilities or the
facilities of third parties on which we depend.
Our corporate headquarters are located in California near major geologic faults that have experienced earthquakes in the past. An earthquake or other natural disaster or the loss of power caused by power shortages could disrupt operations or impair critical systems. Any of these disruptions or other events outside of our control could affect our business negatively, harming our operating results. In addition, if any of our other facilities, including our manufacturing, finishing or distribution facilities or our company-operated or franchised stores, or the facilities of our suppliers or customers, is affected by earthquakes, tsunamis, power shortages, floods, monsoons, terrorism, epidemics or other events outside of our control, our business could suffer.
The Company has plans in place to mitigate the impact of these types of events on its own facilities including the geographic diversity of our IT infrastructure, the duplication of headquarter locations, training and education of employees for such circumstances, and the capacity for many employees to work remotely. Oversight to these preparedness strategies is provided by several committees comprised of key functions representing the regions in which the company does business. However, we cannot assure that these mitigation plans will offset the impact of such events, and we cannot control the impact of such events on the operations of our suppliers or customers.
11
Risks Relating to Our Debt
We have debt and interest payment requirements at a level that may restrict our
future operations.
As of
November 25, 2012
, we had approximately
$1.7 billion
of unsecured debt, and we had
$533.8 million
of additional borrowing capacity under our senior secured revolving credit facility. Our debt requires 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, and result in us having lower net income than we would otherwise have had. This dedicated use of cash could impact our ability to successfully compete by, for example:
|
•
|
increasing our vulnerability to general adverse economic and industry conditions;
|
|
•
|
limiting our flexibility in planning for or reacting to changes in our business and industry;
|
|
•
|
placing us at a competitive disadvantage compared to some of our competitors that have less debt; and
|
|
•
|
limiting our ability to obtain additional financing required to fund working capital and capital expenditures and for other general corporate purposes.
|
In addition, borrowings under our senior secured revolving credit facility and our unsecured term loan bear interest at variable rates of interest. As a result, increases in market interest rates would require a greater portion of our cash flow to be used to pay interest, which could further hinder our operations. Increase in market interest rates may also affect the trading price of our debt securities that bear interest at a fixed rate. 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.
Volatility in the capital markets could affect our ability to access capital or could increase our costs of capital.
A downturn or disruption in the credit markets may reduce sources of liquidity available to us or increase our costs of capital, which could impact our ability to maintain or grow our business, which in turn may adversely affect our business and results of operations.
Restrictions in our notes, indentures, unsecured term loan and senior
secured revolving credit facility may limit our activities, including dividend
payments, share repurchases and acquisitions.
The indentures relating to our senior unsecured notes, our Euro notes, our Yen-denominated Eurobonds, our unsecured term loan and our senior secured revolving credit facility contain restrictions, including covenants limiting our ability to incur additional debt, grant liens, make acquisitions and other investments, prepay specified debt, consolidate, merge or acquire other businesses, sell assets, pay dividends and other distributions, repurchase stock, and enter into transactions with affiliates. These restrictions, in combination with our leveraged condition, may make it more difficult for us to successfully execute our business strategy, grow our business or compete with companies not similarly restricted.
If our foreign subsidiaries are unable to distribute cash to us when needed, we may
be unable to satisfy our obligations under our debt securities, which could force us
to sell assets or use cash that we were planning to use elsewhere in our
business.
We conduct our international operations through foreign subsidiaries, and therefore we depend upon funds from our foreign subsidiaries for a portion of 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 cash to affiliated companies, may restrict the ability of our foreign subsidiaries to pay dividends or make other distributions to us. If those subsidiaries are unable to pass on the amount of cash that we need, we will be unable to make payments on our debt obligations, which could force us to sell assets or use cash that we were planning on using elsewhere in our business, which could hinder our operations and affect the trading price of our debt securities.
|
Item 1B.
|
UNRESOLVED STAFF COMMENTS
|
Not applicable.
12
|
Item 2.
|
PROPERTIES
|
We conduct manufacturing, distribution and administrative activities in owned and leased facilities. We operate four manufacturing-related facilities abroad and nine distribution centers around the world. We have renewal rights for 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 our key operating properties in use as of
November 25, 2012
, is summarized in the following table
:
|
Location
|
Primary Use
|
Leased/Owned
|
||||
|
Americas
|
|
|
||||
|
Hebron, KY
|
Distribution
|
Owned
|
||||
|
Canton, MS
|
Distribution
|
Owned
|
||||
|
Henderson, NV
|
Distribution
|
Owned
|
||||
|
Westlake, TX
|
Data Center
|
Leased
|
||||
|
Etobicoke, Canada
|
Distribution
|
Owned
|
||||
|
Cuautitlan, Mexico
|
Distribution
|
Leased
|
||||
|
Europe
|
|
|
||||
|
Plock, Poland
|
Manufacturing and Finishing
|
Leased
(1)
|
||||
|
Northhampton, U.K.
|
Distribution
|
Owned
|
||||
|
Sabadell, Spain
|
Distribution
|
Leased
|
||||
|
Corlu, Turkey
|
Manufacturing, Finishing and Distribution
|
Owned
|
||||
|
Asia Pacific
|
|
|
||||
|
Adelaide, Australia
|
Distribution
|
Leased
|
||||
|
Cape Town, South Africa
|
Manufacturing, Finishing and Distribution
|
Leased
|
||||
|
Hiratsuka Kanagawa, Japan
|
Distribution
|
Owned
(2)
|
||||
|
Ninh Binh, Vietnam
|
Finishing
|
Leased
|
||||
______________
|
(1)
|
Building and improvements are owned but subject to a ground lease.
|
|
(2)
|
Owned by our 84%-owned Japanese subsidiary. In the third quarter of 2012, we announced that we would outsource distribution in Japan to a third-party and close our owned distribution center in that country beginning in 2013.
|
Our global headquarters and the headquarters of our Americas region 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, respectively. In addition to the above, we operate finance shared service centers in Eugene, Oregon and Singapore. As of
November 25, 2012
, we also leased or owned 111 administrative and sales offices in 43 countries, as well as leased 19 warehouses in ten countries.
In addition, as of
November 25, 2012
, we had
511
company-operated retail and outlet stores in leased premises in
32
countries. We had
209
stores in the Americas region,
190
stores in the Europe region and
112
stores in the Asia Pacific region.
|
Item 3.
|
LEGAL PROCEEDINGS
|
In the ordinary course of business, we have various pending cases involving contractual matters, facility- and employee-related matters, distribution matters, product liability claims, trademark infringement and other matters. We do not believe any of these pending legal proceedings will have a material impact on our financial condition, results of operations or cash flows.
|
Item 4.
|
MINE SAFETY DISCLOSURES
|
None.
13
|
Item 5.
|
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our common stock is primarily owned by descendants of the family of Levi Strauss and their relatives. Shares of our common stock are not publicly held or traded. All shares are subject to a stockholders' agreement. The agreement, which expires in April 2016, limits the transfer of shares to other holders, family members, specified charities and foundations and back to the Company. The agreement does not provide for registration rights or other contractual devices for forcing a public sale of shares or certificates, or other access to liquidity.
As of
February 4, 2013
, there were
256
record holders of our common stock. Our shares are not registered on any national securities exchange, 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.
We paid cash dividends of
$20.0 million
on our common stock in the first half of
2012
,
2011
and
2010
. Subsequent to the fiscal year-end, on December 6, 2012, our Board of Directors declared a cash dividend of
$25.1 million
. Please see Note
14
to our audited consolidated financial statements included in this report for more information. The Company does not have an established annual dividend policy. The Company will continue to review its ability to pay cash dividends at least annually, and dividends may be declared at the discretion of our board of directors depending upon, among other factors, the income tax impact to the dividend recipients, our financial condition and compliance with the terms of our debt agreements. Our debt arrangements limit our ability to pay dividends. For more detailed information about these limitations, see Note
6
to our audited consolidated financial statements included in this report.
We repurchased a total of 18,724 shares of our common stock during the first and fourth quarters of the fiscal year ended
November 25, 2012
, in connection with the exercise of put rights under our 2006 Equity Incentive Plan. For more detailed information, see Note 11 to our audited consolidated financial statements included in this report.
14
|
Item 6.
|
SELECTED FINANCIAL DATA
|
The following table sets forth our selected historical consolidated financial data which are derived from our audited consolidated financial statements for
2012
,
2011
,
2010
,
2009
and
2008
. The financial data set forth below should be read in conjunction with, and are qualified by reference to, “Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations,” our audited consolidated financial statements for
2012
,
2011
and
2010
and the related notes to those audited consolidated financial statements, included elsewhere in this report.
|
Year Ended November 25, 2012
|
Year Ended November 27, 2011
|
Year Ended November 28, 2010
|
Year Ended November 29, 2009
|
Year Ended November 30, 2008
|
|||||||||||||||
|
(Dollars in thousands)
|
|||||||||||||||||||
|
Statements of Income Data:
|
|||||||||||||||||||
|
Net revenues
|
$
|
4,610,193
|
|
$
|
4,761,566
|
|
$
|
4,410,649
|
|
$
|
4,105,766
|
|
$
|
4,400,914
|
|
||||
|
Cost of goods sold
|
2,410,862
|
|
2,469,327
|
|
2,187,726
|
|
2,132,361
|
|
2,261,112
|
|
|||||||||
|
Gross profit
|
2,199,331
|
|
2,292,239
|
|
2,222,923
|
|
1,973,405
|
|
2,139,802
|
|
|||||||||
|
Selling, general and administrative expenses
|
1,865,352
|
|
1,955,846
|
|
1,841,562
|
|
1,595,317
|
|
1,614,730
|
|
|||||||||
|
Operating income
|
333,979
|
|
336,393
|
|
381,361
|
|
378,088
|
|
525,072
|
|
|||||||||
|
Interest expense
|
(134,694
|
)
|
(132,043
|
)
|
(135,823
|
)
|
(148,718
|
)
|
(154,086
|
)
|
|||||||||
|
Loss on early extinguishment of debt
|
(8,206
|
)
|
(248
|
)
|
(16,587
|
)
|
—
|
|
(1,417
|
)
|
|||||||||
|
Other income (expense), net
|
4,802
|
|
(1,275
|
)
|
6,647
|
|
(39,445
|
)
|
(303
|
)
|
|||||||||
|
Income before taxes
|
195,881
|
|
202,827
|
|
235,598
|
|
189,925
|
|
369,266
|
|
|||||||||
|
Income tax expense
|
54,922
|
|
67,715
|
|
86,152
|
|
39,213
|
|
138,884
|
|
|||||||||
|
Net income
|
140,959
|
|
135,112
|
|
149,446
|
|
150,712
|
|
230,382
|
|
|||||||||
|
Net loss (income) attributable to noncontrolling interest
|
2,891
|
|
2,841
|
|
7,057
|
|
1,163
|
|
(1,097
|
)
|
|||||||||
|
Net income attributable to Levi Strauss & Co.
|
$
|
143,850
|
|
$
|
137,953
|
|
$
|
156,503
|
|
$
|
151,875
|
|
$
|
229,285
|
|
||||
|
Statements of Cash Flow Data:
|
|||||||||||||||||||
|
Net cash flow provided by (used for):
|
|||||||||||||||||||
|
Operating activities
|
$
|
530,976
|
|
$
|
1,848
|
|
$
|
146,274
|
|
$
|
388,783
|
|
$
|
224,809
|
|
||||
|
Investing activities
|
(75,198
|
)
|
(140,957
|
)
|
(181,781
|
)
|
(233,029
|
)
|
(26,815
|
)
|
|||||||||
|
Financing activities
|
(250,939
|
)
|
77,707
|
|
32,313
|
|
(97,155
|
)
|
(135,460
|
)
|
|||||||||
|
Balance Sheet Data:
|
|||||||||||||||||||
|
Cash and cash equivalents
|
$
|
406,134
|
|
$
|
204,542
|
|
$
|
269,726
|
|
$
|
270,804
|
|
$
|
210,812
|
|
||||
|
Working capital
|
881,493
|
|
870,960
|
|
891,607
|
|
778,888
|
|
713,644
|
|
|||||||||
|
Total assets
|
3,170,077
|
|
3,279,555
|
|
3,135,249
|
|
2,989,381
|
|
2,776,875
|
|
|||||||||
|
Total debt, excluding capital leases
|
1,729,211
|
|
1,972,372
|
|
1,863,146
|
|
1,852,900
|
|
1,853,207
|
|
|||||||||
|
Total capital leases
|
2,022
|
|
3,713
|
|
5,355
|
|
7,365
|
|
7,806
|
|
|||||||||
|
Total Levi Strauss & Co. stockholders' deficit
|
(106,921
|
)
|
(165,592
|
)
|
(219,609
|
)
|
(333,119
|
)
|
(349,517
|
)
|
|||||||||
|
Other Financial Data:
|
|||||||||||||||||||
|
Depreciation and amortization
|
$
|
122,608
|
|
$
|
117,793
|
|
$
|
104,896
|
|
$
|
84,603
|
|
$
|
77,983
|
|
||||
|
Capital expenditures
|
83,855
|
|
130,580
|
|
154,632
|
|
82,938
|
|
80,350
|
|
|||||||||
|
Cash dividends paid
|
20,036
|
|
20,023
|
|
20,013
|
|
20,001
|
|
49,953
|
|
|||||||||
15
|
Item 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
|
Overview
Our Company
We design, market and sell – directly or through third parties and licensees – products that include jeans, casual and dress pants, tops, shorts, skirts, jackets, footwear and related accessories for men, women and children under our Levi’s
®
, Dockers
®
, Signature by Levi Strauss & Co.™ (“Signature”) and Denizen
®
brands around the world.
Our business is operated through three geographic regions: Americas, Europe and Asia Pacific. Our products are sold in approximately
50,000
retail locations in more than
110
countries. We support our brands through a global infrastructure, developing, sourcing and marketing our products around the world. We distribute our Levi’s
®
and Dockers
®
products primarily through chain retailers and department stores in the United States and primarily through department stores, specialty retailers and nearly
1,800
franchised and other brand-dedicated stores outside of the United States. We also distribute our Levi’s
®
and Dockers
®
products through
511
company-operated stores located in
32
countries, including the United States, and through the online stores we operate. Our company-operated and online stores generated approximately
21%
of our net revenues in
2012
, as compared to 18% in the same period in
2011
. In addition, we distribute our Levi’s
®
and Dockers
®
products through online stores operated by certain of our key wholesale customers and other third parties. We distribute products under our Signature and Denizen
®
brands primarily through mass channel retailers in the Americas. During the third quarter of 2012, we decided to phase out our Denizen
®
brand in Asia Pacific in order to focus our attention on our Levi's
®
brand in that region.
Our Europe and Asia Pacific businesses, collectively, contributed approximately
40%
of our net revenues and
36%
of our regional operating income in
2012
. Sales of Levi’s
®
brand products represented approximately 84% of our total net sales in
2012
. Pants represented approximately
86%
of our total units sold in
2012
, and men's products generated approximately
75%
of our total net sales.
Our Objectives
Our key long-term objectives are to strengthen our brands globally in order to deliver sustainable profitable growth, generate strong cash flow and reduce our debt. Critical strategies to achieve these objectives include driving our profitable core business; expanding the reach of our global brands in product categories, consumer segments and geographic markets; elevating the performance of our retail channel; and leveraging our global scale to develop a competitive cost structure.
Trends Affecting Our Business
We believe the key business and marketplace factors that we are managing include the following:
|
•
|
Factors that impact consumer discretionary spending, which continues to be weak and is becoming weaker in certain markets around the world, have created a challenging retail environment for us and our customers. Such factors include continuing pressures in the U.S. and global economies related to the lingering economic downturn, volatility in investment returns, slowing growth in emerging markets, high level and fear of unemployment, and other similar elements.
|
|
•
|
Wholesaler/retailer dynamics are changing as the wholesale channels face slowed growth prospects due to consolidation in the industry and the increasing presence of vertically integrated specialty stores and e-commerce shopping. As a result, many of our customers desire increased returns on their investment with us through increased margins and inventory turns, and they continue to build competitive exclusive or private-label offerings. Many apparel wholesalers, including us, seek to strengthen relationships with customers as a result of these changes in the marketplace through efforts such as investment in new products, marketing programs, fixtures and collaborative planning systems.
|
|
•
|
Many apparel companies that have traditionally relied on wholesale distribution channels have invested in expanding their own retail store distribution network, which has raised competitiveness in the retail market.
|
|
•
|
More competitors are seeking growth globally, thereby raising the competitiveness of the international markets. Some of these competitors are entering into markets where we already have a mature business such as the United States, western Europe and Japan, and those new brands provide consumers discretionary purchase alternatives or lower-priced apparel offerings.
|
|
•
|
The increasingly global nature of our business exposes us to earnings volatility resulting from exchange rate fluctuations.
|
16
|
•
|
Competition for, and price volatility of, resources throughout the supply chain have increased, causing us and other apparel manufacturers to continue to seek alternative sourcing channels and create new efficiencies in our global supply chain. Trends affecting the supply chain include the proliferation of low-cost sourcing alternatives, resulting in reduced barriers to entry for new competitors, and the impact of fluctuating prices of labor and raw materials. Trends such as these can bring additional pressure on us and other wholesalers and retailers to shorten lead-times, reduce costs and raise product prices.
|
These factors contribute to a global market environment of intense competition, constant product innovation and continuing cost pressure, and combine with the continuing global economic conditions to create a challenging commercial and economic environment. We evaluate these factors as we develop and execute our strategies.
Our
2012
Results
Our
2012
results reflect strategic choices we have made to move toward improved profitability, the ongoing challenging economic conditions in Southern Europe and changing dynamics in our key markets in Asia.
|
•
|
Net revenues.
Consolidated net revenues declined by
3%
compared to
2011
, and were down slightly on a constant-currency basis. Increased net revenues from our company-operated retail network in the Americas and Europe were offset by lower net revenues resulting from strategic choices in certain areas of our business and the slowing economic conditions in Asia Pacific.
|
|
•
|
Operating income
. Consolidated operating income declined by
1%
compared to
2011
primarily due to unfavorable currency effects. On a constant-currency basis, higher operating income and operating margin primarily reflected lower advertising and promotion expenses.
|
|
•
|
Cash flows.
Cash flows provided by operating activities were
$531 million
for
2012
as compared to
$2 million
for the same period in
2011
, primarily reflecting our lower purchases and the lower cost of inventory, and our lower operating expenses.
|
Financial Information Presentation
Fiscal year
.
Our fiscal year ends on the last Sunday of November in each year, although the fiscal years of certain foreign subsidiaries end on November 30. Each quarter of fiscal years
2012
and
2011
consisted of 13 weeks.
Segments
.
We manage our business according to three regional segments: the Americas, Europe and Asia Pacific.
Classification
.
Our classification of certain significant revenues and expenses reflects the following:
|
•
|
Net revenues is primarily comprised of sales of products to wholesale customers, including franchised stores, and direct sales to consumers at our company-operated and online stores and at our company-operated shop-in-shops located within department stores. It includes discounts, allowances for estimated returns and incentives. Net revenues also includes royalties earned from the use of our trademarks by third-party licensees in connection with the manufacturing, advertising and distribution of trademarked products.
|
|
•
|
Cost of goods sold is primarily comprised of product costs, labor and related overhead, sourcing costs, inbound freight, internal transfers, and the cost of operating our remaining manufacturing facilities, including the related depreciation expense.
|
|
•
|
Selling costs include, among other things, all occupancy costs and depreciation associated with our company-operated stores and commissions associated with our company-operated shop-in-shops.
|
|
•
|
We reflect substantially all distribution costs in selling, general and administrative expenses, including costs related to receiving and inspection at distribution centers, warehousing, shipping to our customers, handling, and certain other activities associated with our distribution network.
|
Gross margins may not be comparable to those of other companies in our industry since some companies may include costs related to their distribution network and occupancy costs associated with company-operated stores in cost of goods sold.
Constant currency
.
Constant-currency comparisons are based on translating local currency amounts in both periods at the foreign exchange rates used in the Company’s internal planning process for the current year. We routinely evaluate our financial performance on a constant-currency basis in order to facilitate period-to-period comparisons without regard to the impact of changing foreign currency exchange rates.
17
Results of Operations
2012
compared to
2011
The following table summarizes, for the periods indicated, our consolidated statements of income, the changes in these items from period to period and these items expressed as a percentage of net revenues:
|
|
Year Ended
|
|||||||||||||||
|
|
November 25,
2012 |
November 27,
2011 |
%
Increase
(Decrease)
|
November 25,
2012 |
November 27,
2011 |
|||||||||||
|
% of Net
Revenues
|
% of Net
Revenues
|
|||||||||||||||
|
|
(Dollars in millions)
|
|||||||||||||||
|
Net revenues
|
$
|
4,610.2
|
|
$
|
4,761.6
|
|
(3.2
|
)%
|
100.0
|
%
|
100.0
|
%
|
||||
|
Cost of goods sold
|
2,410.9
|
|
2,469.4
|
|
(2.4
|
)%
|
52.3
|
%
|
51.9
|
%
|
||||||
|
Gross profit
|
2,199.3
|
|
2,292.2
|
|
(4.1
|
)%
|
47.7
|
%
|
48.1
|
%
|
||||||
|
Selling, general and administrative expenses
|
1,865.3
|
|
1,955.8
|
|
(4.6
|
)%
|
40.5
|
%
|
41.1
|
%
|
||||||
|
Operating income
|
334.0
|
|
336.4
|
|
(0.7
|
)%
|
7.2
|
%
|
7.1
|
%
|
||||||
|
Interest expense
|
(134.7
|
)
|
(132.0
|
)
|
2.0
|
%
|
(2.9
|
)%
|
(2.8
|
)%
|
||||||
|
Loss on early extinguishment of debt
|
(8.2
|
)
|
(0.3
|
)
|
3,208.9
|
%
|
(0.2
|
)%
|
—
|
|
||||||
|
Other income (expense), net
|
4.8
|
|
(1.3
|
)
|
(476.6
|
)%
|
0.1
|
%
|
—
|
|
||||||
|
Income before income taxes
|
195.9
|
|
202.8
|
|
(3.4
|
)%
|
4.2
|
%
|
4.3
|
%
|
||||||
|
Income tax expense
|
54.9
|
|
67.7
|
|
(18.9
|
)%
|
1.2
|
%
|
1.4
|
%
|
||||||
|
Net income
|
141.0
|
|
135.1
|
|
4.3
|
%
|
3.1
|
%
|
2.8
|
%
|
||||||
|
Net loss attributable to noncontrolling interest
|
2.9
|
|
2.9
|
|
1.8
|
%
|
0.1
|
%
|
0.1
|
%
|
||||||
|
Net income attributable to Levi Strauss & Co.
|
$
|
143.9
|
|
$
|
138.0
|
|
4.3
|
%
|
3.1
|
%
|
2.9
|
%
|
||||
18
Net revenues
The following table presents net revenues by reporting segment for the periods indicated and the changes in net revenues by reporting segment on both reported and constant-currency bases from period to period:
|
|
Year Ended
|
||||||||||||||
|
|
|
|
% Increase
(Decrease)
|
||||||||||||
|
|
November 25,
2012 |
November 27,
2011 |
As
Reported
|
Constant
Currency
|
|||||||||||
|
|
(Dollars in millions)
|
||||||||||||||
|
Net revenues:
|
|||||||||||||||
|
Americas
|
$
|
2,749.3
|
|
$
|
2,715.9
|
|
1.2
|
%
|
1.9
|
%
|
|||||
|
Europe
|
1,103.2
|
|
1,174.2
|
|
(6.0
|
)%
|
1.9
|
%
|
|||||||
|
Asia Pacific
|
757.7
|
|
871.5
|
|
(13.1
|
)%
|
(10.9
|
)%
|
|||||||
|
Total net revenues
|
$
|
4,610.2
|
|
$
|
4,761.6
|
|
(3.2
|
)%
|
(0.4
|
)%
|
|||||
As compared to the same periods in the prior year, net revenues were affected unfavorably by changes in foreign currency exchange rates across all regions.
Americas
.
On both reported and constant-currency bases, net revenues in our Americas region increased, with currency affecting net revenues unfavorably by approximately
$18 million
.
Net revenues increased in our retail stores in the region, primarily in the outlet channel, due to the price increases we have implemented and the mix of higher-priced products sold as compared to prior year. At wholesale, net revenues declined in the region, primarily reflecting a decline in Levi's
®
and Dockers
®
brand sales to lower-margin channels, although Levi's
®
brand net revenues benefited from the price increases we have implemented. The decline in wholesale net revenues also reflected our strategic decision to license the Levi's
®
brand boys business beginning in our third quarter, whereby we now recognize a royalty rate on the licensee's sales of these products, in lieu of recognizing the full wholesale revenues and related costs. Sales of our Signature and Denizen
®
brand products increased, reflecting the expansion of product lines at existing customers during the second half of the prior year.
Europe
. Net revenues in Europe declined on a reported basis but increased on a constant-currency basis, with currency affecting net revenues unfavorably by approximately
$93 million
.
Net revenues of our company-operated retail network grew, reflecting the expansion and improved performance of our stores. Sales in our traditional wholesale channels declined, reflecting the ongoing depressed retail environment, most notably in southern Europe. Higher constant-currency revenues in 2012 also reflected the temporary issues we experienced during the third quarter of 2011 in fulfilling customer orders during the implementation and stabilization of our enterprise resource planning system.
Asia Pacific
.
Net revenues in Asia Pacific declined on both reported and constant-currency bases, with currency affecting net revenues unfavorably by approximately
$20 million
.
The net revenues decline primarily reflected a drop in wholesale revenues, including franchisees, due to the economic slowdown faced by most markets in the region during the second half of the year, particularly India. Additionally, our decision to phase out the Denizen
®
brand in the region negatively impacted revenues due to support we are providing to our customers.
19
Gross profit
The following table shows consolidated gross profit and gross margin for the periods indicated and the changes in these items from period to period:
|
|
Year Ended
|
|||||||||||
|
|
November 25,
2012 |
November 27,
2011 |
%
Increase
(Decrease)
|
|||||||||
|
|
(Dollars in millions)
|
|||||||||||
|
Net revenues
|
$
|
4,610.2
|
|
$
|
4,761.6
|
|
(3.2
|
)%
|
||||
|
Cost of goods sold
|
2,410.9
|
|
2,469.4
|
|
(2.4
|
)%
|
||||||
|
Gross profit
|
$
|
2,199.3
|
|
$
|
2,292.2
|
|
(4.1
|
)%
|
||||
|
Gross margin
|
47.7
|
%
|
48.1
|
%
|
||||||||
As compared to prior year, the gross profit decline primarily resulted from unfavorable currency effects of approximately
$97 million
, and, due to our decision to phase out the Denizen
®
brand in Asia Pacific, an unfavorable impact of approximately $32 million inclusive of customer support and the markdown of our remaining inventory in that region. Excluding these factors, gross margin improved due to the increased revenue contribution from our company-operated retail network, the decline in sales to lower-margin channels and the benefit of the lower cost of cotton. Additionally, gross margin benefited from our decision to license the Levi’s
®
brand boys business in our Americas region, as that business generally had a lower gross margin than our other businesses.
Selling, general and administrative expenses
The following table shows our selling, general and administrative expenses (“SG&A”) for the periods indicated, the changes in these items from period to period and these items expressed as a percentage of net revenues:
|
|
Year Ended
|
|||||||||||||||||
|
|
November 25,
2012 |
November 27,
2011 |
%
Increase
(Decrease)
|
November 25,
2012 |
November 27,
2011 |
|||||||||||||
|
% of Net
Revenues
|
% of Net
Revenues
|
|||||||||||||||||
|
|
(Dollars in millions)
|
|||||||||||||||||
|
Selling
|
$
|
717.0
|
|
$
|
711.1
|
|
0.8
|
%
|
15.6
|
%
|
14.9
|
%
|
||||||
|
Advertising and promotion
|
260.4
|
|
313.8
|
|
(17.0
|
)%
|
5.6
|
%
|
6.6
|
%
|
||||||||
|
Administration
|
376.2
|
|
402.3
|
|
(6.5
|
)%
|
8.2
|
%
|
8.5
|
%
|
||||||||
|
Other
|
511.7
|
|
528.6
|
|
(3.2
|
)%
|
11.1
|
%
|
11.1
|
%
|
||||||||
|
Total SG&A
|
$
|
1,865.3
|
|
$
|
1,955.8
|
|
(4.6
|
)%
|
40.5
|
%
|
41.1
|
%
|
||||||
Currency contributed approximately
$50 million
of the decline in SG&A as compared to the prior year.
Selling
.
Currency favorably impacted selling expenses by approximately $22 million as compared to prior year. We had
13
more company-operated stores at the end of
2012
than we did at the end of
2011
. Higher selling expenses also reflect severance costs for headcount reductions in our commercial sales organization.
Advertising and promotion
.
The decline in advertising and promotion expenses primarily reflected a reduction of our advertising activities in some markets, and constituted the primary driver of our overall decline in SG&A in 2012. For the fourth quarter of 2012, the increase in advertising and promotion expenses as a percentage of net revenues reflected a difference in the timing of our campaigns as compared to the prior year.
Administration
.
Currency favorably impacted administration expenses by approximately $9 million as compared to prior year. The remaining decline in administration expenses was primarily due to higher separation benefits in 2011 related to the departure of executives.
Other
.
Other SG&A includes distribution, information resources, and marketing organization costs, all of which declined during the year. Currency favorably impacted other SG&A by approximately $10 million. Offsetting these declines was an
$18.8 million
impairment charge we recorded related to a decision we took in the third quarter to outsource distribution in Japan to a third-party and close our owned distribution center in that country.
20
Operating income
The following table shows operating income by reporting segment and corporate expenses for the periods indicated, the changes in these items from period to period and these items expressed as a percentage of net revenues:
|
|
Year Ended
|
|||||||||||||||||
|
November 25,
2012 |
November 27,
2011 |
%
Increase
(Decrease)
|
November 25,
2012 |
November 27,
2011 |
||||||||||||||
|
|
% of Net
Revenues
|
% of Net
Revenues
|
||||||||||||||||
|
|
(Dollars in millions)
|
|||||||||||||||||
|
Operating income:
|
||||||||||||||||||
|
Americas
|
$
|
431.6
|
|
$
|
393.9
|
|
9.6
|
%
|
15.7
|
%
|
14.5
|
%
|
||||||
|
Europe
|
178.3
|
|
182.3
|
|
(2.2
|
)%
|
16.2
|
%
|
15.5
|
%
|
||||||||
|
Asia Pacific
|
66.8
|
|
108.1
|
|
(38.1
|
)%
|
8.8
|
%
|
12.4
|
%
|
||||||||
|
Total regional operating income
|
676.7
|
|
684.3
|
|
(1.1
|
)%
|
14.7
|
%
|
*
|
14.4
|
%
|
*
|
||||||
|
Corporate expenses
|
342.7
|
|
347.9
|
|
(1.5
|
)%
|
7.4
|
%
|
*
|
7.3
|
%
|
*
|
||||||
|
Total operating income
|
$
|
334.0
|
|
$
|
336.4
|
|
(0.7
|
)%
|
7.2
|
%
|
*
|
7.1
|
%
|
*
|
||||
|
Operating margin
|
7.2
|
%
|
7.1
|
%
|
||||||||||||||
______________
* Percentage of consolidated net revenues
Currency unfavorably affected total operating income by approximately
$47 million
.
Regional operating income
.
|
•
|
Americas.
The increase in operating income and operating margin reflected the region's improved gross margin.
|
|
•
|
Europe.
Excluding unfavorable currency effects, operating income increased, reflecting the region's lower advertising and promotion expenses.
|
|
•
|
Asia Pacific.
The decline in operating income and operating margin primarily reflected our decision to phase out the Denizen
®
brand in the region, as well as the region's lower net revenues.
|
Corporate
.
Corporate expenses are selling, general and administrative expenses that are not attributed to any of our regional operating segments. Corporate expenses in 2012 reflect the
$18.8 million
impairment charge recorded for our distribution center in Japan and include severance charges for headcount reductions across the organization primarily during the second half of the year; corporate expenses in 2011 included higher separation benefits related to the departure of executives.
Corporate expenses in 2012 and 2011 include amortization of prior service benefit of
$16.4 million
and
$28.9 million
, respectively, related to postretirement benefit plan amendments in 2004 and 2003. For more information, see Note
8
to our audited consolidated financial statements included in this report.
Interest expense
Interest expense was
$134.7 million
for the
year ended
November 25, 2012
, as compared to
$132.0 million
in the prior year. The increase in
2012
was due to higher interest expense on our deferred compensation plans, partially offset by a decline in interest expense resulting from our second quarter 2012 debt refinancing activity.
The weighted-average interest rate on average borrowings outstanding for the
2012
was
7.05%
, as compared to
6.90%
for
2011
.
Loss on early extinguishment of debt
For the
year ended
November 25, 2012
, we recorded an
$8.2 million
net loss on early extinguishment of debt as a result of our debt refinancing activities during the second quarter of
2012
. The loss was primarily comprised of a tender premium of
$11.4 million
and the write-off of
$4.0 million
of unamortized debt issuance costs, partially offset by a gain of
$7.6 million
related to the partial repurchase of Yen-denominated Eurobonds due 2016 at a discount to their par value. For more information, see Note
6
to our audited financial statements included in this report.
21
Other income (expense), net
Other income (expense), net, primarily consists of foreign exchange management activities and transactions. For the
year ended
November 25, 2012
, we recorded income of
$4.8 million
as compared to expense of
$1.3 million
for the prior year. The income in
2012
primarily reflected gains on our foreign currency denominated balances. The net expense in
2011
primarily reflected losses on our foreign currency denominated balances.
Income tax expense
Income tax expense was
$54.9 million
for the
year ended
November 25, 2012
, compared to
$67.7 million
for the prior year. Our effective income tax rate was
28.0%
for the
year ended
November 25, 2012
, compared to
33.4%
for the prior year.
The reduction in our income tax expense and effective income tax rate in
2012
was primarily due to a net tax benefit of
$27.0 million
recognized in
2012
, resulting from a definitive agreement with the State of California on state tax refund claims involving tax years 1986 – 2004, partially offset by a
$9.1 million
write-off of domestic deferred tax assets and an unfavorable shift in the mix of foreign earnings to jurisdictions with higher effective tax rates.
2011
compared to
2010
The following table summarizes, for the periods indicated, our consolidated statements of income, the changes in these items from period to period and these items expressed as a percentage of net revenues:
|
|
Year Ended
|
|||||||||||||||
|
|
November 27,
2011 |
November 28,
2010 |
%
Increase
(Decrease)
|
November 27,
2011 |
November 28,
2010 |
|||||||||||
|
% of Net
Revenues
|
% of Net
Revenues
|
|||||||||||||||
|
|
(Dollars in millions)
|
|||||||||||||||
|
Net revenues
|
$
|
4,761.6
|
|
$
|
4,410.6
|
|
8.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||
|
Cost of goods sold
|
2,469.4
|
|
2,187.7
|
|
12.9
|
%
|
51.9
|
%
|
49.6
|
%
|
||||||
|
Gross profit
|
2,292.2
|
|
2,222.9
|
|
3.1
|
%
|
48.1
|
%
|
50.4
|
%
|
||||||
|
Selling, general and administrative expenses
|
1,955.8
|
|
1,841.5
|
|
6.2
|
%
|
41.1
|
%
|
41.8
|
%
|
||||||
|
Operating income
|
336.4
|
|
381.4
|
|
(11.8
|
)%
|
7.1
|
%
|
8.6
|
%
|
||||||
|
Interest expense
|
(132.0
|
)
|
(135.8
|
)
|
(2.8
|
)%
|
(2.8
|
)%
|
(3.1
|
)%
|
||||||
|
Loss on early extinguishment of debt
|
(0.3
|
)
|
(16.6
|
)
|
(98.5
|
)%
|
—
|
|
(0.4
|
)%
|
||||||
|
Other income (expense), net
|
(1.3
|
)
|
6.6
|
|
(119.2
|
)%
|
—
|
|
0.2
|
%
|
||||||
|
Income before income taxes
|
202.8
|
|
235.6
|
|
(13.9
|
)%
|
4.3
|
%
|
5.3
|
%
|
||||||
|
Income tax expense
|
67.7
|
|
86.2
|
|
(21.4
|
)%
|
1.4
|
%
|
2.0
|
%
|
||||||
|
Net income
|
135.1
|
|
149.4
|
|
(9.6
|
)%
|
2.8
|
%
|
3.4
|
%
|
||||||
|
Net loss attributable to noncontrolling interest
|
2.9
|
|
7.1
|
|
(59.7
|
)%
|
0.1
|
%
|
0.2
|
%
|
||||||
|
Net income attributable to Levi Strauss & Co.
|
$
|
138.0
|
|
$
|
156.5
|
|
(11.9
|
)%
|
2.9
|
%
|
3.5
|
%
|
||||
22
Net revenues
The following table presents net revenues by reporting segment for the periods indicated and the changes in net revenues by reporting segment on both reported and constant-currency bases from period to period:
|
|
Year Ended
|
||||||||||||||
|
|
|
|
% Increase
(Decrease)
|
||||||||||||
|
|
November 27,
2011 |
November 28,
2010 |
As
Reported
|
Constant
Currency
|
|||||||||||
|
|
(Dollars in millions)
|
||||||||||||||
|
Net revenues:
|
|||||||||||||||
|
Americas
|
$
|
2,715.9
|
|
$
|
2,549.1
|
|
6.5
|
%
|
6.2
|
%
|
|||||
|
Europe
|
1,174.2
|
|
1,105.2
|
|
6.2
|
%
|
3.2
|
%
|
|||||||
|
Asia Pacific
|
871.5
|
|
756.3
|
|
15.2
|
%
|
10.4
|
%
|
|||||||
|
Total net revenues
|
$
|
4,761.6
|
|
$
|
4,410.6
|
|
8.0
|
%
|
6.2
|
%
|
|||||
Total net revenues increased on both reported and constant-currency bases for the year ended November 27, 2011, as compared to the prior year. Reported amounts were affected favorably by changes in foreign currency exchange rates across all regions.
Americas
.
On both reported and constant-currency bases, net revenues in our Americas region increased in 2011. Currency affected net revenues favorably by approximately $9 million.
Levi's
®
brand net revenues increased in our retail stores, primarily due to a higher volume of sales in our outlets, and in our wholesale channels, where the benefit of price increases we have implemented were partially offset by corresponding volume declines. The region's increased net revenues also reflected the launch of our Denizen
®
brand products. Dockers
®
brand net sales declined as compared to the prior year, primarily in men's long bottoms due to a higher price-sensitivity of the traditional Dockers
®
consumer.
Europe
. Net revenues in Europe increased on both reported and constant-currency bases. Currency affected net revenues favorably by approximately $33 million.
The increase in the region's net revenues was due to the growth of our company-operated retail network, reflecting expansion and improved performance of our stores and the success of our Levi's
®
brand women's products throughout the region. This growth was partially offset by lower net sales to our wholesale customers, reflecting issues fulfilling customer orders during the implementation and stabilization of our enterprise resource planning system during second half of 2011 as well as the general economic downturn in Europe.
Asia Pacific
.
Net revenues in Asia Pacific increased on both reported and constant-currency bases. Currency affected net revenues favorably by approximately $34 million.
The net revenues increase was primarily from our Levi's
®
brand through the continued expansion of our brand-dedicated retail network in China and India as well as other of our emerging markets, partially offset by the continued decline of net revenues in Japan. Our Denizen
®
brand products also contributed incremental revenues.
23
Gross profit
The following table shows consolidated gross profit and gross margin for the periods indicated and the changes in these items from period to period:
|
|
Year Ended
|
|||||||||||
|
|
November 27,
2011 |
November 28,
2010 |
%
Increase
(Decrease)
|
|||||||||
|
|
(Dollars in millions)
|
|||||||||||
|
Net revenues
|
$
|
4,761.6
|
|
$
|
4,410.6
|
|
8.0
|
%
|
||||
|
Cost of goods sold
|
2,469.4
|
|
2,187.7
|
|
12.9
|
%
|
||||||
|
Gross profit
|
$
|
2,292.2
|
|
$
|
2,222.9
|
|
3.1
|
%
|
||||
|
Gross margin
|
48.1
|
%
|
50.4
|
%
|
||||||||
As compared to the prior year, the gross profit increase in 2011 resulted from the increase in our net revenues and a favorable currency impact of approximately $53 million, partially offset by a decline in our gross margin. The gross margin decrease was primarily due to an increase in sales to lower-margin channels to manage inventory, and the higher cost of cotton, which our price increases did not fully cover. The gross margin decrease was partially offset by the increased revenue contribution from our company-operated retail network, which generally has a higher gross margin than our wholesale business.
Selling, general and administrative expenses
The following table shows our selling, general and administrative expenses (“SG&A”) for the periods indicated, the changes in these items from period to period and these items expressed as a percentage of net revenues:
|
|
Year Ended
|
|||||||||||||||||
|
|
November 27,
2011 |
November 28,
2010 |
%
Increase
(Decrease)
|
November 27,
2011 |
November 28,
2010 |
|||||||||||||
|
% of Net
Revenues
|
% of Net
Revenues
|
|||||||||||||||||
|
|
(Dollars in millions)
|
|||||||||||||||||
|
Selling
|
$
|
711.1
|
|
$
|
636.8
|
|
11.7
|
%
|
14.9
|
%
|
14.4
|
%
|
||||||
|
Advertising and promotion
|
313.8
|
|
327.8
|
|
(4.3
|
)%
|
6.6
|
%
|
7.4
|
%
|
||||||||
|
Administration
|
402.3
|
|
403.7
|
|
(0.3
|
)%
|
8.5
|
%
|
9.2
|
%
|
||||||||
|
Other
|
528.6
|
|
473.2
|
|
11.7
|
%
|
11.1
|
%
|
10.7
|
%
|
||||||||
|
Total SG&A
|
$
|
1,955.8
|
|
$
|
1,841.5
|
|
6.2
|
%
|
41.1
|
%
|
41.8
|
%
|
||||||
Currency contributed approximately $36 million of the $114 million increase in SG&A as compared to the prior year.
Selling
.
Currency contributed approximately $15 million of the $74 million increase. Higher selling expenses across all business segments primarily reflected additional costs, such as rents and increased headcount, associated with the support and continued expansion of our company-operated store network. We had 28 more company-operated stores at the end of 2011 than we did at the end of 2010.
Advertising and promotion
.
The $14 million decrease in advertising and promotion expenses was attributable to a reduction of our advertising activities in most markets as compared to the prior year.
Administration
.
Administration expenses declined slightly, as a decrease in incentive compensation expense related to lower projected funding and a decline in pension expense primarily as a result of changes to the U.S. pension plans in the second quarter of 2011 were offset primarily by higher severance costs for headcount reductions and separation benefits related to the departure of executives.
Other
.
Other
SG&A
includes distribution, information resources, and marketing organization costs. The $55 million increase in these costs was primarily due to our investment in global information technology systems and increased marketing project costs related to our strategic initiatives.
24
Operating income
The following table shows operating income by reporting segment and corporate expenses for the periods indicated, the changes in these items from period to period and these items expressed as a percentage of net revenues:
|
|
Year Ended
|
|||||||||||||||||
|
November 27,
2011 |
November 28,
2010 |
%
Increase
(Decrease)
|
November 27,
2011 |
November 28,
2010 |
||||||||||||||
|
|
% of Net
Revenues
|
% of Net
Revenues
|
||||||||||||||||
|
|
(Dollars in millions)
|
|||||||||||||||||
|
Operating income:
|
||||||||||||||||||
|
Americas
|
$
|
393.9
|
|
$
|
402.5
|
|
(2.1
|
)%
|
14.5
|
%
|
15.8
|
%
|
||||||
|
Europe
|
182.3
|
|
163.5
|
|
11.5
|
%
|
15.5
|
%
|
14.8
|
%
|
||||||||
|
Asia Pacific
|
108.1
|
|
86.3
|
|
25.3
|
%
|
12.4
|
%
|
11.4
|
%
|
||||||||
|
Total regional operating income
|
684.3
|
|
652.3
|
|
4.9
|
%
|
14.4
|
%
|
*
|
14.8
|
%
|
*
|
||||||
|
Corporate expenses
|
347.9
|
|
270.9
|
|
28.4
|
%
|
7.3
|
%
|
*
|
6.1
|
%
|
*
|
||||||
|
Total operating income
|
$
|
336.4
|
|
$
|
381.4
|
|
(11.8
|
)%
|
7.1
|
%
|
*
|
8.6
|
%
|
*
|
||||
|
Operating margin
|
7.1
|
%
|
8.6
|
%
|
||||||||||||||
______________
* Percentage of consolidated net revenues
The net $45 million decline in total operating income as compared to the prior year included a favorable currency effect of approximately $17 million.
Regional operating income
.
|
•
|
Americas.
Operating margin declined due to the region's decline in gross margin, the effects of which on operating income was partially offset by lower SG&A and the favorable impact of the region's higher net revenues.
|
|
•
|
Europe.
The increase in operating income primarily reflected the favorable impact of currency as well as the region's higher net revenues. The increase was partially offset by a decline in the region's gross margin.
|
|
•
|
Asia Pacific.
The increase in operating margin and operating income reflected the region's higher net revenues and the favorable impact of currency.
|
Corporate
.
Corporate expenses are selling, general and administrative expenses that are not attributed to any of our regional operating segments. The $77 million increase in corporate expenses in 2011 reflected higher severance costs for headcount reductions and separation benefits related to the departure of executives, as well as an increase in our investment in global information technology systems. Corporate expenses also increased due to the classification of marketing, advertising and promotion, information technology and human resources costs of a global nature that were centralized under corporate management during 2011. Such costs totaled approximately $29 million in our Americas region and were not significant to our Europe and Asia Pacific regions; prior period amounts have not been reclassified. These increases in corporate expenses were partially offset by a decrease in incentive compensation expense related to lower projected funding, and a decline in pension expense primarily as a result of changes to the U.S. pension plans in the second quarter of 2011.
Corporate expenses in 2011 and 2010 include amortization of prior service benefit of $28.9 million and $29.6 million, respectively, related to postretirement benefit plan amendments in 2004 and 2003. For more information, see Note 8 to our audited consolidated financial statements included in this report.
Interest expense
Interest expense was $132.0 million for the year ended November 27, 2011, as compared to $135.8 million in the prior year.
The weighted-average interest rate on average borrowings outstanding for 2011 was 6.90% as compared to 7.05% for 2010.
25
Loss on early extinguishment of debt
For the year ended November 28, 2010, we recorded a $16.6 million loss on early extinguishment of debt as a result of our debt refinancing activities during the second quarter of 2010. The loss was comprised of tender premiums of $30.2 million and the write-off of $7.6 million of unamortized debt issuance costs, net of applicable premium, offset by a gain of $21.2 million related to the partial repurchase of Yen-denominated Eurobonds due 2016 at a discount to their par value.
Other income (expense), net
Other income (expense), net, primarily consists of foreign exchange management activities and transactions. For the year ended November 27, 2011, we recorded expense of $1.3 million compared to income of $6.6 million for the prior year.
The expense in 2011 primarily reflected losses on our foreign currency denominated balances. The income in 2010 primarily reflects transaction gains on our foreign currency denominated balances, partially offset by losses on foreign exchange derivatives which economically hedge future foreign currency cash flow obligations.
Income tax expense
Income tax expense was $67.7 million for the year ended November 27, 2011, compared to $86.2 million for the prior year. Our effective tax rate was 33.4% for the year ended November 27, 2011, compared to 36.6% for the prior year.
The 3.2 percentage point decrease in our effective tax rate was primarily caused by an increase in the proportion of our 2011 earnings in foreign jurisdictions where we are subject to lower tax rates, as well as the comparatively favorable net impact of the following three significant income tax entries recorded in 2010. In 2010, we recognized a $27.5 million tax charge for a valuation allowance to fully offset the amount of deferred tax assets in Japan and a $14.5 million tax charge for a reduction in deferred tax assets as a result of the enactment of the Patient Protection and Affordable Care Act; these charges were partially offset by a
$34.2 million
tax benefit arising from our plan to repatriate the prior undistributed earnings of certain foreign subsidiaries.
Liquidity and Capital Resources
Liquidity outlook
We believe we will have adequate liquidity over the next twelve months to operate our business and to meet our cash requirements.
Cash sources
We are a privately-held corporation. We have historically relied primarily on cash flows from operations, borrowings under credit facilities, issuances of notes and other forms of debt financing. We regularly explore financing and debt reduction alternatives, including new credit agreements, unsecured and secured note issuances, equity financing, equipment and real estate financing, securitizations and asset sales. Key sources of cash include earnings from operations and borrowing availability under our revolving credit facility.
We are borrowers under a senior secured revolving credit facility. The facility is an asset-based facility, in which the borrowing availability is primarily based on the value of our U.S. Levi’s
®
trademarks and the levels of accounts receivable and inventory in the United States and Canada. The maximum availability under the facility is $850 million, of which $800 million is available to us for revolving loans in U.S. Dollars and $50 million is available to us for revolving loans either in U.S. Dollars or Canadian Dollars.
As of
November 25, 2012
, we had no borrowings under the facility, and unused availability under the facility was
$533.8 million
, as our total availability of
$616.1 million
, based on collateral levels as defined by the agreement, was reduced by
$82.3 million
of other credit-related instruments.
As of
November 25, 2012
, we had cash and cash equivalents totaling approximately
$406.1 million
, resulting in a total liquidity position (unused availability and cash and cash equivalents) of
$939.9 million
.
Cash uses
Our principal cash requirements include working capital, capital expenditures, payments of principal and interest on our debt, payments of taxes, contributions to our pension plans and payments for postretirement health benefit plans, and, if market conditions warrant, occasional investments in, or acquisitions of, business ventures in our line of business. In addition, we regularly evaluate our ability to pay dividends or repurchase stock, all consistent with the terms of our debt agreements.
26
The following table presents selected cash uses in
2012
and the related projected cash uses for these items in
2013
as of
November 25, 2012
:
|
Projected
|
||||||||||
|
Cash Used in
|
Cash Uses in
|
|||||||||
|
2012
|
2013
|
|||||||||
|
(Dollars in millions)
|
||||||||||
|
Capital expenditures
(1)
|
$
|
84
|
|
$
|
120
|
|
||||
|
Interest
|
129
|
|
124
|
|
||||||
|
Federal, foreign and state taxes (net of refunds)
(2)
|
49
|
|
42
|
|
||||||
|
Pension plans
(3)
|
61
|
|
33
|
|
||||||
|
Postretirement health benefit plans
|
18
|
|
18
|
|
||||||
|
Dividend
(4)
|
20
|
|
25
|
|
||||||
|
Total selected cash requirements
|
$
|
361
|
|
$
|
362
|
|
||||
______________
|
(1)
|
Capital expenditures consist primarily of costs associated with information technology systems and investment in company-operated retail stores.
|
|
(2)
|
Projected cash use is net of the cash refund of state taxes of
$29.0 million
we received subsequent to the end of the fourth quarter 2012 in connection with the agreement we reached during the year with the State of California on state tax refund claims involving tax years 1986 – 2004.
|
|
(3)
|
The
2013
pension contribution amounts will be recalculated at the end of the plans' fiscal years, which for our U.S. pension plan is at the beginning of the Company's third fiscal quarter. Accordingly, actual contributions may differ materially from those presented here, based on factors such as changes in discount rates and the valuation of pension assets.
|
|
(4)
|
Subsequent to the fiscal year-end, our Board of Directors declared and we paid a cash dividend of
$25.1 million
.
|
27
The following table provides information about our significant cash contractual obligations and commitments as of
November 25, 2012
:
|
Payments due or projected by period
|
|||||||||||||||||||||||||||
|
Total
|
2013
|
2014
|
2015
|
2016
|
2017
|
Thereafter
|
|||||||||||||||||||||
|
(Dollars in millions)
|
|||||||||||||||||||||||||||
|
Contractual and Long-term Liabilities:
|
|||||||||||||||||||||||||||
|
Short-term and long-term debt obligations
|
$
|
1,729
|
|
$
|
60
|
|
$
|
324
|
|
$
|
—
|
|
$
|
48
|
|
$
|
—
|
|
$
|
1,297
|
|
||||||
|
Interest
(1)
|
754
|
|
113
|
|
106
|
|
103
|
|
102
|
|
96
|
|
234
|
|
|||||||||||||
|
Capital lease obligations
|
2
|
|
2
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||
|
Operating leases
(2)
|
709
|
|
146
|
|
115
|
|
96
|
|
81
|
|
70
|
|
201
|
|
|||||||||||||
|
Purchase obligations
(3)
|
581
|
|
543
|
|
21
|
|
13
|
|
3
|
|
—
|
|
1
|
|
|||||||||||||
|
Postretirement obligations
(4)
|
153
|
|
18
|
|
17
|
|
17
|
|
16
|
|
16
|
|
69
|
|
|||||||||||||
|
Pension obligations
(5)
|
418
|
|
33
|
|
19
|
|
36
|
|
41
|
|
49
|
|
240
|
|
|||||||||||||
|
Long-term employee related benefits
(6)
|
70
|
|
9
|
|
9
|
|
7
|
|
7
|
|
7
|
|
31
|
|
|||||||||||||
|
Total
|
$
|
4,416
|
|
$
|
924
|
|
$
|
611
|
|
$
|
272
|
|
$
|
298
|
|
$
|
238
|
|
$
|
2,073
|
|
||||||
______________
|
(1)
|
Interest obligations are computed using constant interest rates until maturity. The LIBOR rate as of
November 25, 2012
, was used for variable-rate debt.
|
|
(2)
|
Amounts reflect contractual obligations relating to our existing leased facilities as of
November 25, 2012
, and therefore do not reflect our planned future openings of company-operated retail stores. For more information, see “Item 2 – Properties.”
|
|
(3)
|
Amounts reflect estimated commitments of
$498 million
for inventory purchases and
$83 million
for human resources, advertising, information technology and other professional services.
|
|
(4)
|
The amounts presented in the table represent an estimate for the next ten years of our projected payments, based on information provided by our plans' actuaries, and have not been reduced by estimated Medicare subsidy receipts, the amounts of which are not material. Our policy is to fund postretirement benefits as claims and premiums are paid. For more information, see Note
8
to our audited consolidated financial statements included in this report.
|
|
(5)
|
The amounts presented in the table represent an estimate of our projected contributions to the plans for the next ten years based on information provided by our plans' actuaries. For U.S. qualified plans, these estimates comply with minimum funded status and minimum required contributions under the Pension Protection Act. The
2013
contribution amounts will be recalculated at the end of the plans' fiscal years, which for our U.S. pension plan is at the beginning of the Company's third fiscal quarter. Accordingly, actual contributions may differ materially from those presented here, based on factors such as changes in discount rates and the valuation of pension assets. For more information, see Note
8
to our audited consolidated financial statements included in this report.
|
|
(6)
|
Long-term employee-related benefits relate to the current and non-current portion of deferred compensation arrangements and workers' compensation. We estimated these payments based on prior experience and forecasted activity for these items. For more information, see Note
12
to our audited consolidated financial statements included in this report.
|
This table does not include amounts related to our uncertain tax positions of
$63.6 million
. We do not anticipate a material effect on our liquidity as a result of payments in future periods of liabilities for uncertain tax positions.
Information in the two preceding tables reflects our estimates of future cash payments. These estimates and projections are based upon assumptions that are inherently subject to significant economic, competitive, legislative and other uncertainties and contingencies, many of which are beyond our control. Accordingly, our actual expenditures and liabilities may be materially higher or lower than the estimates and projections reflected in these tables. The inclusion of these projections and estimates should not be regarded as a representation by us that the estimates will prove to be correct.
28
Cash flows
The following table summarizes, for the periods indicated, selected items in our consolidated statements of cash flows:
|
|
Year Ended
|
||||||||||||
|
|
November 25,
2012 |
November 27,
2011 |
November 28,
2010 |
||||||||||
|
|
(Dollars in millions)
|
||||||||||||
|
Cash provided by operating activities
|
$
|
531.0
|
|
$
|
1.8
|
|
$
|
146.3
|
|
||||
|
Cash used for investing activities
|
(75.2
|
)
|
(141.0
|
)
|
(181.8
|
)
|
|||||||
|
Cash (used for) provided by financing activities
|
(250.9
|
)
|
77.7
|
|
32.3
|
|
|||||||
|
Cash and cash equivalents
|
406.1
|
|
204.5
|
|
269.7
|
|
|||||||
2012
as compared to
2011
Cash flows from operating activities
Cash provided by operating activities was
$531.0 million
for
2012
, as compared to
$1.8 million
for the same period in
2011
. Cash provided by operating activities increased compared to the prior year due to less cash used for inventory, reflecting the lower cost of cotton and a reduction in our inventory levels, and a decline in payments to vendors, reflecting our lower SG&A. Also, cash received from customers increased, reflecting our higher beginning accounts receivable balance.
Cash flows from investing activities
Cash used for investing activities was
$75.2 million
for
2012
, as compared to
$141.0 million
for the same period in
2011
. The reduction in cash used for investing activities as compared to the prior year primarily reflects the higher information technology costs in 2011 associated with the installation of our global enterprise resource planning system.
Cash flows from financing activities
Cash used for financing activities was
$250.9 million
for
2012
, as compared to cash provided of
$77.7 million
for the same period in
2011
. Net cash used in 2012 and net cash provided in 2011 primarily related to net repayments and proceeds, respectively, of our senior revolving credit facility. Cash used in both years include dividend payments to stockholders of $20.0 million.
2011
as compared to
2010
Cash flows from operating activities
Cash provided by operating activities was
$1.8 million
for
2011
, as compared to
$146.3 million
for
2010
. Cash provided by operating activities declined compared to the prior year due to higher cash used for inventory as a result of higher cotton costs, and higher payments to vendors, reflecting the increase in our SG&A. This decline was partially offset by an increase in customer collections, reflecting our higher net revenues.
Cash flows from investing activities
Cash used for investing activities was
$141.0 million
for
2011
compared to
$181.8 million
for
2010
. The decrease in cash used for investing activities as compared to the prior year primarily reflects higher costs in 2010 associated with the remodeling of the Company's headquarters and the final payment for a 2009 acquisition. This was partially offset by an increase in 2011 in information technology costs associated with the installation of our global enterprise resource planning system.
Cash flows from financing activities
Cash provided by financing activities was
$77.7 million
for
2011
compared to
$32.3 million
for
2010
. Net cash provided in
2011
primarily related to proceeds borrowed under our senior revolving credit facility. Net cash provided in
2010
reflected our May 2010 refinancing activities.
Indebtedness
The borrower of substantially all of our debt is Levi Strauss & Co., the parent and U.S. operating company. Of our total debt of
$1.7 billion
as of
November 25, 2012
, we had fixed-rate debt of approximately
$1.4 billion
(
81%
of total debt) and variable-rate debt of approximately
$0.3 billion
(
19%
of total debt). As of
November 25, 2012
, our required aggregate debt principal payments on our unsecured long-term debt were
$324.4 million
in 2014,
$48.5 million
in 2016 and the remaining
$1.3 billion
in years after 2017. Short-term borrowings of
$59.8 million
at various foreign subsidiaries were expected to be either paid over the next twelve months or refinanced at the end of their applicable terms.
29
Our long-term debt agreements contain customary covenants restricting our activities as well as those of our subsidiaries. Currently, we are in compliance with these covenants.
Effects of Inflation
We believe that inflation in the regions where most of our sales occur has not had a significant effect on our net revenues or profitability.
Off-Balance Sheet Arrangements, Guarantees and Other Contingent Obligations
Off-balance sheet arrangements and other
.
We have contractual commitments for non-cancelable operating leases; for more information, see Note
13
to our audited consolidated financial statements included in this report. We participate in a multiemployer pension plan, however our exposure to risks arising from participation in the plan and the extent to which we can be liable to the plan for other participating employers' obligations are not material. We have no other material non-cancelable guarantees or commitments, and no material special-purpose entities or other off-balance sheet debt obligations.
Indemnification agreements
.
In the ordinary course of our business, we enter into agreements containing indemnification provisions under which we agree to indemnify the other party for specified claims and losses. For example, our trademark license agreements, real estate leases, consulting agreements, logistics outsourcing agreements, securities purchase agreements and credit agreements typically contain these provisions. This type of indemnification provision obligates us to pay certain amounts associated with claims brought against the other party as the result of trademark infringement, negligence or willful misconduct of our employees, breach of contract by us including inaccuracy of representations and warranties, specified lawsuits in which we and the other party are co-defendants, product claims and other matters. These amounts are generally not readily quantifiable: the maximum possible liability or amount of potential payments that could arise out of an indemnification claim depends entirely on the specific facts and circumstances associated with the claim. We have insurance coverage that minimizes the potential exposure to certain of these claims. We also believe that the likelihood of substantial payment obligations under these agreements to third parties is low and that any such amounts would be immaterial.
Critical Accounting Policies, Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes. We believe that the following discussion addresses our critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Changes in such estimates, based on newly available information, or different assumptions or conditions, may affect amounts reported in future periods.
We summarize our critical accounting policies below.
Revenue recognition
.
Net sales is primarily comprised of sales of products to wholesale customers, including franchised stores, and direct sales to consumers at our company-operated and online stores and at our company-operated shop-in-shops located within department stores. We recognize revenue on sale of product when the goods are shipped or delivered and title to the goods passes to the customer provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an arrangement exists; the sales price is fixed or determinable; and collectability is reasonably assured. Revenue is recorded net of an allowance for estimated returns, discounts and retailer promotions and other similar incentives. Licensing revenues from the use of our trademarks in connection with the manufacturing, advertising, and distribution of trademarked products by third-party licensees are earned and recognized as products are sold by licensees based on royalty rates as set forth in the licensing agreements.
We recognize allowances for estimated returns in the period in which the related sale is recorded. We recognize allowances for estimated discounts, retailer promotions and other similar incentives at the later of the period in which the related sale is recorded or the period in which the sales incentive is offered to the customer. We estimate non-volume based allowances based on historical rates as well as customer and product-specific circumstances. Actual allowances may differ from estimates due to changes in sales volume based on retailer or consumer demand and changes in customer and product-specific circumstances. Sales and value-added taxes collected from customers and remitted to governmental authorities are presented on a net basis in the accompanying consolidated statements of income.
Accounts receivable, net
.
We extend credit to our wholesale and licensing customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for doubtful accounts. We estimate the allowance for doubtful accounts based upon an analysis of the aging of accounts receivable at the date of the consolidated financial statements, assessments of collectability based on historic trends, customer-specific circumstances, and an evaluation of economic conditions. Actual write-off of receivables may differ from estimates due to changes in customer and economic circumstances.
30
Inventory valuation
.
We value inventories at the lower of cost or market value. Inventory cost is generally determined using the first-in first-out method. We include product costs, labor and related overhead, sourcing costs, inbound freight, internal transfers, and the cost of operating our remaining manufacturing facilities, including the related depreciation expense, in the cost of inventories. We estimate quantities of slow-moving and obsolete inventory by reviewing on-hand quantities, outstanding purchase obligations and forecasted sales. In determining inventory market values, substantial consideration is given to the expected product selling price. We then estimate expected selling prices based on our historical recovery rates for sale of slow-moving and obsolete inventory and other factors, such as market conditions, expected channel of disposition, and current consumer preferences. Estimates may differ from actual results due to changes in resale or market value, avenues of disposition, consumer and retailer preferences and economic conditions.
Impairment
.
We review our goodwill and other non-amortized intangible assets for impairment annually in the fourth quarter of our fiscal year, or more frequently as warranted by events or changes in circumstances which indicate that the carrying amount may not be recoverable. We qualitatively assess goodwill impairment and impairment for other non-amortized intangible assets to determine whether it is more likely than not that the fair value of a reporting unit or other non-amortized intangible asset is less than its carrying amount. For goodwill and other non-amortized intangible assets not qualitatively assessed, a two-step quantitative approach is utilized. In the first step, we compare the carrying value of the reporting unit or applicable asset to its fair value, which we estimate using a discounted cash flow analysis or by comparison to the market values of similar assets. If the carrying amount of the reporting unit or asset exceeds its estimated fair value, we perform the second step, and determine the impairment loss, if any, as the excess of the carrying value of the goodwill or intangible asset over its fair value. The assumptions used in such valuations are subject to volatility and may differ from actual results; however, based on the carrying value of our goodwill and other non-amortized intangible assets as of
November 25, 2012
, relative to their estimated fair values, we do not anticipate any material impairment charges in the near-term.
We review our other long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If the carrying amount of an other long-lived asset exceeds the expected future undiscounted cash flows, we measure and record an impairment loss for the excess of the carrying value of the asset over its fair value.
To determine the fair value of impaired assets, we utilize the valuation technique or techniques deemed most appropriate based on the nature of the impaired asset and the data available, which may include the use of quoted market prices, prices for similar assets or other valuation techniques such as discounted future cash flows or earnings.
Income tax assets and liabilities
.
We are subject to income taxes in both the United States and numerous foreign jurisdictions. We compute our provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. Significant judgments are required in order to determine the realizability of these deferred tax assets. In assessing the need for a valuation allowance, we evaluate all significant available positive and negative evidence, including historical operating results, estimates of future taxable income and the existence of prudent and feasible tax planning strategies. Changes in the expectations regarding the realization of deferred tax assets could materially impact income tax expense in future periods.
We continuously review issues raised in connection with all ongoing examinations and open tax years to evaluate the adequacy of our tax liabilities. We evaluate uncertain tax positions under a two-step approach. The first step is to evaluate the uncertain tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination based on its technical merits. The second step is, for those positions that meet the recognition criteria, to measure the tax benefit as the largest amount that is more than fifty percent likely of being realized. We believe our recorded tax liabilities are adequate to cover all open tax years based on our assessment. This assessment relies on estimates and assumptions and involves significant judgments about future events. To the extent that our view as to the outcome of these matters changes, we will adjust income tax expense in the period in which such determination is made. We classify interest and penalties related to income taxes as income tax expense.
Employee benefits and incentive compensation
Pension and postretirement benefits.
We have several non-contributory defined benefit retirement plans covering eligible employees. We also provide certain health care benefits for U.S. employees who meet age, participation and length of service requirements at retirement. In addition, we sponsor other retirement or post-employment plans for our foreign employees in accordance with local government programs and requirements. We retain the right to amend, curtail or discontinue any aspect of the plans, subject to local regulations. Any of these actions, either individually or in combination, could have a material impact on our consolidated financial statements and on our future financial performance.
31
We recognize either an asset or liability for any plan's funded status in our consolidated balance sheets. We measure changes in funded status using actuarial models which utilize an attribution approach that generally spreads individual events either over the estimated service lives of the remaining employees in the plan, or, for plans where participants will not earn additional benefits by rendering future service, over the plan participants' estimated remaining lives. The attribution approach assumes that employees render service over their service lives on a relatively smooth basis and as such, presumes that the income statement effects of pension or postretirement benefit plans should follow the same pattern. Our policy is to fund our pension plans based upon actuarial recommendations and in accordance with applicable laws, income tax regulations and credit agreements.
Net pension and postretirement benefit income or expense is generally determined using assumptions which include expected long-term rates of return on plan assets, discount rates, compensation rate increases and medical trend rates. We use a mix of actual historical rates, expected rates and external data to determine the assumptions used in the actuarial models. For example, we utilized a yield curve constructed from a portfolio of high-quality corporate bonds with various maturities to determine the appropriate discount rate to use for our U.S. benefit plans. Under this model, each year's expected future benefit payments are discounted to their present value at the appropriate yield curve rate, thereby generating the overall discount rate. We utilized country-specific third-party bond indices to determine appropriate discount rates to use for benefit plans of our foreign subsidiaries. Changes in actuarial assumptions and estimates, either individually or in combination, could have a material impact on our consolidated financial statements and on our future financial performance. For example, as of
November 25, 2012
, a twenty-five basis-point change in the discount rate would yield an approximately three-percent change in the projected benefit obligation and annual service cost of our pension and postretirement benefit plans.
Employee incentive compensation.
We maintain short-term and long-term employee incentive compensation plans. These plans are intended to reward eligible employees for their contributions to our short-term and long-term success. For our short-term plans, the amount of the cash bonus earned depends upon business unit and corporate financial results as measured against pre-established targets, and also depends upon the performance and job level of the individual. Our long-term plans are intended to reward management for its long-term impact on our total earnings performance. Performance is measured at the end of a three-year period based on our performance over the period measured against certain pre-established targets such as the compound annual growth rates over the periods for net revenues and earnings adjusted for certain items such as interest and taxes. We accrue the related compensation expense over the period of the plan, and changes in our projected future financial performance could have a material impact on our accruals.
Recently Issued Accounting Standards
See Note 1 to our audited consolidated financial statements included in this report for recently issued accounting standards, including the expected dates of adoption and expected impact to our consolidated financial statements upon adoption.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report, including (without limitation) statements under “Management's Discussion and Analysis of Financial Condition and Results of Operations” contain forward-looking statements. Although we believe that, in making any such statements, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected.
These
forward-looking statements include statements relating to our anticipated financial performance and business prospects and/or statements preceded by, followed by or that include the words “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project”, “could”, “plans”, “seeks” and similar expressions. These forward-looking statements speak only as of the date stated 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, even if experience or future events make it clear that any expected results expressed or implied by these forward-looking statements will not be realized. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these expectations may not prove to be correct or we may not achieve the financial results, savings or other benefits anticipated in the forward-looking statements. These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties, some of which may be beyond our control, that could cause actual results to differ materially from those suggested by the forward-looking statements and include, without limitation:
|
•
|
changes in the level of consumer spending for apparel in view of general economic and environmental conditions and pricing trends, and our ability to plan for and respond to the impact of those changes;
|
|
•
|
consequences of impacts to the businesses of our wholesale customers caused by factors such as lower consumer spending, pricing changes, general economic conditions and changing consumer preferences;
|
32
|
•
|
our ability to mitigate the variability of costs related to manufacturing, sourcing, and raw materials supply and to manage consumer response to such mitigating actions;
|
|
•
|
our effectiveness in increasing productivity and efficiency in our operations and our ability to implement organizational changes intended to optimize operations without business disruption or mitigation to such disruptions;
|
|
•
|
our and our wholesale customers’ decisions to modify strategies and adjust product mix, and our ability to manage any resulting product transition costs;
|
|
•
|
our ability to gauge and adapt to changing U.S. and international retail environments and fashion trends and changing consumer preferences in product, price-points and shopping experiences;
|
|
•
|
our ability to respond to price, innovation and other competitive pressures in the apparel industry and on our key customers;
|
|
•
|
our ability to increase the number of dedicated stores for our products, including through opening and profitably operating company-operated stores;
|
|
•
|
consequences of foreign currency exchange rate fluctuations;
|
|
•
|
the impact of the variables that affect the net periodic benefit cost and future funding requirements of our postretirement benefits and pension plans;
|
|
•
|
our dependence on key distribution channels, customers and suppliers;
|
|
•
|
our ability to utilize our tax credits and net operating loss carryforwards;
|
|
•
|
ongoing or future litigation matters and disputes and regulatory developments;
|
|
•
|
changes in or application of trade and tax laws; and
|
|
•
|
political, social and economic instability in countries where we do business.
|
Our actual results might differ materially from historical performance or current expectations. 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.
33
|
Item 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Investment and Credit Availability Risk
We manage cash and cash equivalents in various institutions at levels beyond FDIC coverage limits, and we purchase investments not guaranteed by the FDIC. Accordingly, there may be a risk that we will not recover the full principal of our investments or that their liquidity may be diminished. To mitigate this risk, our investment policy emphasizes preservation of principal and liquidity.
Multiple financial institutions are committed to provide loans and other credit instruments under our secured revolving credit facility. There may be a risk that some of these institutions cannot deliver against these obligations in a timely manner, or at all.
Derivative Financial Instruments
We are exposed to market risk primarily related to foreign currencies. We manage foreign currency risks with the objective to minimize the effect of fluctuations in foreign exchange rates on nonfunctional currency cash flows of the Company and its subsidiaries and selected assets or liabilities of the Company and its subsidiaries without exposing the Company to additional risk associated with transactions that could be regarded as speculative.
We are exposed to credit loss in the event of nonperformance by the counterparties to the over-the-counter forward foreign exchange contracts. However, we believe that our exposures are appropriately diversified across counterparties and that these counterparties are creditworthy financial institutions. We monitor the creditworthiness of our counterparties in accordance with our foreign exchange and investment policies. In addition, we have International Swaps and Derivatives Association, Inc. (“ISDA”) master agreements in place with our counterparties to mitigate the credit risk related to the outstanding derivatives. These agreements provide the legal basis for over-the-counter transactions in many of the world's commodity and financial markets.
Foreign Exchange Risk
The global scope of our business operations exposes us to the risk of fluctuations in foreign currency markets. This exposure is the result of certain product sourcing activities, some intercompany sales, foreign subsidiaries' royalty payments, interest payments, earnings repatriations, net investment in foreign operations and funding activities. Our foreign currency management objective is to minimize the effect of fluctuations in foreign exchange rates on nonfunctional currency cash flows of the Company and its subsidiaries and selected assets or liabilities of the Company and its subsidiaries without exposing the Company to additional risk associated with transactions that could be regarded as speculative.
We use a centralized currency management operation to take advantage of potential opportunities to naturally offset exposures against each other. For any residual exposures under management, we may enter into various financial instruments including forward exchange contracts to hedge certain forecasted transactions as well as certain firm commitments, including third-party and intercompany transactions.
Our foreign exchange risk management activities are governed by a foreign exchange risk management policy approved by our Treasury committee. Members of our Treasury committee, comprised of a group of our senior financial executives, review our foreign exchange activities to monitor compliance with our policies. The operating policies and guidelines outlined in the foreign exchange risk management policy provide a framework that allows for a managed approach to the management of currency exposures while ensuring the activities are conducted within established parameters. Our policy includes guidelines for the organizational structure of our risk management function and for internal controls over foreign exchange risk management activities, including various measurements for monitoring compliance. We monitor foreign exchange risk and related derivatives using different techniques including a review of market value, sensitivity analysis and a value-at-risk model. We use the market approach to estimate the fair value of our foreign exchange derivative contracts.
We use derivative instruments to manage certain but not all exposures to foreign currencies. Our approach to managing foreign currency exposures is consistent with that applied in previous years. As of
November 25, 2012
, we had forward foreign exchange contracts to buy
$795.1 million
and to sell
$422.3 million
against various foreign currencies. These contracts are at various exchange rates and expire at various dates through
January 2014
.
As of
November 27, 2011
, we had forward foreign exchange contracts to buy $875.6 million and to sell $415.8 million against various foreign currencies. These contracts were at various exchange rates and expired at various dates through November 2012.
34
The following table presents the currency, average forward exchange rate, notional amount and fair values for our outstanding forward and swap contracts as of
November 25, 2012
, and
November 27, 2011
. The average forward exchange rate is the weighted average of the forward rates of the contracts for the indicated currency. The notional amount represents the U.S. Dollar equivalent amount of the foreign currency at the inception of the contracts, and is the net sum of all buy and sell transactions for the indicated currency. A net positive notional amount represents a position to buy the U.S. Dollar versus the exposure currency, while a net negative notional amount represents a position to sell the U.S. Dollar versus the exposure currency. All transactions will mature before the end of
January 2014
.
|
As of November 25, 2012
|
As of November 27, 2011
|
||||||||||||||||||||
|
Average Forward Exchange Rate
|
Notional Amount
|
Fair Value
|
Average Forward Exchange Rate
|
Notional Amount
|
Fair Value
|
||||||||||||||||
|
(Dollars in thousands)
|
|||||||||||||||||||||
|
Currency
|
|||||||||||||||||||||
|
Australian Dollar
|
1.02
|
|
$
|
41,316
|
|
$
|
(558
|
)
|
1.00
|
|
$
|
39,204
|
|
$
|
1,433
|
|
|||||
|
Brazilian Real
|
2.08
|
|
16,339
|
|
746
|
|
1.81
|
|
18,021
|
|
1,262
|
|
|||||||||
|
Canadian Dollar
|
1.01
|
|
21,376
|
|
(183
|
)
|
1.00
|
|
42,106
|
|
2,082
|
|
|||||||||
|
Swiss Franc
|
0.94
|
|
3,218
|
|
(15
|
)
|
0.92
|
|
(16,542
|
)
|
(73
|
)
|
|||||||||
|
Czech Koruna
|
19.26
|
|
2,786
|
|
43
|
|
18.84
|
|
2,323
|
|
60
|
|
|||||||||
|
Danish Krone
|
5.75
|
|
(565
|
)
|
(2
|
)
|
5.50
|
|
24,517
|
|
352
|
|
|||||||||
|
Euro
|
1.29
|
|
70,697
|
|
(1,243
|
)
|
1.37
|
|
65,826
|
|
2,107
|
|
|||||||||
|
British Pound Sterling
|
1.60
|
|
(10,106
|
)
|
(45
|
)
|
1.57
|
|
38,738
|
|
700
|
|
|||||||||
|
Hong Kong Dollar
|
7.75
|
|
(2,707
|
)
|
(1
|
)
|
7.77
|
|
(6,806
|
)
|
(19
|
)
|
|||||||||
|
Hungarian Forint
|
223.06
|
|
(7,150
|
)
|
135
|
|
227.83
|
|
(7,537
|
)
|
(334
|
)
|
|||||||||
|
Indonesian Rupiah
|
9,838.63
|
|
11,919
|
|
1
|
|
9,090.91
|
|
15,659
|
|
592
|
|
|||||||||
|
Indian Rupee
|
56.30
|
|
15,985
|
|
(72
|
)
|
49.64
|
|
28,234
|
|
1,994
|
|
|||||||||
|
Japanese Yen
|
79.08
|
|
30,894
|
|
1,229
|
|
78.33
|
|
38,768
|
|
215
|
|
|||||||||
|
South Korean Won
|
1,129.48
|
|
26,464
|
|
(871
|
)
|
1,127.96
|
|
35,125
|
|
1,259
|
|
|||||||||
|
Mexican Peso
|
13.54
|
|
81,269
|
|
(2,020
|
)
|
13.30
|
|
70,807
|
|
5,412
|
|
|||||||||
|
Malaysian Ringgit
|
3.11
|
|
14,730
|
|
(72
|
)
|
3.21
|
|
10,838
|
|
2
|
|
|||||||||
|
Norwegian Krone
|
5.76
|
|
(161
|
)
|
—
|
|
5.78
|
|
17,899
|
|
458
|
|
|||||||||
|
New Zealand Dollar
|
0.82
|
|
(11,702
|
)
|
(33
|
)
|
0.77
|
|
442
|
|
389
|
|
|||||||||
|
Philippine Peso
|
42.08
|
|
6,986
|
|
(302
|
)
|
43.71
|
|
2,542
|
|
(5
|
)
|
|||||||||
|
Polish Zloty
|
3.25
|
|
1,475
|
|
(133
|
)
|
3.28
|
|
(41,531
|
)
|
(2,480
|
)
|
|||||||||
|
Russian Ruble
|
31.26
|
|
6,719
|
|
56
|
|
32.69
|
|
13,548
|
|
(117
|
)
|
|||||||||
|
Swedish Krona
|
6.70
|
|
(152
|
)
|
392
|
|
6.79
|
|
72,462
|
|
2,030
|
|
|||||||||
|
Singapore Dollar
|
1.22
|
|
396
|
|
(3
|
)
|
1.25
|
|
(34,659
|
)
|
(1,741
|
)
|
|||||||||
|
Turkish Lira
|
1.82
|
|
12,293
|
|
(62
|
)
|
1.83
|
|
(16,432
|
)
|
(379
|
)
|
|||||||||
|
New Taiwan Dollar
|
29.28
|
|
16,730
|
|
(254
|
)
|
29.45
|
|
23,198
|
|
725
|
|
|||||||||
|
South African Rand
|
8.80
|
|
23,780
|
|
1,091
|
|
7.76
|
|
23,049
|
|
2,744
|
|
|||||||||
|
Total
|
$
|
372,829
|
|
$
|
(2,176
|
)
|
$
|
459,799
|
|
$
|
18,668
|
|
|||||||||
35
Interest rate risk
We maintain a mix of short- and long-term fixed- and variable-rate debt.
The following table provides information about our financial instruments that are sensitive to changes in interest rates. The table presents principal (face amount) outstanding balances of our debt instruments and the related weighted-average interest rates for the years indicated based on expected maturity dates. The applicable floating rate index is included for variable-rate instruments. All amounts are stated in U.S. Dollar equivalents.
|
As of November 25, 2012
|
As of November 27, 2011
|
||||||||||||||||||||||||||||||
|
Expected Maturity Date
|
|||||||||||||||||||||||||||||||
|
2013
|
2014
|
2015
|
2016
|
2017
|
Thereafter
|
Total
|
Total
|
||||||||||||||||||||||||
|
(Dollars in thousands)
|
|||||||||||||||||||||||||||||||
|
Debt Instruments
|
|||||||||||||||||||||||||||||||
|
Fixed Rate (US$)
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
910,000
|
|
$
|
910,000
|
|
$
|
875,000
|
|
|||||||
|
Average Interest Rate
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
7.31
|
%
|
7.31
|
%
|
|||||||||||||||||
|
Fixed Rate (Yen 4.0 billion)
|
—
|
|
—
|
|
—
|
|
48,508
|
|
—
|
|
—
|
|
48,508
|
|
118,243
|
|
|||||||||||||||
|
Average Interest Rate
|
—
|
|
—
|
|
—
|
|
4.25
|
%
|
—
|
|
—
|
|
4.25
|
%
|
|||||||||||||||||
|
Fixed Rate (Euro 300 million)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
386,520
|
|
386,520
|
|
400,350
|
|
|||||||||||||||
|
Average Interest Rate
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
7.75
|
%
|
7.75
|
%
|
|||||||||||||||||
|
Variable Rate (US$)
|
—
|
|
325,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
325,000
|
|
525,000
|
|
|||||||||||||||
|
Average Interest Rate
(1)
|
—
|
|
2.46
|
%
|
—
|
|
—
|
|
—
|
|
—
|
|
2.46
|
%
|
|||||||||||||||||
|
Total Principal (face amount) of our debt instruments
(2)
|
$
|
—
|
|
$
|
325,000
|
|
$
|
—
|
|
$
|
48,508
|
|
$
|
—
|
|
$
|
1,296,520
|
|
$
|
1,670,028
|
|
$
|
1,918,593
|
|
|||||||
______________
|
(1)
|
Assumes no change in short-term interest rates.
|
|
(2)
|
Amounts presented in this table exclude our other short-term borrowings of
$59.8 million
as of
November 25, 2012
, consisting of term loans and revolving credit facilities at various foreign subsidiaries which we expect to either pay over the next twelve months or refinance at the end of their applicable terms. Of the
$59.8 million
,
$55.7 million
was fixed-rate debt and
$4.1 million
was variable-rate debt.
|
36
|
Item 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Levi Strauss & Co.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, stockholders' deficit and comprehensive income, and of cash flows present fairly, in all material respects, the financial position of Levi Strauss & Co. and its subsidiaries at
November 25, 2012
and
November 27, 2011
, and the results of their operations and their cash flows for each of the three years in the period ended
November 25, 2012
, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the related financial statement schedule listed in the index appearing under Item 15(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, CA
February 7, 2013
37
LEVI STRAUSS & CO. AND SUBSIDIARIES
|
November 25,
2012 |
November 27,
2011 |
||||||
|
|
(Dollars in thousands)
|
||||||
|
ASSETS
|
|||||||
|
Current Assets:
|
|||||||
|
Cash and cash equivalents
|
$
|
406,134
|
|
$
|
204,542
|
|
|
|
Trade receivables, net of allowance for doubtful accounts of $20,738 and $22,684
|
500,672
|
|
654,903
|
|
|||
|
Inventories:
|
|||||||
|
Raw materials
|
5,312
|
|
7,086
|
|
|||
|
Work-in-process
|
9,558
|
|
9,833
|
|
|||
|
Finished goods
|
503,990
|
|
594,483
|
|
|||
|
Total inventories
|
518,860
|
|
611,402
|
|
|||
|
Deferred tax assets, net
|
116,224
|
|
99,544
|
|
|||
|
Other current assets
|
136,483
|
|
172,830
|
|
|||
|
Total current assets
|
1,678,373
|
|
1,743,221
|
|
|||
|
Property, plant and equipment, net of accumulated depreciation of $782,766 and $731,859
|
458,807
|
|
502,388
|
|
|||
|
Goodwill
|
239,971
|
|
240,970
|
|
|||
|
Other intangible assets, net
|
59,909
|
|
71,818
|
|
|||
|
Non-current deferred tax assets, net
|
612,916
|
|
613,161
|
|
|||
|
Other non-current assets
|
120,101
|
|
107,997
|
|
|||
|
Total assets
|
$
|
3,170,077
|
|
$
|
3,279,555
|
|
|
|
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ DEFICIT
|
|||||||
|
Current Liabilities:
|
|||||||
|
Short-term debt
|
$
|
59,759
|
|
$
|
154,747
|
|
|
|
Current maturities of capital leases
|
1,760
|
|
1,714
|
|
|||
|
Accounts payable
|
225,726
|
|
204,897
|
|
|||
|
Other accrued liabilities
|
263,575
|
|
256,316
|
|
|||
|
Accrued salaries, wages and employee benefits
|
223,850
|
|
235,530
|
|
|||
|
Accrued interest payable
|
5,471
|
|
9,679
|
|
|||
|
Accrued income taxes
|
16,739
|
|
9,378
|
|
|||
|
Total current liabilities
|
796,880
|
|
872,261
|
|
|||
|
Long-term debt
|
1,669,452
|
|
1,817,625
|
|
|||
|
Long-term capital leases
|
262
|
|
1,999
|
|
|||
|
Postretirement medical benefits
|
140,958
|
|
140,108
|
|
|||
|
Pension liability
|
492,396
|
|
427,422
|
|
|||
|
Long-term employee related benefits
|
62,529
|
|
75,520
|
|
|||
|
Long-term income tax liabilities
|
40,356
|
|
42,991
|
|
|||
|
Other long-term liabilities
|
60,869
|
|
51,458
|
|
|||
|
Total liabilities
|
3,263,702
|
|
3,429,384
|
|
|||
|
Commitments and contingencies
|
|
|
|
|
|||
|
Temporary equity
|
7,883
|
|
7,002
|
|
|||
|
Stockholders’ Deficit:
|
|||||||
|
Levi Strauss & Co. stockholders’ deficit
|
|||||||
|
Common stock — $.01 par value; 270,000,000 shares authorized; 37,392,343 shares and 37,354,021 shares issued and outstanding
|
374
|
|
374
|
|
|||
|
Additional paid-in capital
|
33,365
|
|
29,266
|
|
|||
|
Retained earnings
|
273,975
|
|
150,770
|
|
|||
|
Accumulated other comprehensive loss
|
(414,635
|
)
|
(346,002
|
)
|
|||
|
Total Levi Strauss & Co. stockholders’ deficit
|
(106,921
|
)
|
(165,592
|
)
|
|||
|
Noncontrolling interest
|
5,413
|
|
8,761
|
|
|||
|
Total stockholders’ deficit
|
(101,508
|
)
|
(156,831
|
)
|
|||
|
Total liabilities, temporary equity and stockholders’ deficit
|
$
|
3,170,077
|
|
$
|
3,279,555
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
38
LEVI STRAUSS & CO. AND SUBSIDIARIES
|
|
Year Ended
|
||||||||||
|
|
November 25,
2012 |
November 27,
2011 |
November 28,
2010 |
||||||||
|
(Dollars in thousands)
|
|||||||||||
|
Net revenues
|
$
|
4,610,193
|
|
$
|
4,761,566
|
|
$
|
4,410,649
|
|
||
|
Cost of goods sold
|
2,410,862
|
|
2,469,327
|
|
2,187,726
|
|
|||||
|
Gross profit
|
2,199,331
|
|
2,292,239
|
|
2,222,923
|
|
|||||
|
Selling, general and administrative expenses
|
1,865,352
|
|
1,955,846
|
|
1,841,562
|
|
|||||
|
Operating income
|
333,979
|
|
336,393
|
|
381,361
|
|
|||||
|
Interest expense
|
(134,694
|
)
|
(132,043
|
)
|
(135,823
|
)
|
|||||
|
Loss on early extinguishment of debt
|
(8,206
|
)
|
(248
|
)
|
(16,587
|
)
|
|||||
|
Other income (expense), net
|
4,802
|
|
(1,275
|
)
|
6,647
|
|
|||||
|
Income before income taxes
|
195,881
|
|
202,827
|
|
235,598
|
|
|||||
|
Income tax expense
|
54,922
|
|
67,715
|
|
86,152
|
|
|||||
|
Net income
|
140,959
|
|
135,112
|
|
149,446
|
|
|||||
|
Net loss attributable to noncontrolling interest
|
2,891
|
|
2,841
|
|
7,057
|
|
|||||
|
Net income attributable to Levi Strauss & Co.
|
$
|
143,850
|
|
$
|
137,953
|
|
$
|
156,503
|
|
||
The accompanying notes are an integral part of these consolidated financial statements.
39
LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' DEFICIT AND COMPREHENSIVE INCOME
|
Levi Strauss & Co. Stockholders
|
|||||||||||||||||||||||
|
Common Stock
|
Additional Paid-In Capital
|
Accumulated Earnings (Deficit)
|
Accumulated Other Comprehensive Loss
|
Noncontrolling Interest
|
Total Stockholders' Deficit
|
||||||||||||||||||
|
(Dollars in thousands)
|
|||||||||||||||||||||||
|
Balance at November 29, 2009
|
$
|
373
|
|
$
|
39,532
|
|
$
|
(123,157
|
)
|
$
|
(249,867
|
)
|
$
|
17,735
|
|
$
|
(315,384
|
)
|
|||||
|
Net income (loss)
|
—
|
|
—
|
|
156,503
|
|
—
|
|
(7,057
|
)
|
149,446
|
|
|||||||||||
|
Other comprehensive (loss) income (net of tax)
|
—
|
|
—
|
|
—
|
|
(22,301
|
)
|
130
|
|
(22,171
|
)
|
|||||||||||
|
Total comprehensive income
|
127,275
|
|
|||||||||||||||||||||
|
Stock-based compensation and dividends, net
|
—
|
|
(601
|
)
|
—
|
|
—
|
|
—
|
|
(601
|
)
|
|||||||||||
|
Repurchase of common stock
|
—
|
|
(78
|
)
|
—
|
|
—
|
|
—
|
|
(78
|
)
|
|||||||||||
|
Cash dividends paid
|
—
|
|
(20,013
|
)
|
—
|
|
—
|
|
—
|
|
(20,013
|
)
|
|||||||||||
|
Balance at November 28, 2010
|
373
|
|
18,840
|
|
33,346
|
|
(272,168
|
)
|
10,808
|
|
(208,801
|
)
|
|||||||||||
|
Net income (loss)
|
—
|
|
—
|
|
137,953
|
|
—
|
|
(2,841
|
)
|
135,112
|
|
|||||||||||
|
Other comprehensive (loss) income (net of tax)
|
—
|
|
—
|
|
—
|
|
(73,834
|
)
|
794
|
|
(73,040
|
)
|
|||||||||||
|
Total comprehensive income
|
62,072
|
|
|||||||||||||||||||||
|
Stock-based compensation and dividends, net
|
1
|
|
10,436
|
|
(27
|
)
|
—
|
|
—
|
|
10,410
|
|
|||||||||||
|
Repurchase of common stock
|
—
|
|
(10
|
)
|
(479
|
)
|
—
|
|
—
|
|
(489
|
)
|
|||||||||||
|
Cash dividends paid
|
—
|
|
—
|
|
(20,023
|
)
|
—
|
|
—
|
|
(20,023
|
)
|
|||||||||||
|
Balance at November 27, 2011
|
374
|
|
29,266
|
|
150,770
|
|
(346,002
|
)
|
8,761
|
|
(156,831
|
)
|
|||||||||||
|
Net income (loss)
|
—
|
|
—
|
|
143,850
|
|
—
|
|
(2,891
|
)
|
140,959
|
|
|||||||||||
|
Other comprehensive loss (net of tax)
|
—
|
|
—
|
|
—
|
|
(68,633
|
)
|
(457
|
)
|
(69,090
|
)
|
|||||||||||
|
Total comprehensive income
|
71,869
|
|
|||||||||||||||||||||
|
Stock-based compensation and dividends, net
|
—
|
|
4,118
|
|
(25
|
)
|
—
|
|
—
|
|
4,093
|
|
|||||||||||
|
Repurchase of common stock
|
—
|
|
(19
|
)
|
(584
|
)
|
—
|
|
—
|
|
(603
|
)
|
|||||||||||
|
Cash dividends paid
|
—
|
|
—
|
|
(20,036
|
)
|
—
|
|
—
|
|
(20,036
|
)
|
|||||||||||
|
Balance at November 25, 2012
|
$
|
374
|
|
$
|
33,365
|
|
$
|
273,975
|
|
$
|
(414,635
|
)
|
$
|
5,413
|
|
$
|
(101,508
|
)
|
|||||
The accompanying notes are an integral part of these consolidated financial statements.
40
LEVI STRAUSS & CO. AND SUBSIDIARIES
|
|
Year Ended
|
||||||||||
|
|
November 25,
2012 |
November 27,
2011 |
November 28,
2010 |
||||||||
|
(Dollars in thousands)
|
|||||||||||
|
Cash Flows from Operating Activities:
|
|||||||||||
|
Net income
|
$
|
140,959
|
|
$
|
135,112
|
|
$
|
149,446
|
|
||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|||||||||||
|
Depreciation and amortization
|
122,608
|
|
117,793
|
|
104,896
|
|
|||||
|
Asset impairments
|
27,031
|
|
5,777
|
|
6,865
|
|
|||||
|
Gain on disposal of property, plant and equipment
|
(351
|
)
|
(2
|
)
|
(248
|
)
|
|||||
|
Unrealized foreign exchange gains
|
(3,146
|
)
|
(5,932
|
)
|
(17,662
|
)
|
|||||
|
Realized (gain) loss on settlement of forward foreign exchange contracts not designated for hedge accounting
|
(8,508
|
)
|
9,548
|
|
16,342
|
|
|||||
|
Employee benefit plans’ amortization from accumulated other comprehensive loss
|
1,412
|
|
(8,627
|
)
|
3,580
|
|
|||||
|
Employee benefit plans’ curtailment (gain) loss, net
|
(2,391
|
)
|
129
|
|
106
|
|
|||||
|
Noncash (gain) loss on extinguishment of debt, net of write-off of unamortized debt issuance costs
|
(3,643
|
)
|
226
|
|
(13,647
|
)
|
|||||
|
Amortization of deferred debt issuance costs
|
4,323
|
|
4,345
|
|
4,332
|
|
|||||
|
Stock-based compensation
|
5,965
|
|
8,439
|
|
6,438
|
|
|||||
|
Allowance for doubtful accounts
|
5,024
|
|
4,634
|
|
7,536
|
|
|||||
|
Deferred income taxes
|
19,853
|
|
16,153
|
|
31,113
|
|
|||||
|
Change in operating assets and liabilities:
|
|||||||||||
|
Trade receivables
|
145,717
|
|
(116,003
|
)
|
(30,259
|
)
|
|||||
|
Inventories
|
87,547
|
|
(6,848
|
)
|
(148,533
|
)
|
|||||
|
Other current assets
|
34,384
|
|
(39,231
|
)
|
(20,131
|
)
|
|||||
|
Other non-current assets
|
1,019
|
|
4,780
|
|
(7,160
|
)
|
|||||
|
Accounts payable and other accrued liabilities
|
46,578
|
|
(55,300
|
)
|
39,886
|
|
|||||
|
Income tax liabilities
|
(27,811
|
)
|
(15,242
|
)
|
6,330
|
|
|||||
|
Accrued salaries, wages and employee benefits and long-term employee related benefits
|
(74,140
|
)
|
(55,846
|
)
|
(12,128
|
)
|
|||||
|
Other long-term liabilities
|
7,995
|
|
(2,358
|
)
|
19,120
|
|
|||||
|
Other, net
|
551
|
|
301
|
|
52
|
|
|||||
|
Net cash provided by operating activities
|
530,976
|
|
1,848
|
|
146,274
|
|
|||||
|
Cash Flows from Investing Activities:
|
|||||||||||
|
Purchases of property, plant and equipment
|
(83,855
|
)
|
(130,580
|
)
|
(154,632
|
)
|
|||||
|
Proceeds from sale of property, plant and equipment
|
640
|
|
171
|
|
1,549
|
|
|||||
|
Proceeds (payments) on settlement of forward foreign exchange contracts not designated for hedge accounting
|
8,508
|
|
(9,548
|
)
|
(16,342
|
)
|
|||||
|
Acquisitions, net of cash acquired
|
(491
|
)
|
—
|
|
(12,242
|
)
|
|||||
|
Other
|
—
|
|
(1,000
|
)
|
(114
|
)
|
|||||
|
Net cash used for investing activities
|
(75,198
|
)
|
(140,957
|
)
|
(181,781
|
)
|
|||||
|
Cash Flows from Financing Activities:
|
|||||||||||
|
Proceeds from issuance of long-term debt
|
385,000
|
|
—
|
|
909,390
|
|
|||||
|
Repayments of long-term debt and capital leases
|
(407,963
|
)
|
(1,848
|
)
|
(866,051
|
)
|
|||||
|
Proceeds from senior revolving credit facility
|
50,000
|
|
305,000
|
|
—
|
|
|||||
|
Repayments of senior revolving credit facility
|
(250,000
|
)
|
(213,250
|
)
|
—
|
|
|||||
|
Short-term borrowings, net
|
(694
|
)
|
19,427
|
|
27,311
|
|
|||||
|
Debt issuance costs
|
(7,376
|
)
|
(7,307
|
)
|
(17,546
|
)
|
|||||
|
Restricted cash
|
565
|
|
(3,803
|
)
|
(700
|
)
|
|||||
|
Repurchase of common stock
|
(603
|
)
|
(489
|
)
|
(78
|
)
|
|||||
|
Excess tax benefits from stock-based compensation
|
168
|
|
—
|
|
—
|
|
|||||
|
Dividend to stockholders
|
(20,036
|
)
|
(20,023
|
)
|
(20,013
|
)
|
|||||
|
Net cash (used for) provided by financing activities
|
(250,939
|
)
|
77,707
|
|
32,313
|
|
|||||
|
Effect of exchange rate changes on cash and cash equivalents
|
(3,247
|
)
|
(3,782
|
)
|
2,116
|
|
|||||
|
Net increase (decrease) in cash and cash equivalents
|
201,592
|
|
(65,184
|
)
|
(1,078
|
)
|
|||||
|
Beginning cash and cash equivalents
|
204,542
|
|
269,726
|
|
270,804
|
|
|||||
|
Ending cash and cash equivalents
|
$
|
406,134
|
|
$
|
204,542
|
|
269,726
|
|
|||
|
Supplemental disclosure of cash flow information:
|
|||||||||||
|
Cash paid during the period for:
|
|||||||||||
|
Interest
|
$
|
128,718
|
|
$
|
129,079
|
|
$
|
147,237
|
|
||
|
Income taxes
|
49,346
|
|
56,229
|
|
52,912
|
|
|||||
The accompanying notes are an integral part of these consolidated financial statements.
41
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
NOVEMBER 25, 2012
,
NOVEMBER 27, 2011
, AND
NOVEMBER 28, 2010
NOTE
1
: SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Levi Strauss & Co. (the “Company”) is one of the world’s leading branded apparel companies. The Company designs and markets jeans, casual and dress pants, tops, shorts, skirts, jackets, footwear and related accessories, for men, women and children under the Levi’s
®
, Dockers
®
, Signature by Levi Strauss & Co.™ and Denizen
®
brands. The Company operates its business through
three
geographic regions: Americas, Europe and Asia Pacific.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of the Company and its wholly-owned and majority-owned foreign and domestic subsidiaries are prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”). All significant intercompany balances and transactions have been eliminated. The Company is privately held primarily by descendants of the family of its founder, Levi Strauss, and their relatives.
The Company’s fiscal year ends on the last Sunday of November in each year, although the fiscal years of certain foreign subsidiaries end on November 30. Each quarter of fiscal years
2012
,
2011
and
2010
consists of
13
weeks. All references to years relate to fiscal years rather than calendar years.
Subsequent events have been evaluated through the issuance date of these financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes to the consolidated financial statements. Estimates are based upon historical factors, current circumstances and the experience and judgment of the Company’s management. Management evaluates its estimates and assumptions on an ongoing basis and may employ outside experts to assist in its evaluations. Changes in such estimates, based on more accurate future information, or different assumptions or conditions, may affect amounts reported in future periods.
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 fair value.
Restricted Cash
Restricted cash primarily relates to required cash deposits for customs and rental guarantees to support the Company's international operations. As restricted cash is not material in any period presented, it is included in “Other current assets” and “Other non-current assets” on the consolidated balance sheets.
Accounts Receivable, Net
The Company extends credit to its wholesale customers that satisfy pre-defined credit criteria. Accounts receivable, which include receivables related to the Company's net sales and licensing revenues, are recorded net of an allowance for doubtful accounts. The Company estimates the allowance for doubtful accounts based upon an analysis of the aging of accounts receivable at the date of the consolidated financial statements, assessments of collectability based on historic trends, customer-specific circumstances, and an evaluation of economic conditions. Actual write-off of receivables may differ from estimates due to changes in customer and economic circumstances.
42
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
Inventory Valuation
The Company values inventories at the lower of cost or market value. Inventory cost is determined using the first-in first-out method. The Company includes product costs, labor and related overhead, sourcing costs, inbound freight, internal transfers, and the cost of operating its remaining manufacturing facilities, including the related depreciation expense, in the cost of inventories. The Company estimates quantities of slow-moving and obsolete inventory, by reviewing on-hand quantities, outstanding purchase obligations and forecasted sales. The Company determines inventory market values by estimating expected selling prices based on the Company's historical recovery rates for slow-moving and obsolete inventory and other factors, such as market conditions, expected channel of distribution and current consumer preferences.
Income Tax Assets and Liabilities
The Company is subject to income taxes in both the United States and numerous foreign jurisdictions. The Company computes its provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. Significant judgments are required in order to determine the realizability of these deferred tax assets. In assessing the need for a valuation allowance, the Company's management evaluates all significant available positive and negative evidence, including historical operating results, estimates of future taxable income and the existence of prudent and feasible tax planning strategies.
The Company continuously reviews issues raised in connection with all ongoing examinations and open tax years to evaluate the adequacy of its tax liabilities. The Company evaluates uncertain tax positions under a two-step approach. The first step is to evaluate the uncertain tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination based on its technical merits. The second step, for those positions that meet the recognition criteria, is to measure the tax benefit as the largest amount that is more than fifty percent likely to be realized. The Company believes that its recorded tax liabilities are adequate to cover all open tax years based on its assessment. This assessment relies on estimates and assumptions and involves significant judgments about future events. To the extent that the Company's view as to the outcome of these matters change, the Company will adjust income tax expense in the period in which such determination is made. The Company classifies interest and penalties related to income taxes as income tax expense.
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. Certain costs relating to internal-use software development are capitalized when incurred during the application development phase. Buildings are depreciated over
20
to
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 networking communication equipment, and is depreciated over a range from
three
to
20
years. Capitalized internal-use software is depreciated over periods ranging from
three
to
seven
years.
Goodwill and Other Intangible Assets
Goodwill resulted primarily from a 1985 acquisition of the Company by Levi Strauss Associates Inc., a former parent company that was subsequently merged into the Company in 1996, and the Company's 2009 acquisitions. Goodwill is not amortized; intangible assets are comprised of owned trademarks with indefinite useful lives which are not being amortized and acquired contractual rights and customers lists with finite lives which are being amortized over periods ranging from
four
to
eight
years.
43
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
Impairment
The Company reviews its goodwill and other non-amortized intangible assets for impairment annually in the fourth quarter of its fiscal year, or more frequently as warranted by events or changes in circumstances which indicate that the carrying amount may not be recoverable. The Company qualitatively assesses goodwill impairment for certain reporting units and impairment for other non-amortized intangible assets to determine whether it is more likely than not that the fair value of a reporting unit or other non-amortized intangible asset is less than its carrying amount. For goodwill and other non-amortized intangible assets not assessed qualitatively, a two-step quantitative approach is utilized. In the first step, the Company compares the carrying value of the reporting unit or applicable asset to its fair value, which the Company estimates using a discounted cash flow analysis or by comparison with the market values of similar assets. If the carrying amount of the reporting unit or asset exceeds its estimated fair value, the Company performs the second step, and determines the impairment loss, if any, as the excess of the carrying value of the goodwill or intangible asset over its fair value.
The Company reviews its other long-lived assets for impairment whenever events or changes in circumstances indicate 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.
To determine the fair value of impaired assets, the Company utilizes the valuation technique or techniques deemed most appropriate based on the nature of the impaired asset and the data available, which may include the use of quoted market prices, prices for similar assets or other valuation techniques such as discounted future cash flows or earnings.
Debt Issuance Costs
The Company capitalizes debt issuance costs, which are included in “Other non-current assets” in the Company's consolidated balance sheets. Bond issuance costs are generally amortized utilizing the effective interest method whereas revolving credit facility issuance costs are amortized utilizing the straight-line method. Amortization of debt issuance costs is included in “Interest expense” in the consolidated statements of income.
Deferred Rent
The Company is obligated under operating leases of property for manufacturing, finishing and distribution facilities, office space, retail stores and equipment. Rental expense relating to operating leases are recognized on a straight-line basis over the lease term after consideration of lease incentives and scheduled rent escalations beginning as of the date the Company takes physical possession or control of the property. Differences between rental expense and actual rental payments are recorded as deferred rent liabilities included in “Other accrued liabilities” and “Other long-term liabilities” on the consolidated balance sheets.
Fair Value of Financial Instruments
The fair values of the Company's financial instruments reflect the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value estimates presented in this report are based on information available to the Company as of
November 25, 2012
, and
November 27, 2011
.
The carrying values of cash and cash equivalents, trade receivables and short-term borrowings approximate fair value. The Company has estimated the fair value of its other financial instruments using the market and income approaches. Rabbi trust assets and forward foreign exchange contracts are carried at their fair values. The Company's debt instruments are carried at historical cost and adjusted for amortization of premiums or discounts, foreign currency fluctuations and principal payments.
44
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
Pension and Postretirement Benefits
The Company has several non-contributory defined benefit retirement plans covering eligible employees. The Company also provides certain health care benefits for U.S. employees who meet age, participation and length of service requirements at retirement. In addition, the Company sponsors other retirement or post-employment plans for its foreign employees in accordance with local government programs and requirements. The Company retains the right to amend, curtail or discontinue any aspect of the plans, subject to local regulations.
The Company recognizes either an asset or a liability for any plan's funded status in its consolidated balance sheets. The Company measures changes in funded status using actuarial models which utilize an attribution approach that generally spreads individual events either over the estimated service lives of the remaining employees in the plan, or, for plans where participants will not earn additional benefits by rendering future service – which, beginning in the second quarter of 2011, includes the Company's U.S. plans – over the plan participants' estimated remaining lives. The Company's policy is to fund its retirement plans based upon actuarial recommendations and in accordance with applicable laws, income tax regulations and credit agreements. Net pension and postretirement benefit income or expense is generally determined using assumptions which include expected long-term rates of return on plan assets, discount rates, compensation rate increases and medical trend rates. The Company considers several factors including actual historical rates, expected rates and external data to determine the assumptions used in the actuarial models.
Pension benefits are primarily paid through trusts funded by the Company. The Company pays postretirement benefits to the healthcare service providers on behalf of the plan's participants.
Employee Incentive Compensation
The Company maintains short-term and long-term employee incentive compensation plans. These plans are intended to reward eligible employees for their contributions to the Company's short-term and long-term success. Provisions for employee incentive compensation are recorded in “Accrued salaries, wages and employee benefits” and “Long-term employee related benefits” in the Company's consolidated balance sheets. The Company accrues the related compensation expense over the period of the plan and changes in the liabilities for these incentive plans generally correlate with the Company's financial results and projected future financial performance.
Stock-Based Compensation
The Company has stock-based incentive plans which reward certain employees and directors with cash or equity. Compensation cost for these awards is estimated based on the number of awards that are expected to vest. Compensation cost for equity awards is measured based on the fair value at the grant date, while liability award expense is measured and adjusted based on the fair value at the end of each quarter. No compensation cost is ultimately recognized for awards which are unvested and forfeited at an employees' termination date or for liability awards which are out-of-the-money at the award expiration date. Compensation cost is recognized on a straight-line basis over the period that an employee provides service for that award, which generally is the vesting period.
The Company's common stock is not listed on any established stock exchange. Accordingly, the stock's fair market value is determined by the Board based upon a valuation performed by an independent third-party, Evercore Group LLC (“Evercore”). Determining the fair value of the Company's stock requires complex judgments. The valuation process includes comparison of the Company's historical and estimated future financial results with selected publicly-traded companies and application of an appropriate discount for the illiquidity of the stock to derive the fair value of the stock. The Company uses this valuation for, among other things, making determinations under its stock-based compensation plans, such as the grant date fair value of awards.
The fair value of equity awards granted to employees is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of highly subjective assumptions including volatility. Due to the fact that the Company's common stock is not publicly traded, the computation of expected volatility is based on the average of the historical and implied volatilities, over the expected life of the awards, of comparable companies from a representative peer group of publicly-traded entities, selected based on industry and financial attributes. Other assumptions include expected life, risk-free rate of interest and dividend yield. Expected life prior to
2012
was computed using the simplified method. Beginning with the
2012
equity awards, the expected life is derived based on historical experience and expected future post-vesting termination and exercise patterns. The risk-free interest rate is based on zero coupon U.S. Treasury bond rates corresponding to the expected life of the awards. Dividend assumptions are based on historical experience.
45
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
The fair value of equity awards granted to directors is based on the fair value of the common stock at the date of grant. The fair value of liability awards granted to employees is also based on the Black-Scholes option pricing model and is calculated based on the common stock value and assumptions at each quarter end.
Due to the job function of the award recipients, the Company has included stock-based compensation cost in “Selling, general and administrative expenses” in the consolidated statements of income.
Self-Insurance
The Company self-insures, up to certain limits, workers' compensation risk and employee and eligible retiree medical health benefits. The Company carries insurance policies covering claim exposures which exceed predefined amounts, per occurrence and/or in the aggregate, for workers' compensation claims and for the medical claims of active employees as well as those salaried retirees who retired after June 1, 2001.
Accruals for losses are made based on the Company's claims experience and actuarial assumptions followed in the insurance industry, including provisions for incurred but not reported losses.
Derivative Financial Instruments and Hedging Activities
The Company recognizes all derivatives as assets and liabilities at their fair values. The Company uses derivatives to manage exposures that are sensitive to changes in market conditions, such as foreign currency risk. Additionally, some of the Company's contracts contain provisions that are accounted for as embedded derivative instruments. The Company does not designate its derivative instruments for hedge accounting; changes in the fair values of these instruments are recorded in “Other income (expense), net” in the Company's consolidated statements of income.
The non-derivative instruments the Company designates and that qualify for hedge accounting treatment hedge the Company's net investment position in certain of its foreign subsidiaries. For these instruments, the Company documents the hedge designation by identifying the hedging instrument, the nature of the risk being hedged and the approach for measuring hedge effectiveness. The ineffective portions of these hedges are recorded in “Other income (expense), net” in the Company's consolidated statements of income. The effective portions of these hedges are recorded in “Accumulated other comprehensive loss” in the Company's consolidated balance sheets and are not reclassified to earnings until the related net investment position has been liquidated.
Foreign Currency
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, income and expenses are translated at average monthly exchange rates, and equity accounts are translated at historical rates. Net changes resulting from such translations are recorded as a component of translation adjustments in “Accumulated other comprehensive income (loss)” in the Company's consolidated balance sheets.
Foreign currency transactions are transactions denominated in a currency other than the entity's functional currency. At each balance sheet date, each entity remeasures the recorded balances related to foreign-currency transactions using the period-end exchange rate. Gains or losses arising from the remeasurement of these balances are recorded in “Other income (expense), net” in the Company's consolidated statements of income. In addition, at the settlement date of foreign currency transactions, foreign currency gains and losses are recorded in “Other income (expense), net” in the Company's consolidated statements of income to reflect the difference between the rate effective at the settlement date and the historical rate at which the transaction was originally recorded.
Noncontrolling Interest
Noncontrolling interest includes a
16.4%
minority interest of third parties in Levi Strauss Japan K.K., the Company's Japanese subsidiary.
46
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
Revenue Recognition
Net sales is primarily comprised of sales of products to wholesale customers, including franchised stores, and direct sales to consumers at the Company's company-operated and online stores and at the Company's company-operated shop-in-shops located within department stores. The Company recognizes revenue on sale of product when the goods are shipped or delivered and title to the goods passes to the customer provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an arrangement exists; the sales price is fixed or determinable; and collectability is reasonably assured. The revenue is recorded net of an allowance for estimated returns, discounts and retailer promotions and other similar incentives. Licensing revenues from the use of the Company's trademarks in connection with the manufacturing, advertising, and distribution of trademarked products by third-party licensees are earned and recognized as products are sold by licensees based on royalty rates set forth in the licensing agreements.
The Company recognizes allowances for estimated returns in the period in which the related sale is recorded. The Company recognizes allowances for estimated discounts, retailer promotions and other similar incentives at the later of the period in which the related sale is recorded or the period in which the sales incentive is offered to the customer. The Company estimates non-volume based allowances based on historical rates as well as customer and product-specific circumstances. Sales and value-added taxes collected from customers and remitted to governmental authorities are presented on a net basis in the consolidated statements of income.
Net sales to the Company's
ten
largest customers totaled approximately
32%
,
30%
and
33%
of net revenues for
2012
,
2011
and
2010
, respectively. No customer represented 10% or more of net revenues in any of these years.
Cost of Goods Sold
Cost of goods sold includes the expenses incurred to acquire and produce inventory for sale, including product costs, labor and related overhead, sourcing costs, inbound freight, internal transfers, and the cost of operating the Company's remaining manufacturing facilities, including the related depreciation expense. Costs relating to the Company's licensing activities are included in “Selling, general and administrative expenses” in the consolidated statements of income.
Selling, General and Administrative Expenses
Selling, general and administrative expenses are primarily comprised of costs relating to advertising, marketing, selling, distribution, information technology and other corporate functions. Selling costs include all occupancy costs associated with company-operated stores and with the Company's company-operated shop-in-shops located within department stores. The Company expenses advertising costs as incurred. For
2012
,
2011
and
2010
, total advertising expense was
$260.4 million
,
$313.8 million
and
$327.8 million
, respectively. Distribution costs include costs related to receiving and inspection at distribution centers, warehousing, shipping to the Company's customers, handling and certain other activities associated with the Company's distribution network. These expenses totaled
$186.7 million
,
$183.9 million
and
$185.1 million
for
2012
,
2011
and
2010
, respectively.
Recently Issued Accounting Standards
The following recently issued accounting standards have been grouped by their required effective dates for the Company:
First Quarter of 2013
|
•
|
In June 2011, the FASB issued Accounting Standards Update No. 2011-05,
“Comprehensive Income (Topic 220): Presentation of Comprehensive Income,”
(“ASU 2011-05”). ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in equity. ASU 2011-05 requires that all nonowner changes in stockholders' equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB issued Accounting Standards Update No. 2011-12 (“ASU 2011-12”) which deferred certain requirements within ASU 2011-05. All other requirements in ASU 2011-05 are to be applied retrospectively. The Company anticipates that the adoption of this ASU will materially change the presentation of its consolidated financial statements.
|
47
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
Second Quarter of 2013
|
•
|
In February 2013, the FASB issued Accounting Standards Update No. 2013-02,
“Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,”
(“ASU 2013-02”). ASU 2013-02 finalizes the requirements of ASU 2011-05 that ASU 2011-12 deferred, clarifying how to report the effect of significant reclassifications out of accumulated other comprehensive income. ASU 2013-02 is to be applied prospectively. The Company does not anticipate that the adoption of this ASU will materially change the presentation of its consolidated financial statements.
|
First Quarter of 2014
|
•
|
In December 2011, the FASB issued Accounting Standards Update No. 2011-11,
“Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities,”
(“ASU 2011-11”). ASU 2011-11 enhances disclosures regarding financial instruments and derivative instruments. Entities are required to provide both net information and gross information for these assets and liabilities in order to enhance comparability between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. The requirements of ASU 2011-11 are to be applied retrospectively. The Company anticipates that the adoption of this ASU will expand its consolidated financial statement footnote disclosures.
|
NOTE
2
: PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment (“PP&E”) were as follows:
|
November 25, 2012
|
November 27, 2011
|
||||||||
|
(Dollars in thousands)
|
|||||||||
|
Land
|
$
|
21,319
|
|
$
|
30,236
|
|
|||
|
Buildings and leasehold improvements
|
404,438
|
|
422,020
|
|
|||||
|
Machinery and equipment
|
473,014
|
|
477,895
|
|
|||||
|
Capitalized internal-use software
|
285,960
|
|
286,662
|
|
|||||
|
Construction in progress
|
56,842
|
|
17,434
|
|
|||||
|
Subtotal
|
1,241,573
|
|
1,234,247
|
|
|
||||
|
Accumulated depreciation
|
(782,766
|
)
|
(731,859
|
)
|
|||||
|
PP&E, net
|
$
|
458,807
|
|
$
|
502,388
|
|
|
||
Depreciation expense for the years ended
November 25, 2012
,
November 27, 2011
, and
November 28, 2010
, was
$110.5 million
,
$104.8 million
and
$88.9 million
, respectively.
Construction in progress at
November 25, 2012
, and
November 27, 2011
, primarily related to the installation of various information technology systems.
48
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
NOTE
3
: GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill by business segment for the years ended
November 25, 2012
, and
November 27, 2011
, were as follows:
|
Americas
|
Europe
|
Asia Pacific
|
Total
|
||||||||||||||
|
(Dollars in thousands)
|
|||||||||||||||||
|
Balance, November 28, 2010
|
$
|
207,427
|
|
$
|
31,603
|
|
$
|
2,442
|
|
$
|
241,472
|
|
|||||
|
Foreign currency fluctuation
|
(9
|
)
|
(80
|
)
|
(413
|
)
|
(502
|
)
|
|||||||||
|
Balance, November 27, 2011
|
207,418
|
|
31,523
|
|
2,029
|
|
240,970
|
|
|||||||||
|
Foreign currency fluctuation
|
5
|
|
(896
|
)
|
(108
|
)
|
(999
|
)
|
|||||||||
|
Balance, November 25, 2012
|
$
|
207,423
|
|
$
|
30,627
|
|
$
|
1,921
|
|
$
|
239,971
|
|
|||||
Other intangible assets, net, were as follows:
|
November 25, 2012
|
November 27, 2011
|
||||||||||||||||||||||
|
Gross Carrying Value
|
Accumulated Amortization
|
Total
|
Gross Carrying Value
|
Accumulated Amortization
|
Total
|
||||||||||||||||||
|
(Dollars in thousands)
|
|||||||||||||||||||||||
|
Non-amortized intangible assets:
|
|||||||||||||||||||||||
|
Trademarks
|
$
|
42,743
|
|
$
|
—
|
|
$
|
42,743
|
|
$
|
42,743
|
|
$
|
—
|
|
$
|
42,743
|
|
|||||
|
Amortized intangible assets:
|
|||||||||||||||||||||||
|
Acquired contractual rights
|
42,220
|
|
(32,163
|
)
|
10,057
|
|
41,667
|
|
(23,051
|
)
|
18,616
|
|
|||||||||||
|
Customer lists
|
19,326
|
|
(12,217
|
)
|
7,109
|
|
20,018
|
|
(9,559
|
)
|
10,459
|
|
|||||||||||
|
Total
|
$
|
104,289
|
|
$
|
(44,380
|
)
|
$
|
59,909
|
|
$
|
104,428
|
|
$
|
(32,610
|
)
|
$
|
71,818
|
|
|||||
For the years ended
November 25, 2012
, and
November 27, 2011
, amortization of these intangible assets were
$11.4 million
and
$12.1 million
, respectively. The amortization of these intangible assets, which is included in “Selling, general and administrative expenses” in the Company's consolidated statements of income, in the succeeding fiscal years is approximately
$10.9 million
in
2013
and immaterial thereafter.
As of
November 25, 2012
, there was
no
impairment to the carrying value of the Company's goodwill or non-amortized intangible assets.
49
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
NOTE
4
: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the Company’s financial instruments that are carried at fair value:
|
|
November 25, 2012
|
November 27, 2011
|
|||||||||||||||||||||
|
|
|
Fair Value Estimated
Using
|
|
Fair Value Estimated
Using
|
|||||||||||||||||||
|
|
Fair Value
|
Level 1 Inputs
(1)
|
Level 2 Inputs
(2)
|
Fair Value
|
Level 1 Inputs
(1)
|
Level 2 Inputs
(2)
|
|||||||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||||||
|
Financial assets carried at fair value
|
|||||||||||||||||||||||
|
Rabbi trust assets
|
$
|
20,322
|
|
$
|
20,322
|
|
$
|
—
|
|
$
|
18,064
|
|
$
|
18,064
|
|
$
|
—
|
|
|||||
|
Forward foreign exchange contracts, net
(3)
|
5,792
|
|
—
|
|
5,792
|
|
25,992
|
|
—
|
|
25,992
|
|
|||||||||||
|
Total
|
$
|
26,114
|
|
$
|
20,322
|
|
$
|
5,792
|
|
$
|
44,056
|
|
$
|
18,064
|
|
$
|
25,992
|
|
|||||
|
Financial liabilities carried at fair value
|
|||||||||||||||||||||||
|
Forward foreign exchange contracts, net
(3)
|
$
|
3,018
|
|
$
|
—
|
|
$
|
3,018
|
|
$
|
5,256
|
|
$
|
—
|
|
$
|
5,256
|
|
|||||
_____________
|
(1)
|
Fair values estimated using Level 1 inputs are inputs which consist of quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Rabbi trust assets consist of a diversified portfolio of equity, fixed income and other securities. See Note
12
for more information on rabbi trust assets.
|
|
(2)
|
Fair values estimated using Level 2 inputs are inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly and include among other things, quoted prices for similar assets or liabilities in markets that are active or inactive as well as inputs other than quoted prices that are observable. For forward foreign exchange contracts, inputs include foreign currency exchange and interest rates and, where applicable, credit default swap prices.
|
|
(3)
|
The Company’s over-the-counter forward foreign exchange contracts are subject to International Swaps and Derivatives Association, Inc. master agreements. These agreements permit the net-settlement of these contracts on a per-institution basis.
|
The following table presents the carrying value – including related accrued interest – and estimated fair value of the Company’s financial instruments that are carried at adjusted historical cost:
|
|
November 25, 2012
|
November 27, 2011
|
|||||||||||||
|
|
Carrying
Value
|
Estimated Fair Value
(1)
|
Carrying
Value
|
Estimated Fair Value
(1)
|
|||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||
|
Financial liabilities carried at adjusted historical cost
|
|||||||||||||||
|
Senior revolving credit facility
|
$
|
—
|
|
$
|
—
|
|
$
|
200,267
|
|
$
|
199,767
|
|
|||
|
Senior term loan due 2014
|
324,890
|
|
324,484
|
|
324,663
|
|
316,562
|
|
|||||||
|
8.875% senior notes due 2016
|
—
|
|
—
|
|
354,918
|
|
366,293
|
|
|||||||
|
4.25% Yen-denominated Eurobonds due 2016
|
48,656
|
|
47,201
|
|
118,618
|
|
102,508
|
|
|||||||
|
7.75% Euro senior notes due 2018
|
387,433
|
|
416,422
|
|
401,495
|
|
381,478
|
|
|||||||
|
7.625% senior notes due 2020
|
526,223
|
|
572,161
|
|
526,446
|
|
519,883
|
|
|||||||
|
6.875% senior notes due 2022
|
386,838
|
|
404,163
|
|
—
|
|
—
|
|
|||||||
|
Short-term borrowings
|
59,861
|
|
59,861
|
|
54,975
|
|
54,975
|
|
|||||||
|
Total
|
$
|
1,733,901
|
|
$
|
1,824,292
|
|
$
|
1,981,382
|
|
$
|
1,941,466
|
|
|||
_____________
|
(1)
|
Fair value estimate incorporates mid-market price quotes.
|
50
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
NOTE
5
: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company's foreign currency management objective is to minimize the effect of fluctuations in foreign exchange rates on nonfunctional currency cash flows of the Company and its subsidiaries and selected assets or liabilities of the Company and its subsidiaries without exposing the Company to additional risk associated with transactions that could be regarded as speculative. Forward exchange contracts on various currencies are entered into to manage foreign currency exposures associated with certain product sourcing activities, some intercompany sales, foreign subsidiaries' royalty payments, interest payments, earnings repatriations, net investment in foreign operations and funding activities. The Company manages certain forecasted foreign currency exposures and uses a centralized currency management operation to take advantage of potential opportunities to naturally offset foreign currency exposures against each other. The Company designates its outstanding Euro senior notes and a portion of its outstanding Yen-denominated Eurobonds as net investment hedges to manage foreign currency exposures in its foreign operations. The Company does not apply hedge accounting to its derivative transactions. As of
November 25, 2012
, the Company had forward foreign exchange contracts to buy
$795.1 million
and to sell
$422.3 million
against various foreign currencies. These contracts are at various exchange rates and expire at various dates through
January 2014
.
The table below provides data about the carrying values of derivative instruments and non-derivative instruments:
|
|
November 25, 2012
|
November 27, 2011
|
|||||||||||||||||||||
|
|
Assets
|
(Liabilities)
|
Derivative Net Carrying Value
|
Assets
|
(Liabilities)
|
Derivative Net Carrying Value
|
|||||||||||||||||
|
|
Carrying
Value
|
Carrying
Value
|
Carrying
Value
|
Carrying
Value
|
|||||||||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||||||
|
Derivatives not designated as hedging instruments
|
|||||||||||||||||||||||
|
Forward foreign exchange contracts
(1)
|
$
|
7,131
|
|
$
|
(1,339
|
)
|
$
|
5,792
|
|
$
|
31,906
|
|
$
|
(5,914
|
)
|
$
|
25,992
|
|
|||||
|
Forward foreign exchange contracts
(2)
|
5,183
|
|
(8,201
|
)
|
(3,018
|
)
|
4,547
|
|
(9,803
|
)
|
(5,256
|
)
|
|||||||||||
|
Total
|
$
|
12,314
|
|
$
|
(9,540
|
)
|
$
|
36,453
|
|
$
|
(15,717
|
)
|
|||||||||||
|
Non-derivatives designated as hedging instruments
|
|||||||||||||||||||||||
|
4.25% Yen-denominated Eurobonds due 2016
|
$
|
—
|
|
$
|
(28,135
|
)
|
$
|
—
|
|
$
|
(46,115
|
)
|
|||||||||||
|
7.75% Euro senior notes due 2018
|
—
|
|
(386,520
|
)
|
—
|
|
(400,350
|
)
|
|||||||||||||||
|
Total
|
$
|
—
|
|
$
|
(414,655
|
)
|
$
|
—
|
|
$
|
(446,465
|
)
|
|||||||||||
_____________
|
(1)
|
Included in “Other current assets” or “Other non-current assets” on the Company’s consolidated balance sheets.
|
|
(2)
|
Included in “Other accrued liabilities” on the Company’s consolidated balance sheets.
|
51
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
The table below provides data about the amount of gains and losses related to derivative instruments and non-derivative instruments designated as net investment hedges included in “Accumulated other comprehensive loss” (“AOCI”) on the Company’s consolidated balance sheets, and in “Other income (expense), net” in the Company’s consolidated statements of income:
|
|
Gain or (Loss)
Recognized in AOCI
(Effective Portion)
|
Gain or (Loss) Recognized in Other
Income (Expense), net (Ineffective
Portion and Amount Excluded from
Effectiveness Testing)
|
|||||||||||||||||
|
|
As of
|
As of
|
Year Ended
|
||||||||||||||||
|
November 25,
2012 |
November 27,
2011 |
November 25,
2012 |
November 27,
2011 |
November 28,
2010 |
|||||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||
|
Forward foreign exchange contracts
|
$
|
4,637
|
|
$
|
4,637
|
|
|
|
|
|
|
|
|||||||
|
4.25% Yen-denominated Eurobonds due 2016
|
(26,285
|
)
|
(28,525
|
)
|
$
|
3,474
|
|
$
|
(5,033
|
)
|
$
|
2,254
|
|
||||||
|
7.75% Euro senior notes due 2018
|
(9,451
|
)
|
(23,281
|
)
|
—
|
|
—
|
|
—
|
|
|||||||||
|
Cumulative income taxes
|
12,246
|
|
18,476
|
|
|||||||||||||||
|
Total
|
$
|
(18,853
|
)
|
$
|
(28,693
|
)
|
|||||||||||||
The table below provides data about the amount of gains and losses related to derivatives not designated as hedging instruments included in “Other income (expense), net” in the Company’s consolidated statements of income:
|
|
Gain or (Loss)
|
||||||||||
|
|
Year Ended
|
||||||||||
|
|
November 25,
2012 |
November 27,
2011 |
November 28,
2010 |
||||||||
|
|
(Dollars in thousands)
|
||||||||||
|
Forward foreign exchange contracts:
|
|||||||||||
|
Realized
|
$
|
8,508
|
|
$
|
(9,548
|
)
|
$
|
(16,342
|
)
|
||
|
Unrealized
|
(17,952
|
)
|
24,858
|
|
10,163
|
|
|||||
|
Total
|
$
|
(9,444
|
)
|
$
|
15,310
|
|
$
|
(6,179
|
)
|
||
52
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
NOTE
6
: DEBT
|
November 25,
2012 |
November 27,
2011 |
||||||||
|
|
(Dollars in thousands)
|
||||||||
|
Long-term debt
|
|||||||||
|
Secured:
|
|||||||||
|
Senior revolving credit facility
|
$
|
—
|
|
$
|
100,000
|
|
|||
|
Unsecured:
|
|||||||||
|
Senior term loan due 2014
|
324,424
|
|
324,032
|
|
|||||
|
8.875% senior notes due 2016
|
—
|
|
350,000
|
|
|||||
|
4.25% Yen-denominated Eurobonds due 2016
|
48,508
|
|
118,243
|
|
|||||
|
7.75% Euro senior notes due 2018
|
386,520
|
|
400,350
|
|
|||||
|
7.625% senior notes due 2020
|
525,000
|
|
525,000
|
|
|||||
|
6.875% senior notes due 2022
|
385,000
|
|
—
|
|
|||||
|
Total unsecured
|
1,669,452
|
|
1,717,625
|
|
|||||
|
Total long-term debt
|
$
|
1,669,452
|
|
$
|
1,817,625
|
|
|||
|
Short-term debt
|
|||||||||
|
Senior revolving credit facility
|
$
|
—
|
|
$
|
100,000
|
|
|||
|
Short-term borrowings
|
59,759
|
|
54,747
|
|
|||||
|
Total short-term debt
|
$
|
59,759
|
|
$
|
154,747
|
|
|||
|
Total long-term and short-term debt
|
$
|
1,729,211
|
|
$
|
1,972,372
|
|
|||
Senior Revolving Credit Facility
The Company is a party to a credit agreement for a senior secured revolving credit facility. The credit agreement provides for an asset-based facility, in which the borrowing availability is primarily based on the value of the U.S. Levi's
®
trademarks and the levels of accounts receivable and inventory in the United States and Canada, as further described below.
Availability, interest and maturity.
The maximum availability under the credit facility is
$850.0 million
, of which
$800.0 million
is available to the Company for revolving loans in U.S. Dollars and
$50.0 million
is available to the Company for revolving loans either in U.S. Dollars or Canadian Dollars. Subject to the level of this borrowing base, the Company may make and repay borrowings from time to time until the maturity of the credit facility. The Company may make voluntary prepayments of borrowings at any time and must make mandatory prepayments if certain events occur. Borrowings under the credit agreement will bear an interest rate of LIBOR plus
150
to
275
basis points, depending on borrowing base availability, and undrawn availability bears a rate of
37.5
to
50
basis points. The credit facility has a maturity date of September 30, 2016, which may be accelerated to December 26, 2013, if the senior unsecured term loan due 2014 is still outstanding on that date and the Company has not met other conditions set forth in the credit agreement. Upon the maturity date, all of the obligations outstanding under the credit agreement become due.
The Company’s unused availability under its senior secured revolving credit facility was
$533.8 million
at
November 25, 2012
, as the Company’s total availability of
$616.1 million
, based on the collateral levels discussed above, was reduced by
$82.3 million
of letters of credit and other credit usage allocated under the facility. The
$82.3 million
was comprised of
$15.5 million
of other credit usage and
$66.8 million
of stand-by letters of credit with various international banks which serve as guarantees to cover U.S. workers' compensation claims and the working capital requirements for certain subsidiaries, primarily India.
Guarantees and security.
The Company's obligations under the credit agreement are guaranteed by its domestic subsidiaries. The obligations under the agreement are secured by, among other domestic assets, certain U.S. trademarks associated with the Levi's
®
brand and accounts receivable, goods and inventory in the United States. Additionally, the obligations of Levi Strauss & Co. (Canada) Inc. under the credit agreement are secured by Canadian accounts receivable, goods, inventory and other Canadian
53
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
assets. The lien on the U.S. Levi's
®
trademarks and related intellectual property may be released at the Company's discretion so long as it meets certain conditions; such release would reduce the borrowing base.
Covenants.
The credit agreement contains customary covenants restricting the Company's activities as well as those of the Company's subsidiaries, including limitations on the ability to sell assets; engage in mergers; enter into transactions involving related parties or derivatives; incur or prepay 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; and make changes in the Company's corporate structure. There are exceptions to these covenants, and some are only applicable when unused availability falls below specified thresholds. In addition, the credit agreement includes, as a financial covenant, a springing fixed charge coverage ratio of
1.0
:1.0, which arises when availability falls below a specified threshold.
Events of default.
The credit agreement contains customary events of default, including payment failures; failure to comply with covenants; failure to satisfy other obligations under the credit agreements or related documents; defaults in respect of other indebtedness; bankruptcy, insolvency and inability to pay debts when due; material judgments; pension plan terminations or specified underfunding; substantial stock ownership changes; and specified changes in the composition of the Company's board of directors. The cross-default provisions in the agreement apply if a default occurs on other indebtedness in excess of
$50.0 million
and the applicable grace period in respect of the indebtedness has expired, such that the lenders of or trustee for the defaulted indebtedness have the right to accelerate. If an event of default occurs under the credit agreement, the lenders may terminate their commitments, declare immediately payable all borrowings under the agreement and foreclose on the collateral.
Senior Term Loan due 2014
The Company is a party to a senior unsecured term loan agreement (the “Term Loan”). The Term Loan, entered into in 2007, consists of a single borrowing of
$325.0 million
, net of a
0.75%
discount to the lenders. The Term Loan matures on April 4, 2014, and bears interest at
2.25%
over
LIBOR
or
1.25%
over the base rate. The Term Loan could not have been prepaid during the first year but thereafter may be prepaid without premium or penalty.
Covenants.
The agreement governing the Term Loan contains covenants that limit the Company 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; and sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Company's assets or its subsidiaries' assets. The Company and its subsidiaries would not be required to comply with certain of these covenants if the Term Loan receives and maintains an investment grade rating by both Standard and Poor's and Moody's and the Company and its subsidiaries are and remain in compliance with the agreement.
Asset sales.
The agreement governing the Term Loan provides that the Company's asset sales must be at fair market value and the consideration must consist of at least
75%
cash or cash equivalents or the assumption of liabilities. The Company would be required to use the net proceeds from the asset sale within 360 days after receipt either to repay bank debt, with an equivalent permanent reduction in the available commitment in the case of a repayment under the Company's senior secured revolving credit facility, or to invest in additional assets in a business related to the Company's business. To the extent proceeds not so used within the time period exceed
$10.0 million
, the Company would be required to make an offer to prepay the Term Loan plus accrued but unpaid interest, if any, to the date of prepayment.
Change in control.
If the Company experienced a change in control as defined in the agreement, then the Company is required under the agreement to make an offer to prepay the Term Loan at
101%
of the principal amount plus accrued and unpaid interest, if any, to the date of prepayment.
Events of default.
The agreement contains customary events of default, including failure to pay principal, failure to pay interest after a 30-day grace period, failure to comply with the merger, consolidation and sale of property covenant, failure to comply with other covenants in the agreement for a period of 30 days after notice given to the Company, failure to satisfy certain judgments in excess of
$25.0 million
after a 30-day grace period, and certain events involving bankruptcy, insolvency or reorganization. The agreement also contains a cross-acceleration event of default that applies if debt of the Company or any restricted subsidiary in excess of
$25.0 million
is accelerated or is not paid when due at final maturity.
54
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
Senior Notes due 2016
Principal, interest and maturity.
The Company issued
$350.0 million
in notes with a
ten
-year term to qualified institutional buyers in 2006 (the “Senior Notes due 2016”). The Senior Notes due 2016 were unsecured obligations that ranked equally with all of the Company's other existing and future unsecured and unsubordinated debt. The Company redeemed all of the remaining outstanding Senior Notes due 2016 in May 2012, as described below.
Yen-denominated Eurobonds due 2016
In 1996, the Company issued
¥20 billion
principal amount Eurobonds (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. The Company repurchased a portion of the Yen-denominated Eurobonds due 2016 in May 2010, and again in May 2012, as described below.
The agreement governing these bonds contains customary events of default and restricts the Company's ability and the ability of its subsidiaries and future subsidiaries to incur liens; engage in sale and leaseback transactions and engage in mergers and sales of assets. The agreement contains a cross-acceleration event of default that applies if any of the Company's debt in excess of
$25.0 million
is accelerated and the debt is not discharged or acceleration rescinded within 30 days after the Company's receipt of a notice of default from the fiscal agent or from the holders of at least
25%
of the principal amount of the bond.
Euro Notes due 2018 and Senior Notes due 2020
Principal, interest and maturity
. On May 6, 2010, the Company issued
€300.0 million
in aggregate principal amount of
7.75%
Euro senior notes due 2018 (the “Euro Notes due 2018”) and
$525.0 million
in aggregate principal amount of
7.625%
senior notes due 2020 (the “Senior Notes due 2020”) to qualified institutional buyers. The notes are unsecured obligations that rank equally with all of the Company's other existing and future unsecured and unsubordinated debt. The Euro Notes due 2018 mature on May 15, 2018, and the Senior Notes due 2020 mature on May 15, 2020. Interest on the notes is payable semi-annually in arrears on May 15 and November 15, commencing on November 15, 2010. The Company may redeem some or all of the Euro Notes due 2018 prior to May 15, 2014, and some or all of the Senior Notes due 2020 prior to May 15, 2015, each at a price equal to
100%
of the principal amount plus accrued and unpaid interest and a “make-whole” premium; after these dates, the Company may redeem all or any portion of the notes, at once or over time, at redemption prices specified in the indenture governing the notes, after giving the required notice under the indenture. In addition, at any time prior to May 15, 2013, the Company may redeem up to a maximum of
35%
of the original aggregate principal amount of each series of notes with the proceeds of one or more public equity offerings at a redemption price of
107.750%
and
107.625%
of the principal amount of the Euro Notes due 2018 and Senior Notes due 2020, respectively, plus accrued and unpaid interest, if any, to the date of redemption. Costs representing underwriting fees and other expenses of
$17.5 million
are amortized over the term of the notes to interest expense.
Covenants
. The indenture governing both notes contains covenants that limit, among other things, the Company's and certain of the Company's subsidiaries' ability to incur additional debt; make certain restricted payments; consummate specified asset sales; enter into transactions with affiliates; incur liens; impose restrictions on the ability of its subsidiaries to pay dividends or make payments to the Company and its restricted subsidiaries; enter into sale and leaseback transactions; merge or consolidate with another person; and dispose of all or substantially all of the Company's assets. The indenture provides for customary events of default (subject in certain cases to customary grace and cure periods), which include nonpayment, breach of covenants in the indenture, payment defaults or acceleration of other indebtedness, a failure to pay certain judgments and certain events of bankruptcy and insolvency. Generally, if an event of default occurs, the trustee under the indenture or holders of at least
25%
in principal amount of the then outstanding notes may declare all notes to be due and payable immediately. Upon the occurrence of a change in control (as defined in the indenture), each holder of notes may require the Company to repurchase all or a portion of the notes in cash at a price equal to
101%
of the principal amount of notes to be repurchased, plus accrued and unpaid interest, if any, thereon to the date of purchase.
Exchange offer.
In accordance with a registration rights agreement, the Company conducted an exchange offer to allow holders to exchange the notes for new notes in the same principal amount and with substantially identical terms, except that the new notes were registered under the Securities Act of 1933.
55
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
Use of Proceeds
. The proceeds from the issuance of the Euro Notes due 2018 and the Senior Notes due 2020 were used to repurchase and repay all of the Company's then-existing Euro Notes due 2013 and Senior Notes due 2015. The proceeds were also used to repurchase
¥10,883,500,000
in principal amount tendered of the Yen-denominated Eurobonds due 2016 for total consideration of
$100.0 million
including accrued interest.
Issuance of Senior Notes due 2022
Principal, interest and maturity
. On May 8, 2012, the Company issued
$385.0 million
in aggregate principal amount of
6.875%
senior notes due 2022 (the “Senior Notes due 2022”) to qualified institutional buyers and to purchasers outside the United States in compliance with the Securities Act of 1933, as amended (the “Securities Act”). The notes are unsecured obligations that rank equally with all of the Company's other existing and future unsecured and unsubordinated debt. The Senior Notes due 2022 mature on May 1, 2022. Interest on the notes is payable semi-annually in arrears on May 1 and November 1, commencing on November 1, 2012. The Company may redeem some or all of the Senior Notes due 2022 prior to May 1, 2017, at a price equal to
100%
of the principal amount plus accrued and unpaid interest and a “make-whole” premium; on or after this date, the Company may redeem all or any portion of the notes, at once or over time, at redemption prices specified in the indenture governing the notes, after giving the required notice under the indenture. In addition, at any time prior to May 1, 2015, the Company may redeem up to a maximum of
35%
of the original aggregate principal amount of the Senior Notes due 2022 with the proceeds of certain equity offerings at a redemption price of
106.875%
of the principal amount of the Senior Notes due 2022, plus accrued and unpaid interest, if any, to the date of redemption. Costs of approximately
$7.4 million
associated with the issuance of the notes, representing underwriting fees and other expenses, will be amortized to interest expense over the term of the notes.
Other Covenants
. The indenture contains covenants that limit, among other things, the Company's and certain of the Company's subsidiaries' ability to incur additional debt, make certain restricted payments, consummate specified asset sales, enter into transactions with affiliates, incur liens, impose restrictions on the ability of its subsidiaries to pay dividends or make payments to the Company and its restricted subsidiaries, enter into sale and leaseback transactions, merge or consolidate with another person, and dispose of all or substantially all of the Company's assets. The indenture provides for customary events of default (subject in certain cases to customary grace and cure periods), which include nonpayment, breach of covenants in the indenture, payment defaults or acceleration of other indebtedness, a failure to pay certain judgments and certain events of bankruptcy and insolvency. Generally, if an event of default occurs, the trustee under the indenture or holders of at least
25%
in principal amount of the then outstanding notes may declare all the notes to be due and payable immediately. Upon the occurrence of a change in control (as defined in the indenture), each holder of notes may require the Company to repurchase all or a portion of the notes in cash at a price equal to
101%
of the principal amount of notes to be repurchased, plus accrued and unpaid interest, if any, thereon to the date of purchase.
Exchange offer.
In accordance with a registration rights agreement, the Company conducted an exchange offer to allow holders to exchange the notes for new notes in the same principal amount and with substantially identical terms, except that the new notes were registered under the Securities Act.
Use of Proceeds
. On April 24, 2012, the Company commenced a cash tender offer for the outstanding principal amount of its
$350.0 million
Senior Notes due 2016. The tender offer expired May 21, 2012, and the Company redeemed all remaining notes that were not tendered in the offer on May 25, 2012. The Company purchased all of the outstanding Senior Notes due 2016 pursuant to the tender offer and subsequent redemption.
On May 11, 2012, the Company repurchased
¥5,116,500,000
in aggregate principal amount tendered of the Yen-denominated Eurobonds due 2016 for total consideration of
$56.4 million
including interest.
The tender offer, redemption, and partial repurchase described above, as well as underwriting fees associated with the new issuance, were primarily funded with the proceeds from the issuance of the Senior Notes due 2022.
Short-term Borrowings
Short-term borrowings consist of term loans and revolving credit facilities at various foreign subsidiaries which the Company expects to either pay over the next twelve months or refinance at the end of their applicable terms. Certain of these borrowings are guaranteed by stand-by letters of credit allocated under the Company's senior secured revolving credit facility.
56
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
Loss on Early Extinguishment of Debt
For the year ended
November 25, 2012
, the Company recorded a net loss of
$8.2 million
on early extinguishment of debt, primarily comprised of a tender premium of
$11.4 million
and the write-off of
$4.0 million
of unamortized debt issuance costs, partially offset by a gain of
$7.6 million
related to the partial repurchase of Yen-denominated Eurobonds at a discount of their par value.
The table below sets forth, as of
November 25, 2012
, the Company's required aggregate short-term and long-term debt principal payments (inclusive of premium and discount) for the next five fiscal years and thereafter.
|
(Dollars in thousands)
|
|||||
|
2013
|
$
|
59,759
|
|
||
|
2014
|
324,424
|
|
|||
|
2015
|
—
|
|
|||
|
2016
|
48,508
|
|
|||
|
2017
|
—
|
|
|||
|
Thereafter
|
1,296,520
|
|
|||
|
Total future debt principal payments
|
$
|
1,729,211
|
|
||
Interest Rates on Borrowings
The Company’s weighted-average interest rate on average borrowings outstanding during
2012
,
2011
and
2010
was
7.05%
,
6.90%
and
7.05%
, respectively. The weighted-average interest rate on average borrowings outstanding includes the amortization of capitalized bank fees and underwriting fees, and excludes interest on obligations to participants under deferred compensation plans.
Dividends and Restrictions
The terms of certain of the indentures relating to the Company's unsecured notes and its senior secured revolving credit facility agreement contain covenants that restrict the Company's ability to pay dividends to its stockholders. For information about the Company's dividend payments, see Note
14
. As of
November 25, 2012
, and at the time the dividends were paid, the Company met the requirements of its debt instruments. Subsidiaries of the Company that are not wholly-owned subsidiaries are permitted under the indentures to pay dividends to all stockholders either on a pro rata basis or on a basis that results in the receipt by the Company of dividends or distributions of greater value than it would receive on a pro rata basis. The Company has not entered into any arrangements that would restrict the transfer of the assets of the Company's subsidiaries to the Company in the form of loans, advances or cash dividends.
57
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
NOTE
7
: GUARANTEES
Indemnification agreements.
In the ordinary course of business, the Company enters into agreements containing indemnification provisions under which the Company agrees to indemnify the other party for specified claims and losses. For example, the Company's trademark license agreements, real estate leases, consulting agreements, logistics outsourcing agreements, securities purchase agreements and credit agreements typically contain such provisions. This type of indemnification provision obligates the Company to pay certain amounts associated with claims brought against the other party as the result of trademark infringement, negligence or willful misconduct of Company employees, breach of contract by the Company including inaccuracy of representations and warranties, specified lawsuits in which the Company and the other party are co-defendants, product claims and other matters. These amounts generally are not readily quantifiable; the maximum possible liability or amount of potential payments that could arise out of an indemnification claim depends entirely on the specific facts and circumstances associated with the claim. The Company has insurance coverage that minimizes the potential exposure to certain of such claims. The Company also believes that the likelihood of material payment obligations under these agreements to third parties is low.
Covenants.
The Company's long-term debt agreements contain customary covenants restricting its activities as well as those of its subsidiaries, including limitations on its, and its subsidiaries', ability to sell assets; engage in mergers; enter into capital leases or certain leases not in the ordinary course of business; enter into transactions involving related parties or derivatives; incur or prepay indebtedness or grant liens or negative pledges on its 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 its corporate structure. For additional information see Note
6
.
NOTE
8
: EMPLOYEE BENEFIT PLANS
Pension plans.
The Company has several non-contributory defined benefit retirement plans covering eligible employees. Plan assets are invested in a diversified portfolio of securities including stocks, bonds, real estate investment funds, cash equivalents, and alternative investments. Benefits payable under the plans are based on years of service, final average compensation, or both. The Company retains the right to amend, curtail or discontinue any aspect of the plans, subject to local regulations.
Postretirement plans.
The Company maintains plans that provide postretirement benefits to eligible employees, principally health care, to substantially all U.S. retirees and their qualified dependents. These plans were established with the intention that they would continue indefinitely. However, the Company retains the right to amend, curtail or discontinue any aspect of the plans at any time. 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.
58
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
The following tables summarize activity of the Company's defined benefit pension plans and postretirement benefit plans:
|
Pension Benefits
|
Postretirement Benefits
|
||||||||||||||
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
|
(Dollars in thousands)
|
|||||||||||||||
|
Change in benefit obligation:
|
|||||||||||||||
|
Benefit obligation at beginning of year
|
$
|
1,203,677
|
|
$
|
1,131,765
|
|
$
|
156,060
|
|
$
|
164,308
|
|
|||
|
Service cost
|
8,952
|
|
10,241
|
|
397
|
|
478
|
|
|||||||
|
Interest cost
|
57,635
|
|
60,314
|
|
6,634
|
|
7,629
|
|
|||||||
|
Plan participants' contribution
|
884
|
|
1,177
|
|
5,531
|
|
5,832
|
|
|||||||
|
Actuarial loss
(1)
|
184,183
|
|
75,268
|
|
10,408
|
|
2,323
|
|
|||||||
|
Net curtailment gain
|
(2,379
|
)
|
(7,132
|
)
|
—
|
|
—
|
|
|||||||
|
Impact of foreign currency changes
|
1,103
|
|
(2,027
|
)
|
—
|
|
—
|
|
|||||||
|
Plan settlements
|
(867
|
)
|
(4,051
|
)
|
—
|
|
—
|
|
|||||||
|
Special termination benefits
|
159
|
|
120
|
|
—
|
|
—
|
|
|||||||
|
Benefits paid
|
(64,697
|
)
|
(61,998
|
)
|
(23,166
|
)
|
(24,510
|
)
|
|||||||
|
Benefit obligation at end of year
|
$
|
1,388,650
|
|
$
|
1,203,677
|
|
$
|
155,864
|
|
$
|
156,060
|
|
|||
|
Change in plan assets:
|
|||||||||||||||
|
Fair value of plan assets at beginning of year
|
771,914
|
|
731,676
|
|
—
|
|
—
|
|
|||||||
|
Actual return on plan assets
|
125,430
|
|
39,091
|
|
—
|
|
—
|
|
|||||||
|
Employer contribution
|
60,096
|
|
67,584
|
|
17,635
|
|
18,678
|
|
|||||||
|
Plan participants' contributions
|
884
|
|
1,177
|
|
5,531
|
|
5,832
|
|
|||||||
|
Plan settlements
|
(867
|
)
|
(4,051
|
)
|
—
|
|
—
|
|
|||||||
|
Impact of foreign currency changes
|
1,602
|
|
(1,565
|
)
|
—
|
|
—
|
|
|||||||
|
Benefits paid
|
(64,697
|
)
|
(61,998
|
)
|
(23,166
|
)
|
(24,510
|
)
|
|||||||
|
Fair value of plan assets at end of year
|
894,362
|
|
771,914
|
|
—
|
|
—
|
|
|||||||
|
Unfunded status at end of year
|
$
|
(494,288
|
)
|
$
|
(431,763
|
)
|
$
|
(155,864
|
)
|
$
|
(156,060
|
)
|
|||
_____________
|
(1)
|
Actuarial losses in the Company's pension benefit plans resulted from changes in discount rate assumptions, primarily for the Company's U.S. plans. Changes in financial markets during
2011
and
2012
, including a decrease in corporate bond yield indices, caused a reduction in the discount rates used to measure the benefit obligations in each of those years.
|
59
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
Amounts recognized in the consolidated balance sheets as of
November 25, 2012
, and
November 27, 2011
, consist of the following:
|
Pension Benefits
|
Postretirement Benefits
|
||||||||||||||
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
|
(Dollars in thousands)
|
|||||||||||||||
|
Accrued benefit liability – current portion
|
(8,217
|
)
|
(7,876
|
)
|
(14,906
|
)
|
(15,952
|
)
|
|||||||
|
Accrued benefit liability – long-term portion
|
(486,071
|
)
|
(423,887
|
)
|
(140,958
|
)
|
(140,108
|
)
|
|||||||
|
$
|
(494,288
|
)
|
$
|
(431,763
|
)
|
$
|
(155,864
|
)
|
$
|
(156,060
|
)
|
||||
|
Accumulated other comprehensive loss:
|
|||||||||||||||
|
Net actuarial loss
|
$
|
(493,487
|
)
|
$
|
(395,554
|
)
|
$
|
(51,644
|
)
|
$
|
(46,393
|
)
|
|||
|
Net prior service benefit
|
708
|
|
806
|
|
493
|
|
16,849
|
|
|||||||
|
$
|
(492,779
|
)
|
$
|
(394,748
|
)
|
$
|
(51,151
|
)
|
$
|
(29,544
|
)
|
||||
The accumulated benefit obligation for all defined benefit plans was
$1.4 billion
and
$1.2 billion
at
November 25, 2012
, and
November 27, 2011
, respectively. Information for the Company's defined benefit plans with an accumulated or projected benefit obligation in excess of plan assets is as follows:
|
Pension Benefits
|
|||||||
|
2012
|
2011
|
||||||
|
(Dollars in thousands)
|
|||||||
|
Accumulated benefit obligations in excess of plan assets:
|
|||||||
|
Aggregate accumulated benefit obligation
|
$
|
1,335,827
|
|
$
|
1,133,801
|
|
|
|
Aggregate fair value of plan assets
|
859,373
|
|
713,818
|
|
|||
|
Projected benefit obligations in excess of plan assets:
|
|||||||
|
Aggregate projected benefit obligation
|
$
|
1,388,650
|
|
$
|
1,203,677
|
|
|
|
Aggregate fair value of plan assets
|
894,362
|
|
771,914
|
|
|||
60
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
The components of the Company's net periodic benefit cost (income) were as follows:
|
|
Pension Benefits
|
Postretirement Benefits
|
|||||||||||||||||||||
|
|
2012
|
2011
|
2010
|
2012
|
2011
|
2010
|
|||||||||||||||||
|
|
(Dollars in thousands)
|
||||||||||||||||||||||
|
Net periodic benefit cost (income):
|
|||||||||||||||||||||||
|
Service cost
|
$
|
8,952
|
|
$
|
10,241
|
|
$
|
7,794
|
|
$
|
397
|
|
$
|
478
|
|
$
|
474
|
|
|||||
|
Interest cost
|
57,635
|
|
60,314
|
|
59,680
|
|
6,634
|
|
7,629
|
|
8,674
|
|
|||||||||||
|
Expected return on plan assets
|
(52,029
|
)
|
(52,959
|
)
|
(46,085
|
)
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
Amortization of prior service (benefit) cost
(1)
|
(78
|
)
|
47
|
|
453
|
|
(16,356
|
)
|
(28,945
|
)
|
(29,566
|
)
|
|||||||||||
|
Amortization of actuarial loss
|
12,612
|
|
14,908
|
|
26,660
|
|
5,157
|
|
5,025
|
|
5,608
|
|
|||||||||||
|
Curtailment (gain) loss
|
(2,391
|
)
|
129
|
|
106
|
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
Special termination benefit
|
159
|
|
120
|
|
312
|
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
Net settlement loss
|
383
|
|
714
|
|
425
|
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
Net periodic benefit cost (income)
|
25,243
|
|
33,514
|
|
49,345
|
|
(4,168
|
)
|
(15,813
|
)
|
(14,810
|
)
|
|||||||||||
|
Changes in accumulated other comprehensive loss:
|
|||||||||||||||||||||||
|
Actuarial loss
(2)
|
110,262
|
|
84,593
|
|
10,408
|
|
2,324
|
|
|||||||||||||||
|
Amortization of prior service benefit (cost)
(1)
|
78
|
|
(47
|
)
|
16,356
|
|
28,945
|
|
|||||||||||||||
|
Amortization of actuarial loss
|
(12,612
|
)
|
(14,908
|
)
|
(5,157
|
)
|
(5,025
|
)
|
|||||||||||||||
|
Curtailment gain (loss)
|
192
|
|
(3,064
|
)
|
—
|
|
—
|
|
|||||||||||||||
|
Net settlement loss
|
(77
|
)
|
(338
|
)
|
—
|
|
—
|
|
|||||||||||||||
|
Total recognized in accumulated other comprehensive loss
|
97,843
|
|
66,236
|
|
21,607
|
|
26,244
|
|
|||||||||||||||
|
Total recognized in net periodic benefit cost (income) and accumulated other comprehensive loss
|
$
|
123,086
|
|
$
|
99,750
|
|
$
|
17,439
|
|
$
|
10,431
|
|
|||||||||||
_____________
|
(1)
|
Postretirement benefits amortization of prior service benefit recognized during each of years 2012, 2011, and 2010 relates primarily to the favorable impact of the February 2004 and August 2003 plan amendments.
|
|
(2)
|
Reflects the impact of the changes in the discount rate assumptions at year-end remeasurement for the pension and postretirement benefit plans for 2012 and 2011.
|
The amounts that will be amortized from “Accumulated other comprehensive loss” into net periodic benefit cost in
2013
for the Company's defined benefit pension and postretirement benefit plans are expected to be
$16.8 million
and
$6.3 million
, respectively.
61
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
Assumptions used in accounting for the Company's benefit plans were as follows:
|
Pension Benefits
|
Postretirement Benefits
|
||||||
|
2012
|
2011
|
2012
|
2011
|
||||
|
Weighted-average assumptions used to determine net periodic benefit cost:
|
|||||||
|
Discount rate
|
4.9%
|
5.5%
|
4.5%
|
4.9%
|
|||
|
Expected long-term rate of return on plan assets
|
6.7%
|
6.9%
|
|||||
|
Rate of compensation increase
|
3.6%
|
4.0%
|
|||||
|
Weighted-average assumptions used to determine benefit obligations:
|
|||||||
|
Discount rate
|
3.8%
|
4.9%
|
3.3%
|
4.5%
|
|||
|
Rate of compensation increase
|
3.5%
|
3.5%
|
|||||
|
Assumed health care cost trend rates were as follows:
|
|||||||
|
Health care trend rate assumed for next year
|
7.4%
|
7.6%
|
|||||
|
Rate trend to which the cost trend is assumed to decline
|
4.5%
|
4.5%
|
|||||
|
Year that rate reaches the ultimate trend rate
|
2028
|
2028
|
|||||
For the Company's U.S. benefit plans, the discount rate used to determine the present value of the future pension and postretirement plan obligations was based on a yield curve constructed from a portfolio of high quality corporate bonds with various maturities. Each year's expected future benefit payments are discounted to their present value at the appropriate yield curve rate, thereby generating the overall discount rate. The Company utilized a variety of country-specific third-party bond indices to determine the appropriate discount rates to use for the benefit plans of its foreign subsidiaries.
The Company bases the overall expected long-term rate of return on assets on anticipated long-term returns of individual asset classes and each pension plans' target asset allocation strategy based on current economic conditions. For the U.S. pension plan, the expected long-term returns for each asset class are determined through a mean-variance model to estimate
20
-year returns for the plan.
Health care cost trend rate assumptions are a significant input in the calculation of the amounts reported for the Company's postretirement benefits plans. A one percentage-point change in assumed health care cost trend rates would have no significant effect on the total service and interest cost components or on the postretirement benefit obligation.
Consolidated pension plan assets relate primarily to the U.S. pension plan. The Company utilizes the services of independent third-party investment managers to oversee the management of U.S. pension plan assets. The Company's investment strategy is to invest plan assets in a diversified portfolio of domestic and international equity securities, fixed income securities and real estate and other alternative investments with the objective of generating long-term growth in plan assets at a reasonable level of risk. Prohibited investments for the U.S. pension plan include certain privately placed or other non-marketable debt instruments, letter stock, commodities or commodity contracts and derivatives of mortgage-backed securities, such as interest-only, principal-only or inverse floaters. The current target allocation percentages for the Company's U.S. pension plan assets are
43-47%
for equity securities,
43-47%
for fixed income securities and
8-12%
for other alternative investments, including real estate.
62
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
The fair value of the Company's pension plan assets by asset class are as follows:
|
Year Ended November 25, 2012
|
|||||||||||||||
|
Asset Class
|
Total
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
Significant Observable Inputs
(Level 2)
|
Significant Unobservable Inputs
(Level 3)
|
|||||||||||
|
(Dollars in thousands)
|
|||||||||||||||
|
Cash and cash equivalents
|
$
|
6,585
|
|
$
|
6,585
|
|
$
|
—
|
|
$
|
—
|
|
|||
|
Equity securities
(1)
|
|||||||||||||||
|
U.S. large cap
|
208,722
|
|
—
|
|
208,722
|
|
—
|
|
|||||||
|
U.S. small cap
|
37,356
|
|
—
|
|
37,356
|
|
—
|
|
|||||||
|
International
|
158,281
|
|
—
|
|
158,281
|
|
—
|
|
|||||||
|
Fixed income securities
(2)
|
397,706
|
|
—
|
|
397,706
|
|
—
|
|
|||||||
|
Other alternative investments
|
|
|
|||||||||||||
|
Real estate
(3)
|
69,526
|
|
—
|
|
69,526
|
|
—
|
|
|||||||
|
Private equity
(4)
|
3,837
|
|
—
|
|
—
|
|
3,837
|
|
|||||||
|
Hedge fund
(5)
|
5,733
|
|
—
|
|
5,733
|
|
—
|
|
|||||||
|
Other
(6)
|
6,616
|
|
—
|
|
6,616
|
|
—
|
|
|||||||
|
Total investments at fair value
|
$
|
894,362
|
|
$
|
6,585
|
|
$
|
883,940
|
|
$
|
3,837
|
|
|||
_____________
|
(1)
|
Primarily comprised of equity index funds that track various market indices.
|
|
(2)
|
Predominantly includes bond index funds that invest in U.S. government and investment grade corporate bonds.
|
|
(3)
|
Primarily comprised of investments in U.S. Real Estate Investment Trusts.
|
|
(4)
|
Represents holdings in a diversified portfolio of private equity funds and direct investments in companies located primarily in North America. Fair values are determined by investment fund managers using primarily unobservable market data.
|
|
(5)
|
Primarily invested in a diversified portfolio of equities, bonds, alternatives and cash with a low tolerance for capital loss.
|
|
(6)
|
Primarily relates to accounts held and managed by a third-party insurance company for employee-participants in Belgium. Fair values are based on accumulated plan contributions plus a contractually-guaranteed return plus a share of any incremental investment fund profits.
|
The fair value of plan assets are composed of U.S. plan assets of approximately
$761 million
and non-U.S. plan assets of approximately
$133 million
. The fair values of the substantial majority of the equity, fixed income and real estate investments are based on the net asset value of comingled trust funds that passively track various market indices.
The Company's estimated future benefit payments to participants, which reflect expected future service, as appropriate are anticipated to be paid as follows:
|
Fiscal year
|
Pension Benefits
|
Postretirement Benefits
|
Total
|
||||||||||
|
(Dollars in thousands)
|
|||||||||||||
|
2013
|
$
|
61,726
|
|
$
|
17,943
|
|
$
|
79,669
|
|
||||
|
2014
|
59,188
|
|
17,339
|
|
76,527
|
|
|||||||
|
2015
|
60,580
|
|
16,832
|
|
77,412
|
|
|||||||
|
2016
|
61,661
|
|
16,196
|
|
77,857
|
|
|||||||
|
2017
|
64,067
|
|
15,459
|
|
79,526
|
|
|||||||
|
2018-2022
|
349,646
|
|
69,469
|
|
419,115
|
|
|||||||
At
November 25, 2012
, the Company's contributions to its pension plans in
2013
were estimated to be approximately
$31.7 million
.
63
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
NOTE
9
: EMPLOYEE INVESTMENT PLANS
The Company's Employee Savings and Investment Plan (“ESIP”) is a qualified plan that covers eligible home office employees. The Company matches
125%
of ESIP participant's contributions to all funds maintained under the qualified plan up to the first
6.0%
of eligible compensation. Total amounts charged to expense for the Company's employee investment plans for the years ended
November 25, 2012
,
November 27, 2011
, and
November 28, 2010
, were
$11.0 million
,
$10.3 million
and
$9.7 million
, respectively.
NOTE
10
: EMPLOYEE INCENTIVE COMPENSATION PLANS
Annual Incentive Plan
The Annual Incentive Plan (“AIP”) provides a cash bonus that is earned based upon the Company's business unit and consolidated financial results as measured against pre-established internal targets and upon the performance and job level of the individual. Total amounts charged to expense for this plan for the years ended
November 25, 2012
,
November 27, 2011
, and
November 28, 2010
, were
$54.6 million
,
$54.0 million
and
$46.1 million
, respectively. As of
November 25, 2012
, and
November 27, 2011
, the Company had accrued
$57.2 million
and
$52.6 million
, respectively, for the AIP.
Long-Term Incentive Plans
2006 Equity Incentive Plan (“EIP”).
In July 2006, the Company's board of directors adopted, and the stockholders approved, the EIP. For more information on this plan, see Note
11
.
2005 Long-Term Incentive Plan (“LTIP”).
The Company established a long-term cash incentive plan effective at the beginning of 2005. Executive officers are not participants in this plan. The plan is intended to reward management for its long-term impact on total Company earnings performance. Performance will be measured at the end of a
three
-year period based on the Company's performance over the period measured against the following pre-established targets: (i) the target compound annual growth rate of the Company's earnings adjusted for certain items such as interest and taxes for the three-year period; and (ii) the target compound annual growth rate in the Company's net revenues over the three-year period. Individual target amounts are set for each participant based on job level. Awards will be paid out in the quarter following the end of the three-year period based on Company performance against objectives.
The Company recorded a net reversal of expense for the LTIP of
$3.6 million
and
$2.5 million
for the years ended
November 25, 2012
and
November 27, 2011
, respectively, and expense for the LTIP of
$10.6 million
for the year ended
November 28, 2010
. As of
November 25, 2012
, and
November 27, 2011
, the Company had accrued a total of
$0.1 million
and
$14.9 million
, respectively, for the LTIP, of which
$11.3 million
was recorded in “Accrued salaries, wages and employee benefits” as of
November 27, 2011
, and
$0.1 million
and
$3.6 million
were recorded in “Long-term employee related benefits” as of
November 25, 2012
, and
November 27, 2011
, respectively, on the Company's consolidated balance sheets.
NOTE
11
: STOCK-BASED INCENTIVE COMPENSATION PLANS
The Company recognized stock-based compensation expense of
$5.1 million
,
$6.6 million
and
$11.7 million
, and related income tax expense of
$2.6 million
and income tax benefits of
$2.7 million
and
$4.5 million
, respectively, for the years ended
November 25, 2012
,
November 27, 2011
and
November 28, 2010
, respectively. As of
November 25, 2012
, there was
$11.7 million
of total unrecognized compensation cost related to nonvested awards, which cost is expected to be recognized on a straight-line basis over a weighted-average period of
2.89
years.
No
stock-based compensation cost has been capitalized in the accompanying consolidated financial statements.
2006 Equity Incentive Plan
Under the Company's 2006 Equity Incentive Plan (“EIP”), a variety of stock awards, including stock options, restricted stock, restricted stock units (“RSUs”), and stock appreciation rights (“SARs”) may be granted. The EIP also provides for the grant of performance awards in the form of cash or equity. The aggregate number of shares of common stock authorized for issuance under the EIP is
700,000
shares. At
November 25, 2012
,
585,895
shares remained available for issuance.
64
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
Under the EIP, stock awards have a maximum contractual term of
ten years
and generally must have an exercise price at least equal to the fair market value of the Company's common stock on the date the award is granted. The Company's common stock is not listed on any stock exchange. Accordingly, as provided by the EIP, the stock's fair market value is determined by the Board based upon a valuation performed by Evercore. Awards vest according to terms determined at the time of grant. Unvested stock awards are subject to forfeiture upon termination of employment prior to vesting, but are subject in some cases to early vesting upon specified events, including certain corporate transactions as defined in the EIP or as otherwise determined by the Board in its discretion. Some stock awards are payable in either shares of the Company's common stock or cash at the discretion of the Board as determined at the time of grant.
Upon the exercise of a SAR, the participant will receive a share of common stock in an amount equal to the product of (i) the excess of the per share fair market value of the Company's common stock on the date of exercise over the exercise price, multiplied by (ii) the number of shares of common stock with respect to which the SAR is exercised.
Only non-employee members of the Company's board of directors have received RSUs. Each recipient's initial grant of RSUs is converted to a share of common stock
six months
after discontinuation of service with the Company for each fully vested RSU held at that date. Subsequent grants of RSUs provide recipients with the opportunity to make deferral elections regarding when the Company's common stock are to be delivered in settlement of vested RSUs. If the recipient does not elect to defer the receipt of common stock, then the RSUs are immediately converted to common stock upon vesting. The RSUs additionally have “dividend equivalent rights,” of which dividends paid by the Company on its common stock are credited by the equivalent addition of RSUs.
Shares of common stock will be issued from the Company's authorized but unissued shares and are subject to the Stockholders Agreement that governs all shares.
Put rights.
Prior to an initial public offering (“IPO”) of the Company's common stock, a participant (or estate or other beneficiary of a deceased participant) may require the Company to repurchase shares of the common stock held by the participant at then-current fair market value (a “put right”). Put rights may be exercised only with respect to shares of the Company's common stock that have been held by a participant for at least
six months
following their issuance date, thus exposing the holder to the risk and rewards of ownership for a reasonable period of time. Accordingly, the SARs and RSUs are classified as equity awards, and are reported in “Stockholders' deficit” in the accompanying consolidated balance sheets.
Call rights.
Prior to an IPO, the Company also has the right to repurchase shares of its common stock held by a participant (or estate or other beneficiary of a deceased participant, or other permitted transferee) at then-current fair market value (a “call right”). Call rights apply to an award as well as any shares of common stock acquired pursuant to the award. If the award or common stock is transferred to another person, that person is subject to the call right. As with the put rights, call rights may be exercised only with respect to shares of common stock that have been held by a participant for at least
six months
following their issuance date.
Temporary equity.
Equity-classified awards that may be settled in cash at the option of the holder are presented on the balance sheet outside permanent equity. Accordingly, “Temporary equity” on the face of the accompanying consolidated balance sheets includes the portion of the intrinsic value of these awards relating to the elapsed service period since the grant date as well as the fair value of common stock issued pursuant to the EIP.
65
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
SARs.
The Company grants SARs to a small group of the Company's senior executives. SAR activity during the years ended
November 25, 2012
, and
November 27, 2011
, was as follows:
|
Units
|
Weighted-Average Exercise Price
|
Weighted-Average Remaining Contractual Life (Years)
|
||||||||||
|
Outstanding at November 28, 2010
|
1,915,020
|
|
$
|
40.32
|
|
4.5
|
||||||
|
Granted
|
599,370
|
|
43.06
|
|
||||||||
|
Exercised
|
(26,381
|
)
|
27.26
|
|
||||||||
|
Forfeited
|
(380,332
|
)
|
41.08
|
|
||||||||
|
Expired
|
(86,666
|
)
|
55.15
|
|
||||||||
|
Outstanding at November 27, 2011
|
2,021,011
|
|
$
|
40.52
|
|
3.9
|
||||||
|
Granted
|
1,438,023
|
|
32.09
|
|
||||||||
|
Exercised
|
(271,175
|
)
|
24.93
|
|
||||||||
|
Forfeited
|
(387,407
|
)
|
35.78
|
|
||||||||
|
Expired
|
(263,651
|
)
|
43.49
|
|
||||||||
|
Outstanding at November 25, 2012
|
2,536,801
|
|
$
|
37.82
|
|
4.5
|
||||||
|
Vested and expected to vest at November 25, 2012
|
2,394,646
|
|
$
|
38.06
|
|
4.4
|
||||||
|
Exercisable at November 25, 2012
|
1,350,483
|
|
$
|
42.53
|
|
2.9
|
||||||
The vesting terms of SARs range from two-and-a-half to four years, and have maximum contractual lives ranging from six-and-a-half to ten years.
The weighted-average grant date fair value of SARs was estimated using the Black-Scholes option valuation model. The weighted-average grant date fair values and corresponding weighted-average assumptions used in the model were as follows:
|
SARs Granted
|
|||||||||||||
|
2012
|
2011
|
2010
|
|||||||||||
|
Weighted-average grant date fair value
|
$
|
10.96
|
|
$
|
16.08
|
|
$
|
13.10
|
|
||||
|
Weighted-average assumptions:
|
|||||||||||||
|
Expected life (in years)
|
4.5
|
|
4.6
|
|
4.5
|
|
|||||||
|
Expected volatility
|
47.1
|
%
|
46.9
|
%
|
48.0
|
%
|
|||||||
|
Risk-free interest rate
|
0.6
|
%
|
2.0
|
%
|
2.1
|
%
|
|||||||
|
Expected dividend
|
1.7
|
%
|
1.2
|
%
|
2.0
|
%
|
|||||||
66
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
RSUs
. The Company grants RSUs to certain members of its Board of Directors. RSU activity during the years ended
November 25, 2012
, and
November 27, 2011
, was as follows:
|
Units
|
Weighted-Average Fair Value
|
|||||||||
|
Outstanding at November 28, 2010
|
66,255
|
|
$
|
36.63
|
|
|||||
|
Granted
|
30,584
|
|
39.57
|
|
||||||
|
Converted
|
(37,331
|
)
|
35.88
|
|
||||||
|
Forfeited
|
—
|
|
—
|
|
||||||
|
Outstanding at November 27, 2011
|
59,508
|
|
$
|
38.61
|
|
|||||
|
Granted
|
34,396
|
|
32.90
|
|
||||||
|
Converted
|
(21,425
|
)
|
31.13
|
|
||||||
|
Forfeited
|
—
|
|
—
|
|
||||||
|
Outstanding, vested and expected to vest at November 25, 2012
|
72,479
|
|
$
|
38.11
|
|
|||||
The weighted-average grant date fair value of RSUs was estimated using the Evercore stock valuation.
RSUs vest in a series of three equal installments at thirteen months, twenty-four months and thirty-six months following the date of grant. However, if the recipient's continuous service terminates for reason other than cause after the first vesting installment, but prior to full vesting, then the remaining unvested portion of the award becomes fully vested as of the date of such termination.
Total Shareholder Return Plan
In 2008, the Company established the Total Shareholder Return Plan (“TSRP”) as a cash-settled plan under the EIP to provide long-term incentive compensation for the Company's senior management. The TSRP provides for grants of units that vest over a three-year performance period. Upon vesting of a TSRP unit, the participant will receive a cash payout in an amount equal to the excess of the per share value of the Company's common stock at the end of the
three
-year performance period over the per share value at the date of grant. The common stock values used in the determination of the TSRP grants and payouts are approved by the Board based on the Evercore stock valuation. Unvested units are subject to forfeiture upon termination of employment, but are subject in some cases to early vesting upon specified events, as defined in the agreement. The TSRP units are classified as liability instruments due to their cash settlement feature and are required to be remeasured to fair value at the end of each reporting period until settlement.
67
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
TSRP activity during the years ended
November 25, 2012
, and
November 27, 2011
, was as follows:
|
Units
|
Weighted-Average Exercise Price
|
Weighted-Average Fair Value At Period End
|
||||||||||||
|
Outstanding at November 28, 2010
|
1,241,425
|
|
$
|
33.91
|
|
$
|
13.20
|
|
||||||
|
Granted
|
431,925
|
|
42.65
|
|
||||||||||
|
Exercised
|
—
|
|
—
|
|
||||||||||
|
Forfeited
|
(255,750
|
)
|
32.37
|
|
||||||||||
|
Expired
|
(248,850
|
)
|
49.80
|
|
||||||||||
|
Outstanding at November 27, 2011
|
1,168,750
|
|
$
|
34.09
|
|
$
|
6.59
|
|
||||||
|
Granted
|
389,450
|
|
32.09
|
|
||||||||||
|
Exercised
|
(436,875
|
)
|
24.84
|
|
||||||||||
|
Forfeited
|
(289,175
|
)
|
37.46
|
|
||||||||||
|
Expired
|
—
|
|
—
|
|
||||||||||
|
Outstanding at November 25, 2012
|
832,150
|
|
$
|
36.83
|
|
$
|
4.22
|
|
||||||
|
Vested and expected to vest at November 25, 2012
|
694,575
|
|
$
|
37.09
|
|
$
|
3.81
|
|
||||||
|
Exercisable at November 25, 2012
|
252,350
|
|
$
|
36.36
|
|
$
|
1.26
|
|
||||||
The weighted-average fair value of TSRPs at
November 25, 2012
, and
November 27, 2011
, was estimated using the Black-Scholes option valuation model. The weighted-average assumptions used in the model were as follows:
|
TSRPs Outstanding at
|
|||||||||||
|
November 25, 2012
|
November 27, 2011
|
||||||||||
|
Weighted-average assumptions:
|
|||||||||||
|
Expected life (in years)
|
1.2
|
|
1.1
|
|
|||||||
|
Expected volatility
|
38.3
|
%
|
46.9
|
%
|
|||||||
|
Risk-free interest rate
|
0.2
|
%
|
0.1
|
%
|
|||||||
|
Expected dividend
|
1.7
|
%
|
1.2
|
%
|
|||||||
NOTE
12
: LONG-TERM EMPLOYEE RELATED BENEFITS
Long-term employee-related benefit liabilities primarily consist of the Company's liabilities for its deferred compensation plans.
Deferred compensation plan for executives and outside directors, established
January 1, 2003.
The Company has a non-qualified deferred compensation plan for executives and outside directors that was established on January 1, 2003 and amended thereafter. The deferred compensation plan obligations are payable in cash upon retirement, termination of employment and/or certain other times in a lump-sum distribution or in installments, as elected by the participant in accordance with the plan. As of
November 25, 2012
, and
November 27, 2011
, these plan liabilities totaled
$18.7 million
and
$21.1 million
, respectively, of which
$1.1 million
and
$6.3 million
was included in “Accrued salaries, wages and employee benefits” as of
November 25, 2012
, and
November 27, 2011
, respectively. The Company held funds of approximately
$20.3 million
and
$18.1 million
in an irrevocable grantor's rabbi trust as of
November 25, 2012
, and
November 27, 2011
, respectively, related to this plan. Rabbi trust assets are included in “Other current assets” or “Other non-current assets” on the Company's consolidated balance sheets.
68
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
Deferred compensation plan for executives, prior to January 1, 2003.
The Company also maintains a non-qualified deferred compensation plan for certain management employees relating to compensation deferrals for the period prior to January 1, 2003. The rabbi trust is not a feature of this plan. As of
November 25, 2012
, and
November 27, 2011
, liabilities for this plan totaled
$41.6 million
and
$43.1 million
, respectively, of which
$5.5 million
and
$4.9 million
, respectively, was included in “Accrued salaries, wages and employee benefits” on the Company's consolidated balance sheets.
Interest earned by the participants in deferred compensation plans was
$6.8 million
,
$0.7 million
and
$5.6 million
for the years ended
November 25, 2012
,
November 27, 2011
, and
November 28, 2010
, respectively. The charges were included in “Interest expense” in the Company's consolidated statements of income.
NOTE
13
: COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
The Company is obligated under operating leases for manufacturing, finishing and distribution facilities, office space, retail stores and equipment. At
November 25, 2012
, obligations for future minimum payments under operating leases were as follows:
|
(Dollars in thousands)
|
|||||||
|
2013
|
$
|
146,079
|
|
||||
|
2014
|
114,568
|
|
|||||
|
2015
|
96,278
|
|
|||||
|
2016
|
81,402
|
|
|||||
|
2017
|
70,131
|
|
|||||
|
Thereafter
|
200,454
|
|
|||||
|
Total future minimum lease payments
|
$
|
708,912
|
|
||||
In general, leases relating to real estate include renewal options of up to approximately
27 years
, except for the San Francisco headquarters office lease, which contains multiple renewal options of up to
57 years
. Some leases contain escalation clauses relating to increases in operating costs. Rental expense for the years ended
November 25, 2012
,
November 27, 2011
, and
November 28, 2010
, was
$186.1 million
,
$174.6 million
and
$161.2 million
, respectively.
Forward Foreign Exchange Contracts
The Company uses over-the-counter derivative instruments to manage its exposure to foreign currencies. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the forward foreign exchange contracts. However, the Company believes that its exposures are appropriately diversified across counterparties and that these counterparties are creditworthy financial institutions. Please see Note
5
for additional information.
Other Contingencies
Litigation.
In the ordinary course of business, the Company has various pending cases involving contractual matters, facility- and employee-related matters, distribution matters, product liability claims, trademark infringement and other matters. The Company does not believe any of these pending legal proceedings will have a material impact on its financial condition, results of operations or cash flows.
NOTE
14
: DIVIDEND PAYMENT
The Company paid cash dividends of
$20.0 million
in the first half of
2012
,
2011
and
2010
. Subsequent to the Company's year-end, the Company's Board of Directors declared and the Company paid a cash dividend of
$25.1 million
.
The Company does not have an established annual dividend policy. The Company will continue to review its ability to pay cash dividends at least annually, and dividends may be declared at the discretion of the Company's Board of Directors depending upon, among other factors, the income tax impact to the dividend recipients, the Company's financial condition and compliance with the terms of the Company's debt agreements.
69
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
NOTE
15
: ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive income (loss) is summarized below:
|
Levi Strauss & Co.
|
|||||||||||||||||||||||||||
|
Pension and Postretirement Benefits
(1)
|
Translation Adjustments
|
Unrealized Gain (Loss) on Marketable Securities
|
|||||||||||||||||||||||||
|
Net Investment Hedges
|
Foreign Currency Translation
|
Total
|
Noncontrolling Interest
|
Totals
|
|||||||||||||||||||||||
|
(Dollars in thousands)
|
|||||||||||||||||||||||||||
|
Accumulated other comprehensive income (loss) at November 29, 2009
|
$
|
(176,880
|
)
|
$
|
(49,317
|
)
|
$
|
(21,595
|
)
|
$
|
(2,075
|
)
|
$
|
(249,867
|
)
|
$
|
9,945
|
|
$
|
(239,922
|
)
|
||||||
|
Gross changes
|
(34,625
|
)
|
37,143
|
|
(20,833
|
)
|
3,615
|
|
(14,700
|
)
|
130
|
|
(14,570
|
)
|
|||||||||||||
|
Tax
|
12,698
|
|
(14,215
|
)
|
(4,701
|
)
|
(1,383
|
)
|
(7,601
|
)
|
—
|
|
(7,601
|
)
|
|||||||||||||
|
Other comprehensive income (loss), net of tax
|
(21,927
|
)
|
22,928
|
|
(25,534
|
)
|
2,232
|
|
(22,301
|
)
|
130
|
|
(22,171
|
)
|
|||||||||||||
|
Accumulated other comprehensive income (loss) at November 28, 2010
|
(198,807
|
)
|
(26,389
|
)
|
(47,129
|
)
|
157
|
|
(272,168
|
)
|
10,075
|
|
(262,093
|
)
|
|||||||||||||
|
Gross changes
|
(92,480
|
)
|
(3,758
|
)
|
(10,881
|
)
|
(1,149
|
)
|
(108,268
|
)
|
794
|
|
(107,474
|
)
|
|||||||||||||
|
Tax
|
35,603
|
|
1,454
|
|
(3,068
|
)
|
445
|
|
34,434
|
|
—
|
|
34,434
|
|
|||||||||||||
|
Other comprehensive income (loss), net of tax
|
(56,877
|
)
|
(2,304
|
)
|
(13,949
|
)
|
(704
|
)
|
(73,834
|
)
|
794
|
|
(73,040
|
)
|
|||||||||||||
|
Accumulated other comprehensive income (loss) at November 27, 2011
|
(255,684
|
)
|
(28,693
|
)
|
(61,078
|
)
|
(547
|
)
|
(346,002
|
)
|
10,869
|
|
(335,133
|
)
|
|||||||||||||
|
Gross changes
|
(119,450
|
)
|
16,070
|
|
(4,755
|
)
|
2,549
|
|
(105,586
|
)
|
(457
|
)
|
(106,043
|
)
|
|||||||||||||
|
Tax
|
44,173
|
|
(6,230
|
)
|
(2
|
)
|
(988
|
)
|
36,953
|
|
—
|
|
36,953
|
|
|||||||||||||
|
Other comprehensive income (loss), net of tax
|
(75,277
|
)
|
9,840
|
|
(4,757
|
)
|
1,561
|
|
(68,633
|
)
|
(457
|
)
|
(69,090
|
)
|
|||||||||||||
|
Accumulated other comprehensive income (loss) at November 25, 2012
|
$
|
(330,961
|
)
|
$
|
(18,853
|
)
|
$
|
(65,835
|
)
|
$
|
1,014
|
|
$
|
(414,635
|
)
|
$
|
10,412
|
|
$
|
(404,223
|
)
|
||||||
_____________
|
(1)
|
Pension and postretirement benefit amounts primarily resulted from the actuarial losses recorded in conjunction with the year-end remeasurements of pension obligations, and were principally due to a decline in discount rates caused by changes in the financial markets, including a decrease in corporate bond yield indices.
|
70
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
NOTE
16
: OTHER INCOME (EXPENSE), NET
The following table summarizes significant components of “Other income (expense), net”:
|
|
Year Ended
|
||||||||||||
|
|
November 25,
2012 |
November 27,
2011 |
November 28,
2010 |
||||||||||
|
|
(Dollars in thousands)
|
||||||||||||
|
Foreign exchange management (losses) gains
(1)
|
$
|
(9,444
|
)
|
$
|
15,310
|
|
$
|
(6,179
|
)
|
||||
|
Foreign currency transaction gains (losses)
(2)
|
8,512
|
|
(20,251
|
)
|
9,940
|
|
|||||||
|
Interest income
|
1,514
|
|
1,618
|
|
2,232
|
|
|||||||
|
Other
|
4,220
|
|
2,048
|
|
654
|
|
|||||||
|
Total other income (expense), net
|
$
|
4,802
|
|
$
|
(1,275
|
)
|
$
|
6,647
|
|
||||
_____________
|
(1)
|
Gains and losses on forward foreign exchange contracts primarily result from currency fluctuations relative to negotiated contract rates. Losses on forward foreign exchange contracts in
2012
primarily resulted from unfavorable currency fluctuations relative to negotiated contract rates on positions to sell the Mexican Peso. Gains in
2011
primarily resulted from favorable currency fluctuations in the fourth quarter, relative to negotiated contract rates, including the appreciation of the U.S. Dollar against various foreign currencies.
|
|
(2)
|
Foreign currency transaction gains and losses reflect the impact of foreign currency fluctuation on the Company's foreign currency denominated balances. Gains in
2012
were primarily due to a significant increase in Euro denominated intercompany receivables and the appreciation of the U.S. Dollar against the Japanese Yen. Losses in
2011
were primarily due to the depreciation of the U.S. Dollar, the Turkish Lira and the Polish Zloty against various foreign currencies.
|
NOTE
17
: INCOME TAXES
The Company's income tax expense was
$54.9 million
,
$67.7 million
and
$86.2 million
for the years
2012
,
2011
and
2010
, respectively. The decrease in income tax expense in
2012
as compared to
2011
is primarily due to a net tax benefit of
$27.0 million
recognized in 2012, resulting from a definitive agreement with the State of California on the state tax refund claims involving tax years 1986 – 2004. The benefit was partially offset by a charge of
$9.1 million
for the write-off of domestic deferred tax assets associated with expired stock appreciation rights and fixed assets, as well as an unfavorable shift in the mix of foreign earnings to jurisdictions with higher effective tax rates.
The decrease in income tax expense for
2011
as compared to
2010
primarily reflects the decrease in income before income taxes, as well as the comparatively favorable net impact of the following three significant income tax entries recorded in 2010. In 2010, the Company recognized a
$27.5 million
tax charge for a valuation allowance to fully offset the amount of deferred tax assets in Japan and a
$14.5 million
tax charge for a reduction in deferred tax assets as a result of the enactment of the Patient Protection and Affordable Care Act (Health Care Act); these charges were partially offset by a
$34.2 million
tax benefit arising from plans to repatriate the prior undistributed earnings of foreign subsidiaries.
The U.S. and foreign components of income before income taxes were as follows:
|
Year Ended
|
|||||||||||||
|
November 25, 2012
|
November 27, 2011
|
November 28, 2010
|
|||||||||||
|
(Dollars in thousands)
|
|||||||||||||
|
Domestic
|
$
|
82,764
|
|
$
|
114,236
|
|
$
|
165,489
|
|
||||
|
Foreign
|
113,117
|
|
88,591
|
|
70,109
|
|
|||||||
|
Total Income before Income Taxes
|
$
|
195,881
|
|
$
|
202,827
|
|
$
|
235,598
|
|
||||
71
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
Income tax expense (benefit) consisted of the following:
|
Year Ended
|
|||||||||||||
|
November 25, 2012
|
November 27, 2011
|
November 28, 2010
|
|||||||||||
|
(Dollars in thousands)
|
|||||||||||||
|
U.S. Federal
|
|||||||||||||
|
Current
|
$
|
15,334
|
|
$
|
19,992
|
|
$
|
12,259
|
|
||||
|
Deferred
|
29,537
|
|
40,435
|
|
24,507
|
|
|||||||
|
$
|
44,871
|
|
$
|
60,427
|
|
$
|
36,766
|
|
|||||
|
U.S. State
|
|||||||||||||
|
Current
|
$
|
(34,603
|
)
|
$
|
(10
|
)
|
$
|
2,854
|
|
||||
|
Deferred
|
(2,956
|
)
|
(617
|
)
|
2,454
|
|
|||||||
|
$
|
(37,559
|
)
|
$
|
(627
|
)
|
$
|
5,308
|
|
|||||
|
Foreign
|
|||||||||||||
|
Current
|
$
|
54,338
|
|
$
|
31,580
|
|
$
|
39,926
|
|
||||
|
Deferred
|
(6,728
|
)
|
(23,665
|
)
|
4,152
|
|
|||||||
|
$
|
47,610
|
|
$
|
7,915
|
|
$
|
44,078
|
|
|||||
|
Consolidated
|
|||||||||||||
|
Current
|
$
|
35,069
|
|
$
|
51,562
|
|
$
|
55,039
|
|
||||
|
Deferred
|
19,853
|
|
16,153
|
|
31,113
|
|
|||||||
|
Total Income Tax Expense
|
$
|
54,922
|
|
$
|
67,715
|
|
$
|
86,152
|
|
||||
The Company's effective income tax rate was
28.0%
,
33.4%
, and
36.6%
for
2012
,
2011
and
2010
, respectively. The Company's income tax expense differed from the amount computed by applying the U.S. federal statutory income tax rate of
35%
to income before income taxes as follows:
|
Year Ended
|
|||||||||||||||||
|
November 25, 2012
|
November 27, 2011
|
November 28, 2010
|
|||||||||||||||
|
(Dollars in thousands)
|
|||||||||||||||||
|
Income tax expense at U.S. federal statutory rate
|
$
|
68,558
|
|
35.0
|
%
|
$
|
70,990
|
|
35.0
|
%
|
$
|
82,459
|
|
35.0
|
%
|
||
|
State income taxes, net of U.S. federal impact
|
892
|
|
0.5
|
%
|
1,535
|
|
0.8
|
%
|
1,894
|
|
0.8
|
%
|
|||||
|
Change in Health Care Act legislation
|
—
|
|
—
|
%
|
—
|
|
—
|
%
|
14,481
|
|
6.2
|
%
|
|||||
|
Change in valuation allowance
|
(1,329
|
)
|
(0.7
|
)%
|
(2,421
|
)
|
(1.2
|
)%
|
28,278
|
|
12.0
|
%
|
|||||
|
Impact of foreign operations
|
7,313
|
|
3.7
|
%
|
(2,148
|
)
|
(1.1
|
)%
|
(40,668
|
)
|
(17.3
|
)%
|
|||||
|
Reassessment of tax liabilities
|
(29,500
|
)
|
(15.1
|
)%
|
(51
|
)
|
—
|
%
|
162
|
|
0.1
|
%
|
|||||
|
Write-off of deferred tax assets
|
9,061
|
|
4.6
|
%
|
—
|
|
—
|
%
|
—
|
|
—
|
%
|
|||||
|
Other, including non-deductible expenses
|
(73
|
)
|
—
|
%
|
(190
|
)
|
(0.1
|
)%
|
(454
|
)
|
(0.2
|
)%
|
|||||
|
Total
|
$
|
54,922
|
|
28.0
|
%
|
$
|
67,715
|
|
33.4
|
%
|
$
|
86,152
|
|
36.6
|
%
|
||
72
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
Deferred Tax Assets and Liabilities
The Company's deferred tax assets and deferred tax liabilities were as follows:
|
November 25, 2012
|
November 27, 2011
|
||||||
|
(Dollars in thousands)
|
|||||||
|
Foreign tax credit carryforwards
|
$
|
180,890
|
|
$
|
247,003
|
|
|
|
State net operating loss carryforwards
|
13,030
|
|
14,861
|
|
|||
|
Foreign net operating loss carryforwards
|
82,748
|
|
126,365
|
|
|||
|
Employee compensation and benefit plans
|
300,796
|
|
274,534
|
|
|||
|
Advance royalties
|
82,799
|
|
—
|
|
|||
|
Restructuring and special charges
|
29,031
|
|
18,703
|
|
|||
|
Sales returns and allowances
|
33,372
|
|
35,429
|
|
|||
|
Inventory
|
14,261
|
|
10,240
|
|
|||
|
Property, plant and equipment
|
18,504
|
|
16,037
|
|
|||
|
Unrealized gains/losses on investments
|
9,720
|
|
19,385
|
|
|||
|
Other
|
38,445
|
|
48,884
|
|
|||
|
Total gross deferred tax assets
|
803,596
|
|
811,441
|
|
|||
|
Less: Valuation allowance
|
(74,456
|
)
|
(98,736
|
)
|
|||
|
Total net deferred tax assets
|
$
|
729,140
|
|
$
|
712,705
|
|
|
|
Current
|
|||||||
|
Deferred tax assets
|
$
|
125,804
|
|
$
|
108,726
|
|
|
|
Valuation allowance
|
(9,580
|
)
|
(9,182
|
)
|
|||
|
Total current deferred tax assets
|
$
|
116,224
|
|
$
|
99,544
|
|
|
|
Long-term
|
|||||||
|
Deferred tax assets
|
$
|
677,792
|
|
$
|
702,715
|
|
|
|
Valuation allowance
|
(64,876
|
)
|
(89,554
|
)
|
|||
|
Total long-term deferred tax assets
|
$
|
612,916
|
|
$
|
613,161
|
|
|
In the fourth quarter of
2012
, the Company identified certain deferred tax assets and valuation allowances that should have been written off and reversed, respectively, in prior periods. The Company determined that the amounts were not material to its previously issued financial statements and recorded a correcting entry in the fourth quarter of
2012
. The correction had no effect on operating income or cash, but increased income tax expense and decreased net income in the fourth quarter of
2012
by
$5.8 million
.
Foreign tax credit carryforwards
. This asset decreased from the prior year period primarily due to the utilization of foreign tax credits in the 2012 U.S. federal income tax return, mainly due to the inclusion in 2012 of
$213.7 million
advance royalty payments from the Company's European operations relating to the fiscal years 2013 and thereafter. The foreign tax credit carryforwards at
November 25, 2012
, are subject to expiration from 2014 to 2021, if not utilized.
Foreign net operating loss carryforwards.
As of
November 25, 2012
, the Company had a deferred tax asset of
$82.7 million
for foreign net operating loss carryforwards of
$276.5 million
. Approximately
$136.2 million
of these operating losses expire between the years 2013 and 2031. The remaining
$140.3 million
are available as indefinite carryforwards under applicable tax law.
73
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
Valuation Allowance.
The following table details the changes in valuation allowance during the year ended
November 25, 2012
:
|
Valuation Allowance at November 27, 2011
|
Changes in Related Gross Deferred Tax Asset
|
Release
|
Valuation Allowance at November 25, 2012
|
|||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||
|
Foreign net operating loss carryforwards and other foreign deferred tax assets
|
98,736
|
|
(22,951
|
)
|
(1,329
|
)
|
74,456
|
|
||||||||
|
$
|
98,736
|
|
$
|
(22,951
|
)
|
$
|
(1,329
|
)
|
$
|
74,456
|
|
|||||
At
November 25, 2012
,
$57.3 million
of the Company's valuation allowance related to its gross deferred tax asset for foreign net operating loss carryforwards, to reduce the asset to the amount that will more likely than not be realized. The reduction in the valuation allowance during
2012
was primarily attributable to expirations of unused net operating loss carryforwards in certain foreign jurisdictions.
Uncertain Income Tax Positions
As of
November 25, 2012
, the Company’s total gross amount of unrecognized tax benefits was
$63.6 million
, of which
$38.5 million
could impact the effective tax rate, if recognized, as compared to
November 27, 2011
, when the Company’s total gross amount of unrecognized tax benefits was
$143.4 million
, of which
$87.9 million
could have impacted the effective tax rate, if recognized. The reduction in gross unrecognized tax benefits was primarily due to the Company reaching an agreement during the year with the State of California on state tax refund claims involving tax years 1986 – 2004. In accordance with the agreement, subsequent to the end of the fourth quarter, the Company received a cash refund of state taxes of
$29.0 million
.
The following table reflects the changes to the Company's unrecognized tax benefits for the year ended
November 25, 2012
, and
November 27, 2011
:
|
(Dollars in thousands)
|
|||||||
|
Gross unrecognized tax benefits as of November 28, 2010
|
$
|
150,702
|
|
||||
|
Increases related to current year tax positions
|
4,309
|
|
|||||
|
Increases related to tax positions from prior years
|
307
|
|
|||||
|
Decreases related to tax positions from prior years
|
(2,357
|
)
|
|||||
|
Settlement with tax authorities
|
(1,676
|
)
|
|||||
|
Lapses of statutes of limitation
|
(6,226
|
)
|
|||||
|
Other, including foreign currency translation
|
(1,662
|
)
|
|||||
|
Gross unrecognized tax benefits as of November 27, 2011
|
143,397
|
|
|||||
|
Increases related to current year tax positions
|
5,216
|
|
|||||
|
Increases related to tax positions from prior years
|
3,018
|
|
|||||
|
Decreases related to tax positions from prior years
|
(97
|
)
|
|||||
|
Settlement with tax authorities
|
(83,852
|
)
|
|||||
|
Lapses of statutes of limitation
|
(3,126
|
)
|
|||||
|
Other, including foreign currency translation
|
(930
|
)
|
|||||
|
Gross unrecognized tax benefits as of November 25, 2012
|
$
|
63,626
|
|
||||
The Company believes that it is reasonably possible that unrecognized tax benefits could decrease within the next twelve months by as much as
$23.4 million
due to anticipated settlement of audits in various jurisdictions.
As of
November 25, 2012
, and
November 27, 2011
, accrued interest and penalties primarily relating to non-U.S. jurisdictions were
$15.6 million
and
$16.5 million
, respectively.
74
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
The Company's income tax returns are subject to examination in the U.S. federal and state jurisdictions and numerous foreign jurisdictions. The following table summarizes the tax years that are either currently under audit or remain open and subject to examination by the tax authorities in the major jurisdictions in which the Company operates:
|
Jurisdiction
|
Open Tax Years
|
||
|
U.S. federal
|
2003 – 2012
|
||
|
California
|
2003 – 2012
|
||
|
Belgium
|
2010 – 2012
|
||
|
United Kingdom
|
2008 – 2012
|
||
|
Spain
|
2007 – 2012
|
||
|
Mexico
|
2005 – 2012
|
||
|
Canada
|
2004 – 2012
|
||
|
Hong Kong
|
2006 – 2012
|
||
|
Italy
|
2007 – 2012
|
||
|
France
|
2009 – 2012
|
||
|
Turkey
|
2007 – 2012
|
||
NOTE
18
: RELATED PARTIES
Robert D. Haas, a director and Chairman Emeritus of the Company, is the President of the Levi Strauss Foundation, which is not a consolidated entity of the Company. During
2012
,
2011
, and
2010
, the Company donated
$2.8 million
,
$1.6 million
and
$3.1 million
, respectively, to the Levi Strauss Foundation.
Peter E. Haas Jr., a director of the Company, is the President of the Red Tab Foundation, which is not a consolidated entity of the Company. During
2012
, the Company donated
$0.1 million
to the Red Tab Foundation.
Stephen C. Neal, a director and Chairman of the Board of Directors, is Chairman of the law firm Cooley LLP. In 2010, the Company paid fees to Cooley LLP of approximately
$0.2 million
.
75
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
NOTE
19
: BUSINESS SEGMENT INFORMATION
The Company manages its business according to
three
regional segments: the Americas, Europe and Asia Pacific. The Company considers its chief executive officer to be the Company’s chief operating decision maker. The Company’s management, including the chief operating decision maker, manages business operations, evaluates performance and allocates resources based on the regional segments’ net revenues and operating income. The Company reports net trade receivables and inventories by segment as that information is used by the chief operating decision maker in assessing segment performance. The Company does not report its other assets by segment as that information is not used by the chief operating decision maker in assessing segment performance.
Business segment information for the Company is as follows:
|
|
Year Ended
|
||||||||||||
|
|
November 25,
2012 |
November 27,
2011 |
November 28,
2010 |
||||||||||
|
|
(Dollars in thousands)
|
||||||||||||
|
Net revenues:
|
|||||||||||||
|
Americas
|
$
|
2,749,327
|
|
$
|
2,715,925
|
|
$
|
2,549,086
|
|
||||
|
Europe
|
1,103,212
|
|
1,174,138
|
|
1,105,264
|
|
|||||||
|
Asia Pacific
|
757,654
|
|
871,503
|
|
756,299
|
|
|||||||
|
Total net revenues
|
$
|
4,610,193
|
|
$
|
4,761,566
|
|
$
|
4,410,649
|
|
||||
|
Operating income:
|
|||||||||||||
|
Americas
|
$
|
431,552
|
|
$
|
393,906
|
|
$
|
402,530
|
|
||||
|
Europe
|
178,313
|
|
182,306
|
|
163,475
|
|
|||||||
|
Asia Pacific
|
66,839
|
|
108,065
|
|
86,274
|
|
|||||||
|
Regional operating income
|
676,704
|
|
684,277
|
|
652,279
|
|
|||||||
|
Corporate expenses
(1)
|
342,725
|
|
347,884
|
|
270,918
|
|
|||||||
|
Total operating income
|
333,979
|
|
336,393
|
|
381,361
|
|
|||||||
|
Interest expense
|
(134,694
|
)
|
(132,043
|
)
|
(135,823
|
)
|
|||||||
|
Loss on early extinguishment of debt
|
(8,206
|
)
|
(248
|
)
|
(16,587
|
)
|
|||||||
|
Other income (expense), net
|
4,802
|
|
(1,275
|
)
|
6,647
|
|
|||||||
|
Income before income taxes
|
$
|
195,881
|
|
$
|
202,827
|
|
$
|
235,598
|
|
||||
_____________
|
(1)
|
Included in corporate expenses for the
year ended
November 25, 2012
, is an
$18.8 million
impairment charge related to the Company's decision in the third quarter to outsource distribution in Japan to a third-party and close its owned distribution center in that country.
|
|
Year Ended
|
|||||||||||||
|
November 25, 2012
|
November 27, 2011
|
November 28, 2010
|
|||||||||||
|
(Dollars in thousands)
|
|||||||||||||
|
Depreciation and amortization expense:
|
|||||||||||||
|
Americas
|
$
|
43,368
|
|
$
|
53,804
|
|
$
|
51,050
|
|
||||
|
Europe
|
21,891
|
|
23,803
|
|
25,485
|
|
|||||||
|
Asia Pacific
|
12,887
|
|
12,878
|
|
11,798
|
|
|||||||
|
Corporate
|
44,462
|
|
27,308
|
|
16,563
|
|
|||||||
|
Total depreciation and amortization expense
|
$
|
122,608
|
|
$
|
117,793
|
|
$
|
104,896
|
|
||||
76
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
|
November 25, 2012
|
|||||||||||||||||||
|
Americas
|
Europe
|
Asia Pacific
|
Unallocated
|
Consolidated Total
|
|||||||||||||||
|
(Dollars in thousands)
|
|||||||||||||||||||
|
Assets:
|
|||||||||||||||||||
|
Trade receivables, net
|
$
|
327,308
|
|
$
|
113,405
|
|
$
|
40,996
|
|
$
|
18,963
|
|
$
|
500,672
|
|
||||
|
Inventories
|
270,019
|
|
126,018
|
|
96,969
|
|
25,854
|
|
518,860
|
|
|||||||||
|
All other assets
|
—
|
|
—
|
|
—
|
|
2,150,545
|
|
2,150,545
|
|
|||||||||
|
Total assets
|
$
|
3,170,077
|
|
||||||||||||||||
|
November 27, 2011
|
|||||||||||||||||||
|
Americas
|
Europe
|
Asia Pacific
|
Unallocated
|
Consolidated Total
|
|||||||||||||||
|
(Dollars in thousands)
|
|||||||||||||||||||
|
Assets:
|
|||||||||||||||||||
|
Trade receivables, net
|
$
|
404,401
|
|
$
|
164,077
|
|
$
|
66,779
|
|
$
|
19,646
|
|
$
|
654,903
|
|
||||
|
Inventories
|
332,955
|
|
141,764
|
|
130,953
|
|
5,730
|
|
611,402
|
|
|||||||||
|
All other assets
|
—
|
|
—
|
|
—
|
|
2,013,250
|
|
2,013,250
|
|
|||||||||
|
Total assets
|
$
|
3,279,555
|
|
||||||||||||||||
Geographic information for the Company was as follows:
|
Year Ended
|
|||||||||||||
|
November 25, 2012
|
November 27, 2011
|
November 28, 2010
|
|||||||||||
|
(Dollars in thousands)
|
|||||||||||||
|
Net revenues:
|
|||||||||||||
|
United States
|
$
|
2,412,647
|
|
$
|
2,380,096
|
|
$
|
2,248,340
|
|
||||
|
Foreign countries
|
2,197,546
|
|
2,381,470
|
|
2,162,309
|
|
|||||||
|
Total net revenues
|
$
|
4,610,193
|
|
$
|
4,761,566
|
|
$
|
4,410,649
|
|
||||
|
Deferred tax assets:
|
|||||||||||||
|
United States
|
$
|
647,767
|
|
$
|
643,767
|
|
$
|
646,050
|
|
||||
|
Foreign countries
|
81,373
|
|
68,938
|
|
50,895
|
|
|||||||
|
Total deferred tax assets
|
$
|
729,140
|
|
$
|
712,705
|
|
$
|
696,945
|
|
||||
|
Long-lived assets:
|
|||||||||||||
|
United States
|
$
|
353,567
|
|
$
|
365,907
|
|
$
|
337,592
|
|
||||
|
Foreign countries
|
123,977
|
|
152,874
|
|
169,557
|
|
|||||||
|
Total long-lived assets
|
$
|
477,544
|
|
$
|
518,781
|
|
$
|
507,149
|
|
||||
77
LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE YEARS ENDED NOVEMBER 25, 2012, NOVEMBER 27, 2011, AND NOVEMBER 28, 2010
NOTE
20
: QUARTERLY FINANCIAL DATA (UNAUDITED)
Set forth below are the consolidated statements of operations for the first, second, third and fourth quarters of
2012
and
2011
.
|
Year Ended November 25, 2012
|
First
Quarter
|
Second Quarter
|
Third
Quarter
|
Fourth Quarter
|
|||||||||||
|
(Dollars in thousands)
|
|||||||||||||||
|
Net revenues
|
$
|
1,164,961
|
|
$
|
1,047,157
|
|
$
|
1,100,856
|
|
$
|
1,297,219
|
|
|||
|
Cost of goods sold
|
616,167
|
|
566,471
|
|
580,108
|
|
648,116
|
|
|||||||
|
Gross profit
|
548,794
|
|
480,686
|
|
520,748
|
|
649,103
|
|
|||||||
|
Selling, general and administrative expenses
|
438,583
|
|
435,056
|
|
433,961
|
|
557,752
|
|
|||||||
|
Operating income
|
110,211
|
|
45,630
|
|
86,787
|
|
91,351
|
|
|||||||
|
Interest expense
|
(38,573
|
)
|
(32,411
|
)
|
(32,160
|
)
|
(31,550
|
)
|
|||||||
|
Loss on early extinguishment of debt
|
—
|
|
(8,206
|
)
|
—
|
|
—
|
|
|||||||
|
Other income (expense), net
|
1,172
|
|
10,697
|
|
(5,747
|
)
|
(1,320
|
)
|
|||||||
|
Income before taxes
|
72,810
|
|
15,710
|
|
48,880
|
|
58,481
|
|
|||||||
|
Income tax expense
|
23,513
|
|
2,467
|
|
23,802
|
|
5,140
|
|
|||||||
|
Net income
|
49,297
|
|
13,243
|
|
25,078
|
|
53,341
|
|
|||||||
|
Net (income) loss attributable to noncontrolling interest
|
(79
|
)
|
(10
|
)
|
3,273
|
|
(293
|
)
|
|||||||
|
Net income attributable to Levi Strauss & Co.
|
$
|
49,218
|
|
$
|
13,233
|
|
$
|
28,351
|
|
$
|
53,048
|
|
|||
|
Year Ended November 27, 2011
|
First
Quarter
|
Second Quarter
|
Third
Quarter
|
Fourth Quarter
|
|||||||||||
|
(Dollars in thousands)
|
|||||||||||||||
|
Net revenues
|
$
|
1,120,693
|
|
$
|
1,092,922
|
|
$
|
1,204,017
|
|
$
|
1,343,934
|
|
|||
|
Cost of goods sold
|
562,726
|
|
552,226
|
|
634,573
|
|
719,802
|
|
|||||||
|
Gross profit
|
557,967
|
|
540,696
|
|
569,444
|
|
624,132
|
|
|||||||
|
Selling, general and administrative expenses
|
459,093
|
|
475,720
|
|
488,545
|
|
532,488
|
|
|||||||
|
Operating income
|
98,874
|
|
64,976
|
|
80,899
|
|
91,644
|
|
|||||||
|
Interest expense
|
(34,866
|
)
|
(33,515
|
)
|
(30,208
|
)
|
(33,454
|
)
|
|||||||
|
Loss on early extinguishment of debt
|
—
|
|
—
|
|
—
|
|
(248
|
)
|
|||||||
|
Other income (expense), net
|
(5,959
|
)
|
(1,006
|
)
|
(5,779
|
)
|
11,469
|
|
|||||||
|
Income before taxes
|
58,049
|
|
30,455
|
|
44,912
|
|
69,411
|
|
|||||||
|
Income tax expense
|
18,881
|
|
9,944
|
|
13,612
|
|
25,278
|
|
|||||||
|
Net income
|
39,168
|
|
20,511
|
|
31,300
|
|
44,133
|
|
|||||||
|
Net loss (income) attributable to noncontrolling interest
|
1,507
|
|
460
|
|
893
|
|
(19
|
)
|
|||||||
|
Net income attributable to Levi Strauss & Co.
|
$
|
40,675
|
|
$
|
20,971
|
|
$
|
32,193
|
|
$
|
44,114
|
|
|||
78
|
Item 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
Item 9A.
|
CONTROLS AND PROCEDURES
|
Evaluation of disclosure controls and procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934) that are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit to the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
We updated our evaluation, under the supervision and with the participation of management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of
November 25, 2012
. Based on that evaluation, our chief executive officer and our chief financial officer concluded that as of
November 25, 2012
, our disclosure controls and procedures were effective at the reasonable assurance level.
Management's annual report on internal control over financial reporting
We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance that our books and records accurately reflect our transactions and that our established policies and procedures are followed. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management assessed the effectiveness of our internal control over financial reporting and concluded that our internal control over financial reporting was effective as of
November 25, 2012
. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in
Internal Control-Integrated Framework
.
Changes in internal controls
We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance that our books and records accurately reflect our transactions and that our established policies and procedures are followed. There were no changes to our internal control over financial reporting during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
|
Item 9B.
|
OTHER INFORMATION
|
None.
79
|
Item 10.
|
DIRECTORS AND EXECUTIVE OFFICERS
|
The following provides information about our directors and executive officers as of
February 4, 2013
.
|
Name
|
Age
|
Position
|
||
|
Stephen C. Neal
|
63
|
Chairman of the Board of Directors
|
||
|
Robert D. Haas
(1)(2)(4)
|
70
|
Director, Chairman Emeritus
|
||
|
Charles V. Bergh
|
55
|
Director, President and Chief Executive Officer
|
||
|
Fernando Aguirre
(2)(3)
|
55
|
Director
|
||
|
Troy Alstead
(2)(3)
|
49
|
Director
|
||
|
Vanessa J. Castagna
(1)(3)
|
63
|
Director
|
||
|
Robert A. Eckert
(1)(4)
|
58
|
Director
|
||
|
Peter E. Haas Jr.
(1)(4)
|
65
|
Director
|
||
|
Patricia Salas Pineda
(1)(4)
|
61
|
Director
|
||
|
Varun Bhatia
|
48
|
Senior Vice President and Chief Human Resources Officer
|
||
|
James Curleigh
|
47
|
Executive Vice President and President, Global Levi's
®
Brand
|
||
|
Seth Ellison
|
54
|
Executive Vice President and President, Global Dockers
®
Brand
|
||
|
Seth R. Jaffe
|
55
|
Senior Vice President and General Counsel
|
||
|
David Love
|
50
|
Senior Vice President and Chief Supply Chain Officer
|
||
|
Joelle Maher
|
46
|
Executive Vice President and President, Global Retail
|
||
|
Anne Rohosy
|
54
|
Executive Vice President and President, Commercial Operations Americas and Europe
|
||
|
Harmit Singh
|
49
|
Executive Vice President and Chief Financial Officer*
|
||
_____________
|
(1)
|
Member, Human Resources Committee.
|
|
(2)
|
Member, Finance Committee.
|
|
(3)
|
Member, Audit Committee.
|
|
(4)
|
Member, Nominating, Governance and Corporate Citizenship Committee.
|
* Effective January 16, 2013.
Members of the Haas family are descendants of the family of our founder, Levi Strauss. Peter E. Haas Jr. is a cousin of Robert D. Haas.
Stephen C. Neal
,
a director since 2007, became our Chairman of the Board on September 1, 2011. He is also the Chairman of the law firm Cooley LLP, where he was also Chief Executive Officer from 2001 until January 1, 2008. In addition to his extensive experience as a trial lawyer on a broad range of corporate issues, Mr. Neal has represented and advised numerous boards of directors, special committees of boards and individual directors on corporate governance and other legal matters. Prior to joining Cooley in 1995, Mr. Neal was a partner of the law firm Kirkland & Ellis.
Mr. Neal brings to the board deep knowledge and broad experience in corporate governance as well as his perspectives drawn from advising many companies throughout his career.
Robert D. Haas
,
a director since 1980, is our longest-serving director. He served as Chairman from 1989 to February 2008 when he was named Chairman Emeritus. Mr. Haas joined the Company in 1973 and served in a variety of marketing, planning and operating positions including Chief Executive Officer from 1984 to 1999. In 1985, Mr. Haas led the effort to take the Company private through a leveraged buyout. As Chief Executive Officer he oversaw a business turnaround that resulted in more than a decade of substantial growth, paced by international expansion and the launch of the Dockers
®
brand. Under Mr. Haas' leadership, the Company pioneered a number of practices and policies that have been adopted by corporations and institutions worldwide. These include HIV/AIDS awareness, education and prevention programs, a comprehensive code of supplier conduct to promote safe and healthy working conditions, and full medical benefits for the domestic partners of our employees. Mr. Haas' deep experience in all aspects of the business as well as his familial connection to the Company's founder, prior leaders and shareholders, provide him with a unique perspective on matters discussed by the directors.
80
Charles V. Bergh,
a director since he joined the Company on September 1, 2011, is our President and Chief Executive Officer. Prior to joining Levi Strauss & Co., Mr. Bergh was Group President, Global Male Grooming, for The Procter & Gamble Company (“P&G”), a manufacturer and distributor of consumer products. He held a progression of leadership roles during his 28-year career at P&G. Mr. Bergh previously served on the Board of Directors for VF Corporation and on the Economic Development Board, Singapore, and was a member of the US-AESAN Business Council, Singapore. Mr. Bergh's position as our Chief Executive Officer and his past experience as a leader of large, global consumer brands makes him well-suited to be a member of our board of directors.
Fernando Aguirre
, a director since October 2010, is formerly Chairman of the Board, President and Chief Executive Officer of Chiquita Brands International, Inc., a position he held from 2004 until October 2012. From 1980 to 2004, Mr. Aguirre served The Procter & Gamble Company (“P&G”) in various capacities, including as President of P&G's Global Snacks and U.S. Food Products business, President of Global Feminine Care and President of Special Projects. Mr. Aguirre brings to the board his experiences as a leader of large, global consumer brands, and his skills in translating consumer insights into strategies that drive growth across cultures. Mr. Aguirre is also currently a director of Aetna, Inc.
Troy Alstead
,
a director since April 2012, is the Chief Financial Officer and Chief Administrative Officer of Starbucks Corporation, a role he has held since 2008. He joined Starbucks in 1992, previously serving as Chief Operating Officer, Starbucks Greater China from April 2008 to October 2008, Senior Vice President, Global Finance and Business Operations from August 2007 to April 2008, and Senior Vice President, Corporate Finance from September 2004 to August 2007. Mr. Alstead served in a number of other senior positions with Starbucks prior to 2004. Mr. Alstead brings to the board his broad financial and business perspective developed over many years in the global consumer goods industry.
Vanessa J. Castagna
,
a director since 2007, led Mervyns LLC department stores as its executive chairwoman of the board from 2005 until early 2007. Prior to Mervyns LLC, Ms. Castagna served as chairman and Chief Executive Officer of JC Penney Stores, Catalog and Internet from 2002 through 2004. She joined JC Penney in 1999 as chief operating officer, and was both president and Chief Operating Officer of JC Penney Stores, Catalog and Internet in 2001. Ms. Castagna was selected to serve on the board due to her extensive retail leadership experience. She brings to the board a valuable perspective on the retail and wholesale business. Ms. Castagna is currently a director of SpeedFC and Carter's Inc.
Robert A. Eckert
, a director since May 2010, served as Chairman of the Board of Mattel, Inc. from May 2000 until December 2012, and was Chief Executive Officer from May 2000 until December 2011. He previously worked for Kraft Foods, Inc. for 23 years, most recently as President and Chief Executive Officer from October 1997 until May 2000. From 1995 to 1997, Mr. Eckert was Group Vice President of Kraft Foods, Inc., and from 1993 to 1995, Mr. Eckert was President of the Oscar Mayer foods division of Kraft Foods, Inc. Mr. Eckert was selected to join the board due to his experience as a senior executive engaged with the dynamics of building global consumer brands through high performance expectations, integrity, and decisiveness in driving businesses to successful results. Mr. Eckert has also been a director of McDonald's Corporation since 2003 and a director of Amgen, Inc. since December 2012.
Peter E. Haas Jr.
, a director since 1985, is a director or trustee of each of the Levi Strauss Foundation, Red Tab Foundation, Joanne and Peter Haas Jr. Fund, Walter and Elise Haas Fund and the Novato Youth Center Honorary Board, a Trustee Emeritus of the San Francisco Foundation, and he is Vice President of the Peter E. Haas Jr. Fund. 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. Mr. Haas' background in numerous operational roles specific to the Company and his familial connection to the Company's founder enable him to engage in board deliberations with valuable insight and experience.
Patricia Salas Pineda
, a director since 1991, is currently Group Vice President, National Philanthropy and the Toyota USA Foundation for Toyota Motor North America, Inc., an affiliate of one of the world's largest automotive firms. Ms. Pineda joined Toyota Motor North America, Inc. in September 2004 as Group Vice President of Corporate Communications and General Counsel. Prior to that, Ms. Pineda was Vice President of Legal, Human Resources and Government Relations and Corporate Secretary of New United Motor Manufacturing, Inc. with which she had been associated since 1984. Ms. Pineda was selected as a member of the board to bring her expertise in government relations and regulatory oversight, corporate governance and human resources matters. Her long tenure on the board also provides valuable historical perspective. She is currently a member of the corporate advisory board of the National Council of La Raza, and a member of the board of advisors of Catalyst.
81
Varun Bhatia
joined the Company as our Senior Vice President and Chief Human Resources Officer in July 2012. Mr. Bhatia was previously Vice President of Human Resources of the Asia Pacific division at Kraft Foods from 2008 to 2012. Prior to that, he held various human resources executive roles with consumer goods companies including Kraft Foods, Gillette and Proctor & Gamble.
James Curleigh
joined the Company as our Executive Vice President and President of the Global Levi's
®
Brand in July 2012. Prior to joining the Company, Mr. Curleigh served as the President and Chief Executive Officer of Keen Footwear, Inc., a footwear and accessory company, from 2008 to 2012. Before Keen, he was President and Chief Executive Officer of Salomon Sports North America, an innovative performance sports company, from 2001 to 2007. He also established and led TaylorMade adidas golf division in Europe and held various leadership positions in the London office of M&M Mars, a global consumer goods company.
Seth Ellison
joined the Company as our Executive Vice President and President of the Global Dockers
®
Brand in September 2012. Prior to joining the Company, Mr. Ellison was Executive Vice President and Chief Commercial Officer at Alternative Apparel from 2009 to 2012. Before Alternative Apparel, Mr. Ellison was President of the Swimwear Group at Perry Ellis from 2005 to 2009, and held various leadership positions at Nike, Inc. from 1996 to 2005.
Seth Jaffe
joined the Company as our Senior Vice President and General Counsel in September 2011. Prior to joining the Company, Mr. Jaffe served as Senior Vice President, General Counsel and Secretary of Williams-Sonoma, Inc. from 2002 to August 2011. Mr. Jaffe also held various legal roles at the Company from 1984 to 1999 with increasing responsibilities in the United States and Europe during that time.
David Love
became our Senior Vice President and Chief Supply Chain Officer in 2004 and is responsible for development, sourcing and delivery of our products worldwide. Prior to assuming this role, Mr. Love was Vice President of our U.S. Supply Chain organization from 2001 to 2004 and Senior Director of Product Services for the U.S. Levi's
®
brand from 1999 to 2001. From 1981, when he joined us, to 2001, Mr. Love held various managerial positions.
Joelle Maher
became the Executive Vice President and President of Global Retail for the Company in May 2012. She joined the Company in 2007 as the Company's Vice President and General Manager of Retail Planning, Allocation and Outlet, and most recently held the position of Senior Vice President, Retail Operations, Americas. Prior to joining the Company, she held various leadership positions at companies across the industry including Lucky Brand Jeans, Old Navy, Macy's and Lord & Taylor.
Anne Rohosy
is our Executive Vice President and President of our Commercial Operations in Americas and Europe, a position she has held since February 2012. Ms. Rohosy joined us in October 2009 as Senior Vice President, Levi's
®
North America Commercial Operations, and then served as Senior Vice President, Levi's
®
Wholesale, Americas, before being named Executive Vice President and President of the Global Dockers
®
Brand in May 2011. Ms. Rohosy's professional experience in the apparel industry spans more than 20 years with such global brands as Swatch, Liz Claiborne and 15 years with Nike, Inc., where she led the company's commercial strategy development and apparel sales in the United States and Europe.
Harmit Singh
joined the Company as our Executive Vice President and Chief Financial Officer effective January 16, 2013. Previously, Mr. Singh, was
Executive Vice President and
Chief Financial Officer of Hyatt Hotels Corporation from 2008 to 2012. Prior to that, he spent 14 years at Yum! Brands, Inc. in a variety of roles including Senior Vice President and Chief Financial Officer of Yum Restaurants International from 2005 to 2008. Before joining Yum!, Mr. Singh worked in various financial capacities for American Express India & Area Countries, a worldwide travel, financial and network services company. Mr. Singh served on the board of directors and was also the Audit Committee Chair of Avendra, LLC through August 2012. Mr. Singh is a Chartered Accountant from India.
Our Board of Directors
Our board of directors currently has nine members. Our board is divided into three classes with directors elected for overlapping three-year terms. The term for directors in Class I (Mr. Aguirre and Mr. R.D. Haas) will end at our annual stockholders' meeting in 2014. The term for directors in Class II (Ms. Castagna, Mr. P. E. Haas Jr. and Mr. Neal) will end at our annual stockholders' meeting in 2015. The term for directors in Class III (Mr. Alstead, Mr. Bergh, Mr. Eckert and Ms. Pineda) will end at our annual stockholders' meeting in 2013.
82
Committees
.
Our board of directors has four committees.
|
•
|
Audit.
Our audit committee provides assistance to the board in the board's oversight of the integrity of our financial statements, financial reporting processes, internal controls systems and compliance with legal requirements. The committee meets with our management regularly to discuss our critical accounting policies, internal controls and financial reporting process and our financial reports to the public. The committee also meets with our independent registered public accounting firm and with our financial personnel and internal auditors regarding these matters. The committee also examines the independence and performance of our internal auditors and our independent registered public accounting firm. The committee has sole and direct authority to engage, appoint, evaluate and replace our independent auditor. Both our independent registered public accounting firm and our internal auditors regularly meet privately with this committee and have unrestricted access to the committee. The audit committee held seven meetings during
2012
.
|
– Members: Mr. Alstead (Chair), Mr. Aguirre and Ms. Castagna.
Mr. Alstead is our audit committee financial expert as currently defined under SEC rules. We believe that the composition of our audit committee meets the criteria for independence under, and the functioning of our audit committee complies with the applicable requirements of, the Sarbanes-Oxley Act and SEC rules and regulations.
|
•
|
Finance.
Our finance committee provides assistance to the board in the board's oversight of our financial condition and management, financing strategies and execution and relationships with stockholders, creditors and other members of the financial community. The finance committee held one meeting in
2012
and otherwise acted by unanimous written consent.
|
– Members: Mr. Aguirre (Chair), Mr. Alstead and Mr. R.D. Haas.
|
•
|
Human Resources.
Our human resources committee provides assistance to the board in the board's oversight of our compensation, benefits and human resources programs and of senior management performance, composition and compensation. The committee reviews our compensation objectives and performance against those objectives, reviews market conditions and practices and our strategy and processes for making compensation decisions and approves (or, in the case of our chief executive officer, recommends to the Board) the annual and long term compensation for our executive officers, including our long term incentive compensation plans. The committee also reviews our succession planning, diversity and benefit plans. The human resources committee held six meetings in
2012
.
|
– Members: Ms. Pineda (Chair), Ms. Castagna, Mr. Eckert, Mr. P.E. Haas Jr. and Mr. R.D. Haas.
|
•
|
Nominating, Governance and Corporate Citizenship.
Our nominating, governance and corporate citizenship committee is responsible for identifying qualified candidates for our board of directors and making recommendations regarding the size and composition of the board. In addition, the committee is responsible for overseeing our corporate governance matters, reporting and making recommendations to the board concerning corporate governance matters, reviewing the performance of our chairman and chief executive officer and determining director compensation. The committee also assists the board with oversight and review of corporate citizenship and sustainability matters which may have a significant impact on the Company. The nominating, governance and corporate citizenship committee held five meetings in
2012
.
|
– Members: Mr. Eckert (Chair), Mr. R.D. Haas, Mr. P.E. Haas Jr. and Ms. Pineda.
Board Composition and Risk Management Practices
Board Leadership
While our by-laws do not require separation of the offices of chairman and chief executive officer, these positions are held by different individuals. The Board believes that the separation of the roles of chairman and chief executive officer is a matter to be addressed as part of the succession planning process for those roles and that it is in the best interests of the Company for the board, upon the review and advice of the Nominating, Governance and Corporate Citizenship Committee, to make such a determination when it elects a new chairman or chief executive officer or otherwise as the circumstances may require.
Board Selection Criteria
According to the board's written membership policy, the board seeks directors who are committed to the values of the Company and are, by reason of their character, judgment, knowledge and experience, capable of contributing to the effective governance of the Company. Additionally, the board is committed to maintaining a diverse and engaged board of directors composed of both stockholders and non-stockholders. Upon any vacancy on the board, it seeks to fill that vacancy with any specific skills, experiences or attributes that will enhance the overall perspective or functioning of the board.
83
Board's Role in Risk Management
Management is responsible for the day-to-day management of the risks facing the Company, while the board, as a whole and through its committees, has responsibility for the oversight of risk management. Management engages the board in discussions concerning risk periodically and as needed, and addresses the topic as part of the annual planning discussions where the board and management review key risks to the Company's plans and strategies and the mitigation plans for those risks. In addition, the Audit Committee of the board has the responsibility to review the Company's major financial risk exposures
and the steps management has taken to monitor and control such exposures, with management, the senior internal auditing executive and the independent registered public accounting firm.
Worldwide Code of Business Conduct
We have a Worldwide Code of Business Conduct which applies to all of our directors and employees, including the chief executive officer, the chief financial officer, the controller and our other senior financial officers. The Worldwide Code of Business Conduct covers a number of topics including:
|
•
|
accounting practices and financial communications;
|
|
•
|
conflicts of interest;
|
|
•
|
confidentiality;
|
|
•
|
corporate opportunities;
|
|
•
|
insider trading; and
|
|
•
|
compliance with laws.
|
A copy of the Worldwide Code of Business Conduct is an exhibit to this Annual Report on Form 10-K.
|
Item 11.
|
EXECUTIVE COMPENSATION
|
COMPENSATION DISCUSSION AND ANALYSIS
Our compensation policies and programs are designed to support the achievement of our strategic business plans by attracting, retaining and motivating exceptional talent. Our ability to compete effectively in the marketplace depends on the knowledge, capabilities and integrity of our leaders. Our compensation programs help create a high-performance, outcome-driven and principled culture by holding leaders accountable for delivering results, developing our employees and exemplifying our core values of empathy, originality, integrity and courage. In addition, we believe that our compensation policies and programs for leaders and employees do not promote risk-taking to any degree that would have a material adverse effect on the company.
The Human Resources Committee of the Board of Directors (the “HR Committee”) is responsible for fulfilling the Board's obligation to oversee our executive compensation practices. Each year, the HR Committee conducts a review of our compensation and benefits programs to assess whether the programs are aligned with our business strategies, the competitive practices of our peer companies and our stockholders' interests.
Compensation Philosophy and Objectives
Our executive compensation philosophy focuses on the following key goals:
|
•
|
Attract, motivate and retain high performing talent in an extremely competitive marketplace
|
|
◦
|
Our ability to achieve our strategic business plans and compete effectively in the marketplace is based on our ability to attract, motivate and retain exceptional leadership talent in a highly competitive talent market.
|
|
•
|
Deliver competitive compensation for competitive results
|
|
◦
|
We provide competitive total compensation opportunities that are intended to attract, motivate and retain a highly capable and results-driven executive team, with the majority of compensation based on the achievements of performance results.
|
|
•
|
Align the interests of our executives with those of our stockholders
|
|
◦
|
Our programs offer compensation incentives designed to motivate executives to enhance total stockholder return. These programs align certain elements of compensation with our achievement of corporate growth objectives (including defined financial targets and increases in stockholder value) as well as individual performance.
|
84
Policies and Practices for Establishing Compensation Packages
Establishing the elements of compensation
The HR Committee establishes the elements of compensation for our named executive officers after an extensive review of market data on the executives from the peer group described below. The HR Committee reviews each element of compensation independently and in the aggregate to determine the right mix of elements, and associated amounts, for each named executive officer.
A consistent approach is used for all named executive officers when setting each compensation element. However, the HR Committee, and the Board for the CEO, maintains flexibility to exercise its independent judgment in how it applies the standard approach to each executive, taking into account unique considerations existing at an executive's time of hire, promotion or annual performance review, and the current and future estimated value of previously granted long-term incentives relative to individual performance.
Competitive peer group
In determining the design and the amount of each element of compensation, the HR Committee conducts a thorough annual review of competitive market information. The HR Committee references data provided by Hewitt Associates concerning peer companies in the consumer products, apparel and retail industry segments. The HR Committee also references data from the Apparel Industry & Footwear Compensation Survey published by Kenexa for commercial positions. The peer group is representative of the types of companies we compete with for executive talent, which is the primary consideration for inclusion in the peer group. Revenue size and other financial measures, such as cash flow and profit margin, are secondary considerations in selecting the peer companies.
The peer group used in establishing our named executive officers'
2012
compensation packages was:
|
Company Name
|
|
|
Abercrombie & Fitch Co.
|
Kimberly-Clark Corporation
|
|
Alberto-Culver Company
|
Kohl's Corporation
|
|
Ann Taylor Stores Corporation
|
Limited Brands, Inc.
|
|
Avon Products, Inc.
|
Mattel, Inc.
|
|
The Bon-Ton Stores, Inc.
|
NIKE, Inc.
|
|
Charming Shoppes, inc.
|
Nordstrom, Inc.
|
|
The Clorox Company
|
Phillips-Van Heusen Corporation
|
|
Colgate-Palmolive Company
|
Retail Ventures, Inc.
|
|
Eddie Bauer Holdings, Inc.
|
Revlon Inc.
|
|
The Gap, Inc.
|
Sara Lee Corporation
|
|
General Mills, Inc.
|
The Timberland Company
|
|
Hasbro, Inc.
|
Whirlpool Corporation
|
|
J. C. Penney Company, Inc.
|
Williams-Sonoma, Inc.
|
|
Kellogg Company
|
Yum! Brands Inc.
|
Establishing compensation for named executive officers other than the CEO
The HR Committee does not have established targets for any element of compensation or for total direct compensation. Instead, the HR Committee uses a number of factors in determining compensation for our named executive offices. The factors considered in establishing compensation for our named executives officers include, among others, the individual's performance in the prior year, the scope of each individual's responsibilities, internal and external pay equity, succession planning strategies, and data regarding pay practices and trends.
The HR Committee approves all compensation decisions affecting the named executive officers (other than the CEO) based on recommendations provided by the CEO. The CEO conducts an annual performance review of each member of the executive leadership team against his or her annual objectives and reviews the relevant peer group data provided by the Human Resources staff. The CEO then develops a recommended compensation package for each executive. The HR Committee reviews the recommendations with the CEO, seeks advice from its consultant Exequity, an independent board advisor firm, and approves or adjusts the recommendations as it deems appropriate. The HR Committee then reports on its decisions to the full Board.
85
Kevin Wilson served as the Company's Interim Chief Financial Officer, during a portion of the fiscal year after Blake Jorgensen separated from the Company, while also continuing in his role as Vice President, Finance, Americas Commercial Operations. As such, the compensation guidelines and procedures established for our named executive officers as described here did not apply to him during the interim period. His compensation continues to be managed in a manner consistent with the guidelines for all other vice president and director level employees.
Establishing the CEO compensation package
At the completion of each year, the Nominating, Governance and Corporate Citizenship Committee (the “NG&CC Committee”) assesses the CEO's performance against annual objectives that were established jointly by the CEO and the NG&CC Committee at the beginning of that year, and submits its performance assessment to the HR Committee. The HR Committee then reviews the performance assessment and peer group data in its deliberations. During this decision-making process, the HR Committee consults with Exequity, which informs the HR Committee of market trends and conditions, comments on market data relative to the CEO's current compensation, and provides perspective on other company CEO compensation practices. Based on all of these inputs, in addition to the same guidelines used for setting annual cash, long-term and total compensation for the other named executives, described above, the HR Committee prepares a recommendation to the full Board on all elements of the CEO compensation. The full Board then considers the HR Committee's recommendation and approves the final compensation package for the CEO.
Role of executives and third parties in compensation decisions
Exequity, an independent board and management advisor firm, acts as the HR Committee's independent consultant and as such, advises the HR Committee on industry standards and competitive compensation practices, as well as on the Company's specific executive compensation practices. The HR Committee has reviewed the relationship of Exequity with respect to the Committee and the Company, and no conflict of interest has been identified.
Executive officers may influence the compensation package developed by the Board for the CEO by providing input on the CEO's performance in the past year. The CEO influences the compensation packages for each of the other named executive officers through his recommendations made to the HR Committee.
Elements of Compensation
The primary elements of compensation for our named executive officers are:
|
•
|
Base Salary
|
|
•
|
Annual Incentive Awards
|
|
•
|
Long-Term Incentive Awards
|
|
•
|
Retirement Savings and Insurance Benefits
|
|
•
|
Perquisites
|
Base Salary
The objective of base salary is to provide fixed compensation that reflects what the market pays to individuals in similar roles with comparable experience. The peer group data serves as a general guideline only. The HR Committee, and for the CEO, the Board, retains the authority to exercise its independent judgment in establishing the base salary levels for each individual. Merit increases for the named executive officers are considered by the HR Committee on an annual basis and are based on the executive's individual performance against planned objectives and other factors including the scope of each individual's responsibilities, internal and external pay equity, succession planning strategies, and data regarding pay practices and trends. However, Mr. Wilson received a salary increase for the period he was in the interim CFO role.
Annual Incentive Plan
Our Annual Incentive Plan (“AIP”) provides the named executive officers, and other eligible employees, an opportunity to share in any success that they help create. The AIP encourages the achievement of our internal annual business goals and rewards Company, business unit and individual performance against those annual objectives. The alignment of AIP with our internal annual business goals is intended to motivate all participants to achieve and exceed our annual performance objectives.
86
Performance measures
Our priorities for
2012
were to continue strengthening our business in a challenging global economy and position the Company to return to long-term profitable growth. Our
2012
AIP goals were aligned with these key priorities through three performance measures:
|
•
|
Earnings before interest and taxes (“EBIT”),
a non-GAAP measure that is determined by deducting from operating income, as determined under generally accepted accounting principles in the United States (“GAAP”), the following: restructuring expense, net curtailment gains and losses from our post retirement medical plan in the United States and pension plans worldwide, and certain management-defined unusual, non-recurring selling, general and administrative expense/income items,
|
|
•
|
Days in working capital
, a non-GAAP measure defined as the average days in net trade receivables, plus the average days in inventories, minus the average days in accounts payable, where averages are calculated based on ending balances over the past thirteen months, and
|
|
•
|
Net revenues
as determined under GAAP.
|
We use these measures because we believe they are key drivers in increasing stockholder value and because every AIP participant can impact them in some way. EBIT and days in working capital are used as indicators of our earnings and operating cash flow performance, and net revenue is used as an indicator of our growth. These measures may change from time to time based on business priorities. The HR Committee approves the goals for each measure and the respective funding scale at the beginning of each year to incent the executive team and all employee participants to strive and perform at a high level to meet the goals. The reward for meeting the AIP goals is set by the HR Committee. If goal levels are not met, but performance reaches minimum thresholds, participants may receive partial payouts to recognize their efforts that contributed to Company performance.
Funding the AIP pool
The AIP funding, or the amount of money made available in the AIP pool at the end of the year, is dependent on how actual performance compares to the goals. Actual performance is measured after eliminating any variance introduced by foreign currency movements and other adjustments determined to be appropriate by management based on business circumstances. In
2012
, the three measures of EBIT, days in working capital and net revenue worked together as follows to determine AIP funding:
|
( EBIT Funding
|
x
|
Working Capital Funding Modifier )
|
+
|
Net Revenue Funding
|
=
|
2012 AIP Funding
|
||||||||
|
% of EBIT Goals
|
Initial EBIT AIP
Funding %
|
% of Working Capital Goals
|
Working Capital
Funding Modifier
|
% of Net Revenue Goals*
|
Net Revenue AIP
Funding % **
|
Performance
|
Total AIP
Funding %
|
|||||||
|
≥ 125%
|
175%
|
≥ 110%
|
1.20
|
≥ 110%
|
175%
|
Max
|
175%
|
|||||||
|
100%
|
100%
|
x
|
100%
|
1.00
|
+
|
100%
|
100%
|
=
|
Plan
|
100%
|
||||
|
< 85%
|
40%
|
≤ 95%
|
0.80
|
<95%
|
30%
|
Min
|
0%
|
|||||||
|
Note: EBIT-Working Capital Funding is capped at 175%
|
* Total Company Goal
|
|||||||||||||
|
|
** 100% achievement of EBIT goals required for Net Rev funding above 100%
|
|||||||||||||
|
|
||||||||||||||
|
|
|||||||||||||
|
Incentive Pool Funding Weight:
|
50%
|
+
|
50%
|
=
|
100%
|
|||||||||
|
•
|
Actual EBIT performance compared to our EBIT goals determines initial EBIT AIP funding.
|
|
•
|
Actual days in working capital performance compared to our days in working capital goals results in a working capital modifier, which increases or decreases the initial EBIT AIP funding.
|
|
•
|
Actual net revenue performance compared to our net revenue goals determines Net Revenue AIP funding. To ensure that any incremental net revenue meets profitability goals, actual EBIT must meet or exceed our EBIT goals in order for net revenue funding to be in excess of 100%.
|
|
•
|
EBIT funding and Net Revenue funding are multiplied by the respective incentive pool funding weight and are totaled to determine the AIP funding.
|
87
There are multiple AIP pools reflecting the multiplicity of our businesses and geographic segments. For most employees, the AIP funding is based on a mix of their respective business unit's performance and the performance of the next higher organizational level. Therefore, the final AIP funding for employees in a business unit is the resulting weighted sum of this mix. The intention is to tie individual rewards to the local business unit that the employee most directly impacts and to reinforce the message that the same efforts and results have an impact on the larger organization. For corporate staff, employees in such departments as Finance, Human Resources and Legal who provide support to the entire Company, the funding is based entirely on total Company performance. For our executive leadership team, which includes our named executive officers, their funding is also fully based on total Company performance as they provide leadership to and hold accountability for the total Company.
The table below shows the goals for each of our three performance measures and the actual
2012
funding levels reflecting the total Company performance:
|
EBIT Goal
|
Days in Working Capital Goal
|
Net Revenue Goal
|
Actual AIP Funding Level*
|
|||||||||
|
(Dollars in millions)
|
||||||||||||
|
Total Company
|
$420
|
90
|
|
$
|
4,885
|
|
90.0%
|
|||||
_____________
* The funding results exclude the impacts of foreign currency exchange rate fluctuations on our business results.
At the close of the fiscal year, the HR Committee reviews and approves the final AIP funding levels based on the level of attainment of the designated financial measures at the local, regional and total Company levels. The Committee's review includes an analysis of the fundamentals of the underlying business performance and adjustments for items that are not indicative of ongoing results. Such adjustments may include external factors or internal business decisions that may have impacted financial results during the year. For example, EBIT and Net Revenue are expressed in constant currencies (
i.e.,
excluding the effects of foreign currency translation), since we believe that period-to-period changes in foreign exchange rates can cause our reported results to appear more or less favorable than business fundamentals indicate. AIP funding can range from 0% to a maximum of 175% of the target AIP pool.
Determining named executive officers' AIP targets and actual award amounts
The AIP targets for the named executive officers are a specific dollar amount based on a defined percentage of the executive's base salary, called the AIP participation rate. The AIP participation rate is typically based on the executive's position and peer group practices.
In determining each executive's actual AIP award in any given year, the HR Committee or, with respect to the CEO, the Board, considers the AIP target, the individual's performance and the AIP funding for the respective executive. Because the sum of all actual payments for any given region or business unit do not typically exceed the amount of the AIP funding pool for that unit, the individual awards reflect both performance against individual objectives and relative performance against the balance of employees being paid out of that pool. Executives, like all employees, must be employed on the date of payment to receive payment, except in the cases of layoff, retirement, disability or death or in the case of a negotiated separation agreement. The AIP awards for all employee participants are made in the same manner, except that the employees' managers determine the individual awards.
As previously stated, there are no mandated amounts for any element of compensation; the HR Committee uses a number of factors in determining compensation for our named executive officers. For this reason, an executive's actual AIP award is not pre-determined by position or formulaic. Like all employees, the actual AIP award is based on the assessment of the executive's performance against his or her annual objectives and performance relative to his or her peers, in addition to the AIP funding. Both business and individual annual objectives are taken into account in determining the actual award payments to our named executive officers. Individual annual objectives include non-financial goals which are not stated in quantitative terms, and a particular weighting is not assigned to any one of these individual goals. The non-financial objectives are not established in terms of how difficult or easy they are to attain; rather, they are taken into account in assessing the overall quality of the individual's performance. The target AIP participation rates (stated as a percentage of base salary), target amounts, actual award payments and actual award payment as a percentage of each named executive officer's target payment were as follows:
88
|
Name
|
2012 AIP Participation Rate
|
2012 Target Amount
|
2012 AIP Actual Award Payment
|
Payment as % of Target
|
||||||||||
|
Charles V. Bergh
|
135%
|
$
|
1,620,000
|
|
$
|
1,500,000
|
|
93%
|
||||||
|
Kevin Wilson
(1)
|
44%
|
145,041
|
|
130,537
|
|
90%
|
||||||||
|
Anne Rohosy
(2)
|
80%
|
540,000
|
|
510,300
|
|
95%
|
||||||||
|
David Love
|
70%
|
420,000
|
|
264,600
|
|
63%
|
||||||||
|
Aaron Boey
(3)
|
70%
|
473,319
|
|
425,987
|
|
90%
|
||||||||
|
Blake Jorgensen
(4)
|
80%
|
580,000
|
|
—
|
|
0%
|
||||||||
______________
|
(1)
|
On August 17, 2012, Mr. Wilson, the Company's Vice President, Finance, Americas Commercial Operations, was appointed as the interim Chief Financial Officer of the Company after Mr. Jorgensen separated from the Company effective on that date.
|
|
(2)
|
On February 16, 2012, Anne Rohosy, the Company's Executive Vice President and President, Global Dockers
®
, took on the newly-created role of Executive Vice President and President, Commercial Operations Americas and Europe, effective as of that date.
|
|
(3)
|
Mr. Boey was paid in Singapore Dollars (SGD). For purposes of the table, this amount was converted into U.S. Dollars using an exchange rate of 0.8184, which is the average exchange rate for the last month of the fiscal year. Mr. Boey's last day was November 25, 2012. He will receive this payment pursuant to his separation agreement.
|
|
(4)
|
Mr. Jorgensen separated from the Company effective on August 17, 2012, to pursue other opportunities. He is not eligible to receive a payment under the AIP for fiscal year 2012.
|
Long-Term Incentives
The HR Committee believes a large part of an executive's compensation should be linked to long-term stockholder value creation as an incentive for sustained, profitable growth. Therefore, our long-term incentives for our named executive officers are in the form of equity awards and provide reward opportunities competitive with those offered by companies in the peer group for similar jobs. Consistent with the other elements of compensation, the HR Committee does not have established targets for long-term incentive awards for our named executive officers and uses a number of factors in establishing the long-term incentive award levels for each individual. Should we deliver against our long-term goals, the long-term equity incentive awards become a significant portion of the total compensation of each named executive officer. For more information on the
2012
long-term equity grants, see the
2012
Grants of Plan-Based Awards table.
The Company's common stock is not listed on any stock exchange. Accordingly, the price of a share of our common stock for all purposes, including determining the value of equity awards, is established by the Board based on an independent third-party valuation conducted by Evercore Group LLC (“Evercore”). The valuation process is typically conducted two times a year, with interim valuations occurring from time to time based on stockholder and Company needs. Please see “Stock-Based Compensation” under Note 1 to our audited consolidated financial statements included in this report for more information about the valuation process.
Equity Incentive Plan
Our omnibus 2006 Equity Incentive Plan (“EIP”) enables our HR Committee to select from a variety of stock awards in defining long-term incentives for our management, including stock options, restricted stock and restricted stock units, and stock appreciation rights (“SARs”). The EIP permits the grant of performance awards in the form of equity or cash. Stock awards and performance awards may be granted to employees, including named executive officers, non-employee directors and consultants.
To date, SARs have been the only form of equity granted to our named executive officers under the EIP with the exception of Mr. Wilson. SARs are typically granted annually with four-year vesting periods and exercise periods of up to ten years. (See the table entitled “Outstanding Equity Awards at
2012
Fiscal Year-End” for details concerning the SARs' vesting schedule, including any individual variations from the typical four-year vesting period.) The HR Committee chose to grant SARs rather than other available forms of equity compensation to allow the Company the flexibility to grant SARs that may be settled in either stock or cash. The terms of the SAR grants made to our named executive officers to-date provide for stock settlement only. When a SAR is exercised and settled in stock, the shares issued are subject to the terms of the Stockholders' Agreement, including restrictions on transfer. After the participant has held the shares issued under the EIP for six months, he or she may require the Company to repurchase, or the Company may require the participant to sell to the Company, those shares of common stock. The Company's obligations under the EIP are subject to certain restrictive covenants in our various debt agreements (See Note
6
to our audited consolidated financial statements included in this report for more details).
89
Mr. Wilson served as a named executive officer on an interim basis during a portion of the fiscal year. Because of his interim status, he is ineligible to receive a SAR grant. However, Mr. Wilson does participate in the cash-based long-term incentive plans that are in place for all vice president and director level employees. The Total Shareholder Return Plan (“TSRP”) under our EIP is similar to a stock appreciation rights plan in that awards are based on the amount of stock price increase. The Long-Term Incentive Plan (“LTIP”) is based on performance against the Company's three-year internal goals. Awards under both plans vest automatically at the end of their respective three-year performance periods and payments are made in cash.
Long-term incentive grant practices
The Company does not have any program, plan, or practice to time equity grants to take advantage of the release of material, non-public information. Equity grants are made in connection with compensation decisions made by the HR Committee and the timing of the Evercore valuation process, and are made under the terms of the governing plan.
Retirement Savings and Insurance Benefits
In order to provide a competitive total compensation package, we offer a qualified 401(k) defined contribution retirement plan to our U.S. salaried employees through the Employee Savings and Investment Plan. We also offer a similar defined contribution retirement savings plan, called the Singapore Central Provident Fund, to our employees in Singapore. Executive officers participate in these plans on the same terms as other salaried employees. The ability of executive officers to participate fully in these plans is limited by local/national tax and other related legal requirements. Like many of the companies in the peer group, the Company offers a non-qualified supplement to the 401(k) plan, which is not subject to the IRS and ERISA limitations, through the Deferred Compensation Plan for Executives and Outside Directors. The Company also offers its executive officers the health and welfare insurance plans offered to all employees such as medical, dental, supplemental life, long-term disability and business travel insurance, consistent with the practices of the majority of the companies in the peer group.
In 2004, we froze our U.S. defined benefit pension plan and increased the Company match under the 401(k) plan. This change was made in recognition of an employment market that is characterized by career mobility, and traditional pension plan benefits that are not portable. David Love is the only current named executive officer with adequate years of service to be eligible for future benefits under the frozen U.S. defined benefit pension plan.
Defined contribution retirement plan
The Employee Savings and Investment Plan is a qualified 401(k) defined contribution savings plan that allows U.S. employees, including executive officers, to save for retirement on a pre-tax basis. The Company matches up to a certain level of employee contributions.
Deferred compensation plan
The Deferred Compensation Plan for Executives and Outside Directors is a U.S. non-qualified, unfunded tax effective savings plan provided to the named executive officers and other executives, and the outside directors.
Perquisites
The Company believes perquisites are an element of competitive total rewards. The Company is highly selective in its use of perquisites, the total value of which is modest. The primary perquisite provided to the named executive officers is a flexible allowance to cover expenses such as auto-related expenses, financial and tax planning, legal assistance and excess medical costs.
Tax and Accounting Considerations
We have structured our compensation program to comply with Internal Revenue Code Section 409A. Because our common stock is not registered on any exchange, we are not subject to Section 162(m) of the Internal Revenue Code.
Severance and Change in Control Benefits
The Executive Severance Plan is meant to provide a reasonable and competitive level of financial transitional support to executives who are involuntarily terminated. If employment is involuntarily terminated by the Company due to reduction in force, layoff or position elimination, the executive is eligible for severance payments and benefits. Severance benefits are not payable upon a change in control if the executive is still employed by or offered a comparable position with the surviving entity.
Under the 2006 EIP, in the event of a change in control in which the surviving corporation does not assume or continue the outstanding SARs program or substitute similar awards for such outstanding SARs, the vesting schedule of all SARs held by executives that are still employed upon the change in control will be accelerated in full as of a date prior to the effective date of the transaction as the Board determines. This accelerated vesting structure is designed to encourage the executives to remain
90
employed with the Company through the date of the change in control and to ensure that the equity incentives awarded to the executives are not eliminated by the surviving company.
Compensation Committee Report
The Human Resources Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on the review and discussion, the Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in the Company's annual report on Form 10-K for the fiscal year ended
November 25, 2012
.
The Human Resources Committee
Patricia Salas Pineda (Chair)
Vanessa J. Castagna
Robert Eckert
Peter E. Haas Jr.
Robert D. Haas
91
SUMMARY COMPENSATION DATA
The following table provides compensation information for (i) our chief executive officer, (ii) our interim chief financial officer, (iii) three other executive officers who were our most highly compensated officers and who were serving as executive officers as of the last day of the fiscal year, and (iv) one additional individual for whom disclosure would have been provided, but for the fact that the individual was not serving as an executive officer at the end of the last completed fiscal year.
|
Name and Principal Position
(1)
|
Year
|
Salary
|
Bonus
(4)
|
Option Awards
(5)
|
Non-Equity Incentive Plan Compensation
(6)
|
Change in Pension Value and Non-qualified Deferred Compensation Earnings
(7)
|
All Other Compensation
(8)
|
Total
|
||||||||||||||||||||||
|
Charles V. Bergh
|
||||||||||||||||||||||||||||||
|
President and Chief Executive Officer
|
2012
|
$
|
1,200,000
|
|
$
|
—
|
|
$
|
10,159,786
|
|
$
|
1,500,000
|
|
$
|
—
|
|
$
|
141,842
|
|
$
|
13,001,628
|
|
||||||||
|
2011
|
263,077
|
|
1,850,000
|
|
—
|
|
390,575
|
|
—
|
|
192,592
|
|
2,696,244
|
|
||||||||||||||||
|
Kevin Wilson
|
||||||||||||||||||||||||||||||
|
Interim Chief Financial Officer
|
2012
|
328,928
|
|
—
|
|
—
|
|
130,537
|
|
—
|
|
38,179
|
|
497,644
|
|
|||||||||||||||
|
Anne Rohosy
|
||||||||||||||||||||||||||||||
|
Executive Vice President and President, Commercial Operations America & Europe
|
2012
|
626,538
|
|
—
|
|
824,250
|
|
510,300
|
|
—
|
|
162,791
|
|
2,123,879
|
|
|||||||||||||||
|
2011
|
431,731
|
|
—
|
|
424,800
|
|
300,000
|
|
—
|
|
148,729
|
|
1,305,260
|
|
||||||||||||||||
|
David Love
|
||||||||||||||||||||||||||||||
|
Senior Vice President and Chief Supply Officer
|
2012
|
580,387
|
|
—
|
|
439,600
|
|
264,600
|
|
—
|
|
595,795
|
|
1,880,382
|
|
|||||||||||||||
|
Aaron Boey
(2)(3)
|
||||||||||||||||||||||||||||||
|
Former Executive Vice President and President, Global Denizen
®
Brand
|
2012
|
676,170
|
|
—
|
|
720,471
|
|
425,987
|
|
—
|
|
584,845
|
|
2,407,473
|
|
|||||||||||||||
|
2011
|
634,648
|
|
—
|
|
884,638
|
|
311,867
|
|
—
|
|
46,905
|
|
1,878,058
|
|
||||||||||||||||
|
2010
|
575,528
|
|
—
|
|
516,441
|
|
223,786
|
|
—
|
|
46,435
|
|
1,362,190
|
|
||||||||||||||||
|
Blake Jorgensen
(2)
|
||||||||||||||||||||||||||||||
|
Former Chief Financial Officer
|
2012
|
538,750
|
|
—
|
|
936,612
|
|
—
|
|
—
|
|
114,008
|
|
1,589,370
|
|
|||||||||||||||
|
2011
|
690,192
|
|
—
|
|
982,927
|
|
476,000
|
|
—
|
|
54,670
|
|
2,203,789
|
|
||||||||||||||||
|
2010
|
650,000
|
|
—
|
|
1,118,976
|
|
500,000
|
|
—
|
|
37,323
|
|
2,306,299
|
|
||||||||||||||||
______________
|
(1)
|
On September 1, 2011, Mr. Bergh was named the Chief Executive Officer of the Company.
|
On August 17, 2012, Mr. Wilson was named the interim Chief Financial Officer of the Company. Mr. Wilson remained in that role through January 16, 2013, when Harmit Singh was appointed as an Executive Vice President and the Chief Financial Officer of the Company.
On February 16, 2012, Ms. Rohosy, then the Company's Executive Vice President and President, Global Dockers
®
, took on the newly-created role of Executive Vice President and President, Commercial Operations Americas and Europe, effective as of that date.
|
(2)
|
Mr. Boey's last day with the Company was November 25, 2012. Pursuant to a separation agreement, Mr. Boey received an amount equivalent to $546,075 in U.S. Dollars on his separation date. Also pursuant to his separation agreement, Mr. Boey is eligible to received payments under the AIP.
|
Mr. Jorgenson's last day with the Company was August 17, 2012.
|
(3)
|
Mr. Boey was paid in Singapore Dollars. For purposes of the table, his
2012
payments were converted into U.S. Dollars using an exchange rate of
0.8184
, for
2011
, an exchange rate of
0.7797
, and for
2010
, an exchange rate of
0.7722
. These rates were the average exchange rates for the last month of the Company's
2012
,
2011
and
2010
fiscal years, respectively.
|
|
(4)
|
For Mr. Bergh, the 2011 amount reflects a sign-on bonus of $1,850,000 pursuant to his employment contract.
|
|
(5)
|
These amounts reflect the aggregate grant date fair value of SARs granted to the recipient under the Company's 2006 Equity Incentive Plan, computed in accordance with the Company's accounting policy for stock-based compensation. For a description of the assumptions used in the calculation of these amounts, see Notes
1
and
11
of the audited consolidated financial statements included elsewhere in this report.
|
Mr. Bergh was entitled to a SAR grant in connection with his hire in 2011 per his employment agreement, but the grant was not made until the 2012 fiscal year and thus is reflected as compensation received in 2012 in this table. On February 2, 2012, Mr. Bergh received a SAR grant for 436,720 shares of stock at a strike price of $32.00 per share and fair value per share of $10.71 per share for a total fair value of $4,677,271 representing the SAR grant to be made in connection with his hire in 2011 and Mr. Bergh received a SAR grant for 498,864 shares of stock at a strike price of $32.00 per share and fair value per share of $
10.99
per share for a total fair value of $5,482,515 representing the SAR grant to made for the 2012 fiscal year, for a total fair value for both SAR grants of approximately
$10,159,786
. See Footnote 1 to the Outstanding Equity Awards at 2012 Fiscal Year-End table for the differing vesting schedules of these two grants.
92
On February 2, 2012, Ms. Rohosy received a SAR grant for 75,000 shares of stock at a strike price of $32.00 per share and fair value per share of $
10.99
per share for a total fair value of $
824,250
.
On February 2, 2012, Mr. Love received a SAR grant for 40,000 shares of stock at a strike price of $32.00 per share and fair value per share of $
10.99
per share for a total fair value of $
439,600
.
On February 2, 2012, Mr. Boey received a SAR grant for
65,557
shares of stock at a strike price of $32.00 per share and fair value per share of $
10.99
per share for a total fair value of $
720,471
. As result of his departure from the Company, Mr. Boey forfeited all of his 2012 SAR grant, which had not become vested.
On February 2, 2012, Mr. Jorgensen received a SAR grant for
85,224
shares of stock at a strike price of $32.00 per share and fair value per share of $
10.99
per share for a total fair value of $
936,612
. As a result of his departure from the Company, Mr. Jorgenson forfeited all of his 2012 SAR grant, which had not become vested. In 2012, Mr. Jorgensen exercised previously vested SARs and realized taxable gain of $488,438 on the exercise.
|
(6)
|
These amounts reflect the AIP awards made to the named executive officers except as otherwise stated in this note.
|
For Mr. Bergh, the 2011 amount reflects a prorated AIP amount of $
390,575
per his employment contract, as amended.
For Mr. Boey, the AIP award was paid in Singapore Dollars in a total amount of SGD 520,512, which amount was converted into a U.S. Dollar equivalent at the exchange rate of 0.8184.
|
(7)
|
Effective November 28, 2004, we froze our U.S. pension plan for all salaried employees. Only positive changes in pension value would be reported.
|
|
(8)
|
For Mr. Bergh, the 2012 amount reflects amounts paid for charitable matches, imputed income for fringe benefits, relocation assistance, a car allowance, parking, $15,000 for executive allowance, and a Company 401(k) excess plan match of $101,505.
|
For Mr. Wilson, the 2012 amount reflects imputed fringe benefit income, $3,948 for parking, an executive allowance of $7,000, a 401(k) matching contribution of $12,000, and a 401(k) excess plan match of $
10,968
.
For Ms. Rohosy, the 2012 amount reflects a payment of $86,400 of additional pay, imputed fringe benefit income, an amount for parking, an executive allowance of $15,000, a 401(k) matching contribution, and a 401(k) excess plan match of $
56,255
.
For Mr. Love, the 2012 amount reflects amounts paid for imputed fringe benefit income, parking, an executive allowance of $
16,250
, a 401(k) excess plan match of $46,625, and a distribution from a non-qualified plan in the amount of $527,784.
For Mr. Boey, the 2012 amount reflects an executive allowance of $38,770 of which approximately $36,828 was a car allowance, and employer retirement plan contributions. These amounts are based on the foreign exchange rate noted above. The 2012 amount also reflects a payment to Mr. Boey on his separation date in Singapore Dollars in a lump sum that was the equivalent of $546,075 in U.S. Dollars. For purpose of this disclosure, the amount was converted into U.S. Dollars using an exchange rate of 1.238 Singapore Dollars to every U.S. Dollar.
For Mr. Jorgensen, the 2012 amount reflects amounts paid for imputed fringe benefit income, parking, an executive allowance of $15,000, a payment of $83,654 for unused vacation, and a distribution from a non-qualified plan.
Other Matters
Employment Contracts
Mr. Bergh
. We have an employment agreement with Mr. Bergh effective September 1, 2011. The agreement provides for an annual base salary of $1,200,000 which is subject to annual review and adjustment. Mr. Bergh is also eligible to participate in our AIP at a target participation rate of
135%
of base salary.
Under the terms of his employment agreement, for the fiscal year 2011, Mr. Bergh was entitled to an AIP bonus payment of not less than 100% of his annual AIP target bonus, prorated for the period of his employment during the fiscal year. He also received a one-time employment bonus of $1,850,000 which would have been subject to repayment if his employment with the Company had not exceeded twelve months under certain conditions.
He also participates in the Company's 2006 Equity Incentive Plan and will receive an initial SAR grant having a grant date value of not less than $4,900,000 (the “Initial SAR”). His employment agreement provides that in fiscal 2012 and 2013, he is eligible to receive SAR awards with an aggregate grant date value of not less than the median aggregate grant date value of annual long-term incentive awards made to the Chief Executive Officers of the Company's peer group of companies.
Subject to the accelerated vesting provisions set forth in Mr. Bergh's employment agreement, the Initial SAR award and any annual long-term incentive award granted in 2012 shall vest as to 25% of the shares subject to the award on September 1, 2012, and as to 1/48th of the shares subject to the award, monthly thereafter, subject to Mr. Bergh continuing to provide services to the Company through the relevant vesting dates.
His employment agreement also provides that if Mr. Bergh is terminated from employment either by the Company or constructively within four years of his effective date of employment or in connection with a change in control of the Company under certain circumstances, he will be entitled to receive, among other standard benefits, (1) an aggregate amount equal to two times the sum of his then-effective base salary plus his then-effective target AIP amount, (2) a pro-rated AIP award in respect of the performance period at the time, and (3) company-paid continuation coverage for certain benefits for 18 months. In addition, upon his termination from the Company at any time under certain circumstances, the unvested portion of his SAR awards that would have vested during the 24 months following the date of such termination will immediately vest, and all vested SAR awards shall be exercisable for 18 months following such termination. Upon his termination in connection with a change in control of the Company under certain circumstances, 100% of his SAR awards will immediately vest, and all vested SAR awards shall be exercisable for 18 months following such event. If he resigns from the Company after the fifth anniversary of his effective date
93
of employment, 100% of his SAR awards that have remained outstanding for at least 12 months will immediately vest, and all vested SAR awards shall be exercisable for 18 months following such resignation.
Mr. Bergh's right to any severance or vesting acceleration is subject to his execution of an effective release of claims in favor of the Company and compliance with certain restrictive covenants.
Mr. Bergh is eligible to receive standard healthcare, life insurance and long-term savings program benefits, as well as relocation program benefits. He also receives benefits under the Company's various executive perquisite programs consistent with that provided to his predecessor.
Mr. Bergh's employment is at-will and may be terminated by the Company or by him at any time. Mr. Bergh does not receive any separate compensation for his services as a member of our board of directors.
Mr. Wilson
.
At the start of the 2012 fiscal year, Mr. Wilson was the Company's Vice President, Global Dockers
®
, and in June of 2012, was appointed Vice President, Finance, Americas Commercial Operations, and his arrangement provided for an annualized base salary of $300,000 which is subject to annual review and adjustment. Mr. Wilson was also eligible to participate in our Long Term Incentive Plan (LTIP) in that role, at a long-term target value of $125,000 per year. Mr. Wilson was also eligible to participate in our AIP at a target participation rate of
44%
of his base salary in that role.
On August 17, 2012, Mr. Wilson, was appointed the interim Chief Financial Officer of the Company and remained in that role through the end of the fiscal year. While serving in the interim role, Mr. Wilson's employment arrangement with the Company provided for annualized base compensation of $480,000, and a target annualized payment under the AIP of $210,000.
Mr. Wilson also receives standard healthcare, life insurance and long-term savings program benefits, as well as benefits under our various executive perquisite programs, including a cash allowance of $7,000 per year.
Mr. Wilson's employment is at-will and may be terminated by us or by Mr. Wilson at any time. Mr. Wilson ceased to serve as the interim Chief Financial Officer of the Company when Harmit Singh became our Chief Financial Officer in January 2013. Mr. Wilson continues to serve as the Vice President, Finance, Americas Commercial Operations of the Company.
Ms. Rohosy
. We have an employment arrangement with Ms. Rohosy effective May 9, 2011, which is subject to annual review and adjustment. At the start of the 2012 fiscal year, Ms. Rohosy was Executive Vice President and President, Global Dockers
®
, and the arrangement provided for an annualized base salary of $475,000 and an AIP participation rate of 70%, which are subject to annual review and adjustment. The arrangement also provided for a SAR grant awarded to eligible executives in 2012 under our 2006 Equity Incentive Plan. On February 16, 2012, Ms. Rohosy was promoted to the position of Executive Vice President and President, Commercial Operations America & Europe. In that position, her annualized base salary was increased to $675,000 and her AIP participation rate was increased to
80%
.
Ms. Rohosy also receives standard healthcare, life insurance and long-term savings program benefits, as well as benefits under our various executive perquisite programs, including a cash allowance of $15,000 per year.
Ms. Rohosy's employment is at-will and may be terminated by us or by Ms. Rohosy at any time.
Mr. Love
. We have an employment arrangement with Mr. Love that currently provides for an annualized base salary of $600,000 which is subject to annual review and adjustment. The arrangement also provided for a SAR grant awarded to eligible executives in 2012 under our 2006 Equity Incentive Plan. Mr. Love is eligible to participate in our AIP at a target participation rate of
70%
of his base salary.
Mr. Love also receives standard healthcare, life insurance and long-term savings program benefits, as well as benefits under our various executive perquisite programs, including a cash allowance of $
16,250
per year.
Mr. Love's employment is at-will and may be terminated by us or by Mr. Love at any time.
Mr. Boey
. Prior to his departure from the Company, we had an employment arrangement with Mr. Boey effective September 20, 2010. Mr. Boey separated from the Company effective on November 25, 2012.
Mr. Boey is a resident of Singapore where his employment was also based. The arrangement initially provided for a minimum base salary of SGD 814,000 (US $600,960 using an exchange rate of 1.3545 as of August 31, 2010) which had since been adjusted, pursuant to annual review. The arrangement also provided for a grant of 1.5 times the standard SAR grant awarded to eligible executives in 2011 under our 2006 Equity Incentive Plan. Mr. Boey was eligible to participate in our AIP at a target participation rate of
70%
of his annual base salary.
Mr. Boey also received standard employee healthcare, life insurance and long-term savings program benefits, as well as benefits under our various executive perquisite programs.
94
In connection with his departure at the end of the 2012 fiscal year, the Company and Mr. Boey entered into a Separation Agreement and Release of All Claims which provided that, in exchange for certain releases of claims and compliance with certain post-termination covenants, Mr. Boey was eligible to receive a payment on his separation date in Singaporean Dollars in a lump sum that was the equivalent of $546,075 in U.S. Dollars. For purpose of this disclosure, the amount was converted into U.S. Dollars using an exchange rate of 1.238 Singapore Dollar to every U.S. Dollar. He is also eligible to receive his 2012 AIP payment per his separation agreement.
Mr. Boey's post-termination obligations include covenants relating to non-solicitation for a period of one year, non-disparagement, confidentiality and cooperation with litigation matters and administrative inquiries. The agreement superseded any other potential separation benefits from the Company, including, but not limited to, any rights under the Company's Executive Severance Plan.
Mr. Jorgensen
. We entered into an employment arrangement with Mr. Jorgensen, effective July 1, 2009. Mr. Jorgenson separated from the Company effective on August 17, 2012, to pursue other opportunities.
Prior to his departure, the employment arrangement with Mr. Jorgensen provided for an annualized base salary of $725,000, pursuant to annual review and adjustment. The arrangement also provided for a SAR grant awarded to eligible executives in 2012 under our 2006 Equity Incentive Plan. Mr. Jorgensen was also eligible to participate in our AIP at a target participation rate of
80%
of his base salary. His 2009 award was guaranteed at a minimum of 50% of the target value, assuming a full-year of employment. He also received a one-time signing bonus upon his hire in 2009 of $250,000 which was subject to prorated repayment if his employment with the Company did not exceed 24 months under certain conditions.
Mr. Jorgensen also received standard employee healthcare, life insurance and long-term savings program benefits, as well as benefits under our various executive perquisite programs, including a cash allowance of $15,000 per year.
2012
Grants of Plan-Based Awards
The following table provides information on awards under our
2012
AIP and stock appreciation rights granted under the Equity Incentive Plan in
2012
to each of our named executive officers. The
2012
actual AIP awards for our named executive officers are included in the Summary Compensation Table under the “Non-Equity Incentive Plan Compensation” column.
|
Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards
|
All Other Option Awards
|
||||||||||||||||||||||||
|
Name
|
Grant Date
|
Threshold
|
Target
|
Maximum
|
Number of Securities Underlying Options
(1)
|
Exercise or Base Price of Option Awards
(2)
|
Full Grant Date Fair Value
(3)
|
||||||||||||||||||
|
Charles V. Bergh
|
2012
|
$
|
—
|
|
$
|
1,620,000
|
|
$
|
3,240,000
|
|
935,584
|
|
$
|
32.00
|
|
$
|
10,159,786
|
|
|||||||
|
Kevin Wilson
|
2012
|
—
|
|
145,041
|
|
290,082
|
|
—
|
|
—
|
|
—
|
|
||||||||||||
|
Anne Rohosy
|
2012
|
—
|
|
540,000
|
|
1,080,000
|
|
75,000
|
|
32.00
|
|
824,250
|
|
||||||||||||
|
David Love
|
2012
|
—
|
|
420,000
|
|
840,000
|
|
40,000
|
|
32.00
|
|
439,600
|
|
||||||||||||
|
Aaron Boey
|
2012
|
—
|
|
473,319
|
|
946,638
|
|
65,557
|
|
32.00
|
|
720,471
|
|
||||||||||||
|
Blake Jorgensen
|
2012
|
—
|
|
580,000
|
|
1,160,000
|
|
85,224
|
|
32.00
|
|
936,612
|
|
||||||||||||
______________
|
(1)
|
Reflects SARs granted in
2012
under the 2006 Equity Incentive Plan.
|
Mr. Bergh was entitled to a SAR grant in connection with his hire in 2011 per his employment agreement, but the grant was not made until the 2012 fiscal year and thus is reflected as compensation received in 2012 in this table. On February 2, 2012, Mr. Bergh received a SAR grant for 436,720 shares of stock at a strike price of $32.00 per share and fair value per share of $10.71 per share for a total fair value of $4,677,271 representing the SAR grant to be made in connection with his hire in 2011 and Mr. Bergh received a SAR grant for 498,864 shares of stock at a strike price of $32.00 per share and fair value per share of $
10.99
per share for a total fair value of $5,482,515 representing the SAR grant to made for the 2012 fiscal year, for a total fair value for both SAR grants of approximately
$10,159,786
..
As a result of his separation from the Company on August 17, 2012, Mr. Jorgensen forfeited his 2012 SAR grant which had not become vested.
As a result of his separation from the Company on November 25, 2012, Mr. Boey forfeited his 2012 SAR grant which had not become vested.
|
(2)
|
The exercise price is based on the fair market value of the Company's common stock as of the grant date established by the Evercore valuation process.
|
|
(3)
|
These amounts reflect the aggregate grant date fair value computed in accordance with the Company's accounting policy for stock-based compensation for awards granted under the Equity Incentive Plan.
|
95
Mr. Wilson received a 2012 grant under the TSRP, the Company's cash-settled stock appreciation rights plan, as detailed below. The plan has a three-year vesting period and a mandatory cash-out at the end of the period, based on the amount the stock price has appreciated from the original grant date. Like the SARs, the share price is also determined by the Board based on the Evercore valuation process.
|
Name
|
Grant Date
|
Number of TSRP Units
|
Stock Price
(1)
|
Payment Date
|
|||||
|
Kevin Wilson
|
2/1/2012
|
2,900
|
|
$32.00
|
Feb. 2015
|
||||
______________
|
(1)
|
The exercise price is based on the fair market value of the Company's common stock as of the grant date established by the Evercore valuation process.
|
Mr. Wilson also received a 2012 grant under the Long Term Incentive Plan, the Company's cash-settled bonus plan, as detailed below. The plan has a three-year vesting period and a mandatory cash-out at the end of the period, based on the three-year performance goals established by the Board on the grant date.
|
Name
|
Grant Date
|
Target Amount
|
Payment Date
|
|||||
|
Kevin Wilson
|
2/1/2012
|
$
|
62,500
|
|
Feb. 2015
|
|||
96
Outstanding Equity Awards at
2012
Fiscal Year-End
The following table provides information on the unexercised and unvested SAR holdings by the Company's named executive officers as of
November 25, 2012
. The vesting schedule for each grant is shown following this table.
|
SAR Awards
|
||||||||||||||||
|
Name
|
Number of Securities Underlying Unexercised SARs Exercisable
|
Number of Securities Underlying Unexercised SARs Unexercisable
(1)
|
SAR Exercise Price
(2)
|
SAR Expiration Date
(3)
|
||||||||||||
|
Charles V. Bergh
|
136,475
|
|
300,245
|
|
$
|
32.00
|
|
2/2/2019
|
|
|||||||
|
—
|
|
498,864
|
|
32.00
|
|
2/2/2019
|
|
|||||||||
|
Kevin Wilson
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||
|
Anne Rohosy
|
10,625
|
|
19,375
|
|
39.50
|
|
7/14/2018
|
|
||||||||
|
—
|
|
75,000
|
|
32.00
|
|
2/2/2019
|
|
|||||||||
|
David Love
|
18,472
|
|
—
|
|
52.25
|
|
2/8/2013
|
|
||||||||
|
35,562
|
|
1,551
|
|
24.75
|
|
2/5/2016
|
|
|||||||||
|
20,385
|
|
8,394
|
|
36.50
|
|
2/4/2017
|
|
|||||||||
|
14,143
|
|
—
|
|
68.00
|
|
8/1/2017
|
|
|||||||||
|
14,835
|
|
17,533
|
|
43.25
|
|
2/3/2018
|
|
|||||||||
|
—
|
|
40,000
|
|
32.00
|
|
2/2/2019
|
|
|||||||||
|
Aaron Boey
|
14,148
|
|
615
|
|
24.75
|
|
2/5/2016
|
|
||||||||
|
27,925
|
|
11,498
|
|
36.50
|
|
2/4/2017
|
|
|||||||||
|
25,044
|
|
29,597
|
|
43.25
|
|
2/3/2018
|
|
|||||||||
|
—
|
|
65,557
|
|
32.00
|
|
2/2/2019
|
|
|||||||||
|
Blake Jorgensen
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||
______________
|
(1)
|
SAR Vesting Schedule for named executive officers other than Mr. Bergh:
|
|
Grant Date
|
Exercise Price
|
Vesting Schedule
|
||||
|
7/13/2006
|
$42.00
|
1/24th monthly vesting beginning 1/1/08
|
||||
|
8/1/2007
|
$68.00
|
25% vested on 7/31/08; monthly vesting over remaining 36 months
|
||||
|
2/5/2009
|
$24.75
|
25% vested on 2/4/10; monthly vesting over remaining 36 months
|
||||
|
7/8/2009
|
$25.50
|
25% vested on 7/7/10; monthly vesting over remaining 36 months
|
||||
|
2/4/2010
|
$36.50
|
25% vested on 2/3/11; monthly vesting over remaining 36 months
|
||||
|
2/3/2011
|
$43.25
|
25% vested on 2/2/12; monthly vesting over remaining 36 months
|
||||
|
7/14/2011
|
$39.50
|
25% vested on 7/13/12; monthly vesting over remaining 36 months
|
||||
|
2/2/2012
|
$32.00
|
25% vested on 2/1/13; monthly vesting over remaining 36 months
|
||||
|
7/2/2012
|
$33.00
|
25% vested on 7/1/13; monthly vesting over remaining 36 months
|
||||
Under the terms of his employment agreement, the vesting of the SAR grant for 436,720 shares of stock made to Mr. Bergh on February 2, 2012 in connection with his hire, is 25% on September 1, 2012, and then monthly vesting over the remaining 36 months, subject to continuous service with the Company. The vesting of the SAR grant for 498,864 shares of stock made to Mr. Bergh on February 2, 2012 in connection with his 2012 employment, is 25% on February 1, 2013, and monthly vesting over the remaining 36 months, subject to continuous service with the Company.
|
(2)
|
The SAR exercise prices reflect the fair market value of the Company's common stock as of the grant date as established by the Evercore valuation process. Upon the vesting and exercise of a SAR, the recipient will receive shares of common stock in an amount equal to the product of (i) the excess of the per share fair market value of the Company's common stock on the date of exercise over the exercise price, multiplied by (ii) the number of shares of common stock with respect to which the SAR is exercised. The named executive officers may only exercise vested SARs during certain times of the year under the terms of the Equity Incentive Plan.
|
|
(3)
|
Mr. Jorgensen exercised his 2009 SAR grant and realized gain of $488,438. Under the terms of the Equity Incentive Plan, Mr. Jorgensen forfeited his entire 2012 SAR grant, which had not become vested, upon his separation from the Company, and all other unexercised SAR grants ninety days following his separation from the Company.
|
Under the terms of the Equity Incentive Plan, Mr. Boey forfeited his entire 2012 SAR grant, and all other unvested SAR grants on his separation.
97
Executive Retirement Plans
David Love
Effective November 28, 2004, we froze our U.S. pension plan for all salaried employees. Of our named executive officers, only David Love has adequate years of service to be eligible for benefits under the frozen defined benefit pension plan. Under the frozen pension plan, the normal retirement age is 65 with five years of service; early retirement age is 55 with 15 years of service. For a participant who is eligible for early retirement, he or she may elect to receive his or her benefits before normal retirement age, in which case the accrued benefit is reduced by an applicable factor based on the number of years before normal retirement. Benefits are 100% vested after five years of service, measured from the date of hire.
There are two components to this pension plan, the Home Office Pension Plan (“HOPP”), an IRS qualified defined benefit plan, which has specific compensation limits and rules under which it operates, and the Supplemental Benefits Restoration Plan (“SBRP”), a non-qualified defined benefit plan, that provides benefits in excess of the IRS limit.
The benefit formula under the HOPP is the following:
|
a)
|
2% of final average compensation (as defined below) multiplied by the participant's years of benefit service (not in excess of 25 years), less
|
|
b)
|
2% of Social Security benefit multiplied by the participant's years of benefit service (not in excess of 25 years), plus
|
|
c)
|
0.25% of final average compensation multiplied by the participant's years of benefit service earned after completing 25 years of service.
|
Final average compensation is defined as the average compensation (comprised of base salary, commissions, bonuses, incentive compensation and overtime earned for the fiscal year) over the five consecutive plan years producing the highest average out of the ten consecutive plan years immediately preceding the earlier of the participant's retirement date or termination date.
The benefit formula under the SBRP is the excess of (a) over (b):
|
a)
|
Accrued benefit as described above for the qualified pension plan determined using non-qualified compensation and removing the application of maximum annuity amounts payable from qualified plans under Internal Revenue Code Section 415(b);
|
|
b)
|
Actual accrued benefit from the qualified pension plan.
|
The valuation method and assumptions are as follows:
|
a)
|
The values presented in the Pension Benefits table are based on certain actuarial assumptions as of
November 25, 2012
; see Notes
1
and
8
of the audited consolidated financial statements included elsewhere in this report for more information.
|
|
b)
|
The discount rate and post-retirement mortality utilized are based on information in Note
8
to our audited consolidated financial statements included in this report. No assumptions are included for early retirement, termination, death or disability prior to normal retirement at age 65.
|
|
c)
|
Present values incorporate the normal form of payment of life annuity for single participants and 50% joint and survivor for married participants.
|
Pension Benefits
The following table provides information regarding executive retirement arrangements applicable to Mr. Love as of
November 25, 2012
.
|
Name
|
Plan Name
|
Number of Years
Credited Service as
of 11/25/12
|
Present Value of
Accumulated
Benefits as of
11/25/12
|
Payments During Last Fiscal year
|
|||||||||
|
David Love
|
U.S. Home Office Pension Plan (qualified plan)
|
3.5
|
|
$
|
62,511
|
|
$
|
—
|
|
||||
|
U.S. Supplemental Benefit Restoration Plan (non-qualified plan)
|
3.5
|
|
72,344
|
|
—
|
|
|||||||
|
Total
|
$
|
134,855
|
|
$
|
—
|
|
|||||||
98
Non-Qualified Deferred Compensation
The Deferred Compensation Plan for Executives and Outside Directors (“Deferred Compensation Plan”) is a U.S. non-qualified, unfunded tax effective savings plan provided to the named executive officers, among other executives and the directors, as part of competitive compensation.
Participants may elect to defer all or a portion of their base salary and AIP payment and may elect an in-service and/or retirement distribution. Executive officers who defer salary or bonus under this plan are credited with market-based returns depending upon the investment choices made by the executive applicable to each deferral. The investment options under the plan, which closely mirror the options provided under our qualified 401(k) plan, include a number of mutual funds with varying risk and return profiles. Participants may change their investment choices as frequently as they desire, consistent with our 401(k) plan.
In addition, under the Deferred Compensation Plan, the Company provides a match on all deferrals, up to 10% of eligible compensation that cannot be provided under the qualified 401(k) plan due to IRS qualified plan compensation limits. The amounts in the table below reflect non-qualified contributions over the 401(k) limit by the executive officers and the resulting Company match.
The table below reflects the
2012
contributions to the non-qualified Deferred Compensation Plans for the named executive officers that participate in the plans, as well as the earnings and balances under the plans.
|
Name
|
Registrant Contributions
(1)
|
Executive Contributions
|
Aggregate Earnings
|
Aggregate Withdrawals / Distributions
|
Aggregate Balance at November 25, 2012
|
|||||||||||||||||
|
Charles V. Bergh
|
$
|
101,505
|
|
$
|
81,204
|
|
$
|
2,023
|
|
$
|
—
|
|
$
|
197,726
|
|
|||||||
|
Kevin Wilson
|
10,968
|
|
41,724
|
|
2,762
|
|
—
|
|
245,540
|
|
||||||||||||
|
Anne Rohosy
|
56,255
|
|
770,624
|
|
11,737
|
|
—
|
|
1,220,231
|
|
||||||||||||
|
David Love
|
46,625
|
|
37,300
|
|
17,667
|
|
527,784
|
|
665,374
|
|
||||||||||||
|
Blake Jorgensen
|
—
|
|
—
|
|
821
|
|
9,506
|
|
—
|
|
||||||||||||
|
Aaron Boey
(2)
|
8,696
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||
______________
|
(1)
|
For Messrs. Bergh, Wilson, Love, and Jorgensen, and Ms. Rohosy, these amounts reflect the 401(k) excess plan match contributions made by the Company and are reflected in the Summary Compensation Table under All Other Compensation.
|
|
(2)
|
The Singapore Central Provident Fund is a government-managed program. Consequently, we do not have access to information regarding Mr. Boey's account activity.
|
Aaron Boey
Mr. Boey participates in the Singapore Central Provident Fund (CPF). The CPF, a type of deferred compensation/defined contribution plan, is a government-run social security program. Funds are contributed both by the employee and the employer and can be used for retirement, home ownership, healthcare expenses, a child's tertiary education, investments and insurance.
The plan is funded by mandatory contributions by both the employer and employee. Rates of employee and employer contributions vary based on the employee's age and a pre-set wage limit. The rates vary from 5-20% of monthly salary for employee's contributions and 6.5-16% for employer's contributions. For employees aged 50-55 years old, the yearly employer's contribution limit was 12% to a maximum of SGD 10,200 at the start of the 2012 fiscal year. On September 1, 2012, the yearly employer contribution limit was increased to 14% up to a maximum of SGD 11,900. This limit applied to Mr. Boey based on his age. Additional wages (such as amounts paid under the AIP and LTIP) are also eligible for matching employer contributions.
Individuals may begin drawing down from this account starting from age 55 after setting aside the CPF Minimum Sum. The CPF Minimum Sum can be used to buy CPF LIFE, a lifelong annuity administered by the CPF Board. If the individual chooses to remain in the CPF Minimum Sum Scheme, the sum of money can also be used to purchase a private annuity from a participating insurance company, be placed with a participating bank, or left in the individual's own Retirement Accounts. If the individual chooses either CPF LIFE or to keep the money in his or her Retirement Accounts, they will receive monthly payments from the scheme the individual chooses starting from his or her draw-down age (currently at age 65).
Potential Payments Upon Termination Or Change In Control
The named executive officers are eligible to receive certain benefits and payments upon their separation from the Company under certain circumstances under the terms of the Executive Severance Plan for U.S. executives and the Equity Incentive Plan.
99
In 2012, our U.S. severance arrangements under our Executive Severance Plan, which covers named executive officers, except Mr. Wilson, offered basic severance of two weeks of base salary and enhanced severance of 78 weeks of base salary plus the beneficiaries' AIP target amount, if their employment ceases due to a reduction in force, layoff or position elimination. Mr. Wilson was eligible for basic severance of two weeks of base salary, enhanced severance of 26 weeks of base salary plus his AIP target amount, plus two additional weeks of base salary plus his AIP target for each year of service in excess of five years of service up to an additional 52 weeks. We also cover the cost of the COBRA health coverage premium for the duration of the executive's severance payment period, up to a maximum of 18 months. The COBRA premium coverage is shared between the individual and the Company at the same shared percentage that was effective during the executive's employment. We also provide life insurance, career counseling and transition services. These severance benefits would not be payable upon a change in control if the executive is still employed or offered a comparable position with the surviving entity.
Under the Equity Incentive Plan, in the event of a change in control in which the surviving corporation does not assume or continue the outstanding SARs or substitute similar awards for the outstanding SARs, the vesting schedule of all SARs held by executives that are still employed will be accelerated in full to a date prior to the effective time of the transaction as determined by the Board. If the SARs are not exercised at or prior to the effective time of the transaction, all rights to exercise them will terminate, and any reacquisition or repurchase rights held by the Company with respect to such SARs shall lapse.
The information in the tables below reflects the estimated value of the compensation to be paid by us to each of the named executive officers in the event of termination or a change in control under the Executive Severance Plan and the Equity Incentive Plan. The amounts shown below assume that each named individual was employed and that a termination or change in control was effective as of
November 25, 2012
. The actual amounts that would be paid can only be determined at the time of an actual termination event. The amounts also assume a share price of $37.75 for the SAR grants, which is based on the Evercore share valuation dated as of December 31,
2012
.
The actual payments associated with the departures of Messrs. Jorgensen and Boey are reported in Footnote 2 to the Summary Compensation Table, in the “Employment Contracts” section above, and in Current Reports on Form 8-K issued in connection with their departures.
|
Charles V. Bergh
|
||||||||||||||||||||
|
Executive Benefits and Payments Upon Termination
|
Voluntary Termination
|
Retirement
|
Involuntary
Not for Cause
Termination
|
For Cause
Termination
|
Change of Control
|
|||||||||||||||
|
Compensation:
|
||||||||||||||||||||
|
Severance
(1)
|
$
|
—
|
|
$
|
—
|
|
$
|
7,098,000
|
|
$
|
—
|
|
$
|
7,098,000
|
|
|||||
|
Stock Appreciation Rights
|
—
|
|
—
|
|
3,227,642
|
|
—
|
|
4,594,877
|
|
||||||||||
|
Benefits:
|
||||||||||||||||||||
|
COBRA & Life Insurance
(2)
|
—
|
|
—
|
|
5,408
|
|
—
|
|
5,408
|
|
||||||||||
_____________
|
(1)
|
Based on Mr. Bergh's annual salary of $1,200,000, his AIP target of 135% of his base salary and the termination provisions in his employment contract.
|
|
(2)
|
Reflects 18 months of COBRA and life insurance premiums at the same Company/employee percentage sharing as during employment. Mr. Bergh is also eligible for COBRA should termination occur due to a change in control, based on his employment contract.
|
|
Kevin Wilson
|
||||||||||||||||||||
|
Executive Benefits and Payments Upon Termination
|
Voluntary Termination
|
Retirement
|
Involuntary
Not for Cause
Termination
|
For Cause
Termination
|
Change of Control
|
|||||||||||||||
|
Compensation:
|
||||||||||||||||||||
|
Severance
(1)
|
$
|
—
|
|
$
|
—
|
|
$
|
376,731
|
|
$
|
—
|
|
$
|
—
|
|
|||||
|
Stock Appreciation Rights
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||
|
Benefits:
|
||||||||||||||||||||
|
COBRA & Life Insurance
(2)
|
—
|
|
—
|
|
4,102
|
|
—
|
|
—
|
|
||||||||||
_____________
|
(1)
|
Based on Mr. Wilson's annual base salary while serving as the interim CFO of $480,000 and his AIP target of 43.8% of his base salary.
|
|
(2)
|
Reflects 18 months of COBRA and life insurance premiums at the same Company/employee percentage sharing as during employment.
|
100
|
Anne Rohosy
|
||||||||||||||||||||
|
Executive Benefits and Payments Upon Termination
|
Voluntary Termination
|
Retirement
|
Involuntary
Not for Cause
Termination
|
For Cause
Termination
|
Change of Control
|
|||||||||||||||
|
Compensation:
|
||||||||||||||||||||
|
Severance
(1)
|
$
|
—
|
|
$
|
—
|
|
$
|
1,848,462
|
|
$
|
—
|
|
$
|
—
|
|
|||||
|
Stock Appreciation Rights
|
—
|
|
—
|
|
—
|
|
—
|
|
431,250
|
|
||||||||||
|
Benefits:
|
||||||||||||||||||||
|
COBRA & Life Insurance
(2)
|
—
|
|
—
|
|
4,102
|
|
—
|
|
—
|
|
||||||||||
_____________
|
(1)
|
Based on Ms. Rohosy's annual base salary of $675,000 and her AIP target of
80%
of her base salary.
|
|
(2)
|
Reflects 18 months of COBRA and life insurance premiums at the same Company/employee percentage sharing as during employment.
|
|
David Love
|
||||||||||||||||||||
|
Executive Benefits and Payments Upon Termination
|
Voluntary Termination
|
Retirement
|
Involuntary
Not for Cause
Termination
|
For Cause
Termination
|
Change of Control
|
|||||||||||||||
|
Compensation:
|
||||||||||||||||||||
|
Severance
(1)
|
$
|
—
|
|
$
|
—
|
|
$
|
1,553,077
|
|
$
|
—
|
|
$
|
—
|
|
|||||
|
Stock Appreciation Rights
|
—
|
|
—
|
|
—
|
|
—
|
|
260,656
|
|
||||||||||
|
Benefits:
|
||||||||||||||||||||
|
COBRA & Life Insurance
(2)
|
—
|
|
—
|
|
4,102
|
|
—
|
|
—
|
|
||||||||||
_____________
|
(1)
|
Based on Mr. Love's annual base salary of $600,000 and his AIP target of
70%
of his base salary.
|
|
(2)
|
Reflects 18 months of COBRA and life insurance premiums at the same Company/employee percentage sharing as during employment.
|
101
DIRECTOR COMPENSATION
The following table provides compensation information for our directors who were not employees in fiscal
2012
:
|
Name
|
Fees Earned or Paid in Cash
|
Stock Awards
(1)
|
All Other Compensation
(2)
|
Total
|
||||||||||||||
|
Stephen C. Neal
(3)
|
$
|
200,000
|
|
$
|
283,308
|
|
$
|
5,376
|
|
$
|
488,684
|
|
||||||
|
Robert D. Haas
(4)
|
100,000
|
|
99,990
|
|
198,184
|
|
398,174
|
|
||||||||||
|
Fernando Aguirre
|
110,000
|
|
99,990
|
|
2,272
|
|
212,262
|
|
||||||||||
|
Troy Alstead
(5)
|
58,333
|
|
116,655
|
|
—
|
|
174,988
|
|
||||||||||
|
Vanessa J. Castagna
|
100,000
|
|
99,990
|
|
3,968
|
|
203,958
|
|
||||||||||
|
Robert A. Eckert
(6)
|
110,000
|
|
99,990
|
|
3,136
|
|
213,126
|
|
||||||||||
|
Peter E. Haas, Jr.
(7)
|
100,000
|
|
99,990
|
|
11,468
|
|
211,458
|
|
||||||||||
|
Leon J. Level
(8)
|
120,000
|
|
99,990
|
|
11,468
|
|
231,458
|
|
||||||||||
|
Patricia Salas Pineda
(9)
|
120,000
|
|
99,990
|
|
11,980
|
|
231,970
|
|
||||||||||
___________
|
(1)
|
These amounts, from RSUs granted under the Equity Incentive Plan in 2012, reflect the aggregate grant date fair value computed in accordance with the Company's accounting policy for stock-based compensation. The following table shows the aggregate number of RSUs outstanding but unexercised at fiscal year-end for those who were directors at fiscal year-end, including RSUs that were vested but deferred and RSUs that were not vested:
|
|
Name
|
Aggregate Outstanding RSUs
|
||
|
Stephen C. Neal
|
13,046
|
||
|
Robert D. Haas
|
8,181
|
||
|
Fernando Aguirre
|
6,509
|
||
|
Troy Alstead
|
3,535
|
||
|
Vanessa J. Castagna
|
7,368
|
||
|
Robert A. Eckert
|
9,019
|
||
|
Peter E. Haas, Jr.
|
7,337
|
||
|
Leon J. Level
|
7,337
|
||
|
Patricia Salas Pineda
|
10,147
|
||
|
(2)
|
This column also includes the aggregate grant date fair value of dividend equivalents provided to each director in fiscal 2012 in the following amounts:
|
|
Name
|
Fair Value of Dividend Equivalent RSUs Granted
|
||
|
Stephen C. Neal
|
5,376
|
||
|
Robert D. Haas
|
4,416
|
||
|
Fernando Aguirre
|
2,272
|
||
|
Troy Alstead
|
—
|
||
|
Vanessa J. Castagna
|
3,968
|
||
|
Robert A. Eckert
|
3,136
|
||
|
Peter E. Haas, Jr.
|
3,968
|
||
|
Leon J. Level
|
3,968
|
||
|
Patricia Salas Pineda
|
4,480
|
||
|
(3)
|
Mr. Neal is the Chairman of the Board. Mr. Neal elected to defer 100% of his director's fees under the Deferred Compensation Plan.
|
|
(4)
|
Includes charitable matches of $7,500 and administrative support services valued at $159,672, provision of a car at a value of $8,215, use of an office at a value of $18,381, and home security services for his services as Chairman Emeritus.
|
|
(5)
|
On April 18, 2012, the Board of Directors elected Mr. Alstead to the Board of Directors effective as of that date. On July 12, 2012, Mr. Alstead received a grant of 3,535 RSUs with a grant date value of $33.00 per share for a total value of $116,655.
|
|
(6)
|
Mr. Eckert elected to defer 100% of his director's fees under the Deferred Compensation Plan.
|
102
|
(7)
|
Mr. Haas's 2012 amount includes charitable matches of $7,500.
|
|
(8)
|
Mr. Level's 2012 amount includes charitable matches of $7,500. Mr. Level retired from the Board of Directors of the Company effective as of December 30, 2012. In December 2012, the Board of Directors accelerated the vesting of Mr. Level's July 2012 grant effective upon his retirement. In December 2012, Mr. Level received 5,838 RSUs with a settlement value of $37.75 per share for a total value of $220,385.
|
|
(9)
|
Ms. Pineda's 2012 amount includes charitable matches of $7,500.
|
Each non-employee director received compensation in
2012
consisting of an annual cash retainer fee of $100,000 and is eligible to participate in the provisions of the Deferred Compensation Plan for Executives and Outside Directors that apply to directors. In
2012
, Mr. Eckert and Mr. Neal participated in this Deferred Compensation Plan. Each non-employee director also received an annual equity award in the form of RSUs which are granted under the Equity Incentive Plan. RSU recipients have target stock ownership guidelines of $300,000 worth of equity ownership within five years of participation in the program. The value of the RSUs is tracked against the Company's share prices, established by the Evercore valuation process.
RSUs are units, representing beneficial ownership interests, corresponding in number and value to a specified number of underlying shares of stock. The RSUs vest in three equal installments after thirteen, twenty-four and thirty-six months following the grant date. After the recipient of the RSU has held the shares for six months, he or she may require the Company to repurchase, or the Company may require the participant to sell to the Company, those shares of common stock. If the director's service terminates for reason other than cause after the first, but prior to full, vesting period then any unvested portion of the award will fully vest as of the date of such termination. In addition, each director's initial RSU grant includes a deferral delivery feature, under which the director will not receive the vested awards until six months following the cessation of service on the Board.
Under the terms of the Equity Incentive Plan, recipients of RSUs receive additional grants as a dividend equivalent when the Board declares a dividend to all shareholders. Therefore, all directors who held RSUs as of April 30, 2012, received additional RSUs as a dividend equivalent. Dividend equivalents are subject to all the terms and conditions of the underlying Restricted Stock Unit Award Agreement to which they relate.
In addition to the compensation described above, committee chairpersons receive an additional retainer fee in the amount of $20,000 for the Audit Committee and the Human Resources Committee, and $10,000 for the Finance Committee and the Nominating, Governance and Corporate Citizenship Committee.
Mr. Neal is the Chairman of the Board. As the Chairman of the Board, he is entitled to receive an additional annual retainer in the amount of $200,000, 50% of which is paid in cash and 50% of which is paid in the form of RSUs. The Chairman may also receive the additional retainers attributable to committee chairmanship if applicable.
Robert D. Haas is Chairman Emeritus of the Board, and in that role receives support in form of an office, related administrative support, a leased car with driver and home security services.
Compensation Committee Interlocks and Insider Participation
The Human Resources Committee serves as the compensation committee of our board of directors. Its members are Ms. Pineda (Chair), Ms. Castagna, Mr. Eckert, Mr. P.E. Haas Jr. and Mr. R.D. Haas. In
2012
, no member of the Human Resources Committee was a current officer or employee of ours. Mr. R.D. Haas served as our Chief Executive Officer from 1984 to 1999. There are no compensation committee interlocks between us and other entities involving our executive officers and our Board members who serve as executive officers of those other entities.
|
Item 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
Our common stock is primarily owned by descendants of the family of Levi Strauss and their relatives. Shares of our common stock are not publicly held or traded. All shares 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 back to the Company.
The following table contains information about the beneficial ownership of our common stock as of
February 4, 2013
, by:
|
•
|
Each person known by us to own beneficially more than 5% of our common stock;
|
|
•
|
Each of our directors and each of our named executive officers; and
|
|
•
|
All of our directors and executive officers as a group.
|
103
Under the rules of the SEC, 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. 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 common stock beneficially owned by them, subject to community property laws where applicable.
As of
February 4, 2013
, there were
256
record holders of common stock. The percentage of beneficial ownership shown in the table is based on
37,398,181
shares of common stock outstanding as of
February 4, 2013
. The business address of all persons listed is 1155 Battery Street, San Francisco, California 94111.
|
Percentage of
|
|||||||
|
Number of Shares
|
Shares
|
||||||
|
Name
|
Beneficially Owned
|
Outstanding
|
|||||
|
Miriam L. Haas
|
6,547,314
|
|
17.51
|
%
|
|||
|
Peter E. Haas Jr.
|
6,027,743
|
|
(1)
|
16.12
|
%
|
||
|
Margaret E. Haas
|
4,353,470
|
|
(2)
|
11.64
|
%
|
||
|
Robert D. Haas
|
3,951,263
|
|
(3)
|
10.57
|
%
|
||
|
Peter E. Haas Jr. Family Fund
|
2,911,770
|
|
(4)
|
7.79
|
%
|
||
|
Vanessa J. Castagna
|
9,220
|
|
*
|
|
|||
|
Stephen C. Neal
|
9,220
|
|
*
|
|
|||
|
Patricia Salas Pineda
|
6,461
|
|
*
|
|
|||
|
Fernando Aguirre
|
858
|
|
*
|
|
|||
|
Charles V. Bergh
|
—
|
|
—
|
|
|||
|
Varun Bhatia
|
—
|
|
—
|
|
|||
|
James Curleigh
|
—
|
|
—
|
|
|||
|
Robert A. Eckert
|
—
|
|
—
|
|
|||
|
Seth Ellison
|
—
|
|
—
|
|
|||
|
Seth R. Jaffe
|
—
|
|
—
|
|
|||
|
David Love
|
—
|
|
—
|
|
|||
|
Joelle Maher
|
—
|
|
—
|
|
|||
|
Anne Rohosy
|
—
|
|
—
|
|
|||
|
Harmit Singh
(5)
|
—
|
|
—
|
|
|||
|
Blake Jorgensen
(6)
|
7,891
|
|
—
|
|
|||
|
Aaron Boey
(6)
|
—
|
|
—
|
|
|||
|
Directors and executive officers as a group (16 persons)
|
10,004,765
|
|
26.75
|
%
|
|||
|
* Less than 0.01%.
|
|||||||
_____________
|
(1)
|
Includes 2,911,770 shares held by the Peter E. Haas Jr. Family Fund, of which Mr. Haas is Vice President, for the benefit of charitable entities. Includes an aggregate of 1,049,518 shares held by the spouse of Mr. Haas and by trusts, of which Mr. Haas is trustee, for the benefit of his children, grandchildren and stepchildren. Mr. Haas disclaims beneficial ownership of all the foregoing shares. Also includes 2,000,000 shares of common stock pledged to a third-party as collateral for a loan.
|
|
(2)
|
Includes 1,005,786 shares held in custodial accounts or trusts and a limited liability company, of which Ms. Haas is custodian, trustee or managing member, respectively, for the benefit of Ms. Haas' son. Includes 886,122 shares held by the Margaret E. Haas Fund and 84,468 shares held by the Lynx Foundation, of which Ms. Haas is a board member, for the benefit of charitable entities. Ms. Haas disclaims beneficial ownership of all of the foregoing shares.
|
|
(3)
|
Includes an aggregate of 270,151 shares owned by the spouse of Mr. Haas and by trusts, of which Mr. Haas is trustee, for the benefit of their daughter. Mr. Haas disclaims beneficial ownership of all of the foregoing shares.
|
|
(4)
|
Peter E. Haas Jr. is a Vice President of this fund. The shares are also included in Mr. Haas' ownership amounts as referenced above.
|
|
(5)
|
Executive Vice President & Chief Financial Officer effective January 16, 2013.
|
|
(6)
|
Was a Named Executive Officer during Fiscal 2012, but was no longer with the Company as of February 4, 2013.
|
104
Equity Compensation Plan Information
The following table sets forth certain information, as of
November 25, 2012
, with respect to the EIP, our only equity compensation plan. This plan was approved by our stockholders. See Note
11
to our audited consolidated financial statements included in this report for more information about the EIP.
|
Number of Outstanding Options, Warrants and Rights
(1)
|
Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights
(2)
|
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
(1)
|
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
(3)
|
|||||
|
1,642,545
|
228,314
|
$32.50
|
357,581
|
|||||
_____________
|
(1)
|
Includes only dilutive SARs.
|
|
(2)
|
Represents the number of shares of common stock the dilutive SARs would convert to if exercised
November 25, 2012
, calculated based on the conversion formula as defined in the plan and the fair market value of our common stock on that date as determined by an independent third-party.
|
|
(3)
|
Calculated based on the number of stock awards authorized upon the adoption of the EIP, less the number of securities to be issued upon exercise of outstanding dilutive SARs, less shares issued in connection with converted RSUs; does not reflect
72,479
securities expected to be issued in the future upon conversion of outstanding RSUs. Note that the following shares may return to the EIP and be available for issuance in connection with a future award: (i) shares covered by an award that expires or otherwise terminates without having been exercised in full; (ii) shares that are forfeited or repurchased by us prior to becoming fully vested; (iii) shares covered by an award that is settled in cash; (iv) shares withheld to cover payment of an exercise price or cover applicable tax withholding obligations; (v) shares tendered to cover payment of an exercise price; and (vi) shares that are cancelled pursuant to an exchange or repricing program.
|
Stockholders' Agreement
Our common stock is primarily owned by descendants of the family of Levi Strauss and their relatives and are not publicly held or traded. All shares 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 the Company. The agreement does not provide for registration rights or other contractual devices for forcing a public sale of shares or certificates, or other access to liquidity.
|
Item 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
Robert D. Haas, a director and Chairman Emeritus of our board of directors, is the President of the Levi Strauss Foundation, which is not a consolidated entity of the Company. During
2012
, we donated
$2.8 million
to the Levi Strauss Foundation.
Peter E. Haas Jr., a director of the Company, is the President of the Red Tab Foundation, which is not a consolidated entity of the Company. During
2012
, the Company donated
$0.1 million
to the Red Tab Foundation.
Procedures for Approval of Related Party Transactions
We have a written policy concerning the review and approval of related party transactions. Potential related party transactions are identified through an internal review process that includes a review of director and officer questionnaires and a review of any payments made in connection with transactions in which related persons may have had a direct or indirect material interest. Any business transactions or commercial relationships between the Company and any director, stockholder, or any of their immediate family members, are reviewed by the Nominating, Governance and Corporate Citizenship Committee of the board and must be approved by at least a majority of the disinterested members of the board. Business transactions or commercial relationships between the Company and named executive officers who are not directors or any of their immediate family members requires approval of the chief executive officer with reporting to the Audit Committee.
Director Independence Policy
Although our shares are not registered on a national securities exchange, we review and take into consideration the director independence criteria required by both the New York Stock Exchange and the NASDAQ Stock Market in determining the independence of our directors on an annual basis. In addition, the charters of our board committees prohibit members from having any relationship that would interfere with the exercise of their independence from management and the Company. The fact that a director may own stock in the Company is not, by itself, considered an "interference" with independence under the committee charters. Family stockholders or other family member directors are not eligible for membership on the Audit Committee. These independence standards are disclosed on our website at
http://www.levistrauss.com/investors/corporate-governance
. Except as described below, all of our directors are independent under the independence criteria required by the New York Stock Exchange and the NASDAQ Stock Market.
105
Charles
V. Bergh, who serves as our full-time President and Chief Executive Officer, is not considered independent due to his employment with the Company. Robert A. Eckert will not serve as a member of the Audit Committee while he has a family member through marriage who is employed by our independent registered public accounting firm. The Board does not have a lead director.
|
Item 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
Engagement of the independent registered public accounting firm.
The audit committee is responsible for approving every engagement of our independent registered public accounting firm to perform audit or non-audit services for us before being engaged to provide those services. The audit committee's pre-approval policy provides as follows:
|
•
|
First, once a year when the base audit engagement is reviewed and approved, management will identify all other services (including fee ranges) for which management knows or believes it will engage our independent registered public accounting firm for the next 12 months. Those services typically include quarterly reviews, employee benefit plan reviews, specified tax matters, certifications to the lenders as required by financing documents, and consultation on new accounting and disclosure standards.
|
|
•
|
Second, if any new proposed engagement comes up during the year that was not pre-approved by the audit committee as discussed above, the engagement will require: (i) specific approval of the chief financial officer and corporate controller (including confirming with counsel permissibility under applicable laws and evaluating potential impact on independence) and, if approved by management, (ii) approval of the audit committee.
|
|
•
|
Third, the chair of the audit committee will have the authority to give such approval, but may seek full audit committee input and approval in specific cases as he or she may determine.
|
Auditor fees.
The following table shows fees billed to or incurred by us for professional services rendered by PricewaterhouseCoopers LLP, our independent registered public accounting firm during
2012
and
2011
:
|
Year Ended
|
|||||||
|
November 25, 2012
|
November 27, 2011
|
||||||
|
(Dollars in thousands)
|
|||||||
|
Services provided:
|
|||||||
|
Audit fees
(1)
|
$
|
4,824
|
|
$
|
4,788
|
|
|
|
Audit-related fees
(2)
|
—
|
|
288
|
|
|||
|
Tax fees
|
598
|
|
516
|
|
|||
|
All other fees
(3)
|
90
|
|
—
|
|
|||
|
Total fees
|
$
|
5,512
|
|
$
|
5,592
|
|
|
_____________
|
(1)
|
Includes fees for the audit of our annual consolidated financial statements, quarterly reviews of interim consolidated financial statements and statutory audits.
|
|
(2)
|
Principally comprised of fees related to controls and compliance reviews on our enterprise resource planning system.
|
|
(3)
|
Consist of fees for other permissible services other than the services reported above.
|
106
|
Item 15.
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|
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 Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Deficit and Comprehensive Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
Schedule II – Valuation and Qualifying Accounts
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.
|
3.1
|
Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.3 to Registrant's Quarterly Report on Form 10-Q filed with the Commission on April 6, 2001.
|
|
|
3.2
|
Amended and Restated By-Laws. Incorporated by reference to Exhibit 3.2 to Registrant's Current Report on Form 8-K filed with the Commission on July 16, 2012.
|
|
|
4.1
|
Fiscal Agency Agreement, dated November 21, 1996, between the Registrant and Citibank, N.A., relating to ¥20 billion 4.25% bonds due 2016. Incorporated by reference to Exhibit 4.2 to Registrant's Registration Statement on Form S-4 filed with the Commission on May 4, 2000.
|
|
|
4.2
|
Indenture, relating to the Euro denominated Senior Notes due 2018 and the U.S. Dollar denominated Senior Notes due 2020, dated as of May 6, 2010, between the Registrant and Wells Fargo Bank, National Association, as trustee. Incorporated by reference to Exhibit 4.1 to Registrant's Current Report on Form 8-K filed with the Commission on May 7, 2010.
|
|
|
4.3
|
Indenture relating to the 6.875% Senior Notes due 2022, dated as of May 8, 2012, between the Registrant and Wells Fargo Bank, National Association, as trustee. Incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the Commission on May 11, 2012.
|
|
|
10.1
|
Stockholders Agreement, dated April 15, 1996, among LSAI Holding Corp. (predecessor of the Registrant) and the stockholders. Incorporated by reference to Exhibit 10.1 to Registrant's Registration Statement on Form S-4 filed with the Commission on May 4, 2000.
|
|
|
10.2
|
Excess Benefit Restoration Plan. Incorporated by reference as Exhibit 10.4 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
|
|
|
10.3
|
Supplemental Benefit Restoration Plan. Incorporated by reference as Exhibit 10.5 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
|
|
|
10.4
|
First Amendment to Supplemental Benefit Restoration Plan. Incorporated by reference as Exhibit 10.6 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
|
|
|
10.5
|
Executive Severance Plan effective November 29, 2010. Incorporated by reference as Exhibit 10.7 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
|
|
107
|
10.6
|
Annual Incentive Plan, effective November 29, 2010. Incorporated by reference as Exhibit 10.8 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
|
|
|
10.7
|
Annual Incentive Plan, effective November 28, 2011. Incorporated by reference as Exhibit 10.9 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
|
|
|
10.8
|
Deferred Compensation Plan for Executives and Outside Directors, Amended and Restated, effective January 1, 2011. Incorporated by reference as Exhibit 10.10 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
|
|
|
10.9
|
First Amendment to Deferred Compensation Plan for Executives and Outside Directors, dated August 26, 2011. Incorporated by reference as Exhibit 10.11 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
|
|
|
10.10
|
2006 Equity Incentive Plan, amended as of December 8, 2011. Incorporated by reference as Exhibit 10.12 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
|
|
|
10.11
|
Rabbi Trust Agreement, effective January 1, 2003, between the Registrant and Boston Safe Deposit and Trust Company. Incorporated by reference to Exhibit 10.65 to Registrant's Annual Report on Form 10-K filed with the Commission on February 12, 2003.*
|
|
|
10.12
|
Form of stock appreciation right award agreement. Incorporated by reference to Exhibit 99.2 to Registrant's Current Report on Form 8-K filed with the Commission on July 19, 2006.*
|
|
|
10.13
|
Term Loan Agreement, dated as of March 27, 2007, among Levi Strauss & Co., the lenders and other financial institutions party thereto and Bank of America, N.A. as administrative agent. Incorporated by reference to Exhibit 99.1 to Registrant's Current Report on Form 8-K filed with the Commission on March 30, 2007.
|
|
|
10.14
|
Director Indemnification Agreement. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Commission on July 10, 2008.
|
|
|
10.15
|
Second Amendment to Lease, dated November 12, 2009, by and among the Registrant, Blue Jeans Equities West, a California general partnership, Innsbruck LP, a California limited partnership, and Plaza GB LP, a California limited partnership. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Commission on November 25, 2009.
|
|
|
10.16
|
Employment Agreement between the Company and Charles V. Bergh, dated June 9, 2011. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Commission on June 16, 2011.*
|
|
|
10.17
|
Transition Services, Separation Agreement and Release of All Claims between John Anderson and the Company, dated June 16, 2011. Incorporated by reference to Exhibit 10.2 to Registrant's Current Report on Form 8-K filed with the Commission on June 16, 2011.*
|
|
|
10.18
|
Credit Agreement, dated as of September 30, 2011, by and among Levi Strauss & Co., Levi Strauss & Co. (Canada) Inc., the other Loan Parties party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Multicurrency Administrative Agent, the other financial institutions, agents and arrangers party thereto. Filed herewith.
|
|
|
10.19
|
U.S. Security Agreement, dated September 30, 2011, by Levi Strauss & Co. and certain subsidiaries of Levi Strauss & Co. in favor of JP Morgan Chase Bank, N.A., as Administrative Agent. Filed herewith.
|
|
|
10.20
|
Separation Agreement and Release of All Claims between Robert Hanson and the Company, dated October 31, 2011. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Commission on November 3, 2011.*
|
|
|
10.21
|
Separation Agreement and Release of All Claims between Aaron Boey and the Company, dated October 4, 2012. Incorporated by reference as Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Commission October 5, 2012.*
|
|
|
10.22
|
Employment Offer Letter between Harmit Singh and the Company, dated December 10, 2012. Incorporated by reference as Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Commission on December 13, 2012.*
|
|
|
10.23
|
Amendment to Employment Agreement, effective as of May 8, 2012, between Levi Strauss & Co. and Charles V. Bergh. Incorporated by reference as Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Commission on May 11, 2012.*
|
|
|
12
|
Statements re: Computation of Ratio of Earnings to Fixed Charges. Filed herewith.
|
|
108
|
14.1
|
Worldwide Code of Business Conduct of Registrant. Incorporated by reference as Exhibit 14.1 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.
|
|
|
21
|
Subsidiaries of the Registrant. Filed herewith.
|
|
|
24
|
Power of Attorney. Contained in signature pages hereto.
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
|
|
32
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
|
|
101.INS
|
|
XBRL Instance Document. Furnished herewith.
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document. Furnished herewith.
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document. Furnished herewith.
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document. Furnished herewith.
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document. Furnished herewith.
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document. Furnished herewith.
|
|
* Management contract, compensatory plan or arrangement.
|
||
109
|
SCHEDULE II
|
|||||||||||||||
|
LEVI STRAUSS & CO. AND SUBSIDIARIES
|
|||||||||||||||
|
VALUATION AND QUALIFYING ACCOUNTS
|
|||||||||||||||
|
Allowance for Doubtful Accounts
|
Balance at Beginning of Period
|
Additions Charged to Expenses
|
Deductions
(1)
|
Balance at End of Period
|
|||||||||||
|
(Dollars in thousands)
|
|||||||||||||||
|
November 25, 2012
|
$
|
22,684
|
|
$
|
5,024
|
|
$
|
6,970
|
|
$
|
20,738
|
|
|||
|
November 27, 2011
|
$
|
24,617
|
|
$
|
4,634
|
|
$
|
6,567
|
|
$
|
22,684
|
|
|||
|
November 28, 2010
|
$
|
22,523
|
|
$
|
7,536
|
|
$
|
5,442
|
|
$
|
24,617
|
|
|||
|
Sales Returns
|
Balance at Beginning of Period
|
Additions Charged to Net Sales
|
Deductions
(1)
|
Balance at End of Period
|
|||||||||||
|
(Dollars in thousands)
|
|||||||||||||||
|
November 25, 2012
|
$
|
51,023
|
|
$
|
161,620
|
|
$
|
172,068
|
|
$
|
40,575
|
|
|||
|
November 27, 2011
|
$
|
47,691
|
|
$
|
139,068
|
|
$
|
135,736
|
|
$
|
51,023
|
|
|||
|
November 28, 2010
|
$
|
33,106
|
|
$
|
133,012
|
|
$
|
118,427
|
|
$
|
47,691
|
|
|||
|
Sales Discounts and Incentives
|
Balance at Beginning of Period
|
Additions Charged to Net Sales
|
Deductions
(1)
|
Balance at End of Period
|
|||||||||||
|
(Dollars in thousands)
|
|||||||||||||||
|
November 25, 2012
|
$
|
102,359
|
|
$
|
254,556
|
|
$
|
254,554
|
|
$
|
102,361
|
|
|||
|
November 27, 2011
|
$
|
90,560
|
|
$
|
277,016
|
|
$
|
265,217
|
|
$
|
102,359
|
|
|||
|
November 28, 2010
|
$
|
85,627
|
|
$
|
274,903
|
|
$
|
269,970
|
|
$
|
90,560
|
|
|||
|
Valuation Allowance Against Deferred Tax Assets
|
Balance at Beginning of Period
|
Charges/(Releases) to Tax Expense
|
(Additions) / Deductions
(1)
|
Balance at End of Period
|
|||||||||||
|
(Dollars in thousands)
|
|||||||||||||||
|
November 25, 2012
|
$
|
98,736
|
|
$
|
(1,329
|
)
|
$
|
22,951
|
|
$
|
74,456
|
|
|||
|
November 27, 2011
|
$
|
97,026
|
|
$
|
(2,421
|
)
|
$
|
(4,131
|
)
|
$
|
98,736
|
|
|||
|
November 28, 2010
|
$
|
72,986
|
|
$
|
28,278
|
|
$
|
4,238
|
|
$
|
97,026
|
|
|||
_____________
|
(1)
|
The charges to the accounts are for the purposes for which the allowances were created.
|
110
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Date:
|
February 7, 2013
|
LEVI STRAUSS & Co.
|
|
|
(Registrant)
|
|||
|
By:
|
/s/ H
ARMIT
S
INGH
|
||
|
Harmit Singh
Executive Vice President and
Chief Financial Officer
|
|||
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Heidi L. Manes, Jennifer W. Chaloemtiarana and Seth Jaffe 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 or she 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 their substitute may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange 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/ S
TEPHEN
C. N
EAL
|
Chairman of the Board
|
Date:
|
February 7, 2013
|
|
Stephen C. Neal
|
|||
|
/s/ C
HARLES
V. B
ERGH
|
Director, President and
|
Date:
|
February 7, 2013
|
|
Charles V. Bergh
|
Chief Executive Officer
|
||
|
/s/ R
OBERT
D. H
AAS
|
Director, Chairman Emeritus
|
Date:
|
February 7, 2013
|
|
Robert D. Haas
|
|||
|
/s/ F
ERNANDO
A
GUIRRE
|
Director
|
Date:
|
February 7, 2013
|
|
Fernando Aguirre
|
|||
|
/s/ T
ROY
A
LSTEAD
|
Director
|
Date:
|
February 7, 2013
|
|
Troy Alstead
|
|||
|
/s/ V
ANESSA
J. C
ASTAGNA
|
Director
|
Date:
|
February 7, 2013
|
|
Vanessa J. Castagna
|
|||
|
/s/ R
OBERT
A. E
CKERT
|
Director
|
Date:
|
February 7, 2013
|
|
Robert A. Eckert
|
|||
|
/s/ P
ETER
E. H
AAS
JR.
|
Director
|
Date:
|
February 7, 2013
|
|
Peter E. Haas Jr.
|
|||
|
/s/ P
ATRICIA
S
ALAS
P
INEDA
|
Director
|
Date:
|
February 7, 2013
|
|
Patricia Salas Pineda
|
|||
|
/s/ H
EIDI
L. M
ANES
|
Vice President and Controller
|
Date:
|
February 7, 2013
|
|
Heidi L. Manes
|
(Principal Accounting Officer)
|
||
111
SUPPLEMENTAL INFORMATION
We will furnish our
2012
annual report and proxy statement to our stockholders after the filing of this Form 10-K and will furnish copies of such material to the SEC at such time.
112
EXHIBIT INDEX
|
3.1
|
Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.3 to Registrant's Quarterly Report on Form 10-Q filed with the Commission on April 6, 2001.
|
|
|
3.2
|
Amended and Restated By-Laws. Incorporated by reference to Exhibit 3.2 to Registrant's Current Report on Form 8-K filed with the Commission on July 16, 2012.
|
|
|
4.1
|
Fiscal Agency Agreement, dated November 21, 1996, between the Registrant and Citibank, N.A., relating to ¥20 billion 4.25% bonds due 2016. Incorporated by reference to Exhibit 4.2 to Registrant's Registration Statement on Form S-4 filed with the Commission on May 4, 2000.
|
|
|
4.2
|
Indenture, relating to the Euro denominated Senior Notes due 2018 and the U.S. Dollar denominated Senior Notes due 2020, dated as of May 6, 2010, between the Registrant and Wells Fargo Bank, National Association, as trustee. Incorporated by reference to Exhibit 4.1 to Registrant's Current Report on Form 8-K filed with the Commission on May 7, 2010.
|
|
|
4.3
|
Indenture relating to the 6.875% Senior Notes due 2022, dated as of May 8, 2012, between the Registrant and Wells Fargo Bank, National Association, as trustee. Incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the Commission on May 11, 2012.
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10.1
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Stockholders Agreement, dated April 15, 1996, among LSAI Holding Corp. (predecessor of the Registrant) and the stockholders. Incorporated by reference to Exhibit 10.1 to Registrant's Registration Statement on Form S-4 filed with the Commission on May 4, 2000.
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10.2
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Excess Benefit Restoration Plan. Incorporated by reference as Exhibit 10.4 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
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10.3
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Supplemental Benefit Restoration Plan. Incorporated by reference as Exhibit 10.5 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
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10.4
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First Amendment to Supplemental Benefit Restoration Plan. Incorporated by reference as Exhibit 10.6 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
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10.5
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Executive Severance Plan effective November 29, 2010. Incorporated by reference as Exhibit 10.7 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
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10.6
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Annual Incentive Plan, effective November 29, 2010. Incorporated by reference as Exhibit 10.8 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
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10.7
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Annual Incentive Plan, effective November 28, 2011. Incorporated by reference as Exhibit 10.9 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
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10.8
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Deferred Compensation Plan for Executives and Outside Directors, Amended and Restated, effective January 1, 2011. Incorporated by reference as Exhibit 10.10 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
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10.9
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First Amendment to Deferred Compensation Plan for Executives and Outside Directors, dated August 26, 2011. Incorporated by reference as Exhibit 10.11 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
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10.10
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2006 Equity Incentive Plan, amended as of December 8, 2011. Incorporated by reference as Exhibit 10.12 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.*
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10.11
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Rabbi Trust Agreement, effective January 1, 2003, between the Registrant and Boston Safe Deposit and Trust Company. Incorporated by reference to Exhibit 10.65 to Registrant's Annual Report on Form 10-K filed with the Commission on February 12, 2003.*
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10.12
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Form of stock appreciation right award agreement. Incorporated by reference to Exhibit 99.2 to Registrant's Current Report on Form 8-K filed with the Commission on July 19, 2006.*
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10.13
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Term Loan Agreement, dated as of March 27, 2007, among Levi Strauss & Co., the lenders and other financial institutions party thereto and Bank of America, N.A. as administrative agent. Incorporated by reference to Exhibit 99.1 to Registrant's Current Report on Form 8-K filed with the Commission on March 30, 2007.
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10.14
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Director Indemnification Agreement. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Commission on July 10, 2008.
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113
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10.15
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Second Amendment to Lease, dated November 12, 2009, by and among the Registrant, Blue Jeans Equities West, a California general partnership, Innsbruck LP, a California limited partnership, and Plaza GB LP, a California limited partnership. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Commission on November 25, 2009.
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10.16
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Employment Agreement between the Company and Charles V. Bergh, dated June 9, 2011. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Commission on June 16, 2011.*
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10.17
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Transition Services, Separation Agreement and Release of All Claims between John Anderson and the Company, dated June 16, 2011. Incorporated by reference to Exhibit 10.2 to Registrant's Current Report on Form 8-K filed with the Commission on June 16, 2011.*
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10.18
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Credit Agreement, dated as of September 30, 2011, by and among Levi Strauss & Co., Levi Strauss & Co. (Canada) Inc., the other Loan Parties party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Multicurrency Administrative Agent, the other financial institutions, agents and arrangers party thereto. Filed herewith.
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10.19
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U.S. Security Agreement, dated September 30, 2011, by Levi Strauss & Co. and certain subsidiaries of Levi Strauss & Co. in favor of JP Morgan Chase Bank, N.A., as Administrative Agent. Filed herewith.
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10.20
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Separation Agreement and Release of All Claims between Robert Hanson and the Company, dated October 31, 2011. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Commission on November 3, 2011.*
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10.21
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Separation Agreement and Release of All Claims between Aaron Boey and the Company, dated October 4, 2012. Incorporated by reference as Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Commission October 5, 2012.*
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10.22
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Employment Offer Letter between Harmit Singh and the Company, dated December 10, 2012. Incorporated by reference as Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Commission on December 13, 2012.*
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10.23
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Amendment to Employment Agreement, effective as of May 8, 2012, between Levi Strauss & Co. and Charles V. Bergh. Incorporated by reference as Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Commission on May 11, 2012.*
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12
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Statements re: Computation of Ratio of Earnings to Fixed Charges. Filed herewith.
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14.1
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Worldwide Code of Business Conduct of Registrant. Incorporated by reference as Exhibit 14.1 to Registrant's Annual Report on Form 10-K filed with the Commission on February 7, 2012.
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21
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Subsidiaries of the Registrant. Filed herewith.
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24
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Power of Attorney. Contained in signature pages hereto.
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31.1
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
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31.2
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
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32
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Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
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101.INS
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XBRL Instance Document. Furnished herewith.
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101.SCH
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XBRL Taxonomy Extension Schema Document. Furnished herewith.
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document. Furnished herewith.
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document. Furnished herewith.
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document. Furnished herewith.
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document. Furnished herewith.
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* Management contract, compensatory plan or arrangement.
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114
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataNote 1: Significant Accounting PoliciesNote 2: Property, Plant and EquipmentNote 3: Goodwill and Other Intangible AssetsNote 4: Fair Value Of Financial InstrumentsNote 5: Derivative Instruments and Hedging ActivitiesNote 6: DebtNote 7: GuaranteesNote 8: Employee Benefit PlansNote 9: Employee Investment PlansNote 10: Employee Incentive Compensation PlansNote 11: Stock-based Incentive Compensation PlansNote 12: Long-term Employee Related BenefitsNote 13: Commitments and ContingenciesNote 14: Dividend PaymentNote 15: Accumulated Other Comprehensive LossNote 16: Other Income (expense), NetNote 17: Income TaxesNote 18: Related PartiesNote 19: Business Segment InformationNote 20: Quarterly Financial Data (unaudited)Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors and Executive OfficersItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits, Financial Statement Schedules