Levi Strauss posts improved Q4 numbers, cuts debt; must still deal with 2007 bonds

By Paul Deckelman

New York, Feb. 16 - Levi Strauss reported generally positive numbers for the 2004 fiscal fourth quarter ended Nov. 28, including a considerably smaller net loss and a notable reduction in its debt levels.

"We've made progress on all fronts," the company's chief executive officer, Phil Marineau, told analysts on a lengthy conference call following the release of the numbers.

"The strategic actions we took in the second half of 2003 and continued throughout 2004 to reduce costs, consolidate sales and fortify our core businesses have improved our financial strength."

Levi had a net loss for the fourth quarter of $19 million - a considerable improvement from the $245 million net loss seen in the fourth quarter of fiscal 2003. The company said that the improvement was due primarily to higher operating income, lower foreign exchange management contract losses, lower interest expense and lower tax expense, as well as and the recognition in 2003 of a sizable loss on early extinguishment of debt. For the full year, the company swung to a net profit of $30 million versus a $349 million net loss in 2003.

Levi's 2004 debt picture, meantime, showed net debt of $2.022 billion - down $151 million from where it stood at the end of 2003, said the company's chief financial officer, Jim Fogarty, on the conference call.

As of last Friday, the CFO said, Levi had available liquidity resources of $412 million, including $131 million of liquid short-term investments and $281 in net available borrowing capacity under the company's revolving credit facility.

That liquidity figure, he said, represented a decline from where liquidity stood at the end of the '04 fiscal year, and represented a decision by Levi to pay off some $60 million in equipment financing obligations in December, rather than refinance that debt.

Also in December, Levi greatly reduced its near-term debt maturity by issuing $450 million of new 9¾% notes due 2015 and using the proceeds to repurchase some $372 million of its 7% notes due 2006, or 83% of the then-outstanding $450 million principal amount. That left $76.5 million of the notes currently outstanding.

In answer to an analyst's question about whether the company had yet made any arrangements to pay off those notes, Fogarty noted that under the terms of the company's senior secured term loan, Levi must either fully "refinance, repay or otherwise irrevocably set aside funds" to finish taking out the 7s by May 1, 2006, six months ahead of their scheduled maturity date on Nov. 1, 2006. Otherwise, the maturity of the $500 million term loan is to be accelerated to Aug. 1 2006 from the scheduled Dec. 31 maturity date.

"At this point," he said. "We have not met that condition."

He also pointed out that the terms of the company's $650 million revolver had been amended to allow Levi to pre-pay its 11 5/8% 2008 notes ahead of the 2006 notes, "under certain conditions."

He declined comment when asked whether Levi might be thinking of going out to tap the capital markets to take out the $380 million of outstanding 11 5/8% notes before finally extinguishing the 7% bonds.

Interest expense for 2004 was $260 million, up from $254 million in the prior year, due to higher effective interest rates in 2004. But fourth-quarter interest expense was $62 million, down from $69 million in the prior year, due to lower gross debt in the 2004 fourth quarter.

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