LEVI’S LISTING BONDS WITH SEC
Byline: Scott Malone
NEW YORK — In a move to make it easier for its bondholders to trade its debt, Levi Strauss & Co. said it plans to register its bonds with the Securities & Exchange Commission. That change means the San Francisco-based company will resume regularly reporting of its sales and earnings performance to the SEC, a practice it stopped when it went private in 1996.
Information on Levi’s financial performance has been making its way to the public via its bondholders in recent months. As reported in these columns, the company saw its earnings last year fall 94.7 percent, to $5.4 million, on a 13.7 percent sales slip, to $5.14 billion. In the first quarter of 2000, its fortunes started to improve, as it posted $65.2 million in net income — compared with a $237.2 million net loss last year — despite a 15.4 percent sales decline to $1.08 billion.
The filing does include a few details on Levi’s finances that have not yet come to light. Among them: Its new president and chief executive, Philip A. Marineau, was paid a $3 million signing bonus last year, and his predecessor, former president and chief operating officer Peter A. Jacobi, was paid over $4 million in severance.
The company hopes that taking a more open approach will allow its bonds — currently trading in a range of high-60-cents to low-70-cents on the dollar — to trade more freely.
“We believe that by providing the opportunity to have bonds registered with the SEC, coupled with providing bondholders with more information about our company and strategy, it will help facilitate trading on the bonds,” explained a Levi’s spokeswoman.
Observers agreed that openness is a good thing.
“The more information the better,” said Ethan Schwartz, analyst with Credit Research & Trading, Greenwich, Conn. “There are strong incentives in their current financing agreements for them to seek replacement or additional financing of one form or another. They would probably need to do that publicly.”
Specifically, in the S-4, filed late last week, Levi’s offers to exchange its $350 million in 6.8 percent notes due 2003 and $450 million in 7 percent notes due 2006 for comparable notes that are to be registered with the SEC. The company has not yet determined the timetable for this move.
Levi’s also sketched out some of the challenges it faces and warned about its financial condition: “We have substantial debt and interest-payment requirements that may restrict our future operations and impair our ability to meet our obligations under the exchange notes.”
As of Feb. 27, Levi’s total debt was $2.4 billion, and it had $365.5 million in available credit under its current financing arrangements.
“We may be unable to reverse or recover from recent declines in sales and earnings, which have impaired our competitive and financial positions,” the filing said. The company noted that its decision to outsource much of its production might increase lead times and make it more difficult to keep up with the fashion cycle.
It also noted that its “lack of a substantial presence in the vertically integrated specialty-store market, where companies such as Gap Inc. and Abercrombie & Fitch Co. compete, weakens our ability to market to younger consumers.”
The filing also revealed the compensation of Levi’s top executives.
Marineau, who was named president and ceo in September, was paid a total of $3,326,080 last year, including $153,846 in salary and a $172,234 reimbursement for moving expenses. The company has also established his minimum base salary at $1 million, with a target annual cash bonus of 90 percent of his salary and a maximum bonus of 180 percent of his salary.
However, Marineau was not Levi’s top-paid executive last year. Jacobi, who exited in July as president and chief operating officer, was given a $4,012,500 severance payment when he departed, the filing noted. That, along with his $402,908 salary and payments for unused vacation time, boosted his compensation to $4,660,389.
No other Levi’s executives were paid a bonus last year.
Robert D. Haas, chairman, was paid $1,525,462.
William B. Chiasson, senior vice president and chief financial officer, was paid $450,449.
The filing also states, under the terms of an employment agreement, the minimum base salary of Levi’s newly named president of the Americas, James Lewis, has been set at $750,000, with a target bonus of 55 percent of salary and a maximum bonus of 110 percent of salary. For the current fiscal year, he’s guaranteed to make at least his target bonus amount, although that guarantee does not include later years.
Lewis, who joined Levi’s last month from Liz Claiborne Inc., also received a one-time $300,000 aftertax payment to help with relocation expenses.
The filing also provided details on Levi’s revenue stream.
Of the company’s $5.14 billion in sales last year, 76 percent represented Levi’s brand product, 22 percent represented Dockers and 2 percent represented Slates.
The filing said that the Levi’s brand holds a 15 percent share of the American jeans market, 10 percent of the European jeans market and 21 percent of the Asian jeans market.
Foreign sales represented 38 percent of total.
Levi’s top customer in 1999 was J.C. Penney Co. Inc., which accounted for 11 percent of its sales, down from 12 percent in 1998.
Rounding out Levi’s top 10 customers in 1999 were American Retail, Designs Inc., Dillard’s Inc., Federated Department Stores Inc., Goody’s Family Clothing Inc., Kohl’s Corp., May Department Stores Co., Mervyn’s and Sears, Roebuck & Co. The top 10 represented 46 percent of 1999 sales and 43 percent of 1998 sales.
Cone Mills Corp., Burlington Industries Inc. and Galey & Lord Inc. supplied 55 percent of Levi’s total fabric purchases, the filing said. Cone remains the sole supplier of denim for Levi’s 501 jeans and supplied 22 percent of Levi’s total fabric.