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Levi's Losses

Apparel-maker posts $245 million deficit in 4Q, admits sloppy accounting, insists it is headed back

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Levi Strauss & Co. (San Francisco) announced its losses continue to mount amid sloppy accounting practices that forced the long-struggling jeans maker to erase a big chunk of its previously reported profits.

The company said it lost $245 million in its fiscal fourth quarter ended Nov. 30, 2003. That contrasted with a $21 million profit during the comparable period in the previous year. Fourth-quarter sales declined 5 percent. And the company said its sales would have decreased by 6 percent if not for favorable currency fluctuations.

It marked the seventh consecutive year of declining sales for Levi's. For all of 2003, the company lost $349 million on sales, compared with a 2002 profit of $7 million. Levi's is privately held but files its financial results with the Securities and Exchange Commission because some of its debt is publicly held.

Levi's also revealed that accounting problems first disclosed in October forced the company to adjust its previously reported results by a wider margin than management originally warned. Prodded by an extensive audit, Levi's restated its results for a 10-quarter period dating back to the start of its fiscal 2001. The revisions wiped out 2001 and 2002 profits totaling $75 million and widened the company's losses during the first half of 2003 by $62 million. Levi's traced the $137 million reversal of fortune to a tax deduction for losses on plant closures that was mistakenly claimed twice on its 1998 and 1999 returns.

Jim Fogarty, the cfo who joined Levi’s in December as part of a turnaround firm hired to help save the 151-year-old company, described 2003 “as a tough year for the company, with both weak operating results and financial reporting missteps.” But he emphasized Levi's headaches aren't as severe as many other troubled companies with which he has worked. “This company is a joy to be in,” Fogarty said in an interview Monday. Nonetheless, he is known to be pushing the company to lower its expenses even more than it already has. Those efforts included eliminating more than 2000 jobs in 2003.

The company is pinning its comeback hopes on its ability to sell less expensive clothes made overseas. The more austere approach included last year's introduction of a discount jeans brand, called Signature, that is sold in Wal-Mart and Target. Bolstered by the success of the discount brand, Levi's forecast a 5 percent sales increase for its fiscal first quarter.

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