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. Last Updated: 07/27/2016

Struggling Levi's Muddles Through Sloppy Accounts

SAN FRANCISCO -- Troubled Levi Strauss & Co.'s 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.

San Francisco-based Levi's said late Monday that it lost $245 million in its fiscal fourth quarter ended Nov. 30. That contrasted with a $21 million profit during the comparable period in the previous year. Fourth-quarter sales declined 5 percent to $1.2 billion.

It capped the seventh consecutive year of declining sales for Levi's, whose revenue peaked at $7.1 billion in fiscal 1996. For all of 2003, the company lost $349 million on sales of $4.09 billion compared with a 2002 profit of $7 million on sales of $4.15 billion. Last year's sales erosion was worse than those figures made it appear. Levi's said its 2003 sales would have decreased by 6 percent if not for favorable currency fluctuations. Levi's is privately held, but files its financial results with the Securities and Exchange Commission because some of its debt is publicly held.

Monday's bad news was not confined to the company's 2003 results.

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 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.

The shoddy accounting is not related to allegations of financial chicanery raised in a wrongful termination lawsuit filed last year by two former tax managers. The former employees, Richard Schmidt and Thomas Walsh, allege Levi's created illegal tax shelters in foreign countries and falsified financial statements dating back to 1997.

Levi's continues to vigorously deny those allegations, Phil Marineau, the company's CEO, said in an interview Monday.

The accounting blunders drew a rebuke from the company's independent auditor, KPMG, which cited management for "material weaknesses in internal controls."

Levi's has changed chief financial officers since the accounting problem cropped up, replacing Bill Chiasson with Jim Fogarty in December.

Fogarty joined Levi's as part of a turnaround firm, Alvarez & Marsal, hired to help save the 151-year-old company. He described 2003 "as a tough year for the company, with both weak operating results and financial-reporting missteps."

Nevertheless, Fogarty emphasized Levi's headaches are not 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.

The company is pinning its comeback 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.