Le Lézard
Classified in: Business, Covid-19 virus
Subjects: EARNINGS, Conference Call, Webcast

Levi Strauss & Co. Reports First-quarter 2020 Earnings


Levi Strauss & Co. (NYSE: LEVI) today announced financial results for the first quarter ended February 23, 2020. Due to the timing of the company's fiscal year end, the company's first fiscal quarter of 2020 included the benefit of the calendar 2019 Black Friday week. However, the mid-quarter outbreak of COVID-19 adversely impacted the company's first quarter net revenues in Asia by an estimated $20 million.

First-Quarter 2020 Highlights

"Our first quarter results underscore the strength of the Levi's brand and the efficacy of our strategies to diversify our business, both of which will be crucial to coming out of the current crisis stronger than ever," said Chip Bergh, president and chief executive officer of Levi Strauss & Co. "As this human and economic tragedy unfolds globally over the coming months, we are taking swift and decisive action that will ensure we remain a winner in our industry. The Levi's brand has never been stronger, our balance sheet is solid and we have an experienced leadership team that is not afraid to take action that will help us not only weather this crisis, but transform our business for the better. This company has endured for 167 years and successfully made it through everything from two world wars, the Great Depression, earthquakes, fires and the 1918 Flu Pandemic, all while remaining true to our values. I believe the true character of a company is shown in a time of crisis, and as we have in the past, we will navigate this one by leveraging our strengths and seizing opportunities that will help us continue to thrive over the long-term."

"Significant gross margin expansion, lower inventory and higher earnings all contributed to strong financial performance in the first quarter of 2020," said Harmit Singh, executive vice president and chief financial officer of Levi Strauss & Co. "In the short term we are reducing costs and capital spend while managing inventory and gross margins. We've built a healthy balance sheet that provides us significant liquidity to both weather the storm in the near term and emerge from this stronger, with our long-term growth algorithm intact."

COVID-19 Update

In the first quarter of 2020, prior to COVID-19 leading to store closures in mid-January, the company's net revenues growth in mainland China was double digits. At the end of the quarter, nearly all company-operated owned and franchisee doors in mainland China were closed. Currently, all company-operated doors and all but six franchisee doors have reopened in mainland China, including the company's beacon store in Wuhan. Additionally, the company is in the process of converting stores in Guangzhou and Chengdu from franchise to company-operated. While traffic and sales remain down to prior year, weekly sales performance is sequentially improving, with digital sales in the market trending towards year-over-year growth.

Since mid-March, in response to the pandemic, the company has temporarily closed all its doors, both company-operated and franchise, in the Americas and Europe, as well as most doors in Asia outside greater China, Korea and Japan. Accordingly, the adverse impact to the company's second-quarter net revenues, earnings and cash flows is expected to be materially significant.

First-Quarter Total Company Overview

 

 

Three Months Ended

 

Increase
(Decrease)
As Reported

($ millions, except per-share amounts)

 

February 23,
2020

 

February 24,
2019

 

Net revenues

 

$

1,506

 

 

$

1,435

 

 

5

%

Net income

 

$

153

 

 

$

147

 

 

4

%

Adjusted net income

 

$

162

 

 

$

151

 

 

8

%

Adjusted EBIT

 

$

189

 

 

$

206

 

 

(8

)%

Diluted earnings per share*

 

$

0.37

 

 

$

0.37

 

 

?

Adjusted diluted earnings per share*

 

$

0.40

 

 

$

0.38

 

 

2

¢

*Note: per share increase (decrease) compared to prior year displayed in cents

Additional information regarding Adjusted SG&A, Adjusted EBIT, Adjusted EBIT margin, Adjusted net income and Adjusted diluted earnings per share, as well as amounts presented above on a constant-currency basis, all of which are non-GAAP financial measures, is provided at the end of this press release.

First-Quarter Regional Overview

Reported regional net revenues and operating income for the quarter are set forth in the table below:

 

 

Net Revenues

 

Operating Income *

 

 

Three Months Ended

 

% Increase
(Decrease)

 

Three Months Ended

 

% Increase
(Decrease)

($ millions)

 

February 23,
2020

 

February 24,
2019

 

 

February 23,
2020

 

February 24,
2019

 

Americas

 

$

746

 

 

$

717

 

 

4

%

 

$

124

 

 

$

124

 

 

?

%

Europe

 

$

513

 

 

$

465

 

 

10

%

 

$

132

 

 

$

122

 

 

9

%

Asia

 

$

248

 

 

$

253

 

 

(2

)%

 

$

33

 

 

$

43

 

 

(24

)%

* Note: Regional operating income is equal to regional Adjusted EBIT.

Cash Flow and Balance Sheet

Additional information regarding net debt, leverage ratio and Adjusted free cash flow, non-GAAP financial measures, is provided at the end of this press release.

Annual Guidance

Given the substantial uncertainty introduced by the global spread of the COVID-19 pandemic and subsequent economic impact, the company has withdrawn all guidance provided on January 30, 2020, and is not providing further guidance at this time.

Investor Conference Call

The company's first-quarter 2020 investor conference call will be available through a live audio webcast at https://engage.vevent.com/rt/levistraussco/index.jsp?seid=75 on April 7, 2020, at 2 p.m. Pacific / 5 p.m. Eastern or via the following phone numbers: 800-884-6765 in the United States and Canada or +1-973-200-3064 internationally; I.D. No. 8582437. A replay is available the same day on http://www.levistrauss.com/investors/earnings-webcast and will be archived for one quarter. A telephone replay is also available through April 13, 2020, via the following phone numbers: 855-859-2056 in the United States and Canada or +1-404-537-3406 internationally; I.D. No. 8582437.

About Levi Strauss & Co.

Levi Strauss & Co. is one of the world's largest brand-name apparel companies and a global leader in jeanswear. The company designs and markets jeans, casual wear and related accessories for men, women and children under the Levi's®, Dockers®, Signature by Levi Strauss & Co.tm, and Denizen® brands. Its products are sold in more than 110 countries worldwide through a combination of chain retailers, department stores, online sites, and a global footprint of approximately 3,200 retail stores and shop-in-shops. Levi Strauss & Co.'s reported 2019 net revenues were $5.8 billion. For more information, go to http://levistrauss.com, and for company news and announcements go to http://investors.levistrauss.com.

Forward Looking Statements

This press release and related conference call contain, in addition to historical information, forward-looking statements, including statements related to the company's ability to manage its business and liquidity during and after the COVID-19 pandemic, the impact of the COVID-19 pandemic on the company's results of operations, including net revenues, earnings and cash flows, the company's ability to reduce costs and capital spending in response to the COVID-19 pandemic, the company's balance sheet, liquidity and inventory position throughout and following the COVID-19 pandemic, the company's prospects for financial performance, growth and achievement of its long-term growth algorithm following the COVID-19 pandemic, future dividends and share repurchases, sales performance in China after the COVID-19-related outbreak, and the company's fiscal 2020 stock grant estimate. The company has based these forward-looking statements on its current assumptions, expectations and projections about future events. Words such as, but not limited to, "believe," "will," "so we can," "when," "anticipate," "intend," "estimate," "expect," "project" and similar expressions are used to identify forward-looking statements, although not all forward-looking statements contain these words. These forward-looking statements are necessarily estimates reflecting the best judgment of senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Investors should consider the information contained in the company's filings with the U.S. Securities and Exchange Commission (SEC), including its Annual Report on Form 10-K for 2019, and its Quarterly Report on Form 10-Q for the quarter ended February 23, 2020, especially in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections. Other unknown or unpredictable factors also could have material adverse effects on future results, performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this press release and related conference call may not occur. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated or, if no date is stated, as of the date of this press release and related conference call. The company is not under any obligation and does not intend to update or revise any of the forward-looking statements contained in this press release and related conference call to reflect circumstances existing after the date of this press release and related conference call or to reflect the occurrence of future events, even if such circumstances or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.

Non-GAAP Financial Measures

The company reports its financial results in accordance with generally accepted accounting principles in the United States (GAAP) and the rules of the SEC. To supplement its financial statements prepared and presented in accordance with GAAP, the company uses certain non-GAAP financial measures, such as Adjusted SG&A, Adjusted EBIT (both reported and on a constant-currency basis), Adjusted EBIT margin (both reported and on a constant-currency basis), Adjusted net income (both reported and on a constant-currency basis), Adjusted diluted earnings per share (both reported and on a constant-currency basis), constant-currency net revenues, net debt, leverage ratio, and Adjusted free cash flow, to provide investors with additional useful information about its financial performance, to enhance the overall understanding of its past performance and future prospects and to allow for greater transparency with respect to important metrics used by management for financial and operating decision-making. The company presents these non-GAAP financial measures to assist investors in seeing its financial performance from management's view and because it believes they provide an additional tool for investors to use in computing the company's core financial performance over multiple periods with other companies in its industry. The tables found below present Adjusted SG&A, Adjusted EBIT (both reported and on a constant-currency basis), Adjusted EBIT margin (both reported and on a constant-currency basis), Adjusted net income (both reported and on a constant-currency basis), Adjusted diluted earnings per share (both reported and on a constant-currency basis), constant-currency net revenues, net debt, leverage ratio, and Adjusted free cash flow, and corresponding reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP. Non-GAAP financial measures have limitations in their usefulness to investors because they have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. Certain items that may be excluded or included in non-GAAP financial measures may be significant items that could impact the company's financial position, results of operations and cash flows and should therefore be considered in assessing the company's actual financial condition and performance. Non-GAAP financial measures are subject to inherent limitations as they reflect the exercise of judgment by management in determining how they are formulated. Some specific limitations include but are not limited to, the fact that such non-GAAP financial measures: (a) do not reflect cash outlays for capital expenditures, contractual commitments or liabilities including pension obligations, post-retirement health benefit obligations and income tax liabilities; (b) do not reflect changes in, or cash requirements for, working capital requirements; and (c) do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on indebtedness. In addition, non-GAAP financial measures may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies. As a result, non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, the company's financial results prepared in accordance with GAAP. The company urges investors to review the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures included in this press release, and not to rely on any single financial measure to evaluate its business. See "RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES" below for reconciliation to the most comparable GAAP financial measures.

Constant-currency

The company reports certain operating results on a constant-currency basis in order to facilitate period-to-period comparisons of its results without regard to the impact of fluctuating foreign currency exchange rates. The term foreign currency exchange rates refers to the exchange rates used to translate the company's operating results for all countries where the functional currency is not the U.S. Dollar into U.S. Dollars. Because the company is a global company, foreign currency exchange rates used for translation may have a significant effect on its reported results. In general, the company's financial results are affected positively by a weaker U.S. Dollar and are affected negatively by a stronger U.S. Dollar as compared to the foreign currencies in which it conducts its business. References to operating results on a constant-currency basis mean operating results without the impact of foreign currency exchange rate fluctuations.

The company believes disclosure of constant-currency results is helpful to investors because it facilitates period-to-period comparisons of its results by increasing the transparency of the underlying performance by excluding the impact of fluctuating foreign currency exchange rates. However, constant-currency results are non-GAAP financial measures and are not meant to be considered as an alternative or substitute for comparable measures prepared in accordance with GAAP. Constant-currency results have no standardized meaning prescribed by GAAP, are not prepared under any comprehensive set of accounting rules or principles and should be read in conjunction with the company's consolidated financial statements prepared in accordance with GAAP. Constant-currency results have limitations in their usefulness to investors and may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies.

The company calculates constant-currency amounts by translating local currency amounts in the prior-year period at actual foreign exchange rates for the current period. Constant-currency results do not eliminate the transaction currency impact, which primarily include the realized and unrealized gains and losses recognized from the measurement and remeasurement of purchases and sales of products in a currency other than the functional currency. Additionally, gross margin is impacted by gains and losses related to the procurement of inventory, primarily products sourced in EUR and USD, by our global sourcing organization on behalf of our foreign subsidiaries.

Source: Levi Strauss & Co. Investor Relations

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

(Unaudited)

 

 

 

February 23,
2020

 

November 24,
2019

 

(Dollars in thousands)

ASSETS

Current Assets:

 

 

 

Cash and cash equivalents

$

873,564

 

 

$

934,237

 

Short-term investments in marketable securities

83,978

 

 

80,741

 

Trade receivables, net of allowance for doubtful accounts of $5,835 and $6,172

709,989

 

 

782,846

 

Inventories:

 

 

 

Raw materials

5,152

 

 

4,929

 

Work-in-process

3,683

 

 

3,319

 

Finished goods

845,866

 

 

875,944

 

Total inventories

854,701

 

 

884,192

 

Other current assets

222,767

 

 

188,170

 

Total current assets

2,744,999

 

 

2,870,186

 

Property, plant and equipment, net of accumulated depreciation of $1,073,020 and $1,054,267

460,679

 

 

529,558

 

Goodwill

259,534

 

 

235,788

 

Other intangible assets, net

50,761

 

 

42,782

 

Deferred tax assets, net

416,390

 

 

407,905

 

Operating lease right-of-use assets, net (Note 1)

1,026,486

 

 

?

 

Other non-current assets

156,394

 

 

146,199

 

Total assets

$

5,115,243

 

 

$

4,232,418

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

 

 

 

Short-term debt

$

19,341

 

 

$

7,621

 

Accounts payable

304,207

 

 

360,324

 

Accrued salaries, wages and employee benefits

186,233

 

 

223,374

 

Accrued interest payable

15,911

 

 

5,350

 

Accrued income taxes

32,994

 

 

24,050

 

Accrued sales returns and allowances (Note 1)

185,830

 

 

171,113

 

Short-term operating lease liability (Note 1)

212,504

 

 

?

 

Other accrued liabilities (Note 1)

334,491

 

 

375,372

 

Total current liabilities

1,291,511

 

 

1,167,204

 

Long-term debt

994,392

 

 

1,006,745

 

Postretirement medical benefits

62,178

 

 

64,006

 

Pension liability

179,965

 

 

193,214

 

Long-term employee related benefits

94,597

 

 

84,957

 

Long-term income tax liabilities

10,823

 

 

10,486

 

Long-term operating lease liability (Note 1)

850,429

 

 

?

 

Other long-term liabilities

36,519

 

 

134,249

 

Total liabilities

3,520,414

 

 

2,660,861

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

Levi Strauss & Co. stockholders' equity

 

 

 

Common stock ? $.001 par value; 1,200,000,000 Class A shares authorized, 63,991,842 shares and 53,079,235 shares issued and outstanding as of February 23, 2020 and November 24, 2019, respectively; and 422,000,000 Class B shares authorized, 335,136,502 shares and 340,674,741 shares issued and outstanding, as of February 23, 2020 and November 24, 2019, respectively

399

 

 

394

 

Additional paid-in capital

601,976

 

 

657,659

 

Accumulated other comprehensive loss

(452,734

)

 

(404,986

)

Retained earnings

1,445,188

 

 

1,310,464

 

Total Levi Strauss & Co. stockholders' equity

1,594,829

 

 

1,563,531

 

Noncontrolling interest

?

 

 

8,026

 

Total stockholders' equity

1,594,829

 

 

1,571,557

 

Total liabilities and stockholders' equity

$

5,115,243

 

 

$

4,232,418

 

The notes accompanying our consolidated financial statements in our Form 10-Q are an integral part of these consolidated financial statements.

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

 

 

Three Months Ended

 

February 23,
2020

 

February 24,
2019

 

(Dollars in thousands, except
per share amounts)
(Unaudited)

Net revenues

$

1,506,126

 

 

$

1,434,458

 

Cost of goods sold

666,799

 

 

651,650

 

Gross profit

839,327

 

 

782,808

 

Selling, general and administrative expenses

660,545

 

 

581,896

 

Operating income

178,782

 

 

200,912

 

Interest expense

(16,654

)

 

(17,544

)

Other income (expense), net

2,700

 

 

(1,646

)

Income before income taxes

164,828

 

 

181,722

 

Income tax expense

12,139

 

 

35,271

 

Net income

152,689

 

 

146,451

 

Net loss attributable to noncontrolling interest

?

 

 

126

 

Net income attributable to Levi Strauss & Co.

$

152,689

 

 

$

146,577

 

Earnings per common share attributable to common stockholders:

 

 

 

Basic

$

0.39

 

 

$

0.39

 

Diluted

$

0.37

 

 

$

0.37

 

Weighted-average common shares outstanding:

 

 

 

Basic

396,216,057

 

 

377,077,111

 

Diluted

410,068,373

 

 

393,234,825

 

The notes accompanying our consolidated financial statements in our Form 10-Q are an integral part of these consolidated financial statements.

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

 

Three Months Ended

 

February 23,
2020

 

February 24,
2019

 

(Dollars in thousands)
(Unaudited)

Net income

$

152,689

 

 

$

146,451

 

Other comprehensive income, before related income taxes:

 

 

 

Pension and postretirement benefits

3,591

 

 

3,422

 

Derivative instruments

15,405

 

 

1,737

 

Foreign currency translation losses

(8,133

)

 

4,086

 

Unrealized gains on marketable securities

1,556

 

 

890

 

Total other comprehensive income, before related income taxes

12,419

 

 

10,135

 

Income taxes expense related to items of other comprehensive income

(5,723

)

 

(1,741

)

Comprehensive income, net of income taxes

159,385

 

 

154,845

 

Comprehensive loss (income) attributable to noncontrolling interest

?

 

 

(54

)

Comprehensive income attributable to Levi Strauss & Co.

$

159,385

 

 

$

154,791

 

The notes accompanying our consolidated financial statements in our Form 10-Q are an integral part of these consolidated financial statements.

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

 

 

Levi Strauss & Co. Stockholders

 

 

 

 

 

Class A &
Class B
Common
Stock

 

Additional
Paid-In
Capital

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
(Loss)/Income

 

Noncontrolling
Interest

 

Total
Stockholders'
Equity

 

(Dollars in thousands)
(Unaudited)

Balance at November 25, 2018

$

376

 

 

$

?

 

 

$

1,084,321

 

 

$

(424,584

)

 

$

7,346

 

 

$

667,459

 

Net income (loss)

?

 

 

?

 

 

146,577

 

 

?

 

 

(126

)

 

146,451

 

Other comprehensive income, net of tax

?

 

 

?

 

 

?

 

 

8,214

 

 

180

 

 

8,394

 

Stock-based compensation and dividends, net

?

 

 

1,497

 

 

?

 

 

?

 

 

?

 

 

1,497

 

Reclassification to temporary equity

?

 

 

(506

)

 

(23,339

)

 

?

 

 

?

 

 

(23,845

)

Repurchase of common stock

?

 

 

(165

)

 

(2,923

)

 

?

 

 

?

 

 

(3,088

)

Shares surrendered for tax withholdings on equity award exercises

?

 

 

(826

)

 

?

 

 

?

 

 

?

 

 

(826

)

Cash dividends declared ($0.29 per share)

?

 

 

?

 

 

(110,000

)

 

?

 

 

?

 

 

(110,000

)

Balance at February 24, 2019

$

376

 

 

$

?

 

 

$

1,094,636

 

 

$

(416,370

)

 

$

7,400

 

 

$

686,042

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at November 24, 2019

$

394

 

 

$

657,659

 

 

$

1,310,464

 

 

$

(404,986

)

 

$

8,026

 

 

$

1,571,557

 

Net income (loss)

?

 

 

?

 

 

152,689

 

 

?

 

 

?

 

 

152,689

 

Other comprehensive income, net of tax

?

 

 

?

 

 

?

 

 

6,696

 

 

?

 

 

6,696

 

Stock-based compensation and dividends, net

5

 

 

17,530

 

 

?

 

 

?

 

 

?

 

 

17,535

 

Employee stock purchase plan

?

 

 

2,030

 

 

?

 

 

?

 

 

?

 

 

2,030

 

Repurchase of common stock

?

 

 

?

 

 

(37,071

)

 

?

 

 

?

 

 

(37,071

)

Shares surrendered for tax withholdings on equity award exercises

?

 

 

(75,243

)

 

?

 

 

?

 

 

?

 

 

(75,243

)

Changes in ownership of noncontrolling interest

?

 

 

?

 

 

(8,672

)

 

?

 

 

(8,026

)

 

(16,698

)

Cumulative effect of the adoption of new accounting standards

?

 

 

?

 

 

59,708

 

 

(54,444

)

 

?

 

 

5,264

 

Cash dividends declared ($0.08 per share)

?

 

 

?

 

 

(31,930

)

 

?

 

 

?

 

 

(31,930

)

Balance at February 23, 2020

$

399

 

 

$

601,976

 

 

$

1,445,188

 

 

$

(452,734

)

 

$

?

 

 

$

1,594,829

 

The notes accompanying our consolidated financial statements in our Form 10-Q are an integral part of these consolidated financial statements.

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

Three Months Ended

 

February 23,
2020

 

February 24,
2019

 

(Dollars in thousands)
(Unaudited)

Cash Flows from Operating Activities:

 

 

 

Net income

$

152,689

 

 

$

146,451

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization

35,974

 

 

28,559

 

Unrealized foreign exchange (gains) losses

(2,629

)

 

9,046

 

Realized loss (gain) on settlement of forward foreign exchange contracts not designated for hedge accounting

1,988

 

 

(4,618

)

Employee benefit plans' amortization from accumulated other comprehensive loss and settlement loss

3,591

 

 

3,422

 

Stock-based compensation

17,535

 

 

1,497

 

Other, net

2,320

 

 

(413

)

(Benefit from) provision for deferred income taxes

(15,818

)

 

(795

)

Change in operating assets and liabilities, net of effect of acquisition:

 

 

 

Trade receivables

67,767

 

 

69,672

 

Inventories

41,247

 

 

(48,120

)

Other current assets

(9,688

)

 

(6,162

)

Other non-current assets

(9,108

)

 

(2,251

)

Accounts payable, accrued liabilities, and operating leases, net of right-of-use assets

(51,290

)

 

(48,045

)

Income tax liabilities

9,115

 

 

19,496

 

Accrued salaries, wages and employee benefits and long-term employee related benefits

(40,527

)

 

(110,338

)

Other long-term liabilities

(5,283

)

 

(1,579

)

Net cash provided by operating activities

197,883

 

 

55,822

 

Cash Flows from Investing Activities:

 

 

 

Purchases of property, plant and equipment

(44,424

)

 

(36,149

)

Payments for business acquisition

(52,201

)

 

?

 

(Payments) proceeds on settlement of forward foreign exchange contracts not designated for hedge accounting

(19,326

)

 

55,818

 

Payments to acquire short-term investments

(30,121

)

 

(99,880

)

Proceeds from sale, maturity and collection of short-term investments

26,791

 

 

?

 

Net cash used for investing activities

(119,281

)

 

(80,211

)

Cash Flows from Financing Activities:

 

 

 

Proceeds from short-term credit facilities

3,419

 

 

13,442

 

Repayments of short-term credit facilities

(3,878

)

 

(12,556

)

Other short-term borrowings, net

12,480

 

 

(9,422

)

Proceeds from employee stock purchase plan

2,030

 

 

?

 

Repurchase of common stock

(30,074

)

 

(3,088

)

Repurchase of shares surrendered for tax withholdings on equity award exercises

(75,242

)

 

(826

)

Payments to noncontrolling interests

(14,825

)

 

?

 

Dividend to stockholders

(31,930

)

 

(55,000

)

Other financing, net

?

 

 

(296

)

Net cash used for financing activities

(138,020

)

 

(67,746

)

Effect of exchange rate changes on cash and cash equivalents and restricted cash

(1,270

)

 

952

 

Net decrease in cash and cash equivalents and restricted cash

(60,688

)

 

(91,183

)

Beginning cash and cash equivalents, and restricted cash

934,753

 

 

713,698

 

Ending cash and cash equivalents, and restricted cash

874,065

 

 

622,515

 

Less: Ending restricted cash

(501

)

 

(581

)

Ending cash and cash equivalents

$

873,564

 

 

$

621,934

 

 

 

 

 

Noncash Investing and Financing Activity:

 

 

 

Property, plant and equipment acquired and not yet paid at end of period

$

12,089

 

 

$

10,513

 

Property, plant and equipment additions due to build-to-suit lease transactions

?

 

 

7,842

 

Realized (gain) loss on foreign currency contracts not yet settled at end of period

(17,338

)

 

51,200

 

Repurchase of common stock not yet settled at end of period

6,997

 

 

?

 

Supplemental disclosure of cash flow information:

 

 

 

Cash paid for interest during the period

$

818

 

 

$

2,778

 

Cash paid for income taxes during the period, net of refunds

19,636

 

 

17,157

 

The notes accompanying our consolidated financial statements in our Form 10-Q are an integral part of these consolidated financial statements.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

FOR THE FIRST QUARTER OF 2020

The following information relates to non-GAAP financial measures, and should be read in conjunction with the investor call held on April 7, 2020, discussing the company's financial condition and results of operations as of and for the quarter ended February 23, 2020. Adjusted SG&A, Adjusted EBIT, Adjusted net income, Adjusted diluted earnings per share, net debt, Adjusted free cash flow, constant-currency net revenues, constant-currency Adjusted EBIT and leverage ratio are not financial measures prepared in accordance with GAAP. As used in this press release: (1) Adjusted SG&A represents SG&A excluding changes in fair value on cash-settled stock-based compensation, and restructuring and related charges, severance and other, net; (2) Adjusted EBIT represents net income plus income tax expense, interest expense, other (income) expense, net, underwriter commission paid on behalf of selling stockholders, charges related to the transition to being a public company, impact of changes in fair value on cash-settled stock based compensation, and restructuring and related charges, severance and other, net and Adjusted EBITDA represents Adjusted EBIT excluding depreciation and amortization expense; (3) Adjusted net income represents net income excluding impact of changes in fair value on cash-settled stock-based compensation, restructuring and related charges, severance and other, net, and tax impact of adjustments; (4) Adjusted diluted earnings per share represents Adjusted net income per weighted-average number of diluted common shares; (5) net debt represents total debt, excluding capital leases, less cash and cash equivalents and short-term investments in marketable securities; (6) leverage ratio represents total debt, excluding capital leases, divided by the last twelve months of Adjusted EBITDA; (7) Adjusted free cash flow represents cash from operating activities less purchases of property, plant and equipment, plus proceeds (less payments) on settlement of forward foreign exchange contracts not designated for hedge accounting, less repurchase of common stock including shares surrendered for tax withholdings on equity award exercises, and cash dividends to stockholders; (8) constant-currency net revenues represents net revenues without the impact of foreign currency exchange rate fluctuations; (9) constant-currency Adjusted EBIT represents Adjusted EBIT without the impact of foreign currency exchange rate fluctuations; and (10) constant-currency Adjusted net income represents Adjusted net income without the impact of foreign currency exchange rate fluctuations and constant-currency Adjusted diluted earnings per share represents Adjusted diluted earnings per share without the impact of foreign currency exchange rate fluctuations.

Adjusted SG&A:

 

Three Months Ended

 

February 23,
2020

 

February 24,
2019

 

(Dollars in millions)

 

(Unaudited)

Most comparable GAAP measure:

 

 

 

Selling, general and administrative expenses

$

660.5

 

 

$

581.9

 

 

 

 

 

Non-GAAP measure:

 

 

 

Selling, general and administrative expenses

$

660.5

 

 

$

581.9

 

Impact of changes in fair value on cash-settled stock-based compensation(1)

(4.9

)

 

(5.3

)

Restructuring and related charges, severance and other, net(2)

(5.6

)

 

(0.1

)

Adjusted SG&A

$

650.0

 

 

$

576.5

 

_____________

(1)

Includes the impact of changes in fair value of Class B common stock following the grant date on awards that were granted as cash-settled and subsequently replaced with stock-settled awards concurrent with the IPO.

(2)

Restructuring and related charges, severance and other, net include transaction and deal related costs, including initial acquisition and integration costs and amortization of acquired intangible assets.

Adjusted EBIT and Adjusted EBITDA:

 

Three Months Ended

 

Twelve Months Ended

 

February 23,
2020

 

February 24,
2019

 

February 23,
2020

 

February 24,
2019

 

(Dollars in millions)

 

(Unaudited)

Most comparable GAAP measure:

 

 

 

 

 

 

 

Net income

$

152.7

 

 

$

146.5

 

 

$

401.2

 

 

$

450.4

 

 

 

 

 

 

 

 

 

Non-GAAP measure:

 

 

 

 

 

 

 

Net income

$

152.7

 

 

$

146.5

 

 

$

401.2

 

 

$

450.4

 

Income tax expense

12.1

 

 

35.3

 

 

59.4

 

 

82.5

 

Interest expense

16.7

 

 

17.5

 

 

65.4

 

 

57.3

 

Other (income) expense, net

(2.7

)

 

1.6

 

 

(6.3

)

 

(23.7

)

Underwriter commission paid on behalf of selling stockholders

?

 

 

?

 

 

24.9

 

 

?

 

Charges related to the transition to being a public company

?

 

 

?

 

 

3.5

 

 

0.1

 

Impact of changes in fair value on cash-settled stock-based compensation(1)

4.9

 

 

5.3

 

 

33.7

 

 

44.3

 

Restructuring and related charges, severance and other, net(2)

5.6

 

 

0.1

 

 

11.8

 

 

4.9

 

Adjusted EBIT

$

189.3

 

 

$

206.3

 

 

$

593.6

 

 

$

615.8

 

Adjusted EBIT margin

12.6

%

 

14.4

%

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization(3)

34.7

 

 

28.6

 

 

130.0

 

 

116.0

 

Adjusted EBITDA

$

224.0

 

 

$

234.9

 

 

$

723.6

 

 

$

731.8

 

_____________

(1)

Includes the impact of changes in fair value of Class B common stock following the grant date on awards that were granted as cash-settled and subsequently replaced with stock-settled awards concurrent with the IPO.

(2)

Restructuring and related charges, severance and other, net include transaction and deal related costs, including initial acquisition and integration costs and amortization of acquired intangible assets.

(3)

Depreciation and amortization amount net of amortization of acquired intangible assets included in Restructuring and related charges, severance and other, net.

Adjusted Net Income and Adjusted Diluted Earnings per Share:

 

Three Months Ended

 

February 23,
2020

 

February 24,
2019

 

(Dollars in millions, except per share amounts)

 

(Unaudited)

Most comparable GAAP measure:

 

 

 

Net income

$

152.7

 

 

$

146.5

 

 

 

 

 

Non-GAAP measure:

 

 

 

Net income

$

152.7

 

 

$

146.5

 

Impact of changes in fair value on cash-settled stock-based compensation(1)

4.9

 

 

5.3

 

Restructuring and related charges, severance and other, net(2)

5.6

 

 

0.1

 

Tax impact of adjustments

(0.8

)

 

(1.0

)

Adjusted net income

$

162.4

 

 

$

150.9

 

 

 

 

 

Adjusted net income margin

10.8

%

 

10.5

%

Adjusted diluted earnings per share

$

0.40

 

 

$

0.38

 

_____________

(1)

Includes the impact of changes in fair value of Class B common stock following the grant date on awards that were granted as cash-settled and subsequently replaced with stock-settled awards concurrent with the IPO.

(2)

Restructuring and related charges, severance and other, net include transaction and deal related costs, including initial acquisition and integration costs and amortization of acquired intangible assets.

Net debt and Leverage Ratio:

 

February 23,
2020

 

November 24,
2019

 

(Dollars in millions)

 

(Unaudited)

 

 

Most comparable GAAP measure:

 

 

 

Total debt, excluding capital leases

$

1,013.7

 

 

$

1,014.4

 

 

 

 

 

Non-GAAP measure:

 

 

 

Total debt, excluding capital leases

$

1,013.7

 

 

$

1,014.4

 

Cash and cash equivalents

(873.6

)

 

(934.2

)

Short-term investments in marketable securities

(84.0

)

 

(80.7

)

Net debt

$

56.1

 

 

$

(0.5

)

 

 

February 23,
2020

 

February 24,
2019

 

(Dollars in millions)

 

(Unaudited)

Total debt, excluding capital leases

$

1,013.7

 

 

$

1,041.1

 

Last Twelve Months Adjusted EBITDA(1)

$

723.6

 

 

$

731.8

 

Leverage ratio

1.4

 

 

1.4

 

_____________

(1)

Last Twelve Months Adjusted EBITDA is reconciled from net income which is the most comparable GAAP measure. Refer to Adjusted EBIT and Adjusted EBITDA table for more information.

Adjusted Free Cash Flow:

 

Three Months Ended

 

February 23,
2020

 

February 24,
2019

 

(Dollars in millions)

 

(Unaudited)

Most comparable GAAP measure:

 

 

 

Net cash provided by operating activities

$

197.9

 

 

$

55.8

 

 

 

 

 

Non-GAAP measure:

 

 

 

Net cash provided by operating activities

$

197.9

 

 

$

55.8

 

Purchases of property, plant and equipment

(44.4

)

 

(36.1

)

(Payments) proceeds on settlement of forward foreign exchange contracts not designated for hedge accounting

(19.3

)

 

55.8

 

Repurchase of common stock

(30.1

)

 

(3.1

)

Repurchase of shares surrendered for tax withholdings on equity award exercises

(75.2

)

 

(0.8

)

Dividend to stockholders

(31.9

)

 

(55.0

)

Adjusted free cash flow

$

(3.0

)

 

$

16.6

 

Constant-currency Net Revenues:

 

Three Months Ended

 

February 23,
2020

 

February 24,
2019

 

%
Increase
(Decrease)

 

(Dollars in millions)

 

(Unaudited)

Total revenues

 

 

 

 

 

As reported

$

1,506.1

 

 

$

1,434.5

 

 

5.0

%

Impact of foreign currency exchange rates

?

 

 

(10.9

)

 

*

Constant-currency net revenues

$

1,506.1

 

 

$

1,423.6

 

 

5.8

%

 

 

 

 

 

 

Americas

 

 

 

 

 

As reported

$

745.6

 

 

$

717.3

 

 

3.9

%

Impact of foreign currency exchange rates

?

 

 

1.5

 

 

*

Constant-currency net revenues - Americas

$

745.6

 

 

$

718.8

 

 

3.7

%

 

 

 

 

 

 

Europe

 

 

 

 

 

As reported

$

512.9

 

 

$

464.7

 

 

10.4

%

Impact of foreign currency exchange rates

?

 

 

(10.4

)

 

*

Constant-currency net revenues - Europe

$

512.9

 

 

$

454.3

 

 

12.9

%

 

 

 

 

 

 

Asia

 

 

 

 

 

As reported

$

247.6

 

 

$

252.5

 

 

(1.9

)%

Impact of foreign currency exchange rates

?

 

 

(2.0

)

 

*

Constant-currency net revenues - Asia

$

247.6

 

 

$

250.5

 

 

(1.2

)%

 

___________

* Not meaningful

Constant-currency Adjusted EBIT:

 

Three Months Ended

 

February 23,
2020

 

February 24,
2019

 

%
Increase

 

(Dollars in millions)

 

(Unaudited)

Adjusted EBIT(1)

$

189.3

 

 

$

206.3

 

 

(8.2

)%

Impact of foreign currency exchange rates

?

 

 

(2.9

)

 

*

Constant-currency Adjusted EBIT

$

189.3

 

 

$

203.4

 

 

(6.9

)%

Constant-currency Adjusted EBIT margin(2)

12.6

%

 

14.3

%

 

 

_____________

(1)

Adjusted EBIT is reconciled from net income which is the most comparable GAAP measure. Refer to Adjusted EBIT and Adjusted EBITDA table for more information.

(2)

We define constant-currency Adjusted EBIT margin as constant-currency Adjusted EBIT as a percentage of constant-currency net revenues.

*

Not meaningful

Constant-Currency Adjusted Net Income and Adjusted Diluted Earnings per Share:

 

 

Three Months Ended

 

February 23,
2020

 

February 24,
2019

 

%
Increase

 

(Dollars in millions, except per share amounts)
(Unaudited)

Adjusted net income(1)

$

162.4

 

 

$

150.9

 

 

7.6

%

Impact of foreign currency exchange rates

?

 

 

(2.6

)

 

*

Constant-currency Adjusted net income

$

162.4

 

 

$

148.3

 

 

9.5

%

 

 

 

 

 

 

Constant-currency Adjusted net income margin(2)

10.8

%

 

10.4

%

 

 

 

 

 

 

 

 

Adjusted diluted earnings per share

$

0.40

 

 

$

0.38

 

 

5.3

%

Impact of foreign currency exchange rates

?

 

 

(0.01

)

 

*

Constant-currency Adjusted diluted earnings per share

$

0.40

 

 

$

0.37

 

 

8.1

%

_____________

(1)

Adjusted net income is reconciled from net income which is the most comparable GAAP measure. Refer to Adjusted net income table for more information.

(2)

We define constant-currency Adjusted net income margin as constant-currency Adjusted net income as a percentage of constant-currency net revenues.

*

Not meaningful

 


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