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Levi to Lower Earnings Over Tax Filing Error

The apparel firm will cut third-quarter and 2001 profit by more than $30 million after finding it took the same deduction in '98 and '99.

October 10, 2003|Debora Vrana | Times Staff Writer

Levi Strauss & Co. said Thursday that it would reduce earnings for the third quarter and for 2001 by more than $30 million because it has discovered errors on its 1998 and 1999 tax returns.

In those years, the struggling San Francisco-based apparel maker mistakenly took the same tax deduction twice for losses related to various manufacturing plant closures, Levi said in a statement.

Net income in its fiscal third quarter ended Aug. 24 will be lowered by $4.9 million to $21.8 million, the company said in a filing with the Securities and Exchange Commission.

Profit for 2001 will be trimmed by $26 million to $125 million, Levi said. The reporting errors will not affect the company's results for fiscal 1998 through 2000.

The privately held company, whose debt is publicly traded, just last week announced that its fiscal third-quarter profit nearly doubled, bolstered by a new low-priced brand of jeans it recently began selling at Wal-Mart Stores Inc.'s outlets.

For that quarter, Levi had said earnings jumped 95% to $26.7 million, compared with $13.7 million in the year-earlier period. Revenue rose 6% to $1.08 billion.

But on Thursday, Levi said it wouldn't file its third-quarter earnings report with the SEC until the company's audit committee had completed a review.

The Internal Revenue Service is aware of the reporting errors made in the company's federal tax returns for 1998 and 1999, Levi said.

Analysts didn't seem too concerned about the restatement of earnings, saying the overall amount was small.

"Frankly, we all have this expectation of zero errors," said Richard Giss, a retail consultant at Deloitte & Touche in Los Angeles. "But that's not realistic. This is a small amount."

Nonetheless, the admission comes at a particularly bad time for the company.

Levi is fighting a wrongful-termination lawsuit filed by two former tax managers who allege the company created illegal tax shelters in foreign countries and falsified financial statements dating back to 1997.

The error that prompted Thursday's disclosure doesn't appear to be related to the allegations contained in the lawsuit brought by Richard Schmidt and Thomas Walsh.

The company has denied the accounting fraud allegations, and its audit committee cleared management of wrongdoing after a New York law firm completed an investigation. The SEC also has had informal discussions with Levi about the allegations.

In September, Levi announced it would shutter the last of its manufacturing plants in North America, laying off 2,000 workers.

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Associated Press was used in compiling this report.

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