Jeans maker Levi Strauss & Co. Wednesday reported a 16 percent drop in quarterly earnings amid weak retail conditions in the United States and Japan and said it is in talks with unions about closing U.S. and European factories.

The privately held company, one of the world's largest apparel makers, said net income for the quarter ended Nov. 25 fell to $62.9 million from $75.4 million a year ago.

Earnings before net restructuring charges rose 12 percent, however, to $60 million from $54 million in the year-earlier period.

Levi said it incurred a restructuring charge of $22 million related to layoffs in its U.S. and Asia-Pacific businesses.

The clothing maker, which is based in San Francisco, has been hit especially hard in Japan where a number of the company's top retailers have gone bust in the midst of an economic downturn.

Philip Marineau, Levi's chief executive, said the planned plant closures were part of an effort to change Levi into "a marketing and product-driven" company from a manufacturing entity.

SALES FALL, FACTORIES TO CLOSE

The company operates seven plants in Europe and is planning to close two "high cost" facilities in Scotland, while the number of factory closings in the United States has not yet been determined, the Levi statement said.

Levi has eight factories in the U.S. and its spokeswoman Linda Butler told Reuters the company has also not determined how many workers will be affected by the plant closures. Levi has a worldwide workforce of 16,750.

Fourth-quarter sales at Levi -- which reports earnings because of its outstanding corporate debt -- fell to $1.24 billion from $1.29 billion a year earlier.

Sales in Asia fell 2.7 percent to $103.1 million in the quarter just ended, while the Americas region led the weakness with a sales decline of 8 percent to $821.9 million. The only bright spot was in Europe, where sales rose 7.9 percent to $309.8 million.

The company, which has been hit by weak retail markets because of slumping business conditions in the United States and Japan, also said it expects 2002 constant currency sales down in the low single digits.

"We have more work to do to stabilize sales ...," Marineau said. "As our turnaround strategies continue to gain traction, we expect to move closer to stabilization in 2002...," he added.

He said the company will focus on delivering relevant products, improving operational capabilities and enhancing retail relationships, in an effort to revive sales and earnings growth.

As an example of early progress in its turnaround, Levi has cited the worldwide success of its "Superlow" stretch jeans for women as an indicator of how the company needs to find the right product and then back it with strong marketing.

Levi Chief Financial officer Bill Chiasson added that 2002 EBITDA (earnings before interest, taxes, depreciation and amortization) margins are expected to stay strong, at 11 percent to 13 percent, and the top priority for "cash flow will be to continue to reduce debt."

The company has cut its debt by more than $700 million during the past two years, he said. Excluding current maturities, the company ended the fourth quarter with long-term debt of $1.8 billion compared with $1.9 billion a year earlier.

In August credit rating agency Moody's Investor Service, nonetheless, downgraded the company's ratings to Ba3 from Ba2 -- a lower junk rating -- citing a "continued erosion" of the Levi's brand, which is also facing fierce competition from more funky, youth-oriented labels.