Company Quick10K Filing
Levi Strauss
Price18.30 EPS1
Shares414 P/E19
MCap7,570 P/FCF37
Net Debt143 EBIT591
TEV7,712 TEV/EBIT13
TTM 2019-08-25, in MM, except price, ratios
10-Q 2020-05-24 Filed 2020-07-07
10-Q 2020-02-23 Filed 2020-04-07
10-K 2019-11-24 Filed 2020-01-30
10-Q 2019-08-25 Filed 2019-10-08
8-K 2020-07-16 Officers, Regulation FD
8-K 2020-07-07 Earnings, Exit Costs, Officers, Exhibits
8-K 2020-04-14
8-K 2020-04-08
8-K 2020-04-02
8-K 2020-01-30
8-K 2020-01-28
8-K 2020-01-10
8-K 2019-10-08

LEVI 10Q Quarterly Report

Part I - Financial Information
Item 1. Consolidated Financial Statements
Note 1: Significant Accounting Policies
Note 2: Fair Value of Financial Instruments
Note 3: Derivative Instruments and Hedging Activities
Note 4: Debt
Note 5: Employee Benefit Plans
Note 6: Restructuring
Note 7: Commitments and Contingencies
Note 8: Leases
Note 9: Dividend
Note 10: Accumulated Other Comprehensive Loss
Note 11: Net Revenues
Note 12: Other Income, Net
Note 13: Income Taxes
Note 14: Earnings (Loss) per Share Attributable To Common Stockholders
Note 15: Related Parties
Note 16: Business Segment Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 lvis05242020ex-311.htm
EX-31.2 lvis05242020ex-312.htm
EX-32.1 lvis05242020ex-321.htm

Levi Strauss Earnings 2020-05-24

Balance SheetIncome StatementCash Flow
4.23.32.51.60.8-0.12012201420172020
Assets, Equity
1.61.30.90.60.2-0.12012201420172020
Rev, G Profit, Net Income
0.30.20.10.0-0.1-0.22012201420172020
Ops, Inv, Fin

10-Q 1 a2q2020form10-q.htm 2Q 2020 FORM 10-Q Document

 
 
 
 
 
 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
Form 10-Q
(Mark One)
 þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 24, 2020
or
 ¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-06631
_________________
LEVI STRAUSS & CO.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
  
94-0905160
(State or Other Jurisdiction of
Incorporation or Organization)
  
(I.R.S. Employer
Identification No.)
1155 Battery Street, San Francisco, California 94111
(Address of Principal Executive Offices) (Zip Code)
(415) 501-6000
(Registrant’s Telephone Number, Including Area Code)
None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
_________________
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
Class A Common Stock, $0.001 par value per share
 
LEVI
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  þ  No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of "Large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨
Accelerated filer ¨
Emerging growth company ¨
Non-accelerated filer þ
 
Smaller reporting company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  þ
As of July 1, 2020, the registrant had 64,988,297 shares of Class A common stock, $0.001 par value per share and 331,591,158 shares of Class B common stock, $0.001 par value per share, outstanding.
 
 
 
 
 
 
 
 
 
 



LEVI STRAUSS & CO. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MAY 24, 2020
 
 
 
 
Page
Number
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
 
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 3.
 
Item 4.
 
Item 5.
 
Item 6.
 
 
WHERE YOU CAN FIND MORE INFORMATION
Investors and others should note that we announce material financial information to our investors using our corporate website, press releases, SEC filings and public conference calls and webcasts. We also use the following social media channels as a means of disclosing information about our company, products, planned financial and other announcements, attendance at upcoming investor and industry conferences and other matters, as well as for complying with our disclosure obligations under Regulation FD promulgated under the Securities Exchange Act of 1934, as amended:
our Investor Relations page (https://levistrauss.com/investors/financial-news);
our Twitter account (https://twitter.com/LeviStraussCo);
our company blog (https://www.levistrauss.com/unzipped-blog/);
our Facebook page (https://www.facebook.com/levistraussco/);
our LinkedIn page (https://www.linkedin.com/company/levi-strauss-&-co-);
our Instagram page (https://www.instagram.com/levistraussco/); and
our YouTube channel (https://www.youtube.com/user/levistraussvideo).
The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels in addition to following our press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time. The information we post through these channels is not a part of this Quarterly Report.




PART I — FINANCIAL INFORMATION

Item 1.
CONSOLIDATED FINANCIAL STATEMENTS
LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
 
 
 
May 24,
2020
 
November 24,
2019
 
(Dollars in thousands)
ASSETS
Current Assets:
 
 
 
Cash and cash equivalents
$
1,448,235


$
934,237

Short-term investments in marketable securities
76,078

 
80,741

Trade receivables, net of allowance for doubtful accounts of $26,344 and $6,172
333,599


782,846

Inventories:
 


Raw materials
3,657


4,929

Work-in-process
3,679


3,319

Finished goods
978,887


875,944

Total inventories
986,223


884,192

Other current assets
208,218


188,170

Total current assets
3,052,353


2,870,186

Property, plant and equipment, net of accumulated depreciation of $1,034,094 and $1,054,267
446,292


529,558

Goodwill
259,187


235,788

Other intangible assets, net
49,862


42,782

Deferred tax assets, net
504,121


407,905

Operating lease right-of-use assets, net (Note 1)
974,710

 

Other non-current assets
201,447


146,199

Total assets
$
5,487,972


$
4,232,418

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
 
 
 
Short-term debt
$
307,912


$
7,621

Accounts payable
284,354


360,324

Accrued salaries, wages and employee benefits
138,175


223,374

Restructuring liabilities (Note 6)
51,252

 

Accrued interest payable
7,065


5,350

Accrued income taxes
24,671


24,050

Accrued sales returns and allowances (Note 1)
172,782

 
171,113

Short-term operating lease liability (Note 1)
217,673

 

Other accrued liabilities (Note 1)
388,528


375,372

Total current liabilities
1,592,412


1,167,204

Long-term debt
1,498,984


1,006,745

Postretirement medical benefits
60,819


64,006

Pension liability
174,700


193,214

Long-term employee related benefits
89,980


84,957

Long-term income tax liabilities
9,886


10,486

Long-term operating lease liability (Note 1)
839,632

 

Other long-term liabilities
56,353


134,249

Total liabilities
4,322,766


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, 63,216,618 shares and 53,079,235 shares issued and outstanding as of May 24, 2020 and November 24, 2019, respectively; and 422,000,000 Class B shares authorized, 333,147,968 shares and 340,674,741 shares issued and outstanding, as of May 24, 2020 and November 24, 2019, respectively
396


394

Additional paid-in capital
611,993

 
657,659

Accumulated other comprehensive loss
(477,696
)

(404,986
)
Retained earnings
1,030,513


1,310,464

Total Levi Strauss & Co. stockholders’ equity
1,165,206


1,563,531

Noncontrolling interest


8,026

Total stockholders’ equity
1,165,206


1,571,557

Total liabilities and stockholders’ equity
$
5,487,972


$
4,232,418



The accompanying notes are an integral part of these consolidated financial statements.


3


LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
Three Months Ended
 
Six Months Ended
 
May 24,
2020
 
May 26,
2019
 
May 24,
2020
 
May 26,
2019

(Dollars in thousands, except per share amounts)
(Unaudited)
Net revenues
$
497,542


$
1,312,940

 
$
2,003,668

 
$
2,747,398

Cost of goods sold
327,890


612,517

 
994,689

 
1,264,167

Gross profit
169,652


700,423

 
1,008,979

 
1,483,231

Selling, general and administrative expenses
550,525


637,525

 
1,211,070

 
1,219,421

Restructuring charges
67,371




67,371



Operating income (loss)
(448,244
)

62,898

 
(269,462
)
 
263,810

Interest expense
(11,246
)

(15,126
)
 
(27,900
)
 
(32,670
)
Underwriter commission paid on behalf of selling stockholders

 
(24,860
)
 

 
(24,860
)
Other income, net
1,305


3,166

 
4,005

 
1,520

Income (loss) before income taxes
(458,185
)

26,078

 
(293,357
)
 
207,800

Income tax (benefit) expense
(94,636
)

(2,429
)
 
(82,497
)
 
32,842

Net income (loss)
(363,549
)
 
28,507

 
(210,860
)
 
174,958

Net income attributable to noncontrolling interest


(277
)
 

 
(151
)
Net income (loss) attributable to Levi Strauss & Co.
$
(363,549
)

$
28,230

 
$
(210,860
)
 
$
174,807

Earnings (loss) per common share attributable to common stockholders:
 
 
 
 
 
 
 
Basic
$
(0.91
)
 
$
0.07

 
$
(0.53
)
 
$
0.46

Diluted
$
(0.91
)
 
$
0.07

 
$
(0.53
)
 
$
0.44

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
Basic
397,484,849

 
389,518,461

 
396,832,024

 
383,278,398

Diluted
397,484,849

 
409,332,997

 
396,832,024

 
401,405,411























The accompanying notes are an integral part of these consolidated financial statements.


4


LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
 
Three Months Ended
 
Six Months Ended
 
May 24,
2020
 
May 26,
2019
 
May 24,
2020
 
May 26,
2019
 
(Dollars in thousands)
(Unaudited)
Net income (loss)
$
(363,549
)

$
28,507

 
$
(210,860
)
 
$
174,958

Other comprehensive income (loss), before related income taxes:


 
 
 
 
 
Pension and postretirement benefits
6,613


3,464

 
10,204

 
6,886

Derivative instruments
(2,202
)

12,667

 
13,203

 
14,404

Foreign currency translation losses
(30,756
)

(8,843
)
 
(38,889
)
 
(4,757
)
Unrealized (losses) gains on marketable securities
(2,347
)
 
329

 
(791
)
 
1,219

Total other comprehensive income (loss), before related income taxes
(28,692
)
 
7,617

 
(16,273
)
 
17,752

Income taxes benefit (expense) related to items of other comprehensive income (loss)
3,730

 
(2,432
)
 
(1,993
)
 
(4,173
)
Comprehensive income (loss), net of income taxes
(388,511
)
 
33,692

 
(229,126
)
 
188,537

Comprehensive income attributable to noncontrolling interest

 
(348
)
 

 
(402
)
Comprehensive income (loss) attributable to Levi Strauss & Co.
$
(388,511
)
 
$
33,344

 
$
(229,126
)
 
$
188,135
































The accompanying notes are an integral part of these consolidated financial statements.


5


LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
Three Months Ended May 24, 2020

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 February 23, 2020
$
399

 
$
601,976

 
$
1,445,188

 
$
(452,734
)
 
$

 
$
1,594,829

Net loss

 

 
(363,549
)
 

 

 
(363,549
)
Other comprehensive loss, net of tax

 

 

 
(24,962
)
 

 
(24,962
)
Stock-based compensation and dividends, net

 
8,090

 
(27
)
 

 

 
8,063

Employee stock purchase plan

 
2,252

 

 

 

 
2,252

Repurchase of common stock
(3
)
 

 
(19,169
)
 

 

 
(19,172
)
Shares surrendered for tax withholdings on equity awards

 
(325
)
 

 

 

 
(325
)
Changes in ownership of noncontrolling interest

 

 
(137
)
 

 

 
(137
)
Cumulative effect of adoption of new accounting standards

 

 
(84
)
 

 

 
(84
)
Cash dividends declared ($0.08 per share)

 

 
(31,709
)
 

 

 
(31,709
)
Balance at May 24, 2020
$
396

 
$
611,993

 
$
1,030,513

 
$
(477,696
)
 
$

 
$
1,165,206


 
Six Months Ended May 24, 2020
 
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 24, 2019
$
394

 
$
657,659

 
$
1,310,464

 
$
(404,986
)
 
$
8,026

 
$
1,571,557

Net loss

 

 
(210,860
)
 

 

 
(210,860
)
Other comprehensive loss, net of tax

 

 

 
(18,266
)
 

 
(18,266
)
Stock-based compensation and dividends, net
5

 
25,620

 
(27
)
 

 

 
25,598

Employee stock purchase plan

 
4,282

 

 

 

 
4,282

Repurchase of common stock
(3
)
 

 
(56,240
)
 

 

 
(56,243
)
Shares surrendered for tax withholdings on equity awards

 
(75,568
)
 

 

 

 
(75,568
)
Changes in ownership of noncontrolling interest

 

 
(8,809
)
 

 
(8,026
)
 
(16,835
)
Cumulative effect of adoption of new accounting standards

 

 
59,624

 
(54,444
)
 

 
5,180

Cash dividends declared ($0.16 per share)

 

 
(63,639
)
 

 

 
(63,639
)
Balance at May 24, 2020
$
396

 
$
611,993

 
$
1,030,513

 
$
(477,696
)
 
$

 
$
1,165,206





The accompanying notes are an integral part of these consolidated financial statements.


6


LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
 
Three Months Ended May 26, 2019
 
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 February 24, 2019
$
376

 
$

 
$
1,094,636

 
$
(416,370
)
 
$
7,400

 
$
686,042

Net income

 

 
28,230

 

 
277

 
28,507

Other comprehensive income, net of tax

 

 

 
5,114

 
71

 
5,185

Stock-based compensation and dividends, net
2

 
12,515

 

 

 

 
12,517

Shares surrendered for tax withholdings on equity awards

 
(24,696
)
 

 

 

 
(24,696
)
Reclassification from temporary equity in connection with initial public offering (Note 1)

 
351,185

 
(28,200
)
 

 

 
322,985

Issuance of Class A common stock in connection with initial public offering
14

 
234,569

 

 

 

 
234,583

Cancel liability-settled awards and replace with equity-settled awards in connection with initial public offering

 
56,130

 

 

 

 
56,130

Balance at May 26, 2019
$
392

 
$
629,703

 
$
1,094,666

 
$
(411,256
)
 
$
7,748

 
$
1,321,253


 
Six Months Ended May 26, 2019
 
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

 

 
174,807

 

 
151

 
174,958

Other comprehensive income, net of tax

 

 

 
13,328

 
251

 
13,579

Stock-based compensation and dividends, net
2

 
14,012

 

 

 

 
14,014

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 awards

 
(25,522
)
 

 

 

 
(25,522
)
Reclassification from temporary equity in connection with initial public offering

 
351,185

 
(28,200
)
 

 

 
322,985

Issuance of Class A common stock in connection with initial public offering
14

 
234,569

 

 

 

 
234,583

Cancel liability-settled awards and replace with equity-settled awards in connection with initial public offering

 
56,130

 

 

 

 
56,130

Cash dividends declared ($0.29 per share)

 

 
(110,000
)
 

 

 
(110,000
)
Balance at May 26, 2019
$
392

 
$
629,703

 
$
1,094,666

 
$
(411,256
)
 
$
7,748

 
$
1,321,253




The accompanying notes are an integral part of these consolidated financial statements.


7


LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended
 
May 24,
2020

May 26,
2019

(Dollars in thousands)
(Unaudited)
Cash Flows from Operating Activities:



Net income (loss)
$
(210,860
)

$
174,958

Adjustments to reconcile net income (loss) to net cash provided by operating activities:




Depreciation and amortization
71,005


58,745

Property, plant, equipment, and right-of-use asset impairments
61,157

 
556

Unrealized foreign exchange losses
3,146


14,899

Realized gains on settlement of forward foreign exchange contracts not designated for hedge accounting
(15,271
)

(7,134
)
Employee benefit plans’ amortization from accumulated other comprehensive loss and curtailment loss
10,204


6,886

Stock-based compensation
25,598


14,014

Allowance for doubtful accounts
20,935


790

Other, net
3,870


467

Benefit from deferred income taxes
(100,977
)

(19,937
)
Change in operating assets and liabilities, net of effect of acquisition:




Trade receivables
408,053


119,916

Inventories
(109,486
)

(32,628
)
Accounts payable, accrued liabilities, and operating leases, net of right-of-use assets
(34,287
)

(47,263
)
Restructuring liabilities
65,793



Income tax liabilities
15,382


20,675

Accrued salaries, wages and employee benefits and long-term employee related benefits
(100,567
)

(115,443
)
Other operating assets and liabilities, net
(72,331
)

(27,688
)
Net cash provided by operating activities
41,364


161,813

Cash Flows from Investing Activities:




Purchases of property, plant and equipment
(75,210
)

(76,961
)
Payments for business acquisition
(52,201
)
 

Proceeds on settlement of forward foreign exchange contracts not designated for hedge accounting
15,114


13,125

Payments to acquire short-term investments
(44,847
)
 
(84,829
)
Proceeds from sale, maturity and collection of short-term investments
49,586

 
5,481

Net cash used for investing activities
(107,558
)

(143,184
)
Cash Flows from Financing Activities:




Proceeds from issuance of long-term debt
502,500



Proceeds from senior revolving credit facility
300,000



Proceeds from short-term credit facilities
6,003


17,929

Repayments of short-term credit facilities
(5,193
)

(27,866
)
Other short-term borrowings, net


(9,422
)
Payment of debt issuance costs
(6,459
)
 

Proceeds from issuance of Class A common stock

 
254,329

Payments for underwriter commission and other offering costs

 
(19,746
)
Proceeds from employee stock purchase plan
4,283

 

Repurchase of common stock
(56,243
)

(3,088
)
Repurchase of shares surrendered for tax withholdings on equity awards
(75,568
)
 
(25,522
)
Payments to noncontrolling interests
(16,090
)
 

Dividend to stockholders
(63,639
)

(55,000
)
Other financing, net
(3
)

(565
)
Net cash provided by financing activities
589,591


131,049

Effect of exchange rate changes on cash and cash equivalents and restricted cash
(9,113
)

(1,913
)
Net increase in cash and cash equivalents and restricted cash
514,284


147,765

Beginning cash and cash equivalents, and restricted cash
934,753


713,698

Ending cash and cash equivalents, and restricted cash
1,449,037


861,463

Less: Ending restricted cash
(802
)

(530
)
Ending cash and cash equivalents
$
1,448,235


$
860,933





Noncash Investing and Financing Activity:



Property, plant and equipment acquired and not yet paid at end of period
$
21,462


$
14,775

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


10,861

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


5,990

Supplemental disclosure of cash flow information:



Cash paid for interest during the period
$
36,856


$
26,849

Cash paid for income taxes during the period, net of refunds
53,594


52,800

The accompanying notes are an integral part of these consolidated financial statements.


8


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED MAY 24, 2020
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Levi Strauss & Co. (the "Company") is one of the world’s largest brand-name apparel companies. The Company designs, markets and sells – directly or through third parties and licensees – products that include jeans, casual and dress pants, tops, shorts, skirts, jackets, footwear and related accessories for men, women and children around the world under the Levi’s®, Dockers®, Signature by Levi Strauss & Co.™ and Denizen® brands. The Company operates its business through three geographic regions: Americas, Europe and Asia.
In March 2019, the Company completed an initial public offering ("IPO") of its Class A common stock, as a result of which its Class A common stock began trading on the New York Stock Exchange under the symbol "LEVI".
Basis of Presentation and Principles of Consolidation
The unaudited consolidated financial statements of the Company and its wholly-owned and majority-owned foreign and domestic subsidiaries are prepared in conformity with generally accepted accounting principles in the United States ("U.S. GAAP") for interim financial information. In the opinion of management, all adjustments necessary for a fair statement of the financial position and the results of operations for the periods presented have been included. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended November 24, 2019, included in the Company's 2019 Annual Report on Form 10-K.
The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated. Management believes the disclosures are adequate to make the information presented in the unaudited consolidated financial statements not misleading. The results of operations for the three and six months ended May 24, 2020 may not be indicative of the results to be expected for any other interim period or the year ending November 29, 2020.
The Company’s fiscal year ends on the last Sunday of November in each year, although the fiscal years of certain foreign subsidiaries end on November 30. Each quarter of both fiscal years 2020 and 2019 consists of 13 weeks, with the exception of the fourth quarter of 2020, which will consist of 14 weeks. All references to years and quarters relate to fiscal years and quarters rather than calendar years and quarters.
COVID-19 Update
The COVID-19 pandemic has materially impacted the Company's business operations and results of operations for the three-month and six-month periods ended May 24, 2020. For the three-month period, consolidated net revenues decreased 62.1% compared to the second quarter of 2019, and the Company recognized a consolidated operating loss of $448.2 million, compared to operating income of $62.9 million in the second quarter of 2019, primarily due to adverse impacts from the COVID-19 pandemic on the business, as well as $242.0 million in incremental charges taken in connection with the pandemic. The $242.0 million comprising $67.4 million of restructuring charges, COVID-19 related inventory costs of $86.6 million and other charges for customer receivables and asset impairments of $88.0 million. For further information on the restructuring, see Note 6.
Substantially all company-operated retail stores were temporarily closed for varying periods of time throughout the second quarter, with some stores reopening at the end of the second quarter under reduced operating hours. The Company’s wholesale customers, including third-party retailers and franchise partners, also experienced significant business disruptions during the second quarter, including temporary store closures, which also resulted in a decrease in the Company’s net revenues.
Given the uncertainties surrounding the impacts of the COVID-19 pandemic on the Company's future financial condition and results of operations, the Company has taken certain actions to preserve its liquidity, manage cash flow and strengthen its financial flexibility. Such actions include, but are not limited to, reducing discretionary spending, reducing capital expenditures, suspending its share buyback program, not declaring a dividend in the third fiscal quarter, implementing restructuring plans that will lead to approximately $100 million in annualized savings, reducing payroll costs, including through employee furloughs and pay cuts, and working with vendors to extend credit terms. In April 2020, the Company drew down $300 million on its senior secured revolving credit facility and issued an additional $500 million in aggregate principal amount of 5.00% senior notes due 2025 to further strengthen its balance sheet. On June 30, 2020, subsequent to quarter end, the Company repaid the $300 million borrowing under the Credit Facility. Refer to Note 4 for more information.


9


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 24, 2020


On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law in the United States. The CARES Act provides relief to U.S. Corporations through financial assistance programs and modifications to certain income tax provisions. The Company is applying certain beneficial provisions of the CARES Act, including the net operating loss carryback provision. Refer to Note 13 for more information. 
The Company also assessed the impacts of the pandemic on the estimates and assumptions used in preparing these consolidated financial statements. The estimates and assumptions used in these assessments were based on management’s judgment and may be subject to change as new events occur and additional information is obtained. In particular, there is significant uncertainty about the duration and extent of the impact of the COVID-19 pandemic and its resulting impact on global economic conditions. If economic conditions caused by the pandemic do not recover as currently estimated by management, the Company’s financial condition, cash flows and results of operations may be further materially impacted. See below for areas that required more judgments and estimates as a result of COVID-19.
Inventory Valuation and Adverse Purchase Commitments
The Company values inventory at the lower of cost or net realizable value. Net realizable value is determined by estimated expected selling prices based on anticipated recovery rates for slow-moving and obsolete inventory and other factors, such as market conditions, expected channel of distribution and current consumer demand and preferences. During the three-month period ended May 24, 2020, the Company recorded $49.9 million of incremental inventory reserves directly related to the expected impact of COVID-19 on forecasted sales and expected selling prices.
The Company also has minimum inventory purchase commitments, including fabric commitments, with suppliers that secure a portion of material needs for future seasons. In light of the COVID-19 pandemic and in response to decreased demand, some of the Company's orders were canceled. As of May 24, 2020, the Company has recorded incremental charges of $35.9 million for adverse fabric purchase commitments, included in "Other accrued liabilities" on the Company’s consolidated balance sheets and reflected as costs of goods sold in the accompanying consolidated statement of operations.
Accounts Receivable
Accounts receivable are recorded net of an allowance for doubtful accounts. The Company estimates the allowance for doubtful accounts based on an analysis of the aging of accounts receivable, assessment of collectability, including any known or anticipated bankruptcies, customer-specific circumstances and an evaluation of current economic conditions. During the second quarter of 2020, charges of $27.6 million were recorded related to customer receivables, including an incremental allowance for doubtful accounts of $15.1 million and other allowances as a result of changes in customers' financial condition, actual and anticipated bankruptcies and other associated claims.
Long-Lived Assets
The Company reviews its other long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may be impaired. Impairment losses are measured and recorded for the excess of carrying value over its fair value, estimated based on expected future cash flows and other quantitative and qualitative factors. Expected future cash flows decreased due to the anticipated COVID-19 related impact on foot traffic and consumer spending trends. As a result, the Company recorded $60.4 million of non-cash impairment charges, of which $43.0 million and $11.1 million were related to the impairment of certain store right-of-use and other store assets, respectively. An additional $6.3 million was recognized related to other property and equipment. The impairment charges are included in selling, general and administrative expenses ("SG&A") in the accompanying consolidated statements of operations. 
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes to the consolidated financial statements. Estimates are based upon historical factors, current circumstances and the experience and judgment of the Company’s management. Management evaluates its estimates and assumptions on an ongoing basis and may employ outside experts to assist in its evaluations. Changes in such estimates, based on more accurate future information, or different assumptions or conditions, may affect amounts reported in future periods. As a result of uncertainty and frequently changing information regarding the COVID-19 pandemic and its impact on global economic conditions, estimates may change frequently and in the near term.     


10


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 24, 2020


Reclassification
Certain insignificant amounts on the consolidated balance sheets and consolidated statements of cash flow have been conformed to the May 24, 2020 presentation.
The Jeans Company Acquisition
In December 2019, the Company completed an acquisition of all operating assets related to Levi’s® and Dockers® brands from The Jeans Company ("TJC"), the Company's distributor in Chile, Peru and Bolivia, for $52.2 million in cash, plus transaction costs. This includes 78 Levi’s® and Dockers® retail stores and one e-commerce site, distribution with the region’s leading multi-brand retailers, and the logistical operations within these markets.
The total fair value of assets acquired was $52.2 million and include goodwill, inventory, intangible and fixed assets. The goodwill and intangibles recognized as a result of the acquisition were $22.8 million and $9.2 million, respectively.
Restructuring Liabilities
Upon approval of a restructuring plan, the Company records restructuring liabilities for employee severance and related termination benefits when they become probable and estimable for recurring arrangements. The Company records other costs associated with exit activities as they are incurred. The long-term portion of restructuring liabilities is included in “Other long-term liabilities” in the Company’s consolidated balance sheets. See Note 6 for more information.
Share Repurchases
In January 2020, the Company's Board of Directors (the "Board") approved a share repurchase program that authorizes the repurchase of up to $100 million of the Company's Class A common stock. During the three months and six months ended May 24, 2020, 1.1 million shares and 3.0 million shares were repurchased for $19.2 million and $56.2 million, plus broker's commissions, respectively in the open market. This equates to an average repurchase price of approximately $18.73 per share for the six months ended May 24, 2020.  The Company has suspended its share buyback program.
The Company accounts for share repurchases by charging the excess of repurchase price over the repurchased Class A common stock's par value entirely to retained earnings. All repurchased shares are retired and become authorized but unissued shares. The Company accrues for the shares purchased under the share repurchase plan based on the trade date. The Company may terminate or limit the share repurchase program at any time.
Noncontrolling Interest
Noncontrolling interest includes a 16.4% minority interest of third parties in Levi Strauss Japan K.K., the Company's Japanese subsidiary.
In January 2020, the Company completed an all cash tender offer for the acquisition of the remaining 16.4% minority interest shares of Levi Strauss Japan K.K.'s common stock for a total purchase price of $13.6 million, plus transaction costs. As a result, Levi Strauss Japan K.K. has become a wholly owned subsidiary.
Changes in Accounting Principles
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which requires the identification of arrangements that should be accounted for as leases by lessees. In general, for operating or financing lease arrangements exceeding a 12-month term, a right-of-use asset and a lease obligation will be recognized on the balance sheet of the lessee while the income statement will reflect lease expense for operating leases and amortization and interest expense for financing leases. The Company has identified leases for real estate, personal property and other arrangements. The new standard is required to be applied using a modified retrospective approach with two adoption methods permissible. The Company elected the transition method that applies the new lease standard at the adoption date instead of the earliest period presented. The Company elected the practical expedient to not separate lease components from nonlease components for all leases. Additionally, the Company made an accounting policy election to keep leases with an initial 12-month term or less off of the balance sheet and recognize these lease payments within the consolidated statements of operations on a straight-line basis over the term of the lease.


11


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 24, 2020


The Company elected the package of transition practical expedients which allowed the Company to carry forward prior conclusions related to: (i) whether any expired or existing contracts contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for existing leases. The Company adopted this standard in the first quarter of fiscal 2020. Upon adoption, the Company recognized $1.0 billion of total operating lease liabilities and $1.0 billion of operating lease ROU assets, as well as removed $61 million of existing deferred rent liabilities, which was recorded as an offset against the ROU assets. In addition, the Company removed $43 million and $53 million of existing assets and liabilities related to build-to-suit lease arrangements, respectively. The difference of $10 million was recognize in retained earnings as of the date of initial application. The adoption of the standard did not have a material impact on the consolidated statements of operations or consolidated statements of cash flows. Refer to Note 8 for more information on the Company's lease arrangements.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). ASU 2018-02 addresses certain stranded income tax effects in accumulated other comprehensive income (loss) resulting from the Tax Act enacted on December 22, 2017. The Company adopted this standard in the first quarter of fiscal 2020. As a result of the adoption, a $54.4 million adjustment was included in retained earnings with an offsetting adjustment to accumulated other comprehensive income (loss).
Effective February 24, 2020, the Company early adopted ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment issued by the FASB in January 2017, which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. Under this guidance, if the carrying amount of a reporting unit exceeds its estimated fair value, an impairment charge shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The impact of the new standard will depend on the specific facts and circumstances of future individual goodwill impairments, if any.
Recently Issued Accounting Standards
There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s consolidated financial statements and footnote disclosures, from those disclosed in the 2019 Annual Report on Form 10-K, except for the following:
First Quarter 2021
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The FASB has subsequently issued updates to the standard to provide additional clarification on specific topics. This guidance will be effective for the Company in the first quarter of fiscal 2021. Early adoption is permitted. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.
First Quarter 2022
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The ASU is intended to enhance and simplify aspects of the income tax accounting guidance in ASC 740 as part of the FASB's simplification initiative. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2020 with early adoption permitted. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.
First Quarter 2023
In March 2020, FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU is intended to provide temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.


12


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 24, 2020


NOTE 2: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the Company’s financial instruments that are carried at fair value:
 
May 24, 2020
 
November 24, 2019
 
 
 
Fair Value Estimated
Using
 
 
 
Fair Value Estimated
Using
 
Fair Value
 
Level 1 Inputs(1)
 
Level 2 Inputs(2)
 
Fair Value
 
Level 1 Inputs(1)
 
Level 2 Inputs(2)
 
(Dollars in thousands)
Financial assets carried at fair value
 
 
 
 
 
 
 
 
 
 
 
Rabbi trust assets
$
59,936

 
$
59,936

 
$

 
$
49,207

 
$
49,207

 
$

Short-term investments in marketable securities
76,078

 


 
76,078

 
80,741

 

 
80,741

Derivative instruments(3)
26,171

 

 
26,171

 
16,323

 

 
16,323

Total
$
162,185

 
$
59,936

 
$
102,249

 
$
146,271

 
$
49,207

 
$
97,064

Financial liabilities carried at fair value
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments(3)
1,810

 

 
1,810

 
8,123

 

 
8,123

Total
$
1,810

 
$

 
$
1,810

 
$
8,123

 
$

 
$
8,123

_____________
 
(1)
Fair values estimated using Level 1 inputs are inputs that consist of quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Rabbi trust assets consist of a diversified portfolio of equity, fixed income and other securities.
(2)
Fair values estimated using Level 2 inputs are inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly, and include among other things, quoted prices for similar assets or liabilities in markets that are active or inactive as well as inputs other than quoted prices that are observable. Short-term investments in marketable securities consist of fixed income securities. For forward foreign exchange contracts, inputs include foreign currency exchange and interest rates and, where applicable, credit default swap prices.
(3)
The Company’s cash flow hedges are subject to International Swaps and Derivatives Association, Inc. master agreements. These agreements permit the net settlement of these contracts on a per-institution basis. Refer to Note 3 for more information.
The following table presents the carrying value, including related accrued interest, and estimated fair value of the Company’s financial instruments that are carried at adjusted historical cost:
 
May 24, 2020
 
November 24, 2019
 
Carrying
Value
 
Estimated Fair Value
 
Carrying
Value
 
Estimated Fair Value
 
(Dollars in thousands)
Financial liabilities carried at adjusted historical cost
 
 
 
 
 
 
 
5.00% senior notes due 2025(1)(2)
$
988,143

 
$
1,002,915

 
$
489,299

 
$
505,757

3.375% senior notes due 2027(1)
517,496

 
516,211

 
522,524

 
556,266

Short-term borrowings
308,172

 
308,172

 
7,621

 
7,621

Total
$
1,813,811

 
$
1,827,298

 
$
1,019,444

 
$
1,069,644

_____________
 
(1)
Fair values are estimated using Level 1 inputs and incorporate mid-market price quotes. Level 1 inputs are inputs that consist of quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
(2)
On April 17, 2020, the Company issued an additional $500 million in aggregate principal amount under the original indenture dated April 27, 2015. Refer to Note 4 for additional information.


13


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 24, 2020


NOTE 3: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Designated Cash Flow Hedges
The Company actively manages the risk of changes in functional currency equivalent cash flows resulting from anticipated non-functional currency denominated purchases and sales. The Company’s global sourcing organization uses the U.S. dollar as its functional currency and is primarily exposed to changes in functional currency equivalent cash flows from anticipated inventory purchases, as it procures inventory on behalf of subsidiaries with Euro functional currencies. Additionally, a European subsidiary uses Euros as its functional currency and is exposed to anticipated non-functional currency denominated sales. The Company manages these risks by using currency forward contracts formally designated and effective as cash flow hedges. Hedge effectiveness is generally determined by evaluating the ability of a hedging instrument's cumulative change in fair value to offset the cumulative change in the present value of expected cash flows on the underlying exposures. For forward contracts, forward points are excluded from the determination of hedge effectiveness and are included in current Cost of sales for hedges of anticipated inventory purchases and in Net Revenues for hedges of anticipated sales on a straight-line basis over the life of the contract. In each accounting period, differences between the change in fair value of the forward points and the amount recognized on a straight-line basis is recognized in other comprehensive income (loss). There was no hedge ineffectiveness for the six months ended May 24, 2020.
Net Investment Hedges
The Company has designated a portion of its outstanding Euro-denominated senior notes as a net investment hedge to manage foreign currency exposures in its foreign operations.
Non-designated Cash Flow Hedges
The Company enters into derivative instruments not designated as hedges. These derivative instruments are not speculative and are used to manage the Company’s exposure to certain product sourcing activities, some intercompany sales, foreign subsidiaries' royalty payments, interest payments, earnings repatriations, net investment in foreign operations and funding activities but the Company has not elected to apply hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in "Other income (expense), net" in the Company’s consolidated statements of operations.


14


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 24, 2020



As of May 24, 2020, the Company had forward foreign exchange contracts derivatives that were not designated as hedges in qualifying hedging relationships, of which $712.0 million were contracts to buy and $67.0 million were contracts to sell various foreign currencies. These contracts are at various exchange rates and expire at various dates through May 2021. The table below provides data about the carrying values of derivative instruments and non-derivative instruments: 
 
May 24, 2020
 
November 24, 2019
 
Assets
 
(Liabilities)
 
Derivative Net Carrying Value
 
Assets
 
(Liabilities)
 
Derivative Net Carrying Value
 
Carrying
Value
 
Carrying
Value
 
 
Carrying
Value
 
Carrying
Value
 
 
(Dollars in thousands)
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange risk cash flow hedges(1)
$
12,021

 
$

 
$
12,021

 
$
6,149

 
$

 
$
6,149

Foreign exchange risk cash flow hedges(2)

 
(680
)
 
(680
)
 

 
(3,809
)
 
(3,809
)
Total
$
12,021

 
$
(680
)
 
 
 
$
6,149

 
$
(3,809
)
 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange contracts(1)
$
26,181

 
$
(12,031
)
 
$
14,150

 
$
16,323

 
$
(6,149
)
 
$
10,174

Forward foreign exchange contracts(2)
682

 
(1,812
)
 
(1,130
)
 
3,813

 
(8,127
)
 
(4,314
)
Total
$
26,863

 
$
(13,843
)
 
 
 
$
20,136

 
$
(14,276
)
 
 
Non-derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Euro senior notes
$

 
$
(519,935
)
 
 
 
$

 
$
(525,255
)
 
 
_____________
(1)
Included in "Other current assets" or "Other non-current assets" on the Company’s consolidated balance sheets.
(2)
Included in "Other accrued liabilities" or "Other long-term liabilities" on the Company’s consolidated balance sheets.






15


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 24, 2020


The Company's over-the-counter forward foreign exchange contracts are subject to International Swaps and Derivatives Association, Inc. master agreements. These agreements permit the net settlement of these contracts on a per-institution basis; however, the Company records the fair value on a gross basis on its consolidated balance sheets based on maturity dates, including those subject to master netting arrangements. The table below presents the gross and net amounts of these contracts recognized on the Company's consolidated balance sheets by type of financial instrument:
 
May 24, 2020
 
November 24, 2019
 
Gross Amounts of Assets / (Liabilities) Presented in the Balance Sheet
 
Gross Amounts Not Offset in the Balance Sheet
 
Net Amounts of Assets / (Liabilities)
 
Gross Amounts of Assets / (Liabilities) Presented in the Balance Sheet
 
Gross Amounts Not Offset in the Balance Sheet
 
Net Amounts of Assets / (Liabilities)
 
 
 
 
 
 
(Dollars in thousands)
Foreign exchange risk contracts and forward foreign exchange contracts
 
 
 
 
 
 
 
 
 
 
 
Financial assets
$
38,884

 
$
(2,914
)
 
$
35,970

 
$
21,839

 
$
(10,142
)
 
$
11,697

Financial liabilities
(14,523
)
 
2,914

 
(11,609
)
 
(16,290
)
 
10,142

 
(6,148
)
Total
 
 
 
 
$
24,361

 
 
 
 
 
$
5,549

Embedded derivative contracts
 
 
 
 
 
 
 
 
 
 
 
Financial assets
$

 
$

 
$

 
$
4,446

 
$

 
$
4,446

Financial liabilities

 

 

 
(1,795
)
 

 
(1,795
)
Total
 
 
 
 
$

 
 
 
 
 
$
2,651

The table below provides data about the amount of gains and losses related to derivative instruments designated as cash flow hedges and non-derivative instruments designated as net investment hedges included in "Accumulated other comprehensive loss" ("AOCI") on the Company’s consolidated balance sheets:
 
Amount of Gain (Loss)
Recognized in OCI
(Effective Portion)
 
Amount of Gain (Loss) Reclassified from AOCI into Net Income (Loss)(1)
 
As of
 
As of
 
Three Months Ended
 
Six Months Ended
May 24,
2020
November 24,
2019
May 24,
2020
 
May 26,
2019
 
May 24,
2020
 
May 26,
2019
 
(Dollars in thousands)
Foreign exchange risk contracts
$
10,664

 
$
2,781

 
$
2,358

 
$
(163
)
 
$
5,423

 
$
717

Realized forward foreign exchange swaps (2)
4,637

 
4,637

 

 

 

 

Yen-denominated Eurobonds
(19,811
)
 
(19,811
)
 

 

 

 

Euro-denominated senior notes
(32,850
)
 
(38,171
)
 

 

 

 

Cumulative income taxes
14,145

 
25,606

 

 

 

 

Total
$
(23,215
)
 
$
(24,958
)
 
 
 
 
 
 
 
 
_____________
(1)
Amounts reclassified from AOCI were classified as net revenues and costs of goods sold on the consolidated statements of operations.
(2)
Prior to and during 2005, the Company used foreign exchange currency swaps to hedge the net investment in its foreign operations. For hedges that qualified for hedge accounting, the net gains were included in AOCI and are not reclassified to earnings until the related net investment position has been liquidated.


16


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 24, 2020


Within the next 12 months, a $9.6 million gain from cash flow hedges is expected to be reclassified from AOCI into net income (loss).
The table below presents the effects of the Company's cash flow hedges of foreign exchange risk contracts on the consolidated statements of operations for the three and six months ended May 24, 2020:
 
Three Months Ended
 
Six Months Ended
 
May 24,
2020
 
May 26,
2019
 
May 24,
2020
 
May 26,
2019
Amount of (Loss) Gain on Cash Flow Hedge Activity:
(Dollars in thousands)
Revenues
$
(350
)
 
$
(1,985
)
 
$
(1,595
)
 
$
(2,444
)
Cost of goods sold
$
2,708

 
$
1,822

 
$
7,018

 
$
3,161

The table below provides data about the amount of gains and losses related to derivatives instruments included in "Other income, net" in the Company's consolidated statements of operations:
 
Three Months Ended
 
Six Months Ended
 
May 24,
2020
 
May 26,
2019
 
May 24,
2020
 
May 26,
2019
 
(Dollars in thousands)
Realized gain
$
14,521

 
$
3,147

 
$
11,088

 
$
7,760

Unrealized gain (loss)
8,026

 
1,115

 
9,738

 
(9,637
)
Total
$
22,547

 
$
4,262

 
$
20,826

 
$
(1,877
)

NOTE 4: DEBT 
The following table presents the Company's debt: 
 
May 24,
2020
 
November 24,
2019
 
(Dollars in thousands)
Long-term debt
 
 
 
Unsecured:
 
 
 
5.00% senior notes due 2025
$
984,810

 
$
487,632

3.375% senior notes due 2027
514,174

 
519,113

Total long-term debt
$
1,498,984


$
1,006,745

Short-term debt
 
 
 
Secured:
 
 
 
Senior revolving credit facility
$
300,000

 
$

Unsecured:
 
 
 
Short-term borrowings
7,912

 
7,621

Total short-term debt
$
307,912

 
$
7,621

Total long-term and short-term debt
$
1,806,896

 
$
1,014,366

Senior Notes due 2025
On April 17, 2020, the Company issued an additional $500 million in aggregate principal amount of 5.00% senior notes under the indenture dated April 27, 2015 pursuant to which the Company previously issued $500 million in principal amount of


17


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 24, 2020


its 5.00% senior notes maturing May 1, 2025 (collectively, the "Senior Notes due 2025"). The Senior Notes due 2025 are treated as a single series and are unsecured obligations that rank equally with all of the Company’s other existing and future unsecured and unsubordinated debt. The additional notes were issued through an institutional private placement and holders will be able to exchange the additional notes for notes with the same principal amount and with substantially identical terms, except that the notes to be received in exchange will be registered under the Securities Act of 1933, as amended (the “Securities Act”). The additional notes were sold at an offering price equal to 100.50% of their principal amount. The net proceeds after initial purchaser discounts and commissions and offering expenses were approximately $496 million and will be used for general corporate purposes.
The Company may redeem some or all of the Senior Notes due 2025 prior to May 1, 2020, at a price equal to 100% of the principal amount, plus an applicable premium and accrued and unpaid interest, if any, to the date of redemption, and a “make-whole” premium; on or after this date, the Company may redeem all or any portion of the notes, at once or over time, at redemption prices specified in the indenture governing the notes, plus accrued and unpaid interest, if any, to the date of redemption.
Senior Revolving Credit Facility
The Company's unused availability under its senior secured revolving credit facility (the "Credit Facility") was $447.7 million at May 24, 2020, as the Company's total availability of $778.2 million was reduced by a $300.0 million borrowing made in April 2020 and $30.5 million of letters of credit and other credit usage allocated under the Credit Facility. As detailed in the Credit Facility, additional draws from the Credit Facility, to the extent they exceed certain levels based on the Company’s borrowing base, could create additional restrictions on the Company, including limitations on (i) certain investment activities, (ii) payment of dividends and (iii) prepayment of certain other indebtedness. On June 30, 2020, subsequent to quarter end, the Company repaid the $300 million borrowing under the Credit Facility.
Interest Rates on Borrowings
The Company’s weighted-average interest rate on average borrowings outstanding during the three and six months ended May 24, 2020 was 4.36% and 4.56%, respectively, as compared to 5.32% and 5.27%, respectively, during the same periods of 2019.
NOTE 5: EMPLOYEE BENEFIT PLANS
The following table summarizes the total net periodic benefit cost for the Company's defined pension plans and postretirement benefit plans:
 
Three Months Ended
 
Six Months Ended
 
May 24,
2020
 
May 26,
2019
 
May 24,
2020
 
May 26,
2019
 
(Dollars in thousands)
Net periodic benefit cost:
 
 
 
 
 
 
 
Pension benefits
$
1,652

 
$
4,016

 
$
3,356

 
$
7,993

Postretirement benefits
510

 
893

 
1,019

 
1,786

Net periodic benefit cost
$
2,162

 
$
4,909

 
$
4,375

 
$
9,779


For the three and six months ended May 24, 2020, total pension plan contributions were $4.0 million and $14.5 million, respectively.


18


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 24, 2020


NOTE 6: RESTRUCTURING
In April 2020, the Board endorsed a restructuring initiative designed to reduce costs, streamline operations and support agility. The adverse impacts of the COVID-19 pandemic on the Company's business necessitated cost reduction actions while plans to streamline operations continue to be developed.
The initiative includes the elimination of approximately 15% of the Company's global non-retail and non-manufacturing positions and is expected to result in approximately $100 million in annual cost savings. Final estimates for headcount, timing and charges in certain areas of the international business are subject to completion of applicable local works council and other consultative processes.
For the three and six months ended May 24, 2020, the Company recognized restructuring charges of $67.4 million, which were recorded on a separate line item in the Company's consolidated statements of operations; within the consolidated balance sheet the Company recorded $51.3 million and $14.5 million in restructuring liabilities and other long-term liabilities, respectively, and an immaterial amount of pension and postretirement curtailment losses was recorded in accumulated other comprehensive income. The charges primarily relate to severance benefits, based on separation benefits provided by Company policy or statutory benefit plans. No payments were made during the three and six months ended May 24, 2020. The Company estimates that it will incur future additional charges related to this restructuring initiative.

NOTE 7: COMMITMENTS AND CONTINGENCIES
Forward Foreign Exchange Contracts
The Company uses cash flow hedge derivative instruments to manage its exposure to foreign currencies. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the forward foreign exchange contracts. However, the Company believes that its exposures are appropriately diversified across counterparties and that these counterparties are creditworthy financial institutions. See Note 3 for additional information.
Other Contingencies
Litigation. In the ordinary course of business, the Company has various claims, complaints and pending cases, including contractual matters, facility and employee-related matters, distribution matters, product liability matters, trademark infringement matters, bankruptcy preference matters, and tax and administrative matters. The Company establishes loss provisions for these ordinary course claims as well as other matters in which losses are probable and can be reasonably estimated. As of May 24, 2020, the Company has recorded certain reserves for these matters which are not material. The Company does not believe any of these pending claims, complaints and legal proceedings will have a material impact on its financial condition, results of operations or cash flows.
Customs Duty Audits. The Company imports both raw materials and finished garments into all of its operating regions and as such, is subject to numerous countries' complex customs laws and regulations with respect to its import and export activity. The Company has various pending audit assessments in connection with these activities. While the Company is vigorously defending its position and does not believe any of the claims for customs duty and related charges have merit, the ultimate resolution of these assessments and legal proceedings are subject to risk and uncertainty.
Inventory Purchase Commitments. The Company also has minimum inventory purchase commitments, including fabric commitments, with suppliers that secure a portion of material needs for future seasons. In light of the COVID-19 pandemic and in response to decreased demand, some of the Company's orders were canceled. As of May 24, 2020, the Company has recorded incremental charges of $35.9 million for adverse fabric purchase commitments, included in "Other accrued liabilities" on the Company’s consolidated balance sheets and reflected as costs of goods sold in the accompanying consolidated statement of operations.


19


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 24, 2020


NOTE 8: LEASES
The Company primarily leases retail store space, certain distribution and warehouse facilities, office space, equipment and other non-real estate assets. The Company determines if an arrangement is a lease at inception and begins recording lease activity at the commencement date, which is generally the date on which the Company takes possession of or controls the physical use of the asset. Right-of-use assets and lease liabilities are recognized based on the present value of lease payments over the lease term with lease expense recognized on a straight-line basis. The Company's incremental borrowing rates, which are based on the information available at commencement date, are used to determine the present value of future lease payments unless the implicit rate is readily determinable. As of and for the three and six months ended May 24, 2020, finance leases were not a material component of the Company's lease portfolio. Lease agreements may contain rent escalation clauses, renewal or termination options, rent holidays or certain landlord incentives, including tenant improvement allowances. Right-of-use assets include amounts for scheduled rent increases and are reduced by the amount of lease incentives. The lease term includes the non-cancelable period of the lease and may include options to extend or terminate the lease when it is reasonably certain the Company will exercise the option. Certain lease agreements include variable lease payments, which are based on a percent of retail sales over specified levels or adjust periodically for inflation.
Lease expense is recognized in SG&A within the Company's consolidated statements of operations, based on the underlying nature of the leased asset. For the three and six months ended May 24, 2020, lease expense primarily consisted of operating lease costs of $71.3 million and $158.4 million, respectively, including $5.7 million and $27.5 million, respectively, primarily related to variable lease costs and an immaterial amount of short-term lease costs.
Amounts of future undiscounted cash flows related to operating lease payments over the lease term are as follows and are reconciled to the present value of the operating lease liabilities as recorded on the Company's consolidated balance sheets.
 
May 24,
2020
 
(Dollars in thousands)
2020
$
127,984

2021
225,422

2022
191,968

2023
154,678

2024
125,629

Thereafter
304,856

Total undiscounted future cash flows related to lease payments
1,130,537

Less: Interest
73,232

Present value of lease liabilities
$
1,057,305

The following table includes the weighted average remaining lease terms, in years, and the weighted average discount rate used to calculate the present value of operating lease liabilities:
 
May 24, 2020
Weighted-average remaining lease term (years)
6.1

Weighted-average discount rate
2.30
%


20


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 24, 2020


The table below includes supplemental cash and non-cash information related to operating leases:
 
May 24, 2020
Cash paid for amounts included in the measurement of lease liabilities:
(Dollars in thousands)
Operating cash outflows from operating leases
$
115,826

Operating lease right-of-use assets obtained in exchange for new operating lease liabilities (1)
$
70,335

_____________
(1)
Excludes the amount initially capitalized in conjunction with the adoption of Topic 842.
Amounts of minimum future annual commitments under non-cancelable operating leases and lease financing obligations in accordance with Topic 840 were as follows:
 
November 24, 2019
 
(Dollars in thousands)
2020
$
234,092

2021
203,483

2022
174,536

2023
140,278

2024
111,176

Thereafter
284,114

Total undiscounted future cash flows related to lease payments
$
1,147,679

NOTE 9: DIVIDEND
Dividends are declared at the discretion of the Board. In January and April 2020, the Company declared quarterly cash dividends of $0.08 per share to holders of record of its Class A and Class B common stock. Dividends in the amount of $31.7 million and $63.6 million were paid during the three and six months ended May 24, 2020, respectively. The Company determined not to declare dividends in the third fiscal quarter of 2020 and will reassess the declaration and payment of dividends in the fourth quarter of 2020.
The Company does not have an established dividend policy. The Board reviews the Company's ability to pay dividends on an ongoing basis and establishes the dividend amount based on the Company's financial condition, results of operations, capital requirements, current and projected cash flows and other factors, and any restrictions related to the terms of the Company’s debt agreements.



21


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 24, 2020


NOTE 10: ACCUMULATED OTHER COMPREHENSIVE LOSS
The following is a summary of the components of "Accumulated other comprehensive loss," net of related income taxes: 
 
May 24,
2020
 
November 24,
2019
 
May 26,
2019
 
(Dollars in thousands)
Pension and postretirement benefits
$
(260,370
)
 
$
(220,859
)
 
$
(223,860
)
Derivative instruments
(23,215
)
 
(24,958
)
 
(28,622
)
Foreign currency translation losses
(200,723
)
 
(155,841
)
 
(153,103
)
Unrealized gains on marketable securities
6,612

 
6,288

 
3,885

Accumulated other comprehensive loss
(477,696
)
 
(395,370
)
 
(401,700
)
Accumulated other comprehensive income attributable to noncontrolling interest(1)

 
9,616

 
9,556

Accumulated other comprehensive loss attributable to Levi Strauss & Co.
$
(477,696
)
 
$
(404,986
)
 
$
(411,256
)
_____________
(1)
On January 9, 2020, Company completed an all cash tender offer for the acquisition of the remaining minority interest shares of Levi Strauss Japan K.K. Refer to Note 1 for additional information.
No material amounts were reclassified out of "Accumulated other comprehensive loss" into net income (loss) other than those that pertain to the Company's derivative instruments and pension and post retirement benefit plans. Refer to Note 3 and Note 5 for additional information.


22


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 24, 2020


NOTE 11: NET REVENUES
Disaggregated Revenue
The table below provides the Company's revenues disaggregated by segment and channel.
 
Three Months Ended May 24, 2020 (1)
 
Americas
 
Europe
 
Asia
 
Total
 
(Dollars in thousands)
Net revenues by channel:
 
 
 
 
 
 
 
Wholesale
$
206,440

 
$
70,186

 
$
24,100