Company Quick10K Filing
Quick10K
Levi Strauss
10-Q 2019-05-26 Quarter: 2019-05-26
10-Q 2019-02-24 Quarter: 2019-02-24
S-1 2019-02-13 Public Filing
10-K 2018-11-25 Annual: 2018-11-25
10-Q 2018-08-26 Quarter: 2018-08-26
10-Q 2018-05-27 Quarter: 2018-05-27
10-Q 2018-02-25 Quarter: 2018-02-25
10-K 2017-11-26 Annual: 2017-11-26
10-Q 2017-08-27 Quarter: 2017-08-27
10-Q 2017-05-28 Quarter: 2017-05-28
10-Q 2017-02-26 Quarter: 2017-02-26
10-K 2016-11-27 Annual: 2016-11-27
10-Q 2016-08-28 Quarter: 2016-08-28
10-Q 2016-05-29 Quarter: 2016-05-29
10-Q 2016-02-28 Quarter: 2016-02-28
10-K 2015-11-29 Annual: 2015-11-29
10-Q 2015-08-30 Quarter: 2015-08-30
10-Q 2015-05-31 Quarter: 2015-05-31
10-Q 2015-03-01 Quarter: 2015-03-01
10-K 2014-11-30 Annual: 2014-11-30
10-Q 2014-08-24 Quarter: 2014-08-24
10-Q 2014-05-25 Quarter: 2014-05-25
10-Q 2014-02-23 Quarter: 2014-02-23
10-K 2013-11-24 Annual: 2013-11-24
8-K 2019-07-10 Shareholder Vote
8-K 2019-07-09 Earnings, Exhibits
8-K 2019-04-09 Earnings, Exhibits
8-K 2019-03-25 Amend Bylaw, Exhibits
8-K 2019-03-11 Earnings, Exhibits
8-K 2019-03-04 Enter Agreement, Shareholder Rights, Amend Bylaw
8-K 2019-02-12 Shareholder Vote
8-K 2019-02-05 Earnings, Exhibits
8-K 2018-07-27 Officers
8-K 2018-04-11 Shareholder Vote
8-K 2018-01-29 Other Events, Exhibits
MTD Mettler Toledo 18,420
ECA Encana 9,700
AVAL Grupo Aval Acciones Y Valores 8,520
KMDA Kamada 232
LND Brasilagro - Brazilian Agricultural Real Estate 210
PYX Playtex Products 163
CKX CKX Lands 20
TOPS Top Ships 17
OBMP OncBioMune 0
EWLU Merion 0
LVIS 2019-05-26
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: Stock-Based Incentive Compensation Plans
Note 7: Commitments and Contingencies
Note 8: Dividend
Note 9: Accumulated Other Comprehensive Loss
Note 10: Net Revenues
Note 11: Other Income, Net
Note 12: Income Taxes
Note 13: Earnings per Share Attributable To Common Stockholders
Note 14: Related Parties
Note 15: 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-10.5 lvis05262019ex-105.htm
EX-31.1 lvis05262019ex-311.htm
EX-31.2 lvis05262019ex-312.htm
EX-32 lvis05262019ex-321.htm

Levi Strauss Earnings 2019-05-26

LVIS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a2q2019form10-q.htm 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 26, 2019
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 3, 2019, the registrant had 42,166,667 shares of Class A common stock, $0.001 par value per share and 350,332,920 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 26, 2019
 
 
 
 
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 26,
2019
 
November 25,
2018
 
(Dollars in thousands)
ASSETS
Current Assets:
 
 
 
Cash and cash equivalents
$
860,933


$
713,120

Short-term investments in marketable securities
79,736

 

Trade receivables, net of allowance for doubtful accounts of $9,876 and $10,037
574,389


534,164

Inventories:
 


Raw materials
5,275


3,681

Work-in-process
2,933


2,977

Finished goods
887,111


877,115

Total inventories
895,319


883,773

Other current assets
196,769


157,002

Total current assets
2,607,146


2,288,059

Property, plant and equipment, net of accumulated depreciation of $1,014,365 and $974,206
480,515


460,613

Goodwill
235,688


236,246

Other intangible assets, net
42,808


42,835

Deferred tax assets, net
414,620


397,791

Other non-current assets
128,616


117,116

Total assets
$
3,909,393


$
3,542,660

 
 
 
 
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY
Current Liabilities:
 
 
 
Short-term debt
$
11,481


$
31,935

Accounts payable
339,497


351,329

Accrued salaries, wages and employee benefits
164,788


298,990

Accrued interest payable
5,787


6,089

Accrued income taxes
34,579


15,466

Accrued sales allowances (Note 1)
116,282

 

Other accrued liabilities
435,300


348,390

Total current liabilities
1,107,714


1,052,199

Long-term debt
1,011,119


1,020,219

Postretirement medical benefits
70,147


74,181

Pension liability
190,588


195,639

Long-term employee related benefits
79,517


107,556

Long-term income tax liabilities
11,339


9,805

Other long-term liabilities
117,716


116,462

Total liabilities
2,588,140


2,576,061

Commitments and contingencies





Temporary equity (Note 1)


299,140

 

 
 
Stockholders’ Equity:

 
 
Levi Strauss & Co. stockholders’ equity


 
 
Common stock — $.001 par value; 1,200,000,000 Class A shares authorized, 42,166,667 shares and no shares issued and outstanding as of May 26, 2019 and November 25, 2018, respectively; and 422,000,000 Class B shares authorized, 350,332,920 shares and 376,028,430 shares issued and outstanding, as of May 26, 2019 and November 25, 2018, respectively
392


376

Additional paid-in capital (Note 1)
629,703

 

Accumulated other comprehensive loss
(411,256
)

(424,584
)
Retained earnings
1,094,666


1,084,321

Total Levi Strauss & Co. stockholders’ equity
1,313,505


660,113

Noncontrolling interest
7,748


7,346

Total stockholders’ equity
1,321,253


667,459

Total liabilities, temporary equity and stockholders’ equity
$
3,909,393


$
3,542,660

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


3


LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 
 
Three Months Ended
 
Six Months Ended
 
May 26,
2019
 
May 27,
2018
 
May 26,
2019
 
May 27,
2018

(Dollars in thousands, except per share amounts)
(Unaudited)
Net revenues
$
1,312,940


$
1,245,742

 
$
2,747,398

 
$
2,589,427

Cost of goods sold
612,517


574,865

 
1,264,167

 
1,180,426

Gross profit
700,423


670,877

 
1,483,231

 
1,409,001

Selling, general and administrative expenses
637,525


593,595

 
1,219,421

 
1,156,797

Operating income
62,898


77,282

 
263,810

 
252,204

Interest expense
(15,126
)

(14,465
)
 
(32,670
)
 
(29,962
)
Underwriter commission paid on behalf of selling stockholders
(24,860
)
 

 
(24,860
)
 

Other income, net
3,166


12,895

 
1,520

 
2,495

Income before income taxes
26,078


75,712

 
207,800

 
224,737

Income tax (benefit) expense
(2,429
)

(1,320
)
 
32,842

 
166,334

Net income
28,507

 
77,032

 
174,958

 
58,403

Net income attributable to noncontrolling interest
(277
)

(2,100
)
 
(151
)
 
(2,483
)
Net income attributable to Levi Strauss & Co.
$
28,230


$
74,932

 
$
174,807

 
$
55,920

Earnings per common share attributable to common stockholders:
 
 
 
 
 
 
 
Basic
$
0.07

 
$
0.20

 
$
0.46

 
$
0.15

Diluted
$
0.07

 
$
0.19

 
$
0.44

 
$
0.14

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
Basic
389,518,461

 
377,132,162

 
383,278,398

 
376,384,657

Diluted
409,332,997

 
387,764,580

 
401,405,411

 
387,130,124













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 26,
2019
 
May 27,
2018
 
May 26,
2019
 
May 27,
2018
 
(Dollars in thousands)
(Unaudited)
Net income
$
28,507


$
77,032

 
$
174,958

 
$
58,403

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


 
 
 
 
 
Pension and postretirement benefits
3,464


3,157

 
6,886

 
6,517

Derivative instruments
12,667


28,975

 
14,404

 
6,127

Foreign currency translation losses
(8,843
)

(34,353
)
 
(4,757
)
 
(14,572
)
Unrealized gains (losses) on marketable securities
329

 
(116
)
 
1,219

 
174

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

 
(2,337
)
 
17,752

 
(1,754
)
Income taxes expense related to items of other comprehensive income
(2,432
)
 
(7,229
)
 
(4,173
)
 
(2,383
)
Comprehensive income, net of income taxes
33,692

 
67,466

 
188,537

 
54,266

Comprehensive income attributable to noncontrolling interest
(348
)
 
(1,939
)
 
(402
)
 
(2,583
)
Comprehensive income attributable to Levi Strauss & Co.
$
33,344

 
$
65,527

 
$
188,135

 
$
51,683

































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


5


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)
Balance at November 26, 2017
$
375

 
$

 
$
1,100,916

 
$
(404,381
)
 
$
5,478

 
$
702,388

Net (loss) income

 

 
(19,012
)
 

 
383

 
(18,629
)
Other comprehensive income, net of tax

 

 

 
5,167

 
261

 
5,428

Stock-based compensation and dividends, net
2

 
5,254

 

 

 

 
5,256

Reclassification to temporary equity

 
9,590

 
(42,589
)
 

 

 
(32,999
)
Repurchase of common stock

 
(14,844
)
 

 

 

 
(14,844
)
Cash dividends declared ($0.24 per share)

 

 
(90,000
)
 

 

 
(90,000
)
Balance at February 25, 2018
377

 

 
949,315

 
(399,214
)
 
6,122

 
556,600

Net income

 

 
74,932

 

 
2,100

 
77,032

Other comprehensive loss, net of tax

 

 

 
(9,405
)
 
(161
)
 
(9,566
)
Stock-based compensation and dividends, net

 
5,566

 

 

 

 
5,566

Reclassification to temporary equity

 
(2,438
)
 
(27,796
)
 

 

 
(30,234
)
Repurchase of common stock

 
(3,128
)
 
(4,055
)
 

 

 
(7,183
)
Balance at May 27, 2018
$
377

 
$

 
$
992,396

 
$
(408,619
)
 
$
8,061

 
$
592,215

 
 
 
 
 
 
 
 
 
 
 
 
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


(991
)

(2,923
)




 
(3,914
)
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

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

Repurchase of common stock

 
(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 (Note 1)
14

 
234,569

 

 

 

 
234,583

Cancel liability-settled awards and replace with equity-settled awards in connection with initial public offering (Note 1)

 
56,130

 

 

 

 
56,130

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.



6


LEVI STRAUSS & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended
 
May 26,
2019

May 27,
2018

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



Net income
$
174,958


$
58,403

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




Depreciation and amortization
58,745


64,695

Unrealized foreign exchange losses (gains)
14,899


(10,678
)
Realized (gain) loss on settlement of forward foreign exchange contracts not designated for hedge accounting
(7,134
)

18,148

Employee benefit plans’ amortization from accumulated other comprehensive loss and settlement loss
6,886


6,517

Stock-based compensation
14,014


10,822

Other, net
1,813


3,767

(Benefit from) provision for deferred income taxes
(19,937
)

135,168

Change in operating assets and liabilities:




Trade receivables
119,916


135,739

Inventories
(32,628
)

(95,690
)
Other current assets
(22,546
)

(1,580
)
Other non-current assets
(5,198
)

(7,435
)
Accounts payable and other accrued liabilities
(47,137
)

38,284

Restructuring liabilities
(126
)

(254
)
Income tax liabilities
20,675


(980
)
Accrued salaries, wages and employee benefits and long-term employee related benefits
(115,443
)

(127,321
)
Other long-term liabilities
56


(47
)
Net cash provided by operating activities
161,813


227,558

Cash Flows from Investing Activities:




Purchases of property, plant and equipment
(76,961
)

(61,153
)
Proceeds (Payments) on settlement of forward foreign exchange contracts not designated for hedge accounting
13,125


(18,148
)
Payments to acquire short-term investments
(84,829
)
 

Proceeds from sale, maturity and collection of short-term investments
5,481

 

Net cash used for investing activities
(143,184
)

(79,301
)
Cash Flows from Financing Activities:




Proceeds from short-term credit facilities
17,929


22,689

Repayments of short-term credit facilities
(27,866
)

(20,673
)
Other short-term borrowings, net
(9,422
)

(14,537
)
Proceeds from issuance of Class A common stock
254,329

 

Payments for underwriter commission and other offering costs
(19,746
)
 

Repurchase of common stock, including shares surrendered for tax withholdings on equity award exercises
(28,610
)

(22,027
)
Dividend to stockholders
(55,000
)

(45,000
)
Other financing, net
(565
)

(644
)
Net cash provided by (used for) financing activities
131,049


(80,192
)
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(1,913
)

(3,424
)
Net increase in cash and cash equivalents and restricted cash
147,765


64,641

Beginning cash and cash equivalents, and restricted cash
713,698


634,691

Ending cash and cash equivalents, and restricted cash
861,463


699,332

Less: Ending restricted cash
(530
)

(608
)
Ending cash and cash equivalents
$
860,933


$
698,724





Noncash Investing Activity:



Property, plant and equipment acquired and not yet paid at end of period
$
14,775


$
14,454

Property, plant and equipment additions due to build-to-suit lease transactions
10,861


1,822

Realized loss on foreign currency contracts not yet paid at end of period
5,990



Supplemental disclosure of cash flow information:



Cash paid for interest during the period
$
26,849


$
25,824

Cash paid for income taxes during the period, net of refunds
52,800


35,066


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


7


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED MAY 26, 2019
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.
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 25, 2018, included in the Company's final prospectus related to its initial public offering ("IPO"), dated March 20, 2019 (File No. 333-229630) (the "Prospectus"), filed with the Securities and Exchange Commission ("SEC") pursuant to Rule 424(b) under the Securities Act of 1933, as amended.
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 26, 2019 may not be indicative of the results to be expected for any other interim period or the year ending November 24, 2019.
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 2019 and 2018 consists of 13 weeks. All references to years and quarters relate to fiscal years and quarters rather than calendar years and quarters.
Reclassification
Certain insignificant amounts on the consolidated statements of cash flows have been conformed to the May 26, 2019 presentation.
Stock Split
On February 12, 2019, the Company’s stockholders approved an amendment to the Company’s certificate of incorporation (the "Amendment") to effect a ten-for-one stock split of shares of the Company’s outstanding common stock, such that each share of common stock, $0.01 par value, became ten shares of common stock, $0.001 par value per share. In addition, the Amendment increased the number of authorized shares of the Company's common stock by 930,000,000 to 1,200,000,000. The Amendment became effective on March 4, 2019 when filed with the Secretary of State of the State of Delaware. All share and per-share data in the unaudited consolidated financial statements and notes has been retroactively adjusted to reflect the stock split for all periods presented.
Initial Public Offering
In March 2019, the Company completed its IPO in which it issued and sold 14,960,557 shares of Class A common stock at a public offering price of $17.00 per share. The Company received net proceeds of $234.6 million after deducting underwriting discounts and commissions of $13.6 million and other direct and incremental offering expenses of $6.1 million. The Company agreed to pay all underwriting discounts and commissions applicable to the sales of shares of Class A common stock by the selling stockholders. This amount, $24.9 million, was paid at completion of the IPO in March 2019 and was recorded as non-operating expense in the second quarter of 2019. Additionally, the Company incurred $3.5 million of other costs associated with the IPO that were recorded in selling, general and administrative expenses ("SG&A").


8


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 26, 2019


In connection with the IPO, on March 19, 2019 the Company's Board of Directors approved the cancellation of the majority of the outstanding unvested cash-settled restricted stock units ("RSU's") and their concurrent replacement with similar equity-settled RSUs ("Replacement Awards"), pursuant to the Company's 2016 Equity Incentive Plan (the "2016 Plan"). RSUs for certain foreign affiliates will continue to be cash-settled. Other than the form of settlement, all other terms of the awards (including their vesting schedules) are the same. Prior to this modification, the cash-settled awards were classified as liabilities and stock-based compensation expense was measured using the fair value at the end of each reporting period. After the modification, the stock-based compensation expense for these awards was measured using the modification date fair value. As a result of the modification, accrued stock-based compensation expense of $45.8 million and $10.3 million were reclassified on the Company's consolidated balance sheets from accrued salaries, wages and employee benefits and other long-term liabilities, respectively, to additional paid in capital. Refer to Note 6 for more information.
Prior to the IPO, the holders of shares issued under the 2016 Plan could require the Company to repurchase such shares at the then-current market value pursuant to a contractual put right. Equity-classified stock-based awards that may be settled in cash at the option of the holder were presented on the Company's consolidated balance sheets outside of permanent equity. Accordingly, temporary equity on the Company's consolidated balance sheets includes the redemption value of these awards generally related to the elapsed service period since the grant date reflecting patterns of compensation cost recognition, as well as the fair value of the Company's common stock issued pursuant to the 2016 Plan. Upon the completion of the IPO in the second quarter of 2019, this contractual put right was terminated and these awards are no longer presented as temporary equity. As a result, the balance in temporary equity as of immediately prior to the IPO of $351.2 million was reclassified to additional paid in capital. Refer to Note 6 for more information.
On February 12, 2019, the Company’s stockholders also approved the adoption of an amended and restated certificate of incorporation (the "IPO Certificate") and amended and restated bylaws. The IPO Certificate provides for two classes of common stock: Class A common stock, par value $0.001 per share, and Class B common stock, par value $0.001 per share. All common stock outstanding at the time of the IPO converted automatically into Class B common stock, each having ten votes per share. Shares of Class A common stock, each having one vote per share, were sold in the IPO. Shares of Class B common stock sold by selling stockholders in the IPO automatically converted into shares of Class A common stock in connection with such sale. Holders of Class B common stock can voluntarily convert their shares into Class A common stock if and when they wish to do so in order to sell their shares to the public.
On February 12, 2019, the Company’s stockholders approved the Company's 2019 Equity Incentive Plan (the "2019 Plan") and the Company's 2019 Employee Stock Purchase Plan (the "2019 ESPP"), each of which became effective on March 20, 2019, the effective date of the IPO registration statement. The maximum number of shares of the Company’s Class A common stock that may be issued under the 2019 Plan is 40,000,000. The 2019 ESPP authorizes the issuance of 12,000,000 shares of the Company’s Class A common stock and is subject to automatic annual increases.
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.


9


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 26, 2019


Changes in Accounting Principle
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Under the new standard and its related amendments (collectively known as Accounting Standards Codification 606 ("ASC 606")), an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. Enhanced disclosures are required regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
The Company has identified certain changes in balance sheet classification under ASC 606. Allowances for estimated returns, discounts and retailer promotions and other similar incentives are presented as other accrued liabilities rather than netted within accounts receivable and the estimated cost of inventory associated with allowances for estimated returns are included as other current assets rather than inventories. The Company adopted the standard as of November 26, 2018 using the modified retrospective approach and determined there is no impact to retained earnings upon adoption. Refer to Note 10 for more information.
The following table presents the related effect of the adoption of Topic 606 on the Consolidated Balance Sheets:
 
May 26, 2019
 
As Reported
 
Remove Effect of Adoption
 
Balances Without Adoption of Topic 606
 
(Dollars in thousands)
Trade receivables, net of allowance for doubtful accounts
$
574,389

 
$
164,840

 
$
409,549

Inventories: Finished goods
887,111

 
(17,827
)
 
904,938

Other current assets
196,769

 
17,827

 
178,942

Total current assets
2,607,146

 
164,840

 
2,442,306

Total assets
3,909,393

 
164,840

 
3,744,553

Accrued sales allowances
116,282

 
116,282

 

Other accrued liabilities
435,300

 
48,558

 
386,742

Total current liabilities
1,107,714

 
164,840

 
942,874

Total liabilities, temporary equity and stockholders' equity
$
3,909,393

 
$
164,840

 
$
3,744,553

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statement of cash flows. Restricted cash is reported in Other non-current assets in the Company's Consolidated Balance Sheets. The Company adopted this standard in the first quarter of 2019, and other than the change in presentation within the Consolidated Statements of Cash Flows, the adoption of ASU 2016-18 did not have an impact on the Company's consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715) Improving the Presentation of Net Periodic Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 changes the income statement presentation of net periodic benefit costs requiring separation between operating expense (service cost component) and non-operating expense (all other components, including interest cost, expected return on plan assets, amortization of prior service costs or credits, curtailments and settlements, actuarial gains and losses, etc.). Accordingly, the Company determined this impacts the Company's Consolidated Statements of Income, as the service cost components of net periodic benefit costs are reported within operating income and the other components of net periodic benefit costs are reported in the Other Income, Net line item. The presentation change in the Consolidated Statements of Income requires application on a retrospective basis. A practical expedient is permitted under the guidance which allows the Company to use information previously disclosed in the pension and other postretirement benefit plans footnote as the basis to apply the retrospective presentation requirements. As a result of the Company's adoption of this standard, other components of net periodic benefit


10


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 26, 2019


costs, primarily interest costs and investment earnings, of $4.0 million and $0.8 million for the three months ended May 26, 2019 and May 27, 2018, respectively, and $8.0 million and $1.6 million for the six months ended May 26, 2019 and May 27, 2018, respectively, were included in Other Income, Net line item rather than selling, general and administrative expenses in the Company's Consolidated Statements of Income. This reclassified amount will be $3.4 million for the year ended November 25, 2018.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 refines and expands hedge accounting for both financial and commodity risks. This ASU creates more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes. In addition, this ASU makes certain targeted improvements to simplify the application of hedge accounting guidance. The Company adopted this standard during the first quarter of 2019 upon entering into foreign exchange risk contracts designated as hedges.
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 Prospectus, except for the following:
First Quarter of 2020
In February 2016, the FASB issued 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 expects to elect the transition method that applies the new lease standard at the adoption date instead of the earliest period presented. Given the significant number of leases, the Company anticipates the new guidance will have a material impact on the consolidated balance sheets.


11


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 26, 2019


NOTE 2: FAIR VALUE OF FINANCIAL INSTRUMENTS
Beginning the first quarter of 2019, the Company invested in short-term investments. Changes in the fair value of these marketable securities are recognized in accumulated other comprehensive income or loss.
The following table presents the Company’s financial instruments that are carried at fair value:
 
May 26, 2019
 
November 25, 2018
 
 
 
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
$
45,707

 
$
45,707

 
$

 
$
34,385

 
$
34,385

 
$

Short-term investments in marketable securities
79,736

 

 
79,736

 

 

 

Derivative instruments(3)
21,914

 

 
21,914

 
18,372

 

 
18,372

Total
$
147,357

 
$
45,707

 
$
101,650

 
$
52,757

 
$
34,385

 
$
18,372

Financial liabilities carried at fair value
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments(3)
12,226

 

 
12,226

 
4,447

 

 
4,447

Total
$
12,226

 
$

 
$
12,226

 
$
4,447

 
$

 
$
4,447

_____________
 
(1)
Fair values estimated using Level 1 inputs are inputs which 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 26, 2019
 
November 25, 2018
 
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)
$
488,323

 
$
501,704

 
$
487,272

 
$
478,774

3.375% senior notes due 2027(1)
528,104

 
554,331

 
538,219

 
546,238

Short-term borrowings
11,719

 
11,719

 
32,470

 
32,470

Total
$
1,028,146

 
$
1,067,754

 
$
1,057,961

 
$
1,057,482

_____________
 
(1)
Fair values are estimated using Level 1 inputs and incorporate mid-market price quotes. Level 1 inputs are inputs which consist of quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.


12


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 26, 2019


NOTE 3: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Accounting Policy
Financial Statement Presentation
The Company records all derivatives on the balance sheet at fair value, which are included in "Other current assets", "Other non-current assets", "Other accrued liabilities" or "Other long-term liabilities" on the Company’s consolidated balance sheets. The portion of the fair value that represents cash flow occurring within one year are classified as current and the portion related to cash flows occurring beyond one year are classified as non-current. The cash flows from the designated derivative instruments used as hedges are classified in the Company's consolidated statements of cash flows in the same section as the cash flows of the hedged item.
Cash Flow Hedges
The Company's cash flow hedges are recorded in "Other comprehensive loss" and are not reclassified to earnings until the related net investment position has been liquidated. As a result of ASU 2017-12, for foreign exchange forward contracts accounted for as cash flow hedges, the ineffective portion (if any) will not be separately recorded. The classification of effective hedge results on the Company's consolidated statements of income (loss) is the same as that of the underlying exposure. For foreign exchange risk cash flow hedges, forward points are excluded from the assessment of hedge effectiveness and are recognized in "Net Revenues" or "Costs of goods sold" 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".
Net Investment Hedges
The Company designates certain non-derivative instruments as net investment hedges to hedge the Company's net investment position in certain of its foreign subsidiaries. For these instruments, the Company documents the hedge designation by identifying the hedging instrument, the nature of the risk being hedged and the approach for measuring hedge effectiveness. The ineffective portions of these hedges are recorded in "Other income, net" in the Company's consolidated statements of income. The effective portions of these hedges are recorded in "Accumulated other comprehensive loss" on the Company's consolidated balance sheets and are not reclassified to earnings until the related net investment position has been liquidated.
No Hedging Designation
The Company may also enter into derivative instruments that are not designated as hedges and do not qualify for hedge accounting. For derivatives not designated for hedge accounting, changes in the fair value are recorded in "Other income, net" in the Company’s consolidated statements of income.
The Company's foreign currency management objective is to minimize the effect of fluctuations in foreign exchange rates on nonfunctional currency cash flows and selected assets or liabilities without exposing the Company to additional risk associated with transactions that could be regarded as speculative. The Company manages certain forecasted foreign currency exposures and uses a centralized currency management operation to take advantage of potential opportunities to naturally offset foreign currency exposures against each other.
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


13


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 26, 2019


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. There was no hedge ineffectiveness for the six months ended May 26, 2019.
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, net" in the Company’s consolidated statements of income.
As of May 26, 2019, the Company had forward foreign exchange contracts derivatives that were not designated as hedges in qualifying hedging relationships, of which $1.1 billion were contracts to buy and $606.6 million were contracts to sell various foreign currencies. These contracts are at various exchange rates and expire at various dates through May 2020. The table below provides data about the carrying values of derivative instruments and non-derivative instruments: 
 
May 26, 2019
 
November 25, 2018
 
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)
$
8,340

 
$

 
$
8,340

 
$

 
$

 
$

Foreign exchange risk cash flow hedges(2)

 
(2,576
)
 
(2,576
)
 

 

 

Total
$
8,340

 
$
(2,576
)
 
 
 
$

 
$

 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange contracts(1)
21,912

 
(8,338
)
 
13,574

 
18,372

 

 
18,372

Forward foreign exchange contracts(2)
2,569

 
(12,219
)
 
(9,650
)
 

 
(4,447
)
 
(4,447
)
Total
$
24,481

 
$
(20,557
)
 
 
 
$
18,372

 
$
(4,447
)
 
 
Non-derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Euro senior notes
$

 
$
(531,050
)
 
 
 
$

 
$
(541,500
)
 
 
_____________
 
(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.


14


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 26, 2019


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 26, 2019
 
November 25, 2018
 
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
$
30,234

 
$
(10,194
)
 
$
20,040

 
$
16,417

 
$
(1,756
)
 
$
14,661

Financial liabilities
(21,318
)
 
10,194

 
(11,124
)
 
(2,181
)
 
1,756

 
(425
)
Total
 
 
 
 
$
8,916

 
 
 
 
 
$
14,236

Embedded derivative contracts
 
 
 
 
 
 
 
 
 
 
 
Financial assets
$
2,587

 
$

 
$
2,587

 
$
1,955

 
$

 
$
1,955

Financial liabilities
(1,815
)
 

 
(1,815
)
 
(2,266
)
 

 
(2,266
)
Total
 
 
 
 
$
772

 
 
 
 
 
$
(311
)

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(1)
 
As of
 
As of
 
Three Months Ended
 
Six Months Ended
May 26,
2019
November 25,
2018
May 26,
2019
 
May 27,
2018
 
May 26,
2019
 
May 27,
2018
 
(Dollars in thousands)
Foreign exchange risk contracts
$
3,954

 
$

 
$
(163
)
 
$

 
$
717

 
$

Realized forward foreign exchange swaps (2)
4,637

 
4,637

 

 

 

 

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

 

 

 

Euro-denominated senior notes
(43,966
)
 
(54,416
)
 

 

 

 

Cumulative income taxes
26,564

 
29,703

 

 

 

 

Total
$
(28,622
)
 
$
(39,887
)
 
 
 
 
 
 
 
 
_____________
(1) Amounts reclassified from AOCI were classified as net revenues and costs of goods sold on the consolidated statements of income.
(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.


15


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 26, 2019


Within the next 12 months, $3.8 million of cash flow hedges are expected to be reclassified from AOCI into net income.
The table below presents the effects of the Company's cash flow hedges of foreign exchange risk contracts on the Consolidated Statements of Income for the three and six months ended May 26, 2019:
 
May 26,
2019
 
Three Months Ended
 
Six Months Ended
Amount of Gain (Loss) on Cash Flow Hedge Activity:
(Dollars in thousands)
Revenues
$
(1,985
)
 
$
(2,444
)
Cost of Goods Sold
$
1,822

 
$
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 income:
 
Three Months Ended
 
Six Months Ended
 
May 26,
2019
 
May 27,
2018
 
May 26,
2019
 
May 27,
2018
 
(Dollars in thousands)
Realized gain (loss)
$
3,147

 
$
(7,845
)
 
$
7,760

 
$
(18,148
)
Unrealized gain (loss)
1,115

 
21,556

 
(9,637
)
 
15,772

Total
$
4,262

 
$
13,711

 
$
(1,877
)
 
$
(2,376
)

NOTE 4: DEBT 
The following table presents the Company's debt: 
 
May 26,
2019
 
November 25,
2018
 
(Dollars in thousands)
Long-term debt
 
 
 
5.00% senior notes due 2025
$
486,587

 
$
485,605

3.375% senior notes due 2027
524,532

 
534,614

Total long-term debt
$
1,011,119


$
1,020,219

Short-term debt
 
 
 
Short-term borrowings
$
11,481

 
$
31,935

Total debt
$
1,022,600

 
$
1,052,154

Senior Revolving Credit Facility
The Company's unused availability under its senior secured revolving credit facility was $805.6 million at May 26, 2019, as the Company's total availability of $837.0 million was reduced by $31.4 million of letters of credit and other credit usage allocated 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 26, 2019 was 5.32% and 5.27%, respectively, as compared to 5.19% and 5.00%, respectively, during the same periods of 2018.


16


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 26, 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 26,
2019
 
May 27,
2018
 
May 26,
2019
 
May 27,
2018
 
(Dollars in thousands)
Net periodic benefit cost:
 
 
 
 
 
 
 
Pension benefits
$
4,016

 
$
766

 
$
7,993

 
$
1,615

Postretirement benefits
893

 
926

 
1,786

 
1,852

Net periodic benefit cost
$
4,909

 
$
1,692

 
$
9,779

 
$
3,467

NOTE 6: STOCK-BASED INCENTIVE COMPENSATION PLANS
Equity Awards
Service and performance RSU activity during the six months ended May 26, 2019 was as follows:
 
Service RSUs
 
Performance RSUs
 
Units
 
Weighted-Average Fair Value
 
Weighted-Average Remaining Contractual Life (Years)
 
Units
 
Weighted-Average Fair Value
 
Weighted-Average Remaining Contractual Life (Years)
 
(Units in thousands)
Outstanding at November 25, 2018
1,030

 
$
8.17

 
1.7
 
1,744

 
$
8.08

 
1.4
Granted
310

 
14.25

 
 
 
586

 
15.84

 
 
Vested
(109
)
 
8.80

 
 
 

 

 
 
Granted Replacement Awards
6,542

 
16.67

 
 
 
2,083

 
22.71

 
 
Forfeited
(68
)
 
16.67

 
 
 
(37
)
 
22.23

 
 
Outstanding at May 26, 2019
7,705

 
$
15.49

 
2.1
 
4,376

 
$
16.10

 
1.5


17


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 26, 2019


Liability Awards
Liability award activity during the six months ended May 26, 2019 was as follows:
 
Phantom Service RSUs
 
Phantom Performance RSUs
 
Units
 
Weighted-Average Fair Value
 
Fair Value At Period End
 
Units
 
Weighted-Average Fair Value
 
Fair Value At Period End
 
(Units in thousands)
Outstanding at November 25, 2018
9,100

 
$
7.59

 
$
14.60

 
1,710

 
$
8.22

 
$
14.60

Granted
1,793

 
14.88

 
 
 
504

 
14.88

 
 
Vested
(3,542
)
 
6.79

 
 
 

 

 
 
Canceled
(6,542
)
 
9.81

 
 
 
(2,083
)
 
9.69

 
 
Forfeited
(215
)
 
8.59

 
 
 
(64
)
 
9.45

 
 
Outstanding at May 26, 2019
594

 
$
9.57

 
$
22.06

 
67

 
$
11.63

 
$
22.06

Expected to vest at May 26, 2019
546

 
$
9.47

 
$
22.06

 
57

 
$
11.47

 
$
22.06

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 pending cases involving contractual matters, facility and employee-related matters, distribution matters, product liability claims, trademark infringement and other matters. The Company does not believe any of these pending 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 is currently undergoing audit assessments and the related legal appeal processes with various customs authorities. 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.
NOTE 8: DIVIDEND
In January 2019, the Company's Board of Directors declared two cash dividends of $55 million each. The first dividend was paid in the first quarter of 2019. The second dividend will be paid in the fourth quarter of 2019 to the holders of record of the Company's Class A common stock and Class B common stock at the close of business on October 5, 2019, and was recorded in "Other accrued liabilities" in the Company's consolidated balance sheets.
The Company does not have an established dividend policy. The Company will continue to review its ability to pay cash dividends at least annually, and dividends may be declared at the discretion of the Company's Board of Directors depending upon, among other factors, the Company's financial condition and compliance with the terms of the Company's debt agreements.


18


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 26, 2019


NOTE 9: ACCUMULATED OTHER COMPREHENSIVE LOSS
The following is a summary of the components of "Accumulated other comprehensive loss," net of related income taxes: 
 
May 26,
2019
 
November 25,
2018
 
May 27,
2018
 
(Dollars in thousands)
Pension and postretirement benefits
$
(223,860
)
 
$
(229,023
)
 
$
(227,464
)
Derivative instruments
(28,622
)
 
(39,887
)
 
(51,114
)
Foreign currency translation losses
(153,103
)
 
(149,318
)
 
(124,578
)
Unrealized gains on marketable securities
3,885

 
2,948

 
4,175

Accumulated other comprehensive loss
(401,700
)
 
(415,280
)
 
(398,981
)
Accumulated other comprehensive income attributable to noncontrolling interest
9,556

 
9,304

 
9,638

Accumulated other comprehensive loss attributable to Levi Strauss & Co.
$
(411,256
)
 
$
(424,584
)
 
$
(408,619
)

Refer to Note 3 for insignificant amounts reclassified out of "Accumulated other comprehensive loss" into net income related to the Company's derivative instruments. Other insignificant amounts that pertain to the Company's pension and postretirement benefit plans were also reclassified out of "Accumulated other comprehensive loss" into "Other Income, net" in the Company's consolidated statements of income.
NOTE 10: NET REVENUES
Disaggregated Revenue
The table below provides the Company's revenues disaggregated by segment and channel.
 
Three Months Ended May 26, 2019
 
Americas
 
Europe
 
Asia
 
Total
 
(Dollars in thousands)
Net revenues by channel:
 
 
 
 
 
 
 
Wholesale
$
487,958

 
$
207,980

 
$
115,736

 
$
811,674

Direct-to-consumer
204,740

 
190,389

 
106,137

 
501,266

Total net revenues
$
692,698

 
$
398,369

 
$
221,873

 
$
1,312,940


 
Six Months Ended May 26, 2019
 
Americas
 
Europe
 
Asia
 
Total
 
(Dollars in thousands)
Net revenues by channel:
 
 
 
 
 
 
 
Wholesale
$
971,759

 
$
460,913

 
$
248,311

 
$
1,680,983

Direct-to-consumer
438,203

 
402,132

 
226,080

 
1,066,415

Total net revenues
$
1,409,962

 
$
863,045

 
$
474,391

 
$
2,747,398




19


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 26, 2019


 
Three Months Ended May 27, 2018
 
Americas
 
Europe
 
Asia
 
Total
 
(Dollars in thousands)
Net revenues by channel:
 
 
 
 
 
 
 
Wholesale
$
480,680

 
$
196,581

 
$
108,693

 
$
785,954

Direct-to-consumer
189,111

 
170,255

 
100,422

 
459,788

Total net revenues
$
669,791

 
$
366,836

 
$
209,115

 
$
1,245,742


 
Six Months Ended May 27, 2018
 
Americas
 
Europe
 
Asia
 
Total
 
(Dollars in thousands)
Net revenues by channel:
 
 
 
 
 
 
 
Wholesale
$
929,422

 
$
456,446

 
$
228,326

 
$
1,614,194

Direct-to-consumer
397,566

 
363,112

 
214,555

 
975,233

Total net revenues
$
1,326,988

 
$
819,558

 
$
442,881

 
$
2,589,427


Wholesale channel revenues includes sales through third-party retailers such as department stores, specialty retailers, leading third-party e-commerce sites and franchise locations dedicated to the Company's brands. The Company also sells products directly to consumers, which are reflected in the direct-to-consumer ("DTC") channel, through a variety of formats, including company-operated mainline and outlet stores, company-operated e-commerce sites and select shop-in-shops located in department stores and other third-party retail locations.
Revenue transactions generally comprise a single performance obligation which consists of the sale of products to customers either through wholesale or direct-to-consumer channels. The Company satisfies the performance obligation and records revenues when transfer of control has passed to the customer, based on the terms of sale. Transfer of control passes to wholesale customers upon shipment or upon receipt depending on the agreement with the customer. Within the Company's DTC channel, control generally transfers to the customer at the time of sale within company-operated retail stores and upon delivery to the customer with respect to e-commerce transactions.
Licensing revenues are included in the Company's wholesale channel and represent approximately 2% of total revenues which are recognized over time based on the contractual term with variable amounts recognized only when royalties exceed contractual minimum royalty guarantees.
Payment terms for wholesale transactions depend on the country of sale or agreement with the customer, and payment is generally required after shipment or receipt by the wholesale customer. Payment is due at the time of sale for retail store and e-commerce transactions.
At May 26, 2019, the Company did not have any material contract assets and or contract liabilities recorded in the consolidated balance sheets.
Net revenues are recognized when the Company's performance obligations are satisfied upon transfer of control of promised goods. A customer is deemed to have control once they are able to direct the use and receive substantially all of the benefits of the product. This includes a present obligation to payment, the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance.
Consideration promised in the Company’s contracts with customers includes a variable amount related to anticipated sales returns, discounts and miscellaneous claims from customers. Estimates of discretionary authorized returns, discounts and claims are based on (1) historical rates, (2) specific identification of outstanding returns not yet received from customers and outstanding discounts and claims and (3) expected returns, discounts and claims not yet finalized with customers. Actual returns, discounts and claims in any future period are inherently uncertain and thus may differ from estimates recorded.


20


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 26, 2019


The Company treats all shipping to the Company's customers, handling and certain other distribution activities as a fulfillment cost and recognizes these costs as SG&A.
Sales and value-added taxes collected from customers and remitted to governmental authorities are presented on a net basis in the consolidated statements of income.
NOTE 11: OTHER INCOME, NET
The following table summarizes significant components of "Other income, net": 
 
Three Months Ended
 
Six Months Ended
 
May 26,
2019
 
May 27,
2018
 
May 26,
2019
 
May 27,
2018
 
(Dollars in thousands)
Foreign exchange management gains (losses)(1)
$
4,261

 
$
13,711

 
$
(1,877
)
 
$
(2,376
)
Foreign currency transaction (losses) gains
(5,584
)
 
(2,698
)
 
(2,963
)
 
619

Interest income
3,647

 
1,401

 
7,658

 
3,830

Investment income
6

 

 
1,013

 
428

Other, net(2)
836

 
481

 
(2,311
)
 
(6
)
Total other income, net(2)
$
3,166

 
$
12,895

 
$
1,520

 
$
2,495

_____________
 
(1)
Gains and losses on forward foreign exchange contracts primarily resulted from currency fluctuations relative to negotiated contract rates. Gains in the three months ended May 26, 2019 were primarily due to favorable currency fluctuations relative to negotiated contract rates on positions to sell the Euro. Gains in the three months ended May 27, 2018 were primarily due to favorable currency fluctuations relative to negotiated contract rates on positions to sell the Euro, Mexican Peso and British Pound. Beginning in the first quarter of 2019, the Company designated certain derivative instruments as cash flow hedges and as a a result, gains and losses for the effective portions of these hedges are recorded in "Accumulated other comprehensive loss". Refer to Note 3 for more information.
(2)
The amounts in Other income, net have been conformed to reflect the adoption of ASU 2017-07, "Compensation-Retirement Benefits (Topic 715) Improving the Presentation of Net Periodic Cost and Net Periodic Postretirement Benefit Cost" and include non-service cost component of net periodic benefit costs. Refer to Note 1 for more information.
NOTE 12: INCOME TAXES
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the "Tax Act"), which significantly changed U.S. tax law. The Tax Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective on November 26, 2018. Beginning the first quarter of 2019, the Company's effective tax rate reflected a provision to tax Global Intangible Low-Taxed Income ("GILTI") of foreign subsidiaries and a tax benefit for Foreign Derived Intangible Income ("FDII"). The Company accounted for GILTI in the period in which it is incurred.
The Company's effective income tax rate was 15.8% for the six months ended May 26, 2019, compared to 74.0% for the same prior-year period. The decrease in the effective tax rate in 2019 as compared to 2018 was primarily driven by a 61% one-time tax charge in 2018 related to the impact of the Tax Act. Of the impact, 44% is due to remeasurement of deferred tax assets and liabilities and 17% is related to transition charges on undistributed foreign earnings.


21


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 26, 2019


NOTE 13: EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
Basic earnings per share attributable to common stockholders is calculated by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per share attributable to common stockholders adjusts the basic earnings per share attributable to common stockholders and the weighted-average number of common shares outstanding for the potentially dilutive impact of RSUs and stock appreciation rights using the treasury stock method. The following table sets forth the computation of the Company's basic and diluted earnings per share:
 
Three Months Ended
 
Six Months Ended
 
May 26,
2019
 
May 27,
2018
 
May 26,
2019
 
May 27,
2018
 
(Dollars in thousands, except per share amounts)
Numerator:
 
 
 
 
 
 
 
Net income attributable to Levi Strauss & Co.
$
28,230

 
$
74,932

 
$
174,807

 
$
55,920

Denominator:
 
 
 
 
 
 
 
Weighted-average common shares outstanding - basic
389,518,461

 
377,132,162

 
383,278,398

 
376,384,657

Dilutive effect of stock awards
19,814,536

 
10,632,418

 
18,127,013

 
10,745,467

Weighted-average common shares outstanding - diluted
409,332,997

 
387,764,580

 
401,405,411

 
387,130,124

Earnings per common share attributable to common stockholders:
 
 
 
 
 
 
 
Basic
$
0.07

 
$
0.20

 
$
0.46

 
$
0.15

Diluted
$
0.07

 
$
0.19

 
$
0.44

 
$
0.14

Anti-dilutive securities excluded from calculation of diluted earnings per share attributable to common stockholders

 
2,817,830

 

 
7,564,301


NOTE 14: RELATED PARTIES
Charles V. Bergh, President and Chief Executive Officer, Peter E. Haas Jr., a director of the Company, and Marc Rosen, Executive Vice President and President of Direct-to-Consumer, are board members of the Levi Strauss Foundation, which is not a consolidated entity of the Company. Seth R. Jaffe, Executive Vice President and General Counsel, is Vice President of the Levi Strauss Foundation. During the three and six months ended May 26, 2019, the Company donated $0.4 million and $8.9 million, respectively, to the Levi Strauss Foundation as compared to $0.4 million and $6.9 million for the same prior-year periods.


22


LEVI STRAUSS & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
FOR THE QUARTERLY PERIOD ENDED MAY 26, 2019


NOTE 15: BUSINESS SEGMENT INFORMATION
The Company manages its business according to three regional segments: the Americas, Europe and Asia. The Company considers its chief executive officer to be the Company’s chief operating decision maker. The Company’s chief operating decision maker manages business operations, evaluates performance and allocates resources based on the regional segments’ net revenues and operating income.
Business segment information for the Company is as follows: 
 
Three Months Ended
 
Six Months Ended
 
May 26,
2019
 
May 27,
2018
 
May 26,
2019
 
May 27,
2018
 
(Dollars in thousands)
Net revenues:
 
 
 
 
 
 
 
Americas
$
692,698

 
$
669,791

 
$
1,409,962

 
$
1,326,988

Europe
398,369

 
366,836

 
863,045

 
819,558

Asia
221,873

 
209,115