LEVI STRAUSS & CO - FORM 10-Q

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EX-32 - EXHIBIT 32 - LEVI STRAUSS & CO	lvis05312015ex-32.htm
EX-31.1 - EXHIBIT 31.1 - LEVI STRAUSS & CO	lvis05312015ex-311.htm
EX-31.2 - EXHIBIT 31.2 - LEVI STRAUSS & CO	lvis05312015ex-312.htm

Table of Contents

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 31, 2015



¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 002-90139

_________________

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)

_________________

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 ¨ No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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, or a non-accelerated filer or a smaller reporting company. See definition of “Large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ

The Company is privately held. Nearly all of its common equity is owned by descendants of the family of the Company’s founder, Levi Strauss, and their relatives. There is no trading in the common equity and therefore an aggregate market value based on sales or bid and asked prices is not determinable.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock $.01 par value — 37,420,227 shares outstanding on July 6, 2015

Table of Contents

LEVI STRAUSS & CO. AND SUBSIDIARIES

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2015



		Page Number
PART I — FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited):
	Consolidated Balance Sheets as of May 31, 2015, and November 30, 2014	3
	Consolidated Statements of Income for the Three and Six Months Ended May 31, 2015, and May 25, 2014	4
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended May 31, 2015, and May 25, 2014	5
	Consolidated Statements of Cash Flows for the Six Months Ended May 31, 2015, and May 25, 2014	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31

PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
SIGNATURE		34

Table of Contents

PART I — FINANCIAL INFORMATION



Item 1.	CONSOLIDATED FINANCIAL STATEMENTS

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



	(Unaudited)
	May 31, 2015			November 30, 2014
	(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	284,634		$	298,255
Trade receivables, net of allowance for doubtful accounts of $11,696 and $12,704	325,715			481,981
Inventories:
Raw materials	3,729			4,501
Work-in-process	2,955			5,056
Finished goods	606,217			591,359
Total inventories	612,901			600,916
Deferred tax assets, net	171,356			178,015
Other current assets	104,709			99,347
Total current assets	1,499,315			1,658,514
Property, plant and equipment, net of accumulated depreciation of $786,714 and $784,493	370,332			392,062
Goodwill	235,471			238,921
Other intangible assets, net	44,450			45,898
Non-current deferred tax assets, net	474,340			488,398
Other non-current assets	115,121			100,280
Total assets	$	2,739,029		$	2,924,073

LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	140,304		$	131,524
Accounts payable	240,113			234,892
Accrued salaries, wages and employee benefits	145,384			178,470
Restructuring liabilities	32,472			57,817
Accrued interest payable	6,010			5,679
Accrued income taxes	6,406			9,432
Other accrued liabilities	214,450			263,182
Total current liabilities	785,139			880,996
Long-term debt	1,050,619			1,092,478
Long-term capital leases	12,485			11,619
Postretirement medical benefits	114,929			122,213
Pension liability	381,817			406,398
Long-term employee related benefits	71,021			80,066
Long-term income tax liabilities	31,070			35,821
Other long-term liabilities	55,082			62,363
Total liabilities	2,502,162			2,691,954
Commitments and contingencies
Temporary equity	73,162			77,664

Stockholders’ Equity:
Levi Strauss & Co. stockholders’ equity
Common stock — $.01 par value; 270,000,000 shares authorized; 37,420,227 shares and 37,430,283 shares issued and outstanding	374			374
Additional paid-in capital	—			—
Retained earnings	538,796			528,209
Accumulated other comprehensive loss	(376,247		)	(375,340		)
Total Levi Strauss & Co. stockholders’ equity	162,923			153,243
Noncontrolling interest	782			1,212
Total stockholders’ equity	163,705			154,455
Total liabilities, temporary equity and stockholders’ equity	$	2,739,029		$	2,924,073

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

Table of Contents

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME



	Three Months Ended						Six Months Ended
	May 31, 2015			May 25, 2014			May 31, 2015			May 25, 2014
	(Dollars in thousands) (Unaudited)
Net revenues	$	1,012,180		$	1,081,847		$	2,067,255		$	2,211,837
Cost of goods sold	511,949			551,542			1,029,959			1,105,179
Gross profit	500,231			530,305			1,037,296			1,106,658
Selling, general and administrative expenses	449,662			446,072			874,944			870,834
Restructuring, net	2,954			19,105			7,292			77,040
Operating income	47,615			65,128			155,060			158,784
Interest expense	(21,913		)	(31,310		)	(45,225		)	(63,139		)
Loss on early extinguishment of debt	(14,002		)	(11,151		)	(14,002		)	(11,151		)
Other income (expense), net	7,639			(6,122		)	(18,389		)	(1,939		)
Income before income taxes	19,339			16,545			77,444			82,555
Income tax expense	7,887			5,556			27,709			21,943
Net income	11,452			10,989			49,735			60,612
Net loss attributable to noncontrolling interest	239			469			348			817
Net income attributable to Levi Strauss & Co.	$	11,691		$	11,458		$	50,083		$	61,429

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

Table of Contents

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	Three Months Ended				Six Months Ended
	May 31, 2015		May 25, 2014		May 31, 2015			May 25, 2014
	(Dollars in thousands) (Unaudited)
Net income	$	11,452	$	10,989	$	49,735		$	60,612
Other comprehensive income (loss), net of related income taxes:
Pension and postretirement benefits	2,730		2,216		6,829			4,518
Net investment hedge gains (losses)	3,234		658		3,321			(3,570		)
Foreign currency translation gains (losses)	169		4,175		(11,307		)	61
Unrealized gain on marketable securities	99		453		169			492
Total other comprehensive income (loss)	6,232		7,502		(988		)	1,501
Comprehensive income	17,684		18,491		48,747			62,113
Comprehensive loss attributable to noncontrolling interest	297		451		429			840
Comprehensive income attributable to Levi Strauss & Co.	$	17,981	$	18,942	$	49,176		$	62,953

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

Table of Contents

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



	Six Months Ended
	May 31, 2015			May 25, 2014
	(Dollars in thousands) (Unaudited)
Cash Flows from Operating Activities:
Net income	$	49,735		$	60,612
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	50,471			53,399
Asset impairments	1,573			620
Gain on disposal of assets	(8,617		)	(47		)
Unrealized foreign exchange (gains) losses	(2,072		)	3,866
Realized loss (gain) on settlement of forward foreign exchange contracts not designated for hedge accounting	1,368			(6,769		)
Employee benefit plans’ amortization from accumulated other comprehensive loss	8,548			7,438
Noncash restructuring charges	387			5,176
Noncash loss on early extinguishment of debt	3,448			3,170
Amortization of deferred debt issuance costs	1,612			2,092
Stock-based compensation	7,848			5,301
Allowance for doubtful accounts	1,192			927
Change in operating assets and liabilities:
Trade receivables	173,660			103,394
Inventories	18,582			(82,387		)
Other current assets	(1,100		)	(11,415		)
Other non-current assets	(4,162		)	(4,389		)
Accounts payable and other accrued liabilities	(85,738		)	(56,529		)
Restructuring liabilities	(25,880		)	50,599
Income tax liabilities	(2,620		)	(1,732		)
Accrued salaries, wages and employee benefits and long-term employee related benefits	(72,301		)	(59,574		)
Other long-term liabilities	(13,853		)	(588		)
Other, net	483			(741		)
Net cash provided by operating activities	102,564			72,423
Cash Flows from Investing Activities:
Purchases of property, plant and equipment	(43,163		)	(35,320		)
Proceeds from sales of assets	8,785			1,402
(Payments) proceeds on settlement of forward foreign exchange contracts not designated for hedge accounting	(1,368		)	6,769
Acquisitions, net of cash acquired	(251		)	(75		)
Net cash used for investing activities	(35,997		)	(27,224		)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt	500,000			—
Repayments of long-term debt and capital leases	(526,490		)	(207,074		)
Proceeds from senior revolving credit facility	265,000			100,000
Repayments of senior revolving credit facility	(255,000		)	—
Proceeds from short-term credit facilities	11,884			8,386
Repayments of short-term credit facilities	(8,407		)	(6,417		)
Other short-term borrowings, net	310			(8,535		)
Debt issuance costs	(3,937		)	(2,684		)
Restricted cash	1,110			596
Repurchase of common stock	(2,221		)	(4,676		)
Excess tax benefits from stock-based compensation	347			359
Dividend to stockholders	(50,000		)	(30,003		)
Net cash used for financing activities	(67,404		)	(150,048		)
Effect of exchange rate changes on cash and cash equivalents	(12,784		)	1,665
Net decrease in cash and cash equivalents	(13,621		)	(103,184		)
Beginning cash and cash equivalents	298,255			489,258
Ending cash and cash equivalents	$	284,634		$	386,074

Noncash Investing Activity:
Purchases of property, plant and equipment not yet paid at end of period	$	10,035		$	4,255

Supplemental disclosure of cash flow information:
Cash paid for interest during the period	$	42,526		$	59,759
Cash paid for income taxes during the period, net of refunds	33,619			30,639

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

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2015

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. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended November 30, 2014, included in the Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission (“SEC”) on February 12, 2015.

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 herein not misleading. The results of operations for the three and six months ended May 31, 2015, may not be indicative of the results to be expected for any other interim period or the year ending November 29, 2015.

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 2015 and 2014 consists of 13 weeks, with the exception of the fourth quarter of 2014, which consisted of 14 weeks. All references to years relate to fiscal years rather than calendar years.

Subsequent events have been evaluated through the issuance date of these financial statements.

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.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2015

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, from those disclosed in the Company’s 2014 Annual Report on Form 10-K, except for the following, which will become effective for the Company in the first quarter of 2017:

•

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs," ("ASU 2015-03"). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and footnote disclosures.

•

In April 2015, the FASB issued Accounting Standards Update No. 2015-04, "Compensation – Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer's Defined Benefit Obligation and Plan Assets," ("ASU 2015-04"). ASU 2015-04 provides the use of a practical expedient that permits the entity to measure defined benefit plans assets and obligations using the month-end that is closest to the entity's fiscal year-end and apply that practical expedient consistently from year to year. Further, if a contribution or significant event occurs between the month-end date used to measure defined benefit plan asset and obligations and an entity's fiscal year-end, the entity should adjust the measurement of defined plan assets and obligations to reflect of those contributions of significant events. However, an entity should not adjust the measurement of defined benefit plan asset and obligations for other events that occur between the month-end measurement and the entity's fiscal year-end that are not caused by the entity. The Company is currently assessing whether to adopt this standard. Should the Company elect to adopt this standard, it does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements and footnote disclosures.

•

In April 2015, the FASB issued Accounting Standards Update No. 2015-05, "Customer's Accounting for Fees Paid in a Cloud Computing Arrangement," ("ASU 2015-05"). ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software license. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer's accounting for service contracts. The Company is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and footnote disclosures.

•

In June 2015, the FASB issued Accounting Standards Update No. 2015-10, "Technical Corrections and Improvements," ("ASU 2015-10"). ASU 2015-10 covers a wide range of Topics in the Codification. The amendments in this Update represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost on most entities. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements and footnote disclosures.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2015

NOTE 2: FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the Company’s financial instruments that are carried at fair value:



	May 31, 2015						November 30, 2014
			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	$	26,604	$	26,604	$	—	$	25,891	$	25,891	$	—
Forward foreign exchange contracts, net⁽³⁾	27,770		—		27,770		10,511		—		10,511
Total	$	54,374	$	26,604	$	27,770	$	36,402	$	25,891	$	10,511
Financial liabilities carried at fair value
Forward foreign exchange contracts, net⁽³⁾	$	4,710	$	—	$	4,710	$	10,353	$	—	$	10,353

_____________


(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. For forward foreign exchange contracts, inputs include foreign currency exchange and interest rates and, where applicable, credit default swap prices.


(3)	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.

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 31, 2015				November 30, 2014
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	(Dollars in thousands)
Financial liabilities carried at adjusted historical cost
Senior revolving credit facility	$	110,062	$	110,062	$	100,098	$	100,098
4.25% Yen-denominated Eurobonds due 2016⁽¹⁾	31,902		32,975		34,108		35,383
7.625% senior notes due 2020⁽¹⁾	—		—		526,779		556,967
6.875% senior notes due 2022⁽¹⁾	535,770		585,051		536,501		583,848
5.00% senior notes due 2025⁽¹⁾	488,434		487,826		—		—
Short-term borrowings	30,369		30,369		31,742		31,742
Total	$	1,196,537	$	1,246,283	$	1,229,228	$	1,308,038

_____________


(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.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2015

NOTE 3: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

As of May 31, 2015, the Company had forward foreign exchange contracts to buy $489.2 million and to sell $138.3 million against various foreign currencies. These contracts are at various exchange rates and expire at various dates through February 2017.

The table below provides data about the carrying values of derivative instruments and non-derivative instruments:



	May 31, 2015								November 30, 2014
	Assets		(Liabilities)			Derivative Net Carrying Value			Assets		(Liabilities)			Derivative Net Carrying Value
	Carrying Value		Carrying Value			Derivative Net Carrying Value			Carrying Value		Carrying Value			Derivative Net Carrying Value
	(Dollars in thousands)
Derivatives not designated as hedging instruments
Forward foreign exchange contracts⁽¹⁾	$	30,902	$	(3,132	)	$	27,770		$	15,587	$	(5,076	)	$	10,511
Forward foreign exchange contracts⁽²⁾	64		(4,774		)	(4,710		)	1,833		(12,186		)	(10,353		)
Total	$	30,966	$	(7,906	)				$	17,420	$	(17,262	)
Non-derivatives designated as hedging instruments
Yen-denominated Eurobonds	$	—	$	(8,582	)				$	—	$	(10,195	)

_____________


(1)	Included in “Other current assets” or “Other non-current assets” on the Company’s consolidated balance sheets.


(2)	Included in “Other accrued liabilities” on the Company’s consolidated balance sheets.

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. The table below presents, by type of financial instrument, the gross amounts of the Company's derivative instruments, amounts offset due to master netting arrangements with the Company's various counterparties, and the net amounts recognized on the Company's consolidated balance sheets:



	May 31, 2015									November 30, 2014
	Gross Amounts of Recognized Assets / (Liabilities)			Gross Amounts Offset in the Statement of Financial Position			Net Amounts of Assets / (Liabilities) Presented in the Statement of Financial Position			Gross Amounts of Recognized Assets / (Liabilities)			Gross Amounts Offset in the Statement of Financial Position			Net Amounts of Assets / (Liabilities) Presented in the Statement of Financial Position
	Gross Amounts of Recognized Assets / (Liabilities)			Gross Amounts Offset in the Statement of Financial Position						Gross Amounts of Recognized Assets / (Liabilities)			Gross Amounts Offset in the Statement of Financial Position
	(Dollars in thousands)
Over-the-counter forward foreign exchange contracts
Financial assets	$	27,506		$	(3,196	)	$	24,310		$	15,555		$	(6,908	)	$	8,647
Financial liabilities	(3,734		)	3,196			(538		)	(9,587		)	6,908			(2,679		)
Total							$	23,772								$	5,968
Embedded derivative contracts
Financial assets	$	3,460		$	—		$	3,460		$	1,865		$	—		$	1,865
Financial liabilities	(4,172		)	—			(4,172		)	(7,675		)	—			(7,675		)
Total							$	(712	)							$	(5,810	)

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2015

The table below provides data about the amount of gains and losses related to derivative instruments and non-derivative instruments designated as net investment hedges included in “Accumulated other comprehensive loss” (“AOCI”) on the Company’s consolidated balance sheets, and in “Other income (expense), net” in the Company’s consolidated statements of income:



	Gain or (Loss) Recognized in AOCI (Effective Portion)						Gain or (Loss) Recognized in Other Income (Expense), net (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	As of			As of			Three Months Ended					Six Months Ended
	May 31, 2015			November 30, 2014			May 31, 2015		May 25, 2014			May 31, 2015		May 25, 2014
	(Dollars in thousands)
Forward foreign exchange contracts	$	4,637		$	4,637
Yen-denominated Eurobonds	(18,763		)	(19,367		)	$	1,250	$	(112	)	$	1,596	$	104
Euro senior notes	(15,751		)	(15,751		)	—		—			—		—
Cumulative income taxes	11,477			8,760
Total	$	(18,400	)	$	(21,721	)

The table below provides data about the amount of gains and losses related to derivatives not designated as hedging instruments included in “Other income (expense), net” in the Company’s consolidated statements of income:



	Gain or (Loss)
	Three Months Ended					Six Months Ended
	May 31, 2015		May 25, 2014			May 31, 2015			May 25, 2014
	(Dollars in thousands)
Forward foreign exchange contracts:
Realized	$	2,592	$	854		$	(1,368	)	$	6,769
Unrealized	11,355		(10,864		)	23,223			(12,343		)
Total	$	13,947	$	(10,010	)	$	21,855		$	(5,574	)

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2015

NOTE 4: DEBT



	May 31, 2015		November 30, 2014
	(Dollars in thousands)

Long-term debt
Unsecured:
4.25% Yen-denominated Eurobonds due 2016	$	31,784	$	33,985
7.625% senior notes due 2020	—		525,000
6.875% senior notes due 2022	532,762		533,493
5.00% senior notes due 2025	486,073		—
Total unsecured	1,050,619		1,092,478
Total long-term debt	$	1,050,619	$	1,092,478
Short-term debt
Secured:
Senior revolving credit facility	$	110,000	$	100,000
Unsecured:
Short-term borrowings	30,304		31,524
Total short-term debt	$	140,304	$	131,524
Total long-term and short-term debt	$	1,190,923	$	1,224,002

Issuance of Senior Notes due 2025 and Tender and Redemption of Senior Notes due 2020

Senior Notes due 2025. On April 27, 2015, the Company issued $500.0 million in aggregate principal amount of 5.00% senior notes due 2025 (the “Senior Notes due 2025”) to qualified institutional buyers and to purchasers outside the United States in compliance with the Securities Act of 1933, as amended (the “Securities Act”). The notes are unsecured obligations that rank equally with all of the Company’s other existing and future unsecured and unsubordinated debt. The Senior Notes due 2025 will mature on May 1, 2025. Interest on the notes is payable semi-annually in arrears on May 1 and November 1, commencing on November 1, 2015. 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 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. In addition, at any time prior to May 1, 2018, the Company may redeem up to a maximum of 40% of the original aggregate principal amount of the Senior Notes due 2025 with the proceeds of certain equity offerings at a redemption price of 105.00% of the principal amount of the Senior Notes due 2025, plus accrued and unpaid interest, if any, to the date of redemption. The Company recorded a discount of $13.9 million in conjunction with the issuance of the Senior Notes due 2025, related to tender and redemption premiums paid to certain holders of the 7.625% Senior Notes due 2020 (the “Senior Notes due 2020”) who participated in the issuance of the Senior Notes due 2025, which will be amortized to interest expense over the term of the notes. Costs of approximately $6.9 million associated with the issuance of the notes, representing underwriting fees and other expenses, will be capitalized and amortized to interest expense over the term of the notes.

Exchange offer. The offering and sale of the Senior Notes due 2025 have not been registered under the Securities Act, or any state securities laws. The Company filed a registration statement, which was declared effective on June 16, 2015, to allow holders of the Senior Notes due 2025 to exchange the notes for the same principal amount of a new issue of notes with substantially identical terms, except that the exchange notes will generally be freely transferable under the Securities Act. The exchange offer expires 5:00 p.m., New York City time on July 15, 2015, unless extended by the Company.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2015

Covenants. The indenture contains covenants that limit, among other things, the Company’s and certain of the Company’s subsidiaries’ ability to incur additional debt, make certain restricted payments, consummate specified asset sales, enter into transactions with affiliates, incur liens, impose restrictions on the ability of its subsidiaries to pay dividends or make payments to the Company and its restricted subsidiaries, merge or consolidate with another person, and dispose of all or substantially all of the Company’s assets. The indenture provides for customary events of default (subject in certain cases to customary grace and cure periods), which include nonpayment, breach of covenants in the indenture, payment defaults or acceleration of other indebtedness, a failure to pay certain judgments and certain events of bankruptcy and insolvency. Generally, if an event of default occurs, the trustee under the indenture or holders of at least 25% in principal amount of the then outstanding Senior Notes due 2025 may declare all the Senior Notes due 2025 to be due and payable immediately. Upon the occurrence of a change in control (as defined in the indenture), each holder of notes may require the Company to repurchase all or a portion of the notes in cash at a price equal to 101% of the principal amount of notes to be repurchased, plus accrued and unpaid interest, if any, thereon to the date of purchase.

Use of Proceeds and Loss on Early Extinguishment of Debt. On April 20, 2015, the Company commenced a cash tender offer for the outstanding amount of its Senior Notes due 2020. The tender offer expired April 24, 2015, and the Company redeemed all the remaining notes that were not tendered in the offer on May 27, 2015.

The tender offer and redemption, as well as underwriting fees associated with the new issuance, were primarily funded with the proceeds from the issuance of the Senior Notes due 2025, as well as borrowings under the Company's senior secured revolving credit facility. The Company recorded a $14.0 million loss on early extinguishment of debt, comprised of tender and redemption premiums of $7.5 million, the write-off of $3.5 million of unamortized debt issuance costs, and $3.0 million of other costs.

Senior Revolving Credit Facility

The Company’s unused availability under its senior secured revolving credit facility was $532.9 million at May 31, 2015, as the Company’s total availability of $599.1 million was reduced by $66.2 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 31, 2015, was 6.91% and 7.22%, respectively, as compared to 7.93% and 7.89%, respectively, in the same periods of 2014.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2015

NOTE 5: EMPLOYEE BENEFIT PLANS

The following table summarizes the components of net periodic benefit cost and the changes recognized in “Accumulated other comprehensive loss” for the Company’s defined benefit pension plans and postretirement benefit plans:




	Pension Benefits						Postretirement Benefits
	Three Months Ended						Three Months Ended
	May 31, 2015			May 25, 2014			May 31, 2015			May 25, 2014
	(Dollars in thousands)
Net periodic benefit cost:
Service cost	$	2,090		$	2,166		$	62		$	61
Interest cost	11,790			13,776			1,147			1,277
Expected return on plan assets	(12,716		)	(14,036		)	—			—
Amortization of prior service benefit	(15		)	(19		)	—			(2		)
Amortization of actuarial loss	3,163			2,709			1,128			1,087
Curtailment loss	52			4,211			—			33
Net settlement gain	—			(133		)	—			—
Net periodic benefit cost	4,364			8,674			2,337			2,456
Changes in accumulated other comprehensive loss:
Amortization of prior service benefit	15			19			—			2
Amortization of actuarial loss	(3,163		)	(2,709		)	(1,128		)	(1,087		)
Curtailment (loss) gain	(52		)	115			—			—
Net settlement gain	—			29			—			—
Total recognized in accumulated other comprehensive loss	(3,200		)	(2,546		)	(1,128		)	(1,085		)
Total recognized in net periodic benefit cost and accumulated other comprehensive loss	$	1,164		$	6,128		$	1,209		$	1,371

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2015



	Pension Benefits						Postretirement Benefits
	Six Months Ended						Six Months Ended
	May 31, 2015			May 25, 2014			May 31, 2015			May 25, 2014
	(Dollars in thousands)
Net periodic benefit cost:
Service cost	$	4,218		$	4,325		$	125		$	129
Interest cost	23,630			27,537			2,294			2,615
Expected return on plan assets	(25,433		)	(27,879		)	—			—
Amortization of prior service benefit	(31		)	(36		)	—			(3		)
Amortization of actuarial loss	6,323			5,405			2,256			2,076
Curtailment loss	387			4,443			—			733
Net settlement gain	—			(73		)	—			—
Net periodic benefit cost	9,094			13,722			4,675			5,550
Changes in accumulated other comprehensive loss:
Amortization of prior service benefit	31			36			—			3
Amortization of actuarial loss	(6,323		)	(5,405		)	(2,256		)	(2,076		)
Curtailment (loss) gain	(387		)	115			—			—
Net settlement gain	—			4			—			—
Total recognized in accumulated other comprehensive loss	(6,679		)	(5,250		)	(2,256		)	(2,073		)
Total recognized in net periodic benefit cost and accumulated other comprehensive loss	$	2,415		$	8,472		$	2,419		$	3,477

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2015

NOTE 6: RESTRUCTURING

In 2014, the Company announced and began to implement a global productivity initiative designed to streamline operations and fuel long-term profitable growth. The Company expects that the majority of the actions related to the global productivity initiative will be implemented by the end of 2016, with a focus on redesigning business processes and identifying opportunities to reduce costs, increase efficiencies and further streamline processes in supporting functions, supply chain and planning.

For the three and six months ended May 31, 2015, the Company recognized restructuring charges, net, of $3.0 million and $7.3 million, respectively, as compared to $19.1 million and $77.0 million for the same periods in 2014. These restructuring charges were recorded in "Restructuring, net" in the Company's consolidated statements of income. Related charges of $12.4 million and $20.4 million for the three and six months ended May 31, 2015, respectively, as compared to $9.3 million and $15.8 million for the same periods in 2014, consist primarily of consulting fees for the Company's centrally-led cost-savings and productivity projects, as well as transition costs associated with the Company's decision to outsource certain global business service activities. These related charges represent costs incurred associated with ongoing operations which will benefit future periods and thus were recorded in "Selling, general and administrative expenses" in the Company's consolidated statements of income. Cash payments for charges recognized to date are expected to continue through 2016.

The table below summarizes the components of charges included in “Restructuring, net” in the Company’s consolidated statements of income:



	Three Months Ended						Six Months Ended
	May 31, 2015			May 25, 2014			May 31, 2015			May 25, 2014
	(Dollars in thousands)
Restructuring, net:
Severance and employee-related benefits⁽¹⁾	$	2,436		$	13,427		$	7,756		$	64,748
Adjustments to severance and employee-related benefits	(514		)	(3,045		)	(1,763		)	(3,045		)
Lease and other contract termination costs	—			—			—			—
Other⁽²⁾	965			4,504			1,379			10,161
Adjustments to other	15			—			(467		)	—
Noncash pension and postretirement curtailment losses, net⁽³⁾	52			4,219			387			5,176
Total	$	2,954		$	19,105		$	7,292		$	77,040

_____________


(1)	Severance and employee-related benefits relate to items such as severance, based on separation benefits provided by Company policy or statutory benefit plans, out-placement services and career counseling for employees affected by the global productivity initiative.


(2)	Other restructuring costs are expensed as incurred and primarily relate to consulting fees and legal expenses associated with the execution of the restructuring initiative.


(3)	Noncash pension and postretirement curtailment gains or losses resulting from the global productivity initiative are included in restructuring charges, with the associated liabilities included in "Pension liability" and "Postretirement medical benefits" in the Company's consolidated balance sheets.

The Company is unable at this time to make a good faith determination of cost estimates, or ranges of cost estimates, for additional actions associated with the global productivity initiative. 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.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2015

The following table summarizes the activities associated with restructuring liabilities for the three and six months ended May 31, 2015, and May 25, 2014. In the table below, "Charges" represents the initial charge related to the restructuring activity. "Adjustments" includes revisions of estimates related to severance, employee-related benefits, lease and other contract termination costs, and other restructuring costs. "Payments" consists of cash payments for severance, employee-related benefits, lease and other contract termination costs, and other restructuring costs.



	Three Months Ended May 31, 2015
	Liabilities				Adjustments						Foreign Currency Fluctuation			Liabilities
	March 1, 2015		Charges		Adjustments			Payments			Foreign Currency Fluctuation			May 31, 2015
	(Dollars in thousands)

Severance and employee-related benefits	$	43,615	$	2,436	$	(514	)	$	(11,792	)	$	(618	)	$	33,127
Lease and other contract termination costs	—		—		—			—			—			—
Other	1		965		15			(981		)	—			—
Total	$	43,616	$	3,401	$	(499	)	$	(12,773	)	$	(618	)	$	33,127

Current portion	$	42,596												$	32,472
Long-term portion	1,020													655
Total	$	43,616												$	33,127

	Three Months Ended May 25, 2014
	Liabilities				Adjustments						Foreign Currency Fluctuation			Liabilities
	February 23, 2014		Charges		Adjustments			Payments			Foreign Currency Fluctuation			May 25, 2014
	(Dollars in thousands)

Severance and employee-related benefits	$	51,321	$	13,427	$	(3,045	)	$	(13,477	)	$	(850	)	$	47,376
Lease and other contract termination costs	—		—		—			—			—			—
Other	5,657		4,504		—			(7,788		)	—			2,373
Total	$	56,978	$	17,931	$	(3,045	)	$	(21,265	)	$	(850	)	$	49,749

Current portion	$	56,978												$	49,749
Long-term portion	—													—
Total	$	56,978												$	49,749

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2015



	Six Months Ended May 31, 2015
	Liabilities				Adjustments						Foreign Currency Fluctuation			Liabilities
	November 30, 2014		Charges		Adjustments			Payments			Foreign Currency Fluctuation			May 31, 2015
	(Dollars in thousands)

Severance and employee-related benefits	$	56,963	$	7,756	$	(1,763	)	$	(25,473	)	$	(4,356	)	$	33,127
Lease and other contract termination costs	—		—		—			—			—			—
Other	6,400		1,379		(467		)	(7,312		)	—			—
Total	$	63,363	$	9,135	$	(2,230	)	$	(32,785	)	$	(4,356	)	$	33,127

Current portion	$	57,817												$	32,472
Long-term portion	5,546													655
Total	$	63,363												$	33,127

	Six Months Ended May 25, 2014
	Liabilities				Adjustments						Foreign Currency Fluctuation			Liabilities
	November 24, 2013		Charges		Adjustments			Payments			Foreign Currency Fluctuation			May 25, 2014
	(Dollars in thousands)

Severance and employee-related benefits	$	—	$	64,748	$	(3,045	)	$	(13,477	)	$	(850	)	$	47,376
Lease and other contract termination costs	—		—		—			—			—			—
Other	—		10,161		—			(7,788		)	—			2,373
Total	$	—	$	74,909	$	(3,045	)	$	(21,265	)	$	(850	)	$	49,749

Current portion	$	—												$	49,749
Long-term portion	—													—
Total	$	—												$	49,749

NOTE 7: COMMITMENTS AND CONTINGENCIES

Forward Foreign Exchange Contracts

The Company uses over-the-counter 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. Please see Note 3 for additional information.

Other Contingencies

Litigation. There have been no material developments with respect to the information previously reported in the Company’s 2014 Annual Report on Form 10-K related to legal proceedings.

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.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2015

NOTE 8: DIVIDEND

The Company paid a cash dividend of $50.0 million in the second quarter of 2015. The Company does not have an established annual 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.

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 31, 2015			November 30, 2014
	(Dollars in thousands)
Pension and postretirement benefits	$	(254,625	)	$	(261,454	)
Net investment hedge losses	(18,400		)	(21,721		)
Foreign currency translation losses	(96,669		)	(85,362		)
Unrealized gain on marketable securities	2,403			2,234
Accumulated other comprehensive loss	(367,291		)	(366,303		)
Accumulated other comprehensive income attributable to noncontrolling interest	8,956			9,037
Accumulated other comprehensive loss attributable to Levi Strauss & Co.	$	(376,247	)	$	(375,340	)

No amounts were reclassified out of "Accumulated other comprehensive loss" into net income other than those that pertain to the Company's pension and postretirement benefit plans. Please see Note 5 for additional information. These amounts are included in "Selling, general and administrative expenses" in the consolidated statements of income.

NOTE 10: OTHER INCOME (EXPENSE), NET

The following table summarizes significant components of “Other income (expense), net”:



	Three Months Ended						Six Months Ended
	May 31, 2015			May 25, 2014			May 31, 2015			May 25, 2014
	(Dollars in thousands)
Foreign exchange management gains (losses)⁽¹⁾	$	13,947		$	(10,010	)	$	21,855		$	(5,574	)
Foreign currency transaction (losses) gains⁽²⁾	(7,325		)	3,163			(43,284		)	925
Interest income	199			401			659			1,028
Investment income	—			—			439			307
Other	818			324			1,942			1,375
Total other income (expense), net	$	7,639		$	(6,122	)	$	(18,389	)	$	(1,939	)

_____________

(1)

Gains and losses on forward foreign exchange contracts primarily result from currency fluctuations relative to negotiated contract rates. Gains in 2015 were primarily due to favorable currency fluctuations on embedded foreign currency derivatives in certain of the Company's operating leases in Russia, as well as favorable currency fluctuations relative to negotiated contract rates on positions to sell the Mexican Peso and Japanese Yen. Losses in 2014 were primarily due to unfavorable currency fluctuations relative to negotiated contract rates of various currencies against the U.S. Dollar.


(2)	Foreign currency transaction gains and losses reflect the impact of foreign currency fluctuation on the Company's foreign currency denominated balances. Losses in 2015 were primarily due to the weakening of various foreign currencies, particularly the Euro, against the U.S. Dollar.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2015

NOTE 11: INCOME TAXES

The effective income tax rate was 35.8% for the six months ended May 31, 2015, compared to 26.6% for the same period ended May 25, 2014.

The effective tax rate in 2014 included a tax benefit that the Company recorded as a result of reversing a deferred tax liability associated with the change in assertion during the period to indefinitely reinvest certain undistributed foreign earnings. The effective tax rate in 2015 reflected a lower proportion of earnings in foreign jurisdictions where the Company is subject to lower tax rates.

NOTE 12: RELATED PARTIES

Robert D. Haas, Chairman Emeritus of the Company, Charles V. Bergh, President and Chief Executive Officer, Peter E. Haas Jr., a director of the Company, and Kelly McGinnis, Senior Vice President of Corporate Affairs and Chief Communications Officer, are board members of the Levi Strauss Foundation, which is not a consolidated entity of the Company. Seth R. Jaffe, Senior Vice President and General Counsel, is Vice President of the Levi Strauss Foundation. During the three- and six-month periods ended May 31, 2015, the Company donated $0.5 million and $6.4 million, respectively, to the Levi Strauss Foundation as compared to $0.1 million and $5.3 million, respectively, for the same prior-year periods.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2015

NOTE 13: 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.

Effective as of the beginning of 2015, the Company's regional licensing revenue, previously recorded centrally in the Company's Americas region, was revised to be recorded in the Company's respective regions. Regional licensing revenues are not significant to any of the Company's regional segments individually in any of the periods presented herein, and accordingly, business segment information for the prior-year periods have not been revised.

Business segment information for the Company is as follows:



	Three Months Ended						Six Months Ended
	May 31, 2015			May 25, 2014			May 31, 2015			May 25, 2014
	(Dollars in thousands)
Net revenues:
Americas	$	621,776		$	644,727		$	1,195,863		$	1,271,563
Europe	222,150			260,994			499,638			561,420
Asia	168,254			176,126			371,754			378,854
Total net revenues	$	1,012,180		$	1,081,847		$	2,067,255		$	2,211,837
Operating income:
Americas	$	103,326		$	109,425		$	205,618		$	220,477
Europe⁽¹⁾	33,482			38,188			91,671			109,594
Asia	15,031			24,282			62,371			71,184
Regional operating income	151,839			171,895			359,660			401,255
Corporate:
Restructuring, net	2,954			19,105			7,292			77,040
Restructuring-related charges	12,366			9,312			20,373			15,753
Other corporate staff costs and expenses	88,904			78,350			176,935			149,678
Corporate expenses	104,224			106,767			204,600			242,471
Total operating income	47,615			65,128			155,060			158,784
Interest expense	(21,913		)	(31,310		)	(45,225		)	(63,139		)
Loss on early extinguishment of debt	(14,002		)	(11,151		)	(14,002		)	(11,151		)
Other income (expense), net	7,639			(6,122		)	(18,389		)	(1,939		)
Income before income taxes	$	19,339		$	16,545		$	77,444		$	82,555

_____________


(1)	Included in Europe's operating income for the three- and six-month periods ended May 31, 2015, is a gain of $7.5 million related to the sale of the Company's finishing and distribution facility in Turkey in the second quarter of 2015.

Table of Contents



Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We design, market and sell – 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 our Levi’s^®, Dockers^®, Signature by Levi Strauss & Co.™ (“Signature”) and Denizen^® brands.

Our business is operated through three geographic regions: Americas, Europe and Asia. Our products are sold in approximately 50,000 retail locations in more than 110 countries. We support our brands through a global infrastructure, developing, sourcing and marketing our products around the world. We distribute our Levi’s^® and Dockers^® products primarily through chain retailers and department stores in the United States and primarily through department stores, specialty retailers and approximately 2,100 franchised or other brand-dedicated stores and shop-in-shops outside of the United States. We also distribute our Levi’s^® and Dockers^® products through 596 company-operated stores located in 32 countries, including the United States, and through the ecommerce sites we operate. Our company-operated stores and ecommerce sites generated approximately 27% of our net revenues in the first half of 2015, as compared to 26% in the same period in 2014, with our ecommerce sites representing approximately 13% of this revenue in 2015, as compared to 12% in the same period in 2014. In addition, we distribute our Levi’s^® and Dockers^® products through ecommerce sites operated by certain of our key wholesale customers and other third parties. We distribute products under our Signature and Denizen^® brands primarily through mass channel retailers in the Americas.

Our Europe and Asia businesses, collectively, contributed approximately 42% of our net revenues and 43% of our regional operating income in the six-month period in 2015, as compared to 43% of our net revenues and 45% of our regional operating income in the same period in 2014. Sales of Levi’s^® brand products represented approximately 84% of our total net sales in each of the six-month periods in 2015 and in 2014.

Global Productivity Initiative

In 2014, we announced and began to implement a global productivity initiative designed to streamline operations and fuel long-term profitable growth. We expect that the majority of the actions related to our global productivity initiative will be implemented by the end of 2016, with a focus on redesigning business processes and identifying opportunities to reduce costs, increase efficiencies and further streamline processes in supporting functions, supply chain and planning. We believe that this initiative, when completed, will generate net annualized benefits of $175 – $200 million, relative to the cost structure and profitability of the Company and foreign currency exchange rates prior to the commencement of this initiative.

For the three and six months ended May 31, 2015, we recognized restructuring charges, net, of $3.0 million and $7.3 million, respectively, as compared to $19.1 million and $77.0 million for the same periods in 2014, which consist primarily of severance benefits, consulting fees and noncash pension and postretirement curtailment gains or losses. Related charges of $12.4 million and $20.4 million, for the three and six months ended May 31, 2015, respectively, as compared to $9.3 million and $15.8 million for the same periods in 2014, consist primarily of consulting fees for our centrally-led cost-savings and productivity projects, as well as transition costs associated with our decision to outsource certain global business service activities. These related charges represent costs incurred associated with ongoing operations which will benefit future periods and thus were recorded in selling, general and administrative expenses ("SG&A"). Cash payments for charges recognized to date are expected to continue through 2016. Actions taken to date for the global productivity initiative are expected to deliver approximately $125 – $150 million in net annualized savings, relative to the cost structure of the Company and foreign currency exchange rates prior to the commencement of this initiative.

We are unable at this time to make a good faith determination of cost estimates, or ranges of cost estimates, for additional actions associated with the global productivity initiative. 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. We expect additional savings in future periods to come from streamlining our planning and go-to-market strategies, implementing efficiencies across our retail, supply chain and distribution network, and continuing to pursue improved procurement practices. Additional restructuring charges will be recorded for these efforts as they become estimable and probable.

Trends Affecting Our Business

Our key long-term objectives are to strengthen our brands globally in order to deliver sustainable profitable growth, generate strong cash flow and reduce our debt. Critical strategies to achieve these objectives include driving our profitable core business; expanding the reach of our global brands and building a more balanced product portfolio; elevating the performance of our retail channel, including ecommerce; and leveraging our global scale to improve our cost structure.

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Consumer discretionary spending, which remains mixed globally, continues to result in a challenging retail environment for us and our customers, characterized by inconsistent traffic patterns and contributing to a generally promotional environment. Slow real wage growth in developed economies and a shift in consumer spending to interest-rate sensitive durable goods and other non-apparel categories also continue to pressure global discretionary spending. Given consumers’ increasing focus on value pricing amid the slowly recovering economy, the off-price retail channel remains strong, partially to the detriment of traditional broadline retailers, particularly at the mid-tier. Both our wholesale and retail channels continue to face competition from vertically-integrated specialty stores, fast-fashion retailers, and, increasingly, ecommerce shopping enabled by the proliferation of online technologies, which constitutes an increasing proportion of global apparel sales, particularly around key selling seasons. Our domestic and multi-national competitors also continue to expand their global footprints in both brick-and-mortar retail and online. While currency values are in constant flux, the recent appreciation of the U.S. Dollar against various foreign currencies, particularly the Euro, will continue to impact our financial results in the near-term, affecting translation, margins, as well as traffic in stores located in or near major tourist attractions.

Our Second Quarter 2015 Results


•	Net revenues. Compared to the second quarter of 2014, consolidated net revenues decreased on a reported basis by 6% but increased on a constant-currency basis by 1%, primarily reflecting increased sales from our retail network in Europe and Asia, partially offset by lower sales at wholesale in the Americas.


•	Operating income. Compared to the second quarter of 2014, consolidated operating income decreased by 27% and operating margin declined to 5%, primarily reflecting our investment in retail, the timing of our advertising spend, and the effects of currency, partially offset by an improvement in our constant-currency gross margin and lower restructuring charges in 2015.


•	Cash flows. Cash flows provided by operating activities were approximately $103 million for the six-month period in 2015 as compared to $72 million for the same period in 2014; the increase reflected lower inventory levels and higher trade receivable collections, partially offset by higher payments to vendors.

•

Balance sheet. In the second quarter of 2015, we issued $500.0 million in aggregate principal amount of 5.00% senior notes due 2025. We used the proceeds from the issuance along with borrowings of $110.0 million from our senior secured revolving credit facility to fund the tender offer and redemption of the outstanding amount of our 7.625% senior notes due 2020, extending the maturity profile of our debt while securing a low weighted-average cost of borrowing.

Financial Information Presentation

Fiscal year. Our 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 fiscal years 2015 and 2014 consists of 13 weeks, with the exception of the fourth quarter of 2014, which consisted of 14 weeks. Due to our fiscal calendar, the first quarter of fiscal year 2014 included the last calendar week of November 2013, while the first quarter of fiscal year 2015 included the last calendar week of February 2015.

Segments. We manage our business according to three regional segments: the Americas, Europe and Asia. Effective as of the beginning of 2015, our regional licensing revenue, previously recorded centrally in our Americas region, was revised to be recorded in our respective regions. Regional licensing revenues are not significant to any of our regional segments individually in any of the periods presented herein, and accordingly, business segment information for the prior-year period has not been revised.

Classification. Our classification of certain significant revenues and expenses reflects the following:

•

Net revenues is primarily comprised of sales of products to wholesale customers, including franchised stores, and direct sales to consumers at our company-operated and ecommerce stores and at our company-operated shop-in-shops located within department stores. It includes discounts, allowances for estimated returns and incentives. Net revenues also includes royalties earned from the use of our trademarks by third-party licensees in connection with the manufacturing, advertising and distribution of trademarked products.


•	Cost of goods sold is primarily comprised of product costs, labor and related overhead, sourcing costs, inbound freight, internal transfers, and the cost of operating our remaining manufacturing facilities, including the related depreciation expense.


•	Selling costs include, among other things, all occupancy costs and depreciation associated with our company-operated stores and commissions associated with our company-operated shop-in-shops, as well as costs associated with our ecommerce operations.

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•	We reflect substantially all distribution costs in selling, general and administrative expenses, including costs related to receiving and inspection at distribution centers, warehousing, shipping to our customers, handling, and certain other activities associated with our distribution network.

Gross margins may not be comparable to those of other companies in our industry since some companies may include costs related to their distribution network and occupancy costs associated with company-operated stores in cost of goods sold.

Constant currency. Constant-currency comparisons are based on translating local currency amounts in the prior-year period at actual foreign exchange rates for the current year. We routinely evaluate our financial performance on a constant-currency basis in order to facilitate period-to-period comparisons without regard to the impact of changing foreign currency exchange rates.

Results of Operations for Three and Six Months Ended May 31, 2015, as Compared to Same Periods in 2014

The following table summarizes, for the periods indicated, our consolidated statements of income, the changes in these items from period to period and these items expressed as a percentage of net revenues:



	Three Months Ended												Six Months Ended
	May 31, 2015			May 25, 2014			% Increase (Decrease)		May 31, 2015		May 25, 2014		May 31, 2015			May 25, 2014			% Increase (Decrease)		May 31, 2015		May 25, 2014
	May 31, 2015			May 25, 2014			% Increase (Decrease)		% of Net Revenues		% of Net Revenues		May 31, 2015			May 25, 2014			% Increase (Decrease)		% of Net Revenues		% of Net Revenues
	(Dollars in millions)
Net revenues	$	1,012.2		$	1,081.8		(6.4	)%	100.0	%	100.0	%	$	2,067.3		$	2,211.8		(6.5	)%	100.0	%	100.0	%
Cost of goods sold	512.0			551.5			(7.2	)%	50.6	%	51.0	%	1,030.0			1,105.1			(6.8	)%	49.8	%	50.0	%
Gross profit	500.2			530.3			(5.7	)%	49.4	%	49.0	%	1,037.3			1,106.7			(6.3	)%	50.2	%	50.0	%
Selling, general and administrative expenses	449.6			446.1			0.8	%	44.4	%	41.2	%	874.9			870.9			0.5	%	42.3	%	39.4	%
Restructuring, net	3.0			19.1			(84.5	)%	0.3	%	1.8	%	7.3			77.0			(90.5	)%	0.4	%	3.5	%
Operating income	47.6			65.1			(26.9	)%	4.7	%	6.0	%	155.1			158.8			(2.3	)%	7.5	%	7.2	%
Interest expense	(21.9		)	(31.3		)	(30.0	)%	(2.2	)%	(2.9	)%	(45.3		)	(63.1		)	(28.4	)%	(2.2	)%	(2.9	)%
Loss on early extinguishment of debt	(14.0		)	(11.2		)	25.6	%	(1.4	)%	(1.0	)%	(14.0		)	(11.2		)	25.6	%	(0.7	)%	(0.5	)%
Other income (expense), net	7.6			(6.1		)	(224.8	)%	0.8	%	(0.6	)%	(18.4		)	(1.9		)	868.4	%	(0.9	)%	(0.1	)%
Income before income taxes	19.3			16.5			16.9	%	1.9	%	1.5	%	77.4			82.6			(6.2	)%	3.7	%	3.7	%
Income tax expense	7.8			5.5			42.0	%	0.8	%	0.5	%	27.7			22.0			26.3	%	1.3	%	1.0	%
Net income	11.5			11.0			4.2	%	1.1	%	1.0	%	49.7			60.6			(17.9	)%	2.4	%	2.7	%
Net loss attributable to noncontrolling interest	0.2			0.5			(49.0	)%	—		—		0.4			0.8			(57.4	)%	—		—
Net income attributable to Levi Strauss & Co.	$	11.7		$	11.5		2.0	%	1.2	%	1.1	%	$	50.1		$	61.4		(18.5	)%	2.4	%	2.8	%

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Net revenues

The following table presents net revenues by reporting segment for the periods indicated and the changes in net revenues by reporting segment on both reported and constant-currency bases from period to period.



	Three Months Ended								Six Months Ended
					% Increase (Decrease)								% Increase (Decrease)
	May 31, 2015		May 25, 2014		As Reported		Constant Currency		May 31, 2015		May 25, 2014		As Reported		Constant Currency
	(Dollars in millions)
Net revenues:
Americas	$	621.8	$	644.7	(3.6	)%	(1.8	)%	$	1,195.9	$	1,271.6	(6.0	)%	(4.5	)%
Europe	222.1		261.0		(14.9	)%	8.1	%	499.6		561.4		(11.0	)%	8.7	%
Asia	168.3		176.1		(4.5	)%	1.8	%	371.8		378.8		(1.9	)%	3.2	%
Total net revenues	$	1,012.2	$	1,081.8	(6.4	)%	0.8	%	$	2,067.3	$	2,211.8	(6.5	)%	(0.2	)%

Total net revenues decreased on a reported basis for the three- and six-month periods ended May 31, 2015, as compared to the same prior-year periods. Total net revenues increased on a constant-currency basis for the three-month period ended May 31, 2015, but decreased slightly on a constant-currency basis for the six-month period ended May 31, 2015.

Americas. Net revenues in our Americas region decreased on both reported and constant-currency bases for the three- and six-month periods ended May 31, 2015, with currency affecting net revenues unfavorably by approximately $12 million and $19 million, respectively.

For both periods, net revenues at wholesale decreased primarily due to our decision to license the Dockers^® brand women's business; our results in the first half of 2014 included wholesale revenues for the Dockers^®brand women's business. For the six-month period, net revenues at wholesale also declined due to the timing of our fiscal calendar, as well as lower sales to certain wholesale customers of Dockers^® brand men's products. Lower sales at retail in the first half of 2015 reflected the timing of the Black Friday sales weeks, which were included the first and fourth quarters of 2014, based on our fiscal calendar.

Europe. Net revenues in Europe decreased on a reported basis and increased on a constant-currency basis for the three- and six-month periods ended May 31, 2015, with currency affecting net revenues unfavorably by approximately $56 million and $102 million, respectively.

For both periods, constant-currency net revenues increased from the performance and expansion of our company-operated retail network, particularly in the U.K. and Russia markets.

Asia. Net revenues in Asia decreased on a reported basis but increased on a constant-currency basis for the three- and six-month periods ended May 31, 2015, with currency affecting net revenues unfavorably by approximately $11 million and $19 million, respectively.

For both periods, the increase in constant-currency net revenues for the three- and six-month periods was primarily due to the expansion of our company-operated retail network and increased promotional activity.

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Gross profit

The following table shows consolidated gross profit and gross margin for the periods indicated and the changes in these items from period to period:



	Three Months Ended								Six Months Ended
	May 31, 2015			May 25, 2014			% Increase (Decrease)		May 31, 2015			May 25, 2014			% Increase (Decrease)
	(Dollars in millions)
Net revenues	$	1,012.2		$	1,081.8		(6.4	)%	$	2,067.3		$	2,211.8		(6.5	)%
Cost of goods sold	512.0			551.5			(7.2	)%	1,030.0			1,105.1			(6.8	)%
Gross profit	$	500.2		$	530.3		(5.7	)%	$	1,037.3		$	1,106.7		(6.3	)%
Gross margin	49.4		%	49.0		%			50.2		%	50.0		%

Currency translation unfavorably impacted gross profit by approximately $43 million and $78 million for the three- and six-month periods ended May 31, 2015, respectively, and unfavorably impacted gross margin by approximately 40 basis points for each period. Gross margin improved primarily due to lower negotiated product costs and streamlined supply chain operations. The unfavorable transactional impact of currency was partially offset by the margin benefit from our international and retail growth.

Selling, general and administrative expenses

The following table shows our selling, general and administrative expenses (“SG&A”) for the periods indicated, the changes in these items from period to period and these items expressed as a percentage of net revenues:



	Three Months Ended										Six Months Ended
	May 31, 2015		May 25, 2014		% Increase (Decrease)		May 31, 2015		May 25, 2014		May 31, 2015		May 25, 2014		% Increase (Decrease)		May 31, 2015		May 25, 2014
	May 31, 2015		May 25, 2014		% Increase (Decrease)		% of Net Revenues		% of Net Revenues		May 31, 2015		May 25, 2014		% Increase (Decrease)		% of Net Revenues		% of Net Revenues
	(Dollars in millions)
Selling	$	179.2	$	175.0	2.4	%	17.7	%	16.2	%	$	360.1	$	358.2	0.5	%	17.4	%	16.2	%
Advertising and promotion	63.5		53.9		17.9	%	6.3	%	5.0	%	113.8		85.5		33.1	%	5.5	%	3.9	%
Administration	97.8		90.9		7.7	%	9.7	%	8.4	%	181.4		177.7		2.1	%	8.8	%	8.0	%
Other	96.7		117.0		(17.3	)%	9.6	%	10.8	%	199.2		233.7		(14.7	)%	9.6	%	10.6	%
Restructuring-related charges	12.4		9.3		32.8	%	1.2	%	0.9	%	20.4		15.8		29.3	%	1.0	%	0.7	%
Total SG&A	$	449.6	$	446.1	0.8	%	44.4	%	41.2	%	$	874.9	$	870.9	0.5	%	42.3	%	39.4	%

Currency impacted SG&A favorably by approximately $29 million and $51 million for the three- and six-month periods ended May 31, 2015, respectively.

Selling. Currency impacted selling expenses favorably by approximately $16 million and $29 million for the three- and six-month periods ended May 31, 2015, respectively. As compared to the same prior-year periods, higher selling expenses primarily reflected costs associated with the expansion of our company-operated store network and investment in our ecommerce business. We had 52 more company-operated stores at the end of the second quarter of 2015 than we did at the end of the second quarter of 2014.

Advertising and promotion. The increase in advertising and promotion expenses for the three- and six-month periods ended May 31, 2015, primarily reflected a difference in the timing of production and media spend for our campaigns.

Administration. Currency impacted administration expenses favorably by approximately $4 million and $8 million for the three- and six-month periods ended May 31, 2015, respectively. As compared to the same prior-year periods, administration expenses in 2015 primarily reflected higher incentive compensation expenses, reflecting improved achievement against our internally-set objectives in 2015, and with respect to expenses associated with our stock-based incentive compensation plans, an increase in the fair value of our common stock.

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Other. Other SG&A includes distribution, information resources, and marketing organization costs. Currency impacted other SG&A expenses favorably by approximately $6 million and $10 million for the three- and six-month periods ended May 31, 2015, respectively. As compared to the same prior-year periods, lower costs reflected marketing organization and information resources savings resulting from our global productivity initiative. Lower costs for both periods also reflected a gain of $7.5 million in conjunction with the sale of our finishing and distribution facility in Turkey in the second quarter of 2015.

Restructuring-related charges. Restructuring-related charges consist primarily of consulting fees incurred for our centrally-led cost-savings and productivity projects, as well as transition costs associated with our decision to outsource certain global business service activities. These related charges represent costs incurred associated with ongoing operations which will benefit future periods and thus were recorded in SG&A in the Company's consolidated statements of income.

Operating income

The following table shows operating income by reporting segment and corporate expenses for the periods indicated, the changes in these items from period to period and these items expressed as a percentage of net revenues:



	Three Months Ended														Six Months Ended
	May 31, 2015			May 25, 2014			% Increase (Decrease)		May 31, 2015			May 25, 2014			May 31, 2015			May 25, 2014			% Increase (Decrease)		May 31, 2015			May 25, 2014
	May 31, 2015			May 25, 2014			% Increase (Decrease)		% of Net Revenues			% of Net Revenues			May 31, 2015			May 25, 2014			% Increase (Decrease)		% of Net Revenues			% of Net Revenues
	(Dollars in millions)
Operating income:
Americas	$	103.3		$	109.4		(5.6	)%	16.6	%		17.0	%		$	205.6		$	220.5		(6.7	)%	17.2	%		17.3	%
Europe	33.5			38.2			(12.3	)%	15.1	%		14.6	%		91.7			109.6			(16.4	)%	18.3	%		19.5	%
Asia	15.0			24.3			(38.1	)%	8.9	%		13.8	%		62.4			71.2			(12.4	)%	16.8	%		18.8	%
Total regional operating income	151.8			171.9			(11.7	)%	15.0	%	*	15.9	%	*	359.7			401.3			(10.4	)%	17.4	%	*	18.1	%	*

Corporate:
Restructuring, net	3.0			19.1			(84.5	)%	0.3	%	*	1.8	%	*	7.3			77.0			(90.5	)%	0.4	%	*	3.5	%	*
Restructuring-related charges	12.4			9.3			32.8	%	1.2	%	*	0.9	%	*	20.4			15.8			29.3	%	1.0	%	*	0.7	%	*
Other corporate staff costs and expenses	88.8			78.4			13.5	%	8.8	%	*	7.2	%	*	176.9			149.7			18.2	%	8.6	%	*	6.8	%	*
Corporate expenses	104.2			106.8			(2.4	)%	10.3	%	*	9.9	%	*	204.6			242.5			(15.6	)%	9.9	%	*	11.0	%	*
Total operating income	$	47.6		$	65.1		(26.9	)%	4.7	%	*	6.0	%	*	$	155.1		$	158.8		(2.3	)%	7.5	%	*	7.2	%	*
Operating margin	4.7		%	6.0		%									7.5		%	7.2		%

______________

* Percentage of consolidated net revenues

Currency unfavorably affected total operating income by approximately $6 million and $19 million for the three- and six-month periods ended May 31, 2015, respectively.

Regional operating income.


•	Americas. For both periods, the decline in operating income reflected increased investment in retail and advertising and lower net revenues in the region, partially offset by an improvement in the region's gross margin. Currency had no significant impact on the region's operating income for the three- and six-month periods.


•	Europe. Currency unfavorably affected operating income in the region by approximately $11 million and $23 million for the three- and six-month periods ended May 31, 2015, respectively. Excluding the effect of currency, operating income and operating margin increased for both periods primarily due to the region's higher net revenues.

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•	Asia. For both periods, the decline in operating income and operating margin primarily reflected increased investment in retail and advertising in the region. Currency had no significant impact on the region's operating income for the three- and six-month periods, as the unfavorable effect of currency on revenues was offset by the favorable effect of currency on cost of goods sold and SG&A.

Corporate. Corporate expenses include SG&A that are not attributed to any of our regional operating segments. For the three- and six-month periods ended May 31, 2015, corporate expenses reflected lower restructuring charges in the current year, with currency impacting restructuring favorably by approximately $8 million in each period. Lower restructuring charges were partially offset by the higher incentive compensation expense in the current year.

Interest expense

Interest expense was $21.9 million and $45.3 million for the three- and six-month periods ended May 31, 2015, respectively, as compared to $31.3 million and $63.1 million for the same periods in 2014. The decrease in interest expense was primarily due to lower average debt levels and lower average borrowing rates in 2015, resulting from our debt reduction and refinancing activities in the second and fourth quarters of 2014.

The weighted-average interest rate on average borrowings outstanding for the three- and six-month periods ended May 31, 2015, was 6.91% and 7.22%, respectively, as compared to 7.93% and 7.89%, respectively, for the same periods in 2014. The weighted-average interest rate decreased primarily as a result of our debt reduction and refinancing activities in 2014.

Loss on early extinguishment of debt

During the three months ended May 31, 2015, we recorded a $14.0 million loss on early extinguishment of debt as a result of our debt refinancing activities during the period. The loss was comprised of tender and redemption premiums of $7.5 million, the write-off of $3.5 million of unamortized debt issuance costs, and $3.0 million of other costs.

During the three months ended May 25, 2014, we recorded a $11.2 million loss on early extinguishment of debt as a result of our debt refinancing activities during the period. The loss was comprised of redemption premiums of $8.0 million and the write-off of $3.2 million of unamortized debt issuance costs.

Other income (expense), net

Other income (expense), net, primarily consists of foreign exchange management activities and transactions. For the three- and six-month periods ended May 31, 2015, we recorded income of $7.6 million and expense of $18.4 million, respectively, as compared to expense of $6.1 million and $1.9 million for the same prior-year periods. The income for the three-month period in 2015 reflected net gains on our embedded derivatives and over-the-counter forward foreign exchange contracts. The expense for the six-month period in 2015 primarily reflected net losses on our foreign currency denominated balances.

Income tax expense

The effective income tax rate was 35.8% for the six months ended May 31, 2015, compared to 26.6% for the same period ended May 25, 2014.

The effective tax rate in 2014 included a tax benefit that we recorded as a result of reversing a deferred tax liability associated with the change in assertion during the period to indefinitely reinvest certain undistributed foreign earnings. The effective tax rate in 2015 reflected a lower proportion of earnings in foreign jurisdictions where we are subject to lower tax rates.

Liquidity and Capital Resources

Liquidity outlook

We believe we will have adequate liquidity over the next twelve months to operate our business and to meet our cash requirements.

Cash sources

We are a privately-held corporation. We have historically relied primarily on cash flows from operations, borrowings under credit facilities, issuances of notes and other forms of debt financing. We regularly explore financing and debt reduction alternatives, including new credit agreements, unsecured and secured note issuances, equity financing, equipment and real estate financing, securitizations and asset sales. Key sources of cash include earnings from operations and borrowing availability under our revolving credit facility.

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We are borrowers under a senior secured revolving credit facility. The facility is an asset-based facility, in which the borrowing availability is primarily based on the value of our U.S. Levi’s^® trademarks and the levels of accounts receivable and inventory in the United States and Canada. The maximum availability under the facility is $850 million, of which $800 million is available to us for revolving loans in U.S. Dollars and $50 million is available to us for revolving loans either in U.S. Dollars or Canadian Dollars.

As of May 31, 2015, we had borrowings of $110.0 million under the credit facility, all of which is classified as short-term debt. Unused availability under the credit facility was $532.9 million, as our total availability of $599.1 million, based on collateral levels as defined by the agreement, was reduced by $66.2 million of other credit-related instruments.

As of May 31, 2015, we had cash and cash equivalents totaling approximately $284.6 million, resulting in a total liquidity position (unused availability and cash and cash equivalents) of $817.5 million.

Cash uses

Our principal cash requirements include working capital, capital expenditures, payments of principal and interest on our debt, payments of taxes, contributions to our pension plans and payments for postretirement health benefit plans, settlement of shares issued under our 2006 Equity Incentive Plan, as amended to date ("EIP"), and, if market conditions warrant, occasional investments in, or acquisitions of, business ventures in our line of business. In addition, we regularly evaluate our ability to pay dividends or repurchase stock, all consistent with the terms of our debt agreements.

There have been no material changes to our estimated cash requirements for 2015 from those disclosed in our 2014 Annual Report on Form 10-K, except that potential payments in 2015 under the terms of the EIP are now estimated to be insignificant.

Cash flows

The following table summarizes, for the periods indicated, selected items in our consolidated statements of cash flows:



	Six Months Ended
	May 31, 2015			May 25, 2014
	(Dollars in millions)
Cash provided by operating activities	$	102.6		$	72.4
Cash used for investing activities	(36.0		)	(27.2		)
Cash used for financing activities	(67.4		)	(150.0		)
Cash and cash equivalents	284.6			386.1

Cash flows from operating activities

Cash provided by operating activities was $102.6 million for the six-month period in 2015, as compared to $72.4 million for the same period in 2014. Cash provided by operating activities increased compared to the prior year primarily due to a decrease in cash used for inventory, reflecting our lower inventory levels, and an increase in cash received from customers, reflecting our higher beginning accounts receivable balance, partially offset by higher payments to vendors.

Cash flows from investing activities

Cash used for investing activities was $36.0 million for the six-month period in 2015, as compared to $27.2 million for the same period in 2014. The increase in cash used for investing activities as compared to the prior year primarily reflected increased investment in retail expansion as well as realized losses on the settlement of our forward foreign exchange contracts, partially offset by proceeds received from the sale of our finishing and distribution facility in Turkey.

Cash flows from financing activities

Cash used for financing activities was $67.4 million for the six-month period in 2015, as compared to $150.0 million for the same period in 2014. Cash used in both periods primarily reflected our refinancing activities and debt reduction in each year.

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Indebtedness

The borrower of substantially all of our debt is Levi Strauss & Co., the parent and U.S. operating company. Of our total debt of $1.2 billion as of May 31, 2015, we had fixed-rate debt of $1.1 billion (90% of total debt) and variable-rate debt of $0.1 billion (10% of total debt). As of May 31, 2015, our required aggregate debt principal payments on our unsecured long-term debt were $31.8 million in 2016 and the remaining $1.0 billion in years after 2016. Short-term debt of $110.0 million borrowed under our senior secured revolving credit facility was expected to be repaid over the next twelve months, and short-term borrowings of $30.3 million at various foreign subsidiaries were expected to be either paid over the next twelve months or refinanced at the end of their applicable terms.

Our long-term debt agreements contain customary covenants restricting our activities as well as those of our subsidiaries. We were in compliance with all of these covenants as of May 31, 2015.

Off-Balance Sheet Arrangements, Guarantees and Other Contingent Obligations

There have been no significant changes to our off-balance sheet arrangements or contractual commitments from those disclosed in our 2014 Annual Report on Form 10-K.

Critical Accounting Policies and 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. There have been no significant changes to our critical accounting policies from those disclosed in our 2014 Annual Report on Form 10-K.

Recently Issued Accounting Standards

See Note 1 to our unaudited consolidated financial statements included in this report for recently issued accounting standards, including the expected dates of adoption and estimated effects on our consolidated financial statements.

FORWARD-LOOKING STATEMENTS

Certain matters discussed in this report, including (without limitation) statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contain forward-looking statements. Although we believe that, in making any such statements, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected.

These forward-looking statements include statements relating to our anticipated financial performance and business prospects and/or statements preceded by, followed by or that include the words “believe”, "will", "so we can", "when", “anticipate”, “intend”, “estimate”, “expect”, “project”, “could”, “plans”, “seeks” and similar expressions. These forward-looking statements speak only as of the date stated, and we do not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, even if experience or future events make it clear that any expected results expressed or implied by these forward-looking statements will not be realized. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these expectations may not prove to be correct or we may not achieve the financial results, savings or other benefits anticipated in the forward-looking statements. These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties, some of which may be beyond our control. These risks and uncertainties, including those disclosed under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended November 30, 2014, and our other filings with the Securities and Exchange Commission, could cause actual results to differ materially from those suggested by the forward-looking statements and include, without limitation:


•	changes in general economic and financial conditions, and the resulting impact on the level of discretionary consumer spending for apparel, pricing trends and currency fluctuations, and our ability to plan for and respond to the impact of those changes in the global retail environment in which we operate our business;

•

our ability to timely and effectively implement our global productivity initiative, which is intended to increase productivity and efficiency in our global operations, take advantage of lower-cost service delivery models in our distribution network and streamline our procurement practices to maximize efficiency in our global operations, without business disruption or mitigation to such disruptions;


•	consequences of impacts to the businesses of our wholesale customers, licensees, suppliers and vendors, including a sudden decline in their financial condition, leading to restructuring actions, bankruptcies, liquidations or other unfavorable events for them, caused by factors such as inability to secure financing, and with respect to our wholesale customers,

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decreased discretionary consumer spending, inconsistent traffic patterns and an increase in promotional activity as a result of decreased traffic, pricing fluctuations, general economic and financial conditions and changing consumer preferences;


•	our and our wholesale customers' decisions to modify strategies and adjust product mix and pricing, and our ability to manage any resulting product transition costs, including liquidating inventory or increasing promotional activity;


•	our ability to purchase products through our independent contract manufacturers that are made with quality raw materials and our ability to mitigate the variability of costs related to manufacturing, sourcing, and raw materials supply and to manage consumer response to such mitigating actions;


•	our ability to gauge and adapt to changing U.S. and international retail environments and fashion trends and changing consumer preferences in product, price-points, as well as in-store and online shopping experiences;


•	our ability to respond to price, innovation and other competitive pressures in the global apparel industry, on and from our key customers and in our key markets;


•	our ability to increase the number of dedicated stores for our products, including through opening and profitably operating company-operated stores;


•	consequences of foreign currency exchange and interest rate fluctuations;


•	the impact of the variables that affect the net periodic benefit cost and future funding requirements of our postretirement benefits and pension plans;


•	our dependence on key distribution channels, customers and suppliers;


•	our ability to utilize our tax credits and net operating loss carryforwards;


•	ongoing or future litigation matters and disputes and regulatory developments;


•	changes in or application of trade and tax laws; and


•	political, social and economic instability in countries where we and our customers do business.

Our actual results might differ materially from historical performance or current expectations. We do not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.



Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our primary market risk exposures or how those exposures are managed from the information disclosed in our 2014 Annual Report on Form 10-K.



Item 4.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934) that are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit to the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

We have evaluated, under the supervision and with the participation of management, including our chief executive officer and our chief financial officer, the effectiveness of the design and operation of our disclosure controls and procedures as of May 31, 2015. Based on that evaluation, our chief executive officer and our chief financial officer concluded that as of May 31, 2015, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Controls

We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance that our books and records accurately reflect our transactions and that our established policies and procedures are followed. We began the transition of certain global business service activities to our outsourced service provider during our last fiscal quarter, and this resulted in a change to our processes and control environment.

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PART II — OTHER INFORMATION



Item 1.	LEGAL PROCEEDINGS

Litigation. There have been no material developments with respect to the information previously reported in our 2014 Annual Report on Form 10-K related to legal proceedings.

In the ordinary course of business, we have various pending cases involving contractual matters, facility and employee-related matters, distribution matters, product liability claims, trademark infringement and other matters. We do not believe any of these pending legal proceedings will have a material impact on our financial condition, results of operations or cash flows.



Item 1A.	RISK FACTORS

There have been no material changes in our risk factors from those disclosed in our 2014 Annual Report on Form 10-K.



Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We repurchased a total of 24,149 shares of our common stock during the quarter in connection with the exercise of call and put rights under our 2006 Equity Incentive Plan, as amended and restated to date; of the total shares repurchased during the quarter, 17,682 were repurchased in March 2015 and 6,467 shares were repurchased in April 2015.

We are a privately-held corporation; there is no public trading of our common stock. As of July 6, 2015, we had 37,420,227 shares outstanding.



Item 3.	DEFAULTS UPON SENIOR SECURITIES

None.



Item 4.	MINE SAFETY DISCLOSURES

Not applicable.



Item 5.	OTHER INFORMATION

None.

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Item 6.	EXHIBITS



4.1		Indenture, dated as of April 27, 2015, by and between Levi Strauss & Co. and Wells Fargo Bank, National Association, as Trustee. Incorporated by reference to Exhibit 4.1 to Registrant's Current Report on Form 8-K filed with the Commission on April 27, 2015.

4.2		Registration Rights Agreement, dated as of April 27, 2015, by and between Levi Strauss & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. Incorporated by reference to Exhibit 4.2 to Registrant's Current Report on Form 8-K filed with the Commission on April 27, 2015.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.

101.INS		XBRL Instance Document. Filed herewith.

101.SCH		XBRL Taxonomy Extension Schema Document. Filed herewith.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document. Filed herewith.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document. Filed herewith.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document. Filed herewith.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document. Filed herewith.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Date:	July 10, 2015		LEVI STRAUSS & Co.
			(Registrant)


		By:	/s/ WADE W. WEBSTER
			Wade W. Webster Senior Vice President and Controller (Principal Accounting Officer)

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EXHIBIT INDEX



4.1		Indenture, dated as of April 27, 2015, by and between Levi Strauss & Co. and Wells Fargo Bank, National Association, as Trustee. Incorporated by reference to Exhibit 4.1 to Registrant's Current Report on Form 8-K filed with the Commission on April 27, 2015.

4.2		Registration Rights Agreement, dated as of April 27, 2015, by and between Levi Strauss & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. Incorporated by reference to Exhibit 4.2 to Registrant's Current Report on Form 8-K filed with the Commission on April 27, 2015.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.

101.INS		XBRL Instance Document. Filed herewith.

101.SCH		XBRL Taxonomy Extension Schema Document. Filed herewith.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document. Filed herewith.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document. Filed herewith.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document. Filed herewith.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document. Filed herewith.

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer þ

Smaller reporting company ¨

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