UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

Form 10-Q

(Mark One)

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

For the Quarterly Period Ended May 30, 2021

or

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

Commission file number: 001-06631

_________________

LEVI STRAUSS & CO.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	94-0905160
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

1155 Battery Street, San Francisco, California 94111

(Address of Principal Executive Offices) (Zip Code)

(415) 501-6000

(Registrant’s Telephone Number, Including Area Code)

None

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

_________________

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.001 par value per share	LEVI	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  þ  No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of "Large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ	Accelerated filer ¨	Emerging growth company ☐
Non-accelerated filer ¨		Smaller reporting company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 

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

As of July 1, 2021, the registrant had 91,499,185 shares of Class A common stock, $0.001 par value per share and 310,272,413 shares of Class B common stock, $0.001 par value per share, outstanding.

LEVI STRAUSS & CO. AND SUBSIDIARIES

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MAY 30, 2021

		Page Number
PART I — FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (unaudited):
	Consolidated Balance Sheets as of May 30, 2021 and November 29, 2020	3
	Consolidated Statements of Operations for the Three and Six Months Ended May 30, 2021 and May 24, 2020	4
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended May 30, 2021 and May 24, 2020	5
	Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended May 30, 2021 and May 24, 2020	6
	Consolidated Statements of Cash Flows for the Six Months Ended May 30, 2021 and May 24, 2020	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4.	Controls and Procedures	51
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3.	Defaults Upon Senior Securities	74
Item 4.	Mine Safety Disclosures	74
Item 5.	Other Information	74
Item 6.	Exhibits	75
SIGNATURE		76

WHERE YOU CAN FIND MORE INFORMATION

Investors and others should note that we announce material financial information to our investors using our corporate website, press releases, SEC filings and public conference calls and webcasts. We also use the following social media channels as a means of disclosing information about our company, products, planned financial and other announcements, attendance at upcoming investor and industry conferences and other matters, as well as for complying with our disclosure obligations under Regulation FD promulgated under the Securities Exchange Act of 1934, as amended:

•our Investor Relations page (https://levistrauss.com/investors/financial-news);

•our Twitter account (https://twitter.com/LeviStraussCo);

•our company blog (https://www.levistrauss.com/unzipped-blog/);

•our Facebook page (https://www.facebook.com/levistraussco/);

•our LinkedIn page (https://www.linkedin.com/company/levi-strauss-&-co-);

•our Instagram page (https://www.instagram.com/levistraussco/); and

•our YouTube channel (https://www.youtube.com/user/levistraussvideo).

The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels in addition to following our press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time. The information we post through these channels is not a part of this Quarterly Report.

PART I — FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	May 30, 2021		November 29, 2020
	(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	1,224,080	$	1,497,155
Short-term investments in marketable securities	94,528		96,531
Trade receivables, net	579,905		540,227
Inventories	863,360		817,692
Other current assets	208,160		174,636
Total current assets	2,970,033		3,126,241
Property, plant and equipment, net	447,519		454,532
Goodwill	266,775		264,768
Other intangible assets, net	47,142		47,426
Deferred tax assets, net	541,383		497,556
Operating lease right-of-use assets, net	988,614		988,801
Other non-current assets	283,195		261,917
Total assets	$	5,544,661	$	5,641,241
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	9,225	$	17,631
Accounts payable	436,486		375,450
Accrued salaries, wages and employee benefits	208,312		179,081
Restructuring liabilities	44,592		54,723
Accrued income taxes	26,438		21,986
Accrued sales returns and allowances	187,560		185,868
Short-term operating lease liabilities	255,921		237,142
Other accrued liabilities	456,700		477,001
Total current liabilities	1,625,234		1,548,882
Long-term debt	1,263,827		1,546,700
Postretirement medical benefits	57,012		60,249
Pension liabilities	165,917		168,721
Long-term employee related benefits	101,941		94,654
Long-term operating lease liabilities	835,018		858,293
Other long-term liabilities	61,690		64,267
Total liabilities	4,110,639		4,341,766
Commitments and contingencies
Stockholders’ Equity:
Levi Strauss & Co. stockholders’ equity
Common stock — $0.001 par value; 1,200,000,000 Class A shares authorized, 90,069,823 shares and 74,352,481 shares issued and outstanding as of May 30, 2021 and November 29, 2020, respectively; and 422,000,000 Class B shares authorized, 311,670,618 shares and 323,547,674 shares issued and outstanding, as of May 30, 2021 and November 29, 2020, respectively	402		398
Additional paid-in capital	583,702		626,243
Accumulated other comprehensive loss	(431,489)		(441,446)
Retained earnings	1,281,407		1,114,280
Total stockholders’ equity	1,434,022		1,299,475
Total liabilities and stockholders’ equity	$	5,544,661	$	5,641,241

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

3

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended				Six Months Ended
	May 30, 2021		May 24, 2020		May 30, 2021		May 24, 2020
	(Dollars in thousands, except per share amounts) (Unaudited)
Net revenues	$	1,275,971	$	497,542	$	2,581,573	$	2,003,668
Cost of goods sold	525,770		327,890		1,071,343		994,689
Gross profit	750,201		169,652		1,510,230		1,008,979
Selling, general and administrative expenses	628,231		550,525		1,211,914		1,211,070
Restructuring charges, net	15,515		67,371		14,738		67,371
Operating income (loss)	106,455		(448,244)		283,578		(269,462)
Interest expense	(19,933)		(11,246)		(43,243)		(27,900)
Loss on early extinguishment of debt	(30,108)		—		(30,338)		—
Other (expense) income, net	(715)		1,305		373		4,005
Income (loss) before income taxes	55,699		(458,185)		210,370		(293,357)
Income tax (benefit) expense	(9,020)		(94,636)		3,147		(82,497)
Net income (loss)	$	64,719	$	(363,549)	$	207,223	$	(210,860)
Earnings (loss) per common share attributable to common stockholders:
Basic	$	0.16	$	(0.91)	$	0.52	$	(0.53)
Diluted	$	0.16	$	(0.91)	$	0.50	$	(0.53)
Weighted-average common shares outstanding:
Basic	401,964,569		397,484,849		400,771,248		396,832,024
Diluted	412,102,841		397,484,849		410,644,463		396,832,024

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

4

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended				Six Months Ended
	May 30, 2021		May 24, 2020		May 30, 2021		May 24, 2020
	(Dollars in thousands) (Unaudited)
Net income (loss)	$	64,719	$	(363,549)	$	207,223	$	(210,860)
Other comprehensive income (loss), before related income taxes:
Pension and postretirement benefits	2,743		6,613		5,681		10,204
Derivative instruments	4,579		(2,202)		(12,736)		13,203
Foreign currency translation gains (losses)	4,418		(30,756)		15,359		(38,889)
Unrealized gains (losses) on marketable securities	4,034		(2,347)		4,435		(791)
Total other comprehensive income (loss), before related income taxes	15,774		(28,692)		12,739		(16,273)
Income tax (benefit) expense related to items of other comprehensive income (loss)	(3,987)		3,730		(2,784)		(1,993)
Comprehensive income (loss), net of income taxes	$	76,506	$	(388,511)	$	217,178	$	(229,126)

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

5

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

	Three Months Ended May 30, 2021
	Levi Strauss & Co. Stockholders
	Class A & Class B Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity
	(Dollars in thousands) (Unaudited)
Balance at February 28, 2021	$	400	$	609,068	$	1,240,792	$	(443,276)	$	—	$	1,406,984
Net income	—		—		64,719		—		—		64,719
Other comprehensive loss, net of tax	—		—		—		11,787		—		11,787
Stock-based compensation and dividends, net	2		23,384		—		—		—		23,386
Employee stock purchase plan	—		1,792		—		—		—		1,792
Shares surrendered for tax withholdings on equity awards	—		(50,542)		—		—		—		(50,542)
Cash dividends declared ($0.06 per share)	—		—		(24,104)		—		—		(24,104)
Balance at May 30, 2021	$	402	$	583,702	$	1,281,407	$	(431,489)	$	—	$	1,434,022

	Six Months Ended May 30, 2021
	Levi Strauss & Co. Stockholders
	Class A & Class B Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity
	(Dollars in thousands) (Unaudited)
Balance at November 29, 2020	$	398	$	626,243	$	1,114,280	$	(441,446)	$	—	$	1,299,475
Net income	—		—		207,223		—		—		207,223
Other comprehensive loss, net of tax	—		—		—		9,957		—		9,957
Stock-based compensation and dividends, net	4		30,098		—		—		—		30,102
Employee stock purchase plan	—		3,721		—		—		—		3,721
Shares surrendered for tax withholdings on equity awards	—		(76,360)		—		—		—		(76,360)
Cash dividends declared ($0.10 per share)	—		—		(40,096)		—		—		(40,096)
Balance at May 30, 2021	$	402	$	583,702	$	1,281,407	$	(431,489)	$	—	$	1,434,022

6

	Three Months Ended May 24, 2020
	Levi Strauss & Co. Stockholders
	Class A & Class B Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity
	(Dollars in thousands) (Unaudited)
Balance at February 23, 2020	$	399	$	601,976	$	1,445,188	$	(452,734)	$	—	$	1,594,829
Net loss	—		—		(363,549)		—		—		(363,549)
Other comprehensive loss, net of tax	—		—		—		(24,962)		—		(24,962)
Stock-based compensation and dividends, net	—		8,090		(27)		—		—		8,063
Employee stock purchase plan	—		2,252		—		—		—		2,252
Repurchase of common stock	(3)		—		(19,169)		—		—		(19,172)
Shares surrendered for tax withholdings on equity awards	—		(325)		—		—		—		(325)
Changes in ownership of noncontrolling interest	—		—		(137)		—		—		(137)
Cumulative effect of adoption of new accounting standards	—		—		(84)		—		—		(84)
Cash dividends declared ($0.08 per share)	—		—		(31,709)		—		—		(31,709)
Balance at May 24, 2020	$	396	$	611,993	$	1,030,513	$	(477,696)	$	—	$	1,165,206

	Six Months Ended May 24, 2020
	Levi Strauss & Co. Stockholders
	Class A & Class B Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity
	(Dollars in thousands) (Unaudited)
Balance at November 24, 2019	$	394	$	657,659	$	1,310,464	$	(404,986)	$	8,026	$	1,571,557
Net loss	—		—		(210,860)		—		—		(210,860)
Other comprehensive loss, net of tax	—		—		—		(18,266)		—		(18,266)
Stock-based compensation and dividends, net	5		25,620		(27)		—		—		25,598
Employee stock purchase plan	—		4,282		—		—		—		4,282
Repurchase of common stock	(3)		—		(56,240)		—		—		(56,243)
Shares surrendered for tax withholdings on equity awards	—		(75,568)		—		—		—		(75,568)
Changes in ownership of noncontrolling interest	—		—		(8,809)		—		(8,026)		(16,835)
Cumulative effect of the adoption of new accounting standards	—		—		59,624		(54,444)		—		5,180
Cash dividends declared ($0.16 per share)	—		—		(63,639)		—		—		(63,639)
Balance at May 24, 2020	$	396	$	611,993	$	1,030,513	$	(477,696)	$	—	$	1,165,206

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

7

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended
	May 30, 2021		May 24, 2020
	(Dollars in thousands) (Unaudited)
Cash Flows from Operating Activities:
Net income (loss)	$	207,223	$	(210,860)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	69,926		71,005
Property, plant, equipment, and right-of-use asset impairments	5,147		61,157
Loss on early extinguishment of debt	30,338		—
Stock-based compensation	30,102		25,598
Credit losses and accounts receivable allowances	—		20,935
Benefit from deferred income taxes	(46,857)		(100,977)
Other, net	9,392		1,949
Change in operating assets and liabilities, net of effect of acquisition:
Trade receivables	(36,149)		408,053
Inventories	(38,630)		(109,486)
Accounts payable	60,303		(73,701)
Accrued salaries, wages and employee benefits and long-term employee related benefits	27,808		(100,567)
Other current and non-current assets	(20,867)		(81,270)
Other current and long-term liabilities	(49,718)		129,528
Net cash provided by operating activities	248,018		41,364
Cash Flows from Investing Activities:
Purchases of property, plant and equipment	(67,501)		(75,210)
Payments for business acquisition	—		(52,201)
(Payments) proceeds on settlement of forward foreign exchange contracts not designated for hedge accounting	(4,349)		15,114
Payments to acquire short-term investments	(55,124)		(44,847)
Proceeds from sale, maturity and collection of short-term investments	56,530		49,586
Net cash used for investing activities	(70,444)		(107,558)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt	500,000		502,500
Repayments of long-term debt	(800,000)		—
Proceeds from senior revolving credit facility	—		300,000
Other short-term borrowings, net	(8,502)		810
Payment of debt extinguishment costs	(20,000)		—
Payment of debt issuance and refinancing costs	(10,446)		(6,459)
Proceeds from issuance of common stock and employee stock purchase	3,721		4,283
Repurchase of common stock	—		(56,243)
Repurchase of shares surrendered for tax withholdings on equity awards	(76,360)		(75,568)
Payments to noncontrolling interests	—		(16,090)
Dividend to stockholders	(40,097)		(63,639)
Other financing, net	(1,454)		(3)
Net cash (used for) provided by financing activities	(453,138)		589,591
Effect of exchange rate changes on cash and cash equivalents and restricted cash	2,500		(9,113)
Net increase (decrease) in cash and cash equivalents and restricted cash	(273,064)		514,284
Beginning cash and cash equivalents, and restricted cash	1,497,648		934,753
Ending cash and cash equivalents, and restricted cash	1,224,584		1,449,037
Less: Ending restricted cash	(504)		(802)
Ending cash and cash equivalents	$	1,224,080	$	1,448,235
Noncash Investing and Financing Activity:
Property, plant and equipment acquired and not yet paid at end of period	$	29,579	$	21,462
Supplemental disclosure of cash flow information:
Cash paid for interest during the period	$	29,926	$	36,856
Cash paid for income taxes during the period, net of refunds	30,750		53,594

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

8

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERLY PERIOD ENDED MAY 30, 2021

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Levi Strauss & Co. (the "Company") is one of the world’s largest brand-name apparel companies. The Company designs, markets and sells – directly or through third parties and licensees – products that include jeans, casual and dress pants, tops, shorts, skirts, jackets, footwear and related accessories for men, women and children around the world under the Levi’s®, Dockers®, Signature by Levi Strauss & Co.™ and Denizen® brands. The Company operates its business through three geographic regions: Americas, Europe and Asia.

Basis of Presentation and Principles of Consolidation

The unaudited consolidated financial statements of the Company and its wholly-owned and majority-owned foreign and domestic subsidiaries are prepared in conformity with generally accepted accounting principles in the United States ("U.S. GAAP") for interim financial information. In the opinion of management, all adjustments necessary for a fair statement of the financial position and the results of operations for the periods presented have been included. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended November 29, 2020, included in the Company's 2020 Annual Report on Form 10-K.

The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated. Management believes the disclosures are adequate to make the information presented in the unaudited consolidated financial statements not misleading. The results of operations for the three and six months ended May 30, 2021 may not be indicative of the results to be expected for any other interim period or the year ending November 28, 2021.

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 2021 and 2020 consists of 13 weeks, with the exception of the fourth quarter of 2020, which consisted of 14 weeks. All references to years and quarters relate to fiscal years and quarters rather than calendar years and quarters.

Impact of COVID-19 on the Business

In fiscal year 2020, the COVID-19 pandemic materially impacted the Company's business and results of operations. In the first quarter of fiscal year 2020, the impact of the COVID-19 pandemic was minimal, as temporary store closures were primarily within China. During the second quarter of fiscal year 2020, the World Health Organization declared COVID-19 a global pandemic and government authorities around the world imposed lockdowns and restrictions. As a result, substantially all company-operated stores and third-party retail locations were temporarily closed, and $242.0 million in incremental charges were recognized, primarily consisting of $67.4 million of restructuring charges, COVID-19 related inventory costs of $86.6 million, and charges for customer receivables, asset impairments and other related charges of $88.0 million.

During the second half of fiscal year 2020, as global management of the COVID-19 pandemic evolved and government restrictions were removed or lightened, company-operated and third-party retail locations reopened and substantially all stores were open by the end of the third quarter. In the fourth quarter of fiscal year 2020, a global resurgence in COVID-19 cases led to the temporary closure of some of the Company's stores, yet overall operations improved from when initial estimates were made, resulting in the reduction to some of the inventory and receivable related charges initially recognized in the second quarter. In accordance with the continuation of the restructuring initiative, the Company recognized charges in the fourth quarter. As a result, $250.0 million in total charges were recognized during fiscal year 2020, consisting of $90.4 million of restructuring charges, COVID-19 related inventory costs of $68.5 million, and charges for customer receivables, asset impairments and other related charges of $91.1 million.

During the first half of 2021, many COVID-19 related restrictions on store business hours and customer capacity in many parts of the world eased and social events resumed. Approximately 91% of company-operated stores were open globally as of quarter end. The Company continued to experience temporary store closures in certain markets, particularly in Europe and Asia, as these areas continued to experience sporadic COVID-19 resurgences. In other parts of the world, where the vaccine rollout has progressed and COVID-19 cases lowered, the Company has started to see the return of pre-COVID-19 revenue levels. Net revenues in the U.S. and China markets were higher in the second quarter of 2021 as compared to the pre-pandemic second

9

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 30, 2021

quarter in 2019. Net revenues in the Europe region increased each month throughout the period, exiting the quarter with revenues above 2019 pre-pandemic levels.

The Company assessed the impacts of the pandemic on the estimates and assumptions used in preparing these consolidated financial statements. The estimates and assumptions used in these assessments were based on management’s judgment and may be subject to change as new events occur and additional information is obtained. In particular, significant uncertainty remains about the duration and extent of the impact of the COVID-19 pandemic and its resulting impact on global economic conditions. If economic conditions caused by the pandemic do not recover as currently estimated by management, the Company’s financial condition, cash flows and results of operations may be further materially impacted. See below for areas that required judgments and estimates as a result of COVID-19.

Inventory Valuation and Adverse Purchase Commitments

The Company values inventory at the lower of cost or net realizable value. Net realizable value is determined by estimating expected selling prices based on anticipated recovery rates for slow-moving and obsolete inventory and other factors, such as market conditions, expected channel of distribution and current consumer demand and preferences. During the three-month and six-month periods ended May 30, 2021, there were no incremental inventory reserves recognized directly related to the expected impact of COVID-19, as compared to $49.9 million of incremental reserves recognized upon the onset of COVID-19, in the same periods in fiscal year 2020.

The Company also has minimum inventory purchase commitments, including fabric commitments, with suppliers that secure a portion of material needs for future seasons. In light of the COVID-19 pandemic and in response to decreased demand, some of the Company's orders were canceled and an initial charge for estimated adverse purchase commitments was recorded in the second quarter of fiscal year 2020. During the three-month and six-month periods ended May 30, 2021, the Company recorded a net reduction of $5.6 million and $12.1 million, respectively, in charges for inventory purchase commitments based on updated demand and actual claims received from suppliers, as compared to $35.9 million in incremental charges recognized in the same periods in fiscal year 2020. As of May 30, 2021 and November 29, 2020, adverse purchase commitments of $7.4 million and $25.5 million, respectively, which primarily relate to fabric liabilities as a result of the COVID-19 pandemic, were included in "Other accrued liabilities" in the accompanying consolidated balance sheets.

Accounts Receivable

Accounts receivable are recorded net of an allowance for credit losses. The Company estimates the allowance for credit losses based on an analysis of the aging of accounts receivable, assessment of collectability, including any known or anticipated bankruptcies, customer-specific circumstances and an evaluation of current economic conditions. During the three-month and six-month periods ended May 30, 2021, a net reduction of $12.5 million in allowances related to customer receivables was recorded as a result of a change in customers' financial condition and other associated claims, as compared to $27.6 million in charges recognized upon the onset of the COVID-19 pandemic, in the same periods in fiscal year 2020.

The allowance for credit losses was $14.1 million and $14.7 million as of May 30, 2021 and November 29, 2020, respectively.

Long-Lived Assets

The Company reviews its other long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may be impaired. Impairment losses are measured and recorded for the excess of carrying value over its fair value, estimated based on expected future cash flows and other quantitative and qualitative factors. Expected future cash flows decreased due to the COVID-19 related impact on foot traffic and consumer spending trends. The Company recorded $2.5 million and $5.6 million in impairment charges in the three-month and six-month periods ended May 30, 2021, respectively, related to the impairment of certain store right-of-use and other store assets. During the three-month and six-month periods ended May 24, 2020, the Company recorded $60.4 million of non-cash impairment charges, of which $43.0 million and $11.1 million were related to the impairment of certain store right-of-use and other store assets, respectively. An additional $6.3 million was recognized related to other property and equipment. The impairment charges are included in selling, general and administrative expenses ("SG&A") in the accompanying consolidated statements of operations.

Property, plant and equipment, net includes accumulated depreciation of $1.2 billion and $1.1 billion as of May 30, 2021 and November 29, 2020, respectively.

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LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 30, 2021

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes to the consolidated financial statements. Estimates are based upon historical factors, current circumstances and the experience and judgment of the Company’s management. Management evaluates its estimates and assumptions on an ongoing basis and may employ outside experts to assist in its evaluations. Changes in such estimates, based on more accurate future information, or different assumptions or conditions, may affect amounts reported in future periods. As a result of uncertainty and frequently changing information regarding the COVID-19 pandemic and its impact on global economic conditions, estimates may change frequently and in the near term.     

The Jeans Company Acquisition

In December 2019, the Company completed an acquisition of all operating assets related to Levi’s® and Dockers® brands from The Jeans Company ("TJC"), the Company's distributor in Chile, Peru and Bolivia, for $52.2 million in cash, plus transaction costs. This includes 78 Levi’s® and Dockers® retail stores and one e-commerce site, distribution with the region’s leading multi-brand retailers, and the logistical operations within these markets.

The total fair value of assets acquired was $52.2 million and include goodwill, inventory, intangible and fixed assets. The goodwill and intangibles recognized as a result of the acquisition were $22.8 million and $9.2 million, respectively.

Share Repurchases

In January 2020, the Company's Board of Directors (the "Board") approved a share repurchase program that authorizes the repurchase of up to $100.0 million of the Company's Class A common stock. During the three and six months ended May 24, 2020, 1.1 million and 3.0 million shares were repurchased for $19.2 million and $56.2 million, respectively, plus broker's commissions, in the open market.

The Company accounts for share repurchases by charging the excess of repurchase price over the repurchased Class A common stock's par value entirely to retained earnings. All repurchased shares are retired and become authorized but unissued shares. The Company accrues for the shares purchased under the share repurchase plan based on the trade date. The Company may terminate or limit the share repurchase program at any time.

Noncontrolling Interest

In January 2020, the Company completed an all cash tender offer for the acquisition of the remaining 16.4% minority interest shares of Levi Strauss Japan K.K.'s common stock for a total purchase price of $13.6 million, plus transaction costs. As a result, Levi Strauss Japan K.K. has become a wholly owned subsidiary. Prior to this transaction, the noncontrolling interest included a 16.4% minority interest of third parties in Levi Strauss Japan K.K., the Company's Japanese subsidiary.

Reclassification

Certain insignificant amounts on the consolidated statements of cash flow have been conformed to the May 30, 2021 presentation.

Changes in Accounting Principles

•In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The FASB has subsequently issued updates to the standard to provide additional clarification on specific topics. The Company adopted this standard in the first quarter of fiscal 2021. The adoption of this standard did not have an impact on the Company's consolidated financial statements and related disclosures.

•In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement

11

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 30, 2021

that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software (and hosting arrangements that include an internal-use software license). The guidance provides criteria for determining which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The capitalized implementation costs are required to be expensed over the term of the hosting arrangement. The guidance also clarifies the presentation requirements for reporting such costs in the entity’s financial statements. The Company adopted this standard in the first quarter of fiscal 2021 on a prospective basis. The adoption of this standard did not have an impact on the Company's consolidated financial statements and related disclosures.

Recently Issued Accounting Standards

There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s consolidated financial statements and footnote disclosures, from those disclosed in the 2020 Annual Report on Form 10-K, except for the following:

First Quarter 2023

•In March 2020 and January 2021, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting and ASU 2021-01, Reference Rate Reform: Scope, respectively. Together, the ASUs provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures, if adopted.

NOTE 2: INVENTORIES

The following table presents the Company's inventory balances: 

	May 30, 2021		November 29, 2020
	(Dollars in thousands)
Raw materials	$	4,229	$	3,882
Work-in-progress	2,604		4,725
Finished goods	856,527		809,085
Total inventories	$	863,360	$	817,692

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 30, 2021

NOTE 3: FAIR VALUE OF FINANCIAL INSTRUMENTS

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

	May 30, 2021						November 29, 2020
			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	$	77,708	$	77,708	$	—	$	71,184	$	71,184	$	—
Short-term investments in marketable securities	94,528		—		94,528		96,531		—		96,531
Derivative instruments(3)	4,132		—		4,132		4,904		—		4,904
Total	$	176,368	$	77,708	$	98,660	$	172,619	$	71,184	$	101,435
Financial liabilities carried at fair value
Derivative instruments(3)	17,824		—		17,824		10,735		—		10,735
Total	$	17,824	$	—	$	17,824	$	10,735	$	—	$	10,735

_____________

(1)Fair values estimated using Level 1 inputs are inputs that consist of quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Rabbi trust assets consist of a diversified portfolio of equity, fixed income and other securities.

(2)Fair values estimated using Level 2 inputs are inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly, and include among other things, quoted prices for similar assets or liabilities in markets that are active or inactive as well as inputs other than quoted prices that are observable. Short-term investments in marketable securities consist of fixed income securities. For forward foreign exchange contracts, inputs include foreign currency exchange and interest rates and, where applicable, credit default swap prices.

(3)The Company’s cash flow hedges are subject to International Swaps and Derivatives Association, Inc. master agreements. These agreements permit the net settlement of these contracts on a per-institution basis. Refer to Note 4 for more information.

The following table presents the carrying value, including related accrued interest, and estimated fair value of the Company’s financial instruments that are carried at adjusted historical cost:

	May 30, 2021				November 29, 2020
	Carrying Value		Estimated Fair  Value		Carrying Value		Estimated Fair  Value
	(Dollars in thousands)
Financial liabilities carried at adjusted historical cost
5.00% senior notes due 2025(1)	$	197,759	$	200,714	$	990,280	$	1,016,169
3.375% senior notes due 2027(1)	578,121		597,498		564,312		583,227
3.50% senior notes due 2031(1)	497,700		488,461		—		—
Short-term borrowings	9,252		9,252		17,648		17,648
Total	$	1,282,832	$	1,295,925	$	1,572,240	$	1,617,044

_____________

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 30, 2021

NOTE 4: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Designated Cash Flow Hedges

The Company actively manages the risk of changes in functional currency equivalent cash flows resulting from anticipated non-functional currency denominated purchases and sales. The Company’s global sourcing organization uses the U.S. dollar as its functional currency and is primarily exposed to changes in functional currency equivalent cash flows from anticipated inventory purchases, as it procures inventory on behalf of subsidiaries with the Euro, Australian Dollar and Japanese Yen functional currencies. The Mexico subsidiary uses the Mexican Peso as its functional currency and is exposed as it procures inventory in the U.S. Dollar. Additionally, a European subsidiary uses Euros as its functional currency and is exposed to anticipated non-functional currency denominated sales. The Company manages these risks by using currency forward contracts formally designated and effective as cash flow hedges. Hedge effectiveness is generally determined by evaluating the ability of a hedging instrument's cumulative change in fair value to offset the cumulative change in the present value of expected cash flows on the underlying exposures. For forward contracts, forward points are excluded from the determination of hedge effectiveness and are included in cost of goods sold for hedges of anticipated inventory purchases and in net revenues for hedges of anticipated sales on a straight-line basis over the life of the contract. In each accounting period, differences between the change in fair value of the forward points and the amount recognized on a straight-line basis is recognized in other comprehensive income.

Net Investment Hedges

The Company designates certain non-derivative instruments as net investment hedges to hedge the Company's net investment position in certain of its foreign subsidiaries. For these instruments, the Company documents the hedge designation by identifying the hedging instrument, the nature of the risk being hedged and the approach for measuring hedge effectiveness. The ineffective portions of these hedges are recorded in "Other (expense) income, net" in the Company's consolidated statements of operations. The effective portions of these hedges are recorded in "Accumulated other comprehensive loss" on the Company's consolidated balance sheets and are not reclassified to earnings until the related net investment position has been liquidated.

Non-designated Cash Flow Hedges

The Company enters into derivative instruments not designated as hedges. These derivative instruments are not speculative and are used to manage the Company’s exposure to certain product sourcing activities, some intercompany sales, foreign subsidiaries' royalty payments, interest payments, earnings repatriations, net investment in foreign operations and funding activities but the Company has not elected to apply hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in "Other (expense) income, net" in the Company’s consolidated statements of operations.

14

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 30, 2021

As of May 30, 2021, the Company had forward foreign exchange contracts derivatives that were not designated as hedges in qualifying hedging relationships, of which $714.3 million were contracts to buy and $292.7 million were contracts to sell various foreign currencies. These contracts are at various exchange rates and expire at various dates through May 2022.

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

	May 30, 2021						November 29, 2020
	Assets		(Liabilities)		Derivative Net Carrying Value		Assets		(Liabilities)		Derivative Net Carrying Value
	Carrying Value		Carrying Value				Carrying Value		Carrying Value
	(Dollars in thousands)
Derivatives designated as hedging instruments
Foreign exchange risk cash flow hedges(1)	$	2,144	$	—	$	2,144	$	1,489	$	—	$	1,489
Foreign exchange risk cash flow hedges(2)	—		(11,287)		(11,287)		—		(5,036)		(5,036)
Total	$	2,144	$	(11,287)			$	1,489	$	(5,036)
Derivatives not designated as hedging instruments
Forward foreign exchange contracts(1)	$	4,132	$	(2,144)	$	1,988	$	4,902	$	(1,487)	$	3,415
Forward foreign exchange contracts(2)	11,307		(17,844)		(6,537)		5,035		(10,734)		(5,699)
Total	$	15,439	$	(19,988)			$	9,937	$	(12,221)
Non-derivatives designated as hedging instruments
Euro senior notes	$	—	$	(579,168)			$	—	$	(565,820)

_____________

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

(2)Included in "Other accrued liabilities" or "Other long-term liabilities" on the Company’s consolidated balance sheets.

The Company's over-the-counter forward foreign exchange contracts are subject to International Swaps and Derivatives Association, Inc. master agreements. These agreements permit the net settlement of these contracts on a per-institution basis; however, the Company records the fair value on a gross basis on its consolidated balance sheets based on maturity dates, including those subject to master netting arrangements. The table below presents the gross and net amounts of these contracts recognized on the Company's consolidated balance sheets by type of financial instrument:

	May 30, 2021						November 29, 2020
	Gross Amounts of Assets / (Liabilities) Presented in the Balance Sheet		Gross Amounts Not Offset in the Balance Sheet		Net Amounts of Assets / (Liabilities)		Gross Amounts of Assets / (Liabilities) Presented in the Balance Sheet		Gross Amounts Not Offset in the Balance Sheet		Net Amounts of Assets / (Liabilities)
	(Dollars in thousands)
Foreign exchange risk contracts and forward foreign exchange contracts
Financial assets	$	17,583	$	(8,148)	$	9,435	$	11,426	$	(6,578)	$	4,848
Financial liabilities	(31,275)		8,148		(23,127)		(17,257)		6,578		(10,679)
Total					$	(13,692)					$	(5,831)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 30, 2021

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

	Amount of Gain (Loss) Recognized in AOCI (Effective Portion)				Amount of Gain (Loss) Reclassified from  AOCI into Net Income(1)
	As of May 30, 2021		As of November 29,  2020		Three Months Ended				Six Months Ended
					May 30, 2021		May 24, 2020		May 30, 2021		May 24, 2020
	(Dollars in thousands)
Foreign exchange risk contracts	$	(11,283)	$	(11,896)	$	(9,216)	$	2,358	$	(11,094)	$	5,423
Realized forward foreign exchange swaps (2)	4,637		4,637		—		—		—		—
Yen-denominated Eurobonds	(19,811)		(19,811)		—		—		—		—
Euro-denominated senior notes	(92,084)		(78,736)		—		—		—		—
Cumulative income taxes	33,040		31,350		—		—		—		—
Total	$	(85,501)	$	(74,456)

_____________

(1)Amounts reclassified from AOCI were classified as net revenues and cost of goods sold on the consolidated statements of operations.

(2)Prior to and during 2005, the Company used foreign exchange currency swaps to hedge the net investment in its foreign operations. For hedges that qualified for hedge accounting, the net gains were included in AOCI and are not reclassified to earnings until the related net investment position has been liquidated.

There was no hedge ineffectiveness for the six months ended May 30, 2021. Within the next 12 months, a $10.4 million loss from cash flow hedges is expected to be reclassified from AOCI into net income.

The table below presents the effects of the Company's cash flow hedges of foreign exchange risk contracts on the consolidated statements of operations:

	Three Months Ended				Six Months Ended
	May 30, 2021		May 24, 2020		May 30, 2021	May 24, 2020
	(Dollars in thousands)
Amount of Gain (Loss) on Cash Flow Hedge Activity
Net revenues	$	(1,529)	$	(