Levi Strauss & Co. - 10-Q quarterly report FY2017 Q2

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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 28, 2017



¨		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, a non-accelerated filer,a smaller reporting company, or an emerging growth company. See definition of "Large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer þ	(Do not check if a smaller reporting company)	Smaller reporting company ¨
Emerging growth company ¨

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 — 37,620,430 shares outstanding on July 5, 2017

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LEVI STRAUSS & CO. AND SUBSIDIARIES

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MAY 28, 2017



		Page Number
PART I — FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited):
	Consolidated Balance Sheets as of May 28, 2017 and November 27, 2016	3
	Consolidated Statements of Income for the Three and Six Months Ended May 28, 2017 and May 29, 2016	4
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended May 28, 2017 and May 29, 2016	5
	Consolidated Statements of Cash Flows for the Six Months Ended May 28, 2017 and May 29, 2016	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
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

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PART I — FINANCIAL INFORMATION



Item 1.	CONSOLIDATED FINANCIAL STATEMENTS

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



	(Unaudited)
	May 28, 2017			November 27, 2016
	(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	437,517		$	375,563
Trade receivables, net of allowance for doubtful accounts of $13,331 and $11,974	309,392			479,018
Inventories:
Raw materials	4,940			2,454
Work-in-process	3,214			3,074
Finished goods	772,425			710,653
Total inventories	780,579			716,181
Other current assets	114,112			115,385
Total current assets	1,641,600			1,686,147
Property, plant and equipment, net of accumulated depreciation of $908,045 and $856,588	390,496			393,605
Goodwill	235,971			234,280
Other intangible assets, net	42,922			42,946
Deferred tax assets, net	533,235			523,101
Other non-current assets	110,933			107,017
Total assets	$	2,955,157		$	2,987,096

LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	31,582		$	38,922
Accounts payable	274,455			270,293
Accrued salaries, wages and employee benefits	152,172			180,740
Restructuring liabilities	1,715			4,878
Accrued interest payable	6,873			5,098
Accrued income taxes	1,327			9,652
Other accrued liabilities	265,456			252,160
Total current liabilities	733,580			761,743
Long-term debt	1,007,285			1,006,256
Long-term capital leases	15,005			15,360
Postretirement medical benefits	95,259			100,966
Pension liability	337,293			354,461
Long-term employee related benefits	72,540			73,243
Long-term income tax liabilities	16,676			20,150
Other long-term liabilities	69,699			63,796
Total liabilities	2,347,337			2,395,975
Commitments and contingencies
Temporary equity	75,324			79,346

Stockholders’ Equity:
Levi Strauss & Co. stockholders’ equity
Common stock — $.01 par value; 270,000,000 shares authorized; 37,620,430 shares and 37,470,158 shares issued and outstanding	376			375
Additional paid-in capital	—			1,445
Retained earnings	942,373			935,049
Accumulated other comprehensive loss	(412,686		)	(427,314		)
Total Levi Strauss & Co. stockholders’ equity	530,063			509,555
Noncontrolling interest	2,433			2,220
Total stockholders’ equity	532,496			511,775
Total liabilities, temporary equity and stockholders’ equity	$	2,955,157		$	2,987,096

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

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LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME



	Three Months Ended						Six Months Ended
	May 28, 2017			May 29, 2016			May 28, 2017			May 29, 2016
	(Dollars in thousands) (Unaudited)
Net revenues	$	1,067,855		$	1,011,587		$	2,169,846		$	2,068,087
Cost of goods sold	509,463			494,389			1,046,901			991,291
Gross profit	558,392			517,198			1,122,945			1,076,796
Selling, general and administrative expenses	495,741			459,351			951,954			900,514
Restructuring, net	—			(191		)	—			1,657
Operating income	62,651			58,038			170,991			174,625
Interest expense	(17,895		)	(20,411		)	(37,829		)	(35,313		)
Loss on early extinguishment of debt	(22,793		)	—			(22,793		)	—
Other (expense) income, net	(18,087		)	4,295			(17,679		)	2,076
Income before income taxes	3,876			41,922			92,690			141,388
Income tax (benefit) expense	(13,847		)	10,862			14,846			44,037
Net income	17,723			31,060			77,844			97,351
Net income attributable to noncontrolling interest	(207		)	(335		)	(185		)	(790		)
Net income attributable to Levi Strauss & Co.	$	17,516		$	30,725		$	77,659		$	96,561

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

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LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	Three Months Ended						Six Months Ended
	May 28, 2017			May 29, 2016			May 28, 2017			May 29, 2016
	(Dollars in thousands) (Unaudited)
Net income	$	17,723		$	31,060		$	77,844		$	97,351
Other comprehensive income (loss), before related income taxes:
Pension and postretirement benefits	3,769			3,735			7,460			7,317
Net investment hedge losses	(29,640		)	(250		)	(29,640		)	(914		)
Foreign currency translation gains (losses)	20,903			5,877			28,587			(1,698		)
Unrealized gains (losses) on marketable securities	875			1,510			1,875			(319		)
Total other comprehensive (loss) income, before related income taxes	(4,093		)	10,872			8,282			4,386
Income taxes benefit (expense) related to items of other comprehensive income	8,984			(2,414		)	6,173			(3,638		)
Comprehensive income, net of income taxes	22,614			39,518			92,299			98,099
Comprehensive income attributable to noncontrolling interest	(226		)	(447		)	(12		)	(1,121		)
Comprehensive income attributable to Levi Strauss & Co.	$	22,388		$	39,071		$	92,287		$	96,978

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

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LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



	Six Months Ended
	May 28, 2017			May 29, 2016
	(Dollars in thousands) (Unaudited)
Cash Flows from Operating Activities:
Net income	$	77,844		$	97,351
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	55,829			50,496
Unrealized foreign exchange losses	23,434			16,927
Realized gain on settlement of forward foreign exchange contracts not designated for hedge accounting	(4,078		)	(16,887		)
Employee benefit plans’ amortization from accumulated other comprehensive loss and settlement loss	7,457			7,487
Loss on early extinguishment of debt	22,793			—
Stock-based compensation	5,662			1,976
Other, net	3,579			(1,879		)
Change in operating assets and liabilities:
Trade receivables	172,382			157,291
Inventories	(54,723		)	(185,806		)
Other current assets	4,755			1,993
Other non-current assets	(3,794		)	(4,163		)
Accounts payable and other accrued liabilities	(7,696		)	41,392
Restructuring liabilities	(3,285		)	(10,691		)
Income tax liabilities	(15,688		)	18,397
Accrued salaries, wages and employee benefits and long-term employee related benefits	(66,750		)	(73,463		)
Other long-term liabilities	(635		)	2,883
Net cash provided by operating activities	217,086			103,304
Cash Flows from Investing Activities:
Purchases of property, plant and equipment	(52,889		)	(47,278		)
Proceeds from sales of assets	—			17,431
Proceeds on settlement of forward foreign exchange contracts not designated for hedge accounting	4,078			16,887
Net cash used for investing activities	(48,811		)	(12,960		)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt	502,835			—
Repayments of long-term debt	(525,000		)	—
Proceeds from senior revolving credit facility	—			180,000
Repayments of senior revolving credit facility	—			(174,000		)
Proceeds from short-term credit facilities	15,557			14,216
Repayments of short-term credit facilities	(13,221		)	(10,389		)
Other short-term borrowings, net	(10,747		)	593
Payment of debt extinguishment costs	(21,899		)	—
Payment of debt issuance costs	(10,101		)	—
Repurchase of common stock, including shares surrendered for tax withholdings on equity award exercises	(11,462		)	(1,393		)
Dividend to stockholders	(35,000		)	(60,000		)
Other financing, net	(3,440		)	1,923
Net cash used for financing activities	(112,478		)	(49,050		)
Effect of exchange rate changes on cash and cash equivalents	6,157			(325		)
Net increase in cash and cash equivalents	61,954			40,969
Beginning cash and cash equivalents	375,563			318,571
Ending cash and cash equivalents	$	437,517		$	359,540

Noncash Investing Activity:
Property, plant and equipment acquired and not yet paid at end of period	$	8,191		$	22,911
Property, plant and equipment additions due to build-to-suit lease transactions	6,419			—

Supplemental disclosure of cash flow information:
Cash paid for interest during the period	$	28,795		$	33,536
Cash paid for income taxes during the period, net of refunds	26,134			21,703

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 28, 2017

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 27, 2016, included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 9, 2017.

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 28, 2017 may not be indicative of the results to be expected for any other interim period or the year ending November 26, 2017.

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 2017 and 2016 consists of 13 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.

Reclassification

Certain amounts in Note 13 "Business Segment Information" have been conformed to the May 28, 2017 presentation. Effective as of the beginning of 2017, certain of our global expenses that support all of our regional segments, including global e-commerce infrastructure and global brand merchandising, marketing and design, previously recorded centrally in our Americas region segment and Corporate expenses, have now been allocated to our three regional business segments, and reported in their operating results. Business segment information for the prior-year period has been revised to reflect this change in presentation.

Certain insignificant amounts on the Statements of Cash Flows have been conformed to the May 28, 2017 presentation.

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 28, 2017

Changes in Accounting Principle

•

In March 2016, the FASB issued Accounting Standards Update ("ASU") 2016-09, Compensation – Stock Compensation (Topic 718). ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The Company elected to early adopt all provisions of this new accounting standard in the first quarter of 2017 and will maintain the current forfeiture policy to estimate forfeitures expected to occur to determine stock-based compensation expense. The adoption of this standard resulted in a $5.6 million income tax benefit.

•

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 designates the appropriate cash flow classification for debt prepayment or extinguishment costs, the maturing of a zero coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. In certain circumstances, transactions may require bifurcation to appropriately allocate components among operating, investing and financing activities. The Company adopted this standard in the second quarter of 2017.

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 Company’s 2016 Annual Report on Form 10-K, except for the following, which have been grouped by their effective dates for the Company:

First Quarter of 2019

•

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715) Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 changes the income statement presentation of defined benefit plan expense by requiring separation between operating expense (service cost component) and non-operating expense (all other components, including interest cost, amortization of prior service cost, curtailments and settlements, etc.). The operating expense component is reported with similar compensation costs while the non-operating components are reported in Other Income and Expense. In addition, only the service cost component is eligible for capitalization as part of an asset such as inventory or property, plant and equipment. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.

•

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting. ASU 2017-09 provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.

•

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendment in this update defers the effective date of ASU 2014-09 for all entities by one year. Additional ASUs have been issued that are part of the overall new revenue guidance including: ASU 2016-08: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10: Identifying Performance Obligations and Licensing and ASU 2016-12: Narrow Scope Improvements and Practical Expedients. The Company is currently assessing the impact that adopting these new revenue accounting standards will have on its consolidated financial statements.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 28, 2017

First Quarter of 2020

•

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which requires the identification of arrangements that should be accounted for as leases by lessees. In general, for operating or financing lease arrangements exceeding a twelve month term, a right-of-use asset and a lease obligation will be recognized on the balance sheet of the lessee while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.

First Quarter of 2021

•

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. The annual assessment of goodwill impairment will be determined by using the difference between the carrying amount and the fair value of the reporting unit. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 28, 2017

NOTE 2: FAIR VALUE OF FINANCIAL INSTRUMENTS

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



	May 28, 2017						November 27, 2016
			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	$	29,348	$	29,348	$	—	$	27,131	$	27,131	$	—
Forward foreign exchange contracts, net⁽³⁾	7,586		—		7,586		23,267		—		23,267
Total	$	36,934	$	29,348	$	7,586	$	50,398	$	27,131	$	23,267
Financial liabilities carried at fair value
Forward foreign exchange contracts, net⁽³⁾	$	19,062	$	—	$	19,062	$	5,533	$	—	$	5,533

_____________


(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 28, 2017				November 27, 2016
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	(Dollars in thousands)
Financial liabilities carried at adjusted historical cost
6.875% senior notes due 2022⁽¹⁾⁽²⁾	$	—	$	—	$	527,102	$	550,700
5.00% senior notes due 2025⁽¹⁾	484,704		504,015		483,735		480,121
3.375% senior notes due 2027⁽¹⁾⁽²⁾	528,896		538,075		—		—
Short-term borrowings	31,777		31,777		39,009		39,009
Total	$	1,045,377	$	1,073,867	$	1,049,846	$	1,069,830

_____________


(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.


(2)	On February 28, 2017, the Company issued €475 million in aggregate principal amount of 3.375% senior notes due 2027. On March 3, 2017, the Company completed a cash tender offer for $370.3 million of the 6.875% senior notes due 2022 and the remaining $154.7 million was called on March 31, 2017 for redemption on May 1, 2017. See Note 4 for additional information.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 28, 2017

NOTE 3: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

As of May 28, 2017, the Company had forward foreign exchange contracts to buy $782.3 million and to sell $303.2 million against various foreign currencies. These contracts are at various exchange rates and expire at various dates through February 2019.

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



	May 28, 2017								November 27, 2016
	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⁾	$	10,994	$	(3,408	)	$	7,586		$	30,160	$	(6,893	)	$	23,267
Forward foreign exchange contracts⁽²⁾	6,032		(25,094		)	(19,062		)	1,481		(7,014		)	(5,533		)
Total	$	17,026	$	(28,502	)				$	31,641	$	(13,907	)
Non-derivatives designated as hedging instruments
Euro senior notes	$	—	$	(532,475	)				$	—	$	—

_____________


(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 and are offset accordingly. 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 28, 2017									November 27, 2016
	Gross Amounts of Recognized Assets / (Liabilities)			Gross Amounts Offset in the Balance Sheet			Net Amounts of Assets / (Liabilities) Presented in the Balance Sheet			Gross Amounts of Recognized Assets / (Liabilities)			Gross Amounts Offset in the Balance Sheet			Net Amounts of Assets / (Liabilities) Presented in the Balance Sheet
	Gross Amounts of Recognized Assets / (Liabilities)			Gross Amounts Offset in the Balance Sheet						Gross Amounts of Recognized Assets / (Liabilities)			Gross Amounts Offset in the Balance Sheet
	(Dollars in thousands)
Over-the-counter forward foreign exchange contracts
Financial assets	$	11,689		$	(9,440	)	$	2,249		$	29,240		$	(8,374	)	$	20,866
Financial liabilities	(25,362		)	9,440			(15,922		)	(10,365		)	8,374			(1,991		)
Total							$	(13,673	)							$	18,875
Embedded derivative contracts
Financial assets	$	5,337		$	—		$	5,337		$	2,401		$	—		$	2,401
Financial liabilities	(3,140		)	—			(3,140		)	(3,542		)	—			(3,542		)
Total							$	2,197								$	(1,141	)

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 28, 2017

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 28, 2017			November 27, 2016			May 28, 2017		May 29, 2016			May 28, 2017		May 29, 2016
	(Dollars in thousands)
Forward foreign exchange contracts	$	4,637		$	4,637
Yen-denominated Eurobonds	(19,811		)	(19,811		)	$	—	$	(792	)	$	—	$	(2,895	)
Euro-denominated senior notes	(45,391		)	(15,751		)	—		—			—		—
Cumulative income taxes	23,587			12,168
Total	$	(36,978	)	$	(18,757	)

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:



	Three Months Ended						Six Months Ended
	May 28, 2017			May 29, 2016			May 28, 2017			May 29, 2016
	(Dollars in thousands)
Forward foreign exchange contracts:
Realized (loss) gain	$	(4,998	)	$	3,920		$	4,078		$	16,887
Unrealized loss	(10,132		)	(5,038		)	(29,452		)	(14,269		)
Total	$	(15,130	)	$	(1,118	)	$	(25,374	)	$	2,618

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 28, 2017

NOTE 4: DEBT

The following table presents the Company's debt:



	May 28, 2017		November 27, 2016
	(Dollars in thousands)
Long-term debt
6.875% senior notes due 2022	$	—	$	524,396
5.00% senior notes due 2025	482,760		481,860
3.375% senior notes due 2027	524,525		—
Total long-term debt	$	1,007,285	$	1,006,256
Short-term debt
Short-term borrowings	$	31,582	$	38,922
Total debt	$	1,038,867	$	1,045,178

Issuance of Senior Notes due 2027 and Tender and Redemption of Senior Notes due 2022

Principal, interest, and maturity. On February 28, 2017, the Company issued €475 million in aggregate principal amount of 3.375% senior notes due 2027 (the "Senior Notes due 2027") to qualified institutional buyers and to purchasers outside the United States, which were later exchanged for new notes in the same principal amount with substantially identical terms, except that the new notes were registered under 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 2027 will mature on March 15, 2027.

Interest on the notes is payable semi-annually in arrears on March 15 and September 15, commencing on September 15, 2017. The Company may redeem some or all of the Senior Notes due 2027 prior to March 15, 2022, 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 March 15, 2020, the Company may redeem up to a maximum of 40% of the aggregate principal amount of the Senior Notes due 2027 with the proceeds of certain equity offerings at a redemption price of 103.375% of the principal amount plus accrued and unpaid interest, if any, to the date of redemption. Costs of approximately $8.0 million associated with the issuance of the notes, representing underwriting fees and other expenses, were capitalized and will be amortized to interest expense over the term of the notes.

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, pay dividends or make other 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 sell, assign, transfer, lease convey or otherwise dispose of all or substantially all of the Company’s assets or the assets or its subsidiaries. The indenture provides for customary events of default (subject in certain cases to customary grace and cure periods), which include payment failures, failure to comply with covenants, failure to satisfy other obligations under the agreement or related documents, defaults in respect of other indebtedness, bankruptcy, insolvency and ability to pay debts when due, material judgments, pension plan terminations or specified underfunding, and substantial stock ownership changes. Generally, if an event of default occurs, the trustee under the indenture or holders of the Senior Notes due 2027 may declare all the Senior Notes due 2027 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 March 3, 2017, the Company completed a cash tender offer for $370.3 million of the 6.875% Senior Notes due 2022 and the remaining $154.7 million was called on March 31, 2017 for redemption on May 1, 2017.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 28, 2017

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 2027, as well as cash on hand. The Company recorded a $22.8 million loss on early extinguishment of debt. The loss includes $21.9 million of tender and call premiums on the retired debt.

Senior Revolving Credit Facility

On May 23, 2017, the Company further amended its senior secured revolving credit facility to extend the term through May 2022. The terms of the amended and restated credit facility are similar to the terms under the previous version of the credit facility. The interest rate for borrowings under the credit facility was reduced from LIBOR plus 125 – 200 basis points to LIBOR plus 125 – 175 basis points, depending on borrowing base availability and the rate for undrawn availability was reduced from 25 – 30 basis points to 20 basis points. All other terms of the original credit agreement, including, without limitation, guarantees and security, covenants, events of default, have not been materially changed as a result of the amended and restated credit agreement and remain in full force and effect. Costs of approximately $2.4 million associated with the amendment of the revolving credit facility, representing underwriting fees and other expenses, were capitalized and will be amortized to interest expense over the term of the facility.

The Company's unused availability under its senior secured revolving credit facility was $714.3 million at May 28, 2017, as the Company's total availability of $761.5 million was reduced by $47.2 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 28, 2017 was 5.66% and 6.17% respectively, as compared to 6.41% and 6.33%, respectively, in the same periods of 2016.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 28, 2017

NOTE 5: EMPLOYEE BENEFIT PLANS

The following tables summarize 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 28, 2017			May 29, 2016			May 28, 2017			May 29, 2016
	(Dollars in thousands)
Net periodic benefit cost:
Service cost	$	2,479		$	2,072		$	43		$	50
Interest cost	9,188			9,490			787			806
Expected return on plan assets	(12,122		)	(12,162		)	—			—
Amortization of prior service benefit	(15		)	(16		)	—			—
Amortization of actuarial loss	3,379			3,028			317			741
Curtailment loss	67			—			—			—
Net settlement loss	94			—			—			—
Net periodic benefit cost	3,070			2,412			1,147			1,597
Changes in accumulated other comprehensive loss:
Actuarial loss	6			18			—			—
Amortization of prior service benefit	15			16			—			—
Amortization of actuarial loss	(3,379		)	(3,028		)	(317		)	(741		)
Net settlement loss	(94		)	—			—			—
Total recognized in accumulated other comprehensive loss	(3,452		)	(2,994		)	(317		)	(741		)
Total recognized in net periodic benefit cost and accumulated other comprehensive loss	$	(382	)	$	(582	)	$	830		$	856

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 28, 2017



	Pension Benefits						Postretirement Benefits
	Six Months Ended						Six Months Ended
	May 28, 2017			May 29, 2016			May 28, 2017			May 29, 2016
	(Dollars in thousands)
Net periodic benefit cost:
Service cost	$	4,942		$	4,130		$	86		$	100
Interest cost	18,368			18,962			1,574			1,612
Expected return on plan assets	(24,237		)	(24,296		)	—			—
Amortization of prior service benefit	(30		)	(31		)	—			—
Amortization of actuarial loss	6,758			6,035			635			1,483
Curtailment loss	67			—			—			—
Net settlement loss	94			—			—			—
Net periodic benefit cost	5,962			4,800			2,295			3,195
Changes in accumulated other comprehensive loss:
Actuarial (gain) loss	(3		)	170			—			—
Amortization of prior service benefit	30			31			—			—
Amortization of actuarial loss	(6,758		)	(6,035		)	(635		)	(1,483		)
Net settlement loss	(94		)	—			—			—
Total recognized in accumulated other comprehensive loss	(6,825		)	(5,834		)	(635		)	(1,483		)
Total recognized in net periodic benefit cost and accumulated other comprehensive loss	$	(863	)	$	(1,034	)	$	1,660		$	1,712

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 28, 2017

NOTE 6: RESTRUCTURING

In 2016, the Company completed a global productivity initiative designed to streamline operations and fuel long-term profitable growth. The Company does not anticipate any significant additional costs associated with the global productivity initiative.

For the three and six months ended May 29, 2016, the Company recognized net restructuring reversals of $0.2 million and charges of $1.7 million, respectively, and related charges of $3.0 million and $4.5 million, respectively. The net restructuring charges were recorded in "Restructuring, net" in the Company's consolidated statements of income. The related charges, which consist primarily of consulting fees for the Company's centrally-led cost-savings, productivity projects and transition-related projects, represented costs incurred associated with ongoing operations and thus were recorded in "Selling, general and administrative expenses" in the Company's consolidated statements of income.

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. 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.

NOTE 8: DIVIDEND

In the first quarter of 2017, the Company's Board of Directors declared a cash dividend of $70 million, payable in two $35 million installments. The Company paid the first installment in the first quarter of 2017. The second installment of $35 million is expected to be paid in the fourth quarter of 2017 based on the holders of record on October 6, 2017, and was recorded in "Other accrued liabilities" in the Company's consolidated balance sheets.

The Company does not have an established dividend policy. The Company will continue to review its ability to pay cash dividends at least annually, and dividends may be declared at the discretion of the Company's Board of Directors depending upon, among other factors, the Company's financial condition and compliance with the terms of the Company's debt agreements.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 28, 2017

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 28, 2017			November 27, 2016
	(Dollars in thousands)
Pension and postretirement benefits	$	(247,310	)	$	(252,027	)
Net investment hedge losses	(36,978		)	(18,757		)
Foreign currency translation losses	(122,259		)	(149,065		)
Unrealized gains on marketable securities	3,121			1,968
Accumulated other comprehensive loss	(403,426		)	(417,881		)
Accumulated other comprehensive income attributable to noncontrolling interest	9,260			9,433
Accumulated other comprehensive loss attributable to Levi Strauss & Co.	$	(412,686	)	$	(427,314	)

No material 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 Company's 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 28, 2017			May 29, 2016			May 28, 2017			May 29, 2016
	(Dollars in thousands)
Foreign exchange management (losses) gains⁽¹⁾	$	(15,130	)	$	(1,118	)	$	(25,374	)	$	2,618
Foreign currency transaction (losses) gains⁽²⁾	(3,623		)	4,398			6,053			(3,806		)
Interest income	694			281			1,311			490
Investment (expense) income	(11		)	—			342			708
Other, net	(17		)	734			(11		)	2,066
Total other income (expense), net	$	(18,087	)	$	4,295		$	(17,679	)	$	2,076

_____________


(1)	Gains and losses on forward foreign exchange contracts primarily result from currency fluctuations relative to negotiated contract rates. Losses in the three-month and six-month periods ended May 28, 2017 were primarily due to unfavorable currency fluctuations relative to negotiated contract rates on positions to sell the Mexican Peso and the Euro.


(2)	Foreign currency transaction gains and losses reflect the impact of foreign currency fluctuation on the Company's foreign currency denominated balances. Gains in the six-month period ended May 28, 2017 were primarily due to the strengthening of the Mexican Peso and Euro against the US dollar.

NOTE 11: INCOME TAXES

The effective income tax rate was 16.0% for the six months ended May 28, 2017, compared to 31.1% for the same period ended May 29, 2016. The decrease in the effective tax rate in 2017 as compared to 2016 was primarily due to a 9.5% discrete tax benefit related to the release of a valuation allowance on deferred tax assets of a foreign subsidiary, and a 6.0% discrete tax benefit recognized in the quarter attributable to excess tax benefits on equity compensation.

NOTE 12: RELATED PARTIES

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,

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED MAY 28, 2017

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-month and six-month periods ended May 28, 2017, the Company donated $0.4 million and $6.7 million to the Levi Strauss Foundation as compared to $0.3 million and $0.6 million for the same prior-year periods.

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 2017, certain of the Company's global expenses that support all regional segments, including global e-commerce infrastructure and global brand merchandising, marketing and design, previously recorded centrally in the Americas region segment and Corporate expenses, have now been allocated to the three regional business segments, and reported in operating results. Business segment information for the prior-year period has been revised to reflect the change in presentation.

Business segment information for the Company is as follows:



	Three Months Ended						Six Months Ended
	May 28, 2017			May 29, 2016			May 28, 2017			May 29, 2016
	(Dollars in thousands)
Net revenues:
Americas	$	602,063		$	589,311		$	1,179,970		$	1,160,496
Europe	280,386			240,626			590,703			517,112
Asia	185,406			181,650			399,173			390,479
Total net revenues	$	1,067,855		$	1,011,587		$	2,169,846		$	2,068,087
Operating income:
Americas	$	101,879		$	96,832		$	192,221		$	184,863
Europe⁽¹⁾	34,703			26,505			99,242			77,444
Asia	9,468			9,542			45,409			50,435
Regional operating income	146,050			132,879			336,872			312,742
Corporate:
Restructuring, net	—			(191		)	—			1,657
Restructuring-related charges	—			3,034			—			4,531
Other corporate staff costs and expenses	83,399			71,998			165,881			131,929
Corporate expenses	83,399			74,841			165,881			138,117
Total operating income	62,651			58,038			170,991			174,625
Interest expense	(17,895		)	(20,411		)	(37,829		)	(35,313		)
Loss on early extinguishment of debt	(22,793		)	—			(22,793		)	—
Other (expense) income, net	(18,087		)	4,295			(17,679		)	2,076
Income before income taxes	$	3,876		$	41,922		$	92,690		$	141,388

_____________


(1)	Included in Europe's operating income for the three and six month periods ended May 29, 2016 is a gain of $6.1 million related to the sale-leaseback of the Company's distribution center in the United Kingdom in the second quarter of 2016.

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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 2,200 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 723 company-operated retail stores located in 31 countries, including the United States, and through the ecommerce sites we operate. Our company-operated retail stores and ecommerce sites generated approximately 32% of our net revenues in the first six months of 2017, as compared to 29% in the same period in 2016, with our ecommerce sites representing approximately 15% of this revenue in 2017, as compared to 14% in the same period in 2016. 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 46% of our net revenues and 43% of our regional operating income in the first six months of 2017, as compared to 44% of our net revenues and 41% of our regional operating income in the same period in 2016. Sales of Levi’s^® brand products represented approximately 87% and 86% of our total net sales in the first six-month periods of 2017 and 2016, respectively. Effective as of the beginning of 2017, we revised our approach to measuring the performance of our business by allocating certain of our global expenses to our three regional business segments. Comparative period regional operating income amounts were revised to reflect this change. Refer to "Financial Information Presentation" section below for additional details.

Trends Affecting Our Business

We believe the key business and marketplace factors that are impacting our business include the following:

•

Factors that impact consumer discretionary spending, which remains mixed globally, have created a challenging retail environment for us and our customers, characterized by declining traffic patterns and contributing to a generally promotional environment. In developed economies, slow real wage growth and a shift in consumer spending to interest-rate sensitive durable goods and other non-apparel categories also continue to pressure global discretionary spending. Consumers continue to focus on value pricing, with the off-price retail channel remaining strong, partially to the detriment of traditional broadline retailers, particularly at the mid-tier.


•	More competitors are seeking growth globally, thereby raising the competitiveness across regions. Some of these competitors are entering into markets where we already have a mature business such as the United States, Mexico, Western Europe and Japan, and those new brands may provide consumers discretionary purchase alternatives or lower-priced apparel offerings.

•

Wholesaler/retailer dynamics and wholesale channels remain challenged by slowed growth prospects due to increased competition from ecommerce shopping, pricing transparency enabled by proliferation of online technologies, vertically-integrated specialty stores, and fast-fashion retail. Retailers, including our top customers, may decide to consolidate, undergo restructurings or rationalize their stores which could result in reduction in the number of stores that carry our products. Additionally, many of our customers desire increased returns on their investment with us through increased margins and inventory turns, and they continue to build competitive exclusive or private-label offerings. Many apparel wholesalers, including us, seek to strengthen relationships with customers as a result of these changes in the marketplace through efforts such as investment in new products, marketing programs, fixtures and collaborative planning systems.


•	Many apparel companies that have traditionally relied on wholesale distribution channels have invested in expanding their own retail store and ecommerce distribution and consumer-facing technologies, which has increased competition in the retail market.

•

Competition for, and price volatility of, resources throughout the supply chain have increased, causing us and other apparel manufacturers to continue to seek alternative sourcing channels and create new efficiencies in our global supply chain. Trends affecting the supply chain include the proliferation of lower-cost sourcing alternatives, resulting in reduced barriers to entry for new competitors, and the impact of fluctuating prices of labor and raw materials. Trends such as

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these can bring additional pressure on us and other wholesalers and retailers to shorten lead-times, reduce costs and raise product prices.


•	Foreign currencies continue to be volatile. Significant fluctuations of the U.S. Dollar against various foreign currencies, including the Mexican Peso, British Pound and Euro, will impact our financial results, affecting translation, and revenue and operating margins.


•	The current sociopolitical environment has introduced greater uncertainty with respect to future potential tax and trade regulations. Such changes, including import tariffs or taxes, may require us to modify our current business practices and could have material adverse effect on our business and results of operations.

These factors contribute to a global market environment of intense competition, constant product innovation and continuing cost pressure, and combine with the continuing global economic conditions to create a challenging commercial and economic environment. We evaluate these factors as we develop and execute our strategies. For more information on the risk factors affecting our business, see our 2016 Annual Report on Form 10-K, Item 1A "Risk Factors".

Our Second Quarter 2017 Results


•	Net revenues. Compared to the second quarter of 2016, consolidated net revenues increased 6% on a reported basis and increased 7% on a constant-currency basis driven by expansion and improved performance of our retail network in all three regions.


•	Gross margin. Compared to the second quarter of 2016, consolidated gross margin increased 1.2% primarily due to our international retail growth.


•	Operating income. Compared to the second quarter of 2016, consolidated operating income increased by 8% and operating margin improved to 6%, primarily reflecting higher constant-currency revenues and offset by higher selling, general and administrative expenses ("SG&A") associated with the expansion of our company-operated retail network.


•	Cash flows. Cash flows provided by operating activities were $217 million for the six-month period in 2017 as compared to $103 million for the same period in 2016; the increase reflects higher cash received from customers and a decrease in cash used for inventory, reflecting our lower inventory levels.

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 2017 and 2016 consists of 13 weeks.

Segments. We manage our business according to three regional segments: the Americas, Europe and Asia. Effective as of the beginning of 2017, certain of our global expenses that support all of our regional segments, including global e-commerce infrastructure and global brand merchandising, marketing and design, previously recorded centrally in our Americas region segment and Corporate expenses, have now been allocated to our three regional business segments, and reported in their operating results. Business segment information for the prior-year period has been revised to reflect the change in presentation.

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 ecommerce sites and stores and at our company-operated shop-in-shops located within department stores. It includes discounts, allowances for estimated returns and incentives.


•	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 e-commerce operations.


•	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.

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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 28, 2017, as Compared to Same Periods in 2016

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 28, 2017			May 29, 2016			% Increase (Decrease)		May 28, 2017		May 29, 2016		May 28, 2017			May 29, 2016			% Increase (Decrease)		May 28, 2017		May 29, 2016
	May 28, 2017			May 29, 2016			% Increase (Decrease)		% of Net Revenues		% of Net Revenues		May 28, 2017			May 29, 2016			% Increase (Decrease)		% of Net Revenues		% of Net Revenues
	(Dollars in millions)
Net revenues	$	1,067.9		$	1,011.6		5.6	%	100.0	%	100.0	%	$	2,169.9		$	2,068.1		4.9	%	100.0	%	100.0	%
Cost of goods sold	509.5			494.4			3.0	%	47.7	%	48.9	%	1,047.0			991.3			5.6	%	48.2	%	47.9	%
Gross profit	558.4			517.2			8.0	%	52.3	%	51.1	%	1,122.9			1,076.8			4.3	%	51.8	%	52.1	%
Selling, general and administrative expenses	495.7			459.4			7.9	%	46.4	%	45.4	%	952.0			900.5			5.7	%	43.9	%	43.5	%
Restructuring, net	—			(0.2		)	100.0	%	—		—		—			1.7			(100.0	)%	—		0.1	%
Operating income	62.7			58.0			7.9	%	5.9	%	5.7	%	170.9			174.6			(2.1	)%	7.9	%	8.4	%
Interest expense	(17.9		)	(20.4		)	(12.3	)%	(1.7	)%	(2.0	)%	(37.8		)	(35.3		)	7.1	%	(1.7	)%	(1.7	)%
Loss on early extinguishment of debt	(22.8		)	—			100.0	%	(2.1	)%	—		(22.8		)	—			100.0	%	(1.1	)%	—
Other (expense) income, net	(18.1		)	4.3			(521.1	)%	(1.7	)%	0.4	%	(17.7		)	2.1			(951.5	)%	(0.8	)%	0.1	%
Income before income taxes	3.9			41.9			(90.8	)%	0.4	%	4.1	%	92.6			141.4			(34.4	)%	4.3	%	6.8	%
Income tax (benefit) expense	(13.8		)	10.9			(227.5	)%	(1.3	)%	1.1	%	14.8			44.0			(66.3	)%	0.7	%	2.1	%
Net income	17.7			31.0			(42.9	)%	1.7	%	3.1	%	77.8			97.4			(20.0	)%	3.6	%	4.7	%
Net income attributable to noncontrolling interest	(0.2		)	(0.3		)	(37.9	)%	—		—		(0.2		)	(0.8		)	(76.5	)%	—		—
Net income attributable to Levi Strauss & Co.	$	17.5		$	30.7		(43.0	)%	1.6	%	3.0	%	$	77.6		$	96.6		(19.6	)%	3.6	%	4.7	%

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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 28, 2017		May 29, 2016		As Reported		Constant Currency		May 28, 2017		May 29, 2016		As Reported		Constant Currency
	(Dollars in millions)
Net revenues:
Americas	$	602.1	$	589.3	2.2	%	2.7	%	$	1,180.1	$	1,160.5	1.7	%	2.4	%
Europe	280.4		240.6		16.5	%	19.9	%	590.7		517.1		14.2	%	17.0	%
Asia	185.4		181.7		2.1	%	2.8	%	399.1		390.5		2.2	%	2.6	%
Total net revenues	$	1,067.9	$	1,011.6	5.6	%	6.7	%	$	2,169.9	$	2,068.1	4.9	%	6.0	%

Total net revenues increased on both a reported and constant-currency basis for the three-month and six-month periods ended May 28, 2017, as compared to the same prior-year periods.

Americas. On both a reported basis and constant-currency basis, net revenues in our Americas region increased for the three-month and six-month periods ended May 28, 2017, with currency affecting net revenues unfavorably by approximately $3 million and $8 million, respectively.

Excluding the effects of currency, the increase in net revenues for the three-month and six-month periods ended May 28, 2017 was due to the performance and expansion of our company-operated retail network, including ecommerce in the region. This was mostly offset by lower wholesale revenues in the United States in our Dockers^® brand.

Europe. Net revenues in Europe increased both on a reported basis and constant-currency basis for the three-month and six-month periods ended May 28, 2017, with currency affecting net revenues unfavorably by approximately $7 million and $12 million, respectively.

Constant-currency net revenues increased as a result of the expansion and strong performance of our company-operated retail network, including e-commerce, as well as solid wholesale performance. For the six- month period, net revenues also increased due to strong performance in our franchised stores.

Asia. Net revenues in Asia increased on both a reported and constant-currency basis for the three-month and six-month periods ended May 28, 2017 with currency affecting net revenues unfavorably by approximately $1 million for both periods.

The increase in net revenues for the three-month and six-month periods ended May 28, 2017 was primarily due to the performance and expansion of our company-operated retail network, particularly company-operated outlet and ecommerce channels, partially offset by a decline in franchised stores and wholesale performance.

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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 28, 2017			May 29, 2016			% Increase (Decrease)		May 28, 2017			May 29, 2016			% Increase (Decrease)
	(Dollars in millions)
Net revenues	$	1,067.9		$	1,011.6		5.6	%	$	2,169.9		$	2,068.1		4.9	%
Cost of goods sold	509.5			494.4			3.0	%	1,047.0			991.3			5.6	%
Gross profit	$	558.4		$	517.2		8.0	%	$	1,122.9		$	1,076.8		4.3	%
Gross margin	52.3		%	51.1		%			51.8		%	52.1		%

Currency translation unfavorably impacted gross profit by approximately $6 million and $11 million for the three-month and six-month periods ended May 28, 2017, respectively. For the three-month period ended May 28, 2017, gross margin increased primarily due to revenue growth in our company-operated retail network, mainly in Europe. In the six-month period, retail growth was more than offset, mostly by unfavorable transactional currency impacts, primarily in Europe.

Selling, general and administrative expenses

The following table shows 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 28, 2017		May 29, 2016		% Increase (Decrease)		May 28, 2017		May 29, 2016		May 28, 2017		May 29, 2016		% Increase (Decrease)		May 28, 2017		May 29, 2016
	May 28, 2017		May 29, 2016		% Increase (Decrease)		% of Net Revenues		% of Net Revenues		May 28, 2017		May 29, 2016		% Increase (Decrease)		% of Net Revenues		% of Net Revenues
	(Dollars in millions)
Selling	$	208.3	$	189.9	9.7	%	19.5	%	18.8	%	$	418.4	$	380.9	9.8	%	19.3	%	18.4	%
Advertising and promotion	76.4		70.5		8.4	%	7.2	%	7.0	%	129.1		128.0		0.9	%	5.9	%	6.2	%
Administration	97.4		91.3		6.7	%	9.1	%	9.0	%	182.0		175.4		3.7	%	8.4	%	8.5	%
Other	113.6		104.7		8.6	%	10.6	%	10.3	%	222.5		211.7		5.1	%	10.3	%	10.2	%
Restructuring-related charges	—		3.0		(100.0	)%	—		0.3	%	—		4.5		(100.0	)%	—		0.2	%
Total SG&A	$	495.7	$	459.4	7.9	%	46.4	%	45.4	%	$	952.0	$	900.5	5.7	%	43.9	%	43.5	%

Currency impacted SG&A favorably by approximately $5 million and $8 million for the three-month and six-month periods ended May 28, 2017, respectively.

Selling. Currency impacted selling expenses favorably by approximately $3 million and $5 million for the three-month and six-month periods ended May 28, 2017, respectively. Higher selling expenses primarily reflected costs associated with the expansion of our company-operated retail network. We had 61 more company-operated stores at the end of the second quarter of 2017 than we did at the end of the second quarter of 2016.

Advertising and promotion. Currency did not have a significant impact on advertising and promotion expenses for the three-month period ended May 28, 2017 and had a favorable impact of approximately $2 million for the six-month period ended May 28, 2017. The increase in advertising and promotion expenses reflects increased investment in strengthening our brands through advertising as well as the timing of our campaigns.

Administration. Administration expenses include functional administrative and organization costs. Currency impacted administration expenses favorably by approximately $1 million for the three-month period ended May 28, 2017 and did not have a significant impact for the six-month period ended May 28, 2017.

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Other. Other SG&A includes distribution, information resources and marketing organization costs. Currency did not have a significant impact on other SG&A expenses for the three-month and six-month periods ended May 28, 2017. The increase in SG&A other costs for both periods is primarily due a gain recorded in the second quarter of 2016 in conjunction with the sale-leaseback of our distribution center in the United Kingdom. Additionally, higher SG&A costs reflect increased marketing and information technology expenses in the current year periods.

Restructuring-related charges. Restructuring-related charges consisted primarily of consulting fees incurred for our centrally-led cost-savings, productivity projects and transition-related projects, which were implemented through the end of 2016.

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 28, 2017			May 29, 2016			% Increase (Decrease)		May 28, 2017			May 29, 2016			May 28, 2017			May 29, 2016			% Increase (Decrease)		May 28, 2017			May 29, 2016
	May 28, 2017			May 29, 2016			% Increase (Decrease)		% of Net Revenues			% of Net Revenues			May 28, 2017			May 29, 2016			% Increase (Decrease)		% of Net Revenues			% of Net Revenues
	(Dollars in millions)
Operating income:
Americas	$	101.9		$	96.9		5.2	%	16.9	%		16.4	%		$	192.2		$	184.9		4.0	%	16.3	%		15.9	%
Europe	34.7			26.5			30.9	%	12.4	%		11.0	%		99.2			77.4			28.1	%	16.8	%		15.0	%
Asia	9.5			9.5			—		5.1	%		5.3	%		45.4			50.4			(10.0	)%	11.4	%		12.9	%
Total regional operating income	146.1			132.9			9.9	%	13.7	%	*	13.1	%	*	336.8			312.7			7.7	%	15.5	%	*	15.1	%	*
Corporate:
Restructuring, net	—			(0.2		)	100.0	%	—		*	—		*	—			1.7			(100.0	)%	—		*	0.1	%	*
Restructuring-related charges	—			3.0			(100.0	)%	—		*	0.3	%	*	—			4.5			(100.0	)%	—		*	0.2	%	*
Other corporate staff costs and expenses	83.4			72.0			15.8	%	7.8	%	*	7.1	%	*	165.9			131.9			25.7	%	7.6	%	*	6.4	%	*
Corporate expenses	83.4			74.8			11.4	%	7.8	%	*	7.3	%	*	165.9			138.1			20.1	%	7.6	%	*	6.7	%	*
Total operating income	$	62.7		$	58.1		7.9	%	5.9	%	*	5.7	%	*	$	170.9		$	174.6		(2.1	)%	7.9	%	*	8.4	%	*
Operating margin	5.9		%	5.7		%									7.9		%	8.4		%

______________

* Percentage of consolidated net revenues

Currency translation unfavorably affected total operating income by approximately $1 million and $3 million for the three-month and six-month periods ended May 28, 2017, respectively.

Regional operating income.


•	Americas. Currency translation unfavorably affected operating income in the region by approximately $1 million and $2 million for the three-month and six-month periods ended May 28, 2017, respectively. The increase in operating income is primarily due to higher net revenues partially offset by higher SG&A expense due to retail expansion.

•

Europe. Currency translation had no significant impact on operating income for the three-month and six-month periods ended May 28, 2017. The increase in operating income is due to higher net revenues and gross margin partially offset by higher SG&A expense to support retail expansion, increased investment in advertising and a gain recorded in the second quarter of 2016 in conjunction with the sale-leaseback of our distribution center in the United Kingdom.


•	Asia. Currency translation had no significant impact on operating income for the three-month and six-month periods ended May 28, 2017. The decrease in operating income for the six-month period ended May 28, 2017 is due to higher SG&A expense to support retail expansion, including ecommerce, partially offset by higher net revenues.

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Corporate. Corporate expenses represent costs that management does not attribute to any of our regional operating segments. Included in corporate expenses are restructuring and restructuring-related charges, other corporate staff costs, and costs associated with our global inventory sourcing organization. Currency translation did not have a significant impact on corporate expenses for the three-month and six-month periods ended May 28, 2017. The increase in corporate expenses for the three-month period ended May 28, 2017 is primarily due to higher functional administrative costs. The increase in corporate expenses for the six-month period ended May 28, 2017 is primarily due to purchasing variances related to our global sourcing organization's procurement of inventory on behalf of our regions and higher functional administrative costs.

Interest expense

Interest expense was $17.9 million and $37.8 million for the three-month and six-month periods ended May 28, 2017, respectively, as compared to $20.4 million and $35.3 million for the same periods in 2016. The decrease in interest expense in the three-month period was primarily related to lower average borrowing rates in 2017 resulting from our debt refinancing activities during the year. The increase in the six-month period was primarily related to our deferred compensation plans.

Our weighted-average interest rate on average borrowings outstanding during the three and six months ended May 28, 2017 was 5.66% and 6.17%, as compared to 6.41% and 6.33% in the same periods in 2016.

Loss on early extinguishment of debt

During the three months ended May 28, 2017, we recorded a $22.8 million loss on early extinguishment of debt as a result of our debt refinancing activities during the period. The loss included $21.9 million of tender and call premiums on the retirement of the debt.

Other income (expense), net

Other income (expense), net, primarily consists of foreign exchange management activities and transactions. For the three-month and six-month periods ended May 28, 2017, we recorded expense of $18.1 million and $17.7 million, respectively, as compared to income of $4.3 million and $2.1 million for the same prior-year period. The expense in the three-month period in 2017 primarily reflected net losses on our foreign exchange derivatives. The expense in the six-month period in 2017 primarily reflected net losses on our foreign exchange derivatives, partially offset by net gains on our foreign currency denominated balances. The income in the three-month period in 2016 primarily reflected net gains on our foreign currency denominated balances. The income in the six-month period in 2016 primarily reflected gains on our foreign exchange contracts and other income.

Income tax expense

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.

We have entered into 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.

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As of May 28, 2017, we did not have any borrowings under the credit facility. Unused availability under the credit facility was $714.3 million, as our total availability of $761.5 million, based on collateral levels as defined by the agreement, was reduced by $47.2 million of other credit-related instruments.

As of May 28, 2017, we had cash and cash equivalents totaling approximately $437.5 million, resulting in a total liquidity position (unused availability and cash and cash equivalents) of approximately $1.2 billion.

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 2016 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 2017 from those disclosed in our 2016 Annual Report on Form 10-K, except that potential payments in 2017 under the terms of the EIP have been reduced and are now estimated in the range of approximately $30 million to $40 million.

Cash flows

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



	Six Months Ended
	May 28, 2017			May 29, 2016
	(Dollars in millions)
Cash provided by operating activities	$	217.1		$	103.3
Cash used for investing activities	(48.8		)	(13.0		)
Cash used for financing activities	(112.5		)	(49.1		)
Cash and cash equivalents	437.5			359.5

Cash flows from operating activities

Cash provided by operating activities was $217.1 million for the six-month period in 2017, as compared to $103.3 million for the same period in 2016. The increase primarily reflects an increase in cash received from customers and a decrease in cash used for inventory purchases.

Cash flows from investing activities

Cash used for investing activities was $48.8 million for the six-month period in 2017, as compared to $13.0 million for the same period in 2016. The increase in cash used for investing activities primarily reflects the receipt of proceeds from the sale-leaseback of our distribution center in the United Kingdom in 2016, as well as decreased proceeds from the settlement of our forward foreign exchange contracts.

Cash flows from financing activities

Cash used for financing activities was $112.5 million for the six-month period in 2017, as compared to $49.1 million for the same period in 2016. Cash used in 2017 primarily reflects the payment of a $35.0 million cash dividend as well as our refinancing activities and debt reduction during the period, including debt extinguishment costs and debt issuance costs. Cash used in 2016 primarily reflects the payment of a $60.0 million cash dividend.

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 $1.04 billion as of May 28, 2017, we had fixed-rate debt of $1.02 billion (98.6% of total debt), net of capitalized debt issuance costs, and variable-rate debt of $14.3 million (1.4% of total debt). As of May 28, 2017, our required aggregate debt principal payments on our unsecured long-term debt were $1.02 billion in years after 2022. Short-term borrowings of $31.6 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 28, 2017.

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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 2016 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 2016 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.

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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, including debt reduction, currency values and financial impact, foreign exchange counterparty exposures, the benefits and timing of our global productivity initiative, the impact of pending legal proceedings, adequate liquidity levels, dividends 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 27, 2016, 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 and pricing trend fluctuations, and our ability to plan for and respond to the impact of those changes;

•

our ability to effectively implement and manage our global productivity and outsourcing actions as planned, which are 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, including significant store closures or a significant decline in a wholesale customer's financial condition leading to restructuring actions, bankruptcies, liquidations or other unfavorable events for our wholesale customers, caused by factors such as inability to secure financing, 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 digital 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;


•	our ability to successfully prevent or mitigate the impacts of data security breaches;


•	our ability to attract and retain key executives and other key employees;


•	our ability to protect our trademarks and other intellectual property;


•	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;

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•	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, including potential increases in import tariffs or taxes; and


•	political, social and economic instability, or natural disasters, in countries where we or 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.

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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 2016 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 28, 2017. Based on that evaluation, our chief executive officer and our chief financial officer concluded that as of May 28, 2017, 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. There were no changes to our internal control over financial reporting during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION



Item 1.	LEGAL PROCEEDINGS

Litigation.

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 2016 Annual Report on Form 10-K.



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

We are a privately-held corporation; there is no public trading of our common stock. As of July 5, 2017, we had 37,620,430 shares outstanding.



Item 3.	DEFAULTS UPON SENIOR SECURITIES

None.



Item 4.	MINE SAFETY DISCLOSURES

Not applicable.



Item 5.	OTHER INFORMATION

We have a business relationship with HP Inc. for the purchase of goods and services in the ordinary course of business. Our CEO, Charles Bergh, serves on the Board of HP Inc. We have determined that our business relationship with HP Inc. is not material to either company, and the Board has approved Mr. Bergh's service on the HP Inc. Board.

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Item 6.	EXHIBITS




4.1		Indenture, dated as of February 28, 2017, 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 March 3, 2017.

4.2		Registration Rights Agreement, dated as of February 28, 2017, by and between Levi Strauss & Co. and Merrill Lynch International. Incorporated by reference to Exhibit 4.2 to Registrant's Current Report on Form 8-K filed with the Commission on March 3, 2017.

10.3		Second Amended and Restated Credit Agreement, dated as of May 23, 2017, by and among Levi Strauss & Co., Levi Strauss & Co. (Canada) Inc., certain other subsidiaries of Levi Strauss & Co. party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Multicurrency Administrative Agent, and the other financial institutions, agents and arrangers party thereto. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Commission on May 26, 2017.

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.

Table of Contents

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 11, 2017		LEVI STRAUSS & Co.
			(Registrant)


		By:	/s/ HARMIT SINGH
			Harmit Singh Executive Vice President and Chief Financial Officer

Table of Contents

EXHIBIT INDEX




4.1		Indenture, dated as of February 28, 2017, 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 March 3, 2017.

4.2		Registration Rights Agreement, dated as of February 28, 2017, by and between Levi Strauss & Co. and Merrill Lynch International. Incorporated by reference to Exhibit 4.2 to Registrant's Current Report on Form 8-K filed with the Commission on March 3, 2017.

10.3		Second Amended and Restated Credit Agreement, dated as of May 23, 2017, by and among Levi Strauss & Co., Levi Strauss & Co. (Canada) Inc., certain other subsidiaries of Levi Strauss & Co. party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Multicurrency Administrative Agent, and the other financial institutions, agents and arrangers party thereto. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Commission on May 26, 2017.

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.

Levi Strauss & Co. - 10-Q quarterly report FY2017 Q2

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