LEVI STRAUSS & CO

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, dresses, jackets, activewear, footwear and related accessories for men, women and children around the world under the Levi’s®, Signature by Levi Strauss & Co.™, Denizen®, Dockers® and Beyond Yoga® brands.

Basis of Presentation and Principles of Consolidation

The interim consolidated financial statements of the Company and its wholly-owned and majority-owned foreign and domestic subsidiaries, including the notes, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim period financial statements and do not include all of the information and disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments necessary for a fair statement of the financial position and the results of operations for the periods presented have been included. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended November 26, 2023, included in the Company’s 2023 Annual Report on Form 10-K.

The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated. The results of operations for the three months ended February 25, 2024 may not be indicative of the results to be expected for any other interim period or the year ending December 1, 2024.

The Company’s fiscal year ends on the Sunday that is closest to November 30 of that year, although the fiscal years of certain foreign subsidiaries end on November 30. Each quarter of both fiscal years 2024 and 2023 consists of 13 weeks, with the exception of the fourth quarter of 2024, which will consist of 14 weeks. All references to years and quarters relate to fiscal years and quarters rather than calendar years and quarters.

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.

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may be impaired. Impairment losses are measured and recorded for the excess of carrying value over its fair value, estimated based on expected future cash flows and other quantitative and qualitative factors. Property, plant and equipment, net includes accumulated depreciation of $1.3 billion and $1.3 billion as of February 25, 2024 and November 26, 2023, respectively.

In the first quarter of 2023, the Company recorded $18.6 million in charges primarily related to the impairment of capitalized internal-use software as a result of the decision to discontinue certain technology projects in connection with the restructuring initiative that began in the fourth quarter of 2022.

Supplier Finance Program

The Company offers a supplier financing program which enables the Company’s suppliers, at their sole discretion, to sell their receivables (i.e., the Company’s payment obligations to suppliers) to a financial institution on a non-recourse basis in order to be paid earlier than current payment terms provide.

The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by the supplier’s participation in these arrangements. The Company’s payment terms to the financial institutions, including the timing and amount of payments, are based on the original supplier invoices. Our current payment terms with a majority of our suppliers are typically 90 days. The Company has not pledged any assets and does not provide guarantees under the supplier finance program. As such, the outstanding payment obligations under the Company’s supplier finance program are included within Accounts Payable in the Consolidated Balance Sheets.

The Company’s outstanding payment obligations under this program were $105.1 million as of February 25, 2024 and $113.4 million as of November 26, 2023.

Share Repurchases

During the three months ended February 25, 2024, the Company repurchased 1.5 million shares for $24.9 million, plus broker’s commissions, in the open market. This equates to an average repurchase price of approximately $17.15 per share. During the three months ended February 26, 2023, the Company repurchased 0.5 million shares for $8.1 million, plus broker's commissions, in the open market. This equates to an average repurchase price of approximately $17.97 per share.

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

Reclassification

Certain amounts on the consolidated balance sheets, consolidated statements of operations and statements of cash flows have been conformed to the February 25, 2024 presentation.

Recently Issued Accounting Standards

In September 2022, the Financial Accounting Standards Board issued Accounting Standards Update No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This new guidance is designed to enhance transparency around supplier finance programs by requiring new disclosures that would allow a user of the financial statements to understand the program’s nature, activity during the period, changes from period to period and potential magnitude. The guidance became effective for the Company in the first quarter of fiscal year 2024, with the exception of the rollforward information, which will be effective for annual periods beginning in fiscal year 2025 on a prospective basis. The Company adopted the guidance in the first quarter of 2024 and is evaluating the impact of adopting the guidance related to the rollforward information. See above for the Company’s disclosures relating to the Company’s supplier financing arrangements.

There have been no other 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 2023 Annual Report on Form 10-K.

NOTE 2: FAIR VALUE OF FINANCIAL INSTRUMENTS

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

(1)Fair values estimated using Level 1 inputs are inputs that consist of quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Rabbi trust assets consist of marketable equity 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 cash flow hedges are subject to International Swaps and Derivatives Association, Inc. master agreements. These agreements permit the net settlement of these contracts on a per-institution basis. Refer to Note 3 for more information.

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

(1)Fair values are estimated using Level 2 inputs and incorporate mid-market price quotes. Level 2 inputs are inputs other than quoted prices, that are observable for the liability, either directly or indirectly and include among other things, quoted prices for similar liabilities in markets that are active or inactive as well as inputs other than quoted prices that are observable.

NOTE 3: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

As of February 25, 2024, the Company had forward foreign exchange contracts derivatives to buy $663.6 million and to sell $506.7 million in various foreign currencies. These contracts are at various exchange rates and expire at various dates through February 2025.

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

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

(2)Included in "Other accrued liabilities" or "Long-term employee related benefits and other liabilities" on the Company’s consolidated balance sheets.

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

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

(1)Amounts reclassified from AOCL were classified as net revenues or costs of goods sold on the consolidated statements of operations.

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

There was no hedge ineffectiveness for the three months ended February 25, 2024. Within the next 12 months, a $5.9 million loss from cash flow hedges is expected to be reclassified from AOCL into net (loss) income.

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

The table below provides data about the amount of gains and losses related to derivatives instruments included in “Other expense, net” in the Company’s consolidated statements of operations:

(1)Realized gains related to derivatives instruments were classified as Other, net on the Company’s consolidated statements of cash flows.

NOTE 4: OTHER ACCRUED LIABILITIES

The following table presents the Company’s other accrued liabilities:

NOTE 5: DEBT

The following table presents the Company’s debt:

Senior Revolving Credit Facility

As of February 25, 2024, the Company hadno borrowings under the Credit Facility. The Company’s unused availability under the Credit Facility was $933.7 million at February 25, 2024, as the total availability of $950.9 million was reduced by $17.2 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 months ended February 25, 2024 was 3.91%, as compared to 3.86% during the same period of 2023.

NOTE 6: RESTRUCTURING ACTIVITIES

In the first quarter of 2024, our Board of Directors (the "Board") approved a multi-year global productivity initiative, “Project Fuel”, designed to optimize our operating model and fuel long-term profitable growth. The first phase of the global productivity initiative occurred in the first half of 2024. The two-year initiative is expected to continue through the end of 2025. As this initiative progresses, the Company may incur additional restructuring charges, which could be significant to a future fiscal quarter or year.

During the three-month period ended February 25, 2024, we recognized restructuring charges of $116.2 million related to Project Fuel, consisting primarily of severance and post-employment benefit charges. The charges are included in “Other accrued liabilities” and “Long-term employee related benefits and other liabilities” in the Company’s consolidated balance sheet and selling, general, and administrative expenses (“SG&A”) in the Company’s consolidated statements of operations.

The Company also recognized $10.1 million of restructuring related charges, primarily consulting fees, and $5.5 million in goodwill impairment charges related to our footwear business as a result of the decision to discontinue the category. The charges were recorded in SG&A in the accompanying consolidated statements of operations.

For the three-month period ended February 26, 2023, the Company recognized net restructuring charges of $11.4 million, which primarily related to severance benefits, based on separation benefits provided by Company policy or statutory benefit plans. The Company also recognized $18.2 million in charges related to the impairment of capitalized internal-use software, as a result of the decision to discontinue certain technology projects. The impairment charges were recorded in SG&A in the accompanying consolidated statements of operations.

NOTE 7: COMMITMENTS AND CONTINGENCIES

Forward Foreign Exchange Contracts

The Company uses cash flow hedge derivative instruments to manage its exposure to foreign currencies. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the forward foreign exchange contracts. However, the Company believes that its exposures are appropriately diversified across counterparties and that these counterparties are creditworthy financial institutions. See Note 3 for additional information.

Other Contingencies

Litigation. In the ordinary course of business, the Company has various claims, complaints and pending cases, including contractual matters, facility and employee-related matters, distribution matters, product liability matters, intellectual property matters, bankruptcy preference matters, and tax and administrative matters. The Company establishes loss provisions for these ordinary course claims as well as other matters in which losses are probable and can be reasonably estimated. The Company does not believe any of these pending claims, complaints and legal proceedings will have a material impact on its financial condition, results of operations or cash flows.

Customs Duty Audits. The Company imports both raw materials and finished garments into all of its geographic regions and, as such, is subject to numerous countries’ complex customs laws and regulations with respect to its import and export activity. The Company has various pending audit assessments in connection with these activities. As of February 25, 2024, the Company has recorded certain reserves for these matters which are not material. The Company does not believe any of the claims for customs duty and related charges will have a material impact on its financial condition, results of operations or cash flows.

NOTE 8: DIVIDENDS

Dividends are declared at the discretion of the Board. In January 2024 and 2023, the Company declared cash dividends, each $0.12 per share, to holders of record of its Class A and Class B common stock. During the three months ended February 25, 2024, dividends were paid in the amount of $47.9 million compared to $47.6 million for the same prior-year period.

The Company does not have an established dividend policy. The Board reviews the Company’s ability to pay dividends on an ongoing basis and establishes the dividend amount based on the Company’s financial condition, results of operations, capital requirements, current and projected cash flows and other factors, and any restrictions related to the terms of the Company’s debt agreements.

Subsequent to the Company’s quarter end, a cash dividend of $0.12 per share was declared to holders of record of its Class A and Class B common stock at the close of business on May 9, 2024. The cash dividend will be payable on May 23, 2024, for a total quarterly dividend of approximately $48 million.

NOTE 9: ACCUMULATED OTHER COMPREHENSIVE LOSS

The following is a summary of the components of "Accumulated other comprehensive loss," net of related income taxes:

(1)Amounts reclassified were recorded in other expense, net.

(2)Amounts reclassified were recorded within net revenues and cost of goods sold. For more information, refer to Note 3.

(1)Amounts reclassified were recorded in other expense, net.

(2)Amounts reclassified were recorded within net revenues and cost of goods sold. For more information, refer to Note 3.

NOTE 10: NET REVENUES

Disaggregated Revenue

The table below provides the Company’s revenues disaggregated by segment and channel.

The Company did not have any material contract assets or contract liabilities recorded in the consolidated balance sheets as of February 25, 2024 and November 26, 2023.

NOTE 11: INCOME TAXES

The Company’s effective income tax rate was 16.4% for the three months ended February 25, 2024, compared to 17.6% for the same prior-year period. The decrease in the effective tax rate in the current year was due to an unfavorable impact of stock-based compensation as a proportion to pre-tax loss partially offset by the impact of foreign operations in the prior year.

NOTE 12:(LOSS) EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

The following table sets forth the computation of the Company’s basic and diluted (loss) earnings per share:

Diluted net (loss) earnings per common share attributable to the Company for the three months ended February 25, 2024 excluded all potentially dilutive securities because there was a net loss for the period and, as such, the inclusion of these securities would have been anti-dilutive. Potentially dilutive securities excluded from the calculation of diluted (loss) earnings per common share were 15.9 million shares for the three months ended February 25, 2024.

NOTE 13: RELATED PARTIES

Michelle Gass (President and CEO), Tracy Layney (Executive Vice President and Chief Human Resources Officer) and David Jedrzejek (Senior Vice President and General Counsel) are members of the Board of Directors of the Levi Strauss Foundation, which is not one of our consolidated entities. Mr. David Jedrzejek also serves as a Vice President of the Levi Strauss Foundation. Ms. Gass, Ms. Layney and Mr. Jedrzejek began serving on the Board of Directors of the Levi Strauss Foundation on January 24, 2024, February 3, 2022 and September 26, 2023, respectively. Charles V. Bergh, former President and Chief Executive Officer, was a member of the board of directors of the Levi Strauss Foundation until January 28, 2024. During the three months ended February 25, 2024 and February 26, 2023, donations to the Levi Strauss Foundation were $4.8 million and $9.8 million, respectively, and the Company recognized expenses related to their donation commitments of $2.0 million and $1.5 million, respectively.

NOTE 14: BUSINESS SEGMENT INFORMATION

The Company manages its business according tothree reportable segments: Americas, Europe, and Asia, collectively comprising the Company’s Levi’s Brands business, which includes Levi’s®, Signature by Levi Strauss & Co.™ and Denizen® brands. Other brands, which include Dockers® and Beyond Yoga® businesses, do not separately meet the quantitative thresholds for reportable segments and therefore are presented under the caption of “Other Brands”. Corporate expenses are comprised of selling, general and administrative expenses that management does not attribute to any of our operating segments and these expenses primarily relate to corporate administration, information and technology resources, finance and human resources functional and organizational costs.

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 segments’ net revenues and operating income.

Business segment information for the Company is as follows:

NOTE 15: SUBSEQUENT EVENTS

In December 2023, the Company signed a purchase agreement to acquire all operating assets related to Levi’s® brands from the Company's former distributor in Colombia, for approximately $32 million in cash, plus transaction costs. This includes 40 Levi’s® retail stores and one e-commerce site, distribution with the region’s leading multi-brand retailers, and the logistical operations within these markets. The transaction closed in the second quarter of 2024.