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EX-32 - EXHIBIT 32 - LEVI STRAUSS & COlvis11292015ex-32.htm
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EX-31.1 - EXHIBIT 31.1 - LEVI STRAUSS & COlvis11292015ex-311.htm

 
 
 
 
 
 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-K
(Mark One)                 _____________________________
 þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
or
 ¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended November 29, 2015
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)
_____________________________
Securities registered pursuant to Section 12(b) of the Act: None 
Securities registered pursuant to Section 12(g) of the Act: None 
_____________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition of “Large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨
 
Accelerated filer ¨
 
Non-accelerated filer þ
 
Smaller reporting company ¨
 
(Do not check if a smaller reporting 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 — 37,460,145 shares outstanding on February 8, 2016
Documents incorporated by reference: None
 
 
 
 
 
 
 
 
 
 



LEVI STRAUSS & CO.
TABLE OF CONTENTS TO FORM 10-K
FOR FISCAL YEAR ENDED NOVEMBER 29, 2015
 
 
 
 
Page
Number
 
 
 
 
Item 1.
 
Item 1A.
 
Item 1B.
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
 
 
 
 
Item 5.
 
Item 6.
 
Item 7.
 
Item 7A.
 
Item 8.
 
Item 9.
 
Item 9A.
 
Item 9B.
 
 
 
 
 
 
 
 
 
Item 10.
 
Item 11.
 
Item 12.
 
Item 13.
 
Item 14.
 
 
 
 
 
 
 
 
 
Item 15.
 
 
 



PART I 
Item 1.
BUSINESS
Overview
From our California Gold Rush beginnings, we have grown into one of the world's largest brand-name apparel companies. A history of responsible business practices, rooted in our core values, has helped us build our brands and engender consumer trust around the world. Under our Levi's®, Dockers®, Signature by Levi Strauss & Co.™ and Denizen® brands, 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.
An Authentic American Icon
Our Levi's® brand has become one of the most widely recognized brands in the history of the apparel industry. Its broad distribution reflects the brand's appeal across consumers of all ages and lifestyles. Its merchandising and marketing reflect the brand's core attributes: authentic, courageous, confident, effortless, connected and purposeful.
Our Dockers® brand offers an alternative to suit dressing in the form of the American staple – the khaki pant. The Dockers® brand has evolved around the world as a market leader in the casual pant category, while also providing tops and accessories to complete a head-to-toe offering.
Our Global Reach
Our products are sold in more than 110 countries, grouped into three geographic regions: Americas, Europe and Asia. We support our brands throughout these regions through a global infrastructure, developing, sourcing and marketing our products around the world. Although our brands are recognized as authentically “American,” we derive approximately half of our net revenues from outside the United States. A summary of financial information for each geographical region, which comprise our three reporting segments, is found in Note 20 to our audited consolidated financial statements included in this report. As a global company with sales and operations in foreign countries, we are subject to risks of doing business in foreign countries. See “Item 1A – Risk Factors”, specifically “Risks Relating to Our Industry – Our business is subject to risks associated with sourcing and manufacturing overseas” and “Risks Relating to Our Business – We are a global company with significant revenues and earnings generated internationally, which exposes us to political and economic risks as well as the impact of foreign currency fluctuations”.
Our products are sold in approximately 50,000 retail locations worldwide, including approximately 2,800 retail stores, both franchised and company-operated, and shop-in-shops dedicated to our brands. 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, franchised or other brand-dedicated stores and shop-in-shops outside of the United States. Levi's® and Dockers® products are also sold through our brand-dedicated company-operated retail stores and through the ecommerce sites we operate, as well as the ecommerce sites operated by certain of our key wholesale customers and other third parties. We distribute Signature by Levi Strauss & Co.™ and Denizen® brand products primarily through mass channel retailers in the Americas.
Levi Strauss & Co. was founded in San Francisco, California, in 1853 and incorporated in Delaware in 1971. We conduct our operations outside the United States through foreign subsidiaries owned directly or indirectly by Levi Strauss & Co. We have headquarter offices in San Francisco, Brussels and Singapore. Our corporate offices are located at Levi's Plaza, 1155 Battery Street, San Francisco, California 94111, and our main telephone number is (415) 501-6000.
Our common stock is primarily owned by descendants of the family of Levi Strauss and their relatives.
Our website – www.levistrauss.com – contains additional and detailed information about our history, our products and our commitments. Financial news and reports and related information about our company can be found at http://levistrauss.com/investors/financial-news. Information contained on our website is not incorporated by reference into this Annual Report on Form 10-K.



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Our Business Strategies
Our goal is to generate and sustain profitable growth over the long term in order to significantly improve the value of the enterprise. The management team is focused on four key strategies to achieve this goal:
Drive the profitable core businesses. Our core businesses represent the greatest value on a brand, geographic, customer or business-segment basis. These include our men's bottoms business for the Levi's® brand globally and the Dockers® brand in the United States, including our iconic 501® jean and Dockers® khaki pant. We also consider our key international markets of France, Germany, Mexico and the United Kingdom, as well as key wholesale accounts globally, to be vital elements of our long-term growth strategies. We manage collaborative relationships with these wholesale accounts to focus on customer support, marketing planning, and inventory levels, in order to achieve mutual commercial success.
Expand the reach of our brands and build a more balanced portfolio. We believe we have opportunities to grow our two largest brands through new or expanded product categories, consumer segments and geographic markets. We are building upon our iconic brands, including our innovative design and marketing expertise, to deepen our connection with consumers and expand the reach and appeal of our brands globally. For example, we believe we can better serve the female consumer, and that there are significant opportunities in tops, outerwear and accessories. We also believe opportunities remain to expand in emerging and underpenetrated geographic markets, including China, India, Russia and Brazil.
Become a world-class omni-channel retailer. We will continue to expand our consumer reach in brand-dedicated stores globally, including making selective investments in additional company-operated stores, dedicated ecommerce sites, franchisee and other dedicated store models. We believe these brand-dedicated stores represent an attractive opportunity to establish incremental distribution and sales, as well as to showcase the full breadth of our product offerings and deliver a consistent brand experience to the consumer.
Improve our cost structure to achieve operational excellence.  We are focused on operational excellence to improve our long-term profitable growth, including stabilizing the work we have outsourced while delivering the anticipated financial savings, reducing our controllable cost structure and driving efficiencies by streamlining our product development, planning, and go-to-market strategies, implementing efficiencies across retail, supply chain and distribution networks and continuing to pursue practices that result in greater cost efficiencies. We will continue to balance our pursuit of improved organizational agility and marketplace responsiveness with our ongoing cost management efforts to improve the structural economics of the company.
Our Brands and Products
We offer a broad range of products, including jeans, casual and dress pants, tops, shorts, skirts, jackets, footwear and related accessories. Across all of our brands, pants – including jeans, casual pants and dress pants – represented approximately 81%, 82% and 85% of our total units sold in fiscal years 2015, 2014 and 2013, respectively. Men's products generated approximately 77%, 77% and 78% of our total net sales in fiscal years 2015, 2014 and 2013, respectively.
Levi's® Brand
The Levi's® brand epitomizes classic American style and effortless cool and is positioned as the authentic, original and definitive jeanswear brand.  Since their inception in 1873, Levi's® jeans have become one of the most recognizable garments in the world – reflecting the aspirations and earning the loyalty of people for generations. Consumers around the world instantly recognize the distinctive traits of Levi's® jeans – the double arc of stitching, known as the Arcuate Stitching Design, and the Red Tab Device, a fabric tab stitched into the back right pocket. The Levi's® brand continues to evolve to meet the tastes of today's consumers, driven by its distinctive pioneering and innovative spirit. Our range of leading jeanswear and accessories for men, women and children is available in more than 110 countries, allowing individuals around the world to express their personal style.
The Levi's® brand encompasses a range of products. Levi's® Red Tab™ products are the foundation of the brand, consisting of a wide spectrum of jeans and jeanswear offered in a variety of fits, fabrics, finishes, styles and price points intended to appeal to a broad spectrum of consumers. The line includes the iconic 501® jean, the original and best-selling five-pocket jean of all time. The line also incorporates a full range of jeanswear fits and styles designed specifically for women. Sales of Red Tab™ products represented the majority of our Levi's® brand net sales in all three of our regions in fiscal years 2015, 2014 and 2013. We also offer premium products around the world including a range of premium pants, tops, shorts, skirts, jackets, footwear, and related accessories.
Our Levi's® brand products accounted for approximately 85%, 85% and 84% of our total net sales in fiscal years 2015, 2014 and 2013, respectively, approximately half of which were generated in our Americas region.


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Dockers® Brand
Founded in 1986, the Dockers® brand sparked a revolution in the way millions of men dressed around the world, shifting from the standard issue suit to a more casual look. 30 years later, the Dockers® brand continues to embody the spirit of khakis and define business casual. Since its introduction, the brand has focused on men's khakis and the essential goods to go with them.
Our Dockers® brand products accounted for approximately 10%, 11% and 12% of our total net sales in fiscal years 2015, 2014 and 2013, respectively. Although the substantial majority of these net sales were in the Americas region, Dockers® brand products are sold in more than 50 countries.
Signature by Levi Strauss & Co.™ Brand and Denizen® Brand
In addition to our Levi's® and Dockers® brands, we offer two brands focused on consumers who seek high-quality and fashionable jeanswear at a value price. We offer denim jeans, casual pants, tops and jackets in a variety of fits, fabrics and finishes for men, women and kids under the Signature by Levi Strauss & Co.™ brand through the mass retail channel in the United States and Canada. The Denizen® brand was introduced in Target stores in the United States starting in 2011, and includes a variety of jeans to complement active lifestyles and to empower consumers to express their aspirations, individuality and attitudes at a value price point.
Signature by Levi Strauss & Co.™ brand and Denizen® brand products accounted for approximately 5% of our total net sales in fiscal year 2015, and 4% of our total net sales in each of fiscal years 2014 and 2013.
Licensing
The appeal of our brands across consumer groups and our global reach enable us to license our Levi's® and Dockers® trademarks for a variety of product categories in multiple markets in each of our regions, including footwear, belts, wallets and bags, outerwear, sweaters, dress shirts, kidswear, sleepwear and hosiery. We also license our Signature by Levi Strauss & Co.™ and our Denizen® trademarks in various markets for certain product categories.
In addition to product category licenses, we enter into regional license agreements with third parties to produce, market and distribute our products in several countries around the world, including various Latin American, Middle Eastern and Asia Pacific countries. Licensing accounted for approximately 2% of our total net revenues in each of fiscal years 2015, 2014 and 2013.
We enter into licensing agreements with our licensees covering royalty payments, product design and manufacturing standards, marketing and sale of licensed products, and protection of our trademarks. We require our licensees to comply with our code of conduct for contract manufacturing and engage independent monitors to perform regular on-site inspections and assessments of production facilities.
Sales, Distribution and Customers
We distribute our products through a wide variety of retail formats around the world, including chain and department stores, franchise stores and shop-in-shops dedicated to our brands, our own company-operated retail network, multi-brand specialty stores, mass channel retailers, and both company-operated and retailer ecommerce sites.
Multi-brand Retailers
We seek to make our products available where consumers shop, including offering products and related assortments that are appropriately tailored for our wholesale customers and their retail consumers. Our products are also sold through authorized third-party ecommerce sites. Sales to our top ten wholesale customers accounted for approximately 31% of our total net revenues in each of fiscal years 2015, 2014 and 2013. No customer represented 10% or more of net revenues in any of these years. The loss of any major wholesale customer could have a material adverse effect on one or more of our segments or on the company as a whole.
Dedicated Stores
We believe retail stores dedicated to our brands are important for the growth, visibility, availability and commercial success of our brands, and they are an increasingly important part of our strategy for expanding distribution of our products. Our brand-dedicated stores are either operated by us or by independent third parties such as franchisees. In addition to the dedicated stores, we maintain brand-dedicated ecommerce sites that sell products directly to consumers.


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Company-operated retail stores.  Our company-operated ecommerce sites and retail stores, including both mainline and outlet stores, generated approximately 26%, 25% and 22% of our net revenues in fiscal 2015, 2014 and 2013, respectively. As of November 29, 2015, we had 656 company-operated stores, predominantly Levi's® stores, located in 31 countries across our three regions. We had 228 stores in the Americas, 249 stores in Europe and 179 stores in Asia. During 2015, we added 124 company-operated stores and closed 33 stores.
Franchised and other stores.  Franchised, licensed, or other forms of brand-dedicated stores operated by independent third parties sell Levi's® and Dockers® products in markets outside the United States. There were approximately 1,200 of these stores as of November 29, 2015, and they are a key element of our international distribution. In addition to these stores, we consider our network of dedicated shop-in-shops, which are located within department stores and may be either operated directly by us or third parties, to be an important component of our retail distribution in international markets. Outside of the United States, approximately 400 dedicated shop-in-shops were operated directly by us and approximately 500 were operated by third parties as of November 29, 2015.
Seasonality of Sales
We typically achieve our largest quarterly revenues in the fourth quarter, reflecting the “holiday” season. In fiscal 2015, our net revenues in the first, second, third and fourth quarters represented 23%, 23% 25% and 29%, respectively, of our total net revenues for the year. In fiscal 2014, our net revenues in the first, second, third and fourth quarters represented 24%, 23%, 24% and 29%, respectively, of our total net revenues for the 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. Fiscal 2015 and 2013 were 52-week years, ending on November 29, 2015, and November 24, 2013 respectively. Fiscal 2014 was a 53-week year ending on November 30, 2014. Each quarter of fiscal years 2015, 2014 and 2013 consisted of 13 weeks, with the exception of the fourth quarter of fiscal 2014, which consisted of 14 weeks.
Marketing and Promotion
Our marketing is rooted in globally consistent brand messages that reflect the unique attributes of our brands, including the Levi's® brand as the authentic and original jeanswear brand and the Dockers® brand as the definitive khaki. We support our brands with a diverse mix of marketing initiatives to drive consumer demand, such as through social media and digital and mobile outlets, sponsorships, product placement in leading fashion magazines and with celebrities, television and radio advertisements, personal sponsorships and endorsements, on-the-ground efforts such as street-level events and similar targeted “viral” marketing activities.
We also use our websites, www.levi.com, www.dockers.com, www.levistrausssignature.com, and www.denizen.com, in relevant markets to enhance consumer understanding of our brands and help consumers find and buy our products.
Sourcing and Logistics
Organization.  Our global sourcing and logistics organizations are responsible for taking a product from the design concept stage through production to delivery to our customers. Our objective is to leverage our global scale to achieve product development and sourcing efficiencies and reduce total product and distribution costs while maintaining our focus on product quality, local service levels and working capital management.
Product procurement.  We source nearly all of our products through independent contract manufacturers. The remainder are sourced from our company-operated manufacturing and finishing plants. See “Item 2 – Properties” for more information about those manufacturing facilities.
Sources and availability of raw materials.  The principal fabrics used in our products include cotton, blends, synthetics and wools. The prices we pay our suppliers for our products are dependent in part on the market price for raw materials used to produce them, primarily cotton. The price and availability of cotton may fluctuate substantially, depending on a variety of factors. The price fluctuations impact the cost of our products in future seasons due to the lead time of our product development cycle. Fluctuations in product costs can cause a decrease in our profitability if product pricing actions taken in response are insufficient or if those actions cause our wholesale customers or retail consumers to reduce the volumes they purchase.
Sourcing locations.  We use numerous independent contract manufacturers located throughout the world for the production and finishing of our garments. We conduct assessments of political, social, economic, trade, labor and intellectual property protection conditions in the countries in which we source our products before placing production in those countries and on an ongoing basis.


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In 2015, we sourced products from contractors located in approximately 30 countries around the world. We sourced products in North and South Asia, South and Central America (including Mexico and the Caribbean), Europe and Africa. No single country accounted for more than 20% of our sourcing in 2015.
Sourcing practices.  Our sourcing practices include these elements:
We require all third-party contractors and subcontractors who manufacture or finish products for us to comply with our code of conduct relating to supplier working conditions as well as environmental, employment and sourcing practices. We also require our licensees to ensure that their manufacturers comply with our requirements.
Our code of conduct covers employment practices such as wages and benefits, working hours, health and safety, working age and discriminatory practices, environmental matters such as wastewater treatment and solid waste disposal, and ethical and legal conduct.
We regularly assess manufacturing and finishing facilities through periodic on-site facility inspections and improvement activities, including use of independent monitors to supplement our internal staff. We integrate review and performance results into our sourcing decisions.
We disclose the names and locations of our contract manufacturers to encourage collaboration among apparel companies in factory monitoring and improvement. We regularly evaluate and refine our code of conduct processes.
Logistics.  We operate dedicated distribution centers in a number of countries. For more information, see “Item 2 – Properties.” Distribution center activities include receiving finished goods from our contractors and plants, inspecting those products, preparing them for retail presentation, and shipping them to our customers and to our own stores. Our distribution centers maintain a combination of replenishment and seasonal inventory. In certain locations around the globe, we have consolidated our distribution centers to service multiple countries. In addition, we outsource some of our logistics activities to third-party logistics providers.
Competition
The global apparel industry is highly competitive and fragmented. It is characterized by low barriers to entry, brands targeted at specific consumer segments, many regional and local competitors, and an increasing number of global competitors. Principal competitive factors include:
anticipating and responding to changing consumer demands and apparel trends in a timely manner;
developing high-quality, innovative products with relevant designs, fits, finishes, fabrics, style and performance features that meet consumer desires;
maintaining favorable and strong brand name recognition and appeal through strong and effective best-in-class marketing support and intelligence in diverse market segments;
securing desirable retail locations and presenting products effectively at company-operated retail and franchised and other brand-dedicated stores;
ensuring product availability at wholesale and direct-to-consumer channels, and at franchised and other brand-dedicated stores;
optimizing supply chain cost efficiencies and product development cycle lead times;
delivering compelling value for the price of our products in diverse market segments; and
generating competitive economics for wholesale customers, including retailers, franchisees, and distributors.
We face competition from a broad range of competitors at the global, regional and local levels in diverse channels across a wide range of retail price points, and some of our competitors are larger and have more resources than we do in the markets in which we operate. Our primary competitors include vertically integrated specialty stores, jeanswear brands, khakiwear brands, athletic wear companies, retailers' private or exclusive labels, and certain ecommerce sites. For more information on the factors affecting our competitive position, see “Item 1A – Risk Factors.”


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Trademarks
We have more than 5,000 trademark registrations and pending applications in approximately 180 jurisdictions worldwide, and we acquire rights in new trademarks according to business needs. Substantially all of our global trademarks are owned by Levi Strauss & Co., the parent and U.S. operating company. We regard our trademarks as our most valuable assets and believe they have substantial value in the marketing of our products. The Levi's®, Dockers® and 501® trademarks, the Arcuate Stitching Design, the Tab Device, the Two Horse® Design, the Housemark and the Wings and Anchor Design are among our core trademarks.
We protect these trademarks by registering them with the U.S. Patent and Trademark Office and with governmental agencies in other countries, particularly where our products are manufactured or sold. We work vigorously to enforce and protect our trademark rights by engaging in regular market reviews, helping local law enforcement authorities detect and prosecute counterfeiters, issuing cease-and-desist letters against third parties infringing or denigrating our trademarks, opposing registration of infringing trademarks, and initiating litigation as necessary. We currently are pursuing approximately 400 infringement matters around the world. We also work with trade groups and industry participants seeking to strengthen laws relating to the protection of intellectual property rights in markets around the world.
Employees
As of November 29, 2015, we employed approximately 12,500 people, approximately 5,700 of whom were located in the Americas, 3,700 in Europe, and 3,100 in Asia. Approximately 1,900 of our employees were associated with the manufacturing and procurement of our products, 5,900 worked in retail, including seasonal employees, 1,300 worked in distribution and 3,400 were other non-production employees.
History and Corporate Citizenship
Our history and longevity are unique in the apparel industry. Our commitment to quality, innovation and corporate citizenship began with our founder, Levi Strauss, who infused the business with the principle of responsible commercial success that has been embedded in our business practices throughout our more than 160-year history. This mixture of history, quality, innovation and corporate citizenship contributes to the iconic reputations of our brands.
In 1853, during the California Gold Rush, Mr. Strauss opened a wholesale dry goods business in San Francisco that became known as “Levi Strauss & Co.” Seeing a need for work pants that could hold up under rough conditions, he and Jacob Davis, a tailor, created the first jean. In 1873, they received a U.S. patent for “waist overalls” with metal rivets at points of strain. The first product line designated by the lot number “501” was created in 1890.
In the 19th and early 20th centuries, our work pants were worn primarily by cowboys, miners and other working men in the western United States. Then, in 1934, we introduced our first jeans for women, and after World War II, our jeans began to appeal to a wider market. By the 1960s, they had become a symbol of American culture, representing a unique blend of history and youth. We opened our export and international businesses in the 1950s and 1960s. In 1986, we introduced the Dockers® brand of casual apparel which revolutionized the concept of business casual.
Throughout this long history, we have upheld our strong belief that we can help shape society through civic engagement and community involvement, responsible labor and workplace practices, philanthropy, ethical conduct, environmental stewardship and transparency. We have engaged in a “profits through principles” business approach from the earliest years of the business. Among our milestone initiatives over the years, we integrated our factories two decades prior to the U.S. civil rights movement and federally mandated desegregation, we developed a comprehensive supplier code of conduct requiring safe and healthy working conditions among our suppliers (a first of its kind for a multinational apparel company), and we offered full medical benefits to domestic partners of employees prior to other companies of our size, a practice that is widely accepted today.
Item 1A.
RISK FACTORS
Risks Relating to the Industry in Which We Compete
Our revenues are influenced by economic conditions that impact consumer spending.
Apparel is a cyclical industry that is dependent upon the overall level of consumer spending. Consumer purchases of discretionary items, including our products, generally decline during periods when disposable income is adversely affected or there is economic uncertainty. Our wholesale customers anticipate and respond to adverse changes in economic conditions and uncertainty by reducing inventories, canceling orders or increasing promotional activity. Our brand-dedicated stores are also affected by these conditions which may lead to a decline in consumer traffic and spending in these stores. As a result, factors that diminish consumer spending and confidence in any of the markets in which we compete, particularly deterioration in general


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economic conditions, the impact of foreign exchange fluctuations on tourism and tourist spending, volatility in investment returns, fear of unemployment, increases in energy costs or interest rates, housing market downturns, fear about and impact of pandemic illness, and other factors such as acts of war, natural disasters or terrorist or political events that impact consumer confidence, could reduce our sales and adversely affect our business and financial condition through their impact on our wholesale customers as well as their direct impact on us. These outcomes and behaviors have in the past, and may continue to, adversely affect our business and financial condition.
Intense competition in the global apparel industry could lead to reduced sales and prices.
We face a variety of competitive challenges in the global apparel industry from a variety of jeanswear and casual apparel companies, and competition has increased over the years due to factors such as the international expansion and increased presence of vertically integrated specialty stores; expansion into ecommerce by existing and new competitors; the proliferation of private labels and exclusive brands offered by department stores, chain stores and mass channel retailers; the introduction of jeans and casual apparel by well-known and successful athletic wear companies; and the movement of apparel companies who traditionally relied on wholesale distribution channels into their own retail distribution network. Some of these competitors have greater financial and marketing resources than we do and may be able to adapt to changes in consumer preferences or retail requirements more quickly, devote greater resources to the building and sustaining of their brand equity and the marketing and sale of their products both in stores and online. In addition, some of these competitors may be able to achieve lower product costs or adopt more aggressive pricing and discounting policies than we can. As a result, we may not be able to compete as effectively with them and may not be able to maintain or grow the demand for our products. These evolving competitive factors could reduce our sales and adversely affect our business and financial condition.
The success of our business depends upon our ability to offer on-trend and updated products at attractive price points.
The global apparel industry is characterized by ever-changing fashion trends and consumer preferences and by the rapid replication of new products by competitors. As a result, our success depends in large part on our ability to develop, market and deliver innovative and stylish products at a pace, intensity, and price competitive with other brands in the markets in which we sell our products. In addition, we must create products at a range of price points that appeal to the consumers of both our wholesale customers and our dedicated retail stores situated in each of our diverse geographic regions. Our development and production cycles take place prior to full visibility into all of these factors for the coming seasons. Failure on our part to forecast consumer demand and market conditions and to regularly and rapidly develop innovative and stylish products and update core products could limit sales growth, adversely affect retail and consumer acceptance of our products, negatively impact the consumer traffic in our dedicated retail stores, and leave us with a substantial amount of unsold inventory which we may be forced to sell at discounted prices, all of which may adversely affect our gross margin, and impair the image of our brands on a local, regional and global level. Moreover, our newer products may not produce as high a gross margin as our traditional products and thus may have an adverse effect on our overall margins and profitability.
The global apparel industry is subject to intense pricing pressure.
The apparel market is characterized by low barriers to entry for both suppliers and marketers, global sourcing through suppliers located throughout the world, trade liberalization, continuing movement of product sourcing to lower cost countries, and the ongoing emergence of new competitors with widely varying strategies and resources. These factors have contributed, and may continue to contribute, to intense pricing pressure and uncertainty throughout the supply chain. Pricing pressure has been exacerbated by the variability of raw materials in recent years. This pressure could have the following effects:
result in reduced gross margins across our product lines;
increase retailer demands for allowances, incentives and other forms of economic support; and
increase pressure on us to reduce our production costs and our operating expenses.
Any of these factors could adversely affect our business and financial condition.
Increases in the price of raw materials could increase our cost of goods and negatively impact our financial results.
The principal fabrics used in our products include cotton, blends, synthetics and wools. The prices we pay our suppliers for our products are dependent in part on the market price for raw materials used to produce them, primarily cotton. The price and availability of cotton may fluctuate substantially, depending on a variety of factors, including demand, acreage devoted to cotton crops and crop yields, weather, supply conditions, transportation costs, energy prices, work stoppages, government regulation and government policy, economic climates, market speculation and other unpredictable factors. Any and all of these factors may be exacerbated by global climate change. Cotton prices suffered from unprecedented variability and uncertainty in prior years and may fluctuate significantly again in the future. Increases in raw material costs, unless sufficiently offset by our pricing actions,


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may cause a decrease in our profitability and negatively impact our sales volume. These factors may also have an adverse impact on our cash and working capital needs as well as those of our suppliers.
Our business is subject to risks associated with sourcing and manufacturing overseas.
We import both raw materials and finished garments into all of our operating regions. Our ability to import products in a timely and cost-effective manner may be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers, such as port and shipping capacity, labor disputes and work stoppages, political unrest, severe weather, or security requirements in the United States and other countries. These issues could delay importation of products or require us to locate alternative ports or warehousing providers to avoid disruption to our customers. These alternatives may not be available on short notice or could result in higher transportation costs, which could have an adverse impact on our business and financial condition, specifically our gross margin and overall profitability.
Substantially all of our import operations are subject to customs and tax requirements as well as trade regulations, such as tariffs and quotas set by governments through mutual agreements or bilateral actions. In addition, the countries in which our products are manufactured or imported may from time to time impose additional quotas, duties, tariffs or other restrictions on our imports or adversely modify existing restrictions. Adverse changes in these import costs and restrictions, or our suppliers' failure to comply with customs regulations or similar laws, could harm our business.
Our operations are also subject to the effects of international trade agreements and regulations that impose requirements that could adversely affect our business, such as setting quotas on products that may be imported from a particular country into our key markets such as the United States or the European Union.
Risks Relating to Our Business
We depend on a group of key wholesale customers for a significant portion of our revenues. A significant adverse change in a customer relationship or in a customer's performance or financial position could harm our business and financial condition.
Sales to our top ten wholesale customers accounted for approximately 31% of our total net revenues in each of fiscal years 2015, 2014 and 2013. No customer represented 10% or more of net revenues in any of these years. While we have long-standing relationships with our wholesale customers, we do not have long-term contracts with them. As a result, purchases generally occur on an order-by-order basis, and the relationship, as well as particular orders, can generally be terminated by either party at any time. If any major wholesale customer decreases or ceases its purchases from us, reduces the floor space, assortments, fixtures or advertising for our products or changes its manner of doing business with us for any reason, such actions could adversely affect our business and financial condition. In addition, a decline in the performance or financial condition of a major wholesale customer – including bankruptcy or liquidation – could result in a material loss of revenues to us and cause us to limit or discontinue business with that customer, require us to assume more credit risk relating to our receivables from that customer or limit our ability to collect amounts related to previous purchases by that customer, all of which could in turn adversely affect our own business and financial condition.
The retail industry in the United States has experienced substantial consolidation over the last decade, and further consolidation may occur. Consolidation in the retail industry typically results in store closures, centralized purchasing decisions, and increased emphasis by retailers on inventory management and productivity. In addition, we and other suppliers may experience increased customer leverage over us and greater exposure to credit risk as a result of industry consolidation. Any of the foregoing results can impact, and have adversely impacted in the past, our net revenues, margins and ability to operate efficiently.


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We face risks arising from the restructuring of our operations and uncertainty with respect to our ability to achieve the estimated cost savings.
In 2014, we announced and began to implement our global productivity initiative designed to streamline operations and fuel long-term profitable growth. Future charges related to the global productivity initiative may harm our profitability in the periods incurred. Additionally, if we incur unexpected charges related to the global productivity initiative, our financial condition and results of operations may suffer.
Implementation of the global productivity initiative presents a number of significant risks, including:
actual or perceived disruption of service or reduction in service levels to wholesale customers and retail consumers;
potential adverse effects on our internal control environment and inability to preserve adequate internal controls relating to our general and administrative functions in connection with the decision to outsource certain business service activities;
actual or perceived disruption to suppliers, distribution networks and other important operational relationships and the inability to resolve potential conflicts in a timely manner;
diversion of management attention from ongoing business activities and strategic objectives; and
failure to maintain employee morale and retain key employees.
Because of these and other factors, such as the implementation delays we have experienced with our outsourcing of certain global business service activities, we cannot predict whether we will fully realize the purpose and anticipated operational benefits or cost savings of the global productivity initiative and, if we do not, our business and results of operations may be adversely affected. Furthermore, if we experience adverse changes to our business, additional restructuring or reorganization activities may be required in the future.
We may be unable to maintain or increase our sales through our primary distribution channels.
In the United States, chain stores and department stores are the primary distribution channels for our Levi's® and Dockers® products. Outside the United States, department stores and independent jeanswear retailers have traditionally been our primary distribution channels.
We may be unable to maintain or increase sales of our products through these distribution channels for several reasons, including the following:
the retailers in these channels maintain – and seek to grow – substantial private-label and exclusive offerings as they strive to differentiate the brands and products they offer from those of their competitors;
these retailers may also change their apparel strategies in a way that shifts focus away from our typical consumer or that otherwise results in a reduction of sales of our products generally, a reduction of fixture spaces or purchases of brands misaligned with their strategic requirements;
other channels, including vertically integrated specialty stores, account for a substantial portion of jeanswear and casual wear sales. In some of our mature markets, these stores have already placed competitive pressure on our primary distribution channels, and many of these stores are now looking to our developing markets to grow their business; or
shrinking points of distribution, inclusive of fewer doors at our customer locations or bankruptcy of a customer.
Further success by retailer private-labels and vertically integrated specialty stores may continue to adversely affect the sales of our products across all channels, as well as the profitability of our brand-dedicated stores. Additionally, our ability to secure or maintain retail floor space, market share and sales in these channels depends on our ability to offer differentiated products and to increase retailer profitability on our products, which could have an adverse impact on our margins.


9


We are a global company with significant revenues and earnings generated internationally, which exposes us to political and economic risks as well as the impact of foreign currency fluctuations.
A significant portion of our revenues and earnings are generated internationally. In addition, a substantial amount of our products come from sources outside of the country of distribution. As a result, we are subject to the risks of doing business outside of the United States, including:
currency fluctuations, which have impacted our results of operations significantly in recent years;
political, economic and social instability;
changes in tariffs and taxes;
regulatory restrictions on repatriating foreign funds back to the United States; and
less protective foreign laws relating to intellectual property.
The functional currency for most of our foreign operations is the applicable local currency. As a result, fluctuations in foreign currency exchange rates affect the results of our operations and the value of our foreign assets and liabilities, including debt, which in turn may adversely affect results of operations and cash flows and the comparability of period-to-period results of operations. Changes in currency exchange rates may also affect the relative prices at which we and foreign competitors sell products in the same market. Foreign policies and actions regarding currency valuation could result in actions by the United States and other countries to offset the effects of such fluctuations. Given the unpredictability and volatility of foreign currency exchange rates, ongoing or unusual volatility may adversely impact our business and financial conditions.
Furthermore, due to our global operations, we are subject to numerous domestic and foreign laws and regulations affecting our business, such as those related to labor, employment, worker health and safety, antitrust and competition, environmental protection, consumer protection, import/export, and anti-corruption, including but not limited to the Foreign Corrupt Practices Act which prohibits giving anything of value intended to influence the awarding of government contracts. Although we have put into place policies and procedures aimed at ensuring legal and regulatory compliance, our employees, subcontractors and agents could take actions that violate these requirements. Violations of these regulations could subject us to criminal or civil enforcement actions, any of which could have a material adverse effect on our business.
As a global company, we are exposed to risks of doing business in foreign jurisdictions and risks relating to U.S. policy with respect to companies doing business in foreign jurisdictions. Legislation or other changes in the U.S. tax laws could increase our U.S. income tax liability and adversely affect our after-tax profitability. For example, U.S. lawmakers are considering several U.S. corporate tax reform proposals, including, among others, proposals which could reduce or eliminate U.S. income tax deferrals on unrepatriated foreign earnings and eliminate tax incentives in exchange for a lower U.S. statutory tax rate.
If we encounter problems with distribution, our ability to deliver our products to market could be adversely affected.
We rely on company-owned and third-party distribution facilities to warehouse and ship products to our wholesale customers, retail stores and ecommerce consumers. We are focused on executional excellence, including improving productivity, reducing our controllable cost structure and driving efficiencies through our global supply chain.  As part of the pursuit for improved organizational agility and marketplace responsiveness, we have consolidated the number of distribution facilities we rely upon and continue to look for opportunities for further consolidation in certain regions. Such consolidation may make our operations more vulnerable to interruptions in the event of work stoppages, labor disputes, earthquakes, floods, fires or other natural disasters affecting our company-owned and third-party distribution centers. In addition, distribution capacity is dependent on the timely performance of services by third parties, including the transportation of products to and from their distribution facilities. If we encounter problems with our distribution system whether company-owned or third-party, our ability to meet wholesale customer and ecommerce consumer expectations, manage inventory, complete sales and achieve operating efficiencies could be adversely affected.
Our distribution system includes computer-controlled and automated equipment, which may be subject to a number of risks related to security or computer viruses, the proper operation of software and hardware, power interruptions or other system failures. While these risks cannot be completely eliminated, we have implemented various maintenance programs and contingency plans and also work with our suppliers to mitigate these risks at both our company-owned and third-party distribution facilities.
Our efforts to expand our retail business may not be successful, which could impact our operating results.
One of our key strategic priorities is to become a world-class omni-channel retailer by expanding our consumer reach in brand-dedicated stores globally, including making selective investments in company-operated stores, dedicated ecommerce sites, franchisee and other dedicated store models. In many locations, we face major, established retail competitors who may be able to better attract customers and execute their retail strategies. In addition, a retail operating model involves substantial investments in equipment and property, information systems, inventory and personnel. Due to the high fixed-cost structure associated with


10


these investments, a decline in sales or the closure of or poor performance of stores could result in significant costs and impacts to our margins. Our ability to grow our retail channel also depends on the availability of real estate that meets our criteria for traffic, square footage, demographics, and other factors. Failure to identify and secure adequate new locations, or failure to effectively manage the profitability of the fleet of stores, could have a material adverse effect on our results of operations.
If we are unable to effectively execute our ecommerce business our reputation and operating results may be harmed.
While still comprising a small portion of our net revenues, ecommerce has been our fastest growing business over the last several years. The success of our ecommerce business depends, in part, on third parties and factors over which we have limited control, including changing consumer preferences and buying trends relating to ecommerce usage, both domestically and abroad, as well as promotional or other advertising initiatives employed by our wholesale customers or other third parties on their ecommerce sites.
We are also vulnerable to certain additional risks and uncertainties associated with our ecommerce sites, including: changes in required technology interfaces; website downtime and other technical failures; costs and technical issues from website software upgrades; computer viruses; and changes in applicable federal and state regulations. In addition, we must keep up to date with competitive technology trends, including the use of new or improved technology, creative user interfaces and other ecommerce marketing tools such as paid search and mobile applications, among others, which may increase our costs and which may not succeed in increasing sales or attracting consumers. Our failure to successfully respond to these risks and uncertainties might adversely affect the sales in our ecommerce business, as well as damage our reputation and brands.
Additionally, the success of our ecommerce business and the satisfaction of our consumers depends on their timely receipt of our products. The efficient flow of our products requires that our company-operated and third-party operated distribution facilities have adequate capacity to support the current level of ecommerce operations and any anticipated increased levels that may follow from the growth of our ecommerce business. If we encounter difficulties with our distribution facilities or in our relationships with the third parties who operate the facilities, or if any facilities were to shut down for any reason, including as a result of fire or other natural disaster, we could face shortages of inventory, resulting in "out of stock" conditions in the ecommerce sites we operate, those operated by our wholesale customers or other third parties, incur significantly higher costs and longer lead times associated with distributing our products to our consumers and experience dissatisfaction from our consumers.  Any of these issues could have a material adverse effect on our business and harm our reputation.
Any major disruption or failure of our information technology systems could adversely affect our business and operations.
We rely on various information technology systems, owned by us and third parties, to manage our operations. Over the last several years, we have been and continue to implement modifications and upgrades to our systems, including making changes to legacy systems, replacing legacy systems with successor systems with new functionality and acquiring new systems with new functionality. These types of activities subject us to inherent costs and risks associated with replacing and changing these systems, including impairment of our ability to fulfill customer orders, potential disruption of our internal control structure, substantial capital expenditures, additional administration and operating expenses, retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time, and other risks and costs of delays or difficulties in transitioning to new systems or of integrating new systems into our current systems. Our system implementations may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. In addition, the difficulties with implementing new technology systems may cause disruptions in our business operations and have an adverse effect on our business and operations, if not anticipated and appropriately mitigated.
As we outsource functions, we become more dependent on the entities performing those functions. Disruptions or delays at our third-party service providers could adversely impact our operations.
As part of our long-term profitable growth strategy, we are continually looking for opportunities to provide essential business services in a more cost-effective manner. In some cases, this requires the outsourcing of functions or parts of functions that can be performed more effectively by external service providers. In 2014, we entered into an agreement with Wipro Limited to outsource certain information technology operations, and certain finance, human resource, consumer relations and customer service functions. While we believe we conduct appropriate diligence before entering into agreements with the outsourcing entity, the failure of one or more entities to meet our performance standards and expectations, including with respect to data security, provide them on a timely basis or to provide them at the prices we expect may have a material adverse effect on our results of operations or financial condition. In addition, we could face increased costs associated with finding replacement vendors or hiring new employees in order to return these services in-house. We may outsource other functions in the future, which would increase our reliance on third parties.


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We face cybersecurity risks and may incur increasing costs in an effort to minimize those risks.
We utilize systems and websites that allow for the secure storage and transmission of proprietary or confidential information regarding our customers, employees, and others, including credit card information and personal identification information. As evidenced by companies who have recently suffered serious security breaches, we may be vulnerable to, and unable to anticipate or detect data security breaches and data loss, including rapidly evolving and increasingly sophisticated cybersecurity attacks. In addition, data and security breaches can also occur as a result of a breach by us or our employees or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. In addition to our own databases, we use third-party service providers to store, process and transmit confidential or sensitive information on our behalf. Although we contractually require these service providers to implement and use reasonable security measures, we cannot control third parties and cannot guarantee that a security breach will not occur in the future either at their location or within their systems.
A security breach may expose us to a risk of loss or misuse of this information, and could result in significant costs to us, which may include, among others, potential liabilities to payment card networks for reimbursement of credit card fraud and card reissuance costs, including fines and penalties, potential liabilities from governmental or third-party investigations, proceedings or litigation and diversion of management attention. We could also experience delays or interruptions in our ability to function in the normal course of business, including delays in the fulfillment or cancellation of customer orders or disruptions in the manufacture and shipment of products. In addition, actual or anticipated attacks may cause us to incur costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants. Any compromise or breach of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, and a loss of confidence in our security measures, which could have an adverse effect on our results of operations and our reputation.
In addition, the regulatory environment surrounding information security and privacy is increasingly demanding, with frequent imposition of new and changing requirements. Compliance with changes in privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes.
We currently rely on contract manufacturing of our products. Our inability to secure production sources meeting our quality, cost, working conditions and other requirements, or failures by our contractors to perform, could harm our sales, service levels and reputation.
We source approximately 97% of our products from independent contract manufacturers who purchase fabric and make our products and may also provide us with design and development services. As a result, we must locate and secure production capacity. We depend on independent manufacturers to maintain adequate financial resources, including access to sufficient credit, secure a sufficient supply of raw materials, and maintain sufficient development and manufacturing capacity in an environment characterized by continuing cost pressure and demands for product innovation and speed-to-market. In addition, we currently do not have any material long-term contracts with any of our independent manufacturers. Under our current arrangements with our independent manufacturers, these manufacturers generally may unilaterally terminate their relationship with us at any time. Finally, while we have historically worked with numerous manufacturers, in the past several years we have begun consolidating the number of independent manufacturers from which we source our products. Reliance on a fewer number of independent manufacturers involves risk and any difficulties or failures to perform by our independent contract manufacturers could cause delays in product shipments or otherwise negatively affect our results of operations.
Our dependence on contract manufacturing could subject us to difficulty in obtaining timely delivery of products of acceptable quality. For example, a contractor's failure to ship products to us in a timely manner or to meet our quality standards, or interference with our ability to receive shipments due to factors such as port or transportation conditions, could cause us to miss the delivery date requirements of our customers. Failing to make timely deliveries may cause our customers to cancel orders, refuse to accept deliveries, impose non-compliance charges, demand reduced prices, or reduce future orders, any of which could harm our sales and margins.
We require contract manufacturers to meet our standards in terms of working conditions, environmental protection, raw materials, security and other matters before we are willing to place business with them. As such, we may not be able to obtain the lowest-cost production. In addition, the labor and business practices of apparel manufacturers have received increased attention from the media, non-governmental organizations, consumers and governmental agencies in recent years. Any failure by our independent manufacturers to adhere to labor or other laws or appropriate labor or business practices, and the potential litigation, negative publicity and political pressure relating to any of these events, could harm our business and reputation.


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Our suppliers may be impacted by economic conditions and cycles and changing laws and regulatory requirements which could impact their ability to do business with us or cause us to terminate our relationship with them and require us to find replacements, which we may have difficulty doing.
Our suppliers are subject to the fluctuations in general economic cycles, and global economic conditions may impact their ability to operate their business. They may also be impacted by the increasing costs of raw materials, labor and distribution, resulting in demands for less attractive contract terms or an inability for them to meet our requirements or conduct their own businesses. The performance and financial condition of a supplier may cause us to alter our business terms or to cease doing business with a particular supplier, or change our sourcing practices generally, which could in turn adversely affect our own business and financial condition.
Regulatory developments such as the use of “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries could affect the sourcing and availability of raw materials used by our suppliers in the manufacturing of certain of our products. We have been and may continue to be subject to costs associated with regulations, including for the diligence pertaining to the presence of any conflict minerals used in our products and the cost of remediation and other changes to products, processes, or sources of supply as a consequence of such verification activities. The impact of the regulations may result in a limited pool of suppliers who provide conflict free metals, and we cannot assure you that we will be able to obtain products in sufficient quantities or at competitive prices. Also, because our supply chain is complex, we may face reputational challenges with our consumers and other stakeholders if we are unable to sufficiently verify the origins for all metals used in the products that we sell.
If one or more of our counterparty financial institutions default on their obligations to us, we may incur significant losses.
As part of our hedging activities, we enter into transactions involving derivative financial instruments, which may include forward contracts, commodity futures contracts, option contracts, collars and swaps, with various financial institutions. In addition, we have significant amounts of cash, cash equivalents and other investments on deposit or in accounts with banks or other financial institutions in the United States and abroad. As a result, we are exposed to the risk of default by or failure of counterparty financial institutions. The risk of counterparty default or failure may be heightened during economic downturns and periods of uncertainty in the financial markets. If one of our counterparties were to become insolvent or file for bankruptcy, our ability to recover losses incurred as a result of default or our assets that are deposited or held in accounts with such counterparty may be limited by the counterparty’s liquidity or the applicable laws governing the insolvency or bankruptcy proceedings. In the event of default or failure of one or more of our counterparties, we could incur significant losses, which could negatively impact our results of operations and financial condition.
The loss of members of the Company’s executive management and other key employees could harm our business.
Our future success depends in part on the continued service of our executive management team and other key employees, and the loss of the services of any key individual could harm our business. Our future success depends, in part, on our ability to recruit, retain and motivate our employees sufficiently, both to maintain our current business and to execute our strategic initiatives. Competition for experienced and well-qualified employees in our industry is particularly intense in many of the places where we do business, and we may not be successful in attracting and retaining such personnel.
Most of the employees in our production and distribution facilities are covered by collective bargaining agreements, and any material job actions could negatively affect our results of operations.
In North America, most of our distribution employees are covered by various collective bargaining agreements, and outside North America, most of our production and distribution employees are covered by either industry-sponsored and/or government-sponsored collective bargaining mechanisms. Any work stoppages or other job actions by these employees could harm our business and reputation.
Our licensees may not comply with our product quality, manufacturing standards, marketing and other requirements which could negatively affect our reputation and business.
We license our trademarks to third parties for manufacturing, marketing and distribution of various products. While we enter into comprehensive agreements with our licensees covering product design, product quality, sourcing, manufacturing, marketing and other requirements, our licensees may not comply fully with those agreements. Non-compliance could include marketing products under our brand names that do not meet our quality and other requirements or engaging in manufacturing practices that do not meet our supplier code of conduct. These activities could harm our brand equity, our reputation and our business.


13


Our success depends on the continued protection of our trademarks and other proprietary intellectual property rights.
Our trademarks and other intellectual property rights are important to our success and competitive position, and the loss of or inability to enforce trademark and other proprietary intellectual property rights could harm our business. We devote substantial resources to the establishment and protection of our trademark and other proprietary intellectual property rights on a global basis. Our efforts to establish and protect our trademark and other proprietary intellectual property rights may not be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products. Unauthorized copying of our products or unauthorized use of our trademarks or other proprietary rights may not only erode sales of our products but may also cause significant reputational harm to our brand names and our ability to effectively represent ourselves to our customers, contractors, suppliers and/or licensees. Moreover, others may seek to assert rights in, or ownership of, our trademarks and other intellectual property, including through civil and/or criminal prosecution. We may not be able to successfully resolve those claims, which may result in financial liability and criminal penalties. In addition, the laws and enforcement mechanisms of some foreign countries may not allow us to protect our proprietary rights to the same extent as we are able to in the United States and other countries.
We have substantial liabilities and cash requirements associated with postretirement benefits, pension and our deferred compensation plans.
Our postretirement benefits, pension, and our deferred compensation plans result in substantial liabilities on our balance sheet. These plans and activities have and will generate substantial cash requirements for us, and these requirements may increase beyond our expectations in future years based on changing market conditions. The difference between plan obligations and assets, or the funded status of the plans, is a significant factor in determining the net periodic benefit costs of our pension plans and the ongoing funding requirements of those plans. Many variables, such as changes in interest rates, mortality rates, health care costs, investment returns, and/or the market value of plan assets can affect the funded status of our defined benefit pension, other postretirement, and postemployment benefit plans and cause volatility in the net periodic benefit cost and future funding requirements of the plans. Plan liabilities may impair our liquidity, have an unfavorable impact on our ability to obtain financing and place us at a competitive disadvantage compared to some of our competitors who do not have such liabilities and cash requirements.
Natural disasters, public health crisis, political crisis, and other catastrophic events or other events outside of our control may damage our facilities or the facilities of third parties on which we depend, and could impact consumer spending.
Our global headquarters and the headquarters of our Americas region are both located in California near major geologic faults that have experienced earthquakes in the past. An earthquake or other natural disaster or the loss of power caused by power shortages could disrupt operations or impair critical systems. Any of these disruptions or other events outside of our control could affect our business negatively, harming our operating results. In addition, if any of our facilities, including our manufacturing, finishing or distribution facilities or our company-operated or franchised stores, or the facilities of our suppliers or customers, is affected by natural disasters, such as earthquakes, tsunamis, power shortages, floods or monsoons; public health crisis, such as pandemics and epidemics; political crisis, such as terrorism, war, political instability or other conflict; or other events outside of our control, our business and operating results could suffer. Moreover, these types of events could negatively impact consumer spending in the impacted regions or depending upon the severity, globally, which could adversely impact our operating results. Disasters occurring at our vendors’ manufacturing facilities could impact our reputation and our customers’ perception of our brands.
Risks Relating to Our Debt
We have debt and interest payment requirements at a level that may restrict our future operations.
As of November 29, 2015, we had approximately $1.2 billion of debt, of which all but approximately $99.0 million was unsecured, and we had $658.6 million of additional borrowing capacity under our amended and restated senior secured revolving credit facility. Our debt requires us to dedicate a substantial portion of any cash flow from operations to the payment of interest and principal due under our debt, which will reduce funds available for other business purposes, and result in us having lower net income than we would otherwise have had. This dedicated use of cash could impact our ability to successfully compete by, for example:
increasing our vulnerability to general adverse economic and industry conditions;
limiting our flexibility in planning for or reacting to changes in our business and industry;
placing us at a competitive disadvantage compared to some of our competitors that have less debt; and
limiting our ability to obtain additional financing required to fund working capital and capital expenditures and for other general corporate purposes.


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In addition, borrowings under our amended and restated senior secured revolving credit facility bear interest at variable rates. As a result, increases in market interest rates could require a greater portion of our cash flow to be used to pay interest, which could further hinder our operations. Increases in market interest rates may also affect the trading price of our debt securities that bear interest at a fixed rate. Our ability to satisfy our obligations and to reduce our total debt depends on our future operating performance and on economic, financial, competitive and other factors, many of which are beyond our control.
Restrictions in our notes, indentures and amended and restated senior secured revolving credit facility may limit our activities, including dividend payments, share repurchases and acquisitions.
Our amended and restated senior secured revolving credit facility and the indentures relating to our senior unsecured notes and our Yen-denominated Eurobonds contain restrictions, including covenants limiting our ability to incur additional debt, grant liens, make acquisitions and other investments, prepay specified debt, consolidate, merge or acquire other businesses, sell assets, pay dividends and other distributions, repurchase stock, and enter into transactions with affiliates. These restrictions, in combination with our leveraged condition, may make it more difficult for us to successfully execute our business strategy, grow our business or compete with companies not similarly restricted.
If our foreign subsidiaries are unable to distribute cash to us when needed, we may be unable to satisfy our obligations under our debt securities, which could force us to sell assets or use cash that we were planning to use elsewhere in our business.
We conduct our international operations through foreign subsidiaries and we only receive the cash that remains after our foreign subsidiaries satisfy their obligations. We may depend upon funds from our foreign subsidiaries for a portion of the funds necessary to meet our debt service obligations. Any agreements our foreign subsidiaries enter into with other parties, as well as applicable laws and regulations limiting the right and ability of non-U.S. subsidiaries and affiliates to pay dividends and remit cash to affiliated companies, may restrict the ability of our foreign subsidiaries to pay dividends or make other distributions to us. If those subsidiaries are unable to pass on the amount of cash that we need, we may be unable to make payments on our debt obligations, which could force us to sell assets or use cash that we were planning on using elsewhere in our business, which could hinder our operations and affect the trading price of our debt securities.



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Item 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.
Item 2.
PROPERTIES
We conduct manufacturing, distribution and administrative activities in owned and leased facilities. We operate two manufacturing-related facilities abroad and seven distribution centers around the world. We have renewal rights for most of our property leases. We anticipate that we will be able to extend these leases on terms satisfactory to us or, if necessary, locate substitute facilities on acceptable terms. We believe our facilities and equipment are in good condition and are suitable for our needs. Information about our key operating properties in use as of November 29, 2015, is summarized in the following table:
 
Location
 
Primary Use
 
Leased/Owned
 
 
Americas
 
 
 
 
 
 
San Francisco, CA
 
Design and Product Development
 
Leased
 
 
Hebron, KY
 
Distribution
 
Owned
 
 
Canton, MS
 
Distribution
 
Owned
 
 
Henderson, NV
 
Distribution
 
Owned
 
 
Etobicoke, Canada
 
Distribution
 
Owned
 
 
Cuautitlan, Mexico
 
Distribution
 
Leased
 
 
 
 
 
 
 
 
 
Europe
 
 
 
 
 
 
Plock, Poland
 
Manufacturing and Finishing
 
Leased(1)
 
 
Northhampton, U.K.
 
Distribution
 
Owned
 
 
 
 
 
 
 
 
 
Asia
 
 
 
 
 
 
Adelaide, Australia
 
Distribution
 
Leased
 
 
Cape Town, South Africa
 
Manufacturing, Finishing and Distribution
 
Leased
 
______________
(1)
Building and improvements are owned but subject to a ground lease.
Our global headquarters and the headquarters of our Americas region are both located in leased premises in San Francisco, California. Our Europe and Asia headquarters are located in leased premises in Diegem, Belgium and Singapore, respectively. In addition to the above, we operate finance shared service centers in Eugene, Oregon and Singapore. We also operate a back-up data center located in Westlake, Texas. As of November 29, 2015, we also leased or owned 87 administrative and sales offices in 41 countries, as well as leased 13 warehouses in seven countries.
In addition, as of November 29, 2015, we had 656 company-operated retail and outlet stores in leased premises in 31 countries. We had 228 stores in the Americas region, 249 stores in the Europe region and 179 stores in the Asia region.
Item 3.
LEGAL PROCEEDINGS
In the ordinary course of business, we have various pending cases involving contractual matters, facility and employee-related matters, distribution matters, product liability claims, trademark infringement and other matters. We do not believe any of these pending legal proceedings will have a material impact on our financial condition, results of operations or cash flows.
Item 4.
MINE SAFETY DISCLOSURES
Not applicable. 


16


PART II
Item 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is primarily owned by descendants of the family of Levi Strauss and their relatives. Shares of our common stock are not publicly held or traded. All shares are subject to a stockholders' agreement. The agreement, which expires in April 2019, unless otherwise extended pursuant to its terms as further described in Item 12, limits the transfer of shares to other holders, family members, specified charities and foundations and back to the Company. The agreement does not provide for registration rights or other contractual devices for forcing a public sale of shares or certificates, or other access to liquidity.
As of February 8, 2016, there were 273 record holders of our common stock. Our shares are not registered on any national securities exchange, there is no established public trading market for our shares and none of our shares are convertible into shares of any other class of stock or other securities.
We paid a cash dividend of $50.0 million on our common stock in the second quarter of 2015, and cash dividends of $30.0 million and $25.1 million in the first half of 2014 and 2013, respectively. Subsequent to the fiscal year end, on February 9, 2016, our Board of Directors declared a cash dividend of $60.0 million. Please see Note 15 to our audited consolidated financial statements included in this report for more information. The Company does not have an established annual dividend policy. The Company will continue to review its ability to pay cash dividends at least annually, and dividends may be declared at the discretion of our board of directors depending upon, among other factors, our financial condition and compliance with the terms of our debt agreements. Our debt arrangements limit our ability to pay dividends. For more detailed information about these limitations, see Note 6 to our audited consolidated financial statements included in this report.
We did not repurchase any shares of common stock during the fourth quarter of the fiscal year ended November 29, 2015, in connection with the exercise of call or put rights under our 2006 Equity Incentive Plan. For more detailed information, see Note 11 to our audited consolidated financial statements included in this report.



17


Item 6.
SELECTED FINANCIAL DATA
The following table sets forth our selected historical consolidated financial data which are derived from our audited consolidated financial statements for fiscal 2015, 2014, 2013, 2012 and 2011. The financial data set forth below should be read in conjunction with, and are qualified by reference to, “Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations,” our audited consolidated financial statements for fiscal 2015, 2014 and 2013 and the related notes to those audited consolidated financial statements, included elsewhere in this report.
 
Year Ended November 29, 2015
 
Year Ended November 30, 2014
 
Year Ended November 24, 2013
 
Year Ended November 25, 2012
 
Year Ended November 27, 2011
 
(Dollars in thousands)
Statements of Income Data:
 
 
 
 
 
 
 
 
 
Net revenues
$
4,494,493

 
$
4,753,992

 
$
4,681,691

 
$
4,610,193

 
$
4,761,566

Cost of goods sold
2,225,512

 
2,405,552

 
2,331,219

 
2,410,862

 
2,469,327

Gross profit
2,268,981

 
2,348,440

 
2,350,472

 
2,199,331

 
2,292,239

Selling, general and administrative expenses
1,823,863

 
1,906,164

 
1,884,965

 
1,865,352

 
1,955,846

Restructuring, net
14,071

 
128,425

 

 

 

Operating income
431,047

 
313,851

 
465,507

 
333,979

 
336,393

Interest expense
(81,214
)
 
(117,597
)
 
(129,024
)
 
(134,694
)
 
(132,043
)
Loss on early extinguishment of debt
(14,002
)
 
(20,343
)
 
(689
)
 
(8,206
)
 
(248
)
Other income (expense), net
(25,433
)
 
(22,057
)
 
(13,181
)
 
4,802

 
(1,275
)
Income before taxes
310,398

 
153,854

 
322,613

 
195,881

 
202,827

Income tax expense
100,507

 
49,545

 
94,477

 
54,922

 
67,715

Net income
209,891

 
104,309

 
228,136

 
140,959

 
135,112

Net (income) loss attributable to noncontrolling interest
(455
)
 
1,769

 
1,057

 
2,891

 
2,841

Net income attributable to Levi Strauss & Co.
$
209,436

 
$
106,078

 
$
229,193

 
$
143,850

 
$
137,953

 
 
 
 
 
 
 
 
 
 
Statements of Cash Flow Data:
 
 
 
 
 
 
 
 
 
Net cash flow provided by (used for):
 
 
 
 
 
 
 
 
 
Operating activities
$
218,332

 
$
232,909

 
$
411,268

 
$
530,976

 
$
1,848

Investing activities
(80,833
)
 
(71,849
)
 
(92,798
)
 
(75,198
)
 
(140,957
)
Financing activities
(94,895
)
 
(341,676
)
 
(230,509
)
 
(250,939
)
 
77,707

Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
318,571

 
$
298,255

 
$
489,258

 
$
406,134

 
$
204,542

Working capital(1)
681,982

 
603,202

 
867,158

 
765,270

 
771,416

Total assets(1)
2,884,395

 
2,906,901

 
3,106,330

 
3,149,038

 
3,259,316

Total debt, excluding capital leases(1)
1,152,541

 
1,209,624

 
1,524,998

 
1,708,172

 
1,952,133

Total capital leases
12,907

 
12,142

 
10,833

 
2,022

 
3,713

Total Levi Strauss & Co. stockholders' equity (deficit)
330,268

 
153,243

 
171,666

 
(106,921
)
 
(165,592
)
Other Financial Data:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
$
102,044

 
$
109,474

 
$
115,720

 
$
122,608

 
$
117,793

Capital expenditures
102,308

 
73,396

 
91,771

 
83,855

 
130,580

Cash dividends paid
50,000

 
30,003

 
25,076

 
20,036

 
20,023

_____________
(1)
In the fourth quarter of 2015, we early adopted accounting standards impacting the presentation of debt issuance costs on our unsecured long-term debt and the classification of deferred income taxes. As a result of the early adoption of these standards, prior-period balances have been retrospectively adjusted. See Note 1 to our audited consolidated financial statements included in this report for more information on these accounting standards.



18


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
Overview
Our Company
We design, market and sell – directly or through third parties and licensees – products that include jeans, casual and dress pants, tops, shorts, skirts, jackets, footwear and related accessories for men, women and children around the world under our Levi’s®, Dockers®, Signature by Levi Strauss & Co.™ (“Signature”) and Denizen® brands.
Our business is operated through three geographic regions: Americas, Europe and Asia. Our products are sold in approximately 50,000 retail locations in more than 110 countries. We support our brands through a global infrastructure, developing, sourcing and marketing our products around the world. We distribute our Levi’s® and Dockers® products primarily through chain retailers and department stores in the United States and primarily through department stores, specialty retailers and approximately 2,100 franchised or other brand-dedicated stores and shop-in-shops outside of the United States. We also distribute our Levi’s® and Dockers® products through 656 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 26% of our net revenues in 2015, as compared to 25% in the same period in 2014, with our ecommerce sites representing approximately 13% of this revenue in 2015, as compared to 11% in the same period in 2014. In addition, we distribute our Levi’s® and Dockers® products through ecommerce sites operated by certain of our key wholesale customers and other third parties. We distribute products under our Signature and Denizen® brands primarily through mass channel retailers in the Americas.
Our Europe and Asia businesses, collectively, contributed approximately 39% of our net revenues and 37% of our regional operating income in 2015, as compared to 40% of our net revenues and 35% of our regional operating income in 2014. Sales of Levi’s® brand products represented approximately 85% of our total net sales in each of 2015 and 2014. Pants represented approximately 81% of our total units sold in 2015, as compared to 82% of our total units sold in 2014, and men's products generated approximately 77% of our total net sales in each of 2015 and 2014.
Our Objectives
Our key long-term objectives are to strengthen our brands globally in order to deliver sustainable profitable growth, generate strong cash flow and reduce our debt. Critical strategies to achieve these objectives include driving our profitable core business; expanding the reach of our brands and building a more balanced product portfolio; elevating the performance of our retail channel, including ecommerce; and leveraging our global scale to improve our cost structure.
For 2016, on a constant-currency basis, our financial objective is to grow full-year revenues, as compared to 2015, and improve full-year gross margin to approximately 51%. 
Global Productivity Initiative
In 2014, we announced and began to implement a global productivity initiative designed to streamline operations and fuel long-term profitable growth. We expect the majority of the actions related to our global productivity initiative will be implemented by the end of 2016, with a focus on redesigning business processes and identifying opportunities to reduce costs, increase efficiencies and further streamline processes in supporting functions, supply chain and planning. We believe this initiative, when completed, will generate net annualized benefits of $175 – $200 million, relative to the cost structure and profitability of the Company and foreign currency exchange rates prior to the commencement of this initiative. Actions taken to date for the global productivity initiative are expected to deliver approximately $125 – $150 million in net annualized savings, relative to the cost structure of the Company and foreign currency exchange rates prior to the commencement of this initiative.
We are unable at this time to make a good faith determination of cost estimates, or ranges of cost estimates, for additional actions associated with the global productivity initiative. Final estimates for headcount, timing and charges in certain areas of the international business are subject to completion of applicable local works council and other consultative processes. We expect additional savings in future periods to come from streamlining our planning and go-to-market strategies, implementing efficiencies across our retail, supply chain and distribution network, and continuing to pursue improved procurement practices. Additional restructuring charges will be recorded for these efforts as they become estimable and probable.


19


Trends Affecting Our Business
We believe the key business and marketplace factors that we are managing 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. Such factors include continuing pressures in the U.S. and international economies related to underemployment, slow real wage growth, muted growth in emerging markets, a shift in consumer spending to non-apparel categories such as consumer technology and interest-rate sensitive durable goods, and other similar macroeconomic elements.
Wholesaler/retailer dynamics and wholesale channels remain challenged by slowed growth prospects due to increased competition from vertically-integrated specialty stores, fast-fashion retail, and ecommerce shopping, and pricing transparency enabled by proliferation of online technologies. As a result, 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 raised competitiveness in the retail market.
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.
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 these can bring additional pressure on us and other wholesalers and retailers to shorten lead-times, reduce costs and raise product prices.
While currency values are in constant flux, we expect that the appreciation of the U.S. Dollar against various foreign currencies, particularly the Euro, will continue to impact our financial results, affecting translation, margins, as well as traffic in stores located in or near major domestic tourist attractions.
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.
Our 2015 Results
Our 2015 results reflect constant-currency net revenues growth and an increase in operating income, reflecting continued implementation of our global productivity initiative.
 
Net revenues.  Compared to 2014, consolidated net revenues decreased by 5% on a reported basis, but increased by 1% on a constant-currency basis, primarily reflecting the expansion of the retail network in Europe and Asia, partially offset by a decline in the Americas reflecting the inclusion of an additional sales week in the prior year.
Operating income.  Compared to 2014, consolidated operating income increased by 37% and operating margin improved to 10%, primarily reflecting lower restructuring charges in 2015 and an improvement in our constant-currency gross margin, partially offset by the effects of currency.
Cash flows.  Cash flows provided by operating activities were $218 million for 2015 as compared to $233 million for 2014, primarily reflecting higher payments to vendors and higher pension payments, partially offset by higher trade receivable collections, lower inventory levels and lower interest payments.


20


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. Fiscal 2015 and 2013 were 52-week years ending on November 29, 2015, and November 24, 2013, respectively. Fiscal 2014 was a 53-week year ending on November 30, 2014. Each quarter of fiscal years 2015, 2014 and 2013 consisted of 13 weeks, with the exception of the fourth quarter of 2014, which consisted of 14 weeks.
Segments.  We manage our business according to three regional segments: the Americas, Europe and Asia. Effective as of the beginning of 2014, our reporting segments were revised to combine our Middle East and North Africa markets, previously managed by our Europe region, with our Asia region. Financial information attributable to these markets are not significant to any of our regional segments individually in any of the periods presented herein, and accordingly, business segment information for the prior periods has not been revised. Effective as of the beginning of 2015, our regional licensing revenue, previously recorded centrally in our Americas region, was revised to be recorded in our respective regions. Regional licensing revenues are not significant to any of our regional segments individually in any of the periods presented herein, and accordingly, business segment information for the prior periods has not been revised.
Classification.  Our classification of certain significant revenues and expenses reflects the following:
Net revenues is primarily comprised of sales of products to wholesale customers, including franchised stores, and direct sales to consumers at our company-operated 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. Net revenues also includes royalties earned from the use of our trademarks by third-party licensees in connection with the manufacturing, advertising and distribution of trademarked products.
Cost of goods sold is primarily comprised of product costs, labor and related overhead, sourcing costs, inbound freight, internal transfers, and the cost of operating our remaining manufacturing facilities, including the related depreciation expense.
Selling costs include, among other things, all occupancy costs and depreciation associated with our company-operated stores and commissions associated with our company-operated shop-in-shops, as well as costs associated with our ecommerce operations.
We reflect substantially all distribution costs in SG&A, including costs related to receiving and inspection at distribution centers, warehousing, shipping to our customers, handling, and certain other activities associated with our distribution network.
Gross margins may not be comparable to those of other companies in our industry since some companies may include costs related to their distribution network and occupancy costs associated with company-operated stores in cost of goods sold.
Constant currency.  Effective as of the beginning of 2014, constant-currency comparisons are based on translating local currency amounts in the prior-year period at actual foreign exchange rates for the current year. Prior to 2014, local currency amounts were translated utilizing foreign exchange rates used in our internal planning process. There was no significant impact to our constant-currency comparisons as a result of this change. 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.


21


Results of Operations
2015 compared to 2014
The following table summarizes, for the periods indicated, our consolidated statements of income, the changes in these items from period to period and these items expressed as a percentage of net revenues:
 
Year Ended
 
November 29,
2015
 
November 30,
2014
 
%
Increase
(Decrease)
 
November 29,
2015
 
November 30,
2014
 
 
 
% of Net
Revenues
 
% of Net
Revenues
 
(Dollars in millions)
Net revenues
$
4,494.5

 
$
4,754.0

 
(5.5
)%
 
100.0
 %
 
100.0
 %
Cost of goods sold
2,225.5

 
2,405.6

 
(7.5
)%
 
49.5
 %
 
50.6
 %
Gross profit
2,269.0

 
2,348.4

 
(3.4
)%
 
50.5
 %
 
49.4
 %
Selling, general and administrative expenses
1,823.9

 
1,906.1

 
(4.3
)%
 
40.6
 %
 
40.1
 %
Restructuring, net
14.1

 
128.4

 
(89.0
)%
 
0.3
 %
 
2.7
 %
Operating income
431.0

 
313.9

 
37.3
 %
 
9.6
 %
 
6.6
 %
Interest expense
(81.2
)
 
(117.6
)
 
(30.9
)%
 
(1.8
)%
 
(2.5
)%
Loss on early extinguishment of debt
(14.0
)
 
(20.3
)
 
(31.2
)%
 
(0.3
)%
 
(0.4
)%
Other income (expense), net
(25.4
)
 
(22.1
)
 
15.3
 %
 
(0.6
)%
 
(0.5
)%
Income before income taxes
310.4

 
153.9

 
101.7
 %
 
6.9
 %
 
3.2
 %
Income tax expense
100.5

 
49.6

 
102.9
 %
 
2.2
 %
 
1.0
 %
Net income
209.9

 
104.3

 
101.2
 %
 
4.7
 %
 
2.2
 %
Net (income) loss attributable to noncontrolling interest
(0.5
)
 
1.8

 
(125.7
)%
 

 

Net income attributable to Levi Strauss & Co.
$
209.4

 
$
106.1

 
97.4
 %
 
4.7
 %
 
2.2
 %


22


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:
 
 
Year Ended
 
 
 
 
 
 
 
% Increase
(Decrease)
 
 
 
November 29,
2015
 
November 30,
2014
 
As
Reported
 
Constant
Currency
 
 
 
(Dollars in millions)
 
 
Net revenues:
 
 
 
 
 
 
 
 
 
Americas
$
2,726.5

 
$
2,862.9

 
(4.8
)%
 
(2.7
)%
 
 
Europe
1,016.4

 
1,143.3

 
(11.1
)%
 
7.8
 %
 
 
Asia
751.6

 
747.8

 
0.5
 %
 
7.7
 %
 
 
Total net revenues
$
4,494.5

 
$
4,754.0

 
(5.5
)%
 
1.2
 %
 
As compared to the same period in the prior year, total net revenues were affected unfavorably by changes in foreign currency exchange rates across all regions.
Americas.  Net revenues in our Americas region decreased on both reported and constant-currency bases, with currency affecting net revenues unfavorably by approximately $62 million.
Net revenues decreased primarily due to the inclusion of an additional sales week in the prior year, since 2014 had 53 fiscal weeks compared to 52 weeks in 2015, as well as a decline at wholesale in sales of Dockers® brand women's products due to our decision in the third quarter of 2014 to exit that business in the United States. Additionally, lower sales of both Levi's® and Dockers® brand men's products were offset by growth in Signature and Denizen® brands and at retail in Canada and Mexico.
Europe.  Net revenues in Europe decreased on a reported basis but increased on a constant-currency basis, with currency affecting net revenues unfavorably by approximately $200 million.
Net revenues increased from the expansion and performance of our company-operated retail network, particularly in the U.K. and Russia markets.
Asia.  Net revenues in Asia increased on both reported and constant-currency bases, with currency affecting net revenues unfavorably by approximately $50 million.
The increase in net revenues was primarily due to the expansion of our company-operated retail network as well as increased promotional activity across channels, primarily in China and India.


23


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: 
 
 
Year Ended
 
 
 
November 29,
2015
 
November 30,
2014
 
%
Increase
(Decrease)
 
 
 
(Dollars in millions)
 
 
Net revenues
$
4,494.5

 
$
4,754.0

 
(5.5
)%
 
 
Cost of goods sold
2,225.5

 
2,405.6

 
(7.5
)%
 
 
Gross profit
$
2,269.0

 
$
2,348.4

 
(3.4
)%
 
 
Gross margin
50.5
%
 
49.4
%
 
 
 
Currency translation unfavorably impacted gross profit by approximately $166 million. Gross margin improved primarily due to lower negotiated product costs and streamlined supply chain operations as well as price increases, partially offset by the unfavorable transactional impact of currency and product investment costs. Gross margin also benefited from our international retail growth.
Selling, general and administrative expenses
The following table shows our 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:
 
 
Year Ended
 
 
 
November 29,
2015
 
November 30,
2014
 
%
Increase
(Decrease)
 
November 29,
2015
 
November 30,
2014
 
 
 
 
 
% of Net
Revenues
 
% of Net
Revenues
 
 
 
(Dollars in millions)
 
 
Selling
$
734.1

 
$
730.9

 
0.4
 %
 
16.3
%
 
15.4
%
 
 
Advertising and promotion
276.4

 
272.8

 
1.3
 %
 
6.1
%
 
5.7
%
 
 
Administration
364.4

 
377.7

 
(3.5
)%
 
8.1
%
 
7.9
%
 
 
Other
418.3

 
466.4

 
(10.3
)%
 
9.3
%
 
9.8
%
 
 
Restructuring-related charges
30.7

 
27.6

 
11.3
 %
 
0.7
%
 
0.6
%
 
 
Lump-sum pension settlement loss

 
30.7

 
(100.0
)%
 

 
0.6
%
 
 
Total SG&A
$
1,823.9

 
$
1,906.1

 
(4.3
)%
 
40.6
%
 
40.1
%
 
Currency affected SG&A favorably by approximately $113 million as compared to the prior year. The constant-currency increase in SG&A reflected our strategic investments in our growth initiatives: direct-to-consumer retail and advertising. The constant-currency decline in our administrative and other costs reflected savings resulting from our global productivity initiative.
Selling.  Currency impacted selling expenses favorably by approximately $62 million as compared to the prior year. Higher selling expenses primarily reflected costs associated with the expansion of our company-operated store network and investment in our ecommerce business. We had 91 more company-operated stores at the end of 2015 than we did at the end of 2014.
Advertising and promotion.  Currency impacted advertising and promotion expense favorably by approximately $15 million as compared to the prior year. The increase as a percentage of net revenues reflected higher advertising spend as compared to the prior-year period, and in line with our constant-currency revenue growth.
Administration.  Currency impacted administration expenses favorably by approximately $16 million as compared to the prior year.
Other.  Other SG&A includes distribution, information resources, and marketing organization costs. Currency impacted other SG&A expenses favorably by approximately $20 million as compared to the prior year. Lower costs primarily reflected information resources and marketing organization savings resulting from our global productivity initiative. Lower costs also reflected a gain of $7.5 million in conjunction with the sale of our finishing and distribution facility in Turkey in the second quarter of 2015.


24


Restructuring-related charges.  Restructuring-related charges consist primarily of consulting fees incurred for our centrally-led cost-savings and productivity projects, as well as transition costs associated with our decision to outsource certain global business service activities. These related charges represent costs incurred associated with ongoing operations which will benefit future periods and thus were recorded in SG&A in our consolidated statements of income.
Lump-sum pension settlement loss.   Settlement loss consists of a noncash pension settlement charge taken in the fourth quarter of 2014 related to an early pension settlement for our U.S. pension plans.
Restructuring, net
For the year ended November 29, 2015, we recognized restructuring charges, net, of $14.1 million, as compared to $128.4 million for the same period in 2014, related to the global productivity initiative, consisting primarily of severance benefits, consulting fees and noncash pension and postretirement curtailment gains or losses.
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:
 
Year Ended
 
 
November 29,
2015
 
November 30,
2014
 
%
Increase
(Decrease)
 
November 29,
2015
 
 
November 30,
2014
 
 
 
 
% of Net
Revenues
 
 
% of Net
Revenues
 
 
(Dollars in millions)
 
Operating income:
 
 
 
 
 
 
 
 
 
 
 
Americas
$
523.7

 
$
531.1

 
(1.4
)%
 
19.2
%
 
 
18.6
%
 
Europe
184.4

 
181.0

 
1.8
 %
 
18.1
%
 
 
15.8
%
 
Asia
121.6

 
108.5

 
12.1
 %
 
16.2
%
 
 
14.5
%
 
Total regional operating income
829.7

 
820.6

 
1.1
 %
 
18.5
%
*
 
17.3
%
*
 
 
 
 
 
 
 
 
 
 
 
 
Corporate:
 
 
 
 
 
 
 
 
 
 
 
Restructuring, net
14.1

 
128.4

 
(89.0
)%
 
0.3
%
*
 
2.7
%
*
Restructuring-related charges
30.7

 
27.6

 
11.3
 %
 
0.7
%
*
 
0.6
%
*
Lump-sum pension settlement loss

 
30.7

 
(100.0
)%
 

*
 
0.6
%
*
Other corporate staff costs and expenses
353.9

 
320.0

 
10.6
 %
 
7.9
%
*
 
6.7
%
*
Corporate expenses
398.7

 
506.7

 
(21.3
)%
 
8.9
%
*
 
10.7
%
*
Total operating income
$
431.0

 
$
313.9

 
37.3
 %
 
9.6
%
*
 
6.6
%
*
Operating margin
9.6
%
 
6.6
%
 
 
 
 
 
 
 
 
______________
* Percentage of consolidated net revenues
Currency translation unfavorably affected total operating income by approximately $41 million as compared to the prior year.
Regional operating income.    
Americas.  Currency translation unfavorably affected operating income in the region by approximately $13 million as compared to the prior year. Higher constant-currency operating income and operating margin primarily reflected an improvement in the region's gross margin, partially offset by increased investment in retail and advertising and lower net revenues in the region.
Europe.  Currency translation unfavorably affected operating income by approximately $39 million as compared to the prior year. Operating income and operating margin increased primarily due to the region's higher net revenues, partially offset by increased investment in retail in the region.


25


Asia.  Currency translation unfavorably affected operating income by approximately $8 million as compared to the prior year. The improvement in operating income and operating margin primarily reflected an improvement in the region's gross margin as well as the region's higher revenues, partially offset by increased investment in retail and advertising in the region.
Corporate.  Corporate expenses represent costs that are not attributed to any of our regional operating segments. Included in corporate expenses are restructuring charges, the consulting fees incurred for our centrally-led cost-savings and productivity projects, other corporate staff costs, and in 2014, the noncash pension settlement charge. Currency translation favorably affected corporate expenses by approximately $19 million.
As compared to the prior year, other corporate staff costs and expenses increased primarily due to foreign currency transaction losses in 2015 related to our global sourcing organization's procurement of inventory on behalf of our foreign subsidiaries, of which approximately $25 million related to our Europe region and $6 million related to our Asia region; such amounts were immaterial in 2014.
Interest expense
Interest expense was $81.2 million for the year ended November 29, 2015, as compared to $117.6 million in the prior year. The decrease in interest expense was primarily due to lower average debt balances and lower average borrowing rates in 2015, resulting from our debt reduction and refinancing activities in 2014 and 2015.
The weighted-average interest rate on average borrowings outstanding for 2015 was 6.72%, as compared to 7.58% for 2014.
Loss on early extinguishment of debt
For the year ended November 29, 2015, we recorded a loss of $14.0 million on early extinguishment of debt as a result of our debt refinancing activities during 2015. The loss was comprised of tender and redemption premiums of $7.5 million, and the write-off of $3.5 million of unamortized debt issuance costs, and $3.0 million of other costs.
For the year ended November 30, 2014, we recorded a loss of $20.3 million on early extinguishment of debt as a result of our debt refinancing activities during 2014. The loss was comprised of redemption premiums of $15.2 million and the write-off of $5.1 million of unamortized debt issuance costs.
Other income (expense), net
Other income (expense), net, primarily consists of foreign exchange management activities and transactions. For the year ended November 29, 2015, we recorded net expense of $25.4 million as compared to $22.1 million for the prior year. The net expense in 2015 reflected net losses on our foreign currency denominated balances, partially offset by net gains on foreign exchange derivatives. The expense in 2014 reflected losses on our foreign currency denominated balances as well as losses on foreign exchange derivatives.
Income tax expense
Income tax expense was $100.5 million for the year ended November 29, 2015, compared to $49.6 million for the prior year. Our effective income tax rate was 32.4% for the year ended November 29, 2015, compared to 32.2% for the prior year.
The increase in the effective tax rate in 2015 was primarily due to a one-time, incremental annual tax benefit associated with multi-year California Enterprise Zone credits recognized in 2014, partially offset by a $8.0 million discrete tax benefit recognized in 2015 attributable to deductions taken for losses on the investment in a consolidated subsidiary.
The effective tax rate in 2014 included a tax benefit that we recorded in 2014 as a result of reversing a deferred tax liability associated with the change in assertion during the period to indefinitely reinvest certain undistributed foreign earnings.
For the year ended November 29, 2015, management asserted indefinite reinvestment on $100.0 million of undistributed foreign earnings, as management determined that this amount is required to meet ongoing working capital needs in certain foreign subsidiaries; no U.S. income taxes have been provided for such earnings. If the Company were to repatriate such foreign earnings to the United States, the deferred tax liability associated with such earnings would have been approximately $26.5 million.


26


2014 compared to 2013
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:
 
Year Ended
 
November 30,
2014
 
November 24,
2013
 
%
Increase
(Decrease)
 
November 30,
2014
 
November 24,
2013
 
 
 
% of Net
Revenues
 
% of Net
Revenues
 
(Dollars in millions)
Net revenues
$
4,754.0

 
$
4,681.7

 
1.5
 %
 
100.0
 %
 
100.0
 %
Cost of goods sold
2,405.6

 
2,331.2

 
3.2
 %
 
50.6
 %
 
49.8
 %
Gross profit
2,348.4

 
2,350.5

 
(0.1
)%
 
49.4
 %
 
50.2
 %
Selling, general and administrative expenses
1,906.1

 
1,885.0

 
1.1
 %
 
40.1
 %
 
40.3
 %
Restructuring, net
128.4

 

 

 
2.7
 %
 

Operating income
313.9

 
465.5

 
(32.6
)%
 
6.6
 %
 
9.9
 %
Interest expense
(117.6
)
 
(129.0
)
 
(8.9
)%
 
(2.5
)%
 
(2.8
)%
Loss on early extinguishment of debt
(20.3
)
 
(0.7
)
 
2,852.5
 %
 
(0.4
)%
 

Other income (expense), net
(22.1
)
 
(13.2
)
 
67.3
 %
 
(0.5
)%
 
(0.3
)%
Income before income taxes
153.9

 
322.6

 
(52.3
)%
 
3.2
 %
 
6.9
 %
Income tax expense
49.6

 
94.5

 
(47.6
)%
 
1.0
 %
 
2.0
 %
Net income
104.3

 
228.1

 
(54.3
)%
 
2.2
 %
 
4.9
 %
Net loss attributable to noncontrolling interest
1.8

 
1.1

 
67.4
 %
 

 

Net income attributable to Levi Strauss & Co.
$
106.1

 
$
229.2

 
(53.7
)%
 
2.2
 %
 
4.9
 %


27


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:
 
 
Year Ended
 
 
 
 
 
 
 
% Increase
(Decrease)
 
 
 
November 30,
2014
 
November 24,
2013
 
As
Reported
 
Constant
Currency
 
 
 
(Dollars in millions)
 
 
Net revenues:
 
 
 
 
 
 
 
 
 
Americas
$
2,862.9

 
$
2,851.0

 
0.4
%
 
1.0
%
 
 
Europe
1,143.3

 
1,103.5

 
3.6
%
 
4.1
%
 
 
Asia
747.8

 
727.2

 
2.8
%
 
6.7
%
 
 
Total net revenues
$
4,754.0

 
$
4,681.7

 
1.5
%
 
2.6
%
 
As compared to the same period in the prior year, total net revenues were affected unfavorably by changes in foreign currency exchange rates across all regions.
Americas.  Net revenues in our Americas region increased on both reported and constant-currency bases, with currency affecting net revenues unfavorably by approximately $16 million.
Net revenues increased due to the inclusion of an additional sales week, since 2014 had 53 fiscal weeks compared to 52 weeks in 2013. Declines at wholesale in sales of Levi's® women's and Dockers® products were, partially offset by a higher volume of sales at our company-operated retail network on increased promotional activity.
Europe. Net revenues in Europe increased on both reported and constant-currency bases, with currency affecting net revenues unfavorably by approximately $5 million, and with respect to the fourth quarter, by approximately $19 million.
Net revenues increased from the expansion and performance of our company-operated retail network, as well as the inclusion of an additional sales week in 2014.
Asia. Net revenues in Asia increased on both reported and constant-currency bases, with currency affecting net revenues unfavorably by approximately $26 million.
The increase in net revenues was primarily due to higher promotional activity across the region, with improved product availability during the Chinese New Year sales season. Higher traditional wholesale revenues, particularly in Japan due to changes in customer discount programs as well as inventory disposition efforts, was partially offset by the liquidation in the prior year of Denizen® brand products as we exited that business in Asia.
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:
 
 
Year Ended
 
 
 
November 30,
2014
 
November 24,
2013
 
%
Increase
(Decrease)
 
 
 
(Dollars in millions)
 
 
Net revenues
$
4,754.0

 
$
4,681.7

 
1.5
 %
 
 
Cost of goods sold
2,405.6

 
2,331.2

 
3.2
 %
 
 
Gross profit
$
2,348.4

 
$
2,350.5

 
(0.1
)%
 
 
Gross margin
49.4
%
 
50.2
%
 
 
 
Currency affected gross profit unfavorably by approximately $22 million. Gross margin declined primarily due to higher discounted sales across channels, reflecting a promotional marketplace and our efforts to manage our inventory to more appropriate levels, as well as product investment costs. Higher cost inflation was mitigated by improvements in supply chain operations as a result of the global productivity initiative. Offsetting the decline in gross margin was increased revenue contribution from company-operated retail network.


28


Selling, general and administrative expenses
The following table shows our 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:
 
 
Year Ended
 
 
 
November 30,
2014
 
November 24,
2013
 
%
Increase
(Decrease)
 
November 30,
2014
 
November 24,
2013
 
 
 
 
 
% of Net
Revenues
 
% of Net
Revenues
 
 
 
(Dollars in millions)
 
 
Selling
$
730.9

 
$
719.2

 
1.6
 %
 
15.4
%
 
15.4
%
 
 
Advertising and promotion
272.8

 
274.0

 
(0.4
)%
 
5.7
%
 
5.9
%
 
 
Administration
377.7

 
399.8

 
(5.5
)%
 
7.9
%
 
8.5
%
 
 
Other
466.4

 
492.0

 
(5.2
)%
 
9.8
%
 
10.5
%
 
 
Restructuring-related charges
27.6

 

 

 
0.6
%
 

 
 
Lump-sum pension settlement loss
30.7

 

 

 
0.6
%
 

 
 
Total SG&A
$
1,906.1

 
$
1,885.0

 
1.1
 %
 
40.1
%
 
40.3
%
 
Currency affected SG&A favorably by approximately $15 million as compared to the prior year.
Selling.  We had 36 more company-operated stores at the end of 2014 than we did at the end of 2013. Higher expenses associated with the expansion of our company-operated store network were partially offset by savings resulting from our global productivity initiative.
Advertising and promotion.  The decrease as a percentage of net revenues reflected lower advertising spend, particularly in the fourth quarter as compared to the prior-year period.
Administration.  Administration expenses decreased primarily due to savings resulting from our global productivity initiative as well as lower amortization expense for intangible assets, as certain intangible assets became fully amortized beginning in 2014.
Other.  Other SG&A includes distribution, information resources, and marketing organization costs. Lower costs primarily reflected information resources and marketing organization savings resulting from our global productivity initiative.
Restructuring-related charges. Restructuring-related charges consist primarily of consulting fees incurred for our centrally-led cost-savings and productivity projects. These related charges represent costs incurred associated with ongoing operations to benefit future periods and were recorded in SG&A in our consolidated statements of income.
Lump-sum pension settlement loss. Settlement loss consist of a noncash pension settlement charge taken in the fourth quarter related to an early pension settlement for our U.S. pension plans.
Restructuring, net
For the year ended November 30, 2014, the Company recognized restructuring charges, net, of $128.4 million related to the global productivity initiative, consisting primarily of severance benefits, consulting fees and noncash pension and postretirement curtailment gains or losses.


29


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:
 
Year Ended
 
 
November 30,
2014
 
November 24,
2013
 
%
Increase
(Decrease)
 
November 30,
2014
 
 
November 24,
2013
 
 
 
 
% of Net
Revenues
 
 
% of Net
Revenues
 
 
(Dollars in millions)
 
Operating income:
 
 
 
 
 
 
 
 
 
 
 
Americas
$
531.1

 
$
510.5

 
4.0
 %
 
18.6
%
 
 
17.9
%
 
Europe
181.0

 
167.6

 
8.0
 %
 
15.8
%
 
 
15.2
%
 
Asia
108.5

 
123.7

 
(12.3
)%
 
14.5
%
 
 
17.0
%
 
Total regional operating income
820.6

 
801.8

 
2.3
 %
 
17.3
%
*
 
17.1
%
*
 
 
 
 
 
 
 
 
 
 
 
 
Corporate:
 
 
 
 
 
 
 
 
 
 
 
Restructuring, net
128.4

 

 

 
2.7
%
*
 

*
Restructuring-related charges
27.6

 

 

 
0.6
%
*
 

*
Lump-sum pension settlement loss
30.7

 

 

 
0.6
%
*
 

*
Other corporate staff costs and expenses
320.0

 
336.3

 
(4.8
)%
 
6.7
%
*
 
7.2
%
*
Corporate expenses
506.7

 
336.3

 
50.7
 %
 
10.7
%
*
 
7.2
%
*
Total operating income
$
313.9

 
$
465.5

 
(32.6
)%
 
6.6
%
*
 
9.9
%
*
Operating margin
6.6
%
 
9.9
%
 
 
 
 
 
 
 
 
______________
* Percentage of consolidated net revenues
Currency unfavorably affected total operating income by approximately $7 million.
Regional operating income.    
Americas.  The increase in operating income and operating margin primarily reflected the region's lower SG&A, reflecting savings from our global productivity initiative and the lower amortization expense for intangible assets, partially offset by lower gross margin.
Europe.  The increase in operating income and operating margin primarily reflected the region's higher revenues.
Asia.  The decrease in operating income and operating margin primarily reflected the region's lower gross margin.
Corporate.  Corporate expenses are SG&A that are not attributed to any of our regional operating segments. Included in corporate expenses are restructuring charges, the consulting fees incurred for our centrally-led cost-savings and productivity projects, and the noncash pension settlement charge. As compared to the prior year, other corporate staff costs and expenses decreased primarily due to savings resulting from our global productivity initiative.
Interest expense
Interest expense was $117.6 million for the year ended November 30, 2014, as compared to $129.0 million in the prior year. The decrease in 2014 was due to lower average debt balances in 2014, which resulted from our redemption of Euro Senior Notes due in 2018 in two tranches, the first of which was redeemed in May 2014, and the remainder was redeemed in November 2014. Interest expense also decreased due to lower interest expense on our deferred compensation plans.
The weighted-average interest rate on average borrowings outstanding for 2014 was 7.63%, as compared to 7.52% for 2013.
Loss on early extinguishment of debt
For the year ended November 30, 2014, we recorded a loss of $20.3 million on early extinguishment of debt as a result of our debt refinancing activities during 2014. The loss was comprised of redemption premiums of $15.2 million and the write-off of $5.1 million unamortized debt issuance costs.


30


For the year ended November 24, 2013, we recorded a loss of $0.7 million on early extinguishment of debt as a result of our debt refinancing activities during the second quarter of 2013. The loss was comprised of the write-off of the remaining unamortized discount and unamortized debt issuance costs.
Other income (expense), net
Other income (expense), net, primarily consists of foreign exchange management activities and transactions. For the year ended November 30, 2014, we recorded expense of $22.1 million as compared to $13.2 million for the prior year. The expense in 2014 reflected losses on our foreign currency denominated balances as well as losses on foreign exchange derivatives, which economically hedge future foreign currency cash flow obligations. The expense in 2013 primarily reflected losses on our foreign currency denominated balances.
Income tax expense
Income tax expense was $49.6 million for the year ended November 30, 2014, compared to $94.5 million for the prior year. Our effective income tax rate was 32.2% for the year ended November 30, 2014, compared to 29.3% for the prior year.
The increase in the effective tax rate in 2014 was primarily due to a $15.2 million discrete tax benefit recognized in 2013, attributable to the finalization in July 2013 of the U.S. federal tax audit of tax years 2003 – 2008, and an unfavorable impact in the mix of foreign earnings, partially offset by a $3.7 million tax benefit that we recorded during the year ended November 30, 2014, as a result of reversing a deferred tax liability associated with undistributed foreign earnings.
For the year ended November 30, 2014, management asserted indefinite reinvestment on $100.0 million of undistributed foreign earnings, as management determined that this amount is required to meet ongoing working capital needs in certain foreign subsidiaries; no U.S. income taxes have been provided for such earnings. If the Company were to repatriate such foreign earnings to the United States, the deferred tax liability associated with such earnings would have been approximately $27.3 million.
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 are borrowers under a senior secured revolving credit facility. The facility is an asset-based facility, in which the borrowing availability is primarily based on the value of our U.S. Levi’s® trademarks and the levels of accounts receivable and inventory in the United States and Canada. The maximum availability under the facility is $850 million, of which $800 million is available to us for revolving loans in U.S. Dollars and $50 million is available to us for revolving loans either in U.S. Dollars or Canadian Dollars.
As of November 29, 2015, we had borrowings of $99.0 million under the credit facility, all of which is classified as short-term debt. Unused availability under the facility was $658.6 million, as our total availability of $718.7 million, based on collateral levels as defined by the agreement, was reduced by $60.1 million of other credit-related instruments.
As of November 29, 2015, we had cash and cash equivalents totaling approximately $318.6 million, resulting in a total liquidity position (unused availability and cash and cash equivalents) of $977.2 million.
Cash uses
Our principal cash requirements include working capital, capital expenditures, payments of principal and interest on our debt, payments of taxes, contributions to our pension plans and payments for postretirement health benefit plans, settlement of shares issued under our 2006 Equity Incentive Plan, as amended to date (“EIP”) and, if market conditions warrant, occasional investments in, or acquisitions of, business ventures in our line of business. In addition, we regularly evaluate our ability to pay dividends or repurchase stock, all consistent with the terms of our debt agreements.


31


The following table presents selected cash uses in 2015 and the related projected cash uses for these items in 2016 as of November 29, 2015:
 
 
 
 
 
 
 
 
 
 
Cash Used in
 
Projected
Cash Uses in
 
 
 
 
2015
 
2016
 
 
 
 
(Dollars in millions)
 
 
Capital expenditures(1)
 
$
102

 
$
130

 
 
Interest
 
78

 
67

 
 
Federal, foreign and state taxes (net of refunds)
 
61

 
60

 
 
Pension plans(2)
 
37

 
33

 
 
Postretirement health benefit plans
 
15

 
15

 
 
Dividend(3)
 
50

 
60

 
 
Total selected cash requirements
 
$
343

 
$
365

 
______________
(1)
Capital expenditures consist primarily of costs associated with information technology investments for ecommerce and investment in company-operated retail stores.
(2)
The 2016 pension contribution amounts will be recalculated at the end of the plans' fiscal years, which for our U.S. pension plan is at the beginning of the Company's third fiscal quarter. Accordingly, actual contributions may differ materially from those presented here, based on factors such as changes in discount rates and the valuation of pension assets.
(3)
Subsequent to the fiscal year end, our Board of Directors declared a cash dividend of $60.0 million.


32


The following table provides information about our significant cash contractual obligations and commitments as of November 29, 2015:
 
Payments due or projected by period
 
Total
 
2016
 
2017
 
2018
 
2019
 
2020
 
Thereafter
 
(Dollars in millions)
Contractual and Long-term Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term and long-term debt obligations
$
1,167

 
$
148

 
$

 
$

 
$

 
$

 
$
1,019

Interest(1)
526

 
67

 
66

 
64

 
64

 
62

 
203

Capital lease obligations
34

 
5

 
4

 
4

 
5

 
5

 
11

Operating leases(2)
624

 
150

 
117

 
93

 
75

 
58

 
131

Purchase obligations(3)
877

 
507

 
68

 
61

 
49

 
28

 
164

Postretirement obligations(4)
114

 
15

 
14

 
13

 
12

 
12

 
48

Pension obligations(5)
256

 
33

 
34

 
36

 
38

 
32

 
83

Long-term employee related benefits(6)
99

 
27

 
15

 
12

 
7

 
6

 
32

Total
$
3,697

 
$
952

 
$
318

 
$
283

 
$
250

 
$
203

 
$
1,691

______________
(1)
Interest obligations are computed using constant interest rates until maturity.
(2)
Amounts reflect contractual obligations relating to our existing leased facilities as of November 29, 2015, and therefore do not reflect our planned future openings of company-operated retail stores. For more information, see “Item 2 – Properties.”
(3)
Amounts reflect estimated commitments of $388 million for inventory purchases, $212 million for sponsorship, naming rights and related benefits with respect to the Levi's® Stadium, and $277 million for human resources, advertising, information technology and other professional services.
(4)
The amounts presented in the table represent an estimate for the next ten years of our projected payments, based on information provided by our plans' actuaries, and have not been reduced by estimated Medicare subsidy receipts, the amounts of which are not material. Our policy is to fund postretirement benefits as claims and premiums are paid. For more information, see Note 8 to our audited consolidated financial statements included in this report.
(5)
The amounts presented in the table represent an estimate of our projected contributions to the plans for the next ten years based on information provided by our plans' actuaries. For U.S. qualified plans, these estimates can exceed the projected annual minimum required contributions in an effort to level out potential future funding requirements and provide annual funding flexibility. The 2016 contribution amounts will be recalculated at the end of the plans' fiscal years, which for our U.S. pension plan is at the beginning of the Company's third fiscal quarter. Accordingly, actual contributions may differ materially from those presented here, based on factors such as changes in discount rates and the valuation of pension assets. For more information, see Note 8 to our audited consolidated financial statements included in this report.
(6)
Long-term employee-related benefits primarily relate to the current and non-current portion of deferred compensation arrangements and workers' compensation. We estimated these payments based on prior experience and forecasted activity for these items. For more information, see Note 12 to our audited consolidated financial statements included in this report.
This table does not include amounts related to our uncertain tax positions of $32.7 million. We do not anticipate a material effect on our liquidity as a result of payments in future periods of liabilities for uncertain tax positions. The table also does not include amounts related to potential cash settlement of stock appreciation rights (“SARs”) put to the Company under the terms of our EIP. Based on the fair value of the Company's stock and the number of shares outstanding as of November 29, 2015, future payments under the terms of the EIP could range up to approximately $70 million, of which up to approximately $60 million could become payable in 2016. These payments are contingent on the Company's liquidity and the Board's discretion.
Information in the two preceding tables reflects our estimates of future cash payments. These estimates and projections are based upon assumptions that are inherently subject to significant economic, competitive, legislative and other uncertainties and contingencies, many of which are beyond our control. Accordingly, our actual expenditures and liabilities may be materially higher or lower than the estimates and projections reflected in these tables. The inclusion of these projections and estimates should not be regarded as a representation by us that the estimates will prove to be correct.


33


Cash flows
The following table summarizes, for the periods indicated, selected items in our consolidated statements of cash flows:
 
 
Year Ended
 
 
 
November 29,
2015
 
November 30,
2014
 
November 24,
2013
 
 
 
(Dollars in millions)
 
 
Cash provided by operating activities
$
218.3

 
$
232.9

 
$
411.3

 
 
Cash used for investing activities
(80.8
)
 
(71.8
)
 
(92.8
)
 
 
Cash used for financing activities
(94.9
)
 
(341.7
)
 
(230.5
)
 
 
Cash and cash equivalents
318.6

 
298.3

 
489.3

 
2015 as compared to 2014
Cash flows from operating activities
Cash provided by operating activities was $218.3 million for 2015, as compared to $232.9 million for 2014. Cash provided by operating activities decreased compared to the prior year primarily due to higher payments to vendors and higher pension payments, partially offset by an increase in cash received from customers, reflecting our higher beginning accounts receivable balance, lower cash used for inventory purchases, and lower interest payments.
Cash flows from investing activities
Cash used for investing activities was $80.8 million for 2015, as compared to $71.8 million for 2014. The increase in cash used for investing activities as compared to the prior year primarily reflects increased investment in information technology projects and retail expansion.
Cash flows from financing activities
Cash used for financing activities was $94.9 million for 2015, as compared to $341.7 million for 2014. Cash used in both periods primarily related to our refinancing activities and debt reduction in each year.
2014 as compared to 2013
Cash flows from operating activities
Cash provided by operating activities was $232.9 million for 2014, as compared to $411.3 million for 2013. Cash provided by operating activities decreased compared to the prior year due to cash payments for our global productivity initiative, a decrease in cash received from customers, reflecting our lower beginning accounts receivable balance, higher cash used for inventory purchases, and higher payments to vendors. Partially offsetting the declines in cash provided by operating activities were our higher net revenues and lower pension payments.
Cash flows from investing activities
Cash used for investing activities was $71.8 million for 2014, as compared to $92.8 million for 2013. The decrease in cash used for investing activities as compared to the prior year primarily reflects lower spend on facilities, partially offset by increased cash used toward information technology projects.
Cash flows from financing activities
Cash used for financing activities was $341.7 million for 2014, as compared to cash provided of $230.5 million for 2013. Cash used in both periods primarily related to our refinancing activities and debt reduction in each year.
Indebtedness
The borrower of substantially all of our debt is Levi Strauss & Co., the parent and U.S. operating company. Of our total debt of $1.2 billion as of November 29, 2015, we had fixed-rate debt of $1.1 billion (91% of total debt) and variable-rate debt of $0.1 billion (9% of total debt). As of November 29, 2015, our required aggregate debt principal payments on our unsecured long-term debt were $32.6 million in 2016 and the remaining $1.0 billion in years after 2016. Short-term debt of $99.0 million borrowed under our senior secured revolving credit facility was expected to be repaid over the next twelve months, and short-term borrowings of $16.0 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.


34


Our long-term debt agreements contain customary covenants restricting our activities as well as those of our subsidiaries. As of November 29, 2015, we were in compliance with all of these covenants.
Effects of Inflation
We believe that inflation in the regions where most of our sales occur has not had a significant effect on our net revenues or profitability.
Off-Balance Sheet Arrangements, Guarantees and Other Contingent Obligations
Off-balance sheet arrangements and other. We have contractual commitments for non-cancelable operating leases; for more information, see Note 14 to our audited consolidated financial statements included in this report. We participate in a multiemployer pension plan; however, our exposure to risks arising from participation in the plan and the extent to which we can be liable to the plan for other participating employers' obligations are not material. We have no other material non-cancelable guarantees or commitments, and no material special-purpose entities or other off-balance sheet debt obligations.
Indemnification agreements.  In the ordinary course of our business, the Company enters into agreements containing indemnification provisions under which the Company agrees to indemnify the other party for specified claims and losses. For example, the Company's trademark license agreements, real estate leases, consulting agreements, logistics outsourcing agreements, securities purchase agreements and credit agreements typically contain such provisions. This type of indemnification provision obligates the Company to pay certain amounts associated with claims brought against the other party as the result of trademark infringement, negligence or willful misconduct of Company employees, breach of contract by the Company including inaccuracy of representations and warranties, specified lawsuits in which the Company and the other party are co-defendants, product claims and other matters. These amounts generally are not readily quantifiable; the maximum possible liability or amount of potential payments that could arise out of an indemnification claim depends entirely on the specific facts and circumstances associated with the claim. The Company has insurance coverage that minimizes the potential exposure to certain of such claims. The Company also believes that the likelihood of material payment obligations under these agreements to third parties is remote.
Critical Accounting Policies, Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes. We believe that the following discussion addresses our critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Changes in such estimates, based on newly available information, or different assumptions or conditions, may affect amounts reported in future periods.
We summarize our critical accounting policies below.
Revenue recognition.  Net sales is primarily comprised of sales of products to wholesale customers, including franchised stores, and direct sales to consumers at our company-operated and online stores and at our company-operated shop-in-shops located within department stores. We recognize revenue on sale of product when the goods are shipped or delivered and title to the goods passes to the customer provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an arrangement exists; the sales price is fixed or determinable; and collectability is reasonably assured. Revenue is recorded net of an allowance for estimated returns, discounts and retailer promotions and other similar incentives. Licensing revenues from the use of our trademarks in connection with the manufacturing, advertising, and distribution of trademarked products by third-party licensees are earned and recognized as products are sold by licensees based on royalty rates as set forth in the licensing agreements.
We recognize allowances for estimated returns in the period in which the related sale is recorded. We recognize allowances for estimated discounts, retailer promotions and other similar incentives at the later of the period in which the related sale is recorded or the period in which the sales incentive is offered to the customer. We estimate non-volume based allowances based on historical rates as well as customer and product-specific circumstances. Actual allowances may differ from estimates due to changes in sales volume based on retailer or consumer demand and changes in customer and product-specific circumstances. Sales and value-added taxes collected from customers and remitted to governmental authorities are presented on a net basis in the accompanying consolidated statements of income.
Inventory valuation.  We value inventories at the lower of cost or market value. Inventory cost is generally determined using the first-in first-out method. We include 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, in the cost of inventories. We estimate quantities of slow-moving and obsolete inventory by reviewing on-hand quantities, outstanding purchase obligations and forecasted sales. In determining inventory market values, substantial consideration is given to the expected product


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selling price. We estimate expected selling prices based on our historical recovery rates for sale of slow-moving and obsolete inventory and other factors, such as market conditions, expected channel of disposition, and current consumer preferences. Estimates may differ from actual results due to changes in resale or market value, avenues of disposition, consumer and retailer preferences and economic conditions.
Impairment. We review our goodwill and other non-amortized intangible assets for impairment annually in the fourth quarter of our fiscal year, or more frequently as warranted by events or changes in circumstances which indicate that the carrying amount may not be recoverable. We qualitatively assess goodwill impairment for certain reporting units and impairment for other non-amortized intangible assets to determine whether it is more likely than not that the fair value of a reporting unit or other non-amortized intangible asset is less than its carrying amount. The reporting units and non-amortized intangibles selected for the qualitative assessment approach have fair values that are significantly higher than their carrying values and remote risk of impairment. For goodwill and other non-amortized intangible assets not qualitatively assessed, a two-step quantitative approach is utilized. In the first step, we compare the carrying value of the reporting unit or applicable asset to its fair value, which we estimate using a discounted cash flow analysis or by comparison to the market values of similar assets. If the carrying amount of the reporting unit or asset exceeds its estimated fair value, we perform the second step, and determine the impairment loss, if any, as the excess of the carrying value of the goodwill or intangible asset over its fair value. The assumptions used in such valuations are subject to volatility and may differ from actual results; however, based on the carrying value of our goodwill and other non-amortized intangible assets as of November 29, 2015, relative to their estimated fair values, we do not anticipate any material impairment charges in the near-term.
We review our other long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If the carrying amount of an other long-lived asset exceeds the expected future undiscounted cash flows, we measure and record an impairment loss for the excess of the carrying value of the asset over its fair value.
To determine the fair value of impaired assets, we utilize the valuation technique or techniques deemed most appropriate based on the nature of the impaired asset and the data available, which may include the use of quoted market prices, prices for similar assets or other valuation techniques such as discounted future cash flows or earnings.
Income tax assets and liabilities.  The future effective tax rate will ultimately depend on the mix of earnings between domestic and foreign operations, the impact of certain undistributed foreign earnings for which no U.S. taxes have been provided because such earnings are planned to be indefinitely reinvested outside of the United States, changes in tax laws and regulations and potential resolutions on tax examinations, refund claims and litigation. Remittances of foreign earnings to the United States are planned based on projected cash flow, working capital and investment needs of our foreign and domestic operations. Based on these assumptions, we estimate the amount that will be distributed to the United States and provide U.S. federal taxes on these amounts. Material changes in our estimates as to how much of our foreign earnings will be distributed to the United States or tax legislation that limits or restricts the amount of undistributed foreign earnings that we consider indefinitely reinvested outside the United States could materially impact our income tax provision and effective tax rate. Significant judgment is required in determining our worldwide income tax provision. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise from examinations in various jurisdictions and assumptions and estimates used in evaluating the need for valuation allowance.
We are subject to income taxes in both the United States and numerous foreign jurisdictions. We compute our provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. Significant judgments are required in order to determine the realizability of these deferred tax assets. In assessing the need for a valuation allowance, we evaluate all significant available positive and negative evidence, including historical operating results, estimates of future taxable income and the existence of prudent and feasible tax planning strategies. Changes in the expectations regarding the realization of deferred tax assets could materially impact income tax expense in future periods.
We continuously review issues raised in connection with all ongoing examinations and open tax years to evaluate the adequacy of our tax liabilities. We evaluate uncertain tax positions under a two-step approach. The first step is to evaluate the uncertain tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination based on its technical merits. The second step is, for those positions that meet the recognition criteria, to measure the tax benefit as the largest amount that is more than fifty percent likely of being realized. We believe our recorded tax liabilities are adequate to cover all open tax years based on our assessment. This assessment relies on estimates and assumptions and involves significant judgments about future events. To the extent that our view as to the outcome of these matters changes, we will adjust income tax expense in the period in which such determination is made. We classify interest and penalties related to income taxes as income tax expense.


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Employee benefits and incentive compensation
Pension and postretirement benefits.  We have several non-contributory defined benefit retirement plans covering eligible employees. We also provide certain health care benefits for U.S. employees who meet age, participation and length of service requirements at retirement. In addition, we sponsor other retirement or post-employment plans for our foreign employees in accordance with local government programs and requirements. We retain the right to amend, curtail or discontinue any aspect of the plans, subject to local regulations. Any of these actions, either individually or in combination, could have a material impact on our consolidated financial statements and on our future financial performance.
We recognize either an asset or liability for any plan's funded status in our consolidated balance sheets. We measure changes in funded status using actuarial models which utilize an attribution approach that generally spreads individual events either over the estimated service lives of the remaining employees in the plan, or, for plans where participants will not earn additional benefits by rendering future service, over the plan participants' estimated remaining lives. The attribution approach assumes that employees render service over their service lives on a relatively smooth basis and as such, presumes that the income statement effects of pension or postretirement benefit plans should follow the same pattern. Our policy is to fund our pension plans based upon actuarial recommendations and in accordance with applicable laws, income tax regulations and credit agreements.
Net pension and postretirement benefit income or expense is generally determined using assumptions which include expected long-term rates of return on plan assets, discount rates, compensation rate increases and medical trend and mortality rates. We use a mix of actual historical rates, expected rates and external data to determine the assumptions used in the actuarial models. For example, we utilized a yield curve constructed from a portfolio of high-quality corporate bonds with various maturities to determine the appropriate discount rate to use for our U.S. benefit plans. Under this model, each year's expected future benefit payments are discounted to their present value at the appropriate yield curve rate, thereby generating the overall discount rate. We utilized country-specific third-party bond indices to determine appropriate discount rates to use for benefit plans of our foreign subsidiaries. Changes in actuarial assumptions and estimates, either individually or in combination, could have a material impact on our consolidated financial statements and on our future financial performance. For example, as of November 29, 2015, a 25 basis point change in the discount rate would yield an approximately four percent change in the projected benefit obligation and an approximately two percent change in the annual service cost of our pension plans, and an approximately three percent change in the projected benefit obligation and annual service cost of our postretirement benefit plan.
Employee incentive compensation.  We maintain short-term and long-term employee incentive compensation plans. For our short-term plans, the amount of the cash bonus earned depends upon business unit and corporate financial results as measured against pre-established targets, and also depends upon the performance and job level of the individual. Our long-term plans are intended to reward certain levels of management for its long-term impact on our total earnings performance. Performance is measured at the end of a three-year period based on our performance over the period measured against certain pre-established targets such as the compound annual growth rates over the periods for net revenues and average margin of net earnings adjusted for certain items such as interest and taxes. We accrue the related compensation expense over the period of the plan, and changes in our projected future financial performance could have a material impact on our accruals.
Recently Issued Accounting Standards
See Note 1 to our audited consolidated financial statements included in this report for recently issued accounting standards, including the expected dates of adoption and expected impact to our consolidated financial statements upon adoption.
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 constant-currency revenue and gross margin expectations, 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


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management and involve a number of risks and uncertainties, some of which may be beyond our control, that 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 timely and effectively implement our global productivity initiative as planned, which is intended to increase productivity and efficiency in our global operations, take advantage of lower-cost service-delivery models in our distribution network and streamline our procurement practices to maximize efficiency in our global operations, without business disruption or mitigation to such disruptions;
consequences of impacts to the businesses of our wholesale customers, including 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;
our ability to utilize our tax credits and net operating loss carryforwards;