3Q 2013 Form 10-Q

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer þ

Smaller reporting company ¨

(Do not check if a smaller reporting company)

10-Q 1 a3q2013form10-q.htm 10-Q 3Q 2013 Form 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

Form 10-Q

(Mark One)



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

For the Quarterly Period Ended August 25, 2013



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

Commission file number: 002-90139

_________________

LEVI STRAUSS & CO.

(Exact Name of Registrant as Specified in Its Charter)



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

1155 Battery Street, San Francisco, California 94111

(Address of Principal Executive Offices) (Zip Code)

(415) 501-6000

(Registrant’s Telephone Number, Including Area Code)

None

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

_________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition of “Large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

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

Common Stock $.01 par value — 37,474,100 shares outstanding on October 1, 2013

Table of Contents

LEVI STRAUSS & CO. AND SUBSIDIARIES

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED AUGUST 25, 2013



		Page Number
PART I — FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited):
	Consolidated Balance Sheets as of August 25, 2013, and November 25, 2012	3
	Consolidated Statements of Income for the Three and Nine Months Ended August 25, 2013, and August 26, 2012	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended August 25, 2013, and August 26, 2012	5
	Consolidated Statements of Cash Flows for the Nine Months Ended August 25, 2013, and August 26, 2012	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26

PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29
SIGNATURE		30

Table of Contents

PART I — FINANCIAL INFORMATION



Item 1.	CONSOLIDATED FINANCIAL STATEMENTS

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



	(Unaudited)
	August 25, 2013			November 25, 2012
	(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	382,328		$	406,134
Trade receivables, net of allowance for doubtful accounts of $20,471 and $20,738	419,788			500,672
Inventories:
Raw materials	4,689			5,312
Work-in-process	6,583			9,558
Finished goods	613,359			503,990
Total inventories	624,631			518,860
Deferred tax assets, net	126,398			116,224
Other current assets	128,821			136,483
Total current assets	1,681,966			1,678,373
Property, plant and equipment, net of accumulated depreciation of $771,344 and $782,766	436,394			458,807
Goodwill	240,658			239,971
Other intangible assets, net	51,329			59,909
Non-current deferred tax assets, net	618,747			612,916
Other non-current assets	116,113			120,101
Total assets	$	3,145,207		$	3,170,077

LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Short-term debt	$	38,153		$	59,759
Current maturities of capital leases	843			1,760
Accounts payable	249,643			225,726
Other accrued liabilities	186,700			263,575
Accrued salaries, wages and employee benefits	186,883			223,850
Accrued interest payable	32,886			5,471
Accrued income taxes	72,700			16,739
Total current liabilities	767,808			796,880
Long-term debt	1,501,912			1,669,452
Long-term capital leases	10,274			262
Postretirement medical benefits	134,825			140,958
Pension liability	465,737			492,396
Long-term employee related benefits	67,804			62,529
Long-term income tax liabilities	34,252			40,356
Other long-term liabilities	58,390			60,869
Total liabilities	3,041,002			3,263,702
Commitments and contingencies
Temporary equity	29,429			7,883

Stockholders’ Equity (Deficit):
Levi Strauss & Co. stockholders’ equity (deficit)
Common stock — $.01 par value; 270,000,000 shares authorized; 37,467,935 shares and 37,392,343 shares issued and outstanding	375			374
Additional paid-in capital	17,566			33,365
Retained earnings	460,765			273,975
Accumulated other comprehensive loss	(407,699		)	(414,635		)
Total Levi Strauss & Co. stockholders’ equity (deficit)	71,007			(106,921		)
Noncontrolling interest	3,769			5,413
Total stockholders’ equity (deficit)	74,776			(101,508		)
Total liabilities, temporary equity and stockholders’ equity (deficit)	$	3,145,207		$	3,170,077

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

Table of Contents

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME



	Three Months Ended						Nine Months Ended
	August 25, 2013			August 26, 2012			August 25, 2013			August 26, 2012
	(Dollars in thousands) (Unaudited)
Net revenues	$	1,141,284		$	1,100,856		$	3,386,860		$	3,312,974
Cost of goods sold	568,448			580,108			1,673,435			1,762,746
Gross profit	572,836			520,748			1,713,425			1,550,228
Selling, general and administrative expenses	454,750			433,961			1,314,247			1,307,600
Operating income	118,086			86,787			399,178			242,628
Interest expense	(30,903		)	(32,160		)	(95,943		)	(103,144		)
Loss on early extinguishment of debt	—			—			(689		)	(8,206		)
Other income (expense), net	(10,661		)	(5,747		)	(5,425		)	6,122
Income before income taxes	76,522			48,880			297,121			137,400
Income tax expense	20,077			23,802			85,592			49,782
Net income	56,445			25,078			211,529			87,618
Net loss attributable to noncontrolling interest	630			3,273			715			3,184
Net income attributable to Levi Strauss & Co.	$	57,075		$	28,351		$	212,244		$	90,802

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

Table of Contents

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	Three Months Ended						Nine Months Ended
	August 25, 2013			August 26, 2012			August 25, 2013			August 26, 2012
	(Dollars in thousands) (Unaudited)
Net income	$	56,445		$	25,078		$	211,529		$	87,618
Other comprehensive income, net of related income taxes:
Pension and postretirement benefits	3,718			474			10,826			1,091
Net investment hedge (losses) gains	(8,329		)	(1,006		)	(5,928		)	14,839
Foreign currency translation gains (losses)	9,823			4,040			1,650			(13,604		)
Unrealized (loss) gain on marketable securities	(171		)	677			(541		)	1,496
Total other comprehensive income	5,041			4,185			6,007			3,822
Comprehensive income	61,486			29,263			217,536			91,440
Comprehensive loss attributable to noncontrolling interest	(451		)	(3,152		)	(1,644		)	(3,353		)
Comprehensive income attributable to Levi Strauss & Co.	$	61,937		$	32,415		$	219,180		$	94,793

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

Table of Contents

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



	Nine Months Ended
	August 25, 2013			August 26, 2012
	(Dollars in thousands) (Unaudited)
Cash Flows from Operating Activities:
Net income	$	211,529		$	87,618
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	86,600			91,577
Asset impairments	1,917			19,413
Gain on disposal of assets	(2,120		)	(303		)
Unrealized foreign exchange losses (gains)	323			(14,666		)
Realized loss (gain) on settlement of forward foreign exchange contracts not designated for hedge accounting	2,547			(3,559		)
Employee benefit plans’ amortization from accumulated other comprehensive loss	17,478			1,175
Employee benefit plans’ curtailment gain, net	(815		)	(1,730		)
Noncash loss (gain) on extinguishment of debt	689			(3,643		)
Amortization of deferred debt issuance costs	3,232			3,268
Stock-based compensation	6,303			4,815
Allowance for doubtful accounts	2,394			5,243
Change in operating assets and liabilities:
Trade receivables	95,373			187,520
Inventories	(87,434		)	16,919
Other current assets	6,989			28,056
Other non-current assets	873			(3,554		)
Accounts payable and other accrued liabilities	(42,640		)	83,469
Income tax liabilities	37,660			11,287
Accrued salaries, wages and employee benefits and long-term employee related benefits	(75,322		)	(102,991		)
Other long-term liabilities	8,845			5,437
Other, net	(605		)	423
Net cash provided by operating activities	273,816			415,774
Cash Flows from Investing Activities:
Purchases of property, plant and equipment	(63,002		)	(54,308		)
Proceeds from sale of assets	2,168			519
(Payments) proceeds on settlement of forward foreign exchange contracts not designated for hedge accounting	(2,547		)	3,559
Net cash used for investing activities	(63,381		)	(50,230		)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt	140,000			385,000
Repayments of long-term debt and capital leases	(326,198		)	(407,651		)
Proceeds from senior revolving credit facility	—			50,000
Repayments of senior revolving credit facility	—			(250,000		)
Short-term borrowings, net	(13,815		)	1,633
Debt issuance costs	(2,557		)	(7,368		)
Restricted cash	123			671
Repurchase of common stock	(365		)	(479		)
Excess tax benefits from stock-based compensation	165			—
Dividend to stockholders	(25,076		)	(20,036		)
Net cash used for financing activities	(227,723		)	(248,230		)
Effect of exchange rate changes on cash and cash equivalents	(6,518		)	(7,088		)
Net (decrease) increase in cash and cash equivalents	(23,806		)	110,226
Beginning cash and cash equivalents	406,134			204,542
Ending cash and cash equivalents	$	382,328		$	314,768

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	61,209		$	74,153
Income taxes	26,441			28,814

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

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERLY PERIOD ENDED AUGUST 25, 2013

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

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

Basis of Presentation and Principles of Consolidation

The unaudited consolidated financial statements of the Company and its wholly-owned and majority-owned foreign and domestic subsidiaries are prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information. In the opinion of management, all adjustments necessary for a fair statement of the financial position and the results of operations for the periods presented have been included. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended November 25, 2012, included in the Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission (“SEC”) on February 7, 2013.

The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated. Management believes the disclosures are adequate to make the information presented herein not misleading. The results of operations for the three and nine months ended August 25, 2013, may not be indicative of the results to be expected for any other interim period or the year ending November 24, 2013.

The Company’s fiscal year ends on the last Sunday of November in each year, although the fiscal years of certain foreign subsidiaries end on November 30. Each quarter of both fiscal years 2013 and 2012 consists of 13 weeks. All references to years relate to fiscal years rather than calendar years.

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

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes to the consolidated financial statements. Estimates are based upon historical factors, current circumstances and the experience and judgment of the Company’s management. Management evaluates its estimates and assumptions on an ongoing basis and may employ outside experts to assist in its evaluations. Changes in such estimates, based on more accurate future information, or different assumptions or conditions, may affect amounts reported in future periods.

Temporary Equity

Equity-classified stock-based compensation awards that may be settled in cash, at the option of the holder, are presented on the balance sheet outside permanent equity. Accordingly, “Temporary equity” on the face of the accompanying consolidated balance sheets includes the portion of the intrinsic value of these awards relating to the elapsed service period since the grant date as well as the fair value of common stock issued pursuant to the Company's 2006 Equity Incentive Plan ("EIP"). The increase in temporary equity from the year ended November 25, 2012, to August 25, 2013, was due to an increase in the fair value of the Company's common stock.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 25, 2013

Recently Issued Accounting Standards

There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s consolidated financial statements, from those disclosed in the Company’s 2012 Annual Report on Form 10-K, except for the following, which will become effective for the Company in the first quarter of 2015:

•

In July 2013, the FASB issued Accounting Standards Update No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or Tax Credit Carryforward Exists," ("ASU 2013-11"). ASU 2013-11 requires entities to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when settlement in this manner is available under the tax law. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.

NOTE 2: FAIR VALUE OF FINANCIAL INSTRUMENTS

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



	August 25, 2013						November 25, 2012
			Fair Value Estimated Using						Fair Value Estimated Using
	Fair Value		Level 1 Inputs⁽¹⁾		Level 2 Inputs⁽²⁾		Fair Value		Level 1 Inputs⁽¹⁾		Level 2 Inputs⁽²⁾
	(Dollars in thousands)
Financial assets carried at fair value
Rabbi trust assets	$	22,458	$	22,458	$	—	$	20,322	$	20,322	$	—
Forward foreign exchange contracts, net⁽³⁾	13,641		—		13,641		5,792		—		5,792
Total	$	36,099	$	22,458	$	13,641	$	26,114	$	20,322	$	5,792
Financial liabilities carried at fair value
Forward foreign exchange contracts, net⁽³⁾	$	2,360	$	—	$	2,360	$	3,018	$	—	$	3,018

_____________


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

(2)

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


(3)	The Company’s over-the-counter forward foreign exchange contracts are subject to International Swaps and Derivatives Association, Inc. master agreements. These agreements permit the net-settlement of these contracts on a per-institution basis.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 25, 2013

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



	August 25, 2013				November 25, 2012
	Carrying Value		Estimated Fair Value⁽¹⁾		Carrying Value		Estimated Fair Value⁽¹⁾
	(Dollars in thousands)
Financial liabilities carried at adjusted historical cost
Senior term loan due 2014	$	—	$	—	$	324,890	$	324,484
4.25% Yen-denominated Eurobonds due 2016	41,335		40,112		48,656		47,201
7.75% Euro senior notes due 2018	409,256		437,303		387,433		416,422
7.625% senior notes due 2020	536,231		573,637		526,223		572,161
6.875% senior notes due 2022	546,975		581,110		386,838		404,163
Short-term borrowings	38,399		38,399		59,861		59,861
Total	$	1,572,196	$	1,670,561	$	1,733,901	$	1,824,292

_____________


(1)	Fair value estimate incorporates mid-market price quotes.

NOTE 3: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

As of August 25, 2013, the Company had forward foreign exchange contracts to buy $637.2 million and to sell $412.9 million against various foreign currencies. These contracts are at various exchange rates and expire at various dates through January 2015.

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



	August 25, 2013								November 25, 2012
	Assets		(Liabilities)			Derivative Net Carrying Value			Assets		(Liabilities)			Derivative Net Carrying Value
	Carrying Value		Carrying Value			Derivative Net Carrying Value			Carrying Value		Carrying Value			Derivative Net Carrying Value
	(Dollars in thousands)
Derivatives not designated as hedging instruments
Forward foreign exchange contracts⁽¹⁾	$	19,319	$	(5,678	)	$	13,641		$	7,131	$	(1,339	)	$	5,792
Forward foreign exchange contracts⁽²⁾	889		(3,249		)	(2,360		)	5,183		(8,201		)	(3,018		)
Total	$	20,208	$	(8,927	)				$	12,314	$	(9,540	)
Non-derivatives designated as hedging instruments
4.25% Yen-denominated Eurobonds due 2016	$	—	$	(23,656	)				$	—	$	(28,135	)
7.75% Euro senior notes due 2018	—		(400,680		)				—		(386,520		)
Total	$	—	$	(424,336	)				$	—	$	(414,655	)

_____________


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


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

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 25, 2013

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



	Gain or (Loss) Recognized in AOCI (Effective Portion)						Gain or (Loss) Recognized in Other Income (Expense), net (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	As of			As of			Three Months Ended						Nine Months Ended
	August 25, 2013			November 25, 2012			August 25, 2013			August 26, 2012			August 25, 2013		August 26, 2012
	(Dollars in thousands)
Forward foreign exchange contracts	$	4,637		$	4,637
4.25% Yen-denominated Eurobonds due 2016	(21,806		)	(26,285		)	$	(661	)	$	(79	)	$	3,243	$	2,444
7.75% Euro senior notes due 2018	(23,611		)	(9,451		)	—			—			—		—
Cumulative income taxes	15,999			12,246
Total	$	(24,781	)	$	(18,853	)

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



	Gain or (Loss)
	Three Months Ended					Nine Months Ended
	August 25, 2013		August 26, 2012			August 25, 2013			August 26, 2012
	(Dollars in thousands)
Forward foreign exchange contracts:
Realized	$	3,650	$	1,029		$	(2,547	)	$	3,559
Unrealized	2,664		(16,413		)	8,833			(12,862		)
Total	$	6,314	$	(15,384	)	$	6,286		$	(9,303	)

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 25, 2013

NOTE 4: DEBT



	August 25, 2013		November 25, 2012
	(Dollars in thousands)

Long-term debt
Unsecured:
Senior term loan due 2014	$	—	$	324,424
4.25% Yen-denominated Eurobonds due 2016	40,786		48,508
7.75% Euro senior notes due 2018	400,680		386,520
7.625% senior notes due 2020	525,000		525,000
6.875% senior notes due 2022	535,446		385,000
Total unsecured	1,501,912		1,669,452
Total long-term debt	$	1,501,912	$	1,669,452
Short-term debt
Short-term borrowings	$	38,153	$	59,759
Total short-term debt	$	38,153	$	59,759
Total long-term and short-term debt	$	1,540,065	$	1,729,211

Senior Term Loan due 2014

During the nine months ended August 25, 2013, the Company repaid in full the remaining balance of its Senior Term Loan due 2014 with the proceeds of the notes issued on March 14, 2013, and cash on hand. See “Additional Issuance of Senior Notes due 2022” below.

Additional Issuance of Senior Notes due 2022

Additional Senior Notes due 2022. On March 14, 2013, the Company issued an additional $140.0 million in 6.875% senior notes due 2022 (the “Additional Senior Notes due 2022”) to qualified institutional buyers in compliance with the Securities Act of 1933, as amended (the “Securities Act”). The Additional Senior Notes due 2022 have the same terms and are part of the same series as the $385.0 million aggregate principal amount of 6.875% senior notes due 2022 the Company issued in May 2012 (the “Existing Senior Notes due 2022”). The Additional Senior Notes due 2022 were offered at a premium of $11.2 million, which will be amortized as a reduction to interest expense over the term of the notes. Costs of approximately $2.6 million associated with the issuance of the notes, representing underwriting fees and other expenses, will also be amortized to interest expense over the term of the notes.

Exchange offer. In accordance with a registration rights agreement, the Company conducted an exchange offer to allow holders of the Additional Senior Notes due 2022 to exchange the Additional Senior Notes due 2022 for new notes in the same principal amount with substantially identical terms ("Exchange Notes"), except that the Exchange Notes were registered under the Securities Act. All of the Additional Senior Notes due 2022 were exchanged in the exchange offer.

Covenants. The Exchange Notes and the Existing Senior Notes due 2022 will be treated as a single class for all purposes under the indenture governing the Company's Existing Senior Notes due 2022, including without limitation, the covenants, events of default, asset sale, change of control, covenant suspension and other terms.

Use of Proceeds. The Company used the net proceeds from the offering, together with cash on hand, to prepay in full its Senior Term Loan due 2014. The Company recorded a $0.7 million loss on the early extinguishment of debt, which was comprised of the write-off of the remaining unamortized discount and unamortized debt issuance costs.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 25, 2013

Senior Revolving Credit Facility

The Company’s unused availability under its senior secured revolving credit facility was $521.6 million at August 25, 2013, as the Company’s total availability of $587.8 million was reduced by $66.2 million of letters of credit and other credit usage allocated under the facility.

Interest Rates on Borrowings

The Company’s weighted-average interest rate on average borrowings outstanding during the three and nine months ended August 25, 2013, was 7.75% and 7.44%, respectively, as compared to 6.95% and 7.05%, respectively, in each of the same periods of 2012.

NOTE 5: EMPLOYEE BENEFIT PLANS

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




	Pension Benefits						Postretirement Benefits
	Three Months Ended						Three Months Ended
	August 25, 2013			August 26, 2012			August 25, 2013			August 26, 2012
	(Dollars in thousands)
Net periodic benefit cost (income):
Service cost	$	2,052		$	2,215		$	94		$	99
Interest cost	12,918			14,364			1,239			1,658
Expected return on plan assets	(14,105		)	(12,901		)	—			—
Amortization of prior service benefit	(24		)	(20		)	(122		)	(4,089		)
Amortization of actuarial loss	3,810			3,154			1,691			1,290
Curtailment gain	(305		)	(735		)	—			—
Net settlement loss	415			—			—			—
Net periodic benefit cost (income)	4,761			6,077			2,902			(1,042		)
Changes in accumulated other comprehensive loss:
Actuarial gain	—			(451		)	—			—
Amortization of prior service benefit	24			20			122			4,089
Amortization of actuarial loss	(3,810		)	(3,154		)	(1,691		)	(1,290		)
Curtailment (loss) gain	(12		)	192			—			—
Net settlement (loss) gain	(406		)	18			—			—
Total recognized in accumulated other comprehensive loss	(4,204		)	(3,375		)	(1,569		)	2,799
Total recognized in net periodic benefit cost (income) and accumulated other comprehensive loss	$	557		$	2,702		$	1,333		$	1,757

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 25, 2013



	Pension Benefits						Postretirement Benefits
	Nine Months Ended						Nine Months Ended
	August 25, 2013			August 26, 2012			August 25, 2013			August 26, 2012
	(Dollars in thousands)
Net periodic benefit cost (income):
Service cost	$	6,548		$	6,709		$	282		$	298
Interest cost	38,978			43,212			3,718			4,975
Expected return on plan assets	(42,065		)	(39,018		)	—			—
Amortization of prior service benefit	(61		)	(61		)	(366		)	(12,267		)
Amortization of actuarial loss	12,241			9,457			5,074			3,868
Curtailment gain	(815		)	(1,730		)	—			—
Net settlement loss	1,044			417			—			—
Net periodic benefit cost (income)	15,870			18,986			8,708			(3,126		)
Changes in accumulated other comprehensive loss:
Actuarial gain	—			(381		)	—			—
Amortization of prior service benefit	61			61			366			12,267
Amortization of actuarial loss	(12,241		)	(9,457		)	(5,074		)	(3,868		)
Curtailment gain	497			191			—			—
Net settlement loss	(590		)	(178		)	—			—
Total recognized in accumulated other comprehensive loss	(12,273		)	(9,764		)	(4,708		)	8,399
Total recognized in net periodic benefit cost (income) and accumulated other comprehensive loss	$	3,597		$	9,222		$	4,000		$	5,273

NOTE 6: COMMITMENTS AND CONTINGENCIES

Forward Foreign Exchange Contracts

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

Other Contingencies

Litigation. There have been no material developments with respect to the information previously reported in the Company’s 2012 Annual Report on Form 10-K related to legal proceedings.

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

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 25, 2013

NOTE 7: DIVIDEND PAYMENT

The Company paid a cash dividend of $25.1 million in the first quarter of 2013. The Company does not have an established annual dividend policy. The Company will continue to review its ability to pay cash dividends at least annually, and dividends may be declared at the discretion of the Company's Board of Directors depending upon, among other factors, the income tax impact to the dividend recipients, the Company's financial condition and compliance with the terms of the Company's debt agreements.

NOTE 8: ACCUMULATED OTHER COMPREHENSIVE LOSS

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



	August 25, 2013			November 25, 2012
	(Dollars in thousands)
Pension and postretirement benefits	$	(320,135	)	$	(330,961	)
Net investment hedge losses	(24,781		)	(18,853		)
Foreign currency translation losses	(53,773		)	(55,423		)
Unrealized gain on marketable securities	473			1,014
Accumulated other comprehensive loss	(398,216		)	(404,223		)
Accumulated other comprehensive income attributable to noncontrolling interest	9,483			10,412
Accumulated other comprehensive loss attributable to Levi Strauss & Co.	$	(407,699	)	$	(414,635	)

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

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 25, 2013

NOTE 9: OTHER INCOME (EXPENSE), NET

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



	Three Months Ended						Nine Months Ended
	August 25, 2013			August 26, 2012			August 25, 2013			August 26, 2012
	(Dollars in thousands)
Foreign exchange management gains (losses)⁽¹⁾	$	6,314		$	(15,384	)	$	6,286		$	(9,303	)
Foreign currency transaction (losses) gains⁽²⁾	(18,210		)	8,518			(18,728		)	11,722
Interest income	357			345			1,138			1,153
Investment income	214			99			3,019			326
Other	664			675			2,860			2,224
Total other income (expense), net	$	(10,661	)	$	(5,747	)	$	(5,425	)	$	6,122

_____________


(1)	Gains and losses on forward foreign exchange contracts primarily resulted from currency fluctuations relative to negotiated contract rates. Losses on forward foreign exchange contracts in 2012 primarily resulted from unfavorable currency fluctuations relative to negotiated contract rates on positions to sell the Swedish Krona, Mexican Peso, and Australian Dollar.


(2)	Foreign currency transaction gains and losses reflect the impact of foreign currency fluctuation on the Company's foreign currency denominated balances. Losses in 2013 were primarily due to the weakening of various currencies against the U.S. Dollar.

NOTE 10: INCOME TAXES

The effective income tax rate was 28.8% for the nine months ended August 25, 2013, compared to 36.2% for the same period ended August 26, 2012. The decrease in the effective tax rate in 2013 was due to two factors. The rate declined due to a reduction, as a percentage of pre-tax profits, in the proportion of losses in jurisdictions where the Company cannot record a tax benefit. The 2013 effective tax rate also benefited from the July 2013 finalization of the U.S. federal tax audit of tax years 2003 – 2008, which enabled the Company to record previously unrecognized tax benefits of $23.4 million during the three months ended August 25, 2013, of which $14.2 million reduced income tax expense.

NOTE 11: RELATED PARTIES

Robert D. Haas, a director and Chairman Emeritus of the Company, is the President of the Levi Strauss Foundation, which is not a consolidated entity of the Company. During the three- and nine-month periods ended August 25, 2013, the Company donated $0.4 million and $3.9 million, respectively, to the Levi Strauss Foundation as compared to $0.5 million and $2.4 million, respectively, for the same prior-year periods.

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 25, 2013

NOTE 12: BUSINESS SEGMENT INFORMATION

The Company manages its business according to three regional segments, the Americas, Europe and Asia Pacific. The Company considers its chief executive officer to be the Company’s chief operating decision maker. The Company’s management, including the chief operating decision maker, manages business operations, evaluates performance and allocates resources based on the regional segments’ net revenues and operating income.

Business segment information for the Company is as follows:



	Three Months Ended						Nine Months Ended
	August 25, 2013			August 26, 2012			August 25, 2013			August 26, 2012
	(Dollars in thousands)
Net revenues:
Americas	$	710,212		$	679,098		$	2,023,253		$	1,931,561
Europe	275,211			265,922			824,915			809,271
Asia Pacific	155,861			155,836			538,692			572,142
Total net revenues	$	1,141,284		$	1,100,856		$	3,386,860		$	3,312,974
Operating income:
Americas	$	125,228		$	136,509		$	376,598		$	287,470
Europe	45,914			48,152			145,549			129,781
Asia Pacific	22,666			(4,719		)	104,233			55,193
Regional operating income	193,808			179,942			626,380			472,444
Corporate expenses⁽¹⁾	75,722			93,155			227,202			229,816
Total operating income	118,086			86,787			399,178			242,628
Interest expense	(30,903		)	(32,160		)	(95,943		)	(103,144		)
Loss on early extinguishment of debt	—			—			(689		)	(8,206		)
Other income (expense), net	(10,661		)	(5,747		)	(5,425		)	6,122
Income before income taxes	$	76,522		$	48,880		$	297,121		$	137,400

_____________


(1)	Included in corporate expenses for the three- and nine-month periods ended August 26, 2012, is an $18.8 million impairment charge related to the Company's decision in the third quarter of 2012 to outsource distribution in Japan to a third-party and close its owned distribution center in that country.

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

Overview

We design, market and sell – directly or through third parties and licensees – products that include jeans, casual and dress pants, tops, shorts, skirts, jackets, footwear and related accessories for men, women and children under our Levi’s^®, Dockers^®, Signature by Levi Strauss & Co.™ (“Signature”) and Denizen^® brands around the world.

Our business is operated through three geographic regions: Americas, Europe and Asia Pacific. 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 2,300 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 513 company-operated stores located in 33 countries, including the United States, and through the online stores we operate. Our company-operated and online stores generated approximately 23% of our net revenues in the first nine months of 2013, as compared to 21% in the same period in 2012, with our online stores representing approximately 11% of this revenue. In addition, we distribute our Levi’s^® and Dockers^® products through online stores 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 Pacific businesses, collectively, contributed approximately 40% of both our net revenues and our regional operating income in the nine-month period in 2013. Sales of Levi’s^® brand products represented approximately 84% of our total net sales in the nine-month period in 2013.

Trends Affecting Our Business

Our key long-term objectives are to strengthen our brands globally in order to deliver sustainable profitable growth, generate strong cash flow and reduce our debt. Critical strategies to achieve these objectives include driving our profitable core business; expanding the reach of our global brands in product categories, consumer segments and geographic markets; elevating the performance of our retail channel; and leveraging our global scale to develop a competitive cost structure.

During the third quarter of 2013, economic challenges and market conditions continued to impact retail performance in many markets around the world, including key markets in Asia Pacific and an increasing number of markets in Europe. The industry trend towards vertically-integrated retailers is reflected in an increasingly competitive environment in Asia Pacific. Input costs for our products such as cotton and labor are subject to volatility and can have a significant impact on our business.

Our Third Quarter 2013 Results


•	Net revenues. Compared to the third quarter of 2012, consolidated net revenues increased on a reported and constant-currency basis by 4% and 3%, respectively. The increase primarily reflected higher sales in the Americas, both at our company-operated retail network and to certain wholesale customers.


•	Operating income. Compared to the third quarter of 2012, consolidated operating income increased by 36% and operating margin rose to 10%, primarily reflecting charges of approximately $44 million that we took in the third quarter of 2012 related to strategic choices relating to operations in our Asia Pacific region. The increase in operating income was partially offset by higher SG&A in 2013.


•	Cash flows. Cash flows provided by operating activities were $274 million for the nine-month period in 2013 as compared to $416 million for the same period in 2012; the decrease reflected higher payments to vendors, our higher inventory levels and our lower beginning accounts receivable balance.

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Financial Information Presentation

Fiscal year. Our fiscal year ends on the last Sunday of November in each year, although the fiscal years of certain foreign subsidiaries end on November 30. Each quarter of fiscal years 2013 and 2012 consisted of 13 weeks.

Segments. We manage our business according to three regional segments: the Americas, Europe and Asia Pacific.

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

•

Net revenues is primarily comprised of sales of products to wholesale customers, including franchised stores, and direct sales to consumers at our company-operated and online 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.


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

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

Constant currency. Constant-currency comparisons are based on translating local currency amounts in both periods at the foreign exchange rates used in the Company’s internal planning process for the current year. We routinely evaluate our financial performance on a constant-currency basis in order to facilitate period-to-period comparisons without regard to the impact of changing foreign currency exchange rates.

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Results of Operations for Three and Nine Months Ended August 25, 2013, as Compared to Same Periods in 2012

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



	Three Months Ended												Nine Months Ended
	August 25, 2013			August 26, 2012			% Increase (Decrease)		August 25, 2013		August 26, 2012		August 25, 2013			August 26, 2012			% Increase (Decrease)		August 25, 2013		August 26, 2012
	August 25, 2013			August 26, 2012			% Increase (Decrease)		% of Net Revenues		% of Net Revenues		August 25, 2013			August 26, 2012			% Increase (Decrease)		% of Net Revenues		% of Net Revenues
	(Dollars in millions)
Net revenues	$	1,141.3		$	1,100.9		3.7	%	100.0	%	100.0	%	$	3,386.9		$	3,313.0		2.2	%	100.0	%	100.0	%
Cost of goods sold	568.5			580.2			(2.0	)%	49.8	%	52.7	%	1,673.5			1,762.8			(5.1	)%	49.4	%	53.2	%
Gross profit	572.8			520.7			10.0	%	50.2	%	47.3	%	1,713.4			1,550.2			10.5	%	50.6	%	46.8	%
Selling, general and administrative expenses	454.7			433.9			4.8	%	39.8	%	39.4	%	1,314.2			1,307.6			0.5	%	38.8	%	39.5	%
Operating income	118.1			86.8			36.1	%	10.3	%	7.9	%	399.2			242.6			64.5	%	11.8	%	7.3	%
Interest expense	(30.9		)	(32.2		)	(3.9	)%	(2.7	)%	(2.9	)%	(96.0		)	(103.1		)	(7.0	)%	(2.8	)%	(3.1	)%
Loss on early extinguishment of debt	—			—			—		—		—		(0.7		)	(8.2		)	(91.6	)%	—		(0.2	)%
Other income (expense), net	(10.7		)	(5.7		)	85.5	%	(0.9	)%	(0.5	)%	(5.4		)	6.1			(188.6	)%	(0.2	)%	0.2	%
Income before income taxes	76.5			48.9			56.6	%	6.7	%	4.4	%	297.1			137.4			116.2	%	8.8	%	4.1	%
Income tax expense	20.1			23.8			(15.6	)%	1.8	%	2.2	%	85.6			49.8			71.9	%	2.5	%	1.5	%
Net income	56.4			25.1			125.1	%	4.9	%	2.3	%	211.5			87.6			141.4	%	6.2	%	2.6	%
Net loss attributable to noncontrolling interest	0.7			3.3			(80.8	)%	0.1	%	0.3	%	0.7			3.2			(77.5	)%	—		0.1	%
Net income attributable to Levi Strauss & Co.	$	57.1		$	28.4		101.3	%	5.0	%	2.6	%	$	212.2		$	90.8		133.7	%	6.3	%	2.7	%

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Net revenues

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



	Three Months Ended								Nine Months Ended
					% Increase (Decrease)								% Increase (Decrease)
	August 25, 2013		August 26, 2012		As Reported		Constant Currency		August 25, 2013		August 26, 2012		As Reported		Constant Currency
	(Dollars in millions)
Net revenues:
Americas	$	710.2	$	679.1	4.6	%	4.4	%	$	2,023.3	$	1,931.6	4.7	%	4.6	%
Europe	275.2		265.9		3.5	%	(1.2	)%	824.9		809.3		1.9	%	0.1	%
Asia Pacific	155.9		155.9		—		6.0	%	538.7		572.1		(5.8	)%	(2.4	)%
Total net revenues	$	1,141.3	$	1,100.9	3.7	%	3.3	%	$	3,386.9	$	3,313.0	2.2	%	2.3	%

Total net revenues increased on both reported and constant-currency bases for the three- and nine-month periods ended August 25, 2013, as compared to the same prior-year periods.

Americas. For the three- and nine-month periods, net revenues in our Americas region increased on both reported and constant-currency bases, with currency affecting net revenues favorably by approximately $1 million and $4 million, respectively.

For both periods, sales increased in our retail channel at our outlet and online stores. Levi's^® and Dockers^® brand wholesale revenues increased in both periods, due to strong sales to certain key customers. For the three-month period, sales of our Signature brand products increased, reflecting an expanded presence at existing customers. For the nine-month period, our decision to license the Levi's^® brand boys business beginning in the third quarter of 2012 partially offset the higher wholesale revenues.

Europe. Net revenues in Europe increased on a reported basis for the three- and nine-month periods, with currency affecting net revenues favorably by approximately $13 million and $15 million, respectively.

For both periods, net revenues from the performance and expansion of our company-operated retail network grew, particularly in Russia. For the three-month period, this growth was offset by lower sales to our franchisees, most notably in Southern Europe. For the nine-month period, company-operated retail growth was offset by lower sales in our traditional wholesale channels throughout the region.

Asia Pacific. Currency affected net revenues unfavorably for the three- and nine-month periods by approximately $9 million and $20 million, respectively.

The increase in constant-currency net revenues for the three-month period reflects our decision to phase out the Denizen^® brand in the third quarter of 2012. Revenues were negatively impacted in that period due to support we provided to our customers in conjunction with exiting the brand.

Excluding the Denizen^® impact, net revenues declined for both the three- and nine-month periods, reflecting lower Levi's^® brand sales at our wholesale and retail channels due to ongoing challenging conditions in most markets in the region. The declines were partially offset by a slight improvement in our performance in Levi's^® brand sales in India.

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Gross profit

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



	Three Months Ended								Nine Months Ended
	August 25, 2013			August 26, 2012			% Increase (Decrease)		August 25, 2013			August 26, 2012			% Increase (Decrease)
	(Dollars in millions)
Net revenues	$	1,141.3		$	1,100.9		3.7	%	$	3,386.9		$	3,313.0		2.2	%
Cost of goods sold	568.5			580.2			(2.0	)%	1,673.5			1,762.8			(5.1	)%
Gross profit	$	572.8		$	520.7		10.0	%	$	1,713.4		$	1,550.2		10.5	%
Gross margin	50.2		%	47.3		%			50.6		%	46.8		%

For the three-month period, gross margin improved primarily due to our decision in the third quarter of 2012 to phase out the Denizen^® brand in Asia Pacific; gross margin was unfavorably impacted in that period by approximately $25 million of customer support and markdown of the remaining inventory in the region. For the nine-month period, gross margin improved primarily due to the benefit of the lower cost of cotton in the products we sold in the first half of 2013. Currency affected gross profit favorably by approximately $14 million and $26 million for the three- and nine-month periods ended August 25, 2013, respectively, as compared to the same prior-year periods. We expect our full-year 2013 gross margin will be above 50%.

Selling, general and administrative expenses

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



	Three Months Ended										Nine Months Ended
	August 25, 2013		August 26, 2012		% Increase (Decrease)		August 25, 2013		August 26, 2012		August 25, 2013		August 26, 2012		% Increase (Decrease)		August 25, 2013		August 26, 2012
	August 25, 2013		August 26, 2012		% Increase (Decrease)		% of Net Revenues		% of Net Revenues		August 25, 2013		August 26, 2012		% Increase (Decrease)		% of Net Revenues		% of Net Revenues
	(Dollars in millions)
Selling	$	172.5	$	166.0	3.9	%	15.1	%	15.1	%	$	523.3	$	516.4	1.3	%	15.5	%	15.6	%
Advertising and promotion	60.6		51.9		16.7	%	5.3	%	4.7	%	148.5		144.5		2.7	%	4.4	%	4.4	%
Administration	101.1		79.1		27.8	%	8.9	%	7.2	%	291.3		272.9		6.7	%	8.6	%	8.2	%
Other	120.5		136.9		(12.0	)%	10.6	%	12.4	%	351.1		373.8		(6.1	)%	10.4	%	11.3	%
Total SG&A	$	454.7	$	433.9	4.8	%	39.8	%	39.4	%	$	1,314.2	$	1,307.6	0.5	%	38.8	%	39.5	%

As compared to the same prior-year periods, currency had no significant impact on SG&A for the three-month period ended August 25, 2013, but had a favorable impact of approximately $4 million for the nine-month period ended August 25, 2013.

Selling. We had 11 more company-operated stores at the end of the third quarter of 2013 than we did at the end of the third quarter of 2012. Higher expenses were associated with the performance and expansion of our company-operated store network.

Advertising and promotion. The increase in advertising and promotion expenses for the three- and nine-month periods primarily reflected new advertising campaigns launched during the third quarter of 2013. We expect our full-year 2013 advertising and promotion expenses as a percentage of revenues will be in-line with full-year 2012.

Administration. For both periods, incentive compensation expense increased more than $30 million, reflecting improved achievement against our internally-set objectives in the first nine months of 2013 as compared to the same period in 2012; the increase was partially offset in both periods by lower severance expenses. For the nine-month period, postretirement benefit plan costs increased, as the favorable impact of past plan amendments had been substantially recognized by the end of fiscal 2012.

Other. Other SG&A includes distribution, information resources, and marketing organization costs. Lower costs for both periods primarily reflected a third-quarter 2012 impairment charge of $19 million recorded in conjunction with our decision to outsource distribution in Japan to a third-party and close our owned distribution center in that country.

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Operating income

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



	Three Months Ended														Nine Months Ended
	August 25, 2013			August 26, 2012			% Increase (Decrease)		August 25, 2013			August 26, 2012			August 25, 2013			August 26, 2012			% Increase (Decrease)		August 25, 2013			August 26, 2012
	August 25, 2013			August 26, 2012			% Increase (Decrease)		% of Net Revenues			% of Net Revenues			August 25, 2013			August 26, 2012			% Increase (Decrease)		% of Net Revenues			% of Net Revenues
	(Dollars in millions)
Operating income:
Americas	$	125.2		$	136.5		(8.3	)%	17.6	%		20.1	%		$	376.6		$	287.4		31.0	%	18.6	%		14.9	%
Europe	45.9			48.1			(4.6	)%	16.7	%		18.1	%		145.6			129.8			12.1	%	17.6	%		16.0	%
Asia Pacific	22.7			(4.7		)	580.3	%	14.5	%		(3.0	)%		104.2			55.2			88.9	%	19.3	%		9.6	%
Total regional operating income	193.8			179.9			7.7	%	17.0	%	*	16.3	%	*	626.4			472.4			32.6	%	18.5	%	*	14.3	%	*
Corporate expenses	75.7			93.1			(18.7	)%	6.6	%	*	8.5	%	*	227.2			229.8			(1.1	)%	6.7	%	*	6.9	%	*
Total operating income	$	118.1		$	86.8		36.1	%	10.3	%	*	7.9	%	*	$	399.2		$	242.6		64.5	%	11.8	%	*	7.3	%	*
Operating margin	10.3		%	7.9		%									11.8		%	7.3		%

______________

* Percentage of consolidated net revenues

Currency favorably affected total operating income by approximately $14 million and $30 million for the three- and nine-month periods ended August 25, 2013, respectively, as compared to the same prior-year periods.

Regional operating income. For the three-month period, operating income and operating margin declined in the Americas and Europe, reflecting higher SG&A. In Asia Pacific, the increase in operating income and operating margin for the three-month period reflected the charges recorded in the third quarter of 2012 in connection with our decision to phase out the Denizen^® brand in that region. For the nine-month period, operating income and operating margin increased in all of our regions, primarily reflecting our improved gross margin.

Corporate. Corporate expenses include selling, general and administrative expenses that are not attributed to any of our regional operating segments. As compared to the same prior-year periods, both the three- and nine-month periods ended August 25, 2013, included higher incentive compensation expense and higher postretirement benefit plan costs. These increases were offset in both periods by lower severance expenses, and by lower distribution expenses reflecting the third-quarter 2012 impairment charge of $19 million recorded for our distribution center in Japan.

Interest expense

Interest expense was $30.9 million and $96.0 million for the three- and nine-month periods ended August 25, 2013, respectively, as compared to $32.2 million and $103.1 million for the same periods in 2012. The decrease in interest expense for the three-month period reflected lower interest expense on our deferred compensation plans. For the nine-month period, the decline was due to lower debt balances, which resulted from our debt refinancing activities during the second quarters of 2012 and 2013.

The weighted-average interest rate on average borrowings outstanding for the three- and nine-month periods ended August 25, 2013, was 7.75% and 7.44%, respectively, as compared to 6.95% and 7.05%, respectively, for each of the same periods in 2012. The weighted-average interest rate increased as a result of our debt refinancing activities during the second quarter of 2013.

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Loss on early extinguishment of debt

During the nine months ended August 26, 2012, we recorded an $8.2 million net loss on early extinguishment of debt as a result of our debt refinancing activities during the second quarter of 2012. The loss was primarily comprised of a tender premium of $11.4 million, the write-off of $4.0 million of unamortized debt issuance costs, partially offset by a gain of $7.6 million related to the partial repurchase of Yen-denominated Eurobonds due 2016 at a discount to their par value.

Income tax expense

Our effective income tax rate was 28.8% for the nine months ended August 25, 2013, compared to 36.2% for the same period ended August 26, 2012. The decrease in the effective tax rate in 2013 was due to two factors. The rate declined due to a reduction, as a percentage of pre-tax profits, in the proportion of losses in jurisdictions where we cannot record a tax benefit. The effective tax rate decline also reflects a $14.2 million discrete tax benefit recorded in the third quarter of 2013 attributable to the finalization in July 2013 of the U.S. federal tax audit of tax years 2003 – 2008.

Liquidity and Capital Resources

Liquidity outlook

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

Cash sources

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

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 August 25, 2013, we had no borrowings under the facility, and unused availability under the facility was $521.6 million, as our total availability of $587.8 million, based on collateral levels as defined by the agreement, was reduced by $66.2 million of other credit-related instruments.

As of August 25, 2013, we had cash and cash equivalents totaling approximately $382.3 million, resulting in a total liquidity position (unused availability and cash and cash equivalents) of $903.9 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, and, if market conditions warrant, occasional investments in, or acquisitions of, business ventures in our line of business. In addition, we regularly evaluate our ability to pay dividends or repurchase stock, all consistent with the terms of our debt agreements.

There have been no material changes to our estimated cash requirements for 2013 from those disclosed in our 2012 Annual Report on Form 10-K, except for our capital expenditures for 2013, which we revised to approximately $90 million.

During the nine months ended August 25, 2013, we repaid in full the outstanding balance of the Senior Term Loan due 2014 using both the proceeds from the March 14, 2013, issuance of the Additional Senior Notes due 2022 and cash on hand. See Note 4 to our unaudited consolidated financial statements included in this report for more information.

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Cash flows

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



	Nine Months Ended
	August 25, 2013			August 26, 2012
	(Dollars in millions)
Cash provided by operating activities	$	273.8		$	415.8
Cash used for investing activities	(63.4		)	(50.2		)
Cash used for financing activities	(227.7		)	(248.2		)
Cash and cash equivalents	382.3			314.8

Cash flows from operating activities

Cash provided by operating activities was $273.8 million for the nine-month period in 2013, as compared to $415.8 million for the same period in 2012. Cash provided by operating activities decreased compared to the prior year due to higher payments to vendors, an increase in cash used for inventory, reflecting our higher inventory build, and a decrease in cash received from customers, reflecting our lower beginning accounts receivable balance.

Cash flows from investing activities

Cash used for investing activities was $63.4 million for the nine-month period in 2013, as compared to $50.2 million for the same period in 2012. The increase in cash used for investing activities as compared to the prior year primarily reflects higher spend on facilities improvements, information technology and distribution center retrofit projects.

Cash flows from financing activities

Cash used for financing activities was $227.7 million for the nine-month period in 2013, as compared to $248.2 million for the same period in 2012. 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. Substantially all of our debt as of August 25, 2013, was fixed-rate debt. As of August 25, 2013, our required aggregate debt principal payments on our unsecured long-term debt were $40.8 million in 2016, $400.7 million in 2018, and the remaining $1.1 billion in years after 2018. Short-term borrowings of $38.2 million at various foreign subsidiaries were expected to be either paid over the next twelve months or refinanced at the end of their applicable terms.

Our long-term debt agreements contain customary covenants restricting our activities as well as those of our subsidiaries. Currently, we are in compliance with all of these covenants.

Off-Balance Sheet Arrangements, Guarantees and Other Contingent Obligations

There have been no significant changes to our off-balance sheet arrangements or contractual commitments from those disclosed in our 2012 Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes. There have been no significant changes to our critical accounting policies from those disclosed in our 2012 Annual Report on Form 10-K.

Recently Issued Accounting Standards

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

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FORWARD-LOOKING STATEMENTS

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

These forward-looking statements include statements relating to our anticipated financial performance and business prospects and/or statements preceded by, followed by or that include the words “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project”, “could”, “plans”, “seeks” and similar expressions. These forward-looking statements speak only as of the date stated and we do not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, even if experience or future events make it clear that any expected results expressed or implied by these forward-looking statements will not be realized. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these expectations may not prove to be correct or we may not achieve the financial results, savings or other benefits anticipated in the forward-looking statements. These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties, some of which may be beyond our control. These risks and uncertainties, including those disclosed under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended November 25, 2012, and our other filings with the Securities and Exchange Commission, could cause actual results to differ materially from those suggested by the forward-looking statements and include, without limitation:


•	changes in the level of consumer spending for apparel in view of general economic and environmental conditions and pricing trends, and our ability to plan for and respond to the impact of those changes;


•	consequences of impacts to the businesses of our wholesale customers caused by factors such as lower consumer spending, pricing changes, general economic conditions and changing consumer preferences;


•	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 effectiveness in increasing productivity and efficiency in our operations and our ability to implement organizational changes intended to optimize operations without business disruption or mitigation to such disruptions;


•	our and our wholesale customers’ decisions to modify strategies and adjust product mix, and our ability to manage any resulting product transition costs;


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


•	our ability to respond to price, innovation and other competitive pressures in the apparel industry, on 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 rate fluctuations;


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


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


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


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


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


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

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

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Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our primary market risk exposures or how those exposures are managed from the information disclosed in our 2012 Annual Report on Form 10-K.



Item 4.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

We have evaluated, under the supervision and with the participation of management, including our chief executive officer and our chief financial officer, the effectiveness of the design and operation of our disclosure controls and procedures as of August 25, 2013. Based on that evaluation, our chief executive officer and our chief financial officer concluded that as of August 25, 2013, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Controls

We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance that our books and records accurately reflect our transactions and that our established policies and procedures are followed. There were no changes to our internal control over financial reporting during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION



Item 1.	LEGAL PROCEEDINGS

Litigation. There have been no material developments with respect to the information previously reported in our 2012 Annual Report on Form 10-K related to legal proceedings.

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



Item 1A.	RISK FACTORS

There have been no material changes in our risk factors from those disclosed in our 2012 Annual Report on Form 10-K.



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

On July 11, 2013, our board approved the award of restricted stock units (“RSUs”) representing an aggregate of 22,778 shares of our common stock to directors, including 2,109 shares of our common stock to Spencer Fleisher in connection with his appointment to the Company's Board of Directors. The RSUs were granted as a part of the standard annual compensation provided to our non-employee directors.

RSUs are units, representing beneficial ownership interests, corresponding in number and value to a specified number of underlying shares of stock. The RSUs vest in three equal installments after 13, 24 and 36 months following the grant date. However, if the recipient's continuous service terminates for reason other than cause after the first vesting installment, but prior to full vesting, then the remaining unvested portion of the award becomes fully vested as of the date of such termination. Each recipient's initial grant of RSUs is subject to a mandatory deferral feature, by which the RSU will be converted to a share of common stock six months after discontinuation of service with the Company for each fully vested RSU held at that date. For subsequent grants, recipients of the RSUs have the opportunity to make deferral elections regarding when shares of our common stock are to be delivered in settlement of vested RSUs. If the recipient does not elect to defer the receipt of common stock, then the RSUs are immediately converted into shares upon vesting. The RSUs additionally have “dividend equivalent rights”, of which dividends paid by the Company on its common stock are credited by the equivalent addition of RSUs.

Also on July 11, 2013, our board approved the award of stock appreciation rights (“SARs”) representing an aggregate of 153,845 shares of our common stock to certain of our executives. The effective date of grant for the SARs awarded was the later of July 11, 2013, or the executive's start date, in the case of new hires. All of these awards were made under our 2006 Equity Incentive Plan, as amended (the “Plan”).

SARs are granted with an exercise price equal to the fair market value of the common stock, as determined under the Plan, on the date of grant. The SARs were granted in three groups and are identical except as described below:


•	76,923 of the SARs, referred to as the service-vested SARs, were granted with the following vesting schedule: 25% percent of the SAR grant vests on the day prior to the one-year anniversary of the date of grant, with the remaining 75% balance vesting monthly over 36 months commencing on such anniversary, at a rate of 2.08% per month;


•	51,282 of the SARs, referred to as the base-performance SARs, will vest in full upon determination by the board that the Company has achieved certain operating income and net revenue growth goals over fiscal years 2013, 2014 and 2015, such board determination to occur on or before March 1, 2016;


•	25,640 of the SARs, referred to as the stretch-performance SARs, have the same vesting term and conditions as the base-performance SARs but also require as a condition to vesting that the Company's common stock have a fair market value of not less than Fifty Dollars ($50) per share at the time of the board's performance determination.

Upon the exercise of a SAR, the recipient will be entitled to receive common stock with an aggregate fair market value equal to the excess of the per share fair market value of the Company's common stock on the date of exercise over the exercise price, multiplied by the number of SARs exercised.

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We will not receive any proceeds from the issuance or vesting of RSUs or SARs nor upon the exercise of SARs. The RSUs and SARs were granted under Section 4(a)(2) of the Securities Act of 1933, as amended. Section 4(a)(2) generally provides an exemption from registration for transactions by an issuer not involving any public offering.

We repurchased a total of 22,208 shares of our common stock during the quarter in connection with the exercise of call rights under our Plan.

We are a privately-held corporation; there is no public trading of our common stock. As of October 1, 2013, we had 37,474,100 shares outstanding.



Item 3.	DEFAULTS UPON SENIOR SECURITIES

None.



Item 4.	MINE SAFETY DISCLOSURES

None.



Item 5.	OTHER INFORMATION

None.

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Item 6.	EXHIBITS



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

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

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

101.INS		XBRL Instance Document. Filed herewith.

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

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

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

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

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

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SIGNATURE

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



Date:	October 4, 2013		LEVI STRAUSS & Co.
			(Registrant)


		By:	/s/ HEIDI L. MANES
			Heidi L. Manes Vice President and Controller (Principal Accounting Officer)

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EXHIBIT INDEX



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

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

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

101.INS		XBRL Instance Document. Filed herewith.

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

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

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

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

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