LEVI STRAUSS & CO.

(LEVI)
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LEVI STRAUSS & CO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

01/26/2022 | 04:08pm EDT
You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and related notes thereto included in Part II, Item 8 of this Annual Report on
Form 10-K. Some of the information contained in this discussion and analysis or
set forth elsewhere in this Annual Report, including information with respect to
our plans and strategy for our business, includes forward-looking statements
that involve risks and uncertainties. See "Special Note Regarding
Forward-Looking Statements" and "Risk Factors" for a discussion of
forward-looking statements and important factors that could cause actual results
to differ materially from the results described in or implied by the
forward-looking statements. We use a 52- or 53-week fiscal year, with each
fiscal year ending on the Sunday that is closest to November 30 of that year.
See "-Financial Information Presentation-Fiscal Year."
This Management's Discussion and Analysis of Financial Condition and Results of
Operations is designed to provide a reader of our financial statements with a
narrative from the perspective of our management on our financial condition,
results of operations, liquidity and certain other factors that may affect our
future results.
To supplement our consolidated financial statements prepared and presented in
accordance with generally accepted accounting principles in the United States
("GAAP"), we use certain non-GAAP financial measures throughout this Annual
Report, as described further below, to provide investors with additional useful
information about our financial performance, to enhance the overall
understanding of our past performance and future prospects and to allow for
greater transparency with respect to important metrics used by our management
for financial and operational decision-making. We are presenting these non-GAAP
financial measures to assist investors in seeing our financial performance from
management's view and because we believe they provide an additional tool for
investors to use in comparing our core financial performance over multiple
periods with other companies in our industry.
However, non-GAAP financial measures have limitations in their usefulness to
investors because they have no standardized meaning prescribed by GAAP and are
not prepared under any comprehensive set of accounting rules or principles. In
addition, non-GAAP financial measures may be calculated differently from, and
therefore may not be directly comparable to, similarly titled measures used by
other companies. As a result, non-GAAP financial measures should be viewed as
supplementing, and not as an alternative or substitute for, our consolidated
financial statements prepared and presented in accordance with GAAP.
Overview
We are an iconic American company with a rich history of profitable growth,
quality, innovation and corporate citizenship. Our story began in San Francisco,
California, in 1853 as a wholesale dry goods business. We invented the blue jean
20 years later. Today we design, market and sell products that include jeans,
casual and dress pants, tops, shorts, skirts, dresses, jackets, footwear and
related accessories for men, women and children around the world under our
Levi's®, Dockers®, Signature by Levi Strauss & Co.™ and Denizen® brands. We
service our consumers through our global infrastructure which develops, sources
and markets our products around the world. In the fourth quarter of fiscal 2021,
we acquired Beyond Yoga®, which is a premium athletic and lifestyle apparel
brand.
Our iconic, enduring brands are brought to life every day around the world by
our talented and creative employees and partners. The Levi's® brand epitomizes
classic, authentic American style and effortless cool. We have cultivated
Levi's® as a lifestyle brand that is inclusive and democratic in the eyes of
consumers while offering products that feel exclusive, personalized and
original. This approach has enabled the Levi's® brand to evolve with the times
and continually reach a new, younger audience, while our rich heritage continues
to drive relevance and appeal across demographics. The Dockers® brand helped
drive "Casual Friday" in the 1990s and has been a cornerstone of casual menswear
for more than 30 years. Seen as the khaki leader, Dockers® has returned to its
California roots and is bringing a full range of casual, versatile styles for
men and women to show up with cool confidence everyday. The Signature by Levi
Strauss & Co.™ and Denizen® brands, which we developed for value-conscious
consumers, offer quality craftsmanship and great fit and style at affordable
prices. The Beyond Yoga® brand is a body positive, premium athleisure apparel
brand focused on quality, fit and comfort.
We recognize wholesale revenue from sales of our products through third-party
retailers such as department stores, specialty retailers, leading third-party
e-commerce sites and franchise locations dedicated to our brands. We also sell
our products directly to consumers through a variety of formats, including our
own company-operated mainline and outlet stores, company-operated e-commerce
sites and select shop-in-shops that we operate within department stores and
other third-party retail locations. As of November 28, 2021, our products were
sold in approximately 50,000 retail locations in more than 110 countries,
including approximately 3,100 brand-dedicated stores and shop-in-shops. As of
November 28, 2021, we had
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company-operated stores located in 37 countries and approximately 500
company-operated shop-in-shops. The remainder of our brand-dedicated stores and
shop-in-shops were operated by franchisees and other partners.
In the fourth quarter of fiscal 2021, we changed our segment reporting as a
result of operational changes in support of the ongoing efforts to globally
integrate the Levi's business, which includes Levi's®, Signature by Levi Strauss
& Co.™ and Denizen® brands, and is defined geographically in three reportable
segments: Americas, Europe and Asia. The Dockers® business, which is managed
separately, is no longer reported in the geographical regions of Americas,
Europe and Asia. Our newly acquired Beyond Yoga® business, along with the
Dockers® business, do not meet the quantitative thresholds for reportable
segments and are presented in our financial statements under the caption of
Other Brands. While this reporting change did not impact consolidated results,
the segment data has been recast to be consistent for all periods presented
throughout the financial statements and accompanying footnotes. For additional
information, including the financial results of our segments, see Note 23 to our
audited consolidated financial statements included in this report.
Our Europe and Asia businesses, collectively, contributed 44% of our net
revenues and 39% of our segment operating income in fiscal year 2021, as
compared to 46% of our net revenues and 37% of our segment operating income in
fiscal year 2020. Sales of Levi's® brand products represented approximately 87%
of our net revenues in both fiscal year 2021 and fiscal year 2020. Pants
represented 67% of our total units sold in fiscal year 2021 as compared to 65%
in fiscal year 2020, and men's products generated 65% of our net revenues in
fiscal year 2021 as compared to 64% in fiscal year 2020.
Our wholesale channel generated 64% and 61% of our net revenues in fiscal years
2021 and 2020, respectively. Our DTC channel generated 36% and 39% of our net
revenues in fiscal years 2021 and 2020, respectively, with our company operated
e-commerce representing 21% of DTC channel net revenues and 8% of total net
revenues in both fiscal years. Our global digital business, which includes our
e-commerce sites as well as the online business of our wholesale customers,
including that of traditional wholesalers as well as pure-play (online-only)
wholesalers represent approximately 22% of our total net revenues in fiscal year
2021, versus approximately 23% of our net revenues in fiscal year 2020.
Our Objectives
Our key long-term objectives are to strengthen our brands globally in order to
deliver sustainable profitable growth and generate industry-leading shareholder
returns. Critical strategies to achieve these objectives include being a
brand-led business, putting DTC first, and further diversifying across
geographies, categories, genders and channels. We intend to achieve these
strategies through operational excellence, financial discipline, and the digital
transformation of our business processes and ways of working, including
leveraging data and machine learning in our decision making.
Impact of COVID-19 on Our Business
In fiscal year 2020, the COVID-19 pandemic materially impacted our business and
results of operations. Due to the significant impact of COVID-19 on our prior
year figures, certain comparisons to the same period in 2019 have been included
for additional context.
In the first quarter of fiscal year 2020, the initial impact of the COVID-19
pandemic was minimal, as temporary store closures were primarily within China.
During the second quarter of fiscal year 2020, the World Health Organization
declared COVID-19 a global pandemic and government authorities around the world
imposed lockdowns and restrictions and substantially all company-operated stores
and third-party retail locations were temporarily closed. As global management
of the COVID-19 pandemic evolved and government restrictions were eventually
removed or lightened, substantially all stores were open by the end of the third
quarter. In the fourth quarter of fiscal year 2020, a global resurgence in
COVID-19 cases led to the temporary closure of some of our stores. During fiscal
year 2020, a total of $250.0 million in charges were recognized, consisting of
$90.4 million of restructuring charges, COVID-19 related inventory costs of
$68.5 million, and charges for customer receivables, asset impairments and other
related charges of $91.1 million.
During fiscal year 2021, company-operated stores and third-party retail
locations have been, and continue to be, impacted by temporary closures, reduced
hours and reduced occupancy levels as the result of the pandemic. We continue to
experience differing levels of disruption and volatility, market by market. As
of the end of fiscal 2021, approximately 99% of company-operated stores were
open globally.
In addition, the pandemic has impacted, and continues to impact, our supply
chain partners, including third party manufacturers, logistic providers and
other vendors. Current vessel, container and other transportation shortages,
labor shortages and port congestion globally have delayed and are expected to
continue to delay inventory orders and, in turn, deliveries to our wholesale
customers and availability in our company-operated stores and e-commerce sites.
In the fourth quarter of 2021, supply chain disruptions resulted in the
inability to fulfill all customer orders with an estimated impact on net
revenues of approximately $50 million. We anticipate these supply chain
disruptions could impact our sales volumes in future periods. We have also
incurred in the fourth quarter of 2021, higher freight and other distribution
costs, including air freight, to
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mitigate these delays. We continue to monitor these delays and other potential
disruptions in our supply chain and will continue to implement mitigation plans
as needed.
Despite the continued COVID-19 disruption and volatility, fiscal year 2021
revenues returned to pre-pandemic revenue levels, being essentially flat in
comparison to fiscal year 2019. In our Americas segment, net revenues grew in
comparison to the fiscal year 2019. Recovery in our Europe region was more
market specific, delivering growth as compared to fiscal year 2019 when COVID
restrictions were lightened, such as in the second half of fiscal 2021. Due to
COVID-19 resurgences, certain markets within our Asia segment experienced
COVID-19 disruptions and reduced consumer confidence throughout fiscal 2021 and
as a result net revenues for that segment remained below pre-pandemic levels.
Although the global distribution of vaccines continues to progress and many
government-imposed restrictions have been lightened or removed, the future
impact of the COVID-19 pandemic remains highly uncertain. Resurgences of
COVID-19 cases and the emergence of new variants have led to reduced consumer
confidence and changes in shopping patterns adversely impacting store traffic as
more consumers are either not shopping or choosing to shop online. Consequently,
our business and results of operations, including our net revenues, earnings and
cash flows, could continue to be adversely impacted, including as a result of:
•Risk of future additional temporary closures of our owned and operated retail
stores globally as well as the doors owned by our wholesale customers, including
third-party retailers and franchise partners;
•Decreased foot traffic in retail stores;
•Decreased consumer confidence and consumer spending habits, including spending
for the merchandise that we sell and negative trends in consumer purchasing
patterns due to changes in consumers' disposable income, credit availability,
debt levels and inflation;
•Decreased wholesale channel sales and increased likelihood of wholesale
customer failure;
•Increased inventory, inventory write-downs and the sale of excess inventory at
discounted prices;
•Disruption to the supply chain affecting production, distribution and other
logistical issues, including port closures and shipping backlogs;
•Challenges filling staffing requirements at our company-operated retail stores
and distribution centers due to labor shortages affecting retail businesses;
•Decreased productivity due to travel bans, work-from-home policies or
shelter-in-place orders; and
•A slowdown in the U.S. or global economy and uncertain global economic outlook,
inflation or a credit crisis.
2020 Restructuring
In April 2020, we began to implement a restructuring initiative designed to
reduce costs, streamline operations and support agility. In October 2020, we
realigned our top level organization to support our new strategies, which became
effective in fiscal year 2021. The final phase of the reorganization, which
supported the on-going efforts to create an integrated global commercial
organization and the separation of our Dockers® business, was completed in
fiscal year 2021.
The initiative included the elimination of approximately 15% of our global
non-retail and non-manufacturing positions and is expected to result in
approximately $100 million in annual cost savings.
For the years ended November 28, 2021 and November 29, 2020, we recognized
restructuring charges of $8.3 million and $90.4 million, respectively, which
were recorded on a separate line item in our consolidated statements of
operations. Within the consolidated balance sheet as of November 28, 2021, we
had $19.1 million and $2.7 million in restructuring liabilities and other
long-term liabilities, respectively, and an immaterial amount of pension and
postretirement curtailment losses were recorded in accumulated other
comprehensive income. The charges primarily relate to severance benefits, based
on separation benefits provided by company policy or statutory benefit plans.
Other Factors Affecting Our Business
We believe the other key business and marketplace factors, independent of the
health and economic impact of the COVID-19 pandemic, that are impacting our
business include the following:
•A complex and challenging retail environment for us and our customers,
characterized by unpredictable traffic patterns and a general promotional
environment. In developed economies, mixed real wage growth and shifting
consumer spending also continue to pressure global discretionary spending.
Consumers continue to focus on value pricing and increased expectations for
real-time delivery.
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•The diversification of our business model across geographies, channels, brands
and categories affects our gross margin. For example, if our sales in higher
gross margin geographies, channels, brands and categories grow at a faster rate
than in our lower gross margin geographies, channels, brands and categories, we
would expect a favorable impact to aggregate gross margin over time. Gross
margin in our Europe segment is generally higher than in our Americas and Asia
segments. DTC sales generally have higher gross margins than sales through third
parties, although DTC sales also typically have higher selling expenses. Value
brands, which are focused on the value-conscious consumer, generally generate
lower gross margin. Enhancements to our existing product offerings, or our
expansion into new brands and products categories, may also impact our future
gross margin.
•More competitors are seeking growth globally, thereby increasing competition
across geographies and our segments. Some of these competitors are entering
markets where we already have a mature business such as the United States,
Mexico, Western Europe and Japan, and may provide consumers discretionary
purchase alternatives or lower-priced apparel offerings.
•Wholesaler/retailer dynamics and wholesale channels remain challenged by mixed
growth prospects due to increased competition from e-commerce shopping, pricing
transparency enabled by the proliferation of online technologies, and
vertically-integrated specialty stores. Retailers, including our top customers,
have in the past and may in the future decide to consolidate, undergo
restructurings or rationalize their stores, which could result in a reduction in
the number of stores that carry our products.
•Many apparel companies that have traditionally relied on wholesale distribution
channels have invested in expanding their own retail store and e-commerce
distribution and consumer-facing technologies, which has increased competition
in the retail market.
•Competition for, and price volatility of, resources throughout the supply chain
have increased, causing us and other apparel manufacturers to continue to seek
alternative sourcing channels and create new efficiencies in our global supply
chain. Trends affecting the supply chain include the proliferation of lower-cost
sourcing alternatives, resulting in reduced barriers to entry for new
competitors, and the impact of fluctuating prices of labor and raw materials as
well as the consolidation of suppliers. 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.
•Foreign currencies continue to be volatile. Significant fluctuations of the
U.S. Dollar against various foreign currencies, including the Euro, British
Pound and Mexican Peso, will impact our financial results, affecting
translation, revenue, operating margins and net income.
•The current environment has introduced greater uncertainty with respect to
potential tax and trade regulations. The current domestic and international
political environment, including changes to other U.S. policies related to
global trade, tariffs and sanctions, have resulted in uncertainty surrounding
the future state of the global economy. Such changes may require us to modify
our current sourcing practices, which may impact our product costs, and, if not
mitigated, could have a material adverse effect on our business and results of
operations.
•There has been increased focus from our stakeholders, including consumers,
employees and investors, on corporate ESG practices, including practices related
to the causes and impacts of climate change. We expect that stakeholder
expectations with respect to ESG expectations will continue to evolve rapidly,
which may necessitate additional resources to monitor, report on, and adjust our
operations.
These factors contribute to a global market environment of intense competition,
constant product innovation and continuing cost pressure, and combine with the
continuing global economic conditions to create a challenging commercial and
economic environment. We evaluate these factors as we develop and execute our
strategies.
Seasonality of Sales
We typically achieve our largest quarterly revenues in the fourth quarter. In
fiscal year 2021, our net revenues in the first, second, third and fourth
quarters represented 23%, 22%, 26% and 29%, respectively, of our total net
revenues for the year. In fiscal year 2020, our net revenues in the first,
second, third and fourth quarters represented 34%, 11%, 24% and 31%,
respectively, of our total net revenues for the year.
We typically achieve a significant amount of revenues from our DTC channel on
the Friday following Thanksgiving Day, which is commonly referred to as Black
Friday. Due to the timing of our fiscal year-end, a particular fiscal year might
include one, two or no Black Fridays, which could impact our net revenues for
the fiscal year. Fiscal year 2019 did not have a Black Friday, while fiscal year
2020 had two Black Fridays and fiscal year 2021 included one Black Friday.
Fiscal year 2020 benefited from a 53rd week.
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The level of our working capital reflects the seasonality of our business. We
expect inventory, accounts payable and accrued expenses to be higher in the
second and third quarters in preparation for the fourth quarter selling season
but they could also be impacted by other events affecting retail sales,
including adverse weather conditions or other macroeconomic events, including
pandemics such as COVID-19.
Effects of Inflation
We do not believe that inflation has had a material effect on our results of
operations in fiscal 2021, fiscal 2020 or fiscal 2019; however, our business
could be affected by inflation in the future, which we plan to mitigate through
a combination of pricing actions and operating efficiencies, although these
actions could have an adverse impact on demand.
Our Results for the Fourth Quarter of Fiscal Year 2021

•Net revenues. Compared to the fourth quarter of fiscal year 2020, consolidated
net revenues increased 21.6% on a reported basis and 21.5% on a
constant-currency basis. The increase reflects demand increasing to pre-pandemic
levels, in comparison to adverse impacts of the COVID-19 pandemic in fiscal
2020, despite fiscal 2020 including the benefit of a 53rd week.
•Operating income. We recognized consolidated operating income of $186.3 million
as compared to $92.0 million in the fourth quarter of fiscal year 2020. The
increase was primarily due to higher net revenues and gross margin partially
offset with higher SG&A expenses in the current year reflecting higher
advertising, selling and administration expenses due to the increase in sales
volume and improved overall company performance.
•Net income. We recognized net income of $153.0 million compared to $56.7
million in the fourth quarter of fiscal year 2020. The increase was primarily
due to the increase in operating income described above.
•Adjusted EBIT. Adjusted EBIT was $202.5 million compared to $113.4 million
recognized in the fourth quarter of fiscal year 2020. The increase was primarily
due to higher net revenues and higher Adjusted gross margin in the current year
partially offset with higher Adjusted SG&A reflecting higher advertising,
selling and administration expenses due to the increase in sales volume and
improved overall company performance.
•Adjusted net income. Adjusted net income was $169.8 million compared to
Adjusted net income of $81.3 million in the fourth quarter of fiscal year 2020.
The increase was primarily due to the increase in Adjusted EBIT as described
above.
•Diluted earnings per share. Diluted earnings per share were $0.37 compared to
$0.14 in the fourth quarter of fiscal year 2020 and $0.23 in the fourth quarter
of fiscal 2019.
•Adjusted diluted earnings per share. Adjusted diluted earnings per share were
$0.41 compared to $0.20 in the fourth quarter of fiscal year 2020 and $0.26 in
the fourth quarter of fiscal 2019.
Our Fiscal Year 2021 Results

•Net revenues. Compared to fiscal year 2020, consolidated net revenues increased
29.5% on a reported basis and 27.1% on a constant-currency basis. The increase
was primarily due to demand increasing to pre-pandemic levels, in comparison to
adverse impacts of the COVID-19 pandemic in fiscal 2020, including temporary
store closures of company-operated and wholesale customer retail locations.
•Operating income (loss). We recognized consolidated operating income of $686.2
million as compared to an operating loss of $85.1 million in fiscal year 2020.
The increase was primarily due to higher net revenues and gross margin partially
offset with higher SG&A expenses in the current year reflecting higher
administration, advertising and selling expenses due to the increase in sales
volume and improved overall company performance. The prior year also included
the recognition of $250.0 million in incremental COVID-19 charges.
•Net income (loss). We recognized net income of $553.5 million compared to a net
loss of $127.1 million in fiscal year 2020. The increase was primarily due to
the increase in operating income (loss) described above, offset by $36.5 million
in incremental costs in the current year related to the early extinguishment of
debt.
•Adjusted EBIT. Adjusted EBIT was $712.9 million compared to Adjusted EBIT of
$181.1 million in fiscal year 2020. The increase was primarily due to higher net
revenues and higher Adjusted gross margin in the current year partially offset
with higher Adjusted SG&A expenses reflecting higher administration, advertising
and selling expenses due to the increase in sales volume and improved overall
company performance.
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•Adjusted net income. Adjusted net income was $600.9 million compared to
Adjusted net income of $83.6 million in fiscal year 2020. The increase was
primarily due to the increase in Adjusted EBIT as described above.
•Diluted earnings (loss) per share. Diluted earnings per share were $1.35
compared to diluted loss per share of $0.32 in fiscal year 2020.
•Adjusted diluted earnings per share. Adjusted diluted earnings per share were
$1.47 compared to Adjusted diluted earnings per share of $0.21 in fiscal year
2020.
For more information on Adjusted gross margin, Adjusted SG&A, Adjusted EBIT,
Adjusted net income and Adjusted diluted earnings per share, measures not
prepared in accordance with United States generally accepted accounting
principles, and reconciliations of such measures to net income (loss) and
diluted earnings (loss) per share, see "-Non-GAAP Financial Measures".
Financial Information Presentation
Fiscal year. We use a 52- or 53-week fiscal year, with each fiscal year ending
on the Sunday that is closest to November 30 of that year. Certain of our
foreign subsidiaries have fiscal years ending November 30. Each fiscal year
generally consists of four 13-week quarters, with each quarter ending on the
Sunday that is closest to the last day of the last month of that quarter. Fiscal
years 2021 and 2019 were 52-week years ending on November 28, 2021 and
November 24, 2019, respectively. Fiscal year 2020 was a 53-week year ending on
November 29, 2020. Each quarter of fiscal years 2021, 2020 and 2019 consisted of
13 weeks. The fourth quarter of 2020 consisted of 14 weeks.
Segments. Our Levi's Brands business, which includes Levi's®, Signature by Levi
Strauss & Co.™ and Denizen® brands, is defined by geographical regions into
three segments: Americas, Europe and Asia. Our Dockers® and Beyond Yoga®
businesses are managed separately and do not meet the quantitative thresholds of
a reportable operating segment and are reported in our financial statements
under the caption of Other Brands.
Classification. Our classification of certain significant revenues and expenses
reflects the following:
•Net revenues comprise net sales and licensing revenues. Net sales include sales
of products to wholesale customers, including franchised stores, and direct
sales to consumers at our company-operated stores and shop-in-shops located
within department stores and other third party locations, as well as
company-operated e-commerce sites. Net revenues include discounts, allowances
for estimated returns and incentives. Licensing revenues, which include 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 applicable licensing agreements.
•Cost of goods sold primarily comprises product costs, labor and related
overhead, sourcing costs, inbound freight, internal transfers and the cost of
operating our manufacturing facilities, including the related depreciation
expense. On both a reported and constant-currency basis, cost of goods sold
reflects the transactional currency impact resulting from the purchase of
products in a currency other than the functional currency.
•Selling expenses include, among other things, all occupancy costs and
depreciation associated with our company-operated stores and commissions
associated with our company-operated shop-in-shops, as well as costs associated
with our e-commerce operations.
•We reflect substantially all distribution costs in selling, general and
administrative expenses, including costs related to receiving and inspection at
distribution centers, warehousing, shipping to our customers, handling, and
certain other activities associated with our distribution network.

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Results of Operations
Fiscal Year 2021 compared to Fiscal Year 2020
The following table summarizes, for the periods indicated, our consolidated
statements of operations, the changes in these items from period to period and
these items expressed as a percentage of net revenues:
                                                                                                      Year Ended
                                                                                                                           November 28,               November 29,
                                                                                                      %                        2021                       2020
                                                  November 28,           November 29,              Increase                  % of Net                   % of Net
                                                      2021                   2020                 (Decrease)                 Revenues                   Revenues

                                                                                   (Dollars in millions, except per share amounts)
Net revenues                                    $     5,763.9$     4,452.6                     29.5  %                   100.0  %                   100.0  %
Cost of goods sold                                    2,417.2                2,099.7                     15.1  %                    41.9  %                    47.2  %
Gross profit                                          3,346.7                2,352.9                     42.2  %                    58.1  %                    52.8  %
Selling, general and administrative expenses          2,652.2                2,347.6                     13.0  %                    46.0  %                    52.7  %
Restructuring charges, net                                8.3                   90.4                    (90.8) %                     0.1  %                     2.0  %
Operating income (loss)                                 686.2                  (85.1)                          *                    11.9  %                    (1.9) %
Interest expense                                        (72.9)                 (82.2)                   (11.3) %                    (1.3) %                    (1.8) %

Loss on early extinguishment of debt                    (36.5)                     -                           *                    (0.6) %                       -  %
Other income (expense), net                               3.4                  (22.4)                   115.2  %                     0.1  %                    (0.5) %
Income (loss) before income taxes                       580.2                 (189.7)                          *                    10.1  %                    (4.3) %
Income tax expense (benefit)                             26.7                  (62.6)                   142.7  %                     0.5  %                    (1.4) %
Net income (loss)                               $       553.5$      (127.1)                          *                     9.6  %                    (2.9) %

Earnings (loss) per common share attributable
to common stockholders:
Basic                                           $        1.38$       (0.32)                          *                          *                          *
Diluted                                         $        1.35$       (0.32)                          *                          *                          *
Weighted-average common shares outstanding:
Basic                                                   401.6                  397.3                      1.1  %                          *                          *
Diluted                                                 409.8                  397.3                      3.1  %                          *                          *


_____________
* Not meaningful
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Net revenues
The following table presents net revenues for each reportable segment for the
periods indicated, and the changes in net revenues for each reportable segment
on both reported and constant-currency bases from period to period:
                                                                                         Year Ended
                                                                                                          % Increase (Decrease)
                                                     November 28,           November 29,                As                   Constant
                                                         2021                   2020                 Reported                Currency

                                                                                   (Dollars in millions)
Net revenues:
Levi's Brands:
Americas                                           $     2,934.8$     2,187.9                    34.1  %                33.7  %
Europe                                                   1,704.0                1,391.8                    22.4  %                18.0  %
Asia                                                       834.7                  663.4                    25.8  %                22.1  %
Total Levi's Brands net revenues:                        5,473.5                4,243.1                    29.0  %                26.6  %
Other Brands                                               290.4                  209.5                    38.6  %                37.5  %
Total net revenues                                 $     5,763.9$     4,452.6                    29.5  %                27.1  %


As compared to the same period in the prior year, total net revenues were
affected favorably by approximately $82 million in foreign currency exchange
rates.
Americas.  Net revenues in our Americas segment increased on both reported and
constant-currency bases, with currency affecting net revenues favorably by
approximately $8 million. In fiscal year 2021, our net revenues in this segment
exceeded pre-pandemic levels across both our wholesale and DTC channels in
comparison to the adverse impact COVID-19 had on our business in the prior year.
Wholesale channel revenue increased as a larger number of stores were open, and
demand increased during fiscal 2021 as compared to the prior year, when COVID-19
resulted in many stores being closed in the second and third quarters as well as
reduced demand once locations re-opened. A higher number of units were sold to
both our traditional and digital wholesale customers, in the U.S. and
internationally, in fiscal year 2021 as compared to fiscal year 2020.
The increase in DTC channel revenue was due to the majority of our
company-operated stores being open and operating during fiscal year 2021, as
compared to the prior year when the majority of our store network was closed for
varying periods of time or operating under reduced capacity as a result of the
COVID-19 pandemic. Additionally, there were 28 more stores in operation as of
November 28, 2021, as compared to November 29, 2020. E-commerce revenue also
grew due to increased traffic and higher conversion despite the prior year
period including the benefit of two Black Fridays and a 53rd week.
Europe. Net revenues in Europe increased on both reported and constant-currency
bases, with currency translation affecting net revenues favorably by
approximately $53 million. In fiscal 2021, our net revenues returned to
pre-pandemic levels, driven by strong growth in the second half of the year in
both our wholesale and DTC channels, prior to COVID-19 resurgences impacting
select markets late in the fourth quarter.
The increase in wholesale channel revenue is primarily due to a larger number of
wholesale customer locations being open during fiscal year 2021, as compared to
the prior year when many stores were closed, or experienced decreased demand as
a result of the COVID-19 pandemic. Sales to our digital wholesale customers,
including pure-play and online sales of our traditional wholesale customers
increased in comparison to fiscal year 2020.
The increase in DTC channel revenue was due to the majority of our
company-operated stores being open and operating during fiscal 2021, as compared
to the prior year when many company-operated stores were closed or impacted by
lower traffic and reduced operating and occupancy levels as a result of the
COVID-19 pandemic. Additionally, there were five more stores in operation as of
November 28, 2021, as compared to November 29, 2020. E-commerce revenue grew
during the year as a result of increased conversion and increased dollars spent
per order despite the prior year including the benefit of two Black Fridays and
a 53rd week.
Asia. Net revenues in Asia increased on both reported and constant-currency
bases, with currency translation affecting net revenues favorably by
approximately $20 million. In fiscal 2021, net revenues in both wholesale and
DTC channels grew in comparison to fiscal year 2020, but remained below
pre-pandemic levels as various markets continued to be challenged by COVID-19
resurgences and related restrictions.
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The increase in wholesale revenue was primarily due to a larger portion of
wholesale customer locations being open and operating throughout fiscal 2021, as
compared to the same period in 2020, where many locations were closed for
varying periods of time throughout the fiscal year as a result of the COVID-19
pandemic.
The increase in DTC revenue was primarily due to a larger amount of our
company-operated stores being open and operating throughout fiscal 2021, as
compared to fiscal year 2020 when many of our company operated stores were
closed for varying periods of time as a result of the COVID-19 pandemic.
Additionally, there were five more stores in operation as of November 28, 2021,
as compared to November 29, 2020. E-commerce revenue grew compared to the prior
year as momentum continued since the onset of the pandemic last year.
Other Brands. Net revenues in Other Brands increased on both reported and
constant-currency bases, with currency translation affecting net revenues
favorably by approximately $2 million. Net revenues growth was primarily due to
the adverse COVID-19 impact on our Dockers® brand revenues in the prior year and
the inclusion of Beyond Yoga® revenues since the date of acquisition.
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 28,       November 29,        Increase
                          2021               2020           (Decrease)

                                   (Dollars in millions)
Net revenues         $    5,763.9$    4,452.6            29.5  %
Cost of goods sold        2,417.2            2,099.7            15.1  %
Gross profit         $    3,346.7$    2,352.9            42.2  %
Gross margin                 58.1  %            52.8  %


Currency translation favorably impacted gross profit by approximately $45
million. The increase in gross margin was mainly due to favorable product mix
within our retail and wholesale channels. Price increases also attributed to
approximately 0.5% of the increase in the current year. Additionally, there were
$69 million of COVID-19 related inventory charges recognized in the prior year,
attributing to 1.6 percentage points of the 5.3 percentage point increase.
Selling, general and administrative expenses
The following table shows selling, general and administrative ("SG&A") 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 28,               November 29,
                                                                                                    %                        2021                       2020
                                                November 28,           November 29,              Increase                  % of Net                   % of Net
                                                    2021                   2020                 (Decrease)                 Revenues                   Revenues

                                                                                              (Dollars in millions)
Selling                                       $     1,130.6$     1,040.4                      8.7  %                    19.6  %                    23.4  %
Advertising and promotion                             434.5                  331.4                     31.1  %                     7.5  %                     7.4  %
Administration                                        485.5                  343.2                     41.5  %                     8.4  %                     7.7  %
Other                                                 596.2                  542.3                      9.9  %                    10.3  %                    12.2  %
COVID-19 related charges                                5.4                   90.3                    (94.0) %                     0.1  %                     2.0  %
Total SG&A expenses                           $     2,652.2$     2,347.6                     13.0  %                    46.0  %                    52.7  %


Currency translation affected SG&A expenses unfavorably by approximately $43
million as compared to the prior year.
Selling. Currency translation impacted selling expenses unfavorably by
approximately $25 million for the year ended November 28, 2021. The increase in
selling expenses is primarily due to the majority of our company-operated stores
being open and operating during the fiscal year 2021, in comparison to
substantially all of our company-operated stores being
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temporarily closed for varying periods of time throughout fiscal year 2020. The
increase was partially offset with lower compensation costs due to the
cost-savings actions initiated in the second quarter of fiscal year 2020 in
response to COVID-19.
Advertising and promotion. Currency translation impacted advertising and
promotion expense unfavorably by approximately $6 million for the year ended
November 28, 2021. The increase in advertising and promotion expenses for the
fiscal year 2021 is due to increased spend to support revenue growth and
restoring media spend that was eliminated in the prior year in response to the
COVID-19 pandemic.
Administration. Administration expenses include functional administrative and
organization costs. Currency translation impacted administration expenses
unfavorably by approximately $6 million for the year ended November 28, 2021.
The increase in administration costs for the fiscal year 2021 is primarily due
to higher incentive compensation attributed to higher sales and stronger company
performance as compared to the prior year, which was adversely impacted by
COVID-19.
Other. Other costs include distribution, information resources, and marketing
organization costs. Currency translation impacted other SG&A expenses
unfavorably by approximately $6 million for fiscal year 2021. The increase in
other costs for the fiscal year 2021 was primarily due to higher distribution
expenses attributed to increased sales volume as compared to the prior year,
which was adversely impacted by COVID-19.
COVID-19 related charges.  COVID-19 related charges consist of incremental
charges as a result of COVID-19 related business disruptions, including asset
impairment and other charges. The decrease in COVID-19 related charges for the
fiscal year 2021 is due to the initial recognition of related inventory costs
and other charges upon the onset of the pandemic recognized in the prior year.
During fiscal year 2021, we recognized a net $5.4 million in COVID-19 related
charges which includes impairment charges of certain retail store related assets
resulting from lower revenue and future cash flow projections from the ongoing
effects of the COVID-19 pandemic partially offset with reductions in allowances
related to customer receivables. During fiscal year 2020, we recognized
$44.3 million in impairment of certain operating lease right-of-use assets and
$21.7 million in impairment of property and equipment related to certain retail
locations and other corporate assets, as a result of lower revenue and future
cash flow projections in relation to the pandemic. Additional charges of
$17.7 million related to customer receivables, including provisions and other
allowances as a result of changes in their financial condition of $5.2 million
and actual and anticipated bankruptcies and other associated claims of
$12.5 million. The remainder relates to other incremental costs incurred in
response to the global pandemic.
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Operating income (loss)
The following table shows operating income (loss) for each reportable 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 corresponding
segment net revenues or consolidated net revenues:
                                                                                                 Year Ended
                                                                                                                 November 28,                     November 29,
                                                                                            %                        2021                             2020
                                           November 28,         November 29,             Increase                  % of Net                         % of Net
                                               2021                 2020                (Decrease)                 Revenues                         Revenues

                                                                                           (Dollars in millions)
Operating income (loss):
Levi's Brands:
Americas                                  $     660.2$     318.7                    107.2  %                    22.5  %                          14.6  %
Europe                                          396.4                207.9                     90.7  %                    23.3  %                          14.9  %
Asia                                             35.1                (21.4)                          *                     4.2  %                          (3.2) %
Total Levi's Brands operating income          1,091.7                505.2                    116.1  %                    19.9  %                          11.9  %
Other Brands                                     10.4                 (3.3)                          *                     3.6  %                          (1.6) %

Restructuring charges, net                       (8.3)               (90.4)                   (90.8) %                    (0.1) %   v                      (2.0) %   v
Corporate expenses                             (407.6)              (496.6)                   (17.9) %                    (7.1) %   v                     (11.2) %   v

Total operating income (loss)             $     686.2$     (85.1)                          *                    11.9  %   v                      (1.9) %   v
Operating margin                                 11.9  %              (1.9) %


______________

v Percentage of consolidated net revenues

* Not meaningful.


Currency translation affected total operating income in fiscal year 2021
favorably by approximately $2 million as compared to the prior year.
Segment operating income.
•Americas. Currency translation did not have a significant impact on operating
income in the segment for fiscal year 2021. The increase in operating income is
primarily due to higher net revenues and gross margin, partially offset with
higher selling expenses to support our stores, higher advertising and promotion
expenses and higher distribution costs. The prior year was adversely impacted by
the COVID-19 pandemic.
•Europe. Currency translation favorably affected operating income in the segment
by approximately $4 million as compared to the prior year. The increase in
operating income was primarily due to higher net revenues this year, as well as
improved gross margin and lower selling expenses partially offset with higher
advertising and incentive compensation costs. The COVID-19 pandemic had an
adverse impact in the prior year.
•Asia. Currency translation did not have a significant impact on operating
income in the segment for fiscal year 2021. The increase in operating income was
primarily due higher net revenues and gross margin this year partially offset
with higher selling expense to support our stores as well as higher advertising
and promotion expenses and higher incentive compensation costs. The COVID-19
pandemic had an adverse impact in the prior year.
•Other Brands. Currency translation did not have a significant impact on
operating income in the segment for fiscal year 2021. The increase in operating
income was primarily due to higher net revenues and gross margin this year,
partially offset with higher SG&A expenses. Other Brands benefited from the
inclusion of Beyond Yoga® since the acquisition date, including a gross margin
of 65.6%.
Restructuring charges, net. During the year ended November 28, 2021, we
recognized restructuring charges of $8.3 million as compared to restructuring
charges of $90.4 million, consisting primarily of severance and other
post-employment benefits. See "- Overview - 2020 Restructuring" above for more
information.
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Corporate expenses. Corporate expenses represent costs that management does not
attribute to any of our operating segments. Included in corporate expenses are
acquisition related charges, COVID-19 related charges and other corporate staff
costs. Corporate expenses also include costs associated with our global
inventory sourcing organization and COVID-19 and acquisition related inventory
costs which are reported as a component of consolidated gross margin. Currency
translation unfavorably affected corporate expenses by approximately $2 million
as compared to prior year.
The decrease in corporate expenses for the year ended November 28, 2021 was
primarily due to the COVID-19 related net inventory costs and other charges, and
impairment of certain store right-of-use and other store assets, recognized in
the prior year in response to the COVID-19 pandemic partially offset with higher
employee incentive costs due to improved company performance in the current
year.
Interest expense
Interest expense was $72.9 million for the year ended November 28, 2021, as
compared to $82.2 million in the prior year. The decrease in interest expense
was primarily related to redemption of $1.0 billion of our senior notes.
Our weighted-average interest rate on average borrowings outstanding for fiscal
year 2021 was 4.32%, as compared to 4.75% for fiscal year 2020.
Loss on early extinguishment of debt
During the year ended November 28, 2021, we recognized a net loss of
$36.5 million primarily related to the early extinguishment of our 5.00% Senior
Notes due 2025.
Other income (expense), net
Other income (expense), net, primarily consists of foreign exchange management
activities and transactions. For the years ended November 28, 2021 and
November 29, 2020, we recorded net other income of $3.4 million and other
expense of $22.4 million, respectively. The income in fiscal year 2021 primarily
reflected net periodic pension benefit for the qualified pension plan, net gains
on our foreign currency denominated balances, and investment interest generated
from money market funds, partially offset by net losses on our foreign exchange
derivatives. The expense in fiscal year 2020 primarily consists of $14.7 million
in pension settlement losses as well as foreign currency transaction losses,
partially offset by the interest income generated from money market funds and
short-term investments.
Income tax expense (benefit)
Income tax expense (benefit) was $26.7 million for the year ended November 28,
2021, compared to $(62.6) million for the prior year. Our effective income tax
rate was 4.6% for the year ended November 28, 2021, compared to 33.0% for the
prior year. The decrease in the effective tax rate in fiscal year 2021 as
compared to fiscal year 2020 was driven by benefit from the foreign derived
intangible income deduction on actual and deemed royalty income and
$41.6 million benefit from stock-based compensation exercises which includes
state income taxes.
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Fiscal Year 2020 compared to Fiscal Year 2019
The following table summarizes, for the periods indicated, our consolidated
statements of operations, the changes in these items from period to period and
these items expressed as a percentage of net revenues:
                                                                                                      Year Ended
                                                                                                                           November 29,               November 24,
                                                                                                      %                        2020                       2019
                                                  November 29,           November 24,              Increase                  % of Net                   % of Net
                                                      2020                   2019                 (Decrease)                 Revenues                   Revenues

                                                                                   (Dollars in millions, except per share amounts)
Net revenues                                    $     4,452.6$     5,763.1                    (22.7) %                   100.0  %                   100.0  %
Cost of goods sold                                    2,099.7                2,661.7                    (21.1) %                    47.2  %                    46.2  %
Gross profit                                          2,352.9                3,101.4                    (24.1) %                    52.8  %                    53.8  %
Selling, general and administrative expenses          2,347.6                2,534.7                     (7.4) %                    52.7  %                    44.0  %
Restructuring charges, net                               90.4                      -                           *                     2.0  %                       -  %
Operating (loss) income                                 (85.1)                 566.7                   (115.0) %                    (1.9) %                     9.8  %
Interest expense                                        (82.2)                 (66.2)                    24.2  %                    (1.8) %                    (1.1) %
Underwriter commission paid on behalf of
selling stockholders                                        -                  (24.9)                          *                       -  %                    (0.4) %

Other (expense) income, net                             (22.4)                   2.0                           *                    (0.5) %                       -  %
(Loss) income before income taxes                      (189.7)                 477.6                   (139.7) %                    (4.3) %                     8.3  %
Income tax (benefit) expense                            (62.6)                  82.6                   (175.8) %                    (1.4) %                     1.4  %
Net (loss) income                                      (127.1)                 395.0                   (132.2) %                    (2.9) %                     6.9  %
Net income attributable to noncontrolling
interest                                                    -                   (0.4)                          *                       -  %                       -  %
Net (loss) income attributable to Levi Strauss
& Co.                                           $      (127.1)$       394.6                   (132.2) %                    (2.9) %                     6.8  %
(Loss) earnings per common share attributable
to common stockholders:
Basic                                           $       (0.32)$        1.01                   (131.7) %                          *                          *
Diluted                                         $       (0.32)$        0.97                   (133.0) %                          *                          *
Weighted-average common shares outstanding:
Basic                                                   397.3                  389.1                      2.1  %                          *                          *
Diluted                                                 397.3                  408.4                     (2.7) %                          *                          *


_____________
* Not meaningful
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Net revenues
The following table presents net revenues by operating segment for the periods
indicated, and the changes in net revenues by operating segment on both reported
and constant-currency bases from period to period:
                                                                                         Year Ended
                                                                                                          % Increase (Decrease)
                                                     November 29,           November 24,                As                   Constant
                                                         2020                   2019                 Reported                Currency

                                                                                   (Dollars in millions)
Net revenues:
Levi's Brands:
Americas                                           $     2,187.9$     2,771.1                   (21.0) %               (19.9) %
Europe                                                   1,391.8                1,707.5                   (18.5) %               (18.5) %
Asia                                                       663.4                  926.1                   (28.4) %               (27.5) %
Total Levi's Brands net revenues                         4,243.1                5,404.7                   (21.5) %               (20.8) %
Other Brands                                               209.6                  358.4                   (41.5) %               (40.4) %
Total net revenues                                 $     4,452.7$     5,763.1                   (22.7) %               (22.0) %


As compared to the same period in the prior year, total net revenues were
affected unfavorably by approximately $56 million in foreign currency exchange
rates.
Americas.  On both a reported basis and constant-currency basis, net revenues in
our Americas segment decreased for fiscal year 2020. Currency translation had an
unfavorable impact on net revenues of approximately $38 million for the year.
The decrease in net revenues was due to the adverse impact of the COVID-19
pandemic on both our wholesale and DTC channels throughout the year.
The decrease in wholesale revenues was primarily due to the temporary closures
of third-party retail locations, most of which were closed for the duration of
the second quarter, as well as decreased demand throughout the remainder of the
year as locations reopened. These declines were partially offset by increases in
Levi's® and Signature products sold to traditional and digital wholesale
customers deemed essential, allowing them to remain open throughout the year,
either through their retail locations, or e-commerce sites.
The decrease in DTC channel revenue was due to the temporary closures of our
company-operated stores as the majority of our store network was closed during
the second and part-way through the third quarter as a result of the COVID-19
pandemic. As stores reopened, they were impacted by decreased traffic throughout
the remainder of the year, many operating under reduced hours and occupancy
levels. This was partially offset by incremental revenues from our newly
acquired South American distributor, first quarter revenue growth in our DTC
channel and the inclusion of non-comparable net revenues from two Black Fridays
and a 53rd week in fiscal year 2020 when compared to fiscal year 2019. As of
November 29, 2020, approximately 94% of our company-operated stores in the
Americas were open and our store network had 61 more stores in operation as
compared to November 24, 2019. E-commerce revenue also had strong growth during
the year due to increased traffic and higher conversion, as consumer spending
continued to shift towards online shopping, as well as from the benefit of two
Black Fridays and a 53rd week in fiscal year 2020 when compared to fiscal year
2019.
Europe. Net revenues in Europe decreased on both reported and constant-currency
bases. Currency translation did not have a significant impact on net revenues in
the segment for fiscal year 2020. The decrease in net revenues was driven by the
adverse impact COVID-19 had across both our wholesale and DTC channels
throughout the year.
Wholesale revenue declined due to the temporary closure of our wholesale
customers' retail locations, most of which were closed for the duration of the
second quarter and some again in the fourth quarter due to a resurgence of
COVID-19, as well as decreased demand when locations were open after the
pandemic began. These declines were partially offset by growth in our digital
wholesale customer revenues as well as first quarter growth from our traditional
wholesale customers.
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The decrease in DTC channel revenue was due to the temporary closures of our
company-operated stores as the majority of our store network was closed during
the second quarter, with some stores closed again in the fourth quarter due to a
resurgence of COVID-19. When stores were able to open after the first wave of
the pandemic, they were impacted by lower traffic, many operating under reduced
hours and store occupancy levels. This decline was partially offset with first
quarter growth within our company operated retail network and the inclusion of
non-comparable net revenues from two Black Fridays and a 53rd week in fiscal
year 2020 as compared to fiscal year 2019. As of November 29, 2020,
approximately 66% of our company-operated stores in Europe were open and our
store network had 29 more stores in operation as compared to November 24, 2019.
E-commerce revenue grew during the year as a result of increased traffic, as
consumer spending continued to shift towards online shopping, as well as from
the benefit of two Black Fridays and a 53rd week in fiscal year 2020 when
compared to fiscal year 2019.
Asia. Net revenues in Asia decreased on both reported and constant-currency
bases, with currency translation affecting net revenues unfavorably by
approximately $11 million. The decrease in net revenues was driven by the
adverse impact COVID-19 had across our wholesale and DTC channels throughout the
year.
Wholesale revenue declined due to temporary store closures impacting wholesale
customer retail locations across the segment, starting in the second quarter and
at various times throughout the remainder of the year, offsetting first quarter
growth.
DTC channel revenue decreased due to the temporary store closures that started
in China and neighboring countries midway through the first quarter, and then
spread throughout various parts of the segment for varying periods of time
during the year as sporadic COVID-19 outbreaks and partial and full lockdowns
impacted the segment. As stores reopened, sales were impacted by lower foot
traffic and restrictions on operating hours and store occupancy levels. The
decline in DTC revenue was partially offset by growth in e-commerce revenue in
fiscal year 2020 as compared to fiscal year 2019. As of November 29, 2020,
approximately 99% of our company-operated stores in Asia were open and our store
network had 25 more stores in operation as compared to November 24, 2019.
Other Brands. Net revenues in Other Brands increased on both reported and
constant-currency bases, with currency translation affecting net revenues
unfavorably by approximately $7 million. The decrease in net revenues was due to
the adverse COVID-19 impact on our Dockers® brand revenues in fiscal 2020.
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,       November 24,        Increase
                          2020               2019           (Decrease)

                                   (Dollars in millions)
Net revenues         $    4,452.6$    5,763.1           (22.7) %
Cost of goods sold        2,099.7            2,661.7           (21.1) %
Gross profit         $    2,352.9$    3,101.4           (24.1) %
Gross margin                 52.8  %            53.8  %


Currency translation unfavorably impacted gross profit by approximately $23
million. The decrease in gross margin was mainly due to COVID-19 related
charges, which primarily included the recognition of incremental inventory
reserves of $42.3 million and adverse fabric purchase commitments of $26.2
million which decreased gross margin by 1.6 percentage points. These adverse
impacts were partially offset by price increases implemented in the second half
of the prior year.
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Selling, general and administrative expenses
The following table shows our SG&A 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,               November 24,
                                                                                                    %                        2020                       2019
                                                November 29,           November 24,              Increase                  % of Net                   % of Net
                                                    2020                   2019                 (Decrease)                 Revenues                   Revenues

                                                                                              (Dollars in millions)
Selling                                       $     1,040.4$     1,116.8                     (6.8) %                    23.4  %                    19.4  %
Advertising and promotion                             331.4                  399.3                    (17.0) %                     7.4  %                     6.9  %
Administration                                        343.2                  426.0                    (19.4) %                     7.7  %                     7.4  %
Other                                                 542.3                  592.6                     (8.5) %                    12.2  %                    10.3  %
COVID-19 related charges                               90.3                      -                    100.0  %                     2.0  %                       -  %
Total SG&A expenses                           $     2,347.6$     2,534.7                     (7.4) %                    52.7  %                    44.0  %


Currency translation affected SG&A expenses favorably by approximately $15
million as compared to the prior year.
Selling. Currency translation impacted selling expenses favorably by
approximately $9 million for the year ended November 29, 2020. Lower selling
expenses primarily reflected decreased costs due to the temporary closure of our
company operated retail stores as well as cost-savings actions initiated during
the second quarter. Selling expenses as a percentage of net revenues increased
due to the adverse impact of the COVID-19 pandemic on net revenues, offset in
part by cost-savings actions implemented during the year.
Advertising and promotion. Currency translation impacted advertising and
promotion expense favorably by approximately $3 million for the year ended
November 29, 2020. The decrease in advertising and promotion expenses is due to
our decision to reduce spending in response to COVID-19 in the channels most
affected by the economic shutdown.
Administration. Administration expenses include functional administrative and
organization costs. Currency translation did not have a significant impact on
administration expenses for fiscal year 2020. The decrease in administration
expenses is largely due to lower employee and incentive costs, which included
the impact of cost-savings actions implemented in response to COVID-19.
Other. Other costs include distribution, information resources, and marketing
organization costs. Currency translation impacted other SG&A expenses favorably
by approximately $2 million for fiscal year 2020. The decrease in other costs
was primarily due to lower distribution expenses attributable to reduced sales
volume as well as cost-savings actions implemented in response to COVID-19.
COVID-19 related charges.  During the year ended November 29, 2020, we
recognized $44.3 million in impairment of certain operating lease right-of-use
assets and $21.7 million in impairment of property and equipment related to
certain retail locations and other corporate assets, resulting from lower
revenue and future cash flow projections from the ongoing effects of the
COVID-19 pandemic. Additional charges of $17.7 million relate to customer
receivables, including provisions and other allowances as a result of changes in
their financial condition of $5.2 million and actual and anticipated
bankruptcies and other associated claims of $12.5 million. The remainder relates
to other incremental costs incurred in response to the global pandemic.
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Operating income (loss)
The following table shows operating income by operating 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 corresponding segment net
revenues:
                                                                                                 Year Ended
                                                                                                                 November 29,                     November 24,
                                                                                             %                       2020                             2019
                                            November 29,         November 24,            Increase                  % of Net                         % of Net
                                                2020                 2019               (Decrease)                 Revenues                         Revenues

                                                                                            (Dollars in millions)
Operating (loss) income:
Levi's Brands:
Americas                                   $     318.7$     519.7                   (38.7) %                    14.6  %                          18.8  %
Europe                                           207.9                350.1                   (40.6) %                    14.9  %                          20.5  %
Asia                                             (21.4)                87.5                  (124.5) %                    (3.2) %                           9.4  %
Total Levi's Brands operating income             505.2                957.3                   (47.2) %                    11.9  %                          17.7  %
Other Brands                                      (3.3)                 7.1                  (146.5) %                    (1.6) %                           2.0  %

Restructuring charges, net                       (90.4)                   -                       -  %                    (2.0) %   *                         -  %   *
Corporate expenses                              (496.6)              (397.7)                   24.9  %                   (11.2) %   *                      (6.9) %   *

Total operating (loss) income              $     (85.1)$     566.7                  (115.0) %                    (1.9) %   *                       9.8  %   *
Operating margin                                  (1.9) %               9.8  %


* Percentage of consolidated net revenues
Currency translation affected total operating income in fiscal year 2020
unfavorably by approximately $8 million as compared to the prior year.
Segment operating income (loss).
•Americas. Currency translation unfavorably affected operating income in the
segment by approximately $8 million as compared to the prior year. The decrease
in operating income was primarily due to the adverse impacts of COVID-19,
including lower net revenues, partially offset by lower SG&A expenses as
discretionary and variable expenses were reduced or eliminated in response to
COVID-19.
•Europe. Currency translation did not have a significant impact on operating
income in the segment for fiscal year 2020. The decrease in operating income was
primarily due to the adverse impacts of COVID-19, including lower net revenues,
partially offset by lower SG&A expenses as discretionary and variable expenses
were reduced or eliminated in response to COVID-19, net of higher selling costs
to support store expansion.
•Asia. Currency translation did not have a significant impact on operating
income in the segment for fiscal year 2020. The decrease in operating income was
primarily due to the adverse impacts of COVID-19, including lower net revenues,
partially offset by lower SG&A expenses as discretionary and variable expenses
were reduced or eliminated in response to COVID-19.
•Other Brands. Currency translation did not have a significant impact on
operating income in the segment for fiscal year 2020. Excluding the effects of
currency, the decrease in operating income for fiscal year 2020 was due to lower
net revenues, partially offset by lower SG&A selling expenses.
Restructuring charges, net. During the year ended November 29, 2020, we
recognized restructuring charges of $90.4 million, consisting primarily of
severance and other post-employment benefits. See "- Overview - 2020
Restructuring" above for more information.
Corporate expenses. Corporate expenses represent costs that management does not
attribute to any of our operating segments. Included in corporate expenses are
restructuring charges, COVID-19 related charges and other corporate staff costs.
Corporate expenses also include costs associated with our global inventory
sourcing organization and COVID-19 related inventory costs which are reported as
a component of consolidated gross margin.
The increase in corporate expenses for the year ended November 29, 2020 was
primarily due to net restructuring charges, COVID-19 related net inventory costs
and other charges, and impairment of certain store right-of-use and other store
assets.
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Interest expense
Interest expense was $82.2 million for the year ended November 29, 2020, as
compared to $66.2 million in the prior year. The increase in interest expense
was primarily related to additional borrowings from senior notes.
Our weighted-average interest rate on average borrowings outstanding for fiscal
year 2020 was 4.75%, as compared to 5.31% for fiscal year 2019.
Other income (expense), net
Other income (expense), net, primarily consists of foreign exchange management
activities and transactions. For the years ended November 29, 2020 and November
24, 2019, we recorded net other expense of $22.4 million and other income of
$2.0 million, respectively. The expense in fiscal year 2020 primarily consists
of $14.7 million in pension settlement losses as well as foreign currency
transaction losses, partially offset by the interest income generated from money
market funds and short-term investments. The income in fiscal year 2019
primarily reflected net gains on our foreign exchange derivatives and investment
interest generated from money market funds, partially offset by net losses on
our foreign currency denominated balances.
Income tax (benefit) expense
Income tax (benefit) expense was $(62.6) million for the year ended November 29,
2020, compared to $82.6 million for the prior year. Our effective income tax
rate was 33.0% for the year ended November 29, 2020, compared to 17.3% for the
prior year. The increase in the effective tax rate in fiscal year 2020 as
compared to fiscal year 2019 was driven by a significant decrease in income
before income taxes. The increase in the effective tax rate was primarily
attributable to a $26.1 million benefit from stock-based compensation exercises,
which includes state income taxes, and a $4.6 million benefit resulting from the
carryback of U.S. net operating losses to tax years with a higher federal income
tax rate as allowed under the CARES Act, offset with a $18.3 million tax charge
for valuation allowance against deferred tax assets.
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Liquidity and Capital Resources
Liquidity outlook
We believe we will have adequate liquidity over the next 12 months and in the
longer term to operate our business and to meet our cash requirements . We
remain committed to increasing total shareholder returns through deploying
capital across all three of our capital allocation priorities: (1) to invest in
high growth investment opportunities and initiatives to grow our business
organically, (2) to return capital to our stockholders in the form of cash
dividends, as well as stock repurchases to offset dilution that would otherwise
be introduced from stock-based incentive compensation grants, and (3) to pursue
acquisitions, both organic and inorganic, that support our current strategies.
We continue to concentrate our capital investments in new stores, distribution
capacity and technology.
Future determinations regarding the declaration and payment of dividends, if
any, will be at the discretion of our board of directors and will depend on
then-existing conditions, including our results of operations, payout ratio,
capital requirements, financial condition, prospects, contractual arrangements,
any limitations on payment of dividends present in our current and future debt
agreements and other factors that our board of directors may deem relevant.
Cash sources
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 party to the Second Amended and Restated Credit Agreement that provides
for 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
$850.0 million, of which $800.0 million is available to us for revolving loans
in U.S. Dollars and $50.0 million is available to us for revolving loans either
in U.S. Dollars or Canadian Dollars.
As of November 28, 2021, we did not have any borrowings under the credit
facility, unused availability under the facility was $794.3 million, and our
total availability of $806.6 million, based on collateral levels as defined by
the agreement, was reduced by $12.3 million of stand-by letters of credit and
other credit-related instruments. We also had cash and cash equivalents totaling
approximately $810.3 million and short-term investments of $91.5 million
resulting in a total liquidity position (unused availability and cash and cash
equivalents and short-term investments) of approximately $1.7 billion.
Cash uses
Our principal cash requirements include working capital, capital expenditures,
payments of principal and interest on our debt, payments of taxes, contributions
to our pension plans and payments for postretirement health benefit plans,
payment of taxes resulting from net settlement of shares issued under our 2016
Equity Incentive Plan, as amended to date ("2016 Plan") and our 2019 Equity
Incentive Plan as amended to date ("2019 Plan"), 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. Upon completion of our IPO in March 2019, our 2016 Plan was replaced
with our 2019 Plan.
In the fourth quarter of fiscal 2021, we completed the acquisition of Beyond
Yoga®, funded entirely by cash on hand. We believe that this acquisition will
allow us to enter into the activewear category, complementing our growing
women's business and enabling us to allocate global resources and infrastructure
to significantly expand Beyond Yoga®, building on its largely digital ecosystem.
We also used cash on hand to redeem the remaining $200.0 million of the 5.00%
Senior Notes due 2025.
In October 2021, the Board reinstated its share repurchase program, which
authorizes the repurchase of up to $200 million of the Company's Class A common
stock with the intention to offset dilution from employee incentive grants.
During the three months ended November 28, 2021, 3.4 million shares were
repurchased for $88.4 million, plus broker's commissions, in the open market.
Subsequent to year end, 1.8 million shares were repurchased for $43.6 million,
plus broker's commissions, in the open market. This equates to an average
repurchase price of approximately $24.68 per share.
In January 2022, the Board declared a cash dividend of $0.10 per share to
holders of record of its Class A and Class B common stock at the close of
business on February 9, 2022, for a total quarterly dividend of approximately
$40 million. Total dividends are expected to be approximately $160 million for
fiscal year 2022 and to be paid out quarterly.
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Cash requirements for fiscal 2022 are expected to consist primarily of capital
expenditures for investments in new stores, distribution capacity and
technology. Total capital expenditures for fiscal 2022 are expected to be
approximately $270 million.
The following table summarizes current and long-term material cash requirements
as of November 28, 2021:
                                                                           Material Cash Requirements
                                    Total             2022            2023           2024           2025           2026           Thereafter

                                                                             (Dollars in millions)
Short-term and long-term debt
obligations                       $ 1,038$     6          $   -          $   -          $   -          $   -          $     1,032
Interest(1)                           263               38             37             37             37             36                   78
Future minimum payments(2)          1,292              263            233            194            155            121                  326
Inventory purchase commitments(3)     738              738              -              -              -              -                    -
Purchase obligations(4)               378               92             65             62             37             26                   96
Postretirement obligations(5)          51                7              7              6              6              5                   20
Pension obligations(6)                140               14             14             14             14             14                   70
Long-term employee related
benefits(7)                           121               13              8              8              6              5                   81
Total                             $ 4,021$ 1,171$ 364$ 321$ 255$ 207$     1,703


______________
(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 28, 2021, and therefore do not reflect our planned
future openings of company-operated retail stores. For more information, see
"Item 2 - Properties."
(3)Inventory purchase commitments represent agreements to purchase fixed or
minimum quantities of goods, including fabric commitments, at determinable
prices.
(4)Amounts reflect estimated commitments of $153 million for sponsorship, naming
rights and related benefits with respect to the Levi's® Stadium, and $225
million for human resources, advertising, information technology and other
professional services.
(5)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 10 to our
audited consolidated financial statements included in this report.
(6)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 2022 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 our 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 10 to our audited
consolidated financial statements included in this report.
(7)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 11 to our
audited consolidated financial statements included in this report.
The above table does not include amounts related to our uncertain tax positions
of $30.7 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.
Based on the fair value of the Company's stock and the number of shares
outstanding as of November 29, 2020, future payments related to shares
surrendered for employee tax withholding on the exercise or vesting of
outstanding equity awards could range up to approximately $100 million, which
could become payable in 2022.
Information in the above table 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 the above table. The
inclusion of these projections and estimates should not be regarded as a
representation by us that the estimates will prove to be correct.
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Cash flows
The following table summarizes, for the periods indicated, selected items in our
consolidated statements of cash flows:
                                                                                        Year Ended
                                                                November 28,           November 29,           November 24,
                                                                    2021                   2020                   2019

                                                                                  (Dollars in millions)
Cash provided by operating activities                         $       737.3$       469.6$       412.2
Cash used for investing activities                                   (571.8)                (188.6)                (243.3)
Cash (used for) provided by financing activities                     (840.9)                 286.0                   55.0
Cash and cash equivalents as of fiscal year end                       810.3                1,497.2                  934.2


Fiscal Year 2021 as compared to Fiscal Year 2020
Cash flows from operating activities
Cash provided by operating activities was $737.3 million for fiscal year 2021,
as compared to $469.6 million for fiscal year 2020. The increase in cash
provided by operating activities is primarily driven by higher collections of
trade receivables, partially offset by higher spending on inventory and SG&A
expenses, reflective of the increase in sales in comparison to the same period
in prior year. Our cash flows from operations in the fiscal year 2020 were
impacted by the widespread temporary store closures and other business
disruptions caused by the COVID-19 pandemic.
Cash flows from investing activities
Cash used for investing activities was $571.8 million for fiscal year 2021, as
compared to $188.6 million for fiscal year 2020. The increase in cash used for
investing activities is due to higher payments incurred for a business
acquisition and capital expenditures, along with higher net payments to settle
foreign exchange contracts. These were partially offset by higher net proceeds
from short-term investments during fiscal year 2021.
Cash flows from financing activities
Cash used for financing activities was $840.9 million for fiscal year 2021, as
compared to cash provided of $286.0 million for fiscal year 2020. Cash used in
fiscal year 2021 primarily reflects redemption of $1.0 billion senior notes due
2025 partially offset by proceeds from issuance of new senior notes of
$500.0 million. Cash provided in fiscal year 2020 primarily reflects proceeds
from senior notes of $502.5 million.
Fiscal Year 2020 as compared to Fiscal Year 2019
Cash flows from operating activities
Cash provided by operating activities was $469.6 million for fiscal year 2020,
as compared to $412.2 million for fiscal year 2019. The increase in cash
provided by operating activities is primarily due to lower spending on
inventory, employee incentives and variable and discretionary expenditures,
partially offset by less cash received on customer receivables, due in part to
lower sales. Our cash flows from operations were significantly impacted by the
widespread temporary store closures and other business disruptions, particularly
in the second quarter of fiscal year 2020, caused by the COVID-19 pandemic.
Cash flows from investing activities
Cash used for investing activities was $188.6 million for fiscal year 2020, as
compared to $243.3 million for fiscal year 2019. The decrease in cash used for
investing activities is due to lower net payments to acquire short-term
investments, partially offset by payments incurred for business acquisition
during fiscal year 2020.
Cash flows from financing activities
Cash provided by financing activities was $286.0 million for fiscal year 2020,
as compared to $55.0 million for fiscal year 2019. Cash provided in fiscal year
2020 primarily reflects proceeds from senior notes of $502.5 million, partially
offset by payments of $56.2 million for common stock repurchases, $90.6 million
for withholding tax on cashless equity award exercises, payment of a $63.6
million cash dividend. Cash provided in fiscal year 2019 primarily reflects
proceeds from our IPO of $254.3 million, partially offset by the payments of
$113.9 million for cash dividends, $44.0 million for equity award exercises.
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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 $1.0 billion as of November 28,
2021, 100% was fixed-rate debt, net of capitalized debt issuance costs. As of
November 28, 2021, our required aggregate debt principal payments of $1.0
billion begin in 2027. Short-term borrowings of $5.9 million at various foreign
subsidiaries were expected to be either paid over the next 12 months or
refinanced at the end of their applicable terms.
Our long-term debt agreements contain customary covenants restricting our
activities as well as those of our subsidiaries. We were in compliance with all
of these covenants as of November 28, 2021.
Non-GAAP Financial Measures
Adjusted Gross Profit, Adjusted Gross Margin, Adjusted SG&A, Adjusted EBIT,
Adjusted EBIT Margin, Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income
Margin, and Adjusted Diluted Earnings per Share
We define Adjusted gross profit, as gross profit excluding COVID-19 and
acquisition related inventory costs. We define Adjusted gross margin, as
Adjusted gross profit as a percentage of net revenues. We define Adjusted SG&A
as SG&A excluding changes in fair value on cash-settled stock-based
compensation, COVID-19 related charges, acquisition and integration related
charges, and restructuring related charges, severance and other, net. We define
Adjusted EBIT as net income (loss) excluding income tax expense (benefit),
interest expense, other (income) expense, net, underwriter commission paid on
behalf of selling stockholders, loss on early extinguishment of debt, impact of
changes in fair value on cash-settled stock-based compensation, COVID-19 related
inventory costs and other charges, acquisition and integration related charges,
and restructuring and related charges, severance and other, net. We define
Adjusted EBIT margin as Adjusted EBIT as a percentage of net revenues. We define
Adjusted EBITDA as Adjusted EBIT excluding depreciation and amortization
expense. We define Adjusted net income as net income (loss) excluding
underwriter commission paid on behalf of selling stockholders, loss on early
extinguishment of debt, charges related to the impact of changes in fair value
on cash-settled stock-based compensation, COVID-19 related inventory costs and
other charges, acquisition and integration related charges, and restructuring
and restructuring related charges, severance and other, net, pension settlement
losses, and re-measurement of our deferred tax assets and liabilities based on
the lower rates as a result of the Tax Act, adjusted to give effect to the
income tax impact of such adjustments. To calculate the income tax impact of
such adjustments on a year-to-date basis, we utilize an effective tax rate equal
to our income tax expense excluding material discrete costs and benefits, with
any impacts of changes in effective tax rate being recognized in the current
period. We define Adjusted net income margin as Adjusted net income as a
percentage of net revenues. We define Adjusted diluted earnings per share as
Adjusted net income per weighted-average number of diluted common shares
outstanding. We believe Adjusted gross profit, Adjusted gross margin, Adjusted
SG&A, Adjusted EBIT, Adjusted EBIT margin, Adjusted EBITDA, Adjusted net income,
Adjusted net income margin and Adjusted diluted earnings per share are useful to
investors because they help identify underlying trends in our business that
could otherwise be masked by certain expenses that we include in calculating net
income (loss) but that can vary from company to company depending on its
financing, capital structure and the method by which its assets were acquired,
and can also vary significantly from period to period. Our management also uses
Adjusted EBIT in conjunction with other GAAP financial measures for planning
purposes, including as a measure of our core operating results and the
effectiveness of our business strategy, and in evaluating our financial
performance.
Adjusted gross profit, Adjusted gross margin, Adjusted SG&A, Adjusted EBIT,
Adjusted EBIT margin, Adjusted EBITDA, Adjusted net income, Adjusted net income
margin and Adjusted diluted earnings per share have limitations as analytical
tools and should not be considered in isolation or as a substitute for an
analysis of our results prepared and presented in accordance with GAAP. Some of
these limitations include:
•Adjusted EBIT, Adjusted EBIT margin and Adjusted EBITDA do not reflect income
tax payments that reduce cash available to us;
•Adjusted EBIT, Adjusted EBIT margin and Adjusted EBITDA do not reflect interest
expense, or the cash requirements necessary to service interest or principal
payments on our indebtedness, which reduces cash available to us;
•Adjusted EBIT, Adjusted EBIT margin and Adjusted EBITDA exclude other (income)
expense net, which includes pension settlement losses as well as realized and
unrealized gains and losses on our forward foreign exchange contracts and
transaction gains and losses on our foreign exchange balances, although these
items affect the amount and timing of cash available to us when these gains and
losses are realized;
•Adjusted net income, Adjusted net income margin and Adjusted diluted earnings
per share exclude pension settlement losses;
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•all of these non-GAAP financial measures exclude underwriter commission paid on
behalf of selling stockholders in connection with our IPO that reduces cash
available to us;
•all of these non-GAAP financial measures exclude the expense resulting from the
impact of changes in fair value on our cash-settled stock-based compensation
awards, even though, prior to March 2019, such awards were required to be
settled in cash;
•all of these non-GAAP financial measures exclude COVID-19 related inventory
costs and other charges, acquisition and integration charges, and restructuring
and related charges, severance and other, net which can affect our current and
future cash requirements;
•all of these non-GAAP financial measures exclude certain other SG&A items,
which include severance, transaction and deal related costs, including
acquisition and integration costs which can affect our current and future cash
requirements;
•the expenses and other items that we exclude in our calculations of all of
these non-GAAP financial measures may differ from the expenses and other items,
if any, that other companies may exclude from all of these non-GAAP financial
measures or similarly titled measures;
•Adjusted EBITDA excludes the recurring, non-cash expenses of depreciation of
property and equipment and, although these are non-cash expenses, the assets
being depreciated may need to be replaced in the future; and
•Adjusted net income, Adjusted net income margin and Adjusted diluted earnings
per share do not include all of the effects of income taxes and changes in
income taxes reflected in net income (loss).
Because of these limitations, all of these non-GAAP financial measures should be
considered along with net income (loss) and other operating and financial
performance measures prepared and presented in accordance with GAAP.
Adjusted Gross Profit:
The following table presents a reconciliation of gross profit, the most directly
comparable financial measure calculated in accordance with GAAP, to Adjusted
gross profit for each of the periods presented.
                                                              Year Ended
                                          November 28,       November 29,       November 24,
                                              2021               2020               2019

                                                         (Dollars in millions)
  Most comparable GAAP measure:
  Gross profit                           $    3,346.7$    2,352.9$    3,101.4

  Non-GAAP measure:
  Gross profit                                3,346.7            2,352.9            3,101.4
  COVID-19 related inventory costs(1)           (15.1)              69.3                  -
  Acquisition related charges (2)                 3.9                  -                  -
  Adjusted gross profit                  $    3,335.5$    2,422.2$    3,101.4
  Adjusted gross margin                          57.9  %            54.4  %            53.8  %

_____________

(1)  For the fiscal year ended November 28, 2021, the reductions in COVID-19
related inventory charges is primarily related to reductions in our estimate of
adverse fabric purchase commitments, initially recorded in the second quarter of
2020. For the fiscal year ended November 29, 2020, COVID-19 related inventory
costs include $42.3 million of incremental inventory reserves and the
recognition of adverse fabric purchase commitments of $26.2 million.
(1)  Acquisition related charges include the inventory markup above historical
carrying value associated with the Beyond Yoga acquisition.
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Adjusted SG&A:
The following table presents a reconciliation of SG&A, the most directly
comparable financial measure calculated in accordance with GAAP, to Adjusted
SG&A for each of the periods presented.
                                                                                    Year Ended
                                                            November 28,           November 29,           November 24,
                                                                2021                   2020                   2019

                                                                              (Dollars in millions)
Most comparable GAAP measure:
Selling, general and administrative expenses              $     2,652.2

$ 2,347.6$ 2,534.7


Non-GAAP measure:
Selling, general and administrative expenses                    2,652.2                2,347.6                2,534.7
Impact of changes in fair value on cash-settled
stock-based compensation(1)                                        (4.2)                  (7.1)                 (34.1)
COVID-19 related charges(2)                                        (5.4)                 (90.3)                     -
Acquisition and integration related charges                        (3.8)                     -                      -
Restructuring related charges, severance and other,
net(3)                                                            (16.2)                  (9.1)                  (9.8)
Adjusted SG&A                                             $     2,622.6$     2,241.1$     2,490.8


_____________
(1)Includes the impact of the changes in fair value of Class B common stock
following the grant date on awards that were granted as cash-settled and
subsequently replaced with stock-settled awards concurrent with the IPO.
(2)For the year ended November 28, 2021, the COVID-19 related charges primarily
include reductions in allowances related to customer receivables partially
offset with impairment charges of certain retail store related assets. For the
year ended November 29, 2020, COVID-19 related charges primarily consist of
$44.3 million in impairment of certain operating lease right-of-use assets and
$21.7 million in impairment of property and equipment related to certain retail
locations and other corporate assets, $17.7 million of charges related to
customer receivables and other incremental costs incurred in connection with
COVID-19.
(3)Other charges included in restructuring related charges, severance and other,
net include charges related to an international customs audit and transaction
and deal related costs.

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Adjusted EBIT and Adjusted EBITDA:
The following table presents a reconciliation of net income (loss), the most
directly comparable financial measure calculated in accordance with GAAP, to
Adjusted EBIT and Adjusted EBITDA for each of the periods presented.
                                                                                 Year Ended
                                                           November 28,         November 29,          November 24,
                                                               2021                 2020                  2019

                                                                            (Dollars in millions)
Most comparable GAAP measure:
Net income (loss)                                         $     553.5$     (127.1)$     395.0

Non-GAAP measure:
Net income (loss)                                               553.5                (127.1)               395.0
Income tax expense (benefit)                                     26.7                 (62.6)                82.6
Interest expense                                                 72.9                  82.2                 66.2
Other (income) expense, net(1)                                   (3.4)                 22.4                 (2.0)
Underwriter commission paid on behalf of selling
stockholders                                                        -                     -                 24.9
Loss on early extinguishment of debt                             36.5                     -                    -
Impact of changes in fair value on cash-settled
stock-based compensation(2)                                       4.2                   7.1                 34.1
COVID-19 related inventory costs and other charges(3)            (9.7)                159.6                    -
Acquisition and integration related charges(4)                    7.7                     -                    -
Restructuring and restructuring related charges,
severance and other, net(5)                                      24.5                  99.5                  9.8
Adjusted EBIT                                             $     712.9$      181.1$     610.6
Depreciation and amortization(6)                                142.0                 136.6                123.9
Adjusted EBITDA                                           $     854.9$      317.7$     734.5
Adjusted EBIT margin                                             12.4  %                4.1  %              10.6  %


_____________
(1)Includes $14.7 million in pension settlement losses related to the voluntary
lump-sum, cash-out program offered to vested deferred U.S. pension plan
participants during the year ended November 29, 2020. See Note 10 to our audited
consolidated financial statements included in this report for further
information.
(2)Includes the impact of the changes in fair value of Class B common stock
following the grant date on awards that were granted as cash-settled and
subsequently replaced with stock-settled awards concurrent with the IPO.
(3)For the year ended November 28, 2021, the net reduction in COVID-19 related
inventory costs and other charges recognized mainly represents reductions in
COVID-19 related inventory charges, as a result of reductions in our estimate of
adverse fabric purchase commitments and allowances related to customer
receivables partially offset with impairment charges of certain retail store
related assets. For the year ended November 29, 2020, COVID-19 related inventory
costs and other charges primarily include $42.3 million of incremental inventory
reserves, $26.2 million of adverse fabric purchase commitments, $44.3 million
and $21.7 million in impairment of operating lease right-of-use assets and
property and equipment related to certain retail locations and other corporate
assets, respectively, and $17.7 million of charges related to customer
receivables. The remainder relates to other incremental costs incurred in
response to the global pandemic.
(4)Acquisition and integration related charges includes the inventory markup
above historical carrying value as well as SG&A expenses associated with the
Beyond Yoga acquisition.
(5)Other charges included in Restructuring and restructuring related charges,
severance and other, net include charges related to an international customs
audit and transaction and deal related costs.
(6)Depreciation and amortization amount net of amortization included in
Restructuring and restructuring related charges, severance and other, net.

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Adjusted Net Income and Adjusted Diluted Earnings per Share:
The following table presents a reconciliation of net income (loss), the most
directly comparable financial measure calculated in accordance with GAAP, to
Adjusted net income for each of the periods presented and the calculation of
Adjusted diluted earnings per share for each of the periods presented.
                                                                                    Year Ended
                                                             November 28,            November 29,          November 24,
                                                                 2021                    2020                  2019

                                                                 (Dollars in millions, except per share amounts)
Most comparable GAAP measure:
Net income (loss)                                         $         553.5           $     (127.1)$     395.0

Non-GAAP measure:
Net income (loss)                                                   553.5                 (127.1)               395.0
Underwriter commission paid on behalf of selling
stockholders                                                            -                      -                 24.9
Loss on early extinguishment of debt                                 36.5                      -                    -
Impact of changes in fair value on cash-settled
stock-based compensation(1)                                           4.2                    7.1                 34.1
COVID-19 related inventory costs and other charges(2)                (9.7)                 159.6                    -
Acquisition and integration related charges(3)                        7.7                      -                    -
Restructuring and restructuring related charges,
severance and other, net(4)                                          24.5                   99.5                  9.8

Pension settlement losses(5)                                            -                   14.7                    -
Tax impact of adjustments(6)                                        (15.8)                 (70.2)                (7.6)
Adjusted net income                                       $         600.9           $       83.6$     456.2

Adjusted net income margin                                           10.4   %                1.9  %               7.9  %
Adjusted diluted earnings per share                       $          1.47   

$ 0.21$ 1.12

_____________

(1)Includes the impact of the changes in fair value of Class B common stock
following the grant date on awards that were granted as cash-settled and
subsequently replaced with stock-settled awards concurrent with the IPO.
(2)For the year ended November 28, 2021, the net reduction in COVID-19 related
inventory costs and other charges recognized mainly represents reductions in
COVID-19 related inventory charges, as a result of reductions in our estimate of
adverse fabric purchase commitments and allowances related to customer
receivables partially offset with impairment charges of certain retail store
related assets. For the year ended November 29, 2020, COVID-19 related inventory
costs and other charges primarily include $42.3 million of incremental inventory
reserves, $26.2 million of adverse fabric purchase commitments, $44.3 million
and $21.7 million in impairment of operating lease right-of-use assets and
property and equipment related to certain retail locations and other corporate
assets, respectively, and $17.7 million of charges related to customer
receivables. The remainder relates to other incremental costs incurred in
response to the global pandemic.
(3)Acquisition and integration related charges includes the inventory markup
above historical carrying value as well as SG&A expenses associated with the
Beyond Yoga acquisition.
(4)Other charges included in Restructuring and restructuring related charges,
severance and other, net include charges related to an international customs
audit and transaction and deal related costs.
(5)Pension settlement losses relate to the voluntary lump-sum, cash-out program
offered to vested deferred U.S. pension plan participants. See Note 10 for
further information.
(6)Tax impact calculated using the annual effective tax rate, excluding discrete
costs and benefits. Please refer to Note 20 for more information on the
effective tax rate.
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Net Debt and Leverage Ratio:
We define net debt, as total debt, excluding capital leases, less cash and cash
equivalents. We define leverage ratio, as the ratio of total debt to the last 12
months Adjusted EBITDA. Our management believes that net debt and leverage ratio
are important measures to monitor our financial flexibility and evaluate the
strength of our balance sheet. Net debt and leverage ratio have limitations as
analytical tools and may vary from similarly titled measures used by other
companies. Net debt and leverage ratio should not be considered in isolation or
as substitutes for an analysis of our results prepared and presented in
accordance with GAAP.
The following table presents a reconciliation of total debt, excluding capital
leases, the most directly comparable financial measure calculated in accordance
with GAAP, to net debt for each of the periods presented.
                                                       November 28,       November 29,
                                                           2021               2020

                                                            (Dollars in millions)
   Most comparable GAAP measure:
   Total debt, excluding capital leases               $     1,026.6$     1,564.3

   Non-GAAP measure:
   Total debt, excluding capital leases               $     1,026.6$     1,564.3
   Cash and cash equivalents                                 (810.3)          (1,497.2)
   Short-term investments in marketable securities            (91.5)             (96.5)
   Net debt                                           $       124.8$       (29.4)


The following table presents a reconciliation of total debt, excluding capital
leases, the most directly comparable financial measure calculated in accordance
with GAAP, to leverage ratio for each of the periods presented.
                                        November 28,       November 29,
                                            2021               2020

                                             (Dollars in millions)

Total debt, excluding capital leases $ 1,026.6$ 1,564.3 Last Twelve Months Adjusted EBITDA $ 854.9$ 317.7 Leverage ratio

                                   1.2                4.9


Adjusted Free Cash Flow:
We define Adjusted free cash flow, as net cash flow from operating activities
plus underwriter commission paid on behalf of selling stockholders, less
purchases of property, plant and equipment, plus proceeds (less payments) on
settlement of forward foreign exchange contracts not designated for hedge
accounting, less payment of debt extinguishment costs, less repurchases of
common stock, including shares surrendered for tax withholding on equity award
exercises, and cash dividends to stockholders. We believe Adjusted free cash
flow is an important liquidity measure of the cash that is available after
capital expenditures for operational expenses and investment in our business. We
believe adjusted free cash flow is useful to investors because it measures our
ability to generate or use cash. Once our business needs and obligations are
met, cash can be used to maintain a strong balance sheet and invest in future
growth.
Our use of adjusted free cash flow has limitations as an analytical tool and
should not be considered in isolation or as a substitute for an analysis of our
results under GAAP. First, Adjusted free cash flow is not a substitute for net
cash flow from operating activities. Second, other companies may calculate
Adjusted free cash flow or similarly titled non-GAAP financial measures
differently or may use other measures to evaluate their performance, all of
which could reduce the usefulness of Adjusted free cash flow as a tool for
comparison. Additionally, the utility of Adjusted free cash flow is further
limited as it does not reflect our future contractual commitments and does not
represent the total increase or decrease in our cash balance for a given period.
Because of these and other limitations, Adjusted free cash flow should be
considered along with net cash flow from operating activities and other
comparable financial measures prepared and presented in accordance with GAAP.
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The following table presents a reconciliation of net cash flow from operating
activities, the most directly comparable financial measure calculated in
accordance with GAAP, to Adjusted free cash flow for each of the periods
presented.
                                                                                   Year Ended
                                                           November 28,           November 29,           November 24,
                                                               2021                   2020                   2019

                                                                             (Dollars in millions)
Most comparable GAAP measure:
Net cash provided by operating activities                $       737.3$       469.6$       412.2
Net cash used for investing activities                          (571.8)                (188.6)                (243.3)
Net cash (used for) provided by financing activities            (840.9)                 286.0                   55.0

Non-GAAP measure:
Net cash provided by operating activities                $       737.3$       469.6$       412.2
Underwriter commission paid on behalf of selling
stockholders                                                         -                      -                   24.9
Purchases of property, plant and equipment                      (166.9)                (130.4)                (175.4)

(Payments) proceeds on settlement of forward foreign exchange contracts not designated for hedge accounting

           (17.9)                  12.5                   12.2
Payment of debt extinguishment costs                             (23.3)                     -                      -
Repurchase of common stock                                       (85.9)                 (56.2)                  (3.1)

Shares surrendered for tax withholdings on equity award (109.3)

            (90.6)                 (40.9)
exercises
Dividend to stockholders                                        (104.4)                 (63.6)                (113.9)
Adjusted free cash flow                                  $       229.6$       141.3$       116.0




Constant-Currency:
We report our operating results in accordance with GAAP, as well as on a
constant-currency basis in order to facilitate period-to-period comparisons of
our results without regard to the impact of fluctuating foreign currency
exchange rates. The term foreign currency exchange rates refers to the exchange
rates we use to translate our operating results for all countries where the
functional currency is not the U.S. Dollar into U.S. Dollars. Because we are a
global company, foreign currency exchange rates used for translation may have a
significant effect on our reported results. In general, our reported financial
results are affected positively by a weaker U.S. Dollar and are affected
negatively by a stronger U.S. Dollar as compared to the foreign currencies in
which we conduct our business. References to our operating results on a
constant-currency basis mean our operating results without the impact of foreign
currency translation fluctuations.
We believe disclosure of constant-currency results is helpful to investors
because it facilitates period-to-period comparisons of our results by increasing
the transparency of our underlying performance by excluding the impact of
fluctuating foreign currency exchange rates. However, constant-currency results
are non-GAAP financial measures and are not meant to be considered in isolation
or as a substitute for comparable measures prepared in accordance with GAAP.
Constant-currency results have no standardized meaning prescribed by GAAP, are
not prepared under any comprehensive set of accounting rules or principles and
should be read in conjunction with our consolidated financial statements
prepared in accordance with GAAP. Constant-currency results have limitations in
their usefulness to investors and may be calculated differently from, and
therefore may not be directly comparable to, similarly titled measures used by
other companies.
We calculate constant-currency amounts by translating local currency amounts in
the prior-year period at actual foreign exchange rates for the current period.
Our constant-currency results do not eliminate the transaction currency impact,
which primarily include the realized and unrealized gains and losses recognized
from the measurement and remeasurement of purchases and sales of products in a
currency other than the functional currency and of forward foreign exchange
contracts. Additionally, gross margin and Adjusted gross margin are impacted by
gains and losses related to the procurement of inventory, primarily products
sourced in EUR and USD, by our global sourcing organization on behalf of our
foreign subsidiaries.
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Constant-Currency Net Revenues:
The table below sets forth the calculation of net revenues for each of our
operating segments on a constant-currency basis for each of the periods
presented.
                                                                                            Year Ended
                                                                   % Increase                                        % Decrease
                                         November 28,             (Over Prior              November 29,             (Over Prior              November 24,
                                             2021                    Year)                     2020                    Year)                     2019

                                                                                      (Dollars in millions)
Total revenues
As reported                            $     5,763.9                       29.5  %       $     4,452.6                      (22.7) %       $     

5,763.1

Impact of foreign currency exchange
rates                                              -                             *                82.2                             *               

(55.9)

Constant-currency net revenues         $     5,763.9                       27.1  %       $     4,534.8                      (22.0) %       $     5,707.2

Americas
As reported                            $     2,934.8                       34.1  %       $     2,187.9                      (21.0) %       $     2,771.1
Impact of foreign currency exchange
rates                                              -                             *                 7.7                             *               

(38.1)

Constant-currency net revenues -
Americas                               $     2,934.8                       33.7  %       $     2,195.6                      (19.9) %       $     2,733.0

Europe
As reported                            $     1,704.0                       22.4  %       $     1,391.8                      (18.5) %       $     1,707.5
Impact of foreign currency exchange
rates                                              -                             *                52.5                             *                

(0.3)

Constant-currency net revenues -
Europe                                 $     1,704.0                       18.0  %       $     1,444.3                      (18.5) %       $     1,707.2

Asia
As reported                            $       834.6                       25.8  %       $       663.4                      (28.4) %       $       926.1
Impact of foreign currency exchange
rates                                              -                             *                20.1                             *               

(11.1)

Constant-currency net revenues - Asia  $       834.6                       22.1  %       $       683.5                      (27.5) %       $       915.0

Other Brands
As reported                            $       290.4                       38.6  %       $       209.6                      (41.5) %       $       358.4
Impact of foreign currency exchange
rates                                              -                             *                 1.7                             *                

(6.5)

Constant-currency net revenues - Other
Brands                                 $       290.4                       37.5  %       $       211.3                      (40.4) %       $       351.9


_____________
* Not meaningful

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Constant-Currency Adjusted EBIT:
The table below sets forth the calculation of Adjusted EBIT on a
constant-currency basis for each of the periods presented.
                                                                                       Year Ended
                                                                % Decrease
                                         November 28,           (Over Prior           November 29,        % Increase (Over         November 24,
                                             2021                  Year)                  2020               Prior Year)               2019

                                                                                 (Dollars in millions)
Adjusted EBIT(1)                        $     712.9                          *       $     181.1                   (70.3) %       $     610.6
Impact of foreign currency exchange
rates                                             -                          *               2.2                          *              (8.1)
Constant-currency Adjusted EBIT         $     712.9                          *       $     183.3                   (69.9) %       $     602.5
Constant-currency Adjusted EBIT
margin(2)                                      12.4  %                                       4.0  %                                      10.6  %


_____________
(1)Adjusted EBIT is reconciled from net income (loss) which is the most
comparable GAAP measure. Refer to Adjusted EBIT and Adjusted EBITDA table for
more information.
(2)We define constant-currency Adjusted EBIT margin as constant-currency
Adjusted EBIT as a percentage of constant-currency net revenues.
* Not meaningful
Constant-Currency Adjusted Net Income and Adjusted Diluted Earnings per Share:
The table below sets forth the calculation of Adjusted net income and Adjusted
diluted earnings per share on a constant-currency basis for each of the periods
presented.
                                                                                        Year Ended

                                                                % Increase                                     % Decrease
                                         November 28,           (Over Prior           November 29,            (Over Prior             November 24,
                                             2021                  Year)                  2020                   Year)                    2019

                                                                      (Dollars in millions, except per share amounts)
Adjusted net income(1)                  $     600.9                          *       $      83.6                      (81.7) %       $     456.2
Impact of foreign currency exchange
rates                                             -                          *               2.8                             *              (5.9)
Constant-currency Adjusted net income   $     600.9                          *       $      86.4                      (81.4) %       $     450.3
Constant-currency Adjusted net income
margin(2)                                      10.4  %                                       1.9  %                                          7.9  %

Adjusted diluted earnings per share     $      1.47                          *       $      0.21                      (81.3) %       $      1.12
Impact of foreign currency exchange
rates                                             -                          *              0.01                             *             (0.02)
Constant-currency adjusted diluted
earnings per share                      $      1.47                          *       $      0.22                      (80.9) %       $      1.10


_____________
(1)Adjusted net income is reconciled from net income (loss) which is the most
comparable GAAP measure. Refer to Adjusted net income table for more
information.
(2)We define constant-currency Adjusted net income margin as constant-currency
Adjusted net income as a percentage of constant-currency net revenues.
* Not meaningful

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Critical Accounting Estimates and Assumptions
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. Critical accounting
estimates refers to those assumptions and approximations that may have a
material impact on the amounts reported in the consolidated financial statements
and the related notes due to the level of subjectivity involved in developing
the estimate.
We believe that the following discussion addresses our critical accounting
estimates, 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 estimates and assumptions below.
Revenue recognition. Revenue is recorded net of an allowance for estimated
returns, discounts and retailer promotions and other similar incentives. 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. The determination
of sales allowances is considered a critical accounting estimate. 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.
Inventory valuation. We value inventories at the lower of cost or net realizable
value. The determination of inventory reserves is considered a critical
accounting estimate. In determining inventory net realizable value, substantial
consideration is given to the expected product 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.
Business Combination. We account for business combinations using the acquisition
method of accounting. Under the acquisition method, the consolidated financial
statements reflect the operations of an acquired business starting from the
closing date of the acquisition.
All assets acquired and liabilities assumed are recorded at fair value as of the
acquisition date. We allocate the purchase price of an acquired business to the
fair values of the tangible and identifiable intangible assets acquired and
liabilities assumed, with any excess purchase price recorded as goodwill.
Contingent consideration, if any, is included within the purchase price and is
recognized at its fair value on the acquisition date. The application of the
acquisition method of accounting for business combinations and determination of
fair value requires management to make judgments and may involve the use of
significant estimates, including assumptions related to estimated future
revenues, growth rates, cash flows, discount rates and royalty rates, among
other items. Management generally evaluates fair value at acquisition using
three valuation techniques - the replacement cost, market and income methods -
and weights the valuation methods based on what is most appropriate in the
circumstances. The process of assigning fair values, particularly to acquired
intangible assets, is highly subjective. Management also typically utilizes
third party valuation specialists to assist in the determination of the fair
value of assets acquired and liabilities assumed. Fair value estimates are based
on assumptions believed to be reasonable, but are inherently uncertain and
unpredictable and, as a result, actual results may differ from estimates. If the
actual results differ from the estimates and judgments used, the amounts
recorded in the consolidated financial statements may be exposed to potential
impairment of the intangible assets and goodwill as discussed in the
"Impairment" section below. The determination of fair value is considered a
critical accounting estimate because the valuation techniques mentioned use
significant estimates and assumptions, including projected future revenues, a
hypothetical royalty rate, the expected economic life of the asset, tax rates
and a discount rate that reflects the level of risk associated with the future
earnings attributable to the asset.
During the measurement period, which is up to one year from the acquisition
date, adjustments to the assets acquired and liabilities assumed may be
recorded, with the corresponding offset to goodwill.
Impairment. We review goodwill and indefinite-lived 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 may first assess qualitative factors
to determine whether it is more likely than not that the fair value of a
reporting unit or indefinite-lived intangible asset is less than its carrying
amount. If, based on the results of the qualitative assessment, it is concluded
that it is not more likely than not that the fair value of a reporting unit or
indefinite-lived asset exceeds its carrying value, a quantitative test is
performed. Under the quantitative test, we compare the carrying value of the
reporting unit or indefinite-lived intangible asset to its fair value, which we
estimate using a discounted cash flow analysis or by
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comparison to the market values of similar assets. If the carrying value exceeds
its fair value, we record an impairment charge equal to the excess of the
carrying value over the related fair value. The assumptions used in such
valuations such as projected future cash flows, discount rates, growth rates,
and determination of appropriate market comparables and recent transactions, are
subject to volatility and may differ from actual results. Under a qualitative
assessment, we assess various factors including industry and market conditions,
macroeconomic conditions and performance of our businesses.
We review other long-lived assets, including ROU assets, for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset or
an asset group may not be recoverable. In evaluating long-lived assets for
recoverability, we estimate the future cash flows at the individual store level
that are expected to result from the use of each store's assets. Impairment
losses are measured and recorded for the excess of an asset's carrying value
over its fair value. To determine the fair value of long-lived assets, included
ROU assets, we utilize the valuation technique or techniques deemed most
appropriate based on the nature of the asset or asset group, 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.
The determination of fair value is considered a critical accounting estimate
because the valuation techniques mentioned use significant estimates and
assumptions, including projected future cash flows, discount rates and growth
rates.
Income tax. Significant judgment is required in determining our worldwide income
tax provision. The determination of our income tax provision is considered a
critical accounting estimate. 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 a
valuation allowance.
We are subject to income taxes in 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.
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.
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