10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly Period Ended February 25, 2007
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 002-90139

LEVI STRAUSS & CO.

(Exact Name of Registrant as Specified in Its Charter)

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

1155 Battery Street, San Francisco, California 94111

(Address of Principal Executive Offices) (Zip Code)

(415) 501-6000
(Registrant’s Telephone Number, Including Area Code)

None

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o Accelerated Filer o Non-accelerated filer þ     

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

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

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

Common Stock $.01 par value — 37,278,238 shares outstanding on April 4, 2007

LEVI STRAUSS & CO. AND SUBSIDIARIES

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 25, 2007

			Page
			Number
PART I — FINANCIAL INFORMATION
	Item 1.	Consolidated Financial Statements (unaudited):
		Consolidated Balance Sheets as of February 25, 2007, and November 26, 2006		2
		Consolidated Statements of Income for the Three Months Ended February 25, 2007, and February 26, 2006		3
		Consolidated Statements of Cash Flows for the Three Months Ended February 25, 2007, and February 26, 2006		4
		Notes to Consolidated Financial Statements		5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		28
	Item 4.	Controls and Procedures		29
PART II — OTHER INFORMATION
	Item 1.	Legal Proceedings		29
	Item 1A.	Risk Factors		30
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		30
	Item 3.	Defaults Upon Senior Securities		30
	Item 4.	Submission of Matters to a Vote of Security Holders		30
	Item 5.	Other Information		30
	Item 6.	Exhibits		31
SIGNATURE				32
EXHIBIT 10.3
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

1

PART I — FINANCIAL INFORMATION

Item 1.   CONSOLIDATED FINANCIAL STATEMENTS

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	February 25,			November 26,
	2007			2006
	(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	237,229		$	279,501
Restricted cash		4,340			1,616
Trade receivables, net of allowance for doubtful accounts of $16,578 and $17,998		566,987			589,975
Inventories:
Raw materials		15,081			13,543
Work-in-process		11,009			13,479
Finished goods		572,815			523,041
Total inventories		598,905			550,063
Deferred tax assets, net		101,221			101,823
Other current assets		74,184			86,292
Total current assets		1,582,866			1,609,270
Property, plant and equipment, net of accumulated depreciation of $544,767 and $530,413		394,342			404,429
Goodwill		206,190			203,989
Other intangible assets, net		42,809			42,815
Non-current deferred tax assets, net		454,752			457,105
Other assets		84,112			86,457
Total assets	$	2,765,071		$	2,804,065
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Current maturities of long-term debt and short-term borrowings	$	4,920		$	11,089
Current maturities of capital leases		1,632			1,608
Accounts payable		230,037			245,629
Restructuring liabilities		15,890			13,080
Other accrued liabilities		179,421			194,601
Accrued salaries, wages and employee benefits		201,082			261,234
Accrued interest payable		50,258			61,827
Accrued income taxes		57,314			14,226
Total current liabilities		740,554			803,294
Long-term debt, less current maturities		2,199,077			2,206,323
Long-term capital leases, less current maturities		2,583			3,086
Postretirement benefits		339,473			379,188
Pension liability		185,241			184,090
Long-term employee related benefits		117,582			136,408
Long-term income tax liabilities		23,802			19,994
Other long-term liabilities		44,267			46,635
Minority interest		16,457			17,138
Total liabilities		3,669,036			3,796,156
Commitments and contingencies (Note 5)
Temporary equity		3,446			1,956
Stockholders’ deficit:
Common stock — $.01 par value; 270,000,000 shares authorized; 37,278,238 shares issued and outstanding		373			373
Additional paid-in capital		89,266			89,837
Accumulated deficit		(872,843	)		(959,478	)
Accumulated other comprehensive loss		(124,207	)		(124,779	)
Total stockholders’ deficit		(907,411	)		(994,047	)
Total liabilities, temporary equity and stockholders’ deficit	$	2,765,071		$	2,804,065

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

2

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended
	February 25,			February 26,
	2007			2006
	(Dollars in thousands) (Unaudited)
Net sales	$	1,016,299		$	947,874
Licensing revenue		21,106			19,767
Net revenues		1,037,405			967,641
Cost of goods sold		539,790			502,522
Gross profit		497,615			465,119
Selling, general and administrative expenses		295,562			291,295
Restructuring charges, net		12,815			3,187
Operating income		189,238			170,637
Interest expense		57,725			66,297
Other income, net		(13,558	)		(1,141	)
Income before income taxes		145,071			105,481
Income tax expense		58,436			51,667
Net income	$	86,635		$	53,814

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

3

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended
	February 25,			February 26,
	2007			2006
	(Dollars in thousands) (Unaudited)
Cash Flows from Operating Activities:
Net income	$	86,635		$	53,814
Adjustments to reconcile net income to net cash (used for) provided by operating activities:
Depreciation and amortization		16,231			16,330
Asset impairments associated with reorganization initiatives		7,008			—
Loss (gain) on disposal of property, plant and equipment		36			(1,243	)
Unrealized foreign currency exchange (gains) losses		(9,780	)		650
Postretirement benefit plan curtailment gain		(25,321	)		—
Amortization of deferred debt issuance costs		1,465			3,012
Stock-based compensation		920			—
Provision for doubtful accounts		331			391
Change in operating assets and liabilities:
Trade receivables		21,370			112,988
Inventories		(51,973	)		10,457
Other current assets		12,946			(3,791	)
Other non-current assets		1,034			(1,332	)
Accounts payable and other accrued liabilities		(36,772	)		(99,697	)
Income tax liabilities		46,668			35,056
Restructuring liabilities		1,694			(896	)
Accrued salaries, wages and employee benefits		(78,180	)		(56,255	)
Long-term employee related benefits		(13,142	)		(13,274	)
Other long-term liabilities		(1,693	)		(1,744	)
Other, net		82			(82	)
Net cash (used for) provided by operating activities		(20,441	)		54,384
Cash Flows from Investing Activities:
Purchases of property, plant and equipment		(9,607	)		(9,740	)
Proceeds from sale of property, plant and equipment		179			1,778
Acquisition of retail stores		(2,502	)		(1,032	)
Net cash used for investing activities		(11,930	)		(8,994	)
Cash Flows from Financing Activities:
Repayments of long-term debt		(472	)		(2,910	)
Net decrease in short-term borrowings		(6,866	)		(1,894	)
Debt issuance costs		—			(41	)
Increase in restricted cash		(2,734	)		(649	)
Net cash used for financing activities		(10,072	)		(5,494	)
Effect of exchange rate changes on cash		171			1,953
Net (decrease) increase in cash and cash equivalents		(42,272	)		41,849
Beginning cash and cash equivalents		279,501			239,584
Ending cash and cash equivalents	$	237,229		$	281,433
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	64,748		$	80,496
Income taxes		5,595			17,946
Restructuring initiatives		4,082			4,256

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

4

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 25, 2007

NOTE 1:   SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Levi Strauss & Co. (“LS&CO.” or the “Company”) is one of the world’s leading branded apparel companies. The Company designs and markets jeans and jeans-related pants, casual and dress pants, tops, jackets and related accessories, for men, women and children under the Levi’s^®, Dockers^® and Levi Strauss Signature^® brands. The Company markets its products in three geographic regions: North America, Europe and Asia Pacific.

Basis of Presentation and Principles of Consolidation

The unaudited consolidated financial statements of LS&CO. and its wholly-owned and majority-owned foreign and domestic subsidiaries (the “Company”) are prepared in conformity with generally accepted accounting principles in the United States (“U.S.”) for interim financial information. In the opinion of management, all adjustments necessary for a fair statement of the financial position and the results of operations for the periods presented have been included. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended November 26, 2006, included in the Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission on February 13, 2007.

The unaudited consolidated financial statements include the accounts of LS&CO. and its subsidiaries. All significant intercompany transactions have been eliminated. Management believes the disclosures are adequate to make the information presented herein not misleading. Certain prior-year amounts have been reclassified to conform to the current presentation. The results of operations for the three months ended February 25, 2007, may not be indicative of the results to be expected for any other interim period or the year ending November 25, 2007.

The Company’s fiscal year consists of 52 or 53 weeks, ending on the last Sunday of November in each year. Both the 2007 and 2006 fiscal years consist of 52 weeks ending on November 25, 2007, and November 26, 2006, respectively. Each quarter of both fiscal years 2007 and 2006 consists of 13 weeks. The fiscal year end for certain foreign subsidiaries is fixed at November 30 due to local statutory requirements. All references to years relate to fiscal years rather than calendar years.

Use of Estimates

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

Recently Issued Accounting Standards

The following recently issued accounting standards have been grouped by their required effective dates for the Company:

Fourth Quarter of 2007

•  In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires employers to (a) recognize in its statement of financial position the

5

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 25, 2007

funded status of a benefit plan measured as the difference between the fair value of plan assets and the benefit obligation, (b) recognize net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87, “Employer’s Accounting for Pensions” or SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” (c) measure defined benefit plan assets and obligations as of the date of the employer’s statement of financial position and (d) disclose additional information in the notes to the financial statements about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. The requirements of SFAS 158 are to be applied prospectively upon adoption, which is fiscal year end 2007 for the Company. The Company has pension and other postretirement plans which will be affected by the adoption of SFAS 158. Based on third-party actuarial estimates of plan assets and obligations as of November 26, 2006, the Company estimates that had the Company been required to adopt the provisions of SFAS 158 at the reporting date, the adoption would have resulted in a net decrease to total liabilities of approximately $172 million, with corresponding decreases to stockholder’s deficit of $106 million and to deferred tax assets of $66 million. The actual impact of the adoption of SFAS 158 will depend on the valuation of plan assets and obligations at November 25, 2007.

First Quarter of 2008

•  In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which is an interpretation of SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109 and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently in the process of assessing the impact the adoption of FIN 48 will have on its financial statements.

•  In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently in the process of assessing the impact the adoption of SFAS 157 will have on its financial statements.

•  In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure certain financial assets and liabilities and other eligible items at fair value, which are not otherwise currently required to be measured at fair value. Under SFAS 159, the decision to measure items at fair value is made at specified election dates on an irrevocable instrument-by-instrument basis. Entities electing the fair value option would be required to recognize changes in fair value in earnings and to expense upfront cost and fees associated with the item for which the fair value option is elected. Entities electing the fair value option are required to distinguish on the face of the statement of financial position, the fair value of assets and liabilities for which the fair value option has been elected and similar assets and liabilities measured using another measurement attribute. If elected, SFAS 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007, with earlier adoption permitted provided that the entity also early adopts all of the

6

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 25, 2007

requirements of SFAS 159. The Company is currently evaluating whether to elect the option provided for in this standard.

NOTE 2:   INCOME TAXES

Effective Income Tax Rate.  The Company’s income tax expense was $58.4 million and $51.7 million for the three months ended February 25, 2007, and February 26, 2006, respectively. The Company’s effective tax rate was 40.3% and 49.0% for the three months ended February 25, 2007, and February 26, 2006, respectively. The decrease in the effective tax rate for the three months ended February 25, 2007, compared to the same period in 2006, was primarily driven by a reduction in the overall residual U.S. tax expected to be imposed upon a repatriation of the Company’s unremitted foreign earnings.

Estimated Annual Effective Income Tax Rate.  The Company’s estimated annual effective tax rate for 2007 is 41.1%. This differs from the effective tax rate of 40.3% for the three months ended February 25, 2007, as the annual rate includes an estimate of losses in certain foreign jurisdictions for which no tax benefit could be recognized. Such losses for the three months ended February 25, 2007, were insignificant and accordingly did not affect the income tax rate. The estimated annual effective income tax rate for 2007 and 2006 differs from the U.S. federal statutory income tax rate of 35.0% as follows:

	Fiscal Year			Fiscal Year
	2007(1)			2006(2)
Income tax expense at U.S. federal statutory rate		35.0	%		35.0	%
State income taxes, net of U.S. federal impact		2.1			0.6
Impact of foreign operations		2.1			12.5
Reassessment of liabilities due to change in estimates		2.0			0.8
Other		(0.1	)		0.4
		41.1	%		49.3	%

(1)	Estimated annual effective income tax rate for 2007.
(2)	Projected annual effective income tax rate used for the three months ended February 26, 2006.

The “State income taxes, net of U.S. federal impact” item above primarily reflects the current and deferred state income tax expense, net of related federal benefit. The impact of this item on the Company’s estimated annual effective tax rate increased in 2007 from the prior year as a result of higher estimated deferred tax expense in 2007.

The “Impact of foreign operations” item above includes an accrual for the additional U.S. income tax that is expected to be imposed upon a distribution of unremitted foreign earnings, the impact of the taxation of foreign profits in jurisdictions where tax rates differ from the U.S. federal statutory rate and the impact of foreign withholding taxes. The effect of this item on the Company’s estimated annual effective tax rate decreased in 2007 from the prior year primarily due to a reduction in the overall residual U.S. tax expected to be imposed upon a repatriation of the Company’s unremitted foreign earnings. The reduction resulted from a change in the Company’s expectations regarding its ability to utilize some portion of the foreign tax credits that would be available upon the repatriation of the Company’s unremitted foreign earnings.

The “Reassessment of liabilities due to change in estimate” item relates primarily to changes in the Company’s estimate of its contingent tax liabilities. The impact of this item on the Company’s estimated annual effective tax rate has increased in 2007 from the prior year primarily due to additional foreign contingent tax liabilities.

7

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 25, 2007

NOTE 3:   GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill by business segment for the three months ended February 25, 2007, were as follows:

	North				Asia
	America		Europe		Pacific			Total
	(Dollars in thousands)
Balance, November 26, 2006	$	199,905	$	3,814	$	270		$	203,989
Acquired goodwill		—		—		2,175			2,175
Foreign currency fluctuation		—		48		(22	)		26
Balance, February 25, 2007	$	199,905	$	3,862	$	2,423		$	206,190

During the three months ended February 25, 2007, the Company purchased six retail stores in Asia Pacific resulting in $2.2 million of additional goodwill.

Other intangible assets were as follows:

	February 25, 2007							November 26, 2006
	Gross		Accumulated					Gross		Accumulated
	Carrying Value		Amortization			Total		Carrying Value		Amortization			Total
	(Dollars in thousands)
Trademarks and other intangible assets	$	43,059	$	(250	)	$	42,809	$	43,059	$	(244	)	$	42,815

Intangible assets are primarily comprised of owned trademarks with indefinite useful lives. Approximately $0.1 million of the intangible assets balance is subject to amortization, for which the annual amortization expense is not material to the consolidated financial statements.

8

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 25, 2007

NOTE 4:   LONG-TERM DEBT

	February 25,		November 26,
	2007		2006
	(Dollars in thousands)
Long-term debt
Secured:
Revolving credit facility	$	—	$	—
Notes payable, at various rates		118		117
Subtotal		118		117
Unsecured:
Notes:
12.25% senior notes due 2012		522,525		522,453
Floating rate senior notes due 2012		380,000		380,000
8.625% Euro senior notes due 2013		331,682		330,952
9.75% senior notes due 2015		450,000		450,000
8.875% senior notes due 2016		350,000		350,000
4.25% Yen-denominated Eurobonds due 2016		164,752		172,801
Subtotal		2,198,959		2,206,206
Less: current maturities		—		—
Total long-term debt	$	2,199,077	$	2,206,323
Short-term debt
Short-term borrowings	$	4,920	$	11,089
Current maturities of long-term debt		—		—
Total short-term debt	$	4,920	$	11,089
Total long-term and short-term debt	$	2,203,997	$	2,217,412

Subsequent Event — Senior Unsecured Term Loan

Principal Amount and Interest Rate.  On March 27, 2007, the Company entered into a senior unsecured term loan agreement. The term loan consists of a single borrowing of $325.0 million, net of a 0.75% discount to the lenders. On April 4, 2007, the Company borrowed the maximum available $322.6 million under the term loan for the purposes described below. The term loan matures on April 4, 2014 and bears interest at LIBOR plus 2.25% or 1.25% over the base rate. The term loan may not be prepaid during the first year but thereafter may be prepaid without premium or penalty.

Use of Proceeds — Redemption of Floating Rate Senior Notes due 2012.  On April 5, 2007, the Company used the borrowings under the new senior unsecured term loan, plus cash on hand of approximately $67 million, to redeem all of the outstanding $380.0 million floating rate senior notes due 2012 and to pay related redemption premiums, transaction fees and expenses of approximately $8 million. The Company also wrote off approximately $7 million of unamortized debt issuance costs related to the redemption of the floating rate senior notes. As a result, the Company will record an approximately $15 million loss on early extinguishment of debt in the second quarter of 2007.

9

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 25, 2007

Short-term Credit Lines and Standby Letters of Credit

As of February 25, 2007, the Company’s total availability of $357.8 million under its senior secured revolving credit facility was reduced by $91.5 million of letters of credit and other credit usage allocated under the senior secured revolving credit facility, yielding a net availability of $266.3 million. Included in the $91.5 million of letters of credit and other credit usage, which arrangements are with various international banks, were $67.6 million of standby letters of credit (of which $44.5 million serve as guarantees by the creditor banks to cover U.S. workers’ compensation claims and customs bonds), $17.7 million of trade letters of credit and $6.2 million of other credit usage. The Company pays fees on letters of credit and other credit usage, and borrowings against the letters of credit are subject to interest at various rates.

Under the senior secured revolving credit facility, the Company is required to maintain certain reserves against availability (or deposit cash or investment securities in secured accounts with the administrative agent) including a $75.0 million reserve at all times. These reserves reduce the availability under the Company’s credit facility.

Interest Rates on Borrowings

The Company’s weighted average interest rate on average borrowings outstanding during the three months ended February 25, 2007, and February 26, 2006, including the amortization of capitalized bank fees and underwriting fees, was 9.89% and 10.70%, respectively. The weighted average interest rate on average borrowings outstanding excludes interest payable to participants under deferred compensation plans and other miscellaneous items.

NOTE 5:   COMMITMENTS AND CONTINGENCIES

Foreign Exchange Contracts

The Company uses derivative instruments to manage its exposure to foreign currencies. At February 25, 2007, the Company had U.S. dollar spot and forward currency contracts to buy $443.9 million and to sell $292.0 million against various foreign currencies. The Company also had Euro forward currency contracts to buy 25.4 million Euros ($33.3 million equivalent) against the Norwegian Krona and Swedish Krona. These contracts are at various exchange rates and expire at various dates through December 2007.

The Company is exposed to credit loss in the event of nonperformance by the counterparties to the foreign exchange contracts. However, the Company believes these counterparties are creditworthy financial institutions and does not anticipate nonperformance.

Other Contingencies

Wrongful Termination Litigation.  There have been no material developments in this litigation since the Company filed its 2006 Annual Report on Form 10-K on February 13, 2007. For more information about the litigation, see Note 7 to the consolidated financial statements contained in the Company’s 2006 Annual Report on Form 10-K.

Class Actions Securities Litigation.  There have been no material developments in this litigation since the Company filed its 2006 Annual Report on Form 10-K on February 13, 2007. For more information about the litigation, see Note 7 to the consolidated financial statements contained in such Form 10-K.

Other Litigation.  In the ordinary course of business, the Company has various other pending cases involving contractual matters, employee-related matters, distribution questions, product liability claims, trademark

10

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 25, 2007

infringement and other matters. The Company does not believe there are any pending legal proceedings that will have a material impact on its financial condition or results of operations.

NOTE 6:   RESTRUCTURING LIABILITIES

The following describes the reorganization initiatives, including facility closures and organizational changes, associated with the Company’s restructuring liabilities as of February 25, 2007. In the table below, “Severance and employee benefits” relate to items such as severance packages, out-placement services and career counseling for employees affected by the closures and other reorganization initiatives. “Asset impairment” relates to the write-down of assets to their estimated fair value. “Other restructuring costs” primarily relate to lease loss liability and facility closure costs. “Charges” represent the initial charge related to the restructuring activity. “Utilization” consists of payments for severance, employee benefits and other restructuring costs, the effect of foreign exchange differences and asset impairments. “Adjustments” include revisions of estimates related to severance, employee benefits and other restructuring costs.

For the three months ended February 25, 2007, the Company recognized restructuring charges, net, of $12.8 million. Restructuring charges for this period relate primarily to current period asset impairment and severance charges associated with the planned closure of the Company’s distribution center in Heusenstamm, Germany and reorganization of the Company’s Eastern European operations, each described below. For the three months ended February 26, 2006, the Company recognized restructuring charges, net, of $3.2 million. Restructuring charges for the 2006 period relate primarily to the 2006 reorganization of the Company’s Nordic operations described below. The long-term portion of restructuring liabilities at February 25, 2007, primarily relates to lease costs, net of estimated sub-lease income, associated with exited facilities, and is included in “Other long-term liabilities” on the Company’s unaudited consolidated balance sheets.

The following table summarizes the activity for the three months ended February 25, 2007, and the restructuring liabilities balance as of November 26, 2006, and February 25, 2007, associated with the Company’s reorganization initiatives:

	Restructuring
	Liabilities										Liabilities		Cumulative
	November 26,										February 25,		Charges
	2006		Charges		Utilization			Adjustments			2007		To Date
	(Dollars in thousands)
2007 reorganization initiatives:(1)
Severance and employee benefits	$	—	$	5,376	$	—		$	—		$	5,376	$	5,376
Asset impairment		—		7,008		(7,008	)		—			—		7,008
Prior reorganization initiatives:(2)
Severance and employee benefits		9,001		140		(2,175	)		(17	)		6,949		183,293
Other restructuring costs		11,746		386		(1,928	)		(78	)		10,126		53,792
Total	$	20,747	$	12,910	$	(11,111	)	$	(95	)	$	22,451	$	249,469
Current portion	$	13,080									$	15,890
Long-term portion		7,667										6,561
Total	$	20,747									$	22,451

11

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 25, 2007

(1)	On March 1, 2007, the Company announced the reorganization of its Eastern European operations to reduce complexity and streamline business processes within Eastern Europe. This reorganization will result in the elimination of the jobs of approximately 11 employees through 2007. The Company is obligated under lease commitments through the third quarter of 2009 and will record a lease loss liability upon ceasing use of the facility.
	On March 22, 2007, the Company announced its intent to close and sell its distribution center in Heusenstamm, Germany to enhance operational efficiencies in its European distribution network and concentrate logistics activities with the Company’s central logistics provider in Bornem, Belgium. In addition, the offices of the German business, which are located at the Heusenstamm facility, will move to a more central location in Frankfurt, Germany. The Company anticipates that the closure will take place in the first quarter of 2008. The closure will result in the elimination of the jobs of approximately 56 employees throughout 2007 and 2008.
	Current year charges include the estimated severance that will be payable to the terminated employees in respect of both of these 2007 reorganization initiatives. Additionally, as a result of the Heusenstamm facility closure, the Company recorded a $7.0 million impairment charge relating to the write-down of building, land and some machinery and equipment to their estimated fair values. The Company estimates that it will incur additional restructuring charges related to these actions, principally in the form of additional termination benefits and facility-related costs, which will be recorded in future periods as appropriate.
(2)	Prior reorganization initiatives include organizational changes and plant closures in years 2002 through 2006, primarily in North America and Europe, which the Company has previously disclosed. Of the $17.1 million restructuring liability at February 25, 2007, $4.4 million resulted from its distribution facility closure in Little Rock, Arkansas, that commenced in 2006; $1.3 million resulted from the consolidation of its Nordic operations into its European headquarters in Brussels in 2006; $0.6 million resulted from the withdrawal of the Levi Strauss Signature® brand in Europe announced in 2006 and $10.8 million resulted from organizational changes in the United States and Europe that commenced in 2004. The liability for the 2004 activities primarily consists of lease loss liabilities.
	The Company estimates that it will incur future additional restructuring charges of approximately $1.9 million related to these actions. The Company expects to eliminate the 29 remaining jobs related to the 2006 activities by the end of 2007.

NOTE 7:   EMPLOYEE BENEFIT PLANS

The following table summarizes the components of net periodic benefit cost (income) for the Company’s defined benefit pension plans and postretirement benefit plans for the three months ended February 25, 2007, and February 26, 2006:

	Pension Benefits						Postretirement Benefits
	Three Months Ended						Three Months Ended
	February 25,			February 26,			February 25,			February 26,
	2007			2006			2007			2006
	(Dollars in thousands)
Service cost	$	1,991		$	1,983		$	186		$	207
Interest cost		14,384			14,031			2,692			3,013
Expected return on plan assets		(14,974	)		(13,330	)		—			—
Amortization of prior service cost (benefit)		209			392			(11,971	)		(14,389	)
Amortization of transition asset		118			148			—			—
Amortization of actuarial loss		1,725			1,975			1,323			1,671
Curtailment gain(1)		—			—			(25,321	)		—
Net settlement loss(2)		—			2,590			—			—
Net periodic benefit cost (income)	$	3,453		$	7,789		$	(33,091	)	$	(9,498	)

(1)	Postretirement benefit curtailment gain for the three months ended February 25, 2007, relates to the impact of job reductions in connection with the facility closure in Little Rock, Arkansas, attributable to the accelerated recognition of prior service benefit associated with prior plan amendments.
(2)	Net settlement loss for the three months ended February 26, 2006, primarily consists of a $2.7 million net loss resulting from the settlement of liabilities of certain participants in the Company’s hourly pension plan in Canada as a result of prior plant closures.

12

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 25, 2007

NOTE 8:   COMPREHENSIVE INCOME

The following is a summary of the components of total comprehensive income, net of related income taxes:

	Three Months Ended
	February 25,			February 26,
	2007			2006
	(Dollars in thousands)
Net income	$	86,635		$	53,814
Other comprehensive income:
Net investment hedge gains (losses)		1,860			(2,555	)
Foreign currency translation (losses) gains		(1,384	)		2,726
Unrealized (loss) gain on marketable securities		(819	)		414
Decrease in cash flow hedges		905			—
Decrease in additional minimum pension liability		10			788
Total other comprehensive income		572			1,373
Total comprehensive income	$	87,207		$	55,187

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

	February 25,			November 26,
	2007			2006
	(Dollars in thousands)
Net investment hedge losses	$	(4,547	)	$	(6,407	)
Foreign currency translation losses		(31,743	)		(30,359	)
Unrealized gain on marketable securities		713			1,532
Cash flow hedges(1)		(464	)		(1,369	)
Additional minimum pension liability		(88,166	)		(88,176	)
Accumulated other comprehensive loss, net of income taxes	$	(124,207	)	$	(124,779	)

(1) On February 23, 2007, the Company determined that the designation of the derivatives as hedging instruments for the forecasted intercompany royalty flows was no longer appropriate and discontinued its cash flow hedge designation. The loss from the derivative instruments included in “Accumulated other comprehensive loss” at the de-designation date will remain in “Accumulated other comprehensive loss” and will be reclassified to earnings when the forecasted transactions affect earnings; the derivatives are expected to affect earnings through December 2007. Future changes in the fair value of these derivatives will be recognized in “Other income, net.”

13

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 25, 2007

NOTE 9:   OTHER INCOME, NET

The following table summarizes significant components of “Other income, net” in the Company’s unaudited consolidated statements of income:

	Three Months Ended
	February 25,			February 26,
	2007			2006
	(Dollars in thousands)
Foreign exchange management (gains) losses	$	(664	)	$	3,529
Foreign currency transaction gains		(7,118	)		(2,071	)
Interest income		(3,756	)		(3,128	)
Investment income		(2,457	)		(548	)
Minority interest — Levi Strauss Japan K.K		138			383
Other(1)		299			694
Total other income, net	$	(13,558	)	$	(1,141	)

(1) Includes loss on early extinguishment of debt, which was insignificant for the three months ended February 25, 2007, and February 26, 2006.

NOTE 10:   BUSINESS SEGMENT INFORMATION

As a result of establishing a new North America organization in late 2006, the Company changed its reporting segments in 2007 to align with the new operating structure. Results for the Company’s U.S. commercial business units — the U.S. Levi’s^®, Dockers^® and Levi Strauss Signature^® brands — and its operations in Canada and Mexico are now included in a single North America regional segment. The Company’s operations outside North America continue to be organized and managed through its Europe and Asia Pacific regions. The Company’s Europe region includes Eastern and Western Europe; Asia Pacific includes Asia Pacific, the Middle East, Africa and Central and South America.

Under the new structure, each regional segment is managed by a senior executive who reports directly to the chief operating decision maker: the Company’s chief executive officer. The Company’s management, including the chief operating decision maker, manages business operations, evaluates performance and allocates resources based on the regional operating income of the segments.

As a result of these changes in the Company’s reporting structure, the Company reclassified certain U.S. staff costs from “Corporate expense” to the North America segment. Additionally, in 2006 the Company corrected the reporting of net sales relating to certain sales arrangements in its Asia Pacific segment involving the use of a third-party. The effect of this correction increased both “Net sales” and “Selling, general and administrative expenses” in the Company’s consolidated statements of income by approximately $7.7 million for the three months ended February 26, 2006. The correction had no impact on the Company’s reported operating income, net income, consolidated balance sheets or consolidated statements of cash flows for any period, and an insignificant impact on gross profit and gross margin in all periods. The Company revised its business segment information for the three months ended February 26, 2006, to conform to the new presentation.

14

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 25, 2007

Business segment information for the Company is as follows:

	Three Months Ended
	February 25,			February 26,
	2007			2006
	(Dollars in thousands)
Net revenues:
North America	$	584,048		$	546,408
Europe		265,590			240,870
Asia Pacific		188,147			180,363
Corporate(1)		(380	)		—
Consolidated net revenues	$	1,037,405		$	967,641
Operating income:
North America	$	90,830		$	90,012
Europe		79,523			64,315
Asia Pacific		36,425			39,046
Regional operating income		206,778			193,373
Corporate:
Restructuring charges, net		12,815			3,187
Postretirement benefit plan curtailment gain		(25,321	)		—
Other corporate staff costs and expenses		30,046			19,549
Total corporate		17,540			22,736
Consolidated operating income		189,238			170,637
Interest expense		57,725			66,297
Other income, net		(13,558	)		(1,141	)
Income before income taxes	$	145,071		$	105,481

(1) Corporate net revenues reflect the impact of the settlement of the Company’s derivative instruments which hedged the related intercompany royalty flows for the three months ended February 25, 2007. See Note 8 for further information.

15

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

Overview

We design and market jeans and jeans-related pants, casual and dress pants, tops, jackets and related accessories for men, women and children under our Levi’s^®, Dockers^® and Levi Strauss Signature^® brands in established and emerging markets around the world. We also license our trademarks in many countries throughout the world for a wide array of products, including accessories, pants, tops, footwear, home and other products.

Our products are sold through more than 55,000 retail locations in multiple channels of distribution worldwide:

•  We distribute our Levi’s^® and Dockers^® products primarily through chain retailers and department stores in the United States and primarily through department stores, specialty retailers and dedicated franchised stores abroad.

•  We distribute our Levi Strauss Signature^® products primarily through mass channel retailers in the United States and mass and other value-oriented retailers and franchised stores abroad.

We also distribute our Levi’s^® and Dockers^® products through our company-operated online stores, and our Levi’s^®, Dockers^® and Levi Strauss Signature^® products through 159 company-operated stores located in 19 countries including the United States. These stores generated approximately 6% of our net revenues in the first quarter of 2007.

We derived 44% of our net revenues and 56% of our regional operating income from our European and Asia Pacific businesses collectively in the first quarter of 2007. Sales of Levi’s^® brand products represented approximately 73% of our total net sales in the first quarter, including a substantial majority of our net sales in our Europe and Asia Pacific regions.

Our First Quarter 2007 Results

Our first quarter 2007 results reflect net revenue growth across our three regions for a second consecutive quarter, a sustained operating margin and higher net income:

•  Revenues.  Our consolidated net revenues increased by 7% with net revenues increasing in each of our North America, Europe and Asia Pacific regions. Key factors driving the net revenues improvement included our U.S. Levi’s^® brand and our Asia Pacific region, reflecting our continuing emphasis on more premium products, and strong growth in India, China and Hong Kong. The increase also reflects favorable foreign currency exchange rates and incremental sales from dedicated stores in all three regions.

•  Operating Income.  Our operating income grew by 11% to $189 million, with the increase primarily resulting from a $25 million curtailment gain relating to the closure of our Little Rock, Arkansas, distribution facility, partly offset by restructuring charges relating to a planned distribution center closing in Europe. Our gross margin remained strong at 48%, and our operating margin improved slightly to 18%. We continue to experience strong operating margins while investing in retail expansion and our SAP implementation.

•  Net income.  Net income grew 61% to $87 million as compared to prior year, reflecting an increase in operating income, lower interest expense and gains related to foreign currency. A reduction in our effective income tax rate also contributed to net income improvement.

•  Cash flows.  Cash flows used for operating activities was $20 million in the first quarter of 2007 as compared to cash provided in the first quarter of 2006 of $54 million. The decrease of $74 million is due to a net increase in our trade receivables balance, primarily due to changes in the timing of and increase in sales as compared to the prior year period, and higher incentive compensation payments, partially offset by lower payments for interest and income taxes. Our total cash and cash equivalents decreased by $42 million from fiscal year end 2006.

16

In addition, after our first quarter ended, in April 2007 we redeemed all of our outstanding $380 million floating rate senior notes due 2012 through borrowings under a new $325 million senior unsecured term loan and use of cash on hand of approximately $67 million. As a result of this transaction, we reduced our debt, extended a portion of our 2012 debt maturities to 2014 and reduced our annual interest expense.

These results reflect our continuing emphasis on profitable growth, cash flow generation and debt reduction. Key challenges and risks for us during the remainder of the year include:

•  our Japan affiliate, our largest business in the Asia Pacific region, whose results are lagging an otherwise strong overall performance across the region;

•  consumer spending in the United States, where housing market declines, stock market volatility and increasing gas prices may weigh on consumers;

•  the continuing impact of retail consolidation and acquisition activity in the United States; and

•  the performance of our U.S. Levi Strauss Signature^® brand.

We continue to expect to achieve full-year net revenues and operating margins that, at a minimum, will be consistent with 2006 results.

Financial Information Presentation

Fiscal year.  Our fiscal year consists of 52 or 53 weeks, ending on the last Sunday of November in each year. Both the 2007 and 2006 fiscal years consist of 52 weeks ending on November 25, 2007, and November 26, 2006, respectively. Each quarter of both fiscal years 2007 and 2006 consists of 13 weeks.

Segments.  Our business is currently organized into three geographic regions: North America, Europe and Asia Pacific. As a result of establishing a new North America organization in late 2006, we changed our reporting segments to align with the new operating structure; results for our U.S. Levi’s^®, Dockers^® and Levi Strauss Signature^® brands, and our Canada and Mexico business, are now included in our North America segment. In addition, we began including in the North America segment certain staff costs previously included in corporate expense. Segment disclosures contained in this Form 10-Q conform to the new presentation for all reporting periods.

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

•  Net sales is primarily comprised of sales of products to retail customers, including franchised stores, and of direct sales to consumers at our company-operated stores. It includes allowances for estimated returns, discounts, and retailer promotions and incentives.

•  Licensing revenue consists of royalties earned from the use of our trademarks in connection with the manufacturing, advertising and distribution of trademarked products by third-party licensees.

•  Cost of goods sold is primarily comprised of cost of materials, labor and manufacturing overhead, and also includes the cost of inbound freight, internal transfers, and receiving and inspection at manufacturing facilities.

•  Selling costs include, among other things, all occupancy costs associated with company-operated stores.

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

Constant currency.  Constant currency comparisons are based on current period local currency amounts, translated at the same foreign exchange rates utilized in the corresponding period in the prior year. We routinely evaluate our constant currency financial performance in order to facilitate period-to-period comparisons without regard to the impact of changing foreign currency exchange rates.

17

Results of Operations for Three Months Ended February 25, 2007, as Compared to Same Period in 2006

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

	Three Months Ended
										February 25,			February 26,
							%			2007			2006
	February 25,			February 26,			Increase			% of Net			% of Net
	2007			2006			(Decrease)			Revenues			Revenues
	(Dollars in millions)
Net sales	$	1,016.3		$	947.9			7.2	%		98.0	%		98.0	%
Licensing revenue		21.1			19.7			7.1	%		2.0	%		2.0	%
Net revenues		1,037.4			967.6			7.2	%		100.0	%		100.0	%
Cost of goods sold		539.8			502.5			7.4	%		52.0	%		51.9	%
Gross profit		497.6			465.1			7.0	%		48.0	%		48.1	%
Selling, general and administrative expenses		295.6			291.3			1.5	%		28.5	%		30.1	%
Restructuring charges, net		12.8			3.2			300.0	%		1.2	%		0.3	%
Operating income		189.2			170.6			10.9	%		18.2	%		17.6	%
Interest expense		57.7			66.3			(13.0	)%		5.6	%		6.9	%
Other income, net		(13.5	)		(1.2	)		1025.0	%		(1.3	)%		(0.1	)%
Income before income taxes		145.0			105.5			37.4	%		14.0	%		10.9	%
Income tax expense		58.4			51.7			13.0	%		5.6	%		5.3	%
Net income	$	86.6		$	53.8			61.0	%		8.3	%		5.6	%

Consolidated net revenues

The following table presents net revenues by segment for the respective periods:

	Three Months Ended
						% Increase (Decrease)
	February 25,			February 26,		As			Constant
	2007			2006		Reported			Currency
	(Dollars in millions)
Net revenues:
North America	$	584.0		$	546.4		6.9	%		7.1	%
Europe		265.6			240.9		10.3	%		1.2	%
Asia Pacific		188.1			180.3		4.3	%		4.4	%
Corporate		(0.3	)		—		—			—
Total net revenues	$	1,037.4		$	967.6		7.2	%		5.1	%

Consolidated net revenues increased on both a reported and constant currency basis and were affected favorably by foreign currency translation, particularly for our Europe region. Net revenues increased across all geographic segments with strong growth in North America.

18

North America.  The following table presents net sales and licensing revenue for our North America region for the respective periods:

	Three Months Ended
					% Increase (Decrease)
	February 25,		February 26,		As			Constant
	2007		2006		Reported			Currency
	(Dollars in millions)
Net sales	$	571.3	$	533.8		7.0	%		7.3	%
Licensing revenue		12.7		12.6		0.7	%		0.7	%
Total net revenues	$	584.0	$	546.4		6.9	%		7.1	%

Net revenues in North America increased on both reported and on constant currency bases. Changes in foreign currency exchange rates affected net revenues unfavorably by approximately $1 million.

Net revenues increased primarily due to growth in the U.S. Levi’s^® brand, our largest business, particularly in the men’s category. The net sales increase in the Levi’s^® brand was driven by our relaxed and boot fits for men, a higher proportion of premium-priced products and the addition of company-operated retail stores. Dockers^® brand net revenues increased slightly from the prior year, while the Levi Strauss Signature^® brand decreased slightly. Net revenue growth was partially offset by higher sales allowances and discounts to clear seasonal inventories and to support retailers’ promotion of our products.

Europe.  The following table presents net sales and licensing revenue in our Europe region for the respective periods:

	Three Months Ended
					% Increase (Decrease)
	February 25,		February 26,		As			Constant
	2007		2006		Reported			Currency
	(Dollars in millions)
Net sales	$	262.9	$	238.3		10.3	%		1.2	%
Licensing revenue		2.7		2.6		1.9	%		1.9	%
Total net revenues	$	265.6	$	240.9		10.3	%		1.2	%

Total net revenues in Europe increased on a reported basis primarily due to changes in foreign currency exchange rates which affected net revenues favorably by approximately $22 million.

Net revenues increased slightly on a constant currency basis. Key contributors to the increase were new company-operated stores and increased sales of men’s Levi’s^® Red Tab^tm products. The region’s stability is reflective of our strategy to continue strengthening the premium positioning of the brands in Europe and increasing our retail presence through additional dedicated stores, and of the initial success of our Spring/Summer product offering.

Asia Pacific.  The following table presents net sales and licensing revenue in our Asia Pacific region for the respective periods:

	Three Months Ended
					% Increase (Decrease)
	February 25,		February 26,		As			Constant
	2007		2006		Reported			Currency
	(Dollars in millions)
Net sales	$	182.4	$	175.8		3.8	%		3.8	%
Licensing revenue		5.7		4.5		26.7	%		26.7	%
Total net revenues	$	188.1	$	180.3		4.3	%		4.4	%

Total net revenues in the Asia Pacific increased on both reported and constant currency bases. Changes in foreign currency exchange rates did not affect net revenues significantly.

19

Net sales increased for Levi’s^® brand products in both the men’s and women’s categories largely due to a higher proportion of sales of premium-priced products in the mix. Dedicated store expansion continued to drive growth in the region with the addition of company-operated and franchised stores and updating of existing retail stores. Strong net sales in India, China, Hong Kong and other countries offset a combined 14% decline in Japan and Korea, our two largest businesses in the region. Our Japanese business is working through a management and business process transition and the after-effects, including inventory issues, of product and marketing misses in 2006. Korea is rebalancing its product architecture as sales of Levi’s^® Engineered Jeans^tm, which have driven growth in recent years, fell in the first quarter.

Gross profit

The following table shows consolidated gross profit and gross margin for the respective periods:

	Three Months Ended
							%
	February 25,			February 26,			Increase
	2007			2006			(Decrease)
	(Dollars in millions)
Net revenues	$	1,037.4		$	967.6			7.2	%
Cost of goods sold		539.8			502.5			7.4	%
Gross profit	$	497.6		$	465.1			7.0	%
Gross margin		48.0	%		48.1	%

Gross margin remained strong at 48.0% in the first quarter of 2007. A gross margin increase in Europe, resulting primarily from lower inventory markdowns and an increase in company-operated store retail sales, was offset by gross margin declines in North America due to higher sales allowances and discounts to clear seasonal inventories, and in Asia Pacific primarily due to higher inventory markdowns in Japan and Korea.

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

Selling, general and administrative expenses

The following table shows our selling, general and administrative expenses (“SG&A”) for the respective periods:

	Three Months Ended
								February 25,			February 26,
					%			2007			2006
	February 25,		February 26,		Increase			% of Net			% of Net
	2007		2006		(Decrease)			Revenues			Revenues
	(Dollars in millions)
Selling	$	85.4	$	69.4		23.0	%		8.2	%		7.2	%
Advertising and promotion		45.5		48.2		(5.6	)%		4.4	%		5.0	%
Administration		49.1		64.9		(24.3	)%		4.7	%		6.7	%
Other		115.6		108.8		6.3	%		11.1	%		11.2	%
Total SG&A	$	295.6	$	291.3		1.5	%		28.5	%		30.1	%

Total SG&A expenses increased $4.3 million for the first quarter.

Selling.  Selling expense increased as compared to prior year, primarily reflecting higher selling costs in North America and Europe associated with additional company-operated stores.

Advertising and promotion.  Advertising and promotion expenses decreased as compared to prior year, driven by lower advertising expenses as we rescheduled some promotional activities to later in the year.

20

Administration.  The decrease in administration expense related primarily to a $25 million postretirement benefit plan curtailment gain associated with the closure of our Little Rock, Arkansas, distribution facility, partially offset by lower amortization of postretirement benefit plan prior service benefit related to the Little Rock closure, higher staff costs associated with the planned SAP implementation in the U.S., severance and transition expenses related to recent changes in senior management, and higher stock-based compensation expense.

Other.  Other SG&A costs include distribution, information resources, and marketing costs, gain or loss on sale of assets and other operating income. These costs increased primarily due to higher distribution costs and marketing expenses in line with the net revenue growth in the period.

Restructuring charges

Restructuring charges, net, increased to $12.8 million for the first quarter of 2007 from $3.2 million for the same period in 2006. The current year amount primarily consisted of asset impairment and severance charges recorded in association with the planned closure of our distribution center in Germany. The prior year amount primarily consisted of severance charges associated with headcount reductions in Europe and additional lease costs associated with exited facilities in the United States.

Operating income

The following table shows operating income for the North America, Europe and Asia Pacific regions, and the significant components of corporate expense for the respective periods:

	Three Months Ended
										February 25,			February 26,
							%			2007			2006
	February 25,			February 26,			Increase			% of Net			% of Net
	2007			2006			(Decrease)			Revenues			Revenues
	(Dollars in millions)
Operating income:
North America	$	90.9		$	90.0			0.9	%		15.6	%		16.5	%
Europe		79.5			64.3			23.6	%		29.9	%		26.7	%
Asia Pacific		36.4			39.1			(6.7	)%		19.4	%		21.7	%
Total regional operating income		206.8			193.4			6.9	%		19.9	%*		20.0	%*
Corporate:
Restructuring charges, net		12.8			3.2			302.1	%		1.2	%*		0.3	%*
Postretirement benefit plan curtailment gain		(25.3	)		—			—			(2.4	)%*		0.0	%*
Other corporate staff costs and expenses		30.1			19.6			53.7	%		2.9	%*		2.0	%*
Total corporate		17.6			22.8			(22.9	)%		1.7	%*		2.4	%*
Total operating income	$	189.2		$	170.6			10.9	%		18.2	%*		17.6	%*
Operating margin		18.2	%		17.6	%

* Percentage of consolidated net revenues

Regional operating income.  The following describes changes in operating income by segment:

•  North America.  Operating income increased slightly due to increases in net sales offset by a decline in operating margin, primarily due to the region’s gross margin decrease. SG&A expenses, while reflecting our investment in retail expansion and our SAP implementation, were in line with revenue performance.

•  Europe.  Operating income increased primarily due to the region’s gross margin increase and the favorable impact of foreign currency translation. Higher selling expenses were offset by lower administrative and other costs.

21

•  Asia Pacific.  Both operating income and operating margin decreased. Operating income decreased primarily due to declines in net sales and gross margin in Japan and Korea. For the remainder of the region, operating income increased, primarily due to an increase in net sales.

Corporate.  Corporate expense is comprised of restructuring charges, net, and other corporate expenses, including corporate staff costs.

Postretirement benefit plan curtailment gain relates to the closure of our Little Rock, Arkansas, distribution facility. For more information, see the notes 6 and 7 to our unaudited consolidated financial statements included in this report.

Other corporate staff costs and expenses increased primarily due to lower workers’ compensation reversals ($1.5 million in 2007 as compared to $4.5 million in 2006) and lower amortization of postretirement benefit plan prior service benefit ($12.0 million in 2007 as compared to $14.4 million in 2006) related to the closure of our Little Rock, Arkansas, distribution facility. Other corporate expenses also increased due to severance and transition expenses related to recent changes in senior management and higher stock-based compensation expense.

Interest expense

Interest expense decreased to $57.7 million for the first quarter of 2007 from $66.3 million for the same period in 2006. The decrease was attributable to lower debt levels and lower average borrowing rates in the 2007 period, which resulted primarily from our refinancing activities in 2006.

The weighted average interest rate on average borrowings outstanding at the end of the first quarter of 2007 and 2006, including the amortization of capitalized bank fees and underwriting fees, was 9.89% and 10.70%, respectively.

Other income, net

Other income, net, increased to $13.5 million for the first quarter of 2007 from $1.2 million for the same period in 2006. The increase from prior year was primarily attributable to the net favorable impact of foreign currency fluctuation.

Income tax expense

Income tax expense was $58.4 million for the first quarter of 2007 compared to $51.7 million for the same period in 2006. The increase in tax expense was primarily due to an increase in our income before taxes. The effective tax rate was 40.3% for the first quarter of 2007 compared to 49.0% for the same period in 2006. The decrease in the effective tax rate was primarily driven by a reduction in the overall residual U.S. tax we expect to be imposed upon a repatriation of our unremitted foreign earnings. The reduction resulted from a change in our expectations regarding our ability to utilize some portion of the foreign tax credits that would be available upon the repatriation of our unremitted foreign earnings.

Net income

Net income increased to $86.6 million for the first quarter of 2007 from $53.8 million for the same period in 2006. The increase was primarily due to the increase in operating income, lower interest expense and higher gains related to foreign currency. The impact on income tax expense of an increase in income before taxes was partially offset by the reduction in our effective income tax rate.

Liquidity and Capital Resources

Liquidity Outlook

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

22

Cash Sources

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

The maximum availability under our senior secured revolving credit facility is $550.0 million. As of February 25, 2007, based on collateral levels as defined by the agreement, reduced by amounts reserved in accordance with this facility as described below, our total availability was approximately $357.8 million. We had no outstanding borrowings under this facility, but had utilization of other credit-related instruments such as documentary and standby letters of credit. Unused availability was approximately $266.3 million.

Under our senior secured revolving credit facility, we are required to maintain certain reserves against availability (or deposit cash or investment securities in secured accounts with the administrative agent), including a $75.0 million reserve at all times. These reserves reduce the availability under our credit facility.

As of February 25, 2007, we had cash equivalents in the United States totaling approximately $168.6 million, resulting in a net liquidity position (unused availability and cash equivalents) of $434.9 million in the United States.

Cash Uses

Our principal cash requirements include working capital, capital expenditures, payments of interest on our debt, payments of taxes, contributions to our pension plans and payments for postretirement health benefit plans. In addition, we regularly explore debt reduction alternatives, including through tender offers, redemptions, repurchases or otherwise, and we regularly evaluate our ability to pay dividends or repurchase stock, all consistent with the terms of our debt agreements.

The following table presents selected cash uses during the three months ended February 25, 2007, and the related estimated cash requirements for the remainder of 2007 and the first three months of 2008:

			Estimated for
	Paid in Three		Remaining Nine				Estimated for		Estimated for
	Months Ended		Months of		Total Estimated		Three Months Ending		Twelve Months Ending
Selected Cash Requirements	February 25, 2007		Fiscal 2007		for Fiscal 2007		February 24, 2008		February 24, 2008
	(Dollars in millions)
Interest(1)	$	65	$	141	$	206	$	60	$	201
Federal, foreign and state taxes (net of refunds)		6		65		71		14		79
Postretirement health benefit plans		6		17		23		6		23
Capital expenditures		10		117		127		25		142
Pension plans		3		11		14		4		15
Total selected cash requirements	$	90	$	351	$	441	$	109	$	460

(1) Estimates for interest payments in 2007 have decreased as compared to the estimate contained in our 2006 Annual Report on Form 10-K, reflecting the refinancing of our floating rate senior notes due 2012 in April 2007.

Information in the preceding table reflects our estimates of future cash payments. These estimates 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

23

liabilities may be materially higher or lower than the estimates reflected in these tables. The inclusion of these estimates should not be regarded as a representation by us that the estimates will prove to be correct.

Cash Flows

As of February 25, 2007, we had total cash and cash equivalents of approximately $237.2 million, a $42.3 million decrease from the $279.5 million balance as of November 26, 2006. Working capital as of February 25, 2007, was $842.3 million compared to $806.0 million as of November 26, 2006.

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

	Three Months Ended
	February 25,			February 26,
	2007			2006
	(Dollars in millions)
Cash (used for) provided by operating activities	$	(20.4	)	$	54.4
Cash used for investing activities		(11.9	)		(9.0	)
Cash used for financing activities		(10.1	)		(5.5	)
Cash and cash equivalents		237.2			281.4

Cash flows from operating activities

Cash used by operating activities was $20.4 million for the first quarter of 2007, representing an increase of $74.8 million in the amount of cash used for operating activities as compared to cash provided by operating activities of $54.4 million for the same period in 2006. This was primarily driven by:

•  a decrease in the amount of trade receivables collected during the period, primarily due to (i) the earlier timing of sales recorded in the fourth quarter of 2006 and later timing of sales in the first quarter of 2007, as compared to the corresponding periods in prior year; and (ii) an increase in payment terms taken by a significant customer in the current period, which we expect to resolve in the second quarter; and

•  higher payments for annual and long-term incentive compensation and executive transitions.

These factors were partially offset by:

•  decreases in interest payments, primarily due to our refinancing activities in 2006; and

•  lower cash paid for income taxes.

Our inventory increases as compared to prior year, which correlated to an increase in our accounts payable balances, reflect earlier timing of receipt of goods in preparation for the spring and summer sales seasons and are generally in line with our net revenue growth.

Cash flows from investing activities

Cash used for investing activities was $11.9 million for the first quarter of 2007 compared to $9.0 million for the same period in 2006. Cash used in both periods primarily related to investments made in our company-operated retail stores and information technology systems associated with the SAP installation in our Asia Pacific region and, with respect to the 2007 period, the United States.

Cash flows from financing activities

Cash used for financing activities was $10.1 million for the first quarter of 2007 compared to $5.5 million for the same period in 2006. Cash used for financing activities in both periods primarily reflects required payments on short-term borrowings, increases in restricted cash balances, and for prior year, required payments on the senior secured term loan in place during the prior year period.

24

Indebtedness

As of February 25, 2007, we had fixed rate debt of approximately $1.8 billion (83% of total debt) and variable rate debt of approximately $0.4 billion (17% of total debt). The borrower of substantially all of our debt is Levi Strauss & Co., the parent and U.S. operating company. Our required aggregate short-term and long-term debt principal payments for the next five fiscal years and thereafter are $4.9 million in 2007 and the remaining $2.2 billion in years after 2011.

New Term Loan; Redemption of Floating Rate Notes.  On March 27, 2007, we entered into a senior unsecured term loan agreement. The term loan consists of a single borrowing of $325.0 million, net of a 0.75% discount to the lenders. The term loan matures on April 4, 2014 and bears interest at LIBOR plus 2.25% or 1.25% over the base rate. On April 5, 2007, we used the borrowings under the term loan, plus cash on hand of approximately $67 million, to redeem all of the outstanding $380.0 million floating rate senior notes due 2012 and to pay related redemption premiums, transaction fees and expenses of approximately $8 million. We also wrote off approximately $7 million of unamortized debt issuance costs related to the redemption of the floating rate senior notes. As a result, we will record an approximately $15 million loss on early extinguishment of debt in the second quarter of 2007.

Off-Balance Sheet Arrangements, Guarantees and Other Contingent Obligations

Off-Balance Sheet Arrangements.  We have no material special-purpose entities or off-balance sheet debt obligations.

Indemnification Agreements.  In the ordinary course of our business, we enter into agreements containing indemnification provisions under which we agree to indemnify the other party for specified claims and losses. For example, our trademark license agreements, real estate leases, consulting agreements, logistics outsourcing agreements, securities purchase agreements and credit agreements typically contain these provisions. This type of indemnification provision obligates us to pay certain amounts associated with claims brought against the other party as the result of trademark infringement, negligence or willful misconduct of our employees, breach of contract by us including inaccuracy of representations and warranties, specified lawsuits in which we and the other party are co-defendants, product claims and other matters. These amounts are generally not readily quantifiable: the maximum possible liability or amount of potential payments that could arise out of an indemnification claim depends entirely on the specific facts and circumstances associated with the claim. We have insurance coverage that minimizes the potential exposure to certain of these claims. We also believe that the likelihood of substantial payment obligations under these agreements to third parties is low and that any such amounts would be immaterial.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes. There have been no significant changes to our critical accounting policies as disclosed in our 2006 Annual Report on Form 10-K.

Recently Issued Accounting Standards

The following recently issued accounting standards have been grouped by their required effective dates as they apply to us.

Fourth Quarter of 2007

•  In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires employers to (a) recognize in its statement of financial position the funded status of a benefit plan measured as the difference between the fair value of plan assets and the benefit obligation, (b) recognize net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87,

25

“Employer’s Accounting for Pensions” or SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” (c) measure defined benefit plan assets and obligations as of the date of the employer’s statement of financial position and (d) disclose additional information in the notes to the financial statements about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. The requirements of SFAS 158 are to be applied prospectively upon adoption, which is fiscal year 2007 for us. We have pension and other postretirement plans which will be affected by the adoption of SFAS 158. Based on third-party actuarial estimates of plan assets and obligations as of November 26, 2006, we estimate that had we been required to adopt the provisions of SFAS 158 at the reporting date, the adoption would have resulted in a net decrease to total liabilities of approximately $172 million, with corresponding decreases to stockholder’s deficit of $106 million and to deferred tax assets of $66 million. The actual impact of the adoption of SFAS 158 will depend on the valuation of plan assets and obligations at November 25, 2007.

First Quarter of 2008

•  In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which is an interpretation of SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109 and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently in the process of assessing the impact the adoption of FIN 48 will have on our financial statements.

•  In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently in the process of assessing the impact the adoption of SFAS 157 will have on our financial statements.

•  In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure certain financial assets and liabilities and other eligible items at fair value, which are not otherwise currently required to be measured at fair value. Under SFAS 159, the decision to measure items at fair value is made at specified election dates on an irrevocable instrument-by-instrument basis. Entities electing the fair value option would be required to recognize changes in fair value in earnings and to expense upfront cost and fees associated with the item for which the fair value option is elected. Entities electing the fair value option are required to distinguish on the face of the statement of financial position, the fair value of assets and liabilities for which the fair value option has been elected and similar assets and liabilities measured using another measurement attribute. If elected, SFAS 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007, with earlier adoption permitted provided that the entity also early adopts all of the requirements of SFAS 159. We are currently evaluating whether to elect the option provided for in this standard.

26

FORWARD-LOOKING STATEMENTS

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

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

•  changing U.S. and international retail environments;

•  changes in the level of consumer spending for apparel in view of general economic conditions including interest rates, the housing market, the stock market and energy prices;

•  our ability to sustain improvements in our European business and to address challenges in our Japanese operations and our Levi Strauss Signature^® brand in the United States;

•  our customers’ continuing focus on private label and exclusive products in all channels of distribution, including the mass channel;

•  our ability to increase the number of dedicated stores for our products, including through opening and profitably operating company-operated stores;

•  changes in our management team;

•  our ability to implement SAP throughout our business without disruption;

•  our effectiveness in increasing efficiencies in our logistics operations;

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

•  mergers and acquisitions involving our top customers and their consequences;

•  price, innovation and other competitive pressures in the apparel industry and on our key customers;

•  our ability to increase our appeal to younger consumers and women;

•  changing fashion trends;

•  the impact of future restructuring and financing activities;

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

•  ongoing litigation matters and disputes and regulatory developments;

•  changes in trade and tax laws; and

•  political or financial instability in countries where our products are manufactured.

27

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

Item 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Derivative Financial Instruments

We are exposed to market risk primarily related to foreign currencies and interest rates. We actively manage foreign currency risks with the objective of mitigating the potential impact of currency fluctuations while maximizing the U.S. dollar value of cash flows. We hold derivative positions only in currencies to which we have exposure. We manage interest rate risk using a combination of medium and long-term fixed and variable rate debt. We currently do not hold any interest rate derivatives.

We are exposed to credit loss in the event of nonperformance by the counterparties to the foreign exchange contracts. However, we believe these counterparties are creditworthy financial institutions and we do not anticipate nonperformance. We monitor the creditworthiness of our counterparties in accordance with our foreign exchange and investment policies. In addition, we have International Swaps and Derivatives Association, Inc. (ISDA) master agreements in place with our counterparties to mitigate the credit risk related to the outstanding derivatives. These agreements provide the legal basis for over-the-counter transactions in many of the world’s commodity and financial markets.

Foreign Exchange Risk

The global scope of our business operations exposes us to the risk of fluctuations in foreign currency markets. This exposure is the result of certain product sourcing activities, some intercompany sales, foreign subsidiaries’ royalty payments, earnings repatriations, net investment in foreign operations and funding activities. We typically take a long-term view of managing exposures, using forecasts to develop exposure positions and engaging in their active management.

We operate a centralized currency management operation to take advantage of potential opportunities to naturally offset exposures against each other. For any residual exposures under management, we use a variety of financial instruments including forward exchange and option contracts to hedge certain anticipated transactions as well as certain firm commitments, including third-party and intercompany transactions. We manage the currency risk as of the inception of the exposure. We do not currently manage the timing mismatch between our forecasted exposures and the related financial instruments used to mitigate the currency risk.

Our foreign exchange risk management activities are governed by a foreign exchange risk management policy approved by our board of directors. Our foreign exchange committee, comprised of a group of our senior financial executives, reviews our foreign exchange activities to ensure compliance with our policies. The operating policies and guidelines outlined in the foreign exchange risk management policy provide a framework that allows for an active approach to the management of currency exposures while ensuring the activities are conducted within established parameters. Our policy includes guidelines for the organizational structure of our risk management function and for internal controls over foreign exchange risk management activities, including various measurements for monitoring compliance. We monitor foreign exchange risk, interest rate risk and related derivatives using different techniques including a review of market value, sensitivity analysis and a value-at-risk model. We use widely accepted valuation models that incorporate quoted market prices or dealer quotes to determine the estimated fair value of our foreign exchange derivative contracts.

We use derivative instruments to manage our exposure to foreign currencies. At February 25, 2007, we had U.S. dollar spot and forward currency contracts to buy $443.9 million and to sell $292.0 million against various foreign currencies. We also had Euro forward currency contracts to buy 25.4 million Euros ($33.3 million equivalent) against the Norwegian and Swedish Krona. These contracts are at various exchange rates and expire at various dates through December 2007.

28

Item 4.   CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedure

As of February 25, 2007, we updated our evaluation of the effectiveness of the design and operation of our disclosure controls and procedures for purposes of filing reports under the Securities and Exchange Act of 1934 (the “Exchange Act”). This controls evaluation was done under the supervision and with the participation of management, including our chief executive officer and our chief financial officer. Our chief executive officer and our chief financial officer have concluded that our disclosure controls and procedures (as defined in Rule 13(a)-15(e) and 15(d)-15(e) under the Exchange Act) are effective to provide reasonable assurance that information relating to us and our subsidiaries that we are required to disclose in the reports that we file or submit to the SEC is recorded, processed, summarized and reported with the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are designed to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

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

We are currently implementing an enterprise resource planning system on a staged basis in our businesses around the world. We began in Asia Pacific (by implementing the system in several affiliates in the region in 2006 and the first quarter of 2007) and will continue implementation in other affiliates and organizations in the coming years. We designed our rollout and transition plan to minimize the risk of disruption to our business and controls. We believe implementation of this system will change, simplify and strengthen our internal control over financial reporting.

As a result of the SEC’s deferral of the deadline for non-accelerated filers’ compliance with the internal control requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as a non-accelerated filer we are not yet subject to the requirements in our Annual Report on Form 10-K. We will be required to be compliant in 2008 (with respect to the management report) and 2009 (with respect to the independent auditor attestation report). We have planned for and expect to meet these requirements.

PART II — OTHER INFORMATION

Item 1.   LEGAL PROCEEDINGS

Wrongful Termination Litigation.  There have been no material developments in this litigation since we filed our 2006 Annual Report on Form 10-K. For more information about the litigation, see Note 7 to the consolidated financial statements contained in our 2006 Annual Report on Form 10-K.

Class Actions Securities Litigation.  There have been no material developments in this litigation since we filed our 2006 Annual Report on Form 10-K. For more information about the litigation, see Note 7 to the consolidated financial statements contained in that Form 10-K.

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

29

Item 1A.   RISK FACTORS

There have been no material changes in our risk factors from those disclosed in our 2006 Annual Report on Form 10-K.

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

On February 8 and February 26, 2007, our board approved the awards to five of our senior executives of stock appreciation rights under our 2006 Equity Incentive Plan covering 146,726 shares of our common stock. All stock appreciation rights were granted with an exercise price equal to the fair market value of the covered shares on the date of grant. Upon exercise, we will deliver to the recipient shares with a value equal to the product of the excess of the per share fair market value of our common stock on the exercise date over the exercise price, multiplied by the number of shares of common stock with respect to which the stock appreciation right is exercised.

In the case of three of the recipients, 25% of each stock appreciation right grant vests on February 7, 2008 with the remaining 75% balance vesting on the first day of each month at a rate of 75%/36 months (2.08% per month) commencing February 8, 2008 and ending January 8, 2011, subject to continued service. In the case of one recipient, one twenty-fourth (1/24th) of each stock appreciation right grant vests on the first day of each month commencing February 8, 2009 and ending January 8, 2011, subject to continued service. In the case of the last recipient, one twenty-fourth (1/24th) of each stock appreciation right grant vests on the first day of each month commencing February 26, 2009 and ending January 26, 2011, subject to continued service.

We will not receive any proceeds either from the issuance of the stock appreciation rights or upon their exercise.

The stock appreciation rights were granted under Section 4(2) of the Securities Act of 1993, as amended. Section 4(2) generally provides an exemption from registration for transactions by an issuer not involving any public offering. The stock appreciation rights were granted to a limited number of employees, all of whom are among our senior-most executives.

We are a privately-held corporation; there is no public trading of our common stock. As of April 4, 2007, we had 37,278,238 shares outstanding.

Item 3.   DEFAULTS UPON SENIOR SECURITIES

None.

Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Our board of directors is divided into three classes with directors elected for overlapping three-year terms. Our shares of common stock are deposited in a voting trust, and the voting trustees elect our directors. On April 5, 2007, our stockholders, acting by written consent through the voting trustees, elected our three Class III directors to serve for an additional three-year term expiring in April 2010. Those directors are R. John Anderson, T. Gary Rogers and Patricia Salas Pineda. Our Class I directors, all of whom continue in office through our annual stockholders’ meeting in 2008, are Peter A. Georgescu, Robert D. Haas and Leon J. Level. Our Class II directors, all of whom continue in office through our annual stockholders’ meeting in 2009, are Peter E. Haas, Jr., F. Warren Hellman and Patricia A. House.

Item 5.   OTHER INFORMATION

Redemption of Floating Rate Senior Notes due 2012.  On April 5, 2007, we used borrowings of $322.6 million under our new senior unsecured term loan, plus cash on hand of approximately $67 million, to redeem all of our outstanding $380.0 million floating rate senior notes due 2012 and to pay related redemption premiums, transaction fees and expenses of approximately $8 million.

30

Item 6.   EXHIBITS

10	.1	Limited Waiver dated as of March 1, 2007, by and among Levi Strauss & Co., the financial institutions listed therein and Bank of America, N.A. as agent for lenders. Previously filed as Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the Commission on March 2, 2007.
10	.2	Term Loan Agreement, dated as of March 27, 2007, among Levi Strauss & Co., the lenders and other financial institutions party thereto and Bank of America, N.A. as administrative agent. Previously filed as Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the Commission on March 30, 2007.
10	.3	Employment Contract and related agreements, dated as of February 23, 2007, between Armin Broger and Levi Strauss Nederland B.V. and various affiliates. Filed herewith.
31	.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31	.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

31

SIGNATURE

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

LEVI STRAUSS & CO.

(Registrant)

By:  /s/  Heidi L. Manes

Heidi L. Manes

Vice President and Controller

(Principal Accounting Officer)

Date: April 10, 2007

32

EXHIBITS INDEX

10	.1	Limited Waiver dated as of March 1, 2007, by and among Levi Strauss & Co., the financial institutions listed therein and Bank of America, N.A. as agent for lenders. Previously filed as Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the Commission on March 2, 2007.
10	.2	Term Loan Agreement, dated as of March 27, 2007, among Levi Strauss & Co., the lenders and other financial institutions party thereto and Bank of America, N.A. as administrative agent. Previously filed as Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the Commission on March 30, 2007.
10	.3	Employment Contract and related agreements, dated as of February 23, 2007, between Armin Broger and Levi Strauss Nederland B.V. and various affiliates. Filed herewith.
31	.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31	.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

EX-10.3

Exhibit 10.3

EMPLOYMENT CONTRACT

Armin Broger

THE UNDERSIGNED:

1. Levi Strauss Nederland B.V., a private limited liability company having its registered office at Pilotenstraat 45 in (1059 CH) Amsterdam, The Netherlands, for the purposes hereof lawfully represented by Mr. Regis Mulot, referred to below as the ‘Employer’;

and

2. Mr. Armin Broger, an Italian national, residing at Herman Gorterstraat 7 in Amsterdam, the Netherlands, referred to below as the ‘Employee’;

WHEREAS

• Employer will employ Employee for the position of President of Levi Strauss Europe commencing on 26 February 2007;

• Employee will be appointed as director (statutair directeur) of Levi Strauss Nederland B.V. and other business entities;

HAVE AGREED AS FOLLOWS

Article 1: Commencement and Term

The employment contract will commence on or after 26 February 2007 but on 31 March 2007 at the latest and is entered into for an indefinite period of time subject to any other agreement between the parties.

Article 2: WCOBC and Statement of Commitment

1.	The Employee declares that he has received a copy of the company’s Worldwide Code of Business Conduct (WCOBC) and Statement of Commitment, and that he accepts the content thereof.
2.	The provisions of the WCOBC and Statement of Commitment form an integral part of this employment contract.
3.	The Employer will be entitled to unilaterally amend the content of the WCOBC and Statement of Commitment, if and insofar as it has a weighty reason in doing so that is of such a nature that the Employee’s interests in all reasonableness and fairness must yield to the Employer’s interest, provided that this Employment Agreement will prevail in case of conflict.

Article 3: Position

1.	The Employee will hold the position of President of Levi Strauss Europe.
2.	The Employee’s position will have duties and responsibilities for managing the European division of Levi Strauss & Co. Currently comprising the following countries: Albania, Andorra, Austria, Belarus, Belgium, Bosnia/Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Macedonia, Malta, Monaco, Netherlands, Norway, Poland, Portugal, Slovenia, Romania, Russia, San Marino, Serbia, Slovakia, Spain, Sweden, Switzerland, Ukraine, United Kingdom and dependent territories and Yugoslavia.
3.	The Employee will also perform duties in addition to those that are considered his usual duties, if such performance may be reasonably expected from him.
4.	Without the Employer’s prior written consent, the Employee will not during his employment term, alone or with others, directly or indirectly, establish, conduct or perform work for a business (whether or not for consideration) that competes with or creates a conflict of interest with the Employer’s business, whatever its form.
5.	The Employee, at the Employer’s request, will at all times perform work for a company affiliated with the Employer in addition to those that are considered his usual duties, if such performance may be reasonably expected from him.
6.	With regard to his duties, the Employee will report to the President and Chief Executive Officer.

Article 4: Working Hours and Workplace

1.	The workweek and office hours will be in accordance with Company Policy.
2.	The Employee shall carry out his duties from the offices of the Employer. The Employee shall make all trips necessary for the proper performance of his contract. The Employer may relocate the Employee’s workplace, if the company’s interests so require and if such may be reasonably expected from him giving his personal circumstances.
3.	The Employee holds a managerial position and/or a position of trust and, at the Employer’s request, will work overtime outside the normal working hours whenever a proper performance of his duties so requires. No remuneration will be paid for overtime work, commuting time or travelling time nor shall any compensation in that respect be due.

Article 5: Salary and Incentives

1.	The Employee will be entitled to a gross annual salary of EUR 725,000.00, inclusive vacation pay and 13th month under relevant laws.
2.	The salary will be reviewed upwardly annually by the Levi Strauss & Co. Board in accordance with Company Policy.

3.

The Employee will participate in the applicable Annual Incentive Plan (AIP) and Senior’s Executive Long-term Incentive Plan (SELTIP), a stock Appreciation Right’s program with a 3-year performance cycle. Grants fully vest and are settled in cast at the end of the performance cycle. A copy of the plans that currently apply are attached to this employment contract as Appendix I and II and are an integral part hereof. The granting of the bonus is at the Employer’s discretion. The Employee can in no event lay claim to a bonus that has not yet been granted, unless agreed otherwise herein. The granting of a bonus in any given year or during several years will not create a precedent for any subsequent years. Ongoing participation in these plans is intended at a similar level but will be subject to Company Policy and Board approval; in this connection, the parties explicitly refer to subparagraph 6, below.

4.

Employee’s ongoing participation rate in the AIP is 65% of his base salary per annum. However, the following exception will apply:

• For 2007, on a one-time basis, his AIP participation rate will be 100%. This one-time (i.e. not to be repeated in future years) increase to his participation rate is intended to provide an additional incentive reward opportunity tied to both business and individual performance.

5.	In 2007, Employee will be eligible to receive a grant award of 100,000 SELTIP units with a target award value of US $ 1,500,000 (gross). The performance cycle for this grant will begin with the 2007 fiscal year. This award will be valued after the end of the 2009 fiscal year and will be paid during the first quarter of 2010.
6.	Similarly to any amendments imposed upon other employees and in accordance with the relevant plan, the Employer will be entitled to unilaterally amend the content of the AIP and SELTIP, insofar as they are harmed by the amendment, in all reasonableness and fairness must yield to the Employer’s interest.
7.	Employee acknowledges having been informed that the Human Resources Committee of the Board of Directors has recently approved implementation of a new long-term incentive plan for senior executives intended to replace the SELTIP and that he will be given the opportunity to forfeit his 2007 SELTIP grants in exchange for grant awards under the new program. Employee explicitly declares not objecting to such possibility.

Article 6: Payroll administration and hypo taxation

1.

The Employee will be on the payroll of Employer. The salary will be paid into the Employee’s Netherlands bank account. The Employee’s salary and benefits will be administrated according the policies, plans and programs of Employer.

2.

Should due to Employee’s responsibilities any part of his gross annual base salary, AIP, SELTIP benefits and other benefits in kind provided by Employer be subject to taxation outside the Netherlands the Employee will receive the gross annual base salary, AIP and SELTIP benefits, referred to in Article 5 hereof and any taxable benefits in kind provided by Employer, as a net guarantee salary and/or benefit as if he would be working 100% of his time in the Netherlands applying a 30% ruling on the gross annual salary, AIP and SELTIP

	benefits and other benefits in kind provided by Employer. Employer will in such case compensate the Employee for the missing tax benefit of the 30% ruling over (part of) his benefits. Any other local taxes due will be borne by the Employer as per the tax equalization guidelines. Employer will provide for and pay personal income tax return and tax planning assistance for Employee throughout the duration of the Employment Agreement. In connection with the Employee’s Dutch personal income tax return Employer’s advisers shall cooperate with the Employee’s advisers.
3.	Employee’s non-Dutch tax matters, to the extend relevant, will be handled by Employer’s external tax advisor to ascertain the impact which the Employee’s possible tax obligations outside the Netherlands could have on the Dutch tax situation. The external tax advisor will work with their Netherlands office to ensure that the Employee neither gains nor loses in terms of taxes and missing the 30% ruling over (part) of his income, for the duration of the employment taking into account that benefits of the 30% are for the account of the Employee. Should the granting in fringe benefits to the Employee have a negative impact on local tax return, the Employer will reimburse the additional taxes the Employee has to bear.
4.	Should Employee be subject to social security levies outside the Netherlands those costs will be for the account of the Employer.
5.	Employer and Employee will be jointly responsible for making the application and all filing requirements to the Dutch Tax Authorities for continued application of the 30% tax ruling immediately after signing of this Employment Agreement.

Article 7: Notice period

1.	The notice period to be observed in case of termination, unless in case of termination for urgent cause, shall be four (4) months for the Employee and eight (8) months for the Employer.
2.	The parties consider their agreement on severance payment, as reflected in article 7.3 up to 7.7, to be a settlement agreement (vaststellingsovereenkomst) as provided for in Section 7:900 of the Dutch Civil Code. Parties exclusively choose to apply Dutch law in this respect.
3.	If the Employer terminates the agreement for any reason (e.g., restructuring that results in a job elimination due to a significant reduction in job scope or layoff) other than an urgent cause or if the court terminates the employment agreement upon the initiative of the Employer other than for an urgent cause, the Employer and the Employee agree that the lump sum amount payable to the Employee, in any event, will be two times Employee’s Base Compensation (Base Pay plus AIP target) as at the time of premature termination. This severance amount will be payable upon termination of the Employment Agreement. Should the scope of Employee’s duties significantly change, to an extend that it cannot be expected from him to continue to be employed by Employer, whereas the Employer does not terminate the Employment Agreement and does not cure the change of scope of duties to a level compatible with the Employee’s position, the Employer and the Employee will mutually agree in good faith how the above severance should be payable should the Employee resign.

4.	If a court awards more than the contractual agreed severance amount as reflected in Article 7.3, Employee will not be entitled to the amount that exceeds the contractual agreed amount; if a court awards less, the difference between the contractual agreed amount and the amount granted by the court, will be paid to Employee. Employee shall in any event not be entitled to a higher severance payment than the amount reflected as contractual severance payment in Article 7.3.
5.	The total amount of severance pay will in no event exceed the gross salary, benefits and amounts payable to Employee would the Employee have been employed until reaching the age of 65.
6.	After Employer has paid Employee the compensation referred to in this Article, Employer (including any other affiliated companies) and Employee will have no further claims against each other, either inside or outside The Netherlands, with regard to the employment and/or corporate relationship, future bonus entitlements, or the (manner of) termination of the employment and/or corporate relationship, and shall grant each other in this respect full and final discharge provided that the Employer has paid Employee all benefits and amounts payable under this employment agreement and the AIP and SELTIP plans in accordance with this agreement and those plans.

Article 8: Expense Allowance

1.

The Employer will reimburse the Employee for expenses directly related to the performance of his work, but only insofar as that reimbursement may be provided tax free and premium free pursuant to the tax and social security legislation in force at any given time.

2.

A statement of expenses must be submitted to the Employer in line with Company Policies. Expenses can be claimed upon submission of the original receipt(s), specifying the business-related reason for which they were incurred. The Employer will pay the expenses within one month after the Employee has claimed them, provided that the statement of expenses is sufficiently itemized, accompanied by the original receipt(s) in line with Company Policy.

Article 9: Telephone and internet connection

1.	The Employer will place at the Employee’s disposal a cell phone, the cost of which will be born by Employer.
2.	The Employer will provide for a telephone and Internet connection at the Employee’s home. The Employer will bear the cost thereof, it being understood that the Employer will deduct wage tax and social security contributions in respect of the costs of private calls / fringe benefit resulting from the private use of the internet, should these be payable.

Article 10: Car

1. For the performance of his work, the Employer will place at the Employee’s disposal — in conformity with the conditions contained in the company car plan a company car commensurate to the Employee’s seniority within the Employer based on Company Policy or alternatively reimburse the Employee for the use of his private car on the basis of Company Policy.

2.	If the Employee is ill for a period longer than six months, the Employer will be entitled to suspend the use of the company car/lease car until the Employee resumes work.
3.	The Employee undertakes to use the company car of which he has the disposal with due care and to have it maintained in accordance with Employer’s Car Policy and instructions of the leasing company/ manufacturer.
4.	The Employee shall be entitled to use the company car privately within reasonable limits. The benefit in kind resulting there from shall be subject to yearly revision by the Employer in function of the cost related to the private use of the car and/or the position of the tax administration.
5.	The Employee agrees that the withholding tax related to the benefit in kind shall be withheld on his remuneration at least once per calendar year.

Article 11: Pension

1.

For the duration of the employment contract, the Employer will either: (i) give the Employee the opportunity to take out pension insurance, subject to the Employer’s prior approval and annually contribute 12% of the Employee’s gross base salary, payable directly to the pension insurer on prior submission of the invoice to the Employer; or (ii) should the Employee opt not to take out a pension insurance pay 12% of the Employee’s gross base salary to the Employee, provided that such contributions (under either alternative) are permissible under tax law.

2.

It is understood that this amount will not be taken into account calculating any remuneration or amounts under Article 5, 6 and/or 7.3 hereof, and that no vacation pay is payable over this amount under any relevant law.

Article 12: Vacation

1.	Apart from compensatory rest days, the Employee will be entitled to 30 paid vacation days each calendar year.
2.	The Employee must timely inform the Board of Directors of the Employer, in writing, of his wishes with respect to the beginning and end of his vacation period.

Article 13: Illness and Occupational Disability

1.

If the Employee is unable to perform the agreed work due to illness, he will be obliged to inform the Employer thereof before 9.00 a.m. on the first day of illness, stating the reasons, the expected period of illness and the correct address at which he can be reached during that period. As soon as the Employee knows on what day he will be able to resume work, he will inform the Employer thereof immediately.

2.

Absences as a result of illness must remain justified for their entire duration by way of a medical certificate to be sent to the Employer within two working days following the day of the work incapacity or the day on which the period of work incapacity is extended.

3. If the Employee is unable to perform the agreed work due to illness, he will remain entitled to continued payment of wages for a maximum period of 104 weeks or up to the date of termination of this contract if that date is earlier, on the basis of the following conditions:

• during the first the 52nd week of illness four weeks of illness, the Employee remains entitled to 100% of the most recent gross base salary as stipulated in Article 5;

• as of the 53rd week up and including the 104th week of illness, the Employee remains entitled to 70% of the most recent gross base salary as stipulated in Article 5.

	With respect to each period in which the Employee is unable to perform the agreed work due to illness, the first day will be regarded as a qualifying day on which the Employee is not entitled to continued payment of wages.
4.	If the Employee’s occupational disability ensues from an event for which another is liable, the Employee must, upon request by Employer, immediately provide the Employer with all of the relevant information and do everything in his power to enable the Employer to exercise its right of recourse within the meaning of Article 6:107a of the Dutch Civil Code (Burgerlijk Wetboek).
5.	Employer will pay supplemental disability insurance (WIA) to safeguard continuation of 60% of the most recent gross base salary as stipulated in Article 5 in case of long-term disability.

Article 14: Health Insurance

1.	In accordance with the Dutch Health Care Insurance Act (Zorgverzekeringswet), the Employer will pay the Dutch Tax Authorities on behalf of the Employee the income-related contribution fixed by the government each year.
2.	The Employer will furthermore pay the Employee a monthly gross amount of EUR 400 for the basic and supplemental health insurance to be taken out by the Employee. For that purpose, the Employee must each year provide the Employer with a statement and/or copy of the policy showing the amount and components of the insurance premium due. That statement and/or policy must be approved by the Employer beforehand. If the Employee fails to provide that statement and/or policy or if the Employer does not approve that statement and/or policy, the Employer reserves the right to adjust amount of EUR 400, as stated or not to pay that premium at all.
3.	The Employer reserves the right to amend this Article unilaterally in the event of any amendment to the legislation on health insurances, without detriment to the Employee.
4.	Any taxation over these sums will be for the account of Employer.

Article 15: D&O Insurance

Employer will provide a D&O Insurance in accordance with Employer Policy.

Article 16: Life Insurance

Employer will provide a benefit of 4-year base salary in the event of Employee’s death subject to medical exam and the insurance policy terms.

Article 17: Confidentiality

1.	Neither during the term of the employment contract nor upon termination thereof may the Employee inform any third party in any form, directly or indirectly, of any particulars concerning or related to the business conducted by the Employer or its affiliated companies including but not limited to technical, financial and business information and models, names of potential clients or partners, proposed transactions, reports, plans, market prognoses, computer software, databases, data, technical knowledge or other confidential proprietary information concerning the Employer’s business, regardless of whether such information includes any reference to its confidential nature or ownership and regardless of how the Employee learned of the particulars.
2.	Other than for the benefit of the Employer within the scope of the normal work, the Employee may also not copy, compile, merge, assemble or process information, products or systems of the Employer or disassemble, reproduce or decompile the source code of the computer software included in those products or systems or attempt to deduce the source code of such software in any other manner.
3.	Violation of the prohibitions set out in this Article during the term of the employment contract will constitute an urgent reason for the Employer to summarily dismiss the Employee.

Article 18: Non-Competition Clause

1.	For the purposes of this clause ‘Termination Date’ shall mean the date of termination of this agreement for any reason (including, but not limited to, termination by the Employer).
2.	Because of the international scope of activities of the Employer, on the one hand, and the fact that the Employee performs activities which enable him, directly or indirectly, to obtain knowledge of practices which are particular to the Employer the use of which outside the Employer could be detrimental to the Employer, on the other hand; as a result, it is explicitly agreed as follows:
	The Employee covenants with the Employer that he shall not, whether directly or indirectly, during his employment and for a period of six (6) months after the Termination Date, either into the service of the following competitors of the Employer: VF Corporation, Haggar, Tropical Sportsware International, CK Jeans, Guess, The Limited, Savane International Corporation, Nautica Enterprises, Liz Claiborne, Polo Jeans Company, The Gap, G-Star, Brax, Mustang and Hugo Boss, by which the Employee has the possibility to be in a position to harm the business of the Employer by using for the profit of these competitors the knowledge acquired whilst employed by the Employer within the business in the industrial or commercial sector and that is peculiar to that business.

3.	This non-competition clause set forth in subparagraph 2 is applicable in the following countries: France, Germany, Belgium, Ireland, Italy, Luxembourg, the Netherlands, Spain, Sweden, and the United Kingdom.
4.	In consideration for the restrictions set forth in subparagraph 2, the Employer shall pay to the Employee a one-time indemnity equal to the gross salary which the Employee would have earned for the period of the non-compete obligation, i.e. six (6) months gross salary, calculated on the basis of the salary that the Employee received immediately prior to the Termination Date, unless the Employer waives the application of this subparagraph 2 within 15 days following the Termination Date. In case the Employment Agreement were to be terminated with a prior notice period, the Employer shall indicate at the time of notification of the notice period by either the Employer or the Employee whether or not the non-competition clause shall be applicable.
5.	If the Employee breaches the provisions of this subparagraph 2, the Employee will repay the indemnity paid by the Employer and, in addition, shall pay an equivalent amount as indemnity, subject to the Employer’s right to claim a higher indemnity to the extent the existence and amount of such additional damages is legally justified.

Article 19: Ban on Recruitment

1.

Neither during the term of the employment contract nor for a period of 6 months after the termination thereof may the Employee, without the Employer’s prior written consent, directly or indirectly induce employees of the Employer or of a company affiliated with it to terminate their employment contracts, in order to compete in any way whatsoever with the Employer or a company affiliated with it.

2.

Without the Employer’s prior written consent, the Employee may not, either during the term of the employment contract or for a period of 6 months after the termination of the employment contract, directly or indirectly hire individuals or have them hired, offer or negotiate employment contracts or have them offered or negotiated, or conclude contracts in any other manner with regard to the performance of work, with individuals who are on the payroll of the Employer or of a company affiliated with it or who were so during the Employee’s employment with the Employer or a company affiliated with it.

Article 20: Sidelines

During the term of the employment contract, the Employee may undertake or hold any sidelines or additional posts, such as committee work, or managerial or other activities for associations, foundations, Board positions for commercial organisations or other organisations of an idealistic, cultural, sporting, political or other nature, whether or not for consideration, with the Levi Strauss/Board’s prior approval, which may be withheld, if it is plausible that such activities may affect the Employee’s full dedication to his duties within the Employer’s company, in terms of both time and attention. It is understood that Employee will be allowed to continue to serve on the board of Lego A/S and two more Board positions.

Article 21: Personal Data Protection

The Employee acknowledges that the Employer processes his personal data for the performance of the employment contract and/or provisions ensuing from or in relation to the employment relationship. The Employer uses the Employee’s personal data to comply with its statutory obligations, such as withholding wage tax and social security contributions, to maintain and improve effective personnel records, including payroll records and compliance with statutory obligations, to administer employee benefits, including insurance and pension provisions, and to administer programs and plans with respect to training and development, job assessment, compensation, planning and organization. For these purposes the Employer may also transfer the Employee’s personal data to other companies of the Employer located in countries inside and outside the European Union subject to the relevant data protection legislation. The Employer will take measures to ensure that the Employee’s personal data is secure, accurate and fully updated. The Employer will therefore ask the Employee from time to time to review and update the personal data it holds about him (although the Employee is welcome to review and update his personal data more or less frequently). The Employee may contact an HR assistant on a regular basis to check the accuracy of his personal data and to notify the Employer of any changes. In accordance with the Dutch Personal Data Protection Act (Wet Bescherming Persoonsgegevens) or any other applicable legislation, the Employer will hold the aforementioned information only for as long as it is appropriate with a view to the employment relationship between the parties or for as long as it is necessary to comply with any of its statutory obligations.

Article 22: Return of Property

Upon termination of the employment contract, the Employee will be obliged to immediately return to the Employer all property belonging to the Employer, including materials, documents, information copied in any form whatsoever, articles and keys. The Employee will also be obliged to return the company car that may have been made available to him within the framework of his position, in its original state, together with the accompanying keys, papers, vehicle registration certificate and other accessories.

Article 23: Intellectual Property Rights

1.	All intellectual property rights, including but not limited to patent rights, design rights, copyrights, neighbouring rights, database rights, trademark rights, chip rights, trade name rights and know-how, ensuing in the Netherlands or abroad, during or after this employment contract, from the work performed by the Employee under this employment contract (‘Intellectual Property Rights’) will exclusively vest in the Employer.
2.	Insofar as any Intellectual Property Rights are not vested in the Employer by operation of law, the Employee covenants that he will transfer to the Employer at the Employer’s first request to that effect and, insofar as possible, hereby transfers those rights to the Employer, which transfer is hereby accepted by the Employer.
3.	Insofar as any Intellectual Property Rights are incapable of being transferred from the Employee to the Employer, the Employee hereby grants the Employer the exclusive, royalty-free, worldwide, perpetual right, with the right to grant sublicenses, to use those Intellectual Property Rights in the broadest sense, which right is hereby accepted by the Employer.

4.	Insofar as any personal rights vest in the Employee and insofar as permitted by law, the Employee hereby waives all of his personal rights, including but not limited to the right to have one’s name stated pursuant to the Dutch Copyright Act of 1912 (Auteurswet 1912).
5.	The Employee will promptly disclose to the Employer all works, inventions, results, information and Intellectual Property Rights that ensue from his work under this employment contract and/or that are in any way relevant to the creation, protection and/or enforcement of the Intellectual Property Rights.
6.	During the term of this employment contract and after its termination, the Employee will perform all acts that are necessary to register the Intellectual Property Rights in the Employer’s name with any competent authority in the world.
7.	If the Employee is unable to provide the cooperation referred to in paragraphs 2 and 6 for any reason, he hereby grants the Employer an irrevocable power of attorney to represent him with respect to the assignment and registration of the Intellectual Property Rights referred to in paragraphs 2 and 6.
8.	The Employee acknowledges that his salary includes reasonable compensation for the loss of intellectual and industrial property rights.
9.	The Employee may not use the Intellectual Property Rights or the ensuing results for any purpose other than the performance of his work under this employment contract.
10.	The Employee guarantees that the results of his work and/or activities under this employment contract do not infringe upon any rights (including intellectual property rights) of third parties and that they are not unlawful vis-à-vis third parties in any other manner. The Employee will indemnify the Employer against any and all damage and costs ensuing from claims brought by third parties in that respect.
11.	The Employer will not be liable for damage incurred by the Employee in connection with the Employer’s use of inventions, designs, works, programs, documents, data, names, signs, know-how, materials or other achievements that the Employee discloses to the Employer during the term of this employment contract and that (i) fall outside of the scope of this employment contract or (ii) were created or developed prior to the conclusion of this employment contract.
12.	If this employment contract is terminated, the Articles governing the Intellectual Property Rights set out above will remain in effect after the termination of the employment contract.

Article 24: Residence

1.	Employee will be provided with a monthly allowance of EUR 2,500 net to apply towards an apartment near the headquarter to ease the burden of the Employee’s commute for as long as his family will continue to maintain its current residence. Employer will provide reimbursement of telephone and Internet connection for the Employee’s home.
2.	Employer will provide relocation at a later date than the effective date for Employee and his family should Employee wish to relocate in view of his responsibilities.

Article 25: Schooling Costs

Upon submission of the original invoices, Employer will pay the schooling costs for the education of Employee’s children education, currently estimated at EUR 45,000 per annum. Any unused amounts hereof can be applied by Employee for other costs incurred in relation to his professional activities.

Article 26: Legal Fees

Employer will pay, upon submission of the relevant invoice to Employer, the costs for legal and tax advice incurred by Employee in connection with his Employment Agreement up to EUR 10,000 excluding VAT.

Article 27: Legal Impediment

The Employee expressly declares that there is no legal or contractual impediment (other than his non compete covenant with his current employer) to his entering into the Employer’s service on the date set forth in article 1 nor to his performing the agreed upon activities.

Article 28: Nullity

Provisions of this agreement which would be held contrary to mandatory law shall be deemed separable and shall not affect the enforceability of any other provisions of this agreement.

Article 29: Previous agreements

This agreement sets forth the entire agreement between the parties and annuls and replaces to the extent contradictory all other contracts or agreements which may previously have been made or entered into.

Article 30: Applicable Law

The laws of the Netherlands will govern this employment contract and the appendices.

Drawn up in triplicate originals and signed in Amsterdam on 23/02/2007.

/s/ Regis Mulot	/s/ Armin Broger
Levi Strauss Nederland B.V.	Mr. Armin Broger
Regis Mulot
VP HR Europe

ADDENDUM TO THE EMPLOYMENT CONTRACT

THE UNDERSIGNED:

1.	Levi Strauss Nederland B.V., a private limited liability company having its registered office at Pilotenstraat 45 in (1059 CH) Amsterdam, The Netherlands, for the purposes hereof lawfully represented by Mr. Regis Mulot,
2.	Levis Strauss & Co Europe SCA/COM.VA, a limited liability company having its registered office at Avenue Arnaud Fraiteur, 15-23 in (1050) Brussels, Belgium, for the purposes hereof lawfully represented by Mr. Regis Mulot, VP HR Europe, referred to below as the ‘Employers’;

and

3. Mr. Armin Broger, an Italian national, residing at Herman Gorterstraat 7 in Amsterdam, the Netherlands, referred to below as the ‘Employee’;

WHEREAS

• Levi Strauss Nederland B.V. and the Employee entered into an employment contract for indefinite period for the position of President of Levi Strauss Europe, a copy of which is attached to this Addendum (referred to below as the ‘Employment Contract’);

• The Employee will carry out his duties in this position not only for Levi Strauss Nederland B.V. but also for Levis Strauss & Co Europe SCA/COM.VA;

• It is expected that the Employee will be about 35% of his working time at the offices of Levis Strauss & Co Europe SCA/COM.VA located in Brussels.

HAVE AGREED TO AMEND THE EMPLOYMENT CONTRACT AS FOLLOWS

Article 1

The Employee shall be jointly employed by the Employers, under the terms and conditions of the Employment Contract as amended by this Addendum. The Employers shall be jointly and severally liable to comply with all obligations resulting from the Employment Contract towards the Employee. The Employee shall be liable to comply with all obligations resulting from the Employment Contract towards both Employers.

Article 2

Article 6.1 of the Employment Contract is amended as follows: “Considering the working time spent at the offices located in Brussels, the Employee will be on the payroll of Levi Strauss Nederland B. V. for 65% of the agreed salary and on the payroll of Levis Strauss & Co Europe SCA/COM. VA for 35% of the agreed salary. The proportion of salary payment between the Employers may be adapted from time to time, depending on the duties performed on the territory of the different countries. The Employee’s salary and benefits will be administrated according to the policies, plans and programs of the Employers ”.

Article 3

According to Article 14, 2, b of the (EC) Regulation nr 1408/71, the Employee will be subject to the Dutch social security system as long as he keeps his residence in the Netherlands. The Employee will inform the Employers as soon as possible if he intends to move his residence to another country.

Article 4

All other provisions of the Employment Contract remain unchanged.

Drawn up in triplicate originals and signed in Amsterdam on 23/02/2007.

/s/ Regis Mulot	/s/ Armin Broger
Levi Strauss Nederland B.V.	Armin Broger
Regis Mulot

/s/ Regis Mulot Levis Strauss & Co Europe SCA/COM.VA

Regis Mulot

VP HR Europe

Attachment: Employment Contract (13 pages)

Incentive Benefits Agreement

     This Incentive Benefits Agreement (the “Agreement”) dated as of 23 February 2007 (the “Effective Date”) is by and among Armin Broger (the “Employee”), Levi Strauss Nederland B.V. (the “Employer”) and Levi Strauss & Co. (“LS&Co.”).

     Whereas, the Employee and the Employer have entered into an employment contract on 26 February 2007 (the “Employment Contract”) pursuant to which, among other things, the Employee will participate in the Levi Strauss & Co. Senior Executive Long-Term Incentive Plan (the “SELTIP”), a copy of which was attached to the Employment Contract;

     Whereas, in July 2006, LS&Co. adopted, and its stockholders approved, the Levi Strauss &Co. 2006 Equity Incentive Plan (the “EIP”);

     Whereas, the EIP, upon its adoption and approval, is the program under which senior executive officers of LS&Co., the Employer and other affiliates of LS&Co. will receive incentive compensation whose value is based on the fair market value of LS&Co. common stock; and

     Whereas, Article 5, Section 7 of the Employment Contract contemplated that a grant to the Employee of stock appreciation rights under the SELTIP might not be made and that a grant of stock appreciation rights under the EIP would be made instead.

     Now, Therefore, the Employee, the Employer and LS&Co. agree as follows:

     1. Grant of Stock Appreciation Rights under EIP. Employee shall not be granted stock appreciation rights under the SELTIP and instead, as contemplated by the Employment Contract, shall be granted, pursuant to the EIP, an award of stock appreciation rights targeted to have a value equal to $1.5 Million U.S. Dollars, subject to all applicable taxation. The target value of such award will be determined by the Board, in its sole discretion, in accordance with the guidelines previously used by the Board in making awards under the EIP. A copy of the EIP, the form of Stock Appreciation Right Grant Notice that will be used for such grant and a related Stock Appreciation Right Agreement are attached to this Agreement as Exhibit A.

     2. Modification of References. All references in the Employment Contract to the SELTIP and SELTIP units (in particular, those appearing in Article 5, Sections 3, 5, 6 and 7; Article 6, Section 2; and Article 7, Section 6) shall be deemed to be references to the EIP and stock appreciation rights thereunder, respectively.

     3. Choice of Law. The laws of the Netherlands shall govern the construction, validity and interpretation of this Agreement, without regard to that jurisdiction’s conflict of law rules.

     4. Entire Agreement. This Agreement, the Employment Contract, the EIP, the Stock Appreciation Right Grant Notice and the Stock Appreciation Right Agreement

1.

represent the entire agreement among the Employee, the Employer and LS&Co. with respect to the grant of stock appreciation rights to the Employee pursuant to the EIP and the absence of a grant of stock appreciation rights to the Employee pursuant to the SELTIP.

     This Agreement has been executed by the parties hereto as of the Effective Date.

	/s/ Armin Broger
Armin Broger
Levi Strauss Nederland B.V.
By:	/s/ Regis Mulot
Its: Director
Levi Strauss & Co.
By:	/s/ R. John Anderson
Its: President and Chief Executive Officer

2.

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, R. John Anderson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Levi Strauss & Co.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238; 34-47986];

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  R. John Anderson

R. John Anderson

President and Chief Executive Officer

Date: April 10, 2007

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT

I, Hans Ploos van Amstel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Levi Strauss & Co.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238; 34-47986];

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  Hans Ploos van Amstel

Hans Ploos van Amstel

Senior Vice President and Chief Financial Officer

Date: April 10, 2007

EX-32

Exhibit 32

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This certification is not to be deemed filed pursuant to the Securities Exchange Act of 1934, as amended, and does not constitute a part of the Quarterly Report of Levi Strauss & Co., a Delaware corporation (the “Company”), on Form 10-Q for the period ended February 25, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”).

In connection with the Report, each of the undersigned officers of the Company does hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

/s/  R. John Anderson

R. John Anderson

President

and Chief Executive Officer

April 10, 2007

/s/  Hans Ploos Van Amstel

Hans Ploos Van Amstel

Senior Vice President

and Chief Financial Officer

April 10, 2007