Levi Strauss & Co. - 10-Q quarterly report FY

LEVI STRAUSS & CO. AND SUBSIDIARIES

INDEX TOFORM 10-Q

FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2009


			Page
			Number

PART I — FINANCIAL INFORMATION
	Item 1.	Consolidated Financial Statements (unaudited):
		Consolidated Balance Sheets as of August 30, 2009, and November 30, 2008		3
		Consolidated Statements of Income for the Three and Nine Months Ended August 30, 2009, and August 24, 2008		4
		Consolidated Statements of Cash Flows for the Nine Months Ended August 30, 2009, and August 24, 2008		5
		Notes to Consolidated Financial Statements		6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		31
	Item 4T.	Controls and Procedures		31

PART II — OTHER INFORMATION
	Item 1.	Legal Proceedings		32
	Item 1A.	Risk Factors		32
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		32
	Item 3.	Defaults Upon Senior Securities		33
	Item 4.	Submission of Matters to a Vote of Security Holders		33
	Item 5.	Other Information		33
	Item 6.	Exhibits		33
SIGNATURE				34
EX-31.1
EX-31.2
EX-32

2

PART I — FINANCIAL INFORMATION


Item 1.	CONSOLIDATED FINANCIAL STATEMENTS

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	August 30,			November 30,
	2009			2008
	(Dollars in thousands)

ASSETS
Current Assets:
Cash and cash equivalents	$	171,736		$	210,812
Restricted cash		3,047			2,664
Trade receivables, net of allowance for doubtful accounts of $20,933 and $16,886		501,800			546,474
Inventories:
Raw materials		7,119			15,895
Work-in-process		8,615			8,867
Finished goods		511,151			517,912

Total inventories		526,885			542,674
Deferred tax assets, net		115,872			114,123
Other current assets		109,046			88,527

Total current assets		1,428,386			1,505,274
Property, plant and equipment, net of accumulated depreciation of $652,278 and $596,967		416,725			411,908
Goodwill		244,516			204,663
Other intangible assets, net		105,537			42,774
Non-current deferred tax assets, net		540,392			526,069
Other assets		88,506			86,187

Total assets	$	2,824,062		$	2,776,875


LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Short-term borrowings	$	34,578		$	20,339
Current maturities of long-term debt		17,719			70,875
Current maturities of capital leases		1,768			1,623
Accounts payable		195,370			203,207
Restructuring liabilities		2,109			2,428
Other accrued liabilities		235,748			251,720
Accrued salaries, wages and employee benefits		168,706			194,289
Accrued interest payable		35,762			29,240
Accrued income taxes		16,235			17,909

Total current liabilities		707,995			791,630
Long-term debt		1,801,700			1,761,993
Long-term capital leases		5,765			6,183
Postretirement medical benefits		124,234			130,223
Pension liability		252,875			240,701
Long-term employee related benefits		100,057			87,704
Long-term income tax liabilities		55,819			42,794
Other long-term liabilities		44,784			46,590
Minority interest and related liability		37,793			17,982

Total liabilities		3,131,022			3,125,800

Commitments and contingencies (Note 8)
Temporary equity		1,146			592

Stockholders’ Deficit:
Common stock — $.01 par value; 270,000,000 shares authorized; 37,284,741 shares issued and outstanding		373			373
Additional paid-in capital		38,242			53,057
Accumulated deficit		(190,387	)		(275,032	)
Accumulated other comprehensive loss		(156,334	)		(127,915	)

Total stockholders’ deficit		(308,106	)		(349,517	)

Total liabilities, temporary equity and stockholders’ deficit	$	2,824,062		$	2,776,875

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

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LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended						Nine Months Ended
	August 30,			August 24,			August 30,			August 24,
	2009			2008			2009			2008
	(Dollars in thousands)
	(Unaudited)

Net sales	$	1,021,829		$	1,088,384		$	2,839,602		$	3,064,394
Licensing revenue		18,571			22,409			56,780			65,604

Net revenues		1,040,400			1,110,793			2,896,382			3,129,998
Cost of goods sold		545,985			578,294			1,541,469			1,614,901

Gross profit		494,415			532,499			1,354,913			1,515,097
Selling, general and administrative expenses		396,041			388,606			1,094,390			1,132,899

Operating income		98,374			143,893			260,523			382,198
Interest expense		(37,931	)		(37,305	)		(112,648	)		(119,055	)
Other income (expense), net		(6,393	)		14,317			(23,801	)		8,600

Income before income taxes		54,050			120,905			124,074			271,743
Income tax expense		13,347			51,740			39,430			104,770

Net income	$	40,703		$	69,165		$	84,644		$	166,973

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

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LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended
	August 30,			August 24,
	2009			2008
	(Dollars in thousands) (Unaudited)

Cash Flows from Operating Activities:
Net income	$	84,644		$	166,973
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		58,379			56,925
Asset impairments		1,720			1,840
Loss on disposal of property, plant and equipment		171			107
Unrealized foreign exchange losses (gains)		8,716			(9,715	)
Realized loss on settlement of forward foreign exchange contracts not designated for hedge accounting		29,776			5,478
Employee benefit plans’ amortization from accumulated other comprehensive loss		(14,891	)		(26,195	)
Employee benefit plans’ curtailment gain, net		(2,108	)		(3,946	)
Write-off of unamortized costs associated with early extinguishment of debt		—			394
Amortization of deferred debt issuance costs		3,225			2,966
Stock-based compensation		5,739			5,219
Allowance for doubtful accounts		6,721			8,879
Change in operating assets and liabilities (excluding assets and liabilities acquired):
Trade receivables		67,088			55,163
Inventories		31,345			(102,451	)
Other current assets		(4,265	)		(40,635	)
Other non-current assets		7,636			(5,884	)
Accounts payable and other accrued liabilities		(81,077	)		40,712
Income tax liabilities		(8,280	)		54,505
Restructuring liabilities		(1,675	)		(3,936	)
Accrued salaries, wages and employee benefits		(38,172	)		(36,838	)
Long-term employee related benefits		23,491			(18,242	)
Other long-term liabilities		(5,071	)		721
Other, net		784			(1,284	)

Net cash provided by operating activities		173,896			150,756

Cash Flows from Investing Activities:
Purchases of property, plant and equipment		(46,016	)		(57,415	)
Proceeds from sale of property, plant and equipment		905			907
Payments on settlement of forward foreign exchange contracts not designated for hedge accounting		(29,776	)		(5,478	)
Acquisitions, net of cash acquired		(80,921	)		(649	)

Net cash used for investing activities		(155,808	)		(62,635	)

Cash Flows from Financing Activities:
Repayments of long-term debt and capital leases		(54,632	)		(77,002	)
Short-term borrowings, net		8,224			10,784
Debt issuance costs		—			(395	)
Restricted cash		(81	)		(1,172	)
Dividends to minority interest shareholders of Levi Strauss Japan K.K.		(978	)		(1,114	)
Dividend to stockholders		(20,001	)		(49,953	)

Net cash used for financing activities		(67,468	)		(118,852	)

Effect of exchange rate changes on cash and cash equivalents		10,304			(431	)

Net decrease in cash and cash equivalents		(39,076	)		(31,162	)
Beginning cash and cash equivalents		210,812			155,914

Ending cash and cash equivalents	$	171,736		$	124,752

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	92,439		$	110,110
Income taxes		41,544			45,575

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

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LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2009


NOTE 1:	SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

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

Basis of Presentation and Principles of Consolidation

The unaudited consolidated financial statements of the Company and its wholly-owned and majority-owned foreign and domestic subsidiaries are prepared in conformity with generally accepted accounting principles in the United States (“U.S.”) 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 30, 2008, included in the Annual Report onForm 10-Kfiled by the Company with the Securities and Exchange Commission (“SEC”) on February 10, 2009.

The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated. Management believes the disclosures are adequate to make the information presented herein not misleading. The results of operations for the three and nine months ended August 30, 2009, may not be indicative of the results to be expected for any other interim period or the year ending November 29, 2009.

The Company’s fiscal year ends on the last Sunday of November in each year, although the fiscal years of certain foreign subsidiaries are fixed at November 30 due to local statutory requirements. Apart from these subsidiaries, each quarter of both fiscal years 2009 and 2008 consists of 13 weeks, with the exception of the fourth quarter of 2008, which consisted of 14 weeks. All references to years relate to fiscal years rather than calendar years.

Subsequent events have been evaluated through the date these financial statements were issued, October 8, 2009.

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 the Company’s management. Management evaluates its estimates and assumptions on an ongoing basis and may employ outside experts to assist in its evaluations. Changes in such estimates, based on more accurate future information, or different assumptions or conditions, may affect amounts reported in future periods.

Recently Issued Accounting Standards

There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s consolidated financial statements, from those disclosed in the

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LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2009

Company’s 2008 Annual Report onForm 10-K,except for the following, which have been grouped by their required effective dates for the Company:

Fourth Quarter of 2009


	•	In June 2009, the FASB issued SFAS No. 168,“The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162”(“SFAS 168”). SFAS 168 establishes the FASB Standards Accounting Codification (“Codification”) as the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied to nongovernmental entities and rules and interpretive releases of the SEC as authoritative GAAP for SEC registrants. The Codification will supersede all the existing non-SEC accounting and reporting standards upon its effective date and subsequently, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. SFAS 168 also replaces FASB Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles” given that once in effect, the Codification will carry the same level of authority. The Company does not anticipate that the adoption of this statement will have a material impact on its consolidated financial statement footnote disclosures.

	•	In August 2009, the FASB issued Accounting Standards UpdateNo. 2009-5,“Measuring Liabilities at Fair Value”(“ASU2009-05”).ASU 2009-05amends Accounting Standards Codification Topic 820,“Fair Value Measurements.” Specifically, ASU2009-05provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded as assetsand/or2) a valuation technique that is consistent with the principles of Topic 820 of the Accounting Standards Codification (e.g. an income approach or market approach). ASU2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. The Company does not anticipate that the adoption of this statement will have a material impact on its consolidated financial statements.

First Quarter of 2010


	•	In April 2009, the FASB issued FASB Staff Position No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies”(“FSP 141(R)-1”), to amend SFAS 141 (revised 2007) “Business Combinations.”FSP 141(R)-1 addresses the initial recognition, measurement and subsequent accounting for assets and liabilities arising from contingencies in a business combination, and requires that such assets acquired or liabilities assumed be initially recognized at fair value at the acquisition date if fair value can be determined during the measurement period. If the acquisition-date fair value cannot be determined, the asset acquired or liability assumed arising from a contingency is recognized only if certain criteria are met. This FSP also requires that a systematic and rational basis for subsequently measuring and accounting for the assets or liabilities be developed depending on their nature. The Company does not anticipate that the adoption of this statement will have a material impact on its consolidated financial statements, absent any material business combinations.

	•	In June 2009, the FASB issued SFAS No. 166,“Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 seeks to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. Specifically, SFAS 166 eliminates the concept of a qualifying special-purpose entity, creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies other

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LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2009


		sale-accountingcriteria, and changes the initial measurement of a transferor’s interest in transferred financial assets. The Company does not anticipate that the adoption of this statement will have a material impact on its consolidated financial statements.


	•	In June 2009, the FASB issued SFAS No. 167,“Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”). SFAS 167 amends FASB Interpretation No. 46(R),“Variable Interest Entities” for determining whether an entity is a variable interest entity (“VIE”) and requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE. Under SFAS 167, an enterprise has a controlling financial interest when it has a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. SFAS 167 also requires an enterprise to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining whether it has power to direct the activities of the VIE that most significantly impact the entity’s economic performance. SFAS 167 also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE, requires enhanced disclosures and eliminates the scope exclusion for qualifying special-purpose entities. The Company is currently evaluating the impact the adoption of SFAS 167 will have on its consolidated financial statements.

First Quarter of 2011


	•	In September 2009, the Emerging Issues Task Force (EITF) reached final consensus on EITF IssueNo. 08-1,“Revenue Arrangements with Multiple Deliverables,”(“EITF 08-1”).EITF 08-1addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting, and how the arrangement consideration should be allocated among the separate units of accounting.EITF 08-1may be applied retrospectively or prospectively for new or materially modified arrangements and early adoption is permitted. The Company does not anticipate that the adoption of this statement will have a material impact on its consolidated financial statements.


NOTE 2:	BUSINESS ACQUISITIONS

The impact of the Company’s acquisitions during 2009 on the Company’s results of operations, as if the acquisitions had been completed as of the beginning of the periods presented, is not significant.

The changes in the carrying amount of goodwill by business segment for the nine months ended August 30, 2009, were as follows:


					Asia
	Americas		Europe		Pacific		Total
	(Dollars in thousands)

Balance, November 30, 2008	$	199,905	$	3,038	$	1,720	$	204,663
Additions		7,513		28,394		—		35,907
Foreign currency fluctuation		4		3,461		481		3,946

Balance, August 30, 2009	$	207,422	$	34,893	$	2,201	$	244,516

The increase in goodwill in Europe primarily resulted from the Company’s December 2008 acquisition of a 51% ownership interest in a business venture, which distributes and markets Levi’s^®products within the Russian Federation, for purchase consideration of approximately $16 million. The Company allocated the purchase price to the fair values of the tangible assets and intangible contractual rights acquired and the liabilities assumed at the acquisition date, including a liability related to a put option held by the third-party minority interest holder, with the

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LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2009

difference of approximately $24 million recorded as goodwill. Cash paid for the acquisition, net of cash acquired, was $3.5 million.

The terms of the purchase agreement provided the third-party with a put option to sell its 49% minority interest in the business venture to the Company during established exercise periods, which were to begin on the fifth anniversary of the date of acquisition, or upon the occurrence of certain other events. The amount payable was to be based on the business venture’s financial performance (as defined in the agreement) during the years preceding the applicable exercise period. In the purchase price allocation, the Company recorded a liability representing the estimated amount payable to the minority interest holder upon exercise of the put option at the commencement of the first exercise period, discounted to its fair value as of the acquisition date, and began accreting this minority interest liability to the estimated future amount payable. This liability is included in “Minority interest and related liability” on the Company’s consolidated balance sheet, and the recorded accretion is included in “Other income (expense), net” in the Company’s consolidated statements of income. The fair value of the minority interest liability was estimated using Level 3 inputs, which are unobservable by the market since they are based on the Company’s own data.

In September 2009, the Company acquired the remaining 49% ownership interest of the business venture within the Russian Federation for purchase consideration of approximately $16 million, resulting in the elimination of the liability related to the put option held by the third-party minority interest holder.

The increase in goodwill in Europe also reflects the Company’s July 1, 2009, acquisition of a former licensee for a base purchase price of $22 million, plus a purchase price adjustment for the acquired net asset value based on the final balance sheet of the acquired business, estimated at $15 million. The Company preliminarily allocated the purchase price to the fair values of the tangible assets, intangible customer lists and contractual rights acquired, and the liabilities assumed at the acquisition date, with the difference of approximately $4 million recorded as goodwill. During the third quarter of 2009, the Company made payments totaling $13 million, net of cash acquired, in partial payment for this acquisition. The liability for the remaining purchase consideration, which is expected to be paid in the fourth quarter of 2009, is included in “Other accrued liabilities” on the Company’s consolidated balance sheet.

The increase in goodwill in the Americas resulted from the Company’s July 13, 2009, acquisition of the operating rights to 73 Levi’s^®and Dockers^®outlet stores from Anchor Blue Retail Group, Inc., who previously operated the stores under a license agreement with the Company. The Company preliminarily allocated the $62 million cost of the acquisition to the fair values of the tangible assets and intangible contractual rights acquired and the liabilities assumed at the acquisition date, with the difference of approximately $7 million recorded as goodwill.

Other intangible assets, net, were as follows:


	August 30, 2009							November 30, 2008
	Gross		Accumulated					Gross		Accumulated
	Carrying Value		Amortization			Total		Carrying Value		Amortization			Total
	(Dollars in thousands)

Unamortized intangible assets:
Trademarks	$	42,771	$	—		$	42,771	$	42,771	$	—		$	42,771
Amortized intangible assets:
Acquired contractual rights		46,466		(2,128	)		44,338		142		(139	)		3
Customer lists		19,364		(936	)		18,428		—		—			—

	$	108,601	$	(3,064	)	$	105,537	$	42,913	$	(139	)	$	42,774

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LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2009

The estimated useful lives of the Company’s amortized intangible assets range from two to eight years. For the three and nine months ended August 30, 2009, amortization of these intangible assets was $2.9 million and $3.1 million, respectively. The estimated amortization of these intangible assets, which is included in “Selling, general and administrative expenses” in the Company’s consolidated statements of income, for the next five fiscal years is approximately $16 million in 2010, $13 million in 2011, $12 million in 2012, $11 million in 2013, and $3 million in 2014.


NOTE 3:	FAIR VALUE OF FINANCIAL INSTRUMENTS

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


	August 30, 2009						November 30, 2008
			Fair Value Estimated Using						Fair Value Estimated Using
			Level 1		Level 2				Level		Level 2
	Fair Value		Inputs⁽¹⁾		Inputs⁽²⁾		Fair Value		Inputs⁽¹⁾		Inputs⁽²⁾
	(Dollars in thousands)

Financial assets carried at fair value
Rabbi trust assets	$	16,224	$	16,224	$	—	$	13,465	$	13,465	$	—
Forward foreign exchange contracts, net		193		—		193		10,211		—		10,211

Total financial assets carried at fair value	$	16,417	$	16,224	$	193	$	23,676	$	13,465	$	10,211

Financial liabilities carried at fair value
Forward foreign exchange contracts, net	$	24,055	$	—	$	24,055	$	5,225	$	—	$	5,225
Interest rate swap, net		2,024		—		2,024		1,454		—		1,454

Total financial liabilities carried at fair value	$	26,079	$	—	$	26,079	$	6,679	$	—	$	6,679


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

(2)		Fair values estimated using Level 2 inputs are inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly and include among other things, quoted prices for similar assets or liabilities in markets that are active or inactive as well as inputs other than quoted prices that are observable. For forward foreign exchange contracts, inputs include foreign currency exchange and interest rates and credit default swap prices. For the interest rate swap, for which the Company’s fair value estimate incorporates discounted future cash flows using a forward curve mid-market pricing convention, inputs include LIBOR forward rates and credit default swap prices.

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LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2009

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


	August 30, 2009				November 30, 2008
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value⁽¹⁾		Value		Fair Value⁽¹⁾
	(Dollars in thousands)

Financial liabilities carried at adjusted historical cost
Senior revolving credit facility	$	125,998	$	119,069	$	179,992	$	149,541
U.S. dollar notes		814,799		828,579		818,029		477,583
Euro senior notes		373,981		359,538		329,169		151,900
Senior term loan		323,510		292,801		323,589		204,069
Yen-denominated Eurobonds		215,820		179,646		210,621		86,788
Short-term and other borrowings		35,326		35,326		20,943		20,943

Total financial liabilities carried at adjusted historical cost	$	1,889,434	$	1,814,959	$	1,882,343	$	1,090,824


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

As of November 30, 2008, the decline in fair value of the Company’s long-term debt as compared to its carrying value is primarily due to changes in overall capital market conditions as demonstrated by lower liquidity in the markets, increases in credit spread, and decreases in bank lending activities, which generally resulted in investors moving from high yield securities to lower yield investment grade or U.S. Treasury securities in efforts to preserve capital.

The overall increase in fair value of the Company’s long-term debt as of August 30, 2009, as compared to November 30, 2008, is primarily due to improvements in the capital markets during 2009.


NOTE 4:	DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are foreign currency risk and interest rate risk. Forward exchange contracts on various currencies are entered into to manage foreign currency exposures associated with certain product sourcing activities, some intercompany sales, foreign subsidiaries’ royalty payments, interest payments, earnings repatriations, net investment in foreign operations and funding activities. The Company designates its outstanding Euro senior notes and a portion of its outstanding Yen-denominated Eurobonds as net investment hedges to manage foreign currency exposures in its foreign operations. Interest rate swaps are entered into to manage interest rate risk associated with the Company’s variable-rate borrowings. The Company has not applied hedge accounting to its derivative transactions, except for certain net investment hedging activities.

The Company’s foreign currency management objective is to mitigate the potential impact of currency fluctuations on the value of its U.S. Dollar cash flows and to reduce the variability of certain cash flows at the subsidiary level. The Company actively manages certain forecasted foreign currency exposures and uses a centralized currency management operation to take advantage of potential opportunities to naturally offset foreign currency exposures against each other. The Company manages the currency risk associated with certain forecasted cash flows periodically and only partially manages the timing mismatch between its forecasted exposures and the related financial instruments used to mitigate the currency risk. As of August 30, 2009, the Company had forward foreign exchange contracts to buy $437.3 million and to sell $180.0 million against various foreign currencies. These contracts are at various exchange rates and expire at various dates through August 2010.

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LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2009

The Company adopted SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133,” at the beginning of the first quarter of 2009, and has included here the expanded disclosures required by that statement.

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


	August 30, 2009								November 30, 2008
	Assets		(Liabilities)						Assets		(Liabilities)
						Derivative								Derivative
	Carrying		Carrying			Net Carrying			Carrying		Carrying			Net Carrying
	Value		Value			Value			Value		Value			Value
	(Dollars in thousands)

Derivatives not designated as hedging instruments
Forward foreign exchange contracts⁽¹⁾	$	320	$	(127	)	$	193		$	13,522	$	(3,311	)	$	10,211
Forward foreign exchange contracts⁽²⁾		2,015		(26,070	)		(24,055	)		2,766		(7,991	)		(5,225	)
Interest rate contracts⁽²⁾		—		(2,024	)		(2,024	)		—		(1,454	)		(1,454	)

Total derivatives not designated as hedging instruments	$	2,335	$	(28,221	)				$	16,288	$	(12,756	)

Non-derivatives designated as hedging instruments
Euro senior notes	$	—	$	(361,066	)				$	—	$	(324,520	)
Yen-denominated Eurobonds⁽³⁾		—		(85,116	)					—		(83,954	)

Total non-derivatives designated as hedging instruments	$	—	$	(446,182	)				$	—	$	(408,474	)


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

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

(3)		Represents the portion of the Yen-denominated Eurobonds that have been designated as a net investment hedge.

12

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2009

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


							Gain or (Loss)
	Gain or (Loss)						Recognized in Other Income (Expense), net
	Recognized in AOCI						(Ineffective Portion and Amount
	(Effective Portion)						Excluded from Effectiveness Testing)
	As of			As of			Three Months Ended					Nine Months Ended
	August 30, 2009			November 30, 2008			August 30, 2009			August 24, 2008		August 30, 2009			August 24, 2008
	(Dollars in thousands)

Forward foreign exchange contracts⁽¹⁾	$	4,637		$	4,637		$	—		$	—	$	—		$	—
Euro senior notes		(47,845	)		(10,870	)		—			—		—			—
Yen-denominated Eurobonds		(16,053	)		(14,892	)		(3,160	)		5,420		(1,742	)		1,181
Cumulative income taxes		23,716			8,828

Total	$	(35,545	)	$	(12,297	)


(1)		Realized gains on settled foreign exchange derivatives designated as net investment hedges.

The table below provides data about the amount of gains and losses recognized in income on derivative instruments not designated as hedging instruments:


	Gain or (Loss) During
	Three Months Ended					Nine Months Ended
	August 30,			August 24,		August 30,			August 24,
	2009			2008		2009			2008
	(Dollars in thousands)

Forward foreign exchange contracts⁽¹⁾:
Realized	$	(11,629	)	$	2,718	$	(29,776	)	$	(5,478	)
Unrealized		(255	)		16,960		(28,858	)		13,635

Total	$	(11,884	)	$	19,678	$	(58,634	)	$	8,157


(1)		Recognized in “Other income (expense), net” in the Company’s consolidated statements of income.

13

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2009


NOTE 5:	DEBT


	August 30,			November 30,
	2009			2008
	(Dollars in thousands)

Long-term debt
Secured:
Senior revolving credit facility	$	125,969		$	179,125
Notes payable, at various rates		126			99

Total secured		126,095			179,224

Unsecured:
8.625% Euro senior notes due 2013		361,066			324,520
Senior term loan due 2014		323,260			323,028
9.75% senior notes due 2015		446,210			446,210
8.875% senior notes due 2016		350,000			350,000
4.25% Yen-denominated Eurobonds due 2016		212,788			209,886

Total unsecured		1,693,324			1,653,644
Less: current maturities		(17,719	)		(70,875	)

Total long-term debt	$	1,801,700		$	1,761,993

Short-term debt
Short-term borrowings	$	34,578		$	20,339
Current maturities of long-term debt		17,719			70,875

Total short-term debt	$	52,297		$	91,214

Total long-term and short-term debt	$	1,853,997		$	1,853,207

Short-term Credit Lines and Standby Letters of Credit

As of August 30, 2009, the Company’s total availability of $294.1 million under its senior secured revolving credit facility was reduced by $79.7 million of letters of credit and other credit usage under the facility, yielding a net availability of $214.4 million. Included in the $79.7 million of letters of credit on August 30, 2009, were $12.2 million of other credit usage and $67.5 million of stand-by letters of credit with various international banks, of which $28.1 million serve as guarantees by the creditor banks to cover U.S. workers compensation claims and customs bonds. The Company pays fees on the standby letters of credit, and borrowings against the letters of credit are subject to interest at various rates.

Interest Rates on Borrowings

The Company’s weighted-average interest rate on average borrowings outstanding during the three and nine months ended August 30, 2009, was 7.47% and 7.49%, respectively, compared to 7.90% and 8.03% in the same periods of 2008.

14

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2009


NOTE 6:	EMPLOYEE BENEFIT PLANS

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


	Pension Benefits						Postretirement Benefits
	Three Months Ended						Three Months Ended
	August 30,			August 24,			August 30,			August 24,
	2009			2008			2009			2008
	(Dollars in thousands)

Net periodic benefit cost (income):
Service cost	$	1,343		$	1,619		$	107		$	144
Interest cost		15,505			15,223			2,761			2,646
Expected return on plan assets⁽¹⁾		(10,637	)		(15,461	)		—			—
Amortization of prior service cost (benefit)		198			210			(9,926	)		(10,157	)
Amortization of transition asset		—			60			—			—
Amortization of actuarial loss⁽¹⁾		4,292			183			434			972
Curtailment gain		—			(121	)		(80	)		—
Net settlement loss		14			—			—			—

Net periodic benefit cost (income)		10,715			1,713			(6,704	)		(6,395	)

Changes in accumulated other comprehensive income (loss):
Actuarial loss		—			—			—			—
Amortization of prior service (cost) benefit		(198	)		(210	)		9,926			10,157
Amortization of transition asset		—			(60	)		—			—
Amortization of actuarial loss		(4,292	)		(183	)		(434	)		(972	)
Curtailment gain		—			85			80			—

Total recognized in accumulated other comprehensive income (loss)		(4,490	)		(368	)		9,572			9,185

Total recognized in net periodic benefit cost (income) and accumulated other comprehensive income (loss)	$	6,225		$	1,345		$	2,868		$	2,790

15

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2009


	Pension Benefits						Postretirement Benefits
	Nine Months Ended						Nine Months Ended
	August 30,			August 24,			August 30,			August 24,
	2009			2008			2009			2008
	(Dollars in thousands)

Net periodic benefit cost (income):
Service cost	$	3,874		$	4,998		$	321		$	434
Interest cost		46,156			45,823			8,282			7,936
Expected return on plan assets⁽¹⁾		(31,684	)		(46,592	)		—			—
Amortization of prior service cost (benefit)		595			626			(29,775	)		(30,468	)
Amortization of transition asset		—			178			—			—
Amortization of actuarial loss⁽¹⁾		12,873			554			1,301			2,914
Curtailment (gain) loss⁽²⁾		(59	)		276			(2,049	)		(4,222	)
Net settlement loss (gain)		129			(230	)		—			—

Net periodic benefit cost (income)		31,884			5,633			(21,920	)		(23,406	)

Changes in accumulated other comprehensive income (loss):
Actuarial loss		—			287			—			—
Amortization of prior service (cost) benefit		(595	)		(626	)		29,775			30,468
Amortization of transition asset		—			(178	)		—			—
Amortization of actuarial loss		(12,873	)		(554	)		(1,301	)		(2,914	)
Curtailment gain		27			618			2,049			4,222
Net settlement (loss) gain		(115	)		230			—			—

Total recognized in accumulated other comprehensive income (loss)		(13,556	)		(223	)		30,523			31,776

Total recognized in net periodic benefit cost (income) and accumulated other comprehensive income (loss)	$	18,328		$	5,410		$	8,603		$	8,370


(1)		For the three and nine months ended August 30, 2009, as compared to the same prior-year periods, both the lower “Expected return on plan assets” and the higher “Amortization of actuarial loss” resulted from the impact of the substantial decline in the fair value of the Company’s pension plan assets as of November 30, 2008.

(2)		The postretirement benefit curtailment gain of $4.2 million for the nine months ended August 24, 2008, relates to the impact of voluntary terminations in the period resulting from the Company’s 2007 labor agreement with the union that represents many of its distribution-related employees in North America.

16

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2009


NOTE 7:	RESTRUCTURING LIABILITIES

The following describes the reorganization initiatives, including facility closures and organizational changes, associated with the Company’s restructuring liabilities as of August 30, 2009. In the table below, “Severance and employee benefits” relates to items such as severance packages, out-placement services and career counseling for employees affected by the closures and other reorganization initiatives. “Other restructuring costs” primarily relates to lease loss liability and facility closure costs. “Asset impairment” relates to the write-down of assets to their estimated fair value. “Charges” represents 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” includes revisions of estimates related to severance, employee benefits and other restructuring costs.

For the three and nine months ended August 30, 2009, the Company recognized restructuring charges, net, of $1.2 million and $4.9 million, respectively, compared to $3.3 million and $5.7 million for the same periods in 2008. These charges were recorded in “Selling, general and administrative expenses” in the Company’s consolidated statements of income. The following table summarizes the restructuring activity for the nine months ended August 30, 2009, and the related restructuring liabilities balance as of November 30, 2008, and August 30, 2009:


	2009 Restructuring Activities
	Liabilities										Liabilities
	November 30,										August 30,
	2008		Charges		Utilization			Adjustments			2009
	(Dollars in thousands)

2009 reorganization initiatives:⁽¹⁾
Severance and employee benefits	$	—	$	3,236	$	(2,868	)	$	(27	)	$	341
Other restructuring costs				150		(150	)		—			—
Asset impairment		—		1,219		(1,219	)		—			—
Prior reorganization initiatives:⁽²⁾
Severance and employee benefits		1,105		—		(800	)		(42	)		263
Other restructuring costs		4,782		338		(1,245	)		70			3,945

Total	$	5,887	$	4,943	$	(6,282	)	$	1		$	4,549

Current portion	$	2,428									$	2,109
Long-term portion		3,459										2,440

Total	$	5,887									$	4,549


(1)		In the first quarter of 2009, the Company decided to close its manufacturing facility in Hungary. This closure will result in the elimination of the jobs of approximately 549 employees through the fourth quarter of 2009. Charges in 2009 include estimated severance costs and an asset impairment charge reflecting the write-down of building, land and some machinery and equipment to their estimated fair values. The Company expects to incur additional restructuring charges related to this initiative of approximately $1.6 million, principally related to additional facility closure costs, which will be recorded as they are incurred.

(2)		Prior reorganization initiatives include organizational changes and distribution center closures in2003-2008,primarily in Europe and the Americas. The restructuring liability at August 30, 2009, of $4.2 million, primarily consists of lease loss liabilities. The Company does not expect to incur significant future additional restructuring charges related to these prior reorganization initiatives.

17

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2009


NOTE 8:	COMMITMENTS AND CONTINGENCIES

Operating Lease Commitments

As of August 30, 2009, there have been no material changes in the Company’s operating lease commitments from those disclosed in the Company’s 2008 Annual Report onForm 10-Kother than as set forth below:

Acquired leases. At August 30, 2009, obligations for minimum future payments under the operating leases acquired from Anchor Blue Retail Group, Inc. were as follows:


	(Dollars in thousands)

2009	$	2,329
2010		8,966
2011		8,798
2012		9,034
2013		8,083
2014		7,667
Thereafter		15,610

Total future minimum lease payments	$	60,487

Forward Foreign Exchange Contracts

The Company uses derivative instruments to manage its exposure to foreign currencies. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the forward foreign exchange contracts. However, the Company believes that its exposures are appropriately diversified across counterparties and that these counterparties are creditworthy financial institutions. Please see Note 4 for additional information.

Other Contingencies

Litigation. There have been no material developments in the Company’s litigation matters since it filed its 2008 Annual Report onForm 10-K.

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


NOTE 9:	DIVIDEND PAYMENTS

In the second quarter of 2009 and 2008, the Company paid cash dividends of $20 million and $50 million, respectively. The declaration of cash dividends in the future is subject to determination by the Company’s Board of Directors based on a number of factors, including the Company’s financial condition and compliance with the terms of its debt agreements. The dividend payments resulted in a decrease to “Additional paid-in capital” as the Company is in an accumulated deficit position.

18

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2009


NOTE 10:	COMPREHENSIVE INCOME (LOSS)

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


	Three Months Ended						Nine Months Ended
	August 30,			August 24,			August 30,			August 24,
	2009			2008			2009			2008
	(Dollars in thousands)

Net income	$	40,703		$	69,165		$	84,644		$	166,973

Other comprehensive income (loss):
Net investment hedge (losses) gains		(6,435	)		15,438			(23,248	)		(268	)
Foreign currency translation gains (losses)		3,949			(1,434	)		5,545			(2,445	)
Unrealized gain (loss) on marketable securities		990			(753	)		1,584			(1,516	)
Pension and postretirement benefits		(3,722	)		(6,288	)		(12,300	)		(22,353	)

Total other comprehensive income (loss)		(5,218	)		6,963			(28,419	)		(26,582	)

Total comprehensive income (loss)	$	35,485		$	76,128		$	56,225		$	140,391

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


	August 30,			November 30,
	2009			2008
	(Dollars in thousands)

Net investment hedge losses	$	(35,545	)	$	(12,297	)
Foreign currency translation losses		(37,931	)		(43,476	)
Unrealized loss on marketable securities		(2,397	)		(3,981	)
Pension and postretirement benefits		(80,461	)		(68,161	)

Accumulated other comprehensive loss, net of income taxes	$	(156,334	)	$	(127,915	)

19

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2009


NOTE 11:	OTHER INCOME (EXPENSE), NET

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


	Three Months Ended						Nine Months Ended
	August 30,			August 24,			August 30,			August 24,
	2009			2008			2009			2008
				(Dollars in thousands)

Foreign exchange management (losses) gains⁽¹⁾	$	(11,884	)	$	19,678		$	(58,634	)	$	8,157
Foreign currency transaction gains (losses)⁽²⁾		4,833			(7,259	)		33,889			(4,736	)
Minority interest⁽³⁾		(260	)		181			(1,440	)		(45	)
Other		918			1,717			2,384			5,224

Total other income (expense), net	$	(6,393	)	$	14,317		$	(23,801	)	$	8,600


(1)		The increase in foreign exchange management losses in the three- and nine-month periods ended August 30, 2009, as compared to the prior year periods reflects the impact of foreign currency fluctuation on the Company’s forward foreign exchange contracts, primarily the weakening of the U.S. Dollar against the Euro, the Swedish Krona and the Australian Dollar.

(2)		The increase in foreign currency transaction gains in the three- and nine-month periods ended August 30, 2009, as compared to the prior year periods reflects the impact of foreign currency fluctuation on the Company’s foreign currency denominated balances, primarily the weakening of the U.S. Dollar against various foreign currencies.

(3)		Includes accretion of $0.6 million and $1.6 million for the three- and nine-month periods ended August 30, 2009, respectively, of the minority interest liability related to the Company’s business venture in the Russian Federation.


NOTE 12:	INCOME TAXES

The Company’s income tax expense was $13.3 million and $39.4 million for the three and nine months ended August 30, 2009, respectively, compared to $51.7 million and $104.8 million for the same periods ended August 24, 2008. The decrease in income tax expense was primarily due to lower income before taxes.

The Company’s effective income tax rate was 31.8% for the nine months ended August 30, 2009, compared to 38.6% for the same period ended August 24, 2008. The decrease in the effective income tax rate was primarily driven by a reduction in the residual U.S. tax expected to be imposed upon repatriation of foreign earnings, and a shift in the geographic mix of the Company’s 2009 earnings to foreign jurisdictions, where the Company is subject to an average tax rate below the U.S. statutory rate of 35%.

As of August 30, 2009, the Company’s total gross amount of unrecognized tax benefits was $160.5 million, of which $104.5 million would impact the Company’s effective tax rate, if recognized. As of November 30, 2008, the Company’s total gross amount of unrecognized tax benefits was $167.2 million, of which $104.6 million would have impacted the Company’s effective tax rate, if recognized. The reduction in gross unrecognized tax benefits was primarily due to the resolution of transfer pricing agreements with certain foreign tax jurisdictions.

As of August 30, 2009, the Company believes that it is reasonably possible that within the next twelve months unrecognized tax benefits could decrease by as much as $100.2 million, due primarily to the potential resolution of a refund claim with the State of California. However, at this point it is not possible to estimate whether the Company will realize any significant income tax benefit upon the resolution of this claim.

20

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE QUARTERLY PERIOD ENDED AUGUST 30, 2009


NOTE 13:	RELATED PARTIES

Robert D. Haas, a director and Chairman Emeritus of the Company, is the President of the Levi Strauss Foundation, which is not a consolidated entity of the Company. During the three- and nine-month periods ended August 30, 2009, the Company donated $0.3 million and $0.8 million, respectively, to the Levi Strauss Foundation as compared to $7.2 million for the nine-month period ended August 24, 2008.

Stephen C. Neal, a director, is chairman of the law firm Cooley Godward Kronish LLP. The firm provided legal services to the Company during the nine-month period ended August 30, 2009, for which the Company paid fees of approximately $0.5 million, as compared to $0.1 million for the same prior-year period.


NOTE 14:	BUSINESS SEGMENT INFORMATION

The Company’s reporting segments are the following three regions: Americas, Europe and Asia Pacific. 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 segments’ net revenues and operating income.

Business segment information for the Company is as follows:


	Three Months Ended						Nine Months Ended
	August 30,			August 24,			August 30,			August 24,
	2009			2008			2009			2008
	(Dollars in thousands)

Net revenues:
Americas	$	615,906		$	648,915		$	1,637,305		$	1,705,963
Europe		266,047			305,905			754,476			902,311
Asia Pacific		158,447			155,973			504,601			521,724

Total net revenues	$	1,040,400		$	1,110,793		$	2,896,382		$	3,129,998

Operating income:
Americas	$	96,297		$	98,501		$	218,156		$	200,926
Europe		31,337			69,652			112,007			212,039
Asia Pacific		18,944			15,460			70,054			75,823

Regional operating income		146,578			183,613			400,217			488,788
Corporate expenses		48,204			39,720			139,694			106,590

Total operating income		98,374			143,893			260,523			382,198
Interest expense		(37,931	)		(37,305	)		(112,648	)		(119,055	)
Other income (expense), net		(6,393	)		14,317			(23,801	)		8,600

Income before income taxes	$	54,050		$	120,905		$	124,074		$	271,743

21


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

Overview

We design and market jeans, casual and dress pants, tops, jackets and related accessories for men, women and children under our Levi’s^®, Dockers^®and Signature by Levi Strauss & Co.^tm(“Signature”) brands 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 business is operated through three geographic regions: Americas, Europe and Asia Pacific. Our products are sold in approximately 60,000 retail locations in more than 110 countries. We support our brands through a global infrastructure, both sourcing and marketing our products around the world. We distribute our Levi’s^®and Dockers^®products primarily through chain retailers and department stores in the United States and primarily through department stores, specialty retailers and franchised stores outside the United States. We distribute products under the Signature brand primarily through mass channel retailers in the United States and mass and other value-oriented retailers and franchised stores outside the United States. We also distribute our Levi’s^®and Dockers^®products through our online stores and approximately 400 company-operated stores located in 26 countries, including the United States. These stores generated approximately 11% of our net revenues in the nine-month period in 2009.

We derived 43% of our net revenues and 45% of our regional operating income from our Europe and Asia Pacific businesses in the nine-month period in 2009. Sales of Levi’s^®brand products represented approximately 77% of our total net sales in the nine-month period in 2009.

Our Third Quarter 2009 Results

Our third quarter 2009 results reflect the difficult economic conditions that continue to persist in most markets around the world, our inventory management and cost-cutting initiatives, and our investment in the expansion of our business.


	•	Net revenues. Our consolidated net revenues decreased by 6% compared to the third quarter of 2008, a decrease of 2% on a constant-currency basis. Increased sales from new company-operated and franchised stores, as well as growth in revenues associated with the Levi’s^®brand, were offset by net revenues declines in our Dockers^®brand in the Americas and in the wholesale channel in Europe.

	•	Operating income. Our consolidated operating margin in the third quarter of 2009 was 9% as compared to 13% in the third quarter of 2008, and operating income decreased $46 million. The decrease primarily reflected our continued investment in retail expansion and the unfavorable impact of currency.

	•	Cash flows. Cash flows provided by operating activities were $174 million in the nine-month period of 2009 as compared to $151 million for the same period in 2008. The impact to our operating cash flows from the decline in our net revenues was substantially offset by our inventory management and cost-containment initiatives. Cash used for investing activities in 2009 reflects business acquisitions in the Americas and Europe.

Key challenges and risks for us during the remainder of the year include:


	•	the impact to our customers and consumers during the fall/holiday season of the continuing downturn in macroeconomic conditions which is driving weak consumer spending in all of our regions; and

	•	the effects of our wholesale customers’ efforts to manage their business with leaner inventories.

Financial Information Presentation

Fiscal year. Our fiscal year ends on the last Sunday of November in each year, although the fiscal years of certain foreign subsidiaries are fixed at November 30 due to local statutory requirements. Apart from these subsidiaries, each quarter of both fiscal years 2009 and 2008 consists of 13 weeks, with the exception of the fourth quarter of 2008, which consisted of 14 weeks.

22

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


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

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

	•	Cost of goods sold is primarily comprised of materials, labor and related overhead, and the cost of operating our remaining manufacturing facilities, including the related depreciation expense.

	•	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 translating local currency amounts in both periods at the foreign exchange rates used in the Company’s internal planning process. We routinely evaluate our financial performance on a constant-currency basis in order to facilitateperiod-to-periodcomparisons without regard to the impact of changing foreign currency exchange rates.

Results of Operations for Three and Nine Months Ended August 30, 2009, as Compared to Same Periods in 2008

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


	Three Months Ended															Nine Months Ended
										August 30,			August 24,												August 30,			August 24,
							%			2009			2008									%			2009			2008
	August 30,			August 24,			Increase			% of Net			% of Net			August 30,			August 24,			Increase			% of Net			% of Net
	2009			2008			(Decrease)			Revenues			Revenues			2009			2008			(Decrease)			Revenues			Revenues
	(Dollars in millions)

Net sales	$	1,021.8		$	1,088.4			(6.1	)%		98.2	%		98.0	%	$	2,839.6		$	3,064.4			(7.3	)%		98.0	%		97.9	%
Licensing revenue		18.6			22.4			(17.1	)%		1.8	%		2.0	%		56.8			65.6			(13.5	)%		2.0	%		2.1	%

Net revenues		1,040.4			1,110.8			(6.3	)%		100.0	%		100.0	%		2,896.4			3,130.0			(7.5	)%		100.0	%		100.0	%
Cost of goods sold		546.0			578.3			(5.6	)%		52.5	%		52.1	%		1,541.5			1,614.9			(4.5	)%		53.2	%		51.6	%

Gross profit		494.4			532.5			(7.2	)%		47.5	%		47.9	%		1,354.9			1,515.1			(10.6	)%		46.8	%		48.4	%
Selling, general and administrative expenses		396.0			388.6			1.9	%		38.1	%		35.0	%		1,094.4			1,132.9			(3.4	)%		37.8	%		36.2	%

Operating income		98.4			143.9			(31.6	)%		9.5	%		13.0	%		260.5			382.2			(31.8	)%		9.0	%		12.2	%
Interest expense		(37.9	)		(37.3	)		1.7	%		(3.6	)%		(3.4	)%		(112.7	)		(119.0	)		(5.4	)%		(3.9	)%		(3.8	)%
Other income (expense), net		(6.5	)		14.3			(144.7	)%		(0.6	)%		1.3	%		(23.8	)		8.6			(376.8	)%		(0.8	)%		0.3	%

Income before income taxes		54.0			120.9			(55.3	)%		5.2	%		10.9	%		124.0			271.8			(54.3	)%		4.3	%		8.7	%
Income tax expense		13.3			51.7			(74.2	)%		1.3	%		4.7	%		39.4			104.8			(62.4	)%		1.4	%		3.3	%

Net income	$	40.7		$	69.2			(41.2	)%		3.9	%		6.2	%	$	84.6		$	167.0			(49.3	)%		2.9	%		5.3	%

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Net revenues

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


	Three Months Ended										Nine Months Ended
					% Increase (Decrease)										% Increase (Decrease)
	August 30,		August 24,		As			Constant			August 30,		August 24,		As			Constant
	2009		2008		Reported			Currency			2009		2008		Reported			Currency
	(Dollars in millions)

Net revenues:
Americas	$	615.9	$	648.9		(5.1	)%		(3.5	)%	$	1,637.3	$	1,706.0		(4.0	)%		(1.8	)%
Europe		266.0		305.9		(13.0	)%		(1.6	)%		754.5		902.3		(16.4	)%		(2.4	)%
Asia Pacific		158.5		156.0		1.6	%		4.3	%		504.6		521.7		(3.3	)%		2.3	%

Total net revenues	$	1,040.4	$	1,110.8		(6.3	)%		(1.9	)%	$	2,896.4	$	3,130.0		(7.5	)%		(1.3	)%

Total net revenues decreased on both reported and constant-currency bases for the three- and nine-month periods ended August 30, 2009, compared to the same prior-year periods. Reported amounts were affected unfavorably by changes in foreign currency exchange rates across all regions, particularly in Europe.

Americas. On both reported and constant-currency bases, net revenues in our Americas region decreased for both periods. Currency affected net revenues unfavorably by approximately $11 million and $38 million for the three- and nine-month periods, respectively.

For both periods, net revenues decreased due to the weak economic environment, lower demand for our U.S. Dockers^®brand products, and lower sales of Signature products, partially offset by increased Levi’s^®brand revenues. The nine-month period as compared to the same prior-year period also reflects the loss of customers due to bankruptcy in the second and third quarters of 2008 as well as the impact of issues encountered during our stabilization of an enterprise resource planning (“ERP”) system in the United States in the beginning of the second quarter of 2008.

Europe. Net revenues in Europe decreased on both reported and constant-currency bases for both periods. Currency affected net revenues unfavorably by approximately $36 million and $129 million for the three- and nine-month periods, respectively.

For the three- and nine-month periods, net revenues in the region decreased primarily due to lower sales in our wholesale channels, reflecting the depressed retail environment. The decline in sales was primarily due to lower sales of our Levi’s^®Red Tab^tmproducts for women. This was partially offset by increased sales from our expanding company-operated retail network.

Asia Pacific. Net revenues in Asia Pacific increased on a reported basis for the three-month period, and on a constant-currency basis for the three- and nine-month periods, but decreased on a reported basis for the nine-month period. Currency affected net revenues unfavorably by approximately $4 million and $28 million for the three- and nine-month periods, respectively.

For the three- and nine-month periods, net revenues in the region increased, driven by product promotions across the region as well as the continued expansion of our brand-dedicated store network. These increases were partially offset by declines primarily in Japan.

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Gross profit

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


	Three Months Ended									Nine Months Ended
							%									%
	August 30,			August 24,			Increase			August 30,			August 24,			Increase
	2009			2008			(Decrease)			2009			2008			(Decrease)
	(Dollars in millions)

Net revenues	$	1,040.4		$	1,110.8			(6.3	)%	$	2,896.4		$	3,130.0			(7.5	)%
Cost of goods sold		546.0			578.3			(5.6	)%		1,541.5			1,614.9			(4.5	)%

Gross profit	$	494.4		$	532.5			(7.2	)%	$	1,354.9		$	1,515.1			(10.6	)%

Gross margin		47.5	%		47.9	%					46.8	%		48.4	%

Gross profit for the three- and nine-month periods ended August 30, 2009, declined as compared to the same prior-year periods. Currency affected gross profit unfavorably by approximately $35 million and $137 million for the three- and nine-month periods, respectively. The decrease in gross profit on a constant-currency basis was primarily due to the decrease in constant-currency net revenues. The decline in gross margin for both periods as compared to the same prior-year periods reflected the impact of currency, and with respect to the three-month period, higher inventory markdown activity, partially offset by an increased contribution of net sales from company-operated stores.

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 SG&A expenses for the periods indicated, the changes in these items from period to period and these items expressed as a percentage of net revenues:


	Three Months Ended													Nine Months Ended
								August 30,			August 24,										August 30,			August 24,
					%			2009			2008							%			2009			2008
	August 30,		August 24,		Increase			% of Net			% of Net			August 30,		August 24,		Increase			% of Net			% of Net
	2009		2008		(Decrease)			Revenues			Revenues			2009		2008		(Decrease)			Revenues			Revenues
	(Dollars in millions)

Selling	$	122.2	$	104.9		16.5	%		11.8	%		9.4	%	$	335.5	$	310.4		8.1	%		11.6	%		9.9	%
Advertising and promotion		62.6		67.6		(7.4	)%		6.0	%		6.1	%		160.5		185.0		(13.3	)%		5.5	%		5.9	%
Administration		102.0		89.3		14.2	%		9.8	%		8.0	%		268.6		264.9		1.4	%		9.3	%		8.5	%
Other		109.2		126.8		(13.9	)%		10.5	%		11.4	%		329.8		372.6		(11.5	)%		11.4	%		11.9	%

Total SG&A	$	396.0	$	388.6		1.9	%		38.1	%		35.0	%	$	1,094.4	$	1,132.9		(3.4	)%		37.8	%		36.2	%

Total SG&A expenses increased $7 million and decreased $39 million for the three- and nine-month periods ended August 30, 2009, respectively, compared to the same prior-year periods. Currency impacted SG&A expenses favorably by approximately $19 million and $74 million for the three- and nine-month periods, respectively.

Selling. In both periods, higher selling costs associated with additional company-operated stores were partially offset by a favorable currency impact of $7 million and $30 million for the three- and nine-month periods, respectively.

Advertising and promotion. In both periods, the decrease in advertising and promotion expenses was attributable to the effects of currency and planned reduction of our advertising activities in most markets as compared to the prior year.

Administration. Administration expenses include corporate expenses, net restructuring charges and other administrative charges. Currency favorably impacted these expenses by $4 million and $14 million for the three- and nine-month periods, respectively. Both periods in 2009 reflect increased pension expense and costs associated

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with business acquisitions during the third quarter, while in 2008 both periods included higher costs associated with our conversion to an ERP system in the United States and lower incentive compensation accruals due to business performance below our internally-set objectives.

Other. Other SG&A costs include distribution, information resources, and marketing costs,gain or loss on sale of assets and other operating income. Currency favorably impacted these expenses by $4 million and $16 million for the three- and nine-month periods respectively. The decrease in expenses was primarily due to lower distribution costs, resulting from the decline in sales volume and actions we have taken in recent years to restructure our distribution center operations, as well as lower marketing costs. These declines were partially offset by higher severance expenses for headcount reductions that have occurred throughout 2009.

Operating income

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


	Three Months Ended															Nine Months Ended
										August 30,			August 24,												August 30,			August 24,
							%			2009			2008									%			2009			2008
	August 30,			August 24,			Increase			% of Net			% of Net			August 30,			August 24,			Increase			% of Net			% of Net
	2009			2008			(Decrease)			Revenues			Revenues			2009			2008			(Decrease)			Revenues			Revenues
	(Dollars in millions)

Operating income:
Americas	$	96.3		$	98.5			(2.2	)%		15.6	%		15.2	%	$	218.2		$	201.0			8.6	%		13.3	%		11.8	%
Europe		31.3			69.7			(55.0	)%		11.8	%		22.8	%		112.0			212.0			(47.2	)%		14.8	%		23.5	%
Asia Pacific		19.0			15.4			22.5	%		12.0	%		9.9	%		70.0			75.8			(7.6	)%		13.9	%		14.5	%

Total regional operating income		146.6			183.6			(20.2	)%		14.1	%*		16.5	%*		400.2			488.8			(18.1	)%		13.8	%*		15.6	%*
Corporate expenses		48.2			39.7			21.4	%		4.6	%*		3.6	%*		139.7			106.6			31.1	%		4.8	%*		3.4	%*

Total operating income	$	98.4		$	143.9			(31.6	)%		9.5	%*		13.0	%*	$	260.5		$	382.2			(31.8	)%		9.0	%*		12.2	%*

Operating margin		9.5	%		13.0	%											9.0	%		12.2	%


*		Percentage of consolidated net revenues

Currency unfavorably affected operating income by approximately $16 million and $63 million for the three- and nine-month periods, respectively.

Regional operating income. The following describes changes in operating income by segment for the three- and nine-month periods ended August 30, 2009, compared to the same prior-year periods:


	•	Americas. Operating income decreased for the three-month period due to the unfavorable impact of currency. Excluding currency, operating income was stable compared to prior year, as the region’s gross margin improvement was offset by increased SG&A expenses. For the nine-month period, operating income increased due to an improved operating margin primarily reflecting our second-quarter 2008 ERP implementation and stabilization expenses, which were not repeated in 2009, as well as lower distribution costs in 2009.

	•	Europe. The decrease in the region’s operating income for both periods was due to a decline in operating margin, reflecting the region’s continued investment in retail expansion, as well as the unfavorable impact of currency.

	•	Asia Pacific. Operating income increased for the three-month period due to an improved operating margin, reflecting lower advertising expenses throughout the region. For the nine-month period, operating income decreased due to the unfavorable impact of currency.

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Corporate. Corporate expense is comprised of net restructuring charges, postretirement benefit plan curtailment gains, and other corporate expenses, including corporate staff costs. Corporate expenses for the three- and nine-month periods increased over the same prior-year periods primarily due to an increase in pension expense of approximately $9 million per quarter, resulting from the decline in the fair value of our pension plan assets in 2008. For the nine-month period, higher severance accruals for headcount reductions was offset by a decline in corporate staff costs, reflecting our cost-cutting initiatives.

Interest expense

Interest expense was $37.9 million and $112.7 million for the three- and nine-month periods ended August 30, 2009, respectively, as compared to $37.3 million and $119.0 million, respectively, for the same periods in 2008. The increase in interest expense for the three-month period was due to higher interest expense on our deferred compensation plans, partially offset by a decrease in the interest expense related to our borrowings. The decrease in interest expense for the nine-month period was primarily due to lower average borrowing rates and lower debt levels in 2009, resulting primarily from our required payments on the term loan tranche of our senior secured revolving credit facility.

The weighted-average interest rate on average borrowings outstanding for the three- and nine-month periods ended August 30, 2009, were 7.47% and 7.49%, respectively, as compared to 7.90% and 8.03%, respectively, for the same prior-year periods.

Other income (expense), net

For the three- and nine-month periods in 2009, we recorded expense of $6.5 million and $23.8 million, respectively, as compared to income of $14.3 million and $8.6 million, respectively, for the same periods in 2008. The increase in expense for both periods primarily reflects losses on foreign exchange derivatives which hedge future cash flow obligations of our foreign operations. The U.S. Dollar depreciated relative to many foreign currencies, particularly the Euro, Swedish Krona, and Australian Dollar, negatively impacting the value of the related derivative contracts. This was partially offset by foreign currency transaction gains.

Income tax expense

Income tax expense was $13.3 million and $39.4 million for the three and nine months ended August 30, 2009, respectively, as compared $51.7 million and $104.8 million for the same periods ended August 24, 2008. The decrease in income tax expense was primarily due to lower income before taxes.

Our effective income tax rate was 31.8% for the nine months ended August 30, 2009, compared to 38.6% for the same period ended August 24, 2008. The decrease in the effective income tax rate was primarily driven by a reduction in the residual U.S. tax expected to be imposed upon repatriation of foreign earnings, and a shift in the geographic mix of our 2009 earnings to foreign jurisdictions, where we are subject to an average tax rate below the U.S. statutory rate of 35%.

Liquidity and Capital Resources

Liquidity Outlook

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

Cash Sources

We are a privately held corporation. We have historically relied primarily on cash 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.

27

In 2007, we amended and restated our senior secured revolving credit facility; the maximum availability is now $750 million secured by certain of our domestic assets and certain U.S. trademarks associated with the Levi’s^®brand and other related intellectual property. The amended facility includes a $250 million term loan tranche and a $500 million revolving tranche. The revolving tranche increases as the term loan tranche is repaid, up to a maximum of $750 million when the term loan tranche is repaid in full. Upon repayment of the term loan tranche, the secured interest in the U.S. trademarks will be released. As of August 30, 2009, we had borrowings of $126.0 million under the term loan tranche and no outstanding borrowings under the revolving tranche. Unused availability under the revolving tranche was $214.4 million, as our total availability of $294.1 million, based on collateral levels as defined by the agreement, was reduced by $79.7 million of other credit-related instruments such as documentary and standby letters of credit allocated under the facility.

Under the facility, we are required to meet a fixed charge coverage ratio as defined in the agreement of 1.0:1.0 when unused availability is less than $100 million. This covenant will be discontinued upon the repayment in full and termination of the term loan tranche described above and upon the implementation of an unfunded availability reserve of $50 million which would reduce availability under the revolving tranche of our credit facility by a like amount.

As of August 30, 2009, we had cash and cash equivalents totaling approximately $171.7 million, resulting in a net liquidity position (unused availability and cash and cash equivalents) of $386.1 million.

Cash Uses

Our principal cash requirements include working capital, capital expenditures, payments of principal and interest on our debt, payments of taxes, contributions to our pension plans and payments for postretirement health benefit plans, and, if market conditions warrant, occasional investments in, or acquisitions of, business ventures in our line of business. In addition, we regularly evaluate our ability to pay dividends or repurchase stock, all consistent with the terms of our debt agreements.

Other than the cash used for acquisitions of $81 million during 2009 and the cash dividend of $20 million that we paid in the second quarter of 2009, there have been no material changes to our estimated cash requirements for 2009 from those disclosed in our 2008 Annual Report onForm 10-K.

Cash Flows

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


	Nine Months Ended
	August 30,			August 24,
	2009			2008
	(Dollars in millions)

Cash provided by operating activities	$	173.9		$	150.8
Cash used for investing activities		(155.8	)		(62.6	)
Cash used for financing activities		(67.5	)		(118.9	)
Cash and cash equivalents		171.7			124.8

Cash flows from operating activities

Cash provided by operating activities was $173.9 million for the nine-month period in 2009, as compared to $150.8 million for the same period of 2008. As compared to the prior year, the increase in cash provided by operating activities was primarily due to lower payments for incentive compensation and interest. Additionally, lower cash used for inventory, reflecting our focus on inventory management, and lower payments to vendors, reflecting our lower SG&A expenses, substantially offset lower cash collections, driven primarily by our lower net revenues as well as our lower beginning accounts receivable balance.

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Cash flows from investing activities

Cash used for investing activities was $155.8 million for the nine-month period in 2009, as compared to $62.6 million for the same period of 2008. As compared to the prior year, the increase in cash used for investing activities primarily reflects business acquisitions in our Americas and Europe regions, as well as higher payments on settlement of forward foreign exchange contracts.

Cash flows from financing activities

Cash used for financing activities was $67.5 million for the nine-month period in 2009, compared to $118.9 million for the same period in 2008. Cash used in both periods primarily related to required payments on the term loan tranche of our senior secured revolving credit facility and our dividend payments to stockholders. Cash used for financing activities in 2008 also reflects our redemption in March 2008 of our remaining $18.8 million outstanding 12.25% senior notes due 2012.

Indebtedness

We had fixed-rate debt of approximately $1.4 billion (76% of total debt) and variable-rate debt of approximately $0.5 billion (24% of total debt) as of August 30, 2009. The borrower of substantially all of our debt is Levi Strauss & Co., the parent and U.S. operating company. Our required aggregate debt principal payments, excluding short-term borrowings, are $17.7 million in the remainder of 2009, $108.3 million in 2012, $361.1 million in 2013, $323.3 million in 2014 and the remaining $1.0 billion in years after 2014. Short-term borrowings totaling $34.6 million as of August 30, 2009, are expected to be either paid over the next twelve months or refinanced at the end of their applicable terms.

Effective May 1, 2008, in order to mitigate a portion of our interest rate risk, we entered into a $100 million interest rate swap agreement to pay a fixed-rate interest of approximately 3.2% and receive3-monthLIBOR variable rate interest payments quarterly through May 1, 2010.

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

Off-Balance Sheet Arrangements, Guarantees and Other Contingent Obligations

There have been no substantial changes to our off-balance sheet arrangements or contractual commitments from those disclosed in our 2008 Annual Report onForm 10-K.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes. There have been no significant changes to our critical accounting policies from those disclosed in our 2008 Annual Report onForm 10-Kexcept that we now consider the following accounting policy to be critical due to the increasing prominence in our financial statements of the related goodwill, intangible assets and other long-lived assets:

Impairment

We review our goodwill and othernon-amortizedintangible assets for impairment annually in the fourth quarter of our fiscal year, or more frequently as warranted by events or changes in circumstances which indicate that the carrying amount may not be recoverable. In our impairment tests, we use a two-step approach. In the first step, we compare the carrying value of the applicable reporting unit to its fair value, which we estimate using a discounted cash flow analysis or by comparison to the market values of similar assets. If the carrying amount of the reporting unit exceeds its estimated fair value, we perform the second step, and determine the impairment loss, if any, as the excess of the carrying value of the goodwill or intangible asset over its fair value.

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We review our other long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If the carrying amount of an other long-lived asset exceeds the expected future undiscounted cash flows, we measure and record an impairment loss for the excess of the carrying value of the asset over its fair value.

To determine the fair value of impaired assets, we utilize the valuation technique or techniques deemed most appropriate based on the nature of the impaired asset and the data available, which may include the use of quoted market prices, prices for similar assets or other valuation techniques such as discounted future cash flows or earnings.

Recently Issued Accounting Standards

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

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 prospectsand/orstatements preceded by, followed by or that include the words “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project”, “could”, “plans”, “seeks” and similar expressions. These forward-looking statements speak only as of the date stated and we do not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, even if experience or future events make it clear that any expected results expressed or implied by these forward-looking statements will not be realized. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these expectations may not prove to be correct or we may not achieve the financial results, savings or other benefits anticipated in the forward-looking statements. These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties, some of which may be beyond our control. These risks and uncertainties, including those disclosed under “Risk Factors” in our Annual Report onForm 10-Kfor the fiscal year ended November 30, 2008 and our other filings with the Securities and Exchange Commission, could cause actual results to differ materially from those suggested by the forward-looking statements and include, without limitation:


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

	•	consequences of impacts to the businesses of our wholesale customers caused by factors such as lower consumer spending, general economic conditions and consolidations through mergers and acquisitions;

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

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

	•	our ability to gauge and adapt to changing U.S. and international retail environments and fashion trends and changing customer preferences;

	•	our ability to withstand the impacts of foreign currency exchange rate fluctuations;

	•	our ability to revitalize our Dockers^®brand and our Signature by Levi Strauss & Co.^tmbrand in the United States;

	•	our wholesale customers’ shift in product mix in all channels of distribution, including the mass channel;

30


	•	our ability to implement, stabilize and optimize our ERP system throughout our business without further disruption or to mitigate any existing or new disruptions;

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

	•	our effectiveness in increasing efficiencies in our operations;

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

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

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

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

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


Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk from those disclosed in Item 7A of our 2008 Annual Report onForm 10-K.


Item 4T.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of August 30, 2009, 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 concluded that at August 30, 2009, our disclosure controls and procedures (as defined inRule 13(a)-15(e)and 15(d)-15(e) under the Exchange Act) are effective to provide reasonable assurance that information 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.

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PART II — OTHER INFORMATION


Item 1.	LEGAL PROCEEDINGS

Litigation. There have been no material developments in our litigation matters since we filed our 2008 Annual Report onForm 10-K.

In the ordinary course of business, we have various 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.


Item 1A.	RISK FACTORS

There have been no material changes in our risk factors from those disclosed in our 2008 Annual Report onForm 10-Kother than as set forth below:

During the past several years, we have experienced significant changes in senior management and our board. The success of our business depends on our ability to attract and retain qualified and effective senior management and board leadership.

Collective or individual changes in our senior management group or board membership could have an adverse effect on our ability to determine and implement our strategies, which in turn may adversely affect our business and results of operations. Recent changes in our senior management team include Aaron Boey, who became our Senior Vice President and President, Levi Strauss Asia Pacific on February 19, 2009, Blake Jorgensen, who became our Executive Vice President and Chief Financial Officer on July 1, 2009, and Jaime Cohen Szulc, who became our Senior Vice President and Chief Marketing Officer — Levi’s^®on August 31, 2009. In addition, Richard Kauffman joined our Board in October 2008 and Martin Coles joined our Board in February 2009.

We are a global company with nearly half our revenues coming from our Europe and Asia Pacific businesses, which exposes us to political and economic risks as well as the impact of foreign currency fluctuations.

As a global company, we are exposed to risks of doing business in foreign jurisdictions and risks relating to U.S. policy with respect to companies doing business in foreign jurisdictions. For example, on May 4, 2009, President Obama’s administration announced several proposals to reform U.S. tax laws, including a proposal to further limit foreign tax credits as compared to current law and a proposal to defer tax deductions allocable tonon-U.S. earningsuntil the earnings are repatriated. At this time it is not known whether these proposed tax reforms will be enacted or, if enacted, what the scope of the reforms will be. The proposed legislation or other changes in the U.S. tax laws could increase our U.S. income tax liability and adversely affect our after-tax profitability.


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

On July 8, 2009, our board approved the award of restricted stock units (“RSUs”) representing an aggregate of 43,141 shares of our common stock to our non-employee board members and the award of stock appreciation rights (“SARs”) representing an aggregate of 94,288 shares of our common stock to certain of our senior executives. These awards were made under our 2006 Equity Incentive Plan.

The RSUs were granted as part of the standard annual compensation provided to non-employee directors, including the chairman of the board. RSUs are units, representing beneficial ownership interests, corresponding in number and value to a specified number of underlying shares of stock. The RSUs vest in three equal installments after 13, 24 and 36 months following the grant date. Recipients of the restricted stock units have the opportunity to make deferral elections regarding when shares of our common stock are to be delivered in settlement of vested units. If the recipient does not elect to defer the receipt of common stock, then the units are immediately converted into shares upon vesting. The RSUs additionally have “dividend equivalent rights”, of which dividends paid by the Company on its common stock are credited by the equivalent addition of RSUs.

The SARs were granted with an exercise price equal to the fair market value of the covered shares on the date of grant as determined by the board. 25% of each stock appreciation right grant vests on July 7, 2010, with the

32

remaining 75% balance vesting on the first day of each month at a rate of 75%/36 months (2.08% per month) commencing July 8, 2010, and ending July 8, 2013, subject to continued service.

Upon exercise of the SARs, we will deliver shares to the recipient 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.

We will not receive any proceeds from the issuance or vesting of RSUs or SARs nor upon the exercise of the SARs. The RSUs and SARs 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.

We are a privately-held corporation; there is no public trading of our common stock. As of October 6, 2009, we had 37,284,741 shares outstanding.


Item 3.	DEFAULTS UPON SENIOR SECURITIES

None.


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

None.


Item 5.	OTHER INFORMATION

None.


Item 6.	EXHIBITS


31	.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31	.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.

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SIGNATURE

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

LEVI STRAUSS & CO.
(Registrant)


	By:	/s/ Heidi L. Manes

Heidi L. Manes

Vice President and Controller

(Principal Accounting Officer)

Date: October 8, 2009

34

EXHIBITS INDEX


31	.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31	.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the Quarterly Period Ended August 30, 2009
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ (Do not check if a smaller reporting company)		Smaller reporting company o

Levi Strauss & Co. - 10-Q quarterly report FY

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