LEVI STRAUSS & CO - Regulatory Filings 2006

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As filed with the Securities and Exchange Commission on May 25, 2006

Registration No. 333-

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

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LEVI STRAUSS & CO.

(Exact Name of Registrant as Specified in Its Charter)

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Delaware	2325	94-0905160
(State or Other Jurisdiction
of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

1155 Battery Street, San Francisco, California 94111 (415) 501-6000

(Address, Including Zip Code, and Telephone Number,

Including Area Code, of Registrants Principal Executive Offices)

Copies to:

Hilary K. Krane Senior Vice President, General Counsel Levi Strauss & Co. 1155 Battery Street San Francisco, California 94111 (415) 501-6607 John D. Wilson Shearman & Sterling LLP 525 Market Street San Francisco, California 94105 (415) 616-1100 Jay A. Mitchell Chief Counsel, Corporate Levi Strauss & Co. 1155 Battery Street San Francisco, California 94111 (415) 501-1372

(Name, Address, Including Zip Code, and Telephone Number,

Including Area Code, of Agent for Service)

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Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

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CALCULATION OF REGISTRATION FEE

Title of Each Class of	Amount to be	Proposed — Offering Price	Proposed Maximum — Aggregate	Amount of — Registration
Securities to be
Registered	Registered	per Note	Offering Price(1)	Fee(3)
8.875% Senior Notes due 2016	$350,000,000	100%	$350,000,000	$37,450
8.625% Senior Notes due 2013	102,000,000	100%	$130,417,200(2)	$13,955

| (1) | Estimated solely for the purpose of calculating the registration
fee in accordance with Rule 457(f) under the Securities Act. |
| --- | --- |
| (2) | Calculated based on a euro buying rate of $1.2786 per 1.00
on May 24, 2006. |
| (3) | Calculated pursuant to Rule 457 under the Securities Act. |

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The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. We may not sell these securities or accept any offer to buy these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED , 2006

Preliminary Prospectus

LEVI STRAUSS & CO.

Offer to Exchange all outstanding unregistered 8.625% Senior Notes due 2013 (102,000,000 aggregate principal amount outstanding)

for

8.625% Senior Notes due 2013 (102,000,000 aggregate principal amount) which have been registered under the Securities Act of 1933

and

all outstanding unregistered 8.875% Senior Notes due 2016 ($350,000,000 aggregate principal amount outstanding)

for

8.875% Senior Notes due 2016 ($350,000,000 aggregate principal amount) which have been registered under the Securities Act of 1933

The Exchange Offer

| | Expires 11:59 p.m., New York City time
on ,
2006, unless extended. |
| --- | --- |
| | Not conditional upon any minimum principal amount of outstanding
unregistered 8.875% Senior Notes due 2016 (the old
Dollar Notes) and unregistered 8.625% Senior Notes
due 2013 (the old Euro Notes, and together with the
old Dollar Notes, the old notes) being tendered for
exchange. |
| | All outstanding old notes that are validly tendered and not
validly withdrawn will be exchanged. |
| | Tenders of outstanding old notes may be withdrawn any time prior
to 11:59 p.m., New York City time on the date of the
expiration of the exchange offer. |
| | The exchange of old notes will generally not be a taxable
exchange for U.S. federal income tax purposes. |
| | We will not receive any proceeds from the exchange offer. |

The Exchange Notes

The terms of the exchange notes to be issued in the exchange offer for old Dollar Notes (the Dollar Exchange Notes) are substantially similar to the old Dollar Notes and the terms of the exchange notes to be issued in the exchange offer for the old Euro Notes (the Euro Exchange Notes, and together with the Dollar Exchange Notes, the exchange notes) are substantially similar to the old Euro Notes, except, in each case, for transfer restrictions and registration rights relating to the old notes.

Resale of Exchange Notes

| | We intend to list the Euro Exchange Notes on the Luxembourg
Stock Exchange and have the Euro Exchange Notes traded on the
Euro MTF Market. |
| --- | --- |
| | There is currently no public market for the Dollar Exchange
Notes and the existing market for the Euro Exchange Notes is
limited and we do not intend to apply for listing or quotation
of the exchange notes on any U.S. securities exchange or
for quotation through an automated dealer quotation system. |

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See Risk Factors beginning on page 10 for a discussion of factors that you should consider before tendering your old notes.

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Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

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The date of this prospectus is , 2006.

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TOC

TABLE OF CONTENTS

| Where You Can Find
More Information | ii |
| --- | --- |
| Forward-Looking
Statements | iii |
| Summary | 1 |
| Risk Factors | 10 |
| The Exchange
Offer | 22 |
| Use of Proceeds | 30 |
| Capitalization | 31 |
| Selected
Consolidated Financial Data | 32 |
| Managements
Discussion and Analysis of Financial Condition and Results of
Operations | 34 |
| Business | 80 |
| Directors and
Executive Officers | 94 |
| Principal
Stockholders | 107 |
| Certain
Relationships and Related Transactions | 111 |
| Description of
Other Indebtedness | 112 |
| Description of Euro
Exchange Notes | 117 |
| Exchange Offer;
Registration Rights Euro Notes | 154 |
| Description of
Dollar Exchange Notes | 156 |
| Exchange Offer;
Registration Rights Dollar Notes | 194 |
| Book-Entry,
Delivery and Form | 196 |
| Important
U.S. Federal Income Tax Considerations | 202 |
| Plan of
Distribution | 207 |
| Experts | 207 |
| Legal Matters | 207 |
| General
Information | 208 |
| Index to Financial
Statements | F-1 |
| EXHIBIT 5.1 | |
| EXHIBIT 12 | |
| EXHIBIT 23.1 | |

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WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission (the SEC or the Commission) a registration statement on Form S-4 under the Securities Act of 1933 (the Securities Act) relating to the exchange offer that includes important business and financial information about us that is not included in or delivered with this prospectus. This prospectus does not contain all of the information included in the registration statement. This information is available from us without charge to holders of old notes as specified below. If we have made references in this prospectus to any contracts, agreements or other documents and also filed any of those contracts, agreements or documents as exhibits to the registration statement, you should read the relevant exhibit for a more complete understanding of the document or matter involved.

We are required to file periodic reports and other information with the SEC under the Securities Exchange Act of 1934 (the Exchange Act).

You may read and copy the registration statement, including the attached exhibits, and any report, statements or other information that we file at the SECs public reference facilities at 100 F Street, N.E., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. Our SEC filings will also be available to the public from commercial document retrieval services and at the SECs Internet site at www.sec.gov.

You may request a copy of any of our filings with the SEC, or any of the agreements or other documents that constitute exhibits to those filings, at no cost, by writing or telephoning us at the following address or phone number:

Levi Strauss & Co. 1155 Battery Street San Francisco, California 94111 Attention: Treasurer Telephone: (415) 501-3869 or (415) 501-6000

To obtain timely delivery of any of our filings, agreements or other documents, you must make your request to us no later than five business days before the expiration date of the exchange offer. The exchange offer will expire at 11:59 p.m., New York City time on , 2006 (the expiration date). The exchange offer can be extended by us in our sole discretion. See the caption The Exchange Offer for more detailed information.

You should rely only on the information provided in this prospectus. No person has been authorized to provide you with different information. The information in this prospectus is accurate as of the date on the front cover. You should not assume that the information contained in this prospectus is accurate as of any other date.

Any old notes not tendered and accepted in the exchange offer will remain outstanding. To the extent old notes are tendered and accepted in the exchange offer, a holders ability to sell untendered old notes could be adversely affected. Following consummation of the exchange offer, the holders of old notes will continue to be subject to the existing restrictions upon transfer thereof and we will have fulfilled one of our obligations under the related registration rights agreements. Holders of old notes who do not tender their notes generally will not have any further registration rights under the registration rights agreements or otherwise.

Each broker-dealer that receives exchange notes for its own account pursuant to this exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for old notes where such old notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, starting on the expiration date and ending on the close of business 180 days after the expiration date, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See Plan of Distribution.

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FORWARD-LOOKING STATEMENTS

Except for the historical information contained in this prospectus, certain matters discussed in this prospectus, including, without limitation, statements under Summary, Business, Managements Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors, contain forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. Although we believe that, in making any such statements, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected.

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

	changing domestic and international retail environments;
	changes in the level of consumer spending or preferences in
apparel;
	mergers and acquisitions involving our top customers and
resulting door closures, inventory productivity initiatives and
changes in merchandising strategies and buying practices;
	expansion of private label activities by our customers;
	our dependence on key distribution channels, customers and
suppliers;
	price, innovation and other competitive pressures in the apparel
industry and on our key customers;
	our ability to increase our appeal to younger consumers and
women;
	changing fashion trends;
	our ability to revitalize our
Dockers ® brand and our European business;
	our ability to expand controlled distribution of our products
including successfully opening and operating our own retail
stores;
	our go-to-market executional performance;
	the impact of ongoing and potential future restructuring and
financing activities and our ability to remain in compliance
with our financial covenants;
	ongoing litigation matters and disputes and regulatory
developments;
	the effectiveness of our internal controls;
	the investment performance of our defined benefit pension plans;
	our ability to utilize our tax credits and net operating loss
carryforwards;
	changes in credit ratings;

iii

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| | our ability to attract and retain qualified employees and
changes in employee compensation and benefit plans; |
| --- | --- |
| | changes in foreign currency exchange rates; |
| | changes in trade laws including the elimination of quotas under
the WTO Agreement on textiles and clothing; and |
| | political or financial instability in countries where our
products are manufactured. |

For more information on these and other factors, see Risk Factors. All subsequent written and oral forward-looking statements attributable to us are expressly qualified in their entirety by the cautionary statements and the risk factors contained throughout this prospectus.

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SUMMARY

The following information summarizes the detailed information and financial statements included elsewhere in this prospectus. This summary does not contain all of the information that you should consider before exchanging your old notes for exchange notes, and we encourage you to read this prospectus carefully and in its entirety. Unless otherwise indicated or the context otherwise requires, data in this prospectus that refer to a particular year (e.g., 2005) refer to the fiscal year ended on the last Sunday in November of that year. In this prospectus, unless the context specifies otherwise, references to we, us, and our refer to Levi Strauss & Co. and its consolidated subsidiaries.

Our Company

Overview

We are one of the worlds leading branded apparel companies. We design and market jeans and jeans-related pants, casual and dress pants, tops, jackets and related accessories for men, women and children under our Levis ® , Dockers ® and Levi Strauss Signature ® brands in markets around the world. We also license our trademarks in many countries throughout the world for accessories, pants, tops, footwear, home and other products.

We distribute our Levis ® and Dockers ® products primarily through chain retailers and department stores in the United States and primarily through department stores, specialty retailers and franchised stores abroad. We also distribute Levis ® and Dockers ® products through company-operated stores located in the United States, Europe and Japan. We distribute our Levi Strauss Signature ® products primarily through mass channel retailers in the United States and abroad.

Our History

Our history and longevity are unique in the apparel industry: Levis ® jeans are the original, authentic and definitive jeans. In 1853, during the California Gold Rush, our founder, Levi Strauss, opened a wholesale dry goods business in San Francisco. That business became known as Levi Strauss & Co. In 1873, Mr. Strauss and Jacob Davis, a tailor, saw a consumer need for work pants that could hold up under rough conditions. They worked together and received a U.S. patent to make waist overalls with metal rivets at points of strain on the pants and in so doing created the first jean. Mr. Strauss commercialized the product and brought it to market that year, and, in 1890, first used the number 501 in the product line.

For nearly 100 years after our founding, we manufactured and distributed work pants and other products worn primarily by cowboys, miners and other working men in the western United States and also represented other manufacturers with an extensive line of dry goods. We introduced our first jeans for women in 1934. Our jeans rapidly grew in popularity after World War II and became a symbol of American culture by the 1960s. During these years, we exited the dry goods business to concentrate on manufacturing and marketing apparel under the Levis ® trademark, with export and international businesses opening in the 1950s and 1960s. In 1986, we introduced the Dockers ® brand of casual apparel, which was at the forefront of the business casual trend in the United States. In 2003, in response to the emergence and success of the mass channel, we launched our Levi Strauss Signature ® brand of jeans and casual apparel for consumers who shop in that channel. Our commitment to quality, innovation and corporate citizenship, manifested in many ways throughout our history, began with Mr. Strauss and continues today.

Our Global Reach

From our Gold Rush beginnings in San Francisco, we now operate around the world. Our business is organized into three geographic regions: North America, Europe and Asia Pacific. Our Asia Pacific region includes both established markets such as Japan and Korea and emerging markets such as India and China, as well as our businesses in South America, the Middle East and Africa. Our global reach and presence are demonstrated by the following:

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| | We have over 5,000 trademark registrations and pending
applications in approximately 180 countries. |
| --- | --- |
| | We have regional headquarters located in San Francisco,
Brussels and Singapore, product designers located primarily in
Belgium, Hong Kong, Japan, Korea and the United States, and a
global sourcing headquarters in Singapore. |
| | Approximately 65% of our employees are located in over 35
countries outside the United States. |

Recent Developments Amendment to Senior Secured Revolving Credit Facility

On May 18, 2006, we amended and restated our senior secured revolving credit facility. The following is a summary description of the material terms of the amendment:

| | The term of the facility has been extended through
September 23, 2011. |
| --- | --- |
| | The maximum availability under the facility has been reduced
from $650.0 million to $550.0 million. |
| | The interest rate payable in respect of both base rate loans and
LIBOR rate loans has been modified by amending the margin above
the base rate or the LIBOR rate (as applicable) which is
payable. The margin above the base rate that is payable in
respect of base rate loans has changed from a fixed margin of
0.50% to a floating margin based on availability under the
facility that will not exceed 0.50%. The margin above LIBOR that
is payable in respect of LIBOR rate loans has been reduced from
a fixed margin of 2.75% to a floating margin (which will not
exceed 2.00%) based on availability under the facility. |
| | We are required to maintain a reserve against availability or
deposit cash or certain investment securities in secured
accounts with the administrative agent in the amount of
$75.0 million at all times. A failure to do so will result
in a block on availability under the facility but will not
result in a default. |
| | For any period during which availability under the facility is
at least $25.0 million, the debt, liens, investments,
dispositions, restricted payments and debt prepayment covenants
will be either fully or partially suspended. We are currently in
a covenant suspension period. |
| | Our debt, liens, investments, dispositions, restricted payments
and debt prepayment covenants have been modified to grant us
greater flexibility. |
| | We are no longer subject at any time to any financial
maintenance covenants. |
| | The facility is no longer secured by the capital stock of any of
our foreign subsidiaries. |

For more information, see Description of Other Indebtedness Senior Secured Revolving Credit Facility.

Failure to Exchange Your Old Notes

In this prospectus, we refer to the $350.0 million of unregistered Dollar Notes that we issued in March 2006, the 102.0 million of unregistered Euro Notes, which includes the 100.0 million of Euro Notes we issued in March 2006 and the remaining 2.0 million of unregistered Euro Notes issued in March 2005 that were not previously exchanged for registered notes collectively, as the old notes. The old notes which you do not tender or we do not accept will, following the exchange offer, continue to be restricted securities under the Securities Act. Therefore, you may only transfer or resell them in a transaction registered under or exempt from the Securities Act and applicable state securities laws. We will issue the exchange notes in exchange for the old notes under the exchange offer only following the satisfaction of the procedures and conditions described under the caption The Exchange Offer.

Because we anticipate that most holders of the old notes will elect to exchange their old notes, we expect that the liquidity of the markets, if any, for any old notes remaining after the completion of the exchange offer will be substantially limited. Any old notes tendered and exchanged in the exchange offer will reduce the aggregate principal amount outstanding of the applicable series of old notes.

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The Exchange Offer

The $350.0 million unregistered old Dollar Notes and 102.0 million unregistered old Euro Notes were issued in private placements. In this exchange offer, we are offering to exchange, for your old notes, exchange notes which are substantially similar in all material respects to the respective old notes except that the exchange notes have been registered under the Securities Act and certain transfer restrictions and registration rights relating to the old notes do not apply to the exchange notes.

| Registration Rights Agreement | In connection with the issuance of the $350.0 million of
old Dollar Notes and 100.0 million of old Euro Notes
on March 17, 2006, we entered into registration rights
agreements with the initial purchasers with respect to each
series of old notes in which we agreed, among other things, to
complete an exchange offer. The remaining 2.0 million
of old Euro Notes we issued in March 2005 will also be entitled
to the benefits of the registration rights agreement we entered
into in March 2006 with the initial purchasers of the
100.0 million of old Euro Notes. |
| --- | --- |
| | You may exchange your old notes for the applicable exchange
notes, which have substantially similar terms to your old notes.
The exchange offer satisfies your rights and our obligations
under the registration rights agreements. After the exchange
offer is over, you will not be entitled to any exchange or
registration rights with respect to your old notes. |
| The Exchange Offer | We are offering to exchange: |
| | up to 102.0 million of old Euro Notes for
up to 102.0 million of Euro Exchange Notes; and |
| | up to $350.0 million aggregate principal amount
of old Dollar Notes for up to $350.0 million aggregate
principal amount of Dollar Exchange Notes. |
| | You may exchange old Dollar Notes only in a minimum denomination
of $10,000 and integral multiples of $1,000 principal amount
thereafter and old Euro Notes only in integral multiples of
50,000 principal amount. |
| Purpose and Effect | The purpose of the exchange offer is to give you the opportunity
to exchange your old notes for exchange notes that have been
registered under the Securities Act. We are subject to the
informational requirements of the Exchange Act and file reports
and other information with the SEC to which each holder of old
notes, if any are outstanding after the exchange offer, and
exchange notes will have access. |
| Resale | Except as indicated in this prospectus, we believe that the
exchange notes may be offered for resale, resold and otherwise
transferred without compliance with the registration and
prospectus delivery requirements of the Securities Act provided
that: |
| | you are acquiring the exchange notes in the ordinary
course of your business; |
| | you are not participating, do not intend to
participate and have no arrangement or understanding with any
person to participate in the distribution of the exchange notes; |

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| | you are not a broker-dealer who purchased the old
notes directly from us for resale pursuant to Rule 144A or
any other available exemption under the Securities Act; and |
| --- | --- |
| | you are not our affiliate, as defined in
Rule 405 under the Securities Act. |
| | Our belief is based on existing interpretations of the
Securities Act by the staff of the SEC set forth in several
no-action letters to third parties. We do not intend to seek a
no-action letter, and there is no assurance that the staff of
the SEC would make a similar determination with respect to the
exchange notes. If this interpretation is inapplicable, and you
transfer any exchange notes without delivering a prospectus
meeting the requirements of the Securities Act or without an
exemption from such requirements, you may incur liability under
the Securities Act. We do not assume, or indemnify holders
against, such liability. |
| | Each broker-dealer that is issued exchange notes for its own
account in exchange for old notes that were acquired by the
broker-dealer as a result of market-making activities or other
trading activities must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in
connection with any resale of the exchange notes. To the extent
described in Plan of Distribution, a broker-dealer
may use this prospectus for an offer to resell, resale or other
retransfer of the exchange notes. |
| Expiration of the Exchange Offer; Withdrawal of Tender | The exchange offer will expire at 11:59 p.m., New York City
time,
on ,
2006, or a later date and time to which we may extend it. We do
not currently intend to extend the expiration of the exchange
offer. You may withdraw your tender of old notes pursuant to the
exchange offer at any time before expiration of the exchange
offer. Any old notes not accepted for exchange for any reason
will be returned without expense to you promptly after the
expiration or termination of the exchange offer. |
| Conditions to the Exchange Offer | We will not be required to accept old notes for exchange: |
| | if the exchange offer would be unlawful or would
violate any interpretation of the SEC staff; or |
| | if any legal action has been instituted or
threatened that would impair our ability to proceed with the
exchange offer. |
| | The exchange offer is not conditioned on any minimum aggregate
principal amount of old notes being tendered. Please read
The Exchange Offer Conditions for
more information about the conditions to the exchange offer. |
| Procedures for Tendering Old Notes | We have forwarded to you, along with this prospectus, a letter
of transmittal relating to this exchange offer. Because all of
the old notes are held in book-entry accounts maintained by the
exchange agent at DTC, Euroclear or Clearstream, Luxembourg, a
holder need not submit a letter of transmittal. However, all
holders who exchange their old notes for exchange notes in
accordance with the procedures outlined below will be deemed to
have acknowledged receipt of, and |

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| | agreed to be bound by, and to have made all of the
representations and warranties contained in the letter of
transmittal. |
| --- | --- |
| | Only a registered holder of record of old notes may tender old
notes in the exchange offer. To tender in the exchange offer, a
registered holder must comply with the following procedures, as
applicable: |
| | Registered holders of old Euro
Notes: Pursuant to their internal guidelines,
Euroclear and Clearstream, Luxembourg will automatically
exchange old Euro Notes for Euro Exchange Notes on behalf of the
holders of the old Euro Notes. If you do not wish to participate
in the exchange offer, you must instruct Euroclear or
Clearstream, Luxembourg, as the case may be, to Take No
Action; otherwise your old Euro Notes will automatically
be tendered in the exchange offer, and you will be deemed to
have agreed to be bound by the terms of the letter of
transmittal. |
| | Registered holders of old Dollar
Notes: You may either (i) complete a letter
of transmittal and deliver it to the exchange agent, together
with any corresponding certificate or certificates representing
your old Dollar Notes, or (ii) if you hold your old Dollar
Notes in book-entry form and are a DTC participant, you may
follow the procedures for book-entry transfer as provided under
Book-Entry Transfer. |
| | By signing or agreeing to be bound by the letter of transmittal,
you will represent to us that, among other things: |
| | any exchange notes that you receive will be acquired
in the ordinary course of your business; |
| | you have no arrangement or understanding with any
person to participate in the distribution of the old notes or
the exchange notes; |
| | you are not our affiliate; |
| | if you are not a broker-dealer, you are not engaged
in and do not intend to engage in the distribution of the
exchange notes; and |
| | if you are a broker-dealer that will receive
exchange notes for your own account in exchange for old notes
that you acquired as a result of market-making activities or
other trading activities, you will deliver a prospectus in
connection with any resale of such exchange notes. |
| Special Procedures for Beneficial Owners | If you are a beneficial owner of old notes that are registered
in the name of a broker, dealer, commercial bank, trust company
or other nominee, you may request your respective broker,
dealer, commercial bank, trust company or other nominee to
effect the above transactions for you: |
| | Beneficial owners of old Euro
Notes: If you do not wish to tender your old Euro
Notes in the exchange offer, you should contact the registered
holder promptly and instruct the registered holder to instruct
Euroclear and Clearstream, Luxembourg, as the case may be, to
Take No Action on your behalf; otherwise your old
Euro Notes will automatically be tendered in the exchange offer,
and |

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| | you will be deemed to have agreed to be bound by the terms of
the letter of transmittal. |
| --- | --- |
| | Beneficial holder holders of old Dollar
Notes: If you want to tender old notes in the
exchange offer, you should contact the registered holder
promptly and instruct the registered holder to tender on your
behalf. |
| | Alternatively, if you are a beneficial owner and you wish to act
on your own behalf in connection with the exchange offer, you
must either make appropriate arrangements to register ownership
of the old notes in your name or obtain a properly completed
bond power from the registered holder. |
| Effect on Holders of Old Notes | If you are a holder of old notes and you do not tender your old
notes in the exchange offer, you will continue to hold your old
notes and will be entitled to all the rights and subject to all
the limitations applicable to the old notes in the indentures. |
| | The trading market for old notes could be adversely affected if
some but not all of the old notes are tendered and accepted in
the exchange offer. |
| Consequences of Failure to Exchange | All untendered old notes will remain subject to the restrictions
on transfer provided for in the old notes and in the indentures.
Generally, the old notes that are not exchanged for exchange
notes pursuant to the exchange offer will remain restricted
securities and may not be offered or sold unless registered
under the Securities Act, except pursuant to an exemption from,
or in a transaction not subject to, the Securities Act and
applicable state securities laws. Other than in connection with
the exchange offer, we do not currently anticipate that we will
register the old notes under the Securities Act. |
| Important Federal Income Tax Considerations | The exchange of old notes for exchange notes in the exchange
offer will generally not be a taxable exchange for
U.S. federal income tax purposes. See the caption
Important U.S. Federal Income Tax Considerations for
a more detailed description of the tax consequences of the
exchange. |
| Use of Proceeds | We will not receive any cash proceeds from the issuance of
exchange notes pursuant to the exchange offer. |
| Exchange Agent | Citibank, N.A. is the exchange agent for the exchange offer. The
address and telephone number of the exchange agent are set forth
under the caption The Exchange
Offer Exchange Agent. |

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The Exchange Notes

In this section, we refer to the old Dollar Notes and the Dollar Exchange Notes collectively as the Dollar Notes and the old Euro Notes and the Euro Exchange Notes collectively as the Euro Notes

Issuer	Levi Strauss & Co., a Delaware corporation.
Securities Offered	102.0 million aggregate principal amount of 8.625%
Euro Exchange Notes due 2013 and registered under the Securities
Act.
	$350.0 million aggregate principal amount of 8.875% Dollar
Exchange Notes due 2016 and registered under the Securities Act.
Maturity	For the Euro Exchange Notes: April 1, 2013.
	For the Dollar Exchange Notes: April 1, 2016.
Interest Payment Dates	For the Euro Exchange Notes offered by this prospectus:
Semi-annually on April 1 and October 1 of each year,
commencing on October 1, 2006.
	For the Dollar Exchange Notes: Semi-annually on April 1 and
October 1 of each year, commencing on October 1, 2006.
Ranking	The exchange notes will be senior unsecured unsubordinated
obligations of Levi Strauss & Co. and will rank equally
with all of Levi Strauss & Co.s other existing
and future senior unsecured and unsubordinated debt. As of
February 26, 2006, after giving effect to (i) the
issuance of $350.0 million of our Dollar Notes and
100.0 million of our Euro Notes in March 2006 and
(ii) our prepayment of our senior secured term loan in
March 2006, we would have had approximately $2.3 billion of
debt, of which $7.3 million would have been secured, the
majority of such secured debt being capital leases. That secured
debt will have priority over the exchange notes with respect to
the assets securing such debt. Holders of the exchange notes
will be creditors of Levi Strauss & Co. and not of our
subsidiaries. As a result, all the existing and future
liabilities of our subsidiaries, including any claims of trade
creditors, will be effectively senior to the exchange notes. As
of February 26, 2006, the liabilities of our subsidiaries
were approximately $485.0 million. For more information on
the ranking of the exchange notes, see Description of Euro
Exchange Notes Ranking and
Description of Dollar Exchange
Notes Ranking.
Optional Redemption	For the Euro Exchange Notes: We may redeem the Euro Notes
(including Euro Notes previously issued in 2005), in whole or in
part, at any time on or after April 1, 2009, at the
redemption prices specified under Description of Euro
Exchange Notes Optional Redemption, plus
accrued and unpaid interest to the date of redemption, after
giving the required notice under the indenture governing the
Euro Notes. In addition, at any time and from time to time prior
to April 1, 2008, we may also redeem up to 35% of the
aggregate principal amount of our Euro Notes (including Euro
Notes previously issued in 2005) with the net cash proceeds
from certain equity offerings at a redemption price of 108.625%
of the principal amount plus accrued and unpaid interest, if
any, to the date of redemption.

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| | For the Dollar Exchange Notes: We may redeem the Dollar Notes,
in whole or in part, prior to April 1, 2011, at a price
equal to 100% of the principal amount plus accrued and unpaid
interest and a make-whole premium. Thereafter, we
may redeem all or any portion of the Dollar Notes, at any time
or from time to time, at the redemption prices specified under
Description of Dollar Exchange
Notes Optional Redemption, plus accrued
and unpaid interest to the date of redemption, after giving the
required notice under the indenture governing the Dollar Notes.
In addition, at any time and from time to time prior to
April 1, 2009, we may also redeem up to 35% of the
aggregate principal amount of the Dollar Notes with the net cash
proceeds from certain equity offerings at a redemption price of
108.875% of the principal amount plus accrued and unpaid
interest, if any, to the date of redemption. |
| --- | --- |
| Change in Control | If we experience a change in control, we will be required to
make an offer to repurchase the exchange notes at a price equal
to 101% of the principal amount plus accrued and unpaid
interest, if any, to the date of repurchase. For more detailed
information, see Description of Euro Exchange
Notes Repurchase at the Option of Holders Upon
a Change of Control and Description of Dollar
Exchange Notes Repurchase at the Option of
Holders Upon a Change of Control. |
| Restrictive Covenants | The Euro Notes indenture and the Dollar Notes indenture contain
covenants that limit our ability and the ability of our
restricted subsidiaries (as defined in Description of Euro
Exchange Notes and Description of Dollar Exchange
Notes, respectively) to, among other things: |
| | incur additional debt; |
| | pay dividends or make other restricted payments; |
| | consummate specified asset sales; |
| | enter into transactions with affiliates; |
| | incur liens; |
| | impose restrictions on the ability of a subsidiary
to pay dividends or make payments to us and our restricted
subsidiaries; |
| | merge or consolidate with any other person; or |
| | sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of our assets or the assets
of our restricted subsidiaries. |
| | If a series of exchange notes receives and maintains an
investment grade rating by both Standard and Poors Ratings
Service and Moodys Investors Service and we and our
restricted subsidiaries are and remain in compliance with the
indenture governing such series of exchange notes, we and our
restricted subsidiaries will not be required to comply with
particular covenants contained in the applicable indenture. For
more detailed information on covenants contained in the
indentures, see Description of Euro Exchange
Notes Material Covenants and
Description of Dollar Exchange
Notes Material Covenants. |

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| Listing; Absence of Established Market for the
Exchange Notes |
| --- |
| The Dollar Exchange Notes will constitute a new class of
securities with currently no established trading market. For
more detailed information, see Plan of Distribution. |

callerid=999 iwidth=455 length=96

Risk Factors

See Risk Factors, which begins on page 10, for a discussion of certain factors that should be considered by prospective investors in evaluating an investment in the exchange notes.

callerid=999 iwidth=455 length=96

General

We were founded in San Francisco in 1853 and were incorporated in Delaware in 1973. Our stock is privately held primarily by descendants of the family of Levi Strauss and is not publicly traded. We conduct our operations in the United States primarily through Levi Strauss & Co. and outside the United States through foreign subsidiaries owned directly or indirectly by Levi Strauss & Co.

Our executive offices are located at Levis Plaza, 1155 Battery Street, San Francisco, California 94111. Our telephone number is (415) 501-6000. Our website is located at www.levistrauss.com. Our website and the information contained on our website are not part of this prospectus and are not incorporated by reference into this prospectus.

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RISK FACTORS

Your investment in the exchange notes will involve risks. You should carefully consider the following factors described below and all other information in this prospectus before deciding to exchange your old notes for exchange notes.

Risks Relating to Our Substantial Debt

We have substantial debt and interest payment requirements that may restrict our future operations and impair our ability to meet our obligations under the exchange notes.

As of February 26, 2006, after giving effect to (i) the issuance of $350.0 million of our Dollar Notes and 100.0 million of our Euro Notes in March 2006 and (ii) our prepayment of our senior secured term loan in March 2006, our total debt would have been approximately $2.3 billion and we would have had approximately $220.7 million of additional borrowing capacity under our revolving credit facility, after giving effect to (i) our utilization of credit-related instruments such as documentary and standby letters of credit and (ii) our reserving $77.9 million of availability under our revolving credit facility on March 16, 2006 to satisfy a covenant in our revolving credit facility relating to prepayment of our term loan. For more information on the prepayment of our term loan and our senior secured credit facility, see Description of Other Indebtedness. Our substantial debt could have important adverse consequences to you. For example, it could:

| | make it more difficult for us to satisfy our financial
obligations, including those relating to the exchange notes, our
yen denominated eurobond, our 7.00% senior unsecured notes
due 2006 (the 2006 Notes), our senior secured
revolving credit facility, our 12.25% senior unsecured
notes due 2012 (the 2012 Notes), our senior
unsecured floating rate notes due 2012 (the Floating Rate
Notes), our registered outstanding Euro Notes, and our
9.75% senior unsecured notes due 2015 (the 2015
Notes); |
| --- | --- |
| | require us to dedicate a substantial portion of any cash flow
from operations to the payment of interest and principal due
under our debt, including the exchange notes, which will reduce
funds available for other business purposes, and result in us
having lower net income than we would otherwise have had; |
| | increase our vulnerability to general adverse economic and
industry conditions; |
| | limit our flexibility in planning for or reacting to changes in
our business and industry; |
| | place us at a competitive disadvantage compared to some of our
competitors that have less debt; and |
| | limit our ability to obtain additional financing required to
fund working capital and capital expenditures and for other
general corporate purposes. |

In addition, any future borrowings under our senior secured revolving credit facility will be at variable rates of interest. Our Floating Rate Notes also bear interest at a variable rate. As a result, increases in market interest rates may require a greater portion of our cash flow to be used to pay interest, which could further hinder our operations and affect the trading price of our debt securities. Our ability to satisfy our obligations and to reduce our total debt depends on our future operating performance and on economic, financial, competitive and other factors, many of which are beyond our control.

Restrictions in the indentures governing the exchange notes and our other debt agreements may limit our activities.

The indentures governing the exchange notes and the indentures relating to our other senior unsecured notes, and our yen denominated eurobond contain restrictions, including covenants limiting our ability to incur additional debt, grant liens, make acquisitions and other investments, prepay specified debt, consolidate, merge or acquire other businesses, sell assets, pay dividends and other distributions, repurchase stock, make capital expenditures, and enter into transactions with affiliates. Our amended and restated revolving credit facility also imposes many of these restrictions on us in any period during which availability under the facility is less than $25.0 million (see Description of Indebtedness). These restrictions may make it difficult for us to successfully execute our business strategy or to compete with companies not similarly restricted. In particular, these restrictions, in combination with

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our leveraged condition, could limit our ability to restructure our business or take other actions that require additional funds.

If we are unable to service our indebtedness or repay or refinance our indebtedness as it becomes due, we may be forced to sell assets or we may go into default, which could cause other indebtedness to become due and adversely affect the trading value of our debt securities, including the exchange notes.

Our 2006 Notes mature on November 1, 2006, our senior secured revolving credit facility matures on September 29, 2007, our Floating Rate Notes mature on April 1, 2012, our 2012 Notes mature on December 15, 2012, our registered outstanding Euro Notes mature on April 1, 2013, our 2015 Notes mature on January 15, 2015 and our yen denominated eurobond matures on November 22, 2016. If we are unable to pay interest on our indebtedness when due, or to repay or refinance the principal amount of our indebtedness when due, we will go into default under the terms of the documents governing such indebtedness, including the indentures governing the exchange notes. If that happens, the holders of the exchange notes and of our other indebtedness could elect to declare the indebtedness due and payable and, in the case of the revolving credit facility, terminate their lending commitments. Prior to or after these defaults, the holders of our indebtedness could exert pressure on us to sell assets or take other actions, including the initiation of bankruptcy proceedings or the commencement of an out-of-court debt restructuring, which may not be in the best interests of the company or holders of our debt securities, including the exchange notes. If we attempt an asset sale, whether on our own initiative or as a result of pressure from holders of our indebtedness, we may not be able to complete a sale on terms acceptable to us. Any default under our indebtedness, or the perception that we may go into default, would also adversely affect the trading value of our debt securities, including the exchange notes.

Because the exchange notes are effectively subordinated to all of our secured debt and the liabilities of our subsidiaries, we may not have sufficient assets to pay amounts owed on the exchange notes if a default occurs.

The exchange notes are general unsubordinated unsecured obligations that rank equal in right of payment with all of our existing and future unsecured and unsubordinated debt, including our 2006 Notes, 2012 Notes, Floating Rate Notes, registered outstanding Euro Notes issued in March 2005, 2015 Notes and our yen denominated eurobond. The Notes are effectively subordinated to all of our secured debt to the extent of the value of the assets securing that debt. As of February 26, 2006, after giving effect to (i) the issuance of $350.0 million of our Dollar Notes and 100.0 million of our Euro Notes in March 2006 and (ii) our prepayment of our senior secured term loan in March 2006, we would have had approximately $2.3 billion of debt, of which approximately $7.3 million would have been secured, the majority of such secured debt being capital leases. To the extent we enter into additional secured financings in the future, such as another senior secured term loan, the exchange notes will also be effectively subordinated to such secured debt to the extent of the value of the additional assets securing that debt. Failure to comply with the terms of our secured obligations or our inability to pay those lenders at maturity would entitle those lenders immediately to foreclose on our assets which serve as collateral. In the event of any foreclosure on our assets, our secured lenders would be entitled to be repaid in full from the proceeds of the liquidation of those assets before those assets would be available for distribution to other creditors, including the holders of exchange notes.

The exchange notes are also structurally subordinated to all obligations of our subsidiaries since holders of exchange notes will be creditors of Levi Strauss & Co. and not of our subsidiaries. As of February 26, 2006, our unaudited consolidated balance sheet includes liabilities of our subsidiaries approximately $485.0 million. The ability of our creditors, including you, to participate in any distribution of assets of any of our subsidiaries upon liquidation or bankruptcy will be subject to the prior claims of that subsidiarys creditors, including trade creditors, and any prior or equal claim of any equity holder of that subsidiary. In addition, the ability of our creditors, including you, to participate in distributions of assets of our subsidiaries will be limited to the extent that the outstanding shares of capital stock of any of our subsidiaries are either pledged to secure other creditors, such as under our senior secured revolving credit facility, or are not owned by us, such as our Japanese subsidiary. As a result, you may receive less, proportionately, than our secured creditors and the creditors of our subsidiaries.

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If our foreign subsidiaries are unable to distribute cash to us when needed, we may be unable to satisfy our obligations under our debt securities, including the exchange notes.

We conduct our foreign operations through foreign subsidiaries, which accounted for approximately 45% of our net revenues during 2005 and 2004. As a result, we depend upon funds from our foreign subsidiaries for a portion of the funds necessary to meet our debt service obligations, including payments on the exchange notes. We only receive the cash that remains after our foreign subsidiaries satisfy their obligations. Any agreements our foreign subsidiaries enter into with other parties, as well as applicable laws and regulations limiting the right and ability of non-U.S. subsidiaries and affiliates to pay dividends and remit earnings to affiliated companies, may restrict the ability of our foreign subsidiaries to pay dividends or make other distributions to us. If those subsidiaries are unable to pass on the amount of cash that we need, we will be unable to make payments on our debt obligations, including payments on the exchange notes, which could force us to sell assets or use cash that we were planning on using elsewhere in our business or to default on such obligations, which could hinder our operations and adversely affect the trading price of our debt securities, including the exchange notes.

Our ability to obtain new financing and trade credit and the costs associated with a new financing and trade credit may be adversely affected by downgrades or other changes in our credit ratings.

The credit ratings assigned to our indebtedness may affect both our ability to obtain new financing and trade credit and the costs of our financing and credit. Although ratings downgrades do not trigger any material obligations or provisions under our financing or other contractual relationships, it is possible that rating agencies may downgrade our credit ratings or change their outlook about us, which could have an adverse impact on us. For example, if our credit ratings are downgraded, it could increase our cost of capital, make our efforts to raise capital or trade credit more difficult and have an adverse impact on our reputation.

Risks Relating to the Industry in Which We Compete

Our revenues are influenced by general economic cycles.

Apparel is a cyclical industry that is dependent upon the overall level of consumer spending. Our customers anticipate and respond to adverse changes in economic conditions and uncertainty by reducing inventories and canceling orders. As a result, any substantial deterioration in general economic conditions, increases in energy costs or interest rates, acts of war, acts of nature or terrorist or political events that diminish consumer spending and confidence in any of the regions in which we compete, could reduce our sales and adversely affect our business and financial condition.

Intense competition in the worldwide apparel industry could reduce our sales and prices.

We face a variety of competitive challenges from jeanswear and casual apparel marketers, fashion-oriented apparel marketers, athletic and sportswear marketers, vertically integrated specialty stores and retailers of private label products. Some of these competitors have greater financial and marketing resources than we do and may be able to adapt to changes in consumer preferences or retail requirements more quickly, devote greater resources to the marketing and sale of their products or adopt more aggressive pricing policies than we can. As a result, we may not be able to compete successfully with them. Increased competition in the worldwide apparel industry, including from international expansion of vertically integrated specialty stores, from department stores, chain stores and mass channel retailers developing exclusive labels and from well-known and successful non-apparel brands (such as athletic wear and sporting goods marketers) expanding into jeans and casual apparel, could reduce our sales and adversely affect our business and financial condition.

The success of our business depends upon our ability to offer innovative and upgraded products at attractive price points.

The worldwide apparel industry is characterized by constant product innovation due to changing consumer preferences and by the rapid replication of new products by competitors. As a result, our success depends in large part on our ability to continuously develop, market and deliver innovative and stylish products at a pace, intensity and price competitive with other brands in our segments. In addition, we must create products that appeal to

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multiple consumer segments at a range of price points. Failure on our part to regularly and rapidly develop innovative and stylish products and update core products could limit sales growth, adversely affect retail and consumer acceptance of our products, leave us with a substantial amount of unsold inventory which we may be forced to sell at discounted prices and impair the image of our brands.

The worldwide apparel industry is subject to ongoing pricing pressure.

The apparel market is characterized by low barriers to entry for both suppliers and marketers, global sourcing through suppliers located throughout the world, trade liberalization, continuing movement of product sourcing to lower cost countries, ongoing emergence of new competitors with widely varying strategies and resources, and an increasing focus on apparel in the mass merchant channel of distribution in the United States. These factors contribute to ongoing pricing pressure throughout the supply chain. This pressure has and may continue to:

| | require us to introduce lower-priced products or provide new or
enhanced products at the same prices; |
| --- | --- |
| | require us to reduce wholesale prices on existing products; |
| | result in reduced gross margins across our product lines; |
| | increase retailer demands for allowances, incentives and other
forms of economic support; and |
| | increase pressure on us to further reduce our production costs
and our operating expenses. |

Any of these factors could adversely affect our business and financial condition.

Increases in the price of raw materials or their reduced availability could increase our cost of goods and decrease our profitability.

The principal fabrics used in our business are cotton, blends, synthetics and wools. The prices we pay for our products are dependent in part on the market price for raw materials used to produce them, primarily cotton. The price and availability of cotton may fluctuate substantially, depending on a variety of factors, including demand, crop yields, weather, supply conditions, transportation costs, government regulation, economic climates and other unpredictable factors. Any raw material price increases could increase our cost of goods and decrease our profitability unless we are able to pass higher prices on to our customers. Moreover, any decrease in the availability of cotton could impair our ability to meet our production requirements in a timely manner.

Our business is subject to risks associated with sourcing and manufacturing overseas.

We import finished garments and raw materials into all of our regions. Substantially all of our import operations are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements or bilateral actions. In addition, the countries in which our products are manufactured or imported may from time to time impose additional quotas, duties, tariffs or other restrictions on our imports or adversely modify existing restrictions. Adverse changes in these import costs and restrictions, or our suppliers failure to comply with customs regulations or similar laws, could harm our business.

Our operations are also subject to the effects of international trade agreements and regulations such as the North American Free Trade Agreement, the U.S.-Dominican Republic-Central American Free Trade Agreement, the Egypt Qualified Industrial Zone program and the activities and regulations of the World Trade Organization. Although generally these trade agreements have positive effects on trade liberalization, sourcing flexibility and cost of goods by reducing or eliminating the duties and/or quotas assessed on products manufactured in a particular country, trade agreements can also impose requirements that adversely affect our business, such as setting quotas on products that may be imported from a particular country into our key markets such as the United States or the European Union.

Our ability to import products in a timely and cost-effective manner may also be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers, such as port and shipping capacity, labor disputes, severe weather or increased homeland security requirements in the United States and other countries. These issues could delay importation of products or require us to locate alternative ports or warehousing providers

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to avoid disruption to our customers. These alternatives may not be available on short notice or could result in higher transit costs, which could have an adverse impact on our business and financial condition.

Risks Relating to Our Business

Our net sales and market share have declined since 1996, we have substantial debt and actions we have taken and may take to turn around our business may not be successful in the long term.

Our net sales have declined from a peak of $7.1 billion in 1996 to $4.2 billion in 2005. Our market shares in certain categories and geographies, including the mens jeans market in the United States and Europe, have also declined in recent years. We currently face intense competition, customer consolidation, shifts by consumers to sales channels and price points where we traditionally have not had a strong presence, reliance on key customers who operate in sales channels facing considerable competitive pressures, and continuing pressure on both wholesale and retail pricing. Our ability to successfully compete is impaired by our substantial debt and interest expense, which reduces our operating flexibility and limits our ability to respond to developments in the worldwide apparel industry as effectively as competitors that do not have comparable financial leverage. In addition, the strategic, operations and management changes we have made in recent years to turn around our business and drive future sales growth may not be successful over the long term.

We may be unable to maintain or increase our sales of Levis ® and Dockers ® products through our primary distribution channels.

In the United States, chain stores and department stores are the primary distribution channels for our Levis ® and Dockers ® products. We may be unable to increase sales of our products through these distribution channels for several reasons including the following:

| | These customers maintain substantial private label offerings and
seek to differentiate the brands and products they offer from
those of their competitors. |
| --- | --- |
| | Other channels, including vertically integrated specialty
stores, mass channel retailers and multi-brand specialty stores,
account for a large portion of jeanswear and casual wear sales
and have placed substantial competitive pressure generally on
the chain and department store channels. |
| | Consumer shopping patterns have moved toward both ends of the
pricing spectrum (premium and value) and away from basic
products at mid-tier price points. These products historically
have represented a substantial portion of our sales in chain and
department store channels. |

Our ability to maintain retail floor space, market share and sales in these channels may depend on our ability to offer more premium, innovative, differentiated and exclusive products and to increase retailer profitability on our products, which could have an adverse impact on our margins.

In Europe, department stores and independent jeanswear retailers are our primary distribution channels. If some of these customers were to shift their strategies and seek to differentiate the brands they sell and reduce their purchases from us, our sales would decline. In addition, jeans with basic finishes historically have comprised a substantial portion of our sales to these channels. If we are not successful in selling to our customers a greater mix of products with more advanced finishes in order to meet changes in consumer preferences, our European sales could continue to decline. Finally, many of our European customers have experienced challenges competing against vertically integrated specialty stores. Further success by vertically integrated specialty stores may adversely affect the sales of our products in Europe.

We depend on a group of key customers for a significant portion of our sales. A significant adverse change in a customer relationship or in a customers performance or financial position could harm our business and financial condition.

Net sales to our ten largest customers totaled approximately 42% and 40% of total net revenues in 2005 and 2004, respectively. Our largest customer, J.C. Penney Company, Inc., accounted for approximately 8% of net revenues in 2005 and 2004. The retail industry in the United States has experienced substantial consolidation in

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recent years as a result of acquisitions by both strategic and financial buyers. For example, Sears Roebuck and Co. (a Levis ® brand and Dockers ® brand customer and one of our top ten customers in 2005) and Kmart Corporation (a Levi Strauss Signature ® brand customer) merged in 2005, as did Federated Department Stores, Inc. (a Levis ® brand and Dockers ® brand customer) and May Department Stores Co. (a Levis ® brand and Dockers ® brand customer and one of our top ten customers in 2005). Consolidation in the retail industry has resulted in store closures, centralized purchasing decisions, increased customer leverage over suppliers, greater exposure for suppliers to credit risk and an increased emphasis by retailers on inventory management and productivity.

A decision by a major customer, whether motivated by competitive considerations, strategic shifts, financial requirements or difficulties, economic conditions or otherwise, to decrease its purchases from us, to reduce the floor space, assortments, fixtures or advertising for our products or to change its manner of doing business with us, could adversely affect our business and financial condition. In addition, while we have long-standing customer relationships, we do not have long term contracts with any of our customers. As a result, purchases generally occur on an order-by-order basis, and the relationship, as well as particular orders, can generally be terminated by either party at any time.

We must attract younger consumers and more women consumers to our jeans brands.

In the United States, our Levis ® brand sales are heavily weighted towards male consumers 35 years and older. This is due partly to the aging of our traditional consumer, the baby boomer generation, as well as the entry into the market of multiple brands that target younger consumers, including brands offered by vertically integrated specialty stores. We believe that 15-24 year-old consumers represent the highest growth segment of the U.S. mens jeans market. In addition, we believe that over the last several years, the worldwide womens jeans market has grown more quickly than the mens jeans market and is now larger than the mens jeans market. If we are not successful in attracting younger consumers and more female consumers to our brands, our results of operations and our ability to grow will be adversely affected.

Lack of success in revitalizing our Dockers ® business or our European business could harm our financial results.

Our Dockers ® business worldwide has suffered sales declines in recent years. In 2005, U.S. Dockers ® net revenues declined by approximately 0.4% compared with 2004, but declined by approximately 20% from 2003 to 2004. Our European business as a whole has also suffered recent sales declines. Our Europe net revenues declined by approximately 8.0% and 5.7%, on a constant currency basis, in 2005 and 2004, respectively. The declines were attributable to a variety of factors, including weak market and retail conditions in Europe generally and poor customer service by us, including low order fulfillment rates.

Although we have taken actions to reverse these sales declines, if our actions are not successful, our results of operations and our ability to grow will be adversely affected.

Our Levi Strauss Signature ® business could erode our margins and our sales of our Levis ® products.

Our Levi Strauss Signature ® brand, which includes a broad line of denim jeans and casual apparel products, is available at mass channel retailers across the United States, including Wal-Mart, Target and Kmart, and in mass channel and other retailers in Europe and Asia. Although our research to date indicates that we have not experienced any substantial cannibalization of our Levis ® brand, it is possible that sales of Levi Strauss Signature ® products through the mass channel may result in reduced sales of our Levis ® and Dockers ® brands. In addition, by offering a less expensive brand in the mass channel that carries the Levi Strauss name, it is possible that we may adversely affect the perception and appeal of our Levis ® brand by both our current retailers who sell our products and consumers who purchase our products. A decision by a retailer to stop carrying or reduce its support of the Levis ® brand or reduced purchases by consumers could result in an overall decrease in our sales.

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Increasing the number of our company-operated stores will require us to develop new capabilities and increase our expenditures.

We plan to expand the number of our company-operated retail stores dedicated to our Levis ® brand. Although we currently operate over 65 retail stores, we are primarily a wholesaler and not a retailer, and an increase in the number of company-operated stores will require us to further develop our retailing skills and capabilities. In addition, it may be difficult for us to identify and obtain retail space in locations and on terms we find acceptable. We will be required to enter into additional leases, increase our rental expenses and make capital expenditures for these stores. These commitments may be costly to terminate, and these investments may be difficult to recapture, if we decide to close a store or change our strategy. We must also appropriately manage greater inventory levels, install and operate effective retail systems, apply effective pricing strategies and integrate our stores into our overall business mix. Finally, we will need to hire and train qualified employees and incur additional costs to operate these stores, which will increase our operating expenses.

We rely on outsourced manufacturing of our products. Our inability to secure production sources meeting our quality, cost, working conditions and other requirements, or failures by our contractors to perform, could harm our sales, service levels and reputation.

We currently source over 90% of our products from independent contract manufacturers who purchase fabric and other raw materials and may also provide us with design and development services. An increasing proportion of our outsourced supply consists of package or ready to wear arrangements, in which contractors produce or purchase fabric themselves and then sew, finish and ship the garments. As a result, we depend on independent contract manufacturers to maintain adequate financial resources, to secure a sufficient supply of raw materials and to maintain sufficient development and manufacturing capacity in an environment characterized by continuing cost pressure and demands for product innovation and speed-to-market. In addition, we do not have material long-term contracts with any of our independent manufacturers, and these manufacturers generally may unilaterally terminate their relationship with us at any time.

This dependence could subject us to difficulty in obtaining timely delivery of products of acceptable quality. A contractors failure to ship products to us in a timely manner or to meet our required quality standards could cause us to miss the delivery date requirements of our customers. The failure to make timely deliveries may cause our customers to cancel orders, refuse to accept deliveries, impose non-compliance charges through invoice deductions or other charge-backs, demand reduced prices or reduce future orders, any of which could harm our sales and margins.

We require contractors to meet our standards in terms of working conditions, environmental protection, security and other matters before we are willing to place business with them. As such, we may not be able to obtain the lowest-cost production. In addition, the labor and business practices of apparel manufacturers have received increased attention from the media, non-governmental organizations, consumers and governmental agencies in recent years. Any failure by our independent manufacturers to adhere to labor or other laws or appropriate labor or business practices, and the potential litigation, negative publicity and political pressure relating to any of these events, could harm our business and reputation.

Most of the employees in our distribution facilities are covered by collective bargaining agreements, and any material job actions could negatively affect our results of operations.

In the United States, most of our distribution employees are covered by various collective bargaining agreements, and outside the United States, most of our production and distribution employees are covered by either industry-sponsored and/or state-sponsored collective bargaining mechanisms. Any work stoppages or other job actions by our distribution employees could harm our business and reputation.

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We are a global company with nearly half our revenues coming from our international operations, which exposes us to political and economic risks.

We generated approximately 45% of our net revenues outside the United States in 2005 and 2004. A substantial amount of our products came from sources outside of the country of distribution. As a result, we are subject to the risks of doing business abroad, including:

	currency fluctuations;
	changes in tariffs and taxes;
	restrictions on repatriating foreign profits back to the United
States;
	less protective foreign laws relating to intellectual
property; and
	political and economic instability.

The functional currency for most of our foreign operations is the applicable local currency. As a result, fluctuations in foreign currency exchange rates affect the results of our operations and the value of our foreign assets, which in turn may adversely affect reported earnings and the comparability of period-to-period results of operations. Our consolidated net revenues in 2005 were $4.2 billion, an increase of 1.7% compared to 2004 but flat on a constant currency basis. In addition, although we engage in hedging activities to manage our foreign currency exposures, our earnings may be subject to volatility since we are required to record in income the changes in the market values of our exposure management instruments that do not qualify for hedge accounting treatment. Changes in currency exchange rates may also affect the relative prices at which we and foreign competitors sell products in the same market. In addition, changes in the value of the relevant currencies may affect the cost of certain items required in our operations.

During the past 24 months, we have experienced significant management turnover. The success of our business depends on our ability to attract and retain qualified employees.

We need talented and experienced personnel in a number of areas including our core business activities. An inability to retain and attract qualified personnel, especially our key executives, could harm our business. In the past 24 months, we have had several changes in our senior management, including two chief financial officers, a new general counsel and new leaders of our Europe business, our global sourcing organization and our U.S. Dockers ® business. Our European president, who joined us in February 2004, left us at the end of February 2006, and we are conducting a search for his replacement. Turnover among our senior management could have a material adverse effect on our ability to implement our strategies and on our results of operations. Our ability to attract and retain qualified employees is adversely affected by the San Francisco location of our headquarters due to the high cost of living in the San Francisco area.

We have substantial liabilities and cash requirements associated with pension, post-retirement health benefit and with our restructuring activities.

Our restructuring activities, post-retirement health benefits plans and pension plans result in substantial liabilities on our balance sheet, which as of November 27, 2005 and November 28, 2004 totaled $754.0 million and $814.3 million, respectively. In addition, these plans and activities have and will generate substantial cash requirements for us. For example, for 2005, we made net cash payments of approximately $98 million relating to our restructuring activities, post-retirement health benefits plans and pension plans. For 2006, we expect to make net cash payments of approximately $17 million relating to restructuring activities, approximately $28 million under our post-retirement health benefits plan and approximately $47 million as contributions to our pension plans.

These liabilities may impair our liquidity, have an unfavorable impact on our ability to obtain financing and place us at a competitive disadvantage compared to some of our competitors who do not have such liabilities and cash requirements.

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Our success depends on the continued protection of our trademarks and other proprietary intellectual property rights.

Our trademarks and other intellectual property rights are important to our success and competitive position, and the loss of or inability to enforce trademark and other proprietary intellectual property rights could harm our business. We devote substantial resources to the establishment and protection of our trademark and other proprietary intellectual property rights on a worldwide basis. Our efforts to establish and protect our trademark and other proprietary intellectual property rights may not be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products. Unauthorized imitation of our products or unauthorized use of our trademarks or other proprietary rights may not only erode sales of our products but may also cause significant damage to our brand name and our ability to effectively represent ourselves to our customers, contractors, suppliers, and/or licensees. Moreover, others may seek to assert rights in, or ownership of, our trademarks and other proprietary intellectual property, and we may not be able to successfully resolve those claims. In addition, the laws and enforcement mechanisms of some foreign countries may not allow us to protect our proprietary rights to the same extent as we are able to in the United States and other countries.

We intend to expand our trademark licensing programs. Our licensees may not comply with our product quality, manufacturing standards, marketing and other requirements.

We license our trademarks to third parties for manufacturing, marketing, distribution and sale of various products and intend to expand our licensing programs. While we enter into comprehensive licensing agreements with our licensees covering product design, product quality, sourcing, manufacturing, marketing and other requirements, our licensees may not comply fully with those agreements. Non-compliance could include marketing products under our brand names that do not meet our quality and other requirements or engaging in manufacturing practices that do not meet our supplier code of conduct. These activities could harm our brand equity, our reputation and our business.

Our approach to corporate governance may lead us to take actions that conflict with our creditors interests as holders of our debt securities.

All of our common stock is owned by a voting trust described under Principal Stockholders. Four voting trustees have the exclusive ability to elect and remove directors, amend our by-laws and take other actions which would normally be within the power of stockholders of a Delaware corporation. Although the voting trust agreement gives the holders of two-thirds of the outstanding voting trust certificates the power to remove trustees and terminate the voting trust, three of the trustees, as a group based on their ownership of voting trust certificates, have the ability to block all efforts by the two-thirds of the holders of the voting trust certificates to remove a trustee or terminate the voting trust. In addition, the concentration of voting trust certificate ownership in a small group of holders, including these three trustees, gives this group the voting power to block stockholder action on matters for which the holders of the voting trust certificates are entitled to vote and direct the trustees under the voting trust agreement.

Our principal stockholders created the voting trust in part to ensure that we would continue to operate in a socially responsible manner while seeking the greatest long-term benefit for our stockholders, employees and other stakeholders and constituencies. As a result, we cannot assure that the voting trustees will cause us to be operated and managed in a manner that benefits our creditors or that the interests of the voting trustees or our principal equity holders will not diverge from our creditors.

We will be required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act. Failure to timely comply with the requirements of Section 404 or any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on the trading price of our debt securities.

We are not currently an accelerated filer as defined in Rule 12b-2 under the Exchange Act under current guidelines. Beginning with our Annual Report for the year ending November 25, 2007, Section 404 of the Sarbanes-Oxley Act of 2002 will require us to include an internal control report with our Annual Report on Form 10-K. That

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report must include managements assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report must also include disclosure of any material weaknesses in internal control over financial reporting that we have identified. Additionally, our independent registered public accounting firm will be required to issue reports on managements assessment of our internal control over financial reporting and their evaluation of the operating effectiveness of our internal control over financial reporting. Our assessment requires us to make subjective judgments and our independent registered public accounting firm may not agree with our assessment.

Achieving compliance with Section 404 within the prescribed period may require us to incur significant costs and expend significant time and management resources. We incurred approximately $8 million of third-party expenses in 2005 related to our activities regarding Section 404. We cannot assure you that we will be able to complete the work necessary for our management to issue its management report in a timely manner, or that we will be able to complete any work required for our management to be able to conclude that our internal control over financial reporting is operating effectively. If we are not able to complete the assessment under Section 404 in a timely manner, we and our independent registered public accounting firm would be unable to conclude that our internal control over financial reporting is effective as of November 25, 2007. As a result, investors could lose confidence in our reported financial information, which could have an adverse effect on the trading price of our debt securities. In addition, our independent registered public accounting firm may not agree with our managements assessment or conclude that our internal control over financial reporting is operating effectively.

We must successfully maintain and/or upgrade our information technology systems.

We rely on various information technology systems to manage our operations and we regularly evaluate these systems against our current and expected requirements. We are currently implementing modifications and upgrades to our systems, including replacing legacy systems with successor systems, making changes to legacy systems and acquiring new systems with new functionality. For example, we are currently implementing an SAP enterprise resource planning system in Asia, which we also plan to implement in North America and Europe in the coming years. There are inherent costs and risks associated with replacing and changing these systems, including significant capital expenditures and the risk of delays or difficulties in transitioning to new systems or of integrating new systems into our current systems. Any information technology system disruptions, if not anticipated and appropriately mitigated, could have an adverse effect on our business and operations.

Earthquakes or other events outside of our control may damage our facilities or the facilities of third parties on which we depend.

Our corporate headquarters are located in California near major earthquake faults that have experienced earthquakes in the past. An earthquake or other natural disaster could disrupt our operations. Additionally, the loss of electric power, such as the temporary loss of power caused by power shortages in the grid servicing our headquarters, could disrupt operations or impair critical systems. Any of these disruptions or other events outside of our control could affect our business negatively, harming our operating results. In addition, if any of our other facilities, including our manufacturing, finishing or distribution facilities or our company-operated or franchised stores, or the facilities of our suppliers or customers are affected by earthquakes, power shortages, floods, monsoons, terrorism or other events outside of our control, our business could suffer.

Risks Relating to the Offering

There is no established trading market for the exchange notes, and any market for the exchange notes may be illiquid.

Prior to this offering, there was no market for the Dollar Exchange Notes and the existing market for the Euro Exchange Notes was limited. We cannot assure you that a liquid market will develop for each series of exchange notes, that you will be able to sell your exchange notes at a particular time or that the prices that you will receive when you sell will be favorable. We will apply to list the Euro Exchange Notes on the Luxembourg Stock Exchange and to have the Euro Exchange Notes traded on the Euro MTF Market. We do not intend to apply for listing of the exchange notes on any U.S. securities exchange or for quotation through an automated dealer quotation system. In

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addition, the indenture governing the Euro Notes permits the delisting of the Euro Exchange Notes from the Luxembourg Stock Exchange under certain circumstances. See Description of Euro Exchange Notes Listing. The liquidity of the trading market in the exchange notes and the market price quoted for the exchange notes may be adversely affected by changes in the overall market for high yield securities generally or the interest of securities dealers in making a market in the exchange notes and by changes in our financial performance or prospects or in the prospects for companies in the apparel industry generally. As a result, you cannot be sure that an active trading market will develop for the exchange notes.

This offer to exchange the exchange notes for the respective series of old notes does not depend upon any minimum amount of such series of old notes being tendered for exchange.

Unless you are an affiliate of us within the meaning of Rule 405 under the Securities Act, you may offer for resale, resell or otherwise transfer exchange notes without compliance with the registration and prospectus delivery provisions of the Securities Act, so long as you acquired the exchange notes in the ordinary course of business and have no arrangement or understanding with respect to the distribution of the exchange notes to be acquired in the exchange offer. If you tender your old notes for the purpose of participating in a distribution of the exchange notes, you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction.

The trading prices of our debt securities have been volatile, and may be volatile in the future.

Other than our Floating Rate Notes and our registered outstanding Euro Notes that are listed on the Luxembourg Stock Exchange, none of our other debt securities are currently listed on any securities exchange or registered for quotation through any automated dealer quotation system. Accordingly, information regarding the trading prices of our debt securities is limited. Based on the information available to us, however, the trading prices of our debt securities have been volatile. For example, since their issue date, we believe that our 2012 Notes have traded, at times, substantially below par. We expect that the trading price of our debt securities, including the exchange notes, will be affected by developments in our business and our financial results, liquidity position and capital structure as well as developments in the apparel industry, domestic and foreign economies and in the market for high yield debt securities. The trading price for the exchange notes may be volatile, and we cannot assure you that the trading price of the exchange notes will not be lower than the issue price.

We may be unable to purchase the exchange notes upon a change in control.

Upon a change of control event as defined in the indentures governing the exchange notes, we would be required to offer to purchase the exchange notes (including the outstanding Euro Exchange Notes) in cash at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any. We also would be required to offer to repurchase our 2015 Notes, our 2012 Notes and our Floating Rate Notes on similar terms. A change of control under the terms of the exchange notes is likely to constitute an event of default under our senior secured revolving credit facility. If this occurs, then the lenders under this facility may declare their debt immediately due and payable. Since our senior secured revolving credit facility is secured, the lenders under this agreement could foreclose on certain of our assets, including our U.S. receivables and inventory, and be entitled to be repaid in full from the proceeds of any liquidation of those assets before any holder of the exchange notes. We cannot assure you that we will have the financial resources necessary to repurchase the exchange notes and satisfy our other payment obligations that could be triggered upon a change of control. If we do not have sufficient financial resources to effect a change of control offer for the exchange notes, we would be required to seek additional financing from outside sources to repurchase the exchange notes. We cannot assure you that financing would be available to us at that time on satisfactory terms, or at all. In addition, the terms of the exchange notes may not protect you if we undergo a highly leveraged transaction, reorganization, restructuring, merger or similar transaction that may adversely affect you unless the transaction is included in the definition of a change of control in the indenture.

If you do not exchange your old notes, they may be difficult to resell.

It may be difficult for you to sell old notes that are not exchanged in the exchange offer, since any old notes not exchanged will remain subject to the restrictions on transfer provided for in Rule 144 under the Securities Act.

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These restrictions on transfer of your old notes exist because we issued the old notes pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws. Generally, the old notes that are not exchanged for exchange notes pursuant to the exchange offer will remain restricted securities and may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Other than in connection with this exchange offer, we do not intend to register the old notes under the Securities Act.

To the extent any old notes are tendered and accepted in the exchange offer, the trading market, if any, for the applicable series of old notes that remain outstanding after the exchange offer would be adversely affected due to a reduction in market liquidity.

Each of the risks described in this section with respect to the exchange notes are equally applicable to the old notes.

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THE EXCHANGE OFFER

General

In connection with the issuance of $350.0 million old Dollar Notes and 100.0 million of old Euro Notes in March 2006, we entered into two registration rights agreements, one each with the initial purchasers for each series of old notes, which provide for the exchange offer. A copy of each of the registration rights agreements is filed as an exhibit to the registration statement of which this prospectus is a part.

Under the registration rights agreements, we agreed to:

| | file and cause to become effective a registration statement with
respect to an offer to exchange the old notes (including
2.0 million of unregistered old Euro Notes issued in
March 2005) for the exchange notes; or |
| --- | --- |
| | in certain circumstances file and cause to become effective a
shelf registration statement with respect to the resale of the
old notes. |

The exchange offer being made hereby, if completed within 210 days after March 17, 2006 will satisfy those requirements under the registration rights agreements. If the exchange offer is not completed within 210 days of March 17, 2006 and a shelf registration statement has not been declared effective, then the interest rates on the old notes will increase by 0.25% per annum during the 90-day period immediately following the expiration of the 180-day period and will increase by 0.25% per annum at the end of each subsequent 90-day period until the exchange offer is completed or a shelf registration statement is declared effective. In no event shall the additional interest exceed 1.00% per annum.

Purpose and Effect of the Exchange Offer

The exchange offer will give holders of old notes the opportunity to exchange the old notes, including the 2.0 million of unregistered old Euro Notes issued in March 2005, for exchange notes that have been registered under the Securities Act. The Dollar Exchange Notes and the Euro Exchange Notes will be substantially similar in all material respects to the old Dollar Notes and old Euro Notes, respectively. We are subject to the informational requirements of the Exchange Act. To satisfy those requirements, we file reports and other information with the SEC that will be made available to the holders of the old notes, if any are outstanding after the exchange offer, and the exchange notes and the general public.

The exchange offer is not being made to, nor will we accept tenders for exchange from, holders of old notes in any jurisdiction in which the exchange offer or the acceptance of it would not be in compliance with the securities or blue sky laws of the jurisdiction.

If you participate in the exchange offer, you will receive an exchange note of equal principal amount and with limited exceptions, receive securities that are freely tradable and not subject to restrictions on transfer. See Resales of Exchange Notes for more information relating to your ability to transfer the exchange notes.

If you are eligible to participate in this exchange offer and you do not tender your unregistered notes as described in this prospectus, you will not have any further registration rights, except in limited circumstances. Old notes will continue to bear interest at the current rate and will continue to be subject to all of the terms and conditions specified in the indenture, including restrictions on transfer under the Securities Act.

Each broker-dealer that receives exchange notes for its own account in exchange for old notes, where the broker-dealer acquired such old notes as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. Please read Plan of Distribution for more details regarding the transfer of exchange notes.

Terms of the Exchange Offer

Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept for exchange any old notes properly tendered and not withdrawn before expiration of the exchange offer. The date of acceptance for exchange of the old notes and completion of the exchange offer is the exchange date, which

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will be the first business day following the expiration date unless we extend the date as described in this prospectus. The old Dollar Notes may be tendered only in a minimum denomination of $10,000 and integral multiples of $1,000 principal amount thereafter and old Euro Notes may be tendered only in integral multiples of 50,000. The exchange notes will be delivered on the earliest practicable date following the exchange date.

The form and terms of the exchange notes will be substantially identical to the form and terms of the respective series of old notes, except the exchange notes:

	will be registered under the Securities Act; and
	will not bear legends restricting their transfer.

The exchange notes will evidence the same debt as the old notes. The exchange notes will be issued under and entitled to the benefits of the same indenture that authorized the issuance of the applicable series of old notes. For a description of the indentures, see the captions Description of Euro Exchange Notes and Description of Dollar Exchange Notes.

The exchange offer is not conditioned upon any minimum aggregate principal amount of old notes being tendered for exchange.

As of the date of this prospectus, $350.0 million aggregate principal amount of the old Dollar Notes and 102.0 million aggregate principal amount of the old Euro Notes are outstanding. There will be no fixed record date for determining registered holders of old notes entitled to participate in the exchange offer.

We intend to conduct the exchange offer in accordance with the applicable requirements of the Securities Act, the Exchange Act, and the rules and regulations of the SEC. Old notes that are not exchanged in the exchange offer will remain outstanding and continue to accrue interest and will be entitled to the rights and benefits their holders have under the indentures relating to the old notes and the exchange notes.

We will be deemed to have accepted for exchange properly tendered old notes when we have given oral or written notice of the acceptance to the exchange agent. The exchange agent will act as agent for the holders of old notes who surrender them in the exchange offer for the purposes of receiving the exchange notes from us and delivering the exchange notes to their holders. The exchange agent will make the exchange as promptly as practicable on or after the date of acceptance for exchange of the old notes. The exchange date will be the first business day following the expiration date unless it is extended as described in this prospectus. We expressly reserve the right to amend or terminate the exchange offer, and not to accept for exchange any old notes not previously accepted for exchange, upon the occurrence of any of the conditions specified below under the caption Conditions.

Holders who tender old notes in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of old notes. We will pay all charges and expenses, other than applicable taxes described below, in connection with the exchange offer. It is important that you read the caption Fees and Expenses for more details regarding fees and expenses incurred in the exchange offer.

Expiration of the Exchange Offer; Extensions; Amendments

The exchange offer will expire at 11:59 p.m., New York City time, on , 2006. The exchange offer can be extended by us in our sole discretion, in which case the term expiration date shall mean the latest date and time to which the exchange offer is extended.

In order to extend the exchange offer, we will notify the exchange agent orally, confirmed in writing, or in writing, of any extension. We will notify the registered holders of old notes by public announcement of the extension no later than 11:59 p.m., New York City time, on the business day after the previously scheduled expiration of the exchange offer.

Without limiting the manner in which we may choose to make public announcements of any delay in acceptance, extension, termination or amendment of the exchange offer, we will have no obligation to publish,

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advertise, or otherwise communicate any public announcement, other than by making a timely release to a financial news service.

Conditions

Despite any other term of the exchange offer, we will not be required to accept for exchange any old notes and we may terminate or amend the exchange offer as provided in this prospectus before accepting any old notes for exchange if in our reasonable judgment:

| | the exchange notes to be received will not be tradeable by the
holder, without restriction under the Securities Act and the
Exchange Act and without material restrictions under the blue
sky or securities laws of substantially all of the states of the
United States; |
| --- | --- |
| | the exchange offer, or the making of any exchange by a holder of
old notes, would violate applicable law or any applicable
interpretation of the staff of the SEC; or |
| | any action or proceeding has been instituted or threatened in
any court or by or before any governmental agency with respect
to the exchange offer that would reasonably be expected to
impair our ability to proceed with the exchange offer. |

We will not be obligated to accept for exchange the old notes of any holder that has not made to us:

| | the representations described under the caption
Resale of Exchange Notes; and |
| --- | --- |
| | any other representations that may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make
available to us an appropriate form for registration of the
exchange notes under the Securities Act. |

We expressly reserve the right, at any time or at various times, to extend the period of time during which the exchange offer is open. Consequently, we may delay acceptance of any old notes by giving oral or written notice of an extension to their holders. During an extension, all old notes previously tendered will remain subject to the exchange offer, and we may accept them for exchange. We will return any old notes that we do not accept for exchange for any reason without expense to their tendering holder as promptly as practicable after the expiration or termination of the exchange offer.

We expressly reserve the right to amend or terminate the exchange offer and to reject for exchange any old notes not previously accepted for exchange, upon the occurrence of any of the conditions of the exchange offer specified above. By public announcement we will give oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the old notes as promptly as practicable. If we amend the exchange offer in a manner that we consider material, we will disclose the amendment by means of a prospectus supplement.

These conditions are solely for our benefit and we may assert them regardless of the circumstances that may give rise to them or waive them in whole or in part at any time or at various times in our sole discretion. If we fail at any time to exercise any of the foregoing rights, this failure will not constitute a waiver of that right. Each of these rights will be deemed an ongoing right that we may assert at any time or at various times.

We will not accept for exchange any old notes tendered, and will not issue exchange notes in exchange for any old notes, if at that time a stop order is threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture under the Trust Indenture Act of 1939.

Procedures for Tendering

We have forwarded to you, along with this prospectus, a letter of transmittal relating to this exchange offer. Because all of the old notes are held in book-entry accounts maintained by the exchange agent at DTC, Euroclear or Clearstream, Luxembourg, a holder need not submit a letter of transmittal. However, all holders who exchange their old notes for exchange notes in accordance with the procedures outlined below will be deemed to have acknowledged receipt of, and agreed to be bound by, and to have made all of the representations and warranties contained in the letter of transmittal.

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Only a registered holder of record of old notes may tender old notes in the exchange offer. To tender in the exchange offer, a registered holder must comply with the following procedures, as applicable:

| | Registered holders of old Dollar Notes: You
may either (i) complete a letter of transmittal and deliver
it to the exchange agent, together with any corresponding
certificate or certificates representing your old Dollar Notes,
or (ii) if you hold your old Dollar Notes in book-entry
form and are a DTC participant, you may follow the procedures
for book-entry transfer as provided under
Book-Entry Transfer. |
| --- | --- |
| | Registered holders of old Euro Notes: Pursuant
to their internal guidelines, Euroclear and Clearstream,
Luxembourg will automatically exchange old Euro Notes for Euro
Exchange Notes on behalf of the holders of the old Euro Notes.
If you do not wish to participate in the exchange offer, you
must instruct Euroclear or Clearstream, Luxembourg, as the case
may be, to Take No Action; otherwise your old Euro
Notes will automatically be tendered in the exchange offer, and
you will be deemed to have agreed to be bound by the terms of
the letter of transmittal. |

If you are a beneficial owner of old notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you may request your respective broker, dealer, commercial bank, trust company or other nominee to effect the above transactions for you:

| | Beneficial owners of old Dollar Notes: If you
want to tender old notes in the exchange offer, you should
contact the registered holder promptly and instruct the
registered holder to tender on your behalf. |
| --- | --- |
| | Beneficial owners of old Euro Notes: If you do
not wish to tender your old Euro Notes in the exchange offer,
you should contact the registered holder promptly and instruct
the registered holder to instruct Euroclear and Clearstream,
Luxembourg, as the case may be, to Take No Action on
your behalf; otherwise your old Euro Notes will automatically be
tendered in the exchange offer, and you will be deemed to have
agreed to be bound by the terms of the letter of transmittal. |

Alternatively, if you are a beneficial owner and you wish to act on your own behalf in connection with the exchange offer, you must either make appropriate arrangements to register ownership of the old notes in your name or obtain a properly completed bond power from the registered holder.

The tender by a holder that is not withdrawn before expiration of the exchange offer will constitute an agreement between that holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal. If a holder tenders less than all of the old notes held by this holder, this tendering holder should so indicate. The amount of old notes delivered to the exchange agent will be deemed to have been tendered unless otherwise indicated.

The method of delivery of old notes, the letter of transmittal and all other required documents or transmission of an agents message, as described under Book Entry Transfer, to the exchange agent is at the election and risk of the holder. Rather than mail these items, we recommend that holders use an overnight or hand delivery service. In all cases, holders should allow sufficient time to assure delivery to the exchange agent before expiration of the exchange offer. Holders should not send the letter of transmittal or old notes to us. Delivery of documents to DTC, Euroclear or Clearstream, Luxembourg in accordance with their respective procedures will not constitute delivery to the exchange agent.

The transfer of registered ownership may take considerable time and may not be completed prior to the expiration date. If the applicable letter of transmittal is signed by the record holder(s) of the old notes tendered, the signature must correspond with the name(s) written on the face of the old note without alteration, enlargement or any change whatsoever. If a letter of transmittal is signed by a participant in DTC or Euroclear or Clearstream, Luxembourg, as applicable, the signature must correspond with the name as it appears on the security position listing as the holder of the old notes.

A signature on a letter of transmittal or a notice of withdrawal must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank

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or trust company having an office or correspondent in the United States or an eligible guarantor institution within the meaning of Rule 17Ad-15 under the Exchange Act, unless the old notes tendered pursuant thereto are tendered:

| | by a registered holder who has not completed the box entitled
Special Registration Instructions or Special
Delivery Instructions on the letter of transmittal; or |
| --- | --- |
| | for the account of an eligible institution. |

If a letter of transmittal is signed by a person other than the registered holder of any old notes, the old notes must be endorsed or accompanied by a properly completed bond power. The bond power must be signed by the registered holder as the registered holders name appears on the old notes and an eligible institution must guarantee the signature on the bond power.

If a letter of transmittal or any old notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, these persons should so indicate when signing. Unless we waive this requirement, they should also submit evidence satisfactory to us of their authority to deliver the letter of transmittal.

We will determine in our sole discretion all questions as to the validity, form, eligibility, including time of receipt, acceptance and withdrawal of tendered old notes. Our determination will be final and binding. We reserve the absolute right to reject any old notes not properly tendered or any old notes the acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular old notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties.

Unless waived, any defects or irregularities in connection with tenders of old notes must be cured within the time that we determine. Although we intend to notify holders of defects or irregularities with respect to tenders of old notes, neither we, the exchange agent nor any other person will incur any liability for failure to give notification. Tenders of old notes will not be deemed made until those defects or irregularities have been cured or waived.

Any old notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent without cost to the tendering holder, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date.

In addition, we reserve the right in our sole discretion to (a) purchase or make offers for any old notes that remain outstanding subsequent to the expiration date, and (b) to the extent permitted by applicable law, purchase old notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers may differ from the terms of the exchange offer.

Book-entry Transfer

The exchange agent has established an account with respect to the old notes at DTC for the purpose of facilitating the exchange offer. Any financial institution that is a participant in DTCs system may make book-entry delivery of old notes by causing DTC to transfer such old notes into the exchange agents DTC account in accordance with DTCs Automated Tender Offer Program procedures for such transfer. Pursuant to their internal guidelines, Euroclear and Clearstream, Luxembourg will automatically exchange old Euro Notes for Euro Exchange Notes on behalf of the holders of the old Euro Notes. If they do not wish to participate in the exchange offer, the registered holder of old Euro Notes on the records of Euroclear or Clearstream, Luxembourg must instruct Euroclear or Clearstream, Luxembourg, as the case may be, to Take No Action; otherwise such old Euro Notes will be tendered in the exchange offer, and the holder of such notes will be deemed to have agreed to be bound by the terms of the letter of transmittal. The exchange for old notes so tendered will only be made after a timely confirmation of a book-entry transfer of old notes into the exchange agents account, and timely receipt by the exchange agent of an agents message.

The term agents message means a message transmitted by DTC, Euroclear or Clearstream as the case may be, and received by the exchange agent and forming part of the confirmation of a book-entry transfer, which states that DTC has received an express or deemed acknowledgment from a participant tendering old notes and that the participant has received and agrees to be bound by the terms of the letter of transmittal, and that we may enforce that

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agreement against the participant. Delivery of an agents message will also constitute an acknowledgement from the tendering participant that the representations contained in the appropriate letter of transmittal and described below are true and correct.

Resale of Exchange Notes:

By signing the letter of transmittal, or causing DTC, Euroclear or Clearstream, Luxembourg, as applicable, to transmit an agents message to the exchange agent, each tendering holder of old notes will represent to us that, among other things:

| | any exchange notes that the holder receives will be acquired in
the ordinary course of its business; |
| --- | --- |
| | the holder has no arrangement or understanding with any person
or entity to participate in the distribution of the exchange
notes; |
| | if the holder is not a broker-dealer, that it is not engaged in
and does not intend to engage in the distribution of the
exchange notes; |
| | if the holder is a broker-dealer that will receive exchange
notes for its own account in exchange for old notes that were
acquired as a result of market-making activities or other
trading activities, that it will deliver a prospectus, as
required by law, in connection with any resale of those exchange
notes (see the caption Plan of
Distribution); and |
| | the holder is not an affiliate of ours, as defined
in Rule 405 of the Securities Act. |

Withdrawal of Tenders

Except as otherwise provided in this prospectus, holders of old notes may withdraw their tenders at any time before expiration of the exchange offer.

For a withdrawal to be effective:

| | The exchange agent must receive a written notice of withdrawal,
which may be by telegram, telex, facsimile transmission or
letter, at one of the addresses set forth below under the
caption Exchange Agent; or |
| --- | --- |
| | the exchange agent must receive a computer-generated notice of
withdrawal transmitted by DTC, Euroclear or Clearstream,
Luxembourg, on behalf of the holder in accordance with the
standard operating procedures of DTC or Euroclear or
Clearstream, Luxembourg. |

Any notice of withdrawal must:

| | specify the name of the person who tendered the old notes to be
withdrawn; |
| --- | --- |
| | identify the old notes to be withdrawn, including the
certificate number or numbers and principal amount of the old
notes to be withdrawn; |
| | be signed by the person who tendered the old notes in the same
manner as the original signature on the letter of transmittal,
including any required signature guarantees; and |
| | specify the name in which the old notes are to be re-registered,
if different from that of the withdrawing holder. |

If old notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC or Euroclear or Clearstream, Luxembourg, as applicable, to be credited with the withdrawn old notes and otherwise comply with the procedures of the facility.

We will determine all questions as to the validity, form and eligibility, including time of receipt, of notices of withdrawal, and our determination shall be final and binding on all parties. We will deem any old notes so withdrawn not to have been validly tendered for exchange for purposes of the exchange offer. We will return any old notes that have been tendered for exchange but that are not exchanged for any reason to their holder without cost to the holder as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. You may

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retender properly withdrawn old notes by following one of the procedures described under the caption Procedures for Tendering above at any time on or before expiration of the exchange offer.

Exchange Agent

Citibank, N.A., London branch has been appointed as exchange agent for the exchange offer. You should direct questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for the notice of withdrawal to the exchange agent addressed as follows:

For All Deliveries:

Citibank, N.A.

21 st Floor

Citigroup Centre, Canada Square,

London E14 5LB, United Kingdom

Attention: Exchange Team

By Facsimile Transmission (for Eligible Institutions Only): +44-20-7508-3867

callerid=999 iwidth=455 length=84

To Confirm by Telephone or for Information Call: +44-20-7508-3866

callerid=999 iwidth=455 length=84

Delivery of the letter of transmittal to an address other than as shown above or transmission via facsimile other than as set forth above does not constitute a valid delivery of the letter of transmittal.

Fees and Expenses

We will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, we may make additional solicitations by facsimile, telephone or in person by our officers and regular employees and those of our affiliates.

We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to broker-dealers or others soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and reimburse it for its related reasonable out-of-pocket expenses.

We will pay the cash expenses to be incurred in connection with the exchange offer, including the following:

	SEC registration fees;
	fees and expenses of the exchange agent and trustee;
	our accounting and legal fees; and
	our printing and mailing costs.

Transfer Taxes

We will pay all transfer taxes, if any, applicable to the exchange of old notes under the exchange offer. The tendering holder, however, will be required to pay any transfer taxes, whether imposed on the registered holder or any other person, if:

| | certificates representing old notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are
to be issued in the name of, any person other than the
registered holder of old notes tendered; |
| --- | --- |
| | exchange notes are to be delivered to, or issued in the name of,
any person other than the registered holder of the old notes; |

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| | tendered old notes are registered in the name of any person
other than the person signing the letter of transmittal; or |
| --- | --- |
| | a transfer tax is imposed for any reason other than the exchange
of old notes under the exchange offer. |

If satisfactory evidence of payment of transfer taxes is not submitted with the letter of transmittal, the amount of any transfer taxes will be billed to the tendering holder.

Accounting Treatment

As the terms of the exchange notes and the old notes are identical in all material respects, we will record the exchange notes in our accounting records at the same carrying value as the old notes, which is the aggregate principal amount, as reflected in our accounting records on the date of exchange. Accordingly, we will not recognize any gain or loss for accounting purposes in connection with the exchange offer. Costs of the exchange offer will be deferred and amortized to interest expense over the term of the notes.

Other

Participation in the exchange offer is voluntary, and you should carefully consider whether to accept. We urge you to consult your financial and tax advisors in making your own decision on what action to take.

We may in the future seek to acquire untendered old notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. However, we have no present plans to acquire any old notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any untendered old notes.

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USE OF PROCEEDS

We will not receive any cash proceeds from the issuance of the exchange notes under the exchange offer. In consideration for issuing the exchange notes as contemplated by this prospectus, we will receive the old notes in like principal amount, the terms of which are identical in all material respects to the exchange notes. The old notes surrendered in exchange for the exchange notes will be retired and canceled and cannot be reissued. Accordingly, the issuance of the exchange notes will not result in any increase in our indebtedness or capital stock.

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of February 26, 2006 and as adjusted to give effect to (i) the issuance of $350.0 million of our Dollar Notes and 100.0 million of our Euro Notes in March 2006 and (ii) our prepayment of our senior secured term loan in March 2006. The table does not give effect to the impact of the May 2006 amendment to our revolving credit facility (including amendment fees payable to the lenders or the write-off of any unamortized debt issuance costs) or interest expense accrued under the facility since February 26, 2006, none of which is material. This table should be read in conjunction with our audited and unaudited consolidated financial statements and the related notes to those consolidated financial statements included elsewhere in this prospectus.

| | As of February 26,
2006 — Actual | As Adjusted | | |
| --- | --- | --- | --- | --- |
| | (Dollars in thousands) | | | |
| Cash and cash equivalents | $ 281,433 | $ | 232,009 | (1) |
| Total debt (including current
portion): | | | | |
| Senior secured term loan due 2009 | $ 488,750 | $ | | (1) |
| Senior secured revolving credit
facility due 2011 | | (2) | | (3) |
| Notes payable, at various rates | 111 | | 111 | |
| Short-term borrowings | 10,104 | | 10,104 | |
| 7.00% senior unsecured notes
due 2006: | | | | |
| Principal | 77,857 | | 77,857 | |
| Unamortized
discount | (54 | ) (4) | (54 | ) (4) |
| 12.25% senior unsecured notes
due 2012 | 571,993 | | 571,993 | |
| Floating rate senior unsecured
notes due 2012 | 380,000 | | 380,000 | |
| 8.625% Euro denominated senior
unsecured notes due 2013 | 178,575 | (5) | 304,265 | (6) |
| 4.25% Yen denominated unsecured
Eurobond due 2016 | 171,453 | | 171,453 | |
| 9.75% senior unsecured notes
due 2015 | 450,000 | | 450,000 | |
| 8.875% senior unsecured notes
due 2016 | | | 350,000 | |
| Total debt, excluding capital
leases | $ 2,328,789 | $ | 2,315,729 | |
| Total stockholders deficit | (1,166,898 | ) | (1,187,730 | ) (7) |
| Total capitalization | $ 1,161,891 | $ | 1,127,999 | |

callerid=999 iwidth=455 length=60

| (1) | Represents the application of all
of the $475.7 million gross proceeds from the issuance of
$350.0 million aggregate principal amount of our Dollar
Notes and 100.0 million aggregate principal amount of
our Euro Notes in March 2006, plus cash on hand of
$49.4 million, to (a) prepay all outstanding amounts
under our senior secured term loan, including principal of
$488.8 million as of February 26, 2006, (b) pay
accrued and unpaid interest of $7.5 million through the
prepayment date of March 17, 2006, (c) pay premiums of
$16.9 million in connection with prepayment of the term
loan, and (d) pay the fees and expenses for the March 2006
offering of $12.0 million. |
| --- | --- |
| (2) | Consists of a revolving credit
facility with a floating rate of interest that matures on
September 23, 2011. See Description of Other
Indebtedness Senior Secured Revolving Credit
Facility. As of February 26, 2006, we would have had
approximately $220.7 million of additional borrowing
capacity under the facility, after giving effect to (i) our
utilization of credit-related instruments such as documentary
and standby letters of credit and (ii) our reserving
$77.9 million of availability. See note (3) below. |
| (3) | In 1996, we issued
$450.0 million in aggregate principal amount of 2006 Notes.
In January 2005, pursuant to a tender offer, we repurchased
$372.1 million in aggregate principal amount of these
notes. Our revolving credit facility contained a covenant that
required us, as a condition to prepaying our senior secured term
loan, to fully repay, redeem, repurchase, or defease the
remaining $77.9 million aggregate principal amount of our
2006 Notes, or alternatively, by reserving cash or availability
under the revolving credit facility sufficient to repay the 2006
Notes so long as we still had at least $150.0 million of
borrowing availability under the revolving credit facility. See
Description of Other Indebtedness Senior
Secured Revolving Credit Facility. We complied with this
covenant by reserving borrowing availability of
$77.9 million in accordance with the requirements of the
revolving credit facility. |
| (4) | Reflects the remaining unamortized
discount on the remaining $77.9 million of 2006 Notes. |
| (5) | Reflects previous issuance of
150.0 million of Euro Notes (based on a USD/Euro
exchange rate of 1.1905 to 1 as of February 26, 2006). |
| (6) | Reflects previous issuance of
150.0 million of Euro Notes in March 2005 (based on a
USD/Euro exchange rate of 1.1905 to 1 as of February 26,
2006) and 100.0 million of Euro Notes in March
2006 at 103.5% (based on a USD/Euro exchange rate of 1.2144 to 1
as of March 17, 2006). We will amortize the original
issuance premium of $4.3 million (based on a USD/Euro
exchange rate of 1.2144 to 1 as of March 17, 2006) on
the Euro Notes issued in March 2006 over the life of the notes. |
| (7) | Reflects the after-tax effect of
(a) premiums, fees, and interest expense (which has not
been accrued) paid in connection with the prepayment of the term
loan of $11.8 million, and (b) the write-off of
unamortized debt issuance costs associated with the term loan of
$9.0 million. |

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SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth our selected historical consolidated financial data. The summary statements of operations data and cash flow data for fiscal years 2001 and 2002 and the consolidated balance sheet data as of November 25, 2001, November 24, 2002, and November 30, 2003 are derived from our consolidated financial statements that have been audited by KPMG LLP, an independent registered public accounting firm, but are not included in this prospectus. The summary statements of operations data and cash flow data for fiscal years 2003, 2004 and 2005 and the consolidated balance sheet data as of November 28, 2004 and November 27, 2005 are derived from our consolidated financial statements that have been audited by KPMG LLP, an independent registered public accounting firm, and are included in this prospectus. The data for the three months ended February 26, 2006 and February 27, 2005 have been derived from our unaudited consolidated financial statements which, in our opinion, contain all adjustments necessary for a fair presentation of the financial position and the results of operations for these periods, and are included in this prospectus. The results of operations for the three months ended February 26, 2006 may not be indicative of our results to be expected for any other interim period or the year ending November 26, 2006.

The financial data set forth below should be read in conjunction with, and are qualified by reference to, Managements Discussion and Analysis of Financial Condition and Results of Operations, our audited and unaudited consolidated financial statements and the related notes to those financial statements, included elsewhere in this prospectus. Certain prior year amounts have been reclassified to conform to the 2006 presentation.

	Three Months Ended — February 26,	February 27,			Year Ended — November 27,		November 28,	November 30,			November 24,	November 25,
	2006	2005			2005		2004	2003			2002	2001
	(Dollars in thousands)
Statements of Operations
Data:
Net sales	$ 940,191	$	1,005,872		$ 4,125,155		$ 4,072,455	$	4,090,730		$ 4,145,866	$	4,276,025
Licensing
revenue (1)	19,767		13,399		73,879		57,117		43,973		37,214		35,829
Net
revenues (1)	959,958		1,019,271		4,199,034		4,129,572		4,134,703		4,183,080		4,311,854
Cost of goods sold	502,522		519,287		2,236,963		2,288,406		2,516,521		2,456,191		2,492,275
Gross profit	457,436		499,984		1,962,071		1,841,166		1,618,182		1,726,889		1,819,579
Selling, general and administrative
expenses	285,099		314,648		1,364,407		1,350,020		1,218,509		1,358,889		1,383,656
Gain on disposal of assets	(1,243	)	(1,362	)	(5,750	)	(3,576	)	(2,685	)	(1,600	)	(1,620	)
Other operating
income (1)	(244	)	(298	)	(2,479	)
Restructuring charges, net of
reversals (2)	3,187		3,190		16,633		133,623		89,009		115,455		(4,853	)
Operating income	170,637		183,806		589,260		361,099		313,349		254,145		442,396
Interest expense	66,297		68,330		263,650		260,124		254,265		186,493		219,956
Loss on early extinguishment of
debt (3)	7		23,006		66,066				39,353				10,816
Other (income) expense, net	(1,148	)	(3,959	)	(23,057	)	5,450		51,023		41,065		(11,024	)
Income (loss) before income
taxes (4)	105,481		96,429		282,601		95,525		(31,292	)	26,587		222,648
Income tax
expense (4)	51,667		49,110		126,654		65,135		318,025		19,248		128,986
Net income (loss)	$ 53,814	$	47,319		$ 155,947		$ 30,390	$	(349,317	)	$ 7,339	$	93,662
Statements of Cash Flow
Data:
Cash flows from operating activities	$ 54,384	$	(80,596	)	$ (43,777	)	$ 199,896	$	(190,650	)	$ 200,729	$	189,039
Cash flows from investing activities	(8,994	)	(4,724	)	(34,657	)	(12,930	)	(84,484	)	(59,353	)	(17,230	)
Cash flows from financing activities	(5,494	)	8,517		23,072		(32,120	)	349,096		(143,558	)	(186,416	)

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	Three Months Ended — February 26,	February 27,		November 27,		November 28,		November 30,		November 24,		November 25,
	2006	2005		2005		2004		2003		2002		2001
	(Dollars in thousands)
Balance Sheet Data (at period
end):
Cash and cash equivalents	$ 281,433	$	223,139	$	239,584	$	299,596	$	143,445	$	64,446	$	65,060
Working capital	707,921		756,034		657,374		609,072		778,311		582,918		683,090
Total assets	2,739,852		2,809,755		2,813,648		2,886,002		2,923,267		3,000,888		2,951,266
Total debt, excluding capital leases	2,328,789		2,342,372		2,326,699		2,323,888		2,316,429		1,846,977		1,958,433
Total capital leases	5,260		7,037		5,587		7,441
Stockholders
deficit (5)	(1,166,898	)	(1,322,588	)	(1,222,085	)	(1,370,924	)	(1,393,172	)	(1,028,329	)	(951,278	)
Other Financial Data:
Depreciation and amortization	$ 16,330	$	15,181	$	59,423	$	62,606	$	64,176	$	70,354	$	80,619
Capital expenditures	9,740		4,668		41,868		16,299		68,608		59,088		22,541
Ratio of earnings to fixed
charges (6)	2.5	x	2.3	x	2.0	x	1.3	x			1.1	x	1.9	x
Deficit of earnings to fixed
charges (7)								$	29,747

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| (1) | Commencing with the three months
ended February 26, 2006, royalties earned from the use of
our trademarks in connection with the manufacturing,
advertising, distribution and sale of products by third-party
licensees have been classified as Licensing revenue.
In prior periods such amounts were included in Other
operating income. These prior year amounts have been
reclassified to conform to the current presentation. We made the
change in presentation primarily because of the increased
contribution of licensing arrangements to our consolidated
operating income, and we have identified potential expansion of
the licensing programs as one of our key business strategies.
Licensing revenues are earned and recognized as products are
sold by licensees based on royalty rates as set forth in the
licensing agreements. Costs relating to our licensing business
are included in Selling, general and administrative
expense. Such costs are insignificant. For more
information about this change in presentation, see Note 1
to our unaudited consolidated financial statements for the three
months ended February 26, 2006 included herein. |
| --- | --- |
| (2) | We reduced overhead expenses and
eliminated excess manufacturing capacity through extensive
restructuring initiatives executed since 1997, including closing
45 of our owned and operated production and finishing facilities
worldwide and reducing the number of our employees worldwide by
approximately 26,000. Due to lower than anticipated costs, we
reversed reserve balances relating to these activities of
$0.7 million, $1.5 million, $6.3 million,
$8.5 million, $15.4 million, $26.6 million,
$27.2 million for the three month periods ended
February 26, 2006 and February 27, 2005 and in fiscal
years 2005, 2004, 2003, 2002 and 2001, respectively. For more
information about our restructuring initiatives, see Note 3
to our audited consolidated financial statements and Note 2
to our unaudited consolidated financial statements. |
| (3) | For the three months ended
February 27, 2005 and the fiscal years 2005, 2003 and 2001,
we recorded a loss on early extinguishment of debt of
$23.0 million, $66.1 million, $39.4 million and
$10.8 million, respectively, as a result of our debt
refinancing activities during those periods. For more
information, see Note 1 to our audited consolidated
financial statements and our unaudited consolidated financial
statements. |
| (4) | In January 2004, we revised the
forecast we used in valuing our net deferred tax assets for
2003. Based on this revised long-term forecast, we increased our
valuation allowance against deferred tax assets by
$282.4 million for 2003. For more information about our
deferred taxes, see Note 4 to our audited consolidated financial
statements. |
| (5) | Stockholders deficit
primarily resulted from a 1996 recapitalization transaction in
which our stockholders created new long-term governance
arrangements for us, including the voting trust and
stockholders agreement. Funding for cash payments in the
recapitalization was provided in part by cash on hand and in
part from approximately $3.3 billion in borrowings under
bank credit facilities. |
| (6) | For the purpose of computing the
ratio of earnings to fixed charges, earnings are defined as
income from continuing operations before income taxes, plus
fixed charges and minority interest in consolidated
subsidiaries. Fixed charges are defined as the sum of interest
on all indebtedness, amortization of debt issuance costs and
that portion of rental expense which we believe to be
representative of an interest factor. |
| (7) | The deficit of earnings to fixed
charges represents the amount of earnings that would be required
to increase the ratio of earnings to fixed charges to 1.0 in
those cases where earnings are less than the total fixed charges. |

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Our Company

We are one of the worlds leading branded apparel companies. We design and market jeans and jeans-related pants, casual and dress pants, tops, jackets and related accessories for men, women and children under our Levis ® , Dockers ® and Levi Strauss Signature ® brands. We also license our trademarks in various countries throughout the world for accessories, pants, tops, footwear, home and other products.

We derive approximately 47% of our net revenues from operations outside the United States. Our products are available at over 55,000 retail locations worldwide. We market Levis ® brand products in over 110 countries, Dockers ® brand products in over 50 countries and Levi Strauss Signature ® brand products in the United States and eleven other countries.

We distribute our Levis ® and Dockers ® products primarily through chain retailers and department stores in the United States and primarily through department stores, specialty retailers and franchised stores abroad. We also distribute our products through company-operated stores located in the United States, Europe and Asia. We distribute our Levi Strauss Signature ® products primarily through mass channel retailers in the United States and abroad.

Trends Affecting our Business

We believe the key marketplace factors affecting us include the following:

| | Apparel markets are mature in developed markets such as the
United States, western Europe and Japan due in part to
demographic shifts and the existence of appealing alternative
discretionary purchases. |
| --- | --- |
| | Brand proliferation is increasing around the world as barriers
to entry fall and companies compete with brands targeted for
specific consumer and retail segments. |
| | There is a shift in the United States in purchasing and
negotiating power from suppliers to retailers as retailers
consolidate due to mergers and acquisitions, and build their own
competitive private label offerings. |
| | Consumer shopping patterns in many markets have moved toward
both ends of the pricing spectrum (premium and value), while at
the same time a shift has occurred in distribution toward
channels in which our brands have not traditionally had a strong
presence, such as vertically integrated specialty stores and
mass channel retailers. |
| | There is an increased availability of quality, global low-cost
sourcing, which can have an adverse impact on pricing, barriers
to entry and relative competitive advantage. |

These factors contribute to a market environment of intense competition and continuing cost and pricing pressure throughout the value chain from supplier to consumer.

Our Business Transformation

We began several years ago executing an integrated set of strategic, operational and organizational initiatives designed to transform our business and address trends and dynamics in the global apparel marketplace. These actions include the following:

| | strengthening our management team, rationalizing and revamping
our core product lines and improving our speed to market and
responsiveness to trends and consumer preferences; |
| --- | --- |
| | improving the economics for our
Levis ® and
Dockers ® retailers, launching our Levi Strauss
Signature ® brand in mass channel retailers in North America, Europe and
Asia, accelerating our growth in Asia, expanding our network of
dedicated
Levis ® Stores and increasing our licensing activities; and |

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enhancing our global sourcing and product innovation capabilities and reducing our cost of goods and operating expenses by increasing our outsourced contract production and streamlining our organization.

As a result of these and other initiatives, we have substantially improved our financial condition and profitability. Our net revenues in 2005 increased as compared to 2004, ending an eight-year decline. Our operating margin improved from 8.7% in 2004 to 14.0% in 2005 and our operating income improved from $361.1 million in 2004 to $589.3 million in 2005. Our organizational streamlining and cost reductions enabled us to increase our investment in advertising and promotion activities in 2005 as part of our continuing effort to build our brands and strengthen our retail relationships. We also had lower restructuring expenses and we reached agreements with the Internal Revenue Service to close our open 1986 1999 tax years.

We also have improved our financial condition by executing a series of actions, including our senior note financings in December 2004 and early 2005, that extended our senior note maturities on more favorable terms. In March 2006, we prepaid the remaining balance of our senior secured term loan, consisting of principal of approximately $488.8 million as of February 26, 2006, with the net proceeds from the old Euro Notes and the old Dollar Notes we issued in March 2006, as well as cash on hand. In May 2006, we amended our senior secured revolving credit facility on more favorable terms. For more information relating to the prepayment of our term loan and our revolving credit facility, see Description of Other Indebtedness.

Changes in Presentation of Financial Information

Licensing Revenue. In 2006, we made changes to the classification of revenue generated by our licensing arrangements in our consolidated statements of operations. Commencing with our consolidated statements of income included in our Form 10-Q for the first quarter of 2006, royalties earned from the use of our trademarks in connection with the manufacturing, advertising, distribution and sale of products by third-party licensees have been classified as Licensing revenue. In prior periods such amounts were previously included in Other operating income. We now include revenues from licensing arrangements as part of our consolidated net revenues because of the increased contribution of licensing arrangements to our operating income, and we have identified the potential expansion of our licensing business as one of our key business strategies. For more information about this change in presentation, see Note 1 to our unaudited consolidated financial statements for the three months ended February 26, 2006 included herein.

Segment Reporting. In 2006, we changed our measure of segment operating income to include depreciation expense for the assets managed by our business segments. This depreciation expense was previously included as a component of our Corporate expense in our disclosure of business segment information. For more information about this change in presentation, see Note 18 to our audited consolidated financial statements for the year ended November 27, 2005 included herein.

Our audited consolidated financial statements for fiscal years 2005, 2004 and 2003, included herein, have been reclassified to conform to the changes in presentation noted above.

Our First Quarter 2006 Results

Key financial results for the three months ended February 26, 2006 were as follows:

| | Our consolidated net revenues for the first three months of 2006
were $960.0 million, a decrease of 5.8% compared to the
same period in 2005, and a decrease of approximately 4.0% on a
constant currency basis. Net revenues include our net sales and
revenues from our licensing arrangements. |
| --- | --- |
| | Our consolidated net sales for the first three months of 2006
were $940.2 million, a decrease of 6.5% compared to the
same period in 2005, and a decrease of approximately 4% on a
constant currency basis. Our net sales decrease for the period
was driven primarily by decreased net sales in our Europe region
and our U.S. Levi Strauss
Signature ® brand and the translation impact of foreign currencies. These
decreases were partially offset by increased net sales in our
U.S. Dockers ® brand and our Asia Pacific business. |
| | Our consolidated licensing revenues for the first three months
of 2006 were $19.8 million, an increase of 47.5% compared
to the same period in 2005. The increase was primarily driven by
an increase in the number |

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of licensing arrangements and an increase in guaranteed minimum royalties under existing licensing arrangements.

| | Our gross profit decreased 8.5% for the first three months of
2006, as compared to the same period in 2005, and our gross
margin decreased 1.4 percentage points for the quarter. Our
gross profit decrease was primarily driven by lower net revenues
and gross margin in our Europe region and the translation impact
of weaker foreign currencies, partially offset by net revenue
growth in our Asia Pacific region. |
| --- | --- |
| | We had operating income of $170.6 million for the first
three months of 2006, compared to operating income of
$183.8 million for the same period of 2005. The decrease
was primarily driven by lower gross profit, partially offset by
lower selling, general and administrative expenses. Our
operating margin for the first three months of 2006 was 17.8%
compared to 18.0% for the same period in 2005. |
| | We had net income of $53.8 million for the three months
ended February 26, 2006, compared to net income of
$47.3 million for the same period in 2005. The increase was
primarily due to the $23.0 million loss on early
extinguishment of debt incurred in the first three months of
2005 and lower interest expense for the first three months of
2006, partially offset by lower operating income and higher
income tax expense. |

For the remainder of 2006, we continue to be cautious about our sales outlook in the face of:

| | continuing softness in demand for our core
Levis ® products in Europe and changes we are implementing in our
business there, including the realignment of our European retail
network to better reflect our premium positioning of our
Levis ® brand; |
| --- | --- |
| | the potential impact of retailer consolidations in the United
States, including store closings, strategic shifts and changes
in bargaining power; |
| | Wal-Marts increased emphasis on private label
products; and |
| | the unpredictability of foreign currency exchange rates. |

We remain focused on our key priorities of delivering solid and sustainable profitability and strong operating cash flows.

Our 2005 Results

Key financial results for 2005 were as follows:

| | Our consolidated net revenues for 2005 were $4.2 billion,
an increase of 1.7% compared to 2004, and an increase of
approximately 0.1% on a constant currency basis. Our net revenue
increase for the year was primarily driven by increased net
revenues in our Asia Pacific business, our U.S. Levi
Strauss
Signature ® brand and our Mexico business. These increases were partially
offset by decreased net revenues in our Europe region. |
| --- | --- |
| | Our gross profit increased 6.6% for 2005, as compared to 2004
and our gross margin increased 2.1 percentage points for
the year. Our gross profit improvement was primarily driven by
net revenue growth in our Asia Pacific region, improved
profitability of our
Levis ® brand in our international businesses, including Europe, Asia
Pacific, Canada and Mexico, the favorable translation impact of
foreign currencies, improved management of returns, allowances
and product transition costs, particularly in our
U.S. Dockers ® business and lower sourcing costs. |
| | We had operating income of $589.3 million for 2005,
compared to operating income of $361.1 million in 2004. The
increase was primarily driven by increased gross profit, lower
restructuring charges, net of reversals. The increase was
partially offset by increased selling, general and
administrative expenses primarily resulting from our increased
investment in advertising and promotions. |
| | We had net income of $155.9 million in 2005, compared to
net income of $30.4 million in 2004. The increase was due
primarily to higher operating income and lower foreign exchange
management contract losses, partially offset by the loss on
early extinguishment of debt related to our refinancing
activities, slightly higher interest expense and higher income
tax expense. |

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Results of Operations

Three Months Ended February 26, 2006 as Compared to Three Months Ended February 27, 2005

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


								February 26,		February 27,
	Three Months Ended							2006		2005
	February 26,	February 27,		$ Increase		% Increase		% of Net		% of Net
	2006	2005		(Decrease)		(Decrease)		Revenues		Revenues
	(Dollars in thousands)
Net sales	$ 940,191	$	1,005,872	$	(65,681	)	(6.5	)%	97.9	%	98.7	%
Licensing revenue	19,767		13,399		6,368		47.5	%	2.1	%	1.3	%
Net revenues	959,958		1,019,271		(59,313	)	(5.8	)%	100.0	%	100.0	%
Cost of goods sold	502,522		519,287		(16,765	)	(3.2	)%	52.3	%	50.9	%
Gross profit	457,436		499,984		(42,548	)	(8.5	)%	47.7	%	49.1	%
Selling, general and
administrative expenses	285,099		314,648		(29,549	)	(9.4	)%	29.7	%	30.9	%
Gain on disposal of assets	(1,243	)	(1,362	)	(119	)	(8.7	)%	(0.1	)%	(0.1	)%
Other operating income	(244	)	(298	)	(54	)	(18.1	)%	0.0	%	0.0	%
Restructuring charges, net of
reversals	3,187		3,190		(3	)	(0.1	)%	0.3	%	0.3	%
Operating income	170,637		183,806		(13,169	)	(7.2	)%	17.8	%	18.0	%
Interest expense	66,297		68,330		(2,033	)	(3.0	)%	6.9	%	6.7	%
Loss on early extinguishment of
debt	7		23,006		(22,999	)	(100.0	)%	0.0	%	2.3	%
Other income, net	(1,148	)	(3,959	)	(2,811	)	(71.0	)%	(0.1	)%	(0.4	)%
Income before income taxes	105,481		96,429		9,052		9.4	%	11.0	%	9.5	%
Income tax expense	51,667		49,110		2,557		5.2	%	5.4	%	4.8	%
Net income	$ 53,814	$	47,319		6,495		13.7	%	5.6	%	4.6	%

Consolidated net revenues

The following table shows our net revenues for our North America, Europe and Asia Pacific businesses and the changes in these results for the three months ended February 26, 2006 as compared to the same period in 2005:

	Three Months Ended — February 26,	February 27,	$ Increase	As		Constant
	2006	2005	(Decrease)	Reported		Currency
	(Dollars in thousands)
North America	$ 546,408	$ 562,743	$ (16,335	)	(2.9	)%	(4.0	)%
Europe	240,870	297,892	(57,022	)	(19.1	)%	(12.3	)%
Asia Pacific	172,680	158,636	14,044		8.9	%	11.8	%
Total consolidated net revenues	$ 959,958	$ 1,019,271	$ (59,313	)	(5.8	)%	(4.0	)%

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North America net revenues

The following table presents our net revenues in our North America region broken out for our U.S. brands and for Canada and Mexico, including changes in these results for the three months ended February 26, 2006 as compared to the same period in 2005:

	Three Months Ended — February 26,	February 27,	$ Increase	As		Constant
	2006	2005	(Decrease)	Reported		Currency
	(Dollars in thousands)
U.S. Levis ® brand	$ 277,116	$ 283,680	$ (6,564	)	(2.3	)%	N/A
U.S. Dockers ® brand	158,679	151,473	7,206		4.8	%	N/A
U.S. Levi Strauss
Signature ® brand	70,207	87,948	(17,741	)	(20.2	)%	N/A
Canada and Mexico	40,406	39,642	764		1.9	%	(4.7	)%
Total North America net revenues	$ 546,408	$ 562,743	$ (16,335	)	(2.9	)%	(4.0	)%

U.S. Levis ® Brand. The following table shows net sales and licensing revenue for our U.S. Levis ® brand, including the changes in these results for the three months ended February 26, 2006 as compared to the same period in 2005:

	Three Months Ended — February 26,	February 27,	$ Increase	% Increase
	2006	2005	(Decrease)	(Decrease)
	(Dollars in thousands)
U.S. Levis ® brand Net sales	$ 272,901	$ 280,047	$ (7,146	)	(2.6	)%
U.S. Levis ® brand Licensing revenue	4,215	3,633	582		16.0	%
Total
U.S. Levis ® brand net revenues	$ 277,116	$ 283,680	$ (6,564	)	(2.3	)%

Total net revenues in our U.S. Levis ® brand decreased by $6.6 million or 2.3% for the three months ended February 26, 2006 as compared to the same period in 2005. This decrease was primarily driven by:

| | lower unit sales volume of our
Levis ® brand shorts and seasonal products; unlike 2005, we will ship a
larger portion of our spring/summer products in the second
quarter of 2006; |
| --- | --- |
| | decreased net sales of our mens
SilverTab ® products, primarily resulting from reduced unit sales volume at
one of our top retailers; |
| | lower unit sales volume in our womens juniors segment,
which we attribute to increased competition from private label
and fashion brands; and |
| | the impact of door closures during the 2006 period at two of our
top retailers. |

Partially offsetting these decreases were continued strong demand for our boys products and our womens special sizes products, an increase in net sales from our company-operated Levis ® retail and outlet stores and an increase in licensing revenue as a result of license renewals with higher guaranteed minimum royalty amounts.

Net sales generated by our company-operated Levis ® retail and outlet stores increased by approximately $1.7 million, or 12.3% for the three months ended February 26, 2006 as compared to the same period in 2005, driven primarily by new stores we opened in late 2005. We opened one new store during the 2006 period, and now operate 26 stores (including our online store, www.levisstore.com ) in the United States.

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U.S. Dockers ® Brand. The following table shows net sales and licensing revenue for our U.S. Dockers ® brand, including changes in these results for the three months ended February 26, 2006 as compared to the same period in 2005:

	Three Months Ended — February 26,	February 27,
	2006	2005	$ Increase	% Increase
	(Dollars in thousands)
U.S. Dockers ® brand Net sales	$ 152,186	$ 147,221	$ 4,965	3.4 %
U.S. Dockers ® brand Licensing revenue	6,493	4,252	2,241	52.7 %
Total
U.S. Dockers ® brand net revenues	$ 158,679	$ 151,473	$ 7,206	4.8 %

Total net revenues in our U.S. Dockers ® brand increased $7.2 million or 4.8% for the three months ended February 26, 2006 as compared to the same period in 2005. The increase for the three months ended February 26, 2006 was primarily driven by the following:

| | an increase in net sales for our mens tops, driven by
additional retail store fixtures; |
| --- | --- |
| | higher unit sales volume for our shorts business as a result of
strong demand for the product and, in 2005, certain retailers
delayed their purchases of our shorts to the second quarter of
2005 as a result of cool weather; and |
| | a $2.2 million increase in licensing revenue resulting from
guaranteed minimum royalty arrangements with our licensees. |

Our mens premium pants segment continued to be a strong performer during the period, led by our Never Iron tm Cotton Khaki pant.

Partially offsetting these factors was a decrease in net sales for our mens classic pants business, primarily as a result of retail door closures.

U.S. Levi Strauss Signature ® Brand. The following table presents our net sales and licensing revenue in our U.S. Levi Strauss Signature ® brand, including the changes in these results for the three months ended February 26, 2006 as compared to the same period in 2005:

	Three Months Ended — February 26,	February 27,	$ Increase	% Increase
	2006	2005	(Decrease)	(Decrease)
	(Dollars in thousands)
U.S. Levi Strauss
Signature ® brand Net sales	$ 68,830	$ 87,186	$ (18,356	)	(21.1	)%
U.S. Levi Strauss
Signature ® brand Licensing revenue	1,377	762	615		80.7	%
Total U.S. Levi Strauss
Signature ® brand net revenues	$ 70,207	$ 87,948	$ (17,741	)	(20.2	)%

Total net revenues in our U.S. Levi Strauss Signature ® brand decreased by $17.7 million, or 20.2%, for the first three months ended February 26, 2006 as compared to the same period in 2005. The decrease for the three months ended February 26, 2006 was primarily driven by the following:

| | lower sales to Wal-Mart primarily as a result of Wal-Marts
decision to allocate more retail space to private label programs
in the womens business; |
| --- | --- |
| | continued softness in our mens core business; and |
| | lower unit sales volume for our mens shorts. |

Partially offsetting the decrease were sales growth in our boys business and an increase in our licensing revenue as a result of growth in the kids business.

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Europe net revenues

The following table shows our net sales and licensing revenue in our Europe region, including the changes in these results for the three months ended February 26, 2006 as compared to the same period in 2005:

	Three Months Ended — February 26,	February 27,	$ Increase	As		Constant
	2006	2005	(Decrease)	Reported		Currency
	(Dollars in thousands)
Europe Net sales	$ 238,242	$ 296,400	$ (58,158	)	(19.6	)%	(12.3	)%
Europe Licensing
revenue	2,628	1,492	1,136		76.1	%	N/A
Total Europe net revenues	$ 240,870	$ 297,892	$ (57,022	)	(19.1	)%	N/A

Total net revenues in our Europe region decreased $57.0 million or 19.1% and, on a constant currency basis, decreased approximately 12%, for the three months ended February 26, 2006 as compared to the same period in 2005. The decrease in net revenues was primarily driven by the following:

| | a decrease in unit sales volume as a result of continued
softness in the demand for our core
Levis ® brand products and for our spring/summer seasonal products
throughout Europe; |
| --- | --- |
| | a decrease in unit sales volume as a result of our exit from
certain retailers, which was driven by our strategy to realign
our European retail network to better reflect our premium
positioning of the
Levis ® brand; |
| | changes in foreign currency exchange rates, which reduced net
revenues by approximately $22 million. |

We also experienced a decrease in net sales for our Dockers ® and Levi Strauss Signature ® brands sales during the period. Partially offsetting these factors were an increase in our average selling price for the three months ended February 26, 2006 as compared to the same period in 2005 resulting from our ongoing repositioning of the Levis ® brand in Europe, and a $1.1 million increase in licensing revenue as a result of licensing arrangements we entered into after February 27, 2005.

Asia Pacific net revenues

The following table shows our net sales and licensing revenue in our Asia Pacific region, including the changes in these results from the three months ended February 26, 2006 as compared to the same period in 2005:

	Three Months Ended — February 26,	February 27,		% Increase — As	Constant
	2006	2005	$ Increase	Reported	Currency
	(Dollars in thousands)
Asia Pacific Net
sales	$ 168,161	$ 155,660	$ 12,501	8.0 %	11.8 %
Asia
Pacific Licensing revenue	4,519	2,976	1,543	51.8 %	N/A
Total Asia Pacific net revenues	$ 172,680	$ 158,636	$ 14,044	8.9 %	N/A

Total net revenues in our Asia Pacific region increased $14.0 million or 8.9% and, on a constant currency basis, increased approximately 12%, for the three months ended February 26, 2006 as compared to the same period in 2005. The increase on a constant currency basis was primarily driven by increased net sales for our Levis ® brand products, which represents a large majority of our business in the region. Net revenues increased in most countries across our Asia Pacific region. Key drivers of our net revenues increase for the period included:

| | improved sales mix, with increased sales of super premium and
premium
Levis ® brand products and
Levis ® brand winter products; |
| --- | --- |
| | the introduction of new fits and finishes in both our
Levis ® mens and womens businesses; |
| | the continued expansion of our retail presence through
additional franchised store openings and upgrades of existing
stores to more current retail formats; and |

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$1.5 million increase in licensing revenue, driven primarily by licensing arrangements in Latin America, which is part of our Asia Pacific region.

Partially offsetting the increase in net revenues for our Asia Pacific region was a 5% decrease in revenues on a constant currency basis for our business in Japan. This decrease was driven primarily by lower net sales to one of our key customers in Japan as a result of a decrease in unit sales volume and an increase in sales returns from the customer during the period.

Gross profit

Our gross profit decreased $42.5 million or 8.5% for the three months ended February 27, 2006 as compared to the same period in 2005. Our gross margin was 47.7%, reflecting a decrease of 1.4 percentage points, primarily driven by lower gross margin for our Europe region as a result of a change in sales mix and an increased investment in product. The primary drivers of the gross profit decrease were:

| | decreased net sales on a constant currency basis in our Europe
region; |
| --- | --- |
| | the impact of the 1.4 percentage point decrease in gross
margin; |
| | decreased net sales in our U.S. Levi Strauss
Signature ® brand; |
| | decreased net sales on a constant currency basis in our Canada
business; and |
| | the translation impact of foreign currencies. |

Partially offsetting these factors were increased net sales in our Asia Pacific region and our Mexico business, and increased licensing revenue across all of our businesses.

Our cost of goods sold is primarily comprised of cost of materials, labor and manufacturing overhead and also includes the cost of inbound freight, internal transfers, and receiving and inspection at manufacturing facilities as these costs vary with product volume. We include substantially all the costs related to receiving and inspection at distribution centers, warehousing and other activities associated with our distribution network in selling, general and administrative expenses. 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 in cost of goods sold.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased $29.5 million or 9.4% for the three months ended February 26, 2006 as compared to the same period in 2005, primarily due to decreased advertising and promotion expense. On a constant currency basis, selling, general and administrative expenses were approximately $21.0 million lower in the three months ended February 26, 2006 as compared to the same period in 2005. As a percentage of net revenues, selling, general and administrative expenses were 29.7% for the three months ended February 26, 2006 as compared to 30.9% for the same period in 2005. We remain focused on cost discipline across our organization as we continue to invest in growing and strengthening our global businesses, including opening more company-operated stores and investing in our Asia Pacific region.

Key factors driving the decrease in selling, general and administrative expenses for the three months ended February 26, 2006 were as follows:

| | Our advertising and promotion expense decreased by 28.8% to
$48.2 million in the three months ended February 26,
2006, as compared to the same period of 2005. Advertising and
promotion expense as a percentage of net revenues was 5.0% in
the three months ended February 26, 2006, compared to 6.6%
in the same period in 2005. The decrease primarily reflects our
decision to shift a portion of our advertising spending in
Europe to the second quarter and decreased advertising spending
for our
U.S. Dockers ® and U.S. Levi Strauss
Signature ® brands. |
| --- | --- |
| | We recorded a charge in the three months ended February 27,
2005 related to the establishment of a contingent liability for
litigation, which we subsequently reversed in the second quarter
of 2005. |

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| | Our distribution costs of $49.9 million, or 5.2% of net
revenues in the three months ended February 26, 2006,
decreased $4.1 million as compared to $54.0 million,
or 5.3% of net revenues in the three months ended
February 27, 2005. The decrease in distribution costs was
primarily driven by the decrease in net sales. Our distribution
costs include costs related to receiving and inspection at
distribution centers, warehousing, shipping, handling and
certain other activities associated with our distribution
network. |
| --- | --- |
| | We recorded a net reduction to our workers compensation
liability of approximately $3.5 million during the three
months ended February 26, 2006, compared to a net reduction
of $1.8 million during the same period in 2005. The net
reductions were driven primarily by changes in our estimated
future claims payments as a result of more favorable than
projected claims development during the periods. |

These decreases were partially offset by an increase in our selling expense of 14.1% to $61.7 million in the three months ended February 26, 2006, as compared to the same period in 2005. Selling expense as a percentage of net revenues was 6.4% in the three months ended February 26, 2006, compared to 5.3% in the same period 2005. The increase reflected additional selling costs associated with new company-operated stores dedicated to the Levis ® brand in Europe and the United States. We include all occupancy and buying costs associated with our company-operated stores in selling, general and administrative expenses.

Restructuring charges

Restructuring charges, net of reversals, were $3.2 million for the three months ended February 26, 2006 and February 27, 2005, respectively, and related primarily to activities associated with our U.S. and Europe reorganization initiatives. The 2006 amount primarily consisted of severance charges associated with headcount reductions in Europe and additional lease costs associated with exited facilities in the United States. The 2005 amount primarily consisted of charges for severance and employee benefits for our 2004 U.S. and Europe organizational changes.

Operating income

Operating income decreased 7.2% during the three months ended February 26, 2006 compared to the same period in 2005. Operating margin was 17.8% for the three months ended February 26, 2006, compared with 18.0% in the same period in 2005.

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The following table shows our operating income by brand in the United States, for Canada and Mexico, and in total for our North America, Europe and Asia Pacific regions, the changes in results from the three month period ended February 26, 2006 to the three month period ended February 27, 2005 and the results presented as a percentage of net revenues:


	Three Months Ended					% of Net		% of Net
	February 26,	February 27,	$ Increase	% Increase		Region		Region
	2006	2005	(Decrease)	(Decrease)		Revenues		Revenues
U.S. Levis ® brand	$ 67,371	$ 66,902	$ 469		0.7	%	12.3	%	11.9	%
U.S. Dockers ® brand	33,206	32,127	1,079		3.4	%	6.1	%	5.7	%
U.S. Levi Strauss
Signature ® brand	4,149	6,193	(2,044	)	(33.0	)%	0.8	%	1.1	%
Canada and Mexico (all brands)	7,735	10,605	(2,870	)	(27.1	)%	1.4	%	1.9	%
North America (all brands)	112,461	115,827	(3,366	)	(2.9	)%	20.6	%	20.6	%
Europe (all brands)	64,316	87,413	(23,097	)	(26.4	)%	26.7	%	29.3	%
Asia Pacific (all brands)	39,046	40,651	(1,605	)	(3.9	)%	22.6	%	25.6	%
Regional operating income	215,823	243,891	(28,068	)	(11.5	)%	22.5	%*	23.9	%*
Corporate:
Restructuring charges, net of
reversals	3,187	3,190	(3	)	(0.1	)%	0.3	%*	0.3	%*
Other corporate expense	41,999	56,895	(14,896	)	(26.2	)%	4.4	%*	5.6	%*
Total corporate expense	45,186	60,085	(14,899	)	(24.8	)%	4.7	%*	5.9	%*
Total operating income	$ 170,637	$ 183,806	(13,169	)	(7.2	)%	17.8	%*	18.0	%*

callerid=999 iwidth=455 length=60

Percentage of consolidated net revenues

The decrease in total operating income for the three months ended February 26, 2006 as compared to the same period in 2005, was primarily attributable to decreased operating income in our Europe region, partially offset by lower other corporate expense.

Regional Summaries. The following summarizes the changes in operating income by region:

| | North America. The decrease in operating
income for the three months ended February 26, 2006 was
primarily attributable to lower net sales in our U.S. Levi
Strauss
Signature ® and Canada businesses, partially offset by higher net sales in
our Mexico business and an increase in licensing revenues. |
| --- | --- |
| | Europe. The decrease in operating income for
the three months ended February 26, 2006 was primarily
attributable to lower net sales and the unfavorable impact of
foreign currency translation. Partly offsetting the decrease
were lower selling, general and administrative expenses and an
increase in licensing revenues. The decreased selling, general
and administrative expenses were driven primarily by decreased
advertising and promotion expense as a result of a difference in
timing between 2006 and 2005 on a major advertising campaign. |
| | Asia Pacific. The decrease in operating income
for the three months ended February 26, 2006 was primarily
attributable to our continued investment in growing our Asia
Pacific business which resulted in higher selling, general and
administrative expenses, and the impact of weaker foreign
currencies. These factors were partially offset by an increase
in both net sales and licensing revenues during the period. |

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Other corporate expense. The following tables summarize significant components of other corporate expense:

	Three Months Ended — February 26,	February 27,	$ Increase	% Increase
	2006	2005	(Decrease)	(Decrease)
	(Dollars in thousands)
Annual incentive
plans corporate employees	$ 3,720	$ 6,582	$ (2,862	)	(43.5	)%
Long-term incentive compensation
expense	8,070	5,619	2,451		43.6	%
Corporate staff costs and other
expense	30,209	44,694	(14,485	)	(32.4	)%
Total other corporate expense	$ 41,999	$ 56,895	$ (14,896	)	(26.2	)%

We reflect annual incentive compensation plan costs for corporate employees, long-term incentive compensation expense and corporate staff costs, including workers compensation costs, in other corporate expense. The $14.9 million decrease in other corporate expense for the three months ended February 26, 2006 was primarily attributable to:

| | during the three months ended February 27, 2005, we
recorded a charge related to the establishment of a contingent
liability for litigation, which we subsequently reversed in the
second quarter of 2005; |
| --- | --- |
| | net reduction to our workers compensation liabilities; |
| | lower annual incentive compensation plan costs for corporate
employees; and |
| | lower expense related to our post-retirement benefit plans. |

Partially offsetting the decrease were increases in our long-term incentive compensation expense related to current year expense for our 2005 Management Incentive Plan, a plan under which performance is measured over three years.

Interest expense

Interest expense decreased 3.0% to $66.3 million for the three months ended February 26, 2006, compared to $68.3 million for the same period in 2005. The decrease was primarily attributable to lower average debt balances.

The weighted average interest rate on average borrowings outstanding during the three months ended February 26, 2006 and February 27, 2005, including the amortization of capitalized bank fees, underwriting fees and interest rate swap cancellations, was 10.70% and 10.72%, respectively. The weighted average interest rate on average borrowings outstanding excludes interest payable to participants under deferred compensation plans and other miscellaneous items.

Loss on early extinguishment of debt

During the three months ended February 27, 2005, we recorded a $23.0 million loss on early extinguishment of debt as a result of our debt refinancing activities during the period. The loss was comprised of a tender offer premium and other fees and expenses approximating $19.7 million incurred in conjunction with our completion in January 2005 of a tender offer to repurchase $372.1 million of our $450.0 million principal amount 2006 notes and the write-off of approximately $3.3 million of unamortized debt discount and capitalized costs related to such notes.

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Other income, net

The following table summarizes significant components of other income, net:

	Three Months Ended — February 26,		February 27,		$ Increase	% Increase
	2006		2005		(Decrease)	(Decrease)
	(Dollars in thousands)
Foreign exchange management losses
(income)	$ 3,529		$ (2,980	)	$ (6,509	)	218	%
Foreign currency transaction gains	(2,071	)	(871	)	1,200		138	%
Interest income	(3,128	)	(2,177	)	951		44	%
Minority
interest Levi Strauss Japan K.K	383		1,023		640		(63	)%
Minority
interest Levi Strauss Istanbul
Konfeksiyon (1)			830		830		(100	)%
Other	139		216		77		(36	)%
Total other income, net	$ (1,148	)	$ (3,959	)	(2,811	)	(71	)%

callerid=999 iwidth=455 length=60

(1) On March 31, 2005, we acquired full ownership of our joint venture in Turkey for $3.8 million in cash; subsequent to that date, all income from the entity was attributed to us.

Our foreign exchange risk management activities include the use of instruments such as forward, swap and option contracts, to manage foreign currency exposures. Outstanding derivative instruments are recorded at fair value and the changes in fair value are recorded in Other income, net in our consolidated statements of income. At contract maturity, the realized gain or loss related to derivative instruments is also recorded in Other income, net in our consolidated statements of income. The changes in foreign exchange management losses recorded for the three months ended February 26, 2006 compared to the same period in 2005 were due to different conditions in foreign exchange markets and changes in the foreign currency exposures being managed. For more information, see Quantitative and Qualitative Disclosures About Market Risk.

Foreign currency transactions are transactions denominated in a currency other than the recording entitys functional currency. At the date the foreign currency transaction is recognized, each asset, liability, revenue, expense, gain or loss arising from the transaction is measured and recorded in the functional currency of the recording entity using the exchange rate in effect at that date. At each balance sheet date for each entity, recorded balances denominated in a foreign currency are adjusted, or remeasured, to reflect the current exchange rate. The changes in the recorded balances caused by remeasurement at the exchange rate are recorded in Other income, net in our consolidated statements of income. In addition, at the settlement date of foreign currency transactions, foreign currency gains are recorded in Other income, net in our consolidated statements of income to reflect the difference between the spot rate effective at settlement date and the historical rate at which the transaction was originally recorded.

The increase in interest income for the three months ended February 26, 2006 was primarily due to higher effective interest rates on our investments, partially offset by a lower average investment balance as compared to the prior year.

Income tax expense

Income tax expense for the three months ended February 26, 2006 was $51.7 million compared to $49.1 million for the same period in 2005. The $2.6 million increase was primarily driven by an increase in our income before taxes as compared to the same period in the prior year. Our effective income tax rate for the three months ended February 26, 2006 was 49.0% compared to 50.9% for the same period in 2005. Our effective income tax rate differs from the U.S. federal statutory rate of 35%, primarily due to the additional U.S. residual income tax that we expect to be imposed upon repatriation of our unremitted foreign earnings.

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Net income

Net income was $53.8 million for the three months ended February 26, 2006, compared to net income of $47.3 million for the same period in 2005. The increase was driven by the 2005 loss on early extinguishment of debt and lower interest expense in the 2006 period, partially offset by lower operating income and higher income tax expense.

2005 as compared to 2004

The following table summarizes, for the years indicated, items in our consolidated statements of operations, the changes in these items from 2004 to 2005 and these items expressed as a percentage of net revenues.

	Year Ended — November 27,	November 28,		$ Increase		% Increase		% of Net	% of Net
	2005	2004		(Decrease)		(Decrease)		Revenues	Revenues
	(Dollars in thousands)
Net sales	$ 4,125,155	$	4,072,455	$	52,700		1.3	%	98.2 %	98.6 %
Licensing revenue	73,879		57,117		16,762		29.3	%	1.8 %	1.4 %
Net revenues	4,199,034		4,129,572		69,462		1.7	%	100.0 %	100.0 %
Cost of goods sold	2,236,963		2,288,406		(51,443	)	(2.2	)%	53.3 %	55.4 %
Gross profit	1,962,071		1,841,166		120,905		6.6	%	46.7 %	44.6 %
Selling, general and
administrative expenses	1,364,407		1,350,020		14,387		1.1	%	32.5 %	32.7 %
Gain on disposal of assets	(5,750	)	(3,576	)	2,174		60.8	%	0.1 %	0.1 %
Other operating income	(2,479	)			(2,479	)	NA		0.1 %	0.0 %
Restructuring charges, net of
reversals	16,633		133,623		(116,990	)	(87.6	)%	0.4 %	3.2 %
Operating income	589,260		361,099		228,161		63.2	%	14.0 %	8.7 %
Interest expense	263,650		260,124		3,526		1.4	%	6.3 %	6.3 %
Loss on early extinguishment of
debt	66,066				66,066		NA		1.6 %	0.0 %
Other (income) expense, net	(23,057	)	5,450		(28,507	)	523.1	%	0.5 %	0.1 %
Income before income taxes	282,601		95,525		187,076		195.8	%	6.7 %	2.3 %
Income tax expense	126,654		65,135		61,519		94.4	%	3.0 %	1.6 %
Net income	$ 155,947	$	30,390	$	125,557		413.2	%	3.7 %	0.7 %

Consolidated net revenues

The following table shows our net revenues for our North America, Europe and Asia Pacific businesses and the changes in these results from 2004 to 2005.

	Year Ended — November 27,	Year Ended — November 28,	$ Increase	As		Constant
	2005	2004	(Decrease)	Reported		Currency
	(Dollars in thousands)
North America	$ 2,505,388	$ 2,466,762	$ 38,626		1.6	%	0.8	%
Europe	990,185	1,048,982	(58,797	)	(5.6	)%	(8.0	)%
Asia Pacific	703,461	613,828	89,633		14.6	%	11.1	%
Total net revenues	$ 4,199,034	$ 4,129,572	$ 69,462		1.7	%	0.1	%

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North America net revenues

The following table presents our net revenues in our North America region broken out for our U.S. brands and for Canada and Mexico, including changes in these results from 2004 to 2005.

	Year Ended — November 27,	Year Ended — November 28,	$ Increase	As		Constant
	2005	2004	(Decrease)	Reported		Currency
	(Dollars in thousands)
U.S. Levis ® brand	$ 1,264,400	$ 1,262,016	$ 2,384		0.2	%	NA
U.S. Dockers ® brand	676,094	679,093	(2,999	)	(0.4	)%	NA
U.S. Levi Strauss
Signature ® brand	364,633	337,043	27,590		8.2	%	NA
Canada and Mexico	200,261	188,610	11,651		6.2	%	0.8 %
Total North America net revenues	$ 2,505,388	$ 2,466,762	$ 38,626		1.6	%	0.8 %

The following discussion summarizes net revenue performance during 2005 for our U.S. brands. In these sections, the tables showing net revenues for the Levis ® and Dockers ® brands break out our net sales between Net sales Continuing categories and Net sales Licensed categories.

| | By categories, we mean broad product groupings like
mens jeans, womens tops and mens jackets. |
| --- | --- |
| | The Net sales Continuing categories
line shows our net sales for all non-licensed product categories
and reflects sales of both continuing products within a
category, such as
501 ® jeans for men, as well as those products that we may have
replaced or discontinued as part of our product assortment and
rationalization activities. |
| | The Net sales Licensed categories
line shows our net sales attributable to product categories that
we marketed and sold ourselves during the relevant period for
which we have also entered into licensing agreements as of
November 27, 2005. Royalties earned from licensing
agreements appear in the Licensing revenue line item
in our consolidated statements of operations. |

Levis ® Brand. The following table shows net revenues of our U.S. Levis ® brand, including the changes in these results from 2004 to 2005.

	Year Ended — November 27,	Year Ended — November 28,	$ Increase	% Increase
	2005	2004	(Decrease)	(Decrease)
	(Dollars in thousands)
U.S. Levis ® brand Net sales Continuing
categories	$ 1,249,487	$ 1,213,831	$ 35,656		2.9 %
U.S. Levis ® brand Net sales Licensed
categories		40,715	(40,715	)	NA
U.S. Levis ® brand Licensing revenue	14,913	7,470	7,443		99.6 %
Total
U.S. Levis ® brand net revenues	$ 1,264,400	$ 1,262,016	$ 2,384		0.2 %

Net revenues in our U.S. Levis ® brand increased by $2.4 million or 0.2% for 2005 as compared to 2004. This increase was driven by our product rationalization actions and the related decisions to license certain product categories and discontinue underperforming categories. These actions were initiated in 2004 in line with our strategy to focus the brand on more category competitive products in our core channels of distribution and improve our profitability. Our decision to license certain products resulted in an approximately $40.7 million decrease in our net sales for 2005, which was partly offset by a $7.4 million increase in licensing revenue.

Net sales for our U.S. Levis ® brands continuing categories increased by $35.7 million or 2.9% for 2005 as compared to 2004. This increase was driven by higher sales volume across consumer segments in our core channels of distribution and proactive sale of excess and obsolete inventory to off-price channels. New products such as the

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527 low rise boot cut, 569 loose straight and 514 slim straight in young mens and the straight and skinny products in womens, as well as long bottoms with premium finishing and destructed looks, contributed to the unit sales increase. In addition, in 2005 we did not experience the supply constraints that we had in the second half of 2004 that resulted in our missing orders and losing sales during that period.

During 2005, we continued to focus on driving consumer awareness and demand during the year through our marketing programs. This included a continuation of our A Style for Every Story tm advertising campaign in print media and television and our continued investment in our retail floor presentations with our top retail customers.

We also expanded our retail store presence during 2005, opening four new stores including three stores in selected urban locations and an online store, www.levisstore.com. Net sales generated by our company-operated Levis ® retail and outlet stores increased by approximately $5.0 million for 2005 as compared to 2004. As of November 27, 2005 we operated 25 stores (including the new online store) in the United States.

Dockers ® Brand. The following table shows net revenues of our U.S. Dockers ® brand, including changes in these results from 2004 to 2005.

	Year Ended — November 27,	Year Ended — November 28,	$ Increase	% Increase
	2005	2004	(Decrease)	(Decrease)
	(Dollars in thousands)
U.S. Dockers ® brand Net sales Continuing
categories	$ 646,625	$ 639,361	$ 7,264		1.1	%
U.S. Dockers ® brand Net sales Licensed
categories		2,671	(2,671	)	NA
U.S. Dockers ® brand Net sales Discontinued
Slates pants		7,324	(7,324	)	NA
U.S. Dockers ® brand Licensing revenue	29,469	29,737	(268	)	(0.9	)%
Total
U.S. Dockers ® brand net revenues	$ 676,094	$ 679,093	$ (2,999	)	(0.4	)%

Net revenues in our U.S. Dockers ® brand decreased $3.0 million or 0.4% for 2005 as compared to 2004. This decrease was driven by the product rationalization actions and the related decisions to license certain product categories and discontinue underperforming categories, including Slates pants, that we initiated in 2004. Our decision to license or discontinue certain products resulted in an approximately $10.0 million decrease in our total U.S. Dockers ® brand net sales for 2005.

Net sales for our U.S. Dockers ® brand continuing categories increased by $7.3 million or 1.1% in 2005 as compared to 2004. This increase was primarily driven by increased sales volume in our mens premium pants business, led by our Never Iron tm Cotton Khaki pant and our Essential Dress pant. We also had net sales growth in our shorts business due to improved product performance at retail. In addition, we experienced lower returns and allowances primarily driven by fewer sales at discounted prices. Our decision in 2004 to discontinue certain product lines resulted in substantial discounting in 2004. Also contributing to the decrease in returns and allowances was the reversal during the first quarter of 2005 of approximately $4.0 million in unclaimed deductions which had been previously accrued during 2004.

Partially offsetting the increase in net sales for our U.S. Dockers ® brand continuing categories were lower sales volume in our womens business, which we attribute to a consumer shift away from basics like our womens pants to more fashion products, and our decision to downsize our womens shorts business.

During 2005 we launched our Dockers ® Dress to Live advertising campaign. These advertisements are part of a fully integrated marketing campaign that includes television and print advertising for our mens and womens products, a redesigned www.dockers.com Web site, Internet advertising, publicity and in-store campaign imagery to position the Dockers brand as a head-to-toe lifestyle brand for men and women.

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Levi Strauss Signature ® Brand. The following table presents our net revenues in our U.S. Levi Strauss Signature ® brand, including the changes in these results from 2004 to 2005:

	Year Ended — November 27,	Year Ended — November 28,	$ Increase	% Increase
	2005	2004	(Decrease)	(Decrease)
	(Dollars in thousands)
U.S. Levi Strauss
Signature ® brand Net sales	$ 361,028	$ 336,020	$ 25,008	7.4%
U.S. Levi Strauss
Signature ® brand Licensing revenue	3,605	1,023	2,582	252.4%
Total U.S. Levi Strauss
Signature ® brand net revenues	$ 364,633	$ 337,043	$ 27,590	8.2%

Net revenues in our U.S. Levi Strauss Signature ® brand increased by $27.6 million, or 8.2%, for 2005 as compared to 2004. The increase was primarily driven by sales to accounts we launched during the second half of 2004, including Kmart, Meijer, Shopko and Pamida, and an increase in sales to Target. Our net revenues increase was also driven by new product introductions, product line extensions, including new fits and finishes, the introduction of a new premium denim product line and an increase in licensing revenue resulting from the launch of licensing programs for several product categories for our U.S. Levi Strauss Signature ® brand.

During 2005, we continued to focus on expanding our Levi Strauss Signature ® business through increased consumer awareness in the value channel. Our marketing efforts during 2005 included continuation of the From Our Family to Yours advertising campaign in print media, sponsorship of the All American Soapbox Derby in Akron, Ohio and the launch of the Levi Strauss Signature ® Brand Store on Walmart.com. In addition, we continued our public relations outreach activities and increased our brand exposure through our presence at events such as NASCAR races, state fairs and retailer locations.

Europe net revenues

The following table presents our net revenues in our Europe region, including the changes in these results from 2004 to 2005:

	Year Ended — November 27,	Year Ended — November 28,	$ Increase	As		Constant
	2005	2004	(Decrease)	Reported		Currency
	(Dollars in thousands)
Europe Net sales	$ 981,079	$ 1,042,125	$ (61,046	)	(5.9	)%	(8.0	)%
Europe Licensing
revenue	9,106	6,857	2,249		32.8	%	N/A
Total Europe net revenues	$ 990,185	$ 1,048,982	$ (58,797	)	(5.6	)%	N/A

Net revenues in our Europe region decreased $58.8 million or 5.6% and, on a constant currency basis, decreased approximately 8%, for 2005 as compared to 2004. The decrease in net sales was primarily driven by a decrease in unit sales volume for our Levis ® brand products, which represent approximately 90% of our business in the region, and increased sales discounts and allowances. Soft consumer demand throughout Europe unfavorably affected our replenishment business during the year. A reduction in Dockers ® brand sales due to soft consumer demand as well as the unfavorable impact of restructuring our Dockers ® business model in Europe, which we commenced in 2004, also contributed to the net sales decline. The decrease in net sales was partially offset by an increase in average selling price as a result of our ongoing repositioning of the Levis ® brand in Europe as a premium product, and a $2.2 million increase in licensing revenue primarily resulting from additional licensing arrangements.

During 2005, we continued the transformation of our business model in Europe, including focusing on lower cost sourcing, consolidating distribution, finalizing the relocation of our stand-alone Dockers ® operations in Amsterdam to our European headquarters in Brussels, rationalizing our product offerings and marketing efforts and improving our customer service levels.

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Asia Pacific net revenues

The following table presents our net revenues in our Asia Pacific region including the changes in these results from 2004 to 2005:

	Year Ended — November 27,	Year Ended — November 28,	$ Increase	% Increase (Decrease) — As	Constant
	2005	2004	(Decrease)	Reported	Currency
	(Dollars in thousands)
Asia Pacific Net
sales	$ 688,968	$ 603,875	$ 85,093	14.1%	11.1 %
Asia
Pacific Licensing revenue	14,493	9,953	4,540	45.6%	NA
Total Asia Pacific net revenues	$ 703,461	$ 613,828	$ 89,633	14.6%	NA

Net revenues in our Asia Pacific region increased $89.6 million or 14.6% and, on a constant currency basis, increased approximately 11%, for 2005 as compared to 2004. The increase in net sales was driven by a 12.5% increase in net sales on a constant currency basis for our Levis ® brand products, which represent approximately 95% of our business in the region. Net sales increased in most countries within our Asia Pacific region. Japan, which represented approximately 41% of regional net sales in 2005, generated a 4.1% increase in net sales on a constant currency basis. In addition, our licensing revenue increased by $4.5 million for 2005 as compared to 2004, driven primarily by growth in our licensing arrangements in most countries in our Asia Pacific region.

Key drivers of our net sales results in our Asia Pacific region for 2005 were an improved sales mix, with increased sales of super premium and premium priced Levis ® brand products; the introduction of new fits and finishes for both our Levis ® mens and womens businesses and the continued strong performance of our Levis ® LadyStyle tm products; and the continued expansion of our retail presence through additional store openings and upgrades of existing stores to more current retail formats.

Gross profit

Our gross profit increased $120.9 million or 6.6% for 2005 as compared to 2004. Our gross margin was 46.7% for the year, reflecting an increase of 2.1 percentage points. Factors that increased our gross profit for 2005 included:

	increased net revenues in our Asia Pacific region;
	more premium positioning of our
Levis ® brand in our Europe region;
	the translation impact of stronger foreign currencies.
	increased net revenues in our Mexico business;
	lower sourcing costs resulting from various cost reduction
initiatives, including utilization of low cost sourcing
locations and more effective negotiations with suppliers;
	improved management of returns, allowances and product
transition costs, particularly in our
U.S. Dockers ® business; and
	higher average selling prices on our close-out products,
resulting from our proactive approach to identifying and
managing our slow moving and past season inventory.

The increase was partially offset by the impact of a lower gross margin on our Levi Strauss Signature ® products, due in part to an increased investment in product fits and finishes.

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Selling, general and administrative expenses

Selling, general and administrative expenses increased $14.4 million or 1.1% for 2005 as compared to 2004. On a constant currency basis, selling, general and administrative expenses were approximately $12.4 million higher in 2005 as compared to 2004, primarily due to our increased investment in advertising and promotion. As a percentage of net revenues, selling, general and administrative expenses were 32.5% for 2005 as compared to 32.7% for 2004.

Key factors driving the increase in selling, general and administrative expenses for 2005 were as follows:

| | Our advertising and promotion expense increased by 10.1% as
compared to 2004, to $338.6 million for 2005. Advertising
and promotion expense as a percentage of net revenues was 8.1%
for 2005, compared to 7.4% for 2004. The increase reflected
higher media spending in Europe and Asia Pacific and increased
advertising spending for our
U.S. Dockers ® and U.S. Levi Strauss
Signature ® brands, consistent with our marketing strategy. Recent marketing
efforts have included the continuation of our A Style for
Every
Story tm
campaign promoting our
U.S. Levis ® brand, our new Dress to
Live tm
campaign promoting our
U.S. Dockers ® brand and our From our Family to Yours advertising
campaign promoting our Levi Strauss
Signature ® brand. |
| --- | --- |
| | The impact of foreign currency translation resulted in an
approximately $15.5 million increase in selling, general
and administrative expenses for 2005. |
| | We recorded $71.7 million of expense related to our annual
and other short-term incentive compensation plans for 2005,
compared to $60.8 million for 2004. The increase is
primarily due to the adoption of a new performance sharing plan
for non-management employees in 2005. |
| | We incurred approximately $8.0 million of third-party
expenses for 2005 related to our activities regarding
Section 404 of the Sarbanes-Oxley Act. These costs were not
significant in 2004. |

These increases were partially offset by the following:

| | Long-term incentive compensation expense was $31.1 million
for 2005 as compared to $45.2 million for 2004. The
decrease in our long-term incentive compensation expense relates
primarily to the adoption in 2005 of new long-term incentive
compensation plans for which the performance measurement periods
are either two or three years, depending on the plan, as
compared to eighteen months for our 2004 interim plan. |
| --- | --- |
| | We recorded net reductions to our workers compensation
reserves of approximately $14.0 million for 2005, compared
to a net expense of $3.2 million for 2004. The net
reductions were driven primarily by changes in our estimated
future claims payments as a result of more favorable than
projected claims development during 2005. |
| | Our distribution costs were $209.4 million, or 5.0% of net
revenues for 2005 as compared to $215.1 million or 5.2% of
net revenues for 2004. Distribution costs include costs related
to receiving and inspection at distribution centers,
warehousing, shipping, handling and certain other activities
associated with our distribution network. |
| | We experienced lower salaries and wages and related expenses due
to the impact of reduced headcount resulting from our
reorganization initiatives in the United States and Europe and
continued cost discipline. |

Restructuring charges

Restructuring charges, net of reversals, of $16.6 million for 2005 related primarily to current period activities associated with our 2004 U.S., Europe and Dockers ® Europe reorganization initiatives. Restructuring charges, net of reversals, of $133.6 million for the year ended November 28, 2004 primarily related to our 2004 reorganization initiatives in the U.S. and Europe. Those activities included plant closures, organizational changes and charges related to the indefinite suspension of an enterprise resource planning system installation. In addition, in 2004, we incurred restructuring charges related to organizational changes initiated in 2003.

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Operating income

Operating income increased 63.2% in 2005 compared to 2004. Operating margin was 14.0% for 2005, reflecting an increase of 5.3 percentage points compared to 2004.

The following table shows our operating income by brand in the United States and in total for our North America, Europe and Asia Pacific regions, the changes in results from 2004 to 2005 and results presented as a percentage of net revenues:


	Year Ended	Year Ended				% of Net		% of Net
	November 27,	November 28,	$ Increase	% Increase		Region		Region
	2005	2004	(Decrease)	(Decrease)		Revenues		Revenues
	(Dollars in thousands)
U.S. Levis ® brand	$ 284,525	$ 285,122	$ (597	)	(0.2	)%	11.4	%	11.6	%
U.S. Dockers ® brand	130,852	137,368	(6,516	)	(4.7	)%	5.2	%	5.6	%
U.S. Levi Strauss
Signature ® brand	19,376	33,151	(13,775	)	(41.6	)%	0.8	%	1.3	%
Canada and Mexico (all brands)	51,344	41,051	10,293		25.1	%	2.0	%	1.7	%
North America (all brands)	486,097	496,692	(10,595	)	(2.1	)%	19.4	%	20.1	%
Europe (all brands)	213,104	154,522	58,582		37.9	%	21.5	%	14.7	%
Asia Pacific (all brands)	144,934	120,121	24,813		20.7	%	20.6	%	19.6	%
Regional operating income	844,135	771,335	72,800		9.4	%	20.1	%*	18.7	%*
Corporate:
Restructuring charges, net of
reversals	16,633	133,623	(116,990	)	(87.6	)%	0.4	%*	3.2	%*
Other corporate expense	238,242	276,613	(38,371	)	(13.9	)%	5.7	%*	6.7	%*
Total corporate expense	254,875	410,236	(155,361	)	(37.9	)%	6.1	%*	9.9	%*
Total operating income	$ 589,260	$ 361,099	$ 228,161		63.2	%	14.0	%*	8.7	%*

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Percentage of consolidated net revenues.

The increase in total operating income in 2005, as compared to 2004 was primarily attributable to lower restructuring charges, net of reversals, increased operating income in our Europe and Asia regions and lower other corporate expense.

Regional Summaries. The following summarizes the changes in operating income by region:

| | North America. The decrease in operating
income for 2005 was primarily attributable to increased selling,
general and administrative expenses in our North America region
and lower gross profit in our U.S. Levi Strauss
Signature ® business. Partially offsetting the decline were higher gross
profit in our
U.S. Dockers ® and Mexico businesses and lower returns, allowances and product
transition and sourcing costs in the United States. |
| --- | --- |
| | Europe. The increase in operating income for
2005 was primarily attributable to sales of a greater proportion
of higher-priced products resulting from our more premium
positioning of the
Levis ® brand and lower product sourcing costs. Also contributing to the
increase was the favorable impact of foreign currencies. Partly
offsetting the increase were lower net revenues and increased
selling, general and administrative expenses. The increased
selling, general and administrative expenses were driven
primarily by increased investment in advertising and promotion
and the impact of foreign currency translation. |

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Asia Pacific. The increase in operating income for 2005 was driven by higher sales, a favorable product mix within the super-premium and premium segments and the favorable impact of our sourcing initiatives. Also contributing to the increase was the impact of stronger foreign currencies. These factors were partially offset by continued investment in growing our Asia Pacific business which resulted in higher selling, general and administrative expenses.

Other corporate expense. The following tables summarize significant components of other corporate expense:

	Year Ended — November 27,	Year Ended — November 28,	$ Increase	% Increase
	2005	2004	(Decrease)	(Decrease)
	(Dollars in thousands)
Annual incentive
plans corporate employees	$ 30,818	$ 21,303	$ 9,515		44.7	%
Long-term incentive compensation
expense	31,106	45,171	(14,065	)	(31.1	)%
Corporate staff costs and other
expense	176,318	210,139	(33,821	)	(16.1	)%
Total other corporate expense	$ 238,242	$ 276,613	$ (38,371	)	(13.9	)%

We reflect annual incentive compensation plan costs for corporate employees, long-term incentive compensation expense and corporate staff costs, including workers compensation costs, in other corporate expense. The decrease of $38.4 million for 2005 was primarily attributable to our reorganization and cost reduction initiatives, changes made to our benefit plans that have resulted in lower net expense, workers compensation reversals and lower long-term incentive compensation expense. Partially offsetting the decrease were increased third-party costs associated with our activities in respect of Section 404 of the Sarbanes-Oxley Act and higher annual incentive compensation plan expenses in 2005. The increase in our annual incentive compensation plan expenses in 2005 was primarily due to the implementation of an additional employee incentive plan and higher anticipated payments under our Annual Incentive Plan.

Interest expense

Interest expense increased 1.4% to $263.7 million for 2005, compared to $260.1 million for 2004. The increase was primarily attributable to higher average debt balances related to the time elapsed between our 2005 debt issuances and our use of the proceeds to tender and redeem a portion of our 2006 notes and all of our 2008 notes during the first half of 2005.

The weighted average interest rate on average borrowings outstanding during 2005 and 2004, including the amortization of capitalized bank fees, underwriting fees and interest rate swap cancellations, was 10.5% and 10.6%, respectively. The weighted average interest rate on average borrowings outstanding excludes interest payable to participants under deferred compensation plans and other miscellaneous items.

Loss on early extinguishment of debt

During 2005, we recorded a $66.1 million loss on early extinguishment of debt as a result of our debt refinancing activities during the year. The loss consisted of tender offer and redemption premiums and other fees and expenses approximating $53.6 million and the write-off of approximately $12.5 million of unamortized debt discount and capitalized costs. These costs were incurred in conjunction with our completion in January 2005 of a repurchase of $372.1 million of our $450.0 million principal amount 2006 notes and in March and April 2005 of a repurchase and redemption of all of our 2008 notes.

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Other (income) expense, net

The following table summarizes significant components of other (income) expense, net:

	Year Ended — November 27,		November 28,	$ Increase		% Increase
	2005		2004	(Decrease)		(Decrease)
	(Dollars in thousands)
Foreign exchange management losses	$ 1,062		$ 26,809	$	(25,747	)	(96	)%
Foreign currency transaction
(gains) losses	(14,724	)	(15,028	)	(304	)	(2	)%
Interest income	(7,965	)	(3,933	)	4,032		103	%
Minority
interest Levi Strauss Japan K.K	1,847		709		1,138		161	%
Minority
interest Levi Strauss Istanbul
Konfeksiyon (1)	1,309		65		1,244		1,914	%
Other	(4,586	)	(3,172	)	1,414		45	%
Total	$ (23,057	)	$ 5,450		28,507		523	%

callerid=999 iwidth=455 length=60

(1) On March 31, 2005, we acquired full ownership of our joint venture in Turkey for $3.8 million in cash; subsequent to that date, all income from the joint venture was attributed to us.

Our foreign exchange risk management activities include the use of instruments such as forward, swap and option contracts, to manage foreign currency exposures. Outstanding derivative instruments are recorded at fair value and the changes in fair value are recorded in Other (income) expense, net in our consolidated statements of operations. At contract maturity, the realized gain or loss related to derivative instruments is also recorded in Other (income) expense, net in our consolidated statements of operations. The changes in foreign exchange management losses recorded for 2005 compared to 2004 were due to different conditions in foreign exchange markets and changes in the foreign currency exposures being managed. For more information, see Quantitative and Qualitative Disclosures About Market Risk.

Foreign currency transactions are transactions denominated in a currency other than the recording entitys functional currency. At the date the foreign currency transaction is recognized, each asset, liability, revenue, expense, gain or loss arising from the transaction is measured and recorded in the functional currency of the recording entity using the exchange rate in effect at that date. At each balance sheet date for each entity, recorded balances denominated in a foreign currency are adjusted, or remeasured, to reflect the current exchange rate. The changes in the recorded balances caused by remeasurement at the exchange rate are recorded in Other (income) expense, net in our consolidated statements of operations. In addition, at the settlement date of foreign currency transactions, foreign currency (gains) losses are recorded in Other (income) expense, net in our consolidated statements of operations to reflect the difference between the spot rate effective at settlement date and the historical rate at which the transaction was originally recorded.

The increase in interest income for 2005 was primarily due to higher effective interest rates on our investments and a higher average investment balance during 2005 as compared to 2004.

Income tax expense

Income tax expense was $126.7 million for 2005 compared to $65.1 million for 2004. The $61.5 million increase was primarily driven by the $187.1 million increase in our income before taxes, partly offset by a decrease in our effective income tax rate, from 68.2% in 2004 to 44.8% in 2005. For more information, see Tax Matters.

Net income

Net income was $155.9 million for 2005, compared to net income of $30.4 million for 2004. The increase was driven by higher operating income and lower foreign exchange management contract losses, partially offset by the loss on early extinguishment of debt, slightly higher interest expense and higher income tax expense.

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2004 as compared to 2003

The following table summarizes, for the years indicated, items in our consolidated statements of operations, the changes in these items from 2003 to 2004 and these items expressed as a percentage of net revenues.

	Year Ended — November 28,	November 30,		$ Increase		Increase		% of Net		% of Net
	2004	2003		(Decrease)		(Decrease)		Revenues		Revenues
	(Dollars in thousands)
Net sales	$ 4,072,455	$	4,090,730	$	(18,275	)	(0.4	)%	98.6	%	98.9	%
Licensing revenue	57,117		43,973		13,144		29.9	%	1.4	%	1.1	%
Net revenues	4,129,572		4,134,703		(5,131	)	(0.1	)%	100.0	%	100.0	%
Cost of goods sold	2,288,406		2,516,521		(228,115	)	(9.1	)%	55.4	%	60.9	%
Gross profit	1,841,166		1,618,182		222,984		13.8	%	44.6	%	39.1	%
Selling, general and
administrative expenses	1,350,020		1,218,509		131,511		10.8	%	32.7	%	29.5	%
Gain on disposal of assets	(3,576	)	(2,685	)	891		33.2	%	(0.1	)%	(0.1	)%
Restructuring charges, net of
reversals	133,623		89,009		44,614		50.1	%	3.2	%	2.2	%
Operating income	361,099		313,349		47,750		15.2	%	8.7	%	7.6	%
Interest expense	260,124		254,265		5,859		2.3	%	6.3	%	6.1	%
Loss on early extinguishment of
debt			39,353		(39,353	)	NA		0.0	%	1.0	%
Other expense, net	5,450		51,023		(45,573	)	(89.3	)%	0.1	%	1.2	%
Income (loss) before income taxes	95,525		(31,292	)	126,817		405.3	%	2.3	%	(0.8	)%
Income tax expense	65,135		318,025		(252,890	)	(79.5	)%	1.6	%	7.7	%
Net income (loss)	$ 30,390	$	(349,317	)	379,707		108.7	%	0.7	%	(8.4	)%

Consolidated net revenues

The following table shows our net revenues for our North America, Europe and Asia Pacific businesses and the changes in these results from 2003 to 2004.

	Year Ended — November 28,	Year Ended — November 30,	$ Increase	As		Constant
	2004	2003	(Decrease)	Reported		Currency
	(Dollars in thousands)
North America	$ 2,466,762	$ 2,620,488	$ (153,726	)	(5.9	)%	(6.5	)%
Europe	1,048,982	998,533	50,449		5.1	%	(5.7	)%
Asia Pacific	613,828	515,682	98,146		19.0	%	12.0	%
Total net revenues	$ 4,129,572	$ 4,134,703	$ (5,131	)	(0.1	)%	(4.0	)%

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North America net revenues

The following table presents our net revenues in our North America region broken out for our U.S. brands and for Canada and Mexico, including changes in these results from 2003 to 2004.

	Year Ended — November 28,	Year Ended — November 30,	$ Increase	As		Constant
	2004	2003	(Decrease)	Reported		Currency
	(Dollars in thousands)
U.S. Levis ® brand	$ 1,262,016	$ 1,383,684	$ (121,668	)	(8.8	)%	NA
U.S. Dockers ® brand	679,093	846,903	(167,810	)	(19.8	)%	NA
U.S. Levi Strauss
Signature ® brand	337,043	216,726	120,317		55.5	%	NA
Canada and Mexico	188,610	173,175	15,435		8.9	%	15.6	%
Total North America net revenues	$ 2,466,762	$ 2,620,488	$ (153,726	)	(5.9	)%	(6.5	)%

The following discussion summarizes net revenues performance in 2004 of our U.S. brands. In these sections, the tables showing net revenues for the Levis ® and Dockers ® brands break out our net sales between Net sales Continuing categories and Net sales Licensed categories.

Levis ® Brand. The following table shows net revenues of our U.S. Levis ® brand, including the changes in these results from 2003 to 2004.

	Year Ended — November 28,	Year Ended — November 30,	$ Increase	% Increase
	2004	2003	(Decrease)	(Decrease)
	(Dollars in thousands)
U.S. Levis ® brand Net sales Continuing
categories	$ 1,213,831	$ 1,290,692	$ (76,861	)	(6.0	)%
U.S. Levis ® brand Net sales Licensed
categories	40,715	90,685	(49,970	)	(55.1	)%
U.S. Levis ® brand Licensing revenue	7,470	2,307	5,163		223.8	%
Total
U.S. Levis ® brand net revenues	$ 1,262,016	$ 1,383,684	$ (121,668	)	(8.8	)%

Net revenues in our U.S. Levis ® brand in 2004 decreased 8.8% from 2003. The decrease was primarily due to the following factors:

| | We took a number of product rationalization actions in line with
our strategy to focus the brand on more category competitive
jeanswear product assortments in our core channels of
distribution and improve our profitability. Those actions
included licensing certain non-core products, discontinuing
underperforming products and reducing sales to non-core
channels. Our exit from products through licensing accounted for
approximately $50.0 million of the decline in net sales.
Lower sales to warehouse/club and off-price channels accounted
for approximately $57.4 million of the decline. |
| --- | --- |
| | 2004 contained one fewer sales week, since 2003 had 53 fiscal
weeks compared to 52 weeks in 2004. This contributed
approximately $21.2 million to the sales decline. |
| | The impact of year-over-year wholesale price reductions which commenced in June 2003
contributed to the decrease. |
| | Internal operational issues adversely affected our ability to
service increased demand for
Levis ® jeans in the third and fourth quarters of 2004. As a result, we
were not able to fulfill all of the orders for our products and
thereby missed sales. |

Partially offsetting these factors were an increase in sales in our main channels of distribution, the elimination of our volume incentive fund program, lower product returns and allowances and a $5.2 million increase in licensing revenues as a result of the increase in licensing arrangements.

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Dockers ® Brand. The following table shows net revenues of our U.S. Dockers ® brand, including changes in these results from 2003 to 2004.

	Year Ended — November 28,	Year Ended — November 30,	$ Increase	% Increase
	2004	2003	(Decrease)	(Decrease)
	(Dollars in thousands)
U.S. Dockers ® brand Net sales Continuing
categories	$ 639,361	$ 776,461	$ (137,100	)	(17.7	)%
U.S. Dockers ® brand Net sales Licensed
categories	2,671	12,548	(9,877	)	(78.7	)%
U.S. Dockers ® brand Net sales Discontinued
Slates pants	7,324	31,522	(24,198	)	(76.8	)%
U.S. Dockers ® brand Licensing revenue	29,737	26,372	3,365		12.8	%
Total
U.S. Dockers ® brand net revenues	$ 679,093	$ 846,903	$ (167,810	)	(19.8	)%

Net revenues in our U.S. Dockers ® brand in 2004 decreased 19.8% from 2003. The decrease was primarily due to the following factors:

| | We engaged in product rationalization efforts, including
licensing our womens tops and boys businesses, which
accounted for approximately $9.9 million of the decline in
net sales, and exiting our Slates dress pants business, which
contributed approximately $24.2 million to the decline. |
| --- | --- |
| | We made strategic decisions to maintain a smaller but more
profitable shorts business and to reduce sales to the outlet and
club channels. |
| | Our core pants products for both men and women underperformed.
We believe this resulted from a trend away from core khaki
products to products featuring more style and fashion. |
| | As a result of improved forecasting and inventory management, we
reduced excess inventory, thereby reducing our sales to the
off-price channels. |
| | The one fewer sales week in 2004 contributed approximately
$15.8 million to the decline in net sales. |
| | The impact of year-over-year wholesale price reductions (commenced in June 2003), our summer
2004 exploration of the sale of the
Dockers ® brand, which required a substantial commitment of management
time and may have affected retailer perceptions of the business,
and lower advertising spending, also contributed to the decrease. |

Partially offsetting these factors were the improved performance of our mens Dockers ® proStyle pants and tops and womens Metro and capri pants categories, and a $3.4 million increase in licensing revenues as a result of the increase in licensing arrangements. Lower overall dilution resulting from the full-year effect of changes made to our volume incentive program and lower price differentials achieved through better inventory management also helped offset the net sales decline.

Levi Strauss Signature ® Brand. The following table presents our net revenues in our Levi Strauss Signature ® Brand, including the changes in these results from 2003 to 2004:

	Year Ended — November 28,	Year Ended — November 30,	$ Increase	% Increase
	2004	2003	(Decrease)	(Decrease)
	(Dollars in thousands)
U.S. Levi Strauss
Signature ® brand Net sales	$ 336,020	$ 216,726	$ 119,294	55.0 %
U.S. Levi Strauss
Signature ® brand Licensing revenue	1,023		1,023	NA
Total U.S. Levi Strauss
Signature ® brand net revenues	$ 337,043	$ 216,726	$ 120,317	55.5 %

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Net revenues in our U.S. Levi Strauss Signature ® brand in 2004 increased 55.5% or $120.3 million as compared to the prior year. This increase primarily reflects expansion of our customer base during 2004. Key factors in driving our net revenues results were as follows:

| | Our products were offered in approximately 3,000 Wal-Mart stores
for the full twelve months of 2004 as compared to seven months
in 2003, the year in which we launched the brand. |
| --- | --- |
| | We launched the brand into approximately 1,200 Target stores in
the first quarter of 2004, into Meijer, ShopKo and Pamida stores
in the second quarter, and into approximately 225 Kmart stores
in the fourth quarter. |
| | We introduced a new pricing strategy, which differentiates core
products from fashion basics, to drive consumer awareness of the value-for-price of our products. |
| | We continued to introduce new products with new fits and
finishes. We saw growth primarily in the mens, young
mens and misses segments. |
| | We continued driving awareness of our Levi Strauss
Signature ® brand through our NASCAR marketing agreement, presence and
publicity efforts, on-line selling through WalMart.com and
Target.com and in-store promotions. |
| | We expanded our marketing efforts, launching our first print
advertising campaign targeted to women, the Whats a
Signature Worth campaign, which appeared in female focused
magazines and on websites such as Yahoo and MSN. |
| | We recognized $1.0 million of licensing revenues resulting
from new licensing arrangements for our Levis Strauss
Signature ® brand. |

Europe net revenues

The following table presents our net revenues in our Europe region, including the changes in these results from 2003 to 2004:

	Year Ended — November 28,	Year Ended — November 30,	$ Increase	% Increase (Decrease) — As	Constant
	2004	2003	(Decrease)	Reported	Currency
	(Dollars in thousands)
Europe Net sales	$ 1,042,125	$ 992,140	$ 49,985	5.0%	(5.7	)%
Europe Licensing
revenue	6,857	6,393	464	7.3%	N/A
Total Europe net revenues	$ 1,048,982	$ 998,533	$ 50,449	5.1%	N/A

Net revenues in our Europe region in 2004 decreased approximately 5.7%, on a constant currency basis, as compared to the prior year. The decrease was primarily due to weak market and retail conditions, poor order fulfillment performance and product rationalization actions. The decline in net sales was primarily in our Levis ® mens category, with the largest decreases occurring in Spain, France, Germany and the Benelux. Our businesses in Italy and the United Kingdom reported net sales increases for the year on a constant currency basis.

While our European net sales for the year were down on a constant currency basis, the rate of decline improved during the second and third quarters, and net sales increased in the fourth quarter as compared to the same period in the prior year. We took a number of actions to improve our Levis ® brand sales performance including:

| | repositioning the business with a new brand architecture and
premium price positioning; |
| --- | --- |
| | upgrading our product offering; and |
| | executing new advertising that highlights the fit benefits of
501 ® jeans. |

In addition, we launched the Levi Strauss Signature ® brand in France, Germany, the United Kingdom and Switzerland in 2004.

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Asia Pacific net revenues

The following table presents our net revenues in our Asia Pacific region, including the changes in these results from 2003 to 2004:

	Year Ended — November 28,	Year Ended — November 30,	$ Increase	% Increase (Decrease) — As	Constant
	2004	2003	(Decrease)	Reported	Currency
	(Dollars in thousands)
Asia Pacific Net
sales	$ 603,875	$ 508,222	$ 95,653	18.8%	12.0 %
Asia
Pacific Licensing revenue	9,953	7,460	2,493	33.4%	NA
Total Asia Pacific net revenues	$ 613,828	$ 515,682	$ 98,146	19.0%	NA

Net revenues in our Asia Pacific region in 2004 increased approximately 12.0%, on a constant currency basis, as compared to the prior year. While our net sales and licensing revenue for the year were up, the rate of growth in net sales slowed during the second half of the year. The net sales increase for the year was driven by an 11.3% increase in net sales on a constant currency basis of our Levis ® brand products and our continuing expansion of our Levi Strauss Signature ® brand in Japan, Australia and Taiwan. Net sales increased in most countries in the region, with the exception of Australia and Singapore, which were affected by soft retail conditions in those countries. South Korea, our fastest growing business in the region, continued to achieve strong growth, with an increase in net sales of approximately 43.0% from 2003 on a constant currency basis. Japan, which represents our largest business in Asia Pacific with approximately 45% of regional net sales for 2004, had a 6.0% increase in net sales from 2003 on a constant currency basis.

The increases in the Asia Pacific region were attributable to a number of factors, including:

| | relatively stable political environments and social conditions
across the region; |
| --- | --- |
| | innovative product concept launches, such as our Red
Loop tm products, Levis
LadyStyle tm products and Levis
501 ® jeans with new fits and finishes; |
| | upgraded retail concepts; and |
| | targeted promotional events and advertising, such as our
Levis Red
Tab tm jeans campaign. |

Gross profit

Gross profit increased 13.8%. Gross margin was 44.6%, reflecting an increase of 5.5 percentage points.

Factors that increased our gross profit included:

| | a favorable mix of more profitable core products in part due to
our product rationalization efforts; |
| --- | --- |
| | improved management of returns, allowances and product
transition costs, particularly in the United States; |
| | lower sourcing costs resulting from the closure of our remaining
North America manufacturing plants and the shifting of
production to lower cost sources; |
| | lower employee benefit expense, resulting from the plant
closures and the termination costs incurred in 2003 related to
our reorganization initiatives; |
| | lower inventory markdowns due to product rationalization efforts
and improved inventory management; and |
| | the translation impact of stronger foreign currencies of
approximately $73.6 million. |

Our gross margin increased primarily due to a favorable mix of more profitable core products, our product rationalization efforts, including decisions to exit underperforming categories, lower returns and sales allowances, lower sourcing costs reflecting the closure of our remaining North America manufacturing plants and the shift of production to lower cost sources, and a lower proportion of sales of marked-down obsolete and excess products, particularly in the United States. The increase was partially offset by the lower gross margin on Levi Strauss Signature ® products.

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Selling, general and administrative expenses

Selling, general and administrative expenses increased 10.8% and increased as a percentage of net revenues by 3.2 percentage points. This increase was primarily driven by an increase in long-term incentive compensation expense. Long-term incentive compensation expense was $45.2 million for 2004 as compared to net reversals of $138.8 million in 2003. Our 2003 results reflect a substantial reversal of long-term incentive compensation plan accruals as a result of lower than expected payouts in 2003 due to changes in our financial performance. The $45.2 million expense for 2004 reflects a new long-term incentive compensation program implemented in 2004 which has related payouts in July 2004 and February and July 2005.

Other factors that increased selling, general and administrative expenses included the following:

| | Our advertising expense increased by approximately
$20.7 million to $307.6 million, an increase of 7.2%
compared to 2003. Advertising expense as a percentage of net
revenues was 7.4% compared to 6.9% in 2003. The increase, which
occurred in the fourth quarter of 2004, reflected higher media
and promotion spending in our businesses worldwide. In 2003, our
advertising and promotion expenditures were more heavily
concentrated in the first nine months of the year. During 2004,
approximately 42% of our total advertising and promotion
expenditures occurred in the fourth quarter, compared to
approximately 20% in the same period of 2003. |
| --- | --- |
| | We recorded annual incentive plan expense of $60.8 million
in 2004, compared to $9.1 million in 2003. |
| | The impact of foreign currency translation resulted in an
approximately $51.3 million increase in selling, general
and administrative expenses in 2004. |
| | We had higher selling, general and administrative expenses in
our Asia Pacific region to provide infrastructure support to our
growing business in that region. |

The increases were partially offset by the following:

| | We had lower salaries and wages and related expenses due to the
impact of reduced headcount resulting from our reorganization
initiatives in the United States and Europe and general cost
controls. |
| --- | --- |
| | We recognized income of approximately $4.0 million related
to our post-retirement medical benefit plans, as compared to
expense of approximately $53.4 million for 2003. In
addition, we recognized curtailment gains related to our
post-retirement benefit plans of approximately
$27.4 million as compared to $21.0 million in 2003.
These changes result from the impact of our restructuring
initiatives and decreased coverage of our post-retirement
medical plans for certain employees and retired participants. |
| | We reversed approximately $16.0 million of workers
compensation reserves in 2004 as a result of changes in
estimates due primarily to the decrease in actual claims
experience during the year. |

Our selling, general and administrative expenses also include distribution costs, such as costs related to receiving and inspection at distribution centers, warehousing, shipping, handling and certain other activities associated with our distribution network. These expenses totaled $215.1 million (5.2% of consolidated net revenues) in 2004 as compared to $211.6 million (5.1% of consolidated net revenues) in 2003. The increase is due to the impact of foreign currency translation. U.S. distribution expenses totaled $127.2 million (5.6% of net revenues in the United States) and $135.3 million (5.5% of net revenues in the United States) for 2004 and 2003, respectively. The decrease in these expenses primarily reflect lower benefit expense related to our benefit plan amendment and restructuring initiatives, lower shipping volume, cost reductions at our U.S. third-party distribution centers and non-recurrence of start-up costs incurred in 2003 associated with our initial shipments of Levi Strauss Signature ® products in the United States.

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Restructuring charges

Restructuring charges, net of reversals, were $133.6 million as compared to $89.0 million in 2003. Our restructuring charges for 2004 reflected the following activities:

| | In 2004, we closed our two owned and operated manufacturing
plants in Spain, which resulted in the displacement of
approximately 450 employees. We recorded in 2004 charges of
approximately $27.3 million related to severance and other
restructuring costs for this initiative. |
| --- | --- |
| | In 2004, we closed our owned and operated manufacturing plant in
Adelaide, South Australia, which resulted in the displacement of
approximately 90 employees. We recorded in 2004 charges of
approximately $2.6 million related to severance and other
restructuring costs for this initiative. |
| | In 2004, we indefinitely suspended the installation of a
worldwide enterprise resource planning system in order to reduce
costs and prioritize work and resource use. We recorded a charge
of approximately $42.7 million, net of reversals, during
2004 related to this initiative. The charge was comprised of
approximately $2.7 million related to the displacement of
approximately 40 employees, $6.7 million for other
restructuring costs, primarily non-cancelable project
contractual commitments, and $33.4 million for the
write-off of capitalized project costs. |
| | During 2004, we commenced reorganization actions in our
Dockers ® business in Europe. In November 2004, the president of the
Dockers ® business in Europe, along with the leaders of the marketing and
merchandising functions, left employment with us. As of
November 28, 2004, we recorded a charge of approximately
$1.5 million primarily related to severance and related
benefits resulting from the termination of these executives. For
more information, see Note 3 to our audited consolidated
financial statements. |
| | In 2003, we made organizational changes in our
U.S. business intended to reduce the time it takes from
initial product concept to placement on the retailers
shelf and to reduce costs. In 2004, we further reduced resources
associated with our corporate support functions by eliminating
staff, not filling certain open positions and outsourcing most
of the transaction activities in our U.S. human resources
function. We recorded in 2004 charges of approximately
$34.9 million, net of reversals, related to severance,
benefits and other restructuring costs for this initiative. |
| | In 2003, we decided to close our remaining manufacturing and
finishing operations in the United States and Canada. During
2004, we recorded charges of approximately $12.9 million,
net of reversals, related to severance and other restructuring
costs for this initiative. |
| | In 2003, we made organizational changes in our European business
intended to consolidate and streamline operations in our
Brussels headquarters. In 2004, we commenced additional
reorganization actions to further streamline our European
operations. In 2004, we recorded charges of $18.0 million
for additional severance and benefits and legal fees associated
with severance negotiations, and reversals of $2.6 million
associated with lower than anticipated severance and employee
benefits. |

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Operating income

The following table shows our operating income by brand in the United States and in total for our North America, Europe and Asia Pacific regions, the changes in results from 2003 to 2004 and results presented as percentage of net revenues:

	Year Ended	Year Ended		%		% of Net		% of Net
	November 28,	November 30,	$ Increase	Increase		Region		Region
	2004	2003	(Decrease)	(Decrease)		Revenues		Revenues
	(Dollars in thousands)
U.S. Levis ® brand	$ 285,122	$ 184,847	$ 100,275		54.2	%	11.6	%	7.1	%
U.S. Dockers ® brand	137,368	140,363	(2,995	)	(2.1	)%	5.6	%	5.4	%
U.S. Levi Strauss
Signature ® brand	33,151	21,990	11,161		50.8	%	1.3	%	0.8	%
Canada and Mexico (all brands)	41,051	31,298	9,753		31.2	%	1.7	%	1.2	%
North America (all brands)	496,692	378,498	118,194		31.2	%	20.1	%	14.4	%
Europe (all brands)	154,522	94,650	59,872		63.3	%	14.7	%	9.5	%
Asia Pacific (all brands)	120,121	86,930	33,191		38.2	%	19.6	%	16.9	%
Regional operating income	771,335	560,078	211,257		37.7	%	18.7	%*	13.5	%*
Corporate:
Restructuring charges, net of
reversals	133,623	89,009	44,614		50.1	%	3.2	%*	2.2	%*
Other corporate expense	276,613	157,720	118,893		75.4	%	6.7	%*	3.8	%*
Total corporate expense	410,236	246,729	163,507		66.3	%	9.9	%*	6.0	%*
Total operating income	$ 361,099	$ 313,349	$ 47,750		15.2	%	8.7	%*	7.6	%*

callerid=999 iwidth=455 length=60

Percentage of consolidated net revenues.

In 2004, higher regional operating income was partially offset by higher restructuring charges and other corporate expense.

Regional Summaries. The following summarizes the changes in operating income by region:

| | North America. The increase in operating
income was primarily attributable to our product rationalization
efforts, lower returns, allowances and price discounts in the
United States, lower sales of marked-down obsolete and excess
products, and lower inventory markdowns. It was also due to
lower sourcing costs resulting from the closure of our remaining
North America manufacturing plants and the shifting of
contractor production to lower cost countries, and lower
selling, general and administrative expenses. Our businesses in
Canada and Mexico also reported increases in operating income on
higher net revenues. The operating income increase in North
America was partially offset by lower sales volume in our
U.S. Dockers ® brand. |
| --- | --- |
| | Europe. The increase in operating income was
primarily attributable to a greater proportion of higher priced
products and lower sourcing costs resulting from our strategic
decision to reposition the
Levis ® brand and through various cost reduction initiatives, including
utilization of lower cost sourcing locations and more effective
negotiations with suppliers, and lower selling, general and
administrative expenses. Also contributing to the increase was
the impact of stronger foreign currencies. Partially offsetting
these factors were lower sales volumes in our
Levis ® and
Dockers ® brands. |
| | Asia Pacific. The increase in operating income
was driven by higher sales volume, favorable product mix within
the super premium and premium segments, and stronger margins
resulting from sourcing initiatives. Also contributing to the
increase was the impact of stronger foreign currencies. The
region incurred |

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increased selling, general and administrative expenses to drive sales growth, but these expenses decreased as a percentage of revenue.

Restructuring charges, net of reversals. Our restructuring charges increased primarily as a result of our 2004 reorganization initiatives, including the closing of our plants in Australia and Spain, our organizational changes in Europe and North America and our suspension of a worldwide enterprise resource planning system.

Other corporate expense. We reflect annual incentive compensation plan costs for corporate employees, long-term incentive compensation expense (reversal), post-retirement medical benefit plan curtailment gains and corporate staff costs in other corporate expense. The increase in total other corporate expense of $118.9 million in 2004 was primarily attributable to higher long-term and annual incentive compensation expense. The increase in long-term incentive compensation expense was attributable to the 2004 expense for our 2004 incentive compensation program and our recording in 2003 of reversals of previously recorded incentive compensation plan accruals due to lower expected payouts under our prior long-term incentive compensation plans. Partially offsetting these factors were a higher curtailment gain related to our post-retirement medical plan and lower salaries and lower expenses resulting from our comprehensive cost reduction initiatives.

The following table summarizes significant components of other corporate expense:

	Year Ended — November 28,	November 30,		$ Increase		% Increase
	2004	2003		(Decrease)		(Decrease)
	(Dollars in thousands)
Annual incentive compensation
plan corporate employees	$ 21,303	$	751	$	20,552		NM
Long-term incentive compensation
expense (reversal)	45,171		(138,842	)	184,013		132.5	%
Post-retirement medical benefit
plan curtailment gain	(27,426	)	(21,021	)	6,405		30.5	%
Corporate staff costs and other
expense	237,565		316,832		(79,267	)	(25.0	)%
Total other corporate expense	$ 276,613	$	157,720	$	118,893		75.4	%

Interest expense

Interest expense increased 2.3%. The higher interest expense was primarily due to higher effective interest rates in 2004. The weighted average interest rate on average borrowings outstanding for 2004 and 2003, including the amortization of debt issuance costs and interest rate swap cancellations, was 10.60% and 10.05%, respectively. The increase in our weighted average interest rate resulted primarily from a higher interest rate on our senior secured term loan obtained during the fourth quarter of 2003, as compared to our 2003 senior secured credit facility it replaced. The weighted average interest rate on average borrowings outstanding excludes interest payable to participants under our deferred compensation plans and other miscellaneous items.

Loss on early extinguishment of debt

During 2003, we recorded a $39.4 million loss on early extinguishment of debt related to our purchase of $327.3 million in principal amount of our 6.80% notes, the write-off of unamortized bank fees associated with the refinancing in January 2003 of our 2001 bank credit facility and the refinancing in September 2003 of both our January 2003 credit facility and our July 2001 U.S. receivables securitization transaction. During 2004, we did not incur any charges related to the extinguishment of debt.

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Other expense, net

The following table summarizes significant components of other expense, net:

	Year Ended — November 28,	November 30,		$ Increase		% Increase
	2004	2003		(Decrease)		(Decrease)
	(Dollars in thousands)
Foreign exchange management
contracts losses	$ 26,809	$	84,803	$	(57,994	)	(68.4	)%
Foreign currency transaction gains	(15,028	)	(20,960	)	(5,932	)	(28.3	)%
Interest income	(3,933	)	(4,470	)	(537	)	(12.0	)%
Minority
interest Levi Strauss Japan K.K	709		2,270		(1,561	)	(68.8	)%
Minority
interest Levi Strauss Istanbul Konfeksiyon	65		(725	)	790		109.0	%
Other	(3,172	)	(9,895	)	(6,723	)	(67.9	)%
Total	$ 5,450	$	51,023	$	(45,573	)	(89.3	)%

The $45.6 million decrease in other expense, net, was primarily driven by a decrease in losses on foreign exchange management contracts, partially offset by lower foreign currency transaction gains in 2004.

Income tax expense

Income tax expense was $65.1 million for 2004 compared to $318.0 million for 2003. The $252.9 million decrease is primarily related to our recording in 2003 of a $282.4 million increase in valuation allowance against deferred tax assets, including our foreign tax credits, state and foreign net operating loss carryforwards and alternative minimum tax credits.

Net income

Net income was $30.4 million, compared to a net loss of $349.3 million in 2003. The increase in net income for 2004 was due primarily to higher gross profit, increased royalty income, lower foreign exchange management contracts losses, lower income tax expense and the recognition in 2003 of a loss on early extinguishment of debt, partially offset by higher selling general and administrative expense, and increased restructuring charges in 2004.

Tax Matters

Overview. Income tax expense was $126.7 million for 2005 compared to $65.1 million for 2004. The $61.5 million increase was primarily driven by the $187.1 million increase in our income before taxes, partially offset by valuation allowance reversals. We believe the main drivers in our effective tax rate for the foreseeable future will be the impact on our tax provision of changes to our valuation allowance against our deferred tax assets, and our ability to credit rather than deduct foreign taxes on our U.S. federal income tax return.

Valuation Allowance. Realization of our deferred tax assets is dependent upon future earnings in specific tax jurisdictions, the timing and amount of which are uncertain. Accordingly, we evaluate all significant available positive and negative evidence, including the existence of losses in recent years and our forecast of future taxable income, in assessing the need for a valuation allowance. The underlying assumptions we used in forecasting future taxable income require significant judgment and take into account our recent performance. As a result of these calculations, the valuation allowance decreased by $83.4 million in 2005.

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The following table shows the components of the changes in our valuation allowance during 2005:

	Valuation				Valuation
	Allowance at				Allowance at
	November 28,	Current Year	Current Year		November 27,
	2004	Additions	(Reductions)		2005
	(Dollars in thousands)
Foreign tax credits on unremitted
foreign earnings	$ 147,035	$	$ (1,529	)	$ 145,506
Foreign net operating loss
carryforwards and other foreign deferred tax assets	152,786		(63,157	)	89,629
U.S. state net operating loss
carryforward	36,343	2,254			38,597
Foreign tax credit carryforwards	50,519		(20,978	)	29,541
Total	$ 386,683	$ 2,254	$ (85,664	)	$ 303,273

The $83.4 million decrease in our valuation allowance for 2005 was primarily driven by the net reversal of $62.4 million of valuation allowance which was recorded as a reduction in income tax expense for the year. This $62.4 million net reversal was comprised of $63.2 million relating to foreign net operating loss carryforwards and other foreign deferred tax assets and $1.5 million relating to foreign tax credits on unremitted foreign earnings, partially offset by $2.3 million of additional valuation allowances established for U.S. state net operating loss carryforwards. The $63.2 million relating to foreign net operating loss carryforwards and other foreign deferred tax assets was reversed primarily due to current year operating income in the relevant foreign jurisdictions. In addition, the net $83.4 million decrease in the valuation allowance for 2005 includes $21.0 million relating to a decrease in our related gross deferred tax asset for certain foreign tax credit carryforwards on the U.S. federal income tax return.

While we believe our valuation allowance was appropriately stated at November 27, 2005, changes in our expectations regarding the utilization of our deferred tax assets could result in an increase or decrease in our provision for income taxes in future periods. If our business or expectations decline, we may be required to record additional valuation allowances in future periods. On the other hand, improvements in our business performance may in the future require us to record a reversal of all or a portion of the remaining valuation allowance because we may change our assessment of our ability to use the related deferred tax assets. This impact could be material. Improvement or deterioration in our projected earnings, changes in tax laws regarding carryforward periods, movement into or out of recent and cumulative loss positions for certain of our affiliates and identification of tax planning strategies, could lead to changes in our expectations regarding utilization of our deferred tax assets.

We believe it is more likely than not that our foreign tax credit carryforward of approximately $29.5 million will expire unused. Accordingly, we have fully offset the related gross deferred tax asset with a valuation allowance. As we are not permanently reinvesting the earnings of our foreign affiliates, we must also account for the residual income tax that will be assessed upon the repatriation of our unremitted earnings. For these purposes, we have also projected that it is more likely than not that we will be unable to fully utilize the foreign tax credits that may accompany the future remittance of our unremitted earnings. Accordingly, we have partially offset these foreign tax credits with a valuation allowance to bring our gross deferred tax asset to its net realizable value. Tax expense may be reduced in future periods if our expectations regarding the repatriation of our unremitted foreign earnings or our ability to utilize foreign tax credits that may accompany future distributions were to change.

Examination of Tax Returns. During 2005, we reached agreements with the Internal Revenue Service to close a total of 14 open tax years:

| | In June 2005, we reached an agreement regarding the examination
of our consolidated U.S. federal income tax returns for the
years 1986 1989. As a result of this agreement,
the examination of our income tax returns for those periods is
closed and we reduced our contingent tax liabilities by
approximately $4.2 million during the three months ended
May 29, 2005. |
| --- | --- |
| | In August 2005, we completed settlement discussions relating to
our consolidated U.S. federal income tax returns for the
years 1990 1999. As a result of this settlement
agreement, the examination of our income tax returns for those
periods is closed and we reduced income tax expense by
approximately $4.1 million |

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during the three months ended August 28, 2005. This $4.1 million reduction in income tax expense reflects a net decrease in our federal income tax expense of approximately $6.5 million and an increase to our state income tax expense, net of federal tax benefits, of approximately $2.4 million. The net decrease to our federal income tax expense of $6.5 million relates primarily to a decrease in our liability associated with our unremitted foreign earnings of approximately $12.3 million, partially offset by $5.8 million of additional net federal income tax expense relating to an increase in taxes payable and changes in other tax attributes.

In connection with the 1990 1999 settlement, we made total payments to the Internal Revenue Service of approximately $99.6 million in October 2005. The Internal Revenue Service has begun a review of our 2000-2002 U.S. federal corporate income tax returns. It has not yet begun an examination of our 2003-2004 U.S. federal corporate income tax returns.

For 2005, our income tax expense was also reduced by approximately $11.3 million as a result of a favorable court decision on a tax case in the Netherlands. The decision represents final resolution on this matter.

In addition, certain state and foreign tax returns are under examination by various regulatory authorities. We continuously review issues raised in connection with ongoing examinations and open tax years to evaluate the adequacy of our reserves. We believe that our accrued tax liabilities are adequate to cover all probable U.S. federal, state, and foreign income tax loss contingencies at November 27, 2005. However, it is reasonably possible we may also incur additional income tax liabilities related to prior years. We estimate this additional potential exposure to be approximately $10.6 million. Should our view as to the likelihood of incurring these additional liabilities change, additional income tax expense may be accrued in future periods. This $10.6 million amount was not accrued as of November 27, 2005 because it did not meet the recognition criteria for liabilities under generally accepted accounting principles in the United States.

Liquidity and Capital Resources

Liquidity Outlook

We believe we will have adequate liquidity through the balance of 2006 to operate our business and to meet our cash requirements.

Cash Sources

Our key sources of cash include earnings from operations and borrowing availability under our senior secured revolving credit facility. As of February 26, 2006, we had total cash and cash equivalents of approximately $281.4 million, a $41.8 million increase from the $239.6 million balance as of November 27, 2005. The increase was primarily driven by cash provided by operating activities during the period, partially offset by capital expenditures and scheduled debt repayments.

As of February 26, 2006, our total availability under our senior secured revolving credit facility was approximately $390.6 million. We had no outstanding borrowings under this facility, but had utilization of other credit-related instruments such as documentary and standby letters of credit. Our unused availability was approximately $298.6 million. In addition, we had liquid short-term investments in the United States totaling approximately $125.9 million, resulting in a net liquidity position (unused availability and liquid short-term investments) of $424.5 million in the United States.

In accordance with the requirements of the senior secured revolving credit facility and in connection with prepaying the term loan, on March 16, 2006 we reserved borrowing availability of $77.9 million under the revolving credit facility, thereby reducing the availability under the facility. See Description of Other Indebtedness for more information on our prepayment of our senior secured term loan and on our May 2006 amendment of our revolving credit facility.

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Cash Uses

Our principal cash requirements include working capital, capital expenditures, cash restructuring costs, payments of interest on our debt, payments of taxes and contributions to our pension and postretirement health benefit plans. The following table presents selected cash uses during the three months ended February 26, 2006 and the related projected cash requirements for the remainder of 2006 and the first three months of 2007:

	Paid in Three — Months Ended	Projected for — Remaining Nine	Total	Projected for Three
	February 26,	Months of	Projected for	Months Ending
Selected Cash
Requirements	2006	Fiscal 2006	Fiscal 2006	February 25, 2007
	(Dollars in millions)
Restructuring
activities (1)	$ 4	$ 14	$ 18	$ 2
Interest (2)	80	148	228	68
Federal, foreign and state taxes
(net of
refunds) (3)	16	51	67	19
Prior years income tax
liabilities,
net (4)	2	14	16	4
Post-retirement health benefit
plans	5	23	28	5
Capital expenditures	10	51	61	10
Pension plans	6	41	47	3
Total selected cash requirements	$ 123	$ 342	$ 465	$ 111

callerid=999 iwidth=455 length=60

| (1) | Amounts do not include the impact
from a closure of our Little Rock, Arkansas distribution center,
which is not anticipated to have a material adverse impact on
our results of operations or liquidity. See Note 13 to our
unaudited consolidated financial statements included herein for
more information about our intent to close the Little Rock
facility. |
| --- | --- |
| (2) | Amounts reflect our March 2006
prepayment of our senior secured term loan using the net
proceeds of the issuance of our old Euro Notes and our old
Dollar Notes and cash on hand. The interest rates on these notes
are lower than rates under the senior secured term loan. See
Note 5 to our unaudited consolidated financial statements
included herein for more information. |
| (3) | Amounts relate primarily to
estimated payments with respect to 2006 income taxes. |
| (4) | Our projection for cash tax
payments for prior years income tax liabilities primarily
reflects payments to state and foreign tax authorities. |

The following table provides information about our significant cash contractual obligations and commitments as of November 27, 2005:

| | Payments Due or Projected by
Period — Total | 2006 | 2007 | 2008 | 2009 | 2010 | Thereafter |
| --- | --- | --- | --- | --- | --- | --- | --- |
| | (Dollars in millions) | | | | | | |
| Contractual and Long-term
Liabilities: | | | | | | | |
| Long-term debt
obligations (1) | $ 2,311 | $ 90 | $ | $ | $ | $ | $ 2,221 |
| Capital lease
obligations (2) | 6 | 2 | 2 | 1 | 1 | | |
| Operating
leases (3) | 426 | 74 | 69 | 63 | 57 | 53 | 110 |
| Purchase
obligations (4) | 305 | 240 | 24 | 18 | 10 | 10 | 3 |
| Post-retirement
obligations (5) | 488 | 28 | 28 | 26 | 24 | 22 | 360 |
| Pension
obligations (6) | 243 | 47 | 64 | 12 | 14 | 13 | 93 |
| Long-term employee related
benefits (7) | 194 | 38 | 55 | 36 | 26 | 26 | 13 |
| Other long-term
liabilities (8) | 42 | 1 | 3 | 6 | 6 | 6 | 20 |
| Total | $ 4,015 | $ 520 | $ 245 | $ 162 | $ 138 | $ 130 | $ 2,820 |

callerid=999 iwidth=455 length=60

| (1) | Gives effect to (i) our
issuance of $350.0 million of our Dollar Notes and
100.0 million of our Euro Notes in March 2006 and
(ii) our prepayment of our senior secured term loan in
March 2006. |
| --- | --- |
| (2) | Capital lease obligations are
primarily comprised of a logistics services agreement in Europe
with a third-party that includes a capital lease for machinery
and equipment. For more information, see Note 7 to our
audited consolidated financial statements included herein. |

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| (3) | We lease a number of manufacturing,
distribution, office and retail facilities around the world. For
more information, see
Business Properties. |
| --- | --- |
| (4) | Amounts reflect estimated
commitments of $162 million for inventory purchases,
$13 million for capital expenditures and $130 million
for information technology and other professional services. We
do not have any material long-term raw materials supply
agreements. We typically conduct business with our raw material
suppliers, garment manufacturing and finishing contractors on an order-by-order basis. Most arrangements are cancelable without a significant
penalty and with short notice (usually 30 to 90 days). Our
projected cash requirements for 2006 capital expenditures
primarily reflects estimates related to spending on the
enterprise resource planning system project in Asia Pacific. |
| (5) | We maintain two plans that provide
post-retirement benefits, principally health care, to qualified
U.S. retirees and their qualified dependents. The plans are
contributory and contain certain cost-sharing features, such as
deductibles and coinsurance. Our policy is to fund
post-retirement benefits as claims and premiums are paid. The
amounts presented in the table represent an estimate of our
projected contributions to the plans based on information
provided by our plans actuaries. These expected payments
are not in addition to the post-retirement benefit plans expense
recorded for the applicable year and are based on estimates and
subject to change. For more information, see Note 12 to our
audited consolidated financial statements included herein. |
| (6) | We have numerous noncontributory
pension plans covering substantially all of our employees. The
amounts presented in the table represent an estimate of our
projected contributions to the plans based on information
provided by our plans actuaries. These estimated payments
are based on assumptions and existing facts and circumstances,
and are subject to change. They do not include any pension
expense for future periods. For more information, see
Note 12 to our audited consolidated financial statements
included herein. |
| (7) | Long-term employee-related benefits
relate to workers compensation, deferred compensation
arrangements and the non-current portion of liabilities for
long-term incentive plans. We estimated these payments based on
prior experience and forecasted activity for these items. For
more information, see Note 15 to our audited consolidated
financial statements included herein. |
| (8) | Primarily comprised of rent
accruals resulting from accounting for rental expense on a
straight-line basis over the lease term. |

Information in the two preceding tables reflects our estimates of future cash payments. These estimates and projections are based upon assumptions that are inherently subject to significant economic, competitive, legislative and other uncertainties and contingencies, many of which are beyond our control. Accordingly, our actual expenditures and liabilities may be materially higher or lower than the estimates and projections reflected in these tables. The inclusion of these projections and estimates should not be regarded as a representation by us that the estimates will prove to be correct.

Cash Flows

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

	Three Months Ended — February 26,	February 27,			Year Ended — November 27,		November 28,	November 30,
	2006	2005			2005		2004	2003
	(Dollars in thousands)
Cash provided by (used for)
operating activities	$ 54,384	$	(80,596	)	$ (43,777	)	$ 199,896	$	(190,650	)
Cash used for investing activities	(8,994	)	(4,724	)	(34,657	)	(12,930	)	(84,484	)
Cash (used for) provided by
financing activities	(5,494	)	8,517		23,072		(32,120	)	349,096
Cash and cash equivalents	281,433		223,139		239,584		299,596		143,445

Three Months Ended February 26, 2006 as Compared to Three Months Ended February 27, 2005

Cash flows from operating activities

Cash provided by operating activities was $54.4 million for the three months ended February 26, 2006, compared to cash used by operating activities of $80.6 million for the same period in 2005. The $135.0 million increase in cash provided by operating activities reflects a $130.3 million increase in cash flows from operating assets and liabilities and a $4.7 million increase in net income (after adjusting for the effect of non-cash items). The increase in cash flows from operating assets and liabilities was primarily due to the following factors:

During the three months ended February 26, 2006, trade accounts receivable decreased by $113.0 million compared to $68.1 million in the same period in 2005. Our receivable balance is typically lower at the end of our first quarter as compared to the prior year-end balance since the fourth quarter of our fiscal year is generally our strongest selling period. The reduction in accounts receivable was higher for the three months

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ended February 26, 2006 compared to the same period in the prior year primarily as a result of the decrease in our net sales for the 2006 period as compared to the 2005 period.

| | During the three months ended February 26, 2006, our
inventory levels decreased $10.5 million compared to an
increase of $52.0 million for the same period in 2005. The
2006 period decrease resulted primarily from a decrease in raw
materials and work-in-process as a result of our shift to package program sourcing and away
from self-manufacturing and cut-make-trim arrangements with
contractors. The increase in inventory for the three months
ended February 27, 2005 resulted primarily from inventory
management actions taken by all business units to avoid
inventory shortages and maintain consistent order flow. |
| --- | --- |
| | During the three months ended February 26, 2006, accrued
salary, wages and benefits decreased $56.3 million as
compared to a decrease of $67.1 million for the same period
in 2005. Both decreases were primarily attributable to the
payments of approximately $58.0 million and
$81.0 million in the three months ended February 26,
2006 and February 27, 2005, respectively, under our annual
and long-term incentive plans. These decreases were partially
offset by incentive compensation accruals of approximately
$19.6 million and $21.3 million, respectively, for the
2006 and 2005 periods. |
| | Payments related to our restructuring activities for the three
months ended February 26, 2006 were $4.2 million
compared to $18.8 million for the same period in 2005. The
decrease in restructuring payments was primarily driven by the
wind down of activities relating to our 2004 and 2003
restructuring initiatives in the United States and Europe. |

Cash flows from investing activities

Cash used for investing activities was $9.0 million for the three months ended February 26, 2006 compared to $4.7 million for the same period in 2005. Cash used in both periods primarily related to investments made in information technology systems associated with the installation of an enterprise resource planning system in our Asia Pacific region and, for the 2006 period, investments made in our company-operated retail stores. The increase was partially offset by proceeds from the sale of property, plant and equipment primarily related to the sale of our manufacturing plant, distribution center and business office in Adelaide, Australia during the 2006 period and the sale of assets related to our restructuring activities in the United States and Europe in the 2005 period.

Cash flows from financing activities

Cash used for financing activities was $5.5 million for the three months ended February 26, 2006 compared to cash provided by financing activities of $8.5 million for the same period in 2005. Cash used for financing activities for the current period primarily reflected required payments on our senior secured term loan and payments on short-term borrowings. Cash provided by financing activities for the three months ended February 27, 2005 primarily reflected our issuance of $450.0 million of 9.75% senior unsecured notes during the period. This increase was largely offset by the repayment of $372.1 million in aggregate principal amount of our 2006 notes, the payment of debt issuance costs of approximately $10.4 million and the full repayment of the remaining principal outstanding under our customer service center equipment financing agreement of $55.9 million.

2005 as compared to 2004

Cash flows from operating activities

Cash used for operating activities was $43.8 million in 2005, compared to cash provided by operating activities of $199.9 million in 2004. The $243.7 million increase in cash used for operating activities reflects a $314.6 million decrease in cash flows from operating assets and liabilities, partially offset by a $70.9 million increase in net income (after adjusting for the effect of non-cash items). The decrease in cash flows from operating assets and liabilities was primarily due to the following factors:

During 2005, our cash paid for income taxes was $197.3 million as compared to $83.0 million for 2004. The increase principally related to cash payments related to our settlements with the Internal Revenue Service to close our 1986-1999 open tax years.

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| | During 2005, accrued salary, wages and benefits decreased
$13.0 million as compared to an increase of
$113.2 million during 2004. The decrease in 2005 was
primarily attributable to the payment of approximately
$111.6 million under our annual and long-term incentive
plans, compared to approximately $10.0 million in 2004. The
decrease was partially offset by incentive compensation accruals
during 2005 of approximately $94.3 million. |
| --- | --- |
| | During 2005, our accounts payable and accrued liabilities
decreased by $38.4 million compared to a
$105.1 million increase in 2004. The decrease in 2005 was
primarily due to reduced inventory balances and shorter payment
cycles driven by our increased use of package sourcing and the
related shorter payment terms for our contract manufacturers.
The 2004 increase is due in part to higher operating expenses in
the fourth quarter of 2004, as compared to 2003. |
| | During 2005, our inventory levels decreased $3.1 million
compared to a decrease of $100.9 million in 2004.
Consistent inventory levels in 2005 are primarily due to our
shift away from self-manufacturing and cut-make-trim
arrangements with contractors to outsourced package
manufacturing. The decrease in inventory for 2004 resulted
primarily from production shortfalls by our third-party contract
manufacturers and our effort to reduce excess and obsolete
inventory. |

Partially offsetting these factors was the $100.5 million decrease in cash payments for our restructuring initiatives, from $143.6 million in 2004 to $43.1 million in 2005.

Cash flows from investing activities

Cash used for investing activities was $34.7 million for 2005 compared to $12.9 million for 2004. Cash used in both periods primarily related to investments made in information technology systems, and in 2005, costs associated with the installation of an enterprise resource planning system in our Asia Pacific region. In 2005, the increase was partially offset by gains on net investment hedges and proceeds from the sale of property, plant and equipment primarily related to our restructuring activities in the U.S. and Europe.

Cash flows from financing activities

Cash provided by financing activities was $23.1 million for 2005 compared to cash used for financing activities of $32.1 million for 2004. Cash provided by financing activities for 2005 primarily reflected our issuance of approximately $1.0 billion in unsecured notes during the period. The increase was largely offset by the repurchases and redemptions of $918.2 million in aggregate principal amount of our 2006 and 2008 notes, the payment of debt issuance costs of approximately $24.6 million and the full repayment of the remaining principal outstanding under our customer service center equipment financing agreement of $55.9 million. Cash used for financing activities in 2004 primarily reflected required payments on the equipment financing and senior secured term loan as well as payments on short-term borrowings.

2004 as compared to 2003

Cash provided by operating activities

Cash provided by operating activities was $199.9 million in 2004, compared to cash used for operating activities of $190.7 million in 2003. The increase of $390.6 million in cash provided by operating activities was primarily due to the following factors:

| | Gross profit increased by $223.0 million in 2004 compared
to 2003. |
| --- | --- |
| | We paid out $83.0 million in income tax payments during
2004 as compared to $167.3 million for 2003. |
| | During 2004, cash inflow provided by the decrease in inventories
was $100.9 million, due primarily to improved working
capital management including our product rationalization efforts
and our shift away from self-manufacturing and cut-make-trim
arrangements with contractors to outsourced package
manufacturing. The inventory reduction in North America was
partially offset by higher inventories in Asia Pacific and
Europe, reflecting higher volume in the case of Asia Pacific and
the impact of foreign currency translation. |

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During 2003, cash outflows from the increase of inventories were $77.1 million, due primarily to the increase in Levi Strauss Signature ® inventories prior to our launch of the brand into Wal-Mart stores in 2003.

During 2004, we paid out approximately $10.0 million under our annual incentive plan and made no payments under the long-term incentive plan. During 2003, we paid out approximately $100.0 million under the annual and long-term incentive plans.

Partially offsetting these factors are increased interest payments of $233.5 million and restructuring payments of $143.6 million during 2004, compared to $191.9 million and $49.7 million, respectively, for 2003.

Cash used for investing activities

Cash used for investing activities was $12.9 million in 2004, compared to $84.5 million in 2003. The decrease for 2004 resulted primarily from reduced investments in information technology systems, due in part to our decision to indefinitely suspend the installation of a worldwide enterprise resource planning system and reduced capital expenditures as a result of cost control measures, and lower realized losses on net investment hedges, partially offset by lower proceeds from sales of property, plant and equipment.

Cash used for investing activities in 2003 primarily represented purchases of information systems enhancements and realized losses on net investment hedges. These items were partially offset by proceeds primarily from the sale of assets associated with the U.S. plant closures.

Cash used for financing activities

Cash used for financing activities was $32.1 million for 2004, compared to cash provided by financing activities of $349.1 million for 2003. Cash used for financing activities in 2004 primarily reflected required payments on our customer service center equipment financing and term loan in addition to repayments on short-term borrowings.

Cash provided by financing activities for 2003 was $349.1 million, which primarily reflected our issuance of our 12.25% senior unsecured notes due 2012 and our entry into the September 2003 senior secured term loan. These items were partially offset by the maturity and repayment of $350.0 million in principal amount of our 6.80% notes due November 1, 2003, debt issuance costs associated with our first and fourth quarter 2003 debt financing transactions, the retirement of our domestic and European receivables securitization financing arrangements and the retirement of an industrial development revenue refunding bond.

Indebtedness

As of February 26, 2006, we had fixed rate debt of approximately $1.6 billion (71% of total debt) and variable rate debt of approximately $0.7 billion (29% of total debt). The borrower of substantially all of our debt is Levi Strauss & Co., our parent and U.S. operating company.

Principal Short-term and Long-term Debt Payments

The table below sets forth, as of February 26, 2006, our required aggregate short-term and long-term debt principal payments for the next five fiscal years and thereafter, after giving effect to (i) the issuance in March 2006 of $350.0 million of Dollar Notes and 100.0 million of Euro Notes and (ii) the prepayment of our senior secured term loan.

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	Principal Payments as of
Fiscal Year	February 26, 2006
	(Dollars in thousands)
2006 (remaining nine months)	$ 87,908
2007
2008
2009
2010
Thereafter	2,227,822
Total	$ 2,315,730

See Note 5 to our unaudited consolidated financial statements included herein for further discussion of our indebtedness.

Other Sources of Financing

We are a privately held corporation. Historically, we have primarily relied on cash flow from operations, borrowings under our credit facilities, issuances of notes and other forms of debt financing. We regularly explore our 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.

Effects of Inflation

We believe that inflation in the regions where most of our revenues occur has not had a significant effect on our net revenues or profitability.

Foreign Currency Translation

The functional currency for most of our foreign operations is the applicable local currency. For those operations, assets and liabilities are translated into U.S. dollars using period-end exchange rates and income and expense accounts are translated at average monthly exchange rates. Net changes resulting from such translations are recorded as a separate component of Accumulated other comprehensive loss in the consolidated financial statements.

The U.S. dollar is the functional currency for foreign operations in countries with highly inflationary economies and certain other subsidiaries. The translation adjustments for these entities are included in Other (income) expense, net.

Derivative Financial Instruments

We are exposed to market risk primarily related to foreign currencies and interest rates. We actively manage foreign currency risks with the objective of maximizing the U.S. dollar value of cash flows to the parent company and reducing variability of certain cash flows at the subsidiary level. We hold derivative positions only in currencies to which we have exposure. We currently do not hold any interest rate derivatives.

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

Foreign Exchange Risk

The global scope of our business operations exposes us to the risk of fluctuations in foreign currency markets. This exposure is the result of certain product sourcing activities, some inter-company sales, foreign subsidiaries royalty payments, net investment in foreign operations and funding activities. Our foreign currency management

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objective is to mitigate the potential impact of currency fluctuations on the value of our cash flows. We typically take a long-term view of managing exposures, using forecasts to develop exposure positions and engaging in their active management.

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

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

At February 26, 2006, we had U.S. dollar spot and forward currency contracts to buy $350.2 million and to sell $258.9 million against various foreign currencies. Those contracts were at various exchange rates and expired at various dates through April 2006. At November 27, 2005 we had U.S. dollar spot and forward currency contracts to buy $335.3 million and to sell $347.9 million against various foreign currencies. Those contracts were at various exchange rates and expired at various dates through February 2006.

We have entered into option contracts to manage our exposure to foreign currencies. At February 26, 2006, we bought U.S. dollar option contracts resulting in a net purchase of $30.0 million against various foreign currencies should the options be exercised. To finance the premium related to bought options, we sold U.S. dollar options resulting in a net purchase of $42.0 million against various currencies should the options be exercised. The option contracts are at various strike prices and expire at various dates through August 2006.

At November 27, 2005, we bought U.S. dollar option contracts resulting in a net purchase of $35.3 million against various foreign currencies should the options be exercised. To finance the premium related to bought options, we sold U.S. dollar options resulting in a net purchase of $36.0 million against various currencies should the options be exercised. The option contracts are at various strike prices and expire at various dates through August 2006.

At the respective maturity dates of the outstanding spot, forward and option currency contracts, we expect to enter into various derivative transactions in accordance with our currency risk management policy.

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The following table presents the currency, average forward exchange rate, notional amount and fair values for our outstanding forward and swap contracts as of November 27, 2005. The average forward rate is the forward rate weighted by the total of the transacted amounts. The notional amount represents the total net position outstanding as of the stated date. A positive amount represents a long position in U.S. dollar versus the exposure currency, while a negative amount represents a short position in U.S. dollar versus the exposure currency. The net position is the sum of all buy transactions minus the sum of all sell transactions. All amounts are stated in U.S. dollar equivalents. All transactions matured before the end of February 2006.

Outstanding Forward and Swap Transactions

| | As of November 27,
2005 | | | | |
| --- | --- | --- | --- | --- | --- |
| | Average Forward | | | | |
| Currency | Exchange Rate | Notional Amount | | Fair Value | |
| | (Dollars in thousands except
average | | | | |
| | forward exchange
rates) | | | | |
| Australian Dollar | 0.74 | $ 19,643 | | $ 4 | |
| Canadian Dollar | 1.18 | 1,637 | | 33 | |
| Swiss Franc | 1.31 | (19,887 | ) | (212 | ) |
| Danish Krona | 6.36 | 30,581 | | (139 | ) |
| Euro | 1.17 | (160,353 | ) | 645 | |
| British Pound | 1.71 | 75,623 | | (300 | ) |
| Hungarian Forint | 213.69 | (8,490 | ) | (19 | ) |
| Japanese Yen | 117.68 | (39,091 | ) | (237 | ) |
| Korean Won | 1,041.67 | 1,497 | | 6 | |
| Mexican Peso | 10.71 | 22,081 | | (211 | ) |
| Norwegian Krona | 6.63 | 15,640 | | 135 | |
| New Zealand Dollar | 0.68 | (5,536 | ) | 89 | |
| Polish Zloty | 3.37 | (215 | ) | (29 | ) |
| Swedish Krona | 8.12 | 63,061 | | (596 | ) |
| Singapore Dollar | 1.69 | (24,312 | ) | | |
| Taiwan Dollar | 33.42 | 11,790 | | (10 | ) |
| South African Rand | 6.61 | 3,720 | | (33 | ) |
| Total | | $ (12,611 | ) | $ (874 | ) |

The following table presents the currency, average strike rate, notional amount and fair value of our outstanding foreign currency options as of November 27, 2005. All amounts are stated in U.S. dollar equivalents. The notional amount represents the total net position outstanding as of the stated date should the option be exercised. A positive amount represents a long position in U.S. dollars, while a negative amount represents a short position in U.S. dollars, versus the relevant currency. We use a weighting factor based on the notional amounts of the outstanding transactions to determine the average strike rate. All transactions expire before the end of August 2006.

Outstanding Options Transactions

| Currency | As of November 27,
2005 — Average Strike Rate | Notional Amount | Fair Value | |
| --- | --- | --- | --- | --- |
| | (Dollars in thousands except
average strike rates) | | | |
| Canadian Dollar | 1.20 | $ 63,000 | $ (379 | ) |
| Japanese Yen | 112.00 | 8,300 | 1,629 | |
| Total | | $ 71,300 | $ 1,250 | |

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Interest Rate Risk

We maintain a mix of medium and long-term fixed and variable rate debt. We currently do not actively manage the related interest rate risk and hold no interest rate derivatives.

The following table provides information about our financial instruments that are sensitive to changes in interest rates. The table presents principal (face amount) outstanding balances of our debt instruments and the related weighted average interest rates for the years indicated. The applicable floating rate index is included for variable rate instruments. All amounts are stated in U.S. dollar equivalents.

Interest Rate Table as of November 27, 2005

	Fiscal Year Ended
								Fair Value
	2005	2006	2007	2008	2009	2010	2011	2005
	(Dollars in thousands unless
otherwise stated)
Debt Instruments
Fixed Rate (US$)	$ 1,299,357	$ 1,219,000	$ 1,217,000	$ 1,215,000	$ 1,025,000	$ 1,025,000	$ 1,025,000	$ 1,432,580
Average Interest Rate	10.73 %	10.97 %	10.97 %	10.97 %	11.15 %	11.15 %	11.15 %
Fixed Rate (Yen 20 billion)	167,588	167,588	167,588	167,588	167,588	167,588	167,588	161,416
Average Interest Rate	4.25 %	4.25 %	4.25 %	4.25 %	4.25 %	4.25 %	4.25 %
Fixed Rate (Euro 150 million)	176,280	176,280	176,280	176,280	176,280	176,280	176,280	179,176
Average Interest Rate	8.63 %	8.63 %	8.63 %	8.63 %	8.63 %	8.63 %	8.63 %
Variable Rate (US$)	674,750	671,000	668,000	665,000	380,000	380,000	380,000	696,337
Average Interest
Rate (1)	8.95 %	8.94 %	8.94 %	8.93 %	8.03 %	8.03 %	8.03 %
Total Principal (face amount of our
debt instruments)	$ 2,317,975	$ 2,233,868	$ 2,228,868	$ 2,223,868	$ 1,748,868	$ 1,748,868	$ 1,748,868	$ 2,469,509

callerid=999 iwidth=455 length=60

(1) Assumes no change in short-term interest rates.

Off-Balance Sheet Arrangements, Guarantees and Other Contingent Obligations

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

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

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the

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consolidated financial statements and the related notes. We believe that the following discussion addresses our critical accounting policies, which are those that are most important to the portrayal of our financial condition and results and require managements most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Changes in such estimates, based on more accurate future information, or different assumptions or conditions, may affect amounts reported in future periods.

We summarize our critical accounting policies below.

Revenue recognition. We recognize revenue on sale of product when the goods are shipped and title passes to the customer provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an arrangement exists; the sales price is fixed or determinable; and collectibility is probable. Revenue is recognized when the sale is recorded net of an allowance for estimated returns, discounts and retailer promotions and incentives. Licensing revenues are earned and recognized as products are sold by licensees based on royalty rates as set forth in the licensing agreements.

We recognize allowances for estimated returns, discounts and retailer promotions and incentives in the period when the sale is recorded. Allowances principally relate to U.S. operations and primarily reflect price discounts, non-volume-based incentives and other returns and discounts. We estimate non-volume-based allowances by considering customer and product-specific circumstances and commitments, as well as historical customer claim rates. Actual allowances may differ from estimates due to changes in sales volume based on retailer or consumer demand and changes in customer and product-specific circumstances.

Accounts receivable, net. In the normal course of business, we extend credit to our wholesale customers that satisfy pre-defined credit criteria. Accounts receivable, which includes receivables related to our net sales and licensing revenues, are recorded net of an allowance for doubtful accounts. We estimate the allowance for doubtful accounts based upon an analysis of the aging of accounts receivable at the date of the financial statements, assessments of collectibility based on historic trends and an evaluation of economic conditions.

Inventory valuation. We value inventories at the lower of cost or market value. Inventory costs are based on standard costs on a first-in first-out basis, which are updated periodically and supported by actual cost data. We include materials, labor and manufacturing overhead in the cost of inventories. In determining inventory market values, substantial consideration is given to the expected product selling price. We consider various factors, including estimated quantities of slow-moving and obsolete inventory, by reviewing on-hand quantities, outstanding purchase obligations and forecasted sales. We then estimate expected selling prices based on our historical recovery rates for sale of slow-moving and obsolete inventory and other factors, such as market conditions and current consumer preferences. Estimates may differ from actual results due to the quantity, quality and mix of products in inventory, consumer and retailer preferences and economic conditions.

Restructuring liabilities. Upon approval of a restructuring plan by management with the appropriate level of authority, we record restructuring reserves for certain costs associated with plant closures and business reorganization activities as they are incurred or when they become probable and estimable. Restructuring costs associated with initiatives commenced prior to January 1, 2003 were recorded in compliance with Emerging Issues Task Force No. 94-3 and primarily include employee severance, certain employee termination benefits, such as outplacement services and career counseling, and resolution of contractual obligations.

For initiatives commenced after December 31, 2002, we recorded restructuring reserves in compliance with Statement of Financial Accounting Standards No. (SFAS) 112, Employers Accounting for Postemployment Benefits, and SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities, resulting in the recognition of employee severance and related termination benefits for recurring arrangements when they become probable and estimable and on the accrual basis for one-time benefit arrangements. We record other costs associated with exit activities as they are incurred. Employee severance and termination benefit costs reflect estimates based on agreements with the relevant union representatives or plans adopted by us that are applicable to employees not affiliated with unions. These costs are not associated with nor do they benefit continuing activities. Changing business conditions may affect the assumptions related to the timing and extent of facility closure activities. We review the status of restructuring activities on a quarterly basis and, if appropriate, record changes based on updated estimates.

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Income tax assets and liabilities. We record a tax provision for the anticipated tax consequences of the reported results of our operations. In accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes our provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce our deferred tax assets to the amount that is believed more likely than not to be realized.

Changes in valuation allowances from period to period are generally included in our tax provision in the period of change. In determining whether a valuation allowance is warranted, we take into account such factors as prior earnings history, expected future earnings, the expected reversal pattern of taxable temporary differences, carryback and carryforward periods available under the applicable tax law, and prudent and feasible tax planning strategies that could potentially enhance the likelihood of realization of our deferred tax assets.

We are subject to examination of our income tax returns for multiple years by the Internal Revenue Service and certain other domestic and foreign tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the impact on our deferred tax assets and liabilities, our tax receivables and payables, and the adequacy of our provision for income taxes. We classify interest and penalties related to income taxes as income tax expense.

Derivative and foreign exchange management activities. We recognize all derivatives as assets and liabilities at their fair values. The fair values are determined using widely accepted valuation models that incorporate quoted market prices and dealer quotes and reflect assumptions about currency fluctuations based on current market conditions. The aggregate fair values of derivative instruments used to manage currency exposures are sensitive to changes in market conditions and to changes in the timing and amounts of forecasted exposures.

Not all exposure management activities and foreign currency derivative instruments will qualify for hedge accounting treatment. Changes in the fair expense values of those derivative instruments that do not qualify for hedge accounting are recorded in Other (income) expense, net in our consolidated statements of operations. As a result, net income may be subject to volatility. The instruments that qualify for hedge accounting currently hedge our net investment position in certain of our subsidiaries. For these instruments, we document the hedge designation by identifying the hedging instrument, the nature of the risk being hedged and the approach for measuring hedge effectiveness. Changes in fair values of instruments that qualify for hedge accounting are recorded in the Accumulated other comprehensive loss section of Stockholders Deficit.

Employee Benefits and Incentive Compensation

Pension and Post-retirement Benefits. We have several non-contributory defined benefit retirement plans covering eligible employees. We also provide certain health care benefits for employees who meet age, participation and length of service requirements at retirement. In addition, we sponsor other retirement plans for our foreign employees in accordance with local government programs and requirements. We retain the right to amend, curtail or discontinue any aspect of the plans at any time. Any of these actions (including changes in actuarial assumptions and estimates), either individually or in combination, could have a material impact on our consolidated financial statements and on our future financial performance.

We account for our U.S. and certain foreign defined benefit pension plans and our post-retirement benefit plans using actuarial models in accordance with SFAS 87, Employers Accounting for Pension Plans, and SFAS 106, Employers Accounting for Postretirement Benefits Other Than Pensions. These models use an attribution approach that generally spreads individual events over the estimated service lives of the employees in the plan. The attribution approach assumes that employees render service over their service lives on a relatively smooth basis and as such, presumes that the income statement effects of pension or post-retirement benefit plans should follow the same pattern. Our policy is to fund our retirement plans based upon actuarial recommendations and in accordance with applicable laws and income tax regulations, as well as in accordance with our credit agreements.

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Net pension income or expense is determined using assumptions as of the beginning of each fiscal year. These assumptions are established at the end of the prior fiscal year and include expected long-term rates of return on plan assets, discount rates, compensation rate increases and medical trend rates. We use a mix of actual historical rates, expected rates and external data to determine the assumptions used in the actuarial models.

Employee Incentive Compensation. We maintain short-term and long-term employee incentive compensation plans. These plans are intended to reward eligible employees for their contributions to our short-term and long-term success. Provisions for employee incentive compensation are recorded in Accrued salaries, wages and employee benefits and Long-term employee related benefits in our consolidated balance sheets. Changes in the liabilities for these incentive plans generally correlate with our financial results and projected future financial performance and could have a material impact on our consolidated financial statements and on future financial performance.

Estimates and Assumptions

Preparation of our financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements. Key estimates and assumptions for us include those relating to:

| | product returns and customer claims, which we use in recognizing
revenue; |
| --- | --- |
| | expected selling prices for our products, which we use in
valuing our inventory; |
| | future business performance on both a consolidated basis and in
particular countries, which we use in recording incentive
compensation expense and valuing our deferred tax assets; |
| | employee benefit, facility exit, contract termination and other
costs associated with facility closures and organizational
changes, which we use in determining restructuring
expenses; and |
| | employee demographics and turnover, discount rates, global
capital market performance and health care costs, which we use
in accounting for our benefits and workers compensation programs. |

In 2005, changes in estimates and assumptions based on current year data had a substantial impact on our results. For example:

| | We realized a tax benefit of approximately $62.4 million
from reversing valuation allowances against our foreign tax
credits, state net operating loss carryforwards, foreign net
operating loss carryforwards, and other foreign deferred tax
assets. This resulted from utilization of approximately
$51.0 million of these assets primarily to offset operating
income generated during the year and a change in our assessment
regarding the future realization of approximately
$11.4 million of gross deferred tax assets in existence at
year-end. |
| --- | --- |
| | We reduced our self insurance reserves for workers compensation
claims by approximately $21.0 million based on changes in
our estimated future claims payments as a result of more
favorable than projected actual claims development during the
current year. |
| | We reversed approximately $6.3 million in restructuring
charges, primarily due to changes in estimates resulting from
lower than anticipated severance and employee benefits related
to our restructuring initiatives in the United States and Europe. |

Changes in our estimates, based on more accurate future information, or different assumptions or conditions, may affect amounts we report in future periods.

New Accounting Standards

Statement of Financial Accounting Standard (SFAS) No. 123, Share-Based Payment. In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment (SFAS 123R). Under this standard, all forms of share-based payment to employees, including stock options, would be treated as compensation and recognized in the income statement. This statement applies to all awards granted after the required effective date and to awards modified, repurchased or cancelled after that date. For nonpublic entities, this statement is effective as of the

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beginning of the first annual reporting period that begins after December 15, 2005, which for us will be as of the beginning of fiscal 2007. Early adoption is permitted. We are currently evaluating the impact that the adoption of SFAS 123R will have on our financial statements.

SFAS No. 154, Accounting Changes and Error Corrections A Replacement of APB Opinion No. 20 and FASB Statement No. 3. In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections A Replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS 154). SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 which for us will be as of the beginning of fiscal 2007.

SFAS No. 155, Accounting for Certain Hybrid Financial Instruments An Amendment of FASB Statement No. 133 and 140. In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments An Amendment of FASB Statement No. 133 and 140 (SFAS 155). SFAS 155 simplifies the accounting for certain hybrid financial instruments that contain an embedded derivative that otherwise would have required bifurcation. SFAS 155 also eliminates the interim guidance in FASB Statement No. 133, which provides that beneficial interest in securitized financial assets are not subject to the provisions of FASB Statement No. 133. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after September 15, 2006, which for the us will be as of the beginning of fiscal 2007. We do not believe that the adoption of SFAS 155 will have a significant effect on our financial statements.

SFAS No. 156, Accounting for Servicing of Financial Assets An Amendment of FASB Statement No. 140. In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets An Amendment of FASB Statement No. 140 (SFAS 156). SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The statement permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. SFAS 156 is effective as of the beginning of an entitys first fiscal year that begins after September 15, 2006, which for us will be as of the beginning of fiscal 2007. We do not believe that the adoption of SFAS 156 will have a significant effect on our financial statements.

FASB Staff Position No. FAS No. 123(R)-4, Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event. In February 2006, the FASB issued FASB Staff Position No. FAS 123(R)-4, Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event. This position amends SFAS 123R to incorporate that a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employees control does not meet certain conditions in SFAS 123R until it becomes probable that the event will occur. The guidance in this FASB Staff Position shall be applied upon initial adoption of SFAS 123R. We are currently evaluating the impact that the adoption of SFAS 123R will have on our financial statements.

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BUSINESS

Overview

We are one of the worlds leading branded apparel companies. We design and market jeans and jeans-related pants, casual and dress pants, tops, jackets and related accessories for men, women and children under our Levis, ® Dockers ® and Levi Strauss Signature ® brands in markets around the world. We also license our trademarks in many countries throughout the world for accessories, pants, tops, footwear, home and other products.

We distribute our Levis and Dockers ® products primarily through chain retailers and department stores in the United States and primarily through department stores, specialty retailers and franchised stores abroad. We also distribute Levis ® and Dockers ® products through company-operated stores located in the United States, Europe and Japan. We distribute our Levi Strauss Signature ® products primarily through mass channel retailers in the United States and abroad.

We were incorporated in Delaware in 1973 and conduct our operations in the United States primarily through Levi Strauss & Co. and outside the United States through foreign subsidiaries owned directly or indirectly by Levi Strauss & Co. Our executive offices are located at Levis Plaza, 1155 Battery Street, San Francisco, California 94111. Our telephone number is (415) 501-6000. Our website is located at www.levistrauss.com. Our website and the information contained on our website are not part of this prospectus and are not incorporated by reference into this prospectus or the registration statement of which this prospectus is a part.

Our fiscal year ends on the last Sunday in November each year. Fiscal years 2003, 2004 and 2005 ended on November 30, 2003, November 28, 2004 and November 27, 2005, respectively. Fiscal year 2003 consisted of 53 weeks and fiscal years 2004 and 2005 consisted of 52 weeks each.

Our History

For nearly 100 years after our founding, we manufactured and distributed work pants and other products worn primarily by cowboys, miners and other working men in the western United States and also represented other manufacturers with an extensive line of dry goods. We introduced our first jeans for women in 1934. Our jeans rapidly grew in popularity after World War II and became a symbol of American culture by the 1960s. During these years, we exited the dry goods business to concentrate on manufacturing and marketing apparel under the Levis ® trademark, with export and international businesses opening in the 1950s and 1960s. In 1986, we introduced the Dockers ® brand of casual apparel, which was at the forefront of the business casual trend in the United States. In 2003, in response to the emergence and success of the mass channel, we launched our Levi Strauss Signature ® brand of jeans and casual apparel for consumers who shop in the channel. Our commitment to quality, innovation and corporate citizenship, manifested in many ways throughout our history, began with Mr. Strauss and continues today.

Our common stock is primarily owned by descendants of the family of Mr. Strauss and their relatives.

Our Global Reach

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businesses in South America, the Middle East and Africa. Our global reach and presence are demonstrated by the following:

| | We derive nearly half of our net revenues and over half of our
operating income from our businesses outside the United States. |
| --- | --- |
| | Our products are sold through more than 55,000 retail locations
in over 110 countries, including over 65 company-operated
stores in 10 countries. |
| | We have over 5,000 trademark registrations and pending
applications in approximately 180 countries. |
| | We have regional headquarters located in San Francisco,
Brussels and Singapore, product designers located primarily in
Belgium, Hong Kong, Japan, Korea and the United States, and a
global sourcing headquarters in Singapore. |
| | Approximately 65% of our employees are located in over 35
countries outside the United States. |

Our Business Strategies

Our strategies are designed to reflect marketplace dynamics and build on our competitive strengths. Our key strategies are:

| | Innovate and lead from the core. Our brands
and their global consumer appeal are at the core of our
business. We draw upon our brand equity and our design and
marketing expertise to bring to market a broad range of
innovative, trend-right, compelling and quality products
targeted for specific consumer and retail segments. We seek to
offer market-leading styles, fabrics, fits and finishes across
our product lines and are increasing our emphasis on trend and
style-driven premium products to augment and build on our
traditional strength in high-quality basic jeans and casual
pants products. We believe we can capitalize on the consumer
recognition of our brands by continuing to extend them to
segments that offer attractive and relevant opportunities for
profitable growth. Those opportunities include increasing our
participation in the more premium segments of the market,
growing our womens businesses across our three brands, and
driving our business with men under 25 years of age. In
addition, we continue to extend the reach of our brands by
expanding our licensing programs and building our businesses in
emerging markets. |
| --- | --- |
| | Promote strong retail relationships. We want
our brands to be essential to our retail customers. We seek to
build consumer appeal and demand for our brands through
compelling marketing executed through a broad mix of advertising
vehicles. We focus on generating competitive economics and
engaging in collaborative assortment, demand and marketing
planning to drive mutual commercial success with our retail
customers. We believe we can strengthen our retail relationships
by drawing more fully on our knowledge of consumer and retail
segmentation to develop differentiated product assortments,
retail presentations and marketing programs for different
channels. We recognize that our department store, chain store
and mass channel retailers have many choices, including their
own private label programs. Our goal is to ensure that we are
essential to our customers success by using our brands and
our strengths in product development and marketing to drive
consumer traffic and demand to their stores. |
| | Sell where people shop. Our multi-channel
distribution strategy is centered on making relevant Levi
Strauss & Co. products accessible to consumers where
they shop. Our
Levis ® and
Dockers ® products have broad distribution and substantial presence in
department stores and specialty and independent stores worldwide
and in chain stores in the United States. To reach
value-oriented consumers who shop in the mass channel, we are
focused on growing our Levi Strauss
Signature ® business in mass channel retailers through introducing new
products, fully penetrating our existing mass retailers,
expanding to new accounts in existing markets and launching the
brand in new countries in Europe and Asia. To reach younger and
other consumers who shop in specialty stores, we are expanding
our
Levis ® Stores network around the world, including by opening more
company-operated stores. We believe our
Levis ® Stores represent an attractive opportunity to establish
incremental distribution and sales for the
Levis ® brand, enhance brand presentation to consumers, increase our
retail expertise by enabling us to connect directly with
consumers, and improve our effectiveness as a marketing and
merchandising resource to our wholesale customers. |

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Achieve operational excellence. We emphasize operational execution, cost effectiveness and working capital management across our businesses. We intend to continue refining our go-to-market processes and to derive greater benefit from our global sourcing organization. We are also investing in key information technology improvements including an SAP enterprise resource planning system in Asia, which we also plan to implement in North America and Europe in the coming years. We see continued opportunities to improve productivity and working capital efficiency, including improved management of payables and inventory through more effective supply and demand planning.

Our Brands and Products

Overview

We market our products under the Levis ® , Dockers ® and Levi Strauss Signature ® brands and a number of sub-brands and product lines under those three brands. We offer a broad range of products, including jeans and jeans-related pants, casual and dress pants, tops, skirts and jackets. Pants, including jeans, casual pants and dress pants, represented approximately 87% and 85% of our total units sold in 2005 and 2004, respectively. Mens products generated approximately 73% of our total net sales in 2005 and 2004.

Our global product design, development and innovation capabilities are centered on the following key elements:

	We are committed to product quality.
	We offer diverse product lines and assortments targeted for
specific consumer segments and retail channels, taking advantage
of our ability to design, source and distribute both large
replenishment programs and targeted niche product lines.
	We seek to achieve and maintain market leadership, bring newness
to the marketplace and resist category commoditization by
continually introducing innovative products and updating our
continuing products with new fits, fabrics, finishes and
features.
	We have approximately 200 designers and merchandisers across our
three regions, each dedicated to one of our brands. We use
global trend scouts and trend forums to identify emerging trends
with potentially strong consumer appeal and a global innovation
group to develop commercially-viable style and technical
innovations across our brands. We work to take ideas developed
first in one market and quickly adapt and commercialize them for
other markets.
	We continually work to refine our go-to-market process to increase our responsiveness to trends, changes in
consumer preferences and other market developments and to
improve our speed to market.
	We have a global sourcing organization that works closely with
our designers, merchandisers and suppliers to drive
cost-effective product construction and sourcing, market
responsiveness and consistent product quality.

Our go-to-market process is designed to ensure an integrated view of the marketplace product, price, promotion and place as we develop and execute our product offering, marketing and sourcing plans for each season across all of our brands in a manner consistent with each of our brands core attributes.

Levis ® Brand

In 1873, our founder Levi Strauss and tailor Jacob Davis created the first blue jean. Our jeans have been distinctive from the beginning. The double arc of stitching known as the Arcuate Stitching Design has adorned the back pockets of Levis ® jeans since their inception. We began using the lot number 501 in 1890 and the red Tab Device, a fabric tab stitched into the back right pocket, in 1936. Since those early days, the Levis ® brand, as the source of the original, authentic and definitive jean, has become one of the most widely recognized and distributed brands in the history of the apparel industry. Our merchandising and marketing across the brand reflect what we see as the brands core attributes: originality, quality, individuality, integrity and youthfulness.

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The original jean has evolved to include an extensive selection of mens, womens and kids products designed to appeal to a variety of consumer segments at a wide range of price points. Our Levis ® brand offerings extend from core basic jeans to premium-priced styles targeted to fashion leaders, reflecting what we believe is the broad consumer appeal of the brand across ages, genders, nationalities and lifestyles. Our Levis ® brand businesses in Europe and Asia Pacific are positioned in the premium segments of the mens and womens markets. Our product architecture and strategy in the United States include an emphasis on growth in premium segments while continuing to update and drive our core and trend Red Tab tm jeans business in our chain and department store customers.

Our current product range includes:

| | Levis ® Red
Tab tm Products. These products are the foundation of
the brand. They encompass a wide range of jeans and jeanswear
offered in a variety of fits, fabrics, finishes and styles
intended to appeal to a broad spectrum of consumers. The line is
anchored by the flagship
501 ® button-fly jean, the best-selling five-pocket jean in history.
The line also incorporates a full range of jeanswear fits and
styles designed specifically for women.
Levis ® Red
Tab tm products include both our core/entry offering of classic and
updated fits in basic fabrics and finishes as well as our trend
offering in better fabrics and more advanced finishes. |
| --- | --- |
| | Premium Products. We offer a variety of
premium mens and womens products around the world.
In the United States, to further differentiate our offer for
consumers who seek more innovative and premium products, we are
introducing our Levis
Red tm and Capital
E tm products, and we market our
SilverTab ® line. In Europe and Asia, we offer an expanded range of high-end
products that reflects our premium positioning in international
markets. Our
Levis ® Engineered Jeans are a reinvention of the traditional jean
designed for leading-edge consumers. The Levis
Blue tm line in Europe and
Levis ® Red
Loop tm line in Asia are clean, modern interpretations of jeanswear,
while in Asia we also offer
Levis ® LadyStyle tm products for women seeking more feminine fits and finishes. Our
Levis ® Vintage Clothing line, offered in all of our regions, showcases
our most premium products, offering detailed replicas of our
historical products dating back to the 19th century. |

We sell Levis ® brand products in more than 110 countries around the world. Sales of Levis ® brand products represented approximately 71% and 70% of our total net sales in 2005 and 2004, respectively. Sales of Red Tab tm products represented a majority of our Levis ® brand net sales in all three of our regions in 2005 and 2004.

Dockers ® Brand

We launched the Dockers ® brand in 1986 to provide an alternative between jeans and suits for the baby boomer generation in the United States. The brand was at the forefront of the business casual trend in the United States. The Dockers ® brand is a leader in developing and commercializing technical performance innovations into everyday apparel, including pants, shirts and other products with the Stain Defender ® finish. Today, the Dockers ® brand covers a wide range of wearing occasions for men and women, from business and weekend casual to more dressy occasions, with products that combine style with performance and provide a wardrobe solution for consumers.

Our current Dockers ® product offerings include:

| | Dockers ® Classics. This line includes a broad range of
stylish cotton and cotton blend casual and dress casual pants
that are at the heart of the brand for both men and women. We
complement these products with a variety of tops and seasonal
pants, shorts and skirts in a range of fits, fabrics, colors,
styles and performance features. |
| --- | --- |
| | Dockers ® Premium. This line includes a range of pants,
tops and other products constructed from finer fabrics with
updated details in a range of finishes, fits, styles and colors.
In the United States, for example, our Dockers
Never-Iron tm Cotton Khaki is a 100% cotton pant that comes out of the dryer
with the appearance of a dry-cleaned product and that combines
style, upgraded fabric with a luxurious feel and performance
innovation. We also are developing a new line,
Dockers ® Collection, that will include our most premium products. We
expect to introduce
Dockers ® Collection products in the United States in fall 2006. |

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We market the Dockers ® brand in more than 50 countries. Sales in the United States generated a substantial majority of total Dockers ® brand sales in 2005. Sales of Dockers ® brand products represented approximately 19% and 20% of our total net sales in 2005 and 2004, respectively. Sales of Dockers ® Classic mens products represented a large majority of our Dockers ® brand net sales in all three of our regions in 2005 and 2004.

Levi Strauss Signature ® Brand

Our Levi Strauss Signature ® brand offers trend-relevant mens, womens and kids styles interpreted for value consumers. The brand, which we introduced in North America and Asia in 2003 and in Europe in early 2004, offers a range of jeans and jeans-related products, and casual pants and tops. Our merchandising and marketing reflects what we view as the core objective of the Levi Strauss Signature ® brand: bringing our companys quality and authenticity to everyday working consumers and their families who shop in the mass channel.

The brand offers a wide range of products for men, young men, women, misses, juniors and kids. The product portfolio in the United States currently includes:

| | core denim jeans, casual pants, tops and jackets in a variety of
fits, fabrics and finishes; |
| --- | --- |
| | trend-right products that offer enhanced fabric and finish
combinations and updated styling details each season; and |
| | the Authentics line, which offers premium and advanced style,
fabric and finish combinations. |

Our Levi Strauss Signature ® brand is currently offered in the United States and eleven other countries, with net sales in the United States representing a substantial majority of total brand sales since its launch. Sales of Levi Strauss Signature ® brand products represented approximately 10% of our total net sales in 2005 and 2004.

Licensing

The appeal of our brands across consumer groups and our global reach enable us to license our Levis ® , Dockers ® and Levi Strauss Signature ® trademarks for a variety of product categories in multiple markets. We license our trademarks for products complementary to our core bottoms and for accessory and other products. Our licensing strategy centers on extending our brands into product categories that are consistent with, draw on and enhance our core brand attributes, broaden the product range available to consumers and create compelling and distinctive brand looks. We also use licenses for products that we have removed from our own product lines through our ongoing product rationalization and profit improvement actions.

Licensing revenue from our royalty arrangements with licensees was approximately $73.9 million in 2005, a 29% percent increase from 2004. The growth reflects in part the fact that we have entered into a number of new licensing arrangements in recent years. We believe that licensing will continue as an attractive profit contributor in the future.

Our licensed products by brand, which vary across countries, include:

| | Levis ® Brand. We license the
Levis ® trademark for products complementary to our core jeanswear line,
including mens and womens tops, sweaters, jackets,
outerwear, loungewear, footwear, hosiery, belts, bags, headwear
and kidswear products. |
| --- | --- |
| | Dockers ® Brand. We work with our licensees to develop
and market complementary products under the
Dockers ® brand, including mens and womens footwear, hosiery,
belts, accessories, outerwear, eyewear, mens sweaters and
golf apparel, mens dress shirts, kidswear, loungewear and
sleepwear, luggage and home bedding products. |
| | Levi Strauss
Signature ® Brand. We work with our licensees to develop
and market complementary products under the Levi Strauss
Signature ® brand, including belts and other leather accessories, kidswear,
mens and womens tops and outerwear. |

We have licensees for our three brands in each of our regions. In addition, we enter into agreements with third parties to produce, market and distribute our core products in several countries with smaller markets, including various Latin American and Middle Eastern countries.

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We seek to work with leading firms in each product category we enter through licensing. We enter into licensing agreements with our licensees covering royalty payments, product design and manufacturing standards, marketing and sale of licensed products and protection of our trademarks. We require our licensees to comply with our code of conduct for contract manufacturing and engage independent monitors to perform regular on-site inspections and assessments of production facilities and submit the results of these inspections to us.

Licensing revenues from licensees located in our North America region represented approximately two-thirds of our total royalty income in 2005 and 2004, with licensees in the United States of the Dockers ® brand generating over half of those royalties for both years. Licensing revenues accounted for approximately 1.8% of our total net revenues in 2005.

Sales, Distribution and Customers

We distribute our products in a wide variety of retail formats around the world, including chain and department stores, franchise and company-operated stores dedicated to our brands, multibrand specialty stores and mass channel retailers. Our distribution strategy focuses on ensuring that our brands and products are available where consumers shop and that our product offerings and assortments are appropriately differentiated for the channel. Sales to our top five and top 10 customers accounted for approximately 33% and 42% respectively, of our total net revenues in 2005. In 2004, sales to our top five and top 10 customers accounted for approximately 31% and 40%, respectively, of our total net revenues.

North America

In North America, we distribute our Levis ® and Dockers ® products through national and regional chains, department stores, specialty stores, and franchise and company-operated stores dedicated to our brands. Top Levis ® and Dockers ® customers in North America include J.C. Penney, Kohls, Sears, Federated Department Stores (including its recently-acquired May Department Stores businesses) and Mervyns in the United States, Hudsons Bay Co. in Canada and Liverpool in Mexico. We target our premium products like Levis ® Vintage Clothing to our dedicated stores and to independent, image-conscious specialty stores who cater to more fashion-forward, trend-initiating consumers, including Barneys, Fred Segal and Urban Outfitters in the United States. We distribute our Levi Strauss Signature ® brand through the mass merchant channel, including Wal-Mart, Target and Kmart stores in the United States. We have approximately 3,300 retail customers operating in more than 30,000 locations in the United States, Canada and Mexico.

Europe

Our European Levis ® and Dockers ® brand customers include large department stores, such as El Corte Ingles in Spain, Galleries Lafayette in France and Kaufhof in Germany; dedicated Levis ® Stores and Dockers ® Stores; mail-order accounts; and a substantial number of independent retailers operating either a single or small group of jeans-focused stores or general clothing stores. Our Levi Strauss Signature ® customers in Europe include Carrefour in France, Migros in Switzerland and Wal-Mart in Germany.

Asia Pacific

In Asia Pacific, we distribute our Levis ® and Dockers ® products through specialty stores, including multi-brand as well as dedicated Levis ® and Dockers ® Store retail shops, and department stores. Top customers include Right-On Stores and Eiko Shoji in Japan and Lotte Department Stores in Korea. We distribute the Levi Strauss Signature ® brand in mass channel and general merchandise retailers such as Big W and Lowes stores in Australia and Aeon stores in Japan. Our Asia Pacific business is heavily weighted toward Japan, which represented approximately 40% and 44% of our net revenues in the region in 2005 and 2004, respectively.

Dedicated Stores

Overview. We believe retail stores dedicated to our brands are important for the growth, visibility, availability and commercial success of our brands, and that these stores are effective complements to our wholesale business. These stores include dedicated retail and outlet stores operated by us and by independent franchisees and

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licensees. As of November 27, 2005, there were a total of 107 retail and outlet stores in our North America region, 348 stores in our Europe region and 492 stores in our Asia Pacific region. Sales from these stores represented approximately 11% of our total net revenues in 2005 (company-operated stores generated 2.5% of our total net revenues) and, in Asia Pacific, generated approximately one-third of regional net revenues.

Company Stores. As of November 27, 2005, we operated 44 retail stores dedicated to the Levis ® brand, including Levis ® Stores in the United States located in New York, Chicago, Costa Mesa, Santa Monica, Beverly Hills, San Francisco, San Diego, Miami, Portland, Seattle and Washington, D.C. and in Europe in London, Paris and Berlin. We also operate outlet stores, which include 16 Levis ® , three Dockers ® and four Levis ® and Dockers ® combined outlet stores. These stores are located in the United States, Belgium, Germany, Poland, Japan, South Africa and the United Kingdom.

Franchised Stores. We have a network of approximately 880 franchised or other licensed stores selling Levis ® brand or Dockers ® brand products under the Original Levis Store ® , Levis ® Store, and Dockers ® Store names in Europe, Asia, Canada, Mexico and South America. The stores are an important distribution channel in newer and smaller markets in Eastern Europe, Asia and South America. These stores are owned and operated by independent third parties. We also license third parties to operate outlet stores in the United States and abroad. A majority of the outlet stores in the United States are operated by a third-party under license.

Expansion. Dedicated retail stores are an increasingly important part of our strategy for expanding distribution of our products in all three of our regions. We expect to open in fiscal 2006 approximately 150 new stores in our Asia Pacific region, 65 stores in our Europe region and 20 stores in our North America region, with the substantial majority of the stores outside the United States to be independently owned.

Internet

In September 2005, we began selling Levis ® products directly to consumers in the United States through the website www.levisstore.com. Our goal in operating the Levis ® online store is to provide a virtual shopping experience that mirrors the shopping experience in our brick and mortar Levis ® Store retail shops and showcases the breadth of our product offerings. We also operate websites devoted to the Levis ® , Dockers ® and Levi Strauss Signature ® brands as marketing vehicles to enhance consumer understanding of our brands. In the United States, our Levis ® , Dockers ® and Levi Strauss Signature ® products are also sold online through specifically authorized third-party internet sites that meet our standards relating to customer service, return policy, site content, trademark use and other matters. In Canada and Europe, authorized dealers and mail order accounts who meet our standards may sell our products to consumers through their own internet sites.

Marketing and Promotion

We support our brands with a diverse mix of marketing initiatives to drive consumer demand. In 2005, we increased our investment in marketing. We incurred expenses of approximately $338.6 million, or 8.1% of total net revenues in 2005 on these activities, compared with expenses of approximately $307.6 million, or 7.4% of net revenues, in 2004.

Marketing Vehicles. We advertise around the world through a broad mix of media, including television, national publications, the internet, cinema, billboards and other outdoor vehicles. We execute region-specific marketing programs that are based on globally consistent brand values. We believe this approach allows us to achieve consistent global brand positioning while giving us flexibility to tailor marketing programs to local markets in order to maximize relevancy and effectiveness. We use other marketing vehicles, including event and music sponsorships, product placement in major motion pictures, television shows, music videos and leading fashion magazines, and alternative marketing techniques, including street-level events and similar targeted viral marketing activities.

Levis ® Brand. Our marketing programs for the Levis ® brand are designed to communicate the authenticity of Levis ® jeans, the original and definitive jeans brand. Our programs draw on the unique heritage and strength of the brand in contemporary, locally relevant ways by focusing on our innovative fits and new finishes and on what we believe is the unique connection that consumers have with their Levis ® jeans. We also work to increase the visibility

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of the Levis ® brand products at retail, including introducing new product packaging and new store display programs, executing customer-specific marketing programs and continuing to open new Levis ® Stores in selected locations around the world.

Dockers ® Brand. Our Dockers ® brand marketing is designed to position the brand as synonymous with effortless style for men and women. Products are featured in lifestyle settings that show complete outfits in real, everyday situations. The Dockers ® brand is marketed worldwide under a branding platform introduced in fall 2005, Dockers ® San Francisco, that links the brand to its hometown roots and provides a single umbrella for marketing communications for men and women. Our Dockers ® brand marketing programs also focus on continued updating of retail floor presentations in order to improve the consumers shopping experience and drive increased visibility and consumption of the brand.

Levi Strauss Signature ® Brand. We use a variety of marketing and publicity techniques to increase consumer awareness of the Levi Strauss Signature ® brand among value-conscious consumers. These initiatives focus on print advertising, sponsorship programs and in-store marketing efforts. Print advertising in the United States emphasizes the tagline From Our Family to Yours and is targeted primarily to drive awareness with women. Sponsorship marketing in the United States centers on the brands involvement in NASCAR racing and our relationship with NASCAR star Jimmie Johnson.

Sourcing and Logistics

Organization. Our global sourcing and regional supply chain services organizations are responsible for taking a product from the design concept stage through production to delivery at retail. Our objective is to leverage our global scale to achieve product development and sourcing efficiencies across brands and regions while maintaining our focus on local service levels and working capital management.

Product Procurement. We source over 90% of our products from independent contract manufacturers. We source a small proportion of our products from our five owned or leased manufacturing plants located in Europe (2) and Asia Pacific (3). See Properties for more information on our owned or leased manufacturing facilities.

We source our products from contract manufacturers primarily through package or ready to wear arrangements in which the contractors produce or purchase fabric themselves and then sew, finish and ship the garments. We then purchase the finished goods. We also source a small proportion of our products through cut-make-trim arrangements in which we purchase the fabric and retain ownership of the raw materials and work-in-process throughout the contractors manufacturing process. We typically conduct business with our garment manufacturing and finishing contractors on an order-by-order basis.

Sourcing Locations. We use numerous independent manufacturers located throughout the world for the production and finishing of our garments. We conduct assessments of political, social, economic, trade, labor and intellectual property protection conditions in the countries in which we source our products before we place production in those countries and on an ongoing basis.

In 2005, we sourced products from contractors located in over 40 countries around the world, with no single country representing more than 20% of our production. Historically we have sourced more of our products from contractors in South and Central America (including Mexico and the Caribbean), although we are relying increasingly on contractors in Asia. Contractors in South and Central America (including Mexico and the Caribbean) produced approximately 43% of our products in 2005, compared with 59% in 2003.

Sourcing Practices. Our sourcing practices include these elements:

| | We require all third-party contractors who manufacture or finish
products for us to comply with our code of conduct relating to
supplier working conditions and employment practices. We also
require our licensees to ensure that their manufacturers comply
with our requirements. |
| --- | --- |
| | Our code of conduct covers employment practices such as wages
and benefits, working hours, health and safety, working age and
discriminatory practices, environmental matters such as
wastewater treatment, and ethical and legal conduct. |

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| | We regularly assess manufacturing and finishing facilities
through periodic on-site facility inspections and improvement activities, including use
of independent monitors to supplement our internal staff, and we
integrate monitoring results into our sourcing decisions. |
| --- | --- |
| | We disclose the names and locations of our contract
manufacturers to encourage collaboration among apparel companies
in factory monitoring and improvement. |

Logistics. We own and operate dedicated distribution centers in a number of countries and we also outsource distribution activities to third-party logistics providers, including third-party arrangements in the United States, Europe and Asia. Distribution center activities include receiving finished goods from our contractors and plants, inspecting those products, preparing them for presentation at retail and shipping them to our customers.

Competition

The worldwide apparel industry is highly competitive and fragmented. It is characterized by low barriers to entry, brands targeted at specific consumer microsegments and regional and local competitors outside the United States.

Principal competitive factors include:

| | maintaining favorable brand recognition through strong and
effective marketing; |
| --- | --- |
| | developing products with relevant fits, finishes, fabrics, style
and performance features; |
| | anticipating and responding to changing consumer demands in a
timely manner; |
| | ensuring sufficient retail distribution, visibility and
availability and ensuring effective presentation of products at
retail; |
| | providing compelling value in our products for the
price; and |
| | generating competitive economics for our retail customers. |

North America

We sell Levis ® , Dockers ® and Levi Strauss Signature ® products to retailers in diverse channels across a wide range of retail price points. As a result, we face a wide range of competitors, including:

| | VF Corporation, a competitor in multiple channels through its
Wrangler, Rustler, and Lee brands of jeanswear, along with its
Riders, Brittania, Chic, Gitano, Nautica, Earl and Hero by
Wrangler brands; |
| --- | --- |
| | vertically integrated specialty stores, including Gap Inc.,
Abercrombie & Fitch, American Eagle Outfitters Inc. and
J. Crew; |
| | retailer private or exclusive labels, including Wal-Mart Stores,
Inc.s Faded Glory brand, Target Corporations Mossimo
and Cherokee brands, Kmart Corporations Route 66 brand,
J.C. Penneys Arizona and St. Johns Bay brands,
Kohls Corporations Sonoma, Urban Pipeline and So...
brands, Sears, Roebuck & Co.s Canyon River Blues
and Lands End brands and Federated Department Stores
I.N.C., Alfani and Charter Club brands; |
| | fashion-forward premium jeanswear brands including Diesel,
Lucky, 7 for All Mankind, Joes Jeans, Citizens of Humanity
and Paper Denim & Cloth brands, and younger consumer
brands such as L.E.I., MUDD and FUBU; |
| | branded apparel marketers, including Liz Claiborne, Inc., Jones
Apparel Group, Inc., Polo Ralph Lauren, Perry Ellis
International, and Haggar Corp.; and |
| | athletic wear marketers such as Nike, Inc. and Adidas. |

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Europe

Brands such as VF Corporations Lee and Wrangler brands, Diesel and Pepe Jeans London have a pan-European presence. Strong local brands and retailers exist in certain markets and are expanding internationally, including G-Star in the Netherlands and Miss Sixty in Italy. Other competitors include vertically integrated specialty stores, such as Zara, Hennes & Mauritz, Next and Celio. Companies based in the United States, such as Gap, Inc., Polo Ralph Lauren and Tommy Hilfiger, also compete with us in Europe. The khaki and casual pant segment in Europe is fragmented and there is currently no significant pan-European branded competitor of our Dockers ® brand in Europe. Competitors in local markets include store private labels and, in Germany, Hugo Boss.

Asia Pacific

Asia Pacific is a fragmented market, with athletic wear companies such as Adidas and Nike, Inc. emerging as pan-regional competitors. Competitors in jeanswear consist of regional brands, such as Edwin, Something and Bobson in Japan, and U.S. companies such as Gap, Inc. and VF Corporation. We also face competition from vertically integrated specialty stores, such as UNIQLO and Giordano.

Trademarks

We have over 5,000 trademark registrations and pending applications in approximately 180 countries worldwide, and we create new trademarks on an ongoing basis. Substantially all of our global trademarks are owned by Levi Strauss & Co., the parent and U.S. operating company. We regard our trademarks as our most valuable assets and believe they have substantial value in the marketing of our products. The Levis ® , Dockers ® , Levi Strauss Signature ® and 501 ® trademarks, the Wings and Anchor Design, the Arcuate Stitching Design, the Tab Device and the Two Horse ® design are among our core trademarks.

We protect these trademarks by registering them with the U.S. Patent and Trademark Office and with governmental agencies in other countries, particularly where our products are manufactured or sold. We work vigorously to enforce and protect our trademark rights by engaging in regular market reviews, helping local law enforcement authorities detect and prosecute counterfeiters, issuing cease-and-desist letters against third parties infringing or denigrating our trademarks, opposing registration of infringing trademarks and initiating litigation as necessary. For example, we currently are pursuing over 500 infringement matters around the world. We also work with trade groups and industry participants seeking to strengthen laws relating to the protection of intellectual property rights in markets around the world.

Seasonality

In 2005, our net revenues in the first, second, third and fourth quarters represented 24%, 23%, 25% and 28%, respectively, of our total net revenues for the year. In 2004, our net revenues in the first, second, third and fourth quarters represented 24%, 23%, 24% and 29%, respectively, of our total net revenues for the year.

Corporate Citizenship

We believe that great brands and businesses are built by consistently providing quality products and by earning the trust of consumers, investors, employees and society as a whole through responsible business practices. We believe, in short, that commercial success and corporate citizenship are closely linked. This principle of responsible commercial success is embedded in our 153-year experience. We believe it continues to anchor how we operate today.

For us, corporate citizenship includes a strong belief that we can help shape society through civic engagement and community involvement, responsible labor and workplace practices, philanthropy, ethical conduct, environmental stewardship and transparency. We believe our profits through principles business approach manifests itself in how we develop our business strategies and policies and make everyday decisions. Activities throughout our history reflect our approach to corporate citizenship:

In 1991, we developed a comprehensive supplier code of conduct targeted toward ensuring that individuals making our products anywhere in the world would do so in safe and healthy working conditions and be

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treated with dignity and respect. We believe our code of conduct was the first of its kind for a multinational apparel company.

| | Our commitment to equal opportunity and diversity predated the
U.S. civil rights movement and federally mandated
desegregation by two decades. We opened integrated factories in
California in the 1940s. In 1960, we integrated our newly opened
plants in the American South. |
| --- | --- |
| | In 1992, we extended full medical benefits to domestic partners
of employees, a practice now followed by many corporations and
public agencies. We believe we were the largest
U.S. company at the time to provide these benefits. |
| | We participate in public advocacy relating to trade policy. We
believe that worker rights protections and enforcement measures
should be an integral part of all bilateral, regional or
multilateral trade negotiations in an environment of increasing
globalization. We believe we were the first multinational
apparel company to publicly advocate this position. |
| | The Levi Strauss Foundation, a charitable foundation supported
by us, focuses its grant making on alleviating poverty for women
and youth in countries through three interrelated strategies:
preventing the spread of HIV/AIDS, specifically in communities
with extreme need, scarce resources and where LS&CO. has a
business presence; helping young women and young people build,
own and have access to financial and social assets; and
strengthening workers rights and improving working and
living conditions in communities where our products are
manufactured. |
| | We support and encourage employee community involvement through
volunteer activities, paid time off and grants by the Levi
Strauss Foundation to nonprofit organizations we assist through
our community activities. |
| | The Red Tab Foundation, a non-profit organization created and
largely funded by our employees, offers services and financial
assistance to our employees and retirees who, due to emergency
or other unexpected circumstances, may be unable to afford
lifes basic necessities. |

Employees

As of November 27, 2005, we employed approximately 9,635 people, approximately 3,255 of whom were located in the United States. Of our 9,635 employees, approximately 3,730 were associated with manufacturing of our products and approximately 5,905 were non-production employees. Of the non-production employees, approximately 1,425 worked in distribution. Most of our distribution employees in the United States are covered by various collective bargaining agreements. Outside the United States, most of our production and distribution employees are covered by either industry-sponsored and/or state-sponsored collective bargaining mechanisms. We consider our relations with our employees to be good and have not recently experienced any material job actions or labor shortages.

Government Regulation

We are subject to federal, state, local and foreign laws and regulations affecting our business, including those related to labor, employment, worker health and safety, antitrust and competition, environmental protection, products liability, product labeling, consumer protection and anti-corruption. In the United States, these laws include the Occupational Safety and Health Act, the Consumer Product Safety Act, the Flammable Fabrics Act, the Textile Fiber Product Identification Act, the Foreign Corrupt Practices Act and the rules and regulations of the Consumer Products Safety Commission and the Federal Trade Commission. We are also subject to import and export laws, including U.S. economic sanction and embargo regulations, U.S. homeland security laws and regulations and other laws such as the U.S. anti-boycott law and U.S. export controls regulations. We are also subject to comparable laws of the European Union, Japan and other foreign jurisdictions where we have a presence. We believe that we are in substantial compliance with the applicable federal, state, local, and foreign rules and regulations governing our business.

All of our import operations are subject to tariffs and quotas set by governments through mutual agreements or bilateral actions. Our operations are also subject to the effects of international trade agreements and regulations such

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as the North American Free Trade Agreement, the U.S.-Dominican Republic-Central American Free Trade Agreement, the Egypt Qualified Industrial Zone program and the activities and regulations of the World Trade Organization.

Properties

We conduct manufacturing, distribution and administrative activities in owned and leased facilities. We operate five manufacturing-related facilities abroad and 14 distribution-only centers around the world. We have renewal rights for most of our property leases. We anticipate that we will be able to extend these leases on terms satisfactory to us or, if necessary, locate substitute facilities on acceptable terms. We believe our facilities and equipment are in good condition and are suitable for our needs. Information about our key operating properties in use as of November 27, 2005 is summarized in the following table:

Location	Primary Use
North America
Little Rock, AR	Distribution	Owned	(1)
Hebron, KY	Distribution	Owned
Canton, MS	Distribution	Owned
Henderson, NV	Distribution	Owned
Westlake, TX	Data Center	Leased
Etobicoke, Canada	Distribution	Owned
Naucalpan, Mexico	Distribution	Leased
Europe
Heusenstamm, Germany	Distribution	Owned
Kiskunhalas, Hungary	Manufacturing and Finishing	Owned
Milan, Italy	Distribution	Leased
Plock, Poland	Manufacturing and Finishing	Leased
Warsaw, Poland	Distribution	Leased
Northhampton, U.K	Distribution	Owned
Sabadell, Spain	Distribution	Leased
Helsingborg, Sweden	Distribution	Owned
Asia Pacific
Adelaide, Australia	Distribution	Owned	(2)
Cape Town, South Africa	Manufacturing, Finishing and
Distribution	Leased
Corlu, Turkey	Manufacturing, Finishing and
Distribution	Owned
Hiratsuka Kanagawa, Japan	Distribution	Owned	(3)
Karawang, Indonesia	Finishing	Leased
Makati, Philippines	Manufacturing	Leased

callerid=999 iwidth=455 length=60

| (1) | In March 2006, the Company
announced its intent to close this distribution center before
the end of fiscal 2006. See Note 13 to our unaudited
consolidated financial statements included herein. |
| --- | --- |
| (2) | This facility was sold on
December 5, 2005 and is being leased by us for an initial
period of two years. See Note 3 to our audited consolidated
financial statements, included herein, for further information. |
| (3) | Owned by our 84% owned subsidiary. |

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We also lease a manufacturing facility in Dongguan, China where a third-party operates production activities for us.

Our global headquarters and the headquarters of our North America business are both located in leased premises in San Francisco, California. Our Europe and Asia Pacific headquarters are located in leased premises in Brussels, Belgium and Singapore, respectively. As of November 27, 2005, we also leased or owned 105 administrative and sales offices in 39 countries, as well as leased a small number of warehouses in four countries. We own or lease several facilities that are no longer in operation that we are working to sell or sublease.

In addition, as of November 27, 2005, we had 67 company-operated retail and outlet stores in leased premises in 10 countries. We had 24 stores in the North America region, 34 stores in the Europe region and nine stores in the Asia Pacific region. In 2005, we opened 22 company-operated stores and closed six stores. In 2006, we expect to open approximately four new company-operated stores in our Asia Pacific region, eight new company-operated stores in our Europe region and 20 new company-operated stores in our North America region.

Legal Proceedings

Wrongful Termination Litigation. On April 14, 2003, two former employees of our tax department filed a complaint in the Superior Court of the State of California for San Francisco County in which they allege that they were wrongfully terminated in December 2002. Plaintiffs allege, among other things, that Levi Strauss & Co. engaged in a variety of fraudulent tax-motivated transactions over several years, that we manipulated tax reserves to inflate reported income and that we fraudulently failed to set appropriate valuation allowances against deferred tax assets. They also allege that, as a result of these and other tax-related transactions, our financial statements for several years violated generally accepted accounting principles and SEC regulations and are fraudulent and misleading, that reported net income for these years was overstated and that these various activities resulted in our paying excessive and improper bonuses to management for fiscal year 2002. Plaintiffs in this action further allege that they were instructed by us to withhold information concerning these matters from our independent registered public accounting firm and the Internal Revenue Service, that they refused to do so and, because of this refusal, they were wrongfully terminated. Plaintiffs seek a number of remedies, including compensatory and punitive damages, attorneys fees, restitution, injunctive relief and any other relief the court may find proper.

On March 12, 2004, plaintiffs filed a complaint in the U.S. District Court for the Northern District of California, San Jose Division, Case No. C-04-01026. In this complaint, in addition to restating the allegations contained in the state complaint, plaintiffs assert that we violated Sections 1541A et seq. of the Sarbanes-Oxley Act by taking adverse employment actions against plaintiffs in retaliation for plaintiffs lawful acts of compliance with the administrative reporting provisions of the Sarbanes-Oxley Act. Plaintiffs seek a number of remedies, including compensatory damages, interest lost on all earnings and benefits, reinstatement, litigation costs, attorneys fees and any other relief that the court may find proper. The district court has now related this case to the securities class action (described below) styled In re: Levi Strauss & Co. Securities Litigation.

On December 7, 2004, plaintiffs requested and we agreed to, a stay of their state court action in order to first proceed with their action in the U.S. District Court for the Northern District of California, San Jose Division, Case No. C-04-01026. On February 7, 2005, the parties submitted the joint agreement to the court for approval. On June 17, 2005, the parties attended a case management conference where the court set a trial date of October 2, 2006 to try plaintiffs Sarbanes-Oxley Act claim, plaintiffs defamation claim and our counter-claims.

We are vigorously defending these cases and are pursuing our related cross-complaint against the plaintiffs in the state case. We do not expect this litigation to have a material impact on our financial condition or results of operations.

Class Actions Securities Litigation. On March 29, 2004, the United States District Court for the Northern District of California, San Jose Division, issued an order consolidating two recently filed putative bondholder class-actions (styled Orens v. Levi Strauss & Co., et al. and General Retirement System of the City of Detroit, et al. v. Levi Strauss & Co., et al. ) against us, our chief executive officer, a former chief financial officer, our corporate controller, our directors and financial institutions alleged to have acted as our underwriters in connection with our April 6, 2001 and June 16, 2003 registered bond offerings. Additionally, the court appointed a lead plaintiff and

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approved the selection of lead counsel. The consolidated action is styled In re Levi Strauss & Co., Securities Litigation , Case No. C-03-05605 RMW (class action).

The action purports to be brought on behalf of purchasers of our bonds who made purchases pursuant or traceable to our prospectuses dated March 8, 2001 or April 28, 2003, or who purchased our bonds in the open market from January 10, 2001 to October 9, 2003. The action makes claims under the federal securities laws, including Sections 11 and 15 of the Securities Act and Sections 10(b) and 20(a) of the Exchange Act, relating to our SEC filings and other public statements. Specifically, the action alleges that certain of our financial statements and other public statements during this period materially overstated our net income and other financial results and were otherwise false and misleading, and that our public disclosures omitted to state that we made reserve adjustments that plaintiffs allege were improper. Plaintiffs contend that these statements and omissions caused the trading price of our bonds to be artificially inflated. Plaintiffs seek compensatory damages as well as other relief.

On May 26, 2004, the court related this action to the federal wrongful termination action discussed above, such that each action is pending before the same judge.

On July 15, 2004, we filed a motion to dismiss this action. The matter came before the court on October 15, 2004, and, after oral argument had concluded, the court took the matter under submission. The court has not yet issued a ruling.

We are vigorously defending this case. We cannot currently predict the impact, if any, that this action may have on our financial condition or results of operations.

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

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DIRECTORS AND EXECUTIVE OFFICERS

The following provides information about our directors and executive officers as of November 27, 2005:

Name		Position
Robert D. Haas	63	Director, Chairman of the Board of
Directors
Philip A. Marineau	59	Director, President and Chief
Executive Officer
Angela Glover
Blackwell (1)(2)	60	Director
Robert E.
Friedman (2)	56	Director
James C.
Gaither (3)(4)	68	Director
Peter A.
Georgescu (1)(2)(4)	66	Director
Miriam L.
Haas (2)(5)	59	Director
Peter E.
Haas, Jr. (5)	58	Director
Walter J.
Haas (2)	56	Director
F. Warren
Hellman (3)(4)(5)	71	Director
Patricia A.
House (2)(3)	51	Director
Leon J.
Level (1)(5)(6)	64	Director
Patricia Salas
Pineda (1)(4)	54	Director
T. Gary
Rogers (3)(5)	63	Director
G. Craig
Sullivan (7)	65	Director
R. John Anderson	54	Senior Vice President and
President, Levi Strauss Asia Pacific and Global Sourcing
David G. Bergen	50	Senior Vice President and Chief
Information Officer
John Goodman	41	President and Commercial General
Manager,
Dockers ® Brand, United States
Robert L. Hanson	42	President and Commercial General
Manager,
Levis ® Brand, United States and U.S. Supply Chain Services
Hilary K.
Krane (8)	41	Senior Vice President and General
Counsel
Scott A. LaPorta	43	President and Commercial General
Manager, Levi Strauss
Signature ® Brand, United States
Paul
Mason (9)	45	Senior Vice President and
President, Levi Strauss Europe
Fred D. Paulenich	41	Senior Vice President, Worldwide
Human Resources
Hans Ploos van Amstel	40	Senior Vice President and Chief
Financial Officer
Lawrence W. Ruff	49	Senior Vice President, Strategy
and Worldwide Marketing

callerid=999 iwidth=455 length=60

(1)	Member, Audit Committee.
(2)	Member, Corporate Citizenship
Committee.
(3)	Member, Human Resources Committee.
(4)	Member, Nominating and Corporate
Governance Committee.
(5)	Member, Finance Committee.
(6)	Mr. Level was elected to the
board effective April 1, 2005.
(7)	Mr. Sullivan retired from the
board effective January 1, 2006.
(8)	Ms. Krane joined us on
January 23, 2006.
(9)	Mr. Mason left us at the end
of February 2006.

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Members of the Haas family are descendants of our founder, Levi Strauss. Peter E. Haas, Jr. is a cousin of Robert D. Haas and Walter J. Haas. Miriam L. Haas is the surviving spouse of Peter E. Haas, Sr., the father of Peter E. Haas, Jr.

Robert D. Haas is the Chairman of our board. He was named Chairman in 1989 and served as Chief Executive Officer from 1984 until 1999. Mr. Haas joined us in 1973 and served in a variety of marketing, planning and operating positions before becoming Chief Executive Officer. Effective August 2005, Mr. Haas retired as an employee of the company.

Philip A. Marineau , a director since 1999, has served as our President and Chief Executive Officer since 1999. Mr. Marineau will also serve as interim leader of our European business as of the end of February 2006. Prior to joining us, Mr. Marineau was the President and Chief Executive Officer of Pepsi-Cola North America from 1997 to 1999. From 1996 to 1997, Mr. Marineau was President and Chief Operating Officer of Dean Foods Company. From 1972 to 1996, Mr. Marineau held a series of positions at Quaker Oats Company including President and Chief Operating Officer from 1993 to 1996. Mr. Marineau is currently a director of Meredith Corporation and Kaiser Permanente.

Angela Glover Blackwell , a director since 1994, is founder and chief executive officer of PolicyLink, a nonprofit research, advocacy and communications organization devoted to eliminating poverty and strengthening communities. From 1995 to 1998, Ms. Blackwell was Senior Vice President of the Rockefeller Foundation where she oversaw the foundations domestic and cultural divisions. Ms. Blackwell was the founder of Oakland, Californias Urban Strategies Council, a nonprofit organization focused on reducing persistent urban poverty.

Robert E. Friedman , a director since 1998, is founder and Chairman of CFED, a Washington, D.C.-based not-for-profit organization focused on creating economic opportunity by helping residents of poor communities save and invest, succeed as entrepreneurs and participate as contributors to and beneficiaries of the economy. He also serves as a director of Ecotrust, the Rosenberg Foundation and the National Fund for Enterprise Development and other non-profit organizations.

James C. Gaither , a director since 1988, is Managing Director of Sutter Hill Ventures, a venture capital investment firm. Prior to 2000, he was a partner of, and prior to 2004, he was senior counsel to, the law firm of Cooley Godward LLP in San Francisco, California. Prior to joining Cooley Godward in 1969, he served as law clerk to the Honorable Earl Warren, Chief Justice of the United States, special assistant to the Assistant Attorney General in the U.S. Department of Justice and staff assistant to the President of the United States, Lyndon B. Johnson. Mr. Gaither is currently a director of Nvidia Corporation, Kineto, Inc. and Satmetrix, Inc.

Peter A. Georgescu , a director since February 2000, is Chairman Emeritus of Young & Rubicam Inc. (now WPP Group plc), a global advertising agency. Prior to his retirement in January 2000, Mr. Georgescu served as Chairman and Chief Executive Officer of Young & Rubicam since 1993 and, prior to that, as President of Y&R Inc. from 1990 to 1993, Y&R Advertising from 1986 to 1990 and President of its Young & Rubicam international division from 1982 to 1986. Mr. Georgescu is currently a director of IFF Corporation, Toys R Us, Inc. and EMI Group plc.

Miriam L. Haas , a director since July 2004, is president of the Mimi and Peter Haas Fund. Ms. Haas is a trustee of the San Francisco Museum of Modern Art and is vice chair of the board of trustees and chair of the audit committee of the New York Museum of Modern Art. She is a member of the Advisory Board of the Haas Center for Public Service at Stanford University, the Global Philanthropists Circle and the Council on Foreign Relations.

Peter E. Haas, Jr. , a director since 1985, is a director or trustee of each of the Levi Strauss Foundation, Red Tab Foundation, Walter and Elise Haas Fund and the Novato Youth Center Honorary Board. Mr. Haas was one of our managers from 1972 to 1989. He was Director of Product Integrity of The Jeans Company, one of our former operating units, from 1984 to 1989. He served as Director of Materials Management for Levi Strauss USA in 1982 and Vice President and General Manager in the Menswear Division in 1980.

Walter J. Haas , a director since 1995, served as Chairman and Chief Executive Officer of the Oakland As Baseball Company from 1993 to 1995, President and Chief Executive Officer from 1991 to 1993 and in other management positions with the club from 1980 to 1991.

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F. Warren Hellman , a director since 1985, has served as chairman and general partner of Hellman & Friedman LLC, a private investment firm, since its inception in 1984. Previously, he was a general partner of Hellman Ferri (now Matrix Partners) and managing director of Lehman Brothers Kuhn Loeb, Inc. Mr. Hellman is currently a director of DN&E Walter & Co., Sugar Bowl Corporation, Osterweis Capital Management, Inc. and Offit Hall Capital Management. Mr. Hellman also served as a director of NASDAQ Stock Market, Inc. through February 2004.

Patricia A. House , a director since July 2003, was Vice Chairman of Siebel Systems, Inc., now a wholly-owned subsidiary of Oracle Corporation. She was with Siebel Systems, Inc. since its inception in July 1993 and had served as its Vice Chairman, Co-Founder and Vice President, Strategic Planning since January 2001. From February 1996 to January 2001, she served as its Co-Founder and Executive Vice President and from July 1993 to February 1996 as Co-Founder and Senior Vice President, Marketing. Ms. House is currently a director of BDNA Corporation and Shutterfly, Inc.

Leon J. Level , a director since April 2005, is currently vice president and a director of Computer Sciences Corporation, a leading global information technology services company. Mr. Level has held ascending and varied financial management and executive positions at Computer Sciences Corporation (including chief financial officer from 1989 to February 2006), Unisys Corporation (corporate vice president, treasurer and chairman of Unisys Finance Corporation), Burroughs Corporation (vice president, treasurer), The Bendix Corporation (executive director and assistant corporate controller) and Deloitte, Haskins & Sells (now Deloitte & Touche). Mr. Level is also currently a director of UTi Worldwide Inc.

Patricia Salas Pineda , a director since 1991, is currently group vice president of corporate communications and general counsel for Toyota Motor North America, Inc., a position she assumed in September 2004. Prior to joining Toyota Motor North America, Inc., Ms. Pineda was vice president of legal, human resources and government relations and corporate secretary of New United Motor Manufacturing, Inc. with which she was associated since 1984. She is currently a trustee of the RAND Corporation and Mills College and a director of the James Irvine Foundation and Annas Linens.

T. Gary Rogers , a director since 1998, is Chairman of the Board and Chief Executive Officer of Dreyers Grand Ice Cream, Inc., a manufacturer and marketer of premium and super-premium ice cream and frozen dessert products. He has held this position since 1977. He serves as a director of Shorenstein Company, L.P., Stanislaus Food Products and the Federal Reserve Bank of San Francisco.

G. Craig Sullivan served as a director from 1998 through December 2005. Mr. Sullivan is the retired Chairman of the Board and Chief Executive Officer of The Clorox Company, a major consumer products firm. He served as Chief Executive Officer of The Clorox Company from 1992 until June 2003. He remained Chairman of the Board of The Clorox Company until his retirement in December 2003. Prior to his election as Chairman and Chief Executive Officer of The Clorox Company, Mr. Sullivan was group vice president with overall responsibility for manufacturing and marketing, the companys laundry and cleaning products in the United States, the international business, the manufacturing and marketing of products for the food service industry and the corporate purchasing and distribution functions. Mr. Sullivan currently serves on the board of directors of Mattel, Inc. and Kimberly-Clark Corp.

R. John Anderson , our Senior Vice President and President of our Asia Pacific Division since 1998 and President of our global supply chain organization since March 2004, joined us in 1979. Mr. Anderson served as General Manager of Levi Strauss Canada and as President of Levi Strauss Canada and Latin America from 1996 to 1998. He has held a series of merchandising positions with us in Europe and the United States, including Vice President, Merchandising and Product Development for the Levis ® brand in 1995. Mr. Anderson also served as interim president of Levi Strauss Europe from September 2003 to February 2004.

David G. Bergen , our Senior Vice President and Chief Information Officer, joined us in 2000. He was most recently Senior Vice President and Chief Information Officer of CarStation.com, an open-standards collision repair e-commerce hub. From 1998 to 2000, Mr. Bergen was Senior Vice President and Chief Information Officer of LVMH, Inc. Prior to joining LVMH, Inc., Mr. Bergen held a series of management positions at Gap Inc., including Vice President of Application Development.

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John Goodman joined us as President and Commercial General Manager of our U.S. Dockers ® business in June 2005. Prior to joining us, Mr. Goodman was senior vice president and chief apparel officer for Kmart Holding Corporation, a wholly owned subsidiary of Sears Holdings Corporation since December 2003. Prior to joining Kmart Holding Corporation, Mr. Goodman spent 11 years at Gap, Inc., where he was most recently senior vice president of merchandising, planning, production and distribution for the companys outlet stores.

Robert L. Hanson has been President and Commercial General Manager of the Levis ® brand in the United States since 2001 and President and General Manager of the Levis ® brand in the United States and U.S. Supply Chain Services since July 2005. Before taking his current role in 2001, Mr. Hanson was President of the Levis ® brand in Europe. From 1998 to 2000, he was Vice President of the Levis ® brand in Europe. He began his career with us in 1988, holding executive-level advertising, marketing and business development positions in both the Levis ® and Dockers ® brands in the United States before taking his first position in Europe.

Hilary K. Krane , our Senior Vice President and General Counsel, joined us in January 2006. From 1994 to 2005, Ms. Krane held a variety of positions at PricewaterhouseCoopers, one of the worlds leading accounting firms, including Primary Legal Counsel to the U.S. Advisory Practice and, most recently, Assistant General Counsel and Partner. Prior to joining PricewaterhouseCoopers, Ms. Krane was a litigation associate in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP in Chicago.

Scott A. LaPorta is President and Commercial General Manager of the Levi Strauss Signature ® brand in the United States. Mr. LaPorta joined us in 2002 as the Chief Financial and Strategic Planning Officer for Levi Strauss Americas. In July 2003, Mr. LaPorta became Senior Vice President of Sales, Strategy and Finance for Levi Strauss Americas, until taking his current position in October of the same year. Before joining us, Mr. LaPorta was Executive Vice President and Chief Financial Officer of Park Place Entertainment.

Paul Mason , our Senior Vice President and President, Levi Strauss Europe, joined us in February 2004. Mr. Mason was chief executive officer of Matalan PLC, a discount clothing business and leading U.K. jeans retailer from 2002 to 2003. Prior to that time, he held senior positions with ASDA Group Limited, a subsidiary of Wal-Mart Stores, Inc., including chief operating officer, retailer director and logistics and human resources director. Mr. Mason is a non-executive director of Rentokil-Initial plc (U.K). Mr. Mason left us at the end of February 2006.

Fred Paulenich , our Senior Vice President of Worldwide Human Resources, joined us in 2000. Prior to joining us, Mr. Paulenich was Vice President and Chief Personnel Officer of Pepsi-Cola North America from 1999 to 2000. At Pepsi-Cola, he held a series of management positions including Vice President of Headquarters Human Resources from 1996 to 1998 and Vice President of Personnel from 1995 to 1996.

Hans Ploos van Amstel , Senior Vice President and Chief Financial Officer since March 2005, joined us in 2003 as Vice President of Finance and Operations for our European business. Mr. Ploos van Amstel joined us from Procter & Gamble, a leading manufacturer and marketer of consumer and household products. Mr. Ploos van Amstel joined Procter & Gamble in 1989, where he served in various capacities throughout Europe and the Middle East, leading to his appointment in 1999 as Finance Director of Global Corporate Fabric & Home Care, and culminating in his appointment in 2001 as Finance Director of Procter & Gambles Fabric & Home Care Europe division.

Lawrence W. Ruff , our Senior Vice President, Strategy and Worldwide Marketing since September 2003, joined us in 1987. From 1987 to 1996, he held a variety of marketing positions in the United States and Europe. He served as Vice President, Marketing and Development for Levi Strauss Europe, Middle East and Africa from 1996 to 1999 when he became Vice President, Global Marketing. In late 1999, he became Senior Vice President of Worldwide Marketing Services.

Our Board of Directors

Our board of directors currently has 14 members. Our board is divided into three classes with directors elected for overlapping three-year terms. The term for directors in class 1 (Mr. Georgescu, Mr. Friedman, Mr. R.D. Haas and Mr. Level) will end at our annual stockholders meeting in 2008. The term for directors in class 2 (Mr. P. E. Haas, Jr., Mr. Hellman, Ms. House, Ms. Pineda and Mr. Rogers) will end at our annual stockholders meeting in 2009. The

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term for directors in class 3 (Ms. Blackwell, Mr. Gaither, Ms. Haas, Mr. W.J. Haas and Mr. Marineau) will end at our annual stockholders meeting in 2007.

Committees. Our board of directors has five committees.

Audit. Our audit committee provides assistance to the board in the boards oversight of the integrity of our financial statements, financial reporting processes, internal controls systems and compliance with legal requirements. The committee meets with our management regularly to discuss our critical accounting policies, internal controls and financial reporting process and our financial reports to the public. The committee also meets with our independent registered public accounting firm and with our financial personnel and internal auditors regarding these matters. The committee also examines the independence and performance of our internal auditors and our independent registered public accounting firm. The committee has sole and direct authority to engage, appoint, evaluate and replace our independent auditor. Both our independent registered public accounting firm and our internal auditors regularly meet privately with this committee and have unrestricted access to the committee. The audit committee held six meetings during 2005.

Members: Mr. Level (Chair), Ms. Blackwell, Mr. Georgescu and Ms. Pineda.

Mr. Level is our audit committee financial expert as currently defined under SEC rules. We believe that the composition of our audit committee meets the criteria for independence under, and the functioning of our audit committee complies with the applicable requirements of, the Sarbanes-Oxley Act and SEC rules and regulations.

Human Resources. Our human resources committee provides assistance to the board in the boards oversight of our compensation, benefits and human resources programs and of senior management performance, composition and compensation. The committee reviews our compensation objectives and performance against those objectives, reviews market conditions and practices and our strategy and processes for making compensation decisions, reviews the performance of our chairman and chief executive officer and approves the annual and long term compensation for our chairman, chief executive officer and executive officers, including our long term incentive compensation plans. The committee also reviews our succession planning, diversity, director compensation and benefit plans.

Members: Ms. House (Chair), Mr. Gaither, Mr. Hellman and Mr. Rogers.

Nominating and Governance. Our nominating and governance committee is responsible for identifying qualified candidates for our board of directors and making recommendations regarding the size and composition of the board. In addition, the committee is responsible for overseeing our corporate governance matters and reporting and making recommendations to the board concerning corporate governance matters.

Members: Mr. Gaither (Chair), Mr. Georgescu, Mr. Hellman and Ms. Pineda.

Finance. Our finance committee provides assistance to the board in the boards oversight of our financial condition and management, financing strategies and execution and relationships with stockholders, creditors and other members of the financial community.

Members: Mr. Rogers (Chair), Ms. Haas, Mr. P.E. Haas, Jr., Mr. Hellman and Mr. Level.

Corporate Citizenship. Our corporate citizenship committee provides assistance to the board in the boards oversight of our values and corporate citizenship as demonstrated through our policies, practices and interactions with stockholders, employees, suppliers, customers, consumers, communities, governmental authorities and others having a relationship with us.

Members: Mr. Georgescu (Chair), Ms. Blackwell, Mr. Friedman, Ms. Haas, Mr. W.J. Haas and Ms. House.

Our board made these committee assignments on December 8, 2005.

Director Compensation

Non-employee directors other than Robert D. Haas received compensation in 2005 consisting of an annual retainer fee of $45,000, meeting fees and, if applicable, committee chairperson retainer fees ($20,000 for the Audit Committee and the Human Resources Committee and $10,000 for the Finance Committee, the Corporate

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Citizenship Committee and the Nominating and Governance Committee). Robert D. Haas, our chairman, retired as an employee in August 2005. Effective August 2005, Mr. Haas receives for his services as Chairman an annual retainer fee of $250,000, an annual car allowance of $30,528, meeting fees, an office and services of an assistant. Directors are covered under travel accident insurance while on company business and are eligible to participate in a deferred compensation plan. In 2005, Mr. Gaither participated in the deferred compensation plan.

In February 2005, our board approved a new compensation plan, the Senior Executive Long Term Incentive Plan. The plan is intended to provide long term incentive compensation to our senior management and members of our board. Employees on our Worldwide Leadership Team (which includes our executive officers), other employees identified by our board, and non-employee members of our board are eligible to receive awards under the plan. For more information, see Executive Compensation Long Term Incentive Compensation Plans. In March 2005, each individual then serving as a non-employee member of our board received under the Senior Executive Long Term Incentive Plan an award of 750 stock appreciation rights, based on a target value of $45,000.

The following table provides compensation information for our directors in 2005 who were not employees.

Name	Annual Compensation — Retainer	Meeting Fees(1)	Other	Long Term Compensation — LTIP Awards(2)
Angela Glover Blackwell	$ 55,000	$ 12,000	$	750 units
Robert E. Friedman	45,000	9,000		750 units
James C. Gaither	65,000	15,000		750 units
Peter A. Georgescu	45,000	16,000		750 units
Miriam L. Haas	45,000	11,000		750 units
Peter E. Haas Jr.	45,000	13,000		750 units
Robert D.
Haas (3)	83,333	2,000	10,180	1,667 units
Walter J. Haas	45,000	11,000		750 units
F. Warren Hellman	55,000	13,000		750 units
Patricia A. House	45,000	15,000		750 units
Leon J.
Level (4)	33,750	10,000		750 units
Patricia Salas Pineda	65,000	14,000		750 units
T. Gary Rogers	45,000	16,000		750 units
G. Craig Sullivan	45,000	17,000		750 units

callerid=999 iwidth=455 length=60

| (1) | Meeting fees are based on
$1,000 per meeting day attended. |
| --- | --- |
| (2) | Reflects the stock appreciation
rights (referred to as units) under the Senior Executive Long
Term Incentive Plan. These awards have a target value of $45,000
and will be settled at the end of a three-year performance
period if the recipient is still serving as a non-employee
director. |
| (3) | The retainer amount reflects a
prorated portion of Mr. Haas annual retainer fee.
Other compensation reflects a prorated car allowance. The
retainer arrangement took effect in August 2005. |
| (4) | The retainer amount reflects a
prorated portion of Mr. Levels annual retainer fee.
The retainer arrangement took effect in April 2005. |

Compensation Committee Interlocks and Insider Participation

The Human Resources Committee serves as the compensation committee of our board of directors. Mss. Blackwell and House and Messrs. Gaither, Rogers and Sullivan served as members of the committee in 2005. In 2005, no member of the Human Resources Committee was a current or former officer or employee of ours. In addition, there are no compensation committee interlocks between us and other entities involving our executive officers and our Board members who serve as executive officers of those other entities.

Mr. Gaither was, prior to 2004, senior counsel to the law firm Cooley Godward LLP. Cooley Godward provided legal services to us and to the Human Resources Committee in 2005, 2004 and 2003, for which we paid fees of approximately $235,000, $150,000 and $280,000, respectively, in those years.

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Worldwide Code of Business Conduct

We have a Worldwide Code of Business Conduct which applies to all of our directors and employees, including the chief executive officer, the chief financial officer, the controller and our other senior financial officers. The Worldwide Code of Business Conduct covers a number of topics including:

	accounting practices and financial communications;
	conflicts of interest;
	confidentiality;
	corporate opportunities;
	insider trading; and
	compliance with laws.

A copy of the Worldwide Code of Business Conduct is filed as an exhibit to the registration statement of which this prospectus is a part.

Executive Compensation

Our executive compensation philosophy is designed to support our key business and talent objectives. Our business objectives focus on earnings, debt reduction and stockholder value while our talent objectives focus on attracting, retaining and motivating individuals as required to deliver our targeted annual and long term business results. In order to support the achievement of these objectives, we review the market practices of a similarly sized, competitive set of branded consumer product companies and major apparel competitors when setting compensation levels for our executives. Our intent is to position our executives compensation competitively against this set of companies.

The primary components of our executive compensation are base salary, annual bonus and long term incentives. Base salary is paid for ongoing performance throughout the year. Our annual bonuses are intended to motivate and reward achievement of annual business and individual objectives. Our long term incentives align with and reward for increasing stockholder value.

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The table below provides compensation information for our chief executive officer and the other four executive officers who were our most highly compensated officers and who were serving as executive officers as of the last day of the fiscal year. We refer to these individuals in this prospectus as our named executive officers.

Summary Compensation Table

		Annual Compensation		All Other Annual	Long Term — Compensation	All Other
Name/Principal
Position	Year	Salary	Bonus(1)	Compensation(2)	LTIP Payouts(3)	Compensation(4)
Philip A. Marineau	2005	$ 1,200,000	$ 2,163,150	$	$ 2,894,000	$ 818,961
President and Chief	2004	1,107,692	2,940,300		2,241,000	602,686
Executive Officer	2003	1,246,154				348,640
R. John Anderson	2005	743,930	1,667,930	287,088	960,000	71,451
Senior Vice President and	2004	758,785	711,392	274,275	1,020,000	68,724
President, Levi Strauss, Asia	2003	447,463	696,150	282,717		46,643
Pacific and Global
Sourcing (5)
Paul Mason	2005	1,071,909	982,388	76,977	252,000
Senior Vice President and	2004	929,103	1,255,539	53,580		1,563,675
President, Levi Strauss Europe	2003
Robert L. Hanson	2005	644,269	915,915		252,000	92,670
President and Commercial General	2004	512,211	796,331		1,150,000	285,904
Manager,
Levis ® Brand, United	2003	471,923
States and U.S Supply Chain Services
Hans Ploos van Amstel	2005	438,221	703,828	1,071,867	266,000	517,828
Senior Vice President and	2004	368,315	428,817		105,000	112,185
Chief Financial Officer	2003	181,244	90,007			98,424

callerid=999 iwidth=455 length=60

| (1) | Our Annual Incentive Plan provides
for annual bonuses if we meet pre-established performance
targets. The Annual Incentive Plan is intended to reward for
achievement of our business objectives during the year. Payment
amounts are based on business unit and corporate financial
results against the performance targets. The final amount of
bonus earned by each participant depends upon the performance
and job level of the individual. |
| --- | --- |
| (2) | Mr. Anderson is an Australian
citizen whose employment with us is based in Singapore. He is
considered a global assignee. Our approach for global assignee
employees is to ensure that individuals working abroad are
compensated as they would be if they were based in their home
country by offsetting expenses related to a global assignment.
This approach covers all areas that are affected by the
assignment, including salary, cost of living, taxes, housing,
benefits, savings, schooling and other miscellaneous expenses.
Mr. Anderson is paid in Australian dollars; for purposes of
the table, these amounts are converted into U.S. dollars
using the exchange rate for the last month of the year. For
Mr. Anderson, the 2005 amount reflects $276,051 due to his
global assignment and $11,037 for a company-provided car. The
2004 amount reflects $261,776 due to his global assignment and
$12,499 for a company-provided car. The 2003 amount shown
reflects $271,249 due to his global assignment and $11,468 for a
company-provided car. |
| | Mr. Mason joined us in
February 2004. He is a United Kingdom citizen whose employment
with us is based in Brussels, Belgium. He commutes from his home
in the United Kingdom. We provide Mr. Mason with an
apartment in Brussels. Mr. Mason is paid in British pounds;
for purposes of the table, these amounts are converted into
U.S. dollars using the exchange rate for the last month of
the year. For Mr. Mason, the 2005 amount reflects $35,535
paid for a company-provided apartment and $41,442 for a
company-provided car. The 2004 amount reflects $38,552 paid for
a company-provided apartment and $15,028 for a company-provided
car. Mr. Mason is not treated as a global assignee.
Mr. Mason resigned from his position as Senior Vice
President and President, Levi Strauss Europe, effective
February 28, 2006. In connection with his resignation and
as contemplated by his employment agreement, Mr. Mason will
receive no additional payment as a result of his departure. |
| | Mr. Ploos van Amstel relocated
to the United States from Belgium in March 2005. He is paid in
U.S. dollars. For 2005, the amount includes $977,733 in
relocation expenses grossed up for taxes and $65,972 for
non-taxable relocation expenses. |
| (3) | For 2005, this column reflects the
first payment earned under our Management Incentive Plan and the
final payment under the interim long-term incentive plan. |
| | For 2004, this column reflects the
first and second payments earned under our interim long-term
incentive plan. |
| | For 2003, this column reflects the
payments earned under the 2000 grant of our Leadership
Shares Plan, our prior long-term incentive plan. These
payments relate to the first four years of performance under the
five-year measurement period, which was from 2000 through 2003.
We did not make any payments under the Leadership
Shares Plan in respect of the second or third installments
of the 2000 grant. We did not make any further payments in
respect of any outstanding awards, and do not expect to do so
for any of the remaining performance measurement periods. For
more information about our long term incentive plans, see
Executive Compensation Long Term
Incentive Compensation Plans. |
| (4) | Beginning in 2005, our Executive
Deferred Compensation Plan provides that we will match certain
employee deferrals to the plan. Under the plan, we match
deferrals in an amount in excess of the contribution limit under
our Employee Savings and Investment Plan (which is our |

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| | 401(k) plan), up to 10% of eligible
pay. For Messrs. Marineau, Hanson and Ploos van Amstel,
amounts shown in 2005 reflect these matching contributions. |
| --- | --- |
| | For Messrs. Marineau and
Hanson the amounts shown in 2004 and 2003 include contributions
we made on their behalf under our Capital Accumulation Plan. The
Capital Accumulation Plan was a non-qualified, defined
contribution savings plan that permitted eligible employees to
contribute up to 10% of their pay, on an after-tax basis, to an
individual retail brokerage account established in the
employees name. Matching contributions under this plan
were dependent on business performance. We terminated the
Capital Accumulation Plan in November 2004 and replaced it with
our Executive Deferred Compensation Plan. |
| | For Mr. Marineau, the 2005
amount shown reflects payments made as part of the 401(k) excess
match of $295,148 and $523,813 in above-market interest
attributable to amounts he deferred under our Executive Deferred
Compensation Plan. The 2004 amount shown reflects a Capital
Accumulation Plan contribution of $115,000 and $487,686 in
above-market interest attributable to amounts he deferred under
our executive deferred compensation plan. The 2003 amount shown
reflects $348,640 in above-market interest attributable to
amounts he deferred under our Executive Deferred Compensation
Plan. |
| | For Mr. Anderson, the 2005
amount shown reflects $71,451 in above-market interest
attributable to amounts he deferred under our Executive Deferred
Compensation Plan. The 2004 amount shown reflects $68,724 in
above-market interest attributable to amounts he deferred under
our executive deferred compensation plan. The 2003 amount shown
reflects $46,643 of above-market interest attributable to
amounts he deferred under our Executive Deferred Compensation
Plan. |
| | For Mr. Mason, the 2004 amount
shown reflects a special one-time bonus of $1,563,675, paid in
lieu of a 2004 long term incentive grant as provided under his
employment agreement. For more information, please see
Employment Agreements. |
| | The above-market interest amounts
for Messrs. Marineau and Anderson stated above, reflect
updates to amounts previously reported as the formula used to
determine interest paid under our executive deferred
compensation plan became determinable in 2005. Above-market
interest amounts previously reported assumed payment at a
guaranteed minimum rate. |
| | For Mr. Hanson, the 2005
amount shown reflects payments made as part of the 401(k) excess
match of $92,670. The 2004 amount shown reflects a special
retention bonus of $125,000, a special performance bonus of
$125,000 and a Capital Accumulation Plan contribution of $35,904. |
| | For Mr. Ploos van Amstel, the
2005 amount shown reflects a 401(k) excess match of $6,873, a
$300,000 hiring bonus, a $200,000 special bonus and an insurance
premium payment of $10,955. The 2004 amount shown reflects a
special bonus of $21,830, a sign-on bonus of $64,900 and an
insurance premium payment of $25,455. The 2003 amount shown
reflects a sign-on bonus of $79,060, a special bonus of $2,237
and an insurance premium payment of $17,127. |
| (5) | From 2000 to 2004, we tracked
Mr. Andersons salary in U.S. dollars and
increased it according to U.S. market practices. However,
due to substantial exchange rate fluctuations that have occurred
over the last several years, his salary growth as expressed in
Australian dollars (AUD) was not consistent with the rate of
increases awarded to him. As a result, beginning in 2004, we
track and pay his salary in Australian dollars. Under this
methodology, in March 2004, we adjusted his AUD salary amount to
AUD 987,600 to properly reflect the same rate of salary
increases we had applied to his salary, as paid in
U.S. dollars, since 2000. For purposes of the table, we
convert his salary into U.S. dollars using the exchange
rate for the last month of the year. |

Long Term Incentive Compensation Plans

Senior Executive Long Term Incentive Plan. In February 2005, our board established a new compensation plan, the Senior Executive Long Term Incentive Plan (the SELTIP) for our senior management and members of our board. The SELTIP is implemented through consecutive and overlapping three-year performance cycles. SELTIP participants are granted stock appreciation rights (units), payable solely in cash, as determined by the Human Resources Committee. The number of units granted to each participant was based on a projected hypothetical public market value of our common stock on the last day of the performance cycle and a target payout amount. Awards reflect a strike price, the hypothetical public market value of our common stock as of the end of the calendar year in which the performance cycle begins, as determined by the Human Resources Committee.

To the extent a payment would exceed two times the participants target payout, payment of the excess amounts generally will be deferred for an additional two years, and such amounts will be further adjusted during the two-year deferral period based on the fluctuation in value of our common stock. In addition, participants who are terminated for cause during a deferral period will forfeit all deferred amounts that have not already been paid out.

2005 Management Incentive Plan. In July 2005, our board approved the establishment of a new two-year cash incentive plan, the 2005 Management Incentive Plan, for our management employees including our executive officers. The plan covers approximately 1,000 employees worldwide.

Plan payouts will be based on our earnings before interest, taxes, depreciation and amortization (EBITDA) performance in 2005 and 2006. Individual target amounts for each participant will be set based on a percentage of his or her 2005 long- term incentive plan target amount. We will pay incentive amounts in two portions, with the first payout based on achievement of our 2005 total company EBITDA target, and the second payout based on total company performance against the incentive plans two-year cumulative EBITDA and EBITDA growth targets.

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The following table shows awards granted under our Senior Executive Long Term Incentive Plan and our 2005 Management Incentive Plan to our named executive officers:

Long Term Incentive Compensation Plans Awards in Last Fiscal Year

	Number of			Estimated Future Payouts
	Shares, Units	Other Period Until		Under Non-Stock Price-Based
Plans
	or Other	Maturation		Threshold	Target	Maximum
Name	Rights (#)	or Payout		($ or #)	($ or #)	($ or #)
Philip A. Marineau	83,334	(1)	Three years	$	$ 5,000,000	(2)	None	(3)
			Two years		4,000,000	$	6,600,000	(4)
R. John Anderson	16,667	(1)	Three years		1,000,000	(2)	None	(3)
			Two years		800,000	$	1,320,000	(4)
Paul Mason	15,000	(1)	Three years		900,000	(2)	None	(3)(5)
			Two years		720,000	$	1,188,000	(4)(5)
Robert L. Hanson	15,000	(1)	Three years		900,000	(2)	None	(3)
			Two years		720,000	$	1,188,000	(4)
Hans Ploos van Amstel	11,667	(1)	Three years		700,000	(2)	None	(3)
			Two years		560,000	$	924,000	(4)

callerid=999 iwidth=455 length=60

| (1) | Award was made under our Senior
Executive Long Term Incentive Plan. |
| --- | --- |
| (2) | Target amount was used to determine
the number of stock appreciation rights granted. |
| (3) | Payout is based on appreciation of
stock appreciation rights. |
| (4) | Cash-based award was made under our
2005 Management Incentive Plan. |
| (5) | As a result of
Mr. Masons resignation at the end of February 2006,
he is no longer be eligible for future payouts under the plan. |

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Pension Plan Benefits

Messrs. Marineau and Hanson. The following table shows the estimated annual benefits payable upon retirement under our U.S. Home Office Pension Plan to persons at various covered compensation levels and years-of-service classifications prior to mandatory offset of Social Security benefits. Covered compensation is defined as annual base salary plus annual bonus, within certain IRS limits. An average of the highest covered compensation amounts within a predefined period is used to calculate the final annual pension benefits. Covered compensation for these named executive officers is the same as the total of their salary and bonus amounts shown in the Summary Compensation Table, subject to certain IRS limits. The table assumes retirement at the age of 65, with payment to the employee in the form of a single-life annuity.

U.S. Pension Plan Table

Final Average Covered — Compensation	Years of Service — 5	10	15	20	25	30	35
$ 400,000	$ 40,000	$ 80,000	$ 120,000	$ 160,000	$ 200,000	$ 205,000	$ 210,000
600,000	60,000	120,000	180,000	240,000	300,000	307,500	315,000
800,000	80,000	160,000	240,000	320,000	400,000	410,000	420,000
1,000,000	100,000	200,000	300,000	400,000	500,000	512,500	525,000
1,200,000	120,000	240,000	360,000	480,000	600,000	615,000	630,000
1,400,000	140,000	280,000	420,000	560,000	700,000	717,500	735,000
1,600,000	160,000	320,000	480,000	640,000	800,000	820,000	840,000
1,800,000	180,000	360,000	540,000	720,000	900,000	922,500	945,000
2,000,000	200,000	400,000	600,000	800,000	1,000,000	1,025,000	1,050,000
2,200,000	220,000	440,000	660,000	880,000	1,100,000	1,127,500	1,155,000
2,400,000	240,000	480,000	720,000	960,000	1,200,000	1,230,000	1,260,000
2,600,000	260,000	520,000	780,000	1,040,000	1,300,000	1,332,500	1,365,000
2,800,000	280,000	560,000	840,000	1,120,000	1,400,000	1,435,000	1,470,000
3,000,000	300,000	600,000	900,000	1,200,000	1,500,000	1,537,500	1,575,000
3,200,000	320,000	640,000	960,000	1,280,000	1,600,000	1,640,000	1,680,000
3,400,000	340,000	680,000	1,020,000	1,360,000	1,700,000	1,742,500	1,785,000

The following table shows, for each of Messrs. Marineau and Hanson, the credited years of service, the final compensation covered by the U.S. Home Office Pension Plan and the annual pension benefit each would receive at age 65 under the plan if he were to leave Levi Strauss & Co.

		Final Average Covered	Annual — Pension
Name	Years of Service	Compensation	Benefit
	(As of November 27,
2005)
Philip A.
Marineau (1)(2)	24	$ 2,544,120	$ 1,223,436
Robert L.
Hanson (1)	17	583,058	189,084

callerid=999 iwidth=455 length=60

| (1) | We made amendments to our
U.S. Home Office Pension Plan (HOPP) in 2004 that affected
Mr. Marineau and Mr. Hanson in that their benefits
were frozen under the plan. |
| --- | --- |
| (2) | For Mr. Marineau, the number
of years of credited service and covered compensation are based
on the terms of his employment agreement.
Mr. Marineaus HOPP benefits were frozen as of
November 2004. However, as provided under
Mr. Marineaus employment agreement, he also
participates in a supplemental executive retirement plan, which
is a non-qualified complementary plan that operates in the same
manner as the HOPP. This supplemental plan results in
Mr. Marineau receiving the same pension benefits he would
have received had the HOPP not been frozen. |

Mr. Mason. Prior to Mr. Masons resignation at the end of February 2006, he participated in the Levi Strauss United Kingdom pension plan. This plan provides both a defined benefit and a defined contribution pension. The plan has a minimum vesting period of two years. Because Mr. Mason did not satisfy the minimum vesting period, he is ineligible for any pension benefits.

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Mr. Anderson. Mr. Anderson participates in the Levi Strauss Australia pension plan. He also participates in a supplemental plan. The pension payment Mr. Anderson will receive upon retirement is based on years of service and his final average salary. Under the supplemental plan, we contribute 20% of his annual base salary and bonus to his pension each year. If Mr. Andersons employment with us had been terminated at the end of 2005, his benefit under these combined plans, to be paid in a lump sum at age 65, would have been 3.3 million Australian dollars, or approximately $2.4 million.

Mr. Ploos van Amstel. Mr. Ploos van Amstel participates in the Levi Strauss Belgium pension plan. The plan provides a defined benefit pension based on a percentage of pensionable earnings and eligible pension service. The plan has a minimum vesting period of one year.

Employment Agreements

Mr. Marineau. We have an employment agreement with Mr. Marineau. The agreement provides for a minimum base salary of $1.0 million in accordance with our executive salary policy and a target annual cash bonus of 90% of base salary, with a maximum bonus of 180% of base salary. In addition, Mr. Marineau is eligible to participate in all other executive compensation and benefit programs, including the Leadership Shares Plan and the long term incentive and annual incentive plans described above. Under the employment agreement, we made a one-time grant of 810,000 Leadership Shares to compensate him for the potential value of stock options he forfeited upon leaving his previous employer to join us. We also provide under the agreement a supplemental pension benefit to Mr. Marineau.

The agreement is in effect until terminated by either Mr. Marineau or us. We may terminate the agreement upon Mr. Marineaus death or disability, for cause (as defined in the agreement), and without cause upon 30 days notice. Mr. Marineau may terminate the agreement for good reason (as defined in the agreement) or other than for good reason upon 30 days notice to us. The consequences of termination depend on the basis for the termination:

| | If we terminate without cause or if Mr. Marineau terminates
for good reason, Mr. Marineau will be entitled to:
(i) severance payments equal to three times the sum of his
base salary as of the termination date plus his most recent
target or, if greater, annual bonus, (ii) amounts accrued
or earned under our compensation and benefit plans and
(iii) an amount in respect of the Leadership Shares granted
in the one-time grant described above. |
| --- | --- |
| | If we terminate for cause or if Mr. Marineau terminates for
other than good reason, then the agreement will terminate
without our having further obligations to Mr. Marineau
other than for amounts accrued or earned under our compensation
and benefit programs (which does not include unvested Leadership
Shares or target bonus amounts not payable as of the date of
termination). |
| | If we terminate for any reason other than cause or if
Mr. Marineau terminates for good reason within
12 months after a change in control (as defined in the
agreement), Mr. Marineau will be entitled to:
(i) severance payments equal to three times the sum of his
base salary as of the termination date plus his most recent
target or, if greater, annual bonus, (ii) amounts accrued
or earned under our compensation and benefit plans,
(iii) an amount in respect of the Leadership Shares granted
in the one-time grant described above, (iv) full and
immediate vesting in all outstanding Leadership Shares;
(v) full and immediate vesting in his supplemental pension
benefit; and (vi) under specified circumstances, if any
amounts paid are treated as parachute payments (as defined in
Section 280G(b)(2) of the Internal Revenue Code), an amount
equal to the applicable excise tax and any taxes on this
reimbursement payment. |

Mr. Mason. We had an employment agreement with Mr. Mason. Under the agreement, we agreed to pay him a minimum base salary of £600,000. Mr. Mason was also eligible to earn an annual bonus under our Annual Incentive Plan, with a target incentive equal to 65% of his base salary, and he has participated in our SELTIP since 2005. In addition, in lieu of granting him a long term incentive award in 2004, Mr. Mason was eligible to earn a special one-time bonus under a separate incentive arrangement, with a target incentive equal to 85% of his base salary, which was paid in early 2005. The amount of this bonus was equal to $1,563,675.

Under his agreement, Mr. Mason was also entitled to specified fringe benefits, including a company car, housing when abroad, medical insurance for Mr. Mason and his family and reimbursement of any additional taxes he may have had to bear as a consequence of these fringe benefits. We also agreed to provide Mr. Mason with supplementary pension benefits.

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Mr. Masons employment agreement terminated upon his resignation effective February 28, 2006. In connection with his resignation, Mr. Mason was not entitled to any additional separation or termination benefits.

Mr. Ploos van Amstel. We have an employment agreement with Mr. Ploos van Amstel. Under the agreement, Mr. Ploos van Amstel will receive a base salary at an annual rate of not less than $500,000, and will be eligible to participate in our Annual Incentive Plan at a target participation rate of 65% of salary, and our 2005 Long-Term Incentive Plan at a target participation amount of $700,000. In addition, Mr. Ploos van Amstel received an initial bonus of $300,000, which he must repay on a pro rata basis in the event he resigns voluntarily within 12 months of the date he began serving as our chief financial officer.

Under his agreement, Mr. Ploos van Amstel is entitled to specified fringe benefits including healthcare benefits, reimbursement of expenses associated with the relocation of his household from Belgium to San Francisco, California, and benefits under the various executive perquisite programs available to similarly ranked executives. Mr. Ploos van Amstel is eligible for participation in our Senior Executive Severance Plan. Mr. Ploos van Amstels employment is at-will, and may be terminated by us or by Mr. Ploos van Amstel at any time.

Senior Executive Severance Arrangements

Mr. Marineau. Mr. Marineau is eligible for severance benefits as provided in his employment agreement. Please see Employment Agreements for more information.

Messrs. Anderson, Hanson and Ploos van Amstel. Messrs. Anderson, Hanson and Ploos van Amstel are eligible for payments and other benefits under our Senior Executive Severance Plan, which is a discretionary, unfunded plan available to a select group of executives to recognize their past service to us in the event their employment is involuntarily terminated. We may terminate or amend this plan at any time at our sole discretion.

Under the plan, in exchange for the executives execution of a general release agreement with us following an involuntary termination without cause, we will pay the executive his or her base salary, plus a target bonus amount for the fiscal year in which the executive is notified of his or her employment termination. We will make this payment in installments or on the same payment schedule and in an amount no greater than the executives base salary at the time his/her employment terminated for a period ranging from 26 weeks to 104 weeks, depending on the executive classification.

In addition to these severance payments, we will pay an affected executive the same percentage of the monthly cost of the medical coverage we provide under the Consolidated Omnibus Budget Reconciliation Act (COBRA) (to the extent the executive elects COBRA coverage) that he was entitled to during his active employment. The subsidized COBRA medical coverage will continue during the period that the executive is entitled to receive severance payments, subject to a maximum period ending on the earlier of the 18-month period following the termination date or the date the executive is entitled to other medical coverage. We will also pay the cost of premiums under our standard basic life insurance program of $10,000 during the same period that we subsidize the COBRA coverage. If the executive becomes eligible to receive retiree health benefits, we will subsidize retiree medical coverage during the same period that we subsidize the COBRA coverage. In addition, we will provide an affected executive with career counseling and transition services.

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PRINCIPAL STOCKHOLDERS

All shares of our common stock are deposited in a voting trust, a legal arrangement that transfers the voting power of the shares to a trustee or group of trustees. The four voting trustees are Miriam L. Haas, Peter E. Haas, Jr., Robert D. Haas and F. Warren Hellman. The voting trustees have the exclusive ability to elect and remove directors, amend our by-laws and take certain other actions which would normally be within the power of stockholders of a Delaware corporation. Our equity holders who, as a result of the voting trust, legally hold voting trust certificates, not stock, retain the right to direct the trustees on specified mergers and business combinations, liquidations, sales of substantially all of our assets and specified amendments to our certificate of incorporation.

The voting trust will last until April 2011, unless the trustees unanimously decide, or holders of at least two-thirds of the outstanding voting trust certificates decide, to terminate it earlier. If Robert D. Haas ceases to be a trustee for any reason, then the question of whether to continue the voting trust will be decided by the holders. The existing trustees will select the successors to the other trustees. The agreement among the stockholders and the trustees creating the voting trust contemplates that, in selecting successor trustees, the trustees will attempt to select individuals who share a common vision with the sponsors of the 1996 transaction that gave rise to the voting trust, represent and reflect the financial and other interests of the equity holders and bring a balance of perspectives to the trustee group as a whole. A trustee may be removed if the other three trustees unanimously vote for removal or if holders of at least two-thirds of the outstanding voting trust certificates vote for removal.

The table on the following page contains information about the beneficial ownership of our voting trust certificates as of February 1, 2006, by:

	Each of our directors and each of our named executive officers;
	Each person known by us to own beneficially more than 5% of our
voting trust certificates; and
	All of our directors and officers as a group.

Under the rules of the SEC, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of the security, or investment power, which includes the power to dispose of or to direct the disposition of the security. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which that person has no economic interest. Except as described in the footnotes to the table below, the individuals named in the table have sole voting and investment power with respect to all voting trust certificates beneficially owned by them, subject to community property laws where applicable.

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As of February 1, 2006, there were 172 record holders of voting trust certificates. The percentage of beneficial ownership shown in the table is based on 37,278,238 shares of common stock and related voting trust certificates outstanding as of February 1, 2006. The business address of all persons listed, including the trustees under the voting trust, is 1155 Battery Street, San Francisco, California 94111.

	Number of Voting	Voting Trust
	Trust Certificates	Certificates
Name	Beneficially Owned	Outstanding
Peter E. Haas, Jr.	10,105,820	(1)	27.11 %
Miriam L. Haas	6,803,724	(2)	18.25 %
F. Warren Hellman	4,541,380	(3)	12.18 %
Robert D. Haas	3,955,462	(4)	10.61 %
Margaret E. Haas	2,644,278	(5)	7.09 %
Walter J. Haas	1,584,357	(6)	4.25 %
Robert E. Friedman	1,267,634	(7)	3.40 %
Angela Glover Blackwell
James C. Gaither
James C. Gaither
Peter A. Georgescu
Patricia A. House
Leon J. Level
Philip A. Marineau
Patricia Salas Pineda
T. Gary Rogers
R. John Anderson
Robert L. Hanson
Paul Mason
Hans Ploos van Amstel
Directors and executive officers
as a group (24 persons)	24,425,459		65.52 %

callerid=999 iwidth=455 length=60

| (1) | Includes 3,882,360 voting trust
certificates held by a trust, of which Mr. Haas is trustee,
for the benefit of charitable entities. Includes a total of
1,644,624 voting trust certificates held by Mr. Haas
wife and by trusts, of which Mr. Haas is trustee, for the
benefit of his children. Mr. Haas disclaims beneficial
ownership of these voting trust certificates. Includes 61,709
voting trust certificates held by trusts, of which Mr. Haas
is trustee, for the benefit of the children of Mr. Haas and
of Margaret E. Haas. Mr. Haas disclaims beneficial
ownership of these voting trust certificates. Includes 2,657,721
voting trust certificates held by partnerships of which
Mr. Haas is managing general partner. |
| --- | --- |
| (2) | Includes 3,823,795 voting trust
certificates held by the estate of Peter E. Haas, Sr., for
which Ms. Haas has been appointed co-executor under the
will of Peter E. Haas, Sr. |
| (3) | Includes 190,243 voting trust
certificates held by a trust, of which Mr. Hellman is
co-trustee, for the benefit of the daughter of Robert D. Haas.
Mr. Hellman disclaims beneficial ownership of these voting
trust certificates. Includes 3,823,795 voting trust certificates
held by the estate of Peter E. Haas, Sr., for which
Mr. Hellman has been nominated co-executor under the will
of Peter E. Haas, Sr. Mr. Hellman disclaims beneficial
ownership of these voting trust certificates. |
| (4) | Includes an aggregate of 50,876
voting trust certificates owned by the spouse of Mr. Haas
and by a trust, of which Mr. Haas is trustee, for the
benefit of their daughter. Mr. Haas disclaims beneficial
ownership of these voting trust certificates. Includes 700,000
voting trust certificates held by the Walter A. Haas, Jr.
QTIP Trust B-1 of which Mr. Haas is trustee. Includes 9,123 voting trust
certificates held by the Walter A. Haas, Jr. QTIP
Trust A, of which Mr. Haas is a co-trustee, for the
benefit of his mother. Mr. Haas disclaims beneficial
ownership of these voting trust certificates. |
| (5) | Includes 1,841 voting trust
certificates held by a trust, of which Ms. Haas is trustee,
for the benefit of Ms. Haas son. Ms. Haas
disclaims beneficial ownership of these voting trust
certificates. |
| (6) | Includes 170,309 voting trust
certificates held by the spouse of Mr. Haas and by trusts,
of which Mr. Haas is trustee, for the benefit of
Mr. Haas children. Mr. Haas disclaims beneficial
ownership of these voting trust certificates. Includes 1,400,000
voting trust certificates held by the Walter A. Haas, Jr.
QTIP Trust B-3, of which Mr. Haas is trustee. Includes 9,123 voting trust
certificates held by the Walter A. Haas, Jr. QTIP
Trust A, of which Mr. Haas is a co-trustee, for the
benefit of his mother. Mr. Haas disclaims beneficial
ownership of these voting trust certificates. |

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(7) Includes 40,000 voting trust certificates held by trusts, of which Mr. Friedman is co-trustee, for the benefit of his children and 195,834 voting trust certificates held by trusts, of which Mr. Friedman is co-trustee, for the benefit of Mr. Friedmans nieces and nephew. Mr. Friedman disclaims beneficial ownership of these voting trust certificates. Includes 1,010,000 voting trust certificates held by Copper Reservoir, a California limited partnership, for which Mr. Friedman is a general partner.

Stockholders Agreement

Our common stock and the voting trust certificates are not publicly held or traded. All shares and the voting trust certificates are subject to a stockholders agreement. The agreement, which expires in April 2016, limits the transfer of shares and certificates to other holders, family members, specified charities and foundations and to us. The agreement does not provide for registration rights or other contractual devices for forcing a public sale of shares, certificates or other access to liquidity. The scheduled expiration date of the stockholders agreement is five years later than that of the voting trust agreement in order to permit an orderly transition from effective control by the voting trust trustees to direct control by the stockholders.

Estate Tax Repurchase Policy

We have a policy under which we will repurchase a portion of the shares offered by the estate of a deceased stockholder in order to generate funds for payment of estate taxes. The purchase price will be based on a valuation received from an independent investment banking or appraisal firm. Estate repurchase transactions are subject to applicable laws governing stock repurchases, board approval and restrictions under our credit agreements and senior note indentures. Our senior secured revolving credit facility prohibits repurchases without the consent of the lenders, and the indentures relating to our senior notes limit our ability to make repurchases. The policy does not create a contractual obligation on our part. We may amend or terminate this policy at any time. No shares were repurchased under this policy in 2005, 2004 or 2003.

Valuation Policy

We have a policy under which we have historically obtained, and made available to our stockholders, an annual independent third-party valuation of our common stock. We used this valuation for, among other things, making determinations under our SELTIP. The policy provides that we will make reasonable efforts to defend valuations we obtain which are challenged in any tax or regulatory proceeding involving a stockholder (including an estate) that used the valuation and was challenged on that use. The policy provides that we will not indemnify any stockholder against any judgment or settlement amounts or expenses specific to any individual stockholder arising from the use of a valuation.

Voting Trustee Compensation

The voting trust agreement provides that trustees who are also beneficial owners of 1% or more of our stock are not entitled to compensation for their services as trustees. Trustees who are not beneficial owners of more than 1% of our outstanding stock may receive such compensation upon approval of our board. All trustees are entitled to reimbursement for reasonable expenses and charges which they may incur in carrying out their duties as trustees. As of November 27, 2005, each trustee beneficially owned more than 1% of our outstanding stock.

Voting Trustee Indemnification

Under the voting trust agreement, the trustees are not liable to us or to the holders of voting trust certificates for any actions undertaken in their capacity as trustees, except in cases of willful misconduct. The voting trust will indemnify the trustees in respect of actions taken by them under the voting trust agreement in their capacity as trustees, except in cases of willful misconduct.

We have agreed to reimburse the voting trust for any amounts paid by the trust as a result of its indemnity obligation on behalf of the trustees.

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Limitation of Liability and Indemnification Matters

Our certificate of incorporation limits the liability of our directors for monetary damages for breach of their fiduciary duty as directors, except for liability that cannot be eliminated under Delaware law. Under Delaware law, our directors have a fiduciary duty to us which will not be eliminated by this provision in our certificate of incorporation. In addition, each of our directors is subject to liability under Delaware law for breach of the directors duty of loyalty to us for acts or omissions which are found by a court of competent jurisdiction to be not in good faith or which involve intentional misconduct or knowing violations of law for actions leading to improper personal benefit to the director and for payment of dividends or approval of stock repurchases or redemptions that are prohibited by Delaware law. This provision does not affect the directors responsibilities under any other laws, such as the federal securities laws.

Delaware law provides that directors of a company will not be personally liable for monetary damages for breach of their fiduciary duty as directors, except for liability for the following:

| | any breach of the directors duty of loyalty to us or our
stockholders; |
| --- | --- |
| | acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; |
| | unlawful payment of dividends or unlawful stock repurchases or
redemptions; or |
| | any transaction from which the director derived an improper
personal benefit. |

Any amendment or repeal of these provisions requires the approval of the holders of shares representing at least two-thirds of our shares entitled to vote in the election of directors, voting as one class.

Delaware law provides that the indemnification permitted thereunder will not be considered exclusive of any other rights to which the directors and officers may be entitled under our bylaws, any agreement, a vote of stockholders or otherwise. Our certificate of incorporation and bylaws eliminate the personal liability of directors to the maximum extent permitted by Delaware law. In addition, our certificate of incorporation and bylaws provide that we may fully indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that such person is or was one of our directors, officers, employees or other agents, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding.

We believe that the limitation of liability provision in our certificate of incorporation facilitates our ability to continue to attract and retain qualified individuals to serve as directors and officers. Our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions, regardless of whether Delaware law would permit indemnification. We have purchased liability insurance for our officers and directors.

At present, there is no pending litigation or proceeding involving any director, officer, employee or agent as to which indemnification will be required or permitted under our certificate of incorporation other than a claim against one of our former employees in connection with our wrongful termination litigation and claims against certain of our current and former board members and officers in connection with our class actions securities litigation. We are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. For more information, see Business Legal Proceedings.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Alvarez & Marsal, Inc. On December 1, 2003, and as provided by an agreement with Alvarez & Marsal, Inc., a business turnaround and management consulting firm, we appointed James P. Fogarty as our interim chief financial officer, replacing William B. Chiasson who resigned from that position on December 5, 2003. Mr. Fogarty is a managing director with Alvarez & Marsal. Our agreement with Alvarez & Marsal also provided that Antonio Alvarez would serve as Senior Advisor to us and would be an executive officer. Mr. Alvarez is a co-founding Managing Director of Alvarez & Marsal. Mr. Alvarez completed his work as senior advisor and left that position in

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April 2004. Effective March 7, 2005, Hans Ploos van Amstel replaced Mr. Fogarty as our chief financial officer. For more information about Mr. Ploos van Amstel, please see Management.

Under the terms of our agreement, in 2005 and 2004, we paid Alvarez & Marsal $3.7 million and $11.4 million, respectively, as regular compensation for their services and as incentive bonuses as a result of our achievement of certain financial performance, financial reporting and control and planning activities.

Directors. Robert E. Friedman, one of our directors, is founder and chairman of the board of the Corporation for Enterprise Development, a not-for-profit organization focused on creating economic opportunity by helping residents of poor communities, which works with public and private policymakers in governments, international organizations, corporations, private foundations, labor unions and community groups to design and implement economic development strategies. In 2005, the Levi Strauss Foundation donated $85,000 to the Corporation for Enterprise Development. In 2003, we donated $50,000. There were no such donations in 2004.

James C. Gaither, one of our directors, was, prior to 2004, senior counsel to the law firm Cooley Godward LLP. Cooley Godward provided legal services to us and to the Human Resources Committee of our board of directors in 2005, 2004 and 2003, for which we paid fees of approximately $235,000, $150,000 and $280,000, respectively, in those years.

Peter A. Georgescu, one of our directors, is Chairman Emeritus of Young and Rubicam, Inc., WPP Group plc, a global advertising agency. The agency provided advertising services to us in 2003. We paid fees of approximately $18,800. We did not obtain any such services in 2005 or 2004. Mr. Georgescu is a director of Toys R Us, Inc. We made a $5,000 donation to the Toys R Us Childrens Fund in 2004 and 2003. There was no such donation in 2005.

Philip A. Marineau, one of our directors and President and Chief Executive Officer of our Company, is a director of the Meredith Corporation, a publicly held media and marketing company. The Meredith Corporation provided services to us in 2005, for which we paid approximately $10,000. We did not obtain any such services in 2004 or 2003.

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DESCRIPTION OF OTHER INDEBTEDNESS

Senior Secured Revolving Credit Facility

Principal Amount; Use of Proceeds

On September 29, 2003, we entered into a $650.0 million senior secured revolving credit facility. We used the borrowings under this agreement, together with borrowings under our senior secured term loan, to refinance our January 2003 senior secured credit facility and our 2001 domestic receivables securitization agreement, and for working capital and general corporate purposes. On May 18, 2006, we amended and restated the revolving credit facility and the maximum availability under the facility was reduced to $550.0 million. The following description reflects this amendment.

Revolving Credit Facility

The revolving credit facility is an asset-based facility, in which the borrowing availability varies according to the levels of our domestic accounts receivable, inventory and cash and investment securities deposited in secured accounts with the administrative agent or other lenders. We are required to maintain a reserve against availability or deposit cash or certain investment securities in secured accounts with the administrative agent in the amount of $75.0 million at all times. A failure to do so will result in a block on availability under the facility but will not result in a default. Subject to these requirements, we may make and repay borrowings from time to time until the maturity of the facility. The maturity date of the facility is September 23, 2011, at which time all borrowings under the facility must be repaid. We may make voluntary prepayments of borrowings at any time and must make mandatory prepayments if certain events occur, such as asset sales at a time when the covenant suspension described below is not in effect.

We also have the ability to deposit cash or certain investment securities with the administrative agent for the facility to secure our reimbursement obligations with respect to letters of credit and other obligations. Such cash-collateralized letters of credit are subject to lower letter of credit fees.

Interest Rate

The interest rate for our revolving credit facility is a floating rate based on availability under the revolving credit facility that cannot exceed, for LIBOR rate loans, 2.00% over the LIBOR rate (as defined in the credit agreement) or, for base rate loans, 0.50% over the Bank of America prime rate.

Guarantees and Security

Our obligations under the revolving credit facility are guaranteed by our domestic subsidiaries. The revolving credit facility is secured by a first-priority lien on domestic inventory and accounts receivable, certain domestic equipment, patents and other related intellectual property, 100% of the stock in all domestic subsidiaries and other assets. Excluded from the assets securing the revolving credit facility are all of our most valuable real property interests and all of the capital stock of our foreign subsidiaries and of any affiliates that become restricted subsidiaries under the indenture governing our 2006 Notes and our yen denominated eurobond due 2016 (such restricted subsidiaries also are not permitted to be guarantors).

Covenants and Covenant Suspension

The revolving credit facility contains customary covenants restricting our activities as well as those of our subsidiaries, including limitations on our, and our subsidiaries, ability to sell assets; engage in mergers; enter into capital leases or certain leases not in the ordinary course of business; enter into transactions involving related parties or derivatives; incur or prepay indebtedness or grant liens or negative pledges on our assets; make loans or other investments; pay dividends or repurchase stock or other securities; guaranty third-party obligations; and make changes in our corporate structure. For any period during which availability under the facility is at least $25.0 million, a number of these covenants will be fully or partially suspended, including the covenants relating

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to debt, liens, investments, dispositions, restricted payments and debt prepayments. In addition, the mandatory prepayment provision will be suspended. We are currently in a covenant suspension period.

Events of Default

The revolving credit facility contains customary events of default, including payment failures; failure to comply with covenants; failure to satisfy other obligations under the agreement or related documents; defaults in respect of other indebtedness; bankruptcy, insolvency and inability to pay debts when due; material judgments; pension plan terminations or specified underfunding; substantial voting trust certificate or stock ownership changes; specified changes in the composition of our board of directors; and invalidity of the guaranty or security agreements. The cross-default provision in the revolving credit facility applies if a default occurs on other indebtedness in excess of $25.0 million and the applicable grace period in respect of the indebtedness has expired, such that the lenders of or trustee for the defaulted indebtedness have the right to accelerate. If an event of default occurs under the revolving credit facility, our lenders may terminate their commitments, declare immediately payable all borrowings under the credit facility and foreclose on the collateral.

Prepayment of Term Loan

In March 2006, we prepaid the remaining balance of our senior secured term loan of approximately $488.8 million as of February 26, 2006. The prepayment was funded with the net proceeds from the Euro Notes and Dollar Notes we issued in March 2006 as well as cash on hand. We also used cash on hand to pay accrued and unpaid interest of approximately $7.5 million, and prepayment premium and transaction fees of approximately $17.4 million. We also wrote off approximately $15.3 million of unamortized debt issuance costs related to the prepayment of the term loan. As a result, we will record an approximately $32.7 million loss on early extinguishment of debt in the second quarter of 2006.

Prepayment of the term loan resulted in release of the security interests in the collateral securing the senior secured term loan, including a lien on our trademarks and copyrights and a second-priority lien on the assets securing our senior secured revolving credit facility. The trademarks are no longer subject to any liens securing indebtedness or other contractual obligations.

Reservation of Availability Under Senior Secured Revolving Credit Facility.

In 1996, we issued $450.0 million in aggregate principal amount of our 2006 Notes. In January 2005, pursuant to a tender offer, we repurchased $372.1 million in aggregate principal amount of these notes. Our senior secured revolving credit facility contained a covenant that required us, as a condition to prepaying the senior secured term loan, to fully repay, redeem, repurchase, or defease the remaining $77.9 million aggregate principal amount of 2006 Notes. Alternatively, we could also have satisfied this covenant by reserving cash or availability under the revolving credit facility sufficient to repay the 2006 Notes so long as we still had at least $150.0 million of borrowing availability under the revolving credit facility. On March 16, 2006, we complied with this covenant as a condition to prepaying the senior secured term loan by reserving borrowing availability of $77.9 million in accordance with the requirements of the revolving credit facility.

Other Financing Arrangements

Our other principal financing arrangements are summarized below:

2006 Notes

In 1996, we issued $450.0 million in senior unsecured notes maturing in November 2006 to qualified institutional buyers. The 2006 Notes bear interest at a rate of 7.00%. In January 2005, pursuant to a tender offer, we repurchased $372.1 million in aggregate principal amount of the 2006 Notes. The remaining $77.8 million in outstanding notes are unsecured and rank equally with all of our other existing and future unsecured and unsubordinated debt. The indenture governing these notes contains customary investment-grade security events of default and restricts our ability and the ability of our subsidiaries and future subsidiaries, to incur liens, engage in sale and leaseback transactions and engage in mergers and sales of assets. The indenture also contains a cross-

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acceleration event of default that applies if debt in excess of $25.0 million is not paid at its stated maturity or upon acceleration and such payment default has not been cured within 30 days after we have been given a notice of default by the trustee or by holders of at least 25% in principal amount of the outstanding notes.

As discussed above, the revolving credit facility contained a covenant that required us, prior to prepayment of the term loan, to repay, refinance, redeem, repurchase, or defease the remaining $77.8 million aggregate principal amount of our 2006 Notes. Alternatively, we could have satisfied this covenant by reserving cash or availability under the revolving credit facility sufficient to repay the 2006 Notes so long as we still had at least $150.0 million of borrowing availability under the revolving credit facility. On March 16, 2006, we complied with this covenant as a condition to prepaying the senior secured term loan by reserving borrowing availability of $77.9 million in accordance with the requirements of the revolving credit facility.

2012 Notes

On December 4, 2002, January 22, 2003 and January 23, 2003, we issued a total of $575.0 million in 2012 Notes to qualified institutional buyers. These notes are unsecured obligations that rank equally with all of our other existing and future unsecured and unsubordinated debt. They are 10-year notes maturing on December 15, 2012 and bear interest at 12.25% per annum, payable semi-annually in arrears on December 15 and June 15, commencing on June 15, 2003. The notes are callable beginning December 15, 2007. These notes were offered at a net discount of $3.7 million, which is amortized to interest expense over the term of the notes using an approximate effective-interest rate method. Costs representing underwriting fees and other expenses of approximately $18.4 million are amortized over the term of the notes to interest expense.

Use of Proceeds. We used approximately $125.0 million of the net proceeds from the notes offering to repay remaining indebtedness under our 2001 bank credit facility and approximately $327.3 million of the net proceeds to purchase the majority of our 6.80% notes due November 1, 2003.

Exchange Offer. In June 2003, after a required exchange offer, all but $9.1 million of the $575.0 million aggregate principal amount of the notes were exchanged for new notes on identical terms registered under the Securities Act.

Covenants. The indenture governing these notes contains covenants that limit our and our subsidiaries ability to incur additional debt; pay dividends or make other restricted payments; consummate specified asset sales; enter into transactions with affiliates; incur liens; impose restrictions on the ability of a subsidiary to pay dividends or make payments to us and our other subsidiaries; merge or consolidate with any other person; and sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets or our subsidiaries assets.

Asset Sales. The indenture governing these notes provides that our asset sales must be at fair market value and the consideration must consist of at least 75% cash or cash equivalents or the assumption of liabilities. We must use the net proceeds from the asset sale within 360 days after receipt either to repay bank debt, with an equivalent permanent reduction in the available commitment in the case of a repayment under our senior secured revolving credit facility, or to invest in additional assets in a business related to our business. To the extent proceeds not so used within the time period exceed $10.0 million, we are required to make an offer to purchase outstanding notes at par plus accrued and unpaid interest, if any, to the date of repurchase. Any purchase or prepayment of these notes may require consent of the lenders under our senior secured revolving credit facility.

Change in Control. If we experience a change in control as defined in the indenture governing the notes, then we will be required under the indenture to make an offer to repurchase the notes at a price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the date of repurchase. Any purchase or prepayment of these notes requires consent of the lenders under our senior secured revolving credit facility.

Events of Default. The indenture governing these notes contains customary events of default, including failure to pay principal, failure to pay interest after a 30-day grace period, failure to comply with the merger, consolidation and sale of property covenant, failure to comply with other covenants in the indenture for a period of 30 days after notice given to us, failure to satisfy certain judgments in excess of $25.0 million after a 30-day grace period, and certain events involving bankruptcy, insolvency or reorganization. The indenture also contains a cross-

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acceleration event of default that applies if debt of us or any restricted subsidiary in excess of $25.0 million is accelerated or is not paid when due at final maturity.

Covenant Suspension. If these notes receive and maintain an investment grade rating by both Standard and Poors and Moodys and we and our subsidiaries are and remain in compliance with the indenture, then we and our subsidiaries will not be required to comply with specified covenants contained in the indenture.

Floating Rate Notes

On March 11, 2005, we issued $380.0 million in Floating Rate Notes to qualified institutional buyers. These notes are unsecured obligations that rank equally with all of our other existing and future unsecured and unsubordinated debt. They are 7-year notes maturing on April 1, 2012 and bear interest at a rate per annum, reset quarterly, equal to LIBOR plus 4.75%, payable quarterly in arrears on January 1, April 1, July 1, and October 1 of each year. Starting on April 1, 2007, we may redeem all or any portion of the notes, at once or over time, at redemption prices specified in the indenture governing the notes, after giving the required notice under the indenture. In addition, at any time prior to April 1, 2007, we may redeem up to and including 100% of the original aggregate principal amount of the notes with the proceeds of one or more public equity offerings at a redemption price of 104% of the principal amount plus accrued and unpaid interest, if any, to the date of redemption, provided that after giving effect to any redemption of less than 100% of the notes then outstanding, at least $150.0 million aggregate principal amount of the notes remains outstanding. These notes were offered at par. Costs representing underwriting fees and other expenses of approximately $8.6 million are amortized over the term of the notes to interest expense.

Use of Proceeds. In February 2005, we commenced a cash tender offer for the outstanding principal amount of our senior unsecured notes due 2008. The tender offer expired March 23, 2005. We purchased pursuant to the tender offer $270.0 million and 89.0 million in principal amount tendered of the 2008 notes. We subsequently redeemed all remaining 2008 notes in April 2005. The remaining proceeds as well as cash on hand was used to pay for the fees and expenses of the tender offer.

Exchange Offer. In June 2005, after a required exchange offer, all of the $380.0 million aggregate principal amount of the notes were exchanged for new notes on identical terms, except that the new notes are registered under the Securities Act.

The covenants, events of default, asset sale, change of control, covenant suspension and other terms of the notes are comparable to those contained in the indentures governing our 2012 Notes.

Outstanding Euro Notes

On March 11, 2005, we issued a total of 150.0 million of Euro Notes at par to qualified institutional buyers. Costs representing underwriting fees and other expenses of approximately $4.8 million will be amortized over the terms of the notes to interest expense. These notes are unsecured obligations that rank equally with all of our existing and future unsecured and unsubordinated debt, and are substantially similar in all material respects with the Euro Exchange Notes offered hereby except that the Euro Exchange Notes have been registered under the Securities Act. See Description of Euro Exchange Notes for a description of the terms of the Euro Exchange Notes.

Use of Proceeds. In February 2005, we commenced a cash tender offer for the outstanding principal amount of our senior unsecured notes due 2008. The tender offer expired March 23, 2005. We purchased pursuant to the tender offer $270.0 million and 89.0 million in principal amount tendered of the 2008 Notes. We subsequently redeemed all remaining 2008 Notes in April 2005.

Exchange Offer. In June 2005, after a required exchange offer, all but 2.0 million of the 150.0 million aggregate principal amount of the Euro Notes we issued in March 2005 were exchanged for new notes on identical terms, except that the new notes are registered under the Securities Act.

The covenants, events of default, asset sale, change of control, covenant suspension and other terms of the notes are comparable to those contained in the indentures governing our 2012 Notes.

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2015 Notes

On December 22, 2004, we issued $450.0 million in 2015 Notes to qualified institutional buyers. These notes are unsecured obligations that rank equally with all of our other existing and future unsecured and unsubordinated debt. They are 10-year notes maturing on January 15, 2015 and bear interest at 9.75% per annum, payable semi-annually in arrears on January 15 and July 15. We may redeem some or all of the notes prior to January 15, 2010 at a price equal to 100% of the principal amount plus accrued and unpaid interest and a make-whole premium. Thereafter, we may redeem all or any portion of the notes, at once or over time, at redemption prices specified in the indenture governing the notes, after giving the required notice under the indenture. In addition, at any time prior to January 15, 2008, we may redeem up to a maximum of 33 1 / 3 % of the original aggregate principal amount of the notes with the proceeds of one or more public equity offerings at a redemption price of 109.75% of the principal amount plus accrued and unpaid interest, if any, to the date of redemption. Costs representing underwriting fees and other expenses of approximately $10.3 million are amortized over the term of the notes to interest expense.

Use of Proceeds. We used approximately $372.1 million of the gross proceeds of the issuance of the 2015 Notes to purchase, pursuant to a tender offer, $372.1 million in principal amount of our 2006 Notes. We intend to use the remaining proceeds to repay outstanding debt. We may also elect to use the remaining proceeds for other corporate purposes consistent with the requirements of our credit agreement, indentures and other agreements.

Exchange Offer. In June 2005, after a required exchange offer, all but $50,000 of the $450.0 million aggregate principal amount of the notes were exchanged for new notes on identical terms, except that the new notes are registered under the Securities Act.

The covenants, events of default, asset sale, change of control, covenant suspension and other terms of the notes are comparable to those contained in the indentures governing our 2012 Notes, Floating Rate Notes and Euro Notes.

Yen denominated eurobond

In 1996, we issued a ¥20.0 billion principal amount eurobond (equivalent to approximately $180.0 million at the time of issuance) due in November 2016, with interest payable at 4.25% per annum. The bond is redeemable at our option at a make-whole redemption price commencing in 2006. We used the net proceeds from the placement to repay a portion of the indebtedness outstanding under a 1996 credit facility. The agreement governing this bond contains customary events of default and restricts our ability, and the ability of our subsidiaries and future subsidiaries, to incur liens, engage in sale and leaseback transactions and engage in mergers and sales of assets. The agreement contains a cross-acceleration event of default that applies if any of our debt in excess of $25 million is accelerated and the debt is not discharged or acceleration rescinded within 30 days after our receipt of a notice of default from the fiscal agent or from the holders of at least 25% of the principal amount of the bond.

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DESCRIPTION OF EURO EXCHANGE NOTES

You can find the definitions of capitalized terms used in this description and not defined elsewhere under the subheading Definitions. In this description, the words Company, we, us and our refer only to Levi Strauss & Co. and not to any of its subsidiaries.

The old Euro Notes were, and the Euro Exchange Notes will be, issued under an indenture dated as of March 11, 2005, among the Company and Wilmington Trust Company, as trustee. The indenture is governed by the Trust Indenture Act of 1939. The indenture has been filed as an exhibit to the registration statement of which this prospectus is a part. The terms of the Euro Notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act.

The Euro Notes previously issued under the indenture and the Euro Exchange Notes offered hereby will be treated as a single series of notes under the indenture, including for purposes of determining whether the required percentage of noteholders has given its approval or consent to an amendment or waiver or joined in directing the trustee to take certain actions on behalf of all noteholders. For purposes of this description, unless the context indicates otherwise, references to notes include any and all Euro Notes previously issued under the indenture and the Euro Exchange Notes offered hereby and references to the indenture means the indenture governing the Euro Notes.

We urge you to read the indenture because it, and not this description, defines your rights as a holder of the notes. Copies of the indenture are available upon request to the Company at the following address: Levi Strauss & Co., Levis Plaza, 1155 Battery Street, San Francisco, California 94111. Copies of the indenture are also available at the offices of Dexia Banque Internationale à Luxembourg, 69, route dEsch L-2953 Luxembourg.

We have issued 250.0 million aggregate principal amount of notes under the indenture, including 150.0 million of notes in March 2005 and, subject to compliance with the covenant described under Material Covenants Limitation on Debt, can issue an unlimited amount of additional notes at later dates. Any additional notes that we issue in the future will be identical in all respects to the notes that we are issuing now, except that the notes issued in the future will have different issuance prices and issuance dates. We will issue notes only in fully registered form without coupons, in denominations of 50,000 and integral multiples of 50,000.

Principal, Maturity and Interest

The notes will mature on April 1, 2013. We will repay holders of notes not previously repurchased or redeemed the principal amount thereof upon maturity. Interest on the notes we are offering now will accrue at a rate of 8.625% per annum and will be payable semi-annually in arrears on April 1 and October 1, commencing on October 1, 2006. We will pay interest to those persons who were holders of record on the March 15 or September 15 immediately preceding each interest payment date.

Interest on the notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

Ranking

The notes will be:

	unsubordinated unsecured obligations of the Company;
	equal in ranking (pari passu) with all our
existing and future senior debt; and
	senior in right of payment to all our future subordinated debt.

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$77.9 million of availability under the revolving credit facility to satisfy a covenant in the revolving credit facility relating to prepayment of the term loan.

We only have a stockholders claim in the assets of our subsidiaries. This stockholders claim is junior to the claims that creditors of our subsidiaries have against our subsidiaries. Holders of the notes will only be creditors of the Company, and not of our subsidiaries. As a result, all the existing and future liabilities of our subsidiaries, including any claims of trade creditors and preferred stockholders, will be effectively senior to the notes.

We conduct our foreign operations through foreign subsidiaries, which in fiscal year 2005 accounted for approximately 45% of our consolidated net sales. As a result, we depend in part upon dividends or other intercompany transfers of funds from our foreign subsidiaries for the funds necessary to meet our debt service obligations, including payments on the notes. We only receive the cash that remains after our foreign subsidiaries satisfy their obligations. If those subsidiaries are unable to pass on the amount of cash that we need, we may be unable to make payments to you. Any agreements our foreign subsidiaries enter into with other parties, as well as applicable laws and regulations limiting the right and ability of non-U.S. subsidiaries and affiliates to pay dividends and remit earnings to affiliated companies absent special conditions, may restrict the ability of our foreign subsidiaries to pay dividends or make other distributions to us.

As of February 26, 2006, the liabilities of our subsidiaries were approximately $485.0 million. Our subsidiaries have other liabilities, including contingent liabilities, that may be significant.

The notes are unsecured obligations of the Company. Secured Debt of the Company will be effectively senior to the notes to the extent of the value of the assets securing this Debt. As of February 26, 2006, after giving effect to (i) the issuance of $350.0 million of our Dollar Notes and 100.0 million of our Euro Notes in March 2006 and (ii) our prepayment of our senior secured term loan in March 2006, we would have had approximately $2.3 billion of debt, of which approximately $7.3 million would have been secured, the majority of such secured debt being capital leases. To the extent we enter into additional secured financings in the future, such as another senior secured term loan, the notes will also be junior in ranking to such secured debt to the extent of the value of the additional assets securing that debt.

The indenture contains limitations on the amount of additional Debt that we and the Restricted Subsidiaries may Incur. However, the amounts of this Debt could nevertheless be substantial.

Optional Redemption

Except as set forth in the second succeeding paragraph, the notes will not be redeemable at the option of the Company prior to April 1, 2009. Starting on that date, the Company may redeem all or any portion of the notes, at once or over time, after giving the required notice under the indenture. The notes may be redeemed at the redemption prices set forth below, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

The following prices are for notes redeemed during the 12-month period commencing on April 1 of the years set forth below, and are expressed as percentages of principal amount:

Redemption Year
2009	104.313%
2010	102.156%
2011 and thereafter	100.000%

At any time and from time to time, prior to April 1, 2008, the Company may redeem up to a maximum of 35% of the original aggregate principal amount of the notes (including additional notes) with the proceeds of one or more Public Equity Offerings following which there is a Public Market, at a redemption price equal to 108.625% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however , that after giving effect to any redemption of this kind, at least 65% of the original aggregate principal amount of notes (including additional notes) remain outstanding. Any redemption of this kind shall be made within 90 days of such Public Equity Offering upon not less than 30 nor more than 60 days prior notice.

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Any notice required to be given in connection with an optional redemption shall be given in accordance with the provisions set forth under Notices.

Sinking Fund

There will be no mandatory sinking fund payments for the notes.

Repurchase at the Option of Holders Upon a Change of Control

Upon the occurrence of a Change of Control, each holder of notes will have the right to require us to repurchase all or any part of that holders notes pursuant to the offer described below (the Change of Control Offer) at a purchase price (the Change of Control Purchase Price) equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the purchase date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

Within 30 days following any Change of Control, the Company shall:

(a) cause a notice of the Change of Control Offer to be sent at least once to the Dow Jones News Service or similar business news service in the United States, and

(b) send, by first-class mail, with a copy to the trustee, to each holder of notes, at such holders address appearing in the security register, a notice stating:

(1) that a Change of Control has occurred and a Change of Control Offer is being made pursuant to the covenant entitled Repurchase at the Option of Holders Upon a Change of Control and that all notes timely tendered will be accepted for payment;

(2) the Change of Control Purchase Price and the purchase date, which shall be, subject to any contrary requirements of applicable law, a business day no earlier than 30 days nor later than 60 days from the date such notice is mailed;

(3) the circumstances and relevant facts regarding the Change of Control (including information with respect to pro forma historical income, cash flow and capitalization after giving effect to the Change of Control); and

(4) the procedures that holders of notes must follow in order to tender their notes (or portions thereof) for payment, and the procedures that holders of notes must follow in order to withdraw an election to tender notes (or portions thereof) for payment.

We will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the covenant described above, we will comply with the applicable securities laws and regulations and will not be deemed to have breached our obligations under this covenant by virtue of such compliance.

The Change of Control repurchase feature is a result of negotiations between us and the initial purchasers. Management has no present intention to engage in a transaction involving a Change of Control, although it is possible that we would decide to do so in the future. Subject to the covenants described below, we could, in the future, enter into transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the indenture, but that could increase the amount of debt outstanding at such time or otherwise affect our capital structure or credit ratings.

The definition of Change of Control includes a phrase relating to the sale, transfer, assignment, lease, conveyance or other disposition of all or substantially all of our assets. Although there is a developing body of case law interpreting the phrase substantially all, there is no precise established definition of the phrase under applicable law. Accordingly, if we dispose of less than all our assets by any of the means described above, the ability of a holder of notes to require us to repurchase its notes may be uncertain. In such a case, holders of the notes may not be able to resolve this uncertainty without resorting to legal action.

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The Existing Bank Credit Facility restricts us in certain circumstances from purchasing any notes prior to maturity of the notes and also provides that the occurrence of some of the events that would constitute a Change of Control would constitute a default under that existing debt. The terms of our 12.25% notes due 2012, our 9 3 / 4 % notes due 2015, our floating rate notes due 2012 and the 8.875% notes due 2016 require us to offer to repurchase such notes upon the occurrence of a Change of Control. Future debt of the Company, including any new bank credit facility, may contain prohibitions of certain events which would constitute a Change of Control or require that future debt be repurchased upon a Change of Control. Moreover, the exercise by holders of notes or our 12.25% notes due 2012, our 9 3 / 4 % notes due 2015, our floating rate notes due 2012 or the 8.875% notes due 2016 of their right to require us to repurchase their notes could cause a default under existing or future debt of the Company, even if the Change of Control itself does not, due to the financial effect of that repurchase on us. Finally, our ability to pay cash to holders of notes or our 12.25% notes due 2012, our 9 3 / 4 % notes due 2015, our floating rate notes due 2012 or the 8.875% notes due 2016 upon a repurchase may be limited by our financial resources at that time. We cannot assure you that sufficient funds will be available when necessary to make any required repurchases. Our failure to purchase notes in connection with a Change of Control would result in a default under the indenture and our failure to purchase our 12.25% notes due 2012, our 9 3 / 4 % notes due 2015, our floating rate notes due 2012 or the 8.875% notes due 2016 in connection with a Change of Control would result in a default under the respective indentures governing such notes. Any such default would, in turn, constitute a default under our existing debt, and may constitute a default under future debt as well. Our obligation to make an offer to repurchase the notes as a result of a Change of Control may be waived or modified at any time prior to the occurrence of that Change of Control with the written consent of the holders of a majority in principal amount of the notes. See Amendments and Waivers.

Material Covenants

Set forth below are summaries of the material covenants contained in the indenture.

Covenant Suspension

During any period of time that:

(a) the notes have Investment Grade Ratings from both Rating Agencies, and

(b) no Default or Event of Default has occurred and is continuing under the indenture, the Company and the Restricted Subsidiaries will not be subject to the following provisions of the indenture:

	Limitation on Debt,
	Limitation on Restricted Payments,
	Limitation on Asset Sales,
	Limitation on Restrictions on
Distributions from Restricted Subsidiaries,
	clause (x) of the third paragraph (and as
referred to in the first paragraph) of
Designation of Restricted and Unrestricted
Subsidiaries, and
	clause (e) of the first paragraph of
Merger, Consolidation and Sale of
Property

(collectively, the Suspended Covenants). In the event that the Company and the Restricted Subsidiaries are not subject to the Suspended Covenants for any period of time as a result of the preceding sentence and, subsequently, one or both of the Rating Agencies withdraws its ratings or downgrades the ratings assigned to the notes below the required Investment Grade Ratings or a Default or Event of Default occurs and is continuing, then the Company and the Restricted Subsidiaries will thereafter again be subject to the Suspended Covenants for all periods after that withdrawal, downgrade, Default or Event of Default and, furthermore, compliance with the provisions of the covenant described in Limitation on Restricted Payments with respect to Restricted Payments made after the time of the withdrawal, downgrade, Default or Event of Default will be calculated in accordance with the terms of that covenant as though that covenant had been in effect during the entire period of time from the Issue Date, provided that there will not be deemed to have occurred a Default or Event of Default with respect to that covenant

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during the time that the Company and the Restricted Subsidiaries were not subject to the Suspended Covenants (or after that time based solely on events that occurred during that time).

Limitation on Debt

The Company shall not, and shall not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Debt unless, after giving effect to the application of the proceeds thereof, no Default or Event of Default would occur as a consequence of the Incurrence or be continuing following the Incurrence and either:

(1) the Debt is Debt of the Company and after giving effect to the Incurrence of the Debt and the application of the proceeds thereof, the Consolidated Fixed Charges Coverage Ratio would be greater than 2.00 to 1.00, or

(2) the Debt is Permitted Debt.

The term Permitted Debt is defined to include the following:

(a) Debt of the Company evidenced by the notes we issued on the Issue Date, our floating rate senior notes due 2012 issued on the Issue Date and our 9 3 / 4 % senior notes due 2015 issued prior to the Issue Date;

(b) Debt of the Company or a Restricted Subsidiary Incurred under any Credit Facilities, Incurred by the Company or a Restricted Subsidiary pursuant to a Real Estate Financing Transaction, a Sale and Leaseback Transaction, an Equipment Financing Transaction or Debt Issuances, Debt Incurred by the Company or a Restricted Subsidiary in respect of Capital Lease Obligations and Purchase Money Debt, or Incurred by a Receivables Entity in a Qualified Receivables Transaction that is not recourse to the Company or any other Restricted Subsidiary of the Company (except for Standard Securitization Undertakings), provided that the aggregate principal amount of all Debt of this kind at any one time outstanding shall not exceed the greater of:

(1) $1.6 billion, which amount shall be permanently reduced by the amount of Net Available Cash used to Repay Debt under the Credit Facilities or otherwise Incurred pursuant to this clause (b) pursuant to the covenant described under Limitation on Asset Sales, and

(2) the sum of the amounts equal to:

(A) 50% of the book value of the inventory of the Company and the Restricted Subsidiaries, and

(B) 85% of the book value of the accounts receivable of the Company and the Restricted Subsidiaries, in the case of each of clauses (A) and (B) as of the most recently ended quarter of the Company for which financial statements of the Company have been provided to the holders of the notes;

(c) Debt of the Company owing to and held by any Restricted Subsidiary and Debt of a Restricted Subsidiary owing to and held by the Company or any Restricted Subsidiary; provided, however, that (1) any subsequent issue or transfer of Capital Stock or other event that results in any Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of that Debt (except to the Company or a Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of that Debt by the issuer thereof, and (2) if the Company is the obligor on that Indebtedness, the Indebtedness is expressly subordinated to the prior payment in full in cash of all obligations with respect to the notes;

(d) Debt of a Restricted Subsidiary outstanding on the date on which that Restricted Subsidiary was acquired by the Company or otherwise became a Restricted Subsidiary (other than Debt Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of transactions pursuant to which that Restricted Subsidiary became a Subsidiary of the Company or was otherwise acquired by the Company); provided that at the time that Restricted Subsidiary was acquired by the Company or otherwise became a Restricted Subsidiary and after giving effect to the Incurrence of that Debt, the Company would have been able to Incur $1.00 of additional Debt pursuant to clause (1) of the first paragraph of this covenant;

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(e) Debt under Interest Rate Agreements entered into by the Company or a Restricted Subsidiary for the purpose of limiting interest rate risk in the ordinary course of the financial management of the Company or that Restricted Subsidiary and not for speculative purposes, provided that the obligations under those agreements are related to payment obligations on Debt otherwise permitted by the terms of this covenant;

(f) Debt under Currency Exchange Protection Agreements entered into by the Company or a Restricted Subsidiary for the purpose of limiting currency exchange rate risks directly related to transactions entered into by the Company or that Restricted Subsidiary in the ordinary course of business and not for speculative purposes;

(g) Debt under Commodity Price Protection Agreements entered into by the Company or a Restricted Subsidiary in the ordinary course of the financial management of the Company or that Restricted Subsidiary and not for speculative purposes;

(h) Debt outstanding on the Issue Date not otherwise described in clauses (a) through (g) above;

(i) Debt of the Company or a Restricted Subsidiary in an aggregate principal amount outstanding at any one time not to exceed $100.0 million; and

(j) Permitted Refinancing Debt Incurred in respect of Debt Incurred pursuant to clause (1) of the first paragraph of this covenant and clauses (a), (d) and (h) above.

For purposes of determining compliance with the covenant described above,

(A) in the event that an item of Debt meets the criteria of more than one of the types of Debt described above, the Company, in its sole discretion, will classify such item of Debt at the time of Incurrence and only be required to include the amount and type of such Debt in one of the above clauses; and

(B) the Company will be entitled to divide and classify an item of Debt in more than one of the types of Debt described above.

Limitation on Restricted Payments

The Company shall not make, and shall not permit any Restricted Subsidiary to make, directly or indirectly, any Restricted Payment if at the time of, and after giving effect to, the proposed Restricted Payment,

(a) a Default or Event of Default shall have occurred and be continuing,

(b) the Company could not Incur at least $1.00 of additional Debt pursuant to clause (1) of the first paragraph of the covenant described under Limitation on Debt, or

(c) the aggregate amount of that Restricted Payment and all other Restricted Payments declared or made since the Issue Date (the amount of any Restricted Payment, if made other than in cash, to be based upon Fair Market Value) would exceed an amount equal to the sum of:

(1) 50% of the aggregate amount of Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter ended February 27, 2005 to the end of the most recent fiscal quarter ending at least 45 days prior to the date of the Restricted Payment (or if the aggregate amount of Consolidated Net Income for such period shall be a deficit, minus 100% of such deficit), plus

(2) Capital Stock Sale Proceeds, plus

(3) the sum of:

(A) the aggregate net cash proceeds received by the Company or any Restricted Subsidiary from the issuance or sale after the Issue Date of convertible or exchangeable Debt that has been converted into or exchanged for Capital Stock (other than Disqualified Stock) of the Company, and

(B) the aggregate amount by which Debt of the Company or any Restricted Subsidiary is reduced on the Companys consolidated balance sheet on or after the Issue Date upon the conversion

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or exchange of any Debt issued or sold on or prior to the Issue Date that is convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company,

excluding, in the case of clause (A) or (B):

(x) any Debt issued or sold to the Company or a Subsidiary of the Company or an employee stock ownership plan or trust established by the Company or any Subsidiary for the benefit of their employees, and

(y) the aggregate amount of any cash or other Property distributed by the Company or any Restricted Subsidiary upon any such conversion or exchange,

plus

(4) an amount equal to the sum of:

(A) the net reduction in Investments in any Person other than the Company or a Restricted Subsidiary resulting from dividends, repayments of loans or advances or other transfers of Property made after the Issue Date, in each case to the Company or any Restricted Subsidiary from that Person, less the cost of the disposition of those Investments, and

(B) the lesser of the net book value or the Fair Market Value of the Companys equity interest in an Unrestricted Subsidiary at the time the Unrestricted Subsidiary is designated a Restricted Subsidiary ( provided that such designation occurs after the Issue Date);

provided, however , that the foregoing sum shall not exceed, in the case of any Person, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in that Person.

Notwithstanding the foregoing limitation, the Company may:

(a) pay dividends on its Capital Stock within 60 days of the declaration thereof if, on said declaration date, the dividends could have been paid in compliance with the indenture; provided , however, that at the time of the payment of the dividend, no other Default or Event of Default shall have occurred and be continuing (or result therefrom); provided further, however , that, if declared on or after the Issue Date, the dividend shall be included in the calculation of the amount of Restricted Payments;

(b) purchase, repurchase, redeem, legally defease, acquire or retire for value Capital Stock of the Company or Subordinated Obligations on or after the Issue Date in exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or trust established by the Company or any Subsidiary for the benefit of their employees); provided, however , that

(1) the purchase, repurchase, redemption, legal defeasance, acquisition or retirement shall be excluded in the calculation of the amount of Restricted Payments, and

(2) the Capital Stock Sale Proceeds from the exchange or sale shall be excluded from the calculation pursuant to clause (c)(2) above;

(c) purchase, repurchase, redeem, legally defease, acquire or retire for value any Subordinated Obligations on or after the Issue Date in exchange for, or out of the proceeds of the substantially concurrent sale of, Permitted Refinancing Debt; provided, however, that the purchase, repurchase, redemption, legal defeasance, acquisition or retirement shall be excluded in the calculation of the amount of Restricted Payments;

(d) pay scheduled dividends (not constituting a return on capital) on Disqualified Stock of the Company issued pursuant to and in compliance with the covenant described under Limitation on Debt on or after the Issue Date; and

(e) permit a Restricted Subsidiary that is not a Wholly Owned Subsidiary to pay dividends to shareholders of that Restricted Subsidiary on or after the Issue Date that are not the parent of that Restricted Subsidiary, so long as the Company or a Restricted Subsidiary that is the parent of that Restricted Subsidiary

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receives dividends on a pro rata basis or on a basis that results in the receipt by the Company or a Restricted Subsidiary that is the parent of that Restricted Subsidiary of dividends or distributions of greater value than it would receive on a pro rata basis.

Limitation on Liens

The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist, any Lien (other than Permitted Liens) upon any of its Property (including Capital Stock of a Restricted Subsidiary), whether owned at the Issue Date or thereafter acquired, or any interest therein or any income or profits therefrom, unless it has made or will make effective provision whereby the notes will be secured by that Lien equally and ratably with (or prior to) all other Debt of the Company or any Restricted Subsidiary secured by that Lien.

Limitation on Asset Sales

The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale unless:

(a) the Company or the Restricted Subsidiary receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the Property subject to that Asset Sale;

(b) at least 75% of the consideration paid to the Company or the Restricted Subsidiary in connection with the Asset Sale is in the form of cash or cash equivalents or the assumption by the purchaser of liabilities of the Company or any Restricted Subsidiary (other than liabilities that are by their terms subordinated to the notes) as a result of which the Company and the Restricted Subsidiaries are no longer obligated with respect to those liabilities; provided, however, that in the case of a transaction involving a sale of any distribution center by the Company or a Restricted Subsidiary and the establishment of an outsourcing arrangement in which the purchaser assumes distribution responsibilities on behalf of the Company or the Restricted Subsidiary, any credits or other consideration the purchaser grants to the Company or the Restricted Subsidiary as part of the purchase price of the distribution center, which credits or other consideration effectively offset future payments due from the Company or the Restricted Subsidiary to the purchaser as part of the outsourcing arrangement, will be considered to be cash equivalents for purposes of this clause (b); and

(c) the Company delivers an Officers Certificate to the trustee certifying that the Asset Sale complies with the foregoing clauses (a) and (b).

The Net Available Cash (or any portion thereof) from Asset Sales may be applied by the Company or a Restricted Subsidiary, to the extent the Company or the Restricted Subsidiary elects (or is required by the terms of any Debt):

(a) to Repay Debt Incurred pursuant to clause (b) of the definition of Permitted Debt (excluding, in any such case, any Debt owed to the Company or an Affiliate of the Company); or

(b) to reinvest in Additional Assets (including by means of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by the Company or another Restricted Subsidiary); provided, however, that the Net Available Cash (or any portion thereof) from Asset Sales from the Company to any Subsidiary must be reinvested in Additional Assets of the Company.

Any Net Available Cash from an Asset Sale not applied in accordance with the preceding paragraph within 360 days from the date of the receipt of that Net Available Cash shall constitute Excess Proceeds.

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the extent that any portion of the amount of Net Available Cash remains after compliance with the preceding sentence and provided that all holders of notes have been given the opportunity to tender their notes for purchase in accordance with the indenture, the Company or such Restricted Subsidiary may use the remaining amount for any purpose permitted by the indenture and the amount of Excess Proceeds will be reset to zero.

The term Allocable Excess Proceeds will mean the product of:

(a) the Excess Proceeds, and

(b) a fraction,

(1) the numerator of which is the aggregate principal amount of the notes outstanding on the date of the Prepayment Offer, and

(2) the denominator of which is the sum of the aggregate principal amount of the notes outstanding on the date of the Prepayment Offer and the aggregate principal amount of other Debt of the Company outstanding on the date of the Prepayment Offer that is pari passu in right of payment with the notes and subject to terms and conditions in respect of Asset Sales similar in all material respects to the covenant described hereunder and requiring the Company to make an offer to purchase that Debt at substantially the same time as the Prepayment Offer.

Within five business days after the Company is obligated to make a Prepayment Offer as described in the preceding paragraph, the Company shall send a written notice, by first-class mail, to the holders of notes, accompanied by information regarding the Company and its Subsidiaries as the Company in good faith believes will enable the holders to make an informed decision with respect to that Prepayment Offer. The notice shall state, among other things, the purchase price and the purchase date, which shall be, subject to any contrary requirements of applicable law, a business day no earlier than 30 days nor later than 60 days from the date the notice is mailed.

The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of notes pursuant to the covenant described hereunder. To the extent that the provisions of any securities laws or regulations conflict with provisions of the covenant described hereunder, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the covenant described hereunder by virtue thereof.

Limitation on Restrictions on Distributions from Restricted Subsidiaries

The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist any consensual restriction on the right of any Restricted Subsidiary to:

(a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock, or pay any Debt or other obligation owed, to the Company or any other Restricted Subsidiary,

(b) make any loans or advances to the Company or any other Restricted Subsidiary, or

The foregoing limitations will not apply:

(1) with respect to clauses (a), (b) and (c), to restrictions:

(A) in effect on the Issue Date,

(B) relating to Debt of a Restricted Subsidiary and existing at the time it became a Restricted Subsidiary if such restriction was not created in connection with or in anticipation of the transaction or series of transactions pursuant to which that Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company,

(C) that result from the Refinancing of Debt Incurred pursuant to an agreement referred to in clause (1)(A) or (B) above or in clause (2)(A) or (B) below, provided that restriction is no less favorable to the holders of notes than those under the agreement evidencing the Debt so Refinanced,

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(D) resulting from the Incurrence of any Permitted Debt described in clause (b) of the second paragraph of the covenant described under Limitation on Debt, provided that the restriction is no less favorable to the holders of notes than the restrictions of the same type contained in the indenture, or

(E) constituting Standard Securitization Undertakings relating solely to, and restricting only the rights of, a Receivables Entity in connection with a Qualified Receivables Transaction, and

(2) with respect to clause (c) only, to restrictions:

(A) relating to Debt that is permitted to be Incurred and secured without also securing the notes pursuant to the covenants described under Limitation on Debt and Limitation on Liens that limit the right of the debtor to dispose of the Property securing that Debt,

(B) encumbering Property at the time the Property was acquired by the Company or any Restricted Subsidiary, so long as the restriction relates solely to the Property so acquired and was not created in connection with or in anticipation of the acquisition,

(C) resulting from customary provisions restricting subletting or assignment of leases or customary provisions in other agreements (including, without limitation, intellectual property licenses entered into in the ordinary course of business) that restrict assignment of the agreements or rights thereunder, or

(D) which are customary restrictions contained in asset sale agreements limiting the transfer of Property pending the closing of the sale.

Limitation on Transactions with Affiliates

The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, conduct any business or enter into or suffer to exist any transaction or series of transactions (including the purchase, sale, transfer, assignment, lease, conveyance or exchange of any Property or the rendering of any service) with, or for the benefit of, any Affiliate of the Company (an Affiliate Transaction), unless:

(a) the terms of such Affiliate Transaction are:

(1) set forth in writing, and

(2) no less favorable to the Company or that Restricted Subsidiary, as the case may be, than those that could be obtained in a comparable arms-length transaction with a Person that is not an Affiliate of the Company, and

(b) if the Affiliate Transaction involves aggregate payments or value in excess of $10.0 million, the Board of Directors (including a majority of the disinterested members of the Board of Directors) approves the Affiliate Transaction and, in its good faith judgment, believes that the Affiliate Transaction complies with clauses (a)(1) and (2) of this paragraph as evidenced by a Board Resolution promptly delivered to the trustee.

Notwithstanding the foregoing limitation, the Company or any Restricted Subsidiary may enter into or suffer to exist the following:

(a) any transaction or series of transactions between the Company and one or more Restricted Subsidiaries or between two or more Restricted Subsidiaries in the ordinary course of business, provided that no more than 5% of the total voting power of the Voting Stock (on a fully diluted basis) of any such Restricted Subsidiary is owned by an Affiliate of the Company (other than a Restricted Subsidiary);

(b) any Restricted Payment permitted to be made pursuant to the covenant described under Limitation on Restricted Payments or any Permitted Investment;

(c) the payment of compensation (including amounts paid pursuant to employee benefit plans) for the personal services of officers, directors and employees of the Company or any of the Restricted Subsidiaries, so long as, in the case of officers and directors, the Board of Directors in good faith shall have approved the terms thereof and deemed the services theretofore or thereafter to be performed for the compensation to be fair consideration therefor;

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(d) loans and advances to employees made in the ordinary course of business in compliance with applicable laws and consistent with the past practices of the Company or that Restricted Subsidiary, as the case may be, provided that those loans and advances do not exceed $5.0 million in the aggregate at any one time outstanding;

(e) any transaction effected as part of a Qualified Receivables Transaction or any transaction involving the transfer of accounts receivable of the type specified in the definition of Credit Facility and permitted under clause (b) of the second paragraph of the covenant described under Limitation on Debt;

(f) the Existing Policies or any transaction contemplated thereby; and

(g) any sale of shares of Capital Stock (other than Disqualified Stock) of the Company.

Limitation on Sale and Leaseback Transactions

The Company shall not, and shall not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction with respect to any Property unless:

(a) the Company or that Restricted Subsidiary would be entitled to:

(1) Incur Debt in an amount equal to the Attributable Debt with respect to that Sale and Leaseback Transaction pursuant to the covenant described under Limitation on Debt, and

(2) create a Lien on the Property securing that Attributable Debt without also securing the notes pursuant to the covenant described under Limitation on Liens, and

(b) the Sale and Leaseback Transaction is effected in compliance with the covenant described under Limitation on Asset Sales.

Designation of Restricted and Unrestricted Subsidiaries

The Board of Directors may designate any Subsidiary of the Company to be an Unrestricted Subsidiary if:

(a) the Subsidiary to be so designated does not own any Capital Stock or Debt of, or own or hold any Lien on any Property of, the Company or any other Restricted Subsidiary, and

(b) any of the following:

(1) the Subsidiary to be so designated has total assets of $1,000 or less,

(2) if the Subsidiary has consolidated assets greater than $1,000, then the designation would be permitted under the covenant entitled Limitation on Restricted Payments, or

(3) the designation is effective immediately upon the entity becoming a Subsidiary of the Company.

Unless so designated as an Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company will be classified as a Restricted Subsidiary; provided, however , that the Subsidiary shall not be designated a Restricted Subsidiary and shall be automatically classified as an Unrestricted Subsidiary if either of the requirements set forth in clauses (x) and (y) of the second immediately following paragraph will not be satisfied after giving pro forma effect to the classification or if the Person is a Subsidiary of an Unrestricted Subsidiary.

Except as provided in the first sentence of the preceding paragraph, no Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary. In addition, neither the Company nor any Restricted Subsidiary shall at any time be directly or indirectly liable for any Debt that provides that the holder thereof may (with the passage of time or notice or both) declare a default thereon or cause the payment thereof to be accelerated or payable prior to its Stated Maturity upon the occurrence of a default with respect to any Debt, Lien or other obligation of any Unrestricted Subsidiary in existence and classified as an Unrestricted Subsidiary at the time the Company or the Restricted Subsidiary is liable for that Debt (including any right to take enforcement action against that Unrestricted Subsidiary).

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The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary if, immediately after giving pro forma effect to the designation,

(x) the Company could Incur at least $1.00 of additional Debt pursuant to clause (1) of the first paragraph of the covenant described under Limitation on Debt, and

(y) no Default or Event of Default shall have occurred and be continuing or would result therefrom.

Any designation or redesignation of this kind by the Board of Directors will be evidenced to the trustee by filing with the trustee a Board Resolution giving effect to the designation or redesignation and an Officers Certificate that:

(a) certifies that the designation or redesignation complies with the foregoing provisions, and

(b) gives the effective date of the designation or redesignation,

and the filing with the trustee to occur within 45 days after the end of the fiscal quarter of the Company in which the designation or redesignation is made (or, in the case of a designation or redesignation made during the last fiscal quarter of the Companys fiscal year, within 90 days after the end of that fiscal year).

Listing

The 150 million aggregate principal amount of the notes issued on the Issue Date are currently listed on the Luxembourg Stock Exchange and trade on the EU regulated market. Application has been made to list the notes offered hereby on the Luxembourg Stock Exchange, to have them trade on the Euro MTF Market, and to transfer the trading of the 150 million aggregate principal amount of the notes issued on the Issue Date to the Euro MTF Market. As long as the notes are listed on the Luxembourg Stock Exchange, an agent for making payments on, and transfers of, the notes will be maintained in Luxembourg. Dexia Banque Internationale à Luxembourg is currently designated as the Companys agent for such purposes.

Until we consummate an exchange offer for the Euro Notes offered hereby or such notes are resold under a shelf registration statement, the Euro Notes offered hereby will have a restricted identification code and will not be fungible with the 148.0 million aggregate principal amount of the registered outstanding Euro Notes. In addition, for a period of 40 days from their initial issuance, the Euro Notes offered hereby pursuant to Regulation S will have a temporary identification code and will also not be fungible with the 2.0 million aggregate principal amount of non-registered outstanding Euro Notes or with the Euro Notes offered hereby pursuant to Rule 144A. In addition, through the initial interest payment date of April 1, 2006, the Euro Notes offered hereby pursuant to Rule 144A will have a temporary identification code and will also not be fungible with the 2.0 million aggregate principal amount of non-registered outstanding Euro Notes or with the Euro Notes offered hereby pursuant to Regulation S.

If the Transparency Directive adopted by the European Commission would require the Company to publish its financial statements according to accounting principles that are materially different from U.S. generally accepted accounting principles or would otherwise impose requirements on us that we in good faith determine are unduly burdensome, we may de-list the notes from the Luxembourg Stock Exchange, in which case we will use commercially reasonable efforts to obtain an alternative admission to listing, trading, and/or quotation for the notes by another listing, authority, exchange and/or system outside the European Union, as we may decide. If such an alternative is not available to us or is, in our opinion, unduly burdensome, an alternative admission may be obtained. Notice of any de-listing and/or alternative admission shall be given in accordance with the provisions set forth under Notices.

Merger, Consolidation and Sale of Property

The Company shall not merge, consolidate or amalgamate with or into any other Person (other than a merger of a Wholly Owned Restricted Subsidiary into the Company) or sell, transfer, assign, lease, convey or otherwise dispose of all or substantially all its Property in any one transaction or series of transactions unless:

(a) the Company shall be the surviving Person (the Surviving Person) or the Surviving Person (if other than the Company) formed by that merger, consolidation or amalgamation or to which that sale, transfer,

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assignment, lease, conveyance or disposition is made shall be a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia;

(b) the Surviving Person (if other than the Company) expressly assumes, by supplemental indenture in form satisfactory to the trustee, executed and delivered to the trustee by that Surviving Person, the due and punctual payment of the principal of, and premium, if any, and interest on, all the notes, according to their tenor, and the due and punctual performance and observance of all the covenants and conditions of the indenture to be performed by the Company;

(c) in the case of a sale, transfer, assignment, lease, conveyance or other disposition of all or substantially all the Property of the Company, that Property shall have been transferred as an entirety or virtually as an entirety to one Person;

(d) immediately before and after giving effect to that transaction or series of transactions on a pro forma basis (and treating, for purposes of this clause (d) and clause (e) below, any Debt that becomes, or is anticipated to become, an obligation of the Surviving Person or any Restricted Subsidiary as a result of that transaction or series of transactions as having been Incurred by the Surviving Person or the Restricted Subsidiary at the time of that transaction or series of transactions), no Default or Event of Default shall have occurred and be continuing;

(e) immediately after giving effect to that transaction or series of transactions on a pro forma basis, the Company or the Surviving Person, as the case may be, would be able to Incur at least $1.00 of additional Debt under clause (1) of the first paragraph of the covenant described under Material Covenants Limitation on Debt, provided, however , that this clause (e) shall not be applicable to the Company merging, consolidating or amalgamating with or into an Affiliate incorporated solely for the purpose of reincorporating the Company in another State of the United States so long as the amount of Debt of the Company and the Restricted Subsidiaries is not increased thereby;

(f) the Company shall deliver, or cause to be delivered, to the trustee, in form and substance reasonably satisfactory to the trustee, an Officers Certificate and an Opinion of Counsel, each stating that the transaction and the supplemental indenture, if any, in respect thereto comply with this covenant and that all conditions precedent herein provided for relating to the transaction have been satisfied; and

(g) the Company shall have delivered to the trustee an Opinion of Counsel to the effect that the holders will not recognize income, gain or loss for Federal income tax purposes as a result of the transaction and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if that transaction had not occurred.

The Surviving Person shall succeed to, and be substituted for, and may exercise every right and power of the Company under the indenture, but the predecessor Company in the case of:

(a) a sale, transfer, assignment, conveyance or other disposition (unless that sale, transfer, assignment, conveyance or other disposition is of all the assets of the Company as an entirety or virtually as an entirety), or

(b) a lease,

shall not be released from any obligation to pay the principal of, premium, if any, and interest on, the notes.

SEC Reports

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Events of Default

Events of Default in respect of the notes include:

(1) failure to make the payment of any interest on the notes when the same becomes due and payable, and that failure continues for a period of 30 days;

(2) failure to make the payment of any principal of any of the notes when the same becomes due and payable at its Stated Maturity, upon acceleration, redemption, optional redemption, required repurchase or otherwise;

(3) failure to comply with the covenant described under Merger, Consolidation and Sale of Property;

(4) failure to comply with any other covenant or agreement in the notes or in the indenture (other than a failure that is the subject of the foregoing clause (1), (2) or (3)) and such failure continues for 30 days after written notice is given to the Company as provided below;

(5) a default under any Debt by the Company or any Restricted Subsidiary that results in acceleration of the maturity of that Debt, or failure to pay any Debt at maturity, in an aggregate amount greater than $25.0 million or its foreign currency equivalent at the time (the cross acceleration provisions);

(6) any judgment or judgments for the payment of money in an aggregate amount in excess of $25.0 million (or its foreign currency equivalent at the time) that shall be rendered against the Company or any Restricted Subsidiary and that shall not be waived, satisfied or discharged for any period of 30 consecutive days during which a stay of enforcement shall not be in effect (the judgment default provisions); and

(7) specified events involving bankruptcy, insolvency or reorganization of the Company or any Significant Subsidiary (the bankruptcy provisions).

A Default under clause (4) is not an Event of Default until the trustee or the holders of not less than 25% in aggregate principal amount of the notes then outstanding notify the Company of the Default and the Company does not cure that Default within the time specified after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a Notice of Default.

The Company shall deliver to the trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers Certificate of any event that with the giving of notice and the lapse of time would become an Event of Default, its status and what action the Company is taking or proposes to take with respect thereto.

If an Event of Default with respect to any of the notes (other than an Event of Default resulting from particular events involving bankruptcy, insolvency or reorganization with respect to the Company) shall have occurred and be continuing, the trustee or the registered holders of not less than 25% in aggregate principal amount of the notes then outstanding may declare to be immediately due and payable the principal amount of all the notes then outstanding, plus accrued but unpaid interest to the date of acceleration. In case an Event of Default resulting from events of bankruptcy, insolvency or reorganization with respect to the Company shall occur, the amount with respect to all the notes shall be due and payable immediately without any declaration or other act on the part of the trustee or the holders of the notes. After any such acceleration, but before a judgment or decree based on acceleration is obtained by the trustee, the registered holders of a majority in aggregate principal amount of the notes then outstanding may, under some circumstances, rescind and annul the acceleration if all Events of Default, other than the nonpayment of accelerated principal or interest, have been cured or waived as provided in the indenture.

Subject to the provisions of the indenture relating to the duties of the trustee, in case an Event of Default shall occur and be continuing, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request or direction of any of the holders of the notes, unless the holders shall have offered to the trustee reasonable indemnity. Subject to the provisions for the indemnification of the trustee, the holders of a majority in aggregate principal amount of the notes then outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee with respect to the notes.

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No holder of notes will have any right to institute any proceeding with respect to the indenture, or for the appointment of a receiver or trustee, or for any remedy thereunder, unless:

(a) that holder has previously given to the trustee written notice of a continuing Event of Default,

(b) the registered holders of at least 25% in aggregate principal amount of the notes then outstanding have made written request and offered reasonable indemnity to the trustee to institute the proceeding as trustee, and

(c) the trustee shall not have received from the registered holders of a majority in aggregate principal amount of the notes then outstanding a direction inconsistent with that request and shall have failed to institute the proceeding within 60 days.

However, these limitations do not apply to a suit instituted by a holder of any note for enforcement of payment of the principal of, and premium, if any, or interest on, that note on or after the respective due dates expressed in that note.

Amendments and Waivers

Subject to some exceptions, the indenture may be amended with the consent of the registered holders of a majority in aggregate principal amount of the notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for the notes) and any past default or compliance with any provisions may also be waived (except a default in the payment of principal or interest and particular covenants and provisions of the indenture which cannot be amended without the consent of each holder of an outstanding note) with the consent of the registered holders of at least a majority in aggregate principal amount of the notes then outstanding. However, without the consent of each holder of an outstanding note no amendment may, among other things,

(1) reduce the amount of notes whose holders must consent to an amendment or waiver,

(2) reduce the rate of or extend the time for payment of interest on any note,

(3) reduce the principal of or extend the Stated Maturity of any note,

(4) make any note payable in money other than euros,

(5) impair the right of any holder of the notes to receive payment of principal of and interest on that holders notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to that holders notes,

(6) subordinate the notes to any other obligation of the Company,

(7) release any security interest that may have been granted in favor of the holders of the notes other than pursuant to the terms of any agreement granting that security interest,

(8) reduce the premium payable upon the redemption of any note nor change the time at which any note may be redeemed, as described under Optional Redemption,

(9) reduce the premium payable upon a Change of Control or, at any time after a Change of Control has occurred, change the time at which the Change of Control Offer relating thereto must be made or at which the notes must be repurchased pursuant to that Change of Control Offer, or

(10) at any time after the Company is obligated to make a Prepayment Offer with the Excess Proceeds from Asset Sales, change the time at which the Prepayment Offer must be made or at which the notes must be repurchased pursuant thereto.

Without the consent of any holder of the notes, the Company and the trustee may amend the indenture to:

	cure any ambiguity, omission, defect or inconsistency,
	provide for the assumption by a successor corporation of the
obligations of the Company under the indenture,

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| | provide for uncertificated notes in addition to or in place of
certificated notes (provided that the uncertificated notes are
issued in registered form for purposes of Section 163(f) of
the Code, or in a manner such that the uncertificated notes are
described in Section 163(f)(2)(B) of the Code), |
| --- | --- |
| | add Guarantees with respect to the notes, |
| | secure the notes, to add to the covenants of the Company for the
benefit of the holders of the notes or to surrender any right or
power conferred upon the Company, |
| | make any change that does not adversely affect the rights of any
holder of the notes, |
| | comply with any requirement of the SEC in connection with the
qualification of the indenture under the Trust Indenture Act, |
| | provide for the issuance of additional notes in accordance with
the indenture. |

The consent of the holders of the notes is not necessary to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment becomes effective, the Company is required to mail to each registered holder of the notes at the holders address appearing in the security register a notice briefly describing the amendment. However, the failure to give this notice to all holders of the notes, or any defect therein, will not impair or affect the validity of the amendment.

Notices of any amendment or waiver will, for as long as the notes are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, be given in the manner set forth under Notices.

Transfer

The notes will be issued in registered form and will be transferable only upon the surrender of such notes being transferred for registration of transfer. The Company may require payment of a sum sufficient to cover any tax, assessment or other governmental charge payable in connection with certain transfers and exchanges. For a description of procedures applicable to the notes in definitive form, see Book-Entry, Delivery and Form Euro Notes Definitive Euro Notes.

Defeasance

The Company at any time may terminate all its obligations under the notes and the indenture (legal defeasance), except for particular obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the notes, to replace mutilated, destroyed, lost or stolen notes and to maintain a registrar and paying agent in respect of the notes. The Company at any time may terminate:

(1) its obligations under the covenants described under Repurchase at the Option of Holders Upon a Change of Control and Material Covenants,

(2) the operation of the cross acceleration provisions, the judgment default provisions and the bankruptcy provisions with respect to Significant Subsidiaries, described under Events of Default above, and

(3) the limitations contained in clause (e) under the first paragraph of Merger, Consolidation and Sale of Property above (covenant defeasance).

The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option.

If the Company exercises its legal defeasance option, payment of the notes may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the notes may not be accelerated because of an Event of Default specified in clause (4) (with respect to the covenants described under Material Covenants), (5), (6) or (7) (with respect only to Significant Subsidiaries) under Events of Default above or because of the failure of the Company to comply with clause (e) under the first paragraph of Merger, Consolidation and Sale of Property above.

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The legal defeasance option or the covenant defeasance option may be exercised only if:

(a) the Company irrevocably deposits in trust with the trustee money in euros or European Government Obligations for the payment of principal of and interest on the notes to maturity or redemption, as the case may be;

(b) the Company delivers to the trustee a certificate from a nationally recognized firm of independent certified public accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited European Government Obligations plus any deposited money without investment will provide cash at the times and in amounts as will be sufficient to pay principal and interest when due on all the notes to maturity or redemption, as the case may be;

(c) 123 days pass after the deposit is made and during the 123-day period no Default described in clause (7) under Events of Default occurs with respect to the Company or any other Person making the deposit which is continuing at the end of the period;

(d) the deposit does not constitute a default under any other agreement or instrument binding on the Company;

(e) the Company delivers to the trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940;

(f) in the case of the legal defeasance option, the Company delivers to the trustee an Opinion of Counsel stating that:

(1) the Company has received from the Internal Revenue Service a ruling, or

(2) since the date of the indenture there has been a change in the applicable Federal income tax law, to the effect, in either case, that, and based thereon the Opinion of Counsel shall confirm that, the holders of the notes will not recognize income, gain or loss for Federal income tax purposes as a result of the defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same time as would have been the case if the defeasance had not occurred;

(g) in the case of the covenant defeasance option, the Company delivers to the trustee an Opinion of Counsel to the effect that the holders of the notes will not recognize income, gain or loss for Federal income tax purposes as a result of that covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if that covenant defeasance had not occurred; and

(h) the Company delivers to the trustee an Officers Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the notes have been complied with as required by the indenture.

Notices

As long as the notes are listed on the Luxembourg Stock Exchange and it is required by the rules of the Luxembourg Stock Exchange, in addition to any notice required by the indenture, notices to holders of the notes (whether held in global or certificated form), including but not limited to any notices related to the changing of a paying agent or the transfer agent or their specified offices, will be published in English in a newspaper having a general circulation in Luxembourg (which is expected to be the d Wort ). Such notices may also be published on the Luxembourg Stock Exchanges website (www.bourse.lu) . If and so long as the notes are listed on any other securities exchange, notices in respect of such notes will also be given in accordance with any applicable requirements of that securities exchange.

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Governing Law

The indenture and the notes are governed by the internal laws of the State of New York without reference to principles of conflicts of law. Any legal action or proceeding in respect thereof shall be brought in the courts of New York.

The Trustee

Wilmington Trust Company is the trustee under the indenture.

Except during the continuance of an Event of Default, the trustee will perform only the duties as are specifically set forth in the indenture. During the existence of an Event of Default, the trustee will exercise the rights and powers vested in it under the indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of that persons own affairs.

Definitions

Set forth below is a summary of defined terms from the indenture that are used in this Description of Euro Notes. Reference is made to the indenture for the full definition of all such terms as well as any other capitalized terms used herein for which no definition is provided. Unless the context otherwise requires, an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP.

Additional Assets means:

(a) any Property (other than cash, cash equivalents, securities and inventory) to be owned by the Company or any Restricted Subsidiary and used in a Related Business; or

(b) Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of that Capital Stock by the Company or another Restricted Subsidiary from any Person other than the Company or an Affiliate of the Company; provided, however, that, in the case of this clause (b), the Restricted Subsidiary is primarily engaged in a Related Business.

Affiliate of any specified Person means:

(a) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with that specified Person, or

(b) any other Person who is a director or officer of that specified Person.

For the purposes of this definition, control when used with respect to any Person means the power to direct the management and policies of that Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms controlling and controlled have meanings correlative to the foregoing. For purposes of the covenants described under Material Covenants Limitation on Transactions with Affiliates and Limitation on Asset Sales and the definition of Additional Assets only, Affiliate shall also mean any Beneficial Owner of shares representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase that Voting Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any Beneficial Owner pursuant to the first sentence hereof.

Asset Sale means any sale, lease, transfer, issuance or other disposition (or series of related sales, leases, transfers, issuances or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a disposition), of

(a) any shares of Capital Stock of a Restricted Subsidiary (other than directors qualifying shares),

(b) all or substantially all the assets of any division or line of business of the Company or any Restricted Subsidiary, or

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(c) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary,

other than, in the case of clause (a), (b) or (c) above,

(1) any disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Restricted Subsidiary,

(2) any disposition that constitutes a Permitted Investment or Restricted Payment permitted by the covenant described under Material Covenants Limitation on Restricted Payments,

(3) any disposition effected in compliance with the first paragraph of the covenant described under Merger, Consolidation and Sale of Property,

(4) a sale of accounts receivables and related assets of the type specified in the definition of Qualified Receivables Transaction to a Receivables Entity,

(5) a transfer of accounts receivables and related assets of the type specified in the definition of Qualified Receivables Transaction (or a fractional undivided interest therein) by a Receivables Entity in connection with a Qualified Receivables Transaction,

(6) a transfer of accounts receivable of the type specified in the definition of Credit Facilities that is permitted under clause (b) of the second paragraph of Material Covenants Limitation on Debt, and

(7) any disposition that does not (together with all related dispositions) involve assets having a Fair Market Value or consideration in excess of $1.0 million.

Notwithstanding the foregoing, if, at any time, the aggregate Fair Market Value of assets disposed of by the Company to its Subsidiaries since the Issue Date (whether or not in the ordinary course of business), other than (A) Permitted Investments comprised of cash or Temporary Cash Investments, Permitted Investments of the type described in clause (d) of the definition of Permitted Investments that are made in the ordinary course of business consistent with past practice or Permitted Investments of the type described in clause (l) of the definition of Permitted Investments, (B) dispositions pursuant to paragraphs (4), (5), (6) and (7) above, (C) dispositions by the Company to a Restricted Subsidiary of raw materials to be used in the manufacture of finished goods, of finished goods and of work in process and (D) dispositions constituting Asset Sales, exceeds 10% of Consolidated Tangible Assets, all asset dispositions in excess thereof (other than asset dispositions described in clauses (A), (B), (C) or (D) above) shall be treated as Asset Sales subject to the restrictions set forth in the covenant described under Limitation on Asset Sales. For purposes of this paragraph, the aggregate Fair Market Value of assets so transferred at any time shall be calculated by using the sum of the Fair Market Value of each asset disposition as of the date of its disposition.

Attributable Debt in respect of a Sale and Leaseback Transaction means, at any date of determination,

(a) if the Sale and Leaseback Transaction is a Capital Lease Obligation, the amount of Debt represented thereby according to the definition of Capital Lease Obligation, and

(b) in all other instances, the greater of:

(1) the Fair Market Value of the Property subject to the Sale and Leaseback Transaction, and

(2) the present value (discounted at the interest rate borne by the notes, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in the Sale and Leaseback Transaction (including any period for which the lease has been extended).

Average Life means, as of any date of determination, with respect to any Debt or Preferred Stock, the quotient obtained by dividing:

(a) the sum of the product of the numbers of years (rounded to the nearest one-twelfth of one year) from the date of determination to the dates of each successive scheduled principal payment of that Debt or redemption or similar payment with respect to that Preferred Stock multiplied by the amount of the payment by

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(b) the sum of all payments of this kind.

Beneficial Owner means a beneficial owner as defined in Rule 13d-3 under the Exchange Act, except that:

(a) a Person will be deemed to be the Beneficial Owner of all shares that the Person has the right to acquire, whether that right is exercisable immediately or only after the passage of time,

(b) for purposes of clause (a) of the definition of Change of Control, Permitted Holders will be deemed to be the Beneficial Owners of any Voting Stock of a corporation or other legal entity held by any other corporation or other legal entity so long as the Permitted Holders Beneficially Own, directly or indirectly, in the aggregate a majority of the total voting power of the Voting Stock of that corporation or other legal entity, and

(c) for purposes of clause (b) of the definition of Change of Control, any person or group (as those terms are defined in Sections 13(d) and 14(d) of the Exchange Act or any successor provisions to either of the foregoing), including any group acting for the purpose of acquiring, holding, voting or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act, other than any one or more of the Permitted Holders, shall be deemed to be the Beneficial Owners of any Voting Stock of a corporation or other legal entity held by any other corporation or legal entity (the parent corporation), so long as that person or group Beneficially Owns, directly or indirectly, in the aggregate a majority of the total voting power of the Voting Stock of that parent corporation.

The term Beneficially Own shall have a corresponding meaning.

Capital Lease Obligation means any obligation under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP; and the amount of Debt represented by that obligation shall be the capitalized amount of the obligations determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under that lease prior to the first date upon which that lease may be terminated by the lessee without payment of a penalty. For purposes of Material Covenants Limitation on Liens, a Capital Lease Obligation shall be deemed secured by a Lien on the Property being leased.

Capital Stock means, with respect to any Person, any shares or other equivalents (however designated) of any class of corporate stock or partnership interests or any other participations, rights, warrants, options or other interests in the nature of an equity interest in that Person, including Preferred Stock, but excluding any debt security convertible or exchangeable into that equity interest.

Capital Stock Sale Proceeds means the aggregate cash proceeds received by the Company from the issuance or sale (other than to a Subsidiary of the Company or an employee stock ownership plan or trust established by the Company or the Subsidiary for the benefit of their employees) by the Company of its Capital Stock (other than Disqualified Stock) after the Issue Date, net of attorneys fees, accountants fees, initial purchasers or placement agents fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with the issuance or sale and net of taxes paid or payable as a result thereof.

Change of Control means the occurrence of any of the following events:

(a) prior to the first Public Equity Offering that results in a Public Market, the Permitted Holders cease to be the Beneficial Owners, directly or indirectly, of a majority of the total voting power of the Voting Stock of the Company, whether as a result of the issuance of securities of the Company, any merger, consolidation, liquidation or dissolution of the Company, any direct or indirect transfer of securities by the Permitted Holders or otherwise; or

(b) on or after the first Public Equity Offering that results in a Public Market, if any person or group (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act or any successor provisions to either of the foregoing), including any group acting for the purpose of acquiring, holding, voting or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act, other than any one or more of the Permitted Holders, becomes the Beneficial Owner, directly or indirectly, of 35% or more of the total voting power of the Voting Stock of the Company; provided, however, that the Permitted Holders are the Beneficial Owners, directly or indirectly, in the aggregate of a lesser percentage of the total voting power of the Voting

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Stock of the Company than that other person or group; and provided further that the provisions of this clause (b) will not apply to Voting Trustees serving in that capacity under the Voting Trust Arrangement; or

(c) the sale, transfer, assignment, lease, conveyance or other disposition, directly or indirectly, of all or substantially all the assets of the Company and the Restricted Subsidiaries, considered as a whole (other than a disposition of assets as an entirety or virtually as an entirety to a Wholly Owned Restricted Subsidiary or one or more Permitted Holders) shall have occurred, or the Company merges, consolidates or amalgamates with or into any other Person (other than one or more Permitted Holders) or any other Person (other than one or more Permitted Holders) merges, consolidates or amalgamates with or into the Company, in any event pursuant to a transaction in which the outstanding Voting Stock of the Company is reclassified into or exchanged for cash, securities or other Property, other than a transaction where:

(1) the outstanding Voting Stock of the Company is reclassified into or exchanged for other Voting Stock of the Company or for Voting Stock of the surviving corporation or transferee, and

(2) the holders of the Voting Stock of the Company immediately prior to the transaction own, directly or indirectly, not less than a majority of the Voting Stock of the Company or the surviving corporation or transferee immediately after the transaction and in substantially the same proportion as before the transaction; or

(d) during any period of two consecutive years, individuals who at the beginning of that period constituted the Board of Directors (together with any new directors whose election or appointment by such Board or whose nomination for election by the shareholders of the Company was approved by a vote of not less than three-fourths of the directors then still in office who were either directors at the beginning of that period or whose election or nomination for election was previously so approved or by a vote of the Voting Trustees pursuant to the terms of the Voting Trust Arrangement) cease for any reason to constitute a majority of the Board of Directors then in office; or

(e) the shareholders of the Company shall have approved any plan of liquidation or dissolution of the Company.

Code means the Internal Revenue Code of 1986, as amended.

Commodity Price Protection Agreement means, in respect of a Person, any forward contract, commodity swap agreement, commodity option agreement or other similar agreement or arrangement designed to protect that Person against fluctuations in commodity prices.

Consolidated Current Liabilities means, as of any date of determination, the aggregate amount of liabilities of the Company and its consolidated Restricted Subsidiaries which may properly be classified as current liabilities (including taxes accrued as estimated), after eliminating:

(a) all intercompany items between the Company and any Restricted Subsidiary or between Restricted Subsidiaries, and

(b) all current maturities of long-term Debt.

Consolidated Fixed Charges means, for any period, the total interest expense (net of interest income) of the Company and its consolidated Restricted Subsidiaries, plus, to the extent not included in such total interest expense, and to the extent Incurred by the Company or its Restricted Subsidiaries,

(a) interest expense attributable to leases constituting part of a Sale and Leaseback Transaction and to Capital Lease Obligations,

(b) amortization of debt discount and debt issuance cost, including commitment fees,

(d) non-cash interest expense,

(e) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers acceptance financing,

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(f) net costs associated with Interest Rate Agreements (including amortization of fees),

(g) Disqualified Stock Dividends,

(h) Preferred Stock Dividends,

(i) interest Incurred in connection with Investments in discontinued operations,

(j) interest accruing on any Debt of any other Person to the extent that Debt is Guaranteed by the Company or any Restricted Subsidiary, and

(k) the cash contributions to any employee stock ownership plan or similar trust to the extent those contributions are used by the plan or trust to pay interest or fees to any Person (other than the Company) in connection with Debt Incurred by the plan or trust.

Notwithstanding anything to the contrary contained herein, commissions, discounts, yield and other fees and charges Incurred in connection with any transaction (including, without limitation, any Qualified Receivables Transaction) pursuant to which the Company or any Subsidiary of the Company may sell, convey or otherwise transfer or grant a security interest in any accounts receivable or related assets of the type specified in the definition of Qualified Receivables Transaction shall be included in Consolidated Fixed Charges.

Consolidated Fixed Charges Coverage Ratio means, as of any date of determination, the ratio of:

(a) the aggregate amount of EBITDA for the most recent four consecutive fiscal quarters ending at least 45 days prior to such determination date to

(b) Consolidated Fixed Charges for those four fiscal quarters;

provided , however , that:

(1) if

(A) since the beginning of that period the Company or any Restricted Subsidiary has Incurred any Debt that remains outstanding or Repaid any Debt, or

(B) the transaction giving rise to the need to calculate the Consolidated Fixed Charges Coverage Ratio involves an Incurrence or Repayment of Debt,

Consolidated Fixed Charges for that period shall be calculated after giving effect on a pro forma basis to that Incurrence or Repayment as if the Debt was Incurred or Repaid on the first day of that period, provided that, in the event of any Repayment of Debt, EBITDA for that period shall be calculated as if the Company or such Restricted Subsidiary had not earned any interest income actually earned during such period in respect of the funds used to Repay such Debt, and

(2) if

(A) since the beginning of that period the Company or any Restricted Subsidiary shall have made any Asset Sale or an Investment (by merger or otherwise) in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of Property which constitutes all or substantially all of an operating unit of a business,

(B) the transaction giving rise to the need to calculate the Consolidated Fixed Charges Coverage Ratio involves an Asset Sale, Investment or acquisition, or

(C) since the beginning of that period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of that period) shall have made such an Asset Sale, Investment or acquisition,

EBITDA for that period shall be calculated after giving pro forma effect to the Asset Sale, Investment or acquisition as if the Asset Sale, Investment or acquisition occurred on the first day of that period.

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been the applicable base interest rate for the entire period (taking into account any Interest Rate Agreement applicable to that Debt if the applicable Interest Rate Agreement has a remaining term in excess of 12 months). In the event the Capital Stock of any Restricted Subsidiary is sold during the period, the Company shall be deemed, for purposes of clause (1) above, to have Repaid during that period the Debt of that Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for that Debt after the sale.

Consolidated Net Income means, for any period, the net income (loss) of the Company and its consolidated Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income:

(a) any net income (loss) of any Person (other than the Company) if that Person is not a Restricted Subsidiary, except that:

(1) subject to the exclusion contained in clause (d) below, the Companys equity in the net income of any such Person for that period shall be included in such Consolidated Net Income up to the aggregate amount of cash distributed by that Person during that period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (c) below), and

(2) the Companys equity in a net loss of that Person other than an Unrestricted Subsidiary for the specified period shall be included in determining such Consolidated Net Income,

(b) for purposes of the covenant described under Material Covenants Limitation on Restricted Payments only, any net income (loss) of any Person acquired by the Company or any of its consolidated Subsidiaries in a pooling of interests transaction for any period prior to the date of the acquisition,

(c) any net income (loss) of any Restricted Subsidiary if the Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions, directly or indirectly, to the Company, except that:

(1) subject to the exclusion contained in clause (d) below, the Companys equity in the net income of the Restricted Subsidiary for the period shall be included in Consolidated Net Income up to the aggregate amount that would have been permitted at the date of determination to be dividended to the Company or another Restricted Subsidiary by that Restricted Subsidiary without prior approval by a third party (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and government regulations applicable to that Restricted Subsidiary or its shareholders, during that period as a dividend or other distribution (subject, in the case of a dividend or other distribution to another Restricted Subsidiary, to the limitation contained in this clause), and

(2) the Companys equity in a net loss of the Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income,

(d) any gain (but not loss) realized upon the sale or other disposition of any Property of the Company or any of its consolidated Subsidiaries (including pursuant to any Sale and Leaseback Transaction) that is not sold or otherwise disposed of in the ordinary course of business,

(e) any extraordinary gain or loss,

(f) the cumulative effect of a change in accounting principles,

(g) any unrealized gains or losses of the Company or its consolidated Subsidiaries on any Hedging Obligations, and

(h) any non-cash compensation expense realized for grants of performance shares, stock options or other rights to officers, directors and employees of the Company or any Restricted Subsidiary, provided that those shares, options or other rights can be redeemed at the option of the holder only for Capital Stock of the Company (other than Disqualified Stock).

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Subsidiary to the extent the dividends, repayments or transfers increase the amount of Restricted Payments permitted under that covenant pursuant to clause (c)(4) thereof.

Consolidated Net Tangible Assets means, as of any date of determination, the sum of the amounts that would appear on a consolidated balance sheet of the Company and its consolidated Restricted Subsidiaries as the total assets (less accumulated depreciation, amortization, allowances for doubtful receivables, other applicable reserves and other properly deductible items) of the Company and its Restricted Subsidiaries, after giving effect to purchase accounting and after deducting therefrom Consolidated Current Liabilities and, to the extent otherwise included, the amounts of (without duplication):

(a) the excess of cost over fair market value of assets or businesses acquired;

(b) any revaluation or other write-up in book value of assets subsequent to the last day of the fiscal quarter of the Company immediately preceding the Issue Date as a result of a change in the method of valuation in accordance with GAAP;

(c) unamortized debt discount and expenses and other unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, licenses, organization or developmental expenses and other intangible items;

(d) minority interests in consolidated Subsidiaries held by Persons other than the Company or any Restricted Subsidiary;

(e) treasury stock;

(f) cash or securities set aside and held in a sinking or other analogous fund established for the purpose of redemption or other retirement of Capital Stock to the extent such obligation is not reflected in Consolidated Current Liabilities; and

(g) Investments in and assets of Unrestricted Subsidiaries.

Consolidated Tangible Assets means, as of any date of determination, the sum of the amounts of Consolidated Net Tangible Assets and Consolidated Current Liabilities as of such date.

Credit Facilities means, with respect to the Company or any Restricted Subsidiary, one or more debt or commercial paper facilities (including related Guarantees) with banks, investment banks, insurance companies, mutual funds or other institutional lenders (including the Existing Bank Credit Facilities), providing for revolving credit loans, term loans, receivables or inventory financing (including through the sale of receivables or inventory to institutional lenders or to special purpose, bankruptcy remote entities formed to borrow from institutional lenders against those receivables or inventory) or trade or standby letters of credit, in each case together with any Refinancing thereof on any basis so long as such Refinancing constitutes Debt; provided that, in the case of a transaction in which any accounts receivable are sold, conveyed or otherwise transferred by the Company or any of its subsidiaries to another Person other than a Receivables Entity, then that transaction must satisfy the following three conditions:

(a) if the transaction involves a transfer of accounts receivable with Fair Market Value equal to or greater than $25.0 million, the Board of Directors shall have determined in good faith that the transaction is economically fair and reasonable to the Company or the Subsidiary that sold, conveyed or transferred the accounts receivable,

(b) the sale, conveyance or transfer of accounts receivable by the Company or the Subsidiary is made at Fair Market Value, and

(c) the financing terms, covenants, termination events and other provisions of the transaction shall be market terms (as determined in good faith by the Board of Directors).

Currency Exchange Protection Agreement means, in respect of a Person, any foreign exchange contract, currency swap agreement, currency option or other similar agreement or arrangement designed to protect that Person against fluctuations in currency exchange rates.

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Debt means, with respect to any Person on any date of determination (without duplication):

(a) the principal of and premium (if any) in respect of:

(1) debt of the Person for money borrowed, and

(2) debt evidenced by notes, debentures, bonds or other similar instruments for the payment of which the Person is responsible or liable;

(b) all Capital Lease Obligations of the Person and all Attributable Debt in respect of Sale and Leaseback Transactions entered into by the Person;

(c) all obligations of the Person issued or assumed as the deferred purchase price of Property, all conditional sale obligations of the Person and all obligations of the Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business);

(d) all obligations of the Person for the reimbursement of any obligor on any letter of credit, bankers acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (a) through (c) above) entered into in the ordinary course of business of the Person to the extent those letters of credit are not drawn upon or, if and to the extent drawn upon, the drawing is reimbursed no later than the third Business Day following receipt by the Person of a demand for reimbursement following payment on the letter of credit);

(e) the amount of all obligations of the Person with respect to the Repayment of any Disqualified Stock or, with respect to any Subsidiary of the Person, any Preferred Stock (but excluding, in each case, any accrued dividends);

(f) all obligations of the type referred to in clauses (a) through (e) of other Persons and all dividends of other Persons for the payment of which, in either case, the Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee;

(g) all obligations of the type referred to in clauses (a) through (f) of other Persons secured by any Lien on any Property of the Person (whether or not such obligation is assumed by the Person), the amount of such obligation being deemed to be the lesser of the value of that Property or the amount of the obligation so secured; and

(h) to the extent not otherwise included in this definition, Hedging Obligations of such Person.

The amount of Debt of any Person at any date shall be the outstanding balance at that date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at that date. The amount of Debt represented by a Hedging Obligation shall be equal to:

(1) zero if the Hedging Obligation has been Incurred pursuant to clause (e), (f) or (g) of the second paragraph of the covenant described under Material Covenants Limitation on Debt, or

(2) if the Hedging Obligation is not Incurred pursuant to clause (e), (f) or (g) of the second paragraph of the covenant described under Material Covenants Limitation on Debt, then 105% of the aggregate net amount, if any, that would then be payable by the Company and any Restricted Subsidiary on a per counter-party basis pursuant to Section 6(e) of the ISDA Master Agreement (Multicurrency-Cross Border) in the form published by the International Swaps and Derivatives Association in 1992 (the ISDA Form), as if the date of determination were a date that constitutes or is substantially equivalent to an Early Termination Date, as defined in the ISDA Form, with respect to all transactions governed by the ISDA Form, plus the equivalent amount under the terms of any other Hedging Obligations that are not Incurred pursuant to clause (e), (f) or (g) of the second paragraph of the covenant described under Material Covenants Limitation on Debt, each such amount to be estimated in good faith by the Company.

Debt Issuances means, with respect to the Company or any Restricted Subsidiary, one or more issuances after the Issue Date of Debt evidenced by notes, debentures, bonds or other similar securities or instruments.

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Default means any event which is, or after notice or passage of time or both would be, an Event of Default.

Disqualified Stock means, with respect to any Person, any Capital Stock that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable, in either case at the option of the holder thereof) or otherwise:

(a) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,

(b) is or may become redeemable or repurchaseable at the option of the holder thereof, in whole or in part, or

on or prior to, in the case of clause (a), (b) or (c), the first anniversary of the Stated Maturity of the notes.

Disqualified Stock Dividends means all dividends with respect to Disqualified Stock of the Company held by Persons other than a Wholly Owned Restricted Subsidiary. The amount of any dividend of this kind shall be equal to the quotient of the dividend divided by the difference between one and the maximum statutory federal income tax rate (expressed as a decimal number between 1 and 0) then applicable to the Company.

EBITDA means, for any period, an amount equal to, for the Company and its consolidated Restricted Subsidiaries:

(a) the sum of Consolidated Net Income for that period, plus the following to the extent reducing Consolidated Net Income for that period:

(1) the provision for taxes based on income or profits or utilized in computing net loss,

(2) Consolidated Fixed Charges,

(3) depreciation,

(4) amortization of intangibles,

(5) any other non-cash items (other than any non-cash item to the extent that it represents an accrual of or reserve for cash expenditures in any future period), and

(6) any one-time, non-recurring expenses relating to, or arising from, any closures of manufacturing facilities on or after the Issue Date, in each case incurred within 12 months after such closure, minus

(b) all non-cash items increasing Consolidated Net Income for that period (other than any such non-cash item to the extent that it will result in the receipt of cash payments in any future period).

Notwithstanding the foregoing clause (a), the provision for taxes and the depreciation, amortization and non-cash items of a Restricted Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of that Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by that Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Restricted Subsidiary or its shareholders.

Equipment Financing Transaction means any arrangement (together with any Refinancings thereof) with any Person pursuant to which the Company or any Restricted Subsidiary Incurs Debt secured by a Lien on equipment or equipment related property of the Company or any Restricted Subsidiary.

European Government Obligations means direct obligations (or certificates representing an ownership in such direct obligations) of any country that (i) is a member of the European Monetary Union (including any agency or instrumentality thereof) and (ii) was a member of the European Monetary Union on January 1, 2004 for the payment of which the full faith and credit of such country is pledged and which are not callable or redeemable at the issuers option.

Event of Default has the meaning set forth under Events of Default.

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Exchange Act means the Securities Exchange Act of 1934.

Existing Bank Credit Facilities means (i) the Credit Agreement dated as of September 29, 2003, among the Company, Levi Strauss Financial Center Corporation, the financial institutions listed on the signature pages thereto and Bank of America, N.A., as agent and (ii) the Credit Agreement dated as of September 29, 2003, among the Company, the lenders party thereto and Bank of America, N.A., as administrative agent, in each case as amended as of the Issue Date.

Existing Policies means (1) the Companys estate tax repurchase policy under which the Company repurchases a portion of a deceased stockholders shares to generate funds for payment of estate taxes and (2) the Companys valuation policy under which the Company obtains an annual valuation of the Companys Voting Trust Certificates, as both policies exist at the Issue Date or as they may exist from time to time, provided that if either of these policies is materially amended after the Issue Date in a manner less favorable to the Company than the policy as existing on the Issue Date, then that amended policy shall be deemed not to be an Existing Policy.

Fair Market Value means, with respect to any Property, the price that could be negotiated in an arms length free market transaction, for cash, between a willing seller and a willing buyer, neither of whom is under undue pressure or compulsion to complete the transaction. For purposes of the covenants described under Material Covenants Limitation on Restricted Payments and Material Covenants Limitation on Asset Sales and the definitions of Qualified Receivables Transaction and Credit Facilities, Fair Market Value shall be determined, except as otherwise provided,

(a) if the Property has a Fair Market Value equal to or less than $25.0 million, by any Officer of the Company, or

(b) if the Property has a Fair Market Value in excess of $25.0 million, by a majority of the Board of Directors and evidenced by a Board Resolution, dated within 12 months of the relevant transaction, delivered to the trustee.

Foreign Restricted Subsidiary means any Restricted Subsidiary which is not organized under the laws of the United States of America or any State thereof or the District of Columbia.

GAAP means United States generally accepted accounting principles as in effect on the Issue Date, including those set forth:

(a) in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants,

(b) in the statements and pronouncements of the Financial Accounting Standards Board,

(d) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC.

Guarantee means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Debt of any other Person and any obligation, direct or indirect, contingent or otherwise, of that Person:

(a) to purchase or pay (or advance or supply funds for the purchase or payment of) the Debt of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise), or

(b) entered into for the purpose of assuring in any other manner the obligee against loss in respect thereof (in whole or in part);

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provided, however , that the term Guarantee shall not include:

(1) endorsements for collection or deposit in the ordinary course of business, or

(2) a contractual commitment by one Person to invest in another Person for so long as the Investment is reasonably expected to constitute a Permitted Investment under clause (a), (b) or (i) of the definition of Permitted Investment.

The term Guarantee used as a verb has a corresponding meaning. The term Guarantor shall mean any Person Guaranteeing any obligation.

Hedging Obligation of any Person means any obligation of that Person pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement, Commodity Price Protection Agreement or any other similar agreement or arrangement.

Incur means, with respect to any Debt or other obligation of any Person, to create, issue, incur (by merger, conversion, exchange or otherwise), extend, assume, Guarantee or become liable in respect of that Debt or other obligation or the recording, as required pursuant to GAAP or otherwise, of any Debt or obligation on the balance sheet of that Person (and Incurrence and Incurred shall have meanings correlative to the foregoing); provided, however , that a change in GAAP that results in an obligation of that Person that exists at such time, and is not theretofore classified as Debt, becoming Debt shall not be deemed an Incurrence of that Debt; provided further, however , that any Debt or other obligations of a Person existing at the time the Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by that Subsidiary at the time it becomes a Subsidiary; and provided further, however , that solely for purposes of determining compliance with Material Covenants Limitation on Debt, amortization of debt discount or premium shall not be deemed to be the Incurrence of Debt, provided that in the case of Debt sold at a discount or at a premium, the amount of the Debt Incurred shall at all times be the aggregate principal amount at Stated Maturity.

Independent Financial Advisor means an investment banking firm of national standing or any third party appraiser of national standing, provided that the firm or appraiser is not an Affiliate of the Company.

Interest Rate Agreement means, for any Person, any interest rate swap agreement, interest rate option agreement or other similar agreement or arrangement designed to protect against fluctuations in interest rates.

Investment by any Person means any direct or indirect loan (other than advances to customers and suppliers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of that Person), advance or other extension of credit or capital contribution (by means of transfers of cash or other Property to others or payments for Property or services for the account or use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or other securities or evidence of Debt issued by, any other Person. For purposes of the covenant described under Material Covenants Limitation on Restricted Payments, Material Covenants Designation of Restricted and Unrestricted Subsidiaries and the definition of Restricted Payment, Investment shall include the portion (proportionate to the Companys equity interest in the Subsidiary) of the Fair Market Value of the net assets of any Subsidiary of the Company at the time that the Subsidiary is designated an Unrestricted Subsidiary; provided, however , that upon a redesignation of that Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent Investment in an Unrestricted Subsidiary of an amount (if positive) equal to:

(a) the Companys Investment in that Subsidiary at the time of such redesignation, less

(b) the portion (proportionate to the Companys equity interest in such Subsidiary) of the Fair Market Value of the net assets of that Subsidiary at the time of such redesignation.

In determining the amount of any Investment made by transfer of any Property other than cash, the Property shall be valued at its Fair Market Value at the time of the Investment.

Investment Grade Rating means a rating equal to or higher than Baa3 (or the equivalent) by Moodys and BBB- (or the equivalent) by S&P.

Issue Date means March 11, 2005.

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Lien means, with respect to any Property of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement (other than any easement not materially impairing usefulness or marketability), encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to that Property (including any Capital Lease Obligation, conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing or any Sale and Leaseback Transaction).

Moodys means Moodys Investors Service, Inc. or any successor to the rating agency business thereof.

Net Available Cash from any Asset Sale means cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Debt or other obligations relating to the Property that is the subject of that Asset Sale or received in any other non-cash form), in each case net of:

(a) all legal, title and recording tax expenses, commissions and other fees (including, without limitation, brokers or investment bankers commissions or fees) and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of the Asset Sale,

(b) all payments made on any Debt that is secured by any Property subject to the Asset Sale, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to that Property, or which must by its terms, or in order to obtain a necessary consent to the Asset Sale, or by applicable law, be repaid out of the proceeds from the Asset Sale,

(c) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of the Asset Sale, and

(d) the deduction of appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the Property disposed in the Asset Sale and retained by the Company or any Restricted Subsidiary after the Asset Sale.

Officer means the Chief Executive Officer, the President, the Chief Financial Officer, the Treasurer or the Assistant Treasurer of the Company.

Officers Certificate means a certificate signed by two Officers of the Company, at least one of whom shall be the principal executive officer or principal financial officer of the Company, and delivered to the trustee.

Opinion of Counsel means a written opinion from legal counsel who is acceptable to the trustee. The counsel may be an employee of or counsel to the Company or the trustee.

Permitted Holders means the holders of Voting Stock as of the Issue Date, together with any Voting Trustee and any Person who is a Permitted Transferee of the holders, as that term is defined in the Stockholders Agreement dated as of April 15, 1996 between the Company and the stockholders of the Company party thereto as that Stockholders Agreement was in effect on the Issue Date, except that transferees pursuant to Section 2.2(a)(x) of that Stockholders Agreement shall not be deemed to be Permitted Transferees for purposes of the indenture.

Permitted Investment means any Investment by the Company or a Restricted Subsidiary in:

(a) any Restricted Subsidiary or any Person that will, upon the making of such Investment, become a Restricted Subsidiary, provided that the primary business of the Restricted Subsidiary is a Related Business;

(b) any Person if as a result of the Investment that Person is merged or consolidated with or into, or transfers or conveys all or substantially all its Property to, the Company or a Restricted Subsidiary, provided that the Persons primary business is a Related Business;

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that those trade terms may include such concessionary trade terms as the Company or the Restricted Subsidiary deems reasonable under the circumstances;

(e) payroll, travel and similar advances to cover matters that are expected at the time of those advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business;

(f) loans and advances to employees made in the ordinary course of business consistent with past practices of the Company or the applicable Restricted Subsidiary, as the case may be, provided that those loans and advances do not exceed $5.0 million at any one time outstanding;

(g) stock, obligations or other securities received in settlement of debts created in the ordinary course of business and owing to the Company or a Restricted Subsidiary or in satisfaction of judgments;

(h) any Person to the extent the Investment represents the non-cash portion of the consideration received in connection with an Asset Sale consummated in compliance with the covenant described under Material Covenants Limitation on Asset Sales;

(i) a Receivables Entity or any Investment by a Receivables Entity in any other Person in connection with a Qualified Receivables Transaction, including Investments of funds held in accounts permitted or required by the arrangements governing that Qualified Receivables Transaction or any related Indebtedness; provided that any Investment in a Receivables Entity is in the form of a purchase money note, contribution of additional receivables or an equity interest;

(j) customers or suppliers of the Company or any of its subsidiaries in the form of extensions of credit or transfers of property, to the extent otherwise constituting an Investment, and in the ordinary course of business and any Investments received in the ordinary course of business in satisfaction or partial satisfaction thereof;

(k) any Person if the Investments are outstanding on the Issue Date and not otherwise described in clauses (a) through (j) above;

(l) any securities, derivative instruments or other Investments of any kind that are acquired and held for the benefit of Company employees in the ordinary course of business pursuant to deferred compensation plans or arrangements approved by the board of directors; provided, however that (i) the amount of such Investment represents funds paid or payable in respect of deferred compensation previously included as an expense in the calculation of Consolidated Net Income (and not excluded pursuant to clause (h) of the definition of Consolidated Net Income), and (ii) the terms of such Investment shall not require any additional Investment by the Company or any Restricted Subsidiary; and

(m) any Person made for Fair Market Value that does not exceed $100.0 million outstanding at any one time in the aggregate.

Permitted Liens means:

(a) Liens (including, without limitation and to the extent constituting a Lien, negative pledges) to secure Debt permitted to be Incurred under clause (b) of the second paragraph of the covenant described under Material Covenants Limitation on Debt, regardless of whether the Company and the Restricted Subsidiaries are actually subject to that covenant at the time the Lien is Incurred;

(b) Liens for taxes, assessments or governmental charges or levies on the Property of the Company or any Restricted Subsidiary if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision that shall be required in conformity with GAAP shall have been made therefor;

(c) Liens imposed by law, such as carriers, warehousemens and mechanics Liens and other similar Liens, on the Property of the Company or any Restricted Subsidiary arising in the ordinary course of business and securing payment of obligations that are not more than 60 days past due or are being contested in good faith and by appropriate proceedings;

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(d) Liens on the Property of the Company or any Restricted Subsidiary Incurred in the ordinary course of business to secure performance of obligations with respect to statutory or regulatory requirements, performance or return-of-money bonds, surety bonds or other obligations of a like nature and Incurred in a manner consistent with industry practice, including bankers liens and rights of set-off, in each case which are not Incurred in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of Property and which do not in the aggregate impair in any material respect the use of Property in the operation of the business of the Company and the Restricted Subsidiaries taken as a whole;

(e) Liens on Property at the time the Company or any Restricted Subsidiary acquired the Property, including any acquisition by means of a merger or consolidation with or into the Company or any Restricted Subsidiary; provided, however, that any Lien of this kind may not extend to any other Property of the Company or any Restricted Subsidiary; provided further, however , that the Liens shall not have been Incurred in anticipation of or in connection with the transaction or series of transactions pursuant to which the Property was acquired by the Company or any Restricted Subsidiary;

(f) Liens on the Property of a Person at the time that Person becomes a Restricted Subsidiary; provided , however , that any Lien of this kind may not extend to any other Property of the Company or any other Restricted Subsidiary that is not a direct Subsidiary of that Person; provided further, however , that the Lien was not Incurred in anticipation of or in connection with the transaction or series of transactions pursuant to which the Person became a Restricted Subsidiary;

(g) pledges or deposits by the Company or any Restricted Subsidiary under workers compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Debt) or leases to which the Company or any Restricted Subsidiary is party, or deposits to secure public or statutory obligations of the Company or any Restricted Subsidiary, or deposits for the payment of rent, in each case Incurred in the ordinary course of business;

(h) Liens (including, without limitation and to the extent constituting Liens, negative pledges), assignments and pledges of rights to receive premiums, interest or loss payments or otherwise arising in connection with workers compensation loss portfolio transfer insurance transactions or any insurance or reinsurance agreements pertaining to losses covered by insurance, and Liens (including, without limitation and to the extent constituting Liens, negative pledges) in favor of insurers or reinsurers on pledges or deposits by the Company or any Restricted Subsidiary under workmens compensation laws, unemployment insurance laws or similar legislation;

(i) utility easements, building restrictions and such other encumbrances or charges against real Property as are of a nature generally existing with respect to properties of a similar character;

(j) Liens arising out of judgments or awards against the Company or a Restricted Subsidiary with respect to which the Company or the Restricted Subsidiary shall then be proceeding with an appeal or other proceeding for review;

(k) Liens in favor of surety bonds or letters of credit issued pursuant to the request of and for the account of the Company or a Restricted Subsidiary in the ordinary course of its business, provided that these letters of credit do not constitute Debt;

(l) leases or subleases of real property granted by the Company or a Restricted Subsidiary to any other Person in the ordinary course of business and not materially impairing the use of the real property in the operation of the business of the Company or the Restricted Subsidiary;

(m) Liens (including, without limitation and to the extent constituting Liens, negative pledges) on intellectual property arising from intellectual property licenses entered into in the ordinary course of business;

(n) Liens or negative pledges attaching to or related to joint ventures engaged in a Related Business, restricting Liens on interests in those joint ventures;

(o) Liens existing on the Issue Date not otherwise described in clauses (a) through (n) above;

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(p) Liens not otherwise described in clauses (a) through (o) above on the Property of any Restricted Subsidiary to secure any Debt permitted to be Incurred by the Restricted Subsidiary pursuant to the covenant described under Material Covenants Limitation on Debt;

(q) Liens on the Property of the Company or any Restricted Subsidiary to secure any Refinancing, in whole or in part, of any Debt secured by Liens referred to in clause (d), (e), (f), (j) or (k) above; provided, however , that any Lien of this kind shall be limited to all or part of the same Property that secured the original Lien (together with improvements and accessions to such Property) and the aggregate principal amount of Debt that is secured by the Lien shall not be increased to an amount greater than the sum of:

(1) the outstanding principal amount, or, if greater, the committed amount, of the Debt secured by Liens described under clause (d), (e), (f), (j) or (k) above, as the case may be, at the time the original Lien became a Permitted Lien under the indenture, and

(2) an amount necessary to pay any fees and expenses, including premiums and defeasance costs, incurred by the Company or the Restricted Subsidiary in connection with the Refinancing;

(r) Liens not otherwise permitted by clauses (a) through (q) above that are Liens permitted by the Existing Bank Credit Facilities as they exist on the Issue Date;

(s) Liens on cash or Temporary Cash Investments held as proceeds of Permitted Refinancing Debt pending the payment, purchase, defeasance or other retirement of the Debt being Refinanced; and

(t) Liens not otherwise permitted by clauses (a) through (s) above encumbering assets having an aggregate Fair Market Value not in excess of 5.0% of Consolidated Net Tangible Assets, as determined based on the consolidated balance sheet of the Company as of the end of the most recent fiscal quarter ending at least 45 days prior to the date the Lien shall be Incurred.

Permitted Refinancing Debt means any Debt that Refinances any other Debt, including any successive Refinancings, so long as:

(a) the new Debt is in an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) not in excess of the sum of:

(1) the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding of the Debt being Refinanced, and

(2) an amount necessary to pay any fees and expenses, including premiums and defeasance costs, related to the Refinancing,

(b) the Average Life of the new Debt is equal to or greater than the Average Life of the Debt being Refinanced,

(d) the new Debt shall not be senior in right of payment to the Debt that is being Refinanced;

provided, however , that Permitted Refinancing Debt shall not include:

(x) Debt of a Subsidiary that Refinances Debt of the Company, or

(y) Debt of the Company or a Restricted Subsidiary that Refinances Debt of an Unrestricted Subsidiary.

Person means any individual, corporation, company (including any limited liability company), association, partnership, joint venture, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

Preferred Stock means any Capital Stock of a Person, however designated, which entitles the holder thereof to a preference with respect to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of that Person, over shares of any other class of Capital Stock issued by that Person.

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Preferred Stock Dividends means all dividends with respect to Preferred Stock of Restricted Subsidiaries held by Persons other than the Company or a Wholly Owned Restricted Subsidiary. The amount of any dividend of this kind shall be equal to the quotient of the dividend divided by the difference between one and the maximum statutory federal income rate (expressed as a decimal number between 1 and 0) then applicable to the issuer of the Preferred Stock.

pro forma means, with respect to any calculation made or required to be made pursuant to the terms hereof, a calculation performed in accordance with Article 11 of Regulation S-X promulgated under the Securities Act, as interpreted in good faith by the Board of Directors after consultation with the independent certified public accountants of the Company, or otherwise a calculation made in good faith by the Board of Directors after consultation with the independent registered public accounting firm of the Company, as the case may be.

Property means, with respect to any Person, any interest of that Person in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including Capital Stock in, and other securities of, any other Person. For purposes of any calculation required pursuant to the indenture, the value of any Property shall be its Fair Market Value.

Public Equity Offering means an underwritten public offering of common stock of the Company pursuant to an effective registration statement under the Securities Act.

Public Market means any time after:

(a) a Public Equity Offering has been consummated, and

(b) at least 15% of the total issued and outstanding common stock of the Company has been distributed by means of an effective registration statement under the Securities Act.

Purchase Money Debt means Debt:

(a) consisting of the deferred purchase price of property, conditional sale obligations, obligations under any title retention agreement, other purchase money obligations and obligations in respect of industrial revenue bonds, in each case where the maturity of the Debt does not exceed the anticipated useful life of the Property being financed, and

(b) Incurred to finance the acquisition, construction or lease by the Company or a Restricted Subsidiary of the Property, including additions and improvements thereto;

provided, however , that the Debt is Incurred within 180 days after the acquisition, construction or lease of the Property by the Company or Restricted Subsidiary.

Qualified Receivables Transaction means any transaction or series of transactions that may be entered into by the Company or any of its Subsidiaries pursuant to which the Company or any of its Subsidiaries may sell, convey or otherwise transfer to:

(a) a Receivables Entity (in the case of a transfer by the Company or any of its Subsidiaries), and

(b) any other Person (in the case of a transfer by a Receivables Entity),

or may grant a security interest in, any accounts receivable (whether now existing or arising in the future) of the Company or any of its Subsidiaries, and any assets related thereto including, without limitation, all collateral securing those accounts receivable, all contracts and all Guarantees or other obligations in respect of those accounts receivable, proceeds of those accounts receivable and other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable; provided that:

(1) if the transaction involves a transfer of accounts receivable with Fair Market Value equal to or greater than $25.0 million, the Board of Directors shall have determined in good faith that the Qualified Receivables Transaction is economically fair and reasonable to the Company and the Receivables Entity,

(2) all sales of accounts receivable and related assets to or by the Receivables Entity are made at Fair Market Value, and

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(3) the financing terms, covenants, termination events and other provisions thereof shall be market terms (as determined in good faith by the Board of Directors).

The grant of a security interest in any accounts receivable of the Company or any of its Restricted Subsidiaries to secure the Credit Facilities shall not be deemed a Qualified Receivables Transaction.

Rating Agencies mean Moodys and S&P.

Real Estate Financing Transaction means any arrangement with any Person pursuant to which the Company or any Restricted Subsidiary Incurs Debt secured by a Lien on real property of the Company or any Restricted Subsidiary and related personal property together with any Refinancings thereof.

Receivables Entity means a Wholly Owned Subsidiary of the Company (or another Person formed for the purposes of engaging in a Qualified Receivables Transaction with the Company in which the Company or any Subsidiary of the Company makes an Investment and to which the Company or any Subsidiary of the Company transfers accounts receivable and related assets) which engages in no activities other than in connection with the financing of accounts receivable of the Company and its Subsidiaries, all proceeds thereof and all rights (contractual or other), collateral and other assets relating thereto, and any business or activities incidental or related to that business, and (with respect to any Receivables Entity formed after the Issue Date) which is designated by the Board of Directors (as provided below) as a Receivables Entity and

(a) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which

(1) is Guaranteed by the Company or any Subsidiary of the Company (excluding Guarantees of obligations (other than the principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings),

(2) is recourse to or obligates the Company or any Subsidiary of the Company in any way other than pursuant to Standard Securitization Undertakings, or

(3) subjects any property or asset of the Company or any Subsidiary of the Company, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings;

(b) with which neither the Company nor any Subsidiary of the Company has any material contract, agreement, arrangement or understanding other than on terms which the Company reasonably believes to be no less favorable to the Company or the Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of the Company, and

(c) to which neither the Company nor any Subsidiary of the Company has any obligation to maintain or preserve the entitys financial condition or cause the entity to achieve certain levels of operating results other than pursuant to Standard Securitization Undertakings.

Any designation of this kind by the Board of Directors shall be evidenced to the trustee by filing with the trustee a certified copy of the resolution of the Board of Directors giving effect to the designation and an Officers Certificate certifying that the designation complied with the foregoing conditions.

Refinance means, in respect of any Debt, to refinance, extend, renew, refund, repay, prepay, repurchase, redeem, defease or retire, or to issue other Debt, in exchange or replacement for, that Debt. Refinanced and Refinancing shall have correlative meanings.

Related Business means any business that is related, ancillary or complementary to the businesses of the Company and the Restricted Subsidiaries on the Issue Date.

Repay means, in respect of any Debt, to repay, prepay, repurchase, redeem, legally defease or otherwise retire that Debt. Repayment and Repaid shall have correlative meanings. For purposes of the covenants described under Material Covenants Limitation on Asset Sales and Material Covenants Limitation on Debt and the definition of Consolidated Fixed Charges Coverage Ratio, Debt shall be considered to have been Repaid only to the extent the related loan commitment, if any, shall have been permanently reduced in connection therewith.

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Restricted Payment means:

(a) any dividend or distribution (whether made in cash, securities or other Property) declared or paid on or with respect to any shares of Capital Stock of the Company or any Restricted Subsidiary (including any payment in connection with any merger or consolidation with or into the Company or any Restricted Subsidiary), except for any dividend or distribution that is made to the Company or the parent of the Restricted Subsidiary or any dividend or distribution payable solely in shares of Capital Stock (other than Disqualified Stock) of the Company;

(b) the purchase, repurchase, redemption, acquisition or retirement for value of any Capital Stock of the Company or any Restricted Subsidiary (other than from the Company or a Restricted Subsidiary) or any securities exchangeable for or convertible into Capital Stock of the Company or any Restricted Subsidiary, including the exercise of any option to exchange any Capital Stock (other than for or into Capital Stock of the Company that is not Disqualified Stock);

(c) the purchase, repurchase, redemption, acquisition or retirement for value, prior to the date for any scheduled maturity, sinking fund or amortization or other installment payment, of any Subordinated Obligation (other than the purchase, repurchase or other acquisition of any Subordinated Obligation purchased in anticipation of satisfying a scheduled maturity, sinking fund or amortization or other installment obligation, in each case due within one year of the date of acquisition);

(d) any Investment (other than Permitted Investments) in any Person; or

(e) the issuance, sale or other disposition of Capital Stock of any Restricted Subsidiary to a Person other than the Company or another Restricted Subsidiary if the result thereof is that the Restricted Subsidiary shall cease to be a Restricted Subsidiary, in which event the amount of the Restricted Payment shall be the Fair Market Value of the remaining interest, if any, in the former Restricted Subsidiary held by the Company and the other Restricted Subsidiaries.

Restricted Subsidiary means any Subsidiary of the Company other than an Unrestricted Subsidiary.

S&P means Standard & Poors Ratings Service or any successor to the rating agency business thereof.

Sale and Leaseback Transaction means any direct or indirect arrangement relating to Property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers that Property to another Person and the Company or a Restricted Subsidiary leases it from that other Person together with any Refinancings thereof.

Securities Act means the Securities Act of 1933.

Significant Subsidiary means any Subsidiary that would be a Significant Subsidiary of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC.

Standard Securitization Undertakings means representations, warranties, covenants and indemnities entered into by the Company or any Subsidiary of the Company which are customary in an accounts receivable securitization transaction involving a comparable company.

Stated Maturity means, with respect to any security, the date specified in the security as the fixed date on which the payment of principal of the security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of the security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless that contingency has occurred).

Subordinated Obligation means any Debt of the Company (whether outstanding on the Issue Date or thereafter Incurred) that is subordinate or junior in right of payment to the notes pursuant to a written agreement to that effect.

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Subsidiary means, in respect of any Person, any corporation, company (including any limited liability company), association, partnership, joint venture or other business entity of which a majority of the total voting power of the Voting Stock is at the time owned or controlled, directly or indirectly, by:

(a) that Person,

(b) that Person and one or more Subsidiaries of that Person, or

Temporary Cash Investments means any of the following:

(a) Investments in U.S. Government Obligations maturing within 365 days of the date of acquisition thereof;

(b) Investments in time deposit accounts, bankers acceptances, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company organized under the laws of the United States of America or any state thereof having capital, surplus and undivided profits aggregating in excess of $500.0 million or issued by a commercial bank organized under the laws of any other country that is a member of the Organization for Economic Cooperation and Development having total assets in excess of $500.0 million (or its foreign currency equivalent at the time), and in any case whose long-term debt is rated A-3 or A− or higher according to Moodys or S&P (or a similar equivalent rating by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act));

(c) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (a) entered into with:

(1) a bank meeting the qualifications described in clause (b) above, or

(2) any primary government securities dealer reporting to the Market Reports Division of the Federal Reserve Bank of New York;

(d) Investments in commercial paper, maturing not more than 270 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any other country that is a member of the Organization for Economic Cooperation and Development, and in any case with a rating at the time as of which any Investment therein is made of P-1 (or higher) according to Moodys or A-1 (or higher) according to S&P (or a similar equivalent rating by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act); and

(e) direct obligations (or certificates representing an ownership interest in such obligations) of any state of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of such state is pledged and which are not callable or redeemable at the issuers option, provided that:

(1) the long-term debt of the state is rated A-3 or A− or higher according to Moodys or S&P (or a similar equivalent rating by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act)), and

(2) the obligations mature within 180 days of the date of acquisition thereof.

Unrestricted Subsidiary means:

(a) any Subsidiary of the Company that is designated after the Issue Date as an Unrestricted Subsidiary as permitted or required pursuant to the covenant described under Material Covenants Designation of Restricted and Unrestricted Subsidiaries and is not thereafter redesignated as a Restricted Subsidiary as permitted pursuant thereto; and

(b) any Subsidiary of an Unrestricted Subsidiary.

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U.S. Government Obligations means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuers option.

Voting Stock of any Person means all classes of Capital Stock or other interests (including partnership interests, and in the case of the Company, Voting Trust Certificates) of that Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof.

Voting Trust Arrangement means the Voting Trust Agreement entered into as of April 15, 1996 by and among Robert D. Haas; Peter E. Haas, Sr.; Peter E. Haas, Jr.; and F. Warren Hellman as the Voting Trustees and the stockholders of the Company who are parties thereto.

Voting Trust Certificates means those certificates issued pursuant to the Voting Trust Arrangement.

Voting Trustees means the persons entitled to act as voting trustees under the Voting Trust Arrangement.

Wholly Owned Restricted Subsidiary means, at any time, a Restricted Subsidiary all the Voting Stock of which (except directors qualifying shares) is at that time owned, directly or indirectly, by the Company and its other Wholly Owned Subsidiaries.

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EXCHANGE OFFER; REGISTRATION RIGHTS EURO NOTES

In this section, unless explicitly stated otherwise, the words Company, we, us and our refer only to Levi Strauss & Co. and not to any of its subsidiaries. We have agreed, pursuant to a registration rights agreement with the initial purchasers for the old Euro Notes (the Euro Registration Rights Agreement), for the benefit of the holders of the old Euro Notes, that we will, at our cost, (a) not later than 90 days after March 17, 2006, file a registration statement (the Euro Exchange Offer Registration Statement) with the SEC with respect to a registered offer to exchange the old Euro Notes for Euro Exchange Notes and (b) cause the Euro Exchange Offer Registration Statement to be declared effective under the Securities Act not later than 180 days after March 17, 2006. The registration statement of which this prospectus is a part constitutes the registration statement to be filed pursuant to the Euro Registration Rights Agreement. Upon the effectiveness of the Exchange Offer Registration Statement, we will offer the Euro Exchange Notes in exchange for surrender of the old Euro Notes (the Euro Registered Exchange Offer). We will keep the Euro Registered Exchange Offer open for not less than 30 days (or longer if required by applicable law) and not more than 45 days after the date notice of the Euro Registered Exchange Offer is mailed to the holders of the old Euro Notes. For each old Euro Note surrendered to us pursuant to the Euro Registered Exchange Offer, the holder of such old Euro Note will receive a Euro Exchange Note having a principal amount equal to, and terms substantially similar to, that of the surrendered old Euro Note. Interest on each Euro Exchange Note will accrue from the last interest payment date on which interest was paid on the old Euro Note surrendered in exchange thereof or, if no interest has been paid on the old Euro Note surrendered, from the date of its original issuance. Under existing SEC interpretations, the Euro Exchange Notes would be freely transferable by holders of the Euro Notes issued in this offering other than affiliates of the Company after the Euro Registered Exchange Offer without further registration under the Securities Act if the holder of the Euro Exchange Notes represents (1) that it is acquiring the Euro Exchange Notes in the ordinary course of its business, (2) that it has no arrangement or understanding with any person to participate in the distribution of the Euro Exchange Notes and (3) that it is not an affiliate of the Company, as those terms are interpreted by the SEC, provided that broker-dealers (Participating Broker-Dealers) receiving Euro Exchange Notes in the Euro Registered Exchange Offer will have a prospectus delivery requirement with respect to resales of the Euro Exchange Notes. The SEC has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to Euro Exchange Notes (other than a resale of an unsold allotment from the original sale of the old Euro Notes) with the prospectus contained in the Euro Exchange Offer Registration Statement. Under the Euro Registration Rights Agreement, we are required to allow Participating Broker-Dealers and other persons, if any, with similar prospectus delivery requirements to use the prospectus contained in the Euro Exchange Offer Registration Statement in connection with the resale of the Euro Exchange Notes.

A holder of old Euro Notes (other than certain specified holders) who wishes to exchange those notes for Euro Exchange Notes in the Euro Registered Exchange Offer will be required to represent that (1) any Euro Exchange Notes to be received by it will be acquired in the ordinary course of its business, (2) that at the time of the commencement of the Euro Registered Exchange Offer it has no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the Euro Exchange Notes and (3) that it is not an affiliate of the Company, as defined in Rule 405 of the Securities Act, or if it is an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable.

In the event that (1) applicable interpretations of the staff of the SEC do not permit us to effect such a Euro Registered Exchange Offer, (2) for any other reason the Euro Exchange Offer Registration Statement is not declared effective within 180 days after March 17, 2006 or the Euro Registered Exchange Offer is not consummated within 210 days after March 17, 2006, (3) the initial purchasers so request within 45 days of consummation of the Euro Registered Exchange Offer with respect to old Euro Notes not eligible to be exchanged for Euro Exchange Notes in the Euro Registered Exchange Offer or (4) any holder of old Euro Notes issued (other than an initial purchaser) is not eligible to participate in the Euro Registered Exchange Offer or does not receive freely tradeable Euro Exchange Notes in the Euro Registered Exchange Offer other than by reason of the holder being an affiliate of the Company (it being understood that the requirement that a Participating Broker-Dealer deliver the prospectus contained in the Euro Exchange Offer Registration Statement in connection with sales of Euro Exchange Notes shall not result in such Euro Exchange Notes being not freely tradeable), we will, at our cost, (1) as promptly as practicable, file a registration statement under the Securities Act covering continuous resales of the old Euro Notes or the Euro

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Exchange Notes (or designate an existing registration statement for such use), as the case may be (the Euro Shelf Registration Statement), (2) cause the Euro Shelf Registration Statement to become effective under the Securities Act and (3) use our best efforts to keep the Euro Shelf Registration Statement effective until two years after the closing date of this offering. We will, in the event a Euro Shelf Registration Statement is filed, among other things, provide to each holder for whom the Euro Shelf Registration Statement was filed copies of the prospectus which is a part of the Euro Shelf Registration Statement, notify each such holder when the Euro Shelf Registration Statement has become effective and take other actions as are required to permit unrestricted resales of the Euro Notes issued in this offering or the Euro Exchange Notes, as the case may be. A holder selling old Euro Notes or Euro Exchange Notes pursuant to the Euro Shelf Registration Statement generally would be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to applicable civil liability provisions under the Securities Act in connection with sales of that kind and will be bound by the provisions of the Euro Registration Rights Agreement which are applicable to that holder (including certain indemnification obligations).

If (1) on or prior to the 90th day following March 17, 2006, neither the Euro Exchange Offer Registration Statement nor the Euro Shelf Registration Statement has been filed with the SEC, (2) on or prior to the 180th day following March 17, 2006, neither the Euro Exchange Offer Registration Statement nor the Euro Shelf Registration Statement has been declared effective, (3) on or prior to the 210th day following March 17, 2006, neither the Euro Registered Exchange Offer has been consummated nor the Euro Shelf Registration Statement has been declared effective, or (4) after either the Euro Exchange Offer Registration Statement or the Euro Shelf Registration Statement has been declared effective, the registration statement thereafter ceases to be effective or usable (subject to particular exceptions) in connection with resales of Euro Notes issued in this offering or Euro Exchange Notes in accordance with and during the periods specified in the Euro Registration Rights Agreement (each event referred to in clauses (1) through (4), a Registration Default), interest (Special Interest) will accrue on the principal amount of the old Euro Notes and the Euro Exchange Notes (in addition to the stated interest on the old Euro Notes and the Euro Exchange Notes) from and including the date on which the Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured. Special Interest will accrue at a rate of 0.25% per annum during the 90-day period immediately following the occurrence of the Registration Default and shall increase by 0.25% per annum at the end of each subsequent 90-day period, but in no event shall the rate exceed 1.00% per annum. The summary herein of provisions of the Euro Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Euro Registration Rights Agreement, a copy of which is available upon request.

Application will be made to have the Euro Exchange Notes, if any, listed on the Luxembourg Stock Exchange and to have the Euro Exchange Notes traded on the Euro MTF Market. In connection with the Euro Registered Exchange Offer, (1) notice will be given to the Luxembourg Stock Exchange and published once in a daily newspaper of general circulation in Luxembourg (which is expected to be the d Wort ) announcing the beginning of the Euro Registered Exchange Offer and, following completion of the offer, the results of the offer, (2) a Luxembourg exchange agent, through which all relevant documents with respect to the Euro Registered Exchange Offer will be made available, will be appointed, (3) the Luxembourg exchange agent will be able to perform all agency functions to be performed by any exchange agent, including providing a letter of transmittal and other relevant documents to a noteholder, accepting such documents on our behalf, accepting the definitive old Euro Notes for exchange, and delivering Euro Exchange Notes to noteholders entitled thereto, and (4) in the event that the period of the Euro Registered Exchange Offer is extended after its commencement, notice of such extension will be given to the Luxembourg Stock Exchange and published once in a daily newspaper of general circulation in Luxembourg (which is expected to be the d Wort ). Holders of Euro Notes will be able to hold their Euro Notes through Euroclear and Clearstream, Luxembourg, which are participants in DTC. The Euro Exchange Notes will be accepted for clearance through Euroclear and Clearstream, Luxembourg, a prospectus supplement will be prepared and notice will be given to the Luxembourg Stock Exchange and published in a Luxembourg newspaper announcing the results of the Euro Registered Exchange Offer, the principal amount of the old Euro Notes exchanged, the principal amount of the old Euro Notes remaining outstanding, the principal amount of the Euro Exchange Notes and the relevant Common Codes and International Securities Identification Numbers. The notices mentioned in this paragraph may also be published on the Luxembourg Stock Exchanges website (www.bourse.lu) .

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DESCRIPTION OF DOLLAR EXCHANGE NOTES

The old Dollar Notes were, and the Dollar Exchange Notes will be, issued under an indenture dated as of March 17, 2006, among the Company and Wilmington Trust Company, as trustee. The indenture is governed by the Trust Indenture Act of 1939. The indenture has been filed as an exhibit to the registration statement of which this prospectus is a part. The terms of the Dollar Notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act.

The Dollar Notes previously issued under the indenture and the Dollar Exchange Notes offered hereby will be treated as a single series of notes under the indenture, including for the purposes of determining whether the required percentage of noteholders has given its approval or consent to an amendment or waiver or joined in directing the trustee to take certain actions on behalf of all noteholders. For purposes of this description, unless the context indicates otherwise, references to notes include any and all Dollar Notes previously issued under the indenture and the Dollar Exchange Notes offered hereby and references to the indenture means the indenture governing the Dollar Notes.

We have issued $350.0 million aggregate principal amount of notes under the indenture and, subject to compliance with the covenant described under Material Covenants Limitation on Debt, can issue an unlimited amount of additional notes at later dates. Any additional notes that we issue in the future will be identical in all respects to the notes that we are issuing now, except that the notes issued in the future will have different issuance prices and issuance dates. We will issue notes only in fully registered form without coupons, in a minimum denomination of $10,000 and integral multiples of $1,000 thereafter.

Principal, Maturity and Interest

The notes will mature on April 1, 2016.

Interest on the notes we are offering now will accrue at a rate of 8 7 / 8 % per annum and will be payable semi-annually in arrears on April 1 and October 1, commencing on October 1, 2006. We will pay interest to those persons who were holders of record on the March 15 or September 15 immediately preceding each interest payment date.

Ranking

The notes will be:

	unsubordinated unsecured obligations of the Company;
	equal in ranking (pari passu) with all our existing
and future senior debt; and
	senior in right of payment to all our future subordinated debt.

As of February 26, 2006, after giving effect to the application of (i) the issuance of $350.0 million of our Dollar Notes and 100.0 million of our Euro Notes in March 2006 and (ii) our prepayment of our senior secured term loan in March 2006, our total debt would have been approximately $2.3 billion and we would have had approximately $220.7 million of additional borrowing capacity under our revolving credit facility, after giving effect to (i) our utilization of credit-related instruments such as documentary and standby letters of credit and (ii) reserving

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$77.9 million of availability under the revolving credit facility to satisfy a covenant in the revolving credit facility relating to prepayment of the term loan.

As of February 26, 2006, the liabilities of our subsidiaries were approximately $485.0 million. Our subsidiaries have other liabilities, including contingent liabilities, that may be significant.

The notes are unsecured obligations of the Company. Secured Debt of the Company will be effectively senior to the notes to the extent of the value of the assets securing this Debt. As of February 26, 2006, after giving effect to (i) the issuance of $350.0 million of our Dollar Notes and 100.0 million of our Euro Notes in March 2006 and (ii) our prepayment of our senior secured term loan in March 2006, we would have had approximately $2.3 billion of debt, of which approximately $7.3 million would have been secured, the majority of such secured debt being capital leases. To the extent we enter into secured financings in the future, such as another senior secured term loan, the notes will also be effectively subordinated to such secured debt to the extent of the value of the additional assets securing that debt.

The indenture contains limitations on the amount of additional Debt that we and the Restricted Subsidiaries may Incur. However, the amounts of this Debt could nevertheless be substantial.

Optional Redemption

Except as set forth in the second and third succeeding paragraphs, the notes will not be redeemable at the option of the Company prior to April 1, 2011. Starting on that date, the Company may redeem all or any portion of the notes, at once or over time, after giving the required notice under the indenture. The notes may be redeemed at the redemption prices set forth below, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). The following prices are for notes redeemed during the 12-month period commencing on April 1 of the years set forth below, and are expressed as percentages of principal amount:

Redemption Year
2011	104.438%
2012	102.958%
2013	101.479%
2014 and thereafter	100.000%

At any time and from time to time, prior to April 1, 2009, the Company may redeem up to a maximum of 35% of the original aggregate principal amount of the notes (including additional notes, if any) with the proceeds of one or more Public Equity Offerings following which there is a Public Market, at a redemption price equal to 108.875% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that after giving effect to any redemption of this kind, at least 65% of the original aggregate principal amount of notes (including additional notes, if any) remains outstanding. Any redemption of

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this kind shall be made within 90 days of such Public Equity Offering upon not less than 30 nor more than 60 days prior notice.

The Company may choose to redeem all or any portion of the notes, at once or over time, prior to April 1, 2011. If it does so, it may redeem the notes after giving the required notice under the indenture. To redeem the notes, the Company must pay a redemption price equal to the sum of:

(a) 100% of the principal amount of the notes to be redeemed, plus

(b) the Applicable Premium,

plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

Applicable Premium means, with respect to a note at any time, the greater of (1) 1.0% of the principal amount of such note at such time and (2) the excess of (A) the present value at such time of (i) the redemption price of such note at April 1, 2011 (such redemption price being described in the table appearing in the first paragraph of this Optional Redemption section exclusive of any accrued interest) plus (ii) any required interest payments due on such note through April 1, 2011, (including any accrued and unpaid interest) computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B) the principal amount of such note.

Comparable Treasury Issue means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the notes that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such notes. Independent Investment Banker means one of the Reference Treasury Dealers appointed by the trustee after consultation with the Company.

Comparable Treasury Price means, with respect to any redemption date:

(a) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third business day preceding such redemption date, as set forth in the most recently published statistical release designated H.15(519) (or any successor release) published by the Board of Governors of the Federal Reserve System and which establishes yields on actively traded United States treasury securities adjusted to constant maturity under the caption Treasury Constant Maturities, or

(b) if such release (or any successor release) is not published or does not contain such prices on such business day, the average of the Reference Treasury Dealer Quotations for such redemption date.

Reference Treasury Dealer means Banc of America Securities LLC, Citigroup Global Markets Inc., Goldman, Sachs & Co., J.P. Morgan Securities Inc., Scotia Capital (USA) Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and one other financial institution chosen by the Company and their respective successors; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a Primary Treasury Dealer), the Company shall substitute therefor another Primary Treasury Dealer.

Reference Treasury Dealer Quotations means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the trustee by such Reference Treasury Dealer at 5:00 p.m. on the third business day preceding such redemption date.

Treasury Rate means, with respect to any redemption date, the rate per annum equal to the yield to maturity of the Comparable Treasury Issue, compounded semi-annually, assuming a price for such Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date.

Any notice to holders of notes of such a redemption needs to include the appropriate calculation of the redemption price, but does not need to include the redemption price itself. The actual redemption price, calculated

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as described above, must be set forth in an Officers Certificate delivered to the trustee no later than two business days prior to the redemption date.

Sinking Fund

There will be no mandatory sinking fund payments for the notes.

Repurchase at the Option of Holders Upon a Change of Control

Within 30 days following any Change of Control, the Company shall:

(c) cause a notice of the Change of Control Offer to be sent at least once to the Dow Jones News Service or similar business news service in the United States, and

(d) send, by first-class mail, with a copy to the trustee, to each holder of notes, at such holders address appearing in the security register, a notice stating:

We will not be required to make a Change of Control Offer following a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by us and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.

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case law interpreting the phrase substantially all, there is no precise established definition of the phrase under applicable law. Accordingly, if we dispose of less than all our assets by any of the means described above, the ability of a holder of notes to require us to repurchase its notes may be uncertain. In such a case, holders of the notes may not be able to resolve this uncertainty without resorting to legal action.

The Existing Bank Credit Facility restricts us in certain circumstances from purchasing any notes prior to maturity of the notes and also provides that the occurrence of some of the events that would constitute a Change of Control would constitute a default under that existing debt. The terms of our 12.25% notes due 2012, our 9 3 / 4 % notes due 2015, our floating rate notes due 2012 and our 8 5 / 8 % euro-denominated notes due 2013 require us to offer to repurchase such notes upon the occurrence of a Change of Control. Future debt of the Company, including any new bank credit facility, may contain prohibitions of certain events which would constitute a Change of Control or require that future debt be repurchased upon a Change of Control. Moreover, the exercise by holders of notes or our 12.25% notes due 2012, our 9 3 / 4 % notes due 2015, our floating rate notes due 2012 or our 8 5 / 8 % euro-denominated notes due 2013 of their right to require us to repurchase their notes could cause a default under existing or future debt of the Company, even if the Change of Control itself does not, due to the financial effect of that repurchase on us. Finally, our ability to pay cash to holders of notes or our 12.25% notes due 2012, our 9 3 / 4 % notes due 2015, our floating rate notes due 2012 or our 8 5 / 8 % euro-denominated notes due 2013 upon a required repurchase may be limited by our financial resources at that time. We cannot assure you that sufficient funds will be available when necessary to make any required repurchases. Our failure to purchase notes in connection with a Change of Control would result in a default under the indenture and our failure to purchase our 12.25% notes due 2012, our 9 3 / 4 % notes due 2015, our floating rate notes due 2012 or our 8 5 / 8 % euro-denominated notes due 2013 in connection with a Change of Control would result in a default under the respective indentures governing such notes. Any such default would, in turn, constitute a default under our existing debt, and may constitute a default under future debt as well. Our obligation to make an offer to repurchase the notes as a result of a Change of Control may be waived or modified at any time prior to the occurrence of that Change of Control with the written consent of the holders of a majority in principal amount of the notes. See Amendments and Waivers.

Material Covenants

Set forth below are summaries of the material covenants contained in the indenture.

Covenant Suspension

During any period of time that:

(a) the notes have Investment Grade Ratings from both Rating Agencies, and

(b) no Default or Event of Default has occurred and is continuing under the indenture,

the Company and the Restricted Subsidiaries will not be subject to the following provisions of the indenture:

	Limitation on Debt,
	Limitation on Restricted Payments,
	Limitation on Asset Sales,
	Limitation on Restrictions on Distributions
from Restricted Subsidiaries,
	clause (x) of the third paragraph (and as
referred to in the first paragraph) of
Designation of Restricted and Unrestricted
Subsidiaries, and
	clause (e) of the first paragraph of
Merger, Consolidation and Sale of
Property

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withdrawal, downgrade, Default or Event of Default and, furthermore, compliance with the provisions of the covenant described in Limitation on Restricted Payments with respect to Restricted Payments made after the time of the withdrawal, downgrade, Default or Event of Default will be calculated in accordance with the terms of that covenant as though that covenant had been in effect during the entire period of time from the Measurement Date, provided that there will not be deemed to have occurred a Default or Event of Default with respect to that covenant during the time that the Company and the Restricted Subsidiaries were not subject to the Suspended Covenants (or after that time based solely on events that occurred during that time).

Limitation on Debt

(2) the Debt is Permitted Debt.

The term Permitted Debt is defined to include the following:

(a) Debt of the Company evidenced by the notes offered hereby and the 8 5 / 8 % euro-denominated notes due 2013 issued on the Issue Date;

(2) the sum of the amounts equal to:

(A) 50% of the book value of the inventory of the Company and the Restricted Subsidiaries, and

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the Company or was otherwise acquired by the Company); provided that at the time that Restricted Subsidiary was acquired by the Company or otherwise became a Restricted Subsidiary and after giving effect to the Incurrence of that Debt, the Company would have been able to Incur $1.00 of additional Debt pursuant to clause (1) of the first paragraph of this covenant;

(h) Debt in connection with one or more standby letters of credit or performance bonds issued by the Company or a Restricted Subsidiary in the ordinary course of business or pursuant to self-insurance obligations and not in connection with the borrowing of money or the obtaining of advances or credit;

(i) Debt arising from agreements of the Company or a Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred in connection with the disposition of any business, assets or Capital Stock of a Subsidiary, other than Guarantees of Debt Incurred by any Person acquiring all or any portion of such business, assets or Capital Stock; provided , however , that the maximum aggregate liability in respect of all such Debt shall at no time exceed the gross proceeds actually received by the Company or such Restricted Subsidiary in connection with such disposition;

(j) Debt outstanding on the Issue Date not otherwise described in clauses (a) through (i) above;

(k) Debt of the Company or a Restricted Subsidiary in an aggregate principal amount outstanding at any one time not to exceed $100.0 million; and

(l) Permitted Refinancing Debt Incurred in respect of Debt Incurred pursuant to clause (1) of the first paragraph of this covenant and clauses (a), (d) and (j) above.

For purposes of determining compliance with the covenant described above:

(B) the Company will be entitled to divide and classify an item of Debt in more than one of the types of Debt described above.

Limitation on Restricted Payments

(a) a Default or Event of Default shall have occurred and be continuing,

(b) the Company could not Incur at least $1.00 of additional Debt pursuant to clause (1) of the first paragraph of the covenant described under Limitation on Debt, or

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(c) the aggregate amount of that Restricted Payment and all other Restricted Payments declared or made since the Measurement Date (the amount of any Restricted Payment, if made other than in cash, to be based upon Fair Market Value) would exceed an amount equal to the sum of:

(2) Capital Stock Sale Proceeds received after the Measurement Date, plus

(3) the sum of:

(A) the aggregate net cash proceeds received by the Company or any Restricted Subsidiary from the issuance or sale after the Measurement Date of convertible or exchangeable Debt that has been converted into or exchanged for Capital Stock (other than Disqualified Stock) of the Company, and

(B) the aggregate amount by which Debt of the Company or any Restricted Subsidiary is reduced on the Companys consolidated balance sheet on or after the Measurement Date upon the conversion or exchange of any Debt issued or sold on or prior to the Measurement Date that is convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company,

excluding, in the case of clause (A) or (B):

(y) the aggregate amount of any cash or other Property distributed by the Company or any Restricted Subsidiary upon any such conversion or exchange,

plus

(4) an amount equal to the sum of:

(A) the net reduction in Investments in any Person other than the Company or a Restricted Subsidiary resulting from dividends, repayments of loans or advances or other transfers of Property made after the Measurement Date, in each case to the Company or any Restricted Subsidiary from that Person, less the cost of the disposition of those Investments, and

(B) the lesser of the net book value or the Fair Market Value of the Companys equity interest in an Unrestricted Subsidiary at the time the Unrestricted Subsidiary is designated a Restricted Subsidiary (provided that such designation occurs after the Measurement Date);

Notwithstanding the foregoing limitation, the Company may:

(a) pay dividends on its Capital Stock within 60 days of the declaration thereof if, on said declaration date, the dividends could have been paid in compliance with the indenture; provided, however, that at the time of the payment of the dividend, no other Default or Event of Default shall have occurred and be continuing (or result therefrom); provided further, however , that, if declared on or after the Measurement Date, the dividend shall be included in the calculation of the amount of Restricted Payments;

(b) purchase, repurchase, redeem, legally defease, acquire or retire for value Capital Stock of the Company or Subordinated Obligations on or after the Measurement Date in exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock

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and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or trust established by the Company or any Subsidiary for the benefit of their employees); provided, however, that

(1) the purchase, repurchase, redemption, legal defeasance, acquisition or retirement shall be excluded in the calculation of the amount of Restricted Payments, and

(2) the Capital Stock Sale Proceeds from the exchange or sale shall be excluded from the calculation pursuant to clause (c)(2) above;

(c) purchase, repurchase, redeem, legally defease, acquire or retire for value any Subordinated Obligations on or after the Measurement Date in exchange for, or out of the proceeds of the substantially concurrent sale of, Permitted Refinancing Debt; provided, however, that the purchase, repurchase, redemption, legal defeasance, acquisition or retirement shall be excluded in the calculation of the amount of Restricted Payments;

(e) permit a Restricted Subsidiary that is not a Wholly Owned Subsidiary to pay dividends to shareholders of that Restricted Subsidiary on or after the Measurement Date that are not the parent of that Restricted Subsidiary, so long as the Company or a Restricted Subsidiary that is the parent of that Restricted Subsidiary receives dividends on a pro rata basis or on a basis that results in the receipt by the Company or a Restricted Subsidiary that is the parent of that Restricted Subsidiary of dividends or distributions of greater value than it would receive on a pro rata basis;

(f) make cash payments in lieu of fractional shares in connection with the exercise of warrants, options or other securities convertible into Capital Stock of the Issuer; provided, however , that such repurchases shall be excluded in the calculation of the amount of Restricted Payments;

(g) make repurchases of shares of common stock of the Company deemed to occur upon the exercise of options to purchase shares of common stock of the Company if such shares of common stock of the Company represent a portion of the exercise price of such options; provided, however , that such repurchases shall be excluded in the calculation of the amount of Restricted Payments;

(h) pay dividends on the common stock of the Company following the first Public Equity Offering of the Company after the Issue Date in an annual amount not to exceed 6.0% of the net cash proceeds received by the Company in such Public Equity Offering; provided, however , that such dividends shall be included in the calculation of the amount of Restricted Payments;

(i) repurchase shares of, or options to purchase shares of, common stock of the Company from current or former officers, directors or employees of the Company or any of its Subsidiaries (or permitted transferees of such current or former officers, directors or employees), pursuant to the terms of agreements (including employment agreements) or plans approved by the Board of Directors under which such individuals acquire shares of such common stock; provided, however , that the aggregate amount of such repurchases shall not exceed $10.0 million; and provided further, however , that such repurchases shall be excluded in the calculation of the amount of Restricted Payments; and

(j) purchase, defease or otherwise acquire or retire for value any Subordinated Obligations upon a Change of Control of the Company or an Asset Sale by the Company, to the extent required by any agreement pursuant to which such Subordinated Obligations were issued, but only if the Company has previously made the offer to purchase Notes required under Repurchase at the Option of Holders Upon a Change of Control or Limitation on Asset Sales; provided, however , that such payments shall be included in the calculation of the amount of Restricted Payments.

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Limitation on Liens

Limitation on Asset Sales

The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale unless:

(a) the Company or the Restricted Subsidiary receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the Property subject to that Asset Sale;

(c) the Company delivers an Officers Certificate to the trustee certifying that the Asset Sale complies with the foregoing clauses (a) and (b).

For the purposes of this covenant:

(1) in the case of a transaction involving a sale of any distribution center by the Company or a Restricted Subsidiary and the establishment of an outsourcing arrangement in which the purchaser assumes distribution responsibilities on behalf of the Company or the Restricted Subsidiary, any credits or other consideration the purchaser grants to the Company or the Restricted Subsidiary as part of the purchase price of the distribution center, which credits or other consideration effectively offset future payments due from the Company or the Restricted Subsidiary to the purchaser as part of the outsourcing arrangement, will be considered to be cash equivalents;

(2) securities or other assets received by the Company or any Restricted Subsidiary from the transferee that are converted by the Company or such Restricted Subsidiary into cash within 90 days shall be considered to be cash to the extent of the cash received in that conversion;

(3) any cash consideration paid to the Company or the Restricted Subsidiary in connection with the Asset Sale that is held in escrow or on deposit to support indemnification, adjustment of purchase price or similar obligations in respect of such Asset Sale shall be considered to be cash; and

(4) the requirement that at least 75% of the consideration paid to the Company or the Restricted Subsidiary in connection with the Asset Sale be in the form of cash or cash equivalents shall also be considered satisfied if the cash received constitutes at least 75% of the consideration received by the Company or the Restricted Subsidiary in connection with such Asset Sale, determined on an after-tax basis.

(a) to Repay Debt of the Company (excluding, in any such case, any Debt that (i) constitutes a Subordinated Obligation or (ii) is owed to the Company or an Affiliate of the Company); or

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provided, however , that the Net Available Cash (or any portion thereof) from Asset Sales from the Company to any Subsidiary must be reinvested in Additional Assets of the Company.

Any Net Available Cash from an Asset Sale not applied in accordance with the preceding paragraph within 360 days from the date of the receipt of that Net Available Cash or that the Company earlier elects to so designate shall constitute Excess Proceeds.

When the aggregate amount of Excess Proceeds not previously subject to a Prepayment Offer (as defined below) exceeds $10.0 million (taking into account income earned on those Excess Proceeds, if any), the Company will be required to make an offer to purchase (the Prepayment Offer) the notes, which offer shall be in the amount of the Allocable Excess Proceeds, on a pro rata basis according to principal amount, at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the purchase date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), in accordance with the procedures (including prorating in the event of oversubscription) set forth in the indenture. To the extent that any portion of the amount of Net Available Cash remains after compliance with the preceding sentence and provided that all holders of notes have been given the opportunity to tender their notes for purchase in accordance with the indenture, the Company or such Restricted Subsidiary may use the remaining amount for any purpose permitted by the indenture and the amount of Excess Proceeds will be reset to zero.

The term Allocable Excess Proceeds will mean the product of:

(a) the Excess Proceeds, and

(b) a fraction,

(1) the numerator of which is the aggregate principal amount of the notes outstanding on the date of the Prepayment Offer, and

Not later than five business days after the Company is obligated to make a Prepayment Offer as described in the preceding paragraph, the Company shall send a written notice, by first-class mail, to the holders of notes, accompanied by information regarding the Company and its Subsidiaries as the Company in good faith believes will enable the holders to make an informed decision with respect to that Prepayment Offer. The notice shall state, among other things, the purchase price and the purchase date, which shall be, subject to any contrary requirements of applicable law, a business day no earlier than 30 days nor later than 60 days from the date the notice is mailed.

Limitation on Restrictions on Distributions from Restricted Subsidiaries

(b) make any loans or advances to the Company or any other Restricted Subsidiary, or

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The foregoing limitations will not apply:

(1) with respect to clauses (a), (b) and (c), to restrictions:

(A) in effect on the Issue Date,

(E) constituting Standard Securitization Undertakings relating solely to, and restricting only the rights of, a Receivables Entity in connection with a Qualified Receivables Transaction, and

(2) with respect to clause (c) only, to restrictions:

(D) which are customary restrictions contained in asset sale agreements limiting the transfer of Property pending the closing of the sale.

Limitation on Transactions with Affiliates

(a) the terms of such Affiliate Transaction are:

(1) set forth in writing, and

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Notwithstanding the foregoing limitation, the Company or any Restricted Subsidiary may enter into or suffer to exist the following:

(a) any transaction or series of transactions between the Company and one or more Restricted Subsidiaries or between two or more Restricted Subsidiaries in the ordinary course of business, provided that no more than 5% of the total voting power of the Voting Stock (on a fully diluted basis) of any such Restricted Subsidiary is owned by an Affiliate of the Company (other than a Restricted Subsidiary);

(b) any Restricted Payment permitted to be made pursuant to the covenant described under Limitation on Restricted Payments or any Permitted Investment;

(c) the payment of compensation (including amounts paid pursuant to employee benefit plans) for the personal services of officers, directors and employees of the Company or any of the Restricted Subsidiaries, so long as, in the case of executive officers and directors, the Board of Directors in good faith shall have approved the terms thereof and deemed the services theretofore or thereafter to be performed for the compensation to be fair consideration therefor;

(d) loans and advances to employees made in the ordinary course of business in compliance with applicable laws and consistent with the past practices of the Company or that Restricted Subsidiary, as the case may be, provided that those loans and advances do not exceed $10.0 million in the aggregate at any one time outstanding;