Levi Strauss & Co. (LEVI) 10-Q 2011 Q1 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly Period Ended February 27, 2011
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number:002-90139

LEVI STRAUSS & CO.

(Exact Name of Registrant as Specified in Its Charter)

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

1155 Battery Street, San Francisco, California 94111
(Address of Principal Executive Offices) (Zip Code)

(415) 501-6000

(Registrant’s Telephone Number, Including Area Code)

None

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o

(Do not check if a smaller reporting company)

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

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

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

Common Stock $.01 par value — 37,324,857 shares outstanding on April 7, 2011

LEVI STRAUSS & CO. AND SUBSIDIARIES

INDEX TOFORM 10-Q

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 27, 2011

		Page
		Number
PART I — FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (unaudited):
	Consolidated Balance Sheets as of February 27, 2011, and November 28, 2010		3
	Consolidated Statements of Income for the Three Months Ended February 27, 2011, and February 28, 2010		4
	Consolidated Statements of Cash Flows for the Three Months Ended February 27, 2011, and February 28, 2010		5
	Notes to Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		24
Item 4T.	Controls and Procedures		24
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings		26
Item 1A.	Risk Factors		26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		26
Item 3.	Defaults Upon Senior Securities		26
Item 4.	Submission of Matters to a Vote of Security Holders		27
Item 5.	Other Information		27
Item 6.	Exhibits		27
SIGNATURE			28
EX-31.1
EX-31.2
EX-32

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PART I — FINANCIAL INFORMATION

Item 1.   CONSOLIDATED FINANCIAL STATEMENTS

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	February 27,			November 28,
	2011			2010
	(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	249,113		$	269,726
Restricted cash		3,563			4,028
Trade receivables, net of allowance for doubtful accounts of $27,826 and $24,617		463,836			553,385
Inventories:
Raw materials		5,691			6,770
Work-in-process		9,666			9,405
Finished goods		608,960			563,728
Total inventories		624,317			579,903
Deferred tax assets, net		141,088			137,892
Other current assets		102,652			106,198
Total current assets		1,584,569			1,651,132
Property, plant and equipment, net of accumulated depreciation of $699,906 and $683,258		497,345			488,603
Goodwill		242,482			241,472
Other intangible assets, net		81,894			84,652
Non-current deferred tax assets, net		561,792			559,053
Other assets		114,516			110,337
Total assets	$	3,082,598		$	3,135,249
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Short-term borrowings	$	43,375		$	46,418
Current maturities of long-term debt		—			—
Current maturities of capital leases		1,828			1,777
Accounts payable		203,472			212,935
Other accrued liabilities		240,324			275,443
Accrued salaries, wages and employee benefits		168,090			196,152
Accrued interest payable		36,440			9,685
Accrued income taxes		22,299			17,115
Total current liabilities		715,828			759,525
Long-term debt		1,832,324			1,816,728
Long-term capital leases		3,315			3,578
Postretirement medical benefits		144,332			147,065
Pension liability		367,169			400,584
Long-term employee related benefits		94,093			102,764
Long-term income tax liabilities		50,313			50,552
Other long-term liabilities		53,587			54,281
Total liabilities		3,260,961			3,335,077
Commitments and contingencies
Temporary equity		9,911			8,973
Stockholders’ Deficit:
Levi Strauss & Co. stockholders’ deficit
Common stock — $.01 par value; 270,000,000 shares authorized; 37,318,279 shares and 37,322,358 shares issued and outstanding		373			373
Additional paid-in capital		19,737			18,840
Retained earnings		53,757			33,346
Accumulated other comprehensive loss		(271,658	)		(272,168	)
Total Levi Strauss & Co. stockholders’ deficit		(197,791	)		(219,609	)
Noncontrolling interest		9,517			10,808
Total stockholders’ deficit		(188,274	)		(208,801	)
Total liabilities, temporary equity and stockholders’ deficit	$	3,082,598		$	3,135,249

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

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LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended
	February 27,			February 28,
	2011			2010
	(Dollars in thousands) (Unaudited)
Net sales	$	1,099,885		$	1,016,007
Licensing revenue		20,808			19,199
Net revenues		1,120,693			1,035,206
Cost of goods sold		562,726			502,278
Gross profit		557,967			532,928
Selling, general and administrative expenses		459,093			425,677
Operating income		98,874			107,251
Interest expense		(34,866	)		(34,173	)
Other income (expense), net		(5,959	)		12,463
Income before income taxes		58,049			85,541
Income tax expense		18,881			29,672
Net income		39,168			55,869
Net loss attributable to noncontrolling interest		1,507			485
Net income attributable to Levi Strauss & Co.	$	40,675		$	56,354

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

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LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended
	February 27,			February 28,
	2011			2010
	(Dollars in thousands) (Unaudited)
Cash Flows from Operating Activities:
Net income	$	39,168		$	55,869
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		28,390			25,524
Asset impairments		596			580
Gain on disposal of property, plant and equipment		(59	)		(121	)
Unrealized foreign exchange losses (gains)		6,650			(12,677	)
Realized loss on settlement of forward foreign exchange contracts not designated for hedge accounting		5,723			2,364
Employee benefit plans’ amortization from accumulated other comprehensive loss		793			944
Employee benefit plans’ curtailment (gain) loss, net		(16	)		100
Amortization of deferred debt issuance costs		1,058			1,144
Stock-based compensation		1,841			1,586
Allowance for doubtful accounts		3,028			1,306
Change in operating assets and liabilities:
Trade receivables		87,388			78,826
Inventories		(43,962	)		(20,683	)
Other current assets		3,313			(11,326	)
Other non-current assets		(5,350	)		(6,103	)
Accounts payable and other accrued liabilities		(11,799	)		(18,224	)
Income tax liabilities		3,799			15,591
Accrued salaries, wages and employee benefits and long-term employee related benefits		(74,259	)		(42,332	)
Other long-term liabilities		(359	)		3,220
Other, net		83			(61	)
Net cash provided by operating activities		46,026			75,527
Cash Flows from Investing Activities:
Purchases of property, plant and equipment		(40,498	)		(36,365	)
Proceeds from sale of property, plant and equipment		76			914
Payments on settlement of forward foreign exchange contracts not designated for hedge accounting		(5,723	)		(2,364	)
Other		—			(114	)
Net cash used for investing activities		(46,145	)		(37,929	)
Cash Flows from Financing Activities:
Repayments of long-term debt and capital leases		(456	)		(454	)
Short-term borrowings, net		(2,261	)		8,884
Restricted cash		618			(32	)
Repurchase of common stock		(245	)		—
Dividend to stockholders		(20,023	)		—
Net cash (used for) provided by financing activities		(22,367	)		8,398
Effect of exchange rate changes on cash and cash equivalents		1,873			(1,431	)
Net (decrease) increase in cash and cash equivalents		(20,613	)		44,565
Beginning cash and cash equivalents		269,726			270,804
Ending cash and cash equivalents	$	249,113		$	315,369
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	5,009		$	26,283
Income taxes		11,933			16,500

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

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LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 27, 2011

NOTE 1:   SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

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

Basis of Presentation and Principles of Consolidation

The unaudited consolidated financial statements of the Company and its wholly-owned and majority-owned foreign and domestic subsidiaries are prepared in conformity with generally accepted accounting principles in the United States (“U.S.”) for interim financial information. In the opinion of management, all adjustments necessary for a fair statement of the financial position and the results of operations for the periods presented have been included. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended November 28, 2010, included in the Annual Report onForm 10-K filed by the Company with the Securities and Exchange Commission (“SEC”) on February 8, 2011.

The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated. Management believes the disclosures are adequate to make the information presented herein not misleading. Certain prior-year amounts have been reclassified to conform to the current presentation. The results of operations for the three months ended February 27, 2011, may not be indicative of the results to be expected for any other interim period or the year ending November 27, 2011.

The Company’s fiscal year ends on the last Sunday of November in each year, although the fiscal years of certain foreign subsidiaries are fixed at November 30 due to local statutory requirements. Apart from these subsidiaries, each quarter of both fiscal years 2011 and 2010 consists of 13 weeks. All references to years relate to fiscal years rather than calendar years.

Subsequent events have been evaluated through the issuance date of these financial statements. The recent earthquake, tsunami and related events in Japan, which occurred subsequent to the Company’s first fiscal quarter, did not have an immediate material impact to the Company’s assets or obligations.

Use of Estimates

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

Recently Issued Accounting Standards

There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s consolidated financial statements, from those disclosed in the Company’s 2010 Annual Report onForm 10-K.

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LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 27, 2011

NOTE 2:   GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill by business segment for the three months ended February 27, 2011, were as follows:

					Asia
	Americas		Europe		Pacific			Total
	(Dollars in thousands)
Balance, November 28, 2010	$	207,427	$	31,603	$	2,442		$	241,472
Foreign currency fluctuation		1		1,016		(7	)		1,010
Balance, February 27, 2011	$	207,428	$	32,619	$	2,435		$	242,482

Other intangible assets, net, were as follows:

	February 27, 2011							November 28, 2010
	Gross		Accumulated					Gross		Accumulated
	Carrying Value		Amortization			Total		Carrying Value		Amortization			Total
	(Dollars in thousands)
Unamortized intangible assets:
Trademarks	$	42,743	$	—		$	42,743	$	42,743	$	—		$	42,743
Amortized intangible assets:
Acquired contractual rights		45,947		(20,318	)		25,629		45,712		(17,765	)		27,947
Customer lists		20,699		(7,177	)		13,522		20,037		(6,075	)		13,962
Total	$	109,389	$	(27,495	)	$	81,894	$	108,492	$	(23,840	)	$	84,652

For the three months ended February 27, 2011, amortization of these intangible assets was $3.0 million, compared to $3.9 million in the same period of 2010.

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LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 27, 2011

NOTE 3:   FAIR VALUE OF FINANCIAL INSTRUMENTS

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

	February 27, 2011						November 28, 2010
			Fair Value Estimated Using						Fair Value Estimated Using
			Level 1		Level 2				Level 1		Level 2
	Fair Value		Inputs(1)		Inputs(2)		Fair Value		Inputs(1)		Inputs(2)
	(Dollars in thousands)
Financial assets carried at fair value
Rabbi trust assets	$	19,493	$	19,493	$	—	$	18,316	$	18,316	$	—
Forward foreign exchange contracts, net(3)		588		—		588		1,385		—		1,385
Total	$	20,081	$	19,493	$	588	$	19,701	$	18,316	$	1,385
Financial liabilities carried at fair value
Forward foreign exchange contracts, net(3)	$	6,471	$	—	$	6,471	$	5,003	$	—	$	5,003
Total	$	6,471	$	—	$	6,471	$	5,003	$	—	$	5,003

(1)	Fair values estimated using Level 1 inputs are inputs which consist of quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Rabbi trust assets consist of a diversified portfolio of equity, fixed income and other securities.
(2)	Fair values estimated using Level 2 inputs are inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly and include among other things, quoted prices for similar assets or liabilities in markets that are active or inactive as well as inputs other than quoted prices that are observable. For forward foreign exchange contracts, inputs include foreign currency exchange and interest rates and credit default swap prices.
(3)	The Company’s forward foreign exchange contracts are subject to International Swaps and Derivatives Association, Inc. master agreements. These agreements are signed between the Company and each respective financial institution, and permit the net-settlement of forward foreign exchange contracts on a per institution basis.

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LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 27, 2011

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

	February 27, 2011				November 28, 2010
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value(1)		Value		Fair Value(1)
			(Dollars in thousands)
Financial liabilities carried at adjusted historical cost
Senior revolving credit facility	$	108,474	$	107,121	$	108,482	$	107,129
Senior term loan due 2014		324,398		320,351		324,423		311,476
8.875% senior notes due 2016		362,770		379,833		355,004		373,379
4.25% Yen-denominated Eurobonds due 2016		112,875		103,298		109,429		98,063
7.75% Euro senior notes due 2018		422,993		440,587		401,982		407,993
7.625% senior notes due 2020		536,565		556,252		526,557		542,307
Short-term borrowings		43,717		43,717		46,722		46,722
Total	$	1,911,792	$	1,951,159	$	1,872,599	$	1,887,069

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

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LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 27, 2011

NOTE 4:   DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

As of February 27, 2011, the Company had forward foreign exchange contracts to buy $715.4 million and to sell $426.3 million against various foreign currencies. These contracts are at various exchange rates and expire at various dates through April 2012.

The table below provides data about the carrying values of derivative instruments and non-derivative instruments designated as net investment hedges:

	February 27, 2011								November 28, 2010
	Assets		(Liabilities)						Assets		(Liabilities)
						Derivative								Derivative
	Carrying		Carrying			Net Carrying			Carrying		Carrying			Net Carrying
	Value		Value			Value			Value		Value			Value
	(Dollars in thousands)
Derivatives not designated as hedging instruments
Forward foreign exchange contracts(1)	$	1,468	$	(880	)	$	588		$	7,717	$	(6,332	)	$	1,385
Forward foreign exchange contracts(2)		8,216		(14,687	)		(6,471	)		4,266		(9,269	)		(5,003	)
Total	$	9,684	$	(15,567	)				$	11,983	$	(15,601	)
Non-derivatives designated as hedging instruments
4.25% Yen-denominated Eurobonds due 2016	$	—	$	(57,897	)				$	—	$	(61,075	)
7.75% Euro senior notes due 2018		—		(413,970	)					—		(400,740	)
Total	$	—	$	(471,867	)				$	—	$	(461,815	)

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

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

							Gain (Loss) Recognized in Other
	Gain (Loss)						Income (Expense), net (Ineffective
	Recognized in AOCI						Portion and Amount Excluded from
	(Effective Portion)						Effectiveness Testing)
	As of			As of			Three Months Ended
	February 27, 2011			November 28, 2010			February 27, 2011			February 28, 2010
	(Dollars in thousands)
Forward foreign exchange contracts	$	4,637		$	4,637		$	—		$	—
4.25% Yen-denominated Eurobonds due 2016		(25,562	)		(24,377	)		(1,093	)		4,725
7.75% Euro senior notes due 2018		(36,901	)		(23,671	)		—			—
Cumulative income taxes		22,547			17,022
Total	$	(35,279	)	$	(26,389	)

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LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 27, 2011

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

	Gain or (Loss) During
	Three Months Ended
	February 27,			February 28,
	2011			2010
	(Dollars in thousands)
Forward foreign exchange contracts:
Realized	$	(5,723	)	$	(2,364	)
Unrealized		(2,373	)		7,347
Total	$	(8,096	)	$	4,983

NOTE 5:   DEBT

	February 27,		November 28,
	2011		2010
	(Dollars in thousands)
Long-term debt
Secured:
Senior revolving credit facility	$	108,250	$	108,250
Total secured		108,250		108,250
Unsecured:
Senior term loan due 2014		323,764		323,676
8.875% senior notes due 2016		350,000		350,000
4.25% Yen-denominated Eurobonds due 2016		111,340		109,062
7.75% Euro senior notes due 2018		413,970		400,740
7.625% senior notes due 2020		525,000		525,000
Total unsecured		1,724,074		1,708,478
Less: current maturities		—		—
Total long-term debt	$	1,832,324	$	1,816,728
Short-term debt
Short-term borrowings	$	43,375	$	46,418
Current maturities of long-term debt		—		—
Total short-term debt	$	43,375	$	46,418
Total long-term and short-term debt	$	1,875,699	$	1,863,146

Short-term Credit Lines and Standby Letters of Credit

As of February 27, 2011, the Company’s total availability of $376.4 million under its senior secured revolving credit facility was reduced by $78.2 million of letters of credit and other credit usage under the facility, yielding a net availability of $298.2 million.

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LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 27, 2011

Interest Rates on Borrowings

The Company’s weighted-average interest rate on average borrowings outstanding during the three months ended February 27, 2011, and February 28, 2010, was 6.84% and 7.25%, respectively.

NOTE 6:   EMPLOYEE BENEFIT PLANS

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

	Pension Benefits						Postretirement Benefits
	Three Months Ended						Three Months Ended
	February 27,			February 28,			February 27,			February 28,
	2011			2010			2011			2010
	(Dollars in thousands)
Net periodic benefit cost (income):
Service cost	$	2,583		$	1,987		$	120		$	118
Interest cost		15,028			14,989			1,907			2,169
Expected return on plan assets		(12,898	)		(11,568	)		—			—
Amortization of prior service cost (benefit)(1)		65			118			(7,236	)		(7,392	)
Amortization of actuarial loss		6,730			6,665			1,256			1,402
Curtailment (gain) loss		(16	)		100			—			—
Net settlement loss		11			172			—			—
Net periodic benefit cost (income)		11,503			12,463			(3,953	)		(3,703	)
Changes in accumulated other comprehensive loss:
Actuarial loss		—			124			—			—
Amortization of prior service (cost) benefit		(65	)		(118	)		7,236			7,392
Amortization of actuarial loss		(6,730	)		(6,665	)		(1,256	)		(1,402	)
Curtailment loss		—			(13	)		—			—
Net settlement gain (loss)		22			(151	)		—			—
Total recognized in accumulated other comprehensive loss		(6,773	)		(6,823	)		5,980			5,990
Total recognized in net periodic benefit cost (income) and accumulated other comprehensive loss	$	4,730		$	5,640		$	2,027		$	2,287

(1) Postretirement benefits amortization of prior service benefit recognized during each period relates primarily to the favorable impact of the February 2004 and August 2003 plan amendments.

As of February 27, 2011, based on changes in discount rates and the updated valuation of the Company’s pension assets, as well as its current evaluation of alternative methods available for measuring the funding obligation, the Company’s expected required contribution amount in 2011 is estimated to be in the range of $60 million to $80 million. The Company made a contribution of $40 million during the first quarter of 2011 towards this anticipated requirement.

12

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 27, 2011

NOTE 7:   COMMITMENTS AND CONTINGENCIES

Forward Foreign Exchange Contracts

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

Other Contingencies

Litigation.  There have been no material developments in the Company’s litigation matters since it filed its 2010 Annual Report onForm 10-K.

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

NOTE 8:   DIVIDEND PAYMENT

The Company paid a cash dividend of $20 million in the first quarter of 2011. The Company does not have an annual dividend policy. The Company will continue to review its ability to pay cash dividends at least annually, and dividends may be declared at the discretion of the Company’s Board of Directors depending upon, among other factors, the tax impact to the dividend recipients, the Company’s financial condition and compliance with the terms of its debt agreements.

NOTE 9:   COMPREHENSIVE INCOME (LOSS)

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

	Three Months Ended
	February 27,			February 28,
	2011			2010
	(Dollars in thousands)
Net income	$	39,168		$	55,869
Other comprehensive income (loss):
Pension and postretirement benefits		515			(2,231	)
Net investment hedge (losses) gains		(8,890	)		22,231
Foreign currency translation gains (losses)		8,527			(25,755	)
Unrealized gain on marketable securities		574			17
Total other comprehensive income (loss)		726			(5,738	)
Comprehensive income		39,894			50,131
Comprehensive loss attributable to noncontrolling interest		(1,291	)		(1,092	)
Comprehensive income attributable to Levi Strauss & Co.	$	41,185		$	51,223

13

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 27, 2011

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

	February 27,			November 28,
	2011			2010
	(Dollars in thousands)
Pension and postretirement benefits	$	(198,292	)	$	(198,807	)
Net investment hedge losses		(35,279	)		(26,389	)
Foreign currency translation losses		(28,527	)		(37,054	)
Unrealized gain on marketable securities		731			157
Accumulated other comprehensive loss		(261,367	)		(262,093	)
Accumulated other comprehensive income attributable to noncontrolling interest		10,291			10,075
Accumulated other comprehensive loss attributable to Levi Strauss & Co.	$	(271,658	)	$	(272,168	)

NOTE 10:   OTHER INCOME (EXPENSE), NET

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

	Three Months Ended
	February 27,			February 28,
	2011			2010
	(Dollars in thousands)
Foreign exchange management (losses) gains(1)	$	(8,096	)	$	4,983
Foreign currency transaction gains(2)		942			7,176
Interest income		415			592
Other		780			(288	)
Total other income (expense), net	$	(5,959	)	$	12,463

(1)	Foreign exchange management losses in 2011 were primarily due to the depreciation of the U.S. Dollar against the Swedish Krona and the Japanese Yen. Gains in 2010 were primarily due to the appreciation of the U.S. Dollar against various currencies.
(2)	Foreign currency transaction gains in 2010 were primarily due to the appreciation of the U.S. Dollar against the Japanese Yen and the Euro.

NOTE 11:   INCOME TAXES

The effective income tax rate was 32.5% for the three months ended February 27, 2011, compared to 34.7% for the same period ended February 28, 2010. The reduction in the effective tax rate was primarily due to an increase in the amount of expected earnings from foreign operations subject to tax rates lower than the U.S. statutory rate.

As of February 27, 2011, the Company’s total gross amount of unrecognized tax benefits was $152.0 million, of which $89.1 million would impact the effective tax rate, if recognized. As of November 28, 2010, the Company’s total gross amount of unrecognized tax benefits was $150.7 million, of which $87.2 million would have impacted the effective tax rate, if recognized.

14

LEVI STRAUSS & CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 27, 2011

NOTE 12:   RELATED PARTIES

Robert D. Haas, a director and Chairman Emeritus of the Company, is the President of the Levi Strauss Foundation, which is not a consolidated entity of the Company. During the three-month periods ended February 27, 2011, and February 28, 2010, the Company donated $0.3 million and $0.2 million, respectively, to the Levi Strauss Foundation.

NOTE 13:   BUSINESS SEGMENT INFORMATION

The Company manages its business according to three regional segments: the Americas, Europe and Asia Pacific. Each regional segment is managed by a senior executive who reports directly to the chief operating decision maker: the Company’s chief executive officer. The Company’s management, including the chief operating decision maker, manages business operations, evaluates performance and allocates resources based on the regional segments’ net revenues and operating income.

In the first quarter of 2011, accountability for certain information technology, human resources, advertising and promotion, and marketing staff costs of a global nature, that in prior years were captured in the Company’s geographic regions, was centralized under corporate management in conjunction with the Company’s key strategy of driving productivity. Beginning in 2011, these costs have been classified as corporate expenses. These costs were not significant to any of the Company’s regional segments individually in any of the periods presented herein, and accordingly business segment information for prior years has not been revised.

Business segment information for the Company is as follows:

	Three Months Ended
	February 27,			February 28,
	2011			2010
	(Dollars in thousands)
Net revenues:
Americas	$	592,186		$	545,249
Europe		311,604			306,123
Asia Pacific		216,903			183,834
Total net revenues	$	1,120,693		$	1,035,206
Operating income:
Americas	$	75,033		$	76,063
Europe		71,291			66,385
Asia Pacific		37,363			30,653
Regional operating income		183,687			173,101
Corporate expenses		84,813			65,850
Total operating income		98,874			107,251
Interest expense		(34,866	)		(34,173	)
Other income (expense), net		(5,959	)		12,463
Income before income taxes	$	58,049		$	85,541

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

Overview

We design and market jeans, casual and dress pants, tops, skirts, jackets, footwear and related accessories for men, women and children under our Levi’s^®, Dockers^®, Signature by Levi Strauss & Co.^tm (“Signature”) and Denizen^tm brands around the world. We also license our trademarks in many countries throughout the world for a wide array of products, including accessories, pants, tops, footwear and other products.

Our business is operated through three geographic regions: Americas, Europe and Asia Pacific. Our products are sold in approximately 55,000 retail locations in more than 110 countries. We support our brands through a global infrastructure, developing, sourcing and marketing our products around the world. We distribute our Levi’s^® and Dockers^® products primarily through chain retailers and department stores in the United States and primarily through department stores, specialty retailers and nearly 1,800 franchised and other brand-dedicated stores outside of the United States. We also distribute our Levi’s^® and Dockers^® products through our online stores operated by us, and 482 company-operated stores located in 31 countries, including the United States. These stores generated approximately 18% of our net revenues in the three-month period in 2011, as compared to 16% for the same period in 2010. In addition, we distribute our Levi’s^® and Dockers^® products through online stores operated by certain of our key wholesale customers and other third parties. We distribute products under the Signature brand primarily through mass channel retailers in the United States and Canada and franchised stores in Asia Pacific. We currently distribute our Denizen^tm products through franchised stores in Asia Pacific, and starting in the second half of 2011, will distribute them through certain wholesale channels in the United States and Mexico.

Our Europe and Asia Pacific businesses, collectively, contributed approximately 47% of our net revenues and 59% of our regional operating income in the three-month period in 2011. Sales of Levi’s^® brand products represented approximately 85% of our total net sales in the three-month period in 2011.

Trends Affecting Our Business

Our business and industry continued to feel the lingering impact of the challenged economy around the world during the first quarter of 2011. During the quarter, we remained focused on our key long-term strategies: build upon our leadership position in the jean and khaki categories through product and marketing innovation, enhance relationships with wholesale customers and expand our dedicated store network to drive sales growth, capitalize on our global footprint, and increase our productivity. We expect that the impact of increasing prices and tightened supply of raw materials, such as cotton, will contribute to ongoing pricing pressure throughout the supply chain during 2011 and thereafter. Our response to these conditions may include additional product price increases or enhanced support of our supply chain partners to maintain a sufficient flow of product. The conditions within our industry and our response to them may impact our margins, working capital, and sales volumes. Additionally, our results of operations will be adversely affected by a slowdown in the Japanese economy caused by the impact of the recent earthquake, tsunami and related events in Japan, which occurred subsequent to our first fiscal quarter and did not have an immediate material impact to our assets or obligations.

Our First Quarter 2011 Results

Our first quarter 2011 results reflect net revenue growth and the effects of the strategic investments we have made in line with our long-term strategies.

•  Net revenues.  Our consolidated net revenues increased by 8% on both reported and constant-currency bases compared to the first quarter of 2010, reflecting growth in each of our geographic regions. Increased net revenues were primarily associated with our Levi’s^® brand, through the expansion and performance of our dedicated store network globally and growth in wholesale revenues in the Americas, partially offset by continued declines in the wholesale channel in certain other markets.

•  Operating income.  Our operating income and operating margin declined compared to the first quarter of 2010, as the benefits from the increase in our net revenues were offset primarily by a lower gross margin, reflecting higher sales allowances and discounts, and our continued investment in retail expansion.

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•  Cash flows.  Cash flows provided by operating activities were $46 million for the three-month period in 2011 as compared to $76 million for the same period in 2010, reflecting our inventory build and a contribution to our pension plans.

Financial Information Presentation

Fiscal year.  Our fiscal year ends on the last Sunday of November in each year, although the fiscal years of certain foreign subsidiaries are fixed at November 30 due to local statutory requirements. Apart from these subsidiaries, each quarter of fiscal years 2011 and 2010 consisted of 13 weeks.

Segments.  We manage our business according to three regional segments: the Americas, Europe and Asia Pacific. In the first quarter of 2011, accountability for certain information technology, human resources, advertising and promotion, and marketing staff costs of a global nature, that in prior years were captured in our geographic regions, was centralized under corporate management in conjunction with our key strategy of driving productivity. Beginning in 2011, these costs have been classified as corporate expenses. These costs were not significant to any of our regional segments individually in any of the periods presented herein, and accordingly business segment information for prior years has not been revised.

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

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

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

•  Cost of goods sold is primarily comprised of product costs, labor and related overhead, sourcing costs, inbound freight, internal transfers, and the cost of operating our remaining manufacturing facilities, including the related depreciation expense.

•  Selling costs include, among other things, all occupancy costs and depreciation associated with our company-operated stores and commission payments associated with our company-operatedshop-in-shops.

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

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

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

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Results of Operations for Three Months Ended February 27, 2011, as Compared to Same Period in 2010

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

	Three Months Ended
										February 27,			February 28,
							%			2011			2010
	February 27,			February 28,			Increase			% of Net			% of Net
	2011			2010			(Decrease)			Revenues			Revenues
	(Dollars in millions)
Net sales	$	1,099.9		$	1,016.0			8.3	%		98.1	%		98.1	%
Licensing revenue		20.8			19.2			8.4	%		1.9	%		1.9	%
Net revenues		1,120.7			1,035.2			8.3	%		100.0	%		100.0	%
Cost of goods sold		562.7			502.3			12.0	%		50.2	%		48.5	%
Gross profit		558.0			532.9			4.7	%		49.8	%		51.5	%
Selling, general and administrative expenses		459.1			425.6			7.9	%		41.0	%		41.1	%
Operating income		98.9			107.3			(7.8	)%		8.8	%		10.4	%
Interest expense		(34.9	)		(34.2	)		2.0	%		(3.1	)%		(3.3	)%
Other income (expense), net		(6.0	)		12.4			(147.8	)%		(0.5	)%		1.2	%
Income before income taxes		58.0			85.5			(32.1	)%		5.2	%		8.3	%
Income tax expense		18.8			29.6			(36.4	)%		1.7	%		2.9	%
Net income		39.2			55.9			(29.9	)%		3.5	%		5.4	%
Net loss attributable to noncontrolling interest		1.5			0.5			210.7	%		0.1	%		—
Net income attributable to Levi Strauss & Co.	$	40.7		$	56.4			(27.8	)%		3.6	%		5.4	%

Net revenues

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

	Three Months Ended
					% Increase (Decrease)
	February 27,		February 28,		As			Constant
	2011		2010		Reported			Currency
	(Dollars in millions)
Net revenues:
Americas	$	592.2	$	545.3		8.6	%		8.0	%
Europe		311.6		306.1		1.8	%		6.2	%
Asia Pacific		216.9		183.8		18.0	%		12.5	%
Total net revenues	$	1,120.7	$	1,035.2		8.3	%		8.3	%

Total net revenues increased on both reported and constant-currency bases for the three-month period ended February 27, 2011, as compared to the same prior-year period.

Americas.  On both reported and constant-currency bases, net revenues in our Americas region increased for the three-month period, with currency affecting net revenues favorably by approximately $3 million.

The region’s increased net revenues were driven by the Levi’s^® brand, reflecting a higher volume of sales in our dedicated retail stores and at wholesale. Sales from our online stores also increased.

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Europe.  Net revenues in Europe increased on both reported and constant-currency bases, with currency affecting net revenues unfavorably by approximately $13 million.

Despite the region’s ongoing depressed economic environment, our net revenues increased, driven by the expansion and improved performance of our company-operated retail network throughout the region, and higher sales to franchised stores. Growth primarily reflected the success of our Levi’s^® brand new women’s products. Sales increases were partially offset by lower traditional wholesale revenues in certain markets.

Asia Pacific.  Net revenues in Asia Pacific increased on both reported and constant-currency bases, with currency affecting net revenues favorably by approximately $9 million.

The net revenues increase was primarily from our Levi’s^® brand, driven by the continued expansion of our brand-dedicated retail network in China and India as well as other of our emerging markets, offset by the continued decline of net revenues in Japan. Sales of our Denizen^tm brand products were offset by corresponding declines in Signature brand sales as we transition the brand in the region.

Gross profit

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

	Three Months Ended
							%
	February 27,			February 28,			Increase
	2011			2010			(Decrease)
	(Dollars in millions)
Net revenues	$	1,120.7		$	1,035.2			8.3	%
Cost of goods sold		562.7			502.3			12.0	%
Gross profit	$	558.0		$	532.9			4.7	%
Gross margin		49.8	%		51.5	%

As compared to the same prior-year period, the gross profit increase was driven by the increase in our net revenues, and was partially offset by a decline in our gross margin. The effect of currency on gross profit was insignificant. The gross margin decrease was primarily due to an increase in sales allowances and discounts, in both our Levi’s^® and Dockers^® brands, to drive sales and manage inventory; in addition, we marked down excess and obsolete inventory in selected markets. These factors were partially offset by the impact to our gross margin of the increased revenue contribution from our company-operated retail network, which generally has a higher gross margin than our wholesale business.

Selling, general and administrative expenses

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

	Three Months Ended
								February 27,			February 28,
					%			2011			2010
	February 27,		February 28,		Increase			% of Net			% of Net
	2011		2010		(Decrease)			Revenues			Revenues
	(Dollars in millions)
Selling	$	175.2	$	156.3		12.1	%		15.6	%		15.1	%
Advertising and promotion		62.2		58.4		6.4	%		5.6	%		5.6	%
Administration		104.0		94.8		9.7	%		9.3	%		9.2	%
Other		117.7		116.1		1.3	%		10.5	%		11.2	%
Total SG&A expenses	$	459.1	$	425.6		7.9	%		41.0	%		41.1	%

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The effect of currency on our SG&A expenses for the three-month period ended February 27, 2011, was insignificant.

Selling.  Selling expenses increased across all business segments, primarily reflecting additional costs, such as rents and increased headcount, associated with the continued expansion of our company-operated store network. We had 56 more company-operated stores at quarter end than we did at February 28, 2010.

Advertising and promotion.  Advertising and promotion expenses continued to reflect our ongoing strategy of investment behind our brands. The increase for the three-month period primarily reflected our expanding presence in Asia Pacific and our recently-launched Denizen^tm brand.

Administration.  The increase in administration expenses for the three-month period was driven primarily by an increase in incentive compensation expense related to higher projected funding.

Other.  Other SG&A expenses include distribution, information resources, and marketing organization costs, all of which increased slightly as compared to prior year.

Operating income

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

	Three Months Ended
										February 27,			February 28,
							%			2011			2010
	February 27,			February 28,			Increase			% of Net			% of Net
	2011			2010			(Decrease)			Revenues			Revenues
	(Dollars in millions)
Operating income:
Americas	$	75.0		$	76.1			(1.4	)%		12.7	%		14.0	%
Europe		71.3			66.4			7.4	%		22.9	%		21.7	%
Asia Pacific		37.4			30.6			21.9	%		17.2	%		16.7	%
Total regional operating income		183.7			173.1			6.1	%		16.4	%*		16.7	%*
Corporate expenses		84.8			65.8			28.8	%		7.6	%*		6.4	%*
Total operating income	$	98.9		$	107.3			(7.8	)%		8.8	%*		10.4	%*
Operating margin		8.8	%		10.4	%

* Percentage of consolidated net revenues

Currency favorably affected total operating income by approximately $3 million for the three-month period.

Regional operating income.

•  Americas.  The decrease in operating margin and operating income primarily reflected the region’s decline in gross margin, the effects of which were partially offset by higher net revenues.

•  Europe.  The increase in operating margin and operating income was primarily due to higher net revenues and the favorable impact of currency.

•  Asia Pacific.  The increase in operating margin and operating income primarily reflected the region’s improved gross margin and higher net revenues, the effects of which were partially offset primarily by higher expenses related to our company-operated store expansion.

Corporate.  Corporate expenses are selling, general and administrative expenses that are not attributed to any of our regional operating segments. Corporate expenses for the three-month period increased over the same prior-year period primarily due to the classification of certain marketing, advertising and promotion, information technology and human resources costs of a global nature centralized under corporate management in the first

20

quarter of 2011; such costs totaled approximately $7 million in our Americas region and were not significant to our Europe and Asia Pacific regions; prior period amounts have not been reclassified. Higher corporate expenses also reflected an increase in incentive compensation expense related to higher projected funding.

Interest expense

Interest expense increased to $34.9 million for the three-month period ended February 27, 2011, from $34.2 million for the same period in 2010. A decline in interest expense driven by lower average borrowing rates, resulting from our debt refinancing activity that occurred in the second quarter of 2010, was more than offset primarily by increased interest expense on our deferred compensation plans.

The weighted-average interest rate on average borrowings outstanding for the three-month period ended February 27, 2011, was 6.84% as compared to 7.25% for the same period in 2010.

Other income (expense), net

Other income (expense), net, primarily consists of foreign exchange management activities and transactions. For the three-month period ended February 27, 2011, we recorded expense of $6.0 million compared to income of $12.4 million for the same prior-year period.

The expense in 2011 reflected losses on foreign exchange derivatives which economically hedge future cash flow obligations of our foreign operations. The income in 2010 primarily reflects transaction gains on our foreign currency denominated balances, including our Yen-denominated Eurobond, as well as gains on foreign exchange derivatives.

Income tax expense

Our effective income tax rate was 32.5% for the three months ended February 27, 2011, compared to 34.7% for the same period ended February 28, 2010. The reduction in our effective income tax rate was primarily driven by an increase in the amount of expected earnings from foreign operations subject to tax rates lower than the U.S. statutory rate.

Liquidity and Capital Resources

Liquidity outlook

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

Cash sources

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

We are borrowers under an amended and restated senior secured revolving credit facility. The maximum availability under the facility is $750 million secured by certain of our domestic assets and certain U.S. trademarks associated with the Levi’s^® brand and other related intellectual property. The facility includes a $250 million trademark tranche and a $500 million revolving tranche. The revolving tranche increases as the trademark tranche is repaid, up to a maximum of $750 million when the trademark tranche is repaid in full. Upon repayment of the trademark tranche, the secured interest in the U.S. trademarks will be released. As of February 27, 2011, we had borrowings of $108.3 million under the trademark tranche and no outstanding borrowings under the revolving tranche. Unused availability under the revolving tranche was $298.2 million, as our total availability of $376.4 million, based on collateral levels as defined by the agreement, was reduced by $78.2 million of other credit-related instruments such as documentary and standby letters of credit allocated under the facility.

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Under the facility, we are required to meet a fixed charge coverage ratio as defined in the agreement of 1.0:1.0 when unused availability is less than $100 million. This covenant will be discontinued upon the repayment in full and termination of the trademark tranche described above, at which time our availability under the facility will be reduced by a required unfunded availability reserve of $50 million.

As of February 27, 2011, we had cash and cash equivalents totaling approximately $249.1 million, resulting in a total liquidity position (unused availability and cash and cash equivalents) of $547.3 million.

Cash uses

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

There have been no material changes to our estimated cash requirements for 2011 from those disclosed in our 2010 Annual Report onForm 10-K, except for our projected pension plan contributions. Based on changes in discount rates and the updated valuation of our pension assets, as well as our current evaluation of alternative methods available to us for measuring our pension funding obligation, we now expect our required contribution amount in 2011 will be in the range of $60 million to $80 million. We made a contribution of $40 million during the first quarter of 2011 towards this anticipated requirement.

Cash flows

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

	Three Months Ended
	February 27,			February 28,
	2011			2010
	(Dollars in millions)
Cash provided by operating activities	$	46.0		$	75.5
Cash used for investing activities		(46.1	)		(37.9	)
Cash (used for) provided by financing activities		(22.4	)		8.4
Cash and cash equivalents		249.1			315.4

Cash flows from operating activities

Cash provided by operating activities was $46.0 million for the three-month period in 2011, as compared to $75.5 million for the same period in 2010. Operating cash declined compared to the prior year due to higher cash used for inventory and our pension plan contribution. This decline was partially offset by an increase in cash collected from customers, reflecting our higher net revenues.

Cash flows from investing activities

Cash used for investing activities was $46.1 million for the three-month period in 2011, as compared to $37.9 million for the same period in 2010. As compared to the prior year, the increase in cash used for investing activities primarily reflects investments made in our information technology systems associated with the installation of our global enterprise resource planning system.

Cash flows from financing activities

Cash used for financing activities was $22.4 million for the three-month period in 2011, compared to cash provided of $8.4 million for the same period in 2010. Cash used in 2011 primarily related to our dividend payments to stockholders of $20.0 million.

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Indebtedness

We had fixed-rate debt of approximately $1.5 billion (77% of total debt) and variable-rate debt of approximately $0.4 billion (23% of total debt) as of February 27, 2011. The borrower of substantially all of our debt is Levi Strauss & Co., the parent and U.S. operating company. Our long-term debt agreements contain customary covenants restricting our activities as well as those of our subsidiaries. We are in compliance with all of these covenants. There have been no substantial changes to our required aggregate debt principal payments for each of the next five years and thereafter from those disclosed in our 2010 Annual Report onForm 10-K.

Off-Balance Sheet Arrangements, Guarantees and Other Contingent Obligations

There have been no substantial changes to our off-balance sheet arrangements or contractual commitments from those disclosed in our 2010 Annual Report onForm 10-K.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes. There have been no significant changes to our critical accounting policies from those disclosed in our 2010 Annual Report onForm 10-K except that we no longer consider our accounting policy on derivative and foreign exchange management activities to be critical.

Recently Issued Accounting Standards

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

FORWARD-LOOKING STATEMENTS

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

These forward-looking statements include statements relating to our anticipated financial performance and business prospectsand/or statements preceded by, followed by or that include the words “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project”, “could”, “plans”, “seeks” and similar expressions. These forward-looking statements speak only as of the date stated and we do not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, even if experience or future events make it clear that any expected results expressed or implied by these forward-looking statements will not be realized. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these expectations may not prove to be correct or we may not achieve the financial results, savings or other benefits anticipated in the forward-looking statements. These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties, some of which may be beyond our control. These risks and uncertainties, including those disclosed under “Risk Factors” in our Annual Report onForm 10-K for the fiscal year ended November 28, 2010, and our other filings with the Securities and Exchange Commission, could cause actual results to differ materially from those suggested by the forward-looking statements and include, without limitation:

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

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

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•  our ability to mitigate costs related to manufacturing, sourcing, and raw materials supply, such as cotton, and to manage consumer response to such mitigating actions;

•  consequences of the actions we take to support our supply chain partners as a response to the rising costs of manufacturing, sourcing, and raw materials supply;

•  our ability to mitigate the impact of a slowdown in the Japanese economy due to the natural disasters and related events in that country;

•  our ability to grow our Dockers^® brand and to expand our Denizen^tm brand into new markets and channels;

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

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

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

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

•  our effectiveness in increasing productivity and efficiency in our operations;

•  our ability to implement, stabilize and optimize our enterprise resource planning system throughout our business without disruption or to mitigate such disruptions;

•  consequences of foreign currency exchange rate fluctuations;

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

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

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

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

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

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

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

Item 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our primary market risk exposures or how those exposures are managed from the information disclosed in our 2010 Annual Report onForm 10-K.

Item 4T.   CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of February 27, 2011, we updated our evaluation of the effectiveness of the design and operation of our disclosure controls and procedures for purposes of filing reports under the Securities and Exchange Act of 1934 (the “Exchange Act”). This controls evaluation was done under the supervision and with the participation of management, including our chief executive officer and our chief financial officer. Our chief executive officer and our chief financial officer concluded that at February 27, 2011, our disclosure controls and procedures (as defined inRule 13a-15(e) and15d-15(e) under the Exchange Act) are effective to provide reasonable assurance that information that we are required to disclose in the reports that we file or submit to the SEC is recorded, processed,

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summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

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

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PART II — OTHER INFORMATION

Item 1.   LEGAL PROCEEDINGS

Litigation.  There have been no material developments in our litigation matters since we filed our 2010 Annual Report onForm 10-K.

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

Item 1A.   RISK FACTORS

There have been no material changes in our risk factors from those disclosed in our 2010 Annual Report onForm 10-K.

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

On February 3, 2011, our board approved the award of restricted stock units (“RSUs”) representing an aggregate of 1,734 shares of our common stock to Fernando Aguirre, and the award of stock appreciation rights (“SARs”) representing an aggregate of 569,370 shares of our common stock to certain of our executives. These awards were made under our 2006 Equity Incentive Plan.

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

The SARs were granted with an exercise price equal to the fair market value of the common stock on the date of grant as determined by the board. 25% of each SAR grant vests on February 2, 2012, with the remaining 75% balance vesting at a rate of 75%/36 months (2.08% per month) commencing February 3, 2012, and ending January 3, 2015, subject to continued service.

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

We will not receive any proceeds from the issuance or vesting of RSUs or SARs nor upon the exercise of the SARs. The RSUs and SARs were granted under Section 4(2) of the Securities Act of 1993, as amended. Section 4(2) generally provides an exemption from registration for transactions by an issuer not involving any public offering.

We are a privately-held corporation; there is no public trading of our common stock. As of April 7, 2011, we had 37,324,857 shares outstanding.

Item 3.   DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

Item 5.   OTHER INFORMATION

None.

Item 6.   EXHIBITS

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

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SIGNATURE

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

LEVI STRAUSS & Co.

(Registrant)

By:  /s/  Heidi L. Manes

Heidi L. Manes

Vice President and Controller

(Principal Accounting Officer)

Date: April 12, 2011

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EXHIBIT INDEX

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