Filed Pursuant to Rule 424(b)(3)
Registration No. 333-167687

Prospectus

LEVI STRAUSS & CO.

 

Offer to Exchange
all outstanding unregistered 73/4% Senior Notes due 2018
(€300,000,000 aggregate principal amount outstanding)
for
73/4% Senior Notes due 2018
(€300,000,000 aggregate principal amount)
which have been registered under the Securities Act of 1933
and
all outstanding unregistered 75/8% Senior Notes due 2020
($525,000,000 aggregate principal amount outstanding)
for
75/8% Senior Notes due 2020
($525,000,000 aggregate principal amount)
which have been registered under the Securities Act of 1933

 

The Exchange Offer

 

 

The Exchange Notes

 

 

Resale of Exchange Notes

 

 

Broker dealers who receive exchange notes pursuant to the exchange offer acknowledge that they will deliver a prospectus in connection with any resale of such exchange notes. Broker dealers who acquired the outstanding old notes as a result of market making or other trading activities may use the prospectus for the exchange offer, as supplemented or amended, in connection with resales of the exchange notes.

 

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

 

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.

 

The date of this prospectus is July 2, 2010.

 

TABLE OF CONTENTS

 

 

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 voluntarily 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 SEC’s 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 SEC’s 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 5:00 p.m., New York City time on August 2, 2010 (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 holder’s 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 the 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.”

 

Except for the historical information contained in this prospectus, certain matters discussed in this prospectus, including, without limitation, statements under “Summary,” “Business,” “Management’s 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. These risks and uncertainties, including those disclosed under “Risk Factors” in this prospectus and in our filings with the SEC could cause actual results to differ materially from those suggested by the forward-looking statements and include, without limitation:

 

 

For more information on these and other factors, see “Risk Factors” in this prospectus. We caution prospective purchasers not to place undue reliance on these forward-looking statements. 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.

 

SUMMARY

Registration Rights Agreement		In connection with the issuance of the €300.0 million of old Euro Notes and the $525.0 million of old Dollar Notes on May 6, 2010, we entered into a registration rights agreement with the initial purchasers with respect to each series of old notes in which we agreed, among other things, to complete an exchange offer.
		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 agreement. 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 €300.0 million aggregate principal amount of old Euro Notes for up to €300.0 million aggregate principal amount of Euro Exchange Notes; and
		• up to $525.0 million aggregate principal amount of old Dollar Notes for up to $525.0 million aggregate principal amount of Dollar Exchange Notes.
		You may exchange old Euro Notes only in integral multiples of €50,000 principal amount and integral multiples of €1,000 in excess thereof and old Dollar Notes only in a minimum denomination of $100,000 and integral multiples of $1,000 principal amount in excess thereof.
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. After the exchange offer, we will be subject to the informational requirements of the Exchange Act and will 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;

		• 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 5:00 p.m., New York City time, on August 2, 2010, 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

		agreed to be bound by, and to have made all of the representations and warranties contained in the letter of transmittal.
		Holders of old Dollar Notes hold their notes through DTC. Holders of old Euro Notes hold their Euro Notes through Euroclear or Clearstream, Luxembourg, which are participants in DTC.
		To tender in the exchange offer, a holder must comply with the following procedures, as applicable:
		Holders of old notes through DTC:  If you wish to exchange your old notes and either you or your registered holder hold your old notes (either old Euro Notes or old Dollar Notes) in book-entry form directly through DTC, you must submit an instruction and follow the procedures for book-entry transfer as provided under “The Exchange Offer — Book-Entry Transfer.”
		Holders of old notes through Euroclear or Clearstream, Luxembourg:  If you wish to exchange your old notes and either you or your registered holder hold your old notes (either old Euro Notes or old Dollar Notes) in book-entry form directly through Euroclear or Clearstream, Luxembourg, you should be aware that pursuant to their internal guidelines, Euroclear and Clearstream, Luxembourg will automatically exchange your old notes for exchange 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 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.
		Only a registered holder of record of old notes may tender old notes in the exchange offer. 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. 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.
		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.
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.”

Issuer		Levi Strauss & Co., a Delaware corporation.
Securities Offered		€300.0 million aggregate principal amount of 73/4% Euro Exchange Notes due 2018 and registered under the Securities Act.
		$525.0 million aggregate principal amount of 75/8% Dollar Exchange Notes due 2020 and registered under the Securities Act.
Maturity		For the Euro Exchange Notes: May 15, 2018.
		For the Dollar Exchange Notes: May 15, 2020.
Interest Payment Dates		For the Euro Exchange Notes offered by this prospectus: Semi-annually on May 15 and November 15 of each year, commencing on November 15, 2010.
		For the Dollar Exchange Notes offered by this prospectus: Semi-annually on May 15 and November 15 of each year, commencing on November 15, 2010.
Ranking		The exchange notes will be general senior obligations of Levi Strauss & Co. and will:
		• rank equally in right of payment to all our existing and future senior unsecured debt;
		• rank senior in right of payment to our future debt that is expressly subordinated in right of payment to the exchange notes;
		• be effectively subordinated to our secured indebtedness, including indebtedness under our existing credit facilities, to the extent of the value of the collateral securing such indebtedness; and
		• be structurally subordinated to all of the existing and future liabilities, including trade payables, of our subsidiaries.
		At February 28, 2010, on an as adjusted basis to give effect to the issuance of €300.0 million of our old Euro Notes and $525.0 million of our old Dollar Notes and the application of the proceeds of such notes to the payment of our 85/8% senior notes due 2013 and our 93/4% senior notes due 2015, and the purchase of ¥10,883,500,000 of our 41/4% Eurobonds due November 22, 2016, we would have had approximately $108.3 million of secured indebtedness under the trademark tranche of our senior secured revolving credit facility and no outstanding borrowings under the revolving tranche. As of February 28, 2010, unused availability under the revolving tranche was $193.4 million, as our total availability of $273.6 million, based on collateral levels as defined by the agreement, was reduced by $80.2 million of other credit-related instruments, such as documentary and standby letters of credit allocated under the facility. In addition, our subsidiaries would have had approximately $518.3 million of liabilities, including trade payables, but excluding intercompany obligations.

Optional Redemption		On or after May 15, 2014, we may redeem some or all of the Euro Exchange Notes at any time at the redemption prices described in the section “Description of Exchange Notes — Optional Redemption.” On or after May 15, 2015, we may redeem some or all of the Dollar Exchange Notes at any time at the redemption prices described in the section “Description of Exchange Notes — Optional Redemption.” Prior to such dates, we may redeem some or all of the exchange notes at a redemption price of 100% of the principal amount plus accrued and unpaid interest, if any, to the redemption date, plus a “make-whole” premium. In addition, we may redeem up to 35% of the aggregate principal amount of the Euro Exchange Notes before May 15, 2013 with the proceeds of certain equity offerings at a redemption price of 107.750% of the principal amount plus accrued and unpaid interest, if any, to the redemption date, and we may redeem up to 35% of the aggregate principal amount of the Dollar Exchange Notes before May 15, 2013 with the proceeds of certain equity offerings at a redemption price of 107.625% of the principal amount plus accrued and unpaid interest, if any, to the redemption date.
Change in Control		If we experience certain kinds of changes of control, we must offer to purchase the exchange notes at 101% of their principal amount, plus accrued and unpaid interest. For more details, see the section “Description of Exchange Notes” under the heading “Repurchase at the Option of Holders Upon a Change of Control.”
Additional Amounts		Any payments made by us with respect to the Euro Exchange Notes and the old Euro Notes will be made without withholding or deduction for taxes imposed by any relevant taxing jurisdiction unless required by law. If we are required by law to withhold or deduct for taxes with respect to a payment to the holders of Euro Exchange Notes and the old Euro Notes, we will pay additional amounts necessary so that the net amount received by the holders of Euro Exchange Notes and old Euro Notes after the withholding is not less than the amount that they would have received in the absence of the withholding. See “Description of Exchange Notes — Payment of Additional Amounts.”
Redemption for Taxation Reasons		In the event that we become obligated to pay additional amounts (as described above) to holders of the Euro Exchange Notes as a result of changes affecting withholding taxes applicable to payments on the Euro Exchange Notes, we may redeem the Euro Exchange Notes in whole but not in part at any time at 100% of the principal amount of the Euro Exchange Notes plus accrued interest to the date of redemption. See “Description of Exchange Notes — Redemption for Tax Reasons.”
Certain Covenants		The indenture contains covenants that limit, among other things, our ability and the ability of some of our subsidiaries 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 restricted 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 the assets of our restricted subsidiaries.
		If a series of exchange notes receives and maintains an investment grade rating by both Standard & Poor’s Ratings Service and Moody’s 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 indenture. For more detailed description on covenants contained in the indenture, see “Description of Exchange Notes — Certain Covenants.”
Listing; Absence of Established Market for the Exchange Notes		Application will be made to list the Euro Exchange Notes on the Official List of the Luxembourg Stock Exchange and for trading on the Euro MTF Market. See “General Information.” The Euro Exchange Notes offered hereby are expected to be eligible for trading on the Luxembourg Stock Exchange on a fungible basis with the registered outstanding Euro Exchange Notes.
		The Dollar Exchange Notes will be a new class of securities for which there is currently no established trading market. For more detailed information, see “Plan of Distribution.”

 

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 Debt

 

We have debt and interest payment requirements at levels that may restrict our future operations.

 

As of February 28, 2010, after giving effect to the issuance of €300.0 million of our old Euro Notes and $525.0 million of our old Dollar Notes and the application of the proceeds of such notes to the payment of our 85/8% senior notes due 2013, our 93/4% senior notes due 2015 and ¥10,883,500,000 of our 41/4% Eurobonds due November 22, 2016, our total debt was approximately $1.8 billion, and we had approximately $193.4 million of additional borrowing capacity under our revolving credit facility. See “Use of Proceeds” and “Capitalization.” Our next debt maturity occurs in 2012. Our debt requires us to dedicate a substantial portion of any cash flow from operations to the payment of interest and principal due under our debt, which will reduce funds available for other business purposes, and result in us having lower net income than we would otherwise have had. It could also have important adverse consequences to holders of our securities. Our ability to successfully compete could be impaired by our debt and interest expense; for example, our debt and interest levels could:

 

 

In addition, borrowings under our senior secured revolving credit facility and our unsecured term loan bear interest at variable rates of interest. As a result, increases in market interest rates would 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.

 

We and our subsidiaries may be able to incur substantially more debt, including secured debt.

 

Subject to the restrictions in our senior term loan, our senior secured revolving credit facility, the indenture governing the exchange notes and our other outstanding indebtedness, we and our subsidiaries may incur significant additional debt, including secured debt, that would be effectively senior to the exchange notes. Although the terms of these facilities and the indenture governing the exchange notes and our other outstanding indebtedness contain restrictions on the incurrence of additional debt, including secured debt, these restrictions are subject to a number of important exceptions, and debt incurred in compliance with these restrictions could be substantial. If we and our restricted subsidiaries incur significant additional debt, the related risks that we face could intensify.

Restrictions in the indenture governing the exchange notes, our other note indentures, and in our credit agreements governing our unsecured term loan and our senior secured revolving credit facility may limit our activities, including dividend payments, share repurchases and acquisitions.

 

The indenture governing the exchange notes and the indentures relating to our other senior unsecured notes and our Yen-denominated Eurobonds, and the credit agreement governing our unsecured term loan and our senior secured revolving credit facility 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, and enter into transactions with affiliates. We are also required to meet a fixed charge coverage ratio under our senior secured revolving credit facility under certain circumstances. These restrictions, in combination with our leveraged condition, may make it more difficult for us to successfully execute our business strategy, grow our business or compete with companies not similarly restricted.

 

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, which could force us to sell assets or use cash that we were planning to use elsewhere in our business.

 

We conduct our international operations through foreign subsidiaries, and therefore we depend upon funds from our foreign subsidiaries for a portion of the funds necessary to meet our debt service obligations. Our operations in Europe and Asia Pacific accounted for approximately 43%, 44% and 41% of our net revenues, and 42%, 51% and 45% of our regional operating income, in 2009, 2008 and 2007, respectively. 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 cash 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, which could force us to sell assets or use cash that we were planning on using elsewhere in our business, which could hinder our operations and affect the trading price of our debt securities.

 

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.

 

The downturn in the economy and the volatility in the capital markets could limit our ability to access capital or could increase our costs of capital.

 

We experienced a dramatic downturn in the U.S. and global economy and disruption in the credit markets, which began in 2008. Although we have had continued solid operating cash flow, any subsequent downturn and or disruption in the credit markets may reduce sources of liquidity available to us. We can provide no assurance that we will continue to meet our capital requirements from our cash resources, future cash flow and external sources of financing, particularly if current market or economic conditions continue or deteriorate further. We manage cash and cash equivalents in various institutions at levels beyond FDIC coverage limits, and we purchase investments not guaranteed by the FDIC. Accordingly, there may be a risk that we will not recover the full principal of our investments or that their liquidity may be diminished. We rely on multiple financial institutions to provide funding pursuant to existing credit agreements, and those institutions may not be able to meet their obligations to provide funding in a timely manner, or at all, when we require it. The cost of or lack of available credit could impact our ability to develop sufficient liquidity to maintain or grow our business, which in turn may adversely affect our business and results of operations.

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 section titled “Principal Stockholders” in this prospectus. 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. The voting trust agreement gives certain powers to the holders of two-thirds of the outstanding voting trust certificates, such as the power to remove trustees and terminate the voting trust. The ownership of two-thirds of the outstanding voting trust certificates is concentrated in the hands of a small group of holders (including three of the four voting trustees), providing the 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.

 

Risks Relating to the Offering

 

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 senior obligations that rank equal in right of payment with all of our existing and future unsecured and unsubordinated debt, including our senior term loan and our old notes (to the extent any are not exchanged in the exchange offer) and our senior notes due 2016. The exchange 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 28, 2010, after giving effect to the issuance of €300.0 million of our old Euro Notes and $525.0 million of our old Dollar Notes and the application of the proceeds of such notes to the payment of our 85/8% senior notes due 2013, our 93/4% senior notes due 2015 and ¥10,883,500,000 of our yen-denominated Eurobonds, we had approximately $1.8 billion of debt, of which approximately $108.3 million was secured by most of our assets, including our trademarks, our U.S. receivables and inventories, the assets and stock of our U.S. subsidiaries, and majority positions in shares of many of our non-U.S. subsidiaries.

 

Because our senior secured revolving credit facility is a secured obligation, failure to comply with their terms or our inability to pay our lenders at maturity would entitle those lenders immediately to foreclose on most of our assets, including our U.S. trademarks and the capital stock of all of our U.S. subsidiaries, and the assets of our material U.S. subsidiaries, 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 only be creditors of Levi Strauss & Co. and not of our subsidiaries. As of February 28, 2010, the liabilities, including trade payables, of our subsidiaries were approximately $518.3 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 subsidiary’s 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.

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. Although application has been made for the Euro Exchange Notes to be listed on the Official List of the Luxembourg Stock Exchange and for trading on the Euro MTF Market, we cannot assure you that the Euro Exchange Notes will become or remain listed. Although no assurance is made as to the liquidity of the Euro Exchange Notes as a result of the admission to trading on the Euro MTF Market, failure to be approved for listing on or the delisting of the Euro Exchange Notes from, as applicable, the Official List of the Luxembourg Stock Exchange may have a material effect on a holder’s ability to resell the Euro Exchange Notes in the secondary market. In addition, 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. 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.

 

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

 

Other than our old Euro Notes and our Euro Exchange Notes, both of which are expected to be listed on the Official List of the Luxembourg Stock Exchange and for trading on the Euro MTF Market, 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. 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 exchange notes will not be lower than the issue price.

 

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

 

Upon a change of control event as defined in the indenture governing the exchange notes, we would be required to offer to purchase the 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 senior notes due 2016 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 these financings may declare their debt immediately due and payable. Since our senior secured revolving credit facility is secured, the lenders under these financings could foreclose on most of our assets 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.

 

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.

 

Risks Relating to the Industry in Which We Compete

 

Our revenues are influenced by general economic conditions.

 

Apparel is a cyclical industry that is dependent upon the overall level of consumer spending. Our wholesale customers anticipate and respond to adverse changes in economic conditions and uncertainty by reducing inventories and canceling orders. Our brand-dedicated stores are also affected by these conditions which may lead to a decline in consumer traffic to and spending in these stores. As a result, factors that diminish consumer spending and confidence in any of the regions in which we compete, particularly deterioration in general economic conditions, high levels and fear of unemployment, increases in energy costs or interest rates, housing market downturns, fear about and impact of pandemic illness, and other factors such as acts of war, acts of nature or terrorist or political events that impact consumer confidence, could reduce our sales and adversely affect our business and financial condition through their impact on our wholesale customers as well as its direct impact on us. For example, the global financial economic downturn that began in 2008 has impacted consumer confidence and spending negatively. In this economic environment we saw several wholesale customers declare bankruptcy or otherwise exhibit signs of distress, and even if the economy rebounds we do not anticipate that our wholesale customers will return to carrying the levels of inventory in our products as that prior to the downturn. These outcomes and behaviors have and may continue to adversely affect our business and financial condition.

 

Intense competition in the worldwide apparel industry could lead to reduced 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 building and sustaining of their brand equity and 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 as effectively with them and may not be able to maintain or grow the equity of and demand for our brands. 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 footwear 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 fashion trends and 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 develop, market and deliver innovative and stylish products at a pace, intensity, and price competitive with other brands in our segments. We must also have the agility to respond to changes in consumer preference such as the consumer shift in Japan away from premium-priced brands to lower-priced fast-fashion products. In addition, we must create products at a range of price points that appeal to the consumers of both our wholesale customers and our dedicated retail stores. 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, negatively impact the consumer traffic in our dedicated retail stores, 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. Moreover, our newer products may not produce as high a gross margin as our traditional products and thus may have an adverse effect on our overall margins and profitability.

 

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, and the ongoing emergence of new competitors with widely varying strategies and resources. These factors contribute to ongoing pricing pressure throughout the supply chain. This pressure has had and may continue to have the following effects:

 

 

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 our suppliers for our products are dependent in part on the market price for raw materials — primarily cotton — used to produce them. The price and availability of cotton may fluctuate substantially, depending on a variety of factors, including demand, crop yields, weather, supply conditions, transportation costs, energy prices, work stoppages, government regulation, economic climates and other unpredictable factors. Any and all of these factors may be exacerbated by global climate change. Fluctuations in the price and availability of raw materials have not materially affected our cost of goods in recent years. However, increases in raw material costs, together with other factors, might cause a decrease of 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 operating regions. Our ability to import products in a timely and cost-effective manner may be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers, such as port and shipping capacity, labor disputes and work stoppages, political unrest, severe weather, or 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 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.

 

Substantially all of our import operations are subject to customs and tax 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 Dominican-Republic Central America 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.

 

Risks Relating to Our Business

 

Our net sales have not grown substantially for more than ten years, and actions we have taken, and may take in the future, to address these and other issues facing our business may not be successful over the long term.

 

Our net sales have declined from a peak of $7.1 billion in 1996 to $4.1 billion in 2003, with no growth through our fiscal year 2009. We face intense competition, customer financial hardship and consolidation, increased focus by retailers on private-label offerings, expansion of and growth in new distribution sales channels, declining sales of traditional core products and continuing pressure on both wholesale and retail pricing. Our ability to successfully compete could be impaired by our debt and interest payments, which reduces our operating flexibility and could limit our ability to respond to developments in the worldwide apparel industry as effectively as competitors that do not have comparable debt levels. In addition, the strategic, operations and management changes we have made in recent years, including in 2009 and that we will continue to make throughout 2010 and beyond, to improve our business and drive future sales growth may not be successful over the long term.

 

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

 

Net sales to our ten largest customers totaled approximately 36% and 37% of total net revenues in 2009 and 2008, respectively. Our largest customer in 2009, Kohl’s Corporation, accounted for nearly 10% of net revenues in 2009, and our largest customer in 2008, J.C. Penney Company, Inc., accounted for nearly 8% of net revenues in 2008. While we have long-standing relationships with our wholesale customers, we do not have long-term contracts with them. 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. If any major customer decreases or ceases its purchases from us, reduces the floor space, assortments, fixtures or advertising for our products or changes its manner of doing business with us for any reason, such actions could adversely affect our business and financial condition.

 

For example, our wholesale customers are subject to the fluctuations in general economic cycles and the current global economic conditions which are impacting consumer spending, and our customers may also be affected by the credit environment, which may impact their ability to access the credit necessary to operate their business. The performance and financial condition of a wholesale customer may cause us to alter our business terms or to cease doing business with that customer, which could in turn adversely affect our own business and financial condition. In addition, our wholesale customers may change their apparel strategies or reduce fixture spaces and purchases of brands that do not meet their strategic requirements, leading to a loss of sales for our products at those customers.

 

In addition, the retail industry in the United States has experienced substantial consolidation in recent years, and further consolidation may occur. Consolidation in the retail industry typically results 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, any of which can, and have, adversely impacted our net revenues, margins and ability to operate efficiently.

 

We may be unable to maintain or increase our sales through our primary distribution channels.

 

In the United States, chain stores and department stores are the primary distribution channels for our Levi’s^® and Dockers^® products, and the mass channel is the primary distribution channel for Signature products. Outside the

United States, department stores, independent jeanswear retailers and national jeans chains have traditionally been our primary distribution channels.

 

We may be unable to maintain or increase sales of our products through these distribution channels for several reasons, including the following:

 

 

Further success by retailer private-labels and vertically integrated specialty stores may continue to adversely affect the sales of our products across all channels, as well as the profitability of our brand-dedicated stores. Additionally, our ability to secure or maintain retail floor space, market share and sales in these channels depends on our ability to offer differentiated products and to increase retailer profitability on our products, which could have an adverse impact on our margins.

 

Our inability to revitalize our business in certain markets or product lines could harm our financial results.

 

Given the global reach and nature of our business and the breadth of our product lines, we may experience business declines in certain markets even while experiencing growth in others. For example, recent declines in certain mature markets in our Europe and Asia Pacific regions impact our overall business performance despite growth in other areas such as developing markets and our retail network, and the cumulative effect of these declines could adversely affect our results of operations. Although we have taken, and continue to take, product, marketing, distribution and organizational actions to reverse such declines, if our actions are not successful on a sustained basis, our results of operations and our ability to grow may be adversely affected.

 

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

 

Collective or individual changes in our senior management group or board membership could have an adverse effect on our ability to determine and implement our strategies, which in turn may adversely affect our business and results of operations. Recent changes in our senior management team include Aaron Boey, who became our Senior Vice President and President, Levi Strauss Asia Pacific on February 19, 2009, Blake Jorgensen, who became our Executive Vice President and Chief Financial Officer on July 1, 2009, and Jaime Cohen Szulc, who became our Senior Vice President and Chief Marketing Officer — Levi’s^® on August 31, 2009. In addition, T. Gary Rogers, the Chairman of our Board of Directors, retired from our Board in December 2009, and Richard Kauffman subsequently became Chairman of the Board. Martin Coles joined our Board in February 2009 and resigned on January 11, 2010. Robert A. Eckert joined the Board on May 10, 2010.

 

Increasing the number of company-operated stores will require us to enhance our capabilities and increase our expenditures and will increasingly impact our financial performance.

 

Although our business is substantially a wholesale business, we operated 426 retail stores as of February 28, 2010. As part of our objective to accelerate growth though dedicated retail stores, we plan to continue to strategically open company-operated retail stores, while taking into consideration the changing economic environment. The results from our retail network may be adversely impacted if we do not find ways to generate sufficient sales from our existing and new company-operated stores, which may be particularly challenging in light of the recent and ongoing global economic downturn. Like other retail operators, we regularly assess store

performance and as part of that review we may determine to close or impair the value of underperforming stores in the future.

 

Any increase in the number of company-operated stores will require us to further develop our retailing skills and capabilities. We will be required to enter into additional leases, which will cause an increase in our rental expenses and off-balance sheet rental obligations and our capital expenditures for retail locations. These commitments may be costly to terminate, and these investments may be difficult to recapture if we decide to close stores or change our strategy. We must also offer a broad product assortment (especially women’s and tops), appropriately manage retail inventory levels, install and operate effective retail systems, execute effective pricing strategies, and integrate our stores into our overall business mix. Finally, we will need to hire and train additional qualified employees and incur additional costs to operate these stores, which will increase our operating expenses. These factors, including those relating to securing retail space and management talent, are even more challenging considering that many of our competitors either have large company-operated retail operations today or are seeking to expand substantially their retail presence. If the actions we are taking to expand our retail network are not successful on a sustained basis, our margins, results of operations and ability to grow may be adversely affected.

 

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

 

We rely on various information technology systems to manage our operations. We are currently implementing modifications and upgrades to our systems, including making changes to legacy systems, replacing legacy systems with successor systems with new functionality and acquiring new systems with new functionality. These types of activities subject us to inherent costs and risks associated with replacing and changing these systems, including impairment of our ability to fulfill customer orders, potential disruption of our internal control structure, substantial capital expenditures, additional administration and operating expenses, retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time, and other risks and costs of delays or difficulties in transitioning to new systems or of integrating new systems into our current systems. Our system implementations may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. In addition, the implementation of new technology systems may cause disruptions in our business operations and have an adverse effect on our business and operations, if not anticipated and appropriately mitigated.

 

We rely on contract 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 source approximately 95% of our products from independent contract manufacturers who purchase fabric and make our products and may also provide us with design and development services. As a result, we must locate and secure production capacity. We depend on independent manufacturers to maintain adequate financial resources, including access to sufficient credit, secure a sufficient supply of raw materials, and 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. Finally, we may experience capability-building and infrastructure challenges as we expand our sourcing to new contractors throughout the world.

 

Our suppliers are subject to the fluctuations in general economic cycles, and the global economic conditions may impact their ability to operate their business. The performance and financial condition of a supplier may cause us to alter our business terms or to cease doing business with that supplier, which could in turn adversely affect our own business and financial condition.

 

Our dependence on contract manufacturing could subject us to difficulty in obtaining timely delivery of products of acceptable quality. A contractor’s failure to ship products to us in a timely manner or to meet our quality standards, or interference with our ability to receive shipments due to factors such as port or transportation conditions, could cause us to miss the delivery date requirements of our customers. Failing to make timely deliveries may cause our customers to cancel orders, refuse to accept deliveries, impose non-compliance charges, 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.

 

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

 

We generated approximately 43%, 44% and 41% of our net revenues from our Europe and Asia Pacific businesses in 2009, 2008 and 2007, respectively. 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 outside of the United States, including:

 

 

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 and liabilities, including debt, which in turn may benefit or adversely affect reported earnings and cash flows and the comparability of period-to-period results of operations. In addition, we engage in hedging activities to manage our foreign currency exposures resulting from certain product sourcing activities, some intercompany sales, foreign subsidiaries’ royalty payments, earnings repatriations, net investment in foreign operations and funding activities. However, our earnings may be subject to volatility since we do not fully hedge our foreign currency exposures and we are required to record in income the changes in the market values of our exposure management instruments that we do not designate or that do not qualify for hedge accounting treatment. Changes in the value of the relevant currencies may affect the cost of certain items required in our operations as the majority of our sourcing activities are conducted in U.S. Dollars. Changes in currency exchange rates may also affect the relative prices at which we and foreign competitors sell products in the same market. Foreign policies and actions regarding currency valuation could result in actions by the United States and other countries to offset the effects of such fluctuations. Recently, there has been a high level of volatility in foreign currency exchange rates and that level of volatility may continue and thus adversely impact our business or financial conditions.

 

Furthermore, due to our global operations, we are subject to numerous domestic and foreign laws and regulations affecting our business, such as those related to labor, employment, worker health and safety, antitrust and competition, environmental protection, consumer protection, import/export, and anti-corruption, including but not limited to the Foreign Corrupt Practices Act which prohibits giving anything of value intended to influence the awarding of government contracts. Although we have put into place policies and procedures aimed at ensuring legal and regulatory compliance, our employees, subcontractors and agents could take actions that violate these requirements. Violations of these regulations could subject us to criminal or civil enforcement actions, any of which could have a material adverse effect on our business.

 

As a global company, we are exposed to risks of doing business in foreign jurisdictions and risks relating to U.S. policy with respect to companies doing business in foreign jurisdictions. For example, on May 4, 2009, President Obama’s administration announced several proposals to reform U.S. tax laws, including a proposal to further limit foreign tax credits as compared to current law and a proposal to defer tax deductions allocable to non-U.S. earnings until the earnings are repatriated. At this time it is not known whether these proposed tax reforms

will be enacted or, if enacted, what the scope of the reforms will be. The proposed legislation or other changes in the U.S. tax laws could increase our U.S. income tax liability and adversely affect our after-tax profitability.

 

We have made changes in our logistics operations in recent years and continue to look for opportunities to increase efficiencies.

 

We have closed several of our distribution centers in recent years and continually work to identify additional opportunities to optimize our distribution network. Changes in logistics and distribution activities could result in temporary shipping disruptions and increased expense as we bring new arrangements to full operation, which could have an adverse effect on our results of operations.

 

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

 

In North America, most of our distribution employees are covered by various collective bargaining agreements, and outside North America, 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 these employees could harm our business and reputation.

 

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 and distribution of various products. While we enter into comprehensive 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 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 copying 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 names 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 have substantial liabilities and cash requirements associated with postretirement benefits, pension and our deferred compensation plans.

 

Our postretirement benefits, pension, and our deferred compensation plans result in substantial liabilities on our balance sheet. These plans and activities have and will generate substantial cash requirements for us, and these requirements may increase beyond our expectations in future years based on changing market conditions. The difference between plan obligations and assets, or the funded status of the plans, is a significant factor in determining the net periodic benefit costs of our pension plans and the ongoing funding requirements of those plans. Many variables, such as changes in interest rates, mortality rates, health care costs, early retirement rates, investment returns, and/or the market value of plan assets can affect the funded status of our defined benefit

pension, other postretirement, and postemployment benefit plans and cause volatility in the net periodic benefit cost and future funding requirements of the plans. Our pension expense increased by more than $30 million in 2009 as a result of the decline in the value of our pension plan assets in 2008. Additionally, our estimates as of November 29, 2009, indicate our future annual funding requirements may increase to as much as $140 million in 2011. While actual results may differ from these estimates, the increased pension expense and related funding may extend into future years if current market conditions persist. Plan 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.

 

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 geologic faults that have experienced earthquakes in the past. An earthquake or other natural disaster or the loss of power caused by power shortages 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, is affected by earthquakes, power shortages, floods, monsoons, terrorism, epidemics or other events outside of our control, our business could suffer.

 

We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act. Failure to 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 credit ratings and trading price of our debt securities.

 

We are not currently an “accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. As required by Section 404 of the Sarbanes-Oxley Act of 2002, we have provided an internal control report with our Annual Report in Form 10-K for the fiscal year ended November 29, 2009, which includes management’s assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. Beginning with our Annual Report for the year ending November 28, 2010, our independent registered public accounting firm will also be required to issue a report on their evaluation of the 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. If we or our independent registered public accounting firm were unable to conclude that our internal control over financial reporting was effective as of the relevant period, investors could lose confidence in our reported financial information, which could have an adverse effect on the trading price of our debt securities, negatively affect our credit rating, and affect our ability to borrow funds on favorable terms.

 

General

 

In connection with the issuance of $525.0 million old Dollar Notes and €300.0 million of old Euro Notes in May 2010, we entered into a registration rights agreement with the initial purchasers for each series of old notes, which provides for the exchange offer. A copy of the registration rights agreement is filed as an exhibit to the registration statement of which this prospectus is a part.

 

Under the registration rights agreements, we agreed to:

 

 

The exchange offer being made hereby, if completed by December 2, 2010, will satisfy those requirements under the registration rights agreement. If the exchange offer is not completed by December 2, 2010 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 December 2, 2010 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 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 will be subject to the informational requirements of the Exchange Act. To satisfy those requirements, we will 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 “— Resale 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 such old notes were acquired by such broker-dealer 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. See “Plan of Distribution.”

 

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 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 $100,000 and integral multiples of

$1,000 principal amount thereafter and old Euro Notes may be tendered only in integral multiples of €50,000 and integral multiples of €1,000 principal amount thereafter. 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:

 

 

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 old notes. For a description of the indenture, see the caption “Description of 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, $525.0 million aggregate principal amount of the old Dollar Notes and €300.0 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 indenture.

 

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 promptly 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 5:00 p.m., New York City time, on August 2, 2010. 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 5:00 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, 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:

 

 

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

 

 

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. Any delay in accepting any old notes will be consistent with Rule 14e-1(c) under the Exchange Act. 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 promptly 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 promptly. 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, as amended.

 

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.

 

Holders of old Dollar Notes hold their notes through DTC. Holders of old Euro Notes hold their Euro Notes through Euroclear or Clearstream, Luxembourg, which are participants in DTC.

To tender in the exchange offer, a holder must comply with the following procedures, as applicable:

 

 

Only a registered holder of record of old notes may tender old notes in the exchange offer. 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. 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 the holder, the 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 agent’s 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 Financial Industry Regulatory Authority, a commercial bank 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:

 

 

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 holder’s 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.

 

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 DTC’s system may make book-entry delivery of old notes by causing DTC to transfer such old notes into the exchange agent’s DTC account in accordance with DTC’s Automated Tender Offer Program procedures for such transfer. Pursuant to their internal guidelines, Euroclear and Clearstream, Luxembourg will automatically exchange old notes for exchange notes on behalf of the holders of the old notes. If they do not wish to participate in the exchange offer, the registered holder of old 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 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 agent’s account, and timely receipt by the exchange agent of an agent’s message.

 

The term “agent’s 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 agreement against the participant. Delivery of an agent’s 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 agent’s message to the exchange agent, each tendering holder of old notes will represent to us that, among other things:

 

 

 

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 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:

 

 

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 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.

14^th Floor

Citigroup Centre, Canada Square,

London E14 5LB, United Kingdom

Attention: Exchange Team

or

Citibank, N.A.

Agency & Trust

388 Greenwich Street, 14^th Floor

New York, NY 10013

 

By Facsimile Transmission (for Eligible Institutions Only): +44(0) 20-3320-2405
To Confirm by Telephone or for Information Call: +44(0) 20-7508-3866

 

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:

 

 

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:

 

 

 

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 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.

 

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.

 

The following table sets forth our cash and cash equivalents and capitalization as of February 28, 2010, and as adjusted to give effect to (i) the issuance of $525.0 million of our old Dollar Notes and €300.0 million of our old Euro Notes in May 2010 and (ii) and the application of the proceeds of such notes to the payment of our 8⁵/₈% senior notes due 2013 and our 93/4% senior notes due 2015, and the purchase of ¥10,883,500,000 of our 41/4% Eurobonds due November 22, 2016. 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. There have been no material changes in our capitalization since February 28, 2010, other than as disclosed below.

 

 

 

 

The following table sets forth our summary historical consolidated financial data. The summary statements of income data and cash flow data for fiscal years 2009, 2008 and 2007 and the balance sheet data as of November 29, 2009, and November 30, 2008, are derived from our consolidated financial statements included in this prospectus. The summary statements of income data and cash flow data for fiscal years 2006 and 2005 and the balance sheet data as of March 1, 2009, November 25, 2007, November 26, 2006, and November 27, 2005, are derived from our consolidated financial statements not included in this prospectus.

 

The summary statements of income data and cash flow data for the quarterly periods ended February 28, 2010, and March 1, 2009, and the balance sheet data as of February 28, 2010, have been derived from our unaudited consolidated financial statements included in this prospectus. Income data and cash flow data for the three months ended February 28, 2010, and March 1, 2009, are not necessarily indicative of the results for the Company’s full fiscal year.

 

The financial data set forth below should be read in conjunction with, and are qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and the related notes to those financial statements, which for the Company’s fiscal years 2009, 2008 and 2007 and first fiscal quarters in 2010 and 2009 are included in this prospectus.

 

 

 

 

Overview

 

Our Company

 

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

 

Our business is operated through three geographic regions: Americas, Europe and Asia Pacific. Our products are sold in approximately 55,000 retail locations in more than 110 countries. We support our brands through a global infrastructure, both sourcing and marketing our products around the world. We distribute our Levi’s^® and Dockers^® products primarily through chain retailers and department stores in the United States and primarily through department stores, specialty retailers and franchised stores outside of the United States. We also distribute our Levi’s^® and Dockers^® products through our online stores, and 426 company-operated stores located in 26 countries, including the United States, as of February 28, 2010. Our company-operated stores generated approximately 16% of our net revenues in the first quarter of 2010 and 11% of our net revenues in the 2009 fiscal year. We distribute products under the Signature brand primarily through mass channel retailers in the United States and Canada and mass and other value-oriented retailers and franchised stores in Asia Pacific.

 

We derived 47% of our net revenues and 56% of our regional operating income from our Europe and Asia Pacific businesses in the first quarter of 2010 and 43% of our net revenues and 42% of our regional operating income from our Europe and Asia Pacific businesses in the 2009 fiscal year. Sales of Levi’s^® brand products represented approximately 84% of our total net sales in the first quarter of 2010 and 79% of our total net sales in the 2009 fiscal year. Pants, including jeans, casual pants and dress pants, represented approximately 85% of our total units sold, and men’s products generated approximately 73% of our total net sales, in the 2009 fiscal year.

 

Trends Affecting our Business

 

Difficult economic conditions persist around the world. Concerns remain about high unemployment and the prospects for sustained economic recovery from the global economic downturn, and consumer spending which continues to be weak in many markets, especially in southern Europe and Japan. Our wholesale customers continue to manage their businesses with leaner inventories, and we remain committed to managing our inventories commensurate with the needs of our customers and the retail environment.

 

At the same time we remain focused on our key 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, maximize opportunities in targeted growth markets around the globe, and continuously increase our productivity.

 

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

 

 

 

These factors contribute to a global market environment of intense competition, constant product innovation and continuing cost pressure throughout the supply chain, from manufacturer to consumer, and combine with the global economic downturn to create a challenging commercial and economic environment. We expect these factors to continue into the foreseeable future.

 

Our First Quarter 2010 Results

 

In the midst of this difficult economic environment, our first quarter 2010 results reflect net revenue growth in all our regions, the effects of the strategic investments we have made in 2009 and 2010 in line with our long-term objectives, and our inventory management initiatives.

 

 

Our 2009 Results

 

Our 2009 results reflected the difficult economic conditions that continue to persist in most markets around the world. In response to these conditions, we focused on our inventory management and cost-cutting initiatives and

sought opportunities to invest in initiatives to grow our business. We expanded our company-operated retail network by more than 150 stores, the majority of which we added through acquisitions that we completed during the year.

 

 

Our Objectives

 

Our key long-term objectives are to strengthen our brands globally in order to deliver sustainable profitable growth, continue to generate strong cash flow and reduce our debt. Critical strategies to achieve these objectives include driving continued product and marketing innovation that builds upon our leadership position in the jean and khaki categories, driving sales growth through enhancing relationships with wholesale customers and expanding our dedicated store network, capitalizing on our global footprint to maximize opportunities in targeted growth markets, and continuously enhancing our productivity. Investments in initiatives in 2010 to support the execution of our strategies and achieve our long-term objectives will likely result in an increase in advertising and selling expenses, a lower operating margin, and higher capital expenditures during the 2010 fiscal year.

 

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 2010 and 2009 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 2010, accountability for information technology 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 2010, 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:

 

 

 

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 facilitate period-to-period comparisons without regard to the impact of changing foreign currency exchange rates.

 

Noncontrolling interest.  The results of operations presented below for 2009, 2008 and 2007 do not reflect our adoption in 2010 of Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51,” codified in 2009 by the FASB under ASC Subtopic 810-10, and subsequently amended to require retrospective application of the presentation and disclosure requirements for noncontrolling (minority) interests. The adoption of ASC Subtopic 810-10 had no impact on our financial condition, results of operations or cash flows; however, it did impact the presentation and disclosure of noncontrolling interests in our consolidated financial statements, and these changes have been reflected in our consolidated financial statements included in this prospectus.

 

Results of Operations

 

Three Months Ended February 28, 2010, as Compared to Same Period in 2009

 

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:

 

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:

 

 

Total net revenues increased on both reported and constant-currency bases for the three-month period ended February 28, 2010, as compared to the same prior-year period. Reported amounts were affected favorably by changes in foreign currency exchange rates across all regions.

 

Americas.  On both reported and constant-currency bases, net revenues in our Americas region increased for the three-month period. Currency affected net revenues favorably by approximately $6 million.

 

An increase in net revenues for the Levi’s^® brand was driven by the additional outlet stores we acquired in July 2009, as well as strong performance of our men’s, Juniors and boy’s products in the wholesale channel. Continued declines in our Signature and U.S. Dockers^® brands partially offset the improved Levi’s^® brand performance.

 

Europe.  Net revenues in Europe increased on both reported and constant-currency bases. Currency affected net revenues favorably by approximately $21 million.

 

The region’s net revenues increase was driven by the impact of our 2009 footwear acquisition and our expanding company-operated retail network throughout the region. This increase was partially offset by continued sales declines in our traditional wholesale channels reflecting the region’s ongoing depressed retail environment, most notably in southern Europe.

 

Asia Pacific.  Net revenues in Asia Pacific increased on a reported basis, but decreased on a constant-currency basis, for the three-month period. Currency affected net revenues favorably by approximately $12 million.

 

Net revenues in the region decreased primarily due to lower sales in Japan. This decline was partially offset primarily by stronger Chinese New Year sales and the continued expansion of our brand-dedicated retail network in China and India.

 

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:

 

As compared to the same prior-year period, the gross profit increase for the three-month period ended February 28, 2010, was driven by improved gross margins in each of our regions, the increase in our constant-currency net revenues, and a favorable currency impact of approximately $29 million. The improvement in our gross margin reflected the increased contribution from our company-operated retail network, which generally has a higher gross margin than our wholesale business, lower inventory markdown activity and the strong performance of the Levi’s^® brand.

 

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

 

Selling, general and administrative expenses

 

The following table shows our selling, general and administrative (“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:

 

 

Currency drove approximately $14 million of the increase in SG&A expenses for the three-month period ended February 28, 2010, as compared to the same prior-year period.

 

Selling.  Selling expenses increased across all business segments, primarily reflecting 134 additional company-operated stores as well as an unfavorable currency impact of approximately $6 million.

 

Advertising and promotion.  Advertising and promotion expenses increased for the three-month period in all three of our regions, most significantly in the Americas, primarily due to an increase in campaign spend in support of our Levi’s^® and U.S. Dockers^® brands.

 

Administration.  Administration expenses include corporate expenses and other administrative charges. The increase was driven by higher costs associated with our pension and postretirement benefit plans and an unfavorable currency impact of approximately $3 million.

 

Other.  Other SG&A expenses include distribution, information resources, and marketing organization costs. These costs increased primarily due to the effects of currency.

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:

 

 

 

 

Currency favorably affected total operating income by approximately $15 million for the three-month period.

 

Regional operating income.  The following describes changes in operating income by segment for the three-month period ended February 28, 2010, compared to the same prior-year period:

 

 

Corporate.  Corporate expenses for the three-month period increased over the same prior-year period primarily due to increased costs associated with our pension and postretirement benefit plans, termination fees resulting from the exit of certain retail locations, and the reclassification of the information technology and marketing staff costs of a global nature that were centralized under corporate management in 2010 in conjunction with our key strategy of driving productivity. The reclassified costs were not significant to any of our regional segments individually.

 

Interest expense

 

Interest expense decreased slightly for the three-month period ended February 28, 2010, as compared to the same period in 2009, reflecting the weighted-average interest rate on average borrowings outstanding for the first three months of 2010, which declined to 7.25% as compared to 7.52% for the same prior-year period.

 

Other income, net

 

For the first quarter of 2010, other income increased $9.5 million compared to the same period in 2009. The increase primarily reflects foreign currency transaction gains driven by the strengthening of the U.S. Dollar against the Japanese Yen and the Euro.

Income tax expense

 

The effective income tax rate was 34.7% and 35.4% for the three months ended February 28, 2010, and March 1, 2009, respectively. For the first quarter of 2010, income tax expense increased $3.3 million compared to the same period in 2009, primarily due to higher income before taxes.

 

2009 compared to 2008

 

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

 

 

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:

 

 

Total net revenues decreased on both reported and constant-currency bases for the year ended November 29, 2009, as compared to the prior year. Reported amounts were affected unfavorably by changes in foreign currency exchange rates across all regions, particularly in Europe.

Americas.  On both reported and constant-currency bases, net revenues in our Americas region decreased in 2009. Currency affected net revenues unfavorably by approximately $39 million.

 

Net revenues decreased due to the weak economic environment, lower demand for our U.S. Dockers^® brand products, and lower sales of Signature products. These declines were partially offset by increased Levi’s^® brand revenues driven by strong performance of our men’s and boy’s products and growth in the Juniors business in our wholesale channel, and increased revenues from our retail network from our July 13, 2009, acquisition of the operating rights to 73 Levi’s^® and Dockers^® outlet stores from Anchor Blue Retail Group, Inc.

 

As compared to prior year, 2009 also reflects the loss of customers due to bankruptcy in the second and third quarters of 2008. In addition, 2008 was adversely impacted by issues we encountered during our stabilization of an ERP system in the United States in the beginning of the second quarter of 2008.

 

Europe.  Net revenues in Europe decreased on both reported and constant-currency bases. Currency affected net revenues unfavorably by approximately $118 million.

 

The region’s depressed retail environment drove net revenue declines across most markets, primarily due to lower sales in our wholesale channels. This was partially offset by the impact of our business acquisitions and our expanding company-operated retail network throughout the region.

 

Asia Pacific.  Net revenues in Asia Pacific decreased on both reported and constant-currency bases. Currency affected net revenues unfavorably by approximately $17 million.

 

Net revenues in the region decreased primarily due to lower sales in Japan. These declines were offset by strong performance in most other markets in the region, driven by product promotions and the continued expansion of our brand-dedicated store network.

 

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:

 

 

Compared to the prior year, gross profit declined in 2009 primarily due to the unfavorable impact of currency across all regions, which totaled approximately $128 million. Excluding the effects of currency, the impact of our lower net revenues to gross profit was partially offset by a slight improvement in gross margin, primarily driven by our Americas region, due to the strong performance of the Levi’s^® brand, and the increased contribution from our company-operated retail network, which has a higher gross margin than our wholesale business.

 

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

Selling, general and administrative expenses

 

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

 

 

Compared to the prior year, total SG&A expenses declined in 2009 due to a favorable currency impact of approximately $62 million.

 

Selling.  Selling expenses increased across all business segments, primarily reflecting additional company-operated stores, partially offset by a favorable currency impact of $25 million in 2009.

 

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

 

Administration.  Administration expenses include corporate expenses and other administrative charges. Currency favorably impacted these expenses by $13 million in 2009. Reflected in 2009 are increased pension expense of approximately $38 million and costs associated with our business acquisitions during the year, while 2008 included higher costs associated with our conversion to an ERP system in the United States as well as various other corporate initiatives.

 

Other.  Other SG&A costs include distribution, information resources, and marketing organization costs, gain or loss on sale of assets and other operating income. Currency favorably impacted these expenses by $14 million in 2009. The decrease in expenses was primarily due to lower distribution costs, resulting from actions we have taken in recent years to restructure our distribution center operations and the decline in sales volume, as well as lower marketing organization costs.

Operating income

 

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