Liquidity and Capital Resources

Our principal capital requirements have been to fund working capital and capital expenditures. As of November 24, 2002, our total cash and cash equivalents were $96.5 million, compared with the $102.8 million cash balance reported as of November 25, 2001.

We recently completed the following financing transactions:

During 2003, we expect to have between $200 million and $300 million of the following primary cash requirements:

We anticipate that we will meet these obligations primarily through these financings and from cash provided by operations. We will obtain additional liquidity through our revolving 2003 bank credit facility, which will also be used to support letters of credit, and through cash on hand. We anticipate that net debt (gross debt less cash on hand) at the end of 2003 will approximate year end 2002 levels.

Total debt, other cash obligations and commitments.     As of November 24, 2002, our total debt was $1.847 billion, compared with $1.958 billion as of November 25, 2001. As of January 31, 2003, our total debt was approximately $2.578 billion.

As of November 24, 2002, our 2001 credit facility consisted of $110.1 million of term loans and a $615.7 million revolving credit facility, of which $5.0 million of borrowings under the revolving credit facility was outstanding. Total availability under the revolving credit facility was reduced by $239.8 million of letters of credit allocated under the revolving credit facility, yielding a net availability of $370.9 million. Included in the $239.8 million of letters of credit at November 24, 2002 are $213.3 million of standby letters of credit with various international banks, of which $48.5 million serve as guarantees by the creditor banks to cover U.S. workers’ compensation claims. We pay fees on the standby letters of credit and borrowings against letters of credit are subject to interest at various rates.

29

Table of Contents

At November 24, 2002, we had unsecured and uncommitted short-term credit lines available totaling $13.4 million at various rates. These credit arrangements may be canceled by the bank lenders upon notice and generally have no compensating balance requirements or commitment fees.

We have other current cash obligations for various liabilities categorized on the balance sheet as accounts payable, accrued liabilities, accrued salaries, wages and employee benefits and accrued taxes for our normal business operations. During 2002, we reclassified from long-term employee benefits to accrued salaries, wages and employee benefits, expected liabilities in 2003 of approximately $65 million under our long-term incentive compensation plan.

During 2002, we reached a settlement with the Internal Revenue Service on most of the issues in connection with the examination of our income tax returns for the years 1990 through 1995. As a result, during 2002 we reclassified approximately $90.0 million from long-term tax liabilities into accrued taxes. We anticipate paying the Internal Revenue Service an amount of approximately $115 million during the second quarter of 2003. After taking into account potential refunds from prior years’ overpayments and the tax effects of the interest deduction from this payment, we expect the net cash payment to be approximately $90 million.

We have numerous noncontributory pension plans covering substantially all of our employees. Our pension plan assets are principally invested in equity securities and fixed income securities. Based on the fair value of plan assets and interest rates estimated as of November 24, 2002, we recorded a charge of $86.0 million, net of tax of $49.9 million to stockholders’ deficit. This charge reflects the after tax additional minimum pension liability due to pension obligations exceeding assets. As a result of the projected deficit, we expect to make additional pre-tax contributions to the pension plans during the next four fiscal years, including a cash contribution of approximately $25 million in 2003.

We currently expect our debt levels less cash on hand at the end of 2003 to be approximately equal to our 2002 year-end debt level of approximately $1.85 billion. We expect peak borrowings, net of cash on hand, during 2003 to be approximately $200 to $300 million higher than this amount, reflecting seasonal working capital requirements and growth associated with our expected entry into the mass channel in the United States in the third quarter.

We have no off-balance sheet debt obligations or material unconditional purchase commitments. Our total short-term and long-term debt principal payments, and minimum operating lease payments for facilities, office space and equipment as of November 24, 2002 for the next five years and thereafter are as follows:

Cash provided by operating activities .    Cash provided by operating activities in 2002 was $191.7 million, as compared to $141.9 million in the same period in 2001. Trade receivables increased during 2002 primarily due to higher net sales in November 2002 compared to November 2001. Inventory decreased during 2002. We achieved the inventory reduction through retailer promotional and incentive programs and better inventory management. For the first half of 2003, we anticipate inventory to be higher than at year end 2002 as we prepare for the launch of the Levi Strauss Signature ^™ brand beginning in July 2003. Net deferred tax assets increased during 2002 primarily due to timing of unrealized foreign exchange gains/losses and the additional minimum pension liability.

        Restructuring reserves increased during 2002 primarily due to restructuring charges associated with the United States plant closures. Accrued salaries, wages, and employee benefits increased during 2002 primarily due to higher employee incentive costs than in 2001. Accounts payable and accrued liabilities decreased during 2002 primarily due to lower contractor and advertising accruals. Accrued taxes increased and long-term tax liabilities decreased during 2002 primarily due to a reclassification of approximately $90.0 million in anticipation of a payment to the Internal Revenue Service in connection with an examination of our income tax returns for the years 1990 to 1995. Long-term employee benefits increased primarily due to an increase in our pension liability for anticipated contributions over the next four years.

30

Table of Contents

Cash provided by operating activities in 2001 was $141.9 million, as compared to $305.9 million in the same period in 2000. Trade receivables decreased during 2001 primarily due to lower net sales. Inventory decreased during 2001, primarily in the fourth quarter. We achieved the inventory reduction through reduced production levels and increased retailer promotional and incentive activities in the United States.

Other current assets decreased during 2001 primarily due to reimbursements of income and payroll taxes for overpayments made in 2000. Other long-term assets increased during 2001 primarily due to the capitalization of underwriting and other fees for the senior notes due 2008 issued in January 2001 and fees associated with the credit facility we entered into on February 1, 2001. Net deferred tax assets decreased during 2001 primarily due to inventory adjustments and tax on unremitted foreign earnings.

Restructuring reserves decreased during 2001 primarily due to spending and accrual reversals related to prior years’ restructuring initiatives, partially offset by 2001 restructuring charges. Accrued salaries, wages, and employee benefits decreased during 2001 primarily due to the payment of annual employee incentives, partially offset by employee incentive accruals. Long-term employee benefits increased primarily due to increased accruals for long-term incentive plans. Accounts payable and accrued liabilities decreased during 2001 primarily due to lower accruals for contractors and raw material purchases resulting from lower production needs. Accrued taxes decreased during 2001 primarily due to a payment of approximately $40 million in the first quarter of 2001 to the Internal Revenue Service in connection with an examination of our income tax returns for the years 1986 to 1989.

Cash used for investing activities.     Cash used for investing activities during 2002 was $59.4 million as compared to $17.2 million during 2001. Cash used for investing activities for 2002 resulted primarily from purchases of property, plant and equipment and realized losses on net investment hedges, partially offset by proceeds received on sales of property, plant and equipment. The purchases primarily related to sales office capital improvements and systems upgrades. We expect capital spending of approximately $70 million in 2003, primarily for system enhancements. The proceeds received on the sale of property, plant and equipment arose mainly from the sale during the first quarter of 2002 of an idle distribution center located in Nevada.

Cash used for investing activities during 2001 was $17.2 million, as compared to cash provided by investing activities of $154.2 million during the same period in 2000. Cash used for investing activities during the year resulted primarily from purchases of property, plant and equipment. In 2000, cash provided by investing activities was primarily attributable to proceeds received from the sale of office buildings and realized gains on net investment hedges. Our capital expenditures for 2001 were $22.5 million, as compared to $28.0 million for 2000.

Cash used for financing activities.     Cash used for financing activities for 2002 was $140.3 million as compared with $139.9 million in 2001 and $527.1 million in 2000. We used cash in 2002 primarily for repayment of existing debt. In fiscal 2001, cash used for financing activities was primarily for repayment of existing debt offset by the senior notes issued in January 2001 and the U.S. receivables securitization transaction completed in July 2001. In 2000, cash used for financing activities was for repayment of existing debt.

Financial Condition

2003 Bank Credit Facility.     On January 31, 2003, we entered into a $750.0 million senior secured credit facility to replace our then existing 2001 credit facility.

The following is a summary description of the material terms of the new bank credit facility.

Our new bank credit facility consists of a $375.0 million revolving credit facility and a $375.0 million Tranche B term loan facility. We will use the borrowings under our new bank credit facility for working capital or general corporate purposes. The revolving credit facility will expire on March 31, 2006.

31

Table of Contents

Our Tranche B term loan facility is subject to repayment based on a specified scheduled amortization, with the final payment of all amounts outstanding due on July 31, 2006. We are required to make principal amortization payments on the Tranche B term loan facility at a quarterly rate beginning in May 2003, with the substantial majority of the quarterly payments being due from the quarter ending in November 2005. Our bank credit facility also requires mandatory prepayments in certain events, such as if there are asset sales. The interest rate for our revolving credit facility varies, for eurodollar rate loans, from 3.25% to 4.00% over the eurodollar rate (as defined in the credit agreement) or, for base rate loans, from 2.25% to 3.00% over the higher of the Citibank base rate and the Federal Funds rate plus 0.50%, with the exact rate depending upon our performance under specified financial criteria. The interest rate for our Tranche B term loan facility is 4.00% over the eurodollar rate or 3.00% over the base rate. The bank credit facility also requires that we set aside sufficient funds to satisfy all principal and interest payments on the outstanding 6.80% notes due November 2003. We will use any remaining proceeds to refinance other outstanding indebtedness or for working capital or other general corporate purposes.

Our bank credit facility is guaranteed by certain of our material domestic subsidiaries and is secured by domestic inventories, certain domestic equipment, trademarks, other intellectual property, 100% of the stock in certain domestic subsidiaries, 65% of the stock of certain foreign subsidiaries and other assets. Excluded from the assets securing the bank credit facility are all of our most valuable real property interests and all of the capital stock and debt of our affiliates in Germany and the United Kingdom and any other affiliates that become restricted subsidiaries under the indenture governing our notes due 2003 and 2006.

The bank credit facility contains customary covenants restricting our activities as well as those of our subsidiaries, including limitations on our, and our subsidiaries’, ability to sell assets; engage in mergers; enter into capital leases or certain leases not in the ordinary course of business; enter into transactions involving related parties or derivatives; incur indebtedness or grant liens or negative pledges on our assets; make loans or other investments; pay dividends or repurchase stock or other securities; guaranty third party obligations; make capital expenditures; and make changes in our corporate structure. The credit agreement also contains financial covenants that we must satisfy on an ongoing basis, including maximum leverage ratios and minimum coverage ratios.

The credit agreement contains customary events of default, including payment failures; failures to satisfy other obligations under the credit agreements; material judgments; pension plan terminations or specified underfunding; substantial voting trust certificate or stock ownership changes; specified changes in the composition of our board of directors; and invalidity of the guaranty or security agreements. If an event of default occurs, our lenders could terminate their commitments, declare immediately payable all borrowings under the credit facilities and foreclose on the collateral, including our trademarks.

2001 Bank Credit Facility.     On February 1, 2001, we entered into a $1.05 billion senior secured credit facility to replace our then existing 2000 bank credit facility on more favorable terms. The facility was amended on July 11, 2001 to permit us to enter into the domestic receivables securitization transaction, on January 29, 2002 to amend several of the financial covenants in conjunction with our anticipated plant closures, on July 26, 2002 to permit us to adopt a deferred compensation plan to be effective in 2003, and on November 25, 2002 to permit us to use a portion of the net proceeds from notes issuances to refinance a portion of our $350.0 million 6.80% notes due November 1, 2003 and also to provide that, for purposes of determining compliance with the leverage ratio financial covenant under the bank credit facility, the amount of debt taken into account for purposes of that computation will be reduced by an amount of any net proceeds from the notes issuances segregated in separate designated bank or investment accounts.

The 2001 bank credit facility originally consisted of a $700.0 million revolving credit facility and $350.0 million of term loans. The $350.0 million of term loans includes two tranches, Tranche A for $100.0 million and Tranche B for $250.0 million. As of November 24, 2002, our credit facility consisted of $110.1 million of term loans and a $615.7 million revolving credit facility, of which $5.0 million of borrowings under the revolving credit facility was outstanding. Total availability under the revolving credit facility was reduced by $239.8 million of letters of credit allocated under the revolving credit facility, yielding a net availability of $370.9 million. Included in the $239.8 million of letters of credit at November 24, 2002 are $213.3 million of standby letters of credit with various international banks, of which $48.5 million serve as guarantees by the creditor banks to cover U.S. workers’ compensation claims.

On January 31, 2003, we entered into a new bank credit facility to replace the 2001 bank credit facility that was due to mature on August 29, 2003.

32

Table of Contents

Senior Unsecured Notes Due 2003 and 2006. In 1996, we issued $800.0 million in notes to qualified institutional buyers in reliance on Rule 144A under the Securities Act. We issued the notes in two series: $350.0 million seven-year notes maturing in November 2003 and $450.0 million ten-year notes maturing in November 2006. The seven-year notes bear interest at a rate of 6.80%. The ten-year notes bear interest at a rate of 7.00%. These notes are unsecured and rank equally with all of our other existing and future unsecured and unsubordinated debt. The indenture governing these notes contains customary events of default and restricts our ability and the ability of our subsidiaries and future subsidiaries, to:

In May 2000, we filed a registration statement on Form S-4 under the Securities Act with the SEC relating to an exchange offer for the notes. The exchange offer gave holders of these notes the opportunity to exchange the notes for new notes that are registered under the Securities Act. The new notes are identical in all material respects to the old notes except that the new notes are registered.

The exchange offer ended on June 20, 2000. As a result of the exchange offer, all but $20,000 of the $350.0 million aggregate principal amount of 6.80% old notes due 2003 were exchanged for the 6.80% new notes due 2003, and all $450.0 million aggregate principal amount of the 7.00% old notes due 2006 were exchanged for the 7.00% new notes due 2006.

We were not obligated by any agreement including the 2001 bank credit facility agreements to engage in the exchange offer. We initiated the exchange offer to give holders of these notes the opportunity to exchange the old notes for registered notes.

Our 6.80% notes due 2003 mature on November 1, 2003, at which time we will be required to repay or refinance these notes. On December 4, 2002, we used a portion of the net proceeds from the issuance of the 12.25% notes due December 2012 to repurchase $72.8 million of the 6.80% notes due November 1, 2003. We intend to use a portion of the remaining net proceeds from the December 2002 notes issuance, plus the $47.3 million net proceeds from the January 2003 issuance of an additional $50.0 million of these notes and the $99.8 million net proceeds from the January 2003 issuance of an additional $100.0 million of these notes, to refinance (whether through payment at maturity, repurchase or otherwise) all of the remaining aggregate principal amount of our 6.80% notes due November 1, 2003. On January 22, 2003, we purchased approximately $27.0 million of the 6.80% notes due November 1, 2003.

Senior Unsecured Notes Due 2008.     On January 18, 2001, we issued two series of notes payable for an aggregate of $497.5 million to qualified institutional buyers in reliance on Rule 144A under the Securities Act and outside the United States in accordance with Regulation S under the Securities Act. These notes are unsecured obligations, rank equally with all of our other existing and future unsecured and unsubordinated debt, and may be redeemed at any time after January 15, 2005. The issuance was divided into two series: U.S. $380.0 million notes and 125.0 million euro notes. Both series of notes are seven-year notes maturing on January 15, 2008 and bear interest at 11.625% per annum, payable semi-annually in January and July of each year. These notes are callable beginning January 15, 2005. These notes were offered at a discount of $5.2 million to be amortized over the term of the notes. Costs representing underwriting fees and other expenses of $14.4 million on the original issue are amortized, using an approximate effective-interest rate method, over the term of the notes. We used net proceeds from the offering to repay a portion of the indebtedness outstanding under our then effective credit facility.

The indentures governing these notes contain covenants that limit our and our subsidiaries’ ability to incur additional debt; pay dividends or make other restricted payments; consummate specified asset sales; enter into transactions with affiliates; incur liens; impose restrictions on the ability of a subsidiary to pay dividends or make payments to us and our subsidiaries; merge or consolidate with any other person; and sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets or our subsidiaries’ assets. If we experience a change in control as defined in the indentures governing the notes, then we will be required under the indentures to make an offer to repurchase the notes at a price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the date of repurchase. If these notes receive and maintain an investment grade rating by both Standard and Poor’s and Moody’s and we and our subsidiaries are and remain in compliance with the indentures, then we and our subsidiaries will not be required to comply with specified covenants contained in the indentures.

33

Table of Contents

In March 2001, we filed a registration statement on Form S-4 under the Securities Act with the SEC relating to an exchange offer for these notes. The exchange offer gave holders the opportunity to exchange the notes for new notes that are registered under the Securities Act. The new notes are identical in all material respects to the old notes except that the new notes are registered under the Securities Act. The indenture governing these notes contains the same covenants as for the original issuance under Rule 144A of the Securities Act.

The exchange offer ended on April 6, 2001. As a result of the exchange offer, all but $200 thousand of the $380.0 million aggregate principal amount of old dollar notes were exchanged for new dollar notes, and all but €595 thousand of the €125.0 million aggregate principal amount of old euro notes were exchanged for new euro notes.

Senior Unsecured Notes Due 2012.     On December 4, 2002, we issued $425.0 million in notes to qualified institutional buyers in reliance on Rule 144A under the Securities Act. These notes are unsecured obligations that rank equally with all of our other existing and future unsecured and unsubordinated debt. These notes are 10-year notes maturing on December 15, 2012 and bear interest at 12.25% per annum, payable semi-annually in arrears on December 15 and June 15, commencing on June 15, 2003. These notes are callable beginning December 15, 2007. We issued these notes at a discount of $6.0 million to be amortized over the term of the notes using an approximate effective-interest rate method. We will amortize costs representing underwriting fees and other expenses of approximately $12.6 million over the term of notes. We used approximately $125.0 million of the net proceeds from the offering to repay remaining indebtedness under our 2001 bank credit facility as of the close of business on December 3, 2002. We used a portion of the net proceeds to repurchase $72.8 million of the 6.80% notes due November 1, 2003.

On January 22, 2003 and on January 23, 2003, we issued an additional $100 million of these notes at a premium of $3.0 million and an additional $50.0 million of these notes at a discount of $0.7 million. We will amortize both the discount and premium over the term of the notes using an approximate effective-interest rate method. The notes issued in these additional offerings were issued under the same indenture as, have the same terms as, and constitute the same issue of, the December 2002 notes. We intend to use a portion of the remaining net proceeds from the December 2002 notes issuance, plus the $47.3 million net proceeds from the issuance of an additional $50 million of these notes and the $99.8 million net proceeds from the issuance of an additional $100 million of these notes to refinance (whether through payment at maturity, repurchase or otherwise) all of the remaining aggregate principal amount of our 6.80% notes due November 1, 2003. We will use any remaining proceeds to refinance other outstanding indebtedness or for working capital or other general corporate purposes. On January 22, 2003, we purchased approximately $27.0 million of the 6.80% notes due November 1, 2003.

Credit Ratings .    On August 14, 2002, Moody’s Investors Service downgraded our 2001 bank credit facility from “Ba3” to “B1” and our notes due 2003, 2006 and 2008 from “B2” to “Caa1.” According to a press release announcing the downgrade, Moody’s based this decision on its concerns relating to our level of cash generation, our ability to refinance debt, including our 2001 bank credit facility maturing in August 2003 and our notes maturing in November 2003, and our ability to pay costs associated with plant closures we undertook in 2002. On November 25, 2002, Moody’s upgraded our outlook from negative to stable and announced it would upgrade its ratings for our notes due 2003, 2006 and 2008 to “B3” upon completion of the issuance of the $425.0 million senior notes payable on December 4, 2002. On January 7, 2003, Moody’s upgraded our senior unsecured debt ratings to “B3” from “Caa1.” The “B2” senior implied rating and the “B1” rating on our 2001 bank credit facility were confirmed.

On November 12, 2002, Standard and Poor’s Ratings Service downgraded our long-term corporate credit rating from “BB” to “BB-” and our 2001 bank credit facility from “BB+” to “BB,” while reaffirming our senior unsecured debt rating as “BB-” and upgraded our outlook from negative to stable. According to a press release announcing its action, Standard and Poor’s based this decision on its expectation that our credit measures will not improve significantly in the near term. Standard and Poor’s expressed concerns relating to our entry into the mass channel, including significant execution risk associated with logistics, production and delivery response to serve the mass channel, the potential effect on our brand franchise, and the potential reaction of our existing retailers. Standard and Poor’s also noted that the ratings reflected our leveraged financial profile, the highly competitive nature of our industry, and the inherent fashion risk in our industry.

34

Table of Contents

Yen-denominated Eurobond Placement

In November 1996, we issued a ¥20 billion principal amount eurobond (equivalent to approximately $180.0 million at the time of issuance) due November 22, 2016, with interest payable at 4.25% per annum. The bond is redeemable at our option at a make-whole redemption price, based on market rates at the time of redemption, commencing in November 2006 and on any subsequent semi-annual interest payment date. We treat the bond as a hedge of our net investment in our Japanese subsidiary.

The bond includes customary events of default and covenants limiting our activities similar to the events of default and covenants contained in the indenture governing our senior unsecured notes due in 2003 and 2006.

European Receivables Financing

In February 2000, several of our European subsidiaries, including Levi Strauss Germany GmbH, Levi Strauss (U.K.) Limited, Levi Strauss Continental S.A., Levi Strauss Italia s.r.l., and Levi Strauss De Espana, S.A., each entered into a receivables-backed securitization financing agreement with ABN AMRO BV and other lenders to borrow up to $125.0 million. Borrowings under the facilities were used to reduce the commitment levels under our 2001 bank credit facility. Interest rates under this agreement are variable based on commercial paper market conditions, and the debt ratings of the underlying conduit. Borrowings are collateralized by a security interest in the receivables of these subsidiaries.

As of November 24, 2002, an equivalent of $51.2 million was outstanding under these facilities. We have borrowed the following amounts under these facilities:

The securitization agreements contain covenants governing the activities of the subsidiaries and the quality of the receivables that may be used to support the borrowings, including, among other things, a requirement that our subsidiaries service the receivables securing their borrowings.

We provide a limited guaranty to support borrowings under the agreements. We guaranty performance by the subsidiaries of their servicing obligations. We also guaranty the collectibility of the receivables in an amount not to exceed 10% of the outstanding amount as of the termination date under the securitization agreements.

The securitization agreements contain customary termination events for these arrangements, including the subsidiaries’ failure to make payments or otherwise comply with their obligations under the securitization agreements, bankruptcy events, material adverse changes in financial position or receivables collection procedures, cross default to other indebtedness, failure of the portfolio to meet certain performance standards or a change in control.

The facilities, which have an annual renewable option upon agreement of all parties, mature on February 28, 2003. We will not renew these facilities.

Customer Service Center Equipment Financing

In December 1999, we borrowed $89.5 million from a group of lenders under a five-year credit facility secured by most of the equipment located at our customer service centers in Nevada, Mississippi and Kentucky. These customer service centers are our principal product distribution facilities in the United States. The equipment in the customer service centers securing this facility is not part of the collateral securing our 2003 bank credit facility. As of November 24, 2002, there was approximately $71.8 million principal amount outstanding under this facility. Approximately $19.7 million in excess collateral equipment value remains available to secure additional third party funding. Borrowings of $44.8 million under the first tranche bear interest at a fixed rate equal to the yield on four-year U.S. Treasury notes at the time of funding plus an incremental borrowing spread. Borrowings of $27.0 million under the second tranche bear interest at a floating quarterly rate equal to the 90-day London Interbank Offered Rate plus an incremental borrowing spread based on our leverage ratio at the time of the interest payment. The borrowings amortize over five years, with 50% and 80% of the principal amount of the first tranche and second tranche, respectively, due at maturity.

35

Table of Contents

The credit facility is structured as a lease intended as security. This means that we retain ownership of the equipment, the lenders have a security interest in the equipment and the transaction is considered a secured financing, and not a lease, for tax, accounting, bankruptcy, financial reporting and commercial law purposes.

The transaction documents include customary covenants governing our activities, including, among other things, limitations on our ability to sell, lease, relocate or grant liens in the equipment held in these customer service centers.

In some circumstances, we are permitted to sell or, with the lenders’ approval, obtain a release of the lenders’ security interest in, the equipment in the customer service centers upon repayment of a portion of the debt attributable to that equipment. We can also enter into agreements with third party “outsource” providers to operate one or more of the customer service centers.

The transaction documents include customary events of default. If we default, the lenders could accelerate the maturity date of our loans, enter these customer service centers and take possession of our equipment held there.

Domestic Receivables Securitization

On July 31, 2001, we completed a receivables securitization transaction involving receivables generated from sales of products to our domestic customers. The transaction involved the issuance by Levi Strauss Receivables Funding, LLC, our indirect subsidiary, of $110.0 million of secured term notes. The notes, which are secured by trade receivables originated by Levi Strauss & Co., bear interest at a rate equal to the one-month London Interbank Offered Rate plus 0.32% per annum, and have a stated maturity date of November 2005. Net proceeds of the offering were used to repay a portion of the outstanding debt under our 2001 bank credit facility. The purpose of the transaction was to lower our interest expense and diversify funding sources. The notes were issued in a private placement transaction in accordance with Rule 144A under the Securities Act.

Under the securitization arrangement, collections on receivables remaining after payment of interest and fees relating to the notes are used to purchase new receivables from Levi Strauss & Co. The securitization agreements provide that, in specified cases, the collections will not be released but will instead be deposited and used to pay the principal amount of the notes. Those circumstances include, among other things, failure to maintain the required level of overcollaterization due to deterioration in the credit quality, or overconcentration or dilution in respect of, the receivables, failure to pay interest or other amounts which is not cured, breaches of covenants, representations and warranties or events of bankruptcy relating to us and certain of our subsidiaries. Non-release of collections in these limited circumstances could have an adverse effect on our liquidity.

On April 25, 2002, we obtained an amendment to the domestic receivables securitization agreements. Before the amendment, the manner in which sales incentives were treated in the calculation of net eligible U.S. trade receivables decreased net eligible receivables as well as substantially increased the targeted amount. The amendment revises the way sales incentives are treated in calculating the amount of net eligible receivables.

Industrial Development Revenue Refunding Bond