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<SEC-DOCUMENT>0000094845-02-000034.txt : 20020703
<SEC-HEADER>0000094845-02-000034.hdr.sgml : 20020703
<ACCEPTANCE-DATETIME>20020703170032
ACCESSION NUMBER:		0000094845-02-000034
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20020526
FILED AS OF DATE:		20020703

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			LEVI STRAUSS & CO
		CENTRAL INDEX KEY:			0000094845
		STANDARD INDUSTRIAL CLASSIFICATION:	APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300]
		IRS NUMBER:				940905160
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1124

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	002-90139
		FILM NUMBER:		02696680

	BUSINESS ADDRESS:	
		STREET 1:		1155 BATTERY ST
		CITY:			SAN FRANCISCO
		STATE:			CA
		ZIP:			94111
		BUSINESS PHONE:		4155446000

	MAIL ADDRESS:	
		STREET 1:		1155 BATTERY STREET
		CITY:			SAN FRAINCISCO
		STATE:			CA
		ZIP:			94111
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>q2_10qfinal.txt
<DESCRIPTION>10-Q FOR PERIOD ENDED MAY 26, 2002
<TEXT>

================================================================================


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ----------------------

                                    FORM 10-Q

                                   (Mark One)

     [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   FOR THE QUARTERLY PERIOD ENDED MAY 26, 2002

                                       or

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                        Commission file number: 333-36234

                               LEVI STRAUSS & CO.
             (Exact Name of Registrant as Specified in Its Charter)

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

              1155 BATTERY STREET, SAN FRANCISCO, CALIFORNIA 94111
                    (Address of Principal Executive Offices)

                                 (415) 501-6000
              (Registrant's Telephone Number, Including Area Code)

                                      None
        (Former Name, Former Address, and Former Fiscal Year, if Changed
                               Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                    Yes X   No
                                       ---    ---

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

Common Stock $.01 par value ------ 37,278,238 shares outstanding on July 1, 2002


<PAGE>


LEVI STRAUSS & CO.
INDEX TO FORM 10-Q
MAY 26, 2002

<TABLE>
<CAPTION>


                                                                                                         PAGE
                                                                                                        NUMBER
                                                                                                        ------
<S>                                                                                                       <C>
PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements:

           Consolidated Balance Sheets as of May 26, 2002 and November 25, 2001..........................  3

           Consolidated Statements of Operations for the Three and Six Months Ended
            May 26, 2002 and May 27, 2001................................................................  4

           Consolidated Statements of Cash Flows for the Six Months Ended
            May 26, 2002 and May 27, 2001................................................................  5

           Notes to the Consolidated Financial Statements................................................  6

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of
             Operations.................................................................................. 19

Item 3.    Quantitative and Qualitative Disclosures about Market Risk.................................... 29

PART II - OTHER INFORMATION

Item 6.    Exhibits and Reports on Form 8-K.............................................................. 31

SIGNATURE................................................................................................ 32


                                       2
</TABLE>

<PAGE>


PART I - FINANCIAL INFORMATION
ITEM 1.     FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                       LEVI STRAUSS & CO. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)

                                                                                            May 26,      November 25,
                                                                                             2002            2001
                                                                                             ----            ----
                                       ASSETS                                            (Unaudited)
<S>                                                                                          <C>              <C>
Current Assets:
      Cash and cash equivalents......................................................    $  115,603      $  102,831
      Trade receivables, net of allowance for doubtful accounts of $25,565 in 2002
         and $26,666 in 2001.........................................................       473,006         621,224
      Inventories:
          Raw materials..............................................................        98,344          97,261
          Work-in-process............................................................        80,194          50,499
          Finished goods.............................................................       494,998         462,417
                                                                                         ----------      ----------
             Total inventories.......................................................       673,536         610,177
      Deferred tax assets............................................................       187,069         189,958
      Other current assets...........................................................        94,721         110,252
                                                                                         ----------      ----------
                  Total current assets...............................................     1,543,935       1,634,442
Property, plant and equipment, net of accumulated depreciation of $484,769 in
   2002 and $527,647 in 2001.........................................................       469,559         514,711
Goodwill and other intangibles, net of accumulated amortization of $180,927 in
   2002 and $175,603 in 2001.........................................................       248,842         254,233
Non-current deferred tax assets......................................................       546,345         484,260
Other assets.........................................................................        88,004          95,840
                                                                                         ----------      ----------
                  Total Assets.......................................................    $2,896,685      $2,983,486
                                                                                         ==========      ==========

                        LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
      Current maturities of long-term debt and short-term borrowings.................    $  178,588      $  162,944
      Accounts payable...............................................................       188,050         234,199
      Restructuring reserves.........................................................       135,065          45,220
      Accrued liabilities............................................................       297,082         301,620
      Accrued salaries, wages and employee benefits..................................       273,666         212,728
      Accrued taxes..................................................................       146,510          26,475
                                                                                         ----------      ----------
                  Total current liabilities..........................................     1,218,961         983,186
Long-term debt, less current maturities..............................................     1,683,209       1,795,489
Postretirement medical benefits......................................................       540,749         544,476
Long-term employee related benefits..................................................       364,296         384,751
Long-term tax liability..............................................................        23,467         174,978
Other long-term liabilities..........................................................        18,769          16,402
Minority interest....................................................................        19,862          20,147
                                                                                         ----------      ----------
                  Total liabilities..................................................     3,869,313       3,919,429
                                                                                         ----------      ----------
Stockholders' Deficit:
      Common stock--$.01 par value; 270,000,000 shares authorized; 37,278,238
         shares issued and outstanding...............................................           373             373
      Additional paid-in capital.....................................................        88,808          88,808
      Accumulated deficit............................................................    (1,058,210)     (1,020,860)
      Accumulated other comprehensive income (loss)..................................        (3,599)         (4,264)
                                                                                         ----------      ----------
                  Total stockholders' deficit........................................      (972,628)       (935,943)
                                                                                         ----------      ----------
                  Total Liabilities and Stockholders' Deficit........................    $2,896,685      $2,983,486
                                                                                         ==========      ==========
<FN>
   The accompanying notes are an integral part of these financial statements.
</FN>
                                       3
</TABLE>

<PAGE>

                       LEVI STRAUSS & CO. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Dollars in Thousands, Except Per Share Data)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                     Three Months Ended               Six Months Ended
                                                                     ------------------               ----------------
                                                                   May 26,         May 27,          May 26,        May 27,
                                                                    2002            2001             2002           2001
                                                                    ----            ----             ----           ----
<S>                                                                  <C>             <C>             <C>            <C>
Net sales..................................................     $  923,518       $1,043,937      $1,858,802     $2,040,320
Cost of goods sold.........................................        553,974          591,442       1,090,674      1,147,891
                                                                ----------       ----------      ----------     ----------
   Gross profit............................................        369,544          452,495         768,128        892,429
Marketing, general and administrative expenses.............        318,804          336,128         617,739        662,224
Other operating (income)...................................         (8,511)          (7,365)        (14,624)       (14,539)
Restructuring charges, net of reversals....................        141,078               -          141,078              -
                                                                ----------       ----------      ----------     ----------
   Operating income (loss).................................        (81,827)         123,732          23,935        244,744
Interest expense...........................................         42,510           53,898          90,533        123,103
Other (income) expense, net................................         19,569              899           8,104          5,767
                                                                ----------       ----------      ----------     ----------
   Income (loss) before taxes..............................       (143,906)          68,935         (74,702)       115,874
Income tax expense (benefit)...............................        (62,957)          25,507         (37,351)        42,874
                                                                ----------       ----------      ----------     ----------
   Net income (loss).......................................     $  (80,949)      $   43,428      $  (37,351)    $   73,000
                                                                ==========       ==========      ==========     ==========

Earnings (loss) per share--basic and diluted...............     $    (2.17)      $     1.16      $    (1.00)    $     1.96
                                                                ==========       ==========      ==========     ==========

Weighted-average common shares outstanding.................     37,278,238       37,278,238      37,278,238     37,278,238
                                                                ==========       ==========      ==========     ==========
<FN>
   The accompanying notes are an integral part of these financial statements.
</FN>
                                       4
</TABLE>

<PAGE>

                       LEVI STRAUSS & CO. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                           Six Months Ended
                                                                                           ----------------
                                                                                       May 26,           May 27,
                                                                                        2002              2001
                                                                                        ----              ----
<S>                                                                                       <C>             <C>
Cash Flows from Operating Activities:
Net income (loss).............................................................        $ (37,351)       $  73,000
Adjustments to reconcile net cash provided by (used for) operating activities:
        Depreciation and amortization.........................................           36,238           42,255
        Asset write-offs associated with 2002 restructuring charge............           25,708                -
        Gain on dispositions of property, plant and equipment.................             (771)          (1,012)
        Unrealized foreign exchange (gains) losses............................           14,161          (18,250)
        Decrease in trade receivables.........................................          151,729           99,252
        Increase in inventories...............................................          (58,141)        (129,637)
        (Increase) decrease in other current assets...........................           (8,721)          19,216
        Decrease (increase) in other long-term assets.........................            6,201          (20,604)
        (Increase) decrease in net deferred tax assets........................          (59,846)           1,546
        Decrease in accounts payable and accrued liabilities..................          (57,472)        (134,943)
        Increase (decrease) in restructuring reserves.........................           89,846          (14,780)
        Increase (decrease) in accrued salaries, wages and employee benefits..           60,060          (79,184)
        Increase (decrease) in accrued taxes..................................          121,697          (32,188)
        (Decrease) increase in long-term employee benefits....................          (22,202)          31,922
        (Decrease) increase in long-term tax and other liabilities............         (148,762)           8,259
        Other, net............................................................            1,186            2,418
                                                                                      ---------       ----------
           Net cash provided by (used for) operating activities...............          113,560         (152,730)
                                                                                      ---------       ----------

Cash Flows from Investing Activities:
        Purchases of property, plant and equipment............................         (18,804)           (8,547)
        Proceeds from sale of property, plant and equipment...................           7,802             2,688
        Realized gains on net investment hedges...............................           4,786             5,169
                                                                                      --------        ----------
           Net cash (used for) investing activities...........................          (6,216)             (690)
                                                                                      --------        ----------

Cash Flows from Financing Activities:
        Proceeds from issuance of long-term debt..............................         356,999         1,505,772
        Repayments of long-term debt..........................................        (456,465)       (1,393,747)
        Net increase (decrease) in short-term borrowings......................           4,598            (1,555)
                                                                                      --------        ----------
           Net cash (used for) provided by financing activities...............         (94,868)          110,470
                                                                                      --------        ----------
Effect of exchange rate changes on cash.......................................             296             5,871
                                                                                      --------        ----------
           Net increase (decrease) in cash and cash equivalents...............          12,772           (37,079)
Beginning cash and cash equivalents...........................................         102,831           117,058
                                                                                      --------        ----------
Ending Cash and Cash Equivalents..............................................        $115,603        $   79,979
                                                                                      ========        ==========

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
        Interest..............................................................        $ 81,485        $   87,797
        Income taxes..........................................................          35,543            66,023
        Restructuring initiatives.............................................          25,525            14,780
<FN>

   The accompanying notes are an integral part of these financial statements.
</FN>
                                       5
</TABLE>

<PAGE>

                       LEVI STRAUSS & CO. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

     The  unaudited  consolidated financial statements of Levi Strauss & Co. and
subsidiaries  ("LS&CO." or "Company") are prepared in conformity  with generally
accepted accounting principles for interim financial information. In the opinion
of  management,  all  adjustments  necessary  for a  fair  presentation  of  the
financial position and results of operations for the periods presented have been
included.  These unaudited  consolidated  financial statements should be read in
conjunction with the audited consolidated financial statements of LS&CO. for the
year ended November 25, 2001 included in the annual report on Form 10-K filed by
LS&CO.  with the Securities and Exchange  Commission  (the "SEC") on February 7,
2002.

     The consolidated  financial  statements  include the accounts of LS&CO. and
its subsidiaries. All intercompany transactions have been eliminated. Management
believes  that,  along  with the  following  information,  the  disclosures  are
adequate to make the information presented herein not misleading.  Certain prior
year amounts have been reclassified to conform to the current presentation.  The
results of operations for the three and six months ended May 26, 2002 may not be
indicative of the results to be expected for the year ending November 24, 2002.

Estimates and Critical Accounting Policies

     The  preparation of  financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions that affect the amounts reported in the financial statements and the
related notes to the financial statements.  Changes in such estimates,  based on
more accurate future information, may affect amounts reported in future periods.

      The  Company's most  critical accounting policies upon which its financial
position  and  results  of  operations  depend  are those  relating  to  revenue
recognition,  inventory valuation, restructuring reserves, income tax assets and
liabilities,  and derivatives and foreign exchange management activities.  Since
the end of the first  quarter of fiscal year 2002,  the Company added the policy
for  income  tax  assets  and  liabilities  to its list of  critical  accounting
policies.  During the second quarter,  the Company did not change those policies
or adopt any new policies.  The Company summarizes its most critical  accounting
policies below.

o    Revenue  recognition.  The  Company  recognizes  revenue from the sale of a
     product  upon   its  shipment  to  the  customer.  The  Company  recognizes
     allowances for  estimated  returns,  discounts and retailer  promotions and
     incentives  when the sale  is recorded.  Allowances  principally  relate to
     the Company's U.S. operations and are primarily  comprised  of volume-based
     incentives  and  other  returns and discounts.  For  volume-based  retailer
     incentive programs, reserves for volume allowances are calculated  based on
     a  fixed  formula  applied   to   sales  volumes.  The   Company  estimates
     non-volume-based  allowances  using  historical  customer  claim rates as a
     percentage of  accounts  receivable,  adjusted  as  necessary  for  special
     customer and product-specific circumstances.  Actual  allowances may differ
     from  estimates due  primarily to changes in sales volume based on retailer
     or consumer demand.  Actual  returns and  allowances  have  not  materially
     differed from estimates.

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

                                       6
<PAGE>

                       LEVI STRAUSS & CO. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
                                   (Unaudited)

o    Restructuring reserves. Upon approval of a restructuring plan by management
     with the appropriate level of authority,  the Company records restructuring
     reserves  for  certain  costs associated  with  plant closures and business
     reorganization activities.  Such costs are recorded as a current  liability
     and  primarily  include  employee  severance,  certain employee termination
     benefits,  including  out-placement  services  and career  counseling,  and
     contractual obligations. The principal components of the reserves relate to
     employee severance and termination  benefits,  which the Company  estimates
     based on  agreements with  the  relevant  union  representatives  or  plans
     adopted by the Company that are applicable to employees not affiliated with
     unions.  These costs are not associated with nor do they benefit continuing
     activities.  Inherent  in the  estimation of  these  costs  are assessments
     related to the most likely expected  outcome of the  significant actions to
     accomplish the restructuring.  Changing business  conditions may affect the
     assumptions  related  to  the  timing  and  extent   of   facility  closure
     activities.  The Company reviews the status of restructuring  activities on
     a quarterly basis and, if  appropriate, records  changes  based on  updated
     estimates.

o    Income tax assets and liabilities.  In establishing its deferred income tax
     assets and liabilities, the Company  makes  judgments  and  interpretations
     based  on  the  enacted  tax laws  and  published  tax  guidance  that  are
     applicable to its operations.  The Company records  deferred tax assets and
     liabilities and evaluates the need for valuation  allowances  to reduce the
     deferred  tax assets to realizable  amounts.  The  likelihood of a material
     change in the Company's  expected  realization of these assets is dependent
     on  future   taxable   income,  its  ability  to  use  foreign  tax  credit
     carryforwards  and carrybacks,  final U.S. and foreign tax settlements, and
     the  effectiveness of its  tax planning  strategies in the various relevant
     jurisdictions. The Company is also subject to examination of its income tax
     returns for  multiple years by the Internal  Revenue  Service and other tax
     authorities.  The Company  periodically  assesses the likelihood of adverse
     outcomes resulting from these examinations to determine the adequacy of its
     provision for income taxes.  Changes to the Company's income tax  provision
     or in the valuation of the deferred tax assets and  liabilities  may affect
     its annual effective income tax rate.

o    Derivatives  and  foreign  exchange  management  activities.  The   Company
     recognizes all derivatives as assets and liabilities at their  fair values.
     The fair values are  determined  using widely accepted valuation models and
     reflect assumptions  about  currency fluctuations  based on  current market
     conditions. The Company actively manages foreign  currency  exposures on an
     economic basis, using forecasts to develop  exposure  positions to maximize
     the U.S. dollar  value over  the  long-term. Not  all  exposure  management
     activities  and  foreign currency  derivative  instruments will qualify for
     hedge accounting treatment.

     Changes in the fair  values  of those  derivative  instruments  that do not
     qualify  for hedge  accounting are  recorded in "Other (income) expense" in
     the  consolidated  statement of  income. As  a  result, net  income may  be
     subject to volatility. The derivative instruments that do qualify for hedge
     accounting  currently hedge  the  Company's  net investment position in its
     subsidiaries.  For  these  instruments, the  Company  documents  the  hedge
     designation, by  identifying the hedging instrument, the nature of the risk
     being hedged and the approach for measuring hedge effectiveness. Changes in
     fair values of derivative  instruments that do qualify for hedge accounting
     are recorded in the "Accumulated other comprehensive income (loss)" section
     of Stockholders'  Deficit. The  carrying  values  of derivative instruments
     used to  manage  currency  exposures  are  sensitive  to  changes in market
     conditions  and  to  changes  in  the  timing  and  amounts  of  forecasted
     exposures.

                                       7
<PAGE>

                       LEVI STRAUSS & CO. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
                                   (Unaudited)

NOTE 2: COMPREHENSIVE INCOME

     The following is a summary of the components of total comprehensive income,
net of related income taxes:
<TABLE>
<CAPTION>
                                                                        Three Months Ended          Six Months Ended
                                                                        ------------------          ----------------
                                                                       May 26,       May 27,       May 26,       May 27,
                                                                        2002          2001          2002          2001
                                                                        ----          ----          ----          -----
                                                                                    (Dollars in Thousands)
<S>                                                                     <C>           <C>          <C>             <C>
Net income (loss).............................................        $(80,949)     $43,428       $(37,351)      $73,000
                                                                      --------      -------       --------       -------
Other comprehensive income (loss):
 Transition adjustments:
   Unrealized losses on cash flow hedges......................               -            -              -          (522)
   Reclassification of cash flow hedges to other
     (income) expense.........................................               -          261              -           261
                                                                      --------      -------       --------       -------
   Net cash flow hedges.......................................               -          261              -          (261)
   Net investment hedges......................................               -            -              -            76
                                                                      --------      -------       --------       -------
      Total transition adjustments............................               -          261              -          (185)
                                                                      --------      -------       --------       -------
 Foreign currency translation adjustments:
   Net investment hedges......................................          (6,919)       9,440         (1,884)        2,322
   Foreign currency translations..............................          13,347      (10,797)         3,121         7,381
                                                                      --------      -------       --------       -------
      Total foreign currency translation adjustments..........           6,428       (1,357)         1,237         9,703
                                                                      --------      -------       --------       -------
 Unrealized gains on cash flow hedges.........................               -        1,599              -         3,527
 Reclassification of cash flow hedges to other
   (income) expense...........................................               -         (852)          (572)       (1,005)
                                                                      --------      -------       --------       -------
    Net cash flow hedges......................................               -          747           (572)        2,522
                                                                      --------      -------       --------       -------
      Total other comprehensive income (loss).................           6,428         (349)           665        12,040
                                                                      --------      -------       --------       -------
 Total comprehensive income (loss)............................        $(74,521)     $43,079       $(36,686)      $85,040
                                                                      ========      =======       ========       =======
</TABLE>


     The  following  is  a  summary  of  the  components  of  Accumulated  other
comprehensive income (loss) balances, net of related income taxes:
<TABLE>
<CAPTION>

                                                                                      May 26,     November 25,
                                                                                       2002          2001
                                                                                       ----          ----
                                                                                       (Dollars in Thousands)
<S>                                                                                      <C>           <C>
        Cumulative transition adjustments:
          Beginning balance of cash flow hedges..........................            $     -       $     -
            Unrealized losses on cash flow hedges........................                  -          (522)
            Reclassification of cash flow hedges to other
              (income) expense...........................................                  -           522
                                                                                     -------       -------
        Ending balance of cash flow hedges...............................                  -             -
        Net investment hedges............................................                  -            76
                                                                                     -------       -------
                Total cumulative transition adjustments..................                  -            76
                                                                                     -------       -------
        Cumulative translation adjustments:
          Net investment hedges..........................................             48,010        49,818
          Foreign currency translations..................................            (51,609)      (54,730)
                                                                                     -------       -------
                Total cumulative translation adjustments.................             (3,599)       (4,912)
                                                                                     -------       -------
        Beginning balance of cash flow hedges............................                  -             -
          Unrealized gains on cash flow hedges...........................                572         3,052
          Reclassification of cash flow hedges to other
            (income) expense.............................................               (572)       (2,480)
                                                                                     -------       -------
        Ending balance of cash flow hedges...............................                  -           572
                                                                                     -------       -------
      Accumulated other comprehensive income (loss)......................            $(3,599)      $(4,264)
                                                                                     =======       =======
                                       8
</TABLE>

<PAGE>

                       LEVI STRAUSS & CO. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
                                   (Unaudited)

NOTE 3: RESTRUCTURING RESERVES

     The following is a  description of the actions  taken  associated  with the
Company's reorganization initiatives.  Severance and employee benefits relate to
severance packages,  out-placement  services and career counseling for employees
affected  by the  plant  closures  and  reorganization  initiatives.  Reductions
consist of payments for severance  and employee  benefits,  other  restructuring
costs and foreign  exchange  differences.  The balance of severance and employee
benefits and other restructuring costs are included under restructuring reserves
on the balance sheet.

2002 PLANT CLOSURES

     The Company announced in March 2002 the closure of two manufacturing plants
in Scotland in order to reduce average  production costs in Europe.  The Company
recorded  an  initial  charge in the  second  quarter  of 2002 of $20.5  million
consisting of $3.1 million for asset write-offs, $15.7 million for severance and
employee  benefits and $1.7 million for other  restructuring  costs.  The charge
reflected an estimated  displacement  of 650  employees.  The two  manufacturing
plants were closed by the end of the second quarter of 2002. As of May 26, 2002,
approximately  620 employees have been  displaced.  The table below displays the
activity and liability balance of this reserve.

     The Company  announced in April 2002 the closure of six U.S.  manufacturing
plants.   The  decision   reflected  the  Company's   continuing  shift  from  a
manufacturing  to a  marketing  and  product-driven  organization.  The  Company
recorded  an  initial  charge in the second  quarter  of 2002 of $129.7  million
consisting  of $22.7 million for asset  write-offs,  $89.6 million for severance
and  employee  benefits and $17.4  million for other  restructuring  costs.  The
charge  reflects an estimated  displacement  of 3,300  employees at the affected
plants and approximately 250 employees at the remaining U.S. finishing facility.
The Company plans to close the six  manufacturing  plants in three  phases:  two
plants were closed by the end of June 2002, two plants are scheduled to close by
the end of July 2002 and the final two plants are  scheduled to close by the end
of September  2002.  As of May 26, 2002, no employees  had been  displaced.  The
table below displays the activity and liability balance of this reserve.


2002 Scotland Plant Closures
<TABLE>
<CAPTION>
                                                                         Balance                           Balance
                                                                            At                                At
                                                                        11/25/01     Charges  Reductions   5/26/02
                                                                        --------     -------  ----------   -------
                                                                                   (Dollars in Thousands)
<S>                                                                        <C>        <C>       <C>           <C>
Severance and employee benefits......................................    $  --      $15,691    $(12,741)    $2,950
Other restructuring costs............................................       --        1,732         (33)     1,699
                                                                         -----      -------    --------     ------
     Total...........................................................    $  --      $17,423    $(12,774)    $4,649
                                                                         =====      =======    ========     ======

2002 U.S. Plant Closures
<CAPTION>
                                                                         Balance                           Balance
                                                                            At                                At
                                                                        11/25/01     Charges  Reductions   5/26/02
                                                                        --------     -------  ----------   -------
                                                                                   (Dollars in Thousands)
<S>                                                                        <C>         <C>      <C>          <C>
Severance and employee benefits......................................    $  --      $ 89,625     $(609)   $ 89,016
Other restructuring costs............................................       --        17,397      (199)     17,198
                                                                         -----      --------     -----    --------
     Total...........................................................    $  --      $107,022     $(808)   $106,214
                                                                         =====      ========     =====    ========

                                       9
</TABLE>
<PAGE>

                       LEVI STRAUSS & CO. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
                                   (Unaudited)

2001 REORGANIZATION INITIATIVES

     In November 2001, the Company instituted various reorganization initiatives
in the U.S. that included simplifying product lines and realigning the Company's
resources to those  product  lines.  The Company  recorded an initial  charge of
$20.3 million in November 2001  reflecting a displacement of  approximately  500
employees. As of May 26, 2002,  approximately 270 employees have been displaced.
The table below displays the activity and liability balance of this reserve.

     In November 2001, the Company instituted various reorganization initiatives
in Japan.  These  initiatives were prompted by business  declines as a result of
the  prolonged   economic   slowdown,   political   uncertainty,   major  retail
bankruptcies and dramatic shrinkage of the core denim jeans market in Japan. The
Company  recorded an initial charge of $2.0 million in November 2001. The charge
reflected  an  estimated  displacement  of 22  employees,  all of whom have been
displaced.  The table below displays the activity and liability balances of this
reserve.

U.S. Reorganization Initiatives
<TABLE>
<CAPTION>
                                                                          Balance               Balance
                                                                             At                    At
                                                                         11/25/01  Reductions   5/26/02
                                                                         --------  ----------   -------
                                                                              (Dollars in Thousands)
<S>                                                                           <C>       <C>        <C>
Severance and employee benefits....................................       $19,989    $(8,422)   $11,567
                                                                          -------    -------    -------
     Total.........................................................       $19,989    $(8,422)   $11,567
                                                                          =======    =======    =======

Japan Reorganization Initiatives
<CAPTION>
                                                                          Balance               Balance
                                                                             At                    At
                                                                         11/25/01  Reductions   5/26/02
                                                                         --------  ----------   -------
                                                                              (Dollars in Thousands)
<S>                                                                         <C>        <C>          <C>
Severance and employee benefits....................................        $1,657    $(1,632)      $ 25
Other restructuring costs..........................................           349        (66)       283
                                                                           ------    -------       ----
     Total.........................................................        $2,006    $(1,698)      $308
                                                                           ======    =======       ====
</TABLE>

1997 - 1999 PLANT CLOSURES AND RESTRUCTURING INITIATIVES

     From 1997 to 1999 we  closed 29 of our  owned and operated  production  and
finishing  facilities in North America and Europe and  instituted  restructuring
initiatives to reduce costs,  eliminate  excess  capacity and align our sourcing
strategy  with  changes in the industry  and in consumer  demand.  In the second
quarter of 2002, the Company  reversed  charges of $9.1 million related to plant
closures  in 1998  and 1999  due to  updated  estimates  associated  with  lower
anticipated  employee  benefits and other plant closure related costs. As of May
26,  2002,  the  remaining  balance for the 1999 North  America  plant  closures
represents   estimates  for   remaining   employee   benefits  and   contractual
obligations.

SUMMARY

     The  total  balance  of  the  reserves  at May 26, 2002 was $135.1  million
compared to $45.2 million at November 25, 2001. The majority of the balances for
the 1997 - 2001  reserves  and the 2002  Scotland  plant  closures  reserve  are
expected to be utilized by the end of 2002,  while the 2002 U.S. plant  closures
reserve  balance is expected to be  utilized by the end of 2003.  The  following
table summarizes the activities and liability balances  associated with the 1997
- - 2002 plant closures and restructuring initiatives:

                                       10
<PAGE>

                       LEVI STRAUSS & CO. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                     Balance as of                                                Balance as of
                                                      November 25,                                                   May 26,
                                                          2001         Charges        Reversals     Reductions        2002
                                                          ----         -------        ---------     ----------        ----
                                                                            (Dollars in Thousands)
<S>                                                      <C>            <C>             <C>            <C>            <C>
2002 Scotland Plant Closures......................     $    --        $ 17,423         $   --        $12,774       $  4,649
2002 U.S. Plant Closures..........................          --         107,022             --            808        106,214
2001 Corporate Restructuring Initiatives..........      19,989              --             --          8,422         11,567
2001 Japan Restructuring Initiative...............       2,006              --             --          1,698            308
1999 Europe Restructuring and Plant Closures......       2,449              --            570            188          1,691
1999 North America Plant Closures.................      18,659              --          8,415          1,129          9,115
1999 Corporate Restructuring Initiatives..........         113              --             --            113             --
1998 Corporate Restructuring Initiatives..........       1,508              --             --             80          1,428
1998 North America Plant Closures.................         223              --             90            109             24
1998 European Restructuring and Plant Closures....         225              --             --            156             69
1997 North America Plant Closures.................          48              --             --             48             --
                                                       -------        --------         ------        -------       --------
     Restructuring Reserves.......................     $45,220         124,445         $9,075        $25,525       $135,065
                                                       =======        --------         ======        =======       ========
2002 Plant Closures - Asset Write-offs............                      25,708
                                                                      --------
     2002 Restructuring Charges...................                    $150,153
                                                                      ========
</TABLE>

NOTE 4: FINANCING

CREDIT FACILITY AMENDMENT

      Effective January 29, 2002, the  Company  completed  an  amendment to  its
principal credit agreement.  The amendment has three principal features.  First,
the amendment excludes from the computation of earnings for covenant  compliance
purposes certain cash expenses,  as well as certain non-cash costs,  relating to
the 2002 plant  closures in the U.S. and Scotland.  The amendment  also excludes
from  those  computations  the  non-cash  portion  of  the  Company's  long-term
incentive  compensation plans.  Second, the amendment reduces by 0.25 the amount
of the required  tightening  of the  leverage  ratio  beginning  with the fourth
quarter of 2002.  Third,  the  amendment  tightens the senior  secured  leverage
ratio.  The amendment did not change the interest rate,  size of the facility or
required payment provisions of the facility.

Amendment of Domestic Receivables Securitization Agreements

      Under its domestic  receivables securitization arrangement, the Company is
required to maintain  the level of net  eligible  U.S.  trade  receivables  at a
certain  targeted  amount.  If the targeted  amount of net eligible  U.S.  trade
receivables  is  not  met,  the  trustee  under  the  arrangement  retains  cash
collections in an amount  covering the  deficiency.  Under the  agreements,  the
retention  of cash by the  trustee has the effect of  reducing  the  deficiency.
Amounts  retained in this manner are not available to the Company until released
by the trustee.  The trustee  receives daily reports  comparing the net eligible
receivables with the targeted amount and, if appropriate, releases retained cash
accordingly.  The  amount of cash held by the  trustee  to cover any  deficiency
would be shown as "Restricted cash" on the balance sheet.

      On  April 25, 2002 the  Company  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.  As a result,  at the end of the first quarter of
2002, the trustee held cash,  resulting in restricted cash of $43.0 million. The
amendment revises the way sales incentives are treated in calculating the amount
of net eligible  receivables.  This permits the Company  greater  flexibility in
offering sales incentives without affecting the securitization  calculations and
reduces the  likelihood and amount of cash being  retained.  As of May 26, 2002,
there was no  deficiency  and as a result,  no  restricted  cash on the  balance
sheet.

                                       11
<PAGE>

                       LEVI STRAUSS & CO. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
                                   (Unaudited)

INTEREST RATE CONTRACTS

     The  Company is  exposed to  interest rate risk. It is the Company's policy
and practice to use derivative  instruments,  primarily  interest rate swaps and
options, to manage and reduce interest rate exposures. The Company currently has
no derivative  instruments managing interest rate risk outstanding as of May 26,
2002.

INTEREST RATES ON BORROWINGS

     The  Company's  weighted  average   interest  rate  on  average  borrowings
outstanding  during the three and six months ended May 26, 2002,  including  the
amortization  of capitalized  bank fees,  interest rate swap  cancellations  and
underwriting  fees,  was 8.33% and 8.82%,  respectively.  The  weighted  average
interest rate on average  borrowings  outstanding  excludes  interest payable to
participants under deferred compensation plans and other miscellaneous items.

NOTE 5: FAIR VALUE OF FINANCIAL INSTRUMENTS

     The  estimated  fair  value  of  certain  financial  instruments  has  been
determined by the Company using  available  market  information  and appropriate
valuation   methodologies.   However,   considerable  judgment  is  required  in
interpreting  market data.  Accordingly,  the estimates presented herein are not
necessarily  indicative  of the  amounts  that the  Company  could  realize in a
current market exchange.

     The carrying value and estimated fair value (in each case including accrued
interest) of the Company's financial  instrument assets and (liabilities) are as
follows:

<TABLE>
<CAPTION>
                                                                  May 26, 2002                November 25, 2001
                                                                  -------------               -----------------
                                                            Carrying       Estimated      Carrying      Estimated
                                                            Value(1)       Fair Value     Value(2)      Fair Value
                                                            --------       ----------     --------      ----------
                                                                        (Dollars in Thousands)
<S>                                                            <C>            <C>            <C>           <C>
 DEBT INSTRUMENTS:
   U.S. dollar notes offering.........................    $(1,190,538)   $(1,151,851)   $(1,193,012)   $ (932,138)
   Euro notes offering................................       (118,219)      (119,273)      (114,378)      (85,719)
   Yen-denominated eurobond placement.................       (156,706)      (117,188)      (164,413)     (113,115)
   Credit facilities..................................       (153,168)      (153,168)      (252,748)     (252,748)
   Domestic receivables-backed securitization.........       (110,079)      (110,079)      (110,081)     (110,081)
   Customer service center equipment financing........        (76,767)       (80,363)       (80,278)      (81,970)
   European receivables-backed securitization.........        (46,396)       (46,396)       (41,366)      (41,366)
   Industrial development revenue refunding bond......        (10,014)       (10,014)       (10,015)      (10,015)
   Short-term and other borrowings....................        (23,744)       (23,744)       (19,395)      (19,395)
                                                          -----------    -----------    -----------   -----------
    Total                                                 $(1,885,631)   $(1,812,076)   $(1,985,686)  $(1,646,547)
                                                          ===========    ===========    ===========   ===========
(1) Includes accrued interest of $23.8 million.
(2) Includes accrued interest of $27.3 million.

CURRENCY AND INTEREST RATE CONTRACTS:
   Foreign exchange forward contracts.................       $(24,554)      $(24,554)       $13,797       $13,797
   Foreign exchange option contracts..................             49             49          4,328         4,328
                                                             --------       --------        -------       -------
     Total                                                   $(24,505)      $(24,505)       $18,125       $18,125
                                                             ========       ========        =======       =======
   Interest rate option contracts.....................             --             --        $(2,266)      $(2,266)
                                                             ========       ========        =======       =======
                                       12
</TABLE>
<PAGE>

                       LEVI STRAUSS & CO. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
                                   (Unaudited)

     Quoted  market prices  or dealer quotes are used to determine the estimated
fair value of foreign  exchange  contracts,  option  contracts and interest rate
swap  contracts.  Dealer  quotes  and  other  valuation  methods,  such  as  the
discounted  value of future cash flows,  replacement  cost and termination  cost
have been used to determine the estimated  fair value for long-term debt and the
remaining  financial   instruments.   The  carrying  values  of  cash  and  cash
equivalents, trade receivables,  current assets, certain current and non-current
maturities of long-term debt,  short-term  borrowings and taxes approximate fair
value.

     The  fair  value  estimates  presented  herein  are  based  on  information
available to the Company as of May 26, 2002 and November 25, 2001. These amounts
have not been updated since those dates and, therefore, the current estimates of
fair value at dates  subsequent to May 26, 2002 and November 25, 2001 may differ
substantially from these amounts. In addition, the aggregation of the fair value
calculations  presented  herein do not  represent and should not be construed to
represent the underlying value of the Company.

NOTE 6: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     The  Company  adopted  Statement  of  Financial  Accounting  Standards  No.
("SFAS") 133, "Accounting for Derivative Instruments and Hedging Activities," on
the first day of fiscal  year 2001.  SFAS 133  requires  all  derivatives  to be
recognized as assets or liabilities  at fair value.  Due to the adoption of SFAS
133,  the  Company  reported a net  transition  gain of $87  thousand  in "Other
(income)  expense" for the three months ended  February 25, 2001. The transition
amount  was not  recorded  on a  separate  line item as a change  in  accounting
principle,  net of tax, due to the minimal  impact on the  Company's  results of
operations.  In  addition,  the  Company  recorded a  transition  amount of $0.7
million (or $0.4 million net of related income taxes) that reduced  "Accumulated
other comprehensive income (loss)."

Foreign Exchange Management

     The Company manages foreign currency exposures  primarily to  maximize  the
U.S.  dollar value over the long term. The Company  attempts to take a long-term
view of managing  exposures  on an economic  basis,  using  forecasts to develop
exposure positions and engaging in active management of those exposures with the
objective of protecting future cash flows and mitigating risks. As a result, not
all exposure management  activities and foreign currency derivative  instruments
will qualify for hedge accounting treatment. For derivative instruments utilized
in these transactions,  changes in fair value are classified into earnings.  The
Company holds derivative  positions only in currencies to which it has exposure.
The Company has  established  a policy for a maximum  allowable  level of losses
that may occur as a result of its currency exposure management  activities.  The
maximum level of loss is based on a percentage of the total forecasted  currency
exposure being managed.

     The Company uses a variety of  derivative  instruments, including  forward,
swap and option contracts, to protect against foreign currency exposures related
to sourcing, net investment positions, royalties and cash management.

     The derivative instruments used to manage sourcing exposures do not qualify
for hedge accounting treatment and are recorded at their fair value. Any changes
in fair value are included in "Other (income) expense."

     The  Company manages its net  investment position  in  its  subsidiaries in
major  currencies  by using  forward,  swap and  option  contracts.  Some of the
contracts  hedging these net  investments  qualify for hedge  accounting and the
related  gains  and  losses  are  consequently  categorized  in  the  cumulative
translation  adjustment in the "Accumulated other  comprehensive  income (loss)"
section of Stockholders'  Deficit. At May 26, 2002, the fair value of qualifying
net investment  hedges was a $6.2 million net liability  with the  corresponding
unrealized  loss recorded in the cumulative  translation  adjustment  section of
"Accumulated other  comprehensive  income (loss)." There were no gains or losses
excluded  from hedge  effectiveness  testing.  In  addition,  the Company  holds
derivatives  managing the net investment  positions in major  currencies that do
not qualify for hedge accounting. The fair value of these derivatives at May 26,
2002 represented a $2.8 million net liability.

                                       13
<PAGE>

                       LEVI STRAUSS & CO. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
                                   (Unaudited)

     The  Company  designates  a  portion  of  its  outstanding  yen-denominated
eurobond as a net  investment  hedge.  As of May 26, 2002,  a $11.0  million net
asset  related to the  translation  effects of the  eurobond was recorded in the
cumulative  translation  adjustment section of "Accumulated other  comprehensive
income (loss)."

     As of May 26, 2002, the Company holds  no  derivatives  hedging  forecasted
intercompany  royalty flows that qualify as cash flow hedges.  During the second
quarter no cash flow  hedges  have been  reclassified  from  "Accumulated  other
comprehensive  income  (loss)" to "Other  (income)  expense."  The Company  also
enters into contracts managing forecasted intercompany royalty flows that do not
qualify as cash flow hedges,  and are recorded at their fair value.  Any changes
in fair value are included in "Other (income) expense."

     The   derivative   instruments   utilized  in  transactions  managing  cash
management  exposures are currently marked to market at their fair value and any
changes in fair value are recorded in "Other (income) expense."

     The Company also entered into transactions managing the exposure related to
the Euro notes  issued on January 18, 2001.  These  derivative  instruments  are
currently marked to market at their fair value and any changes in fair value are
recorded in "Other (income) expense."

Interest Rate Management

     The Company is  exposed to  interest  rate risk. It is the Company's policy
and practice to use derivative  instruments,  primarily  interest rate swaps and
options,  to manage and reduce  interest rate exposures using a mix of fixed and
variable rate debt. The Company currently has no derivative instruments managing
interest rate risk outstanding as of May 26, 2002.

     The tables below give an overview of the realized and  unrealized gains and
losses  reported in "Other  (income)  expense,"  realized and  unrealized  other
comprehensive  income  ("OCI")  balances,  realized  and  unrealized  cumulative
translation  adjustments  ("CTA")  balances,  and the fair values of  derivative
instruments reported as an asset or liability. OCI and CTA are components of the
"Accumulated  other  comprehensive   income  (loss)"  section  of  Stockholders'
Deficit.

                                       14
<PAGE>
                       LEVI STRAUSS & CO. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
                                   (Unaudited)

<TABLE>
<CAPTION>
                               ------------------------- ------------------------- ------------------------- ----------------------
                                   Three Months Ended        Three Months Ended         Six Months Ended         Six Months Ended
                                      May 26, 2002              May 27, 2001              May 26, 2002             May 27, 2001
- ------------------------------ ------------------------- ------------------------- ------------------------- ----------------------
                                 Other (income) expense    Other (income) expense    Other (income) expense  Other (income) expense
- ------------------------------ ------------------------- ------------------------- ------------------------- ----------------------
(Dollars in Thousands)           Realized    Unrealized    Realized    Unrealized    Realized    Unrealized   Realized  Unrealized
- ------------------------------ ------------ ------------ ------------- ----------- ------------- ----------- ----------- ----------
<S>                                  <C>          <C>           <C>        <C>          <C>         <C>         <C>        <C>
Foreign Exchange Management:
    Sourcing                      $ 7,229      $23,252      $(11,672)     $  806     $ 1,749      $28,788     $(2,497)   $ 6,756

    Net Investment                   (904)       6,723          (149)      1,682        (250)       3,068         645      2,552
    Yen Bond                           --        2,131            --      (4,415)         --       (3,458)         --     (9,398)

    Royalties                     (13,020)       3,806        (5,685)      3,269      (9,578)         442      (6,462)     5,025

    Cash Management                 3,700       (3,821)        8,328      (5,463)      6,370       (3,745)      1,427     (4,603)

    Transition Adjustments             --           --           414          --          --           --         414     (1,333)

    Euro Notes Offering            (4,855)      (1,318)        4,554         619      (3,536)      (2,154)      8,236      1,159
                                  -------      -------      --------     -------     -------      -------     -------    -------
      Total                       $(7,850)     $30,773     $ (4,210)    $(3,502)    $(5,245)      $22,941    $ 1,763    $   158
                                  =======      =======      ========     =======     =======      =======     =======    =======
- ------------------------------ ------------ ------------ ------------- ----------- ------------- ----------- ----------- ----------

Interest Rate Management             $ --         $ --          $ --      $1,391      $2,266(1)   $(2,266)      $  --     $4,862

   Transition Adjustments              --           --            --          --          --           --          --      1,246
                                     ----         ----          ----      ------      ------      -------       -----     ------
    Total                            $ --         $ --          $ --      $1,391      $2,266      $(2,266)      $  --     $6,108
                                     ====         ====          ====      ======      ======      =======       =====     ======
- ------------------------------ ------------ ------------ ------------- ----------- ------------- ----------- ----------- ----------
    (1)    Recorded as an increase to interest expense.


                                      ------------------------------------------- ------------------------------------------
                                                    At May 26, 2002                          At November 25, 2001
                                      ------------------------------------------- ------------------------------------------
                                       OCI gain (loss)       CTA gain (loss)        OCI gain (loss)      CTA gain (loss)
- ------------------------------------- -------- ---------- ---------- ------------ --------- ---------- ---------- ----------
(Dollars in Thousands)                Realized Unrealized  Realized   Unrealized   Realized Unrealized  Realized  Unrealized
- ------------------------------------- -------- ---------- ---------- ------------ --------- ---------- ---------- ----------
Foreign Exchange Management:

    Net Investment                      $ --      $ --     $58,101     $(6,219)      $ --       $ --     $53,314    $ 5,664
    Yen Bond                              --        --          --      11,006         --         --          --      6,780

    Royalties                             --        --          --          --         --        908          --         --

    Transition Adjustments                --        --          --          --         --         --          --        120
                                        ----      ----     -------     -------       ----       ----     -------    -------
       Total                            $ --      $ --     $58,101     $ 4,787       $ --       $908     $53,314    $12,564
                                        ====      ====     =======     =======       ====       ====     =======    =======

- ------------------------------------- -------- ---------- ---------- ------------ --------- ---------- ---------- ----------

                                       15
</TABLE>
<PAGE>
                       LEVI STRAUSS & CO. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                           ----------------   -----------------
                                                                             At May 26,        At November 25,
                                                                                2002                2001
                                                                           ----------------   -----------------
                                                                              Fair value         Fair value
                                                                          asset (liability)   asset (liability)
                                    ------------------------------------  -----------------   -----------------
                                    (Dollars in Thousands)
                                    ------------------------------------  -----------------   -----------------
<S>                                                                              <C>                 <C>
                                    Foreign Exchange Management:

                                        Sourcing                              $(19,662)            $10,976

                                        Net Investment                          (9,004)              6,068

                                        Royalties                                   71                 729

                                        Cash Management                          3,104               1,521

                                        Euro Notes Offering                        986              (1,169)
                                                                              --------             -------
                                            Total                             $(24,505)            $18,125
                                                                              ========             =======
                                    ------------------------------------  -----------------   -----------------

                                     Interest Rate Management                 $     --             $(2,266)
                                                                              ========             =======
                                    ------------------------------------  -----------------   -----------------

                                       16
</TABLE>
<PAGE>
                       LEVI STRAUSS & CO. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
                                   (Unaudited)


NOTE 7: COMMITMENTS AND CONTINGENCIES

FOREIGN EXCHANGE CONTRACTS

     At May 26, 2002, the  Company had U.S. dollar forward currency contracts to
buy $1.2 billion and to sell $510.4 million against various foreign  currencies.
The Company also had euro forward  currency  contracts to buy 234.5 million euro
against various foreign currencies and to sell 14.5 million euro against various
foreign currencies. In addition, the Company had U.S. dollar option contracts to
buy  $212.9  million  and  to  sell  $111.9  million   against  various  foreign
currencies.  The Company  also had euro option  currency  contracts to sell 30.0
million euro against various foreign currencies.  These contracts are at various
exchange rates and expire at various dates through August 2003.

     The Company has  entered into  option  contracts to  manage its exposure to
numerous foreign currencies.  Option transactions  included in the amounts above
are principally for the exchange of the euro and U.S.  dollar.  At May 26, 2002,
the Company had bought U.S.  dollar  options  resulting in a net short  position
against the euro of $47.6 million  should the options be  exercised.  To finance
the premiums related to the options bought,  the Company sold options  resulting
in a net long position  against the euro of $148.6 million should the options be
exercised.

     The Company's  market  risk is  generally  related to  fluctuations in  the
currency  exchange rates.  The Company is exposed to credit loss in the event of
nonperformance by the counterparties to the foreign exchange contracts. However,
the  Company   believes  these   counterparties   are   creditworthy   financial
institutions and does not anticipate nonperformance.

OTHER CONTINGENCIES

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

     The  operations and  properties of  the  Company comply with all applicable
federal, state and local laws enacted for the protection of the environment, and
with permits and  approvals  issued in  connection  therewith,  except where the
failure to comply would not  reasonably  be expected to have a material  adverse
effect on the  Company's  financial  position or business  operations.  Based on
currently available  information,  the Company does not consider there to be any
circumstances  existing that would be reasonably  likely to form the basis of an
action against the Company and that could have a material  adverse effect on the
Company's financial position or business operations.

                                       17
<PAGE>


                       LEVI STRAUSS & CO. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
                                   (Unaudited)
<TABLE>
<CAPTION>

NOTE 8: BUSINESS SEGMENT INFORMATION

                                                                                Asia      All
                                                        Americas    Europe    Pacific    Other    Consolidated
                                                        --------    ------    -------    -----    ------------
                                                                        (Dollars in Thousands)
<S>                                                        <C>        <C>      <C>        <C>         <C>

THREE MONTHS ENDED MAY 26, 2002:
   Net sales.......................................     $596,697   $241,373   $85,448   $     --  $  923,518
   Earnings contribution...........................       84,215     45,304    15,189         --     144,708
   Interest expense................................           --         --        --     42,510      42,510
   Corporate and other expense, net................           --         --        --    246,104     246,104
      Income (loss) before income taxes............           --         --        --         --    (143,906)

THREE MONTHS ENDED MAY 27, 2001:
   Net sales.......................................     $682,073   $276,737   $85,127   $     --  $1,043,937
   Earnings contribution...........................       90,167     57,141    12,671         --     159,979
   Interest expense................................           --         --        --     53,898      53,898
   Corporate and other expense, net................           --         --        --     37,146      37,146
      Income before income taxes...................           --         --        --         --      68,935




                                                                                Asia      All
                                                        Americas    Europe    Pacific    Other    Consolidated
                                                        --------    ------    -------    -----    ------------
                                                                        (Dollars in Thousands)

SIX MONTHS ENDED MAY 26, 2002:
   Net sales.......................................   $1,198,037   $501,998  $158,767   $     --  $1,858,802
   Earnings contribution...........................      164,202    105,328    29,264         --     298,794
   Interest expense................................           --         --        --     90,533      90,533
   Corporate and other expense, net................           --         --        --    282,963     282,963
      Income (loss) before income taxes............           --         --        --         --     (74,702)

SIX MONTHS ENDED MAY 27, 2001:
   Net sales.......................................   $1,344,279   $534,010  $162,031   $     --  $2,040,320
   Earnings contribution...........................      196,210    114,376    25,051         --     335,637
   Interest expense................................           --         --        --    123,103     123,103
   Corporate and other expense, net................           --         --        --     96,660      96,660
      Income before income taxes...................           --         --        --         --     115,874

                                       18
</TABLE>
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

      This  discussion  and  analysis  should  be  read  in conjunction with our
consolidated  financial  statements and related notes included elsewhere in this
report.

CRITICAL ACCOUNTING POLICIES

      Our most critical  accounting  policies  upon which our financial position
and results of  operations  depend are those  relating  to revenue  recognition,
inventory valuation,  restructuring reserves, income tax assets and liabilities,
and derivatives and foreign exchange management activities. Since the end of the
first quarter of fiscal year 2002, we added the policy for income tax assets and
liabilities  to our list of  critical  accounting  policies.  During  the second
quarter,  we did not  change  those  policies  or  adopt  any new  policies.  We
summarize our most critical accounting policies below.

o    Revenue  recognition.  We recognize revenue from the sale of a product upon
     its  shipment  to  the  customer.  We  recognize  allowances  for estimated
     returns,  discounts and retailer  promotions  and incentives when the  sale
     is recorded.  Our allowances principally relate to our U.S.  operations and
     are primarily  comprised of volume-based  incentives  and other returns and
     discounts.  For  volume-based  retailer  incentive  programs,  reserves for
     volume allowances are calculated based on a fixed formula applied  to sales
     volumes.  We  estimate  non-volume-based  allowances  using  our historical
     customer claim rates as a percentage of accounts receivable,   adjusted  as
     necessary for special customer and product-specific circumstances.   Actual
     allowances may differ from our estimates due primarily  to changes in sales
     volume  based  on  retailer  or  consumer  demand.  Our  actual returns and
     allowances have not materially differed from our estimates.

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

o    Restructuring reserves. Upon approval of a restructuring plan by management
     with  the  appropriate level of authority, we record restructuring reserves
     for  certain  costs   associated   with   plant   closures   and   business
     reorganization activities.  Such costs are recorded as a current  liability
     and primarily include  employee  severance,  certain  employee  termination
     benefits,  including  out-placement  services  and  career  counseling, and
     contractual obligations.  The  principal  components of the reserves relate
     to employee severance and termination benefits, which we estimate  based on
     agreements with  the relevant union  representatives or plans adopted by us
     that are applicable to employees not  affiliated  with unions.  These costs
     are not associated with nor do they benefit continuing activities. Inherent
     in the estimation of these costs are assessments related to the most likely
     expected  outcome   of   the   significant   actions  to   accomplish   the
     restructuring.  Changing  business  conditions  may  affect the assumptions
     related to the timing and extent of facility closure activities.  We review
     the  status  of  restructuring  activities  on  a  quarterly  basis and, if
     appropriate, record changes based on updated estimates.

                                       19
<PAGE>


o    Income tax assets and liabilities.  In establishing our deferred income tax
     assets  and liabilities, we make judgments and interpretations based on the
     enacted  tax laws and  published  tax guidance  that are applicable  to our
     operations.  We record deferred tax assets and liabilities and evaluate the
     need  for  valuation  allowances  to  reduce  the  deferred  tax  assets to
     realizable  amounts.  The  likelihood of a material change in our  expected
     realization  of  these  assets  is dependent on future taxable income,  our
     ability to use foreign  tax  credit  carryforwards  and  carrybacks, final
     U.S. and foreign tax settlements, and the effectiveness of our tax planning
     strategies in the  various relevant  jurisdictions.  We are also subject to
     examination  of our income tax  returns for multiple years by the  Internal
     Revenue  Service  and  other  tax authorities.  We periodically assess  the
     likelihood  of  adverse  outcomes  resulting  from  these  examinations  to
     determine  the  adequacy of our provision for income taxes.  Changes to our
     income  tax   provision  or in the valuation of the deferred tax assets and
     liabilities may affect our annual effective income tax rate.

o    Derivatives and foreign exchange  management  activities.  We recognize all
     derivatives as assets and liabilities at their fair values. The fair values
     are  determined  using  widely  accepted   valuation  models   and  reflect
     assumptions about currency fluctuations based on current market conditions.
     We actively  manage  foreign currency exposures on an economic basis, using
     forecasts to develop exposure  positions  to maximize the U.S. dollar value
     over the long-term. Not all  exposure  management  activities  and  foreign
     currency  derivative  instruments  will  qualify   for   hedge   accounting
     treatment.

     Changes in  the fair  values of  those  derivative  instruments that do not
     qualify for hedge accounting are  recorded in "Other (income)  expense"  in
     the consolidated statement of income.  As a  result, our  net income may be
     subject to volatility. The derivative instruments that do qualify for hedge
     accounting currently hedge our net investment position in our subsidiaries.
     For these instruments, we document the hedge  designation,  by  identifying
     the  hedging  instrument,  the nature of the  risk  being  hedged  and  the
     approach for  measuring  hedge  effectiveness.  Changes  in  fair values of
     derivative instruments that do qualify for hedge accounting are recorded in
     the   "Accumulated   other   comprehensive   income   (loss)"   section  of
     Stockholders' Deficit.  The  carrying values of derivative instruments used
     to manage currency exposures are sensitive  to changes in market conditions
     and to changes in the timing and amounts of forecasted exposures.


RESULTS OF OPERATIONS

     The following table sets forth, for the periods  indicated,  selected items
in our consolidated statements of operations, expressed as a  percentage  of net
sales (amounts may not total due to rounding).

<TABLE>
<CAPTION>
                                                                      Three Months Ended         Six Months Ended
                                                                      ------------------         ----------------
                                                                      May 26,     May 27,        May 26,   May 27,
                                                                       2002        2001           2002      2001
                                                                       ----        ----           ----      ----
<S>                                                                    <C>         <C>             <C>       <C>
MARGIN DATA:
Net sales......................................................        100.0%      100.0%        100.0%     100.0%
Cost of goods sold.............................................         60.0        56.7          58.7       56.3
                                                                       -----       -----         -----      -----
Gross profit...................................................         40.0        43.3          41.3       43.7
Marketing, general and administrative expenses.................         34.5        32.2          33.2       32.5
Other operating (income).......................................         (0.9)       (0.7)         (0.8)      (0.7)
Restructuring charges, net of reversals........................         15.3          --           7.6         --
                                                                       -----       -----         -----      -----
Operating income (loss)........................................         (8.9)       11.9           1.3       12.0
Interest expense...............................................          4.6         5.2           4.9        6.0
Other (income) expense, net....................................          2.1         0.1           0.4        0.3
                                                                       -----       -----         -----      -----
Income (loss) before taxes.....................................        (15.6)        6.6          (4.0)       5.7
Income tax expense (benefit)...................................         (6.8)        2.4          (2.0)       2.1
                                                                       -----       -----         -----      -----
Net income (loss)..............................................         (8.8)%       4.2%         (2.0)%      3.6%
                                                                       =====       =====         =====      =====

                                       20
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                      Three Months Ended         Six Months Ended
                                                                      ------------------         ----------------
                                                                      May 26,     May 27,        May 26,   May 27,
                                                                       2002        2001           2002      2001
                                                                       ----        ----           ----      ----
<S>                                                                    <C>         <C>             <C>       <C>
NET SALES SEGMENT DATA:
Geographic
         Americas..............................................         64.6%       65.3%         64.5%      65.9%
         Europe................................................         26.1        26.5          27.0       26.2
         Asia Pacific..........................................          9.3         8.2           8.5        7.9

</TABLE>

     Net sales. Net sales for the  three  months  ended  May 26, 2002  decreased
11.5% to $923.5 million,  as compared to $1,043.9 million for the same period in
2001. Net sales for the six months ended May 26, 2002 decreased 8.9% to $1,858.8
million,  as  compared  to  $2,040.3  million  for the same  period in 2001.  If
currency  exchange rates were  unchanged from the prior year periods,  net sales
would have  declined  approximately  10.6% and 7.5% for the three and six months
ended  May  26,  2002,  respectively.  These  decreases  primarily  reflect  the
challenging  retail  and  economic  climates  in  which  we  operate,   and  the
introduction of our new  volume-based  U.S. sales promotions and incentives that
offset recorded sales.

     Although  the  first half  of 2002 net sales reflected continuing declines,
especially  in the second  quarter,  we believe we will slow the rate of decline
for our full year 2002 constant  currency net sales to the low single digits. We
anticipate an improved sales  performance in the second half of 2002 based on:
     o current  bookings  and  product  orders,
     o the  expected  impact of new product introductions,
     o actions we are taking to improve margins for our retailers, and
     o our intended use of targeted promotional initiatives.

     In the  Americas,  net  sales  for  the  three  months  ended  May 26, 2002
decreased  12.5% to $596.7  million,  as compared to $682.1 million for the same
period in 2001. Net sales for the six months ended May 26, 2002 decreased  10.9%
to $1,198.0  million,  as  compared  to $1,344.3  million for the same period in
2001. Unit volumes for both periods of 2002 decreased  slightly  compared to the
same periods in 2001. The net sales decreases were primarily attributable to:
     o the introduction of our new volume-based sales promotions and incentives,
     o lower wholesale prices for selected core Dockers(R) products, and
     o wholesale price reductions on selected existing products as we transition
       to new product lines in the Levi's(R) brand.
Although retailers appear to remain cautious in their buying habits and continue
to maintain tight inventory  levels, we believe that the strength of our planned
promotions and new products,  such as low-rise Levi's(R) jeans for men and women
and the Dockers(R) Go Khaki(TM) pant, will generate  improved results during the
second half of the year.

     In Europe, net sales for the  three  months  ended  May 26, 2002  decreased
12.8% to $241.4  million,  as compared to $276.7  million for the same period in
2001.  Net sales for the six months ended May 26, 2002  decreased 6.0% to $502.0
million,  as  compared  to $534.0  million  for the same  period  in 2001.  On a
constant  currency basis, net sales would have decreased by approximately  11.2%
and 3.1% for the three and six months ended May 26, 2002, respectively, compared
to the same periods in 2001.

      These  decreases reflect volume  declines  as a  result of  weak  consumer
demand,  high retail inventories and increasing  apparel price deflation.  These
conditions  resulted in the first  quarterly  decline in constant  currency  net
sales since the first  quarter of 2001.  The  decrease  in net sales  during the
second  quarter of 2002 was  primarily  attributable  to lower  volume and price
reductions  we took to sell  slow-moving  products.  We  believe  retailers  are
remaining cautious and are managing their inventories more conservatively due to
an uncertain economic environment. This is most prevalent in key markets such as
Germany, Italy and the United Kingdom.

     We believe that we will generate improved  results in  the  second  half of
2002 based on our product, pricing and promotional strategies.  These strategies
include:
     o the introduction of entry-price-point  product lines in the Levi's(R) and
       Dockers(R) brands,
     o selective wholesale price reductions,
     o promotions in core finishes of 501(R) jeans, and
     o a Levi's(R) girls jeans presence and publicity campaign.

                                       21
<PAGE>

     In our  Asia  Pacific  region, net sales for the three months ended May 26,
2002 increased 0.4% to $85.4 million,  as compared to $85.1 million for the same
period in 2001.  Net sales for the six months ended May 26, 2002  decreased 2.0%
to $158.8  million,  as  compared  to $162.0  million.  If  exchange  rates were
unchanged  from  the  prior  year  periods,   net  sales  would  have  increased
approximately  4.7% and 4.0% for the three and six  months  ended May 26,  2002,
respectively. In some countries we reported double-digit net sales increases for
the three and six  months  ended May 26,  2002 from the same  periods  last year
reflecting our product upgrades and retail distribution strategies,  while other
countries were affected by weak economic climates and price deflation.

     In Japan, which accounted for approximately 51% of our business in Asia for
the  first  half of 2002,  net sales for the  three  months  ended May 26,  2002
increased  approximately  1.7% on a constant currency basis compared to the same
period last year. For the six months ended May 26, 2002,  Japan's net sales were
flat compared to last year on a constant  currency  basis.  Japan's recent sales
results  for  both  periods   reflect  a  price  increase  on  our  premium  and
super-premium product lines and upgraded core product offerings.

     Gross profit. Gross  profit for the three months ended May 26, 2002 totaled
$369.5 million  compared with $452.5 million for the same period in 2001.  Gross
profit as a percentage of net sales, or gross margin, for the three months ended
May 26,  2002  decreased  to 40.0%,  as compared to 43.3% for the same period in
2001.  Gross profit for the six months ended May 26, 2002 totaled $768.1 million
compared to $892.4 million in the first half of 2001. Gross margin decreased for
the six months  ended May 26,  2002 to 41.3%,  as compared to 43.7% for the same
period in 2001.

     Gross margin for both periods of 2002 was adversely affected by expenses of
$30.1 million associated with plant closures in the U.S. and Scotland, primarily
for workers'  compensation and pension  enhancements in the U.S. Excluding these
restructuring  related  expenses,  gross  margin for the second  quarter of 2002
would have been flat  compared to the same period in 2001.  In  addition,  gross
margin for the six-month  period of 2002 would have been slightly lower compared
to the same period in 2001.  The effect of introducing  retailer  promotions and
incentives  on gross  margin was  largely  offset by lower  sourcing  and fabric
costs.  Over the next 12 - 18 months, we expect to incur an additional $20 - $25
million in  restructuring  related  expenses such as maintenance  costs prior to
sale or other disposition of the closed plants.

     Our largest supplier, Cone Mills Corporation, supplies various fabrics to
us and is the sole supplier of the denim used worldwide for our 501(R) jeans. On
May 13, 2002, we amended the exclusivity and requirements features of our supply
agreement with Cone Mills. The amendment provides that, after March 30, 2003, we
may purchase these denims from other suppliers and Cone Mills may sell these
denims to other customers. The amendment also allows us to purchase these denims
for our European business from non-U.S. sources prior to March 30, 2003 if the
European Union implements material tariffs against U.S. produced denim. The
amendment does not change any other provisions of the supply agreement.

     Marketing,  general  and  administrative  expenses.  Marketing, general and
administrative  expenses for the three months ended May 26, 2002  decreased 5.2%
to $318.8  million as  compared  to $336.1  million for the same period in 2001.
Marketing,  general and administrative expenses as a percentage of sales for the
three months ended May 26, 2002  increased to 34.5% as compared to 32.2% for the
same period in 2001. Marketing,  general and administrative expenses for the six
months ended May 26, 2002 decreased 6.7% to $617.7 million as compared to $662.2
million  for the same  period in 2001.  Marketing,  general  and  administrative
expenses  as a  percentage  of  sales  for the six  months  ended  May 26,  2002
increased to 33.2% as compared to 32.5% for the same period in 2001.

      The dollar decrease in  marketing, general and administrative expenses for
the  three  and six  months  ended  May 26,  2002  was  primarily  due to  lower
advertising expenses,  our continuing cost containment efforts and the effect of
currency  exchange  rates.  In addition,  the second  quarter of 2001 includes a
$12.5  million  reversal to an employee  long-term  incentive  plan accrual as a
result of  forfeitures.  The increase as a percentage of sales for the three and
six months ended May 26, 2002  reflects the lower net sales base compared to the
same periods in 2001.

                                       22
<PAGE>

     Advertising expense for the three months ended May 26, 2002 decreased 20.7%
to $69.6  million,  as  compared  to $87.8  million for the same period in 2001.
Advertising  expense as a percentage of sales for the three months ended May 26,
2002  decreased  to 7.5%,  as  compared  to 8.4% for the  same  period  in 2001.
Advertising  expense for the six months  ended May 26, 2002  decreased  19.0% to
$135.7  million,  as  compared  to $167.4  million  for the same period in 2001.
Advertising  expense as a  percentage  of sales for the six months ended May 26,
2002  decreased  to 7.3%,  as compared to 8.2% for the same period in 2001.  The
decrease in  advertising  expense  reflects  lower media costs and our strategic
decision to shift some of our U.S.  advertising  spending  into sales  incentive
programs with retailers.

     Other operating income. Licensing income for the three months ended May 26,
2002 of $8.5 million  increased  15.6%, as compared to $7.4 million for the same
period in 2001.  Licensing income for the six months ended May 26, 2002 of $14.6
million was  relatively  flat  compared to $14.5  million for the same period in
2001. The increase for the second quarter of 2002 was primarily due to expansion
of licensed accessory categories.

     Restructuring charges, net of reversals.  In the second quarter of 2002, we
recorded  charges of $150.2 million  associated  with plant closures in the U.S.
and  Scotland.  These  charges were offset by a $9.1  million  reversal of prior
years'  restructuring  charges  primarily due to updated  estimates.  We present
below  and in the  consolidated  financial  statements  more  data  about  these
charges.

     Operating income (loss).  Operating loss for the three months ended May 26,
2002 was $81.8 million  compared to operating  income of $123.7  million for the
same period in 2001.  Operating income for the six months ended May 26, 2002 was
$23.9  million  compared to $244.7  million  from the same  period in 2001.  The
operating  loss and  decrease  in  operating  income  compared to the prior year
periods was primarily  attributable  to the net  restructuring  charge of $141.1
million and related  expenses of $30.1 million recorded in the second quarter of
2002  and the  impact  of  lower  sales.  This  was  partially  offset  by lower
marketing, general and administrative expenses.

     Interest expense. Interest expense for the three months  ended May 26, 2002
decreased  21.1% to $42.5  million,  as compared  to $53.9  million for the same
period in 2001. Interest expense for the six months ended May 26, 2002 decreased
26.5% to $90.5  million,  as compared  to $123.1  million for the same period in
2001. The lower interest expense for both the three and six months ended May 26,
2002 was primarily  due to lower average debt levels  combined with lower market
interest  rates.  In  addition,  interest  expense  for the six  months  of 2001
included  the  write-off of fees  totaling  $10.8  million  related to our prior
credit  agreement dated January 31, 2000. We replaced that credit agreement with
a new  credit  facility  on  February  1, 2001.  The  weighted  average  cost of
borrowings  for the three  months ended May 26, 2002 and May 27, 2001 were 8.33%
and 9.04%,  respectively.  The weighted  average cost of borrowings  for the six
months  ended May 26, 2002 and May 27, 2001 were 8.82% and 9.64%,  respectively,
excluding the write-off of fees.

     Other (income) expense, net. Other  (income)  expense, net  for  the  three
months ended May 26, 2002 was an expense of $19.6 million compared to an expense
of $0.9 million for the same period in 2001. Other (income) expense, net for the
six months  ended May 26,  2002 was an expense of $8.1  million  compared  to an
expense of $5.8  million for the same period in 2001.  The  increases in expense
for the three and six months ended May 26, 2002 were primarily due to unrealized
net losses from  derivative  instruments  used for foreign  currency  management
activities that do not qualify for hedge accounting.

     Income tax expense (benefit). Income tax benefit for the three months ended
May 26,  2002 was $63.0  million  compared  to an income  tax  expense  of $25.5
million for the same period in 2001. Income tax benefit for the six months ended
May 26,  2002 was $37.4  million  compared  to an income  tax  expense  of $42.9
million for the same period in 2001.  The income tax benefit for both periods of
2002 was due to a loss reported in the second quarter of 2002 as a result of the
net  restructuring  charges of $141.1  million  and  related  expenses  of $30.1
million. Our effective tax rate for the six-month period of 2002 is 50% compared
to 37% for the same period in 2001.  The  increase in our annual  effective  tax
rate is primarily due to projected  lower  earnings for 2002  resulting from the
restructuring  charges  and  related  expenses.  The  higher  tax  rate for 2002
reflects the computational effect of expenses not deductible for tax purposes on
the lower earnings base expected for the full year of 2002.

                                       23
<PAGE>


     We reached a tentative settlement with the Internal Revenue Service  during
2002 in connection  with the examination of our income tax returns for the years
1990 - 1994.  We are in the  process  of  evaluating  the  realizability  of our
deferred tax assets and the  likelihood of unfavorable  outcomes  resulting from
examinations of subsequent  years by the Internal  Revenue Service and other tax
authorities.  We expect to complete our evaluation  process by November 2002 and
our deferred tax assets and effective tax rate may change at that time.

     Net income (loss).  Net loss for the  three  months  ended May 26, 2002 was
$80.9  million  compared  to net income of $43.4  million for the same period in
2001. Net loss for the six months ended May 26, 2002 was $37.4 million  compared
to net income of $73.0 million for the same period in 2001. The net loss for the
three and six months  ended May 26,  2002 was  primarily  attributed  to the net
restructuring charges and related expenses, and lower sales, partially offset by
lower marketing, general and administrative expenses, lower interest expense and
an income tax benefit.

RESTRUCTURING CHARGES, NET OF REVERSALS

     During  the  second quarter  of 2002 we announced our decision to close two
manufacturing  plants in Scotland and six  manufacturing  plants in the U.S. The
U.S.  closures  reflect our continuing shift from a manufacturing to a marketing
and  product-driven  organization.  We closed the plants in Scotland in order to
reduce average production costs in Europe.

     We believe these  actions will improve our competitiveness and enable us to
invest  more  resources  in product,  marketing  and retail  initiatives.  These
actions  increase the variable  nature of our cost  structure.  We believe these
actions will help us maintain strong gross margins in a  highly-competitive  and
price deflationary environment.

     For the plant  closures in  Scotland, we  recorded an initial charge in the
second quarter of 2002 of $20.5 million that included a non-cash asset write-off
of $3.1 million. The charge reflects an estimated displacement of 650 employees.
The two  manufacturing  plants were  closed by the end of the second  quarter of
2002. We expect to utilize the majority of the Scotland plant  closures  reserve
balance by the end of 2002.

     For the U.S. plant closures, we  recorded  an  initial charge in the second
quarter of 2002 of $129.7  million that included a non-cash  asset  write-off of
$22.7 million. The charge reflects an estimated  displacement of 3,300 employees
at the affected  plants and  approximately  250 employees at our remaining  U.S.
finishing  facility.  We plan to close  the six  manufacturing  plants  in three
phases: two plants were closed by the end of June 2002, two plants are scheduled
to close by the end of July 2002 and the final two plants are scheduled to close
by the end of  September  2002.  We expect to utilize  the  majority of the U.S.
plant closures reserve balance by the end of 2003.

     From 1997 to 2001 we closed 29 of our owned  and  operated  production  and
finishing  facilities in North America and Europe and  instituted  restructuring
initiatives to reduce costs,  eliminate  excess  capacity and align our sourcing
strategy  with  changes in the  industry  and in consumer  demand.  We expect to
utilize the majority of the 1997 - 2001 reserve balances by the end of 2002.

                                       24
<PAGE>



     The  total  balance of  the reserves  at  May 26, 2002 was  $135.1  million
compared to $45.2 million at November 25, 2001. The following  table  summarizes
the balances associated with the plant closures and restructuring initiatives:

<TABLE>
<CAPTION>
                                                                            Balance as of    Balance as of
                                                                               May 26,        November 25,
                                                                                2002              2001
                                                                                ----              ----
                                                                               (Dollars in Thousands)
<S>                                                                              <C>             <C>
    2002 Scotland Plant Closures.........................................     $  4,649         $    --
    2002 U.S. Plant Closures.............................................      106,214              --
    2001 Corporate Restructuring Initiatives.............................       11,567          19,989
    2001 Japan Restructuring Initiative..................................          308           2,006
    1999 Europe Restructuring and Plant Closures.........................        1,691           2,449
    1999 North America Plant Closures....................................        9,115          18,659
    1999 Corporate Restructuring Initiatives.............................           --             113
    1998 Corporate Restructuring Initiatives.............................        1,428           1,508
    1998 North America Plant Closures....................................           24             223
    1998 Europe Restructuring and Plant Closures.........................           69             225
    1997 North America Plant Closures....................................           --              48
                                                                              --------         -------
         Total...........................................................     $135,065         $45,220
                                                                              ========         =======
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

      Our  principal  capital requirements have been to fund working capital and
capital  expenditures.  As of May 26, 2002, total cash and cash equivalents were
$115.6  million,  a $12.8 million  increase from the $102.8 million cash balance
reported as of November 25, 2001.

     Total  debt,  other  cash obligations and commitments. Total debt as of May
26, 2002 was  $1,861.8  million,  a $96.6  million  decrease  from the  $1,958.4
million  reported as of November 25,  2001.  We have no  off-balance  sheet debt
obligations or unconditional purchase commitments.  Our aggregate short-term and
long-term debt principal payments as of May 26, 2002 and minimum operating lease
payments for facilities,  office space and equipment as of November 25, 2001 for
the next five years and thereafter are as follows:

<TABLE>
<CAPTION>
                                                                                             Minimum
                                                                             Principal   Operating Lease
                                                                             Payments        Payments
                                                                             --------        --------
                                                                              (Dollars in Thousands)
<S>                                                                              <C>            <C>
            Year
            ----
            2002..........................................................  $   68,907       $ 61,974
            2003..........................................................     524,024         57,310
            2004..........................................................     118,521         54,803
            2005..........................................................      56,202         50,472
            2006..........................................................     447,939         48,249
            Thereafter....................................................     646,204        209,502
                                                                            ----------       --------
                 Total....................................................  $1,861,797       $482,310
                                                                            ==========       ========
</TABLE>

     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  approximately  $148.5  million from
long-term tax liability into accrued taxes due to a tentative settlement on most
issues with the Internal  Revenue  Service in connection with the examination of
our  income tax  returns  for the years 1990 - 1994.  We  anticipate  paying the
Internal  Revenue Service after the  examination is completed  during the second
quarter of 2003.  In addition,  we increased  restructuring  reserves due to the
announced  plant  closures in the second quarter of 2002 and  reclassified  from
long-term  employee  benefits to accrued  salaries,  wages and employee benefits
expected payments in 2003 under our long-term incentive compensation plan.

                                       25
<PAGE>


     As of May 26, 2002, our credit facility consisted of $153.0 million of term
loans and a $617.6 million revolving credit facility.  There were no outstanding
borrowings  under the revolving credit facility.  Total  availability  under the
revolving  credit  facility  was reduced by $139.0  million of letters of credit
allocated under the revolving  credit  facility,  yielding a net availability of
$478.6 million. We believe this is sufficient for our cash needs.

     Our credit facility  matures  in  August 2003 and the unsecured 6.80% notes
become due in November  2003.  We are  exploring  alternatives  for repayment or
refinancing of those obligations.

     At May 26, 2002, we had unsecured and uncommitted short-term  credit  lines
available totaling $14.9 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.

     At  May 26, 2002  and  November 25, 2001, we  had $119.5 million and $131.7
million,  respectively,  of standby letters of credit with various international
banks,  of  which  $48.5  million  and  $52.5  million,  respectively,  serve as
guarantees by the creditor banks to cover U.S. workers'  compensation claims. We
pay fees on standby  letters of credit and borrowings  against letters of credit
are subject to interest at various rates.

     We do not have any long-term raw  materials supply contracts except for our
supply  agreement  with Cone  Mills  Corporation  relating  to the denim used in
501(R) jeans.  The supply agreement does not obligate us to purchase any minimum
amount of goods. We typically  conduct  business with our garment  manufacturing
and finishing contractors on an order-by-order basis.

      Plant closures.  During  the  second  quarter  of  2002  we  announced our
decision to close two  manufacturing  plants in Scotland  and six  manufacturing
plants in the U.S. We recorded a total initial  charge in the second  quarter of
2002 of $150.2  million  that  included  a  non-cash  asset  write-off  of $25.7
million.  We expect to make cash payments of approximately $65.0 million for the
restructuring  charges and related  expenses  during the latter half of 2002. We
expect to utilize the majority of the U.S. plant closures reserve balance by the
end of 2003.  We expect to utilize the majority of the balances for the Scotland
plant closures reserve and the 1997 - 2001 reserves by the end of 2002. Once the
2002  closures are  complete,  we believe we will  generate  approximately  $100
million in annual pre-tax  savings.  We intend to use these expected  savings to
reinvest  in  the  business,   primarily  for  product,   marketing  and  retail
initiatives.  In addition,  we believe the variable nature of our cost structure
will help us maintain  strong gross margins and cash flow,  facilitating  future
debt reduction over the long-term.

      Cash  provided  by/used  for  operations.  Cash   provided  by   operating
activities for the six months ended May 26, 2002 was $113.6 million, as compared
to a use of  cash  of  $152.7  million  for  the  same  period  in  2001.  Trade
receivables  decreased during the six months ended May 26, 2002 primarily due to
lower net sales.  Inventories increased during the six months ended May 26, 2002
primarily due to new product  introductions  for the  fall/holiday  season.  Net
deferred tax assets increased during the six months ended May 26, 2002 primarily
due to the  restructuring  charges and related  expenses.  Accounts  payable and
accrued liabilities decreased during the six months ended May 26, 2002 primarily
due to lower raw material purchases and lower advertising costs than at November
25, 2001.

      Restructuring reserves increased during the six months ended  May 26, 2002
due to the  restructuring  charges  associated  with the U.S. and Scotland plant
closures.  Accrued salaries, wages and employee benefits increased and long-term
employee  benefits  decreased during the six months ended May 26, 2002 primarily
due to expected  payments  in 2003 under our  long-term  incentive  compensation
plan.  Accrued taxes increased and long-term tax liability  decreased during the
six months ended May 26, 2002 due to a reclassification of approximately  $148.5
million  for a  tentative  settlement  with  the  Internal  Revenue  Service  in
connection  with the  examination of our income tax returns for the years 1990 -
1994. We anticipate paying the Internal Revenue Service after the examination is
completed during the second quarter of 2003.

                                       26
<PAGE>


      Cash used for  investing  activities.  Cash used for investing  activities
during the six months  ended May 26,  2002 was $6.2  million as compared to $0.7
million during the same period in 2001.  Cash used for investing  activities for
the six months ended May 26, 2002 resulted primarily from purchases of property,
plant and equipment, partially offset by proceeds received on sales of property,
plant and equipment and realized gains on net investment  hedges.  The purchases
of property,  plant and equipment  were primarily  attributable  to sales office
capital improvements and systems upgrades.  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.  We expect
capital spending of  approximately  $50.0 to $70.0 million for fiscal year 2002,
primarily for systems upgrades.

      Cash used for/provided by financing  activities. Cash  used  for financing
activities for the six months ended May 26, 2002 was $94.9 million,  as compared
to cash provided by financing  activities of $110.5  million for the same period
in 2001. Cash used for financing  activities during the six months ended May 26,
2002 was primarily for repayment of existing debt.


Financial Condition

      Credit agreement. Effective January 29, 2002, we completed an amendment to
our principal  credit  agreement.  The amendment has three  principal  features.
First,  the  amendment  excludes from the  computation  of earnings for covenant
compliance  purposes  certain cash expenses,  as well as certain non-cash costs,
relating to the 2002 plant closures in the U.S. and Scotland. The amendment also
excludes from those computations the non-cash portion of our long-term incentive
compensation  plans.  Second,  the  amendment  reduces by 0.25 the amount of the
required  tightening of the leverage ratio  beginning with the fourth quarter of
2002.  Third,  the amendment  tightens the senior secured  leverage  ratio.  The
amendment  did not change the  interest  rate,  size of the facility or required
payment provisions of the facility.

      Amendment  of  domestic  receivables  securitization agreements. Under our
domestic receivables securitization arrangement, we are required to maintain the
level of net eligible U.S. trade  receivables at a certain targeted  amount.  If
the  targeted  amount of net eligible  U.S.  trade  receivables  is not met, the
trustee under the arrangement retains cash collections in an amount covering the
deficiency.  Under the agreements,  the retention of cash by the trustee has the
effect of  reducing  the  deficiency.  Amounts  retained  in this manner are not
available  to us until  released  by the  trustee.  The trustee  receives  daily
reports comparing the net eligible  receivables with the targeted amount and, if
appropriate,  releases retained cash accordingly. The amount of cash held by the
trustee  to cover  any  deficiency  would be shown as  "Restricted  cash" on the
balance sheet.

      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.  As a result,  at the end of the first quarter of
2002, the trustee held cash,  resulting in restricted cash of $43.0 million. The
amendment revises the way sales incentives are treated in calculating the amount
of net eligible  receivables.  This permits us greater  flexibility  in offering
sales incentives without affecting the  securitization  calculations and reduces
the likelihood and amount of cash being retained.  As of May 26, 2002, there was
no deficiency and as a result, no restricted cash on the balance sheet.

      Credit ratings.  On July 2, 2002,  Moody's  Investors Service  ("Moody's")
issued a press release  regarding its decision to place both our senior  secured
credit  facility  and our  senior  unsecured  notes  on  review  for a  possible
downgrade.  According to the press  release,  Moody's based this decision on its
concerns  relating to our declining  sales,  our level of cash  generation,  our
ability to reduce debt,  including  the upcoming 2003 debt  maturities,  and our
ability to pay costs  associated  with the 2002 plant  closures.  This action by
Moody's does not trigger any obligations or other provisions under our financing
agreements or our other contractual relationships.

                                       27
<PAGE>


STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE

     This Form 10-Q includes forward-looking statements about:
     o  sales performance and trends;
     o  new product introductions;
     o  incentive and promotional activities;
     o  retailer margins;
     o  marketing and advertising initiatives;
     o  retail conditions;
     o  wholesale price reductions;
     o  debt repayment and liquidity;
     o  gross margins;
     o  amendments  to the U.S.  receivables  securitization arrangement and its
        impact on our liquidity and sales incentives;
     o  capital expenditures;
     o  income tax audit settlements;
     o  restructuring charges and related expenses;
     o  plant  closures  and  their  impact  on  our  competitiveness, costs and
        resources;
     o  workforce reductions;
     o  asset sales;
     o  general economic and retail conditions; and
     o  other matters.
We have based  these  forward-looking  statements  on our  current  assumptions,
expectations  and projections  about future events.  When used in this document,
the words "believe," "anticipate," "intend," "estimate," "expect," "project" and
similar  expressions  are  intended  to  identify  forward-looking   statements,
although not all forward-looking statements contain these words.

      These  forward-looking  statements  are subject to risks and uncertainties
including, without limitation:
      o  risks  related to  the impact of consumer and customer reactions to new
         products and retailers;
      o  order completion by retailers;
      o  the  effectiveness  of  our  promotion  and  incentive  programs   with
         retailers;
      o  changing domestic and international retail environments;
      o  plant closure execution and consequences;
      o  changes in the level of consumer spending or preferences in apparel;
      o  dependence on key distribution channels, customers and suppliers;
      o  the impact of competitive products;
      o  changing fashion trends;
      o  our supply chain executional performance;
      o  the nature and amount  of  sales  incentives, the  amount  of  dilutive
         items, the  net eligible  receivables balance and the credit quality of
         our domestic receivables in any one period;
      o  ongoing price and other competitive pressures in the apparel industry;
      o  trade restrictions;
      o  political or financial instability in countries where our  products are
         manufactured; and
      o  other  risks  detailed  in  our annual report on Form 10-K for the year
         ended November 25, 2001, registration statements and other filings with
         the Securities and Exchange Commission.
Our actual  results  might differ  materially  from  historical  performance  or
current  expectations.  We do not undertake  any  obligation to update or revise
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.

                                       28
<PAGE>


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

DERIVATIVE FINANCIAL INSTRUMENTS

     We  are  exposed  to  market  risk  primarily  related to foreign exchange,
interest rates and,  indirectly  through fabric prices,  the price of cotton. We
actively  manage foreign  currency and interest rate risks with the objective of
reducing  fluctuations in actual and  anticipated  cash flows by entering into a
variety of derivative  instruments including spot, forwards,  options and swaps.
We  are  exposed  to  credit  loss  in  the  event  of   nonperformance  by  the
counterparties  to the foreign  exchange  contracts.  However,  we believe these
counterparties  are  creditworthy  financial  institutions and do not anticipate
nonperformance.  We  currently do not manage our exposure to the price of cotton
with derivative instruments.

     The table below  gives  an  overview  of  the  fair  values  of  derivative
instruments reported as an asset or liability. These contracts expire at various
dates through August 2003.
<TABLE>
<CAPTION>
                                 --------------------------------------- ------------------ -------------------
                                                                            At May 26,         At November 25,
                                                                               2002                 2001
                                 --------------------------------------- ------------------ -------------------
                                                                              Fair value          Fair value
                                 Risk Exposures                           asset (liability)  asset (liability)
                                 --------------------------------------- ------------------ -------------------
                                 (Dollars in Thousands)
                                 --------------------------------------- ------------------ -------------------
<S>                                                                              <C>                 <C>
                                 Foreign Exchange Management:
                                     Sourcing                                $(19,662)             $10,976

                                     Net Investment                            (9,004)               6,068

                                     Royalties                                     71                  729

                                     Cash Management                            3,104                1,521

                                     Euro Notes Offering                          986               (1,169)
                                                                             --------              -------
                                         Total                               $(24,505)             $18,125
                                                                             ========              =======
                                 --------------------------------------- ------------------ -------------------

                                  Interest Rate Management                   $     --              $(2,266)
                                                                             ========              =======
                                 --------------------------------------- ------------------ -------------------
</TABLE>

FOREIGN EXCHANGE RISK

     Foreign  exchange  market  risk  exposures  are  primarily  related to cash
management activities, raw material and finished goods purchases (sourcing), net
investment positions and royalty flows from affiliates.

     We use  forward  contracts  to manage our foreign currency sourcing and net
investment  exposures  and to maximize  the U.S.  dollar  over the long term.  A
weakening U.S. dollar against major currencies positively affects the underlying
foreign  currency  exposure,  while  having an  opposite  effect on the  forward
contracts used to manage these exposures.  As a result, we reported a fair value
liability on our derivative instruments of $24.5 million as of May 26, 2002.

     At May 26, 2002, we had U.S. dollar forward currency  contracts to buy $1.2
billion and to sell $510.4 million against various foreign  currencies.  We also
had euro forward  currency  contracts to buy 234.5 million euro against  various
foreign  currencies  and to sell  14.5  million  euro  against  various  foreign
currencies.  In  addition,  we had U.S.  dollar  option  contracts to buy $212.9
million and to sell $111.9 million against various foreign  currencies.  We also
had euro option  currency  contracts to sell 30.0  million euro against  various
foreign currencies.  These contracts are at various exchange rates and expire at
various dates through August 2003.

                                       29
<PAGE>

     We  enter  into option contracts to manage our exposure to numerous foreign
currencies.  Option  transactions  included in the amounts above are principally
for the exchange of the euro and U.S.  dollar.  At May 26,  2002,  we had bought
U.S. dollar options  resulting in a net short position against the euro of $47.6
million should the options be exercised.  To finance the premiums related to the
options  bought,  we sold options  resulting in a net long position  against the
euro of $148.6 million should the options be exercised.

Interest Rate Risk

     We have an interest rate risk  management  policy  designed to  manage  the
interest rate risk on our borrowings by entering into a variety of interest rate
derivatives.  We currently have no derivative instruments managing interest rate
risk outstanding as of May 26, 2002.

     For  more  information  about  market  risk,  see Notes  5, 6 and 7 to  the
Consolidated Financial Statements.

                                       30
<PAGE>


PART II - OTHER INFORMATION
  ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K:

        (A)  EXHIBITS:
             10.1  Second  Amendment  to  Supply  Agreement  dated as of May 13,
                   2002, between the Registrant and Cone Mills Corporation dated
                   as of March 30, 1992. Filed herewith.

             10.2  Amendment  to  Employee  Investment Plan signed May 17, 2002.
                   Filed herewith.


        (B)  REPORTS ON FORM 8-K:

         Current  Report on  Form 8-K on March 19, 2002 filed pursuant to Item 5
         of the report and containing a  copy  of  the  Company's  press release
         titled "Levi Strauss  &  Co.  Announces  First-Quarter  2002  Financial
         Results."

         Current Report on Form 8-K on April 25, 2002 filed  pursuant to  Item 5
         of the report relating to the U.S.  and  Scotland   plant  closures and
         containing a copy of the  Company's  press  release dated April 8, 2002
         titled "Levi Strauss & Co. Names Six U.S. Plants to Close."

         Current  Report  on Form 8-K on May 6, 2002 filed pursuant to Item 4 of
         the report relating to a change in certifying accountant and containing
         a copy of a letter from  the  previous  independent  accountants to the
         Securities and Exchange Commission. In addition, the  report  was filed
         pursuant to Item 5 of the report and described, and included a copy of,
         an amendment to   the  Company's  domestic  receivables  securitization
         agreements.

         Current Report on Form 8-K on June 20, 2002 filed pursuant to Item 5 of
         the report and  containing a copy of the Company's press release titled
         "Levi Strauss & Co. Announces Second-Quarter 2002 Financial Results."

                                       31
<PAGE>


                                    SIGNATURE

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



Date: July 3, 2002             Levi Strauss & Co.
                               ------------------
                               (Registrant)


                          By:  /s/ William B. Chiasson
                               -----------------------
                               William B. Chiasson
                               Senior Vice President and Chief Financial Officer

                                       32
<PAGE>
                                                                    EXHIBIT 10.1





                      SECOND AMENDMENT TO SUPPLY AGREEMENT
                      ------------------------------------


              THIS IS A SECOND AMENDMENT TO SUPPLY AGREEMENT dated as of May 13,
2002 (the "Second Amendment"), between CONE MILLS CORPORATION, a North  Carolina
corporation ("Cone"), and LEVI STRAUSS & CO., a Delaware corporation ("LS&CO.").


                               B A C K G R O U N D
                               -------------------


              Cone  and  LS&CO. are parties to a Supply Agreement, dated  as  of
March 30, 1992, as amended by a First Amendment to Supply  Agreement dated as of
April 15, 1992 (as amended,  the "1992  Agreement").  In view of the  increasing
globalization of fabric and apparel product manufacturing,  potential changes in
duty and tariff policies and other developments in their respective  businesses,
they wish to amend the 1992 Agreement to modify the requirements and exclusivity
features of the 1992 Agreement.  This Second  Amendment is intended to be and is
an "instrument in writing signed by both parties" as  contemplated  by Section 9
of the 1992 Agreement.


CONE AND LS&CO. AGREE AS FOLLOWS:


1.       Amendment to Section 1
         ----------------------

                  1.1 Amendment to  Section 1.6. Section 1.6 of the Agreement is
                      -------------------------
amended by replacing  "XXX Denim" with "01 Denim." As a result of this amendment
to a defined  term,  all uses in the Agreement of "XXX Denim" are now changed to
"01 Denim."


2.       Amendments to Section 2
         -----------------------

                  2.1 Amendment to Heading.  The  heading of  Section  2 of  the
                      --------------------
Agreement  is  amended  by  replacing  "Requirements  Agreement"  with "01 Denim
Supply".

                  2.2 Amendment to Section 2.1.  Section 2.1 of the Agreement is
                      ------------------------
amended in its entirety as follows:

                  (a) Cone agrees to manufacture and sell to LS&CO. all 01 Denim
                      LS&CO. may order from Cone.

                  (b) From  the  date  of  this Second Amendment until March 30,
                      2003, Cone shall sell 01 Denim only to LS&CO.  After March
                      30, 2003, Cone may sell 01 Denim to customers  other  than
                      LS&CO.

                  (c) From  the  date  of  this Second Amendment until March 30,
                      2003, LS&CO.  shall  purchase  from Cone all 01 Denim that
                      LS&CO. may  require  in  its  worldwide businesses.  After
                      March 30, 2003, LS&CO. may  purchase and accept deliveries
                      of 01 Denim  from  suppliers other than Cone, and use such
                      denim in 501(R)jeans and other products for sale in any or
                      all of its worldwide businesses.  In  addition, if at  any
                      time prior to March 30, 2003 material  additional tariffs,
                      duties, imposts or other charges are imposed on the import
                      of 01  Denim  from  the  United States  to locations

<PAGE>
                      where denim is imported for use in  producing 501(R) jeans
                      to  be  sold  in LS&CO.'s European, Middle East and Africa
                      region, LS&CO. may  purchase  and  accept deliveries of 01
                      Denim  from  suppliers other than Cone, and use such denim
                      in 501(R)jeans and other products for sale in that region.

                  (d) Notwithstanding   Sections  2.1(a)  and  2.1(c),  and  for
                      clarity,  LS&CO.  may  at  any  time engage in identifying
                      alternative suppliers in all  regions of 01 Denim or other
                      denims   for   501(R)   jeans  ("Alternative  Suppliers"),
                      developing  with  and   evaluating   fabrics   from  those
                      Alternative Suppliers, purchasing and accepting deliveries
                      of  fabric  from  Alternative Suppliers for pre-production
                      and  production  testing, constructing prototype and other
                      jeans  of  such  fabric during such evaluation and testing
                      processes  and ultimately distributing those test products
                      through whatever  means  LS&CO.  may choose.  In addition,
                      LS&CO. may at any time pre-book capacity and place  orders
                      with Alternative Suppliers; the limitations on alternative
                      sourcing  described  in  Sections 2.1(a)  and 2.1(c) limit
                      only acceptance of deliveries from  Alternative  Suppliers
                      for commercial production purposes.

                  (e) Affiliates and  licensees  of  LS&CO., including,  without
                      limitation, Levi Strauss & Co. Europe S.A.,  buy 01  Denim
                      from Cone. In addition, Cone may   create  subsidiaries or
                      enter into joint ventures, alliances or other arrangements
                      through which entities other than  Cone  Mills Corporation
                      produce and/or sell 01 Denim. For example, Cone and LS&CO.
                      are concurrently with  this  Second  Amendment  concluding
                      arrangements relating to production of 01 Denim by a party
                      in Europe with whom Cone  intends  to  enter into a  joint
                      venture. For clarity, it is  understood that, for purposes
                      of   this   Section  2,  "LS&CO."  means  LS&CO.  and  its
                      affiliates,  and "Cone" means Cone and any subsidiaries or
                      other third parties who produce and sell  01  Denim  under
                      agreement with Cone.


3.       Representations and Warranties
         ------------------------------

                  3.1 By LS&CO.  LS&CO.  represents  and  warrants to Cone that:
                      ---------
                      (i)  LS&CO. has full  corporate  power  and  authority  to
enter into and  perform its  obligations  under this  Second  Amendment  and the
Agreement;  (ii) each of this Second  Amendment  and the Agreement as amended by
this  Second  Amendment  has been duly  executed  and  delivered  by LS&CO.  and
constitutes  the legal,  valid and  binding  obligation  of LS&CO.,  enforceable
against it in  accordance  with its terms;  and (iii) LS&CO.  is not a party to,
subject to or bound by any agreement,  contract,  lease, mortgage,  indenture or
other document of any kind (including any credit, note purchase, stock purchase,
receivables purchase, receivables servicing or other financing agreement) or any
law, judgment,  order, writ,  prohibition,  injunction or decree of any court or
other  governmental  body that  would  prevent,  or that  would be  breached  or
violated  by, or require the consent of any third  party to, the  execution  and
delivery  of this  Second  Amendment  or the  consummation  of the  transactions
contemplated by the Agreement as amended by this Second Amendment.

                  3.2 By Cone. Cone  represents and warrants to LS&CO. that: (i)
                      -------
Cone has full  corporate  power and  authority  to enter  into and  perform  its
obligations  under this Second  Amendment and the  Agreement;  (ii) each of this
Second  Amendment and the Agreement as amended by this Second Amendment has been
duly executed and delivered by Cone and constitutes the legal, valid and binding
obligation  of Cone  enforceable  against it in accordance  with its terms;  and
(iii) Cone is not a party to,  subject to or bound by any  agreement,  contract,
lease, mortgage,  indenture or other document of any kind (including any credit,
note purchase,  stock purchase,  receivables purchase,  receivables servicing or
other  financing  agreement) or any law,  judgment,  order,  writ,  prohibition,
injunction or decree

                                       2
<PAGE>

of any court or other  governmental  body that would  prevent,  or that would be
breached  or  violated  by, or require  the  consent of any third  party to, the
execution  and  delivery of this Second  Amendment  or the  consummation  of the
transactions  contemplated by the Agreement as amended by this Second Amendment.
Cone  acknowledges that nothing in this Agreement commits LS&CO. to order or buy
from Cone any 01 Denim or any other product,  in any quantity or at any time, in
the future, or to continue to produce and market products containing 01 Denim.


4.       No Other Modifications
         ----------------------

                  Except as expressly described in this Second  Amendment,  Cone
and LS&CO.  do not intend to and are not modifying  any other  provisions of the
Agreement,  and the Agreement,  as amended by this Second Amendment,  remains in
full force and effect.

                                     * * * *

                  IN  WITNESS  WHEREOF, the  parties  have  caused  this  Second
Amendment  to be executed by their duly  authorized  officers as of the date and
year first above written.


                                  CONE MILLS CORPORATION

                                  By: ------------------------------------------
                                      Gary L. Smith
                                      Executive Vice President
                                      and Chief Financial Officer


                                  LEVI STRAUSS & CO.

                                  By: ------------------------------------------
                                      William B. Chiasson
                                      Senior Vice President
                                      and Chief Financial Officer




                                       3
<PAGE>
                                                                    EXHIBIT 10.2

                                 FIRST AMENDMENT

                           EMPLOYEE INVESTMENT PLAN OF
                               LEVI STRAUSS & CO.
                               ------------------


         WHEREAS,  LEVI  STRAUSS & CO. (the "Company")  maintains  the  Employee
Investment Plan of Levi Strauss & Co. (the "EIP"); and

         WHEREAS, pursuant to Section 18.1 of the EIP, the Board of Directors of
the Company is authorized to amend the EIP at any time and for any reason; and

         WHEREAS, the  Company desires to  amend  the EIP,  effective  as of the
dates specified herein, to reflect certain provisions of the Economic Growth and
Tax Relief Reconciliation Act of 2001 ("EGTRRA"),  including  clarifications and
technical  corrections under EGTRRA made pursuant to the Job Creation and Worker
Assistance Act of 2002; and

         WHEREAS, the Company desires to amend the EIP, effective as of November
26,  2001,  by waiving the active  employment  as of the last working day of the
Plan Year requirement (for purposes of eligibility to receive any Company match)
with respect to any employee who is laid-off by the Company;

         WHEREAS, the Company desires to amend the EIP, effective as of February
1, 2000, to conform the loan  repayment  requirements  with the  record-keeper's
automated loan system;

         WHEREAS, by  resolutions  duly  adopted  on June 22, 2000, the Board of
Directors of the Company  authorized  Philip A.  Marineau,  President  and Chief
Executive  Officer,  to take  certain  actions  with  respect  to the EIP and to
further  delegate  to certain  officers of the  Company  the  authority  to take
certain actions with respect to the EIP; and

         WHEREAS, on June 22, 2000, Philip A. Marineau  delegated  to any Senior
Vice  President,  Human  Resources,  including  Fred D.  Paulenich,  Senior Vice
President of Worldwide  Human  Resources,  the authority to take certain actions
with respect to the EIP and such  delegation has not been amended,  rescinded or
superseded as of the date hereof; and

         WHEREAS, the amendment herein is within the delegated authority of Fred
D. Paulenich; and

         NOW THEREFORE, effective as of the dates specified  herein, the  EIP is
hereby amended as follows:

1.              Effective  as of November  26,  2001,  paragraph  (b) of Section
         5.1 of the EIP is hereby  amended in its  entirety to read as follows:

                           "(b) Employment  at  End  of   Accumulation   Period.
                                -----------------------------------------------
         Effective for Plan  Years  beginning  on or  after  November  26,  2001
         (including any pay period  ending  during such Plan Years), no Matching
         Contribution  will  be allocated on  behalf  of  a  Member  during  the
         applicable Accumulation  Period  unless  he or she is an Employee as of
         the last working day of such Accumulation  Period with respect to which
         his  or  her  Member   Contributions  are   eligible  for  a   Matching
         Contribution; provided that such requirement of being an Employee as of
         the last working day of an  Accumulation  Period shall not apply in the
         event a Member retires or is laid
<PAGE>

         off by the Company,  as determined  by  the  Administrative  Committee,
         before such date or to the extent that the Board  of  Directors  waives
         such requirement in accordance  with  the  exceptions prescribed  under
         section 1.401(a)(4)-2(b)(4)(iii) of the Code."

2.              Effective as of February 1, 2000, paragraph (d) of  Section 10.2
         of the EIP is hereby  amended by  replacing the "; or" appearing at the
         end of subparagraph (ii) with a period ("."), and by  deleting all text
         appearing thereafter.

3.              Effective for distributions from the EIP on or after January  1,
         2002,  paragraph (d) of  Section 11.4 of  the EIP  is hereby amended by
         adding the following language to the end of the first paragraph therein
         (i.e., after the word "apply."):

         "In the  case  of a direct transfer of a Member's Post-Tax Account: (1)
         subparagraphs (v) and  (vi)  shall  not  apply,  and  (2)  an  eligible
         retirement plan described in subparagraphs (i) and (iv) must  agree  to
         separately account for amounts  so  transferred,  including  separately
         accounting for the portion of such  distribution which is includible in
         gross income and the  portion of such  distribution  which  is  not  so
         includible."

4.              Effective for Plan Years beginning on or after  January 1, 2002,
         paragraph (h) of Section 19.1 of the EIP is hereby amended by replacing
         the all references to  the  phrase  "separation  from  Service",  which
         appear therein, with the phrase "severance from employment".

                                      * * *

         IN WITNESS  WHEREOF,  the  undersigned  has caused this Amendment to be
         executed this 17 day of May, 2002.

                         LEVI STRAUSS & CO.


                         By:  _________________________________________
                              Fred D. Paulenich
                              Senior Vice President of Worldwide Human Resources



</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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