2006 LSAnnualReport

A MessAge froM the ChAirMAn During 2006, we strengthened our financial performance, upgraded our product lines, further improved our ways of serving the market, bolstered our talent and effectively transitioned to new senior leadership. Based on the progress we have made in improving our business performance and competitiveness, I am optimistic about our prospects for 2007 and beyond.

This annual report – including the letter from our new CEO, John Anderson, the 10-K and a summary of our corporate citizenship initiatives – will inform you about the specifics of our accomplishments and shortfalls in 2006, as well as our outlook for the future. Although, like all businesses, we face ongoing challenges, we are better positioned to build on our strong brands and global presence as a result of the transformation we have undergone in recent years.

Much of the credit for our improved strength goes to Phil Marineau, who retired at the end of November after leading the company for seven years. He left a legacy of achievement. Phil and his leadership team drove across-theboard improvements so that we could become a consumer-driven creator, marketer and distributor of global apparel brands. These included reinventing LS&CO.’s business processes and overhauling its product lines, marketing programs and retail strategies. They streamlined the company, and instituted a rigorous planning and performance management system. As a result, LS&CO. today is more disciplined, focused and efficient, with faster responses to marketplace trends and more productive relationships with its retail customers. Importantly, this operating model – The LS&CO. Way of doing business – is firmly built upon the company’s historic values. Thanks to Phil’s many important contributions while at the helm of LS&CO., the company is stronger, more competitive and poised for renewed growth and success.

As someone who has been closely associated with the company for 34 years and is deeply connected to its heritage, I am gratified that LS&CO. has returned to solid operational and financial footing without losing touch with the longstanding core values that underpin its 154-year history. Empathy, originality, integrity and courage – these are the values that drive how we work together within the company, compete in the marketplace and conduct ourselves as a corporate citizen. These are the values that have been a source of pride and have enabled our leaders to successfully adapt to changing business circumstances.

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I am also happy that Phil recommended, and the Board of Directors approved, John Anderson as the company’s new CEO. John, a 28-year LS&CO. veteran, has led virtually every facet of our business in each of our three regions worldwide. He has an impressive record of success – most recently as the president of our Asia Pacific Division, which delivered five consecutive years of revenue growth under his leadership.

As John will tell you, he is a “product person,” having started his career in merchandising before ascending through progressively more demanding responsibilities. He has demonstrated his ability to select, develop and motivate talented people, and to drive innovation and build brands.

have demonstrated their ability to lead large, complex businesses and drive growth. In January, John announced the appointment of Armin Broger, the former European president of jeans brand 7 for all Mankind, as president of our European region. Armin is an experienced apparel and brand management executive with a strong record of success at companies such as Tommy Hilfiger, Diesel and The Disney Company.

In closing, I want to thank our employees for their hard work and dedication in delivering a good year in the face of many challenges.

I also deeply appreciate the continued support of the company’s shareholders and investors, who demonstrated patience and provided encouragement as we turned around the business.

Phil and John and our leadership teams throughout the world spent the last months of 2006 collaborating closely on our strategic business plan for the next three years. As a result, the entire organization is very clear about what we need to do to reach the next level of success and return the company to sustained, profitable growth. The business plans build on strategies that have enabled our performance improvement of the last few years. Additionally, our leadership transition has been smooth, efficient and productive because John was very involved in the development of – and fully embraces – The LS&CO. Way of doing business. He is a steadfast advocate of the company’s core values and “profits through principles” approach to business.

Thanks also go to our Board of Directors for their ongoing sage counsel and leadership. In particular, I want to recognize the five former directors who left the board in July of 2006 as part of a planned reduction in the size of our board. Angela Glover Blackwell, Robert E. Friedman, James C. Gaither, Miriam L. Haas and Walter J. Haas collectively gave the company more than 50 years of dedicated service. We deeply appreciate their valuable contributions.

Levi Strauss & Co. has been through considerable change and made substantial progress during the past few years. I am confident that this momentum will continue.

Not surprisingly, John is off to a strong start as CEO. His first move was to reaffirm the regional operating structure of the company and reinstitute the post of president of North America, promoting U.S. Levi’s® brand president Robert Hanson to the position. He also named Alan Hed, formerly the vice president and regional group managing director for Latin America, Africa, Australia/New Zealand, the Middle East, Japan and South Korea, as his successor in the role of president of the Asia Pacific Division. Robert and Alan are both seasoned executives who

Sincerely,

Robert D. Haas Chairman of the Board

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A MessAge froM the Ceo I am excited and proud to be leading a company that I care so deeply about.

During my 28 years with Levi Strauss & Co., I have been through robust times, challenging times and downright tough times. Having done so, I can tell you how important it is to me to see LS&CO. return to sustained, profitable growth. As we begin 2007, I believe we are well positioned to build on the momentum coming out of 2006.

Our fourth-quarter performance was encouraging. Sales and profits were up compared to the same period last year, and we generated positive results in most of our businesses. The U.S. Levi’s® and Dockers® brands both posted revenue growth, resulting in four percent growth for the North American region. The Asia Pacific business also reported a six percent net revenue increase, while Europe’s revenue trend improved substantially.

For the full year company wide, we delivered stable sales and strong profits, and paid down debt. Our priority in 2006 was to improve profitability and cash flow in order to reduce debt. Our net income for 2006 increased 53 percent compared to the prior year. We substantially improved our cash flow and ended the year with net debt at $1.9 billion, down $148 million from the beginning of the year.

We began 2006 addressing major challenges. Our business in Europe was in steep decline, and we anticipated a significant impact from retail mergers and consolidation in the United States. The business units aggressively confronted the issues. As a result, the impact of U.S. retail consolidation was much less than we originally anticipated, although the issue continues to be a concern moving forward. Additionally, the corrective actions we took in Europe have begun to stabilize that business, which moved from double-digit net revenue declines in the first two quarters of 2006 to a three percent reported increase for the fourth quarter.

In the United States, the Dockers® brand has grown for five consecutive quarters. The U.S. Levi’s® brand, our largest business unit, built on its stability in 2005 with growth in 2006. This is an important bellwether of LS&CO.’s increasing strength. The Asia Pacific business, which struggled with inventory issues in Japan that caused an uncharacteristic revenue decline in the third

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quarter, was back to revenue growth in the fourth quarter and delivered growth for the full year.

As Bob Haas described in his letter in this report, Phil Marineau, his leadership team and dedicated employees throughout LS&CO. have transformed the company during the past several years. We still have considerable change ahead of us, particularly in the area of information systems with the continued implementation of SAP, but the company is vastly improved and much more competitive around the world.

I am grateful to Phil for orchestrating a smooth leadership transition to me as the company’s new CEO. 2006 ended with a meeting of our top 130 leaders worldwide to ensure alignment on our strategic plans and critical initiatives for the next three years. The overarching strategies we have been pursuing the past few years will evolve, but we are not revamping them. We will build on what we have been accomplishing the last few years because our strategies are beginning to produce solid results. As I have said to employees, the path forward is about evolution, not revolution.

Like most merchants, I am passionate about product. Compelling products and programs are the fuel that drives success. In 2006, innovative products energized our brands. In the United States and Europe, new slim- and skinny-fit Levi’s® jeans helped drive improved performance for the brand. In Asia, the dressier Levi’s® Lady Style range and new assortments of Levi’s® Engineered Jeans® resonated with consumers.

The fall launch of the Levi’s® eco organic jeans range in the United States and Europe further demonstrated our innovation leadership.

The Dockers® brand enjoyed a very good year driven by a host of new products, including the Iron-Free Cotton Khaki and the Never-Iron™ washable wool pant. These products, along with the already successful Premium Never-Iron™ Cotton Khaki, made the Dockers® brand the number one iron-free pants choice for men in the United States. Additionally, the Dockers® women’s range made a strong comeback in 2006 with the launch of a range of new fits, such as the Metro pant, and a full collection of integrated tops and accessories.

The Levi Strauss Signature® brand, which is our product offering to value-conscious consumers who shop in the mass channel, faced significant challenges in the United States and Europe in 2006, but I am pleased with the brand’s steady progress in Asia Pacific and its strong operating profit performance in the United States. We are committed to building the Levi Strauss Signature® brand and will aggressively explore ways to improve the brand’s performance.

We market our brands in more than 110 countries worldwide. Moving forward, we will continue to capitalize on our global scale – adopting, adapting and sharing the best products, programs and operational

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practices across the enterprise. This approach enables us to meet market needs faster and more efficiently, lowering costs and driving growth.

Productivity improvement continues to be a priority in 2007. This includes optimizing our global sourcing organization with the goal of lowering our total landed costs. We plan to invest these savings back into the business to build our brands, as well as to pay down debt.

We cannot fully leverage our strengths around the world and eliminate unproductive work without improved systems. We are in the process of implementing an SAP solution to improve our operational and financial results. We did this successfully in Asia in 2006, and are now beginning to roll out SAP in the United States.

In recent years, we have grown our dedicated retail stores network and other retail “shop-in-shop” formats. These company-operated retail presentations fill “white space” in the marketplace and make our product ranges accessible to more consumers. The stores also give us the opportunity to explore improved ways to merchandise and assort our product ranges – knowledge and techniques that we share with our wholesale customers. We plan to continue to grow our retail store network in 2007, while remaining focused on building our wholesale business, which represents the vast majority of our total sales.

My commitment as CEO is to build on the remarkable 154-year legacy of LS&CO. and leave the company and its brands stronger than when I started. This includes sustained, profitable growth. With the help of the talented leaders throughout the company, we will accomplish our goals The LS&CO. Way – with passion and accountability, and in a manner that is consistent with the company’s values and longstanding tradition of corporate citizenship.

It is an honor and privilege to serve as the company’s new leader, and I thank the Board of Directors for the opportunity. I also thank our employees for their drive, determination and results in 2006. I am confident that 2007 will be an exciting and productive year.

Sincerely,

John Anderson President and Chief Executive Officer

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H eal th and S afety Conditions - must meet the ex ectations we have for employees and their families or our ompany representatives; H uman Rights Environ ment — must allow us to conduct business activities in manner that is consistent with our Global S ourcing nd O perating Guidelines and other company poli ies L egal S ystem- must provide the necessary sup port o adequately protect our trademarks, investments or other ommercial interests, or to implement CorPorAte the Global S ourc2006 CitizenshiP ng and O perating Guidelines and other company poli ies; and Political, Economic and WeSbelieveocial Environ that great brands and businesses are built by consisment - must protect the company’s commercial interests andand by earning the tently providing quality products and services rand/corporate image. W e do not conduct business in trust of consumers, investors, employees, suppliers and commuountries prohibited by U.S . laws. Terms of Engage nities business through responsible,partners progressive and accountable business ment Our T OE help us to select who follow workplace standards and business practices. Moreover,practices as business leaders we have the obligation, hat are consistent with L S &CO. s values and topoli both’individually and collectively, make our enterprise not only ies. T hese requirements are ap plieda source to forevery contractor economic wealth, but also a force for positive social who manufactures or finishes products for L S &CO. change in the conductamong of our business.our This principle of responTrained assessors closely monitor compliance manufacturing and finishing contractors in more sible commercial success isthan embedded in50 our 154-year experience ountries. T he T OE include: Ethical Showtandards and continues to anchor we operate today.

W e will seek to identify and utilize business partners who aspire as individuals and in the conduct of all their usinesses to a set of ethical standards not incompatible PrACtiCes our with our own. L egal RequirementssuPPLy WChAine expect usiness partners to be law abiding as individuals and o comply with legal requirements relevant to the conduct f all their businesses. Environmental Requirements W e will only do business with partners who share our ommitment to the environment and who conduct their usiness in a way that is consistent with L S &CO.’s Environmental Philosophy and Guiding Principles Following is a summary of our noteworthy corporate citizenship efforts from 2006, along with some ideas on where we go from here.

We work at the factory, community and public policy levels to ensure that the people making our products are treated with dignity and respect and work in safe and healthy conditions.

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factory Level

In 1991, we put in place our Terms of Engagement (TOE), a set of global standards that cover specific business practices of our suppliers, such as fair employment, freedom of association, worker health and safety, and environmental practices. We were the first global company to develop and implement a supplier code of conduct and for the past 15 years have been annually assessing our contract suppliers to ensure their employment practices are meeting our standards. In recent years it has become clear that while the monitoring approach can be effective in ensuring that suppliers are meeting our expectations, it is not necessarily a sustainable approach to improving labor standards.

During the past year, we made progress on initiatives that we expect will take us beyond monitoring and continue to drive meaningful change at the factory level.

In 2006, we developed and began the rollout of our “supplier ownership program,” which is focused on building suppliers’ management systems and capabilities so they can maintain our TOE standards in the normal course of operations and not simply as a requirement for doing business with LS&CO. We piloted the program with a supplier in Turkey in 2005. Based on findings from the pilot, we refined the management systems training component and developed tools and a program design that we have begun to implement with 10 key suppliers. In each case, we are training supplier management, identifying key TOE focus areas, developing a supplier ownership work plan and assessing initial results.

We believe that supplier ownership is a “win-win” initiative and a key component in our efforts to go beyond monitoring In 2005, we published on our website the names and locations of all contract factories producing our products. We did this to be more

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Our workers’ rights grantmaking is customized by region, taking into consideration social, economic and political climates and the particular needs of communities. In Latin America, for example, while we continue to fund labor rights training and education, we are expanding our asset building and financial literacy programs to address the impact of the expiration of the Multifibre Arrangement (MFA) on that region. In Haiti, HIV/AIDS protection and prevention are critical components of our workers’ rights grantmaking, which also includes microfinance and financial literacy. And in China, a country with a significant migrant labor force and few laws to protect migrant workers, we fund labor law enforcement and legal aid programs with an emphasis on issues of significant social impact, such as migrant worker rights, collective labor disputes, labor contract violations and occupational injury. Our asset building work in China, where most workers remit wages to their families, encourages workers to save and invest for themselves as a way to lift themselves and their families out of poverty.

transparent with our stakeholders and because we believed it would foster collaboration with other brands and lead to sector-wide improvements on code-of-conduct performance. As part of the undertaking, we reached out to several other apparel companies and nongovernmental organizations and made brand collaboration a priority for 2006. We are currently working with 13 other apparel companies in 75 shared factories, leveraging our collective resources to create positive change and enable suppliers to focus on remediating issues rather than the administrative burdens associated with multiple audits on multiple codes by multiple brands. We are sharing monitoring results and remediation plans, conducting joint monitoring and coordinating training on capacity building. We believe that brand collaboration on labor standards is an important industry development, and hope to see a significant increase in the number of factories in which we collaborate and the number of brands joining us in this work.

Another factory-level initiative that matured significantly in 2006 is our work to more deeply integrate TOE and our business. Every LS&CO. manufacturing contractor is assigned a TOE rating based on their overall performance, change in performance over previous years, timeliness in completing corrective action plans and number of repeat violations. TOE performance is now formally weighted with other key factors, including delivery time, quality and price, in determining the suppliers with whom we will work. As part of the business integration program, our brand merchandisers and designers are trained on our code of conduct so that they are able to understand the impact of their requirements on suppliers’ ability to maintain compliance and to spot potential issues before they arise at the factory level.

2006 marked the eighth year of partnership with the Asia Foundation on a signature project in China focused on labor rights and life skills training for migrant women workers. In March of 2006, the China State Council issued a groundbreaking set of guidelines on migrant workers to governments and related agencies at all levels, largely due to the influence and advocacy of the Asia Foundation’s network on the ground. These guidelines include legal protection measures, employment policies and social integration policies between urban and rural areas. While this is an important and encouraging development, our grantees in the region will be working on behalf of LS&CO. and migrant workers to ensure that the guidelines are followed and enforced.

Community Level

Another hightlight of our workers’ rights grantmaking in 2006 is the success of a grantee in Guatemala, the TUPUEDES (“you can” in Spanish) weavers’ store. With funding from LSF in 2005, a group of indigenous Guatemalan women, many of whom had previously worked in garment factories, opened a weaving store to make the thread and raw materials necessary for the weaving of traditional clothing available at affordable prices. They quickly expanded to market their products through the store and have been working with professional designers to develop innovative designs based on traditional weaving techniques. In 2006, their success caught the attention of another LSF grantee, Mercado Global, a nonprofit fair trade organization that links economically-disadvantaged cooperatives around the world to the U.S. market. Mercado Global has offered to market TUPUEDES’ products to international fair trade distributors and retailers in the United States. With LSF funding, the women of TUPUEDES have been able to develop a sustainable business and gain access to a quickly expanding international market.

Levi Strauss & Co. and the Levi Strauss Foundation (LSF) support our responsible sourcing work by making grants to innovative local, regional or global nonprofit organizations that focus on, among other things, strengthening workers’ rights, and improving working and living conditions for apparel workers in communities where our products are made.

Through our grantmaking in 2006, we sought to improve the lives of workers by: • educating workers and managers about labor rights and responsibilities • addressing sexual harassment in the workplace • increasing access to health services and information about reproductive health and HIV/AIDS prevention • promoting financial literacy and providing access to financial services, including microcredit

For a complete list of our workers’ rights grants, visit: http://www. levistrauss.com/Downloads/Grants.pdf

• supporting public policy change and legal aid to promote labor- and human-rights protections

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Public Policy Level

LS&CO. works closely with governments, nongovernmental organizations, industry associations and other stakeholders to strengthen implementation and enforcement of labor laws in countries where we have a business presence. Throughout 2006, LS&CO. continued its international advocacy for labor provisions and enforcement mechanisms to be included in all multilateral and bilateral free trade agreements.

Our participation in multi-stakeholder initiatives increased in 2006. We were nominated to chair the Americas Working Group of the MFA Forum, an open network of organizations including representatives of brands/ retailers, trade unions, nongovernmental organizations and international institutions committed to working collaboratively to address worker rights and apparel industry competitiveness after the expiration of textile and apparel quotas in January 2005. We also actively participate in MFA Forum initiatives in Bangladesh and Lesotho.

We remain engaged in the International Labor Organization’s Better Factories Cambodia project, which addresses capacity building, monitor monitoring and remediation, and worker rights education in Cambodian apparel factories. Throughout the year we encouraged our suppliers in Cambo Cambodia to become involved in the program. We are pleased that many of our suppliers have signed on to the program, indicating their strong interest and willingness to work toward improving conditions at their factories.

In November of 2006, LS&CO. joined the United Nations Global Compact, an initiative that organizes global, multi-stakeholder dialogues on corporate citizenship issues such as conflict prevention, sustainable development, HIV/AIDS, supply chain management, transparency and human rights. We look forward to engaging with companies from around the world to advance the Global Compact’s vision of a more sustainable and inclusive global economy.

Moving forward

We are proud of the work we have done in responsible sourcing at the factory level. But we know that if this work is to become truly sustainable, we must continue our focus on building capacity in our supplier base. To achieve this, we will advance and further develop the initiatives outlined above and seek out new ways to collaborate with all stakeholders.

A prime example of the challenges that can arise when employing the monitoring approach lies in a significant issue we encountered in 2006 that we are working to address. Over several months, our factory monitoring identified that a number of suppliers in China were violat violating provisions of our Terms of Engagement by keeping double books and employees in their factories were working longer than was being reported. These findings were corroborated by extensive benchmarking conducted by an international consulting firm. Rather than exiting those

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suppliers summarily, which could have had a negative impact on workers and disrupted our supply chain, we developed a transparency initiative for our suppliers in China. Under this program, we offered suppliers our support in helping them to remediate their serious issues in exchange for their transparency in wage-and-hour record keeping and a willingness to work toward compliance.

Suppliers who take advantage of the China transparency program may continue as LS&CO. suppliers while they are making improvements, providing they meet other TOE and business requirements. Since the initiative began, 42 suppliers have elected to enter the program and 22,000 workers have received some level of back pay. Until our suppliers have built the management systems and capacity required for apparel firms like LS&CO. to confidently move away from the monitoring approach to code-of-conduct compliance, we will continue to look for and implement innovative solutions that are protective of workers’ rights and good for business.

As we continue to consolidate our source base, we face the inevitable task of disengaging from some suppliers. Disengaging from suppliers is a challenge for any apparel firm because of the potential effects on workers and the community. We work at the factory, community and government levels to address the impact on workers and their communities.

Our supplier disengagement process includes exit assessments with the factory to ensure that displaced employees will receive proper wages, benefits and severance payments. We have worked with governments and other buyers to see that workers receive government and contractor benefits and services they are due, and we make grants to local nonprofit and nongovernmental organizations that provide access to job training and other transitional services for displaced workers.

environMent, heALth And sAfety We understand that our business activities impact the environment and can potentially affect the health and safety of our employees and consumers. We have always believed that our responsibilities in the area of environment, health and safety go beyond compliance.

In 2006, we launched new programs, worked to improve ongoing initiatives and continued to look for ways to reduce our environmental impact.

Levi ’s ® eco

In 2006, we launched the Levi’s® eco line in Europe and America. The brand’s design and innovation teams visited organic farms around the world and researched a variety of finishing techniques and available sundries (i.e. rivets, buttons, zippers) that demand less from the environment. The result is a range of products at a variety of price points so that almost any jeans lover who cares as deeply about the environ environment as they do about style and quality can own a pair Levi’s® jeans made with 100 percent organic cotton.

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Consistent with our practice of developing product lines that are relevant to the markets in which they are sold, the European product development and sourcing teams worked with the European design and merchandising teams to take the Levi’s® eco concept further. They produced what we believe is the first certified sustainable jean from a major denim brand. In addition to using only 100 percent organic cotton, buttons on the jeans are made from coconut shell and non-galvanized metal and the finishing process uses only chemical-free compounds including natural indigo, Marseille soap, potato starch and mimosa flower. They are certified as an “EKO Sustainable Textile” by Europe’s Control Union Certifications, a leading worldwide inspection and certification body for organic production and products.

rrestricted substances List

As part of our focus on consumer safety, LS&CO. maintains a Restricted Substances List (RSL), which we updated in 2006. The RSL identifies substances that LS&CO. prohibits for use in the production of our products.

All LS&CO. suppliers and licensees are required to comply with the RSL. LS&CO. safety experts review each brand’s product lines prior to production to assess the potential chemical risks and test products at various phases of the manufacturing cycle to ensure adherence to the RSL and other consumer safety standards. To support the rollout of the 2006 revision, we developed materials and background information for our suppliers and conducted training in several locations around the world.

Compiled with the assistance and oversight of experts in toxicology, dermatology, chemistry, regulatory research and the law in countries where we sell our products, the 2006 RSL is one of the few science-based and peer-reviewed restricted substance lists in the apparel sector. We share our work in this area with the Apparel and Footwear International RSL Management working group (AFIRM) of which we are a founding member. AFIRM is comprised of 12 multinational apparel and footwear brands, and its objective is to build supply chain capability in the area of chemical safety and to share best practices in product stewardship.

Wastewater effluent

The world’s water supply is finite and precious. In order to create the innovative and stylish finishes on many of our products, we launder them with dyes and chemicals that may be harmful to the environment if discharged untreated into natural waterways. Recognizing this, in 1992 we established strict wastewater effluent guidelines (our Global Effluent Guidelines or GEG) for our owned-and-operated manufacturing operations and extended them to all contract laundries in 1995. We were the first apparel company to put wastewater effluent requirements in place for all finishing contractors and, 10 years later, we are one of only a small handful of apparel companies focusing on the environmental impact that garment manufacturing can have on the communities where our products are made.

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As part of GEG compliance, we require our contractors to sample their effluent using a lab of their choosing and report their results regularly.

In the spirit of continuous improvement, we underwent a rigorous GEG validation initiative in 2006 in order to get a better understanding of our contractors’ sampling and analysis procedures and the veracity of the data they were receiving from local labs. We hired a global environmental engineering consultant to guide the study and focused the effort on nine fabric mills and all contract laundries that discharge wastewater directly into the environment. The results were encouraging. More than half of the facilities were in compliance with all 16 parameters and 80 percent were in compliance with 14 or more.

Information from the initiative will be used to develop training and tools for suppliers, and program improvements to build supplier wastewater management capability and ownership. For facilities we found to be out of compliance with our GEG, we are arranging for on-site advice and counsel by LS&CO. and/or external wastewater experts so that those facilities can improve their performance and continue as LS&CO. suppliers.

Moving forward

We know that conserving energy and other resources is both good for society and good for our bottom line. For example, with an eye on achieving cost savings through energy efficiency we have made numerous improvements at our corporate and owned-and-operated facilities during the past several months that resulted in significant reductions in fuel consumption. We replaced standard light fixtures and bulbs with more efficient lighting; installed automatic timers and motion sensors on lighting systems throughout our headquarters buildings; and installed a reflective “cool roof” on our distribution center in Henderson, Nev. Our plan for the coming year is to investigate additional ways to build environmental sustainability initiatives into our business. In 2007, we will commence an environmental footprint study to determine the impacts from our building operations including headquarters, stores and distribution centers, and a product-life-cycle study to develop a clearer picture of the overall environmental impact of our products – from the cotton fields, to manufacturing, to use and care, and finally disposal. We are also continuing with an initiative begun in 2006 to gather energy consumption data from all our owned-and-operated facilities to develop a baseline that will help us set energy conservation goals and gauge our progress over time. With the results and information from these studies, we will be able to develop a sustainability strategy for the company to integrate into our business planning going forward.

Lastly, the Levi Strauss Signature® brand conducted research in 2006 on how they might enhance their product offerings through sustainable business practices. In January of 2007, in what they hope to be their first step in conserving resources and reducing waste across the business, the

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brand moved to 100 percent recycled packaging materials. Additionally, the brand has offered products for men and women made with organic cotton to retail customers for fall 2007 and will continue to look for ways to build the brand’s sustainability platform.

diversity And Progressive eMPLoyMent PrACtiCes LS&CO.’s rich history of progressive employment practices and commitment to diversity has been recognized by numerous external organizations and has made the company a distinctive place to work.

diversity and equal treatment for All employees

2006 witnessed a milestone in American business history when more than half of Fortune 500 companies reported having healthcare benefits in place for the unmarried partners of their employees. As the first Fortune 500 company to extend these benefits in 1992, we are proud to have paved the way for widespread acceptance of this practice.

Because workplace protections can only level the playing field for employees as much as the law allows, we continue to advocate on this front. In 2006, an LS&CO. representative was appointed to the Human Rights Campaign’s (HRC) business advisory council to assist the organization in its efforts to create greater equality in the workplace and eliminate inequities in tax laws. With HRC and other allied organizations, we are lobbying for the Employment Non-Discrimination Act (ENDA) to prohibit workplace discrimination on the basis of sexual orientation nationwide and the Domestic Partner Health Benefits Equity Act to equalize federal tax treatment of health benefits for married couples and domestic partners.

For the fourth year in a row, LS&CO. received a perfect score of 100 percent on the HRC Corporate Equality Index, an annual report that rates U.S. businesses on how they are treating and responding to gay, lesbian, bisexual and transgender employees and consumers.

A More inclusive Work environment

management ranks are about evenly split between men and women.

Employees believe their leaders support diversity in the workplace and feel that their respective departments value diverse perspectives. We also discovered that women’s perceptions of gender-based barriers to promotion vary depending on geographic location, their level within the company, personal goals and other factors. These and other key insights from hundreds of interviews with managers, combined with results from a 2005 employee survey, are informing our learning and development programs and benefits offerings so that we can continue to build a culture where everyone has an equal opportunity to participate, contribute and grow.

the Levi strauss & Co. hiv/Aids treatment and Care Program

In September of 2006, LS&CO. announced the development over the next two years of the Levi Strauss & Co. HIV/AIDS Treatment and Care Program. Once fully operational, the program will provide comprehensive HIV/AIDS treatment and care for all LS&CO. employees and their families worldwide. It will include access to antiretroviral treatment/ drugs, HIV/AIDS counseling, and preventive care and education for all Levi Strauss & Co. employees around the world and their dependents.

The commitment was made at the Clinton Global Initiative, an annual nonpartisan event where attendees discuss the world’s most pressing problems and pledge to take action to address them. With few global companies offering such a benefit, and none in the apparel sector, we further pledged to share our final program architecture, along with important learnings from the development phase, with multinational firms in all industries.

Moving forward

Because we believe that a diverse and inclusive culture breeds innovation, it is both a business and social imperative that we continuously improve in the area of progressive employment practices. While our surveys and studies indicate employees are generally pleased with the current state of the company in terms of diversity and inclusiveness, we know we can do better.

We are proud of our 154-year record of progressive and inclusive workplace practices, and we continue to gauge employee perceptions and experiences on an ongoing basis to ensure we are doing all we can to provide the best possible employment experience.

Recognizing that there are few women on the company’s senior-most leadership team of 14 executives, senior leadership is charged with reviewing career plans for high-performing women leaders and developing female talent to be promoted to the highest leadership positions at LS&CO.

In 2006, the company explored employee attitudes and experiences relating to gender diversity and inclusiveness at LS&CO. in order to understand more fully the different ways that men and women experience the workplace. We learned that an overwhelming major ity of employees are proud of the diversity at the company, where the

MAking A differenCe in our CoMMunities Employee community involvement and a drive to help create positive social change have been a constant since the earliest days of LS&CO.

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We encourage and take great pride in our employees’ active involvement in their communities. Now a global effort, the company’s annual Community Day saw more than 3,000 employees in 25 countries contributing 15,000 hours on 110 individual projects around the world.

To recognize employees’ efforts, the company and the Levi Strauss Foundation made more than $140,000 in grants to the organizations at which employees volunteered on that day.

Community Day is a way to give back to our communities and build teams, but volunteering is a year-round activity at LS&CO. Employeeled Community Involvement Teams (CITs) were active throughout the year, volunteering with and directing grants to local nonprofit organizations of their choosing. In 2006, 66 CITs performed more than 10,000 hours of volunteer service and presented more than $300,000 in grants to the organizations they served.

In addition to supporting employees’ engagement in their communities, LSF continued its work to address poverty among women and youth in countries around the world where we have a business presence. The foundation pursues its mission through three interrelated strategies: preventing the spread of HIV/AIDS, helping women and youth build assets, and strengthening workers’ rights.

Given the disproportionate impact HIV/AIDS is having in Black and Latino communities in the United States, LSF is supporting efforts to recruit and mobilize civil rights leaders, social justice advocates and other important community leaders in an effort to engage them in the fight to slow the spread of the disease. Our highly visible “Red for Life” campaign in South Africa continues to push the envelope in that country, challenging citizens and leaders to take responsible action and be tested for HIV/AIDS. In 2006, through Red for Life’s HIV/AIDS education, awareness and testing program, approximately 10,000 South Africans received HIV tests and prevention information.

LSF also continues its focus on syringe availability, a proven harm reduction technique that is helping to slow HIV/AIDS infection rates among intravenous drug users and their sexual partners. The Syringe Access Fund, of which LSF was a founding partner, continues to grow and gain support from opinion leaders in the United States. LSF’s syringe availability work is expanding in Asia, and we are developing a program for Russia in response to soaring HIV infection rates and devastating social impacts associated with the use of unclean needles.

LSF has been on the forefront of the asset-building movement since its early days. Once viewed with considerable skepticism, asset building has increasingly become recognized as an important and effective anti-poverty strategy, as evidenced by the awarding of the 2006 Nobel Peace Prize to Muhammad Yunus and the Grameen Bank for promoting microfinance as a tool for economic development.

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Through LSF’s Building Assets Program, the foundation is helping improve the lives of people around the world. Young people participating in a program run by San Francisco-based LSF grantee Juma Ventures have leveraged their savings to pay for college tuition and a few have been able to make down payments for their first homes. In 2006, LSF funded Juma Ventures to expand their programs to seven other communities in California. And in Paris, where immigrants are marginalized, discriminated against and largely excluded from the labor force, LSF grantee La Miel has employed asset building strategies to help immigrants save, create businesses, develop networks and improve self confidence.

Between the company and LSF, our philanthropy for 2006 totaled $9.7 million. The Levi Strauss Foundation made $8.2 million in grants to nonprofit organizations around the world, LS&CO. Community Affairs provided $1.18 million in corporate contributions for similar initiatives and our brands delivered $283,000 in product donations and branded giving.

For a complete listing of all grants made by the Levi Strauss Foundation, visit: http://www.levistrauss.com/Citizenship/LeviStraussFoundation/GrantsDatabase.aspx

red tab foundation 2006 marked the 25th anniversary of the Red Tab Foundation (RTF), a unique nonprofit organization created by a former employee to offer financial assistance to other LS&CO. employees and retirees who are unable to afford life’s basic necessities due to unexpected hardships.

In an effort to expand employee awareness of the foundation’s activities globally, RTF engaged in a global internal awareness campaign that showcased the many faces of LS&CO. and the ways in which RTF had come to the assistance of individual employees in need. As a result of the campaign, RTF experienced a banner year in fundraising both in the number of employees contributing and amount collected, allowing the foundation to distribute more aid to qualifying individuals than in any prior year. In 2006, RTF distributed nearly $900,000 in grants to employees and retirees in need, a 42 percent increase over 2005.

In addition to increasing its grantmaking to employees and retirees, RTF created new programs in 2006, launching financial literacy courses for employees in Plock, Poland, and earthquake preparedness workshops in Turkey. In the United States, RTF promoted the Earned Income Tax Credit and initiated a pilot program for employees at our Canton, Miss., distribution center that matches employee dollars deposited into 529 college education accounts.

For more information on Levi Strauss & Co.’s corporate citizenship work, visit www.levistrauss.com/citizenship.

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