<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________
Commission File Number: 0-23214
-------------
SAMSONITE CORPORATION
---------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3511556
- ----------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 East 45th Avenue, Denver, CO 80239
- ---------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(303) 373-2000
-------------------------------
(Registrant's telephone number, including area code)
-------------------------------
(Former name, 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 and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
--- ---
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
X Yes No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 20,363,169 shares of
common stock, par value $0.01 per share, as of August 29, 1997.
- --------------------------------------------------------------------------------
<PAGE>
FORM 10-Q
---------
CONTENTS
--------
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
PART I - FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets as of July 31, 1997
and January 31, 1997..................................................................... 1
Unaudited Consolidated Statements of Operations for the three months
ended July 31, 1997 and 1996............................................................. 3
Unaudited Consolidated Statements of Operations for the six months
ended July 31, 1997 and 1996............................................................. 4
Unaudited Consolidated Statement of Stockholders' Equity
for the six months ended July 31, 1997................................................... 5
Unaudited Consolidated Statements of Cash Flows for the six months
ended July 31, 1997 and 1996............................................................. 6
Notes to Unaudited Consolidated Financial Statements..................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................ 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk - Not Applicable..............
<CAPTION>
PART II - OTHER INFORMATION
-----------------
Item 1. Legal Proceedings........................................................................ 24
Item 2. Changes in Securities.................................................................... 24
Item 3. Defaults Upon Senior Securities.......................................................... 24
Item 4. Submission of Matters to a Vote of Security Holders...................................... 24
Item 5. Other Information........................................................................ 24
Item 6. Exhibits and Reports on Form 8-K......................................................... 24
Signature ..................................................................................... 25
Index to Exhibits................................................................................... 26
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
as of July 31, 1997 and January 31, 1997
(In thousands)
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
Assets -------- -----------
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................................... $ 7,360 9,343
Trade receivables, net of allowances for doubtful accounts 100,040 83,276
of $8,463 and $7,431...........................................................
Notes and other receivables....................................................... 6,064 9,045
Inventories (Note 2).............................................................. 144,329 135,071
Deferred income tax assets........................................................ 35,908 36,365
Prepaid expenses and other current assets......................................... 15,235 13,012
Assets held for sale.............................................................. 10,752 9,002
---------- ----------
Total current assets........................................................... 319,688 295,114
Investments in affiliates............................................................. 2,809 2,989
Property, plant and equipment, net (Note 3)........................................... 140,505 143,959
Intangible assets, less accumulated amortization of $206,553 and 124,210 127,655
$203,039 (Note 4).................................................................
Other assets and long-term receivables, net of allowances
for doubtful accounts of $5,556 and $5,556........................................ 17,266 22,941
---------- ----------
$604,478 592,658
========== ==========
</TABLE>
(Continued)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
as of July 31, 1997 and January 31, 1997
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
July 31, January 31,
Liabilities and Stockholders' Equity 1997 1997
- ------------------------------------ -------- -----------
<S> <C> <C>
Current liabilities:
Short-term debt (Note 5)............................................................... $ 3,829 2,095
Current installments of long-term obligations (Note 5)................................. 6,669 22,862
Accounts payable ...................................................................... 59,547 46,777
Accrued and other current liabilities.................................................. 73,389 117,985
---------- ---------
Total current liabilities........................................................... 143,434 189,719
Long-term obligations, less current installments (Note 5).................................. 166,106 267,755
Deferred income tax liabilities............................................................ 30,269 30,921
Other noncurrent liabilities............................................................... 71,155 75,125
---------- ---------
Total liabilities................................................................... 410,964 563,520
---------- ---------
Minority interests in consolidated subsidiaries............................................ 5,824 4,140
Stockholders' equity (Notes 7 and 8):
Preferred stock ($.01 par value; 2,000,000 shares authorized;
no shares issued)................................................................... -- --
Common stock ($.01 par value; 60,000,000 shares authorized;
20,362,049 and 16,033,833 shares issued and
outstanding, respectively).......................................................... 204 160
Additional paid-in capital............................................................. 418,725 266,752
Accumulated deficit.................................................................... (216,703) (235,870)
Foreign currency translation adjustment................................................ (14,103) (5,337)
Unearned compensation - restricted shares.............................................. (433) (707)
---------- ---------
Total stockholders' equity.......................................................... 187,690 24,998
---------- ---------
Commitments and contingencies (Note 1C)
$ 604,478 592,658
========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
for the three months ended July 31, 1997 and 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended July 31,
---------------------------
1997 1996
---- ----
<S> <C> <C>
Net sales (Note 1F)............................................................... $179,545 179,440
Cost of goods sold (Note 3) ...................................................... 101,317 110,748
------- -------
Gross profit.................................................................. 78,228 68,692
Selling, general and administrative expenses (Notes 1G and 3) .................... 57,179 57,986
Amortization of intangible assets (Note 4) ....................................... 1,830 11,407
------- -------
Operating income (loss)....................................................... 19,219 (701)
Other income (expense):
Interest income .............................................................. 138 257
Interest expense and amortization of debt issue costs......................... (4,898) (8,924)
Other - net (Note 6).......................................................... 8,970 4,740
------- -------
Income (loss) before income taxes, minority interest
and extraordinary item .................................................... 23,429 (4,628)
Income tax expense................................................................ (3,242) (1,403)
Minority interest in earnings of subsidiaries..................................... 104 (152)
------- -------
Income (loss) before extraordinary item....................................... 20,291 (6,183)
Extraordinary item - loss on extinguishment of debt,
net of income tax benefit of $1,289 (Note 5).................................. (2,990) --
------- -------
Net income (loss)............................................................. $ 17,301 (6,183)
======= =======
Net income (loss) per share - primary and fully diluted (Note 1E):
Income (loss) before extraordinary item.................................... $ .96 (.39)
Extraordinary loss......................................................... (0.14) --
------- -------
Net income (loss)...................................................... $ .82 (.39)
======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
for the six months ended July 31, 1997 and 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended July 31,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Net sales (Note 1F)............................................................ $349,106 349,307
Cost of goods sold (Note 3).................................................... 200,610 211,950
-------- -------
Gross profit............................................................... 148,496 137,357
Selling, general and administrative expenses (Notes 1G and 3).................. 111,234 111,391
Amortization of intangible assets (Note 4)..................................... 3,654 27,405
-------- -------
Operating income (loss).................................................... 33,608 (1,439)
Other income (expense):
Interest income............................................................ 603 799
Interest expense and amortization of debt issue costs...................... (11,105) (18,034)
Other - net (Note 6)....................................................... 15,869 6,532
-------- -------
Income (loss) before income taxes, minority interest and
extraordinary item...................................................... 38,975 (12,142)
Income tax expense............................................................. (10,071) (4,400)
Minority interest in earnings of subsidiaries.................................. (114) (443)
-------- -------
Income (loss) before extraordinary item.................................... 28,790 (16,985)
Extraordinary item - loss on extinguishments of debt, net of
income tax benefit of $5,898 (Note 5)...................................... (9,623) --
-------- -------
Net income (loss).......................................................... $ 19,167 (16,985)
========== =======
Net income (loss) per share - primary and fully diluted (Note 1E):
Income (loss) before extraordinary item.................................... $ 1.38 (1.07)
Extraordinary loss......................................................... (0.46) --
---------- -------
Net income (loss).......................................................... $ .92 (1.07)
========== =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statement of Stockholders' Equity
for the six months ended July 31, 1997
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Foreign Unearned
Additional Currency Compensation-
Preferred Common Paid-In Accumulated Translation Restricted
Stock Stock Capital Deficit Adjustment Shares
----- ----- ------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 1, 1997 $ -- 160 266,752 (235,870) (5,337) (707)
Issuance of 3,300,000 shares
of common stock in public
offering, net of offering
costs and underwriting
discount of $8,303 (Note 8) -- 33 130,211 -- -- --
Issuance of 1,813 shares to
directors for services -- -- 87 -- -- --
Amortization of restricted
stock award to compensation
expense -- -- -- -- -- 274
Compensation expense accrued
for stock bonus awards (Note 7) -- -- 355 -- -- --
Exercise of employee stock
options and related income tax
benefits, net of shares
exchanged (Notes 7 and 8) -- 11 21,320 -- -- --
Foreign currency translation
adjustment -- -- -- -- (8,766) --
Net income -- -- -- 19,167 -- --
----- ---- ------- -------- ------- ----
Balance, July 31, 1997 $ -- 204 418,725 (216,703) (14,103) (433)
===== ==== ======= ======== ======= ====
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
for the six months ended July 31, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended July 31,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss).......................................................... $ 19,167 (16,985)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Loss on extinguishments of debt......................................... 9,623 --
Depreciation and amortization of property,
plant and equipment................................................. 10,601 10,651
Amortization of intangible assets....................................... 3,654 27,405
Amortization of debt issue costs........................................ 813 967
Provision for doubtful accounts......................................... 1,552 469
Amortization of stock awards and stock issued for services.............. 716 262
Adjustment of allowances for factored receivables from
previous operations................................................. (1,458) --
Changes in operating assets and liabilities:
Trade and other receivables......................................... (14,902) (14,916)
Inventories......................................................... (9,258) (13,437)
Prepaid expenses and other current assets........................... (2,223) (224)
Accounts payable.................................................... 12,770 7,805
Accrued liabilities................................................. (24,591) (11,604)
Other adjustments - net.................................................... (1,992) 3,202
--------- -------
Net cash provided by (used in) operating activities ....................... $ 4,472 (6,405)
--------- -------
</TABLE>
(Continued)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
for the six months ended July 31, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended July 31,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows provided by (used in) investing activities:
Purchases of property, plant and equipment................................... $ (16,435) (11,890)
Net cash received from (used in) previous operations......................... (3,671) 5,811
Other........................................................................ 681 663
---------- --------
Net cash used in investing activities..................................... (19,425) (5,416)
---------- --------
Cash flows provided by (used in) financing activities:
Proceeds from public stock offering, net of offering costs................... 130,244 --
Proceeds from exercise of employee stock options and
sale of stock to officer.................................................. 7,419 1,004
Retirement of subordinated notes............................................. (80,800) --
Early retirement premiums and penalties on subordinated
notes and senior credit facility.......................................... (8,974) --
Net borrowings (payments) of short-term debt................................. 2,041 (1,978)
Net borrowings (payments) of long-term debt and
capital lease obligations................................................. (32,176) 8,157
Other, net................................................................... 1,940 1,124
---------- --------
Net cash provided by financing activities................................. 19,694 8,307
---------- --------
Effect of exchange rate changes on cash and cash equivalents..................... (6,724) (2,298)
---------- --------
Net decrease in cash and cash equivalents................................. (1,983) (5,812)
Cash and cash equivalents, beginning of period .................................. 9,343 15,179
---------- --------
Cash and cash equivalents, end of period......................................... $ 7,360 9,367
========== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest .................................... $ 11,315 15,880
========== ========
Cash paid during the period for income taxes, net............................ $ 2,576 5,101
========== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
1. GENERAL
A. Business
--------
Samsonite Corporation and Subsidiaries (the "Company") was formerly known
as Astrum International Corp. ("Astrum"). On July 14, 1995, Astrum merged
with its wholly-owned subsidiary, Samsonite Corporation, and changed its
name to Samsonite Corporation. The Company is engaged in the manufacture
and sale of luggage and related products throughout the world, primarily
under the Samsonite, American Tourister, and Lark brand names. The
principal customers of the Company are department/specialty retail
stores, mass merchants, catalog showrooms and warehouse clubs. The
Company also sells its luggage and other travel related products through
its Company-owned stores.
B. Basis of Presentation
---------------------
On May 25, 1993, the United States Bankruptcy Court for the Southern
District of New York confirmed the Amended Plan of Reorganization (the
"Plan") for Astrum. Pursuant to the terms of the Plan, which became
effective on June 8, 1993, Astrum completed a comprehensive financial
reorganization which reduced debt and annual interest expense (the
"Restructuring").
The Restructuring has been accounted for pursuant to the American
Institute of Certified Public Accountants Statement of Position 90-7,
entitled "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"). SOP 90-7 requires that assets and
liabilities be adjusted to their fair values ("fresh-start" values) and
that a new reporting entity be created. On June 30, 1993, for accounting
purposes, the Plan was consummated and SOP 90-7 was adopted. The
consolidated financial statements include the ongoing impact of
fresh-start reporting. The most significant fresh start adjustments
related to recording Reorganization Value in Excess of Identifiable
Assets, which has been fully amortized. In addition, the Company recorded
fresh start adjustments to reflect tradenames, licenses, patents and
other intangibles at their fair values.
C. Interim Financial Statements
----------------------------
The accompanying unaudited consolidated financial statements reflect all
adjustments, which are normal and recurring in nature, and which, in the
opinion of management, are necessary to a fair statement of the financial
position as of July 31, 1997 and results of operations for the
three-month and six-month periods ended July 31, 1997 and 1996. These
consolidated financial statements and related notes should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1997.
See Note 13 to the aforementioned consolidated financial statements
included in the 1997 Form 10-K for a description of litigation,
commitments and contingencies.
D. Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ significantly
from those estimates.
8
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
E. Per Share Data
--------------
Income per share for the three-month and six-month periods ended July 31,
1997 is calculated by dividing income by the weighted average number of
shares of 20,357,000 and 20,103,000, respectively, adjusted for the
potentially dilutive effect of stock options and awards of 800,000 and
821,000, respectively. Primary and fully diluted amounts were the same
for the three-month and six-month periods ended July 31, 1997. Loss per
share for the three-month and six-month periods ended July 31, 1996 was
calculated based on the weighted average number of shares outstanding of
15,959,000 and 15,925,000, respectively. Because of the loss, the effect
of stock options and awards is antidultive.
Effective for interim and annual periods ending after December 15, 1997,
earnings per share will be computed in accordance with the provisions of
Statement of Financial Accounting Standards No. 128 Earnings per Share
("SFAS 128"). SFAS 128 requires the disclosure of "basic" earnings per
share and "diluted" earnings per share. Basic earnings per share is
computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding. Diluted earnings
per share is computed by dividing income available to common stockholders
by the weighted average number of shares outstanding increased for
potentially dilutive common shares outstanding during the period. The
dilutive effect of options, warrants, and their equivalents is calculated
using the treasury stock method.
Following is a reconciliation of pro forma basic and diluted earnings per
share for the three months ended July 31, 1997 as if the provisions of
SFAS 128 were effective for such period:
<TABLE>
<CAPTION>
Pro Forma Per
Basic Earnings per Share Income Shares Share Amount
------------------------ ------ ------ ------------
<S> <C> <C> <C>
Income before extraordinary item $20,291,000 20,357,000 $1.00
=====
Added dilutive effect of stock options and awards 800,000
Earnings per Share-Assuming Dilution
------------------------------------ ----------- ----------
Income before extraordinary item available to common
stockholders and shares including assumed conversions $20,291,000 21,157,000 $.96
=========== ========== ====
</TABLE>
F. Royalty Revenues
----------------
The Company licenses its brand names to certain unrelated third parties
as well as certain foreign subsidiaries and joint ventures. Net sales
include royalties earned of $8,578,000 and $11,993,000 for the six months
ended July 31, 1997 and 1996, respectively, and $3,815,000 and $3,664,000
for the three months ended July 31, 1997 and 1996, respectively. Included
in royalties for the six months ended July 31, 1996 is $4.0 million from
the sale of apparel tradename licenses in certain Asian countries.
G. Restructuring Reserves
----------------------
During the six months ended July 31, 1997, the Company had charges for
cash expenditures of approximately $1,800,000 against its restructuring
reserves. Also, a $600,000 reversal of excess restructuring reserves was
recorded in selling, general and administrative expenses. See Note 3 to
the consolidated financial statements in the 1997 Form 10-K for a
description of the reserves.
9
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
2. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
--------- ----------
(In thousands)
<S> <C> <C>
Raw Materials....................................................... $ 37,188 38,532
Work in Process..................................................... 11,951 10,842
Finished Goods...................................................... 95,190 85,697
--------- ---------
$144,329 135,071
======== =======
</TABLE>
3. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
--------- ----------
(In thousands)
<S> <C> <C>
Land................................................................ $ 12,436 13,324
Buildings........................................................... 57,800 62,561
Machinery, equipment and other...................................... 127,761 121,875
--------- ---------
197,997 197,760
Less accumulated amortization and depreciation...................... (57,492) (53,801)
--------- ---------
$ 140,505 143,959
========= =========
</TABLE>
Depreciation included in cost of goods sold and selling, general and
administrative expenses related to adjustments of assets and liabilities
to fair value in connection with the adoption of SOP 90-7 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
"Fresh Start" Depreciation in $ 586 724 1,271 1,461
Cost of Goods Sold......................
"Fresh Start" Depreciation in Selling,
General and Administrative Expenses.... 130 162 281 325
----- ----- ----- -----
Total "Fresh Start" Depreciation............ $ 716 886 1,552 1,786
===== ===== ===== =====
</TABLE>
Property and equipment revalued in connection with the adoption of SOP
90-7 are being depreciated over their respective estimated useful lives,
primarily ranging from two to six years.
4. Intangible Assets
Intangible assets, net of accumulated amortization, consisted of the
following:
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
---- ----
(In thousands)
<S> <C> <C>
Trademarks............................................................... $113,982 115,838
Licenses, Patents and Other.............................................. 10,228 11,817
-------- --------
$124,210 127,655
======== ========
</TABLE>
10
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Amortization of intangible assets, including amortization related to the
adjustments of assets and liabilities to fair value in connection with
the adoption of SOP 90-7, consisted of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
"Fresh Start" Amortization:
Amortization of Reorganization Value in
Excess of Identifiable Assets........... $ -- 9,179 -- 22,947
Amortization of Tradenames,
Licenses and Patents................. 1,606 1,994 3,213 3,988
---------- --------- --------- ---------
1,606 11,173 3,213 26,935
Other....................................... 224 234 441 470
---------- --------- --------- ---------
$ 1,830 11,407 3,654 27,405
========== ========= ========= =========
</TABLE>
"Fresh Start" amortization represents the expense arising from the
adoption of "fresh start" accounting in accordance with SOP 90-7. The
reorganization value in excess of identifiable assets was amortized over
a three-year period which ended June 1996; licenses, patents and other
are amortized over a period ranging from one to twenty-three years, and
tradenames are amortized primarily over a period of forty years.
5. Long-Term Obligations
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
---- ----
(In thousands)
<S> <C> <C>
Series B Senior Subordinated Notes (a)................... $109,200 190,000
Senior Credit Facility (b)............................... 38,343 50,000
Capital lease obligations................................ 4,379 5,091
Other (c)................................................ 24,682 47,621
-------- --------
Total obligations..................................... 176,604 292,712
Less short-term debt and current installments of
long-term obligations................................. (10,498) (24,957)
-------- --------
$166,106 267,755
======== ========
</TABLE>
(a) The Series B Senior Subordinated Notes bear interest at 11 1/8%
and have a maturity date of July 15, 2005. During the six months
ended July 31, 1997, the Company retired $80,800,000 principal
amount of subordinated notes out of the proceeds from the public
offering of common stock (see Note 8). Redemption premiums
totaling $8,684,000 were paid in connection with the retirement of
the notes. The redemption premiums and the write-off of $2,558,000
of deferred financing costs related to the subordinated notes are
classified as an extraordinary item, net of tax effects, in the
accompanying statement of operations for the six months ended July
31, 1997.
(b) Effective June 12, 1997, the Company renegotiated its Senior
Credit Facility and entered into an amended and restated Senior
Credit Facility agreement. The new agreement provides for a $200.0
million revolving credit facility ("Revolving Credit Facility A")
due June 12, 2002 and a $50.0 million revolving credit facility
("Revolving Credit Facility B") due June 11, 1998. The Revolving
Credit Facility A is a multicurrency facility which allows for
loans of $140.0 million in U.S. dollars and $60.0 million in
various European currencies.
11
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
The following amounts were outstanding at July 31, 1997 under the Senior
Credit Facility:
Revolving Credit Facility A
Borrowings $38.3 million
Letters of Credit $10.3 million
Revolving Credit Facility B $ --
The Senior Credit Facility is secured by 66% of the stock of the
Company's principal foreign subsidiaries. The agreement contains
financial covenants requiring the Company to maintain certain financial
ratios and minimum stockholders' equity. The agreement also contains
covenants which limit the incurrance of additional indebtedness, the
payment of dividends, the disposition of assets, and other restrictions.
The agreement generally allows the Company to pay dividends not to exceed
30% of its net income.
As a result of entering into the amended and restated Senior Credit
Facility, which has significantly different terms and conditions than the
previous facility, the Company charged to expense the balance of deferred
financing costs relating to the previous facility totaling $3,989,000 and
paid prepayment penalties of $290,000. The charge is recorded as an
extraordinary item in the three months and six months ended July 31,
1997, net of tax effects, in the accompanying statements of operations.
(c) Other obligations consist of various notes payable to banks by foreign
subsidiaries aggregating $20.7 million and a $4.0 secured financing
arrangement with a foreign bank. Included in letters of credit
outstanding is a $3.0 million standby letter of credit issued to secure
certain debt of foreign subsidiaries.
6. Other Income (Expense) - Net
Other income (expense) - net consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Foreign currency transaction income (a)............ $1,918 652 5,195 2,107
Rental income...................................... 544 493 1,066 887
Favorable settlement of claims (b)................. -- 3,802 2,128 3,802
Adjustment of allowances for factored
receivables from previous operations (c)...... -- -- 1,458 --
Adjustment of contingent tax accrual (d)........... 7,700 -- 7,700 --
Pension expense for pension plans
assumed (e)................................... (350) -- (350) --
Other.............................................. (842) (207) (1,328) (264)
------ ----- ------ -----
$8,970 4,740 15,869 6,532
====== ===== ====== =====
</TABLE>
(a) Foreign currency transaction income for the six months ended July 31,
1997 includes approximately $2.8 million of unrealized exchange gains
related to open forward exchange contracts entered into to reduce
foreign exposure to currency fluctuations on certain foreign
operations.
(b) Other income for the six months ended July 31, 1997 and 1996 of
$2,128,000 and $3,802,000, respectively, resulted from the favorable
settlement of certain of the claims against the Company described in
Note 13 to the consolidated financial statements in the 1997 Form
10-K under Contingent Liability with Respect to the Old Notes.
12
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
(c) During the six months ended July 31, 1997, the Company recorded other
income of $1,458,000 for the reversal of allowances for factored
receivables from previous operations which were no longer necessary
upon the settlement of the receivables for which such allowances were
established.
(d) During the three months ended July 31, 1997, certain contingencies
related to tax matters arising prior to and accrued in conjunction
with the Restructuring were resolved; as a result, the Company
reduced the related accrual by $7,700,000. The resolution of such
matters did not result in any cash payment or additional liability
for taxes.
(e) As described in Note 13 to the consolidated financial statements
included in the Company's Form 10-K Annual Report for the fiscal year
ended January 31, 1997 under Contingent Pension Liabilities, the
Company was contingently liable for the unfunded benefits of two
pension plans ("the Plans") which were part of a "controlled group"
(as defined by the Employee Retirement Income Security Act of 1974)
of companies, of which the Company was a part prior to the
reorganization of the Company in 1993. Effective August 1, 1997, the
Company assumed sponsorship of the Plans and intends to merge the
Plans with an existing Company pension plan. The Company had
previously accrued $26.6 million for the actuarially determined
pension liability related to the Plans. Other expense for the three
months ended July 31, 1997 includes $0.3 million of periodic pension
expense related to the Plans representing the accretion of interest
cost, net of asset returns and amortization of actuarial gains.
7. Employee Stock Options
The Company has authorized 2,550,000 shares for the granting of options
under the 1995 Stock Option and Award Plan. See Note 9 to the consolidated
financial statements included in the 1997 Form 10-K for a description of
such plan. In addition, the Company has outstanding options and stock bonus
awards to current executives in connection with employment agreements.
At July 31, 1997, the Company had outstanding options for a total of
2,177,082 shares at options prices ranging from $10.875 to $47.875 per
share. Options for 328,898 shares were exercisable at July 31, 1997.
Options for 62,185 shares under the 1995 Stock Option and Award Plan were
exercised at an average exercise price of $12.57 per share during the six
months ended July 31, 1997.
The Company has granted stock bonuses for a total of 116,667 shares to
certain officers payable if the officer remains continually employed by the
Company through the earlier of May 15, 1999 or one year after a change of
control event. The Company is recognizing compensation expense equal to the
fair market value at the date of the grant ($18.25 per share) over the
three year vesting period.
8. Public Stock Offering
On February 11, 1997, the Company completed the sale of 3,300,000 shares of
its common stock in a public offering and received net proceeds therefrom
of approximately $130.2 million. In addition, the former CEO exercised
options for 1,853,668 common shares and sold these shares in the public
offering. The Company received approximately $6.6 million in cash from the
exercise of these options. The total of the proceeds from the offering and
the exercise of the stock options of approximately $136.8 million has been
applied as follows: (i) $89.5 million to redeem and purchase in the market
$80.8 million principal amount of Series B Notes, including $8.7 million
for early redemption and market premiums (see Note 5), (ii) $45.0 million
to repay amounts outstanding on the term loan under the previous Senior
Credit Facility, and (iii) the remainder of the offering proceeds was
applied to accrued interest and to repay revolving credit borrowings under
the previous Senior Credit Facility.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Three Months Ended July 31, 1997 ("fiscal 1998" or "current year") Compared to
Three Months Ended July 31, 1996 ("fiscal 1997" or "prior year")
General. The Company analyzes its net sales and operations by the following
categories: (1) "European operations" which consist of its European
manufacturing and distribution operations whose reporting currency is the
Belgian franc, (2) "the Americas operations" which include sales, manufacturing,
and distribution operations in the United States, Mexico, Canada, Latin America
and (3) "International operations" which include the sales, manufacturing and
distribution operations in Singapore, India, China; exports to the Far East and
Middle East; and global licensing operations.
Results of European operations were translated from Belgian francs to U.S.
dollars in fiscal 1998 and fiscal 1997 at average rates of approximately 35.33
and 31.21 francs to the U.S. dollar, respectively. This decrease in the value of
the Belgian franc of 11.7% resulted in decreases in European reported sales,
cost of sales and other expenses in fiscal 1998 compared to fiscal 1997. The
most significant effects from the difference in exchange rates from last year to
the current year are noted in the following analysis and referred to as an
"exchange rate difference". The Company enters into forward foreign exchange
contracts and option contracts to reduce its economic exposure to fluctuations
in currency exchange rates for the Belgian franc and other foreign currencies.
Such instruments are marked to market at the end of each accounting period;
realized and unrealized gains and losses are recorded in other income (expense).
During fiscal 1998, the Company recorded net gains from such instruments of $1.9
million; during fiscal 1997, the Company recorded net gains on such instruments
of $0.7 million.
Net Sales. Consolidated net sales were $179.4 million in fiscal 1997 and $179.5
million in fiscal 1998, an increase of $0.1 million. Fiscal 1998 sales were
adversely affected by the large decrease in the value of the Belgian franc
relative to the U.S. dollar in fiscal 1998. Adjusted for the effect of the
exchange rate difference, fiscal 1998 sales increased by $8.6 million or
approximately 5%.
Sales from European operations decreased from $67.0 million in fiscal 1997 to
$64.8 million in fiscal 1998, a decrease of $2.2 million. Expressed in Belgian
francs, fiscal 1998 sales increased by 9.5%, or the U.S. constant dollar
equivalent of $6.4 million from fiscal 1997; however, the increase was more than
offset by a $8.6 million exchange rate difference. Sales of hardside products
were 2% above the prior year while softside product sales increased by
approximately 22%. The economies in Germany and France remained weak in the
second quarter and the sales increases are attributable primarily to markets in
the remainder of Western Europe and expansion into Eastern European markets.
14
<PAGE>
Sales from the Americas operations increased from $102.1 million in fiscal 1997
to $107.0 million in fiscal 1998, an increase of $4.9 million or 4.8%. The
increase was largely due to an increase in U.S. retail sales of $9.0 million or
48% from the prior year. The increase in retail sales is due to an increase in
both the number of stores and comparable store sales. Comparable store sales
increased by 17.6% from fiscal 1997. Management believes that comparable store
sales have increased due to better marketing efforts and improved brand and
product line availability in the retail stores. While in the prior year the
retail stores carried primarily American Tourister products, the stores now also
carry Samsonite products. U.S. wholesale sales decreased by $3.2 million from
fiscal 1997, or approximately 4.4%. U.S. wholesale sales were adversely affected
by manufacturing problems and delays in new product introductions. Hardside
sales were less than the prior year by approximately 11% while softside sales
were less than the prior year by approximately 3%. Sales from other Americas
operations, including Mexico, Canada and Latin America, were less than the prior
year by an aggregate of $0.9 million, primarily because of a decrease in
Canadian sales.
Sales from International operations decreased from $10.0 million in fiscal 1997
to $7.4 million in fiscal 1998, a decrease of $2.6 million. The decrease is due
primarily to lower revenues from sales in the Far East and Middle East due to
the transitioning of responsibility to service the Middle East from the Americas
division to the Europe division and distributor transitions in Hong Kong and
Korea.
Gross profit. Consolidated gross profit for fiscal 1998 increased from fiscal
1997 by $9.5 million. Gross margin increased by 5.3 percentage points, from
38.3% in fiscal 1997 to 43.6% in fiscal 1998.
Gross margins from European operations increased by 2.2 percentage points, from
39.7% in fiscal 1997 to 41.9% in fiscal 1998. The improvement is due to price
increases in selected product lines, lower costs from standardized global
production sources, and overhead savings from restructuring certain
manufacturing operations.
Gross margins for the Americas increased from 36.9% in fiscal 1997 to 44.3% in
fiscal 1998. The primary causes of the improvement from the prior year were an
increase in U.S. wholesale margins from 34.6% to 43.4%, which resulted primarily
from price increases; product cost improvements from global sourcing and product
design improvements, and a greater mix of higher margin retail sales versus
wholesale sales; and overhead savings from restructuring certain manufacturing
operations.
Selling, General and Administrative Expenses ("SG&A"). Consolidated SG&A
decreased by $0.8 million from fiscal 1997 to fiscal 1998. As a percent of
sales, SG&A was 31.8% in fiscal 1998 and 32.3% in fiscal 1997.
SG&A for European operations decreased by $2.4 million from fiscal 1997 to
fiscal 1998. The exchange rate difference caused SG&A to decrease by $2.1
million. The remaining decrease of $0.3 million was due primarily to net
decreases in various expenses including provision for doubtful accounts,
meetings and travel, and advertising.
SG&A for the Americas operations increased by $1.4 million in fiscal 1998
compared to fiscal 1997. The components of this increase are as follows: SG&A
for U.S. wholesale operations was comparable to the prior year, decreasing by
$0.1 million in fiscal 1998 compared to fiscal 1997; SG&A for U.S. retail
operations increased by $2.9 million; and SG&A for the other Americas operations
and corporate headquarters expenses were down by $1.4 million from fiscal 1997.
The increase in SG&A of $2.9 million for U.S. retail operations is due to the
increase in sales volume and number of retail stores; as a percent of retail
sales, retail SG&A decreased from 45% in fiscal 1997 to 41% in fiscal 1998.
The decrease in SG&A for other Americas operations, including corporate
headquarters, of $1.4 million from the prior year was primarily due to severance
costs incurred in the prior year and the effect of the change in the management
and corporate overhead structure compared to the prior year.
15
<PAGE>
SG&A for International operations was comparable to the prior year, increasing
by $0.2 million.
Amortization of intangible assets. The Company recorded significant intangible
assets as a result of its reorganization in 1993. See the comparative analysis
of amortization of intangibles included elsewhere herein.
Reorganization value in excess of identifiable assets became fully amortized as
of June 30, 1996, which generally accounts for the decrease in amortization of
intangible assets from $11.4 million in fiscal 1997 to $1.8 million in fiscal
1998.
Operating income (loss). Operating results improved from a loss in fiscal 1997
of $0.7 million to income in fiscal 1998 of $19.2 million, an increase of $19.9
million. This increase is a result of improved margins which increased gross
profit by $9.5 million from last year, the decrease in amortization of
intangibles of $9.6 million, and the decrease in SG&A of $0.8 million.
Interest income. Interest income was comparable to fiscal 1997, decreasing by
$0.1 million.
Interest expense and amortization of debt issue costs. Interest expense and
amortization of debt issue costs decreased from $8.9 million in fiscal 1997 to
$4.9 million in fiscal 1998. The decrease was caused primarily by retirement of
indebtedness out of the proceeds of a public stock offering completed in the
first quarter of fiscal 1998 and a lower interest rate on borrowings under the
senior credit facility which was refinanced in June 1997. See Notes 5 and 8 to
the consolidated financial statements included elsewhere herein.
Other, net. See Note 6 to the consolidated financial statements included
elsewhere herein for a comparative analysis of other income (expense).
The Company enters into forward exchange contracts to hedge its exposures to
fluctuations in exchange rates. Other income for fiscal 1998 includes income
from foreign currency transactions of $1.9 million. In fiscal 1997, such
transactions resulted in income of $0.7 million. The income recorded for the
three months ended July 31, 1997 results primarily from forward exchange
contracts selling forward the Belgian franc, which has declined significantly
against the U.S. dollar since the contracts were executed.
Other income for fiscal 1998 also includes an adjustment for $7.7 million to
reduce the accrual for certain tax contingencies established in conjunction with
the Restructuring. The adjustment was made upon the resolution of these
contingencies. The resolution did not result in any cash payment or additional
liability for taxes.
As described in Note 13 to the consolidated financial statements included in the
Company's Form 10-K Annual Report for the fiscal year ended January 31, 1997
under Contingent Pension Liabilities, the Company was contingently liable for
the unfunded benefits of two pension plans ("the Plans") which were part of a
"controlled group" (as defined by the Employee Retirement Income Security Act of
1974) of companies, of which the Company was a part prior to the reorganization
of the Company in 1993. Effective August 1, 1997, the Company assumed
sponsorship of the Plans and intends to merge the Plans with an existing Company
pension plan. The Company had previously accrued $26.6 million for the
actuarially determined pension liability related to the Plans. Other expense for
the three months ended July 31, 1997 includes $0.3 million of periodic pension
expense related to the Plans representing the accretion of interest cost, net of
asset returns and amortization of actuarial gains.
16
<PAGE>
Income taxes. Income tax expense increased from $1.4 million in fiscal 1997 to
$3.2 million in fiscal 1998. The increase in tax expense is due primarily to
higher consolidated pretax earnings in fiscal 1998. The difference between
expected income tax expense or benefit, computed by applying the U.S. statutory
rate to pretax income (loss), and income tax expense recognized, results
primarily because of (i) the nondeductibility for tax purposes of amortization
of reorganization value in excess of identifiable assets, (ii) foreign income
tax expense provided on foreign earnings, (iii) nontaxable liability
adjustments, and (iv) state and local income taxes. Income tax expense was
reduced by approximately $1.8 million for the effect of the implementation of a
foreign tax planning strategy.
Extraordinary loss. The extraordinary loss for the three months ended July 31,
1997 resulted from the write off of the balance of deferred financing costs
related to the previous bank credit facility, net of tax effects. The previous
facility was refinanced under a new senior credit facility agreement effective
June 12, 1997. The new facility has lower interest rates, lower annual fees, and
less restrictive covenants than the previous facility, reflecting the Company's
improved credit worthiness as a result of the public stock offering. See Note 5
to the consolidated financial statements included elsewhere herein.
Net income (loss). The Company had a net loss in fiscal 1997 of $6.2 million and
net income in fiscal 1998 of $17.3 million. The increase in the net income from
the prior year of $23.5 million is caused by the effect of the increases in
operating income and other income and the decrease in interest expense, offset
by the increase in income tax expense and extraordinary loss.
Effects of Reorganization and Restructuring on Results of Operations. As
described in Note 1B to the consolidated financial statements included elsewhere
herein, the results of operations include the ongoing effects of fresh-start
reporting. The effects of fresh-start reporting on operating income (loss) are
as follows:
<TABLE>
<CAPTION>
Three Months Ended July 31,
---------------------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Operating income (loss).......................................................... $19,219 (701)
Fresh Start Amortization and Depreciation........................................ 2,322 12,059
------ ------
Operating income before Fresh Start Amortization
and Depreciation............................................................ $21,541 11,358
====== ======
</TABLE>
The impact of the Fresh Start amortization and depreciation on net income (loss)
and net income (loss) per share are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended July 31,
-------------------------------------------
1997 1996
---- ----
(In thousands except per share amounts)
<S> <C> <C>
Fresh Start Amortization and Depreciation................................ $2,322 12,059
Tax Benefit.............................................................. (882) (1,181)
----- ------
After Tax Impact on Net Income (Loss).................................... 1,440 10,878
===== ======
Impact on Net Income (Loss) Per Share.................................... $ .07 .67
===== ======
</TABLE>
17
<PAGE>
Six Months Ended July 31, 1997 ("fiscal 1998" or "current year") Compared to
Six Months Ended July 31, 1996 ("fiscal 1997" or "prior year")
General. Results of European operations were translated from Belgian francs to
U.S. dollars in fiscal 1998 and fiscal 1997 at average rates of approximately
34.59 and 30.73 francs to the U.S. dollar, respectively. This decrease in the
value of the Belgian franc of 11.2% resulted in decreases in European reported
sales, cost of sales and other expenses in fiscal 1998 compared to fiscal 1997.
The most significant effects from the difference in exchange rates from last
year to the current year are noted in the following analysis and referred to as
an "exchange rate difference". The Company enters into forward foreign exchange
contracts and option contracts to reduce its economic exposure to fluctuations
in currency exchange rates for the Belgian franc and other foreign currencies.
Such instruments are marked to market at the end of each accounting period;
realized and unrealized gains and losses are recorded in other income. During
fiscal 1998, the Company had net gains from such instruments of $5.2 million;
during fiscal 1997, the Company had net gains on such instruments of $2.1
million.
Net Sales. Consolidated net sales decreased from $349.3 million in fiscal 1997
to $349.1 million in fiscal 1998, a decrease of $0.2 million. Fiscal 1998 sales
were adversely affected by the large decrease in the value of the Belgian franc
compared to the U.S. dollar in fiscal 1998 and nonrecurring revenues of $4.0
million from the sale of licenses in the prior year. Adjusted for the effect of
the exchange rate difference and the license sale in the prior year, fiscal 1998
sales increased by $20.2 million or approximately 5.8%.
Sales from European operations decreased from $134.3 million in fiscal 1997 to
$130.5 million in fiscal 1998, a decrease of $3.8 million. Expressed in Belgian
francs, fiscal 1998 sales increased by 9.4%, or the U.S. constant dollar
equivalent of $12.6 million from fiscal 1997; however, the increase was more
than offset by a $16.4 million exchange rate difference. This increase in sales
was achieved despite weak economies in Germany and France and is attributable
primarily to strength in the remainder of the Western European countries and
expansion into Eastern European markets.
Sales from the Americas operations increased from $189.8 million in fiscal 1997
to $202.3 million in fiscal 1998, an increase of $12.5 million or 6.6%. The
increase was largely due to an increase in U.S. retail sales of $15.6 million or
48% from the prior year. Comparable store sales increased by 19.7% from fiscal
1997. U.S. wholesale sales were less than the prior year by $2.4 million or
approximately 1.7%. U.S. wholesale sales were negatively affected by
manufacturing transition problems and delays in new product introductions. Sales
from other Americas operations, including Mexico, Canada and Latin America, were
less than the prior year by an aggregate of $0.7 million.
Sales from International operations decreased from $25.2 million in fiscal 1997
to $16.3 million in fiscal 1998, a decrease of $8.9 million. This decrease was
due to a $4.0 million nonrecurring sale of licenses in the prior year and lower
revenues from sales in the Far East and Middle East due to the transitioning of
responsibility to service the Middle East from the Americas division to the
Europe division and distributor transitions in Hong Kong and Korea.
Gross profit. Consolidated gross profit for fiscal 1998 increased from fiscal
1997 by $11.1 million. Gross margin increased by 3.9 percentage points, from
38.6% (excluding the effect of $4.0 million from the sale of licenses) in
fiscal 1997 to 42.5% in fiscal 1998.
Gross margins from European operations increased by 2.4 percentage points, from
39.3% in fiscal 1997 to 41.7% in fiscal 1998. The improvement is due to price
increases in selected product lines and lower costs from standardized global
production sources.
18
<PAGE>
Gross margins for the Americas increased 5.5 percentage points from 37.4% in
fiscal 1997 to 42.9% in fiscal 1998. U.S. wholesale margins increased from 35.0%
to 42.1%, primarily as a result of price increases and product cost improvements
from global sourcing and product design improvements. Margins also benefited
from a higher mix of retail versus wholesale sales compared to the prior year.
Selling, General and Administrative Expenses ("SG&A"). Consolidated SG&A
decreased by $0.2 million from fiscal 1997 to fiscal 1998. As a percent of
sales, SG&A was approximately 31.9% in both fiscal years. Excluding nonrecurring
revenue of $4.0 million in fiscal 1997, SG&A would have been 32.2% of sales.
SG&A for European operations decreased by $3.5 million from fiscal 1997 to
fiscal 1998. The exchange rate difference caused SG&A to decrease by $4.2
million. The remaining increase of $0.7 million was due primarily to higher
advertising expenses of $0.4 million to support new product introductions and
planned sales growth; increased variable selling expenses of $0.6 million
related to higher sales levels; decreased bad debt expense of $0.4 million due
to recoveries on specific accounts written off in fiscal 1997; and net increases
of $0.1 million in all other SG&A.
SG&A for the Americas operations increased by $3.5 million in fiscal 1998
compared to fiscal 1997. The components of the increase are as follows: SG&A for
U.S. wholesale operations increased by $1.2 million in fiscal 1998 compared to
fiscal 1997; SG&A for U.S. retail operations increased by $4.4 million; and SG&A
for the other Americas operations and corporate headquarters expenses were less
than prior year by $2.1 million.
The net increase of $1.2 million in U.S. wholesale SG&A was caused by various
factors including increases in the provision for doubtful accounts and sales
promotions and incentives, net of various expense decreases including workforce
costs and warranty expense.
The increase in SG&A of $4.4 million for U.S. retail operations is due to the
increase in sales volume and number of retail stores; as a percent of retail
sales, retail SG&A decreased from 50% in fiscal 1997 to 43% in fiscal 1998.
The decrease in SG&A for other Americas operations, including corporate
headquarters, of $2.1 million from the prior year was primarily due to severance
costs in the prior year and the effect of the change in the management and
corporate overhead structure compared to the prior year.
SG&A for International operations was less in fiscal 1998 than fiscal 1997 by
approximately $0.2 million primarily due to decreases caused by consolidation
and workforce downsizing in export and global licensing operations, net of
increases in the emerging market subsidiaries.
Amortization of intangible assets. The Company recorded significant intangible
assets as a result of its reorganization in 1993. See the comparative analysis
of amortization of intangibles included elsewhere herein.
Reorganization value in excess of identifiable assets became fully amortized as
of June 30, 1996, which generally accounts for the decrease in amortization of
intangible assets from $27.4 million in fiscal 1997 to $3.7 million in fiscal
1998.
Operating income (loss). Operating results improved from a loss in fiscal 1997
of $1.4 million to income in fiscal 1998 of $33.6 million, an increase of $35.0
million. This increase is a result of improved margins which increased gross
profit by $11.1 million from last year, the decrease in amortization of
intangibles of $23.7 million, and the decrease in SG&A of $0.2 million.
Interest income. Interest income was comparable to fiscal 1997, decreasing by
$0.2 million.
19
<PAGE>
Interest expense and amortization of debt issue costs. Interest expense and
amortization of debt issue costs decreased from $18.0 million in fiscal 1997 to
$11.1 million in fiscal 1998. The decrease was caused primarily by reduction in
debt from the proceeds of a public stock offering completed in the first quarter
of fiscal 1998 and a lower interest rate on borrowings under the senior credit
facility which were refinanced in June 1997. See Notes 5 and 8 to the
consolidated financial statements included elsewhere herein.
Other, net. See Note 6 to the consolidated financial statements included
elsewhere herein for a comparative analysis of other income (expense).
The Company has entered into certain forward exchange contracts to hedge its
exposures to changes in exchange rates. Other income for fiscal 1998 includes
income from foreign currency transactions of $5.2 million. In fiscal 1997, such
transactions resulted in income of $2.1 million. The income recorded for the six
months ended July 31, 1997 results primarily from forward exchange contracts
selling forward the Belgian franc which has declined significantly against the
U.S. dollar since the contracts were executed. Of the income recorded through
July 31, 1997, approximately $2.8 million is unrealized; the ultimate
realization of this amount is subject to fluctuations in the exchange rate of
the U.S. dollar against the Belgian franc. The Company's open forward exchange
contracts against the franc have maturity dates extending through January 1998,
and against the Japanese yen through July 1998.
Other income for the six months ended July 31, 1997 includes $2.1 million from
favorable settlement of claims for interest on overdue installments of interest
accruing prior to the commencement of the bankruptcy of the Company's
predecessor in 1993. See Note 6(b) to the consolidated financial statements
included elsewhere herein for further discussion of this item.
Other income for the six months ended July 31, 1997 also includes income of
approximately $1.5 million for the reversal of allowances for factored
receivables from previous operations which were no longer necessary upon the
favorable settlement of the receivables for which the reserves were established.
See the discussion of Results of Operations for the three months ended July 31,
1997 included elsewhere herein for a discussion of other income from the
adjustment to the contingent tax accrual and other expense for pension plans
assumed.
Income taxes. Income tax expense increased from $4.4 million in fiscal 1997 to
$10.1 million in fiscal 1998. The increase in tax expense is due primarily to
higher consolidated pretax earnings in fiscal 1998. The difference between
expected income tax expense or benefit, computed by applying the U.S. statutory
rate to pretax income (loss), and income tax expense recognized, results
primarily because of (i) the nondeductibility for tax purposes of amortization
of reorganization value in excess of identifiable assets, (ii) foreign income
tax expense provided on foreign earnings, (iii) nontaxable liability
adjustments, and (iv) state and local income taxes. Income tax expense was
reduced by approximately $1.8 million for the effect of the implementation of a
foreign tax planning strategy.
Extraordinary loss. The extraordinary loss of $9.6 million for the six months
ended July 31, 1997 resulted from (1) the payment of $8.7 million of redemption
premiums and the write-off of deferred financing costs of $2.6 million related
to the early retirement of $80.8 million principal amount of the Company's
11 1/8% Series B Senior Subordinated Notes, (2) the payment of $0.3 million
early retirement fees and write off of $3.9 million of deferred financing costs
related to the refinancing of the previous senior credit facility, (3) and the
tax benefit from the aforementioned transactions of $5.9 million. See Note 5 to
the consolidated financial statements included elsewhere herein.
20
<PAGE>
Net income (loss). The Company had a net loss in fiscal 1997 of $17.0 million
and net income in fiscal 1998 of $19.2 million. The increase in the net income
from the prior year of $36.2 million is caused by the effect of the increases in
operating income and other income and the decrease in interest expense, offset
by the increase in income tax expense and extraordinary loss.
Effects of Reorganization and Restructuring on Results of Operations. As
described in Note 1B to the consolidated financial statements included elsewhere
herein, the results of operations include the ongoing effects of fresh-start
reporting. The effects of fresh-start reporting on operating income (loss) are
as follows:
<TABLE>
<CAPTION>
Six Months Ended July 31,
----------------------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Operating income (loss).......................................................... $33,608 (1,439)
Fresh Start Amortization and Depreciation........................................ 4,765 28,721
------- ------
Operating income before Fresh Start Amortization
and Depreciation............................................................ $38,373 27,282
====== ======
</TABLE>
The impact of the Fresh Start amortization and depreciation on net income (loss)
and net income (loss) per share are summarized as follows:
<TABLE>
<CAPTION>
Six Months Ended July 31,
-------------------------------------------
1997 1996
---- ----
(In thousands except per share amounts)
<S> <C> <C>
Fresh Start Amortization and Depreciation................................ $ 4,765 28,721
Tax Benefit.............................................................. (1,811) (2,367)
------ ------
After-Tax Impact on Net Income (Loss).................................... $ 2,954 26,354
====== ======
Impact on Net Income (Loss) Per Share.................................... $ .14 1.63
====== ======
</TABLE>
Liquidity and Capital Resources
- -------------------------------
One measure of liquidity is commonly referred to as Operating Cash Flow.
Operating Cash Flow is defined as operating income (loss) adjusted for noncash
operating expenses, including amortization and depreciation. The Company
believes that Operating Cash Flow provides useful information regarding the
Company's ability to incur and service debt, but that it should not be
considered a substitute for operating income or cash flow from operations
determined in accordance with generally accepted accounting principles. Other
companies may calculate Operating Cash Flow in a different manner and the
Company's presentation of Operating Cash Flow may not be comparable to similar
presentations reported by other companies. Operating Cash Flow does not take
into consideration substantial costs of doing business, such as interest
expense, and should not be considered in isolation from or as a substitute for
other measures of performance. Operating Cash Flow does not represent funds
available for discretionary use by the Company because these funds are required
for debt service, capital expenditures to replace fixed assets, and other
commitments and contingencies. Operating Cash Flow for the six months ended July
31, 1997 and 1996 was computed as follows:
21
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended July 31,
---------------------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Operating income (loss)....................................................... $33,608 (1,439)
Fresh start amortization and depreciation..................................... 4,765 28,721
------ ------
Operating income before fresh start amortization and
depreciation............................................................... 38,373 27,282
Other amortization and depreciation........................................... 9,490 9,335
------ ------
Operating Cash Flow........................................................... $47,863 36,617
====== ======
</TABLE>
Operating Cash Flow increased from $36.6 million in fiscal 1997 to $47.9 million
in fiscal 1998, an increase of $11.3 million, primarily as a result of the
increase in operating income described under Results of Operations. The Company
believes that the current level of Operating Cash Flow is adequate to support
borrowings under its existing credit facilities and service the Company's Series
B Senior Subordinated Notes and other long term obligations.
Another measure of liquidity is net cash from operating activities, as reflected
in the consolidated statements of cash flows included elsewhere herein. Net cash
provided by (used in) operating activities of $4.5 million in fiscal 1998 and
($6.4) million in fiscal 1997, reflects net cash from operations of the Company
available or used for the Company's liquidity needs, after taking into
consideration the substantial costs of doing business not reflected in Operating
Cash Flow.
Cash flows provided by operating activities increased by $10.9 million in fiscal
1998 from fiscal 1997. Cash flow used for working capital and other operating
assets increased by $2.7 million, while cash flows from net income, adjusted for
nonoperating and noncash charges, increased by $13.6 million.
Cash flow used in investing activities increased from $5.4 million in fiscal
1997 to $19.4 million in fiscal 1998. Capital expenditures were $16.4 million in
fiscal 1998 compared to $11.9 million in fiscal 1997 because of new warehouse
and factory construction in Europe and India in fiscal 1998. In fiscal 1997,
cash was provided by liquidating assets in previous operations of $5.8 million
while in fiscal 1998, cash of $3.7 million was used to liquidate certain
obligations remaining related to previous operations. It is expected that the
Company will continue to use cash to fund obligations related to previous
operations totaling approximately $8 million through calendar 2000.
Cash flows provided by financing activities increased from $8.3 million in
fiscal 1997 to $19.7 million in fiscal 1998. On February 11, 1997, the Company
completed the sale of 3,300,000 shares of its common stock in a public offering
and received net proceeds therefrom of approximately $130.2 million. In
addition, the Company's former Chief Executive Officer exercised stock options
for which the Company received approximately $6.6 million. The total of the
proceeds from the offering and the exercise of the stock options of
approximately $136.8 million has been applied as follows: (i) the Company has
retired $80.8 million principal amount of its 11 1/8% Series B Senior
Subordinated Notes for $89.5 million (which included contractual and market
redemption premiums of $8.7 million), (ii) the Company paid $45.0 million on the
term loan portion of the previous U.S. Senior Credit Facility, and (iii) the
remainder of the offering proceeds was applied to accrued interest and to repay
revolving credit borrowings under the previous Senior Credit Facility. Net
reductions of bank debt for the six months ended July 31, 1997 were $32.2
million and short-term bank debt increased by $2.0 million. Effective June 12,
1997, the Company refinanced its Senior Credit Facility and entered into an
amended and restated Senior Credit Facility
22
<PAGE>
agreement. The new agreement provides for a $200.0 million revolving credit
facility ("Revolving Credit Facility A") due June 12, 2002 and a $50.0 million
revolving credit facility ("Revolving Credit Facility B") due June 11, 1998.
Revolving Credit Facility A is a multicurrency facility which allows for loans
of $140.0 million in U.S. dollars and $60.0 million in various European
currencies. The new Senior Credit Facility has lower interest rates and annual
fees than the previous agreement, an extended maturity date, and less
restrictive financial covenants.
At July 31, 1997, the Company had working capital of $176.3 million compared to
$105.4 million at January 31, 1997, an increase of $70.9 million. Current assets
increased by $24.6 million primarily due to an increase in receivables of $13.8
million and an increase in inventories of $9.3 million. Receivables increased
due to a higher sales level in the last part of the quarter in the U.S.
wholesale business. Inventories are seasonally higher at July 31 than at January
31; in addition, the Company has added new product lines and new stores which
contributed to the increase in inventories. Current liabilities decreased by
$46.3 million from January 31, 1997 primarily due to a decrease in current
maturities of long-term obligations of $16.2 million, a decrease in accrued
liabilities of $44.6 million, and other increases in accounts payable and
short-term debt totaling $14.5 million.
The Company's cash flow from operations together with amounts available under
its credit facilities were sufficient to fund fiscal 1998 operations, scheduled
payments of principal and interest on indebtedness and capital expenditures.
Management of the Company believes that cash flow from operations and available
borrowings under its credit facilities and new credit facilities in emerging
markets will be adequate to fund operating requirements and expansion plans
during the next 12 months. In addition, management currently believes the
Company will be able to meet long-term cash flow obligations from cash provided
by operations and other existing resources.
The Company's principal foreign operations are located in Western Europe, the
economies of which are not considered to be highly inflationary. Effective
February 1, 1997, the Company changed its functional currency from the peso to
the U.S. dollar for its primary Mexican subsidiary as a result of organizational
changes resulting in a significant portion of the Mexican subsidiary's
operations, cash flow and financing being transacted in U.S. dollars. The
Company enters into foreign exchange contracts in order to hedge its exposure on
certain foreign operations through the use of forward delivery commitments.
During the past several years, the Company's most effective hedge against
foreign currency changes has been the foreign currency denominated debt balances
maintained in respect to its foreign operations. Geographic concentrations of
credit risk with respect to trade receivables are not significant as a result of
the diverse geographic areas covered by the Company's operations.
Effect of Recently Issued Accounting Standard
- ---------------------------------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128 Earnings Per share ("SFAS 128") which will be
effective for interim and annual periods ending after December 15, 1997 and
changes the computation and disclosure requirements for earnings per share. Had
earnings per share been reported under the provisions of SFAS 128 for the three
months ended July 31, 1997, basic earnings per share before extraordinary item
would have been $1.00 per share and earnings per share before extraordinary item
assuming dilution would have been $.96 per share. See Note 1E to the
consolidated financial statements included elsewhere herein for further
discussion of the effects of SFAS 128.
23
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
PART II OTHER INFORMATION
- ---------------------------
Item I Legal Proceedings
-----------------
Reference is made to Note 13 to the consolidated financial statements included
in the Company's Form 10-K Annual Report for the fiscal year ended January 31,
1997 which describes litigation, commitments and contingencies. See Note 6 to
the consolidated financial statements included elsewhere herein for a
description of subsequent events related to certain of the matters described in
the aforementioned Note 13.
The Company and certain of its subsidiaries are subject to or are defendants in
various other claims and actions arising in the ordinary course of business.
While it is not possible to predict the outcome of such other claims or actions,
it is management's opinion that, after discussion with legal counsel, the
ultimate disposition of these other claims and actions will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.
Item 2 - Changes in Securities
---------------------
None.
Item 3 - Defaults Upon Senior Securities
-------------------------------
None.
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Company's regular annual meeting of shareholders held on June 26, 1997,
the Company's stockholders elected directors and approved one proposal.
R. Theodore Ammon, Robert H. Falk, and Mark H. Rachesky were elected as
directors. Voting on directors was as follows: R. Theodore Ammon - 17,381,561
for, 1,090,961 withheld; Robert H. Falk - 18,361,086 for, 111,436 withheld; Mark
H. Rachesky - 18,361,086 for, 111,436 withheld. Other directors whose term of
office continued after the meeting are Bernard Attal, Leon D. Black, Richard R.
Nicolosi, Robert L. Rosen, Marc J. Rowan and Stephen J. Solarz.
A proposal to ratify the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company and its subsidiaries for fiscal 1998 was approved
(18,457,554 for, against 1,453, and 13,515 abstentions).
Item 5 - Other Information
-----------------
None.
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) See Exhibit Index.
(b) Reports on Form 8-K.
None.
24
<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.
SAMSONITE CORPORATION
(Registrant)
By /s/ Thomas R. Sandler
----------------------------------------
Name: Thomas R. Sandler
Title: Senior Vice President, Chief Financial Officer,
and Treasurer
Date: September 9, 1997
---------------------
25
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company./1/
3.2 Certificate of Ownership and Merger dated July 14, 1995./2/
3.3 By-Laws of the Company./1/
4.1 Indenture, dated as of July 14, 1995, between the Company and United States
Trust Company of New York./2/
4.2 Registration Rights Agreement dated July 14, 1995, by and among the
Company, Donaldson, Lufkin & Jenrette Securities Corporation, and Bear, Sterns
& Co., Inc./2/
4.3 Specimen of Notes described in the Indenture./2/
10.1 Amended and Restated Multicurrency Revolving Credit Agreement, dated as of
June 12, 1997, between the Company, Samsonite Europe N.V. and BankBoston, N.A.,
Generale Bank N.V., Credit Lyonnais New York Branch, and other lending
institutions.
27 Financial Data Schedule.
</TABLE>
- --------------
/1/ Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1996 (File No. 0-23214).
/2/ Incorporated by reference from the Registration Statement on Form S-4
(Registration No. 33-95642).
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JULY 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 7,360
<SECURITIES> 0
<RECEIVABLES> 108,503
<ALLOWANCES> 8,463
<INVENTORY> 144,329
<CURRENT-ASSETS> 319,688
<PP&E> 197,997
<DEPRECIATION> (57,492)
<TOTAL-ASSETS> 604,478
<CURRENT-LIABILITIES> 143,434
<BONDS> 166,106
0
0
<COMMON> 204
<OTHER-SE> 187,486
<TOTAL-LIABILITY-AND-EQUITY> 604,478
<SALES> 349,106
<TOTAL-REVENUES> 349,106
<CGS> 200,610
<TOTAL-COSTS> 200,610
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,552
<INTEREST-EXPENSE> 11,105
<INCOME-PRETAX> 38,975
<INCOME-TAX> 10,071
<INCOME-CONTINUING> 28,970
<DISCONTINUED> 0
<EXTRAORDINARY> (9,623)
<CHANGES> 0
<NET-INCOME> 19,167
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
</TABLE>
