<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 October 31, 1998
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 10,445,929 shares of common
stock, par value $0.01 per share, as of November 24, 1998.
- --------------------------------------------------------------------------------
<PAGE>
FORM 10-Q
---------
CONTENTS
--------
<TABLE>
<CAPTION>
Page Number
-----------
PART I FINANCIAL INFORMATION
---------------------
<S> <C>
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets as of October 31, 1998
and January 31, 1998................................................ 1
Unaudited Consolidated Statements of Operations for the three months
ended October 31, 1998 and 1997..................................... 3
Unaudited Consolidated Statements of Operations for the nine months
ended October 31, 1998 and 1997..................................... 4
Unaudited Consolidated Statement of Stockholders' Equity
for the nine months ended October 31, 1998.......................... 5
Unaudited Consolidated Statements of Cash Flows for the nine months
ended October 31, 1998 and 1997..................................... 6
Unaudited Notes to Consolidated Financial Statements................ 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 20
Item 3. Quantitative and Qualitative Disclosures About Market Risks......... 29
PART II OTHER INFORMATION
-----------------
Item 1. Legal Proceedings................................................... 30
Item 2. Changes in Securities............................................... 31
Item 3. Defaults Upon Senior Securities..................................... 31
Item 4. Submission of Matters to a Vote of Security Holders................. 31
Item 5. Other Information................................................... 31
Item 6. Exhibits and Reports on Form 8-K.................................... 31
Signature...................................................................... 32
Index to Exhibits.............................................................. 33
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 31, 1998 AND JANUARY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
October 31, January 31,
Assets 1998 1998
- ------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 30,377 3,134
Trade receivables, net of allowances for doubtful accounts
of $8,287 and $8,766............................................ 101,510 99,620
Notes and other receivables....................................... 13,461 10,129
Inventories (Note 2).............................................. 191,492 172,665
Deferred income tax assets........................................ 31,101 31,623
Prepaid expenses and other current assets......................... 15,960 13,873
Assets held for sale.............................................. 112 11,471
------- -------
Total current assets........................................... 384,013 342,515
Investments in affiliates........................................... 1,671 2,425
Property, plant and equipment, net (Note 3)......................... 148,290 142,351
Intangible assets, less accumulated amortization of $210,512 and
$206,260 (Note 4)................................................. 115,752 116,908
Other assets and long-term receivables, net of allowances
for doubtful accounts of $706..................................... 21,961 5,850
------- -------
$ 671,687 610,049
======= =======
(Continued)
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 31, 1998 AND JANUARY 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
October 31, January 31,
Liabilities and Stockholders' Equity 1998 1998
- ------------------------------------ ------------ -----------
<S> <C> <C>
Current liabilities:
Short-term debt (Note 5)....................................................... $ 10,537 5,640
Current installments of long-term obligations (Note 5)......................... 5,296 6,977
Accounts payable............................................................... 52,024 49,221
Accrued liabilities............................................................ 99,587 85,368
-------- --------
Total current liabilities.................................................... 167,444 147,206
Long-term obligations, less current installments (Note 5)........................ 480,600 172,246
Deferred income tax liabilities.................................................. 17,106 15,730
Other noncurrent liabilities..................................................... 57,577 59,838
-------- --------
Total liabilities............................................................ 722,727 395,020
-------- --------
Minority interests in consolidated subsidiaries.................................. 9,383 6,143
Redeemable preferred stock (180,463 shares issued and outstanding) (Note 6)...... 171,725 --
Stockholders' equity (deficit) (Notes 1B, 1C, 5, 6 and 8):
Preferred stock ($.01 par value; 2,000,000 shares authorized;
180,463 redeemable shares issued)............................................ -- --
Common stock ($.01 par value; 60,000,000 shares authorized;
20,945,929 and 20,371,068 shares issued; 10,445,929 and 20,371,068 shares
outstanding)................................................................ 209 204
Additional paid-in capital..................................................... 438,345 418,462
Accumulated other comprehensive income......................................... (11,277) (14,449)
Accumulated deficit............................................................ (239,425) (195,171)
Unearned compensation - restricted shares...................................... -- (160)
-------- --------
187,852 208,886
Treasury stock, at cost (10,500,000 shares) (Note 1B).......................... (420,000) --
-------- --------
Total stockholders' equity (deficit)......................................... (232,148) 208,886
-------- --------
Commitments and contingencies (Notes 1D and 10)
$ 671,687 610,049
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended October 31,
--------------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales (Note 1G)................................................ $ 199,079 211,104
Cost of goods sold (Note 3)....................................... 112,487 121,245
------- -------
Gross profit..................................................... 86,592 89,859
Selling, general and administrative expenses (Notes 1B, 3 and 8)... 64,533 63,379
Amortization of intangible assets (Note 4)......................... 1,117 1,831
Provision for restructuring operations (Note 1B)................... -- (903)
------- -------
Operating income (loss).......................................... 20,942 25,552
Other income (expense):
Interest income.................................................. 534 1,456
Interest expense and amortization of debt issue costs............ (14,034) (4,672)
Other - net (Note 7)............................................. (2,342) 14,183
------- -------
Income before income taxes, minority interest,
and extraordinary item......................................... 5,100 36,519
Income tax expense................................................. (1,730) (12,507)
Minority interest in loss (earnings) of subsidiaries............... (404) (493)
------- -------
Income before extraordinary item................................. 2,966 23,519
Extraordinary item - loss on extinguishment of debt,
net of income tax benefit of $4,023 (Notes 1B and 5)............. -- (6,564)
------- -------
Net income....................................................... 2,966 16,955
Redeemable preferred stock dividends and accretion
of preferred stock discount (Note 6)............................. (6,381) --
------- -------
Net income (loss) to common stockholders......................... $ (3,415) 16,955
======= =======
Income (loss) per share - basic (Note 1F):
Continuing operations before extraordinary item.................. $ (0.33) 1.15
Extraordinary loss............................................... -- (0.32)
------- -------
Net income (loss) per share.................................. $ (0.33) 0.83
======= =======
Income (loss) per share - assuming dilution (Note 1F):
Continuing operations before extraordinary item.................. $ (0.33) 1.11
Extraordinary loss............................................... -- (0.31)
------- -------
Net income (loss) per share.................................. $ (0.33) 0.80
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine months Ended October 31,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Net sales (Note 1G)................................................. $ 519,415 560,210
Cost of goods sold (Note 3)......................................... 309,292 321,855
------- -------
Gross profit...................................................... 210,123 238,355
Selling, general and administrative expenses (Notes 1B, 3 and 8).... 194,981 175,201
Amortization of intangible assets (Note 4).......................... 4,155 5,485
Provision for restructuring operations (Note 1B).................... 8,214 (1,491)
------- -------
Operating income (loss)........................................... 2,773 59,160
Other income (expense):
Interest income................................................... 1,832 2,059
Interest expense and amortization of debt issue costs............. (26,375) (15,777)
Other - net (Note 7).............................................. 702 30,052
------- -------
Income (loss) before income taxes, minority interest
and extraordinary item.......................................... (21,068) 75,494
Income tax expense.................................................. (6,943) (22,578)
Minority interest in earnings of subsidiaries....................... (823) (607)
------- -------
Income (loss) before extraordinary item........................... (28,834) 52,309
Extraordinary item - loss on extinguishments of debt,
net of income tax benefit of $3,959 and $9,921 (Notes 1B and 5)... (6,460) (16,187)
------- -------
Net income (loss)................................................. $ (35,294) 36,122
Redeemable preferred stock dividends and accretion of
preferred stock discount (Note 6)................................. (8,960) --
------- -------
Net income (loss) to common stockholders.......................... $ (44,254) 36,122
======= =======
Net income (loss) per share - basic (Note 1F):
Continuing operations before extraordinary item................. $ (2.40) 2.59
Extraordinary loss.............................................. (0.41) (0.80)
------- -------
Net income (loss) per share................................... $ (2.81) 1.79
======= =======
Income (loss) per share - assuming dilution (Note 1F):
Continuing operations before extraordinary item................. $ (2.40) 2.49
Extraordinary loss.............................................. (0.41) (0.77)
------- -------
Net income (loss) per share................................... $ (2.81) 1.72
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED UNEARNED
ADDITIONAL OTHER COMPENSATION -
PREFERRED COMMON PAID-IN COMPREHENSIVE ACCUMULATED RESTRICTED TREASURY
STOCK STOCK CAPITAL INCOME DEFICIT SHARES STOCK
--------- ------ ---------- -------------- ------------ --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 1, 1998 $ -- 204 418,462 (14,449) (195,171) (160) --
Issuance of 13,545 shares to -- -- 131 -- -- -- --
directors for services
Amortization of restricted stock -- -- 355 -- -- 160 --
award to compensation expense
Compensation expense accrued for -- -- -- -- -- --
stock bonus awards
Non-cash compensation expense -- -- 3,722 -- -- -- --
for stock options (Note 8)
Exercise of employee stock -- 5 9,855 -- -- -- --
options, issuance of stock award
shares, and related income tax
benefits
Foreign currency translation -- -- -- 3,172 -- -- --
adjustment
Common stock warrants issued -- -- 5,820 -- -- -- --
with redeemable preferred stock
(Note 6)
Preferred stock dividends and -- -- -- -- (8,960) -- --
accretion of discount (Note 6)
Purchase of 10,500,000 shares for -- -- -- -- -- -- (420,000)
treasury (Note 1B)
Net loss -- -- -- -- (35,294) -- --
--------- --- ------- ------- -------- -------------- --------
Balance, October 31, 1998 $ -- 209 438,345 (11,277) (239,425) -- (420,000)
========= === ======= ======= ======== ============== ========
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended October 31,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss).................................................. $ (35,294) 36,122
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Loss on extinguishment of debt................................... 6,460 16,187
Depreciation and amortization of property, 15,911 16,032
plant and equipment............................................
Amortization of intangible assets................................ 4,155 5,485
Amortization of debt issue costs................................. 823 839
Provision for doubtful accounts.................................. 1,150 3,820
Amortization of stock awards and stock issued for services....... 956 1,072
Adjustment of reserve for discontinued operations................ -- (5,299)
Adjustment of allowance for loan to settlement trust............. -- (4,850)
Compensation expense for adjustment of stock options............. 3,722 --
Provision (adjustment) to restructuring reserve.................. 8,214 (1,491)
Changes in deferred taxes net.................................... 3,800 3,879
Changes in operating assets and liabilities:
Trade and other receivables.................................... (6,580) (50,705)
Inventories.................................................... (18,827) (18,793)
Prepaid expenses and other current assets...................... (2,087) (1,436)
Accounts payable............................................... 2,803 15,709
Accrued liabilities............................................ 9,146 (9,547)
Other adjustments - net........................................ (3,868) 5,138
------- -------
Net cash provided by (used in) operating activities................ $ (9,516) 12,162
------- -------
(Continued)
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended October 31,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows provided by (used in) investing activities:
Purchases of property, plant and equipment............................. $ (20,495) (26,447)
Net cash used in operations discontinued
and sold............................................................. (2,807) (3,098)
Proceeds from sale of assets held for sale and property and equipment.. 14,054 877
Excess of purchase price over net assets acquired...................... (2,451) --
Other.................................................................. (483) 3,702
-------- --------
Net cash used in investing activities................................ (12,182) (24,966)
-------- --------
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....................... 7,114 7,504
Proceeds from issuance of senior subordinated notes.................... 350,000 --
Proceeds from issuance of senior preferred stock....................... 175,000 --
Issuance costs of senior subordinated notes, senior preferred
stock, and new senior credit facility................................ (21,027) --
Purchase of treasury stock............................................. (420,000) --
Retirement of Series B Subordinated Notes, including
redemption premiums.................................................. (60,781) (154,755)
Net borrowings of short-term obligations............................... 4,897 2,887
Net borrowings of long-term obligations................................ 4,933 40,330
Other, net............................................................. 3,886 2,811
-------- --------
Net cash provided by financing activities............................ 44,022 29,021
-------- --------
Effect of exchange rate changes on cash and cash equivalents............. 4,919 (9,794)
Net increase in cash and cash equivalents............................ 27,243 6,423
Cash and cash equivalents, beginning of period........................... 3,134 9,343
-------- --------
Cash and cash equivalents, end of period................................. $ 30,377 15,766
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest............................... $ 10,850 14,331
======== ========
Cash paid during the period for income taxes, net...................... $ 4,403 5,172
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
A. BUSINESS
Samsonite Corporation and subsidiaries (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. RECENT EVENTS AND RECAPITALIZATION
----------------------------------
On June 24, 1998, the Company completed a recapitalization of the Company
(the "Recapitalization") involving the repurchase pursuant to a tender offer
(the "Tender Offer") of 10.5 million shares of the Company's common stock at
a purchase price of $40.00 per share ($420 million in the aggregate) and the
refinancing of certain existing indebtedness. The Company financed the
Recapitalization through the sale of $350 million of 10 3/4% senior
subordinated notes, $175 million of 13 7/8% redeemable senior preferred
stock and warrants, and a new bank senior credit facility.
On January 7, 1998, the Company announced it had engaged Goldman, Sachs &
Co. as financial advisor to assist in the process of exploring various
strategic alternatives designed to enhance shareholder value. This process
ultimately resulted in the Recapitalization plan. In addition to the
charges discussed below, the Company recorded charges of approximately $4.8
million during the nine months ended October 31, 1998 for financial, legal
and other expenses associated with the Tender Offer and the process of
exploring alternative plans which were not ultimately consummated.
During the nine months ended October 31, 1998, the Company completed a
tender offer and retired $52,269,000 principal amount of 11 1/8% Series B
Subordinated Notes (the "Series B Notes") representing 99% of the
outstanding Series B Notes. The Company paid a redemption premium and
incurred other expenses of the tender offer totaling approximately
$8,512,000 to complete the tender offer. These costs, along with $1,527,000
of deferred financing costs, were charged to expense and classified as an
extraordinary item, net of tax effects, in the accompanying statement of
operations for the nine months ended October 31, 1998. Also, in connection
with the Recapitalization, deferred financing costs related to the
refinanced senior credit facility of $380,000 were charged to expense and
classified as an extraordinary item, net of tax effects, in the accompanying
statement of operations for the nine month period ended October 31, 1998.
On March 23, 1998, the Company announced a restructuring of its Torhout,
Belgium manufacturing operations. The Company recorded a pre-tax charge of
approximately $2.6 million during the nine months ended October 31, 1998 in
connection with the restructuring. The restructuring provision is primarily
related to termination and severance costs for the elimination of
approximately 111 positions.
On May 14, 1998, the Company approved a second plan to restructure its U.S.
production operations to bring the unit volume and workforce in the Denver
plant into line with expected sales and to achieve a better balance between
fixed and variable costs with respect to this facility. The restructuring
plan calls for a substantial reduction in workforce, as well as the disposal
of certain molding and other equipment that represents excess capacity. As
a result, during the nine months ended October 31, 1998, the Company
recorded a restructuring charge of approximately $5.6 million (of which
approximately $2.2 million is non-cash). The workforce reduction portion of
the restructuring was substantially completed by October 31, 1998.
8
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. 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 the Company, then known as Astrum International Corp.
("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 adjustment relates to recording Reorganization Value
in Excess of Identifiable Assets. In addition, the Company recorded fresh
start adjustments to reflect tradenames, licenses, patents and other
intangibles at their fair values.
Effective February 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income. SFAS
No. 130 requires that, as part of a full set of financial statements,
entities must present other comprehensive income, which represents total
non-stockholder changes in equity. Comprehensive loss [net income (loss)
adjusted for foreign currency translation adjustments] for the three and
nine month periods ended October 31, 1998 was $5,651,000 and $32,122,000,
respectively. Comprehensive income for the three and nine month periods
ended October 31, 1997 was $16,584,000 and $26,985,000, respectively. The
accumulated balance of foreign currency translation adjustments, excluded
from net income, is presented in the consolidated balance sheet as
"Accumulated other comprehensive income."
D. 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 October 31, 1998 and results of operations for the three-
month and nine-month periods ended October 31, 1998 and 1997. These
unaudited 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, 1998.
E. 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.
F. PER SHARE DATA
--------------
The Company has adopted and retroactively applied the requirements of
Statement of Financial Account Standards No. 128, Earnings Per Share ("SFAS
128") to all periods presented. This change does not have a material impact
on the computation of the earnings per share data. 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 common shares
outstanding increased for potentially dilutive common shares outstanding
during the period. The dilutive effect of stock options, warrants, and
their equivalents is calculated using the treasury stock method.
9
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Loss from continuing operations before extraordinary item per share and net
loss per share for the three-month and nine-month periods ended October 31,
1998 is computed based on the weighted average number of shares of common
stock outstanding during the period of 10,442,000 and 15,753,000,
respectively. Basic earnings per share and earnings per share - assuming
dilution are the same for the three-month and nine-month periods ended
October 31, 1998 because of the antidilutive effect of stock options and
awards when there is a loss from continuing operations adjusted for
preferred stock dividends.
The following table presents a reconciliation of the numerators and
denominators of basic earnings per share and the earnings per share -
assuming dilution for the three and nine-month periods ended October 31,
1997:
<TABLE>
<CAPTION>
Income from
Continuing Per-Share
Operations Shares Amount
----------- ---------- ---------
THREE MONTHS ENDED OCTOBER 31, 1997:
<S> <C> <C> <C>
Basic Earnings per Share:
Income before extraordinary item.................... $23,519,000 20,365,000 $1.15
Added dilutive effect of stock options and awards... -- 778,000
----------- ----------
Earnings per Share-Assuming Dilution:
Income before extraordinary item to
common stockholders and shares including assumed
conversions....................................... $23,519,000 21,143,000 $1.11
NINE MONTHS ENDED OCTOBER 31, 1997:................. =========== ==========
Basic Earnings per Share:
Income before extraordinary item.................... $52,309,000 20,229,000 $2.59
Added dilutive effect of stock options and awards... -- 768,000
----------- ----------
Earnings per Share-Assuming Dilution:
Income before extraordinary item to
common stockholders and shares including assumed
conversions....................................... $52,309,000 20,997,000 $2.49
=========== ==========
</TABLE>
G. 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 $12,108,000 and $15,757,000 for the nine months ended
October 31, 1998 and 1997, respectively, and $4,759,000 and $7,179,000 for
the three months ended October 31, 1998 and 1997, respectively.
H. RECLASSIFICATIONS
-----------------
Certain items previously reported in specific financial statement captions
have been reclassified to conform with the fiscal 1999 presentation.
10
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
2. INVENTORIES
Inventories consisted of the following :
October 31, January 31,
1998 1998
------------- -------------
(In thousands)
<S> <C> <C>
Raw Materials................................. $ 58,544 47,814
Work in Process............................... 8,878 10,476
Finished Goods................................ 124,070 114,375
-------- -------
$191,492 172,665
========= =======
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted
of the following:
October 31, January 31,
1998 1998
------------- -------------
(In thousands)
Land........................................... $ 12,604 12,266
Buildings...................................... 70,863 60,524
Machinery, equipment and other................. 140,069 133,778
-------- -------
223,536 206,568
Less accumulated amortization and depreciation (75,246) (64,217)
-------- -------
$148,290 142,351
========= =======
</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:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
October 31, October 31,
--------------------------------
1998 1997 1998 1997
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C>
"Fresh Start" Depreciation in Cost of Goods
Sold............................................... $ 128 410 851 1,681
"Fresh Start" Depreciation in Selling,
General and Administrative Expenses................ 32 90 193 371
----- ---- ----- -----
Total "Fresh Start" Depreciation................... $ 160 500 1,044 2,052
===== ==== ===== =====
</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.
11
<PAGE>
4. INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, consisted of the
following:
<TABLE>
<CAPTION>
October 31, January 31,
1998 1998
----------- -----------
(In thousands)
<S> <C> <C>
Trademarks............................. $105,933 108,556
Licenses, Patents and Other............ 9,819 8,352
-------- -------
$115,752 116,908
======== =======
</TABLE>
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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
-------------------- --------------------------
1998 1997 1998 1997
---- ---- ----- -----
(In thousands)
<S> <C> <C> <C> <C>
"Fresh Start" Amortization of Tradenames, $ 715 1,607 3,578 4,820
Licenses, Patents and Other...........
Other..................................... 402 224 577 665
-------- ----- ----- -----
$ 1,117 1,831 4,155 5,485
======== ===== ===== =====
</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 ending
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. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
October 31, January 31,
1998 1998
------------ -------------
(In thousands)
<S> <C> <C>
Senior Credit Facility (a)...................... $117,128 102,533
Senior Subordinated Notes (b)................... 350,000 --
Other (c)....................................... 22,534 25,227
Capital lease obligations....................... 6,239 4,302
Series B Senior Subordinated Notes (d).......... 532 52,801
-------- -------
Total debt................................. 496,433 184,863
Less short-term debt and current installments of (15,833) (12,617)
long-term obligations........................ -------- -------
$480,600 172,246
======== =======
</TABLE>
(a) On June 24, 1998, the Company entered into a new senior credit facility (the
"Senior Credit Facility"). The Senior Credit Facility provides for a $100
million credit facility (the "Revolving Credit Facility"), a term loan
facility in the amount of $60 million (the "U.S. Term Loan Facility") which
was borrowed by Samsonite Corporation, and a term loan facility denominated
in Belgian francs, equivalent to $50 million on the closing date of the
facility (the "European Term Loan Facility"), which was borrowed by
Samsonite Europe N.V. The Company has the option in certain circumstances to
add additional lenders as parties to
12
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the Senior Credit Facility in order to increase the Revolving Credit
Facility by up to an additional $50 million. The Revolving Credit Facility
and the European Term Loan Facility mature on June 24, 2003. The U.S. Term
Loan Facility requires principal repayments in each of the first five years
of 1.0% of the original principal balance and principal repayments in each
of the sixth and seventh years of 47.5% of the original principal balance.
Borrowings under the Senior Credit Facility accrue interest at rates
adjusted periodically depending on the Company's financial performance as
measured each fiscal quarter and interest rate market conditions. In
addition, the Company is required to pay a commitment fee on the unused
portion of the Revolving Credit Facility.
The obligations under the U.S. Term Loan Facility and the Revolving Credit
Facility are secured by inventory, accounts receivable, personal property,
intellectual property and other intangibles of Samsonite Corporation, 100%
of the capital stock of Samsonite Corporation's major domestic subsidiaries,
and 66% of the capital stock of Samsonite Europe N.V. and other major non-
domestic subsidiaries.
The Senior Credit Facility contains financial and other covenants that,
among other things, limit the ability of the Company (subject to negotiated
exceptions) to incur additional liens, incur additional indebtedness, make
certain kinds of investments, prepay subordinate indebtedness, make
distributions and dividend payments to its stockholders, engage in affiliate
transactions, make certain asset dispositions, make acquisitions, and
participate in certain mergers. Such covenants were amended as of October 1,
1998 to give the Company additional margin to operate under the covenants.
(b) On June 24, 1998, the Company issued and sold $350,000,000 principal amount
of 10 3/4% Senior Subordinated Notes due 2008 (the "Old Notes"). The Old
Notes were issued as part of the financing necessary to effect the
Recapitalization described in Note 1B. On September 28, 1998, the Company
completed an exchange offer to exchange $350,000,000 principal amount of 10
3/4% Senior Subordinated Notes due 2008, registered under the Securities Act
of 1933, as amended (the "New Notes" and, together with the Old Notes, the
"Notes") for a like principal amount of the Old Notes. The terms of the New
Notes are identical in all material respects to the Old Notes. The exchange
offer expired on September 28, 1998.
Interest on the New Notes is payable in cash semiannually in arrears on June
15 and December 15 of each year, commencing December 15, 1998, and mature on
June 15, 2008. The New Notes will be redeemable at the option of the Company
in whole or in part, at any time on or after June 15, 2003, at redemption
prices ranging from 100.00% to 105.375% of the principal amount depending on
the redemption date, plus accrued interest. In addition, the Company, at its
option, may redeem in the aggregate up to 40% of the principal amount of the
New Notes originally issued at any time and from time to time prior to June
15, 2001, at a redemption price equal to 110.75% of the principal amount
thereof, plus accrued interest, with the proceeds of one or more equity
offerings, provided that at least $210 million aggregate principal amount of
New Notes remains outstanding immediately after the occurrence of any such
redemption.
The indenture under which the New Notes were issued contains certain
covenants that, among other things, restrict the ability of the Company and
its restricted subsidiaries (as defined in the indenture) to incur
additional indebtedness, pay dividends and make certain other distributions,
issue capital stock of restricted subsidiaries, make certain investments,
repurchase stock, create liens, enter into transactions with affiliates,
create dividend or other payment restrictions affecting restricted
subsidiaries, merge or consolidate, and transfer or sell assets. The
covenants are subject to a number of important exceptions.
(c) Other obligations consist primarily of various notes payable to banks by
foreign subsidiaries aggregating $17.5 million and $4.5 million of secured
financing arrangements with foreign banks.
13
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(d) The Series B Notes bear interest at 11 1/8% and have a maturity date of
July 15, 2005. During the nine months ended October 31, 1998, the Company
completed a tender offer for the Series B Notes and retired $52,269,000
principal amount of the Notes and paid redemption premium and other
expenses of the tender offer totaling approximately $8,512,000. These
costs, along with $1,527,000 of deferred financing costs, were charged to
expense and classified as an extraordinary item, net of tax effects, in the
accompanying unaudited statement of operations for the nine months ended
October 31, 1998.
During the three-month and nine-month periods ended October 31, 1997, the
Company retired $56,399,000 and $137,199,000 principal amount of
subordinated notes, respectively. Redemption premiums totaling $8,593,000
and $17,277,000 were paid in connection with the retirement of the notes
and deferred financing costs of $2,005,000 and $4,563,000 were written off
during the three-month and nine-month periods ended October 31, 1997,
respectively. The redemption premiums and the write-off of deferred
financing costs related to the subordinated notes were classified as part
of the extraordinary item from loss on extinguishment of debt, net of tax
effects, in the accompanying statements of operations for the three-month
and nine-month periods ended October 31, 1997.
6. REDEEMABLE SENIOR PREFERRED STOCK
On June 24, 1998, the Company issued and sold 175,000 units consisting of
$175,000,000 aggregate liquidation preference of its 13 7/8% Senior
Redeemable Exchangeable Preferred Stock, liquidation preference $1,000 per
share (the "Old Senior Preferred Stock") and warrants to acquire an
aggregate of 1,959,000 shares of the Company's common stock at an exercise
price of $13.02 per share, subject to antidilution adjustments. On
September 28, 1998, the Company completed an exchange offer to exchange all
of the outstanding shares of its 13 7/8% Senior Redeemable Exchangeable
Preferred Stock, liquidation preference $1,000 per share, which has been
registered under the Securities Act of 1933, as amended (the "New Senior
Preferred Stock" and, together with the Old Senior Preferred Stock, the
"Senior Preferred Stock"), for a like number of shares of the Old Senior
Preferred Stock. The terms of the New Senior Preferred Stock are identical
in all material respects to the Old Senior Preferred Stock.
The Old Senior Preferred Stock was issued as part of the financing
necessary to effect the Recapitalization described in Note 1B. The Senior
Preferred Stock is recorded at its liquidation preference discounted for
issuance costs of $6,415,000 and the value assigned to the warrants of
$5,820,000. The preferred stock discount is being accreted by charging
accumulated deficit over the twelve-year term of the Senior Preferred
Stock.
Holders of the Senior Preferred Stock are entitled to receive, when, as and
if declared by the Board of Directors of the Company out of funds legally
available therefor, dividends on the Senior Preferred Stock at a rate per
annum of 13 7/8% of the liquidation preference per share of Senior
Preferred Stock, payable quarterly in arrears on each March 15, June 15,
September 15 and December 15 commencing September 15, 1998. All dividends
are cumulative, whether or not earned or declared, on a daily basis from
June 24, 1998 and compound on a quarterly basis. Dividends may be paid, at
the Company's option, on any dividend payment date occurring on or prior to
June 15, 2003, either in cash or by the issuance of additional shares of
Senior Preferred Stock with a liquidation preference equal to the amount of
such dividends; thereafter, dividends will be payable in cash. Dividends on
the Senior Preferred Stock are accrued monthly to the liquidation
preference amount by charges to accumulated deficit for dividends expected
to be paid by issuing additional shares of Senior Preferred Stock. The
dividend rate on the Senior Preferred Stock is subject to increase by 2%
upon the occurrence of certain events including the failure to pay
dividends in cash after June 15, 2003 and failure to comply with certain
covenants and conditions. The Company's Senior Credit Facility and the
indenture under its Notes, contain limitations on the Company's ability to
pay cash dividends on the Senior Preferred Stock.
14
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company is required to redeem all of the Senior Preferred Stock
outstanding on June 15, 2010, at a redemption price equal to 100% of the
liquidation preference thereof, plus, without duplication, all accumulated and
unpaid dividends to the redemption date. The Senior Preferred Stock is
redeemable at the option of the Company in whole or in part, at any time and
from time to time on or after June 15, 2001, at redemption prices ranging from
110% of the liquidation preference to 100% of the liquidation preference
depending on the redemption date.
The Senior Preferred Stock is exchangeable at the option of the Company at any
time for junior subordinated debentures of the Company or, at the option of
the Company, debentures of a holding company of the Company (in either case,
the "Exchange Debentures"), with an interest rate equal to the dividend rate
on the Senior Preferred Stock, payable in cash or in additional Exchange
Debentures at the option of the issuer thereof until the fifth anniversary of
the issuance of the Senior Preferred Stock and in cash thereafter. The Senior
Preferred Stock and the Exchange Debentures, if issued, will be redeemable at
the option of the holders thereof upon a change of control of the Company at a
redemption price of 101% of liquidation preference or principal amount as the
case may be, plus all accumulated and unpaid dividends or interest thereon, as
the case may be, to the redemption date. The Senior Preferred Stock contains,
and the Exchange Debentures, if issued, will contain, certain covenants that,
among other things, limit the Company's ability to incur additional
indebtedness, pay dividends and make certain other distributions, enter into
transactions with affiliates or merge or consolidate.
7. OTHER INCOME (EXPENSE) - NET
Other income (expense) - net consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
--------------------------------------------
1998 1997 1998 1997
---------- -------- ------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Net realized gains from foreign currency $ 3 1,716 1,428 4,237
forward delivery contracts.................
Rental income................................. 26 248 391 1,314
Equity in loss of unconsolidated affiliate.... 104 (144) (769) (307)
Pension expense related to merged plans....... -- -- -- (350)
Foreign currency transaction income, net...... (280) 235 (264) 155
Unrealized gain (loss) from foreign (1,966) (1,145) (1,776) 1,609
currency forward delivery contracts.........
Gain (loss) on disposition of assets held for (5) (92) 767 (92)
sale and fixed assets, net..................
Favorable settlement of claims (a)............ -- (68) -- 2,060
Adjustment of allowances relating to previous -- 3,841 -- 5,299
operations (b)..............................
Adjustment of contingent tax accrual (c)...... -- 5,000 -- 12,700
Collection of loan to settlement trust (d).... -- 4,850 -- 4,850
Other, net.................................... (224) (258) 925 (1,423)
------- ------ ------ ------
$(2,342) 14,183 702 30,052
======= ====== ====== ======
</TABLE>
(a) Other income of $2,060,000 for the nine months ended October 31, 1997
resulted from the favorable settlement of certain claims against the
Company. The Company had previously accrued $2,139,000 for such claims as
part of its reorganization in bankruptcy. The claims are part of the
Contingent Liability with Respect to the Old Notes described in Note 14 to
the consolidated financial statements in the 1998 Form
15
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10-K and relate to interest on overdue installments of interest occurring
prior to the bankruptcy of the Company's predecessor in 1993.
(b) During the three and nine months ended October 31, 1997, the Company
recorded other income of $3,841,000 resulting from the adjustment of an
accrual for a potential environmental liability related to real estate used
in previous operations. By agreement with the purchasers of the real
estate, the Company's liability to them for environmental matters, for which
no claims were filed, terminated during the three months ended October 31,
1997.
During the nine months ended October 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 favorable
settlement of receivables for which such allowances were established.
(c) 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 accruals by $5,000,000 during the three months ended
October 31, 1997 and a total of $12,700,000 for the nine months ended
October 31, 1997. The resolution of such matters did not result in any cash
payment or additional liability for taxes.
(d) The Company had made loans of $4.8 million to a trust (the "Trust")
established for the benefit of the holders of certain classes of pre-
bankruptcy claims against the Company. The Company provided allowances for
the entire amount of these loans when they were made and has accrued no
interest on them. The Trust repaid the Company's loan during the three
months ended October 31, 1997 with interest of $1.4 million. As a result,
the Company reversed the allowance for the loans receivable and recorded the
interest income during the three and nine month periods ended October 31,
1997.
8. EMPLOYEE STOCK OPTIONS
The Company has authorized 2,550,000 shares for the granting of options
under the 1995 Stock Option and Incentive Award Plan. See Note 10 to the
consolidated financial statements included in the 1998 Form 10-K for a
description of such plan. The Company also has outstanding options and stock
bonus awards to current executives in connection with employment agreements.
On July 15, 1998, the Board of Directors of the Company adopted the FY 1999
Stock Option and Incentive Award Plan (the "1999 Plan"), which was approved
by the Company's stockholders on August 28, 1998. The 1999 Plan has 750,000
shares reserved for the issuance of a variety of awards, including tax
qualified incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock awards or other forms of awards
consistent with the purposes of the 1999 Plan. As of October 31, 1998, no
awards have been made under the 1999 Plan.
In connection with the Tender Offer, the Company determined to adjust all
options that remained unexercised after the Tender Offer by reducing the
exercise price of each option by $12.50, but not to less than 25% of the
average trading price of the Company's common stock for a specified period
following the completion of the Tender Offer. If the $12.50 adjustment
resulted in the exercise price of an option being reduced to less than 25%
of such average trading price, the option holder has the right to receive
cash in lieu of further reduction of the option price when such options
become exercisable. As an alternative to accepting a $12.50 reduction in
option price, the Company allowed holders of options to voluntarily
surrender their options to the Company and in exchange receive new options
to purchase a reduced number of shares of Company common stock at $10.00 per
share with the same proportional vesting schedule and performance criteria,
if any, as the options surrendered. As a result of the $12.50 reduction in
option prices for certain of the outstanding options, the Company recorded a
charge to compensation expense during the nine months ended October 31, 1998
of approximately $4.3 million for the difference between the aggregate
adjusted option prices and the post-Tender Offer trading price of $10.00 per
share. Approximately $0.7 million of such compensation expense is payable in
cash to option holders in lieu of reducing option prices to less than 25% of
the post-Tender Offer trading price.
16
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As adjusted to reflect the aforementioned reduction in exercise prices and
number of shares subject to options, at October 31, 1998, the Company had
outstanding options for a total of 1,695,482 shares at options prices ranging
from $2.50 to $16.00 per share. Options for 933,094 shares were exercisable
at October 31, 1998 at a weighted average exercise price of $6.53 per share.
Options for 444,649 shares under the 1995 Stock Option and Incentive Award
Plan were exercised at an average exercise price of $16.01 per share during
the nine months ended October 31, 1998.
In May 1996, the Company 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 or in the event of certain types of termination. The Company is
recognizing compensation expense equal to the fair market value at the date of
the grant ($18.25 per share) over the vesting period. Upon the termination of
one of the executive's employment with the Company, 38,889 of such shares
vested and were issued to the executive during the nine months ended October
31, 1998. In connection with the Tender Offer, the Company determined to
permit the holders of the 77,778 outstanding shares of restricted stock to
tender such shares. As a result, 40,052 of such restricted shares were
purchased in the Tender Offer and the remaining 37,726 shares remain subject
to the original vesting requirements.
9. SEGMENT INFORMATION
The Company has one line of business: the manufacture and distribution of
luggage and other travel-related products. Management of the business and
evaluation of operating results is organized along geographic lines dividing
responsibility for the Company's operations as follows: The Americas, which
include the United States, Canada, Latin America, and South America; Europe;
Asia, which includes India, China, Singapore, South Korea, and Hong Kong; and
Other which primarily includes licensing revenues from non-luggage brand names
owned by the Company and royalties from the Japanese luggage licensee, and
corporate overhead. Net outside sales and operating income (loss) by segment
for the three-month and nine-month periods ended October 31, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
Three Months Ended October 31, Nine Months Ended October 31,
------------------------------- -----------------------------
1998 1997 1998 1997
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Net outside sales:
Europe (a).............. $ 80,308 70,508 224,885 201,899
Americas................ 108,599 128,427 267,100 328,777
Asia.................... 5,789 5,659 15,908 14,890
Other................... 4,383 6,510 11,522 14,644
------- ------- ------- -------
$ 199,079 211,104 519,415 560,210
======= ======= ======= =======
Operating income (loss):
Europe (a).............. $ 11,803 9,185 29,104 28,371
Americas (b)............ 8,178 10,808 (16,118) 27,787
Asia.................... 320 60 416 (100)
Other................... 876 5,512 (9,633) 5,330
Eliminations............ (235) (13) (996) (2,228)
------- ------- ------- -------
$ 20,942 25,552 2,773 59,160
======= ======= ======= =======
</TABLE>
(a) Without the effect of the provision for restructuring operations, Europe's
operating income would have been approximately $31.7 million for the nine
months ended October 31, 1998. Additionally, the effects of the
weakened/(strengthened) U.S. dollar versus the Belgian franc causes reported
sales for the three and nine month periods ended October 31, 1998 to be
increased/(reduced) by approximately $1.9 million and $(9.4) million,
respectively. The effects of the weakened/(strengthened) U.S. dollar versus
the Belgian franc causes operating income for the three and nine month
periods ended October 31, 1998 to be increased/(reduced) by approximately
$0.3 million and $(1.2) million, respectively.
17
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(b) Without the effect of the provision for restructuring operations, the
Americas operating loss would have been approximately $10.3 million for the
nine months period ended October 31, 1998.
10. LITIGATION, COMMITMENTS AND CONTINGENCIES
On March 13, 1998, a complaint was filed in Colorado State District Court,
County of Denver, against the Company, certain current and former directors
of the Company, Apollo Investment Fund, L.P. and Apollo Advisors, L.P. The
purported class action brought on behalf of an alleged class of purchasers
of Samsonite common stock during the period from September 10, 1996 to
December 1, 1997, alleges, among other things, that certain statements and
earnings forecasts were misleading and/or misrepresented material facts and
that the Company is also liable for certain allegedly misleading statements
contained in various analysts' reports (the "Knudson Complaint"). In
addition, on or about August 19, 1998, a complaint making substantially
similar claims and seeking substantially similar relief as the above
complaint was filed in Colorado State District Court by a different
purported class of purchasers of Samsonite common stock during the same
alleged class period (the "Krasner Complaint"). The Company believes that it
has meritorious defenses to each of the complaints and intends to contest
them vigorously. These class actions seek, among other things, unspecified
compensatory and rescissory damages, as well as pre-judgment and post-
judgment interest, attorney's fees, expert witness fees and other costs. The
defendants have moved to dismiss both complaints. On or about October 30,
1998, the Court heard arguments on defendants' motions to dismiss the
Knudson Complaint. In addition, on or about November 12, 1998, the Company
and certain defendants moved to stay the state court proceedings pending a
final determination in certain of the federal cases, which are described
more fully below.
Between August 28, 1998 and November 12, 1998, twelve complaints were filed
in United States District Court for the District of Colorado against the
Company, certain officers and directors of the Company, and Apollo Advisors,
L.P. and/or Apollo Investment Fund, L.P. Most of the purported class actions
seek to maintain an action on behalf of a purported class consisting of
purchasers of Samsonite common stock during the period from June 4, 1997 to
August 11, 1998. One federal complaint seeks to maintain an action on behalf
of a purported class consisting of purchasers of Samsonite common stock
during the period from December 1, 1997 through August 11, 1998. Each
complaint seeks unspecified damages and alleges, among other things, that
the Company made materially false and misleading announcements concerning
the financial condition of the Company and reported materially overstated
revenues and net income throughout the class period. The Company believes
that it has meritorious defenses to each of the complaints and intends to
contest each of them vigorously. Certain of the plaintiffs have filed a
motion to consolidate certain of the complaints and moved for the
appointment of lead plaintiff and counsel. A hearing on these motions is
scheduled for December 18, 1998.
On July 1, 1998, a complaint was filed in Delaware Court of Chancery against
the Company and certain members of its Board of Directors. The purported
class action brought on behalf of holders of Samsonite common stock
challenges the Tender Offer. The purported class action initially sought an
order temporarily restraining consummation of the Tender Offer but that
application was subsequently withdrawn. The Company believes that it has
meritorious defenses to the complaint and intends to contest it vigorously.
The complaint, which seeks compensatory and/or rescissory damages as well as
other relief, alleges disclosure violations with respect to the Tender Offer
and that the Tender Offer was coercive, the product of unfair dealing and
violated the directors' duties. Defendants filed a motion for judgment on
the pleadings. The plaintiff has filed a cross-motion for partial judgment
on the pleadings, and a hearing on both motions was held on December 2,
1998. No decision has yet been rendered by the court.
The Company has determined that it is not possible at this time to predict
the final outcome of the above legal proceedings and that it is not possible
to establish a reasonable estimate of possible damages, if any.
18
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
UNITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition, the Company is a party to various other legal proceedings and
claims in the ordinary course of business; the Company believes that the
outcome of these other pending matters will not have a material adverse affect
on its consolidated financial position, results of operations or liquidity.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED OCTOBER 31, 1998 ("FISCAL 1999" OR "CURRENT YEAR") COMPARED
TO THREE MONTHS ENDED OCTOBER 31, 1997 ("FISCAL 1998" OR "PRIOR YEAR")
General. The following discussion analyzes the Company's operations along the
lines of the organizational structure disclosed in Note 9 to the consolidated
financial statements included elsewhere herein as follows: (i) "European
operations" which consist of its European sales manufacturing and distribution
operations whose reporting currency is the Belgian franc, (ii) "the Americas
operations" which include sales, manufacturing, and distribution operations in
the United States, Canada, Latin America, Mexico, Brazil, Argentina and Uruguay,
(iii) "Asian operations" which include the sales, manufacturing and distribution
operations in India, China, Singapore, South Korea and Hong Kong, and (iv) non-
luggage U.S. licensing operations and corporate overhead.
Results of European operations were translated from Belgian francs to U.S.
dollars in fiscal 1999 and fiscal 1998 at average rates of approximately 36.22
and 37.08 francs to the U.S. dollar, respectively. This increase in the value
of the Belgian franc of approximately 2.4% resulted in increases in reported
sales, cost of sales and other expenses in fiscal 1999 compared to fiscal 1998.
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
the three months ended October 31, 1998, the Company had net losses from such
instruments of $2.0 million of which approximately all was unrealized; during
the three months ended October 31, 1997, the Company had net gains on such
instruments of $0.6 million including an unrealized loss of $1.1 million. The
unrealized loss for the three months ended October 31, 1998 resulted primarily
from forward foreign exchange contracts entered into to reduce economic exposure
in fiscal year 2000 to fluctuations in currency exchange rates for the Belgian
franc, which increased against the U.S. dollar subsequent to entering into the
contracts. The contracts mature at each month end during fiscal 2000. The
Company estimates the increase/(reduction) in reported operating income because
of translation from the weakening/(strengthening) of the U.S. dollar versus the
Belgian franc from the same quarter in the prior year to be approximately $0.3
million and $(1.8) million for the three months ended October 31, 1998 and 1997,
respectively.
Net Sales. Consolidated net sales decreased from $211.1 million in fiscal 1998
to $199.1 million in fiscal 1999, a decrease of $12.0 million. The decrease in
fiscal 1999 sales is primarily caused by depressed U.S. wholesale sales.
Sales from European operations increased from $71.4 million in fiscal 1998 to
$80.3 million in fiscal 1999, an increase of $8.9 million. Of this increase,
approximately $1.9 million results from the exchange rate difference. Expressed
in the local European reporting currency (Belgian francs), fiscal 1999 sales
increased by 9.8%, or the U.S. constant dollar equivalent of $7.0 million from
fiscal 1998. Sales of hardside product increased by approximately 6.2% from
prior year while softside product sales increased by approximately 16.3%. Sales
in almost all the European countries showed significant improvement from the
prior year.
Sales from the Americas operations declined from $128.4 million in fiscal 1998
to $108.6 million in fiscal 1999, a decrease of $19.8 million or 15.4%. U.S.
wholesale sales for the third quarter decreased by $24.6 million from the prior
year, retail sales increased by $4.2 million, and sales in the other Americas
operations increased by $0.6 million from the prior year.
20
<PAGE>
U.S. Wholesale sales were negatively impacted in fiscal 1999 by the continuation
of the conditions in the U.S. economy and luggage market that adversely affected
the second quarter including weaker than anticipated demand, numerous discount
luggage promotions, excess inventories at retail industry-wide, and to a lesser
extent, economic conditions in Asia and Latin America. U.S. Wholesale sales
were also negatively impacted in fiscal 1999 by the continued effect of computer
conversion issues. Although shipping issues associated with the computer
conversion problem which occurred during the second quarter of fiscal 1999 have
since been resolved and the Company is now shipping at normal levels, this
problem slowed shipments in the United States during the first month of the
Company's third quarter.
U.S. Retail sales continued to improve, increasing from $28.1 million in the
prior year to $32.3 million in the third quarter of fiscal 1999, an increase of
14.9%, primarily due to an increased number of stores open in fiscal 1999.
Comparable store sales decreased by approximately $0.8 million or 3.4% from the
same quarter in the prior year primarily due to the aforementioned computer
conversion problem which slowed shipments to stores during the second quarter
and beginning of the third quarter thereby negatively affecting inventory
positions and sales.
Third quarter sales from Asian operations, including India, increased from $4.8
million in fiscal 1998 to $5.8 million in fiscal 1999. Sales in the Pacific Rim
operations increased by approximately $0.6 million or 17.0% from the prior year.
Sales in India increased by approximately $0.4 million.
Revenues from U.S. licensing declined $2.1 million compared to revenues in the
prior year due to two large license sale transactions in the prior year which
totaled $2.3 million and the continued decline in revenues from aging non-
luggage McGregor brands. Samsonite and American Tourister label licensing
revenues were approximately equal to the prior year of $1.3 million.
Gross profit. Consolidated gross profit for fiscal 1999 declined from fiscal
1998 by $3.3 million. Consolidated gross margin increased by 0.9 margin points,
from 42.6% in fiscal 1998 to 43.5% in fiscal 1999.
Gross profit margin from European operations increased 1.4 margin points, from
38.8% in fiscal 1998 to 40.2% in fiscal 1999. The increase in gross profit
margins is due to strong sales of higher margin products, price increases and
reduced costs.
Gross profit margin for the Americas increased from 42.0% in fiscal 1998 to
44.0% in fiscal 1999. Margins increased primarily in the U.S. Wholesale and
other Americas operations. The improvement in gross profit margin in the U.S.
Wholesale business is primarily due to the successful introduction of a
significant product line and the resolution of production issues causing
unfavorable labor efficiency variances in the past.
Selling, General and Administrative Expenses ("SG&A"). Consolidated SG&A
increased by $1.1 million from fiscal 1998 to fiscal 1999. As a percent of
sales, SG&A was 32.4% in fiscal 1999 and 30.0% in fiscal 1998.
The increase in SG&A as a percent of sales is due primarily to higher SG&A at a
percent of sales incurred by U.S. Wholesale. U.S. Wholesale's SG&A was 33.1% of
sales in fiscal 1999 compared to 30.1% in fiscal 1998 due to higher selling,
warehouse and advertising costs as a percent of sales. Additionally, SG&A
increased as a percent of sales because of adjustments made in the prior year to
reduce the incentive compensation accrual.
Amortization of intangible assets. Amortization of intangible assets decreased
from $1.8 million in fiscal 1998 to $1.1 million in fiscal 1999 primarily
because the cost of intangibles was reduced in fiscal 1998 as a result of the
sale of certain trademarks and certain intangibles which became fully amortized
in the prior year.
Provision for restructuring operations. In fiscal 1998, certain excess
restructuring reserves of $0.9 were reversed.
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<PAGE>
Operating income (loss). Operating income decreased from $25.6 million in fiscal
1998 to $20.9 million in fiscal 1999, a decrease of $4.7 million. This decrease
is a result of the decline in sales and resulting reduction of gross profit of
$3.3 million, the increase in SG&A of $1.1 million, and the change in the
restructuring provision of $1.0 million, net of the decrease in amortization of
intangibles of $0.7 million.
Interest income. Interest income decreased by $1.0 million from $1.5 million in
fiscal 1998 to $0.5 million in fiscal 1999. Prior year interest income includes
the receipt of previously unaccrued interest of $1.4 million due on a $4.8
million loan made by the Company to the settlement trust created in 1993 upon
the Company's reorganization.
Interest expense and amortization of debt issue costs. Interest expense and
amortization of debt issue costs increased from $4.7 million in fiscal 1998 to
$14.0 million in fiscal 1999. The increase was caused primarily by an increase
in interest related to debt incurred to finance the Recapitalization described
in Note 1B to the consolidated financial statements included elsewhere herein.
Other, net. See Note 7 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. The Company estimates the
increase/(reduction) in operating income from the weakening/(strengthening) of
the U.S. dollar versus the Belgian franc to be approximately $0.3 million and
$(1.8) million for the three months ended October 31, 1998 and 1997,
respectively. Other income for the third quarter of fiscal 1999 includes
realized gains and losses which netted to approximately zero and unrealized
losses from forward exchange contracts of approximately $2.0 million. In the
third quarter of fiscal 1998, such transactions resulted in income of $0.6
million, including a loss of $1.1 million which was unrealized. The losses
recorded for the three months ended October 31, 1998 results primarily from
forward exchange contracts selling forward the Belgian franc which has increased
against the U.S. dollar since the contracts were executed.
Other income for fiscal 1998 includes an adjustment for $5.0 million to reduce
the accrual for certain tax contingencies established in conjunction with the
June 30, 1993 Restructuring (see Note 1C of the consolidated financial
statements included elsewhere herein). The adjustment was made upon the
resolution of these contingencies. The resolution did not result in any cash
payment or additional liability for taxes. The Company recorded other income of
$3.8 million in the three months ended October 31, 1997 resulting from the
adjustment of an accrual for potential environmental liability for which no
claims were filed, which terminated by agreement with the purchasers of the real
estate during the quarter. Other income for the three months ended October 31,
1997 also includes $4.8 million from the collection of a loan to a trust
established for the benefit of the holders of certain classes of pre-bankruptcy
claims against the Company.
Income tax benefit (expense). Income tax expense decreased from $12.5 million
in fiscal 1998 to $1.7 million in fiscal 1999. The decrease in income tax
expense is due primarily to lower consolidated pretax earnings in fiscal 1999.
The difference between the expected income tax benefit computed by applying the
U.S. statutory rate to pretax income (loss) and income tax expense recognized
results primarily because of foreign income tax expense provided on foreign
earnings and state and local income taxes.
Extraordinary loss. The extraordinary loss of the $6.6 million for the three
months ended October 31, 1997 resulted from premiums of $8.6 million on the
early retirement of $56.4 million principal amount of the Company's 11 1/8%
Series B Senior Subordinated Notes bought in open market purchases, and the
write-off of related deferred financing costs of $2.0 million, net of the tax
effect of the transactions.
Earnings Before Interest and Taxes. The Company's EBIT [income (loss) before
income taxes, minority interest and extraordinary item plus net interest
expense] was $18.6 million and $39.7 million for the three months ended October
31, 1998 and 1997, respectively. The Company's adjusted EBITDA (earnings before
interest, taxes, depreciation, amortization and minority interest adjusted for
certain items management believes should be excluded in order to reflect
recurring operating performance) was $27.5 million and $36.1 million for the
three months ended October 31, 1998 and 1997, respectively. Items excluded in
the calculation of adjusted EBITDA include other
22
<PAGE>
income (expense) - net, except for certain recurring transactions including net
realized gains from foreign currency forward delivery contracts, rental income
and equity in loss of unconsolidated affiliate, (which are reflected in the
first three line items in Note 7 to the consolidated financial statements
included elsewhere herein). Other companies may calculate EBIT and EBITDA in a
different manner than the Company. EBIT or EBITDA do not take into consideration
substantial costs and cash flows of doing business such as interest expense,
income taxes, extraordinary items, restructuring provisions, depreciation and
amortization and should not be considered in isolation to or as a substitute for
other measures of performance. EBIT and EBITDA are not accounting terms and are
not used in generally accepted accounting principles.
Net income (loss). The Company had net income of $17.0 million in fiscal 1998
and $3.0 million in fiscal 1999. The decrease in the net income from the prior
year of $14.0 million is caused by the effect of the decreases in operating
income, interest and other income and the increase in interest expense, offset
by the decrease in income tax expense and extraordinary loss.
Redeemable preferred stock dividends and accretion of preferred stock discount.
In fiscal 1999, this item represents the accrual of cumulative dividends on the
Senior Preferred Stock issued in connection with the Recapitalization on June
24, 1998 and the accretion of the discount over the twelve-year term of the
Senior Preferred Stock.
Net income (loss) to common stockholders. This amount represents net income
(loss) reduced for dividends payable and the accretion of discount on the Senior
Preferred Stock and is the amount used to calculate net income (loss) per share.
RESULTS OF OPERATIONS
- ---------------------
NINE MONTHS ENDED OCTOBER 31, 1998 ("FISCAL 1999" OR "CURRENT YEAR") COMPARED TO
NINE MONTHS ENDED OCTOBER 31, 1997 ("FISCAL 1998" OR "PRIOR YEAR")
General. Results of European operations were translated from Belgian francs to
U.S. dollars in fiscal 1999 and fiscal 1998 at average rates of approximately
36.96 and 35.47 francs to the U.S. dollar, respectively. This decrease in the
value of the Belgian franc of approximately 4% resulted in decreases in reported
sales, cost of sales and other expenses in fiscal 1999 compared to fiscal 1998.
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 1999, the Company had net losses from such instruments of $0.3 million
($1.8 million of which was unrealized); during fiscal 1998, the Company had net
gains on such instruments of $5.8 million ($1.6 million of which was
unrealized). The Company estimates the reduction in reported operating income
because of translation from the strengthening of the U.S. dollar versus the
Belgian franc from the same period in the prior year to be approximately $1.2
million and $4.2 million for the nine months ended October 31, 1998 and 1997,
respectively.
Net Sales. Consolidated net sales decreased from $560.2 million in fiscal 1998
to $519.4 million in fiscal 1999, a decrease of $40.8 million. The decrease in
fiscal 1999 sales was primarily caused by depressed U.S. Wholesale sales.
23
<PAGE>
Sales from European operations increased from $201.9 million in fiscal 1998 to
$224.9 million in fiscal 1999, an increase of $23.0 million. Expressed in the
local European reporting currency (Belgian francs), fiscal 1999 sales increased
by 16.0%, or the U.S. constant dollar equivalent of $32.4 million, from fiscal
1998; however, the increase was offset by a $9.4 million exchange rate
difference. Sales of hardside product increased by approximately 13.1% from
prior year while softside product sales increased by approximately 15.5%. Sales
in almost all the European countries showed significant improvement from the
prior year.
Sales from the Americas operations decreased from $328.8 million in fiscal 1998
to $267.1 million in fiscal 1999, a decrease of $61.7 million or 18.8%. U.S.
wholesale sales for the period decreased by $81.2 million from the prior year,
retail sales increased by $16.1 million, and sales in the other Americas
operations increased by $3.4 million from the prior year.
U.S. Wholesale sales were adversely affected by a number of factors affecting
the U.S. economy and luggage market in general, including weaker than
anticipated demand, numerous discount luggage promotions, industry-wide excess
inventory levels at retail, and to a lesser extent, economic conditions in Asia
and Latin America. The impact of price increases and other pricing strategies
instituted during fiscal 1998, and forecasting and production errors which
occurred in fiscal 1998 also negatively affected sales during the early part of
fiscal 1999. U.S. Wholesale sales in fiscal 1999 were also adversely affected
by a computer conversion problem which virtually halted shipments in the United
States during the first three weeks of July. Although shipping issues
associated with the computer conversion problem have been resolved, and the
Company is now shipping at normal levels, this problem slowed shipments in the
United States during the first month of the Company's third quarter.
U.S. Retail sales continued to improve, increasing from $76.1 million in the
prior year to $92.2 million in fiscal 1999, an increase of 21.2%. Comparable
store sales increased by approximately $0.5 million or 0.8% from sales in the
prior year.
Sales in fiscal 1999 from Asian operations, including India, of $15.9 million
were approximately $1.1 million higher than prior year sales. Sales in the
Pacific Rim operations decreased by approximately $2.1 million or 15.3% from the
prior year due to the effect of the Asian economic difficulties. This decrease
was offset by increased sales from the new manufacturing and distribution
facility in India of approximately $3.2 million.
Revenues from U.S. licensing during fiscal 1999 declined $3.2 million compared
to revenues in the prior year due to two large license sale transactions in the
prior year which totaled $2.3 million, the continued decline in revenues from
aging non-luggage McGregor brands and reduced revenues from the Japanese
licensee due to Asian economic difficulties. The declines were offset by
Samsonite and American Tourister label licensing revenues which increased $0.6
million compared to the prior year.
Gross profit. Consolidated gross profit for fiscal 1999 declined from fiscal
1998 by $28.2 million. Consolidated gross margin decreased by 2.0 margin
points, from 42.5% in fiscal 1998 to 40.5% in fiscal 1999.
Gross profit margin from European operations declined 0.9 margin points, from
40.6% in fiscal 1998 to 39.7% in fiscal 1999. The decrease in gross profit
margins is due to a higher sales mix of lower gross profit margin mass merchant
sales and obsolescence reserves.
Gross profit margin for the Americas declined from 42.2% in fiscal 1998 to 38.6%
in fiscal 1999. Profit margins decreased primarily because of the U.S.
Wholesale business and is due to lower absorption of manufacturing overhead due
to the decrease in sales, higher plant production variances as a percent of
sales, discounting on slow moving and obsolete product lines, price reductions
on certain product lines, and price markdowns given to customers for existing
inventories.
24
<PAGE>
Selling, General and Administrative Expenses ("SG&A"). Consolidated SG&A
increased by $19.8 million from fiscal 1998 to fiscal 1999. As a percent of
sales, SG&A was 37.5% in fiscal 1999 and 31.3% in fiscal 1998.
The increase in SG&A as a percent of sales is due primarily to $9.1 million in
expenses associated with the Tender Offer in the second quarter of fiscal 1999,
including expenses associated with adjustments to employee stock options, and
higher SG&A as a percent of sales incurred within the Americas. SG&A for U.S.
Wholesale was higher due primarily to higher warehouse, advertising, sales and
warranty costs as a percent of sales during fiscal 1999 compared to fiscal 1998.
Amortization of intangible assets. Amortization of intangible assets decreased
by $1.3 million in fiscal 1999 from fiscal 1998 primarily because the cost of
intangibles was reduced in fiscal 1998 as a result of the sale of certain
trademarks and certain intangibles which became fully amortized.
Provision for restructuring operations. The provision for restructuring
operations in fiscal 1999 results primarily from the restructuring of the U.S.
Wholesale operations and the restructuring of the Torhout, Belgium manufacturing
operations. The U.S. Wholesale restructuring provision of $5.6 million is
primarily related to termination and severance costs for the elimination of
approximately 227 positions and costs related to the disposal of molding and
other equipment representing excess capacity. The Torhout, Belgium
restructuring provision of $2.6 million is primarily related to termination and
severance costs for the elimination of approximately 111 positions. In fiscal
1998, certain excess restructuring reserves of $1.5 million were reversed.
Operating income (loss). Operating income decreased $56.4 million from $59.2
million in the prior year to $2.8 million in the current year. This decrease is
a result of the decline in sales and resulting reduction of gross profit of
$28.2 million, the increase in SG&A of $19.7 million, the increase in the
restructuring provision of $9.8 million, net of the decrease in amortization of
intangibles of $1.3 million.
Interest income. Interest income was approximately equal to the prior year
income.
Interest expense and amortization of debt issue costs. Interest expense and
amortization of debt issue costs increased from $15.8 million in fiscal 1998 to
$26.4 million in fiscal 1999. The increase was caused primarily by an increase
in interest expense related to debt incurred on June 24, 1998 to finance the
Recapitalization described in Note 1B to the consolidated financial statements
included elsewhere herein.
Other, net. See Note 7 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. The Company estimates the reduction in
operating income from the strengthening of the U.S. dollar versus the Belgian
franc from the same period in the prior year to be approximately $1.2 million
and $4.2 million for the nine months ended October 31, 1998 and 1997,
respectively. Other income for the nine months ended October 31, 1998 includes
losses from forward exchange contracts of $0.3 million, $1.8 million of which
was unrealized. In fiscal 1998, such transactions resulted in income of $5.8
million, $1.6 million of which was unrealized. The net loss recorded for the
nine months ended October 31, 1998 results primarily from forward exchange
contracts selling forward the Belgian franc which has declined against the U.S.
dollar since the contracts were executed. Income recorded through October 31,
1998, includes an unrealized loss of approximately $1.7 million primarily from
several forward foreign exchange contracts entered into during the third quarter
of fiscal 1999 to reduce economic exposure in fiscal year 2000 to fluctuations
in currency exchange rates for the Belgian franc, which increased against the
U.S. dollar subsequent to entering into the contracts; the ultimate realization
of this amount is subject to fluctuations in the exchange rate of the U.S.
dollar against the Belgian franc.
Other income for the nine months ended October 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. Other income for the nine months ended October 31, 1997
also includes $3.8 million from the adjustment of an accrual for potential
environmental liability related to real estate used in previous
25
<PAGE>
operations, for which no claims were filed, which terminated by agreement with
the purchasers of the real estate during the nine months ended October 31, 1997;
and $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 such allowances were established. Other income for
fiscal 1998 also includes an adjustment for $12,700,000 to reduce the accrual
for certain tax contingencies established in conjunction with the Restructuring
upon the resolution of these contingencies. The resolution did not result in any
cash payment or additional liability for taxes. Additionally, other income for
the nine months ended October 31, 1997 includes $4.8 million from the collection
of a loan to a trust established for the benefit of the holders of certain
classes of pre-bankruptcy claims against the Company. See Note 7 to the
consolidated financial statements included elsewhere herein for further
discussion of these items.
Income tax benefit (expense). Income tax expense decreased from $22.6 million
in fiscal 1998 to $6.9 million in fiscal 1999. The decrease in tax expense is
due primarily to the consolidated pretax loss in fiscal 1999 and the receipt of
$0.8 million of state income tax refunds which related to taxes accrued and paid
in prior years, offset by income tax expense related to the tax effect in the
U.S. of a $30 million dividend received from Samsonite Europe in connection with
the sale and transfer of certain Asian subsidiaries to Samsonite Europe.
Deferred taxes for the distribution of these earnings to the U.S. had not been
previously provided. The relationship between the expected income tax benefit
computed by applying the U.S. statutory rate to pretax income (loss) and income
tax expense recognized results primarily because of (i) foreign income tax
expense provided on foreign earnings, (ii) the tax effect of the dividend from
Samsonite Europe, and (iii) state and local income taxes.
Extraordinary loss. During the nine months ended October 31, 1998 the Company
completed a tender offer for the Company's Series B Notes. The Company retired
$52,269,000 principal amount of the Series B Notes and paid redemption premiums
and other expenses of the tender offer totaling approximately $8,512,000. These
costs along with $1,527,000 of deferred financing costs were charged to expense
and classified as an extraordinary item, net of tax effects, for the nine months
ended October 31, 1998. On June 24, 1998, the Company completed the
Recapitalization. In connection with the Recapitalization, deferred financing
costs related to the refinanced senior credit facility of $380,000 were charged
to expense and classified as an extraordinary item, net of tax effects.
The extraordinary loss during the nine months ended October 31, 1997 resulted
from redemption premium and the write-off of deferred financing costs related to
the retirement of senior subordinated indebtedness and costs associated with
refinancing the senior credit facility.
Earnings Before Interest and Taxes. The Company's EBIT [income (loss) before
income taxes, minority interest and extraordinary item plus net interest
expense] was $3.5 million and $89.2 million for the nine months ended October
31, 1998 and 1997, respectively. The Company's adjusted EBITDA (earnings before
interest, taxes, depreciation, amortization and minority interest adjusted for
certain items management believes should be excluded in order to reflect
recurring operating performance) was $41.2 million and $86.5 million for the
nine months ended October 31, 1998 and 1997, respectively. Items excluded in
the calculation of adjusted EBITDA include (i) other income (expense) - net,
except for certain recurring transactions including net realized gains from
foreign currency forward delivery contracts, rental income, equity in loss of
unconsolidated affiliate, and pension expense related to merged plans (which are
reflected in the first four line items in Note 7 to the consolidated financial
statements included elsewhere herein), (ii) the provision for restructuring
operations of $8.2 million in fiscal 1999, and (iii) expenses of $9.1 million in
fiscal 1999 related to the Recapitalization including compensation expense
recorded as a result of adjusting the terms of outstanding stock options for the
Recapitalization. Other companies may calculate EBIT and EBITDA in a different
manner than the Company. EBIT or EBITDA do not take into consideration
substantial costs and cash flows of doing business such as interest expense,
income taxes, extraordinary items, restructuring provisions, depreciation and
amortization and should not be considered in isolation to or as a substitute for
other measures of performance. EBIT and EBITDA are not accounting terms and
are not used in generally accepted accounting principles.
26
<PAGE>
Net income (loss). The Company had net income in fiscal 1998 of $36.1 million
and a net loss in fiscal 1999 of $35.3 million. The decrease in the net income
from the prior year of $71.4 million is caused by the effect of the decreases in
operating and other income and the increase in interest expense, offset by the
decrease in income taxes, and extraordinary loss.
Redeemable preferred stock dividends and accretion of preferred stock discount.
In fiscal 1999, this item represents the accrual of cumulative dividends on the
Senior Preferred Stock issued in connection with the Recapitalization and the
accretion of the discount over the twelve-year term of the Senior Preferred
Stock.
Net income (loss) to common stockholders. This amount represents net income
(loss) reduced for dividends payable and the accretion of discount on the Senior
Preferred Stock and is the amount used to calculate net income (loss) per share.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the nine months ended October 31, 1998, cash used in operations as reflected
on the Consolidated Statements of Cash Flows included elsewhere herein was $9.5
million, primarily as a result of the loss from operations for the first nine
months of fiscal 1999, increases in trade and other receivables, inventories,
and prepaid expenses and other current assets, net of increases in accounts
payable and accrued liabilities, since January 31, 1998. At October 31, 1998,
the Company had working capital of $216.6 million compared to $195.3 million at
January 31, 1998, an increase of $21.3 million. Current assets increased by
$41.5 million primarily due to increases in cash and cash equivalents of $27.2
million, trade and other receivables of $5.2 million, inventories of $18.8
million, and prepaid expenses and other current assets of $2.1 million, net of
the decrease in deferred income tax assets of $0.5 million and the decrease in
assets held for sale of $11.3 million. Inventories increased primarily because
of sales forecasting issues which caused excess production and purchases of
finished goods in the U.S. wholesale division and depressed U.S. wholesale sales
as discussed elsewhere herein. Accounts receivable increased from January 31,
1998 because of seasonal fluctuations. Assets held for sale decreased as a
result of the sale of the Company's Murfreesboro, Tennessee building which had
previously been leased to third parties. Current liabilities increased from
$147.2 million at January 31, 1998 to $167.4 million at October 31, 1998, an
increase of $20.2 million, caused primarily by increases in short term debt of
$4.9 million, accounts payable of $2.8 million from seasonal fluctuations and an
increase in accrued liabilities of $14.2 million due to accrued costs related to
the restructuring of the Company's U.S. and Torhout, Belgium manufacturing
operations, and an increase in accrued interest on the debt incurred to finance
the Recapitalization.
Long-term obligations increased from $172.2 million at January 31, 1998 to
$480.6 million at October 31, 1998, an increase of $308.4 million as a result of
debt incurred in connection with the Recapitalization discussed in Note 1B to
the consolidated financial statements included elsewhere herein. At October 31,
1998, the Company had available borrowings on its Senior Credit Facility of
approximately $82.6 million and $30.4 million in cash.
The Company's cash flow from operations together with amounts available under
its credit facilities were sufficient to fund operations for the first nine
months of fiscal 1999, 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. 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
27
<PAGE>
risk with respect to trade receivables are not significant as a result of the
diverse geographic areas covered by the Company's operations. As discussed in
the Company's Annual Report on Form 10-K under Liquidity and Capital Resources
for the year ended January 31, 1998, part of the Company's foreign operations
are in Asia where many of the local economies and currencies are depressed.
Because of the relatively small part of the Company's revenues and assets
related to Asia, the Company does not believe the Asian economic difficulties
will have a material impact on the Company's overall Company operations or
financial position. However, if such conditions continue, the Company's expected
growth in this area of the world could be adversely affected.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
- ----------------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (FAS 133), which
is effective for fiscal quarters beginning after June 15, 1999. FAS No. 133
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies under the standard for hedge accounting.
The Company does not anticipate a material impact on the results of operations
as a result of implementing this standard.
YEAR 2000
- ---------
The term "Year 2000 Problem" refers to the problems which result from computer
programs being written using two digits rather than four to define the
applicable year. Until recently, most computer applications were written using
two digits rather that four to define the applicable year. Any computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000, resulting in a major system failure or
miscalculations. The potential impact of Year 2000 problems is not yet known;
however, there is a worldwide concern that the Year 2000 problem could have a
significant adverse effect on the global economy as a result of problems which
might occur if systems are not corrected and the enormous estimated worldwide
costs to remediate non-compliant Year 2000 systems.
The following is a description of the status of the Company's evaluation and
remediation of its Year 2000 issues in its major operating divisions:
United States Operations. In the U.S., the Company has installed new financial,
manufacturing, and distribution software in fiscal 1999 in response to general
needs of the business as well as the Year 2000 problem. The Company believes
such software is Year 2000 compliant.
The Year 2000 problem may also affect non-information systems which use
imbedded chip technology used in hardware such as manufacturing machinery;
telephone, fax and other communication systems; heating and air conditioning
systems; security systems; and any other device used in the operational
environment which uses microprocessors. In November 1998, the Company contracted
with a third party consultant to evaluate such systems (as well as test the
newly installed software) and expects the evaluation and remediation of
identified issues to be completed by mid year 1999.
In the U.S., the Company derives approximately 60% of its wholesale luggage
sales from orders derived through electronic interface with its customers. In
addition, it uses electronic interface extensively in its cash management
functions. The third party evaluation previously referred to will include an
evaluation of such systems. Such evaluation will include obtaining
questionnaires from its customers to determine the effect of their state of
readiness on Company operations. The Company will also obtain questionnaires
from its major vendors and suppliers to determine the possible effect of their
Year 2000 problems on Company operations. As of October 31, 1998, the Company
has not been made aware of any Year 2000 problem specific to its major
customers, vendors or suppliers, municipalities, public utilities, or other
service providers which could have a material effect on Company operations.
28
<PAGE>
The Company has incurred costs to purchase and implement the new financial,
manufacturing, and distribution software through October 31, 1998 of
approximately $10 million. It expects to incur additional costs of approximately
$3 million to fully implement such software, train personnel, and modify
business processes.
In the U.S., the Company has not developed a likely worst case Year 2000
scenario or developed contingency plans to handle such a scenario. The Company
will develop such contingency plans as it considers necessary as a result of the
completion of the aforementioned evaluation of its non-information technology
systems and known Year 2000 issues with customers, vendors and service
suppliers.
Europe. The Company's European subsidiary ("Samsonite Europe) generally uses
information technology systems which have been developed internally over many
years which are not Year 2000 compliant. The Company began evaluating and
remediating such systems using internal management information systems staff in
calendar 1997 and plans to have the necessary modifications made and tested by
mid year 1999.
In January 1998, Samsonite Europe formed a Year 2000 compliance task force to
survey and remediate non-information systems using embedded chip technology and
also to survey customers and suppliers which use electronic data interface for
Year 2000 compliance. As of October 31, 1998, Samsonite Europe believes it has
identified critical noncompliance issues with respect to embedded chip
technology and has scheduled remediation through equipment upgrades or
replacements by mid year 1999. It also expects its survey of customers and
suppliers to be completed by that time.
Through October 31, 1998, Samsonite Europe has incurred incremental costs
related to the Year 2000 issues of approximately $25,000 and estimates total
costs will not exceed $100,000.
Samsonite Europe has not yet developed a likely worst case scenario or developed
contingency plans to handle such a scenario. Samsonite Europe will develop such
contingency plans as it considers necessary as a result of the completion of the
evaluation of its non-information technology systems and customers, vendors and
service providers.
Other International Operations. The Company's other operations throughout the
world outside of Europe and the U.S. are generally using recently purchased and
installed information software which the Company currently believes is Year 2000
compliant. The Company is currently verifying with each business unit throughout
the world that its information technology systems are Year 2000 compliant.
The third party consultants used to evaluate non-information technology systems
in the U.S. will also survey major systems throughout the Company's worldwide
operations for Year 2000 issues to identify areas requiring remediation.
No assurance can be given that the Company can identify all Year 2000 issues
which may affect Company operations, or that it can correct all such issues
before a Year 2000 problem occurs. Additionally, no assurances can be given that
the Company's customers, vendors or suppliers, municipalities, public utilities,
or other service providers will not experience Year 2000 issues which may have a
material adverse impact on the Company's operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
Not applicable.
29
<PAGE>
SAMSONITE CORPORATION
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
-----------------
On March 13, 1998, a complaint was filed in Colorado State District Court,
County of Denver, against the Company, certain current and former directors of
the Company, Apollo Investment Fund, L.P. and Apollo Advisors, L.P. The
purported class action brought on behalf of an alleged class of purchasers of
Samsonite common stock during the period from September 10, 1996 to December 1,
1997, alleges, among other things, that certain statements and earnings
forecasts were misleading and/or misrepresented material facts and that the
Company is also liable for certain allegedly misleading statements contained in
various analysts' reports (the "Knudson Complaint"). In addition, on or about
August 19, 1998, a complaint making substantially similar claims and seeking
substantially similar relief as the above complaint was filed in Colorado State
District Court by a different purported class of purchasers of Samsonite common
stock during the same alleged class period (the "Krasner Complaint"). The
Company believes that it has meritorious defenses to each of the complaints and
intends to contest them vigorously. These class actions seek, among other
things, unspecified compensatory and rescissory damages, as well as pre-judgment
and post-judgment interest, attorney's fees, expert witness fees and other
costs. The defendants have moved to dismiss both complaints. On or about
October 30, 1998, the Court heard arguments on defendants' motions to dismiss
the Knudson Complaint. In addition, on or about November 12, 1998, the Company
and certain defendants moved to stay the state court proceedings pending a final
determination in certain of the federal cases, which are described more fully
below.
Between August 28, 1998 and November 12, 1998, twelve complaints were filed in
United States District Court for the District of Colorado against the Company,
certain officers and directors of the Company, and Apollo Advisors, L.P. and/or
Apollo Investment Fund, L.P. Most of the purported class actions seek to
maintain an action on behalf of a purported class consisting of purchasers of
Samsonite common stock during the period from June 4, 1997 to August 11, 1998.
One federal complaint seeks to maintain an action on behalf of a purported
class consisting of purchasers of Samsonite common stock during the period from
December 1, 1997 through August 11, 1998. Each complaint seeks unspecified
damages and alleges, among other things, that the Company made materially false
and misleading announcements concerning the financial condition of the Company
and reported materially overstated revenues and net income throughout the class
period. The Company believes that it has meritorious defenses to each of the
complaints and intends to contest each of them vigorously. Certain of the
plaintiffs have filed a motion to consolidate certain of the complaints and
moved for the appointment of lead plaintiff and counsel. A hearing on these
motions is scheduled for December 18, 1998.
On July 1, 1998, a complaint was filed in Delaware Court of Chancery against the
Company and certain members of its Board of Directors. The purported class
action brought on behalf of holders of Samsonite common stock who owned such
stock during the pendency of the self tender offer, including the defendants,
challenges the Tender Offer. The purported class action initially sought an
order temporarily restraining consummation of the Tender Offer but that
application was subsequently withdrawn. The Company believes that it has
meritorious defenses to the complaint and intends to contest it vigorously. The
complaint, which seeks compensatory and/or rescissory damages as well as other
relief, alleges disclosure violations with respect to the Tender Offer and that
the Tender Offer was coercive, the product of unfair dealing and violated the
directors' duties. Defendants filed a motion for judgment on the pleadings and
a motion to stay discovery. The plaintiff has filed a cross-motion for partial
judgment on the pleadings, and a hearing was held on December 2, 1998. No
decision has yet been rendered by the court.
The Company has determined that it is not possible at this time to predict the
final outcome of the above legal proceedings and that it is not possible to
establish a reasonable estimate of possible damages, if any.
30
<PAGE>
In addition, the Company is a party to various other legal proceedings and
claims in the ordinary course of business; the Company believes that the outcome
of these other pending matters will not have a material adverse affect on its
consolidated financial position, results of operations or liquidity. Refer to
Note 14 to the consolidated financial statements included in the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1998 which
describes other contingencies and commitments.
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 August 28, 1998,
the Company's stockholders elected directors and approved two proposals.
Bernard Attal, Leon D. Black, Richard R. Nicolosi, and Luc Van Nevel were
elected as directors. Voting on directors was as follows: Bernard Attal -
9,318,430 for, 134,130 against; Leon D. Black - 9,318,401 for, 134,159 against;
Richard R. Nicolosi - 9,302,090 for, 150,420 against; Luc Van Nevel - 9,320,245
for, 132,315 against.
A proposal to approve and ratify the appointment of KPMG Peat Marwick LLP as
independent auditors of the Company and its subsidiaries for fiscal 1999 was
approved (9,331,182 for, 107,392 against, 13,986 abstentions).
A proposal to approve the Samsonite Corporation FY 1999 Stock Option and
Incentive Stock Option and Incentive Award Plan was approved (4,910,046 for,
526,849, against, 30,207 abstentions, 3,985,457 broker non-vote).
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) See Exhibit Index.
(b) Reports on Form 8-K.
Reports dated August 12, 1998; September 4, 1998; and October 22, 1998.
Item 5. Other Events
31
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SAMSONITE CORPORATION
(REGISTRANT)
BY /S/ Richard H. Wiley
-----------------------------------------------
Name: Richard H. Wiley
Title: Senior Vice President, Chief Financial
Officer, Treasurer, and Secretary
Date: December 14, 1998
32
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
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 June 24, 1998, between the Company and United States Trust
Company./(3)/
4.2 Registration Rights Agreement, dated as of June 24, 1998, by and among the Company,
CIBC Oppenheimer Corp., BancAmerica Robertson Stephens, BancBoston Securities Inc.
and Goldman, Sachs & Co./(3)/
4.3 Certificate of Designation of the Powers, Preferences and Relative, Participating, Option and
other Special Rights of 13 7/8% Senior Redeemable Exchangeable Preferred Stock and
Qualifications, Limitations and Restrictions thereof./(4)/
4.4 Certificate of Correction to the Certificate of Designation of the Powers, Preferences and
Relative, Participating, Option and other Special Rights of 13 7/8% Senior Redeemable
Exchangeable Preferred Stock and Qualifications, Limitations and Restrictions thereof./(4)/
4.5 Indenture, in respect of the 13 7/8% Junior Subordinated Debentures due 2010 of the
Company, dated as of June 24, 1998, between the Company and United States Trust
Company of New York./(4)/
4.6 Form of Indenture, in respect of the 13 7/8% Senior Debentures due 2010 of Holdings, to be
dated as of the Exchange Date, between Samsonite Holdings Inc. and United States Trust
Company of New York./(4)/
4.7 Registration Rights Agreement, in respect of the 13 7/8% Senior Redeemable Exchangeable
Preferred Stock, dated as of June 24, 1998, between the Company and CIBC Oppenheimer
Corp./(4)/
10.1 First Amendment to Second Amended and Restated Multicurrency Revolving Credit and
Term Loan Agreement, dated as of October 1, 1998 between the Company, Samsonite
Europe N.V. and various 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).
/(3)/ Incorporated by reference from the Registration Statement on Form S-4
(Registration Statement No. 333-61521).
/(4)/ Incorporated by reference from the Registration Statement on Form S-4
(Registration Statement No. 333-61519).
33
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT
TO SECOND AMENDED AND RESTATED
MULTICURRENCY REVOLVING CREDIT AND
TERM LOAN AGREEMENT
First Amendment, dated as of October 1, 1998, to Second Amended and
Restated Multicurrency Revolving Credit and Term Loan Agreement (this
"Amendment"), by and among (a) SAMSONITE CORPORATION, a Delaware corporation
(the "Company"), (b) SAMSONITE EUROPE N.V., a corporation organized under the
laws of Belgium ("Samsonite Europe") and (c) BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, BANKBOSTON, N.A. and the other lending institutions listed
on Schedule 1 to the Credit Agreement (as hereinafter defined) (collectively,
----------
the "Lenders"), amending certain provisions of the Second Amended and Restated
Multicurrency Revolving Credit and Term Loan Agreement dated as of June 24, 1998
(as the same may be further amended, modified, supplemented, and in effect from
time to time, the "Credit Agreement") by and among the Company, Samsonite
Europe, the Lenders, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as
administrative agent for the Agents and the Lenders (the "Administrative
Agent"), BANKBOSTON, N.A., as syndication agent for the Agents and the Lenders
(the "Syndication Agent"), GENERALE BANK N.V., as foreign agent for the Agents
and the Lenders (the "Foreign Agent"), and as fronting bank (the "Fronting
Bank"), CANADIAN IMPERIAL BANK OF COMMERCE, as documentation agent for the
Agents and the Lenders (the "Documentation Agent"), and the other parties
thereto. Terms not otherwise defined herein which are defined in the Credit
Agreement shall have the same respective meanings herein as therein.
WHEREAS, the Borrowers and the Lenders have agreed to modify certain terms
and conditions of the Credit Agreement as specifically set forth in this
Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
(S) 1. AMENDMENTS TO THE CREDIT AGREEMENT. Subject to the satisfaction of
----------------------------------
the applicable conditions precedent set forth in (S)2 hereof, the Credit
Agreement is hereby amended as follows:
(S) 1.1. DEFINITIONS.
-----------
(a) The definition of Applicable Margin contained in (S)1.1 of
<PAGE>
the Credit Agreement is hereby amended (i) by deleting the word "and" from the
end of paragraph (b) of such definition after the semicolon in the last line of
paragraph (b), (ii) by substituting a semicolon for the period at the end of
paragraph (c) of such definition, and (iii) by inserting the following new text
at the end of such definition, immediately after existing paragraph (c) of such
definition:
"(d) In the event that, as of any fiscal quarter end date, the Borrowers
are in compliance with (S)11.1 and (S)11.2 but there would have existed a
violation of either (S)11.1 or (S)11.2 if compliance therewith were
determined without regard to any EBITDA Credit, then for the period
commencing on the Adjustment Date (including, without limitation, any
applicable Adjustment Dates prior to March 22, 1999 as referred to above)
occurring on or about the date fifty (50) days after such fiscal quarter
end and continuing through the date immediately preceding the next
Adjustment Date, each of the otherwise applicable Applicable Margin figures
provided for in each of the pricing tiers contained in the table set forth
above (other than those figures in the column entitled "Commitment Fee
Rate") shall be deemed increased by onequarter of one percent (0.25%) per
annum."
(b) The definition of EBITDA contained in (S)1.1 of the Credit Agreement is
hereby amended in each of the following respects: (i) by inserting the phrase
"or other applicable fiscal period" immediately after the phrase "Reference
Period" in each place where such phrase appears in the definition of EBITDA,
(ii) by inserting the phrase "or other applicable fiscal periods" immediately
after the phrase "Reference Periods" in each place where such phrase appears in
the definition of EBITDA, (iii) by inserting the phrase "and the fiscal year
ending January 31, 2000" immediately after the phrase "the fiscal year ending
January 31, 1999" where such phrase appears in clause (H) of the definition of
EBITDA and by inserting the phrase ", which charges relate only to writedowns of
assets or investments and do not reflect an accrual of a cash expense or outlay
which may be paid or incurred in the future" immediately after the word "China"
(and before the semicolon) in clause (H) of such definition of EBITDA, (iv) by
inserting the phrase ", the determination of compliance with (S)11.1.1 hereof,"
immediately after the phrase "Senior Leverage Ratio" where such phrase appears
in the second paragraph of the definition of EBITDA, and (v) by inserting the
following new textual paragraphs at the end of the definition of EBITDA:
"Solely for the purpose of the calculation of EBITDA as utilized in the
determination of the Senior Leverage Ratio and the Interest Coverage Ratio,
and also as utilized
<PAGE>
in the determination of compliance with (S)11.1.1 and (S)11.2.1 hereof, the
determination of EBITDA for any relevant fiscal period shall, without
duplication, be made without regard to book expense accruals in such period
for charges related to resolving the obligations of the Company's joint
venture in China ("China JV Obligations") or book expense accruals in such
period for charges related to liabilities arising from certain
securityholder classaction lawsuits with respect to the Company and the
related legal fees, net of and after giving effect to all applicable
insurance coverage ("Specified Litigation Obligations") but such
determination of EBITDA for such purposes shall in each case (subject to
the exceptions set forth below) subtract from the calculation of EBITDA for
such period (without duplication) the amount of all cash payments made by
the Company and its NonExcluded Subsidiaries during such period in respect
of (or relating to) any China JV Obligations or Specified Litigation
Obligations for which the book expense accruals were "added back" (i.e.,
excluded) in determining EBITDA for such period or any prior period
pursuant to the earlier provisions of this paragraph; however, the cash
payments to be so subtracted shall exclude (i.e., there shall not be so
subtracted) the following: (a) payments in any fiscal years ending on or
prior to January 31, 2000 in respect of China JV Obligations, not exceeding
$3,000,000 of payments in the aggregate on a cumulative basis, and (b)
payments in any fiscal years ending on or prior to January 31, 2001 in
respect of Specified Litigation Obligations, net of and after giving effect
to all applicable insurance coverage; provided that the exclusions provided
for in clauses (a) and (b) of this paragraph shall not exceed (i)
$1,000,000 in the aggregate on a cumulative basis with respect to the
fiscal year ending January 31, 1999, (ii) $3,000,000 in the aggregate on a
cumulative basis with respect to the fiscal year ending January 31, 2000,
(iii) $3,000,000 in the aggregate on a cumulative basis with respect to the
fiscal year ending January 31, 2001, or (iv) $3,000,000 in the aggregate on
a cumulative basis with respect to any period of four (4) consecutive
fiscal quarters (whether or not in the same fiscal year)."
"In the event that the initial Specified Equity Issuance is completed
during any fiscal quarter ending on or prior to January 31, 2000 (but not
otherwise), then, solely for the purpose of the calculation of EBITDA as
utilized in the determination of the Senior Leverage Ratio and the Interest
Coverage Ratio, and also as utilized in the determination of compliance
with (S)11.1.1 and (S)11.2.1 hereof,
<PAGE>
an amount of the Available Net Equity Issuance Proceeds of such applicable
Specified Equity Issuance equal to $5,000,000 shall be deemed added to the
calculation of EBITDA (the "EBITDA Credit") for any applicable fiscal
period that includes such fiscal quarter in which such initial Specified
Equity Issuance occurs (but without duplication, and not for any fiscal
period which does not include such fiscal quarter); provided, however, the
EBITDA Credit referred to above shall not be applicable to any
determination of compliance with (or satisfaction of) the Special
Conditions for any purpose, or any calculations made pursuant to or in
connection with (S)10.5.1(c)(xiii), (S)10.5.1(e), (S)10.5.1(f), or
(S)10.3(n) hereof."
(c) The definition of Pro Forma Bank Interest Amount contained in (S)1.1 of
the Credit Agreement is hereby amended by inserting the phrase "or other
applicable fiscal period" immediately after the phrase "Reference Period" in
each place where such phrase appears in the definition of Pro Forma Bank
Interest Amount.
(d) The definition of Interest Coverage Ratio contained in (S)1.1 of the
Credit Agreement is hereby amended by inserting the phrase "and (S)11.2.1"
immediately after the phrase "For the purposes of clause (b) of this definition"
in the definition of Interest Coverage Ratio.
(e) The definition of Special Conditions contained in (S)1.1 of the Credit
Agreement is hereby amended by inserting the phrase "or other applicable fiscal
period" immediately after the phrase "Reference Period" in each place where such
phrase appears in the definition of Special Conditions.
(f) The definition of Consolidated Total Interest Expense contained in
(S)1.1 of the Credit Agreement is hereby amended by adding the following new
text at the end of such definition:
"The calculation of Consolidated Total Interest Expense shall exclude the
"amendment fee" provided for in the First Amendment to this Credit
Agreement."
(g) The following new definitions are hereby added to (S)1.1 of the Credit
Agreement, in the appropriate respective locations in the alphabetical sequence:
"Available Net Equity Issuance Proceeds. For each Specified Equity
------------- ------------------------
Issuance, an amount equal to fifty percent (50%) of the Net Equity Issuance
Proceeds thereof, as
<PAGE>
calculated for each such Specified Equity Issuance."
"EBITDA Credit. See the definition of EBITDA herein."
-------------
"Equity Issuance. The sale or issuance by the Company or any of its
---------------
NonExcluded Subsidiaries after the Closing Date of any of its capital stock or
equity interests or any warrants, rights, or options to acquire its capital
stock or equity interests (other than pursuant to (a) the sale or issuance of
any such capital stock, equity interests, warrants, rights, or options by the
Company or any of its NonExcluded Subsidiaries to the Company or any of its
NonExcluded Subsidiaries or (b) the sale or issuance of any capital stock,
equity interests, warrants, rights, or options by the Company or any of its
NonExcluded Subsidiaries to any holder of a minority interest in any Joint
Venture Subsidiary as consideration for a noncash Investment by such minority
shareholder in such Joint Venture Subsidiary)."
"Net Equity Issuance Proceeds. With respect to any Equity Issuance, the
----------------------------
excess of the gross cash proceeds received by such Person from such Equity
Issuance after deduction of actual transaction expenses (including without
limitation, underwriting discounts and commissions) actually incurred in
connection with such Equity Issuance."
"Required Prepayment Amount of Net Equity Issuance Proceeds. For each
----------------------------------------------------------
Specified Equity Issuance, an amount equal to fifty percent (50%) of the Net
Equity Issuance Proceeds thereof, as calculated for each such Specified Equity
Issuance."
"Specified Equity Issuance. An Equity Issuance (in a single transaction or
-------------------------
in a series of related transactions) generating Net Equity Issuance Proceeds of
at least $25,000,000."
"Subordinated Note Purchases. The purchase by the Company of Subordinated
---------------------------
Notes from the holders thereof, provided that (a) the total, cumulative amount
of the consideration paid for all such purchases from and after the Closing Date
does not exceed, in the aggregate, the sum of the Available Net Equity Issuance
Proceeds, as determined for each Specified Equity Issuance, on a cumulative
basis, (b) the Subordinated Notes so purchased in each case are promptly
cancelled by the Company, (c) the total
<PAGE>
consideration paid for each such Subordinated Note does not exceed 87.5% of
the par value of each such Subordinated Note (plus accrued and unpaid
interest thereon), (d) no Default or Event of Default then exists and none
would exist after giving effect thereto, and (e) such purchases are in each
case permitted by the Subordinated Debt Documents."
(S) 1.2. CERTAIN PREPAYMENTS. Section 3.3.3 of the Credit Agreement is
-------------------
hereby amended by adding the following new textual paragraphs after paragraph
(d) thereof:
"(e) Upon the occurrence of any Specified Equity Issuance, the Company
shall make a prepayment of principal in respect of the Domestic Term Loan
and Samsonite Europe shall make a prepayment of principal in respect of the
Foreign Term Loan, allocated ratably between such Term Loans according to
the respective Dollar Equivalent amounts of the Domestic Term Loan and the
Foreign Term Loan at the time of the prepayment, as hereby required such
that the aggregate Dollar Equivalent amount of the resulting prepayment in
respect of the Loans made at such time in connection with such Specified
Equity Issuance shall be equal to the Required Prepayment Amount of Net
Equity Issuance Proceeds relating to such Specified Equity Issuance. Any
such prepayment of the Domestic Term Loan shall be made to the
Administrative Agent for the pro rata account of the Lenders (according to
their Domestic Term Loan Commitment Percentages), and any prepayment of the
Foreign Term Loan shall be made to the Foreign Agent for the pro rata
account of the Multicurrency Lenders and the Fronting Bank (according to
the Multicurrency Lenders' Foreign Term Loan Commitment Percentages and, in
the case of the Fronting Bank, the aggregate Foreign Term Loan Commitment
Percentages of the NonMulticurrency Lenders).
(f) In the event the Term Loans have been paid in full (including, for
this purpose, by way of prepayments made at such time under this (S)3.3.3),
with any remaining portion of the Required Prepayment Amount of Net Equity
Issuance Proceeds required to be applied under this (S)3.3.3, the Total
Revolving Commitment shall at such time be automatically and permanently
reduced by the amount of the Pro Rata Reduction Percentage of any such
funds required to be so applied as such Pro Rata Reduction Percentage is
determined with respect to the Revolving Credit Loans (and the Company
shall then make a concurrent prepayment of principal on the Revolving
Credit Loans to the Administrative Agent for the pro rata account of the
Lenders (according to their Revolving Commitment
<PAGE>
Percentages), in the amount of the lesser of the amount of such reduction
of the Total Revolving Commitment and the outstanding principal balance of
the Revolving Credit Loans at the time that the prepayment thereon pursuant
to this paragraph is payable), and the Total Revolving Multicurrency
Commitment shall at such time be automatically and permanently reduced by
the amount of the Pro Rata Reduction Percentage of any such remaining funds
required to be so applied as such Pro Rata Prepayment Percentage is
determined with respect to the Revolving Multicurrency Loans (and Samsonite
Europe shall then make a concurrent prepayment of principal on the
Revolving Multicurrency Loans to the Foreign Agent for the pro rata account
of the Multicurrency Lenders and the Fronting Bank (according to the
Multicurrency Lenders' Revolving Multicurrency Commitment Percentages and,
in the case of the Fronting Bank, the aggregate Revolving Multicurrency
Commitment Percentages of the NonMulticurrency Lenders) in the Dollar
Equivalent amount of the lesser of the amount of such reduction of the
Total Revolving Multicurrency Commitment and the outstanding principal
balance of the Revolving Multicurrency Loans at the time that the
prepayment thereon pursuant to this paragraph is payable).
(g) All required prepayments in respect of the Loans in connection with
a Specified Equity Issuance with the Required Prepayment Amount of Net
Equity Issuance Proceeds pursuant to this (S)3.3.3 shall be due and payable
within two (2) Business Days of receipt of the related Net Equity Issuance
Proceeds, as applicable, by the Borrowers or their NonExcluded Subsidiaries
and, with respect to prepayments of the Domestic Term Loan, shall be
applied pro rata to the remaining unpaid scheduled installments of
principal relating to the Domestic Term Loan, provided that, so long as no
Default or Event of Default has occurred and is continuing and none would
exist as a result thereof, the prepayment with respect to the Required
Prepayment Amount of Net Equity Issuance Proceeds may be delayed by up to
30 days, to the extent necessary to avoid the Company's incurring
obligations pursuant to (S)6.9, if the Company gives notice to the
Administrative Agent within two (2) Business Days after its receipt of such
proceeds, setting forth a calculation of the amount owed in connection
therewith under this (S)3.3.3 and specifying the amount subject to the
applicable Interest Period and setting forth when such payment will be made
(within the said 30day period); further provided, however, that the
foregoing deferral provision shall not apply with respect to any such
particular required prepayment if the Administrative Agent notifies the
Company pursuant to this paragraph that such prepayment hereunder may not
be so
<PAGE>
deferred (in which case the provisions of (S)6.9(c) shall be deemed
inapplicable only to such particular required prepayment hereunder). All
such payments in respect of the Domestic Term Loan shall be in Dollars; all
such payments in respect of the Foreign Term Loan shall be in Belgian
francs; all such payments (if any) in respect of the Revolving Credit Loans
shall be in Dollars; and all such payments (if any) in respect of Revolving
Multicurrency Loans shall be in the currency in which such Revolving
Multicurrency Loans were made; if Revolving Multicurrency Loans are then
outstanding in more than one currency, Samsonite Europe may designate which
of such loans shall be so prepaid, so long as the Dollar Equivalent as of
the time of payment of the aggregate amount of Revolving Multicurrency
Loans that are so prepaid is the amount thereof required by this (S)3.3.3
to be so prepaid. If the remaining balance of Term Loans at the time a
payment is due under (S)3.3.3(e) is less than the amount of such payment,
then the payment shall be applied first to pay the Term Loans in full and
then the balance shall be applied in accordance with (S)3.3.3(f) hereof."
(S) 1.3. REPORTING REQUIREMENTS.
----------------------
(a) Section 9.4(c) of the Credit Agreement is hereby amended by
inserting the text "with such changes therein as may be specified by the
Administrative Agent to reflect appropriately any changes in the covenants
contained in (S)11 or the related definitions" immediately after the text
"Exhibit E hereto" as such text appears in (S)9.4(c) of the Credit Agreement.
(b) Section 9.4 of the Credit Agreement is hereby amended by
substituting a semicolon for the period at the end of paragraph (j) thereof and
adding the following additional provisions to (S)9.4 after paragraph (j)
thereof:
"(k) as soon as practicable, but in any event not later than thirty
(30) days after the end of each month of each fiscal year of the Company ending
on or prior to January 31, 2001, the unaudited consolidated balance sheet of the
Company and its Subsidiaries and the unaudited Consolidating balance sheets,
each as at the end of such month, and the related consolidated and Consolidating
statements of income and statements of cash flow for the portion of the
Company's fiscal year then elapsed, all in reasonable detail and prepared in
accordance with generally accepted accounting principles, together with a
certification by the principal financial or accounting officer of the Company
that the information contained in such financial statements fairly
<PAGE>
presents the financial position of the Company and its applicable Subsidiaries
on the date thereof (subject to yearend adjustments); and
(l) within thirty (30) days after the applicable letters referred to
below are issued, any and all applicable accountants management letters, which
the Company hereby agrees to instruct and request its outside auditors to
prepare and issue to the Company at least once with respect to each fiscal year
of the Company."
(S) 1.4. COMMERCIAL FINANCE EXAMINATION AND COMPUTER SYSTEMS REVIEW.
----------------------------------------------------------
Section 9.26 of the Credit Agreement is hereby amended by adding the following
text at the end of (S)9.26 thereof:
"During the period beginning on the effective date of the First Amendment
to this Credit Agreement and ending on the date that is six months after
such effective date, upon the request of either of the Lead Agents, (a) the
Company shall cause an additional or supplemental "commercial finance"
examination of accounts receivable and inventory to be carried out by
examiners chosen by the Lead Agents, which examination shall be commenced
by the examiners as soon as practicable and in any event within thirty (30)
days after the request for such examination, and (b) the Company shall
cause a review of the Company's computerized accounting and management
systems to be carried out by analysts or consultants chosen by the Lead
Agents, which review shall be commenced as soon as practicable and shall be
completed on a diligent and prompt basis after the request for such review;
the Company shall, in the case of the additional or supplemental commercial
finance examination and the computer systems review, provide the examiners,
consultants, and analysts, as the case may be, with access to the relevant
information and otherwise cooperate with such examination and review, and
shall pay the reasonable costs and expenses of each such examination and
review."
(S) 1.5. RESTRICTIONS ON INVESTMENTS. Section 10.3 of the Credit
---------------------------
Agreement is hereby amended (a) by inserting the phrase "Subordinated Note
Purchases or" immediately after the phrase "consisting of" in (S)10.3(y), and
(b) by inserting the following additional text at the end of paragraph (h) of
(S)10.3 thereof:
<PAGE>
"notwithstanding the foregoing, any Investments made under this (S)10.3(h)
during the fiscal year ending January 31, 1999 shall not in any event
exceed $2,500,000 in the aggregate on a cumulative basis and any
Investments made under this (S)10.3(h) during the fiscal year ending
January 31, 2000 shall not in any event exceed $5,000,000 in the aggregate
on a cumulative basis, provided that for purposes only of determining
compliance with such restrictions on the amount of Investments so permitted
to be made in the fiscal years ending January 31, 1999 and January 31,
2000, respectively, there shall be excluded (x) Investments in the
Company's joint venture in China in connection with or relating to the
windingup, termination of operations, liquidation, or dissolution, of such
joint venture, in an amount not to exceed $3,500,000 in the aggregate on a
cumulative basis and (y) Investments consisting of a guarantee issued to a
lending institution in connection with the refinancing with such lending
institution of certain obligations of the Company's Korean joint venture
previously supported by that certain letter of credit in favor of Union
Bank of California referred to in Schedule 1B hereto, to the extent (not
exceeding $3,788,400) the obligation so guaranteed is, at the time of
issuance of such guarantee, not in excess of the obligation supported by
such letter of credit and being so refinanced (but such exclusion shall
apply only if such letter of credit is at such time terminated in
connection with such refinancing and the issuance of such guarantee);"
(S) 1.6. MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS. Section
------ ----------------------------------------
10.5.1 of the Credit Agreement is hereby amended (a) by inserting the phrase "or
other applicable fiscal period" immediately after the phrase "Reference Period"
in each place where such phrase appears in paragraph (c)(xiii) of (S)10.5.1, and
(b) by inserting the following text immediately after the phrase "immediately
preceding the acquisition" as such phrase appears in paragraph (c)(xiii) of
(S)10.5.1:
"(with, in the case only of any such determination under this clause with
respect to (S)11.2.1 for periods consisting of fewer than four (4) full
consecutive fiscal quarters, such fourquarter EBITDA figure of the Person
to be acquired to be multiplied by a fraction whose numerator is the
relevant number of fiscal quarters referred to in (S)11.2.1 and whose
denominator is
<PAGE>
four (4))".
(S) 1.7. SUBORDINATED DEBT. Section 10.8 of the Credit Agreement is
-----------------
hereby amended by inserting the phrase "Subordinated Note Purchases and"
immediately after the phrase "Except for" in (S)10.8 of the Credit Agreement.
Section 10.24 of the Credit Agreement is hereby amended by inserting the word
"or" immediately prior to "(ii)" in the sixth line, by deleting clause (iii)
thereof, and by deleting the comma and the word "or" at the end of clause (ii)
thereof, so that the period at the end of the sentence follows immediately after
such clause (ii) thereof.
(S) 1.8. SENIOR LEVERAGE RATIO. The text of (S)11.1 of the Credit
---------------------
Agreement is hereby amended to read as follows:
"11.1. SENIOR LEVERAGE RATIO.
---------------------
11.1.1. SENIOR LEVERAGE RATIO PRIOR TO AUGUST 1, 1999. (a) As of
--------------------------------------- -----
October 31, 1998, the Borrowers will not permit the ratio of (i) Total Funded
Indebtedness of the Company and its NonExcluded Subsidiaries outstanding on such
date minus Subordinated Debt outstanding on such date to (ii) EBITDA of the
Company and its NonExcluded Subsidiaries for the fiscal quarter ending on such
date multiplied by four (4), to be greater than 3.00:1.00.
(b) As of January 31, 1999, the Borrowers will not permit the ratio of (i)
Total Funded Indebtedness of the Company and its NonExcluded Subsidiaries
outstanding on such date minus Subordinated Debt outstanding on such date to
(ii) EBITDA of the Company and its NonExcluded Subsidiaries for the period of
two (2) consecutive fiscal quarters ending on such date, treated as a single
accounting period, multiplied by two (2), to be greater than 2.85:1.00.
(c) As of April 30, 1999, the Borrowers will not permit the ratio of (i)
Total Funded Indebtedness of the Company and its NonExcluded Subsidiaries
outstanding on such date minus Subordinated Debt outstanding on such date to
(ii) EBITDA of the Company and its NonExcluded Subsidiaries for the period of
three (3) consecutive fiscal quarters ending on such date, treated as a single
accounting period, multiplied by a fraction whose numerator is four (4) and
whose denominator is three (3), to be greater than 2.75:1.00.
(d) As of July 31, 1999, the Borrowers will not permit
<PAGE>
the ratio of (i) Total Funded Indebtedness of the Company and its NonExcluded
Subsidiaries outstanding on such date minus Subordinated Debt outstanding on
such date to (ii) EBITDA of the Company and its NonExcluded Subsidiaries for the
period of four (4) consecutive fiscal quarters ending on such date, treated as a
single accounting period, to be greater than 2.65:1.00.
11.1.2. SENIOR LEVERAGE RATIO FROM AUGUST 1, 1999 AND THEREAFTER. The
------ -------- ----- ---- ------ - ---- --- ----------
Borrowers will not permit the Senior Leverage Ratio as determined for any
Reference Period ending at any time during any period described in the table set
forth below to be greater than the ratio set forth opposite such period in such
table in which such Reference Period ends:
Period Maximum Ratio
------ -------------
August 1, 1999-January 30, 2.65:1.00
2000
January 31, 2000 and 2.50:1.00"
thereafter
(S) 1.9. INTEREST COVERAGE RATIO. The text of (S)11.2 of the Credit
-----------------------
Agreement is hereby amended to read as follows:
"11.2. INTEREST COVERAGE RATIO.
-----------------------
11.2.1. INTEREST COVERAGE RATIO PRIOR TO AUGUST 1, 1999. (a) As of
-----------------------------------------------
October 31, 1998, the Borrowers will not permit the ratio of (i) EBITDA for the
fiscal quarter ending on such date to (ii) Consolidated Total Interest Expense
(other than interest charges not required to be paid in cash) of the Company and
its NonExcluded Subsidiaries for such fiscal quarter, to be less than 1.60:1.00.
(b) As of January 31, 1999, the Borrowers will not permit the ratio of (i)
EBITDA for the period of two (2) consecutive fiscal quarters ending on such date
(treated as a single accounting period) to (ii) Consolidated Total Interest
Expense (other than interest charges not required to be paid in cash) of the
Company and its NonExcluded Subsidiaries for such period of two (2) fiscal
quarters (treated as a single accounting period), to be less than 1.60:1.00.
(c) As of April 30, 1999, the Borrowers will not permit the ratio of (i)
EBITDA for the period of three (3) consecutive fiscal quarters ending on such
date (treated as a single accounting period) to (ii) Consolidated Total Interest
<PAGE>
Expense (other than interest charges not required to be paid in cash) of
the Company and its NonExcluded Subsidiaries for such period of three (3)
fiscal quarters (treated as a single accounting period), to be less than
1.55:1.00.
(d) As of July 31, 1999, the Borrowers will not permit the ratio of
(i) EBITDA for the period of four (4) consecutive fiscal quarters ending on
such date (treated as a single accounting period) to (ii) Consolidated
Total Interest Expense (other than interest charges not required to be paid
in cash) of the Company and its NonExcluded Subsidiaries for such period of
four (4) fiscal quarters (treated as a single accounting period), to be
less than 1.55:1.00.
11.2.2. INTEREST COVERAGE RATIO FROM AUGUST 1, 1999 AND THEREAFTER.
------------------------------------- --------------------
The Borrowers will not permit the Interest Coverage Ratio as determined for any
Reference Period ending at any time during any period described in the table set
forth below to be less than the ratio set forth opposite such period in such
table in which such Reference Period ends:
Period Min Ratio
------ ----------
Oct 31, 1999 January 30, 2000 1.65:1.00
January 31, 2000 April 29, 2000 1:75:1.00
April 30, 2000 July 30, 2000 1.80:1.00
July 31, 2000 January 30, 2001 1.85:1.00
January 31, 2001 April 29, 2001 2.00:1.00
April 30, 2001 and thereafter 2.50:1.00"
(S) 1.10. CASH HOLDING LIMITATION. Section 11 of the Credit Agreement is
-----------------------
hereby amended by adding the following new (S)11.4 after the existing (S)11.3
thereof:
"11.4. CASH HOLDING LIMITATION. The aggregate amount of cash
---- ------- ----------
and cash equivalents of the Company and its NonExcluded Subsidiaries on a
consolidated basis shall not exceed $50,000,000 for more than three (3)
consecutive
<PAGE>
Business Days. Notwithstanding the foregoing, however, no violation of the
foregoing provisions of this (S)11.4 otherwise arising (but for this sentence)
shall be treated as existing at any time the sum of the outstanding Revolving
Credit Loans and the outstanding Revolving Multicurrency Loans is equal to
zero."
(S)1.11. BORROWING CONDITIONS. Section 13 of the Credit Agreement is
--------------------
hereby amended by adding the following new (S)13.5 after the existing (S)13.4
thereof:
"13.5. CASH HOLDING LIMITATION. No violation of (S)11.4 shall
-----------------------
exist, and none would result from, or exist after giving effect to, the
making of such Loan. The Administrative Agent shall have received a
certificate signed by an authorized officer of the Company to such effect
(which certificate may give effect to the payment by the Company or its
NonExcluded Subsidiaries, as applicable, of any outstanding checks
previously issued and dispatched to their payees by the Company or its
NonExcluded Subsidiaries, as applicable)."
(S) 1.12. SUBORDINATED NOTE PURCHASES. Section 14.1(j) of the Credit
---------------------------
Agreement is hereby amended by inserting the phrase "Subordinated Note Purchases
and" immediately after the phrase "with respect to" within the parenthetical
expression appearing in lines 6 and 7 of (S)14.1(j).
(S) 2. CONDITIONS TO EFFECTIVENESS. This Amendment shall be deemed to
---------------------------
be, and shall become, effective as of the date hereof but only upon, and subject
to, the satisfaction of each of the following conditions precedent on a date
that is a Business Day not later than October 15, 1998 (such date of such
conditions precedent being satisfied being hereinafter referred to as the
"Amendment Closing Date"):
(a) Delivery of Amendment. The Company, Samsonite Europe, and the Majority
-------- -- ---------
Lenders shall have duly executed and delivered one or more counterparts of this
Amendment to the Administrative Agent.
(b) Payment of Amendment Fee. The Company shall have paid (and the Company
------- -- --------- ---
hereby agrees to pay) to the Administrative Agent, for the respective accounts
of those Lenders that, as of the Amendment Closing Date, have duly executed and
delivered counterparts of this Amendment to the Administrative Agent, an
amendment fee (the "Amendment Fee") in immediately available funds equal to one
quarter of one percent (0.25%) of the sum of
<PAGE>
(i) such Lender's Domestic Term Loan Commitment Percentages of the then
outstanding principal amount of the Domestic Term Loan and such Lender's Foreign
Term Loan Commitment Percentage of the then outstanding principal amount of the
Foreign Term Loan, in each case if applicable, and (ii) the aggregate amount of
such Lender's Commitments, if applicable.
The Company hereby agrees that, in the case of any Lenders that execute and
deliver counterparts of this Amendment to the Administrative Agent subsequent to
the Amendment Closing Date but on or before October 23, 1998, the foregoing
Amendment Fee shall also then be due and payable to such Lenders by the Company.
(S) 3. REPRESENTATIONS AND WARRANTIES. Each of the Company and Samsonite
------------------------------
Europe hereby repeats, on and as of the date of the execution and delivery
hereof and the Amendment Closing Date, each of the representations and
warranties made by it in (S)8 of the Credit Agreement (except to the extent of
changes resulting from transactions contemplated or permitted by the Credit
Agreement and the other Loan Documents, changes occurring in the ordinary course
of business that singly or in the aggregate are not materially adverse, and to
the extent that such representations and warranties relate expressly to an
earlier date), provided, that all references therein to the Credit Agreement
shall refer to such Credit Agreement as amended hereby. In addition, each of the
Company and Samsonite Europe hereby represents and warrants that the execution
and delivery by such Borrower of this Amendment and the performance by such
Borrower of all of its respective agreements and obligations under this
Amendment and the Credit Agreement as amended hereby are within the corporate
power and authority of such Borrower, and have been duly authorized by all
necessary corporate action on the part of such Borrower, and each further
represents and warrants that the execution and delivery by such Borrower, of
this Amendment and the performance by it of the transactions contemplated hereby
will not contravene any term or condition set forth in any agreement or
instrument to which it is a party or by which it is bound, including, in the
case of the Company, but not limited to, the Subordinated Debt Documents and the
1998 Preferred Stock Documents.
<PAGE>
(S) 4. RATIFICATION, ETC. Except as expressly amended hereby, the Credit
------------ ---
Agreement and all documents, instruments and agreements related thereto,
including, but not limited to, the Security Documents, are hereby ratified and
confirmed in all respects and shall continue in full force and effect. The
Credit Agreement and this Amendment shall be read and construed as a single
agreement. This Amendment shall constitute one of the Loan Documents, and the
obligations of the Borrowers under this Amendment shall constitute Obligations
for all purposes of the Loan Documents. All references in the Credit Agreement,
the Loan Documents or any related agreement or instrument to the Credit
Agreement shall hereafter refer to the Credit Agreement as amended hereby.
(S) 5. NO WAIVER. Nothing contained herein shall constitute a waiver of,
---------
impair or otherwise adversely affect any Obligations, any other obligation of
the Company or Samsonite Europe or any rights of the Agents or the Lenders
consequent thereon.
(S) 6. COUNTERPARTS. This Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
(S) 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
-------------
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, APPLICABLE TO
TRANSACTIONS TO BE PERFORMED WHOLLY WITHIN SUCH STATE (WITHOUT REFERENCE TO
CONFLICT OF LAWS).
IN WITNESS WHEREOF, the parties hereto have executed this Amendment under
seal by their respective officers thereunto duly authorized.
[Signature Pages Follow]
<PAGE>
Signature Pages for Borrowers
--------- ----- --- ---------
Each of the undersigned Borrowers hereby consents and agrees to all of the
provisions of the foregoing Amendment:
The Company: SAMSONITE CORPORATION
--- -------
By:/s/ Richard H. Wiley..............
Name: Richard H. Wiley...............
Title: CFO, Treasurer................
Samsonite Europe: SAMSONITE EUROPE N.V.
----------------
By: /s/ Thomas R. Sandler............
Name: Thomas R. Sandler..............
Title: Director......................
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: /s/ Elizabeth R. Borow.............
Name: Elizabeth R. Borow...............
Title: Managing Director...............
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
BANKBOSTON, N.A.
By: /s/ Richard D. Hill, Jr. ...........
Name: Richard D. Hill, Jr. .............
Title: Managing Director................
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
CIBC INC.
By: /s/ Gerald Girardi................
Name: Executive Director..............
Title: CIBC Oppenheimer Corp, AS AGENT
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
GENERALE BANK N.V.
By: /s/ E. Matthews...............
Name: E. Matthews.................
Title: SVP........................
By: /s/ Hank Workmann.............
Name: Hank Workmann...............
Title: GM.........................
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
THE BANK OF NEW YORK
By: /s/ Robert J. Louk............
Name: Robert J. Louk..............
Title: Vice President.............
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Peter D. Biasi............
Name: Peter D. Biasi..............
Title: Senior Risk Manager........
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
NATIONAL BANK OF CANADA
By: /s/ Raymond L. Yager..........
Name: Raymond L. Yager............
Title: Vice President.............
By: /s/ A.M. Conneen, Jr.
Name: A.M. Conneen, Jr.
Title: Vice President
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
NORWEST BANK COLORADO, NATIONAL ASSOCIATION
By:/s/ Randall Schmidt............
Name: Randall Schmidt.............
Title: Vice President.............
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
SENIOR DEBT PORTFOLIO
By:
Boston Management and Research,
as Investment Advisor
By:/s/ Barbara Campbell...........
Name: Barbara Campbell............
Title: Vice President.............
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
OXFORD STRATEGIC INCOME FUND
By:
Eaton Vance Management, as
Investment Advisor
By:/s/ Barbara Campbell...........
Name: Barbara Campbell............
Title: Vice President.............
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By:/s/ Gilles Marchand, CPA.......
Name: Gilles Marchand.............
Title: Authorized Signatory.......
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
SENIOR HIGH INCOME PORTFOLIO,
INC.
By:/s/ Gilles Marchand, CPA.......
Name: Gilles Marchand.............
Title: Authorized Signatory.......
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
ML CLO XX PILGRIM AMERICA
(CAYMAN) LTD.
By:
Pilgrim America Investments, Inc.,
its Investment Manager
By:/s/ Robert L. Wilson...........
Name: Robert L. Wilson............
Title: Vice President.............
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
CYPRESSTREE INVESTMENT FUND, LLC
By:
CypressTree Investment
Management Company, Inc.,
its Managing Member
By: /s/ Peter Merrill.............
Name: Peter Merrill...............
Title: ........................
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
CYPRESSTREE INSTITUTIONAL
FUND, LLC
By:
CypressTree Investment
Management Company, Inc.,
its Managing Member
By: /s/ Peter Merrill.............
Name: Peter Merrill...............
Title: .........................
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
KZH CYPRESSTREE1 LLC
By:/s/ Virginia Conway............
Name: Virginia Conway.............
Title: Authorized Agent...........
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
KZH ING2 LLC
By:/s/ Virginia Conway..........
Name: Virginia Conway...........
Title: Authorized Agent.........
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
ING HIGH INCOME PRINCIPAL
PRESERVATION FUND HOLDINGS, LDC
By:
ING Capital Advisors, Inc.,
as Investment Advisor
By:/s/ Jane Musser Nelson.....................
Name: Jane Musser Nelson......................
Title: Senior Vice President/Portfolio Manager
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
CYPRESSTREE BOSTON PARTNERS
By:/s/ Todd M. Dahlstrom..........
Name: Todd M. Dahlstrom...........
Title: Partner....................
<PAGE>
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
ML CBO IV (CAYMAN) LTD.
By:
Highland Capital Management, L.P.,
as Collateral Manager
By: /s/ Mark K. Okada CFA.............
Name: Mark. K. Okada..................
President/Highland Capital Management,
L.P. ................................
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED OCTOBER
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 30,377
<SECURITIES> 0
<RECEIVABLES> 109,797
<ALLOWANCES> 8,287
<INVENTORY> 191,492
<CURRENT-ASSETS> 384,013
<PP&E> 223,536
<DEPRECIATION> 75,246
<TOTAL-ASSETS> 671,687
<CURRENT-LIABILITIES> 167,444
<BONDS> 480,600
171,725
0
<COMMON> 209
<OTHER-SE> (232,357)
<TOTAL-LIABILITY-AND-EQUITY> 671,687
<SALES> 519,415
<TOTAL-REVENUES> 519,415
<CGS> 309,292
<TOTAL-COSTS> 309,292
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,150
<INTEREST-EXPENSE> 26,375
<INCOME-PRETAX> (21,068)
<INCOME-TAX> 6,943
<INCOME-CONTINUING> (28,834)
<DISCONTINUED> 0
<EXTRAORDINARY> (6,460)
<CHANGES> 0
<NET-INCOME> (35,294)
<EPS-PRIMARY> (2.81)
<EPS-DILUTED> (2.81)
<FN>
<F1>NET INCOME (LOSS) IS SHOWN BEFORE REDEEMABLE PREFERRED STOCK DIVIDENDS AND
ACCRETION OF PREFERRED STOCK DISCOUNT OF $8,960.
</FN>
</TABLE>
