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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 31, 1999
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 identification no.)
incorporation or organization)
11200 East 45th Avenue 80239
Denver, Colorado (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (303) 373-2000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of April 6, 1999, the registrant had outstanding 10,508,457 shares of
Common Stock, par value $.01 per share. The aggregate market value of such
Common Stock held by non-affiliates of the registrant, based upon the closing
sales price of the Common Stock on April 15, 1999, as reported on the Nasdaq
National Market was approximately $42.3 million. Shares of Common Stock held
by each officer and director and by each person who owns 5 percent or more of
the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
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INDEX
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Page
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PART I
Item 1. Business............................................................................... 3
Item 2. Properties............................................................................. 10
Item 3. Legal Proceedings...................................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders.................................... 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 11
Item 6. Selected Financial Data................................................................ 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 14
Item 7A. Quantitative and Qualitative Disclosures about Market Risk............................. 27
Item 8. Financial Statements and Supplementary Data............................................ 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 28
PART III
Item 10. Directors and Executive Officers of the Registrant..................................... 29
Item 11. Executive Compensation................................................................. 29
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 29
Item 13. Certain Relationships and Related Transactions......................................... 29
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K........................ 30
Signatures...................................................................................... 31
Index to Consolidated Financial Statements and Schedule......................................... F-1
Index to Exhibits............................................................................... E-1
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2
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PART I
ITEM 1. BUSINESS
General
We are one of the world's largest manufacturers and distributors of luggage,
marketing products under brands such as Samsonite(R), American Tourister(R)
and Lark(R). With net sales of $697.4 million in fiscal 1999, we are a leader
in the highly fragmented luggage market where the vast majority of our
competitors have annual luggage sales that are less than 10% of ours. We offer
a broad range of luggage and luggage-related products, including suitcases,
garment bags, casual bags, business cases and other travel bags. We also
license our trademarks for use on products such as travel accessories,
personal leather goods, handbags and furniture.
Our products are produced around the world at 14 Samsonite-operated
manufacturing facilities or by third-party suppliers. We benefit from our
large size which allows us volume-driven purchasing and manufacturing
economies. We sell our products in more than 100 countries at approximately
27,000 retail locations, including department stores, specialty stores,
catalog showrooms, mass merchants and warehouse clubs. In the United States,
we also sell our products through 195 Samsonite-operated stores.
Our leading position in the global luggage industry is due primarily to:
Widely Recognized Brand Names. Samsonite and American Tourister are two of
the most widely-recognized luggage brand names in the world. The Lark brand
is also well established in the premium segment of the U.S. luggage market.
We support our brands with brand advertising programs. We are the only
luggage maker who regularly advertises on national television in the United
States and Europe. For the last five fiscal years we have invested, on
average, in excess of $50 million annually in national and co-op
advertising programs and related promotional activities.
Innovative, Durable Products. We design and develop innovative, consumer
preferred luggage. Consumers know our products to be well made and durable.
We are an industry leader in new luggage technologies as a result of our
substantial product development efforts. We introduced or popularized many
of today's most successful luggage products and features, including
suitcases on wheels, suitcases with a built-in luggage cart and full
featured structured garment bags.
Global Manufacturing and Distribution. Our global production network
consists of 14 Samsonite-operated manufacturing facilities and third party
suppliers located in the Far East, Eastern Europe and the Dominican
Republic. By operating our own facilities to produce hardside luggage and
various softside products, we are able to control manufacturing quality and
reduce production lead time and delivery costs. Our global sourcing network
also enables us to opportunistically source products from countries with
low production costs and favorable currency exchange rates. Our luggage
distribution networks in the United States and in Europe are the largest
and most technologically advanced in the industry.
Our principal corporate office is at 11200 East 45th Avenue, Denver,
Colorado 80239, and our telephone number is (303) 373-2000.
Recent Unsatisfactory Performance of the U.S. Wholesale Business
Despite record sales and operating results achieved by our European and U.S.
Retail businesses (which together accounted for approximately 62% of our
consolidated net sales in fiscal 1999), our consolidated results for fiscal
1999 were depressed by the unsatisfactory performance of our U.S. Wholesale
business. Beginning with the end of the third quarter of fiscal 1998, the
performance of our U.S. Wholesale business has been adversely affected by a
number of operating problems, as well as various industry-wide factors,
including weaker than anticipated demand, numerous discount luggage promotions
and excess inventories in the marketplace.
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Commencing at the beginning of fiscal 1999, we took aggressive actions to
turn around our U.S. Wholesale business. These actions include:
. Replacing the management responsible for U.S. Wholesale operations with
experienced luggage industry veterans.
. Reorganizing management along "channel management" lines that focus
separately on each of our channels of distribution.
. Improving customer relationships by substantially eliminating cross
distribution channel selling and by modifying our strategy for Samsonite
operated retail stores.
. Revising our product offerings and pricing strategy to be more
responsive to trade customer needs and to the competition.
. Modifying our co-op advertising and sales promotion policies to be more
cost effective.
. Reducing production levels, particularly in our Denver hardside plant
and Tucson/Nogales softside plants, to bring volume into line with
expected sales.
. Working with our trade customers and Samsonite operated stores to reduce
our excess working capital.
. Rightsizing the cost structure of our U.S. Wholesale operations and
support functions, including restructuring our U.S. manufacturing
operations.
Although the foregoing actions did not have a meaningful impact on our
financial results in fiscal 1999, by fiscal 1999 year-end, these measures had
significantly reduced operating costs and negative plant production variances,
balanced Samsonite branded inventories in the marketplace and greatly improved
relationships with our trade customers. Despite these positive developments,
the U.S. Wholesale business has continued to perform well below historical
levels.
In February 1999, we took further steps to restructure U.S. Wholesale sales
and marketing by consolidating these functions in our Warren, Rhode Island
offices and by promoting the executive responsible for the success of our U.S.
Retail operation to the position of President, Samsonite USA, with
responsibilities for all U.S. and Canadian operations. In February 1999, we
also leased a newly constructed 322,000 square foot warehouse adjacent to our
Denver headquarters, which should improve distribution service levels to our
customers and permit us over time to close a significant number of the 13
other warehouses currently operated by the U.S. Wholesale business. In April
1999, we succeeded in negotiating the renewal of our labor agreement covering
employees in our Denver plant to provide more flexible work rules which will
further improve the efficiency of this operation. Finally, we are revising our
prior marketing strategy, which we believe focused too heavily on the
Samsonite brand to the detriment of our two other principal brands, American
Tourister and Lark. As part of our refocused emphasis on channel management,
we will be taking steps to "re-launch" our American Tourister and Lark brands
with new competitively priced products in the first half of fiscal 2000.
As a result of the on-going corrective measures described above, we believe
that our U.S. Wholesale business will show significant improvement as fiscal
2000 progresses.
Our Strategy
While our highest priority is to turn-around our U.S. Wholesale business, we
will continue to implement and refine strategies used in our successful
European, U.S. Retail and International businesses as described below.
Expand Channels of Distribution and Product Offerings. We plan to increase
our presence in channels of distribution where we believe we are under-
represented by using targeted marketing and sales efforts tailored to each
channel, and by exploiting our manufacturing and sourcing leverage. As part of
this strategy, we plan to aggressively pursue opportunities to sell American
Tourister and retailer labeled products to mass merchant
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retailers and in other high volume potential channels throughout the world. We
also plan to introduce more casual bags and business cases in the U.S. in
order to expand our sales in this growth category.
Strengthen Marketing and Product Innovation. We plan to continue to expand
our presence in the worldwide luggage market from both a trade and consumer
standpoint. We believe that the company-wide organization of management along
"channel management" lines will strengthen our marketing efforts by
facilitating accurate forecasting, sound inventory management and rapid
response to competitive pressures, on a channel-by-channel basis. As a result,
we expect to introduce more consumer-preferred products, styles and features
at price-to-value relationships appropriate to each channel, supported by more
effective advertising, strengthened point-of-sales programs and better
customer service.
Continue Worldwide Expansion. We plan to continue expansion in countries
where growing economies and reduced political and trade barriers provide
opportunities for long-term growth. We currently have operations in a number
of emerging foreign markets, including India, China, South America and the
Pacific Rim.
Improve Distribution Systems in the U.S. We plan to improve the ability of
our U.S. Wholesale business to process and ship customer orders in a timely,
cost effective manner, modeled after our integrated order processing,
distribution and automated warehousing system in Europe. We believe that the
European system has resulted in a number of benefits, including increased
shipping capacity, lower distribution costs, lower customer inventory levels
and fewer returns and customer disputes, and that it affords us a competitive
advantage over other manufacturers and distributors of luggage in Europe. We
have completed the installation of new distribution software in the U.S. and
leased a newly constructed 322,000 square foot warehouse in Denver, which are
the first steps in gradually moving towards our European distribution model.
The Luggage Market
The worldwide luggage market encompasses a very wide range of products,
values and price points. At the high end of the market are high quality, full
featured products that have prestigious identities, higher prices and
selective distribution. Beneath the luxury segment is a broad middle band in
which products are differentiated by features, brand name and price. Within
this band, unit sales are largest at mid and low prices. Product
differentiation decreases and breadth of distribution increases at lower price
levels. At the lower price levels in the market, unbranded products with few
differentiating features are sold in significant volumes and at low margins,
competing primarily on the basis of price. We have products designed to sell
into all three segments of the luggage market.
Products
We offer a broad range of products, including softside suitcases, hardside
suitcases, casual bags, garment bags, business cases and laptop computer
cases. Below are the approximate percentages of our fiscal 1999 revenues from
sales of luggage and travel related products by product type:
<TABLE>
<S> <C>
Softside suitcases................................................. 36%
Hardside suitcases................................................. 32
Casual bags ....................................................... 12
Garment bags....................................................... 5
Business cases..................................................... 4
Other products (primarily non-luggage)............................. 11
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100%
===
</TABLE>
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Below are our market positioning and targeted consumer for each of our
principal luggage brands:
<TABLE>
<CAPTION>
Brand Name Market Positioning U.S. Target Consumer Europe Target Consumer
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Samsonite Innovative, high Business/frequent traveler Affluent traveler
quality, durable luggage
American Tourister Quality luggage offering Value conscious traveler Value conscious traveler
value
Lark Premium luggage with Affluent traveler Not offered
luxurious styling
</TABLE>
In Europe, our Samsonite brand enjoys more of a premium image than in the
U.S., and we offer products within the Samsonite line that compete with
prestigious luxury brands.
Softside Luggage. Approximately 70% of our softside luggage and other bags
are made by numerous independent suppliers located worldwide. We produce the
balance of our softside luggage in our own facilities located in several
countries. We have introduced many innovative features in our softside products
in response to consumer needs for better interior organization, ease of use,
mobility and portability. Our softside products are sold under all of our major
brands.
We have introduced numerous softside products with proprietary features.
These products include the Ultravalet(R) Garment Bag, with a unique wrinkle-
free folding system, also available on wheels; the EZ Big Wheel(R) rolling
system, which allows effortless passage over carpet and rough surfaces; and the
EZ CART(R) system which has 4 wheels that support all the weight of the case
and a push handle that provides optimum stability and mobility.
Hardside Luggage. We manufacture all of our hardside luggage in our own
factories. Hardside luggage is sold under the Samsonite brand globally. In the
United States and Europe, hardside luggage is also sold under the American
Tourister brand. Both in Europe and in the United States, hardside products are
offered in several lines, each including a variety of sizes and styles to suit
different consumer needs. In the United States, Samsonite-branded hardside
products include the luxurious, leather trimmed Silhouette(R) DLX and the
Silhouette(R) 700 Series in the upper range, Ultralite 3(TM) 550 Series in the
upper-middle range and Epsilon(R) II 400 Series and Oyster(TM) 200 Series
products in the middle and lower ranges.
In Europe, popular Samsonite-branded hardside lines include the Classic 1000,
System 4 Deluxe and System 4 Art lines, at the higher end of the market, the
Epsilon, Spark and Oyster II lines in the upper-middle range and Oyster
products at the lower end.
We sell hardside suitcases that are easy to transport. These hardside
suitcases include the patented Piggyback(R) product, that incorporates a
luggage cart, an extendable handle and a strap allowing additional bags to be
attached and transported. Hardside suitcases are also available with the EZ
Cart(R) system.
Other Luggage. We use our global manufacturing and product sourcing leverage
to compete in the high-volume discount channels of retail luggage distribution
by marketing luggage products under a number of secondary brands and retailer
labels. These hardside and softside luggage products are generally lower priced
than our Samsonite, American Tourister and Lark products and usually provide
fewer features. Our secondary brands include Magnum(R) and Royal Traveler(R) in
Europe, Tauro(R) in Spain, Azzura(R) and Bogey(R) in Italy and Legacy(R) in the
U.S.
Non-luggage Licensed Products. We license Samsonite brand names and apparel
brand names owned by Samsonite including McGregor(R), Botany 500(R) and Bert
Pulitzer(R) and others to third parties primarily for the sale of non-luggage
travel related products, clothing and furniture. Licensees are selected for
competency in their product categories, and usually sell parallel lines of
products under their own or other brands. Currently, licensed products
distributed by Samsonite or by third party licensees include apparel,
furniture, travel accessories, photo and audio storage gear, personal leather
goods, ladies handbags, umbrellas, binoculars, pet carriers, auto accessories,
cellular phone cases, back-to-school bags and other children's products.
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New Product Design and Development. We devote significant resources to new
product design and development. We use market research to identify consumers'
luggage needs and style preferences and develop products that meet those needs
and preferences. We employ full-time designers and development engineers and
retain outside designers with whom we have long-term relationships to ensure a
continuous flow of product ideas based on material developments and trends in
consumer preferences and technologies. We strongly believe that our intensive
product development and emphasis on innovation distinguish us from our
competitors.
Distribution
Our products are sold in more than 100 countries around the world at an
estimated 27,000 retail outlets.
North America. We sell our Samsonite brand products in North America
primarily through department stores, luggage specialty stores and national
retailers such as JCPenney and Sears. Discount channels such as mass
merchants, warehouse clubs and factory outlets are becoming increasingly
important in the distribution of our products in North America. We have a
direct sales force of approximately 75 persons who serve approximately 10,000
stores in the United States.
In addition, as of January 31, 1999, we operated 195 retail stores, largely
in factory outlet centers, in the United States that distribute a line of
Samsonite and American Tourister products specially designed for these stores,
as well as excess, discontinued and obsolete products. Our company-operated
stores allow us to efficiently balance inventories and test market new
products and designs. The stores also sell a variety of travel related
products.
Europe. We distribute our Samsonite brand products in Europe through
specialty luggage stores and department stores. Samsonite-branded products are
generally not distributed through the discount retailers in Europe in order to
preserve the premium image the Samsonite brand has in Europe. Our American
Tourister brand has been introduced in Europe to help balance our retail
distribution in each of the primary retail channels and is being used to
establish a single pan-European brand name in the discount channel. We service
an estimated 11,000 stores in Europe through a direct sales and product
demonstration force of approximately 120 persons.
To complement our business in European countries where we have a direct
sales force, we also sell to other European markets through distributors and
agents located in over 20 countries. These distributors and agents, as well as
those mentioned under "International" below, handle various non-luggage
products in addition to our products. Distribution agreements generally
provide for mutual exclusivity, whereby distributors do not handle
competitors' luggage products, and we do not deal with other distributors or
agents in their territory.
International. In markets outside the United States and Western Europe, we
sell our products directly, through agents and distributors, and under
license. Products sold in international markets are shipped from the United
States, Western Europe or Asia depending upon product type, availability and
exchange rate. In some instances, we have entered new markets through third
party distributors and have acquired these third party distributors as markets
have matured. We have a long-standing licensing arrangement to sell our
products in Japan. We have joint ventures in Singapore, South Korea, India,
Brazil and China, as well as wholly-owned distribution organizations in Hong
Kong and Taiwan. We also have a joint venture operations in Argentina and
Brazil to distribute Samsonite products in those countries as well as other
major South American markets.
Advertising
We commit substantial resources to brand advertising programs that promote
the features, durability and quality of our luggage and travel products under
the marketing theme "Samsonite Worldproof(R)." In connection with our efforts
to re-launch a new line of American Tourister branded products in the second
half of fiscal 2000, we are bringing back our very popular "gorilla"
advertising theme. We are the only luggage maker who regularly advertises on
national television in the United States and Europe. For the last five fiscal
years we have invested, on average, in excess of $50 million annually in
national and co-op advertising programs and related promotional activities.
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Manufacturing and Sourcing Products
Our global product sourcing network consists of 14 Samsonite operated
manufacturing facilities and various third party suppliers located principally
in the Far East, Eastern Europe and the Dominican Republic. By operating our
own facilities to produce hardside luggage and more complex softside products,
we are able to control manufacturing quality and reduce lead times and
delivery costs. Our global sourcing network also enables us to source products
from countries with lower production costs and favorable currency exchange
rates. Samsonite operated manufacturing facilities are located in Belgium,
France, Hungary, Italy, the Slovak Republic, Mexico, Spain, India, China and
the United States.
In fiscal 1999, approximately 30% of our revenues from softside luggage
products were from products manufactured at our own facilities. We source the
remainder of our softside luggage products primarily from third-party vendors
in the Far East, Eastern Europe and the Dominican Republic. We believe that
the significant volume of our softside luggage purchases enable us to obtain a
reliable supply of high quality, low cost products and prompt order
fulfillment. We are able to select different third party suppliers to take
advantage of changes in manufacturing, payment terms and shipping costs. We do
not rely on any single third party supplier, the loss of whom would be
material to us.
We manufacture virtually all of the hardside luggage products that we
distribute. Our hardside production facilities are located in Denver,
Colorado; Oudenaarde, Belgium; Nashik, India; Henin-Beaumont, France and
Ningbo, China.
We maintain a rigorous quality control program for goods manufactured at our
own plants and at third party vendor facilities. Products are designed to
assure durability and strength, and a prototype of each new product is put
through a series of simulation and stress tests. In our manufacturing
facilities and our Asian sourcing office, we use quality control inspectors,
engineers and lab technicians to perform inspection and laboratory testing on
raw materials, parts and finished goods.
Competition
Competition in the worldwide luggage industry is very fragmented with the
vast majority of our competitors having less than 10% of Samsonite's annual
luggage sales. In the United States, we compete based on brand name, consumer
advertising, product innovation, product quality, differentiation, customer
service and price. Price is more important at the lower end of the luggage
market where fewer differentiating features are offered. In Europe, we compete
based on our premium image, brand name, product quality, access to established
distribution channels and new product offerings. The manufacture of softside
luggage is labor intensive but not capital intensive, so that the barriers to
entry by competitors are relatively low. In addition to companies in the
business of manufacturing and distributing luggage products, we compete for
the business of various large retailers who have the ability to purchase
private label softside luggage directly from manufacturers in low labor cost
countries, primarily in Asia.
Customers
Our customers include most major department stores that carry luggage, most
specialty stores featuring luggage products and many other retailers
(including catalog showrooms, mass merchants and discounters). We also sell
directly to consumers through Samsonite-operated retail stores in the United
States and Europe. We are not dependent on any single customer, and no single
customer accounts for more than 5% of our consolidated revenues.
Trademarks and Patents
Trademarks and patents are important to us. We are the registered owner of
Samsonite, American Tourister, Lark and other trademarks. As of January 31,
1999, we had approximately 2,144 trademark registrations and approximately 250
trademark applications pending in the United States and abroad covering
luggage, apparel
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products and retail services. We also own approximately 180 United States
patents and approximately 511 patents (patents of inventions, industrial
design registrations and utility models) in selected foreign countries. In
addition, we have approximately 250 patent applications pending worldwide. We
pursue a policy of seeking patent protection where appropriate for inventions
embodied in our products. Our patents cover features popularized in our EZ
CART(R), Smart Pocket(TM), Easy Turn(R), Piggyback(R), Ultravalet(R) and
Oyster(TM) luggage. We have also patented our CPX production technology for
making luggage shells. Although some companies have sought to imitate some of
our patented products and our trademarks, we have generally been successful in
enforcing our worldwide intellectual property rights.
Employees and Labor Relations
At January 31, 1999, we had approximately 7,300 employees worldwide, with
approximately 2,100 employees in the United States and approximately 5,200
employees in other countries. In the United States, approximately 500
employees are unionized under a contract that is renewed every three years and
was most recently renewed in April 1999. We employ approximately 2,100 workers
in our 5 European manufacturing plants located in Belgium, France, Spain,
Italy and Hungary. In Europe union membership varies from country to country
and is not officially known to Samsonite; however, it is probable that most of
our European workers are affiliated with a union. Most European union
contracts have a one-year duration. We believe our employee relations are
good.
Forward-Looking Statements
Certain statements under "Business," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Quantitative and
Qualitative Disclosures About Market Risk" and elsewhere herein constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements may be
indicated by words such as "may," "will," "anticipate," "believe," "estimate,"
"intend," "plan" and "expect" and similar expressions. Variations on those or
similar words, or the negatives of those words, also may indicate forward-
looking statements. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions, including foreign currency
fluctuations; industry capacity; changes in customer preferences; demographic
changes; competition; changes in methods of distribution and technology;
changes in political, social and economic conditions and local regulations,
particularly in Europe and Asia; general levels of economic growth in emerging
market countries such as India, China, Brazil, Argentina, and other Asian and
South American countries; the loss of any significant customers; completion of
new product developments within anticipated time frames; changes in interest
rates; and various other factors beyond the Company's control.
9
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ITEM 2. PROPERTIES
The following table sets forth certain information relating to our principal
properties and facilities. All of our manufacturing plants, in our opinion,
have been adequately maintained and are in good operating condition. We believe
that our existing facilities have sufficient capacity, together with sourcing
capacity from third parties, to handle our sales volumes for the foreseeable
future. The Company's headquarters in Denver share the same location as a
manufacturing facility.
<TABLE>
<CAPTION>
Approximate Facility
Owned or Size
Location Leased (thousands of sq. ft.)
-------- ------------ ---------------------
<S> <C> <C>
Denver, CO............................ Owned/Leased 1,609
Tucson, AZ............................ Owned/Leased 63
Jacksonville, FL...................... Leased 510
Warren, RI............................ Leased 94
Stratford, Canada..................... Owned 212
Nogales, Mexico....................... Leased 333
Mexico City, Mexico................... Owned/Leased 182
Oudenaarde, Belgium................... Owned 649
Ningbo, China......................... Owned 100
Nashik, India......................... Owned 743
Torhout, Belgium...................... Owned 79
Henin-Beaumont, France................ Owned 98
Szekszard, Hungary.................... Owned 81
Tres Cantos, Spain.................... Owned 37
Saltrio, Italy........................ Leased 74
Singapore............................. Leased 13
Hong Kong............................. Leased 29
Seoul, South Korea.................... Leased 19
Samorin, Slovak Republic.............. Owned 43
Buenos Aires, Argentina............... Leased 17
Sao Paulo, Brazil..................... Leased 1
</TABLE>
We also maintain numerous sales offices, retail outlets and distribution
centers in the United States and abroad.
ITEM 3. LEGAL PROCEEDINGS
Information regarding our legal proceedings is contained in Note 15 to our
consolidated financial statements included elsewhere herein and is incorporated
herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock, par value $.01 per share (the "Common Stock"), is
presently traded on the Nasdaq National Market (the "NNM") under the symbol
"SAMC". The table below sets forth the high and low per share sale prices for
the Common Stock for fiscal years 1998 and 1999 and through April 15, 1999 (as
reported on the NNM). The closing price of the Common Stock on the NNM on
April 15, 1999 was $6 1/4 per share.
<TABLE>
<CAPTION>
Fiscal 1998 High Low
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<S> <C> <C>
Fiscal quarter ended:
April 30, 1997..................................... 50 7/8 37 1/4
July 31, 1997...................................... 51 1/4 40 3/4
October 31, 1997................................... 53 1/8 35 7/8
January 31, 1998................................... 46 3/4 25
<CAPTION>
Fiscal 1999
-----------
<S> <C> <C>
Fiscal quarter ended:
April 30, 1998..................................... 37 7/8 26 9/16
July 31, 1998*..................................... 33 5/8 7 1/2
October 31, 1998................................... 8 9/16 4 1/8
January 31, 1999................................... 9 15/16 5
<CAPTION>
Fiscal 2000
-----------
<S> <C> <C>
February 1, 1999 through April 15, 1999............ 6 7/8 4 7/8
</TABLE>
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* On June 24, 1998, we completed our Recapitalization as described on page 13.
As of April 15, 1999, the number of holders of record of our Common Stock
was 90.
All holders of shares of our Common Stock share ratably in any dividends
declared by our Board of Directors. Any payment of dividends are at the
discretion of our Board of Directors and will depend upon, among other things,
the Company's earnings, financial condition, capital requirements, extent of
indebtedness and contractual restrictions with respect to the payment of
dividends. The terms of our indebtedness and the certificate of designation
for our 13 7/8% Senior Redeemable Exchangeable Preferred Stock (the "Senior
Redeemable Preferred Stock") currently restrict us from paying dividends on
our Common Stock.
On June 18, 1998, Samsonite issued and sold an aggregate of 175,000 units
(the "Units") consisting of 175,000 shares of its Senior Redeemable Preferred
Stock and warrants to purchase 1,959,000 shares of Common Stock (the
"Warrants") to CIBC Oppenheimer Corp. ("CIBC Oppenheimer"). The aggregate
purchase price for the Units was $169.8 million. The sale of the Units to CIBC
Oppenheimer was made in reliance on the exemption from registration contained
in Section 4(2) of the Securities Act of 1933 (the "Securities Act").
Following the sale to CIBC Oppenheimer, resales were permitted (i) to
Qualified Institutional Buyers (as defined in Rule 144A under the Securities
Act) and (ii) outside the United States in compliance with Regulation S under
the Securities Act.
The Warrants entitle the holders thereof to purchase an aggregate of
1,959,000 shares of Common Stock at an exercise price of $13.02 per share of
Common Stock. The Warrants are currently exercisable and, unless exercised,
will automatically expire on June 15, 2010.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Our selected historical consolidated financial information presented below
is derived from our audited consolidated financial statements.
The selected historical consolidated financial information presented below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's consolidated
financial statements and related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------------------
1995 1996 1997 1998 1999
--------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Net Sales.................. $ 635,452 675,209 741,138 736,875 697,421
Cost of Goods Sold......... 373,967 414,691 449,333 424,349 413,124
--------- ------- ------- ------- --------
Gross Profit............... 261,485 260,518 291,805 312,526 284,297
Selling, General and Admin-
istrative Expenses (a).... 197,716 203,701 233,761 234,257 263,892
Amortization of Intangible
Assets (b)................ 67,189 63,824 31,837 7,101 5,633
Provision for Restructuring
Operations................ -- 2,369 10,670 1,866 6,598
--------- ------- ------- ------- --------
Operating Income (Loss).... (3,420) (9,376) 15,537 69,302 8,174
Interest Income............ 2,909 4,709 1,419 2,574 2,453
Interest Expense and Amor-
tization of Debt Issue
Costs and Premium......... 37,875 39,974 35,670 19,918 39,954
Other Income (Expense)--
Net....................... 2,729 3,967 18,821 28,294 (25,351)
Income Tax Expense......... 10,619 9,095 10,389 23,088 26,800
Minority Interest in Earn-
ings of Subsidiaries...... (931) (1,385) (1,041) (287) (840)
--------- ------- ------- ------- --------
Income (Loss) from Continu-
ing Operations............ (47,207) (51,154) (11,323) 56,877 (82,318)
Income (Loss) from Opera-
tions Discontinued and
Sold, Cumulative Effect of
Change in Accounting Prin-
ciples and Extraordinary
Items..................... (64,372) (10,293) -- (16,178) (6,460)
--------- ------- ------- ------- --------
Net Income (Loss).......... (111,579) (61,447) (11,323) 40,699 (88,778)
Senior Redeemable Preferred
Stock Dividends and Accre-
tion of Senior Redeemable
Preferred Stock Discount.. -- -- -- -- (15,632)
--------- ------- ------- ------- --------
Net Income (Loss) to Common
Stockholders.............. $(111,579) (61,447) (11,323) 40,699 (104,410)
========= ======= ======= ======= ========
Income (Loss) per Common
Share--Basic:
Net Income (Loss) from
Continuing Operations
Before Extraordinary
Item.................... $ (3.05) (3.24) (.71) 2.81 (6.79)
Net Income (Loss)........ $ (7.22) (3.89) (.71) 2.01 (7.24)
Income (Loss) per Common
Share--Assuming Dilution:
Net Income (Loss) from
Continuing Operations
Before Extraordinary
Item.................... $ (3.05) (3.24) (.71) 2.70 (6.79)
Net Income (Loss)........ $ (7.22) (3.89) (.71) 1.93 (7.24)
BALANCE SHEET DATA (AS OF
END OF PERIOD)
Property, Plant and Equip-
ment, Net................. $ 137,686 140,912 143,959 142,351 149,641
Total Assets............... $ 866,000 607,443 592,658 610,049 621,435
Long-Term Obligations (In-
cluding Current
Installments)............. $ 417,175 310,959 290,617 179,223 503,096
Senior Redeemable Preferred
Stock..................... -- -- -- -- 178,329
Stockholders' Equity (Defi-
cit)...................... $ 148,472 25,116 24,998 208,886 (295,446)
</TABLE>
See footnotes on page 14
12
<PAGE>
Recapitalization
On June 24, 1998, the Company completed a recapitalization (the
"Recapitalization"). The Recapitalization involved the following: (1) the sale
of 175,000 Units consisting of 175,000 shares of Senior Redeemable Preferred
Stock with a stated amount of $175 million, and warrants to purchase 1,959,000
shares of Common Stock at an exercise price of $13.02 per share; (2) the sale
of $350 million aggregate principal amount of the Company's 10 3/4% senior
subordinated notes due 2008; (3) the repurchase pursuant to a tender offer of
10.5 million shares of Common Stock at a purchase price of $40 per share (or
$420 million in the aggregate); (4) the refinancing of certain indebtedness
existing at that time; and (5) entering into the Company's current bank credit
facility.
Impact of Fair Value Adjustments Attributable to the Reorganization of Astrum,
Restructurings and Certain Other Expenses
Included in the Company's statements of operations are amortization and
depreciation related to adjustments of assets and liabilities to fair value in
connection with the adoption of 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") in June
1993 in conjunction with the reorganization (the "Reorganization"), of Astrum
International Corp. ("Astrum"). Prior to July 14, 1995, the Company was a
subsidiary of Astrum. On July 14, 1995, Astrum merged with Samsonite
Corporation and changed its name to Samsonite Corporation. The most
significant adjustment related to reorganization value in excess of
identifiable assets which was amortized over the three-year period ended June
1996. The Company also recorded fresh start adjustments to reflect tradenames,
licenses, patents, and other intangibles at their fair values, which are being
amortized over periods ranging from one to forty years. Property and equipment
adjusted to fair values in connection with the adoption of SOP 90-7 are being
depreciated over their respective useful lives, primarily ranging from two to
six years. In addition, the Company's statements of operations include
provisions for restructuring operations in fiscal years 1997 through 1999,
certain other expenses associated with the fiscal 1997 restructuring and
management team changes, and expenses in fiscal 1999 related to the
Recapitalization.
Due to the significance of these items, management believes that it is
useful to isolate their impact on Operating Income as shown below. This
information does not represent and should not be considered an alternative to
Operating Income, any other measure of performance as determined by generally
accepted accounting principles or as an indicator of operating performance.
The information presented may not be comparable to similar presentations
reported by other companies.
<TABLE>
<CAPTION>
Year Ended January
31,
---------------------
1997 1998 1999
------- ------ ------
(In thousands, except
per share amounts)
<S> <C> <C> <C>
Impact on Operating Income
Operating Income......................................... $15,537 69,302 8,174
Fresh Start Amortization and Depreciation (b)............ 34,484 8,738 5,608
Provision for Restructuring Operations................... 10,670 1,866 6,598
Certain Other Expenses Associated with Restructuring
Operations, Management Changes and the Recapitalization
(a) 5,400 -- 9,083
------- ------ ------
Operating Income Before Fresh Start Amortization and
Depreciation, Provision for Restructuring Operations and
Certain Other Expenses Associated with Restructuring
Operations, Management Changes and the
Recapitalization........................................ $66,091 79,906 29,463
======= ====== ======
</TABLE>
See footnotes on Page 14
13
<PAGE>
- --------
(a) Selling, General and Administrative Expenses include $9.1 million of
expenses during the year ended January 31, 1999 for (i) legal, printing,
and other expenses associated with the Recapitalization ($4.8 million);
and (ii) compensation expense recorded for adjustments and modifications
made to outstanding employee stock options as a result of the
Recapitalization ($4.3 million). Selling, General and Administrative
Expenses include $5.4 million of expenses during the year ended January
31, 1997, for consulting fees to establish the restructuring plan ($0.8
million), for the cessation of the former chief executive officer's
employment and the change in management ($4.1 million), and for expenses
in excess of the original provision in fiscal 1996 for the consolidation
of American Tourister manufacturing facilities ($0.5 million).
(b) The Company adjusted its assets and liabilities to their fresh start
values pursuant to SOP 90-7 and created a new entity for financial
reporting purposes. Since June 30, 1993, the Company's statements of
operations include amortization and depreciation related to these fresh
start adjustments. The most significant fresh start adjustment relates to
recording Reorganization Value in Excess of Identifiable Assets, which was
amortized over a three-year period ending in June 1996. In addition, fresh
start amortization includes amortization of fresh start adjustments to
reflect the fair value of trademarks, licenses, patents and other
intangibles, which are being amortized over periods from one to forty
years. Fresh start amortization and depreciation also includes
depreciation of fresh start adjustments to reflect the fair value of
property and equipment, depreciated over their estimated useful lives
ranging primarily from two to six years.
Fresh Start Amortization and Depreciation consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY
31,
-------------------
1997 1998 1999
------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
FRESH START AMORTIZATION:
Amortization of Reorganization Value in Excess of Identifi-
able Assets............................................... $22,947 -- --
Amortization of Licenses, Patents and Other................ 4,897 3,158 1,540
Amortization of Trademarks................................. 3,079 3,026 2,865
------- ----- -----
Total Fresh Start Amortization Included in Amortization
of Intangibles ......................................... 30,923 6,184 4,405
------- ----- -----
FRESH START DEPRECIATION--PROPERTY AND EQUIPMENT:
Included in Cost of Goods Sold............................. 2,914 2,093 982
Included in Selling, General and Administrative Expenses... 647 461 221
------- ----- -----
Total Fresh Start Depreciation 3,561 2,554 1,203
------- ----- -----
Total Fresh Start Amortization and Depreciation $34,484 8,738 5,608
======= ===== =====
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
selected financial data and the consolidated financial statements of the
Company and notes thereto commencing on page F-1. The Company's fiscal year
ends on January 31. References to a fiscal year denote the calendar year in
which the fiscal year ended; for example, "fiscal 1999" refers to the 12
months ended January 31, 1999. The Company's continuing operations consist of
a single business segment, the manufacture and sale of luggage and luggage
related products.
Results of Operations
The Company analyzes its net sales and operations by the following
categories: (1) "European operations" which include its European sales,
manufacturing and distribution operations whose reporting currency is the
Belgian franc; (2) "the Americas operations" which include sales,
manufacturing, and distribution operations in
14
<PAGE>
the United States, Canada and Latin America; (3) "Asian operations" which
include the sales, manufacturing and distribution operations in India, China,
Singapore, South Korea, Hong Kong and Taiwan; and (4) licensing operations and
corporate overhead. Divisions previously included in the "International"
category have been reclassified to conform with the current year presentation
described above.
Fiscal 1999 Compared to Fiscal 1998
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 36.32 and 35.67 francs to the U.S. dollar, respectively. This
decrease in the value of the Belgian franc of 1.8% resulted in decreases in
European 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 on translated earnings from foreign operations and/or
royalty agreements to fluctuations in currency exchange rates for the Belgian
franc and other foreign currencies. Such instruments are marked to market at
the end of each accounting period; realized and unrealized gains and losses
are recorded in Other Income (Expense)--Net. During fiscal 1999, the Company
had net gains from such instruments of $0.2 million including an unrealized
loss of $1.2 million; during fiscal 1998, the Company had net gains on such
instruments of $6.5 million. The Company estimates the reduction in operating
income from the year-to-year strengthening of the U.S. dollar versus the
Belgian franc to be approximately $0.5 million and $5.6 million in fiscal 1999
and 1998, respectively.
Net Sales. Consolidated net sales decreased from $736.9 million in fiscal
1998 to $697.4 million in fiscal 1999, a decrease of $39.5 million. Fiscal
1999 sales were adversely affected by the decrease in the value of the Belgian
franc compared to the U.S. dollar in fiscal 1998. Without the effect of the
exchange rate difference, fiscal 1999 sales would have decreased by $33.9
million or approximately 4.6%.
On a U.S. dollar basis, sales from European operations increased from $277.2
million in fiscal 1998 to $305.0 million in fiscal 1999, an increase of $27.8
million. Expressed in the local European reporting currency (Belgian francs),
fiscal 1998 sales increased by 12.1%, or the U.S. constant dollar equivalent
of $33.4 million, from fiscal 1998; however, the local currency increase was
partially offset by a $5.6 million exchange rate difference. Sales of hardside
products were 7.8% above the prior year due to the successful introduction of
new product lines, growth in sales of American Tourister products, and higher
business case sales. Sales of softside products were 12.8% above the prior
year because of strong sales of new products, excellent growth in sales of
business cases and growth of lower priced luggage products. Sales in most
European countries showed significant improvement over the prior year. New
product lines which contributed to sales growth in fiscal 1999 include Spark,
Base Hits, and Accent softside products and Oyster II hardside.
Sales from the Americas operations decreased from $419.3 million in fiscal
1998 to $353.8 million in fiscal 1999, a decrease of $65.5 million or 15.6%.
The decrease was largely due to a decline in U.S. Wholesale sales of $90.1
million, offset by an increase in U.S. retail sales of $19.7 million from the
prior year and an increase in sales from other Americas of $4.9 million.
. U.S. Wholesale revenues of $179.6 million were less than the prior year
of $269.7 million by $90.1 million, or 33.4%. U.S. Wholesale sales
decreased due to a number of factors affecting the U.S. luggage industry
in general, including numerous discount luggage promotions, industry-
wide excess inventory levels at retail, a poor Christmas selling season
for luggage, and to a lesser extent, economic conditions in Asia and
Latin America affecting tourism to the U.S. An additional factor in
declining sales is increased competition from luggage companies which
are offering products which are similar to the Company's products in
terms of style, features and durability of construction. U.S. Wholesale
sales were also negatively impacted by a computer conversion problem
which virtually halted shipments to customers during the first 20 days
of July 1998 and slowed shipments through the remainder of July 1998 and
part of August 1998. Conversion of the U.S. distribution system was the
15
<PAGE>
last phase of the project to upgrade computer systems in the U.S., which
included the installation of the new financial, manufacturing and
distribution software. The computer conversion problems were largely
resolved during the third quarter of the fiscal year such that shipping
and invoicing functions were restored.
The Company expects U.S. Wholesale sales to continue to be depressed
through fiscal 2000 because of the continuation of market factors which
affected U.S. Wholesale sales in fiscal 1998 and 1999. The Company is
executing various strategies to improve its sales and marketing
functions, cost structure and product competitiveness in the U.S.
Wholesale market in response to current competitive conditions.
. U.S. retail sales increased from $108.9 million in the prior year to
$128.6 million in the current year due to the effect of a full year of
operations for the net increase of 40 stores during fiscal 1998 and a
net increase of six stores opened during fiscal 1999. Comparable store
sales decreased by $0.3 million or less than 1% from fiscal 1998.
. Sales from other Americas operations, including Mexico, Canada, Brazil,
Argentina and Uruguay, were increased from the prior year by $4.9
million, from $40.7 million in fiscal 1998 to $45.6 million in fiscal
1999. The increase in sales from other Americas operations is due to new
joint venture operations in Argentina and Uruguay beginning in fiscal
1999, a full year of sales for joint venture operations established in
fiscal 1998 in Brazil, and increases in Canada's sales.
Sales from Asian operations increased from $21.9 million in fiscal 1998 to
$22.9 million in fiscal 1999, an increase of $1.0 million, primarily due to a
full year of operations in India, Hong Kong and Korea which were established
in fiscal 1998, offset by declines in revenues from other Asian countries due
to poor economic conditions in Asia and the effect of weakened Asian
currencies on sales translated to U.S. dollars.
Revenues from U.S. licensing declined $2.8 million compared to revenues in
the prior year due to two large license sale transactions in the prior year
which totaled $2.2 million and the continued decline in revenues from aging
non-luggage McGregor brands. Samsonite and American Tourister label licensing
revenues increased compared to prior year by $0.8 million because of increased
marketing efforts to license the Samsonite brand.
Gross Profit. Consolidated gross profit for fiscal 1999 decreased from
fiscal 1998 by $28.2 million. Gross margin decreased by 1.6 percentage points,
from 42.4% in fiscal 1998 to 40.8% in fiscal 1999. Because of the Company's
excess inventory position described elsewhere herein, the Company may
experience lower than normal gross profit margins on the sale of excess
inventory.
Gross margins from European operations increased by 0.3 percentage points,
from 39.9% in fiscal 1998 to 40.2% in fiscal 1999. The improvement is due to
stronger sales of higher margin products.
Gross margins for the Americas operations decreased 4.1 percentage points
from 42.7% in fiscal 1998 to 38.6% in fiscal 1999. This was caused primarily
by the decrease in U.S. Wholesale margins from 43.1% to 30.5%, because of
lower sales volume, increased sales allowances, increased sales of
discontinued and obsolete goods, and higher in-bound freight costs offset by
lower plant production variances, period manufacturing and global sourcing
costs. Gross margins for U.S. Retail improved from 48.9% in the prior year to
52.1% in the current year due primarily to the change in product mix sold
during fiscal 1999.
Selling, General and Administrative Expenses ("SG&A"). Consolidated SG&A
increased by $29.6 million from fiscal 1998 to fiscal 1999. As a percent of
sales, SG&A was 37.8% in fiscal 1999 and 31.8% in fiscal 1998.
SG&A for European operations increased by $5.9 million from fiscal 1998 to
fiscal 1999. The exchange rate difference caused SG&A to decrease by $1.4
million. The remaining increase of $7.3 million was primarily to support
increased sales levels in fiscal 1999. As a percent of sales, Europe's SG&A
was 25.2% in 1999 compared to 25.6% in 1998.
16
<PAGE>
SG&A for the Americas operations, including worldwide corporate
headquarters, increased by $22.2 million in fiscal 1999 compared to fiscal
1998. SG&A related to U.S. Wholesale operations decreased by $2.7 million,
from $85.2 million in fiscal 1998 to $82.5 million in fiscal 1999. As a
percent of sales, U.S. Wholesale SG&A was 45.9% in the current year compared
to 31.6% in the prior year primarily due to higher expenses incurred for
warehousing, national advertising and warranty in 1999 and lower sales volume
in fiscal 1999. SG&A related to U.S. retail operations increased by $11.3
million because of an increase in the number of stores open and increased
sales volume. As a percent of sales, retail SG&A increased from 42.6% in
fiscal 1998 to 44.8% in fiscal 1999. SG&A for other Americas operations
increased by $2.4 million primarily because of new joint venture operations in
Argentina and Uruguay beginning in fiscal 1999 and a full year of operations
since the formation of the Brazilian joint venture in 1998. Corporate SG&A
increased by $11.2 million from the prior year due primarily to $9.1 million
in expenses associated with the Recapitalization including expenses associated
with adjustments to employee stock options, increases in legal costs, and
expenses associated with assessment and implementation of Year 2000 readiness
strategies.
SG&A for Asian operations, including India, increased by $1.5 million from
fiscal 1998 due to a full year of operations for new joint venture
subsidiaries in Hong Kong and Korea and a full year of operations for India.
Amortization of Intangible Assets. Amortization of intangible assets
decreased from $7.1 million in fiscal 1998 to $5.6 million in fiscal 1999 due
primarily to Samsonite licenses which became fully amortized in fiscal 1998
and McGregor licenses which became fully amortized in fiscal 1999.
Provision for Restructuring Operations. The provision for restructuring
operations in fiscal 1999 results primarily from the restructuring of the U.S.
Wholesale and Torhout, Belgium manufacturing operations. The U.S. Wholesale
restructuring provision of $5.6 million recorded in the second quarter of
fiscal 1999 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. The fiscal 1999 provisions are comprised of estimated cash
expenditures of $6.0 million and estimated non-cash charges of $2.2 million.
During the fourth quarter of fiscal 1999, certain excess restructuring
reserves of $1.6 million were reversed, including $0.5 million related to the
fiscal 1997 reserve, and $1.1 million related to the fiscal 1999 U.S.
Wholesale restructuring reserve. In fiscal 1998, the Company recorded a $3.6
million restructuring provision and reduced the restructuring provision by
$1.7 million for excess accruals related to the fiscal 1997 restructuring. The
fiscal 1998 provision consists primarily of costs associated with involuntary
employee terminations and is comprised of estimated cash expenditures of $3.3
million and estimated non-cash charges of $0.3 million. The reversals of
excess reserves in fiscal 1999 and 1998 was necessary because certain expenses
contemplated in the restructurings did not materialize.
Operating Income. Operating income decreased from $69.3 million in fiscal
1998 to $8.2 million in fiscal 1999. This is a result of decreased gross
profit of $28.2 million, increased SG&A of $29.6 million and an increased
restructuring provision of $4.8 million, net of a decrease in amortization of
intangibles of $1.5 million.
Interest Income. Interest income decreased from the prior year by $0.1
million. Interest income in fiscal 1999 includes interest received from the
temporary investment of funds from proceeds of the financing component of the
Recapitalization until the Recapitalization was completed, interest income
received on a refund of state income taxes, and interest income from temporary
investments. Interest income in fiscal 1998 includes nonrecurring interest
income of $1.4 million received upon recovery of a loan to the settlement
trust created as a result of the Reorganization in 1993.
Interest Expense and Amortization of Debt Issue Costs and Premium. Interest
expense and amortization of debt issue costs increased from $19.9 million in
fiscal 1998 to $40.0 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.
17
<PAGE>
Other Income (Expense)--Net. See Note 16 to the consolidated financial
statements included elsewhere herein for a comparative analysis of Other
Income (Expense)--Net. 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 $0.5 million and $5.6 million for fiscal 1999 and 1998,
respectively. Other Income (Expense)--Net for fiscal 1999 includes gains from
forward exchange contracts of $0.2 million, including a $1.2 million loss
which was unrealized. In fiscal 1998, such transactions resulted in gains of
$6.5 million.
Other Income (Expense)--Net also includes $23.2 million expense in fiscal
1999 and $24.9 million income in fiscal 1998 for favorable adjustments to
accruals and allowances related to previous operations and to an accrual for
taxes recorded in connection with the Reorganization and accrued costs related
to shareholder litigation (see Note 15 to the consolidated financial
statements included elsewhere herein). Other expense of $1.8 million was
recorded in fiscal 1999 compared to $0.5 million in fiscal 1998 for equity in
loss of affiliates related to Samsonite's investment in the China joint
venture. Gain (loss) on disposition of assets held for sale and fixed assets,
net improved from a loss of $0.4 million in fiscal 1998 compared to a gain of
$3.2 million in fiscal 1999 due primarily to a gain on the sale of the
Company's Murfreesboro, Tennessee building in fiscal 1999 which had been
previously leased to third parties.
Income Taxes. Income tax expense increased from $23.1 million in fiscal 1998
to $26.8 million in fiscal 1999. The increase in tax expense is due primarily
to the net effect of deferred tax assets which were fully reserved through
valuation allowances during 1999 and the reduction in income tax expense for
previously accrued taxes which were reversed in 1999, tax expense related to
the tax effect in the U.S. of $45 million of deemed dividends received from
Samsonite Europe in connection with the sale and transfer of certain Asian
subsidiaries to Samsonite Europe, and taxes on foreign income; offset by a
reduction in income tax expense due to the consolidated pretax loss in 1999.
The valuation allowances were provided for deferred tax assets based on an
assessment of the likelihood of their realization in view of (i) the current
year net operating loss for book and tax purposes, (ii) expiration dates for
tax net operating losses incurred in prior years, and (iii) the Company's
forecasts of future taxable income taking into account the increased level of
ongoing interest expense as a result of the Recapitalization. The difference
between expected income tax expense, computed by applying the U.S. statutory
rate to income from continuing operations, and income tax expense recognized,
results primarily because of (i) foreign income tax expense provided on
foreign earnings, (ii) valuation allowances provided on deferred tax assets,
(iii) certain nontaxable liability adjustments, and (iv) state and local
income taxes. See Note 12 to the consolidated financial statements included
elsewhere herein for further analysis of income tax expense.
Extraordinary Loss. During fiscal 1999 the Company completed a tender offer
for the Company's 11 1/8% Series B Senior Subordinated Notes ("the Series B
Notes"). The Company retired $52.3 million principal amount of the Series B
Notes and paid redemption premiums and other related expenses totaling
approximately $8.5 million. These costs along with $1.5 million of deferred
financing costs were charged to expense and classified as an extraordinary
item, net of tax effects, during fiscal 1999. 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
$0.4 million were charged to expense and classified as an extraordinary item,
net of tax effects. The extraordinary loss of $16.2 million for fiscal 1998
resulted from (i) the payment of $17.3 million of redemption and market
premiums and the write-off of deferred financing costs of $4.6 million related
to the early retirement of $137.2 million principal amount of the Series B
Notes, (ii) the payment of $0.3 million of early retirement fees and the
write-off of $3.9 million of deferred financing costs related to refinancing
of the previous senior credit facility, and (iii) the tax benefit from the
aforementioned transactions of $9.9 million. See Note 9 to the consolidated
financial statements included elsewhere herein.
Net Income (Loss). The Company had net income in fiscal 1998 of $40.7
million and a net loss in fiscal 1999 of $88.8 million. The decrease in the
net income from the prior year of $129.5 million is caused by the effect of
the decreases in operating income and other income (expense)--net and the
increase in interest expense and income tax expense, offset by the decrease in
extraordinary loss.
18
<PAGE>
Senior Redeemable Preferred Stock Dividends and Accretion of Senior
Redeemable Preferred Stock Discount. In fiscal 1999, this item represents the
accrual of cumulative dividends on Senior Redeemable Senior Preferred Stock
issued in connection with the Recapitalization and accretion of the discount
over the twelve-year term of the Senior Redeemable 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 Redeemable Preferred Stock and is the amount used to calculate Income
(Loss) per Common Share.
Fiscal 1998 Compared to Fiscal 1997
General. Results of European operations were translated from Belgian francs
to U.S. dollars in fiscal 1998 and fiscal 1997 at average rates of
approximately 35.67 and 30.93 Belgian francs to the U.S. dollar, respectively.
This decrease in the value of the Belgian franc of 13% resulted in decreases in
European reported sales, cost of sales and other expenses in fiscal 1998
compared to fiscal 1997. The most significant effects from the difference in
exchange rates from fiscal 1997 to fiscal 1998 are noted in the following
analysis and referred to as an "exchange rate difference". The Company enters
into forward foreign exchange contracts and option contracts to reduce its
economic exposure to fluctuations in currency exchange rates for the Belgian
franc and other foreign currencies. Such instruments are marked to market at
the end of each accounting period; realized and unrealized gains and losses are
recorded in Other Income (Expense)--Net. During fiscal 1998, the Company had
net realized gains from such instruments of $6.5 million; during fiscal 1997,
the Company had net realized gains on such instruments of $2.8 million. The
Company estimates the reduction in operating income from the year-to-year
strengthening of the U.S. dollar versus the Belgian franc to be approximately
$5.6 million and $2.9 million in fiscal 1998 and 1997, respectively.
Net Sales. Consolidated net sales decreased from $741.1 million in fiscal
1997 to $736.9 million in fiscal 1998, a decrease of $4.2 million. Fiscal 1998
sales were adversely affected by the large decrease in the value of the Belgian
franc compared to the U.S. dollar in fiscal 1998. Without the effect of the
exchange rate difference, fiscal 1998 sales would have increased by $38.3
million or approximately 5%.
On a U.S. dollar basis, sales from European operations decreased from $280.8
million in fiscal 1997 to $277.2 million in fiscal 1998, a decrease of $3.6
million. Expressed in the local European reporting currency (Belgian francs),
fiscal 1998 sales increased by 13.8%, or the U.S. constant dollar equivalent of
$38.9 million, from fiscal 1997; however, the increase was more than offset by
a $42.5 million exchange rate difference. Despite the effect of the strong U.S.
dollar on reported sales, Europe's local results were much improved over the
prior year. Sales of hardside products were 7% above the prior year due
primarily to the success of the new Oyster II product. Sales of softside
products were 22% above the prior year because of strong traditional softside
luggage sales, the new Trunk & Co product line, and strong computer and other
softside business case lines. Sales in most European countries increased over
the prior year, with the exceptions of Germany and Belgium, where sales were
down approximately 1% from fiscal 1997.
Sales from the Americas operations increased from $414.2 million in fiscal
1997 to $419.3 million in fiscal 1998, an increase of $5.1 million or 1.2%. The
increase was largely due to an increase in U.S. retail sales of $30.4 million
or 39% from the prior year. Comparable store sales increased by 15.6% from
fiscal 1997 and the number of stores open increased from 149 at January 31,
1997 to 189 at January 31, 1998. The Company has rapidly expanded the number of
retail locations during the past two fiscal years which, along with the
increase in comparable store sales growth, contributed to the 39% growth in
fiscal 1998 sales over fiscal 1997 sales. The Company does not expect to
continue the rate of growth in retail store openings in fiscal 1999 and
therefore will not sustain the level of retail sales growth achieved in fiscal
1998. U.S. Wholesale revenues of $269.7 million were less than the prior year
by $22.6 million, or 7.7%. U.S. Wholesale sales decreased due to market
disruptions caused by the adverse impact of higher pricing strategies, various
forms of cross distribution-channel selling, dealer bankruptcies, and product
availability problems associated with forecasting and production issues. Sales
from other Americas operations, including Mexico, Canada and Latin America,
were less than the prior year by
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an aggregate of $2.7 million, or 6.2%. The decrease in the other Americas
countries was caused primarily by a decline in Canadian sales caused by issues
related to product standardization requirements which were modified subsequent
to January 31, 1998.
Sales from Asian operations, including India, decreased from $26.2 million
in fiscal 1997 to $21.9 million in fiscal 1998, a decrease of $4.3 million.
Sales previously classified as export sales from the U.S. were moved to
distributors established in Singapore, Hong Kong and South Korea in fiscal
1998. Transition issues resulting from the formation of the joint ventures and
the economic problems in Asia resulted in decreased sales attributed to this
region. Sales in India were $2.7 million for fiscal 1998. Samsonite products
were introduced to the Indian market through the new Indian manufacturing and
distribution joint venture which completed construction and began operations
in April 1997.
Revenues from licensing decreased by $1.4 million from fiscal 1997 to fiscal
1998 primarily because of lower revenues from non-luggage licenses for aging
brand names held by McGregor.
Gross Profit. Consolidated gross profit for fiscal 1998 increased from
fiscal 1997 by $20.7 million. Gross margin increased by 3.0 percentage points,
from 39.4% in fiscal 1997 to 42.4% in fiscal 1998.
Gross margins from European operations increased by 0.7 percentage points,
from 39.2% in fiscal 1997 to 39.9% in fiscal 1998. The improvement is due to
price increases in selected product lines and lower costs from standardized
global production sources.
Gross margins for the Americas operations increased 5.0 percentage points
from 37.7% in fiscal 1997 to 42.7% in fiscal 1998. U.S. wholesale margins
increased from 35.0% to 43.1%, primarily as a result of price increases on
product sales to both trade customers and the Company's retail division and
product cost improvements from global sourcing and product design
improvements. The increase in gross margins was achieved despite negative
production variances incurred during the last half of fiscal 1998 of
approximately $4.1 million. Margins in the Americas also benefited from a
higher mix of retail versus wholesale sales compared to the prior year.
Selling, General and Administrative Expenses. Consolidated SG&A increased by
$0.5 million from fiscal 1997 to fiscal 1998. As a percent of sales, SG&A was
31.8% in fiscal 1998 and 31.5% in fiscal 1997.
SG&A for European operations decreased by $5.6 million from fiscal 1997 to
fiscal 1998. The exchange rate difference caused SG&A to decrease by $10.7
million. The remaining increase of $5.1 million was due primarily to higher
variable selling expenses of $2.5 million related to the higher sales levels,
higher advertising expenses of $2.4 million and various other net increases of
$0.2 million.
SG&A for the Americas operations, including worldwide corporate
headquarters, increased by $4.8 million in fiscal 1998 compared to fiscal
1997. SG&A related to U.S. Wholesale operations was $0.1 million higher in
fiscal 1998 compared to fiscal 1997. In fiscal 1998, U.S. Wholesale price
increases and the relatively high rate of new product introductions were
supported by increased co-op advertising allowances and other sales promotion
credits given to customers, particularly during the second half of fiscal
1998. SG&A related to U.S. retail operations increased by $10.4 million
because of an increase in the number of stores open and increased sales
volume. As a percent of sales, retail SG&A decreased from 45.9% of sales in
fiscal 1997 to 42.6% of sales in fiscal 1998. SG&A for other Americas
operations increased by $1.5 million primarily because of a new Brazilian
joint venture. Corporate SG&A decreased by $7.2 million from the prior year
due primarily to expenses incurred in the prior year related to a
restructuring and changing organization structure in fiscal 1997.
SG&A for Asian operations, including India, increased by $1.4 million from
fiscal 1997 due to the addition of new joint venture subsidiaries in the Far
East and startup of operations in India, net of various cost savings from the
reorganization of export operations from the U.S. to Europe and the Far East.
SG&A related to non-luggage licensing of McGregor brands was consistent with
the prior year, declining by $0.1 million.
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Amortization of Intangible Assets. The Company recorded significant
intangible assets as a result of its reorganization in 1993. See Notes 1(b),
1(i) and 7 to the Company's consolidated financial statements included
elsewhere herein for a discussion of the recording and amortization of
intangible assets.
Reorganization value in excess of identifiable assets became fully amortized
in fiscal 1997, which generally accounts for the decrease in amortization of
intangible assets of $24.8 million in fiscal 1998.
Provision for Restructuring Operations. Over the past three fiscal years the
Company has recorded a series of restructuring provisions to accrue the costs
of consolidating and reorganizing various operations and realigning its
management and workforce structure. Net restructuring provisions decreased
from $10.7 million in fiscal 1997 to $1.9 million in fiscal 1998. In fiscal
1998, the Company recorded a $3.6 million restructuring provision and reduced
the restructuring provision by $1.7 million for excess accruals related to the
fiscal 1997 restructuring. The fiscal 1998 restructuring includes the
elimination of approximately 180 positions in the Mexico City manufacturing
plant and 20 management positions in the U.S. and is expected to be completed
by July 31, 1998. The provision consists primarily of costs associated with
involuntary employee terminations and is comprised of estimated cash
expenditures of $3.3 million and estimated non-cash charges of $0.3 million.
The fiscal 1997 provision of $10.7 million resulted from a program to further
consolidate functions and operations in North America, Europe and the Far
East, and to reduce or eliminate certain other operations. The fiscal 1997
restructuring plan included further consolidation of hardside luggage
production to Samsonite's largest U.S. facility located in Denver, Colorado
from other locations in the Americas, as well as eventual consolidation of
many administrative and control functions, primarily to Denver. The fiscal
1997 plan included the elimination of as many as 450 positions worldwide,
including approximately 150 manufacturing positions and approximately 300
managerial, office and clerical positions. The restructuring provision
consisted primarily of costs associated with involuntary employee terminations
and was comprised of estimated cash expenditures of $9.7 million and estimated
non-cash charges of $1.0 million, both on a pretax basis.
Operating Income (Loss). Operating income increased from $15.5 million in
fiscal 1997 to $69.3 million in fiscal 1998. This is a result of increased
gross profit of $20.7 million, the decrease in amortization of intangibles of
$24.8 million, the decrease in restructuring provisions of $8.8 million, net
of the increase in SG&A of $0.5 million.
Interest Income. Interest income increased from the prior year by $1.2
million, primarily as a result of nonrecurring interest income received in
fiscal 1998 upon recovery of a loan to the settlement trust created as a
result of the Reorganization in 1993.
Other Income (Expenses)--Net. See Note 16 to the consolidated financial
statements included elsewhere herein for a comparative analysis of Other
Income (Expense)--Net. 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 $5.6 million and $2.9 million for fiscal 1998 and 1997,
respectively. Other income for fiscal 1998 includes gains from forward
exchange contracts of $6.5 million. In fiscal 1997, such transactions resulted
in income of $2.8 million.
Other income for fiscal 1998 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 fiscal 1998 also includes $3.8 million from the adjustment of an
accrual for potential environmental liability related to real estate used in
previous operations, for which no claims were filed, which terminated by
agreement with the purchasers of the real estate during fiscal 1998; 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 $12.7 million related to an
accrual for taxes recorded in connection with the Reorganization.
Additionally, other income for fiscal 1998 includes $4.9 million from the
collection of
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a loan to a trust established for the benefit of the holders of certain
classes of pre-bankruptcy claims against the Company. Other income for fiscal
1997 included $15.4 million which also related to favorable settlements of
claims and adjustments of allowances related to previous operations.
Interest Expense and Amortization of Debt Issue Costs and Premium. Interest
expense and amortization of debt issue costs decreased from $35.7 million in
fiscal 1997 to $19.9 million in fiscal 1998. The decrease was caused primarily
by retirement of indebtedness out of the proceeds of a public stock offering
completed in February 1997, a lower interest rate on borrowings under the
senior credit facility which was refinanced in June 1997, and interest savings
from the retirement of high interest rate subordinated debt financed by lower
rate bank borrowings. See Notes 9 and 19 to the consolidated financial
statements included elsewhere herein.
Income Taxes. Income tax expense increased from $10.4 million in fiscal 1997
to $23.1 million in fiscal 1998. The increase in tax expense is due primarily
to higher consolidated pretax earnings in fiscal 1998. The difference between
expected income tax expense, computed by applying the U.S. statutory rate to
income from continuing operations, and income tax expense recognized, results
primarily because of (i) the nondeductibility for tax purposes of amortization
of reorganization value in excess of identifiable assets, (ii) foreign income
tax expense provided on foreign earnings, (iii) certain nontaxable liability
adjustments, (iv) foreign tax credits and (v) state and local income taxes.
See Note 12 to the consolidated financial statements included elsewhere herein
for further analysis of income tax expense.
Extraordinary Loss. The extraordinary loss of $16.2 million for fiscal 1998
resulted from (i) the payment of $17.3 million of redemption and market
premiums and the write-off of deferred financing costs of $4.6 million related
to the early retirement of $137.2 million principal amount of the Company's
Series B Notes, (ii) the payment of $0.3 million of early retirement fees and
the write-off of $3.9 million of deferred financing costs related to
refinancing of the previous senior credit facility and (iii) the tax benefit
from the aforementioned transactions of $9.9 million. See Note 9 to the
consolidated financial statements included elsewhere herein.
Net Income (Loss). The Company had a net loss in fiscal 1997 of $11.3
million and net income in fiscal 1998 of $40.7 million. The increase in the
net income from the prior year of $52.0 million was caused by the effect of
the increases in operating income and other income and the decrease in
interest expense, offset by the increase in income tax expense and the
extraordinary loss.
Liquidity and Capital Resources
As reflected in the consolidated statements of cash flows included elsewhere
herein, cash flows provided by operating activities decreased by $19.3 million
in fiscal 1999 from fiscal 1998. Cash flows from net income, adjusted for
nonoperating and noncash charges, decreased by $93.1 million, primarily as a
result of the decreases in operating income described above, while cash flow
used for increases in working capital and other operating assets decreased by
$73.8 million. At January 31, 1999, the Company had working capital of $174.2
million compared to $195.3 million at January 31, 1998, a decrease of $21.1
million. Current assets decreased by $6.0 million primarily due to the net
effect of increases in cash of $38.8 million, inventories of $14.9 million,
prepaid expenses and other current assets of $0.6 million, offset by decreases
in assets held for sale of $11.4 million, receivables of $19.8 million and
deferred taxes of $29.1 million. The increase in inventories occurred
primarily in U.S. Wholesale operations and resulted from sales and forecasting
issues during fiscal 1998 and 1999 which caused excess production and
purchases of finished goods in the U.S. Wholesale division and from depressed
U.S. wholesale sales as discussed elsewhere herein. Excess inventories in the
U.S. are comprised primarily of current product line items for which the
Company has inventory in excess of six months' forecasted sales. Because of
the excess inventory position, the Company may experience lower than normal
gross profit margins on the sale of these products. The Company's strategy is
to gradually reduce inventory levels in the U.S. over the next eighteen months
by improving the forecasting function, reducing purchases and production to
meet changes in customer demand, and selling discontinued products through its
retail stores and in limited amounts at discounts to its wholesale customers.
Assets held for sale decreased as a result of the sale of the
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Murfreesboro, Tennessee building which had previously been leased to third
parties. Receivables decreased primarily due to lower sales volume during
fiscal 1999 compared to fiscal 1998. Deferred tax assets decreased due
primarily to valuation allowances established in fiscal 1999 for U.S. deferred
tax asset balances. The valuation allowances were provided for U.S. deferred
tax assets based on an assessment of the likelihood of their realization in
view of (i) the current year U.S. net operating loss for book and tax
purposes, (ii) expiration dates for U.S. tax net operating losses incurred in
prior years, and (iii) the Company's forecasts of future U.S. taxable income
taking into account the increased level of ongoing interest expense as a
result of the Recapitalization.
Cash flows used in investing activities decreased from $37.9 million in
fiscal 1998 to $15.6 million in fiscal 1999, a decrease of $22.3 million.
Capital expenditures were $26.7 million in fiscal 1999 compared to
$36.3 million in fiscal 1998. Capital expenditures in fiscal 1999 consist
primarily of costs incurred to upgrade computer systems in the U.S. including
the installation of new financial, manufacturing and distribution software,
costs to complete the warehouse expansion in Europe, tooling for new products,
and costs incurred opening additional retail stores in the U.S. Capital
expenditures of $1.9 million in fiscal 1999 were incurred in less than 100%
owned subsidiaries, and were therefore financed in part by the other
shareholders in the ventures. During fiscal 1999, the Company, through a 51%
owned joint venture, acquired two distributors in Argentina and Uruguay.
During fiscal 1999, the joint venture paid $2.5 million toward the purchase of
the distributorships and recorded a liability for the estimated additional
purchase price due of approximately $1.3 million.
Cash flows provided by (used in) financing activities increased from cash
provided by financing activities in fiscal 1998 of $21.1 million to cash
provided by financing activities in fiscal 1999 of $51.6 million, an increase
in cash of $30.5 million. The Company completed the Recapitalization on June
24, 1998 involving the repurchase pursuant to a 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 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. The Company incurred cash issuance costs for the senior subordinated
notes, preferred stock and credit facility totaling $23.6 million.
Additionally, during fiscal 1999, the Company completed a tender offer and
retired $52.3 million principal amount of the Series B Notes representing 99%
of such outstanding notes, and paid redemption premium and incurred other
expenses of the tender offer totaling approximately $8.5 million to complete
the transaction. During fiscal 1999, the Company received $7.4 million from
the exercise of employee stock options.
At January 31, 1999, long-term debt obligations (including current
installments) were $503.1 million compared to $179.2 million at January 31,
1998, an increase of $323.9 million. The increase was caused primarily by the
effect of financing the Recapitalization.
The Company's Credit Facility requires the achievement and maintenance of
certain financial ratios. Lenders under the Credit Facility agreed during
fiscal 1999 and again in March 1999 to amend these financial ratios to enable
the Company to maintain compliance with financial covenants while continuing
to implement strategies to improve U.S. Wholesale operations. The Company's
Senior Credit Facility provides for a $110 million term loan and a $100
million revolving credit facility. At January 31, 1999, the Company had used
$31.4 million of availability under the revolving credit facility. Additional
borrowings under the Senior Credit Facility could be limited by the Company's
ability to meet and maintain the financial ratios after giving effect to any
additional borrowings.
The Company's cash flow from operations together with amounts available
under its credit facilities were sufficient to fund fiscal 1999 operations,
scheduled payments of principal and interest on indebtedness, and capital
expenditures. Management of the Company believes that cash flow from future
operations and amounts available under its credit facilities, credit
facilities in emerging markets, and equity financing 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.
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The Company's principal foreign operations are located in Western Europe,
the economies of which are not considered to be highly inflationary. The
economy in Mexico is considered highly inflationary beginning February 1,
1997. The Company enters into foreign exchange contracts in order to reduce
its exposure on certain foreign operations through the use of forward delivery
commitments. During the past several years, the Company's most effective hedge
against foreign currency changes has been the foreign currency denominated
debt balances maintained in respect to its foreign operations. Geographic
concentrations of credit risk with respect to trade receivables are not
significant as a result of the diverse geographic areas covered by the
Company's operations.
The Company's foreign operations in Asia consist primarily of
distributorships organized as joint venture subsidiaries. Economies and local
currencies throughout much of Asia entered a tumultuous period beginning in
fiscal 1998 as a result of political turmoil and general economic problems
with principal industries. The Asian economies continued to struggle
throughout fiscal 1999. The Company believes the situation has stabilized to
some degree and has experienced some improvement at the end of fiscal 1999 and
the beginning of fiscal 2000 in operations in certain Asian countries. During
fiscal 1999, the Company had approximately $30.1 million of revenues from
Asian sales, including licensing royalties, and as of January 31, 1999,
approximately $13.7 million in investments and receivables from Asian
subsidiaries.
Because of the relatively small part of the Company's revenues and assets
related to Asia, the Company does not believe the Asian economic problems will
have a material impact on the overall Company operations. However, if such
conditions were to continue, the Company's expected growth in this area of the
world could be adversely affected.
The Company believes that disclosure of its Earnings Before Interest, Taxes,
Depreciation, and Amortization (EBITDA) provides useful information regarding
the Company's ability to incur and service debt, but that it should not be
considered a substitute for operating income or cash flow from operations
determined in accordance with generally accepted accounting principles. Other
companies may calculate EBITDA in a different manner than the Company. EBITDA
does not take into consideration substantial costs and cash flows of doing
business, such as interest expense, income taxes, depreciation, and
amortization, and should not be considered in isolation to or as a substitute
for other measures of performance. EBITDA does not represent funds available
for discretionary use by the Company because those funds are required for debt
service, capital expenditures to replace fixed assets, working capital, and
other commitments and contingencies. EBITDA is not an accounting term and is
not used in generally accepted accounting principles. EBITDA, as calculated by
the Company, also excludes extraordinary items, discontinued operations, and
minority interest in earnings of subsidiaries. The Company's EBITDA for the
years ended January 31, 1999, 1998, and 1997 was $9.9 million, $126.2 million,
and $88.2 million, respectively. However, these amounts include various items
of income (expense) including (i) restructuring provisions; (ii) other income
in prior years primarily related to various items from previous operations;
and (iii) accrued costs related to the defense and resolution of shareholder
litigation, expenses of the Recapitalization; gain (loss) on disposition of
fixed assets, net; and other items, net; which items together aggregate $40.4
million, $(17.9) million, and $(3.4) million for the years ended January 31,
1999, 1998, and 1997, respectively, which management believes should be added
to (deducted from) the calculation of EBITDA. As adjusted for the aggregate of
these items of other income (expense), EBITDA for the years ended January 31,
1999, 1998 and 1997 is $50.3 million, $108.3 million, and $84.8 million,
respectively. EBITDA for fiscal 1998 reflects a reduction of $4.1 million for
negative production variances incurred during the last half of fiscal 1998.
Effect of Year 2000 Issue on Company Operations
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in normal business activities. Following is a report
on the status of the Company's actions being taken to address the Year 2000
Issue.
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United States Operations. In the United States, the Company has installed in
fiscal years 1998 and 1999 new financial manufacturing and distribution
software developed by J.D. Edwards in response to general needs of the
business as well as the Year 2000 Issue. This software system comprises the
majority of the information technology used in the U.S. operations. Based on
documents provided by the developer of the software, the Company believes the
software is Year 2000 compliant. The Company has incurred costs to purchase
and implement this software through January 31, 1999 of approximately $10.2
million and expects to incur additional costs of approximately $0.8 million to
fully implement such software, train personnel, and modify business processes.
Additionally, the Company has obtained system upgrades from the provider of
the information system software used in its retail operations in order to make
it Year 2000 compliant. Based on documents provided by the developer of the
software, the Company believes the software is Year 2000 compliant. The
aforementioned cost estimates do not include significant costs of existing
internal staff who have devoted significant resources to resolving Year 2000
issues.
In order to identify and remediate Year 2000 issues associated with other
information systems used by the Company, non-information technology systems,
and third party organizations, the Company contracted with a third party
consultant in November 1998 to coordinate the Company's Year 2000 project
efforts ("the Y2K Project"). The Y2K Project scope includes an inventory of
non-information technology automated systems with potential Year 2000 issues,
evaluation of suspect systems, and development of a project plan schedule and
budget for remediation or replacement of non-compliant systems. The Y2K
Project includes identifying any Year 2000 risks associated with key business
partners, product purchasers, materials suppliers, public utility providers,
and other organizations with which the Company has a material relationship.
Non-information technology systems being evaluated include systems using
embedded chip technology (i.e. telecommunications, heating and air
conditioning, manufacturing process control). The Y2K Project includes five
phases as follows:
. Phase 1--System level inventory and business risk assessment.
. Phase 2--Detailed inventory and evaluation to identify non-compliant
systems.
. Phase 3--Remediation of non-compliant systems.
. Phase 4--Acceptance testing of remediated systems in a production
environment.
. Phase 5--Implementation of remediated systems in a production environment.
As of April 1, 1999, Phases 1 and 2 have been completed. Phases 3 through 5
are projected to be completed at various dates through September 30, 1999 and
remediation of identified non-compliant systems has been initiated throughout
Phases 1 and 2. As of April 1, 1999, the Company has not identified or become
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. The Company has incurred
consulting expenses for the Y2K Project management through April 1, 1999 of
approximately $350,000. The Company has not completed a detailed estimate of
costs to remediate Year 2000 problems identified as a result of the Y2K
Project; however, based on preliminary evaluations, the Company expects such
costs will be in the range of $750,000 to $1,500,000.
For the U.S. operations, the Company has not developed a likely worst case
Year 2000 scenario; however, the Company has begun to develop comprehensive
contingency plans that consider internal systems as well as potential impacts
from third party organizations. The contingency plans are expected to be
substantially completed by June 30, 1999, but will continue to evolve as new
information becomes available.
Europe. The Company's European subsidiary ("Samsonite Europe") generally
uses information technology systems which have been developed internally over
many years. The Company began evaluating and remediating such systems for Year
2000 problems in calendar 1997 and believes that all necessary modifications
have been completed as of April 1, 1999 and will be implemented and tested by
midyear 1999.
In January 1998, Samsonite Europe formed a Year 2000 compliance task force
to survey and remediate non-information technology systems using embedded chip
technology and to survey customers and suppliers for
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Year 2000 compliance. As of January 31, 1999, Samsonite Europe believes is has
identified critical noncompliance issues with respect to non-information
technology systems and has scheduled remediation through equipment upgrades or
replacements by midyear 1999. It also expects its survey of customers and
suppliers to be completed by that time.
Through January 31, 1999, Samsonite Europe has incurred incremental costs
related to the Year 2000 issue of approximately $50,000 and estimates total
costs will not exceed $100,000. Such cost estimates do not include significant
costs of existing internal staff who have devoted significant resources to
resolving Year 2000 issues.
Samsonite Europe is developing a likely worst case scenario and contingency
plans to handle such a scenario for potential Year 2000 problems with its non-
information technology systems, customers, vendors, and service providers. It
expects this plan to be completed by approximately midyear 1999.
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 same third party consultants who
evaluated Year 2000 issues in the U.S. are also surveying major systems in
Canada and Latin America to identify areas requiring remediation. The Company
expects this evaluation to be completed by midyear 1999.
The aforementioned cost data related to costs incurred to acquire and
install software and to identify and remediate other Year 2000 issues does not
include substantial internal costs which have been incurred. Such internal
costs are principally payroll costs for information systems personnel and are
not tracked separately as they relate to Year 2000 issues.
No assurance can be given that the Company can identify all Year 2000 issues
which may have a material adverse effect on Company operations in the U.S.,
Europe, or elsewhere, or that it can correct identified 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 third party organizations will not experience Year 2000 issues which
may have a material adverse impact on the Company's operations.
Conversion to the Euro
On January 1, 1999, eleven countries in Europe adopted a common currency,
the "euro" and exchange rates between the currencies of the eleven countries
were fixed against the new euro. The former currencies of those eleven
countries will remain legal tender as denominations of the euro until January
1, 2002 and goods and services may be paid for using either the euro or the
former currency until that time. Approximately 75% of the Company's European
subsidiary's ("Samsonite Europe") sales are within these eleven countries. The
euro conversion has a significant impact on the Company's operations in terms
of pricing policies, currency risk and exchange, information systems, and
financial reporting. Samsonite Europe has been addressing euro implementation
issues since fiscal 1998 and has formed two different project teams to address
euro issues: one to address competitive and marketing issues and another to
address administrative, financial and computer systems issues.
The Company believes the adoption of the euro will have a positive effect on
Samsonite Europe's operations. Having a common currency among many of the
countries that Samsonite Europe sells into will reduce the administrative
burden of multiple currencies as well as reduce the costs of hedging and
exchanging currencies and resulting exchange gains and losses. As the euro
becomes accepted in the international money markets, Samsonite Europe may also
reduce its currency risk against the U.S. dollar for purchases of goods in the
Far East by using the euro to pay for such purchases rather than the U.S.
dollar, which is currently the primary currency used in international trade.
Samsonite Europe has adjusted its wholesale pricing to reduce product
pricing differences between countries which have existed historically;
however, price variations between countries will continue to exist at the
retail
26
<PAGE>
level due to differences in transportation costs, value added tax rates, and
dealer margins in the various European countries. Because of Samsonite
Europe's strong competitive position throughout the countries participating in
the euro conversion and significant economic barriers to entry, the Company
does not believe that potential increased competition and price transparency
as a result of the euro will have an adverse effect on the Company's sales or
results of operations.
Samsonite Europe currently intends to continue using the Belgian franc as
its functional currency until its fiscal year beginning January 1, 2001. As of
December 31, 1998, Samsonite Europe's information systems have been modified
such that order entry, customer invoicing, and payment processing can be
accomplished in the former currency or the euro, while converting financial
reporting to the functional currency (the Belgian franc). Additional extensive
system modifications are necessary to convert the functional currency to the
euro. The target completion date for such modifications, which are being
accomplished using existing internal staffing, is September 15, 1999. Most
system modifications to date have also been accomplished using internal
staffing with minimal incremental costs incurred to date. The Company
estimates that it has incurred incremental costs through January 31, 1999 of
approximately $37,000 to implement the euro conversion and estimates that it
will spend a total of approximately $85,000 to fully implement its euro
conversion. All costs related to the Euro conversion have been charged to
expense.
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 its financial
condition or results of operations as a result of implementing this standard.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
The Company's primary market risks include changes in foreign currency
exchange rates and interest rates. Market risk is the potential loss arising
from adverse changes in market rates and prices, such as foreign currency
exchange and interest rates. The Company enters into forward financial
instruments to manage and reduce the impact of changes in foreign currency
rates with major financial institutions. The Company does not use financial
instruments to any significant degree to manage interest rate risk. The
Company does not use financial instruments to manage changes in commodity
prices. The Company does not hold or issue financial instruments for trading
purposes.
Foreign Exchange Contracts
The Company enters into forward foreign exchange contracts to hedge its
exposure to translated earnings of foreign subsidiaries (primarily the
translated earnings of European operations which report earnings in Belgian
francs), intercompany royalty payments from foreign subsidiaries, and certain
third party royalty payments receivable in Japanese yen. The Company's
European subsidiary enters into forward exchange contracts primarily to hedge
purchases of goods from the Far East payable in U.S. dollars and, prior to the
introduction of the euro, certain other contracts to hedge receipts payable in
various European currencies.
Contracts entered into to hedge translated earnings of foreign subsidiaries
and intercompany royalties are marked to market at the end of each month and
gains or losses are included in Other Income (Expense)--Net. Gains or losses
on foreign exchange contracts entered into to hedge third party royalty
payments, product purchases, and receipts are included in income or loss when
the contracts are closed.
27
<PAGE>
At January 31, 1999, the Company and its European subsidiary had forward
foreign exchange contracts outstanding having a total contract amount of
approximately $74.0 million with a weighted average maturity of 198 days. If
there were a ten percent adverse change in foreign currency exchange rates
relative to the outstanding forward exchange contracts, the loss in earnings
from the amount included in results of operations for the year ended January
31, 1999 would be approximately $7.9 million, before the effect of income
taxes. Any hypothetical loss in earnings would be offset by changes in the
underlying value of translated earnings or royalty income, to the extent such
earnings or income is equal to the amount hedged, or for product purchases by
exchange gains.
Interest Rates
At January 31, 1999, the Company had approximately $360.1 million of fixed
rate long-term debt (including current maturities.) The fair market value of
long-term fixed interest rate debt is subject to interest rate risk. Generally,
among other factors, the fair market value of fixed interest rate debt will
increase as interest rates fall and decrease as interest rates rise. The
estimated fair value of the Company's total long-term debt (including current
portion) at January 31, 1999 was $290.1 million, which was less than the
carrying value by $70.0 million. Fair values were determined primarily from
quoted market rates since almost all the fixed rate long-term debt at January
31, 1999 consists of the Company's outstanding publicly traded subordinated
notes. A 1% decrease from prevailing interest rates at January 31, 1999, would
result in an estimated increase in fair value of total fixed rate long-term
debt of approximately $15.7 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary financial information
required by this Item and included in this Report are listed in the Index to
Consolidated Financial Statements and Schedule appearing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated by reference from the
1999 Proxy Statement to be filed with the Securities and Exchange Commission
within 120 days of the end of the fiscal year covered by this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from the
1999 Proxy Statement to be filed with the Securities and Exchange Commission
within 120 days of the end of the fiscal year covered by this Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference from the
1999 Proxy Statement to be filed with the Securities and Exchange Commission
within 120 days of the end of the fiscal year covered by this Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from the
1999 Proxy Statement to be filed with the Securities and Exchange Commission
within 120 days of the end of the fiscal year covered by this Report.
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) 1.Financial Statements:
See Index to Consolidated Financial Statements and Schedule on page F-1
hereof.
2.Financial Statement Schedule:
See Index to Consolidated Financial Statements and Schedule on page F-1
hereof.
3.Exhibits:
See Index to Exhibits on pages E-1 through E-5 hereof.
(b)Reports on Form 8-K.
None.
30
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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
/s/ Luc Van Nevel
By: _________________________________
CHIEF EXECUTIVE OFFICER, PRESIDENT
AND DIRECTOR
Date: April 19, 1999
EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS LUC VAN
NEVEL AND RICHARD H. WILEY, OR EITHER OF THEM, HIS ATTORNEYS-IN-FACT, WITH THE
POWER OF SUBSTITUTION, FOR HIM IN ANY AND ALL CAPACITIES, TO SIGN ANY
AMENDMENTS TO THIS REPORT ON FORM 10-K FOR THE YEAR ENDED JANUARY 31, 1999,
AND TO FILE THE SAME, WITH EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, HEREBY RATIFYING AND
CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT, OR THEIR SUBSTITUTE OR
SUBSTITUTES, MAY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ RICHARD R. NICOLOSI Chairman of the April 19, 1999
- ------------------------------------- Board
Richard R. Nicolosi
/s/ RICHARD H. WILEY Chief Financial April 19, 1999
- ------------------------------------- Officer, Treasurer
Richard H. Wiley and Secretary
/s/ BARNARD ATTAL Director April 19, 1999
- -------------------------------------
Barnard Attal
/s/ LEON D. BLACK Director April 19, 1999
- -------------------------------------
Leon D. Black
/s/ ROBERT H. FALK Director April 19, 1999
- -------------------------------------
Robert H. Falk
/s/ MARK H. RACHESKY Director April 19, 1999
- -------------------------------------
Mark H. Rachesky
/s/ ROBERT L. ROSEN Director April 19, 1999
- -------------------------------------
Robert L. Rosen
/s/ MARC J. ROWAN Director April 19, 1999
- -------------------------------------
Marc J. Rowan
/s/ STEPHEN J. SOLARZ Director April 19, 1999
- -------------------------------------
Stephen J. Solarz
31
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements:
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of January 31, 1999 and 1998............... F-3
Consolidated Statements of Operations for each of the years in the three-
year period ended January 31, 1999....................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for each of the
years in the three-year period ended January 31, 1999.................... F-5
Consolidated Statements of Cash Flows for each of the years in the three-
year period ended January 31, 1999....................................... F-7
Notes to Consolidated Financial Statements................................ F-9
Schedule:
Schedule II--Valuation and Qualifying Accounts............................ F-34
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Samsonite Corporation:
We have audited the accompanying consolidated financial statements of
Samsonite Corporation and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Samsonite
Corporation and subsidiaries as of January 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-
year period ended January 31, 1999, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
Denver, Colorado
March 22, 1999, except as to
notes 15 and 19, which are as of April 9, 1999
F-2
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, 1999 and 1998
(In thousands)
<TABLE>
<CAPTION>
January 31,
----------------
ASSETS 1999 1998
------ -------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................... $ 41,932 3,134
Trade receivables, net of allowances for doubtful accounts of
$7,065 and $8,766............................................. 78,329 99,620
Notes and other receivables.................................... 11,614 10,129
Inventories (note 5) .......................................... 187,567 172,665
Deferred income tax assets (note 12)........................... 2,491 31,623
Prepaid expenses and other current assets ..................... 14,452 13,873
Assets held for sale .......................................... 112 11,471
-------- -------
Total current assets ........................................ 336,497 342,515
Investments in affiliates ....................................... 518 2,425
Property, plant and equipment, net (note 6) ..................... 149,641 142,351
Intangible assets, less accumulated amortization of $46,786
and $41,043 (notes 3 and 7)..................................... 114,248 116,908
Other assets and long-term receivables, net of allowances for
doubtful accounts of $521 and $706.............................. 20,531 5,850
-------- -------
$621,435 610,049
======== =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Short-term debt (note 8)....................................... $ 8,409 5,640
Current installments of long-term obligations (note 9)......... 6,923 6,977
Accounts payable............................................... 48,375 49,221
Accrued interest expense....................................... 5,982 1,223
Accrued compensation and employee benefits .................... 18,897 17,228
Other accrued expenses (note 15) .............................. 73,662 66,917
-------- --------
Total current liabilities ................................... 162,248 147,206
Long-term obligations, less current installments (notes 2,
9 and 14) ...................................................... 496,173 172,246
Deferred income tax liabilities (note 12)........................ 17,046 15,730
Other noncurrent liabilities (note 13)........................... 53,919 59,838
-------- --------
Total liabilities ........................................... 729,386 395,020
-------- --------
Minority interests in consolidated subsidiaries ................. 9,166 6,143
Senior redeemable preferred stock (aggregate liquidation
preference of $186,723) (note 10)............................... 178,329 --
Stockholders' equity (deficit) (notes 9, 10, 11 and 19):
Preferred stock ............................................... -- --
Common stock................................................... 210 204
Additional paid-in capital .................................... 436,351 418,462
Accumulated deficit ........................................... (299,581)(195,171)
Accumulated other comprehensive income......................... (12,426) (14,449)
Unearned compensation--restricted shares ...................... -- (160)
-------- --------
124,554 208,886
Treasury stock, at cost (10,500,000 shares) (note 2) .......... (420,000) --
-------- --------
Total stockholders' equity (deficit) ........................ (295,446) 208,886
-------- --------
Commitments and contingencies (notes 9, 11, 13 and 15)
$621,435 610,049
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended January 31,
---------------------------
1999 1998 1997
--------- ------- -------
<S> <C> <C> <C>
Net sales......................................... $ 697,421 736,875 741,138
Cost of goods sold................................ 413,124 424,349 449,333
--------- ------- -------
Gross profit.................................. 284,297 312,526 291,805
Selling, general and administrative expenses ..... 263,892 234,257 233,761
Amortization of intangible assets ................ 5,633 7,101 31,837
Provision for restructuring operations (note 4) .. 6,598 1,866 10,670
--------- ------- -------
Operating income.............................. 8,174 69,302 15,537
Other income (expense):
Interest income ................................ 2,453 2,574 1,419
Interest expense and amortization of debt issue
costs and premium ............................. (39,954) (19,918) (35,670)
Other income (expense)--net (notes 15 and 16) .. (25,351) 28,294 18,821
--------- ------- -------
Income (loss) before income taxes, minority
interest, and extraordinary item ............ (54,678) 80,252 107
Income tax expense (note 12) ..................... (26,800) (23,088) (10,389)
Minority interest in earnings of subsidiaries..... (840) (287) (1,041)
--------- ------- -------
Income (loss) before extraordinary item ...... (82,318) 56,877 (11,323)
Extraordinary item--loss on extinguishment of
debt, net of income tax benefit of $3,959 and
$9,930 (notes 2 and 9) .......................... (6,460) (16,178) --
--------- ------- -------
Net income (loss) ............................ (88,778) 40,699 (11,323)
Senior redeemable preferred stock dividends and
accretion of senior redeemable preferred stock
discount (note 10) .............................. (15,632) -- --
--------- ------- -------
Net income (loss) to common stockholders...... $(104,410) 40,699 (11,323)
========= ======= =======
Income (loss) per common share--basic:
Income (loss) before extraordinary item ...... $ (6.79) 2.81 (.71)
Extraordinary item ........................... (0.45) (.80) --
--------- ------- -------
Net income (loss) per share................. $ (7.24) 2.01 (.71)
========= ======= =======
Income (loss) per common share--assuming dilution:
Income (loss) before extraordinary item....... $ (6.79) 2.70 (.71)
Extraordinary item ........................... (0.45) (.77) --
--------- ------- -------
Net income (loss) per share................. $ (7.24) 1.93 (.71)
========= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Accumu-
lated Unearned
other Compre- compen- Note
Additional compre- Accumu- hensive sation receivable
Preferred Common paid-in hensive lated income restricted from Treasury
stock(1) stock(2) capital income deficit (loss) shares officer stock
--------- -------- ---------- ------- -------- ------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31,
1996................... $-- 159 261,842 (2,338) (224,547) -- (10,000) --
Net loss............... -- -- -- -- (11,323) (11,323) -- -- --
Foreign currency
translation
adjustment............ -- -- -- (2,999) -- (2,999) -- -- --
-------
Comprehensive income
(loss).............. -- -- -- -- -- (14,322) -- -- --
=======
Issuance of 55,000
shares of common
stock to an officer
for cash (note 11).... -- -- 1,004 -- -- -- -- --
Stock award of 60,000
shares of restricted
common stock to an
officer (note 11)..... -- 1 1,094 -- -- (1,095) -- --
Issuance of 513 shares
to directors for
services (note 11).... -- -- 19 -- -- -- -- --
Amortization of
restricted stock
award to compensation
expense (note 11)..... -- -- -- -- -- 388 -- --
Compensation expense
accrued for stock
bonus awards
(note 11)............. -- -- 503 -- -- -- -- --
Exercise of employee
stock options and
related income tax
benefits (note 11).... -- -- 591 -- -- -- -- --
Reclassification of
accrued compensation
for stock options
exercised............. -- -- 1,699 -- -- -- -- --
Payment of note
receivable
(note 11)............. -- -- -- -- -- -- 10,000 --
---- --- ------- ------- -------- ------ ------- ---
Balance, January 31,
1997................... -- 160 266,752 (5,337) (235,870) (707) -- --
Net income............. -- -- -- -- 40,699 40,699 -- -- --
Foreign currency
translation
adjustment............ -- -- -- (9,112) -- (9,112) -- -- --
-------
Comprehensive income
(loss).............. -- -- -- -- -- 31,587 -- -- --
=======
Issuance of 3,300,000
shares of common
stock in public
offering, net of
offering costs and
underwriting discount
of $8,303 (note 19)... -- 33 130,209 -- -- -- -- --
Issuance of 4,032
shares to directors
for services
(note 11)............. -- -- 174 -- -- -- -- --
Issuance of 1,033,203
shares for exercise
of employee stock
options and related
income tax benefits,
net of 889,450 shares
exchanged (notes 11
and 19)............... -- 11 20,617 -- -- -- -- --
Amortization of
restricted stock
award to compensation
expense (note 11)..... -- -- -- -- -- 547 -- --
Compensation expense
accrued for stock
bonus awards
(note 11)............. -- -- 710 -- -- -- -- --
---- --- ------- ------- -------- ------ ------- ---
Balance, January 31,
1998................... -- 204 418,462 (14,449) (195,171) (160) -- --
</TABLE>
(Continued)
F-5
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)--(Continued)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Accumu-
lated Unearned
other Compre- compen- Note
Additional compre- Accumu- hensive sation receivable
Preferred Common paid-in hensive lated income restricted from Treasury
stock(1) Stock(2) capital income deficit (loss) shares officer Stock
--------- -------- ---------- ------- -------- ------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss............... -- -- -- -- (88,778) (88,778) -- -- --
Foreign currency trans-
lation adjustment..... -- -- -- 2,023 -- 2,023 -- -- --
-------
Comprehensive income
(loss)............. -- -- -- -- -- (86,755) -- -- --
=======
Issuance of 17,655
shares to directors
for services
(note 11)............. -- 1 169 -- -- -- -- --
Issuance of 494,649
shares for exercise of
employee stock options
and 116,667 shares for
stock bonus awards
(note 11)............. -- 5 7,705 -- -- -- -- --
Amortization of re-
stricted stock award
to compensation ex-
pense (note 11)....... -- -- -- -- -- 160 -- --
Compensation expense
accrued for stock bo-
nus awards (note 11).. -- -- 473 -- -- -- -- --
Compensation expense
for stock options
(note 11)............. -- -- 3,722 -- -- -- -- --
Common stock warrants
issued with redeemable
preferred stock (note
10)................... -- -- 5,820 -- -- -- -- --
Preferred stock divi-
dends and accretion of
discount (note 10).... -- -- -- -- (15,632) -- -- --
Purchase of 10,500,000
shares for treasury
(note 2).............. -- -- -- -- -- -- -- (420,000)
---- --- ------- ------- -------- --- --- --------
Balance, January 31,
1999................... $-- 210 436,351 (12,426) (299,581) -- -- (420,000)
==== === ======= ======= ======== === === ========
</TABLE>
- --------
(1) $.01 par value; 2,000,000 shares authorized; 186,723 redeemable shares
issued and outstanding at January 31, 1999.
(2) $.01 par value; 60,000,000 shares authorized; 21,000,039, 20,371,068 and
16,033,833 shares issued at January 31, 1999, 1998 and 1997, respectively
and 10,500,039, 20,371,068 and 16,033,833 outstanding at January 31, 1999,
1998 and 1997, respectively.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended January 31,
--------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $(88,778) 40,699 (11,323)
Adjustments to reconcile net income (loss) to net
cash provided
by (used in) operating activities:
Nonoperating loss (gain) items:
Loss on extinguishment of debt............... 6,460 16,178 --
Loss (gain) on disposition of assets held for
sale
and fixed assets, net....................... (3,243) 377 62
Depreciation and amortization of property,
plant and equipment........................... 21,421 21,493 22,052
Amortization of debt issue costs and premium... 1,336 888 1,932
Amortization of intangible assets.............. 5,633 7,101 31,837
Amortization of stock awards and stock issued
for services.................................. 1,112 1,431 910
Deferred income tax expense.................... 33,393 4,750 1,365
Adjustment of liability for PBGC claims........ -- -- (11,100)
Adjustment of allowances for contingencies from
previous operations........................... -- (5,299) --
Adjustment of reserves related to prior years'
tax provisions................................ -- (12,700) --
Compensation expense for adjustment of stock
options....................................... 3,722 -- --
Net provision for doubtful accounts............ 396 4,341 2,815
Net provision for restructuring operations..... 6,598 1,866 10,670
Changes in operating assets and liabilities:
Trade and other receivables.................. 21,299 (13,177) (17,850)
Inventories.................................. (11,579) (35,686) (19,335)
Other current assets......................... (745) (440) 3,431
Accounts payable and accrued liabilities..... 2,882 (8,696) 9,027
Other adjustments--net......................... (968) (4,915) 853
-------- ------- -------
Net cash provided by (used in) operating
activities.................................. (1,061) 18,211 25,346
-------- ------- -------
Cash flows provided by (used in) investing
activities:
Proceeds from sale of assets held for sale,
property and equipment and other asset.......... 17,608 1,625 2,323
Purchases of property, plant and equipment:
By Company and wholly-owned subsidiaries....... (24,827) (30,189) (25,465)
By less than 100% owned subsidiaries........... (1,852) (6,124) (5,628)
Acquisition of foreign distributorships.......... (2,451) (2,547) --
Other............................................ (4,125) (707) 11,753
-------- ------- -------
Net cash used in investing activities........ (15,647) (37,942) (17,017)
-------- ------- -------
</TABLE>
(continued)
F-7
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(In thousands)
<TABLE>
<CAPTION>
Year ended January 31,
----------------------------
1999 1998 1997
--------- -------- -------
<S> <C> <C> <C>
Cash flows provided by (used in) financing
activities:
Net borrowings (payments) of senior credit
facility....................................... $ 33,948 53,628 (8,000)
Proceeds from issuance of senior subordinated
notes.......................................... 350,000 -- --
Proceeds from issuance of senior preferred
stock.......................................... 175,000 -- --
Issuance costs for senior subordinated notes,
senior redeemable preferred stock and senior
credit facility................................ (23,583) (467) --
Purchase of treasury stock...................... (420,000) -- --
Retirement of Series B Notes, including redemp-
tion
premiums....................................... (60,781) (154,755) --
Proceeds from long-term obligations--other...... 381,021 4,657 26,206
Payments of long-term obligations--other........ (393,914) (25,980) (35,901)
Proceeds from (payments of) short-term debt--
net............................................ (385) 4,096 (7,231)
Proceeds from public stock offering, net of
offering costs................................. -- 130,242 --
Proceeds from sale of common stock and exercise
of stock options............................... 7,401 7,012 1,327
Payment of note receivable from officer......... -- -- 10,000
Other, net...................................... 2,905 2,621 1,907
--------- -------- -------
Net cash provided by (used in) financing
activities................................. 51,612 21,054 (11,692)
--------- -------- -------
Effect of exchange rate changes on cash and cash
equivalents...................................... 3,894 (7,532) (2,473)
--------- -------- -------
Net increase (decrease) in cash and cash
equivalents................................ 38,798 (6,209) (5,836)
Cash and cash equivalents, beginning of year...... 3,134 9,343 15,179
--------- -------- -------
Cash and cash equivalents, end of year............ $ 41,932 3,134 9,343
========= ======== =======
Supplemental disclosures of cash flow information:
Cash paid during the year for interest.......... $ 33,822 20,451 33,194
========= ======== =======
Cash paid during the year for income taxes,
net............................................ $ 8,719 8,733 3,210
========= ======== =======
</TABLE>
Noncash transactions:
During the years ended January 31, 1999, 1998, and 1997, property
and equipment were acquired under capital lease financing
transactions aggregating $1,141, $924, and $1,281, respectively.
Other noncash transactions are described in notes 3, 10, 11, 15, and 16.
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General Business
Samsonite Corporation was formerly known as Astrum International Corp.
("Astrum"). On July 14, 1995, Astrum merged with its wholly-owned subsidiary,
Samsonite Corporation, and changed its name to Samsonite Corporation.
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) Basis of Presentation
On May 25, 1993, the United States Bankruptcy Court for the Southern
District of New York confirmed the Amended Plan of Reorganization (the "Plan")
for Astrum. Pursuant to the terms of the Plan, which became effective on June
8, 1993 (the "Effective Date"), Astrum completed a comprehensive financial
reorganization which reduced debt and annual interest expense (the
"Reorganization").
The Reorganization 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 accompanying consolidated financial statements
include the ongoing impact of the fresh-start reporting, the most significant
of which included the recording of Reorganization Value in Excess of
Identifiable Assets. Reorganization Value in Excess of Identifiable Assets was
amortized over a three-year period which ended in June 1996.
(c) Principles of Consolidation
The consolidated financial statements include the financial statements of
Samsonite Corporation and its wholly-owned and majority-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation. The Company's foreign subsidiaries generally have December 31
year ends.
Minority interests consist of other stockholders' ownership interests in
majority-owned subsidiaries of the Company.
(d) Use of Estimates
The preparation of consolidated 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
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
significantly from those estimates.
(e) Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
F-9
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(f) Inventories
The Company values inventories at the lower of cost, using the first-in,
first-out ("FIFO") method, or market.
(g) Investments in Affiliates
Investments in affiliates for which the Company owns 20% to 50% are
accounted for under the equity method.
At January 31, 1999, investments in affiliates primarily represent the
Company's investment in Chia Tai Samsonite (H.K.) Ltd., a 50% owned joint
venture formed to manufacture and distribute luggage in China.
(h) Property, Plant and Equipment
Property, plant and equipment acquired subsequent to the adoption of fresh-
start reporting are stated at cost. In connection with the adoption of fresh-
start reporting at June 30, 1993, the Company was required to adjust property,
plant and equipment to fair value. Assets under capital leases are stated at
the present value of the future minimum lease payments. Improvements which
extend the life of an asset are capitalized. Maintenance and repair costs are
expensed as incurred.
Depreciation and amortization are provided on the straight-line method over
the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings................................................ 24 to 65 years
Machinery, equipment and other........................... 2 to 20 years
</TABLE>
(i) Intangible Assets
As a result of adopting fresh-start reporting in 1993, the Company recorded
Reorganization Value in Excess of Identifiable Assets which became fully
amortized in June of 1996. Tradenames, licenses, patents and other intangibles
were recorded at fair value based upon independent appraisals. These assets
are amortized on a straight-line basis over their estimated useful lives which
are primarily as follows:
<TABLE>
<S> <C>
Tradenames............................................... 20 to 40 years
Licenses, patents and other.............................. 2 to 20 years
</TABLE>
The Company accounts for these intangible assets at the lower of amortized
cost or fair value. On an ongoing basis, the Company reviews the valuation and
amortization of intangible assets, taking into consideration any events or
circumstances which may have diminished the recorded value.
(j) Debt Issuance Costs
Costs incurred in connection with the issuance of new debt instruments are
deferred and included in other assets. Such costs are amortized over the term
of the related debt obligation.
(k) Per Share Data
The Company computes earnings (loss) per share in accordance with the
requirements of Statement of Financial Account Standards No. 128, Earnings Per
Share ("SFAS 128"). SFAS 128 requires the disclosure of "basic" earnings per
share and "diluted" earnings per share. Basic earnings per share is computed
by dividing income available to common stockholders by the weighted average
number of common shares outstanding. Diluted earnings per share is computed by
dividing income available to common stockholders by the weighted average
number of common shares outstanding increased for potentially dilutive common
shares outstanding
F-10
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
during the period. The dilutive effect of stock options, warrants, and their
equivalents is calculated using the treasury stock method.
Loss before extraordinary item per common share and net loss per common
share for the years ended January 31, 1999 and 1997 is computed based on a
weighted average number of shares of common stock outstanding during the
period of 14,416,857 and 15,971,157, respectively. Basic earnings per common
share and earnings per common share--assuming dilution are the same for the
years ended January 31, 1999 and 1997 because of the antidilutive effect of
stock options and awards when there is a net loss from operations.
The following table presents a reconciliation of the numerators and
denominators of basic earnings per common share and earnings per common
share--assuming dilution for the year ended January 31, 1998:
<TABLE>
<CAPTION>
Per Share
Income Shares Amount
----------- ---------- ---------
<S> <C> <C> <C>
Earnings per common share--basic:
Income before extraordinary item available
to common stockholders..................... $56,877,000 20,235,802 $2.81
=====
Add dilutive effect of stock options and
awards..................................... -- 850,783
----------- ----------
Earnings per common share--assuming dilution:
Income before extraordinary item available
to common stockholders plus assumed
conversions................................ $56,877,000 21,086,585 $2.70
=========== ========== =====
</TABLE>
(l) Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes ("SFAS 109"). SFAS 109 requires recognition of deferred tax assets and
liabilities for operating loss and tax credit carryforwards and the estimated
future tax consequences attributable to temporary differences between the
financial statement carrying amount of existing assets and liabilities and
their respective tax bases. Measurement of deferred tax assets and liabilities
is based upon enacted tax rates expected to apply to taxable income in the
years in which carryforwards and temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Deferred tax assets are reduced by a valuation allowance for the portion of
such assets for which it is more likely than not the amount will not be
realized. Deferred tax assets and liabilities are classified as current or
noncurrent based on the classification of the underlying asset or liability
giving rise to the temporary difference or the expected date of utilization of
carryforwards.
(m) Self-Insurance
The Company maintains self-insurance programs for certain workers'
compensation risks up to $300,000 per individual claim. The Company purchases
excess workers' compensation coverage for individual claims in excess of
$300,000.
(n) Foreign Exchange Risk and Financial Instruments
The accounts of the Company's foreign subsidiaries and affiliates are
generally measured using the local currency as the functional currency. For
those operations, assets and liabilities are translated into U.S. dollars at
period-end exchange rates. Income and expense accounts are translated at
average monthly exchange rates. Net exchange gains or losses resulting from
such translation are excluded from results of operations and accumulated
F-11
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as a separate component of stockholders' equity. Gains and losses from foreign
currency transactions are included in other income (expense). See note 16.
The Company enters into foreign exchange contracts in order to reduce its
economic exposure to fluctuations in currency exchange rates on certain foreign
operations and royalty agreements through the use of forward delivery
commitments. Generally, open forward delivery commitments are marked to market
at the end of each accounting period and corresponding gains and losses are
recognized in other income (expense). See note 16.
With respect to trade receivables, concentration of credit risk is limited
due to the diversity in the Company's customer base and geographic areas
covered by the Company's operations. In certain European countries, the Company
receives negotiable trade acceptances as payment for goods with maturities from
60 to 90 days from the date of issuance. These instruments are generally
discounted to banks with recourse. At January 31, 1999, approximately
$15,188,000 of such instruments had been discounted and, by the terms of their
maturity dates, were uncollected by the holders. Any probable bad debt losses
for trade receivables or acceptances have been reserved for in the allowance
for doubtful accounts.
(o) Accounting for Long-lived Assets
The Company accounts for long-lived assets in accordance with the provisions
of Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS 121"). SFAS 121 requires impairment losses to be recorded on long-lived
assets, and certain identifiable intangible assets, used in operations when
indicators of impairment are present and the undiscounted future cash flows
(without interest charges) estimated to be generated by such assets are less
than the assets' carrying amount. Impairment is measured by the excess of the
assets' carrying amount over fair value. SFAS 121 also requires that long-lived
assets and certain identifiable intangibles that are expected to be disposed of
be reported at the lower of the carrying amount or fair value less costs to
sell.
(p) Comprehensive Income
Effective February 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS
130 requires that, as a part of a full set of financial statements, entities
must present other comprehensive income, which represents total non-stockholder
changes in equity. The accumulated balance of foreign currency translation
adjustments, excluded from net income, is presented in the consolidated balance
sheets as "accumulated other comprehensive income."
(q) Revenue Recognition
Revenues from wholesale product sales are recognized at the time of shipment,
and provisions are made for markdown allowances, returns and discounts at the
time product sales are recognized. Revenues from retail sales are recognized at
the point-of-sale to consumers.
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 $16,450,000, $19,925,000, and $20,548,000 for the years
ended January 31, 1999, 1998, and 1997, respectively. Royalty revenues in
fiscal 1998 and 1997 include approximately $2,200,000 and $3,900,000,
respectively, from the sale of apparel trademarks in certain foreign countries.
(r) Stock Based Compensation
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). As
permitted under this standard, the Company has elected to
F-12
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
follow Accounting Principles Board Opinion No. 25 Accounting for Stock Issued
to Employees ("APB 25"), in accounting for its stock options and other stock-
based employee awards. Pro forma information regarding net income and earnings
per common share, as calculated under the provisions of SFAS 123, is disclosed
in note 11.
(s) Reclassifications
Certain reclassifications were made to the consolidated financial statements
for prior periods to conform to the January 31, 1999 presentation.
(2) Recapitalization
On June 24, 1998, the Company completed a recapitalization of the Company
(the "Recapitalization") involving the repurchase pursuant to a tender offer
for 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% senior redeemable preferred stock and warrants, and a new
bank senior credit facility.
On January 7, 1998, the Company announced it had engaged a 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 (included in selling, general and administrative expenses) of
approximately $4.8 million during the year ended January 31, 1999 for
financial, legal and other expenses associated with the Recapitalization and
the process of exploring alternative plans which were not ultimately
consummated. As described in note 11, the Company also recorded a $4.3 million
charge to compensation expense during the year ended January 31, 1999 in
connection with adjustments and modifications made to outstanding employee
stock options.
During the year ended January 31, 1999, 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
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 year ended January 31, 1999. 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 year ended January 31, 1999.
(3) Purchases of Foreign Distributorships
During the year ended January 31, 1999, the Company, through a 51% owned
joint venture, acquired two distributors in Argentina and Uruguay. The joint
venture paid and recorded goodwill of $2,451,000 for the purchase of the
distributorships, and recorded a liability for the estimated additional
purchase price due of approximately $1,267,000.
During the year ended January 31, 1998, the Company formed a subsidiary,
Samsonite Korea Limited ("SKL"), which was owned 71% by the Company and 29% by
the Company's former distributor in South Korea. The Company contributed
$832,000 to SKL for its equity interest. SKL acquired the inventory, fixed
assets, and other assets of the distributorship and recorded approximately
$200,000 of goodwill. By agreement with its joint venture partner, the Company
acquired an additional 9% interest in SKL on October 1, 1998 for $8,000.
F-13
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the year ended January 31, 1998, the Company formed a 100% owned
subsidiary, Samsonite Hong Kong Limited ("HKL"), which purchased the assets of
the Company's former Hong Kong distributor. The Company made investments or
advances to HKL of $1,715,000 for the purchase of inventory, fixed assets, and
other assets from the former Hong Kong distributor. Approximately $439,000 of
goodwill was recorded as a result of the purchase.
(4) Provision for Restructuring Operations
Fiscal 1999
The Company recorded a pretax restructuring provision in fiscal 1999 of
approximately $2,608,000 in connection with the Torhout, Belgium restructuring
primarily related to termination and severance costs for the elimination of
approximately 111 positions. Through January 31, 1999, approximately
$1,900,000 has been charged against this accrual for such restructuring
expenses. Additionally, during fiscal 1999, a pre-tax charge of approximately
$5,606,000 (of which approximately $2,200,000 is non-cash) was recorded in
connection with the U.S. Wholesale restructuring 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. Through January 31, 1999, approximately
$3,500,000 has been charged against this accrual for such restructuring
expenses. During the fourth quarter of fiscal 1999, certain excess
restructuring reserves of $1,616,000 were reversed including $538,000 of
excess accruals related to the fiscal 1997 reserve and excess reserves of
$1,078,000 related to the fiscal 1999 U.S. Wholesale restructuring. The
reversal of excess reserves was necessary because certain expenses
contemplated in the restructurings did not materialize.
Fiscal 1998
The Company recorded a pretax restructuring provision in fiscal 1998 of
$3,589,000 and adjusted for excess fiscal 1997 restructuring accruals by
$1,723,000, resulting in a net expense for restructuring operations in fiscal
1998 of $1,866,000. The fiscal 1998 restructuring provision was provided
primarily for costs associated with the involuntary termination of 180
manufacturing positions in Mexico and twenty management positions in the U.S.
and is comprised of estimated cash expenditures of $3,283,000 and non-cash
charges of $306,000. Through January 31, 1999, $3.1 million of costs had been
charged against the accrual.
Fiscal 1997
The Company recorded a restructuring provision of $10,670,000 in fiscal 1997
as a result of a restructuring program to consolidate functions and operations
in North America, Europe, and the Far East, and to reduce or eliminate certain
other operations.
The restructuring plan included further consolidation of hardside luggage
production to Samsonite's largest U.S. facility located in Denver, Colorado
from other locations in the Americas, as well as consolidation of many
administrative and control functions to Denver. The plan included the
elimination of as many as 450 positions worldwide, including approximately 150
manufacturing positions and approximately 300 managerial, office and clerical
positions. The restructuring provision consisted primarily of costs associated
with involuntary employee terminations and was comprised of cash expenses of
$9,670,000 and non-cash expenses of $1,000,000, both on a pretax basis.
Through January 31, 1999, approximately $8,409,000 had been charged against
the accrual for restructuring expenses. Approximately $538,000 and $1,723,000
was determined to be overaccrued and was credited to expense in fiscal years
1999 and 1998, respectively. At January 31, 1999 no amounts remain accrued for
this restructuring provision.
F-14
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(5) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
January 31,
----------------
1999 1998
-------- -------
(In thousands)
<S> <C> <C>
Raw materials and supplies............................... $ 47,014 47,814
Work in process.......................................... 8,059 10,476
Finished goods........................................... 132,494 114,375
-------- -------
$187,567 172,665
======== =======
</TABLE>
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
January 31,
-----------------
1999 1998
-------- -------
(In thousands)
<S> <C> <C>
Land................................................... $ 12,555 12,266
Buildings.............................................. 71,517 60,524
Machinery, equipment and other......................... 141,306 133,778
-------- -------
225,378 206,568
Less accumulated depreciation and amortization......... (75,737) (64,217)
-------- -------
$149,641 142,351
======== =======
</TABLE>
Property, plant and equipment includes property and equipment under capital
leases as follows:
<TABLE>
<CAPTION>
January 31,
---------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Buildings................................................. $ 4,452 4,178
Machinery, equipment and other............................ 4,518 2,707
------- -------
8,970 6,885
Less accumulated amortization............................. (1,424) (1,388)
------- -------
$7,546 5,497
======= =======
</TABLE>
(7) INTANGIBLE ASSETS
The following is a summary of intangible assets, net of accumulated
amortization:
<TABLE>
<CAPTION>
January 31,
----------------
1999 1998
-------- -------
(In thousands)
<S> <C> <C>
Tradenames............................................... $105,059 108,556
Licenses, patents and other.............................. 9,189 8,352
-------- -------
$114,248 116,908
======== =======
</TABLE>
F-15
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) SHORT-TERM DEBT
As of January 31, 1999 and 1998, the Company had $8,409,000 and $5,640,000
of short-term debt outstanding under foreign lines of credit, respectively. As
of January 31, 1999, the weighted average interest rate on foreign short-term
borrowings was 10.9%. The European subsidiaries had unused available
borrowings on foreign lines of credit and other foreign borrowing arrangements
totaling approximately $79.3 million as of January 31, 1999, which are
generally restricted for working capital purposes; however, the terms of the
Company's Senior Credit Facility and Senior Subordinated Notes limit
additional amounts which could be borrowed under such credit facilities.
Other foreign subsidiaries had approximately $2.5 million available under
bank credit lines at January 31, 1999.
(9) LONG-TERM OBLIGATIONS
Long-term obligations represent long-term debt and capital lease obligations
as follows:
<TABLE>
<CAPTION>
JANUARY 31,
------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Senior Credit Facility (a)............................ $135,074 102,533
Senior Subordinated Notes (b)......................... 350,000 --
Other obligations (c)................................. 11,688 19,587
Capital lease obligations (d)......................... 5,802 4,302
Series B Notes (e).................................... 532 52,801
-------- --------
503,096 179,223
Less current installments (6,923) (6,977)
-------- --------
$496,173 $172,246
======== ========
</TABLE>
(a) Senior Credit Facility
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 in the
aggregate principal amount of Belgian francs 1,853,750,000, (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 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 of .625% 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. In connection with the waiver
F-16
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and amendment discussed below, the Company agreed to execute and deliver to
the lenders under the Senior Credit Facility a mortgage on its real estate in
Denver, Colorado.
The Senior Credit Facility contains financial covenants which require the
Company to maintain certain debt to earnings and interest coverage ratios and
limitations on capital expenditures. The Senior Credit Facility also contains
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 or purchase
subordinate indebtedness and preferred stock, make distributions and dividend
payments to its stockholders, engage in affiliate transactions, make certain
asset dispositions, make acquisitions, and participate in certain mergers. At
January 31, 1999, compliance with the interest coverage ratio was waived by
the lenders under the Senior Credit Facility. Effective March 22, 1999, the
Senior Credit Facility was amended to provide the Company with additional
margin to operate under the financial covenants. As of January 31, 1999, the
Company had $6.3 million in letters of credit outstanding under the Senior
Credit Facility.
As a result of entering into an amended and restated bank senior credit
facility in fiscal 1998, which had significantly different terms and
conditions than a previous facility, the Company charged to expense the
balance of deferred financing costs relating to the previous facility totaling
$3,989,000 and paid prepayment penalties of $279,000. These charges are
recorded as part of the extraordinary item from loss on extinguishment of
debt, net of tax effects, in the accompanying consolidated statement of
operations for the year ended January 31, 1998.
(b) Senior Subordinated Notes
On June 24, 1998, the Company issued and sold $350,000,000 principal amount
of 10 3/4% Senior Subordinated Notes due 2008 (the "10 3/4% Notes").
Interest on the 10 3/4% Notes is payable in cash semiannually in arrears on
June 15 and December 15 of each year, commencing December 15, 1998. The 10
3/4% Notes mature on June 15, 2008 and are 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 10 3/4% 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 10 3/4% Notes remains outstanding immediately after the occurrence
of any such redemption.
The indenture under which the 10 3/4% 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
As of January 31, 1999, other obligations consist of various notes payable
to banks by foreign subsidiaries. The obligations bear interest at varying
rates and mature through 2002.
F-17
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(d) Leases
Future minimum payments under noncancelable capital leases, which relate
primarily to property and equipment, and noncancelable operating leases, which
relate primarily to retail floor space rental, at January 31, 1999 were as
follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
------- ---------
(In thousands)
<S> <C> <C>
Year ending January 31:
2000................................................... $ 2,081 15,156
2001................................................... 1,758 12,990
2002................................................... 1,445 10,603
2003................................................... 693 7,260
2004................................................... 412 3,739
Thereafter............................................. 642 5,205
------- ------
Total minimum lease payments......................... 7,031 54,953
======
Less amount representing interest........................ (1,227)
-------
Present value of net minimum capital lease payments...... 5,804
Less current installments of minimum capital lease
payments................................................ (1,658)
-------
Long-term obligations under capital leases, excluding
current installments.................................... $ 4,146
=======
</TABLE>
Rental expense under cancelable and noncancelable operating leases
pertaining to continuing operations consisted of the following:
<TABLE>
<CAPTION>
Year ended January
31,
---------------------
1999 1998 1997
------- ------ ------
(In thousands)
<S> <C> <C> <C>
Minimum rentals....................................... $14,699 10,421 10,723
Contingent rentals.................................... 1,432 1,358 714
------- ------ ------
$16,131 11,779 11,437
======= ====== ======
</TABLE>
Aggregate maturities of long-term obligations at January 31, 1999 were as
follows (in thousands):
<TABLE>
<S> <C>
Year ending January 31:
2000.......................................................... $ 5,265
2001.......................................................... 4,713
2002.......................................................... 2,102
2003.......................................................... 1,713
2004.......................................................... 90,218
Thereafter.................................................... 393,281
--------
497,292
Obligations under capital leases.............................. 5,804
--------
Total $503,096
========
</TABLE>
F-18
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(e) Series B Notes
Interest at 11 1/8% per annum on the Series B Notes is payable semiannually
with principal due July 15, 2005. The Series B Notes may be redeemed after
July 15, 2000 with the payment of certain redemption premiums; however, up to
one-third of the outstanding Series B Notes were allowed to be redeemed (at a
premium) before July 15, 1998, from the proceeds of the first two public
equity offerings the Company may have completed after the issuance of the
Series B Notes. As described in note 2, the Company completed a tender offer
and retired $52,269,000 principal amount of the Series B Notes representing
99% of the outstanding Series B Notes.
As described in note 19, the Company completed a public equity offering on
February 11, 1997 and used a portion of the offering proceeds to redeem Series
B Notes and repurchase Series B Notes in the market. Additional Series B Notes
were purchased using bank borrowings. A total of $137,199,000 principal amount
of Series B Notes were retired during the year ended January 31, 1998.
Redemption premiums of $17,277,000 paid in connection with the retirement of
the notes and deferred financing costs of $4,563,000 were charged to expense
and classified as part of the extraordinary item from loss on extinguishment
of debt, net of tax effects, in the accompanying consolidated statement of
operations for the year ended January 31, 1998.
In connection with retirements of the Series B Notes, the indenture under
which the notes were issued was amended to eliminate substantially all the
covenants contained in the original indenture.
(10) SENIOR REDEEMABLE 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
"Senior Redeemable 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.
The Senior Redeemable Preferred Stock was issued as part of the financing
necessary to effect the Recapitalization described in note 2. The Senior
Redeemable Preferred Stock is recorded at its liquidation preference
discounted for unaccreted issuance costs and the value assigned to the
warrants. The preferred stock discount is being accreted by charging
accumulated deficit over the twelve-year term of the Senior Redeemable
Preferred Stock.
Holders of the Senior Redeemable 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 Redeemable Preferred Stock
at a rate per annum of 13 7/8% of the liquidation preference per share of
Senior Redeemable 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 Redeemable Preferred Stock with a liquidation preference equal to the
amount of such dividends; thereafter, dividends will be payable in cash.
Dividends on the Senior Redeemable 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 Redeemable
Preferred Stock. The dividend rate on the Senior Redeemable 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 Redeemable Preferred Stock.
F-19
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is required to redeem all of the Senior Redeemable 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 Redeemable 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 Redeemable 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 Redeemable 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 Redeemable Preferred Stock and
in cash thereafter. The Senior Redeemable 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 Redeemable 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.
(11) EMPLOYEE STOCK OPTIONS AND AWARDS
At January 31, 1999, the Company has outstanding options under its 1995 Stock
Option and Incentive Award Plan and under an employment agreement (now expired)
with its former chief executive officer. As described in note 1(r), the Company
applies APB 25 in accounting for stock options and awards. Accordingly, no
compensation cost has been recognized for stock options granted at exercise
prices equal to or above fair market value at the date of grant. No performance
based options were issued during the three years ended January 31, 1999.
In connection with the Recapitalization, the Company determined to adjust all
options that remained unexercised after the Recapitalization 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 ten-day period
following the completion of the Recapitalization which was $10.00 per share. If
the $12.50 adjustment resulted in the exercise price of an option being reduced
to less than 25% of such average trading price or $2.50, the option holder had
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 (approximately 42.7% fewer) 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 year
ended January 31, 1999 pursuant to APB 25 of approximately $4.3 million for the
difference between the aggregate adjusted option prices and the post-
Recapitalization trading price of $10.00 per share. Approximately $0.6 million
of such compensation expense was paid in cash to option holders in lieu of
reducing option prices to less than 25% of the post-Recapitalization trading
price. Because of the adjustments to option prices in connection with the
Recapitalization and the compensation expense recorded under APB 25, the
Company reflected a credit in its pro forma compensation expense using the fair
value method under SFAS 123 for the year ended January 31, 1999.
F-20
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Had the Company determined compensation cost for the stock options pursuant
to the fair value based accounting method consistent with the provisions of
SFAS 123, pro forma net income (loss) per common share would have been as
follows:
<TABLE>
<CAPTION>
Year ended January 31,
-------------------------
1999 1998 1997
--------- ------ -------
(In thousands, except
per share amounts)
<S> <C> <C> <C>
Net income (loss) to common stockholders:
As reported........................................ $(104,410) 40,699 (11,323)
========= ====== =======
Pro forma.......................................... $(103,112) 38,343 (12,922)
========= ====== =======
Net income (loss) to common stockholders
per share--basic:
As reported........................................ $ (7.24) 2.01 (0.71)
========= ====== =======
Pro forma.......................................... $ (7.15) 1.89 (0.81)
========= ====== =======
Net income (loss) to common stockholders
per share--assuming dilution:
As reported........................................ $ (7.24) 1.93 (0.71)
========= ====== =======
Pro forma.......................................... $ (7.15) 1.82 (0.81)
========= ====== =======
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants in the three years ended January 31, 1999: no dividend yield for any
year; expected volatility of 39% for fiscal 1999, 29% for fiscal 1998 and 28%
for fiscal 1997; weighted-average risk-free interest rate of 4.8% for fiscal
1999, 5.5% for fiscal 1998 and 6.2% for fiscal 1997; and weighted average
expected lives of 4.3 years for fiscal 1999, 4.3 years for fiscal 1998, and
3.5 years for fiscal 1997.
Pro forma net income (loss) reflects only options granted in the four years
ended January 31, 1999. Therefore, the full impact of calculating compensation
cost for stock options under SFAS 123 is not reflected in the pro forma net
income (loss) amounts presented because compensation cost is reflected over
option vesting periods (ranging from 2 to 5 years) and compensation cost for
options granted prior to February 1, 1995 is not considered.
Directors' Stock Plan
In fiscal 1996, the Company adopted the Samsonite Corporation 1996
Directors' Stock Plan (the "Plan") and reserved 200,000 shares of its common
stock for issuance under the Plan. Under the Plan, each non-employee director
may elect to receive common stock for directors' fees valued at fair market
value in lieu of cash. At January 31, 1999, 22,200 shares of common stock had
been issued under the Plan.
F-21
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1995 and 1999 Stock Option and Incentive Award Plans
The 1995 Stock Option and Incentive Award Plan (as Amended in 1996) ("the
1995 Plan") reserves 2,550,000 shares for the issuance of options as
determined by the compensation committee of the Board of Directors. The 1995
Plan provides 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 1995 Plan. Incentive stock options must be issued at exercise
prices no less than the market value of the common stock at the date of the
grant. Nonqualified stock options may be granted at option prices at or below
the market value, but not at less than 50% of the market value of the common
stock at the date of the grant. Options granted under the 1995 Plan may vest
over a period of not more than ten years as determined by the compensation
committee. At January 31, 1999, all awards under the 1995 Plan were
nonqualified stock options.
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 January 31, 1999, no
awards have been made out of shares reserved for the 1999 Plan.
Former Chief Executive Officers' Employment Agreements
Pursuant to the employment contract effective May 15, 1996 with the former
Chief Executive Officer, Richard R. Nicolosi, the Company granted Mr. Nicolosi
options to purchase 425,532 shares of common stock at an exercise price of
$18.25 per share. The exercise price for all of Mr. Nicolosi's options was
reduced to $5.75 per share in connection with the Recapitalization. Options to
purchase 186,170 shares of common stock (the "Series A Options") are time-
vesting options and options to purchase 239,362 shares of common stock (the
"Series B Options") are subject to certain performance requirements with
respect to accelerating vesting. The options have a five-year term. All of the
Series A and Series B Options have vested.
Also in connection with the performance by Mr. Nicolosi of services pursuant
to his employment, the Company issued to Mr. Nicolosi 60,000 shares of
restricted common stock (the "Restricted Shares") which have all vested. The
Company recognized compensation expense for the market value ($18.25 per
share) of the shares at the date of grant over the two-year vesting period.
Additionally, on June 6, 1996, the Company sold and issued to Mr. Nicolosi
55,000 shares of common stock at the market value of $18.25 per share, or an
aggregate purchase price of $1,003,750.
Pursuant to an employment agreement with another former chief executive
officer dated April 13, 1995, certain options previously granted were canceled
and options to purchase 653,668 shares of common stock (granted June 8, 1993
at market value) became fully vested and exercisable at $11.87 per share, as
adjusted by the terms of the option agreement for the spinoff of the water
treatment business. Under the employment agreement, the executive was also
granted options for 500,000 shares of common stock at $24.85 per share and
1,000,000 shares of common stock at $32.85 per share, as adjusted by the terms
of the option agreement for the spinoff of the water treatment business.
Options for 300,000 of such shares lapsed. The remaining options for 1,200,000
shares of common stock became fully exercisable upon the cessation of the
executive's employment as of May 15, 1996. On February 11, 1997, the executive
exercised all outstanding options for a total of 1,853,668 shares. The
exercise price was paid by the return of 889,450 shares of common stock owned
by the executive to the Company and cash of $6,622,139. See note 19.
F-22
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Also under the employment agreement, the Company sold 425,532 shares of
common stock to the executive for a $10 million promissory note which was
presented in the accompanying consolidated financial statements as a reduction
of stockholders' equity until it was repaid in full on October 11, 1996. The
note bore interest at 8 1/8% per annum and the Company agreed to pay the
executive additional compensation equal to the interest due on the note.
Other Options and Stock Awards
In October 1996, a former officer exercised options to purchase 17,500 shares
granted under an individual stock option agreement at an exercise price of
$11.14 per share.
Effective May 15, 1996, the Company entered into agreements ("Share Bonus
Agreements") with three executive officers to provide stock bonuses to each of
them of 38,889 shares of common stock ("Bonus Shares"), payable if the
executive remains continually employed by the Company through the earlier of
May 15, 1999 or one year after a change of control event. The shares are also
issuable in the event of certain types of terminations. Bonus Shares were
issued to one executive subsequent to his termination of employment on February
1, 1998 and the remaining compensation expense related to his shares was
recognized at that time. The Company is recognizing compensation expense equal
to the market value of the shares at May 15, 1996 ($18.25 per share) over the
vesting period for the two remaining executives. In connection with the
completion of the Recapitalization, the Share Bonus Agreements for the
remaining two executives were amended to permit the tender of Bonus Shares to
the Company. As a result, the Company purchased 20,026 of the Bonus Shares from
each of the two executive officers, representing the same percentage of shares
accepted in the Recapitalization from other stockholders. The remainder of the
outstanding Bonus Shares are subject to the original terms of the Share Bonus
Agreements, including the vesting provisions thereof.
Stock Option Summary
A summary of stock option transactions follows:
<TABLE>
<CAPTION>
Year ended January 31,
---------------------------------------------------------------
1999 1998 1997
-------------------- --------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year..... 2,565,050 $26.27 4,579,072 $24.79 2,171,168 $24.51
Granted.............................. 218,000 $ 9.38 213,953 $40.16 2,754,142 $25.52
Exercised:
By former Chief Executive Officer.. -- (1,853,668) $23.73 --
By others.......................... (494,649) $14.97 (68,985) $12.82 (28,870) $11.18
Forfeited............................ (194,753) $22.52 (305,322) $32.27 (317,368) $30.47
Adjustments for Recapitalization (see
note 2)............................. (477,854) -- --
--------- ---------- ---------
Outstanding at end of year........... 1,615,794 $ 7.39 2,565,050 $26.27 4,579,072 $24.79
========= ====== ========== ====== ========= ======
Options exercisable at end of year... 981,419 $ 6.40 897,192 $21.82 2,176,945 $22.67
========= ====== ========== ====== ========= ======
Weighted-average fair value of
options granted during the year..... $ 3.60 $ 13.17 $ 7.59
========= ========== =========
</TABLE>
F-23
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding at
January 31,1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- ---------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$2.50 to $8.50.......... 824,612 3.2 years $4.94 687,329 $4.88
$9.38 to $16.00......... 791,182 8.0 years $9.94 294,090 $9.97
</TABLE>
(12) INCOME TAXES
Income tax expense (benefit) attributable to income (loss) from operations
consists of:
<TABLE>
<CAPTION>
Current Deferred Total
-------- -------- -------
(In thousands)
<S> <C> <C> <C>
Year ended January 31, 1999:
U.S. federal................................. $(13,829) 29,944 16,115
Foreign...................................... 7,995 1,876 9,871
U.S. state and local......................... (759) 1,573 814
-------- ------ -------
$ (6,593) 33,393 26,800
======== ====== =======
Year ended January 31, 1998:
U.S. federal................................. $ 9,068 4,246 13,314
Foreign...................................... 7,841 (1,108) 6,733
U.S. state and local......................... 1,429 1,612 3,041
-------- ------ -------
$18,338 4,750 23,088
======== ====== =======
Year ended January 31, 1997:
U.S. federal................................. $ 923 1,408 2,331
Foreign...................................... 7,443 (249) 7,194
U.S. state and local......................... 658 206 864
-------- ------ -------
$9,024 1,365 10,389
======== ====== =======
Components of income (loss) from operations before income taxes, minority
interest, and extraordinary item are as follows:
<CAPTION>
Year ended January 31,
--------------------------
1999 1998 1997
-------- -------- -------
(In thousands)
<S> <C> <C> <C>
United States.................................. $(75,539) 63,633 (10,408)
Other nations.................................. 20,861 16,619 10,515
-------- ------ -------
Total...................................... $(54,678) 80,252 107
======== ====== =======
</TABLE>
F-24
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income tax expense (benefit) attributable to income (loss) from operations
differed from the amounts computed by applying the U.S. federal income tax rate
of 35% for fiscal 1999 and 1998, and 34% for fiscal 1997 as a result of the
following:
<TABLE>
<CAPTION>
Year ended January 31,
------------------------
1999 1998 1997
-------- ------ ------
(In thousands)
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)............ $(19,137) 28,088 36
Increase (decrease) in taxes resulting from:
Foreign tax credits, net of valuation allowance.... -- (3,337) --
Increase (reduction) in valuation allowance........ 44,077 (646) --
Tax rate differential on foreign earnings.......... 2,570 916 3,320
Amortization of intangibles........................ -- -- 7,746
State income taxes, net of federal benefit......... 529 1,977 570
Deemed dividends from foreign subsidiary........... 15,901 1,057 --
Adjustment of reserves related to prior year's tax
provisions........................................ (17,100) (4,445) --
Other, net......................................... (40) (522) (1,283)
-------- ------ ------
Income tax expense................................... $ 26,800 23,088 10,389
======== ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the net deferred tax asset are presented below:
<TABLE>
<CAPTION>
January 31,
------------------
1999 1998
--------- -------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Accounts receivable valuation allowances................. $ 3,934 5,550
Inventory costs capitalized for tax purposes............. 1,614 931
Other accruals and reserves accrued for financial
reporting purposes...................................... 37,129 38,088
Post-retirement benefits accrued for financial reporting
purposes................................................ 6,472 6,338
Foreign tax credit carryforwards......................... 26,787 8,820
Net operating loss and minimum tax carryforwards......... 67,643 53,111
--------- -------
Total gross deferred tax assets........................ 143,579 112,838
Less valuation allowance................................. (101,502) (34,888)
--------- -------
Deferred tax assets, net of valuation allowance...... 42,077 77,950
--------- -------
Deferred tax liabilities:
Plant, equipment and intangibles, due to differences as a
result of fresh start................................... 43,350 45,484
Plant and equipment, due to differences in depreciation
methods................................................. 9,993 10,037
Other accruals and reserves.............................. 3,289 6,536
--------- -------
Total gross deferred tax liabilities................... 56,632 62,057
--------- -------
Net deferred tax asset (liability)................... $ (14,555) 15,893
========= =======
</TABLE>
F-25
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of the net current deferred tax asset and net noncurrent
deferred tax liability were as follows:
<TABLE>
<CAPTION>
January 31,
----------------
1999 1998
-------- ------
(In thousands)
<S> <C> <C>
Net current deferred tax asset:
U.S. federal............................................. $ -- 27,341
Foreign.................................................. 2,491 2,222
U.S. state and local..................................... -- 2,060
-------- ------
2,491 31,623
-------- ------
Net noncurrent deferred tax liability:
U.S. federal............................................. -- 1,045
Foreign.................................................. 17,046 13,886
U.S. state and local..................................... -- 799
-------- ------
17,046 15,730
-------- ------
Net deferred tax asset (liability)....................... $(14,555) 15,893
======== ======
</TABLE>
The valuation allowance for deferred tax assets was increased from
$34,888,000 at January 31, 1998 to $101,502,000 at January 31, 1999. The
increase in the valuation allowance is primarily based on an assessment of the
likelihood of the realization of net U.S. deferred tax assets in view of (i)
the current year net operating loss for book and tax purposes, (ii) expiration
dates for tax net operating losses incurred in prior years, and (iii) the
Company's forecasts of future taxable income taking into account the increased
level of ongoing interest expense as a result of the Recapitalization. The
valuation allowance was increased from $33,961,000 at January 31, 1997 to
$34,888,000 at January 31, 1998 primarily to allow for potential unused
foreign tax credit carryforwards, unused net operating losses, and unused
future deductions. If the Company should recognize a tax benefit for pre-
reorganization net operating losses, for which a valuation allowance had been
established, it would be applied to reduce intangible assets until exhausted
and then to increase additional paid-in capital.
At January 31, 1999, the Company has net operating loss carryforwards of
approximately $173,129,000 million for federal income tax purposes, expiring
at various dates through 2012. As a result of the reorganization in 1993, the
Company had a change in ownership as defined by Section 382 of the Internal
Revenue Code. Consequently, utilization of the net operating loss
carryforwards is subject to an annual limitation of $17,200,000 per year, as
adjusted for unused yearly limitations.
Deferred income taxes have been provided on undistributed earnings of
foreign subsidiaries to the extent that management plans to remit these
earnings in the future. Undistributed earnings of foreign subsidiaries and
affiliates that are permanently invested, and for which no deferred taxes have
been provided, amounted to approximately $71,860,000 and $81,660,000 as of
January 31, 1999 and 1998, respectively.
F-26
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(13) PENSION AND OTHER EMPLOYEE BENEFITS
Certain subsidiaries of the Company have pension plans which provide
retirement benefits for eligible employees, generally measured by length of
service, compensation and other factors. The following tables provide combined
information relevant to the Company's pension and other employee benefit
plans:
<TABLE>
<CAPTION>
Post Retirement
Pension Benefits Benefits
----------------- ----------------
Fiscal Year Ended January 31,
-----------------------------------
1999 1998 1999 1998
-------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of
year............................... $191,718 86,063 10,620 10,285
Service cost........................ 1,950 2,290 526 465
Interest cost....................... 13,498 6,350 792 715
Plan participants' contributions.... -- -- 333 309
Amendments.......................... -- -- -- --
Actuarial (gain)/loss............... 10,018 3,327 2,991 (316)
Merger of assumed pension plans..... -- 101,305 -- --
Benefits paid....................... (18,994) (6,437) (760) (833)
Curtailments........................ (591) (1,146) -- --
Special termination benefits........ 1,737 -- -- --
Translation adjustment.............. 308 (34) (10) (5)
-------- ------- ------- -------
Benefit obligations at end of
year............................. 199,644 191,718 14,492 10,620
-------- ------- ------- -------
Change in Plan Assets
Fair value of plan assets at
beginning of year.................. 207,352 110,902 -- --
Actual return on plan assets........ 47,297 27,917 -- --
Acquisition......................... 43 74,569 -- --
Employer contribution............... 133 1,119 418 515
Plan participants' contributions.... -- -- 333 309
Translation adjustment.............. -- 128 -- --
Benefits paid....................... (20,560) (7,283) (751) (824)
-------- ------- ------- -------
Fair value of plan assets at end
of year.......................... 234,265 207,352 -- --
-------- ------- ------- -------
Funded status....................... 34,621 15,634 (14,492) (10,620)
Unrecognized net obligation gain.... -- (262) -- --
Unrecognized net actuarial gain..... (61,779) (42,748) (2,860) (6,195)
Unrecognized prior service cost..... 1,258 933 -- --
-------- ------- ------- -------
Prepaid (accrued) benefit cost.... $(25,900) (26,443) (17,352) (16,815)
======== ======= ======= =======
Weighted Average Assumptions
Discount rate....................... 7.0% 7.3% 7.0% 7.3%
Expected return on plan assets...... 8.5% 8.5% N/A N/A
Rate of compensation increase....... 3.5% 3.5% N/A N/A
</TABLE>
For post-retirement benefit measurement purposes, a 9% annual rate of
increase in the per capita cost of covered health care benefits was assumed
for fiscal 1999. The rate was assumed to decrease gradually to 5.5% for fiscal
2005 and remain at that level thereafter.
F-27
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Pension Post-
Benefits retirement Benefits
--------------- --------------------
Fiscal Year Ended January 31,
-------------------------------------
1999 1998 1999 1998
------- ------ --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Components of Net Periodic Benefit Costs
Service cost.......................... $ 1,934 2,332 527 465
Interest cost......................... 13,451 6,460 782 701
Expected return on plan assets........ (15,657) (8,450) -- --
Amortization of prior service cost.... 102 107 -- --
Recognized net actuarial loss......... (1,515) (905) (330) (372)
Recognized curtailment (gain)/loss.... (539) (1,113) -- --
Recognized termination benefit
(gain)/loss.......................... 1,737 -- -- --
------- ------ --------- ---------
Total net periodic benefit cost
(income)........................... $ (487) (1,569) 979 794
======= ====== ========= =========
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the post-retirement health care plans. A one-percentage-
point change in assumed health care cost trend rates would have the following
effects:
<TABLE>
<CAPTION>
1% Point 1% Point
Increase Decrease
-------- --------
(In thousands)
<S> <C> <C>
Effect on total of service and interest cost
components.......................................... 186 (145)
Effect on post-retirement benefit obligation......... 1,513 (1,258)
</TABLE>
For pension plans with accumulated obligations in excess of plan assets, the
projected benefit obligation, accumulated benefit obligation and fair value of
plan assets were $34,903,000, $34,186,000 and $32,669,000 as of January 31,
1999 and $31,289,000, $31,035,000 and $28,712,000 as of January 31, 1998.
Plan assets are primarily invested in cash equivalents, equity securities
and fixed income instruments.
The Company sponsors defined contribution plans, qualified under Section
401(k) of the Internal Revenue Code, which are offered to certain groups of
employees of substantially all U.S. operations. Expense related to continuing
operations of these plans was $797,000, $792,000 and $1,237,000 for the years
ended January 31, 1999, 1998 and 1997, respectively. The plans do not have
significant liabilities other than benefit obligations.
(14) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents, Trade Receivables, Accounts Payable, Short-term
Debt, and Accrued Expenses
The carrying amount approximates fair value because of the short maturity or
duration of these instruments.
Senior Subordinated Notes
The Company estimates that the fair value of the 10 3/4% Notes at January
31, 1999 approximates $280,000,000 based on recent interdealer transactions
which were priced at approximately $80.00 per $100.00 of principal.
F-28
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Senior Credit Facility and Other Long-term Obligations
The carrying value approximates the fair value of these instruments, which
primarily have floating interest rates that are fixed for periods not
exceeding six months.
Foreign Currency Forward Delivery Contracts
The fair value of foreign currency forward delivery contracts (see note 1n)
is estimated by reference to market quotations received from banks. At January
31, 1999 and 1998, the contract value of foreign currency forward delivery
agreements outstanding was approximately $73,990,000 and $26,357,000,
respectively. The settlement value of these instruments was at that date
approximately $75,647,000 and $24,963,000, respectively.
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
(15) LITIGATION, COMMITMENTS AND CONTINGENCIES
Litigation
The Company and certain related parties have been the subject of various
purported shareholder class action lawsuits and a purported derivative action
filed between March 13, 1998 and March 9, 1999 in various courts, including
Colorado State District Court, City and County of Denver; United States
District Court for the District of Colorado; and the Delaware Court of
Chancery (together, the "Shareholder Litigation"). On April 9, 1999, the
Company entered into an insurance agreement with a major insurance carrier
whereby the carrier assumed responsibility for the defense and ultimate
resolution of the Shareholder Litigation. In connection with the insurance
agreement, the Company entered into certain agreements and releases and agreed
to make a cash premium payment, net of potential future reimbursements, to the
insurer ranging from an estimated minimum payment of $7.0 million to a maximum
payment of $17.5 million depending on the ultimate cost to defend and resolve
the pending litigation. The Company is responsible for paying all legal
defense costs prior to the effective date of the insurance agreement, but
expects that substantially all costs incurred subsequent to the effective date
to defend and resolve the Shareholder Litigation will be covered by the
insurance agreement. The Company believes that substantially all costs it will
incur to defend and resolve the litigation have been accrued in the
accompanying consolidated financial statements as of January 31, 1999.
Contingent Liability with Respect to the Old Notes
The reorganization plan provides for payment in full of 100% of the allowed
claim of the holders of certain old notes ("Old Notes") of E-II Holdings, Inc.
(predecessor to Astrum), including approximately $16.4 million of interest on
overdue installments of interest accruing prior to the commencement of
Astrum's bankruptcy case. Various parties have challenged the allowability of
the claim on the basis that interest on overdue installments of interest is
not permitted under applicable non-bankruptcy law. The Company provided for
this contingent liability in its consolidated financial statements when it
emerged from bankruptcy in the amount of $16.4 million.
During fiscal 1997, $4.0 million of such claims were settled for $0.2
million, resulting in the recording of $3.8 million of other nonoperating
income from the favorable settlement of this claim. The holders of the claim
were Apollo Investment Fund, L.P. ("Apollo") and an affiliate of Apollo. At
January 31, 1997, Apollo and its affiliates owned 45.75% of the Company's
issued and outstanding common stock. During fiscal 1998, the Company recorded
other income of $2,060,000 from the favorable settlement of $2,139,000 of such
claims.
F-29
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As a result of a change in New York law in fiscal 1998, which adversely
affected the Company's ability to favorably settle the remaining claims, the
Company has entered into a non-binding agreement-in-principle to settle the
remaining amount of these claims for approximately $9.4 million. At January 31,
1999, other accrued expenses include $10.3 million provided for these remaining
claims. The Company expects final settlement to occur in the first half of
fiscal 2000.
Union Agreements
Union membership in the Company's European manufacturing plants varies from
country to country and is not officially known; however, it is probable that
most of the workers are affiliated with a union. Most European union contracts
have a one-year term. In the United States, 500 production employees are
unionized under a contract which next expires on April 9, 1999.
Other
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.
(16) OTHER INCOME (EXPENSE), NET
Other income (expense), net consisted of the following:
<TABLE>
<CAPTION>
Year ended January 31,
--------------------------------
1999 1998 1997
--------- -------------- ------
(In thousands)
<S> <C> <C> <C>
Net realized gains from foreign currency
forward delivery contracts.................. $ 1,420 6,463 2,829
Unrealized gain (loss) from foreign currency
forward delivery contracts.................. (1,212) -- --
Gain (loss) on disposition of assets held for
sale and fixed assets, net.................. 3,243 (377) (62)
Equity in loss of unconsolidated affiliate... (1,875) (547) (33)
Accrued costs related to shareholder litiga-
tion (note 15), favorable adjustments to
accruals and allowances related to previous
operations and accrual for taxes recorded in
connection with the Reorganization referred
to in note 1(b)............................. (23,200) 24,909 15,431
Other, net................................... (3,727) (2,154) 656
--------- ------ ------
$ (25,351) 28,294 18,821
========= ====== ======
</TABLE>
F-30
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(17) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial information:
<TABLE>
<CAPTION>
Three months ended
--------------------------------------------
April 30, July 31, October 31, January 31,
1998 1998 1998 1999(a)
--------- ------- ------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales.............................. $ 156,676 163,662 199,079 178,004
========= ======= ======= =======
Gross profit........................... $ 59,403 64,128 86,592 74,174
========= ======= ======= =======
Income (loss) before extraordinary
item.................................. $ (4,703) (27,097) 2,966 (53,484)
========= ======= ======= =======
Net income (loss)...................... $ (10,927) (27,333) 2,966 (53,484)
========= ======= ======= =======
Net loss to common stockholders........ $ (10,927) (29,912) (3,415) (60,156)
========= ======= ======= =======
Income (loss) per share attributable to
common stockholders--basic and
assuming dilution:
Income (loss) before extraordinary
item................................ $ (0.23) (1.81) (0.33) (5.76)
========= ======= ======= =======
Net income........................... $ (0.54) (1.82) (0.33) (5.76)
========= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three months ended
--------------------------------------------
April 30, July 31, October 31, January 31,
1997 1997 1997 1998
--------- ------- ------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales............................. $ 169,562 179,545 211,104 176,664
========= ======= ======= =======
Gross profit.......................... $ 70,269 78,228 89,859 74,170
========= ======= ======= =======
Income before extraordinary item...... $ 8,499 20,291 23,519 4,568
========= ======= ======= =======
Net income............................ $ 1,866 17,301 16,955 4,577
========= ======= ======= =======
Income per share attributable to
common stockholders--basic:
Continuing operations before
extraordinary item................. $ .43 1.00 1.15 .22
========= ======= ======= =======
Net income.......................... $ .09 .85 .83 .22
========= ======= ======= =======
Income per share attributable to
common stockholders--assuming
dilution:
Income before extraordinary item.... $ .41 .96 1.11 .22
========= ======= ======= =======
Net income.......................... $ .09 .82 .80 .22
========= ======= ======= =======
</TABLE>
- --------
(a) In the fourth quarter of fiscal 1999, the Company revised its estimate of
the likelihood of the realizability of deferred tax assets related to U.S.
operations. As a result, the valuation allowance for deferred tax assets
was increased and accruals for tax reserves were reduced resulting in an
net fourth quarter charge to income tax expense of approximately $16.7
million.
F-31
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(18) Information Concerning Business Segments
During the year ended January 31, 1999, the Company adopted SFAS No. 131,
Disclosure About Segments of an Enterprise and Related Information, which
changes the way the Company reports information about its operating segments.
Certain information for 1998 and 1997 has been reclassified from the prior
year's presentation in order to conform to the 1999 presentation.
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 primarily along geographic lines
dividing responsibility for the Company's operations as follows: The Americas,
which include the United States comprised of wholesale and retail operations,
Canada, Latin America, and South America; Europe; Asia, which includes India,
China, Singapore, South Korea, Taiwan and Hong Kong; and Other which primarily
includes licensing revenues from non-luggage brand names owned by the Company,
royalties from the Japanese luggage licensee and corporate overhead.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (see note 1). The Company
evaluates the performance of its segments based on operating income of the
respective business units. Intersegment sales prices are market based.
Segment information for the years ended January 31, 1999, 1998 and 1997 is
as follows:
<TABLE>
<CAPTION>
U.S. U.S. Other Other
1999 Europe Wholesale Retail Americas Asia Operations Eliminations Totals
- ---- -------- --------- ------- -------- ------ ---------- ------------ -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from external
customers.............. $304,986 179,577 128,595 45,588 22,902 15,773 -- 697,421
Intersegment revenues... $ 2,040 55,772 -- 6,330 9,068 -- (73,210) --
Operating income (loss)
(a).................... $ 39,709 (32,403) 9,319 236 484 (13,893) 4,722 8,174
Total assets............ $185,226 131,547 33,004 48,737 26,581 295,656 (99,316) 621,435
Capital expenditures.... $ 10,062 9,841 3,289 1,038 2,323 126 -- 26,679
Depreciation and
amortization........... $ 11,933 7,396 1,975 1,065 1,554 6,720 (3,589) 27,054
<CAPTION>
1998
- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from external
customers.............. $277,155 269,766 108,896 40,653 21,881 18,524 -- 736,875
Intersegment revenues... $ 7,486 38,422 -- 9,914 11,181 -- (67,003) --
Operating income (loss)
(a).................... $ 35,627 30,701 6,838 (2,312) (342) (2,759) 1,549 69,302
Total assets............ $171,710 161,343 42,683 71,983 34,568 698,665 (570,903) 610,049
Capital expenditures.... $ 18,650 4,616 4,849 1,328 6,271 599 -- 36,313
Depreciation and
amortization........... $ 11,600 7,651 1,239 864 941 9,962 (3,663) 28,594
<CAPTION>
1997
- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from external
customers.............. $280,788 292,297 78,499 43,364 26,244 19,946 -- 741,138
Intersegment revenues... $ 5,053 5,202 -- 4,482 1,966 -- (16,703) --
Operating income
(loss)(a).............. $ 27,723 14,037 4,880 314 2,604 (42,165) 8,144 15,537
Total assets............ $184,819 149,671 21,767 62,468 15,214 690,097 (531,378) 592,658
Capital expenditures $ 9,215 10,189 2,138 1,848 4,297 3,406 -- 31,093
Depreciation and
amortization........... $ 15,416 8,187 685 972 86 32,763 (4,220) 53,889
</TABLE>
- --------
(a) Operating income (loss) represents net sales less operating expenses. In
computing operating income (loss) none of the following items have been
added or deducted: interest income, interest expense, other--net, income
taxes, minority interest, and extraordinary items. General corporate
expenses and amortization of reorganization value in excess of
identifiable assets are included in other operations.
The Company enters into foreign exchange contracts in order to reduce its
exposure to fluctuations in currency exchange rates (primarily the Belgian
franc) on certain foreign operations and royalty agreements through the use
of forward delivery commitments. For the years ended January 31, 1999, 1998
and 1997, the Company had net gains (losses) from such transactions of
$208,000, $6,463,000 and $2,829,000, respectively, which are included in
nonoperating income (see note 16).
F-32
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-lived assets relating to the Company's operations by geographic area is
as follows:
<TABLE>
<CAPTION>
JANUARY 31,
----------------
1999 1998
-------- -------
(IN THOUSANDS)
<S> <C> <C>
United States............................................ $ 67,402 65,187
Belgium.................................................. 44,923 40,293
Other Europe............................................. 19,554 19,623
Other.................................................... 17,762 17,248
-------- -------
$149,641 142,351
======== =======
</TABLE>
(19) STOCK SALES
On April 9, 1999, the Company announced that it plans to commence a $75
million rights offering to its stockholders to strengthen its capitalization.
Under the terms of the rights offering, the Company would distribute, on a pro
rata basis, to all of its common stockholders of record as of a date to be
determined, transferable rights to purchase additional shares of common stock.
It is currently contemplated that the rights will be exercisable at a price of
$6.00 per share. Affiliates of Apollo Investment Fund, L.P. ("Apollo"),
Samsonite's largest stockholder, have agreed to purchase their full pro rata
share of the common shares offered in the rights offering and to "backstop"
the rights offering by purchasing additional common shares not purchased by
other stockholders, subject to a maximum aggregate subscription by Apollo of
$37.5 million.
Apollo has funded in advance its pro rata subscription amount by purchasing
$25.4 million of non-voting convertible junior preferred stock. The preferred
stock purchased by Apollo has an initial conversion rate that equates to $6.00
per share and is the economic equivalent of 4,235,000 shares of common stock.
Subject to SEC clearance and further Board action, Samsonite intends to
commence the common stock rights offering during the second quarter of 1999.
The rights offering will be made only by means of a prospectus.
On February 11, 1997, the Company completed the sale of 3,300,000 shares of
its common stock in a public offering and received net cash proceeds therefrom
of approximately $130,242,000. In addition, the former CEO (see note 11)
exercised options for 1,853,668 common shares and sold these shares in the
public offering. The Company received approximately $6,600,000 in cash from
the exercise of these options.
F-33
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- -------- ---------- ------------ --------- ------------- --------
Balance
Balance at at End
Beginning of
Description of Period Additions(a) Transfers Deductions(b) Period
- ----------- ---------- ------------ --------- ------------- --------
<S> <C> <C> <C> <C> <C>
Year Ended January 31,
1999
Allowance for Trade
Receivables............ $ 8,766 396 -- (2,097) 7,065
Allowance for Long-Term
Assets................. 706 -- -- (185) 521
------- ----- --- ------ ------
Total................... $ 9,472 396 -- (2,282) 7,586
======= ===== === ====== ======
Year Ended January 31,
1998
Allowance for Trade
Receivables............ $ 7,431 4,341 -- (3,006) 8,766
Allowance for Long-Term
Assets................. 5,556 -- -- (4,850) 706
------- ----- --- ------ ------
Total................... $12,987 4,341 -- (7,856) 9,472
======= ===== === ====== ======
Year Ended January 31,
1997
Allowance for Trade
Receivables............ $ 8,152 2,815 -- (3,536) 7,431
Allowance for Long-Term
Assets................. 10,104 -- -- (4,548) 5,556
------- ----- --- ------ ------
Total................... $18,256 2,815 -- (8,084) 12,987
======= ===== === ====== ======
</TABLE>
- --------
Notes:
(a)Amounts charged to costs and expenses.
(b) Bad debt write-offs and charges to allowances, net of other adjustments,
reclassifications and exchange rate changes.
F-34
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
------- ----------------------------------------------------------------------
<C> <S>
2.1 Distribution Agreement dated as of July 14, 1995, between the Company
and Culligan Water Technologies, Inc./1/
2.2 Tax Sharing Agreement dated as of July 14, 1995, between the Company
and Culligan Water Technologies, Inc./1/
2.3 Company's Second Amended Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code, dated February 17, 1993 (the "Plan")./2/
2.4 Modification of the Plan, dated May 21, 1993./3/
2.5 Notice to holders of Senior Subordinated Notes regarding the Stock
Elections described in the Plan./3/
2.6 Order of the United States Bankruptcy Court for the Southern District
of New York, dated May 25, 1993, confirming the Plan and authorizing
and directing certain actions in connection therewith./3/
3.1 Amended and Restated Certificate of Incorporation of the Company./4/
3.2 Certificate of Ownership and Merger dated July 14, 1995./1/
3.3 By-Laws of the Company./4/
4.1 Indenture, dated as of June 24, 1998, between the Company and United
States Trust Company of New York./13/
4.2 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./14/
4.3 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./14/
4.4 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./14/
4.5 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./14/
4.6 Description of the Company's common stock, par value $.01 per share,
and the associated preferred stock purchase rights./17/
10.1 Seconded Amended and Restated Multicurrency Revolving Credit and Term
Loan Agreement dated as of June 25, 1998, between the Company,
Samsonite Europe N.V. and Bank of America National Trust and Savings
Association, BankBoston, N.A., and various other lending institutions,
Bank of America National Trust and Savings Association, as
Administrative Agent, BankBoston, N.A. as Syndication Agent, Canadian
Imperial Bank of Commerce, as Documentation Agent and BankAmerica
Robertson Stephens and BancBoston Securities Inc., as Arrangers./13/
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- ----------------------------------------------------------------------
<C> <S>
10.2 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./16/
10.3 Second Amendment and Waiver to Second Amended and Restated
----------------------------------------------------------
Multicurrency Revolving Credit and Term Loan Agreement, dated as of
-------------------------------------------------------------------
January 29, 1999 between the Company, Samsonite Europe N.V., and
----------------------------------------------------------------
various other lending institutions.
----------------------------------
10.4 Nonqualified Stock Option Agreement dated as of July 15, 1998 between
the Company and Luc Van Nevel./15/
10.5 Nonqualified Stock Option Agreement dated as of July 15, 1998 between
the Company and Thomas R. Sandler./15/
10.6 Nonqualified Stock Option Agreement dated as of July 15, 1998 between
the Company and Karlheinz Tretter./15/
10.7 Nonqualified Stock Option Agreement dated as of July 15, 1998 between
the Company and Richard H. Wiley./15/
10.8 Nonqualified Stock Option Agreement dated as of July 15, 1998 between
the Company and D. Michael Clayton./15/
10.9 Stock Option Agreement dated as of May 15, 1996 between the Company
and Richard R. Nicolosi./7/
10.10 Form of Indemnification Agreement entered into or to be entered into
by the Company with each of R. Theodore Ammon, Leon D. Black, Robert
H. Falk, Thomas J. Leonard, Marc J. Rowan, Stephen J. Solarz, Gregory
Wm. Hunt, Carl C. Ichan, Mark H. Rachesky, and Robert L. Rosen./3/
10.11 Employment Agreement, dated as of February 1, 1998, between the
Company and Thomas R. Sandler./18/
10.12 Consulting Agreement, dated as of February 1, 1998, between Samsonite
Europe N.V. and Luc Van Nevel./18/
10.13 Executive Management Agreement, dated February 1, 1998, between the
Company and Luc Van Nevel./18/
10.14 Employment Agreement, dated as of February 1, 1998, between Samsonite
GmbH and Karlheinz Tretter./18/
10.15 Overall Agreement, dated as of February 1, 1998, between the Company
and Karlheinz Tretter./18/
10.16 Samsonite Corporation 1995 Stock Option and Incentive Award Plan (as
Amended in 1996)./9/
10.17 Samsonite Corporation 1995 Stock Option and Award Plan, Second
Amendment./8/
10.18 Stock Option Agreement, dated as of February 20, 1996, between the
Company and Thomas R. Sandler./4/
10.19 Stock Option Agreement, dated as of February 20, 1996, between the
Company and Luc Van Nevel./4/
10.20 Stock Option Agreement, dated as of February 20, 1996, between the
Company and Karlheinz Tretter./4/
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- ----------------------------------------------------------------------
<C> <S>
10.21 Employment Agreement, dated as of May 15, 1996, between the Company
and Richard R. Nicolosi./5/
10.22 Amendment to Employment Agreement, dated as of May 2, 1997, between
the Company and Richard R. Nicolosi./10/
10.23 Registration Rights Agreement, dated as of May 15, 1996, between the
Company and Richard R. Nicolosi./5/
10.24 Stock Sale Agreement, dated as of May 16, 1996, between the Company
and Richard R. Nicolosi./5/
10.25 Form of Agreement, made as of May 15, 1996, between the Company and
each of Thomas J. Leonard, Luc Van Nevel, and Thomas R. Sandler, each
agreement with respect to 38,889 shares of the Common Stock of the
Company, par value $.01 per share./5/
10.26 Form of Stock Option Agreement for Awards under the 1995 Stock Option
and Incentive Award Plan (as Amended in 1996)./7/
10.27 Samsonite Corporation Directors Stock Plan./9/
10.28 Final Settlement Agreement, made as of June 20, 1996, among the
Company, the Pension Benefit Guaranty Corporation, and others named
therein (including exhibits thereto), with respect to the Schenley
Pension Plan./6/
10.29 Final Settlement Agreement, made as of June 20, 1996, among the
Company, the Pension Benefit Guaranty Corporation, and others named
therein (including exhibits thereto), with respect to the McCrory
Pension Plan./6/
10.30 Purchase Agreement, dated as of June 13, 1996, between the Company and
Artemis America Partnership and Apollo Investment Fund, L.P./6/
10.31 Stock Option Agreement, dated as of October 29, 1996, between the
Company and Thomas R. Sandler./12/
10.32 Stock Option Agreement, dated as of October 29, 1996, between the
Company and Karlheinz Tretter./12/
10.33 Employment Agreement, effective as of February 1, 1998, between the
Company and Richard H. Wiley./18/
10.34 Employment Agreement, effective as of February 1, 1998, between the
Company and Carlo Zezza./18/
10.35 Trademark Purchase and Assignment Agreement, dated as of October 31,
1997, between the Company's subsidiary, McGregor L.L.C. and McGregor
International Licensing N.V./11/
10.36 Trademark Option Agreement, dated as of October 31, 1997, between the
Company's subsidiary, McGregor L.L.C. and McGregor International
Licensing N.V./11/
10.37 Rights Agreement, dated as of May 12, 1998, between the Company and
BankBoston, N.A. as Rights Agent, including the Form of Certificate of
Designation, Preferences and Rights setting forth the terms of the
Series B Junior Participating Preferred Stock, par value $0.01 per
share, as Exhibit A, the Form of Rights Certificate as Exhibit B and
the Summary of Rights to Purchase Series B Junior Participating
Preferred Stock as Exhibit C./17/
</TABLE>
E-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- ----------------------------------------------------------------------
<C> <S>
10.38 Agreement, made as of June 11, 1998, between the Company and Luc Van
Nevel./13/
10.39 Agreement, made as of June 11, 1998, between the Company and Thomas R.
Sandler./13/
10.40 Warrant Agreement, dated as of June 24, 1998, between the Company and
BankBoston, N.A./15/
10.41 Common Stock Registration Rights Agreement, dated as of June 24, 1998,
between the Company and CIBC Oppenheimer Corp./15/
10.42 First Amendment to Warrant Agreement, dated as of August 17, 1998,
between the Company and BankBoston, N.A./15/
10.43 FY 1999 Stock Option and Incentive Award Plan/19/
10.44 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./13/
10.45 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./14/
21 Subsidiaries of the Company
---------------------------
23 Consent of KPMG LLP
-------------------
27 Financial Data Schedule
-----------------------
</TABLE>
- --------
Note: Documents which are underlined above appear herein. The others are
incorporated by reference as follows:
/1/ Incorporated by reference from the Registration Statement on Form S-4
(Registration No. 33-95642).
/2/ Incorporated by reference from Application for Qualification of Indenture
on Form T-3 (File No. 22-24448).
/3/ Incorporated by reference from Registration Statement on Form S-1
(Registration No. 33-71224).
/4/ 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).
/5/ Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the three months ended April 30, 1996 (File No. 0-23214).
/6/ Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the three months ended July 31, 1996 (File No. 0-23214).
/7/ Incorporated by reference from Registration Statement on Form S-8 filed
June 7, 1996 (File No. 333-05467).
/8/ Incorporated by reference from Registration Statement on Form S-8 filed
January 30, 1997 (File No. 333-20775).
/9/ Incorporated by reference from Proxy Statement filed May 23, 1996.
/10/ Incorporated by reference from the Company's Quarterly Report on Form 10-
Q for the three months ended April 30, 1997 (File No. 0-23214).
/11/ Incorporated by reference from the Company's Quarterly Report on Form 10-
Q for the three months ended October 31, 1997 (File No. 0-23214).
E-4
<PAGE>
/12/ Incorporated by reference from the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1997 (File No. 0-23214).
/13/ Incorporated by reference from the Registration Statement on Form S-4
(Registration No. 333-61521).
/14/ Incorporated by reference from the Registration Statement on Form S-4
(Registration Statement No. 333-61519).
/15/ Incorporated by reference from the Company's Quarterly Report on Form 10-
Q for the three months ended July 31, 1998.
/16/ Incorporated by reference from the Company's Quarterly Report on Form 10-
Q for the three months ended October 31, 1998 (File No. 0-23214).
/17/ Incorporated by reference from the Company's Registration Statement on
Form 8-A filed June 14, 1994 under the Exchange Act and the Company's
Registration Statement on Form 8-A filed May 13, 1998 under the Exchange Act
(File No. 0-23214).
/18/ Incorporated by reference from the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1998 (File No. 0-23214).
/19/ Incorporated by reference from Proxy Statement filed August 6, 1998.
E-5
<PAGE>
EXHIBIT 10.3
SECOND AMENDMENT AND WAIVER
TO SECOND AMENDED AND RESTATED
MULTICURRENCY REVOLVING CREDIT AND
TERM LOAN AGREEMENT
Second Amendment and Waiver, dated as of January 29, 1999 (the "Effective
Date"), 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 from time to time 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 amended by the First Amendment to Second
Amended and Restated Multicurrency Revolving Credit and Term Loan Agreement,
dated as of October 1, 1998, and 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)3 hereof, the Credit
Agreement is hereby amended as follows:
<PAGE>
2
(S)1.1. APPLICABLE MARGIN.
-----------------
THE TABLE IN THE DEFINITION OF APPLICABLE MARGIN CONTAINED IN (S)1.1 OF THE
CREDIT AGREEMENT IS HEREBY AMENDED BY SUBSTITUTING THE FOLLOWING FOR THE
EXISTING ROW ENTITLED "TIER 7" OF SUCH TABLE:
<TABLE>
- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TIER GREATER 3.00% 3.50% 1.9375% 2.00% 2.50% 0.500%
7 THAN OR
EQUAL TO
5.50:1.0
0
- -------------------------------------------------------------------
</TABLE>
(S)1.2. REAL ESTATE COLLATERAL ARRANGEMENTS.
---- ------ ---------- ------------
(a) Section 7 of the Credit Agreement is hereby amended by inserting the
following phrase into Section 7.1(a) and Section 7.2(a) immediately after the
phrase "real property" and before the semi-colon in each of Section 7.1(a) and
Section 7.2(a):
"(except for real property required to be mortgaged as
Collateral under Section 9.24 hereof)"
(b) Section 9.24 of the Credit Agreement is hereby amended by adding the
following new text at the end of such Section 9.24:
"As soon as practicable and in any event no later than March 31, 1999,
the Company and the Guarantors that are Domestic Subsidiaries shall have
executed and delivered such mortgages, deeds of trust, and other Security
Documents and such other related documents, and taken such other actions, as
may be reasonably requested by the Administrative Agent in order for the
Administrative Agent, in its capacity as Collateral Agent for the Lenders,
to have legal, valid and enforceable first priority (except for (a)
Permitted Liens entitled to priority under applicable law and (b) at such
time as the Administrative Agent shall have entered into the applicable
Collateral Agency Agreement relating thereto, the PBGC Ratable Lien),
perfected mortgage liens and security interests upon any and all owned Real
Estate located in Denver, Colorado and the surrounding communities (whether
now owned or hereafter acquired) of the Company and the Guarantors that are
Domestic Subsidiaries ("Denver Owned Real Estate") as security for the
Obligations of the applicable grantor of such Denver Owned Real Estate as
Collateral. Without limiting the generality of the foregoing, within the
required time period specified above, (i) all filings, recordings,
deliveries of documents and other actions necessary or desirable in the
opinion of the Administrative Agent to perfect, protect and preserve such
mortgage liens and security interests shall have been duly effected or there
shall have been made arrangements for the same which are satisfactory to the
Administrative Agent, (ii) the Administrative Agent shall have received
evidence of the foregoing in form and substance satisfactory to the
Administrative Agent, (iii) the Administrative Agent shall have received
from each of the Company and the Guarantors that are Domestic
<PAGE>
3
Subsidiaries an accurate and complete list and description of all Denver
Owned Real Estate (and any and all other then owned Real Estate located in
the United States of America of the Company and the Guarantors that are
Domestic Subidiaries), and the results of UCC, title, and other lien
searches with respect to the applicable Denver Owned Real Estate indicating
no liens other than Permitted Liens, and otherwise in form and substance
satisfactory to the Administrative Agent, (iv) the Administrative Agent
shall have received (x) evidence of corporate, limited liability company, or
other applicable organizational authority of the Company and the relevant
Guarantors that are Domestic Subsidiaries with respect to the granting of
the Denver Owned Real Estate as Collateral by them, (y) signed copies of
favorable legal opinions, addressed to the Administrative Agent, of counsel
to the Company and the applicable Guarantors as to the matters referred to
in the foregoing clause (x) of this paragraph; as to the Collateral Agent
holding valid, perfected and subsisting liens in the Denver Owned Real
Estate as Collateral, enforceable against all third parties in accordance
with their terms (subject only to Permitted Liens); as to the relevant
mortgages, deeds of trust, and other applicable Security Documents being
legal, valid and binding obligations of each applicable Obligor, enforceable
in accordance with their terms (subject to customary qualifications and
limitations); and as to such other matters as the Administrative Agent may
reasonably request (together with appropriate corporate (or other
applicable) documentation and certificates relating thereto), and (z) a
certificate of insurance with respect to the Denver Owned Real Estate in
form and substance satisfactory to the Administrative Agent, from an
independent insurance broker, identifying insurers, types of insurance,
insurance limits, policy terms, identifying the Collateral Agent (on behalf
of the Lenders) as additional insured and as mortgagee and loss payee and
otherwise describing the insurance obtained in accordance with the
provisions of this Agreement and the applicable Security Documents relating
to the Denver Owned Real Estate, and certified copies of all policies
evidencing such insrance (or certificates with respect thereto signed by the
insurer or an agent authorized to bind the insurer), together with evidence
of appropriate flood insurance or evidence that flood insurance is not
required as to the Denver Owned Real Estate; (v) the Administrative Agent
shall have received appropriate policies of mortgagee title insurance in its
favor, in form and substance (and in an amount of coverage) satisfactory to
the Administrative Agent, with respect to its mortgage liens and security
interests in the Denver Owned Real Estate, issued by title insurers approved
by the Administrative Agent, together with evidence of full payment of the
related premiums by the Company, and such real estate surveys, surveyor's
certificates, title affidavits, and other related documents as the
Administrative Agent deems necessary or appropriate in connection with such
title insurance (with the costs and expenses of the foregoing to be paid by
the Company); (vi) the Administrative Agent shall have received
environmental site assessment reports (including, without limitation, the
environmental site assessment reports provided for in Section 9.16 hereof)
covering such matters as the Administrative Agent shall reasonably request
<PAGE>
4
with respect to the Denver Owned Real Estate from environmental consultants
approved by the Administrative Agent (with the costs and expenses of the
same to be paid by the Company), and (vii) the Administrative Agent shall
have received such appraisals of the Denver Owned Real Estate as it deems
necessary or appropriate (whether pursuant to any applicable requirements
of federal or state banking laws or regulations, its internal real estate
collateral policies, or otherwise) from appraisers approved by the
Administrative Agent, in such form and detail and covering such matters as
to the Denver Owned Real Estate as the Administrative Agent shall
reasonably request (with the costs and expenses of the same to be paid by
the Company). Notwithstanding the foregoing, the foregoing requirements of
this Section 9.24 with respect to the Denver Owned Real Estate shall be
subject to the limitations and exclusions set forth in Sections 7.1(e) and
7.2(d) hereof with respect to certain encumbered Real Estate."
(S)2. LIMITED WAIVER OF INTEREST COVERAGE RATIO. Subject to the
-----------------------------------------
satisfaction of the applicable conditions precedent set forth in (S)3 hereof,
the Lenders hereby waive, solely with respect to the determination of compliance
therewith as of January 31, 1999, non-compliance by the Borrowers with Section
11.2.1(b) of the Credit Agreement. Such waiver shall not apply to any other
provision of the Credit Agreement or any other fiscal period.
(S)3. CONDITIONS TO EFFECTIVENESS. This Amendment shall be deemed to be,
---------------------------
and shall become, effective as of the Effective Date but only upon, and subject
to, the execution and delivery by the Company, Samsonite Europe, and the
Majority Lenders of one or more counterparts of this Amendment to the
Administrative Agent on a date that is a Business Day not later than January 29,
1999 (such date being hereinafter referred to as the "Amendment Closing Date").
(S)4. 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
<PAGE>
5
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.
(S)5. RATIFICATION, ETC. Except as expressly provided for herein, 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)6. 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, except for the limited waiver expressly provided for herein.
(S)7. 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)8. 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>
6
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: Chief Financial Officer......................
Samsonite Europe: SAMSONITE EUROPE N.V.
----------------
By: /s/ Thomas R. Sandler...........................
Name: Thomeas R. Sandler
Title: Director
<PAGE>
7
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/ Peter D.Griffith..........................
Name: Peter D. Griffith...........................
Title: Senior Vice President
<PAGE>
8
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>
9
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
CIBC INC.
By: /s/ Gerald Girardi..........................
Name: Gerald Girardi.............................
Title: CIBC Oppenheimer Corp., AS AGENT..........
<PAGE>
10
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
GENERALE BANK N.V.
By: /s/ David Snyder.......................
Name: David Snyder.........................
Title: Senior Vice President...............
By: /s/ E. Matthews.......................
Name: E. Matthews..........................
Title: Senior Vice President...............
<PAGE>
11
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
THE BANK OF NEW YORK
By: /s/ Michael B. Scaduto.........................
Name: Michael B. Scaduto...........................
Title: Vice President..............................
<PAGE>
12
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Peter DiBiasi.......................
Name: Peter DiBiasi.........................
Title: Senior Risk Manager..................
<PAGE>
13
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
NATIONAL BANK OF CANADA
By: /s/ Raymond L. Yager /s/ A.M. Conneen, Jr.
Name: Raymond L. Yager A.M. Conneen, Jr.
Title: Vice President Vice President/Manager
<PAGE>
14
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>
15
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:....................................
Name:..................................
Title:.................................
<PAGE>
16
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:..............................
Name:............................
Title:...........................
<PAGE>
17
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By:......................................
Name:....................................
Title:...................................
<PAGE>
18
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
SENIOR HIGH INCOME PORTFOLIO,
INC.
By:..........................
Name:........................
Title:.......................
<PAGE>
19
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
ML CLO XX PILGRIM AMERICA
(CAYMAN) LTD.
By:
Pilgrim Investments, Inc.,
its Investment Manager
By: /s/ Robert L. Wilson..........................
Name: Robert L. Wilson............................
Title: Vice President.............................
<PAGE>
20
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 K. Merrill...........................
Name: Peter K. Merrill.............................
Title: Managing Director...........................
<PAGE>
21
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 K. Merrill......................
Name: Peter K. Merrill.........................
Title: Managing Director.......................
<PAGE>
22
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>
23
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
KZH ING2 LLC
By:............................
Name:..........................
Title:.........................
<PAGE>
24
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:.........................
Name:.......................
Title:......................
<PAGE>
25
Signature Pages for Lenders
---------------------------
The undersigned Lender hereby consents and agrees to the foregoing
Amendment:
CYPRESSTREE INVESTMENT
PARTNERS II, LTD.
By: CypressTree Investment Management Company,
Inc.,
as Portfolio Manager
By: /s/ Peter K. Merrill...................
Name: Peter K. Merrill...................
Title: Managing Director...................
<PAGE>
26
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/ James Dondero, CFA, CPA................
Name: James Dondero............................
Title: President, Highland Capital Management L.P.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF SAMSONITE CORPORATION (Delaware)
Samsonite Europe N.V. Belgium
Samsonite S.A. France
Samsonite Limited United Kingdom
Samsonite B.V. Netherlands
Samsonite Ges.m.b.H. Austria
Samsonite GmbH Germany
Samsonite Hungaria Borond KFT Hungary
Samsonite Finanziaria S.r.l. Italy
Samsonite SpA Italy
Samsonite Espana S.A. Spain
Samsonite AB (Aktiebolag) Sweden
Samsonite A/S Denmark
Samsonite AG Switzerland
Samsonite Slovakia S.r.o. Slovakia
Samsonite Sp. z o.o. Poland
Samsonite Finland Oy Finland
Samsonite CZ spol. s.r.o. Czech Republic
Samsonite Mauritius Limited Mauritius
Samsonite India Limited India
Samsonite Singapore Pte Ltd Singapore
Samsonite Asia Limited Hong Kong
Samsonite Hong Kong Limited Hong Kong
Samsonite Korea Limited Korea
Samsonite Latinoamerica, S.A. de C.V. Mexico
Samsonite Mexico, S.A. de C.V. Mexico
Samsonite Comercio E Participacoes Ltda. Brazil
Samsonite Industrial E Comercial Ltda. Brazil
Samsonite Canada Inc. Canada
Samson S.A. de C.V. Mexico
Samsonite Mercosur Limited Bahamas
Samsonite Brasil Ltda. Brazil
Samsonite Argentina, S.A. Argentina
Lonberg Express, S.A. Uruguay
Samsonite Company Stores, Inc. Indiana
Samsonite Pacific Ltd. Colorado
Direct Marketing Ventures, Inc. Colorado
Samsonite Holdings Inc. Delaware
Astrum R.E. Corp. Delaware
McGregor II, LLC Delaware
Hortex Incorporated Texas
McGregor China Corp. Delaware
Jody Apparel II, LLC Delaware
WMI II, LLC Delaware
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors and Stockholders
Samsonite Corporation:
We consent to the incorporation by reference in the registration statements on
Form S-8 (Nos. 333-05467, 333-19281, 333-20775, 333-28663, 333-52185 and
333-53935) of Samsonite Corporation of our report dated March 22, 1999, except
as to notes 15 and 19, which are as of April 9, 1999, relating to the
consolidated balance sheets of Samsonite Corporation and subsidiaries as of
January 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the years
in the three-year period ended January 31, 1999, and the related financial
statement schedule, which report appears in the January 31, 1999 Annual Report
on Form 10-K of Samsonite Corporation.
KPMG LLP
Denver, Colorado
April 16, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED JANUARY 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 41,932
<SECURITIES> 0
<RECEIVABLES> 85,394
<ALLOWANCES> 7,065
<INVENTORY> 187,567
<CURRENT-ASSETS> 336,497
<PP&E> 225,378
<DEPRECIATION> 75,737
<TOTAL-ASSETS> 621,435
<CURRENT-LIABILITIES> 162,248
<BONDS> 496,173
178,329
0
<COMMON> 210
<OTHER-SE> (295,656)
<TOTAL-LIABILITY-AND-EQUITY> 621,435
<SALES> 697,421
<TOTAL-REVENUES> 697,421
<CGS> 413,124
<TOTAL-COSTS> 413,124
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 396
<INTEREST-EXPENSE> 39,954
<INCOME-PRETAX> (54,678)
<INCOME-TAX> 26,800
<INCOME-CONTINUING> (82,318)
<DISCONTINUED> 0
<EXTRAORDINARY> (6,460)
<CHANGES> 0
<NET-INCOME> (88,778)<F1>
<EPS-PRIMARY> (7.24)
<EPS-DILUTED> (7.24)
<FN>
<F1>NET INCOME (LOSS) IS SHOWN BEFORE SENIOR REDEEMABLE PREFERRED STOCK
DIVIDENDS AND ACCRETION OF SENIOR PREFERRED STOCK DISCOUNT OF $15,632.
</FN>
</TABLE>
