<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 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
incorporation or organization) Identification No.)
11200 East 45th Avenue, Denver, CO 80239
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(303) 373-2000
-----------------------------
(Registrant's telephone number, including area code)
------------------------------------------
(Former name, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
X Yes No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 19,712,222 shares of common
stock, par value $.01 per share, as of December 13, 1999.
<PAGE>
FORM 10-Q
---------
CONTENTS
--------
<TABLE>
<CAPTION>
<S> <C> <C>
PART I - FINANCIAL INFORMATION Page Number
--------------------- -----------
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets as of October 31, 1999
and January 31, 1999......................................... 1
Unaudited Consolidated Statements of Operations for the
three months ended October 31, 1999 and 1998................. 3
Unaudited Consolidated Statements of Operations for the nine
months ended October 31, 1999 and 1998....................... 4
Unaudited Consolidated Statement of Stockholders' Equity
(Deficit) for the nine months ended October 31, 1999......... 5
Unaudited Consolidated Statements of Cash Flows for the nine
months ended October 31, 1999 and 1998....................... 6
Unaudited Notes to Consolidated Financial Statements......... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk... 25
PART II - OTHER INFORMATION
-----------------
Item 1: Legal Proceedings.................................... 27
Item 2: Changes in Securities................................ 27
Item 3: Defaults upon Senior Securities ..................... 27
Item 4: Submission of Matters to a Vote of Security Holders.. 27
Item 5: Other Information.................................... 27
Item 6: Exhibits and Reports on Form 8-K..................... 28
Signature.................................................... 29
Index to Exhibits 30
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
as of October 31, 1999 and January 31, 1999
(In thousands)
<TABLE>
<CAPTION>
October 31, January 31,
Assets 1999 1999
- ------ ----------- -----------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 40,026 41,932
Trade receivables, net of allowances for doubtful accounts
of $7,427 and $7,065........................................ 87,279 78,329
Notes and other receivables................................... 13,238 11,614
Inventories (Note 2).......................................... 167,112 187,567
Deferred income tax assets.................................... 2,708 2,491
Prepaid expenses and other current assets....................... 15,673 14,564
-------- -------
Total current assets........................................ 326,036 336,497
Property, plant and equipment, net (Note 3)..................... 144,091 149,641
Intangible assets, less accumulated amortization of $50,761 and
$46,786 (Note 4).............................................. 109,970 114,248
Other assets and long-term receivables, net of allowances
for doubtful accounts of $521................................. 18,233 21,049
-------- -------
$598,330 621,435
======== =======
(Continued)
</TABLE>
See accompanying notes to consolidated financial statements
1
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
as of October 31, 1999 and January 31, 1999
(In thousands, except share data)
<TABLE>
<CAPTION>
October 31, January 31,
Liabilities and Stockholders' Equity (Deficit) 1999 1999
- ---------------------------------------------- ------------- ------------
Current liabilities:
<S> <C> <C>
Short-term debt (Note 5)..................................................... $ 9,205 8,409
Current installments of long-term obligations (Note 5)....................... 5,624 6,923
Accounts payable............................................................. 51,942 48,375
Accrued liabilities.......................................................... 96,713 98,541
--------- --------
Total current liabilities................................................. 163,484 162,248
Long-term obligations, less current installments (Note 5)...................... 463,530 496,173
Deferred income tax liabilities................................................ 15,015 17,046
Other noncurrent liabilities................................................... 49,001 53,919
--------- --------
Total liabilities......................................................... 691,030 729,386
--------- --------
Minority interests in consolidated subsidiaries................................ 10,095 9,166
Senior redeemable preferred stock, aggregate liquidation preference of
$210,503 and $190,034; 206,836 and 186,723 shares issued and outstanding..... 199,567 178,329
Stockholders' equity (deficit) (Notes 1B, 5 and 7):
Preferred stock ($.01 par value; 2,000,000 shares authorized):
Series Z preferred stock, convertible; authorized 2,000 shares; issued and
outstanding 1,000 shares.................................................. 24,410 --
Common stock ($.01 par value; 60,000,000 shares authorized;
21,032,031 and 21,000,039 shares issued; 10,532,031 and
10,500,039 shares outstanding)............................................ 210 210
Additional paid-in capital................................................... 437,107 436,351
Accumulated other comprehensive income......................................... (18,442) (12,426)
Accumulated deficit............................................................ (325,647) (299,581)
--------- --------
117,638 124,554
Treasury stock, at cost (10,500,000 shares).................................... (420,000) (420,000)
--------- --------
Total stockholders' equity (deficit)...................................... (302,362) (295,446)
--------- --------
Commitments and contingencies (Notes 5, 7 and 9)
$ 598,330 621,435
========= ========
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
for the three months ended October 31, 1999 and 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended October 31,
--------------------------------
1999 1998
---------------- --------------
<S> <C> <C>
Net sales (Note 1G).......................................... $208,227 199,079
Cost of goods sold........................................... 121,081 112,487
-------- -------
Gross profit .............................................. 87,146 86,592
Selling, general and administrative expenses ................ 67,963 64,533
Amortization of intangible assets ........................... 1,444 1,117
-------- -------
Operating income .......................................... 17,739 20,942
Other income (expense):
Interest income ........................................... 525 534
Interest expense and amortization of debt issue costs
and premium ............................................. (12,951) (14,034)
Other expense - net (Note 6) .............................. (1,608) (2,342)
-------- -------
Income before income taxes and minority interest .......... 3,705 5,100
Income tax expense ........................................ (3,308) (1,730)
Minority interest in earnings of subsidiaries ............. (928) (404)
-------- -------
Net income (loss) ......................................... (531) 2,966
Senior redeemable preferred stock dividends and accretion
of senior redeemable preferred stock discount ............. (7,314) (6,381)
-------- -------
Net loss to common stockholders ........................... $ (7,845) (3,415)
======== =======
Net loss per share - basic and diluted .................... $ (0.75) (0.33)
======== =======
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
for the nine months ended October 31, 1999 and 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended October 31,
-----------------------------
1999 1998
---- ----
<S> <C> <C>
Net sales (Note 1G)............................................... $579,491 519,415
Cost of goods sold................................................ 336,603 309,292
-------- -------
Gross profit.................................................... 242,888 210,123
Selling, general and administrative expenses...................... 196,235 194,981
Provision for restructuring operations............................ -- 8,214
Amortization of intangible assets................................. 4,224 4,155
-------- -------
Operating income................................................ 42,429 2,773
Other income (expense):
Interest income................................................. 1,523 1,832
Interest expense and amortization of debt issue costs
and premium................................................... (39,800) (26,375)
Other income - net (Note 6)..................................... 1,482 702
-------- -------
Income (loss) before income taxes, minority interest,
and extraordinary item........................................ 5,634 (21,068)
Income tax expense................................................ (9,103) (6,943)
Minority interest in earnings of subsidiaries..................... (1,359) (823)
-------- -------
Loss before extraordinary item.................................. (4,828) (28,834)
Extraordinary item - loss on extinguishment of debt,
net of income tax benefit of $3,959 (Note 5).................... -- (6,460)
-------- -------
Net loss........................................................ (4,828) (35,294)
Senior redeemable preferred stock dividends and accretion
of senior redeemable preferred stock discount................... (21,238) (8,960)
-------- -------
Net loss to common stockholders................................. $(26,066) (44,254)
======== =======
Income (loss) per common share - basic and diluted:
Loss before extraordinary item................................ $ (2.48) (2.40)
Extraordinary loss............................................ -- (0.41)
-------- -------
Net loss per share.......................................... $ (2.48) (2.81)
======== =======
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statement of Stockholders' Equity (Deficit)
for the nine months ended October 31, 1999
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Preferred Common Paid-In Comprehensive Accumulated Comprehensive Treasury
Stock Stock Capital Loss Deficit Loss Stock
----- ----- ------- ---- ------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 1,
1999 $ -- 210 436,351 (12,426) (299,581) (420,000)
Issuance of shares to
directors for services -- -- 102 -- -- --
Compensation expense
accrued for stock bonus
awards -- -- 138 -- -- --
Issuance of preferred
stock (Note 1B) 24,410 -- -- -- -- --
Exercise of employee
stock options and
issuance of stock award
shares -- -- 516 -- -- --
Net loss -- -- -- -- (4,828) (4,828) --
Foreign currency
translation adjustment -- -- -- (6,016) -- (6,016) --
------
Comprehensive loss -- -- -- -- -- (10,844) --
=======
Senior redeemable
preferred stock
dividends and accretion
of senior redeemable
preferred stock discount -- -- -- -- (21,238) --
--------- ------ ------- ------- -------- --------
Balance, October 31,
1999 $ 24,410 210 437,107 (18,442) (325,647) (420,000)
========= ====== ======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
for the nine months ended October 31, 1999 and 1998
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended October 31,
-------------------------------
1999 1998
---------------- -------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss......................................................... $ (4,828) (35,294)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Loss on extinguishment of debt................................. -- 6,460
Depreciation and amortization of property,
plant and equipment.......................................... 15,904 15,911
Amortization of intangible assets.............................. 4,224 4,155
Amortization of debt issue costs and premium................... 1,584 823
Provision for doubtful accounts................................ 3,357 1,150
Amortization of stock awards and stock issued for services..... 240 956
Compensation expense for adjustment of stock options........... 497 3,722
Provision for restructuring operations......................... -- 8,214
Changes in operating assets and liabilities:
Trade and other receivables.................................. (15,585) (6,580)
Inventories.................................................. 20,455 (18,827)
Prepaid expenses and other current assets.................... (1,696) (2,087)
Accounts payable and accrued liabilities..................... 1,718 11,949
Other adjustments - net........................................ (2,184) (68)
-------- -------
Net cash provided by (used in) operating activities.............. 23,686 (9,516)
-------- -------
(Continued)
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
for the nine months ended October 31, 1999 and 1998
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended October 31,
-----------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Cash flows provided by (used in) investing activities:
Purchases of property, plant and equipment.............................. $(15,572) (20,495)
Proceeds from sale of assets held for sale and property and equipment... 1,510 14,054
Excess of purchase price over net assets acquired of South American
distributorships...................................................... -- (2,451)
Other, net.............................................................. (1,541) (3,290)
-------- --------
Net cash used in investing activities................................. (15,603) (12,182)
-------- --------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of preferred stock............................... 25,410 --
Proceeds from exercise of employee stock options.......................... 19 7,114
Proceeds from issuance of senior subordinated notes....................... -- 350,000
Proceeds from issuance of senior redeemable preferred stock............... -- 175,000
Issuance costs of senior subordinated notes, senior preferred stock,
and senior credit facility............................................ (362) (21,027)
Purchase of treasury stock.............................................. -- (420,000)
Retirement of subordinated notes, including redemption premium............ -- (60,781)
Net borrowings of short-term obligations.................................. 796 4,897
Net borrowings (payments) on long-term obligations........................ (28,834) 4,933
Other, net................................................................ 457 3,886
-------- --------
Net cash provided by (used in) financing activities..................... (2,514) 44,022
-------- --------
Effect of exchange rate changes on cash and cash equivalents.............. (7,475) 4,919
-------- --------
Net increase (decrease) in cash and cash equivalents.................. (1,906) 27,243
Cash and cash equivalents, beginning of period............................ 41,932 3,134
-------- --------
Cash and cash equivalents, end of period.................................. $ 40,026 30,377
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest................................ $ 28,047 10,850
======== ========
Cash paid during the period for income taxes.............................. $ 8,965 4,403
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Notes to Consolidated Financial Statements
1. General
A. Business
--------
Samsonite Corporation and subsidiaries (the "Company") was formerly
known as Astrum International Corp. ("Astrum"). On July 14, 1995, Astrum
merged with its wholly-owned subsidiary, Samsonite Corporation, and
changed its name to Samsonite Corporation. The Company is engaged in the
manufacture and sale of luggage and related products throughout the
world, primarily under the Samsonite, American Tourister, and Lark brand
names. The principal customers of the Company are department/specialty
retail stores, mass merchants, catalog showrooms and warehouse clubs.
The Company also sells its luggage and other travel related products
through its Company-owned stores.
B. Rights Offering
---------------
On November 5, 1999, the Company completed a rights offering to its
stockholders, under which the Company distributed, on a pro rata basis
to all of its common stockholders of record as of September 30, 1999,
transferable rights to purchase additional shares of common stock at
$6.00 per share.
The Company announced the rights offering for up to $75 million on April
7, 1999. Prior to April 7, 1999, Apollo Investment L.P. ("Apollo")
beneficially owned approximately 34% of the Company's outstanding common
stock, of which approximately one-half was held by Lion Advisor, L.P.,
an affiliate of Apollo, in a managed account under the terms of an
investment management agreement with Artemis America Partnership
("Artemis"). At that time, Apollo agreed to make a bridge investment
equal to the aggregate subscription price of rights distributable to
them in the rights offering and to "backstop" the rights offering by
purchasing a portion of the shares not subscribed for by other
stockholders, up to a maximum potential total investment in connection
with the rights offering of $37.5 million. Apollo made its bridge
investment in April 1999 of $25,410,000 by purchasing 1,000 shares of
Series Z Convertible Preferred Stock ("Series Z Preferred Stock") which
was convertible into common stock at the rate of $6.00 per common share
for a total of 4,235,000 shares. Part of the proceeds from the bridge
investment was used to pay the cash premium for an insurance policy
covering various lawsuits filed between March 13, 1998 and March 9, 1999
against the Company, related parties and former directors, and to pay
certain costs incurred to defend these lawsuits (see Note 9). In
consideration of Apollo's agreement to make a bridge investment and to
back-stop the rights offering, the Company agreed to pay Apollo a fee of
$1.0 million which was recorded as a reduction of the stated value of
the Series Z Preferred Stock.
On July 13, 1999, Apollo raised the amount of its back-stop commitment
by $12.5 million, increasing Apollo's maximum potential investment to
$50.0 million, and, in a separate agreement, Artemis agreed to make up
to an additional $25.0 million investment in the Company by purchasing
from Apollo, at Apollo's cost, one-half of the shares that Apollo
purchased in its bridge investment and one-half of any shares that
Apollo was obligated to purchase under its back-stop commitment.
As a result of the rights offering, shareholders other than Apollo and
Artemis exercised rights to purchase 846,858 shares of Samsonite's
common stock for an aggregate of $5,081,148. Additionally, Apollo and
Artemis made an investment totaling $24,590,000 under the back-stop
obligation by purchasing an aggregate of approximately 968 shares of
Series Z Preferred Stock which was convertible into the Company's common
stock at a rate of $6.00 per common share for a total of 4,098,333
shares. Total gross proceeds from the rights offering, including
proceeds from the bridge investment and back-stop arrangement and from
the shareholders other than Apollo and Artemis, were $55.1 million
before expenses of the offering.
Subsequent to October 31, 1999, all of the shares of Series Z Preferred
Stock were converted into a total of 8,333,333 shares of common stock.
8
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Notes to Consolidated Financial Statements (continued)
C. Interim Financial Statements
----------------------------
The accompanying unaudited consolidated financial statements reflect all
adjustments, which are normal and recurring in nature, and which, in the
opinion of management, are necessary for a fair statement of the
financial position as of October 31, 1999 and results of operations for
the three and nine month periods ended October 31, 1999 and 1998. These
unaudited consolidated financial statements and related notes should be
read in conjunction with the consolidated financial statements and
related notes included in the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1999.
D. Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ significantly
from those estimates.
E. Per Share Data
--------------
The Company computes earnings (loss) per share in accordance with the
requirements of Statement of Financial Accounting Standards No. 128,
Earnings Per Share ("SFAS 128"). SFAS 128 requires the disclosure of
"basic" earnings per share and "diluted" earnings per share. Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares
outstanding. Diluted earnings per share is computed by dividing income
available to common stockholders by the weighted average number of
common shares outstanding increased for potentially dilutive common
shares outstanding during the period. The dilutive effect of stock
options, warrants, convertible preferred stock and their equivalents is
calculated using the treasury stock method.
Loss from continuing operations before extraordinary item per share and
net loss per share for the nine months ended October 31, 1999 and 1998
and the three months ended October 31, 1999 and 1998 is computed based
on a weighted average number of shares of common stock outstanding
during the period of 10,512,000, 15,753,000, 10,518,000 and 10,442,000,
respectively. Basic earnings per share and earnings per share - assuming
dilution are the same for the nine and three month periods ended October
31, 1999 and 1998 because of the antidilutive effect of common stock
equivalents when there is a net loss to common stockholders.
F. Royalty Revenues
----------------
The Company licenses its brand names to certain unrelated third parties
as well as certain of its foreign subsidiaries and joint ventures. Net
sales include royalties earned of $12,336,000 and $12,108,00 for the
nine months ended October 31, 1999 and 1998, respectively, and
$4,357,000 and $4,759,000 for the three months ended October 31, 1999
and 1998, respectively
G. Reclassifications
-----------------
Certain reclassifications were made to the consolidated financial
statements for prior periods to conform to the October 31, 1999
presentation.
9
<PAGE>
2. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
October 31, January 31,
1999 1999
------------- -------------
<S> <C> <C>
(In thousands)
Raw Materials ................................... $ 38,204 47,014
Work in Process ................................. 7,703 8,059
Finished Goods .................................. 121,205 132,494
-------- -------
$167,112 187,567
========= =======
</TABLE>
3. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
October 31, January 31,
1999 1999
------------- ------------
(In thousands)
<S> <C> <C>
Land ............................................ $ 11,836 12,555
Buildings ....................................... 68,642 71,517
Machinery, equipment and other .................. 147,887 141,306
-------- -------
228,365 225,378
Less accumulated amortization and depreciation .. (84,274) (75,737)
-------- -------
$144,091 149,641
========= =======
</TABLE>
4. Intangible Assets
Intangible assets, net of accumulated amortization, consisted of the
following:
<TABLE>
<CAPTION>
October 31, January 31,
1999 1999
------------- -------------
(In thousands)
<S> <C> <C>
Trademarks ...................................... $102,435 105,059
Licenses, Patents and Other ..................... 7,535 9,189
-------- -------
$109,970 114,248
======== =======
</TABLE>
10
<PAGE>
5. Debt
Debt consisted of the following:
<TABLE>
<CAPTION>
October 31, January 31,
1999 1999
------------- -------------
(In thousands)
<S> <C> <C>
Senior Credit Facility (a):
United States term loan..................... $ 59,400 83,000
European term loan.......................... 47,700 52,074
Senior Subordinated Notes (b).................... 350,000 350,000
Other obligations (c)............................ 16,354 20,097
Capital lease obligations........................ 4,373 5,802
Series B Senior Subordinated Notes (d)........... 532 532
-------- -------
Total debt.................................. 478,359 511,505
Less short-term debt and current installments of
long-term obligations....................... (14,829) (15,332)
-------- -------
Long-term obligations less current installments.. $463,530 496,173
======== =======
</TABLE>
(a) The Senior Credit Facility provides for a $100 million revolving
credit facility (the "Revolving Credit Facility"), a term loan in the
original amount of $60 million (the "U.S. Term Loan") borrowed by the
Company, and a European term loan in the original amount of
1,853,750,000 Belgian francs, (equivalent to $50 million on the
closing date) (the "European Term Loan"), borrowed by Samsonite Europe
N.V. The Company has the option in certain circumstances to add
lenders to the Senior Credit Facility in order to increase the
Revolving Credit Facility by up to an additional $50 million.
Subsequent to October 31, 1999, the Company repaid approximately $11.8
million on the U.S. Term Loan and $9.2 million on the European Term
Loan out of the proceeds from the rights offering described in Note
1B.
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 the Company,
100% of the capital stock of the Company's major domestic
subsidiaries, 66% of the stock of Samsonite Europe N.V. and other
major non-domestic subsidiaries and a mortgage on the Company's real
estate in Denver, Colorado.
The Senior Credit Facility contains financial covenants that require
the Company to maintain certain debt to earnings and interest coverage
ratios and places limitations on capital expenditures. The Senior
Credit Facility also contains covenants that, among other things,
limit the ability of the Company (subject to 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.
During the nine months ended October 31, 1998, deferred financing
costs related to a refinancing of the Senior Credit Facility of
$380,000 were charged to expense and classified as an extraordinary
item, net of tax effects, in the accompanying statements of
operations.
11
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Notes to Consolidated Financial Statements (continued)
(b) The Senior Subordinated Notes (the "Notes") bear interest at 10 3/4%
and mature on June 15, 2008. The Notes are redeemable at the option of
the Company at various redemption prices specified in the indenture
under which the Notes were issued. The indenture contains certain
covenants that, among other things, restrict the ability of the
Company and its restricted subsidiaries (as defined in the indenture)
to incur additional indebtedness, pay dividends and make certain other
distributions, issue capital stock of restricted subsidiaries, make
certain investments, repurchase stock, create liens, enter into
transactions with affiliates, create dividend or other payment
restrictions affecting restricted subsidiaries, merge or consolidate,
and transfer or sell assets. The covenants are subject to a number of
important exceptions.
(c) Other obligations consist of various notes payable (including short-
term notes) to banks by foreign subsidiaries aggregating $12.7 million
and $3.7 million of secured financing arrangements with foreign banks.
(d) The Series B Senior Subordinated Notes (the "Series B Notes") bear
interest at 11 1/8% and have a maturity date of July 15, 2005. During
the nine months ended October 31, 1998, the Company completed a tender
offer for the Series B Notes and retired $52,269,000 principal amount
of the Series B Notes and paid redemption premium and other expenses
of the tender offer totaling approximately $8,512,000. These costs,
along with $1,527,000 of deferred financing costs, were charged to
expense and classified as an extraordinary item, net of tax effects,
in the accompanying statement of operations for the nine months ended
October 31, 1998.
6. Other Income (Expense) - Net
Other income (expense) - net consisted of the following:
<TABLE>
<CAPTION>
Three months ended Nine months ended
October 31, October 31,
----------------------- -----------------------
1999 1998 1999 1998
----------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Net gain (loss) from foreign currency forward
delivery contracts................................. $ (479) (1,963) 5,287 (348)
Equity in income (loss) of unconsolidated affiliate.. (187) 104 (384) (769)
Foreign currency transaction loss, net............... (322) (280) (1,516) (264)
Gain (loss) on disposition of assets held for sale
and fixed assets, net.............................. (10) (5) (42) 3,637
Other, net........................................... (610) (198) (1,863) (1,554)
------- ------ ------ ------
$(1,608) (2,342) 1,482 702
======= ====== ====== ======
</TABLE>
7. Employee Stock Options
The Company has authorized 2,550,000 shares for the granting of options
under its 1995 Stock Option and Award Plan and 750,000 shares for the
granting of options under its FY 1999 Stock Option and Incentive Award
Plan. See Note 11 to the consolidated financial statements included in the
January 31, 1999 Form 10-K for a description of these plans. In addition,
the Company has outstanding options to current and past executives in
connection with employment agreements.
At October 31, 1999, the Company had outstanding options for a total of
1,764,007 shares at exercise prices ranging from $2.50 to $16.00 per share.
Options for 1,073,224 shares were exercisable at October 31, 1999 at a
weighted average exercise price of $6.75 per share. Options for 15,220
shares under the 1995 Stock Option and Award Plan were exercised at an
average exercise price of $2.50 per share during the nine months ended
October 31, 1999.
12
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Notes to Consolidated Financial Statements (continued)
8. Segment Information
Effective for 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 October 31, 1998 has been reclassified
from the prior year's presentation in order to conform to the October 31,
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 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 nine-month and three-month periods ended October
31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Nine months ended October 31,
1999 U.S. U.S. Other Other
- ---- ---- ---- ----- -----
Europe Wholesale Retail Americas Asia Operations Eliminations Totals
-------- --------- ------ -------- ------ ---------- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
Revenues from external customers .... 243,623 166,346 96,812 36,546 24,311 11,853 -- 579,491
Intersegment revenues ............... 3,210 50,836 -- 1,307 6,724 -- (62,077) --
Operating income (loss) (a) ......... 33,808 2,637 4,052 1,542 3,355 (5,468) 2,503 42,429
Total assets ........................ 184,013 174,414 32,787 47,136 26,012 234,967 (100,999) 598,330
1998
- ----
Revenues from external customers .... 224,885 141,662 92,216 33,221 15,908 11,523 -- 519,415
Intersegment revenues ............... 1,509 27,404 -- 4,596 6,710 -- (40,219) --
Operating income (loss) (a) ......... 30,342 (22,198) 7,572 193 504 (14,436) 796 2,773
Total assets ........................ 195,176 161,116 31,994 48,628 26,822 777,263 (569,312) 671,687
</TABLE>
<TABLE>
<CAPTION>
Three months ended October 31,
1999 U.S. U.S. Other Other
- ---- ---- ---- ----- -----
Europe Wholesale Retail Americas Asia Operations Eliminations Totals
-------- --------- ------ -------- ------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
Revenues from external customers .... 85,857 62,894 33,430 12,983 8,928 4,135 -- 208,227
Intersegment revenues ............... 1,685 20,477 -- 415 2,402 -- (24,979) --
Operating income (loss) (a) ......... 11,801 4,098 1,383 706 1,282 (1,745) 214 17,739
Total assets ........................ 184,013 174,414 32,787 47,136 26,012 234,967 (100,999) 598,330
1998
- ----
Revenues from external customers .... 80,309 64,672 32,258 11,669 5,789 4,382 -- 199,079
Intersegment revenues ............... 463 16,711 -- 1,232 2,613 -- (21,019) --
Operating income (loss) (a) ......... 14,111 5,373 3,130 201 347 (1,273) (947) 20,942
Total assets ........................ 195,176 161,116 31,994 48,628 26,822 777,263 (569,312) 671,687
</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 income - net,
income taxes, minority interest and extraordinary items. General corporate
expenses and amortization of intangible assets are included in other
operations.
13
<PAGE>
SAMSONITE CORPORATION AND SUBSIDIARIES
Unaudited Notes to Consolidated Financial Statements (continued)
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 nine months ended October 31, 1999
and 1998, the Company had net gains (losses) from such transactions of
$5,287,000 and $(348,000) , respectively, which are included in nonoperating
income. For the three months ended October 31, 1999 and 1998, the Company
had net losses from such transactions of $479,000 and $1,963,000,
respectively.
9. Litigation, Commitments and Contingencies
The Company, certain related parties and former directors of the Company are
the subject of (1) various purported shareholder class action lawsuits in
Colorado State District Court, City and County of Denver; United States
District Court for the District of Colorado; and the Delaware Court of
Chancery and (2) a purported derivative action in Colorado State District
Court, City and County of Denver, all of which were filed between March 13,
1998 and March 9, 1999.
In April 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 purported class and derivative action
litigations and any other actions asserted at any time that involve
essentially the same or similar allegations, facts or circumstances as those
in the purported class and derivative action litigations. In connection with
the insurance agreement, the Company entered into some 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 litigations. The Company is
responsible for paying all legal defense costs prior to the effective date
of the insurance agreement. However, the Company expects that substantially
all costs incurred subsequent to the effective date to defend and resolve
the purported class and derivative action litigations will be covered by the
insurance agreement. The Company believes that its consolidated statements
of operations for the fiscal year ended January 31, 1999 reflect the accrual
of substantially all costs incurred and expected to be incurred in
connection with these lawsuits.
On June 14, 1999, the Delaware Court of Chancery dismissed the purported
shareholder class action that had been brought in Delaware. The plaintiff in
this Delaware suit appealed the dismissal. In November 1999, the Supreme
Court of Delaware affirmed the dismissal by the Court of Chancery.
In addition, the Company is a party to 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 effect on its
consolidated financial position, results of operations or liquidity. Refer
to Note 15 to the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 31,
1999 which describes other commitments and contingencies.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Three Months Ended October 31, 1999 ("fiscal 2000" or "current year") Compared
to Three Months Ended October 31, 1998 ("fiscal 1999" or "prior year")
General. The Company analyzes its net sales and operations by the following
categories: (i) "European operations" which include eastern and western
European country sales, manufacturing and distribution operations whose
reporting currency is the Belgian franc; (ii) "the Americas operations" which
include wholesale and retail sales, manufacturing and distribution operations in
the United States, "Other Americas" which includes operations in Canada and
Latin America, and corporate headquarters; (iii) "Asian operations" which
include the sales, manufacturing and distribution operations in India, China,
Singapore, South Korea, Hong Kong and Taiwan, and (iv) licensing operations.
Results of European operations were translated from Belgian francs to U.S.
dollars in fiscal 2000 and fiscal 1999 at average rates of approximately 38.10
and 36.22 francs to the U.S. dollar, respectively. This decrease in the value
of the Belgian franc of approximately 5.2% resulted in decreases in reported
sales, cost of sales and other expenses in fiscal 2000 compared to fiscal 1999.
The most significant effects from the difference in exchange rates from last
year to this year are noted in the following analysis and are referred to as an
"exchange rate difference". The Company enters into forward foreign exchange
contracts and option contracts to reduce its economic exposure to fluctuations
in currency exchange rates for the Belgian franc and other foreign currencies.
Such instruments are marked to market at the end of each accounting period;
realized and unrealized gains and losses are recorded in other income. During
fiscal 2000, the Company had net losses from such instruments of $0.5 million.
Realized gains on contracts closed during the third quarter of fiscal 2000 were
$1.4 million. During fiscal 1999, the Company had net losses on such
instruments of $2.0 million, none of which was realized. None of the gains from
such contracts in fiscal 1999 was realized. The Company estimates the increase
(reduction) in reported operating income because of the translation from the
weakening (strengthening) of the U.S. dollar versus the Belgian franc from the
same quarter in the prior year to be approximately ($0.7) million and $0.3
million for the three months ended October 31, 1999 and 1998, respectively.
Net Sales. Consolidated net sales increased from $199.1 million in fiscal 1999
to $208.2 million in fiscal 2000, an increase of $9.1 million, or 4.6%. Fiscal
2000 sales were negatively impacted by the decline in the value of the Belgian
franc compared to the U.S. dollar. Without the effect of the exchange rate
difference, fiscal 2000 sales would have increased by $13.6 million, or
approximately 6.8%.
Sales from European operations increased from $80.3 million in fiscal 1999 to
$85.9 million in fiscal 2000, an increase of $5.6 million. Expressed in the
local European reporting currency (Belgian francs), fiscal 2000 sales increased
by 12.5%, or the U.S. constant dollar equivalent of $10.0 million, compared to
fiscal 1999. Sales of softside product improved by approximately 15% from the
prior year while hardside product sales increased by approximately 1%. The
significant increase in softside sales is due in part to the success of the
redesigned Spark, Accent and Promo Base Hits lines. Sales of the new Trunk &
Co. products and softside business cases were also higher.
Sales from the Americas operations increased from $108.6 million in fiscal 1999
to $109.1 million in fiscal 2000, an increase of $0.5 million, or 0.5%. U.S.
Wholesale sales for the third quarter decreased by $1.8 million, or 2.7% from
the prior year, U.S. Retail division sales increased by $1.2 million, and sales
in the Other Americas operations increased by $1.1 million from the prior year.
U.S. Wholesale net sales in the prior year include the initial pipefill for
Silhouette
15
<PAGE>
6. There was no similar product introduction this year. U.S. Retail sales
continued to improve, increasing from $32.3 million in the prior year to $33.4
million in the current year, an increase of 3.6%. However, comparable store
sales declined 2.6% from the same quarter in the prior year. The decline in
comparable store sales reflects the continued weakness in the outlet mall retail
sector and severe weather-related problems on the east coast during September.
The increase in other Americas is due to the strong performance of the Canadian
operations which had a 23% increase in net sales versus the prior year third
quarter.
Third quarter sales from Asian operations were $3.1 million higher than the
prior year sales, a 54.3% increase, as a result of increased sales in all Asian
operations. The improvement in Asian sales is primarily due to improved
economies in the region.
Revenues from licensing operations declined from $4.4 million in the prior year
to $4.1 million in fiscal 2000. Global Licensing revenues declined $0.3 million
compared to the prior year and Samsonite and American Tourister label licensing
revenues were approximately equal to the prior year.
Gross profit. Consolidated gross profit for fiscal 2000 increased from fiscal
1999 by $0.6 million. However, consolidated gross margin as a percentage of
sales, decreased by 1.6 margin points, from 43.5% in fiscal 1999 to 41.9% in
fiscal 2000.
Gross margins from European operations increased 2.3 percentage points from the
prior year to 42.5% in fiscal 2000. The increase in European gross profit
margins is due primarily to selective price increases effective in the European
markets beginning in fiscal 2000 and an improvement in margins on softside
products due to lower product costs.
Gross margins for the Americas decreased by 4.4 percentage points, from 43.8% in
fiscal 1999 to 39.4% in fiscal 2000. U.S. Wholesale gross profit margins
decreased from 41.2% in the prior year to 33.8% in the current year due
primarily to the prior year effect of the initial sell-in of Silhouette 6
product at higher margins, the current year effect of a higher mix of sales in
the mass merchant and warehouse club channels which have lower gross profit
margins, and sales of approximately $6.5 million of discontinued and obsolete
product at lower gross profit margins as part of the Company's strategy to
reduce excess inventories in the U.S. U.S. Retail gross profit margins for the
quarter were approximately equal to the prior year.
Selling, General and Administrative Expenses ("SG&A"). Consolidated SG&A
increased by $3.4 million from fiscal 1999 to fiscal 2000. As a percent of
sales, SG&A was 32.6% in fiscal 2000 and 32.4% in fiscal 1999.
SG&A for the Americas, including Corporate, decreased by $0.4 million. Within
the Americas, SG&A for U.S. Retail increased by $2.4 million primarily due to an
increase in the number of stores and sales volume. SG&A for Corporate and U.S.
Wholesale decreased $2.6 million due primarily to lower dealer advertising and
selling expense in the current year. SG&A for Other Americas operations
decreased by $0.2 million. European SG&A increased by a net $3.7 million, which
included a $1.2 million decline due to the exchange rate effect. The increase
in Europe's SG&A is due primarily to an increase in advertising costs compared
to the prior year and higher expenses due to increased sales volumes. SG&A for
Asia was $0.4 million higher than the prior year, and SG&A for licensing was
$0.3 million lower than the prior year.
Amortization of intangible assets. Amortization of intangible assets increased
from $1.1 million in fiscal 1999 to $1.4 million in fiscal 2000 because of an
adjustment in the prior year to amortization of certain McGregor licenses.
Operating income. Operating income declined from $20.9 million in fiscal 1999
to $17.7 million in fiscal 2000, a decrease of $3.2 million. The decrease is
the net result of increased sales volume and increase in gross profit, net of an
increase in SG&A of $3.4 million and the increase in amortization of intangibles
of $0.3 million.
16
<PAGE>
Interest income. Interest income of $0.5 million representing amounts earned
on the overnight investment of excess cash balances was approximately equal to
the prior year.
Interest expense and amortization of debt issue costs. Interest expense and
amortization of debt issue costs decreased from $14.0 million in fiscal 1999 to
$13.0 million in fiscal 2000. The decrease is due primarily to the decrease in
debt levels since the prior year.
Other expense - net. See Note 6 to the consolidated financial statements
included elsewhere herein for a comparative analysis of other expense - net.
Other expense decreased by $0.7 million from $2.3 million in fiscal 1999 to $1.6
million in fiscal 2000. The decline is due to decreases in hedge losses from
forward foreign currency contracts of $1.5 million partially offset by an
increase in equity in loss of affiliates of $0.3 million and an increase in
other expenses of $0.5 million.
The Company enters into forward exchange contracts to hedge its exposures to
changes in exchange rates. The Company estimates the increase (reduction) in
operating income because of the translation from the weakening (strengthening)
of the U.S. dollar versus the Belgian franc from the same quarter in the prior
year to be approximately $(0.7) million and $0.3 million for the three months
ended October 31, 1999 and 1998, respectively. Other income for the third
quarter of fiscal 2000 includes a loss from forward exchange contracts of $0.5
million. Realized gains on contracts closed during the third quarter were $1.4
million. In the third quarter of fiscal 1999, such transactions resulted in a
loss of $2.0 million, none of which was realized. The net loss recorded for
such contracts for the three months ended October 31, 1999 and 1998 results
primarily from forward exchange contracts entered to reduce economic exposure to
fluctuations in currency exchange rates for the Belgian franc. The ultimate
realization of losses from such contracts is subject to fluctuations in the
exchange rate of the U.S. dollar against the Belgian franc until the contracts
are closed.
Income tax expense. Income tax expense increased from $1.7 million in fiscal
1999 to $3.3 million in fiscal 2000. The increase is due primarily to taxes on
increased foreign income. Additionally, a deferred tax benefit has not been
recognized for year-to-date U.S. operating losses in the current year. The
relationship between the expected income tax benefit computed by applying the
U.S. statutory rate to the pretax loss and actual 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, and (iii)
state and local income taxes.
Net loss. The Company had a net loss in fiscal 2000 of $0.5 million compared to
net income fiscal 1999 of $3.0 million. The change in the net income (loss) from
the prior year of $3.5 million is caused by the effect of the decreases in
operating income and an increase in income tax expense and minority interest in
earnings of subsidiaries, offset by the decrease in interest and other expense.
Senior redeemable preferred stock dividends and accretion of preferred stock
discount. This item represents the accrual of cumulative dividends on the
Senior Redeemable Preferred Stock issued in connection with the 1998
recapitalization and the accretion of the discount over the twelve-year term of
the Senior Redeemable Preferred Stock. The increase over prior year is due to
the compounding effect of cumulative dividends accrued since the stock was
issued in June 1998.
Net loss to common stockholders. This amount represents net loss after
dividends payable and the accretion of discount on the Senior Redeemable
Preferred Stock and is the amount used to calculate net loss per common share.
Nine Months Ended October 31, 1999 ("fiscal 2000" or "current year") Compared to
Nine Months Ended October 31, 1998 ("fiscal 1999" or "prior year")
General. Results of European operations were translated from Belgian francs to
U.S. dollars in fiscal 2000 and fiscal 1999 at average rates of approximately
37.55 and 36.96 francs to the U.S. dollar, respectively. This decrease in the
17
<PAGE>
value of the Belgian franc of approximately 1.6% resulted in nominal decreases
in reported sales, cost of sales and other expenses in fiscal 2000 compared to
fiscal 1999. The most significant effects from the difference in exchange rates
from last year to this year are noted in the following analysis and are referred
to as an "exchange rate difference". The Company enters into forward foreign
exchange contracts and option contracts to reduce its economic exposure to
fluctuations in currency exchange rates for the Belgian franc and other foreign
currencies. Such instruments are marked to market at the end of each accounting
period; realized and unrealized gains and losses are recorded in other income.
During fiscal 2000, the Company had net gains from such instruments of $5.3
million; during fiscal 1999, the Company had net losses on such instruments of
$0.3 million. Realized gains from contracts closed during fiscal 2000 and 1999
were $2.6 million and $1.4 million, respectively. 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
$0.6 million and $1.2 million for the nine months ended October 31, 1999 and
1998, respectively.
Net Sales. Consolidated net sales increased from $519.4 million in fiscal 1999
to $579.5 million in fiscal 2000, an increase of $60.1 million, or 11.6%. Fiscal
2000 sales were unfavorably impacted by the increase in the value of the U.S.
dollar compared to the Belgian franc. Without the effect of the exchange rate
difference, fiscal 2000 sales would have increased by $64.0 million, or
approximately 12.3%.
Sales from European operations increased from $224.9 million in fiscal 1999 to
$243.6 million in fiscal 2000, an increase of $18.7 million. Expressed in the
local European reporting currency (Belgian francs), fiscal 2000 sales increased
by 10.0%, or the U.S. constant dollar equivalent of $22.6 million, compared to
fiscal 1999. Sales of softside product improved by approximately 18% from prior
year while hardside product sales decreased slightly. The significant increase
in softside sales is due in part to the success of the Spark, Accent and Promo
Base Hits lines. Sales of the new Trunk & Co. products and softside business
cases were also higher. The decrease in hardside sales is attributable mainly
to the decline in Epsilon and Oyster I series sales.
Sales from the Americas operations increased from $267.1 million in fiscal 1999
to $299.8 million in fiscal 2000, an increase of $32.7 million, or 12.1%. U.S.
Wholesale sales for the current year increased by $24.7 million from the prior
year, U.S. Retail sales increased by $4.6 million, and sales in the Other
Americas operations increased by $3.4 million from the prior year. The Company
believes U.S. Wholesale sales have improved due to increased consumer acceptance
of more competitive products and better marketing strategies resulting in better
sell-through and fewer returns compared to the prior year. U.S. Retail sales
continued to improve, increasing from $92.2 million in the prior year to $96.8
million in fiscal 2000, an increase of 5.0%. Comparable store sales declined
2.5% from the same period in the prior year. The decline in comparable store
sales is due primarily to continued weakness in the outlet mall retail sector.
Sales from Asian operations were $8.4 million higher, or 52.8%, than the prior
year sales, as a result of increased sales in all Asian operations. The
improvement in Asian sales is primarily due to improved economies in the region
and increased market share in Korea.
Revenues from licensing operations increased $0.3 million over the prior year
to $11.8 million in fiscal 2000. Samsonite and American Tourister label
licensing revenues increased $0.3 million, and Global Licensing revenues were
approximately equal to the prior year.
Gross profit. Consolidated gross profit for fiscal 2000 increased from fiscal
1999 by $32.8 million. Consolidated gross margin increased by 1.4 margin
points, from 40.5% in fiscal 1999 to 41.9% in fiscal 2000.
Gross margins from European operations increased 1.8 percentage points from the
prior year to 41.5% in fiscal 2000. The increase in gross profit margins is due
primarily to selective price increases effective in the European markets
beginning in fiscal 2000 and improvements in margins on hardside and softside
products.
18
<PAGE>
Gross margins for the Americas increased by 1.5 percentage points, from 38.5% in
fiscal 1999 to 40.0% in fiscal 2000. U.S. Wholesale gross profit margins
increased from 31.1% in the prior year to 34.5% in the current year due
primarily to improved sales volume, lower sales returns and allowances, the
reduction of unfavorable production variances and lower manufacturing overhead
costs.
U.S. Retail gross profit margins for the period declined slightly to 51.9% in
fiscal 2000 from 52.6% in fiscal 1999 due primarily to a higher sales mix of
discontinued and obsolete product at lower gross profit margins. Part of the
Company's strategy to reduce excess inventories in the U.S. is to sell such
products through its retail stores.
Selling, General and Administrative Expenses ("SG&A"). Consolidated SG&A
increased by $1.3 million from fiscal 1999 to fiscal 2000. As a percent of
sales, SG&A was 33.9% in fiscal 2000 and 37.5% in fiscal 1999.
SG&A for the Americas, including Corporate, decreased $7.0 million. Within the
Americas, SG&A for U.S. Retail increased by $5.3 million primarily due to an
increase in the number of stores and sales volume. SG&A for Corporate and U.S.
Wholesale combined decreased $12.7 million due primarily to expenses incurred in
fiscal 1999 totaling $9.1 million associated with the 1998 recapitalization,
lower dealer advertising costs and lower warranty and sales costs. SG&A for
Other Americas increased by $0.4 million. SG&A for Europe increased $7.9
million. The increase in Europe's SG&A is due primarily to an increase in
advertising costs compared to the prior year, a higher provision for doubtful
accounts receivable and higher professional fees incurred. SG&A for Asia was
$0.7 million higher than the prior year, and SG&A for licensing operations was
$0.3 million lower than the prior year.
Provision for restructuring operations. The provision for restructuring
operations in fiscal 1999 of $8.2 million results primarily from the
restructuring of the U.S. Wholesale operations and the restructuring of the
Torhout, Belgium manufacturing operations. The U.S. Wholesale restructuring
provision of $5.6 million is primarily related to termination and severance
costs for the elimination of approximately 227 positions and costs related to
the disposal of molding and other equipment representing excess capacity. The
Torhout, Belgium restructuring provision of $2.6 million is primarily related to
termination and severance costs for the elimination of approximately 111
positions. There was no restructuring provision recorded during fiscal 2000.
Amortization of intangible assets. Amortization of intangible assets were
approximately equal to the prior year.
Operating income. Operating income improved from $2.8 million in fiscal 1999 to
$42.4 million in fiscal 2000, an increase of $39.6 million. The increase is a
result of the increased sales volume and resulting increase in gross profit of
$32.8 million, the reduction in provision for restructuring operations of $8.2
million, offset by an increase in SG&A of $1.3 million.
Interest income. Interest income of $1.5 million was lower than the prior year
by $0.3 million due primarily to interest income received from temporary
investment of funds in the prior year from proceeds of the financing of the
fiscal 1999 recapitalization until the tender offer was completed.
Interest expense and amortization of debt issue costs. Interest expense and
amortization of debt issue costs increased from $26.4 million in fiscal 1999 to
$39.8 million in fiscal 2000. The increase is due primarily to increased
interest expense and issuance cost amortization as a result of the fiscal 1999
recapitalization.
Other income - net. See Note 6 to the consolidated financial statements
included elsewhere herein for a comparative analysis of other income - net.
Other income - net increased by $0.8 million from $0.7 million in fiscal 1999 to
$1.5 million in fiscal 2000. The increase is due primarily to an increase in
hedge gains of $5.6 million and a decrease in equity in loss of unconsolidated
affiliates of $0.4 million. The decrease in equity in loss of unconsolidated
affiliate results from a decrease in the losses of Chia Tai Samsonite (H.K.)
Ltd., a 50% owned joint-venture formed to manufacture and distribute luggage in
China, which was restructured in fiscal 1999. These changes were partially
offset by decreases in gain (loss) on sales of assets held for sale and fixed
assets of $3.7 million, an increase in foreign currency transaction loss of $1.3
million and an increase in other miscellaneous expenses of $0.2 million.
19
<PAGE>
The Company enters into 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 $0.6 million and $1.2
million for the nine months ended October 31, 1999 and 1998, respectively.
Other income for fiscal 2000 includes income from forward exchange contracts of
$5.3 million. Realized gains on contracts closed during the nine month period
were $2.6 million. In fiscal 1999, such transactions resulted in a loss of $0.3
million, including a realized gain of $1.4 million. The income recorded for the
nine months ended October 31, 1999 results primarily from forward exchange
contracts entered to reduce economic exposure to fluctuations in currency
exchange rates for the Belgian franc. The ultimate realization of this amount is
subject to fluctuations in the exchange rate of the U.S. dollar against the
Belgian franc when the contracts are closed.
Income tax expense. Income tax expense increased from $6.9 million in fiscal
1999 to $9.1 million in fiscal 2000. The increase in current year taxes is due
to higher foreign pretax earnings in fiscal 2000 compared to a loss in fiscal
1999 offset by the tax effect in the U.S. of a $30 million dividend received
from Samsonite Europe N.V. in the prior year. Prior year taxes also included
$0.8 million in state tax refunds received in fiscal 1999 related to taxes
accrued and paid in prior years. The relationship between the expected income
tax benefit computed by applying the U.S. statutory rate to the pretax loss and
actual 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, and (iii) state and local income taxes. A
deferred tax benefit has not been provided for U.S. operating losses.
Extraordinary loss. The extraordinary loss for the nine months ended October
31, 1998 resulted from the completion of a tender offer for the Company's 11
1/8% Series B Subordinated Notes (the "Notes"). The Company retired $52.3
million principal amount of the Notes and paid redemption premiums and other
expenses of the tender offer 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, for the nine months
ended October 31, 1998. Also during the prior year, the Company completed the
fiscal 1999 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.
Net loss. The Company had a net loss in fiscal 2000 of $4.8 million compared to
a net loss in fiscal 1999 of $35.3 million. The decrease in the net loss from
the prior year of $30.5 million is caused by the effect of the increases in
operating and other income and a decrease in extraordinary loss, offset by the
decrease in interest income and the increase in interest expense and income
taxes during fiscal 2000.
Senior redeemable preferred stock dividends and accretion of preferred stock
discount. This item represents the accrual of cumulative dividends on the Senior
Redeemable Preferred Stock issued in connection with the fiscal 1999
recapitalization and the accretion of the discount over the twelve-year term of
the Senior Redeemable Preferred Stock. The increase over the prior year is due
to the timing of the fiscal 1999 recapitalization which occurred in June 1998
and the compounding effect of the cumulative dividends.
Net loss to common stockholders. This amount represents net loss after
dividends payable and the accretion of discount on the Senior Redeemable
Preferred Stock and is the amount used to calculate net loss per common share.
Liquidity and Capital Resources
- -------------------------------
For the nine months ended October 31, 1999, cash provided by operations as
reflected on the Consolidated Statements of Cash Flows included elsewhere herein
was $23.7 million, primarily as a result of the net loss as adjusted for non-
cash items and decreases in inventories and increases in accounts payable and
accrued liabilities, net of the increases in trade and other receivables,
prepaid expenses and other current assets and other adjustments, net since
January 31, 1999. At October 31, 1999, the Company had working capital of
$162.6 million compared to $174.2 million at January 31, 1999, a decrease of
$11.6 million. Current assets decreased by $10.5 million, primarily due to
decreases in inventories of $20.5 million and cash of $1.9 million, net of
increases in trade and other receivables of $10.6 million, prepaid expenses and
other current assets of $1.1 million and deferred income tax assets of $0.2
million.
20
<PAGE>
Long-term obligations decreased from $496.2 million at January 31, 1999 to
$463.5 million at October 31, 1999, a decrease of $32.7 million. At October 31,
1999, the Company had utilized through outstanding letters of credit, $8.0
million of availability under the $100 million revolving credit portion of its
Senior Credit Facility. There was no balance outstanding on the revolving
credit portion of the facility. Additional borrowings under the Senior Credit
Facility could be limited by the Company's ability to meet and maintain the
financial ratios required under the Senior Credit Facility 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 third quarter fiscal 2000
operations, scheduled payments of principal and interest on indebtedness, income
taxes and capital expenditures. Management of the Company believes that cash
flow from operations, amounts available under its credit facilities, including
emerging market credit facilities, and proceeds from equity financing will be
adequate to fund operating requirements and expansion plans during the next 12
months.
Subsequent to the end of the third quarter in fiscal 2000, the Company closed a
rights offering. In April 1999, Apollo Investment Fund, L.P. made a bridge
investment of $25.4 million in lieu of exercising rights that would have been
distributable to them in the offering and a portion of that amount was used to
purchase insurance related to shareholder litigation. Total gross proceeds from
the rights offering, including proceeds from the bridge investment and back-stop
arrangement with Apollo and Artemis and from shareholders other than Apollo and
Artemis, were $55.1 million before expenses of the offering. Approximately $21.0
million was used to repay indebtedness under the Senior Credit Facility
subsequent to October 31, 1999. See Note 1B to the unaudited consolidated
financial statements include elsewhere herein.
The Company's principal foreign operations are located in Western Europe, the
economies of which are not considered to be highly inflationary. The Company
enters into foreign exchange contracts in order to hedge its exposure on certain
foreign operations through the use of forward delivery commitments. During the
past several years, the Company's most effective hedge against foreign currency
changes has been the foreign currency denominated debt balances maintained in
respect to its foreign operations. 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 Company believes the situation
has stabilized to some degree and has improved towards the end of fiscal 1999
and in the first nine months of fiscal 2000 in the operations of the Company's
Asian subsidiaries. Geographic concentrations of credit risk with respect to
trade receivables are not considered significant as a result of the diverse
geographic areas covered by the Company's operations.
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 nine
months ended October 31, 1999 and 1998 and the three months ended October 31,
1999 and 1998 was $64.0 million, $23.5 million, $22.6 million and $25.1 million,
respectively. However, these amounts include various items of income (expense),
including restructuring provisions, expenses of the Recapitalization, gain
(loss) on disposition of fixed assets, net, and other items, net, which together
aggregate $1.4 million and $17.7 million for the nine months ended October 31,
1999 and 1998, respectively, and $3.0 million and $2.4 million for the three
months ended October 31, 1999 and 1998, respectively, which
21
<PAGE>
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 was $65.4 million and $41.2 million for the nine months ended October 31,
1999, and 1998 and $25.6 million and $27.5 million for the three months ended
October 31, 1999 and 1998.
Effect of Year 2000 Issue on Company Operations
The Year 2000 Issue, also known as the Y2K bug, results from many computer
programs being written using two digits rather than four to define a year. Any
computer program that has date sensitive software may recognize a date using
''00'' as the year 1900 rather than the year 2000. This could result in a
computer system failure or miscalculation inside or outside the Company that, in
turn, could cause disruptions of our operations, including, among other things,
a temporary inability to process transactions, send invoices or engage in normal
business activities. Below is a summary of the actions Samsonite has taken to
deal with the Y2K bug.
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. The Company believes the
software is Year 2000 compliant. The Company has incurred costs to purchase and
implement this software of approximately $11.0 million. Additionally, the
Company has upgraded the information system software used in its retail
operations in order to make it Year 2000 compliant. 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 the
Company's other information systems, non-information technology systems and
third party business partners, 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's scope included an inventory of
all known automated systems with potential Year 2000 issues, evaluation of
suspect systems and remediation or replacement of non-compliant systems. The
Y2K Project also identified 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 evaluated included systems using embedded chip
technology (i.e., telecommunications, heating and air conditioning,
manufacturing process control). The Y2K Project included five phases:
. 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 December 6, 1999, Phases 1 through 5 were complete for all mission
critical applications and equipment. Other non-mission critical items were
substantially completed by December 15, 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 that
could have a material effect on Company operations.
The Company has incurred consulting expenses for the Y2K Project management of
approximately $1.0 million and expects total costs of the consulting project
will be approximately $1.2 million. The Company has not compiled the costs to
remediate Year 2000 problems identified as a result of the Y2K Project, because
most of the remediation has been handled by in-house personnel.
22
<PAGE>
Within the U.S. operations, the Company's reasonably likely worst case Y2K
scenarios include the potential impact of the Company's inability to receive
product from finished goods suppliers to meet operational needs in January 2000
and the inability of the Company or its finished goods suppliers to obtain raw
materials for softside or hardside production in January 2000 to meet production
requirements. The Company has implemented the following contingency plans to
address these scenarios:
. Increasing inventory levels of finished goods in December 1999 to meet
projected January 2000 shipment requirements.
. Increasing inventory levels of raw materials in December 1999 to meet
anticipated manufacturing needs in January 2000.
. Identifying alternative sources for providers of raw materials and
transportation of raw materials and finished goods.
European Operations. The Company's European subsidiary ("Samsonite Europe")
began evaluating and remediating its computer systems for Year 2000 problems in
calendar year 1997 and believes that all necessary modifications were completed
as of October 31, 1999. Similarly, the Company believes that it has identified
all Year 2000 issues pertaining to information technology equipment acquired
from third parties and that most of the required corrective actions have been
completed as of October 31, 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 Year 2000 compliance.
Samsonite Europe believes that it has identified critical non-compliance issues
with respect to non-information technology systems and has made the necessary
equipment upgrades or replacements as of October 31, 1999. A survey of
customers and suppliers has been or will be completed by October 31, 1999.
Notwithstanding the foregoing, we cannot assure you that we have identified all
Year 2000 issues or that they will be corrected on the schedule indicated above.
Through October 31, 1999, Samsonite Europe has incurred incremental costs
related to the Year 2000 issue of approximately $150,000 and estimates that the
total costs will not exceed $200,000. Such cost estimates do not include
significant costs of existing internal staff who have devoted significant
resources to resolving Year 2000 issues.
Efforts have been made by Samsonite Europe to identify the most reasonably
likely worst case Year 2000 scenarios and actions have been scheduled in order
to safeguard business continuity in the event any of these scenarios actually
occurs. These scenarios include:
. Critical external service providers such as electricity or phone service
providers fail to provide their services during the period beginning
January 1, 2000.
. Critical external suppliers fail to supply raw materials, subassemblies or
finished goods during the period beginning January 1, 2000.
Samsonite Europe's contingency plans to handle these reasonably likely worst
case Year 2000 scenarios include:
. Increases to the raw material, subassembly and finished goods inventory
levels at December 31, 1999.
. Development of an action plan to substitute automated production flows with
manual ones within the manufacturing plants.
. Organization of alternative action plans with critical carriers and
finished goods dispatchers throughout Europe, working with manual or basic
mechanical transport systems not linked to embedded systems.
. Providing alternative order entry processes.
. Implementing human resource actions to provide necessary staffing during
the period beginning January 1, 2000.
23
<PAGE>
During the months of October and November 1999, an internal review process has
taken place within Samsonite Europe to seek confirmation if the Year 2000
program as described has been executed as expected. No major issues which may
have a material adverse effect on the Company's operations have been identified
as a result of such internal review.
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. As of November 30, 1999, all evaluations
were complete. Remediation and testing were substantially completed by December
15, 1999.
Cost Data. 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.
Cautions. No assurance can be given that the Company has identified all Year
2000 issues that may have a material adverse effect on Company operations in the
U.S., Europe or elsewhere or that it has correctly remediated all Year 2000
issues that it has identified. 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.
The Year 2000 information set forth above is a Year 2000 Readiness Disclosure,
pursuant to the Year 2000 Information and Readiness Disclosure Act, 15 U.S.C.
(S) 1 note. Please note that, for the purposes of any action brought under the
securities laws, as that term is defined in section 3(a)(47) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), the Year 2000 Information and
Readiness Disclosure Act does not apply to any statements contained in any
documents or materials filed with the Securities and Exchange Commission, or the
Federal banking regulators, pursuant to section 12(i) of the Securities Exchange
Act of 1934 (15 U.S.C. 78l(i)), or disclosures or writing that when made
accompanied the solicitation of an offer or sale of securities.
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 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. Additionally, if 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.
Because of the weakness in the Euro sine its adoption, the Company does not
expect this to occur within the next fiscal year.
24
<PAGE>
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 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 for financial reporting purposes until its fiscal year
beginning January 1, 2001. As of December 31, 1998, Samsonite Europe's
information systems were 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
June 30, 2000. Testing and user guidance will also be organized during the
first six months of 2000. 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
October 31, 1999 of approximately $50,000 to implement the Euro conversion and
estimates that it will spend a total of approximately $100,000 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 was originally effective for fiscal quarters beginning after June 15,
1999. The Financial Accounting Standards Board has delayed the effective date
for FAS 133 to fiscal quarters beginning after June 15, 2000. 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 3. 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's strategies to address market risks and the
types of financial instruments entered into to hedge market risks are described
in the Company's Annual Report on Form 10-K for the fiscal year ended January
31, 1999. As described below, subsequent to October 31, 1999 the Company
entered into an interest rate swap agreement in order to hedge a portion of its
variable rate U.S. bank debt.
At October 31, 1999, the Company and its European subsidiary had forward foreign
exchange contracts outstanding having a total contract amount of approximately
$31.9 million compared to approximately $74.0 million at January 31, 1999.
For the three and nine month periods ended October 31, 1999, the Company had
recorded unrealized gains (losses) from forward foreign exchange contracts to
hedge translated earnings of foreign subsidiaries (primarily the translated
earnings of European operations which report earnings in Belgian francs) and
intercompany royalty payments of $(1.9) million and $2.7 million, respectively.
The ultimate realization of such amount is subject to fluctuations in the
exchange rate of the U.S. dollar against the Belgian franc.
25
<PAGE>
If there were a ten percent adverse change in foreign currency exchange rates
relative to all outstanding forward exchange contracts, the loss in earnings
from the amount included in results of operations for the nine month period
ended October 31, 1999 would be approximately $3.3 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.
The amount of fixed rate long-term debt outstanding has not changed materially
from the amount outstanding at January 31, 1999 and continues to be comprised
primarily of the Company's outstanding publicly traded senior subordinated notes
having a face amount of $350.0 million. At January 31, 1999, the quoted market
price of these notes was $80 per $100 of principal; at October 31, 1999, the
quoted market price of these notes was $84 per $100 of principal.
Effective November 8, 1999, the Company entered into a variable to fixed
interest rate swap agreement having a notional amount of $25.0 million, a fixed
rate of 6.14% and with a variable rate equal to the three-month LIBOR rate. The
swap agreement is for a two-year term and may be terminated by either party to
the swap agreement one year from the date of the agreement.
26
<PAGE>
SAMSONITE CORPORATION
PART II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings
-----------------
The Company, certain related parties and former directors of the Company are the
subject of (1) various purported shareholder class action lawsuits in Colorado
State District Court, City and County of Denver; United States District Court
for the District of Colorado; and the Delaware Court of Chancery and (2) a
purported derivative action in Colorado State District Court, City and County of
Denver, all of which were filed between March 13, 1998 and March 9, 1999.
In April 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 purported class and derivative action litigations and
any other actions asserted at any time that involve essentially the same or
similar allegations, facts or circumstances as those in the purported class and
derivative action litigations. In connection with the insurance agreement, the
Company entered into some 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
litigations. The Company is responsible for paying all legal defense costs
prior to the effective date of the insurance agreement. However, the Company
expects that substantially all costs incurred subsequent to the effective date
to defend and resolve the purported class and derivative action litigations will
be covered by the insurance agreement. The Company believes that its
consolidated statements of operations for the fiscal year ended January 31, 1999
reflect the accrual of substantially all costs incurred and expected to be
incurred in connection with these lawsuits.
On June 14, 1999, the Delaware Court of Chancery dismissed the purported
shareholder class action that had been brought in Delaware. The plaintiff in
this Delaware suit appealed the dismissal. In November 1999, the Supreme Court
of Delaware affirmed the dismissal by the Court of Chancery.
In addition, the Company is a party to 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 effect on its
consolidated financial position, results of operations or liquidity. Refer to
Note 15 to the consolidated financial statements included in the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1999 which
describes other commitments and contingencies.
Item 2 - Changes in Securities
---------------------
None.
Item 3 - Defaults Upon Senior Securities
-------------------------------
None.
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5 - Other Information
-----------------
None.
27
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) See Exhibit Index.
(b) Reports on Form 8-K.
None.
28
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SAMSONITE CORPORATION
(Registrant)
By /s/ Richard H. Wiley
------------------------------------------------
Name: Richard H. Wiley
Title: Chief Financial Officer, Treasurer
and Secretary
Date: December 15, 1999
------------------------
29
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
- ------- -----------
3.1 Amended and Restated Certificate of Incorporation of the Company./1/
3.2 Certificate of Ownership and Merger dated July 14, 1995./2/
3.3 By-Laws of the Company./1/
4.1 Indenture, dated as of June 24, 1998, between the Company and
United States Trust Company of New York./3/
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./4/
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./4/
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./4/
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./4/
4.6 Description of the Company's common stock, par value $.01 per
share, and the associated preferred stock purchase rights./5/
4.7 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./5/
4.8 First Amendment, dated as of April 7, 1999, to Rights Agreement,
dated as of May 12, 1998, between Samsonite and BankBoston, N.A.,
as Rights Agent./6/
4.9 Second Amendment to the Rights Agreement, dated as of July 13,
1999, between Samsonite and BankBoston, N.A., as Rights Agent./7/
4.10 Third Amendment of the Rights Agreement, dated as of September 27,
1999, between Samsonite and BankBoston, N.A.
10.1 Investment Agreement between Samsonite Corporation and Apollo
Investment Fund, L.P., dated as of April 7, 1999./6/
10.2 Certificate of the Designations, Powers, Preferences and Rights of
Series Z Convertible Preferred Stock of Samsonite Corporation./6/
10.3 Registration Rights Agreement, dated as of April 7, 1999, between
Samsonite and Apollo Investment Fund, L.P./6/
10.4 Letter Agreement dated July 13, 1999 between Apollo Investment Fund,
L.P. and Artemis America Partnership./7/
30
<PAGE>
Exhibit Description
- ------- -----------
10.5 Stockholders Agreement dated as of July 13, 1999 by and among
Samsonite Corporation, Apollo Investment Fund, L.P. and Artemis
America Partnership./7/
27 Financial Data Schedule.
- ---------------------------
/1/ 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).
/2/ Incorporated by reference from the Registration Statement on Form S-4
(Registration No. 33-95642).
/3/ Incorporated by reference from the Registration Statement on form S-4
(Registration No. 333-61521).
/4/ Incorporated by reference from the Registration Statement on form S-4
(Registration No. 333-61519).
/5/ 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).
/6/ Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended April 30, 1999.
/7/ Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1999.
31
<PAGE>
THIRD AMENDMENT OF Exhibit 4.10
THE RIGHTS AGREEMENT
This THIRD AMENDMENT OF THE RIGHTS AGREEMENT (the "Agreement") is entered
into as of September 27, 1999, by and between Samsonite Corporation, a Delaware
corporation (the "Company") and BankBoston, N.A., a national banking association
(the "Rights Agent").
BACKGROUND
WHEREAS, the Company and the Rights Agent are par ties to the Rights
Agreement, dated as of May 12, 1998, as amended on April 7, 1999, and as further
amended on July 13, 1999 (the "Original Agreement");
WHEREAS, pursuant to Section 26 of the Original Agreement, the parties
hereto have agreed to amend cer tain provisions of the Original Agreement as
set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and intending to be legally bound, the parties hereto agree
that the Original Agreement is hereby amended as follows:
SECTION 1. Defined Terms. Capitalized terms used and not defined herein
-------------
shall have the meanings assigned to such terms in the Original Agreement.
SECTION 2. Amendments. The parties hereto hereby consent and agree to
----------
amend the Original Agreement as follows:
(a) Section 1 of the Original Agreement is hereby amended by deleting
paragraph (g) in its entirety and inserting in lieu thereof the following:
"(g) "Exempted Person" shall mean Apollo Advisors, L.P. and its Affiliates
and Associates and Artemis Amer ica Partnership and its Affiliates and
Associates, so long as each of Apollo Advisors, L.P. and Artemis Amer ica
Partnership, together with its respective Affiliates and Associates, shall not
become the Beneficial Owner of shares of Common Stock then
<PAGE>
outstanding in excess of its Applicable Percentage; provided, however, that from
-------- -------
and after such time as Apollo Advisors, L.P. or Artemis America Partnership,
together with all of its respective Affiliates and Associates, shall be the
Beneficial Owner of shares of Common Stock then outstanding in excess of its
respective Applicable Percentage, Apollo Advisors, L.P. or Artemis America
Partnership, as the case may be, shall no longer be deemed an "Exempted Person".
For purposes of the foregoing, with respect to Apollo Advi sors, L.P., and its
Affiliates and Associates, including Lion Advisors, L.P. (collectively,
"Apollo"), (i) from and after the execution of the Investment Agreement, dated
as of April 7, 1999, between the Company and Apollo Investment Fund, L.P. (the
"Investment Agreement"), and prior to the Back-stop Closing (as such term is
defined in the Investment Agreement), the term "Applicable Percentage" shall
mean two percent (2%) plus the percentage of the outstanding shares of Common
Stock beneficially owned by Apollo on the date hereof (treating for this purpose
the shares to be purchased at the Back-stop Closing as not beneficially owned by
Apollo) and (ii) after the Back-stop Closing, the term "Applicable Percentage"
shall mean two percent (2%) plus the percentage of the outstanding shares of
Common Stock beneficially owned by Apollo immediately after such closing;
provided that Apollo's Applicable Percentage shall in no event be less than 34%.
- --------
For purposes of the foregoing, with respect to Artemis America Partnership
("Artemis"), the term "Applicable Percentage" shall mean two percent (2%) plus
the quotient obtained by dividing (A) the number of shares of Common Stock
which, or the voting rights of which, Artemis or any of its Affiliates or
Associates has the right to acquire, or acquires, at any time or which otherwise
may be distributed to Artemis or to any of its Affiliates or Associates, in
either case by reason of or pursuant to (x) the terms of the Investment
Management Agreement between Artemis and Lion Advisors, L.P., dated as of June
29, 1990, as amended on April 30, 1999, with respect to the managed account (the
"Investment Management Agreement"), (y) the distribution of shares of Common
Stock to the limited partners of Apollo Investment Fund I, L.P. (the agreement
governing such fund being herein referred to as the "Apollo Fund Agreement") or
(z) the terms of the agreements, dated as of April 5, 1999, as amended on July
13, 1999, between
<PAGE>
Artemis America Partnership and Apollo Investment Fund, L.P. (as so amended, the
"Letter Agreement"), by (B) the number of shares of Common Stock outstanding at
the time of any calculation to determine whether Artemis is an Acquiring Person.
Notwithstanding anything to the contrary contained herein, a "group" (as
determined pursuant to Rule 13d-5 of the General Rules and Regulations
promulgated under the Exchange Act) consisting solely of Exempted Persons or
solely of Ex empted Persons and one or more transferees in a transac tion to
which Sections 3(i) (after giving effect to the proviso therein) and 4 of the
Stockholders Agreement apply (a "Section 3(i) Transferee") shall likewise be
treated as an Exempted Person hereunder; provided that the foregoing shall not
--------
apply to a group which has bene ficial ownership of shares of Common Stock of a
Section 3(i) Transferee not subject to the pro rata voting re quirements of
Section 4 of the Stockholders Agreement; provided further, that a group
--------
consisting solely of Apollo and its Affiliates and Associates and Artemis and
its Affiliates and Associates, or some subset thereof, shall be treated as an
Exempted Person hereunder but only to the extent that such parties are deemed to
be a group solely by reason of (i) the Stockholders Agree ment, (ii) the
Investment Management Agreement, (iii) the Apollo Fund Agreement, (iv) the
Letter Agreement, or (v) any subset of the foregoing agreements."
(b) Section 7(a) of the Original Agreement is hereby amended by deleting
the phrase "May 31, 2002" appearing in the seventh line from the end thereof and
inserting in lieu thereof the phrase "May 31, 2007".
(c) Exhibits B and C of the Original Agreement are hereby amended by
deleting all references to the phrase "May 31, 2002" appearing therein and
inserting in lieu thereof the phrase "May 31, 2007".
Except as otherwise specified above, there is no amendment of any other
term, condition or provision of the Original Agreement all of which are hereby
ratified and confirmed by the Company.
SECTION 3. Counterparts. This Agreement (a) may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument, (b) shall be
effective only in this specific instance for the specific purpose set forth
herein, and (c) does not allow any other or further departure from the terms
<PAGE>
of the Original Agreement, which terms shall continue in full force and effect.
All of such counterparts shall constitute one and the same agreement and shall
become effective when one or more counterparts have been signed by each party
and delivered to the other parties.
SECTION 4. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
--------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING
EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF.
IN WITNESS WHEREOF, this Agreement has been duly executed by each of
the parties hereto as of the date first written above.
SAMSONITE CORPORATION
By: /s/ Steve Armstrong
------------------------------
Name: Steve Armstrong
Title: General Counsel
BANKBOSTON, N.A.
By: /s/ Carol Mulvey-Eori
------------------------------
Name: Carol Mulvey-Eori
Title: Administration Manager
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED OCTOBER
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 40,026
<SECURITIES> 0
<RECEIVABLES> 94,706
<ALLOWANCES> 7,427
<INVENTORY> 167,112
<CURRENT-ASSETS> 326,036
<PP&E> 228,365
<DEPRECIATION> 84,274
<TOTAL-ASSETS> 598,330
<CURRENT-LIABILITIES> 163,484
<BONDS> 463,530
199,567
24,410
<COMMON> 210
<OTHER-SE> (326,982)
<TOTAL-LIABILITY-AND-EQUITY> 598,330
<SALES> 579,491
<TOTAL-REVENUES> 579,491
<CGS> 336,603
<TOTAL-COSTS> 336,603
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,357
<INTEREST-EXPENSE> 39,800
<INCOME-PRETAX> 5,634
<INCOME-TAX> 9,103
<INCOME-CONTINUING> (4,828)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,828)<FN>
<EPS-BASIC> (2.48)
<EPS-DILUTED> (2.48)
<FN>
Net income (loss) is shown before redeemable preferred stock dividends and
accretion of preferred stock discount of $21,238
</FN>
</TABLE>
