Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report 29 145K
2: EX-10.1 Fourth Amendment to Credit Agreement 10/15/96 23 40K
3: EX-10.2 Employment Agreement Betwn Co. & J.P. Murtagh 15 59K
4: EX-10.3 Employment Agreement Betwn Co. & R.P. Baird, Jr. 14 59K
5: EX-10.4 Employment Agreement Betwn Co. & J.E. Barch 14 58K
6: EX-10.5 Employment Agreement Betwn Co. & G.D. Ervick 15 60K
7: EX-10.6 Stock Option Agreement Betwn Co. & J. Murtagh 10 44K
8: EX-10.7 Stock Option Agreement Betwn Co. & R.P. Baird, Jr. 9 45K
9: EX-10.8 Stock Option Agreement Betwn Co. & J.E. Barch 9 45K
10: EX-10.9 Stock Option Agreement Between Co. & G.D. Ervick 9 45K
11: EX-11.1 Earnings Per Share Calculation 1 8K
12: EX-21 Subsidiaries of the Company 2± 8K
13: EX-27 Financial Data Schedule 2 10K
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, 1996
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. 16,022,463 shares of common
stock, par value $0.01 per share, as of December 9, 1996.
FORM 10-Q
---------
CONTENTS
--------
[Enlarge/Download Table]
PART I - FINANCIAL INFORMATION Page Number
--------------------- -----------
Unaudited Consolidated Balance Sheets as of October 31, 1996
and January 31, 1996................................................. 1
Unaudited Consolidated Statements of Operations for the three months
ended October 31, 1996 and 1995...................................... 3
Unaudited Consolidated Statements of Operations for the nine months
ended October 31, 1996 and 1995...................................... 4
Unaudited Consolidated Statement of Stockholders' Equity for the nine
months ended October 31, 1996........................................ 5
Unaudited Consolidated Statements of Cash Flows for the nine months
ended October 31, 1996 and 1995...................................... 6
Unaudited Notes to Consolidated Financial Statements................. 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 15
PART II - OTHER INFORMATION
-----------------
Item 1: Legal Proceedings............................................ 25
Item 2: Changes in Securities........................................ 25
Item 3: Defaults upon Senior Securities.............................. 25
Item 4: Submission of Matters to a Vote of Security Holders.......... 25
Item 5: Other Information............................................ 25
Item 6: Exhibits and Reports on Form 8-K............................. 25
Signature............................................................ 26
Index to Exhibits.................................................... 27
PART I - FINANCIAL INFORMATION
------------------------------
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 31, 1996 AND JANUARY 31, 1996
(IN THOUSANDS)
[Download Table]
October 31, January 31,
1996 1996
----------- -----------
Assets
------
Current assets:
Cash and cash equivalents................. $ 3,145 15,179
Trade receivables, net of allowance for
doubtful accounts of $9,636 and $8,152.. 98,186 73,513
Notes and other receivables............... 10,163 17,711
Inventories (Note 2)...................... 139,138 115,736
Deferred income tax assets................ 32,941 38,760
Prepaid expenses and other current
assets................................... 14,349 15,990
Assets held for sale........................ 9,246 9,455
-------- --------
Total current assets.................. 307,168 286,344
Property, plant and equipment, net (Note 3). 138,170 140,912
Investments in affiliates................... 1,236 --
Intangible assets, less accumulated
amortization of $200,834 and
$171,278 (Note 4)........................ 129,874 159,492
Other assets and long-term receivables,
net of allowance for doubtful accounts
of $5,555 and $10,104.................... 22,056 34,695
-------- --------
$598,504 621,443
======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 31, 1996 AND JANUARY 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
(CONTINUED)
[Download Table]
October 31, January 31,
1996 1996
------------ ------------
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Short-term debt (Note 5)................... $ 7,329 23,487
Current installments of long-term
obligations (Note 5)..................... 19,475 16,306
Accounts payable........................... 39,280 33,520
Accrued liabilities........................ 118,520 113,512
-------- --------
Total current liabilities.............. 184,604 186,825
Long-term obligations, less current
installments (Note 5)....................... 273,167 294,653
Deferred income tax liabilities.............. 36,784 33,038
Other noncurrent liabilities................. 79,330 79,672
Minority interests........................... 3,795 2,139
--------- --------
Total liabilities...................... 577,680 596,327
--------- --------
Stockholders' equity (Notes 7 and 8):
Preferred stock ($.01 par value;
2,000,000 shares authorized;
no shares issued)...................... -- --
Common stock ($.01 par value;
60,000,000 shares authorized;
16,021,950 and 15,889,450 shares
issued and outstanding, respectively). 160 159
Additional paid-in capital................. 264,584 261,842
Accumulated deficit........................ (238,160) (224,547)
Foreign currency translation equity
adjustment................................ (4,916) (2,338)
Unearned compensation - restricted stock... (844) --
Note receivable............................ -- (10,000)
--------- --------
Total stockholders' equity............. 20,824 25,116
--------- --------
Commitments and contingencies
(Notes 1C and 6)........................... $ 598,504 621,443
========= ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
[Enlarge/Download Table]
Three Months Ended October 31,
-------------------------------
1996 1995
-------------- --------------
Net sales (Note 1F)......................................... $203,817 180,284
Cost of goods sold (Note 3)................................. 123,413 110,167
--------- -------
Gross profit.............................................. 80,404 70,117
Selling, general and administrative expenses (Note 3)...... 62,749 50,663
Amortization of intangible assets (Note 4).................. 2,217 15,963
Provision for restructuring operations (Note 9)............. 10,670 --
--------- -------
Operating income.......................................... 4,768 3,491
Other income (expense):
Interest income........................................... 373 388
Interest expense and amortization of debt issue costs..... (9,078) (10,927)
Other, net (Note 6)....................................... 11,921 42
--------- -------
Income (loss) before income taxes and minority interest..... 7,984 (7,006)
Income tax expense.......................................... (4,203) (4,127)
Minority interest in earnings of subsidiaries............... (409) (231)
--------- -------
Net income (loss)......................................... $ 3,372 (11,364)
========= =======
Net income (loss) per common share - primary................ $ .22 (.72)
========= =======
Net income (loss) per common share - fully diluted.......... $ .20 (.72)
========= =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
[Enlarge/Download Table]
Nine Months Ended October 31,
------------------------------
1996 1995
-------- -------
Net sales (Note 1F).......................................... $553,124 505,707
Cost of goods sold (Note 3).................................. 335,363 307,458
-------- -------
Gross profit............................................... 217,761 198,249
Selling, general and administrative
expenses (Note 3)........................................... 174,140 153,197
Amortization of intangible assets (Note 4)................... 29,622 47,863
Provision for restructuring operations (Note 9).............. 10,670 --
-------- -------
Operating income (loss).................................... 3,329 (2,811)
Other income (expense):
Interest income............................................ 1,172 4,058
Interest expenseand amortization of debt issue costs....... (27,112) (30,851)
Other, net (Note6)......................................... 18,453 3,357
-------- -------
Loss before income taxes, minority
interest and extraordinary item.......................... (4,158) (26,247)
Income tax expense........................................... (8,603) (7,495)
Minority interest in earnings of subsidiaries................ (852) (428)
-------- -------
Loss before extraordinary item............................. (13,613) (34,170)
Extraordinary loss, net of income tax benefit of $5,589
(Note 5).................................................. -- (8,042)
-------- -------
Net loss................................................... $(13,613) (42,212)
======== =======
Loss per share:
Loss before extraordinary item............................. $ (.85) (2.16)
Extraordinary item......................................... -- (.52)
-------- -------
Net loss................................................... $ (.85) (2.68)
======== =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
[Enlarge/Download Table]
Foreign
Currency Unearned
Additional Translation Compensation-
Preferred Common Paid-In Accumulated Equity Restricted Note
Stock Stock Capital Deficit Adjustment Stock Receivable
--------- ------- --------- ----------- ------------ -------------- ----------
Balance, January 31, 1996 $ -- 159 261,842 (224,547) (2,338) -- (10,000)
Issuance of 55,000 shares of common
stock to an officer for cash -- -- 1,004 -- -- -- --
Stock award of 60,000 shares of
restricted common stock to an officer -- 1 1,094 -- -- (1,095) --
Amortization of restricted stock award
to compensation expense -- -- -- -- -- 251 --
Compensation expense accrual for stock
bonus awards (Note 8) -- -- 325 -- -- -- --
Exercise of employee stock options and
related income tax benefits (Note 8) -- -- 319 -- -- -- --
Foreign currency translation adjustment -- -- -- -- (2,578) -- --
Payment of note receivable (Note 7) -- -- -- -- -- -- 10,000
Net loss -- -- -- (13,613) -- -- --
--------- ------- --------- --------- ---------- ----------- ---------
Balance, October 31, 1996 $ -- 160 264,584 (238,160) (4,916) (844) --
========= ======= ========= ========= ========== =========== =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(IN THOUSANDS)
[Enlarge/Download Table]
Nine Months Ended October 31,
-----------------------------
1996 1995
Cash flows provided (used) by operating activities:
Net loss................................................... $(13,613) (42,212)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Loss from extinguishment of debt........................ -- 8,042
Loss (gain) on disposition of fixed assets.............. (171) 63
Depreciation and amortization of
property, plant and equipment.......................... 16,615 14,849
Amortization of intangible assets....................... 29,622 47,863
Amortization of debt issue costs........................ 1,449 --
Provision for doubtful accounts......................... 2,073 669
Amortization of stock awards............................ 576 --
Adjustment of liability for PBGC claims................. (11,100) --
Changes in deferred taxes, net.......................... 9,565 --
Changes in operating assets and liabilities:
Trade and other receivables........................... (19,079) (23,217)
Inventories........................................... (23,402) (10,845)
Prepaid expenses and other current assets............. 1,850 10,088
Accounts payable...................................... 5,760 (15)
Accrued liabilities................................... 5,008 11,095
Other, net............................................ 5,556 (28)
-------- -------
Net cash provided by operating activities.................... $ 10,709 16,352
-------- -------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(IN THOUSANDS)
(CONTINUED)
[Download Table]
Nine Months Ended October 31,
------------------------------
1996 1995
-------- ---------
Cash flows provided (used) by investing activities:
Purchases of property, plant and equipment........ $(19,689) (15,909)
Net cash from (used by) discontinued operations... 11,511 (1,603)
Cash received from spinoff of discontinued
operations...................................... -- 112,000
Other............................................. 4,601 (15,022)
-------- -------
Net cash provided (used) by investing
activities................................... (3,577) 79,466
-------- -------
Cash flows provided (used) by financing activities:
Net proceeds from (repayment of) short-term
debt........................................... (16,026) 911
Repayments on long-term obligations.............. (14,863) (105,514)
Proceeds from sale of common stock and
exercise of stock options...................... 1,199 --
Payment of note receivable for issuance
of common stock................................ 10,000 --
Premium on retirement of subordinated notes...... -- (18,320)
Other............................................ 1,654 (14,359)
-------- -------
Net cash used by financing activities.......... (18,036) (137,282)
-------- -------
Effect of exchange rate changes on cash and cash
equivalents...................................... (1,130) 864
-------- -------
Net decrease in cash and cash equivalents...... (12,034) (40,600)
Cash and cash equivalents, beginning of period...... 15,179 51,283
-------- -------
Cash and cash equivalents, end of period............ $ 3,145 10,683
======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for interest............ $ 19,381 43,987
======== =======
Cash paid during the period for income taxes........ $ 1,885 9,842
======== =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
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's retail
sales consist primarily of American Tourister products sold through Company
owned stores.
B. BASIS OF PRESENTATION
---------------------
On May 25, 1993, the United States Bankruptcy Court for the Southern
District of New York confirmed the Amended Plan of Reorganization (the
"Plan") for Astrum. Pursuant to the terms of the Plan, which became
effective on June 8, 1993, Astrum completed a comprehensive financial
reorganization which reduced debt and annual interest expense (the
"Restructuring").
The Restructuring has been accounted for pursuant to the American Institute
of Certified Public Accountants Statement of Position 90-7, entitled
"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" ("SOP 90-7"). SOP 90-7 requires that assets and liabilities be
adjusted to their fair values ("fresh-start" values) and that a new
reporting entity be created. On June 30, 1993, for accounting purposes, the
Plan was consummated and SOP 90-7 was adopted. The consolidated financial
statements include the ongoing impact of fresh-start reporting.
C. INTERIM FINANCIAL STATEMENTS
----------------------------
The accompanying unaudited consolidated financial statements reflect all
adjustments, which are normal and recurring in nature, and which, in the
opinion of management, are necessary to a fair statement of the financial
position as of October 31, 1996 and results of operations for the three-
month and nine-month periods ended October 31, 1996 and 1995. These
consolidated financial statements and related notes should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1996.
See Note 14 to the aforementioned consolidated financial statements included
in the 1996 Form 10-K for a description of litigation, commitments and
contingencies.
D. USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
8
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. PER SHARE DATA
--------------
Loss per share is calculated based on the weighted average number of shares
outstanding during the period. The weighted average number of shares
outstanding during the nine months ended October 31, 1996 and 1995 was
15,953,019 and 15,776,294, respectively. The weighted average number of
shares outstanding during the three months ended October 31, 1995 was
15,889,450. Primary and fully diluted net income per share for the three
months ended October 31, 1996 is computed on the weighted average shares of
common stock outstanding plus common equivalent shares using the modified
treasury method for stock options and stock awards which was 17,302,603
shares for the period.
F. ROYALTY REVENUES
----------------
The Company licenses its brand names to certain unrelated third parties as
well as certain foreign subsidiaries and joint ventures. Net sales include
royalties earned of $16,814,000 and $13,233,000 for the nine months ended
October 31, 1996 and 1995, respectively, and $4,821,000 and $4,149,000 for
the three months ended October 31, 1996 and 1995, respectively. Included in
royalties for the nine months ended October 31, 1996 is $3.9 million from
the sale of apparel tradename licenses in certain Pacific Rim countries
during the first quarter of fiscal 1997.
2. INVENTORIES
Inventories consisted of the following :
[Download Table]
October 31, January 31,
1996 1996
---------- -----------
(In thousands)
Raw Materials.................... $ 50,911 35,827
Work in Process.................. 10,848 10,959
Finished Goods................... 77,379 68,950
------- -------
$139,138 115,736
======= =======
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
[Download Table]
October 31, January 31,
1996 1996
---------- -----------
(In thousands)
Land............................. $ 13,429 14,172
Buildings........................ 62,852 62,281
Machinery, equipment and other... 115,900 106,511
------- --------
192,181 182,964
Less accumulated depreciation
and amortization............... (54,011) (42,052)
------- --------
$138,170 140,912
======= ========
9
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Depreciation included in cost of goods sold and selling, general and
administrative expenses related to adjustments of assets and liabilities to
fair value in connection with the adoption of SOP 90-7 consisted of the
following (in thousands):
[Enlarge/Download Table]
Three Months Ended Nine Months Ended
October 31, October 31,
---------------------- ----------------------
1996 1995 1996 1995
-------- -------- ------- -------
"Fresh Start" Depreciation in Cost of Goods Sold.............. $ 731 632 2,192 1,887
"Fresh Start" Depreciation in Selling, General and
Administrative Expenses.................................... 162 139 487 417
------ ---- ----- -----
Total "Fresh Start" Depreciation........................... $ 893 771 2,679 2,304
====== ==== ===== =====
Property and equipment revalued in connection with the adoption of SOP 90-7
are being depreciated over their respective estimated useful lives,
primarily ranging from two to six years.
4. INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, consisted of the following:
[Enlarge/Download Table]
October 31, January 31,
1996 1996
------------ ------------
(In thousands)
Reorganization Value in Excess of Identifiable Assets........ $ -- 22,947
Trademarks................................................... 116,766 119,549
Licenses, Patents and Other.................................. 13,108 16,996
-------- --------
$129,874 159,492
======== ========
Amortization of intangible assets consisted of the following (in thousands):
[Enlarge/Download Table]
Three Months Ended Nine Months Ended
October 31, October 31,
------------------------- ----------------------
1996 1995 1996 1995
-------- ------- ------- -------
Amortization of Reorganization Value in Excess of
Identifiable Assets.................................... $ -- 14,205 22,947 42,862
Amortization of Licenses, Patents and Other............... 1,289 964 3,891 2,606
Amortization of Trademarks................................ 928 794 2,784 2,395
-------- ------- ------- -------
$2,217 15,963 29,622 47,863
======== ======= ======= =======
The reorganization value in excess of identifiable assets was amortized over
a three-year period expiring June 1996; licenses, patents and other are
amortized over a period ranging from one to twenty-three years; and
trademarks are amortized over a period ranging from five to forty years.
10
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
[Download Table]
October 31, January 31,
1996 1996
-------------- ------------
(In thousands)
Series B Senior Subordinated Notes (a)....... $190,000 190,000
Senior Credit Facility (b)................... 57,500 58,000
Short-term obligations expected to be
refinanced.................................. 5,195 11,394
Capital lease obligations.................... 5,022 4,665
Other (c).................................... 42,254 70,387
-------- -------
Total.................................... 299,971 334,446
Less short-term debt and current install-
ments of long-term obligations.............. (26,804) (39,793)
-------- -------
$273,167 294,653
======== =======
(a) The Series B Senior Subordinated Notes bear interest at 11 1/8% and have
a maturity date of July 15, 2005.
(b) As of October 31,1996, the Senior Credit Facility provides for a $47.5
million term loan and a $175 million revolving credit facility. The
credit facility matures July 14, 2000.
The following amounts were outstanding at October 31, 1996 under the
Senior Credit Facility:
Term Loan $47.5 million
Revolving Credit Borrowings $10.0 million
Letters of Credit $52.9 million
Available borrowings were $112.1 million at October 31, 1996.
The Senior Credit Facility is secured by substantially all the Company's
U.S. assets, the capital stock of its principal domestic subsidiaries,
and 66% of the stock of its principal foreign subsidiaries. The
agreement contains financial covenants which require the Company to
maintain certain financial ratios and minimum amounts of earnings,
exclusive of interest, taxes, and non-cash charges. The agreement also
contains covenants limiting the amount of capital expenditures,
investments in certain subsidiaries, and dividends, among other
restrictions. The agreement has been amended to exclude the provision
for restructuring operations (see Note 9) from the computation of
lending rates and financial covenants. Under the agreement, the Company
has no amount available for the payment of dividends at October 31,
1996. The Company is in compliance with the terms of such covenants at
October 31, 1996.
(c) Other obligations consist of various notes payable to banks by foreign
subsidiaries aggregating $37.2 million and a $5.1 million secured
financing arrangement with a foreign bank. Included in letters of credit
outstanding is a $43.5 million standby letter of credit issued to secure
the debt of foreign subsidiaries.
In July 1995, the Company redeemed its then outstanding senior subordinated
indebtedness with the proceeds from another issuance of subordinated debt.
The redemption price included a contractual premium of $18,000,000 which,
net of unamortized premium of $4,369,000 and income tax benefit of
$5,589,000, is included in the consolidated statements of operations for the
nine-month period ended October 31, 1995 as an extraordinary loss on the
extinguishment of debt.
11
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. OTHER INCOME (EXPENSE), NET
Other income (expense), net consisted of the following:
[Enlarge/Download Table]
Three Months Ended Nine Months Ended
October 31, October 31,
--------------------- --------------------
1996 1995 1996 1995
------- ------- ------- -------
(In thousands)
Foreign currency transaction income
(losses) (a) ................................ $ 362 (288) 2,469 (2,727)
Rental income................................. 602 474 1,489 1,292
Favorable settlement of claim (b)............. -- -- 3,802 --
Adjustment of liability for PBGC claims (c)... 11,100 -- 11,100 --
Sale of television station.................... -- -- -- 5,368
Other......................................... (143) (144) (407) (576)
------- ---- ------ ------
$11,921 42 18,453 3,357
======== ==== ====== ======
(a) Foreign currency transaction income for the three months and nine months
ended October 31, 1996 includes $652,000 of unrealized exchange gains
related to open forward exchange contracts entered into to reduce foreign
currency exposure on certain foreign operations.
(b) Other income of $3,802,000 resulted from the favorable settlement on June
13, 1996 for $200,000 of a claim against the Company by a related party.
The Company had previously accrued $4,002,000 for such claim. The claim is
part of the Contingent Liability with Respect to the Old Notes described in
Note 14 to the consolidated financial statements in the 1996 Form 10-K and
relates to the claim for interest on overdue installments of interest
accruing prior to the bankruptcy of the Company's predecessor in 1993. The
Company recorded a liability of $16.4 million for all such claims as part of
the reorganization. The holders of the settled claim were Apollo Investment
Fund, L.P. ("Apollo") and an affiliate of Apollo. Apollo and its affiliates
own 45.78% of the outstanding shares of the Company's common stock.
In a hearing on November 14, 1996, the Bankruptcy Court ruled in favor of
the Company on a motion to disallow these claims on the basis that compound
interest was not allowed under applicable law at the time the bond contracts
were entered into. The ruling is subject to appeal, and the Company has not
made any adjustment to the remaining recorded liability of $12.4 million
pending expiration of the appeal period or completion of the appeal process.
(c) As discussed in note 14 to the consolidated financial statements in the 1996
Form 10-K under Contingent Liabilities to Pension Benefit Guaranty
Corporation (the "PBGC"), the Company recorded a liability of $37.7 million,
as part of the reorganization in 1993, for claims made by the PBGC for
underfunded pension plans (the "Plans") and unpaid insurance premiums for
the Plans, which were sponsored by other companies. The Company and these
other companies were part of a "controlled group", as defined by the
Employment Retirement Income Security Act of 1974, as amended, and as such
the Company had joint and several liability for the Plans. At the time of
the reorganization, the Company entered into temporary agreements with the
PBGC under which the Company agreed to be contingently liable for the Plans
and permanent agreements with the other Companies which gave the Company the
right to assume sponsorship of the Plans should the other companies default
on their obligations under the Plans. These agreements also confirmed the
agreement of the primarily liable companies to the permanent cessation of
benefit accruals and to the making of any plan amendments that would
increase benefit liabilities under the Plans without the consent of the
Company. The right to assume sponsorship of the Plans allows the Company to
avoid having the PBGC terminate the Plans and make a claim against the
Company for the PBGC regulatory prescribed termination value. This
termination value is substantially higher than the liability would be for
the Company to assume sponsorship and fund the Plans over their remaining
lives. Permanent agreements were entered into among the PBGC, the Company,
and the primarily liable companies in June 1996 which became effective on
August 6, 1996 when the Bankruptcy Court entered an order approving the
agreements. The permanent agreements imposed limitations on PBGC actions
against the Company in respect of benefit liabilities under the Plans,
including the requirement that the PBGC proceed against the primarily liable
companies before proceeding against the Company. The primarily liable
companies have continued to meet their obligations to the Plans since 1993,
although these companies remain in reorganization as of October 31, 1996.
12
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The liability originally recorded in 1993 of $37.7 million was recorded on
the basis of a PBGC termination value. As a result of the permanent
agreement giving the Company the right to assume sponsorship of the Plans,
the Company has evaluated the liability as if it were to assume
sponsorship, and has adjusted the recorded liability to $26.6 million. This
amount represents management's best estimate of the contingent liability
based on the pension benefit obligation of the Plans discounted at 7.25%
reduced by the market value of the Plans' assets as of October 31, 1996.
The corresponding reduction in the liability is recorded in other
nonoperating income in the amount of $11.1 million. The Company will
periodically reassess the amount of the liability for the effects of
changes in circumstances and assumptions.
7. NOTE RECEIVABLE
The note receivable deducted from stockholders' equity at January 31, 1996
arises from the sale of 425,532 shares of the Company's common stock to the
Company's former Chairman and Chief Executive Officer in April 1995 for
$23.50 per share. The note was repaid during the third quarter of fiscal
1997.
8. EMPLOYEE STOCK OPTIONS
The Company has authorized 2,550,000 shares for the granting of options under
the 1995 Stock Option and Award Plan. See Note 10 to the consolidated
financial statements included in the 1996 Form 10-K for a description of such
plan. In addition, the Company has outstanding options to current and former
executives in connection with employment agreements and incentive plans.
At October 31, 1996, the Company had outstanding options for a total of
4,402,810 shares at option prices ranging from $10.875 to $35.50 per share.
Options for 1,996,572 shares were exercisable at October 31, 1996. Options
for 17,500 shares were exercised at a price of $11.14 per share during the
nine months ended October 31, 1996.
In addition, the Company has granted stock bonuses for a total of 116,667
shares to certain officers payable if the officer remains continually
employed by the Company through the earlier of May 15, 1999 or one year after
a change of control event. The Company is recognizing compensation expense
equal to the fair market value at the date of the grant ($18.25 per share)
over the three-year vesting period.
9. PROVISION FOR RESTRUCTURING OPERATIONS
The Company recorded a restructuring provision of $10.7 million in the third
quarter of fiscal 1997 as a result of a restructuring program, approved by
the Board of Directors and announced in October 1996, to further consolidate
functions and operations in North America, Europe, and the Far East, and to
reduce or eliminate certain other operations. The restructuring is expected
to be completed by October 1997.
The restructuring plan includes further consolidation of hardside luggage
production to Samsonite's largest U.S. facility located in Denver, CO from
other locations in the Americas, as well as eventual consolidation of many
administrative and control functions, again primarily to Denver. The Company
will eliminate as many as 450 positions worldwide, including approximately
150 manufacturing positions and approximately 300 managerial, office and
clerical positions. Annual estimated pretax cost savings from the
restructuring program are expected to be approximately $12.7 million. The
restructuring provision consists primarily of costs associated with
involuntary employee terminations and includes a cash expense of $9.7 million
and a non-cash expense of $1.0 million, both on a pretax basis.
The foregoing estimate of annual cost savings constitutes a "forward looking
statement" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statement involves numerous assumptions, known
and unknown risks, uncertainties and other factors which may cause actual
estimated cost savings and future performance or achievements of the Company
to be materially different from any future results, performance or
13
SAMSONITE CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
achievements expressed or implied by such forward-looking information. Such
factors include, among other things, the following: achieving estimated
staff reductions while maintaining workflow in the functional areas
affected; general economic and business conditions; and competition.
10. ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of ("Statement 121"), which requires
impairment losses to be recorded on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. Statement 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company adopted Statement 121 in
the first quarter of fiscal 1997. Such adoption had no effect on the
consolidated financial statements.
In October 1995, the FASB issued Statement No. 123, Accounting for Stock-
Based Compensation ("Statement 123"), which provides an alternative to APB
Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for
stock-based compensation issued to employees. The Statement allows for a
fair value based method of accounting for employee stock options and similar
equity instruments. However, for companies that continue to account for
stock-based compensation arrangements under Opinion No. 25, Statement 123
requires disclosure of the pro forma effect on net income and earnings per
share of its fair value based accounting for those arrangements. The Company
has elected not to adopt the recognition and measurement provisions of the
Statement; however, the required disclosures will be provided for its fiscal
year ending January 31, 1997.
14
SAMSONITE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ("MD&A")
EFFECTS OF REORGANIZATION ON RESULTS OF OPERATIONS
--------------------------------------------------
Included in the Company's statements of operations are amortization and
depreciation expenses related to adjustments of assets and liabilities to fair
value in connection with the adoption of SOP 90-7. As a result of the
bankruptcy reorganization of the Company's predecessor in 1993, the Company was
required to adjust its assets and liabilities to their fair ("fresh start")
values and create a new entity for financial reporting purposes. The most
significant fresh start adjustment relates to recording Reorganization Value in
Excess of Identifiable Assets, which was amortized over a three year period
ending in June 1996. In addition, the Company recorded fresh start adjustments
to reflect trademarks, licenses, patents and other intangibles at their fair
values, which are being amortized over periods ranging from one to forty years.
Property and equipment adjusted to fair values in connection with the adoption
of SOP 90-7 is being depreciated over their respective estimated useful lives,
primarily ranging from two to six years.
The effects of the amortization and depreciation of the fresh start adjustments
("Fresh Start Amortization and Depreciation") on operating results is summarized
as follows:
[Enlarge/Download Table]
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
----------------------- ----------------------
1996 1995 1996 1995
------- -------- -------- ------
(In thousands)
Operating income (loss)............................. $4,768 3,491 3,329 (2,811)
Fresh Start Amortization and Depreciation........... 2,886 16,734 31,607 50,167
------ ------ ------ ------
Operating income before Fresh Start Amortization
and Depreciation................................... $7,654 20,225 34,936 47,356
====== ====== ====== ======
Fresh Start Amortization and Depreciation consisted of the following:
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
----------------------- ----------------------
1996 1995 1996 1995
------- -------- -------- ------
(In thousands)
Fresh Start Amortization:
Amortization of Reorganization Value in
Excess of Identifiable Assets................. $ -- 14,205 22,947 42,862
Amortization of Licenses, Patents, and Other....... 1,224 964 3,672 2,606
Amortization of Trademarks......................... 769 794 2,309 2,395
------- ------ -------- ------
Total Fresh Start Amortization................ 1,993 15,963 28,928 47,863
======= ====== ======== ======
Fresh Start Depreciation:
Fresh Start Depreciation in Cost of Goods Sold. 731 632 2,192 1,887
Fresh Start Depreciation in Selling, General
and Administrative Expenses................... 162 139 487 417
------- ------ -------- ------
Total Fresh Start Depreciation................ 893 771 2,679 2,304
------- ------ -------- ------
Fresh Start Amortization and Depreciation.......... $2,886 16,734 31,607 50,167
======= ====== ======== ======
15
SAMSONITE CORPORATION
MD&A (CONTINUED)
The impact of the fresh start amortization and depreciation on net income (loss)
and net income (loss) per share is summarized as follows:
[Enlarge/Download Table]
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------------ -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
(In thousands)
Fresh Start Amortization and Depreciation... $ 2,886 16,734 31,607 50,167
Tax Benefit................................. (1,183) (1,037) (3,551) (2,995)
------- ------ ------ ------
After-Tax Impact on Net Income (Loss)....... $ 1,703 15,697 28,056 47,172
======= ====== ====== ======
Impact on Net Income (Loss) Per Share -
Primary.................................... $ .10 .99 1.71 2.99
RESULTS OF OPERATIONS
---------------------
THREE MONTHS ENDED OCTOBER 31, 1996 ("THIRD QUARTER OF FISCAL 1997" OR "CURRENT
YEAR") COMPARED TO THREE MONTHS ENDED OCTOBER 31, 1995 ("THIRD QUARTER OF FISCAL
1996" OR "LAST YEAR")
General. The Company analyzes its sales and operations by the following
categories: (1) "European operations" which consist of its western European
manufacturing and distribution operations whose functional currency is the
Belgian franc, (2) "U.S. operations" which includes activities within the U.S.
from the Samsonite and American Tourister manufacturing and distribution
operations and (3) "International operations" which include exports from the
U.S., manufacturing and distribution operations in countries with operations
which are smaller in size compared to the U.S. and European operations
(primarily Canada and Mexico) and global licensing operations.
Results of European operations were translated from Belgian francs to U.S.
dollars for the three months ended October 31, 1996 and 1995 at average rates of
approximately 30.73 and 29.19 francs to the U.S. dollar, respectively. This
represents a decrease in the value of the Belgian franc of 5.3%, which results
in significant decreases in reported sales, cost of sales and other expenses in
the third quarter of fiscal 1997 compared to last year. The most significant
effects from the difference in exchange rates from last year to the current year
are noted in the following analysis and referred to as an "exchange rate
difference."
Net Sales. Total net sales increased to $203.8 million for the third quarter of
fiscal 1997 from $180.3 million for the third quarter of fiscal 1996, an
increase of $23.5 million or 13.0%. Adjusted for the European exchange rate
difference, sales increased from last year by 15.2%
Sales from European operations increased from $67.4 million last year to $73.0
million in the current year, an increase of $5.6 million. The exchange rate
difference resulted in a $3.9 million decrease in reported sales versus last
year. Excluding the exchange rate effect, sales increased by $9.5 million from
last year, which represents an increase in sales expressed in Belgian francs of
14.0% in the third quarter of fiscal 1997 compared to last year. Despite what
has been a generally weak economy throughout Europe, the Company's European
operations enjoyed a strong summer selling season. The Company attributes the
increase from the prior year to better product availability, the success of
certain new product lines, and signs of economic recovery in certain European
countries.
16
SAMSONITE CORPORATION
MD&A (CONTINUED)
U.S. operations sales increased from $92.0 million last year to $108.8 million
in the current year, an increase of $16.8 million or 18.3%. The increase is due
to continued broad consumer preference for Samsonite brand products,
particularly lines of upright, lightweight softside luggage which were
redesigned in fiscal 1996 and the beginning of shipments and sales in the third
quarter of the new EZ CART(TM) product. This product has a unique transport
system which features a balanced, 4-wheel system designed to take weight off a
travelers' arm and transfers it to the floor. Sales from the Company's retail
stores increased by $4.5 million from last year, from $15.4 million to $19.9
million, an increase of 29.2%. Same store sales increased by 9.7% compared to
last year. Additionally, during the third quarter of fiscal 1997, the Company
has taken the initial steps to introduce category management principles to its
operations, including multi-brand marketing and advertising programs which
present the three well known Company brands - Samsonite, American Tourister, and
Lark - as a cohesive group.
Sales from the International operations and licensing income increased from
$20.9 million last year to $22.0 million in the current year, an increase of
$1.1 million or 5.3% due primarily to increased sales from the Mexico City
manufacturing and distribution facility.
Gross profit. Total gross profit for the third quarter of fiscal 1997 increased
from last year by $10.3 million. Gross margin percentages were slightly higher
in the current year, increasing by 0.5 percentage point to 39.4% from 38.9% last
year.
Gross margins from European operations were slightly higher than last year,
increasing by 0.4 percentage point to 37.9% from 37.5% last year. However,
margins were lower by 1.8 percentage points than for the previous quarter ended
July 31, 1996. This reflects a strategic initiative to accelerate European
sales and market share through planned product promotion discounts on selected
lines.
Margins from U.S. operations increased from last year by 0.7 percentage point to
40.3% from 39.6% last year. The increase is due to greater retail sales in the
current year, price increases on selected product lines effective October 1,
1996, and product cost improvements.
Selling, General and Administrative Expenses ("SG&A"). Consolidated SG&A
increased by $12.1 million from the third quarter of fiscal 1996 to the third
quarter of fiscal 1997. As a percent of sales, SG&A was 30.8% in the current
year and 28.1% last year. Expenses totaling approximately $1.8 million were
incurred in the third quarter of fiscal 1997 in connection with establishing the
restructuring plan (described elsewhere herein), the hiring of new and
additional members of the executive management team, and for expenses incurred
in excess of the original provision for the consolidation of American Tourister
manufacturing facilities. Without such one-time expenses, SG&A would have been
29.9% of sales in the third quarter of fiscal 1997.
European operations SG&A increased by $1.7 million. The exchange rate
difference caused SG&A to decrease by $1.0 million. The remainder, an increase
of $2.7 million, results from an increase in SG&A expressed in Belgian francs of
15.0% from last year. The increase is due primarily to increased variable
selling and distribution costs due to higher sales levels, salaries and employee
benefits from staff additions, increased advertising expenditures, increased
product development expenses, and increased provisions for doubtful accounts.
U.S. SG&A increased from $29.0 million in the third quarter of last year to
$38.1 million in the current year, an increase of $9.1 million. The increase is
primarily due to increased advertising expenses ($2.4 million); increased retail
selling expenses associated with the increase in sales from last year ($3.6
million); increased provision for doubtful accounts due to the bankruptcy of a
major customer ($1.1 million); increased executive compensation, relocation, and
other hiring costs associated with additions to the executive management team
($1.2 million); and consulting expenses associated with the restructuring plan
($0.8 million) (see Provision for restructuring operations included herein).
17
SAMSONITE CORPORATION
MD&A (CONTINUED)
SG&A for the International operations increased by $1.3 million from last year
primarily due to the expenses incurred in new foreign joint venture operations
in Singapore, China, and India.
Amortization of intangible assets. The Company recorded significant intangible
assets as a result of its reorganization in 1993. See the comparative analysis
of amortization of intangibles included elsewhere herein.
Reorganization value in excess of identifiable assets was fully amortized as of
June 30, 1996, which accounts for the decrease in amortization of intangible
assets from $16.0 million last year to $2.2 million in the current year.
Provision for restructuring operations. The Company recorded a restructuring
provision of $10.7 million in the third quarter of fiscal 1997 as a result of a
restructuring program, approved by the Board of Directors and announced in
October 1996, to further consolidate functions and operations in North America,
Europe, and the Far East, and to reduce or eliminate certain other operations.
The restructuring is expected to be completed by October 1997. The
restructuring plan includes further consolidation of hardside luggage production
to Samsonite's largest U.S. facility located in Denver, CO from other locations
in the Americas, as well as eventual consolidation of many administrative and
control functions, again primarily to Denver. The Company will eliminate at
least 450 positions worldwide, including approximately 150 manufacturing
positions and approximately 300 managerial, office and clerical positions.
Annual estimated pretax cost savings from the restructuring program are expected
to be approximately $12.7 million. The restructuring provision consists
primarily of costs associated with involuntary employee terminations and
includes a cash expense of $9.7 million and a non-cash expense of $1.0 million,
both on a pretax basis. The lenders under the Company's Senior Credit Facility
have agreed not to consider the restructuring provision in the computation of
lending rates or financial covenants.
The foregoing estimate of annual cost savings constitutes a "forward looking
statement" within the meaning of the Private Securities Litigation Reform Act of
1995. Such forward-looking statement involves numerous assumptions, known and
unknown risks, uncertainties and other factors which may cause actual estimated
cost savings and future performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking information. Such factors include,
among other things, the following: achieving estimated staff reductions while
maintaining workflow in the functional areas affected; general economic and
business conditions; and competition.
Operating income. Operating income increased by $1.3 million from last year as
a result of the increases in revenues and increased gross profit of $10.3
million, the decline in amortization of intangibles of $13.8 million, which were
partially offset by increases in SG&A of $12.1 million and the restructuring
provision of $10.7 million.
Interest income. Interest income results from temporary investments of cash on
hand and is consistent with last year.
Interest expense and amortization of debt issue costs. Interest expense
decreased from $10.9 million last year to $9.1 million this year due primarily
to lower levels of outstanding indebtedness in the current year and lower
average interest rates. Current year interest expense includes $484,000 of
amortization of deferred debt acquisition costs.
18
SAMSONITE CORPORATION
MD&A (CONTINUED)
Other, net. See Note 6 to the consolidated financial statements for a
comparative analysis of other income (expense), net. The Company has entered
into certain forward exchange contracts to hedge its exposure to changes in
exchange rates. Other income for the three months ended October 31, 1996
includes income from such transactions of $0.3 million, $0.7 million of which is
unrealized income at October 31, 1996. The realization of such income is
subject to changes in exchange rates during the period prior to settlement of
the forward exchange contracts. Outstanding forward exchange contracts have
various settlement dates through January 1998.
Other income in the current year includes $11.1 million from the adjustment of a
previously recorded liability. See Note 6(c) to the consolidated financial
statements included elsewhere herein for a discussion of this item.
Income taxes. Income taxes increased from an expense of $4.1 million last year
to an expense of $4.2 million in the current year. The increase in the
effective tax rate from last year to the current year is due primarily to the
combined effects of higher other income in the current year and lower
nondeductible amortization of intangible assets in the current year. The
relationship between income tax expense or benefit differs from that expected by
applying the U.S. statutory tax rate to pre-tax income (loss) primarily because
of (i) the nondeductibility for tax purposes of amortization of reorganization
value in excess of identifiable assets, (ii) foreign income tax expense provided
on foreign earnings, and (iii) state income taxes.
Net income (loss). Net income (loss) increased from a loss of $(11.4) million
last year to income of $3.4 million this year, an improvement of $14.8 million.
The increase in net income is caused by the total of the increases in operating
income, other income, less the increase in income tax expense.
NINE MONTHS ENDED OCTOBER 31, 1996 ("FIRST NINE MONTHS OF FISCAL 1997" OR
"CURRENT YEAR") COMPARED TO NINE MONTHS ENDED OCTOBER 31, 1995 ("FIRST NINE
MONTHS OF FISCAL 1996" OR "LAST YEAR")
General. Results of European operations were translated from Belgian francs to
U.S. dollars for the nine months ended October 31, 1996 and 1995 at average
rates of approximately 30.73 and 29.39 francs to the U.S. dollar, respectively.
This represents a decrease in the value of the Belgian franc of 4.6%, which
results in decreases in reported sales, cost of sales and other expenses in
fiscal 1997 compared to last year. The most significant effects from the
difference in exchange rates from last year to the current year are noted in the
following analysis and referred to as an "exchange rate difference."
Net Sales. Total net sales increased to $553.1 million for the first nine
months of fiscal 1997 from $505.7 million for the first nine months of fiscal
1996, an increase of $47.4 million or 9.4%. Adjusted for the European exchange
rate difference, sales increased from last year by 11.3%
Sales from European operations increased from $200.9 million last year to $207.3
million in the current year, an increase of $6.4 million. The exchange rate
difference resulted in a $9.5 million decrease in reported sales versus last
year. The remainder, an increase of $15.9 million, represents an increase in
sales expressed in Belgian francs of 7.9% from last year. Despite a generally
weak European economy, sales have increased due to increased market share,
increased sales of diversified products, consumer acceptance of new product
lines, and a strong summer selling season.
U.S. operations sales increased from $245.8 million last year to $279.0 million
in the current year, an increase of $33.2 million or 13.5%. The increase is due
to continued broad consumer preference and demand for Samsonite brand products,
particularly lines of upright, lightweight softside luggage which were
redesigned in fiscal 1996. Additionally, the Company began sales in the third
quarter of fiscal 1997 of its new EZ CART(TM) product. Sales from the Company's
retail stores increased by $10.1 million or 25.9%, from $39 million last year to
$49.1 million in the current year. Same store sales increased by 9.3% from last
year.
19
SAMSONITE CORPORATION
MD&A (CONTINUED)
Sales from the International operations increased from $59.0 million last year
to $66.8 million in the current year, an increase of $7.8 million or 13.2%. Of
the change in revenues from last year, $3.9 million is due to revenue from the
sale of McGregor apparel tradenames in certain Pacific Rim countries. The
remainder is due primarily to increased sales from the Mexico City manufacturing
and distribution company.
Gross profit. Overall gross profit for the first nine months of 1997 increased
from last year by $19.5 million. Gross margin increased 0.2 percentage point,
from 39.2% last year to 39.4% in the current year.
Gross margins from European operations increased by 1.3 percentage points, from
37.5% last year to 38.8% in the current year. The improvement is due to price
increases in selected product lines, declining materials costs, and improving
productivity variances compared to last year.
Margins from U.S. operations decreased from last year by 1.0 percentage point
from 39.8% last year to 38.8% in the current year. The margin decline is
primarily due to lower margins on certain fast selling new product lines, an
increase in sales of obsolete goods at low margins, promotional sales of
selected products, negative productivity variances caused by the startup of
production of new hardside products, and a $0.7 million customer credit given on
certain American Tourister sales which were defective. Through the second
quarter of fiscal 1997, margins were less than last year by 2.1 percentage
points. The improvement as of the end of the third quarter results primarily
from discontinuing a promotional sale of selected products, a price increase
which was effective October 1, 1996, and product cost improvements.
Gross margin percentages from International operations, excluding the effect of
the sale of licenses, decreased from last year for the same reasons given for
the decline in U.S. margins.
Selling, General and Administrative Expenses ("SG&A"). Consolidated SG&A
increased by $20.9 million from the first nine months of fiscal 1996 to the
first nine months of fiscal 1997. As a percent of sales, SG&A was 31.5% in the
current year and 30.3% last year. Expenses totaling approximately $4.2 million
were incurred during the first nine months of fiscal 1997 in connection with
establishing the restructuring plan (described elsewhere herein), the cessation
of the former CEO's employment, the hiring of new and additional members of the
executive management team, and for expenses incurred in excess of the original
provision for the consolidation of American Tourister manufacturing facilities.
Without such expenses, SG&A would have been 30.7% of sales during the first nine
months of fiscal 1997.
European operations SG&A increased by $3.9 million. The exchange rate
difference caused SG&A to decrease by $2.6 million. The remainder, an increase
of $6.5 million, resulted from an increase in SG&A expressed in Belgian francs
of 12.1%. The increase over last year is due to variable selling and
distribution expenses, increases in advertising expenses, increases in salaries
and employee benefits due to staff additions and increases in group insurance
premiums and the impact of credits in the prior year of a reversal of
termination benefits accruals, an increase in the provision for doubtful
accounts due to financial difficulties of certain customers, and increases in
new product development costs.
SG&A for U.S. operations increased by $15.8 million in the first nine months of
fiscal 1997 over the same period last year primarily because of increased
advertising expenses ($4.0 million), increased retail selling expenses
associated with the increase in sales from last year ($6.4 million) , expenses
incurred in connection with the cessation of the former CEO's employment ($2.6
million), the retention of new and additional executive management ($2.0
million), increased provision for doubtful accounts ($0.6 million), and
consulting fees associated with the restructuring plan ($0.8 million), and a net
decrease in various other expenses of $0.6 million.
SG&A for the International operations increased by $1.2 million primarily due to
the expenses incurred in new foreign joint venture operations in Singapore,
China, and India.
20
SAMSONITE CORPORATION
MD&A (CONTINUED)
Amortization of intangible assets. The Company recorded significant intangible
assets as a result of its reorganization in 1993. See the comparative analysis
of amortization of intangibles included elsewhere herein.
Reorganization value in excess of identifiable assets was fully amortized as of
June 30, 1996, which accounts for the decrease in amortization of intangible
assets from $47.9 million last year to $29.6 million in the current year.
Provision for restructuring operations. See the discussion of this item
included elsewhere herein under Results of Operations for the Three Months Ended
October 31, 1996 Compared to the Three Months Ended October 31, 1995.
Operating income (loss). Operating results improved from a loss last year of
$(2.8) million to income this year of $3.3 million, an increase of $6.1 million.
This increase is a result of higher revenues which increased gross profit by
$19.5 million from last year and the decrease in amortization of intangibles of
$18.2 million, both of which were partially offset by increases in SG&A of $20.9
million and the provision for restructuring of $10.7 million.
Interest income. Interest income decreased from $4.1 million last year to $1.2
million this year. Last year interest income included $2.9 million realized
from a note receivable collected in connection with the sale of an investment in
a television station. Recurring interest income results from temporary
investments of cash on hand and is consistent with last year.
Interest expense and amortization of debt issue costs. Interest expense
decreased from $30.9 million last year to $27.1 million this year due to lower
levels of outstanding indebtedness in fiscal 1997 and lower average interest
rates.
Other, net. See Note 6 to the consolidated financial statements for a
comparative analysis of other income (expense), net. The Company has entered
into certain forward exchange contracts to hedge its exposures to changes in
exchange rates. Other income for the nine months ended October 31, 1996
includes income from foreign currency transactions of $2.5 million, $0.7 million
of which is unrealized at October 31, 1996. The realization of such income is
subject to changes in exchange rates during the period prior to the settlement
of the forward exchange contracts. Outstanding forward exchange contracts have
various settlement dates through January 1998. In the first nine months of last
year, such foreign exchange transactions resulted in a loss of $2.7 million.
Other income includes $3,802,000 from the favorable settlement for $200,000 of a
claim against the Company by a related party. The Company had previously
accrued $4,002,000 for such claim. This claim is part of the Contingent
Liability with Respect to the Old Notes described in Note 14 to the consolidated
financial statements included in the 1996 Form 10-K and relates to the claim for
interest on overdue installments of interest accruing prior to the commencement
of the bankruptcy of the Company's predecessor in 1993. The contingent
liability was recorded as part of the reorganization. The holders of this claim
were Apollo and an affiliate of Apollo. Apollo and its affiliates own 45.78% of
the outstanding shares of the Company's common stock. See "Legal Proceedings"
included elsewhere herein.
Other income in the current year includes $11.1 million from the adjustment of a
previously recorded liability. See Note 6(c) to the consolidated financial
statements included elsewhere herein for a discussion of this item.
Income taxes. Income taxes increased from $7.5 million last year to $8.6
million in the current year. The increase in tax expense is due to amounts of
pretax earnings from European and other foreign operations in the current year
versus last year, less nondeductible amortization of intangible assets in the
current year, and higher other income in the current year. The relationship
between income tax expense or benefit differs from that expected by applying the
U.S. statutory tax rate to pretax losses primarily because of (i) the
nondeductibility for tax purposes of amortization of reorganization value in
excess of identifiable assets, (ii) foreign income tax expense provided on
foreign earnings, and (iii) state income taxes.
Extraordinary loss. The extraordinary loss of $8.0 million last year resulted
from a loss on the early retirement of debt.
21
SAMSONITE CORPORATION
MD&A (CONTINUED)
Net loss. The net loss decreased from $42.2 million last year to $13.6 million
this year, a decrease of $28.6 million. The decrease in the net loss is caused
by the total of the increases in operating and other income and the decreases in
interest income and extraordinary loss, less the increase in income tax expense.
22
SAMSONITE CORPORATION
MD&A (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
One measure of liquidity is commonly referred to as Operating Cash Flow.
Operating Cash Flow is defined as operating income adjusted for noncash
operating expenses, including amortization and depreciation. The Company
believes that Operating Cash Flow provides useful information regarding the
Company's ability to incur and service debt, but that it should not be
considered a substitute for operating income or cash flow from operations
determined in accordance with generally accepted accounting principles.
Operating Cash Flow does not take into consideration substantial costs of doing
business, such as interest expense, and should not be considered in isolation to
other measures of performance. Operating Cash Flow for the nine months ended
October 31, 1996 and 1995 was computed as follows:
[Download Table]
Nine Months Ended October 31,
-----------------------------
1996 1995
------- -------
(In thousands)
Operating income (loss).................... $ 3,329 (2,811)
Fresh Start Amortization and Depreciation.. 31,607 50,167
------- ------
Operating income before Fresh Start
Amortization and Depreciation............. 34,936 47,356
Other Amortization and Depreciation........ 14,630 12,545
------- ------
Operating Cash Flow........................ $49,566 59,901
======= ======
Operating Cash Flow decreased by $10.3 million from last year. Operating Cash
Flow in the current year was negatively affected by the one-time effects of the
restructuring provision of $10.7 million and expenses totaling approximately
$4.2 million incurred during the first nine months of fiscal 1997 in connection
with establishing the restructuring plan (described elsewhere herein), the
cessation of the former CEO's employment, the hiring of new and additional
members of the executive management team, and for expenses incurred in excess of
the original provision for the consolidation of American Tourister manufacturing
facilities. The Company believes that the current level of Operating Cash Flow
is adequate to support its existing credit facilities and service the Company's
Series B Senior Subordinated Notes and other long-term obligations.
Another measure of liquidity is net cash provided by operating activities, as
reflected in the Consolidated Statements of Cash Flows included elsewhere
herein. Net cash provided by operating activities of $10.7 million for the
first nine months of fiscal 1997 and $16.4 million in the first nine months of
fiscal 1996, reflects net cash provided by operations of the Company after
taking into consideration the substantial costs of doing business not reflected
in Operating Cash Flow.
The decrease of $5.7 million in cash flows provided by operations, from $16.4
million last year to $10.7 million this year, resulted from an increase of $11.4
million in cash flow used to support working capital and other operating assets,
and an increase of $5.7 million in cash flows provided by operations, adjusted
for non-operating and non-cash charges.
Cash flow provided (used) by investing activities decreased from $79.5 million
last year to $(3.6) million this year. Last year's cash flow included the
receipt of $112.0 million from the discontinued water treatment business. Cash
flow provided from discontinued operations in the current year resulted from the
collection of accounts receivable related to the discontinued apparel business
and the collection of a receivable under a tax sharing agreement from the water
treatment business which was spun off in fiscal 1996. Cash flows provided by
"Other" investing activities includes $5.0 million received in the current year
from the substitution of a letter of credit for cash previously held under a
contractual escrow arrangement. Capital expenditures were $19.7 million in the
current year and $15.9 million last year.
23
SAMSONITE CORPORATION
MD&A (CONTINUED)
Cash flows used by financing activities decreased from $(137.3) million last
year to $(18.0) million this year, a decrease of $119.3 million. In the current
year, cash flow from financing activities includes $10.0 million from the
collection of a note receivable from the former CEO which was taken in exchange
for 425,532 shares of the Company's common stock in fiscal 1996. Last year's
cash flow from financing activities included $105.5 million of debt repayment
financed largely by the cash received from the discontinued water treatment
business.
At October 31, 1996, the Company had working capital of $122.6 million compared
to $99.5 million at January 31, 1996, an increase of $23.1 million. Current
assets increased by $20.8 million due to an increase of $40.5 million in
accounts receivable and inventory and a net decrease in cash and other current
assets of $19.7 million. The increase in accounts receivable and inventories is
primarily due to the cyclical nature of the Company's business. Accounts
receivable and inventory at October 31, 1996 are higher than at October 31, 1995
by $7.4 million and $19.0 million, respectively, because of higher sales levels
in the current year and inventory build up for the EZ CART(TM) and other
products in anticipation of the Christmas selling season. Accounts payable are
higher at October 31, 1996 by $5.9 million compared to October 31, 1995 due to
higher cost of sales and expense levels and improved payables management in
current year.
The Company's cash flow from operations together with amounts available under
its credit facilities were sufficient to fund its operations, scheduled payments
of principal and interest on indebtedness, and capital expenditures. At October
31, 1996, the Company had $112.1 million available under its Senior Credit
Facility. Management of the Company believes that cash flow from operations and
available borrowings under its credit facilities and new credit facilities in
emerging markets will be adequate to fund operating requirements and expansion
plans during the next 12 months. In addition, management currently believes the
Company will be able to meet long-term cash flow obligations from cash provided
by operations and other existing resources.
The Company's principal foreign operations are located in Western Europe, the
economies of which are not considered to be highly inflationary. When
appropriate, the Company will enter into foreign exchange contracts in order to
hedge its exposure on certain foreign operations primarily through the use of
forward delivery commitments. During the past several years, the Company's most
effective hedge against foreign currency changes has been the foreign currency
denominated debt balances maintained in respect to its foreign operations.
Geographic concentrations of credit risk with respect to trade receivables are
not significant as a result of the diverse geographic areas covered by the
Company's operations.
24
SAMSONITE CORPORATION
PART II - OTHER INFORMATION
---------------------------
Item I - Legal Proceedings
-----------------
Reference is made to Note 14 to the consolidated financial statements included
in the Company's Form 10-K Annual Report for the fiscal year ended January 31,
1996 which describes litigation, commitments, and contingencies.
Among the items described under Contingent Liabilities to Pension Benefit
Guaranty Corporation in that Note 14 was the Company's expectation that it would
enter into a final settlement agreement with the Pension Benefit Guaranty
Corporation and the sponsors of the Pension Plans (as described therein) to the
effect set forth in the McCrory Settlement Agreement (also as described therein)
during fiscal year 1997. Such a final settlement agreement was made as of June
20, 1996, and became effective when the Bankruptcy Court entered its order
approving the agreement on August 6, 1996. The Company has adjusted the
recorded liability for this matter as described in Note 6(c) to the consolidated
financial statements included elsewhere herein.
Also in that Note 14, under the heading Contingent Liability with Respect to the
Old Notes, reference is made to a claim of approximately $16.4 million for
interest on overdue installments of interest on notes payable accruing prior to
the commencement of the bankruptcy of the Company's predecessor. The Company
recorded a liability of $16.4 million as part of the reorganization. Of this
amount, approximately $12.4 million remains recorded in the consolidated
financial statements as a liability at October 31, 1996 as a result of the
settlement described in Note 6(b) to the consolidated financial statements
included elsewhere herein. In a hearing on November 14, 1996, the Bankruptcy
Court ruled in favor of the Company on a motion to disallow these claims on the
basis that compound interest was not allowed under applicable law at the time
the bond contracts were entered into. The ruling is subject to appeal, and the
Company has not made any adjustment to the recorded liability pending expiration
of the appeal period or completion of the appeal process.
The Company and certain of its subsidiaries are subject to or are defendants in
various other claims and actions arising in the ordinary course of business.
While it is not possible to predict the outcome of such other claims or actions,
it is management's opinion that, after discussion with counsel, the ultimate
disposition of these other claims and actions will not have a material adverse
effect on the Company's consolidated financial position.
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.
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) See Exhibit Index.
(b) Reports on Form 8-K.
Form 8-K dated as of November 8, 1996.
Item 5. Other Events - Restructuring Program.
25
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SAMSONITE CORPORATION
(REGISTRANT)
BY /S/ Thomas R. Sandler
--------------------------------------------
Name: Thomas R. Sandler
Title: Chief Financial Officer and Treasurer
Date: December 9, 1996
-----------------
26
SAMSONITE CORPORATION
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 July 14, 1995, between the Company and United
States Trust Company of New York./2/
4.2 Registration Rights Agreement dated July 14, 1995, by and among the
Company, Donaldson, Lufkin & Jenrette Securities Corporation, and
Bear, Sterns & Co., Inc./2/
4.3 Specimen of Notes described in the Indenture./2/
10.1 Fourth Amendment, dated as of October 15, 1996, to Credit Agreement,
dated July 14, 1995, among the Company and the Banks named therein
(excluding schedules and exhibits thereto).
10.2 Employment Agreement effective as of August 1, 1996 between the
Company and John P. Murtagh.
10.3 Employment Agreement effective as of September 16, 1996 between the
Company and Robert P. Baird, Jr.
10.4 Employment Agreement effective as of August 4, 1996 between the
Company and James E. Barch.
10.5 Employment Agreement effective as of September 10, 1996 between the
Company and Gary D. Ervick.
10.6 Stock Option Agreement effective as of August 1, 1996 between the
Company and John Murtagh.
10.7 Stock Option Agreement effective as of September 16, 1996, between
the Company and Robert P. Baird, Jr.
10.8 Stock Option Agreement effective as of August 5, 1996 between the
Company and James E. Barch.
10.9 Stock Option Agreement effective as of August 21, 1996 between the
Company and Gary D. Ervick.
11.1 Earnings Per Share Calculation
21 Subsidiaries of the Company
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, 1996 (File No. 0-23214).
/2/ Incorporated by reference from the Registration Statement on Form S-4
(Registration No. 33-95642).
27
Dates Referenced Herein and Documents Incorporated by Reference
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