**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

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**FORM 10-K**

**(Mark One)**

x        ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

 

**For the fiscal year ended January 31, 2006**

**OR**

o         TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

 

**For the transition periodfrom                             to                             **

**Commission file number 0-23214**

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**SAMSONITECORPORATION**

**(Exactname 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, Colorado**                     |   | **80239**           |
| (Address of principal executive offices) |   | (Zip Code)          |

 

Registrant’stelephone number, including area code: **(303)373-2000**

Securities registeredpursuant to Section 12(b) of the Act:

**None**

Securities registeredpursuant to Section 12(g) of the Act:

**CommonStock, par value $.01 per share**

(Titleof class)

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Indicate by check mark if theregistrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act. Yes o No x

Indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes o No x

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports) and (2) has been subject to such filing requirementsfor the past 90 days. Yes x No o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K. o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer or anon-accelerated filer (as defined in Rule 12b-2 of the Act). Seedefinition of “large filer” and “large accelerated filer” in Rule 12b-2of the Exchange Act. Large Accelerated Filer o  Accelerated Filer o  Non-accelerated Filer x

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o No x

As of May 5, 2006, theregistrant had outstanding 227,159,626 shares of Common Stock, par value $.01per share. The aggregate market value of such Common Stock held bynon-affiliates of the registrant, based upon the closing sales price of theCommon Stock on July 31, 2005, as reported on the OTC Bulletin Board wasapproximately $66.3 million. Shares of Common Stock held by each officerand director and by each person who owns 10 percent or more of theoutstanding voting stock have been excluded in that such persons may be deemedto be affiliates. This determination of affiliate status is not necessarily aconclusive determination for other purposes.

**Documents incorporated by reference:  **Portions of theregistrant’s definitive proxy statement for its 2006 Annual Meeting ofStockholders are incorporated by reference into Part III of this Form 10-K.Alternatively, we may file an amendment to this Form 10-K to provide suchinformation within 120 days at the end of the fiscal year covered by thisreport.

 

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**INDEX**
|                                                          | ** ** | ** **                                                                                                          | ** ** | **Page** |
|----------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|----------|
| **PART I**                                          |       |                                                                                                                |       |     |
| Item 1.                                                  |       | Business                                                                                                            |       | 3        |
| Item 1A.                                                 |       | Risk Factors                                                                                                        |       | 12       |
| Item 1B.                                                 |       | Unresolved Staff Comments                                                                                           |       | 20       |
| Item 2.                                                  |       | Properties                                                                                                          |       | 21       |
| Item 3.                                                  |       | Legal Proceedings                                                                                                   |       | 21       |
| Item  4.                                                 |       | Submission of Matters to a  Vote of Security Holders                                                                |       | 21       |
| **PART II**                                         |       |                                                                                                                |       |     |
| Item  5.                                                 |       | Market for Registrant’s  Common Equity, Related Stockholder Matters and Issuer Purchases of Equity  Securities |       | 22       |
| Item  6.                                                 |       | Selected Financial Data                                                                                             |       | 23       |
| Item  7.                                                 |       | Management’s Discussion and  Analysis of Financial Condition and Results of Operations                         |       | 24       |
| Item  7A.                                                |       | Quantitative and Qualitative  Disclosures About Market Risk                                                         |       | 40       |
| Item  8.                                                 |       | Financial Statements and  Supplementary Data                                                                        |       | 41       |
| Item  9.                                                 |       | Changes in and Disagreements  with Accountants on Accounting and Financial Disclosure                               |       | 41       |
| Item  9A.                                                |       | Controls and Procedures                                                                                             |       | 41       |
| Item  9B.                                                |       | Other  Information                                                                                                  |       | 41       |
| **PART III**                                        |       |                                                                                                                |       |     |
| Item  10.                                                |       | Directors and Executive  Officers of the Registrant                                                                 |       | 42       |
| Item  11.                                                |       | Executive Compensation                                                                                              |       | 42       |
| Item  12.                                                |       | Security Ownership of  Certain Beneficial Owners and Management and Related Stockholder Matters                     |       | 42       |
| Item  13.                                                |       | Certain Relationships and  Related Transactions                                                                     |       | 42       |
| Item  14.                                                |       | Principal Accountant Fees  and Services                                                                             |       | 42       |
| **PART IV**                                         |       |                                                                                                                |       |     |
| Item  15.                                                |       | Exhibits and Financial  Statement Schedule                                                                          |       | 43       |
| Signatures                                               |       | 44                                                                                                                  |
| Index to Consolidated  Financial Statements and Schedule |       | F-1                                                                                                                 |
| Index to Exhibits                                        |       | E-1                                                                                                                 |

 

**Important Notice:**

This Annual Report on Form 10-K (includingdocuments incorporated by reference herein) contains statements with respect tothe Company’s expectations or beliefs as to future events. These types ofstatements are “forward-looking” and are subject to uncertainties. See “Forward-LookingStatements” under Item 1.

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**PART I**

**Explanatory Note—Restatementof Financial Statements**

On May 3, 2006, wedetermined that our deferred tax asset valuation allowance at January 31,2003 was understated by approximately $5.8 million because of the incorrect useof deferred tax liabilities associated with indefinite lived intangible assetsto reduce the amount of valuation allowance computed for United States deferredtax assets. The error also had the effect of understating income tax expense byapproximately $0.6 million and $0.8 million for the years ended January 31,2005 and 2004, respectively. The Company has corrected the error by restatingits accumulated deficit at February 1, 2003, the fiscal 2005 and 2004consolidated financial statements, and quarterly data for fiscal 2005 and thefirst three quarters of fiscal 2006. We also restated other related financialdata presented in Items 6, 7, and 8 of this Annual Report on Form 10-Kwhich include Selected Financial Data, Management’s Discussion and Analysis ofFinancial Condition and Results of Operations and the consolidated financialstatements and accompanying notes to the consolidated financial statements.

**ITEM 1.**                BUSINESS

**General Development**

We are one of the world’s largest and most recognizeddesigners and distributors in the luggage industry, as well as one of theleading distributors of business, computer, outdoor, and casual bags. We sellour products under a number of well-known brand names, primarily *Samsonite*®*Black Label, Samsonite*®and *American Tourister*®, and licensed brandnames such as *Lacoste*®. We also intend to startdistributing licensed *Timberland*®products in calendar year 2006. With net sales of $966.9 million for our fiscalyear ended January 31, 2006, an increase of approximately 7.1 percent fromthe preceding fiscal year, we are the leader in the global luggage industry andsignificantly larger than any of our regional competitors. Our net sales forthe fiscal year ended January 31, 2005 were $902.9 million and our netsales for the fiscal year ended January 31, 2004 were $776.5 million. Ourcompound annual growth rate, or CAGR, on sales since the fiscal year ended January 31,2003 is 8.7 percent. In fiscal year 2006, we had consolidated net income beforepreferred stock dividends of $13.3 million, compared to a loss of $9.7 millionbefore preferred stock dividends in 2005 and net income of $2.8 million beforepreferred stock dividends in 2004. In fiscal year 2006, we had a net loss tocommon stockholders (after preferred stock dividends) of $1.5 million comparedto a net loss to common stockholders of $23.4 million and $28.3 million infiscal years 2005 and 2004, respectively.

Our product assortment includes product linesappealing to many types of consumers, from those focused on luxury under the *Samsonite**Black Label*product lines; quality, functionality and durability under the Samsonite lines;or value-consciousness under the American Tourister brand. In addition to usingour *Samsonite* and *AmericanTourister* brand names on the products we manufacture or distribute,we license these brand names to third parties for use on products that includetravel accessories, leather goods, furniture and other products.

Our principal corporate office is at 11200 East 45thAvenue, Denver, Colorado 80239, our telephone number is (303) 373-2000,and our main website is www.samsonite.com. In May 2006, we will open a newexecutive office in the United Kingdom at 4 Mondial Way, Harlington, MiddlesexUB3 5AR where our Chief Executive Officer and executives responsible for coreglobal functions will be partially based.

Our products are sold in more than 100 countries atvarious types of retail establishments including department stores, high streetshops and luggage specialty stores, mass merchants, warehouse clubs, computerand electronic superstores, office superstores, bookstores, and travel productstores. We also sell certain products through 284 Samsonite-operatedretail stores in North America, Europe, Asia and Latin 

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America, over 150shop-in-shop corners principally in Asia and 173 franchised retail stores,principally in India. 

In addition, our products are sold throughwww.samsonitecompanystores.com, www.Samsoniteblacklabel.com and the websites ofmany of our customers. We design the majority of our luggage products at ourfacilities in Europe, North America and Asia. Our products are produced bycarefully selected third party suppliers or Samsonite-operatedmanufacturing facilities. Sales in Europe, North America, and in our other markets(including Asia and Latin America) comprised 43.2 percent, 37.6 percent, and17.5 percent of our net sales, respectively, in fiscal year 2006. Licensingrevenues comprise the remaining 1.7 percent of total revenues. We wereincorporated in Delaware in 1987.

The following discussion relates to our business as awhole, except where discussion of a particular geographical business segment isuseful or informative. Financial information by business segment can be foundin Note 20 to the consolidated financial statements contained in this report.

Our fiscal year ends on January 31.References to a fiscal year denote the calendar year in which the fiscal yearended; for example, “fiscal 2006” refers to the 12 months ended January 31,2006. Our foreign subsidiaries generally have fiscal year ends of December 31and results are included through that date.

**Products andDevelopment**

We distribute a broad range of products that includesoftside, hardside and hybrid (combination hardside and softside) luggage,business and computer bags, and outdoor and casual bags, shoes, accessories andother related products.

Belowis our market positioning for each of our principal brands:

| **Brand Name**            | ** ** | ** ** | ** ** | **Percentage of Net Product Sales**Fiscal Year 2006 | ** ** | **Marketing Positioning** | ** ** | **Consumers**                      |
|---------------------------|------------|------------|------------|-----------------------------------------------------|------------|---------------------------|------------|------------------------------------|
| **Owned Brand Names:**    |       |       |       |                                                |       |                      |       |                               |
| *Samsonite Black Label*   |       |       | 0.8        | %                                                   |       | Luxury                    |       | Very affluent                      |
| *Samsonite*               |       |       | 72.5       | %                                                   |       | High-quality,  innovative |       | Upper income,  affluent            |
| *American Tourister*      |       |       | 13.7       | %                                                   |       | Quality and value         |       | Middle income and  value-conscious |
| **Licensed Brand Names:** |       |       |       |                                                |       |                      |       |                               |
| *Lacoste*                 |       |       | 5.0        | %                                                   |       | Sport luxury              |       | Affluent                           |
| *Timberland**             |       |       | 0.0        | %                                                   |       | Casual and  outdoor       |       | Affluent                           |
| Other                     |       |       | 8.0        | %                                                   | ** ** | ** **                |       |                               |
| Total                     |       |       | 100.0      | %                                                   |       |                      |       |                               |

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*                    There are nohistorical sales of Timberland licensed products. We expect to begin sellingTimberland licensed products in calendar year 2006.

*LicensedProducts.*   We license our trademarks primarilyfor use on related product categories that are made and sold by licenseeseither worldwide or in certain geographic regions. Our licensees are selectedfor competency in their product categories and usually sell parallel lines ofproducts under their own or other brands. Examples of licensed products includeleather business and computer cases, furniture products, travel accessories,photo and audio storage gear, personal leather goods, umbrellas, cellular phonecases, school bags, shoes and children’s products. Net sales include royaltiesearned and sales of licenses of $16.6 million, $19.9 million and $22.0 million,for the years ended January 31, 2006, 2005 and 2004, respectively. For theyears ended January 31, 2004 and 2005 we had royalties of $5.2 million and$4.9 

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million, respectively froma luggage manufacturer and distributor in Japan. In December 2004 thelicense agreement with our Japanese distributor lapsed and the Companyinitiated direct market sales in Japan.

Thefollowing table sets forth an overview of the percentage of our fiscal year2006 revenues from global sales of luggage, business and computer cases, andoutdoor and casual bags by product categories:

| **Product Category**                                          | ** ** | ** ** | ** ** | **Percentage of  Net Sales,  Fiscal Year  2006** | ** ** | **Principal Products**                                                 | ** ** | **Key Brands**          | ** ** | **Main Distribution Channels**                                                                         |
|--------------------------------------------------------------------|------------|------------|------------|--------------------------------------------------|------------|------------------------------------------------------------------------|------------|-------------------------|------------|--------------------------------------------------------------------------------------------------------|
| **Luggage**                                                        |       |       | 67.0       | %                                                |       | Hardside  and softside luggage, garment bags, carry on bags            | * *   | *Samsonite Black Label* |       | Direct  retail stores, specialty stores and high-end department stores                                 |
| ** **                                                         |       |       |       |                                             |       |                                                                   | * *   | *Samsonite*             |       | Mid-level department stores, specialty stores,  national chains, warehouse clubs, direct retail stores |
|                                                               |       |       |       |                                             |       |                                                                   | * *   | *American Tourister*    |       | National chains, mass merchants, specialty stores,  direct retail stores                               |
| **Outdoor  and Casual Bags**                                       |       |       | 12.0       | %                                                |       | Duffel bags, tote bags, backpacks, shoulder and hip  bags, school bags | * *   | *Samsonite, Lacoste*    |       | Specialty stores, department stores, national  chains, warehouse clubs, sport and outdoor retailers    |
| ** **                                                         |       |       |       |                                             |       |                                                                   | * *   | *American Tourister*    |       | National chains, mass merchants, specialty stores                                                      |
| **Subtotal  of Luggage & Outdoor & Casual Bags** | ** ** | ** ** | **79.0**   | %                                                |       |                                                                   |       |                    |       |                                                                                                   |
| **Business  and Computer Cases**                                   |       |       | 12.0       | %                                                |       | Briefcases, business cases, computer cases                             | * *   | *Samsonite Black Label* |       | Direct retail stores, specialty stores and high-end  department stores                                 |
|                                                               |       |       |       |                                             |       |                                                                   | * *   | *Samsonite*             |       | Department and specialty stores, office superstores,  OEMs, warehouse clubs                            |
|                                                               |       |       |       |                                             | * *   | * *                                                               |       | *American Tourister*    |       | Mass merchants                                                                                         |
| **Other**                                                          |       |       | 9.0        | %                                                |       | Small leather goods, footwear, clothing, travel  accessories           | * *   | *Samsonite Black Label* |       | Direct retail stores, high end department stores,  specialty stores                                    |
|                                                               |       |       |       |                                             |       |                                                                   | * *   | *Samsonite, Lacoste*    |       | Department stores, specialty stores,                                                                   |
|                                                               |       |       |       |                                             |       |                                                                   | * *   | *American Tourister*    |       | Department stores, specialty stores, mass merchants                                                    |
| Total                                                              |       |       | 100.0      | %                                                |       |                                                                   | * *   | * *                |       |                                                                                                   |

 

*Our productcategories are described below.*

*SoftsideLuggage.*   The softside luggage category includessuitcases, garment bags and soft carry-on suitcases. Approximately 89.0 percentof the softside luggage we sell is made for us by independent finished goodssuppliers located around the world. We produce the balance of our softsideluggage and 

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garment bags in our ownfacilities located in Eastern Europe. Our softside products are sold under allof our major brands.

Over the past few years, Samsonite has introduced anumber of innovative proprietary features in its softside luggage products inresponse to consumer demands for increased ease of use and better interiororganization, mobility and protection. An example is the SpaceMastercarry-on/tote designed to fit easily in airline overhead bins or under seats.

*HardsideLuggage.*   We manufacture most of our hardsidesuitcases in Company-owned factories. Our hardside luggage is sold underthe *Samsonite*, *SamsoniteBlack Label* and *American Tourister*brands. Each line includes a variety of sizes and styles to suit differingtravel requirements. We currently manufacture hardside suitcases using threebasic processes: injection moulding, vacuum forming and pressure forming. Twoof these processes require different types of plastic resin; the third usesproprietary, SRP (self-reinforcing polymer) laminates. Our hardside suitcasesinclude proprietary features to facilitate ease of packing and transport.

*HybridLuggage.*   We have introduced products thatinclude important proprietary designs and features of both the hardside andsoftside luggage. Generally, hybrid cases use our various polymer-mouldingtechnologies to form the structural, protective shell portion, with textile-basedsoft portions forming the rest of the product. *Hardlite*business cases and some *F’lite* travelproducts use our patented, proprietary process to mould sleek, tough polymerframes around laminated fabric panels to form extremely light shells.

*Businessand Computer Cases.*   We sell a variety ofbusiness and computer cases under our *Samsonite*, *Samsonite Black Label* and *AmericanTourister* brand names. We are pursuing innovations in lighter weightand more fashionable styles meeting the functionality requirements of moderntravellers. Our two latest introductions were a line of women’s computer bags,a line of casual business cases and a mobile office computer bag with Spinnerwheels. We design and have our suppliers manufacture our softside businesscases and computer cases. In addition, we license our brands to experiencedbusiness case distributors for the sale of certain products in the UnitedStates.

*Outdoor and Casual Bags.*   Theoutdoor and casual bag market includes duffel bags, casual luggage, tote bags,athletic bags, traditional backpacks, daypacks, and shoulder bags. We haveexpanded our business in this growing market by increasing distribution ofproducts under our licensed *Lacoste* brand. Additionally,the Company has licensed the *Timberland*brand to extend its reach in the outdoor and casual bag markets and expects tobegin distribution of *Timberland*products in calendar year 2006. We believe that by offering consumers a numberof product lines with varying styles and price points, we have the opportunityto capture a larger portion of this market.

**Regions and StoreLocations**

Our products are sold in more than 100 countriesaround the world from the retail locations of others, from our own stores inthe United States, over the Internet at www.samsonitecompanystores.com,www.Samsoniteblacklabel.com and at the websites of a number of our customers. Retailchannels of distribution primarily include department and specialty stores,national and mass merchant retailers, warehouse clubs and Company-operatedretail stores.

Sales of our products tend to be only moderatelyseasonal. Sales are slightly higher in the third and fourth quarters of fiscalyears when the back-to-school shopping season increases sales for backpack andcasual products and when holiday travel and shopping increases sales for ourtraditional luggage products.

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Asummary of net revenues follows:

| ** **                  | ** ** | **Net Revenues**               | ** ** |
|-----------------------------|------------|--------------------------------|------------|
| ** **                  | ** ** | **Fiscal Year 2006** | ** ** | **Fiscal Year 2005** | ** ** | **Fiscal Year 2004** | ** ** |
| ** **                  | ** ** | **(amounts in millions)**      | ** ** |
| Europe                      |       |                           | $          | 417.4 |   |   |   | 406.0 |   |   |   | 346.1 |   |   |
| North America               |       |                           | 363.9      |   |   |   | 343.0 |   |   |   | 306.6 |   |   |
| Asia                        |       |                           | 127.7      |   |   |   | 99.0 |   |   |   | 74.1 |   |   |
| Latin America               |       |                           | 41.8       |   |   |   | 36.1 |   |   |   | 29.5 |   |   |
| Corporate &  Other |       |                           | 16.1       |   |   |   | 18.8 |   |   |   | 20.2 |   |   |
| Total                       |       |                           | $          | 966.9 |   |   |   | 902.9 |   |   |   | 776.5 |   |   |

 

*Europe.*   Our*Samsonite* and *SamsoniteBlack Label* products in Europe are sold through specialty luggageand leather goods stores and department stores. We also sell our productsthrough 45 Company-operated Samsonite and *SamsoniteBlack Label* retail stores located throughout western and centralEurope. In order to preserve the premium image of the *Samsonite*brand, *Samsonite* brand products are notdistributed through discount retailers. Our *American Tourister*brand has been introduced in Europe as well as Asia to establish a singleglobal brand name in the discount channel (known in Europe as “hypermarkets”). Ourdirect sales and product demonstration force of approximately 130 people servescompanies with retail outlets throughout Europe.

In over 20 European markets where we do not have adirect sales force, we sell our products through distributors and agents. Thesedistributors and agents, as well as those mentioned under “Elsewhere in theWorld” below, handle various travel-related products in addition to ourproducts. Distribution agreements generally provide for mutual exclusivity,whereby distributors do not handle competitors’ luggage products and we do notsell to other distributors or agents in their territory.

*NorthAmerica.*   Our *Samsonite Black Label*products are sold in high-end department and specialty luggage stores. Our *Samsonite* and *American Tourister*branded products are sold in North America primarily through traditionalluggage retail distribution channels such as mid-level department stores andluggage specialty stores. Some national retailers and warehouse clubs carry *Samsonite* and *American Tourister*products uniquely designed for them. *American Tourister*products are primarily sold to middle income and value conscious consumersthrough discount channels such as mass merchants and factory outlets. Ourdirect sales force of approximately 30 professionals services our customers’retail outlets throughout North America.

We currently operate approximately 189 retail storesin North America that distribute *Samsonite* and *American Tourister* products designed specifically for thesestores, a variety of travel-related products, and our excess anddiscontinued products. In fiscal year 2006, approximately 32.4 percent of oursales in North America came from our retail stores.

*Asia.*   Wesell our products through 31 Company-operated Samsonite retail stores, over 150 Companyoperated “shop-in-shop” or “corners” in department stores and 173 non-Companyoperated franchise stores as well as specialty stores and travel stores. Wemarket directly in Japan, Korea, India, China, Hong Kong, Singapore, Taiwan andMalaysia. In other Asian markets where we do not market directly, we sellthrough distributors and agents. Our American Tourister brand is sold inselective Asian markets through hypermarkets, specialty stores and departmentstores. Products sold in the Asian markets are sourced from Europe and Asiadepending upon product type and availability. Revenues from Asian operationsincreased 29.0 percent from fiscal year 2005 to fiscal year 2006.

*LatinAmerica.*   Our *Samsonite and AmericanTourister* branded products are sold in Latin America primarilythrough traditional luggage retail distribution channels such as departmentstores and luggage specialty stores. Some national retailers and warehouseclubs carry *Samsonite and American Tourister*

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products uniquely designedfor them. We also operate 19 retail stores in Latin America that distribute *Samsonite and American Tourister* products, and provide aprofitable distribution channel to liquidate our excess and discontinuedproducts. Because *American Tourister* products areprimarily sold to middle income and value conscious consumers, discountchannels such as mass merchants and warehouse clubs are especially important tothe distribution of *American Tourister*branded products in Latin America. Revenues from Latin America increased 15.8percent from fiscal year 2005 to fiscal year 2006, and increased 22.4 percentfrom fiscal year 2004 to fiscal year 2005.

*Elsewhere in the World.*   Inmarkets outside Europe, North America, Asia and Latin America, we sell ourproducts either directly by export or through agents and distributors or underlicense. Products sold in these international markets are shipped from Easternand Western Europe or Asia depending upon product type and availability. Insome instances, we entered new markets through third party distributors andsubsequently acquired these third party distributors as the markets developed.

**DistributionChannels**

*Specialtystores.*   Our products are currently sold inspecialty luggage stores around the world. Sales through specialty storesrepresented approximately 26.1 percent of our net product sales in fiscal year2006, compared with 26.5 percent and 29.2 percent of our net product sales infiscal year 2005 and fiscal year 2004, respectively.

*Departmentstores.*   Our products are currently sold indepartment stores, such as Macy’s, Lane Crawford and Harrods. Department storesales represented approximately 22.3 percent of our net product sales in fiscalyear 2006, compared with 21.3 percent and 20.3 percent of our net product infiscal year 2005 and fiscal year 2004, respectively.

*Massmerchants.*   Our products are currently sold inmass merchant stores such as Wal-Mart in the United States and Auchan in Europe.Sales through mass merchant stores represented approximately 6.3 percent of ournet product sales in fiscal year 2006, compared with 5.4 percent and 5.2percent of our net product sales in fiscal year 2005 and fiscal year 2004, respectively.

*Officesuperstores.*   Our products are currently sold inoffice superstores such as Staples in the United States. Sales through officesuperstores represented 3.8 percent of our net product sales in fiscal year2006, compared with 4.8 percent and 4.5 percent of our net sales in fiscal year2005 and fiscal year 2004, respectively.

*Warehouseclubs.*   Our products are currently sold inwarehouse clubs, mostly in the United States such as Costco. Sales throughwarehouse clubs represented approximately 1.9 percent of our net product salesin fiscal year 2006, compared with 1.9 percent and 2.4 percent of our netproduct sales in fiscal year 2005 and fiscal year 2004, respectively.

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*Retail stores.*   Theremainder of our sales are realized through our network of directly operatedstores. We currently operate approximately 284 retail stores worldwide thatdistribute *Samsonite*, *SamsoniteBlack Label*, and *American Tourister*products designed specifically for these stores, a variety of travel-relatedproducts, and our excess and discontinued products. We operate over 150 shop-in-shopconcessions primarily in Asia. We have also entered into “franchise”arrangements with approximately 173 retailers that enable us to assist theretailer with store location, signage, and retail marketing in exchange forexclusive supply arrangements in Asia (mainly India, South Korea and China). Asummary of our store count follows:

| ** **                      | ** ** | **North**   | ** ** | **Latin**   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------|------------|-------------|------------|-------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                      | ** ** | **America** | ** ** | **America** | ** ** | **Asia**   | ** ** | **Europe** | ** ** | **Total**  | ** ** |
| Factory Outlet  Stores          |       |        | 172        |        |       |       | 9          |       |       |       | 3          |   |   |   | 31 |   |   |   | 215 |   |   |
| *Samsonite  Stores*             |       |        | 17         |        |       |       | 10         |       |       |       | 27         |   |   |   | 10 |   |   |   | 64 |   |   |
| *Samsonite  Black Label Stores* |       |        | —     |        |       |       | —     |       |       |       | 1          |   |   |   | 4 |   |   |   | 5 |   |   |
| **Company-Operated Stores**     | ** ** | ** **  | **189**    |        | ** ** | ** ** | **19**     |       | ** ** | ** ** | **31**     |   | ** ** | ** ** | **45** |   | ** ** | ** ** | **284** |   |   |

 

**Advertising**

Advertising resources arecommitted to brand advertising programs that promote the brand image andproduct features of our luggage and related products. Samsonite’s globaladvertising strategy is a fully integrated and targeted advertising effortthrough print, billboards, public relations, in-airport, on-line, and in-storeadvertising. During fiscal year 2006, we began to use an internationallyrecognized spokesperson, Sir Richard Branson, to globally advertise our Pro Dlxline in print. We will continue this strategy in calendar year 2006 with printadvertising featuring actress Isabella Rossellini promoting the new *Samsonite Black Label* Vintage collection, and the well-knownSpanish flamenco dancer, Joaquín Cortés, promoting the new *SamsoniteBlack Label X’Lite* products—the lightest, strongest products thatSamsonite has ever created. We assist our trade customers in adapting theiradvertising to our global advertising campaigns through various cooperativeadvertising programs. We employ other promotional activities to further supportour trade customers and increase product sales, including in-store point ofsale print support and display fixturing along with consumer loyalty programs. Atwww.Samsonite.com and www.Samsoniteblacklabel.com, we communicate our corporatemessage, product and brand image through an integrated global website. Infiscal year 2006 we spent approximately $70.8 million on advertising andmarketing promotion activities, an increase of 67.1 percent compared withfiscal year 2004. For the last five fiscal years we have expended, on average,in excess of $51.4 million annually in global communications, cooperativeadvertising programs, public relations, and promotional activities (such ascatalogues, point of display materials, trade shows and sales samples) tosupport the sale of our branded products.

**Manufacturing andSourcing Products**

We believe that our largesize and leading market position allows us to achieve volume driven purchasingand manufacturing economies of scale. Our global product-sourcing networkconsists of various third party finished goods suppliers located principally inAsia and Eastern Europe and Samsonite-operated manufacturing facilities. Ourglobal sourcing network enables us to obtain economies of scale by sourcingproducts from countries with low production costs while maintaining the samequality standards as are applied to the products we manufacture ourselves. Wecontinue to adjust our business model to reduce fixed manufacturing costs andto adopt a more variable cost model that increases the amount of goods sourcedfrom lower-cost production regions primarily in Asia. Over the past severalyears we have closed several manufacturing facilities in the United States,Mexico, Belgium and Spain. During fiscal year 2006, we disposed of a hardsidemanufacturing facility in Hénin-Beaumont, France. Our remaining manufacturingfacilities include hardside plants in Oudenaarde, Belgium and Nashik, India;and softside plants in Samorin, Slovakia and Szekszard, Hungary. Ourinitiatives are reflected in the ratio of 

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manufacturedsoftside products declining from 23.0 percent in fiscal year 2004 to 11.0percent in fiscal year 2006.

In fiscal year 2006, wepurchased 89.0 percent of our softside and hybrid products from third-partyvendors in Asia and Eastern Europe. We select different third-partyvendors to benefit from differences in manufacturing costs, payment terms andshipping costs. We do not rely on any single third-party vendor whoseloss would be material to us. The remaining 11.0 percent of our softside andhybrid products was produced in Company-operated factories. Further,substantially all of our hardside products are manufactured in our ownfacilities.

Softside luggage isprimarily made from fabric including nylon, polyester, and vinyl as well asaluminium, steel, plastics and leather. These materials are purchased fromvarious vendors throughout China and Taiwan and are readily available. Thehardside luggage is composed primarily of polypropylene, which we source fromtwo European suppliers, and various combinations of ABS (acrylinonitrilebutadiene styrene) and polycarbonate, which we source from suppliers in Indiaand Europe. None of these hardside materials is difficult for us to obtain asnumerous third party vendors exist.

We maintain a vigorousquality control program for goods manufactured at our own plants and at third-partyvendor facilities. New products are put through a series of simulation andstress tests to assure durability and strength. In our manufacturing facilitiesand our Asian quality assurance office, we use quality control inspectors,engineers and lab technicians to monitor product quality and productionstandards at vendors’ production facilities.

**Competition**

Competition in theworldwide luggage industry is very fragmented. We have several regionalcompetitors in each of our country markets (Europe, North America, LatinAmerica and Asia), but no other company competes on a global scale with us.

Throughout our regionalmarkets we compete based on brand name recognition, reputation for productquality, product differentiation, new product innovation, customer service,high-quality consumer advertising campaigns and quality to price comparisons. Weare well established in the distribution channels critical to luggagedistribution, which we believe gives us a competitive advantage.

The manufacture ofsoftside luggage is labor intensive but not capital intensive; therefore,barriers to entry by competitors in this market segment are relatively low. Thisis reflected by the many small competitors present in the softside luggagemarket. In addition, we compete with various large retailers, some of whom areour customers, who have the ability to purchase private-label softside luggagedirectly from low-cost manufacturers. The manufacture of hardside and hybridluggage is more capital intensive and there are relatively few finished goodsvendors; consequently, barriers to entry are relatively high. Nonetheless, wehave several competitors worldwide in the hardside luggage market.

**Customers**

Our customers include specialty stores featuring luggageproducts, major department stores that carry luggage, retail chain stores, massmerchants, office superstores, warehouse clubs, premium sales (sales direct tobusiness), Internet retailers and discounters. We also sell certain productsdirectly to consumers through Samsonite-operated retail stores in Europe,North America, Latin America and Asia and over the Internet at ourwww.Samsonitecompanystores.com and www.Samsoniteblacklabel.com websites. We donot depend on any single customer for more than 3.3 percent of our consolidatedrevenues.

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**ManagementInformation Systems**

We are in the process ofreplacing all of our various business information systems worldwide with theSAP Enterprise Resource Planning (ERP) system. This global system is a singleinstance of software, with Samsonite standardized templates, hosted by SAP inGermany. The standardized templates will help the Company assure data integrityand consistency of information collected from all entities. The pilotimplementation begins in June 2006 with our Canadian operations, followedby a planned U.S. implementation in the third quarter of 2006, and a plannedEuropean implementation in the fourth quarter of 2006. We intend to have PhaseI implementation complete on a worldwide basis by mid-2007. Our Phase IIimplementation will utilize SAP’s Retail solution and other systemenhancements. We expect Phase II implementation to be completed in the firstquarter of 2008.

**EnvironmentalMatters**

Our operations throughoutthe world are subject to federal, state and local environmental laws andregulations. These environmental laws and regulations govern the generation,storage, transportation, disposal and emission of various substances. We workto ensure that our existing operations comply fully with these laws andregulations. Although compliance involves continuing costs, the ongoing costsof compliance with existing environmental laws and regulations have not had,nor are they expected to have, a material effect upon our cash flow orfinancial position. From time to time we have incurred, or accrued for, cleanupor settlement costs for environmental cleanup matters associated, or alleged tohave been associated, with our historic operations. To date these expenses havenot had a material effect upon our cash flow or financial position. Unknown,undiscovered or unanticipated situations or events may require us to increasethe amount we have accrued for any environmental matters.

**Trademarks, Patentsand Product Development**

We are the registered owner of *Samsonite*®,*American Tourister*® and other trademarks.As of January 31, 2006, we had approximately 1,988 trademark registrationsand 210 trademark applications pending in the United States and abroad coveringluggage, travel equipment, apparel products and retail services. Our *Samsonite* and *American Tourister*trademarks are of material importance to our business. Our trademarkregistrations in the United States and elsewhere will remain in existence foras long as we continue to use and renew them on a timely basis.

We also own approximately 110 United States patentsand approximately 782 patents in selected foreign countries (i.e., patents ofinventions, industrial design registrations and utility models). In addition,we have approximately 323 patent applications pending worldwide. We pursue apolicy of seeking patent protection where appropriate for inventions embodiedin our products. The patents we hold provide barriers to competition inapplicable portions of our business, primarily associated with hardside andhybrid luggage products. Our patents and pending patent applications coverfeatures, designs and processes in most of our mid- and higher-priced productlines. Although some companies have sought to imitate some of our patentedproducts and our trademarks, we have generally been successful in enforcing ourworldwide intellectual property rights.

We devote significantresources to new product design, development and innovation. We estimate thatwe have spent on average $7.4 million per year over the last three fiscal yearson new product design and development. We start with market research toidentify consumers’ functional requirements and style preferences. Onceidentified, we employ designers and development engineers and work with outsidedesigners to develop new products that respond to those requirements and stylepreferences. We attempt to differentiate ourselves from our competitors byoffering products that are innovative and distinctive in style andfunctionality. During fiscal year 2006, we hired a new Creative Director withextensive 

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backgroundin the design of luxury bags and accessories and realigned all global designfunctions under his direction.

**Employees and LaborRelations**

At January 31, 2006,we had approximately 5,000 employees worldwide, with approximately 1,200 employeesin North America, 2,200 employees in Europe, 1,300 employees in Asia and 300employees in Latin America. In the United States, approximately 100 employeesare unionized under a contract that is renewed every three years and was mostrecently renewed in April 2005. At January 31, 2006 we employed inour European manufacturing plants approximately 800 workers located in Belgium andapproximately 700 workers in Slovakia and Hungary. In Europe, union membershipis not definitively known to Samsonite, as union membership is confidential andvaries from country to country. It is probable that most of our Europeanworkers are affiliated with a union, but we have no way of officiallyconfirming this. Most European union contracts have a one-year duration. Webelieve our employee and union relations are generally satisfactory.

**Forward LookingStatements**

The Private Securities Litigation Reform Act of 1995(the “Reform Act”) provides a safe harbor for forward-looking statementsmade by or on behalf of the Company. The Company and its representatives may,from time to time, make written or verbal forward-looking statements,including statements contained in the Company’s filings with the Securities andExchange Commission and in its reports to stockholders. Generally, theinclusion of the words “believe”, “expect,” “intend,” “estimate,” “anticipate,”“will,” and similar expressions (and their negatives) identify statements thatconstitute “forward-looking statements” within the meaning of Section 27Aof the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934 that are intended to come within the safe harbor protectionprovided by those sections. All statements addressing operating performance,events, or developments that the Company expects or anticipates will occur inthe future, including statements relating to advertising and marketingstrategy, sourcing strategy, sales growth, earnings or earnings per sharegrowth, and market share, as well as statements expressing optimism orpessimism about future operating results, are forward-looking statementswithin the meaning of the Reform Act. The forward-looking statements areand will be based upon management’s then-current views and assumptionsregarding future events and operating performance, and are applicable only asof the dates of such statements. The Company undertakes no obligation to updateor revise any forward-looking statements, whether as a result of newinformation, future events, or otherwise.

By their nature, allforward-looking statements involve risks and uncertainties. Actualresults may differ materially from those contemplated by the forward-lookingstatements for a number of reasons, including but not limited to the riskfactors set forth in Item 1A. Risk Factors.

**ITEM 1A.**        RISKFACTORS

***Events whichnegatively affect consumer travel levels, or a downturn in the economy,negatively affect our business.***

Demand for our products is affected by the public’sattitude towards the safety of travel, particularly air travel, theinternational political climate and the political climate of destinationcountries. Hostilities in the Middle East and other regions, events such asterrorist attacks and the threat of additional attacks, and the resultingpolitical instability and concerns over safety and security aspects oftravelling, may have an adverse impact on demand for our products.Additionally, the incidence or spread of contagious diseases (such as SevereAcute Respiratory Syndrome, commonly known as SARS, or Avian flu) may lead to ageneral reluctance by the public to travel, which could cause a decrease indemand for our luggage 

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products and, as a result,may have an adverse effect on our sales, results of operations and financialcondition.

Our sales levels are correlatedto general economic and business conditions in the global markets in which wesell our products. Our business is subject to economic conditions in our majormarkets, including recession, inflation, deflation, general weakness in retailand travel markets, and changes in consumer purchasing power. Any significantdeclines in general economic conditions or uncertainties regarding futureeconomic prospects that affect consumer spending habits could have a materialadverse effect on consumer purchases of our products and adversely affect oursales and gross profit margins.

***Our inability torespond to changes in consumer demands and market trends could adversely affectour sales.***

Our success depends on ourability to identify, originate and define product and market trends as well asto anticipate, understand and react to changing consumer demands in a timelymanner. Our future business prospects are dependent on our ability to enhanceour existing luggage products and accessories and to develop and marketinnovative new offerings that achieve market acceptance. Our products mustappeal to a broad range of consumers whose preferences cannot be predicted withcertainty and are subject to rapid change. The enhancement of our luggageproducts and development of additional products are subject to all of the risksassociated with new product development, including unanticipated delays, misjudgementof market trends, expenses or other difficulties that could result in theabandonment or substantial change in our product development projects and themarketing or acceptance of these enhancements or new offerings. In addition,failure to continually enhance our products and to keep pace with market trendscould result in a decrease in sales of our products.

***Our ability tocontinue our sales growth is dependent upon the further implementation of ourgrowth strategies, which we may not be able to sustain.***

During recent years, we have experienced a growth insales driven by our new products and geographical expansion strategies. Ourability to continue this growth is dependent on the successful continuation ofthese strategies. This includes diversification of our product offerings toinclude items beyond luggage, such as footwear and licensed products, andexpansion of our Company-operated Samsonite retail and outlet locations. Therecan be no assurance that the expansion of our product offerings will besuccessful or that new products will be profitable or generate sales comparableto those we have recently experienced or that our increased emphasis on growthin the luxury goods market will result in our brand names and productsachieving a high degree of consumer acceptance in that market. If we misjudgethe market for our products, we may be faced with significant excess inventoryfor some products and missed opportunities for other products.

Implementation of ourbusiness strategy also involves the continued expansion of our network ofCompany-operated retail stores around the world. Over the next two years, ourgoal is to open and operate directly or through franchises a number ofadditional Samsonite Black Label retail locations in large-market, fashionoriented international shopping districts in cities such as New York, Londonand San Francisco, as well as a number of additional Samsonite stores inhigh-traffic street locations and/or shopping malls. Our ability to continueopening these new store locations depends upon, among other things, our abilityto operate them at a profit, finance their opening and operations, secure themat reasonable rental rates and hire and train management and personnel to staffthe stores. If we cannot address these challenges successfully, we may not beable to expand our business or increase our revenues at the rate we currentlycontemplate.

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***Part of ourretail strategy relies upon our ability to lease quality locations atcompetitive prices. We may incur significant costs if our retail strategy failsand we are forced to close retail locations.***

We lease the majority of our Company-operated retailstores. We are planning to increase our network of Company-operated retailstores around the world. Accordingly, the success of this aspect of ourstrategy is in part dependent on our ability to secure affordable, long-termleases and to secure renewals of such leases. Additional Samsonite Black Labelretail stores will be located in areas typically associated with the sale ofluxury goods. Such properties are generally highly sought after, and we mayface intense competition from other companies for these locations. There can beno assurance that we will be able to purchase or lease desirable store locationsor renew existing store leases on acceptable economic terms.

In addition, we may besubject to potential financial risk associated with the cost of prematurelyterminated leases. Failure of the Company-operated retail stores to growrevenues as expected may oblige management to close a store (or stores) andthereby terminate a lease agreement prior to its expiration. Prematuretermination of a lease agreement may cause us to incur asset write-downs forstore lease acquisition costs, leasehold improvements, fixtures and fittings orinventory or incur a portion of the future lease costs after termination. Inaddition, it is possible that we may have to incur rental and other chargesafter closing such stores for undetermined periods up to the lease expiry date.

***We must be able tomaintain effective distribution channels that serve our customers’ purchasingpatterns, and satisfactory control of our wholesale and license distributionchannels is critical.***

The retail market, particularly in the United States,is marked by rapid changes in distribution channels and customer purchasingpatterns. Our products are sold through diverse distribution channels, from ourCompany-operated stores, through our website, and through retail locations ofothers, including department and specialty stores, national and mass merchantretailers, and warehouse clubs. Therefore, maintaining good relationships withsuperior distribution or joint venture partners and establishing newdistribution channels to better serve our customers’ purchasing patterns is keyto our continued success. Additionally, if distribution channel trends andpurchasing preferences change and we are not positioned to take advantage ofsuch changes, we could be excluded from important market segments and our salesand results of operations could be adversely affected.

To achieve thegeographical breadth that we are targeting, in some countries we enter intojoint ventures to run our business. There can be no assurance that such jointventures will prove successful. We also rely on our ability to control ourdistribution networks and licensees to ensure that our products are sold inenvironments consistent with our brand image. Any action by any significantwholesale customer or licensee, such as presenting Samsonite products in amanner inconsistent with our preferred positioning, could be damaging to ourbrand image. If, due to regulatory, legal or other constraints, we are in anyway unable to control our wholesale distribution networks and licensees, theSamsonite brand image, and therefore our results and profitability, may beadversely affected.

***Some of our productlines are manufactured under licensed trademarks and any failure to retain orrenew such licenses on acceptable terms may have an adverse effect on ourbusiness.***

Our license agreement withLacoste allows us to design, manufacture and market an extensive range ofluggage, bags and leather goods under the *Lacoste* brandname. Products sold under the *Lacoste*brand**name accounted for revenues of $47.4 million, or 5.0percent of our revenues, in fiscal year 2006. The Lacoste**licenseagreement requires us in each year to achieve increasing minimum**net sales of *Lacoste* brandedgoods in the various territories in which we have agreed to sell such goods. Ifthese minimum net sales are not achieved for two consecutive years in anyparticular territory, Lacoste**has the rightto terminate the license agreement with respect to that territory.Additionally, in fiscal year 2006, we entered into a license agreement with theTimberland Company, or Timberland, which allows us to design, 

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manufactureand market luggage, business and computer cases and backpacks under the *Timberland* brand name. The Timberland license agreementrequires us in each year to achieve increasing minimum**netsales of *Timberland* branded goods and to makeincreasing annual royalty payments to Timberland. If we do not achieve theseminimum net sales targets or make these royalty payments in any year,Timberland**has the right to terminate the licenseagreement or to refuse to renew the license agreement when it expires on December 31,2011. We may not be successful in maintaining or renewing the Lacoste orTimberland licenses, or other licenses which are of commercial value to us, onterms that are acceptable to us or at all. The loss of the Lacoste orTimberland licenses could have a material adverse affect on our business,results of operations and financial condition.

***Brand recognitionand image are important to the success of companies in our industry.***

Our financial performanceis influenced by the success of our brands, which, in turn, depends on factorssuch as product design, the distinct character of the products, the materialsused to manufacture the products, the image of our stores, communicationactivities, including advertising, public relations and marketing, and generalcorporate profile. Additionally, our business strategy relies, in part, uponthe successful carry-over of the *Samsonite* brandname to other product categories and the luxury goods market. Failure of the *Samsonite* brand name to carry-over to other products or theluxury goods market, or failure to maintain or increase the stature of ourpre-existing brands or to successfully develop new brands could have an adverseeffect on our operating results and financial condition.

***We may not be ableto realize the cost-saving benefits associated with the use of overseas thirdparty vendors, and our vendors may be unable to deliver products in a timelycost-effective manner or to meet our quality standards.***

A significant portion of our net sales is derived fromproducts which are manufactured by third party vendors, a majority of which arelocated in Asia and Eastern Europe. A significant change in these countries’economic policies could adversely affect our ability to manufacture ourproducts in such countries. The implementation of higher tariffs, quotas orother restrictive trade policies by those countries to which these third party vendorsexport their products could negatively impact the cost-saving benefits of theseoutsourced operations overseas. These factors could adversely affect ourability to maintain or commence low-cost operations outside the United Statesand the European Union. Additionally, the violation of labor or other laws byany of our third party vendors, or the divergence of third party vendors’labour practices from those generally accepted as ethical by us or others inthe United States and the European Union, could damage our reputation and forceus to find alternative manufacturing sources.

These third party vendors are subject to many risks,including foreign governmental regulations, political unrest, disruptions ordelays in shipments, changes in local economic conditions and trade issues.These factors, among others, could influence the ability of these third partyvendors to make or export our products cost-effectively or at all or to procuresome of the materials used in these products. We depend upon the ability ofthese vendors to secure a sufficient supply of raw materials, adequatelyfinance the production of goods ordered and maintain sufficient manufacturingand shipping capacity. Additionally, currency exchange rate fluctuations couldincrease the cost of raw materials or labor for these third party vendors,which they could pass along to us, resulting in higher costs and lower marginsfor our products, if we cannot pass these higher costs on to customers.

If any of these factorswere to render a particular country undesirable or impractical as a source ofsupply, there could be an adverse effect on our business. Our reliance on thesevendors and the lack of direct control over these operations could subject usto difficulty in obtaining timely delivery of products of acceptable quality.In addition, a vendor’s failure to ship products to us in a timely manner or tomeet our quality standards could cause us to miss the delivery daterequirements of our customers. The failure to make timely deliveries may causeour customers to cancel orders, refuse to accept deliveries, demand 

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reducedprices or reduce future orders, any of which could harm our sales, reputationand overall profitability.

***We are dependent onour trademarks and patents, and our products are and may continue to be thesubject of counterfeit reproduction.***

As a leading luggage manufacturer and retailer, we aredependent on our ability to protect and promote our trademarks, patents andother proprietary rights. We believe that our trademarks are adequatelysupported by applications for registrations, existing registrations and otherlegal protections in our principal markets. We own approximately 110 U.S.patents and approximately 782 patents (i.e., patents of inventions, industrialdesign registrations and utility models) in selected foreign countries. Inaddition, we have approximately 323 patent applications pending worldwide. Wepursue a policy of seeking patent protection where appropriate for inventionsembodied in our products. The patents we hold provide barriers to competitionin applicable portions of our business, primarily associated with hardside andhybrid luggage products. The loss of some or all of the protection of thepatents could make it easier for other companies to enter our markets andcompete against us by eroding our ability to differentiate our products. Wecannot exclude the possibility that our intellectual property rights may bechallenged by others or that we may be unable to register our intellectualproperty rights or otherwise adequately protect them in some jurisdictions. Inaddition, there can be no assurance that other companies will not be able todesign and build competing products in a manner that does not infringe our patents.

Furthermore, the luggageretail market is subject to numerous instances of product counterfeiting andother trademark infringements. A significant presence of counterfeit productson the market can negatively impact both the sales and the brand image of amanufacturer. Although we devote substantial resources on a worldwide basis tothe protection of our intellectual property rights including, when appropriate,taking legal action, there can be no assurance that the actions taken by us toestablish and protect the use of our intellectual property will be successful.The law and practice relating to the protection of intellectual property rightsvaries greatly from country to country and, as a result, our rights are morevulnerable in some jurisdictions than others. If any of our products are thesubject of widespread counterfeit production or other similar trademarkinfringements, our business, financial condition and results of operationscould be adversely affected.

***The luggage marketis highly fragmented; we face competition from many smaller competitors.***

We compete with manydomestic and international companies in our global markets. We compete based onbrand name recognition, consumer advertising, product innovation, quality,differentiation of product features, customer service and price. The worldwideluggage market is highly fragmented, meaning that we have many competitors. Ourproducts compete with other brands of products within their product categoryand with private label products sold by retailers, including some of our wholesalecustomers. We compete with numerous manufacturers, importers and distributorsof luggage, accessories and other products for the limited space available forthe display of these products to the consumer. Given the general availabilityof contract-manufactured products, barriers to entry into the manufacturing ofsoftside luggage are relatively low and we face competition from many low-costmanufacturers of inexpensive, softside luggage products. We cannot guaranteethat we will be able to compete effectively in the future in our markets.

***Failure to attract and retain key and qualifiedpersonnel may adversely affect our ability to conduct our business.***

Our future successdepends, in large part, on the efforts and abilities of our executive officersand design teams who execute our business strategy and identify and pursuestrategic opportunities and initiatives. In particular, we are highly dependenton the continued services of Marcello Bottoli, our President and ChiefExecutive Officer, and other executive officers and key employees who possess 

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extensiveindustry knowledge. We are a party to employment agreements with theseexecutives which provide for compensation and other benefits. The agreementsalso provide for severance payments under certain circumstances. The loss ofthe services of these persons for any reason, as well as any negative market orindustry perception arising from that loss, could have a material adverseeffect on our business. We may incur costs to replace key employees who leave, andour ability to execute our business model could be impaired if we cannotreplace departing employees in a timely manner. As the business grows, we willneed to attract and retain additional qualified personnel and develop, trainand manage an increasing number of management level, sales and other employees.We cannot guarantee that we will be able to attract and retain personnel asneeded in the future.

***Certain corporate transactions require the approval ofour major stockholders.***

Our three major stockholders and their affiliatescontrol approximately 85% of our voting stock. Samsonite is a party to a July 31,2003 Stockholders’ Agreement with the major stockholders and others relating tothe ownership rights and corporate governance of Samsonite. Pursuant to theterms of the Stockholders Agreement, the major stockholders have agreed to takeall actions in their power to elect nominees selected by the major stockholdersto our board of directors in the future. As a result, eight of the nine membersof our board of directors are nominees of the major stockholders. In addition,our ability to take certain actions, including amending our charter, commencingbankruptcy proceedings and taking certain corporate actions (including debtincurrences, stock issuances, acquisitions, asset sales and the like), issubject to the written consent of either all or two-thirds (depending on theaction) of the major stockholders so long as the major stockholderscollectively continue to hold 25% of our outstanding voting stock. Accordingly,for the foreseeable future, our major stockholders will exercise significantinfluence over our board of directors and business and operations.

The level of ownership ofthe voting stock by the major stockholders may have the effect of making moredifficult or of discouraging, absent the support of such major stockholders, aproxy contest, a merger involving Samsonite, a tender offer, an open marketpurchase program or purchases of Samsonite common stock that could give holdersof such stock the opportunity to realize a premium over the then-prevailingmarket price for their shares of common stock.

***The business of oursubsidiaries with international operations may be adversely affected byinternational business risks and fluctuations in currency exchange andtranslation rates.***

Approximately 63 percent of our net revenues forfiscal year 2006 were attributable to our European and other foreignoperations, which include significant operations throughout Asia and LatinAmerica, and approximately 37 percent of our net revenues for fiscal year 2006were attributable to our U.S. sales. In addition to our U.S. and Europeandistribution subsidiaries, we have wholly owned distribution subsidiaries inCanada, Latin America (Mexico, Colombia and Peru) and Asia (Singapore, HongKong, China, Japan, Taiwan and Malaysia). In March 2006, we purchased theminority partner interest in our Japanese joint venture and we now own 100percent of our Japanese subsidiary. We have manufacturing subsidiaries inBelgium, Eastern Europe (Hungary and Slovakia) and Asia (India). We are also apartner in joint ventures in Latin America (Brazil, Argentina and Uruguay) andAsia (South Korea and India). Our operations may be affected by economic,political, social and governmental conditions in the countries where we havemanufacturing facilities or where our products are sold. In addition, factorssuch as changes in economic or political conditions in any of the countries inwhich we operate could be impacted by unfavourable exchange rates, new oradditional currency or exchange controls, other restrictions being imposed onour operations, or expropriation.

Our financial conditionand results of operations may be adversely affected by fluctuations in thevalue of the U.S. dollar compared to the euro and other currencies. We faceforeign currency transaction risks. In fiscal years 2004, 2005 and 2006, 59.8percent, 61.8 percent and 62.5 percent, respectively, of our 

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revenueswere denominated in currencies other than the U.S. dollar.****Becausewe report our financial results in U.S. dollars, we also face a currencytranslation risk to the extent that the assets, liabilities, revenues andexpenses of our subsidiaries and joint ventures are denominated in currenciesother than the U.S. dollar. Most of those subsidiaries operates using thefunctional currency of the country in which it is located. During fiscal years2004 and 2005, our results of operations were positively impacted by thestrengthening of the euro and other foreign currencies relative to the U.S.dollar. While exchange rate fluctuations over the past several years have beento our benefit, future material fluctuations in the exchange rates of foreigncurrencies relative to the U.S. dollar could have a material adverse effectupon our business, financial condition or results of operations.

***Any materialweaknesses in our internal control over financial reporting could result in amisstatement in our financial statements.***

Our Chief ExecutiveOfficer and Chief Financial Officer have evaluated the effectiveness of ourdisclosure controls and procedures and concluded that, as of January 31,2006, we did not maintain effective internal controls over financial reportingbecause of a material weakness in our internal controls over accounting forincome taxes, including the calculation of deferred tax asset valuationallowances, which resulted in us having to restate our consolidated financialstatements for fiscal years 2005, 2004 and 2003. Because of the materialweakness, management concluded that disclosure controls were not effective asof January 31, 2006. To remediate the material weakness in controls overour accounting for income taxes, we have engaged an independent registeredpublic accounting firm (other than our auditors, KPMG LLP) to perform ananalysis of our internal controls over accounting for and disclosure of incometaxes and expect to implement recommendations that result from such analysis.Any material weaknesses in our internal control over financial reporting or ourfailure to remediate such material weaknesses could result in a misstatement inour financial statements not being prevented or detected and could adverselyaffect investor confidence in the accuracy and completeness of our financialstatements, as well as our stock price.

***Our business may beadversely affected if we encounter complications in connection with ourimplementation of SAP information management software.***

We are in the process ofreplacing all of our various business information systems worldwide with theSAP Enterprise Resource Planning (ERP) system. The pilot implementation beginsin June 2006, and we expect implementation of the entire system to becompleted in the first quarter of 2008. Any delay in the implementation of, ordisruption in the transition to our new or enhanced systems, procedures orcontrols, could harm our ability to accurately forecast sales demand, manageour supply chain, achieve accuracy in the conversion of electronic data andrecords and to report financial and management information on a timely andaccurate basis. Failure to properly or adequately address these issues couldresult in the diversion of management’s attention and resources and impact ourability to manage our business and our results of operations.

***If interest rates rise, our operating results maydecline due to higher borrowing costs.***

We have €100million ($121.5 million at January 31, 2006) of senior floating rate notesoutstanding, which bear an interest rate of Euribor plus 4.375 percent (6.848percent at January 31, 2006). In addition, our senior revolving creditfacility and the short-term credit lines that we use from time to time tofinance our European operations are floating rate obligations. At January 31,2006, we had borrowings under short-term credit lines of $9.4 million and noborrowings under our senior revolving credit facility. These amounts may varyfrom time to time throughout the year as our business needs fluctuate. Ifinterest rates rise, our interest expense will increase and our results ofoperations will be adversely affected.

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***We have a leveragedcapital structure which could adversely affect our financial health, ourability to service our indebtedness and to grow our business.***

As of January 31,2006 we had total indebtedness of $307.2 million and a stockholders’ deficit of$51.2 million. Our substantial debt could have consequences to securityholders, including:

·       itcould make it more difficult for us to satisfy our obligations on our publicdebt securities;

·       itmay require us to dedicate a substantial portion of our cash flow fromoperations to the payment of principal and interest on our indebtedness, whichwould reduce the cash flow available to us for operations, working capital,capital expenditures, acquisitions and general corporate purposes;

·       itmay limit our ability to obtain additional financing for working capital,capital expenditures, product development and general corporate purposes;

·       itmay make us more vulnerable in the event of a downturn in general economicconditions or in our industry; and

·       itmay limit our ability to adjust to changing market conditions and place us at acompetitive disadvantage to less-leveraged competitors.

There can be no assurancethat our cash flow and capital resources will be sufficient for us to makepayments on our indebtedness or meet our other obligations in the future. Ifour cash flow and other capital resources are insufficient, we may be forced toreduce or delay capital expenditures, sell assets, try to obtain additionalequity capital or refinance or restructure our debt, which among other thingscould potentially impair our growth strategy. There can be no assurance thatany of those alternatives would be successful or allow us to meet our scheduledobligations in the future.

***We are subject torestrictive covenants imposed by our existing credit facility, by theindentures governing notes wehave issued and by an agreement we are party to with Pension Benefit GuarantyCorporation.***

We completed a recapitalization to improve our capitalstructure on July 31, 2003. This recapitalization included, among otherthings, the entry by us into a $60 million revolving credit facility withGeneral Electric Capital Corporation, or GE Capital, KBC Bank N.V. and certainother lenders. This credit facility contains customary financial and operatingcovenants, including, among other things, restrictions on our ability to paydividends, incur indebtedness, merge, consolidate or transfer all orsubstantially all of our assets, make certain sales of assets, makeinvestments, make capital expenditures, create, incur or permit the existenceof certain liens, and engage in certain transactions with subsidiaries andaffiliates. In addition, it requires us to achieve and maintain certainfinancial ratios. Such covenants will affect our operating flexibility and mayrequire us to seek the consent of the lenders to certain transactions that wemay wish to carry out. The failure to comply with the covenants would result ina default and permit the lenders under our credit facility to accelerate thematurity of the indebtedness issued thereunder.

The indentures governing the terms of notes we haveissued contain numerous financial and operating covenants that, among otherthings, limit our and our subsidiaries’ ability to make certain payments andinvestments, including dividend payments, incur additional indebtedness orrepay indebtedness, repurchase or redeem our shares, create liens or otherencumbrances, sell or otherwise dispose of assets, merge or consolidate withother entities or engage in certain transactions with subsidiaries and affiliates.

Agreements governingfuture indebtedness could also contain significant financial and operatingrestrictions. A failure to comply with the obligations contained in ourindentures could result in an event of default under the indentures, whichcould permit acceleration of the notes and acceleration of debt under otherinstruments that may contain cross-acceleration or cross-default provisions. Weare not certain whether we would have, or be able to obtain, sufficient fundsto make these accelerated payments.

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We are party to anagreement with the Pension Benefit Guaranty Corporation, or PBGC, pursuant towhich we have granted to PBGC an equal and ratable lien in an amount of$17.3 million in the assets pledged as security under our credit facilityreferred to above. We have also agreed not to transfer any of our assets heldin the United States to any of our subsidiaries or other businesses outside ofthe United States (other than in the ordinary course of business) for the termof the agreement.

***The indenturesgoverning our senior and senior subordinated notes contain change of controlprovisions that could discourage a proposal for a takeover of us.***

The indentures governingour senior and senior subordinated notes provide that, upon a change of control(as defined in each of the indentures), we will be required to make an offer topurchase all outstanding notes at a price equal to 101 percent of the principalamount thereof plus accrued and unpaid interest thereon to the purchase date.As at January 31, 2006, the principal amount outstanding under our seniorand senior subordinated notes was $121.5 million and $174.9 million,respectively. The occurrence of certain of the events that would constitute achange of control would constitute a default under our credit facility andmight constitute a default under our other indebtedness. In addition, ourcredit facility prohibits the purchase of the notes by us in the event of achange of control unless and until such time as the indebtedness under ourcredit facility is repaid in full. In the event of a change of control, therecan be no assurance that we would have sufficient assets to satisfy all of ourobligations under our credit facility and the notes.

***We have significantunderfunded and unfunded U.S. post-retirement obligations, which couldadversely affect our liquidity.***

Our U.S. defined benefitpension plan is significantly underfunded. As is typical, our U.S. retireemedical plans are unfunded. Pension contributions and payments under ourretiree medical plans required to be made by us may decrease our availablecash. In addition, accounting rule changes have been proposed that would, ifadopted, have the effect of increasing the amount of the underfunding that weare required to take into account as a liability on our financial statements.

**ITEM 1B.**       UNRESOLVEDSTAFF COMMENTS

Not Applicable.

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**ITEM 2.**                PROPERTIES

Thefollowing table sets forth certain information relating to our principaloffices, warehouse and manufacturing properties and facilities. All of ourmanufacturing plants, in our opinion, have been adequately maintained and arein good operating condition. We believe that our existing facilities havesufficient capacity, together with sourcing capacity from third parties, tohandle our sales volumes for the foreseeable future. The Company’s headquartersin Denver share the same location as a distribution facility. On March 15,2005, the Company sold its Denver, Colorado campus to a third party. TheCompany leased back the office building, warehouse and retail store for twoyears with options to extend the office and warehouse leases for two additionalone-year periods. The owned plant and real estate in India is pledged assecurity on a loan.

| **Segment**                                     | ** ** | ** **                                                | ** ** | **Description** | ** ** | **Owned or Leased** | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------------|------------|-------------------------------|------------|
| **Corporate and Americas**                      |       |                                                      |       |            |       |
| Denver, CO                                      |       | Americas headquarters,  warehouse                         |       | Leased          |       |
| **Europe**                                      |       |                                                      |       |            |       |
| London, England                                 |       | Executive offices (as of  May 2006)                  |       | Leased          |       |
| Oudenaarde, Belgium                             |       | Manufacturing plant,  warehouse, sales and administration |       | Owned           |       |
| Szekszard, Hungary                              |       | Manufacturing plant                                       |       | Owned           |       |
| Samorin, Slovak Republic                        |       | Manufacturing plant                                       |       | Owned           |       |
| Saltrio, Italy                                  |       | Sales and administration                                  |       | Leased          |       |
| Madrid, Spain                                   |       | Sales and administration  offices                         |       | Leased          |       |
| **Asia**                                        |       |                                                      |       |            |       |
| Mumbai, India                                   |       | Office                                                    |       | Leased          |       |
| Nashik, India                                   |       | Manufacturing plant,  warehouse                           |       | Owned           |       |
| Ningbo, China                                   |       | Assembly plant,  warehouse                                |       | Owned           |       |
| Korea                                           |       | Office, warehouse                                         |       | Leased          |       |
| Singapore                                       |       | Office, warehouse                                         |       | Leased          |       |
| Hong Kong                                       |       | Office, warehouse                                         |       | Leased          |       |
| Bandar Sunway, Malaysia                         |       | Office, warehouse                                         |       | Leased          |       |
| **North America**                               |       |                                                      |       |            |       |
| Jacksonville, FL                                |       | Warehouse                                                 |       | Leased          |       |
| Stratford, Canada  (leased as of May 2006) |       | Warehouse                                                 |       | Leased          |       |
| Mansfield, MA                                   |       | Administrative, retail  stores                            |       | Leased          |       |
| **Latin America**                               | ** ** | ** **                                                | ** ** | ** **      | ** ** |
| Mexico City, Mexico                             |       | Office and warehouse                                      |       | Owned           |       |
| Buenos Aires, Argentina                         |       | Warehouse                                                 |       | Leased/Owned    |       |
| Uruguay                                         |       | Warehouse                                                 |       | Leased          |       |
| Sao Paulo, Brazil                               |       | Office                                                    |       | Leased          |       |

 

We also maintain numerousleased sales offices and retail outlets throughout the world.

**ITEM 3.**                LEGALPROCEEDINGS

The Company is a party tolegal proceedings and claims in the ordinary course of its business. TheCompany believes that the outcome of these matters will not have a materialadverse effect on its consolidated financial position, results of operations orliquidity.

**ITEM 4.**                SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

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**PART II**

**ITEM 5.**                MARKETFOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES

TheCompany’s common stock, par value $.01 per share (the “Common Stock”), istraded by dealers using the OTC Bulletin Board under the symbol “SAMC.OB”. Thetable below sets forth the high and low per share sale prices for the CommonStock for fiscal years 2005 and 2006 and through May 5, 2006 (as reportedon the OTC Bulletin Board). The closing price of the common stock on the OTCBulletin Board on May 5, 2006 was $1.13 per share.

| ** **                                      | ** ** | **High** | ** ** | **Low** | ** ** |
|-------------------------------------------------|------------|----------|------------|---------|------------|
| ***Fiscal  2006***                              |       |     |       |    |       |
| February 1,  2006 through May 5, 2006 |       | $1.20    |       | 0.79    |       |
| ***Fiscal  2006***                              |       |     |       |    |       |
| Fiscal quarter ended:                           |       |     |       |    |       |
| April 30, 2005                             |       | $        | 1.50       |    | 0.55       |   |
| July 31, 2005                              |       | $        | 1.04       |    | 0.75       |   |
| October 31, 2005                           |       | $        | 0.90       |    | 0.55       |   |
| January 31, 2006                           |       | $        | 0.95       |    | 0.58       |   |
| ***Fiscal  2005***                              |       |     |       |    |       |
| Fiscal quarter ended:                           |       |     |       |    |       |
| April 30, 2004                             |       | $        | 0.95       |    | 0.43       |   |
| July 31, 2004                              |       | $        | 1.70       |    | 0.70       |   |
| October 31, 2004                           |       | $        | 1.43       |    | 0.60       |   |
| January 31,  2005                          |       | $        | 0.96       |    | 0.71       |   |

 

As of May 5, 2006, the number of holders ofrecord of our Common Stock was 320.

The Company has paid nodividends on its common stock for the past two fiscal years. All holders ofshares of our Common Stock share ratably in any dividends declared by our Boardof Directors. The payment of dividends is at the discretion of our Board ofDirectors and will depend upon, among other things, the Company’s earnings,financial condition, capital requirements, extent of bank indebtedness andcontractual restrictions with respect to the payment of dividends. The terms ofour indebtedness, the certificate of designation for our convertible preferredstock, and the indentures for the senior floating rate notes and the 87¤8%senior subordinated notes currently contain provisions which limit our abilityto pay dividends on our common stock.

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**ITEM 6.**                SELECTEDFINANCIAL DATA

Theselected historical consolidated financial information presented below isderived from our audited consolidated financial statements and should be readin conjunction with “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and the Company’s consolidated financialstatements and related notes thereto included elsewhere in this Form 10-K.

| ** **                                                           | ** ** | **Year ended January 31,**                             | ** ** |
|----------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                           | ** ** | **2006**                                                              | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                           | ** ** | ** **                                                            | ** ** | **(restated)*** | ** ** | **(restated)*** | ** ** | **(restated)*** | ** ** | ** ** | ** ** |
| ** **                                                           | ** ** | **(in thousands, except per share amounts)** | ** ** |
| **Statement of Operations Data**                                     |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                                                            |       | $                                                                     | 966,886    |   |   | 902,896 |   |   |   | 776,451 |   |   |   | 752,402 |   |   | 743,082 |   |
| Gross Profit                                                         |       | $                                                                     | 470,381    |   |   | 417,014 |   |   |   | 347,907 |   |   |   | 321,294 |   |   | 299,282 |   |
| Gross Margin  Percentage                                             |       | 48.7                                                                  | %          |   | 46.2 | % |   |   | 44.8 | % |   |   | 42.7 | % |   | 40.3 | % |
| Operating Income                                                     |       | $                                                                     | 73,035     |   |   | 65,735 |   |   |   | 67,690 |   |   |   | 68,739 |   |   | 20,767 |   |
| Net Income (Loss)                                                    |       | $                                                                     | 13,321     |   |   | (9,698 | ) |   |   | 2,751 |   |   |   | (2,455 | ) |   | (33,554 | ) |
| Preferred Stock Dividends  and Accretion of Preferred Stock Discount |       | $                                                                     | (14,831    | ) |   | (13,683 | ) |   |   | (31,055 | ) |   |   | (42,837 | ) |   | (37,505 | ) |
| Net Loss to  Common Stockholders                                     |       | $                                                                     | (1,510     | ) |   | (23,381 | ) |   |   | (28,304 | ) |   |   | (45,292 | ) |   | (71,059 | ) |
| Weighted Average  Common Shares Outstanding—Basic and Diluted   |       | 226,587                                                               |       |   | 224,764 |   |   |   | 122,842 |   |   |   | 19,863 |   |   | 19,809 |   |
| Loss per Common  Share—Basic and Diluted                        |       | $                                                                     | (0.01      | ) |   | (0.10 | ) |   |   | (0.23 | ) |   |   | (2.28 | ) |   | (3.59 | ) |
| **Balance  Sheet Data (as of end of period)**                        |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and Cash  Equivalents                                           |       | $                                                                     | 85,448     |   |   | 56,378 |   |   |   | 29,524 |   |   |   | 22,705 |   |   | 69,390 |   |
| Property, Plant  and Equipment, Net                                  |       | $                                                                     | 89,100     |   |   | 98,810 |   |   |   | 114,471 |   |   |   | 112,895 |   |   | 113,317 |   |
| Total Assets                                                         |       | $                                                                     | 567,251    |   |   | 563,083 |   |   |   | 501,888 |   |   |   | 493,664 |   |   | 529,864 |   |
| Long-Term  Obligations (including Current Installments)              |       | $                                                                     | 297,832    |   |   | 338,841 |   |   |   | 327,567 |   |   |   | 423,155 |   |   | 472,373 |   |
| Stockholders’  Deficit                                          |       | $                                                                     | (51,213    | ) |   | (56,342 | ) |   |   | (29,385 | ) |   |   | (470,447 | ) |   | (401,399 | ) |
| Cash Dividend Declared  per Common Share                             |       | $                                                                     | —     |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |

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*                    The Companyhas restated its consolidated financial statements for its fiscal years ended January 31,2005, 2004 and 2003 to correct an error in computing its deferred tax assetvaluation allowance. See Note 2 to the consolidated financial statementsincluded elsewhere herein.

The Company has implemented various restructuringplans and incurred restructuring charges in each of its fiscal years 2002through 2006, which may affect the comparability of the selected historicalconsolidated financial information presented above, and the comparability ofsuch information to future years’ financial information. See “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” forfurther discussion of the fiscal 2006, 2005 and 2004 restructurings.

Certain reclassifications have been made to theconsolidated financial statements for the years ended January 31, 2005,2004, 2003 and 2002 to conform to the January 31, 2006 presentation. SeeNote 1 to the consolidated financial statements contained elsewhereherein.

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**ITEM 7.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion summarizesthe significant factors and events affecting results of operations and thefinancial condition of the Company for each of the years in the three yearsended January 31, 2006, 2005 and 2004 and should be read in conjunctionwith the selected financial data, the consolidated financial statements of theCompany and notes thereto beginning on page F-1. References to afiscal year denote the calendar year in which the fiscal year ended; forexample, “fiscal 2006” refers to the 12 months ended January 31, 2006(or December 31, 2005 in the case of foreign operations). The Company’soperations consist primarily of the design, manufacture and distribution ofluggage, as well as business, computer, outdoor and casual bags. We sell ourproducts under a number of brand names, primarily *Samsonite®* and *AmericanTourister®*, and licensed brand names including *Lacoste®*. The Company also licenses itsbrand names and is involved with the design and sale of footwear. Thediscussion is organized under the following headings: Restatement of FinancialStatements, Executive Overview, Results of Operations, Liquidity and CapitalResources, Off-Balance Sheet Financing and Other Matters, Critical AccountingPolicies and New Accounting Standards.

**Restatement ofFinancial Statements**

As discussed in Note 2 tothe accompanying consolidated financial statements, we have restated ourconsolidated financial statements as of and for the fiscal years ended January 31,2005 and 2004 and other related financial data presented in Management’sDiscussion and Analysis of Financial Condition and Results of Operations tocorrect an error related to deferred income tax expense and net deferred incometax assets.

**Executive Overview**

The Company had significantly improved results forfiscal 2006 compared to the prior year. The Company believes these results wereachieved as a result of progress made in executing its strategic plan and improvedeconomic conditions affecting travel activities in many regions of the world.

The Company’sbusiness plan involves the following strategies:

·       Increasingsales by positioning Samsonite as an elite, lifestyle brand by improvingproduct assortment, acquiring complementary brands, expanding geographically,and maintaining investment levels in high-impact promotional activities.

·       Increasinggross profit margins by assuring that new product introductions carry highermargins than the products they are replacing, expanding Samsonite’s presence inthe higher price-point and higher margin luxury segment of the market, makingprice increases where possible, and leveraging economies of scale in our supplychain to generate efficiencies and lower fixed costs.

·       Controllingand re-qualifying SG&A expenses from non-sales generating expenses ingeneral and administrative cost to growth generative investments in brandsupport and promotion and retail expansion.

·       Improvingcash flow through enhancements in operational performance and a reduction inworking capital levels achieved by streamlining product lines, optimizinginventory levels and aggressively managing customer credit and vendor paymentterms.

Consolidated revenues for the year ended January 31,2006 increased to $966.9 million from $902.9 million in the prior year, anincrease of $64.0 million or 7.1%. The increase in sales primarily resultedfrom improved worldwide travel activities. The sales increase was also drivenby increased spending on brand and product support, with global sales andadvertising spending increasing from 

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$57.2 million in theprior year to $70.8 million in fiscal 2006. New product lines and productinnovation also fueled sales growth, most notably the Lacoste casual bag lineand the popular Spinner four-wheel system incorporated into many of our bestproduct lines. Economies in Asia, the United States and Latin America were verystrong with high consumer confidence and spending levels on business andpleasure travel. Growth in our large European sales has slowed from historiclevels as many economies in Western Europe were affected in fiscal 2006 by highunemployment and lower consumer spending levels. European consumer preferencesare also trending toward softside luggage and casual bags versus hardsideluggage. The Company’s direct retail sales in the United States that arepredominantly through factory outlet stores were adversely affected by ageneral slowdown in the factory outlet mall business we believe was the result primarilyof higher gasoline prices, although retail operating margins were better.

Operating income increased from $65.7 million infiscal 2005 to $73.0 million in fiscal 2006. Execution of the strategic plan toimprove margins resulted in a 250 basis point increase in gross profit marginsfrom 46.2% in the prior year to 48.7% in fiscal 2006. Consolidated gross profitwas $470.4 million in fiscal 2006 compared to $417.0 million in the prior year.Operating income for the current fiscal year is after deduction forrestructuring charges and expenses of $11.2 million and asset impairmentcharges of $5.4 million. These charges relate primarily to the disposal ofa manufacturing plant in France. Selling, general and administrative expenseswere higher than the prior year by $39.7 million, an increase of 11.6%. Theincrease is due primarily to increased advertising and promotion expenses of$13.6 million, expenses related to implementation of a new ERP (EnterpriseResource Planning) system of $6.1 million, an increase in stock and deferredcompensation expense of $1.5 million, and increased variable expenses associatedwith higher sales levels. The net loss to common stockholders was $1.5 millionin fiscal 2006 compared to $23.4 million in the prior year.

The Company also made progress in reducing the numberof SKU’s (stock keeping units) associated with its core product lines, reducingthe level of days outstanding for accounts receivable, and extending paymentterms to suppliers. In absolute dollar terms and adjusted for translation ratesfrom last year to this year, both inventory and receivable levels are up somewhatbecause of the expanded Lacoste and Black Label product lines and higher saleslevels. Working capital (accounts receivable plus inventory less accountspayable) improved by approximately $30.8 million primarily because of extendingvendor payment terms. At January 31, 2006, the Company had cash on hand of$85.4 million and total debt of $307.2 million. This compares to cash on handof $56.4 million and total debt of $354.3 million at January 31, 2005. Duringfiscal 2006, the Company retired $30.1 million of its 87¤8%senior subordinated notes as a result of improved cash flow from operations. Availabilityon our revolving senior credit facility at January 31, 2006 was €22million and $35.0 million.

The Company plansto continue execution of the above described strategic business plan andbelieves it has significant opportunities for future improvements toconsolidated sales, margins and working capital. Key challenges the Companyfaces in executing its strategic plan in fiscal 2007 include the following:

·       Successfulexpansion into the luxury luggage and casual bag market through the *Samsonite Black Label* and *Lacoste*brand names.

·       Successfulmodification of our retail business model to operate stores under threedifferent platforms: Samsonite Black Label, Samsonite, and Samsonite andAmerican Tourister Factory Outlets.

·       Successfulexecution of our direct entry into the Japan market and certain emergingmarkets where we are negotiating new joint ventures with existing distributors.

·       Successfulpromotion of our European sales through more rapid product introductions andimproved marketing and advertising.

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·       Successfulimprovement of supply chain logistics, including better economies of scale andfurther reduction of fixed manufacturing costs.

The successful executionof the Company’s strategic business plan is subject to the risks anduncertainties as described elsewhere herein under Item 1A. Risk Factors.

**Results ofOperations**

For purposes of this management’s discussion andanalysis of operations, we are analyzing our net sales and operations asfollows: (i) “Europe” operations, which include European sales,manufacturing and distribution, wholesale and retail operations; (ii) the “NorthAmerica” operations, which include U.S. Wholesale, U.S. Retail sales andCanada operations; (iii) “Latin America” operations, which includeoperations in Mexico, Brazil, Argentina and Uruguay; (iv) “Asia”operations, which include the sales, manufacturing and distribution operationsin India, China, Singapore, South Korea, Japan, Taiwan and Malaysia; and (v) OtherOperations which include certain licensing activities and Corporateheadquarters. In May 2006, the Company opened a London office where itsChief Executive Officer and certain other key executives will be located.

Certain reclassificationshave been made to the consolidated financial statements for the years ended January 31,2005 and 2004 to conform to the January 31, 2006 presentation. SeeNote 1 to the consolidated financial statements contained elsewhereherein.

**Fiscal 2006Compared to Fiscal 2005**

*Sales.**   The following is a summary ofthe Company’s revenues by geographic area:*

| ** **    | ** ** | **Year ended  January 31,** | ** ** |
|---------------|------------|---------------------------------------|------------|
| ** **    | ** ** | **2006**                              | ** ** | **2005** | ** ** |
| ** **    | ** ** | **(in millions)**                | ** ** |
| Europe        |       | $                                     | 417.4      |   | 406.0 |   |
| North America |       | 363.9                                 |       | 343.0 |   |
| Asia          |       | 127.7                                 |       | 99.0 |   |
| Latin America |       | 41.8                                  |       | 36.1 |   |
| Other         |       | 16.1                                  |       | 18.8 |   |
| **Total**     |       | $                                     | 966.9      |   | 902.9 |   |

 

On a U.S. dollar basis, sales from European operationsincreased to $417.4 million in fiscal 2006 from $406.0 million infiscal 2005, an increase of $11.4 million, or 2.8%. Changes in currencytranslation rates from fiscal 2005 to fiscal 2006 had a very small effect onreported European sales. Expressed in the local European currency (euros),fiscal 2006 sales increased by 3.0%, or the U.S. constant dollar equivalent(calculated using the prior year average translation rate) of$12.2 million, from fiscal 2005. The increase in European sales isattributable to the southern and eastern European countries where we postedsales increases from the prior year. This overall increase in European salesoccurred despite weak or flat economic conditions throughout the westernEuropean countries and the United Kingdom where sales declined from the prioryear. Fiscal 2006 sales trends were away from structured hardside and softsideluggage sales, which declined by a combined 5% and towards casual and outdoorproduct sales, which increased by 28% over the prior year. Sales of *Lacoste* brand products accounted for much of the increase inthe sales of casual bag products. European sales continue to be concentrated inthe department and specialty store channels, which accounted for approximately70% of total European sales in both fiscal 2006 and 2005. Sales through ourCompany-operated retail stores accounted for approximately 9% of European salesin both fiscal 2006 and 2005. The Company had 50 retail stores open throughoutEurope at the end of fiscal 2006.

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Sales from the North America operations increased to$363.9 million in fiscal 2006 from $343.0 million in fiscal 2005, anincrease of $20.9 million, or 6.1%. The United States and Canada enjoyedstrong economies during fiscal 2006 and increased demand for air travel. Thestrong economy coupled with increased advertising and promotional expenses andwell-accepted new product offerings contributed to an 11.7% increase in U.S.wholesale sales, which increased from $203.5 million to $227.3 million. Fiscal2006 sales trends were away from hardside luggage, which declined to 6.2% ofNorth American sales in fiscal 2006 from 8.1% in fiscal 2005, and towardsoftside luggage, which increased to 71.5% of North American sales in fiscal2006 from 67.0% in fiscal 2005. Sales of casual and outdoor bags were approximatelythe same as the prior year. Business and computer case sales declined byapproximately 6.1% from the prior year. Sales through traditional distributionchannels (department and specialty stores) increased by $9.4 million, or12.5%, over the prior year; sales in non-traditional channels (exclusive label,mass merchants, warehouse clubs, office product superstores) increased by $9.0million, or 10.6% over the prior year as the Company strategically terminatedeconomically unattractive relationships with select OEMs and certain retailers.Sales in the traditional channel and non-traditional channels were about 41%and 55%, respectively, of total wholesale sales in both fiscal years 2006 and2005. Our U.S. retail sales, which are primarily through Company-operatedfactory outlet stores, declined by $3.8 million, a decrease of 3.1%. Sales infactory outlet stores were adversely affected by higher gas prices and pricediscounting at urban and suburban malls. U.S. wholesale and retail sales werehelped by consumer acceptance for the Spinners product (a four wheel systemwhich is featured in several different product lines). In our company-operatedretail stores, comparable store sales for fiscal 2006 increased by 0.7%. Comparablestore sales increase is calculated by dividing aggregate sales for stores openfor each full month in the current year by aggregate sales for the same storesopen for the corresponding full month in the prior year. Stores must be openfor 13 months before they are included in the calculation. Relocated stores(within the same mall location) and remodeled stores are included in thecomputation of comparable store sales. When a store is closed, its sales are nolonger included in the comparable store calculation. There were 189 company-operatedretail stores at January 31, 2006 and 2005. Canadian sales increased by$0.9 million from $16.5 million in fiscal 2005 to $17.4 million in fiscal 2006.

Sales from Asia operations increased to $127.7 millionin fiscal 2006 from $99.0 million in fiscal 2005, an increase of$28.7 million or 29.0%. The increase in sales is primarily due to highersales in South Korea and China, which increased by $5.9 million and $4.9million, respectively. Asian sales growth resulted from an increase in thenumber of retail stores and the introduction of new product lines during theyear.

Sales increased in all our Latin America operations to$41.8 million in fiscal 2006 from $36.1 million in the prior year, or15.8%. Sales in Mexico and Brazil increased $2.6 million and $1.4 million,respectively, due to improved category management, economic conditions, andconsumer acceptance of new products.

The decrease in Other revenues of $2.7 millionwas primarily due to the termination of an agreement with a Samsonite licenseein Japan, which caused royalty revenues to decline by $4.5 million. Otherrevenues also include a $3.2 million gain on the sale of certain appareltrademark rights.

*GrossProfit.**  *TheCompany includes the following types of costs in cost of goods sold: directproduct purchase and manufacturing costs, duties, freight-in, receiving,inspection, internal transfer costs, and procurement and manufacturing overhead.The Company includes the following types of costs in selling, general andadministrative expenses (“SG&A”): warehousing, order entry, billing,credit, freight-out, warranty, salaries and benefits of administrative andsales personnel, rent, insurance, taxes, office supplies, professional fees,travel, communications, advertising, investor relations, public companyexpenses and other expenses of a general and administrative nature not directlyrelated to the cost of acquiring or manufacturing its products. Othercomparable companies may include warehousing, freight-out and other types ofcosts that the Company includes in SG&A in cost of goods sold. For the yearended January 31, 2006 and 2005, the Company had warehousing andfreight-out expenses of $56.4 million and $55.1 million, respectively.

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Consolidated gross profit in fiscal 2006 was$470.4 million compared to $417.0 million in fiscal 2005, an increaseof $53.4 million. Consolidated gross margin as a percentage of salesincreased by 250 basis points to 48.7% in fiscal 2006 from 46.2% in fiscal2005.

Gross margins for Europe increased to 47.5% in fiscal2006, from 45.0% in the prior year period, an increase of 250 basis points. Grossmargin percentages increased for the year due primarily to sales priceincreases and increased product sourcing from the Far East at lower productcosts and reduction of fixed manufacturing costs from restructurings.

Gross margin percentage for North America increased to43.2% in fiscal year 2006, from 41.7% in the prior year period, an increase of150 basis points. This increase is primarily due to an increase in U.S. Wholesalegross margin percentage to 33.5% in the current year from 31.1% in the prioryear, which is a result of price increases and increased sales in higher marginchannels. U.S. Retail gross profit margins increased to 61.5% in fiscal 2006compared to 58.9% in fiscal 2005, due primarily to price increases and a changein product offerings to higher margin products.

Gross margin for Asia increased to 60.5% in fiscal2006, from 56.4% in the prior year, an increase of 410 basis points. Theincrease is primarily due to price increases and increased sales within highermargin sales channels such as department stores.

Gross margin for Latin America increased to 51.7% infiscal 2006, from 45.3% in the prior year, an increase of 640 basis points. Theincrease was primarily driven by stronger local currencies, which results inhigher reported sales and lower product costs on purchases paid for in U.S.dollars.

*Selling,General and Administrative Expenses (“SG&A”).**  *Consolidated SG&A in fiscal2006 was $381.2 million compared to $341.5 million in fiscal 2005, anincrease of $39.7 million or 11.6%. The Company includes warehousing andfreight-out costs in selling, general and administrative expenses, whilecomparable companies may include such costs in costs of goods sold. For theyears ended January 31, 2006 and 2005, the Company had warehousing andfreight-out expenses of $56.4 million and $55.1 million, respectively.

SG&A for Europe increased by $4.2 million,primarily due to a $4.3 million increase in advertising expense and a $2.5million increase in variable selling expense and other SG&A expense of $0.3million, offset by reductions of $1.3 million in bad debt expense and $1.6million in other administrative expense. The bad debt provision was reducedbecause improved enforcement of credit terms and better collection efforts havereduced exposure to bad debts.

SG&A for North America increased by approximately$4.7 million due to increased advertising expense of $2.9 million, increasedwarehousing costs of $1.0 million and various other increases of $0.8 million.

SG&A for Asia increased by $19.3 million due to$7.9 million of expenses from the Japanese joint venture operations, increasedadvertising and promotional expense of $5.9 million, and increased variableselling expenses associated with higher sales levels. Operations of the Japanjoint venture had not commenced in the prior year so its SG&A wasincremental to total Asian SG&A in fiscal 2006.

SG&A for Latin America increased by $3.4 milliondue primarily to variable selling expenses associated with higher sales levelsand higher advertising levels.

SG&A for the corporate headquarters and licensingincreased by approximately $8.1 million due to ERP system implementationexpenses of $5.7 million that were not incurred in the prior year, an increasein pension expense of $3.2 million, an increase in stock and deferredcompensation expense of $1.5 million, an increase of $1.0 million for globalmarketing and design, offset by a decrease in consulting expense of $2.2million and various other decreases totaling $1.1 million.

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*Provisionfor Restructuring Operations and Asset Impairment Charge.**  *The Company recorded restructuringcharges totaling $11.2 million and asset impairment charges of $5.4 millionduring fiscal year 2006, primarily in the European segment, including $1.2million of restructuring related expenses that are included in cost of sales.

A restructuring and impairment charge was incurred inconnection with the August 31, 2005 sale of the Henin-Beaumont, Francefacility (the “H-B site”). The Company made cash payments to the purchaser of$9.9 million and has an additional payment obligation of $1.4 million in 24months, all of which relates to the assumption by the purchaser of the Company’sliability and responsibility for employee pension and social costs for the 206employees at the H-B site. A restructuring charge of $8.6 million was recordedrelated to these payments, which represents the amount of the cash paymentobligations less amounts previously accrued for pension liabilities for the H-Bsite employees. The Company also incurred legal and consulting costs ofapproximately $1.2 million related to the sale of the H-B site that areincluded in cost of sales. An asset impairment charge of $5.4 million was alsorecorded upon the decision to sell the H-B site for the write-off of the netbook value of the H-B site property, plant and equipment sold to the purchaser.In connection with the sale, the Company agreed to purchase luggage productsfrom the purchaser of the H-B site for a period of 24 months following the sale.The Company estimates that the sale of the plant will result in the eliminationof annual fixed manufacturing overhead of approximately $5.2 million, whichincludes $1.4 million of depreciation expense.

The Company also relocated its softside developmentcenter from Torhout, Belgium to its Oudenaarde, Belgium facility and eliminatedthe remaining positions at its Tres Cantos, Spain manufacturing facility. Eachfacility had been significantly downsized and restructured over the pastseveral years. A restructuring charge of $1.4 million was recorded related toseverance obligations for 18 employees terminated as a result of theseactions. Annual savings of manufacturing overheads of approximately $0.5million are expected. No additional costs are expected to be incurred duringfiscal 2007 related to the closure of the Torhout and Tres Cantos facilities.

The restructuring and impairment charges relate to thesale of the Company’s hardside manufacturing facility in France and theshutdown of its Torhout, Belgium and Tres Cantos, Spain facilities, part of theCompany’s continuing efforts to reduce fixed manufacturing costs by closinginefficient facilities and increasing the amount of products sourced fromlow-cost manufacturing regions of the world.

*InterestExpense and Amortization of Debt Issue Costs.**  *Interest expense declined to$30.5 million in fiscal 2006 from $35.2 million in fiscal 2005. Thedecline in interest expense is due to lower interest rates and debt levels. Duringfiscal 2006, the Company retired $30.1 million of the 87¤8% seniorsubordinated notes. In connection with the retirement of the notes, the Companyincurred costs of $2.7 million which were charged to other expense for marketpremiums of $2.1 million and the write-off of $0.6 million of deferredfinancing costs. Interest expense includes $2.5 million of amortization ofdebt issuance costs in fiscal 2006 and $2.4 million in fiscal 2005. Duringthe second quarter of fiscal 2005 the Company completed a refinancing of theCompany’s senior subordinated notes. To refinance the 103¤4% notes and topay the tender and redemption premiums of $13.7 million, the Companyissued €100 millionof senior floating rate notes due in 2010 and $205.0 million of 87¤8%senior subordinated notes due in 2011. A total of $8.0 million of deferredfinancing costs were incurred in connection with the issuance of the floatingrate senior notes and the 87¤8%senior subordinated notes. In connection with the refinancing, costs of $17.8 millionwere charged to other expense for redemption premiums of $13.7 million and thewrite-off of $4.1 million of deferred financing costs.

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*Other Income(Expense)—Net.**  *Thefollowing is a comparative analysis of the components of Other Income (Expense)—Net.

| ** **                                                                   | ** ** | **Year ended  January 31,** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                   | ** ** | **2006**                              | ** ** | **2005** | ** ** |
| ** **                                                                   | ** ** | **(in millions)**                | ** ** |
| Net gain (loss)  from foreign currency forward delivery contracts            |       | $                                     | 1.2        |   | 0.4 |   |
| Gain (loss) on  disposition of fixed assets, net                             |       | (0.1                                  | )          | 0.8 |   |
| Foreign currency  transaction gains (losses)                                 |       | (0.5                                  | )          | 0.6 |   |
| Pension expense                                                              |       | (2.8                                  | )          | (2.8 | ) |
| Redemption  premium and expenses on retirement of senior subordinated  notes |       | (2.7                                  | )          | (17.8 | ) |
| Due diligence  costs                                                         |       | (2.8                                  | )          | (0.7 | ) |
| Other, net                                                                   |       | (2.2                                  | )          | (4.1 | ) |
|                                                                         |       | $                                     | (9.9       | ) | (23.6 | ) |

 

Net gain (loss) from forward foreign currency deliverycontracts represents the net of realized and unrealized gains and losses onhedges of the Company’s earnings from its European operations. These hedges donot qualify for hedge accounting treatment under SFAS 133 and are marked tomarket at the end of each accounting period. During fiscal years 2006 and 2005the Company had realized gains (losses) of $2.2 million and $(0.2) million andunrealized gains (losses) of $(1.0) million and $0.6 million, respectively.

Foreign currency transaction gains (losses) includedin other income (expense) represent the gain or loss on intercompany payablesand receivables denominated in currencies other than the functional currency.Foreign currency gains (losses) on settlement of accounts receivable or payablerelated to operational items are recorded in cost of sales.

Pension expense represents the actuarial determinedpension cost associated with the pension plans of two companies unrelated toour operations whose pension obligations were assumed by us as a result of a1993 agreement with the Pension Benefit Guaranty Corporation. The plans werepart of a controlled group of corporations of which we were a part prior to1993. For a further discussion of pension plan expense, see “Pension Plans”under Critical Accounting Policies.

As noted under “Interest Expense”, the Companyincurred redemption premiums of $2.1 million and wrote-off deferred financingexpenses of $0.6 million in fiscal 2006 related to the retirement of $30.1 millionof subordinated notes. In fiscal 2005, the Company charged $17.8 million toother income (expense) related to the refinancing of its outstandingsubordinated notes.

Due diligence costs in fiscal 2006 and 2005 relate toaccounting and legal costs incurred to perform due diligence on two potentialacquisitions, neither of which were completed.

Other, net expense decreased to $2.2 million infiscal 2006 from $4.1 million in fiscal 2005 due to costs in the prioryear associated with the initial investment in the Japan joint venture of $1.0million and expenses of $0.7 million incurred to settle a claim for anenvironmental matter related to the manufacturing and office building siteoccupied by the Company until the late 1960s in Denver, Colorado.

*Income Taxes.**  *Income tax expense increased to$16.5 million in fiscal 2006 from $13.7 million in fiscal 2005. Theincrease in income tax expense is due to higher income before taxes in Asia andLatin America and a higher effective tax rate in Europe. The difference betweenexpected income tax expense, computed by applying the U.S. statutory rate toincome from continuing operations, and income tax expense recognized resultsprimarily because of (i) the tax rate differential on foreign earnings,(ii) permanent differences for stock compensation, (iii) state incometaxes, (iv) the change in the valuation 

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allowance primarilyattributable to U.S. net operating losses that do not provide a benefit, and(v) U.S. taxes on foreign dividends and deemed dividends.

*PreferredStock Dividends and Accretion of Preferred Stock Discount.**  *This item represents the accrual ofdividends on the outstanding 8% convertible preferred stock issued in the 2003recapitalization. Dividends have accrued on the preferred stock since July 31,2003 and compound quarterly. The increase in dividends of $1.1 million infiscal 2006 compared to fiscal 2005 is due to the compounding effect of accrueddividends.

*Net Loss to CommonStockholders.**  *Thenet loss to common stockholders decreased to $1.5 million in fiscal 2006from $23.4 million in fiscal 2005, and the net loss per common sharedeclined to $0.01 in fiscal year 2006 from $0.10 per share in fiscal year 2005.The weighted average number of shares of common stock outstanding used tocompute loss per share in fiscal years 2006 and 2005 was 226,587,304 and224,764,006, respectively. The Company had 227,159,626 shares of common stockoutstanding as of January 31, 2006.

**Fiscal 2005Compared to Fiscal 2004**

*Sales.**  *The following is a summary of theCompany’s revenues by geographic area:

| ** **    | ** ** | **Year ended  January 31,** | ** ** |
|---------------|------------|---------------------------------------|------------|
| ** **    | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| ** **    | ** ** | **(in millions)**                | ** ** |
| Europe        |       | $                                     | 406.0      |   | 346.1 |   |
| North America |       | 343.0                                 |       | 306.6 |   |
| Asia          |       | 99.0                                  |       | 74.1 |   |
| Latin America |       | 36.1                                  |       | 29.5 |   |
| Other         |       | 18.8                                  |       | 20.2 |   |
| **Total**     |       | $                                     | 902.9      |   | 776.5 |   |

 

On a U.S. dollar basis, sales from European operationsincreased to $406.0 million in fiscal 2005 from $346.1 million infiscal 2004, an increase of $59.9 million, or 17.3%. Expressed in thelocal European currency (euros), fiscal 2005 sales increased by 7.3%, or theU.S. constant dollar equivalent of $25.1 million, from fiscal 2004. Theincrease in sales was caused by a generally stronger economic climate in mostEuropean countries, with the exception of Germany, and an increase in airtravel from prior year levels, which had been negatively affected by the SARSepidemic and the armed conflict in Iraq. Product sales increased in the luggageand structured bags category and the casual bag category. Hardside productsales declined by 4.1%. Consumer preference in Europe continues to trendtowards softside products. Two of our largest European customers, Gold-Kroneand Karstadt, experienced financial difficulties during fiscal 2005, whichnegatively impacted sales. We continue to sell to the individual members of theGold-Krone buying group and Karstadt’s situation has improved as a resultof its financial restructuring initiatives.

Sales from the North America operations increased to$343.0 million in fiscal 2005 from $306.6 million in fiscal 2004, anincrease of $36.4 million, or 11.9%. The increase was primarily due to anincrease in U.S. Wholesale sales of $28.6 million, an increase in U.S.Retail sales of $6.1 million and an increase in Canada sales of$1.7 million. U.S. Wholesale sales increased to $203.5 million infiscal 2005 from $174.9 million in the prior year, an increase of 16.4%. Prioryear sales were negatively affected by a decrease in U.S. travel as a result ofthe armed conflict in Iraq. U.S. Wholesale sales were higher in the departmentstore, mass merchant and specialty product channels and lower in the warehouseclub channel. Sales in the U.S. Retail division increased to$123.1 million in fiscal 2005 from $117.0 million in the prior yeardue to price increases associated with higher quality products, an improved mixof accessory related 

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items, and increasedadvertising. In our company stores, same store sales for fiscal 2005 increasedby 5.4%. Comparable store sales is calculated by dividing aggregate sales forstores open for each full month in the current year by aggregate sales for thesame stores open for the corresponding full month in the prior year. Storesmust be open for 13 months before they are included in the calculation. Relocatedstores (within the same mall location) and remodeled stores are included in thecomputation of comparable store sales. When a store is closed, its sales are nolonger included in the comparable store calculation. As of January 31,2005, there were 182 company-owned retail stores, compared to 202 storesat January 31, 2004.

Sales from Asian operations increased to$99.0 million in fiscal 2005 from $74.1 million in fiscal 2004, anincrease of $24.9 million or 33.6%. The increase in sales is primarily dueto higher sales in South Korea, Hong Kong and India. Sales in many areas ofAsia in the prior year were adversely affected by the SARS epidemic scare.Asian sales growth also resulted from an increase in the number of retailstores and the introduction of new product lines during the year. In January 2005,we executed a joint venture agreement with a local partner in Japan to commenceoperations as a direct sales marketer in Japan. Previously the Japanese marketwas served under a license agreement with another luggage manufacturer.

The increase in sales of Latin America to$36.1 million in fiscal 2005 from $29.5 million in the prior year, or22.4%, was primarily due to improved Mexican, Brazilian and Argentineeconomies, expansion of direct sales efforts in several areas, and the successof new product developments.

The decrease in licensing revenues of$1.4 million is primarily due to a non-recurring $1.8 million royaltyreceived in the prior year upon the settlement of a trademark infringementaction against a third party.

*GrossProfit.**  *TheCompany includes the following types of costs in cost of goods sold: directproduct purchase and manufacturing costs, duties, freight-in, receiving,inspection, internal transfer costs, and procurement and manufacturingoverheads. The Company includes the following types of costs in selling,general and administrative expenses (“SG&A”): warehousing, order entry,billing, credit, freight-out, warranty, salaries and benefits of administrativeand sales personnel, rent, insurance, taxes, office supplies, professionalfees, travel, communications, advertising, investor relations, public companyexpenses and other expenses of a general and administrative nature not directlyrelated to the cost of acquiring or manufacturing its products. Consolidatedgross profit in fiscal 2005 was $417.0 million, compared to$347.9 million in fiscal 2004, an increase of $69.1 million. Consolidatedgross margin as a percentage of sales increased by 1.4 percentage pointsto 46.2% in fiscal 2005 from 44.8% in fiscal 2004. Higher margins and grossprofit in fiscal 2005 compared to fiscal 2004 were primarily due to (i) lowercosts in Europe and Asia from the effect of a stronger European currency onproduct costs paid for in U.S. dollars, (ii) the continued effects ofshifting production and product sourcing to lower cost countries, (iii) thereduction in fixed manufacturing costs through the Company’s operationalrestructuring activities, and (iv) increased sales from Company-operatedretail stores which carry higher margins. Also, in the fourth quarter of fiscal2005, the Company began an initiative with the goal of decreasing its number ofworldwide inventory SKUs (stock keeping units) by 25% by the end of fiscal2006. The goal of this initiative was to reduce warehousing costs and toimprove and simplify product assortment and was substantially achieved infiscal 2006. Because the Company discounted these products more thanhistorically required to sell excess inventories, an incremental obsolescenceprovision of approximately $3.9 million was recorded in the fourth quarter offiscal 2005. If actual demand or market conditions are less favorable thanthose projected by management, additional inventory write-downs may be required.The increase in gross profit was achieved despite the effect of higher oilprices during the year. Higher oil prices affect the cost of polypropylene(used in the manufacture of hardside luggage) and certain materials used in themanufacture of softside luggage.

*Selling,General and Administrative Expenses (“SG&A”).**  *Consolidated SG&A in fiscal2005 was $341.5 million compared to $273.2 million in fiscal 2004, anincrease of $68.3 million or 25.0%. The 

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increase was primarily dueto an increase of variable selling expenses associated with higher sales levelscompared to the prior year. Other items affecting the total increase inSG&A included higher advertising expenses of $14.9 million, theexchange rate difference which caused an $11.8 million increase in Europe’sSG&A, stock option expense of $4.0 million related to options grantedto executive officers during the year and higher corporate consulting expensesof $2.9 million related to Sarbanes-Oxley compliance and otherprojects. The Company includes warehousing and freight-out costs in selling,general and administrative expenses, while comparable companies may includesuch costs in costs of goods sold. Warehousing costs and freight-out expenseswere approximately $55.1 million in fiscal year 2005.

Variable selling expense in Europe increased duringthe year due to higher freight and warehousing expenses resulting fromincreased sales, higher Lacoste royalties resulting from an increase in Lacostesales, and higher service after sales expenses. U.S. Wholesale SG&A expenseincreased due to higher variable selling expense related to higher sales levelsand lower discretionary expenses in the prior year when sales were depresseddue to the effects of the conflict in Iraq. Increases in SG&A for U.S.Retail, Other Americas and Asia were consistent with the increase in sales.

*Provisionfor Restructuring Operations and Asset Impairment Charge.**  *We recorded restructuring chargesof $5.9 million in fiscal 2005, comprised of the following elements: werecorded a restructuring provision of $3.4 million for the closure of theTres Cantos, Spain manufacturing plant and recorded severance costs associatedwith approximately 40 positions that were eliminated; we recorded a charge of$0.7 million for lease termination costs related to the closure of theNogales, Mexico production facility; we recorded a restructuring provision of$1.8 million related to severance for the elimination of approximately 96positions in our North American and Latin American operations.

*InterestExpense and Amortization of Debt Issue Costs and Premium.**  *Interest expense and amortizationof debt issue costs declined to $35.2 million in fiscal 2005 from$43.5 million in fiscal 2004. The decline in interest expense was dueprimarily to lower interest rates under our senior credit facilities primarilyas a result of the recapitalization completed midway through fiscal 2004 andthe refinancing of the Company’s senior subordinated debt completed in June 2004(fiscal 2005). Interest expense included $2.4 million in amortization ofdebt issuance costs in fiscal 2005 and $2.2 million in fiscal 2004. Duringthe second quarter of fiscal 2005 the Company completed a refinancing of theCompany’s senior subordinated notes. To refinance the 103¤4% notes and topay the tender and redemption premiums of $13.7 million, the Companyissued €100 millionof senior floating rate notes due in 2010 and $205.0 million of 87¤8%senior subordinated notes due in 2011. A total of $8.0 million of deferredfinancing costs were incurred in connection with the issuance of the floatingrate senior notes and the 87¤8%senior subordinated notes. Additionally, a total of $4.1 million ofunamortized deferred financing costs related to the original issuance of the 103¤4%notes was written off to other income (expense).

*Other Income (Expense)—Net.**  *The following is a comparativeanalysis of the components of Other Income (Expense)—Net.

| ** **                                                               | ** ** | **Year ended  January 31,** | ** ** |
|--------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                               | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| ** **                                                               | ** ** | **(in millions)**                | ** ** |
| Net gain (loss)  from foreign currency forward delivery contracts        |       | $                                     | 0.4        |   | (0.5 | ) |
| Gain (loss) on  disposition of fixed assets, net                         |       | 0.8                                   |       | (0.1 | ) |
| Foreign currency  transaction gains (losses)                             |       | 0.6                                   |       | 2.0 |   |
| Pension expense                                                          |       | (2.8                                  | )          | (1.8 | ) |
| Redemption  premium and expenses on retirement senior subordinated notes |       | (17.8                                 | )          | (5.8 | ) |
| Due diligence  costs                                                     |       | (0.7                                  | )          | — |   |
| Other, net                                                               |       | (4.1                                  | )          | (1.8 | ) |
|                                                                     |       | $                                     | (23.6      | ) | (8.0 | ) |

 

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Other net expenses increased by $15.6 millionprimarily due to $13.7 million of redemption premiums paid upon therefinancing of the 103¤4%senior subordinated notes and the write-off of $4.1 million of deferredfinancing costs.

Pension costs represent the actuarial determinedpension expense associated with the pension plans of two companies unrelated toour operations whose pension obligations were assumed by us as a result of a1993 agreement with the Pension Benefit Guaranty Corporation. The plans werepart of a controlled group of corporations of which we were a part prior to1993. The increase in pension expense was a result of the decrease in interestrates used to discount pension obligations. For a further discussion of pensionplan expense, see “Pension Plans” under Critical Accounting Policies includedbelow.

Other, net expense increased to $4.1 million infiscal 2005 from $1.8 million in fiscal 2004 due to costs associated withthe initial investment in the Japan joint venture and expenses incurred tosettle a claim for an environmental matter related to the manufacturing andoffice building site occupied by the Company until the late 1960’s in Denver,Colorado.

*IncomeTaxes.**  *Incometax expense increased to $13.7 million in fiscal 2005 from$11.2 million in fiscal 2004. The increase in income tax expense is due tohigher foreign income taxes for the European operations because of the exchangerate difference and higher income before taxes. The difference between expectedincome tax expense, computed by applying the U.S. statutory rate to income fromcontinuing operations, and income tax expense recognized, results primarilybecause of (i) the change in the valuation allowance primarilyattributable to U.S. net operating losses that do not provide a benefit, (ii) U.S.taxes on foreign dividends and deemed dividends, (iii) state income taxes,and (iv) the tax rate differential on foreign earnings.

*PreferredStock Dividends and Accretion of Preferred Stock Discount.**  *This item represents the accrual ofdividends on the outstanding 8% convertible preferred stock issued in the 2003recapitalization. Dividends have accrued on the preferred stock since July 31,2003 and compound quarterly. The decrease of $17.4 million in fiscal 2005compared to fiscal 2004 was due to the reduction in the coupon rate and faceamount of the preferred stock outstanding as a result of the July 31, 2003recapitalization.

*Net Loss to CommonStockholders.**  *Thenet loss to common stockholders decreased to $23.4 million in fiscal 2005from $28.3 million in fiscal 2004, and the net loss per common sharedeclined to $0.10 in fiscal year 2005 from $0.23 per share in fiscal year 2004.The weighted average number of shares of common stock outstanding used tocompute loss per share in fiscal years 2005 and 2004 was 224,764,006 and122,842,078, respectively. The Company had 224,834,708 shares of common stockoutstanding as of January 31, 2005.

**Liquidity andCapital Resources**

At January 31, 2006, the Company had aconsolidated cash balance of $85.4 million and working capital of$177.3 million. The Company believes its cash and working capital levelsare adequate to meet the operating requirements of the Company for at least thenext twelve months.

The Company’s primary sources of liquidity are itscash flow from operations and cash availability under its senior creditfacility. During fiscal 2006, the Company’s cash flow from operations was$71.6 million compared to $34.7 million in fiscal 2005. Cash flowfrom operations was positively affected by $35.7 million as a result ofextending vendor payment terms to more closely align our payment terms withcredit terms granted to customers. During fiscal 2006, the Company’s cash flowfrom operations together with amounts available under its credit facilities wassufficient to fund fiscal 2006 operations, scheduled payments of principal andinterest on indebtedness, and capital expenditures.

The Company’s senior credit facility provides for amaximum borrowing base of $35.0 million for the Company and €22 millionfor its European subsidiary. The borrowing base under the U.S. facility is 

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generally calculated as apercentage of the Company’s U.S. inventory and receivables increased by anagreed upon value for intangible assets and decreased by certain otherobligations. The European borrowing base is calculated monthly based on a ratioof European debt to trailing twelve months European earnings before interest,taxes, depreciation and amortization. At January 31, 2006, these borrowingbase calculations resulted in $35.0 million available for borrowing in theUnited States and € 22 millionavailable for borrowing by the European subsidiary. At January 31, 2006,the Company had $4.6 million of letters of credit outstanding under theU.S. portion of the facility that reduced the net availability on the U.S. lineof credit to $30.4 million. At January 31, 2006, no amounts wereoutstanding under the European portion of the facility.

The Company’s long-term debt structure includes$174.9 million of 87¤8%senior subordinated notes which are due in 2011 and € 100 million ofeuro-denominated floating rate notes that are due in 2010. The euro denominatednotes bear interest at Euribor plus 4.375% and the rate resets quarterly. At January 31,2006, the rate was 6.848%. As a result of the increase in cash flow fromoperations, the Company was able to retire $30.1 million of the 87¤8% seniorsubordinated notes during fiscal 2006.

The Company incurred capital expenditures of $23.1million during fiscal 2006 compared to $12.5 million in fiscal 2005. Theincrease in capital expenditures resulted primarily from costs related to thepurchase and implementation of the ERP system of $8.1 million and variousfacility improvements of $3.9 million, including leasehold improvements for theMansfield, MA office. During fiscal 2006, the Company also incurred capitalcosts totaling $7.6 million for equipment purchases and other capital costsrelated to the manufacture of new products and factory upgrades, capital coststotaling $3.0 million for retail store expansion and improvements, and capitalcosts related to various other projects of $0.6 million.

The Company’s results ofoperations and cash flow are particularly sensitive to any events that affectthe travel industry, such as terrorist attacks, armed conflicts anywhere in theworld, epidemic threats such as SARS, or any other event that reduces orrestricts travel. Any event that would have the effect of depressing results ofoperations or cash flows could also restrict amounts the Company and itsEuropean subsidiary would have available to borrow under the senior creditfacility.

**Off-Balance SheetFinancing and Other Matters**

The Company’s most significant off-balance sheetfinancing arrangements as of January 31, 2006 are non-cancelable operatinglease agreements, primarily for retail floor space and warehouse rental. TheCompany does not participate in any off-balance sheet arrangements involvingunconsolidated subsidiaries that provide financing or potentially expose theCompany to unrecorded financial obligations.

The Company’s lenders have issued letters of credit inthe United States totaling $4.6 million and documentary letters of credit(which did not reduce borrowing capacity on the senior credit facility) inEurope totaling $1.6 million as of January 31, 2006. Samsonite Europe N.V.has issued other guaranties totaling $1.6 million primarily for rentobligations.

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Thefollowing summarizes the Company’s contractual cash obligations under long-termdebt and capital lease obligations, operating lease agreements and purchasecommitments and other long-term liabilities as of January 31, 2006:

| ** **                                    | ** ** | **Payments due by January 31** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                           | ** ** | **2008-2009** | ** ** | **2010-2011** | ** ** | **Beyond** | ** ** | **Total** | ** ** |
| ** **                                    | ** ** | **(In thousands)**                            | ** ** |
| Long-term  debt and capital lease obligations |       | $                                                  | 1,048      |   |   | 339 |   |   |   | 121,520 |   |   | 174,924 |   | 297,831 |   |
| Estimated interest  payments(a)               |       | 24,618                                             |       |   | 49,256 |   |   |   | 43,846 |   |   | 20,699 |   | 138,419 |   |
| Operating leases                              |       | 22,565                                             |       |   | 24,715 |   |   |   | 12,435 |   |   | 9,822 |   | 69,537 |   |
| Purchase  commitments(b)                      |       | 50,165                                             |       |   | 2,250 |   |   |   | — |   |   | — |   | 52,415 |   |
| Total contractual cash  obligations           |       | $                                                  | 98,396     |   |   | 76,560 |   |   |   | 177,801 |   |   | 205,445 |   | 558,202 |   |

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(a)           Estimated interestpayments were calculated as follows: (i) interest on short-term debtand the senior credit facility was based on amounts outstanding and interestrates during fiscal 2006, (ii) interest on the senior floating rate noteswas based on the three-month Euribor rate at January 31, 2006 of6.848%, and (iii) interest on the senior subordinated notes was based onthe fixed interest rate of 87¤8%.

(b)          Purchase commitmentsinclude contractual arrangements with suppliers. The total of purchasecommitments and other long-term liabilities in the table above includesindividual obligations over $50.

Other non-current liabilities of $87.0 million areexcluded from this summary table. These liabilities consist of pension andpost-retirement benefit liabilities of $74.3 million, stock compensationliabilities of $4.3 million, and miscellaneous other long-term liabilities of$8.4 million. Pension and postretirement benefits are excluded from the tablebecause of the difficulty of estimating the timing of future settlement ofthese types of obligations. The Company estimates that it could be required tomake payments for pension and post-retirement benefits from $1.0 million to$2.5 million in fiscal 2007, from $9.0 million to $23.0 million in fiscal 2008-2009,and from $6.0 million to $27.0 million in 2010-2011. Actual cash paymentscould vary significantly from these estimates based on actual future returns onpension assets, future interest rates, changes in ERISA funding regulations,and changes in health care costs, all of which are highly unpredictable.

The Company’s principalforeign operations are located in Western Europe, the economies of which arenot considered to be highly inflationary. From time to time, the Company entersinto foreign exchange contracts in order to reduce its exposure on certainforeign operations through the use of forward delivery commitments. Noassurance can be given that the Company will be able to offset losses in salesand operating income from negative exchange rate fluctuations through foreigncurrency forward exchange contracts, options, or other instruments which may beavailable to reduce economic exposure to currency fluctuations. The Company hasalso designated the principal balance of €100 million ($121.5 million as of January 31, 2006) floating rate seniornotes as a hedge of the foreign currency exposure related to the investment inits European operations. Geographic concentrations of credit risk with respectto trade receivables are not significant as a result of the diverse geographicareas covered by the Company’s operations.

**Critical AccountingPolicies**

The Company’s financial statements are prepared inaccordance with accounting principles generally accepted in the United Statesof America (“GAAP”) and our significant accounting policies are summarized inNote 1 to the accompanying consolidated financial statements. Thepreparation of financial statements in conformity with GAAP requires managementto make estimates and assumptions that affect 

36

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reported amounts ofassets, liabilities, disclosure of contingent assets and liabilities at thedate of the financial statements and reported amounts of revenues and expensesduring the reporting period. Actual results could differ significantly fromthose estimates.

The Company’s accountingfor its deferred tax asset valuation allowance, for inventory at the lower ofcost or market value and for its U.S. defined benefit pension plan involve theaccounting policies that are most affected by management’s judgment and the useof estimates.

*Deferred Tax AssetValuation Allowance*

The Company hassignificant deferred tax assets amounting to approximately $102.8 million at January 31,2006 related to its U.S. operations resulting from net operating losscarryforwards, deductible temporary differences, and tax credit carryforwards,which are available to offset future taxable income. Generally acceptedaccounting principles require that a valuation allowance be established fordeferred tax assets when it is more likely than not that all or a portion of adeferred tax asset will not be realized. The Company has assessed thelikelihood that its U.S. deferred tax assets will be realized taking intoconsideration various factors including (i) the amount of taxable incomeexpected to be reported in the fiscal 2006 U.S. tax return, (ii) theamounts of net operating losses reported over the past two years in its U.S.tax returns, (iii) the limitations caused by Section 382 of theInternal Revenue Code on the amounts of its accumulated U.S. net operatinglosses which may be utilized to offset future taxable income, (iv) theamounts of accumulated net operating losses which may be utilized to offsetfuture taxable income under the built-in gain provisions of Section 382 ofthe Internal Revenue Code, (v) prudent and feasible tax planningstrategies which may be implemented to realize the benefit of deferred taxassets, (vi) deferred tax liabilities related to future taxable amountsthat may be realized within the carryforward periods of the U.S. net operatinglosses through prudent and feasible tax planning strategies, and (vii) theexpiration periods for the U.S. net operating losses which do not begin until2019. Based on these factors, the Company has determined that a valuationallowance of $77.6 million for its U.S. deferred tax assets is sufficient at January 31,2006. In addition, the Company has recorded a valuation allowance ofapproximately $8.6 million at January 31, 2006 related to the full amountof deferred tax assets related to certain foreign subsidiaries with accumulatedlosses. Generally, no valuation allowance has been recorded for Europeandeferred tax assets as the Company believes that realization is more likelythan not.

*Inventories*

The Company writes downits inventory for estimated obsolescence or unmarketable inventory in amountsequal to the difference between the cost of such inventory and estimated marketvalue based upon assumptions about future demand and market conditions for theproducts in our wholesale distribution channels and retail outlet stores. Inthe fourth quarters of fiscal 2005 and 2006, the Company began initiatives withthe goal of decreasing its number of worldwide inventory SKUs (stock keepingunits) by 25% by the end of fiscal 2006 and another 15% by the end of fiscal2007. The goal of these initiatives is to reduce warehousing costs and toimprove and simplify our product assortment. Because the Company will probablyneed to discount SKUs identified for elimination more than historicallyrequired to sell excess inventories in order to timely meet its reduction goal,incremental obsolescence provisions of approximately $3.9 million wererecorded in each of the fourth quarters of fiscal 2005 and fiscal 2006. Ifactual demand or market conditions are less favorable than those projected bymanagement, additional inventory write-downs may be required. The Companygenerally met its goal of 25% SKU reduction for fiscal 2006 and theobsolescence provision recorded in fiscal 2005 was adequate.

*Pension Plans*

The Company has a qualified defined benefit plan thatcovers most of its U.S. employees and a nonqualified defined benefit plan thatcovers certain senior executives. The Company records pension 

37

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expense or pension incomein accordance with SFAS 87, *“Employers’Accounting for Pensions*.*”*The Company had charges to the results of operations from pension expense of$6.0 million for the fiscal year ending January 31, 2006 and$2.7 million for the fiscal year ending January 31, 2005 and a creditto the results of operations from pension income of $0.1 million for thefiscal year ending January 31, 2004. Inherent in pension valuations areseveral important assumptions, including discount rates, expected return onassets and rate of compensation increases, which are updated at the beginningof each plan year based on current market conditions. Significant changes inpension credits or expense may occur in the future due to changes inassumptions caused by changing market conditions.

The key assumptions used in developing the pensionexpense of $6.0 million related to these plans in fiscal 2006 were a 5.75%(i) discount rate; an 8.25% expected return on plan assets, and a 3.50%rate of compensation increase. In the 2005 fiscal year assumptions usedincluded a 6.25% discount rate; an 8.25% expected return on plan assets, and a3.50% rate of compensation increase. The pension expense related to the Plansincreased to $6.0 million in fiscal 2006 from an expense of $2.7 millionin fiscal 2005 and from pension income of $0.2 million in fiscal 2004. Pensionexpense related to these plans is expected to be approximately$5.9 million in fiscal 2007. The increase in the pension expense fromfiscal 2004 and fiscal 2005 to fiscal 2006 is a result of a decrease in planassets caused by market conditions in the early 2000’s and the resulting sharpincrease in the amount of unrecognized losses being amortized since then.

In selecting the discount rate of 5.75%, an analysisis performed in which the duration of projected cash flows from the pensionplans is matched with a yield curve based on an appropriate universe of highquality corporate bonds that are available. Management uses the results of theyield curve analysis to select the discount rate that matches the duration andpayment stream of the benefits in the plans. The rate is rounded to the nearestquarter of a percent. Holding all other assumptions constant, a one-halfpercentage point increase or decrease in the discount rate would have increasedor decreased the fiscal 2006 pre-tax expense by approximately $0.8 million.

The Plans’ investment allocations are targeted atapproximately 60%-70% large capitalization stocks and 30%-40% largecapitalization corporate bonds. The Company considered the historical returnsand future expectations for returns for each of these asset classes and thetarget allocation of the portfolio to develop the expected long-term rate ofreturn assumption of 8.25%. Holding all other assumptions constant, a one-halfpercentage point increase or decrease in the expected return on plan assetswould have increased or decreased the fiscal 2006 pre-tax expense by$0.8 million. The asset allocation and related assumed expected rate ofreturn used in fiscal 2007 is not expected to be significantly different fromfiscal 2006.

The Company’s actuaries calculate the Plans’obligations at the end of each plan year (December 31) and suchmeasurement date valuation is used to record pension obligations in the Company’sfiscal year-end financial statements in accordance with SFAS 87. Since fiscalyear end January 31, 2003, the estimated accumulated benefit obligation(the actuarial present value of benefits attributed to employee service andcompensation levels prior to the measurement date without considering futurecompensation levels), commonly referred to as the “ABO”, has exceeded the fairvalue of the Plans’ assets. This result is primarily due to the decline inequity markets in the early 2000’s and a decline in the discount rate used toestimate the pension liability because of lower U.S. interest rates since 2002.As of fiscal year end January 31, 2006, the ABO exceeded the fair value ofplan assets by $56.9 million. The increase in the excess of the ABO overthe fair value of plan assets from the prior year resulted in a$9.2 million charge to stockholders’ equity (Other Comprehensive Income(Expense)). Future market conditions and interest rates significantly impactfuture assets and liabilities of the pension plan, and similar charges orcredits to stockholders’ equity may be required in the future upon measurementof plan obligations at the end of each plan year.

38

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The Company’s fundingpolicy is to make any contributions required by ERISA. In fiscal 2006, theCompany made a $2.5 million cash contribution to the qualified plan inaccordance with a credit maintenance agreement entered into with the PBGC inconnection with the July 31, 2003 recapitalization. This agreementrequires that until April 30, 2006 the Company must make contributions tothe plan sufficient to insure that certain ERISA defined credit balances do notfall below certain levels at the end of each plan year. In fiscal years 2006and 2005, the Company made contributions of $2.5 million and zero,respectively, to the plan. Based on current stock market conditions, theinterest rate environment and current ERISA funding regulations, the Companydoes not believe it will be required to make a contribution to the plan infiscal 2007. See also*Off-Balance SheetFinancing and Other Matters* included elsewhere herein.

**New AccountingStandards**

In May 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections,” which replaces Accounting Principles Board No. 20(“APB 20”), “Accounting Changes,” and SFAS No. 3, “Reporting AccountingChanges in Interim Financial Statements.” This statement is effective foraccounting changes and corrections of errors made in fiscal years beginningafter December 15, 2005. SFAS 154 applies to all voluntary changes inaccounting principle and to changes required by an accounting pronouncement inthe instance specific transition provisions are not included. SFAS 154 requiresretroactive application to prior periods’ financial statements of changes inaccounting principle, unless impracticable. APB 20 previously required thatmost voluntary changes in principle be recognized by including the cumulativeeffect of changing to the new accounting principle in net income of the periodof the change in accounting principle.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payments” which revises SFAS 123, “Accounting forStock-Based Compensation,” and is effective for public companies forannual periods beginning after June 15, 2005. SFAS 123 (R) willrequire compensation costs related to share-based payment transactions tobe recognized in the financial statements over the period that an employeeprovides service in exchange for the award. Public companies are required toadopt the new standard using a modified prospective method and may elect torestate prior periods using a modified retrospective method. The Company willadopt SFAS 123 (R) on February 1, 2006 using the modifiedprospective method and is currently evaluating the impact from this standard onthe results of operations and financial position. The impact on the Companyusing a Black-Scholes model is presented in the “Stock Based Compensation”section of Note 1 of the financial statements. Generally, upon the adoption ofthe standard, the pro forma amounts deducted from income for stock-basedcompensation determined under the fair value method as shown in the table inNote 1 (o) to the consolidated financial statements, plus the fair valueof any future grants, will be reflected in expense.

In November 2004, theFASB issued SFAS No. 151, “Inventory Costs” which amends AccountingResearch Bulletin No. 43, “Inventory Pricing” and will be effective forinventory costs incurred during fiscal years beginning after June 15, 2005.SFAS 151 clarifies the accounting for abnormal amounts of idle facilitycapacity, freight, handling costs, and wasted material (spoilage) to requirethat these items be recognized as current-period charges instead of being addedto the cost of inventory and expensed when consumed. In addition, thisStatement requires that allocation of fixed production overheads to the costsof conversion be based on the normal capacity of the production facilities. TheCompany does not believe that the adoption of SFAS No. 151 will have amaterial impact on its consolidated financial statements.

39

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**ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

**Market Risk**

The Company’s primarymarket risks include changes in foreign currency exchange rates and interestrates. Market risk is the potential loss arising from adverse changes in marketrates and prices, such as foreign currency exchange and interest rates. TheCompany enters into forward financial instruments with major financialinstitutions to manage and reduce the impact of changes in foreign currencyrates. From time to time, the Company uses interest rate swaps to manageinterest rate risk. The Company does not use financial instruments to managefluctuations in commodity prices. The Company does not hold or issue financialinstruments for trading purposes.

**Foreign Exchange Contracts**

From time to time, theCompany enters into forward foreign exchange and option contracts to reduce itseconomic exposure to translated earnings of foreign subsidiaries (primarily thetranslated earnings of European operations). Certain of the Company’s foreignsubsidiaries enter into forward exchange contracts to reduce economic exposureto purchases of goods from Asia payable in U.S. dollars and certain othercontracts to reduce their economic exposure to receipts payable in currenciesother than home country functional currencies.

Contracts entered into toreduce the Company’s exposure to translated earnings of foreign subsidiariesare marked to market at the end of each month, and gains or losses are includedin Other Income (Expense)—Net. Gains or losses on foreign exchange contractsentered into to reduce the Company’s exposure to payables and receivablesrelated to product purchases and sales denominated in other than functionalcurrencies are included in income or loss as the underlying hedged transactionsare completed.

At January 31, 2006,the Company and its subsidiaries had forward foreign exchange contractsoutstanding having a total contract amount of approximately $34.2 millionwith a weighted average maturity of 112 days. If there were a ten percentadverse change in foreign currency exchange rates relative to the outstandingforward exchange contracts, the loss in earnings from the amount included inother comprehensive income for the year ended January 31, 2006 would beapproximately $3.4 million, before the effect of income taxes. Anyhypothetical loss in earnings would be offset by changes in the underlyingvalue of translated earnings, to the extent such earnings or income is equal tothe amount of currency exposed, or for product purchases by lower cost ofsales.

**Interest Rates**

At January 31, 2006,the Company had outstanding approximately $175.7 million of fixed ratelong-term debt (including current maturities.) The fair value of long-termfixed interest rate debt is subject to interest rate risk. Generally, amongother factors including credit ratings, the fair value of fixed interest rate debtwill increase as interest rates fall and decrease as interest rates rise. Theestimated fair value of the Company’s total long-term fixed rate debt(including current portion) at January 31, 2006 was $185.7 million,which was more than the carrying value by $10.0 million. Fair values weredetermined primarily from quoted market values since almost all the fixed ratelong-term debt at January 31, 2006 consists of the Company’s outstandingpublicly traded subordinated notes. A one-percentage point decrease fromprevailing interest rates at January 31, 2006, would result in anestimated increase in fair value of total fixed rate long-term debt ofapproximately $8.0 million. A one-percentage point increase fromprevailing interest rates during fiscal 2006 would have resulted in anestimated increase in interest expense for variable rate debt of$1.4 million. Actual interest rates could change significantly more thanone percent.

At January 31, 2006,the Company had no outstanding interest rate swap agreements.

40

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**ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

The consolidated financialstatements and supplementary financial information required by this Item andincluded in this Report are listed in the Index to Consolidated FinancialStatements and Schedule appearing on page F-1.

**ITEM 9.     CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE**

None.

**ITEM 9A.   CONTROLS AND PROCEDURES**

Evaluation of Disclosure Controls and Procedures.

The Company’s management is responsible for maintainingadequate internal controls over financial reporting and for its assessment ofthe effectiveness of internal controls over financial reporting. The Company’sChief Executive Officer and Chief Financial Officer have evaluated theeffectiveness of the Company’s disclosure controls and procedures (as such termis defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of theend of the period covered by this report (the “Evaluation Date”). Based on thatevaluation, management concluded that as of January 31, 2006 the Companydid not maintain effective internal controls over financial reporting becauseof a material weakness in its internal controls over accounting for incometaxes, including the calculation of deferred tax asset valuation allowances,which resulted in the Company having to restate its consolidated financialstatements as described in Note 2 to the consolidated financial statementsincluded elsewhere herein. Because of the material weakness, managementconcluded that disclosure controls were not effective as of January 31,2006. Notwithstanding the existence of such material weakness, management hasconcluded that the consolidated financial statements included in this Form 10-Kfairly present in all material respects the Company’s financial condition as ofJanuary 31, 2006 and 2005 and the results of operations and cash flows foreach of the three years ended January 31, 2006, 2005 and 2004.

To remediate the materialweakness in controls over the Company’s accounting for income taxes, theCompany has engaged an independent registered public accounting firm (otherthan its auditors, KPMG LLP) to perform an analysis of its internalcontrols over accounting for and disclosure of income taxes and will implementrecommendations that result from such analysis.

There was no change in theCompany’s internal control over financial reporting that occurred during theCompany’s most recent fiscal quarter that has materially affected, or isreasonably likely to materially affect, the Company’s internal control overfinancial reporting.

**ITEM 9B.  OTHER INFORMATION**

None.

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**PART III**

**ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THEREGISTRANT**

The information requiredby Item 10 is incorporated by reference from the 2006 Proxy Statement to befiled with the Securities and Exchange Commission within 120 days of theend of the fiscal year covered by this Report. Alternatively, we may file anamendment to this Form 10-K to provide such information within 120days at the end of the fiscal year covered by this report.

**ITEM 11.   EXECUTIVE COMPENSATION**

The information requiredby Item 11 is incorporated by reference from the 2006 Proxy Statement to befiled with the Securities and Exchange Commission within 120 days of theend of the fiscal year covered by this Report. Alternatively, we may file anamendment to this Form 10-K to provide such information within 120days at the end of the fiscal year covered by this report.

**ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS**

The information requiredby Item 12 is incorporated by reference from the 2006 Proxy Statement to befiled with the Securities and Exchange Commission within 120 days of theend of the fiscal year covered by this Report. Alternatively, we may file anamendment to this Form 10-K to provide such information within 120days at the end of the fiscal year covered by this report.

**ITEM 13.   CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS**

The information requiredby Item 13 is incorporated by reference from the 2006 Proxy Statement to befiled with the Securities and Exchange Commission within 120 days of theend of the fiscal year covered by this Report. Alternatively, we may file anamendment to this Form 10-K to provide such information within 120days at the end of the fiscal year covered by this report.

**ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES**

The information requiredby Item 14 is incorporated by reference from the 2006 Proxy Statement to befiled with the Securities and Exchange Commission within 120 days of theend of the fiscal year covered by this Report. Alternatively, we may file anamendment to this Form 10-K to provide such information within 120days at the end of the fiscal year covered by this report.

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**PART IV**

**ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULE**

1.                FinancialStatements:

See Index toConsolidated Financial Statements and Schedule on page F-1 hereof.

2.                FinancialStatement Schedule:

See Index toConsolidated Financial Statements and Schedule on page F-1 hereof.

3.                Exhibits:

See Index to Exhibits on pages E-1 throughE-3 hereof.

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this Report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

|        | SAMSONITE  CORPORATION |
|--------|------------------------|
|   | By:                    | /s/ MARCELLO BOTTOLI |
|   |                   | *President and Chief Executive Officer* |
|   | Date:                  | May 15, 2006 |

 

Each person whose signature appears below constitutesand appoints Marcello Bottoli and Richard H. Wiley, or either of them, hisor her attorneys-in-fact, with the power of substitution, for him or her in anyand all capacities, to sign any amendments to this report on Form 10-Kfor the year ended January 31, 2006, and to file the same, with exhibitsthereto and other documents in connection therewith, with the Securities andExchange Commission, hereby ratifying and confirming all that saidattorneys-in-fact, or their substitute or substitutes, may do or cause to bedone by virtue hereof.

Pursuantto the requirements of the Securities Exchange Act of 1934, this Report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.

|                                    | **Signature** | ** **                                     | ** ** |                   | **Title** | ** ** | ** ** |  | **Date** | ** ** |
|------------------------------------|---------------|------------------------------------------------|------------|-------------------|-----------|------------|------------|--|----------|------------|
| /s/  RICHARD H. WILEY              |          | Chief Financial Officer,  Treasurer, Secretary |       | May 15, 2006 |
| Richard H. Wiley                   |          | and Principal  Accounting Officer              |       |              |
| /s/  MARCELLO BOTTOLI              |          | President and Chief  Executive Officer         |       | May 15, 2006 |
| Marcello Bottoli                   |          |                                           |       |              |
| /s/  MELISSA WONG BETHELL          |          | Director                                       |       | May 15, 2006 |
| Melissa Wong  Bethell              |          |                                           |       |              |
| /s/  CHARLES J. PHILIPPIN          |          | Director                                       |       | May 15, 2006 |
| Charles J.  Philippin              |          |                                           |       |              |
| /s/  FERDINANDO GRIMALDI QUARTIERI |          | Director                                       |       | May 15, 2006 |
| Ferdinando  Grimaldi Quartieri     |          |                                           |       |              |
| /s/  ANTONY P. RESSLER             |          | Director                                       |       | May 15, 2006 |
| Antony P. Ressler                  |          |                                           |       |              |
| /s/  JEFFREY B. SCHWARTZ           |          | Director                                       |       | May 15, 2006 |
| Jeffrey B.  Schwartz               |          |                                           |       |              |
| /s/  LEE SIENNA                    |          | Director                                       |       | May 15, 2006 |
| Lee Sienna                         |          |                                           |       |              |
| /s/  DONALD L. TRIGGS              |          | Director                                       |       | May 15, 2006 |
| Donald L. Triggs                   |          |                                           |       |              |
| /s/  RICHARD T. WARNER             |          | Director                                       |       | May 15, 2006 |
| Richard T. Warner                  |          |                                           |       |              |

 

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**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE**

|                                                                                                                                                                             | ** ** | **Page** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|
| **Consolidated Financial  Statements:**                                                                                                                                     |       |     |
| Report of Independent  Registered Public Accounting Firm                                                                                                                    |       | F-2      |
| Consolidated Balance Sheets as of  January 31, 2006 and 2005                                                                                                           |       | F-3      |
| Consolidated Statements of  Operations for each of the years in the three-year period ended  January 31, 2006                                                          |       | F-4      |
| Consolidated Statements of  Stockholders’ Equity (Deficit) and Comprehensive Income (Loss) for each of  the years in the three-year period ended January 31, 2006 |       | F-5      |
| Consolidated Statements of  Cash Flows for each of the years in the three-year period ended  January 31, 2006                                                          |       | F-6      |
| Notes to Consolidated  Financial Statements                                                                                                                                 |       | F-7      |
| **Schedule:**                                                                                                                                                               |       |     |
| Schedule  II—Valuation and Qualifying Accounts                                                                                                                         |       | F-37     |

 

F-1

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

The Board of Directors and StockholdersSamsonite Corporation:

We have audited the consolidated financial statementsof Samsonite Corporation and subsidiaries as listed in the accompanying index.In connection with our audits of the consolidated financial statements, we alsohave audited the financial statement schedule listed in the accompanying index.These consolidated financial statements and financial statement schedule arethe responsibility of the Company’s management. Our responsibility is toexpress an opinion on these consolidated financial statements and financialstatement schedule based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of Samsonite Corporation and subsidiaries as of January 31, 2006and 2005, and the results of their operations and their cash flows for each ofthe years in the three-year period ended January 31, 2006, in conformitywith U.S. generally accepted accounting principles. Also in our opinion, therelated financial statement schedule, when considered in relation to the basicconsolidated financial statements taken as a whole, presents fairly, in allmaterial respects, the information set forth therein.

Asdiscussed in Note 2, Samsonite Corporation restated its consolidated financialstatements as of January 31, 2005 and for the years ended January 31,2005 and 2004.
|                   | KPMG LLP |
|-------------------|----------|
| Denver, Colorado  |     |
| May 11, 2006 |     |

 

F-2

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**SAMSONITE CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSJanuary 31, 2006 and 2005(Dollars in thousands, except per share amounts)**

| ** **                                                                                                                                                                                                                                                         | ** ** | **January 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                                                                                                                                                                                         | ** ** | **2006**             | ** ** | **2005** | ** ** |
| ** **                                                                                                                                                                                                                                                         | ** ** | ** **           | ** ** | **(restated)** | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                         |       |                 |       |   |   |   |   |
| Current assets:                                                                                                                                                                                                                                                    |       |                 |       |   |   |   |   |
| Cash and cash  equivalents                                                                                                                                                                                                                                         |       | $                    | 85,448     |   |   | 56,378 |   |   |
| Trade accounts  receivable, net of allowances for doubtful accounts of $7,213 and $8,476 (Note 11)                                                                                                                                                       |       | 113,528              |       |   | 112,698 |   |   |
| Other receivables                                                                                                                                                                                                                                                  |       | 2,056                |       |   | 2,441 |   |   |
| Inventories (Notes  5 and 11)                                                                                                                                                                                                                                      |       | 133,683              |       |   | 136,143 |   |   |
| Deferred income  tax assets (Note 14)                                                                                                                                                                                                                              |       | 8,652                |       |   | 10,040 |   |   |
| Assets held for  sale (Note 6)                                                                                                                                                                                                                                     |       | 1,515                |       |   | 16,261 |   |   |
| Prepaid expenses  and other current assets                                                                                                                                                                                                                         |       | 28,212               |       |   | 24,538 |   |   |
| Total current  assets                                                                                                                                                                                                                                              |       | 373,094              |       |   | 358,499 |   |   |
| Property, plant  and equipment, net (Notes 7 and 11)                                                                                                                                                                                                          |       | 89,100               |       |   | 98,810 |   |   |
| Intangible assets,  less accumulated amortization of $38,389 and $37,955 (Notes 8  and 11)                                                                                                                                                          |       | 91,658               |       |   | 90,816 |   |   |
| Other assets and  long-term receivables, net of allowance for doubtful accounts of $0 and  $66 (Note 9)                                                                                                                                                       |       | 13,399               |       |   | 14,958 |   |   |
|                                                                                                                                                                                                                                                               |       | $                    | 567,251    |   |   | 563,083 |   |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY (DEFICIT)**                                                                                                                                                                                                           |       |                 |       |   |   |   |   |
| Current liabilities:                                                                                                                                                                                                                                               |       |                 |       |   |   |   |   |
| Short-term  debt (Note 10)                                                                                                                                                                                                                                         |       | $                    | 9,396      |   |   | 15,505 |   |   |
| Current  installments of long-term obligations (Note 11)                                                                                                                                                                                                      |       | 1,048                |       |   | 1,792 |   |   |
| Accounts payable                                                                                                                                                                                                                                                   |       | 101,893              |       |   | 73,119 |   |   |
| Accrued interest                                                                                                                                                                                                                                                   |       | 4,055                |       |   | 4,614 |   |   |
| Accrued  compensation and employee benefits                                                                                                                                                                                                                        |       | 25,539               |       |   | 25,695 |   |   |
| Accrued income  taxes                                                                                                                                                                                                                                              |       | 10,192               |       |   | 7,482 |   |   |
| Other accrued  liabilities                                                                                                                                                                                                                                         |       | 43,641               |       |   | 41,540 |   |   |
| Total current  liabilities                                                                                                                                                                                                                                         |       | 195,764              |       |   | 169,747 |   |   |
| Long-term  obligations, less current installments (Note 11)                                                                                                                                                                                                   |       | 296,784              |       |   | 337,049 |   |   |
| Deferred income  tax liabilities (Note 14)                                                                                                                                                                                                                    |       | 22,897               |       |   | 25,967 |   |   |
| Other non-current  liabilities (Notes 12 and 15)                                                                                                                                                                                                              |       | 86,962               |       |   | 72,731 |   |   |
| Total liabilities                                                                                                                                                                                                                                                  |       | 602,407              |       |   | 605,494 |   |   |
| Minority interests  in consolidated subsidiaries                                                                                                                                                                                                                   |       | 16,057               |       |   | 13,931 |   |   |
| Stockholders’ equity (deficit) (Notes 3, 11 and 13):                                                                                                                                                                                                          |       |                 |       |   |   |   |   |
| Preferred stock  ($0.01 par value; 2,000,000 shares authorized; 159,082 and 159,932  convertible shares issued and outstanding at January 31, 2006 and 2005,  respectively)                                                                              |       | 193,981              |       |   | 180,127 |   |   |
| Common stock  ($0.01 par value; 1,000,000,000 shares authorized; 227,159,626 and  235,334,708 shares issued at January 31, 2006 and 2005, respectively,  and 227,159,626 and 224,834,708 shares outstanding at January 31, 2006  and 2005, respectively) |       | 2,272                |       |   | 2,353 |   |   |
| Additional paid-in  capital                                                                                                                                                                                                                                        |       | 354,760              |       |   | 769,695 |   |   |
| Accumulated  deficit                                                                                                                                                                                                                                               |       | (539,420             | )          |   | (537,910 | ) |   |
| Accumulated other  comprehensive loss                                                                                                                                                                                                                              |       | (62,806              | )          |   | (50,607 | ) |   |
|                                                                                                                                                                                                                                                               |       | (51,213              | )          |   | 363,658 |   |   |
| Treasury stock, at  cost (10,500,000 shares)                                                                                                                                                                                                                       |       | —               |       |   | (420,000 | ) |   |
| Total  stockholders’ deficit                                                                                                                                                                                                                                  |       | (51,213              | )          |   | (56,342 | ) |   |
| Commitments and  contingencies (Notes 1, 3, 4, 10, 11, 13, 14, 15, and 17)                                                                                                                                                                                         |       | $                    | 567,251    |   |   | 563,083 |   |   |

 

See accompanying notes to consolidated financial statements.

F-3

----

**SAMSONITE CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(Dollars in thousands, except per share amounts)**

| ** **                                                                                            | ** ** | **Year ended January 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                            | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                            | ** ** | ** **                                | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| Net sales                                                                                             |       | $                                         | 966,886    |   |   | 902,896 |   |   |   | 776,451 |   |   |
| Cost of goods  sold                                                                                   |       | 496,505                                   |       |   | 485,882 |   |   |   | 428,544 |   |   |
| Gross profit                                                                                          |       | 470,381                                   |       |   | 417,014 |   |   |   | 347,907 |   |   |
| Selling, general and administrative expenses                                                          |       | 381,185                                   |       |   | 341,532 |   |   |   | 273,213 |   |   |
| Amortization and  impairment of intangible assets (Notes 4 and 8)                                     |       | 862                                       |       |   | 3,214 |   |   |   | 2,578 |   |   |
| Asset impairment  charge (Note 4)                                                                     |       | 5,450                                     |       |   | 671 |   |   |   | 2,658 |   |   |
| Provision for  restructuring operations (Note 4)                                                      |       | 9,849                                     |       |   | 5,862 |   |   |   | 1,768 |   |   |
| Operating income                                                                                      |       | 73,035                                    |       |   | 65,735 |   |   |   | 67,690 |   |   |
| Other income (expense):                                                                               |       |                                      |       |   |   |   |   |   |   |   |   |
| Interest income                                                                                       |       | 2,052                                     |       |   | 549 |   |   |   | 396 |   |   |
| Interest expense and amortization of debt issue  costs and premium                                    |       | (30,496                                   | )          |   | (35,206 | ) |   |   | (43,528 | ) |   |
| Other income (expense)—net (Note 18)                                                             |       | (9,872                                    | )          |   | (23,603 | ) |   |   | (8,024 | ) |   |
| Income before income taxes and minority interests                                                     |       | 34,719                                    |       |   | 7,475 |   |   |   | 16,534 |   |   |
| Income tax  expense (Note 14)                                                                         |       | (16,516                                   | )          |   | (13,652 | ) |   |   | (11,235 | ) |   |
| Minority  interests in earnings of subsidiaries                                                       |       | (4,882                                    | )          |   | (3,521 | ) |   |   | (2,548 | ) |   |
| Net income (loss)                                                                                     |       | 13,321                                    |       |   | (9,698 | ) |   |   | 2,751 |   |   |
| Preferred stock  dividends and accretion of senior redeemable preferred stock discount  (Note 3) |       | (14,831                                   | )          |   | (13,683 | ) |   |   | (31,055 | ) |   |
| Net loss to common stockholders                                                                       |       | $                                         | (1,510     | ) |   | (23,381 | ) |   |   | (28,304 | ) |   |
| Loss per  share—basic and diluted:                                                               |       |                                      |       |   |   |   |   |   |   |   |   |
| Weighted average common shares outstanding                                                            |       | 226,587                                   |       |   | 224,764 |   |   |   | 122,842 |   |   |
| Net loss to  common stockholders                                                                      |       | $                                         | (0.01      | ) |   | (0.10 | ) |   |   | (0.23 | ) |   |

 

See accompanying notes to consolidated financial statements.

F-4

----

**SAMSONITE CORPORATION ANDSUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)AND COMPREHENSIVE INCOME (LOSS)**

**(Dollars in thousands, except share amounts)**

| ** **                                                                                                                                                                                                                        | ** ** | ** **    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **      | ** ** | **Accumulated**        | ** ** | ** **        | ** ** | ** **   | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------|------------|------------|------------|----------------|------------|-----------------|------------|------------------------|------------|-------------------|------------|--------------|------------|
| ** **                                                                                                                                                                                                                        | ** ** | ** **    | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **      | ** ** | **other**              | ** ** | **Comprehensive** | ** ** | ** **   | ** ** |
| ** **                                                                                                                                                                                                                        | ** ** | **Preferred** | ** ** | **Common** | ** ** | **paid-in**    | ** ** | **Accumulated** | ** ** | **comprehensive**      | ** ** | **income**        | ** ** | **Treasury** | ** ** |
| ** **                                                                                                                                                                                                                        | ** ** | **stock**     | ** ** | **stock**  | ** ** | **capital**    | ** ** | **deficit**     | ** ** | **income (loss)** | ** ** | **(loss)**        | ** ** | **stock**    | ** ** |
| Balance, January 31, 2003 (as reported)                                                                                                                                                                                           |       | $             | —     |       |       | 304            |       |            |       | 490,310                |       |              |       | (480,475     | )          |   |   | (54,837 | ) |   |   |   |   |   | (420,000 | ) |
| Restatement adjustment (Note 2)                                                                                                                                                                                                   |       | —        |       |       | —     |           |       |            | —     |                   |       |              | (5,750     | )            |       |   | — |   |   |   |   |   |   | — |   |
| Balance, January 31, 2003 (restated)                                                                                                                                                                                              |       | —        |       |       | 304        |           |       |            | 490,310    |                   |       |              | (486,225   | )            |       |   | (54,837 | ) |   |   |   |   |   | (420,000 | ) |
| Net income (restated)                                                                                                                                                                                                             |       | —        |       |       | —     |           |       |            | —     |                   |       |              | 2,751      |         |       |   | — |   |   |   | 2,751 |   |   | — |   |
| Unrealized gain (loss) on cash flow hedges (net of  income tax effect of $2,423)                                                                                                                                             |       | —        |       |       | —     |           |       |            | —     |                   |       |              | —     |         |       |   | (4,331 | ) |   |   | (4,331 | ) |   | — |   |
| Reclassification of net loss on cash flow hedges to  net income (net of income tax effect of $2,258)                                                                                                                              |       | —        |       |       | —     |           |       |            | —     |                   |       |              | —     |         |       |   | 3,991 |   |   |   | 3,991 |   |   | — |   |
| Foreign currency translation adjustment                                                                                                                                                                                           |       | —        |       |       | —     |           |       |            | —     |                   |       |              | —     |         |       |   | 16,033 |   |   |   | 16,033 |   |   | — |   |
| Minimum pension liability adjustment (Note 15)                                                                                                                                                                                    |       | —        |       |       | —     |           |       |            | —     |                   |       |              | —     |         |       |   | 7,004 |   |   |   | 7,004 |   |   | — |   |
| Comprehensive income                                                                                                                                                                                                              |       | —        |       |       | —     |           |       |            | —     |                   |       |              | —     |         |       |   |   |   |   |   | 25,448 |   |   | — |   |
| Issuance of 106,000 shares of 8% convertible preferred  stock (Note 3)                                                                                                                                                            |       | 106,000       |       |       | —     |           |       |            | —     |                   |       |              | —     |         |       |   | — |   |   |   |   |   |   | — |   |
| Conversion of 137¤8%  senior redeemable preferred stock to 53,982 shares of 8% convertible  preferred stock and 204,839,751 shares of common stock and warrants to  purchase 15,515,892 shares of common stock (Note 3) |       | 53,982        |       |       | 2,048      |           |       |            | 288,832    |                   |       |              | —     |         |       |   | — |   |   |   |   |   |   | — |   |
| Issuance costs associated with issuance of 8%  convertible preferred stock and conversion of 13 7¤8% senior redeemable preferred stock (Note 3)                                                                              |       | —        |       |       | —     |           |       |            | (10,709    | )                      |       |              | —     |         |       |   | — |   |   |   |   |   |   | — |   |
| Preferred stock dividends and accretion of preferred  stock discount (Note 3)                                                                                                                                                |       | 6,516         |       |       | —     |           |       |            | —     |                   |       |              | (31,055    | )            |       |   | — |   |   |   |   |   |   | — |   |
| Balance, January 31, 2004 (restated)                                                                                                                                                                                              |       | 166,498       |       |       | 2,352      |           |       |            | 768,433    |                   |       |              | (514,529   | )            |       |   | (32,140 | ) |   |   |   |   |   | (420,000 | ) |
| Net loss (restated)                                                                                                                                                                                                               |       | —        |       |       | —     |           |       |            | —     |                   |       |              | (9,698     | )            |       |   | — |   |   |   | (9,698 | ) |   | — |   |
| Unrealized gain (loss) on cash flow hedges (net of  income tax effect of $918)                                                                                                                                               |       | —        |       |       | —     |           |       |            | —     |                   |       |              | —     |         |       |   | (1,693 | ) |   |   | (1,693 | ) |   | — |   |
| Reclassification of net loss on cash flow hedges to  net loss (net of income tax effect of $445)                                                                                                                        |       | —        |       |       | —     |           |       |            | —     |                   |       |              | —     |         |       |   | 549 |   |   |   | 549 |   |   | — |   |
| Foreign currency translation adjustment                                                                                                                                                                                           |       | —        |       |       | —     |           |       |            | —     |                   |       |              | —     |         |       |   | 448 |   |   |   | 448 |   |   | — |   |
| Minimum pension liability adjustment (Note 15)                                                                                                                                                                                    |       | —        |       |       | —     |           |       |            | —     |                   |       |              | —     |         |       |   | (17,771 | ) |   |   | (17,771 | ) |   | — |   |
| Comprehensive loss                                                                                                                                                                                                                |       | —        |       |       | —     |           |       |            | —     |                   |       |              | —     |         |       |   |   |   |   |   | (28,165 | ) |   | — |   |
| Stock compensation expense                                                                                                                                                                                                        |       |          |       |       | —     |           |       |            | 1,209      |                   |       |              | —     |         |       |   | — |   |   |   |   |   |   | — |   |
| Conversion of 50 shares of preferred stock to 129,384  shares of common stock                                                                                                                                                     |       | (54           | )          |       | 1          |           |       |            | 53         |                   |       |              | —     |         |       |   | — |   |   |   |   |   |   | — |   |
| Preferred stock dividends and accretion of preferred  stock discount (Note 3)                                                                                                                                                |       | 13,683        |       |       | —     |           |       |            | —     |                   |       |              | (13,683    | )            |       |   | — |   |   |   |   |   |   | — |   |
| Balance, January 31, 2005 (restated)                                                                                                                                                                                              |       | 180,127       |       |       | 2,353      |           |       |            | 769,695    |                   |       |              | (537,910   | )            |       |   | (50,607 | ) |   |   |   |   |   | (420,000 | ) |
| Net income                                                                                                                                                                                                                        |       | —        |       |       | —     |           |       |            | —     |                   |       |              | 13,321     |         |       |   | — |   |   |   | 13,321 |   |   | — |   |
| Unrealized gain (loss) on cash flow hedges (net of  income tax effect of $546)                                                                                                                                               |       | —        |       |       | —     |           |       |            | —     |                   |       |              | —     |         |       |   | 1,310 |   |   |   | 1,310 |   |   | — |   |
| Reclassification of net loss on cash flow hedges to  net income (net of income tax effect of $885)                                                                                                                                |       | —        |       |       | —     |           |       |            | —     |                   |       |              | —     |         |       |   | 1,426 |   |   |   | 1,426 |   |   | — |   |
| Foreign currency translation adjustment                                                                                                                                                                                           |       | —        |       |       | —     |           |       |            | —     |                   |       |              | —     |         |       |   | (5,702 | ) |   |   | (5,702 | ) |   | — |   |
| Minimum pension liability adjustment (Note 15)                                                                                                                                                                                    |       | —        |       |       | —     |           |       |            | —     |                   |       |              | —     |         |       |   | (9,233 | ) |   |   | (9,233 | ) |   | — |   |
| Comprehensive income                                                                                                                                                                                                              |       |          |       |       |       |           |       |            |       |                   |       |              |       |         |       |   |   |   |   |   | 1,122 |   |   |   |   |
| Stock compensation expense                                                                                                                                                                                                        |       | —        |       |       | —     |           |       |            | 4,007      |                   |       |              | —     |         |       |   | — |   |   |   |   |   |   | — |   |
| Conversion of 850 shares of preferred stock to  2,324,918 shares of common stock                                                                                                                                             |       | (977          | )          |       | 24         |           |       |            | 953        |                   |       |              | —     |         |       |   | — |   |   |   |   |   |   | — |   |
| Preferred stock dividends and accretion of preferred  stock discount (Note 3)                                                                                                                                                |       | 14,831        |       |       | —     |           |       |            | —     |                   |       |              | (14,831    | )            |       |   | — |   |   |   |   |   |   | — |   |
| Retirement of 10,500,000 shares of treasury stock                                                                                                                                                                                 |       | —        |       |       | (105       | )              |       |            | (419,895   | )                      |       |              | —     |         |       |   | — |   |   |   |   |   |   | 420,000 |   |
| Balance, January  31, 2006                                                                                                                                                                                                        |       | $             | 193,981    |       |       | 2,272          |       |            |       | 354,760                |       |              |       | (539,420     | )          |   |   | (62,806 | ) |   |   |   |   |   | — |   |
|                                                                                                                                                                                                                                   |            |               |            |            |            |                |            |                 |            |                        |            |                   |            |              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

See accompanying notes to consolidated financial statements.

F-5

----

**SAMSONITE CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Dollars in thousands)**

| ** **                                                                                               | ** ** | **Year ended January 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                               | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                               | ** ** | ** **                                | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| Cash flows from operating activities:                                                                    |       |                                      |       |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                        |       | $                                         | 13,321     |   |   | (9,698 | ) |   |   | 2,751 |   |   |
| Adjustments to reconcile  net income (loss) to net cash provided by (used in) operating activities: |       |                                      |       |   |   |   |   |   |   |   |   |
| Loss (gain) on  disposition of assets held for sale and fixed assets, net                                |       | 128                                       |       |   | (819 | ) |   |   | 107 |   |   |
| Depreciation and  amortization of property, plant and equipment                                          |       | 17,057                                    |       |   | 18,971 |   |   |   | 17,948 |   |   |
| Amortization and  write-off of debt issue costs and premium                                              |       | 3,068                                     |       |   | 6,500 |   |   |   | 3,110 |   |   |
| Amortization and  impairment of intangible assets                                                        |       | 862                                       |       |   | 3,214 |   |   |   | 2,578 |   |   |
| Deferred income  tax benefit                                                                             |       | (1,477                                    | )          |   | (226 | ) |   |   | (1,235 | ) |   |
| Pension plan  (gains) losses, net                                                                        |       | 6,771                                     |       |   | 3,243 |   |   |   | 398 |   |   |
| Asset impairment  charge                                                                                 |       | 5,450                                     |       |   | 671 |   |   |   | 2,658 |   |   |
| Provision for  doubtful accounts                                                                         |       | 327                                       |       |   | 1,540 |   |   |   | 723 |   |   |
| Provision for  restructuring operations                                                                  |       | 9,849                                     |       |   | 5,862 |   |   |   | 1,768 |   |   |
| Stock compensation  expense                                                                              |       | 5,497                                     |       |   | 4,031 |   |   |   | — |   |   |
| Changes in operating  assets and liabilities:                                                            |       |                                      |       |   |   |   |   |   |   |   |   |
| Trade and other  receivables                                                                             |       | (8,220                                    | )          |   | (19,937 | ) |   |   | 1,199 |   |   |
| Inventories                                                                                              |       | (4,598                                    | )          |   | 2,027 |   |   |   | 16,745 |   |   |
| Other current  assets                                                                                    |       | (5,818                                    | )          |   | (1,002 | ) |   |   | 1,112 |   |   |
| Accounts payable  and accrued liabilities                                                                |       | 35,724                                    |       |   | 19,499 |   |   |   | (17,939 | ) |   |
| Contribution to  U.S. defined benefit pension plan                                                       |       | (2,500                                    | )          |   | — |   |   |   | (5,000 | ) |   |
| Other—net                                                                                           |       | (3,883                                    | )          |   | 850 |   |   |   | 1,060 |   |   |
| Net cash provided  by operating activities                                                               |       | 71,558                                    |       |   | 34,726 |   |   |   | 27,983 |   |   |
| Cash flows provided by (used in) investing  activities:                                                  |       |                                      |       |   |   |   |   |   |   |   |   |
| Purchases of property,  plant and equipment:                                                             |       |                                      |       |   |   |   |   |   |   |   |   |
| By Company and  wholly-owned subsidiaries                                                                |       | (18,878                                   | )          |   | (10,779 | ) |   |   | (10,998 | ) |   |
| By less than 100%  owned subsidiaries                                                                    |       | (4,266                                    | )          |   | (1,705 | ) |   |   | (1,839 | ) |   |
| Proceeds from sale  of property and equipment and other assets                                           |       | 14,424                                    |       |   | 4,094 |   |   |   | 3,823 |   |   |
| Other                                                                                                    |       | (369                                      | )          |   | (440 | ) |   |   | — |   |   |
| Net cash used in  investing activities                                                                   |       | (9,089                                    | )          |   | (8,830 | ) |   |   | (9,014 | ) |   |
| Cash flows provided by (used in) financing  activities:                                                  |       |                                      |       |   |   |   |   |   |   |   |   |
| Proceeds from  (payments of) short-term debt—net                                                    |       | (5,672                                    | )          |   | 8,792 |   |   |   | (3,859 | ) |   |
| Issuance of  floating rate senior and 87¤8% senior subordinated notes                               |       | —                                    |       |   | 325,810 |   |   |   | — |   |   |
| Repurchase of 103¤4% and 11 1¤8% notes                                                    |       | —                                    |       |   | (323,393 | ) |   |   | — |   |   |
| Issuance costs of  senior notes, convertible preferred stock and senior credit facility                  |       | —                                    |       |   | (8,055 | ) |   |   | (14,383 | ) |   |
| Payments of other  long-term obligations—net                                                        |       | (1,285                                    | )          |   | (918 | ) |   |   | (3,863 | ) |   |
| Retirement of 87¤8%  senior subordinated notes                                                      |       | (30,075                                   | )          |   | — |   |   |   | — |   |   |
| Net payments of  senior credit facility                                                                  |       | —                                    |       |   | — |   |   |   | (95,918 | ) |   |
| Proceeds from  issuance of convertible preferred stock                                                   |       | —                                    |       |   | — |   |   |   | 106,000 |   |   |
| Other, net                                                                                               |       | 3,230                                     |       |   | 960 |   |   |   | 600 |   |   |
| Net cash provided  by (used in) financing activities                                                     |       | (33,802                                   | )          |   | 3,196 |   |   |   | (11,423 | ) |   |
| Effect of exchange  rate changes on cash and cash equivalents                                            |       | 403                                       |       |   | (2,238 | ) |   |   | (727 | ) |   |
| Net increase in  cash and cash equivalents                                                               |       | 29,070                                    |       |   | 26,854 |   |   |   | 6,819 |   |   |
| Cash and cash  equivalents, beginning of year                                                            |       | 56,378                                    |       |   | 29,524 |   |   |   | 22,705 |   |   |
| Cash and cash  equivalents, end of year                                                                  |       | $                                         | 85,448     |   |   | 56,378 |   |   |   | 29,524 |   |   |
| Supplemental disclosures of cash flow information:                                                       |       |                                      |       |   |   |   |   |   |   |   |   |
| Cash paid during  the year for interest                                                                  |       | $                                         | 28,420     |   |   | 32,593 |   |   |   | 42,157 |   |   |
| Cash paid during  the year for income taxes, net                                                         |       | $                                         | 16,280     |   |   | 11,016 |   |   |   | 12,377 |   |   |
| Non-cash transactions:                                                                                   |       |                                      |       |   |   |   |   |   |   |   |   |
| Non-cash transactions are described in Notes 3  and 15.                                                  |       |                                      |       |   |   |   |   |   |   |   |   |

 

See accompanying notes to consolidated financial statements.

F-6

----

**SAMSONITE CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSJanuary 31, 2006 and 2005Dollars and Euros in thousands, except per share amounts**

**(1)   Summaryof Significant Accounting Policies**

*(a)  *General Business

Theprincipal activity of Samsonite Corporation and subsidiaries (the “Company”) isthe manufacture and distribution of luggage, business and computer bags,outdoor and casual bags, and travel-related products throughout theworld, primarily under the *Samsonite®*and *American Tourister®* brandnames and other owned and licensed brand names. The principal luggage customersof the Company are department/specialty retail stores, mass merchants, catalogshowrooms and warehouse clubs. The Company also sells its luggage, casual bags,business cases and other products through its Company-operated stores.

*(b)*   Principles ofConsolidation

The consolidated financial statements include thefinancial statements of Samsonite Corporation and its wholly-owned and majority-ownedsubsidiaries. All significant intercompany balances and transactions have beeneliminated in consolidation. The Company’s foreign subsidiaries have fiscalyear ends of December 31 and the results are consolidated up to that date.

Minorityinterests consist of other stockholders’ ownership interests in majority-ownedsubsidiaries of the Company.

*(c)  *Use of Estimates

Thepreparation of consolidated financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities, disclosure of contingent assets and liabilities atthe date of the consolidated financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differsignificantly from those estimates.

*(d)  *Cash Equivalents andRestricted Cash

TheCompany considers all highly liquid instruments with original maturities ofthree months or less to be cash equivalents. As of January 31, 2006 and2005, the Company has no restricted cash.

*(e)  *Trade Accounts Receivableand Allowances for Doubtful Accounts

Trade accounts receivable are recorded at the invoicedamount and do not bear interest. The Company’s accounts receivable are net ofan allowance for doubtful accounts. The allowance for doubtful accounts is theCompany’s best estimate of the amount of potential credit losses. The allowancefor doubtful accounts is reviewed by management and is adjusted for factorssurrounding the credit risk of specific customers, historical trends andmacroeconomic considerations. The Company provides allowances againstreceivables from specific customers in addition to a general allowance foramounts related to unidentified losses. Returns and customer allowances areadjusted for estimates by management based upon an assessment of historicaltrends, relevant product life cycles, information from customers, and specificpromotional activities related to current sales activity. In the event thatactual losses differ 

F-7

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from the Company’sestimates, or there is an increase in exposure relating to sales to specificcustomers, results of future periods may be impacted.

Withrespect to trade receivables, concentration of credit risk is limited due tothe diversity in the Company’s customer base and geographic areas covered bythe Company’s operations.

*(f)  *Inventories

The Company values inventories at the lower of costgenerally using the first-in, first-out (“FIFO”) method, or market. The Companywrites down the cost of excess, slow moving and obsolete inventory to estimatednet realizable value. If actual demand or market conditions are less favorablethan those projected by management, additional inventory write-downs may berequired.

TheCompany recorded incremental obsolescence provisions of approximately $3,900for both fiscal 2006 and 2005 in connection with initiatives undertaken toreduce the number of its worldwide inventory SKU’s (stock keeping units) andthe anticipated requirement to heavily discount certain inventories in order toachieve the inventory reduction goals.

*(g)  *Impairment ofLong-lived Assets and Assets to be Disposed Of

Property, plant and equipment and other long-livedassets, including amortizable intangible assets, capital leases, long-termprepaid assets and other long-lived assets held and used, are reviewed forimpairment whenever events or circumstances indicate that the carrying valuemay not be recoverable. Recoverability is tested by comparing expectedundiscounted cash flows from the long-lived asset or group of long-lived assetsto the carrying value of the asset(s); if the undiscounted cash flows are lessthan the carrying value, an impairment loss is recorded to write-down thecarrying value to estimated fair value. Fair value is estimated based on thebest information available: quoted market prices, estimated prices for similarassets, or valuation techniques such as discounted cash flow models.

Assetsto be disposed of are separately presented in the Consolidated Balance Sheetsand reported at the lower of the carrying amount or fair value, less costs tosell, and are no longer depreciated.

*(h)  *Property, Plant andEquipment

Property, plant and equipment acquired subsequent tothe adoption of fresh-start reporting in 1993 are stated at cost. Inconnection with the adoption of fresh-start reporting at June 30,1993, the Company was required to adjust property, plant and equipment to fairvalue. Assets under capital leases are stated at the present value of thefuture minimum lease payments. Improvements which extend the life of an assetare capitalized. Maintenance and repair costs are expensed as incurred.

Depreciationand amortization are provided on the straight-line method over the estimateduseful lives of the assets as follows:

| Buildings                       |   | 10 to 50 years |   |
|---------------------------------|--------|----------------|--------|
| Machinery,  equipment and other |   | 4 to 13 years  |   |
| Computer software               |   | 3 to 10 years  |   |
| Leasehold improvements          |   | 3 to 48 years  |   |

 

*(i)  *Intangible Assets

Intangible assets consist of goodwill, tradenames,licenses, patents, leasehold rights and other intangible assets. Intangibleassets which are considered to have an indefinite life are not amortized butare tested for impairment at least annually or more frequently if events orcircumstances indicate that the asset 

F-8

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may be impaired. Inconnection with the adoption of fresh-start reporting at June 30,1993, the Company was required to adjust intangible assets to fair value.

Intangibleassets which have a finite life are amortized over their estimated useful livesas follows:

| Patents,  trademarks and other |   | 4 to 18 years |   |
|--------------------------------|--------|---------------|--------|
| Leasehold rights               |   | 5 years       |   |

 

Intangibleassets having a finite life are tested for impairment whenever events orcircumstances indicate that the asset may be impaired.

*(j)  *Debt Issuance Costs

Costsincurred in connection with the issuance of new debt instruments are deferredand included in other assets. Such costs are amortized as additional interestexpense over the term of the related debt obligation or charged to otherexpense on a pro-rata basis as the related debt is retired.

*(k)  *Per Share Data

The Company computes both “basic” and “diluted”earnings per share information for inclusion in the consolidated financialstatements. Basic earnings per share is computed by dividing net income (loss)to common stockholders by the weighted average number of common sharesoutstanding. For periods that have income available to common stockholders,diluted earnings per share is calculated by dividing net income beforepreferred stock dividends by the weighted average number of common sharesoutstanding increased for the potentially dilutive common shares issuable forstock options, warrants and convertible preferred stock.

Loss per share—basic and diluted for the years ended January 31,2006, 2005 and 2004 is computed based on the weighted average number of sharesof common stock outstanding during the period of 226,587,304, 224,764,006 and 122,842,078,respectively. Basic loss per share and loss per share-assuming dilutionare the same for the years ended January 31, 2006, 2005 and 2004 becausethe net loss to common stockholders causes potentially dilutive common sharesto be antidilutive.

Antidilutivecommon stock equivalents include: options to purchase 69,975,758, 55,242,713and 1,738,300 shares of common stock at January 31, 2006, 2005 and 2004,respectively; outstanding warrants to purchase approximately15,515,892 million shares of common stock at an exercise price of $0.75per share at January 31, 2006, 2005 and 2004; warrants to purchase 828,356shares of common stock at an exercise price of $13.02 per share at January 31,2006, 2005 and 2004, and preferred stock convertible into 461,861,317 shares,413,349,524 shares and 396,337,121 at January 31, 2006, 2005 and 2004,respectively.

*(l)  *Derivative FinancialInstruments

The Company accounts for derivative financialinstruments in accordance with the provisions of Statement of Financial AccountingStandards No. 133, “*Accounting forDerivative Instruments and Hedging Activities”* (“SFAS 133”),and its corresponding amendments under SFAS No. 138 and SFAS 149.SFAS 133 requires the Company to measure all derivatives at fair value andto recognize them in the consolidated balance sheet as an asset or liability,depending on the Company’s rights or obligations under the applicablederivative contract. For derivatives designated as fair value hedges, thechanges in the fair value of both the derivative instrument and the hedged itemare recorded in earnings. For derivatives designated as cash flow hedges, theeffective portions of changes in fair value of the derivative are reported inother comprehensive income (“OCI”) and are subsequently reclassified intoearnings when the hedged item affects earnings. Changes in fair value ofderivative instruments not designated as hedging instruments and ineffectiveportions of hedges are recognized in earnings in the current period.

F-9

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The Company periodically enters into derivativetransactions to hedge interest rates on floating rate debt obligations andforecasted foreign currency transactions. These derivatives are classified ascash flow hedges. The Company also enters into derivative transactions toreduce exposure to the effect of exchange rates on the earnings of foreignoperations (primarily the effect of changes in the euro exchange rate on theresults of the Company’s significant European operations). These derivativetransactions to hedge the effect of exchange rates on foreign earnings are notallowed hedge accounting treatment under SFAS 133 or under SFAS 52;therefore, the Company records these instruments at fair value and recognizesrealized and unrealized gains and losses in Other Income (Expense)—Net.

Netgains or losses on interest rate hedges are recorded in interest expense whenreclassified to earnings. Net gains or losses on hedges of forecasted foreigncurrency transactions are reclassified to revenues or cost of sales dependingon the type of transaction being hedged and are reclassified from othercomprehensive income as the underlying hedged transactions occur. At January 31,2006, cash flow hedges for forecasted foreign currency transactions extenduntil October 2006. The estimated amount of net gains from foreigncurrency hedges expected to be reclassified into earnings within the next12 months is $522. The amount ultimately reclassified into earnings willbe dependent on the effect of changes in interest rates and currency exchangerates as derivative agreements mature. The Company did not enter into anyinterest rate hedges during the years ended January 31, 2006, 2005 and2004.

*(m)  *Foreign CurrencyTranslation, Exchange Risk and Financial Instruments

The accounts of the Company’s foreign subsidiaries andaffiliates are measured using the local currency as the functional currency.For those operations, assets and liabilities are translated into U.S. dollarsat period-end exchange rates. Income and expense accounts are translated ataverage monthly exchange rates. Net exchange gains or losses resulting fromsuch translation are excluded from results of operations and accumulated as aseparate component (foreign currency translation adjustment) of stockholders’deficit. Gains and losses from foreign currency transactions as a result ofoperating activities are included in cost of sales and general andadministrative expenses; gains or losses from intercompany payables anddenominated in foreign currencies are included in Other Income (Expense)—Net.

TheCompany has designated the principal balance of €100,000($121,520 at January 31, 2006) of its senior floating rate notes as ahedge of the foreign currency exposure related to the investment in itsEuropean operations. For the year ended January 31, 2006, an exchange gainof $8,830 from the translation of these notes to U.S. dollars was included inthe foreign currency translation adjustment.

*(n)  *Revenue Recognition

Revenues from wholesale product sales are recognizedwhen (i) evidence of a sales arrangement at a fixed and determinable priceexists (usually in the form of a sales order), (ii) collectibility isreasonably assured, and (iii) title transfers to the customer. Provisionsare made for estimates of markdown allowances, warranties, returns anddiscounts at the time product sales are recognized. Shipping terms arepredominately FOB shipping point (title transfers to the customer at ourshipping location) except in certain Asian countries where title transfers upondelivery to the customer. In all cases, sales are recognized upon transfer oftitle to customers. Revenues from retail sales are recognized at thepoint-of-sale to consumers.

The Company licenses itsbrand names to certain unrelated third parties as well as certain foreignsubsidiaries and joint ventures. Net sales include royalties earned and salesof licenses to third parties of $16,564, $19,901 and $22,041, for the yearsended January 31, 2006, 2005 and 2004, respectively.

F-10

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*(o)  *Stock BasedCompensation

As permitted by SFAS No. 123, “Accounting forStock-Based Compensation” (“SFAS 123”), the Company accounts for stock-basedemployee compensation arrangements using the intrinsic value method inaccordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25,“Accounting for Stock Issued to Employees,” and Financial Accounting StandardsBoard Interpretation No. 44 (“FIN 44”) “Accounting for CertainTransactions Involving Stock Compensation—an Interpretation of APB 25,” anddiscloses the effect on net income (loss) and earnings (loss) per share as ifthe Company had applied the fair value recognition provisions of SFAS 123. UnderAPB No. 25, compensation expense is based on the difference, if any, onthe date of the grant, between the fair value of the Company’s stock and theexercise price and, for certain options where the ultimate number of sharesissued under the grant is not fixed, compensation expense is variable andremeasured based on the fair value of the Company’s stock at the end of eachfiscal quarter.

Thefollowing table illustrates the pro forma effect of expensing stock optionsunder the fair value recognition provisions of SFAS 123.

| ** **                                                                  | ** ** | **Years ended January 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                  | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                  | ** ** | ** **                                 | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| Net loss to  common stockholders, as reported                               |       | $                                          | (1,510     | ) |   | (23,381 | ) |   |   | (28,304 | ) |   |
| Add stock-based  compensation expense                                       |       | 5,497                                      |       |   | 4,031 |   |   |   | — |   |   |
| Deduct  stock-based compensation expense determined under fair value method |       | (7,523                                     | )          |   | (4,746 | ) |   |   | (293 | ) |   |
| Pro forma net  loss to common stockholders                                  |       | $                                          | (3,536     | ) |   | (24,096 | ) |   |   | (28,597 | ) |   |
| Net loss to  common stockholders per share—basic and diluted:          |       |                                       |       |   |   |   |   |   |   |   |   |
| As reported                                                                 |       | $                                          | (0.01      | ) |   | (0.10 | ) |   |   | (0.23 | ) |   |
| Pro forma                                                                   |       | $                                          | (0.02      | ) |   | (0.11 | ) |   |   | (0.23 | ) |   |

 

The fair value of eachoption grant in 2006 and 2005 was estimated on the date of grant using theBlack-Scholes option pricing model with the following assumptions usedfor grants in the year ended January 31, 2006 and 2005: no dividend yield;volatility of 52%; weighted- average risk-free interest rate of 3.24% to3.75%; and weighted average expected life of 4.5 years. There were nooptions granted in fiscal 2004.

*(p)  *Advertising Expense

Costs for producing mediaadvertising are deferred until the related advertising appears in print ortelevision media, at which time such costs are expensed. Other advertisingcosts are expensed as incurred. Cooperative advertising costs associated withcustomer support programs giving the Company an identifiable advertisingbenefit equal to at least the amount of the advertising allowance are accruedand charged to selling, general and administrative expenses when the relatedrevenues are recognized. Cooperative advertising expense was approximately$24,779, $21,149 and $17,541 during the years ended January 31, 2006, 2005and 2004, respectively. Advertising expense (including cooperative advertising)was approximately $63,600, $50,600 and $37,000 during the years ended January 31,2006, 2005 and 2004, respectively. Promotional expense (including catalogdevelopment, trade fairs, sales samples, brochure inserts and point of displaymaterials) was approximately $7,100, $6,700 and $5,300 during the years ended January 31,2006, 2005 and 2004, respectively. From time to time, the Company offersvarious types of incentive arrangements such as cash or payment discounts,rebates or free products. All such incentive arrangements are accrued and chargedto reduce reported revenues when incurred.

F-11

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*(q)*   Reclassifications

Certainreclassifications were made to the consolidated financial statements for priorperiods to conform to the January 31, 2006 presentation. Suchreclassifications include the reclassification of gains or losses from foreigncurrency transactions related to transactions made in the ordinary course ofbusiness to cost of sales and selling, general and administrative expenses forall periods presented for all segments. For the year ended January 31,2005, this reclassification decreased previously reported amounts forconsolidated cost of sales by $712, decreased selling, general andadministrative costs by $19, and increased other expense by $731. For the yearended January 31, 2004, this reclassification increased previouslyreported amounts for cost of sales by $2,035 and decreased other expense by$2,035.

*(r)  *Warranties

TheCompany’s warranty reserves are recorded on the consolidated balance sheet toreflect contractual liabilities relating to warranty commitments to customers. Warrantycoverage of various lengths and terms is provided to customers depending onstandard offerings. An estimate for warranty expense is recorded at the time ofsale based on historical warranty return rates and repair costs. The Company’swarranty reserves are not significant in any given year.

*(s)*   Software Purchase andDevelopment Costs

The Company capitalizes the costs of purchasedsoftware and costs to configure, install and test software. Software assessmentand evaluation, process reengineering, data conversion, training, maintenanceand ongoing software support costs are expensed.

Capitalizedsoftware is amortized over its estimated useful life, typically three to tenyears. Amortization expense was $2,107, $1,514 and $1,490 in fiscal 2006, 2005and 2004, respectively, and is included in selling, general and administrativeexpense. The unamortized balance of capitalized software was $3,163 and $4,355at January 31, 2006 and 2005, respectively.

*(t)  *Cost of Sales andSelling, General and Administrative Expense

TheCompany includes the following types of costs in cost of goods sold: directproduct purchase and manufacturing costs, duties, freight-in, receiving,inspection, internal transfer costs, and procurement and manufacturing overhead.The Company includes the following types of costs in selling, general andadministrative expenses (“SG&A”): warehousing, order entry, billing,credit, freight-out, warranty, salaries and benefits of administrative andsales personnel, rent, insurance, taxes, office supplies, professional fees,travel, communications, advertising, investor relations, public companyexpenses and other expenses of a general and administrative nature not directlyrelated to the cost of acquiring or manufacturing its products. Othercomparable companies may include warehousing, freight-out and other types ofcosts that the Company includes in SG&A in cost of goods sold.

*(u)  *Income Taxes

The Company uses the liability method for determiningincome taxes, under which current and deferred tax liabilities and assets arerecorded in accordance with enacted tax laws and rates. Under this method, theamounts of deferred tax liabilities and assets at the end of each period aredetermined using the tax rate expected to be in effect when taxes are actuallypaid or recovered. Future tax benefits are recognized to the extent thatrealization of such benefits is more likely than not.

Deferred income taxes are provided for the estimatedincome tax effect of temporary differences between financial and tax bases inassets and liabilities. Deferred tax assets are also provided for certain tax 

F-12

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credit carryforwards. Avaluation allowance to reduce deferred tax assets is established when it ismore likely than not that some portion or all of the deferred tax assets willnot be realized.

The Company intends to indefinitely reinvest certainearnings of our foreign subsidiaries in operations outside the U.S., andaccordingly, income taxes have not been provided on such earnings. The Companydoes provide U.S. and additional non-U.S. taxes on earnings anticipated to berepatriated from non-U.S. subsidiaries.

We are subject to the jurisdiction of numerousdomestic and foreign tax authorities, as well as to tax agreements and treatiesamong these governments. Operations in these different jurisdictions are taxedon various bases. Determination of taxable income in any jurisdiction requiresthe interpretation of the related tax laws and regulations and the use ofestimates and assumptions regarding significant future events, such as theamount, timing and character of deductions, permissible revenue recognitionmethods under the tax law and the sources and character of income and taxcredits. Changes in tax laws, regulations, agreements and treaties, foreigncurrency exchange restrictions or our level of operations or profitability ineach taxing jurisdiction could have an impact upon the amount of income taxesprovided during any given year.

Tax filings for variousperiods are subject to audit by tax authorities in most jurisdictions where theCompany conducts business. These audits may result in assessments of additionaltaxes that are resolved with the authorities or potentially through the courts.

**(2)   Restatementof Fiscal Year 2005 and 2004 Financial Statements**

On May 3, 2006, the Company determined that thedeferred tax asset valuation allowance at January 31, 2003 was understatedby $5,750 because of the incorrect use of deferred tax liabilities associatedwith indefinite lived intangible assets to reduce the amount of valuationallowance computed for United States deferred tax assets. The error also hadthe effect of understating income tax expense by $649 and $804 for the yearsended January 31, 2005 and 2004, respectively. The Company has correctedthe error by restating its accumulated deficit as of February 1, 2003, andits consolidated statements of operations for the years ended January 31,2005 and 2004 for the understatement of income tax expense in those periods,and restated its January 31, 2005 consolidated balance sheet for theeffect of the change on deferred tax assets and deferred tax liabilities. TheCompany has also made certain other immaterial corrections to its income taxdisclosures in Note 14.

The followingtables summarize the impact of the restatement discussed above on thepreviously issued consolidated balance sheet as of January 31, 2005 andthe effect on the previously issued consolidated statements of operations andstatements of other comprehensive loss for the years ended January 31,2005 and 2004. The effects on previously issued quarterly financial statementsfor fiscal 2006 and 2005 are summarized in Note 19.

| ** **                        | ** ** | **As of January 31, 2005** | ** ** |
|-----------------------------------|------------|------------------------------------------------|------------|
| ** **                        | ** ** | **As Previously**                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **Reported**                                   | ** ** | **Adjustment** | ** ** | **As Restated** | ** ** |
| **Consolidated Balance Sheet**    | ** ** |                                           | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Deferred income  tax asset        |       |                                           | $          | 12,692 |   |   |   | (2,652 | ) |   |   | 10,040 |   |   |
| Total assets                      |       |                                           | 565,735    |   |   |   | (2,652 | ) |   |   | 563,083 |   |   |
| Deferred income  tax liability    |       |                                           | 21,416     |   |   |   | 4,551 |   |   |   | 25,967 |   |   |
| Total liabilities                 |       |                                           | 600,943    |   |   |   | 4,551 |   |   |   | 605,494 |   |   |
| Accumulated  deficit              |       |                                           | (530,707   | ) |   |   | (7,203 | ) |   |   | (537,910 | ) |   |
| Total stockholders’  deficit |       |                                           | (49,139    | ) |   |   | (7,203 | ) |   |   | (56,342 | ) |   |
|                                   |            |                                                |            |  |  |  |  |  |  |  |  |  |  |  |

 

F-13

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| ** **                                                        | ** ** | **For the Year Ended January 31, 2005** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                        | ** ** | **As Previously**                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                        | ** ** | **Reported**                                                          | ** ** | **Adjustment** | ** ** | **As Restated** | ** ** |
| **Consolidated Statement of  Operations**                         | ** ** |                                                                  | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Income tax  expense                                               |       |                                                                  | $          | (13,003 | ) |   |   | (649 | ) |   |   | (13,652 | ) |   |
| Net loss                                                          |       |                                                                  | (9,049     | ) |   |   | (649 | ) |   |   | (9,698 | ) |   |
| Net loss to  common stockholders                                  |       |                                                                  | (22,732    | ) |   |   | (649 | ) |   |   | (23,381 | ) |   |
| Net loss per  share to common stockholders—basic and diluted |       |                                                                  | (0.10      | ) |   |   | — |   |   |   | (0.10 | ) |   |
| **Consolidated  Statement of Comprehensive Loss:**                |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                          |       |                                                                  | $          | (9,049 | ) |   |   | (649 | ) |   |   | (9,698 | ) |   |
| Comprehensive loss                                                |       |                                                                  | (27,516    | ) |   |   | (649 | ) |   |   | (28,165 | ) |   |

 

| ** **                                                        | ** ** | **For the Year Ended January 31, 2004** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                        | ** ** | **As Previously**                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                        | ** ** | **Reported**                                                          | ** ** | **Adjustment** | ** ** | **As Restated** | ** ** |
| **Consolidated Statement of  Operations**                         | ** ** |                                                                  | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Income tax  expense                                               |       |                                                                  | $          | (10,431 | ) |   |   | (804 | ) |   |   | (11,235 | ) |   |
| Net income                                                        |       |                                                                  | 3,555      |   |   |   | (804 | ) |   |   | 2,751 |   |   |
| Net loss to  common stockholders                                  |       |                                                                  | (27,500    | ) |   |   | (804 | ) |   |   | (28,304 | ) |   |
| Net loss per  share to common stockholders—basic and diluted |       |                                                                  | (0.22      | ) |   |   | (0.01 | ) |   |   | (0.23 | ) |   |
| **Consolidated  Statement of Comprehensive Income:**              |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                        |       |                                                                  | $          | 3,555 |   |   |   | (804 | ) |   |   | 2,751 |   |   |
| Comprehensive income                                              |       |                                                                  | 26,252     |   |   |   | (804 | ) |   |   | 25,448 |   |   |

 

**(3)   Refinancing,Recapitalization and Convertible Preferred Stock**

*(a)  *Refinancing

On May 21, 2004, the Company retired $14,600 ofits 103¤4%Senior Subordinated Notes (the “103¤4%Notes”) through an open market purchase at a price of 103.50% of the principalamount, and on May 25, 2004, the Company commenced an offer to purchaseand consent solicitation for the purpose of retiring and refinancing theremaining principal balance of the 103¤4%Notes of $308,300. Holders of the notes who tendered their notes prior toJune 8, 2004 received a total tender offer consideration of $1.04267 per$1.00 of principal amount plus accrued and unpaid interest. Notes that remainedoutstanding following the expiration of the tender offer on June 8, 2004were redeemed on July 11, 2004 at a redemption price of $1.035833 per$1.00 of principal amount plus accrued and unpaid interest.

To refinance the 103¤4% Notes and topay the tender and redemption premiums, on June 9, 2004 the Company issued€100,000($121,520 at January 31, 2006) senior floating rate notes due 2010 and$205,000 87¤8%senior subordinated notes due 2011. See Note 10 for a description of thesenior notes and the senior subordinated notes.

A total of $17,767 ofredemption premiums, tender and consent solicitation payments, dealer-managerfees and deferred financing costs were charged to Other Income (Expense)—Net inconnection with the repurchase and retirement of the 103¤4%notes. Additionally, a total of $8,055 of deferred financing costs wereincurred in connection with the issuance of the floating rate senior notes andthe 87¤8%senior subordinated notes.

 

F-14

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*(b)  *Recapitalization andConvertible Preferred Stock

On July 31, 2003, the Company closed arecapitalization transaction, which reduced the Company’s indebtedness andretired the Company’s then outstanding senior redeemable preferred stock. Aspart of the recapitalization, new investors purchased at par for cash 106,000shares of a new series of the Company’s convertible preferred stock with aninitial dividend rate of 8% and a liquidation preference of $106,000. Therecapitalization provided for the holders of the existing senior redeemablepreferred stock to exchange their preferred stock for either (i) acombination of the new 8% convertible preferred stock, or (ii) acombination of shares of common stock and common stock purchase warrants. Additionally,the Company’s then existing bank credit facility was replaced with a new$60,000 revolving credit agreement and all outstanding amounts owed under theold senior bank credit facility were repaid. As a result of therecapitalization, all of the 281,131 outstanding shares of 137¤8%senior redeemable preferred stock, which had an aggregate liquidationpreference of $352,000 on July 31, 2003, were exchanged for 53,982 sharesof new convertible preferred stock with an aggregate liquidation preference of$53,982, 204,839,751 shares of common stock, and warrants to purchase15,515,892 shares of common stock at an exercise price of $0.75 per shareexpiring on July 31, 2013. All of the common stock purchase warrants wereissued to one of the new investors in the 8% convertible preferred stock whoalso held a significant ownership position in the existing senior redeemablepreferred stock. The Company used the proceeds from the sale of the newpreferred stock and borrowings under the new senior credit facility to repayall amounts outstanding under the old senior credit facility, to pay fees andexpenses incurred in connection with the recapitalization and to make a $5,000contribution to its U.S. defined benefit pension plan.

The exchange of the 137¤8 senior redeemable preferredstock for the new convertible stock, common stock, and common stock purchasewarrants was accounted for as a change within equity; accordingly, nogain or loss was recognized and the excess of the carrying value of the 137¤8% senior redeemable preferredstock over the sum of the initial liquidation preference of the new 8%convertible preferred stock and the par value of the common stock issued wascredited to additional paid-in capital in the amount of $288,832. Theconversion price of the new 8% convertible preferred stock was fixed on May 1,2003 at that day’s market price of $0.42 per share. In accounting for theconversion feature of the 8% convertible preferred stock, May 1, 2003 wasrecognized as the commitment date. As of that date, the Company had obtainedvoting agreements from a majority of the then outstanding common and preferredstock to approve the recapitalization.

At January 31, 2006the convertible preferred stock had a liquidation preference of $193,891,including cumulative dividends in the amount of $34,900 that have accrued buthave not been paid. The 8% dividend rate may increase or decrease on or after July 31,2008 under certain conditions relating to whether accrued and owing dividendshave been paid, the percentage of our outstanding voting stock held by ourmajor stockholders and the number of non-independent members on our boardof directors. In the event of a liquidation, change of control, qualifiedpublic offering of common stock, or qualified recapitalization (all as definedin the Certificate of Designation and Powers governing the terms of theconvertible preferred stock), the accrual and compounding of dividends for theperiod up to and including the June 15, 2007 dividend payment date aredeemed to have accelerated and fully accrued as of the date immediately priorto the liquidation, change of control, qualified public offering of commonstock, or qualified recapitalization. The preferred stock is convertible intothe Company’s common stock at any time at the option of the holder at a priceof $0.42 per common share. Upon a qualified public offering of common stock (asdefined in the Certificate of Designation and Powers), all outstanding sharesof the convertible preferred stock shall be converted automatically into thenumber of shares of common stock into which they are convertible immediatelyprior to the occurrence of the qualified public offering. At January 31,2006, the preferred stock is convertible into approximately 462 millionshares of the Company’s common stock. The convertible preferred stock voteswith the common stock on an as-converted basis on all matters submittedto a vote of common stockholders. If we distribute dividends to any class ofsecurities 

F-15

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that arejunior to our convertible preferred stock (including our common stock), eachholder of convertible preferred stock shall have the option to elect, in lieuof an adjustment to the convertible preferred stock conversion price, toparticipate in such dividend or distribution pro rata with the holders of thejunior securities as if their shares of convertible preferred stock had beenconverted immediately before the record date for such dividend or distribution.The Company has the option to redeem the convertible preferred stock at any timeafter July 31, 2011 at a redemption price of $1,000 per share (as adjustedfor any stock dividends, combinations, splits or recapitalizations with respectto such shares) plus all accrued and unpaid dividends.

**(4)   AssetImpairment and Provision for Restructuring Operations**

*Fiscal 2006*

A restructuring charge was incurred in the Europeansegment in connection with the August 31, 2005 sale of the Henin-Beaumont,France facility (the “H-B site”). The Company made cash payments to thepurchaser of $9,923 and has an additional payment obligation of $1,421 in 24months, all of which relate to the assumption by the purchaser of the Company’sliability and responsibility for employee pension and social costs for the 206employees at the H-B site. A restructuring charge of $8,666 was recorded whichrepresents the amount of cash payment obligations less amounts previouslyaccrued for pension and other benefit liabilities for the H-B site employees. TheCompany also incurred legal and consulting costs of approximately $1,171related to the sale of the H-B site that are included in cost of sales for theyear ended January 31, 2006. An asset impairment charge of $5,450 was alsorecorded upon the decision to sell the H-B site for the write off of thenet book value of the H-B site property, plant and equipment sold to thepurchaser. No additional costs are expected to be incurred during fiscal 2007related to the sale of the H-B site. In connection with the sale, the Companyagreed to purchase luggage products from the purchaser of the H-B site for aperiod of 24 months following the sale in the amount of €11,428($13,887 at January 31, 2006), approximately €3,808 ($4,627 at January 31,2006) of the commitment was satisfied as of January 31, 2006.

The Company also relocated its softside developmentcenter from Torhout, Belgium to its Oudenaarde, Belgium facility and eliminatedthe remaining positions at its Tres Cantos, Spain manufacturing facility. Eachfacility had been significantly downsized and restructured over the pastseveral years. A restructuring charge of $1,389 was recorded related toseverance obligations for 18 employees terminated as a result of theseactions. No additional costs are expected to be incurred during fiscal 2007related to the closure of the Torhout and Tres Cantos facilities.

Previously accruedrestructuring charges of $207 related to North American and Latin Americanrestructuring were reversed and recorded as a credit to restructuring chargesbecause it was determined the original restructuring was over-accrued.

*Fiscal 2005*

The Company recorded arestructuring provision of $3,390 for the closure of the Tres Cantos, Spainmanufacturing plant and severance costs associated with approximately 40positions that were eliminated. An asset impairment provision of $671 was alsorecorded to write-down costs related to a project to convert an idle U.S.factory to a warehouse. The Company also recorded a charge of $685 for leasetermination costs related to the closure of the Nogales, Mexico productionfacility. Production at this facility ceased during July 2004 and thefacilities were vacated during the third quarter. The Company recorded arestructuring provision of $1,788 related to severance for the elimination ofapproximately 96 positions in the Company’s Americas operations. At January 31,2006, these restructurings had been completed and no restructuring accrualsremain.

F-16

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*Fiscal 2004*

In the fourth quarter of fiscal 2004, the Companydecided to close its Nogales, Mexico hardside manufacturing plant and to beginsourcing hardside products for North America from its hardside plant in India. Inconnection with this plant closing, the Company recorded an impairment chargefor Nogales manufacturing assets of $2,658 and a restructuring provision of$1,768 related to statutory severance costs for approximately 140 positionswhich were eliminated. At January 31, 2006, this restructuring has beencompleted and no restructuring accruals remain.

Thefollowing is a summary of restructuring accruals by segment for the three yearsended January 31, 2006:

| ** **                                                           | ** ** | **Balance at  Beginning of  Year** | ** ** | **Additions  (Reversals)  Net** | ** ** | **Payments** | ** ** | **Exchange  Rate and  Other** | ** ** | **Balance at  End of Year** | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------|------------|--------------|------------|------------------------------------|------------|--------------------------------------------|------------|
| **Year  ended January 31, 2006**                                |       |                                         |       |                            |       |         |       |                               |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| North America                                                        |       |                                         |       |                            |       |         |       |                               |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Severance and termination benefits                                   |       |                                         | $          | 872                             |       |         |       | (183                               | )          |                                       |       | (513 | ) |   |   | (44 | ) |   |   | 132 |   |   |
| Europe                                                               |       |                                         |       |                            |       |         |       |                               |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Manufacturing restructuring Severance and other                 |       |                                         | 88         |                            |       |         | 10,056     |                               |       |                                       | (8,458     | ) |   |   | (18 | ) |   |   | 1,668 |   |   |
| Latin America                                                        |       |                                         |       |                            |       |         |       |                               |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Severance and other                                                  |       |                                         | 660        |                            |       |         | (24        | )                                  |       |                                       | (652       | ) |   |   | 16 |   |   |   | — |   |   |
|                                                                 |       |                                         | $          | 1,620                           |       |         |       | 9,849                              |       |                                       |       | (9,623 | ) |   |   | (46 | ) |   |   | 1,800 |   |   |
| **Year  ended January 31, 2005**                                |       |                                         |       |                            |       |         |       |                               |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| North America                                                        |       |                                         |       |                            |       |         |       |                               |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Severance and termination benefits                                   |       |                                         | $          | —                          |       |         |       | 1,130                              |       |                                       |       | (254 | ) |   |   | (4 | ) |   |   | 872 |   |   |
| Europe                                                               |       |                                         |       |                            |       |         |       |                               |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Manufacturing restructuring Severance and other                 |       |                                         | 25         |                            |       |         | 3,390      |                               |       |                                       | (3,334     | ) |   |   | 7 |   |   |   | 88 |   |   |
| Latin America                                                        |       |                                         |       |                            |       |         |       |                               |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Nogales, Mexico manufacturing restructuring Severance  and other     |       |                                         | 1,768      |                            |       |         | 658        |                               |       |                                       | (1,768     | ) |   |   | 2 |   |   |   | 660 |   |   |
| Lease termination                                                    |       |                                         | —     |                            |       |         | 685        |                               |       |                                       | (685       | ) |   |   | — |   |   |   | — |   |   |
|                                                                 |       |                                         | $          | 1,793                           |       |         |       | 5,863                              |       |                                       |       | (6,041 | ) |   |   | 5 |   |   |   | 1,620 |   |   |
| **Year  ended January 31, 2004**                                |       |                                         |       |                            |       |         |       |                               |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Europe                                                               |       |                                         |       |                            |       |         |       |                               |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Manufacturing restructuring Severance and other                 |       |                                         | $          | 577                             |       |         |       | —                             |       |                                       |       | (612 | ) |   |   | 60 |   |   |   | 25 |   |   |
| Latin America                                                        |       |                                         |       |                            |       |         |       |                               |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Mexico City, Mexico manufacturing restructuring Severance  and other |       |                                         | 191        |                            |       |         | —     |                               |       |                                       | (186       | ) |   |   | (5 | ) |   |   | — |   |   |
| Nogales, Mexico manufacturing restructuring Severance  and other     |       |                                         | —     |                            |       |         | 1,768      |                               |       |                                       | —     |   |   |   | — |   |   |   | 1,768 |   |   |
|                                                                 |       |                                         | $          | 768                             |       |         |       | 1,768                              |       |                                       |       | (798 | ) |   |   | 55 |   |   |   | 1,793 |   |   |

 

F-17

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**(5)   Inventories**

Inventoriesconsisted of the following at January 31, 2006 and 2005:

| ** **      | ** ** | **January 31,** | ** ** |
|-----------------|------------|----------------------|------------|
| ** **      | ** ** | **2006**             | ** ** | **2005** | ** ** |
| Raw materials   |       | $                    | 12,494     |   | 14,495 |   |
| Work in process |       | 2,877                |       | 3,717 |   |
| Finished goods  |       | 118,312              |       | 117,931 |   |
|            |       | $                    | 133,683    |   | 136,143 |   |

 

**(6)   AssetsHeld for Sale**

Assetsheld for sale consisted of the following at January 31, 2006 and 2005:

| ** **                                          | ** ** | **January 31,** | ** ** |
|-----------------------------------------------------|------------|----------------------|------------|
| ** **                                          | ** ** | **2006**             | ** ** | **2005** | ** ** |
| Denver, Colorado  campus(a)                         |       | $                    | —     |   | 11,484 |   |
| Intangible assets  related to apparel tradenames(b) |       | —               |       | 4,777 |   |
| Stratford,  Canada(c)                               |       | 1,515                |       | — |   |
|                                                |       | $                    | 1,515      |   | 16,261 |   |

----

(a)           For several years, theDenver, Colorado campus facility was underutilized due to the closing of thefactory and the relocation of certain functions. As a result, the campus wassold on March 15, 2005 for $14,165. Certain of the buildings were leasedback for a two-year period with options to lease back for two additionalone-year periods. A gain of $2,681 on the sale of the campus was deferred andis being amortized to rent expense over the two-year leaseback period.

(b)          Of the tradenames heldfor sale at January 31, 2005, the Company sold certain tradenames having anet book value of $2,777. The Company has determined not to sell the remainingapparel tradenames having a net book value of $2,000 and reclassified the costsrelated to those trademarks to intangibles subject to amortization.

(c)           TheCompany decided to sell its facility in Stratford, Canada and leaseback part ofthe facility and has classified the net book value of the facility to assetsheld for sale. The sale was completed in April 2006 for a sales price ofapproximately $6,300.

**(7)   Property,Plant and Equipment**

Property,plant and equipment consisted of the following at January 31, 2006 and2005:

| ** **                                      | ** ** | **January 31,** | ** ** |
|-------------------------------------------------|------------|----------------------|------------|
| ** **                                      | ** ** | **2006**             | ** ** | **2005** | ** ** |
| Land                                            |       | $                    | 6,114      |   | 6,859 |   |
| Buildings                                       |       | 56,963               |       | 69,667 |   |
| Machinery,  equipment and other                 |       | 118,689              |       | 143,066 |   |
| Computer software                               |       | 19,910               |       | 13,236 |   |
|                                            |       | 201,676              |       | 232,828 |   |
| Less accumulated  depreciation and amortization |       | (112,576             | )          | (134,018 | ) |
|                                            |       | $                    | 89,100     |   | 98,810 |   |

 

F-18

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Property,plant and equipment includes property and equipment under capital leases asfollows at January 31, 2006 and 2005:

| ** **                      | ** ** | **January 31,** | ** ** |
|---------------------------------|------------|----------------------|------------|
| ** **                      | ** ** | **2006**             | ** ** | **2005** | ** ** |
| Buildings                       |       | $                    | —     |   | 1,453 |   |
| Machinery,  equipment and other |       | 104                  |       | 65 |   |
|                            |       | 104                  |       | 1,518 |   |
| Less accumulated  amortization  |       | (73                  | )          | (497 | ) |
|                            |       | $                    | 31         |   | 1,021 |   |

 

**(8)   IntangibleAssets**

Intangibleassets consisted of the following at January 31, 2006 and 2005:

| ** **                                   | ** ** | **2006**  | ** ** | **2005**                      | ** ** |
|----------------------------------------------|------------|-----------|------------|-------------------------------|------------|
| ** **                                   | ** ** | **Gross** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** | **Gross** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| **Intangibles  subject to amortization**     |       |      |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Licenses                                     |       | $         | 7,762      |                          |       | (7,762 | ) |   | — |   | 7,762 |   |   | (7,762 | ) |   | — |   |
| Patents,  trademarks and other               |       | 4,949     |       |                          | (3,274     | ) |   | 1,675 |   | 2,949 |   |   | (2,751 | ) |   | 198 |   |
| Leasehold rights                             |       | 2,030     |       |                          | (1,482     | ) |   | 548 |   | 2,308 |   |   | (1,393 | ) |   | 915 |   |
| Unamortized prior  service cost              |       | 1,609     |       |                          | —     |   |   | 1,609 |   | 1,873 |   |   | — |   |   | 1,873 |   |
|                                         |       | 16,350    |       |                          | (12,518    | ) |   | 3,832 |   | 14,892 |   |   | (11,906 | ) |   | 2,986 |   |
| **Intangibles  not subject to amortization** |       |      |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Tradenames                                   |       | 106,998   |       |                          | (22,855    | ) |   | 84,143 |   | 106,998 |   |   | (22,855 | ) |   | 84,143 |   |
| Goodwill                                     |       | 6,699     |       |                          | (3,016     | ) |   | 3,683 |   | 6,881 |   |   | (3,194 | ) |   | 3,687 |   |
|                                         |       | 113,697   |       |                          | (25,871    | ) |   | 87,826 |   | 113,879 |   |   | (26,049 | ) |   | 87,830 |   |
| Total                                        |       | $         | 130,047    |                          |       | (38,389 | ) |   | 91,658 |   | 128,771 |   |   | (37,955 | ) |   | 90,816 |   |

 

There were no significant acquisitions of intangibleassets for the fiscal year 2006. The Company reclassified trademarks having anet book value of $2,000 to intangibles subject to amortization from assetsheld for sale at January 31, 2005 because the Company determined not tosell the trademarks. Changes in the exchange rate between the U.S. dollar andother foreign currencies, primarily the euro, affect the reported gross and netbook value of the Company’s intangible assets. During fiscal 2006, the Companyrecorded a decrease in intangible assets of $264 in connection with anadjustment of the Company’s minimum pension liability (see Note 15).

Amortization expense (not including impairmentprovisions) for intangible assets for the years ended January 31, 2006,2005 and 2004 was $862, $2,358 and $1,293, respectively. Future amortizationexpense for the net carrying amount of intangible assets at January 31,2006 is estimated to be $708 in fiscal 2007, $659 in fiscal 2008, $643 infiscal 2009, $46 in fiscal 2010, $46 in fiscal 2011 and $459 beyond 2011.

F-19

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**(9)   OtherAssets and Long-term Receivables**

Otherassets and long-term receivables consisted of the following at January 31,2006 and 2005:

| ** **                                           | ** ** | **Year ended  January 31,** | ** ** |
|------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                           | ** ** | **2006**                              | ** ** | **2005** | ** ** |
| Deferred bank and  subordinated note financing costs |       | $                                     | 7,372      |   | 10,440 |   |
| Deposits                                             |       | 3,181                                 |       | 3,065 |   |
| Long-term  deferred tax asset                        |       | 263                                   |       | 174 |   |
| Long-term  receivables                               |       | 2,522                                 |       | 1,158 |   |
| Other                                                |       | 61                                    |       | 187 |   |
|                                                 |       | 13,399                                |       | 15,024 |   |
| Allowance for  uncollectible receivables             |       | —                                |       | (66 | ) |
|                                                 |       | $                                     | 13,399     |   | 14,958 |   |

 

**(10)   Short-termDebt**

As of January 31,2006 and 2005, the Company had $9,396 and $15,505, respectively, of short-termdebt outstanding under unsecured foreign lines of credit. As of January 31,2006, the weighted average interest rate on foreign short-term borrowings was10.5%. Certain foreign subsidiaries had unused available lines of credit forworking capital, discounting trade acceptances and issuing bank guaranties ofapproximately $67,700 as of January 31, 2006; however, the terms of theCompany’s senior credit facility and senior subordinated notes limit additionalamounts which could be borrowed under such foreign credit facilities.

**(11)   Long-termObligations**

Long-termobligations represent long-term debt and capital lease obligations as followsat January 31, 2006 and 2005:

| ** **                               | ** ** | **January 31,** | ** ** |
|------------------------------------------|------------|----------------------|------------|
| ** **                               | ** ** | **2006**             | ** ** | **2005** | ** ** |
| Senior credit  facility(a)               |       | $                    | —     |   | — |   |
| Floating rate  senior notes(b)           |       | 121,520              |       | 130,350 |   |
| 87¤8%  senior subordinated notes(b) |       | 174,925              |       | 205,000 |   |
| Other  obligations(c)                    |       | 1,348                |       | 2,773 |   |
| Capital lease  obligations(d)            |       | 39                   |       | 718 |   |
|                                     |       | 297,832              |       | 338,841 |   |
| Less current  installments               |       | (1,048               | )          | (1,792 | ) |
|                                     |       | $                    | 296,784    |   | 337,049 |   |

 

*(a)*   Senior Credit Facility

The Company’s Senior Credit Facility consists of amulti currency revolving credit facility allocated to Samsonite Corporation andSamsonite Europe N.V. in the amounts of $35,000 and €22,026($26,766 as of January 31, 2006), respectively. The revolving creditfacility matures on July 31, 2007.

The U.S. portion of the revolving credit facility is aborrowing base facility under which borrowings are limited to a percentage ofeligible U.S. inventory and accounts receivable up to a maximum of $35,000. At January 31,2006, $35,000 of this portion of the facility was available for borrowing; theCompany had $4,595 of letters of credit outstanding under the U.S. portion ofthe revolving credit facility which reduced the net availability on the U.S.facility to $30,405. Borrowing availability under the European portion of the 

F-20

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revolving credit facilityis determined monthly based upon a ratio of European debt to European earningsbefore interest, taxes, depreciation and amortization. At January 31,2006, the entire European facility was available.

Borrowings under the revolving credit facility accrueinterest at rates adjusted periodically depending on the Company’s financialperformance as measured each fiscal quarter and interest rate market conditions.Additionally, the Company is required to pay a commitment fee of from 0.25% to0.50% (depending on the Company’s financial performance) on the unused portionof the revolving credit facility.

The obligations under the U.S. portion of the revolvingcredit facility are secured by, among other things, the Company’s domestic realand personal property, guaranties from certain of its domestic subsidiaries,pledges of 100% of the capital stock of certain of its domestic subsidiaries,pledges of 66% of the capital stock of certain of its foreign subsidiaries andthe personal property of certain of its domestic subsidiaries. The obligationsunder the European portion of the revolving credit facility are secured by,among other things, the collateral and guaranties securing the U.S. portion ofthe revolving credit facility and pledges of 100% of the capital stock of theCompany’s European affiliates, S.C. Denmark ApS and SC InternationalHoldings C.V.

The revolving creditfacility contains financial and other covenants that, among other things, limitthe Company’s ability to draw down the full amount of the revolving creditfacility, engage in transactions with its affiliates, make acquisitions,participate in certain mergers, or make distributions or cash dividend paymentsto its equity holders or with respect to its subordinated debt. The Company wasin compliance with such covenants as of January 31, 2006.

*(b)*   Senior Notes andSenior Subordinated Notes

The floating rate senior notes have a principal amountof €100.0 million($121,520 at January 31, 2006) and are due June 1, 2010. Interest ispayable quarterly on March 1, June 1, September 1 and December 1of each year at Euribor plus 4.375%. At January 31, 2006, interest waspayable on the floating senior rate notes at 6.848%. The notes are redeemableon or after June 1, 2006 at redemption prices ranging from 102.0% to100.0% of the principal amount depending on the redemption date, plus accruedinterest. Upon a change of control of the Company as defined in the indenture,the Company must make an offer to redeem the notes at 101.0% of the principalamount, plus accrued interest. The floating rate notes are unsecured and rankequally with all existing and future senior debt.

The 87¤8% seniorsubordinated notes are due June 1, 2011. Interest is payable semi-annuallyon June 1 and December 1 of each year. The 87¤8% notes areredeemable on or after June 1, 2008 at redemption prices ranging from104.438% to 100.0% of the principal amount depending on the redemption date,plus accrued interest. Upon a change of control as defined in the indenture,the Company must make an offer to redeem the notes at 101.0% of the principalamount, plus accrued interest. The 87¤8%notes are unsecured and rank subordinate to existing and future senior debt,including indebtedness under the senior credit facility, and rank equally withexisting and future senior subordinated debt.

The indentures under which the floating rate seniornotes and the 87¤8%senior subordinated notes were issued contain covenants that, among otherthings, restrict the ability of the Company and its restricted subsidiaries (asdefined in the indenture) to incur indebtedness, pay dividends and make certainother distributions, issue capital stock, make investments, repurchase stock,create liens, enter into transactions with affiliates, create dividend or otherpayment restrictions affecting restricted subsidiaries, merge or consolidate,and transfer or sell assets. The Company was in compliance with such covenantsas of January 31, 2006.

F-21

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*(c)*   Other Obligations

As of January 31,2006, other obligations consist of various notes payable to banks by foreignsubsidiaries. The obligations bear interest at varying rates and mature through2006.

*(d)*   Leases and DebtMaturities

Futureminimum payments under non-cancelable capital leases, which relate primarily toproperty and equipment, and non-cancelable operating leases, primarily forretail floor space rental, at January 31, 2006 were as follows:

| ** **                                                                  | ** ** | **Capital  leases** | ** ** | **Operating  leases** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------|------------|-----------------------|------------|
| Year ending January 31:                                                |       |                |       |                  |       |   |   |   |   |
| 2007                                                                        |       |                | $          | 34                    |       |   |   | 22,565 |   |   |
| 2008                                                                        |       |                | 6          |                  |       |   | 14,759 |   |   |
| 2009                                                                        |       |                | —     |                  |       |   | 9,956 |   |   |
| 2010                                                                        |       |                | —     |                  |       |   | 7,136 |   |   |
| 2011                                                                        |       |                | —     |                  |       |   | 5,299 |   |   |
| Thereafter                                                                  |       |                | —     |                  |       |   | 9,822 |   |   |
| Total minimum lease payments                                                |       |                | 40         |                  |       |   | 69,537 |   |   |
| Less amount  representing interest                                          |       |                | (1         | )                     |       |   |   |   |   |
| Present value of  net minimum capital lease payments                        |       |                | 39         |                  |       |   |   |   |   |
| Less current  installments of minimum capital lease payments                |       |                | (23        | )                     |       |   |   |   |   |
| Long-term  obligations under capital leases, excluding current installments |       |                | $          | 16                    |       |   |   |   |   |   |

 

Rentalexpense under cancelable and non-cancelable operating leases consisted of thefollowing:

| ** **          | ** ** | **Year ended January 31,** | ** ** |
|---------------------|------------|-------------------------------------------|------------|
| ** **          | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Minimum rentals     |       | $                                         | 27,402     |   | 25,727 |   | 20,116 |   |
| Contingent  rentals |       | 839                                       |       | 767 |   | 647 |   |
|                |       | $                                         | 28,241     |   | 26,494 |   | 20,763 |   |

 

Aggregatematurities of long-term obligations, including capital leases, at January 31,2006 were as follows:

| Year ending  January 31: |   |    |    |
|-------------------------------|--------|---------|---------|
| 2007                          |   | $       | 1,048   |   |
| 2008                          |   | 274     |    |
| 2009                          |   | 65      |    |
| 2010                          |   | —  |    |
| 2011                          |   | 121,520 |    |
| Beyond                        |   | 174,925 |    |
| Total                         |   | $       | 297,832 |   |

 

The Company’s leaseobligations primarily consist of non-cancelable leases of office, warehouse andretail store space and equipment. Certain of the leases are renewable at theCompany’s option. Certain of the leases provide for additional rent paymentsbased on a percentage of sales. Certain of the leases also 

F-22

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containrent escalation clauses that require additional rents in later years of thelease term, which are recognized on a straight-line basis over the lease term.

**(12)**   OtherLong-Term Liabilities

Otherlong-term liabilities consisted of the following at January 31, 2006 and2005:

| ** **                                    | ** ** | **January 31** | ** ** |
|-----------------------------------------------|------------|---------------------|------------|
| ** **                                    | ** ** | **2006**            | ** ** | **2005** | ** ** |
| Pension benefits  under defined benefit plans |       | $                   | 54,646     |   | 42,414 |   |
| U.S.  post-retirement health plan             |       | 19,567              |       | 19,642 |   |
| Accrued stock  compensation                   |       | 4,312               |       | 2,822 |   |
| Other                                         |       | 8,437               |       | 7,853 |   |
|                                          |       | $                   | 86,962     |   | 72,731 |   |

 

**(13)**   StockOptions and Stock Purchase Warrants

The Company’s equitycompensation plans described below have been approved by the Company’s securityholders.

*1995 and 1999 Stock Option and Incentive Award Plans*

The 1995 Stock Option and Incentive Award Plan (asAmended in 1996) (“the 1995 Plan”) reserves 2,550,000 shares for the issuanceof options as determined by the compensation committee of the Board ofDirectors, but pursuant to its terms no further options may be granted undersuch plan after October 18, 2005. The 1995 Plan provides for the issuanceof a variety of awards, including tax qualified incentive stock options,nonqualified stock options, stock appreciation rights, restricted stock awardsor other forms of awards consistent with the purposes of the 1995 Plan.Incentive stock options must be issued at exercise prices no less than themarket value of the common stock at the date of the grant. Nonqualified stockoptions may be granted at option prices at or below the market value, but notat less than 50% of the market value of the common stock at the date of thegrant. Options granted under the 1995 Plan may vest over a period of not morethan ten years as determined by the compensation committee. At January 31,2006, all awards under the 1995 Plan were nonqualified stock options.

The FY 1999 Stock Option and Incentive Award Plan (the“1999 Plan”) has 95 million shares reserved for the issuance of a varietyof awards, including tax qualified incentive stock options, nonqualified stockoptions and shares issued under deferred compensation plans, stock appreciationrights, restricted stock awards or other forms of awards consistent with thepurposes of the 1999 Plan. As of January 31, 2006, awards under the 1999Plan were for either nonqualified stock options or for deferred compensationarrangements.

The Company has issued different types of stock-basedcompensation awards including in-the-money options, at-the-money options, anddeferred compensation awards payable in shares of common stock or cash at theCompany’s discretion. The vesting of certain of the options was subject toperformance criteria, all of which have been satisfied. Stock options grantedat fixed in the-money or at-the-money strike prices and options withperformance criteria that have been satisfied, are accounted for by recognizingtheir intrinsic value as stock compensation expense and crediting additionalpaid-in capital over the vesting period of the options. Stock options withperformance criteria were accounted for as variable awards with the intrinsicvalue measured based on the current market price for the Company’s common stockeach reporting period and recognized over the vesting period as stockcompensation expense and additional paid-in capital. The intrinsic value of thedeferred compensation awards varies based on the current market value of theCompany’s common stock; therefore, these awards are accounted for as variableawards with the intrinsic value measured based on the current market price forthe Company’s common 

F-23

----

stock each reportingperiod and recognized over the vesting period as compensation expense andaccrued liabilities because the awards may be payable in cash or the Company’scommon stock, at the Company’s discretion.

Compensation expenserelated to stock options and deferred compensation awards of $5,497 and $4,031was recognized for the year ended January 31, 2006 and 2005, respectively.Amounts credited to additional paid in capital and accrued liabilities were$4,007 and $1,490, and $1,209 and $2,822, respectively, during the years ended January 31,2006 and 2005, respectively. At January 31, 2006, the Company hasunrecognized fixed compensation expense related to stock options of $2,958 andunrecognized compensation related to deferred compensation awards of up to$2,051.

*Stock Option Summary*

**Asummary of stock option award activity follows:**

| ** **                                                      | ** ** | **Year ended January 31,** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                      | ** ** | **Shares**                                | ** ** | **Weighted-  Average  Exercise Price** | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** ** |
| Outstanding at  beginning of year                               |       | 55,242,713                                |       |   | $ | 0.66 |   |   | 1,738,300 |   |   | $ | 6.35 |   |   | 1,824,952 |   |   | $ | 6.44 |   |   |
| Granted                                                         |       | 39,600,000                                |       |   | $ | 0.57 |   |   | 54,000,000 |   |   | $ | 0.53 |   |   | — |   |   | — |   |   |
| Exercised                                                       |       | —                                    |       |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   |
| Cancelled                                                       |       | (24,866,955                               | )          |   | $ | 0.60 |   |   | (495,587 | ) |   | $ | 6.36 |   |   | (86,652 | ) |   | $ | 7.31 |   |   |
| Outstanding at end of year                                      |       | 69,975,758                                |       |   | $ | 0.69 |   |   | 55,242,713 |   |   | $ | 0.66 |   |   | 1,738,300 |   |   | $ | 6.35 |   |   |
| Options exercisable at end of year                              |       | 10,744,508                                |       |   | $ | 1.07 |   |   | 995,013 |   |   | $ | 6.46 |   |   | 1,105,657 |   |   | $ | 6.89 |   |   |
| Weighted-average  fair value of options granted during the year |       | $                                         | 0.355      |   |   |   |   |   | $ | 0.321 |   |   |   |   |   | $ | — |   |   |   |   |   |
|                                                                 |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Thefollowing table summarizes information about stock options outstanding at January 31,2006:

| ** **                                  | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **Range of Exercise Prices** | ** ** | ** **                   | ** ** | **Number  Outstanding**      | ** ** | **Weighted-Average  Remaining  Contractual Life** | ** ** | **Weighted-  Average  Exercise Price** | ** ** | **Number  Exercisable** | ** ** | **Weighted-  Average  Exercise Price** | ** ** |
| $0.525 — $  0.70             |       | 69,015,000                   |       |                         | 8.7 years  |   |   |   | $ | 0.62 |   |   | 9,915,000 |   |   | $ | 0.64 |   |   |
| $2.62   — $10.00             |       | 960,758                      |       |                         | 3.2 years  |   |   |   | $ | 6.23 |   |   | 829,508 |   |   | $ | 6.27 |   |   |
|                                             |            |                              |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*Stock WarrantsOutstanding*

As of January 31,2006 the Company has warrants outstanding to purchase approximately 15,515,892shares of common stock at an exercise price of $0.75 per share expiring onJuly 31, 2013 (see Note 3(b)). Also outstanding are warrants to purchase828,356 shares of common stock at an exercise price of $13.02 per share, whichare exercisable until June 2010.

 

F-24

----

**(14)   IncomeTaxes**

The Company has operations in numerous countries andits tax provision involves many complex variables, including differing taxstructures from country to country and the effect of international earnings onU.S. taxation. 

Incometax expense (benefit) attributable to income (loss) from operations consistsof: 

| ** **                                    | ** ** | **Current** | ** ** | **Deferred** | ** ** | **Total** | ** ** |
|-----------------------------------------------|------------|-------------|------------|--------------|------------|-----------|------------|
| Year ended  January 31, 2006:            |       |        |       |         |       |      |       |   |   |
| U.S. federal                                  |       | $           | 634        |         |       | (1,118    | )          |   | (484 | ) |
| Foreign                                       |       | 18,002      |       |         | (641       | )         |       | 17,361 |   |
| U.S. state and local                          |       | (643        | )          |         | 282        |      |       | (361 | ) |
|                                          |       | $           | 17,993     |         |       | (1,477    | )          |   | 16,516 |   |
| Year ended  January 31, 2005 (restated): |       |        |       |         |       |      |       |   |   |
| U.S. federal                                  |       | $           | —     |         |       | 629       |       |   | 629 |   |
| Foreign                                       |       | 13,869      |       |         | (875       | )         |       | 12,994 |   |
| U.S. state and local                          |       | 9           |       |         | 20         |      |       | 29 |   |
|                                          |       | $           | 13,878     |         |       | (226      | )          |   | 13,652 |   |
| Year ended  January 31, 2004 (restated): |       |        |       |         |       |      |       |   |   |
| U.S. federal                                  |       | $           | —     |         |       | 2,548     |       |   | 2,548 |   |
| Foreign                                       |       | 12,470      |       |         | (2,039     | )         |       | 10,431 |   |
| U.S. state and local                          |       | —      |       |         | (1,744     | )         |       | (1,744 | ) |
|                                          |       | $           | 12,470     |         |       | (1,235    | )          |   | 11,235 |   |

 

Componentsof income (loss) from operations before income taxes and minority interest areas follows: 

| ** **      | ** ** | **Year ended January 31,** | ** ** |
|-----------------|------------|-------------------------------------------|------------|
| ** **      | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| United States   |       | $                                         | (3,869     | ) | (28,671 | ) | (13,046 | ) |
| Other countries |       | 38,588                                    |       | 36,146 |   | 29,580 |   |
| Total           |       | $                                         | 34,719     |   | 7,475 |   | 16,534 |   |

 

F-25

----

Incometax expense (benefit) attributable to income (loss) before income taxes andminority interest differed from the amounts computed by applying the U.S.federal income tax rate of 35% for fiscal 2006, 2005 and 2004 as a result ofthe following: 

| ** **                                                         | ** ** | **Year ended January 31,** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                         | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                         | ** ** | ** **                                | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| Computed  “expected” tax expense                         |       | $                                         | 12,152     |   |   | 2,616 |   |   |   | 5,787 |   |   |
| Increase  (decrease) in taxes resulting from:                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Tax rate differential on foreign earnings                          |       | (3,485                                    | )          |   | 3,956 |   |   |   | 4,419 |   |   |
| Tax effect of foreign dividends                                    |       | 301                                       |       |   | — |   |   |   | 2,260 |   |   |
| Tax effect of subpart F income                                     |       | 6,872                                     |       |   | 4,482 |   |   |   | 3,691 |   |   |
| Foreign tax on US income                                           |       | (410                                      | )          |   | (534 | ) |   |   | (497 | ) |   |
| Valuation reserve adjustment                                       |       | 188                                       |       |   | 3,081 |   |   |   | (3,847 | ) |   |
| State taxes                                                        |       | 693                                       |       |   | (493 | ) |   |   | (182 | ) |   |
| Adjustment of reserves related to prior years’  tax provision |       | (652                                      | )          |   | — |   |   |   | — |   |   |
| Non-deductible stock compensation                                  |       | 1,058                                     |       |   | 265 |   |   |   | — |   |   |
| Other, net                                                         |       | (201                                      | )          |   | 279 |   |   |   | (396 | ) |   |
| Income tax expense                                                 |       | $                                         | 16,516     |   |   | 13,652 |   |   |   | 11,235 |   |   |

 

Thetax effects of temporary differences that give rise to significant portions ofthe net deferred tax liability are presented below: 

| ** **                                                            | ** ** | **January 31,** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                            | ** ** | **2006**             | ** ** | **2005** | ** ** |
| ** **                                                            | ** ** | ** **           | ** ** | **(restated)** | ** ** |
| Deferred tax  assets:                                                 |       |                 |       |   |   |   |   |
| Allowance for doubtful accounts                                       |       | $                    | 2,083      |   |   | 2,503 |   |   |
| Inventory                                                             |       | 2,251                |       |   | 2,985 |   |   |
| Other accruals and reserves                                           |       | 14,552               |       |   | 12,338 |   |   |
| Plant, equipment and intangibles                                      |       | 8,204                |       |   | 8,161 |   |   |
| Post-retirement benefits                                              |       | 7,539                |       |   | 7,530 |   |   |
| Pension                                                               |       | 20,061               |       |   | 15,070 |   |   |
| Net operating loss and minimum tax credit  carryforwards              |       | 64,097               |       |   | 68,420 |   |   |
| Total gross deferred tax assets                                       |       | 118,787              |       |   | 117,007 |   |   |
| Less valuation allowance                                              |       | (86,170              | )          |   | (82,337 | ) |   |
| Deferred tax assets, net of valuation allowance                       |       | 32,617               |       |   | 34,670 |   |   |
| Deferred tax  liabilities:                                            |       |                 |       |   |   |   |   |
| Plant, equipment and intangibles due to fresh start  accounting  |       | 28,060               |       |   | 32,039 |   |   |
| Plant and equipment, due to differences in  depreciation methods      |       | 7,883                |       |   | 9,264 |   |   |
| Intangible assets                                                     |       | 6,366                |       |   | 5,620 |   |   |
| Other                                                                 |       | 4,290                |       |   | 3,500 |   |   |
| Total gross deferred tax liabilities                                  |       | 46,599               |       |   | 50,423 |   |   |
| Net deferred tax  liability                                           |       | $                    | 13,982     |   |   | 15,753 |   |   |

 

F-26

----

Thecomponents of the net current deferred tax asset and net non-current deferredtax liability were as follows: 

| ** **                              | ** ** | **January 31,** | ** ** |
|-----------------------------------------|------------|----------------------|------------|
| ** **                              | ** ** | **2006**             | ** ** | **2005** | ** ** |
| ** **                              | ** ** | ** **           | ** ** | **(restated)** | ** ** |
| Net current  deferred tax asset:        |       |                 |       |   |   |   |   |
| U.S. federal                            |       | $                    | 2,345      |   |   | 2,091 |   |   |
| Foreign                                 |       | 5,892                |       |   | 7,740 |   |   |
| U.S. state and local                    |       | 415                  |       |   | 209 |   |   |
|                                    |       | 8,652                |       |   | 10,040 |   |   |
| Net non-current deferred tax asset:     |       |                 |       |   |   |   |   |
| U.S. federal                            |       | —               |       |   | — |   |   |
| Foreign                                 |       | 263                  |       |   | 174 |   |   |
| U.S. state and local                    |       | —               |       |   | — |   |   |
|                                    |       | 263                  |       |   | 174 |   |   |
| Net non-current deferred tax liability: |       |                 |       |   |   |   |   |
| U.S. federal                            |       | (7,774               | )          |   | (8,639 | ) |   |
| Foreign                                 |       | (13,771              | )          |   | (16,464 | ) |   |
| U.S. state and local                    |       | (1,352               | )          |   | (864 | ) |   |
|                                    |       | (22,897              | )          |   | (25,967 | ) |   |
| Net deferred tax  liability             |       | $                    | (13,982    | ) |   | (15,753 | ) |   |

 

*Valuationallowance.*   The valuationallowance increased by a net amount of $3,833 during the year ended January 31,2006. The increase was due primarily to two factors, foreign valuationallowances increased by $7,341, and U.S. valuation allowances decreased by $3,508.In assessing the realizability of deferred tax assets, the Company considerswhether it is more likely than not that some portion or all of the deferred taxassets will be realized. The ultimate realization of deferred tax assets isdependent upon the generation of future taxable income during the periods inwhich those temporary differences become deductible. The Company considers thescheduled reversal of deferred tax liabilities, projected future taxableincome, and tax planning strategies in making this assessment.

AtJanuary 31, 2006, the Company had net operating loss carryforwards ofapproximately $18,099 for foreign subsidiaries and approximately $136,547 forU.S. income tax purposes. U.S. net operating loss carryforwards expire atvarious dates through 2025 in accordance with the table below. In fiscal 2000and in fiscal 2004, the Company experienced a change in ownership as defined bySection 382 of the Internal Revenue Code. Consequently, utilization of the netoperating loss carryforwards is generally subject to an annual limitation ofapproximately $13,889, as adjusted for unused annual limitations. The U.S. netoperating loss carryforwards expire as follows: 

| **Expiring January 31,** | ** ** | ** ** | ** ** | **Amount** | ** ** |
|------------------------------------|------------|------------|------------|------------|------------|
| 2019                               |       | $          | 5,994      |       |
| 2020                               |       | 32,918     |       |
| 2022                               |       | 44,827     |       |
| 2023                               |       | 19,272     |       |
| 2024                               |       | 22,267     |       |
| 2025                               |       | 11,269     |       |
|                               |       | $          | 136,547    |       |

 

F-27

----

Deferred income taxes havebeen provided on undistributed earnings of foreign subsidiaries to the extentthat management plans to remit these earnings in the future. Undistributed earningsof foreign subsidiaries and affiliates that are permanently invested, and forwhich no deferred taxes have been provided, amounted to approximately $16,700and $7,082 as of January 31, 2006 and 2005, respectively. Determination of theamount of unrecognized deferred U.S. income tax liability is not practicable;however, net operating losses or tax credits may be available to reduce aportion of the U.S. liability.

**(15)   Pensionand Other Employee Benefits**

TheCompany and certain subsidiaries have pension plans and post retirement healthbenefit plans which provide retirement benefits for eligible employees,generally measured by length of service, compensation and other factors. Themeasurement date for the Company’s pension and post-retirement plan accountingis December 31. The following tables provide combined information relevant tothe Company’s pension and other employee benefit plans:

| ** **                              | ** ** | **Pension Benefits**            | ** ** | **Post Retirement  Benefits** | ** ** |
|-----------------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| ** **                              | ** ** | **Year Ended January 31,** | ** ** |
| ** **                              | ** ** | **2006**                        | ** ** | **2005**                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Change  in Benefit Obligation**       |       |                            |       |                          |       |   |   |   |   |
| Benefit obligation at beginning of year |       | $                               | 224,522    |                          | 206,024    |   | 15,367 |   | 14,905 |   |
| Service cost                            |       | 1,769                           |       | 1,572                         |       | 470 |   | 404 |   |
| Interest cost                           |       | 12,482                          |       | 12,389                        |       | 853 |   | 853 |   |
| Plan participants’ contributions   |       | —                          |       | —                        |       | 1,141 |   | 1,030 |   |
| Amendments                              |       | —                          |       | —                        |       | — |   | 56 |   |
| Actuarial (gain)/loss                   |       | 7,590                           |       | 21,349                        |       | 1,047 |   | (325 | ) |
| Benefits paid                           |       | (16,946                         | )          | (16,814                       | )          | (2,011 | ) | (1,571 | ) |
| Translation adjustment                  |       | 67                              |       | 2                             |       | 8 |   | 15 |   |
| Benefit  obligations at end of year     |       | $                               | 229,484    |                          | 224,522    |   | 16,875 |   | 15,367 |   |

 

F-28

----

 

| ** **                                                                     | ** ** | **Pension Benefits**            | ** ** | **Post Retirement  Benefits** | ** ** |
|--------------------------------------------------------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| ** **                                                                     | ** ** | **Year Ended January 31,** | ** ** |
| ** **                                                                     | ** ** | **2006**                        | ** ** | **2005**                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Change  in Plan Assets**                                                     |       |                            |       |                          |       |   |   |   |   |
| Fair value of plan assets at beginning of year                                 |       | $                               | 177,061    |                          | 178,875    |   | — |   | — |   |
| Actual return on plan assets                                                   |       | 6,680                           |       | 14,986                        |       | — |   | — |   |
| Employer contributions                                                         |       | 237                             |       | 228                           |       | 870 |   | 541 |   |
| Plan participants’ contributions                                          |       | —                          |       | —                        |       | 1,141 |   | 1,030 |   |
| Mexican plan termination                                                       |       | —                          |       | (215                          | )          | — |   | — |   |
| Translation adjustment                                                         |       | 59                              |       | 1                             |       | — |   | — |   |
| Benefits paid                                                                  |       | (16,946                         | )          | (16,814                       | )          | (2,011 | ) | (1,571 | ) |
| Fair value of plan assets at end of year                                       |       | 167,091                         |       | 177,061                       |       | — |   | — |   |
| Funded status                                                                  |       | (62,393                         | )          | (47,461                       | )          | (16,875 | ) | (15,367 | ) |
| Unrecognized net obligation loss                                               |       | 72                              |       | 73                            |       | — |   | — |   |
| Unrecognized net actuarial (gain) loss                                         |       | 56,481                          |       | 47,046                        |       | (1,585 | ) | (2,902 | ) |
| Unrecognized prior service cost (credit)                                       |       | 1,632                           |       | 1,897                         |       | (1,107 | ) | (1,373 | ) |
| Contribution made between measurement  date and fiscal year end                |       | 2,500                           |       | —                        |       | — |   |   |   |
| Prepaid (accrued) benefit cost                                                 |       | (1,708                          | )          | 1,555                         |       | (19,567 | ) | (19,642 | ) |
| Minimum liability adjustments                                                  |       | (52,938                         | )          | (43,969                       | )          | — |   | — |   |
| Net amount recognized                                                          |       | $                               | (54,646    | )                             | (42,414    | ) | (19,567 | ) | (19,642 | ) |
| **Weighted  average assumptions used to  determine benefit obligations**       |       |                            |       |                          |       |   |   |   |   |
| Discount rate                                                                  |       | 5.5                             | %          | 5.75                          | %          | 5.5 | % | 5.75 | % |
| Rate of compensation increase                                                  |       | 3.5                             | %          | 3.5                           | %          | N/A |   | N/A |   |
| **Weighted  average assumptions used to  determine net periodic benefit cost** |       |                            |       |                          |       |   |   |   |   |
| Discount rate                                                                  |       | 5.75                            | %          | 6.25                          | %          | 5.75 | % | 6.25 | % |
| Expected long-term rate of return on assets                                    |       | 8.25                            | %          | 8.25                          | %          | N/A |   | N/A |   |
| Rate of  compensation increase                                                 |       | 3.5                             | %          | 3.5                           | %          | N/A |   | N/A |   |

 

Forpost-retirement benefit measurement purposes, a 10.0% annual rate of increasein the per capita cost of covered health care benefits was assumed for fiscal2006. The rate was assumed to decrease gradually to 5.0% for fiscal 2010 and remainat that level thereafter.

| ** **                                | ** ** | **Pension Benefits**            | ** ** | **Post Retirement  Benefits** | ** ** |
|-------------------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| ** **                                | ** ** | **Year Ended January 31,** | ** ** |
| ** **                                | ** ** | **2006**                        | ** ** | **2005**                      | ** ** | **    2006    ** | ** ** | **    2005    ** | ** ** |
| Components of Net  Periodic Benefit Costs |       |                            |       |                          |       |   |   |   |   |   |   |   |   |
| Service cost                              |       | $                               | 1,769      |                          | 1,572      |   |   | 470 |   |   |   | 404 |   |   |
| Interest cost                             |       | 12,482                          |       | 12,389                        |       |   | 853 |   |   |   | 853 |   |   |
| Expected return on plan assets            |       | (13,395                         | )          | (14,081                       | )          |   | — |   |   |   | — |   |   |
| Amortization of prior service cost        |       | 267                             |       | 270                           |       |   | (270 | ) |   |   | (270 | ) |   |
| Recognized net actuarial (gain) loss      |       | 4,866                           |       | 2,567                         |       |   | (273 | ) |   |   | (318 | ) |   |
| Total net  periodic benefit cost          |       | $                               | 5,989      |                          | 2,717      |   |   | 780 |   |   |   | 669 |   |   |

 

F-29

----

Assumedhealth care cost trend rates have a significant effect on the amounts reportedfor the post-retirement health care plans. A one-percentage point change inassumed health care cost trend rates would have the following effects onJanuary 31, 2006 amounts:

| ** **                                               | ** ** | **1% Point  Increase** | ** ** | **1% Point  Decrease** | ** ** |
|----------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Effect on total  of service and interest cost components |       |                        | $          | 179                         |       |   |   | (145 | ) |   |
| Effect on post-retirement  benefit obligation            |       |                        | $          | 2,030                       |       |   |   | (1,668 | ) |   |

 

The estimated accumulated benefit obligation (theactuarial present value of benefits attributed to employee service andcompensation levels prior to the measurement date without considering futurecompensation levels), commonly referred to as the “ABO”, exceeded the fairvalue of plan assets at December 31, 2005, 2004 and 2003 by $56,907, $42,170and $21,994, respectively. The result of this increase (decrease) in the ABOwas a charge (credit) to other comprehensive income (loss) of $9,233, $17,771and $(7,004), for the years ended January 31, 2006, 2005 and 2004,respectively. Because these adjustments were non-cash, their effect has beenexcluded from the accompanying Consolidated Statements of Cash Flows.

For pension plans with accumulated obligations inexcess of plan assets at January 31, 2006, the projected benefit obligation,accumulated benefit obligation and fair value of plan assets were $228,058,$222,770 and $165,840, and $223,224, $218,105 and $175,911, as of January 31,2006 and 2005, respectively.

For pension plans with assets in excess of accumulatedobligations at January 31, 2006, the projected benefit obligation, accumulatedbenefit obligation and fair value of plan assets were $1,426, $1,227 and$1,250, and $1,298, $1,126 and $1,150, as of January 31, 2006 and 2005,respectively.

Theplan assets were invested in the following major asset categories:

| ** **        | ** ** | **Percentage of  Plan Assets at  December 31, 2005** | ** ** | **Percentage of  Plan Assets at  December 31, 2004** | ** ** | **Target Allocation  for fiscal year 2007** | ** ** |
|-------------------|------------|-------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| Equity Securities |       |                                                                          | 67         | %                                                                             |       |                                                            | 72         | % |   |   | 60 – 70 | % |   |
| Fixed Income      |       |                                                                          | 33         | %                                                                             |       |                                                            | 28         | % |   |   | 30 – 40 | % |   |
| Total             |       |                                                                          | 100        | %                                                                             |       |                                                            | 100        | % |   |   | 100 | % |   |

 

The asset allocation targets are set with theexpectation that the plan’s assets will fund the plan’s expected liabilitieswith an appropriate level of risk. Expected returns, risk and correlation amongasset classes are based on historical data and investment advisor input.

The Company does not expect it will be required tocontribute to its funded pension plans in fiscal 2007. The Company expects tomake approximately $1,000 of benefit payments attributable to its unfundedpost-retirement benefit plans during fiscal year 2007.

The Company sponsors defined contribution plans,qualified under Section 401(k) of the Internal Revenue Code, whichare offered to certain groups of U.S. employees. Expense related to operationsof these plans was $484, $589 and $596 for the years ended January 31,2006, 2005 and 2004, respectively. The plans do not have significant liabilitiesother than benefit obligations.

The pension andpost-retirement benefits expected to be paid in each year from fiscal2007 - 2011 are $18,637, $17,373, $17,347, $17,258 and $17,231,respectively. The aggregate benefits expected to be paid in the five years from2012-2016 are $88,076. The expected benefits to be paid are based on thesame assumptions used to measure the Company’s benefit obligation atDecember 31, 2005 and include estimated future employee service.

F-30

----

**(16)   DisclosuresAbout Fair Value of Financial Instruments**

The following methods andassumptions were used to estimate the fair value of each class of financialinstruments for which it is practicable to estimate that value:

*Cash and Cash Equivalents, Trade Receivables, AccountsPayable, Short-term Debt, and Accrued Expenses*

The carrying amountapproximates fair value because of the short maturity or duration of theseinstruments.

*Senior SubordinatedNotes*

The Company estimates thatthe fair value of the 87¤8% Notes at January 31, 2006approximates $184,983 based on inter-dealer transactions which werepriced at approximately $105.75 per $100.00 of principal.

*Senior Notes,Senior Credit Facility and Other Long-term Obligations*

The carrying valueapproximates the fair value of these instruments, which primarily have floatinginterest rates that are fixed for periods not exceeding six months.

*Foreign CurrencyForward Delivery Contracts*

The fair value of foreigncurrency forward delivery contracts is estimated by reference to marketquotations received from banks. At January 31, 2006 and 2005, the contractvalue of foreign currency forward delivery agreements outstanding wasapproximately $34,155 and $132,970, respectively. The settlement value of theseinstruments at that date was approximately $35,122 and $129,799, respectively.

*Limitations*

Fair value estimates aremade at a specific point in time, based on relevant market information andinformation about the financial instrument. These estimates are subjective innature and involve uncertainties and matters of significant judgment andtherefore cannot be determined with precision. Changes in assumptions couldsignificantly affect the estimates.

**(17)   Litigation,Commitments and Contingencies**

*Litigation*

The Company is a party tolegal proceedings and claims in the ordinary course of its business. TheCompany believes that the outcome of these matters will not have a materialadverse effect on its consolidated financial position, results of operations orliquidity.

*Union Agreements*

Union membership in theCompany’s European manufacturing plants varies from country to country and isnot officially known. However, it is probable that most of the workers areaffiliated with a union. Most European union contracts have a one-year term. Inthe United States, approximately 100 employees are unionized under a contractrenewed every three years and which was last renewed April 2005. 

*Agreement withPension Benefit Guaranty Corporation (“PBGC”)*

In connection with the recapitalization referred to inNote 3, the Company entered into an agreement with the PBGC granting them anequal and ratable lien in the pledged assets under the Senior Credit 

F-31

----

Facility along with thelender under the Senior Credit Facility in the amount of $17,300. If theCompany were to refinance its senior credit facility in the future and increasethe size of the facility, the agreement requires that the PBGC lien beincreased by an amount determined under a formula considering the amount of theCompany’s unfunded pension liability under the Plan and the amount of theincrease in the size of the facility. Other provisions of the agreementrestrict the transfers of assets outside of the ordinary course of business andthe maintenance of certain funding amounts of the Plan; the Company is incompliance with these requirements at January 31, 2006.

The agreement will expireupon (a) the Company obtaining investment grade status on its seniorunsecured debt, (b) the date the Plan has no unfunded benefit liabilitiesfor two consecutive plan years, (c) the date on which the Company becomespart of a controlled group whose debt has investment grade status, or (d) thedate the Plan is successfully terminated, but in the case of (a) or (b),no earlier than December 31, 2008.

**(18)   OtherIncome (Expense)—Net**

Otherincome (expense)—net consisted of the following:

| ** **                                                                       | ** ** | **Year ended January 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                       | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net gain (loss)  from foreign currency forward delivery contracts                |       | $                                         | 1,239      |   | 387 |   | (514 | ) |
| Gain (loss) on  disposition of fixed assets, net                                 |       | (128                                      | )          | 819 |   | (107 | ) |
| Foreign currency  transaction gains (losses)(a)                                  |       | (507                                      | )          | 525 |   | 2,035 |   |
| Pension  expense(b)                                                              |       | (2,813                                    | )          | (2,780 | ) | (1,781 | ) |
| Redemption  premium and expenses on retirement of senior subordinated notes |       | (2,670                                    | )          | (17,767 | ) | (5,836 | ) |
| Due diligence  costs for uncompleted potential acquisitions                      |       | (2,821                                    | )          | (671 | ) | — |   |
| Other, net                                                                       |       | (2,172                                    | )          | (4,116 | ) | (1,821 | ) |
|                                                                             |       | $                                         | (9,872     | ) | (23,603 | ) | (8,024 | ) |

----

(a)    Foreigncurrency transaction gains (losses) include gains or losses on intercompanyadvances. Foreign currency gains (losses) incurred on operational transactionsare recorded in cost of sales or general and administrative expense.

(b)   Pensionexpense included in other income and expense relates to the actuarialdetermined pension expense associated with the pension plans of two companiesunrelated to the Company’s operations whose pension obligations were assumed bythe Company as a result of a 1993 agreement with the Pension Benefit GuarantyCorporation. The plans were part of a controlled group of corporations of whichthe Company was a part prior to 1993.

F-32

----

**(19)**   QuarterlyFinancial Information (Unaudited)

The following is a summaryof the unaudited quarterly financial information as originally reported and asrestated (see Note 2):

| ** **                                                                    | ** ** | **Three months ended**       | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                    | ** ** | **April 30, 2005**           | ** ** | **July 31, 2005** | ** ** | **October 31, 2005** | ** ** |
| ** **                                                                    | ** ** | **(As originally reported)** | ** ** |
| Net sales                                                                     |       |                                   | $          | 232,358 |   |   |   | 236,540 |   |   |   | 248,686 |   |   |
| Gross profit                                                                  |       |                                   | $          | 111,044 |   |   |   | 115,500 |   |   |   | 120,614 |   |   |
| Operating income                                                              |       |                                   | $          | 22,158 |   |   |   | 18,042 |   |   |   | 6,919 |   |   |
| Net income (loss)                                                             |       |                                   | $          | 7,293 |   |   |   | 2,115 |   |   |   | (3,250 | ) |   |
| Net income (loss)  to common stockholders                                     |       |                                   | $          | 3,691 |   |   |   | (1,552 | ) |   |   | (6,822 | ) |   |
| Net income (loss)  per share attributable to common stockholders—basic   |       |                                   | $          | 0.02 |   |   |   | (0.01 | ) |   |   | (0.03 | ) |   |
| Net income (loss) per  share attributable to common stockholders—diluted |       |                                   | $          | 0.01 |   |   |   | (0.01 | ) |   |   | (0.03 | ) |   |

 

| ** **                                                                    | ** ** | **Three months ended** | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                    | ** ** | **April 30, 2005**     | ** ** | **July 31, 2005** | ** ** | **October 31, 2005** | ** ** | **January 31, 2006** | ** ** |
| ** **                                                                    | ** ** | **(restated)**                   | ** ** | **(restated)** | ** ** | **(restated)** | ** ** | ** ** | ** ** |
| Net sales                                                                     |       |                             | $          | 232,358 |   |   |   | 236,540 |   |   |   | 248,686 |   |   |   | 249,302 |   |   |
| Gross profit                                                                  |       |                             | $          | 111,044 |   |   |   | 115,500 |   |   |   | 120,614 |   |   |   | 123,223 |   |   |
| Operating income                                                              |       |                             | $          | 22,158 |   |   |   | 18,042 |   |   |   | 6,919 |   |   |   | 25,916 |   |   |
| Net income (loss)                                                             |       |                             | $          | 7,502 |   |   |   | 2,324 |   |   |   | (3,041 | ) |   |   | 6,536 |   |   |
| Net income (loss)  to common stockholders                                     |       |                             | $          | 3,900 |   |   |   | (1,343 | ) |   |   | (6,613 | ) |   |   | 2,542 |   |   |
| Net income (loss)  per share attributable to common stockholders—basic   |       |                             | $          | 0.02 |   |   |   | (0.01 | ) |   |   | (0.03 | ) |   |   | 0.01 |   |   |
| Net income (loss) per  share attributable to common stockholders—diluted |       |                             | $          | 0.01 |   |   |   | (0.01 | ) |   |   | (0.03 | ) |   |   | — | * |   |

----

*                    Lessthan $0.01 per share 

| ** **                                                                    | ** ** | **Three months ended**       | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                    | ** ** | **April 30, 2004**           | ** ** | **July 31, 2004** | ** ** | **October 31, 2004** | ** ** | **January 31, 2005** | ** ** |
| ** **                                                                    | ** ** | **(As originally reported)** | ** ** |
| Net sales                                                                     |       |                                   | $          | 200,428 |   |   |   | 224,834 |   |   |   | 234,128 |   |   |   | 243,506 |   |   |
| Gross profit                                                                  |       |                                   | $          | 91,556 |   |   |   | 104,316 |   |   |   | 107,640 |   |   |   | 113,502 |   |   |
| Operating income                                                              |       |                                   | $          | 6,757 |   |   |   | 14,032 |   |   |   | 21,978 |   |   |   | 22,968 |   |   |
| Net income (loss)                                                             |       |                                   | $          | (3,725 | ) |   |   | (18,344 | ) |   |   | 6,170 |   |   |   | 6,850 |   |   |
| Net income (loss)  to common stockholders                                     |       |                                   | $          | (7,055 | ) |   |   | (21,702 | ) |   |   | 2,707 |   |   |   | 3,318 |   |   |
| Net income (loss)  per share attributable to common stockholders—basic   |       |                                   | $          | (0.03 | ) |   |   | (0.10 | ) |   |   | 0.01 |   |   |   | 0.01 |   |   |
| Net income (loss)  per share attributable to common stockholders—diluted |       |                                   | $          | (0.03 | ) |   |   | (0.10 | ) |   |   | 0.01 |   |   |   | — | * |   |

----

*                    Less than $0.01per share

F-33

----

 

| ** **                                                                    | ** ** | **Three months ended** | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                    | ** ** | **April 30, 2004**     | ** ** | **July 31, 2004** | ** ** | **October 31, 2004** | ** ** | **January 31, 2005** | ** ** |
| ** **                                                                    | ** ** | **(restated)**                   | ** ** | **(restated)** | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| Net sales                                                                     |       |                             | $          | 200,428 |   |   |   | 224,834 |   |   |   | 234,128 |   |   |   | 243,506 |   |   |
| Gross profit                                                                  |       |                             | $          | 91,556 |   |   |   | 104,316 |   |   |   | 107,640 |   |   |   | 113,502 |   |   |
| Operating income                                                              |       |                             | $          | 6,757 |   |   |   | 14,032 |   |   |   | 21,978 |   |   |   | 22,968 |   |   |
| Net income (loss)                                                             |       |                             | $          | (3,887 | ) |   |   | (18,506 | ) |   |   | 6,008 |   |   |   | 6,687 |   |   |
| Net income (loss)  to common stockholders                                     |       |                             | $          | (7,217 | ) |   |   | (21,864 | ) |   |   | 2,545 |   |   |   | 3,155 |   |   |
| Net income (loss)  per share attributable to common stockholders—basic   |       |                             | $          | (0.03 | ) |   |   | (0.10 | ) |   |   | 0.01 |   |   |   | 0.01 |   |   |
| Net income (loss) per  share attributable to common stockholders—diluted |       |                             | $          | (0.03 | ) |   |   | (0.10 | ) |   |   | 0.01 |   |   |   | — | * |   |

----

*                    Less than $0.01per share

As described in Note 2,the Company has restated its financial statements for the years ended January 31,2005 and 2004 for the effect of an error in the calculation of the deferred taxvaluation allowance. The tables above summarize restated quarterly informationfor the first three quarters of fiscal 2006 and each of the four quarters duringfiscal 2005. The effect of the restatement was to increase income tax expense,decrease net income or increase net loss, and decrease net income to commonstockholders or increase net loss to common stockholders by $209 for each ofthe quarters ended April 30, 2005, July 31, 2005 and October 31,2005 and by $162 for each of the quarters ended April 30, 2004, July 31,2004, October 31, 2004 and January 31, 2005.

Certain reclassificationswere made to the unaudited quarterly financial information to conform to the January 31,2006 presentation. Such reclassifications include minor amounts of foreigncurrency transaction gains (losses) related to operating activities from otherincome (expense) to cost of sales or general and administrative expenses forthe three months ended July 31, 2005 and April 30, 2005 and each ofthe fiscal 2005 quarters.

**(20)   InformationConcerning Business Segments**

The Company’s operations consist of the manufactureand distribution of luggage, business and computer cases, outdoor casual bags,and travel-related products and licensing of the Company’s brand names.Management of the business and evaluation of operating results is organizedprimarily along geographic lines dividing responsibility for the Company’soperations as follows: (i) “Europe” which includes operations in Westernand Eastern European countries; (ii) “North America”, which includesoperations in the United States and Canada; (iii) “Latin America”, whichincludes operations in Mexico, Brazil, Argentina and Uruguay; (iv) “Asia”,which includes operations in India, China, Singapore, South Korea, Taiwan,Malaysia and Japan; and (v) “Other” which primarily includes certainlicensing activities from luggage and non-luggage brand names owned by theCompany and Corporate headquarters overhead.

The Company evaluates the performance of its segmentsbased on operating income of the respective business units. Intersegment salesprices are market based. Certain reclassifications were made to the priorperiods to conform to the January 31, 2006 presentation.

F-34

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Segmentinformation for the years ended January 31, 2006, 2005 and 2004 is asfollows:

| ** **                                                      | ** ** | **Europe** | ** ** | **North  America** | ** ** | **Latin  America** | ** ** | **Asia** | ** ** | **Corporate and  Other(b)** | ** ** | **Eliminations** | ** ** | **Totals** | ** ** |
|-----------------------------------------------------------------|------------|------------|------------|--------------------|------------|--------------------|------------|----------|------------|----------------------------------|------------|------------------|------------|------------|------------|
| ***2006***                                                      |       |       |       |               |       |               |       |     |       |                             |       |             |       |       |       |   |   |   |   |   |   |   |   |
| Revenues from external customers                                |       | $          | 417,434    |               |       | 363,922            |       |     |       | 41,829                           |       |             | 127,708    |       |       | 15,993 |   |   |   | — |   |   | 966,886 |   |
| Intersegment revenues                                           |       | $          | 2,805      |               |       | 97                 |       |     |       | —                           |       |             | 15,857     |       |       | — |   |   |   | (18,759 | ) |   | — |   |
| Operating income (loss)(a)                                      |       | $          | 43,176     |               |       | 28,725             |       |     |       | 4,502                            |       |             | 18,377     |       |       | (21,646 | ) |   |   | (99 | ) |   | 73,035 |   |
| Total assets                                                    |       | $          | 246,461    |               |       | 99,706             |       |     |       | 32,464                           |       |             | 65,105     |       |       | 279,972 |   |   |   | (156,457 | ) |   | 567,251 |   |
| Capital expenditures                                            |       | $          | 7,743      |               |       | 4,456              |       |     |       | 330                              |       |             | 4,769      |       |       | 5,846 |   |   |   | — |   |   | 23,144 |   |
| Additions to goodwill and intangibles                           |       | $          | —     |               |       | —             |       |     |       | —                           |       |             | —     |       |       | — |   |   |   | — |   |   | — |   |
| Depreciation, amortization and impairment of intangible  assets |       | $          | 10,584     |               |       | 3,846              |       |     |       | 340                              |       |             | 2,382      |       |       | 767 |   |   |   | — |   |   | 17,919 |   |
| ***2005***                                                      |       |       |       |               |       |               |       |     |       |                             |       |             |       |       |       |   |   |   |   |   |   |   |   |
| Revenues from external customers                                |       | $          | 406,032    |               |       | 342,985            |       |     |       | 36,092                           |       |             | 99,015     |       |       | 18,772 |   |   |   | — |   |   | 902,896 |   |
| Intersegment revenues                                           |       | $          | 2,398      |               |       | 204                |       |     |       | —                           |       |             | 8,867      |       |       | — |   |   |   | (11,469 | ) |   | — |   |
| Operating income (loss)(a)                                      |       | $          | 42,991     |               |       | 16,874             |       |     |       | 2,001                            |       |             | 16,290     |       |       | (12,643 | ) |   |   | 222 |   |   | 65,735 |   |
| Total assets                                                    |       | $          | 264,795    |               |       | 107,739            |       |     |       | 30,842                           |       |             | 46,444     |       |       | 268,720 |   |   |   | (155,457 | ) |   | 563,083 |   |
| Capital expenditures                                            |       | $          | 6,848      |               |       | 2,735              |       |     |       | 329                              |       |             | 2,572      |       |       | — |   |   |   | — |   |   | 12,484 |   |
| Additions to goodwill and intangibles                           |       | $          | 62         |               |       | —             |       |     |       | —                           |       |             | 378        |       |       | — |   |   |   | — |   |   | 440 |   |
| Depreciation, amortization and impairment of  intangible assets |       | $          | 12,485     |               |       | 3,584              |       |     |       | 271                              |       |             | 1,900      |       |       | 3,945 |   |   |   | — |   |   | 22,185 |   |
| ***2004***                                                      |       |       |       |               |       |               |       |     |       |                             |       |             |       |       |       |   |   |   |   |   |   |   |   |
| Revenues from external customers                                |       | $          | 346,090    |               |       | 306,572            |       |     |       | 29,510                           |       |             | 74,148     |       |       | 20,131 |   |   |   | — |   |   | 776,451 |   |
| Intersegment revenues                                           |       | $          | 4,618      |               |       | 222                |       |     |       | —                           |       |             | 6,758      |       |       | — |   |   |   | (11,598 | ) |   | — |   |
| Operating income(a)                                             |       | $          | 37,080     |               |       | 12,505             |       |     |       | 1,659                            |       |             | 13,905     |       |       | 2,467 |   |   |   | 74 |   |   | 67,690 |   |
| Total assets                                                    |       | $          | 230,500    |               |       | 108,014            |       |     |       | 25,671                           |       |             | 40,265     |       |       | 257,097 |   |   |   | (159,659 | ) |   | 501,888 |   |
| Capital expenditures                                            |       | $          | 8,510      |               |       | 3,255              |       |     |       | 181                              |       |             | 891        |       |       | — |   |   |   | — |   |   | 12,837 |   |
| Additions to goodwill and intangibles                           |       | $          | —     |               |       | —             |       |     |       | —                           |       |             | —     |       |       | — |   |   |   | — |   |   | — |   |
| Depreciation,  amortization and impairment of intangible assets |       | $          | 11,207     |               |       | 3,942              |       |     |       | 346                              |       |             | 1,707      |       |       | 3,324 |   |   |   | — |   |   | 20,526 |   |

----

(a)              Operating income (loss) represents net sales lessoperating expenses. In computing operating income (loss) none of the followingitems have been added or deducted: interest income, interest expense, otherincome (expense)—net, income taxes and minority interest.

(b)             Other Operations includes general corporate expenses.

Long-livedassets relating to the Company’s operations by geographic area is as follows:

| ** **                                                       | ** ** | **January 31,** | ** ** |
|------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                       | ** ** | **2006**             | ** ** | **2005** | ** ** |
| Property, plant  and equipment, net of accumulated depreciation: |       |                 |       |   |   |
| North America                                                    |       | $                    | 17,085     |   | 11,976 |   |
| Europe                                                           |       | 48,127               |       | 62,899 |   |
| Asia                                                             |       | 12,097               |       | 9,565 |   |
| Latin America                                                    |       | 3,411                |       | 3,320 |   |
| Corporate and  Other                                             |       | 8,380                |       | 11,050 |   |
|                                                             |       | $                    | 89,100     |   | 98,810 |   |

 

F-35

----

 

| ** **                                                                | ** ** | **January 31,** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                | ** ** | **2006**             | ** ** | **2005** | ** ** |
| Tradenames and  other intangible assets, net of accumulated amortization: |       |                 |       |   |   |
| Corporate and  Other                                                      |       | $                    | 89,573     |   | 88,360 |   |
| Asia                                                                      |       | 1,159                |       | 1,497 |   |
| Europe                                                                    |       | 405                  |       | 602 |   |
| North America                                                             |       | 357                  |       | 357 |   |
| Latin America                                                             |       | 164                  |       | — |   |
|                                                                      |       | $                    | 91,658     |   | 90,816 |   |

 

Included in Corporate andOther are the amounts recorded for goodwill, patents and trademarks related toSamsonite, American Tourister, and various apparel tradenames owned by theCompany.

**(21)   Related PartyTransactions**

The Company has enteredinto advisory agreements with its major stockholders, Ares CorporateOpportunities Fund, L.P., Bain Capital, Ltd., and an affiliate of OntarioTeacher’s Pension Plan Board. The agreements provide that the Company will payeach of these three parties an advisory fee of $500 per year for five yearsbeginning July 31, 2003.

The Company’s Indiansubsidiary, Samsonite Southeast Asia Pvt. Ltd., purchases raw materialsfrom and sells certain raw materials to Tainwala Chemicals and PlasticsIndia Ltd. (“Tainwala”). Tainwala is managed and controlled by the familyof Dr. Ramesh Tainwala, the Chief Operating Officer of Samsonite SoutheastAsia. Dr. Tainwala and his family own a 40% stake in the Company’s Indiansubsidiary. The Company purchased raw materials and capital goods from Tainwalain the amounts of $2,086, $454 and $28 during the years ended January 31,2006, 2005 and 2004 respectively. The Company sold raw materials to Tainwala inthe amounts of $932, $145 and $10 during the fiscal years ended January 31,2006, 2005 and 2004, respectively. In addition, approximately $82, $80 and $58was paid to entities owned by Dr. Tainwala and his family, for officespace rent during the years ended January 31, 2006, 2005 and 2004,respectively.

F-36

----

**SAMSONITE CORPORATION AND SUBSIDIARIESSCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS(In thousands)**

| ** **                            | ** ** | **Column B**   | ** ** | ** **            | ** ** | ** **        | ** ** | ** **        | ** ** | ** **        | ** ** |
|---------------------------------------|------------|---------------------|------------|-----------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| ** **                            | ** ** | **Balance at** | ** ** | ** **            | ** ** | ** **        | ** ** | ** **        | ** ** | **Column F** | ** ** |
| **Column A**                     | ** ** | ** **          | ** ** | **Beginning of** | ** ** | **Column C** | ** ** | **Column D** | ** ** | **Column E** | ** ** | **Balance at** | ** ** |
| **Description**                       | ** ** | ** **          | ** ** | **Period**            | ** ** | **Additions(a)**  | ** ** | **Transfers**     | ** ** | **Deductions(b)** | ** ** | **End of Period** | ** ** |
| **Year  Ended January 31, 2006** |       |                |       |                  |       |              |       |              |       |              |       |   |   |   |   |   |   |   |   |   |   |
| Allowance for  Trade Receivables      |       |                | $          | 8,476                 |       |              |       | 327               |       |              |       | — |   |   |   | (1,590 | ) |   |   | 7,213 |   |   |
| Allowance for  Long-Term Receivables  |       |                | 66         |                  |       |              | —     |              |       |              | —     |   |   |   | (66 | ) |   |   | — |   |   |
| Allowance for  Sales Returns*         |       |                | 1,021      |                  |       |              | 609        | *                 |       |              | —     |   |   |   | — |   |   |   | 1,630 |   |   |
| Total                                 |       |                | $          | 9,563                 |       |              |       | 936               |       |              |       | — |   |   |   | (1,656 | ) |   |   | 8,843 |   |   |
| **Year  Ended January 31, 2005** |       |                |       |                  |       |              |       |              |       |              |       |   |   |   |   |   |   |   |   |   |   |
| Allowance for  Trade Receivables      |       |                | $          | 7,809                 |       |              |       | 1,540             |       |              |       | — |   |   |   | (873 | ) |   |   | 8,476 |   |   |
| Allowance for  Long-Term Receivables  |       |                | 521        |                  |       |              | —     |              |       |              | —     |   |   |   | (455 | ) |   |   | 66 |   |   |
| Allowance for  Sales Returns*         |       |                | 1,290      |                  |       |              | —     |              |       |              | —     |   |   |   | (269 | )* |   |   | 1,021 |   |   |
| Total                                 |       |                | $          | 9,620                 |       |              |       | 1,540             |       |              |       | — |   |   |   | (1,597 | ) |   |   | 9,563 |   |   |
| **Year  Ended January 31, 2004** |       |                |       |                  |       |              |       |              |       |              |       |   |   |   |   |   |   |   |   |   |   |
| Allowance for  Trade Receivables      |       |                | $          | 7,205                 |       |              |       | 723               |       |              |       | — |   |   |   | (119 | ) |   |   | 7,809 |   |   |
| Allowance for  Long-Term Receivables  |       |                | 788        |                  |       |              | —     |              |       |              | —     |   |   |   | (267 | ) |   |   | 521 |   |   |
| Allowance for  Sales Returns*         |       |                | 1,506      |                  |       |              | —     |              |       |              | —     |   |   |   | (216 | )* |   |   | 1,290 |   |   |
| Total                                 |       |                | $          | 9,499                 |       |              |       | 723               |       |              |       | — |   |   |   | (602 | ) |   |   | 9,620 |   |   |

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*Notes:*

(a)           Amounts charged tocosts and expenses.

(b)          Bad debt write-offs andcharges to allowances, net of other adjustments, reclassifications and exchangerate changes.

*                    Because of themanner in which the Company’s systems process sales returns, the Company is notable to quantify additions and deductions, and such amounts are shown on a netbasis.

F-37

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**INDEXTO EXHIBITS**
| Exhibit | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                            | ** ** | **Description** |
|---------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| 3.1     |       | Restated Certificate of Incorporation of the  Company.                                                                                                                                                                                                                                                                                                                                                                |
| 3.2     |       | Certificate of Ownership  and Merger dated July 14, 1995 (Incorporated by reference from the  Registrant’s Form S-4 Registration Statement No. 33-95642).                                                                                                                                                                                                                                         |
| 3.3     |       | By-laws of the Company  (Incorporated by reference from the Company’s Annual Report on Form 10-K  for the fiscal year ended January 31, 1996).                                                                                                                                                                                                                                                         |
| 4.1     |       | Description of the  Company’ common stock, par value $.01 per share, and the associated preferred  Stock purchase rights (Incorporated by reference from the Company’s  Registration Statement on Form 8-A filed May 13, 1998 under  the Exchange Act and the Company’s Registration Statement on Form 8-A,  filed May 2, 2003 under the Exchange Act).                            |
| 4.2     |       | Indentures dated  June 9, 2004 for 100,000 Euro Floating Rate Senior Notes due 2010 and  $205,000 8 7¤8% Senior Subordinated Notes  due 2011(Incorporated by reference from the Registrant’s Form S-4  Registration Statement No. 333-118014).                                                                                                                                               |
| 10.1*   |       | Form of Stock  Option Agreement, dated as of February 8, 2000, between the Company and  Richard H. Wiley (Incorporated by reference from the Company’s Quarterly  Report on Form 10-Q for the three months ended April 30,  2000).                                                                                                                                                      |
| 10.2*   |       | Nonqualified Stock  Option Agreement dated as of July 15, 1998 between the Company and  Richard H. Wiley (Incorporated by reference from the Company’s Quarterly  Report on Form 10-Q for the three months ended July 31,  1998).                                                                                                                                                            |
| 10.3    |       | Form of  Indemnification Agreement entered into or to be entered into by the Company  with each of R. Theodore Ammon, Leon D. Black, Robert H. Falk,  Thomas J. Leonard, Marc J. Rowan, Stephen J. Solarz, Gregory Wm. Hunt, Carl  C. Ichan, Mark H. Rachesky, and Robert L. Rosen (Incorporated by  reference to the Registrant’s Form S-1 Registration Statement  No. 33-71224). |
| 10.4    |       | Samsonite Corporation  1995 Stock Option and Incentive Award Plan (as amended in 1996) (Incorporated  by reference from Proxy Statement filed May 23, 1996).                                                                                                                                                                                                                                                     |
| 10.4.1  |       | Samsonite Corporation  1995 Stock Option and Award Plan, Second Amendment (Incorporated by reference  from the Registrant’s Form S-8 File No. 333-20775,  filed January 30, 1997).                                                                                                                                                                                                                |
| 10.5    |       | Form of Stock  Option Agreement for Awards under the 1995 Stock Option and Incentive Award  Plan (as amended in 1996) (Incorporated by reference to the Registrant’s  Form S-8 File No. 333-05467, filed June 7, 1996).                                                                                                                                                                      |
| 10.6    |       | Samsonite Corporation  Directors Stock Plan as amended (Incorporated by reference from the Company’s  Proxy Statement filed May 9, 2001).                                                                                                                                                                                                                                                                   |
| 10.7    |       | Warrant Agreement, dated  as of June 24, 1998, between the Company and BankBoston, N.A.  (Incorporated by reference from the Company’s Quarterly Report on  Form 10-Q for the three months ended July 31, 1998).                                                                                                                                                                                  |
| 10.7.1  |       | First Amendment to  Warrant Agreement dated as of August 17, 1998, between the Company and  BankBoston, N.A. (Incorporated by reference from the Company’s Quarterly  Report on Form 10-Q for the three months ended July 31,  1998).                                                                                                                                                             |
| 10.8    |       | Amended and restated FY  1999 Stock Option and Incentive Award Plan (Incorporated by reference from  Proxy Statement filed May 11, 2004).                                                                                                                                                                                                                                                                        |

E-1

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| 10.9*   |   | Form of  Stock Option Agreement, dated as of March 24, 1999, between the Company  and Richard H. Wiley (Incorporated by reference from the Company’s  Annual Report on Form 10-K for the fiscal year ended  January 31, 2000).                                                                                                                                                                                                                              |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.10*  |   | Form of  Stock Option Agreement, dated as of November 12, 1999, between the  Company and Richard H. Wiley (Incorporated by reference from the  Company’s Annual Report on Form 10-K for the fiscal year ended  January 31, 2000).                                                                                                                                                                                                                           |
| 10.11*  |   | Employment  Agreement, dated as of June 15, 2001, between the Company and Richard H.  Wiley (Incorporated by reference from the Company’s Quarterly Report on  Form 10-Q for the three months ended October 31, 2001).                                                                                                                                                                                                                                                |
| 10.12*  |   | Employment  Agreement, dated as of October 1, 2000, between the Company and Marc  Matton (Incorporated by reference from the Company’s Annual Report on  Form 10-K for the year ended January 31, 2002).                                                                                                                                                                                                                                                              |
| 10.13   |   | Recapitalization  Agreement by and among Samsonite Corporation, Ares Corporate Opportunities  Fund, L.P., Bain Capital (Europe) LLC and Ontario Teachers Pension Plan  Board, dated as of May 1, 2003 (including various exhibits thereto)  (Incorporated by reference from the Company’s current report on Form 8-K  dated May 1, 2003).                                                                                                                             |
| 10.14   |   | Credit Agreement  dated as of July 31, 2003 among the Company, Samsonite Europe N.V., the  other Credit Parties signatory thereto, General Electric Capital Corporation,  as Agent and as North American Collateral Agent, KBC Bank NV, as Fronting  Lender and as European Agent, and the other lenders signatory thereto from  time to time (Incorporated by reference from the Company’s Quarterly Report  on Form 10-Q for the three months ended July 31, 2003). |
| 10.14.1 |   | Amendment  No. 1 to Credit Agreement dated as of May 25, 2004, among Samsonite  Corporation, Samsonite Europe, N.V., the other Credit Parties signatory  thereto, General Electric Capital Corporation and the other Lenders signatory  thereto. (Incorporated by reference from the Company’s Annual Report on  Form 10-K for the fiscal year ended January 31, 2005).                                                                                          |
| 10.14.2 |   | Amendment  No. 2 to Credit Agreement dated as of November 23, 2004, among  Samsonite Corporation, Samsonite Europe, N.V., the other Credit Parties  signatory thereto, General Electric Capital Corporation and the other Lenders  signatory thereto. (Incorporated by reference from the Company’s Annual  Report on Form 10-K for the fiscal year ended January 31,  2005).                                                                                    |
| 10.14.3 |   | Amendment  No. 3 to Credit Agreement dated as of February 8, 2006, among  Samsonite Corporation, Samsonite Europe, N.V., the other Credit Parties  signatory thereto, General Electric Capital Corporation and the other Lenders  signatory thereto.                                                                                                                                                                                                                            |
| 10.15   |   | Amendment and  Restatement of Term Sheet Between Pension Benefit Guaranty Corporation and  Samsonite Corporation (Incorporated by reference from the Company’s Quarterly  Report on Form 10-Q for the three months ended July 31,  2003).                                                                                                                                                                                                                                  |
| 10.16   |   | Agreement dated  July 23, 2003 by and between the Company and the Pension Benefit  Guaranty Corporation, a United States Government Corporation (Incorporated by  reference from the Company’s Quarterly Report on Form 10-Q for the  three months ended July 31, 2003).                                                                                                                                                                                              |
| 10.17   |   | Form of  Executive Stockholders Agreement dated September 25, 2003 among the  Company, ACOF Management, L.P., Bain Capital (Europe) LLC, Ontario Teachers’  Pension Plan Board and certain executives (Incorporated by reference from the  Company’s Quarterly Report on Form 10-Q for the three months ended  October 31, 2003).                                                                                                                           |

E-2

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| 10.18*   |   | Letter Agreement,  dated January 21, 2005, by and between the Company and Thomas Korbas  (Incorporated by reference from the Company’s current report on Form 8-K  filed April 15, 2005).                                                                                                                                                                                                                                           |
|----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.19    |   | Form of  Executive Stock Option Agreement dated February 14, 2005 (Incorporated  by reference from the Company’s current report on Form 8-K/A filed  February 18, 2005).                                                                                                                                                                                                                                                       |
| 10.20*   |   | Consulting Agreement dated April 1, 1995 by and  among Samsonite Finanziaria S.R.L., Giuseppe Fremder and Samsonite Italia S.R.L.  (now Samsonite S.p.A.) (Incorporated by reference from the Company’s Annual  Report on Form 10-K for the fiscal year ended January 31,  2005).                                                                                                                                                   |
| 10.21*   |   | Amended and  Restated Employment Agreement between Samsonite Corporation and Marcello  Bottoli, dated as of May 11, 2005 (Incorporated by reference from the  Company’s current report on Form 8-K filed May 17, 2005).                                                                                                                                                                                                             |
| 10.22*   |   | Management  Agreement between Samsonite Corporation and Marcello Bottoli, dated as of  May 11, 2005 (Incorporated by reference from the Company’s current  report on Form 8-K filed May 17, 2005).                                                                                                                                                                                                                                  |
| 10.23*   |   | Letter Agreement  regarding Employment and Management Agreements between Samsonite Corporation  and Marcello Bottoli dated as of May 12, 2005 (Incorporated by reference  from the Company’s current report on Form 8-K filed May 17,  2005).                                                                                                                                                                                       |
| 10.24*   |   | Chief Executive  Officer Stockholders Agreement, dated as of March 2, 2004, by and among  Samosnite Corporation, ACOF Management, L.P., Bain Capital (Europe) LLC,  Ontario Teachers’ Pension Plan Board, Marcello Bottoli, Stonebridge  Development Limited and the Bottoli Trust (Incorporated by reference from the  Company’s Quarterly Report on Form 10-Q for the three months ended  July 31, 2005).                    |
| 10.24.1* |   | Amendment 1 to  Chief Executive Officer Stockholders Agreement, dated as of March 17,  2005, by and among Samosnite Corporation, ACOF Management, L.P., Bain Capital (Europe)  LLC, Ontario Teachers’ Pension Plan Board, Marcello Bottoli, Stonebridge  Development Limited and the Carry Trust (Incorporated by reference from the  Company’s Quarterly Report on Form 10-Q for the three months ended  July 31, 2005). |
| 10.25*   |   | Stock Option  Agreement dated as of April 19, 2004, among Samsonite Corporation,  Marcello Bottoli, and Stonebridge Development Limited (Incorporated by  reference from the Proxy Statement filed May 11, 2004).                                                                                                                                                                                                                             |
| 10.25.1* |   | Amendment 1 to  Stock Option Agreement dated as of March 17, 2005, among Samsonite  Corporation, Marcello Bottoli, and Stonebridge Development Limited  (Incorporated by reference from the Company’s current report on Form 8-K  filed May 17, 2005).                                                                                                                                                                              |
| 10.26    |   | Stockholders  Agreement, dated as of July 31, 2003 by and among Samsonite Corporation,  Ares Corporate Opportunities Fund, L.P., Bain Capital (Europe) LLC, Ontario  Teachers’ Pension Plan Board and Ares Leveraged Investment Fund, L.P.  (Incorporated by reference from the Proxy Statement filed June 30,  2003).                                                                                                                   |
| 10.27    |   | Agreement for  Purchase and Sale of Real Estate dated January 24, 2005 between  Samsonite Corporation and Panattoni Development Company, LLC (Incorporated by  reference from the Company’s Annual Report on Form 10-K for the  fiscal year ended January 31, 2005).                                                                                                                                                                |
| 10.28    |   | Advisory Agreement  between the Company and ACOF Management, Bain Capital (Europe) LLC and  Ontario Teacher’s Pension Plan Board entered into as of April 1, 2004 (Incorporated  by reference from the Company’s Quarterly Report on Form 10-Q for  the three months ended April 30, 2004).                                                                                                                                    |

E-3

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| 14.1 |   | Code of Ethical  Conduct for Chief Executive Officer                                                                                                               |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 14.2 |   | Code of Ethical  Conduct for Senior Financial Officers                                                                                                             |
| 21   |   | Subsidiaries of  the Company                                                                                                                                       |
| 23   |   | Consent of KPMG  LLP                                                                                                                                               |
| 31.1 |   | Certification by  Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                                     |
| 31.2 |   | Certification by  Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                                     |
| 32.1 |   | Certification by  Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2 |   | Certification by  Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

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*                    These exhibitsconstitute management contracts, compensatory plans and arrangements requiredto be filed as an exhibit to this form.

E-4

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