-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QyxpTDfXveAG0VnSloAIZ0O2dRR8gYev6p0aYAMihmh4OVKmfKUnIMcqTIP56+d3 KkEU5DWkWhKCSHIGZHC62w== 0000892569-96-000050.txt : 19960129 0000892569-96-000050.hdr.sgml : 19960129 ACCESSION NUMBER: 0000892569-96-000050 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951031 FILED AS OF DATE: 19960126 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUIKSILVER INC CENTRAL INDEX KEY: 0000805305 STANDARD INDUSTRIAL CLASSIFICATION: MEN'S & BOYS' FURNISHINGS, WORK CLOTHING, AND ALLIED GARMENTS [2320] IRS NUMBER: 330199426 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-15131 FILM NUMBER: 96507472 BUSINESS ADDRESS: STREET 1: 1740 MONROVIA AVE CITY: COSTA MESA STATE: CA ZIP: 92627 BUSINESS PHONE: 7146451395 MAIL ADDRESS: STREET 1: 1740 MONROVIA AVE CITY: COSTA MESA STATE: CA ZIP: 92627 10-K405 1 FORM 10-K405 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-K ------------------------ (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-15131 QUIKSILVER, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 33-0199426 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 1740 MONROVIA AVENUE COSTA MESA, CALIFORNIA 92627 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (714) 645-1395 Securities registered pursuant to Section 12(b) of the Act:
TITLE OF NAME OF EACH EXCHANGE EACH CLASS ON WHICH REGISTERED - --------------------------------------------- --------------------------------------------- None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of Registrant's Common Stock held by non-affiliates of the Registrant as of December 31, 1995 was $218,037,000 based on the number of shares outstanding on such date and a last sale price for the Common Stock on such date of $34.1875 as reported on the NASDAQ National Market System. As of December 31, 1995, there were 6,795,938 shares of the Registrant's Common Stock issued and outstanding. PART III is incorporated by reference from the Registrant's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders to be filed with the Commission within 120 days of October 31, 1995. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ---- PART I Item 1. BUSINESS................................................................... 1 Introduction............................................................... 1 Products................................................................... 1 Product Design............................................................. 2 Promotion and Advertising.................................................. 2 Customers and Sales........................................................ 3 Seasonality................................................................ 4 Production and Raw Materials............................................... 4 Imports and Import Restrictions............................................ 5 Trademark License Agreements............................................... 5 Competition................................................................ 6 Employees.................................................................. 6 Research and Development................................................... 6 Environmental Matters...................................................... 6 Acquisitions............................................................... 6 Item 2. PROPERTIES................................................................. 7 Item 3. LEGAL PROCEEDINGS.......................................................... 7 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS......................... 7 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................................................................... 7 Item 6. SELECTED FINANCIAL DATA.................................................... 8 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................................. 8 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................ 12 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................................................................. 12 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................... 12 Item 11. EXECUTIVE COMPENSATION..................................................... 12 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 12 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 12 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K................................................................... 13 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE............ 14 SIGNATURES............................................................................. 29 EXHIBIT INDEX
3 PART I ITEM 1. BUSINESS References to the "Registrant" or the "Company" are to Quiksilver, Inc., a Delaware corporation, unless the context indicates otherwise. INTRODUCTION The Company designs, arranges for the manufacture of, and distributes casual sportswear, beachwear and snowboardwear primarily for young men and boys under various labels, including; "Quiksilver", "Roxy", "Pirate Surf" and "Que". The Company's products for domestic sales are made primarily in the U.S.A. and sold at approximately 7,800 surf shop, specialty store, and selected department store locations. The Company's products for European sales are made primarily in Europe and India and sold at approximately 2,000 surf shop, specialty store, and selected department store locations. The Company's clothing is distinguished by its youthful styling, innovative design, and quality of workmanship. Effective November 1, 1993, the Company acquired substantially all the assets of The Raisin Company, Inc., ("Raisins") and all of the stock of ATI Apparel Trade International ("ATI"), the holder of the international rights to the "Raisins" trademarks (see "Item 1. Acquisitions"). In fiscal 1991, the Company acquired Na Pali, S.A. ("Quiksilver Europe"), a privately held French company that holds the license to market "Quiksilver" products in Europe. The Company was incorporated in California in 1976 and was reincorporated in Delaware in 1986. PRODUCTS The Company was originally formed for the purpose of selling "Quiksilver" swimwear, or "boardshorts", in the United States. Since that time, the Company has expanded its product lines to include shirts, walkshorts, t-shirts, fleece, pants, jackets, accessories, and snowboardwear. In fiscal 1991, the Company added junior swimwear sold under the "Roxy" label and young men's clothing under the "Pirate Surf" label to its product lines. In fiscal 1992, the Company added men's sportswear sold under the "Que" label and, beginning in fiscal 1994, the Company added the junior swimwear labels "Raisins", "Leilani Jones" and "Radio Fiji" through its acquisition of The Raisin Company, Inc. (see "Item 1. Acquisitions"). The following table shows the approximate percentage of worldwide sales attributable to each of the Company's major products during fiscal 1995, 1994, and 1993.
PERCENTAGE OF SALES ------------------------ PRODUCTS 1995 1994 1993 -------- ---- ---- ---- T-Shirts........................................... 22% 20% 17% Shirts............................................. 17% 20% 25% Shorts (boardshorts and walkshorts)................ 14% 16% 24% Juniors............................................ 12% 12% 1% Fleece............................................. 10% 9% 6% Accessories........................................ 8% 6% 5% Jackets............................................ 6% 6% 6% Snowboardwear/Skiwear.............................. 5% 6% 7% Pants.............................................. 5% 4% 6% Other.............................................. 1% 1% 3% --- --- --- Total......................................... 100% 100% 100% === === ===
Although the Company's products are generally available throughout the year, most are sold by season, with shorts, t-shirts and juniors sold primarily during the spring and summer seasons, and pants, shirts, fleece, jackets and snowboardwear sold primarily during the fall and holiday seasons. 1 4 The Company believes that the typical domestic retail prices for its products range from approximately $15 for a t-shirt and $34 for a typical short to $230 for a snowboard jacket. Additionally, the Company believes that the typical retail prices for its Quiksilver European products range from approximately $30 for a t-shirt and $60 for a typical short to $180 for a snowboard jacket. PRODUCT DESIGN The Company's products, most of which are designed by the Company, are distinguished by youthful styling, innovative design and quality of workmanship. The Company's management is actively involved in product design. Design concepts are primarily based on the Company's own research, development and design activities. The Company has an agreement with Quiksilver International Pty., Ltd., an Australian company ("Quiksilver International"), to share samples and patterns for new products sold under the "Quiksilver" name by the Company and licensees of Quiksilver International located in Argentina, Australia, Brazil, Canada, Chile, Indonesia, Japan, New Zealand, South Africa, South Korea and Turkey. PROMOTION AND ADVERTISING The Company's strategy is to promote an image associated with surfing, and boardriding activities. The Company believes the "Quiksilver" image and reputation for quality and style has facilitated, and will continue to facilitate, the introduction and acceptance of new products. Members of the Company's management and many of its sales representatives are involved in surfing, snowboarding and other sporting activities which the Company believes enhance the "Quiksilver" image and provide valuable insights into product design. To promote the Company's image and products, the Company advertises in magazines such as "Surfer", "Surfing", and "Snowboarding" in the United States and "Wind" and "Surf Session" in Europe. The Company also sponsors professional surfers, snowboarders and windsurfers, both on a national and international basis. The Company actively promotes its image and products among teenagers and young adults. It has formed a Quiksilver Team comprised of teenagers throughout the United States who are generally recognized as among the most accomplished surfers in their high school or community. Quiksilver Europe sponsors young surfers as well. The Company also participates in trade shows which are held throughout the United States and Europe. The Company and Quiksilver International are parties to an agreement whereby the Company pays Quiksilver International $280,000 a year to promote the "Quiksilver" name and logo worldwide through December 1996. The Company also pays Quiksilver International a promotional fee equal to 1% of Quiksilver Europe's net sales. These promotional fees have historically been used by Quiksilver International to sponsor an international team of leading surfers, windsurfers and snowboarders, produce promotional movies and videos featuring surfers, windsurfers and snowboarders wearing "Quiksilver" products, and organize and fund surfing and windsurfing contests worldwide. Trademark protection for the "Quiksilver" name and logo, as well as the Company's other labels and logos, continue for so long as the Company can show continued use. The Company believes that trademark protection of its names and logos is important for the Company's business. The Company believes that its future success will be dependent on its ability, among other things, to continue to promote products consistent with its image, maintain an image which is viewed as attractive among the retail purchasers of its products, and anticipate and respond to changing consumer demands and tastes. 2 5 CUSTOMERS AND SALES The Company's policy is to sell to customers who merchandise the Company's products in a manner consistent with the Company's image and the quality of its products. Sales of "Quiksilver" products were initially made exclusively to surf shops. The Company later expanded its customer base to include specialty stores and upscale department stores. During fiscal 1995, the Company's products were sold to customers in approximately 9,800 locations worldwide. Of the Company's consolidated net sales for fiscal 1995, approximately 89% resulted from sales to surf shops, specialty stores and all other non-department store accounts and 11% resulted from sales to department stores. In fiscal 1994, sales to surf shops, specialty stores and non-department stores accounted for approximately 88% of the Company's net sales while sales to department stores equaled approximately 12%. The Company currently sells its products to a number of department stores, including Macy's (northern California), Nordstrom, the Broadway (southern California and Arizona), Robinson's/May (southern California), Burdines (Florida), The Bon (northwest) and Liberty House (Hawaii) in the United States; and Le Printemps and Galeries Lafayette in France and Harrods and Lillywhites in Great Britian. During fiscal 1995, approximately 13% of the Company's consolidated net sales were made to the Company's ten largest customers. No single customer accounted for more than 3% of the Company's consolidated net sales during fiscal 1995. Quiksilver Europe accounted for 33% of the Company's consolidated net sales during fiscal 1995. Fiscal 1995 foreign sales (primarily to Central and South America) from the U.S. were less than 6% of total net sales. Sales of the Company's products are made by 109 independent sales representatives and sub-representatives in the United States and Europe and four distributors in Europe. The Company's sales representatives are generally compensated on a commission basis. Of the Company's domestic net sales during fiscal 1995, approximately 54% resulted from sales to customers located on the west coast of the United States, approximately 21% resulted from sales to customers located on the east coast of the United States (primarily Florida, New Jersey, New York and North Carolina), approximately 6% resulted from sales to customers in Hawaii, and approximately 19% resulted from sales to customers located in other areas of the United States. Of the Company's European net sales during fiscal 1995, approximately 51% resulted from sales to customers located in France, 9% in Germany, 8% in England, 7% in Spain, 3% in Belgium, 3% in Switzerland, 3% in Holland, 3% in Portugal, 3% in Italy, with the remaining approximately 10% spread throughout other countries. The Company generally sells its products to domestic customers on a net-30 to 60 day basis and in Europe on a net-30 to 90 day basis depending on the country and whether the Company sells directly into the country or to a distributor. The Company has no cooperative advertising programs with its customers and generally does not reimburse its customers for marketing expenses such as fixtures and signs. The Company does not generally participate in markup or markdown programs with its customers nor does it offer goods on consignment. For additional information regarding the Company's revenues, operating profits and identifiable assets attributable to the Company's domestic and foreign operations, see Note 11 of the "Notes to Consolidated Financial Statements". 3 6 SEASONALITY The Company's net sales fluctuate from quarter to quarter, as exemplified by the quarterly consolidated net sales set forth below for fiscal years 1995, 1994 and 1993.
CONSOLIDATED NET SALES (UNAUDITED) ------------------------------------------------------------------ 1995 1994 1993 ------------------- ------------------- ------------------ FISCAL QUARTER ENDING AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT --------------------- -------- ------- -------- ------- ------- ------- (DOLLAR AMOUNTS IN THOUSANDS) January 31..................... $ 33,658 19.5% $ 24,294 19.3% $19,039 20.1% April 30....................... 47,311 27.4 36,468 28.9 28,501 30.1 July 31........................ 42,738 24.7 29,169 23.1 22,355 23.6 October 31..................... 49,080 28.4 36,240 28.7 24,745 26.2 -------- ----- -------- ----- ------- ----- Total..................... $172,787 100.0% $126,171 100.0% $94,640 100.0% ======== ===== ======== ===== ======= =====
Sales are subject to seasonal fluctuations as a result of the Company's product mix. PRODUCTION AND RAW MATERIALS For its domestic operations, the Company hires independent contractors located primarily in southern California to manufacture its clothing and accessories. During fiscal 1995, offshore production for such operations accounted for approximately 17% of clothing and accessories produced. For its European operations, the Company hires independent contractors located primarily in France, Portugal, China, Italy and Morocco to manufacture the majority of its clothing and accessories. In general, the Company provides patterns and fabric to independent cutting contractors to begin the production process. After the fabric is cut, it passes through various processes which may include sewing, washing, dyeing, embroidering and screening. These processes occur in different orders based on the design and style of the product. The Company's quality control inspectors and production managers monitor the quality of the goods from the initial receiving of raw materials through the various processing stages until the completed garment is delivered to the Company's distribution centers. No formal contractual obligations exist between the Company and its independent manufacturing contractors. Goods are manufactured and processed on an order-by-order basis. During fiscal 1995, no single sewing contractor produced more than approximately 13% of the Company's consolidated garment production. The Company believes that numerous qualified contractors are available to provide additional capacity on an as-needed basis. The Company believes it enjoys a favorable ongoing relationship with its independent manufacturing contractors. During fiscal 1995, approximately 87% of the Company's consolidated raw material fabric/trim purchases, and 98% of its domestic raw material fabric/trim purchases, consisted of materials made in the United States. The remaining raw material fabric/trim was purchased either directly from sources in Japan, France, India, Hong Kong and the United Kingdom; or from suppliers located in the United States who had acquired some of their products from foreign sources. No single fabric supplier accounted for more than 9% of the Company's consolidated expenditures for raw material purchases during that period. Although the Company does not have any formal long-term arrangements with its suppliers, it believes it has established solid working relationships over many years with vendors that the Company believes are financially stable and reputable. As the Company has grown, it believes that appropriate and sufficient planning has been performed to ensure that current suppliers can provide increased levels of raw materials as required by production demands. In addition, alternate and/or backup suppliers are researched, tested, and added as needed. To date, the Company has not experienced, nor does it anticipate any significant difficulties in satisfying its raw materials require- 4 7 ments. However, in the event of any unanticipated substantial disruption of the Company's relationship with its key existing raw materials suppliers, there could be a short-term adverse effect on the Company's operations. The Company attempts to keep only enough finished product in stock to meet sales commitments and anticipated orders and reorders on a seasonal basis. In the United States, the Company believes that it is capable of being responsive to its customers' continually changing needs because it primarily utilizes local contractors that can produce garments in six to eight weeks versus non-domestic contractors who typically require between eight and fourteen weeks. While Quiksilver Europe produces a higher percentage of garments outside of France, the Company believes it has sufficient production facilities and contractors in France to respond to customers' needs. IMPORTS AND IMPORT RESTRICTIONS The Company has for some time imported finished goods and raw materials for its domestic operations under multilateral and bilateral trade agreements between the United States and a number of foreign countries, including Hong Kong, India and Japan. These agreements impose quotas on the amount and type of textile and apparel products which can be imported into the United States from the affected countries. The Company does not anticipate that these restrictions will materially or adversely affect its operations since it would be able to meet its needs domestically or from countries not affected by the restrictions on an annual basis. Quiksilver Europe operates in the European Economic Community ("EEC") among which there are few trade barriers. Quiksilver Europe also sells to 6 other countries united in another trade union which has some restrictions on imports of textile products and their sources. For production, Quiksilver Europe operates under constraints imposed on imports of finished goods and raw materials from outside the EEC including quotas and duty charges. The Company does not anticipate that these restrictions will materially or adversely impact its operations since it has always operated under such constraints and the trend in Europe is toward unification. TRADEMARK LICENSE AGREEMENTS The Company owns all rights to use the "Quiksilver" name, logo, and trademark in the United States, Puerto Rico and Mexico. The Company has licensed its rights to use the "Quiksilver" name, logo, and trademark in Mexico in exchange for royalties of 4.50% of net sales after Mexican taxes. Additionally, the Company has licensed its right to use the "Quiksilver" name and logo on watches, sunglasses and wetsuits in exchange for royalties of 7%, 7% and 4% of net sales, respectively, which expire between 1997 and 2002. In 1992, the Company entered into a European trademark license and manufacturing agreement (the "Trademark Agreement") with Quiksilver International. The Trademark Agreement, which superseded a previously existing agreement, provides that the Company can sell products under the "Quiksilver" trademark and trade name through 2012 in the territories covered by the Trademark Agreement (primarily western Europe). In consideration of the rights granted under the Trademark Agreement, the Company pays to Quiksilver International a royalty, on a monthly basis as follows: (a) For any year in which Quiksilver Europe's net sales total 150,000,000 French francs (approximately $30,575,000 at October 31, 1995) or less, the total royalty is 4% of net sales for that year, up to a maximum royalty of 4,500,000 French francs (approximately $917,000 at October 31, 1995) and; (b) For any year in which Quiksilver Europe's net sales total greater than 150,000,000 French francs, the total royalty is 4,500,000 French francs plus an amount equal to 3% of Quiksilver Europe's net sales for that year in excess of 150,000,000 French francs. 5 8 The Trademark Agreement also requires the Company to pay a quarterly promotional fee of 1% of Quiksilver Europe's net sales to Quiksilver International. COMPETITION The market for beachwear, snowboardwear and casual sportswear is competitive. In the Company's markets, the principal competitors include companies such as Billabong, Rusty and Stussy in the United States and Oxbow, Chimsee and O'Neill in Europe. The Company believes that it has revenues and capital resources approximately equal to or greater than most of its competitors in its market. In the snowboardwear market, the Company believes that no single snowboardwear competitor is dominant. However, the Company believes its revenues from snowboardwear are substantially below many of its competitors in the snowboardwear market. The Company's ability to evaluate and respond to changing consumer demands and tasks is critical to its success. The Company believes that consumer acceptance depends on product, image, design, fit and quality, and, consequently, has developed an experienced staff of designers, artists, merchandisers, pattern makers, and cutting and sewing contractors which the Company believes has helped the Company remain in the forefront of design in the areas in which it competes. The Company believes, however, that its continued success will depend on its ability to promote its image and to design products acceptable to the marketplace. EMPLOYEES On October 31, 1995, the Company employed an aggregate of approximately 454 persons worldwide, of whom approximately 270 were production, operations and shipping employees, approximately 170 served in administrative or clerical capacities and 14 served in executive capacities. None of the Company's employees are represented by a union and the Company has never experienced a work stoppage. The Company considers its working relationships with its employees to be good. RESEARCH AND DEVELOPMENT During the last three fiscal years, the Company did not incur any material research and development expenses. ENVIRONMENTAL MATTERS During the last three fiscal years, compliance with environmental laws and regulations did not have a significant impact on the Company's capital expenditures, earnings or competitive position. The Company does not anticipate that it will incur any material capital expenditures for environmental control facilities during the next fiscal year. ACQUISITIONS Effective November 1, 1993, the Company acquired substantially all of the assets of The Raisin Company, Inc. ("Raisins") and the stock of ATI Apparel Trade International ("ATI") for a purchase price of $4,136,000 consisting of $3,459,000 in cash and the assumption of $677,000 in liabilities. The Company also agreed to pay the sellers up to 28.8% of the earnings before taxes of Raisins and ATI, contingent on the achievement of certain earnings goals through October 31, 1996. The acquisition of Raisins and ATI was accounted for as a purchase and approximately $4,429,000 was recorded as goodwill which is being amortized over 30 years. 6 9 ITEM 2. PROPERTIES The Company's executive offices and production and warehouse facilities occupy approximately 150,000 square feet of space in five buildings located in Orange County, California and approximately 107,000 square feet of space in eight buildings in France. The leases for the Orange County facilities expire on various dates (including option periods) through the year 1999. The majority of the buildings in France are owned and the Company will take title to the buildings on various dates through 2004. The aggregate monthly rental payment for rented facilities is approximately $75,000. Although the Company believes that its present facilities will be adequate for its immediately foreseeable business needs, the Company is currently investigating alternative facilities. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any material litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is included on the NASDAQ National Market System under the symbol "QUIK." The following table reflects the high and low sales prices of the Company's Common Stock, as reported by the NASDAQ National Market System, for the two most recent fiscal years.
HIGH LOW ---- ----- Fiscal 1995 4th Quarter ended October 31, 1995.............................. $31 3/4 $25 3rd Quarter ended July 31, 1995................................. 28 1/2 19 3/8 2nd Quarter ended April 30, 1995................................ 22 3/8 15 1/4 1st Quarter ended January 31, 1995.............................. 18 1/8 14 Fiscal 1994 4th Quarter ended October 31, 1994.............................. $17 7/8 $10 1/8 3rd Quarter ended July 31, 1994................................. 14 1/2 9 3/4 2nd Quarter ended April 30, 1994................................ 16 1/2 12 1/4 1st Quarter ended January 31, 1994.............................. 15 3/4 10 1/2
The Company has reinvested earnings in the business and has never paid a cash dividend. At the present time, no change to this practice is under consideration. The payment of cash dividends in the future will be determined by the Board of Directors in light of conditions then existing, including the Company's earnings, financial requirements and condition, opportunities for reinvesting earnings, business conditions and other factors. In addition, under the Company's line of credit agreement, the Company must obtain the bank's prior consent to purchase, redeem or retire any capital stock. The number of holders of record of the Company's Common Stock was approximately 410 on December 31, 1995. 7 10 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth certain selected financial data regarding the Company which is qualified by reference to, and should be read in conjunction with, the consolidated financial statements and notes thereto (see "Index to Consolidated Financial Statements and Financial Statement Schedule" and "Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations"). The income statement, per share and balance sheet data presented below have been derived from the Company's consolidated financial statements. The Company's consolidated financial statements as of October 31, 1995 and 1994 and for each of the three years in the period ended October 31, 1995 included herein have been audited by Deloitte & Touche LLP, the Company's independent auditors, as indicated in their report included elsewhere herein.
YEAR ENDED OCTOBER 31, ------------------------------------------------------ 1995(1) 1994(1) 1993(1) 1992 1991 -------- -------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Net sales.............................. $172,787 $126,171 $94,640 $89,319 $97,059 Income before provision for income taxes................................ 16,836 11,756 7,631 890 10,906 Net income............................. $ 10,012 $ 7,738 $ 4,431 $ 371 $ 6,444 PER SHARE DATA: Net income per common share............ $ 1.45 $ 1.16 $ .69 $ .05 $ 1.02 Weighted average common shares and equivalents outstanding.............. 6,882 6,648 6,438 6,965(2) 6,289 Dividends declared per common share.... -- -- -- -- -- BALANCE SHEET DATA: Total assets........................... $ 99,168 $ 80,470 $58,648 $53,162 $51,200 Current ratio(3)....................... 2.74 2.41 3.32 3.48 3.84 Working capital........................ $ 46,902 $ 32,567 $26,737 $24,545 $24,588 Short-term debt........................ 8,264 10,490 1,495 199 181 Long-term debt......................... 3,297 2,449 2,079 2,479 2,492 Stockholders' equity................... $ 68,938 $ 54,938 $45,030 $40,787 $40,059
- --------------- (1) The Company's consolidated financial statements include Quiksilver Europe from February 1, 1991 forward and Raisins from November 1, 1993 forward (see "Item 1. Acquisitions"). (2) Primary weighted average common shares and equivalents outstanding include common shares contingently issuable in connection with certain earnout provisions of the Quiksilver Europe acquisition. (3) Current ratio is computed by dividing current assets by current liabilities. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements and notes thereto. All information is based on the Company's fiscal years ended October 31, 1995, 1994 and 1993. RESULTS OF OPERATIONS Fiscal 1995 vs. Fiscal 1994 Consolidated net sales for fiscal 1995 increased 36.9% to $172,787,000 as compared to $126,171,000 in fiscal 1994. Fiscal 1995 net sales, excluding Quiksilver Europe, increased 31.8% to 8 11 $114,935,000 as compared to $87,172,000 in fiscal 1994. This increase was a result of a greater acceptance of the Company's product lines and better sell-throughs. Fiscal 1995 net sales for Quiksilver Europe increased 48.3% to $57,852,000 as compared to $38,999,000 in fiscal 1994. This increase was a result of expanded product lines and a greater acceptance of the Company's product lines in Europe. The consolidated gross profit margin for fiscal 1995 was 38.2% as compared to 37.7% in fiscal 1994. Fiscal 1995 and fiscal 1994 gross profit margin, excluding Quiksilver Europe, remained flat at 34.6%. Domestic Quiksilver gross profit margin improved primarily due to cost cutting measures and improved product forecasting. Fiscal 1995 gross profit margin for Quiksilver Europe was 45.5% as compared to 44.8% in fiscal 1994. This increase was primarily due to better product sourcing, lower inventory markdowns and an increase in direct sales to retailers as opposed to using distributors. Direct sales typically result in higher profit margins to the European Operations. Consolidated selling, general and administrative expense ("SG&A") increased 33.7% in fiscal 1995 to $46,810,000 as compared to $35,014,000 in fiscal 1994. Fiscal 1995 SG&A, excluding Quiksilver Europe, increased 24.4% to $28,755,000 as compared to $23,121,000 in fiscal 1994. This increase was primarily attributable to increased sales volume. Fiscal 1995 SG&A for Quiksilver Europe increased 51.8% to $18,055,000 from $11,893,000 in fiscal 1994. This increase was a result of increased sales volume and costs associated with selling directly to retailers in certain countries that were previously handled by distributors. Consolidated royalty income for fiscal 1995 increased 14.8% to $1,053,000 as compared to $917,000 in fiscal 1994. This increase was due to increased sales of domestically licensed products. The Company receives royalty income from its Mexican, wetsuit, watch, sunglass and outlet store licensees. Consolidated royalty expense for fiscal 1995 increased 109.4% to $2,153,000 as compared to $1,028,000 in fiscal 1994. This increase was due to an increase in sales volume in addition to an agreement with Quiksilver International, whereby Quiksilver International provided Quiksilver Europe a one-time reduction in royalties in fiscal 1994 due to the increase in sales volume and expenses from directly selling and shipping into countries which were previously handled by distributors. Consolidated interest income for fiscal 1995 decreased to $11,000 as compared to $44,000 in fiscal 1994. Consolidated interest expense for fiscal 1995 increased 54.8% to $1,150,000 as compared to $743,000 in fiscal 1994. These changes were due to the decrease in cash available for investment and a higher level of borrowings against the Company's lines of credit. Consolidated income before cumulative effect of accounting change for fiscal 1995 increased 40.3% to $10,012,000 or $1.44 per fully diluted common share as compared to $7,138,000 or $1.06 per fully diluted common share in fiscal 1994. The increase in income before cumulative effect of accounting change for fiscal 1995 as compared to fiscal 1994 was due primarily to increased sales and gross profit margin, and to a lesser extent leveraging of SG&A, partially offset by increased royalty and interest expense, as discussed above. Fiscal 1994 vs. Fiscal 1993 Consolidated net sales for fiscal 1994 increased 33.3% to $126,171,000 as compared to $94,640,000 in fiscal 1993. Fiscal 1994 net sales, excluding Quiksilver Europe, increased 41.1% to $87,172,000 as compared to $61,791,000 in fiscal 1993. This increase was a result of a greater acceptance of the Company's product lines, better sell-throughs and the acquisition of Raisins in November 1993. Fiscal 1994 net sales for Quiksilver Europe increased 18.7% to $38,999,000 as compared to $32,849,000 in fiscal 1993. This increase was a result of expanded product lines and a greater acceptance of the Company's product lines in Europe. The consolidated gross profit margin for fiscal 1994 was 37.7% as compared to 35.6% in fiscal 1993. Fiscal 1994 gross profit margin, excluding Quiksilver Europe, was 34.6% as compared to 9 12 31.1% in fiscal 1993. This increase was primarily attributable to cost cutting measures, improved product forecasting resulting in a reduction in fiscal 1994 in closing out selected finished goods inventory at below wholesale prices and the addition of Raisins, which generally has higher average margins. Fiscal 1994 gross profit margin for Quiksilver Europe was 44.8% as compared to 43.9% in fiscal 1993. This increase was primarily due to better product sourcing, lower inventory markdowns and selling directly to retailers as opposed to using distributors. Direct sales typically result in higher profit margins to Quiksilver Europe. Consolidated SG&A increased 36.3% in fiscal 1994 to $35,014,000 as compared to $25,684,000 in fiscal 1993. Fiscal 1994 SG&A, excluding Quiksilver Europe, increased 38.2% to $23,121,000 as compared to $16,728,000 in fiscal 1993. This increase was primarily attributable to the addition of Raisins and, to a lesser extent, increased sales volume. Fiscal 1994 SG&A for Quiksilver Europe increased 32.8% to $11,893,000 from $8,956,000 in fiscal 1993. This increase was a result of increased sales volume and costs associated with selling directly to retailers in certain countries that were previously handled by distributors. Consolidated royalty income for fiscal 1994 increased 67.9% to $917,000 as compared to $546,000 in fiscal 1993. This increase was due to increased sales of domestically licensed products. The Company receives royalty income from its Mexican, wetsuit, watch, sunglass and outlet store licensees. Consolidated royalty expense for fiscal 1994 decreased 12.9% to $1,028,000 as compared to $1,180,000 in fiscal 1993. This decrease was primarily due to an agreement with Quiksilver International, whereby Quiksilver International provided Quiksilver Europe a one-time reduction in royalties due to the increase in sales volume and expenses from directly selling and shipping into countries which were previously handled by distributors. Consolidated interest income for fiscal 1994 decreased to $44,000 as compared to $351,000 in fiscal 1993. Consolidated interest expense for fiscal 1994 increased to $743,000 as compared to $276,000 in fiscal 1993. These changes were due to the decrease in cash available for investment and a higher level of borrowings against the Company's lines of credit. Consolidated income before cumulative effect of accounting change for fiscal 1994 increased 61.1% to $7,138,000 or $1.06 per fully diluted common share as compared to $4,431,000 or $0.69 per fully diluted common share in fiscal 1993. This increase was due primarily to increased sales and gross profit margin, and to a lesser extent lower royalty expense along with increased royalty income, as discussed above. Inflation The modest rate of inflation over the past few years has had an insignificant impact on the Company's sales and profitability. Financial Position, Capital Resources and Liquidity The Company finances its capital investments and seasonal working capital requirements from funds generated by its operations and from bank revolving lines of credit. In November, 1993, the Company used funds generated from operations and its credit facilities to acquire the assets of Raisins (see "Item 1. Acquisitions"). In January 1995, the Company disbursed approximately $293,000 in cash to the former shareholders of Raisins pursuant to the terms of an earnout agreement. Working capital increased to $46,902,000 at October 31, 1995 as compared to $32,567,000 at October 31, 1994. The increase in fiscal 1995 from fiscal 1994 is primarily due to increased operating income. Consolidated trade accounts receivable as of October 31, 1995 increased 27.8% to $38,308,000 from $29,974,000 at the same time last year. Trade accounts receivable, excluding Quiksilver Europe, increased 32.4% to $25,519,000 as of October 31, 1995 from $19,270,000 at the same time 10 13 last year. Quiksilver Europe's trade accounts receivable increased 19.5% to $12,789,000 from $10,704,000 at the same time last year. These increases were primarily due to increased sales. The Company's accounts receivable average collection period remained relatively stable at 72 days in fiscal 1995 as compared to 73 days in fiscal 1994. Consolidated inventories as of October 31, 1995 increased 31.2% to $28,355,000 from $21,609,000 at the same time last year. Inventories, excluding Quiksilver Europe, increased 20.8% to $22,496,000 as of October 31, 1995 from $18,619,000 at the same time last year. This increase in inventory levels both domestically and in Europe is primarily due to the Company's desire to meet anticipated future demand for its products. Quiksilver Europe's inventories increased 96.0% to $5,859,000 from $2,990,000 at the same time last year. This increase is due to Quiksilver Europe bringing more inventory into its facilities sooner in order to meet shipping dates, in addition to the aforementioned reason. Inventory turnover remained relatively constant at 4.3 turns in fiscal 1995 as compared to 4.5 turns in fiscal 1994. As the Company uses independent contractors for cutting, sewing and all other manufacturing of the Company's products, and intends to continue to use independent contractors in the future, the Company has avoided significant capital expenditures. Fiscal 1995 capital expenditures were $2,598,000, as compared to $2,873,000 for fiscal 1994. Goodwill on the Company's balance sheets as of October 31, 1995 and 1994 consists primarily of the costs in excess of net assets acquired in the Quiksilver Europe and Raisins acquisitions. To finance the Company's seasonal working capital needs, the Company has available a $20,000,000 unsecured revolving line of credit with a U.S. bank. As of October 31, 1995, the Company had $6,857,000 outstanding under the line of credit. The unsecured line of credit bears interest at 0.5% below the bank's reference rate for the first $16,000,000 drawn and at the bank's reference rate on all amounts drawn over $16,000,000. This line of credit expires April 30, 1996. Quiksilver Europe also has available lines of credit, both secured and unsecured, with French banks which provide for maximum financing of approximately $16,600,000. The lines of credit bear interest at 0.7% to 1.0% above the French banks' reference rates. As of October 31, 1995, Quiksilver Europe had drawn $1,174,000 under its lines of credit. The Company anticipates the renewal of its current credit facilities as they expire. The Company believes its current cash balance and current lines of credit are adequate to cover its seasonal working capital requirements for the foreseeable future. The Company's short-term cash needs are generally covered by its operating activities and borrowings on its credit facilities. The Company has not committed to any material capital expenditures nor other investing activities during fiscal 1996, although the Company will continue to purchase selected capital equipment from time to time and within its normal course of business. In recent years, certain customers of the Company have experienced financial difficulties, including filing for reorganization proceedings under bankruptcy laws. In the past, the Company has not incurred significant losses outside the normal course of business as a result of the financial difficulties of these customers. While management believes that allowances for doubtful accounts at October 31, 1995 are adequate, the Company carefully monitors developments regarding its major customers. Additional material financial difficulties encountered by these or other significant customers could have an adverse impact on the Company's financial position or results of operations. However, in management's opinion, there are adequate alternative retail customers such that the loss of any customer known to have financial difficulties will not have a significant long-term negative impact on the Company's future operations. Effective November 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). This Statement changed the Company's method of accounting for income taxes from the deferred method to an asset and liability method. Under the deferred method, annual income tax expense is matched with pretax accounting income by providing deferred taxes at current rates for timing differences between the 11 14 determination of net income for financial reporting and tax purposes. Under the asset and liability method, deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or settled. The effect of initially adopting SFAS 109 was accounted for as a cumulative effect of an accounting change and resulted in an increase in earnings for the first quarter of fiscal 1994 of $600,000. Due to Quiksilver Europe selling in various European countries and collecting at future dates in the customers' local currencies, the Company may incur gains or losses resulting from changes in foreign currency exchange rates. When deemed appropriate, management may undertake hedging positions to reduce its exposure to these exchange fluctuations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See "Index to Consolidated Financial Statements" for a listing of the consolidated financial statements and supplementary data filed with this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item will be included in the Company's Proxy Statement with respect to its 1996 Annual Meeting of Stockholders to be filed with the Commission within 120 days of October 31, 1995 and is incorporated herein by this reference as if set forth in full herein. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be included in the Company's Proxy Statement with respect to its 1996 Annual Meeting of Stockholders to be filed with the Commission within 120 days of October 31, 1995 and is incorporated herein by this reference as if set forth in full herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item will be included in the Company's Proxy Statement with respect to its 1996 Annual Meeting of Stockholders to be filed with the Commission within 120 days of October 31, 1995 and is incorporated herein by this reference as if set forth in full herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item will be included in the Company's Proxy Statement with respect to its 1996 Annual Meeting of Stockholders to be filed with the Commission within 120 days of October 31, 1995 and is incorporated herein by this reference as if set forth in full herein. 12 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Consolidated Financial Statements See "Index to Consolidated Financial Statements" 2. Consolidated Financial Statement Schedule See "Index to Consolidated Financial Statements" 3. Exhibits See "Exhibit Index" (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last quarter of the fiscal year ended October 31, 1995. 13 16 QUIKSILVER, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE ---- INDEPENDENT AUDITORS' REPORT......................................................... 15 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets as of October 31, 1995 and 1994........................ 16 Consolidated Statements of Income for the Years Ended October 31, 1995, 1994 and 1993........................................................................ 17 Consolidated Statements of Stockholders' Equity for the Years Ended October 31, 1995, 1994 and 1993............................................................. 18 Consolidated Statements of Cash Flows for the Years Ended October 31, 1995, 1994 and 1993........................................................................ 19 Notes to Consolidated Financial Statements......................................... 20 CONSOLIDATED FINANCIAL STATEMENT SCHEDULE Schedule II -- Valuation and Qualifying Accounts................................... 28
All other schedules are omitted as they are not required, or the required information is shown in the consolidated financial statements or notes thereto. 14 17 INDEPENDENT AUDITORS' REPORT To The Board of Directors and Stockholders Quiksilver, Inc. We have audited the accompanying consolidated balance sheets of Quiksilver, Inc. and subsidiaries as of October 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended October 31, 1995. Our audits also included the consolidated financial statement schedule listed in the index at Item 14(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements referred to above present fairly, in all material respects, the consolidated financial position of Quiksilver, Inc. and subsidiaries as of October 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, such consolidated financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As more fully described in Note 6, effective November 1, 1993 the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". DELOITTE & TOUCHE LLP December 22, 1995 Costa Mesa, California 15 18 QUIKSILVER, INC. CONSOLIDATED BALANCE SHEETS OCTOBER 31, 1995 AND 1994 ASSETS
1995 1994 ----------- ----------- Current Assets Cash.......................................................... $ 3,461,000 $ 682,000 Trade accounts receivable, less allowance for doubtful accounts of $2,717,000 (1995) and $2,202,000 (1994)........ 38,308,000 29,974,000 Other accounts receivable..................................... 1,471,000 1,548,000 Inventories -- Note 3......................................... 28,355,000 21,609,000 Deferred taxes -- Note 6...................................... 1,089,000 920,000 Prepaid expenses and other current assets..................... 1,151,000 917,000 ----------- ----------- Total current assets.................................. 73,835,000 55,650,000 Property and equipment, net -- Note 4 and Note 5................ 7,032,000 6,133,000 Trademark, less accumulated amortization of $1,336,000 (1995) and $1,185,000 (1994) -- Note 9............................... 1,682,000 1,833,000 Goodwill, less accumulated amortization of $2,501,000 (1995) and $1,899,000 (1994) -- Note 2............................... 15,611,000 16,209,000 Deferred taxes -- Note 6........................................ 660,000 449,000 Other assets.................................................... 348,000 196,000 ----------- ----------- $99,168,000 $80,470,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Lines of credit -- Note 5..................................... $ 8,031,000 $10,100,000 Accounts payable.............................................. 9,257,000 5,157,000 Accrued liabilities, including $3,031,000 (1995) and $1,464,000 (1994) of accrued compensation.................. 8,834,000 5,024,000 Current portion of notes payable -- Note 5.................... 233,000 390,000 Income taxes payable -- Note 6................................ 578,000 2,412,000 ----------- ----------- Total current liabilities............................. 26,933,000 23,083,000 Notes payable -- Note 5......................................... 3,297,000 2,449,000 ----------- ----------- Total liabilities..................................... 30,230,000 25,532,000 Commitments and Contingencies -- Note 7 Stockholders' Equity -- Notes 6 and 8........................... Preferred stock, $.01 par value, authorized shares -- 5,000,000; issued and outstanding shares -- none............................................. -- -- Common stock, $.01 par value, authorized shares 10,000,000; issued and outstanding shares -- 6,775,605 (1995) and 6,521,422 (1994)....................................... 68,000 65,000 Additional paid-in capital.................................... 15,118,000 11,551,000 Retained earnings............................................. 52,739,000 42,727,000 Cumulative foreign currency translation gain.................. 1,013,000 595,000 ----------- ----------- Total stockholders' equity............................ 68,938,000 54,938,000 ----------- ----------- $99,168,000 $80,470,000 =========== ===========
See notes to consolidated financial statements. 16 19 QUIKSILVER, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
1995 1994 1993 ------------ ------------ ----------- Net sales....................................... $172,787,000 $126,171,000 $94,640,000 Cost of goods sold.............................. 106,741,000 78,560,000 60,987,000 ------------ ------------ ----------- Gross profit.......................... 66,046,000 47,611,000 33,653,000 Operating expenses Selling, general and administrative........... 46,810,000 35,014,000 25,684,000 Royalty income................................ (1,053,000) (917,000) (546,000) Royalty expense............................... 2,153,000 1,028,000 1,180,000 ------------ ------------ ----------- Operating income................................ 18,136,000 12,486,000 7,335,000 Interest income................................. (11,000) (44,000) (351,000) Interest expense................................ 1,150,000 743,000 276,000 Gain on foreign currency exchange............... (672,000) (409,000) (253,000) Loss on foreign currency exchange............... 685,000 339,000 -- Other expense................................... 148,000 101,000 32,000 ------------ ------------ ----------- Income before provision for income taxes and cumulative effect of change in accounting for income taxes.................................. 16,836,000 11,756,000 7,631,000 Provision for income taxes -- Note 6............ 6,824,000 4,618,000 3,200,000 ------------ ------------ ----------- Income before cumulative effect of change in accounting for income taxes................... 10,012,000 7,138,000 4,431,000 Cumulative effect of change in accounting for income taxes -- Note 6........................ -- 600,000 -- ------------ ------------ ----------- Net income...................................... $ 10,012,000 $ 7,738,000 $ 4,431,000 ============ ============ =========== Primary net income per common share before cumulative effect of change in accounting for income taxes.................................. $ 1.45 $ 1.07 $ 0.69 Cumulative effect of change in accounting for income taxes.................................. -- 0.09 -- ------------ ------------ ----------- Primary net income per common share............. $ 1.45 $ 1.16 $ 0.69 ============ ============ =========== Fully diluted net income per common share before cumulative effect of change in accounting for income taxes.................................. $ 1.44 $ 1.06 $ 0.68 Cumulative effect of change in accounting for income taxes.................................. -- 0.09 -- ------------ ------------ ----------- Fully diluted net income per common share....... $ 1.44 $ 1.15 $ 0.68 ============ ============ =========== Primary weighted average common shares and equivalents outstanding....................... 6,882,000 6,648,000 6,438,000 ============ ============ =========== Fully diluted weighted average common shares and equivalents outstanding....................... 6,941,000 6,731,000 6,485,000 ============ ============ ===========
See notes to consolidated financial statements. 17 20 QUIKSILVER, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
CUMULATIVE FOREIGN COMMON STOCK ADDITIONAL CURRENCY TOTAL ------------------- PAID-IN RETAINED TRANSLATION STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS GAIN/(LOSS) EQUITY --------- ------- ----------- ----------- ------------ ------------- Balance at November 1, 1992.. 6,364,122 $64,000 $ 9,990,000 $30,558,000 $ 175,000 $40,787,000 Proceeds from stock issued in connection with exercise of options -- Note 8.......... 50,500 -- 283,000 -- -- 283,000 Tax benefits due to exercise of stock options -- Note 6.......................... -- -- 91,000 -- -- 91,000 Foreign currency translation loss....................... -- -- -- -- (562,000) (562,000) Net income................... -- -- -- 4,431,000 -- 4,431,000 --------- ------- ----------- ----------- ---------- ----------- Balance at October 31, 1993....................... 6,414,622 64,000 10,364,000 34,989,000 (387,000) 45,030,000 Proceeds from stock issued in connection with exercise of options -- Note 8.......... 106,800 1,000 900,000 -- -- 901,000 Tax benefits due to exercise of stock options -- Note 6.......................... -- -- 287,000 -- -- 287,000 Foreign currency translation loss....................... -- -- -- -- 982,000 982,000 Net income................... -- -- -- 7,738,000 -- 7,738,000 --------- ------- ----------- ----------- ---------- ----------- Balance at October 31, 1994....................... 6,521,422 65,000 11,551,000 42,727,000 595,000 54,938,000 Proceeds from stock issued in connection with exercise of options -- Note 8.......... 254,183 3,000 2,593,000 -- -- 2,596,000 Tax benefits due to exercise of stock options -- Note 6.......................... -- -- 974,000 -- -- 974,000 Foreign currency translation gain....................... -- -- -- -- 418,000 418,000 Net income................... -- -- -- 10,012,000 -- 10,012,000 --------- ------- ----------- ----------- ---------- ----------- Balance at October 31, 1995....................... 6,775,605 $68,000 $15,118,000 $52,739,000 $1,013,000 $68,938,000 ========= ======= =========== =========== ========== ===========
See notes to consolidated financial statements. 18 21 QUIKSILVER, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
1995 1994 1993 ----------- ----------- ------------ Cash Flows From Operating Activities: Net income..................................................... $10,012,000 $ 7,738,000 $ 4,431,000 Items in income not affecting cash: Depreciation and amortization................................ 2,314,000 2,263,000 1,818,000 Provision for losses on accounts receivable.................. 923,000 -- 873,000 Loss on sales of fixed assets................................ 99,000 75,000 87,000 Deferred taxes............................................... (380,000) (273,000) (221,000) Increase/decrease in operating assets and liabilities, net of effects from purchase of The Raisin Company: Trade accounts receivable.................................... (9,257,000) (10,659,000) (3,628,000) Other receivables............................................ 77,000 (331,000) (66,000) Inventories.................................................. (6,746,000) (8,010,000) (1,896,000) Prepaid expenses and other current assets.................... (234,000) (158,000) (345,000) Other assets................................................. (152,000) (493,000) (425,000) Accounts payable............................................. 4,100,000 1,041,000 1,877,000 Accrued liabilities.......................................... 3,810,000 391,000 (110,000) Income taxes payable......................................... (860,000) 1,111,000 1,671,000 ----------- ----------- ------------ Net cash provided by (used in) operating activities............ 3,706,000 (7,305,000) 4,066,000 Cash Flows From Investing Activities: Proceeds from sales of fixed assets.......................... 35,000 25,000 29,000 Capital expenditures......................................... (2,598,000) (2,873,000) (775,000) Payment for purchase of Quiksilver Europe.................... -- -- (5,164,000) Payment for purchase of The Raisin Company................... -- (3,459,000) -- ----------- ----------- ------------ Net cash used in investing activities.......................... (2,563,000) (6,307,000) (5,910,000) Cash Flows From Financing Activities: Borrowings on short-term debt................................ 36,699,000 25,929,000 2,514,000 Borrowings on long-term debt................................. 992,000 370,000 -- Payments on short-term debt.................................. (38,925,000) (17,274,000) (1,218,000) Payments on long-term debt................................... (144,000) -- (400,000) Proceeds from stock issued in connection with exercise of stock options.............................................. 2,596,000 901,000 283,000 ----------- ----------- ------------ Net cash provided by financing activities...................... 1,218,000 9,926,000 1,179,000 Effect of exchange rate changes on cash........................ 418,000 982,000 (562,000) ----------- ----------- ------------ Net increase (decrease) in cash................................ 2,779,000 (2,704,000) (1,227,000) Cash at beginning of year...................................... 682,000 3,386,000 4,613,000 =========== =========== ============ Cash at end of year............................................ $ 3,461,000 $ 682,000 $ 3,386,000 =========== =========== ============ Supplementary Cash Flow Information: Cash paid for interest....................................... $ 1,556,000 $ 654,000 $ 220,000 =========== =========== ============ Cash paid for taxes.......................................... $ 7,096,000 $ 4,871,000 $ 1,589,000 =========== =========== ============
As of October 31, 1994, the Company had accrued $293,000 as additional consideration for the purchase of The Raisin Company -- Note 2. The Company acquired substantially all the assets of The Raisin Company, Inc. and ATI Apparel Trade International for $3,459,000. In connection with the acquisition, liabilities were assumed as follows: Fair Value of assets acquired...................... $ 4,136,000 Cash Paid.......................................... (3,459,000) ----------- Liabilities assumed................................ $ 677,000 ===========
19 22 QUIKSILVER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993 NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES "Company Business" -- The Company designs, arranges for the manufacture of, and distributes casual sportswear, beachwear and snowboardwear primarily under the "Quiksilver" and "Raisins" labels to surf shops, specialty stores and selected department stores. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. "Principles of Consolidation" -- The accompanying consolidated financial statements include the accounts of Quiksilver, Inc. ("Quiksilver"), Na Pali, S.A. ("Quiksilver Europe"), The Raisin Company, Inc. ("Raisins") and ATI Apparel Trade International ("ATI"), its wholly-owned subsidiaries (collectively the "Company"). All material intercompany accounts and transactions have been eliminated in consolidation. "Revenue Recognition" -- Revenue, including royalty income, is recognized when merchandise is shipped to a customer. "Inventories" -- Inventories are valued at the lower of cost (first-in, first-out) or market. "Depreciation and Amortization" -- Depreciation and amortization are recorded on a straight-line basis over the assets' estimated useful lives, which generally range from two to ten years. "Amortization of Trademark" -- The trademark is being amortized on a straight-line basis over 20 years. "Goodwill" -- Goodwill, which primarily arose from the acquisitions of Quiksilver Europe and Raisins, is being amortized on a straight-line basis over 30 years. The Company assesses the recoverability of goodwill at each balance sheet date by determining whether the amortization of the balance over its remaining useful life can be recovered through projected undiscounted future operating cash flows from each acquisition. "Income Taxes" -- The Company adopted Statement of Financial Accounting Standards No. 109 ("SFAS 109"), Accounting for Income Taxes, in November 1993. Deferred taxes on income result from temporary differences between the reporting of income for financial statements and tax reporting purposes. "Net Income Per Common Share" -- Net income per common share for 1995, 1994 and 1993 was computed based on the weighted average number of shares actually outstanding, plus the shares that would be outstanding, using the treasury stock method, assuming the exercise of all outstanding options which were considered to be common stock equivalents (fully diluted net income per common share). "Cash" -- For purposes of these consolidated financial statements, certificates of deposit and highly liquid short-term investments, purchased with original maturities of three months or less, are considered cash. "Foreign Currency" -- The Company's primary functional currency is the U.S. dollar. Assets and liabilities of the Company denominated in foreign currencies are translated at the rate of exchange at the balance sheet date, while revenues and expenses are translated using the average exchange rate. Gains and losses on foreign currency exchanges are recognized as incurred. "Reclassifications" -- Certain reclassifications have been made to the 1994 and 1993 consolidated financial statements to conform them to the 1995 presentation. 20 23 QUIKSILVER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993 NOTE 2 -- ACQUISITIONS Effective November 1, 1993, the Company acquired substantially all of the assets of Raisins and the stock of ATI for a purchase price of $4,136,000 consisting of $3,459,000 in cash and the assumption of $677,000 in liabilities. The Company has also agreed to pay the sellers up to 28.8% of the earnings before taxes of Raisins and ATI, contingent on the achievement of certain earnings goals through October 31, 1996. As of October 31, 1994, the Company had accrued for an additional $293,000, which was paid in January 1995, to the former shareholders of Raisins pursuant to the terms of the earnout agreement. These acquisitions were accounted for as purchases and approximately $4,429,000 was recorded as goodwill. In June 1993, the Company disbursed approximately $5,100,000 in cash to the former shareholders of Quiksilver Europe in full payment of the contingent portion of an acquisition agreement entered into on February 1, 1991. NOTE 3 -- INVENTORIES Inventories consist of the following:
OCTOBER 31, -------------------------- 1995 1994 ----------- ----------- Raw materials................................... $10,875,000 $ 9,452,000 Work in process................................. 4,104,000 3,467,000 Finished goods.................................. 13,376,000 8,690,000 ----------- ----------- $28,355,000 $21,609,000 =========== ===========
NOTE 4 -- PROPERTY AND EQUIPMENT Property and equipment are carried at cost and consist of the following:
OCTOBER 31, -------------------------- 1995 1994 ----------- ----------- Machinery and equipment......................... $ 7,000,000 $ 6,323,000 Leasehold improvements.......................... 3,708,000 3,023,000 Land and buildings.............................. 3,306,000 2,981,000 ----------- ----------- Subtotal...................................... 14,014,000 12,327,000 Less accumulated depreciation and amortization.................................. (6,982,000) (6,194,000) ----------- ----------- $ 7,032,000 $ 6,133,000 =========== ===========
NOTE 5 -- LINES OF CREDIT AND NOTES PAYABLE Quiksilver has an unsecured revolving line of credit with a bank which provides for maximum financing of $20,000,000. The line of credit bears interest at 0.5% below the bank's reference rate (8.75% at October 31, 1995) for the first $16,000,000 drawn and at the bank's reference rate on all amounts drawn over $16,000,000. This line of credit expires April 30, 1996. Quiksilver had $6,857,000 outstanding on this credit line at October 31, 1995. The line of credit agreement contains restrictive covenants, the most significant of which relate to the maintenance of minimum tangible net worth, dividend restrictions and debt-to-tangible net worth requirements. At October 31, 1995, the Company was in compliance with such covenants. Quiksilver Europe also has available lines of credit, both secured and unsecured, with French banks which provide for aggregate financing of approximately $16,600,000. The lines of credit bear 21 24 QUIKSILVER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993 interest at 0.7% to 1.0% above the French banks reference rates (which ranged from 5.2% to 6.4% at October 31, 1995). The lines of credit expire on various dates through April 1996. Quiksilver Europe had drawn $1,174,000 against its lines of credit as of October 31, 1995. Long-term notes payable, collateralized by land and buildings, bear interest at rates ranging from 7.3% to 7.9%, require monthly principal and interest payments and are due at various dates through 2004. Principal payments on notes payable are due approximately as follows: 1996................................................. $ 233,000 1997................................................. 394,000 1998................................................. 391,000 1999................................................. 353,000 2000................................................. 338,000 Thereafter........................................... 1,821,000 ---------- $3,530,000 ==========
NOTE 6 -- INCOME TAXES Effective November 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). This Statement changed the Company's method of accounting for income taxes from the deferred method to an asset and liability method. SFAS 109 requires that deferred tax assets and liabilities be established for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or settled. The effect of initially adopting SFAS 109 was accounted for as a cumulative effect of an accounting change and resulted in an increase in earnings for the first quarter of fiscal 1994 of approximately $600,000. A summary of the provision for income taxes follows:
CURRENT DEFERRED TOTAL ---------- --------- ---------- Year Ended October 31, 1995 Federal..................................... $4,066,000 $(320,000) $3,746,000 State....................................... 1,169,000 (60,000) 1,109,000 Foreign..................................... 1,969,000 -- 1,969,000 ---------- --------- ---------- $7,204,000 $(380,000) $6,824,000 ========== ========== ========== Year Ended October 31, 1994 Federal..................................... $2,711,000 $(250,000) $2,461,000 State....................................... 772,000 (23,000) 749,000 Foreign..................................... 1,408,000 -- 1,408,000 ---------- --------- ---------- $4,891,000 $(273,000) $4,618,000 ========== ========== ========== Year Ended October 31, 1993 Federal..................................... $1,600,000 $(238,000) $1,362,000 State....................................... 360,000 17,000 377,000 Foreign..................................... 1,461,000 -- 1,461,000 ---------- --------- ---------- $3,421,000 $(221,000) $3,200,000 ========== ========== ==========
22 25 QUIKSILVER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993 A reconciliation of the provision for income taxes for financial statement purposes to a computed "expected" statutory federal tax for each of fiscal 1995, 1994 and 1993 follows:
YEAR ENDED OCTOBER 31, ---------------------- 1995 1994 1993 ---- ---- ---- Computed "expected" tax expense............................... 35.0% 35.0% 34.0% State income taxes, net of federal income tax effect.......... 4.3 4.1 3.3 Nondeductible goodwill amortization expense................... .9 1.2 2.7 Nondeductible trademark amortization expense.................. -- -- 0.7 Other......................................................... .3 (1.0) 1.2 ---- ---- ---- Provision for income taxes.................................... 40.5% 39.3% 41.9% ==== ==== ====
At October 31, 1995, the Company's deferred tax asset was $2,020,000 and deferred tax liability was $271,000. The major components of the Company's net deferred taxes are as follows:
OCTOBER 31, ------------------------- 1995 1994 ---------- ---------- State taxes............................................... $ 279,000 $ 175,000 Trademark amortization.................................... 578,000 513,000 Allowance for doubtful accounts........................... 604,000 560,000 Depreciation.............................................. 193,000 -- Allowance for returns..................................... 143,000 116,000 Accrued compensation...................................... 63,000 91,000 Goodwill amortization..................................... (99,000) (64,000) Other..................................................... (12,000) (22,000) ---------- ---------- $1,749,000 $1,369,000 ========== ==========
The Company has recorded $974,000, $287,000 and $91,000 as additions to paid-in capital for the tax benefits, in fiscal 1995, 1994 and 1993, respectively, of certain stock options exercised. NOTE 7 -- COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases certain land and buildings under long-term operating lease agreements. The following is a schedule of future minimum lease payments required under operating leases as of October 31, 1995: 1996.................................................................... $ 942,000 1997.................................................................... 414,000 1998.................................................................... 182,000 1999.................................................................... 162,000 2000.................................................................... 162,000 Thereafter.............................................................. 498,000 ---------- $2,360,000 ==========
Total rent expense incurred was $1,062,000, $1,068,000 and $779,000 during fiscal 1995, 1994 and 1993, respectively. 23 26 QUIKSILVER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993 Letters of Credit The Company was contingently liable for $7,188,000 in open letters of credit with suppliers at October 31, 1995. Litigation Legal claims against the Company consist primarily of matters incidental to the Company's business. In the opinion of management, the outcome of these claims will not materially affect the Company's consolidated financial position or results of operations. Employment Contracts The Company has outstanding employment agreements with four of its executive officers. The agreements call for minimum aggregate payments totaling $427,000 for the fiscal year ending October 31, 1996. Flood Loss In August, 1995 Quiksilver Europe experienced a flood which caused damages to facilities and inventory of approximately $1,100,000. In December, 1995, the local government of St. Jean de Luz declared the flood site a natural disaster which, under French law, may allow Quiksilver Europe to recover a portion of its losses. At October 31, 1995, management cannot predict with any certainty, what portion, if any, of the flood losses will be recoverable. As a result, such costs have been expensed in the fourth quarter of fiscal 1995. NOTE 8 -- STOCKHOLDERS' EQUITY In July 1987, the Company adopted a Stock Option Plan (the "Stock Option Plan") under which nonqualified and incentive options to acquire shares of common stock may be granted to directors, officers and other employees selected by the plan's administrative committee at an exercise price not less than the fair market value of the underlying shares on the date of grant. Payment by option holders upon exercise of an option may be made in cash, or, with the consent of the committee, by delivering previously outstanding shares of the Company's Common Stock. Options are exercisable over a period of time, generally five years, as designated by the committee and are subject to such other terms and conditions as the committee determines. In fiscal 1995, 1994 and 1993, the Company's stockholders approved proposals to amend the Company's Stock Option Plan to increase the maximum aggregate number of common shares available for grant from 1,420,000, 1,100,000 and 950,000 shares respectively. 24 27 QUIKSILVER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993 Changes in shares under option for the fiscal years ended October 31, 1995, 1994, and 1993 are summarized as follows:
STOCK OPTIONS ------------------------- PRICE RANGE SHARES PER SHARE ------- ------------- Outstanding at November 1, 1992........................... 288,900 $4.75 - 13.50 Granted................................................. 201,000 9.00 - 12.25 Exercised............................................... 50,500 5.00 - 9.00 Canceled................................................ 68,000 5.25 - 12.25 ------- ------------- Outstanding at October 31, 1993........................... 371,400 4.75 - 13.50 Granted................................................. 312,000 9.00 - 11.50 Exercised............................................... 106,800 5.00 - 11.13 Canceled................................................ 8,700 7.38 - 11.13 ------- ------------- Outstanding at October 31, 1994........................... 567,900 4.75 - 13.50 Granted................................................. 341,000 15.25 - 18.88 Exercised............................................... 254,183 5.00 - 17.63 Canceled................................................ 28,834 4.75 - 11.50 ------- ------------- Outstanding at October 31, 1995........................... 625,883 $5.00 - 18.88 ======= ============= Options exercisable at October 31, 1993................... 216,600 $4.75 - 13.50 ======= ============= Options exercisable at October 31, 1994................... 244,900 $4.75 - 13.50 ======= ============= Options exercisable at October 31, 1995................... 162,549 $5.00 - 12.69 ======= =============
As of October 31, 1995, there were 68,484 shares of common stock under the stock option plans which were available for future grant. NOTE 9 -- ROYALTY, TRADEMARK AND ADVERTISING Effective January 1, 1995, the Company entered into an informal agreement to pay Quiksilver International $280,000 per year for advertising and promotion through December 1996. In 1992, with regard to the Quiksilver Europe acquisition, the Company entered into a European trademark license and manufacturing agreement (the European "Trademark Agreement") with Quiksilver International. The Trademark Agreement, which supersedes a previously existing agreement, provides that the Company can sell products under the "Quiksilver" trademark and trade name through 2012 in the territories covered by the Trademark Agreement (primarily western Europe). In consideration of the rights granted under the new agreement, the Company pays to Quiksilver International a royalty on a monthly basis as follows: (a) For any year where Quiksilver Europe's net sales total 150,000,000 French francs (approximately $30,575,000 at October 31, 1995) or less, the total royalty is 4% of net sales for that year, up to a maximum royalty of 4,500,000 French francs (approximately $917,000 at October 31, 1995) and; (b) For any year where Quiksilver Europe's net sales total greater than 150,000,000 French francs, the total royalty is 4,500,000 French francs plus an amount equal to 3% of Quiksilver Europe's net sales for that year in excess of 150,000,000 French francs. The Trademark Agreement also requires the Company to pay a quarterly promotional fee of 1% of Quiksilver Europe's net sales. For the year ended October 31, 1994 Quiksilver International provided Quiksilver Europe a one-time reduction in royalties payable to Quiksilver International. The Company has licensed its rights to use the "Quiksilver" name, logo, and trademark in Mexico in exchange for royalties of 4.5% of net sales after Mexican taxes. Additionally, the Company has licensed its right to use the "Quiksilver" name and logo on watches, sunglasses and 25 28 QUIKSILVER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993 wetsuits in exchange for royalties of 7%, 7% and 4% of sales, respectively, which expire between 1997 and 2002 NOTE 10 -- RETIREMENT PLAN Effective July 1, 1992, the Company established the Quiksilver 401 (k) Employee Savings Plan and Trust (the "Plan"). The Plan is generally available to all employees with six months of service and will be funded by employee contributions and periodic discretionary contributions from the Company which are approved by the Company's Board of Directors. The Company made contributions of $33,000 and $27,000 to the Plan for the years ended October 31, 1995 and 1994, respectively. NOTE 11 -- DOMESTIC AND FOREIGN OPERATIONS
ADJUSTMENTS YEAR ENDED UNITED QUIKSILVER AND OCTOBER 31, 1995 STATES EUROPE ELIMINATIONS CONSOLIDATED -------------------- ------------ ----------- ------------ ------------ Net sales to unaffiliated customers.......................... $114,935,000 $57,852,000 $ -- $172,787,000 Transfers between geographic areas(1)........................... 83,000 -- (83,000) -- Total revenue........................ 115,018,000 57,852,000 (83,000) 172,787,000 Operating income(2).................. 11,628,000 6,508,000 -- 18,136,000 Income before provision for income taxes.............................. 10,990,000 5,846,000 -- 16,836,000 Identifiable assets(3)............... 71,147,000 28,021,000 -- 99,168,000
YEAR ENDED OCTOBER 31, 1994 -------------------- Net sales to unaffiliated customers.......................... $ 87,172,000 $38,999,000 $ -- $126,171,000 Transfers between geographic areas(1)........................... 50,000 -- (50,000) -- Total revenue........................ 87,222,000 38,999,000 (50,000) 126,171,000 Operating income(2).................. 7,695,000 4,791,000 -- 12,486,000 Income before provision for income taxes.............................. 7,614,000 4,142,000 -- 11,756,000 Identifiable assets(3)............... 62,678,000 19,292,000 (1,500,000) 80,470,000
YEAR ENDED OCTOBER 31, 1993 -------------------- Net sales to unaffiliated customers.......................... $ 61,791,000 $32,849,000 $ -- $ 94,640,000 Transfers between geographic areas(1)........................... 26,000 -- (26,000) -- Total revenue........................ 61,817,000 32,849,000 (26,000) 94,640,000 Operating income(2).................. 2,873,000 4,462,000 -- 7,335,000 Income before provision for income taxes.............................. 3,334,000 4,297,000 -- 7,631,000 Identifiable assets(3)............... 45,491,000 16,157,000 (3,000,000) 58,648,000
- --------------- (1) All transfers between geographic areas were made at cost with no profit recognized. (2) Operating income is net sales less cost of goods sold and operating expenses. (3) Identifiable assets (tangible and intangible) are those assets of the Company that are located in each geographic area. 26 29 QUIKSILVER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993 NOTE 12 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ENDED ENDED ENDED ENDED JANUARY 31 APRIL 30 JULY 31 OCTOBER 31 ----------- ----------- ----------- ----------- FISCAL 1995 Net Sales.............................. $33,658,000 $47,311,000 $42,738,000 $49,080,000 Gross Profit........................... 12,889,000 18,826,000 16,132,000 18,199,000 Net Income............................. 1,531,000 3,623,000 2,308,000 2,550,000 Net Income per Common Share............ .23 .52 .33 .36 Trade Accounts Receivable, net......... 29,526,000 38,862,000 36,220,000 38,308,000 Inventories............................ 28,938,000 25,277,000 36,623,000 28,355,000 FISCAL 1994 Net Sales.............................. $24,294,000 $36,468,000 $29,169,000 $36,240,000 Gross Profit........................... 8,851,000 14,246,000 11,194,000 13,320,000 Net Income............................. 1,508,000 2,760,000 1,505,000 1,965,000 Net Income per Common Share............ .23 .42 .23 .29 Trade Accounts Receivable, net......... 23,158,000 32,828,000 29,598,000 29,974,000 Inventories............................ 19,716,000 14,897,000 19,693,000 21,609,000
27 30 QUIKSILVER, INC. SCHEDULE II -- VALUATION AND QUALIFYNG ACCOUNTS
ADDITIONS BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END CLASSIFICATION OF PERIOD EXPENSE DEDUCTIONS ADJUSTMENTS(1) OF PERIOD - ----------------------------- ---------- ---------- ---------- -------------- ---------- Allowance for doubtful accounts for the year ended: October 31, 1995............. $2,202,000 $923,000 $408,000 -- $2,717,000 ========== ======== ======== ======== ========== October 31, 1994............. $2,254,000 -- $202,000 $150,000 $2,202,000 ========== ======== ======== ======== ========== October 31, 1993............. $2,154,000 $873,000 $773,000 -- $2,254,000 ========== ======== ======== ======== ==========
- --------------- (1) Amount relates to the acquisition of Raisins -- Note 2 . 28 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: January 25, 1996 QUIKSILVER, INC. (Registrant) By: ROBERT B. McKNIGHT, JR. ---------------------------------- Robert B. McKnight, Jr. Chairman of the Board and Chief Executive Officer (Principal Executive Officer) By: RANDALL L. HERREL, SR. ---------------------------------- Randall L. Herrel, Sr. President, Chief Operating Officer, and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE SIGNED - ------------------------------------------ ------------------------------- ----------------- ROBERT B. McKNIGHT, JR. Chairman of the Board and January 25, 1996 - ------------------------------------------ Chief Executive Officer Robert B. McKnight, Jr. (Principal Executive Officer) RANDALL L. HERREL, SR. President, Chief Operating January 25, 1996 - ------------------------------------------ Officer, Secretary and Director Randall L. Herrel, Sr. BERT G. FENENGA Senior Vice President, January 25, 1996 - ------------------------------------------ Chief Financial Officer Bert G. Fenenga and Treasurer (Principal Financial and Accounting Officer) WILLIAM M. BARNUM, JR. Director January 25, 1996 - ------------------------------------------ William M. Barnum, Jr. CHARLES E. CROWE Director January 25, 1996 - ------------------------------------------ Charles E. Crowe MICHAEL H. GRAY Director January 25, 1996 - ------------------------------------------ Michael H. Gray ROBERT G. KIRBY Director January 25, 1996 - ------------------------------------------ Robert G. Kirby TOM ROACH Director January 25, 1996 - ------------------------------------------ Tom Roach
29 32 EXHIBIT INDEX
EXHIBIT SEQUENTIALLY NUMBER DESCRIPTION NUMBERED - ------ ----------------------------------------------------------------------- ------------ 3.1 Certificate of Incorporation as presently in effect (incorporated by reference to Exhibit 3.1 to the Company's registration statement on Form S-1 filed with the Securities and Exchange Commission on December 16, 1986 (the "Registration Statement"))............................... 3.2 Bylaws as presently in effect (incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1990)................................................ 10.2 Standard Industrial Lease -- Net dated May 22, 1990 between Fountain Valley Associates, a California limited partnership and Registrant (incorporated by reference to Exhibit 10.2 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1990)........ 10.3 Standard Industrial Lease -- Net dated June 1, 1987 between Griswold Industries and Registrant (incorporated by reference to Exhibit 10.4 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1987)...................................................... 10.4 Amended and Restated Loan Agreement between Union Bank and Registrant dated October 5, 1994 (incorporated by reference to Exhibit 10.4 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1994)...................................................... 10.5 Quiksilver, Inc. Stock Option Plan dated March 24, 1995 (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 30, 1995)(1)..................... 10.6 Warrant Agreement dated December 16, 1988 between Robert G. Kirby and Registrant (incorporated by reference to Exhibit 10.11 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1987)(1)................................................... 10.7 Indemnity Agreement between Charles E. Crowe and Registrant dated March 29, 1988 (incorporated by reference to Exhibit 10.16 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1988)(1)................................................... 10.8 Indemnity Agreement between Robert G. Kirby and Registrant dated March 29, 1988 (incorporated by reference to Exhibit 10.19 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1988)(1)................................................... 10.9 Indemnity Agreement between Robert B. McKnight, Jr. and Registrant dated March 29, 1988 (incorporated by reference to Exhibit 10.20 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1988)(1)................................................... 10.10 Indemnity Agreement between Randall L. Herrel, Sr. and Registrant dated February 16, 1990 (incorporated by reference to Exhibit 10.21 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1990)(1)................................................... 10.11 Indemnity Agreement between Bert G. Fenenga and Registrant dated January 24, 1995 (incorporated by reference to Exhibit 10.13 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1994)(1)................................................... 10.12 Indemnity Agreement between William M. Barnum, Jr. and Registrant dated May 1, 1995 (incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 30, 1995)(1)........................................................... 10.13 Indemnity Agreement between Michael H. Gray and Registrant dated May 1, 1995 (incorporated by reference to Exhibit 10.3 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 30, 1995)(1)............................................................... 10.14 Indemnity Agreement between Tom Roach and Registrant dated May 1, 1995 (incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 30, 1995)(1)...............................................................
33
EXHIBIT SEQUENTIALLY NUMBER DESCRIPTION NUMBERED - ------ ----------------------------------------------------------------------- ------------ 10.15 Trademark License and Manufacturing Agreement dated January 1, 1992 between Omareef USA, Inc. and Registrant (incorporated by reference to Exhibit 10.18 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1992).................................... 10.16 Trademark License and Manufacturing Agreement dated August 1, 1992 between Valley Isle, Inc. and Registrant (incorporated by reference to Exhibit 10.19 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1992).................................... 10.17 Trademark License and Manufacturing Agreement dated September 28, 1992 between GMT Corporation and Registrant (incorporated by reference to Exhibit 10.20 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1992).................................... 10.18 Trademark License and Manufacturing Agreement dated September 28, 1992 between Black Flys and Registrant (incorporated by reference to Exhibit 10.21 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1992)(1)........................................ 10.19 Quiksilver, Inc. Nonemployee Directors' Stock Option dated April 10, 1992 (incorporated by reference to Exhibit 10.22 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1992).................................................................. 10.20 Trademark License and Manufacturing Agreement dated January 26, 1993 between Quiksilver Garments Pty Ltd. and Na Pali, S.A. (incorporated by reference to Exhibit 10.23 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1992)....................... 10.21 Employment Agreement between Robert B. McKnight, Jr. and Registrant dated April 1, 1995(1)................................................. 10.22 Employment Agreement between Harry Hodge and Registrant dated April 1, 1995(1)................................................................ 10.23 Employment Agreement between Bert G. Fenenga and Registrant dated April 1, 1995(1)............................................................. 10.24 Agreement for Purchase and Sale of Assets dated November 1, 1993 between Registrant and each of QS Raisin, Inc., The Raisin Company, Inc., The Raisin Company, Lingo/Blue, Inc., Thomas I. Lingo, Patricia J. Lingo and Hugh Blue (incorporated by reference to Exhibit 10.22 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1993)(1)................................................... 10.25 Stock Purchase Agreement dated November 1, 1993 between Registrant and each of QS Raisin, Inc., ATI Apparel Trade International, The Lingo Family Trust, The Blue Family Trust, Davis P. Goodman, Thomas I. Lingo and Hugh Blue (incorporated by reference to Exhibit 10.23 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1993)(1)................................................... 11.1 Computation of Net Income Per Common Share............................. 21.1 Names and Jurisdictions of Subsidiaries................................ 23.1 Independent Auditors' Consent.......................................... 27.1 Financial Data Schedule................................................
- --------------- (1) Management contract or compensatory plan EX-10.21 2 EMPLOYMENT AGREEMENT ROBERT MCKNIGHT, 4-1-95 1 EXHIBIT 10.21 April 1, 1995 PERSONAL AND CONFIDENTIAL - ------------------------- Mr. Robert B. McKnight, Jr. Quiksilver, Inc. 1740 Monrovia Avenue Costa Mesa, CA 92627 Re: Employment at Quiksilver ------------------------ Dear Bob, This letter will confirm our understanding regarding your continued employment at Quiksilver, Inc. ("Quiksilver" or the "Company"), and completely supersedes and replaces any existing or previous understandings or agreements, express or implied, we have had. The terms contained in this letter are effective on and after April 1, 1995. 1. Your position will be Chief Executive Officer, reporting to the Board of Directors of the Company. 2. Your base salary will be $29,167 per month, less applicable withholdings and deductions, paid on the Company's regular payroll dates. Your salary will be reviewed at the time management salaries are reviewed periodically and may be adjusted (up or down) at the Company's discretion in light of the Company's performance, your performance, market conditions and other factors deemed relevant by the Company. 3. For Quiksilver's fiscal year ("FY") 1994-1995 (ending October 31, 1995), you are eligible for a bonus. The bonus amount for which you are eligible, and the criteria on which the bonus is based, is attached as addendum A. Your share of the bonus pool will be 50% (percent). If earned, this bonus is to be paid yearly, ten (10) days after audited earnings are released, and is less applicable withholdings and deductions. If your employment terminates prior to the end of the fiscal year, and you otherwise meet the bonus eligibility criteria, you will receive a pro rata portion of the bonus. 4. You will accrue 20 days of vacation each year up to a maximum of 25 days. Once the maximum is reached, additional vacation accrual will cease until you have used some vacation to fall below the maximum accrual allowed. 5. You (and any eligible dependents you elect) will be covered by the Company's group medical insurance program on the same terms and conditions applicable to comparable employees. The Company reserves the right to change, modify, or eliminate such coverage. 6. We will pay the premium on a term life insurance policy on your life with a company of our choice in the face amount determined by the Company of not less than $1 Million. Our obligation to obtain and maintain this insurance is contingent upon your establishing and maintaining insurability, and we are not required to pay premiums for such a policy in excess of $2,500 annually. 2 Robert B. McKnight, Jr. April 1, 1995 Page 2 7. The amount and terms of stock options to be granted to you will be determined by the Board of Directors and covered in separate agreements. 8. Notwithstanding anything to the contrary in this letter, express or implied, your employment continues to be for an unspecified term, and either you or Quiksilver may terminate such employment at will and without cause at any time for any reason. This aspect of your employment relationship can only be changed by an individualized written agreement signed by both you and the CEO. The Company may terminate your employment immediately, without notice, and without further obligation for Cause, which shall be defined as (i) your death, (ii) your permanent disability which renders you unable to perform your duties and responsibilities for a period in excess of three consecutive months, (iii) willful misconduct in the performance of your duties, (iv) violation of law, (v) self-dealing, (iv) willful breach of duty, (vii) habitual neglect of duty, (viii) a material breach by you of your obligations under Pargraphs 9 and 10 of this agreement, or (ix) sustained unsatisfactory performance (determined by the Chairman of the Board). If Quiksilver elects to terminate your employment without cause, or if you terminate your employment with the Company for Good Reason (as defined below within six (6) months of the action constituting Good Reason), the Company will continue to pay your base salary (but not any bonuses) on its regular payroll dates for a period of six (6) months, plus one (1) additional month for every year of your service up to a combined maximum salary continuation period of 12 months. Your effective date of employment for this purpose is August 1, 1976. "Good Reason" for you to terminate employment means a termination as a result of (i) the assignment to you of duties materially inconsistent with your position as set forth above without your consent, (ii) a material change in your reporting level from that set forth in this letter without your consent, (iii) a material diminution of your authority without your consent, (iv) a material breach by the Company of its obligations under this agreement, or (v) a failure by the Company to obtain from any successor, before the succession takes place, an agreement to assume and perform the obligations contained in this letter. 9. Quiksilver owns certain trade secrets and other confidential and/or proprietary information which constitute valuable property rights, which we have developed through a substantial expenditure of time and money, which are and will continue to be utilized in the Company's business and which are not generally known in the trade. This proprietary information includes the list of names of the customers and suppliers of Quiksilver, and other particularized information concerning the products, finances, processes, material preferences, fabrics, designs, material sources, pricing information, production schedules, marketing strategies, merchandising strategies, order forms and other types of proprietary information relating to our products, customers and suppliers. You agree that you will not disclose and will keep strictly secret and confidential all trade secrets and proprietary information of Quiksilver, including, but not limited to, those items specifically mentioned above. 3 Robert B. McKnight, Jr. April 1, 1995 Page 3 10. The Company will reimburse you for documented reasonable and necessary business expenses incurred by you while engaged in business activities for the Company's benefit on such terms and conditions as shall be generally available to other executives of the Company. 11. You will be required to observe the Company's personnel and business policies and procedures as they are in effect from time to time. In the event of any conflict, the terms of this letter will control. 12. This letter, its addendums, and any stock option agreements we may enter into with you contain the entire integrated agreement between us regarding these issues, and no modification to this letter will be valid unless set forth in writing and signed by both you and the CEO. Any dispute regarding the terms of this letter or any aspect of your employment or the termination thereof must be settled exclusively by final and binding arbitration in Orange County, California, before a single arbitrator selected from Judicial Arbitration & Mediation Services, Inc. ("JAMS"), whose fees and costs shall be evenly divided by the parties. The Company reserves the right, however, to seek judicial provisional remedies and equitable relief regarding any breach or threatened breach of your obligations regarding trade secrets and proprietary information. 13. This letter agreement will be assignable by the Company to any successor or to any other company owned or controlled by the Company, and will be binding upon any successor to the business of the Company, whether direct or indirect, by purchase of securities, merger, consolidation, purchase of all or substantially all of the assets of the Company or otherwise. Please sign, date and return the enclosed copy of this letter to me for our files to acknowledge your agreement with the above. Best personal regards. Sincerely, Robert B. McKnight, Jr. Chairman and Chief Executive Officer RBM:jkm Enclosure ACKNOWLEDGED AND AGREED: - --------------------------- Robert B. McKnight, Jr. Date: , 1995 ---------------- 4 ADDENDUM "B" "Change in Control" means the occurrence of one or more of the following events: (i) any corporation, partnership, person, other entity, or group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) (collectively, a "Person") acquires shares of capital stock of the Company representing more than 50% of the total number of shares of capital stock that may be voted for the election of directors of the Company, (ii) a merger, consolidation, or other business combination of the Company with or into another Person is consummated, or all or substantially all of the assets of the Company are acquired by another Person, as a result of which the stockholders of the Company immediately prior to the consummation of such transaction own, immediately after consummation of such transaction equity securities possessing less than 50% of the voting power of the surviving or acquiring Person (or any Person in control of the surviving or acquiring Person, the equity securities of which are issued or transferred in such transaction), (iii) as the result of or in connection with any tender or exchange offer, any contested election of directors or any combination thereof, the persons who were directors of the Company immediately before such tender or exchange offer, contested election or combination thereof cease to constitute a majority of the Board of Directors of the Company or any successor to the Company, (iv) the stockholders of the Company approve a plan of complete liquidation, dissolution or winding up of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company or (v) the adoption of a resolution by the affirmative vote of not less than two-thirds of the members of the Board of Directors who were members immediately prior to any Change in Control which resolution shall state that, in the good faith determination of the Board of Directors, a Change in Control of the Company has occurred. Notwithstanding anything to the contrary set forth in this definition, if a transaction that would otherwise create or result in a Change in Control of the Company is approved by the affirmative vote of not less than two-thirds of the members of the Board of Directors of the Company, who were members of the Board of Directors immediately prior to any Change in Control, then no Change of Control of the Company shall be deemed to have occurred for the purposes of this agreement. EX-10.22 3 EMPLOYMENT AGREEMENT HARRY HODGE, 4-1-95 1 EXHIBIT 10.22 April 1, 1995 PERSONAL AND CONFIDENTIAL - ------------------------- Mr. Harry Hodge Na Pali S.A. Z.I. de Jalday St. Jean de Luz France 64500 Re: Employment at Quiksilver ------------------------ Dear Harry, This letter will confirm our understanding regarding your continued employment at Quiksilver, Inc. ("Quiksilver" or the "Company"), and completely supersedes and replaces any existing or previous understandings or agreements, express or implied, we have had. The terms contained in this letter are effective on and after April 1, 1995. 1. Your position will be President of Na Pali, S.A., currently reporting to the Chairman of the Board or his designee. Your primary job responsibilities and job duties will involve managing and directing the Company's overall business performance including sales, merchandising and design, marketing, production, finance and customer service. 2. Your base salary will be 100,000FF per month, less applicable withholdings and deductions, paid on the Company's regular payroll dates. Your salary will be reviewed at the time management salaries are reviewed periodically and may be adjusted (up or down) at the Company's discretion in light of the Company's performance, your performance, market conditions and other factors deemed relevant by the Company. 3. For Quiksilver's fiscal year ("FY") 1994-1995 (ending October 31, 1995), you are eligible for a bonus. The bonus amount for which you are eligible, and the criteria on which the bonus is based, is attached as addendum A-II. Your share of the bonus pool will be 55% (percent). If earned, this bonus (A-II), is to be paid annually, ten (10) days after audited year- end earnings are released and is less applicable withholdings and deductions. If your employment termintes prior to the end of the fiscal year, and you otherwise meet the bonus eligibility criteria, you will receive a pro-rata portion of the bonus. 4. You will accrue 25 days of vacation each year. Once the maximum is reached, additional vacation accrual will cease until you have used some vacation to fall below the maximum accrual allowed. 5. You (and any eligible dependents you elect) will be covered by the Company's group medical insurance program on the same terms and conditions applicable to comparable employees. The Company reserves the right to change, modify, or eliminate such coverage. 6. The amount and terms of stock options to be granted to you will be determined by the Board of Directors and covered in separate agreements. 2 Harry Hodge April 1, 1995 Page 2 7. Notwithstanding anything to the contrary in this letter, express or implied, your employment continues to be for an unspecified term, and either you or Quiksilver may terminate such employment at will and without cause at any time for any reason. This aspect of your employment relationship can only be changed by an individualized written agreement signed by both you and the CEO. The Company may terminate your employment immediately, without notice, and without further obligation for Cause, which shall be defined as (i) your death, (ii) your permanent disability which renders you unable to perform your duties and responsibilities for a period in excess of three consecutive months, (iii) willful misconduct in the performance of your duties, (iv) violation of law, (v) self-dealing, (vi) willful breach of duty, (vii) habitual neglect of duty, (viii) a material breach by you of your obligations under Paragraphs 8 and 9 of this agreement, or (ix) sustained unsatisfactory performance (determined by the Chairman of the Board). If Quiksilver elects to terminate your employment without cause, or if you terminate your employment with the Company for Good Reason (as defined below within six (6) months of the action constituting Good Reason), the Company will continue to pay your base salary (but not any bonuses) on its regular payroll dates for a period of six (6) months, plus one (1) additional month for every year of your service up to a combined maximum salary continuation period of 12 months. Your effective date of employment for this purpose is January 4, 1985. "Good Reason" for you to terminate employment means a termination as a result of (i) the assignment to you of duties materially inconsistent with your position as set forth above without your consent, (ii) a material change in your reporting level from that set forth in this letter without your consent, (iii) a material diminution of your authority without your consent, (iv) a material breach by the Company of its obligations under this agreement, or (iii) a failure by the Company to obtain from any successor, before the succession takes place, an agreement to assume and perform the obligations contained in this letter. 8. Quiksilver owns certain trade secrets and other confidential and/or proprietary information which constitute valuable property rights, which we have developed through a substantial expenditure of time and money, which are and will continue to be utilized in the Company's business and which are not generally known in the trade. This proprietary information includes the list of names of the customers and suppliers of Quiksilver, and other particularized information concerning the products, finances, processes, material preferences, fabrics, designs, material sources, pricing information, production schedules, marketing strategies, merchandising strategies, order forms and other types of proprietary information relating to our products, customers and suppliers. You agree that you will not disclose and will keep strictly secret and confidential all trade secrets and proprietary information of Quiksilver, including, but not limited to, those items specifically mentioned above. 9. You will be required to observe the Company's personnel and business policies and procedures as they are in effect from time to time. In the event of any conflict, the terms of this letter will control. 3 Harry Hodge April 1, 1995 Page 3 10. The Company will reimburse you for documented reasonable and necessary business expenses incurred by you while engaged in business activities for the Company's benefit on such terms and conditions as shall be generally available to other executives of the Company. 11. This letter, its addendum's, and any stock option agreements we may enter into with you contain the entire integrated agreement between us regarding these issues, and no modification to this letter will be valid unless set forth in writing and signed by both you and the CEO. Any dispute regarding the terms of this letter or any aspect of your employment or the termination thereof must be settled exclusively by final and binding arbitration in Orange County, California, before a single arbitrator selected from Judicial Arbitration & Mediation Services, Inc. ("JAMS"), whose fees and costs shall be evenly divided by the parties. The Company reserves the right, however, to seek judicial provisional remedies and equitable relief regarding any breach or threatened breach of your obligations regarding trade secrets and proprietary information. 12. This letter agreement will be assignable by the Company to any successor or to any other company owned or controlled by the Company, and will be binding upon any successor to the business of the Company, whether direct or indirect, by purchase of securities, merger, consolidation, purchase of all or substantially all of the assets of the Company or otherwise. Please sign, date and return the enclosed copy of this letter to me for our files to acknowledge your agreement with the above. Best personal regards. Sincerely, Robert B. McKnight, Jr. Chairman and Chief Executive Officer RBM:jkm Enclosure ACKNOWLEDGED AND AGREED: - --------------------------- Harry Hodge Date: , 1995 --------------- 4 ADDENDUM "A" SUMMARY OF THE QUIKSILVER, INC. ROE BONUS POOL "KIRBY PLAN" HARRY HODGE 10% OF ROE BONUS POOL
Pre-Tax Percentage Over ROE Threshold Into Bonus Pool Threshold Less than 12% 0% - --------- 12% - 15% 10% Target 15% - 18% 15% - ------ 18% - 21% 20% Maximum 21% - 24% 25% - ------- EXAMPLE: - ------- Example 1 Example 2 Total Stockholders Equity $40,000,000 $44,900,000 Pre-Tax Earnings $ 8,000,000 $ 7,200,000 ROE 20% 16% Threshold ROE 12% 12% Threshold Pre-Tax Earnings (12% of Pre-Tax Earnings) $ 4,800,000 $ 5,388,000 Amount of Pre-Tax Earnings Over Threshold $ 3,200,000 $ 1,812,000 Percentage of Amount Over Threshold That Is Contributed To Bonus Pool 20% 15% Amount Contributed To Bonus Pool $ 640,000 $ 271,800 ----------- ----------- Actual Beginning Stockholders Equity (October 31, 1992) is $40,787,000 ----------
5 ADDENDUM "B" "Change in Control" means the occurrence of one or more of the following events: (i) any corporation, partnership, person, other entity, or group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) (collectively, a "Person") acquires shares of capital stock of the Company representing more than 50% of the total number of shares of capital stock that may be voted for the election of directors of the Company, (ii) a merger, consolidation, or other business combination of the Company with or into another Person is consummated, or all or substantially all of the assets of the Company are acquired by another Person, as a result of which the stockholders of the Company immediately prior to the consummation of such transaction own, immediately after consummation of such transaction equity securities possessing less than 50% of the voting power of the surviving or acquiring Person (or any Person in control of the surviving or acquiring Person, the equity securities of which are issued or transferred in such transaction), (iii) as the result of or in connection with any tender or exchange offer, any contested election of directors or any combination thereof, the persons who were directors of the Company immediately before such tender or exchange offer, contested election or combination thereof cease to constitute a majority of the Board of Directors of the Company or any successor to the Company, (iv) the stockholders of the Company approve a plan of complete liquidation, dissolution or winding up of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company or (v) the adoption of a resolution by the affirmative vote of not less than two-thirds of the members of the Board of Directors who were members immediately prior to any Change in Control which resolution shall state that, in the good faith determination of the Board of Directors, a Change in Control of the Company has occurred. Notwithstanding anything to the contrary set forth in this definition, if a transaction that would otherwise create or result in a Change in Control of the Company is approved by the affirmative vote of not less than two-thirds of the members of the Board of Directors of the Company, who were members of the Board of Directors immediately prior to any Change in Control, then no Change of Control of the Company shall be deemed to have occurred for the purposes of this agreement. EX-10.23 4 EMPLOYMENT AGREEMENT BERT FENENGA, 4-1-95 1 EXHIBIT 10.23 April 1, 1995 PERSONAL AND CONFIDENTIAL - ------------------------- Mr. Bert Fenenga c/o Quiksilver, Inc. 1740 Monrovia Avenue Costa Mesa, California 92627-9407 Re: Employment at Quiksilver ------------------------ Dear Bert: This letter will confirm our understanding regarding your continued employment at Quiksilver, Inc. ("Quiksilver" or the "Company"), and completely supersedes and replaces any existing or previous understandings or agreements, express or implied, we have had. The terms contained in this letter are effective on and after April 1, 1995. 1. Your position will be Chief Financial Officer and Treasurer and you will be a Vice President of the Company, currently reporting to the Chief Operating Officer or his designee. Your primary job responsibilities and job duties will involve managing and directing the Company's overall business performance with regard to accounting and finance. 2. Your base salary will be $10,833 per month, less applicable withholdings and deductions, paid on the Company's regular payroll dates. Your salary will be reviewed at the time management salaries are reviewed periodically and may be adjusted (up or down) at the Company's discretion in light of the Company's performance, your performance, market conditions and other factors deemed relevant by the Company. 3. For Quiksilver's fiscal year ("FY") 1994-1995 (ending October 31, 1995), you are eligible for a bonus. The bonus amount for which you are eligible, and the criteria on which the bonus is based, are attached as addendum A. If earned, the bonus is to be paid in quarterly amounts, ten days after audited earnings are released, and is less applicable withholdings and deductions. You must be employed continuously through each quarter to be eligible for that quarters bonus. You are also eligible for an additional bonus, addendum A-II. Your share of this bonus pool will be 25% (percent). If earned, this bonus (A-II), is to be paid annually, ten (10) days after audited year-end earnings are released and is less applicable withholdings and deductions. If your employment terminates prior to the end of the fiscal year, and you otherwise meet the bonus eligibility criteria, you will receive a pro-rata portion of the bonus. 4. You will accrue 20 days of vacation each year up to a maximum of 25 days. Once the maximum is reached, additional vacation accrual will cease until you have used some vacation to fall below the maximum accrual allowed. 5. You (and any eligible dependents you elect) will be covered by the Company's group medical insurance program on the same terms and conditions applicable to comparable employees. The Company reserves the right to change, modify, or eliminate such coverage. 2 Bert Fenenga April 1, 1995 Page 2 6. We will pay the premium on a term life insurance policy on your life with a company of our choice in the face amount determined by the Company of not less than $500,000. Our obligation to obtain and maintain this insurance is contingent upon your establishing and maintaining insurability, and we are not required to pay premiums for such a policy in excess of $1,250.00 annually. 7. The amount and terms of stock options to be granted to you will be determined by the Board of Directors and covered in separate agreements. 8. The Company may terminate your employment immediately, without notice and without further obligation for Cause, which shall be defined as (i) your death, (ii) your permanent disability which renders you unable to perform your duties and responsibilities for a period in excess of three consecutive months, (iii) willful misconduct in the performance of your duties, (iv) violation of law, (v) self-dealing, (vi) willful breach of duty, (vii) habitual neglect of duty, (viii) a material breach by you of your obligations under Paragraphs 9 and 10 of this agreement, or (ix) sustained unsatisfactory performance (determined by the Chairman of the Board). Notwithstanding anything to the contrary in this agreement or in your employment relationship, express or implied, your employment is for an unspecified term and may also be terminated at will and without Cause or notice at any time for any reason. this at-will aspect of your employment relationship can only be changed by an individualized written agreement signed by both you and the Chairman of the Board. If the Company elects to terminate your employment without Cause, or if you terminate your employment with the Company for Good Reason (as defined below) within six (6) months of the action constituting Good Reason, the Company will continue to pay your Base Salary (but not any bonuses or employee benefits) on its regular payroll dates for a period of six (6) months, plus an additional one (1) month for each of your fist six *6) full years of service with the Company up to a maximum aggregate salary continuation period of 12 months. Your effective date of employment for this purpose is July 9, 1990. If the Company terminates your employment for Cause, or if you resign/terminate your employment without Good Reason, you will receive your Base Salary through the date of termination only. "Good Reason" for you to terminate employment means a termination following a "Change in Control" (as defined in addendum B hereto) as a result of (i) the assignment to you of duties materially inconsistent with your position as set forth above without your consent, (ii) a material change in your reporting level from that set forth in this letter without your consent, (iii) a material diminution of your authority without your consent, (iv) a material breach by the Company of its obligations under this agreement, or (v) a failure by the Company to obtain from any successor, before the succession takes place, an agreement to assume and perform the obligations contained in this letter. 9. Quiksilver owns certain trade secrets and other confidential and/or proprietary information which constitute valuable property rights, which we have developed through a substantial expenditure of time and money, which are and will continue to be utilized in the Company's business and which are not generally known in the trade. This proprietary information includes the list of names of the customers and suppliers of Quiksilver, and 3 Bert Fenenga April 1, 1995 Page 3 other particularized information concerning the products, finances, processes, material preferences, fabrics, designs, material sources, pricing information, production schedules, marketing strategies, merchandising strategies, order forms and other types of proprietary information relating to our products, customers and suppliers. You agree that you will not disclose and will keep strictly secret and confidential all trade secrets and proprietary information of Quiksilver, including, but not limited to, those items specifically mentioned above. 10. You will be required to observe the Company's personnel and business policies and procedures as they are in effect from time to time. In the event of any conflict, the terms of this letter will control. 11. This letter, its addendums, and any stock option agreements we may enter into with you contain the entire integrated agreement between us regarding these issues, and no modification to this letter will be valid unless set forth in writing and signed by both you and the CEO. Any dispute regarding the terms of this letter or any aspect of your employment or the termination thereof must be settled exclusively by final and binding arbitration in Orange County, California, before a single arbitrator selected from Judicial Arbitration & Mediation Services, Inc. ("JAMS"), whose fees and costs shall be evenly divided by the parties. The Company reserves the right, however, to seek judicial provisional remedies and equitable relief regarding any breach or threatened breach of your obligations regarding trade secrets and proprietary information. 12. This letter agreement will be assignable by the Company to any successor or to any other company owned or controlled by the Company, and will be binding upon any successor to the business of the Company, whether direct or indirect, by purchase of securities, merger, consolidation, purchase of all or substantially all of the assets of the Company or otherwise. Please sign, date and return the enclosed copy of this letter to me for our files to acknowledge your agreement with the above. Best personal regards. Sincerely, Robert B. McKnight, Jr. Chairman and Chief Executive Officer RBM:jkm Enclosure ACKNOWLEDGED AND AGREED: - ----------------------------- Bert Fenenga Date: , 1995 ----------------- 4 ADDENDUM "B" "Change in Control" means the occurrence of one or more of the following events: (i) any corporation, partnership, person, other entity, or group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) (collectively, a "Person") acquires shares of capital stock of the Company representing more than 50% of the total number of shares of capital stock that may be voted for the election of directors of the Company, (ii) a merger, consolidation, or other business combination of the Company with or into another Person is consummated, or all or substantially all of the assets of the Company are acquired by another Person, as a result of which the stockholders of the Company immediately prior to the consummation of such transaction own, immediately after consummation of such transaction equity securities possessing less than 50% of the voting power of the surviving or acquiring Person (or any Person in control of the surviving or acquiring Person, the equity securities of which are issued or transferred in such transaction), (iii) as the result of or in connection with any tender or exchange offer, any contested election of directors or any combination thereof, the persons who were directors of the Company immediately before such tender or exchange offer, contested election or combination thereof cease to constitute a majority of the Board of Directors of the Company or any successor to the Company, (iv) the stockholders of the Company approve a plan of complete liquidation, dissolution or winding up of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company or (v) the adoption of a resolution by the affirmative vote of not less than two-thirds of the members of the Board of Directors who were members immediately prior to any Change in Control which resolution shall state that, in the good faith determination of the Board of Directors, a Change in Control of the Company has occurred. Notwithstanding anything to the contrary set forth in this definition, if a transaction that would otherwise create or result in a Change in Control of the Company is approved by the affirmative vote of not less than two-thirds of the members of the Board of Directors of the Company, who were members of the Board of Directors immediately prior to any Change in Control, then no Change of Control of the Company shall be deemed to have occurred for the purposes of this agreement. EX-11.1 5 COMPUTATION OF NET INCOME PER COMMON SHARE 1 EXHIBIT 11.1 QUIKSILVER, INC. COMPUTATION OF NET INCOME PER COMMON SHARE
YEAR ENDED OCTOBER 31, --------------------------------------- 1995 1994 1993 ----------- ---------- ---------- PRIMARY NET INCOME COMPUTATION Average number of common shares and common share equivalents outstanding: Average outstanding common shares................. 6,634,000 6,477,000 6,389,000 Dilutive effect of stock options after application of treasury stock method....................... 248,000 171,000 49,000 ----------- ---------- ---------- 6,882,000 6,648,000 6,438,000 =========== ========== ========== Net income.......................................... $10,012,000 $7,738,000 $4,431,000 =========== ========== ========== Net income per primary common share................. $ 1.45 $ 1.16 $ .69 =========== ========== ========== FULLY DILUTED NET INCOME COMPUTATION Average number of common shares and common share equivalents outstanding: Average outstanding common shares................. 6,634,000 6,477,000 6,389,000 Dilutive effect of stock options after application of treasury stock method....................... 307,000 254,000 96,000 ----------- ---------- ---------- 6,941,000 6,731,000 6,485,000 =========== ========== ========== Net income.......................................... $10,012,000 $7,738,000 $4,431,000 =========== ========== ========== Net income per fully diluted common share........... $ 1.44 $ 1.15 $ .68 =========== ========== ==========
EX-21.1 6 NAME AND JURISDICTIONS & SUBSIDIARIES 1 EXHIBIT 21.1 QUIKSILVER, INC. NAMES AND JURISDICTIONS OF SUBSIDIARIES
SUBSIDIARY NAME JURISDICTION --------------- ------------ Na Pali, S.A................................................... France The Raisin Company, Inc........................................ California ATI Apparel Trade International................................ California QS International, Inc.......................................... California
EX-23.1 7 INDEPENDENT AUDITORS' CONSENT 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-24527, No. 33-65002, No. 33-65004 and No. 33-58657 of Quiksilver, Inc. on Form S-8 of our report, dated December 22, 1995, appearing in this Annual Report on Form 10-K of Quiksilver, Inc. for the year ended October 31, 1995. DELOITTE & TOUCHE LLP Costa Mesa, California January 24, 1996 EX-27.1 8 FINANCIAL DATA SCHEDULE
5 The schedule contains summary financial information extracted from Quiksilver, Inc's October 31, 1995 Form 10-K and is qualified in its entirety by reference to such Form 10-K. 12-MOS OCT-31-1995 OCT-31-1995 3,461,000 0 38,308,000 2,717,000 28,355,000 73,835,000 7,032,000 6,982,000 99,168,000 26,933,000 3,530,000 68,000 0 0 68,870,000 99,168,000 172,787,000 172,787,000 106,741,000 106,741,000 18,136,000 2,717,000 1,150,000 16,836,000 6,824,000 10,012,000 0 0 0 10,012,000 1.45 1.44
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