-----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, UoxH6zhArBrKqf3Hf+nhgDan8CpC2bq4BV/pLi8cnY1FYkykuBSGoRoMA3YfKrj7 ngU9diF1kBfa+AW35l82eQ== 0000892569-97-000191.txt : 19970129 0000892569-97-000191.hdr.sgml : 19970129 ACCESSION NUMBER: 0000892569-97-000191 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19970128 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15131 FILM NUMBER: 97512150 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-K 1 FORM 10-K FOR FISCAL YEAR ENDED OCTOBER 31, 1996 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, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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) (714) 645-1395 Registrant's telephone number, including area code 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. [ ] The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant as of January 9, 1997 was $143,500,000 based on the number of shares outstanding on such date and the last sale price for the Common Stock on such date of $22.00 as reported on the NASDAQ National Market System. As of January 9, 1997, there were 6,876,746 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 1997 Annual Meeting of Stockholders to be filed with the Commission within 120 days of October 31, 1996. 2 TABLE OF CONTENTS
Page ---- PART I Item 1 BUSINESS 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 SECURITY HOLDERS ........................................... 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............................................................ 9 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 ............................................ 13 Item 11 EXECUTIVE COMPENSATION ........................................................................ 13 Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................................................. 13 Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................................................ 13 PART IV Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K....................................................................................... 13 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................................................ 14 SIGNATURES................................................................................................ 30 EXHIBIT INDEX............................................................................................. 31
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, activewear, denimwear and snowboardwear primarily for young men, boys and young women under various labels, including "Quiksilver", "Quiksilver Roxy", "Raisins", "Leilani", "Radio Fiji", "Que", and "Pirate Surf". The Company's products for domestic sales are made primarily in the U.S.A. and are sold at approximately 7,400 surf shop, specialty store, national specialty chain and selected department store locations. The Company's products for European sales are made primarily in Europe and are sold at approximately 3,500 surf shop, specialty store and selected department store locations. The Company's clothing is distinguished by its youthful styling, innovative design, active fabrics and quality of workmanship. 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"), effective November 1, 1993. The Company acquired Na Pali, S.A. ("Quiksilver Europe"), a privately held French company that holds the license to market "Quiksilver" products in Europe, in fiscal 1991. The Company was incorporated in California in 1976 and was reincorporated in Delaware in 1986. The Company's fiscal year ends on October 31. Accordingly, references to fiscal 1996, fiscal 1995, or fiscal 1994 refer to the years ended October 31, 1996, 1995 or 1994, respectively. 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 and sportswear sold under the "Quiksilver 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. Beginning in fiscal 1994, the Company added the junior swimwear labels "Raisins", "Leilani" and "Radio Fiji" through its acquisition of The Raisin Company, Inc., and in fiscal 1996 expanded these labels into junior sportswear. The following table shows the approximate percentage of worldwide sales attributable to each of the Company's major product categories during fiscal 1996, 1995, and 1994.
PERCENTAGE OF SALES -------------------------- PRODUCTS 1996 1995 1994 -------- ---- ---- ---- T-Shirts........................................................ 19% 22% 20% Juniors......................................................... 18% 12% 12% Shirts.......................................................... 16% 17% 20% Shorts (boardshorts and walkshorts)............................. 12% 14% 16% Accessories..................................................... 9% 8% 6% Fleece.......................................................... 8% 10% 9% Snowboardwear/Skiwear........................................... 6% 5% 6% Jackets......................................................... 5% 6% 6% Pants........................................................... 5% 5% 4% Other........................................................... 2% 1% 1% ---- --- --- Total...................................................... 100% 100% 100% === === ===
1 4 Although the Company's products are generally available throughout the year, most are sold by season. Sales of shorts, short-sleeve shirts, t-shirts and swimwear are higher during the spring and summer seasons, and sales of pants, long-sleeve shirts, fleece, jackets and snowboardwear are higher during the fall and holiday seasons. The Company believes that the typical domestic retail prices for its products range from approximately $17 for a t-shirt and $39 for a typical short to $150 for a typical snowboard jacket. Additionally, the Company believes that the typical retail prices for its Quiksilver Europe products range from approximately $33 for a t-shirt and $64 for a typical short to $280 for a typical snowboard jacket. PRODUCT DESIGN The Company's products, the vast majority of which are designed by the Company, are distinguished by youthful styling, innovative design, active fabrics 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 in the U.S. and Europe. The Company has an agreement with Quiksilver Garments Pty., Ltd., an Australian company ("Quiksilver International"), whereby the Company and other licensees of Quiksilver International share fabrics, samples and patterns for new products sold under the "Quiksilver" name. PROMOTION AND ADVERTISING The Company's history is in the sport of surfing and the beach culture. Throughout its history, the Company has always maintained a strong marketing, advertising and distribution presence in the surfing world as well as other youth boardriding marketplaces. The Company's strategy is to continue to promote its core image associated with surfing and other 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. With the Company's 20-year history of authenticity, product and core marketing as the foundations of the "Quiksilver" label, the Company believes that continued product diversification, development of other labels and strong core distribution allow the Company to reach other markets beyond its roots. The Company currently reaches into the youth, active, outdoor and extreme sports markets. These markets include women as well as men, young people (8 - 20 years of age) and older people (20 - 40 years of age). The Company's management, other employees and many of its sales representatives are involved in surfing, snowboarding and other sporting activities that the Company believes enhance the "Quiksilver" image, provide valuable insights into product design, and heighten the Company's understanding of the end users of its products. 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. Beginning in the second half of fiscal 1996, the Company expanded its advertising to include national publications in the United States, such as "Details", "GQ", "Rolling Stone" and "Spin". The Company also sponsors professional surfers, snowboarders, windsurfers and other athletes, both on a national and international basis. The Company actively promotes its image and products among teenagers and young adults. Quiksilver Europe also sponsors boardriders. The Company also participates in trade shows which are held throughout the United States and Europe. The Company and Quiksilver International have an agreement whereby the Company pays Quiksilver International an annual fee of $300,000 to promote the "Quiksilver" name and logo worldwide. 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 2 5 fund surfing and windsurfing contests worldwide. The Company believes that trademark protection of its names and logos is an important component of the Company's business. The Company believes that its future success will be dependent, among other things, on its ability 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. 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 other specialty stores, national specialty chains and upscale department stores. During fiscal 1996, the Company's products were sold to customers in approximately 10,900 locations worldwide. Of the Company's consolidated net sales for fiscal 1996 and fiscal 1995, approximately 87% and 89%, respectively, resulted from sales to surf shops, specialty stores, national specialty chains and all other non-department store accounts, and approximately 13% and 11%, respectively, resulted from sales to department stores. The Company currently sells its products to a number of department stores, including Macy's (California), Nordstrom, Robinson's/May (Southern California), Burdines (Florida), The Bon Marche (northwest) and Liberty House (Hawaii) in the United States; Le Printemps and Galeries Lafayette in France, and Harrods and Lillywhites in Great Britian. During fiscal 1996, approximately 15% 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 1996. Quiksilver Europe accounted for 37% of the Company's consolidated net sales during fiscal 1996. Fiscal 1996 foreign sales (primarily to Central and South America pursuant to a trademark agreement with Quiksilver International) from the U.S. were less than 5% of total domestic net sales. Sales of the Company's products are made by 107 independent sales representatives and sub-representatives in the United States and Europe and 14 distributors in Europe. The Company's sales representatives are generally compensated on a commission basis. Of the Company's domestic net sales during fiscal 1996, approximately 41% resulted from sales to customers located on the west coast of the United States, approximately 22% resulted from sales to customers located on the east coast of the United States (primarily Florida, Massachusetts, New Jersey, New York and North Carolina), approximately 6% resulted from sales to customers in Hawaii, and approximately 31% resulted from sales to customers located in other areas of the United States. Of the Company's European net sales during fiscal 1996, approximately 58% resulted from sales to customers located in France, 8% in Germany, 8% in England, 7% in Spain, 4% in Holland, 3% in Belgium, 3% in Switzerland, 3% in Portugal, 2% in Italy, with the remaining approximately 4% spread throughout other countries. The Company generally sells its products to domestic customers on a net-30 to net-60 day basis and in Europe on a net-30 to net-90 day basis depending on the country and whether the Company sells directly into the country or to a distributor. The Company has a limited number of cooperative advertising programs with its customers and generally does not reimburse its customers for marketing expenses. 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 13 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 1996, 1995 and 1994, primarily due to seasonal consumer demand patterns and the Company's product mix.
CONSOLIDATED NET SALES (UNAUDITED) -------------------------------------------------------------------- 1996 1995 1994 --------------------- --------------------- ----------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- ------ ------- (DOLLAR AMOUNTS IN THOUSANDS) January 31............................ $ 40,487 20.9% $ 33,658 19.5% $ 24,294 19.3% April 30.............................. 54,505 28.2 47,311 27.4 36,468 28.9 July 31............................... 49,008 25.3 42,738 24.7 29,169 23.1 October 31............................ 49,474 25.6 49,080 28.4 36,240 28.7 -------- ------ -------- ----- -------- ----- Total........................... $193,474 100.0% $172,787 100.0% $126,171 100.0% ======== ====== ========== ===== ======== =====
PRODUCTION AND RAW MATERIALS A majority of the Company's products are manufactured by independent contractors, while a portion of the Company's products are imported as finished goods. For the year ended October 31, 1996, approximately 70% of the Company's domestic products were manufactured by independent contractors and approximately 30% were imported as finished goods. See "Imports and Import Restrictions" below. For its domestic operations, the Company hires independent contractors located primarily in Southern California to manufacture its clothing and accessories. During fiscal 1996, offshore production for domestic operations accounted for approximately 13% of products manufactured by independent contractors. For its European operations, the Company hires independent contractors located primarily in Portugal, Hong Kong, Korea and France 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 sizing and 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 1996, no single contractor, raw materials or finished goods supplier accounted for more than approximately 9% 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 1996, approximately 80% 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 6% of the Company's consolidated expenditures for raw material purchases during fiscal 1996. 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 4 7 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 requirements. 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 utilizes a substantial number of 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 has direct ownership of the "Quiksilver" name, logo, and trademark in the United States, Puerto Rico and Mexico and is a licensee of Quiksilver International in certain Central and South American countries and Canada. As a strategy to penetrate certain markets and product categories, the Company licensed the use of the "Quiksilver" name, logo, and trademark in Mexico in exchange for royalties of 4.50% of net sales after Mexican taxes, and the use of the "Quiksilver" name and logo on watches, sunglasses and wetsuits in exchange for royalties of 7%, 10% and 4% of net sales, respectively. The Company has also licensed the use of the "Que" name, logo, and trademark in Japan. These license agreements expire between 1998 and 2006. Quiksilver Europe has a European trademark license and manufacturing agreement (the "Trademark Agreement") with Quiksilver International. The Trademark Agreement provides that Quiksilver Europe can sell products under the "Quiksilver" trademark and tradename through 2012 in the territories covered by the Trademark Agreement (primarily western Europe). In consideration of the rights granted under the Trademark Agreement, Quiksilver Europe 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 $29,300,000 at October 31, 1996) 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 $880,000 at October 31, 1996) and; 5 8 (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. The Trademark Agreement also requires Quiksilver Europe to pay a quarterly promotional fee of 1% of its 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's principal competitors are Burton and Columbia. 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 team of designers, artists, merchandisers, pattern makers, and cutting and sewing contractors that 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, 1996, the Company employed an aggregate of approximately 513 persons worldwide, including approximately 330 in production, operations and shipping functions, approximately 170 in administrative or clerical capacities, and 13 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 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 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. These acquisitions were accounted for as purchases 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, production and warehouse facilities occupy approximately 200,000 square feet of space in multiple buildings located in Orange County, California and approximately 130,000 square feet of space in eight buildings in France. The Company also maintains a sales office in New York. The leases for the Orange County facilities expire on various dates through the end of 1997. The majority of the buildings in France are leased under agreements that expire on various dates through 2004. The aggregate monthly rental payment for rented facilities is approximately $100,000. Although the Company believes that its present facilities will be adequate for its immediately foreseeable business needs, the Company is currently pursuing an alternative facility in Orange County, California that will enable it to consolidate its domestic operations into two primary facilities and is planning a warehouse expansion in Europe on its existing premises. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any material litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR 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 1996 4th Quarter ended October 31, 1996.............................. $ 30 3/8 $ 18 5/8 3rd Quarter ended July 31, 1996................................. 47 3/8 23 2nd Quarter ended April 30, 1996................................ 40 1/8 27 1st Quarter ended January 31, 1996.............................. 36 1/8 26 3/4 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
7 10 The Company has reinvested earnings in its 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 pay dividends, purchase, redeem or retire any capital stock. The number of holders of record of the Company's Common Stock was approximately 390 on January 9, 1997 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 "Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations"). The statement of income 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, 1996 and 1995 and for each of the three years in the period ended October 31, 1996 have been audited by Deloitte & Touche LLP, the Company's independent auditors, as indicated in their report, included elsewhere herein.
YEARS ENDED OCTOBER 31, ------------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Statement of Income Data Net sales....................................... $193,474 $172,787 $126,171 $94,640 $89,319 Income before taxes on income .................. 19,279 16,836 11,756 7,631 890 Net income...................................... 11,660 10,012 7,738 4,431 371 Net income per share............................ 1.62 1.45 1.16 0.69 0.05 Weighted average common shares and equivalents outstanding...................... 7,209 6,882 6,648 6,438 6,965 Dividends declared per share - - - - - Balance Sheet Data Total assets.................................... $115,580 $ 99,168 $ 80,470 $58,648 $53,162 Working capital................................. 55,647 46,902 32,567 26,737 24,545 Lines of credit................................. 8,211 8,031 10,100 1,330 - Notes payable................................... 2,880 3,530 2,839 2,244 199 Stockholders' equity............................ 80,727 68,938 54,938 45,030 40,787 Current ratio................................... 2.73 2.74 2.41 3.32 3.48 Return on average stockholders' equity.......... 15.58 16.16 15.48 10.33 0.92
(1) The Company's consolidated financial statements include Raisins from November 1, 1993 forward (see "Item 1. Acquisitions"). (2) Effective November 1, 1993, the Company changed its method of accounting for income taxes, which increased net income by $600,000 during the year ended October 31, 1994 (see "Consolidated Financial Statements" included in "Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K"). 8 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's consolidated financial statements and notes thereto for the years ended October 31, 1996, 1995 and 1994. RESULTS OF OPERATIONS Fiscal 1996 Compared to Fiscal 1995 Net sales for fiscal 1996 increased 12.0% to $193,474,000 from $172,787,000 in fiscal 1995. Domestic net sales for fiscal 1996 increased 6.1% to $121,932,000 from $114,935,000 in fiscal 1995, and Quiksilver Europe's net sales increased 23.7% to $71,542,000 from $57,852,000 for those same periods. Domestically, lower sales in the young mens division were more than offset by increases in the juniors division. The Company believes that the decrease in sales of young mens products is related to seasonal and other factors and is not part of a long-term trend. Quiksilver Europe's sales grew across all divisions. The gross profit margin for fiscal 1996 increased to 39.3% from 38.2% in fiscal 1995. The domestic gross profit margin for fiscal 1996 increased to 35.7% from 34.6% in fiscal 1995, and Quiksilver Europe's gross profit margin was relatively unchanged at 45.4% in fiscal 1996 compared to 45.5% in fiscal 1995. Domestically, the gross profit margin improvement resulted from higher markdowns during the previous year's fourth quarter to clear prior season merchandise and from increased sales of juniors division products, which sell at higher average profit margins compared to other divisions. Selling, general and administrative expense ("SG&A") increased 16.2% in fiscal 1996 to $54,379,000 from $46,810,000 in fiscal 1995. Domestic SG&A increased 17.3% to $33,738,000 from $28,755,000, and Quiksilver Europe's SG&A increased 14.3% to $20,641,000 from $18,055,000 in those same periods. Domestically, SG&A increased primarily due to higher personnel costs related to increased sales volume, along with increased investment in computer systems and a national advertising campaign that began during the third quarter of fiscal 1996. The national advertising campaign is designed to increase awareness of the Quiksilver mountain and wave logo throughout the United States and is expected to primarily benefit the young mens and boys divisions. The campaign began during a relatively weak period in young mens sales, but management believes it will improve sales in fiscal 1997. The increase in Quiksilver Europe's SG&A resulted primarily from higher costs related to increased sales volume. Net royalty expense for fiscal 1996 increased 31.4% to $1,445,000 from $1,100,000 in fiscal 1995. The increase was due primarily to increased royalty expense related to Quiksilver Europe's sales. The Company receives royalty income from its Mexican, wetsuit, watch, sunglass and outlet store licensees, and it pays royalties on Quiksilver Europe's sales and foreign sales from the U.S. under trademark agreements with Quiksilver International. Net interest expense for fiscal 1996 decreased 31.1% to $785,000 from $1,139,000 in fiscal 1995. This decrease was primarily due to lower average outstanding balances on the Company's lines of credit. The effective income tax rate for fiscal 1996 decreased to 39.5% from 40.5% in fiscal 1995. The decrease in the effective income tax rate resulted primarily from an increased portion of the Company's taxable income being generated in Europe, which has a lower income tax rate than the United States. As a result of the above factors, net income for fiscal 1996 increased 16.5% to $11,660,000 or $1.62 per share from $10,012,000 or $1.45 per share in fiscal 1995. Fiscal 1995 Compared to Fiscal 1994 Net sales for fiscal 1995 increased 36.9% to $172,787,000 from $126,171,000 in fiscal 1994. Domestic net sales for fiscal 1995 increased 31.8% to $114,935,000 from $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. Quiksilver 9 12 Europe's net sales in fiscal 1995 increased 48.3% to $57,852,000 from $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 gross profit margin for fiscal 1995 increased to 38.2% from 37.7% in fiscal 1994. Fiscal 1995 and fiscal 1994 domestic gross profit margins remained flat at 34.6%. Quiksilver Europe's gross profit margin in fiscal 1995 increased to 45.5% from 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 in Europe. SG&A for fiscal 1995 increased 33.7% $46,810,000 from $35,014,000 in fiscal 1994. Domestic SG&A increased 24.4% to $28,755,000 from $23,121,000 in fiscal 1994. This increase was primarily attributable to increased sales volume. Quiksilver Europe's SG&A for fiscal 1995 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. Net royalty expense for fiscal 1995 increased 891.0% to $1,100,000 from $111,000 in fiscal 1994. This increase was due primarily to an increase in Quiksilver Europe's 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. The increase in royalty expense in Europe was offset somewhat by increased domestic royalty income. Net interest expense for fiscal 1995 increased to $1,139,000 from $699,000 in fiscal 1994. This increase related primarily to a higher level of borrowings against the Company's lines of credit. As a result of the above factors, income before cumulative effect of change in accounting for fiscal 1995 increased 40.3% to $10,012,000 or $1.44 per share from $7,138,000 or $1.07 per share in fiscal 1994. Financial Position, Capital Resources and Liquidity The Company finances its operations with short-term borrowings on its lines of credit and cash flows from operations. Cash and cash equivalents at October 31, 1996 was $3,429,000 compared to $3,461,000 at October 31, 1995. Cash provided by operations increased to $5,511,000 for fiscal 1996, compared to cash provided of $3,706,000 for fiscal 1995 and to cash used in operating activities of $7,305,000 for fiscal 1994. The increase in cash provided by operations for fiscal 1996 compared to fiscal 1995 is primarily due to the increase in net income before noncash charges for depreciation, amortization and provision for doubtful accounts. Consolidated trade accounts receivable increased 16.3% to $44,554,000 at October 31, 1996 from $38,308,000 at October 31, 1995. Domestic trade accounts receivable increased 10.9% to $28,292,000 at October 31, 1996 from $25,519,000 at October 31, 1995, and Quiksilver Europe's trade accounts receivable increased 27.2% to $16,262,000 from $12,789,000 for the same period. These increases were primarily due to increased sales and, domestically, to the use of extended terms to promote sales increases with certain customers. The Company's average collection period increased to 84 days at the end of fiscal 1996 compared to 70 days at the end of fiscal 1995. Consolidated inventories increased 25.8% to $35,668,000 at October 31, 1996 from $28,355,000 at October 31, 1995. Domestic inventories increased 18.3% to $26,611,000 at October 31, 1996 from $22,496,000 at October 31, 1995. This increase is primarily due to increased product offerings in the juniors division along with anticipated increased sales in the upcoming Spring season compared to the prior year. Quiksilver Europe's inventories increased 54.6% to $9,057,000 at October 31, 1996 from 5,859,000 at October 31, 1995. This increase is due primarily to higher sales levels during fiscal 1996 and anticipated increased sales in the upcoming Spring/Summer season. The Company's average inventory turnover decreased to 3.3 turns at the end of fiscal 1996 compared to 3.8 turns at the end of fiscal 1995. 10 13 The Company uses independent contractors for cutting, sewing and all other manufacturing of the Company's products and intends to use independent contractors in the future. Accordingly, the Company has avoided high levels of capital expenditures. Fiscal 1996 capital expenditures were $4,895,000, compared to $2,598,000 in fiscal 1995 and $2,873,000 in fiscal 1994. The increase in capital expenditures in fiscal 1996 from previous levels was primarily due to increased investments in the Company's computer systems. The Company is planning a warehouse expansion in Europe on its existing premises and, additionally, may incur capital expenditures as part of its facilities' consolidation in Orange County, California. The Company will also continue to purchase equipment from time to time in the normal course of business. To finance the Company's capital investment and seasonal working capital needs, the Company has credit facilites domestically and in Europe. The Company has available a $30,000,000 unsecured revolving line of credit with a U.S. bank available for cash borrowings and the issuance of letters of credit. As of October 31, 1996, the Company had $8,000,000 of cash borrowings outstanding under the line of credit. The line of credit expires on April 30, 1998 and bears interest at 0.5% below the bank's reference rate or at 1.50% above LIBOR for borrowings committed to be outstanding for 30 days or longer. 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, 1996, the Company was in compliance with such covenants. Quiksilver Europe has available lines of credit, both secured and unsecured, with banks that provide for maximum cash borrowings of approximately $14,600,000 in addition to approximately $11,000,000 available for the issuance of letters of credit. At October 31, 1996, the Quiksilver Europe lines of credit bore interest at rates ranging from 4.06% to 5.16%, and $211,000 of cash borrowings were outstanding under the lines of credit. The Company believes its current cash balance and current lines of credit are adequate to cover its capital investment and seasonal working capital requirements for the next 12 to 18 months. During fiscal 1996, the Company's Board of Directors approved the repurchase of up to 500,000 shares of the Company's Common Stock. As of October 31, 1996, 130,000 shares had been repurchased at a cost of $3,054,000. Such repurchased shares are reflected as Treasury Stock in the Company's Consolidated Balance Sheet. Significant Accounting Estimates In recent years, certain customers of the Company have experienced financial difficulties, including filing for reorganization proceedings under bankruptcy laws. The Company has not generally incurred significant losses outside the normal course of business as a result of the financial difficulties of these customers. While management believes that its allowance for doubtful accounts at October 31, 1996 is adequate, the Company carefully monitors developments regarding its major customers. Additional material financial difficulties encountered by these or other customers could have an adverse impact on the Company's financial position or results of operations. Foreign Currency Quiksilver Europe sells in various European countries and collects at future dates in the customers' local currencies. Accordingly, the Company is exposed to transaction gains and losses that could result from changes in foreign currency exchange rates. When considered appropriate, management purchases financial instruments, primarily forward exchange contracts, to reduce its exposure to these exchange rate fluctuations. Quiksilver Europe's financial statements are translated from French Francs into U.S. Dollars at exchange rates in effect during the reporting period. When the French Franc strengthens compared to the U.S. 11 14 Dollar (or, conversely, when the U.S. Dollar weakens compared to the French Franc), there is a positive effect on Quiksilver Europe's results as reported in the Company's Consolidated Financial Statements. Inflation The modest rate of inflation over the periods covered by this report has had an insignificant impact on the Company's sales and profitability. Changes in Accounting Methods Effective November 1, 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS No. 109 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 determination of net income for financial reporting and income tax purposes. Under the asset and liability method, deferred income 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 No. 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. New Accounting Pronouncements In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets To Be Disposed Of". The Company must adopt SFAS No. 121 no later than fiscal 1997; however, the results of adoption are not expected to be material. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 established a new, fair value based method of measuring stock-based compensation, but does not require companies to adopt the new method in accounting for employee stock-based transactions. SFAS No. 123 allows companies to present the pro forma effect of the fair value based method on earnings and earnings per share in the financial statement footnotes. The Company will adopt the pro forma disclosure requirements of SFAS No. 123 in accounting for employee stock-based transactions in fiscal 1997. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See "Index to Consolidated Financial Statements" for a listing of the consolidated financial statements. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 12 15 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 1997 Annual Meeting of Stockholders to be filed with the Commission within 120 days of October 31, 1996 and is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be included in the Company's Proxy Statement with respect to its 1997 Annual Meeting of Stockholders to be filed with the Commission within 120 days of October 31, 1996 and is incorporated herein by this reference. 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 1997 Annual Meeting of Stockholders to be filed with the Commission within 120 days of October 31, 1996 and is incorporated herein by this reference. 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 1997 Annual Meeting of Stockholders to be filed with the Commission within 120 days of October 31, 1996 and is incorporated herein by this reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 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. 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, 1996. 13 16 QUIKSILVER, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page INDEPENDENT AUDITORS' REPORT..................................................................... 15 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets October 31, 1996 and 1995................................................................ 16 Consolidated Statements of Income Years Ended October 31, 1996, 1995 and 1994.............................................. 17 Consolidated Statements of Stockholders' Equity Years Ended October 31, 1996, 1995 and 1994.............................................. 18 Consolidated Statements of Cash Flows Years Ended October 31, 1996, 1995 and 1994.............................................. 19 Notes to Consolidated Financial Statements.................................................. 20
14 17 INDEPENDENT AUDITORS' REPORT To The Board of Directors and Stockholders of Quiksilver, Inc.: We have audited the accompanying consolidated balance sheets of Quiksilver, Inc. and subsidiaries as of October 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended October 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1996, in conformity with generally accepted accounting principles. As discussed in Note 11, effective November 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting For Income Taxes". DELOITTE & TOUCHE LLP December 18, 1996 Costa Mesa, California 15 18 QUIKSILVER, INC. CONSOLIDATED BALANCE SHEETS OCTOBER 31, 1996 AND 1995
1996 1995 ---- ---- ASSETS Current assets: Cash and cash equivalents .......................... $ 3,429,000 $ 3,461,000 Trade accounts receivable, less allowance for doubtful accounts of $2,873,000 (1996) and $2,717,000 (1995) - Note 3 .................. 44,554,000 38,308,000 Other receivables ................................. 2,182,000 1,471,000 Inventories - Note 4 .............................. 35,668,000 28,355,000 Deferred income taxes - Note 11 ................... 1,104,000 1,089,000 Prepaid expenses and other current assets ......... 923,000 1,151,000 ------------- ------------- Total current assets ......................... 87,860,000 73,835,000 Fixed assets, net - Notes 5 and 6 ..................... 9,655,000 7,032,000 Trademark, less accumulated amortization of $1,486,000 (1996) and $1,336,000 (1995) - Note 10 .. 1,532,000 1,682,000 Goodwill, less accumulated amortization of $3,103,000 (1996) and $2,501,000 (1995) - Note 2 ... 15,005,000 15,611,000 Deferred income taxes - Note 11 ....................... 732,000 660,000 Other assets .......................................... 796,000 348,000 ------------- ------------- Total assets ................................. $ 115,580,000 $ 99,168,000 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Lines of credit - Note 6 ........................... $ 8,211,000 $ 8,031,000 Accounts payable ................................... 12,823,000 9,257,000 Accrued liabilities - Note 7 ....................... 10,212,000 8,834,000 Current portion of notes payable - Note 6 .......... 240,000 233,000 Income taxes payable - Note 11 ..................... 727,000 578,000 ------------- ------------- Total current liabilities .................... 32,213,000 26,933,000 Notes payable - Note 6 ................................ 2,640,000 3,297,000 ------------- ------------- Total liabilities ............................ 34,853,000 30,230,000 ------------- ------------- Commitments and contingencies - Note 8 Stockholders' equity - Note 9: Preferred stock, $.01 par value, authorized shares - 5,000,000; issued and outstanding shares - none . - - Common stock, $.01 par value, authorized shares - 30,000,000; issued and outstanding shares - 6,965,346 (1996) and 6,775,605 (1995) ........... 70,000 68,000 Additional paid-in capital ......................... 18,971,000 15,118,000 Retained earnings .................................. 64,399,000 52,739,000 Treasury stock, 130,000 shares (1996) .............. (3,054,000) - Cumulative foreign currency translation adjustment . 341,000 1,013,000 ------------- ------------- Total stockholders' equity ................... 80,727,000 68,938,000 ------------- ------------- Total liabilities and stockholders' equity ... $ 115,580,000 $ 99,168,000 ============= =============
See notes to consolidated financial statements. 16 19 QUIKSILVER, INC. CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
1996 1995 1994 ---- ---- ---- Net sales ............................................. $ 193,474,000 $ 172,787,000 $ 126,171,000 Cost of goods sold .................................... 117,380,000 106,741,000 78,560,000 ------------- ------------- ------------- Gross profit ....................................... 76,094,000 66,046,000 47,611,000 ------------- ------------- ------------- Operating expenses: Selling, general and administrative expense ........ 54,379,000 46,810,000 35,014,000 Royalty income ..................................... (1,095,000) (1,053,000) (917,000) Royalty expense .................................... 2,540,000 2,153,000 1,028,000 ------------- ------------- ------------- Total operating expenses ........................ 55,824,000 47,910,000 35,125,000 ------------- ------------- ------------- Operating income ...................................... 20,270,000 18,136,000 12,486,000 Interest expense, net ................................. 785,000 1,139,000 699,000 Foreign currency (gain) loss .......................... (53,000) 13,000 (70,000) Other expense ......................................... 259,000 148,000 101,000 ------------- ------------- ------------- Income before provision for income taxes and cumulative effect of change in accounting ..................... 19,279,000 16,836,000 11,756,000 Provision for income taxes - Note 11 .................. 7,619,000 6,824,000 4,618,000 ------------- ------------- ------------- Income before cumulative effect of change in accounting 11,660,000 10,012,000 7,138,000 Cumulative effect of change in accounting for income taxes - Note 11 ......................... - - 600,000 ------------- ------------- ------------- Net income ............................................ $ 11,660,000 $ 10,012,000 7,738,000 ============= ============= ============= Net income per share before cumulative effect of change in accounting ............................... $ 1.62 $ 1.45 $ 1.07 Cumulative effect per share of change in accounting for income taxes - Note 11 ......................... - - 0.09 ------------- ------------- ------------- Net income per share .................................. $ 1.62 $ 1.45 $ 1.16 ============= ============= ============= Weighted average common shares and equivalents outstanding - Note 1 ............................... 7,209,000 6,882,000 6,648,000 ============= ============= =============
See notes to consolidated financial statements. 17 20 QUIKSILVER, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
Common Stock Additional ------------ Paid-in Retained Treasury Shares Amount Capital Earnings Stock ------ ------ ------- -------- ----- Balance, November 1, 1993 .. 6,414,622 $ 64,000 $ 10,364,000 $ 34,989,000 $ -- Exercise of stock options .............. 106,800 1,000 900,000 -- -- Tax benefit from exercise of stock options .............. -- -- 287,000 -- -- Foreign currency translation adjustment -- -- -- -- -- Net income ............. -- -- -- 7,738,000 -- ------------ ------------ ------------ ------------ ------------ Balance, October 31, 1994 .. 6,521,422 65,000 11,551,000 42,727,000 -- Exercise of stock options ................ 254,183 3,000 2,593,000 -- -- Tax benefit from exercise of stock options ................ -- -- 974,000 -- -- Foreign currency translation adjustment . -- -- -- -- -- Net income ............... -- -- -- 10,012,000 -- ------------ ------------ ------------ ------------ ------------ Balance, October 31, 1995 .. 6,775,605 68,000 15,118,000 52,739,000 -- Exercise of stock options .............. 189,741 2,000 2,733,000 -- -- Tax benefit from exercise of stock options .............. -- -- 1,120,000 -- -- Repurchase of common stock ................ -- -- -- -- (3,054,000) Foreign currency translation adjustment -- -- -- -- -- Net income ............. -- -- -- 11,660,000 -- ------------ ------------ ------------ ------------ ------------ Balance, October 31, 1996 .. 6,965,346 $ 70,000 $ 18,971,000 $ 64,399,000 $ (3,054,000) ============ ============ ============ ============ ============
Cumulative Foreign Currency Total Translation Stockholders' Adjustment Equity ---------- ------ Balance, November 1, 1993 .. $ (387,000) $ 45,030,000 Exercise of stock options .............. -- 901,000 Tax benefit from exercise of stock options .............. -- 287,000 Foreign currency translation adjustment 982,000 982,000 Net income ............. -- 7,738,000 ------------ ------------ Balance, October 31, 1994 .. 595,000 54,938,000 Exercise of stock options ................ -- 2,596,000 Tax benefit from exercise of stock options ................ -- 974,000 Foreign currency translation adjustment . 418,000 418,000 Net income ............... -- 10,012,000 ------------ ------------ Balance, October 31, 1995 .. 1,013,000 68,938,000 Exercise of stock options .............. -- 2,735,000 Tax benefit from exercise of stock options .............. -- 1,120,000 Repurchase of common stock ................ -- (3,054,000) Foreign currency translation adjustment (672,000) (672,000) Net income ............. -- 11,660,000 ------------ ------------ Balance, October 31, 1996 .. $ 341,000 $ 80,727,000 ============ ============
See notes to consolidated financial statements. 18 21 QUIKSILVER, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net income ........................................................... $ 11,660,000 $ 10,012,000 $ 7,738,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization .................................. 2,697,000 2,314,000 2,263,000 Provision for doubtful accounts ................................ 2,196,000 923,000 -- Loss on sale of fixed assets ................................... 49,000 99,000 75,000 Deferred income taxes .......................................... (87,000) (380,000) (273,000) Changes in operating assets and liabilities, net of effects from purchase of The Raisin Company: Trade accounts receivable ................................ (8,953,000) (9,257,000) (10,659,000) Other receivables ........................................ (747,000) 77,000 (331,000) Inventories .............................................. (7,552,000) (6,746,000) (8,010,000) Prepaid expenses and other current assets ................ 203,000 (234,000) (158,000) Other assets ............................................. (454,000) (152,000) (493,000) Accounts payable ......................................... 3,768,000 4,100,000 1,041,000 Accrued liabilities ...................................... 1,434,000 3,810,000 391,000 Income taxes payable ..................................... 1,297,000 (860,000) 1,111,000 ------------ ------------ ------------ Net cash provided by (used in) operating activities ... 5,511,000 3,706,000 (7,305,000) ------------ ------------ ------------ Cash flows from investing activities: Proceeds from sales of fixed assets .................................. 75,000 35,000 25,000 Capital expenditures ................................................. (4,895,000) (2,598,000) (2,873,000) Payment for purchase of The Raisin Company ........................... -- -- (3,459,000) ------------ ------------ ------------ Net cash used in investing activities ................. (4,820,000) (2,563,000) (6,307,000) ------------ ------------ ------------ Cash flows from financing activities: Borrowings on lines of credit ........................................ 24,365,000 36,699,000 25,929,000 Payments on lines of credit .......................................... (24,145,000) (38,925,000) (17,274,000) Borrowings on long-term debt ......................................... -- 992,000 370,000 Payments on long-term debt ........................................... (512,000) (144,000) -- Proceeds from stock option exercises ................................. 2,735,000 2,596,000 901,000 Purchase of treasury stock ........................................... (3,054,000) -- -- ------------ ------------ ------------ Net cash (used in) provided by financing activities ... (611,000) 1,218,000 9,926,000 Effect of exchange rate changes on cash ................................. (112,000) 418,000 982,000 ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents .................... (32,000) 2,779,000 (2,704,000) Cash and cash equivalents, beginning of year ............................ 3,461,000 682,000 3,386,000 ------------ ------------ ------------ Cash and cash equivalents, end of year .................................. $ 3,429,000 $ 3,461,000 $ 682,000 ============ ============ ============ Supplementary cash flow information- Cash paid during the period for: Interest .......................................................... $ 781,000 $ 1,556,000 $ 654,000 ============ ============ ============ Income taxes ...................................................... $ 6,668,000 $ 7,096,000 $ 4,871,000 ============ ============ ============
See notes to consolidated financial statements. 19 22 QUIKSILVER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES Company Business The Company designs, arranges for the manufacture of, and distributes casual sportswear, swimwear, and snowboardwear primarily for young men, boys and young women under the "Quiksilver", "Quiksilver Roxy", "Raisins", "Leilani", "Radio Fiji", "Que", and "Pirate Surf" labels to surf shops, specialty stores and selected department stores in the United States and Europe. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company owns all rights to use the "Quiksilver" name, logo, and trademark in the United States, Puerto Rico and Mexico and has a license agreement with Quiksilver Garments, Pty., Ltd., an Australian company ("Quiksilver International"), to use the "Quiksilver" name, logo, and trademark in various other territories. The Company owns the worldwide rights or has developed its other labels internally. The market for beachwear, snowboardwear and casual sportswear is competitive. 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 team of designers, artists, merchandisers, pattern makers, and cutting and sewing contractors that 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. 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"). Intercompany accounts and transactions have been eliminated in consolidation. Cash Equivalents Certificates of deposit and highly liquid short-term investments purchased with original maturities of three months or less are considered cash equivalents. Inventories Inventories are valued at the lower of cost (first-in, first-out) or market. Fixed Assets Furniture, equipment and buildings are recorded at cost and depreciated on a straight-line basis over their estimated useful lives, which generally range from two to ten years. Leasehold improvements are recorded at cost and amortized over their estimated useful lives or related lease term, whichever is shorter. Trademark The trademark is being amortized on a straight-line basis over 20 years. Goodwill Goodwill arose primarily from the acquisition of Quiksilver Europe, Raisins and ATI and is being amortized on a straight-line basis over 30 years. The Company assesses the recoverability of goodwill at each 20 23 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. Revenue Recognition Sales are recognized when merchandise is shipped to a customer. Income Taxes The Company accounts for income taxes using the asset and liability approach as promulgated by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Deferred income 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. Deferred income tax assets are only recorded if, in the judgment of the Company's management, it is more likely than not that such assets will be realized. Net Income Per Share Net income per share for the years ended October 31, 1996, 1995 and 1994 was computed based on the weighted average number of shares actually outstanding, plus the shares that would be outstanding assuming the exercise of all outstanding options, computed using the treasury stock method. 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 on the balance sheet date. Revenues and expenses are translated using the average exchange rate for the period. Gains and losses on foreign currency transactions are recognized as incurred. Reclassifications Certain reclassifications have been made to the fiscal 1995 and fiscal 1994 consolidated financial statements to conform them to the 1996 presentation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments The carrying value of the Company's trade accounts receivable and accounts payable approximates their fair value due to their short-term nature. The carrying value of the Company's lines of credit approximates its fair value as these borrowings include a series of short-term notes at floating interest rates. New Accounting Pronouncements In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets To Be Disposed Of". The Company must adopt SFAS No. 121 no later than fiscal 1997; however, the results of adoption are not expected to be significant. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 established a new, fair value based method of measuring stock-based compensation, but does not require companies to adopt the new method in accounting for employee stock-based compensation. SFAS No. 123 allows companies to present the pro forma effect of the fair value based method on earnings and earnings per share in the financial statement footnotes. The Company will adopt the pro forma disclosure requirements of SFAS No. 123 in accounting for employee stock-based compensation in fiscal 1997. 21 24 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 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. NOTE 3 - ALLOWANCE FOR DOUBTFUL ACCOUNTS The allowance for doubtful accounts includes the following:
YEARS ENDED OCTOBER 31, ----------------------------------------- 1996 1995 1994 ---- ---- ---- Balance, beginning of year.......................... $ 2,717,000 $2,202,000 $2,254,000 Provision for doubtful accounts 2,196,000 923,000 - Deductions....................................... (2,040,000) (408,000) (52,000) ----------- ---------- ---------- Balance, end of year................................ $ 2,873,000 $2,717,000 $2,202,000 =========== ========== ===========
NOTE 4 - INVENTORIES Inventories consist of the following:
OCTOBER 31, ------------------------------- 1996 1995 ---- ---- Raw materials............................................... $11,686,000 $10,875,000 Work in process............................................. 3,673,000 4,104,000 Finished goods.............................................. 20,309,000 13,376,000 ------------ ----------- $ 35,668,000 $ 28,355,000 ============ ============
NOTE 5 - FIXED ASSETS Fixed assets consist of the following:
OCTOBER 31, --------------------------- 1996 1995 ---- ---- Furniture and equipment..................................... $11,081,000 $ 7,000,000 Leasehold improvements...................................... 3,649,000 3,708,000 Land and buildings.......................................... 2,952,000 3,306,000 ----------- ----------- 17,682,000 14,014,000 Accumulated depreciation and amortization................... (8,027,000) (6,982,000) ----------- ----------- $ 9,655,000 $ 7,032,000 =========== ===========
22 25 NOTE 6 - LINES OF CREDIT AND NOTES PAYABLE Quiksilver has an unsecured revolving line of credit with a U.S. bank that provides for maximum financing of $30,000,000 for cash borrowings and the issuance of letters of credit. The line of credit bears interest at 0.5% below the bank's reference rate (8.25% at October 31, 1996) or at 1.50% above LIBOR for borrowings committed to be outstanding for 30 days or longer. This line of credit expires April 30, 1998. Quiksilver had $8,000,000 of cash borrowings outstanding on this line of credit at October 31, 1996. 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, 1996, the Company was in compliance with such covenants. Quiksilver Europe also has available lines of credit, both secured and unsecured, with banks that provide for aggregate financing of approximately $14,600,000 in addition to approximately $11,000,000 available for the issuance of letters of credit. At October 31, 1996, these lines of credit bore interest at rates ranging from 4.06% to 5.16%, and $211,000 of cash borrowings were outstanding. The lines of credit expire on various dates through January 1997. The Company believes that these lines of credit will be renewed with substantially similar terms. Long-term notes payable, collateralized by land and buildings, bear interest at rates ranging from 6.0% to 8.3%, require monthly principal and interest payments and are due at various dates through 2003. Principal payments on notes payable are due approximately as follows: 1997............................................... $ 240,000 1998............................................... 336,000 1999............................................... 472,000 2000............................................... 585,000 2001............................................... 382,000 Thereafter......................................... 865,000 ---------- $2,880,000 ==========
NOTE 7 - ACCRUED LIABILITIES Accrued liabilities consist of the following:
OCTOBER 31, -------------------------- 1996 1995 ---- ---- Accrued employee compensation and benefits ................. $ 4,502,000 $4,049,000 Accrued sales and payroll taxes............................. 2,164,000 2,046,000 Other liabilities........................................... 3,546,000 2,739,000 ----------- ---------- $10,212,000 $8,834,000 =========== ==========
23 26 NOTE 8 - 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 such leases as of October 31, 1996: 1997............................................... $ 711,000 1998............................................... 325,000 1999............................................... 276,000 2000............................................... 272,000 2001............................................... 280,000 Thereafter......................................... 661,000 ---------- $2,525,000 ==========
Total rent expense was $1,179,000, $1,062,000 and $1,068,000 during the years ended October 31, 1996, 1995 and 1994, respectively. 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. NOTE 9 - STOCKHOLDERS' EQUITY In March 1996, the Company's stockholders approved the Company's 1996 Stock Option Plan and the 1995 Nonemployee Directors' Stock Option Plan (together referred to as the "Stock Option Plans"), which generally replaced the Company's previous stock option plan. Under the Stock Option Plans, nonqualified and incentive options to acquire up to 840,000 shares of common stock may be granted to directors, officers and other employees selected by the plans' 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 three to five years, as designated by the committee and are subject to such other terms and conditions as the committee determines. The Company's previous stock option plan was terminated in March 1996, although options already granted were not affected. 24 27 Changes in shares under option for the years ended October 31, 1996, 1995, and 1994 are summarized as follows:
STOCK OPTION PRICE RANGE SHARES PER SHARE ------ --------- Outstanding at November 1, 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 Granted ............................... 741,000 22.81 - 30.25 Exercised ............................. (189,741) 5.00 - 18.88 Canceled .............................. (30,169) 10.25 - 23.25 --------- Outstanding at October 31, 1996 .......... 1,146,973 5.00 - 30.25 ========= Options exercisable at October 31, 1996... 244,454 5.00 - 27.13 =========
As of October 31, 1996, there were 111,167 shares of common stock under the Stock Option Plans that were available for future grant. During fiscal 1996, the Company's Board of Directors approved the repurchase of up to 500,000 shares of the Company's Common Stock. As of October 31, 1996, 130,000 shares had been repurchased at a cost of $3,054,000. Such repurchased shares are reflected as Treasury Stock in the Company's Consolidated Balance Sheet. NOTE 10 - ROYALTY, TRADEMARK AND ADVERTISING The Company and Quiksilver International entered into an agreement in January 1996 that requires, among other things, the Company to pay a fee of $300,000 per year for advertising and promotion. The agreement expires in January 2006, and the promotional fee is adjusted annually based on annual sales volume of Quiksilver. Quiksilver Europe has a European trademark license and manufacturing agreement (the European "Trademark Agreement") with Quiksilver International. The Trademark Agreement provides that Quiksilver Europe can sell products under the "Quiksilver" trademark and tradename through 2012 in the territories covered by the Trademark Agreement (primarily western Europe). In consideration of the rights granted under the new agreement, Quiksilver Europe 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 $29,300,000 at October 31, 1996) 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 $880,000 at October 31, 1996) 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. 25 28 The Trademark Agreement also requires Quiksilver Europe to pay a quarterly promotional fee of 1% of its net sales. The Company licensed the use of the "Quiksilver" name, logo, and trademark in Mexico in exchange for royalties of 4.5% of net sales after Mexican taxes, and the use of the "Quiksilver" name and logo on watches, sunglasses and wetsuits in exchange for royalties of 7%, 10% and 4% of sales, respectively. The Company has also licensed the use of the "Que" name, logo, and trademark in Japan. These license agreements expire between 1998 and 2006. NOTE 11 - INCOME TAXES Effective November 1, 1993, the Company adopted SFAS No. 109. This statement changed the Company's method of accounting for income taxes from the deferred method to an asset and liability method. SFAS No. 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 No. 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 is as follows:
YEARS ENDED OCTOBER 31, --------------------------------------- 1996 1995 1994 ---- ---- ---- Current: Federal.......................................... $3,539,000 $4,066,000 $2,711,000 State............................................ 1,014,000 1,169,000 772,000 Foreign.......................................... 3,153,000 1,969,000 1,408,000 ---------- ---------- ---------- 7,706,000 7,204,000 4,891,000 ---------- ---------- ---------- Deferred: Federal.......................................... (74,000) (320,000) (250,000) State............................................ (13,000) (60,000) (23,000) Foreign.......................................... - - - ---------- ---------- ---------- (87,000) (380,000) (273,000) ----------- ---------- --------- Provision for income taxes.......................... $7,619,000 $6,824,000 $4,618,000 ========== ========== ==========
A reconciliation of the effective income tax rate to a computed "expected" statutory federal income tax rate is as follows:
YEARS ENDED OCTOBER 31, --------------------------------------- 1996 1995 1994 ---- ---- ---- Computed "expected" statutory federal income tax rate......................................... 35.0% 35.0% 35.0% State income taxes, net of federal income tax benefit...................................... 3.4 4.3 4.1 Nondeductible goodwill amortization................. 0.8 0.9 1.2 Other............................................... 0.3 0.3 (1.0) ----- ----- ---- Effective income tax rate........................... 39.5% 40.5% 39.3% ===== ===== =====
26 29 The components of net deferred income taxes are as follows:
OCTOBER 31, ------------------------------- 1996 1995 ---- ---- Deferred income tax assets: State taxes ....................... $ 227,000 $ 279,000 Trademark amortization ............ 644,000 578,000 Allowance for doubtful accounts.... 529,000 604,000 Depreciation ...................... 236,000 193,000 Allowance for returns ............. 222,000 143,000 Nondeductible accruals and other... 160,000 63,000 ----------- ----------- 2,018,000 1,860,000 ----------- ----------- Deferred income tax liabilities: Goodwill amortization ............. (148,000) (99,000) Other ............................. (34,000) (12,000) ----------- ----------- (182,000) (111,000) ----------- ----------- Net deferred income taxes ............ $ 1,836,000 $ 1,749,000 =========== ===========
The tax benefit from the exercise of certain stock options are reflected as additions to paid-in capital. NOTE 12 - RETIREMENT PLAN The Company maintains 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 is 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 $115,000, $33,000 and $27,000 to the Plan for the years ended October 31, 1996, 1995 and 1994, respectively. 27 30 NOTE 13 - DOMESTIC AND EUROPEAN OPERATIONS A summary of domestic and European operations is as follows:
YEARS ENDED OCTOBER 31, -------------------------------------------- 1996 1995 1994 ---- ---- ---- Net sales to unaffiliated customers: Domestic................................. $121,932,000 $114,935,000 $ 87,172,000 Europe................................... 71,542,000 57,852,000 38,999,000 ------------ ------------ ------------ Consolidated.......................... $193,474,000 $172,787,000 $126,171,000 ============ ============ ============ Operating income: Domestic................................. $ 10,629,000 $ 11,628,000 $ 7,695,000 Europe................................... 9,641,000 6,508,000 4,791,000 ------------ ------------ ------------ Consolidated.......................... $ 20,270,000 $ 18,136,000 $ 12,486,000 ============ ============ ============ Identifiable assets: Domestic................................. $ 81,028,000 $ 71,147,000 $ 61,178,000 Europe................................... 34,552,000 28,021,000 19,292,000 ------------ ------------ ------------ Consolidated.......................... $115,580,000 $ 99,168,000 $ 80,470,000 ============ ============ ============
(1) Operating income is net sales less cost of goods sold and operating expenses. (2) Identifiable assets are those assets of the Company that are located in, or relate to operations in, each geographic area. NOTE 14 - FINANCIAL INSTRUMENTS The Company's European subsidiary enters into forward exchange contracts in managing its foreign exchange risk on foreign currency transactions and does not use the contracts for trading purposes. The Company's goal is to protect the Company from the risk that the eventual French franc net cash inflows from the foreign currency transactions will be adversely affected by changes in exchange rates. At October 31, 1996, the Company had $13,070,000 in notional amounts of forward exchange contracts with short-term maturities through July 1997. Gains and losses on the forward exchange contracts are recognized currently into income. A summary of the forward exchange contracts is as follows:
U.S. DOLLAR RECOGNIZED EQUIVALENT MATURITY GAIN (LOSS) ---------- -------- ----------- Forward exchange contracts German marks............... $ 2,830,000 July 1997 $ 29,000 British pounds ............ 520,000 December 1996 (50,000) British pounds ............ 2,180,000 July 1997 - Portuguese Escudos ........ 840,000 December 1996 (24,000) Portuguese Escudos ........ 1,650,000 July 1997 - Netherland guilders ....... 1,090,000 July 1997 (1,000) U.S. dollars............... 3,960,000 March 1997 39,000 ------------- --------- $ 13,070,000 $ (7,000) ============= =========
The Company is exposed to credit losses in the event of nonperformance by counterparties to its forward exchange contracts but has no off-balance sheet credit risk of accounting loss. The Company anticipates, however, that the counterparties will be able to fully satisfy their obligations under the contracts. The 28 31 Company does not obtain collateral or other security to support the forward exchange contracts subject to credit risk but monitors the credit standing of the counterparties. NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED) A summary of quarterly financial data (unaudited) is as follows:
QUARTER QUARTER QUARTER QUARTER ENDED ENDED ENDED ENDED JANUARY 31 APRIL 30 JULY 31 OCTOBER 31 ---------- -------- ------- ---------- Year ended October 31, 1996 Net sales .................. $40,487,000 $54,505,000 $49,008,000 $49,474,000 Gross profit ............... 15,595,000 22,013,000 18,171,000 20,315,000 Net income ................. 2,125,000 4,419,000 2,539,000 2,577,000 Net income per share ....... 0.30 0.61 0.35 0.36 Trade accounts receivable... 38,325,000 48,449,000 46,113,000 44,554,000 Inventories ................ 32,862,000 29,128,000 34,641,000 35,668,000 Year ended October 31, 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 share ....... 0.23 0.52 0.33 0.36 Trade accounts receivable... 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
29 32 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 24, 1997 QUIKSILVER, INC. (REGISTRANT) By:/s/ Robert B. McKnight, Jr. By:/s/ Steven L. Brink -------------------------------- ------------------------------- Robert B. McKnight, Jr. Steven L. Brink Chairman of the Board and Vice President, Secretary, Chief Executive Officer Treasurer and Chief Financial (Principal Executive Officer) Officer (Principal Accounting Officer) 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 ---------- ----- ----------- /s/ Robert B. McKnight, Jr. Chairman of the Board and January 24, 1997 - ---------------------------------- Chief Executive Officer Robert B. McKnight, Jr. (Principal Executive Officer) /s/ Steven L. Brink Vice President, Secretary, January 24, 1997 - ---------------------------------- Treasurer and Chief Financial Officer Steven L. Brink (Principal Accounting Officer) /s/ William M. Barnum, Jr. Director January 24, 1997 - ---------------------------------- William M. Barnum, Jr. /s/ Charles E. Crowe Director January 24, 1997 - ---------------------------------- Charles E. Crowe /s/ Michael H. Gray Director January 24, 1997 - ---------------------------------- Michael H. Gray - ---------------------------------- Director January 24, 1997 Harry Hodge /s/ Robert G. Kirby Director January 24, 1997 - ---------------------------------- Robert G. Kirby /s/ Tom Roach Director January 24, 1997 - ---------------------------------- Tom Roach
30 33 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 3.1 Certificate of Incorporation as presently in effect 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) 10.1 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) 10.2 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) 10.3 Amended and Restated Loan Agreement between Union Bank and Registrant dated April 30, 1996 (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the three months ended July 31, 1996) 10.4 First, Second and Third Amendments to Amended and Restated Loan Agreement between Union Bank and Registrant dated September 5, 1996, October 22, 1996, and November 1996, respectively 10.5 Form of Indemnity Agreement between the Registrant and individual Directors and officers of the Registrant. (1) 10.6 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) 10.7 Quiksilver, Inc. 1995 Nonemployee Directors' Stock Option Plan dated March 24, 1995 (incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q for the three months ended April 30, 1996) (1) 10.8 Quiksilver, Inc. 1996 Stock Option Plan dated January 26, 1996 (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the three months ended April 30, 1996. (1) 10.9 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) 10.10 Employment Agreement between Robert B. McKnight, Jr. and Registrant dated April 1, 1996 (1) 10.11 Employment Agreement between Harry Hodge and Registrant dated April 1, 1996 (1) 10.12 Employment Agreement between Steven L. Brink and Registrant dated October 24, 1996 (1)
31 34
21.1 Names and Jurisdictions of Subsidiaries 23.1 Independent Auditors' Consent 27.1 Financial Data Schedule
(1) Management contract or compensatory plan. 32 EX-3.1 2 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF QUIKSILVER, INC. The undersigned, Robert B. McKnight, Jr. and Randall L. Herrel, Sr., certify that they are the Chief Executive Officer and Secretary, respectively, of Quiksilver, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Company"), and do hereby further certify as follows: A. The name of the Company is QUIKSILVER, INC. B. The original Certificate of Incorporation of the Company was filed in the office of the Delaware Secretary of State on October 24, 1986. C. This Restated Certificate of Incorporation has been duly adopted by the Board of Directors and by the Stockholders of the Company in accordance with the applicable provisions of Section 242 and 245 of the General Corporation Law of the State of Delaware. D. The text of the Certificate of Incorporation of the Company is hereby amended and restated to read in its entirety as follows: FIRST: The name of this corporation is Quiksilver, Inc. (hereinafter referred to as the "Company"). SECOND: The address of the Company's registered office in the State of Delaware is 1013 Centre Road, Wilmington, New Castle County, Delaware. The name of the Company's registered agent at that address is United States Corporation Company. THIRD: The purpose of the Company is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. FOURTH: A. The total number of shares of all classes of stock that the Company shall have authority to issue is thirty-five million (35,000,000), consisting of: 2 (1) thirty million (30,000,000) shares of Common Stock, with a par value of $.01 per share; and (2) five million (5,000,000) shares of Preferred Stock, with a par value of $.01 per share. B. The shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized to fix the number of shares of any series of Preferred Stock and to determine the designation of any such series. The Board of Directors is also authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issuance of shares of that series. FIFTH: A director of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Company shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing provisions of this Article FIFTH by the stockholders of the Company shall not adversely affect any right or protection of a director of the Company existing at the time of such repeal or modification. SIXTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the bylaws of the Company. SEVENTH: Election of directors need not be by written ballot unless the bylaws of the Company shall so provide. 2 3 E. The undersigned further declare under penalty of perjury under the laws of the State of Delaware that this Restated Certificate of Incorporation is the act and deed of the Company and that the facts stated herein are true. DATED: April __, 1996 QUIKSILVER, INC. /s/ Robert B. McKnight, Jr. --------------------------- Robert B. McKnight, Jr. Chief Executive Officer ATTEST: - ----------------------------------- Randall L. Herrel, Sr., Secretary 3 EX-10.4 3 1ST, 2ND & 3RD AMENDMENTS TO LOAN AGREEMENT 1 EXHIBIT 10.4 FIRST AMENDMENT AMENDED AND RESTATED LOAN AGREEMENT THIS FIRST AMENDMENT is made and entered into as of September 05, 1996 by and between QUIKSILVER, INC., a Delaware Corporation ("Borrower"), with an office at 1740 Monrovia, Costa Mesa, California 92627 and UNION BANK, A DIVISION OF UNION BANK OF CALIFORNIA, INC., N.A. ("Bank"), with an office at 500 S. Main Street, 2nd Floor, Orange, California 92868. WHEREAS, Bank and Borrower entered into an Amended and Restated Loan Agreement dated April 30, 1996 ("Loan Agreement"); and WHEREAS, the Bank and Borrower desire to enter into this First Amendment to the Loan Agreement in order to reflect the current terms of the agreement between the parties. NOW, THEREFORE, in consideration of the foregoing recitals and of the mutual covenants set forth below and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: The following section is amended: Section 1.1.1.1, line nine of the Loan Agreement is hereby amended by substituting the number "180" for the number "120". Except as amended hereby, the Agreement shall remain unaltered and in full force and effect. This letter shall not be a waiver of any existing default or breach of a covenant unless specified herein. WITNESS the due execution hereof in the date set forth hereinabove. "Borrower" "Bank" QUIKSILVER, INC. UNION BANK, a division of Union Bank of California, Inc., N.A. By; /s/ RANDALL E. HERREL, SR. By: /s/ [ILLEGIBLE SIGNATURE] - --------------------------------- ---------------------------------- Randall E. Herrel, Sr. Title: President Title: Vice President By: /s/ ROBERT E. MCKNIGHT, JR. By: /s/ [ILLEGIBLE SIGNATURE] - --------------------------------- ---------------------------------- Robert E. McKnight, Jr. Title: Chief Executive Officer Title: Vice President 2 SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this "Second Amendment") dated as of October 22, 1996, is made and entered into by and between QUIKSILVER, INC., a Delaware corporation ("Borrower"), and UNION BANK OF CALIFORNIA, N.A. RECITALS: A. Borrower and Bank are parties to that certain Amended and Restated Loan Agreement dated April 30, 1996 (the "Agreement"), pursuant to which Bank agreed to extend credit to Borrower and amendment thereto dated September 5, 1996. B. Borrower and Bank desire to amend the Agreement subject to the terms and conditions of this Second Amendment. AGREEMENT: In consideration of the above recitals and of the mutual covenants and conditions contained herein, Borrower and Bank agree as follows: 1. DEFINED TERMS. Initially capitalized terms used herein which are not otherwise defined shall have the meanings assigned thereto in the Agreement. 2. AMENDMENTS TO THE AGREEMENT. (a) Section 5.7 of the Agreement is hereby amended in its entirety as follows: 5.7 RETIREMENT OF STOCK. Without consent of Bank, between September 13, 1996 and September 30, 1997, Borrower will not acquire, redeem, purchase, or retire more than Five Million Dollars ($5,000,000) of its capital stock for value whether now or hereafter outstanding; or grant or issue any equity or security or warrant, right, or option pertaining thereto except as set forth in Section 3.13 and as approved by Bank in writing. From October 1, 1997, without consent of Bank, Borrower will not acquire, redeem, purchase, or retire any share of its capital stock for value whether now or hereafter outstanding; or grant or issue any equity or security or warrant, right, or option pertaining thereto except as set forth in Section 3.13 and as approved by Bank in writing. 3. EFFECTIVENESS OF THE SECOND AMENDMENT. This Second Amendment shall become effective as of the date hereof when, and only when, Bank shall have received the following, in form and substance satisfactory to Bank: (a) The counterpart of this Second Amendment, duly executed by Borrower; -1- 3 4. RATIFICATION. Except as specifically amended hereinabove, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. 5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as follows: (a) Each of the representations and warranties contained in the Agreement, as may be amended hereby, is hereby reaffirmed as of the date hereof, each as if set forth herein; (b) The execution, delivery and performance of the Second Amendment and any other instruments or documents in connection herewith are within Borrower's power, have been duly authorized, are legal, valid and binding obligations of Borrower, and are not in conflict with the terms of any charter, bylaw, or other organization papers of Borrower or with any law, indenture, agreement or undertaking to which Borrower is a party or by which Borrower is bound or affected; (c) No event has occurred and is continuing or would result from this Second Amendment which constitutes or would constitute an Event of Default under the Agreement. 6. GOVERNING LAW. This Second Amendment and all other instruments or documents in connection herewith shall be governed by and construed according to the laws of the State of California. 7. COUNTERPARTS. This Second Amendment may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. WITNESS the due execution hereof as of the date first above written. QUIKSILVER, INC. UNION BANK OF CALIFORNIA, N.A. By: /s/ RANDALL L. HERREL, SR. By: /s/ RITA DAILEY - ------------------------------- ------------------------------- Randall L. Herrel, Sr. Rita Dailey President Vice President By: /s/ ROBERT B. MCKNIGHT, JR. - ------------------------------- Robert B. McKnight, Jr. Chief Executive Officer -2- 4 THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this "Third Amendment") dated as of November 29, 1996, is made and entered into by and between QUIKSILVER, INC., a Delaware corporation ("Borrower"), and UNION BANK OF CALIFORNIA, N.A. RECITALS: A. Borrower and Bank are parties to that certain Amended and Restated Loan Agreement dated April 30, 1996 (the "Agreement"), pursuant to which Bank agreed to extend credit to Borrower and amendments thereto dated September 5, 1996 and October 22, 1996. B. Borrower and Bank desire to amend the Agreement subject to the terms and conditions of this Third Amendment. AGREEMENT: In consideration of the above recitals and of the mutual covenants and conditions contained herein, Borrower and Bank agree as follows: 1. DEFINED TERMS. Initially capitalized terms used herein which are not otherwise defined shall have the meanings assigned thereto in the Agreement. 2. AMENDMENTS TO THE AGREEMENT. (a) Section 1.1.1.1, line nine of the Loan Agreement is hereby amended by substituting the number "240" for the number "180". 3. EFFECTIVENESS OF THE THIRD AMENDMENT. This Third Amendment shall become effective as of the date hereof when, and only when, Bank shall have received the following, in form and substance satisfactory to Bank: (a) The Third Amendment, duly executed by Borrower; 4. RATIFICATION. Except as specifically amended hereinabove, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. 5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as follows: (a) Each of the representations and warranties contained in the Agreement, as may be amended hereby, is hereby reaffirmed as of the date hereof, each as if set forth herein; -1- 5 (b) The execution, delivery and performance of the Third Amendment and any other instruments or documents in connection herewith are within Borrower's power, have been duly authorized, are legal, valid and binding obligations of Borrower, and are not in conflict with the terms of any charter, bylaw, or other organization papers of Borrower or with any law, indenture, agreement or undertaking to which Borrower is a party or by which Borrower is bound or affected; (c) No event has occurred and is continuing or would result from this Third Amendment which constitutes or would constitute an Event of Default under the Agreement. 6. GOVERNING LAW. This Third Amendment and all other instruments or documents in connection herewith shall be governed by and construed according to the laws of the State of California. 7. COUNTERPARTS. This Third Amendment may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. WITNESS the due execution hereof as of the date first above written. QUIKSILVER, INC. UNION BANK OF CALIFORNIA, N.A. By: /s/ ROBERT B. MCKNIGHT, JR. By: /s/ RITA DAILEY - -------------------------------- ------------------------------ Robert B. McKnight, Jr. Rita Dailey Chief Executive Officer Vice President By: /s/ STEVEN L. BRINK By: /s/ ROBERT E. MCGOWN - -------------------------------- ------------------------------ Steven L. Brink Robert E. McGown Vice President Senior Vice President -2- EX-10.5 4 FORM OF INDEMNITY AGREEMENT 1 EXHIBIT 10.5 QUIKSILVER, INC. FORM OF INDEMNITY AGREEMENT THIS INDEMNITY AGREEMENT (the "Agreement") is made as of this _____ day of __________ 199_, by and between QUIKSILVER, INC., a Delaware corporation (the "Company"), and ____________________ (the "Indemnitee"), a [director/officer] of the Company. A. The Indemnitee is currently serving as __________ of the Company and in such capacity renders valuable services to the Company. B. The Company has investigated whether additional protective measures are warranted to protect adequately its directors and officers against various legal risks and potential liabilities to which such individuals are subject due to their position with the Company and has concluded that additional protective measures are warranted. C. In order to induce and encourage highly experienced and capable persons such as the Indemnitee to continue to serve as officers and directors, the Board of Directors has determined, after due consideration, that this Agreement is not only reasonable and prudent, but necessary to promote and ensure the best interests of the Company and its stockholders. NOW, THEREFORE, in consideration of the continued services of the Indemnitee and as an inducement to the Indemnitee to continue to serve as a [director/officer] of the Company, the Company and the Indemnitee do hereby agree as follows: 2 1. DEFINITIONS. As used in this Agreement, the following terms shall have the meanings set forth below: (a) "Proceeding" shall mean any threatened, pending or completed action, suit or proceeding, whether brought in the name of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, by reason of the fact that the Indemnitee is or was an officer and/or a director of the Company, or is or was serving at the request of the Company as director, officer, employee or agent of another enterprise, whether or not he is serving in such capacity at the time any liability or Expense is incurred for which indemnification or advancement of Expenses is to be provided under this Agreement. (b) "Expenses" means, all costs, charges and expenses incurred in connection with a Proceeding, including, without limitation, attorneys' fees, disbursements and retainers, accounting and witness fees, travel and deposition costs, expenses of investigations, judicial or administrative proceedings or appeals, and any expenses of establishing a right to indemnification pursuant to this Agreement or otherwise, including reasonable compensation for time spent by the Indemnitee in connection with the investigation, defense or appeal of a Proceeding or action for indemnification for which he is not otherwise compensated by the Company or any third party; provided, however, that the term "Expenses" includes only those costs, charges and expenses incurred with the Company's consent, which consent shall not be unreasonably withheld; and provided further, that the term "Expenses" does not include the amount of damages, judgments, amounts paid in settlement, fines, penalties or excise taxes under the Employee Retirement Income 2 3 Security Act of 1974, as amended ("ERISA"), actually levied against the Indemnitee or paid by or on behalf of the Indemnitee. 2. AGREEMENT TO SERVE. The Indemnitee agrees to continue to serve as an officer of the Company at the will of the Company for so long as Indemnitee is duly elected or appointed or until such time as Indemnitee tenders a resignation in writing or is terminated, as an officer by the Company. Nothing in this Agreement shall be construed to create any right in Indemnitee to continued service as an officer of the Company. 3. INDEMNIFICATION IN THIRD PARTY ACTIONS. The Company shall indemnify the Indemnitee in accordance with the provisions of this Section 3 if the Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding (other than a Proceeding by or in the right of the Company to procure a judgment in its favor), by reason of the fact that the Indemnitee is or was an officer and/or a director of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another enterprise, against all Expenses, damages, judgments, amounts paid in settlement, fines, penalties and ERISA excise taxes actually and reasonably incurred by the Indemnitee in connection with the defense or settlement of such Proceeding, to the fullest extent permitted by Delaware law; provided that any settlement shall be approved in writing by the Company. 4. INDEMNIFICATION IN PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify the Indemnitee in accordance with the provisions of this Section 4 if the Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that the Indemnitee is or was an officer and/or a director of the 3 4 Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another enterprise, against all Expenses actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, to the fullest extent permitted by Delaware law. 5. CONCLUSIVE PRESUMPTION REGARDING STANDARD OF CONDUCT. The Indemnitee shall be conclusively presumed to have met the relevant standards of conduct required by Delaware law for indemnification pursuant to this Agreement, unless a determination is made that the Indemnitee has not met such standards by (i) the Board of Directors of the Company by a majority vote of a quorum thereof consisting of directors who were not parties to such Proceeding, (ii) the stockholders of the Company by majority vote, or (iii) in a written opinion of independent legal counsel, the selection of whom has been approved by the Indemnitee in writing. 6. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding any other provision of this Agreement, to the extent that the Indemnitee has been successful on the merits or otherwise in defense of any Proceeding or in defense of any claim, issue or matter therein, including the dismissal of a Proceeding without prejudice, the Indemnitee shall be indemnified against all Expenses incurred in connection therewith to the fullest extent permitted by Delaware law. 7. ADVANCES OF EXPENSES. The Expenses incurred by the Indemnitee in any Proceeding shall be paid promptly by the Company in advance of the final disposition of the Proceeding at the written request of the Indemnitee to the fullest extent permitted by Delaware law; provided that the Indemnitee shall undertake in writing to repay such amount 4 5 to the extent that it is ultimately determined that the Indemnitee is not entitled to indemnification by the Company. 8. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, damages, judgments, amounts paid in settlement, fines, penalties or ERISA excise taxes actually and reasonably incurred by Indemnitee in the investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, the Company shall nevertheless indemnify the Indemnitee for the portion of such Expenses, damages, judgments, amounts paid in settlement, fines, penalties or ERISA excise taxes to which the Indemnitee is entitled. 9. INDEMNIFICATION PROCEDURE; DETERMINATION OF RIGHT TO INDEMNIFICATION. (a) Promptly after receipt by the Indemnitee of notice of the commencement of any Proceeding with respect to which the Indemnitee intends to claim indemnification pursuant to this Agreement, the Indemnitee will notify the Company of the commencement thereof. The omission to so notify the Company will not relieve the Company from any liability which it may have to the Indemnitee under this Agreement or otherwise. (b) If a claim under this Agreement is not paid by or on behalf of the Company within 30 days of receipt of written notice thereof, Indemnitee may at any time thereafter bring suit in any court of competent jurisdiction against the Company to enforce the right to indemnification provided by this Agreement. It shall be a defense to any such action (other than an action brought to enforce a claim for Expenses incurred in defending 5 6 any Proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Company) that the Indemnitee has failed to meet the standard of conduct that makes it permissible under Delaware law for the Company to indemnify the Indemnitee for the amount claimed. The burden of proving by clear and convincing evidence that indemnification or advancement of Expenses are not appropriate shall be on the Company. The failure of the directors or stockholders of the Company or independent legal counsel to have made a determination prior to the commencement of such Proceeding that indemnification or advancement of Expenses are proper in the circumstances because the Indemnitee has met the applicable standard of conduct shall not be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. (c) The Indemnitee's Expenses incurred in connection with any action concerning Indemnitee's right to indemnification or advancement of Expenses in whole or in part pursuant to this Agreement shall also be indemnified by the Company regardless of the outcome of such action, unless a court of competent jurisdiction determines that each of the material claims made by the Indemnitee in such action was not made in good faith or was frivolous. (d) With respect to any Proceeding for which indemnification is requested, the Company will be entitled to participate therein at its own expense and, except as otherwise provided below, to the extent that it may wish, the Company may assume the defense thereof, with counsel satisfactory to the Indemnitee. After notice from the Company to the Indemnitee of its election to assume the defense of a Proceeding, the Company will not be liable to the Indemnitee under this Agreement for any Expenses subsequently incurred by 6 7 the Indemnitee in connection with the defense thereof, other than reasonable costs of investigation or as otherwise provided below. The Company shall not settle any Proceeding in any manner which would impose any penalty or limitation on the Indemnitee without the Indemnitee's written consent. The Indemnitee shall have the right to employ counsel in any Proceeding, but the Expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of the Indemnitee, unless (i) the employment of counsel by the Indemnitee has been authorized by the Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the defense of a Proceeding, or (iii) the Company shall not in fact have employed counsel to assume the defense of a Proceeding, in each of which cases the Expenses of the Indemnitee's counsel shall be at the expense of the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which the Indemnitee has concluded that there may be a conflict of interest between the Company and the Indemnitee. 10. LIMITATIONS ON INDEMNIFICATION. No payments pursuant to this Agreement shall be made by the Company: (a) to indemnify or advance Expenses to the Indemnitee with respect to actions initiated or brought voluntarily by the Indemnitee and not by way of defense except with respect to actions brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Delaware law, but such indemnification or advancement of Expenses may be provided by the Company in specific cases if approved by the Board of Directors by a majority vote of a quorum thereof consisting of directors who are not parties to such action; 7 8 (b) to indemnify the Indemnitee for any Expenses, damages, judgments, amounts paid in settlement, fines, penalties or ERISA excise taxes for which payment is actually made to the Indemnitee under a valid and collectible insurance policy, except in respect of any excess beyond the amount paid under such insurance; (c) to indemnify the Indemnitee for any Expenses, damages, judgments, amounts paid in settlement, fines, penalties or ERISA excise taxes for which the Indemnitee has been or is indemnified by the Company otherwise than pursuant to this Agreement; (d) indemnify the Indemnitee for any Expenses, damages, judgments, amounts paid in settlement, fines or penalties sustained in any Proceeding for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder or similar provisions of any federal, state or local statutory law; (e) to indemnify the Indemnitee for any Expenses, damages, judgments, amounts paid in settlement, fines, penalties or ERISA excise taxes resulting from Indemnitee's conduct which is finally adjudicated by a court of competent jurisdiction (i) to have been knowingly fraudulent, a knowing violation of law, deliberately dishonest or in violation of Indemnitee's duty of loyalty to the Company or (ii) to have involved willful misconduct on the part of the Indemnitee; or (f) if a court of competent jurisdiction shall enter a final order, decree or judgment to the effect that such indemnification or advancement of Expenses hereunder is unlawful under the circumstances. 8 9 11. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification and advancement of Expenses provided by this Agreement shall not be deemed to limit or preclude any other rights to which the Indemnitee may be entitled under the Certificate of Incorporation, the Bylaws, any agreement, any vote of stockholders or disinterested directors, Delaware law, or otherwise, both as to action in Indemnitee's official capacity and as to action in any other capacity on behalf of the Company while holding such office. 12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and shall inure to the benefit of (i) the Indemnitee and Indemnitee's heirs, personal representatives, executors, administrators and assigns and (ii) the Company and its successors and assigns, including any transferee of all or substantially all of the Company's assets and any successor or assign of the Company by merger or by operation of law. 13. SEPARABILITY. Each provision of this Agreement is a separate and distinct agreement and independent of the other, so that if any provision hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. To the extent required, any provision of this Agreement may be modified by a court of competent jurisdiction to preserve its validity and to provide the Indemnitee with the broadest possible indemnification and advancement of Expenses permitted under Delaware law. If this Agreement or any portion thereof is invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee as to Expenses, damages, judgments, amounts paid in settlement, fines, penalties or ERISA excise taxes with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that shall 9 10 not have been invalidated or by any applicable provision of Delaware law or the law of any other jurisdiction. 14. HEADINGS. The Headings used herein are for convenience only and shall not be used in construing or interpreting any provision of the Agreement. 15. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. 16. AMENDMENTS AND WAIVERS. No amendment, waiver, modification, termination or cancellation of this Agreement shall be effective unless in writing and signed by the party against whom enforcement is sought. The indemnification rights afforded to the Indemnitee hereby are contract rights and may not be diminished, eliminated or otherwise affected by amendments to the Company's Certificate of Incorporation, Bylaws or agreements, including any directors' and officers' liability insurance policies, whether the alleged actions or conduct giving rise to indemnification hereunder arose before or after any such amendment. No waiver of any provision of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof, whether or not similar, nor shall any waiver constitute a continuing waiver. 17. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each party and delivered to the other. 18. NOTICES. All notices and communications shall be in writing and shall be deemed duly given on the date of delivery if personally delivered or the date of receipt or refusal indicated on the return receipt if sent by first class mail, postage prepaid, registered 10 11 or certified, return receipt requested, to the following addresses, unless notice of a change of address in duly given by one party to the other, in which case notices shall be sent to such changed address: If to the Company: Quiksilver, Inc. 1740 Monrovia Costa Mesa, CA 92627 Attention: Secretary If to Indemnitee: ------------------------ ------------------------ ------------------------ ------------------------ 19. SUBROGATION. In the event of any payment under this Agreement to or on behalf of the Indemnitee, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee against any person, firm, corporation or other entity (other than the Company) and the Indemnitee shall execute all papers requested by the Company and shall do any and all things that may be necessary or desirable to secure such rights for the Company, including the execution of such documents necessary or desirable to enable the Company to effectively bring suit to enforce such rights. 20. SUBJECT MATTER AND PARTIES. The intended purpose of this Agreement is to provide for indemnification and advancement of Expenses, and this Agreement is not intended to affect any other aspect of any relationship between the Indemnitee and the Company and is not intended to and shall not create any rights in any person as a third party beneficiary hereunder. 11 12 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. "INDEMNITEE" ---------------------------------- "COMPANY" QUIKSILVER, INC., a Delaware corporation By: ---------------------------------- Its: ---------------------------------- 12 EX-10.10 5 EMPLOYMENT AGRMNT BETWEEN MR. MCKNIGHT & REGISTRAN 1 Exhibit 10.10 April 1, 1996 PERSONAL AND CONFIDENTIAL Mr. Robert B. McKnight, Jr. Chief Executive Officer Quiksilver, Inc. 1740 Monrovia Avenue Costa Mesa, California 92627-9407 Re: Employment at Quiksilver Dear Bob: This letter ("Agreement") will confirm our understanding and agreement regarding your continued employment at Quiksilver, Inc. ("Quiksilver" or the "Company"), and completely supersedes and replaces any existing or previous oral or written understandings or agreements, express or implied, we have had. The terms contained in this letter are effective on and after April 1, 1996. 1. Your position will be Chief Executive Officer. 2. Your base salary will be $30,333.33 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; provided, however, that your base salary will not be reduced below its -------- initial level through March 31, 1999, should your employment continue through that date. 3. For the fiscal year ending October 31, 1996, you shall be eligible to receive a bonus in an amount equal to: (1) twenty-five percent (25%) of the bonus pool created based on the criteria set forth on Addendum "A" attached hereto for the time period November 1, 1995, through October 31, 1996, plus (2) fifty percent (50%) of the bonus payable to you based upon the criteria set forth on Addendum "B" attached hereto, for the time period November 1, 1995, through October 31, 1996. Moreover, should you remain employed with the Company during fiscal years 1996-1997 and/or 1997-1998, you shall be eligible to receive a bonus based on the criteria set forth on Addendum "C" attached hereto, for that portion of the fiscal year(s) during which you are so employed. Any bonus earned pursuant to this paragraph shall be paid within ten (10) 2 days following the date the Company publicly releases its annual audited financial statements (the "Bonus Payment Date"). Any bonus payment shall be less applicable withholdings and deductions. In the event that your employment with the Company is terminated prior to the end of the applicable fiscal year (including by reason of termination, resignation, disability or death), you shall be entitled to receive a pro rata portion of the bonus otherwise payable to you based upon the actual number of days which you were employed by the Company during the applicable fiscal year, which shall be paid on the Bonus Payment Date. The Company has made no representations or commitments regarding the existence or components of any bonus program should you remain employed with the Company after the close of fiscal year 1997-1998. 4. Since Quiksilver does not have a vacation policy for executives of your level, no vacation days will be treated as earned or accrued. 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 in its discretion. 6. Quiksilver 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 $1,000,000 payable to the beneficiary or beneficiaries of your choice. Quiksilver's obligation to obtain and maintain this insurance is contingent upon your establishing and maintaining insurability, and it is not required to pay premiums for such a policy in excess of $2,500 annually. 7. The amount and terms of stock options to be granted to you will be determined by the Board of Directors in its discretion and covered in separate agreements. 8. Notwithstanding anything to the contrary in this Agreement or in your prior employment relationship with the Company, express or implied, your employment continues to be for an unspecified term, and either you or Quiksilver may terminate such employment at will and with or without Cause at any time for any reason. The Company may also 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, 3 (vii) habitual neglect of duty, (viii) a material breach by you of your obligations under Paragraphs 9 or 11 of this Agreement, or (ix) sustained unsatisfactory performance (determined by the Board of Directors of the Company). 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 or employment benefits) on its regular payroll dates for a period of twelve (12) months. "Good Reason" for you to terminate employment means a voluntary termination following a Change in Control (as defined in Addendum "D") 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 Agreement 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 Agreement. 9. Quiksilver owns certain trade secrets and other confidential and/or proprietary information which constitute valuable property rights, which it has 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. 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. 4 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 conflicts, the terms of this Agreement will control. 12. This Agreement, its addenda, and any stock option agreements Quiksilver 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 Chairman of the Board of the Company. To the fullest extent allowed by law, any dispute, controversy or claim arising out of or relating to this Agreement, the breach thereof, or any aspect of your employment or the cessation thereof must be settled exclusively by final and binding arbitration before a single arbitrator administered by JAMS/Endispute in Orange County, California, whose fees and costs shall be evenly divided by the parties. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. 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 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. 5 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. Very truly yours, Steven L. Brink Chief Financial Officer and Secretary Enclosures ACKNOWLEDGED AND AGREED: - ----------------------------------- Robert B. McKnight, Jr. Dated Effective: April 1, 1996 EX-10.11 6 EMPLOYMENT AGRMNT BETWEEN HARRY HODGE & REGISTRANT 1 Exhibit 10.11 April 1, 1996 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 ("Agreement") will confirm our understanding and agreement regarding your continued employment at Na Pali, S.A., a wholly owned subsidiary of Quiksilver, Inc. ("Quiksilver"), and completely supersedes and replaces any existing or previous oral or written understandings or agreements, express or implied, we have had. The terms contained in this letter are effective on and after April 1, 1996. 1. Your position will be P.D.G. of Na Pali, S.A. (the "Company"). 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 Quiksilver's discretion in light of the Company's performance, your performance, market conditions and other factors deemed relevant by Quiksilver; provided, however, that your base salary will not be reduced below its initial level through March 31, 1999, should your employment continue through that date. 3. For the fiscal year ending October 31, 1996, you shall be eligible to receive a bonus in an amount equal to: (1) twenty-seven and one-half percent (27 1/2%) of the bonus pool created based on the criteria set forth on Addendum "A" attached hereto for the time period November 1, 1995, through October 31, 1996, plus (2) fifty percent (50%) of the bonus payable to you based upon the criteria set forth on Addendum "B" attached hereto, for the time period November 1, 1995, through October 31, 1996. Moreover, should you remain employed with the Company during fiscal years 1996-1997 and/or 1997-1998, you shall be eligible to receive a bonus based on the criteria set forth on Addendum "B" attached hereto, for that portion of the fiscal year(s) during which you are so 2 Mr. Harry Hodge April 1, 1996 Page 2 employed. Any bonus earned pursuant to this paragraph shall be paid within ten (10) days following the date the Company publicly releases its annual audited financial statements (the "Bonus Payment Date"). Any bonus payment shall be less applicable withholdings and deductions. In the event that your employment with the Company is terminated prior to the end of the applicable fiscal year (including by reason of termination, resignation, disability or death), you shall be entitled to receive a pro rata portion of the bonus otherwise payable to you based upon the actual number of days which you were employed by the Company during the applicable fiscal year, which shall be paid on the Bonus Payment Date. The Company has made no representations or commitments regarding the existence or components of any bonus program should you remain employed with the Company after the close of fiscal year 1997-1998. 4. You will accrue a maximum of 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 in its discretion. 6. The amount and terms of stock options to be granted to you will be determined by the Board of Directors in its discretion and covered in separate agreements. 7. Notwithstanding anything to the contrary in this Agreement or in your prior employment relationship with the Company, express or implied, your employment continues to be for an unspecified term, and either you or the Company may, subject to applicable law, terminate such employment at will and with or without Cause at any time for any reason. Subject to applicable law, the Company may also 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 3 Mr. Harry Hodge April 1, 1996 Page 3 duty, (viii) a material breach by you of your obligations under Paragraphs 8 or 10 of this Agreement, or (ix) sustained unsatisfactory performance (determined by the Chairman of the Board of Quiksilver). 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 employment benefits) on its regular payroll dates for a period of twelve (12) months. "Good Reason" for you to terminate employment means a voluntary termination following a Change in Control (as defined in Addendum "C") 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 Agreement 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 Agreement. 8. The Company and Quiksilver own certain trade secrets and other confidential and/or proprietary information which constitute valuable property rights developed through a substantial expenditure of time and money, which are and will continue to be utilized in the Company's and Quiksilver'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 the Company and 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 the Company and Quiksilver, including, but not limited to, those items specifically mentioned above. 9. The Company will reimburse you for documented reasonable and necessary business expenses incurred by you while engaged in business 4 Mr. Harry Hodge April 1, 1996 Page 4 activities for the Company's benefit on such terms and conditions as shall be generally available to other executives of the Company. 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 conflicts, the terms of this Agreement will control. 11. This Agreement, its addenda, and any stock option agreements Quiksilver 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 Chairman of the Board of Quiksilver. To the fullest extent allowed by law, any dispute, controversy or claim arising out of or relating to this Agreement, the breach thereof, or any aspect of your employment or the cessation thereof must be settled exclusively by final and binding arbitration before a single arbitrator administered by JAMS/Endispute in Orange County, California, whose fees and costs shall be evenly divided by the parties. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Quiksilver 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. 5 Mr. Harry Hodge April 1, 1996 Page 5 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. Very truly yours, Robert B. McKnight, Jr. Chief Executive Officer Enclosures ACKNOWLEDGED AND AGREED: - ----------------------------------- Harry Hodge Dated Effective: April 1, 1996 EX-10.12 7 EMPLOYMENT AGRMNT BETWEEN STEVEN BRINK & REGISTRAN 1 Exhibit 10.12 October 24, 1996 PERSONAL AND CONFIDENTIAL Steven L. Brink Quiksilver, Inc. 1740 Monrovia Avenue Costa Mesa, California 92627-9407 Re: Employment at Quiksilver Dear Steve: This letter ("Agreement") will confirm our understanding and agreement regarding your continued employment at Quiksilver, Inc. ("Quiksilver" or the "Company"), and completely supersedes and replaces any existing or previous oral or written understandings or agreements, express or implied, we have had. The terms contained in this letter are effective on and after October 24, 1996. 1. Your position will be Secretary, Treasurer and Chief Financial Officer. 2. Your base salary will be $12,500.00 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; provided, however, that your base salary will not be reduced below its initial level through March 31, 1999, should your employment continue through that date. 3. For the fiscal year ending October 31, 1997, you shall be eligible to receive a bonus based on the criteria set forth on Addendum "A" attached hereto, for that portion of the fiscal year(s) during which you are so employed. Any bonus earned pursuant to this paragraph shall be paid within ten (10) days following the date the Company publicly releases its annual audited financial statements (the "Bonus Payment Date"). Any bonus payment shall be less applicable withholdings and deductions. In the event that your employment with the Company is terminated prior to the end of the applicable fiscal year (including by reason of termination, resignation, disability or death), you shall be entitled to receive a pro rata portion of the bonus otherwise payable to you based upon the actual number of days which you were employed by the Company during the 2 Steven L. Brink October 24, 1996 Page 2 applicable fiscal year, which shall be paid on the Bonus Payment Date. The Company has made no representations or commitments regarding the existence or components of any bonus program should you remain employed with the Company after the close of fiscal year 1997-1998. 4. Since Quiksilver does not have a vacation policy for executives of your level, no vacation days will be treated as earned or accrued. 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 in its discretion. 6. Quiksilver 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 payable to the beneficiary or beneficiaries of your choice. Quiksilver's obligation to obtain and maintain this insurance is contingent upon your establishing and maintaining insurability, and it is not required to pay premiums for such a policy in excess of $1,250 annually. 7. The amount and terms of stock options to be granted to you will be determined by the Board of Directors in its discretion and covered in separate agreements. 8. Notwithstanding anything to the contrary in this Agreement or in your prior employment relationship with the Company, express or implied, your employment continues to be for an unspecified term, and either you or Quiksilver may terminate such employment at will and with or 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 Chairman of the Board of the Company. The Company may also 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 3 Steven L. Brink October 24, 1996 Page 3 obligations under Paragraphs 9 or 11 of this Agreement, or (ix) sustained unsatisfactory performance (determined by the Chairman of the Board of the Company). 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 or employment benefits) on its regular payroll dates for a period of twelve (12) months. "Good Reason" for you to terminate employment means a voluntary termination following a Change in Control (as defined in Addendum "B") 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 Agreement 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 Agreement. 9. Quiksilver owns certain trade secrets and other confidential and/or proprietary information which constitute valuable property rights, which it has 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. 10. The Company will reimburse you for documented reasonable and necessary business expenses incurred by you while engaged in business 4 Steven L. Brink October 24, 1996 Page 4 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 conflicts, the terms of this Agreement will control. 12. This Agreement, its addenda, and any stock option agreements Quiksilver 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 Chairman of the Board of the Company. To the fullest extent allowed by law, any dispute, controversy or claim arising out of or relating to this Agreement, the breach thereof, or any aspect of your employment or the cessation thereof must be settled exclusively by final and binding arbitration before a single arbitrator administered by JAMS/Endispute in Orange County, California, whose fees and costs shall be evenly divided by the parties. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. 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 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. 5 Steven L. Brink October 24, 1996 Page 5 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. Very truly yours, Robert B. McKnight, Jr. Chief Executive Officer Enclosures ACKNOWLEDGED AND AGREED: - ----------------------------------- Steven L. Brink Dated Effective: October 24, 1996 EX-21.1 8 NAMES AND JURISDICTIONS OF SUBSIDIARIES 1 EXHIBIT 21.1 QUIKSILVER, INC. NAMES AND JURISDICTIONS OF SUBSIDIARIES Subsidiary Name Jurisdiction --------------- ------------ Na Pali, S.A. France QS International, Inc. California 33 EX-23.1 9 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, No. 33-58657 and No. 333-04169 of Quiksilver, Inc. on Form S-8 of our report, dated December 18, 1996, appearing in this Annual Report on Form 10-K of Quiksilver, Inc. for the year ended October 31, 1996. DELOITTE & TOUCHE LLP Costa Mesa, California January 22, 1997 34 EX-27.1 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUIKSILVER, INC'S OCTOBER 31, 1996 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K. 12-MOS OCT-31-1996 OCT-31-1996 3,429,000 0 47,427,000 2,873,000 35,668,000 86,756,000 17,682,000 8,027,000 115,580,000 32,213,000 2,640,000 0 0 70,000 80,657,000 115,580,000 193,474,000 193,474,000 117,380,000 117,380,000 1,445,000 2,196,000 785,000 19,279,000 7,619,000 11,660,000 0 0 0 11,660,000 1.62 1.62
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