-----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, T2XHHAISD/tO48+d8Ah9rx8R2sE6ss7GCVvaWaCdnlrInde5XIwncY8Rlt2iNt22 nu0GLr23OSz3eUSKFjoSig== 0000892569-97-000666.txt : 19970317 0000892569-97-000666.hdr.sgml : 19970317 ACCESSION NUMBER: 0000892569-97-000666 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970131 FILED AS OF DATE: 19970314 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15131 FILM NUMBER: 97556788 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-Q 1 FORM 10-Q FOR PERIOD ENDED JANUARY 31, 1997 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1997 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) 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_____ The number of shares outstanding of issuer's Common Stock, par value $0.01 per share, at March 6, 1997 was 7,017,830. 2 QUIKSILVER, INC. FORM 10-Q INDEX PART I - FINANCIAL INFORMATION Page No. - ------------------------------ -------- Item 1. Financial Statements: Condensed Consolidated Balance Sheets January 31, 1997 and October 31, 1996............................ 2 Condensed Consolidated Statements of Income Three Months Ended January 31, 1997 and 1996..................... 3 Condensed Consolidated Statements of Cash Flows Three Months Ended January 31, 1997 and 1996..................... 4 Notes to Condensed Consolidated Financial Statements................ 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................... 6 Part II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................... 9 SIGNATURE.............................................................. 10 1 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements QUIKSILVER, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JANUARY 31, OCTOBER 31, 1997 1996 ------------- ------------- ASSETS Current assets: Cash and cash equivalents ............................. $ 478,000 $ 3,429,000 Trade accounts receivable, less allowance for doubtful accounts of $2,490,000 (1997) and $2,873,000 (1996) .............................. 44,151,000 44,554,000 Other receivables .................................... 1,708,000 2,182,000 Inventories - Note 2 ................................. 42,673,000 35,668,000 Prepaid expenses and other current assets ............ 2,451,000 2,027,000 ------------- ------------- Total current assets ............................ 91,461,000 87,860,000 Property and equipment, less accumulated depreciation and amortization of $8,082,000 (1997) and $8,027,000 (1996) ..................................... 10,080,000 9,655,000 Trademark, less accumulated amortization of $1,524,000 (1997) and $1,486,000 (1996) ............... 1,494,000 1,532,000 Goodwill, less accumulated amortization of $3,269,000 (1997) and $3,103,000 (1996) ............... 14,833,000 15,005,000 Other assets ............................................. 1,788,000 1,528,000 ------------- ------------- Total assets .................................... $ 119,656,000 $ 115,580,000 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Lines of credit ....................................... $ 11,707,000 $ 8,211,000 Accounts payable ...................................... 13,770,000 12,823,000 Accrued liabilities ................................... 8,455,000 10,212,000 Current portion of notes payable ...................... 226,000 240,000 Income taxes payable .................................. 1,357,000 727,000 ------------- ------------- Total current liabilities ....................... 35,515,000 32,213,000 Notes payable ............................................ 2,503,000 2,640,000 ------------- ------------- Total liabilities ............................... 38,018,000 34,853,000 ------------- ------------- Stockholders' equity 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 - 7,017,830 (1997) and 6,965,346 (1996) ..... 70,000 70,000 Additional paid-in-capital ............................ 19,465,000 18,971,000 Retained earnings ..................................... 66,148,000 64,399,000 Treasury stock, 130,000 shares ........................ (3,054,000) (3,054,000) Cumulative foreign currency translation adjustment .... (991,000) 341,000 ------------- ------------- Total stockholders' equity ...................... 81,638,000 80,727,000 ------------- ------------- Total liabilities and stockholders' equity ...... $ 119,656,000 $ 115,580,000 ============= =============
See notes to condensed consolidated financial statements. 2 4 QUIKSILVER, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, ------------------------------ 1997 1996 ------------ ------------ Net sales .................................... $ 45,944,000 $ 40,487,000 Cost of goods sold ........................... 28,336,000 24,892,000 ------------ ------------ Gross profit .............................. 17,608,000 15,595,000 ------------ ------------ Operating expenses: Selling, general and administrative expense 13,970,000 11,336,000 Royalty income ............................ (360,000) (205,000) Royalty expense ........................... 629,000 565,000 ------------ ------------ Total operating expenses ............... 14,239,000 11,696,000 ------------ ------------ Operating income ............................. 3,369,000 3,899,000 Interest expense, net ........................ 287,000 169,000 Foreign currency loss ........................ 72,000 23,000 Other expense ................................ 53,000 101,000 ------------ ------------ Income before provision for income taxes ..... 2,957,000 3,606,000 Provision for income taxes ................... 1,208,000 1,481,000 ------------ ------------ Net income ................................... $ 1,749,000 $ 2,125,000 ============ ============ Net income per common share .................. $ 0.25 $ 0.30 ============ ============ Weighted average common shares and equivalents outstanding ............... 7,078,000 7,134,000 ============ ============
See notes to condensed consolidated financial statements. 3 5 QUIKSILVER, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, ------------------------------ 1997 1996 ----------- ----------- Cash flows from operating activities: Net income .................................................... $ 1,749,000 $ 2,125,000 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization ........................... 787,000 628,000 Provision for doubtful accounts ......................... 217,000 183,000 Loss on sale of fixed assets ............................ 72,000 23,000 Changes in operating assets and liabilities: Trade accounts receivable ............................ (1,020,000) (200,000) Other receivables .................................... 410,000 (527,000) Inventories .......................................... (7,803,000) (4,507,000) Prepaid expenses and other current assets ............ (461,000) 61,000 Other assets ......................................... (269,000) 125,000 Accounts payable ..................................... 1,197,000 3,588,000 Accrued liabilities .................................. (1,090,000) (1,455,000) Income taxes payable ................................. 733,000 834,000 ----------- ----------- Net cash (used in) provided by operating activities ...................................... (5,478,000) 878,000 Cash flows from investing activities: Proceeds from sales of fixed assets ........................... 6,000 20,000 Capital expenditures .......................................... (1,496,000) (774,000) Other ......................................................... -- -- ----------- ----------- Net cash used in investing activities ............. (1,490,000) (754,000) Cash flows from financing activities: Borrowings on lines of credit ................................. 5,020,000 3,565,000 Payments on lines of credit ................................... (1,508,000) (5,775,000) Borrowings on long-term debt .................................. 166,000 40,000 Payments on long-term debt .................................... (100,000) (210,000) Proceeds from stock option exercises .......................... 494,000 325,000 ----------- ----------- Net cash provided by (used in) financing activities .............. 4,072,000 (2,055,000) Effect of exchange rate changes on cash .......................... (55,000) (313,000) ----------- ----------- Net decrease in cash and cash equivalents ........................ (2,951,000) (2,244,000) Cash and cash equivalents, beginning of period ................... 3,429,000 3,461,000 ----------- ----------- Cash and cash equivalents, end of period ......................... $ 478,000 $ 1,217,000 =========== =========== Supplementary cash flow information Cash paid during the period for: Interest ................................................... $ 216,000 $ 185,000 =========== =========== Income taxes ............................................... $ 714,000 $ 549,000 =========== ===========
See notes to condensed consolidated financial statements. 4 6 QUIKSILVER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statement presentation. The Company, in its opinion, has included all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the results of operations for the three months ended January 31, 1997 and 1996. The condensed consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes for the year ended October 31, 1996 included in the Company's Annual Report on Form 10-K. Interim results are not necessarily indicative of results for the full year due to seasonal and other factors. 2. Inventories consist of the following:
JANUARY 31, OCTOBER 31, 1997 1996 ----------- ----------- Raw Materials ........ $13,280,000 $11,686,000 Work-In-Process ...... 4,976,000 3,673,000 Finished Goods ....... 24,417,000 20,309,000 ----------- ----------- $42,673,000 $35,668,000 =========== ===========
5 7 PART I - FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations THREE MONTHS ENDED JANUARY 31, 1997 COMPARED TO THREE MONTHS ENDED JANUARY 31, 1996 Net sales for the three months ended January 31, 1997 increased 13.5% to $45,944,000 from $40,487,000 in the comparable period of the prior year. Domestic net sales for the three months ended January 31, 1997 increased 13.3% to $28,161,000 from $24,852,000 in the comparable period of the prior year, and European net sales increased 13.7% to $17,783,000 from $15,635,000 for those same periods. Domestic men's sales increased 7.8% to $19,803,000 from $18,378,000 in the comparable period of the prior year, while domestic women's sales increased 29.1% to $8,358,000 from $6,474,000. The domestic sales increases came primarily from the Quiksilver Roxy, Quiksilver Young Men's and Boy's divisions. In Europe, men's sales increased 12.8% to $17,302,000 from $15,342,000, while women's sales increased 64.2% to $481,000 from $293,000. The gross profit margin for the three months ended January 31, 1997 decreased slightly to 38.3% from 38.5% in the comparable period of the prior year. The domestic gross profit margin decreased to 34.9% from 35.8% in the comparable period of the prior year, and the European gross profit margin increased to 43.8% from 42.8% for those same periods. The decrease in the domestic gross profit margin resulted primarily from the impact of selling excess raw materials during the three months ended January 31, 1997 at margins that were less than normal wholesale. In Europe, the gross profit margin increased primarily as a result of lower levels of markdowns in the three months ended January 31, 1997 compared to the previous year. Selling, general and administrative expense ("SG&A") for the three months ended January 31, 1997 increased 23.2% to $13,970,000 from $11,336,000 in the comparable period of the prior year. Domestic SG&A increased 19.1% to $8,309,000 from $6,977,000 in the comparable period of the prior year, and European SG&A increased 29.9% to $5,661,000 from $4,359,000 for those same periods. The increase in domestic SG&A was primarily due to higher personnel costs related to increased sales volume, along with increased sales and marketing and computer system expenses. The increase in European SG&A was primarily due to higher personnel costs related to increased sales volume. Net royalty expense for the three months ended January 31, 1997 decreased 25.3% to $269,000 from $360,000 in the comparable period of the prior year. This decrease was due primarily to increased domestic royalty income from increased sales by licensees, which was substantially offset by increased royalty expense related to European sales. The Company receives domestic royalty income from its Mexico, Japan, wetsuit, watch, sunglass, and outlet store licensees as well as Raisins international licensees, and Quiksilver Europe pays royalties on European sales under a trademark agreement with Quiksilver International. Net interest expense for the three months ended January 31, 1997 increased 69.8% to $287,000 from $169,000 in the comparable period of the prior year. This increase was primarily due to higher outstanding balances on the Company's lines of credit that resulted from increased working capital needs and borrowings to repurchase shares of the Company's stock in the three months ended October 31, 1996. The effective income tax rate for the three months ended January 31, 1997, which is based on current estimates of the annual effective income tax rate, decreased slightly to 40.9% from 41.1% in the comparable period of the prior year. As a result of the above factors, net income for the three months ended January 31, 1997 decreased 17.7% to $1,749,000 or $0.25 per share from $2,125,000 or $0.30 per share in the comparable period of the prior year. 6 8 FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY The Company finances its capital investments and seasonal working capital requirements with funds generated by operations and its bank revolving lines of credit. Net cash used in operating activities for the three months ended January 31, 1997 was $5,478,000 compared to net cash provided by operating activities of $878,000 in the comparable period of the prior year. This $6,356,000 increase in cash used in operating activities was primarily due to increased payments for inventory compared to the prior year. Quiksilver Europe received merchandise earlier in relation to the prior year to enable the Company to ship product to its customers earlier in the second quarter of fiscal 1997 compared to the second quarter of fiscal 1996. The Company uses independent contractors for cutting, sewing and other manufacturing functions and intends to continue to use independent contractors in the foreseeable future. Accordingly, the Company has avoided capital expenditures for these manufacturing functions. For the three months ended January 31, 1997, capital expenditures increased 93.3% to $1,496,000 from $774,000 in the comparable period of the prior year, which resulted primarily from increased investment in computer systems both domestically and in Europe. On September 4, 1996, the Company's Board of Directors approved the repurchase of up to 500,000 shares of the Company's common stock. The Company repurchased 130,000 shares during the three months ended October 31, 1996. No additional purchases are planned. The Company has available a revolving line of credit with a U.S. bank that is unsecured and provides for maximum financing of $30,000,000. This line of credit expires on April 30, 1998. The Company also has available lines of credit, both secured and unsecured, with banks in Europe that provide for maximum financing of approximately $24,000,000. During the three months ended January 31, 1997, net cash provided by financing activities totaled $4,072,000 compared to net cash used in financing activities of $2,055,000 in the comparable period of the prior year. These additional borrowings during the first quarter of fiscal 1997 were used to fund the increase in inventories and capital expenditures as discussed above. The net decrease in cash and cash equivalents for the three months ended January 31, 1997 was $2,951,000 compared to $2,244,000 in the comparable period of the prior year. Cash and cash equivalents decreased 86.1% to $478,000 at January 31, 1997 from $3,429,000 at October 31, 1996, while working capital increased 0.5% to $55,946,000 from $55,647,000 for that same period. The Company believes its current cash balance and current lines of credit are adequate to cover its seasonal working capital and other requirements for the foreseeable future and that increases in its lines of credit can be obtained as needed to fund future growth. Accounts receivable decreased slightly to $44,151,000 at January 31, 1997 from $44,554,000 at October 31, 1996. Domestic accounts receivable increased 0.3% to $28,363,000 at January 31, 1997 from $28,292,000 at October 31, 1996, and European accounts receivable decreased 2.9% to $15,788,000 from $16,262,000 for that same period. Consolidated inventories increased 19.6% to $42,673,000 at January 31, 1997 from $35,668,000 at October 31, 1996. Domestic inventories increased 17.9% to $31,362,000 from $26,611,000 at October 31, 1996, and European inventories increased 24.9% to $11,311,000 from $9,057,000 for that same period. These increases are primarily due to seasonal factors. Inventory levels generally increase at the end of the first and third fiscal quarters in preparation for stronger selling seasons in the second and fourth fiscal quarters. Also as noted above, the timing of inventory received by Quiksilver Europe contributed to the increase in inventory at January 31, 1997. In recent years, certain customers of the Company have experienced financial difficulties, including the filing of reorganization proceedings under bankruptcy laws. The Company has not incurred significant losses outside the normal course of business as a result of the financial difficulties of these customers. 7 9 FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY (CONTINUED) While management believes that allowances for doubtful accounts at January 31, 1997 are adequate, the Company carefully monitors developments regarding its major customers. Additional material financial difficulties encountered by these or other significant customers could have an adverse impact on the Company's financial position or results of operations. FOREIGN CURRENCY Quiksilver Europe sells in various European countries and collects at future dates in the customers' local currencies and purchases certain raw materials or product in currencies other than French Francs. 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 statements of income are translated from French Francs into U.S. Dollars at average exchange rates in effect during the reporting period. When the French Franc strengthens compared to the U.S. Dollar there is a positive effect on Quiksilver Europe's results as reported in the Company's Consolidated Financial Statements. Conversely, when the U.S. Dollar strengthens, there is a negative affect. For example, in recent months, the U.S. Dollar strengthened compared to the French Franc, increasing the exchange rate from approximately 5.0 Francs per Dollar to approximately 5.5 Francs per Dollar. Other things being equal, a 10% increase in the average exchange rate would result in approximately a 9% decrease in Quiksilver Europe's results as reported in U.S. Dollars in the Consolidated Financial Statements. European net sales increased 19.7% in French Francs during the three months ended January 31, 1997 compared to the three months ended January 31, 1996. As measured in U.S. Dollars and reported in the Company's Consolidated Statements of Income, European net sales increased 13.7%. 8 10 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8K (a) Exhibits 27.0 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended January 31, 1997 9 11 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. QUIKSILVER, INC., a Delaware Corporation March 13, 1997 /s/ Steven L. Brink ------------------------------------------ Steven L. Brink Chief Financial Officer, Secretary and Treasurer (Principal Accounting Officer) 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 The schedule contains summary financial information extracted from the Quiksilver, Inc. January 31, 1997 Form 10-Q and is qualified in its entirety by reference to such Form 10-Q. 3-MOS OCT-31-1997 JAN-31-1997 478,000 0 46,641,000 2,490,000 42,673,000 91,461,000 18,162,000 8,082,000 119,656,000 35,515,000 2,503,000 0 0 70,000 81,568,000 119,656,000 45,944,000 45,944,000 28,336,000 28,336,000 0 217,000 287,000 2,957,000 1,208,000 1,749,000 0 0 0 1,749,000 0.25 0.25
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