-----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, IImFPv1BOKVrD5AIe9pE9vJuNtpVQQMJl41RUbSa/CEuv5wQlQfYQQWAKuVFpgZj 4V6jkkoJMGNcvaxIyxvosA== 0000892569-99-000650.txt : 19990312 0000892569-99-000650.hdr.sgml : 19990312 ACCESSION NUMBER: 0000892569-99-000650 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990311 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: SEC FILE NUMBER: 001-14229 FILM NUMBER: 99563218 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 DATE ENDED JANUARY 31, 1999 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, 1999 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) (949) 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 2, 1999 was 14,674,507. 2 QUIKSILVER, INC. FORM 10-Q INDEX
PART I - FINANCIAL INFORMATION Page No. - ------------------------------ -------- Item 1. Financial Statements: Condensed Consolidated Balance Sheets January 31, 1999 and October 31, 1998 2 Condensed Consolidated Statements of Income Three Months Ended January 31, 1999 and 1998 3 Condensed Consolidated Statements of Cash Flows Three Months Ended January 31, 1999 and 1998 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, 1999 1998 ------------- ------------ ASSETS Current assets: Cash and cash equivalents $ 75,000 $ 3,029,000 Trade accounts receivable, less allowance for doubtful accounts of $4,120,000 (1999) and $3,738,000 (1998) 73,187,000 78,390,000 Other receivables 3,549,000 3,720,000 Inventories - Note 2 85,004,000 70,575,000 Prepaid expenses and other current assets 5,044,000 4,350,000 ------------- ------------- Total current assets 166,859,000 160,064,000 Property and equipment, less accumulated depreciation and amortization of $15,734,000 (1999) and $14,557,000 (1998) 35,629,000 31,996,000 Trademark, less accumulated amortization of $1,894,000 (1999) and $1,845,000 (1998) 1,542,000 1,589,000 Goodwill, less accumulated amortization of $4,682,000 (1999) and $4,484,000 (1998) 17,182,000 17,381,000 Other assets 1,926,000 2,041,000 ------------- ------------- Total assets $ 223,138,000 $ 213,071,000 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Lines of credit $ 20,096,000 $ 17,465,000 Accounts payable 28,691,000 26,340,000 Accrued liabilities 15,673,000 17,269,000 Current portion of notes payable 3,361,000 3,293,000 Income taxes payable 3,905,000 3,376,000 ------------- ------------- Total current liabilities 71,726,000 67,743,000 Notes payable 26,740,000 27,669,000 ------------- ------------- Total liabilities 98,466,000 95,412,000 ------------- ------------- 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 - 14,934,507 149,000 146,000 Additional paid-in-capital 30,773,000 25,920,000 Retained earnings 98,360,000 95,006,000 Treasury stock, 260,000 shares (3,054,000) (3,054,000) Cumulative foreign currency translation adjustment (1,556,000) (359,000) ------------- ------------- Total stockholders' equity 124,672,000 117,659,000 ------------- ------------- Total liabilities and stockholders' equity $ 223,138,000 $ 213,071,000 ============= =============
See notes to condensed consolidated financial statements. 2 4 QUIKSILVER, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, ------------------------------ 1999 1998 ------------ ------------ Net sales $ 85,947,000 $ 55,251,000 Cost of goods sold 52,526,000 33,323,000 ------------ ------------ Gross profit 33,421,000 21,928,000 ------------ ------------ Operating expenses: Selling, general and administrative expense 25,991,000 17,395,000 Royalty income (398,000) (457,000) Royalty expense 1,079,000 774,000 ------------ ------------ Total operating expenses 26,672,000 17,712,000 ------------ ------------ Operating income 6,749,000 4,216,000 Interest expense 848,000 572,000 Foreign currency loss (gain) 20,000 (16,000) Other expense 127,000 73,000 ------------ ------------ Income before provision for income taxes 5,754,000 3,587,000 Provision for income taxes 2,400,000 1,472,000 ------------ ------------ Net income $ 3,354,000 $ 2,115,000 ============ ============ Basic net income per share $ 0.23 $ 0.15 ============ ============ Diluted net income per share $ 0.22 $ 0.15 ============ ============ Weighted average shares outstanding 14,451,000 14,018,000 ============ ============ Diluted weighted average shares outstanding 15,231,000 14,304,000 ============ ============
See notes to condensed consolidated financial statements. 3 5 QUIKSILVER, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, -------------------------------- 1999 1998 ------------ ------------ Cash flows from operating activities: Net income $ 3,354,000 $ 2,115,000 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 1,829,000 1,250,000 Provision for doubtful accounts 587,000 536,000 Gain on sale of fixed assets (9,000) (18,000) Changes in operating assets and liabilities: Trade accounts receivable 3,724,000 1,125,000 Other receivables 8,000 (1,250,000) Inventories (15,314,000) (13,634,000) Prepaid expenses and other current assets (727,000) (459,000) Other assets (149,000) 62,000 Accounts payable 3,003,000 8,245,000 Accrued liabilities (1,245,000) 121,000 Income taxes payable 607,000 213,000 ------------ ------------ Net cash used in operating activities (4,332,000) (1,694,000) Cash flows from investing activities: Proceeds from sales of fixed assets 9,000 46,000 Capital expenditures (5,777,000) (1,940,000) Acquisition of Mervin Manufacturing, Inc. -- (500,000 ------------ ------------ Net cash used in investing activities (5,768,000) (2,394,000) Cash flows from financing activities: Borrowings on lines of credit 16,146,000 11,013,000 Payments on lines of credit (13,514,000) (9,906,000) Borrowings on long-term debt 579,000 119,000 Payments on long-term debt (827,000) (562,000) Proceeds from stock option exercises 4,852,000 -- ------------ ------------ Net cash provided by financing activities 7,236,000 664,000 Effect of exchange rate changes on cash (90,000) (144,000) ------------ ------------ Net decrease in cash and cash equivalents (2,954,000) (3,568,000) Cash and cash equivalents, beginning of period 3,029,000 4,103,000 ------------ ------------ Cash and cash equivalents, end of period $ 75,000 $ 535,000 ============ ============ Supplementary cash flow information -- Cash paid during the period for: Interest $ 797,000 $ 573,000 ============ ============ Income taxes $ 1,666,000 $ 1,215,000 ============ ============
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, 1999 and 1998. 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, 1998 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, 1999 1998 ------------ ------------ Raw Materials $19,850,000 $18,531,000 Work-In-Process 10,375,000 9,323,000 Finished Goods 54,779,000 42,721,000 ----------- ----------- $85,004,000 $70,575,000 =========== ===========
3. During the three months ended April 30, 1998, the Company's Board of Directors approved a two-for-one split of the Company's Common Stock. The split was effected in the form of a dividend on April 24, 1998 to shareholders of record on April 16, 1998. All share and per-share information has been restated to reflect the stock dividend. 4. Effective February 12, 1999, the Company's loan agreement with a U.S. bank was amended to increase the Company's short-term borrowing capacity by $10,000,000 through July 30, 1999. 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, 1999 COMPARED TO THREE MONTHS ENDED JANUARY 31, 1998 Net sales for the three months ended January 31, 1999 increased 55.6% to $85,947,000 from $55,251,000 in the comparable period of the prior year. Domestic net sales for the three months ended January 31, 1999 increased 59.9% to $52,145,000 from $32,603,000 in the comparable period of the prior year, and European net sales increased 49.2% to $33,802,000 from $22,648,000 for those same periods. As measured in French Francs, Quiksilver Europe's functional currency, net sales in the current year's quarter increased 41.2% compared to the prior year. Domestic mens sales increased 35.0% to $28,216,000 from $20,903,000 in the comparable period of the prior year, while domestic womens sales increased 113.8% to $22,000,000 from $10,288,000. In the domestic division, sales of snowboards, boots and bindings amounted to $1,930,000 for the current year's quarter compared to $1,412,000 in the prior year (from the date of the Mervin acquisition). The domestic mens sales increase came from the Quiksilver Young Mens and Boys divisions. The domestic womens sales increase came from both the Quiksilver Roxy and Raisins divisions. In Europe, mens sales increased 46.0% to $31,268,000 from $21,410,000, while womens sales increased 104.6% to $2,533,000 from $1,238,000. The european mens sales increase came from all divisions with significant growth in the WinterSports division. The gross profit margin for the three months ended January 31, 1999 decreased to 38.9% from 39.7% in the comparable period of the prior year. The domestic gross profit margin decreased to 36.4% from 37.2% in the comparable period of the prior year, and the European gross profit margin decreased to 42.8% from 43.3% for those same periods. The decrease in the domestic gross profit margin resulted primarily from an increase in the sale of clearance goods. An increase in sales of private label juniors product, which sells at lower average profit margins, offset the effect of more sales of juniors sportswear and accessories product, which sells at higher average profit margins. In Europe, the gross profit margin decreased primarily from higher sampling costs and markdowns taken to sell excess current fall/winter product. Sample expenses increased in Europe as additional samples were produced to support expanded sales efforts in the Boys and Roxy divisions. Selling, general and administrative expense ("SG&A") for the three months ended January 31, 1999 increased 49.4% to $25,991,000 from $17,395,000 in the comparable period of the prior year. Domestic SG&A increased 52.4% to $15,634,000 from $10,259,000 in the comparable period of the prior year, and European SG&A increased 45.1% to $10,357,000 from $7,136,000 for those same periods. The increase in both domestic and European SG&A was primarily due to higher personnel costs related to increased sales volume. Primarily as a result of sales growth in excess of plans that was supported without additional infrastructure growth, SG&A decreased as a percentage of sales to 30.2% from 31.5%. Net royalty expense for the three months ended January 31, 1999 increased 114.8% to $681,000 from $317,000 in the comparable period of the prior year. This increase was due primarily to higher 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. Interest expense for the three months ended January 31, 1999 increased 48.2% to $848,000 from $572,000 in the comparable period of the prior year. This increase was primarily due to (i) higher outstanding balances on the Company's domestic line of credit to provide working capital to support the Company's growth, and (ii) increased long-term debt in Europe to fund the opening of two company-owned Boardriders Club stores in Paris. The effective income tax rate for the three months ended January 31, 1999, which is based on current estimates of the annual effective income tax rate, increased to 41.7% from 41.0% in the comparable period of the prior year. 6 8 As a result of the above factors, net income for the three months ended January 31, 1999 increased 58.6% to $3,354,000 or $0.22 per share on a diluted basis from $2,115,000 or $0.15 per share on a diluted basis in the comparable period of the prior year. Basic net income per share increased to $0.23 for the three months ended January 31, 1999 from $0.15 in the comparable period of the prior year. 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, 1999 was $4,332,000 compared to $1,694,000 in the comparable period of the prior year. This $2,638,000 increase in cash used in operating activities was primarily due to inventories, which increased to support higher sales for the Spring and Summer seasons of the current year. This cash flow effect of the increase in inventories was offset, in part, by a decrease in trade accounts receivable and higher net income in comparison to the prior year. For the three months ended January 31, 1999, capital expenditures increased 197.8% to $5,777,000 from $1,940,000 in the comparable period of the prior year. This increase resulted primarily from spending on leasehold improvements for the new domestic headquarters and to a lesser extent, increased investments in Quiksvilles and company-owned Boardriders Clubs in comparison to the prior year. During the three months ended January 31, 1999, net cash provided by financing activities totaled $7,236,000 compared to $664,000 in the comparable period of the prior year. Borrowings were higher during the first quarter of fiscal 1999 primarily as a result of the increase in cash used in operating and investing activities as discussed above. The net decrease in cash and cash equivalents for the three months ended January 31, 1999 was $2,954,000 compared to $3,568,000 in the comparable period of the prior year. Cash and cash equivalents decreased to $75,000 at January 31, 1999 from $3,029,000 at October 31, 1998, while working capital increased to $95,133,000 at January 31, 1999 compared to $92,321,000 at October 31, 1998. 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 to $73,187,000 at January 31, 1999 from $78,390,000 at October 31, 1998. Domestic accounts receivable decreased 9.9% to $48,944,000 at January 31, 1999 from $54,327,000 at October 31, 1998, and European accounts receivable were basically unchanged, increasing 0.7% to $24,243,000 for that same period. The domestic decrease occurred as receivables related to higher sales in the fourth quarter of fiscal 1998 were collected in the first quarter of fiscal 1999. The small change in European receivables is expected as European sales in the first quarter of fiscal 1999 were similar in amount to the fourth quarter of fiscal 1998. Consolidated inventories increased 20.4% to $85,004,000 at January 31, 1999 from $70,575,000 at October 31, 1998. Domestic inventories increased 19.4% to $63,636,000 from $53,295,000 at October 31, 1998, and European inventories increased 23.7% to $21,368,000 from $17,280,000 for that same period. The domestic and European increases resulted primarily from actual and planned sales increases for the Spring and Summer seasons. 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. While management believes that allowances for doubtful accounts at January 31, 1999 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. 7 9 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. European net sales increased 41.2% in French Francs during the three months ended January 31, 1999 compared to the three months ended January 31, 1998. As measured in U.S. Dollars and reported in the Company's Consolidated Statements of Income, European net sales increased 49.2%. 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, 1999 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 11, 1999 /s/ Steven L. Brink ---------------------------------- Steven L. Brink Chief Financial Officer, Secretary and Treasurer (Principal Accounting Officer) 10 12 EXHIBIT INDEX Exhibit Number Description - ------- ----------- 27.0 Financial Data Schedule EX-27.0 2 FINANCIAL DATA SCHEDULE
5 The schedule contains summary financial information extracted from the Quiksilver, Inc. January 31, 1998 Form 10-Q and is qualified in its entirety by reference to such Form 10-Q. 3-MOS OCT-31-1999 JAN-31-1999 75,000 0 77,307,000 4,120,000 85,004,000 166,859,000 51,363,000 15,734,000 223,138,000 71,726,000 26,740,000 0 0 149,000 124,523,000 223,138,000 85,947,000 85,947,000 52,526,000 52,526,000 0 587,000 848,000 5,754,000 2,400,000 3,354,000 0 0 0 3,354,000 0.23 0.22
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