-----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, FaksDT4m0Abzo9AQNMoZ6Fk0J4VeDE0qna/U+B2/VM+ED8WLEAgOps5LBjCwj3WJ GGH2xAOXpWgjTWb2zLLdPA== 0001095811-00-000550.txt : 20000316 0001095811-00-000550.hdr.sgml : 20000316 ACCESSION NUMBER: 0001095811-00-000550 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000131 FILED AS OF DATE: 20000315 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: 570314 BUSINESS ADDRESS: STREET 1: 15202 GRAHAM STREET CITY: HUNTINGTON BEACH STATE: CA ZIP: 92649 BUSINESS PHONE: 714-889-2200 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, 2000 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, 2000 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) 15202 GRAHAM STREET HUNTINGTON BEACH, CALIFORNIA 92649 (Address of principal executive offices) (Zip Code) (714) 889-2200 (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 13, 2000 was 22,415,568. 2 QUIKSILVER, INC. FORM 10-Q INDEX PART I - FINANCIAL INFORMATION Page No. - ------------------------------ -------- Item 1. Financial Statements: Condensed Consolidated Balance Sheets January 31, 2000 and October 31, 1999................................ 2 Condensed Consolidated Statements of Income Three Months Ended January 31, 2000 and 1999......................... 3 Condensed Consolidated Statements of Comprehensive Income Three Months Ended January 31, 2000 and 1999......................... 3 Condensed Consolidated Statements of Cash Flows Three Months Ended January 31, 2000 and 1999......................... 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.................................................................... 9 1 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements QUIKSILVER, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JANUARY 31, OCTOBER 31, 2000 1999 ------------- ------------- ASSETS Current assets: Cash and cash equivalents .................................................. $ 2,947,000 $ 1,449,000 Trade accounts receivable, less allowance for doubtful accounts of $4,318,000 (2000) and $5,738,000 (1999) ................................................... 94,739,000 107,619,000 Other receivables.......................................................... 3,791,000 4,074,000 Inventories - Note 2....................................................... 90,376,000 72,207,000 Prepaid expenses and other current assets ................................. 8,557,000 7,825,000 ------------- ------------- Total current assets ................................................. 200,410,000 193,174,000 Property and equipment, less accumulated depreciation and amortization of $18,525,000 (2000) and $17,127,000 (1999).......................................................... 47,303,000 45,153,000 Trademark, less accumulated amortization of $2,092,000 (2000) and $2,044,000 (1999) .................................... 1,345,000 1,393,000 Goodwill, less accumulated amortization of $5,462,000 (2000) and $5,233,000 (1999) .................................... 16,826,000 17,055,000 Other assets .................................................................. 2,611,000 2,898,000 ------------- ------------- Total assets ......................................................... $ 268,495,000 $ 259,673,000 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Lines of credit ............................................................ $ 32,044,000 $ 28,619,000 Accounts payable ........................................................... 37,845,000 31,325,000 Accrued liabilities ........................................................ 17,087,000 19,792,000 Current portion of long-term debt .......................................... 3,539,000 3,615,000 Income taxes payable ....................................................... 1,468,000 -- ------------- ------------- Total current liabilities ............................................ 91,983,000 83,351,000 Long-term debt ................................................................ 23,366,000 24,569,000 ------------- ------------- Total liabilities .................................................... 115,349,000 107,920,000 ------------- ------------- 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 - 22,779,068 (2000) and 22,731,220 (1999) ........................ 227,000 227,000 Additional paid-in-capital .................................................... 37,146,000 36,780,000 Treasury stock, 390,000 shares ................................................ (3,054,000) (3,054,000) Retained earnings ............................................................. 125,669,000 121,590,000 Accumulated other comprehensive loss .......................................... (6,842,000) (3,790,000) ------------- ------------- Total stockholders' equity ........................................... 153,146,000 151,753,000 ------------- ------------- Total liabilities and stockholders' equity ........................... $ 268,495,000 $ 259,673,000 ============= =============
See notes to condensed consolidated financial statements. 2 4 QUIKSILVER, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, ------------------------------ 2000 1999 ---- ---- Net sales .................................... $ 99,929,000 $ 85,947,000 Cost of goods sold ........................... 61,061,000 52,526,000 ------------ ------------ Gross profit .............................. 38,868,000 33,421,000 ------------ ------------ Operating expenses: Selling, general and administrative expense ................................. 30,059,000 25,991,000 Royalty income ............................ (613,000) (398,000) Royalty expense ........................... 1,260,000 1,079,000 ------------ ------------ Total operating expenses ............... 30,706,000 26,672,000 ------------ ------------ Operating income ............................. 8,162,000 6,749,000 Interest expense ............................. 1,023,000 848,000 Foreign currency loss ........................ 60,000 20,000 Other expense ................................ 160,000 127,000 ------------ ------------ Income before provision for income taxes ..... 6,919,000 5,754,000 Provision for income taxes ................... 2,840,000 2,400,000 ------------ ------------ Net income ................................... $ 4,079,000 $ 3,354,000 ============ ============ Basic net income per share ................... $ 0.18 $ 0.15 ============ ============ Diluted net income per share ................. $ 0.18 $ 0.15 ============ ============ Weighted average shares outstanding .......... 22,362,000 21,677,000 ============ ============ Diluted weighted average shares outstanding .. 23,154,000 22,847,000 ============ ============
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, ------------------------------ 2000 1999 ---- ---- Net income .................................. $ 4,079,000 $ 3,354,000 Other comprehensive loss -- Foreign currency translation adjustment ..... (3,052,000) (1,197,000) ----------- ------------ Comprehensive income ......................... $ 1,027,000 $ 2,157,000 =========== ============
See notes to condensed consolidated financial statements. 3 5 QUIKSILVER, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, ------------------------------ 2000 1999 ---- ---- Cash flows from operating activities: Net income ........................................................ $ 4,079,000 $ 3,354,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ............................... 2,251,000 1,829,000 Provision for doubtful accounts ............................. 542,000 587,000 Loss (gain) on sale of fixed assets ......................... 18,000 (9,000) Changes in operating assets and liabilities: Trade accounts receivable ................................ 9,589,000 3,724,000 Other receivables ........................................ 167,000 8,000 Inventories .............................................. (19,999,000) (15,314,000) Prepaid expenses and other current assets ................ (1,209,000) (727,000) Other assets ............................................. (266,000) (149,000) Accounts payable ......................................... 8,201,000 3,003,000 Accrued liabilities ...................................... (1,919,000) (1,245,000) Income taxes payable ..................................... 1,757,000 607,000 ------------ ------------ Net cash provided by (used in) operating activities ... 3,211,000 (4,332,000) Cash flows from investing activities: Proceeds from sales of fixed assets ............................... 2,000 9,000 Capital expenditures .............................................. (5,289,000) (5,777,000) ------------ ------------ Net cash used in investing activities ...................... (5,287,000) (5,768,000) Cash flows from financing activities: Borrowings on lines of credit ..................................... 18,377,000 16,146,000 Payments on lines of credit ....................................... (14,952,000) (13,514,000) Borrowings on long-term debt ...................................... 1,057,000 579,000 Payments on long-term debt ........................................ (1,143,000) (827,000) Proceeds from stock option exercises .............................. 365,000 4,852,000 ------------ ------------ Net cash provided by financing activities .................. 3,704,000 7,236,000 Effect of exchange rate changes on cash .............................. (130,000) (90,000) ------------ ------------ Net decrease in cash and cash equivalents ............................ 1,498,000 (2,954,000) Cash and cash equivalents, beginning of period ....................... 1,449,000 3,029,000 ------------ ------------ Cash and cash equivalents, end of period ............................. $ 2,947,000 $ 75,000 ============ ============ Supplementary cash flow information - Cash paid during the period for: Interest ....................................................... $ 1,059,000 $ 797,000 ============ ============ Income taxes ................................................... $ 1,157,000 $ 1,666,000 ============ ============
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, 2000 and 1999. 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, 1999 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, 2000 1999 ---- ---- Raw Materials ...................................................... $21,963,000 $19,225,000 Work-In-Process .................................................... 9,464,000 7,819,000 Finished Goods ..................................................... 58,949,000 45,163,000 ----------- ----------- $90,376,000 $72,207,000 =========== ===========
3. During the three months ended April 30, 1999, the Company's Board of Directors approved a three-for-two split of the Company's Common Stock. The split was effected in the form of a dividend on April 23, 1999 to shareholders of record on April 15, 1999. All share and per-share information has been restated to reflect the stock dividend. 4. Information related to domestic and European operations is as follows:
THREE MONTHS ENDED JANUARY 31, ------------------------------ 2000 1999 ---- ---- Net sales to unaffiliated customers: Domestic................................. $ 62,650,000 $ 52,145,000 Europe................................... 37,279,000 33,802,000 --------------- ---------------- Consolidated.......................... $ 99,929,000 $ 85,947,000 =============== ================ Gross profit: Domestic................................. $ 22,409,000 $ 18,961,000 Europe................................... 16,459,000 14,460,000 --------------- ---------------- Consolidated.......................... $ 38,868,000 $ 33,421,000 =============== ================ Operating income: Domestic................................. $ 4,678,000 $ 3,642,000 Europe................................... 3,484,000 3,107,000 --------------- ---------------- Consolidated.......................... $ 8,162,000 $ 6,749,000 =============== ================ Identifiable assets: Domestic................................. $ 185,728,000 $ 148,799,000 Europe................................... 82,767,000 74,339,000 --------------- --------------- Consolidated.......................... $ 268,495,000 $ 223,138,000 ================ ===============
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, 2000 COMPARED TO THREE MONTHS ENDED JANUARY 31, 1999 Net sales for the three months ended January 31, 2000 increased 16.3% to $99,929,000 from $85,947,000 in the comparable period of the prior year. Domestic net sales for the three months ended January 31, 2000 increased 20.1% to $62,650,000 from $52,145,000 in the comparable period of the prior year, and European net sales increased 10.3% to $37,279,000 from $33,802,000 for those same periods. As measured in French Francs, Quiksilver Europe's functional currency, net sales in the current year's quarter increased 25.7% compared to the prior year. Domestic mens sales increased 25.5% to $35,407,000 from $28,215,000 in the comparable period of the prior year, while domestic womens sales increased 16.4% to $25,612,000 from $22,000,000. In the domestic division, sales of snowboards, boots and bindings amounted to $1,631,000 for the current year's quarter compared to $1,930,000 in the prior year. The domestic mens sales increase came across all divisions. The domestic womens sales increase came from both the Quiksilver Roxy and Raisins divisions. An increase in sales of Lib Tech and Gnu snowboards and related products was partially offset by a decrease in sales of Arcane bindings. In Europe and as reported in dollars, mens sales increased 11.1% to $34,750,000 from $31,268,000, while womens sales decreased 0.2% to $2,529,000 from $2,533,000. The European mens sales increase came from the Young Mens and Boys divisions. These comparisons of sales in Europe are negatively impacted by the strong dollar in comparison to the prior year. In French Francs, mens sales increased 26.6% and womens sales increased 13.7%. The gross profit margin for the three months ended January 31, 2000 was consistent with the comparable period of the prior year at 38.9%. The domestic gross profit margin decreased to 35.8% from 36.4% in the comparable period of the prior year, while the European gross profit margin increased to 44.2% from 42.8% for those same periods. The decrease in the domestic gross profit margin resulted primarily from a change in product mix in comparison to the prior year. In Europe, the gross profit margin increased as the negative effect of a strong dollar was more than offset by a decrease in sampling costs and the benefit of a higher level of retail business in comparison to the previous year. Selling, general and administrative expense ("SG&A") for the three months ended January 31, 2000 increased 15.7% to $30,059,000 from $25,991,000 in the comparable period of the prior year. Domestic SG&A increased 16.3% to $18,182,000 from $15,634,000 in the comparable period of the prior year, and European SG&A increased 14.7% to $11,877,000 from $10,357,000 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. SG&A decreased as a percentage of sales domestically, while in Europe SG&A increased as a percentage of sales as a result of an increased level of advertising expenditures. Net royalty expense for the three months ended January 31, 2000 decreased 5.0% to $647,000 from $681,000 in the comparable period of the prior year. The increase in royalty income from the Company's domestic licensees more than offset the higher level of royalty expense. The Company receives domestic royalty income from its watch, sunglass, Mexican, 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. Interest expense for the three months ended January 31, 2000 increased 20.6% to $1,023,000 from $848,000 in the comparable period of the prior year. This increase was primarily due to higher outstanding balances on the Company's lines of credit facilities to provide working capital to support the Company's growth. The effective income tax rate for the three months ended January 31, 2000, which is based on current estimates of the annual effective income tax rate, decreased to 41.0% from 41.7% 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, 2000 increased 21.6% to $4,079,000 or $0.18 per share on a diluted basis from $3,354,000 or $0.15 per share on a diluted basis in the comparable period of the prior year. Basic net income per share also increased to $0.18 per share for the three months ended January 31, 2000 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 provided by operating activities for the three months ended January 31, 2000 was $3,211,000 compared to net cash used in operating activities of $4,332,000 in the comparable period of the prior year. This $7,543,000 increase in cash provided by operating activities was primarily due to the decrease in trade accounts receivable, which provided cash of $9,589,000 in the three months ended January 31, 2000 versus the $3,724,000 provided in the comparable period of the prior year. The increase in inventories in the three months ended January 31, 2000 was funded by a corresponding increase in accounts payable. Capital expenditures decreased to $5,289,000 for the three months ended January 31, 2000, from $5,777,000 in the comparable period of the prior year. These investments include leasehold improvements for the new domestic headquarters, investments in Quiksvilles and company-owned Boardriders Clubs, and ongoing investments in equipment. During the three months ended January 31, 2000, net cash provided by financing activities totaled $3,704,000 compared to $7,236,000 in the comparable period of the prior year. Borrowings decreased in comparison to the previous year primarily as a result of the increase in cash provided by operating activities as discussed above. The net increase in cash and cash equivalents for the three months ended January 31, 2000 was $1,498,000 compared to a net decrease of $2,954,000 in the comparable period of the prior year. Cash and cash equivalents increased to $2,947,000 at January 31, 2000 from $1,449,000 at October 31, 1999, while working capital was $108,427,000 at January 31, 2000 compared to $109,823,000 at October 31, 1999. 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 12.0% to $94,739,000 at January 31, 2000 from $107,619,000 at October 31, 1999. Domestic accounts receivable decreased 15.6% to $62,583,000 at January 31, 2000 from $74,128,000 at October 31, 1999, and European accounts receivable decreased 4.0% to $32,156,000 from $33,491,000 for that same period. These decreases are primarily a result of seasonal factors. The domestic decrease occurred as receivables related to higher sales in the fourth quarter of fiscal 1999 were collected in the first quarter of fiscal 2000. The relatively small decrease in European receivables is expected as European sales in the first quarter of fiscal 2000 were similar in amount to the fourth quarter of fiscal 1999. Consolidated inventories increased 25.2% to $90,376,000 at January 31, 2000 from $72,207,000 at October 31, 1999. Domestic inventories increased 24.5% to $66,118,000 from $53,098,000 at October 31, 1999, and European inventories increased 26.9% to $24,258,000 from $19,109,000 for that same period. These increases are primarily a result of seasonal factors. Inventories are higher at January 31, 2000, in light of increased sales for the Spring and Summer seasons of fiscal 2000. In February 2000 the Board of Directors authorized the repurchase of up to 2,000,000 shares of the Company's Common Stock. To date, 181,300 shares have been repurchased at a cost of $1,835,000. 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 While management believes that allowances for doubtful accounts at January 31, 2000 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. European net sales increased 25.7% in French Francs during the three months ended January 31, 2000 compared to the three months ended January 31, 1999. As measured in U.S. Dollars and reported in the Company's Consolidated Statements of Income, European net sales increased 10.3%. Thus far in the Company's second quarter, the dollar continues to be stronger relative to the Euro and French Franc in comparison to the comparable period of the prior year. 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, 2000 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 15, 2000 /s/ Steven L. Brink ------------------------------------------------ Steven L. Brink Chief Financial Officer, Secretary and Treasurer (Principal Accounting Officer) 9 EX-27 2 FINANCIAL DATA SCHEDULE
5 The schedule contains summary financial information extracted from the Quiksilver, Inc. January 31, 1999 Form 10-Q and is qualified in its entirety by reference to such Form 10-Q. 3-MOS OCT-31-2000 JAN-31-2000 2,947,000 0 99,057,000 4,318,000 90,376,000 200,410,000 65,828,000 18,525,000 268,495,000 91,983,000 23,366,000 0 0 227,000 152,919,000 268,495,000 99,929,000 99,929,000 61,061,000 61,061,000 0 542,000 1,023,000 6,919,000 2,840,000 4,079,000 0 0 0 4,079,000 0.18 0.18
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