-----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, AWSA6JZkeuWj+wisqnZ1KX59givmJtRVDzLA4Qhqq8+Bz+owgYau8y7wQiCojbwK WCY92mJFp5b9CA8rwkpEuA== /in/edgar/work/20000914/0001095811-00-003384/0001095811-00-003384.txt : 20000922 0001095811-00-003384.hdr.sgml : 20000922 ACCESSION NUMBER: 0001095811-00-003384 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000731 FILED AS OF DATE: 20000914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUIKSILVER INC CENTRAL INDEX KEY: 0000805305 STANDARD INDUSTRIAL CLASSIFICATION: [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: 722983 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 a65634e10-q.txt FORM 10-Q QUERTERLY PERIOD ENDED JULY 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 JULY 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 September 3, 2000 was 22,387,129 2 QUIKSILVER, INC. FORM 10-Q INDEX
PART I - FINANCIAL INFORMATION Page No. - ------------------------------ -------- Item 1. Financial Statements: Condensed Consolidated Balance Sheets July 31, 2000 and October 31, 1999............................................. 2 Condensed Consolidated Statements of Income Three Months Ended July 31, 2000 and 1999...................................... 3 Condensed Consolidated Statements of Income Nine Months Ended July 31, 2000 and 1999....................................... 4 Condensed Consolidated Statements of Comprehensive Income Nine Months Ended July 31, 2000 and 1999....................................... 4 Condensed Consolidated Statements of Cash Flows Nine Months Ended July 31, 2000 and 1999....................................... 5 Notes to Condensed Consolidated Financial Statements............................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................................. 8 Part II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8K................................................ 12 SIGNATURE............................................................................... 13
1 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements QUIKSILVER, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JULY 31, OCTOBER 31, 2000 1999 ------------- ------------- ASSETS Current assets: Cash and cash equivalents ............................... $ 5,161,000 $ 1,449,000 Trade accounts receivable, less allowance for doubtful accounts of $5,249,000 (2000) and $5,738,000 (1999) ................................ 110,797,000 107,619,000 Other receivables ...................................... 5,556,000 4,074,000 Inventories - Note 2 ................................... 83,378,000 72,207,000 Prepaid expenses and other current assets .............. 9,688,000 7,825,000 ------------- ------------- Total current assets .............................. 214,580,000 193,174,000 Property and equipment, less accumulated depreciation and amortization of $22,008,000 (2000) and $17,127,000 (1999) 49,092,000 45,153,000 Trademark, less accumulated amortization of $2,189,000 (2000) and $2,044,000 (1999) ................. 1,248,000 1,393,000 Goodwill, less accumulated amortization of $5,959,000 (2000) and $5,233,000 (1999) ................. 59,213,000 17,055,000 Other assets ............................................... 6,213,000 2,898,000 ------------- ------------- Total assets ...................................... $ 330,346,000 $ 259,673,000 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Lines of credit ......................................... $ 36,381,000 $ 28,619,000 Accounts payable ........................................ 29,548,000 31,325,000 Accrued liabilities ..................................... 21,313,000 19,792,000 Current portion of long-term debt ....................... 3,149,000 3,615,000 Income taxes payable .................................... 6,119,000 -- ------------- ------------- Total current liabilities ......................... 96,510,000 83,351,000 Long-term debt ............................................. 65,254,000 24,569,000 ------------- ------------- Total liabilities ................................. 161,764,000 107,920,000 ------------- ------------- 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 - 23,108,429 (2000) and 22,731,220 (1999) .... 231,000 227,000 Additional paid-in-capital .............................. 40,095,000 36,780,000 Treasury stock, 721,300 shares (2000) and 390,000 shares (1999) ....................................... (6,778,000) (3,054,000) Retained earnings ....................................... 143,648,000 121,590,000 Accumulated other comprehensive loss .................... (8,614,000) (3,790,000) ------------- ------------- Total stockholders' equity ........................ 168,582,000 151,753,000 ------------- ------------- Total liabilities and stockholders' equity ........ $ 330,346,000 $ 259,673,000 ============= =============
See notes to condensed consolidated financial statements. 2 4 QUIKSILVER, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED JULY 31, ------------------------------ 2000 1999 ------------- ------------- Net sales .................................... $ 122,011,000 $ 105,160,000 Cost of goods sold ........................... 75,226,000 64,193,000 ------------- ------------- Gross profit .............................. 46,785,000 40,967,000 ------------- ------------- Operating expenses: Selling, general and administrative expense 34,194,000 29,727,000 Royalty income ............................ (888,000) (538,000) Royalty expense ........................... 550,000 1,214,000 ------------- ------------- Total operating expenses ............... 33,856,000 30,403,000 ------------- ------------- Operating income ............................. 12,929,000 10,564,000 Interest expense ............................. 1,713,000 919,000 Foreign currency loss ........................ 101,000 49,000 Other expense ................................ 131,000 110,000 ------------- ------------- Income before provision for income taxes ..... 10,984,000 9,486,000 Provision for income taxes ................... 4,314,000 3,863,000 ------------- ------------- Net income ................................... $ 6,670,000 $ 5,623,000 ============= ============= Net income per share ......................... $ 0.30 $ 0.25 ============= ============= Net income per share, assuming dilution ...... $ 0.29 $ 0.24 ============= ============= Weighted average common shares outstanding ... 22,460,000 22,279,000 ============= ============= Weighted average common shares outstanding, assuming dilution ......................... 23,215,000 23,614,000 ============= =============
See notes to condensed consolidated financial statements. 3 5 QUIKSILVER, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED JULY 31, ------------------------------ 2000 1999 ------------- ------------- Net sales .................................... $ 364,079,000 $ 319,235,000 Cost of goods sold ........................... 220,154,000 192,508,000 ------------- ------------- Gross profit .............................. 143,925,000 126,727,000 ------------- ------------- Operating expenses: Selling, general and administrative expense 100,857,000 89,675,000 Royalty income ............................ (2,010,000) (1,508,000) Royalty expense ........................... 3,449,000 3,834,000 ------------- ------------- Total operating expenses ............... 102,296,000 92,001,000 ------------- ------------- Operating income ............................. 41,629,000 34,726,000 Interest expense ............................. 3,944,000 2,675,000 Foreign currency loss (gain) ................. 224,000 (226,000) Other expense ................................ 391,000 351,000 ------------- ------------- Income before provision for income taxes ..... 37,070,000 31,926,000 Provision for income taxes ................... 15,012,000 13,207,000 ------------- ------------- Net income ................................... $ 22,058,000 $ 18,719,000 ============= ============= Net income per share ......................... $ 0.99 $ 0.85 ============= ============= Net income per share, assuming dilution ...... $ 0.95 $ 0.80 ============= ============= Weighted average common shares outstanding ... 22,392,000 22,022,000 ============= ============= Weighted average common shares outstanding, assuming dilution ......................... 23,189,000 23,343,000 ============= =============
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
NINE MONTHS ENDED JULY 31, ---------------------------- 2000 1999 ------------ ------------ Net income ............................... $ 22,058,000 $ 18,719,000 Other comprehensive loss -- Foreign currency translation adjustment (4,824,000) (2,953,000) ------------ ------------ Comprehensive income ..................... $ 17,234,000 $ 15,766,000 ============ ============
See notes to condensed consolidated financial statements. 4 6 QUIKSILVER, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED JULY 31, ---------------------------- 2000 1999 ------------ ------------ Cash flows from operating activities: Net income ....................................................... $ 22,058,000 $ 18,719,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .............................. 7,189,000 5,580,000 Provision for doubtful accounts ............................ 2,348,000 2,092,000 Accretion of interest expense .............................. 137,000 -- Loss (gain) on sale of fixed assets ........................ 79,000 (143,000) Changes in operating assets and liabilities, net of effects from the purchase of Quiksilver International Pty Ltd: Trade accounts receivable ............................... (10,162,000) (18,726,000) Other receivables ....................................... (1,922,000) 105,000 Inventories ............................................. (13,631,000) (6,362,000) Prepaid expenses and other current assets ............... (2,389,000) (1,386,000) Other assets ............................................ (2,860,000) (137,000) Accounts payable ........................................ 319,000 5,606,000 Accrued liabilities ..................................... 1,750,000 3,472,000 Income taxes payable .................................... 6,471,000 (983,000) ------------ ------------ Net cash provided by operating activities ............... 9,387,000 7,837,000 Cash flows from investing activities: Proceeds from sales of fixed assets .............................. 2,000 303,000 Capital expenditures ............................................. (13,530,000) (19,631,000) Acquisition of Quiksilver International Pty Ltd, net of cash acquired ................................................ (23,453,000) -- ------------ ------------ Net cash used in investing activities ................... (36,981,000) (19,328,000) Cash flows from financing activities: Borrowings on lines of credit .................................... 56,200,000 45,530,000 Payments on lines of credit ...................................... (48,744,000) (41,684,000) Borrowings on long-term debt ..................................... 40,408,000 4,083,000 Payments on long-term debt ....................................... (16,026,000) (4,324,000) Proceeds from stock option exercises ............................. 3,319,000 7,276,000 Purchase of treasury stock ....................................... (3,724,000) -- ------------ ------------ Net cash provided by financing activities ............... 31,433,000 10,881,000 Effect of exchange rate changes on cash ............................. (127,000) (143,000) ------------ ------------ Net increase (decrease) in cash and cash equivalents ................ 3,712,000 (753,000) Cash and cash equivalents, beginning of period ...................... 1,449,000 3,029,000 ------------ ------------ Cash and cash equivalents, end of period ............................ $ 5,161,000 $ 2,276,000 ============ ============ Supplementary cash flow information: Cash paid during the period for: Interest ...................................................... $ 3,679,000 $ 2,292,000 ============ ============ Income taxes .................................................. $ 8,675,000 $ 14,104,000 ============ ============ Non-cash investing and financing activity -- Deferred purchase price obligations ........................... $ 18,054,000 $ -- ============ ============
See notes to condensed consolidated financial statements. 5 7 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 and nine months ended July 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:
JULY 31, OCTOBER 31, 2000 1999 ----------- ----------- Raw Materials .... $23,541,000 $19,225,000 Work-In-Process... 5,391,000 7,819,000 Finished Goods.... 54,446,000 45,163,000 ----------- ----------- $83,378,000 $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 split. 4. Information related to domestic and European operations is as follows:
NINE MONTHS ENDED JULY 31, --------------------------- 2000 1999 ------------ ------------ Net sales to unaffiliated customers: Domestic ......................... $236,150,000 $204,649,000 Europe ........................... 127,929,000 114,586,000 ------------ ------------ Consolidated .................. $364,079,000 $319,235,000 ============ ============ Gross profit: Domestic ......................... $ 86,936,000 $ 75,628,000 Europe ........................... 56,989,000 51,099,000 ------------ ------------ Consolidated .................. $143,925,000 $126,727,000 ============ ============ Operating income: Domestic ......................... $ 26,470,000 $ 21,332,000 Europe ........................... 15,159,000 13,394,000 ------------ ------------ Consolidated .................. $ 41,629,000 $ 34,726,000 ============ ============ Identifiable assets: Domestic ......................... $236,396,000 $168,281,000 Europe ........................... 93,950,000 75,851,000 ------------ ------------ Consolidated .................. $330,346,000 $244,132,000 ============ ============
6 8 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. Effective July 1, 2000, the Company acquired Quiksilver International Pty Ltd ("Quiksilver International"), an Australian company that owns the worldwide trademark rights to the "Quiksilver" brand name (other than in the United States, Mexico and Puerto Rico where those rights were already owned by the Company.) The initial purchase price was $23,880,000, which includes cash consideration of $23,380,000 and transaction costs of $500,000. Under the terms of the purchase agreements, two additional payments will be made, one at the end of fiscal 2002 and one at the end of fiscal 2005. Such deferred purchase price payments will be contingent on the computed earnings of Quiksilver International through June 30, 2005. The deferred purchase price payments, which were estimated and discounted to present value, total $18,054,000, and are included as a component of the purchase price recorded at July 1, 2000. These deferred purchase price obligations are reflected in the Condensed Consolidated Balance Sheet as a component of long-term debt. The acquisition has been recorded using the purchase method of accounting and resulted in goodwill at July 1, 2000 of $42,220,000, which is being amortized over 25 years. The results of operations of Quiksilver International are included in the Condensed Consolidated Statements of Income from the acquisition date. 6. In connection with the acquisition of Quiksilver International discussed in Note 5 above, the Company's domestic line of credit was amended to allow for the acquisition and to increase the Company's available credit by $10,000,000 through October 31, 2000. The debt incurred to fund the acquisition is expected to be refinanced on a long term basis prior to October 31, 2000. 7 9 PART I - FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations THREE MONTHS ENDED JULY 31, 2000 COMPARED TO THREE MONTHS ENDED JULY 31, 1999 Net sales for the three months ended July 31, 2000 increased 16.0% to $122,011,000 from $105,160,000 in the comparable period of the prior year. Domestic net sales for the three months ended July 31, 2000 increased 15.2% to $79,971,000 from $69,411,000 in the comparable period of the prior year, and European net sales increased 17.6% to $42,040,000 from $35,749,000 for those same periods. As measured in French francs, Quiksilver Europe's functional currency, net sales in the current year's quarter increased 31.5% compared to the prior year. Domestic men's sales increased 12.1% to $48,548,000 from $43,312,000 in the comparable period of the prior year, while domestic women's sales increased 20.4% to $28,378,000 from $23,569,000. In the domestic division, sales of snowboards, boots and bindings amounted to $3,045,000 in the current year's quarter compared to $2,530,000 in the prior year. The domestic men's sales increase came from the Quiksilver Young Men's and Boys divisions and QS Silver Edition. The domestic women's sales increase came from both the Quiksilver Roxy and Raisins divisions. In Europe, men's sales increased 10.7% to $35,608,000 from $32,172,000, while women's sales increased 79.8% to $6,432,000 from $3,577,000. As measured in French francs, European men's and women's sales grew 23.8% and 101.1%, respectively. The European sales increase came from all divisions. The gross profit margin for the three months ended July 31, 2000 decreased to 38.3% from 39.0% in the comparable period of the prior year. The domestic gross profit margin decreased to 36.7% from 37.1% in the comparable period of the prior year, and the European gross profit margin decreased to 41.5% from 42.6% for those same periods. The domestic gross profit margin decreased primarily from a higher level of prior season wintersports apparel sales in the three months ended July 31, 2000 versus the prior year. In Europe, the gross profit margin decreased because the relatively rapid devaluation of the French franc versus the U.S. dollar increased product costs in Europe before such price increases could be fully factored into Quiksilver Europe's wholesale prices. This trend is expected to continue, but to a lesser degree, in the three months ending October 31, 2000. Selling, general and administrative expense ("SG&A") for the three months ended July 31, 2000 increased 15.0% to $34,194,000 from $29,727,000 in the comparable period of the prior year. Domestic SG&A increased 15.8% to $21,565,000 from $18,623,000 in the comparable period of the prior year, and European SG&A increased 13.7% to $12,629,000 from $11,104,000 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 expenses decreased as a percentage of sales primarily as a result of leverage on general overhead expenses in Europe. Royalty income exceeded royalty expense for the three months ended July 31, 2000 by $338,000 versus net royalty expense of $676,000 in the comparable period of the prior year. This increase in royalty income was due primarily to the acquisition of Quiksilver International Pty Ltd ("Quiksilver International"). Historically, the Company has received domestic royalty income from its Mexico, watch, sunglass, and outlet store licensees as well as Raisins international licensees, and the Company has paid royalties on European sales and certain domestic exports under trademark agreements with Quiksilver International. As of July 1, 2000, however, the Company acquired Quiksilver International, and such royalty expense has been eliminated. In addition, as of July 1, 2000 the Company now also receives royalties from Quiksilver licensees in various other territories, including Australia, Japan, South Africa, Brazil, Chile, Argentina, Indonesia, Korea and Eastern Europe. Interest expense for the three months ended July 31, 2000 increased 86.4% to $1,713,000 from $919,000 in the comparable period of the prior year. This increase was primarily due to (i) debt incurred to fund the acquisition of Quiksilver International, and (ii) higher outstanding balances on the Company's lines of credit to provide working capital to support the Company's growth. The effective income tax rate for the three months ended July 31, 2000, which is based on current estimates of the annual effective income tax rate, decreased to 39.3% from 40.7% in the comparable period of the prior year. 8 10 As a result of the above factors, net income for the three months ended July 31, 2000 increased 18.6% to $6,670,000 or $0.29 per share on a diluted basis from $5,623,000 or $0.24 per share on a diluted basis in the comparable period of the prior year. Basic net income per share increased to $0.30 for the three months ended July 31, 2000 from $0.25 in the comparable period of the prior year. NINE MONTHS ENDED JULY 31, 2000 COMPARED TO NINE MONTHS ENDED JULY 31, 1999 Net sales for the nine months ended July 31, 2000 increased 14.0% to $364,079,000 from $319,235,000 in the comparable period of the prior year. Domestic net sales for the nine months ended July 31, 2000 increased 15.4% to $236,150,000 from $204,649,000 in the comparable period of the prior year, and European net sales increased 11.6% to $127,929,000 from $114,586,000 for those same periods. As measured in French francs, Quiksilver Europe's net sales in the first nine months of the current year increased 26.2% compared to the prior year. Domestic men's sales increased 17.1% to $134,154,000 from $114,543,000 in the comparable period of the prior year, while domestic women's sales increased 13.5% to $95,707,000 from $84,333,000. In the domestic division, sales of snowboards, boots and bindings increased 8.9% to $6,289,000 from $5,773,000 in the prior year. The domestic men's sales increase came from Quiksilver young men's and boys' divisions and QS Silver Edition. The domestic women's sales increase came from both the Quiksilver Roxy and Raisins divisions. In Europe, men's sales increased 5.9% to $107,306,000 from $101,296,000, while women's sales increased 55.2% to $20,623,000 from $13,290,000. As measured in French francs, European men's and women's sales grew 19.6% and 76.1%, respectively. The European sales increase came from all divisions. The gross profit margin for the nine months ended July 31, 2000 decreased somewhat to 39.5% from 39.7% in the comparable period of the prior year. The domestic gross profit margin decreased somewhat to 36.8% from 37.0% in the comparable period of the prior year, while the European gross profit margin decreased slightly to 44.5% from 44.6% for those same periods. The decrease in the domestic gross profit margin resulted primarily from a higher level of prior season wintersports apparel sales in the third quarter of the current fiscal year. In Europe, the gross profit margin improvement in the first half of the current fiscal year from lower sampling costs and a higher level of retail business was offset by the foreign currency impact in the third quarter of the current fiscal year as discussed above. Selling, general and administrative expense ("SG&A") for the nine months ended July 31, 2000 increased 12.5% to $100,857,000 from $89,675,000 in the comparable period of the prior year. Domestic SG&A increased 13.3% to $62,725,000 from $55,354,000 in the comparable period of the prior year, and European SG&A increased 11.1% to $38,132,000 from $34,321,000 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 to 27.7% from 28.1%. Net royalty expense for the nine months ended July 31, 2000 decreased 38.1% to $1,439,000 from $2,326,000 in the comparable period of the prior year. This decrease was due primarily to the acquisition of Quiksilver International in the third quarter of the current fiscal year as discussed above. Interest expense for the nine months ended July 31, 2000 increased 47.4% to $3,944,000 from $2,675,000 in the comparable period of the prior year. This increase was primarily due to (i) debt incurred to fund the acquisition of Quiksilver International, (ii) borrowings to fund the build-out of the Company's new domestic headquarters building in Huntington Beach, and (iii) higher outstanding balances on the Company's lines of credit to provide working capital to support the Company's growth. The effective income tax rate for the nine months ended July 31, 2000, which is based on current estimates of the annual effective income tax rate, decreased to 40.5% from 41.4% in the comparable period of the prior year. As a result of the above factors, net income for the nine months ended July 31, 2000 increased 17.8% to $22,058,000 or $0.95 per share on a diluted basis from $18,719,000 or $0.80 per share on a diluted basis in the comparable period of the prior year. Basic net income per share increased to $0.99 for the nine months ended July 31, 2000 from $0.85 in the comparable period of the prior year. 9 11 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 nine months ended July 31, 2000 increased 19.8% to $9,387,000 from $7,837,000 in the comparable period of the prior year. The $5,563,000 increase in net income and non-cash expenses and the $8,564,000 decrease in the change in trade accounts receivable was substantially offset by the $12,556,000 increase in inventories net of changes in accounts payable. For the nine months ended July 31, 2000, capital expenditures decreased 31.1% to $13,530,000 from $19,631,000 in the comparable period of the prior year. The decrease in spending on leasehold improvements for the new domestic headquarters in comparison to the prior year was offset somewhat by increased spending on warehouse and computer equipment. During July 2000, the Company completed the acquisition of Quiksilver International, including a cash component of the purchase price totaling $23,880,000, less $427,000 of cash acquired in the acquisition. (See further discussion below.) During the nine months ended July 31, 2000, net cash provided by financing activities totaled $31,433,000 compared to $10,881,000 in the comparable period of the prior year. The increase in net cash used in investing activities discussed above was financed primarily by an increase in long-term debt. In February 2000 the Board of Directors authorized the repurchase of up to 2,000,000 shares of the Company's Common Stock. During the nine months ended July 31, 2000 the Company repurchased 331,300 shares at a cost of $3,724,000. Effective July 1, 2000, the Company acquired Quiksilver International Pty Ltd ("Quiksilver International"), an Australian company that owns the worldwide trademark rights to the "Quiksilver" brand name (other than in the United States, Mexico and Puerto Rico where those rights were already owned by the Company.) The initial purchase price was $23,880,000, which includes cash consideration of $23,380,000 and transaction costs of $500,000. Under the terms of the purchase agreement, two additional payments will be made, one at the end of fiscal 2002 and one at the end of fiscal 2005. Such deferred purchase price payments will be contingent on the computed earnings of Quiksilver International through June 30, 2005. The deferred purchase price payments, which were estimated and discounted to present value, total $18,054,000, and are included as a component of the purchase price recorded at July 1, 2000. The deferred purchase price obligations are reflected in the Condensed Consolidated Balance Sheet as a component of long-term debt. Noncash interest expense is recorded to reflect the calculated financing costs associated with the deferred purchase price obligations. The cash component of the initial purchase price was financed using the Company's domestic line of credit, which was amended to allow for the acquisition. Cash and cash equivalents increased $3,712,000 for the nine months ended July 31, 2000 compared to a decrease of $753,000 in the comparable period of the prior year. Working capital increased $8,247,000 or 7.5% to $118,070,000 from $109,823,000 for that same period. The Company believes its 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 increased 3.0% to $110,797,000 at July 31, 2000 from $107,619,000 at October 31, 1999. Domestic accounts receivable decreased 8.9% to $67,496,000 at July 31, 2000 from $74,128,000 at October 31, 1999, and European accounts receivable increased 29.3% to $43,301,000 from $33,491,000 for that same period. While changes in accounts receivable are subject to seasonal sales fluctuations, average days sales outstanding at July 31, 2000 is generally consistent with average days sales outstanding at July 31, 1999. 10 12 Consolidated inventories increased 15.5% to $83,378,000 at July 31, 2000 from $72,207,000 at October 31, 1999. Domestic inventories increased 15.3% to $61,222,000 from $53,098,000 at October 31, 1999, and European inventories increased 15.9% to $22,156,000 from $19,109,000 for that same period. While inventory levels are subject to seasonal sales fluctuations, inventory turnover as measured at July 31, 2000 is generally consistent with inventory turnover at July 31, 1999. 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 July 31, 2000 are adequate, the Company carefully monitors developments regarding its major customers. 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 effect. Because the average exchange rate between the French franc and the U.S. dollar weakened during the nine months ended July 31, 2000 in comparison to the nine months ended July 31, 1999, there was a negative effect on Quiksilver Europe's reported results in U.S. dollars. European net sales increased 26.2% in French francs during the nine months ended July 31, 2000 compared to the nine months ended July 31, 1999, but as translated into U.S. dollars and reported in the Company's Condensed Consolidated Statements of Income, European net sales increased only 11.6%. 11 13 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8K. (a) Exhibits 10.1 Share Purchase Agreement, dated July 27, 2000, by and among Quiksilver, Inc., Quiksilver Australia Pty Ltd, Quiksilver International Pty Ltd and Shareholders of Quiksilver International Pty Ltd. (incorporated by reference from the Company's report on Form 8-K dated July 27, 2000) 10.2 Minority Shareholder Purchase Agreement, dated July 27, 2000, by and among Quiksilver, Inc., Quiksilver Australia Pty Ltd and Shareholders of Quiksilver International Pty Ltd. (incorporated by reference from the Company's report on Form 8-K dated July 27, 2000) 10.3 First Amendment to Revolving Credit Agreement dated as of July 18, 2000. 27.0 Financial Data Schedule (b) Reports on Form 8-K A current report on Form 8-K was filed during the quarter ended July 31, 2000, which reported the Company's acquisition of Quiksilver International Pty Ltd, the owner of the "Quiksilver" trademarks other than the United States, Mexico and Puerto Rico. Such report was dated July 27, 2000. 12 14 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 September 14, 2000 /s/ Steven L. Brink ---------------------------------------- Steven L. Brink Chief Financial Officer and Treasurer (Principal Accounting Officer) 13 15 EXHIBIT INDEX Exhibit Number Description ------- ----------- 10.1 Share Purchase Agreement, dated July 27, 2000, by and among Quiksilver, Inc., Quiksilver Australia Pty Ltd, Quiksilver International Pty Ltd and Shareholders of Quiksilver International Pty Ltd. (incorporated by reference from the Company's report on Form 8-K dated July 27, 2000) 10.2 Minority Shareholder Purchase Agreement, dated July 27, 2000, by and among Quiksilver, Inc., Quiksilver Australia Pty Ltd and Shareholders of Quiksilver International Pty Ltd. (incorporated by reference from the Company's report on Form 8-K dated July 27, 2000) 10.3 First Amendment to Revolving Credit Agreement dated as of July 18, 2000. 27.0 Financial Data Schedule EX-10.3 2 a65634ex10-3.txt EXHIBIT 10.3 1 EXHIBIT 10.3 July 18, 2000 TO THE LENDERS PARTIES TO THE REVOLVING CREDIT AGREEMENT REFERRED TO BELOW Re: First Amendment to Revolving Credit Agreement Ladies and Gentlemen: We refer to the Revolving Credit Agreement dated as of April 25, 2000 (the "Credit Agreement") among Quiksilver, Inc. (the "Borrower"), the lenders referred to therein (the "Lenders"), The Chase Manhattan Bank, as syndication agent and co-lead arranger, and Union Bank of California, N.A., as administrative agent for the Lenders (in such capacity, the "Agent") and co-lead arranger. Terms defined in the Credit Agreement and not otherwise defined herein have the same respective meanings when used herein. 1. Effective as of the date of this letter amendment but subject to the terms and conditions hereof, the Credit Agreement is hereby amended as set forth below. (a) The definition of "Borrowing Base" in Section 1.1 of the Credit Agreement is amended in full to read as follows: "`Borrowing Base': as at any date, an amount determined by the Agent by reference to the most recent Borrowing Base Certificate, which is equal to the sum of the following, without duplication: (a) 80% of Eligible Accounts Receivable; plus (b) 40% of Eligible Inventory (provided that such percentage shall be increased to 50% with respect to any calculation of the Borrowing Base during the months of (i) January through April of any year or (ii) May through September of 2000); plus (c) 40% of outstanding and undrawn commercial Letters of Credit issued hereunder for the account of the Borrower (provided that such percentage shall be increased to 50% with respect to any calculation of the Borrowing Base during the months of (i) January through April of any year or (ii) May through September of 2000)." 2 July 18, 2000 Page 2 (b) The Lenders' signature pages to the Credit Agreement are amended by (i) deleting the amount "$40,000,000" set forth below the signature block of Union Bank of California, N.A. ("UBOC") and substituting "$44,444,445", (ii) deleting the amount "$22,500,000" set forth below the signature block of The Chase Manhattan Bank ("Chase") and substituting "$25,000,000", (iii) deleting the amount "$20,000,000" set forth below the signature block of Fleet National Bank ("Fleet") and substituting "$22,222,222" and (iv) deleting the amount "$7,500,000" set forth below the signature block of Pacific Century Bank, N.A. ("PCB") and substituting "$8,333,333"; provided, however, that, as of the close of business in Los Angeles on October 31, 2000, such amounts shall automatically revert to $40,000,000 for UBOC, $22,500,000 for Chase, $20,000,000 for Fleet and $7,500,000 for PCB, in each case without any further action by any party. (c) Section 5.8 of the Credit Agreement is amended in full to read as follows: "5.8 Use of Proceeds. The Borrower will use the proceeds of the Loans solely to provide funds for (a) working capital, capital expenditures and acquisitions permitted by Section 6.7(d) or (g), (b) the repayment of amounts outstanding under the Existing Line and (c) general corporate purposes of the Borrower and its Domestic Subsidiaries; provided, however, that (i) any Loans whose proceeds are used to provide funds for the acquisition permitted by Section 6.7(g) shall be limited to $25,000,000, shall be used only to pay the portion of the purchase price for such acquisition payable on the date of closing of such acquisition and shall be repaid by the Borrower in full not later than October 31, 2000, (ii) no proceeds of any Loans may be used by the Borrower after October 31, 2000 to provide funds for the payment of any portion of the purchase price for such acquisition and (iii) not later than October 31, 2000, the Borrower shall provide evidence satisfactory to the Lenders that the Borrower has refinanced the Loans referred to in (i) above. Notwithstanding anything herein to the contrary, no Loan or Letter of Credit shall be used for the purchasing or carrying of any Margin Stock." (d) Section 6.6 of the Credit Agreement is amended by deleting the amount "$20,000,000" therein and substituting "$10,000,000." (e) Section 6.7 of the Credit Agreement is amended by deleting the word "and" at the end of Section 6.7(e), deleting the period at the end of Section 6.7(f) and replacing it with "; and" and adding the following new Section 6.7(g): "(g) acquisition of all of the shares of capital stock of Quiksilver International Pty Ltd, a corporation organized under the laws of the State of 3 July 18, 2000 Page 3 Victoria, Australia, by a newly formed, directly and wholly owned Subsidiary of the Borrower, Quiksilver Australia Pty Ltd, a corporation organized under the laws of the State of Victoria, Australia." 2. The Borrower hereby represents and warrants for the benefit of the Lenders and the Agent that (a) the representations and warranties contained in the Loan Documents are correct in all material respects on and as of the date of this letter amendment, before and after giving effect to the same, as if made on and as of such date and (b) no event has occurred and is continuing, or would result from the effectiveness of this letter amendment, that constitutes a Default. 3. If you agree to the terms and conditions set forth herein, please evidence your agreement by executing and returning six counterparts of this letter amendment to the Agent. This letter amendment shall become effective as of the date first set forth above when and if (a) the Borrower and the Lenders execute counterparts of this letter amendment and deliver them to the Agent, (b) the Borrower pays a fee of $10,000 to the Agent, for the account of the Lenders in such amounts as agreed between the Agent and each of the Lenders, (c) the Borrower executes and delivers to the Agent new Revolving Notes, appropriately completed for each of the Lenders, (d) the Borrower delivers to the Agent certified copies of the forms of the purchase agreements by which the Borrower's wholly owned Subsidiary, Quiksilver Australia Pty Ltd, a corporation organized under the laws of the State of Victoria, Australia ("QAPL"), is to acquire all of the capital stock of Quiksilver International Pty Ltd, a corporation organized under the laws of the State of Victoria, Australia ("QIPL"), together with such related documents as the Agent may reasonably request, and (e) the Borrower delivers to the Agent a Covenant Compliance Certificate showing pro forma calculations assuming that the acquisition of all of the capital stock of QIPL by QAPL has been consummated; provided, however, that it shall be a condition subsequent to the effectiveness of this letter amendment that the Borrower deliver to the Agent not later than August 31, 2000 a pledge agreement, duly executed by the Borrower and QAPL (if required), by which the Borrower pledges 65% of the capital stock of QAPL as Collateral, together with other documents, including a legal opinion of Australian counsel to QAPL, substantially the same as those required to be provided pursuant to Section 4.3 of the Credit Agreement in connection with the Borrower's pledge of stock of Na Pali. 4. On and after the effective date of this letter amendment, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to "the Credit Agreement," "thereunder," "thereof," "therein" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended by this letter amendment. The Credit Agreement, as amended by this letter amendment, is and shall continue to be in full force and effect and is hereby ratified and confirmed in all respects. 4 July 18, 2000 Page 4 5. This letter amendment may be executed in any number of counterparts and by any combination of the parties hereto in separate counterparts, each of which counterparts shall be an original and all of which taken together shall constitute one and the same letter amendment. 6. THIS LETTER AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REFERENCE TO THE CHOICE-OF-LAW PRINCIPLES THEREOF. Very truly yours, QUIKSILVER, INC. By: --------------------------------- Name: ------------------------------- Title: ------------------------------ Agreed as of the date first written above: UNION BANK OF CALIFORNIA, N.A., as Agent and a Lender By: --------------------------------- Name: ------------------------------- Title: ------------------------------ THE CHASE MANHATTAN BANK By: --------------------------------- Name: ------------------------------- Title: ------------------------------ 5 July 18, 2000 Page 5 FLEET NATIONAL BANK By: --------------------------------- Name: ------------------------------- Title: ------------------------------ PACIFIC CENTURY BANK, N.A. By: --------------------------------- Name: ------------------------------- Title: ------------------------------ EX-27 3 a65634ex27.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Quiksilver, Inc. July 31, 2000 Form 10-Q and is qualified in its entirety by reference to such Form 10-Q. 9-MOS OCT-31-2000 JUL-31-2000 5,161,000 0 116,046,000 5,249,000 83,378,000 214,580,000 71,100,000 22,008,000 330,346,000 96,510,000 65,254,000 0 0 231,000 168,351,000 330,346,000 364,079,000 364,079,000 220,154,000 220,154,000 0 2,348,000 3,944,000 37,070,000 15,012,000 22,058,000 0 0 0 22,058,000 0.99 0.95
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