Lines of Credit and Long-term Debt

12 Months Ended

Oct. 31, 2011

Lines of Credit and Long-term Debt [Abstract]

Lines of Credit and Long-term Debt

Note 7 — Lines of Credit and Long-term Debt

A summary of lines of credit and long-term debt is as follows:

	October 31,
In thousands	2011		2010
European short-term credit arrangements	$	—	$	—
Asia/Pacific short-term lines of credit		18,335		22,586
Americas Credit Facility		21,042		—
Americas long-term debt		18,500		20,000
European long-term debt		—		265,222
European credit facilities		2,306		—
Senior Notes		400,000		400,000
European Senior Notes		282,925		—
Capital lease obligations and other borrowings		4,578		20,965
	$	747,686	$	728,773

In July 2005, the Company issued $400 million in unsecured senior notes (“Senior Notes”), which bear a coupon interest rate of 6.875% and are due April 15, 2015. The Senior Notes were issued at par value and sold in accordance with Rule 144A and Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). In December 2005, these Senior Notes were exchanged for publicly registered notes with identical terms. The Senior Notes are guaranteed on a senior unsecured basis by each of the Company’s domestic subsidiaries that guarantee any of its indebtedness or its subsidiaries’ indebtedness, or are obligors under its existing senior secured credit facility (the “Guarantors”). The Company may redeem some or all of the Senior Notes at fixed redemption prices as set forth in the indenture related to such Senior Notes.

The Senior Notes indenture includes covenants that limit the ability of Quiksilver, Inc. and its restricted subsidiaries to, among other things: incur additional debt; pay dividends on their capital stock or repurchase their capital stock; make certain investments; enter into certain types of transactions with affiliates; make dividend or other payments to Quiksilver, Inc.; use assets as security in other transactions; and sell certain assets or merge with or into other companies. If Quiksilver, Inc. experiences a change of control (as defined in the indenture), it will be required to offer to purchase the Senior Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest. The Company is currently in compliance with these covenants. The Company has approximately $4.2 million in unamortized debt issuance costs related to the Senior Notes included in other assets as of October 31, 2011.

In December 2010, Boardriders SA, a wholly owned subsidiary of the Company, issued €200 million (approximately $265 million at the date of issuance) in unsecured senior notes (“European Senior Notes”), which bear a coupon interest rate of 8.875% and are due December 15, 2017. The European Senior Notes were issued at par value in a private offering that is exempt from the registration requirements of the Securities Act. The European Senior Notes were offered within the United States only to qualified institutional buyers in accordance with Rule 144A under the Securities Act and outside the United States only to non-U.S. investors in accordance with Regulation S under the Securities Act. The European Senior Notes will not be registered under the Securities Act or the securities laws of any other jurisdiction.

The European Senior Notes are general senior obligations of Boardriders SA and are fully and unconditionally guaranteed on a senior unsecured basis by Quiksilver, Inc. and certain of Quiksilver, Inc.’s current and future U.S. and non-U.S. subsidiaries, subject to certain exceptions. Boardriders SA may redeem some or all of the European Senior Notes at fixed redemption prices as set forth in the indenture related to such European Senior Notes. The European Senior Notes indenture includes covenants that limit the ability of Quiksilver, Inc. and its restricted subsidiaries to, among other things: incur additional debt; pay dividends on their capital stock or repurchase their capital stock; make certain investments; enter into certain types of transactions with affiliates; make dividend or other payments to Quiksilver, Inc.; use assets as security in other transactions; and sell certain assets or merge with or into other companies. The Company is currently in compliance with these covenants.

The Company used the proceeds from the European Senior Notes to repay its existing European term loans and to pay related fees and expenses. As a result, the Company recognized non-cash, non-operating charges during the fiscal year ended October 31, 2011 of approximately $13.7 million, included in interest expense, to write-off the deferred debt issuance costs related to such term loans. The Company capitalized approximately $6.4 million of debt issuance costs associated with the issuance of the European Senior Notes, which are being amortized into interest expense over the seven-year term of the European Senior Notes.

On July 31, 2009, the Company entered into a $200 million asset-based credit facility for its Americas segment, which replaced its existing credit facility which was to expire in April 2010. On August 27, 2010, the Company entered into an amendment to this credit facility (as amended, the “Credit Facility”). The Credit Facility is a $150 million facility (with the option to expand the facility to $250 million on certain conditions) and the amendment, among other things, extended the maturity date of the Credit Facility to August 27, 2014 (compared to July 31, 2012 under the original facility). The Credit Facility includes a $102.5 million sublimit for letters of credit and bears interest at a rate of LIBOR plus a margin of 2.5% to 3.0% depending upon availability. As of October 31, 2011, there were $21.0 million of borrowings outstanding under the Credit Facility and outstanding letters of credit totaled $35.4 million.

The Credit Facility is guaranteed by Quiksilver, Inc. and certain of its domestic and Canadian subsidiaries. The Credit Facility is secured by a first priority interest in the Company’s U.S. and Canadian accounts receivable, inventory, certain intangibles, a second priority interest in substantially all other personal property and a second priority pledge of shares of certain of the Company’s domestic subsidiaries. The borrowing base is limited to certain percentages of eligible accounts receivable and inventory from participating subsidiaries. The Credit Facility contains customary default provisions and restrictive covenants for facilities of its type. The Company is currently in compliance with such covenants.

On October 27, 2010, the Company entered into a $20.0 million term loan for its Americas segment. The maturity date of this term loan is August 27, 2014, such that it is aligned with the maturity of the Credit Facility. The term loan has minimum principal repayments of $1.5 million due on June 30 and December 31 of each year, until the principal balance is reduced to $14.0 million. The term loan bears interest at the London Inter-Bank Offer (“LIBO”) rate plus 5.0% (currently 5.4%). The term loan is guaranteed by Quiksilver, Inc. and secured by a first priority interest in substantially all assets, excluding accounts receivable and inventory, of certain of the Company’s domestic subsidiaries and a second priority interest in the accounts receivable and inventory of certain of the Company’s domestic subsidiaries, in which the lenders under the Credit Facility have a first-priority security interest. The term loan contains customary default provisions and restrictive covenants for loans of its type. As of October 31, 2011 the Company was in compliance with or obtained the necessary waiver for such covenants.

In May 2011, the Company terminated its €100 million secured financing facility in its European operating segment. The Company had not had any outstanding borrowings on this facility during the current year. This facility has been replaced by new lines of credit from numerous banks in Europe that provide up to $106.1 million of available capacity for borrowings and an additional $113.2 million of available capacity for letters of credit. As of October 31, 2011, there were $2.3 million of outstanding borrowings drawn on these lines at an average borrowing rate of 2.2%, and letters of credit outstanding totaled $30.2 million.

On July 31, 2009, the Company entered into the $153.1 million five-year senior secured term loans with entities affiliated with Rhône Capital LLC. In connection with these term loans, the Company issued warrants to purchase approximately 25.7 million shares of its common stock, representing 19.99% of the outstanding equity of the Company at the time, with an exercise price of $1.86 per share. The warrants are fully vested and have a seven-year term. The estimated fair value of these warrants at issuance was $23.6 million. This amount was recorded as a debt discount and was to be amortized into interest expense over the term of the loans. In addition to this, the Company incurred approximately $15.8 million in debt issuance costs which were also to be amortized into interest expense over the term of the loans.

On June 24, 2010, the Company entered into a debt-for-equity exchange agreement with Rhône Group LLC (“Rhône”), acting in its capacity as the administrative agent for the Rhône senior secured term loans. Pursuant to such agreement, a combined total of $140 million of principal balance outstanding under the Rhône senior secured term loans was exchanged for 31.1 million shares of the Company’s common stock, which represents an exchange price of $4.50 per share. The exchange closed on August 9, 2010, which reduced the outstanding balance under the Rhône senior secured term loans to approximately $23.9 million. Upon closing of the $20.0 million term loan in its Americas segment, the Company used the proceeds from such term loan, together with cash on hand, to repay the remaining amounts outstanding under the Rhône senior secured term loans.

As a result of the debt-for-equity exchange and the subsequent repayment of the remaining amounts outstanding under the Rhône senior secured term loans, the Company recognized approximately $33.2 million in interest expense during the three months ended October 31, 2010 to write-off the deferred debt issuance costs capitalized in connection with the issuance of the Rhône senior secured term loans, as well as the debt discount recorded upon the issuance of the warrants associated with such senior secured term loans. This charge was non-recurring, non-cash and non-operating.

In September 2011, the Company entered into a new $21.4 million ($20.0 million Australian dollars) credit facility for its Asia/Pacific segment for cash borrowings and letters of credit. Combined with certain remaining uncommitted borrowings, the Asia/Pacific segment has $29.2 million of capacity for borrowings and letters of credit. As of October 31, 2011, there were $18.3 million of outstanding borrowings drawn on these lines at an average borrowing rate of 3.9%, and letters of credit outstanding totaled $7.4 million. The new facility contains customary default provisions and restrictive covenants for facilities of its type. The Company is currently in compliance with such covenants.

As of October 31, 2011, the Company’s credit facilities allowed for total maximum cash borrowings and letters of credit of $384.7 million. The Company’s total maximum borrowings and actual availability fluctuate depending on the extent of assets comprising the Company’s borrowing base under certain credit facilities. The Company had $41.7 million of borrowings drawn on these credit facilities as of October 31, 2011, and letters of credit issued at that time totaled $72.9 million. The amount of availability for borrowings under these facilities as of October 31, 2011 was $183.6 million, $76.4 million of which could also be used for letters of credit in the United States. In addition to the $183.6 million of availability for borrowings, the Company also had $86.5 million in additional capacity for letters of credit in Europe and Asia/Pacific as of October 31, 2011.

The Company also has approximately $4.6 million in capital leases and other borrowings as of October 31, 2011.

Approximate principal payments on long-term debt are due according to the table below.

In thousands
2012	$	4,628
2013		6,128
2014		35,337
2015		400,333
2016		—
Thereafter		282,925
	$	729,351

The estimated fair values of the Company’s lines of credit and long-term debt are as follows:

	October 31, 2011
In thousands	Carrying Amount		Fair Value
Lines of credit	$	18,335	$	18,335
Long-term debt		729,351		696,863
	$	747,686	$	715,198

The fair value of the Company’s long-term debt is calculated based on the market price of the Company’s publicly traded Senior Notes, the trading price of the Company’s European Senior Notes and the carrying values of the Company’s other debt obligations.