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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1995
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 Identification Number)
incorporation or organization)
1740 MONROVIA AVENUE
COSTA MESA, CALIFORNIA 92627
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 645-1395
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
----------------
(Title of class)
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 registrant's Common Stock, par value
$.01 per share, at July 31, 1995 was 6,692,389.
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QUIKSILVER, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
------------------------------ --------
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets:
July 31, 1995 (Unaudited) and October 31, 1994..... 2
Consolidated Statements of Income (Unaudited):
Three Months Ended July 31, 1995 and 1994.......... 3
Nine Months Ended July 31, 1995 and 1994........... 4
Consolidated Statements of Cash Flows (Unaudited):
Nine Months Ended July 31, 1995 and 1994........... 5
Notes to Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 10
SIGNATURES......................................................... 10
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
QUIKSILVER, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
July 31, October 31,
(Amounts in thousands except share data) 1995 1994
---------------------------------------- --------- -----------
Current Assets:
Cash and cash equivalents.................... $ 979 $ 682
Trade accounts receivable, less allowance
for doubtful accounts of $2,948
(1995) and $2,202 (1994)............. 36,220 29,974
Other receivables............................ 1,390 1,548
Inventories - Note 3......................... 32,623 21,609
Prepaid expenses............................. 1,323 917
------- -------
Total current assets................. 72,535 54,730
Equipment, less accumulated depreciation and
amortization of $7,444 (1995) and
$6,194 (1994)................................ 7,106 6,133
Trademark and consulting agreement, less
accumulated amortization of $1,260 (1995)
and $1,185 (1994)............................ 1,720 1,833
Goodwill, less accumulated amortization of
$2,351 (1995) and $1,899 (1994).............. 15,764 16,209
Other assets.................................... 1,625 1,565
------- -------
$98,750 $80,470
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Lines of credit.............................. $ 8,033 $10,100
Accounts payable............................. 10,392 5,157
Accrued liabilities.......................... 8,840 5,024
Current portion of notes payable............. 235 390
Income taxes payable......................... 3,102 2,412
------- -------
Total current liabilities............ 30,602 23,083
Notes payable................................... 3,392 2,449
------- -------
Total liabilities.................... 33,994 25,532
Stockholders' equity
Preferred stock, $.01 par value, authorized
shares 5,000,000; issued and outstanding
shares - none.............................. -- --
Common stock, $.01 par value, authorized
shares 10,000,000; issued and outstanding
shares 6,692,389 (1995) and 6,521,422
(1994)..................................... 67 65
Additional paid-in-capital................... 13,238 11,551
Retained earnings............................ 50,193 42,727
Cumulative foreign currency translation
gain....................................... 1,258 595
------- -------
Total stockholders' equity............. 64,756 54,938
------- -------
$98,750 $80,470
======= =======
See accompanying notes to consolidated financial statements.
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QUIKSILVER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended July 31,
----------------------------
(Amounts in thousands except share data) 1995 1994
---------------------------------------- ---------- -----------
Net sales......................................... $ 42,738 $ 29,169
Cost of goods sold................................ 26,606 17,975
---------- ----------
Gross profit...................................... 16,132 11,194
---------- ----------
Operating expenses:
Selling general and administrative
expenses..................................... 11,446 8,434
Royalty income................................. (242) (223)
Royalty expense................................ 500 281
---------- ----------
Total operating expenses..................... 11,704 8,492
---------- ----------
Operating income.................................. 4,428 2,702
Interest income................................... (2) --
Interest expense.................................. 251 166
Gain on foreign currency exchange................. (155) (55)
Loss on foreign currency exchange................. 273 149
Other expense..................................... 91 21
---------- ----------
Income before provision for income taxes.......... 3,970 2,421
Provision for income taxes - Note 4............... 1,662 916
---------- ----------
Net income........................................ $ 2,308 $ 1,505
========== ==========
Net income per common share....................... $ .33 $ .23
========== ==========
Weighted average common shares and
equivalents outstanding - Note 2............... 7,008,000 6,629,000
========== ==========
See accompanying notes to consolidated financial statements.
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QUIKSILVER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine months ended July 31,
--------------------------
(Amounts in thousands except share data) 1995 1994
---------------------------------------- ---- ----
Net sales......................................... $ 123,707 $ 89,931
Cost of goods sold................................ 75,860 55,640
---------- ----------
____ Gross profit................................. 47,847 34,291
---------- ----------
Operating expenses:
Selling general and administrative
expenses..................................... 33,521 25,174
Royalty income................................. (697) (644)
Royalty expense................................ 1,537 609
---------- ----------
Total operating expenses..................... 34,361 25,139
---------- ----------
Operating income.................................. 13,486 9,152
Interest income................................... (9) (1)
Interest expense.................................. 819 475
Gain on foreign currency exchange................. (510) (173)
Loss on foreign currency exchange................. 501 247
Other expense..................................... 188 101
---------- ----------
Income before provision for income taxes and
cumulative effect of change in accounting
for income taxes............................... 12,497 8,503
Provision for income taxes - Note 4 .............. 5,035 3,330
---------- ----------
Income before cumulative effect of change
in accounting for income taxes................. 7,462 5,173
---------- ----------
Cumulative effect of change in accounting
for income taxes............................... -- 600
---------- ----------
Net income........................................ $ 7,462 $ 5,773
========== ==========
Income per common share before cumulative effect
of change in accounting for income taxes....... 1.06 .78
Cumulative effect of change in accounting
for income taxes............................... -- .09
---------- ----------
Net income per common share....................... $ 1.06 $ .87
========== ==========
Weighted average common shares and
equivalents outstanding - Note 2............... 7,017,000 6,628,000
========== ==========
See accompanying notes to consolidated financial statements.
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QUIKSILVER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended July 31,
--------------------------
(Amounts in thousands) 1995 1994
---------------------- -------- --------
Cash flows from operating activities:
Net income........................................ $ 7,462 $ 5,639
Items in income not affecting cash:
Depreciation and amortization.................. 1,685 1,104
Provision for losses on accounts receivable.... 790 657
Loss on sale of fixed assets................... 25 86
Change in operating assets and liabilities:
Trade accounts receivable...................... (7,036) (10,820)
Other receivables.............................. 158 (991)
Inventories.................................... (11,014) (6,094)
Prepaid expenses............................... (406) 32
Other assets................................... (60) 53
Accounts payable............................... 5,235 3,322
Accrued liabilities............................ 3,816 1,333
Income taxes payable........................... 690 (72)
-------- --------
Net cash provided by (used in) operating activities.. 1,345 (5,751)
-------- --------
Cash flows from investing activities:
Proceeds from sales of fixed assets............... (25) (25)
Capital expenditures.............................. (2,093) (1,518)
Goodwill.......................................... (7) (3,795)
-------- --------
Net cash used in investing activities................ (2,125) (5,338)
-------- --------
Cash flows from financing activities:
Borrowings on lines of credit..................... 29,065 29,953
Payments on lines of credit....................... (31,132) (24,017)
Borrowings on notes payable....................... 1,040 430
Payments on notes payable......................... (252) (61)
Proceeds from stock issued in connection
with exercise of stock options.................. 1,693 783
-------- --------
Net cash provided by financing activities............ 414 7,088
-------- --------
Effect of exchange rate changes on cash.............. 663 766
-------- --------
Net increase (decrease) in cash...................... 297 (3,235)
Cash at beginning of period.......................... 682 3,386
-------- --------
Cash at end of period................................ $ 979 151
======== ========
Supplementary cash flow information:
Cash paid during the period for:
Interest.......................................... $ 805 $ 571
Income taxes...................................... 4,798 3,364
See accompanying notes to consolidated financial statements.
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QUIKSILVER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited 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 consolidated financial statements include the accounts of the parent
company and subsidiaries, which are wholly owned.
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 quarters ended July 31, 1995 and 1994. The financial
statements and notes thereto should be read in conjunction with the audited
financial statements and notes for the years ended October 31, 1994 and 1993.
Interim results are not necessarily indicative of results for the full year due
to seasonality and other factors.
For foreign operations, local currencies are considered the functional
currency. Assets and liabilities are translated using the exchange rates in
effect at the balance sheet date. Results of operations are translated using
the average exchange rates prevailing throughout the period. Translation
effects are accumulated as part of the cumulative foreign currency translation
gain section in stockholders' equity. Gains and losses from foreign currency
transactions are included in operating results.
2. Net income per common share was computed based on the weighted
average number of shares actually outstanding plus the shares that would be
outstanding, using the treasury stock method, assuming the exercise of all
outstanding options and warrants which were considered to be common stock
equivalents.
3. Inventories consist of the following:
July 31, October 31,
1995 1994
----------- -----------
Raw Materials $11,560,000 $ 9,452,000
Work-In-Process 3,033,000 3,467,000
Finished Goods 18,030,000 8,690,000
----------- -----------
$32,623,000 $21,609,000
=========== ===========
Inventories are valued at the lower of cost (first in, first out) or market.
4. Effective November 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
This Statement changed the Company's method of accounting for income taxes
from the deferred method to as asset and liability method.
The cumulative effect at November 1, 1993 of adopting SFAS 109 was the
recording of a net deferred asset and an increase to net income of $600,000 for
the three months ended January 31, 1994.
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PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS - Three Months Ended July 31, 1995 as Compared to Three
Months Ended July 31, 1994
Consolidated net sales for the third quarter increased 46.5% to $42,738,000 as
compared to $29,169,000 in the same period of the prior year. Fiscal 1995
third quarter net sales, excluding Quiksilver Europe, increased 40.0% to
$29,750,000 as compared to $21,250,000 in the same period of the prior year.
This increase was primarily due to the a greater acceptance of the Company's
product lines. Fiscal 1995 third quarter net sales for Quiksilver Europe
increased 64.0% to $12,988,000 as compared to $7,919,000 in the same period of
the prior year. This increase was a result of a greater acceptance of the
Company's product lines in Europe and a decrease in the French franc exchange
rate.
Consolidated gross profit margin for the third quarter decreased to 37.7% as
compared to 38.4% in the same period of the prior year. Fiscal 1995 third
quarter gross profit margin, excluding Quiksilver Europe, decreased to 35.5% as
compared to 36.1% in the same period of the prior year. This decrease was
primarily due to closing out selected finished goods inventory at below
wholesale prices. Fiscal 1995 third quarter gross profit margin for Quiksilver
Europe decreased to 42.8% as compared to 44.6% in the same period of the prior
year. This decrease was primarily due to closing out selected finished goods
inventory at below wholesale prices.
Consolidated selling, general and administrative expense ("SG&A") for the third
quarter increased 35.7% to $11,446,000 as compared to $8,434,000 in the same
period of the prior year. Fiscal 1995 third quarter SG&A, excluding Quiksilver
Europe, increased 30.6% to $7,213,000 as compared to $5,521,000 in the same
period of the prior year. This increase was primarily due to increased sales
volume. Fiscal 1995 third quarter SG&A for Quiksilver Europe increased 45.3%
to $4,233,000 as compared to $2,913,000 in the same period of the prior year.
This increase was primarily due to increased sales volume and a decrease in the
French franc exchange rate.
Consolidated royalty income for the third quarter increased 8.5% to $242,000 as
compared to $223,000 in the same period of the prior year. This increase was
due to increased sales of domestically licensed products. The Company receives
royalty income from its Mexico, wetsuit, watch, sunglass and outlet store
licensees as well as Raisins international licensees.
Consolidated royalty expense for the third quarter increased to $500,000 as
compared to $281,000 in the same period of the prior year. This increase was
primarily due to increased sales by Quiksilver Europe, which, as a licensee of
Quiksilver International, pay royalties pursuant to a license agreement.
Consolidated interest income increased to $2,000 from none in the same period
of the prior year. Consolidated interest expense increased to $500,000 as
compared to $166,000 in the same period of the prior year. The changes were
primarily due to a decrease in cash available for investment.
Consolidated net income for the third quarter increased 53.4% to $2,308,000 or
$0.33 per common share as compared to $1,505,000 or $0.23 per common share in
the same period of the prior year. The increase in net income was primarily
due to increased sales, partially offset by decreased gross profit margin, in
addition to increased SG&A, royalty and interest expense.
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RESULTS OF OPERATIONS - Nine Months Ended July 31, 1995 as Compared to Nine
Months Ended July 31, 1994
Consolidated net sales for the nine months increased 37.6% to $123,707,000 as
compared to $89,931,000 in the same period of the prior year. Fiscal 1995 nine
month net sales, excluding Quiksilver Europe, increased 34.2% to $83,175,000 as
compared to $61,980,000 in the same period of the prior year. This increase
was primarily due to a greater acceptance of the Company's product lines.
Fiscal 1995 nine month net sales for Quiksilver Europe increased 45.0% to
$40,532,000 as compared to $27,951,000 in the same period of the prior year.
This increase was a result of a greater acceptance of the Company's product
lines in Europe and a decrease in the French franc exchange rate.
Consolidated gross profit margin for the nine months increased to 38.7% as
compared to 38.1% in the same period of the prior year. Fiscal 1995 nine month
gross profit margin, excluding Quiksilver Europe, increased to 35.8% as
compared to 34.9% in the same period of the prior year. This increase was
primarily due to cost reduction measures and improved product forecasting
resulting in a reduction in closing out selected finished goods inventory at
below wholesale prices. Fiscal 1995 nine month gross profit margin for
Quiksilver Europe decreased to 44.5% as compared to 45.3% in the same quarter
of the prior year. This decrease was primarily due to higher levels of
markdowns and a different mix of sales.
Consolidated selling, general and administrative expense ("SG&A") for the nine
months increased 33.2% to $33,521,000 as compared to $25,174,000 in the same
period of the prior year. Fiscal 1995 nine month SG&A, excluding Quiksilver
Europe, increased 27.0% to $21,331,000 as compared to $16,800,000 in the same
period of the prior year. This increase was primarily due to increased sales
volume. Fiscal 1995 nine month SG&A for Quiksilver Europe increased 45.6% to
$12,190,000 as compared to $8,374,000 in the same period of the prior year.
This increase was primarily a result of increased sales volume and direct
selling and shipping into countries that were previously sold to by
distributors and a decrease in the French franc exchange rate.
Consolidated royalty income for the nine months increased 8.4% to $698,000 as
compared to $644,000 in the same period of the prior year. This increase was
due to increased sales of domestically licensed products. The Company receives
royalty income from its Mexico, wetsuit, watch, sunglass and outlet store
licensees as well as Raisins international licensees.
Consolidated royalty expense for the nine months increased 152.5% to $1,538,000
as compared to $609,000 in the same period of the prior year. This increase
was primarily due to increased sales by Quiksilver Europe, which, as a licensee
of Quiksilver International, pay royalties pursuant to a license agreement in
addition to an agreement with Quiksilver International, whereby Quiksilver
International provided Quiksilver Europe with a one-time reduction in royalties
in the second quarter of fiscal 1994 due to the increase in sales volume and
expenses from directly selling and shipping into countries which were
previously sold to by distributors.
Consolidated interest income increased to $9,000 compared to $1,000 in the same
period of the prior year. Consolidated interest expense increased to $819,000
as compared to $475,000 in the same period of the prior year. The changes were
primarily due to a decrease in cash available for investment.
Consolidated income before cumulative effect of change in accounting for income
taxes for the nine months increased 44.2% to $7,462,000 or $1.06 per common
share as compared to $5,173,000 or $0.78 per common share in the same period of
the prior year. This increase was primarily due to increased sales and gross
profit margin, partially offset by increased SG&A, royalty and interest
expense.
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FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
The Company finances its capital investments and seasonal working capital
requirements from funds generated by its operations and bank revolving lines of
credit.
Working capital increased to $41,933,000 at July 31, 1995 as compared to
$31,647,000 at October 31, 1994. The increase is primarily due to increased
operating income.
Consolidated trade accounts receivable as of July 31, 1995 increased 20.8% to
$36,220,000 from $29,974,000 at October 31, 1994. Trade accounts receivable,
excluding Quiksilver Europe, increased 16.5% to $22,449,000 as compared to
$19,270,000 at October 31, 1994. Quiksilver Europe's trade accounts receivable
increased 28.7% to $13,771,000 from $10,704,000 at October 31, 1994. These
increases are in line when compared to the same period of the prior year and to
the 46.5% increase in sales for the quarter over the same quarter last year.
Consolidated inventories as of July 31, 1995 increased 51.0% to $32,623,000
from $21,609,000 at October 31, 1994. Inventories, excluding Quiksilver
Europe, increased 29.7% to $24,149,000 as compared to $18,619,000 at the same
time last year. Quiksilver Europe's inventories increased 184.4% to $8,474,000
from $2,990,000 at October 31, 1994. These increases are primarily due to
increased bookings for its lines as well as seasonal factors.
As the Company uses independent contractors for cutting, sewing and all other
manufacturing of the Company's products, and intends to continue to use
independent contractors in the future, the Company has avoided significant
capital expenditures. Fiscal 1995 nine month capital expenditures were
$2,093,000 as compared to $897,000 for the same period of the prior year.
Goodwill on the Company's balance sheets as of July 31, 1995 and October 31,
1994 consists primarily of the costs in excess over net assets acquired in the
Quiksilver Europe and Raisin's acquisitions.
To finance the Company's seasonal working capital needs, the Company has
available a revolving line of credit with a U.S. bank which is unsecured and
which provides for a maximum financing of $20,000,000. The line of credit
bears interest at 0.5% below the bank's reference rate for the first
$16,000,000 drawn and at the bank's reference rate on all amounts drawn over
$16,000,000. The line of credit expires April 29, 1996. The European
operation also has available lines of credit, both secured and unsecured, with
banks which provide for maximum financing of approximately $17,500,000. The
lines of credit bear interest at 0.8% to 1.5% above the bank's reference rates.
The Company believes its current cash balance and current lines of credit are
adequate to cover its seasonal working capital requirements for the foreseeable
future.
Effective November 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). This
Statement changed the Company's method of accounting for income taxes from the
deferred method to an asset and liability method. The effect of initially
adopting SFAS 109 was accounted for as a cumulative effect of an accounting
change and resulted in an increase in earnings for the first quarter of fiscal
1994 of $600,000.
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 the
customers. While management believes that allowances for doubtful accounts at
July 31, 1995 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. However,
in management's opinion, there are adequate alternative retail customers such
that the loss of any customer known to have financial difficulties will not
have a significant long-term negative impact on the Company's future
operations.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
SIGNATURES
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 11, 1995 Randall L. Herrel, Sr.
----------------------------------------
Randall L. Herrel, Sr.
President,
Chief Operating Officer
and Secretary
September 11, 1995 Bert G. Fenenga
----------------------------------------
Bert G. Fenenga
Senior Vice President,
Chief Financial Officer
and Treasurer
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