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 APRIL 30, 2001
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 AVENUE
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
June 8, 2001 was
23,120,738
2
QUIKSILVER, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
April 30, 2001 and October 31, 2000............................. 2
Condensed Consolidated Statements of Income
Three Months Ended April 30, 2001 and 2000...................... 3
Condensed Consolidated Statements of Income
Six Months Ended April 30, 2001 and 2000........................ 4
Condensed Consolidated Statements of Comprehensive Income
Six Months Ended April 30, 2001 and 2000........................ 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended April 30, 2001 and 2000........................ 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 4. Submission of Matters to a Vote of Security-Holders............ 12
Item 6. Exhibits and Reports on Form 8K................................ 12
SIGNATURE............................................................... 12
1
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
QUIKSILVER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
APRIL 30, OCTOBER 31,
2001 2000
---- ----
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 5,674,000 $ 2,298,000
Trade accounts receivable, less allowance
for doubtful accounts of $4,087,000 (2001)
and $5,090,000 (2000) ............................................ 149,442,000 136,394,000
Other receivables .................................................. 6,775,000 5,654,000
Inventories ........................................................ 98,241,000 90,034,000
Prepaid expenses and other current assets .......................... 10,220,000 8,993,000
------------- -------------
Total current assets .......................................... 270,352,000 243,373,000
Property and equipment, less accumulated depreciation
and amortization of $28,738,000 (2001) and
$23,211,000 (2000) .................................................. 53,204,000 49,834,000
Trademark, less accumulated amortization of
$3,871,000 (2001) and $2,825,000 (2000) ............................. 42,819,000 43,566,000
Goodwill, less accumulated amortization of
$6,403,000 (2001) and $6,022,000 (2000) ............................. 19,342,000 18,962,000
Other assets ........................................................... 3,540,000 3,007,000
------------- -------------
Total assets .................................................. $ 389,257,000 $ 358,742,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit ..................................................... $ 62,724,000 $ 49,203,000
Accounts payable .................................................... 32,233,000 40,642,000
Accrued liabilities ................................................. 20,671,000 22,568,000
Current portion of long-term debt ................................... 9,554,000 9,428,000
Income taxes payable ................................................ 4,893,000 2,003,000
------------- -------------
Total current liabilities ..................................... 130,075,000 123,844,000
Long-term debt ......................................................... 53,526,000 57,284,000
------------- -------------
Total liabilities ............................................. 183,601,000 181,128,000
------------- -------------
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 - 23,842,038 (2001) and 23,234,036 (2000) ................... 239,000 232,000
Additional paid-in capital .......................................... 52,159,000 42,833,000
Treasury stock, 721,300 shares ...................................... (6,778,000) (6,778,000)
Retained earnings ................................................... 171,113,000 153,426,000
Accumulated other comprehensive loss ................................ (11,077,000) (12,099,000)
------------- -------------
Total stockholders' equity .................................... 205,656,000 177,614,000
------------- -------------
Total liabilities and stockholders' equity .................... $ 389,257,000 $ 358,742,000
============= =============
See notes to condensed consolidated financial statements.
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QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED APRIL 30,
------------------------------
2001 2000
---- ----
Net sales............................................... $168,198,000 $142,139,000
Cost of goods sold...................................... 100,736,000 83,867,000
------------ ------------
Gross profit......................................... 67,462,000 58,272,000
------------ ------------
Operating expenses:
Selling, general and administrative expense.......... 44,238,000 36,604,000
Royalty income....................................... (1,348,000) (509,000)
Royalty expense...................................... -- 1,639,000
------------ ------------
Total operating expenses.......................... 42,890,000 37,734,000
------------ ------------
Operating income........................................ 24,572,000 20,538,000
Interest expense........................................ 2,648,000 1,208,000
Foreign currency (gain) loss............................ (1,052,000) 63,000
Other expense........................................... 132,000 100,000
------------ ------------
Income before provision for income taxes................ 22,844,000 19,167,000
Provision for income taxes.............................. 8,863,000 7,858,000
------------ ------------
Net income.............................................. $ 13,981,000 $ 11,309,000
============ ============
Net income per share ................................... $0.61 $0.51
============ ============
Net income per share, assuming dilution ................ $0.58 $0.49
============ ============
Weighted average common shares outstanding ............. 22,957,000 22,347,000
============ ============
Weighted average common shares outstanding,
assuming dilution.................................... 24,224,000 23,191,000
============ ============
See notes to condensed consolidated financial statements.
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QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
SIX MONTHS ENDED APRIL 30,
------------------------------
2001 2000
---- ----
Net sales............................................... $290,031,000 $242,068,000
Cost of goods sold...................................... 175,134,000 144,928,000
------------ ------------
Gross profit......................................... 114,897,000 97,140,000
------------ ------------
Operating expenses:
Selling, general and administrative expense.......... 82,750,000 66,663,000
Royalty income....................................... (2,474,000) (1,122,000)
Royalty expense...................................... -- 2,899,000
------------ ------------
Total operating expenses.......................... 80,276,000 68,440,000
------------ ------------
Operating income........................................ 34,621,000 28,700,000
Interest expense........................................ 5,664,000 2,231,000
Foreign currency (gain) loss............................ (137,000) 123,000
Other expense........................................... 233,000 260,000
------------ ------------
Income before provision for income taxes................ 28,861,000 26,086,000
Provision for income taxes.............................. 11,174,000 10,698,000
------------ ------------
Net income.............................................. $ 17,687,000 $ 15,388,000
============ ============
Net income per share ................................... $0.78 $0.69
============ ============
Net income per share, assuming dilution ................ $0.74 $0.66
============ ============
Weighted average shares outstanding .................... 22,758,000 22,354,000
============ ============
Weighted average shares outstanding,
assuming dilution.................................... 23,985,000 23,170,000
============ ============
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
SIX MONTHS ENDED APRIL 30,
------------------------------
2001 2000
---- ----
Net income.............................................. $ 17,687,000 $ 15,388,000
Other comprehensive gain (loss):
Foreign currency translation adjustment.............. 1,619,000 (5,465,000)
Net unrealized loss on derivative instruments........ (1,196,000) --
Income tax effects................................... 599,000 --
------------ ------------
Comprehensive income .................................. $ 18,709,000 $ 9,923,000
============ ============
See notes to condensed consolidated financial statements.
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QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED APRIL 30,
-------------------------------
2001 2000
---- ----
Cash flows from operating activities:
Net income........................................... $ 17,687,000 $ 15,388,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization.................. 6,806,000 4,580,000
Provision for doubtful accounts................ 1,983,000 1,606,000
Loss on sale of fixed assets................... 37,000 18,000
Foreign currency gain.......................... (55,000) --
Interest accretion............................. 778,000 --
Changes in operating assets and liabilities:
Trade accounts receivables.................. (12,956,000) (22,984,000)
Other receivables........................... 400,000 (699,000)
Inventories................................. (7,507,000) (2,652,000)
Prepaid expenses and other current assets... (1,165,000) (1,433,000)
Other assets................................ (722,000) (279,000)
Accounts payable............................ (9,260,000) 120,000
Accrued liabilities......................... (3,847,000) (5,784,000)
Income taxes payable........................ 6,488,000 7,803,000
------------ ------------
Net cash used in operating activities.......... (1,333,000) (4,316,000)
Cash flows from investing activities:
Proceeds from sales of fixed assets.................. 9,000 2,000
Capital expenditures and business acquisitions....... (9,105,000) (9,471,000)
------------ ------------
Net cash used in investing activities.......... (9,096,000) (9,469,000)
Cash flows from financing activities:
Borrowings on lines of credit........................ 44,409,000 46,545,000
Payments on lines of credit.......................... (30,807,000) (34,502,000)
Borrowings on long-term debt......................... 671,000 14,389,000
Payments on long-term debt........................... (5,444,000) (15,207,000)
Proceeds from stock option exercises................. 5,582,000 3,174,000
Purchase of treasury stock........................... -- (1,835,000)
------------ ------------
Net cash provided by financing activities...... 14,411,000 12,564,000
Effect of exchange rate changes on cash................. (606,000) (21,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents.... 3,376,000 (1,242,000)
Cash and cash equivalents, beginning of period.......... 2,298,000 1,449,000
------------ ------------
Cash and cash equivalents, end of period................ $ 5,674,000 $ 207,000
============ ============
Supplementary cash flow information -
Cash paid during the period for:
Interest.......................................... $ 4,667,000 $ 2,272,000
============ ============
Income taxes...................................... $ 4,259,000 $ 3,111,000
============ ============
See notes to condensed consolidated financial statements.
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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 six months ended April 30, 2001
and 2000. 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, 2000 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:
APRIL 30, OCTOBER 31,
2001 2000
---- ----
Raw Materials........................ $ 25,369,000 $ 22,191,000
Work-In-Process...................... 6,429,000 7,543,000
Finished Goods....................... 66,443,000 60,300,000
------------ ------------
$ 98,241,000 $ 90,034,000
============ ============
3. Information related to domestic and European operations is as follows:
SIX MONTHS ENDED APRIL 30,
------------------------------
2001 2000
---- ----
Net sales to unaffiliated customers:
Domestic...................................... $188,967,000 $156,179,000
Europe........................................ 101,064,000 85,889,000
------------ ------------
Consolidated................................ $290,031,000 $242,068,000
============ ============
Gross profit:
Domestic...................................... $ 70,021,000 $ 57,596,000
Europe........................................ 44,876,000 39,544,000
------------ ------------
Consolidated................................ $114,897,000 $ 97,140,000
============ ============
Operating income:
Domestic...................................... $ 21,931,000 $ 17,180,000
Europe........................................ 12,690,000 11,520,000
------------ ------------
Consolidated................................ $ 34,621,000 $ 28,700,000
============ ============
Identifiable assets:
Domestic...................................... $274,299,000 $193,053,000
Europe........................................ 114,958,000 84,970,000
------------ ------------
Consolidated................................ $389,257,000 $278,023,000
============ ============
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4. Effective November 1, 2000, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Company is exposed to gains and
losses resulting from fluctuations in foreign currency exchange rates
relating to certain sales, royalty income, and product purchases of its
international subsidiaries that are denominated in currencies other than
their functional currencies. The Company is also exposed to foreign
currency gains and losses resulting from domestic transactions that are
not denominated in U.S. dollars, and to fluctuations in interest rates
related to its variable rate debt. Furthermore, the Company is exposed to
gains and losses resulting from the effect that fluctuations in foreign
currency exchange rates have on the reported results in the Company's
consolidated financial statements due to the translation of the operating
results and financial position of the Company's international
subsidiaries. As part of its overall strategy to manage the level of
exposure to the risk of fluctuations in foreign currency exchange rates,
the Company uses various foreign currency exchange contracts and
intercompany loans. In addition, interest rate swaps are used to manage
the Company's exposure to the risk of fluctuations in interest rates.
For all qualifying cash flow hedges, the changes in the fair value of the
derivatives are recorded in other comprehensive income. All other
derivatives are marked to market value with corresponding gains or losses
recorded in earnings. As of April 30, 2001, the Company was hedging
forecasted transactions expected to occur in the following twelve months.
Also included in accumulated other comprehensive income at April 30, 2001
is a charge related to cash flow hedges of the Company's long-term debt
that is denominated in Australian dollars, which will be amortized into
earnings through fiscal 2005 as the debt matures.
On the date the Company enters into a derivative contract, management
designates the derivative as a hedge of the identified exposure. The
Company formally documents all relationships between hedging instruments
and hedged items, as well as the risk-management objective and strategy
for entering into various hedge transactions. In this documentation, the
Company identifies the asset, liability, firm commitment, or forecasted
transaction that has been designated as a hedged item and indicates how
the hedging instrument is expected to hedge the risks related to the
hedged item. The Company formally measures effectiveness of its hedging
relationships both at the hedge inception and on an ongoing basis in
accordance with its risk management policy. The Company would discontinue
hedge accounting prospectively (i) if it is determined that the derivative
is no longer effective in offsetting changes in the cash flows of a hedged
item, (ii) when the derivative expires or is sold, terminated, or
exercised, (iii) if it becomes probable that the forecasted transaction
being hedged by the derivative will not occur, (iv) because a hedged firm
commitment no longer meets the definition of a firm commitment, or (v) if
management determines that designation of the derivative as a hedge
instrument is no longer appropriate.
The Company enters into forward exchange and other derivative contracts
with major banks and is exposed to credit losses in the event of
nonperformance by these banks. The Company anticipates, however, that
these banks will be able to fully satisfy their obligations under the
contracts. Accordingly, the Company does not obtain collateral or other
security to support the contracts.
A summary of derivative contracts at April 30, 2001 is as follows:
April 30, 2001
----------------------------------------------------
Notional Fair
Amount Maturity Value
------------ ---------------------- -----------
British pounds $ 11,717,000 May 2001 -- Dec 2001 $ 76,000
U.S. dollars 46,400,000 May 2001 -- Dec 2001 201,000
Australian dollars 21,730,000 Sept 2002 -- Sept 2005 (799,000)
Interest rate swap 21,875,000 Oct 2004 (224,000)
Interest rate swap 11,070,000 Jan 2007 (570,000)
------------ -----------
$112,792,000 $(1,316,000)
============ ============
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PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
THREE MONTHS ENDED APRIL 30, 2001 COMPARED TO THREE MONTHS ENDED APRIL 30, 2000
Net sales for the three months ended April 30, 2001 increased 18.3% to
$168,198,000 from $142,139,000 in the comparable period of the prior year.
Domestic net sales for the three months ended April 30, 2001 increased 18.0% to
$110,392,000 from $93,529,000 in the comparable period of the prior year, and
European net sales increased 18.9% to $57,806,000 from $48,610,000 for those
same periods. As measured in French Francs, Quiksilver Europe's functional
currency, net sales in the current year's quarter increased 26.6% compared to
the prior year. Domestic men's sales increased 10.8% to $55,637,000 from
$50,199,000 in the comparable period of the prior year, while domestic women's
sales increased 28.6% to $53,654,000 from $41,717,000. In the domestic division,
sales of snowboards, boots and bindings amounted to $1,101,000 in the current
year's quarter compared to $1,613,000 in the prior year. The domestic men's
sales increase came from the Quiksilver Young Mens and Boys divisions and from
the Company's new Hawk Clothing business. The domestic women's sales increase
came from the Roxy and Raisins divisions. In Europe, men's sales increased 17.7%
to $43,471,000 from $36,947,000, while women's sales increased 22.9% to
$14,335,000 from $11,663,000. The European mens sales increase came from the
Quiksilver Young Mens, Boys and Gotcha divisions. The European womens sales
increase came from the Roxy division. These comparisons of sales in Europe are
negatively impacted by the strong dollar in comparison to the prior year. As
measured in French francs, men's sales increased 25.2% and women's sales
increased 30.8%.
The gross profit margin for the three months ended April 30, 2001 decreased to
40.1% from 41.0% in the comparable period of the prior year. The domestic gross
profit margin decreased somewhat to 37.4% from 37.6% in the comparable period of
the prior year, and the European gross profit margin decreased to 45.3% from
47.5% for those same periods. In the domestic division, the positive gross
margin effect of a higher level of sales through company-owned retail stores was
offset by an overall change in product mix. Gross profit margins are higher, on
a consolidated basis, for sales in company-owned retail stores compared to the
Company's normal wholesale distribution. In Europe, the gross profit margin
decreased primarily due to higher product costs in the local currency that were
not passed along to customers. Product costs increased as goods purchased in
U.S. dollars were paid for with a weaker local currency in comparison to
previous periods.
Selling, general and administrative expense ("SG&A") for the three months ended
April 30, 2001 increased 20.9% to $44,238,000 from $36,604,000 in the comparable
period of the prior year. Domestic SG&A increased 25.0% to $28,725,000 from
$22,978,000 in the comparable period of the prior year, and European SG&A
increased 13.8% to $15,513,000 from $13,626,000 for those same periods. The
increase in both domestic and European SG&A was primarily due to higher
personnel and other costs related to increased sales volume. SG&A increased as a
percentage of sales domestically primarily due to the operating costs of
Quiksilver International, which was acquired in the third quarter of fiscal
2000, and from added company-owned retail stores. In Europe, SG&A decreased as a
percentage of sales primarily as a result of general leverage on growth.
Royalty income for the three months ended April 30, 2001 totaled $1,348,000
compared to net royalty expense of $1,130,000 in the comparable period of the
prior year. The increase in royalty income came primarily from the acquisition
of Quiksilver International, which receives royalties based on sales of
Quiksilver products by its licensees in various countries around the world.
Royalty expense in the previous year was eliminated with the acquisition.
Interest expense for the three months ended April 30, 2001 increased 119.2% to
$2,648,000 from $1,208,000 in the comparable period of the prior year. This
increase was primarily due to borrowings to acquire Quiksilver International,
and to a lesser extent, borrowings to fund retail investments and working
capital growth.
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The effective income tax rate for the three months ended April 30, 2001, which
is based on current estimates of the annual effective income tax rate, decreased
to 38.8% from 41.0% in the comparable period of the prior year. This improvement
resulted primarily from a lower overall tax rate for Quiksilver Europe.
As a result of the above factors, net income for the three months ended April
30, 2001 increased 23.6% to $13,981,000 or $0.58 per share on a diluted basis
from $11,309,000 or $0.49 per share on a diluted basis in the comparable period
of the prior year. Basic net income per share increased to $0.61 for the three
months ended April 30, 2001 from $0.51 in the comparable period of the prior
year.
SIX MONTHS ENDED APRIL 30, 2001 COMPARED TO SIX MONTHS ENDED APRIL 30, 2000
Net sales for the six months ended April 30, 2001 increased 19.8% to
$290,031,000 from $242,068,000 in the comparable period of the prior year.
Domestic net sales for the six months ended April 30, 2001 increased 21.0% to
$188,967,000 from $156,179,000 in the comparable period of the prior year, and
European net sales increased 17.7% to $101,064,000 from $85,889,000 for those
same periods. As measured in French francs, Quiksilver Europe's net sales in the
first six months of the current year increased 28.9% compared to the prior year.
Domestic men's sales increased 12.3% to $96,145,000 from $85,606,000 in the
comparable period of the prior year, while domestic women's sales increased
34.0% to $90,244,000 from $67,329,000. In the domestic division, sales of
snowboards, boots and bindings amounted to $2,578,000 in the current year's
six-month period compared to $3,244,000 in the prior year. The domestic men's
sales increase came from the Quiksilver Young Mens and Boys divisions and from
the Company's new Hawk Clothing business. The domestic women's sales increase
came from both the Roxy and Raisins divisions. In Europe, men's sales increased
12.0% to $80,333,000 from $71,697,000, while women's sales increased 46.1% to
$20,731,000 from $14,192,000. The European mens sales increase came from the
Quiksilver Young Mens, Boys and Gotcha divisions. The European womens sales
increase came from the Roxy division. These comparisons of sales in Europe are
negatively impacted by the strong dollar in comparison to the prior year. As
measured in French francs, men's sales increased 23.1%, and women's sales
increased 57.5%.
The gross profit margin for the six months ended April 30, 2001 decreased to
39.6% from 40.1% in the comparable period of the prior year. The domestic gross
profit margin increased to 37.1% from 36.9%, and the European gross profit
margin decreased to 44.4% from 46.0% for those same periods. The increase in the
domestic gross profit margin resulted primarily from a higher level of sales
through company-owned retail stores in comparison to the prior year. In Europe,
the gross profit margin decreased primarily due to higher product costs in the
local currency that were not passed along to customers. Product costs increased
as goods purchased in U.S. dollars were paid for with a weaker local currency in
comparison to previous periods.
SG&A for the six months ended April 30, 2001 increased 24.1% to $82,750,000 from
$66,663,000 in the comparable period of the prior year. Domestic SG&A increased
30.1% to $53,556,000 from $41,160,000 in the comparable period of the prior
year, and European SG&A increased 14.5% to $29,194,000 from $25,503,000 for
those same periods. The increase in both domestic and European SG&A was
primarily due to higher personnel and other costs related to increased sales
volume. SG&A increased as a percentage of sales domestically primarily due to
the operating costs of Quiksilver International, which was acquired in the third
quarter of fiscal 2000, and from added company-owned retail stores. In Europe,
SG&A decreased as a percentage of sales primarily as a result of general
leverage on growth.
Royalty income for the six months ended April 30, 2001 totaled $2,474,000
compared to net royalty expense of $1,777,000 in the comparable period of the
prior year. The increase in royalty income came primarily from the acquisition
of Quiksilver International.
Interest expense for the six months ended April 30, 2001 increased 153.9% to
$5,664,000 from $2,231,000 in the comparable period of the prior year. This
increase was primarily due to borrowings to acquire Quiksilver International,
and to a lesser extent, borrowings to fund retail investments and working
capital growth.
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The effective income tax rate for the six months ended April 30, 2001, which is
based on current estimates of the annual effective income tax rate, decreased to
38.7% from 41.0% in the comparable period of the prior year. This improvement
resulted primarily from a lower overall tax rate for Quiksilver Europe.
As a result of the above factors, net income for the six months ended April 30,
2001 increased 14.9% to $17,687,000 or $0.74 per share on a diluted basis from
$15,388,000 or $0.66 per share on a diluted basis in the comparable period of
the prior year. Basic net income per share increased to $0.78 for the six months
ended April 30, 2001 from $0.69 in the comparable period of the prior year.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
The Company finances its capital investments and seasonal working capital
requirements with funds generated by operations and its bank revolving lines of
credit.
Net cash used in operating activities for the six months ended April 30, 2001
was $1,333,000 compared to $4,316,000 in the comparable period of the prior
year. The $2,983,000 of additional cash flow from operating activities was
primarily due to an increase of $5,644,000 in net income and noncash expenses
during the six months ended April 30, 2001 compared to the six months ended
April 30, 2000. Cash flows improved $10,028,000 versus the prior year as a
result of a smaller increase in trade accounts receivable. However, this
improvement was more than offset by $4,855,000 of additional cash used to
increase inventories and $9,380,000 to reduce accounts payable.
For the six months ended April 30, 2001, capital expenditures totaled
$9,105,000, which is generally consistent with the $9,471,000 in the comparable
period of the prior year. These investments include screenprinting and
embroidery equipment, investments in Quiksvilles and company-owned Boardriders
Clubs, and ongoing investments in computer equipment.
During the six months ended April 30, 2001, net cash provided by financing
activities totaled $14,411,000 compared to $12,564,000 in the comparable period
of the prior year. Excluding the purchase of treasury stock, the cash provided
by financing activities in the current year is generally consistent with the
prior year.
The net increase in cash and cash equivalents for the six months ended April 30,
2001 was $3,376,000 compared to a net decrease of $1,242,000 in the comparable
period of the prior year. Cash and cash equivalents increased to $5,674,000 at
April 30, 2001 from $2,298,000 at October 31, 2000, while working capital
increased $20,748,000 or 17.4% to $140,277,000 from $119,529,000 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 9.6% to $149,442,000 at April 30, 2001 from
$136,394,000 at October 31, 2000. Domestic accounts receivable increased 3.2% to
$90,170,000 at April 30, 2001 from $87,369,000 at October 31, 2000, and European
accounts receivable increased 20.9% to $59,272,000 from $49,025,000 for that
same period. These increases in accounts receivable are generally consistent
with the increases in net sales but fluctuate somewhat due to differences in the
timing of shipments in comparison to previous periods.
Consolidated inventories increased 9.1% to $98,241,000 at April 30, 2001 from
$90,034,000 at October 31, 2000. Domestic inventories increased 5.9% to
$77,157,000 from $72,860,000 at October 31, 2000, and European inventories
increased 22.8% to $21,084,000 from $17,174,000 for that same period. Domestic
inventories at April 30, 2001 were higher in comparison to April 30, 2000 to
support planned in-season sales in the second half of the fiscal year. The
increase in European inventories in comparison to April 30, 2000 is generally
consistent with the increase in sales.
It is not uncommon for some of the Company's customers to have financial
difficulties from time to time. This is normal given the wide variety of the
Company's account base, which includes small surf shops, medium-sized retail
chains, and some large department store chains. In some cases, customers have
ended up in bankruptcy. However, the Company's losses from these situations has
been relatively normal and anticipated.
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To allow for such losses, the Company establishes reserves for doubtful accounts
to reduce the value of its receivables. Management believes that the allowance
for doubtful accounts at April 30, 2001 is adequate to cover anticipated losses.
Throughout the year, the Company monitors developments regarding its major
customers. However, if customers experience unforeseen, material financial
difficulties, this could have an adverse impact on the Company's profits.
FOREIGN CURRENCY
The Company's foreign currency risks are discussed in the Company's Annual
Report on Form 10-K for the year ended October 31, 2000 in Item 7a.
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.
European net sales increased 26.6% in French francs during the three months
ended April 30, 2001 compared to the three months ended April 30, 2000. As
measured in U.S. dollars and reported in the Company's financial statements,
European net sales increased only 18.9% as a result of a stronger U.S. dollar
versus the euro and French franc in comparison to the prior year. Thus far in
the Company's third quarter, the dollar continues to be stronger relative to the
euro and French franc in comparison to the prior year.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
The Company's Annual Meeting of Stockholders was held on March 30, 2001. At the
Annual Meeting, the following directors were elected to serve on the Company's
Board of Directors until the next Annual Meeting and until their respective
successors are elected and qualified:
Votes Votes
For Withheld
---------- ---------
Robert B. McKnight, Jr. 21,382,476 570,637
William M. Barnum, Jr. 21,382,476 570,637
Charles E. Crowe 21,382,476 570,637
Michael H. Gray 21,382,476 570,637
Harry Hodge 19,919,682 2,033,431
Robert G. Kirby 21,355,396 597,717
Tom Roach 21,382,476 570,637
In addition, the amendment of the Company's 2000 Stock Incentive Plan was
approved by the stockholders with 18,919,149 votes for, 2,924,002 votes against,
and 109,962 votes abstained.
Item 6. Exhibits and Reports on Form 8K.
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
April 30, 2001.
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
June 13, 2001 /s/ Steven L. Brink
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Steven L. Brink
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
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