<PAGE> 1
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 January 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)
<TABLE>
<S> <C>
Delaware 33-0199426
(State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
or organization)
1740 Monrovia Avenue
Costa Mesa, California 92627
(Address of principal executive offices) (Zip code)
</TABLE>
Registrant's telephone number, including area code: (714) 645-1395
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
<S> <C>
None None
</TABLE>
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 January 31, 1995 was 6,542,922.
<PAGE> 2
QUIKSILVER, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
<S> <C>
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
January 31, 1995 (Unaudited) and October 31, 1994 .. 2
Consolidated Statements of Income (Unaudited)
Three Months ended January 31, 1995 and 1994 ....... 3
Consolidated Statements of Cash Flows (Unaudited)
Three Months ended January 31, 1995 and 1994 ....... 4
Notes to Consolidated Financial Statements ................ 5
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
- ----------
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
QUIKSILVER, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
January 31, October 31,
(Amounts in thousands except share data) 1995 1994
- ----------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents ................ $ 1,877 $ 682
Trade accounts receivable, less allowance
for doubtful accounts of $3,025 (1995)
and $2,202 (1994) ...................... 29,526 29,974
Other receivables ........................ 2,111 1,548
Inventories - Note 3 ..................... 28,938 21,609
Prepaid expenses ......................... 883 917
-------- --------
Total current assets ................... 63,335 54,730
Equipment, less accumulated depreciation and
amortization of $6,772 (1995) and $6,194
(1994) ................................... 6,646 6,133
Trademark and consulting agreement, less
accumulated amortization of $1,235 (1995)
and 1,185 (1994) ......................... 1,783 1,833
Goodwill, less accumulated amortization of $2,049
(1995) and $1,899 (1994) ................. 16,057 16,209
Other assets ................................... 1,577 1,565
-------- --------
$ 89,398 $ 80,470
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Lines of credit .......................... $ 11,812 $ 10,100
Accounts payable ......................... 10,696 5,157
Accrued liabilities ...................... 6,225 5,024
Current portion of notes payable ......... 207 390
Income taxes payable ..................... 1,331 2,412
-------- --------
Total current liabilities .............. 30,271 23,083
Notes payable .................................. 2,561 2,449
-------- --------
Total liabilities ...................... 32,832 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 6,542,922 (1995)
and 6,521,422 (1994).................... 66 65
Additional paid-in-capital ............... 11,737 11,551
Retained earnings ........................ 44,260 42,727
Cumulative foreign currency translation
gain ................................... 503 595
-------- --------
Total stockholders' equity ............. 56,566 54,938
-------- --------
$ 89,398 $ 80,470
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
QUIKSILVER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended January 31,
------------------------------
(Amounts in thousands except share data) 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Net sales ................................ $ 33,658 $ 24,294
Cost of goods sold ....................... 20,769 15,443
--------- ---------
Gross profit .......................... 12,889 8,851
--------- ---------
Operating expenses
Selling, general and
administrative expenses .............. 9,965 7,185
Royalty income ......................... (208) (259)
Royalty expense......................... 422 265
--------- ---------
Total operating expenses.............. 10,179 7,191
--------- ---------
Operating income.......................... 2,710 1,660
Interest income........................... (6) (1)
Interest expense.......................... 170 96
Gain on foreign currency exchange......... (235) (33)
Loss on foreign currency exchange......... 138 70
Other expense............................. 78 38
--------- ---------
Income before provision for
income taxes and cumulative effect
of change in accounting for income
taxes .................................. 2,565 1,490
Provision for income taxes - Note 4....... 1,034 582
--------- ---------
Income before cumulative effect
of change in accounting for income
taxes .................................. 1,531 908
Cumulative effect of change in accounting
for income taxes........................ -- 600
--------- ---------
Net income ............................... $ 1,531 $ 1,508
========= =========
Income per common share before
cumulative effect of change in
accounting for income taxes............. $ .23 $ .14
Cumulative effect of change in accounting
for income taxes........................ -- .09
--------- ---------
Net income per common share............... $ .23 $ .23
========= =========
Weighted average common shares
and equivalents outstanding - Note 2 ... 6,744,000 6,567,000
========= =========
</TABLE>
3
<PAGE> 5
QUIKSILVER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended January 31,
------------------------------
(Amounts in thousands) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................ $ 1,531 $ 1,508
Items in income not affecting cash:
Depreciation and amortization .................. 565 342
Provision for losses on accounts receivable .... 243 71
Net (gain) loss on sale of fixed assets.......... (4) 50
Change in operating assets and liabilities:
Trade accounts receivable ...................... 205 (3,914)
Other receivables .............................. (563) 386
Inventories .................................... (7,329) (6,117)
Prepaid expenses ............................... 34 26
Other assets ................................... (12) (623)
Accounts payable ............................... 5,539 2,932
Accrued liabilities ............................ 1,201 1,247
Income taxes payable ........................... (1,081) (750)
------- -------
Net cash provided by (used in) operating activities... 329 (4,842)
Cash flows from investing activities:
Proceeds from sales of fixed assets................. 25 (5)
Capital expenditures................................ (897) (1,020)
Goodwill............................................ -- (3,788)
------- -------
Net cash used in investing activities ................ (872) (4,813)
Cash flows from financing activities:
Borrowings on lines of credit...................... 6,012 6,268
Payments on lines of credit........................ (4,300) (288)
Borrowings on long-term debt....................... 112 318
Payments on long-term debt......................... (183) (83)
Proceeds from stock issued in connection with
exercise of stock options ....................... 189 182
------- -------
Net cash provided by financing activities............. 1,830 6,397
Effect of exchange rate changes on cash............... (92) 8
------- -------
Net increase (decrease) in cash....................... 1,195 (3,250)
Cash at beginning of period .......................... 682 3,386
------- -------
Cash at end of period ................................ $ 1,877 $ 136
======= =======
Supplementary Cash Flow Information:
Cash paid during the period for:
Interest ....................................... $ 241 $ 143
Income taxes ................................... 1,085 218
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
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 quarter ended January 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:
<TABLE>
<CAPTION>
January 31, October 31,
1995 1994
------------ ------------
<S> <C> <C>
Raw Materials $ 9,543,000 $ 9,452,000
Work-In-Process 4,237,000 3,467,000
Finished Goods 15,158,000 8,690,000
------------ ------------
$ 28,938,000 $ 21,609,000
============ ============
</TABLE>
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 an asset and
liability method.
The cumulative effect at November 1, 1993 of adopting this new
statement 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.
5
<PAGE> 7
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS - Three Months Ended January 31, 1995 as Compared to
Three Months Ended January 31, 1994
Fiscal 1995 first quarter consolidated net sales increase 38.5% to $33,658,000
as compared to $24,294,000 in the same period of the prior year. Fiscal 1995
first quarter net sales, excluding Quiksilver Europe, increased 36.9% to
$22,239,000 as compared to $16,248,000 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 first quarter net sales for Quiksilver Europe
increased 41.9% to $11,419,000 as compared to $8,046,000 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.
Fiscal 1995 first quarter consolidated gross profit margin increased to 38.3%
as compared to 36.4% in the same period of the prior year. Fiscal 1995 first
quarter gross profit margin, excluding Quiksilver Europe, increased to 35.5% as
compared to 31.8% 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 first quarter gross profit margin for
Quiksilver Europe decreased to 43.8% as compared to 45.8% in the same quarter
of the prior year. This decrease was primarily due to higher levels of
markdowns and a different mix of sales.
Fiscal 1995 first quarter consolidated selling, general and administrative
expense ("SG&A") increased 38.7% to $9,965,000 as compared to $7,185,000 in the
same period of the prior year. Fiscal 1995 first quarter SG&A, excluding
Quiksilver Europe, increased 32.5% to $6,320,000 as compared to $4,771,000 in
the same period of the prior year. This increase was primarily due to
increased sales volume. Fiscal 1995 first quarter SG&A expense for Quiksilver
Europe increased 51.0% to $3,645,000 as compared to $2,414,000 in the same
period of the prior year. This increase was primarily a result of increased
sales volume, direct selling and shipping into countries that were previously
sold to by distributors and a decrease in the French franc exchange rate.
Fiscal 1995 first quarter consolidated royalty income decreased 19.7% to
$208,000 as compared to $259,000 in the same period of the prior year. This
decrease was due to decreased sales of internationally licensed products. The
Company receives royalty income from its Mexico, wetsuit, watch, sunglass, and
outlet store licensees as well as Raisins international licensees.
Fiscal 1995 first quarter consolidated royalty expense increased 59.2% to
$422,000 as compared to $265,000 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, and due to a decrease in the French franc exchange rate.
Fiscal 1995 first quarter consolidated interest income increased to $6,000 as
compared to $1,000 in the same period of the prior year. Fiscal 1995 first
quarter consolidated interest expense increased 77.1% to $170,000 as compared
to $96,000 in the same period of the prior year. The changes were primarily
due to a decrease in cash available for investment.
Fiscal 1995 first quarter consolidated income before cumulative effect of
change in accounting for income taxes increased 68.6% to $1,531,000 or $0.23
per common share as compared to $908,000 or $0.14 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.
6
<PAGE> 8
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 $33,064,000 at January 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 January 31, 1995 decreased 1.5% to
$29,526,000 from $29,974,000 at October 31, 1994. Trade accounts receivable,
excluding Quiksilver Europe, decreased 9.0% to $17,545,000 as compared to
$19,270,000 at October 31, 1994. Quiksilver Europe's trade accounts receivable
increased 11.9% to $11,981,000 as compared to $10,704,000 at October 31, 1994.
These changes are in line when compared to the same period last year and to the
38.5% increase in sales for the quarter over last year.
Consolidated inventories as of January 31, 1995 increased 33.9% to $28,938,000
from $21,609,000 at October 31, 1994. Inventories, excluding Quiksilver
Europe, increased 23.3% to $22,952,000 as compared to $18,619,000 at October
31, 1994. This increase is primarily due to increased bookings for its lines
as well as seasonal factors. Quiksilver Europe's inventories increased 100.2%
to $5,986,000 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 domestically, and intends to continue
to use independent contractors in the future, the Company has avoided
significant capital expenditures. Although Quiksilver Europe cuts a
significant amount of their production garments, the majority of all other
manufacturing is performed by independent contractors, which allows Quiksilver
Europe to also avoid significant capital expenditures. Fiscal 1995 first
quarter capital expenditures were $897,000 as compared to $1,020,000 for the
same period of the prior year.
Goodwill on the Company's balance sheets as of January 31, 1995 and October 31,
1994 consists primarily of the costs in excess over net assets acquired in the
Quiksilver Europe and Raisins acquisitions.
The increase in notes payable at January 31, 1995 as compared to October 31,
1994 is due to the Company borrowing funds on its available lines of credit for
working capital needs.
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 30, 1996. Quiksilver Europe
also has available lines of credit, both secured and unsecured, with banks
which provide for maximum financing of approximately $12,700,000. The lines of
credit bear interest at 0.8% to 1.5% above the banks 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 these
customers. While management believes that allowances for doubtful accounts at
January 31, 1995 are adequate, the Company carefully monitors developments
regarding its major customers.
7
<PAGE> 9
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.
8
<PAGE> 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits
Exhibit 27
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended January 31, 1995
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.
<TABLE>
<S> <C>
QUIKSILVER, INC., a Delaware Corporation
March 10, 1995 Randall L. Herrel, Sr.
------------------------------------------
Randall L. Herrel, Sr.
President,
Chief Operating Officer
and Secretary
March 10, 1995 Bert G. Fenenga
------------------------------------------
Bert G. Fenenga
Senior Vice President,
Chief Financial Officer
and Treasurer
</TABLE>
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRATCTED FROM (A)
QUIKSILVER, INC.'S JANUARY 31, 1995 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH (B) FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JAN-31-1995
<CASH> 1,877,000
<SECURITIES> 0
<RECEIVABLES> 29,526,000
<ALLOWANCES> 3,025,000
<INVENTORY> 28,938,000
<CURRENT-ASSETS> 63,335,000
<PP&E> 6,646,000
<DEPRECIATION> 6,772,000
<TOTAL-ASSETS> 89,398,000
<CURRENT-LIABILITIES> 30,271,000
<BONDS> 2,561,000
<COMMON> 66,000
0
0
<OTHER-SE> 56,500,000
<TOTAL-LIABILITY-AND-EQUITY> 89,398,000
<SALES> 33,658,000
<TOTAL-REVENUES> 33,658,000
<CGS> 20,769,000
<TOTAL-COSTS> 20,769,000
<OTHER-EXPENSES> 10,179,000
<LOSS-PROVISION> 243,000
<INTEREST-EXPENSE> 170,000
<INCOME-PRETAX> 2,565,000
<INCOME-TAX> 1,034,000
<INCOME-CONTINUING> 2,565,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,531,000
<EPS-PRIMARY> .23
<EPS-DILUTED> 0
</TABLE>
