<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1996
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)
1740 MONROVIA AVENUE
COSTA MESA, CALIFORNIA
92627
(Address of principal executive offices)
(Zip Code)
(714) 645-1395
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------- -------
The number of shares outstanding of issuer's Common Stock,
par value $0.01 per share, at
September 6, 1996 was
6,950,846.
<PAGE> 2
QUIKSILVER, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
July 31, 1996 and October 31, 1995 . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Income
Three Months Ended July 31, 1996 and 1995 . . . . . . . . . . . . . . . . 3
Nine Months Ended July 31, 1996 and 1995 . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
Nine Months ended July 31, 1996 and 1995 . . . . . . . . . . . . . . . . . 5
Notes to Condensed 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
- ----------
</TABLE>
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
QUIKSILVER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 4,304,000 $ 3,461,000
Trade accounts receivable, less allowance
for doubtful accounts of $3,843,000 (1996)
and $2,717,000 (1995) . . . . . . . . . . . . . . . . . . 46,113,000 38,308,000
Other receivables . . . . . . . . . . . . . . . . . . . . . 2,560,000 1,471,000
Inventories - Note 3 . . . . . . . . . . . . . . . . . . . . 34,641,000 28,355,000
Prepaid expenses and other current assets . . . . . . . . . 2,097,000 2,240,000
------------ -----------
Total current assets . . . . . . . . . . . . . . . . . 89,715,000 73,835,000
Property and equipment, less accumulated depreciation
and amortization of $7,564,000 (1996) and
$6,982,000 (1995) . . . . . . . . . . . . . . . . . . . . . 8,902,000 7,032,000
Trademark, less accumulated amortization of
$1,449,000 (1996) and $1,336,000 (1995) 1,569,000 1,682,000
Goodwill, less accumulated amortization of
$2,954,000 (1996) and $2,501,000 (1995) . . . . . . . . . . 15,158,000 15,611,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 1,430,000 1,008,000
------------ -----------
Total assets . . . . . . . . . . . . . . . . . . . . . $116,774,000 $99,168,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit . . . . . . . . . . . . . . . . . . . . . . $ 6,673,000 $ 8,031,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 13,128,000 9,257,000
Accrued liabilities . . . . . . . . . . . . . . . . . . . . 9,723,000 8,834,000
Current portion of notes payable . . . . . . . . . . . . . . 242,000 233,000
Income taxes payable . . . . . . . . . . . . . . . . . . . . 3,246,000 578,000
------------ -----------
Total current liabilities . . . . . . . . . . . . . . 33,012,000 26,933,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . 3,172,000 3,297,000
------------ -----------
Total liabilities . . . . . . . . . . . . . . . . . . 36,184,000 30,230,000
------------ -----------
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 - 6,950,846 (1996) and 6,775,605 (1995) . . . . . 70,000 68,000
Additional paid-in-capital . . . . . . . . . . . . . . . . . 17,702,000 15,118,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . 61,822,000 52,739,000
Cumulative foreign currency translation gain . . . . . . . . 996,000 1,013,000
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . 80,590,000 68,938,000
------------ ------------
Total liabilities and stockholders' equity . . . . . . $116,774,000 $ 99,168,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 4
QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $49,008,000 $42,738,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . 30,837,000 26,606,000
----------- -----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . 18,171,000 16,132,000
----------- -----------
Operating expenses:
Selling, general and administrative expense 13,445,000 11,446,000
Royalty income . . . . . . . . . . . . . . . . . . . . . . . (421,000) (242,000)
Royalty expense . . . . . . . . . . . . . . . . . . . . . . 665,000 500,000
----------- -----------
Total operating expenses . . . . . . . . . . . . . . . . 13,689,000 11,704,000
----------- -----------
Operating income . . . . . . . . . . . . . . . . . . . . . . . 4,482,000 4,428,000
Interest expense, net . . . . . . . . . . . . . . . . . . . . . 186,000 249,000
Foreign currency (gain) loss . . . . . . . . . . . . . . . . . (15,000) 118,000
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . 82,000 91,000
----------- -----------
Income before provision for income taxes . . . . . . . . . . . 4,229,000 3,970,000
Provision for income taxes . . . . . . . . . . . . . . . . . . 1,690,000 1,662,000
----------- -----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,539,000 $ 2,308,000
=========== ===========
Net income per common share . . . . . . . . . . . . . . . . . . $0.35 $0.33
=========== ===========
Weighted average common shares
and equivalents outstanding - Note 2 . . . . . . . . . . . . 7,268,000 7,008,000
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JULY 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $144,000,000 $123,707,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . 88,221,000 75,860,000
------------ ------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . 55,779,000 47,847,000
------------ ------------
Operating expenses:
Selling, general and administrative expense 38,699,000 33,521,000
Royalty income . . . . . . . . . . . . . . . . . . . . . . . (812,000) (697,000)
Royalty expense . . . . . . . . . . . . . . . . . . . . . . 1,840,000 1,537,000
------------ ------------
Total operating expenses . . . . . . . . . . . . . . . . 39,727,000 34,361,000
------------ ------------
Operating income . . . . . . . . . . . . . . . . . . . . . . . 16,052,000 13,486,000
Interest expense, net . . . . . . . . . . . . . . . . . . . . . 583,000 810,000
Foreign currency (gain) loss . . . . . . . . . . . . . . . . . 33,000 (9,000)
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . 235,000 188,000
------------ ------------
Income before provision for income taxes . . . . . . . . . . . 15,201,000 12,497,000
Provision for income taxes . . . . . . . . . . . . . . . . . . 6,118,000 5,035,000
------------ ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,083,000 $ 7,462,000
============ ============
Net income per common share . . . . . . . . . . . . . . . . . . $1.26 $1.06
============ ============
Weighted average common shares
and equivalents outstanding - Note 2 . . . . . . . . . . . . 7,216,000 7,017,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 6
QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JULY 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,083,000 $ 7,462,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . 1,924,000 1,685,000
Provision for losses on accounts receivable . . . . . 1,904,000 790,000
Loss (gain) on sale of fixed assets . . . . . . . . . (15,000) 25,000
Changes in operating assets and liabilities:
Trade accounts receivable . . . . . . . . . . . . . (10,005,000) (7,036,000)
Other receivables . . . . . . . . . . . . . . . . . (831,000) 158,000
Inventories . . . . . . . . . . . . . . . . . . . . (6,314,000) (11,014,000)
Prepaid expenses and other current assets . . . . . 129,000 (406,000)
Other assets . . . . . . . . . . . . . . . . . . . (425,000) (60,000)
Accounts payable . . . . . . . . . . . . . . . . . 3,983,000 5,235,000
Accrued liabilities . . . . . . . . . . . . . . . . 928,000 3,816,000
Income taxes payable . . . . . . . . . . . . . . . 2,652,000 690,000
------------ ------------
Net cash provided by operating activities . . . 3,013,000 1,345,000
Cash flows from investing activities:
Proceeds from sales of fixed assets . . . . . . . . . . . . 30,000 (25,000)
Capital expenditures . . . . . . . . . . . . . . . . . . . . (3,309,000) (2,093,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (7,000)
------------ ------------
Net cash used in investing activities . . . . . (3,279,000) (2,125,000)
Cash flows from financing activities:
Borrowings on lines of credit . . . . . . . . . . . . . . . 18,756,000 29,065,000
Payments on lines of credit . . . . . . . . . . . . . . . . (20,143,000) (31,132,000)
Borrowings on long-term debt . . . . . . . . . . . . . . . . -- 1,040,000
Payments on long-term debt . . . . . . . . . . . . . . . . . (63,000) (252,000)
Proceeds from stock issued in connection with
exercises of stock options . . . . . . . . . . . . . . . 2,586,000 1,693,000
------------ ------------
Net cash provided by financing activities . . . 1,136,000 414,000
Effect of exchange rate changes on cash . . . . . . . . . . . . (27,000) 663,000
------------ ------------
Net increase in cash and cash equivalents . . . . . . . . . . . 843,000 297,000
Cash and cash equivalents at beginning of period 3,461,000 682,000
------------ ------------
Cash and cash equivalents at end of period . . . . . . . . . . $ 4,304,000 $ 979,000
============ ============
Supplementary cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 569,000 $ 805,000
============ ============
Income taxes . . . . . . . . . . . . . . . . . . . . . . $ 4,657,000 $ 4,798,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 7
QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statement
presentation.
The Company, in its opinion, has included all adjustments, consisting
only of normal recurring accruals, necessary for a fair presentation
of the results of operations for the three and nine months ended July
31, 1996 and 1995. 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, 1995.
Interim results are not necessarily indicative of results for the full
year due to seasonal and other factors.
2. Net income per common share is computed based on the weighted average
number of common shares outstanding plus the common equivalent shares
assumed to be outstanding, computed using the treasury stock method,
assuming the exercise of all outstanding options and warrants.
3. Inventories consist of the following:
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1996 1995
---- ----
<S> <C> <C>
Raw Materials . . . . . . . . . . . . . . . $12,052,000 $10,875,000
Work-In-Process . . . . . . . . . . . . . . 2,603,000 4,104,000
Finished Goods . . . . . . . . . . . . . . . 19,986,000 13,376,000
----------- -----------
$34,641,000 $28,355,000
=========== ===========
</TABLE>
6
<PAGE> 8
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE MONTHS ENDED JULY 31, 1996 COMPARED TO THREE MONTHS ENDED JULY 31, 1995
- -----------------------------------------------------------------------------
Net sales for the three months ended July 31, 1996 increased 14.7% to
$49,008,000 from $42,738,000 in the comparable period of the prior year.
Domestic net sales for the three months ended July 31, 1996 increased 3.2% to
$30,701,000 from $29,750,000 in the comparable period of the prior year, and
European net sales increased 41.0% to $18,307,000 from $12,988,000 for those
same periods. Domestically, lower sales in the young men's division were more
than offset by increases in the juniors and other divisions. In Europe, net
sales grew across all divisions.
The gross profit margin for the three months ended July 31, 1996 decreased to
37.1% from 37.7% in the comparable period of the prior year. The domestic
gross profit margin decreased slightly to 35.3% from 35.5% in the comparable
period of the prior year, and the European gross profit margin decreased to
40.1% from 42.8% for those same periods. The decrease in Europe was primarily
due to higher costs in the current quarter incurred to reduce remaining spring
and summer inventories.
Selling, general and administrative expense ("SG&A") for the three months ended
July 31, 1996 increased 17.5% to $13,445,000 from $11,446,000 in the comparable
period of the prior year. Domestic SG&A increased 20.3% to $8,679,000 from
$7,213,000 in the comparable period of the prior year, and European SG&A
increased 12.6% to $4,766,000 from $4,233,000 for those same periods. The
increase in domestic SG&A was primarily due to higher personnel costs related
to increased sales volume, along with increased investment in computer systems
and the national advertising campaign that began during the three months ended
July 31, 1996. The increase in European SG&A was primarily due to increased
sales volume.
Net royalty expense for the three months ended July 31, 1996 decreased 5.4% to
$244,000 from $258,000 in the comparable period of the prior year. This slight
decrease was due primarily to increased domestic royalty income from sales in
Japan and other licensees, which was substantially offset by increased royalty
expense related to European sales. The Company receives royalty income from
its Mexico, Japan, wetsuit, watch, sunglass, and outlet store licensees as well
as Raisins international licensees, and it pays royalties on European sales
under a trademark agreement with Quiksilver International.
Net interest expense for the three months ended July 31, 1996 decreased 25.3%
to $186,000 from $249,000 in the comparable period of the prior year. This
decrease was primarily due to lower outstanding balances on the Company's lines
of credit.
The effective income tax rate for the three months ended July 31, 1996, which
is based on current estimates of the annual effective income tax rate,
decreased to 40.0% from 41.9% in the comparable period of the prior year. The
effective income tax rate for the quarter decreased in comparison to the prior
year as estimates of the annual effective income tax rate were revised at the
completion of the third quarter.
As a result of the above factors, net income for the three months ended July
31, 1996 increased 10.0% to $2,539,000 or $0.35 per share from $2,308,000 or
$0.33 per share in the comparable period of the prior year.
NINE MONTHS ENDED JULY 31, 1996 COMPARED TO NINE MONTHS ENDED JULY 31, 1995
- ---------------------------------------------------------------------------
Net sales for the nine months ended July 31, 1996 increased 16.4% to
$144,000,000 from $123,707,000 in the comparable period of the prior year.
Domestic net sales for the nine months ended July 31, 1996 increased 10.0% to
$91,515,000 from $83,175,000 in the comparable period of the prior year, and
European net sales increased 29.5% to $52,485,000 from $40,532,000 for those
same periods. Domestically, lower sales in the young men's division were more
than offset by increases in the juniors and other divisions. In Europe, net
sales grew across all divisions.
7
<PAGE> 9
The gross profit margin for the nine months ended July 31, 1996 was 38.7% and
unchanged from the comparable period of the prior year. The domestic gross
profit margin for the nine months ended July 31, 1996 increased slightly to
35.9% from 35.8% in the comparable period of the prior year, and the European
gross profit margin decreased somewhat to 43.7% from 44.5% in those same
periods. The decrease in Europe was primarily due to higher costs in the third
quarter of the current year incurred to reduce remaining spring and summer
inventories, which was partially offset by improved forecasting and better
sourcing in the first half of the current year.
SG&A for the nine months ended July 31, 1996 increased 15.4% to $38,699,000
from $33,521,000 in the comparable period of the prior year. Domestic SG&A for
the nine months ended July 31, 1996 increased 13.5% to $24,212,000 from
$21,331,000 in the comparable period of the prior year, and European SG&A
increased 18.8% to 14,487,000 from 12,190,000 in those same periods. The
increase in domestic SG&A was primarily due to higher personnel costs related
to increased sales volume, along with increased investment in computer systems
and the national advertising campaign that began during the third quarter of
the current year. The increase in European SG&A was primarily due to increased
sales volume.
Net royalty expense for the nine months ended July 31, 1996 increased 22.4% to
$1,028,000 from $840,000 in the comparable period of the prior year. This
increase was due primarily to increased royalty expense related to European
sales, which was partially offset by increased domestic royalty income from
sales in Japan and other licensees.
Net interest expense for the nine months ended July 31, 1996 decreased 28.0% to
$583,000 from $810,000 in the comparable period of the prior year. This
decrease was primarily due to lower outstanding balances on the Company's lines
of credit.
The effective income tax rate for the nine months ended July 31, 1996, which is
based on current estimates of the annual effective income tax rate, was
essentially unchanged at 40.2% versus 40.3% in the comparable period of the
prior year.
As a result of the above factors, net income for the nine months ended July 31,
1996 increased 21.7% to $9,083,000 or $1.26 per share from $7,462,000 or $1.06
per share 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 provided by operating activities for the nine months ended July 31,
1996 increased 124.0% to $3,013,000 from $1,345,000 in the comparable period of
the prior year. This increase was primarily due to increased net income.
The Company uses independent contractors for cutting, sewing and other
manufacturing functions and intends to continue to use independent contractors
in the foreseeable future. Accordingly, the Company has avoided significant
capital expenditures. For the nine months ended July 31, 1996, capital
expenditures increased 58.1% to $3,309,000 from $2,093,000 in the comparable
period of the prior year, which resulted primarily from increased investment in
computer systems. The Company plans continued investment in computer systems
during the fourth quarter of fiscal 1996.
On September 4, 1996, the Company's Board of Directors approved the repurchase
of up to 500,000 shares of the Company's common stock over the next twelve
months. Share repurchases will be funded from existing cash, internally
generated cash flow or through short-term debt.
The Company has available a revolving line of credit with a U.S. bank that is
unsecured and provides for maximum financing of $30,000,000. This line of
credit bears interest at 0.5% below the bank's reference rate and expires on
April 30, 1998. The Company also has available lines of credit, both secured
and unsecured, with banks in Europe that provide for maximum financing of
approximately $16,600,000. The European lines of credit bear interest at 0.7%
to 1.0% above the banks' reference rates.
During the nine months ended July 31, 1996, proceeds from stock issued in
connection with exercises of stock options were partially offset by cash used
to reduce borrowings on lines of credit. Net cash provided
8
<PAGE> 10
by financing activities increased 174.4% to $1,136,000 for the nine months
ended July 31, 1996 from $414,000 in the comparable period of the prior year.
The net increase in cash and cash equivalents for the nine months ended July
31, 1996 was $843,000 compared to $297,000 in the comparable period of the
prior year. Cash and cash equivalents increased 24.4% to 4,304,000 at July 31,
1996 from $3,461,000 at October 31, 1995, while working capital increased 20.9%
to $56,703,000 from $46,902,000 for that same period. The Company believes its
current cash balance and current lines of credit are adequate to cover its
seasonal working capital and other requirements for the foreseeable future.
Accounts receivable increased 20.4% to $46,113,000 at July 31, 1996 from
$38,308,000 at October 31, 1995. Domestic accounts receivable increased 3.5%
to 26,423,000 at July 31, 1996 from $25,519,000 at October 31, 1995, and
European accounts receivable increased 54.0% to $19,690,000 from $12,789,000
for that same period. The domestic increase resulted primarily from an
increase in the average collection period, while the European increase resulted
primarily from seasonal factors.
Consolidated inventories increased 22.2% to $34,641,000 at July 31, 1996 from
$28,355,000 at October 31, 1995. Domestic inventories increased 10.6% to
$24,886,000 from $22,496,000 at October 31, 1995, and European inventories
increased 66.5% to $9,755,000 from $5,859,000 for that same period. These
increases are primarily due to seasonal factors. Inventory levels generally
increase at the end of the first and third fiscal quarters in preparation for
stronger selling seasons in the second and fourth fiscal quarters.
In recent years, certain customers of the Company have experienced financial
difficulties, including the filing of reorganization proceedings under
bankruptcy laws. The Company has not incurred significant losses outside the
normal course of business as a result of the financial difficulties of these
customers. While management believes that allowances for doubtful accounts at
July 31, 1996 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 one customer known to have financial difficulties will not
have a significant long-term negative impact on the Company's future
operations.
Because Quiksilver Europe sells in various European countries and collects its
accounts at future dates in the customers' local currencies, the Company is
subject to gains and losses resulting from changes in foreign currency exchange
rates. The Company hedges these transactions as considered appropriate to
minimize its exposure to these exchange fluctuations.
9
<PAGE> 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits
--------
10.1 Amended and Restated Loan Agreement between Union
Bank and Registrant dated April 30, 1996.
27.0 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended July 31,
1996
10
<PAGE> 12
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 12, 1996 Steven L. Brink
-----------------------------------------
Steven L. Brink
Vice President - Finance and
Principal Accounting Officer
11
<PAGE> 1
EXHIBIT 10.1
[UNION BANK LETTERHEAD]
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT ("Agreement") is made and
entered into as of 30th April, 1996 by and between QUIKSILVER, INC., a Delaware
corporation ("Borrower"), and UNION BANK, a California banking corporation
("Bank"). This Agreement amends and restates in its entirety that certain loan
agreement dated November 17, 1993, as amended April 19, 1994, July 19, 1 994,
October 5, 1994, March 7, 1995 and March 14, 1995, between Bank and Borrower.
SECTION 1. THE LOAN
1.1.1 THE REVOLVING LOAN. Bank will loan to Borrower an amount not
to exceed Thirty Million Dollars ($30,000,000) outstanding in the aggregate at
any one time (the "Revolving Loan"). Borrower may borrow, repay and reborrow
all or part of the Revolving Loan in accordance with the terms of the Note as
defined below. All borrowings of the Revolving Loan must be made before April
30, 1998 at which time all unpaid principal and interest of the Revolving Loan
shall be due and payable. The Revolving Loan shall be evidenced by a promissory
note (the "Note" on the standard form used by Bank for commercial loans. Bank
shall enter each amount borrowed and repaid in Bank's records and such entries
shall be deemed to be the amount of the Revolving Loan outstanding. Omission of
Bank to make any such entries shall not discharge Borrower of its obligation to
repay in full with interest all amounts borrowed.
1.1.1.1 THE COMMERCIAL LETTER OF CREDIT SUBLIMIT. As a sublimit to
the Revolving Loan, Bank shall issue, for the account of borrower, one or more
irrevocable commercial letters of credit (individually, an "L/C" and
collectively, the "L/Cs") and calling for drafts at sight covering the
importation or purchase of material and finished goods. The aggregate amount
available to be drawn under all outstanding L/Cs and the aggregate amount of
unpaid reimbursement obligations under drawn L/Cs shall not exceed Fifteen
Million Dollars ($15,000,000) and shall reduce, dollar for dollar, the maximum
amount available under the Revolving Loan. All such commercial L/Cs shall be
drawn on such terms and conditions as are acceptable to Bank and shall be
governed by the terms of(and Borrower agrees to execute) Bank's standard form
for commercial L/C applications and reimbursement agreement and shall not have
an expiration date more than 120 days from its date of issuance. No letter of
credit shall expire after July 30, 1998. Notwithstanding, the above Borrower
can reduce or increase the amount of Commercial Letter of Credit Sublimit with
five days prior notice to Bank provided that the total aggregate available
under the Revolving Loan and Commercial Letter of Credit Sublimit shall not
exceed Thirty Million Dollars ($30,000,000) at any time.
1.2 INTEREST. The unpaid principal balance of the Revolving Loan
shall bear interest at the rate or rates provided in the Note and as selected
by Borrower. The Revolving Note may be prepaid in full or in part only in
accordance with the terms of the Note and any such prepayment shall be subject
to the prepayment fee provided for therein.
1.3 TERMINOLOGY
1.3.1 "FINANCIAL STATEMENTS" shall mean, with respect to
any accounting period of Borrower, consolidated and consolidating statements of
income and expense and of consolidated and consolidating changes in financial
position of Borrower for such period, and consolidated and consolidating
<PAGE> 2
balance sheets of Borrower as of the end of such period, setting forth in each
case in comparative form figures for the corresponding period in the preceding
fiscal year or, if such period is a full fiscal year, corresponding figures
from the preceding annual audit, all prepared in reasonable detail and in
accordance with generally accepted accounting principles ("GAAP"). Financial
Statements shall include the notes and schedules thereto.
1.3.2 "LOAN" shall mean, collectively, all the credit
facilities described above.
1.3.3 "LOAN DOCUMENTS" shall mean all documents executed in
connection with this Agreement.
1.3.4 "NOTE" shall mean, collectively, all the promissory
notes and reimbursement obligations described above.
1.3.5 "PRINCIPAL SUBSIDIARY/SUBSIDIARIES" shall mean Na
Pali, S.A., and The Raisin Company, Inc.
1.3.6 "SUBSIDIARY" shall mean any corporation, more than
fifty percent (50%) of the outstanding voting stock of which is directly owned
by Borrower.
1.4 PURPOSE OF LOAN. The proceeds of the Revolving Loan and
Commercial Letter of Credit Sublimit shall be used for general working capital
purposes.
1.5 LOAN COMMITMENT FEE. Borrower shall pay a commitment fee of
Twenty Four Thousand Dollars ($24,000) due annually on April 30, 1996 and April
30, 1997. No portion of this fee shall be reimbursable .
1.6 BALANCES. Borrower shall maintain its major depository
accounts with Bank until the Note and all sums payable pursuant to this
Agreement have been paid in full.
1.7 DISBURSEMENT. Upon execution hereof, Bank shall disburse the
proceeds of the Loan as provided in Bank's standard form Authorization executed
by Borrower.
SECTION 2. CONDITIONS PRECEDENT
Bank shall not be obligated to disburse all or any portion of the
proceeds of the Loan unless at or prior to the time for the making of such
disbursement, the following conditions have been fulfilled to Bank's
satisfaction:
2.1 COMPLIANCE. Borrower shall have performed and complied in all
material respects with all terms and conditions required by this Agreement to
be performed or complied with by it prior to or at the date of the making of
such disbursement and shall have executed and delivered to Bank the Note and
other documents reasonably deemed necessary by Bank.
2.2 OTHER DOCUMENTS. Borrower shall provide Bank such Articles of
Incorporation, Fictitious Business Names, Certificate of Good Standing and the
Loan Documents and such additional original, duly executed documentation which
Bank shall reasonably consider necessary or desirable in connection with the
Loan.
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<PAGE> 3
2.3 BORROWING RESOLUTION. Borrower shall have provided Bank with
certified copies of resolutions duly adopted by the Board of Directors of
Borrower, authorizing this Agreement and the Loan Documents. Such resolutions
shall also designate the persons who are authorized to act on Borrower's behalf
in connection with this Agreement and to do the things required of Borrower
pursuant to this Agreement.
2.4 CONTINUING COMPLIANCE. At the time any disbursement is to be
made, there shall not exist any event, condition or act which constitutes an
event of default under Section 6 hereof or any event, condition or act which
with notice, lapse of time or both would constitute such event of default; nor
shall there be any such event, condition, or act immediately after the
disbursement were it to be made.
SECTION 3. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
3.1 BUSINESS ACTIVITY. The principal business of Borrower is the
manufacturing of outdoor sports apparel.
3.2 SUBSIDIARY. Each of Borrower's Subsidiaries and their
addresses are as provided on a schedule delivered to Bank on or before the date
of this Agreement.
3.3 AUTHORITY TO BORROW. The execution, delivery and performance
of this Agreement, the Note and all other agreements and instruments required
by Bank in connection with the Loan are not in contravention of any of the
terms of any indenture, agreement or undertaking to which Borrower is a party or
by which it or any of its property is bound or affected.
3.4 FINANCIAL STATEMENTS. The audited financial statements of
Borrower, including both a balance sheet at October 31, 1995, together with
supporting schedules, and an income statement for the twelve (12) months ended
October 31, 1995, have heretofore been furnished to Bank, and have been
prepared in conformity with GAAP applied on a consistent basis and fairly
represent the financial condition of Borrower as at their respective dates and
the results of operation for the periods then ended. Since October 31, 1995,
there has been no material adverse change in the financial condition or
operations of borrower.
3.5 TITLE. Except as disclosed in Exhibit 3.5, and for assets
which may have been disposed of in the ordinary course of business, Borrower
and each Principal Subsidiary has good and marketable title to all of the
property reflected in its financial statements delivered to Bank and to all
property acquired by Borrower and each Principal Subsidiary since the date of
said financial statements, free and clear of all liens, encumbrances, security
interests and adverse claims except those specifically referred to in said
financial statements and except for purchase money security interests and other
liens granted in the ordinary course of business.
3.6 LITIGATION. There is no litigation or proceeding pending or to
the knowledge of Borrower threatened against Borrower or any Principal
Subsidiary of Borrower of its property which is reasonably likely to affect the
financial condition, property or business of Borrower or any Principal
Subsidiary in a materially adverse manner or result in liability in excess of
Borrower's insurance coverage or the insurance coverage of any such Subsidiary.
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<PAGE> 4
3.7 DEFAULT. Borrower and each Principal Subsidiary is not now in
default in the payment of any of its material obligations, and there exists no
event, condition or act which constitutes an event of default under Section 6
hereof and no condition, event or act which with notice or lapse of time, or
both, would constitute an event of default.
3.8 ORGANIZATION. Borrower and each Principal Subsidiary of
Borrower is duly organized and existing under the laws of the state of its
organization, and has the power and authority to carry on the business in which
it is engaged and/or proposes to engage.
3.9 POWER. Borrower has the power and authority to enter into this
Agreement and to execute and deliver the Note and all of the other Loan
Documents.
3.10 AUTHORIZATION. This Agreement and all things required by this
Agreement have been duly authorized by all requisite action of Borrower and
when executed will constitute legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with the terms of the Loan Documents
except as limited by bankruptcy, insolvency or other laws relating to or
affecting the enforcement of creditors' rights and general principles of
equity.
3.11 QUALIFICATION. Borrower is duly qualified and in good standing
in any jurisdiction where the failure to qualify would have a material adverse
effect on Borrower.
3.12 COMPLIANCE WITH LAWS. Borrower is not in violation with
respect to any applicable laws, rules, ordinances or regulations which
materially affect the operations or financial condition of Borrower.
3.13 STOCK. All stock of Borrower has been duly authorized, validly
issued, fully paid and nonassessable. Borrower's authorized share
capitalization and number of shares outstanding as of January 31, 1996 are:
<TABLE>
<CAPTION>
Authorized Outstanding
---------- -----------
<S> <C>
Preferred 5,000,000 0
Common 30,000,000 6,804,604
</TABLE>
Except as therein set forth and as provided for in Borrower's Stock Option
Plans, Non-Director Non- Employee Plan and Warrants granted to Arthur L. Crowe
and Robert G. Kirby, there are no other outstanding stock purchase warrants,
subscriptions, options or other rights providing for the issuance of stock of
Borrower. There is outstanding no security or other instrument convertible into
or exchangeable for stock of Borrower.
3.14 SUBSIDIARIES. Listed below are each Subsidiary of Borrower and
the jurisdiction of incorporation and proportionate ownership by Borrower.
Borrower owns free and dear of all liens, charges and encumbrances, all the
outstanding shares of each Subsidiary and all shares are validly issued, fully
paid and nonassessable.
<TABLE>
<CAPTION>
Name Jurisdiction Proportional Ownership
---- ------------ ----------------------
<S> <C> <C>
Na Pali, S.A. France 99.9%
Emerald Coast England 100%
QS International, Inc. California 100%
The Raisin Company, Inc. California 100%
</TABLE>
3.15 PATENTS AND OTHER RIGHTS. Borrower and each Principal
Subsidiary possesses or have the right to use all patents, licenses,
trademarks, trade names, trade secrets, service marks,
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<PAGE> 5
Borrower's ability to perform under this Agreement or Loan Document or pay any
of its material obligations when due.
3.18 ERISA. Any defined benefit pension plans as defined in the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of
Borrower meet, as of the date hereof, the minimum funding standards of Section
302 of ERISA, and no Reportable Event or Prohibited Transaction as defined in
ERISA has occurred with respect to any such plan.
3.19 REGULATION U. No action has been taken or is currently planned
by Borrower, or any agent acting on its behalf, which would cause this
Agreement or the Note to violate Regulation U or any other regulation of the
Board of Governors of the Federal Reserve System or to violate the Securities
and Exchange Act of 1934, in each case as in effect now or as the same may
hereafter be in effect. Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock as one of its
important activities and none of the proceeds of the Loan will be used directly
or indirectly for such purpose.
3.20 CONTINUING REPRESENTATIONS. These representations shall be
considered to have been made again at and as of the date of each disbursement
of the Loan and shall be true and correct in all material respects as of such
date or dates.
SECTION 4. AFFIRMATIVE COVENANTS
Until the Note and all sums payable pursuant to this Agreement or any
other of the Loan Documents have been paid in full, unless Bank waives
compliance in writing, Borrower agrees that:
4.1 USE OF PROCEEDS. Borrower will use the proceeds of the Loan
only as provided in subsection 1.4 above.
4.2 PAYMENT OF OBLIGATIONS. Borrower will pay and discharge
promptly all taxes, assessments and other governmental charges and claims
levied or imposed upon it or its property, or any part thereof, provided,
however, that Borrower shall have the right in good faith to contest any such
taxes, assessments, charges or claims and, pending the outcome of such contest,
to delay or refuse payment thereof provided that adequately funded reserves are
established by it to pay and discharge any such taxes, assessments, charges and
claims.
4.3 MAINTENANCE OF EXISTENCE. Borrower will maintain and preserve
its existence and assets and all rights, franchises, licenses and other
authority necessary for the conduct of its business and will maintain and
preserve its property, equipment and facilities in good order, condition and
repair. Bank may, at reasonable times, visit and inspect any of the properties
of Borrower.
4.4 RECORDS. Borrower will keep and maintain full and accurate
accounts and records of its operations according to GAAP and will permit Bank
to have access thereto, to make examination and photocopies thereof, and to
make audits during regular business hours. The reasonable costs for such audits
shall be paid by Borrower.
4.5 INFORMATION FURNISHED. Borrower will furnish to bank:
(a) Within Forty-Five (45) days after the close of each fiscal
quarter, except for the final quarter of each fiscal year, its unaudited
Financial Statements for such fiscal quarter;
(b) Within One Hundred Twenty (120) days after the close of
each fiscal year, a copy of its Financial Statement as of the close of such
fiscal year, examined and prepared on an audited basis by independent certified
public accountants selected by Borrower and reasonably satisfactory to Bank, in
accordance with GAAP applied on a basis consistent with that of the previous
year;
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<PAGE> 6
(c) As soon as available, copies of such Financial Statements
and reports as Borrower may file with any state or federal agency, including
all state and federal income tax returns;
(d) Such other Financial Statements and information as Bank
may reasonably request from time to time;
(e) In connection with each Financial Statement provided
hereunder, a statement executed by the president or chief financial officer of
Borrower, certifying that to the best of his/her knowledge no default has
occurred and no event exists which with notice or the lapse of time, or both,
would result in a default hereunder;
(f) In connection with each fiscal year-end Financial
Statement required hereunder, any management letter of Borrower's certified
public accountants;
(g) Within Forty-Five (45) days after each fiscal quarter
except for the final quarter of each fiscal quarter and with One Hundred Twenty
(120) days after the close of each fiscal year, a certification of compliance
with all covenants under this Agreement, executed by Borrower's president or
chief financial officer, in form acceptable to Bank;
(h) Prompt written notice to Bank of all events of default
under any of the terms or provisions of this Agreement or of any other
agreement, contract, document or instrument entered, or to be entered into with
Bank; and of any litigation which, if decided adversely to Borrower, would have
a material adverse effect on Borrower's financial condition; and of any other
matter which has resulted in, or is likely to result in, a material adverse
change in its financial condition or operations;
(i) Prior written notice to Bank of any changes in Borrower's
chief executive officer, president, or chief financial officer and or any other
senior management; Borrower's name; and location of Borrower's assets,
principal place of business or chief executive office.
4.6 QUICK RATIO. Borrower shall maintain at all times a ratio of
cash, accounts receivable and marketable securities to current liabilities of
not less than 1.0:1.0, as such terms are defined by GAAP.
4.7 TANGIBLE NET WORTH. Until October 31, 1996, Borrower will at
all times maintain Tangible Net Worth of not less than Fifty Million Dollars
($50,000,000). Thereafter, Borrower will at all times maintain a minimum
Tangible Net Worth that increases on the first day of each of Borrower's
successive quarter from the minimum as of the end of the fiscal quarter just
ended by Ninety percent (90%) of Borrower's net profit after taxes for the
quarter just ended plus One Hundred percent (100%) of any future equity
additions. "Tangible Net Worth" shall mean net worth increased by indebtedness
of Borrower subordinated to Bank and decreased by patents, licenses,
trademarks, trade names, goodwill and other similar intangible assets,
organizational expenses, and monies due from affiliates, including officers,
shareholders and directors. Net profit after tax shall have the same meaning as
set forth in GAAP.
4.8 DEBT TO TANGIBLE NET WORTH. Borrower will at all times
maintain a ratio of total liabilities to tangible net worth of not greater than
1.10:1.0. "Tangible Net Worth" shall mean net worth increased by indebtedness
of Borrower subordinated to Bank and decreased by patents, licenses,
trademarks, trade names, goodwill and other similar intangible assets,
organizational expenses, and monies due from affiliates (including officers,
shareholders and directors).
4.9 PROFIT FROM OPERATIONS. Borrower will maintain a net profit
from operations, as defined by GAAP, of any positive amount for each fiscal
year.
4.10 INSURANCE. Borrower will keep all of its insurable property,
real, personal or mixed, insured by good and responsible companies against fire
and such other risks as are customarily insured against by companies conducting
similar business with respect to like properties. Borrower will maintain
adequate
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<PAGE> 7
worker's compensation insurance and adequate insurance against liability for
damages to persons and property.
4.11 ADDITIONAL REQUIREMENTS. Borrower will promptly, upon demand
by Bank, take such further action and execute all such additional documents and
instruments in connection with this Agreement as Bank in its reasonable
discretion deems necessary, and promptly supply Bank with such other
information concerning its affairs as Bank may request from time to time.
4.12 LITIGATION AND ATTORNEYS' FEES. Borrower will pay promptly to
Bank upon demand, reasonable attorneys' fees (including but not limited to the
reasonable estimate of the allocated costs and expenses of in-house legal
counsel and legal staff) and all costs and other expenses paid or incurred by
Bank in collecting, modifying or compromising the Loan or in enforcing or
exercising its rights or remedies created by, connected with or provided for in
this Agreement or any of the Loan Documents, whether or not an arbitration,
judicial action or other proceeding is commenced. If such proceeding is
commenced, only the prevailing party shall be entitled to attorneys' fees and
court costs.
4.13 BANK EXPENSES. Borrower will pay or reimburse Bank for all
costs, expenses and fees incurred by Bank in preparing and documenting this
Agreement and the Loan, and all amendments and modifications thereof, including
but not limited to all filing and recording fees, costs of appraisals, insurance
and attorneys' fees, including the reasonable estimate of the allocated costs
and expenses of in-house legal counsel and legal staff.
4.14 REPORTS UNDER PENSION PLANS. Borrower will furnish to Bank, as
soon as possible and in any event within 15 days after Borrower knows or has
reason to know that any event or condition with respect to any defined benefit
pension plans of Borrower described in Section 3 above has occurred, a
statement of an authorized officer of Borrower describing such event or
condition and the action, if any, which Borrower proposes to take with respect
thereto.
SECTION 5. NEGATIVE COVENANTS
Until the Note and all other sums payable pursuant to this Agreement
or any other of the Loan Documents have been paid in full, unless Bank waives
compliance in writing, Borrower agrees that:
5.1 ENCUMBRANCES AND LIENS. Without prior consent of Bank,
Borrower will not create, assume or suffer to exist any mortgage, pledge,
security interest, encumbrance, or lien including without limitation the lien
of an attachment, judgment or execution (other than in the ordinary course of
business as now conducted and for taxes not delinquent and for taxes and other
items being contested in good faith) on any of Borrower's United States
property of any kind, whether real, personal or mixed, now owned or hereafter
acquired, or upon the income or profits thereof, except property of any kind
whether real, personal or mixed of Subsidiaries, in the ordinary course of
business as now conducted.
5.2 BORROWINGS. Without consent of Bank, Borrower will not sell,
discount or otherwise transfer any account receivable or any note, draft or
other evidence of indebtedness, except to Bank or except to a financial
institution at face value for deposit or collection purposes only and without
any fee other than fees normally charged by the financial institution for
deposit or collection services; provided, however, Borrower may sell/discount
accounts receivable subject to collection. Borrower will not borrow any money,
become contingently liable to borrow money, nor enter any agreement to directly
or indirectly obtain borrowed money, except pursuant to agreements made with
Bank and obligations currently shown on Borrower's Financial Statement and
trade debt incurred in the ordinary course of business.
5.3 SALE OF ASSETS, LIQUIDATION OR MERGER. Borrower will neither
liquidate nor dissolve nor enter into any consolidation, merger, partnership or
other combination, nor convey, nor sell, nor lease all or the
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<PAGE> 8
greater part of its assets or business, nor purchase or lease all or the
greater part of the assets or business of another in excess of Three Million
Dollars ($3,000,000) without prior consent of Bank.
5.4 LOANS, ADVANCES AND GUARANTIES. Without prior consent of Bank,
Borrower will not, make any loans or advances, become a guarantor or surety,
pledge its credit or properties in any manner or extend credit or become
directly or contingently liable for the obligations of another, except for the
endorsement of negotiable instruments of deposit or collection in the ordinary
and normal course of Borrower's business.
5.5 INVESTMENTS. Without prior consent of Bank, except as set
forth in Section 5.3, Borrower will not purchase the debt or equity of another
person or entity except for savings accounts and certificates of deposit of
Bank, direct U.S. Government obligations and commercial paper issued by
corporations with the top ratings of Moody's or Standard & Poor's, provided all
such permitted investments shall mature within one year of purchase.
5.6 PAYMENT OF DIVIDENDS. Borrower will not declare or pay any
dividends, other than a dividend payable in its own common stock, or authorize
or make any other distribution with respect to any of its stock now or
hereafter outstanding.
5.7 RETIREMENT OF STOCK. Without consent of Bank, Borrower will
not acquire, redeem, purchase or retire any share of its capital stock for
value whether now or hereafter outstanding; or grant or issue any equity or
security or any warrant, right or option pertaining thereto except as set forth
in Section 3.13 and as approved by Bank in writing.
5.8 BORROWER AND SUBSIDIARY PROPERTY. Borrower will not transfer,
sell, lease or exchange any property to any Subsidiary, except for value
received in the normal course of business as business would be conducted with
an unrelated or unaffiliated entity without Bank's prior written approval.
Without Bank's prior written consent, in no event shall management or
maintenance fees or fees for services including downstreaming of funds,
guaranty, comfort letter or the like be paid by Borrower to any Subsidiary .
5.9 NONRELATED BUSINESS ACTIVITIES. Borrower will not enter into
any material contract, lease, indenture or other agreement except in the
ordinary course of business as presently conducted; or engage in any business
activity or operation substantially different from or unrelated to present
business activities and operations; or make any substantial change in the
character or manner of conduct of its business.
SECTION 6. EVENTS OF DEFAULT
The occurrence of any of the following events, each a "Default", shall
permit Bank, at its option, to exercise all rights available to it under this
Agreement and the other Loan Documents and under applicable law, including
without limitation the right to (i) terminate any obligation of Bank to make
further credit available hereunder; and (ii) declare all sums of interest and
principal outstanding under this Agreement and of each other obligation of
Borrower to Bank immediately due and payable, without notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor,
or other notices or demands of any kind or character, all of which Borrower
hereby waives. Notwithstanding anything to the contrary contained herein, Bank
shall have no duty to extend any credit to Borrower during any cure period
which may be provided for hereunder.
6.1 PRINCIPAL AND INTEREST PAYMENT. Borrower shall default in the
due and punctual payment of the principal of, or interest on the Note not paid
within ten (10) days of the date due; or
6.2 MATURING OBLIGATIONS. Borrower shall default in the due and
punctual payment of any obligations otherwise owed to Bank, whether of
principal, interest, fees, taxes, reimbursement of Bank expenses or otherwise
not paid within ten (10) days of the date due; or
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<PAGE> 9
6.3 DEFAULT UNDER OTHER AGREEMENTS. Borrower shall take or fail to
take any action in contravention of the terms of any Loan Document or of any
other agreement, document or instrument at anytime executed by Borrower in
connection with any material indebtedness which permits the holder to
accelerate such indebtedness of Borrower; or
6.4 DEFAULT BY ANY SUBSIDIARY. Any Principal Subsidiary shall take
or fail to take any action in contravention of the terms of any agreement,
document or instrument executed, or to be executed by such Subsidiary, and
concerning a financial obligation of such Subsidiary, and such default shall
not have been cured within any applicable grace period, provided that during
any such grace period there shall have been no acceleration of payment pursuant
to such default; or
6.5 ADVERSE REGULATORY ACTION. Any governmental regulatory
authority or environmental protection agency shall take or institute action
which, in the reasonable opinion of Bank, may materially and adversely affect
Borrower's condition, operations or ability to repay the obligations; or
6.6 BREACH OF ANY REPRESENTATION OR WARRANTY. Any representation
or warranty made by Borrower in any Loan Document, or in any other instrument,
certificate, report or financial or other statement heretofore or hereafter
furnished by Borrower or its officers shall prove to be in any material respect
untrue, incorrect, false, incomplete or misleading; or shall be withdrawn; or
6.7 VIOLATION OF COVENANTS. Borrower shall default in the due
performance, compliance, or observance of any term, covenant, or condition of
this Agreement or the Loan Documents (other than Section 6.1, 6.2, 8.6 which
have no or different cure periods) and such default shall not within 30 days
after Bank provided notice thereof, or Borrower has knowledge thereof, have
been cured or waived.
6.8 INSOLVENCY. Borrower shall fail, be unable or be unwilling to
pay its debts generally as they come due; or there shall be filed by Borrower
any petition under the bankruptcy, reorganization, arrangement, insolvency or
other debtor's relief laws, or there shall be filed against Borrower any such
petition, and such filing shall not be dismissed within thirty (30) days
thereafter, or a receiver, trustee or liquidator shall be appointed for all or
a substantial part of Borrower's assets; or Borrower shall make a general
assignment for the benefit of creditors; the foregoing shall also apply to any
Subsidiary; or
6.9 ATTACHMENTS AND JUDGMENTS. Any final judgment or order for the
payment of money against Borrower for an amount in excess of $500,000 shall be
awarded by any court of competent jurisdiction, which shall not be either
discharged, vacated or stayed within a period of thirty (30) days from its
entry; or any notice of lien, levy or assessment, or any writ, judgment,
attachment, execution or other like process in an amount in excess of $500,000
shall be issued or levied against any of Borrower's property or assets, and
such writ, judgment, attachment, execution or process shall not be released,
discharged, dismissed, bonded against or satisfied within ten (10) days
thereafter; the foregoing shall also apply to any Subsidiary; or
6.10 SEIZURE OF PROPERTY. All, or such as in the opinion of Bank
constitutes a substantial portion, of the property of Borrower or any Principal
Subsidiary shall be condemned, seized or appropriated;
6.11 SUSPENSION OF BUSINESS. Borrower or any Principal Subsidiary
shall suspend its business; or
6.12 PENDING ACTION. Any action shall be pending against Borrower
(other than an action fully covered by insurance) which, if adversely
determined, would substantially impair the ability of Borrower to perform any
or all of its obligations hereunder or under any of the other Loan Documents,
unless Borrower's counsel, furnishes to Bank its opinion to the satisfaction of
Bank and Bank's counsel that, in its judgment, the action is essentially
without merit; the foregoing shall also apply to any Subsidiary; or
6.13 STOCK OWNERSHIP. Except as set forth in Exhibit 1 without the
prior written consent of Bank, sell, transfer, pledge or otherwise dispose of
all or any portion of the voting securities of Borrower; or
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<PAGE> 10
6.14 SALARIES AND WAGES. Borrower shall fail to pay salaries or
wages when due, or fail to make timely payment or deposit of all F.I.C.A.
payments and other withholding taxes required of it by applicable laws; or
6.15 MATERIAL ADVERSE CHANGE. Any other event or condition having a
material adverse effect on Borrower's or any Principal Subsidiary's financial
condition shall occur, such that Bank reasonably believes that the prospect of
payment or performance by Borrower under this Agreement or any other Loan
Document is impaired.
6.16 CROSS DEFAULT. borrower shall commit to do, or fail to commit
to do, any act or thing which would constitute an event of default under any of
the terms of any other material agreement, document or instrument executed, or
to be executed by it.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 ADDITIONAL REMEDIES. The rights, powers and remedies given to
Bank hereunder shall be cumulative and not alternative and shall be in addition
to all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
7.2 NONWAIVER. Any forbearance or failure or delay by Bank in
exercising any right, power or remedy hereunder shall not be deemed a waiver
thereof and any single or partial exercise of any right, power or remedy shall
not preclude the further exercise thereof. No waiver shall be effective unless
it is in writing and signed by an officer of Bank.
7.3 INUREMENT. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assignees of
Borrower, and any assignment of Borrower without bank's consent shall be null
and void.
7.4 APPLICABLE LAW. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the State of California.
7.5 SEVERABILITY. Should any one or more provisions of this
Agreement be determined to be illegal or unenforceable, all other provisions
nevertheless shall be effective.
7.6 INTEGRATION CLAUSE. Except for documents and instruments
specifically referenced herein, this Agreement constitutes the entire agreement
between Bank and Borrower regarding the Loan and all prior communications
verbal or written between Borrower and Bank shall be of no further effect or
evidentiary value.
7.7 CONSTRUCTION. The section and subsection headings herein are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
7.8 AMENDMENTS. This Agreement may be amended only in writing
signed by all parties hereto.
7.9 COUNTERPARTS. Borrower and Bank may execute one or more
counterparts to this Agreement, each of which shall be deemed an original.
SECTION 8. SERVICE OF NOTICES
8.1 Any notices or other communications provided for or allowed
hereunder shall be effective only when given by one of the following methods
and addressed to the respective party at its address
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<PAGE> 11
given with the signatures at the end of this Agreement and shall be considered
to have been validly given: (a) upon delivery, if delivered personally; (b)
upon receipt, if mailed, first class postage prepaid, with the United States
Postal Service; (c) on the next business day, if sent by overnight courier
service of recognized standing; and (d) upon telephoned confirmation of
receipt, if telecopied.
8.2 The addresses to which notices or demands are to be given may
be changed from time to time by notice delivered as provided above,
THIS AGREEMENT is executed on behalf of the parties by duly authorized
officers as of the date first above written.
UNION BANK QUIKSILVER, INC., A
DELAWARE CORPORATION
By: By:
------------------------------ ---------------------------
Title: Title:
-------------------------- ------------------------
By: By:
------------------------------ ---------------------------
Title: Title:
-------------------------- ------------------------
Address: Orange County Regional Office Address: 1740 Monrovia
500 South Main Street, Suite 201 Costa Mesa, California
Orange, California 92668 92627
Attention: Carol Carlile, Vice President Attention: Randall L. Herrel, Sr.,
Telecopier: (714) 565-5770 President
Telephone: (714) 565-5755 Telecopier:
Telephone: (714) 722-4261
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUIKSILVER,
INC.'S JULY 31, 1996 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 4,304,000
<SECURITIES> 0
<RECEIVABLES> 49,956,000
<ALLOWANCES> 3,843,000
<INVENTORY> 34,641,000
<CURRENT-ASSETS> 89,715,000
<PP&E> 16,466,000
<DEPRECIATION> 7,564,000
<TOTAL-ASSETS> 116,774,000
<CURRENT-LIABILITIES> 33,012,000
<BONDS> 3,172,000
0
0
<COMMON> 70,000
<OTHER-SE> 80,520,000
<TOTAL-LIABILITY-AND-EQUITY> 116,774,000
<SALES> 144,000,000
<TOTAL-REVENUES> 144,000,000
<CGS> 88,221,000
<TOTAL-COSTS> 88,221,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,904,000
<INTEREST-EXPENSE> 583,000
<INCOME-PRETAX> 15,201,000
<INCOME-TAX> 6,118,000
<INCOME-CONTINUING> 9,083,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,083,000
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.26
</TABLE>
