<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(MARK ONE)
[X] REPORT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 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)
Registrant's telephone number, including area code: (714) 645-1395
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Title of Name of each exchange
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, 1996 WAS 6,804,604.
<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, 1996 (Unaudited) and October 31, 1995 ........ 2
Consolidated Statements of Income (Unaudited)
Three Months ended January 31, 1996 and 1995 ............. 3
Consolidated Statements of Cash Flows (Unaudited)
Three Months ended January 31, 1996 and 1995 ............. 4
Notes to Consolidated Financial Statements ............... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............. 6
Part II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K ....................... 8
SIGNATURES ....................................................... 8
- ----------
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
QUIKSILVER, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
January 31, October 31,
(Amounts in thousands except share data) 1996 1995
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents .................... $ 1,217 $ 3,461
Trade accounts receivable, less allowance
for doubtful accounts of $2,895 (1996)
and $2,717 (1995) ......................... 38,325 38,308
Other receivables ............................ 1,998 1,471
Inventories - Note 3 ......................... 32,862 28,355
Prepaid expenses ............................. 1,090 2,240
-------- -------
Total current assets ...................... 75,492 73,835
Equipment, less accumulated depreciation
and amortization of $7,236 (1996) and
$6,982 (1995) ................................ 7,326 7,032
Trademark and consulting agreement, less
accumulated amortization of $1,373 (1996)
and $1,336 (1995) ............................ 1,645 1,682
Goodwill, less accumulated amortization
of $2,651 (1996) and $2,501 (1995) ........... 15,457 15,611
Other assets .................................... 1,972 1,008
-------- -------
$101,892 $99,168
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Lines of credit .............................. $ 5,826 $ 8,031
Accounts payable ............................. 12,845 9,257
Accrued liabilities .......................... 7,379 8,834
Current portion of notes payable ............. 228 233
Income taxes payable ...................... 1,412 578
-------- -------
Total current liabilities .............. 27,690 26,933
Notes payable ................................... 3,127 3,297
-------- -------
Total liabilities ...................... 30,817 30,230
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 6,804,604 (1996) and
6,775,605 (1995)........................... 68 68
Additional paid-in-capital ................... 15,440 15,118
Retained earnings ............................ 54,867 52,739
Cumulative foreign currency translation gain . 700 1,013
-------- -------
Total stockholders' equity ............. 71,075 68,938
-------- -------
$101,892 $99,168
======== =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
QUIKSILVER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended January 31,
------------------------------
(Amounts in thousands except share data) 1996 1995
- ------------------------------------------ ---------- ----------
<S> <C> <C>
Net sales ................................ $ 40,487 $ 33,658
Cost of goods sold ....................... 24,892 20,769
---------- ----------
Gross profit .......................... 15,595 12,889
---------- ----------
Operating expenses
Selling, general and
administrative expenses ............ 11,336 9,965
Royalty income ........................ (205) (208)
Royalty expense ....................... 565 422
---------- ----------
Total operating expenses ........... 11,696 10,179
---------- ----------
Operating income ......................... 3,899 2,710
Interest income .......................... (1) (6)
Interest expense ......................... 170 170
Gain on foreign currency exchange ........ (117) (235)
Loss on foreign currency exchange ........ 140 138
Other expense ............................ 101 78
---------- ----------
Income before provision for income taxes . 3,606 2,565
Provision for income taxes ............... 1,481 1,034
---------- ----------
Net income ............................... $ 2,125 $ 1,531
========== ==========
Primary net income per common share ...... $ .30 $ .23
========== ==========
Fully diluted net income per common share. $ .30 $ .23
========== ==========
Primary weighted average common shares
and equivalents outstanding - Note 2 .. 7,134,000 6,744,000
========== ==========
Fully diluted weighted average
common shares and equivalents
outstanding - Note 2 .................. 7,134,000 6,744,000
========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
QUIKSILVER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended January 31,
------------------------------
(Amounts in thousands) 1996 1995
- ------------------------------------------------------ ------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................ $ 2,125 $ 1,531
Items in income not affecting cash:
Depreciation and amortization .................. 628 565
Provision for losses on accounts receivable .... 183 243
Net loss (gain) on sale of fixed assets ........ 23 (4)
Change in operating assets and liabilities:
Trade accounts receivable ...................... (200) 205
Other receivables .............................. (527) (563)
Inventories .................................... (4,507) (7,329)
Prepaid expenses ............................... 61 34
Other assets ................................... 125 (12)
Accounts payable ............................... 3,588 5,539
Accrued liabilities ............................ (1,455) 1,201
Income taxes payable ........................... 834 (1,081)
------- -------
Net change in cash related to operating activities ... 878 329
Cash flows from investing activities:
Proceeds from sales of fixed assets ............... 20 25
Capital expenditures .............................. (774) (897)
Goodwill .......................................... -- --
------- -------
Net change in cash related to investing activities ... (754) (872)
Cash flows from financing activities:
Borrowings on lines of credit ..................... 3,565 6,012
Payments on lines of credit ....................... (5,775) (4,300)
Borrowings on long-term debt ...................... 40 112
Payments on long-term debt ........................ (210) (183)
Proceeds from stock issued in connection with
exercise of stock options ...................... 325 189
------- -------
Net change in cash related to financing activities ... (2,055) 1,830
Effect of exchange rate changes on cash .............. (313) (92)
------- -------
Net change in cash ................................... (2,244) 1,195
Cash at beginning of period .......................... 3,461 682
------- -------
Cash at end of period ................................ $ 1,217 $ 1,877
======= =======
Supplementary Cash Flow Information:
Cash paid during the period for:
Interest .......................................... $ 185 $ 241
======= =======
Income taxes ...................................... $ 549 $ 1,085
======= =======
</TABLE>
See 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, 1996
and 1995. The financial statements and notes thereto should be read
in conjunction with the audited financial statements and notes for the
years ended October 31, 1995 and 1994. 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
currencies. 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,
1996 1995
----------- -----------
<S> <C> <C>
Raw Materials $11,765,000 $10,875,000
Work-In-Process 4,142,000 4,104,000
Finished Goods 16,955,000 13,376,000
----------- -----------
$32,862,000 $28,355,000
=========== ===========
</TABLE>
Inventories are valued at the lower of cost (first in, first out) or
market.
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, 1996 as Compared to
- --------------------------------------------------------------------------
Three Months Ended January 31, 1995
- -----------------------------------
Fiscal 1996 first quarter consolidated net sales increased 20.3% to $40,487,000
as compared to $33,658,000 in the same period of the prior year. Fiscal 1996
first quarter net sales, excluding European operations, increased 11.8% to
$24,852,000 as compared to $22,239,000 in the same period of the prior year.
This increase was primarily due to a greater acceptance of the Company's
product lines. Fiscal 1996 first quarter net sales for European operations
increased 36.9% to $15,635,000 as compared to $11,419,000 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 1996 first quarter consolidated gross profit margin increased to 38.5%
as compared to 38.3% in the same period of the prior year. Fiscal 1996 first
quarter gross profit margin, excluding European operations, increased to 35.8%
as compared to 35.5% 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 1996 first quarter gross profit margin for
European operations decreased to 42.8% as compared to 43.8% 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 1996 first quarter consolidated selling, general and administrative
expense ("SG&A") increased 13.8% to $11,336,000 as compared to $9,965,000 in
the same period of the prior year. Fiscal 1996 first quarter SG&A, excluding
European operations, increased 10.4% to $6,977,000 as compared to $6,320,000
in the same period of the prior year. This increase was primarily due to
increased sales volume. Fiscal 1996 first quarter SG&A expense for European
operations increased 19.6% to $4,359,000 as compared to $3,645,000 in the same
period of the prior year. This increase was primarily a result of increased
sales volume and a decrease in the French franc exchange rate.
Fiscal 1996 first quarter consolidated royalty income decreased 1.4% to
$205,000 as compared to $208,000 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 1996 first quarter consolidated royalty expense increased 33.9% to
$565,000 as compared to $422,000 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 1996 first quarter consolidated interest income decreased to $1,000 as
compared to $6,000 in the same period of the prior year. Fiscal 1996 first
quarter consolidated interest expense remained stable at $170,000 as compared
to $170,000 in the same period of the prior year.
Fiscal 1996 first quarter consolidated net income increased 38.8% to $2,125,000
or $0.30 per fully diluted common share as compared to $1,531,000 or $0.23 per
fully diluted 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 and royalty 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 $47,802,000 at January 31, 1996 as compared to
$46,902,000 at October 31, 1995. The increase is primarily due to increased
operating income.
Consolidated trade accounts receivable as of January 31, 1996 remained
relatively stable at $38,325,000 from $38,308,000 at October 31, 1995. Trade
accounts receivable, excluding European operations, decreased 5.2% to
$24,201,000 as compared to $25,519,000 at October 31, 1995. European
operations trade accounts receivable increased 10.4% to $14,124,000 as compared
to $12,789,000 at October 31, 1995. These changes are in line when compared to
the same period last year, the increase in bookings and the 20.3% increase in
sales for the quarter over the same period of the prior year.
Consolidated inventories as of January 31, 1996 increased 15.9% to $32,862,000
from $28,355,000 at October 31, 1995. Inventories, excluding European
operations, increased 13.5% to $25,532,000 as compared to $22,496,000 at
October 31, 1995. European operations inventories increased 25.1% to
$7,330,000 from $5,859,000 at October 31, 1995. These increases are primarily
due to increased bookings for its lines as well as seasonal factors.
As the Company uses independent contractors for cutting, sewing and all other
manufacturing of the Company's products, and intends to continue to use
independent contractors in the future, the Company has avoided significant
capital expenditures. Fiscal 1996 first quarter capital expenditures were
$774,000 as compared to $897,000 for the same period of the prior year.
Goodwill on the Company's balance sheets as of January 31, 1996 and October 31,
1995 consists primarily of the costs in excess over net assets acquired in the
Quiksilver Europe and Raisins acquisitions.
To finance the Company's seasonal working capital needs, the Company has
available a revolving line of credit with a U.S. bank which is unsecured and
which provides for a maximum financing of $20,000,000. The line of credit
bears interest at 0.5% below the bank's reference rate for the first
$16,000,000 drawn and at the bank's reference rate on all amounts drawn over
$16,000,000. The line of credit expires April 30, 1996. Quiksilver Europe
also has available lines of credit, both secured and unsecured, with banks
which provide for maximum financing of approximately $16,600,000. The lines of
credit bear interest at 0.7% to 1.0% 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 forseeable
future.
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, 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 customer known to have financial difficulties will not
have a significant long-term negative impact on the Company's future
operations.
7
<PAGE> 9
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, 1996
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
March 8, 1996 Randall L. Herrel, Sr.
----------------------------------------
Randall L. Herrel, Sr.
President,
Chief Operating Officer
and Secretary
March 8, 1996 Bert G. Fenenga
----------------------------------------
Bert G. Fenenga
Senior Vice President,
Chief Financial Officer
and Treasurer
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUIKSILVER,
INC.'S JANUARY 31, 1996 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 1,217,000
<SECURITIES> 0
<RECEIVABLES> 38,325,000
<ALLOWANCES> 2,895,000
<INVENTORY> 32,862,000
<CURRENT-ASSETS> 75,492,000
<PP&E> 7,326,000
<DEPRECIATION> 7,236,000
<TOTAL-ASSETS> 101,892,000
<CURRENT-LIABILITIES> 27,690,000
<BONDS> 3,355,000
68,000
0
<COMMON> 0
<OTHER-SE> 71,007,000
<TOTAL-LIABILITY-AND-EQUITY> 101,892,000
<SALES> 40,487,000
<TOTAL-REVENUES> 40,487,000
<CGS> 24,892,000
<TOTAL-COSTS> 24,892,000
<OTHER-EXPENSES> 11,696,000
<LOSS-PROVISION> 2,895,000
<INTEREST-EXPENSE> 170,000
<INCOME-PRETAX> 3,606,000
<INCOME-TAX> 1,481,000
<INCOME-CONTINUING> 2,125,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,125,000
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
