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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 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
Securities registered pursuant to Section 12(b) of the Act:
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Title of Name of each exchange
each class on which registered
<S> <C> <C>
NONE NONE
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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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant as of January 9, 1997 was $143,500,000 based on
the number of shares outstanding on such date and the last sale price for the
Common Stock on such date of $22.00 as reported on the NASDAQ National Market
System.
As of January 9, 1997, there were 6,876,746 shares of the Registrant's
Common Stock issued and outstanding.
PART III is incorporated by reference from the Registrant's definitive
Proxy Statement for its 1997 Annual Meeting of Stockholders to be filed with the
Commission within 120 days of October 31, 1996.
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TABLE OF CONTENTS
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Page
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PART I
Item 1 BUSINESS
Introduction................................................................................... 1
Products....................................................................................... 1
Product Design................................................................................. 2
Promotion and Advertising...................................................................... 2
Customers and Sales............................................................................ 3
Seasonality.................................................................................... 4
Production and Raw Materials................................................................... 4
Imports and Import Restrictions................................................................ 5
Trademark License Agreements................................................................... 5
Competition.................................................................................... 6
Employees...................................................................................... 6
Research and Development....................................................................... 6
Environmental Matters.......................................................................... 6
Acquisitions................................................................................... 6
Item 2 PROPERTIES .................................................................................... 7
Item 3 LEGAL PROCEEDINGS ............................................................................. 7
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........................................... 7
PART II
Item 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................................................................ 7
Item 6 SELECTED FINANCIAL DATA ....................................................................... 8
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................................................ 9
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ................................................... 12
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................................................ 12
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............................................ 13
Item 11 EXECUTIVE COMPENSATION ........................................................................ 13
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................................................. 13
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................................................ 13
PART IV
Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K....................................................................................... 13
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................................................ 14
SIGNATURES................................................................................................ 30
EXHIBIT INDEX............................................................................................. 31
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PART I
ITEM 1. BUSINESS
References to the "Registrant" or the "Company" are to Quiksilver, Inc., a
Delaware corporation, unless the context indicates otherwise.
INTRODUCTION
The Company designs, arranges for the manufacture of, and distributes casual
sportswear, beachwear, activewear, denimwear and snowboardwear primarily for
young men, boys and young women under various labels, including "Quiksilver",
"Quiksilver Roxy", "Raisins", "Leilani", "Radio Fiji", "Que", and "Pirate Surf".
The Company's products for domestic sales are made primarily in the U.S.A. and
are sold at approximately 7,400 surf shop, specialty store, national specialty
chain and selected department store locations. The Company's products for
European sales are made primarily in Europe and are sold at approximately 3,500
surf shop, specialty store and selected department store locations. The
Company's clothing is distinguished by its youthful styling, innovative design,
active fabrics and quality of workmanship.
The Company acquired substantially all the assets of The Raisin Company, Inc.
("Raisins"), and all of the stock of ATI Apparel Trade International ("ATI"),
the holder of the international rights to the "Raisins" trademarks (see "Item 1.
Acquisitions"), effective November 1, 1993. The Company acquired Na Pali, S.A.
("Quiksilver Europe"), a privately held French company that holds the license to
market "Quiksilver" products in Europe, in fiscal 1991.
The Company was incorporated in California in 1976 and was reincorporated in
Delaware in 1986. The Company's fiscal year ends on October 31. Accordingly,
references to fiscal 1996, fiscal 1995, or fiscal 1994 refer to the years ended
October 31, 1996, 1995 or 1994, respectively.
PRODUCTS
The Company was originally formed for the purpose of selling "Quiksilver"
swimwear, or "boardshorts", in the United States. Since that time, the Company
has expanded its product lines to include shirts, walkshorts, t-shirts, fleece,
pants, jackets, accessories, and snowboardwear. In fiscal 1991, the Company
added junior swimwear and sportswear sold under the "Quiksilver Roxy" label and
young men's clothing under the "Pirate Surf" label to its product lines. In
fiscal 1992, the Company added men's sportswear sold under the "Que" label.
Beginning in fiscal 1994, the Company added the junior swimwear labels
"Raisins", "Leilani" and "Radio Fiji" through its acquisition of The Raisin
Company, Inc., and in fiscal 1996 expanded these labels into junior sportswear.
The following table shows the approximate percentage of worldwide sales
attributable to each of the Company's major product categories during fiscal
1996, 1995, and 1994.
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PERCENTAGE OF SALES
--------------------------
PRODUCTS 1996 1995 1994
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<S> <C> <C> <C> <C>
T-Shirts........................................................ 19% 22% 20%
Juniors......................................................... 18% 12% 12%
Shirts.......................................................... 16% 17% 20%
Shorts (boardshorts and walkshorts)............................. 12% 14% 16%
Accessories..................................................... 9% 8% 6%
Fleece.......................................................... 8% 10% 9%
Snowboardwear/Skiwear........................................... 6% 5% 6%
Jackets......................................................... 5% 6% 6%
Pants........................................................... 5% 5% 4%
Other........................................................... 2% 1% 1%
---- --- ---
Total...................................................... 100% 100% 100%
=== === ===
</TABLE>
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Although the Company's products are generally available throughout the year,
most are sold by season. Sales of shorts, short-sleeve shirts, t-shirts and
swimwear are higher during the spring and summer seasons, and sales of pants,
long-sleeve shirts, fleece, jackets and snowboardwear are higher during the fall
and holiday seasons.
The Company believes that the typical domestic retail prices for its products
range from approximately $17 for a t-shirt and $39 for a typical short to $150
for a typical snowboard jacket. Additionally, the Company believes that the
typical retail prices for its Quiksilver Europe products range from
approximately $33 for a t-shirt and $64 for a typical short to $280 for a
typical snowboard jacket.
PRODUCT DESIGN
The Company's products, the vast majority of which are designed by the Company,
are distinguished by youthful styling, innovative design, active fabrics and
quality of workmanship. The Company's management is actively involved in product
design. Design concepts are primarily based on the Company's own research,
development and design activities in the U.S. and Europe. The Company has an
agreement with Quiksilver Garments Pty., Ltd., an Australian company
("Quiksilver International"), whereby the Company and other licensees of
Quiksilver International share fabrics, samples and patterns for new products
sold under the "Quiksilver" name.
PROMOTION AND ADVERTISING
The Company's history is in the sport of surfing and the beach culture.
Throughout its history, the Company has always maintained a strong marketing,
advertising and distribution presence in the surfing world as well as other
youth boardriding marketplaces. The Company's strategy is to continue to promote
its core image associated with surfing and other boardriding activities. The
Company believes the "Quiksilver" image and reputation for quality and style has
facilitated, and will continue to facilitate, the introduction and acceptance of
new products.
With the Company's 20-year history of authenticity, product and core marketing
as the foundations of the "Quiksilver" label, the Company believes that
continued product diversification, development of other labels and strong core
distribution allow the Company to reach other markets beyond its roots. The
Company currently reaches into the youth, active, outdoor and extreme sports
markets. These markets include women as well as men, young people (8 - 20 years
of age) and older people (20 - 40 years of age).
The Company's management, other employees and many of its sales representatives
are involved in surfing, snowboarding and other sporting activities that the
Company believes enhance the "Quiksilver" image, provide valuable insights into
product design, and heighten the Company's understanding of the end users of its
products.
To promote the Company's image and products, the Company advertises in magazines
such as "Surfer", "Surfing", and "Snowboarding" in the United States and "Wind"
and "Surf Session" in Europe. Beginning in the second half of fiscal 1996, the
Company expanded its advertising to include national publications in the United
States, such as "Details", "GQ", "Rolling Stone" and "Spin". The Company also
sponsors professional surfers, snowboarders, windsurfers and other athletes,
both on a national and international basis. The Company actively promotes its
image and products among teenagers and young adults. Quiksilver Europe also
sponsors boardriders. The Company also participates in trade shows which are
held throughout the United States and Europe.
The Company and Quiksilver International have an agreement whereby the Company
pays Quiksilver International an annual fee of $300,000 to promote the
"Quiksilver" name and logo worldwide. The Company also pays Quiksilver
International a promotional fee equal to 1% of Quiksilver Europe's net sales.
These promotional fees have historically been used by Quiksilver International
to sponsor an international team of leading surfers, windsurfers and
snowboarders, produce promotional movies and videos featuring surfers,
windsurfers and snowboarders wearing "Quiksilver" products, and organize and
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fund surfing and windsurfing contests worldwide. The Company believes that
trademark protection of its names and logos is an important component of the
Company's business.
The Company believes that its future success will be dependent, among other
things, on its ability to continue to promote products consistent with its
image, maintain an image which is viewed as attractive among the retail
purchasers of its products, and anticipate and respond to changing consumer
demands and tastes.
CUSTOMERS AND SALES
The Company's policy is to sell to customers who merchandise the Company's
products in a manner consistent with the Company's image and the quality of its
products. Sales of "Quiksilver" products were initially made exclusively to surf
shops. The Company later expanded its customer base to include other specialty
stores, national specialty chains and upscale department stores. During fiscal
1996, the Company's products were sold to customers in approximately 10,900
locations worldwide. Of the Company's consolidated net sales for fiscal 1996 and
fiscal 1995, approximately 87% and 89%, respectively, resulted from sales to
surf shops, specialty stores, national specialty chains and all other
non-department store accounts, and approximately 13% and 11%, respectively,
resulted from sales to department stores.
The Company currently sells its products to a number of department stores,
including Macy's (California), Nordstrom, Robinson's/May (Southern California),
Burdines (Florida), The Bon Marche (northwest) and Liberty House (Hawaii) in the
United States; Le Printemps and Galeries Lafayette in France, and Harrods
and Lillywhites in Great Britian.
During fiscal 1996, approximately 15% of the Company's consolidated net sales
were made to the Company's ten largest customers. No single customer accounted
for more than 3% of the Company's consolidated net sales during fiscal 1996.
Quiksilver Europe accounted for 37% of the Company's consolidated net sales
during fiscal 1996. Fiscal 1996 foreign sales (primarily to Central and South
America pursuant to a trademark agreement with Quiksilver International) from
the U.S. were less than 5% of total domestic net sales.
Sales of the Company's products are made by 107 independent sales
representatives and sub-representatives in the United States and Europe and 14
distributors in Europe. The Company's sales representatives are generally
compensated on a commission basis. Of the Company's domestic net sales during
fiscal 1996, approximately 41% resulted from sales to customers located on the
west coast of the United States, approximately 22% resulted from sales to
customers located on the east coast of the United States (primarily Florida,
Massachusetts, New Jersey, New York and North Carolina), approximately 6%
resulted from sales to customers in Hawaii, and approximately 31% resulted from
sales to customers located in other areas of the United States. Of the Company's
European net sales during fiscal 1996, approximately 58% resulted from sales to
customers located in France, 8% in Germany, 8% in England, 7% in Spain, 4% in
Holland, 3% in Belgium, 3% in Switzerland, 3% in Portugal, 2% in Italy, with the
remaining approximately 4% spread throughout other countries.
The Company generally sells its products to domestic customers on a net-30 to
net-60 day basis and in Europe on a net-30 to net-90 day basis depending on the
country and whether the Company sells directly into the country or to a
distributor. The Company has a limited number of cooperative advertising
programs with its customers and generally does not reimburse its customers for
marketing expenses. The Company does not generally participate in markup or
markdown programs with its customers nor does it offer goods on consignment.
For additional information regarding the Company's revenues, operating profits
and identifiable assets attributable to the Company's domestic and foreign
operations, see Note 13 of the "Notes to Consolidated Financial Statements".
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SEASONALITY
The Company's net sales fluctuate from quarter to quarter, as exemplified by the
quarterly consolidated net sales set forth below for fiscal years 1996, 1995 and
1994, primarily due to seasonal consumer demand patterns and the Company's
product mix.
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CONSOLIDATED NET SALES (UNAUDITED)
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1996 1995 1994
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AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
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(DOLLAR AMOUNTS IN THOUSANDS)
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January 31............................ $ 40,487 20.9% $ 33,658 19.5% $ 24,294 19.3%
April 30.............................. 54,505 28.2 47,311 27.4 36,468 28.9
July 31............................... 49,008 25.3 42,738 24.7 29,169 23.1
October 31............................ 49,474 25.6 49,080 28.4 36,240 28.7
-------- ------ -------- ----- -------- -----
Total........................... $193,474 100.0% $172,787 100.0% $126,171 100.0%
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PRODUCTION AND RAW MATERIALS
A majority of the Company's products are manufactured by independent
contractors, while a portion of the Company's products are imported as finished
goods. For the year ended October 31, 1996, approximately 70% of the Company's
domestic products were manufactured by independent contractors and approximately
30% were imported as finished goods. See "Imports and Import Restrictions"
below.
For its domestic operations, the Company hires independent contractors located
primarily in Southern California to manufacture its clothing and accessories.
During fiscal 1996, offshore production for domestic operations accounted for
approximately 13% of products manufactured by independent contractors. For its
European operations, the Company hires independent contractors located primarily
in Portugal, Hong Kong, Korea and France to manufacture the majority of its
clothing and accessories.
In general, the Company provides patterns and fabric to independent cutting
contractors to begin the production process. After the fabric is cut, it passes
through various processes which may include sewing, washing, dyeing,
embroidering and screening. These processes occur in different orders based on
the design and style of the product. The Company's quality control inspectors
and production managers monitor the sizing and quality of the goods from the
initial receiving of raw materials through the various processing stages until
the completed garment is delivered to the Company's distribution centers. No
formal contractual obligations exist between the Company and its independent
manufacturing contractors.
Goods are manufactured and processed on an order-by-order basis. During fiscal
1996, no single contractor, raw materials or finished goods supplier accounted
for more than approximately 9% of the Company's consolidated garment production.
The Company believes that numerous qualified contractors are available to
provide additional capacity on an as-needed basis. The Company believes it
enjoys a favorable ongoing relationship with its independent manufacturing
contractors.
During fiscal 1996, approximately 80% of the Company's consolidated raw material
fabric/trim purchases, and 98% of its domestic raw material fabric/trim
purchases, consisted of materials made in the United States. The remaining raw
material fabric/trim was purchased either directly from sources in Japan,
France, India, Hong Kong and the United Kingdom, or from suppliers located in
the United States who had acquired some of their products from foreign sources.
No single fabric supplier accounted for more than 6% of the Company's
consolidated expenditures for raw material purchases during fiscal 1996.
Although the Company does not have any formal long-term arrangements with its
suppliers, it believes it has established solid working relationships over many
years with vendors that the Company believes are financially stable and
reputable. As the Company has grown, it believes that appropriate and sufficient
planning has been performed to ensure that current suppliers can provide
increased levels of raw materials as required by production demands. In
addition, alternate and/or backup suppliers are
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researched, tested, and added as needed. To date, the Company has not
experienced, nor does it anticipate any significant difficulties in satisfying
its raw materials requirements. However, in the event of any unanticipated
substantial disruption of the Company's relationship with its key existing raw
materials suppliers, there could be a short-term adverse effect on the Company's
operations.
The Company attempts to keep only enough finished product in stock to meet sales
commitments and anticipated orders and reorders on a seasonal basis. In the
United States, the Company believes that it is capable of being responsive to
its customers' continually changing needs because it utilizes a substantial
number of local contractors that can produce garments in six to eight weeks
versus non-domestic contractors who typically require between eight and fourteen
weeks. While Quiksilver Europe produces a higher percentage of garments outside
of France, the Company believes it has sufficient production facilities and
contractors in France to respond to customers' needs.
IMPORTS AND IMPORT RESTRICTIONS
The Company has for some time imported finished goods and raw materials for its
domestic operations under multilateral and bilateral trade agreements between
the United States and a number of foreign countries, including Hong Kong, India
and Japan. These agreements impose quotas on the amount and type of textile and
apparel products which can be imported into the United States from the affected
countries. The Company does not anticipate that these restrictions will
materially or adversely affect its operations since it would be able to meet its
needs domestically or from countries not affected by the restrictions on an
annual basis.
Quiksilver Europe operates in the European Economic Community ("EEC") among
which there are few trade barriers. Quiksilver Europe also sells to 6 other
countries united in another trade union which has some restrictions on imports
of textile products and their sources. For production, Quiksilver Europe
operates under constraints imposed on imports of finished goods and raw
materials from outside the EEC including quotas and duty charges. The Company
does not anticipate that these restrictions will materially or adversely impact
its operations since it has always operated under such constraints and the trend
in Europe is toward unification.
TRADEMARK LICENSE AGREEMENTS
The Company has direct ownership of the "Quiksilver" name, logo, and trademark
in the United States, Puerto Rico and Mexico and is a licensee of Quiksilver
International in certain Central and South American countries and Canada. As a
strategy to penetrate certain markets and product categories, the Company
licensed the use of the "Quiksilver" name, logo, and trademark in Mexico in
exchange for royalties of 4.50% of net sales after Mexican taxes, and the use of
the "Quiksilver" name and logo on watches, sunglasses and wetsuits in exchange
for royalties of 7%, 10% and 4% of net sales, respectively. The Company has also
licensed the use of the "Que" name, logo, and trademark in Japan.
These license agreements expire between 1998 and 2006.
Quiksilver Europe has a European trademark license and manufacturing agreement
(the "Trademark Agreement") with Quiksilver International. The Trademark
Agreement provides that Quiksilver Europe can sell products under the
"Quiksilver" trademark and tradename through 2012 in the territories covered by
the Trademark Agreement (primarily western Europe). In consideration of the
rights granted under the Trademark Agreement, Quiksilver Europe pays to
Quiksilver International a royalty, on a monthly basis as follows:
(a) For any year in which Quiksilver Europe's net sales total
150,000,000 French francs (approximately $29,300,000 at
October 31, 1996) or less, the total royalty is 4% of net
sales for that year, up to a maximum royalty of 4,500,000
French francs (approximately $880,000 at October 31, 1996)
and;
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(b) For any year in which Quiksilver Europe's net sales total
greater than 150,000,000 French francs, the total royalty is
4,500,000 French francs plus an amount equal to 3% of
Quiksilver Europe's net sales for that year in excess of
150,000,000 French francs.
The Trademark Agreement also requires Quiksilver Europe to pay a quarterly
promotional fee of 1% of its net sales to Quiksilver International.
COMPETITION
The market for beachwear, snowboardwear and casual sportswear is competitive. In
the Company's markets, the principal competitors include companies such as
Billabong, Rusty and Stussy in the United States and Oxbow, Chimsee and O'Neill
in Europe. The Company believes that it has revenues and capital resources
approximately equal to, or greater than, most of its competitors in its market.
In the snowboardwear market, the Company's principal competitors are Burton and
Columbia. The Company believes its revenues from snowboardwear are substantially
below many of its competitors in the snowboardwear market.
The Company's ability to evaluate and respond to changing consumer demands and
tasks is critical to its success. The Company believes that consumer acceptance
depends on product, image, design, fit and quality, and, consequently, has
developed an experienced team of designers, artists, merchandisers, pattern
makers, and cutting and sewing contractors that the Company believes has helped
the Company remain in the forefront of design in the areas in which it competes.
The Company believes, however, that its continued success will depend on its
ability to promote its image and to design products acceptable to the
marketplace.
EMPLOYEES
On October 31, 1996, the Company employed an aggregate of approximately 513
persons worldwide, including approximately 330 in production, operations and
shipping functions, approximately 170 in administrative or clerical capacities,
and 13 in executive capacities. None of the Company's employees are represented
by a union, and the Company has never experienced a work stoppage. The Company
considers its working relationships with its employees to be good.
RESEARCH AND DEVELOPMENT
During the last three fiscal years, the Company did not incur any material
research and development expenses.
ENVIRONMENTAL MATTERS
During the last three fiscal years, compliance with environmental laws and
regulations did not have a significant impact on the Company's capital
expenditures, earnings or competitive position. The Company does not anticipate
that it will incur any material capital expenditures for environmental control
facilities during the next fiscal year.
ACQUISITIONS
Effective November 1, 1993, the Company acquired substantially all of the assets
of Raisins and the stock of ATI for a purchase price of $4,136,000 consisting of
$3,459,000 in cash and the assumption of $677,000 in liabilities. The Company
also agreed to pay the sellers up to 28.8% of the earnings before taxes of
Raisins and ATI, contingent on the achievement of certain earnings goals through
October 31, 1996. These acquisitions were accounted for as purchases and
approximately $4,429,000 was recorded as goodwill, which is being amortized over
30 years.
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ITEM 2. PROPERTIES
The Company's executive offices, production and warehouse facilities occupy
approximately 200,000 square feet of space in multiple buildings located in
Orange County, California and approximately 130,000 square feet of space in
eight buildings in France. The Company also maintains a sales office in New
York. The leases for the Orange County facilities expire on various dates
through the end of 1997. The majority of the buildings in France are leased
under agreements that expire on various dates through 2004. The aggregate
monthly rental payment for rented facilities is approximately $100,000. Although
the Company believes that its present facilities will be adequate for its
immediately foreseeable business needs, the Company is currently pursuing an
alternative facility in Orange County, California that will enable it to
consolidate its domestic operations into two primary facilities and is planning
a warehouse expansion in Europe on its existing premises.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is included on the NASDAQ National Market System
under the symbol "QUIK." The following table reflects the high and low sales
prices of the Company's Common Stock, as reported by the NASDAQ National Market
System, for the two most recent fiscal years.
<TABLE>
<CAPTION>
HIGH LOW
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<S> <C> <C> <C>
Fiscal 1996
4th Quarter ended October 31, 1996.............................. $ 30 3/8 $ 18 5/8
3rd Quarter ended July 31, 1996................................. 47 3/8 23
2nd Quarter ended April 30, 1996................................ 40 1/8 27
1st Quarter ended January 31, 1996.............................. 36 1/8 26 3/4
Fiscal 1995
4th Quarter ended October 31, 1995.............................. $ 31 3/4 $ 25
3rd Quarter ended July 31, 1995................................. 28 1/2 19 3/8
2nd Quarter ended April 30, 1995................................ 22 3/8 15 1/4
1st Quarter ended January 31, 1995.............................. 18 1/8 14
</TABLE>
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The Company has reinvested earnings in its business and has never paid a cash
dividend. At the present time, no change to this practice is under
consideration. The payment of cash dividends in the future will be determined by
the Board of Directors in light of conditions then existing, including the
Company's earnings, financial requirements and condition, opportunities for
reinvesting earnings, business conditions and other factors. In addition, under
the Company's line of credit agreement, the Company must obtain the bank's prior
consent to pay dividends, purchase, redeem or retire any capital stock.
The number of holders of record of the Company's Common Stock was approximately
390 on January 9, 1997
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data regarding the
Company, which is qualified by reference to, and should be read in conjunction
with, the consolidated financial statements and notes thereto (see "Index to
Consolidated Financial Statements" and "Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations"). The statement of
income and balance sheet data presented below have been derived from the
Company's consolidated financial statements. The Company's consolidated
financial statements as of October 31, 1996 and 1995 and for each of the three
years in the period ended October 31, 1996 have been audited by Deloitte &
Touche LLP, the Company's independent auditors, as indicated in their report,
included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Income Data
Net sales....................................... $193,474 $172,787 $126,171 $94,640 $89,319
Income before taxes on income .................. 19,279 16,836 11,756 7,631 890
Net income...................................... 11,660 10,012 7,738 4,431 371
Net income per share............................ 1.62 1.45 1.16 0.69 0.05
Weighted average common shares and
equivalents outstanding...................... 7,209 6,882 6,648 6,438 6,965
Dividends declared per share - - - - -
Balance Sheet Data
Total assets.................................... $115,580 $ 99,168 $ 80,470 $58,648 $53,162
Working capital................................. 55,647 46,902 32,567 26,737 24,545
Lines of credit................................. 8,211 8,031 10,100 1,330 -
Notes payable................................... 2,880 3,530 2,839 2,244 199
Stockholders' equity............................ 80,727 68,938 54,938 45,030 40,787
Current ratio................................... 2.73 2.74 2.41 3.32 3.48
Return on average stockholders' equity.......... 15.58 16.16 15.48 10.33 0.92
</TABLE>
(1) The Company's consolidated financial statements include Raisins
from November 1, 1993 forward (see "Item 1. Acquisitions").
(2) Effective November 1, 1993, the Company changed its method of
accounting for income taxes, which increased net income by $600,000
during the year ended October 31, 1994 (see "Consolidated Financial
Statements" included in "Item 14. Exhibits, Financial Statements
Schedules and Reports on Form 8-K").
8
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto for the years ended October
31, 1996, 1995 and 1994.
RESULTS OF OPERATIONS
Fiscal 1996 Compared to Fiscal 1995
Net sales for fiscal 1996 increased 12.0% to $193,474,000 from $172,787,000 in
fiscal 1995. Domestic net sales for fiscal 1996 increased 6.1% to $121,932,000
from $114,935,000 in fiscal 1995, and Quiksilver Europe's net sales increased
23.7% to $71,542,000 from $57,852,000 for those same periods. Domestically,
lower sales in the young mens division were more than offset by increases in the
juniors division. The Company believes that the decrease in sales of young mens
products is related to seasonal and other factors and is not part of a long-term
trend. Quiksilver Europe's sales grew across all divisions.
The gross profit margin for fiscal 1996 increased to 39.3% from 38.2% in fiscal
1995. The domestic gross profit margin for fiscal 1996 increased to 35.7% from
34.6% in fiscal 1995, and Quiksilver Europe's gross profit margin was relatively
unchanged at 45.4% in fiscal 1996 compared to 45.5% in fiscal 1995.
Domestically, the gross profit margin improvement resulted from higher markdowns
during the previous year's fourth quarter to clear prior season merchandise and
from increased sales of juniors division products, which sell at higher average
profit margins compared to other divisions.
Selling, general and administrative expense ("SG&A") increased 16.2% in fiscal
1996 to $54,379,000 from $46,810,000 in fiscal 1995. Domestic SG&A increased
17.3% to $33,738,000 from $28,755,000, and Quiksilver Europe's SG&A increased
14.3% to $20,641,000 from $18,055,000 in those same periods. Domestically, SG&A
increased primarily due to higher personnel costs related to increased sales
volume, along with increased investment in computer systems and a national
advertising campaign that began during the third quarter of fiscal 1996. The
national advertising campaign is designed to increase awareness of the
Quiksilver mountain and wave logo throughout the United States and is expected
to primarily benefit the young mens and boys divisions. The campaign began
during a relatively weak period in young mens sales, but management believes it
will improve sales in fiscal 1997. The increase in Quiksilver Europe's SG&A
resulted primarily from higher costs related to increased sales volume.
Net royalty expense for fiscal 1996 increased 31.4% to $1,445,000 from
$1,100,000 in fiscal 1995. The increase was due primarily to increased royalty
expense related to Quiksilver Europe's sales. The Company receives royalty
income from its Mexican, wetsuit, watch, sunglass and outlet store licensees,
and it pays royalties on Quiksilver Europe's sales and foreign sales from the
U.S. under trademark agreements with Quiksilver International.
Net interest expense for fiscal 1996 decreased 31.1% to $785,000 from $1,139,000
in fiscal 1995. This decrease was primarily due to lower average outstanding
balances on the Company's lines of credit.
The effective income tax rate for fiscal 1996 decreased to 39.5% from 40.5% in
fiscal 1995. The decrease in the effective income tax rate resulted primarily
from an increased portion of the Company's taxable income being generated in
Europe, which has a lower income tax rate than the United States.
As a result of the above factors, net income for fiscal 1996 increased 16.5% to
$11,660,000 or $1.62 per share from $10,012,000 or $1.45 per share in fiscal
1995.
Fiscal 1995 Compared to Fiscal 1994
Net sales for fiscal 1995 increased 36.9% to $172,787,000 from $126,171,000 in
fiscal 1994. Domestic net sales for fiscal 1995 increased 31.8% to $114,935,000
from $87,172,000 in fiscal 1994. This increase was a result of a greater
acceptance of the Company's product lines and better sell-throughs. Quiksilver
9
<PAGE> 12
Europe's net sales in fiscal 1995 increased 48.3% to $57,852,000 from
$38,999,000 in fiscal 1994. This increase was a result of expanded product lines
and a greater acceptance of the Company's product lines in Europe.
The gross profit margin for fiscal 1995 increased to 38.2% from 37.7% in fiscal
1994. Fiscal 1995 and fiscal 1994 domestic gross profit margins remained flat at
34.6%. Quiksilver Europe's gross profit margin in fiscal 1995 increased to 45.5%
from 44.8% in fiscal 1994. This increase was primarily due to better product
sourcing, lower inventory markdowns and an increase in direct sales to retailers
as opposed to using distributors. Direct sales typically result in higher profit
margins in Europe.
SG&A for fiscal 1995 increased 33.7% $46,810,000 from $35,014,000 in fiscal
1994. Domestic SG&A increased 24.4% to $28,755,000 from $23,121,000 in fiscal
1994. This increase was primarily attributable to increased sales volume.
Quiksilver Europe's SG&A for fiscal 1995 increased 51.8% to $18,055,000 from
$11,893,000 in fiscal 1994. This increase was a result of increased sales volume
and costs associated with selling directly to retailers in certain countries
that were previously handled by distributors.
Net royalty expense for fiscal 1995 increased 891.0% to $1,100,000 from $111,000
in fiscal 1994. This increase was due primarily to an increase in Quiksilver
Europe's sales volume in addition to an agreement with Quiksilver International,
whereby Quiksilver International provided Quiksilver Europe a one-time reduction
in royalties in fiscal 1994 due to the increase in sales volume and expenses
from directly selling and shipping into countries which were previously handled
by distributors. The increase in royalty expense in Europe was offset somewhat
by increased domestic royalty income.
Net interest expense for fiscal 1995 increased to $1,139,000 from $699,000 in
fiscal 1994. This increase related primarily to a higher level of borrowings
against the Company's lines of credit.
As a result of the above factors, income before cumulative effect of change in
accounting for fiscal 1995 increased 40.3% to $10,012,000 or $1.44 per share
from $7,138,000 or $1.07 per share in fiscal 1994.
Financial Position, Capital Resources and Liquidity
The Company finances its operations with short-term borrowings on its lines of
credit and cash flows from operations. Cash and cash equivalents at October 31,
1996 was $3,429,000 compared to $3,461,000 at October 31, 1995. Cash provided by
operations increased to $5,511,000 for fiscal 1996, compared to cash provided of
$3,706,000 for fiscal 1995 and to cash used in operating activities of
$7,305,000 for fiscal 1994. The increase in cash provided by operations for
fiscal 1996 compared to fiscal 1995 is primarily due to the increase in net
income before noncash charges for depreciation, amortization and provision for
doubtful accounts.
Consolidated trade accounts receivable increased 16.3% to $44,554,000 at October
31, 1996 from $38,308,000 at October 31, 1995. Domestic trade accounts
receivable increased 10.9% to $28,292,000 at October 31, 1996 from $25,519,000
at October 31, 1995, and Quiksilver Europe's trade accounts receivable increased
27.2% to $16,262,000 from $12,789,000 for the same period. These increases were
primarily due to increased sales and, domestically, to the use of extended terms
to promote sales increases with certain customers. The Company's average
collection period increased to 84 days at the end of fiscal 1996 compared to 70
days at the end of fiscal 1995.
Consolidated inventories increased 25.8% to $35,668,000 at October 31, 1996 from
$28,355,000 at October 31, 1995. Domestic inventories increased 18.3% to
$26,611,000 at October 31, 1996 from $22,496,000 at October 31, 1995. This
increase is primarily due to increased product offerings in the juniors division
along with anticipated increased sales in the upcoming Spring season compared to
the prior year. Quiksilver Europe's inventories increased 54.6% to $9,057,000 at
October 31, 1996 from 5,859,000 at October 31, 1995. This increase is due
primarily to higher sales levels during fiscal 1996 and anticipated increased
sales in the upcoming Spring/Summer season. The Company's average inventory
turnover decreased to 3.3 turns at the end of fiscal 1996 compared to 3.8 turns
at the end of fiscal 1995.
10
<PAGE> 13
The Company uses independent contractors for cutting, sewing and all other
manufacturing of the Company's products and intends to use independent
contractors in the future. Accordingly, the Company has avoided high levels of
capital expenditures. Fiscal 1996 capital expenditures were $4,895,000, compared
to $2,598,000 in fiscal 1995 and $2,873,000 in fiscal 1994. The increase in
capital expenditures in fiscal 1996 from previous levels was primarily due to
increased investments in the Company's computer systems.
The Company is planning a warehouse expansion in Europe on its existing premises
and, additionally, may incur capital expenditures as part of its facilities'
consolidation in Orange County, California. The Company will also continue to
purchase equipment from time to time in the normal course of business.
To finance the Company's capital investment and seasonal working capital needs,
the Company has credit facilites domestically and in Europe.
The Company has available a $30,000,000 unsecured revolving line of credit with
a U.S. bank available for cash borrowings and the issuance of letters of credit.
As of October 31, 1996, the Company had $8,000,000 of cash borrowings
outstanding under the line of credit. The line of credit expires on April 30,
1998 and bears interest at 0.5% below the bank's reference rate or at 1.50%
above LIBOR for borrowings committed to be outstanding for 30 days or longer.
The line of credit agreement contains restrictive covenants, the most
significant of which relate to the maintenance of minimum tangible net worth,
dividend restrictions and debt-to-tangible net worth requirements. At October
31, 1996, the Company was in compliance with such covenants.
Quiksilver Europe has available lines of credit, both secured and unsecured,
with banks that provide for maximum cash borrowings of approximately $14,600,000
in addition to approximately $11,000,000 available for the issuance of letters
of credit. At October 31, 1996, the Quiksilver Europe lines of credit bore
interest at rates ranging from 4.06% to 5.16%, and $211,000 of cash borrowings
were outstanding under the lines of credit. The Company believes its current
cash balance and current lines of credit are adequate to cover its capital
investment and seasonal working capital requirements for the next 12 to 18
months.
During fiscal 1996, the Company's Board of Directors approved the repurchase of
up to 500,000 shares of the Company's Common Stock. As of October 31, 1996,
130,000 shares had been repurchased at a cost of $3,054,000. Such repurchased
shares are reflected as Treasury Stock in the Company's Consolidated Balance
Sheet.
Significant Accounting Estimates
In recent years, certain customers of the Company have experienced financial
difficulties, including filing for reorganization proceedings under bankruptcy
laws. The Company has not generally incurred significant losses outside the
normal course of business as a result of the financial difficulties of these
customers. While management believes that its allowance for doubtful accounts at
October 31, 1996 is adequate, the Company carefully monitors developments
regarding its major customers. Additional material financial difficulties
encountered by these or other customers could have an adverse impact on the
Company's financial position or results of operations.
Foreign Currency
Quiksilver Europe sells in various European countries and collects at future
dates in the customers' local currencies. Accordingly, the Company is exposed to
transaction gains and losses that could result from changes in foreign currency
exchange rates. When considered appropriate, management purchases financial
instruments, primarily forward exchange contracts, to reduce its exposure to
these exchange rate fluctuations.
Quiksilver Europe's financial statements are translated from French Francs into
U.S. Dollars at exchange rates in effect during the reporting period. When the
French Franc strengthens compared to the U.S.
11
<PAGE> 14
Dollar (or, conversely, when the U.S. Dollar weakens compared to the French
Franc), there is a positive effect on Quiksilver Europe's results as reported in
the Company's Consolidated Financial Statements.
Inflation
The modest rate of inflation over the periods covered by this report has had an
insignificant impact on the Company's sales and profitability.
Changes in Accounting Methods
Effective November 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS No.
109 changed the Company's method of accounting for income taxes from the
deferred method to an asset and liability method. Under the deferred method,
annual income tax expense is matched with pretax accounting income by providing
deferred taxes at current rates for timing differences between the determination
of net income for financial reporting and income tax purposes. Under the asset
and liability method, deferred income tax assets and liabilities are established
for temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities at tax rates expected to be in
effect when such assets or liabilities are realized or settled. The effect of
initially adopting SFAS No. 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.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long Lived
Assets To Be Disposed Of". The Company must adopt SFAS No. 121 no later than
fiscal 1997; however, the results of adoption are not expected to be material.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 established a new, fair value based method of
measuring stock-based compensation, but does not require companies to adopt the
new method in accounting for employee stock-based transactions. SFAS No. 123
allows companies to present the pro forma effect of the fair value based method
on earnings and earnings per share in the financial statement footnotes. The
Company will adopt the pro forma disclosure requirements of SFAS No. 123 in
accounting for employee stock-based transactions in fiscal 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Consolidated Financial Statements" for a listing of the
consolidated financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
12
<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be included in the Company's Proxy
Statement with respect to its 1997 Annual Meeting of Stockholders to be filed
with the Commission within 120 days of October 31, 1996 and is incorporated
herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included in the Company's Proxy
Statement with respect to its 1997 Annual Meeting of Stockholders to be filed
with the Commission within 120 days of October 31, 1996 and is incorporated
herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be included in the Company's Proxy
Statement with respect to its 1997 Annual Meeting of Stockholders to be filed
with the Commission within 120 days of October 31, 1996 and is incorporated
herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be included in the Company's Proxy
Statement with respect to its 1997 Annual Meeting of Stockholders to be filed
with the Commission within 120 days of October 31, 1996 and is incorporated
herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements
See "Index to Consolidated Financial Statements"
2. Exhibits
See "Exhibit Index"
(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the last quarter of the fiscal year ended October 31, 1996.
13
<PAGE> 16
QUIKSILVER, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITORS' REPORT..................................................................... 15
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
October 31, 1996 and 1995................................................................ 16
Consolidated Statements of Income
Years Ended October 31, 1996, 1995 and 1994.............................................. 17
Consolidated Statements of Stockholders' Equity
Years Ended October 31, 1996, 1995 and 1994.............................................. 18
Consolidated Statements of Cash Flows
Years Ended October 31, 1996, 1995 and 1994.............................................. 19
Notes to Consolidated Financial Statements.................................................. 20
</TABLE>
14
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders of
Quiksilver, Inc.:
We have audited the accompanying consolidated balance sheets of Quiksilver, Inc.
and subsidiaries as of October 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended October 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Quiksilver, Inc.
and subsidiaries as of October 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 11, effective November 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting For Income
Taxes".
DELOITTE & TOUCHE LLP
December 18, 1996
Costa Mesa, California
15
<PAGE> 18
QUIKSILVER, INC.
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 3,429,000 $ 3,461,000
Trade accounts receivable, less allowance
for doubtful accounts of $2,873,000 (1996)
and $2,717,000 (1995) - Note 3 .................. 44,554,000 38,308,000
Other receivables ................................. 2,182,000 1,471,000
Inventories - Note 4 .............................. 35,668,000 28,355,000
Deferred income taxes - Note 11 ................... 1,104,000 1,089,000
Prepaid expenses and other current assets ......... 923,000 1,151,000
------------- -------------
Total current assets ......................... 87,860,000 73,835,000
Fixed assets, net - Notes 5 and 6 ..................... 9,655,000 7,032,000
Trademark, less accumulated amortization of
$1,486,000 (1996) and $1,336,000 (1995) - Note 10 .. 1,532,000 1,682,000
Goodwill, less accumulated amortization of
$3,103,000 (1996) and $2,501,000 (1995) - Note 2 ... 15,005,000 15,611,000
Deferred income taxes - Note 11 ....................... 732,000 660,000
Other assets .......................................... 796,000 348,000
------------- -------------
Total assets ................................. $ 115,580,000 $ 99,168,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit - Note 6 ........................... $ 8,211,000 $ 8,031,000
Accounts payable ................................... 12,823,000 9,257,000
Accrued liabilities - Note 7 ....................... 10,212,000 8,834,000
Current portion of notes payable - Note 6 .......... 240,000 233,000
Income taxes payable - Note 11 ..................... 727,000 578,000
------------- -------------
Total current liabilities .................... 32,213,000 26,933,000
Notes payable - Note 6 ................................ 2,640,000 3,297,000
------------- -------------
Total liabilities ............................ 34,853,000 30,230,000
------------- -------------
Commitments and contingencies - Note 8
Stockholders' equity - Note 9:
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 -
6,965,346 (1996) and 6,775,605 (1995) ........... 70,000 68,000
Additional paid-in capital ......................... 18,971,000 15,118,000
Retained earnings .................................. 64,399,000 52,739,000
Treasury stock, 130,000 shares (1996) .............. (3,054,000) -
Cumulative foreign currency translation adjustment . 341,000 1,013,000
------------- -------------
Total stockholders' equity ................... 80,727,000 68,938,000
------------- -------------
Total liabilities and stockholders' equity ... $ 115,580,000 $ 99,168,000
============= =============
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 19
QUIKSILVER, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales ............................................. $ 193,474,000 $ 172,787,000 $ 126,171,000
Cost of goods sold .................................... 117,380,000 106,741,000 78,560,000
------------- ------------- -------------
Gross profit ....................................... 76,094,000 66,046,000 47,611,000
------------- ------------- -------------
Operating expenses:
Selling, general and administrative expense ........ 54,379,000 46,810,000 35,014,000
Royalty income ..................................... (1,095,000) (1,053,000) (917,000)
Royalty expense .................................... 2,540,000 2,153,000 1,028,000
------------- ------------- -------------
Total operating expenses ........................ 55,824,000 47,910,000 35,125,000
------------- ------------- -------------
Operating income ...................................... 20,270,000 18,136,000 12,486,000
Interest expense, net ................................. 785,000 1,139,000 699,000
Foreign currency (gain) loss .......................... (53,000) 13,000 (70,000)
Other expense ......................................... 259,000 148,000 101,000
------------- ------------- -------------
Income before provision for income taxes and cumulative
effect of change in accounting ..................... 19,279,000 16,836,000 11,756,000
Provision for income taxes - Note 11 .................. 7,619,000 6,824,000 4,618,000
------------- ------------- -------------
Income before cumulative effect of change in accounting 11,660,000 10,012,000 7,138,000
Cumulative effect of change in accounting
for income taxes - Note 11 ......................... - - 600,000
------------- ------------- -------------
Net income ............................................ $ 11,660,000 $ 10,012,000 7,738,000
============= ============= =============
Net income per share before cumulative effect of
change in accounting ............................... $ 1.62 $ 1.45 $ 1.07
Cumulative effect per share of change in accounting
for income taxes - Note 11 ......................... - - 0.09
------------- ------------- -------------
Net income per share .................................. $ 1.62 $ 1.45 $ 1.16
============= ============= =============
Weighted average common shares and equivalents
outstanding - Note 1 ............................... 7,209,000 6,882,000 6,648,000
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 20
QUIKSILVER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-in Retained Treasury
Shares Amount Capital Earnings Stock
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, November 1, 1993 .. 6,414,622 $ 64,000 $ 10,364,000 $ 34,989,000 $ --
Exercise of stock
options .............. 106,800 1,000 900,000 -- --
Tax benefit from
exercise of stock
options .............. -- -- 287,000 -- --
Foreign currency
translation adjustment -- -- -- -- --
Net income ............. -- -- -- 7,738,000 --
------------ ------------ ------------ ------------ ------------
Balance, October 31, 1994 .. 6,521,422 65,000 11,551,000 42,727,000 --
Exercise of stock
options ................ 254,183 3,000 2,593,000 -- --
Tax benefit from
exercise of stock
options ................ -- -- 974,000 -- --
Foreign currency
translation adjustment . -- -- -- -- --
Net income ............... -- -- -- 10,012,000 --
------------ ------------ ------------ ------------ ------------
Balance, October 31, 1995 .. 6,775,605 68,000 15,118,000 52,739,000 --
Exercise of stock
options .............. 189,741 2,000 2,733,000 -- --
Tax benefit from
exercise of stock
options .............. -- -- 1,120,000 -- --
Repurchase of common
stock ................ -- -- -- -- (3,054,000)
Foreign currency
translation adjustment -- -- -- -- --
Net income ............. -- -- -- 11,660,000 --
------------ ------------ ------------ ------------ ------------
Balance, October 31, 1996 .. 6,965,346 $ 70,000 $ 18,971,000 $ 64,399,000 $ (3,054,000)
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Cumulative
Foreign Currency Total
Translation Stockholders'
Adjustment Equity
---------- ------
<S> <C> <C>
Balance, November 1, 1993 .. $ (387,000) $ 45,030,000
Exercise of stock
options .............. -- 901,000
Tax benefit from
exercise of stock
options .............. -- 287,000
Foreign currency
translation adjustment 982,000 982,000
Net income ............. -- 7,738,000
------------ ------------
Balance, October 31, 1994 .. 595,000 54,938,000
Exercise of stock
options ................ -- 2,596,000
Tax benefit from
exercise of stock
options ................ -- 974,000
Foreign currency
translation adjustment . 418,000 418,000
Net income ............... -- 10,012,000
------------ ------------
Balance, October 31, 1995 .. 1,013,000 68,938,000
Exercise of stock
options .............. -- 2,735,000
Tax benefit from
exercise of stock
options .............. -- 1,120,000
Repurchase of common
stock ................ -- (3,054,000)
Foreign currency
translation adjustment (672,000) (672,000)
Net income ............. -- 11,660,000
------------ ------------
Balance, October 31, 1996 .. $ 341,000 $ 80,727,000
============ ============
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 21
QUIKSILVER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................................... $ 11,660,000 $ 10,012,000 $ 7,738,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization .................................. 2,697,000 2,314,000 2,263,000
Provision for doubtful accounts ................................ 2,196,000 923,000 --
Loss on sale of fixed assets ................................... 49,000 99,000 75,000
Deferred income taxes .......................................... (87,000) (380,000) (273,000)
Changes in operating assets and liabilities, net of effects from
purchase of The Raisin Company:
Trade accounts receivable ................................ (8,953,000) (9,257,000) (10,659,000)
Other receivables ........................................ (747,000) 77,000 (331,000)
Inventories .............................................. (7,552,000) (6,746,000) (8,010,000)
Prepaid expenses and other current assets ................ 203,000 (234,000) (158,000)
Other assets ............................................. (454,000) (152,000) (493,000)
Accounts payable ......................................... 3,768,000 4,100,000 1,041,000
Accrued liabilities ...................................... 1,434,000 3,810,000 391,000
Income taxes payable ..................................... 1,297,000 (860,000) 1,111,000
------------ ------------ ------------
Net cash provided by (used in) operating activities ... 5,511,000 3,706,000 (7,305,000)
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sales of fixed assets .................................. 75,000 35,000 25,000
Capital expenditures ................................................. (4,895,000) (2,598,000) (2,873,000)
Payment for purchase of The Raisin Company ........................... -- -- (3,459,000)
------------ ------------ ------------
Net cash used in investing activities ................. (4,820,000) (2,563,000) (6,307,000)
------------ ------------ ------------
Cash flows from financing activities:
Borrowings on lines of credit ........................................ 24,365,000 36,699,000 25,929,000
Payments on lines of credit .......................................... (24,145,000) (38,925,000) (17,274,000)
Borrowings on long-term debt ......................................... -- 992,000 370,000
Payments on long-term debt ........................................... (512,000) (144,000) --
Proceeds from stock option exercises ................................. 2,735,000 2,596,000 901,000
Purchase of treasury stock ........................................... (3,054,000) -- --
------------ ------------ ------------
Net cash (used in) provided by financing activities ... (611,000) 1,218,000 9,926,000
Effect of exchange rate changes on cash ................................. (112,000) 418,000 982,000
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents .................... (32,000) 2,779,000 (2,704,000)
Cash and cash equivalents, beginning of year ............................ 3,461,000 682,000 3,386,000
------------ ------------ ------------
Cash and cash equivalents, end of year .................................. $ 3,429,000 $ 3,461,000 $ 682,000
============ ============ ============
Supplementary cash flow information-
Cash paid during the period for:
Interest .......................................................... $ 781,000 $ 1,556,000 $ 654,000
============ ============ ============
Income taxes ...................................................... $ 6,668,000 $ 7,096,000 $ 4,871,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 22
QUIKSILVER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Company Business
The Company designs, arranges for the manufacture of, and distributes casual
sportswear, swimwear, and snowboardwear primarily for young men, boys and young
women under the "Quiksilver", "Quiksilver Roxy", "Raisins", "Leilani", "Radio
Fiji", "Que", and "Pirate Surf" labels to surf shops, specialty stores and
selected department stores in the United States and Europe. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral.
The Company owns all rights to use the "Quiksilver" name, logo, and trademark in
the United States, Puerto Rico and Mexico and has a license agreement with
Quiksilver Garments, Pty., Ltd., an Australian company ("Quiksilver
International"), to use the "Quiksilver" name, logo, and trademark in various
other territories. The Company owns the worldwide rights or has developed its
other labels internally.
The market for beachwear, snowboardwear and casual sportswear is competitive.
The Company's ability to evaluate and respond to changing consumer demands and
tasks is critical to its success. The Company believes that consumer acceptance
depends on product, image, design, fit and quality, and, consequently, has
developed an experienced team of designers, artists, merchandisers, pattern
makers, and cutting and sewing contractors that the Company believes has helped
the Company remain in the forefront of design in the areas in which it competes.
The Company believes, however, that its continued success will depend on its
ability to promote its image and to design products acceptable to the
marketplace.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Quiksilver, Inc. ("Quiksilver"), Na Pali, S.A. ("Quiksilver Europe"), The Raisin
Company, Inc. ("Raisins") and ATI Apparel Trade International ("ATI"), its
wholly-owned subsidiaries (collectively the "Company"). Intercompany accounts
and transactions have been eliminated in consolidation.
Cash Equivalents
Certificates of deposit and highly liquid short-term investments purchased with
original maturities of three months or less are considered cash equivalents.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market.
Fixed Assets
Furniture, equipment and buildings are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives, which generally range
from two to ten years. Leasehold improvements are recorded at cost and amortized
over their estimated useful lives or related lease term, whichever is shorter.
Trademark
The trademark is being amortized on a straight-line basis over 20 years.
Goodwill
Goodwill arose primarily from the acquisition of Quiksilver Europe, Raisins and
ATI and is being amortized on a straight-line basis over 30 years. The Company
assesses the recoverability of goodwill at each
20
<PAGE> 23
balance sheet date by determining whether the amortization of the balance over
its remaining useful life can be recovered through projected undiscounted future
operating cash flows from each acquisition.
Revenue Recognition
Sales are recognized when merchandise is shipped to a customer.
Income Taxes
The Company accounts for income taxes using the asset and liability approach as
promulgated by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". Deferred income tax assets and liabilities are established
for temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities at tax rates expected to be in
effect when such assets or liabilities are realized or settled. Deferred income
tax assets are only recorded if, in the judgment of the Company's management, it
is more likely than not that such assets will be realized.
Net Income Per Share
Net income per share for the years ended October 31, 1996, 1995 and 1994 was
computed based on the weighted average number of shares actually outstanding,
plus the shares that would be outstanding assuming the exercise of all
outstanding options, computed using the treasury stock method.
Foreign Currency
The Company's primary functional currency is the U.S. dollar. Assets and
liabilities of the Company denominated in foreign currencies are translated at
the rate of exchange on the balance sheet date. Revenues and expenses are
translated using the average exchange rate for the period. Gains and losses on
foreign currency transactions are recognized as incurred.
Reclassifications
Certain reclassifications have been made to the fiscal 1995 and fiscal 1994
consolidated financial statements to conform them to the 1996 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
Such estimates and assumptions affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying value of the Company's trade accounts receivable and accounts
payable approximates their fair value due to their short-term nature. The
carrying value of the Company's lines of credit approximates its fair value as
these borrowings include a series of short-term notes at floating interest
rates.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long Lived Assets To Be Disposed Of".
The Company must adopt SFAS No. 121 no later than fiscal 1997; however, the
results of adoption are not expected to be significant.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 established a new, fair value based method of
measuring stock-based compensation, but does not require companies to adopt the
new method in accounting for employee stock-based compensation. SFAS No. 123
allows companies to present the pro forma effect of the fair value based method
on earnings and earnings per share in the financial statement footnotes. The
Company will adopt the pro forma disclosure requirements of SFAS No. 123 in
accounting for employee stock-based compensation in fiscal 1997.
21
<PAGE> 24
NOTE 2 - ACQUISITIONS
Effective November 1, 1993, the Company acquired substantially all of the assets
of Raisins and the stock of ATI for a purchase price of $4,136,000, consisting
of $3,459,000 in cash and the assumption of $677,000 in liabilities. The Company
also agreed to pay the sellers up to 28.8% of the earnings before taxes of
Raisins and ATI, contingent on the achievement of certain earnings goals through
October 31, 1996. As of October 31, 1994, the Company had accrued for an
additional $293,000, which was paid in January 1995 to the former shareholders
of Raisins pursuant to the terms of the earnout agreement. These acquisitions
were accounted for as purchases, and approximately $4,429,000 was recorded as
goodwill.
NOTE 3 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts includes the following:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year.......................... $ 2,717,000 $2,202,000 $2,254,000
Provision for doubtful accounts 2,196,000 923,000 -
Deductions....................................... (2,040,000) (408,000) (52,000)
----------- ---------- ----------
Balance, end of year................................ $ 2,873,000 $2,717,000 $2,202,000
=========== ========== ===========
</TABLE>
NOTE 4 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------------------
1996 1995
---- ----
<S> <C> <C>
Raw materials............................................... $11,686,000 $10,875,000
Work in process............................................. 3,673,000 4,104,000
Finished goods.............................................. 20,309,000 13,376,000
------------ -----------
$ 35,668,000 $ 28,355,000
============ ============
</TABLE>
NOTE 5 - FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Furniture and equipment..................................... $11,081,000 $ 7,000,000
Leasehold improvements...................................... 3,649,000 3,708,000
Land and buildings.......................................... 2,952,000 3,306,000
----------- -----------
17,682,000 14,014,000
Accumulated depreciation and amortization................... (8,027,000) (6,982,000)
----------- -----------
$ 9,655,000 $ 7,032,000
=========== ===========
</TABLE>
22
<PAGE> 25
NOTE 6 - LINES OF CREDIT AND NOTES PAYABLE
Quiksilver has an unsecured revolving line of credit with a U.S. bank that
provides for maximum financing of $30,000,000 for cash borrowings and the
issuance of letters of credit. The line of credit bears interest at 0.5% below
the bank's reference rate (8.25% at October 31, 1996) or at 1.50% above LIBOR
for borrowings committed to be outstanding for 30 days or longer. This line of
credit expires April 30, 1998. Quiksilver had $8,000,000 of cash borrowings
outstanding on this line of credit at October 31, 1996.
The line of credit agreement contains restrictive covenants, the most
significant of which relate to the maintenance of minimum tangible net worth,
dividend restrictions and debt-to-tangible net worth requirements. At October
31, 1996, the Company was in compliance with such covenants.
Quiksilver Europe also has available lines of credit, both secured and
unsecured, with banks that provide for aggregate financing of approximately
$14,600,000 in addition to approximately $11,000,000 available for the issuance
of letters of credit. At October 31, 1996, these lines of credit bore interest
at rates ranging from 4.06% to 5.16%, and $211,000 of cash borrowings were
outstanding. The lines of credit expire on various dates through January 1997.
The Company believes that these lines of credit will be renewed with
substantially similar terms.
Long-term notes payable, collateralized by land and buildings, bear interest at
rates ranging from 6.0% to 8.3%, require monthly principal and interest payments
and are due at various dates through 2003.
Principal payments on notes payable are due approximately as follows:
<TABLE>
<S> <C>
1997............................................... $ 240,000
1998............................................... 336,000
1999............................................... 472,000
2000............................................... 585,000
2001............................................... 382,000
Thereafter......................................... 865,000
----------
$2,880,000
==========
</TABLE>
NOTE 7 - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Accrued employee compensation and benefits ................. $ 4,502,000 $4,049,000
Accrued sales and payroll taxes............................. 2,164,000 2,046,000
Other liabilities........................................... 3,546,000 2,739,000
----------- ----------
$10,212,000 $8,834,000
=========== ==========
</TABLE>
23
<PAGE> 26
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain land and buildings under long-term operating lease
agreements. The following is a schedule of future minimum lease payments
required under such leases as of October 31, 1996:
<TABLE>
<S> <C>
1997............................................... $ 711,000
1998............................................... 325,000
1999............................................... 276,000
2000............................................... 272,000
2001............................................... 280,000
Thereafter......................................... 661,000
----------
$2,525,000
==========
</TABLE>
Total rent expense was $1,179,000, $1,062,000 and $1,068,000 during the years
ended October 31, 1996, 1995 and 1994, respectively.
Litigation
Legal claims against the Company consist primarily of matters incidental to the
Company's business. In the opinion of management, the outcome of these claims
will not materially affect the Company's consolidated financial position or
results of operations.
NOTE 9 - STOCKHOLDERS' EQUITY
In March 1996, the Company's stockholders approved the Company's 1996 Stock
Option Plan and the 1995 Nonemployee Directors' Stock Option Plan (together
referred to as the "Stock Option Plans"), which generally replaced the Company's
previous stock option plan. Under the Stock Option Plans, nonqualified and
incentive options to acquire up to 840,000 shares of common stock may be granted
to directors, officers and other employees selected by the plans' administrative
committee at an exercise price not less than the fair market value of the
underlying shares on the date of grant. Payment by option holders upon exercise
of an option may be made in cash, or, with the consent of the committee, by
delivering previously outstanding shares of the Company's Common Stock. Options
are exercisable over a period of time, generally three to five years, as
designated by the committee and are subject to such other terms and conditions
as the committee determines. The Company's previous stock option plan was
terminated in March 1996, although options already granted were not affected.
24
<PAGE> 27
Changes in shares under option for the years ended October 31, 1996, 1995, and
1994 are summarized as follows:
<TABLE>
<CAPTION>
STOCK OPTION PRICE RANGE
SHARES PER SHARE
------ ---------
<S> <C> <C> <C>
Outstanding at November 1, 1993 .......... 371,400 $ 4.75 - $ 13.50
Granted ............................... 312,000 9.00 - 11.50
Exercised ............................. (106,800) 5.00 - 11.13
Canceled .............................. (8,700) 7.38 - 11.13
---------
Outstanding at October 31, 1994 .......... 567,900 4.75 - 13.50
Granted ............................... 341,000 15.25 - 18.88
Exercised ............................. (254,183) 5.00 - 17.63
Canceled .............................. (28,834) 4.75 - 11.50
---------
Outstanding at October 31, 1995 .......... 625,883 5.00 - 18.88
Granted ............................... 741,000 22.81 - 30.25
Exercised ............................. (189,741) 5.00 - 18.88
Canceled .............................. (30,169) 10.25 - 23.25
---------
Outstanding at October 31, 1996 .......... 1,146,973 5.00 - 30.25
=========
Options exercisable at October 31, 1996... 244,454 5.00 - 27.13
=========
</TABLE>
As of October 31, 1996, there were 111,167 shares of common stock under the
Stock Option Plans that were available for future grant.
During fiscal 1996, the Company's Board of Directors approved the repurchase of
up to 500,000 shares of the Company's Common Stock. As of October 31, 1996,
130,000 shares had been repurchased at a cost of $3,054,000. Such repurchased
shares are reflected as Treasury Stock in the Company's Consolidated Balance
Sheet.
NOTE 10 - ROYALTY, TRADEMARK AND ADVERTISING
The Company and Quiksilver International entered into an agreement in January
1996 that requires, among other things, the Company to pay a fee of $300,000 per
year for advertising and promotion. The agreement expires in January 2006, and
the promotional fee is adjusted annually based on annual sales volume of
Quiksilver.
Quiksilver Europe has a European trademark license and manufacturing agreement
(the European "Trademark Agreement") with Quiksilver International. The
Trademark Agreement provides that Quiksilver Europe can sell products under the
"Quiksilver" trademark and tradename through 2012 in the territories covered by
the Trademark Agreement (primarily western Europe). In consideration of the
rights granted under the new agreement, Quiksilver Europe pays to Quiksilver
International a royalty on a monthly basis as follows:
(a) For any year where Quiksilver Europe's net sales total
150,000,000 French francs (approximately $29,300,000 at
October 31, 1996) or less, the total royalty is 4% of net
sales for that year, up to a maximum royalty of 4,500,000
French francs (approximately $880,000 at October 31, 1996)
and;
(b) For any year where Quiksilver Europe's net sales total greater
than 150,000,000 French francs, the total royalty is 4,500,000
French francs plus an amount equal to 3% of Quiksilver
Europe's net sales for that year in excess of 150,000,000
French francs.
25
<PAGE> 28
The Trademark Agreement also requires Quiksilver Europe to pay a quarterly
promotional fee of 1% of its net sales.
The Company licensed the use of the "Quiksilver" name, logo, and trademark in
Mexico in exchange for royalties of 4.5% of net sales after Mexican taxes, and
the use of the "Quiksilver" name and logo on watches, sunglasses and wetsuits in
exchange for royalties of 7%, 10% and 4% of sales, respectively. The Company has
also licensed the use of the "Que" name, logo, and trademark in Japan. These
license agreements expire between 1998 and 2006.
NOTE 11 - INCOME TAXES
Effective November 1, 1993, the Company adopted SFAS No. 109. This statement
changed the Company's method of accounting for income taxes from the deferred
method to an asset and liability method. SFAS No. 109 requires that deferred tax
assets and liabilities be established for temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities at tax rates expected to be in effect when such assets or
liabilities are realized or settled. The effect of initially adopting SFAS No.
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
approximately $600,000.
A summary of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal.......................................... $3,539,000 $4,066,000 $2,711,000
State............................................ 1,014,000 1,169,000 772,000
Foreign.......................................... 3,153,000 1,969,000 1,408,000
---------- ---------- ----------
7,706,000 7,204,000 4,891,000
---------- ---------- ----------
Deferred:
Federal.......................................... (74,000) (320,000) (250,000)
State............................................ (13,000) (60,000) (23,000)
Foreign.......................................... - - -
---------- ---------- ----------
(87,000) (380,000) (273,000)
----------- ---------- ---------
Provision for income taxes.......................... $7,619,000 $6,824,000 $4,618,000
========== ========== ==========
</TABLE>
A reconciliation of the effective income tax rate to a computed "expected"
statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed "expected" statutory federal income
tax rate......................................... 35.0% 35.0% 35.0%
State income taxes, net of federal income
tax benefit...................................... 3.4 4.3 4.1
Nondeductible goodwill amortization................. 0.8 0.9 1.2
Other............................................... 0.3 0.3 (1.0)
----- ----- ----
Effective income tax rate........................... 39.5% 40.5% 39.3%
===== ===== =====
</TABLE>
26
<PAGE> 29
The components of net deferred income taxes are as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------------------
1996 1995
---- ----
<S> <C> <C>
Deferred income tax assets:
State taxes ....................... $ 227,000 $ 279,000
Trademark amortization ............ 644,000 578,000
Allowance for doubtful accounts.... 529,000 604,000
Depreciation ...................... 236,000 193,000
Allowance for returns ............. 222,000 143,000
Nondeductible accruals and other... 160,000 63,000
----------- -----------
2,018,000 1,860,000
----------- -----------
Deferred income tax liabilities:
Goodwill amortization ............. (148,000) (99,000)
Other ............................. (34,000) (12,000)
----------- -----------
(182,000) (111,000)
----------- -----------
Net deferred income taxes ............ $ 1,836,000 $ 1,749,000
=========== ===========
</TABLE>
The tax benefit from the exercise of certain stock options are reflected as
additions to paid-in capital.
NOTE 12 - RETIREMENT PLAN
The Company maintains the Quiksilver 401(k) Employee Savings Plan and Trust (the
"Plan"). The Plan is generally available to all employees with six months of
service and is funded by employee contributions and periodic discretionary
contributions from the Company which are approved by the Company's Board of
Directors. The Company made contributions of $115,000, $33,000 and $27,000 to
the Plan for the years ended October 31, 1996, 1995 and 1994, respectively.
27
<PAGE> 30
NOTE 13 - DOMESTIC AND EUROPEAN OPERATIONS
A summary of domestic and European operations is as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
--------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales to unaffiliated customers:
Domestic................................. $121,932,000 $114,935,000 $ 87,172,000
Europe................................... 71,542,000 57,852,000 38,999,000
------------ ------------ ------------
Consolidated.......................... $193,474,000 $172,787,000 $126,171,000
============ ============ ============
Operating income:
Domestic................................. $ 10,629,000 $ 11,628,000 $ 7,695,000
Europe................................... 9,641,000 6,508,000 4,791,000
------------ ------------ ------------
Consolidated.......................... $ 20,270,000 $ 18,136,000 $ 12,486,000
============ ============ ============
Identifiable assets:
Domestic................................. $ 81,028,000 $ 71,147,000 $ 61,178,000
Europe................................... 34,552,000 28,021,000 19,292,000
------------ ------------ ------------
Consolidated.......................... $115,580,000 $ 99,168,000 $ 80,470,000
============ ============ ============
</TABLE>
(1) Operating income is net sales less cost of goods sold and
operating expenses.
(2) Identifiable assets are those assets of the Company that are
located in, or relate to operations in, each geographic area.
NOTE 14 - FINANCIAL INSTRUMENTS
The Company's European subsidiary enters into forward exchange contracts in
managing its foreign exchange risk on foreign currency transactions and does not
use the contracts for trading purposes. The Company's goal is to protect the
Company from the risk that the eventual French franc net cash inflows from the
foreign currency transactions will be adversely affected by changes in exchange
rates. At October 31, 1996, the Company had $13,070,000 in notional amounts of
forward exchange contracts with short-term maturities through July 1997. Gains
and losses on the forward exchange contracts are recognized currently into
income. A summary of the forward exchange contracts is as follows:
<TABLE>
<CAPTION>
U.S. DOLLAR RECOGNIZED
EQUIVALENT MATURITY GAIN (LOSS)
---------- -------- -----------
<S> <C> <C> <C>
Forward exchange contracts
German marks............... $ 2,830,000 July 1997 $ 29,000
British pounds ............ 520,000 December 1996 (50,000)
British pounds ............ 2,180,000 July 1997 -
Portuguese Escudos ........ 840,000 December 1996 (24,000)
Portuguese Escudos ........ 1,650,000 July 1997 -
Netherland guilders ....... 1,090,000 July 1997 (1,000)
U.S. dollars............... 3,960,000 March 1997 39,000
------------- ---------
$ 13,070,000 $ (7,000)
============= =========
</TABLE>
The Company is exposed to credit losses in the event of nonperformance by
counterparties to its forward exchange contracts but has no off-balance sheet
credit risk of accounting loss. The Company anticipates, however, that the
counterparties will be able to fully satisfy their obligations under the
contracts. The
28
<PAGE> 31
Company does not obtain collateral or other security to support the forward
exchange contracts subject to credit risk but monitors the credit standing of
the counterparties.
NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of quarterly financial data (unaudited) is as follows:
<TABLE>
<CAPTION>
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
---------- -------- ------- ----------
<S> <C> <C> <C> <C>
Year ended October 31, 1996
Net sales .................. $40,487,000 $54,505,000 $49,008,000 $49,474,000
Gross profit ............... 15,595,000 22,013,000 18,171,000 20,315,000
Net income ................. 2,125,000 4,419,000 2,539,000 2,577,000
Net income per share ....... 0.30 0.61 0.35 0.36
Trade accounts receivable... 38,325,000 48,449,000 46,113,000 44,554,000
Inventories ................ 32,862,000 29,128,000 34,641,000 35,668,000
Year ended October 31, 1995
Net Sales .................. $33,658,000 $47,311,000 $42,738,000 $49,080,000
Gross Profit ............... 12,889,000 18,826,000 16,132,000 18,199,000
Net Income ................. 1,531,000 3,623,000 2,308,000 2,550,000
Net Income per share ....... 0.23 0.52 0.33 0.36
Trade accounts receivable... 29,526,000 38,862,000 36,220,000 38,308,000
Inventories ................ 28,938,000 25,277,000 36,623,000 28,355,000
</TABLE>
29
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: January 24, 1997
QUIKSILVER, INC.
(REGISTRANT)
By:/s/ Robert B. McKnight, Jr. By:/s/ Steven L. Brink
-------------------------------- -------------------------------
Robert B. McKnight, Jr. Steven L. Brink
Chairman of the Board and Vice President, Secretary,
Chief Executive Officer Treasurer and Chief Financial
(Principal Executive Officer) Officer (Principal Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE SIGNED
---------- ----- -----------
<S> <C> <C>
/s/ Robert B. McKnight, Jr. Chairman of the Board and January 24, 1997
- ---------------------------------- Chief Executive Officer
Robert B. McKnight, Jr. (Principal Executive Officer)
/s/ Steven L. Brink Vice President, Secretary, January 24, 1997
- ---------------------------------- Treasurer and Chief Financial Officer
Steven L. Brink (Principal Accounting Officer)
/s/ William M. Barnum, Jr. Director January 24, 1997
- ----------------------------------
William M. Barnum, Jr.
/s/ Charles E. Crowe Director January 24, 1997
- ----------------------------------
Charles E. Crowe
/s/ Michael H. Gray Director January 24, 1997
- ----------------------------------
Michael H. Gray
- ---------------------------------- Director January 24, 1997
Harry Hodge
/s/ Robert G. Kirby Director January 24, 1997
- ----------------------------------
Robert G. Kirby
/s/ Tom Roach Director January 24, 1997
- ----------------------------------
Tom Roach
</TABLE>
30
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Certificate of Incorporation as presently in effect
3.2 Bylaws as presently in effect (incorporated by reference to Exhibit
3.2 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended October 31, 1990)
10.1 Standard Industrial Lease--Net dated May 22, 1990 between Fountain
Valley Associates, a California limited partnership and Registrant
(incorporated by reference to Exhibit 10.2 of the Registrant's Annual
Report on Form 10-K for the fiscal year ended October 31, 1990)
10.2 Standard Industrial Lease--Net dated June 1, 1987 between Griswold
Industries and Registrant (incorporated by reference to Exhibit 10.4
of the Registrant's Annual Report on Form 10-K for the fiscal year
ended October 31, 1987)
10.3 Amended and Restated Loan Agreement between Union Bank and Registrant
dated April 30, 1996 (incorporated by reference to Exhibit 10.1 of the
Registrant's Quarterly Report on Form 10-Q for the three months ended
July 31, 1996)
10.4 First, Second and Third Amendments to Amended and Restated Loan
Agreement between Union Bank and Registrant dated September 5, 1996,
October 22, 1996, and November 1996, respectively
10.5 Form of Indemnity Agreement between the Registrant and individual
Directors and officers of the Registrant. (1)
10.6 Quiksilver, Inc. Stock Option Plan dated March 24, 1995 (incorporated
by reference to Exhibit 10.1 of the Registrant's Quarterly Report on
Form 10-Q for the quarter ended April 30, 1995) (1)
10.7 Quiksilver, Inc. 1995 Nonemployee Directors' Stock Option Plan dated
March 24, 1995 (incorporated by reference to Exhibit 10.2 of the
Registrant's Quarterly Report on Form 10-Q for the three months ended
April 30, 1996) (1)
10.8 Quiksilver, Inc. 1996 Stock Option Plan dated January 26, 1996
(incorporated by reference to Exhibit 10.1 of the Registrant's
Quarterly Report on Form 10-Q for the three months ended April 30,
1996. (1)
10.9 Trademark License and Manufacturing Agreement dated January 26, 1993
between Quiksilver Garments Pty Ltd. and Na Pali, S.A. (incorporated
by reference to Exhibit 10.23 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended October 31, 1992)
10.10 Employment Agreement between Robert B. McKnight, Jr. and Registrant
dated April 1, 1996 (1)
10.11 Employment Agreement between Harry Hodge and Registrant dated April 1,
1996 (1)
10.12 Employment Agreement between Steven L. Brink and Registrant dated
October 24, 1996 (1)
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
<S> <C>
21.1 Names and Jurisdictions of Subsidiaries
23.1 Independent Auditors' Consent
27.1 Financial Data Schedule
</TABLE>
(1) Management contract or compensatory plan.
32
<PAGE> 1
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
QUIKSILVER, INC.
The undersigned, Robert B. McKnight, Jr. and Randall L. Herrel, Sr.,
certify that they are the Chief Executive Officer and Secretary, respectively,
of Quiksilver, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Company"), and do hereby further certify as follows:
A. The name of the Company is QUIKSILVER, INC.
B. The original Certificate of Incorporation of the Company was filed
in the office of the Delaware Secretary of State on October 24, 1986.
C. This Restated Certificate of Incorporation has been duly adopted by
the Board of Directors and by the Stockholders of the Company in accordance with
the applicable provisions of Section 242 and 245 of the General Corporation Law
of the State of Delaware.
D. The text of the Certificate of Incorporation of the Company is
hereby amended and restated to read in its entirety as follows:
FIRST: The name of this corporation is Quiksilver, Inc.
(hereinafter referred to as the "Company").
SECOND: The address of the Company's registered office in the
State of Delaware is 1013 Centre Road, Wilmington, New Castle County,
Delaware. The name of the Company's registered agent at that address is
United States Corporation Company.
THIRD: The purpose of the Company is to engage in any lawful
act or activity for which a corporation may be organized under the
General Corporation Law of Delaware.
FOURTH:
A. The total number of shares of all classes of stock that
the Company shall have authority to issue is thirty-five million
(35,000,000), consisting of:
<PAGE> 2
(1) thirty million (30,000,000) shares of
Common Stock, with a par value of $.01 per share; and
(2) five million (5,000,000) shares of
Preferred Stock, with a par value of $.01 per share.
B. The shares of Preferred Stock may be issued from
time to time in one or more series. The Board of Directors is
authorized to fix the number of shares of any series of Preferred Stock
and to determine the designation of any such series. The Board of
Directors is also authorized to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and, within the limits and
restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any
series, to increase or decrease (but not below the number of shares of
such series then outstanding) the number of shares of any such series
subsequent to the issuance of shares of that series.
FIFTH: A director of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal
benefit.
If the Delaware General Corporation Law is
hereafter amended to authorize the further elimination or limitation of
the liability of a director, then the liability of a director of the
Company shall be eliminated or limited to the fullest extent permitted
by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing
provisions of this Article FIFTH by the stockholders of the Company
shall not adversely affect any right or protection of a director of the
Company existing at the time of such repeal or modification.
SIXTH: In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to
make, alter or repeal the bylaws of the Company.
SEVENTH: Election of directors need not be by written ballot
unless the bylaws of the Company shall so provide.
2
<PAGE> 3
E. The undersigned further declare under penalty of perjury under the
laws of the State of Delaware that this Restated Certificate of Incorporation is
the act and deed of the Company and that the facts stated herein are true.
DATED: April __, 1996 QUIKSILVER, INC.
/s/ Robert B. McKnight, Jr.
---------------------------
Robert B. McKnight, Jr.
Chief Executive Officer
ATTEST:
- -----------------------------------
Randall L. Herrel, Sr., Secretary
3
<PAGE> 1
EXHIBIT 10.4
FIRST AMENDMENT
AMENDED AND RESTATED LOAN AGREEMENT
THIS FIRST AMENDMENT is made and entered into as of September 05, 1996 by
and between QUIKSILVER, INC., a Delaware Corporation ("Borrower"), with an
office at 1740 Monrovia, Costa Mesa, California 92627 and UNION BANK, A DIVISION
OF UNION BANK OF CALIFORNIA, INC., N.A. ("Bank"), with an office at 500 S. Main
Street, 2nd Floor, Orange, California 92868.
WHEREAS, Bank and Borrower entered into an Amended and Restated Loan
Agreement dated April 30, 1996 ("Loan Agreement"); and
WHEREAS, the Bank and Borrower desire to enter into this First Amendment to
the Loan Agreement in order to reflect the current terms of the agreement
between the parties.
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual covenants set forth below and other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree
as follows:
The following section is amended:
Section 1.1.1.1, line nine of the Loan Agreement is hereby amended by
substituting the number "180" for the number "120".
Except as amended hereby, the Agreement shall remain unaltered and in full
force and effect. This letter shall not be a waiver of any existing default or
breach of a covenant unless specified herein.
WITNESS the due execution hereof in the date set forth hereinabove.
"Borrower" "Bank"
QUIKSILVER, INC. UNION BANK, a division of Union Bank of
California, Inc., N.A.
By; /s/ RANDALL E. HERREL, SR. By: /s/ [ILLEGIBLE SIGNATURE]
- --------------------------------- ----------------------------------
Randall E. Herrel, Sr.
Title: President Title: Vice President
By: /s/ ROBERT E. MCKNIGHT, JR. By: /s/ [ILLEGIBLE SIGNATURE]
- --------------------------------- ----------------------------------
Robert E. McKnight, Jr.
Title: Chief Executive Officer Title: Vice President
<PAGE> 2
SECOND AMENDMENT
TO AMENDED AND RESTATED LOAN AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this "Second
Amendment") dated as of October 22, 1996, is made and entered into by and
between QUIKSILVER, INC., a Delaware corporation ("Borrower"), and UNION BANK
OF CALIFORNIA, N.A.
RECITALS:
A. Borrower and Bank are parties to that certain Amended and Restated Loan
Agreement dated April 30, 1996 (the "Agreement"), pursuant to which Bank
agreed to extend credit to Borrower and amendment thereto dated September 5,
1996.
B. Borrower and Bank desire to amend the Agreement subject to the terms and
conditions of this Second Amendment.
AGREEMENT:
In consideration of the above recitals and of the mutual covenants and
conditions contained herein, Borrower and Bank agree as follows:
1. DEFINED TERMS. Initially capitalized terms used herein which are not
otherwise defined shall have the meanings assigned thereto in the Agreement.
2. AMENDMENTS TO THE AGREEMENT.
(a) Section 5.7 of the Agreement is hereby amended in its entirety as
follows:
5.7 RETIREMENT OF STOCK. Without consent of Bank, between
September 13, 1996 and September 30, 1997, Borrower will not acquire, redeem,
purchase, or retire more than Five Million Dollars ($5,000,000) of its capital
stock for value whether now or hereafter outstanding; or grant or issue any
equity or security or warrant, right, or option pertaining thereto except as
set forth in Section 3.13 and as approved by Bank in writing. From October 1,
1997, 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 warrant, right, or
option pertaining thereto except as set forth in Section 3.13 and as approved
by Bank in writing.
3. EFFECTIVENESS OF THE SECOND AMENDMENT. This Second Amendment shall
become effective as of the date hereof when, and only when, Bank shall have
received the following, in form and substance satisfactory to Bank:
(a) The counterpart of this Second Amendment, duly executed by
Borrower;
-1-
<PAGE> 3
4. RATIFICATION. Except as specifically amended hereinabove, the Agreement
shall remain in full force and effect and is hereby ratified and confirmed.
5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as
follows:
(a) Each of the representations and warranties contained in the
Agreement, as may be amended hereby, is hereby reaffirmed as of the date
hereof, each as if set forth herein;
(b) The execution, delivery and performance of the Second Amendment
and any other instruments or documents in connection herewith are within
Borrower's power, have been duly authorized, are legal, valid and binding
obligations of Borrower, and are not in conflict with the terms of any charter,
bylaw, or other organization papers of Borrower or with any law, indenture,
agreement or undertaking to which Borrower is a party or by which Borrower is
bound or affected;
(c) No event has occurred and is continuing or would result from this
Second Amendment which constitutes or would constitute an Event of Default
under the Agreement.
6. GOVERNING LAW. This Second Amendment and all other instruments or
documents in connection herewith shall be governed by and construed according
to the laws of the State of California.
7. COUNTERPARTS. This Second Amendment may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
WITNESS the due execution hereof as of the date first above written.
QUIKSILVER, INC. UNION BANK OF CALIFORNIA, N.A.
By: /s/ RANDALL L. HERREL, SR. By: /s/ RITA DAILEY
- ------------------------------- -------------------------------
Randall L. Herrel, Sr. Rita Dailey
President Vice President
By: /s/ ROBERT B. MCKNIGHT, JR.
- -------------------------------
Robert B. McKnight, Jr.
Chief Executive Officer
-2-
<PAGE> 4
THIRD AMENDMENT
TO AMENDED AND RESTATED LOAN AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this "Third
Amendment") dated as of November 29, 1996, is made and entered into by and
between QUIKSILVER, INC., a Delaware corporation ("Borrower"), and UNION BANK
OF CALIFORNIA, N.A.
RECITALS:
A. Borrower and Bank are parties to that certain Amended and Restated Loan
Agreement dated April 30, 1996 (the "Agreement"), pursuant to which Bank
agreed to extend credit to Borrower and amendments thereto dated September 5,
1996 and October 22, 1996.
B. Borrower and Bank desire to amend the Agreement subject to the terms and
conditions of this Third Amendment.
AGREEMENT:
In consideration of the above recitals and of the mutual covenants and
conditions contained herein, Borrower and Bank agree as follows:
1. DEFINED TERMS. Initially capitalized terms used herein which are not
otherwise defined shall have the meanings assigned thereto in the Agreement.
2. AMENDMENTS TO THE AGREEMENT.
(a) Section 1.1.1.1, line nine of the Loan Agreement is hereby amended
by substituting the number "240" for the number "180".
3. EFFECTIVENESS OF THE THIRD AMENDMENT. This Third Amendment shall become
effective as of the date hereof when, and only when, Bank shall have received
the following, in form and substance satisfactory to Bank:
(a) The Third Amendment, duly executed by Borrower;
4. RATIFICATION. Except as specifically amended hereinabove, the Agreement
shall remain in full force and effect and is hereby ratified and confirmed.
5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as
follows:
(a) Each of the representations and warranties contained in the
Agreement, as may be amended hereby, is hereby reaffirmed as of the date
hereof, each as if set forth herein;
-1-
<PAGE> 5
(b) The execution, delivery and performance of the Third Amendment and
any other instruments or documents in connection herewith are within Borrower's
power, have been duly authorized, are legal, valid and binding obligations of
Borrower, and are not in conflict with the terms of any charter, bylaw, or
other organization papers of Borrower or with any law, indenture, agreement or
undertaking to which Borrower is a party or by which Borrower is bound or
affected;
(c) No event has occurred and is continuing or would result from this
Third Amendment which constitutes or would constitute an Event of Default under
the Agreement.
6. GOVERNING LAW. This Third Amendment and all other instruments or
documents in connection herewith shall be governed by and construed according
to the laws of the State of California.
7. COUNTERPARTS. This Third Amendment may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
WITNESS the due execution hereof as of the date first above written.
QUIKSILVER, INC. UNION BANK OF CALIFORNIA, N.A.
By: /s/ ROBERT B. MCKNIGHT, JR. By: /s/ RITA DAILEY
- -------------------------------- ------------------------------
Robert B. McKnight, Jr. Rita Dailey
Chief Executive Officer Vice President
By: /s/ STEVEN L. BRINK By: /s/ ROBERT E. MCGOWN
- -------------------------------- ------------------------------
Steven L. Brink Robert E. McGown
Vice President Senior Vice President
-2-
<PAGE> 1
EXHIBIT 10.5
QUIKSILVER, INC.
FORM OF
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT (the "Agreement") is made as of this
_____ day of __________ 199_, by and between QUIKSILVER, INC., a Delaware
corporation (the "Company"), and ____________________ (the "Indemnitee"), a
[director/officer] of the Company.
A. The Indemnitee is currently serving as __________ of the
Company and in such capacity renders valuable services to the Company.
B. The Company has investigated whether additional protective
measures are warranted to protect adequately its directors and officers against
various legal risks and potential liabilities to which such individuals are
subject due to their position with the Company and has concluded that additional
protective measures are warranted.
C. In order to induce and encourage highly experienced and
capable persons such as the Indemnitee to continue to serve as officers and
directors, the Board of Directors has determined, after due consideration, that
this Agreement is not only reasonable and prudent, but necessary to promote and
ensure the best interests of the Company and its stockholders.
NOW, THEREFORE, in consideration of the continued services of
the Indemnitee and as an inducement to the Indemnitee to continue to serve as a
[director/officer] of the Company, the Company and the Indemnitee do hereby
agree as follows:
<PAGE> 2
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth below:
(a) "Proceeding" shall mean any threatened, pending
or completed action, suit or proceeding, whether brought in the name of the
Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, by reason of the fact that the Indemnitee is or was an
officer and/or a director of the Company, or is or was serving at the request of
the Company as director, officer, employee or agent of another enterprise,
whether or not he is serving in such capacity at the time any liability or
Expense is incurred for which indemnification or advancement of Expenses is to
be provided under this Agreement.
(b) "Expenses" means, all costs, charges and expenses
incurred in connection with a Proceeding, including, without limitation,
attorneys' fees, disbursements and retainers, accounting and witness fees,
travel and deposition costs, expenses of investigations, judicial or
administrative proceedings or appeals, and any expenses of establishing a right
to indemnification pursuant to this Agreement or otherwise, including reasonable
compensation for time spent by the Indemnitee in connection with the
investigation, defense or appeal of a Proceeding or action for indemnification
for which he is not otherwise compensated by the Company or any third party;
provided, however, that the term "Expenses" includes only those costs, charges
and expenses incurred with the Company's consent, which consent shall not be
unreasonably withheld; and provided further, that the term "Expenses" does not
include the amount of damages, judgments, amounts paid in settlement, fines,
penalties or excise taxes under the Employee Retirement Income
2
<PAGE> 3
Security Act of 1974, as amended ("ERISA"), actually levied against the
Indemnitee or paid by or on behalf of the Indemnitee.
2. AGREEMENT TO SERVE. The Indemnitee agrees to continue to
serve as an officer of the Company at the will of the Company for so long as
Indemnitee is duly elected or appointed or until such time as Indemnitee tenders
a resignation in writing or is terminated, as an officer by the Company. Nothing
in this Agreement shall be construed to create any right in Indemnitee to
continued service as an officer of the Company.
3. INDEMNIFICATION IN THIRD PARTY ACTIONS. The Company shall
indemnify the Indemnitee in accordance with the provisions of this Section 3 if
the Indemnitee is a party to or threatened to be made a party to or otherwise
involved in any Proceeding (other than a Proceeding by or in the right of the
Company to procure a judgment in its favor), by reason of the fact that the
Indemnitee is or was an officer and/or a director of the Company or is or was
serving at the request of the Company as a director, officer, employee or agent
of another enterprise, against all Expenses, damages, judgments, amounts paid in
settlement, fines, penalties and ERISA excise taxes actually and reasonably
incurred by the Indemnitee in connection with the defense or settlement of such
Proceeding, to the fullest extent permitted by Delaware law; provided that any
settlement shall be approved in writing by the Company.
4. INDEMNIFICATION IN PROCEEDINGS BY OR IN THE RIGHT OF THE
COMPANY. The Company shall indemnify the Indemnitee in accordance with the
provisions of this Section 4 if the Indemnitee is a party to or threatened to be
made a party to or otherwise involved in any Proceeding by or in the right of
the Company to procure a judgment in its favor by reason of the fact that the
Indemnitee is or was an officer and/or a director of the
3
<PAGE> 4
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another enterprise, against all Expenses actually
and reasonably incurred by Indemnitee in connection with the defense or
settlement of such Proceeding, to the fullest extent permitted by Delaware law.
5. CONCLUSIVE PRESUMPTION REGARDING STANDARD OF CONDUCT. The
Indemnitee shall be conclusively presumed to have met the relevant standards of
conduct required by Delaware law for indemnification pursuant to this Agreement,
unless a determination is made that the Indemnitee has not met such standards by
(i) the Board of Directors of the Company by a majority vote of a quorum thereof
consisting of directors who were not parties to such Proceeding, (ii) the
stockholders of the Company by majority vote, or (iii) in a written opinion of
independent legal counsel, the selection of whom has been approved by the
Indemnitee in writing.
6. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee has been successful on the merits or otherwise in defense of any
Proceeding or in defense of any claim, issue or matter therein, including the
dismissal of a Proceeding without prejudice, the Indemnitee shall be indemnified
against all Expenses incurred in connection therewith to the fullest extent
permitted by Delaware law.
7. ADVANCES OF EXPENSES. The Expenses incurred by the
Indemnitee in any Proceeding shall be paid promptly by the Company in advance of
the final disposition of the Proceeding at the written request of the Indemnitee
to the fullest extent permitted by Delaware law; provided that the Indemnitee
shall undertake in writing to repay such amount
4
<PAGE> 5
to the extent that it is ultimately determined that the Indemnitee is not
entitled to indemnification by the Company.
8. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled
under any provision of this Agreement to indemnification by the Company for some
or a portion of the Expenses, damages, judgments, amounts paid in settlement,
fines, penalties or ERISA excise taxes actually and reasonably incurred by
Indemnitee in the investigation, defense, appeal or settlement of any Proceeding
but not, however, for the total amount thereof, the Company shall nevertheless
indemnify the Indemnitee for the portion of such Expenses, damages, judgments,
amounts paid in settlement, fines, penalties or ERISA excise taxes to which the
Indemnitee is entitled.
9. INDEMNIFICATION PROCEDURE; DETERMINATION OF RIGHT TO
INDEMNIFICATION.
(a) Promptly after receipt by the Indemnitee of
notice of the commencement of any Proceeding with respect to which the
Indemnitee intends to claim indemnification pursuant to this Agreement, the
Indemnitee will notify the Company of the commencement thereof. The omission to
so notify the Company will not relieve the Company from any liability which it
may have to the Indemnitee under this Agreement or otherwise.
(b) If a claim under this Agreement is not paid by or
on behalf of the Company within 30 days of receipt of written notice thereof,
Indemnitee may at any time thereafter bring suit in any court of competent
jurisdiction against the Company to enforce the right to indemnification
provided by this Agreement. It shall be a defense to any such action (other than
an action brought to enforce a claim for Expenses incurred in defending
5
<PAGE> 6
any Proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Company) that the
Indemnitee has failed to meet the standard of conduct that makes it permissible
under Delaware law for the Company to indemnify the Indemnitee for the amount
claimed. The burden of proving by clear and convincing evidence that
indemnification or advancement of Expenses are not appropriate shall be on the
Company. The failure of the directors or stockholders of the Company or
independent legal counsel to have made a determination prior to the commencement
of such Proceeding that indemnification or advancement of Expenses are proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct shall not be a defense to the action or create a presumption that the
Indemnitee has not met the applicable standard of conduct.
(c) The Indemnitee's Expenses incurred in connection
with any action concerning Indemnitee's right to indemnification or advancement
of Expenses in whole or in part pursuant to this Agreement shall also be
indemnified by the Company regardless of the outcome of such action, unless a
court of competent jurisdiction determines that each of the material claims made
by the Indemnitee in such action was not made in good faith or was frivolous.
(d) With respect to any Proceeding for which
indemnification is requested, the Company will be entitled to participate
therein at its own expense and, except as otherwise provided below, to the
extent that it may wish, the Company may assume the defense thereof, with
counsel satisfactory to the Indemnitee. After notice from the Company to the
Indemnitee of its election to assume the defense of a Proceeding, the Company
will not be liable to the Indemnitee under this Agreement for any Expenses
subsequently incurred by
6
<PAGE> 7
the Indemnitee in connection with the defense thereof, other than reasonable
costs of investigation or as otherwise provided below. The Company shall not
settle any Proceeding in any manner which would impose any penalty or limitation
on the Indemnitee without the Indemnitee's written consent. The Indemnitee shall
have the right to employ counsel in any Proceeding, but the Expenses of such
counsel incurred after notice from the Company of its assumption of the defense
thereof shall be at the expense of the Indemnitee, unless (i) the employment of
counsel by the Indemnitee has been authorized by the Company, (ii) the
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and the Indemnitee in the conduct of the defense of
a Proceeding, or (iii) the Company shall not in fact have employed counsel to
assume the defense of a Proceeding, in each of which cases the Expenses of the
Indemnitee's counsel shall be at the expense of the Company. The Company shall
not be entitled to assume the defense of any Proceeding brought by or on behalf
of the Company or as to which the Indemnitee has concluded that there may be a
conflict of interest between the Company and the Indemnitee.
10. LIMITATIONS ON INDEMNIFICATION. No payments pursuant to
this Agreement shall be made by the Company:
(a) to indemnify or advance Expenses to the
Indemnitee with respect to actions initiated or brought voluntarily by the
Indemnitee and not by way of defense except with respect to actions brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Delaware law, but such
indemnification or advancement of Expenses may be provided by the Company in
specific cases if approved by the Board of Directors by a majority vote of a
quorum thereof consisting of directors who are not parties to such action;
7
<PAGE> 8
(b) to indemnify the Indemnitee for any Expenses,
damages, judgments, amounts paid in settlement, fines, penalties or ERISA excise
taxes for which payment is actually made to the Indemnitee under a valid and
collectible insurance policy, except in respect of any excess beyond the amount
paid under such insurance;
(c) to indemnify the Indemnitee for any Expenses,
damages, judgments, amounts paid in settlement, fines, penalties or ERISA excise
taxes for which the Indemnitee has been or is indemnified by the Company
otherwise than pursuant to this Agreement;
(d) indemnify the Indemnitee for any Expenses,
damages, judgments, amounts paid in settlement, fines or penalties sustained in
any Proceeding for an accounting of profits made from the purchase or sale by
Indemnitee of securities of the Company pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder or similar provisions of any federal, state
or local statutory law;
(e) to indemnify the Indemnitee for any Expenses,
damages, judgments, amounts paid in settlement, fines, penalties or ERISA excise
taxes resulting from Indemnitee's conduct which is finally adjudicated by a
court of competent jurisdiction (i) to have been knowingly fraudulent, a knowing
violation of law, deliberately dishonest or in violation of Indemnitee's duty of
loyalty to the Company or (ii) to have involved willful misconduct on the part
of the Indemnitee; or
(f) if a court of competent jurisdiction shall enter
a final order, decree or judgment to the effect that such indemnification or
advancement of Expenses hereunder is unlawful under the circumstances.
8
<PAGE> 9
11. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The
indemnification and advancement of Expenses provided by this Agreement shall not
be deemed to limit or preclude any other rights to which the Indemnitee may be
entitled under the Certificate of Incorporation, the Bylaws, any agreement, any
vote of stockholders or disinterested directors, Delaware law, or otherwise,
both as to action in Indemnitee's official capacity and as to action in any
other capacity on behalf of the Company while holding such office.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon, and shall inure to the benefit of (i) the Indemnitee and Indemnitee's
heirs, personal representatives, executors, administrators and assigns and (ii)
the Company and its successors and assigns, including any transferee of all or
substantially all of the Company's assets and any successor or assign of the
Company by merger or by operation of law.
13. SEPARABILITY. Each provision of this Agreement is a
separate and distinct agreement and independent of the other, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof. To the extent required, any
provision of this Agreement may be modified by a court of competent jurisdiction
to preserve its validity and to provide the Indemnitee with the broadest
possible indemnification and advancement of Expenses permitted under Delaware
law. If this Agreement or any portion thereof is invalidated on any ground by
any court of competent jurisdiction, then the Company shall nevertheless
indemnify Indemnitee as to Expenses, damages, judgments, amounts paid in
settlement, fines, penalties or ERISA excise taxes with respect to any
Proceeding to the full extent permitted by any applicable portion of this
Agreement that shall
9
<PAGE> 10
not have been invalidated or by any applicable provision of Delaware law or the
law of any other jurisdiction.
14. HEADINGS. The Headings used herein are for convenience
only and shall not be used in construing or interpreting any provision of the
Agreement.
15. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
16. AMENDMENTS AND WAIVERS. No amendment, waiver,
modification, termination or cancellation of this Agreement shall be effective
unless in writing and signed by the party against whom enforcement is sought.
The indemnification rights afforded to the Indemnitee hereby are contract rights
and may not be diminished, eliminated or otherwise affected by amendments to the
Company's Certificate of Incorporation, Bylaws or agreements, including any
directors' and officers' liability insurance policies, whether the alleged
actions or conduct giving rise to indemnification hereunder arose before or
after any such amendment. No waiver of any provision of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof, whether or
not similar, nor shall any waiver constitute a continuing waiver.
17. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each party and delivered to the other.
18. NOTICES. All notices and communications shall be in
writing and shall be deemed duly given on the date of delivery if personally
delivered or the date of receipt or refusal indicated on the return receipt if
sent by first class mail, postage prepaid, registered
10
<PAGE> 11
or certified, return receipt requested, to the following addresses, unless
notice of a change of address in duly given by one party to the other, in which
case notices shall be sent to such changed address:
If to the Company:
Quiksilver, Inc.
1740 Monrovia
Costa Mesa, CA 92627
Attention: Secretary
If to Indemnitee:
------------------------
------------------------
------------------------
------------------------
19. SUBROGATION. In the event of any payment under this
Agreement to or on behalf of the Indemnitee, the Company shall be subrogated to
the extent of such payment to all of the rights of recovery of the Indemnitee
against any person, firm, corporation or other entity (other than the Company)
and the Indemnitee shall execute all papers requested by the Company and shall
do any and all things that may be necessary or desirable to secure such rights
for the Company, including the execution of such documents necessary or
desirable to enable the Company to effectively bring suit to enforce such
rights.
20. SUBJECT MATTER AND PARTIES. The intended purpose of this
Agreement is to provide for indemnification and advancement of Expenses, and
this Agreement is not intended to affect any other aspect of any relationship
between the Indemnitee and the Company and is not intended to and shall not
create any rights in any person as a third party beneficiary hereunder.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
"INDEMNITEE"
----------------------------------
"COMPANY"
QUIKSILVER, INC., a Delaware corporation
By:
----------------------------------
Its:
----------------------------------
12
<PAGE> 1
Exhibit 10.10
April 1, 1996
PERSONAL AND CONFIDENTIAL
Mr. Robert B. McKnight, Jr.
Chief Executive Officer
Quiksilver, Inc.
1740 Monrovia Avenue
Costa Mesa, California 92627-9407
Re: Employment at Quiksilver
Dear Bob:
This letter ("Agreement") will confirm our understanding and
agreement regarding your continued employment at Quiksilver, Inc. ("Quiksilver"
or the "Company"), and completely supersedes and replaces any existing or
previous oral or written understandings or agreements, express or implied, we
have had. The terms contained in this letter are effective on and after April 1,
1996.
1. Your position will be Chief Executive Officer.
2. Your base salary will be $30,333.33 per month, less
applicable withholdings and deductions, paid on the
Company's regular payroll dates. Your salary will be
reviewed at the time management salaries are reviewed
periodically and may be adjusted (up or down) at the
Company's discretion in light of the Company's
performance, your performance, market conditions and
other factors deemed relevant by the Company;
provided, however, that your base salary will not be
reduced below its -------- initial level through
March 31, 1999, should your employment continue
through that date.
3. For the fiscal year ending October 31, 1996, you
shall be eligible to receive a bonus in an amount
equal to: (1) twenty-five percent (25%) of the bonus
pool created based on the criteria set forth on
Addendum "A" attached hereto for the time period
November 1, 1995, through October 31, 1996, plus (2)
fifty percent (50%) of the bonus payable to you based
upon the criteria set forth on Addendum "B" attached
hereto, for the time period November 1, 1995, through
October 31, 1996. Moreover, should you remain
employed with the Company during fiscal years
1996-1997 and/or 1997-1998, you shall be eligible to
receive a bonus based on the criteria set forth on
Addendum "C" attached hereto, for that portion of the
fiscal year(s) during which you are so employed. Any
bonus earned pursuant to this paragraph shall be paid
within ten (10)
<PAGE> 2
days following the date the Company publicly releases
its annual audited financial statements (the "Bonus
Payment Date"). Any bonus payment shall be less
applicable withholdings and deductions. In the event
that your employment with the Company is terminated
prior to the end of the applicable fiscal year
(including by reason of termination, resignation,
disability or death), you shall be entitled to
receive a pro rata portion of the bonus otherwise
payable to you based upon the actual number of days
which you were employed by the Company during the
applicable fiscal year, which shall be paid on the
Bonus Payment Date. The Company has made no
representations or commitments regarding the
existence or components of any bonus program should
you remain employed with the Company after the close
of fiscal year 1997-1998.
4. Since Quiksilver does not have a vacation policy for
executives of your level, no vacation days will be
treated as earned or accrued.
5. You (and any eligible dependents you elect) will be
covered by the Company's group medical insurance
program on the same terms and conditions applicable
to comparable employees. The Company reserves the
right to change, modify, or eliminate such coverage
in its discretion.
6. Quiksilver will pay the premium on a term life
insurance policy on your life with a company of our
choice in the face amount determined by the Company
of not less than $1,000,000 payable to the
beneficiary or beneficiaries of your choice.
Quiksilver's obligation to obtain and maintain this
insurance is contingent upon your establishing and
maintaining insurability, and it is not required to
pay premiums for such a policy in excess of $2,500
annually.
7. The amount and terms of stock options to be granted
to you will be determined by the Board of Directors
in its discretion and covered in separate agreements.
8. Notwithstanding anything to the contrary in this
Agreement or in your prior employment relationship
with the Company, express or implied, your employment
continues to be for an unspecified term, and either
you or Quiksilver may terminate such employment at
will and with or without Cause at any time for any
reason.
The Company may also terminate your employment
immediately, without notice, and without further
obligation for Cause, which shall be defined as (i)
your death, (ii) your permanent disability which
renders you unable to perform your duties and
responsibilities for a period in excess of three
consecutive months, (iii) willful misconduct in the
performance of your duties, (iv) violation of law,
(v) self-dealing, (vi) willful breach of duty,
<PAGE> 3
(vii) habitual neglect of duty, (viii) a material
breach by you of your obligations under Paragraphs 9
or 11 of this Agreement, or (ix) sustained
unsatisfactory performance (determined by the
Board of Directors of the Company).
If Quiksilver elects to terminate your employment
without Cause, or if you terminate your employment
with the Company for Good Reason (as defined below)
within six (6) months of the action constituting Good
Reason, the Company will continue to pay your base
salary (but not any bonuses or employment benefits)
on its regular payroll dates for a period of twelve
(12) months.
"Good Reason" for you to terminate employment means a
voluntary termination following a Change in Control
(as defined in Addendum "D") as a result of (i) the
assignment to you of duties materially inconsistent
with your position as set forth above without your
consent, (ii) a material change in your reporting
level from that set forth in this Agreement without
your consent, (iii) a material diminution of your
authority without your consent, (iv) a material
breach by the Company of its obligations under this
agreement, or (v) a failure by the Company to obtain
from any successor, before the succession takes
place, an agreement to assume and perform the
obligations contained in this Agreement.
9. Quiksilver owns certain trade secrets and other
confidential and/or proprietary information which
constitute valuable property rights, which it has
developed through a substantial expenditure of time
and money, which are and will continue to be utilized
in the Company's business and which are not generally
known in the trade. This proprietary information
includes the list of names of the customers and
suppliers of Quiksilver, and other particularized
information concerning the products, finances,
processes, material preferences, fabrics, designs,
material sources, pricing information, production
schedules, marketing strategies, merchandising
strategies, order forms and other types of
proprietary information relating to our products,
customers and suppliers. You agree that you will not
disclose and will keep strictly secret and
confidential all trade secrets and proprietary
information of Quiksilver, including, but not limited
to, those items specifically mentioned above.
10. The Company will reimburse you for documented
reasonable and necessary business expenses incurred
by you while engaged in business activities for the
Company's benefit on such terms and conditions as
shall be generally available to other executives of
the Company.
<PAGE> 4
11. You will be required to observe the Company's
personnel and business policies and procedures as
they are in effect from time to time. In the event of
any conflicts, the terms of this Agreement will
control.
12. This Agreement, its addenda, and any stock option
agreements Quiksilver may enter into with you contain
the entire integrated agreement between us regarding
these issues, and no modification to this letter will
be valid unless set forth in writing and signed by
both you and the Chairman of the Board of the
Company. To the fullest extent allowed by law, any
dispute, controversy or claim arising out of or
relating to this Agreement, the breach thereof, or
any aspect of your employment or the cessation
thereof must be settled exclusively by final and
binding arbitration before a single arbitrator
administered by JAMS/Endispute in Orange County,
California, whose fees and costs shall be evenly
divided by the parties. Judgment upon the award
rendered by the arbitrator may be entered in any
court having jurisdiction thereof. The Company
reserves the right, however, to seek judicial
provisional remedies and equitable relief regarding
any breach or threatened breach of your obligations
regarding trade secrets and proprietary information.
13. This Agreement will be assignable by the Company to
any successor or to any other company owned or
controlled by the Company, and will be binding upon
any successor to the business of the Company, whether
direct or indirect, by purchase of securities,
merger, consolidation, purchase of all or
substantially all of the assets of the Company or
otherwise.
<PAGE> 5
Please sign, date and return the enclosed copy of this letter
to me for our files to acknowledge your agreement with the above.
Best personal regards.
Very truly yours,
Steven L. Brink
Chief Financial Officer and Secretary
Enclosures
ACKNOWLEDGED AND AGREED:
- -----------------------------------
Robert B. McKnight, Jr.
Dated Effective: April 1, 1996
<PAGE> 1
Exhibit 10.11
April 1, 1996
PERSONAL AND CONFIDENTIAL
Mr. Harry Hodge
Na Pali S.A.
Z.I. de Jalday
St. Jean de Luz
France 64500
Re: Employment at Quiksilver
Dear Harry:
This letter ("Agreement") will confirm our understanding and
agreement regarding your continued employment at Na Pali, S.A., a wholly owned
subsidiary of Quiksilver, Inc. ("Quiksilver"), and completely supersedes and
replaces any existing or previous oral or written understandings or agreements,
express or implied, we have had. The terms contained in this letter are
effective on and after April 1, 1996.
1. Your position will be P.D.G. of Na Pali, S.A. (the
"Company").
2. Your base salary will be $100,000FF per month, less
applicable withholdings and deductions, paid on the
Company's regular payroll dates. Your salary will be
reviewed at the time management salaries are reviewed
periodically and may be adjusted (up or down) at
Quiksilver's discretion in light of the Company's
performance, your performance, market conditions and
other factors deemed relevant by Quiksilver;
provided, however, that your base salary will not be
reduced below its initial level through March 31,
1999, should your employment continue through that
date.
3. For the fiscal year ending October 31, 1996, you
shall be eligible to receive a bonus in an amount
equal to: (1) twenty-seven and one-half percent (27
1/2%) of the bonus pool created based on the criteria
set forth on Addendum "A" attached hereto for the
time period November 1, 1995, through October 31,
1996, plus (2) fifty percent (50%) of the bonus
payable to you based upon the criteria set forth on
Addendum "B" attached hereto, for the time period
November 1, 1995, through October 31, 1996. Moreover,
should you remain employed with the Company during
fiscal years 1996-1997 and/or 1997-1998, you shall be
eligible to receive a bonus based on the criteria set
forth on Addendum "B" attached hereto, for that
portion of the fiscal year(s) during which you are so
<PAGE> 2
Mr. Harry Hodge
April 1, 1996
Page 2
employed. Any bonus earned pursuant to this paragraph
shall be paid within ten (10) days following the date
the Company publicly releases its annual audited
financial statements (the "Bonus Payment Date"). Any
bonus payment shall be less applicable withholdings
and deductions. In the event that your employment
with the Company is terminated prior to the end of
the applicable fiscal year (including by reason of
termination, resignation, disability or death), you
shall be entitled to receive a pro rata portion of
the bonus otherwise payable to you based upon the
actual number of days which you were employed by the
Company during the applicable fiscal year, which
shall be paid on the Bonus Payment Date. The Company
has made no representations or commitments regarding
the existence or components of any bonus program
should you remain employed with the Company after the
close of fiscal year 1997-1998.
4. You will accrue a maximum of 25 days of vacation each
year. Once the maximum is reached, additional
vacation accrual will cease until you have used some
vacation to fall below the maximum accrual allowed.
5. You (and any eligible dependents you elect) will be
covered by the Company's group medical insurance
program on the same terms and conditions applicable
to comparable employees. The Company reserves the
right to change, modify, or eliminate such coverage
in its discretion.
6. The amount and terms of stock options to be granted
to you will be determined by the Board of Directors
in its discretion and covered in separate agreements.
7. Notwithstanding anything to the contrary in this
Agreement or in your prior employment relationship
with the Company, express or implied, your employment
continues to be for an unspecified term, and either
you or the Company may, subject to applicable law,
terminate such employment at will and with or without
Cause at any time for any reason.
Subject to applicable law, the Company may also
terminate your employment immediately, without
notice, and without further obligation for Cause,
which shall be defined as (i) your death, (ii) your
permanent disability which renders you unable to
perform your duties and responsibilities for a period
in excess of three consecutive months, (iii) willful
misconduct in the performance of your duties, (iv)
violation of law, (v) self-dealing, (vi) willful
breach of duty, (vii) habitual neglect of
<PAGE> 3
Mr. Harry Hodge
April 1, 1996
Page 3
duty, (viii) a material breach by you of your
obligations under Paragraphs 8 or 10 of this
Agreement, or (ix) sustained unsatisfactory
performance (determined by the Chairman of the Board
of Quiksilver).
If the Company elects to terminate your employment
without Cause, or if you terminate your employment
with the Company for Good Reason (as defined below)
within six (6) months of the action constituting Good
Reason, the Company will continue to pay your base
salary (but not any bonuses or employment benefits)
on its regular payroll dates for a period of twelve
(12) months.
"Good Reason" for you to terminate employment means a
voluntary termination following a Change in Control
(as defined in Addendum "C") as a result of (i) the
assignment to you of duties materially inconsistent
with your position as set forth above without your
consent, (ii) a material change in your reporting
level from that set forth in this Agreement without
your consent, (iii) a material diminution of your
authority without your consent, (iv) a material
breach by the Company of its obligations under this
agreement, or (v) a failure by the Company to obtain
from any successor, before the succession takes
place, an agreement to assume and perform the
obligations contained in this Agreement.
8. The Company and Quiksilver own certain trade secrets
and other confidential and/or proprietary information
which constitute valuable property rights developed
through a substantial expenditure of time and money,
which are and will continue to be utilized in the
Company's and Quiksilver's business and which are not
generally known in the trade. This proprietary
information includes the list of names of the
customers and suppliers of the Company and
Quiksilver, and other particularized information
concerning the products, finances, processes,
material preferences, fabrics, designs, material
sources, pricing information, production schedules,
marketing strategies, merchandising strategies, order
forms and other types of proprietary information
relating to our products, customers and suppliers.
You agree that you will not disclose and will keep
strictly secret and confidential all trade secrets
and proprietary information of the Company and
Quiksilver, including, but not limited to, those
items specifically mentioned above.
9. The Company will reimburse you for documented
reasonable and necessary business expenses incurred
by you while engaged in business
<PAGE> 4
Mr. Harry Hodge
April 1, 1996
Page 4
activities for the Company's benefit on such terms
and conditions as shall be generally available to
other executives of the Company.
10. You will be required to observe the Company's
personnel and business policies and procedures as
they are in effect from time to time. In the event of
any conflicts, the terms of this Agreement will
control.
11. This Agreement, its addenda, and any stock option
agreements Quiksilver may enter into with you contain
the entire integrated agreement between us regarding
these issues, and no modification to this letter will
be valid unless set forth in writing and signed by
both you and the Chairman of the Board of Quiksilver.
To the fullest extent allowed by law, any dispute,
controversy or claim arising out of or relating to
this Agreement, the breach thereof, or any aspect of
your employment or the cessation thereof must be
settled exclusively by final and binding arbitration
before a single arbitrator administered by
JAMS/Endispute in Orange County, California, whose
fees and costs shall be evenly divided by the
parties. Judgment upon the award rendered by the
arbitrator may be entered in any court having
jurisdiction thereof. Quiksilver reserves the right,
however, to seek judicial provisional remedies and
equitable relief regarding any breach or threatened
breach of your obligations regarding trade secrets
and proprietary information.
<PAGE> 5
Mr. Harry Hodge
April 1, 1996
Page 5
Please sign, date and return the enclosed copy of this letter
to me for our files to acknowledge your agreement with the above.
Best personal regards.
Very truly yours,
Robert B. McKnight, Jr.
Chief Executive Officer
Enclosures
ACKNOWLEDGED AND AGREED:
- -----------------------------------
Harry Hodge
Dated Effective: April 1, 1996
<PAGE> 1
Exhibit 10.12
October 24, 1996
PERSONAL AND CONFIDENTIAL
Steven L. Brink
Quiksilver, Inc.
1740 Monrovia Avenue
Costa Mesa, California 92627-9407
Re: Employment at Quiksilver
Dear Steve:
This letter ("Agreement") will confirm our understanding and
agreement regarding your continued employment at Quiksilver, Inc. ("Quiksilver"
or the "Company"), and completely supersedes and replaces any existing or
previous oral or written understandings or agreements, express or implied, we
have had. The terms contained in this letter are effective on and after October
24, 1996.
1. Your position will be Secretary, Treasurer and Chief
Financial Officer.
2. Your base salary will be $12,500.00 per month, less
applicable withholdings and deductions, paid on the
Company's regular payroll dates. Your salary will be
reviewed at the time management salaries are reviewed
periodically and may be adjusted (up or down) at the
Company's discretion in light of the Company's
performance, your performance, market conditions and
other factors deemed relevant by the Company;
provided, however, that your base salary will not be
reduced below its initial level through March 31,
1999, should your employment continue through that
date.
3. For the fiscal year ending October 31, 1997, you
shall be eligible to receive a bonus based on the
criteria set forth on Addendum "A" attached hereto,
for that portion of the fiscal year(s) during which
you are so employed. Any bonus earned pursuant to
this paragraph shall be paid within ten (10) days
following the date the Company publicly releases its
annual audited financial statements (the "Bonus
Payment Date"). Any bonus payment shall be less
applicable withholdings and deductions. In the event
that your employment with the Company is terminated
prior to the end of the applicable fiscal year
(including by reason of termination, resignation,
disability or death), you shall be entitled to
receive a pro rata portion of the bonus otherwise
payable to you based upon the actual number of days
which you were employed by the Company during the
<PAGE> 2
Steven L. Brink
October 24, 1996
Page 2
applicable fiscal year, which shall be paid on the
Bonus Payment Date. The Company has made no
representations or commitments regarding the
existence or components of any bonus program should
you remain employed with the Company after the close
of fiscal year 1997-1998.
4. Since Quiksilver does not have a vacation policy for
executives of your level, no vacation days will be
treated as earned or accrued.
5. You (and any eligible dependents you elect) will be
covered by the Company's group medical insurance
program on the same terms and conditions applicable
to comparable employees. The Company reserves the
right to change, modify, or eliminate such coverage
in its discretion.
6. Quiksilver will pay the premium on a term life
insurance policy on your life with a company of our
choice in the face amount determined by the Company
of not less than $500,000 payable to the beneficiary
or beneficiaries of your choice. Quiksilver's
obligation to obtain and maintain this insurance is
contingent upon your establishing and maintaining
insurability, and it is not required to pay premiums
for such a policy in excess of $1,250 annually.
7. The amount and terms of stock options to be granted
to you will be determined by the Board of Directors
in its discretion and covered in separate agreements.
8. Notwithstanding anything to the contrary in this
Agreement or in your prior employment relationship
with the Company, express or implied, your employment
continues to be for an unspecified term, and either
you or Quiksilver may terminate such employment at
will and with or without Cause at any time for any
reason. This aspect of your employment relationship
can only be changed by an individualized written
agreement signed by both you and the Chairman of the
Board of the Company.
The Company may also terminate your employment
immediately, without notice, and without further
obligation for Cause, which shall be defined as (i)
your death, (ii) your permanent disability which
renders you unable to perform your duties and
responsibilities for a period in excess of three
consecutive months, (iii) willful misconduct in the
performance of your duties, (iv) violation of law,
(v) self-dealing, (vi) willful breach of duty, (vii)
habitual neglect of duty, (viii) a material breach by
you of your
<PAGE> 3
Steven L. Brink
October 24, 1996
Page 3
obligations under Paragraphs 9 or 11 of this
Agreement, or (ix) sustained unsatisfactory
performance (determined by the Chairman of the Board
of the Company).
If Quiksilver elects to terminate your employment
without Cause, or if you terminate your employment
with the Company for Good Reason (as defined below)
within six (6) months of the action constituting Good
Reason, the Company will continue to pay your base
salary (but not any bonuses or employment benefits)
on its regular payroll dates for a period of twelve
(12) months.
"Good Reason" for you to terminate employment means a
voluntary termination following a Change in Control
(as defined in Addendum "B") as a result of (i) the
assignment to you of duties materially inconsistent
with your position as set forth above without your
consent, (ii) a material change in your reporting
level from that set forth in this Agreement without
your consent, (iii) a material diminution of your
authority without your consent, (iv) a material
breach by the Company of its obligations under this
agreement, or (v) a failure by the Company to obtain
from any successor, before the succession takes
place, an agreement to assume and perform the
obligations contained in this Agreement.
9. Quiksilver owns certain trade secrets and other
confidential and/or proprietary information which
constitute valuable property rights, which it has
developed through a substantial expenditure of time
and money, which are and will continue to be utilized
in the Company's business and which are not generally
known in the trade. This proprietary information
includes the list of names of the customers and
suppliers of Quiksilver, and other particularized
information concerning the products, finances,
processes, material preferences, fabrics, designs,
material sources, pricing information, production
schedules, marketing strategies, merchandising
strategies, order forms and other types of
proprietary information relating to our products,
customers and suppliers. You agree that you will not
disclose and will keep strictly secret and
confidential all trade secrets and proprietary
information of Quiksilver, including, but not limited
to, those items specifically mentioned above.
10. The Company will reimburse you for documented
reasonable and necessary business expenses incurred
by you while engaged in business
<PAGE> 4
Steven L. Brink
October 24, 1996
Page 4
activities for the Company's benefit on such terms
and conditions as shall be generally available to
other executives of the Company.
11. You will be required to observe the Company's
personnel and business policies and procedures as
they are in effect from time to time. In the event of
any conflicts, the terms of this Agreement will
control.
12. This Agreement, its addenda, and any stock option
agreements Quiksilver may enter into with you contain
the entire integrated agreement between us regarding
these issues, and no modification to this letter will
be valid unless set forth in writing and signed by
both you and the Chairman of the Board of the
Company. To the fullest extent allowed by law, any
dispute, controversy or claim arising out of or
relating to this Agreement, the breach thereof, or
any aspect of your employment or the cessation
thereof must be settled exclusively by final and
binding arbitration before a single arbitrator
administered by JAMS/Endispute in Orange County,
California, whose fees and costs shall be evenly
divided by the parties. Judgment upon the award
rendered by the arbitrator may be entered in any
court having jurisdiction thereof. The Company
reserves the right, however, to seek judicial
provisional remedies and equitable relief regarding
any breach or threatened breach of your obligations
regarding trade secrets and proprietary information.
13. This Agreement will be assignable by the Company to
any successor or to any other company owned or
controlled by the Company, and will be binding upon
any successor to the business of the Company, whether
direct or indirect, by purchase of securities,
merger, consolidation, purchase of all or
substantially all of the assets of the Company or
otherwise.
<PAGE> 5
Steven L. Brink
October 24, 1996
Page 5
Please sign, date and return the enclosed copy of this letter
to me for our files to acknowledge your agreement with the above.
Best personal regards.
Very truly yours,
Robert B. McKnight, Jr.
Chief Executive Officer
Enclosures
ACKNOWLEDGED AND AGREED:
- -----------------------------------
Steven L. Brink
Dated Effective: October 24, 1996
<PAGE> 1
EXHIBIT 21.1
QUIKSILVER, INC.
NAMES AND JURISDICTIONS OF SUBSIDIARIES
Subsidiary Name Jurisdiction
--------------- ------------
Na Pali, S.A. France
QS International, Inc. California
33
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-24527, No. 33-65002, No. 33-65004, No. 33-58657 and No. 333-04169 of
Quiksilver, Inc. on Form S-8 of our report, dated December 18, 1996, appearing
in this Annual Report on Form 10-K of Quiksilver, Inc. for the year ended
October 31, 1996.
DELOITTE & TOUCHE LLP
Costa Mesa, California
January 22, 1997
34
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUIKSILVER,
INC'S OCTOBER 31, 1996 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 3,429,000
<SECURITIES> 0
<RECEIVABLES> 47,427,000
<ALLOWANCES> 2,873,000
<INVENTORY> 35,668,000
<CURRENT-ASSETS> 86,756,000
<PP&E> 17,682,000
<DEPRECIATION> 8,027,000
<TOTAL-ASSETS> 115,580,000
<CURRENT-LIABILITIES> 32,213,000
<BONDS> 2,640,000
0
0
<COMMON> 70,000
<OTHER-SE> 80,657,000
<TOTAL-LIABILITY-AND-EQUITY> 115,580,000
<SALES> 193,474,000
<TOTAL-REVENUES> 193,474,000
<CGS> 117,380,000
<TOTAL-COSTS> 117,380,000
<OTHER-EXPENSES> 1,445,000
<LOSS-PROVISION> 2,196,000
<INTEREST-EXPENSE> 785,000
<INCOME-PRETAX> 19,279,000
<INCOME-TAX> 7,619,000
<INCOME-CONTINUING> 11,660,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,660,000
<EPS-PRIMARY> 1.62
<EPS-DILUTED> 1.62
</TABLE>
