<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-15131
QUIKSILVER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0199426
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1740 MONROVIA AVENUE
COSTA MESA, CALIFORNIA
92627
(Address of principal executive offices)
(Zip Code)
(714) 645-1395
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES __X__ NO_____
The number of shares outstanding of issuer's Common Stock,
par value $0.01 per share, at
March 6, 1997 was
7,017,830.
<PAGE> 2
QUIKSILVER, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
January 31, 1997 and October 31, 1996............................ 2
Condensed Consolidated Statements of Income
Three Months Ended January 31, 1997 and 1996..................... 3
Condensed Consolidated Statements of Cash Flows
Three Months Ended January 31, 1997 and 1996..................... 4
Notes to Condensed Consolidated Financial Statements................ 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 6
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 9
SIGNATURE.............................................................. 10
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
QUIKSILVER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 478,000 $ 3,429,000
Trade accounts receivable, less allowance
for doubtful accounts of $2,490,000 (1997)
and $2,873,000 (1996) .............................. 44,151,000 44,554,000
Other receivables .................................... 1,708,000 2,182,000
Inventories - Note 2 ................................. 42,673,000 35,668,000
Prepaid expenses and other current assets ............ 2,451,000 2,027,000
------------- -------------
Total current assets ............................ 91,461,000 87,860,000
Property and equipment, less accumulated depreciation
and amortization of $8,082,000 (1997) and
$8,027,000 (1996) ..................................... 10,080,000 9,655,000
Trademark, less accumulated amortization of
$1,524,000 (1997) and $1,486,000 (1996) ............... 1,494,000 1,532,000
Goodwill, less accumulated amortization of
$3,269,000 (1997) and $3,103,000 (1996) ............... 14,833,000 15,005,000
Other assets ............................................. 1,788,000 1,528,000
------------- -------------
Total assets .................................... $ 119,656,000 $ 115,580,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit ....................................... $ 11,707,000 $ 8,211,000
Accounts payable ...................................... 13,770,000 12,823,000
Accrued liabilities ................................... 8,455,000 10,212,000
Current portion of notes payable ...................... 226,000 240,000
Income taxes payable .................................. 1,357,000 727,000
------------- -------------
Total current liabilities ....................... 35,515,000 32,213,000
Notes payable ............................................ 2,503,000 2,640,000
------------- -------------
Total liabilities ............................... 38,018,000 34,853,000
------------- -------------
Stockholders' equity
Preferred stock, $.01 par value, authorized
shares - 5,000,000; issued and outstanding
shares - none ...................................... -- --
Common stock, $.01 par value, authorized
shares - 30,000,000; issued and outstanding
shares - 7,017,830 (1997) and 6,965,346 (1996) ..... 70,000 70,000
Additional paid-in-capital ............................ 19,465,000 18,971,000
Retained earnings ..................................... 66,148,000 64,399,000
Treasury stock, 130,000 shares ........................ (3,054,000) (3,054,000)
Cumulative foreign currency translation adjustment .... (991,000) 341,000
------------- -------------
Total stockholders' equity ...................... 81,638,000 80,727,000
------------- -------------
Total liabilities and stockholders' equity ...... $ 119,656,000 $ 115,580,000
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 4
QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net sales .................................... $ 45,944,000 $ 40,487,000
Cost of goods sold ........................... 28,336,000 24,892,000
------------ ------------
Gross profit .............................. 17,608,000 15,595,000
------------ ------------
Operating expenses:
Selling, general and administrative expense 13,970,000 11,336,000
Royalty income ............................ (360,000) (205,000)
Royalty expense ........................... 629,000 565,000
------------ ------------
Total operating expenses ............... 14,239,000 11,696,000
------------ ------------
Operating income ............................. 3,369,000 3,899,000
Interest expense, net ........................ 287,000 169,000
Foreign currency loss ........................ 72,000 23,000
Other expense ................................ 53,000 101,000
------------ ------------
Income before provision for income taxes ..... 2,957,000 3,606,000
Provision for income taxes ................... 1,208,000 1,481,000
------------ ------------
Net income ................................... $ 1,749,000 $ 2,125,000
============ ============
Net income per common share .................. $ 0.25 $ 0.30
============ ============
Weighted average common shares
and equivalents outstanding ............... 7,078,000 7,134,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31,
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................... $ 1,749,000 $ 2,125,000
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization ........................... 787,000 628,000
Provision for doubtful accounts ......................... 217,000 183,000
Loss on sale of fixed assets ............................ 72,000 23,000
Changes in operating assets and liabilities:
Trade accounts receivable ............................ (1,020,000) (200,000)
Other receivables .................................... 410,000 (527,000)
Inventories .......................................... (7,803,000) (4,507,000)
Prepaid expenses and other current assets ............ (461,000) 61,000
Other assets ......................................... (269,000) 125,000
Accounts payable ..................................... 1,197,000 3,588,000
Accrued liabilities .................................. (1,090,000) (1,455,000)
Income taxes payable ................................. 733,000 834,000
----------- -----------
Net cash (used in) provided by operating
activities ...................................... (5,478,000) 878,000
Cash flows from investing activities:
Proceeds from sales of fixed assets ........................... 6,000 20,000
Capital expenditures .......................................... (1,496,000) (774,000)
Other ......................................................... -- --
----------- -----------
Net cash used in investing activities ............. (1,490,000) (754,000)
Cash flows from financing activities:
Borrowings on lines of credit ................................. 5,020,000 3,565,000
Payments on lines of credit ................................... (1,508,000) (5,775,000)
Borrowings on long-term debt .................................. 166,000 40,000
Payments on long-term debt .................................... (100,000) (210,000)
Proceeds from stock option exercises .......................... 494,000 325,000
----------- -----------
Net cash provided by (used in) financing activities .............. 4,072,000 (2,055,000)
Effect of exchange rate changes on cash .......................... (55,000) (313,000)
----------- -----------
Net decrease in cash and cash equivalents ........................ (2,951,000) (2,244,000)
Cash and cash equivalents, beginning of period ................... 3,429,000 3,461,000
----------- -----------
Cash and cash equivalents, end of period ......................... $ 478,000 $ 1,217,000
=========== ===========
Supplementary cash flow information
Cash paid during the period for:
Interest ................................................... $ 216,000 $ 185,000
=========== ===========
Income taxes ............................................... $ 714,000 $ 549,000
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 6
QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statement
presentation.
The Company, in its opinion, has included all adjustments, consisting only
of normal recurring accruals, necessary for a fair presentation of the
results of operations for the three months ended January 31, 1997 and
1996. The condensed consolidated financial statements and notes thereto
should be read in conjunction with the audited financial statements and
notes for the year ended October 31, 1996 included in the Company's Annual
Report on Form 10-K. Interim results are not necessarily indicative of
results for the full year due to seasonal and other factors.
2. Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Raw Materials ........ $13,280,000 $11,686,000
Work-In-Process ...... 4,976,000 3,673,000
Finished Goods ....... 24,417,000 20,309,000
----------- -----------
$42,673,000 $35,668,000
=========== ===========
</TABLE>
5
<PAGE> 7
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE MONTHS ENDED JANUARY 31, 1997 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1996
Net sales for the three months ended January 31, 1997 increased 13.5% to
$45,944,000 from $40,487,000 in the comparable period of the prior year.
Domestic net sales for the three months ended January 31, 1997 increased 13.3%
to $28,161,000 from $24,852,000 in the comparable period of the prior year, and
European net sales increased 13.7% to $17,783,000 from $15,635,000 for those
same periods. Domestic men's sales increased 7.8% to $19,803,000 from
$18,378,000 in the comparable period of the prior year, while domestic women's
sales increased 29.1% to $8,358,000 from $6,474,000. The domestic sales
increases came primarily from the Quiksilver Roxy, Quiksilver Young Men's and
Boy's divisions. In Europe, men's sales increased 12.8% to $17,302,000 from
$15,342,000, while women's sales increased 64.2% to $481,000 from $293,000.
The gross profit margin for the three months ended January 31, 1997 decreased
slightly to 38.3% from 38.5% in the comparable period of the prior year. The
domestic gross profit margin decreased to 34.9% from 35.8% in the comparable
period of the prior year, and the European gross profit margin increased to
43.8% from 42.8% for those same periods. The decrease in the domestic gross
profit margin resulted primarily from the impact of selling excess raw materials
during the three months ended January 31, 1997 at margins that were less than
normal wholesale. In Europe, the gross profit margin increased primarily as a
result of lower levels of markdowns in the three months ended January 31, 1997
compared to the previous year.
Selling, general and administrative expense ("SG&A") for the three months ended
January 31, 1997 increased 23.2% to $13,970,000 from $11,336,000 in the
comparable period of the prior year. Domestic SG&A increased 19.1% to $8,309,000
from $6,977,000 in the comparable period of the prior year, and European SG&A
increased 29.9% to $5,661,000 from $4,359,000 for those same periods. The
increase in domestic SG&A was primarily due to higher personnel costs related to
increased sales volume, along with increased sales and marketing and computer
system expenses. The increase in European SG&A was primarily due to higher
personnel costs related to increased sales volume.
Net royalty expense for the three months ended January 31, 1997 decreased 25.3%
to $269,000 from $360,000 in the comparable period of the prior year. This
decrease was due primarily to increased domestic royalty income from increased
sales by licensees, which was substantially offset by increased royalty expense
related to European sales. The Company receives domestic royalty income from its
Mexico, Japan, wetsuit, watch, sunglass, and outlet store licensees as well as
Raisins international licensees, and Quiksilver Europe pays royalties on
European sales under a trademark agreement with Quiksilver International.
Net interest expense for the three months ended January 31, 1997 increased 69.8%
to $287,000 from $169,000 in the comparable period of the prior year. This
increase was primarily due to higher outstanding balances on the Company's lines
of credit that resulted from increased working capital needs and borrowings to
repurchase shares of the Company's stock in the three months ended October 31,
1996.
The effective income tax rate for the three months ended January 31, 1997, which
is based on current estimates of the annual effective income tax rate, decreased
slightly to 40.9% from 41.1% in the comparable period of the prior year.
As a result of the above factors, net income for the three months ended January
31, 1997 decreased 17.7% to $1,749,000 or $0.25 per share from $2,125,000 or
$0.30 per share in the comparable period of the prior year.
6
<PAGE> 8
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
The Company finances its capital investments and seasonal working capital
requirements with funds generated by operations and its bank revolving lines of
credit.
Net cash used in operating activities for the three months ended January 31,
1997 was $5,478,000 compared to net cash provided by operating activities of
$878,000 in the comparable period of the prior year. This $6,356,000 increase in
cash used in operating activities was primarily due to increased payments for
inventory compared to the prior year. Quiksilver Europe received merchandise
earlier in relation to the prior year to enable the Company to ship product to
its customers earlier in the second quarter of fiscal 1997 compared to the
second quarter of fiscal 1996.
The Company uses independent contractors for cutting, sewing and other
manufacturing functions and intends to continue to use independent contractors
in the foreseeable future. Accordingly, the Company has avoided capital
expenditures for these manufacturing functions. For the three months ended
January 31, 1997, capital expenditures increased 93.3% to $1,496,000 from
$774,000 in the comparable period of the prior year, which resulted primarily
from increased investment in computer systems both domestically and in Europe.
On September 4, 1996, the Company's Board of Directors approved the repurchase
of up to 500,000 shares of the Company's common stock. The Company repurchased
130,000 shares during the three months ended October 31, 1996. No additional
purchases are planned.
The Company has available a revolving line of credit with a U.S. bank that is
unsecured and provides for maximum financing of $30,000,000. This line of credit
expires on April 30, 1998. The Company also has available lines of credit, both
secured and unsecured, with banks in Europe that provide for maximum financing
of approximately $24,000,000.
During the three months ended January 31, 1997, net cash provided by financing
activities totaled $4,072,000 compared to net cash used in financing activities
of $2,055,000 in the comparable period of the prior year. These additional
borrowings during the first quarter of fiscal 1997 were used to fund the
increase in inventories and capital expenditures as discussed above.
The net decrease in cash and cash equivalents for the three months ended January
31, 1997 was $2,951,000 compared to $2,244,000 in the comparable period of the
prior year. Cash and cash equivalents decreased 86.1% to $478,000 at January 31,
1997 from $3,429,000 at October 31, 1996, while working capital increased 0.5%
to $55,946,000 from $55,647,000 for that same period. The Company believes its
current cash balance and current lines of credit are adequate to cover its
seasonal working capital and other requirements for the foreseeable future and
that increases in its lines of credit can be obtained as needed to fund future
growth.
Accounts receivable decreased slightly to $44,151,000 at January 31, 1997 from
$44,554,000 at October 31, 1996. Domestic accounts receivable increased 0.3% to
$28,363,000 at January 31, 1997 from $28,292,000 at October 31, 1996, and
European accounts receivable decreased 2.9% to $15,788,000 from $16,262,000 for
that same period.
Consolidated inventories increased 19.6% to $42,673,000 at January 31, 1997 from
$35,668,000 at October 31, 1996. Domestic inventories increased 17.9% to
$31,362,000 from $26,611,000 at October 31, 1996, and European inventories
increased 24.9% to $11,311,000 from $9,057,000 for that same period. These
increases are primarily due to seasonal factors. Inventory levels generally
increase at the end of the first and third fiscal quarters in preparation for
stronger selling seasons in the second and fourth fiscal quarters. Also as noted
above, the timing of inventory received by Quiksilver Europe contributed to the
increase in inventory at January 31, 1997.
In recent years, certain customers of the Company have experienced financial
difficulties, including the filing of reorganization proceedings under
bankruptcy laws. The Company has not incurred significant losses outside the
normal course of business as a result of the financial difficulties of these
customers.
7
<PAGE> 9
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY (CONTINUED)
While management believes that allowances for doubtful accounts at January 31,
1997 are adequate, the Company carefully monitors developments regarding its
major customers. Additional material financial difficulties encountered by these
or other significant customers could have an adverse impact on the Company's
financial position or results of operations.
FOREIGN CURRENCY
Quiksilver Europe sells in various European countries and collects at future
dates in the customers' local currencies and purchases certain raw materials or
product in currencies other than French Francs. 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 statements of income are translated from French Francs into
U.S. Dollars at average exchange rates in effect during the reporting period.
When the French Franc strengthens compared to the U.S. Dollar there is a
positive effect on Quiksilver Europe's results as reported in the Company's
Consolidated Financial Statements. Conversely, when the U.S.
Dollar strengthens, there is a negative affect.
For example, in recent months, the U.S. Dollar strengthened compared to the
French Franc, increasing the exchange rate from approximately 5.0 Francs per
Dollar to approximately 5.5 Francs per Dollar. Other things being equal, a 10%
increase in the average exchange rate would result in approximately a 9%
decrease in Quiksilver Europe's results as reported in U.S. Dollars in the
Consolidated Financial Statements.
European net sales increased 19.7% in French Francs during the three months
ended January 31, 1997 compared to the three months ended January 31, 1996. As
measured in U.S. Dollars and reported in the Company's Consolidated Statements
of Income, European net sales increased 13.7%.
8
<PAGE> 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended January 31,
1997
9
<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUIKSILVER, INC., a Delaware Corporation
March 13, 1997 /s/ Steven L. Brink
------------------------------------------
Steven L. Brink
Chief Financial Officer, Secretary and Treasurer
(Principal Accounting Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Quiksilver, Inc. January 31, 1997 Form 10-Q and is qualified in its entirety by
reference to such Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 478,000
<SECURITIES> 0
<RECEIVABLES> 46,641,000
<ALLOWANCES> 2,490,000
<INVENTORY> 42,673,000
<CURRENT-ASSETS> 91,461,000
<PP&E> 18,162,000
<DEPRECIATION> 8,082,000
<TOTAL-ASSETS> 119,656,000
<CURRENT-LIABILITIES> 35,515,000
<BONDS> 2,503,000
0
0
<COMMON> 70,000
<OTHER-SE> 81,568,000
<TOTAL-LIABILITY-AND-EQUITY> 119,656,000
<SALES> 45,944,000
<TOTAL-REVENUES> 45,944,000
<CGS> 28,336,000
<TOTAL-COSTS> 28,336,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 217,000
<INTEREST-EXPENSE> 287,000
<INCOME-PRETAX> 2,957,000
<INCOME-TAX> 1,208,000
<INCOME-CONTINUING> 1,749,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,749,000
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
