<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, 2000
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)
15202 GRAHAM STREET
HUNTINGTON BEACH, CALIFORNIA
92649
(Address of principal executive offices)
(Zip Code)
(714) 889-2200
(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 13, 2000 was
22,415,568.
<PAGE> 2
QUIKSILVER, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
January 31, 2000 and October 31, 1999................................ 2
Condensed Consolidated Statements of Income
Three Months Ended January 31, 2000 and 1999......................... 3
Condensed Consolidated Statements of Comprehensive Income
Three Months Ended January 31, 2000 and 1999......................... 3
Condensed Consolidated Statements of Cash Flows
Three Months Ended January 31, 2000 and 1999......................... 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.................................................................... 9
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
QUIKSILVER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 2,947,000 $ 1,449,000
Trade accounts receivable, less allowance
for doubtful accounts of $4,318,000 (2000)
and $5,738,000 (1999) ................................................... 94,739,000 107,619,000
Other receivables.......................................................... 3,791,000 4,074,000
Inventories - Note 2....................................................... 90,376,000 72,207,000
Prepaid expenses and other current assets ................................. 8,557,000 7,825,000
------------- -------------
Total current assets ................................................. 200,410,000 193,174,000
Property and equipment, less accumulated depreciation
and amortization of $18,525,000 (2000) and
$17,127,000 (1999).......................................................... 47,303,000 45,153,000
Trademark, less accumulated amortization of
$2,092,000 (2000) and $2,044,000 (1999) .................................... 1,345,000 1,393,000
Goodwill, less accumulated amortization of
$5,462,000 (2000) and $5,233,000 (1999) .................................... 16,826,000 17,055,000
Other assets .................................................................. 2,611,000 2,898,000
------------- -------------
Total assets ......................................................... $ 268,495,000 $ 259,673,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit ............................................................ $ 32,044,000 $ 28,619,000
Accounts payable ........................................................... 37,845,000 31,325,000
Accrued liabilities ........................................................ 17,087,000 19,792,000
Current portion of long-term debt .......................................... 3,539,000 3,615,000
Income taxes payable ....................................................... 1,468,000 --
------------- -------------
Total current liabilities ............................................ 91,983,000 83,351,000
Long-term debt ................................................................ 23,366,000 24,569,000
------------- -------------
Total liabilities .................................................... 115,349,000 107,920,000
------------- -------------
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 - 22,779,068 (2000) and 22,731,220 (1999) ........................ 227,000 227,000
Additional paid-in-capital .................................................... 37,146,000 36,780,000
Treasury stock, 390,000 shares ................................................ (3,054,000) (3,054,000)
Retained earnings ............................................................. 125,669,000 121,590,000
Accumulated other comprehensive loss .......................................... (6,842,000) (3,790,000)
------------- -------------
Total stockholders' equity ........................................... 153,146,000 151,753,000
------------- -------------
Total liabilities and stockholders' equity ........................... $ 268,495,000 $ 259,673,000
============= =============
</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,
------------------------------
2000 1999
---- ----
<S> <C> <C>
Net sales .................................... $ 99,929,000 $ 85,947,000
Cost of goods sold ........................... 61,061,000 52,526,000
------------ ------------
Gross profit .............................. 38,868,000 33,421,000
------------ ------------
Operating expenses:
Selling, general and administrative
expense ................................. 30,059,000 25,991,000
Royalty income ............................ (613,000) (398,000)
Royalty expense ........................... 1,260,000 1,079,000
------------ ------------
Total operating expenses ............... 30,706,000 26,672,000
------------ ------------
Operating income ............................. 8,162,000 6,749,000
Interest expense ............................. 1,023,000 848,000
Foreign currency loss ........................ 60,000 20,000
Other expense ................................ 160,000 127,000
------------ ------------
Income before provision for income taxes ..... 6,919,000 5,754,000
Provision for income taxes ................... 2,840,000 2,400,000
------------ ------------
Net income ................................... $ 4,079,000 $ 3,354,000
============ ============
Basic net income per share ................... $ 0.18 $ 0.15
============ ============
Diluted net income per share ................. $ 0.18 $ 0.15
============ ============
Weighted average shares outstanding .......... 22,362,000 21,677,000
============ ============
Diluted weighted average shares outstanding .. 23,154,000 22,847,000
============ ============
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31,
------------------------------
2000 1999
---- ----
<S> <C> <C>
Net income .................................. $ 4,079,000 $ 3,354,000
Other comprehensive loss --
Foreign currency translation adjustment ..... (3,052,000) (1,197,000)
----------- ------------
Comprehensive income ......................... $ 1,027,000 $ 2,157,000
=========== ============
</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,
------------------------------
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income ........................................................ $ 4,079,000 $ 3,354,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................... 2,251,000 1,829,000
Provision for doubtful accounts ............................. 542,000 587,000
Loss (gain) on sale of fixed assets ......................... 18,000 (9,000)
Changes in operating assets and liabilities:
Trade accounts receivable ................................ 9,589,000 3,724,000
Other receivables ........................................ 167,000 8,000
Inventories .............................................. (19,999,000) (15,314,000)
Prepaid expenses and other current assets ................ (1,209,000) (727,000)
Other assets ............................................. (266,000) (149,000)
Accounts payable ......................................... 8,201,000 3,003,000
Accrued liabilities ...................................... (1,919,000) (1,245,000)
Income taxes payable ..................................... 1,757,000 607,000
------------ ------------
Net cash provided by (used in) operating activities ... 3,211,000 (4,332,000)
Cash flows from investing activities:
Proceeds from sales of fixed assets ............................... 2,000 9,000
Capital expenditures .............................................. (5,289,000) (5,777,000)
------------ ------------
Net cash used in investing activities ...................... (5,287,000) (5,768,000)
Cash flows from financing activities:
Borrowings on lines of credit ..................................... 18,377,000 16,146,000
Payments on lines of credit ....................................... (14,952,000) (13,514,000)
Borrowings on long-term debt ...................................... 1,057,000 579,000
Payments on long-term debt ........................................ (1,143,000) (827,000)
Proceeds from stock option exercises .............................. 365,000 4,852,000
------------ ------------
Net cash provided by financing activities .................. 3,704,000 7,236,000
Effect of exchange rate changes on cash .............................. (130,000) (90,000)
------------ ------------
Net decrease in cash and cash equivalents ............................ 1,498,000 (2,954,000)
Cash and cash equivalents, beginning of period ....................... 1,449,000 3,029,000
------------ ------------
Cash and cash equivalents, end of period ............................. $ 2,947,000 $ 75,000
============ ============
Supplementary cash flow information - Cash paid during the period for:
Interest ....................................................... $ 1,059,000 $ 797,000
============ ============
Income taxes ................................................... $ 1,157,000 $ 1,666,000
============ ============
</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, 2000
and 1999. 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, 1999 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,
2000 1999
---- ----
<S> <C> <C>
Raw Materials ...................................................... $21,963,000 $19,225,000
Work-In-Process .................................................... 9,464,000 7,819,000
Finished Goods ..................................................... 58,949,000 45,163,000
----------- -----------
$90,376,000 $72,207,000
=========== ===========
</TABLE>
3. During the three months ended April 30, 1999, the Company's Board of
Directors approved a three-for-two split of the Company's Common Stock.
The split was effected in the form of a dividend on April 23, 1999 to
shareholders of record on April 15, 1999. All share and per-share
information has been restated to reflect the stock dividend.
4. Information related to domestic and European operations is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31,
------------------------------
2000 1999
---- ----
Net sales to unaffiliated customers:
<S> <C> <C>
Domestic................................. $ 62,650,000 $ 52,145,000
Europe................................... 37,279,000 33,802,000
--------------- ----------------
Consolidated.......................... $ 99,929,000 $ 85,947,000
=============== ================
Gross profit:
Domestic................................. $ 22,409,000 $ 18,961,000
Europe................................... 16,459,000 14,460,000
--------------- ----------------
Consolidated.......................... $ 38,868,000 $ 33,421,000
=============== ================
Operating income:
Domestic................................. $ 4,678,000 $ 3,642,000
Europe................................... 3,484,000 3,107,000
--------------- ----------------
Consolidated.......................... $ 8,162,000 $ 6,749,000
=============== ================
Identifiable assets:
Domestic................................. $ 185,728,000 $ 148,799,000
Europe................................... 82,767,000 74,339,000
--------------- ---------------
Consolidated.......................... $ 268,495,000 $ 223,138,000
================ ===============
</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, 2000 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1999
Net sales for the three months ended January 31, 2000 increased 16.3% to
$99,929,000 from $85,947,000 in the comparable period of the prior year.
Domestic net sales for the three months ended January 31, 2000 increased 20.1%
to $62,650,000 from $52,145,000 in the comparable period of the prior year, and
European net sales increased 10.3% to $37,279,000 from $33,802,000 for those
same periods. As measured in French Francs, Quiksilver Europe's functional
currency, net sales in the current year's quarter increased 25.7% compared to
the prior year. Domestic mens sales increased 25.5% to $35,407,000 from
$28,215,000 in the comparable period of the prior year, while domestic womens
sales increased 16.4% to $25,612,000 from $22,000,000. In the domestic division,
sales of snowboards, boots and bindings amounted to $1,631,000 for the current
year's quarter compared to $1,930,000 in the prior year. The domestic mens sales
increase came across all divisions. The domestic womens sales increase came from
both the Quiksilver Roxy and Raisins divisions. An increase in sales of Lib Tech
and Gnu snowboards and related products was partially offset by a decrease in
sales of Arcane bindings. In Europe and as reported in dollars, mens sales
increased 11.1% to $34,750,000 from $31,268,000, while womens sales decreased
0.2% to $2,529,000 from $2,533,000. The European mens sales increase came from
the Young Mens and Boys divisions. These comparisons of sales in Europe are
negatively impacted by the strong dollar in comparison to the prior year. In
French Francs, mens sales increased 26.6% and womens sales increased 13.7%.
The gross profit margin for the three months ended January 31, 2000 was
consistent with the comparable period of the prior year at 38.9%. The domestic
gross profit margin decreased to 35.8% from 36.4% in the comparable period of
the prior year, while the European gross profit margin increased to 44.2% from
42.8% for those same periods. The decrease in the domestic gross profit margin
resulted primarily from a change in product mix in comparison to the prior year.
In Europe, the gross profit margin increased as the negative effect of a strong
dollar was more than offset by a decrease in sampling costs and the benefit of
a higher level of retail business in comparison to the previous year.
Selling, general and administrative expense ("SG&A") for the three months ended
January 31, 2000 increased 15.7% to $30,059,000 from $25,991,000 in the
comparable period of the prior year. Domestic SG&A increased 16.3% to
$18,182,000 from $15,634,000 in the comparable period of the prior year, and
European SG&A increased 14.7% to $11,877,000 from $10,357,000 for those same
periods. The increase in both domestic and European SG&A was primarily due to
higher personnel costs related to increased sales volume. SG&A decreased as a
percentage of sales domestically, while in Europe SG&A increased as a percentage
of sales as a result of an increased level of advertising expenditures.
Net royalty expense for the three months ended January 31, 2000 decreased 5.0%
to $647,000 from $681,000 in the comparable period of the prior year. The
increase in royalty income from the Company's domestic licensees more than
offset the higher level of royalty expense. The Company receives domestic
royalty income from its watch, sunglass, Mexican, 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.
Interest expense for the three months ended January 31, 2000 increased 20.6% to
$1,023,000 from $848,000 in the comparable period of the prior year. This
increase was primarily due to higher outstanding balances on the Company's lines
of credit facilities to provide working capital to support the Company's growth.
The effective income tax rate for the three months ended January 31, 2000, which
is based on current estimates of the annual effective income tax rate, decreased
to 41.0% from 41.7% in the comparable period of the prior year.
6
<PAGE> 8
As a result of the above factors, net income for the three months ended January
31, 2000 increased 21.6% to $4,079,000 or $0.18 per share on a diluted basis
from $3,354,000 or $0.15 per share on a diluted basis in the comparable period
of the prior year. Basic net income per share also increased to $0.18 per share
for the three months ended January 31, 2000 from $0.15 in the comparable period
of the prior year.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
The Company finances its capital investments and seasonal working capital
requirements with funds generated by operations and its bank revolving lines of
credit.
Net cash provided by operating activities for the three months ended January 31,
2000 was $3,211,000 compared to net cash used in operating activities of
$4,332,000 in the comparable period of the prior year. This $7,543,000 increase
in cash provided by operating activities was primarily due to the decrease in
trade accounts receivable, which provided cash of $9,589,000 in the three months
ended January 31, 2000 versus the $3,724,000 provided in the comparable period
of the prior year. The increase in inventories in the three months ended January
31, 2000 was funded by a corresponding increase in accounts payable.
Capital expenditures decreased to $5,289,000 for the three months ended January
31, 2000, from $5,777,000 in the comparable period of the prior year. These
investments include leasehold improvements for the new domestic headquarters,
investments in Quiksvilles and company-owned Boardriders Clubs, and ongoing
investments in equipment.
During the three months ended January 31, 2000, net cash provided by financing
activities totaled $3,704,000 compared to $7,236,000 in the comparable period of
the prior year. Borrowings decreased in comparison to the previous year
primarily as a result of the increase in cash provided by operating activities
as discussed above.
The net increase in cash and cash equivalents for the three months ended January
31, 2000 was $1,498,000 compared to a net decrease of $2,954,000 in the
comparable period of the prior year. Cash and cash equivalents increased to
$2,947,000 at January 31, 2000 from $1,449,000 at October 31, 1999, while
working capital was $108,427,000 at January 31, 2000 compared to $109,823,000 at
October 31, 1999. 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 12.0% to $94,739,000 at January 31, 2000 from
$107,619,000 at October 31, 1999. Domestic accounts receivable decreased 15.6%
to $62,583,000 at January 31, 2000 from $74,128,000 at October 31, 1999, and
European accounts receivable decreased 4.0% to $32,156,000 from $33,491,000 for
that same period. These decreases are primarily a result of seasonal factors.
The domestic decrease occurred as receivables related to higher sales in the
fourth quarter of fiscal 1999 were collected in the first quarter of fiscal
2000. The relatively small decrease in European receivables is expected as
European sales in the first quarter of fiscal 2000 were similar in amount to the
fourth quarter of fiscal 1999.
Consolidated inventories increased 25.2% to $90,376,000 at January 31, 2000 from
$72,207,000 at October 31, 1999. Domestic inventories increased 24.5% to
$66,118,000 from $53,098,000 at October 31, 1999, and European inventories
increased 26.9% to $24,258,000 from $19,109,000 for that same period. These
increases are primarily a result of seasonal factors. Inventories are higher at
January 31, 2000, in light of increased sales for the Spring and Summer seasons
of fiscal 2000.
In February 2000 the Board of Directors authorized the repurchase of up to
2,000,000 shares of the Company's Common Stock. To date, 181,300 shares have
been repurchased at a cost of $1,835,000.
In recent years, certain customers of the Company have experienced financial
difficulties, including the filing of reorganization proceedings under
bankruptcy laws. The Company has not incurred significant losses outside the
normal course of business as a result of the financial difficulties of these
customers.
7
<PAGE> 9
While management believes that allowances for doubtful accounts at January 31,
2000 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.
European net sales increased 25.7% in French Francs during the three months
ended January 31, 2000 compared to the three months ended January 31, 1999. As
measured in U.S. Dollars and reported in the Company's Consolidated Statements
of Income, European net sales increased 10.3%. Thus far in the Company's second
quarter, the dollar continues to be stronger relative to the Euro and French
Franc in comparison to the comparable period of the prior year.
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,
2000
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 15, 2000 /s/ Steven L. Brink
------------------------------------------------
Steven L. Brink
Chief Financial Officer, Secretary and Treasurer
(Principal Accounting Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Quiksilver, Inc. January 31, 1999 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-31-2000
<PERIOD-END> JAN-31-2000
<CASH> 2,947,000
<SECURITIES> 0
<RECEIVABLES> 99,057,000
<ALLOWANCES> 4,318,000
<INVENTORY> 90,376,000
<CURRENT-ASSETS> 200,410,000
<PP&E> 65,828,000
<DEPRECIATION> 18,525,000
<TOTAL-ASSETS> 268,495,000
<CURRENT-LIABILITIES> 91,983,000
<BONDS> 23,366,000
0
0
<COMMON> 227,000
<OTHER-SE> 152,919,000
<TOTAL-LIABILITY-AND-EQUITY> 268,495,000
<SALES> 99,929,000
<TOTAL-REVENUES> 99,929,000
<CGS> 61,061,000
<TOTAL-COSTS> 61,061,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 542,000
<INTEREST-EXPENSE> 1,023,000
<INCOME-PRETAX> 6,919,000
<INCOME-TAX> 2,840,000
<INCOME-CONTINUING> 4,079,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,079,000
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.18
</TABLE>
