<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 APRIL 30, 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 AVENUE
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
June 5, 2000 was
22,519,028
<PAGE> 2
QUIKSILVER, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
April 30, 2000 and October 31, 1999.................................. 2
Condensed Consolidated Statements of Income
Three Months Ended April 30, 2000 and 1999........................... 3
Condensed Consolidated Statements of Income
Six Months Ended April 30, 2000 and 1999............................. 4
Condensed Consolidated Statements of Comprehensive Income
Six Months Ended April 30, 2000 and 1999............................. 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended April 30, 2000 and 1999............................. 5
Notes to Condensed Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 8
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders..................12
Item 6. Exhibits and Reports on Form 8K......................................13
SIGNATURE.....................................................................14
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
QUIKSILVER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................... $ 207,000 $ 1,449,000
Trade accounts receivable, less allowance
for doubtful accounts of $4,857,000 (2000)
and $5,738,000 (1999) ................................ 122,729,000 107,619,000
Other receivables ...................................... 4,939,000 4,074,000
Inventories - Note 2 ................................... 72,360,000 72,207,000
Prepaid expenses and other current assets .............. 8,687,000 7,825,000
------------- -------------
Total current assets .............................. 208,922,000 193,174,000
Property and equipment, less accumulated depreciation and
amortization of $19,661,000 (2000) and $17,127,000 (1999) 47,875,000 45,153,000
Trademark, less accumulated amortization of
$2,141,000 (2000) and $2,044,000 (1999) ................. 1,296,000 1,393,000
Goodwill, less accumulated amortization of
$5,627,000 (2000) and $5,233,000 (1999) ................. 17,325,000 17,055,000
Other assets ............................................... 2,605,000 2,898,000
------------- -------------
Total assets ...................................... $ 278,023,000 $ 259,673,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit ......................................... $ 39,929,000 $ 28,619,000
Accounts payable ........................................ 28,488,000 31,325,000
Accrued liabilities ..................................... 13,517,000 19,792,000
Current portion of long-term debt ....................... 2,998,000 3,615,000
Income taxes payable .................................... 7,371,000 --
------------- -------------
Total current liabilities ......................... 92,303,000 83,351,000
Long-term debt ............................................. 22,705,000 24,569,000
------------- -------------
Total liabilities ................................. 115,008,000 107,920,000
------------- -------------
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 - 23,090,328 (2000) and 22,731,220 (1999) ..... 231,000 227,000
Additional paid-in-capital .............................. 39,950,000 36,780,000
Treasury stock, 571,000 shares (2000) and
390,000 shares (1999) ................................ (4,889,000) (3,054,000)
Retained earnings ....................................... 136,978,000 121,590,000
Accumulated other comprehensive loss .................... (9,255,000) (3,790,000)
------------- -------------
Total stockholders' equity ........................ 163,015,000 151,753,000
------------- -------------
Total liabilities and stockholders' equity ........ $ 278,023,000 $ 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 APRIL 30,
-----------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Net sales .................................... $ 142,139,000 $ 128,128,000
Cost of goods sold ........................... 83,867,000 75,789,000
------------- -------------
Gross profit .............................. 58,272,000 52,339,000
------------- -------------
Operating expenses:
Selling, general and administrative expense 36,604,000 33,957,000
Royalty income ............................ (509,000) (572,000)
Royalty expense ........................... 1,639,000 1,541,000
------------- -------------
Total operating expenses ............... 37,734,000 34,926,000
------------- -------------
Operating income ............................. 20,538,000 17,413,000
Interest expense ............................. 1,208,000 908,000
Foreign currency loss (gain) ................. 63,000 (295,000)
Other expense ................................ 100,000 114,000
------------- -------------
Income before provision for income taxes ..... 19,167,000 16,686,000
Provision for income taxes ................... 7,858,000 6,944,000
------------- -------------
Net income ................................... $ 11,309,000 $ 9,742,000
============= =============
Net income per share ......................... $ 0.51 $ 0.44
============= =============
Net income per share, assuming dilution ...... $ 0.49 $ 0.41
============= =============
Weighted average common shares outstanding ... 22,347,000 22,113,000
============= =============
Weighted average common shares outstanding,
assuming dilution ......................... 23,191,000 23,504,000
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
-----------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Net sales .................................... $ 242,068,000 $ 214,075,000
Cost of goods sold ........................... 144,928,000 128,315,000
------------- -------------
Gross profit .............................. 97,140,000 85,760,000
------------- -------------
Operating expenses:
Selling, general and administrative expense 66,663,000 59,948,000
Royalty income ............................ (1,122,000) (970,000)
Royalty expense ........................... 2,899,000 2,620,000
------------- -------------
Total operating expenses ............... 68,440,000 61,598,000
------------- -------------
Operating income ............................. 28,700,000 24,162,000
Interest expense ............................. 2,231,000 1,756,000
Foreign currency loss (gain) ................. 123,000 (275,000)
Other expense ................................ 260,000 241,000
------------- -------------
Income before provision for income taxes ..... 26,086,000 22,440,000
Provision for income taxes ................... 10,698,000 9,344,000
------------- -------------
Net income ................................... $ 15,388,000 $ 13,096,000
============= =============
Net income per share ......................... $ 0.69 $ 0.60
============= =============
Net income per share, assuming dilution ...... $ 0.66 $ 0.56
============= =============
Weighted average shares outstanding .......... 22,354,000 21,891,000
============= =============
Weighted average shares outstanding,
assuming dilution ......................... 23,170,000 23,200,000
============= =============
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
-------------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Net income........................................................... $ 15,388,000 $ 13,096,000
Other comprehensive loss --
Foreign currency translation adjustment........................... (5,465,000) (3,397,000)
--------------- ---------------
Comprehensive income $ 9,923,000 $ 9,699,000
=============== ===============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 6
QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
-------------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................ $ 15,388,000 $ 13,096,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization............................... 4,580,000 3,554,000
Provision for doubtful accounts............................. 1,606,000 1,392,000
Loss (gain) on sale of fixed assets......................... 18,000 (132,000)
Changes in operating assets and liabilities:
Trade accounts receivable................................ (22,984,000) (26,217,000)
Other receivable......................................... (699,000) 978,000
Inventories.............................................. (2,652,000) 550,000
Prepaid expenses and other current assets................ (1,433,000) (798,000)
Other assets............................................. (279,000) (130,000)
Accounts payable......................................... 120,000 (832,000)
Accrued liabilities...................................... (5,784,000) (350,000)
Income taxes payable..................................... 7,803,000 1,205,000
--------------- ---------------
Net cash used in operating activities.................. (4,316,000) (7,684,000)
Cash flows from investing activities:
Proceeds from sales of fixed assets............................... 2,000 296,000
Capital expenditures.............................................. (9,471,000) (13,638,000)
--------------- ---------------
Net cash used in investing activities.................. (9,469,000) (13,342,000)
Cash flows from financing activities:
Borrowings on lines of credit..................................... 46,545,000 29,896,000
Payments on lines of credit....................................... (34,502,000) (19,225,000)
Borrowings on long-term debt...................................... 14,389,000 2,938,000
Payments on long-term debt........................................ (15,207,000) (2,379,000)
Proceeds from stock option exercises.............................. 3,174,000 7,033,000
Purchase of treasury stock........................................ (1,835,000) --
--------------- ---------------
Net cash provided by financing activities.............. 12,564,000 18,263,000
Effect of exchange rate changes on cash.............................. (21,000) (209,000)
--------------- ---------------
Net decrease in cash and cash equivalents............................ (1,242,000) (2,972,000)
Cash and cash equivalents, beginning of period....................... 1,449,000 3,029,000
--------------- ---------------
Cash and cash equivalents, end of period............................. $ 207,000 $ 57,000
=============== ===============
Supplementary cash flow information -
Cash paid during the period for:
Interest....................................................... $ 2,272,000 $ 1,448,000
=============== ===============
Income taxes................................................... $ 3,111,000 $ 8,049,000
=============== ===============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 7
QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statement presentation.
The Company, in its opinion, has included all adjustments, consisting only
of normal recurring accruals, necessary for a fair presentation of the
results of operations for the three and six months ended April 30, 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:
APRIL 30, OCTOBER 31,
2000 1999
---- ----
Raw Materials.......................... $ 19,292,000 $ 19,225,000
Work-In-Process........................ 6,324,000 7,819,000
Finished Goods......................... 46,744,000 45,163,000
--------------- ---------------
$ 72,360,000 $ 72,207,000
=============== ===============
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 split.
4. Information related to domestic and European operations is as follows:
SIX MONTHS ENDED APRIL 30,
--------------------------------
2000 1999
------------ ------------
Net sales to unaffiliated customers:
Domestic ......................... $156,179,000 $135,238,000
Europe ........................... 85,889,000 78,837,000
------------ ------------
Consolidated .................. $242,068,000 $214,075,000
============ ============
Gross profit:
Domestic ......................... $ 57,596,000 $ 49,881,000
Europe ........................... 39,544,000 35,879,000
------------ ------------
Consolidated .................. $ 97,140,000 $ 85,760,000
============ ============
Operating income:
Domestic ......................... $ 17,180,000 $ 13,844,000
Europe ........................... 11,520,000 10,318,000
------------ ------------
Consolidated .................. $ 28,700,000 $ 24,162,000
============ ============
Identifiable assets:
Domestic ......................... $193,053,000 $165,346,000
Europe ........................... 84,970,000 71,268,000
------------ ------------
Consolidated .................. $278,023,000 $236,614,000
============ ============
6
<PAGE> 8
5. Effective April 25, 2000, the Company entered into a new loan agreement
with a bank group (the "Revolving Credit Agreement"). The Revolving Credit
Agreement provides for a revolving line of credit of up to $90,000,000,
including a $42,000,000 sublimit for letters of credit, through April 2001.
The revolving line of credit is secured, among other things, by domestic
trade accounts receivable and inventories. Borrowings under the line of
credit bear interest based on the bank's prime rate or based on LIBOR plus
an applicable spread for borrowings committed to be outstanding for 30 days
or longer. The Revolving Credit Agreement contains restrictive covenants,
the most significant of which relate to the maintenance of certain EBITDA
to funded debt and fixed coverage ratios. At April 30, 2000, the Company
was in compliance with such covenants.
Also effective April 25, 2000, the Company entered into an agreement with a
bank (the "Term Loan Agreement") for a term loan initially totaling
$12,300,000. This term loan is repayable monthly with a final principal
payment due on maturity in April 2007, and it is secured by the leasehold
improvements at the Company's corporate headquarters in Huntington Beach,
California. The interest rate structure and the restrictive covenants under
the Term Loan Agreement are substantially the same as those under the
Revolving Credit Agreement.
The Revolving Credit Agreement and the Term Loan Agreement replace the
Company's previously existing domestic loan agreement
In connection with the term loan, the Company entered into an interest rate
swap agreement with a bank (the "Swap Agreement") whereby the variable rate
interest required by the Term Loan Agreement is effectively converted into
fixed rate interest at 8.43% per annum. The Swap Agreement is effective
through April 2007.
7
<PAGE> 9
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
THREE MONTHS ENDED APRIL 30, 2000 COMPARED TO THREE MONTHS ENDED APRIL 30, 1999
Net sales for the three months ended April 30, 2000 increased 10.9% to
$142,139,000 from $128,128,000 in the comparable period of the prior year.
Domestic net sales for the three months ended April 30, 2000 increased 12.6% to
$93,529,000 from $83,093,000 in the comparable period of the prior year, and
European net sales increased 7.9% to $48,610,000 from $45,035,000 for those same
periods. As measured in French Francs, Quiksilver Europe's functional currency,
net sales in the current year's quarter increased 22.2% compared to the prior
year. Domestic men's sales increased 16.7% to $50,199,000 from $43,016,000 in
the comparable period of the prior year, while domestic women's sales increased
7.6% to $41,717,000 from $38,764,000. In the domestic division, sales of
snowboards, boots and bindings amounted to $1,613,000 in the current year's
quarter compared to $1,313,000 in the prior year, an increase of 22.8%. The
domestic men's sales increase came across all divisions. The domestic women's
sales increase came from the Raisins division. In Europe, men's sales decreased
2.4% (in U.S. dollars) to $36,947,000 from $37,855,000, while women's sales
increased 62.4% to $11,663,000 from $7,180,000. The decrease in European men's
sales was a direct result of year-over-year exchange rate fluctuations between
the U.S. dollar and the French franc. As measured in French francs, men's sales
increase 10% overall, with each division generating increases. European women's
sales increased 83.7% as measured in French francs.
The gross profit margin for the three months ended April 30, 2000 increased to
41.0% from 40.8% in the comparable period of the prior year. The domestic gross
profit margin increased to 37.6% from 37.2% in the comparable period of the
prior year, and the European gross profit margin decreased slightly to 47.5%
from 47.6% for those same periods. The domestic gross profit margin improved as
a result of an increase in the amount of business done by the retail division,
which operated at a higher gross profit margin level than the wholesale
business. In Europe, the gross profit margin decreased as the benefit from
additional retail business was offset by higher product costs in the wholesale
business.
Selling, general and administrative expense ("SG&A") for the three months ended
April 30, 2000 increased 7.8% to $36,604,000 from $33,957,000 in the comparable
period of the prior year. Domestic SG&A increased 8.9% to $22,978,000 from
$21,097,000 in the comparable period of the prior year, and European SG&A
increased 6.0% to $13,626,000 from $12,860,000 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 and in Europe.
Net royalty expense for the three months ended April 30, 2000 increased 16.6% to
$1,130,000 from $969,000 in the comparable period of the prior year. This
increase was due primarily to increased royalty expense related to European
sales. 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 April 30, 2000 increased 33.0% to
$1,208,000 from $908,000 in the comparable period of the prior year. This
increase was primarily due to (i) borrowings to fund the build-out of the
Company's new domestic headquarters building in Huntington Beach, and (ii)
higher outstanding balances on the Company's lines of credit to provide working
capital to support the Company's growth.
The effective income tax rate for the three months ended April 30, 2000, which
is based on current estimates of the annual effective income tax rate, decreased
to 41.0% from 41.6% in the comparable period of the prior year.
As a result of the above factors, net income for the three months ended April
30, 2000 increased 16.1% to $11,309,000 or $0.49 per share on a diluted basis
from $9,742,000 or $0.41 per share on a diluted basis in the comparable period
of the prior year. Basic net income per share increased to $0.51 for the three
months ended April 30, 2000 from $0.44 in the comparable period of the prior
year.
8
<PAGE> 10
SIX MONTHS ENDED APRIL 30, 2000 COMPARED TO SIX MONTHS ENDED APRIL 30, 1999
Net sales for the six months ended April 30, 2000 increased 13.1% to
$242,068,000 from $214,075,000 in the comparable period of the prior year.
Domestic net sales for the six months ended April 30, 2000 increased 15.5% to
$156,179,000 from $135,238,000 in the comparable period of the prior year, and
European net sales increased 8.9% to $85,889,000 from $78,837,000 for those same
periods. As measured in French francs, Quiksilver Europe's net sales in the
first six months of the current year increased 23.6% compared to the prior year.
Domestic men's sales increased 20.2% to $85,606,000 from $71,231,000 in the
comparable period of the prior year, while domestic women's sales increased
10.8% to $67,329,000 from $60,764,000. In the domestic division, sales of
snowboards, boots and bindings amounted to $3,244,000 in the current year's
six-month period compared to $3,243,000 in the prior year. The domestic men's
sales increase came across all divisions. The domestic women's sales increase
came from both the Raisins and Quiksilver Roxy divisions. In Europe, men's sales
increased 3.7% to $71,697,000 from $69,124,000, while women's sales increased
46.1% to $14,192,000 from $9,713,000. The European sales increase came from all
divisions. As measured in French francs, men's sales increase 17.5% overall,
with each division reporting increases. European women's sales increased 66.3%
as measured in French francs.
The gross profit margin for the six months ended April 30, 2000 was unchanged
versus the comparable period of the prior year at 40.1%. The domestic gross
profit margin was consistent at 36.9%, and the European gross profit margin
increased to 46.0% from 45.5% for those same periods. Domestically, a higher
level of retail business helped the gross profit margin, but was offset by the
gross profit margin decrease in the first quarter of the current year that
resulted from a change in product mix. In Europe, the gross profit margin
increased primarily from lower sampling costs and also from a higher level of
retail business.
SG&A for the six months ended April 30, 2000 increased 11.2% to $66,663,000 from
$59,948,000 in the comparable period of the prior year. Domestic SG&A increased
12.1% to $41,160,000 from $36,731,000 in the comparable period of the prior
year, and European SG&A increased 9.8% to $25,503,000 from $23,217,000 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 to 27.5% from 28.0%.
Net royalty expense for the six months ended April 30, 2000 increased 7.7% to
$1,777,000 from $1,650,000 in the comparable period of the prior year. This
increase was due primarily to increased royalty expense related to European
sales.
Interest expense for the six months ended April 30, 2000 increased 27.1% to
$2,231,000 from $1,756,000 in the comparable period of the prior year. This
increase was primarily due to (i) borrowings to fund the build-out of the
Company's new domestic headquarters building in Huntington Beach, and (ii)
higher outstanding balances on the Company's lines of credit to provide working
capital to support the Company's growth.
The effective income tax rate for the six months ended April 30, 2000, which is
based on current estimates of the annual effective income tax rate, decreased to
41.0% from 41.6% in the comparable period of the prior year.
As a result of the above factors, net income for the six months ended April 30,
2000 increased 17.5% to $15,388,000 or $0.66 per share on a diluted basis from
$13,096,000 or $0.56 per share on a diluted basis in the comparable period of
the prior year. Basic net income per share increased to $0.69 for the six months
ended April 30, 2000 from $0.60 in the comparable period of the prior year.
9
<PAGE> 11
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 six months ended April 30, 2000
was $4,316,000 compared to $7,684,000 in the comparable period of the prior
year. The $3,368,000 decrease in cash used in operating activities was primarily
due to an increase of $3,682,000 in net income and noncash expenses during the
six months ended April 30, 2000 compared to the six months ended April 30, 1999.
Cash flow from operating activities improved $3,233,000 in comparison to the
previous year as a result of a smaller increase in trade accounts receivable.
This was offset $3,202,000 by a modest increase in inventories. Changes in other
operating assets and liabilities also tended to offset each other.
For the six months ended April 30, 2000, capital expenditures decreased 30.6% to
$9,471,000 from $13,638,000 in the comparable period of the prior year. This
decrease resulted primarily from increased spending in the prior year on
leasehold improvements for the new domestic headquarters, which was offset, in
part, by increased investments during the six months ended April 30, 2000 in
information systems and Company owned retail stores.
During the six months ended April 30, 2000, net cash provided by financing
activities totaled $12,564,000 compared to $18,263,000 in the comparable period
of the prior year. Borrowings were lower during the first six months of fiscal
2000 primarily as a result of the decreases in cash used in investing and
operating activities as discussed above.
In February 2000 the Board of Directors authorized the repurchase of up to
2,000,000 shares of the Company's Common Stock. During the quarter the company
repurchased 181,300 shares at a cost of $1,835,000.
Effective April 25, 2000, the Company entered into a new loan agreement with a
bank group (the "Revolving Credit Agreement"). The Revolving Credit Agreement
provides for a revolving line of credit of up to $90,000,000, including a
$42,000,000 sublimit for letters of credit, through April 2001. The revolving
line of credit is secured, among other things, by domestic trade accounts
receivable and inventories. Borrowings under the line of credit bear interest
based on the bank's prime rate or based on LIBOR plus an applicable spread for
borrowings committed to be outstanding for 30 days or longer. The Revolving
Credit Agreement contains restrictive covenants, the most significant of which
relate to the maintenance of certain EBITDA to funded debt and fixed coverage
ratios. At April 30, 2000, the Company was in compliance with such covenants.
Also effective April 25, 2000, the Company entered into an agreement with a bank
(the "Term Loan Agreement") for a term loan initially totaling $12,300,000. This
term loan is repayable monthly with a final principal payment due on maturity in
April 2007, and it is secured by the leasehold improvements at the Company's
corporate headquarters in Huntington Beach, California. The interest rate
structure and the restrictive covenants under the Term Loan Agreement are
substantially the same as those under the Revolving Credit Agreement.
The Revolving Credit Agreement and the Term Loan Agreement replace the Company's
previously existing domestic loan agreement.
In connection with the term loan, the Company entered into an interest rate swap
agreement with a bank (the "Swap Agreement") whereby the variable rate interest
required by the Term Loan Agreement is effectively converted into fixed rate
interest at 8.43% per annum. The Swap Agreement is effective through April 2007.
The net decrease in cash and cash equivalents for the six months ended April 30,
2000 was $1,242,000 compared to $2,972,000 in the comparable period of the prior
year. Cash and cash equivalents decreased to $207,000 at April 30, 2000 from
$1,449,000 at October 31, 1999, while working capital increased $6,796,000 or
6.2% to $116,619,000 from $109,823,000 for that same period. The Company
believes its 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.
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Accounts receivable increased 14.0% to $122,729,000 at April 30, 2000 from
$107,619,000 at October 31, 1999. Domestic accounts receivable increased 6.5% to
$78,927,000 at April 30, 2000 from $74,128,000 at October 31, 1999, and European
accounts receivable increased 30.8% to $43,802,000 from $33,491,000 for that
same period. Both domestically and in Europe, these increases in accounts
receivable are generally consistent with the increases in net sales.
Consolidated inventories increased slightly to $72,360,000 at April 30, 2000
from $72,207,000 at October 31, 1999. Domestic inventories increased 5.3% to
$55,919,000 from $53,098,000 at October 31, 1999, and European inventories
decreased 14.0% to $16,441,000 from $19,109,000 for that same period. Inventory
turnover increased during the six months ended April 30, 2000 in comparison to
the comparable period of the prior year.
In recent years, certain customers of the Company have experienced financial
difficulties, including the filing of reorganization proceedings under
bankruptcy laws. The Company has not incurred significant losses outside the
normal course of business as a result of the financial difficulties of these
customers.
While management believes that allowances for doubtful accounts at April 30,
2000 are adequate, the Company carefully monitors developments regarding its
major customers. 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 and
options, 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 23.6% in French Francs during the six months ended
April 30, 2000 compared to the six months ended April 30, 1999. As measured and
reported in the Company's Condensed Consolidated Statements Income, European net
sales increased 8.9%.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
The Company's Annual Meeting of Stockholders was held on March 31, 2000. At the
Annual Meeting, the following directors were elected to serve on the Company's
Board of Directors until the next Annual Meeting and until their respective
successors are elected and qualified:
Votes Votes
For Withheld
---------- ---------
Robert B. McKnight, Jr. 20,923,692 347,714
William M. Barnum, Jr. 20,923,492 347,914
Charles E. Crowe 20,923,267 348,139
Michael H. Gray 20,068,044 1,203,362
Harry Hodge 20,923,952 347,454
Robert G. Kirby 20,923,917 347,489
Tom Roach 20,917,692 353,714
In addition, the following proposals were approved by the stockholders:
<TABLE>
<CAPTION>
Votes Votes Votes
For Against Abstained
---------- --------- ---------
<S> <C> <C> <C>
Approval of the Company's 2000 Stock Incentive Plan 9,501,207 7,839,557 21,335
Approval of the Company's Employee Stock Purchase Plan 17,267,752 81,258 13,089
Approval of the Company's Executive Officer Bonus Plan 17,104,586 213,223 44,290
</TABLE>
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PART II - OTHER INFORMATION (continued)
Item 6. Exhibits and Reports on Form 8K.
(a) Exhibits
10.1 New Revolving Credit Agreement dated as of April 25, 2000
10.2 New Term Loan Agreement dated as of April 25, 2000
27.0 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended April
30, 2000.
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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
June 13, 2000 /s/ Steven L. Brink
----------------------------------------
Steven L. Brink
Chief Financial Officer, Secretary
and Treasurer
(Principal Accounting Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.1 New Revolving Credit Agreement dated as of April 25, 2000
10.2 New Term Loan Agreement dated as of April 25, 2000
27.0 Financial Data Schedule
