<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 JULY 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
September 3, 2000 was
22,387,129
<PAGE> 2
QUIKSILVER, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page No.
------------------------------ --------
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
July 31, 2000 and October 31, 1999............................................. 2
Condensed Consolidated Statements of Income
Three Months Ended July 31, 2000 and 1999...................................... 3
Condensed Consolidated Statements of Income
Nine Months Ended July 31, 2000 and 1999....................................... 4
Condensed Consolidated Statements of Comprehensive Income
Nine Months Ended July 31, 2000 and 1999....................................... 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended July 31, 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 6. Exhibits and Reports on Form 8K................................................ 12
SIGNATURE............................................................................... 13
</TABLE>
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
QUIKSILVER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 5,161,000 $ 1,449,000
Trade accounts receivable, less allowance
for doubtful accounts of $5,249,000 (2000)
and $5,738,000 (1999) ................................ 110,797,000 107,619,000
Other receivables ...................................... 5,556,000 4,074,000
Inventories - Note 2 ................................... 83,378,000 72,207,000
Prepaid expenses and other current assets .............. 9,688,000 7,825,000
------------- -------------
Total current assets .............................. 214,580,000 193,174,000
Property and equipment, less accumulated depreciation and
amortization of $22,008,000 (2000) and $17,127,000 (1999) 49,092,000 45,153,000
Trademark, less accumulated amortization of
$2,189,000 (2000) and $2,044,000 (1999) ................. 1,248,000 1,393,000
Goodwill, less accumulated amortization of
$5,959,000 (2000) and $5,233,000 (1999) ................. 59,213,000 17,055,000
Other assets ............................................... 6,213,000 2,898,000
------------- -------------
Total assets ...................................... $ 330,346,000 $ 259,673,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit ......................................... $ 36,381,000 $ 28,619,000
Accounts payable ........................................ 29,548,000 31,325,000
Accrued liabilities ..................................... 21,313,000 19,792,000
Current portion of long-term debt ....................... 3,149,000 3,615,000
Income taxes payable .................................... 6,119,000 --
------------- -------------
Total current liabilities ......................... 96,510,000 83,351,000
Long-term debt ............................................. 65,254,000 24,569,000
------------- -------------
Total liabilities ................................. 161,764,000 107,920,000
------------- -------------
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 - 23,108,429 (2000) and 22,731,220 (1999) .... 231,000 227,000
Additional paid-in-capital .............................. 40,095,000 36,780,000
Treasury stock, 721,300 shares (2000) and 390,000
shares (1999) ....................................... (6,778,000) (3,054,000)
Retained earnings ....................................... 143,648,000 121,590,000
Accumulated other comprehensive loss .................... (8,614,000) (3,790,000)
------------- -------------
Total stockholders' equity ........................ 168,582,000 151,753,000
------------- -------------
Total liabilities and stockholders' equity ........ $ 330,346,000 $ 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 JULY 31,
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Net sales .................................... $ 122,011,000 $ 105,160,000
Cost of goods sold ........................... 75,226,000 64,193,000
------------- -------------
Gross profit .............................. 46,785,000 40,967,000
------------- -------------
Operating expenses:
Selling, general and administrative expense 34,194,000 29,727,000
Royalty income ............................ (888,000) (538,000)
Royalty expense ........................... 550,000 1,214,000
------------- -------------
Total operating expenses ............... 33,856,000 30,403,000
------------- -------------
Operating income ............................. 12,929,000 10,564,000
Interest expense ............................. 1,713,000 919,000
Foreign currency loss ........................ 101,000 49,000
Other expense ................................ 131,000 110,000
------------- -------------
Income before provision for income taxes ..... 10,984,000 9,486,000
Provision for income taxes ................... 4,314,000 3,863,000
------------- -------------
Net income ................................... $ 6,670,000 $ 5,623,000
============= =============
Net income per share ......................... $ 0.30 $ 0.25
============= =============
Net income per share, assuming dilution ...... $ 0.29 $ 0.24
============= =============
Weighted average common shares outstanding ... 22,460,000 22,279,000
============= =============
Weighted average common shares outstanding,
assuming dilution ......................... 23,215,000 23,614,000
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JULY 31,
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Net sales .................................... $ 364,079,000 $ 319,235,000
Cost of goods sold ........................... 220,154,000 192,508,000
------------- -------------
Gross profit .............................. 143,925,000 126,727,000
------------- -------------
Operating expenses:
Selling, general and administrative expense 100,857,000 89,675,000
Royalty income ............................ (2,010,000) (1,508,000)
Royalty expense ........................... 3,449,000 3,834,000
------------- -------------
Total operating expenses ............... 102,296,000 92,001,000
------------- -------------
Operating income ............................. 41,629,000 34,726,000
Interest expense ............................. 3,944,000 2,675,000
Foreign currency loss (gain) ................. 224,000 (226,000)
Other expense ................................ 391,000 351,000
------------- -------------
Income before provision for income taxes ..... 37,070,000 31,926,000
Provision for income taxes ................... 15,012,000 13,207,000
------------- -------------
Net income ................................... $ 22,058,000 $ 18,719,000
============= =============
Net income per share ......................... $ 0.99 $ 0.85
============= =============
Net income per share, assuming dilution ...... $ 0.95 $ 0.80
============= =============
Weighted average common shares outstanding ... 22,392,000 22,022,000
============= =============
Weighted average common shares outstanding,
assuming dilution ......................... 23,189,000 23,343,000
============= =============
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JULY 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net income ............................... $ 22,058,000 $ 18,719,000
Other comprehensive loss --
Foreign currency translation adjustment (4,824,000) (2,953,000)
------------ ------------
Comprehensive income ..................... $ 17,234,000 $ 15,766,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 6
QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JULY 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income ....................................................... $ 22,058,000 $ 18,719,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .............................. 7,189,000 5,580,000
Provision for doubtful accounts ............................ 2,348,000 2,092,000
Accretion of interest expense .............................. 137,000 --
Loss (gain) on sale of fixed assets ........................ 79,000 (143,000)
Changes in operating assets and liabilities, net of effects
from the purchase of Quiksilver International Pty Ltd:
Trade accounts receivable ............................... (10,162,000) (18,726,000)
Other receivables ....................................... (1,922,000) 105,000
Inventories ............................................. (13,631,000) (6,362,000)
Prepaid expenses and other current assets ............... (2,389,000) (1,386,000)
Other assets ............................................ (2,860,000) (137,000)
Accounts payable ........................................ 319,000 5,606,000
Accrued liabilities ..................................... 1,750,000 3,472,000
Income taxes payable .................................... 6,471,000 (983,000)
------------ ------------
Net cash provided by operating activities ............... 9,387,000 7,837,000
Cash flows from investing activities:
Proceeds from sales of fixed assets .............................. 2,000 303,000
Capital expenditures ............................................. (13,530,000) (19,631,000)
Acquisition of Quiksilver International Pty Ltd, net of
cash acquired ................................................ (23,453,000) --
------------ ------------
Net cash used in investing activities ................... (36,981,000) (19,328,000)
Cash flows from financing activities:
Borrowings on lines of credit .................................... 56,200,000 45,530,000
Payments on lines of credit ...................................... (48,744,000) (41,684,000)
Borrowings on long-term debt ..................................... 40,408,000 4,083,000
Payments on long-term debt ....................................... (16,026,000) (4,324,000)
Proceeds from stock option exercises ............................. 3,319,000 7,276,000
Purchase of treasury stock ....................................... (3,724,000) --
------------ ------------
Net cash provided by financing activities ............... 31,433,000 10,881,000
Effect of exchange rate changes on cash ............................. (127,000) (143,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents ................ 3,712,000 (753,000)
Cash and cash equivalents, beginning of period ...................... 1,449,000 3,029,000
------------ ------------
Cash and cash equivalents, end of period ............................ $ 5,161,000 $ 2,276,000
============ ============
Supplementary cash flow information:
Cash paid during the period for:
Interest ...................................................... $ 3,679,000 $ 2,292,000
============ ============
Income taxes .................................................. $ 8,675,000 $ 14,104,000
============ ============
Non-cash investing and financing activity --
Deferred purchase price obligations ........................... $ 18,054,000 $ --
============ ============
</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 nine months ended July 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>
JULY 31, OCTOBER 31,
2000 1999
----------- -----------
<S> <C> <C>
Raw Materials .... $23,541,000 $19,225,000
Work-In-Process... 5,391,000 7,819,000
Finished Goods.... 54,446,000 45,163,000
----------- -----------
$83,378,000 $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 split.
4. Information related to domestic and European operations is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED JULY 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net sales to unaffiliated customers:
Domestic ......................... $236,150,000 $204,649,000
Europe ........................... 127,929,000 114,586,000
------------ ------------
Consolidated .................. $364,079,000 $319,235,000
============ ============
Gross profit:
Domestic ......................... $ 86,936,000 $ 75,628,000
Europe ........................... 56,989,000 51,099,000
------------ ------------
Consolidated .................. $143,925,000 $126,727,000
============ ============
Operating income:
Domestic ......................... $ 26,470,000 $ 21,332,000
Europe ........................... 15,159,000 13,394,000
------------ ------------
Consolidated .................. $ 41,629,000 $ 34,726,000
============ ============
Identifiable assets:
Domestic ......................... $236,396,000 $168,281,000
Europe ........................... 93,950,000 75,851,000
------------ ------------
Consolidated .................. $330,346,000 $244,132,000
============ ============
</TABLE>
6
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. Effective July 1, 2000, the Company acquired Quiksilver International
Pty Ltd ("Quiksilver International"), an Australian company that owns
the worldwide trademark rights to the "Quiksilver" brand name (other
than in the United States, Mexico and Puerto Rico where those rights
were already owned by the Company.) The initial purchase price was
$23,880,000, which includes cash consideration of $23,380,000 and
transaction costs of $500,000. Under the terms of the purchase
agreements, two additional payments will be made, one at the end of
fiscal 2002 and one at the end of fiscal 2005. Such deferred purchase
price payments will be contingent on the computed earnings of
Quiksilver International through June 30, 2005. The deferred purchase
price payments, which were estimated and discounted to present value,
total $18,054,000, and are included as a component of the purchase
price recorded at July 1, 2000. These deferred purchase price
obligations are reflected in the Condensed Consolidated Balance Sheet
as a component of long-term debt. The acquisition has been recorded
using the purchase method of accounting and resulted in goodwill at
July 1, 2000 of $42,220,000, which is being amortized over 25 years.
The results of operations of Quiksilver International are included in
the Condensed Consolidated Statements of Income from the acquisition
date.
6. In connection with the acquisition of Quiksilver International
discussed in Note 5 above, the Company's domestic line of credit was
amended to allow for the acquisition and to increase the Company's
available credit by $10,000,000 through October 31, 2000. The debt
incurred to fund the acquisition is expected to be refinanced on a long
term basis prior to October 31, 2000.
7
<PAGE> 9
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
THREE MONTHS ENDED JULY 31, 2000 COMPARED TO THREE MONTHS ENDED JULY 31, 1999
Net sales for the three months ended July 31, 2000 increased 16.0% to
$122,011,000 from $105,160,000 in the comparable period of the prior year.
Domestic net sales for the three months ended July 31, 2000 increased 15.2% to
$79,971,000 from $69,411,000 in the comparable period of the prior year, and
European net sales increased 17.6% to $42,040,000 from $35,749,000 for those
same periods. As measured in French francs, Quiksilver Europe's functional
currency, net sales in the current year's quarter increased 31.5% compared to
the prior year. Domestic men's sales increased 12.1% to $48,548,000 from
$43,312,000 in the comparable period of the prior year, while domestic women's
sales increased 20.4% to $28,378,000 from $23,569,000. In the domestic division,
sales of snowboards, boots and bindings amounted to $3,045,000 in the current
year's quarter compared to $2,530,000 in the prior year. The domestic men's
sales increase came from the Quiksilver Young Men's and Boys divisions and QS
Silver Edition. The domestic women's sales increase came from both the
Quiksilver Roxy and Raisins divisions. In Europe, men's sales increased 10.7% to
$35,608,000 from $32,172,000, while women's sales increased 79.8% to $6,432,000
from $3,577,000. As measured in French francs, European men's and women's sales
grew 23.8% and 101.1%, respectively. The European sales increase came from all
divisions.
The gross profit margin for the three months ended July 31, 2000 decreased to
38.3% from 39.0% in the comparable period of the prior year. The domestic gross
profit margin decreased to 36.7% from 37.1% in the comparable period of the
prior year, and the European gross profit margin decreased to 41.5% from 42.6%
for those same periods. The domestic gross profit margin decreased primarily
from a higher level of prior season wintersports apparel sales in the three
months ended July 31, 2000 versus the prior year. In Europe, the gross profit
margin decreased because the relatively rapid devaluation of the French franc
versus the U.S. dollar increased product costs in Europe before such price
increases could be fully factored into Quiksilver Europe's wholesale prices.
This trend is expected to continue, but to a lesser degree, in the three months
ending October 31, 2000.
Selling, general and administrative expense ("SG&A") for the three months ended
July 31, 2000 increased 15.0% to $34,194,000 from $29,727,000 in the comparable
period of the prior year. Domestic SG&A increased 15.8% to $21,565,000 from
$18,623,000 in the comparable period of the prior year, and European SG&A
increased 13.7% to $12,629,000 from $11,104,000 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 expenses decreased as a
percentage of sales primarily as a result of leverage on general overhead
expenses in Europe.
Royalty income exceeded royalty expense for the three months ended July 31, 2000
by $338,000 versus net royalty expense of $676,000 in the comparable period of
the prior year. This increase in royalty income was due primarily to the
acquisition of Quiksilver International Pty Ltd ("Quiksilver International").
Historically, the Company has received domestic royalty income from its Mexico,
watch, sunglass, and outlet store licensees as well as Raisins international
licensees, and the Company has paid royalties on European sales and certain
domestic exports under trademark agreements with Quiksilver International. As of
July 1, 2000, however, the Company acquired Quiksilver International, and such
royalty expense has been eliminated. In addition, as of July 1, 2000 the Company
now also receives royalties from Quiksilver licensees in various other
territories, including Australia, Japan, South Africa, Brazil, Chile, Argentina,
Indonesia, Korea and Eastern Europe.
Interest expense for the three months ended July 31, 2000 increased 86.4% to
$1,713,000 from $919,000 in the comparable period of the prior year. This
increase was primarily due to (i) debt incurred to fund the acquisition of
Quiksilver International, 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 July 31, 2000, which is
based on current estimates of the annual effective income tax rate, decreased to
39.3% from 40.7% in the comparable period of the prior year.
8
<PAGE> 10
As a result of the above factors, net income for the three months ended July 31,
2000 increased 18.6% to $6,670,000 or $0.29 per share on a diluted basis from
$5,623,000 or $0.24 per share on a diluted basis in the comparable period of the
prior year. Basic net income per share increased to $0.30 for the three months
ended July 31, 2000 from $0.25 in the comparable period of the prior year.
NINE MONTHS ENDED JULY 31, 2000 COMPARED TO NINE MONTHS ENDED JULY 31, 1999
Net sales for the nine months ended July 31, 2000 increased 14.0% to
$364,079,000 from $319,235,000 in the comparable period of the prior year.
Domestic net sales for the nine months ended July 31, 2000 increased 15.4% to
$236,150,000 from $204,649,000 in the comparable period of the prior year, and
European net sales increased 11.6% to $127,929,000 from $114,586,000 for those
same periods. As measured in French francs, Quiksilver Europe's net sales in the
first nine months of the current year increased 26.2% compared to the prior
year. Domestic men's sales increased 17.1% to $134,154,000 from $114,543,000 in
the comparable period of the prior year, while domestic women's sales increased
13.5% to $95,707,000 from $84,333,000. In the domestic division, sales of
snowboards, boots and bindings increased 8.9% to $6,289,000 from $5,773,000 in
the prior year. The domestic men's sales increase came from Quiksilver young
men's and boys' divisions and QS Silver Edition. The domestic women's sales
increase came from both the Quiksilver Roxy and Raisins divisions. In Europe,
men's sales increased 5.9% to $107,306,000 from $101,296,000, while women's
sales increased 55.2% to $20,623,000 from $13,290,000. As measured in French
francs, European men's and women's sales grew 19.6% and 76.1%, respectively. The
European sales increase came from all divisions.
The gross profit margin for the nine months ended July 31, 2000 decreased
somewhat to 39.5% from 39.7% in the comparable period of the prior year. The
domestic gross profit margin decreased somewhat to 36.8% from 37.0% in the
comparable period of the prior year, while the European gross profit margin
decreased slightly to 44.5% from 44.6% for those same periods. The decrease in
the domestic gross profit margin resulted primarily from a higher level of prior
season wintersports apparel sales in the third quarter of the current fiscal
year. In Europe, the gross profit margin improvement in the first half of the
current fiscal year from lower sampling costs and a higher level of retail
business was offset by the foreign currency impact in the third quarter of the
current fiscal year as discussed above.
Selling, general and administrative expense ("SG&A") for the nine months ended
July 31, 2000 increased 12.5% to $100,857,000 from $89,675,000 in the comparable
period of the prior year. Domestic SG&A increased 13.3% to $62,725,000 from
$55,354,000 in the comparable period of the prior year, and European SG&A
increased 11.1% to $38,132,000 from $34,321,000 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 27.7% from 28.1%.
Net royalty expense for the nine months ended July 31, 2000 decreased 38.1% to
$1,439,000 from $2,326,000 in the comparable period of the prior year. This
decrease was due primarily to the acquisition of Quiksilver International in the
third quarter of the current fiscal year as discussed above.
Interest expense for the nine months ended July 31, 2000 increased 47.4% to
$3,944,000 from $2,675,000 in the comparable period of the prior year. This
increase was primarily due to (i) debt incurred to fund the acquisition of
Quiksilver International, (ii) borrowings to fund the build-out of the Company's
new domestic headquarters building in Huntington Beach, and (iii) 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 nine months ended July 31, 2000, which is
based on current estimates of the annual effective income tax rate, decreased to
40.5% from 41.4% in the comparable period of the prior year.
As a result of the above factors, net income for the nine months ended July 31,
2000 increased 17.8% to $22,058,000 or $0.95 per share on a diluted basis from
$18,719,000 or $0.80 per share on a diluted basis in the comparable period of
the prior year. Basic net income per share increased to $0.99 for the nine
months ended July 31, 2000 from $0.85 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 provided by operating activities for the nine months ended July 31,
2000 increased 19.8% to $9,387,000 from $7,837,000 in the comparable period of
the prior year. The $5,563,000 increase in net income and non-cash expenses and
the $8,564,000 decrease in the change in trade accounts receivable was
substantially offset by the $12,556,000 increase in inventories net of changes
in accounts payable.
For the nine months ended July 31, 2000, capital expenditures decreased 31.1% to
$13,530,000 from $19,631,000 in the comparable period of the prior year. The
decrease in spending on leasehold improvements for the new domestic headquarters
in comparison to the prior year was offset somewhat by increased spending on
warehouse and computer equipment. During July 2000, the Company completed the
acquisition of Quiksilver International, including a cash component of the
purchase price totaling $23,880,000, less $427,000 of cash acquired in the
acquisition. (See further discussion below.)
During the nine months ended July 31, 2000, net cash provided by financing
activities totaled $31,433,000 compared to $10,881,000 in the comparable period
of the prior year. The increase in net cash used in investing activities
discussed above was financed primarily by an increase in long-term debt.
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 nine months ended
July 31, 2000 the Company repurchased 331,300 shares at a cost of $3,724,000.
Effective July 1, 2000, the Company acquired Quiksilver International Pty Ltd
("Quiksilver International"), an Australian company that owns the worldwide
trademark rights to the "Quiksilver" brand name (other than in the United
States, Mexico and Puerto Rico where those rights were already owned by the
Company.) The initial purchase price was $23,880,000, which includes cash
consideration of $23,380,000 and transaction costs of $500,000. Under the terms
of the purchase agreement, two additional payments will be made, one at the end
of fiscal 2002 and one at the end of fiscal 2005. Such deferred purchase price
payments will be contingent on the computed earnings of Quiksilver International
through June 30, 2005. The deferred purchase price payments, which were
estimated and discounted to present value, total $18,054,000, and are included
as a component of the purchase price recorded at July 1, 2000.
The deferred purchase price obligations are reflected in the Condensed
Consolidated Balance Sheet as a component of long-term debt. Noncash interest
expense is recorded to reflect the calculated financing costs associated with
the deferred purchase price obligations. The cash component of the initial
purchase price was financed using the Company's domestic line of credit, which
was amended to allow for the acquisition.
Cash and cash equivalents increased $3,712,000 for the nine months ended July
31, 2000 compared to a decrease of $753,000 in the comparable period of the
prior year. Working capital increased $8,247,000 or 7.5% to $118,070,000 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.
Accounts receivable increased 3.0% to $110,797,000 at July 31, 2000 from
$107,619,000 at October 31, 1999. Domestic accounts receivable decreased 8.9% to
$67,496,000 at July 31, 2000 from $74,128,000 at October 31, 1999, and European
accounts receivable increased 29.3% to $43,301,000 from $33,491,000 for that
same period. While changes in accounts receivable are subject to seasonal sales
fluctuations, average days sales outstanding at July 31, 2000 is generally
consistent with average days sales outstanding at July 31, 1999.
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Consolidated inventories increased 15.5% to $83,378,000 at July 31, 2000 from
$72,207,000 at October 31, 1999. Domestic inventories increased 15.3% to
$61,222,000 from $53,098,000 at October 31, 1999, and European inventories
increased 15.9% to $22,156,000 from $19,109,000 for that same period. While
inventory levels are subject to seasonal sales fluctuations, inventory turnover
as measured at July 31, 2000 is generally consistent with inventory turnover at
July 31, 1999.
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 July 31, 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, 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 effect.
Because the average exchange rate between the French franc and the U.S. dollar
weakened during the nine months ended July 31, 2000 in comparison to the nine
months ended July 31, 1999, there was a negative effect on Quiksilver Europe's
reported results in U.S. dollars. European net sales increased 26.2% in French
francs during the nine months ended July 31, 2000 compared to the nine months
ended July 31, 1999, but as translated into U.S. dollars and reported in the
Company's Condensed Consolidated Statements of Income, European net sales
increased only 11.6%.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K.
(a) Exhibits
10.1 Share Purchase Agreement, dated July 27, 2000, by and among
Quiksilver, Inc., Quiksilver Australia Pty Ltd, Quiksilver
International Pty Ltd and Shareholders of Quiksilver
International Pty Ltd. (incorporated by reference from the
Company's report on Form 8-K dated July 27, 2000)
10.2 Minority Shareholder Purchase Agreement, dated July 27, 2000,
by and among Quiksilver, Inc., Quiksilver Australia Pty Ltd
and Shareholders of Quiksilver International Pty Ltd.
(incorporated by reference from the Company's report on Form
8-K dated July 27, 2000)
10.3 First Amendment to Revolving Credit Agreement dated as of July
18, 2000.
27.0 Financial Data Schedule
(b) Reports on Form 8-K
A current report on Form 8-K was filed during the quarter ended July
31, 2000, which reported the Company's acquisition of Quiksilver
International Pty Ltd, the owner of the "Quiksilver" trademarks other
than the United States, Mexico and Puerto Rico. Such report was dated
July 27, 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
September 14, 2000 /s/ Steven L. Brink
----------------------------------------
Steven L. Brink
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
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EXHIBIT INDEX
Exhibit
Number Description
------- -----------
10.1 Share Purchase Agreement, dated July 27, 2000, by and among
Quiksilver, Inc., Quiksilver Australia Pty Ltd, Quiksilver
International Pty Ltd and Shareholders of Quiksilver
International Pty Ltd. (incorporated by reference from the
Company's report on Form 8-K dated July 27, 2000)
10.2 Minority Shareholder Purchase Agreement, dated July 27, 2000,
by and among Quiksilver, Inc., Quiksilver Australia Pty Ltd
and Shareholders of Quiksilver International Pty Ltd.
(incorporated by reference from the Company's report on Form
8-K dated July 27, 2000)
10.3 First Amendment to Revolving Credit Agreement dated as of July
18, 2000.
27.0 Financial Data Schedule
