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, 2002 | |||
| OR | |||
| [ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 0-15131
QUIKSILVER, INC.
| Delaware (State or other jurisdiction of incorporation or organization) |
33-0199426 (I.R.S. Employer 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
September 6, 2002 was
23,647,306
QUIKSILVER, INC.
FORM 10-Q
INDEX
| PART I - FINANCIAL INFORMATION | Page No. | ||||
Item 1. Financial Statements (Unaudited): |
|||||
Condensed Consolidated Balance Sheets July 31, 2002 and October 31, 2001 |
2 | ||||
Condensed Consolidated Statements of Income Three Months Ended July 31, 2002 and 2001 |
3 | ||||
Condensed Consolidated Statements of Income Nine Months Ended July 31, 2002 and 2001 |
4 | ||||
Condensed Consolidated Statements of Comprehensive Income Nine Months Ended July 31, 2002 and 2001 |
4 | ||||
Condensed Consolidated Statements of Cash Flows Nine Months Ended July 31, 2002 and 2001 |
5 | ||||
Notes to Condensed Consolidated Financial Statements |
6 | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations |
10 | ||||
Item 3. Quantitative and Qualitative Disclosures About Market Risks |
14 | ||||
Part II — OTHER INFORMATION |
|||||
Item 6. Exhibits and Reports on Form 8K |
15 | ||||
SIGNATURE |
15 | ||||
CERTIFICATIONS |
16 | ||||
1
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
QUIKSILVER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| July 31, | October 31, | ||||||||||
| 2002 | 2001 | ||||||||||
| ASSETS | |||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 26,195,000 | $ | 5,002,000 | |||||||
Trade accounts receivable, less allowance
for doubtful accounts of $5,434,000 (2002)
and $6,280,000 (2001) |
165,675,000 | 155,879,000 | |||||||||
Other receivables |
8,183,000 | 6,427,000 | |||||||||
Inventories |
93,316,000 | 107,562,000 | |||||||||
Prepaid expenses and other current assets |
17,079,000 | 13,379,000 | |||||||||
Total current assets |
310,448,000 | 288,249,000 | |||||||||
Property and equipment, less accumulated depreciation
and amortization of $45,045,000 (2002) and
$34,469,000 (2001) |
67,881,000 | 61,453,000 | |||||||||
Trademarks |
51,128,000 | 45,911,000 | |||||||||
Goodwill |
19,182,000 | 18,929,000 | |||||||||
Other assets |
4,856,000 | 4,196,000 | |||||||||
Total assets |
$ | 453,495,000 | $ | 418,738,000 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
Current liabilities: |
|||||||||||
Lines of credit |
$ | 43,571,000 | $ | 66,228,000 | |||||||
Accounts payable |
46,600,000 | 40,554,000 | |||||||||
Accrued liabilities |
33,861,000 | 24,898,000 | |||||||||
Current portion of long-term debt |
30,996,000 | 24,153,000 | |||||||||
Total current liabilities |
155,028,000 | 155,833,000 | |||||||||
Long-term debt |
43,074,000 | 46,311,000 | |||||||||
Total liabilities |
198,102,000 | 202,144,000 | |||||||||
Stockholders’ equity |
|||||||||||
Preferred stock, $.01 par value,
authorized shares — 5,000,000;
issued and outstanding shares — none |
— | — | |||||||||
Common stock, $.01 par value,
authorized shares — 45,000,000;
issued and outstanding shares — 24,365,255 (2002)
and 23,890,283 (2001) |
243,000 | 239,000 | |||||||||
Additional paid-in capital |
59,706,000 | 52,706,000 | |||||||||
Treasury stock, 721,300 shares |
(6,778,000 | ) | (6,778,000 | ) | |||||||
Retained earnings |
206,841,000 | 181,447,000 | |||||||||
Accumulated other comprehensive loss |
(4,619,000 | ) | (11,020,000 | ) | |||||||
Total stockholders’ equity |
255,393,000 | 216,594,000 | |||||||||
Total liabilities and stockholders’ equity |
$ | 453,495,000 | $ | 418,738,000 | |||||||
See notes to condensed consolidated financial statements.
2
QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| Three months ended July 31, | ||||||||||
| 2002 | 2001 | |||||||||
Net sales |
$ | 173,962,000 | $ | 155,259,000 | ||||||
Cost of goods sold |
104,691,000 | 96,381,000 | ||||||||
Gross profit |
69,271,000 | 58,878,000 | ||||||||
Operating expenses: |
||||||||||
Selling, general and administrative expense |
53,835,000 | 44,887,000 | ||||||||
Royalty income |
(1,082,000 | ) | (1,397,000 | ) | ||||||
Total operating expenses |
52,753,000 | 43,490,000 | ||||||||
Operating income |
16,518,000 | 15,388,000 | ||||||||
Interest expense |
2,039,000 | 2,514,000 | ||||||||
Foreign currency loss (gain) |
234,000 | (272,000 | ) | |||||||
Other expense |
108,000 | 149,000 | ||||||||
Income before provision for income taxes |
14,137,000 | 12,997,000 | ||||||||
Provision for income taxes |
5,292,000 | 5,042,000 | ||||||||
Net income |
$ | 8,845,000 | $ | 7,955,000 | ||||||
Net income per share |
$ | 0.38 | $ | 0.34 | ||||||
Net income per share, assuming dilution |
$ | 0.36 | $ | 0.33 | ||||||
Weighted average common shares outstanding |
23,527,000 | 23,131,000 | ||||||||
Weighted average common shares outstanding,
assuming dilution |
24,682,000 | 24,279,000 | ||||||||
See notes to condensed consolidated financial statements.
3
QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| Nine months ended July 31, | |||||||||
| 2002 | 2001 | ||||||||
Net sales |
$ | 505,737,000 | $ | 445,290,000 | |||||
Cost of goods sold |
308,554,000 | 271,515,000 | |||||||
Gross profit |
197,183,000 | 173,775,000 | |||||||
Operating expenses: |
|||||||||
Selling, general and administrative expense |
152,587,000 | 127,637,000 | |||||||
Royalty income |
(3,689,000 | ) | (3,871,000 | ) | |||||
Total operating expenses |
148,898,000 | 123,766,000 | |||||||
Operating income |
48,285,000 | 50,009,000 | |||||||
Interest expense |
6,754,000 | 8,178,000 | |||||||
Foreign currency loss (gain) |
596,000 | (409,000 | ) | ||||||
Other expense |
323,000 | 382,000 | |||||||
Income before provision for income taxes |
40,612,000 | 41,858,000 | |||||||
Provision for income taxes |
15,218,000 | 16,216,000 | |||||||
Net income |
$ | 25,394,000 | $ | 25,642,000 | |||||
Net income per share |
$ | 1.09 | $ | 1.12 | |||||
Net income per share, assuming dilution |
$ | 1.04 | $ | 1.06 | |||||
Weighted average shares outstanding |
23,346,000 | 22,884,000 | |||||||
Weighted average shares outstanding,
assuming dilution |
24,348,000 | 24,084,000 | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Nine months ended July 31, | |||||||||
| 2002 | 2001 | ||||||||
Net income |
$ | 25,394,000 | $ | 25,642,000 | |||||
Other comprehensive gain (loss): |
|||||||||
Foreign currency translation adjustment |
6,776,000 | 958,000 | |||||||
Net unrealized loss on derivative instruments, net of tax |
(375,000 | ) | (772,000 | ) | |||||
Comprehensive income |
$ | 31,795,000 | $ | 25,828,000 | |||||
See notes to condensed consolidated financial statements.
4
QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine months ended July 31, | ||||||||||||
| 2002 | 2001 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 25,394,000 | $ | 25,642,000 | ||||||||
Adjustments to reconcile net income to net cash provided by
(used in) operating activities: |
||||||||||||
Depreciation and amortization |
11,252,000 | 10,175,000 | ||||||||||
Provision for doubtful accounts |
3,963,000 | 3,143,000 | ||||||||||
Loss on sale of fixed assets |
— | 22,000 | ||||||||||
Foreign currency gain |
(1,444,000 | ) | (266,000 | ) | ||||||||
Interest accretion |
1,486,000 | 1,179,000 | ||||||||||
Changes in operating assets and liabilities: |
||||||||||||
Trade accounts receivables |
(6,988,000 | ) | (14,563,000 | ) | ||||||||
Other receivables |
(1,736,000 | ) | 553,000 | |||||||||
Inventories |
17,658,000 | (35,234,000 | ) | |||||||||
Prepaid expenses and other current assets |
(2,930,000 | ) | (1,637,000 | ) | ||||||||
Other assets |
(478,000 | ) | (385,000 | ) | ||||||||
Accounts payable |
4,910,000 | (2,687,000 | ) | |||||||||
Accrued liabilities |
6,254,000 | (1,477,000 | ) | |||||||||
Income taxes payable |
2,360,000 | 6,332,000 | ||||||||||
Net cash provided by (used in) operating activities |
59,701,000 | (9,203,000 | ) | |||||||||
Cash flows from investing activities: |
||||||||||||
Proceeds from sales of fixed assets |
— | 81,000 | ||||||||||
Capital expenditures |
(15,151,000 | ) | (13,192,000 | ) | ||||||||
Net cash used in investing activities |
(15,151,000 | ) | (13,111,000 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||
Borrowings on lines of credit |
5,980,000 | 68,084,000 | ||||||||||
Payments on lines of credit |
(30,637,000 | ) | (46,732,000 | ) | ||||||||
Borrowings on long-term debt |
2,325,000 | 2,887,000 | ||||||||||
Payments on long-term debt |
(8,356,000 | ) | (8,006,000 | ) | ||||||||
Proceeds from stock option exercises |
4,457,000 | 5,824,000 | ||||||||||
Net cash (used in) provided by financing activities |
(26,231,000 | ) | 22,057,000 | |||||||||
Effect of exchange rate changes on cash |
2,874,000 | (267,000 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents |
21,193,000 | (524,000 | ) | |||||||||
Cash and cash equivalents, beginning of period |
5,002,000 | 2,298,000 | ||||||||||
Cash and cash equivalents, end of period |
$ | 26,195,000 | $ | 1,774,000 | ||||||||
Supplementary cash flow information - |
||||||||||||
Cash paid during the period for: |
||||||||||||
Interest |
$ | 4,810,000 | $ | 6,695,000 | ||||||||
Income taxes |
$ | 12,640,000 | $ | 9,243,000 | ||||||||
Non-cash investing and financing activity - |
||||||||||||
Deferred purchase price obligation |
$ | 5,310,000 | $ | 4,267,000 | ||||||||
See notes to condensed consolidated financial statements.
5
QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| 1. | Basis of Presentation | |
| 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, 2002 and 2001. 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, 2001 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 | |
| Inventories consist of the following: |
| July 31, | October 31, | |||||||
| 2002 | 2001 | |||||||
Raw Materials |
$ | 13,493,000 | $ | 21,325,000 | ||||
Work-In-Process |
5,884,000 | 8,138,000 | ||||||
Finished Goods |
73,939,000 | 78,099,000 | ||||||
| $ | 93,316,000 | $ | 107,562,000 | |||||
| 3. | Segment Information | |
| The Company operates exclusively in the consumer products industry in which the Company designs, produces and distributes clothing, accessories and related products. Operating results of the Company’s various product lines have been aggregated because of their common characteristics and their reliance on shared operating functions. | ||
| Information related to domestic and European operations is as follows: |
| Three Months Ended July 31, | ||||||||||
| 2002 | 2001 | |||||||||
Net sales to unaffiliated customers: |
||||||||||
Domestic |
$ | 107,316,000 | $ | 101,510,000 | ||||||
Europe |
66,646,000 | 53,749,000 | ||||||||
Consolidated |
$ | 173,962,000 | $ | 155,259,000 | ||||||