Attached files
file | filename |
---|---|
EX-31.2 - EX-31.2 - QUIKSILVER INC | a59654exv31w2.htm |
EX-10.3 - EX-10.3 - QUIKSILVER INC | a59654exv10w3.htm |
EX-32.2 - EX-32.2 - QUIKSILVER INC | a59654exv32w2.htm |
EX-10.4 - EX-10.4 - QUIKSILVER INC | a59654exv10w4.htm |
EX-31.1 - EX-31.1 - QUIKSILVER INC | a59654exv31w1.htm |
EX-32.1 - EX-32.1 - QUIKSILVER INC | a59654exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 30, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-14229
QUIKSILVER, INC.
(Exact name of registrant as specified in its charter)
Delaware | 33-0199426 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
15202 Graham Street
Huntington Beach, California
92649
(Address of principal executive offices)
(Zip Code)
Huntington Beach, California
92649
(Address of principal executive offices)
(Zip Code)
(714) 889-2200
(Registrants telephone number, including area code)
(Registrants 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act
(Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares outstanding of Registrants Common Stock,
par value $0.01 per share, at
June 3, 2011 was 164,866,123
par value $0.01 per share, at
June 3, 2011 was 164,866,123
QUIKSILVER, INC.
FORM 10-Q
INDEX
INDEX
Page No. | ||||||||
2 | ||||||||
2 | ||||||||
3 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
28 | ||||||||
29 | ||||||||
31 | ||||||||
32 | ||||||||
34 | ||||||||
37 | ||||||||
37 | ||||||||
37 | ||||||||
38 | ||||||||
39 | ||||||||
41 | ||||||||
EX-10.3 | ||||||||
EX-10.4 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
1
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements |
QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Unaudited)
Three months ended April 30, | ||||||||
In thousands, except per share amounts | 2011 | 2010 | ||||||
Revenues, net |
$ | 478,093 | $ | 468,289 | ||||
Cost of goods sold |
215,924 | 219,002 | ||||||
Gross profit |
262,169 | 249,287 | ||||||
Selling, general and administrative expense |
216,748 | 213,416 | ||||||
Asset impairments |
74,610 | | ||||||
Operating (loss) income |
(29,189 | ) | 35,871 | |||||
Interest expense |
15,096 | 21,039 | ||||||
Foreign currency gain |
(2,321 | ) | (4,614 | ) | ||||
Other income |
| (5 | ) | |||||
(Loss) income before provision for income taxes |
(41,964 | ) | 19,451 | |||||
Provision for income taxes |
39,690 | 9,419 | ||||||
(Loss) income from continuing operations |
(81,654 | ) | 10,032 | |||||
Income from discontinued operations |
| 602 | ||||||
Net (loss) income |
(81,654 | ) | 10,634 | |||||
Less: net income attributable to non-controlling interest |
(1,671 | ) | (1,210 | ) | ||||
Net (loss) income attributable to Quiksilver, Inc. |
$ | (83,325 | ) | $ | 9,424 | |||
(Loss) income per share from continuing operations attributable
to Quiksilver, Inc. |
$ | (0.51 | ) | $ | 0.07 | |||
Income per share from discontinued operations attributable to
Quiksilver, Inc. |
$ | | $ | 0.00 | ||||
Net (loss) income per share attributable to Quiksilver, Inc. |
$ | (0.51 | ) | $ | 0.07 | |||
(Loss) income per share from continuing operations attributable to
Quiksilver, Inc., assuming dilution |
$ | (0.51 | ) | $ | 0.06 | |||
Income per share from discontinued operations attributable to
Quiksilver, Inc., assuming dilution |
$ | | $ | 0.00 | ||||
Net (loss) income per share attributable to Quiksilver, Inc.,
assuming dilution |
$ | (0.51 | ) | $ | 0.06 | |||
Weighted average common shares outstanding |
162,268 | 128,090 | ||||||
Weighted average common shares outstanding, assuming dilution |
162,268 | 145,376 | ||||||
Amounts attributable to Quiksilver, Inc.: |
||||||||
(Loss) income from continuing operations |
$ | (83,325 | ) | $ | 8,822 | |||
Income from discontinued operations |
| 602 | ||||||
Net (loss) income |
$ | (83,325 | ) | $ | 9,424 | |||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Unaudited)
Three months ended April 30, | ||||||||
In thousands | 2011 | 2010 | ||||||
Net (loss) income |
$ | (81,654 | ) | $ | 10,634 | |||
Other comprehensive income: |
||||||||
Foreign currency translation adjustment |
33,935 | 1,054 | ||||||
Net unrealized (loss) gain on derivative instruments,
net of tax of $(11,294) (2011) and $3,952 (2010) |
(22,244 | ) | 6,984 | |||||
Comprehensive (loss) income |
(69,963 | ) | 18,672 | |||||
Comprehensive income attributable to non-controlling interest |
(1,671 | ) | (1,210 | ) | ||||
Comprehensive (loss) income attributable to Quiksilver, Inc. |
$ | (71,634 | ) | $ | 17,462 | |||
See notes to condensed consolidated financial statements.
2
Table of Contents
QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Unaudited)
Six months ended April 30, | ||||||||
In thousands, except per share amounts | 2011 | 2010 | ||||||
Revenues, net |
$ | 904,543 | $ | 901,026 | ||||
Cost of goods sold |
418,904 | 429,590 | ||||||
Gross profit |
485,639 | 471,436 | ||||||
Selling, general and administrative expense |
427,184 | 416,576 | ||||||
Asset impairments |
74,610 | | ||||||
Operating (loss) income |
(16,155 | ) | 54,860 | |||||
Interest expense |
44,064 | 42,912 | ||||||
Foreign currency gain |
(4,430 | ) | (6,593 | ) | ||||
(Loss) income before provision for income taxes |
(55,789 | ) | 18,541 | |||||
Provision for income taxes |
40,941 | 13,093 | ||||||
(Loss) income from continuing operations |
(96,730 | ) | 5,448 | |||||
Income from discontinued operations |
| 678 | ||||||
Net (loss) income |
(96,730 | ) | 6,126 | |||||
Less: net income attributable to non-controlling interest |
(2,863 | ) | (2,056 | ) | ||||
Net (loss) income attributable to Quiksilver, Inc. |
$ | (99,593 | ) | $ | 4,070 | |||
(Loss) income per share from continuing operations attributable to
Quiksilver, Inc. |
$ | (0.62 | ) | $ | 0.03 | |||
Income per share from discontinued operations attributable to
Quiksilver, Inc. |
$ | | $ | 0.01 | ||||
Net (loss) income per share attributable to Quiksilver, Inc. |
$ | (0.62 | ) | $ | 0.03 | |||
(Loss) income per share from continuing operations attributable to
Quiksilver, Inc., assuming dilution |
$ | (0.62 | ) | $ | 0.02 | |||
Income per share from discontinued operations attributable to
Quiksilver, Inc., assuming dilution |
$ | | $ | 0.00 | ||||
Net (loss) income per share attributable to Quiksilver, Inc.,
assuming dilution |
$ | (0.62 | ) | $ | 0.03 | |||
Weighted average common shares outstanding |
161,879 | 127,875 | ||||||
Weighted average common shares outstanding, assuming dilution |
161,879 | 139,622 | ||||||
Amounts attributable to Quiksilver, Inc.: |
||||||||
(Loss) income from continuing operations |
$ | (99,593 | ) | $ | 3,392 | |||
Income from discontinued operations |
| 678 | ||||||
Net (loss) income |
$ | (99,593 | ) | $ | 4,070 | |||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Unaudited)
Six months ended April 30, | ||||||||
In thousands | 2011 | 2010 | ||||||
Net (loss) income |
$ | (96,730 | ) | $ | 6,126 | |||
Other comprehensive (loss) income: |
||||||||
Foreign currency translation adjustment |
27,695 | (22,273 | ) | |||||
Net unrealized gain (loss) on derivative instruments,
net of tax of $(10,899) (2011) and $11,976 (2010) |
(23,939 | ) | 24,339 | |||||
Comprehensive (loss) income |
(92,974 | ) | 8,192 | |||||
Comprehensive income attributable to non-controlling interest |
(2,863 | ) | (2,056 | ) | ||||
Comprehensive (loss) income attributable to Quiksilver, Inc. |
$ | (95,837 | ) | $ | 6,136 | |||
See notes to condensed consolidated financial statements.
3
Table of Contents
QUIKSILVER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Unaudited)
April 30, | October 31, | |||||||
In thousands, except share amounts | 2011 | 2010 | ||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 138,592 | $ | 120,593 | ||||
Trade accounts receivable, less allowances of $51,772 (2011)
and $48,043 (2010) |
341,781 | 368,428 | ||||||
Other receivables |
27,347 | 42,512 | ||||||
Income taxes receivable |
111 | | ||||||
Inventories |
289,538 | 268,037 | ||||||
Deferred income taxes short-term |
24,426 | 39,053 | ||||||
Prepaid expenses and other current assets |
31,270 | 25,206 | ||||||
Current assets held for sale |
| 12 | ||||||
Total current assets |
853,065 | 863,841 | ||||||
Fixed assets, less accumulated depreciation and amortization
of $267,483 (2011) and $253,931 (2010) |
234,645 | 220,350 | ||||||
Intangible assets, net |
139,614 | 140,567 | ||||||
Goodwill |
277,608 | 332,488 | ||||||
Other assets |
52,658 | 53,296 | ||||||
Deferred income taxes long-term |
80,291 | 85,579 | ||||||
Total assets |
$ | 1,637,881 | $ | 1,696,121 | ||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities: |
||||||||
Lines of credit |
$ | 4,792 | $ | 22,586 | ||||
Accounts payable |
178,559 | 179,402 | ||||||
Accrued liabilities |
128,748 | 115,009 | ||||||
Current portion of long-term debt |
5,824 | 5,182 | ||||||
Income taxes payable |
| 3,484 | ||||||
Liabilities related to assets held for sale |
| 739 | ||||||
Total current liabilities |
317,923 | 326,402 | ||||||
Long-term debt, net of current portion |
722,271 | 701,005 | ||||||
Other long-term liabilities |
63,171 | 49,119 | ||||||
Total liabilities |
1,103,365 | 1,076,526 | ||||||
Equity: |
||||||||
Preferred stock, $.01 par value, authorized shares - 5,000,000;
issued and outstanding shares none |
| | ||||||
Common stock, $.01 par value, authorized shares - 285,000,000;
issued shares 167,739,657 (2011) and 166,867,127 (2010) |
1,677 | 1,669 | ||||||
Additional paid-in capital |
521,148 | 513,102 | ||||||
Treasury stock, 2,885,200 shares |
(6,778 | ) | (6,778 | ) | ||||
Accumulated deficit |
(110,900 | ) | (11,307 | ) | ||||
Accumulated other comprehensive income |
117,438 | 113,682 | ||||||
Total Quiksilver, Inc. stockholders equity |
522,585 | 610,368 | ||||||
Non-controlling interest |
11,931 | 9,227 | ||||||
Total equity |
534,516 | 619,595 | ||||||
Total liabilities and equity |
$ | 1,637,881 | $ | 1,696,121 | ||||
See notes to condensed consolidated financial statements.
4
Table of Contents
QUIKSILVER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Unaudited)
Six months ended April 30, | ||||||||
In thousands | 2011 | 2010 | ||||||
Cash flows from operating activities: |
||||||||
Net (loss) income |
$ | (96,730 | ) | $ | 6,126 | |||
Adjustments to reconcile net (loss) income to net cash provided by
operating activities: |
||||||||
Income from discontinued operations |
| (678 | ) | |||||
Depreciation and amortization |
27,470 | 27,023 | ||||||
Stock-based compensation |
4,981 | 10,135 | ||||||
Provision for doubtful accounts |
5,390 | 10,144 | ||||||
Loss (gain) on disposal of fixed assets |
1,635 | (728 | ) | |||||
Foreign currency loss (gain) |
76 | (2,758 | ) | |||||
Asset impairments |
74,610 | | ||||||
Non-cash interest expense |
17,087 | 12,930 | ||||||
Equity in earnings |
21 | 183 | ||||||
Deferred income taxes |
40,347 | 16,709 | ||||||
Changes in operating assets and liabilities, net of the effects from
business acquisitions: |
||||||||
Trade accounts receivable |
33,664 | 73,053 | ||||||
Other receivables |
10,890 | 4,942 | ||||||
Inventories |
(6,611 | ) | 29,466 | |||||
Prepaid expenses and other current assets |
(8,437 | ) | (10,430 | ) | ||||
Other assets |
(1,916 | ) | 4,004 | |||||
Accounts payable |
(4,959 | ) | (18,177 | ) | ||||
Accrued liabilities and other long-term liabilities |
(11,875 | ) | (14,422 | ) | ||||
Income taxes payable |
(13,675 | ) | (16,297 | ) | ||||
Cash provided by operating activities of continuing operations |
71,968 | 131,225 | ||||||
Cash provided by operating activities of discontinued operations |
| 3,287 | ||||||
Net cash provided by operating activities |
71,968 | 134,512 | ||||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(33,930 | ) | (18,839 | ) | ||||
Business acquisitions, net of cash acquired |
(5,578 | ) | | |||||
Changes in restricted cash |
| 52,706 | ||||||
Cash (used in) provided by investing activities of continuing
operations |
(39,508 | ) | 33,867 | |||||
Cash used in investing activities of discontinued operations |
| | ||||||
Net cash (used in) provided by investing activities |
(39,508 | ) | 33,867 | |||||
Cash flows from financing activities: |
||||||||
Borrowings on lines of credit |
9,929 | | ||||||
Payments on lines of credit |
(28,031 | ) | (16,707 | ) | ||||
Borrowings on long-term debt |
270,475 | 32,410 | ||||||
Payments on long-term debt |
(257,392 | ) | (136,972 | ) | ||||
Payments of debt issuance costs |
(6,308 | ) | (1,823 | ) | ||||
Stock option exercises and employee stock purchases |
3,074 | 2,888 | ||||||
Cash used in financing activities of continuing operations |
(8,253 | ) | (120,204 | ) | ||||
Cash used in financing activities of discontinued operations |
| | ||||||
Net cash used in financing activities |
(8,253 | ) | (120,204 | ) | ||||
Effect of exchange rate changes on cash |
(6,208 | ) | (2,362 | ) | ||||
Net increase in cash and cash equivalents |
17,999 | 45,813 | ||||||
Cash and cash equivalents, beginning of period |
120,593 | 99,516 | ||||||
Cash and cash equivalents, end of period |
$ | 138,592 | $ | 145,329 | ||||
Supplementary cash flow information: |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 17,834 | $ | 28,961 | ||||
Income taxes |
$ | 14,144 | $ | 8,628 | ||||
See notes to condensed consolidated financial statements.
5
Table of Contents
QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(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.
Quiksilver, Inc. (the Company), in its opinion, has included all adjustments, consisting
only of normal and recurring adjustments, necessary for a fair presentation of the results
of operations for the three and six months ended April 30, 2011 and 2010. 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, 2010 included in the
Companys Annual Report on Form 10-K. Interim results are not necessarily indicative of
results for the full year due to seasonal and other factors.
In November 2008, the Company sold its Rossignol business, including the related brands of
Rossignol, Dynastar, Look and Lange, and in December 2007, the Company sold its golf
equipment business. As a result, the Company has classified its Rossignol wintersports and
golf equipment businesses as discontinued operations for all periods presented.
During December 2010, the Company issued 200 million in unsecured senior notes, which
were used to repay its European term loans. This transaction extended virtually all of the
Companys short-term maturities to a long- term basis. The Company believes that its
remaining short-term uncommitted lines of credit in Asia/Pacific will continue to be made
available. If these lines of credit become unavailable, the Company plans to extinguish any
related debt using cash on hand or other existing credit facilities.
2. New Accounting Pronouncements
In February 2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2010-09, Subsequent Events (Topic 855)Amendments to Certain
Recognition and Disclosure Requirements. ASU 2010-09 requires an entity that is an SEC
filer to evaluate subsequent events through the date that the financial statements are
issued and removes the requirement that an SEC filer disclose the date through which
subsequent events have been evaluated. ASU 2010-09 was effective upon issuance. The
adoption of this standard did not have a material impact on the results of operations or the
financial position of the Company.
3. Earnings per Share and Stock-Based Compensation
The Company reports basic and diluted earnings per share (EPS). Basic EPS is based on the
weighted average number of shares outstanding during the period, while diluted EPS
additionally includes the dilutive effect of the Companys outstanding stock options,
warrants and shares of restricted stock computed using the treasury stock method.
6
Table of Contents
QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
The table below sets forth the reconciliation of the denominator of each net (loss) income
per share calculation:
Three months ended | Six months ended | |||||||||||||||
April 30, | April 30, | |||||||||||||||
In thousands | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Shares used in computing basic net
(loss) income per share |
162,268 | 128,090 | 161,879 | 127,875 | ||||||||||||
Dilutive effect of stock options and
restricted stock(1) |
| 3,828 | | 2,147 | ||||||||||||
Dilutive effect of stock warrants(1) |
| 13,458 | | 9,600 | ||||||||||||
Shares used in computing diluted net
(loss) income per share |
162,268 | 145,376 | 161,879 | 139,622 | ||||||||||||
(1) | For the three months ended April 30, 2011, the shares used in computing diluted net loss per share do not include 5,021,000 of dilutive stock options and shares of restricted stock, nor 14,748,000 of dilutive warrant shares as the effect is anti-dilutive given the Companys loss. For the three months ended April 30, 2011 and 2010, additional stock options outstanding of 11,092,000 and 13,377,000, respectively, and additional warrant shares outstanding of 10,906,000 and 12,196,000, respectively, were excluded from the calculation of diluted EPS, as their effect would have been anti-dilutive based on the application of the treasury stock method. For the six months ended April 30, 2011, the shares used in computing diluted net loss per share do not include 5,272,000 of dilutive stock options and shares of restricted stock, nor 15,138,000 of dilutive warrant shares as the effect is anti-dilutive given the Companys loss. For the six months ended April 30, 2011 and 2010, additional stock options outstanding of 10,983,000 and 14,426,000, respectively, and additional warrant shares outstanding of 10,516,000 and 16,054,000, respectively, were excluded from the calculation of diluted EPS, as their effect would have been anti-dilutive based on the application of the treasury stock method. |
The Company accounts for stock-based compensation under the fair value recognition
provisions of ASC 718 Stock Compensation. The Company uses the Black-Scholes
option-pricing model to value compensation expense. Forfeitures are estimated at the date
of grant based on historical rates and reduce the compensation expense recognized. The
expected term of options granted is derived from historical data on employee exercises. The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of
grant. Expected volatility is based on the historical volatility of the Companys stock.
For the six months ended April 30, 2011 and 2010, options were valued assuming a risk-free
interest rate of 2.0% and 2.7%, respectively, volatility of 82.4% and 73.8%, respectively,
zero dividend yield, and an expected life of 5.3 and 6.4 years, respectively. The weighted
average fair value of options granted was $3.42 and $1.82 for the six months ended April 30,
2011 and 2010, respectively. The Company records stock compensation expense using the
graded vested method over the vesting period, which is generally three years. As of April
30, 2011, the Company had approximately $7.3 million of unrecognized compensation expense
expected to be recognized over a weighted average period of approximately 2.0 years.
Stock-based compensation expense is included as selling, general and administrative expense
for the period.
7
Table of Contents
QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
Changes in shares under option for the six months ended April 30, 2011 are as follows:
Weighted | Weighted | Aggregate | ||||||||||||||
Dollar amounts in thousands, | Average | Average | Intrinsic | |||||||||||||
except per share amounts | Shares | Price | Life | Value | ||||||||||||
Outstanding, October 31, 2010 |
12,731,430 | $ | 4.48 | |||||||||||||
Granted |
2,056,000 | 5.06 | ||||||||||||||
Exercised |
(616,163 | ) | 4.13 | $ | 548 | |||||||||||
Canceled |
(535,343 | ) | 8.57 | |||||||||||||
Outstanding, April 30, 2011 |
13,635,924 | $ | 4.43 | 6.5 | $ | 13,757 | ||||||||||
Options exercisable, April 30, 2011 |
4,908,851 | $ | 6.00 | 4.1 | $ | 3,510 | ||||||||||
Changes in non-vested shares under option for the six months ended April 30, 2011 are as
follows:
Weighted- | ||||||||
Average Grant | ||||||||
Shares | Date Fair Value | |||||||
Non-vested, October 31, 2010 |
7,838,750 | $ | 1.06 | |||||
Granted |
2,056,000 | 3.42 | ||||||
Vested |
(1,158,509 | ) | 1.83 | |||||
Canceled |
(9,168 | ) | 0.70 | |||||
Non-vested, April 30, 2011 |
8,727,073 | $ | 1.51 | |||||
In March 2006, the Companys shareholders approved the 2006 Restricted Stock Plan and in
March 2007, the Companys shareholders approved an amendment to the 2000 Stock Incentive
Plan whereby restricted stock and restricted stock units can be issued from such plan.
Stock issued under these plans generally vests from three to five years. In March 2010, the
Companys shareholders approved a grant of 3 million shares of restricted stock to a Company
sponsored athlete, Kelly Slater. In accordance with the terms of the related restricted
stock agreement, 1,800,000 shares have already vested with the remaining 1,200,000 shares to
vest in two equal, annual installments in April 2012 and 2013. In March 2011, the Companys
shareholders approved an amendment to the 2000 Stock Incentive Plan that increased the
maximum number of total shares and the maximum number of restricted shares issuable under
the plan by 10 million shares.
Changes in restricted stock for the six months ended April 30, 2011 are as follows:
Shares | ||||
Outstanding, October 31, 2010 |
2,842,004 | |||
Granted |
105,000 | |||
Vested |
(837,001 | ) | ||
Forfeited |
| |||
Outstanding, April 30, 2011 |
2,110,003 | |||
Compensation expense for restricted stock is determined using the intrinsic value method and
forfeitures are estimated at the date of grant based on historical rates and reduce the
compensation expense recognized. The Company monitors the probability of meeting the
restricted stock performance criteria, if any, and will adjust the amortization period as
appropriate. As of April 30, 2011, there had been no acceleration of any amortization
periods. As of April 30,
8
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QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
2011, the Company had approximately $3.0 million of unrecognized
compensation expense expected to be recognized over a weighted average period of
approximately 1.0 year.
4. Inventories
Inventories consist of the following:
April 30, | October 31, | |||||||
In thousands | 2011 | 2010 | ||||||
Raw materials |
$ | 9,660 | $ | 6,894 | ||||
Work in-process |
2,187 | 3,914 | ||||||
Finished goods |
277,691 | 257,229 | ||||||
$ | 289,538 | $ | 268,037 | |||||
5. Intangible Assets and Goodwill
A summary of intangible assets is as follows:
April 30, 2011 | October 31, 2010 | |||||||||||||||||||||||
Net | Net | |||||||||||||||||||||||
Amorti- | Book | Gross | Amorti- | Book | ||||||||||||||||||||
In thousands | Gross Amount | zation | Value | Amount | zation | Value | ||||||||||||||||||
Amortizable trademarks |
$ | 20,362 | $ | (9,355 | ) | $ | 11,007 | $ | 19,752 | $ | (8,308 | ) | $ | 11,444 | ||||||||||
Amortizable licenses |
14,690 | (12,364 | ) | 2,326 | 13,219 | (10,465 | ) | 2,754 | ||||||||||||||||
Other amortizable intangibles |
8,487 | (5,672 | ) | 2,815 | 8,386 | (5,318 | ) | 3,068 | ||||||||||||||||
Non-amortizable trademarks |
123,466 | | 123,466 | 123,301 | | 123,301 | ||||||||||||||||||
$ | 167,005 | $ | (27,391 | ) | $ | 139,614 | $ | 164,658 | $ | (24,091 | ) | $ | 140,567 | |||||||||||
Certain trademarks and licenses will continue to be amortized by the Company using estimated
useful lives of 10 to 25 years with no residual values. Intangible amortization expense for
the six months ended April 30, 2011 and 2010 was $1.5 million and $1.4 million,
respectively. Annual amortization expense is estimated to be approximately $3.0 million in
the fiscal years ending October 31, 2011 through 2012, and approximately $2.0 million in the
fiscal years ending October 31, 2013 through 2015.
Due to the natural disasters that occurred throughout the Asia/Pacific region during the
three months ended April 30, 2011 and their resulting impact on the Companys business, the
Company remeasured the value of its intangible assets in its Asia/Pacific segment in
accordance with Accounting Standard Codification (ASC) 350 as of April 30, 2011. As a
result, the Company noted that the carrying value of these assets was in excess of their
estimated fair value, and therefore, the Company recorded related goodwill impairment
charges of approximately $74.1 million during the three months ended April 30, 2011. The
fair value of assets was estimated using a combination of a discounted cash flow approach
and market approach. The value implied by the test was affected by (1) a reduction in
near-term future cash flows expected for the Asia/Pacific segment, (2) the discount rates
which were applied to future cash flows, and (3) current market estimates of value. The
projected future cash flows, discount rates applied and current estimates of market value
have all been impacted by the aforementioned natural disasters
that occurred throughout the Asia/Pacific region, contributing to the estimated decline in
value. Goodwill in the Asia/Pacific segment arose primarily from the acquisition of the
Australian and Japanese distributors in fiscal 2003, including subsequent earnout payments
to the former owners of these businesses, and the acquisition of certain Australian retail
store locations in fiscal 2005.
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QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
Goodwill related to the Companys operating segments is as follows:
April 30, | October 31, | |||||||
In thousands | 2011 | 2010 | ||||||
Americas |
$ | 76,182 | $ | 75,051 | ||||
Europe |
195,219 | 181,555 | ||||||
Asia/Pacific |
6,207 | 75,882 | ||||||
$ | 277,608 | $ | 332,488 | |||||
Goodwill decreased approximately $54.9 million during the six months ended April 30, 2011,
primarily as a result of the $74.1 goodwill impairment recorded related to the Companys
Asia/Pacific segment. This decrease was partially offset by an increase of approximately
$13.6 million related to the effect of changes in foreign currency exchange rates and an
increase of approximately $5.6 million related to minor acquisitions.
6. Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income include changes in fair value of
derivative instruments qualifying as cash flow hedges and foreign currency translation
adjustments. The components of accumulated other comprehensive income, net of tax, are as
follows:
April 30, | October 31, | |||||||
In thousands | 2011 | 2010 | ||||||
Foreign currency translation adjustment |
$ | 142,630 | $ | 114,935 | ||||
Loss on cash flow hedges |
(25,192 | ) | (1,253 | ) | ||||
$ | 117,438 | $ | 113,682 | |||||
7. Segment Information
Operating segments are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the Companys management in deciding
how to allocate resources and in assessing performance. The Company operates in the outdoor
market of the sporting goods industry in which the Company designs, markets and distributes
clothing, footwear, accessories and related products. The Company currently operates in
three segments: the Americas, Europe and Asia/Pacific. The Americas segment includes
revenues from the U.S., Canada and Latin America. The European segment includes revenues
primarily from Europe, the Middle East and Africa. The Asia/Pacific segment includes
revenues primarily from Australia, Japan, New Zealand and Indonesia. Costs that support all
three segments, including trademark protection, trademark maintenance and licensing
functions, are part of corporate operations. Corporate operations also includes sourcing
income and gross profit earned from the Companys licensees. The Companys largest customer
accounted for approximately 2% and 4% of the Companys net revenues from continuing
operations for the six months ended April 30, 2011 and 2010, respectively.
10
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QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
Information related to the Companys operating segments is as follows:
Three Months Ended April 30, | ||||||||
In thousands | 2011 | 2010 | ||||||
Revenues, net: |
||||||||
Americas |
$ | 210,669 | $ | 199,733 | ||||
Europe |
206,941 | 208,708 | ||||||
Asia/Pacific |
58,140 | 58,645 | ||||||
Corporate operations |
2,343 | 1,203 | ||||||
$ | 478,093 | $ | 468,289 | |||||
Gross profit: |
||||||||
Americas |
$ | 103,501 | $ | 92,997 | ||||
Europe |
128,332 | 125,108 | ||||||
Asia/Pacific |
30,862 | 31,400 | ||||||
Corporate operations |
(526 | ) | (218 | ) | ||||
$ | 262,169 | $ | 249,287 | |||||
SG&A expense: |
||||||||
Americas |
$ | 85,139 | $ | 81,191 | ||||
Europe |
84,569 | 85,960 | ||||||
Asia/Pacific |
37,817 | 32,259 | ||||||
Corporate operations |
9,223 | 14,006 | ||||||
$ | 216,748 | $ | 213,416 | |||||
Asset impairments: |
||||||||
Americas |
$ | 465 | $ | | ||||
Europe |
| | ||||||
Asia/Pacific |
74,145 | | ||||||
Corporate operations |
| | ||||||
$ | 74,610 | $ | | |||||
Operating income (loss): |
||||||||
Americas |
$ | 17,897 | $ | 11,806 | ||||
Europe |
43,763 | 39,148 | ||||||
Asia/Pacific |
(81,100 | ) | (859 | ) | ||||
Corporate operations |
(9,749 | ) | (14,224 | ) | ||||
$ | (29,189 | ) | $ | 35,871 | ||||
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QUIKSILVER,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
Six Months Ended April 30, | ||||||||
In thousands | 2011 | 2010 | ||||||
Revenues, net: |
||||||||
Americas |
$ | 404,459 | $ | 386,694 | ||||
Europe |
372,140 | 386,585 | ||||||
Asia/Pacific |
125,141 | 125,697 | ||||||
Corporate operations |
2,803 | 2,050 | ||||||
$ | 904,543 | $ | 901,026 | |||||
Gross profit: |
||||||||
Americas |
$ | 192,967 | $ | 174,012 | ||||
Europe |
225,632 | 229,361 | ||||||
Asia/Pacific |
67,495 | 68,443 | ||||||
Corporate operations |
(455 | ) | (380 | ) | ||||
$ | 485,639 | $ | 471,436 | |||||
SG&A expense: |
||||||||
Americas |
$ | 168,133 | $ | 157,552 | ||||
Europe |
164,986 | 171,764 | ||||||
Asia/Pacific |
72,647 | 63,636 | ||||||
Corporate operations |
21,418 | 23,624 | ||||||
$ | 427,184 | $ | 416,576 | |||||
Asset impairments: |
||||||||
Americas |
$ | 465 | $ | | ||||
Europe |
| | ||||||
Asia/Pacific |
74,145 | | ||||||
Corporate operations |
| | ||||||
$ | 74,610 | $ | | |||||
Operating income (loss): |
||||||||
Americas |
$ | 24,369 | $ | 16,460 | ||||
Europe |
60,646 | 57,597 | ||||||
Asia/Pacific |
(79,297 | ) | 4,807 | |||||
Corporate operations |
(21,873 | ) | (24,004 | ) | ||||
$ | (16,155 | ) | $ | 54,860 | ||||
April 30, | October 31, | |||||||
2011 | 2010 | |||||||
Identifiable assets: |
||||||||
Americas |
$ | 515,509 | $ | 535,580 | ||||
Europe |
868,913 | 800,754 | ||||||
Asia/Pacific |
200,779 | 298,503 | ||||||
Corporate operations |
52,680 | 61,284 | ||||||
$ | 1,637,881 | $ | 1,696,121 | |||||
8. | Derivative Financial Instruments |
The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to certain sales, royalty income and product purchases of its international subsidiaries that are denominated in currencies other than their functional currencies. The Company is also exposed to foreign currency gains and losses resulting from domestic transactions that are not denominated in U.S. dollars. Furthermore, the Company is exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported results in the Companys consolidated financial statements due to the translation of the operating results and financial position of the Companys international subsidiaries. As part of its overall strategy to manage the level of exposure to the risk of |
12
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QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
fluctuations in foreign currency exchange rates, the Company uses various foreign currency exchange contracts and intercompany loans. | ||
The Company accounts for all of its cash flow hedges under ASC 815, Derivatives and Hedging, which requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the consolidated balance sheet. In accordance with ASC 815, the Company designates forward contracts as cash flow hedges of forecasted purchases of commodities. | ||
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. As of April 30, 2011, the Company was hedging forecasted transactions expected to occur through July 2013. Assuming April 30, 2011 exchange rates remain constant, $25.2 million of losses, net of tax, related to hedges of these transactions are expected to be reclassified into earnings over the next 27 months. | ||
For the six months ended April 30, 2011 and 2010, the effective portions of gains and losses on derivative instruments in the condensed consolidated statements of operations were as follows: |
Six Months Ended April 30, | ||||||||||||
2011 | 2010 | |||||||||||
In thousands | Amount | Location | ||||||||||
(Loss) gain recognized in OCI on derivatives |
$ | (31,896 | ) | $ | 27,731 | Other comprehensive income | ||||||
Gain reclassified from accumulated OCI
into income |
$ | 1,206 | $ | 6,906 | Cost of goods sold | |||||||
Loss reclassified from accumulated OCI into
income |
$ | (1,033 | ) | $ | | Interest expense | ||||||
Gain reclassified from accumulated OCI into
income |
$ | 277 | $ | 342 | Foreign currency gain | |||||||
Gain recognized in income on derivatives |
$ | | $ | 816 | Foreign currency gain |
On the date the Company enters into a derivative contract, management designates the derivative as a hedge of the identified exposure. The Company formally documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for entering into various hedge transactions. In this documentation, the Company identifies the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and indicates how the hedging instrument is expected to hedge the risks related to the hedged item. The Company formally measures effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis in accordance with its risk management policy. The Company would discontinue hedge accounting prospectively (i) if management determines that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item, (ii) when the derivative expires or is sold, terminated, or exercised, (iii) if it becomes probable that the forecasted transaction being hedged by the derivative will not occur, (iv) because a hedged firm commitment no longer meets the definition of a firm commitment, or (v) if management determines that designation of the derivative as a hedge instrument is no longer appropriate. | ||
The Company enters into forward exchange and other derivative contracts with major banks and is exposed to exchange rate losses in the event of nonperformance by these banks. The Company anticipates, however, that these banks will be able to fully satisfy their obligations |
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QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
under the contracts. Accordingly, the Company does not obtain collateral or other security to support the contracts. | ||
As of April 30, 2011, the Company had the following outstanding derivative contracts to hedge forecasted purchases and future cash receipts: |
Notional | ||||||||||||||||
In thousands | Commodity | Amount | Maturity | Fair Value | ||||||||||||
United States dollars |
Inventory | $ | 530,035 | May 2011 Jul 2013 | $ | (36,321 | ) | |||||||||
Swiss francs |
Accounts receivable | 18,399 | May 2011 Oct 2012 | (452 | ) | |||||||||||
British pounds |
Accounts receivable | 17,499 | May 2011 Oct 2011 | 1,231 | ||||||||||||
$ | 565,933 | $ | (35,542 | ) | ||||||||||||
ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three levels. These levels are: |
| Level 1 Valuation is based upon quoted prices for identical instruments traded in active markets. Level 1 assets and liabilities include debt and equity securities traded in an active exchange market, as well as U.S. Treasury securities. | ||
| Level 2 Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | ||
| Level 3 Valuation is determined using model-based techniques with significant assumptions not observable in the market. These unobservable assumptions reflect the Companys own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of third party pricing services, option pricing models, discounted cash flow models and similar techniques. |
The following tables reflect the fair values of assets and liabilities measured and recognized at fair value on a recurring basis on the accompanying condensed consolidated balance sheets: |
Fair Value Measurements Using | Assets (Liabilities) | |||||||||||||||
Level 1 | Level 2 | Level 3 | at Fair Value | |||||||||||||
In thousands | April 30, 2011 | |||||||||||||||
Derivative assets: |
||||||||||||||||
Other receivables |
$ | | $ | 1,279 | $ | | $ | 1,279 | ||||||||
Other assets |
| 46 | | 46 | ||||||||||||
Derivative liabilities: |
||||||||||||||||
Accrued liabilities |
| (22,868 | ) | | (22,868 | ) | ||||||||||
Other long-term liabilities |
| (13,999 | ) | | (13,999 | ) | ||||||||||
Total fair value |
$ | | $ | (35,542 | ) | $ | | $ | (35,542 | ) | ||||||
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QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
Fair Value Measurements Using | Assets (Liabilities) | |||||||||||||||
Level 1 | Level 2 | Level 3 | at Fair Value | |||||||||||||
In thousands | October 31, 2010 | |||||||||||||||
Derivative assets: |
||||||||||||||||
Other receivables |
$ | | $ | 8,428 | $ | | $ | 8,428 | ||||||||
Other assets |
| | | | ||||||||||||
Derivative liabilities: |
||||||||||||||||
Accrued liabilities |
| (6,964 | ) | | (6,964 | ) | ||||||||||
Other long-term liabilities |
| (2,752 | ) | | (2,752 | ) | ||||||||||
Total fair value |
$ | | $ | (1,288 | ) | $ | | $ | (1,288 | ) | ||||||
9. | Litigation, Indemnities and Guarantees |
The Company is involved from time to time in legal claims involving trademarks and intellectual property, licensing, employee relations and other matters incidental to its business. The Company believes the resolution of any such matter currently pending will not have a material adverse effect on its financial condition, results of operations or cash flows. | ||
During its normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These include (i) intellectual property indemnities to the Companys customers and licensees in connection with the use, sale and/or license of Company products, (ii) indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, (iii) indemnities to vendors and service providers pertaining to claims based on the negligence or willful misconduct of the Company, and (iv) indemnities involving the accuracy of representations and warranties in certain contracts. The duration of these indemnities, commitments and guarantees varies and, in certain cases, may be indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential for future payments the Company could be obligated to make. As of April 30, 2011, the Company had not recorded any liability for these indemnities, commitments and guarantees in the accompanying condensed consolidated balance sheets. |
10. | Income Taxes |
During the six months ended April 30, 2011, the Company evaluated the realizability of all of its deferred tax assets in each tax jurisdiction, including Australia, Japan, and New Zealand. The Australian consolidated tax group includes a portion of the Asia/Pacific operating segment as well as the Australian entities included in the corporate operations segment. | ||
Accordingly, the Company has concluded that based on all available information and proper weighting of objective and subjective evidence as of April 30, 2011, including a cumulative loss that had been sustained over a three-year period, it is more likely than not that its deferred tax assets in certain jurisdictions in the Asia/Pacific segment will not be realized and a full valuation allowance of $26.0 million was established. As of April 30, 2011, the Company also continued to maintain a full valuation allowance against its net deferred tax assets in the United States. As a result of the valuation allowances recorded in the U.S. and certain jurisdictions in the Asia/Pacific segment, no tax benefits are recognized for losses in those tax jurisdictions. | ||
On April 30, 2011, the Companys liability for uncertain tax positions was approximately $147.4 million resulting from unrecognized tax benefits, excluding interest and penalties. During the six months ended April 30, 2011, the Company increased its liability for uncertain tax positions, exclusive of interest and penalties, by $2.5 million. This increase resulted from increases of $0.3 million for positions taken in prior periods and $7.4 million due to foreign currency exchange rate |
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QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
fluctuations, partially offset by a decrease of $5.2 million due to settlements with taxing authorities. | ||
If the Companys positions are favorably sustained by the relevant taxing authority, approximately $142.6 million, excluding interest and penalties, of uncertain tax position liabilities would favorably impact the Companys effective tax rate in future periods. | ||
The Company includes interest and penalties related to unrecognized tax benefits in its provision for income taxes in the accompanying condensed consolidated statements of operations. During the six months ended April 30, 2011, the Company recorded an expense of approximately $1.2 million relating to interest and penalties, and as of April 30, 2011, the Company had a liability for interest and penalties of $12.8 million. | ||
During the next 12 months, it is reasonably possible that the Companys liability for uncertain tax positions may change by a significant amount as a result of the resolution or payment of uncertain tax positions related to intercompany transactions between foreign affiliates and certain foreign withholding tax exposures. Conclusion of these matters could result in settlement for different amounts than the Company has accrued as uncertain tax benefits. If a position which the Company concluded was more likely than not is subsequently not upheld, then the Company would need to accrue and ultimately pay an additional amount. Conversely, the Company could settle positions with the tax authorities for amounts lower than have been accrued or extinguish a position through payment. The Company believes the outcomes which are reasonably possible within the next 12 months range from an increase of the liability for unrecognized tax benefits of up to $2 million to a reduction of the liability for unrecognized tax benefits of up to $130 million, excluding penalties and interest. |
11. | Restructuring Charges | |
In connection with its cost reduction efforts, the Company formulated the Fiscal 2009 Cost Reduction Plan (the Plan). The Plan covers the global operations of the Company, but is primarily concentrated in the United States. During the six months ended April 30, 2011, the Company determined that it would utilize certain facilities in the United States that were previously vacated, and reversed approximately $2.1 million of previously recognized lease loss accruals. The Company continues to evaluate its facilities in the United States, as well as its overall cost structure, and may incur future charges under the Plan. | ||
Activity and liability balances recorded as part of the Plan are as follows: |
Facility | ||||||||||||
In thousands | Workforce | & Other | Total | |||||||||
Balance November 1, 2009 |
$ | 9,958 | $ | 3,951 | $ | 13,909 | ||||||
Charged to expense |
8,339 | 1,676 | 10,015 | |||||||||
Cash payments |
(13,020 | ) | (2,226 | ) | (15,246 | ) | ||||||
Adjustments to accrual |
(425 | ) | | (425 | ) | |||||||
Foreign currency translation |
66 | | 66 | |||||||||
Balance, October 31, 2010 |
4,918 | 3,401 | 8,319 | |||||||||
Charged to expense |
816 | 232 | 1,048 | |||||||||
Cash payments |
(4,649 | ) | (550 | ) | (5,199 | ) | ||||||
Adjustments to accrual |
| (2,118 | ) | (2,118 | ) | |||||||
Foreign currency translation |
11 | 9 | 20 | |||||||||
Balance, April 30, 2011 |
$ | 1,096 | $ | 974 | $ | 2,070 | ||||||
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QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
12. | Debt | |
A summary of lines of credit and long-term debt is as follows: |
April 30, | October 31, | |||||||
In thousands | 2011 | 2010 | ||||||
European short-term credit arrangements |
$ | | $ | | ||||
Asia/Pacific short-term lines of credit |
4,792 | 22,586 | ||||||
Americas credit facility |
| | ||||||
Americas long-term debt |
20,000 | 20,000 | ||||||
European long-term debt |
| 265,222 | ||||||
European credit facility |
| | ||||||
Senior notes |
400,000 | 400,000 | ||||||
European senior notes |
296,780 | | ||||||
Capital lease obligations and other borrowings |
11,315 | 20,965 | ||||||
$ | 732,887 | $ | 728,773 | |||||
As of April 30, 2011, the Companys credit facilities allowed for total maximum cash borrowings and letters of credit of $261.3 million. The Companys total maximum borrowings and actual availability fluctuate depending on the extent of assets comprising the Companys borrowing base under certain credit facilities. The Company had $4.8 million of borrowings drawn on these credit facilities as of April 30, 2011, and letters of credit issued at that time totaled $105.6 million. The amount of availability for additional borrowings under these facilities as of April 30, 2011 was $71.5 million, $59.5 million of which could also be used for letters of credit in the United States. In addition to the $71.5 million of additional availability for borrowings, the Company also had $77.1 million in additional capacity for letters of credit in Europe and Asia/Pacific as of April 30, 2011. Many of the Companys debt agreements contain customary default provisions and restrictive covenants. The Company is currently in compliance with such covenants. | ||
In December 2010, Boardriders SA, a wholly owned subsidiary of the Company, issued 200 million (approximately $265 million at the date of issuance) in senior notes (European Senior Notes), which bear a coupon interest rate of 8.875% and are due December 15, 2017. The European Senior Notes were issued at par value in a private offering that is exempt from the registration requirements of the Securities Act of 1933, as amended (the Securities Act). The European Senior Notes were offered within the United States only to qualified institutional buyers in accordance with Rule 144A under the Securities Act and outside the United States only to non-U.S. investors in accordance with Regulation S under the Securities Act. The European Senior Notes will not be registered under the Securities Act or the securities laws of any other jurisdiction. | ||
The European Senior Notes are general senior obligations of Boardriders SA and are fully and unconditionally guaranteed on a senior unsecured basis by the Company and certain of the Companys current and future U.S. and non-U.S. subsidiaries, subject to certain exceptions. Boardriders SA may redeem some or all of the European Senior Notes at fixed redemption prices as set forth in the indenture related to such European Senior Notes. The European Senior Notes indenture includes covenants that limit the ability of Quiksilver, Inc. and its restricted subsidiaries to, among other things: incur additional debt; pay dividends on their capital stock or repurchase their capital stock; make certain investments; enter into certain types of transactions with affiliates; pay dividends or make other payments to Quiksilver, Inc.; use assets as security in other transactions; and sell certain assets or merge with or into other companies. The Company is currently in compliance with these covenants. | ||
The Company used the proceeds from the European Senior Notes to repay its then existing European term loans and to pay related fees and expenses. As a result, the Company recognized non-cash, non-operating charges during the six months ended April 30, 2011 of |
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QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
approximately $13.7 million, included in interest expense, to write-off the deferred debt issuance costs related to such term loans. The Company capitalized approximately $6.4 million of debt issuance costs associated with the issuance of the European Senior Notes, which will be amortized into interest expense over the seven year term of the European Senior Notes. |
The estimated fair values of the Companys lines of credit and long-term debt are as follows: |
April 30, 2011 | ||||||||
In thousands | Carrying Amount | Fair Value | ||||||
Lines of credit |
$ | 4,792 | $ | 4,792 | ||||
Long-term debt |
728,095 | 735,989 | ||||||
$ | 732,887 | $ | 740,781 | |||||
The fair value of the Companys long-term debt is calculated based on the market price of the Companys publicly traded senior notes, the trading price of the Companys European Senior Notes and the carrying values of the majority of the Companys other debt obligations. |
The carrying value of the Companys trade accounts receivable and accounts payable approximates fair value due to their short-term nature. |
13. Condensed Consolidating Financial Information
The Company has $400 million in publicly registered senior notes. Obligations under the Companys senior notes are fully and unconditionally guaranteed by certain of its domestic subsidiaries. The Company is required to present condensed consolidating financial information for Quiksilver, Inc. and its domestic subsidiaries within the notes to the condensed consolidated financial statements in accordance with the criteria established for parent companies in the SECs Regulation S-X, Rule 3-10(f). The following condensed consolidating financial information presents the results of operations, financial position and cash flows of Quiksilver Inc., its guarantor subsidiaries, its non-guarantor subsidiaries and the eliminations necessary to arrive at the information for the Company on a consolidated basis as of April 30, 2011 and October 31, 2010 and for the three and six month periods ended April 30, 2011 and 2010. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. The Company has applied the estimated consolidated annual effective income tax rate to both the guarantor and non-guarantor subsidiaries, adjusting for any discrete items, for interim reporting purposes. In the Companys consolidated financial statements for the fiscal year ending October 31, 2011, management will apply the actual income tax rates to both the guarantor and non-guarantor subsidiaries. These interim tax rates may differ from the actual annual effective income tax rates for both the guarantor and non-guarantor subsidiaries. |
18
Table of Contents
QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended April 30, 2011
Three Months Ended April 30, 2011
Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
In thousands | Quiksilver, Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Revenues, net |
$ | 116 | $ | 165,411 | $ | 322,977 | $ | (10,411 | ) | $ | 478,093 | |||||||||
Cost of goods sold |
| 85,076 | 134,565 | (3,717 | ) | 215,924 | ||||||||||||||
Gross profit |
116 | 80,335 | 188,412 | (6,694 | ) | 262,169 | ||||||||||||||
Selling, general and administrative
expense |
8,690 | 73,286 | 141,614 | (6,842 | ) | 216,748 | ||||||||||||||
Asset impairments |
| 465 | 74,145 | | 74,610 | |||||||||||||||
Operating (loss) income |
(8,574 | ) | 6,584 | (27,347 | ) | 148 | (29,189 | ) | ||||||||||||
Interest expense |
7,210 | 924 | 6,962 | | 15,096 | |||||||||||||||
Foreign currency loss (gain) |
108 | 261 | (2,690 | ) | | (2,321 | ) | |||||||||||||
Equity in earnings and other
income |
67,433 | | | (67,433 | ) | | ||||||||||||||
(Loss) income before (benefit)
provision for income taxes |
(83,325 | ) | 5,399 | (31,619 | ) | 67,581 | (41,964 | ) | ||||||||||||
(Benefit) provision for income taxes |
| (1,894 | ) | 41,584 | | 39,690 | ||||||||||||||
Net (loss) income |
(83,325 | ) | 7,293 | (73,203 | ) | 67,581 | (81,654 | ) | ||||||||||||
Less: net income attributable
to non-controlling interest |
| (1,671 | ) | | | (1,671 | ) | |||||||||||||
Net (loss) income attributable to
Quiksilver, Inc. |
$ | (83,325 | ) | $ | 5,622 | $ | (73,203 | ) | $ | 67,581 | $ | (83,325 | ) | |||||||
19
Table of Contents
QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended April 30, 2010
Three Months Ended April 30, 2010
Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
In thousands | Quiksilver, Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Revenues, net |
$ | | $ | 162,140 | $ | 315,725 | $ | (9,576 | ) | $ | 468,289 | |||||||||
Cost of goods sold |
| 87,270 | 134,243 | (2,511 | ) | 219,002 | ||||||||||||||
Gross profit |
| 74,870 | 181,482 | (7,065 | ) | 249,287 | ||||||||||||||
Selling, general and administrative
expense |
14,118 | 69,651 | 136,630 | (6,983 | ) | 213,416 | ||||||||||||||
Operating (loss) income |
(14,118 | ) | 5,219 | 44,852 | (82 | ) | 35,871 | |||||||||||||
Interest expense |
7,146 | 7,035 | 6,858 | | 21,039 | |||||||||||||||
Foreign currency gain |
(132 | ) | (138 | ) | (4,344 | ) | | (4,614 | ) | |||||||||||
Equity in earnings and other
income |
(29,094 | ) | (5 | ) | | 29,094 | (5 | ) | ||||||||||||
Income (loss) before (benefit)
provision for income taxes |
7,962 | (1,673 | ) | 42,338 | (29,176 | ) | 19,451 | |||||||||||||
(Benefit) provision for income taxes |
(1,462 | ) | | 10,881 | | 9,419 | ||||||||||||||
Income (loss) from continuing
operations |
9,424 | (1,673 | ) | 31,457 | (29,176 | ) | 10,032 | |||||||||||||
Income from discontinued
operations |
| | 602 | | 602 | |||||||||||||||
Net income (loss) |
9,424 | (1,673 | ) | 32,059 | (29,176 | ) | 10,634 | |||||||||||||
Less: net income attributable
to non-controlling interest |
| (1,210 | ) | | | (1,210 | ) | |||||||||||||
Net income (loss) attributable to
Quiksilver, Inc. |
$ | 9,424 | $ | (2,883 | ) | $ | 32,059 | $ | (29,176 | ) | $ | 9,424 | ||||||||
20
Table of Contents
QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended April 30, 2011
Six Months Ended April 30, 2011
Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
In thousands | Quiksilver, Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Revenues, net |
$ | 232 | $ | 316,048 | $ | 608,546 | $ | (20,283 | ) | $ | 904,543 | |||||||||
Cost of goods sold |
| 167,483 | 258,974 | (7,553 | ) | 418,904 | ||||||||||||||
Gross profit |
232 | 148,565 | 349,572 | (12,730 | ) | 485,639 | ||||||||||||||
Selling, general and administrative
expense |
18,594 | 144,897 | 276,154 | (12,461 | ) | 427,184 | ||||||||||||||
Asset impairments |
| 465 | 74,145 | | 74,610 | |||||||||||||||
Operating (loss) income |
(18,362 | ) | 3,203 | (727 | ) | (269 | ) | (16,155 | ) | |||||||||||
Interest expense |
14,421 | 1,773 | 27,870 | | 44,064 | |||||||||||||||
Foreign currency loss (gain) |
57 | 401 | (4,888 | ) | | (4,430 | ) | |||||||||||||
Equity in earnings and other income |
66,753 | | | (66,753 | ) | | ||||||||||||||
(Loss) income before (benefit)
provision for income taxes |
(99,593 | ) | 1,029 | (23,709 | ) | 66,484 | (55,789 | ) | ||||||||||||
(Benefit) provision for income taxes |
| (1,839 | ) | 42,780 | | 40,941 | ||||||||||||||
Net (loss) income |
(99,593 | ) | 2,868 | (66,489 | ) | 66,484 | (96,730 | ) | ||||||||||||
Less: net income attributable
to non-controlling interest |
| (2,863 | ) | | | (2,863 | ) | |||||||||||||
Net (loss) income attributable to
Quiksilver, Inc. |
$ | (99,593 | ) | $ | 5 | $ | (66,489 | ) | $ | 66,484 | $ | (99,593 | ) | |||||||
21
Table of Contents
QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended April 30, 2010
Six Months Ended April 30, 2010
Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
In thousands | Quiksilver, Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Revenues, net |
$ | 94 | $ | 311,933 | $ | 607,692 | $ | (18,693 | ) | $ | 901,026 | |||||||||
Cost of goods sold |
| 174,917 | 260,641 | (5,968 | ) | 429,590 | ||||||||||||||
Gross profit |
94 | 137,016 | 347,051 | (12,725 | ) | 471,436 | ||||||||||||||
Selling, general and administrative
expense |
22,300 | 135,769 | 271,214 | (12,707 | ) | 416,576 | ||||||||||||||
Operating (loss) income |
(22,206 | ) | 1,247 | 75,837 | (18 | ) | 54,860 | |||||||||||||
Interest expense |
14,327 | 14,163 | 14,422 | | 42,912 | |||||||||||||||
Foreign currency gain |
(329 | ) | (152 | ) | (6,112 | ) | | (6,593 | ) | |||||||||||
Equity in earnings and other income |
(36,704 | ) | | | 36,704 | | ||||||||||||||
Income (loss) before (benefit)
provision for income taxes |
500 | (12,764 | ) | 67,527 | (36,722 | ) | 18,541 | |||||||||||||
(Benefit) provision for income taxes |
(3,570 | ) | (1,593 | ) | 18,256 | | 13,093 | |||||||||||||
Income (loss) from continuing
operations |
4,070 | (11,171 | ) | 49,271 | (36,722 | ) | 5,448 | |||||||||||||
Income from discontinued operations |
| | 678 | | 678 | |||||||||||||||
Net income (loss) |
4,070 | (11,171 | ) | 49,949 | (36,722 | ) | 6,126 | |||||||||||||
Less: net income attributable to non-controlling interest |
| (2,056 | ) | | | (2,056 | ) | |||||||||||||
Net income (loss) attributable to
Quiksilver, Inc. |
$ | 4,070 | $ | (13,227 | ) | $ | 49,949 | $ | (36,722 | ) | $ | 4,070 | ||||||||
22
Table of Contents
QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEET
At April 30, 2011
At April 30, 2011
Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
In thousands | Quiksilver, Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 45 | $ | 407 | $ | 138,140 | $ | | $ | 138,592 | ||||||||||
Trade accounts receivable, net |
| 99,406 | 242,375 | | 341,781 | |||||||||||||||
Other receivables |
231 | 5,104 | 22,012 | | 27,347 | |||||||||||||||
Income taxes receivable |
| 11,072 | (10,961 | ) | | 111 | ||||||||||||||
Inventories |
| 106,200 | 184,288 | (950 | ) | 289,538 | ||||||||||||||
Deferred income taxes |
| (3,372 | ) | 27,798 | | 24,426 | ||||||||||||||
Prepaid expenses and other
current assets |
2,515 | 10,695 | 18,060 | | 31,270 | |||||||||||||||
Total current assets |
2,791 | 229,512 | 621,712 | (950 | ) | 853,065 | ||||||||||||||
Fixed assets, net |
12,119 | 56,096 | 166,430 | | 234,645 | |||||||||||||||
Intangible assets, net |
3,007 | 49,090 | 87,517 | | 139,614 | |||||||||||||||
Goodwill |
| 111,977 | 165,631 | | 277,608 | |||||||||||||||
Investment in subsidiaries |
966,707 | | | (966,707 | ) | | ||||||||||||||
Other assets |
5,267 | 4,134 | 43,257 | | 52,658 | |||||||||||||||
Deferred income taxes long-term |
| (12,121 | ) | 92,412 | | 80,291 | ||||||||||||||
Total assets |
$ | 989,891 | $ | 438,688 | $ | 1,176,959 | $ | (967,657 | ) | $ | 1,637,881 | |||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Lines of credit |
$ | | $ | | $ | 4,792 | $ | | $ | 4,792 | ||||||||||
Accounts payable |
3,224 | 74,042 | 101,293 | | 178,559 | |||||||||||||||
Accrued liabilities |
4,378 | 19,919 | 104,451 | | 128,748 | |||||||||||||||
Current portion of long-term debt |
| 3,000 | 2,824 | | 5,824 | |||||||||||||||
Intercompany balances |
59,704 | (59,811 | ) | 107 | | | ||||||||||||||
Total current liabilities |
67,306 | 37,150 | 213,467 | | 317,923 | |||||||||||||||
Long-term debt, net of current
portion |
400,000 | 17,000 | 305,271 | | 722,271 | |||||||||||||||
Other long-term liabilities |
| 39,011 | 24,160 | | 63,171 | |||||||||||||||
Total liabilities |
467,306 | 93,161 | 542,898 | | 1,103,365 | |||||||||||||||
Stockholders/invested equity |
522,585 | 333,911 | 633,746 | (967,657 | ) | 522,585 | ||||||||||||||
Non-controlling interest |
| 11,616 | 315 | | 11,931 | |||||||||||||||
Total liabilities and equity |
$ | 989,891 | $ | 438,688 | $ | 1,176,959 | $ | (967,657 | ) | $ | 1,637,881 | |||||||||
23
Table of Contents
QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEET
(Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEET
At October 31, 2010
Non- | ||||||||||||||||||||
Quiksilver, | Guarantor | Guarantor | ||||||||||||||||||
In thousands | Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 164 | $ | 39,172 | $ | 81,257 | $ | | $ | 120,593 | ||||||||||
Trade accounts receivable, net |
| 130,445 | 237,983 | | 368,428 | |||||||||||||||
Other receivables |
239 | 3,930 | 38,343 | | 42,512 | |||||||||||||||
Inventories |
| 91,622 | 177,621 | (1,206 | ) | 268,037 | ||||||||||||||
Deferred income taxes |
| (3,318 | ) | 42,371 | | 39,053 | ||||||||||||||
Prepaid expenses and other
current assets |
2,738 | 6,493 | 15,975 | | 25,206 | |||||||||||||||
Current assets held for sale |
| | 12 | | 12 | |||||||||||||||
Total current assets |
3,141 | 268,344 | 593,562 | (1,206 | ) | 863,841 | ||||||||||||||
Fixed assets, net |
6,780 | 55,778 | 157,792 | | 220,350 | |||||||||||||||
Intangible assets, net |
2,979 | 49,461 | 88,127 | | 140,567 | |||||||||||||||
Goodwill |
| 114,863 | 217,625 | | 332,488 | |||||||||||||||
Other assets |
6,079 | 2,171 | 45,046 | | 53,296 | |||||||||||||||
Deferred income taxes long-term |
| (10,388 | ) | 95,967 | | 85,579 | ||||||||||||||
Investment in subsidiaries |
1,025,085 | | | (1,025,085 | ) | | ||||||||||||||
Total assets |
$ | 1,044,064 | $ | 480,229 | $ | 1,198,119 | $ | (1,026,291 | ) | $ | 1,696,121 | |||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Lines of credit |
$ | | $ | | $ | 22,586 | $ | | $ | 22,586 | ||||||||||
Accounts payable |
1,268 | 70,575 | 107,559 | | 179,402 | |||||||||||||||
Accrued liabilities |
7,717 | 29,558 | 77,734 | | 115,009 | |||||||||||||||
Current portion of long-term debt |
| 1,500 | 3,682 | | 5,182 | |||||||||||||||
Income taxes payable |
| (5,880 | ) | 9,364 | | 3,484 | ||||||||||||||
Intercompany balances |
24,711 | (18,474 | ) | (6,237 | ) | | | |||||||||||||
Current liabilities related to
assets held for sale |
| | 739 | | 739 | |||||||||||||||
Total current liabilities |
33,696 | 77,279 | 215,427 | | 326,402 | |||||||||||||||
Long-term debt, net of current
portion |
400,000 | 18,500 | 282,505 | | 701,005 | |||||||||||||||
Other long-term liabilities |
| 41,753 | 7,366 | | 49,119 | |||||||||||||||
Total liabilities |
433,696 | 137,532 | 505,298 | | 1,076,526 | |||||||||||||||
Stockholders/invested equity |
610,368 | 333,785 | 692,506 | (1,026,291 | ) | 610,368 | ||||||||||||||
Non-controlling interest |
| 8,912 | 315 | | 9,227 | |||||||||||||||
Total liabilities and equity |
$ | 1,044,064 | $ | 480,229 | $ | 1,198,119 | $ | (1,026,291 | ) | $ | 1,696,121 | |||||||||
24
Table of Contents
QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended April 30, 2011
Six Months Ended April 30, 2011
Non- | ||||||||||||||||||||
Quiksilver, | Guarantor | Guarantor | ||||||||||||||||||
In thousands | Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net (loss) income |
$ | (99,593 | ) | $ | 2,868 | $ | (66,489 | ) | $ | 66,484 | $ | (96,730 | ) | |||||||
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities: |
||||||||||||||||||||
Depreciation and amortization |
826 | 10,156 | 16,488 | | 27,470 | |||||||||||||||
Stock-based compensation |
4,981 | | | | 4,981 | |||||||||||||||
Provision for doubtful accounts |
| 1,226 | 4,164 | | 5,390 | |||||||||||||||
Asset impairments |
| 465 | 74,145 | | 74,610 | |||||||||||||||
Equity in earnings |
66,753 | (158 | ) | 179 | (66,753 | ) | 21 | |||||||||||||
Non-cash interest expense |
681 | 841 | 15,565 | | 17,087 | |||||||||||||||
Deferred income taxes |
| 1,747 | 38,600 | | 40,347 | |||||||||||||||
Other adjustments to reconcile net (loss) income |
57 | 454 | 1,200 | | 1,711 | |||||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||||||
Trade accounts receivable |
| 29,813 | 3,851 | | 33,664 | |||||||||||||||
Inventories |
| (14,605 | ) | 7,725 | 269 | (6,611 | ) | |||||||||||||
Other operating assets and liabilities |
(2,981 | ) | (22,526 | ) | (4,465 | ) | | (29,972 | ) | |||||||||||
Net cash (used in) provided by operating activities |
(29,276 | ) | 10,281 | 90,963 | | 71,968 | ||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Capital expenditures |
(5,332 | ) | (12,108 | ) | (16,490 | ) | | (33,930 | ) | |||||||||||
Business acquisitions, net of cash acquired |
| (528 | ) | (5,050 | ) | | (5,578 | ) | ||||||||||||
Net cash used in investing activities |
(5,332 | ) | (12,636 | ) | (21,540 | ) | | (39,508 | ) | |||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Borrowings on lines of credit |
| | 9,929 | | 9,929 | |||||||||||||||
Payments on lines of credit |
| | (28,031 | ) | | (28,031 | ) | |||||||||||||
Borrowings on long-term debt |
| | 270,475 | | 270,475 | |||||||||||||||
Payments on long-term debt |
| | (257,392 | ) | | (257,392 | ) | |||||||||||||
Payments of debt issuance costs |
| | (6,308 | ) | | (6,308 | ) | |||||||||||||
Stock option exercises and employee stock purchases |
3,074 | | | | 3,074 | |||||||||||||||
Intercompany |
31,415 | (36,410 | ) | 4,995 | | | ||||||||||||||
Net cash provided by (used in) financing activities |
34,489 | (36,410 | ) | (6,332 | ) | | (8,253 | ) | ||||||||||||
Effect of exchange rate changes on cash |
| | (6,208 | ) | | (6,208 | ) | |||||||||||||
Net (decrease) increase in cash and cash equivalents |
(119 | ) | (38,765 | ) | 56,883 | | 17,999 | |||||||||||||
Cash and cash equivalents, beginning of period |
164 | 39,172 | 81,257 | | 120,593 | |||||||||||||||
Cash and cash equivalents, end of period |
$ | 45 | $ | 407 | $ | 138,140 | $ | | $ | 138,592 | ||||||||||
25
Table of Contents
QUIKSILVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended April 30, 2010
Six Months Ended April 30, 2010
Non- | ||||||||||||||||||||
Quiksilver, | Guarantor | Guarantor | ||||||||||||||||||
In thousands | Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
$ | 4,070 | $ | (11,171 | ) | $ | 49,949 | $ | (36,722 | ) | $ | 6,126 | ||||||||
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities: |
||||||||||||||||||||
Income from discontinued operations |
| | (678 | ) | | (678 | ) | |||||||||||||
Depreciation and amortization |
768 | 11,094 | 15,161 | | 27,023 | |||||||||||||||
Stock-based compensation |
10,135 | | | | 10,135 | |||||||||||||||
Provision for doubtful accounts |
| 3,934 | 6,210 | | 10,144 | |||||||||||||||
Equity in earnings |
(36,704 | ) | | 183 | 36,704 | 183 | ||||||||||||||
Non-cash interest expense |
635 | 7,603 | 4,692 | | 12,930 | |||||||||||||||
Deferred income taxes |
| (548 | ) | 17,257 | | 16,709 | ||||||||||||||
Other adjustments to reconcile net income (loss) |
(296 | ) | (1,184 | ) | (2,006 | ) | | (3,486 | ) | |||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||||||
Trade accounts receivable |
| 42,647 | 30,406 | | 73,053 | |||||||||||||||
Inventories |
| 4,648 | 24,800 | 18 | 29,466 | |||||||||||||||
Other operating assets and liabilities |
121 | (21,941 | ) | (28,560 | ) | | (50,380 | ) | ||||||||||||
Cash (used in) provided by operating activities of
continuing operations |
(21,271 | ) | 35,082 | 117,414 | | 131,225 | ||||||||||||||
Cash provided by operating activities of
discontinued operations |
| | 3,287 | | 3,287 | |||||||||||||||
Net cash (used in) provided by operating activities |
(21,271 | ) | 35,082 | 120,701 | | 134,512 | ||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Capital expenditures |
(154 | ) | (664 | ) | (18,021 | ) | | (18,839 | ) | |||||||||||
Changes in restricted cash |
| | 52,706 | | 52,706 | |||||||||||||||
Cash (used in) provided by investing activities of
continuing operations |
(154 | ) | (664 | ) | 34,685 | | 33,867 | |||||||||||||
Cash used in investing activities of discontinued
operations |
| | | | | |||||||||||||||
Net cash (used in) provided by investing activities |
(154 | ) | (664 | ) | 34,685 | | 33,867 | |||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Borrowings on lines of credit |
| | | | | |||||||||||||||
Payments on lines of credit |
| | (16,707 | ) | | (16,707 | ) | |||||||||||||
Borrowings on long-term debt |
| 22,735 | 9,675 | | 32,410 | |||||||||||||||
Payments on long-term debt |
| (23,395 | ) | (113,577 | ) | | (136,972 | ) | ||||||||||||
Payments of debt issuance costs |
| | (1,823 | ) | | (1,823 | ) | |||||||||||||
Stock option exercises and employee stock purchases |
2,888 | | | | 2,888 | |||||||||||||||
Intercompany |
19,543 | 26,516 | (46,059 | ) | | | ||||||||||||||
Cash provided by (used in) financing activities of
continuing operations |
22,431 | 25,856 | (168,491 | ) | | (120,204 | ) | |||||||||||||
Cash used in financing activities of discontinued
operations |
| | | | | |||||||||||||||
Net cash provided by (used in) financing activities |
22,431 | 25,856 | (168,491 | ) | | (120,204 | ) | |||||||||||||
Effect of exchange rate changes on cash |
| | (2,362 | ) | | (2,362 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents |
1,006 | 60,274 | (15,467 | ) | 45,813 | |||||||||||||||
Cash and cash equivalents, beginning of period |
321 | 1,135 | 98,060 | | 99,516 | |||||||||||||||
Cash and cash equivalents, end of period |
$ | 1,327 | $ | 61,409 | $ | 82,593 | $ | | $ | 145,329 | ||||||||||
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PART I FINANCIAL INFORMATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Unless the context indicates otherwise, when we refer to Quiksilver, we, us, our, or the
Company in this Form 10-Q, we are referring to Quiksilver, Inc. and its subsidiaries on a
consolidated basis. You should read the following discussion and analysis in conjunction with our
unaudited condensed consolidated financial statements and related notes thereto contained elsewhere
in this report. The information contained in this quarterly report on Form 10-Q is not a complete
description of our business or the risks associated with an investment in our securities. We urge
you to carefully review and consider the various disclosures made by us in this report and in our
other reports filed with the Securities and Exchange Commission, including our Annual Report on
Form 10-K for the year ended October 31, 2010 and subsequent reports on Form 10-Q and Form 8-K,
which discuss our business in greater detail. The section entitled Risk Factors set forth in
Item 1A of our Annual Report on Form 10-K, and similar disclosures in our other SEC filings,
discuss some of the important risk factors that may affect our business, results of operations and
financial condition. You should carefully consider those risks, in addition to the information in
this report and in our other filings with the SEC, before deciding to purchase, hold or sell our
securities.
Over the past 41 years, Quiksilver has established itself as a global company representing the
casual, youth lifestyle associated with boardriding sports. We began operations in 1976 as a
California company making boardshorts for surfers in the United States under a license agreement
with the Quiksilver brand founders in Australia. Our product offerings expanded in the 1980s as we
expanded our distribution channels. After going public in 1986 and purchasing the rights to the
Quiksilver brand in the United States, we further expanded our product offerings and began to
diversify. In 1991, we acquired the European licensee of Quiksilver and introduced Roxy, our surf
brand for teenage girls. We also expanded demographically in the 1990s by adding products for
boys, girls, toddlers and men, and we introduced our proprietary retail store concept that displays
the heritage and products of Quiksilver and Roxy. In 2000, we acquired the international
Quiksilver and Roxy trademarks, and in 2002, we acquired our licensees in Australia and Japan. In
2004, we acquired DC Shoes, Inc. to expand our presence in action sports inspired footwear.
We operate in the outdoor market of the sporting goods industry in which we design, develop and
distribute branded apparel, footwear, accessories and related products. Our products are sold
throughout the world, primarily in surf shops, skate shops, snow shops and specialty stores. We
currently operate in three segments: the Americas, Europe and Asia/Pacific. The Americas segment
includes revenues from the U.S., Canada and Latin America. Our European segment includes revenues
primarily from Europe, the Middle East and Africa. Our Asia/Pacific segment includes revenues
primarily from Australia, Japan, New Zealand and Indonesia. Royalties earned from various
licensees in other international territories are categorized in corporate operations along with
revenues from sourcing services for our licensees.
We operate in markets that are highly competitive, and our ability to evaluate and respond to
changing consumer demands and tastes is critical to our success. If we are unable to remain
competitive and maintain our consumer loyalty, our business will be negatively affected. We
believe that our historical success is due to the development of an experienced team of designers,
artists, sponsored athletes, technicians, researchers, merchandisers, pattern makers and
contractors. Our team and the heritage and current strength of our brands has helped us remain
competitive in our markets. Our success in the future will depend, in part, on our ability to
continue to design products that are desirable in the marketplace and competitive in the areas of
quality, brand image, technical specifications, distribution methods, price, customer service and
intellectual property protection.
In December 2010, we issued 200 million in seven year unsecured senior notes and used the proceeds
to repay our European term loans. As a result, we significantly improved our balance sheet and our
liquidity position. Specifically, we have extended virtually all of our short-term maturities to a
long-term
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basis, which provides us with the financial and operational flexibility to fully pursue
the many growth opportunities within our own brands.
Results of Operations
The table below shows certain components in our statements of operations and other data as a
percentage of revenues:
Three Months Ended | Six Months Ended | |||||||||||||||
April 30, | April 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Statements of Operations data |
||||||||||||||||
Revenues, net |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Gross profit |
54.8 | 53.2 | 53.7 | 52.3 | ||||||||||||
Selling, general and administrative expense |
45.3 | 45.6 | 47.2 | 46.2 | ||||||||||||
Asset impairments |
15.6 | | 8.2 | | ||||||||||||
Operating (loss) income |
(6.1 | ) | 7.7 | (1.8 | ) | 6.1 | ||||||||||
Interest expense |
3.2 | 4.5 | 4.9 | 4.8 | ||||||||||||
Foreign currency gain and other income |
(0.5 | ) | (1.0 | ) | (0.5 | ) | (0.7 | ) | ||||||||
(Loss) income before provision for income taxes |
(8.8 | ) | 4.2 | (6.2 | ) | 2.1 | ||||||||||
Other data |
||||||||||||||||
Adjusted EBITDA(1) |
13.0 | % | 13.0 | % | 10.2 | % | 10.7 | % | ||||||||
(1) | Adjusted EBITDA is defined as income (loss) from continuing operations attributable to Quiksilver, Inc. before (i) interest expense, (ii) income tax expense, (iii) depreciation and amortization, (iv) non-cash stock-based compensation expense and (v) asset impairments. Adjusted EBITDA is not defined under generally accepted accounting principles (GAAP), and it may not be comparable to similarly titled measures reported by other companies. We use Adjusted EBITDA, along with other GAAP measures, as a measure of profitability because Adjusted EBITDA helps us to compare our performance on a consistent basis by removing from our operating results the impact of our capital structure, the effect of operating in different tax jurisdictions, the impact of our asset base, which can differ depending on the book value of assets, the accounting methods used to compute depreciation and amortization, the existence or timing of asset impairments and the effect of non-cash stock-based compensation expense. We believe EBITDA is useful to investors as it is a widely used measure of performance and the adjustments we make to EBITDA provide further clarity on our profitability. We remove the effect of non-cash stock-based compensation from our earnings which can vary based on share price, share price volatility and expected life of the equity instruments we grant. In addition, this stock-based compensation expense does not result in cash payments by us. We remove the effect of asset impairments from Adjusted EBITDA for the same reason that we remove depreciation and amortization as it is part of the impact of our asset base. Adjusted EBITDA has limitations as a profitability measure in that it does not include the interest expense on our debts, our provisions for income taxes, the effect of our expenditures for capital assets and certain intangible assets, the effect of non-cash stock-based compensation expense and the effect of asset impairments. The following is a reconciliation of (loss) income from continuing operations attributable to Quiksilver, Inc. to Adjusted EBITDA: |
Three Months Ended | Six Months Ended | |||||||||||||||
April 30, | April 30, | |||||||||||||||
In thousands | 2011 | 2010 | 2011 | 2010 | ||||||||||||
(Loss) income from continuing operations
attributable to Quiksilver, Inc. |
$ | (83,325 | ) | $ | 8,822 | $ | (99,593 | ) | $ | 3,392 | ||||||
Provision for income taxes |
39,690 | 9,419 | 40,941 | 13,093 | ||||||||||||
Interest expense |
15,096 | 21,039 | 44,064 | 42,912 | ||||||||||||
Depreciation and amortization |
13,470 | 13,453 | 27,470 | 27,023 | ||||||||||||
Non-cash stock-based compensation expense |
2,571 | 8,003 | 4,981 | 10,135 | ||||||||||||
Non-cash asset impairments |
74,610 | | 74,610 | | ||||||||||||
Adjusted EBITDA |
$ | 62,112 | $ | 60,736 | $ | 92,473 | $ | 96,555 | ||||||||
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Three Months Ended April 30, 2011 Compared to Three Months Ended April 30, 2010
Our total net revenues for the three months ended April 30, 2011 increased 2% to $478.1 million
from $468.3 million in the comparable period of the prior year. In constant currency, net revenues
decreased 1% compared to the prior year. Our net revenues in each of the Americas, Europe and
Asia/Pacific segments include apparel, footwear, accessories and related product lines for our
Quiksilver, Roxy, DC and other brands, which primarily include Hawk, Lib Technologies and Gnu.
In order to better understand growth rates in our foreign operating segments, we make reference to
constant currency. Constant currency improves visibility into actual growth rates as it adjusts
for the effect of changing foreign currency exchange rates from period to period. Constant
currency is calculated by taking the ending foreign currency exchange rate (for balance sheet
items) or the average foreign currency exchange rate (for income statement items) used in
translation for the current period and applying that same rate to the prior period. Our European
segment is translated into constant currency using euros and our Asia/Pacific segment is translated
into constant currency using Australian dollars as these are the primary functional currencies of
each reporting segment. As such, this methodology does not account for movements in individual
currencies within an operating segment (for example, non-euro currencies within our European
segment and Japanese yen within our Asia/Pacific segement). A constant currency translation
methodology that accounts for movements in each individual currency could yield a different result
compared to using only euros and Australian dollars. The following table presents revenues by
segment in both historical currency and constant currency for the three months ended April 30, 2011
and 2010:
In thousands | Americas | Europe | Asia/Pacific | Corporate | Total | |||||||||||||||
Historical currency (as reported) |
||||||||||||||||||||
April 30, 2010 |
$ | 199,733 | $ | 208,708 | $ | 58,645 | $ | 1,203 | $ | 468,289 | ||||||||||
April 30, 2011 |
210,669 | 206,941 | 58,140 | 2,343 | 478,093 | |||||||||||||||
Percentage increase (decrease) |
5 | % | (1 | %) | (1 | %) | 2 | % | ||||||||||||
Constant currency (current year exchange rates) |
||||||||||||||||||||
April 30, 2010 |
199,733 | 215,852 | 66,200 | 1,203 | 482,988 | |||||||||||||||
April 30, 2011 |
210,669 | 206,941 | 58,140 | 2,343 | 478,093 | |||||||||||||||
Percentage increase (decrease) |
5 | % | (4 | %) | (12 | %) | (1 | %) |
Revenues in the Americas segment increased 5% to $210.7 million for the three months ended April
30, 2011 from $199.7 million in the comparable period of the prior year, while European segment
revenues decreased 1% to $206.9 million from $208.7 million and Asia/Pacific segment revenues
decreased 1% to $58.1 million from $58.6 million for those same periods. The increase in the
Americas came primarily from DC and Quiksilver brand revenues, partially offset by a decrease in
Roxy brand revenues. The increase in DC brand revenues came primarily from our footwear product
category and, to a lesser extent, our accessories product category. The increase in Quiksilver
brand revenues came primarily from our accessories product category and, to a lesser extent, our
apparel product category. The decrease in Roxy brand revenues, which came primarily from our
apparel product category, was partially offset by growth in our footwear product category.
Europes net revenues decreased 4% in constant currency. The currency adjusted revenue decrease in
Europe was primarily the result of a decline in our Roxy brand revenues and, to a lesser extent,
Quiksilver and DC brand revenues. The decrease in Roxy brand revenues was generally from our
apparel product category and, to a lesser extent, our accessories product category, partially
offset by modest growth in our footwear product category. The decrease in Quiksilver brand
revenues was primarily from our apparel product category, while the decrease in DC brand revenues
came from the footwear product category and was partially offset by growth in the apparel and
accessories product categories. Asia/Pacifics net revenues decreased 12% in constant currency.
The currency adjusted revenue decrease in Asia/Pacific came primarily from Roxy brand revenues and,
to a lesser extent, Quiksilver brand revenues, partially offset by strong growth in DC brand
revenues. Fluctuations in quarterly brand and product category revenues are highly dependent on
the timing of shipments, replenishments of inventory in the retail channel and special order sales,
and therefore, are not necessarily indicative of trends.
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Our consolidated gross profit margin for the three months ended April 30, 2011 increased to 54.8%
from 53.2% in the comparable period of the prior year. The gross profit in the Americas segment
increased to 49.1% from 46.6%, our European segment gross profit margin increased to 62.0% from
59.9%, and our Asia/Pacific segment gross profit margin decreased slightly to 53.1% from 53.5% for
those same periods. The increase in the Americas segment gross profit margin was primarily the
result of a favorable shift in product mix and, to a lesser extent, a greater percentage of retail
versus wholesale sales. Our European segment gross profit margin increased primarily as a result
of improved retail margins. In our Asia/Pacific segment, the gross profit margin decrease was
primarily due to additional clearance business in Australia, partially offset by continued margin
improvements in Japan, although, such improvements were somewhat muted due to the impact of the
natural disasters that occurred in that market. Our consolidated gross profit margins for the
three months ending July 31, 2011 and October 31, 2011 are expected to be negatively impacted by
increasing product costs.
Our selling, general and administrative expense (SG&A) for the three months ended April 30, 2011
increased 2% to $216.7 million from $213.4 million in the comparable period of the prior year. In
the Americas segment, SG&A expenses increased 5% to $85.1 million from $81.2 million in the
comparable period of the prior year, while our European segment SG&A decreased 2% to $84.6 million
from $86.0 million, and our Asia/Pacific segment SG&A increased 17% to $37.8 million from $32.3
million for those same periods. As a percentage of revenues, our consolidated SG&A decreased to
45.3% for the three months ended April 30, 2011 from 45.6% for the three months ended April 30,
2010. In the Americas, SG&A as a percentage of revenues decreased slightly to 40.4% from 40.6% in
the comparable period of the prior year, while in Europe, SG&A as a percentage of revenues
decreased to 40.9% from 41.2% and in Asia/Pacific, SG&A as a percentage of revenues increased to
65.0% from 55.0% for those same periods. The decrease in SG&A as a percentage of revenues in our
Americas segment was primarily the result of higher revenues. The decrease in SG&A as a percentage
of revenues in our European segment was primarily due to lower retail store expenses. European
segment SG&A decreased 5% in constant currency. In our Asia/Pacific segment, the increase in SG&A
as a percentage of revenues was primarily the result of lower revenues and, to a lesser extent, the
cost of operating additonal retail stores. Asia/Pacific segment SG&A increased 4% in constant
currency.
Asset impairment charges for the three months ended April 30, 2011 were $74.6 million, compared to
zero in the comparable period of the prior year. These charges primarily consist of the $74.1
million goodwill impairment charge recorded in our Asia/Pacific segment.
Interest expense for the three months ended April 30, 2011 decreased to $15.1 million from $21.0
million in the comparable period of the prior year primarily as a result of the decline in our
total outstanding debt of approximately $145.1 million from April 30, 2010 to April 30, 2011.
Our foreign currency gain amounted to $2.3 million for the three months ended April 30, 2011
compared to $4.6 million in the comparable period of the prior year. This gain resulted primarily
from the foreign currency exchange effect of certain U.S. dollar denominated liabilities of our
foreign subsidiaries.
Our income tax expense for the three months ended April 30, 2011 was $39.7 million compared to $9.4
million in the comparable period of the prior year. During the three months ended April 30, 2011
we increased tax expense to establish a valuation allowance of approximately $26.0 million against
deferred tax assets in our Asia/Pacific segment. As a result of this valuation allowance, and the
valuation allowance previously established in the U.S., no tax benefits were recognized for losses
in those tax jurisdictions.
Our loss from continuing operations for the three months ended April 30, 2011 was $83.3 million or
$0.51 per share on a diluted basis, compared to income from continuing operations of $8.8 million,
or $0.06 per share on a diluted basis, in the comparable period of the prior year. Adjusted EBITDA
increased to $62.1 million from $60.7 million for those same periods.
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Table of Contents
Six Months Ended April 30, 2011 Compared to Six Months Ended April 30, 2010
Our total net revenues for the six months ended April 30, 2011 increased slightly to $904.5 million
from $901.0 million in the comparable period of the prior year. Net revenues decreased slightly in
constant currency.
The following table presents revenues by segment in both historical currency and constant currency
for the six months ended April 30, 2011 and 2010:
In thousands | Americas | Europe | Asia/Pacific | Corporate | Total | |||||||||||||||
Historical currency (as reported) |
||||||||||||||||||||
April 30, 2010 |
$ | 386,694 | $ | 386,585 | $ | 125,697 | $ | 2,050 | $ | 901,026 | ||||||||||
April 30, 2011 |
404,459 | 372,140 | 125,141 | 2,803 | 904,543 | |||||||||||||||
Percentage increase (decrease) |
5 | % | (4 | %) | (0 | %) | 0 | % | ||||||||||||
Constant currency (current year exchange rates) |
||||||||||||||||||||
April 30, 2010 |
386,694 | 379,459 | 139,344 | 2,050 | 907,547 | |||||||||||||||
April 30, 2011 |
404,459 | 372,140 | 125,141 | 2,803 | 904,543 | |||||||||||||||
Percentage increase (decrease) |
5 | % | (2 | %) | (10 | %) | (0 | %) |
Revenues in the Americas segment increased 5% to $404.5 million for the six months ended April 30,
2011 from $386.7 million in the comparable period of the prior year, while European segment
revenues decreased 4% to $372.1 million from $386.6 million and Asia/Pacific segment revenues
decreased slightly to $125.1 million from $125.7 million for those same periods. The increase in
the Americas came primarily from DC and Quiksilver brand revenues, partially offset by a decrease
in Roxy brand revenues. The increase in DC brand revenues came primarily from our footwear product
category and, to a lesser extent, our accessories product category. The increase in Quiksilver
brand revenues came primarily from our accessories product category and, to a lesser extent, our
footwear and apparel product categories. The decrease in Roxy brand revenues, which came primarily
from our apparel product category, was partially offset by growth in our accessories and footwear
product categories. European net revenues decreased 2% in constant currency. The currency
adjusted decrease in Europe came primarily from Roxy brand revenues and, to a lesser extent,
Quiksilver brand revenues, partially offset by growth in DC brand revenues. The decrease in Roxy
brand revenues was generally from our apparel product category and, to a lesser extent, our
accessories product category, partially offset by modest growth in our footwear product category.
The decrease in Quiksilver brand revenues was primarily from our accessories product category and,
to a lesser extent, our apparel product category. The increase in DC brand revenues came primarily
from growth in our apparel product category and, to a lesser extent, our accessories and footwear
product categories. Asia/Pacifics net revenues decreased 10% in constant currency. The currency
adjusted revenue decrease in Asia/Pacific came primarily from Roxy brand revenues and, to a lesser
extent, Quiksilver brand revenues, partially offset by strong growth in DC brand revenues.
Our consolidated gross profit margin for the six months ended April 30, 2011 increased to 53.7%
from 52.3% in the comparable period of the prior year. The gross profit margin in the Americas
segment increased to 47.7% from 45.0%, while our European segment gross profit margin increased to
60.6% from 59.3%, and our Asia/Pacific segment gross profit margin decreased to 53.9% from 54.5%
for those same periods. The increase in the Americas segment gross profit margin was primarily the
result of a greater percentage of retail versus wholesale sales and, to a lesser extent, a shift in
product mix. Our European segment gross profit margin increased primarily as a result of improved
retail margins and, to a lesser extent, improved wholesale margins. In our Asia/Pacific segment,
the gross profit margin decrease was primarily due to additional clearance business in Australia,
partially offset by continued margin improvements in Japan, although, such improvements were
somewhat muted due to the impact of the natural disasters that occurred in that market.
Our SG&A for the six months ended April 30, 2011 increased 3% to $427.2 million from $416.6 million
in the comparable period of the prior year. SG&A increased 2% in constant currency. In the
Americas
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segment, these expenses increased 7% to $168.1 million from $157.6 million in the
comparable period of
the prior year, while our European segment SG&A decreased 4% to $165.0 million from $171.8 million,
and our Asia/Pacific segment SG&A increased 14% to $72.6 million from $63.6 million for those same
periods. As a percentage of revenues, SG&A increased to 47.2% for the six months ended April 30,
2011 from 46.2% for the six months ended April 30, 2010. In the Americas, SG&A as a percentage of
revenues increased to 41.6% from 40.7% in the comparable period of the prior year. In Europe, SG&A
as a percentage of revenues decreased to 44.3% from 44.4%, and in Asia/Pacific, SG&A as a
percentage of revenues increased to 58.1% from 50.6% for those same periods. The increase in SG&A
as a percentage of revenues in our Americas segment was primarily due to additional spending to
support growth initiatives, including marketing, retail and ecommerce expenses. The decrease in
SG&A as a percentage of revenues in our European segment was primarily due to lower retail store
expenses. In our Asia/Pacific segment, the increase in SG&A as a percentage of revenues was
primarily the result of lower revenues and, to a lesser extent, the cost of operating additional
retail stores.
Asset impairment charges for the six months ended April 30, 2011 were $74.6 million, compared to
zero in the comparable period of the prior year. These charges primarily consist of the $74.1
million goodwill impairment charge recorded in our Asia/Pacific segment.
Interest expense for the six months ended April 30, 2011 increased to $44.1 million from $42.9
million in the comparable period of the prior year primarily as a result of the approximate $13.7
million write-off of deferred debt issuance costs associated with our European term loans that were
paid off in December 2010 upon the issuance of our European senior notes. This increase in
interest expense was partially offset by lower interest expense of approximately $12.5 million as a
result of the decline in our total outstanding debt of approximately $145.1 million from April 30,
2010 to April 30, 2011. Including the write-off of the deferred debt issuance costs, approximately
$17.1 million of the $44.1 million in interest expense was non-cash interest expense.
Our foreign currency gain amounted to $4.4 million for the six months ended April 30, 2011 compared
to $6.6 million in the comparable period of the prior year. The current year gain resulted
primarily from the foreign currency exchange effect of certain U.S. dollar denominated liabilities
of our foreign subsidiaries.
Our income tax expense for the six months ended April 30, 2011 was $40.9 million compared to $13.1
million for the six months ended April 30, 2010. During the six months ended April 30, 2011 we
increased tax expense to establish a valuation allowance of approximately $26.0 million against
deferred tax assets in our Asia/Pacific segment. As a result of this valuation allowance, and the
valuation allowance previously established in the U.S., no tax benefits were recognized for losses
in those tax jurisdictions.
Our loss from continuing operations for the six months ended April 30, 2011 was $99.6
million, or $0.62 per share on a diluted basis, compared to income of $3.4 million, or $0.02
per share on a diluted basis, in the comparable period of the prior year. Adjusted EBITDA
decreased to $92.5 million from $96.6 million for those same periods.
Financial Position, Capital Resources and Liquidity
We generally finance our working capital needs and capital investments with operating cash flows
and bank revolving lines of credit. Multiple banks in the United States, Europe and Australia make
these lines of credit available to us. Term loans are also used to supplement these lines of
credit and are typically used to finance long-term assets. In fiscal 2005, we issued $400 million
of unsecured senior notes to fund a portion of the purchase price for the Rossignol business and to
refinance certain existing indebtedness. In December 2010, we issued 200 million (approximately
$265 million at issuance) in unsecured senior notes (European Senior Notes) to repay our existing
European term loans. This transaction extended virtually all of our short-term maturities to a
long-term basis.
As we used the proceeds from the European Senior Notes to repay our existing European term loans,
we recognized non-cash, non-operating charges during the six months ended April 30, 2011 of
approximately $13.7 million to write-off the deferred debt issuance costs related to such term
loans. The
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debt issuance costs associated with the issuance of the European Senior Notes of $6.4 million will be amortized
into interest expense over the seven year term of the European Senior Notes.
The European Senior Notes bear a coupon interest rate of 8.875% and are due December 15, 2017. The
European Senior Notes are general senior obligations and are fully and unconditionally guaranteed
on a senior basis by us and certain of our current and future U.S. and non-U.S. subsidiaries,
subject to certain exceptions. We may redeem some or all of the European Senior Notes at fixed
redemption prices as set forth in the indenture related to such European Senior Notes. The
European Senior Notes indenture includes covenants that limit our ability to, among other things:
incur additional debt; pay dividends on our capital stock or repurchase our capital stock; make
certain investments; enter into certain types of transactions with affiliates; cause our restricted
subsidiaries to pay dividends or make other payments to us; use assets as security in other
transactions; and sell certain assets or merge with or into other companies. We are currently in
compliance with these covenants.
As of April 30, 2011, we had a total of approximately $733 million of indebtedness compared to a
total of approximately $729 million of indebtedness at October 31, 2010. While our total
indebtedness has remained constant, we are no longer subject to significant scheduled repayments
within the next four years.
We believe that our cash flows from operations, together with our existing credit facilities, cash
on hand and term loans will be adequate to fund our capital requirements for at least the next
twelve months. We also believe that our short-term uncommitted lines of credit in Asia/Pacific
will continue to be made available. If these lines of credit become unavailable, we intend to
extinguish any related debt using cash on hand or other existing credit facilities.
Cash Flows
Operating activities from continuing operations provided cash of $72.0 million in the six months
ended April 30, 2011 compared to $131.2 million in the six months ended April 30, 2010. This $59.2
million decrease in cash provided was primarily due to decreases in cash provided by our net loss
adjusted for other non-cash charges of $4.2 million, and increases in cash used for working capital
of $55.0 million.
Capital expenditures from continuing operations totaled $33.9 million for the six months ended
April 30, 2011, compared to $18.8 million in the comparable period of the prior year. These
investments include company-owned stores and ongoing investments in computer and warehouse
equipment, including our new global enterprise-wide reporting system.
During the six months ended April 30, 2011, net cash used in financing activities from continuing
operations totaled $8.3 million, compared to $120.2 million in the comparable period of the prior
year. Net cash used primarily resulted from repayments made on our Asia/Pacific short-term lines
of credit. Financing activities also include the issuance of our European Senior Notes and the
subsequent use of such proceeds to repay our European term loans.
The net increase in cash and cash equivalents for the six months ended April 30, 2011 was $18.0
million compared to a net increase of $45.8 million in the comparable period of the prior year.
Cash and cash equivalents totaled $138.6 million at April 30, 2011 compared to $120.6 million at
October 31, 2010, while working capital was $535.1 million at April 30, 2011 compared to $537.4
million at October 31, 2010.
Trade Accounts Receivable and Inventories
Our trade accounts receivable decreased 7% to $341.8 million at April 30, 2011 from $368.4 million
at October 31, 2010. Accounts receivable in our Americas segment decreased 16% to $154.5 million
at April 30, 2011 from $185.0 million at October 31, 2010, European segment accounts receivable
increased 15% to $154.0 million from $134.0 million and Asia/Pacific segment accounts receivable
decreased 33% to $33.3 million from $49.4 million for those same periods. Compared to April 30,
2010 accounts receivable increased 5% in the Americas segment, remained constant in our European
segment and increased 2% in our Asia/Pacific segment. In constant currency, consolidated trade
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accounts
receivable decreased 4% compared to April 30, 2010. The decrease in consolidated trade accounts receivable was a result of improved collections. Included in accounts receivable at April 30, 2011 are
approximately $23.2 million of value added tax and goods and services tax related to foreign
accounts receivable. Such taxes are not reported as net revenues and as such, are deducted from
accounts receivable to more accurately compute days sales outstanding. Overall average days sales
outstanding decreased by approximately 1 day at April 30, 2011 compared to April 30, 2010.
Consolidated inventories increased 8% to $289.5 million at April 30, 2011 from $268.0 million at
October 31, 2010. Inventories in the Americas segment increased 16% to $138.7 million from $119.3
million at October 31, 2010, European segment inventories decreased less than 1% to $83.5 million
from $83.9 million and Asia/Pacific segment inventories increased 4% to $67.2 million from $64.8
million. Compared to April 30, 2010, inventories increased 35% in the Americas segment, increased
25% in our European segment and increased 18% in our Asia/Pacific segment. In constant currency,
our consolidated inventories increased 18% compared to April 30, 2010. The increase in
consolidated inventories was primarily the result of a shift in the timing of our receipt of goods
and, to a lesser extent, restocking relative to very lean inventory levels of the prior year.
Consolidated average annual inventory turnover was approximately 3.0 at April 30, 2011 compared to
approximately 3.6 at April 30, 2010.
Income Taxes
During the six months ended April 30, 2011, our liability for uncertain tax positions, exclusive of
interest and penalties, increased by $2.5 million to approximately $147.4 million. This increase
resulted from increases of $0.3 million for positions taken in prior periods and $7.4 million due
to foreign exchange rate fluctuations, partially offset by a decrease of $5.2 million due to
settlements with taxing authorities.
During the fiscal year ended October 31, 2010, we recorded a liability of $108.6 million that, if
resolved unfavorably, would result in the reduction of tax attributes rather than a cash
obligation. This liability and the corresponding tax attributes are presented on a net basis on
our accompanying consolidated balance sheets.
If our positions are favorably sustained by the relevant taxing authority, approximately
$142.6 million, excluding interest and penalties, of uncertain tax position liabilities
would favorably impact our effective tax rate in future periods.
Commitments
As discussed above, in December 2010, we issued 200 million in unsecured senior notes and repaid
approximately 190 million in European term loans. There have been no other material changes
outside the ordinary course of business in our contractual obligations since October 31, 2010.
Critical Accounting Policies
Our condensed consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. To prepare these financial
statements, we must make estimates and assumptions that affect the reported amounts of assets and
liabilities. These estimates also affect our reported revenues and expenses. Judgments must also
be made about the disclosure of contingent liabilities. Actual results could be significantly
different from these estimates. We believe that the following discussion addresses the accounting
policies that are necessary to understand and evaluate our reported financial results.
Revenue Recognition
Revenues are recognized when the risk of ownership and title passes to our customers. Generally,
we extend credit to our customers and do not require collateral. None of our sales agreements with
any of our customers provide for any rights of return. However, we do approve returns on a
case-by-case basis at our sole discretion to protect our brands and our image. We provide
allowances for estimated returns when revenues are recorded, and related losses have historically
been within our expectations. If returns are higher than our estimates, our results of operations
would be adversely affected.
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Accounts Receivable
It is not uncommon for some of our customers to have financial difficulties from time to time.
This is normal given the wide variety of our account base, which includes small surf shops,
medium-sized retail chains, and some large department store chains. Throughout the year, we
perform credit evaluations of our customers, and we adjust credit limits based on payment history
and the customers current creditworthiness. We continuously monitor our collections and maintain
a reserve for estimated credit losses based on our historical experience and any specific customer
collection issues that have been identified. We also use insurance on certain classes of
receivables in our European segment. Historically, our losses have been consistent with our
estimates, but there can be no assurance that we will continue to experience the same credit loss
rates that we have experienced in the past. Unforeseen, material financial difficulties of our
customers could have an adverse impact on our results of operations.
Inventories
We value inventories at the cost to purchase and/or manufacture the product or the current
estimated market value of the inventory, whichever is lower. We regularly review our inventory
quantities on hand, and adjust inventory values for excess and obsolete inventory based primarily
on estimated forecasts of product demand and market value. Demand for our products could fluctuate
significantly. The demand for our products could be negatively affected by many factors, including
the following:
| weakening economic conditions; | |
| terrorist acts or threats; | |
| unanticipated changes in consumer preferences; | |
| reduced customer confidence; and | |
| unseasonable weather. |
Some of these factors could also interrupt the production and/or importation of our products or
otherwise increase the cost of our products. As a result, our operations and financial performance
could be negatively affected. Additionally, our estimates of product demand and/or market value
could be inaccurate, which could result in an understated or overstated provision required for
excess and obsolete inventory.
Long-Lived Assets
We acquire tangible and intangible assets in the normal course of our business. We evaluate the
recoverability of the carrying amount of these long-lived assets (including fixed assets,
trademarks, licenses and other amortizable intangibles) whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. An impairment loss is
recognized when the carrying value exceeds the undiscounted future cash flows estimated to result
from the use and eventual disposition of the asset. Impairments are recognized in operating
earnings. We continually use judgment when applying these impairment rules to determine the timing
of the impairment tests, the undiscounted cash flows used to assess impairments, and the fair value
of a potentially impaired asset. The reasonableness of our judgment could significantly affect the
carrying value of our long-lived assets.
Goodwill
We evaluate the recoverability of goodwill at least annually based on a two-step impairment test.
The first step compares the fair value of each reporting unit with its carrying amount, including
goodwill. We have three reporting units under which we evaluate goodwill for impairment, the
Americas, Europe and Asia/Pacific. We estimate the fair value of our reporting units using a
combination of a discounted cash flow approach and market approach. Material assumptions in our
test for impairment include future cash flows of each reporting unit, discount rates applied to
these cash flows and current market estimates of value. The discount rates used approximate our
cost of capital. Future cash flows assume future levels of growth in each reporting units
business. If any of these assumptions significantly change, including a change in expected future
growth rates or valuation multiples, we may be required to record future impairments of goodwill.
If the carrying amount exceeds fair value under the first step of our goodwill
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impairment test,
then the second step of the impairment test is performed to measure the amount of any impairment
loss.
As of October 31, 2010, the fair value of our Americas and Europe reporting units substantially
exceeded their carrying values. For our Asia/Pacific reporting unit, the fair value exceeded the
carrying value by approximately 9%. However, due to the natural disasters that occurred in several
of our markets within our Asia/Pacific reporting unit during the three months ended April 30, 2011
and their resulting impact on our business, we evaluated the recoverability of goodwill in our
Asia/Pacific reporting unit again as of April 30, 2011. As a result of this evaluation, we
recorded a goodwill impairment charge of approximately $74.1 million. Based on the uncertainty of
future growth rates and other assumptions used to estimate goodwill recoverability in our reporting
units, future reductions in our expected cash flows for a reporting unit could cause a material
impairment of goodwill.
Stock-Based Compensation Expense
We recognize compensation expense for all stock-based payments net of an estimated forfeiture rate
and only recognize compensation cost for those shares expected to vest using the graded vested
method over the requisite service period of the award. For option valuation, we determine the fair
value using the Black-Scholes option-pricing model which requires the input of certain assumptions,
including the expected life of the stock-based payment awards, stock price volatility and interest
rates.
Income Taxes
Income tax expense for interim periods is recognized based on the estimated annual effective tax
rate applied to pretax income. A deferred income tax asset or liability is established for the
expected future consequences of temporary differences in the financial reporting and tax bases of
assets and liabilities. We consider future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the value of our deferred tax assets. If we determine that it is
more likely than not that these assets will not be realized, we would reduce the value of these
assets to their expected realizable value, thereby decreasing net income. This determination was
made in regards to the deferred tax assets in our Asia/Pacific segment during the three months
ended April 30, 2011, resulting in an increase to tax expense of approximately $26.0 million.
Evaluating the value of these assets is necessarily based on our judgment. If we subsequently
determine that the deferred tax assets, which had been written down would, in our judgment, be
realized in the future, the value of the deferred tax assets would be increased, thereby increasing
net income in the period when that determination was made.
On November 1, 2007, we adopted the authoritative guidance included in ASC 740, Income Taxes,
which clarifies the accounting for uncertainty in income taxes recognized in the financial
statements. This guidance provides that a tax benefit from an uncertain tax position may be
recognized when it is more likely than not that the position will be sustained upon examination,
including resolutions of any related appeals or litigation processes, based on the technical merits
of the tax position. We recognize accrued interest and penalties related to unrecognized tax
benefits as a component of our provision for income taxes. The application of this guidance can
create significant variability in our tax rate from period to period based upon changes in or
adjustments to our uncertain tax positions.
Foreign Currency Translation
A significant portion of our revenues are generated in Europe, where we operate with the euro as
our primary functional currency, and a smaller portion of our revenues are generated in
Asia/Pacific, where we operate with the Australian dollar and Japanese yen as our primary
functional currencies. Our European revenues in the United Kingdom are denominated in British
pounds, and substantial portions of our European and Asia/Pacific product is sourced in U.S.
dollars, both of which result in exposure to gains and losses that could occur from fluctuations in
foreign currency exchange rates. Revenues and expenses that are denominated in foreign currencies
are translated using the average exchange rate for the period. Assets and liabilities are
translated at the rate of exchange on the balance sheet date. Gains and losses from assets and
liabilities denominated in a currency other than the functional currency of the entity on which
they reside are generally recognized currently in our statement of operations. Gains and
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losses
from translation of foreign subsidiary financial statements into U.S. dollars are included in
accumulated other comprehensive income or loss.
As part of our overall strategy to manage our level of exposure to the risk of fluctuations in
foreign currency exchange rates, we enter into various foreign currency exchange contracts
generally in the form
of forward contracts. For all contracts that qualify as cash flow hedges, we record the changes in
the fair value of the derivative contracts in other comprehensive income or loss.
New Accounting Pronouncements
See Note 2 New Accounting Pronouncements for a discussion of pronouncements that may affect our
future financial reporting.
Forward-Looking Statements
All statements included in this report, other than statements or characterizations of historical
fact, are forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. Examples of forward-looking statements include, but are not limited to, statements
regarding the trends and uncertainties in our financial condition, liquidity and results of
operations. These forward-looking statements are based on our current expectations, estimates and
projections about our industry, managements beliefs, and certain assumptions made by us and speak
only as of the date of this report. Forward-looking statements can often be identified by words
such as anticipates, expects, intends, plans, predicts, believes, seeks, estimates,
may, will, likely, should, would, could, potential, continue, ongoing, and
similar expressions, and variations or negatives of these words. In addition, any statements that
refer to expectations, projections, guidance, forecasts or other characterizations of future events
or circumstances, including any underlying assumptions, are forward-looking statements. These
statements are not guarantees of future results and are subject to risks, uncertainties and
assumptions that are difficult to predict. Therefore, our actual results could differ materially
and adversely from those expressed in any forward-looking statement as a result of various factors,
including, but not limited to, the following:
| our ability to achieve the financial results that we anticipate; | |
| future expenditures for capital projects, including the implementation of our global enterprise-wide reporting system; | |
| increases in production costs and raw materials, particularly with respect to cotton and other commodities; | |
| deterioration of global economic conditions and credit and capital markets; | |
| our ability to remain compliant with our debt covenants; | |
| payments due on contractual commitments and other debt obligations; | |
| our ability to continue to maintain our brand image and reputation; | |
| foreign currency exchange rate fluctuations; and | |
| changes in political, social and economic conditions and local regulations, particularly in Europe and Asia. |
We undertake no obligation to publicly update or revise any forward-looking statements, whether as
a result of new information, future events or otherwise. In light of these risks and
uncertainties, we cannot assure you that the forward-looking information contained herein will, in
fact, transpire.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of risks, including foreign currency exchange rate fluctuations.
Foreign Currency and Derivatives
We are exposed to financial statement gains and losses as a result of translating the operating
results and financial position of our international subsidiaries. We translate the local currency
statements of
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operations of our foreign subsidiaries into U.S. dollars using the average exchange
rate during the reporting period. Changes in foreign currency exchange rates affect our reported
results and distort comparisons from period to period. By way of example, when the U.S. dollar
strengthens compared to the euro, there is a negative effect on our reported results for our
European segment because it takes more profits in euros to generate the same amount of profits in
stronger U.S. dollars. The opposite is also true.
That is, when the U.S. dollar weakens there is a positive effect on the translation of our reported
results from our European segment. In addition, the statements of operations of our Asia/Pacific
segment are translated from Australian dollars and Japanese yen into U.S. dollars, and there is a
negative effect on our reported results for our Asia/Pacific segment when the U.S. dollar is
stronger in comparison to the Australian dollar or Japanese yen.
European revenues decreased 2% in euros during the six months ended April 30, 2011 compared to the
six months ended April 30, 2010. As measured in U.S. dollars and reported in our consolidated
statements of operations, European revenues decreased 4% as a result of a stronger U.S. dollar
versus the euro in comparison to the prior period.
Asia/Pacific revenues decreased 10% in Australian dollars during the six months ended April 30,
2011 compared to the six months ended April 30, 2010. As measured in U.S. dollars and reported in
our consolidated statements of operations, Asia/Pacific revenues remained constant as a result of a
stronger Australian dollar and Japanese yen versus the U.S. dollar in comparison to the prior
period.
Our other foreign currency risks are discussed in our Annual Report on Form 10-K for the year ended
October 31, 2010 in Item 7A.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the Exchange Act)), that are designed to ensure
that information required to be disclosed in our reports filed under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and forms,
and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Our disclosure controls and procedures are designed to provide a
reasonable level of assurance of reaching our desired disclosure control objectives.
We carried out an evaluation under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of April 30, 2011, the end of the
period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were effective, and were
operating at the reasonable assurance level as of April 30, 2011.
There have been no changes in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended April 30, 2011 that
materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
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PART II OTHER INFORMATION
Item 6. | ||
Exhibits | ||
2.1
|
Stock Purchase Agreement between the Roger Cleveland Golf Company, Inc., Rossignol Ski Company, Incorporated, Quiksilver, Inc. and SRI Sports Limited dated October 30, 2007 (incorporated by reference to Exhibit 2.3 of the Companys Annual Report on Form 10-K for the year ended October 31, 2007). | |
2.2
|
Amendment No. 1 to the Stock Purchase Agreement between the Roger Cleveland Golf Company, Inc., Rossignol Ski Company, Incorporated, Quiksilver, Inc. and SRI Sports Limited dated December 7, 2007 (incorporated by reference to Exhibit 2.4 of the Companys Annual Report on Form 10-K for the year ended October 31, 2007). | |
2.3
|
Stock Purchase Agreement dated November 12, 2008, by and among Quiksilver, Inc., Pilot S.A.S., Meribel S.A.S., Quiksilver Americas, Inc., Chartreuse et Mont Blanc LLC, Chartreuse et Mont Blanc S.A.S., Chartreuse et Mont Blanc Global Holdings S.C.A., Macquarie Asset Finance Limited and Mavilia S.A.S. (incorporated by reference to Exhibit 2.1 of the Companys Current Report on Form 8-K filed on November 18, 2008). | |
2.4
|
Amendment No. 1 to Stock Purchase Agreement dated October 29, 2009, by and among Quiksilver, Inc., Pilot S.A.S., Meribel S.A.S., Quiksilver Americas, Inc., Chartreuse et Mont Blanc LLC, Chartreuse et Mont Blanc S.A.S., Chartreuse et Mont Blanc Global Holdings S.C.A., Macquarie Asset Finance Limited and Mavilia S.A.S. (incorporated by reference to Exhibit 2.1 of the Companys Current Report on Form 8-K filed on October 30, 2009). | |
3.1
|
Restated Certificate of Incorporation of Quiksilver, Inc., as amended (incorporated by reference to Exhibit 3.1 of the Companys Annual Report on Form 10-K for the year ended October 31, 2004). | |
3.2
|
Certificate of Amendment of Restated Certificate of Incorporation of Quiksilver, Inc. (incorporated by reference to Exhibit 10.1 of the Companys Quarterly Report on Form 10-Q for the quarter ended April 30, 2005). | |
3.3
|
Certificate of Designation of the Series A Convertible Preferred Stock of Quiksilver, Inc. (incorporated by reference to Exhibit 3.1 of the Companys Current Report on Form 8-K filed on August 4, 2009). | |
3.4
|
Certificate of Amendment of Restated Certificate of Incorporation of Quiksilver, Inc. (incorporated by reference to Exhibit 3.1 of the Companys Current Report on Form 8-K filed on April 1, 2010). | |
3.5
|
Amended and Restated Bylaws of Quiksilver, Inc. (incorporated by reference to Exhibit 3.1 of the Companys Current Report on Form 8-K filed on November 2, 2010). | |
4.1
|
Indenture for the 6 7/8% Senior Notes due 2015 dated July 22, 2005, among Quiksilver, Inc., the subsidiary guarantors set forth therein and Wilmington Trust Company, as trustee, including the form of Global Note attached thereto (incorporated by reference to Exhibit 4.1 of the Companys Current Report on Form 8-K filed July 25, 2005). | |
4.2
|
Indenture, dated as of December 10, 2010, by and among Boardriders S.A., Quiksilver, Inc., as guarantor, the subsidiary guarantor parties thereto, and Deutsche Trustee Company Limited, as trustee, Deutsche Bank Luxembourg S.A., as registrar and transfer agent, and Deutsche Bank AG, London Branch, as principal paying agent and common depositary (incorporated by reference to Exhibit 4.1 of the Companys Current Report on Form 8-K filed December 13, 2010). | |
10.1
|
Quiksilver, Inc. Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K filed February 9, 2011). (1) |
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Item 6. | ||
Exhibits | ||
10.2
|
Quiksilver, Inc. 2000 Stock Incentive Plan, as amended and restated, together with Form Stock Option and Restricted Stock Agreements (incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K filed March 23, 2011). (1) | |
10.3
|
Consulting Services Agreement between Paul Speaker and Quiksilver, Inc. dated March 23, 2011. (1) | |
10.4
|
Standard Form of Restricted Stock Unit Agreement under the Quiksilver, Inc. 2000 Stock Incentive Plan, as amended and restated. (1) | |
31.1
|
Rule 13a-14(a)/15d-14(a) Certifications Principal Executive Officer | |
31.2
|
Rule 13a-14(a)/15d-14(a) Certifications Principal Financial Officer | |
32.1
|
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 Chief Executive Officer | |
32.2
|
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 Chief Financial Officer |
(1) | Management contract or compensatory plan. |
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SIGNATURES
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 9, 2011 | /s/ Brad L. Holman | |||
Brad L. Holman | ||||
Senior Vice President and Corporate Controller (Principal Accounting Officer and Authorized Signatory) |
||||
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