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EX-23.1 - EX-23.1 - QUIKSILVER INC | a54776exv23w1.htm |
EX-21.1 - EX-21.1 - QUIKSILVER INC | a54776exv21w1.htm |
EX-10.5 - EX-10.5 - QUIKSILVER INC | a54776exv10w5.htm |
EX-32.1 - EX-32.1 - QUIKSILVER INC | a54776exv32w1.htm |
EX-32.2 - EX-32.2 - QUIKSILVER INC | a54776exv32w2.htm |
EX-31.2 - EX-31.2 - QUIKSILVER INC | a54776exv31w2.htm |
EX-31.1 - EX-31.1 - QUIKSILVER INC | a54776exv31w1.htm |
EX-10.54 - EX-10.54 - QUIKSILVER INC | a54776exv10w54.htm |
EX-10.53 - EX-10.53 - QUIKSILVER INC | a54776exv10w53.htm |
EX-10.15 - EX-10.15 - QUIKSILVER INC | a54776exv10w15.htm |
EX-10.49 - EX-10.49 - QUIKSILVER INC | a54776exv10w49.htm |
EX-10.47 - EX-10.47 - QUIKSILVER INC | a54776exv10w47.htm |
EX-10.43 - EX-10.43 - QUIKSILVER INC | a54776exv10w43.htm |
EX-10.14 - EX-10.14 - QUIKSILVER INC | a54776exv10w14.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
(Mark One) |
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended October 31, 2009
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 | (I.R.S. Employer | |
incorporation or organization) | Identification Number) |
15202 Graham Street
Huntington Beach, California
92649
Huntington Beach, California
92649
(Address of principal executive offices)
(Zip Code)
(Zip Code)
(714) 889-2200
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of | Name of each exchange | |
each class | on which registered | |
Common Stock | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o Noþ
Indicate by check mark if the Registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yeso Noþ
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. Yesþ Noo
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). Yeso Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
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 Act). Yeso Noþ
The aggregate market value of the Registrants Common Stock held by non-affiliates of the
Registrant was approximately $212 million as of April 30, 2009, the last business day of
Registrants most recently completed second fiscal quarter.
As of December 31, 2009, there were 128,599,163 shares of the Registrants Common Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for the Annual Meeting of Stockholders to be held March 26, 2010 are incorporated by
reference into Part III of this Form 10-K.
TABLE OF CONTENTS
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Table of Contents
PART I
Item 1. | BUSINESS |
Unless the context indicates otherwise, when we refer to we, us, our, or the Company in
this Form 10-K, we are referring to Quiksilver, Inc. and its subsidiaries on a consolidated basis.
Quiksilver, Inc. was incorporated in 1976 and was reincorporated in Delaware in 1986. Our fiscal
year ends on October 31, and references to fiscal 2009, fiscal 2008 and fiscal 2007 refer to the
years ended October 31, 2009, 2008 and 2007, respectively.
Introduction
We are a globally diversified company that designs, produces and distributes branded apparel,
footwear, accessories and related products. Our brands represent a casual lifestyle for
young-minded people that connect with our boardriding culture and heritage. We believe that
surfing, skateboarding, snowboarding and other outdoor sports influence the apparel choices made by
consumers as these activities are communicated to a global audience by television, the internet,
movies and magazines. People are attracted to the venues in which these sports are performed and
the values they represent, including individual expression, adventure and creativity.
Over the past 39 years, Quiksilver has been established as a global company representing the
casual, youth lifestyle associated with boardriding sports. Based on our fiscal 2009 revenues, we
are the largest apparel company that is identified with the sports of surfing, skateboarding and
snowboarding. We believe that our multiple authentic brands enable us to produce and market
apparel, footwear, accessories and related products for consumers in a broad cross section of the
outdoor market. Furthermore, we believe that our operations provide us with a diversified platform
for growth and enhanced operating efficiencies.
Our products are sold in over 90 countries in a wide range of distribution channels, including surf
shops, skateboard shops, snowboard shops, our proprietary concept stores, other specialty stores
and select department stores. Our corporate and Americas headquarters are in Huntington Beach,
California, while our European headquarters is in St. Jean de Luz, France, and our Asia/Pacific
headquarters is in Torquay, Australia.
In November 2008, we completed the sale of our Rossignol business, which included the brands
Rossignol, Dynastar, Look and Lange. Our Rossignol business, including both wintersports equipment
and related apparel, is classified as discontinued operations in this report. The assets and
related liabilities of our remaining Rossignol apparel business are classified as held for sale,
and the operations are classified as discontinued in our consolidated financial statements. Also,
as part of our acquisition of Rossignol in 2005, we acquired a majority interest in Roger Cleveland
Golf Company, Inc. Our golf equipment operations were subsequently sold in December 2007 and are
also classified as discontinued operations in our consolidated financial statements. As a result
of these dispositions, the following information has been adjusted to exclude both our Rossignol
and golf equipment businesses.
Segment Information
We operate in the outdoor market of the sporting goods industry in which we design, produce and
distribute branded apparel, footwear, accessories and related products. We have three
operating segments consisting of the Americas, Europe and Asia/Pacific, each of which sells a full
range of our products. Our former wintersports equipment segment has been classified as
discontinued operations. The Americas segment includes revenues from the U.S., Canada and Latin
America. The European segment includes revenues primarily from Western Europe. The 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 to our licensees. For information regarding
the revenues, operating profits and identifiable assets
attributable to our operating segments, see note 14 of our
consolidated financial statements. Our Rossignol business has been removed from our segment reporting and is classified as discontinued
operations.
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Products and Brands
Our brands are focused on different sports within the outdoor market. Quiksilver and Roxy are
rooted in the sport of surfing and are leading brands representing the boardriding lifestyle, which
includes not only surfing, but also skateboarding and snowboarding. DCs reputation is based on
its technical shoes made for skateboarding. We have developed a portfolio of other brands also
inspired by surfing, skateboarding and snowboarding.
Quiksilver
We have grown our Quiksilver brand from its origins as a line of boardshorts to now include shirts,
walkshorts, t-shirts, fleece, pants, jackets, snowboardwear, footwear, hats, backpacks, wetsuits,
watches, eyewear and other accessories. Quiksilver has also expanded its target market beyond
young men to include men, women, boys, toddlers and infants. In fiscal 2009, the Quiksilver brand
represented approximately 39% of our revenues from continuing operations.
Roxy
Our Roxy brand for young women is a surf-inspired collection that we introduced in 1991, and later
expanded to include girls, with the Teenie Wahine and Roxy Girl brands, and infants. Roxy includes
a full range of sportswear, swimwear, footwear, backpacks, snowboardwear, snowboards, bedroom
furnishings and other accessories. In fiscal 2009, the Roxy brand accounted for approximately 33%
of our revenues from continuing operations.
DC
Our DC brand specializes in performance skateboard shoes, snowboard boots, sandals and apparel for
both young men and juniors. We believe that DCs skateboard-driven image and lifestyle is well
positioned within the global outdoor youth market and has appeal beyond its core skateboarding
base. In fiscal 2009, the DC brand accounted for approximately 23% of our revenues from continuing
operations.
Other Brands
In fiscal 2009, our other brands represented approximately 5% of our revenues from continuing
operations.
| Raisins, Radio Fiji, LeilaniRaisins and Radio Fiji are swimwear labels for the juniors market, while Leilani is our contemporary swimwear label. |
| HawkTony Hawk, the world-famous skateboarder, is the inspiration for our Hawk brand. Our Hawk brand targets boys and young men who identify with the skateboarding lifestyle and recognize Tony Hawk from his broad media and video game exposure. |
| Lib Technologies, Gnu, Bent MetalWe address the core snowboard market through our Lib Technologies and Gnu brands of snowboards and accessories and Bent Metal snowboard bindings. |
Product Categories
The following table shows the approximate percentage of our revenues from continuing operations
attributable to each of our major product categories during the last three fiscal years:
Percentage of Revenues | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Apparel |
66 | % | 65 | % | 66 | % | ||||||
Footwear |
20 | 20 | 18 | |||||||||
Accessories |
14 | 15 | 16 | |||||||||
100 | % | 100 | % | 100 | % | |||||||
Although our products are generally available throughout the year, demand for different categories
of products changes in the different seasons of the year. Sales of shorts, short-sleeve shirts,
t-shirts and swimwear are higher during the spring and summer seasons, and sales of pants,
long-sleeve shirts, fleece, jackets, sweaters and technical outerwear are higher during the fall
and holiday seasons.
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We believe that retail prices for our U.S. apparel products range from approximately $20 for a
t-shirt and $43 for a typical short to $190 for a typical snowboard jacket. For our European
products, retail prices range from approximately $33 for a t-shirt and about $70 for a typical
short to $221 for a basic snowboard jacket. Our Asia/Pacific t-shirts sell for approximately $35,
while our shorts sell for approximately
$55 and a basic snowboard jacket sells for approximately $211. Retail prices for our typical skate
shoe range from approximately $60 in the U.S. to approximately $77 in Europe.
Product Design
Our apparel, footwear, accessories and related products are designed for young-minded people who
live a casual lifestyle. Innovative design, active fabrics and quality of workmanship are
emphasized. Our design and merchandising teams create seasonal product ranges for each of our
brands. These design groups constantly monitor local and global fashion trends. We believe our
most valuable input comes from our own managers, employees, sponsored athletes and independent
sales representatives who are actively involved in surfing, skateboarding, snowboarding and other
sports in our core market. This connection with our core market continues to be the inspiration
for our products and is key to our reputation for distinct and authentic design. Our design
centers in California, Europe, Australia and Japan develop and share designs and merchandising
themes and concepts that are globally consistent while reflecting local adaptations for differences
in geography, culture and taste.
Promotion and Advertising
The strength of our brands is based on many years of grassroots efforts that have established their
legitimacy. We have always sponsored athletes that use our products in their outdoor sports, such
as surfing, snowboarding, skateboarding, bmx and motocross, and have sponsored events that showcase
these sports. Over time, our brands have become closely identified not only with the underlying
sports they represent, but also with the way of life that is associated with those who are active
in such sports. Accordingly, our advertising efforts are focused on promoting the sports and
related lifestyle in addition to advertising specific products. As our sports and lifestyle have
grown in popularity, not only in the United States but also internationally, the visibility of our
brands has increased.
We have relationships with athletes worldwide. These include such well-known personalities as
Kelly Slater, Tony Hawk, Dane Reynolds, Julian Wilson, Robbie Naish, Travis Rice, Danny Way, Rob
Dyrdek, Ken Block, Travis Pastrana, Sofia Mulanovich, Torah Bright and Sarah Burke. Along with
these athletes, many of whom have achieved world champion status in their individual sports, we
sponsor many amateurs and up-and-coming professionals. We believe that these athletes legitimize
the performance of our products, form the basis for our advertising and promotional content,
maintain a real connection with the core users of our products and create a general aspiration to
the lifestyle that these athletes represent.
The events and promotions that we sponsor include world-class boardriding events, such as the
Quiksilver Pro (Australia and Europe) and the Quiksilver In Memory of Eddie Aikau, which we believe
is the most prestigious event among surfers. We also sponsor many womens events and our
Quiksilver, DC and Roxy athletes participate in the Summer and Winter X-Games as well as the
Olympics. In addition, we sponsor many regional and local events, such as surf camps for beginners
and enthusiasts, that reinforce the reputations of our brands as authentic among athletes and
non-athletes alike.
Our brand messages are communicated through advertising, editorial content and other programming in
both core and mainstream media. Coverage of our sports, athletes and related lifestyle forms the
basis of content for core magazines, such as Surfer, Surfing and Transworld Skateboarding. Through
our various entertainment initiatives, we are bringing our lifestyle message to an even broader
audience through television, films, books and co-sponsored events and products.
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Table of Contents
Customers and Sales
We sell our products in over 90 countries around the world. We believe that the integrity and
success of our brands is dependent, in part, upon our careful selection of the retailers to whom we
sell our products. Therefore, we maintain a strict and controlled distribution channel to uphold
and enhance the value of our brands.
The foundation of our business is the distribution of our products through surf shops, skateboard
shops, snowboard shops and our proprietary concept stores, where the environment communicates our
brand messages. This core distribution channel serves as a base of legitimacy and long-term
loyalty to us and our brands. Most of these stores stand alone or are part of small chains.
Our products are also distributed through independent specialty or active lifestyle stores and
specialty chains. This category includes chains in the United States such as Pacific Sunwear,
Nordstrom, Zumiez, Dicks Sporting Goods, Famous Footwear and Journeys, as well as many independent
active lifestyle stores and sports shops in the United States and around the world. A limited
amount of our products are distributed through select department stores, including Macys and
Bloomingdales in the U.S.; Galeries Lafayette in France; and El Corte Ingles in Spain.
Although many of our brands are sold through the same retail accounts, distribution can be
different depending on the brand and demographic group. Our Quiksilver products are sold in the
Americas to customers that have approximately 11,800 store locations combined. Likewise, Roxy
products are sold in the Americas to customers with approximately 11,700 store locations. Most of
these Roxy locations also carry Quiksilver products. In the Americas, DC products are carried in
approximately 13,800 stores. Our swimwear brands (Raisins, Leilani and Radio Fiji) are found in
approximately 8,400 stores in the Americas, including many small, specialty swim locations. Our
apparel, footwear and accessories are found in approximately 7,800 store locations in Europe, and
in approximately 3,350 store locations in Asia/Pacific.
Our European segment accounted for approximately 40%, 41% and 39% of our consolidated revenues from
continuing operations during fiscal 2009, 2008 and 2007, respectively. Our Asia/Pacific segment
accounted for approximately 13%, 12% and 12% of our consolidated revenues from continuing
operations in fiscal 2009, 2008 and 2007, respectively. Other non-U.S. sales are in the Americas
segment (i.e., Canada and Latin America) and accounted for approximately 9%, 8% and 7% of
consolidated revenues from continuing operations in fiscal 2009, 2008 and 2007, respectively.
The following table summarizes the approximate percentages of our fiscal 2009 revenues by
distribution channel:
Percentage of Revenues | ||||||||||||||||
Distribution Channel | Americas | Europe | Asia/Pacific | Consolidated | ||||||||||||
Core market shops |
27 | % | 41 | % | 75 | % | 39 | % | ||||||||
Specialty stores |
36 | 41 | 24 | 37 | ||||||||||||
Department stores |
17 | 6 | 1 | 10 | ||||||||||||
U.S. exports |
20 | | | 9 | ||||||||||||
Distributors |
| 12 | | 5 | ||||||||||||
Total |
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Geographic segment |
47 | % | 40 | % | 13 | % | 100 | % | ||||||||
Our revenues are spread over a large wholesale customer base. During fiscal 2009, approximately
19% of our consolidated revenues from continuing operations were from our ten largest customers,
while our largest customer accounted for less than 4% of such revenues.
Our products are sold by approximately 350 independent sales representatives in the Americas,
Europe and Asia/Pacific. In addition, we use approximately 80 local distributors in Europe,
Asia/Pacific and Latin America. Our sales representatives are generally compensated on a
commission basis. We employ retail merchandise coordinators in the United States who travel
between specified retail locations of our
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wholesale customers to further improve the presentation of our product and build our image at the
retail level.
Our sales are globally diversified. The following table summarizes the approximate percentages of
our consolidated revenues from continuing operations by geographic region (excluding licensees):
Percentage of Revenues | ||||||||||||
Geographic Region | 2009 | 2008 | 2007 | |||||||||
United States |
38 | % | 39 | % | 42 | % | ||||||
Other Americas |
9 | 8 | 7 | |||||||||
France |
11 | 13 | 13 | |||||||||
United Kingdom and Spain |
11 | 13 | 14 | |||||||||
Other European countries |
18 | 15 | 12 | |||||||||
Asia/Pacific |
13 | 12 | 12 | |||||||||
Total |
100 | % | 100 | % | 100 | % | ||||||
We generally sell our apparel, footwear, accessories and related products to customers on a net-30
to net-60 day basis in the Americas, and in Europe and Asia/Pacific on a net-30 to net-90 day basis
depending on the country and whether we sell directly to retailers in the country or to a
distributor. Some customers are on C.O.D. terms. We generally do not reimburse our customers for
marketing expenses or participate in markdown programs with our customers. A limited amount of
product is offered on consignment in our Asia/Pacific segment.
For additional information regarding our revenues, operating profits and identifiable assets
attributable to our operating segments, see note 14 of our consolidated financial statements.
Retail Concepts
Quiksilver concept stores are an important part of our global retail strategy. These stores are
stocked primarily with Quiksilver and Roxy product, and their proprietary design demonstrates our
history, authenticity and commitment to surfing and other boardriding sports. We also have Roxy
stores, which are dedicated to the juniors customer, Quiksilver Youth stores, and DC stores. In
various territories, we also operate Quiksilver and Roxy shops that are part of larger department
stores. These shops, which are typically smaller than a stand-alone shop but have many of the same
operational characteristics, are referred to below as shop-in-shops.
We own 518 stores in selected markets that provide enhanced brand-building opportunities. In
territories where we operated our wholesale businesses during fiscal 2009, we had 213 stores with
independent retailers under license. We do not receive royalty income from these licensed stores.
Rather, we provide the independent retailer with our retail expertise and store design concepts in
exchange for the independent retailer agreeing to maintain our brands at a minimum of 80% of the
stores inventory. Certain minimum purchase obligations are also required. In our licensed
territories, such as Argentina and Turkey, our licensees operate 71 concept stores. We receive
royalty income from sales in these stores based on the licensees revenues. We also distribute our
products through outlet stores generally located in outlet malls in geographically diverse,
non-urban locations. The total number of stores open at October 31, 2009 was 802. The unit count
of both company-owned and licensed stores at October 31, 2009, excluding stores in licensed
territories, is summarized in the following table:
Number of Stores | ||||||||||||||||||||||||||||||||
Americas | Europe | Asia/Pacific | Combined | |||||||||||||||||||||||||||||
Store Concept | Company Owned | Licensed | Company Owned | Licensed | Company Owned | Licensed | Company Owned | Licensed | ||||||||||||||||||||||||
Quiksilver stores |
60 | 15 | 122 | 155 | 37 | 13 | 219 | 183 | ||||||||||||||||||||||||
Shop-in-shops |
| | 65 | | 60 | | 125 | | ||||||||||||||||||||||||
Roxy stores |
3 | 2 | 19 | 14 | 10 | 5 | 32 | 21 | ||||||||||||||||||||||||
Outlet stores |
48 | | 36 | 2 | 32 | 2 | 116 | 4 | ||||||||||||||||||||||||
Other stores |
6 | 2 | 20 | 3 | | | 26 | 5 | ||||||||||||||||||||||||
117 | 19 | 262 | 174 | 139 | 20 | 518 | 213 | |||||||||||||||||||||||||
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Seasonality
Our sales fluctuate from quarter to quarter primarily due to seasonal consumer demand patterns for
different categories of our products, and due to the effect that the Christmas and holiday season
has on the buying habits of our customers. Our consolidated revenues from continuing operations
are summarized by quarter in the following table:
Consolidated Revenues | ||||||||||||||||||||||||
Dollar amounts in thousands | 2009 | 2008 | 2007 | |||||||||||||||||||||
Quarter ended January 31 |
$ | 443,278 | 23 | % | $ | 496,581 | 22 | % | $ | 410,854 | 20 | % | ||||||||||||
Quarter ended April 30 |
494,173 | 25 | 596,280 | 26 | 520,359 | 25 | ||||||||||||||||||
Quarter ended July 31 |
501,394 | 25 | 564,876 | 25 | 528,591 | 26 | ||||||||||||||||||
Quarter ended October 31 |
538,681 | 27 | 606,899 | 27 | 587,268 | 29 | ||||||||||||||||||
$ | 1,977,526 | 100 | % | $ | 2,264,636 | 100 | % | $ | 2,047,072 | 100 | % | |||||||||||||
Production and Raw Materials
Our apparel, footwear, accessories and related products are generally sourced separately for our
Americas, Europe and Asia/Pacific operations. We own sourcing offices in Hong Kong, Shanghai and
Dongguan that manage the majority of production for our Asia/Pacific business and some of our
Americas and European production. We believe that as we align our sourcing and logistics
operations, more products can be sourced together and additional efficiencies can be obtained.
Approximately 85% of our apparel, footwear, accessories and related products are purchased or
imported as finished goods from suppliers principally in China, Korea, Hong Kong, India, Vietnam
and other parts of the far east, but also in Mexico, Turkey, Portugal and other foreign countries.
After being imported, many of these products require embellishments such as screenprinting, dyeing,
washing or embroidery. In the Americas, the remaining 15% of our production is manufactured by
independent contractors from raw materials we provide, with a majority of this manufacturing done
in Mexico and Central America, and the balance in the U.S.
The majority of our finished goods, as well as raw materials, must be committed to and purchased
prior to the receipt of customer orders. If we overestimate the demand for a particular product,
excess production can generally be distributed in our outlet stores or through secondary
distribution channels. If we overestimate the purchase of a particular raw material, it can
generally be used in garments for subsequent seasons or in garments for distribution through our
outlet stores or secondary distribution channels.
During fiscal 2009, no single contractor of finished goods accounted for more than 7% of our
consolidated production. Our largest raw material supplier accounted for 37% of our expenditures
for raw materials during fiscal 2009, however, our raw materials expenditures only comprised 4% of
our consolidated production costs. We believe that numerous qualified contractors, finished goods
and raw materials suppliers are available to provide additional capacity on an as-needed basis and
that we enjoy favorable on-going relationships with these contractors and suppliers.
Although we continue to explore new sourcing opportunities for finished goods and raw materials, we
believe we have established solid working relationships over many years with vendors who are
financially stable and reputable, and who understand our product quality and delivery standards.
As part of our efforts to reduce costs and enhance our sourcing efficiency, we utilize foreign
suppliers. We research, test and add, as needed, alternate and/or back-up suppliers. However, in
the event of any unanticipated substantial disruption of our relationships with, or performance by,
key existing suppliers and/or contractors, there could be a short-term adverse effect on our
operations.
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Imports and Import Restrictions
We have, for some time, imported finished goods and raw materials for our domestic operations under
multilateral and bilateral trade agreements between the U.S. and a number of foreign countries,
including Hong Kong, India and China. These agreements impose duties on the products that are
imported into the U.S. from the affected countries. Increases in the amount of duties we pay could
have an adverse effect on our operations and financial results.
In Europe, we operate in the European Union (EU) within which there are few trade barriers. We
also operate under constraints imposed on imports of finished goods and raw materials from outside
the EU, including quotas and duty charges. We do not anticipate that these restrictions will
materially or adversely impact our operations since we have always operated under such constraints.
We retain independent buying agents, primarily in China, Hong Kong, India, Vietnam and other
foreign countries to assist us in selecting and overseeing the majority of our independent third
party manufacturing and sourcing of finished goods, fabrics, blanks and other products. In
addition, these agents monitor duties and other trade regulations and perform some quality control
functions. We also have approximately 260 employees primarily in Hong Kong and China, and a
limited number of employees in Vietnam and India, that are involved in sourcing and quality control
functions to assist us in monitoring and coordinating our overseas production.
By having employees in regions where we source our products, we enhance our ability to monitor
factories to ensure their compliance with our standards of manufacturing practices. Our policies
require every factory to comply with a code of conduct relating to factory working conditions and
the treatment of workers involved in the manufacture of products.
Trademarks, Licensing Agreements and Patents
Trademarks
We own the Quiksilver and Roxy trademarks and the famous mountain and wave and heart logos in
virtually every country in the world. Other trademarks we own include Raisins, Radio Fiji,
Leilani, Hawk, Lib Tech, Gnu, Bent Metal, DCSHOECOUSA, the DC Star logo and other
trademarks.
We apply for and register our trademarks throughout the world mainly for use on apparel, footwear,
accessories and related products and for retail services. We believe our trademarks and our other
intellectual property are crucial to the successful marketing and sale of our products, and we
attempt to vigorously prosecute and defend our rights throughout the world. Because of the success
of our trademarks, we also maintain global anti-counterfeiting programs to protect our brands.
Licensing Agreements and Patents
We own
rights throughout the world to use and license the Quiksilver and Roxy trademarks in
substantially all apparel and accessory product classifications. We
also own rights throughout the world to use and license the
DC related trademarks for the footwear, apparel and accessory products that we distribute under such brand. We directly operate all of the
global Quiksilver and Roxy businesses with the exception of licensees in a few countries such as
Argentina and Turkey. We have also licensed our Roxy trademark for snow skis, snow ski poles, snow
ski boots and snow ski bindings in connection with our sale of Rossignol.
In April 2005, we licensed our Hawk brand in the United States to Kohls Stores, Inc., a department
store chain with over 1,000 stores. Under the Kohls license agreement, Kohls has the exclusive
right to manufacture and sell Hawk branded apparel and some related products in its U.S. stores and
through its website. We receive royalties from Kohls based upon sales of Hawk branded products.
Under the license agreement, we are responsible for product design, and Kohls manages sourcing,
distribution, marketing and all other functions relating to the Hawk brand. The license agreement
has an initial term of five years, with three five-year extensions at Kohls option. We retain
the right to manufacture and sell Hawk branded products outside of North America.
Our patent portfolio contains patents and applications primarily related to wetsuits, skate shoes,
watches, boardshorts, snowboards and snowboard boots.
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Competition
Competition is strong in the global beachwear, skateboard shoe and casual sportswear markets in
which we operate, and each territory can have different competitors. Our direct competitors in the
United States differ depending on distribution channel. Our principal competitors in our core
channel of surf shops and our concept stores in the United States include Billabong International
Pty Ltd, Volcom, Inc., ONeill, Inc., Hurley International LLC and Nike, Inc., with its Nike 6.0
brand. Our competitors in the department store and specialty store channels in the United States
include Abercrombie & Fitch Co. and its Hollister brand. Our principal competitors in the
skateboard shoe market are VF Outdoor, Inc. (Vans), Sole Technology, Inc. (Etnies), DVS Shoe
Company and Nike, Inc., with its Nike SB brand. In Europe, our principal competitors in the core
channel include ONeill, Inc., Billabong International Pty Ltd., Rip Curl International Pty Ltd.,
Oxbow S.A. and Volcom, Inc. In Australia, our primary competitors are Billabong International Pty
Ltd. and Rip Curl International Pty Ltd. In broader distribution, our competitors also include
companies such as Adidas AG and Levi Strauss & Co. Some of our competitors may be significantly
larger and have substantially greater resources than we have.
We compete primarily on the basis of successful brand management, product design and quality born
out of our ability to:
| maintain our reputation for authenticity in the core boardriding and outdoor sports lifestyle demographics; |
| continue to develop and respond to global fashion and lifestyle trends in our core markets; |
| create innovative, high quality and stylish products at appropriate price points; and |
| convey our outdoor sports lifestyle messages to consumers worldwide. |
Future Season Orders
At the end of November 2009, our backlog totaled $535 million compared to $629 million the year
before. Our backlog depends upon a number of factors and fluctuates based upon the timing of trade
shows and sales meetings, the length and timing of various international selling seasons, changes
in foreign currency exchange rates and market conditions. The timing of shipments also fluctuates
from year to year based upon the production of goods and the ability to distribute our products in
a timely manner. As a consequence, a comparison of backlog from season to season is not
necessarily meaningful and may not be indicative of eventual shipments or forecasted revenues.
Employees
At October 31, 2009, we had approximately 7,650 employees, consisting of approximately 3,300 in the
United States, Canada, Mexico, and Brazil, approximately 2,150 in Europe and approximately 2,200 in
Asia/Pacific. None of these employees are represented by trade unions. Certain French employees
are represented by workers councils who negotiate with management on behalf of the employees.
Management is generally required to share its plans with the workers councils, to the extent that
these plans affect the represented employees. We have never experienced a work stoppage and
consider our working relationships with our employees and the workers councils to be good.
Environmental Matters
Some of our facilities and operations have been or are subject to various federal, state and local
environmental laws and regulations which govern, among other things, the use and storage of
hazardous materials, the storage and disposal of solid and hazardous wastes, the discharge of
pollutants into the air, water and land, and the cleanup of contamination. Some of our
manufacturing operations involve the use of, among other things, inks and dyes, and produce related
by-products and wastes. We have acquired businesses and properties in the past, and may do so
again in the future. In the event we or our predecessors fail or have failed to comply with
environmental laws, or cause or have caused a release of
hazardous substances or other environmental damage, whether at our sites or elsewhere, we could
incur fines, penalties or other liabilities arising out of such noncompliance, releases or
environmental damage. Compliance with and liabilities under environmental laws and regulations did
not have a significant impact on our capital expenditures, results of operations or competitive
position during the last three fiscal years.
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Recent Dispositions
In 2005, we acquired Skis Rossignol, S.A., a wintersports and golf equipment manufacturer. The
golf equipment operations were held by Rossignols majority-owned subsidiary, Roger Cleveland Golf
Company, Inc. In September 2007, we completed the acquisition of the remaining outstanding
minority interest in Cleveland and it became a wholly-owned subsidiary.
In December 2007, we sold Cleveland, including its related golf equipment brands and operations.
The sale of Cleveland was structured as a stock sale in which the buyer acquired all of our golf
equipment operations for a transaction value of $132.5 million, which included the repayment of
Clevelands outstanding indebtedness to us. In November 2008, we completed the sale of our
Rossignol business, including the related brands Rossignol, Dynastar, Look and Lange, pursuant to a
stock purchase agreement for an aggregate purchase price of approximately $50.8 million, $38.1
million of which was paid in cash and the remaining $12.7 million of which was issued to us as a
promissory note. The note was canceled in October 2009 in connection with the completion of the
final working capital adjustment.
As a result of these dispositions, the Cleveland and Rossignol businesses have been classified as
discontinued operations in our consolidated financial statements for all periods presented. The
remaining Rossignol business assets and liabilities classified as held for sale as of October 31,
2009 primarily relate to the discontinued Rossignol apparel business.
Available Information
We file with the Securities and Exchange Commission (SEC) our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, proxy
statements and registration statements. The public may read and copy any material we file with the
SEC at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public
may also obtain information from the Public Reference Room by calling the SEC at 1-800-SEC-0330.
In addition, the SEC maintains an internet site at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding issuers, including us, that file
electronically.
Our corporate website is http://www.quiksilverinc.com. We make available free of charge, on or
through this website, our annual, quarterly and current reports, and any amendments to those
reports, as soon as reasonably practicable after electronically filing such reports with the SEC.
In addition, copies of the written charters for the committees of our board of directors, our
Corporate Governance Guidelines, our Code of Ethics for Senior Financial Officers and our Code of
Business Conduct and Ethics are also available on this website, and can be found under the Investor
Relations and Corporate Governance links. Copies are also available in print, free of charge, by
writing to Investor Relations, Quiksilver, Inc., 15202 Graham Street, Huntington Beach, California
92649. We may post amendments or waivers of our Code of Ethics for Senior Financial Officers and
Code of Business Conduct and Ethics, if any, on our website. This website address is intended to
be an inactive textual reference only, and none of the information contained on our website is part
of this report or is incorporated in this report by reference.
Item 1A. | RISK FACTORS |
Our business faces many risks. The risks described below may not be the only risks we face.
Additional risks that we do not yet know of, or that we currently think are immaterial, may also
impair our business operations or financial results. If any of the events or circumstances
described in the following risks actually occurs, our business, financial condition or results of
operations could suffer and the trading price
of our common stock or our senior notes could decline. You should consider the following risks
before deciding to invest in, or maintain your investment in, our common stock or senior notes.
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Our significant debt obligations could limit our flexibility in managing our business and expose us
to certain risks.
We are highly leveraged. Our high degree of leverage may have negative consequences to us,
including the following:
| we may have difficulty satisfying our obligations under our senior notes or other indebtedness and, if we fail to comply with these requirements, an event of default could result; |
| we may be required to dedicate a substantial portion of our cash flow from operations to required payments on indebtedness, thereby reducing the availability of cash flow for working capital, capital expenditures and other general corporate activities; |
| covenants relating to our indebtedness may limit our ability to obtain additional financing for working capital, capital expenditures and other general corporate activities; |
| covenants relating to our indebtedness may limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; |
| we may be subject to credit reductions and other changes in our business relationships with our suppliers, vendors and customers if they perceive that we would be unable to pay our debts to them in a timely manner; |
| we may be more vulnerable to the impact of economic downturns, including the current recessionary global economy, and adverse developments in our business; |
| we have certain short term and uncommitted lines of credit that could be difficult to replace if not renewed, or that could otherwise be canceled on very short notice to us; and |
| we may be placed at a competitive disadvantage against any less leveraged competitors. |
Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow
from our business to pay our substantial debt.
Our ability to make scheduled principal and interest payments on, or to refinance, our indebtedness
depends on our future performance, which is subject to economic, financial, competitive and other
factors beyond our control. Our business may not generate cash flow from operations sufficient to
service our debt, fund our operations or make necessary capital expenditures. If we are unable to
generate sufficient cash flow, we may be required to adopt one or more alternatives, such as
selling assets, restructuring or refinancing our debt or obtaining additional equity capital on
terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will also
depend on the credit and capital markets and our financial condition at such time. We may not be
able to engage in any of these activities or engage in these activities on desirable terms, which
could result in a default on our debt obligations and impair our liquidity and the operation of our
business.
Continuing unfavorable economic conditions could have a material adverse effect on our results of
operations.
The apparel and footwear industries have historically been subject to substantial cyclical
variations. Our financial performance has been, and may continue to be, negatively affected by
unfavorable economic conditions. Continued or further recessionary economic conditions may have a
further adverse impact on our sales volumes, pricing levels and profitability. As domestic and
international economic conditions change, trends in discretionary consumer spending become
unpredictable and subject to reductions due to uncertainties about the future. When consumers
reduce discretionary spending, purchases of specialty apparel and footwear tend to decline. A
continuation of the general reduction in consumer discretionary spending due to the recession in
the domestic and international economies, or uncertainties regarding future economic prospects,
could have a material adverse effect on our results of operations.
In addition, the current tight credit market continues to have a significant negative impact on
businesses around the world, and the impact of this tight credit market on our suppliers and other
vendors cannot be predicted. The inability of suppliers and other vendors to access needed
liquidity, or the insolvency of any of our suppliers and other vendors, could lead to their failure
to deliver our merchandise or other services that we require. Continued worsening economic
conditions could also impair our ability to collect amounts as they become due from our customers,
licensees, or other third parties that do business with us. We also face the increased risk of
order reductions or cancellations when dealing with financially ailing customers or customers
struggling with economic uncertainty.
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The apparel and footwear industries are each highly competitive, and if we fail to compete
effectively, we could lose our market position.
The apparel and footwear industries are each highly competitive. We compete against a number of
domestic and international designers, manufacturers, retailers and distributors of apparel and
footwear, some of whom are significantly larger and have significantly greater financial resources
than we do. In order to compete effectively, we must (1) maintain the image of our brands and our
reputation for authenticity in our core boardriding markets; (2) be flexible and innovative in
responding to rapidly changing market demands on the basis of brand image, style, performance and
quality; and (3) offer consumers a wide variety of high quality products at competitive prices.
The purchasing decisions of consumers are highly subjective and can be influenced by many factors,
such as brand image, marketing programs and product design. Several of our competitors enjoy
substantial competitive advantages, including greater brand recognition and greater financial
resources for competitive activities, such as sales, marketing and strategic acquisitions. The
number of our direct competitors and the intensity of competition may increase as we expand into
other product lines or as other companies expand into our product lines. Our competitors may enter
into business combinations or alliances that strengthen their competitive positions or prevent us
from taking advantage of such combinations or alliances. Our competitors also may be able to
respond more quickly and effectively than we can to new or changing opportunities, standards or
consumer preferences. Our results of operations and market position may be adversely impacted by
our competitors and the competitive pressures in the apparel and footwear industries.
If we are unable to develop innovative and stylish products in response to rapid changes in
consumer demands and fashion trends, we may suffer a decline in our revenues and market share.
The apparel and footwear industries are subject to constantly and rapidly changing consumer demands
based on fashion trends and performance features. Our success depends, in part, on our ability to
anticipate, gauge and respond to these changing consumer preferences in a timely manner while
preserving the authenticity and image of our brands and the quality of our products.
As is typical with new products, market acceptance of new designs and products we may introduce is
subject to uncertainty. In addition, we generally make decisions regarding product designs several
months in advance of the time when consumer acceptance can be measured. If trends shift away from
our products, or if we misjudge the market for our product lines, we may be faced with significant
amounts of unsold inventory or other conditions which could have a material adverse effect on our
results of operations.
The failure of new product designs or new product lines to gain market acceptance could also
adversely affect our business and the image of our brands. Achieving market acceptance for new
products may also require substantial marketing efforts and expenditures to expand consumer demand.
These requirements could strain our management, financial and operational resources. If we do not
continue to develop stylish and innovative products that provide better design and performance
attributes than the products of our competitors, or if our future product lines misjudge consumer
demands, we may lose consumer loyalty, which could result in a decline in our revenues and market
share.
Our business could be harmed if we fail to maintain proper inventory levels.
We maintain an inventory of selected products that we anticipate will be in high demand. We may be
unable to sell the products we have ordered in advance from manufacturers or that we have in our
inventory. Inventory levels in excess of customer demand may result in inventory write-downs or
the sale of excess inventory at discounted or closeout prices. These events could significantly
harm our operating results and impair the image of our brands. Conversely, if we underestimate
consumer demand for our products or if our manufacturers fail to supply quality products in a
timely manner, we may experience inventory shortages, which might result in unfilled orders,
negatively impact customer relationships, diminish brand loyalty and result in lost revenues, any
of which could harm our business.
Changes in foreign currency exchange or interest rates could affect our revenues and costs.
We are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates
relating to certain sales, royalty income, and product purchases of our international subsidiaries
that are
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denominated in currencies other than their functional currencies. We are also exposed to
foreign currency gains and losses resulting from domestic transactions that are not denominated in
U.S. dollars, and to gains and losses from fluctuations in interest rates related to our variable
rate debt. If we are unsuccessful in using various foreign currency exchange contracts or interest
rate swaps to hedge these potential losses, our operating results and cash flows could be
significantly reduced. In some cases, as part of our risk management strategies, we may choose not
to hedge our exposure to foreign currency exchange rate changes, or we may choose to maintain
variable interest rate debt. If we misjudge these risks, there could be a material adverse effect
on our operating results and financial position.
Furthermore, we are exposed to gains and losses resulting from the effect that fluctuations in
foreign currency exchange rates have on the reported results in our consolidated financial
statements due to the translation of the statements of operations and balance sheets of our
international subsidiaries into U.S. dollars. We may (but generally do not) use foreign currency
exchange contracts to hedge the profit and loss effects of this translation effect; however,
accounting rules do not allow us to classify these contracts as hedges, but require us to mark
these contracts to fair value at the end of each financial reporting period. In any event, we
translate our revenues and expenses at average exchange rates during the period. As a result, the
reported revenues and expenses of our international subsidiaries would decrease if the U.S. dollar
increased in value in relation to other currencies, including the euro, Australian dollar or
Japanese yen.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt
service obligations to increase significantly.
Borrowings under certain of our credit facilities are at variable rates of interest and expose us
to interest rate risk. If interest rates increase or interest rate spreads widen, our debt service
obligations on the variable rate indebtedness would increase even though the amount borrowed
remained the same, and our results of operations and cash flows would
be adversely affected.
War, acts of terrorism, or the threat of either could have an adverse effect on our ability to
procure our products and on the United States and/or international economies.
In the event of war or acts of terrorism or the escalation of existing hostilities, or if any are
threatened, our ability to procure our products from our manufacturers for sale to our customers
may be negatively affected. We import a substantial portion of our products from other countries.
If it becomes difficult or impossible to import our products into the countries in which we sell
our products, our sales and profit margins may be adversely affected. Additionally, war, military
responses to future international conflicts and possible future terrorist attacks may lead to a
downturn in the U.S. and/or international economies which could have a material adverse effect on
our results of operations.
Our success is dependent on our ability to protect our worldwide intellectual property rights, and
our inability to enforce these rights could harm our business.
Our success depends to a significant degree upon our ability to protect and preserve our
intellectual property, including copyrights, trademarks, patents, service marks, trade dress, trade
secrets and similar intellectual property. We rely on the intellectual property, patent, trademark
and copyright laws of the United States and other countries to protect our proprietary rights.
However, we may be unable to prevent third parties from using our intellectual property without our
authorization, particularly in those countries where the laws do not protect our proprietary rights
as fully as in the United States. The use of our intellectual property or similar intellectual
property by others could reduce or eliminate any competitive advantage we have developed, causing
us to lose sales or otherwise harm our business. From time to time, we resort to litigation to
protect these rights, and these proceedings can be burdensome and costly and we may not prevail.
We have obtained some U.S. and foreign trademarks, patents and service mark registrations, and have
applied for additional ones, but cannot guarantee that any of our pending applications will be
approved by the applicable governmental authorities. Moreover, even if the applications are
approved, third parties may seek to oppose or otherwise challenge these or other registrations. A
failure to obtain trademark,
patent or service mark registrations in the United States and in other countries could limit our
ability to protect our trademarks, patents and service marks and impede our marketing and sales
efforts in those jurisdictions. The loss of trademarks, patents and service marks, or the loss of
the exclusive use of our trademarks, patents and service marks, could have a material adverse
effect on our business, financial
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condition and results of operations. Accordingly, we devote
substantial resources to the establishment and protection of our trademarks, patents and service
marks on a worldwide basis and continue to evaluate the registration of additional trademarks,
patents and service marks, as appropriate. We cannot assure you that our actions taken to
establish and protect our trademarks, patents and service marks will be adequate to prevent
imitation of our products by others or to prevent others from seeking to block sales of our
products as violative of their trademark or other proprietary rights.
We may be subject to claims that our products have infringed upon the intellectual property rights
of others, which may cause us to incur unexpected costs or prevent us from selling our products.
We cannot be certain that our products do not and will not infringe the intellectual property
rights of others. We may be subject to legal proceedings and claims in the ordinary course of our
business, including claims of alleged infringement of the intellectual property rights of third
parties by us or our customers in connection with their use of our products. Any such claims,
whether or not meritorious, could result in costly litigation and divert the efforts of our
personnel. Moreover, should we be found liable for infringement, we may be required to enter into
licensing agreements (if available on acceptable terms or at all) or to pay damages and cease
making or selling certain products. Moreover, we may need to redesign, discontinue or rename some
of our products to avoid future infringement liability. Any of the foregoing could cause us to
incur significant costs and prevent us from manufacturing or selling our products.
If we are unable to maintain and expand our endorsements by professional athletes, our ability to
market and sell our products may be harmed.
A key element of our marketing strategy has been to obtain endorsements from prominent athletes,
which contribute to the authenticity and image of our brands. We believe that this strategy has
been an effective means of gaining brand exposure worldwide and creating broad appeal for our
products. We cannot assure you that we will be able to maintain our existing relationships with
these individuals in the future or that we will be able to attract new athletes to endorse our
products. Larger companies with greater access to capital for athlete sponsorships may in the
future increase the cost of sponsorships for these athletes to levels we may choose not to match.
If this were to occur, our sponsored athletes may terminate their relationships with us and endorse
the products of our competitors and we may be unable to obtain endorsements from other comparable
athletes.
We also are subject to risks related to the selection of athletes whom we choose to endorse our
products. We may select athletes who are unable to perform at expected levels or who are not
sufficiently marketable. In addition, negative publicity concerning any of our athletes could harm
our brand and adversely impact our business. If we are unable in the future to secure prominent
athletes and arrange athlete endorsements of our products on terms we deem to be reasonable, we may
be required to modify our marketing platform and to rely more heavily on other forms of marketing
and promotion, which may not prove to be effective. In any event, our inability to obtain
endorsements from professional athletes could adversely affect our ability to market and sell our
products, resulting in loss of revenues and a loss of profitability.
The demand for our products is seasonal and sales are dependent upon the weather.
Our revenues and operating results are subject to seasonal trends when measured on a quarterly
basis. These trends are dependent on many factors, including the holiday seasons, weather,
consumer demand, markets in which we operate and numerous other factors beyond our control. The
seasonality of our business, unseasonable weather during our peak selling periods and/or
misjudgment in consumer demands could have a material adverse effect on our financial condition and
results of operations.
Future sales of our common stock in the public market, or the issuance of other equity securities,
may adversely affect the market price of our common stock and the value of our senior notes.
Sales of a substantial number of shares of our common stock or other equity-related securities in
the public market could depress the market price of our senior notes, our common stock, or both. We
cannot predict the effect that future sales of our common stock or other equity-related securities,
including the exercise and sale of the warrants and common stock subject to such warrants issued to
funds affiliated with Rhône Capital LLC in July 2009 in connection with our new term loan, would
have on the market price of our common stock or the value of our senior notes.
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Factors affecting international commerce and our international operations may seriously harm our
financial condition.
We generate a majority of our revenues from outside of the United States, and we anticipate that
revenue from our international operations could account for an increasingly larger portion of our
revenues in the future. Our international operations are directly related to, and dependent on,
the volume of international trade and foreign market conditions. International commerce and our
international operations are subject to many risks, including:
| recessions in foreign economies; |
| fluctuations in foreign currency exchange rates; |
| the adoption and expansion of trade restrictions; |
| limitations on repatriation of earnings; |
| difficulties in protecting our intellectual property or enforcing our intellectual property rights under the laws of other countries; |
| longer receivables collection periods and greater difficulty in collecting accounts receivable; |
| difficulties in managing foreign operations; |
| social, political and economic instability; |
| unexpected changes in regulatory requirements; |
| our ability to finance foreign operations; |
| tariffs and other trade barriers; and |
| U.S. government licensing requirements for exports. |
The occurrence or consequences of any of these risks may restrict our ability to operate in the
affected regions and decrease the profitability of our international operations, which may harm our
financial condition.
We have established, and may continue to establish, joint ventures in various foreign territories
with independent third party business partners to distribute and sell Quiksilver, Roxy, DC and
other branded products in such territories. These joint ventures are subject to substantial risks
and liabilities associated with their operations, as well as the risk that our relationships with
our joint venture partners do not succeed in the manner that we anticipate. If our joint venture
operations, or our relationships with our joint venture partners, are not successful, our results
of operations and financial condition may be adversely affected.
If the popularity of the sports associated with our brands were to decrease, our revenues could be
adversely affected and our results of operations could be impaired.
We generate a significant portion of our revenues from the sale of products directly associated
with boardriding. The demand for such products is directly related to the popularity of
boardriding activities and the number of respective participants worldwide. If the demand for
boardriding apparel, footwear and accessories decreases, our revenues could be adversely affected
and our results of operations could be impaired. In addition, if participation in boardriding
activities were to decrease, sales of many of our products could decrease.
Our industry is subject to pricing pressures that may adversely impact our financial performance.
We manufacture many of our products offshore because manufacturing costs are generally less,
primarily due to lower labor costs. Many of our competitors also source their product requirements
offshore to achieve lower costs, possibly in locations with lower costs than our offshore
operations, and those competitors may use these cost savings to reduce prices. To remain
competitive, we may be forced to
adjust our prices from time to time in response to these industry-wide pricing pressures. Our
financial performance may be negatively affected by these pricing pressures if:
| we are forced to reduce our prices and we cannot reduce our production costs; or |
| our production costs increase and we cannot increase our prices. |
Changing international trade regulations and the elimination of quotas on imports of textiles and
apparel may increase competition in the apparel industry.
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Future quotas, duties or tariffs may have a material adverse effect on our business, financial
condition and results of operations. We currently import raw materials and/or finished garments
into the majority of countries in which we sell our apparel products. Substantially all of our
import operations are subject to:
| quotas imposed by bilateral textile agreements between the countries where our apparel-producing facilities are located and foreign countries; and |
| customs duties imposed by the governments where our apparel-producing facilities are located on imported products, including raw materials. |
In addition, the countries in which our apparel products are manufactured or to which they are
imported may from time to time impose additional new quotas, duties, tariffs, requirements as to
where raw materials must be purchased, additional workplace regulations or other restrictions on
our imports, or otherwise adversely modify existing restrictions. Adverse changes in these costs
and restrictions could harm our business. We cannot assure you that future trade agreements will
not provide our competitors with an advantage over us, or increase our costs, either of which could
have a material adverse effect on our business, results of operations and financial condition.
We rely on third-party manufacturers and problems with, or loss of, our suppliers or raw materials
could harm our business and results of operations.
Substantially all of our apparel products are produced by independent manufacturers. We face the
risk that these third-party manufacturers with whom we contract to produce our products may not
produce and deliver our products on a timely basis, or at all. We cannot be certain that we will
not experience operational difficulties with our manufacturers, such as reductions in the
availability of production capacity, errors in complying with product specifications and regulatory
and customer requirements, insufficient quality control, failures to meet production deadlines,
increases in manufacturing costs or other business interruptions or failures due to deteriorating
economies. The failure of any manufacturer to perform to our expectations could result in supply
shortages for certain products and harm our business.
The capacity of our manufacturers to manufacture our products also is dependent, in part, upon the
availability of raw materials. Our manufacturers may experience shortages of raw materials, which
could result in delays in deliveries of our products by our manufacturers or in increased costs to
us. Any shortage of raw materials or inability of a manufacturer to manufacture or ship our
products in a timely manner, or at all, could impair our ability to ship orders of our products in
a cost-efficient, timely manner and could cause us to miss the delivery requirements of our
customers. As a result, we could experience cancellations of orders, refusals to accept deliveries
or reductions in our prices and margins, any of which could harm our financial performance and
results of operations.
Employment related matters may affect our profitability.
As of October 31, 2009, we had no unionized employees, but certain French employees are represented
by workers councils. As we have little control over union activities, we could face difficulties
in the future should our workforce become unionized. There can be no assurance that we will not
experience work stoppages or other labor problems in the future with our non-unionized employees or
employees represented by workers councils.
Our failure to comply with, or the imposition of liability under, environmental laws and
regulations could result in significant costs.
Some of our facilities and operations are, or have been, subject to various environmental laws and
regulations which govern, among other things, the use and storage of hazardous materials, the
storage and disposal of solid and hazardous wastes, the discharge of pollutants into the air, water
and land, and
the cleanup of contamination. Violations of these requirements could result in significant fines
or penalties being imposed on us. Discovery of contamination for which we are responsible, the
enactment of new laws and regulations, or changes in how existing requirements are enforced, could
require us to incur additional costs for compliance or subject us to unexpected liabilities. Any
such costs or liabilities could have a material adverse effect on our business and results of
operations.
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Item 1B. | UNRESOLVED STAFF COMMENTS |
None.
Item 2. | PROPERTIES |
As of October 31, 2009, our principal facilities in excess of 40,000 square feet were as follows:
Approximate | Current Lease | |||||||||
Location | Principal Use | Sq. Ft. | Expiration | |||||||
Huntington Beach, California |
Americas/corporate headquarters | 120,000 | 2023 | * | ||||||
Huntington Beach, California |
Americas/corporate headquarters | 100,000 | 2023 | * | ||||||
Mira Loma, California |
Americas distribution center | 683,000 | 2027 | * | ||||||
Vista, California |
Americas/corporate headquarters | 100,000 | 2011 | |||||||
St. Jean de Luz, France |
European headquarters | 80,000 | N/A | ** | ||||||
St. Jean de Luz, France |
European distribution center | 100,000 | N/A | ** | ||||||
Rives, France |
European distribution center | 206,000 | 2016 | |||||||
Torquay, Australia |
Asia/Pacific headquarters | 54,000 | 2024 | * | ||||||
Geelong, Australia |
Asia/Pacific distribution center | 81,000 | 2018 | * | ||||||
Geelong, Australia |
Asia/Pacific distribution center | 134,000 | 2039 | * |
* | Includes extension periods exercisable at our option. | |
** | These locations are owned. |
As of October 31, 2009, we operated 117 retail stores in the Americas, 262 retail stores in Europe,
and 139 retail stores in Asia/Pacific on leased premises. The leases for our facilities, including
retail stores, required aggregate annual rentals of approximately $119.2 million in fiscal 2009.
We anticipate that we will be able to extend those leases that expire in the near future on terms
satisfactory to us, or, if necessary, locate substitute facilities on acceptable terms. We believe
that our corporate, distribution and retail leased facilities are suitable and adequate to meet our
current needs.
Item 3. | LEGAL PROCEEDINGS |
We are involved from time to time in legal claims involving trademark and intellectual property,
licensing, employee relations and contractual and other matters incidental to our business. We
believe the resolution of any such matter currently threatened or pending will not have a material
adverse effect on our financial condition or results of operations.
Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matters were submitted for a vote of our stockholders during the fourth quarter of the fiscal
year ended October 31, 2009.
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PART II
Item 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our common stock trades on the New York Stock Exchange (NYSE) under the symbol ZQK. The high
and low sales prices of our common stock, as reported by the NYSE for the two most recent fiscal
years, are set forth below.
High | Low | |||||||
Fiscal 2009 |
||||||||
4th quarter ended October 31, 2009 |
$ | 3.03 | $ | 1.92 | ||||
3rd quarter ended July 31, 2009 |
3.83 | 1.49 | ||||||
2nd quarter ended April 30, 2009 |
2.10 | 0.91 | ||||||
1st quarter ended January 31, 2009 |
3.09 | 0.80 | ||||||
Fiscal 2008 |
||||||||
4th quarter ended October 31, 2008 |
$ | 8.64 | $ | 1.77 | ||||
3rd quarter ended July 31, 2008 |
10.21 | 7.35 | ||||||
2nd quarter ended April 30, 2008 |
10.49 | 8.06 | ||||||
1st quarter ended January 31, 2008 |
12.78 | 7.04 |
We have historically reinvested our earnings in our business and have never paid a cash dividend.
No change in this practice is currently being considered. Our payment of cash dividends in the
future will be determined by our Board of Directors, considering conditions existing at that time,
including our earnings, financial requirements and condition, opportunities for reinvesting
earnings, business conditions and other factors. In addition, under the indenture related to our
senior notes and under our other debt agreements, there are limits on the dividends and other
payments that certain of our subsidiaries may pay to us and we must obtain prior consent to pay
dividends to our stockholders above a pre-determined amount.
On December 31, 2009, there were 847 holders of record of our common stock and an estimated 8,708
beneficial stockholders.
Item 6. | SELECTED FINANCIAL DATA |
The statement of operations and balance sheet data shown below were derived from our consolidated
financial statements. Our consolidated financial statements as of October 31, 2009 and 2008 and
for each of the three years in the period ended October 31, 2009, included herein, have been
audited by Deloitte & Touche LLP, our independent registered public accounting firm. You should
read this selected financial data together with our consolidated financial statements and related
notes, as well as the discussion under the caption Managements Discussion and Analysis of
Financial Condition and Results of Operations.
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Year Ended October 31, | ||||||||||||||||||||
Amounts in thousands, except ratios and per share data | 2009(1)(2)(6) | 2008(1)(2)(6) | 2007(1)(2) | 2006(1)(2) | 2005(2) | |||||||||||||||
Statements of Operations Data |
||||||||||||||||||||
Revenues, net |
$ | 1,977,526 | $ | 2,264,636 | $ | 2,047,072 | $ | 1,722,150 | $ | 1,562,417 | ||||||||||
(Loss) income before provision
for income taxes |
(6,548 | ) | 98,571 | 151,233 | 122,557 | 142,743 | ||||||||||||||
(Loss) income from continuing
operations |
(73,215 | ) | 65,544 | 116,727 | 89,376 | 96,155 | ||||||||||||||
(Loss) income from
discontinued operations |
(118,827 | ) | (291,809 | ) | (237,846 | ) | 3,640 | 10,965 | ||||||||||||
Net (loss) income |
(192,042 | ) | (226,265 | ) | (121,119 | ) | 93,016 | 107,120 | ||||||||||||
(Loss) income per share from
continuing operations (3) |
(0.58 | ) | 0.52 | 0.94 | 0.73 | 0.81 | ||||||||||||||
(Loss) income per share from
discontinued operations (3) |
(0.94 | ) | (2.32 | ) | (1.92 | ) | 0.03 | 0.09 | ||||||||||||
Net (loss) income per share (3) |
(1.51 | ) | (1.80 | ) | (0.98 | ) | 0.76 | 0.90 | ||||||||||||
(Loss) income per share from
continuing operations, assuming dilution (3) |
(0.58 | ) | 0.51 | 0.90 | 0.70 | 0.77 | ||||||||||||||
(Loss) income per share from
discontinued operations, assuming dilution (3) |
(0.94 | ) | (2.25 | ) | (1.83 | ) | 0.03 | 0.09 | ||||||||||||
Net (loss) income per share,
assuming dilution (3) |
(1.51 | ) | (1.75 | ) | (0.93 | ) | 0.73 | 0.86 | ||||||||||||
Weighted average common
shares (3) |
127,042 | 125,975 | 123,770 | 122,074 | 118,920 | |||||||||||||||
Weighted average common
shares outstanding, assuming
dilution (3) |
127,042 | 129,485 | 129,706 | 127,744 | 124,335 | |||||||||||||||
Balance Sheet Data |
||||||||||||||||||||
Total assets |
$ | 1,852,608 | $ | 2,170,265 | $ | 2,662,064 | $ | 2,447,378 | $ | 2,158,601 | ||||||||||
Working capital |
561,697 | 631,315 | 631,857 | 598,714 | 458,857 | |||||||||||||||
Lines of credit |
32,592 | 238,317 | 124,634 | 61,106 | 35,158 | |||||||||||||||
Long-term debt |
1,006,661 | 822,001 | 732,812 | 598,434 | 536,436 | |||||||||||||||
Stockholders equity |
456,595 | 599,966 | 886,613 | 881,127 | 732,882 | |||||||||||||||
Other Data |
||||||||||||||||||||
Adjusted EBITDA(4) |
$ | 131,532 | $ | 278,945 | $ | 260,786 | $ | 221,687 | $ | 194,331 | ||||||||||
Current ratio |
2.3 | 1.9 | 1.7 | 1.8 | 1.7 | |||||||||||||||
Return on average stockholders
equity(5) |
(13.9 | )% | 8.8 | % | 13.2 | % | 11.1 | % | 14.6 | % |
(1) | Fiscal 2009, 2008, 2007 and 2006 include stock compensation expense related to the adoption of ASC 718, Stock Compensation. See footnote (4) to the table below. | |
(2) | Fiscal 2009, 2008, 2007, 2006 and 2005 reflect the operations of Rossignol and Cleveland Golf, which were acquired in 2005, as discontinued operations. See note 18 of our consolidated financial statements. | |
(3) | Per share amounts and shares outstanding have been adjusted to reflect a two-for-one stock split effected on May 11, 2005. | |
(4) | Adjusted EBITDA is defined as income or loss from continuing operations 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 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 |
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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 results of operations. 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 our (loss) income from continuing operations to Adjusted EBITDA: |
Year Ended October 31, | ||||||||||||||||||||
Amounts in thousands | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
(Loss) income from continuing
operations |
$ | (73,215 | ) | $ | 65,544 | $ | 116,727 | $ | 89,376 | $ | 96,155 | |||||||||
Income taxes |
66,667 | 33,027 | 34,506 | 33,181 | 46,588 | |||||||||||||||
Interest |
63,924 | 45,327 | 46,571 | 41,317 | 16,945 | |||||||||||||||
Depreciation and amortization |
55,004 | 57,231 | 46,852 | 37,851 | 34,643 | |||||||||||||||
Non-cash stock-based
compensation expense |
8,415 | 12,019 | 16,130 | 19,962 | | |||||||||||||||
Non-cash asset impairments |
10,737 | 65,797 | | | | |||||||||||||||
Adjusted EBITDA |
$ | 131,532 | $ | 278,945 | $ | 260,786 | $ | 221,687 | $ | 194,331 | ||||||||||
(5) | Computed based on (loss) income from continuing operations divided by the average of beginning and ending stockholders equity. | |
(6) | Fiscal 2009 includes fixed asset impairments of $10.7 million and fiscal 2008 includes goodwill and fixed asset impairments of $65.8 million. |
Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read together with our consolidated financial statements and
related notes, which are included in this report, and the Risk Factors information, set forth in
Item 1A above.
Overview
Over the past 39 years, Quiksilver has been established 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 offering 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 from our Australian licensor, 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, which 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. In 2005, we acquired Skis Rossignol SA, a wintersports and golf
equipment company. Today our products are sold throughout the world, primarily in surf shops,
skate shops, snow shops and specialty stores.
In November 2008, we completed the sale of our Rossignol business, which included the brands
Rossignol, Dynastar, Look and Lange for an aggregate purchase price of approximately $50.8 million.
We incurred a pre-tax loss on the sale of Rossignol of approximately $212.3 million, partially
offset by a tax
benefit of approximately $89.4 million, recognized primarily during the three months ended January
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31, 2009. Our Rossignol business, including both wintersports equipment and related apparel, is
classified as discontinued operations. The assets and related liabilities of our remaining
Rossignol apparel business are classified as held for sale, and the operations are classified as
discontinued in our consolidated financial statements. Also, as part of our acquisition of
Rossignol in 2005, we acquired a majority interest in Roger Cleveland Golf Company, Inc. Our golf
equipment operations were subsequently sold in December 2007 and are also classified as
discontinued operations in our consolidated financial statements. As a result of these
dispositions, the following information has been adjusted to exclude both our Rossignol and golf
equipment businesses.
We operate in the outdoor market of the sporting goods industry in which we design, produce and
distribute branded apparel, footwear, accessories and related products. We operate in three
segments, the Americas, Europe and Asia/Pacific. Our Americas segment includes revenues from the
U.S., Canada and Latin America. Our European segment includes revenues primarily from Western
Europe. 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.
Revenues by segment from continuing operations are as follows:
Year Ended October 31, | ||||||||||||||||||||
In thousands | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
Americas |
$ | 929,691 | $ | 1,061,370 | $ | 995,801 | $ | 831,583 | $ | 752,797 | ||||||||||
Europe |
792,627 | 933,119 | 803,395 | 660,127 | 591,228 | |||||||||||||||
Asia/Pacific |
251,596 | 265,067 | 243,064 | 225,128 | 213,277 | |||||||||||||||
Corporate operations |
3,612 | 5,080 | 4,812 | 5,312 | 5,115 | |||||||||||||||
Total revenues, net |
$ | 1,977,526 | $ | 2,264,636 | $ | 2,047,072 | $ | 1,722,150 | $ | 1,562,417 | ||||||||||
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 acceptable to the marketplace and competitive in the areas of
quality, brand image, technical specifications, distribution methods, price, customer service and
intellectual property protection.
Results of Operations
The table below shows certain components in our statements of operations and other data as a
percentage of revenues:
Year Ended October 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Statements of Operations data |
||||||||||||
Revenues, net |
100.0 | % | 100.0 | % | 100.0 | % | ||||||
Gross profit |
47.1 | 49.5 | 48.1 | |||||||||
Selling, general and administrative expense |
43.1 | 40.4 | 38.2 | |||||||||
Asset impairments |
0.5 | 2.9 | 0.0 | |||||||||
Operating income |
3.5 | 6.2 | 9.9 | |||||||||
Interest expense |
3.2 | 2.0 | 2.3 | |||||||||
Foreign currency, minority interest and other expense |
0.6 | (0.2 | ) | 0.2 | ||||||||
(Loss) income before provision for income taxes |
(0.3 | )% | 4.4 | % | 7.4 | % | ||||||
Other data |
||||||||||||
Adjusted EBITDA (1) |
6.7 | % | 12.3 | % | 12.7 | % | ||||||
(1) | For a definition of Adjusted EBITDA and a reconciliation of income from continuing operations to Adjusted EBITDA, see footnote (4) to the table under Item 6. Selected Financial Data. |
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Our financial performance has been, and may continue to be, negatively affected by unfavorable
global economic conditions. Continued or further deteriorating economic conditions are likely to
have an adverse impact on our sales volumes, pricing levels and profitability. As domestic and
international economic conditions change, trends in discretionary consumer spending become
unpredictable and subject to reductions due to uncertainties about the future. When consumers
reduce discretionary spending, purchases of apparel and footwear tend to decline. A general
reduction in consumer discretionary spending due to the recession in the domestic and international
economies or uncertainties regarding future economic prospects could have a material adverse effect
on our results of operations.
Fiscal 2009 Compared to Fiscal 2008
Revenues
Our total net revenues decreased 13% in fiscal 2009 to $1,977.5 million from $2,264.6 million in
fiscal 2008. In constant currency, net revenues decreased 8% compared to the prior year. Our net
revenues in each of the Americas, Europe and Asia/Pacific segments include apparel, footwear,
accessories and related products for our Quiksilver, Roxy, DC and other brands, which include Hawk,
Raisins, Leilani, Radio Fiji, Lib Technologies, Gnu and Bent Metal.
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. For income
statement items, constant currency is calculated by taking the average foreign currency exchange
rate 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). 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 years ended October 31, 2008 and 2009:
In thousands Historical currency (as reported) |
Americas | Europe | Asia/Pacific | Corporate | Total | |||||||||||||||
October 31, 2008 |
$ | 1,061,370 | $ | 933,119 | $ | 265,067 | $ | 5,080 | $ | 2,264,636 | ||||||||||
October 31, 2009 |
929,691 | 792,627 | 251,596 | 3,612 | 1,977,526 | |||||||||||||||
Percentage decrease |
(12% | ) | (15% | ) | (5% | ) | (13% | ) | ||||||||||||
Constant currency (current year
exchange rates) |
||||||||||||||||||||
October 31, 2008 |
$ | 1,061,370 | $ | 849,423 | $ | 231,137 | $ | 5,080 | $ | 2,147,010 | ||||||||||
October 31, 2009 |
929,691 | 792,627 | 251,596 | 3,612 | 1,977,526 | |||||||||||||||
Percentage (decrease) increase |
(12% | ) | (7% | ) | 9% | (8% | ) |
Revenues in the Americas decreased 12% to $929.7 million for fiscal 2009 from $1,061.4
million in the prior year, while European revenues decreased 15% to $792.6 million from
$933.1 million and Asia/Pacific revenues decreased 5% to $251.6 million from $265.1
million for those same periods. In the Americas, the decrease in net revenues came primarily from
the Roxy and Quiksilver brands and, to a lesser extent, our DC brand across all product lines.
European net revenues decreased 7% in constant currency. The constant currency decrease in Europe
was driven by a decrease in revenues from our Roxy brand and, to a lesser extent, our Quiksilver
brand, partially offset by growth in our DC brand. Decreases in Roxy and Quiksilver brand revenues
came primarily from our apparel and, to a lesser extent, our accessories product lines. DC brand
revenue growth came primarily from our apparel and footwear product lines.
Asia/Pacifics net revenues increased 9% in constant currency. This constant currency increase in
Asia/Pacifics net revenues came across all product lines, primarily from our Roxy and Quiksilver
brands and, to a lesser extent, growth in our DC brand.
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Gross Profit
Our consolidated gross profit margin decreased to 47.1% in fiscal 2009 from 49.5% in the previous
year. The gross profit margin in the Americas segment decreased to 37.6% from 42.0% in the prior
year, our European segment gross profit margin decreased to 56.4% from 57.0%, and our Asia/Pacific
segment gross profit margin increased to 53.9% from 52.9%. The decrease in the Americas segment
gross profit margin was due primarily to market related price compression in both our company-owned
retail stores and our wholesale business. Our European segment gross profit margin decreased
primarily as a result of negative foreign currency translation effects of certain European
subsidiaries that do not use euros as their functional currency, partially offset by improvements
to our margin due to the foreign currency exchange effect of sourcing goods in U.S. dollars. In
our Asia/Pacific segment, our gross profit margin increase was primarily due to improved margins in
Japan compared to the prior year.
Selling, General and Administrative Expense
Our selling, general and administrative expense (SG&A) decreased 7% in fiscal 2009 to $851.7
million from $915.9 million in fiscal 2008. In the Americas segment, these expenses decreased 2%
to $364.7 million in fiscal 2009 from $372.0 million in fiscal 2008, in our European segment, they
decreased 10% to $341.8 million from $380.4 million, and in our Asia/Pacific segment, SG&A
decreased 4% to $112.4 million from $117.2 million for those same periods. On a consolidated
basis, expense reductions in SG&A were partially offset by approximately $28.8 million in charges
related to restructuring activities, including severance costs. As a percentage of revenues, SG&A
increased to 43.1% of revenues in fiscal 2009 compared to 40.4% in fiscal 2008. In the Americas,
SG&A as a percentage of revenues increased to 39.2% compared to 35.0%. In Europe, SG&A as a
percentage of revenues increased to 43.1% compared to 40.8% and in Asia/Pacific, SG&A as a
percentage of revenues increased to 44.7% compared to 44.2% in the prior year. The increase in
SG&A as a percentage of revenues in our Americas segment was primarily due to lower revenues.
Expense reductions were partially offset by $22.9 million in charges related to restructuring
activities, including severance costs, and by $3.0 million of incremental bad debt charges. The
increase in SG&A as a percentage of revenues in our European segment was primarily caused by lower
revenues and, to a lesser extent, the cost of operating additional retail stores and severance
costs of $4.1 million. In our Asia/Pacific segment, the slight increase in SG&A as a percentage of
revenues primarily related to the cost of operating additional retail stores.
Asset Impairments
Asset impairment charges totaled approximately $10.7 million in fiscal 2009 compared to
approximately $65.8 million in fiscal 2008. The current year charge relates to the impairment of
leasehold improvements and other assets in certain retail stores, whereas the prior year charge
included $55.4 million of goodwill impairment in addition to approximately $10.4 million of
impairment of leasehold improvements and other assets in certain retail stores. We analyzed the
profitability of our retail stores and determined that a total of 14 stores were not generating
sufficient cash flows to recover our investment, 6 of which are scheduled to close in 2010. We are
evaluating the timing of the closure of the remaining 8 stores and any costs associated with future
rent commitments for these stores will be charged to future earnings upon store closure. With
respect to the fiscal 2008 impairment, we determined 25 stores were not generating sufficient cash
flows to recover our investment. Of these 25 stores, 15 still remain open and are planned to close
at lease expiration or sooner if an early termination agreement can be reached.
Non-operating Expenses
Net interest expense increased to $63.9 million in fiscal 2009 compared to $45.3 million in fiscal
2008. This increase was primarily due to our recognition of additional interest expense that was
previously allocated to the discontinued operations of Rossignol in the prior year and higher
interest rates during the three months ended October 31, 2009 on our newly refinanced debt in
Europe and the United States, partially offset by lower interest rates on our variable rate debt in
Europe and the United States during the nine months ended July 31, 2009. Including both continuing
and discontinued operations for the years ended October 31, 2009 and 2008, interest expense was
$64.3 million and $59.3 million, respectively. In fiscal 2008, the discontinued Rossignol business
was allocated interest based on intercompany borrowings.
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Our foreign currency loss amounted to $8.6 million in fiscal 2009 compared to a gain of $5.8
million in fiscal 2008. This current year loss primarily resulted from the foreign currency
exchange effect of certain non-U.S. dollar denominated liabilities and the settlement of certain
foreign currency exchange contracts.
Our income tax expense was $66.7 million in fiscal 2009 compared to $33.0 million in fiscal 2008.
Income tax expense in fiscal 2009 was unfavorably impacted by a non-cash valuation allowance
adjustment of $72.8 million recorded against our deferred tax assets in the United States.
Loss / income from continuing operations and Adjusted EBITDA
Our loss from continuing operations in fiscal 2009 was $73.2 million, or $0.58 per share on a
diluted basis, compared to income from continuing operations of $65.5 million, or $0.51 per share
on a diluted basis for fiscal 2008. Adjusted EBITDA decreased to $131.5 million in fiscal 2009
compared to $278.9 million in fiscal 2008.
Fiscal 2008 Compared to Fiscal 2007
Revenues
Our total net revenues increased 11% in fiscal 2008 to $2,264.6 million from $2,047.1 million in
fiscal 2007 primarily as a result of changes in foreign currency exchange rates and higher unit
sales. The effect of foreign currency exchange rates accounted for approximately $105.7 million of
the increase in total net revenues. Our net revenues in each of the Americas, Europe and
Asia/Pacific segments include apparel, footwear, accessories and related products for our
Quiksilver, Roxy, DC and other brands which include Hawk, Raisins, Leilani, Radio Fiji, Lib
Technologies, Gnu and Bent Metal. Revenues in the Americas increased 7% to $1,061.4 million for
fiscal 2008 from $995.8 million in the prior year, while European revenues increased 16% to $933.1
million from $803.4 million and Asia/Pacific revenues increased 9% to $265.1 million from $243.1
million for those same periods. In the Americas, the increase in revenues came primarily from DC
brand revenues, partially offset by small decreases in our Quiksilver and Roxy brand revenues. The
increase in DC brand revenues came primarily from growth in our footwear and apparel product lines.
The decrease in Quiksilver and Roxy came across all product lines except for increases in our
Quiksilver footwear and Roxy apparel product lines. Approximately $89.6 million of Europes
revenue increase was attributable to the positive effects of changes in foreign currency exchange
rates. The currency adjusted increase in Europe came primarily from growth in our DC brand and, to
a lesser extent, growth in our Roxy brand, partially offset by a slight decrease in our Quiksilver
brand. The increase in DC brand revenues came primarily from growth in footwear and apparel
product lines, while increases in Roxy came primarily from growth in the accessories and apparel
product lines. Approximately $16.1 million of Asia/Pacifics revenue increase was attributable to
the positive effects of changes in foreign currency exchange rates. The currency adjusted increase
in Asia/Pacific revenues came primarily from our DC and Quiksilver brands, partially offset by a
decrease in our Roxy brand revenues.
Gross Profit
Our consolidated gross profit margin increased to 49.5% in fiscal 2008 from 48.1% in the previous
year. The gross profit margin in the Americas segment remained constant at 42.0%, our European
segment gross profit margin increased to 57.0% from 55.1%, and our Asia/Pacific segment gross
profit margin increased to 52.9% from 49.5%. The Americas gross profit margin would have increased
due to higher percentages of sales through company-owned retail stores, where we earn both
wholesale and retail margins, and improved sourcing costs, but such improvements were wholly offset
by market related price compression. Our European gross profit margin increases were primarily due
to a higher percentage of our sales through company-owned stores and improved sourcing costs. In
Asia/Pacific, the gross profit margin increase compared to the prior year was primarily a result of
the change in mix to higher retail sales compared to the prior year.
Selling, General and Administrative Expense
Our SG&A increased 17% in fiscal 2008 to $915.9 million from $782.3 million in fiscal 2007. In the
Americas segment, these expenses increased 19% to $372.0 million in fiscal 2008 from $311.8 million
in
fiscal 2007, in our European segment they increased 20% to $380.4 million from $316.9 million, and
in our Asia/Pacific segment, SG&A increased 16% to $117.2 million from $100.9 million for those
same
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periods. As a percentage of revenues, SG&A increased to 40.4% of revenues in fiscal 2008
compared to 38.2% in fiscal 2007. In the Americas, SG&A as a percentage of revenues increased to
35.0% compared to 31.3%. In Europe, SG&A as a percentage of revenues increased to 40.8% compared
to 39.4% and in Asia/Pacific, SG&A as a percentage of revenues increased to 44.2% compared to 41.5%
in the prior year. The increase in SG&A as a percentage of revenues in our Americas segment was
primarily due to the cost of opening and operating additional retail stores, increased costs
resulting from the consolidation of our recently acquired Brazilian subsidiary and increased marketing costs.
The increase in SG&A costs as a percentage of revenues in our European segment was primarily due to
the costs of opening and operating additional retail stores and increased distribution costs. In
our Asia/Pacific segment, the increase in SG&A as a percentage of revenues is primarily related to
the cost of opening and operating additional retail stores and, to a lesser extent, a legal
settlement on a retail store lease.
Asset Impairments
Asset impairment charges totaled $65.8 million in fiscal 2008 compared to zero in fiscal 2007. Of
these charges, approximately $55.4 million related to Asia/Pacific goodwill, and approximately
$10.4 million related to the impairment of leasehold improvements and other assets in certain
retail stores. The goodwill and other impairment charges were recorded as a result of our annual
impairment test, where it was determined that the carrying values of our assets were more than
their estimated fair values as of October 31, 2008. The retail store impairment included 25
stores, primarily in the U.S., which were not generating sufficient cash flows to recover our
investment.
Non-operating Expenses
Net interest expense decreased to $45.3 million in fiscal 2008 compared to $46.6 million in fiscal
2007 primarily as a result of lower interest rates on our variable-rate debt in the United States.
Our foreign currency gain amounted to $5.8 million in fiscal 2008 compared to a loss of $4.9
million in fiscal 2007. This current year gain resulted primarily from the foreign exchange effect
of certain non-U.S. dollar denominated liabilities.
Our income tax rate increased to 33.5% in fiscal 2008 from 22.8% in fiscal 2007. The fiscal 2008
rate increased significantly over the fiscal 2007 rate due to the non-deductibility of the goodwill
asset impairment recorded in fiscal 2008. This increase was partially offset by changes in accrual
amounts for certain tax contingencies accounted for under ASC 740, Income Taxes.
Income from continuing operations and Adjusted EBITDA
Income from continuing operations in fiscal 2008 decreased to $65.5 million, and earnings per share
on a diluted basis decreased to $0.51 compared to income from continuing operations of $116.7
million and diluted earnings per share of $0.90 for fiscal 2007. Adjusted EBITDA increased to
$278.9 million in fiscal 2008 compared to $260.8 million in fiscal 2007.
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 senior notes to fund a portion of the purchase price for our acquisition of Rossignol and to
refinance certain existing indebtedness, and in July 2009, we closed a $153.1 million five year
senior secured term loan to provide additional liquidity to our business. As of October 31, 2009,
we had a total of $1,039.3 million of indebtedness. For the fiscal year ended October 31, 2009, we
recorded approximately $63.9 million of net interest expense.
We are highly leveraged; however, we believe that our cash flows from operations, together with our
existing credit facilities and term loans will be adequate to fund our capital requirements for at
least the next twelve months. During fiscal 2009, we closed a $153.1 million five year senior
secured term loan,
refinanced our existing asset-based credit facility with a new $200 million three year asset-based
credit facility for our Americas segment, and we refinanced our short-term uncommitted lines of
credit in Europe with a new 268 million multi-year facility. The closing of these transactions
enabled us to extend a
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significant portion of our short-term maturities to a long-term basis.
However, the applicable interest rates on these refinanced obligations, particularly the five year
senior secured term loan, are higher than on the obligations they replaced.
Unrestricted cash and cash equivalents totaled $99.5 million at October 31, 2009 versus $53.0
million at October 31, 2008. Working capital amounted to $561.7 million at October 31, 2009,
compared to $631.3 million at October 31, 2008, a decrease of 11%.
Operating Cash Flows
Operating activities of continuing operations provided cash of $192.4 million in fiscal 2009
compared to $179.5 million in fiscal 2008. This $12.9 million increase was primarily due to
increased cash provided from working capital of $145.2 million, partially offset by the effect of
our net loss and other non-cash charges, which amounted to $132.3 million.
Capital Expenditures
We have historically avoided high levels of capital expenditures for our apparel manufacturing
functions by using independent contractors for a majority of our production.
Fiscal 2009 capital expenditures were $54.6 million, which was approximately $36.4 million less
than the $90.9 million we spent in fiscal 2008. In fiscal 2009, we invested in company-owned
retail stores, warehouse equipment and computer systems.
Capital expenditures for new company-owned retail stores are expected to be reduced in fiscal 2010.
A campus facility is being constructed for our European headquarters and computer hardware and
software will also be purchased to continuously improve our systems. Capital spending for these
and other projects in fiscal 2010 is expected to be around $50 million. We expect to fund our
capital expenditures primarily from our operating cash flows.
Acquisitions and Dispositions
We completed the sale of our Rossignol business in November 2008 for a sale price of approximately
$50.8 million, comprised of $38.1 million in cash and a $12.7 million sellers note. The note was
canceled in October 2009 in connection with the completion of the final working capital adjustment.
The business sold included the related brands of Rossignol, Dynastar, Look and Lange. In December
2007, we sold our golf equipment business for a transaction value of $132.5 million.
Debt Structure
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 July 2005, we issued $400 million in
senior notes to fund a portion of the acquisition of Rossignol and to refinance certain existing
indebtedness, and in July 2009, we closed a $153.1 million five year senior secured term loan to
provide additional liquidity to our business. Our debt structure at October 31, 2009 includes
short-term lines of credit and long-term loans as follows:
In thousands | U.S. Dollar | Non U.S. Dollar | Total | |||||||||
European short-term credit arrangements |
$ | | $ | 14 | $ | 14 | ||||||
Asia/Pacific short-term credit arrangements |
| 32,578 | 32,578 | |||||||||
Short-term lines of credit |
| 32,592 | 32,592 | |||||||||
Americas credit facility |
| | | |||||||||
European long-term debt |
| 325,685 | 325,685 | |||||||||
European credit facilities |
| 75,252 | 75,252 | |||||||||
Rhône term loan |
109,329 | 26,335 | 135,664 | |||||||||
Senior Notes |
400,000 | | 400,000 | |||||||||
Deferred purchase price obligation |
| 49,144 | 49,144 | |||||||||
Capital lease obligations and other borrowings |
2,639 | 18,277 | 20,916 | |||||||||
Long-term debt |
511,968 | 494,693 | 1,006,661 | |||||||||
Total |
$ | 511,968 | $ | 527,285 | $ | 1,039,253 | ||||||
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In July 2005, we issued $400 million in senior notes, which bear a coupon interest rate of 6.875%
and are due April 15, 2015. The senior notes were issued at par value and sold in accordance with
Rule 144A and Regulation S. In December 2005, these senior notes were exchanged for publicly
registered notes with identical terms. The senior notes are guaranteed on a senior unsecured basis
by certain of our domestic subsidiaries that guarantee any of our indebtedness or our subsidiaries
indebtedness, or are obligors under our existing asset-based credit facility in the Americas
segment. We may redeem some or all of the senior notes after April 15, 2010 at fixed redemption
prices as set forth in the indenture.
The indenture for our senior notes 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; limit dividends
or other payments by our restricted subsidiaries to us; use assets as security in other
transactions; and sell certain assets or merge with or into other companies. If we experience a
change of control (as defined in the indenture), we will be required to offer to purchase the
senior notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid
interest. We currently are in compliance with the covenants of the indenture. In addition, we
have approximately $7.1 million in unamortized debt issuance costs included in other assets as of
October 31, 2009.
On July 31, 2009, we entered into a $153.1 million five year senior secured term loan with funds
affiliated with Rhône Capital LLC. In connection with the term loan, we issued warrants to
purchase approximately 25.7 million shares of our common stock, representing 19.99% of our
outstanding equity at the time, with an exercise price of $1.86 per share. The warrants are fully
vested and have a seven year term. The estimated fair value of these warrants at issuance was
$23.6 million. This amount was recorded as a debt discount and is being amortized into interest
expense over the term of the loan. In addition, we incurred approximately $15.8 million in debt
issuance costs which are included in prepaid expenses (short-term) and other assets (long-term) and
are being amortized into interest expense over the five year term of the loan. The term loan is
primarily secured by certain of our trademarks in the Americas and a first or second priority
interest in substantially all property related to our Americas business. The term loan bears an
interest rate of 15% on a $125 million tranche, with 6% of that interest payable in kind or in
cash, at our option. The remaining tranche is denominated in euros (20 million) and also bears an
interest rate of 15%, with the full 15% payable in kind or cash at our option. Net proceeds from
the new term loan were used to reduce other borrowings and increase our cash reserves. The term
loan contains customary restrictive covenants and default provisions for loans of its type. We are
currently in compliance with such covenants.
On July 31, 2009, we also entered into a new $200 million three year asset-based credit facility
for our Americas segment (with the option to expand the facility to $250 million on certain
conditions) which replaced our existing credit facility which was to expire in April 2010. The new
credit facility, which expires in July 2012, includes a $100 million sublimit for letters of credit
and bears interest at a rate of LIBOR plus a margin of 4.0% to 4.5%, depending upon availability.
In connection with obtaining the credit facility, we incurred approximately $9.1 million in debt
issuance costs which are included in prepaid expenses (short-term) and other assets (long-term) and
are being amortized into interest expense over the term of the credit facility. As of October 31,
2009, there were no borrowings outstanding under this credit facility, other than outstanding
letters of credit, which totaled $34.7 million.
The Americas credit facility is guaranteed by Quiksilver, Inc. and certain of our domestic and
Canadian subsidiaries. The facility is secured by our U.S. and Canadian accounts receivable,
inventory, certain intangibles, a second priority interest in substantially all other personal
property and a second priority
pledge of shares of certain of our domestic subsidiaries. The borrowing base is limited to certain
percentages of eligible accounts receivable and inventory from our participating subsidiaries. The
facility contains customary default provisions and restrictive covenants for facilities of its
type. We are currently in compliance with such covenants.
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On July 31, 2009, we entered into a commitment with a group of lenders in Europe to refinance our
European indebtedness. This refinancing, which closed and was funded on September 29, 2009,
consists of two term loans totaling approximately $251.7 million (170 million), an $85.9 million
(58 million) credit facility and a line of credit of $59.2 million (40 million) for issuances of
letters of credit. Together, these are referred to as our European Facilities. The maturity of
these European Facilities is July 31, 2013. The term loans have minimum principal repayments due
on January 31 and July 31 of each year, with 14.0 million due for each semi-annual payment in
2010, 17.0 million due for each semi-annual payment in 2011 and 27.0 million due for each
semi-annual payment in 2012 and 2013. Amounts outstanding under the European Facilities bear
interest at a rate of Euribor plus a margin of between 4.25% and 4.75%. The weighted average
borrowing rate on the European Facilities was 5.09% as of October 31, 2009. In connection with
obtaining the European Facilities, we incurred approximately $19.3 million in debt issuance costs
which are included in prepaid expenses (short-term) and other assets (long-term) and are being
amortized into interest expense over the term of the European Facilities. As of October 31, 2009,
there were borrowings of approximately $251.7 million outstanding on the two term loans,
approximately $37.0 million outstanding on the credit facility, and approximately $26.6 million of
outstanding letters of credit.
The European Facilities are guaranteed by Quiksilver, Inc. and secured by pledges of certain assets
of our European subsidiaries, including certain trademarks of our European business and shares of
certain European subsidiaries. The European Facilities contain customary default provisions and
covenants for transactions of this type. We are currently in compliance with such covenants.
In connection with the closing of the European Facilities, we refinanced an additional European
term loan of $74.0 million (50 million) such that its maturity date aligns with the European
Facilities. This term loan has principal repayments due on January 31 and July 31 of each year,
with 8.9 million due in the aggregate in 2011, 12.6 million due in the aggregate in 2012 and
28.5 million due in the aggregate in 2013. This extended term loan currently bears an interest
rate of 3.23%, but will change to a variable rate of Euribor plus a margin of 4.8% beginning in
July 2010. This term loan has the same security as the European Facilities and it contains
customary default provisions and covenants for loans of its type. We are currently in compliance
with such covenants.
In August 2008, certain of our European subsidiaries entered into a $148.0 million (100 million)
secured financing facility which expires in August 2011. Under this facility, we may borrow up to
100.0 million based upon the amount of accounts receivable that are pledged to the lender to
secure the debt. Outstanding borrowings under this facility accrue interest at a rate of Euribor
plus a margin of 0.55% (currently 1.34%). As of October 31, 2009, we had approximately $38.2
million of borrowings outstanding under this facility. This facility contains customary default
provisions and covenants for facilities of its type. We are currently in compliance with such
covenants.
In Asia/Pacific, we have uncommitted revolving lines of credit with banks that provide up to
approximately $45.8 million ($50.3 million Australian dollars) for cash borrowings and letters of
credit. These lines of credit are generally payable on demand, although we believe the banks will
continue to make these lines of credit available to us. The amount outstanding on these lines of
credit at October 31, 2009 was $32.6 million, in addition to $3.4 million in outstanding letters of
credit, at an average borrowing rate of 2.2%.
Our current credit facilities allow for total maximum cash borrowings and letters of credit of
$357.7 million. Our total maximum borrowings and actual availability fluctuate depending on the
extent of assets comprising our borrowing base under certain credit facilities. We had
approximately $107.8 million of borrowings drawn on these credit facilities as of October 31, 2009,
and letters of credit issued at that time totaled $64.8 million. The amount of availability for
borrowings under these facilities as of October 31, 2009 was $142.7 million, all of which was
committed. Of this $142.7 million in committed capacity, $93.8 million can also be used for
letters of credit. In addition to the $142.7 million of availability for borrowings,
we also had $42.4 million in additional capacity for letters of credit in Europe and Asia/Pacific
as of October 31, 2009.
In connection with our acquisition of Rossignol, we deferred payment of a portion of the purchase
price. This deferred purchase price obligation is expected to be paid in 2010 and accrues interest
equal to the 3-month Euribor plus 2.35% (currently 3.14%) and is denominated in euros. The
carrying amount of the
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obligation fluctuates based on changes in the exchange rate between euros
and U.S. dollars. We have a cash collateralized guarantee to the former owner of Rossignol of
$52.7 million to secure this deferred purchase price obligation. The cash related to this
guarantee is classified as restricted cash on our balance sheet as of October 31, 2009. As of
October 31, 2009, the deferred purchase price obligation totaled $49.1 million.
We also had approximately $20.9 million in capital leases and other borrowings as of October 31,
2009.
Our financing activities from continuing operations used cash of $104.9 million in fiscal 2009, and
provided cash of $191.8 million and $176.6 million in fiscal 2008 and 2007, respectively. In
fiscal 2009 we used the proceeds from the sale of Rossignol to pay down debt, while in fiscal 2008
and 2007, our debt increased to fund the operations of Rossignol and the business acquisitions and
capital expenditures discussed above.
Contractual Obligations and Commitments
We lease certain land and buildings under non-cancelable operating leases. The leases expire at
various dates through 2028, excluding renewals at our option, and contain various provisions for
rental adjustments including, in certain cases, adjustments based on increases in the Consumer
Price Index. The leases generally contain renewal provisions for varying periods of time. We also
have long-term debt related to business acquisitions. Our deferred purchase price obligation
related to the Rossignol acquisition totals $49.1 million and is included in the current portion of
long-term debt as of October 31, 2009. Our significant contractual obligations and commitments are
summarized in the following table:
Payments Due by Period | ||||||||||||||||||||
Two to | Four to | After | ||||||||||||||||||
One | Three | Five | Five | |||||||||||||||||
In thousands | Year | Years | Years | Years | Total | |||||||||||||||
Operating lease obligations |
$ | 107,900 | $ | 184,455 | $ | 135,007 | $ | 144,669 | $ | 572,031 | ||||||||||
Long-term debt obligations(1) |
95,231 | 207,080 | 304,350 | 400,000 | 1,006,661 | |||||||||||||||
Professional athlete sponsorships(2) |
18,649 | 19,049 | 7,132 | 500 | 45,330 | |||||||||||||||
Certain other obligations(3) |
64,753 | | | | 64,753 | |||||||||||||||
$ | 286,533 | $ | 410,584 | $ | 446,489 | $ | 545,169 | $ | 1,688,775 | |||||||||||
(1) | Excludes required interest payments. See note 7 of our consolidated financial statements for interest terms. | |
(2) | We establish relationships with professional athletes in order to promote our products and brands. We have entered into endorsement agreements with professional athletes in sports such as surfing, skateboarding, snowboarding, bmx and motocross. Many of these contracts provide incentives for magazine exposure and competitive victories while wearing or using our products. It is not possible to determine the amounts we may be required to pay under these agreements as they are subject to many variables. The amounts listed are the approximate amounts of minimum obligations required to be paid under these contracts. The estimated maximum amount that could be paid under existing contracts is approximately $61.9 million and would assume that all bonuses, victories, etc. are achieved during a five-year period. The actual amounts paid under these agreements may be higher or lower than the amounts listed as a result of the variable nature of these obligations. Under our current sponsorship agreement with Kelly Slater, in addition to the cash payment obligations included in the above table, we have agreed to propose to our shareholders a grant to Mr. Slater of 3 million shares of restricted stock. This restricted stock grant is subject to shareholder approval and would vest over a four year period. Should the grant not be approved by our shareholders, we may be required to compensate Mr. Slater with additional cash payments, which are not included in the table above. | |
(3) | Certain other obligations include approximately $64.8 million of contractual letters of credit with maturity dates of less than one year. We also enter into unconditional purchase obligations with various vendors and suppliers of goods and services in the normal course of operations through purchase orders or other documentation or that are undocumented except for an invoice. Such unconditional purchase obligations are generally outstanding for periods less than a year and are settled by cash payments upon delivery of goods and services and are not reflected in this line item. In addition, in certain circumstances we are required to acquire additional equity interests from our minority interest partners in Brazil and Mexico. These purchase requirements are generally based on revenue targets in U.S. dollars which can be significantly impacted by currency fluctuations. The purchase price applicable to these obligations is typically based on formulas that will be used to value the subsidiaries operations at the time of purchase. We do not expect any payments related to these commitments in fiscal 2010 and these potential purchase amounts generally cannot be determined beyond one year and are not included in this line item. We have approximately $54.4 million of tax contingencies related to ASC 740, Income Taxes, as disclosed in note 12 of our consolidated financial statements. Based on the uncertainly of the timing of these contingencies, these amounts have not been included in this line item. |
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Off Balance Sheet Arrangements
Other than certain obligations and commitments described in the table above, we did not have any
material off balance sheet arrangements as of October 31, 2009.
Trade Accounts Receivable and Inventories
Our trade accounts receivable were $430.9 million at October 31, 2009, compared to $470.1 million
the year before, a decrease of 8%. Receivables in the Americas decreased 22%, while European
receivables increased 6% and Asia/Pacific receivables increased 11%. In constant currency,
consolidated trade accounts receivable decreased 16%. European receivables in constant currency
decreased 6% and Asia/Pacific receivables in constant currency decreased 17%. Included in trade
accounts receivable are approximately $24.9 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,
must be subtracted from accounts receivable to more accurately compute days sales outstanding.
Overall days sales outstanding increased by approximately 2 days at October 31, 2009 compared to
October 31, 2008.
Consolidated inventories totaled $267.7 million as of October 31, 2009, compared to $312.1 million
the year before, a decrease of 14%. Inventories in the Americas decreased 32%, while European
inventories decreased 7% and Asia/Pacific inventories increased 32%. In constant currency,
consolidated inventories decreased 22%. European inventories in constant currency decreased 18%
and Asia/Pacific inventories in constant currency decreased 2%. Consolidated average inventory
turnover increased to 3.6 times per year at October 31, 2009 compared to 3.5 times per year at
October 31, 2008.
Inflation
Inflation has been modest during the years covered by this report. Accordingly, inflation has had
an insignificant impact on our sales and profits.
New Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued the Accounting Standard
Codification (ASC) Subtopic 105 Generally Accepted Accounting Principles, which establishes the
Accounting Standards Codification as the single source of authoritative accounting principles
recognized by the FASB to be applied by nongovernmental entities in the preparation of financial
statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange
Commission under authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. The subsequent issuances of new standards will be in the form of Accounting
Standards Updates that will be included in the codification. This ASC is effective for financial
statements issued for interim and annual periods ending after September 15, 2009. We updated our
historical U.S. GAAP references to comply with the codification at the beginning of our fiscal
quarter ended October 31, 2009. The adoption of this guidance did not have a material effect on
our consolidated financial position, results of operations or cash flows.
In September 2006, the FASB issued authoritative guidance included in ASC Subtopic 820 Fair Value
Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about fair value
measurements. This guidance is effective for financial statements issued for fiscal years
beginning after November 15, 2007. We adopted this guidance at the beginning of our fiscal year
ended October 31, 2009. The adoption of this guidance did not have a material effect on our
consolidated financial position, results of operations or cash flows. See note 15 for certain
required disclosures related to this guidance.
In February 2007, the FASB issued authoritative guidance included in ASC Subtopic 825 Financial
Instruments, which permits companies to choose to measure certain financial instruments and other
items at fair value that are not currently required to be measured at fair value. This guidance is
effective
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for financial statements issued for fiscal years beginning after November 15, 2007. We
adopted this guidance at the beginning of our fiscal year ended October 31, 2009. The adoption of
this guidance did not have a material effect on our consolidated financial position, results of
operations or cash flows, since we did not elect the fair value option for any assets or
liabilities.
In December 2007, the FASB issued authoritative guidance included in ASC Subtopic 805 Business
Combinations, which requires us to record fair value estimates of contingent consideration and
certain other potential liabilities during the original purchase price allocation, expense
acquisition costs as incurred and does not permit certain restructuring activities to be recorded
as a component of purchase accounting. In April 2009, the FASB issued additional guidance that
requires that assets acquired and liabilities assumed in a business combination that arise from
contingencies be recognized at fair value, only if fair value can be reasonably estimated and
eliminates the requirement to disclose an estimate of the range of outcomes of recognized
contingencies at the acquisition date. This guidance is effective for financial statements issued
for fiscal years beginning on or after December 15, 2008. We will adopt this guidance at the
beginning of our fiscal year ending October 31, 2010 for all prospective business acquisitions. We
have not determined the effect that the adoption of this guidance will have on our consolidated
financial statements, but the impact will be limited to any future acquisitions beginning in fiscal
2010, except for certain tax treatment of previous acquisitions.
In December 2007, the FASB issued authoritative guidance included in ASC Subtopic 810
Consolidation, which requires noncontrolling interests in subsidiaries to be included in the
equity section of the balance sheet. This guidance is effective for financial statements issued
for fiscal years beginning after December 15, 2008. We will adopt this guidance at the beginning
of our fiscal year ending October 31, 2010. In the year of adoption, presentation and disclosure
requirements apply retrospectively to all periods presented. The adoption of this guidance is not
expected to have a material effect on our consolidated financial position, results of operations or
cash flows.
In March 2008, the FASB issued authoritative guidance included in ASC Subtopic 815 Derivatives and
Hedging, which requires enhanced disclosures to enable investors to better understand how and why
derivatives are used and their effects on an entitys financial position, financial performance and
cash flows. This guidance is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. We adopted this guidance at the beginning of our fiscal
quarter ended April 30, 2009. The adoption of this guidance did not have a material effect on our
consolidated financial position, results of operations or cash flows. See note 15 for certain
required disclosures related to this guidance.
In April 2009, the FASB issued authoritative guidance included in ASC Subtopic 825 Financial
Instruments, which enhances consistency in financial reporting by increasing the frequency of fair
value disclosures. This guidance is effective for interim periods ending after June 15, 2009 and
we adopted this guidance during the three months ended July 31, 2009. The adoption of this
guidance did not have a material effect on our consolidated financial position, results of
operations or cash flows. See note 15 for certain required disclosures related to this guidance.
In May 2009, the FASB issued authoritative guidance included in ASC Subtopic 855 Subsequent
Events, which establishes general standards of accounting for and disclosure of events that occur
after the balance sheet date, but before financial statements are issued or are available to be
issued. Specifically, this guidance provides (i) the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements; (ii) the circumstances under which
an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; and (iii) the disclosures that
an entity should make about events or transactions that occurred after the balance sheet date.
This guidance is effective for interim or annual financial periods ending after June 15, 2009, and
is to be applied prospectively. We adopted this guidance as of July 31, 2009. The adoption of
this guidance did not have a material effect on our consolidated financial position, results of
operations or cash flows. See note 1 for certain required disclosures related to this standard.
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Critical Accounting Policies
Our 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.
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. 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. If the carrying amount exceeds fair value, then the second step of the impairment test
is performed to measure the amount of any impairment loss. Fair value is computed based on
estimated future cash flows discounted at a rate that approximates our cost of capital. Such
estimates are subject to change, and we may be required to recognize impairment losses in the
future.
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Income Taxes
Current income tax expense is the amount of income taxes expected to be payable for the current
year. 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. Evaluating the value of these assets is
necessarily based on our judgment. If we subsequently determined 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 Subtopic 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.
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.
Foreign Currency Translation
A significant portion of our revenues are generated in Europe, where we operate with the euro as
our 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 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. Our assets
and liabilities that are denominated in foreign currencies are translated at the rate of exchange
on the balance sheet date. Revenues and expenses are translated using the average exchange rate
for the period. Gains and 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 derivatives in other comprehensive income or loss.
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
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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:
| continuing deterioration of global economic conditions and credit and capital markets; |
| our ability to remain compliant with our debt covenants; |
| our ability to achieve the financial results that we anticipate; |
| payments due on contractual commitments and other debt obligations; |
| future expenditures for capital projects; |
| 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. |
These forward-looking statements are based largely on our expectations and are subject to a number
of risks and uncertainties, many of which are beyond our control. Actual results could differ
materially from these forward-looking statements as a result of the risks described in Item 1A.
Risk Factors included in this report, and other factors. 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 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to a variety of risks. Two of these risks are foreign currency fluctuations and
changes in interest rates that affect interest expense. (See also note 15 of our consolidated
financial statements).
Foreign Currency and Derivatives
We are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates
relating to certain sales, royalty income and product purchases of our international subsidiaries
that are denominated in currencies other than their functional currencies. We are also exposed to
foreign currency gains and losses resulting from domestic transactions that are not denominated in
U.S. dollars, and to fluctuations in interest rates related to our variable rate debt.
Furthermore, we are exposed to gains and losses resulting from the effect that fluctuations in
foreign currency exchange rates have on the reported results in our consolidated financial
statements due to the translation of the operating results and financial position of our
international subsidiaries. We use various foreign currency exchange contracts and intercompany
loans as part of our overall strategy to manage the level of exposure to the risk of fluctuations
in foreign currency exchange rates.
On the date we enter into a derivative contract, we designate the derivative as a hedge of the
identified exposure. We formally document all relationships between hedging instruments and hedged
items, as well as the risk-management objective and strategy for entering into various hedge
transactions. We identify in this documentation the asset, liability, firm commitment, or
forecasted transaction that has been designated as a hedged item and indicate how the hedging
instrument is expected to hedge the risks related to the hedged item. We formally measure
effectiveness of our hedging relationships both at the hedge inception and on an ongoing basis in
accordance with our risk management policy. We will discontinue hedge accounting prospectively:
| if we determine that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item; |
| when the derivative expires or is sold, terminated or exercised; |
| if it becomes probable that the forecasted transaction being hedged by the derivative will not occur; |
| because a hedged firm commitment no longer meets the definition of a firm commitment; or | |
| if we determine that designation of the derivative as a hedge instrument is no longer appropriate. |
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Derivatives that do not qualify or are no longer deemed effective to qualify for hedge accounting
but are used by management to mitigate exposure to currency risks are marked to fair value with
corresponding gains or losses recorded in earnings. A loss of $0.7 million was recognized related
to these types of contracts during the year ended October 31, 2009. For all qualifying cash flow
hedges, the changes in the fair value of the derivatives are recorded in other comprehensive
income. As of October 31, 2009, we were hedging forecasted transactions expected to occur through
October 2011. Assuming exchange rates at October 31, 2009 remain constant, $16.6 million of
losses, net of tax, related to hedges of these transactions are expected to be reclassified into
earnings over the next 24 months.
We enter into forward exchange and other derivative contracts with major banks and are exposed to
foreign currency losses in the event of nonperformance by these banks. We anticipate, however,
that these banks will be able to fully satisfy their obligations under the contracts. Accordingly,
we do not obtain collateral or other security to support the contracts.
Translation of Results of International Subsidiaries
As discussed above, 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 operations of our foreign subsidiaries into U.S. dollars
using the average exchange rate during the reporting period. Changes in foreign exchange rates
affect our reported profits and can distort comparisons from year to year. We use various foreign
currency exchange contracts and intercompany loans to hedge the profit and loss effects of such
exposure, but accounting rules do not allow us to hedge the actual translation of sales and
expenses.
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 operating segment. 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 operating segment.
In fiscal 2009, the U.S. dollar strengthened compared to the euro and the Australian dollar. As a
result, our European revenues decreased 7% in euros compared to a decrease of 15% in U.S. dollars.
Asia/Pacific revenues increased 9% in Australian dollars compared to a decrease of 5% in U.S.
dollars.
Interest Rates
Most of our lines of credit and long-term debt bear interest based on LIBOR or EURIBOR plus a
credit spread. Effective interest rates, therefore, will move up or down depending on market
conditions. The credit spreads are subject to change based on financial performance and market
conditions upon refinancing. Interest expense also includes financing fees and related costs and
can be affected by foreign currency movement upon translating non-U.S. dollar denominated interest
into dollars for reporting purposes. The approximate amount of our remaining variable rate debt
was $429.6 million at October 31, 2009, and the average effective interest rate at that time was
4.1%. If interest rates or credit spreads were to increase by 10% (i.e. to approximately 4.5%),
our income before tax would be reduced by approximately $1.8 million based on these fiscal 2009
levels.
Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The information required by this item appears beginning on page 40.
Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
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Item 9A. | 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 October 31, 2009, 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 October 31, 2009.
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 and year ended October 31, 2009
that materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
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Managements Annual Report on Internal Control Over Financial Reporting
Internal control over financial reporting refers to the process designed by, or under the
supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board
of Directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles, and includes those policies
and procedures that:
| pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; |
| provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. |
Internal control over financial reporting cannot provide absolute assurance of achieving financial
reporting objectives because of its inherent limitations. Internal control over financial
reporting is a process that involves human diligence and compliance and is subject to lapses in
judgment and breakdowns resulting from human failures. Internal control over financial reporting
also can be circumvented by collusion or improper management override. Because of such
limitations, there is a risk that material misstatements may not be prevented or detected on a
timely basis by internal control over financial reporting. However, these inherent limitations are
known features of the financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk. Management is responsible for
establishing and maintaining adequate internal control over our financial reporting.
Management has used the framework set forth in the report entitled Internal ControlIntegrated
Framework published by the Committee of Sponsoring Organizations (COSO) of the Treadway
Commission to evaluate the effectiveness of its internal control over financial reporting.
Management has concluded that its internal control over financial reporting was effective as of the
end of the most recent fiscal year. Deloitte & Touche LLP has issued an attestation report (see
below) on our internal control over financial reporting.
The foregoing has been approved by our management, including our Chief Executive Officer and Chief
Financial Officer, who have been involved with the assessment and analysis of our internal controls
over financial reporting.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Quiksilver, Inc.
Huntington Beach, California
Quiksilver, Inc.
Huntington Beach, California
We have audited the internal control over financial reporting of Quiksilver, Inc. and subsidiaries
(the Company) as of October 31, 2009, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Managements Annual Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of October 31, 2009, based on the criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements as of and for the year ended October
31, 2009 of the Company and our report dated January 12, 2010, which report expressed an unqualified opinion
and includes an explanatory paragraph relating to the adoption of Accounting Standards Codification 740,
Accounting for Uncertainty in Income Taxes in 2008.
/s/ Deloitte & Touche LLP
Costa Mesa, California
January 12, 2010
January 12, 2010
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Table of Contents
PART III
Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required to be included by this item will be included under the headings Election
of Directors, Executive Compensation and Other Information, and Corporate Governance in our
proxy statement for the 2010 Annual Meeting of Stockholders. Such information is incorporated
herein by reference to our proxy statement, which will be filed with the Securities and Exchange
Commission within 120 days of our fiscal year ended October 31, 2009.
We have adopted a Code of Ethics for Senior Financial Officers in compliance with applicable rules
of the Securities and Exchange Commission that applies to all of our employees, including our
principal executive officer, our principal financial officer and our principal accounting officer
or controller, or persons performing similar functions. We have posted a copy of this Code of
Ethics on our website, at http://www.quiksilverinc.com. We intend to disclose any amendments to,
or waivers from, any provision of this Code of Ethics by posting such information on such website.
Item 11. | EXECUTIVE COMPENSATION |
The information required to be included by this item will be included under the heading Executive
Compensation and Other Information in our proxy statement for the 2010 Annual Meeting of
Stockholders. Such information is incorporated herein by reference to our proxy statement, which
will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended
October 31, 2009.
Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required to be included by this item will be included under the heading Ownership
of Securities in our proxy statement for the 2010 Annual Meeting of Stockholders. Such
information is incorporated herein by reference to our proxy statement, which will be filed with
the Securities and Exchange Commission within 120 days of our fiscal year ended October 31, 2009.
Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required to be included by this item will be included under the headings Certain
Relationships and Related Transactions and Corporate Governance in our proxy statement for the
2010 Annual Meeting of Stockholders. Such information is incorporated herein by reference to our
proxy statement, which will be filed with the Securities and Exchange Commission within 120 days of
our fiscal year ended October 31, 2009.
Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required to be included by this item will be included under the heading
Independent Registered Public Accounting Firm in our proxy statement for the 2010 Annual Meeting
of Stockholders. Such information is incorporated herein by reference to our proxy statement,
which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year
ended October 31, 2009.
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PART IV
Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
The following documents are filed as part of this Annual Report on Form 10-K:
1. | Consolidated Financial Statements See Index to Consolidated Financial Statements on page 41. | |
2. | Exhibits | |
The Exhibits listed in the Exhibit Index, which appears immediately following the signature page and is incorporated herein by reference, are filed as part of this Annual Report on Form 10-K. |
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QUIKSILVER, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
Audited consolidated financial statements of Quiksilver,
Inc. as of October 31, 2009 and 2008
and for each of the three years in the period
ended October 31, 2009 |
||||
42 | ||||
43 | ||||
43 | ||||
44 | ||||
45 | ||||
46 | ||||
47 |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Quiksilver, Inc.:
Quiksilver, Inc.:
We have audited the accompanying consolidated balance sheets of Quiksilver, Inc. and subsidiaries
(the Company) as of October 31, 2009 and 2008, and the related consolidated statements of
operations, comprehensive loss, stockholders equity and cash flows for each of the three years
in the period ended October 31, 2009. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of October 31, 2009 and 2008, and the results of its
operations and its cash flows for each of the three years in the period ended October 31, 2009, in
conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 12 to the consolidated financial statements, the Company
changed its method of accounting for income tax uncertainties during the year ended October 31, 2008 as a result of adopting Accounting Standards Codification 740, Accounting for Uncertainty in Income Taxes.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Companys internal control over financial reporting
as of October 31, 2009, based on the criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated January
12, 2010 expressed an unqualified opinion on the effectiveness of the Companys internal control
over financial reporting.
/s/ Deloitte & Touche LLP
Costa Mesa, California
January 12, 2010
January 12, 2010
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QUIKSILVER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended October 31, 2009, 2008 and 2007
Years Ended October 31, 2009, 2008 and 2007
In thousands, except per share amounts | 2009 | 2008 | 2007 | |||||||||
Revenues, net |
$ | 1,977,526 | $ | 2,264,636 | $ | 2,047,072 | ||||||
Cost of goods sold |
1,046,495 | 1,144,050 | 1,062,027 | |||||||||
Gross profit |
931,031 | 1,120,586 | 985,045 | |||||||||
Selling, general and administrative expense |
851,746 | 915,933 | 782,263 | |||||||||
Asset impairments |
10,737 | 65,797 | | |||||||||
Operating income |
68,548 | 138,856 | 202,782 | |||||||||
Interest expense, net |
63,924 | 45,327 | 46,571 | |||||||||
Foreign currency loss (gain) |
8,633 | (5,761 | ) | 4,857 | ||||||||
Minority interest and other expense |
2,539 | 719 | 121 | |||||||||
(Loss) income before provision for income taxes |
(6,548 | ) | 98,571 | 151,233 | ||||||||
Provision for income taxes |
66,667 | 33,027 | 34,506 | |||||||||
(Loss) income from continuing operations |
(73,215 | ) | 65,544 | 116,727 | ||||||||
Loss from discontinued operations |
(118,827 | ) | (291,809 | ) | (237,846 | ) | ||||||
Net loss |
$ | (192,042 | ) | $ | (226,265 | ) | $ | (121,119 | ) | |||
(Loss) income per share from continuing operations |
$ | (0.58 | ) | $ | 0.52 | $ | 0.94 | |||||
Loss per share from discontinued operations |
(0.94 | ) | (2.32 | ) | (1.92 | ) | ||||||
Net loss per share |
$ | (1.51 | ) | $ | (1.80 | ) | $ | (0.98 | ) | |||
(Loss) income per share from continuing operations, assuming dilution |
$ | (0.58 | ) | $ | 0.51 | $ | 0.90 | |||||
Loss per share from discontinued operations, assuming dilution |
(0.94 | ) | (2.25 | ) | (1.83 | ) | ||||||
Net loss per share, assuming dilution |
$ | (1.51 | ) | $ | (1.75 | ) | $ | (0.93 | ) | |||
Weighted average common shares outstanding |
127,042 | 125,975 | 123,770 | |||||||||
Weighted average common shares outstanding, assuming dilution |
127,042 | 129,485 | 129,706 | |||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Years Ended October 31, 2009, 2008 and 2007
Years Ended October 31, 2009, 2008 and 2007
In thousands | 2009 | 2008 | 2007 | |||||||||
Net loss |
$ | (192,042 | ) | $ | (226,265 | ) | $ | (121,119 | ) | |||
Other comprehensive income (loss): |
||||||||||||
Foreign currency translation adjustment |
99,798 | (111,920 | ) | 116,882 | ||||||||
Reclassification adjustment for
foreign currency translation included
in current period loss from
discontinued operations |
(47,850 | ) | | | ||||||||
Net (loss) gain on derivative
instruments, net of tax (benefit)
provision of $(19,965) (2009), $26,322
(2008) and $(10,368) (2007) (2002) |
(37,062 | ) | 44,313 | (21,859 | ) | |||||||
Comprehensive loss |
$ | (177,156 | ) | $ | (293,872 | ) | $ | (26,096 | ) | |||
See notes to consolidated financial statements.
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QUIKSILVER, INC.
CONSOLIDATED BALANCE SHEETS
October 31, 2009 and 2008
October 31, 2009 and 2008
In thousands, except share amounts | 2009 | 2008 | ||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 99,516 | $ | 53,042 | ||||
Restricted cash |
52,706 | | ||||||
Trade accounts receivable, net |
430,884 | 470,059 | ||||||
Other receivables |
25,615 | 70,376 | ||||||
Income taxes receivable |
| 10,738 | ||||||
Inventories |
267,730 | 312,138 | ||||||
Deferred income taxes |
76,638 | 12,220 | ||||||
Prepaid expenses and other current assets |
37,333 | 25,869 | ||||||
Current assets held for sale |
1,777 | 411,442 | ||||||
Total current assets |
992,199 | 1,365,884 | ||||||
Restricted cash |
| 46,475 | ||||||
Fixed assets, net |
239,333 | 235,528 | ||||||
Intangible assets, net |
142,954 | 144,434 | ||||||
Goodwill |
333,758 | 299,350 | ||||||
Other assets |
75,353 | 39,594 | ||||||
Deferred income taxes long-term |
69,011 | 39,000 | ||||||
Total assets |
$ | 1,852,608 | $ | 2,170,265 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Lines of credit |
$ | 32,592 | $ | 238,317 | ||||
Accounts payable |
162,373 | 235,729 | ||||||
Accrued liabilities |
116,274 | 93,548 | ||||||
Current portion of long-term debt |
95,231 | 31,904 | ||||||
Income taxes payable |
23,574 | | ||||||
Liabilities related to assets held for sale |
458 | 135,071 | ||||||
Total current liabilities |
430,502 | 734,569 | ||||||
Long-term debt, net of current portion |
911,430 | 790,097 | ||||||
Other long-term liabilities |
54,081 | 39,607 | ||||||
Non-current liabilities related to assets held for sale |
| 6,026 | ||||||
Total liabilities |
1,396,013 | 1,570,299 | ||||||
Commitments and contingencies Note 9 |
||||||||
Stockholders equity: |
||||||||
Preferred stock, $.01 par value, authorized shares - 5,000,000;
issued and outstanding shares none |
| | ||||||
Common stock, $.01 par value, authorized shares - 185,000,000;
issued shares - 131,484,363 (2009) and 130,622,566 (2008) |
1,315 | 1,306 | ||||||
Additional paid-in capital |
368,285 | 334,509 | ||||||
Treasury stock, 2,885,200 shares |
(6,778 | ) | (6,778 | ) | ||||
(Accumulated deficit) retained earnings |
(1,623 | ) | 190,419 | |||||
Accumulated other comprehensive income |
95,396 | 80,510 | ||||||
Total stockholders equity |
456,595 | 599,966 | ||||||
Total liabilities and stockholders equity |
$ | 1,852,608 | $ | 2,170,265 | ||||
See notes to consolidated financial statements.
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QUIKSILVER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years Ended October 31, 2009, 2008 and 2007
Years Ended October 31, 2009, 2008 and 2007
Retained | Accumulated | |||||||||||||||||||||||||||
Additional | Earnings | Other | Total | |||||||||||||||||||||||||
In thousands,except | Common Stock | Paid-in | Treasury | (Accumulated | Comprehensive | Stockholders | ||||||||||||||||||||||
share amounts | Shares | Amounts | Capital | Stock | Deficit) | Income (Loss) | Equity | |||||||||||||||||||||
Balance, October
31, 2006 |
126,401,836 | $ | 1,264 | $ | 274,488 | $ | (6,778 | ) | $ | 559,059 | $ | 53,094 | $ | 881,127 | ||||||||||||||
Exercise of stock
options |
1,804,515 | 18 | 10,351 | | | | 10,369 | |||||||||||||||||||||
Tax benefit from
exercise of stock
options |
| | 2,896 | | | | 2,896 | |||||||||||||||||||||
Stock compensation
expense |
| | 17,210 | | | | 17,210 | |||||||||||||||||||||
Restricted stock |
42,000 | | | | | | | |||||||||||||||||||||
Employee stock
purchase plan |
92,187 | 1 | 1,106 | | | | 1,107 | |||||||||||||||||||||
Net income and
other comprehensive
income |
| | | | (121,119 | ) | 95,023 | (26,096 | ) | |||||||||||||||||||
Balance, October
31, 2007 |
128,340,538 | 1,283 | 306,051 | (6,778 | ) | 437,940 | 148,117 | 886,613 | ||||||||||||||||||||
Exercise of stock
options |
1,828,338 | 18 | 6,719 | | | | 6,737 | |||||||||||||||||||||
Tax benefit from
exercise of stock
options |
| | 2,994 | | | | 2,994 | |||||||||||||||||||||
Stock compensation
expense |
¾ | ¾ | 13,002 | ¾ | ¾ | ¾ | 13,002 | |||||||||||||||||||||
Restricted stock |
(103,668 | ) | (1 | ) | 1 | ¾ | ¾ | ¾ | ¾ | |||||||||||||||||||
Employee stock
purchase plan |
257,178 | 3 | 1,867 | ¾ | ¾ | ¾ | 1,870 | |||||||||||||||||||||
Business
acquisitions |
300,180 | 3 | 3,875 | ¾ | ¾ | ¾ | 3,878 | |||||||||||||||||||||
Adjustment due to
adoption of
uncertain tax
position guidance |
¾ | ¾ | ¾ | ¾ | (21,256 | ) | ¾ | (21,256 | ) | |||||||||||||||||||
Net loss and other
comprehensive loss |
¾ | ¾ | ¾ | ¾ | (226,265 | ) | (67,607 | ) | (293,872 | ) | ||||||||||||||||||
Balance, October
31, 2008 |
130,622,566 | 1,306 | 334,509 | (6,778 | ) | 190,419 | 80,510 | 599,966 | ||||||||||||||||||||
Tax benefit from
exercise of stock
options |
| | 439 | | | | 439 | |||||||||||||||||||||
Stock compensation
expense |
| | 8,884 | | | | 8,884 | |||||||||||||||||||||
Restricted stock |
310,999 | 3 | (3 | ) | | | | | ||||||||||||||||||||
Employee stock
purchase plan |
550,798 | 6 | 855 | | | | 861 | |||||||||||||||||||||
Stock warrants
issued |
| | 23,601 | | | | 23,601 | |||||||||||||||||||||
Net loss and other
comprehensive loss |
¾ | ¾ | ¾ | ¾ | (192,042 | ) | 14,886 | (177,156 | ) | |||||||||||||||||||
Balance, October
31, 2009 |
131,484,363 | $ | 1,315 | $ | 368,285 | $ | (6,778 | ) | $ | (1,623 | ) | $ | 95,396 | $ | 456,595 | |||||||||||||
See notes to consolidated financial statements.
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QUIKSILVER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31, 2009, 2008 and 2007
Years Ended October 31, 2009, 2008 and 2007
In thousands | 2009 | 2008 | 2007 | |||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (192,042 | ) | $ | (226,265 | ) | $ | (121,119 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||||||
Loss from discontinued operations |
118,827 | 291,809 | 237,846 | |||||||||
Depreciation and amortization |
55,004 | 57,231 | 46,852 | |||||||||
Stock-based compensation and tax benefit on option exercises |
8,415 | 9,588 | 13,234 | |||||||||
Provision for doubtful accounts |
16,235 | 15,948 | 7,790 | |||||||||
Loss on disposal of fixed assets |
4,194 | 350 | 2,479 | |||||||||
Foreign currency (gain) loss |
(103 | ) | (2,618 | ) | 1,266 | |||||||
Asset impairments |
10,737 | 65,797 | | |||||||||
Non-cash interest |
3,441 | | | |||||||||
Equity in earnings and minority interest |
2,924 | 1,811 | (210 | ) | ||||||||
Deferred income taxes |
43,234 | (10,445 | ) | (15,412 | ) | |||||||
Changes in operating assets and liabilities, net of effects from business
acquisitions: |
||||||||||||
Trade accounts receivable |
60,783 | (16,179 | ) | (57,217 | ) | |||||||
Other receivables |
14,914 | (7,446 | ) | (13,030 | ) | |||||||
Inventories |
78,039 | (32,786 | ) | (19,563 | ) | |||||||
Prepaid expenses and other current assets |
(157 | ) | (1,333 | ) | 988 | |||||||
Other assets |
5,422 | (1,776 | ) | (3,426 | ) | |||||||
Accounts payable |
(79,026 | ) | 36,961 | 21,650 | ||||||||
Accrued liabilities and other long-term liabilities |
5,421 | (14,871 | ) | 43,064 | ||||||||
Income taxes payable |
36,091 | 13,688 | 36,657 | |||||||||
Cash provided by operating activities of continuing operations |
192,353 | 179,464 | 181,849 | |||||||||
Cash provided by (used in) operating activities of discontinued operations |
13,815 | (107,302 | ) | (57,597 | ) | |||||||
Net cash provided by operating activities |
206,168 | 72,162 | 124,252 | |||||||||
Cash flows from investing activities: |
||||||||||||
Capital expenditures |
(54,564 | ) | (90,948 | ) | (78,276 | ) | ||||||
Business acquisitions, net of acquired cash |
| (31,127 | ) | (41,257 | ) | |||||||
Changes in restricted cash |
| (46,475 | ) | | ||||||||
Cash used in investing activities of continuing operations |
(54,564 | ) | (168,550 | ) | (119,533 | ) | ||||||
Cash provided by (used in) investing activities of discontinued operations |
21,848 | 103,811 | (40,957 | ) | ||||||||
Net cash used in investing activities |
(32,716 | ) | (64,739 | ) | (160,490 | ) | ||||||
Cash flows from financing activities: |
||||||||||||
Borrowings on lines of credit |
10,346 | 185,777 | 71,846 | |||||||||
Payments on lines of credit |
(237,025 | ) | (47,161 | ) | (17,247 | ) | ||||||
Borrowings on long-term debt |
895,268 | 240,389 | 209,311 | |||||||||
Payments on long-term debt |
(726,852 | ) | (198,793 | ) | (101,611 | ) | ||||||
Payments of debt issuance costs |
(47,478 | ) | | | ||||||||
Stock option exercises, employee stock purchases and tax benefit on option exercises |
862 | 11,602 | 14,253 | |||||||||
Cash (used in) provided by financing activities of continuing operations |
(104,879 | ) | 191,814 | 176,552 | ||||||||
Cash used in financing activities of discontinued operations |
(11,136 | ) | (224,794 | ) | (96,735 | ) | ||||||
Net cash (used in) provided by financing activities |
(116,015 | ) | (32,980 | ) | 79,817 | |||||||
Effect of exchange rate changes on cash |
(10,963 | ) | 4,251 | (6,065 | ) | |||||||
Net increase (decrease) in cash and cash equivalents |
46,474 | (21,306 | ) | 37,514 | ||||||||
Cash and cash equivalents, beginning of year |
53,042 | 74,348 | 36,834 | |||||||||
Cash and cash equivalents, end of year |
$ | 99,516 | $ | 53,042 | $ | 74,348 | ||||||
Supplementary cash flow information: |
||||||||||||
Cash paid (received) during the year for: |
||||||||||||
Interest |
$ | 58,094 | $ | 70,023 | $ | 62,894 | ||||||
Income taxes |
$ | (5,794 | ) | $ | 31,049 | $ | 17,454 | |||||
Non-cash investing and financing activities: |
||||||||||||
Deferred purchase price obligation |
$ | ¾ | $ | ¾ | $ | 26,356 | ||||||
Common stock issued for business acquisitions |
$ | ¾ | $ | 3,878 | $ | ¾ | ||||||
Transfer of Rossignol debt to continuing operations |
$ | ¾ | $ | 78,322 | $ | ¾ | ||||||
Stock warrants issued |
$ | 23,601 | $ | ¾ | $ | ¾ | ||||||
See notes to consolidated financial statements.
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QUIKSILVER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended October 31, 2009, 2008 and 2007
Years Ended October 31, 2009, 2008 and 2007
Note 1 Significant Accounting Policies
Company Business
Quiksilver, Inc. and its subsidiaries (the Company) design, produce and distribute branded
apparel, footwear, accessories and related products. The Companys apparel and footwear brands
represent a casual lifestyle for young-minded people that connect with its boardriding culture and
heritage. The Companys Quiksilver, Roxy, DC and Hawk brands are synonymous with the heritage and
culture of surfing, skateboarding and snowboarding, and its beach and water oriented swimwear
brands include Raisins, Radio Fiji and Leilani. The Company makes snowboarding equipment under its
DC, Roxy, Lib Technologies, Gnu and Bent Metal labels. The Companys products are sold in over 90
countries in a wide range of distribution channels, including surf shops, skateboard shops,
snowboard shops, its proprietary concept stores, other specialty stores and select department
stores. Distribution is primarily in the United States, Europe and Australia.
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.
The Company is highly leveraged; however, management believes that its cash flow from operations,
together with its existing credit facilities and term loans will be adequate to fund the Companys
capital requirements for at least the next twelve months. During fiscal 2009, the Company closed a
$153.1 million five year senior secured term loan, refinanced its existing asset-based credit
facility with a new $200 million three year asset-based credit facility for its Americas segment,
and refinanced its short-term uncommitted lines of credit in Europe with a new 268 million
multi-year facility. The closing of these transactions enabled the Company to extend a significant
portion of its short-term maturities to a long-term basis. The Company also believes that its
short-term uncommitted lines of credit in Asia/Pacific will continue to be made available. If
these lines of credit are not made available, then the Company could be adversely affected.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Quiksilver, Inc. and
subsidiaries, including Pilot, SAS and subsidiaries (Quiksilver Europe) and Quiksilver Australia
Pty Ltd. and subsidiaries (Quiksilver Asia/Pacific and Quiksilver International). Intercompany
accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America.
Cash Equivalents
Certificates of deposit and highly liquid short-term investments purchased with original maturities
of three months or less are considered cash equivalents. Carrying values approximate fair value.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market. Management regularly
reviews the inventory quantities on hand and adjusts inventory values for excess and obsolete
inventory based primarily on estimated forecasts of product demand and market value.
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Fixed Assets
Furniture and other equipment, computer equipment, manufacturing equipment and buildings are
recorded at cost and depreciated on a straight-line basis over their estimated useful lives, which
generally range from two to twenty years. Leasehold improvements are recorded at cost and
amortized over their estimated useful lives or related lease term, whichever is shorter. Land use
rights for certain leased retail locations are amortized to estimated residual value.
Long-Lived Assets
The Company accounts for the impairment and disposition of long-lived assets in accordance with ASC
360, Property, Plant, and Equipment. In accordance with ASC 360, management assesses potential
impairments of its long-lived assets whenever events or changes in circumstances indicate that an
assets carrying value 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. The Company recorded approximately $10.7 million, $10.4 million and zero
in fixed asset impairments in continuing operations as of October 31, 2009, 2008 and 2007,
respectively.
Goodwill and Intangible Assets
The Company accounts for goodwill and intangible assets in accordance with ASC 350, Intangibles -
Goodwill and Other. Under ASC 350, goodwill and intangible assets with indefinite lives are not
amortized but are tested for impairment annually and also in the event of an impairment indicator.
The annual impairment test is a fair value test as prescribed by ASC 350 which includes assumptions
such as growth and discount rates. The Company determined that there was no impairment loss in
continuing operations as of October 31, 2009, recorded approximately $55.4 million in goodwill
impairment in continuing operations as of October 31, 2008, and had previously determined that
there was no impairment loss in continuing operations as of October 31, 2007.
Revenue Recognition
Revenues are recognized upon the transfer of title and risk of ownership to customers. Allowances
for estimated returns and doubtful accounts are provided when revenues are recorded. Returns and
allowances are reported as reductions in revenues, whereas allowances for bad debts are reported as
a component of selling, general and administrative expense. Royalty income is recorded as earned.
The Company performs ongoing credit evaluations of its customers and generally does not require
collateral.
Revenues in the Consolidated Statements of Operations include the following:
Year Ended October 31, | ||||||||||||
In thousands | 2009 | 2008 | 2007 | |||||||||
Product shipments, net |
$ | 1,961,389 | $ | 2,254,245 | $ | 2,040,289 | ||||||
Royalty income |
16,137 | 10,391 | 6,783 | |||||||||
$ | 1,977,526 | $ | 2,264,636 | $ | 2,047,072 | |||||||
Promotion and Advertising
The Companys promotion and advertising efforts include athlete sponsorships, world-class
boardriding contests, websites, magazine advertisements, retail signage, television programs,
co-branded products, surf camps, skate park tours and other events. For the fiscal years ended
October 31, 2009, 2008 and 2007, these expenses totaled $101.8 million, $122.1 million and $102.9
million, respectively. Advertising costs are expensed when incurred.
Income Taxes
The Company accounts for income taxes using the asset and liability approach as promulgated by the
authoritative guidance included in ASC Subtopic 740 Income Taxes. Deferred income tax assets and
liabilities are established for temporary differences between the financial reporting bases and the
tax bases of the Companys assets and liabilities at tax rates expected to be in effect when such
assets or liabilities are realized or settled. Deferred income tax assets are reduced by a
valuation allowance if, in
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the judgment of the Companys management, it is more likely than not that such assets will not be
realized.
On November 1, 2007, the Company adopted the authoritative guidance included in ASC Subtopic 740
Income Taxes. This guidance 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. The Company recognizes accrued interest and penalties related
to unrecognized tax benefits as a component of its provision for income taxes.
Stock-Based Compensation Expense
The Company recognizes compensation expense for all stock-based payments net of an estimated
forfeiture rate and only recognizes compensation cost for those shares expected to vest using the
graded vested method over the requisite service period of the award. For option valuation, the
Company determines 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.
Net (Loss) Income per Share
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. For the year ended October 31, 2009,
the weighted average common shares outstanding, assuming dilution, does not include 1,048,000 of
dilutive stock options and shares of restricted stock as the effect is anti-dilutive. For the
years ended October 31, 2008 and 2007, the weighted average common shares outstanding, assuming
dilution, includes 3,510,000 and 5,936,000 shares, respectively, of dilutive stock options and
restricted stock. For the years ended October 31, 2009, 2008 and 2007, additional option shares
outstanding of 14,861,000, 12,392,000 and 11,375,000, respectively, and warrant shares outstanding
of 25,654,000, zero and zero, respectively, were excluded from the calculation of diluted EPS, as
their effect would have been anti-dilutive.
Foreign Currency and Derivatives
The Companys reporting currency is the U.S. dollar, while Quiksilver Europes functional
currencies are primarily the euro and the British pound, and Quiksilver Asia/Pacifics functional
currencies are primarily the Australian dollar and the Japanese yen. Assets and liabilities of the
Company denominated in foreign currencies are translated at the rate of exchange on the balance
sheet date. Revenues and expenses are translated using the average exchange rate for the period.
Derivative financial instruments are recognized as either assets or liabilities in the balance
sheet and are measured at fair value. The accounting for changes in the fair value of a derivative
depends on the use and type of the derivative. The Companys derivative financial instruments
principally consist of foreign currency exchange contracts and interest rate swaps, which the
Company uses to manage its exposure to the risk of foreign currency exchange rates and variable
interest rates. The Companys objectives are to reduce the volatility of earnings and cash flows
associated with changes in foreign currency exchange and interest rates. The Company does not
enter into derivative financial instruments for speculative or trading purposes.
Comprehensive Loss
Comprehensive loss or income includes all changes in stockholders equity except those resulting
from investments by, and distributions to, stockholders. Accordingly, the Companys Consolidated
Statements of Comprehensive Loss include its net loss and the foreign currency adjustments that
arise from the translation of the financial statements of Quiksilver Europe, Quiksilver
Asia/Pacific and the foreign entities within the Americas segment into U.S. dollars and fair value
gains and losses on certain derivative instruments.
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Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions. Such
estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates.
Fair Value of Financial Instruments
The carrying value of the Companys trade accounts receivable and accounts payable approximates its
fair value due to their short-term nature.
Subsequent Events
The Company evaluated all subsequent events through the time that it filed its consolidated
financial statements in this Form 10-K with the Securities and Exchange Commission on January 12,
2010.
New Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued the Accounting
Standards Codification (ASC) Subtopic 105 Generally Accepted Accounting Principles, which
establishes the Accounting Standards Codification as the single source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with GAAP. Rules and interpretive releases of the Securities
and Exchange Commission under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. The subsequent issuances of new standards will be in the
form of Accounting Standards Updates that will be included in the codification. This guidance is
effective for financial statements issued for interim and annual periods ending after September 15,
2009. The Company updated its historical U.S. GAAP references to comply with the codification
effective at the beginning of its fiscal quarter ending October 31, 2009. The adoption of this
guidance did not have a material effect on the Companys consolidated financial position, results
of operations or cash flows, since the codification is not intended to change U.S. GAAP.
In September 2006, the FASB issued authoritative guidance included in ASC Subtopic 820 Fair
Value Measurements and Disclosures, which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands disclosures about
fair value measurements. This guidance is effective for financial statements issued for fiscal
years beginning after November 15, 2007. The Company adopted this guidance at the beginning of its
fiscal year ending October 31, 2009. The adoption of this guidance did not have a material effect
on the Companys consolidated financial position, results of operations or cash flows. See note 15
for certain required disclosures related to this guidance.
In February 2007, the FASB issued authoritative guidance included in ASC Subtopic 825
Financial Instruments, which permits companies to choose to measure certain financial instruments
and other items at fair value that are not currently required to be measured at fair value. This
guidance is effective for financial statements issued for fiscal years beginning after November 15,
2007. The Company adopted this guidance at the beginning of its fiscal year ending October 31,
2009. The adoption of this guidance did not have a material effect on the Companys consolidated
financial position, results of operations or cash flows, since the Company did not elect the fair
value option for any assets or liabilities.
In December 2007, the FASB issued authoritative guidance included in ASC Subtopic 805
Business Combinations, which requires the Company to record fair value estimates of contingent
consideration and certain other potential liabilities during the original purchase price
allocation, expense acquisition costs as incurred and does not permit certain restructuring
activities to be recorded as a component of purchase accounting. In April 2009, the FASB issued
additional guidance that requires assets acquired and liabilities assumed in a business combination
that arise from contingencies be recognized at fair value, only if fair value can be reasonably
estimated and eliminates the requirement to disclose an estimate of the range of outcomes of
recognized contingencies at the acquisition date. This guidance is
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effective for financial
statements issued for fiscal years beginning on or after December 15,
2008. The Company will adopt this guidance at the beginning of its fiscal year ending October 31,
2010 for all prospective business acquisitions. The Company has not determined the effect that the
adoption of this guidance will have on its consolidated financial statements, but the impact will
be limited to any future acquisitions beginning in fiscal 2010, except for certain tax treatment of
previous acquisitions.
In December 2007, the FASB issued authoritative guidance included in ASC Subtopic 810
Consolidation, which requires noncontrolling interests in subsidiaries to be included in the
equity section of the balance sheet. This guidance is effective for financial statements issued
for fiscal years beginning after December 15, 2008. The Company will adopt this guidance at the
beginning of its fiscal year ending October 31, 2010. In the year of adoption, presentation and
disclosure requirements apply retrospectively to all periods presented. The adoption of this
guidance is not expected to have a material effect on the Companys consolidated financial
position, results of operations or cash flows.
In March 2008, the FASB issued authoritative guidance included in ASC Subtopic 815
Derivatives and Hedging, which requires enhanced disclosures to enable investors to better
understand how and why derivatives are used and their effects on an entitys financial position,
financial performance and cash flows. This guidance is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008. The Company adopted this
guidance at the beginning of its fiscal quarter ending April 30, 2009. The adoption of this
guidance did not have a material effect on the Companys consolidated financial position, results
of operations or cash flows. See note 15 for certain required disclosures related to this
guidance.
In April 2009, the FASB issued authoritative guidance included in ASC Subtopic 825 Financial
Instruments, which enhances consistency in financial reporting by increasing the frequency of fair
value disclosures. This guidance is effective for interim periods ending after June 15, 2009 and
the Company adopted this guidance during the three months ending July 31, 2009. The adoption of
this guidance did not have a material effect on the Companys consolidated financial position,
results of operations or cash flows. See note 15 for certain required disclosures related to this
guidance.
In May 2009, the FASB issued authoritative guidance included in ASC Subtopic 855 Subsequent
Events, which establishes general standards of accounting for and disclosure of events that occur
after the balance sheet date, but before financial statements are issued or are available to be
issued. Specifically, this guidance provides (i) the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements; (ii) the circumstances under which
an entity should recognize events or transactions occurring after the balance sheet date in its
financial statements; and (iii) the disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. This guidance is effective for interim or
annual financial periods ending after June 15, 2009, and is to be applied prospectively. The
Company adopted this guidance as of July 31, 2009. The adoption of this guidance did not have a
material effect on the Companys consolidated financial position, results of operations or cash
flows. See section above, entitled Subsequent Events, for certain required disclosures related
to this guidance.
Note 2 Business Acquisitions
The Company did not engage in any business acquisitions, nor pay cash related to any prior business
acquisitions, during the year ended October 31, 2009. For the years ended October 31, 2008 and
2007, the Company paid cash of approximately $31.1 million and $41.3 million respectively, in
connection with certain business acquisitions, of which $19.2 million and $20.2 million for those
same years relates to payments to the former owners of DC Shoes, Inc. in connection with the
achievement of certain sales and earnings targets. The remaining $11.9 million and $21.1 million
for the years ended October 31, 2008 and 2007 relate primarily to insignificant acquisitions of
certain distributors, licensees and retail store locations.
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Effective June 1, 2008, the Company acquired an additional 29% of Quiksilver Brazil for an
aggregate purchase price of approximately $7.7 million, which included 300,180 shares of its common
stock and approximately $3.9 million in cash. As a result of this transaction, the Company
increased its ownership in Quiksilver Brazil to 51%.
Note 3 Allowance for Doubtful Accounts
The allowance for doubtful accounts, which includes bad debts and returns and allowances, consists
of the following:
Year Ended October 31, | ||||||||||||
In thousands | 2009 | 2008 | 2007 | |||||||||
Balance, beginning of year |
$ | 31,331 | $ | 21,100 | $ | 15,758 | ||||||
Provision for doubtful accounts |
16,235 | 15,948 | 7,790 | |||||||||
Deductions |
(355 | ) | (5,717 | ) | (2,448 | ) | ||||||
Balance, end of year |
$ | 47,211 | $ | 31,331 | $ | 21,100 | ||||||
The provision for doubtful accounts represents charges to selling, general and administrative
expense for estimated bad debts, whereas the provision for returns and allowances is reported as a
reduction of revenues.
Note 4 Inventories
Inventories consist of the following:
October 31, | ||||||||
In thousands | 2009 | 2008 | ||||||
Raw materials |
$ | 6,904 | $ | 9,156 | ||||
Work in process |
5,230 | 7,743 | ||||||
Finished goods |
255,596 | 295,239 | ||||||
$ | 267,730 | $ | 312,138 | |||||
Note 5 Fixed Assets
Fixed assets consist of the following:
October 31, | ||||||||
In thousands | 2009 | 2008 | ||||||
Furniture and other equipment |
$ | 199,380 | $ | 178,200 | ||||
Computer equipment |
101,505 | 103,472 | ||||||
Leasehold improvements |
137,966 | 134,320 | ||||||
Land use rights |
42,671 | 38,508 | ||||||
Land and buildings |
6,368 | 4,600 | ||||||
487,890 | 459,100 | |||||||
Accumulated depreciation and amortization |
(248,557 | ) | (223,572 | ) | ||||
$ | 239,333 | $ | 235,528 | |||||
During the three months ended October 31, 2009 and 2008, the Company recorded approximately $10.7
million and $10.4 million, respectively, in fixed asset impairments in continuing operations,
primarily related to impairment of leasehold improvements on certain underperforming U.S. retail
stores. These stores were not generating positive cash flows and are not expected to become
profitable in the future. As a result, the Company is working to close these stores as soon as
possible. Any charges associated with future rent commitments will be charged to future earnings
upon store closure.
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Note 6 Intangible Assets and Goodwill
A summary of intangible assets is as follows:
October 31, | ||||||||||||||||||||||||
2009 | 2008 | |||||||||||||||||||||||
Gross | Amorti- | Net Book | Gross | Amorti- | Net Book | |||||||||||||||||||
In thousands | Amount | zation | Value | Amount | zation | Value | ||||||||||||||||||
Amortizable trademarks |
$ | 19,472 | $ | (6,745 | ) | $ | 12,727 | $ | 18,976 | $ | (5,559 | ) | $ | 13,417 | ||||||||||
Amortizable licenses |
12,237 | (8,464 | ) | 3,773 | 9,103 | (5,386 | ) | 3,717 | ||||||||||||||||
Other amortizable intangibles |
8,318 | (4,695 | ) | 3,623 | 8,103 | (3,942 | ) | 4,161 | ||||||||||||||||
Non-amortizable trademarks |
122,831 | | 122,831 | 123,139 | | 123,139 | ||||||||||||||||||
$ | 162,858 | $ | (19,904 | ) | $ | 142,954 | $ | 159,321 | $ | (14,887 | ) | $ | 144,434 | |||||||||||
As of October 31, 2008 and in connection with its annual goodwill impairment test, the Company
remeasured the value of its intangible assets in accordance with ASC 350, Intangibles Goodwill
and Other, and noted that the carrying value of assets of its Asia/Pacific segment were in excess
of their estimated fair value. As a result, the Company recorded related goodwill impairment
charges of approximately $55.4 million during the three months ended October 31, 2008. The fair
value of assets was estimated using a combination of a discounted cash flow and market approach.
The value implied by the test was affected by (1) reduced 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 discount rates applied and current estimates of market
values were affected by macro-economic conditions, contributing to the estimated decline in value.
Goodwill in the Asia/Pacific segment arose primarily from the acquisition of the Companys
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. For the years ended October 31, 2009 and 2007, there were no impairment charges
resulting from the Companys annual impairment test.
The change in non-amortizable trademarks is due primarily to foreign currency exchange
fluctuations. Other amortizable intangibles primarily include non-compete agreements, patents and
customer relationships. These amortizable intangibles are amortized on a straight-line basis over
their estimated useful lives. Certain trademarks and licenses will continue to be amortized using
estimated useful lives of 10 to 25 years with no residual values. Intangible amortization expense
for the fiscal years ended October 31, 2009, 2008 and 2007 was $3.2 million, $2.9 million and $2.6
million, respectively. Annual amortization expense, based on the Companys amortizable intangible
assets as of October 31, 2009, is estimated to be approximately $3.2 million in the fiscal year
ending October 31, 2010, approximately $3.0 million in each of the fiscal years ending October 31,
2011 through October 31, 2013 and approximately $2.0 million in the fiscal year ending October 31,
2014.
Goodwill arose primarily from the acquisitions of Quiksilver Europe, Quiksilver Asia/Pacific and DC
Shoes, Inc. Goodwill increased approximately $34.4 million during the fiscal year ended October
31, 2009, which was due to the effect of changes in foreign currency exchange rates. Goodwill
decreased $99.5 million during the fiscal year ended October 31, 2008, which included a $55.4
million goodwill impairment in the Asia/Pacific segment. The remaining decrease was primarily due
to $49.4 million related to the effect of changes in foreign currency exchange rates, which was
partially offset by an increase to goodwill of approximately $5.3 million related to other
insignificant acquisitions.
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Note 7 Lines of Credit and Long-term Debt
A summary of lines of credit and long-term debt is as follows:
October 31, | ||||||||
In thousands | 2009 | 2008 | ||||||
European short-term credit arrangements |
$ | 14 | $ | 187,309 | ||||
Asia/Pacific short-term lines of credit |
32,578 | 51,008 | ||||||
Americas Credit Facility |
| 142,500 | ||||||
Americas long-term debt |
109,329 | | ||||||
European long-term debt |
389,029 | 172,907 | ||||||
European Credit Facility |
38,243 | 47,218 | ||||||
Senior Notes |
400,000 | 400,000 | ||||||
Deferred purchase price obligation |
49,144 | 41,922 | ||||||
Capital lease obligations and other borrowings |
20,916 | 17,454 | ||||||
$ | 1,039,253 | $ | 1,060,318 | |||||
In July 2005, the Company issued $400 million in senior notes (Senior Notes), which bear a coupon
interest rate of 6.875% and are due April 15, 2015. The Senior Notes were issued at par value and
sold in accordance with Rule 144A and Regulation S. In December 2005, these Senior Notes were
exchanged for publicly registered notes with identical terms. The Senior Notes are guaranteed on a
senior unsecured basis by each of the Companys domestic subsidiaries that guarantee any of its
indebtedness or its subsidiaries indebtedness, or are obligors under its existing senior secured
credit facility (the Guarantors). The Company may redeem some or all of the Senior Notes after
April 15, 2010 at fixed redemption prices as set forth in the indenture related to such Senior
Notes.
The Senior Notes indenture includes covenants that limit the ability of the Company 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; limit dividends or other payments to the Company; use assets as
security in other transactions; and sell certain assets or merge with or into other companies. If
the Company experiences a change of control (as defined in the indenture), it will be required to
offer to purchase the Senior Notes at a purchase price equal to 101% of the principal amount, plus
accrued and unpaid interest. The Company is currently in compliance with these covenants. In
addition, the Company has approximately $7.1 million in unamortized debt issuance costs related to
the Senior Notes included in other assets as of October 31, 2009.
On July 31, 2009, the Company entered into a $153.1 million five year senior secured term loan with
funds affiliated with Rhône Capital LLC. In connection with the term loan, the Company issued
warrants to purchase approximately 25.7 million shares of its common stock, representing 19.99% of
the outstanding equity of the Company at the time, with an exercise price of $1.86 per share. The
warrants are fully vested and have a seven year term. The estimated fair value of these warrants
at issuance was $23.6 million. This amount was recorded as a debt discount and will be amortized
into interest expense over the term of the loan. In addition to this, the Company incurred
approximately $15.8 million in debt issuance costs which are classified in prepaid expenses
(short-term) and other assets (long-term) and are being amortized into interest expense over the
five year term of the loan. The term loan is primarily secured by certain of the Companys
trademarks in the Americas and a first or second priority interest in substantially all property
related to the Companys Americas business. The term loan bears an interest rate of 15% on a $125
million tranche, with 6% of that interest payable in kind or in cash, at the Companys option. The
remaining tranche is denominated in euros (20 million) and also bears an interest rate of 15%,
with the full 15% payable in kind or cash at the Companys option. The gross outstanding balance
of the term loan at October 31, 2009 was $158.7 million, while the balance net of the debt discount
and included on the balance sheet was $135.7 million. Net proceeds from the new term loan were
used to reduce other borrowings and increase cash reserves. The term loan contains customary
restrictive covenants and default provisions for loans of its type. The Company is currently in
compliance with such covenants.
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On July 31, 2009, the Company also entered into a new $200 million three year asset-based credit
facility for its Americas segment (with the option to expand the facility to $250.0 million on
certain conditions) which replaced its existing credit facility which was to expire in April 2010
(Credit Facility). The new Credit Facility, which expires in July 2012, includes a $100 million
sublimit for letters of credit and bears interest at a rate of LIBOR plus a margin of 4.0% to 4.5%,
depending upon availability. In connection with obtaining the Credit Facility, the Company
incurred approximately $9.1 million in debt issuance costs which are classified in prepaid expenses
(short-term) and other assets (long-term) and are being amortized into interest expense over the
term of the Credit Facility. As of October 31, 2009, there were no borrowings outstanding under
the Credit Facility, other than outstanding letters of credit, which totaled $34.7 million.
The Credit Facility is guaranteed by Quiksilver, Inc. and certain of its domestic and Canadian
subsidiaries. The Credit Facility is secured by the Companys U.S. and Canadian accounts
receivable, inventory, certain intangibles, a second priority interest in substantially all other
personal property and a second priority pledge of shares of certain of the Companys domestic
subsidiaries. The borrowing base is limited to certain percentages of eligible accounts receivable
and inventory from participating subsidiaries. The Credit Facility contains customary default
provisions and restrictive covenants for facilities of its type. The Company is currently in
compliance with such covenants.
On July 31, 2009, the Company and certain of its European subsidiaries entered into a commitment
with a group of lenders in Europe to refinance its European indebtedness. This refinancing, which
closed and was funded on September 29, 2009, consists of two term loans totaling approximately
$251.7 million (170 million), an $85.9 million (58 million) credit facility and a line of credit
of $59.2 million (40 million) for issuances of letters of credit. Together, these are referred to
as the European Facilities. The maturity of these European Facilities is July 31, 2013. The
term loans have minimum principal repayments due on January 31 and July 31 of each year, with 14.0
million due for each semi-annual payment in 2010, 17.0 million due for each semi-annual payment in
2011 and 27.0 million due for each semi-annual payment in 2012 and 2013. Amounts outstanding
under the European Facilities bear interest at a rate of Euribor plus a margin of between 4.25% and
4.75%. The weighted average borrowing rate on the European Facilities was 5.09% as of October 31,
2009. In connection with obtaining the European Facilities, the Company incurred approximately
$19.3 million in debt issuance costs which are classified in prepaid expenses (short-term) and
other assets (long-term) and are being amortized into interest expense over the term of the
European Facilities. As of October 31, 2009, there were borrowings of approximately $251.7 million
outstanding on the two term loans, approximately $37.0 million outstanding on the credit facility,
and approximately $26.6 million of outstanding letters of credit.
The European Facilities are guaranteed by Quiksilver, Inc. and secured by pledges of certain assets
of its European subsidiaries, including certain trademarks of its European business and shares of
certain European subsidiaries. The European Facilities contain customary default provisions and
covenants for transactions of this type. The Company is currently in compliance with such
covenants.
In connection with the closing of the European Facilities, the Company refinanced an additional
European term loan of $74.0 million (50 million) such that its maturity date aligns with the
European Facilities. This term loan has principal repayments due on January 31 and July 31 of each
year, with 8.9 million due in the aggregate in 2011, 12.6 million due in the aggregate in 2012
and 28.5 million due in the aggregate in 2013. This extended term loan currently bears an
interest rate of 3.23%, but will change to a variable rate of Euribor plus a margin of 4.8%
beginning in July 2010. This term loan has the same security as the European Facilities and it
contains customary default provisions and covenants for loans of its type. The Company is
currently in compliance with such covenants.
In August 2008, Quiksilver Europe entered into a $148.0 million (100 million) secured financing
facility which expires in August 2011. Under this facility, Quiksilver Europe may borrow up to
100.0 million based upon the amount of accounts receivable that are pledged to the lender to
secure the debt. Outstanding borrowings under this facility accrue interest at a rate of Euribor
plus a margin of 0.55% (currently 1.34%). As of October 31, 2009, the Company had approximately
$38.2 million of borrowings
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outstanding under this facility. This facility contains customary
default provisions and covenants for facilities of its type. The Company is currently in
compliance with such covenants.
Quiksilver Asia/Pacific has uncommitted revolving lines of credit with banks that provide up to
$45.8 million ($50.3 million Australian dollars) for cash borrowings and letters of credit. These
lines of credit are generally payable on demand, although the Company believes these lines of
credit will continue to be available. The amount outstanding on these lines of credit at October
31, 2009 was $32.6 million, in addition to outstanding letters of credit of $3.4 million, at an
average borrowing rate of 2.2%.
The Companys current credit facilities allow for total maximum cash borrowings and letters of
credit of $357.7 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 $107.8 million of borrowings drawn on these credit facilities as of
October 31, 2009, and letters of credit issued at that time totaled $64.8 million. The amount of
availability for borrowings under these facilities as of October 31, 2009 was $142.7 million, all
of which was committed. Of this $142.7 million in committed capacity, $93.8 million can also be
used for letters of credit. In addition to the $142.7 million of availability for borrowings, the
Company also had $42.4 million in additional capacity for letters of credit in Europe and
Asia/Pacific as of October 31, 2009.
In connection with the acquisition of Rossignol, the Company deferred payment of a portion of the
purchase price. This deferred purchase price obligation is expected to be paid in 2010 and accrues
interest equal to the 3-month Euribor plus 2.35% (3.14% as of October 31, 2009) and is denominated
in euros. The carrying amount of the obligation fluctuates based on changes in the foreign
currency exchange rate between euros and U.S. dollars. The Company has a cash collateralized
guaranty to the former owner of Rossignol of $52.7 million. The cash related to this guaranty is
classified as restricted cash on the balance sheet as of October 31, 2009. As of October 31, 2009,
the deferred purchase price obligation totaled $49.1 million.
The Company also has approximately $20.9 million in capital leases and other borrowings as of
October 31, 2009.
Approximate principal payments on long-term debt are as follows (in thousands):
2010 |
$ | 95,231 | ||
2011 |
105,759 | |||
2012 |
101,321 | |||
2013 |
164,000 | |||
2014 |
140,350 | |||
Thereafter |
400,000 | |||
$ | 1,006,661 | |||
The estimated fair values of the Companys lines of credit and long-term debt are as follows (in
thousands):
October 31, 2009 | ||||||||
Carrying | ||||||||
Amount | Fair Value | |||||||
Lines of credit |
$ | 32,592 | $ | 32,592 | ||||
Long-term debt |
1,006,661 | 915,861 | ||||||
$ | 1,039,253 | $ | 948,453 | |||||
The carrying value of the Companys trade accounts receivable and accounts payable approximates its
fair value due to their short-term nature.
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Note 8 Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
October 31, | ||||||||
2009 | 2008 | |||||||
Accrued employee compensation and benefits |
$ | 48,040 | $ | 44,405 | ||||
Accrued sales and payroll taxes |
12,620 | 8,658 | ||||||
Derivative liability |
20,611 | | ||||||
Accrued interest |
2,088 | 2,784 | ||||||
Other liabilities |
32,915 | 37,701 | ||||||
$ | 116,274 | $ | 93,548 | |||||
Note 9 Commitments and Contingencies
Operating Leases
The Company leases certain land and buildings under long-term operating lease agreements. The
following is a schedule of future minimum lease payments required under such leases as of October
31, 2009 (in thousands):
2010 |
$ | 107,900 | ||
2011 |
98,382 | |||
2012 |
86,073 | |||
2013 |
76,052 | |||
2014 |
58,955 | |||
Thereafter |
144,669 | |||
$ | 572,031 | |||
Total rent expense was $119.2 million, $120.7 million and $93.0 million for the years ended October
31, 2009, 2008 and 2007, respectively.
Professional Athlete Sponsorships
The Company establishes relationships with professional athletes in order to promote its products
and brands. The Company has entered into endorsement agreements with professional athletes in
sports such as surfing, skateboarding, snowboarding, bmx and motocross. Many of these contracts
provide incentives for magazine exposure and competitive victories while wearing or using the
Companys products. Such expenses are an ordinary part of the Companys operations and are
expensed as incurred. The following is a schedule of future estimated minimum payments required
under such endorsement agreements as of October 31, 2009 (in thousands):
2010 |
$ | 18,649 | ||
2011 |
12,598 | |||
2012 |
6,451 | |||
2013 |
4,345 | |||
2014 |
2,787 | |||
Thereafter |
500 | |||
$ | 45,330 | |||
Under the Companys current sponsorship agreement with Kelly Slater, in addition to the cash
payment obligations included in the above table, the Company has
agreed to propose to its shareholders a grant to Mr.
Slater of 3 million shares of restricted stock. This restricted stock grant is subject to
shareholder approval and would vest over a four year period. Should the grant not be approved by
the Companys shareholders, the Company may be required to compensate Mr. Slater with additional
cash payments, which are not included in the table above.
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Litigation
The Company is involved from time to time in legal claims involving trademark 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 or results of operations or cash flows.
Indemnities and Guarantees
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 facilities or
leases, (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. The Company has not recorded any
liability for these indemnities, commitments and guarantees in the accompanying consolidated
balance sheets.
Note 10 Stockholders Equity
In March 2000, the Companys stockholders approved the Companys 2000 Stock Incentive Plan (the
2000 Plan), which generally replaced the Companys previous stock option plans. Under the 2000
Plan, 33,444,836 shares are reserved for issuance over its term, consisting of 12,944,836 shares
authorized under predecessor plans plus an additional 20,500,000 shares. The plan was amended in
March 2007 to allow for the issuance of restricted stock and restricted stock units. The maximum
number of shares that may be reserved for issuance of restricted stock or restricted stock unit
awards is 800,000. Nonqualified and incentive options may be granted to officers and employees
selected by the plans administrative committee at an exercise price not less than the fair market
value of the underlying shares on the date of grant. Options vest over a period of time, generally
three years, as designated by the committee and are subject to such other terms and conditions as
the committee determines. Certain stock options have also been granted to employees of acquired
businesses under other plans. The Company issues new shares for stock option exercises and
restricted stock grants.
Changes in shares under option are summarized as follows:
Year Ended October 31, | ||||||||||||||||||||||||
2009 | 2008 | 2007 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
In thousands | Shares | Price | Shares | Price | Shares | Price | ||||||||||||||||||
Outstanding, beginning of year |
15,902,575 | $ | 9.97 | 17,311,049 | $ | 9.30 | 18,135,699 | $ | 8.61 | |||||||||||||||
Granted |
4,563,250 | 1.97 | 1,310,000 | 8.99 | 1,247,051 | 15.19 | ||||||||||||||||||
Exercised |
| | (1,828,338 | ) | 3.69 | (1,804,515 | ) | 5.74 | ||||||||||||||||
Canceled |
(4,556,724 | ) | 11.21 | (890,136 | ) | 8.55 | (267,186 | ) | 13.48 | |||||||||||||||
Outstanding, end of year |
15,909,101 | 7.32 | 15,902,575 | 9.97 | 17,311,049 | 9.30 | ||||||||||||||||||
Options exercisable, end of year |
10,211,031 | 9.15 | 12,251,796 | 9.19 | 12,395,513 | 7.56 | ||||||||||||||||||
The aggregate intrinsic value of options exercised, outstanding and exercisable as of October 31,
2009 is zero, $0.6 and $0.1 million, respectively. The weighted average life of options
outstanding and exercisable as of October 31, 2009 is 5.8 and 3.9 years, respectively.
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Outstanding stock options at October 31, 2009 consist of the following:
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||
Average | Average | Average | ||||||||||||||||||
Remaining | Exercise | Exercise | ||||||||||||||||||
Range of Exercise Prices | Shares | Life | Price | Shares | Price | |||||||||||||||
(Years) | ||||||||||||||||||||
$1.04 - $2.56 | 4,412,250 | 9.5 | $ | 1.97 | 45,000 | $ | 1.56 | |||||||||||||
$2.57 - $4.47 |
1,989,068 | 1.6 | 3.49 | 1,914,818 | 3.52 | |||||||||||||||
$4.48 - $5.96 |
686,676 | 1.3 | 4.78 | 686,676 | 4.78 | |||||||||||||||
$5.97 - $7.44 |
1,292,005 | 3.1 | 6.66 | 1,292,005 | 6.66 | |||||||||||||||
$7.45 - $8.93 |
2,035,500 | 4.1 | 8.57 | 2,002,165 | 8.57 | |||||||||||||||
$8.94 - $10.42 |
1,047,000 | 8.1 | 9.02 | 310,633 | 9.07 | |||||||||||||||
$10.43 - $11.90 |
616,001 | 4.5 | 11.08 | 616,001 | 11.08 | |||||||||||||||
$11.91 - $14.87 |
3,010,601 | 5.7 | 14.04 | 2,802,414 | 14.06 | |||||||||||||||
$14.88 - $16.36 |
820,000 | 6.7 | 15.75 | 541,319 | 15.86 | |||||||||||||||
15,909,101 | 5.8 | 7.32 | 10,211,031 | 9.15 | ||||||||||||||||
Changes in non-vested shares under option for the year ended October 31, 2009 are as follows:
Weighted | ||||||||
Average | ||||||||
Grant Date | ||||||||
Shares | Fair Value | |||||||
Non-vested, beginning of year |
3,650,779 | $ | 5.88 | |||||
Granted |
4,563,250 | 1.00 | ||||||
Vested |
(2,017,785 | ) | 6.06 | |||||
Canceled |
(498,174 | ) | 6.40 | |||||
Non-vested, end of year |
5,698,070 | 1.90 | ||||||
Of the 5.7 million non-vested shares under option as of October 31, 2009, approximately 4.8
million are expected to vest over their respective lives.
As of October 31, 2009, there were 1,269,652 shares of common stock that were available for future
grant. Of these shares, 5,669 were available for issuance of restricted stock.
The Company uses the Black-Scholes option-pricing model to value stock-based 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. The fair value of each option grant was estimated as of the grant date using the
Black-Scholes option-pricing model for the years ended October 31, 2009, 2008 and 2007, assuming
risk-free interest rates of 2.6%,
3.0% and 4.8%, respectively; volatility of 51.5%, 40.8% and 43.0%, respectively; zero dividend
yield; and expected lives of 6.1, 5.7 and 5.6 years, respectively. The weighted average fair value
of options granted was $1.00, $3.85 and $7.16 for the years ended October 31, 2009, 2008 and 2007,
respectively. The Company records stock-based compensation expense using the graded vested method
over the vesting period, which is generally three years. As of October 31, 2009, the Company had
approximately $4.3 million of unrecognized compensation expense expected to be recognized over a
weighted average period of approximately 2.2 years. Compensation expense was included as selling,
general and administrative expense for fiscal 2009, 2008 and 2007.
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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 shares and restricted stock units can be issued from such plan. Restricted stock issued under these plans vests over a period of time, generally three to five years, and may have certain performance based acceleration features which allow for earlier vesting. |
Changes in restricted stock are as follows: |
Year Ended October 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Outstanding, beginning of year |
721,003 | 842,000 | 800,000 | |||||||||
Granted |
590,000 | 330,000 | 87,000 | |||||||||
Vested |
(9,999 | ) | (17,329 | ) | | |||||||
Forfeited |
(279,001 | ) | (433,668 | ) | (45,000 | ) | ||||||
Outstanding, end of year |
1,022,003 | 721,003 | 842,000 | |||||||||
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 and will adjust the amortization period as appropriate.
As of October 31, 2009, there had been no acceleration of the amortization period. As of
October 31, 2009, the Company had approximately
$1.1 million of unrecognized compensation expense expected to be recognized over a weighted average
period of approximately 1.9 years.
The Company began the Quiksilver Employee Stock Purchase Plan (the ESPP) in fiscal 2001, which
provides a method for employees of the Company to purchase common stock at a 15% discount from
fair market value as of the beginning or end of each purchasing period of six months,
whichever is lower. The ESPP covers substantially all full-time domestic and Australian
employees who have at least five months of service with the Company. Since the adoption of
guidance within ASC 718, Stock Compensation, compensation expense has been recognized for
shares issued under the ESPP. During the years ended October 31, 2009, 2008 and 2007,
550,798, 257,178 and 92,187 shares of stock were issued under the plan with proceeds to the
Company of $0.9 million, $1.9 million and $1.1 million, respectively.
During the years ended October 31, 2009, 2008 and 2007, the Company recognized total compensation
expense related to options, restricted stock and ESPP shares of approximately $8.4 million,
$12.0 million and $16.1 million, respectively.
The Company issued warrants for approximately 25.7 million shares of its common stock in
connection with the closing of its new five year senior secured term loan. See note 7 for
further details.
Note 11 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:
October 31, | ||||||||
In thousands | 2009 | 2008 | ||||||
Foreign currency translation adjustment |
$ | 111,951 | $ | 60,003 | ||||
(Loss) gain on cash flow hedges |
(16,555 | ) | 20,507 | |||||
$ | 95,396 | $ | 80,510 | |||||
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Note 12 Income Taxes
A summary of the provision for income taxes from continuing operations is as follows:
Year Ended October 31, | ||||||||||||
In thousands | 2009 | 2008 | 2007 | |||||||||
Current: |
||||||||||||
Federal |
$ | 3,221 | $ | 4,403 | $ | (597 | ) | |||||
State |
| (572 | ) | 399 | ||||||||
Foreign |
34,448 | 39,641 | 49,789 | |||||||||
37,669 | 43,472 | 49,591 | ||||||||||
Deferred: |
||||||||||||
Federal |
24,699 | (8,070 | ) | (5,103 | ) | |||||||
State |
8,166 | (1,980 | ) | (770 | ) | |||||||
Foreign |
(3,867 | ) | (395 | ) | (9,212 | ) | ||||||
28,998 | (10,445 | ) | (15,085 | ) | ||||||||
Provision for income taxes |
$ | 66,667 | $ | 33,027 | $ | 34,506 | ||||||
A reconciliation of the effective income tax rate to a computed expected statutory federal income
tax rate is as follows:
Year Ended October 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Computed expected statutory federal income
tax rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
State income taxes, net of federal income
tax benefit |
83.0 | (1.2 | ) | 0.2 | ||||||||
Foreign tax rate differential |
264.0 | (10.3 | ) | (8.7 | ) | |||||||
Foreign tax exempt income |
(96.4 | ) | (9.0 | ) | (5.3 | ) | ||||||
Repatriation of foreign earnings, net of credits |
| 0.7 | 0.4 | |||||||||
Goodwill impairment |
| 19.7 | | |||||||||
Stock-based compensation |
(11.6 | ) | 1.6 | 1.2 | ||||||||
Uncertain tax positions |
(64.4 | ) | (5.7 | ) | 1.3 | |||||||
Valuation allowance |
(1,115.6 | ) | 2.2 | | ||||||||
Other |
(112.0 | ) | 0.5 | (1.3 | ) | |||||||
Effective income tax rate |
(1,018.0 | )% | 33.5 | % | 22.8 | % | ||||||
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The components of net deferred income taxes are as follows:
Year Ended October 31, | ||||||||
In thousands | 2009 | 2008 | ||||||
Deferred income tax assets: |
||||||||
Allowance for doubtful accounts |
$ | 8,509 | $ | 13,176 | ||||
Depreciation and amortization |
869 | 6,467 | ||||||
Unrealized gains and losses |
13,349 | | ||||||
Tax loss carryforwards |
177,134 | 113,655 | ||||||
Accruals and other |
66,780 | 55,133 | ||||||
Basis difference in Rossignol investment |
| 147,621 | ||||||
266,641 | 336,052 | |||||||
Deferred income tax liabilities: |
||||||||
Unrealized gains and losses |
| (8,689 | ) | |||||
Basis difference in receivables due from Rossignol |
| (111,845 | ) | |||||
Intangibles |
(27,354 | ) | (25,633 | ) | ||||
(27,354 | ) | (146,167 | ) | |||||
Deferred income taxes |
239,287 | 189,885 | ||||||
Valuation allowance |
(93,638 | ) | (138,665 | ) | ||||
Net deferred income taxes |
$ | 145,649 | $ | 51,220 | ||||
The tax benefits from the exercise of certain stock options are reflected as additions to paid-in
capital.
Income before provision for income taxes from continuing operations includes $102.7 million, $138.9
million and $172.3 million of income from foreign jurisdictions for the fiscal years ended October
31, 2009, 2008 and 2007, respectively. The Company does not provide for the U.S. federal, state or
additional foreign income tax effects on certain foreign earnings that management intends to
permanently reinvest. As of October 31, 2009, foreign earnings earmarked for permanent
reinvestment totaled approximately $170.3 million.
As of October 31, 2009, the Company has federal net operating loss carryforwards of approximately
$101 million and state net operating loss carryforwards of approximately $134 million, which will
expire on various dates through 2029. In addition, the Company has foreign tax loss carryforwards
of approximately $358 million as of October 31, 2009. Approximately $340 million will be carried
forward until fully utilized, with the remaining $18 million expiring on various dates through
2029. As of October 31, 2009, the Company has capital loss carryforwards of approximately $42
million which will expire in 2014.
On November 6, 2009, the Worker, Homeownership, and Business Assistance Act of 2009 (the Act) was
enacted into legislation. The Act allows corporate taxpayers with net operating losses (NOLs)
for fiscal years ending after 2007 and beginning before 2010 to elect to carry back such NOLs up to
five years. This election may be made for only one fiscal year. The Company is evaluating the
impact that this legislation will have on its results and expects to apply the impact of the
extended NOL carry back period during fiscal 2010.
During the year ended October 31, 2009, the Company evaluated the realizability of its U.S. federal
and state deferred tax assets. The Company has evaluated the need for a valuation allowance with
respect to the U.S. consolidated tax group, which includes the U.S. portion of the Americas
operating segment and the U.S. portion of corporate operations. The Company has concluded that
based on all available information and proper weighting of objective and subjective evidence as of
October 31, 2009, including a cumulative loss that had been sustained over a three-year period by
the U.S. consolidated tax group, it is more likely than not that its U.S. federal and state
deferred tax assets will not be realized and a full valuation allowance was established against
$45.9 million of deferred tax assets that existed as of
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October 31, 2008. A benefit from loss
carrybacks of $2.8 million has been recognized on U.S. losses
sustained during the twelve months ended October 31, 2009. Income tax expense has been recognized
against non-U.S. earnings in the current period.
On November 1, 2007, the Company adopted guidance included in ASC 740, Income Taxes. As a result
of the adoption of this guidance, the Company recognized a $21.3 million reduction in retained
earnings upon adoption. This adjustment consisted of an increase in the Companys liability for
unrecognized tax benefits of $30.4 million partially offset by an increase to the Companys
deferred tax assets of $2.0 million and an increase in the Companys taxes receivable of $7.1
million. The total balance of unrecognized tax benefits, including interest and penalties of $7.8
million, was $37.4 million as of November 1, 2007.
The following table summarizes the activity related to the Companys unrecognized tax benefits
(excluding interest and penalties and related tax carryforwards):
Year ended October 31, | ||||||||
In thousands | 2009 | 2008 | ||||||
Balance, beginning of year |
$ | 25,495 | $ | 29,552 | ||||
Gross increases related to prior year tax positions |
7,134 | 2,759 | ||||||
Gross increases related to current year tax positions |
6,461 | 7,888 | ||||||
Settlements |
| (6,770 | ) | |||||
Lapse in statute of limitation |
(13 | ) | (4,700 | ) | ||||
Foreign exchange and other |
3,026 | (3,234 | ) | |||||
Balance, end of year |
$ | 42,103 | $ | 25,495 | ||||
If the Companys positions are sustained by the relevant taxing authority, approximately $31.4
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 consolidated statements of operations, which is included in
current tax expense in the summary of income tax provision table shown above. During the fiscal
year ended October 31, 2009, the Company recorded tax expense of $4.1 million relating to interest
and penalties, and as of October 31, 2009, the Company had recognized a liability for interest and
penalties of $12.3 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 for 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 a reduction of the liability for unrecognized tax benefits of $19 million to an increase
of the liability of $14 million, excluding penalties and interest.
The Company has completed a federal tax audit in the United States for fiscal years ending in 2004
and 2005 and remains subject to examination for years thereafter. The Companys significant
foreign tax jurisdictions, including France, Australia and Canada, are subject to normal and
regular examination for various tax years generally beginning in the 2000 fiscal year. The Company
is currently under examination in France, Australia and Canada for fiscal years ending through
2007.
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Note 13 Employee Plans
The Company maintains the Quiksilver 401(k) Employee Savings Plan and Trust (the 401(k) Plan).
This plan is generally available to all domestic employees with six months of service and is funded
by employee contributions and, through fiscal 2007, periodic discretionary contributions from the
Company, which are approved by the Companys Board of Directors. The Company made contributions of
zero, zero and $1.0 million to the 401(k) Plan for the years ended October 31, 2009, 2008 and 2007,
respectively.
Employees of the Companys French subsidiary, Na Pali SAS, with three months of service are covered
under the French Profit Sharing Plan (the French Profit Sharing Plan), which is mandated by law.
Compensation is earned under the French Profit Sharing Plan based on statutory computations with an
additional discretionary component. Funds are maintained by the Company and vest with the
employees after five years, although earlier disbursement is optional if certain personal events
occur or upon the termination of employment. Compensation expense of $3.2 million, $3.4 million
and $4.1 million was recognized related to the French Profit Sharing Plan for the fiscal years
ended October 31, 2009, 2008 and 2007, respectively.
Note 14 Segment and Geographic 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 Western Europe. 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 accounts for
less than 4% of its net revenues from continuing operations.
The Company sells a full range of its products within each geographical segment. The percentages of
revenues attributable to each of the Companys major product categories are as follows:
Percentage of Revenues | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Apparel |
66 | % | 65 | % | 66 | % | ||||||
Footwear |
20 | 20 | 18 | |||||||||
Accessories |
14 | 15 | 16 | |||||||||
100 | % | 100 | % | 100 | % | |||||||
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Information related to the Companys operating segments is as follows:
Year Ended October 31, | ||||||||||||
In thousands | 2009 | 2008 | 2007 | |||||||||
Revenues, net: |
||||||||||||
Americas |
$ | 929,691 | $ | 1,061,370 | $ | 995,801 | ||||||
Europe |
792,627 | 933,119 | 803,395 | |||||||||
Asia/Pacific |
251,596 | 265,067 | 243,064 | |||||||||
Corporate operations |
3,612 | 5,080 | 4,812 | |||||||||
Consolidated |
$ | 1,977,526 | $ | 2,264,636 | $ | 2,047,072 | ||||||
Gross profit (loss): |
||||||||||||
Americas |
$ | 349,526 | $ | 445,381 | $ | 418,021 | ||||||
Europe |
446,801 | 532,034 | 442,923 | |||||||||
Asia/Pacific |
135,591 | 140,168 | 120,411 | |||||||||
Corporate operations |
(887 | ) | 3,003 | 3,690 | ||||||||
Consolidated |
$ | 931,031 | $ | 1,120,586 | $ | 985,045 | ||||||
SG&A expense: |
||||||||||||
Americas |
$ | 364,727 | $ | 371,958 | $ | 311,757 | ||||||
Europe |
341,780 | 380,374 | 316,867 | |||||||||
Asia/Pacific |
112,418 | 117,219 | 100,922 | |||||||||
Corporate operations |
32,821 | 46,382 | 52,717 | |||||||||
Consolidated |
$ | 851,746 | $ | 915,933 | $ | 782,263 | ||||||
Asset impairments: |
||||||||||||
Americas |
$ | 10,092 | $ | 9,317 | $ | | ||||||
Europe |
645 | 692 | | |||||||||
Asia/Pacific |
| 55,788 | | |||||||||
Corporate operations |
| | | |||||||||
Consolidated |
$ | 10,737 | $ | 65,797 | $ | | ||||||
Operating (loss) income: |
||||||||||||
Americas |
$ | (25,293 | ) | $ | 64,106 | $ | 106,264 | |||||
Europe |
104,376 | 150,968 | 126,056 | |||||||||
Asia/Pacific |
23,173 | (32,839 | ) | 19,489 | ||||||||
Corporate operations |
(33,708 | ) | (43,379 | ) | (49,027 | ) | ||||||
Consolidated |
$ | 68,548 | $ | 138,856 | $ | 202,782 | ||||||
Identifiable assets: |
||||||||||||
Americas |
$ | 538,533 | $ | 841,318 | $ | 908,435 | ||||||
Europe |
923,494 | 1,026,268 | 1,307,738 | |||||||||
Asia/Pacific |
296,806 | 247,480 | 390,338 | |||||||||
Corporate operations |
93,775 | 55,199 | 55,553 | |||||||||
Consolidated |
$ | 1,852,608 | $ | 2,170,265 | $ | 2,662,064 | ||||||
Goodwill: |
||||||||||||
Americas |
$ | 77,891 | $ | 76,124 | $ | 73,709 | ||||||
Europe |
184,802 | 167,814 | 179,012 | |||||||||
Asia/Pacific |
71,065 | 55,412 | 146,178 | |||||||||
Consolidated |
$ | 333,758 | $ | 299,350 | $ | 398,899 | ||||||
France accounted for 26.7%, 30.6% and 33.0% of European net revenues to unaffiliated customers for
the years ended October 31, 2009, 2008 and 2007, respectively, while Spain accounted for 19.7%,
20.2% and 20.3%, respectively, and the United Kingdom accounted for 9.2%, 11.4% and 14.9%,
respectively. Identifiable assets in the United States totaled $522.4 million as of October 31,
2009.
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Note 15 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, and to fluctuations in interest rates related to its
variable rate debt. 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 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.
Effective February 1, 2009, the Company adopted additional guidance, which provides an enhanced
disclosure framework for derivative instruments. ASC 815 requires that the fair values of
derivative instruments and their gains and losses be disclosed in a manner that provides adequate
information about the impact these instruments can have on a companys financial position, results
of operations and cash flows.
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 October 31, 2009, the Company was hedging forecasted transactions expected
to occur through October 2011. Assuming October 31, 2009 exchange rates remain constant, $16.6
million of losses, net of tax, related to hedges of these transactions are expected to be
reclassified to earnings over the next 24 months.
For the year ended October 31, 2009, the effective portions of gains (losses) of foreign exchange
derivative instruments in the consolidated statement of operations were as follows:
Year Ended October 31, 2009 | ||||||||
In thousands | Amount | Location | ||||||
Loss recognized in OCI on derivatives |
$ | (41,036) | Other comprehensive income | |||||
Loss reclassified from accumulated OCI into income |
$ | (14,343) | Cost of goods sold | |||||
Loss reclassified from accumulated OCI into income |
$ | (17) | Foreign currency gain (loss) | |||||
Loss recognized in income on derivatives |
$ | (691) | Foreign currency gain (loss) |
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
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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. As a result of the expiration, sale, termination,
or exercise of derivative contracts, the Company reclassified into earnings net losses of $23.8
million and $8.3 million during the fiscal years ended October 31, 2008 and 2007, respectively.
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 under the
contracts. Accordingly, the Company does not obtain collateral or other security to support the
contracts.
As of October 31, 2009, the Company had the following outstanding forward contracts that were
entered into to hedge forecasted purchases:
Notional | ||||||||||||||||
In thousands | Hedged Item | Amount | Maturity | Fair Value | ||||||||||||
United States dollar |
Inventory | $ | 425,352 | Nov 2009 Oct 2011 | $ | (23,138 | ) | |||||||||
British pounds |
Accounts receivable | 9,914 | Nov 2009 Jan 2010 | (53 | ) | |||||||||||
$ | 435,266 | $ | (23,191 | ) | ||||||||||||
Effective November 1, 2008, the Company adopted guidance included in ASC 820, Fair Value
Measurements and Disclosures, which provides a framework for measuring fair value under generally
accepted accounting principles. ASC 820 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. |
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The following table reflects the fair values of the foreign exchange contract assets and
liabilities measured and recognized at fair value on a recurring basis on the consolidated balance
sheet as of October 31, 2009:
October 31, 2009 | ||||||||||||||||
Fair Value Measurements Using | Assets (Liabilities) | |||||||||||||||
In thousands | Level 1 | Level 2 | Level 3 | at Fair Value | ||||||||||||
Derivative assets: |
||||||||||||||||
Other receivables |
$ | | $ | 936 | $ | | $ | 936 | ||||||||
Other assets |
| 7 | | 7 | ||||||||||||
Derivative liabilities: |
||||||||||||||||
Accrued liabilities |
| (20,611 | ) | | (20,611 | ) | ||||||||||
Other long-term liabilities |
| (3,523 | ) | | (3,523 | ) | ||||||||||
Total fair value |
$ | | $ | (23,191 | ) | $ | | $ | (23,191 | ) | ||||||
Note 16 Quarterly Financial Data (Unaudited)
A summary of quarterly financial data (unaudited) is as follows:
Quarter Ended | ||||||||||||||||
In thousands, except per share amounts | January 31 | April 30 | July 31 | October 31 | ||||||||||||
Year ended October 31, 2009 |
||||||||||||||||
Revenues, net |
$ | 443,278 | $ | 494,173 | $ | 501,394 | $ | 538,681 | ||||||||
Gross profit |
207,163 | 233,118 | 234,364 | 256,386 | ||||||||||||
(Loss) income from continuing
operations |
(65,862 | ) | 4,945 | 3,413 | (15,711 | ) | ||||||||||
(Loss) income from discontinued
operations |
(128,564 | ) | (2,132 | ) | (2,067 | ) | 13,936 | |||||||||
Net (loss) income |
(194,426 | ) | 2,813 | 1,346 | (1,775 | ) | ||||||||||
(Loss) income per share from continuing
operations, assuming dilution |
(0.52 | ) | 0.04 | 0.03 | (0.12 | ) | ||||||||||
(Loss) income per share from discontinued
operations, assuming dilution |
(1.01 | ) | (0.02 | ) | (0.02 | ) | 0.11 | |||||||||
Net (loss) income per share, assuming
dilution |
(1.53 | ) | 0.02 | 0.01 | (0.01 | ) | ||||||||||
Trade accounts receivable |
373,357 | 410,971 | 424,191 | 430,884 | ||||||||||||
Inventories |
380,502 | 307,735 | 334,233 | 267,730 | ||||||||||||
Year ended October 31, 2008 |
||||||||||||||||
Revenues, net |
$ | 496,581 | $ | 596,280 | $ | 564,876 | $ | 606,899 | ||||||||
Gross profit |
243,524 | 300,342 | 284,829 | 291,891 | ||||||||||||
Income (loss) from continuing operations |
7,570 | 38,725 | 33,073 | (13,824 | ) | |||||||||||
(Loss) income from discontinued
operations |
(29,510 | ) | (244,949 | ) | (30,219 | ) | 12,869 | |||||||||
Net (loss) income |
(21,940 | ) | (206,224 | ) | 2,854 | (955 | ) | |||||||||
Income (loss) per share from continuing
operations, assuming dilution |
0.06 | 0.30 | 0.25 | (0.11 | ) | |||||||||||
(Loss) income per share from discontinued
operations, assuming dilution |
(0.24 | ) | (1.88 | ) | (0.23 | ) | 0.10 | |||||||||
Net (loss) income per share, assuming
dilution |
(0.18 | ) | (1.59 | ) | 0.02 | (0.01 | ) | |||||||||
Trade accounts receivable |
402,536 | 473,032 | 491,369 | 470,059 | ||||||||||||
Inventories |
364,362 | 304,059 | 358,646 | 312,138 |
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Note 17 Condensed Consolidating Financial Information
In December 2005, the Company completed an exchange offer to exchange its Senior Notes for publicly
registered notes with identical terms. Obligations under the Companys Senior Notes are fully and
unconditionally guaranteed by certain of its existing domestic subsidiaries.
The Company is required to present condensed consolidating financial information for Quiksilver,
Inc. and its domestic subsidiaries within the notes to the 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 October 31, 2009 and 2008 and for the years ended October 31,
2009, 2008 and 2007. The principal elimination entries eliminate investments in subsidiaries and
intercompany balances and transactions.
69
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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended October 31, 2009
Non- | ||||||||||||||||||||
Quiksilver, | Guarantor | Guarantor | ||||||||||||||||||
In thousands | Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Revenues, net |
$ | 301 | $ | 796,924 | $ | 1,218,860 | $ | (38,559 | ) | $ | 1,977,526 | |||||||||
Cost of goods sold |
| 502,643 | 556,666 | (12,814 | ) | 1,046,495 | ||||||||||||||
Gross profit |
301 | 294,281 | 662,194 | (25,745 | ) | 931,031 | ||||||||||||||
Selling, general and administrative
expense |
3,733 | 348,228 | 526,170 | (26,385 | ) | 851,746 | ||||||||||||||
Asset impairments |
| 10,092 | 645 | | 10,737 | |||||||||||||||
Operating (loss) income |
(3,432 | ) | (64,039 | ) | 135,379 | 640 | 68,548 | |||||||||||||
Interest expense, net |
39,097 | 8,700 | 16,127 | | 63,924 | |||||||||||||||
Foreign currency loss |
61 | 47 | 8,525 | | 8,633 | |||||||||||||||
Minority interest, equity in earnings and
other expense |
147,848 | 2,359 | 180 | (147,848 | ) | 2,539 | ||||||||||||||
(Loss) income before (benefit)
provision for income taxes |
(190,438 | ) | (75,145 | ) | 110,547 | 148,488 | (6,548 | ) | ||||||||||||
(Benefit) provision for income taxes |
(2,823 | ) | 42,937 | 26,553 | | 66,667 | ||||||||||||||
(Loss) income from continuing
operations |
(187,615 | ) | (118,082 | ) | 83,994 | 148,488 | (73,215 | ) | ||||||||||||
(Loss) income from discontinued
operations |
(4,427 | ) | 13,303 | (128,367 | ) | 664 | (118,827 | ) | ||||||||||||
Net loss |
$ | (192,042 | ) | $ | (104,779 | ) | $ | (44,373 | ) | $ | 149,152 | $ | (192,042 | ) | ||||||
70
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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended October 31, 2008
Non- | ||||||||||||||||||||
Quiksilver, | Guarantor | Guarantor | ||||||||||||||||||
In thousands | Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Revenues, net |
$ | 116 | $ | 927,971 | $ | 1,382,879 | $ | (46,330 | ) | $ | 2,264,636 | |||||||||
Cost of goods sold |
| 521,833 | 636,627 | (14,410 | ) | 1,144,050 | ||||||||||||||
Gross profit |
116 | 406,138 | 746,252 | (31,920 | ) | 1,120,586 | ||||||||||||||
Selling, general and administrative
expense |
59,739 | 345,451 | 553,608 | (42,865 | ) | 915,933 | ||||||||||||||
Asset impairments |
| 9,317 | 56,480 | | 65,797 | |||||||||||||||
Operating (loss) income |
(59,623 | ) | 51,370 | 136,164 | 10,945 | 138,856 | ||||||||||||||
Interest expense (income), net |
47,512 | 377 | (2,562 | ) | | 45,327 | ||||||||||||||
Foreign currency (gain) loss |
(1,505 | ) | (5,674 | ) | 1,418 | | (5,761 | ) | ||||||||||||
Minority interest, equity in earnings and
other expense |
134,831 | 350 | 369 | (134,831 | ) | 719 | ||||||||||||||
(Loss) income before (benefit)
provision for income taxes |
(240,461 | ) | 56,317 | 136,939 | 145,776 | 98,571 | ||||||||||||||
(Benefit) provision for income taxes |
(14,986 | ) | 2,488 | 45,525 | | 33,027 | ||||||||||||||
(Loss) income from continuing
operations |
(225,475 | ) | 53,829 | 91,414 | 145,776 | 65,544 | ||||||||||||||
Loss from discontinued operations |
(790 | ) | (22,723 | ) | (255,976 | ) | (12,320 | ) | (291,809 | ) | ||||||||||
Net (loss) income |
$ | (226,265 | ) | $ | 31,106 | $ | (164,562 | ) | $ | 133,456 | $ | (226,265 | ) | |||||||
71
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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended October 31, 2007
Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
In thousands | Quiksilver, Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Revenues, net |
$ | 19 | $ | 893,969 | $ | 1,196,874 | $ | (43,790 | ) | $ | 2,047,072 | |||||||||
Cost of goods sold |
| 525,839 | 550,977 | (14,789 | ) | 1,062,027 | ||||||||||||||
Gross profit |
19 | 368,130 | 645,897 | (29,001 | ) | 985,045 | ||||||||||||||
Selling, general and administrative
expense |
52,955 | 260,140 | 497,158 | (27,990 | ) | 782,263 | ||||||||||||||
Operating (loss) income |
(52,936 | ) | 107,990 | 148,739 | (1,011 | ) | 202,782 | |||||||||||||
Interest expense, net |
43,480 | 2,202 | 889 | | 46,571 | |||||||||||||||
Foreign currency loss |
3,008 | 1,579 | 270 | | 4,857 | |||||||||||||||
Minority interest, equity in earnings
and other expense (income) |
33,388 | (73 | ) | 194 | (33,388 | ) | 121 | |||||||||||||
(Loss) income before (benefit)
provision for income taxes |
(132,812 | ) | 104,282 | 147,386 | 32,377 | 151,233 | ||||||||||||||
(Benefit) provision for income taxes |
(16,066 | ) | 9,996 | 40,576 | | 34,506 | ||||||||||||||
(Loss) income from continuing
operations |
(116,746 | ) | 94,286 | 106,810 | 32,377 | 116,727 | ||||||||||||||
(Loss) income from discontinued
operations |
(4,373 | ) | (61,578 | ) | (172,222 | ) | 327 | (237,846 | ) | |||||||||||
Net (loss) income |
$ | (121,119 | ) | $ | 32,708 | $ | (65,412 | ) | $ | 32,704 | $ | (121,119 | ) | |||||||
72
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CONDENSED CONSOLIDATING BALANCE SHEET
OCTOBER 31, 2009
Non- | ||||||||||||||||||||
Quiksilver, | Guarantor | Guarantor | ||||||||||||||||||
In thousands | Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 321 | $ | 1,135 | $ | 98,060 | $ | | $ | 99,516 | ||||||||||
Restricted cash |
| | 52,706 | | 52,706 | |||||||||||||||
Trade accounts receivable, net |
| 150,540 | 280,344 | | 430,884 | |||||||||||||||
Other receivables |
854 | 4,869 | 19,892 | | 25,615 | |||||||||||||||
Inventories |
| 86,501 | 182,006 | (777 | ) | 267,730 | ||||||||||||||
Deferred income taxes |
| 8,658 | 67,980 | | 76,638 | |||||||||||||||
Prepaid expenses and other
current assets |
12,981 | 11,039 | 13,313 | | 37,333 | |||||||||||||||
Current assets held for sale |
| | 1,777 | | 1,777 | |||||||||||||||
Total current assets |
14,156 | 262,742 | 716,078 | (777 | ) | 992,199 | ||||||||||||||
Fixed assets, net |
4,323 | 71,265 | 163,745 | | 239,333 | |||||||||||||||
Intangible assets, net |
2,886 | 50,426 | 89,642 | | 142,954 | |||||||||||||||
Goodwill |
| 118,111 | 215,647 | | 333,758 | |||||||||||||||
Investment in subsidiaries |
952,358 | | | (952,358 | ) | | ||||||||||||||
Other assets |
7,522 | 18,947 | 48,884 | | 75,353 | |||||||||||||||
Deferred income taxes long-term |
| (28,017 | ) | 97,028 | | 69,011 | ||||||||||||||
Total assets |
$ | 981,245 | $ | 493,474 | $ | 1,331,024 | $ | (953,135 | ) | $ | 1,852,608 | |||||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Lines of credit |
$ | | $ | | $ | 32,592 | $ | | $ | 32,592 | ||||||||||
Accounts payable |
1,594 | 60,003 | 100,776 | | 162,373 | |||||||||||||||
Accrued liabilities |
7,357 | 27,084 | 81,833 | | 116,274 | |||||||||||||||
Current portion of long-term debt |
| 1,140 | 94,091 | | 95,231 | |||||||||||||||
Income taxes payable |
| 9,174 | 14,400 | | 23,574 | |||||||||||||||
Intercompany balances |
115,699 | (129,624 | ) | 13,925 | | | ||||||||||||||
Current liabilities related to assets
held for sale |
| 15 | 443 | | 458 | |||||||||||||||
Total current liabilities |
124,650 | (32,208 | ) | 338,060 | | 430,502 | ||||||||||||||
Long-term debt, net of current portion |
400,000 | 110,829 | 400,601 | | 911,430 | |||||||||||||||
Other long-term liabilities |
| 43,931 | 10,150 | | 54,081 | |||||||||||||||
Total liabilities |
524,650 | 122,552 | 748,811 | | 1,396,013 | |||||||||||||||
Stockholders/invested equity |
456,595 | 370,922 | 582,213 | (953,135 | ) | 456,595 | ||||||||||||||
Total liabilities and
stockholders equity |
$ | 981,245 | $ | 493,474 | $ | 1,331,024 | $ | (953,135 | ) | $ | 1,852,608 | |||||||||
73
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CONDENSED CONSOLIDATING BALANCE SHEET
OCTOBER 31, 2008
Non- | ||||||||||||||||||||
Quiksilver, | Guarantor | Guarantor | ||||||||||||||||||
In thousands | Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 18 | $ | 2,666 | $ | 50,358 | $ | | $ | 53,042 | ||||||||||
Trade accounts receivable, net |
| 214,033 | 256,026 | | 470,059 | |||||||||||||||
Other receivables |
866 | 9,824 | 59,686 | | 70,376 | |||||||||||||||
Income taxes receivable |
| 2,859 | 7,879 | | 10,738 | |||||||||||||||
Inventories |
| 134,812 | 178,738 | (1,412 | ) | 312,138 | ||||||||||||||
Deferred income taxes |
| 21,560 | (9,340 | ) | | 12,220 | ||||||||||||||
Prepaid expenses and other
current assets |
6,019 | 8,773 | 11,077 | | 25,869 | |||||||||||||||
Current assets held for sale |
| 70,367 | 341,075 | | 411,442 | |||||||||||||||
Total current assets |
6,903 | 464,894 | 895,499 | (1,412 | ) | 1,365,884 | ||||||||||||||
Restricted cash |
| | 46,475 | | 46,475 | |||||||||||||||
Fixed assets, net |
5,775 | 96,686 | 133,067 | | 235,528 | |||||||||||||||
Intangible assets, net |
2,754 | 51,113 | 90,567 | | 144,434 | |||||||||||||||
Goodwill |
| 117,235 | 182,115 | | 299,350 | |||||||||||||||
Investment in subsidiaries |
1,185,761 | | | (1,185,761 | ) | | ||||||||||||||
Other assets |
9,300 | 3,387 | 26,907 | | 39,594 | |||||||||||||||
Deferred income taxes long-term |
| 3,992 | 35,008 | | 39,000 | |||||||||||||||
Total assets |
$ | 1,210,493 | $ | 737,307 | $ | 1,409,638 | $ | (1,187,173 | ) | $ | 2,170,265 | |||||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Lines of credit |
$ | | $ | | $ | 238,317 | $ | | $ | 238,317 | ||||||||||
Accounts payable |
5,121 | 102,987 | 127,621 | | 235,729 | |||||||||||||||
Accrued liabilities |
18,436 | 17,455 | 57,657 | | 93,548 | |||||||||||||||
Current portion of long-term debt |
| 2,061 | 29,843 | | 31,904 | |||||||||||||||
Intercompany balances |
186,970 | (122,584 | ) | (64,386 | ) | | | |||||||||||||
Current liabilities related to assets
held for sale |
| 35,398 | 99,673 | | 135,071 | |||||||||||||||
Total current liabilities |
210,527 | 35,317 | 488,725 | | 734,569 | |||||||||||||||
Long-term debt, net of current portion |
400,000 | 143,501 | 246,596 | | 790,097 | |||||||||||||||
Other long-term liabilities |
| 29,882 | 9,725 | | 39,607 | |||||||||||||||
Non-current liabilities related to
assets held for sale |
| | 6,026 | | 6,026 | |||||||||||||||
Total liabilities |
610,527 | 208,700 | 751,072 | | 1,570,299 | |||||||||||||||
Stockholders/invested equity |
599,966 | 528,607 | 658,566 | (1,187,173 | ) | 599,966 | ||||||||||||||
Total liabilities and
stockholders equity |
$ | 1,210,493 | $ | 737,307 | $ | 1,409,638 | $ | (1,187,173 | ) | $ | 2,170,265 | |||||||||
74
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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended October 31, 2009
Non- | ||||||||||||||||||||
Quiksilver, | Guarantor | Guarantor | ||||||||||||||||||
In thousands | Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net loss |
$ | (192,042 | ) | $ | (104,779 | ) | $ | (44,373 | ) | $ | 149,152 | $ | (192,042 | ) | ||||||
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities: |
||||||||||||||||||||
Loss (income) from discontinued operations |
4,427 | (13,303 | ) | 128,367 | (664 | ) | 118,827 | |||||||||||||
Depreciation and amortization |
1,525 | 24,174 | 29,305 | | 55,004 | |||||||||||||||
Stock-based compensation and tax
benefit on option exercises |
8,415 | | | | 8,415 | |||||||||||||||
Provision for doubtful accounts |
| 10,059 | 6,176 | | 16,235 | |||||||||||||||
Equity in earnings |
147,848 | | | (147,848 | ) | | ||||||||||||||
Asset impairments |
| 9,570 | 1,167 | | 10,737 | |||||||||||||||
Deferred taxes |
| 47,482 | (4,248 | ) | | 43,234 | ||||||||||||||
Other adjustments to reconcile net loss |
334 | 5,417 | 4,705 | | 10,456 | |||||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||||||
Trade accounts receivable |
| 53,272 | 7,511 | | 60,783 | |||||||||||||||
Inventories |
| 48,293 | 31,050 | (1,304 | ) | 78,039 | ||||||||||||||
Other operating assets and liabilities |
(8,929 | ) | (4,245 | ) | (4,161 | ) | | (17,335 | ) | |||||||||||
Cash (used in) provided by operating
activities of continuing operations |
(38,422 | ) | 75,940 | 155,499 | (664 | ) | 192,353 | |||||||||||||
Cash (used in) provided by operating
activities of discontinued operations |
(19,423 | ) | 36,806 | (4,232 | ) | 664 | 13,815 | |||||||||||||
Net cash (used in) provided by
operating activities |
(57,845 | ) | 112,746 | 151,267 | | 206,168 | ||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Capital expenditures |
(3,793 | ) | (7,214 | ) | (43,557 | ) | | (54,564 | ) | |||||||||||
Cash used in investing activities
of continuing operations |
(3,793 | ) | (7,214 | ) | (43,557 | ) | | (54,564 | ) | |||||||||||
Cash provided by investing activities of
discontinued operations |
| | 21,848 | | 21,848 | |||||||||||||||
Net cash used in investing activities |
(3,793 | ) | (7,214 | ) | (21,709 | ) | | (32,716 | ) | |||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Borrowings on lines of credit |
| | 10,346 | | 10,346 | |||||||||||||||
Payments on lines of credit |
| | (237,025 | ) | | (237,025 | ) | |||||||||||||
Borrowings on long-term debt |
| 547,093 | 348,175 | | 895,268 | |||||||||||||||
Payments on long-term debt |
| (561,113 | ) | (165,739 | ) | | (726,852 | ) | ||||||||||||
Payments of debt issuance costs |
| (27,494 | ) | (19,984 | ) | | (47,478 | ) | ||||||||||||
Proceeds from stock option exercises |
862 | | | | 862 | |||||||||||||||
Intercompany |
61,079 | (65,549 | ) | 4,470 | | | ||||||||||||||
Cash provided by (used in) financing
activities of continuing operations |
61,941 | (107,063 | ) | (59,757 | ) | | (104,879 | ) | ||||||||||||
Cash used in financing activities of
discontinued operations |
| | (11,136 | ) | | (11,136 | ) | |||||||||||||
Net cash provided by (used in)
financing activities |
61,941 | (107,063 | ) | (70,893 | ) | | (116,015 | ) | ||||||||||||
Effect of exchange rate changes on cash |
| | (10,963 | ) | | (10,963 | ) | |||||||||||||
Net increase (decrease) in cash and cash
equivalents |
303 | (1,531 | ) | 47,702 | | 46,474 | ||||||||||||||
Cash and cash equivalents, beginning of period |
18 | 2,666 | 50,358 | | 53,042 | |||||||||||||||
Cash and cash equivalents, end of period |
$ | 321 | $ | 1,135 | $ | 98,060 | | $ | 99,516 | |||||||||||
75
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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended October 31, 2008
Non- | ||||||||||||||||||||
Quiksilver, | Guarantor | Guarantor | ||||||||||||||||||
In thousands | Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net (loss) income |
$ | (226,265 | ) | $ | 31,106 | $ | (164,562 | ) | $ | 133,456 | $ | (226,265 | ) | |||||||
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating activities: |
||||||||||||||||||||
Loss from discontinued operations |
790 | 22,723 | 255,976 | 12,320 | 291,809 | |||||||||||||||
Depreciation and amortization |
2,074 | 25,785 | 29,372 | | 57,231 | |||||||||||||||
Stock-based compensation and tax benefit on
option exercises |
9,588 | | | | 9,588 | |||||||||||||||
Provision for doubtful accounts |
330 | 7,213 | 8,405 | | 15,948 | |||||||||||||||
Equity in earnings |
134,831 | | | (134,831 | ) | | ||||||||||||||
Asset impairments |
| 9,317 | 56,480 | | 65,797 | |||||||||||||||
Other adjustments to reconcile net (loss) income |
(1,478 | ) | 4,242 | (13,666 | ) | | (10,902 | ) | ||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||||||
Trade accounts receivable |
| (21,640 | ) | 5,461 | | (16,179 | ) | |||||||||||||
Inventories |
| (5,215 | ) | (28,946 | ) | 1,375 | (32,786 | ) | ||||||||||||
Other operating assets and liabilities |
(3,395 | ) | 19,531 | 9,087 | | 25,223 | ||||||||||||||
Cash (used in) provided by operating
activities of continuing operations |
(83,525 | ) | 93,062 | 157,607 | 12,320 | 179,464 | ||||||||||||||
Cash provided by (used in) operating
activities of discontinued operations |
12,203 | (27,429 | ) | (79,756 | ) | (12,320 | ) | (107,302 | ) | |||||||||||
Net cash (used in) provided by
operating activities |
(71,322 | ) | 65,633 | 77,851 | | 72,162 | ||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Capital expenditures |
284 | (38,525 | ) | (52,707 | ) | | (90,948 | ) | ||||||||||||
Business acquisitions, net of cash acquired |
| (24,174 | ) | (6,953 | ) | | (31,127 | ) | ||||||||||||
Changes in restricted cash |
| | (46,475 | ) | | (46,475 | ) | |||||||||||||
Cash provided by (used in) investing
activities of continuing operations |
284 | (62,699 | ) | (106,135 | ) | | (168,550 | ) | ||||||||||||
Cash provided by investing activities of
discontinued operations |
| 94,631 | 9,180 | | 103,811 | |||||||||||||||
Net cash provided by (used in)
investing activities |
284 | 31,932 | (96,955 | ) | | (64,739 | ) | |||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Borrowings on lines of credit |
| | 185,777 | | 185,777 | |||||||||||||||
Payments on lines of credit |
| | (47,161 | ) | | (47,161 | ) | |||||||||||||
Borrowings on long-term debt |
| 173,216 | 67,173 | | 240,389 | |||||||||||||||
Payments on long-term debt |
| (159,201 | ) | (39,592 | ) | | (198,793 | ) | ||||||||||||
Proceeds from stock option exercises |
11,602 | | | | 11,602 | |||||||||||||||
Intercompany |
59,442 | (87,168 | ) | 27,726 | | | ||||||||||||||
Cash provided by (used in) financing
activities of continuing operations |
71,044 | (73,153 | ) | 193,923 | | 191,814 | ||||||||||||||
Cash used in financing activities of
discontinued operations |
| (35,000 | ) | (189,794 | ) | | (224,794 | ) | ||||||||||||
Net cash provided by (used in)
financing activities |
71,044 | (108,153 | ) | 4,129 | | (32,980 | ) | |||||||||||||
Effect of exchange rate changes on cash |
| | 4,251 | | 4,251 | |||||||||||||||
Net increase (decrease) in cash and cash equivalents |
6 | (10,588 | ) | (10,724 | ) | | (21,306 | ) | ||||||||||||
Cash and cash equivalents, beginning of period |
12 | 13,254 | 61,082 | | 74,348 | |||||||||||||||
Cash and cash equivalents, end of period |
$ | 18 | $ | 2,666 | $ | 50,358 | | $ | 53,042 | |||||||||||
76
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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended October 31, 2007
Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
In thousands | Quiksilver, Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net (loss) income |
$ | (121,119 | ) | $ | 32,708 | $ | (65,412 | ) | $ | 32,704 | $ | (121,119 | ) | |||||||
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating
activities: |
||||||||||||||||||||
Loss from discontinued operations |
4,373 | 61,578 | 172,222 | (327 | ) | 237,846 | ||||||||||||||
Depreciation and amortization |
629 | 20,402 | 25,821 | | 46,852 | |||||||||||||||
Stock-based compensation and tax
benefit on option exercises |
13,234 | | | | 13,234 | |||||||||||||||
Provision for doubtful accounts |
| 3,978 | 3,812 | | 7,790 | |||||||||||||||
Equity in earnings |
33,388 | | | (33,388 | ) | | ||||||||||||||
Other adjustments to reconcile net
(loss) income |
903 | (6,518 | ) | (6,262 | ) | | (11,877 | ) | ||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||||||
Trade accounts receivable |
| (47,237 | ) | (9,980 | ) | | (57,217 | ) | ||||||||||||
Inventories |
| (7,972 | ) | (12,275 | ) | 684 | (19,563 | ) | ||||||||||||
Other operating assets and liabilities |
16,534 | 20,672 | 48,697 | | 85,903 | |||||||||||||||
Cash (used in) provided by operating
activities of continuing operations |
(52,058 | ) | 77,611 | 156,623 | (327 | ) | 181,849 | |||||||||||||
Cash provided by (used in) operating
activities of discontinued operations |
386 | (4,973 | ) | (53,337 | ) | 327 | (57,597 | ) | ||||||||||||
Net cash (used in) provided by
operating activities |
(51,672 | ) | 72,638 | 103,286 | | 124,252 | ||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Capital expenditures |
(1,419 | ) | (35,993 | ) | (40,864 | ) | | (78,276 | ) | |||||||||||
Business acquisitions, net of cash acquired |
(1,297 | ) | (38,353 | ) | (1,607 | ) | | (41,257 | ) | |||||||||||
Cash used in investing activities of
continuing operations |
(2,716 | ) | (74,346 | ) | (42,471 | ) | | (119,533 | ) | |||||||||||
Cash used in investing activities of
discontinued operations |
| (2,656 | ) | (38,301 | ) | | (40,957 | ) | ||||||||||||
Net cash used in investing activities |
(2,716 | ) | (77,002 | ) | (80,772 | ) | | (160,490 | ) | |||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Borrowings on lines of credit |
| | 71,846 | | 71,846 | |||||||||||||||
Payments on lines of credit |
| | (17,247 | ) | | (17,247 | ) | |||||||||||||
Borrowings on long-term debt |
| 123,250 | 86,061 | | 209,311 | |||||||||||||||
Payments on long-term debt |
| (74,375 | ) | (27,236 | ) | | (101,611 | ) | ||||||||||||
Proceeds from stock option exercises |
14,253 | | | | 14,253 | |||||||||||||||
Intercompany |
40,139 | (25,646 | ) | (14,493 | ) | | | |||||||||||||
Cash provided by financing activities
of continuing operations |
54,392 | 23,229 | 98,931 | | 176,552 | |||||||||||||||
Cash used in financing activities of
discontinued operations |
| (9,003 | ) | (87,732 | ) | | (96,735 | ) | ||||||||||||
Net cash provided by financing
activities |
54,392 | 14,226 | 11,199 | | 79,817 | |||||||||||||||
Effect of exchange rate changes on cash |
| | (6,065 | ) | | (6,065 | ) | |||||||||||||
Net increase in cash and cash equivalents |
4 | 9,862 | 27,648 | | 37,514 | |||||||||||||||
Cash and cash equivalents, beginning of period |
8 | 3,392 | 33,434 | | 36,834 | |||||||||||||||
Cash and cash equivalents, end of period |
$ | 12 | $ | 13,254 | $ | 61,082 | | $ | 74,348 | |||||||||||
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Note 18 ¾ Discontinued Operations
In October 2007, the Company entered into an agreement to sell its golf equipment business, which
included Roger Cleveland Golf Company, Inc. and certain other related international subsidiaries,
for approximately $132.5 million. Majority ownership in this business was originally acquired in
fiscal 2005 as part of the Rossignol acquisition. The Company acquired the remaining 36.37%
minority interest in Roger Cleveland Golf Company, Inc. in September 2007. In connection with the
acquisition of the minority interest in Roger Cleveland Golf Company, Inc., the Companys U.S. golf
equipment operations, the Company remeasured the carrying value of related intangible assets. As a
result, the Company recorded asset impairments in fiscal 2007 of approximately $8.2 million, which
included goodwill impairment of approximately $5.4 million, trademark impairments of approximately
$2.4 million and patent impairments of approximately $0.4 million. The operations of the golf
equipment business are classified as discontinued operations for all periods presented. The
Company closed this transaction in December 2007. The Company used the net proceeds from this sale
to repay indebtedness.
As of October 31, 2007 and in connection with its annual goodwill impairment test, the Company
remeasured the value of its intangible assets in accordance with ASC 350, Intangibles Goodwill
and Other, and noted that the carrying value was in excess of the estimated fair value. As a
result, the Company recorded Rossignol related goodwill impairment charges of approximately $156.9
million, approximately $6.9 million in trademark impairments and approximately $2.6 million in
fixed asset impairments. The Companys goodwill impairment was recognized as a result of its
annual impairment test for goodwill which was calculated using a combination of a discounted cash
flow and market approach. The value implied by the test was primarily affected by future forecasts
for its wintersports equipment businesses which were revised downward, primarily due to
managements assessment of the time frame for recovery of the wintersports equipment business and
the related expected future cash flows based on working capital requirements, recent snow
conditions, current industry conditions and trends, and general economic conditions.
During the three months ended April 30, 2008, the Company classified its Rossignol business,
including both wintersports equipment and related apparel, as discontinued operations. During this
same period, the Company reassessed the carrying value of Rossignol under ASC 205-20, Discontinued
Operations. The fair value of the Rossignol business was estimated using a combination of current
market indications of value, a discounted cash flow and a market-based multiple approach. As a
result, the Company recorded an impairment of Rossignols long-term assets of approximately $240.2
million, before taxes, during the three months ended April 30, 2008. This impairment included
approximately $129.7 million in fixed assets, $88.2 million in trademark and other intangible
assets, $18.3 million in goodwill and $4.0 million in other long-term assets. During the six
months ended October 31, 2008, the Company performed the same assessment and recorded additional
impairments of approximately $11.2 million, primarily consisting of fixed assets.
In August 2008, the Company received a binding offer for its Rossignol business, and completed the
transaction on November 12, 2008 for a purchase price of $50.8 million, comprised of $38.1 million
in cash and a $12.7 million sellers note. The Company used the net cash proceeds from the sale to
pay for related transaction costs and reduce its indebtedness. The sellers note was canceled in
October 2009 in connection with the completion of the final working capital adjustment.
The business sold includes the related brands of Rossignol, Dynastar, Look and Lange. The actual
pre-tax losses incurred upon closing were approximately $212.3 million, partially offset by a tax
benefit of approximately $89.4 million. These losses were recorded primarily during the three
months ended January 31, 2009.
78
Table of Contents
The operating results of discontinued operations, which include both the Rossignol wintersports and
golf equipment businesses, included in the accompanying consolidated statements of operations are
as follows:
Year Ended October 31, | ||||||||||||
In thousands | 2009 | 2008 | 2007 | |||||||||
Revenues, net |
$ | 18,171 | $ | 374,149 | $ | 541,136 | ||||||
Loss before income taxes |
(221,201 | ) | (365,917 | ) | (246,163 | ) | ||||||
Benefit for income taxes |
(102,374 | ) | (74,108 | ) | (8,317 | ) | ||||||
Loss from discontinued operations |
$ | (118,827 | ) | $ | (291,809 | ) | $ | (237,846 | ) | |||
The losses from discontinued operations for fiscal 2009, 2008 and 2007 include asset impairments of
zero, $251.4 million and $166.4 million, respectively. The net tax benefit related to the asset
impairments and the Companys classification of Rossignol and Cleveland Golf as discontinued
operations is zero, approximately $40.0 million, and approximately $4.2 million for fiscal 2009,
2008 and 2007, respectively. Net interest expense included in discontinued operations was zero,
$14.0 million and $14.4 million for fiscal 2009, 2008 and 2007, respectively.
The remaining assets and liabilities of the Companys discontinued businesses primarily relate to
its Rossignol apparel business.
The components of assets and liabilities held for sale at October 31, 2009 are as follows:
In thousands | October 31, 2009 | |||
Current assets: |
||||
Receivables, net |
$ | 669 | ||
Inventories |
| |||
Other current assets |
1,108 | |||
$ | 1,777 | |||
Current liabilities: |
||||
Accounts payable |
$ | 309 | ||
Other current liabilities |
149 | |||
$ | 458 | |||
79
Table of Contents
Note 19 ¾ Restructuring Charges
In connection with its cost reduction efforts, the Company formulated the Fiscal 2009 Cost
Reduction Plan (the Plan). During the twelve months ended October 31, 2009, the Company recorded
$19.8 million in severance charges in selling, general and administrative expense (SG&A), which
includes $13.9 million in the Americas segment, $4.1 million in the European segment and $1.8
million in corporate operations. The Plan covers the global operations of the Company, but is
primarily concentrated in the United States. In addition to severance charges, the Company
completed the closure of its Huntington Beach, California distribution center during the twelve
months ended October 31, 2009. As a result, the Company recorded a charge of approximately $4.6
million in SG&A for the fair value of its lease commitments on this facility which extends through
fiscal 2014. This charge is net of estimated future sublease income. The Company could be
required to take future charges if it is not able to sub-lease this facility as planned. The
Company continues to evaluate its 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, 2008 |
$ | | $ | | $ | | ||||||
Charged to expense |
19,769 | 4,590 | 24,359 | |||||||||
Cash payments |
(9,768 | ) | (639 | ) | (10,407 | ) | ||||||
Adjustments to accrual |
(178 | ) | | (178 | ) | |||||||
Foreign currency translation |
135 | | 135 | |||||||||
Balance, October 31, 2009 |
$ | 9,958 | $ | 3,951 | $ | 13,909 | ||||||
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: January 12, 2010
QUIKSILVER, INC.
(Registrant)
(Registrant)
By: | /s/ Robert B. McKnight, Jr. | By: | /s/ Brad L. Holman | |||||||
Robert B. McKnight, Jr. | Brad L. Holman | |||||||||
Chairman of the Board, | Senior Vice President and | |||||||||
Chief Executive Officer and President | Corporate Controller | |||||||||
(Principal Executive Officer) | (Principal Accounting Officer) |
KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose signature appears below hereby
constitutes and appoints Robert B. McKnight, Jr. and Brad L. Holman, each of them acting
individually, as his attorney-in-fact, each with the full power of substitution, for him in any and
all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the
same, with all exhibits thereto and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary to be done in and
about the premises as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming our signatures as they may be signed by our said attorney-in-fact and any
and all amendments to this Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated:
Signatures | Title | Date Signed | ||
/s/ Robert B. McKnight, Jr.
|
Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer) |
January 12, 2010 | ||
/s/ Joseph Scirocco
|
Chief Financial Officer (Principal Financial Officer) |
January 12, 2010 | ||
/s/ Brad L. Holman
|
Senior Vice President and Corporate Controller (Principal Accounting Officer) |
January 12, 2010 | ||
/s/ Charles S. Exon
|
Chief Administrative Officer, General Counsel and Director |
January 12, 2010 | ||
/s/ Douglas K. Ammerman
|
Director | January 12, 2010 |
81
Table of Contents
Signatures | Title | Date Signed | ||
/s/ William M. Barnum, Jr.
|
Director | January 12, 2010 | ||
/s/ Charles E. Crowe
|
Director | January 12, 2010 | ||
/s/ James G. Ellis
|
Director | January 12, 2010 | ||
/s/ Andrew W. Sweet
|
Director | January 12, 2010 | ||
/s/ M. Steven Langman
|
Director | January 12, 2010 |
82
Table of Contents
EXHIBIT INDEX
DESCRIPTION
Exhibit | ||||
Number | ||||
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 | Offer Letter dated August 25, 2008, by and among Quiksilver, Inc., Pilot
S.A.S., Meribel S.A.S., Quiksilver Americas, Inc. and Chartreuse et Mont
Blanc LLC (incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed on August 27, 2008). |
|||
2.4 | Amended and Restated Offer Letter dated October 31, 2008, by and among
Quiksilver, Inc., Pilot S.A.S., Meribel S.A.S., Quiksilver Americas, Inc.
and Chartreuse et Mont Blanc LLC (incorporated by reference to
Exhibit 10.1 of the Companys Current Report on Form 8-K filed on October
31, 2008). |
|||
2.5 | 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 SAS, Chartreuse et Mont Blanc
Global Holdings S.C.A., Macquarie Asset Finance Limited and Mavilia SAS
(incorporated by reference to Exhibit 2.1 of the Companys Current Report
on Form 8-K filed on November 18, 2008). |
|||
2.6 | 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 SAS,
Chartreuse et Mont Blanc Global Holdings S.C.A., Macquarie Asset Finance
Limited and Mavilia SAS (incorporate 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 | 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
December 7, 2007). |
|||
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). |
83
Table of Contents
Exhibit | ||||
Number | ||||
10.1 | Registration Rights Agreement for the 6 7/8% Senior Notes due 2015 dated
as of July 22, 2005, among Quiksilver, Inc., certain subsidiaries of
Quiksilver, Inc. and the purchasers listed therein (incorporated by
reference to Exhibit 10.1 of the Companys Current Report on Form 8-K
filed July 25, 2005) |
|||
10.2 | Purchase Agreement for the 6 7/8% Senior Notes due 2015 dated
July 14, 2005, among Quiksilver, Inc., certain subsidiaries of Quiksilver,
Inc. and the purchasers listed therein (incorporated by reference to
Exhibit 10.2 of the Companys Quarterly Report on Form 10-Q for the
quarter ended July 31, 2005). |
|||
10.3 | English translation of Subscription Agreement for the 3.231%
EUR 50,000,000 notes due July 2010 dated July 11, 2005 among Skis
Rossignol S.A. and certain subsidiaries and Societe Generale Bank & Trust
(incorporated by reference to Exhibit 10.3 of the Companys Quarterly
Report on Form 10-Q for the quarter ended July 31, 2005). |
|||
10.4 | English translation of Supplementary Agreement No. 1 dated July 31, 2008
among Quiksilver, Inc., Skis Rossignol Finance Luxembourg S.A., Skis
Rossignol S.A. and Societe Generale Bank & Trust (incorporated by
reference to Exhibit 10.1 of the Companys Current Report on Form 8-K
filed on August 5, 2008). |
|||
10.5 | English translation of Supplementary Agreement No. 2 dated September 25,
2009 among Quiksilver, Inc., Skis Rossignol Finance Luxembourg S.A., Skis
Rossignol S.A. and Societe Generale Bank & Trust. |
|||
10.6 | Commitment Letter by and among Quiksilver, Inc., Quiksilver Americas,
Inc., Bank of America, N.A., Banc of America Securities LLC, General
Electric Capital Corporation and GE Capital Markets, Inc. dated June 8,
2009 (incorporated by reference to Exhibit 10.2 of the Companys Current
Report on Form 8-K filed on June 9, 2009). |
|||
10.7 | First Amendment to Commitment Letter by and among Quiksilver, Inc.,
Quiksilver Americas, Inc., Bank of America, N.A., Banc of America
Securities LLC, General Electric Capital Corporation and GE Capital
Markets, Inc. dated June 24, 2009 (incorporated by reference to Exhibit
10.1 of the Companys Current Report on Form 8-K filed on June 25, 2009). |
|||
10.8 | Commitment Letter by and among Quiksilver, Inc., Quiksilver Americas, Inc.
and Rhône Capital III L.P. dated June 8, 2009 (incorporated by reference
to Exhibit 10.1 of the Companys Current Report on Form 8-K filed on June
9, 2009). |
|||
10.9 | Credit Agreement by and among Quiksilver, Inc., Quiksilver Americas, Inc.,
as borrower, Rhône Group L.L.C., as administrative agent, and Romolo
Holdings C.V., Triton SPV L.P., Triton Onshore SPV L.P., Triton Offshore
SPV L.P. and Triton Coinvestment SPV L.P., as the lenders party thereto,
dated July 31, 2009 (incorporated by reference to Exhibit 10.1 of the
Companys Current Report on Form 8-K filed on August 4, 2009). |
|||
10.10 | Credit Agreement by and among Quiksilver, Inc., Mountain & Wave S.a.r.l.,
as borrower, Rhône Group L.L.C., as administrative agent, and Romolo
Holdings C.V., Triton SPV L.P., Triton Onshore SPV L.P., Triton Offshore
SPV L.P. and Triton Coinvestment SPV L.P., as the lenders party thereto,
dated July 31, 2009 (incorporated by reference to Exhibit 10.2 of the
Companys Current Report on Form 8-K filed on August 4, 2009). |
|||
10.11 | Warrant and Registration Rights Agreement by and among Quiksilver, Inc.,
Rhône Capital III L.P. and Romolo Holdings C.V., Triton SPV L.P., Triton
Onshore SPV L.P., Triton Offshore SPV L.P. and Triton Coinvestment SPV
L.P., as the initial warrant holders, dated July 31, 2009 (incorporated by
reference to Exhibit 10.3 of the Companys Current Report on Form 8-K
filed on August 4, 2009). |
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Exhibit | ||||
Number | ||||
10.12 | Credit Agreement by and among Quiksilver Americas, Inc., Bank of America,
N.A., Banc of America Securities LLC, General Electric Capital Corporation
and GE Capital Markets, Inc. dated July 31, 2009 (incorporated by
reference to Exhibit 10.4 of the Companys Current Report on Form 8-K
filed on August 4, 2009). |
|||
10.13 | English Translation of Facilities Agreement by and among Pilot S.A.S. and
Na Pali S.A.S. as borrowers, Quiksilver, Inc., as guarantor, BNP Paribas,
Crédit Lyonnais and Société Générale Corporate & Investment Banking as
mandated lead arrangers, BNP Paribas as agent, Société Générale as
security agent, Caisse Régionale de Crédit Agricole Mutuel Pyrénées
Gascogne as issuing bank, and BNP Paribas, Crédit Lyonnais, Société
Générale, Natixis, Caisse Régionale de Crédit Agricole Mutuel
Pyrénées-Gascogne, Banque Populaire du Sud Ouest, CIC Société
Bordelaise, and HSBC France as original lenders dated July 31, 2009
(French Facility) (incorporated by reference to Exhibit 10.5 of the
Companys Current Report on Form 8-K filed on August 4, 2009). |
|||
10.14 | First Amendment to the French Facility dated September 25, 2009. |
|||
10.15 | Global Amendment Agreement to the French Facility dated September 29, 2009. |
|||
10.16 | Term Loan Agreement dated September 29, 2009 among QS Finance Luxembourg
S.A., Quiksilver, Inc., Biarritz Holdings S.à r.l. and Société Générale
(incorporated by reference to Exhibit 10.1 of the Companys Current Report
on Form 8-K filed on September 30, 2009). |
|||
10.17 | Form of Indemnity Agreement between Quiksilver, Inc. and individual
directors and officers of Quiksilver, Inc. (incorporated by reference to
Exhibit 10.8 of the Companys Annual Report on Form 10-K for the year
ended October 31, 2006). (1) |
|||
10.18 | Quiksilver, Inc. Annual Incentive Plan, as restated (incorporated by
reference to Exhibit 10.2 of the Companys Quarterly Report on Form 10-Q
for the quarter ended April 30, 2005). (1) |
|||
10.19 | Quiksilver, Inc. 2000 Stock Incentive Plan, as amended and restated,
together with form Stock Option and Restricted Stock Agreements
(incorporated by reference to Exhibit 10.3 of the Companys Quarterly
Report on Form 10-Q for the quarter ended April 30, 2009). (1) |
|||
10.20 | Restricted Stock Agreement by and between Quiksilver, Inc. and Douglas
Ammerman dated June 7, 2007 (incorporated by reference to Exhibit 10.1 to
the Companys Quarterly Report on Form 10-Q for the quarter ended July 31,
2007). (1) |
|||
10.21 | Quiksilver, Inc. 1996 Stock Option Plan, together with form Stock Option
Agreements (incorporated by reference to Exhibit 10.11 of the Companys
Annual Report on Form 10-K for the year ended October 31, 2006). (1) |
|||
10.22 | Quiksilver, Inc. 2000 Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.4 of the Companys Quarterly Report on Form 10-Q
for the quarter ended April 30, 2009). (1) |
|||
10.23 | Quiksilver, Inc. Written Description of Nonemployee Director Compensation
(incorporated by reference to Exhibit 10.22 of the Companys Annual Report
on Form 10-K for the year ended October 31, 2008). (1) |
|||
10.24 | Quiksilver, Inc. Long Term Incentive Plan (incorporated by reference to
Exhibit 10.20 of the Companys Annual Report on Form 10-K for the year
ended October 31, 2004).(1) |
|||
10.25 | Award grant under Quiksilver, Inc. Long-Term Incentive Plan dated January
29, 2008 (incorporated by reference to Exhibit 10.4 of the Companys
Quarterly Report on Form 10-Q for the quarter ended January 31, 2008).
(1) |
|||
10.26 | Quiksilver, Inc. 2006 Restricted Stock Plan (incorporated by reference to
Exhibit 10.2 of the Companys Current Report on Form 8-K filed on March
28, 2006). (1) |
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Table of Contents
Exhibit | ||||
Number | ||||
10.27 | Standard Form of Restricted Stock Issuance Agreement under the Quiksilver,
Inc. 2006 Restricted Stock Plan (incorporated by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K filed on October 4, 2006). (1) |
|||
10.28 | Separation and Transition Agreement between David H. Morgan and
Quiksilver, Inc. dated August 24, 2008 (incorporated by reference to
Exhibit 10.3 of the Companys Current Report on Form 8-K filed on August
27, 2008). (1) |
|||
10.29 | Separation and Transition Agreement between Bernard Mariette and
Quiksilver, Inc. dated February 11, 2008 (incorporated by reference to
Exhibit 10.1 of the Companys Current Report on Form 8-K filed on February
13, 2008). (1) |
|||
10.30 | Employment Agreement between Robert B. McKnight, Jr. and Quiksilver, Inc.
dated May 25, 2005 (incorporated by reference to Exhibit 10.1 of the
Companys Current Report on Form 8-K filed on May 27, 2005). (1) |
|||
10.31 | Amendment to Employment Agreement between Robert B. McKnight, Jr. and
Quiksilver, Inc. dated December 21, 2006 (incorporated by reference to
Exhibit 10.15 of the Companys Annual Report on Form 10-K for the year
ended October 31, 2006). (1) |
|||
10.32 | Stock Option Cancellation Agreement by and between Quiksilver, Inc. and
Robert B. McKnight, Jr. dated June 23, 2009 (incorporated by reference to
Exhibit 10.11 of the Companys Quarterly Report on Form 10-Q for the
quarter ended July 31, 2009). (1) |
|||
10.33 | Employment Agreement between Charles S. Exon and Quiksilver, Inc. dated
May 25, 2005 (incorporated by reference to Exhibit 10.3 of the Companys
Current Report on Form 8-K filed on May 27, 2005). (1) |
|||
10.34 | Amendment to Employment Agreement between Charles S. Exon and Quiksilver,
Inc. dated December 21, 2006 (incorporated by reference to Exhibit 10.19
of the Companys Annual Report on Form 10-K for the year ended October 31,
2006). (1) |
|||
10.35 | Stock Option Cancellation Agreement by and between Quiksilver, Inc. and
Charles S. Exon dated June 23, 2009 (incorporated by reference to Exhibit
10.13 of the Companys Quarterly Report on Form 10-Q for the quarter ended
July 31, 2009). (1) |
|||
10.36 | Employment Agreement between Joseph Scirocco and Quiksilver, Inc. dated
April 12, 2007 (incorporated by reference to Exhibit 10.1 of the Companys
Form 8-K filed on April 17, 2007). (1) |
|||
10.37 | Amendment to Employment Agreement between Joseph Scirocco and Quiksilver,
Inc. dated June 13, 2008 (incorporated by reference to Exhibit 10.5 of the
Companys Quarterly Report on Form 10-Q for the quarter ended July 31,
2008). (1) |
|||
10.38 | Stock Option Cancellation Agreement by and between Quiksilver, Inc. and
Joseph Scirocco dated June 23, 2009 (incorporated by reference to Exhibit
10.12 of the Companys Quarterly Report on Form 10-Q for the quarter ended
July 31, 2009). (1) |
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10.39 | Separation and Transition Agreement between Martin J. Samuels and
Quiksilver, Inc. dated January 12, 2009 (incorporated by reference to
Exhibit 10.4 of the Companys Quarterly Report on Form 10-Q for the
quarter ended January 31, 2009). (1) |
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10.40 | Form of Employment Agreement between Pierre Agnes and Quiksilver, Inc.
(incorporated by reference to Exhibit 10.38 of the Companys Annual Report
on Form 10-K for the year ended October 31, 2008). (1) |
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10.41 | Stock Option Cancellation Agreement by and between Quiksilver, Inc. and
Pierre Agnes dated June 23, 2009 (incorporated by reference to Exhibit
10.14 of the Companys Quarterly Report on Form 10-Q for the quarter ended
July 31, 2009). (1) |
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Exhibit | ||||
Number | ||||
10.42 | Employment Agreement between Craig Stevenson and Quiksilver, Inc. dated
January 19, 2009, as amended (incorporated by reference to Exhibit 10.5 of
the Companys Quarterly Report on Form 10-Q for the quarter ended January
31, 2009) (1) |
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10.43 | Amendment to Employment Agreement between Craig Stevenson and Quiksilver,
Inc. dated December 16, 2009. (1) |
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10.44 | Stock Option Cancellation Agreement by and between Quiksilver, Inc. and
Craig Stevenson dated June 23, 2009 (incorporated by reference to Exhibit
10.15 of the Companys Quarterly Report on Form 10-Q for the quarter ended
July 31, 2009). (1) |
|||
10.45 | Amendments to executive officer base salaries effective as of February 1,
2008 (incorporated by reference to Exhibit 10.6 of the Companys Quarterly
Report on Form 10-Q for the quarter ended January 31, 2008). (1) |
|||
10.46 | Amendments to executive officer base salaries effective as of February 1,
2009. (incorporated by reference to Exhibit 10.1 of the Companys
Quarterly Report on Form 10-Q for the quarter ended January 31, 2009). (1) |
|||
10.47 | Amendments to executive officer base salaries effective as of November 1,
2009. (1) |
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10.48 | AR Financing Facility Contract dated August 22, 2008 between Na Pali
S.A.S. and GE Factofrance SNC (incorporated by reference to Exhibit 10.2
of the Companys Current Report on Form 8-K filed on August 27, 2008). |
|||
10.49 | Cash Collateral Agreement dated December 9, 2008, by and among Na Pali,
S.A.S. and J.P. Morgan Europe Limited. |
|||
10.50 | English translation for the Roger Cleveland Shareholders Agreement
between Quiksilver, Rossignol Ski Company, Inc., Skis Rossignol, S.A.,
Laurent Boix-Vives, Jeannine Boix-Vives, Christine Simon, Sylvie Bernard
and SDI Société Service et Development dated April 12, 2005
(incorporated by reference to Exhibit 2.7 of Exhibit 10.1 to the Companys
Current Report of Form 8-K filed on April 18, 2005). |
|||
10.51 | Indemnity Agreement by and between Quiksilver, Inc. and Andrew Sweet dated
July 31, 2009 (incorporated by reference to Exhibit 10.16 of the Companys
Quarterly Report on Form 10-Q for the quarter ended July 31, 2009). (1) |
|||
10.52 | Indemnity Agreement by and between Quiksilver, Inc. and M. Steven Langman
dated July 31, 2009 (incorporated by reference to Exhibit 10.17 of the
Companys Quarterly Report on Form 10-Q for the quarter ended July 31,
2009). (1) |
|||
10.53 | Amendment to Credit Agreement dated January 11, 2010 by and between Quiksilver, Inc., Quiksilver Americas, Inc., as borrower, Rhône Group L.L.C., as
administrative agent, and Romolo Holdings C.V., Triton SPV L.P., Triton
Onshore SPV L.P., Triton Offshore SPV L.P. and Triton Coinvestment SPV
L.P., as the lenders party thereto. |
|||
10.54 | Amendment to Euro Credit Agreement dated January 11, 2010 by and between Quiksilver, Inc., Mountain & Wave S.a.r.l., as borrower, Rhône Group L.L.C., as administrative agent, and
Romolo
Holdings C.V., Triton SPV L.P., Triton Onshore SPV L.P.,
Triton Offshore SPV L.P. and Triton Coinvestment SPV L.P., as the lenders party thereto. |
|||
21.1 | Subsidiaries of Quiksilver, Inc. |
|||
23.1 | Consent of Deloitte & Touche LLP |
|||
24.1 | Power of Attorney (included on signature page). |
|||
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 |
|||
32.2 | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002 |
(1) | Management contract or compensatory plan. |
87