Quiksilver Inc. reported sales from continuing operations for the fourth quarter of fiscal 2010 decreased 8%, to $495.1 million from $538.7 million a year ago. Pro-forma income from continuing operations was $21.8 million or 12 cents per share, compared to $3.2 million, or 2 cents, a year ago.
The sales decrease was smaller than the company predicted a quarter ago.
Pro-forma income for the fourth quarter of fiscal 2010 excludes a $34.4 million non-cash write-off of deferred debt issuance costs associated with previous financings in addition to $7.9 million of non-cash asset impairments and $2.6 million of restructuring costs. A reconciliation of GAAP results to pro-forma results is provided in the accompanying tables. Including these amounts, the loss from continuing operations for the fourth quarter was $23.1 million or 15 cents per share, compared to $15.7 million or 12 cents per share in the same quarter a year ago.
Consolidated net revenues for the full year of fiscal 2010 decreased 7% to $1.84 billion compared to $1.98 billion in fiscal 2009. Pro-forma income from continuing operations for the full year of fiscal 2010 was $47.6 million and excludes $59.1 million of special charges. Of this amount, $34.4 million represents the non-cash write-off of deferred debt issuance costs associated with previous financings in addition to $10.5 million of non-cash asset impairments and $10.2 million of restructuring costs. Including these amounts, loss from continuing operations was $11.5 million, or 9 cents per share, compared to $73.2 million, or 58 cents per share, for the full year of fiscal 2009.
Subsequent to the end of the quarter, the company completed its previously-announced offering by its wholly-owned European subsidiary, Boardriders S.A., of â¬200 million aggregate principal amount of its 8.875% Senior Notes due 2017. The Notes, which are unsecured, were issued at 100% of their face value. Quiksilver used the proceeds of the offering to repay approximately â¬190 million of existing secured European term loans and to pay related fees and expenses. As a result, the company eliminated certain collateral obligations, extended its debt maturities and eliminated certain restrictions on the transfer of cash between its subsidiaries.
Robert B. McKnight, Jr., chairman of the Board, chief executive officer and president of Quiksilver, Inc., commented, 'We're very pleased to again deliver financial results that exceeded our prior expectations. Our team executed well in an inconsistent global economic environment. And we were delighted to take advantage of a favorable high-yield debt market to sell â¬200 million of Senior Notes at a good rate. By repaying our European term loans and eliminating their required amortization payments, we now have significantly more financial and operating flexibility. This flexibility will enable us to transition from a defensive posture focused on financial and operational restructuring to an offensive strategy focused on investing, over the next few years, in the many attractive growth opportunities that we've identified within our own terrific global brands: Quiksilver, Roxy and DC.”
Fourth Quarter Financial Highlights:
Pro-forma Adjusted EBITDA increased 19% to $59.5 million compared to $49.9 million in the fourth quarter of fiscal 2009 despite an 8% revenue decline.
Gross margin improved 590 basis points to 53.5% compared to 47.6% in the fourth quarter of fiscal 2009.
Net debt at October 31, 2010 was $608 million, reduced by $279 million compared to $887 million at October 31, 2009.
Net revenues in the Americas decreased 7% during the fourth quarter of fiscal 2010 to $221.8 million from $239.5 million in the fourth quarter of fiscal 2009. In constant currency, European net revenues decreased 1% compared to the prior year. As measured in U.S. dollars and reported in the financial statements, European net revenues decreased 10% during the fourth quarter of fiscal 2010 to $190.7 million from $211.4 million in the fourth quarter of fiscal 2009. In constant currency, Asia/Pacific net revenues decreased 14% compared to the prior year. As measured in U.S. dollars and reported in the financial statements, Asia/Pacific net revenues decreased 7% to $80.4 million in the fourth quarter of fiscal 2010 from $86.6 million in the fourth quarter of fiscal 2009. Please refer to the accompanying tables in order to better understand the impact of foreign currency exchange rates on revenue trends in our Europe and Asia/Pacific segments.
Fiscal Year 2010 Financial Highlights:
Pro-forma Adjusted EBITDA increased 34% to $214.3 million compared to $160.3 million in fiscal year 2009 despite a 7% revenue decline.
Gross margin improved 550 basis points to 52.6% compared to 47.1% in fiscal year 2009.
The ratio of net debt to pro-forma Adjusted EBITDA at fiscal year-end improved to 2.8x compared to 5.5x at the end of fiscal 2009.
Net revenues in the Americas for the full year of fiscal 2010 decreased 9% to $843.1 million. In constant currency, European net revenues decreased 7% compared to the prior year. As measured in U.S. dollars and reported in the financial statements, European net revenues decreased 8% during the full year of fiscal 2010 to $729.0 million. In constant currency, Asia/Pacific net revenues decreased 14% compared to the prior year. As measured in U.S. dollars and reported in the financial statements, Asia/Pacific net revenues increased 4% to $260.6 million for the full year of fiscal 2010.
Consolidated inventories remained approximately constant at $268.0 million at October 31, 2010 as compared to $267.7 million at October 31, 2009. Inventories also showed virtually no change when measured in constant currency. Consolidated trade accounts receivable decreased 14% to $368.4 million at October 31, 2010 from $430.9 million at October 31, 2009. The decrease in trade accounts receivable was also 14% in constant currency.
Early in the fourth quarter the company completed a debt-for-equity exchange with its investment partner Rhône Capital after receiving overwhelming support from stockholders in a special meeting vote. As a result of the transaction, the company further reduced its fiscal 2009 year-end debt level by $140 million in exchange for approximately 31.1 million shares of Quiksilver, Inc. common stock at an exchange price of $4.50 per share.
The company reduced its debt by 30% to $729 million compared to $1,039 million a year ago. Over $100 million of the $310 million debt reduction total was derived from cash generated by the business in fiscal 2010.
Addressing its outlook for continuing operations, the company stated that based on current trends, first quarter revenues are expected to be down approximately 5% compared to the same quarter a year ago. Pro-forma Adjusted EBITDA in the first quarter is expected to be as much as $10 million lower than in the first quarter of fiscal 2010. This anticipated near-term period-over-period decline in pro-forma Adjusted EBITDA is due primarily to increased spending in brand development, including the new Quiksilver Girls collection and higher overall marketing spend, as well as the effects of selling a few minor brands last year and the effects of foreign currency translation.
With respect to the full fiscal year 2011, the company currently expects slight growth in sales compared to fiscal 2010 although visibility is limited pending completion of the holiday sales period and fall order books. Nonetheless, at this point the company believes that it can achieve pro-forma Adjusted EBITDA roughly in line with that of fiscal 2010.
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CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
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| Three Months Ended October 31, | ||||||||||
| In thousands, except per share amounts |
2010
|
2009
|
||||||||
| Revenues, net | $ | 495,119 | $ | 538,681 | ||||||
| Cost of goods sold | 230,040 | 282,295 | ||||||||
| Gross profit | 265,079 | 256,386 | ||||||||
| Selling, general and administrative expense | 222,335 | 230,568 | ||||||||
| Asset impairments | 8,432 | 10,737 | ||||||||
| Operating income | 34,312 | 15,081 | ||||||||
| Interest expense | 50,567 | 20,871 | ||||||||
| Foreign currency loss | 463 | 1,804 | ||||||||
| Other expense |
–
|
15 | ||||||||
| Loss before provision for income taxes | (16,718 | ) | (7,609 | ) | ||||||
| Provision for income taxes | 5,244 | 6,162 | ||||||||
| Loss from continuing operations | $ | (21,962 | ) | $ | (13,771 | ) | ||||
| Income from discontinued operations | 1,009 | 13,936 | ||||||||
| Net (loss) income | $ | (20,953 | ) | $ | 165 | |||||
| Less: net income attributable to non-controlling interest | (1,107 | ) | (1,940 | ) | ||||||
| Net loss attributable to Quiksilver, Inc. | $ | (22,060 | ) | $ | (1,775 | ) | ||||
| Loss per share from continuing operations attributable to Quiksilver, Inc. | $ | (0.15 | ) | $ | (0.12 | ) | ||||
| Income per share from discontinued operations attributable to Quiksilver, Inc. | $ | 0.01 | $ | 0.11 | ||||||
| Net loss per share attributable to Quiksilver, Inc. | $ | (0.14 | ) | $ | (0.01 | ) | ||||
| Loss per share from continuing operations attributable to Quiksilver, Inc., assuming dilution | $ | (0.15 | ) | $ | (0.12 | ) | ||||
| Income per share from discontinued operations attributable to Quiksilver, Inc., assuming dilution | $ | 0.01 | $ | 0.11 | ||||||
| Net loss per share attributable to Quiksilver, Inc., assuming dilution | $ | (0.14 | ) | $ | (0.01 | ) | ||||
| Weighted average common shares outstanding | 158,379 | 127,577 | ||||||||
| Weighted average common shares outstanding, assuming dilution |
158,379
|
127,577
|
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| Amounts attributable to Quiksilver, Inc.: | ||||||||||
