Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of Registrant’s 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 or a non-accelerated filer. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filer o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the
Registrant was approximately $1.66 billion as of April 30, 2007, the last business day of
Registrant’s most recently completed second fiscal quarter.
As of December 18, 2007, there were 125,783,042 shares of the Registrant’s Common Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held
March 28, 2008 are incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
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 2007, fiscal 2006 and fiscal 2005 refer to the
years ended October 31, 2007, 2006 and 2005, respectively.
Introduction
We are a globally diversified company that designs, produces and distributes branded apparel,
wintersports equipment, footwear, accessories and related products. Our apparel and footwear
brands represent a casual lifestyle for young-minded people that connect with our boardriding
culture and heritage, while our wintersports brands symbolize a long-standing commitment to
technical expertise and competitive success on the mountains. We believe that surfing,
skateboarding, snowboarding, skiing 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 37 years, Quiksilver has been established as a leading global brand representing the
casual, youth lifestyle associated with boardriding sports. Based on our fiscal 2007 revenues, we
are the largest of the apparel and equipment companies that are identified with the sports of
surfing, skateboarding and snowboarding. In July 2005, we acquired Skis Rossignol S.A. This
acquisition added a collection of leading ski equipment brands to our company that we believe can
be the foundation for a full range of technical ski apparel, sportswear and accessories. Rossignol
is one of the world’s leading manufacturers of alpine skiing equipment, including skis, boots,
bindings and poles. Also, as part of the acquisition, we acquired a majority interest in Roger
Cleveland Golf Company, Inc. Our golf equipment operations were subsequently sold in December 2007
and are reported as discontinued operations in our consolidated financial statements.
We believe that our multiple authentic brands enable us to produce and market apparel, equipment,
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
continued growth and enhanced operating efficiencies.
Our products are sold in over 90 countries in a wide range of distribution channels, including surf
shops, ski shops, skateboard shops, snowboard shops, our proprietary Boardriders Club shops, other
specialty stores and select department stores. Our corporate and Americas’ headquarters are in
Huntington Beach, California, while our European headquarters are in St. Jean de Luz and Moirans,
France, and our Asia/Pacific headquarters are in Torquay, Australia.
In 2000, we acquired the international Quiksilver and Roxy trademarks from Quiksilver’s founders,
and, in 2002, we acquired our licensees in Australia and Japan. Since 2000, we also have made
several small acquisitions of other Quiksilver licensees. In May 2004, we acquired DC Shoes, Inc.
to expand our presence in action sports-inspired footwear.
In October 2007, we entered into an agreement to sell our golf equipment business for a transaction
value of $132.5 million. This transaction was completed in December 2007. As a result of this
disposition, the following information has been adjusted to exclude our golf equipment operations.
The golf equipment business has also been classified as a discontinued operation in our
consolidated financial statements for all periods presented in this report.
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Segment Information
We operate in the outdoor market of the sporting goods industry. We have three operating segments,
the Americas, Europe and Asia/Pacific. The Americas segment includes revenues primarily from the
U.S. and Canada. 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. For information regarding the revenues, operating profits and identifiable
assets attributable to our operating segments, see Note 15 of our consolidated financial
statements.
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. DC’s 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. Our wintersports brands include Rossignol,
Dynastar, Look, Lange and Kerma, which are focused on equipment for alpine skiing but have extended
into other areas of wintersports, including snowboarding, freestyle skiing, Nordic skiing and
technical outerwear.
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 boys, toddlers and infants. Quiksilveredition is our brand targeted at men.
In fiscal 2007, the Quiksilver brand represented approximately 35% of our revenues.
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, snowboard
boots, skis, ski boots, fragrance, beauty care, bedroom furnishings and other accessories for young
women. In fiscal 2007, the Roxy brand accounted for approximately 31% of our revenues.
Rossignol and Other Wintersports Brands
Our Rossignol and other wintersports brands cover all of the major product categories in the ski
and snowboard markets, including skis, bindings, boots and poles in the alpine category; skis,
boots and bindings in the cross-country category; snowboards, snowboard boots and bindings; and
technical ski apparel. With a long history of success in ski racing, these brands have developed a
reputation for excellence, innovation and technical knowledge that have enabled them to appeal to
multiple styles of skiing, including racing, all-mountain, freeride and freestyle. In fiscal 2007,
the Rossignol and other wintersports brands accounted for approximately 16% of our revenues.
Our other wintersports brands include the following:
| • | Dynastar—Dynastar symbolizes technically specific skis for committed skiers to use in all the different experiences of alpine sports. Dynastar has a heritage of racing and performance. | |
| • | Lange—Lange is a ski boot brand, combining its race boot prowess with a commitment to building better, more comfortable boots for dedicated skiers of every type. | |
| • | Look—Look bindings have a winning history in alpine ski racing. The focus of the Look brand is the production of high quality, innovative release bindings that perform at the highest level. | |
| • | Kerma—We produce poles that complement our ski products from both a technical and aesthetic viewpoint under the Kerma brand. | |
| • | Lib Technologies, Gnu, Bent Metal—We address the core snowboard market through our Lib Technologies and Gnu brands of snowboards and accessories and Bent Metal snowboard bindings. |
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DC
Our DC brand specializes in performance skateboard shoes, snowboard boots, sandals and apparel for
both young men and juniors. We believe that DC’s skateboard-driven image and lifestyle is well
positioned within the global outdoor youth market and has appeal beyond its core skateboard base.
In fiscal 2007, the DC brand accounted for approximately 15% of our revenues.
Other Apparel Brands
In fiscal 2007, our other apparel brands represented approximately 3% of our revenues.
| • | Raisins, Radio Fiji, Leilani—Raisins and Radio Fiji are swimwear labels for the juniors market, while Leilani is our contemporary swimwear label. | |
| • | Hawk—Tony 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. |
Product Categories
The following table shows the approximate percentage of revenues from continuing operations
attributable to each of our major product categories during the last three fiscal years:
| Percentage of Revenues | ||||||||||||
| 2007(1) | 2006(1) | 2005(1) | ||||||||||
Apparel |
58 | % | 57 | % | 68 | % | ||||||
Footwear |
15 | 12 | 11 | |||||||||
Wintersports equipment |
14 | 19 | 9 | |||||||||
Accessories |
13 | 12 | 12 | |||||||||
| 100 | % | 100 | % | 100 | % | |||||||
| (1) | These percentages were significantly impacted by our acquisition of Rossignol in July 2005. |
Although our products are generally available throughout the year, demand for different categories
of product 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, wintersports equipment and technical outerwear are
higher during the fall and holiday seasons.
We believe that the U.S. retail prices for our apparel products range from approximately $21 for a
t-shirt and $48 for a typical short to $200 for a typical snowboard jacket. For European products,
retail prices range from approximately $42 for a t-shirt and about $90 for a typical short to $280
for a basic snowboard jacket. Asia/Pacific t-shirts sell for approximately $40, while shorts sell
for approximately $55 and a basic snowboard jacket sells for approximately $230. Retail prices for
a typical skate shoe range from approximately $65 in the U.S. to approximately $105 in Europe. The
typical price for adult skis with bindings ranges from $350 to $1,350.
Product Design
Our apparel, footwear and related accessories 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, skiing, 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.
Rossignol has been successful over its history in developing technical enhancements in ski
equipment. We will continue research and development efforts for our wintersports business
enabling us to design
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and launch new products in response to changing demands and market
expectations. We intend to continue to rely on the strong culture of technical expertise in the development of our products at
our own facilities and at sub-contractor facilities.
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, skiing, snowboarding, skateboarding and windsurfing, and have sponsored events that
showcase these sports. Our technical excellence and the innovation of our products are validated
when professional athletes compete with our equipment and succeed at a world-class level. 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
rather than advertising a specific product. 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, Lisa Andersen, Tom Carroll, Sofia Mulanovich, Chelsea Georgeson, Tony Hawk, Danny
Way, Robbie Naish, Dave Mirra and Ricky Carmichael. Our relationships with athletes in the snow
category include Alberto Tomba, Ted Ligety, Julia Mancuso, Manu Gaidet, Danny Kass, Todd Richards
and Travis Rice. 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
Quiksilver’s Big Wave Invitational, which we believe is the most prestigious event among surfers,
and the Roxy Pro, which we believe is the most visible women’s surf event of the pro season. We
also sponsor many events in Europe, including the Slopestyle Pro snowboarding event and the
Bowlriders skateboarding event, and our DC and Quiksilver athletes participate regularly in the
Summer and Winter X-Games. Rossignol and our other wintersports brands receive international
acclaim for winning on the world stage. In the 2006 Winter Olympics, our wintersports athletes won
36 medals, including 10 gold. In the 2007 Ski World Cup, our wintersports athletes won 35 medals,
including 7 gold. Our wintersports brands continue to benefit from the publicity generated as
sponsored athletes compete in the Ski World Cup, Winter Olympics, Freeride World Cup and Winter
X-Games. In addition, we sponsor many regional and local events, such as surf camps and ski racing
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 form the
basis of content for core magazines, such as Surfer, Surfing, Snowboard Canada, Transworld
Skateboarding, Powder, Skieur and Freeride. Through our Quiksilver Entertainment division, we are
bringing our lifestyle message to an even broader audience through television, films, books and
co-sponsored events and products.
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 grow the value of our brands.
The foundation of our business is the distribution of our products through surf shops, ski shops,
skateboard shops, snowboard shops and our proprietary Boardriders Clubs shops where the environment
communicates our brand messages and the sale of equipment is supported with technical
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knowledge and experience. 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, Chicks Sporting Goods 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
apparel, footwear and accessories products are distributed through select department stores,
including Macy’s and Bloomingdales in the U.S.; Le Printemps and Galeries Lafayette in France; and
Corte Ingles in Spain.
Many of our brands are sold through the same retail accounts; however, distribution can be
different depending on the brand and demographic group. Our Quiksilver products are sold in the
Americas to customers that have approximately 9,800 store locations combined. Likewise, Roxy
products are sold in the Americas to customers with approximately 9,600 store locations. Most of
these Roxy locations also carry Quiksilver product. In the Americas, DC products are carried in
approximately 8,300 stores. Our swimwear brands (Raisins, Leilani and Radio Fiji) are found in
approximately 8,800 stores in the Americas, including many small, specialty swim locations, while
our wintersports equipment (Rossignol, Dynastar, Look, Lange, Kerma, Lib Technologies, Bent Metal
and Gnu) is found in approximately 3,900 stores, including primarily ski and snowboard shops in the
U.S. and Canada. Our apparel, footwear and accessories are found in approximately 6,800 store
locations in Europe, and in approximately 3,900 store locations in Asia/Pacific, and in both cases
primarily include Quiksilver, Roxy and DC. Our wintersports equipment is found in approximately
7,800 store locations in Europe.
Our European segment accounted for approximately 44%, 46% and 41% of our consolidated revenues
during fiscal 2007, 2006 and 2005, respectively. Our Asia/Pacific segment accounted for
approximately 11%, 11% and 13% of our consolidated revenues in fiscal 2007, 2006 and 2005
respectively. Other fiscal 2007 non-U.S. sales are in the Americas segment (i.e. Canada, Central
and South America) and were approximately 7% of consolidated revenues.
The following table summarizes the approximate percentages of our fiscal 2007 revenues by
distribution channel:
| Percentage of Revenues | ||||||||||||||||
| Distribution Channel | Americas | Europe | Asia/Pacific | Consolidated | ||||||||||||
Core market shops |
26 | % | 36 | % | 76 | % | 36 | % | ||||||||
Specialty stores |
44 | 42 | 15 | 40 | ||||||||||||
Department stores |
18 | 4 | 9 | 10 | ||||||||||||
U.S. exports |
12 | — | — | 6 | ||||||||||||
Distributors |
— | 18 | — | 8 | ||||||||||||
Total |
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Geographic segment |
45 | % | 44 | % | 11 | % | 100 | % | ||||||||
Our revenues are spread over a large wholesale customer base. During fiscal 2007, approximately
16% of our consolidated revenues were from our ten largest customers, and our largest customer
accounted for approximately 4% of such revenues.
Our products are sold by approximately 500 independent sales representatives in the Americas,
Europe and Asia/Pacific. In addition, we use approximately 140 local distributors in Europe, which
include approximately 90 Rossignol distributors. Our other international businesses use
approximately 30 distributors, primarily in Asia/Pacific and South 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 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 revenues by geographic region (excluding licensees):
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| Percentage of Revenues | ||||||||||||
| Geographic Region | 2007 | 2006 | 2005 | |||||||||
United States |
38 | % | 36 | % | 40 | % | ||||||
Other Americas |
7 | 7 | 6 | |||||||||
France |
15 | 16 | 15 | |||||||||
United Kingdom and Spain |
12 | 11 | 12 | |||||||||
Other European countries |
17 | 19 | 14 | |||||||||
Asia/Pacific |
11 | 11 | 13 | |||||||||
Total |
100 | % | 100 | % | 100 | % | ||||||
We generally sell our apparel, footwear and related accessories 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. For our wintersports business, our sales terms vary by country,
distribution channel and customer. We generally sell our wintersports equipment on net-90 or
greater terms. These terms are consistent with terms typically offered in the wintersports market.
We generally do not reimburse our customers for marketing expenses, participate in markdown
programs with our customers, or offer goods on consignment.
For additional information regarding our revenues, operating profits and identifiable assets
attributable to our operating segments, see Note 15 of our consolidated financial statements.
Retail Concepts
Quiksilver concept stores (Boardriders Clubs) 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,
Andaska shops in Europe that carry multiple brands in the outdoor market including our Rossignol
brands, and other multibrand stores in Europe. 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 406 stores in selected markets that provide enhanced brand-building opportunities. In
territories where we operated our wholesale businesses during fiscal 2007, we had 207 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
store’s inventory. Certain minimum purchase obligations are also required. Furthermore, in our
licensed and joint venture territories, such as China and Mexico, our licensees operate 56
Boardriders Clubs. 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,
2007 was 669. The unit count of both company-owned and licensed stores at October 31, 2007,
excluding stores in licensed territories, is summarized in the following table:
| Number of Stores | ||||||||||||||||||||||||||||||||
| Americas | Europe | Asia/Pacific | Combined | |||||||||||||||||||||||||||||
| Company | Company | Company | Company | |||||||||||||||||||||||||||||
| Store Concept | Owned | Licensed | Owned | Licensed | Owned | Licensed | Owned | Licensed | ||||||||||||||||||||||||
Boardriders
Clubs |
50 | 16 | 81 | 148 | 34 | 20 | 165 | 184 | ||||||||||||||||||||||||
Shop-in-shops |
— | — | 59 | — | 22 | — | 81 | — | ||||||||||||||||||||||||
Roxy stores |
8 | 1 | 10 | 11 | 13 | 4 | 31 | 16 | ||||||||||||||||||||||||
Outlet stores |
50 | — | 29 | 2 | 25 | 1 | 104 | 3 | ||||||||||||||||||||||||
Other stores |
3 | 2 | 22 | 2 | — | 25 | 4 | |||||||||||||||||||||||||
| 111 | 19 | 201 | 163 | 94 | 25 | 406 | 207 | |||||||||||||||||||||||||
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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. The acquisition of Rossignol in July 2005 significantly
increased our revenues, particularly between August and December.
| Consolidated Revenues | ||||||||||||||||||||||||
| Dollar amounts in thousands | 2007 | 2006 | 2005 | |||||||||||||||||||||
Quarter ended January 31 |
$ | 528,677 | 22 | % | $ | 518,558 | 24 | % | $ | 342,142 | 20 | % | ||||||||||||
Quarter ended April 30 |
557,227 | 23 | 466,150 | 21 | 425,593 | 25 | ||||||||||||||||||
Quarter ended July 31 |
560,930 | 23 | 483,696 | 22 | 372,488 | 21 | ||||||||||||||||||
Quarter ended October 31 |
779,201 | 32 | 731,830 | 33 | 594,305 | 34 | ||||||||||||||||||
| $ | 2,426,035 | 100 | % | $ | 2,200,234 | 100 | % | $ | 1,734,528 | 100 | % | |||||||||||||
Production and Raw Materials
Our apparel, footwear and accessories are generally sourced separately for our Americas, Europe and
Asia/Pacific operations. We own a sourcing office in Hong Kong that manages the majority of
production for our Asia/Pacific business and some of our Americas and European production. We
believe that as we expand the Hong Kong sourcing operations, more products can be sourced together
and additional efficiencies can be obtained. Approximately 86% of our apparel, footwear and
accessories are purchased or imported as finished goods from suppliers principally in Hong Kong,
China and the far east, but also in Mexico, India, North Africa, Portugal and other foreign
countries. After being imported, many of these products require embellishment such as
screenprinting, dyeing, washing or embroidery. In the Americas, the remaining 14% of our
production is manufactured by independent contractors from raw materials we provide, with a
substantial majority of this manufacturing done in the U.S. and the balance in Mexico.
We manufacture wintersports equipment globally for our Americas, Europe and Asia/Pacific
operations. Production of alpine skis, cross-country skis and snowboards is shared primarily
between France and Spain, with some production in the United States. Alpine bindings are also
produced in France with the support of a network of approved subcontractors. Ski boots and ski
poles are manufactured primarily in Italy, with certain boot components provided by subcontractors
in eastern European countries, primarily Romania. For fiscal 2007, approximately 18% of our
wintersports equipment manufacturing was subcontracted. All products are manufactured based upon
design specifications that we provide, whether they are purchased or imported as finished goods or
produced from raw materials that we provide.
The majority of our apparel, footwear and accessories finished goods, as well as raw materials for
apparel, accessories and wintersports equipment 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 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. If we overestimate a particular raw material for our wintersports equipment
production, it also can be used in subsequent seasons.
During fiscal 2007, no single contractor of finished goods accounted for more than 6% of our
consolidated production. No single raw material supplier accounted for more than 6% of our
expenditures for raw materials during fiscal 2007. 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
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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 have shifted
increasingly to 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 relationship
with, or performance by, key existing suppliers and/or contractors, there could be a short-term
adverse effect on our operations.
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 quotas on the amount and type of
textile and apparel products that are imported into the U.S. from the affected countries. We do
not anticipate that these restrictions will adversely affect our operations since we would be able
to meet our needs domestically or from other countries not affected by the restrictions.
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 quota and other trade regulations and perform some quality control
functions. We also have approximately 250 employees in Hong Kong and China that are involved in
sourcing and quality control functions to assist 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”, “Roxy” and famous mountain and wave and heart logos in virtually every
country in the world. Other trademarks we own include “Raisins", “Radio Fiji”, “Leilani”,
“Quiksilveredition”, “Hawk”, “Lib Tech”, “Gnu” and “Bent Metal”, "DCSHOECOUSA”, the “DC Star” logo
and other trademarks. With the acquisition of Rossignol in 2005, we acquired the “Rossignol",
“Dynastar", “Lange", “Look” and “Kerma” trademarks in countries around the world.
We apply for and register our trademarks throughout the world mainly for use on apparel, footwear
and related accessories and for retail services. Our Rossignol trademarks have been registered for
use on wintersports equipment, apparel and related accessories. 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 related accessory product classifications and we directly operate all
of the global Quiksilver and Roxy businesses with the exception of licensees in several countries,
including Turkey, Argentina and Mauritius. We have also entered into a few joint venture
arrangements with independent third parties to sell and distribute Quiksilver, Roxy and other
branded products in various foreign territories, including Mexico and Brazil. In connection with
these joint ventures, we license certain of our trademarks for use in connection with the sale and promotion of our products in
these territories.
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In April 2005, we licensed our Hawk brand in the United States to Kohl’s Stores, Inc., a department
store chain with over 700 stores. Under Kohl’s’ license agreement, Kohl’s 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 Kohl’s based upon sales of Hawk branded products.
Under the license agreement, we are responsible for product design and Kohl’s 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 Kohl’s’ option. We continue
to manufacture and sell Hawk branded products outside of the United States.
Our patent portfolio has increased with the acquisition of Rossignol to include ski, ski boot and
ski binding patents in addition to our existing patents and applications primarily related to
wetsuits, skate shoes, watches, board shorts, snowboards and snowboard boots.
Competition
Competition is strong in the global beachwear, skateboard shoe, casual sportswear and wintersports
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 Boardriders Clubs in the United States include
Billabong International Pty Ltd, Volcom, Inc., O’Neill, Inc. and Hurley International LLC. 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 Sole Technology, Inc. and DVS Shoe Company. In Europe, our principal competitors in the
core channel include O’Neill, Inc., Billabong International Pty Ltd., Rip Curl International Pty
Ltd., Oxbow S.A. and Chimsee. In Australia, our primary competitors are Billabong International
Pty Ltd. and Rip Curl International Pty Ltd. In broader European distribution, and in
Asia/Pacific, our competitors also include brands such as Nike Inc., Adidas AG and Levi Strauss &
Co. Competition is strong in the wintersports market. Our principal competitors both in the
United States and Europe in the wintersports market include Amer Sports Corporation (Atomic,
Salomon), Jarden Corp. (K2), Tecnica Group, Head N.V. and Burton Snowboards North America. 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 product at appropriate price points; | |
| • | continue to develop leading technologies in ski equipment; and | |
| • | convey our outdoor sports lifestyle messages to consumers worldwide. |
Future Season Orders
At the end of November 2007, our backlog totaled $652 million compared to $567 million the year
before. Our backlog depends upon a number of factors and fluctuates based on 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 on 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, 2007, we had approximately 9,600 employees, consisting of approximately 3,900 in the
United States and Canada, approximately 3,900 in Europe and approximately 1,800 in Asia/Pacific.
None of our domestic employees are represented by trade unions, and less than 50 of our foreign
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
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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 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, plastics, solvents and wood, and produce related byproducts 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,
earnings or competitive position during the last three fiscal years.
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 SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public
may also obtain information on the operation of 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 registrants,
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.
The apparel, sporting goods and footwear industries are each highly competitive, and if we fail to
compete effectively, we could lose our market position.
The apparel, sporting goods and footwear industries are each highly competitive. We compete
against a number of domestic and international designers, manufacturers, retailers and distributors
of apparel, sporting goods 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 and
outdoor sports markets; (2) be flexible and innovative in responding to rapidly changing market demands on the basis of brand
image,
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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 and 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, sporting goods 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, sporting goods 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 quality of our brands.
Our future success will depend, in part, upon our continued ability to develop and introduce
innovative products reflective of technological advances in the respective markets in which we
compete. If we are unable to successfully introduce new outdoor sporting goods products, or if our
competitors introduce superior products, customers may purchase outdoor sporting goods products
from our competitors, which could adversely affect our revenues and results of operations.
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.
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 denominated in currencies other than their functional currencies. We are