The Cost of __£Cool__ã at Quiksilver__»

June 10, 2010

According to pro surfer Kelly Slater’s website, he’s the —greatest surfer of all time. Of course, we’re in no position to disagree: He’s won 9 world titles and dozens of competitions. He surfs with Cameron Diaz, for Pete’s sake. The guy exudes cool.

As you might imagine, getting a celebrity like Slater to endorse your company doesn—t come cheap, and there was plenty of evidence of that in the 1151-page quarterly report that Quiksilver, Inc. (ZQK) filed yesterday.

The Q notes that at the March, 2010 annual meeting of shareholders, nearly 74 percent of shareholders approved a proposal to give Slater a restricted stock grant of 3 million shares of common stock. Per the agreement’s terms, 1,200,000 shares vested during the six months ended April 30, 2010. The other 1,800,000 shares will vest in three equal, annual installments, starting in April 2011.

In its 2010 proxy, Quiksilver urged shareholders to approve the proposal, arguing that giving Slater 3 million shares was better than giving him additional cash —given our highly leveraged position and the need to preserve cash for our operations, capital expenditures and interest expense. If Slater got cash instead of stock, the company said, it would cost far more than the fair market value of the stock. And if they didn—t approve the proposal, Slater could terminate the deal. That, Quiksilver said, ——would have significant negative consequences for us.

Since 60% of the grant is tied to the future value of the stock, it’s impossible to calculate exactly how much this will cost the shareholders. But the Q gives an idea of the current cost:

—The consolidated SG&A increase includes a non-cash charge of $7.5 million during the six months ended April 30, 2010 for stock compensation expense related to stock granted to Kelly Slater as compared to zero during the six months ended April 30, 2009.

In 2009, Slater and his company signed a new 5-year sponsorship agreement with Quiksilver. The terms of that agreement require Slater to

——ensure prominent exposure of the Quiksilver brand, recognize the Quiksilver brand during media appearances and perform promotional activities for us at least 20 days per year. For his services under the sponsorship agreement, he is to be paid $2.1 million in the first and second years of the sponsorship agreement, $2.2 million in the third year, $2.45 million in the fourth year and $2.75 million in the fifth year. In addition, he also will receive royalties equal to 3% of the net sales of our products that bear his name or likeness—.

As the company sees it, Slater’s endorsement not only helps them market their products to their “core users,” but it also “…generally enhances our ability to market our company and our products in connection with the lifestyle that he represents.

And who wouldn’t want to be a cool, rich surfer dude, anyway?

Image source: thelastminute via Flickr

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