##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended July 31, 2008
 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. Employerincorporation or organization)
    
    Identification Number)
 15202 Graham Street
Huntington Beach, California
92649
 (714) 889-2200
 . Yes þ No o
 12b-2
 Large accelerated filer
þ
    
    Accelerated filer
o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting
Company o
 Yes o No þ




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##### 



QUIKSILVER, INC.
 FORM 10-Q
INDEX
 Page No.PART I - FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited):Quiksilver, Inc. Condensed Consolidated Statements of Operations
Three Months Ended July 31, 2008 and 2007
    
    
    2Quiksilver, Inc. Condensed Consolidated Statements of Comprehensive Income (Loss)
Three Months Ended July 31, 2008 and 2007
    
    
    2Quiksilver, Inc. Condensed Consolidated Statements of Operations
Nine Months Ended July 31, 2008 and 2007
    
    
    3Quiksilver, Inc. Condensed Consolidated Statements of Comprehensive (Loss) Income
Nine Months Ended July 31, 2008 and 2007
    
    
    3Quiksilver, Inc. Condensed Consolidated Balance Sheets
July 31, 2008 and October 31, 2007
    
    
    4Quiksilver, Inc. Condensed Consolidated Statements of Cash Flows
Nine Months Ended July 31, 2008 and 2007
    
    
    5Quiksilver, Inc. Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations:Results of Operations
    
    
    24Three Months Ended July 31, 2008 Compared to Three Months Ended July 31, 2007
    
    
    25Nine Months Ended July 31, 2008 Compared to Nine Months Ended July 31, 2007
    
    
    26Financial Position, Capital Resources and Liquidity
    
    
    27Critical Accounting Policies
    
    
    29New Accounting Pronouncements
    
    
    32Forward-Looking Statements
    
    
    32Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    33Part II - OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    34Item 1A. Risk Factors
    
    
    34Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 6. Exhibits
    
    
    35SIGNATURES
    
    
    37EXHIBIT 10.1EXHIBIT 10.5EXHIBIT 10.6EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  1




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##### Table of Contents



PART
I - FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 QUIKSILVER, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three months ended July 31,In thousands, except per share amounts
    
    2008
    
    
    2007Revenues, net
    
    $
    564,876
    
    
    $
    528,591Cost of goods sold
    
    
    280,047
    
    
    
    276,512Gross profit
    
    
    284,829
    
    
    
    252,079Selling, general and administrative expense
    
    
    232,094
    
    
    
    194,323Operating income
    
    
    52,735
    
    
    
    57,756Interest expense
    
    
    11,801
    
    
    
    11,881Foreign currency (gain) loss
    
    
    (1,231
    )
    
    
    310Minority interest and other expense
    
    
    415
    
    
    
    80Income before provision for income taxes
    
    
    41,750
    
    
    
    45,485Provision for income taxes
    
    
    8,677
    
    
    
    9,783Income from continuing operations
    
    
    33,073
    
    
    
    35,702Loss from discontinued operations, net of tax
    
    
    (30,219
    )
    
    
    (43,569
    )Net income (loss)
    
    $
    2,854
    
    
    $
    (7,867
    )Income per share from continuing operations
    
    $
    0.26
    
    
    $
    0.29Loss per share from discontinued operations
    
    $
    (0.24
    )
    
    $
    (0.35
    )Net income (loss) per share
    
    $
    0.02
    
    
    $
    (0.06
    )Income per share from continuing operations, assuming dilution
    
    $
    0.25
    
    
    $
    0.28Loss per share from discontinued operations, assuming dilution
    
    $
    (0.23
    )
    
    $
    (0.34
    )Net income (loss) per share, assuming dilution
    
    $
    0.02
    
    
    $
    (0.06
    )Weighted average common shares outstanding
    
    
    126,220
    
    
    
    124,013Weighted average common shares outstanding, assuming dilution
    
    
    130,021
    
    
    
    129,163
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 (Unaudited)
 Three months ended July 31,In thousands
    
    2008
    
    
    2007Net income (loss)
    
    $
    2,854
    
    
    $
    (7,867
    )Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    (2,669
    )
    
    
    5,541Net unrealized gain on derivative instruments,
net of tax of $1,640 (2008) and $1,277 (2007)
    
    
    3,281
    
    
    
    2,308Comprehensive income (loss)
    
    $
    3,466
    
    
    $
    (18
    )
  2




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QUIKSILVER, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Nine months ended July 31,In thousands, except per share amounts
    
    2008
    
    
    2007Revenues, net
    
    $
    1,657,737
    
    
    $
    1,459,804Cost of goods sold
    
    
    829,042
    
    
    
    763,263Gross profit
    
    
    828,695
    
    
    
    696,541Selling, general and administrative expense
    
    
    684,304
    
    
    
    565,687Asset impairment
    
    
    350
    
    
    
    Operating income
    
    
    144,041
    
    
    
    130,854Interest expense
    
    
    35,845
    
    
    
    35,420Foreign currency (gain) loss
    
    
    (463
    )
    
    
    1,732Minority interest and other expense
    
    
    18
    
    
    
    39Income before provision for income taxes
    
    
    108,641
    
    
    
    93,663Provision for income taxes
    
    
    29,273
    
    
    
    20,870Income from continuing operations
    
    
    79,368
    
    
    
    72,793Loss from discontinued operations, net of tax
    
    
    (304,678
    )
    
    
    (82,985
    )Net loss
    
    $
    (225,310
    )
    
    $
    (10,192
    )Income per share from continuing operations
    
    $
    0.63
    
    
    $
    0.59Loss per share from discontinued operations
    
    $
    (2.43
    )
    
    $
    (0.67
    )Net loss per share
    
    $
    (1.80
    )
    
    $
    (0.08
    )Income per share from continuing operations, assuming dilution
    
    $
    0.61
    
    
    $
    0.56Loss per share from discontinued operations, assuming dilution
    
    $
    (2.35
    )
    
    $
    (0.64
    )Net loss per share, assuming dilution
    
    $
    (1.74
    )
    
    $
    (0.08
    )Weighted average common shares outstanding
    
    
    125,511
    
    
    
    123,579Weighted average common shares outstanding, assuming dilution
    
    
    129,765
    
    
    
    128,966
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
 Nine months ended July 31,In thousands
    
    2008
    
    
    2007Net loss
    
    $
    (225,310
    )
    
    $
    (10,192
    )Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    34,811
    
    
    
    62,365Net unrealized gain (loss) on derivative instruments,
net of tax of $667 (2008) and $(4,233) (2007)
    
    
    246
    
    
    
    (8,983
    )Comprehensive (loss) income
    
    $
    (190,253
    )
    
    $
    43,190
  3




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##### Table of Contents



QUIKSILVER, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 July 31,
    
    
    October 31,In thousands, except share amounts
    
    2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    99,491
    
    
    $
    74,348Trade accounts receivable, less allowances of $27,458 (2008) and
$21,100 (2007)
    
    
    491,369
    
    
    
    478,049Other receivables
    
    
    18,893
    
    
    
    37,328Inventories
    
    
    358,646
    
    
    
    296,167Deferred income taxes
    
    
    100,777
    
    
    
    43,776Prepaid expenses and other current assets
    
    
    29,221
    
    
    
    20,722Current assets held for sale
    
    
    358,832
    
    
    
    562,872Total current assets
    
    
    1,457,229
    
    
    
    1,513,262Fixed assets, less accumulated depreciation and amortization of
$232,773 (2008) and $189,292 (2007)
    
    
    258,920
    
    
    
    221,367Intangible assets, net
    
    
    146,862
    
    
    
    142,420Goodwill
    
    
    417,486
    
    
    
    398,899Other assets
    
    
    44,892
    
    
    
    42,232Deferred income taxes long-term
    
    
    14,007
    
    
    
    20,536Non-current assets held for sale
    
    
    
    
    
    
    323,348Total assets
    
    $
    2,339,396
    
    
    $
    2,662,064LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Lines of credit
    
    $
    274,685
    
    
    $
    124,634Accounts payable
    
    
    251,623
    
    
    
    192,923Accrued liabilities
    
    
    129,803
    
    
    
    157,084Current portion of long-term debt
    
    
    35,584
    
    
    
    33,903Income taxes payable
    
    
    13,447
    
    
    
    8,850Current liabilities related to assets held for sale
    
    
    144,882
    
    
    
    364,011Total current liabilities
    
    
    850,024
    
    
    
    881,405Long-term debt, net of current portion
    
    
    744,127
    
    
    
    698,909Other long-term liabilities
    
    
    37,164
    
    
    
    11,313Non-current liabilities related to assets held for sale
    
    
    7,736
    
    
    
    183,824Total liabilities
    
    
    1,639,051
    
    
    
    1,775,451Stockholders 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 - 130,579,766 (2008) and 128,340,538 (2007)
    
    
    1,306
    
    
    
    1,283Additional paid-in capital
    
    
    331,269
    
    
    
    306,051Treasury stock, 2,885,200 shares
    
    
    (6,778
    )
    
    
    (6,778
    )Retained earnings
    
    
    191,374
    
    
    
    437,940Accumulated other comprehensive income
    
    
    183,174
    
    
    
    148,117Total stockholders equity
    
    
    700,345
    
    
    
    886,613Total liabilities and stockholders equity
    
    $
    2,339,396
    
    
    $
    2,662,064
  4




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QUIKSILVER, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine months ended July 31,In thousands
    
    2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (225,310
    )
    
    $
    (10,192
    )Adjustments to reconcile net loss to net cash provided by operating activities:Loss from discontinued operations
    
    
    304,678
    
    
    
    82,985Depreciation and amortization
    
    
    42,935
    
    
    
    34,027Stock-based compensation and tax benefit on option exercises
    
    
    6,457
    
    
    
    10,697Provision for doubtful accounts
    
    
    8,023
    
    
    
    5,555Loss on disposal of fixed assets
    
    
    251
    
    
    
    432Foreign currency loss
    
    
    738
    
    
    
    968Asset impairments
    
    
    350
    
    
    
    Minority interest and equity in earnings
    
    
    1,172
    
    
    
    98Changes in operating assets and liabilities, net of the effect from
business acquisitions:Trade accounts receivable
    
    
    2,499
    
    
    
    (37,148
    )Other receivables
    
    
    20,289
    
    
    
    (9,131
    )Inventories
    
    
    (46,326
    )
    
    
    (48,401
    )Prepaid expenses and other current assets
    
    
    (5,694
    )
    
    
    (1,969
    )Other assets
    
    
    (861
    )
    
    
    (2,230
    )Accounts payable
    
    
    41,084
    
    
    
    59,060Accrued liabilities and other long-term liabilities
    
    
    (4,771
    )
    
    
    18,292Income taxes payable
    
    
    4,410
    
    
    
    14,961Cash provided by operating activities of continuing operations
    
    
    149,924
    
    
    
    118,004Cash (used in) provided by operating activities of discontinued
operations
    
    
    (20,166
    )
    
    
    5,234Net cash provided by operating activities
    
    
    129,758
    
    
    
    123,238Cash flows from investing activities:Proceeds from the sale of properties and equipment
    
    
    2,734
    
    
    
    5,754Capital expenditures
    
    
    (66,318
    )
    
    
    (54,003
    )Business acquisitions, net of cash acquired
    
    
    (31,127
    )
    
    
    (34,242
    )Cash used in investing activities of continuing operations
    
    
    (94,711
    )
    
    
    (82,491
    )Cash provided by (used in) investing activities of discontinued
operations
    
    
    107,942
    
    
    
    (18,952
    )Net cash provided by (used in) investing activities
    
    
    13,231
    
    
    
    (101,443
    )Cash flows from financing activities:Borrowings on lines of credit
    
    
    161,752
    
    
    
    40,641Payments on lines of credit
    
    
    (22,159
    )
    
    
    (17,247
    )Borrowings on long-term debt
    
    
    217,559
    
    
    
    97,925Payments on long-term debt
    
    
    (189,337
    )
    
    
    (86,169
    )Stock option exercises, employee stock purchases and tax benefit on
option exercises
    
    
    11,331
    
    
    
    12,415Cash provided by financing activities of continuing operations
    
    
    179,146
    
    
    
    47,565Cash used in financing activities of discontinued operations
    
    
    (293,456
    )
    
    
    (26,653
    )Net cash (used in) provided by financing activities
    
    
    (114,310
    )
    
    
    20,912Effect of exchange rate changes on cash
    
    
    (3,536
    )
    
    
    (3,534
    )Net increase in cash and cash equivalents
    
    
    25,143
    
    
    
    39,173Cash and cash equivalents, beginning of period
    
    
    74,348
    
    
    
    36,834Cash and cash equivalents, end of period
    
    $
    99,491
    
    
    $
    76,007Supplementary cash flow information:Cash paid during the period for:Interest
    
    $
    28,936
    
    
    $
    26,248Income taxes
    
    $
    23,867
    
    
    $
    4,480
  5




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QUIKSILVER, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1.
    
    Basis of PresentationThe accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statement presentation.Quiksilver, Inc. (the Company), in its opinion, has included all adjustments, consisting
only of normal and recurring adjustments, necessary for a fair presentation of the results
of operations for the three and nine months ended July 31, 2008 and 2007. The condensed
consolidated financial statements and notes thereto should be read in conjunction with the
audited financial statements and notes for the year ended October 31, 2007 included in the
Companys Annual Report on Form 10-K. Interim results are not necessarily indicative of
results for the full year due to seasonal and other factors.In August 2008, the Company received a binding offer for its Rossignol business, including
the related brands of Rossignol, Dynastar, Look and Lange, and expects to complete this
transaction in the fall of 2008. The Company classified its Rossignol business, including
both wintersports equipment and related apparel, as discontinued operations. The Rossignol
business assets and related liabilities are classified as held for sale, and the operations
are classified as discontinued, for all periods presented.In October 2007, the Company entered into an agreement to sell its golf equipment business.
This transaction was completed in December 2007. As a result of this disposition of the
golf equipment business, all financial information has been adjusted to exclude these
operations and the golf equipment business has been classified as discontinued operations
for all periods presented.2.
    
    New Accounting PronouncementsIn July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109 (FIN 48). This interpretation
clarifies the application of Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes, by defining criteria that an individual tax position must
meet for any part of the benefit of that position to be recognized in the Companys
financial statements and also provides guidance on measurement, derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and
transition. The Company adopted FIN 48 on November 1, 2007. See Note 12 for a description
of the impact of this standard on the Companys financial statements.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This standard
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements. This
statement is effective for financial statements issued for fiscal years beginning after
November 15, 2007. The Company expects to adopt this standard at the beginning of its
fiscal year ending October 31, 2009. The adoption of this accounting pronouncement is not
expected to have a material effect on the Companys consolidated financial position, results
of operations or cash flows.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities, (SFAS No. 159), 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 statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007. The Company expects to adopt this
standard at the beginning of its fiscal year ending October 31, 2009. The adoption of this
accounting
 6




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QUIKSILVER, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 pronouncement is not expected to have a material effect on the Companys
consolidated financial position, results of operations or cash flows.In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, (SFAS No.
141(R)), 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
previously allowed under Emerging Issues Task Force Issue No. 95-3 to be recorded as a
component of purchase accounting. This statement is effective for financial statements
issued for fiscal years beginning on or after December 15, 2008. The Company will adopt
this standard 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 SFAS No. 141(R) 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 SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51, (SFAS No. 160), which requires
noncontrolling interests in subsidiaries to be included in the equity section of the balance
sheet. This statement is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The Company will adopt this standard at the beginning of
its fiscal year ending October 31, 2010. The Company has not determined the effect that the
adoption of SFAS No. 160 will have on its consolidated financial statements.In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities  an Amendment of FASB Statement No. 133 (SFAS No. 161). The objective
of SFAS No. 161 is to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better understand their
effects on an entitys financial position, financial performance and cash flows. This
statement is effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. The Company plans to adopt this standard at the
beginning of its fiscal quarter ending April 30, 2009. The adoption of this accounting
pronouncement is not expected to have a material effect on the Companys consolidated
financial position, results of operations or cash flows.3.
    
    Stock-Based CompensationThe Company accounts for stock-based compensation under the fair value recognition
provisions of SFAS No. 123(R) Share-Based Payment. The Company uses the Black-Scholes
option-pricing model to value compensation expense. Forfeitures are estimated at the date
of grant based on historical rates and reduce the compensation expense recognized. The
expected term of options granted is derived from historical data on employee exercises. The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of
grant. Expected volatility is based on the historical volatility of the Companys stock.
For the nine months ended July 31, 2008 and 2007, options were valued assuming a risk-free
interest rate of 3.0% and 4.8%, respectively, volatility of 40.7% and 43.1%, respectively,
zero dividend yield, and an expected life of 5.7 and 5.6 years, respectively. The weighted
average fair value of options granted was $3.85 and $7.16 for the nine months ended July 31,
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 July
31, 2008, the Company had approximately $7.4 million of unrecognized stock-based
compensation expense expected to be recognized over a weighted average period of
approximately 1.5 years. Stock-based compensation expense was included as selling, general
and administrative expense for the period.
 7




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QUIKSILVER, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
  Weighted
    
 Weighted
    
    AggregateAverage
    
    Average
    
    IntrinsicDollar amounts in thousands, except per share amounts
    
    Shares
    
    Price
    
    Life
    
    ValueOutstanding, October 31, 2007
    
    
    17,311,049
    
    
    $
    9.30Granted
    
    
    1,280,000
    
    
    
    9.02Exercised
    
    
    (1,703,538
    )
    
    
    3.55
    
    
    
    
    
    
    $
    9,675Canceled
    
    
    (158,504
    )
    
    
    13.15Outstanding, July 31, 2008
    
    
    16,729,007
    
    
    $
    9.83
    
    
    
    5.6
    
    
    $
    15,652Options exercisable, July 31, 2008
    
    
    13,055,561
    
    
    $
    9.05
    
    
    
    4.9
    
    
    $
    15,652
  Weighted-Average GrantShares
    
    Date Fair ValueNon-vested, October 31, 2007
    
    
    4,915,536
    
    
    $
    6.71Granted
    
    
    1,280,000
    
    
    
    3.85Vested
    
    
    (2,464,921
    )
    
    
    6.42Canceled
    
    
    (57,169
    )
    
    
    6.24Non-vested, July 31, 2008
    
    
    3,673,446
    
    
    $
    5.92
   SharesOutstanding, October 31, 2007
    
    
    842,000Granted
    
    
    330,000Vested
    
    
    (9,996
    )Forfeited
    
    
    (351,668
    )Outstanding, July 31, 2008
    
    
    810,336
  8




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QUIKSILVER, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 4.
    
    InventoriesInventories consist of the following:
 July 31,
    
    
    October 31,In thousands
    
    2008
    
    
    2007Raw materials
    
    $
    9,743
    
    
    $
    10,158Work in-process
    
    
    6,421
    
    
    
    5,164Finished goods
    
    
    342,482
    
    
    
    280,845$
    358,646
    
    
    $
    296,167
 5.
    
    Intangible Assets and GoodwillA summary of intangible assets is as follows:
 July 31, 2008
    
    
    October 31, 2007Net
    
    
    
    
    
    
    
    
    
    NetGross
    
    
    Amorti-
    
    

    Book
    
    
    Gross
    
    
    
    Amorti-
    
    BookIn thousands
    
    Amount
    
    
    zation
    
    
    Value
    
    
    Amount
    
    
    zation
    
    
    ValueAmortizable trademarks
    
    $
    19,575
    
    
    $
    (5,471
    )
    
    $
    14,104
    
    
    $
    15,220
    
    
    $
    (4,350
    )
    
    $
    10,870Amortizable licenses
    
    
    12,731
    
    
    
    (7,214
    )
    
    
    5,517
    
    
    
    12,354
    
    
    
    (6,074
    )
    
    
    6,280Other amortizable intangibles
    
    
    8,352
    
    
    
    (3,927
    )
    
    
    4,425
    
    
    
    6,482
    
    
    
    (3,556
    )
    
    
    2,926Non-amortizable trademarks
    
    
    122,816
    
    
    
    
    
    
    
    122,816
    
    
    
    122,344
    
    
    
    
    
    
    
    122,344$
    163,474
    
    
    $
    (16,612
    )
    
    $
    146,862
    
    
    $
    156,400
    
    
    $
    (13,980
    )
    
    $
    142,420
   July 31,
    
    
    October 31,In thousands
    
    2008
    
    
    2007Americas
    
    $
    77,957
    
    
    $
    73,709Europe
    
    
    188,408
    
    
    
    179,012Asia/Pacific
    
    
    151,121
    
    
    
    146,178$
    417,486
    
    
    $
    398,899
  9




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##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 6.
    
    Accumulated Other Comprehensive IncomeThe components of accumulated other comprehensive income include net income, changes in fair
value of derivative instruments qualifying as cash flow hedges, the fair value of interest
rate swaps and foreign currency translation adjustments. The components of accumulated
other comprehensive income, net of income taxes, are as follows:
 July 31,
    
    
    October 31,In thousands
    
    2008
    
    
    2007Foreign currency translation adjustment
    
    $
    206,734
    
    
    $
    171,923Loss on cash flow hedges and interest rate swaps
    
    
    (23,560
    )
    
    
    (23,806
    )$
    183,174
    
    
    $
    148,117
 7.
    
    Segment InformationOperating segments are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the Companys 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 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. All prior segment information has been
adjusted to reflect our current operating segment presentation and the removal of the
wintersports equipment segment, which is included in discontinued operations. 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 Companys licensees. The Companys largest
customer accounted for approximately 4% of the Companys net revenues from continuing
operations for the nine months ended July 31, 2008 and 2007.
 10




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##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
  Three Months Ended July 31,In thousands
    
    2008
    
    
    2007Revenues, net:Americas
    
    $
    271,941
    
    
    $
    281,891Europe
    
    
    231,987
    
    
    
    185,616Asia/Pacific
    
    
    59,634
    
    
    
    59,897Corporate operations
    
    
    1,314
    
    
    
    1,187$
    564,876
    
    
    $
    528,591Gross profit:Americas
    
    $
    112,552
    
    
    $
    117,951Europe
    
    
    138,439
    
    
    
    103,770Asia/Pacific
    
    
    33,094
    
    
    
    29,263Corporate operations
    
    
    744
    
    
    
    1,095$
    284,829
    
    
    $
    252,079Operating income (loss):Americas
    
    $
    23,191
    
    
    $
    39,611Europe
    
    
    40,937
    
    
    
    27,333Asia/Pacific
    
    
    4,514
    
    
    
    4,936Corporate operations
    
    
    (15,907
    )
    
    
    (14,124
    )$
    52,735
    
    
    $
    57,756
 Nine Months Ended July 31,In thousands
    
    2008
    
    
    2007Revenues, net:Americas
    
    $
    754,491
    
    
    $
    715,965Europe
    
    
    716,770
    
    
    
    578,692Asia/Pacific
    
    
    182,494
    
    
    
    161,984Corporate operations
    
    
    3,982
    
    
    
    3,163$
    1,657,737
    
    
    $
    1,459,804Gross profit:Americas
    
    $
    320,087
    
    
    $
    300,087Europe
    
    
    409,866
    
    
    
    315,210Asia/Pacific
    
    
    96,519
    
    
    
    78,591Corporate operations
    
    
    2,223
    
    
    
    2,653$
    828,695
    
    
    $
    696,541Operating income (loss):Americas
    
    $
    46,069
    
    
    $
    70,540Europe
    
    
    126,227
    
    
    
    94,799Asia/Pacific
    
    
    7,858
    
    
    
    5,244Corporate operations
    
    
    (36,113
    )
    
    
    (39,729
    )$
    144,041
    
    
    $
    130,854Identifiable assets:Americas
    
    $
    785,878
    
    
    $
    861,174Europe
    
    
    1,116,851
    
    
    
    1,342,067Asia/Pacific
    
    
    365,954
    
    
    
    339,132Corporate operations
    
    
    70,713
    
    
    
    64,671$
    2,339,396
    
    
    $
    2,607,044
 11




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##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 8.
    
    Derivative Financial InstrumentsThe 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 Companys consolidated financial statements due to
the translation of the operating results and financial position of the Companys
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. In addition, interest rate
swaps are used periodically on a limited basis to manage the Companys exposure to the risk
of fluctuations in interest rates.Derivatives that do not 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 $1.7 million was recognized related to these types of
contracts during the nine months ended July 31, 2008, all of which are classified in
discontinued operations. For all qualifying cash flow hedges, the changes in the fair value
of the derivatives are recorded in other comprehensive income. As of July 31, 2008, the
Company was hedging forecasted transactions expected to occur through August 2010. Assuming
exchange rates at July 31, 2008 remain constant, $23.6 million of losses, net of tax,
related to hedges of these transactions are expected to be reclassified into earnings over
the next 25 months.On the date the Company enters into a derivative contract, management designates the
derivative as a hedge of the identified exposure. The Company formally documents all
relationships between hedging instruments and hedged items, as well as the risk-management
objective and strategy for entering into various hedge transactions. In this documentation,
the Company identifies the asset, liability, firm commitment, or forecasted transaction that
has been designated as a hedged item and indicates how the hedging instrument is expected to
hedge the risks related to the hedged item. The Company formally measures effectiveness of
its hedging relationships both at the hedge inception and on an ongoing basis in accordance
with its risk management policy. The Company would discontinue hedge accounting
prospectively (i) if management determines that the derivative is no longer effective in
offsetting changes in the cash flows of a hedged item, (ii) when the derivative expires or
is sold, terminated, or exercised, (iii) if it becomes probable that the forecasted
transaction being hedged by the derivative will not occur, (iv) because a hedged firm
commitment no longer meets the definition of a firm commitment, or (v) if management
determines that designation of the derivative as a hedge instrument is no longer
appropriate. During the nine months ended July 31, 2008, the Company reclassified into
earnings a net loss of $16.0 million resulting from the expiration, sale, termination, or
exercise of derivative contracts.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.
 12




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##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
  Notional
    
    
    
    
    
    
    FairIn thousands
    
    Amount
    
    
    Maturity
    
    
    ValueUnited States dollar
    
    $
    366,389
    
    
    Aug 2008 - Aug 2010
    
    $
    (37,478
    )British pound
    
    
    12,871
    
    
    Aug 2008 - Oct 2008
    
    
    (47
    )Canadian dollar
    
    
    13,803
    
    
    Sep 2008 - Dec 2008
    
    
    4Japanese yen
    
    
    7,535
    
    
    Sep 2008 - Dec 2008
    
    
    184Romanian new lei
    
    
    965
    
    
    Aug 2008
    
    
    Euro interest rate swap
    
    
    16,360
    
    
    Aug 2008 - Sep 2009
    
    
    (35
    )$
    417,923
    
    
    
    
    
    
    $
    (37,372
    )
 9.
    
    Litigation, Indemnities and GuaranteesThe 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.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 Companys
customers and licensees in connection with the use, sale and/or license of Company products,
(ii) indemnities to various lessors in connection with facility leases for certain claims
arising from such facility or lease, (iii) indemnities to vendors and service providers
pertaining to claims based on the negligence or willful misconduct of the Company, and (iv)
indemnities involving the accuracy of representations and warranties in certain contracts.
The duration of these indemnities, commitments and guarantees varies and, in certain cases,
may be indefinite. The majority of these indemnities, commitments and guarantees do not
provide for any limitation of the maximum potential for future payments the Company could be
obligated to make. The Company has not recorded any liability for these indemnities,
commitments and guarantees in the accompanying consolidated balance sheets.10.
    
    Condensed Consolidating Financial InformationThe Company has $400 million in publicly registered senior notes. Obligations under the
Companys senior notes are fully and unconditionally guaranteed by certain of its domestic
subsidiaries. The Company is required to present condensed consolidating financial
information for Quiksilver, Inc. and its domestic subsidiaries within the notes to the
consolidated financial statements in accordance with the criteria established for parent
companies in the SECs 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 July 31, 2008 and October 31, 2007 and for the nine months ended July 31, 2008 and
2007. The principal elimination entries eliminate investments in subsidiaries and
intercompany balances and transactions. Due to the seasonality of the Companys quarterly
operations, management has applied the estimated consolidated annual effective income tax
rate to both the guarantor and non-guarantor subsidiaries for interim reporting purposes.
In the Companys consolidated financial statements for the fiscal year ending October 31,
2008, management will apply the actual income tax rate to both the guarantor and
non-guarantor subsidiaries. These interim tax rates may differ from the actual annual
effective income tax rates for both the guarantor and non-guarantor subsidiaries.
 13




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QUIKSILVER, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended July 31, 2008
 Wholly-owned
    
    
    Non-Guarantor
    
    
    GuarantorIn thousands
    
    Quiksilver, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues, net
    
    $
    (8
    )
    
    $
    668,933
    
    
    $
    1,024,234
    
    
    $
    (35,422
    )
    
    $
    1,657,737Cost of goods sold
    
    
    
    
    
    
    389,280
    
    
    
    451,846
    
    
    
    (12,084
    )
    
    
    829,042Gross profit
    
    
    (8
    )
    
    
    279,653
    
    
    
    572,388
    
    
    
    (23,338
    )
    
    
    828,695Selling, general and administrative
expense
    
    
    43,410
    
    
    
    256,474
    
    
    
    410,620
    
    
    
    (26,200
    )
    
    
    684,304Asset impairment
    
    
    
    
    
    
    350
    
    
    
    
    
    
    
    
    
    
    
    350Operating (loss) income
    
    
    (43,418
    )
    
    
    22,829
    
    
    
    161,768
    
    
    
    2,862
    
    
    
    144,041Interest expense
    
    
    35,736
    
    
    
    2
    
    
    
    107
    
    
    
    
    
    
    
    35,845Foreign currency loss (gain)
    
    
    554
    
    
    
    (170
    )
    
    
    (847
    )
    
    
    
    
    
    
    (463
    )Minority interest and other (income)
expense
    
    
    
    
    
    
    (257
    )
    
    
    275
    
    
    
    
    
    
    
    18(Loss) income before (benefit) provision
for income taxes
    
    
    (79,708
    )
    
    
    23,254
    
    
    
    162,233
    
    
    
    2,862
    
    
    
    108,641(Benefit) provision for income taxes
    
    
    (21,477
    )
    
    
    6,266
    
    
    
    44,484
    
    
    
    
    
    
    
    29,273(Loss) income from continuing
operations
    
    
    (58,231
    )
    
    
    16,988
    
    
    
    117,749
    
    
    
    2,862
    
    
    
    79,368Loss from discontinued operations
    
    
    (819
    )
    
    
    (28,507
    )
    
    
    (271,333
    )
    
    
    (4,019
    )
    
    
    (304,678
    )Net loss
    
    $
    (59,050
    )
    
    $
    (11,519
    )
    
    $
    (153,584
    )
    
    $
    (1,157
    )
    
    $
    (225,310
    )
 14




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##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended July 31, 2007
 Wholly-owned
    
    
    Non-Quiksilver,
    
    
    Guarantor
    
    
    GuarantorIn thousands
    
    Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues, net
    
    $
    38
    
    
    $
    644,340
    
    
    $
    846,242
    
    
    $
    (30,816
    )
    
    $
    1,459,804Cost of goods sold
    
    
    
    
    
    
    379,508
    
    
    
    395,121
    
    
    
    (11,366
    )
    
    
    763,263Gross profit
    
    
    38
    
    
    
    264,832
    
    
    
    451,121
    
    
    
    (19,450
    )
    
    
    696,541Selling, general and administrative
expense
    
    
    38,224
    
    
    
    217,929
    
    
    
    328,661
    
    
    
    (19,127
    )
    
    
    565,687Operating (loss) income
    
    
    (38,186
    )
    
    
    46,903
    
    
    
    122,460
    
    
    
    (323
    )
    
    
    130,854Interest expense
    
    
    32,062
    
    
    
    2,284
    
    
    
    1,074
    
    
    
    
    
    
    
    35,420Foreign currency loss
    
    
    1,047
    
    
    
    93
    
    
    
    592
    
    
    
    
    
    
    
    1,732Minority interest and other (income)
expense
    
    
    
    
    
    
    (2
    )
    
    
    41
    
    
    
    
    
    
    
    39(Loss) income before (benefit) provision
for income taxes
    
    
    (71,295
    )
    
    
    44,528
    
    
    
    120,753
    
    
    
    (323
    )
    
    
    93,663(Benefit) provision for income taxes
    
    
    (15,885
    )
    
    
    9,921
    
    
    
    26,834
    
    
    
    
    
    
    
    20,870(Loss) income from continuing
operations
    
    
    (55,410
    )
    
    
    34,607
    
    
    
    93,919
    
    
    
    (323
    )
    
    
    72,793Loss from discontinued
operations
    
    
    (1,873
    )
    
    
    (24,827
    )
    
    
    (55,802
    )
    
    
    (483
    )
    
    
    (82,985
    )Net (loss) income
    
    $
    (57,283
    )
    
    $
    9,780
    
    
    $
    38,117
    
    
    $
    (806
    )
    
    $
    (10,192
    )
 15




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##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 CONDENSED CONSOLIDATING BALANCE SHEET
At July 31, 2008
 Wholly-owned
    
    
    Non-Quiksilver,
    
    
    Guarantor
    
    
    GuarantorIn thousands
    
    Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    (523
    )
    
    $
    1,652
    
    
    $
    98,362
    
    
    $
    
    
    
    $
    99,491Trade accounts receivable, net
    
    
    
    
    
    
    196,837
    
    
    
    294,532
    
    
    
    
    
    
    
    491,369Other receivables
    
    
    1,643
    
    
    
    17,338
    
    
    
    (88
    )
    
    
    
    
    
    
    18,893Inventories
    
    
    
    
    
    
    135,939
    
    
    
    224,324
    
    
    
    (1,617
    )
    
    
    358,646Deferred income taxes
    
    
    
    
    
    
    35,308
    
    
    
    65,469
    
    
    
    
    
    
    
    100,777Prepaid expenses and other
current assets
    
    
    2,006
    
    
    
    11,480
    
    
    
    15,735
    
    
    
    
    
    
    
    29,221Current assets held for sale
    
    
    
    
    
    
    52,666
    
    
    
    306,166
    
    
    
    
    
    
    
    358,832Total current assets
    
    
    3,126
    
    
    
    451,220
    
    
    
    1,004,500
    
    
    
    (1,617
    )
    
    
    1,457,229Fixed assets, net
    
    
    5,417
    
    
    
    98,492
    
    
    
    155,011
    
    
    
    
    
    
    
    258,920Intangible assets, net
    
    
    2,674
    
    
    
    51,159
    
    
    
    93,029
    
    
    
    
    
    
    
    146,862Goodwill
    
    
    
    
    
    
    121,098
    
    
    
    296,388
    
    
    
    
    
    
    
    417,486Other assets
    
    
    10,015
    
    
    
    3,771
    
    
    
    31,106
    
    
    
    
    
    
    
    44,892Deferred income taxes long-term
    
    
    
    
    
    
    7,774
    
    
    
    6,233
    
    
    
    
    
    
    
    14,007Investment in subsidiaries
    
    
    505,058
    
    
    
    
    
    
    
    
    
    
    
    (505,058
    )
    
    
    Total assets
    
    $
    526,290
    
    
    $
    733,514
    
    
    $
    1,586,267
    
    
    $
    (506,675
    )
    
    $
    2,339,396LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Lines of credit
    
    $
    
    
    
    $
    
    
    
    $
    274,685
    
    
    $
    
    
    
    $
    274,685Accounts payable
    
    
    2,400
    
    
    
    97,543
    
    
    
    151,680
    
    
    
    
    
    
    
    251,623Accrued liabilities
    
    
    26,742
    
    
    
    14,747
    
    
    
    88,314
    
    
    
    
    
    
    
    129,803Current portion of long-term debt
    
    
    
    
    
    
    1,052
    
    
    
    34,532
    
    
    
    
    
    
    
    35,584Income taxes payable
    
    
    
    
    
    
    (11,297
    )
    
    
    24,744
    
    
    
    
    
    
    
    13,447Intercompany balances
    
    
    172,938
    
    
    
    (22,396
    )
    
    
    (150,542
    )
    
    
    
    
    
    
    Current liabilities of assets held
for sale
    
    
    
    
    
    
    24,788
    
    
    
    120,094
    
    
    
    
    
    
    
    144,882Total current liabilities
    
    
    202,080
    
    
    
    104,437
    
    
    
    543,507
    
    
    
    
    
    
    
    850,024Long-term debt, net of current
portion
    
    
    400,000
    
    
    
    106,769
    
    
    
    237,358
    
    
    
    
    
    
    
    744,127Other long-term liabilities
    
    
    
    
    
    
    35,481
    
    
    
    1,683
    
    
    
    
    
    
    
    37,164Non-current liabilities of assets
held for sale
    
    
    
    
    
    
    
    
    
    
    7,736
    
    
    
    
    
    
    
    7,736Total liabilities
    
    
    602,080
    
    
    
    246,687
    
    
    
    790,284
    
    
    
    
    
    
    
    1,639,051Stockholders/invested equity
    
    
    (75,790
    )
    
    
    486,827
    
    
    
    795,983
    
    
    
    (506,675
    )
    
    
    700,345Total liabilities and
stockholders equity
    
    $
    526,290
    
    
    $
    733,514
    
    
    $
    1,586,267
    
    
    $
    (506,675
    )
    
    $
    2,339,396
 16




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##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 CONDENSED CONSOLIDATING BALANCE SHEET
At October 31, 2007
 Wholly-owned
    
    
    Non-Quiksilver,
    
    
    Guarantor
    
    
    GuarantorIn thousands
    
    Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    12
    
    
    $
    13,254
    
    
    $
    61,082
    
    
    $
    
    
    
    $
    74,348Trade accounts receivable, net
    
    
    
    
    
    
    199,606
    
    
    
    278,443
    
    
    
    
    
    
    
    478,049Other receivables
    
    
    775
    
    
    
    13,035
    
    
    
    23,518
    
    
    
    
    
    
    
    37,328Inventories
    
    
    
    
    
    
    129,568
    
    
    
    167,895
    
    
    
    (1,296
    )
    
    
    296,167Deferred income taxes
    
    
    
    
    
    
    17,192
    
    
    
    26,584
    
    
    
    
    
    
    
    43,776Prepaid expenses and other
current assets
    
    
    1,596
    
    
    
    7,358
    
    
    
    11,768
    
    
    
    
    
    
    
    20,722Current assets held for sale
    
    
    
    
    
    
    126,823
    
    
    
    437,070
    
    
    
    (1,021
    )
    
    
    562,872Total current assets
    
    
    2,383
    
    
    
    506,836
    
    
    
    1,006,360
    
    
    
    (2,317
    )
    
    
    1,513,262Fixed assets, net
    
    
    6,959
    
    
    
    97,856
    
    
    
    116,552
    
    
    
    
    
    
    
    221,367Intangible assets, net
    
    
    2,626
    
    
    
    47,282
    
    
    
    92,512
    
    
    
    
    
    
    
    142,420Goodwill
    
    
    
    
    
    
    116,627
    
    
    
    282,272
    
    
    
    
    
    
    
    398,899Other assets
    
    
    10,120
    
    
    
    5,941
    
    
    
    26,171
    
    
    
    
    
    
    
    42,232Deferred income taxes long-term
    
    
    
    
    
    
    7,352
    
    
    
    13,184
    
    
    
    
    
    
    
    20,536Investment in subsidiaries
    
    
    569,492
    
    
    
    
    
    
    
    
    
    
    
    (569,492
    )
    
    
    Non-current assets held for sale
    
    
    
    
    
    
    75,652
    
    
    
    247,696
    
    
    
    
    
    
    
    323,348Total assets
    
    $
    591,580
    
    
    $
    857,546
    
    
    $
    1,784,747
    
    
    $
    (571,809
    )
    
    $
    2,662,064LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Lines of credit
    
    $
    
    
    
    $
    
    
    
    $
    124,634
    
    
    $
    
    
    
    $
    124,634Accounts payable
    
    
    2,086
    
    
    
    73,773
    
    
    
    117,064
    
    
    
    
    
    
    
    192,923Accrued liabilities
    
    
    20,287
    
    
    
    38,503
    
    
    
    98,294
    
    
    
    
    
    
    
    157,084Current portion of long-term debt
    
    
    
    
    
    
    
    
    
    
    33,903
    
    
    
    
    
    
    
    33,903Income taxes payable
    
    
    
    
    
    
    5,769
    
    
    
    3,081
    
    
    
    
    
    
    
    8,850Intercompany balances
    
    
    178,353
    
    
    
    (82,412
    )
    
    
    (95,941
    )
    
    
    
    
    
    
    Current liabilities of assets held
for sale
    
    
    
    
    
    
    111,845
    
    
    
    252,166
    
    
    
    
    
    
    
    364,011Total current liabilities
    
    
    200,726
    
    
    
    147,478
    
    
    
    533,201
    
    
    
    
    
    
    
    881,405Long-term debt
    
    
    400,000
    
    
    
    129,700
    
    
    
    169,209
    
    
    
    
    
    
    
    698,909Other long-term liabilities
    
    
    
    
    
    
    10,268
    
    
    
    1,045
    
    
    
    
    
    
    
    11,313Non-current liabilities of assets held
for sale
    
    
    
    
    
    
    60,444
    
    
    
    123,380
    
    
    
    
    
    
    
    183,824Total liabilities
    
    
    600,726
    
    
    
    347,890
    
    
    
    826,835
    
    
    
    
    
    
    
    1,775,451Stockholders/invested equity
    
    
    (9,146
    )
    
    
    509,656
    
    
    
    957,912
    
    
    
    (571,809
    )
    
    
    886,613Total liabilities and
stockholders equity
    
    $
    591,580
    
    
    $
    857,546
    
    
    $
    1,784,747
    
    
    $
    (571,809
    )
    
    $
    2,662,064
 17




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##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended July 31, 2008
 Non-Quiksilver,
    
    
    Guarantor
    
    
    GuarantorIn thousands
    
    Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from operating activities:Net loss
    
    $
    (59,050
    )
    
    $
    (11,519
    )
    
    $
    (154,741
    )
    
    $
    (225,310
    )Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:Loss from discontinued operations
    
    
    819
    
    
    
    28,507
    
    
    
    275,352
    
    
    
    304,678Depreciation and amortization
    
    
    1,689
    
    
    
    19,123
    
    
    
    22,123
    
    
    
    42,935Stock-based compensation
    
    
    6,457
    
    
    
    
    
    
    
    
    
    
    
    6,457Provision for doubtful accounts
    
    
    
    
    
    
    3,243
    
    
    
    4,780
    
    
    
    8,023Asset impairments
    
    
    
    
    
    
    350
    
    
    
    
    
    
    
    350Other adjustments to reconcile net loss
    
    
    188
    
    
    
    370
    
    
    
    1,603
    
    
    
    2,161Changes in operating assets and liabilities:Trade accounts receivables
    
    
    
    
    
    
    (473
    )
    
    
    2,972
    
    
    
    2,499Inventories
    
    
    
    
    
    
    (6,375
    )
    
    
    (39,951
    )
    
    
    (46,326
    )Other operating assets and liabilities
    
    
    7,959
    
    
    
    1,773
    
    
    
    44,725
    
    
    
    54,457Cash (used in) provided by operating activities of
continuing operations
    
    
    (41,938
    )
    
    
    34,999
    
    
    
    156,863
    
    
    
    149,924Cash provided by (used in) operating activities of
discontinued operations
    
    
    4,395
    
    
    
    (16,068
    )
    
    
    (8,493
    )
    
    
    (20,166
    )Net cash (used in) provided by operating activities
    
    
    (37,543
    )
    
    
    18,931
    
    
    
    148,370
    
    
    
    129,758Cash flows from investing activities:Proceeds from the sale of properties and equipment
    
    
    1,930
    
    
    
    147
    
    
    
    657
    
    
    
    2,734Capital expenditures
    
    
    (824
    )
    
    
    (25,166
    )
    
    
    (40,328
    )
    
    
    (66,318
    )Business acquisitions, net of cash acquired
    
    
    
    
    
    
    (24,174
    )
    
    
    (6,953
    )
    
    
    (31,127
    )Cash provided by (used in) investing activities of
continuing operations
    
    
    1,106
    
    
    
    (49,193
    )
    
    
    (46,624
    )
    
    
    (94,711
    )Cash provided by investing activities of discontinued
operations
    
    
    
    
    
    
    94,968
    
    
    
    12,974
    
    
    
    107,942Net cash provided by (used in) investing activities
    
    
    1,106
    
    
    
    45,775
    
    
    
    (33,650
    )
    
    
    13,231Cash flows from financing activities:Borrowings on lines of credit
    
    
    
    
    
    
    
    
    
    
    161,752
    
    
    
    161,752Payments on lines of credit
    
    
    
    
    
    
    
    
    
    
    (22,159
    )
    
    
    (22,159
    )Borrowings on long-term debt
    
    
    
    
    
    
    131,199
    
    
    
    86,360
    
    
    
    217,559Payments on long-term debt
    
    
    
    
    
    
    (154,924
    )
    
    
    (34,413
    )
    
    
    (189,337
    )Stock option exercises, employee stock purchases and
tax benefit on option exercises
    
    
    11,331
    
    
    
    
    
    
    
    
    
    
    
    11,331Intercompany
    
    
    24,571
    
    
    
    (17,583
    )
    
    
    (6,988
    )
    
    
    Cash provided by (used in) financing activities of
continuing operations
    
    
    35,902
    
    
    
    (41,308
    )
    
    
    184,552
    
    
    
    179,146Cash used in financing activities of discontinued
operations
    
    
    
    
    
    
    (35,000
    )
    
    
    (258,456
    )
    
    
    (293,456
    )Net cash provided by (used in) financing activities
    
    
    35,902
    
    
    
    (76,308
    )
    
    
    (73,904
    )
    
    
    (114,310
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    (3,536
    )
    
    
    (3,536
    )Net (decrease) increase in cash and cash equivalents
    
    
    (535
    )
    
    
    (11,602
    )
    
    
    37,280
    
    
    
    25,143Cash and cash equivalents, beginning of period
    
    
    12
    
    
    
    13,254
    
    
    
    61,082
    
    
    
    74,348Cash and cash equivalents, end of period
    
    $
    (523
    )
    
    $
    1,652
    
    
    $
    98,362
    
    
    $
    99,491
 18




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##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended July 31, 2007
 Non-Quiksilver,
    
    
    Guarantor
    
    
    GuarantorIn thousands
    
    Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from operating activities:Net (loss) income
    
    $
    (57,283
    )
    
    $
    9,780
    
    
    $
    37,311
    
    
    $
    (10,192
    )Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:Loss from discontinued operations
    
    
    1,873
    
    
    
    24,827
    
    
    
    56,285
    
    
    
    82,985Depreciation and amortization
    
    
    447
    
    
    
    14,121
    
    
    
    19,459
    
    
    
    34,027Stock-based compensation
    
    
    10,697
    
    
    
    
    
    
    
    
    
    
    
    10,697Provision for doubtful accounts
    
    
    
    
    
    
    2,408
    
    
    
    3,147
    
    
    
    5,555Other adjustments to reconcile net (loss) income
    
    
    431
    
    
    
    (255
    )
    
    
    1,322
    
    
    
    1,498Changes in operating assets and liabilities:Trade accounts receivables
    
    
    
    
    
    
    (28,619
    )
    
    
    (8,529
    )
    
    
    (37,148
    )Inventories
    
    
    
    
    
    
    (10,488
    )
    
    
    (37,913
    )
    
    
    (48,401
    )Other operating assets and liabilities
    
    
    10,503
    
    
    
    945
    
    
    
    67,535
    
    
    
    78,983Cash (used in) provided by operating activities of
continuing operations
    
    
    (33,332
    )
    
    
    12,719
    
    
    
    138,617
    
    
    
    118,004Cash provided by (used in) operating activities of
discontinued operations
    
    
    3,604
    
    
    
    (8,768
    )
    
    
    10,398
    
    
    
    5,234Net cash (used in) provided by operating activities
    
    
    (29,728
    )
    
    
    3,951
    
    
    
    149,015
    
    
    
    123,238Cash flows from investing activities:Proceeds from the sale of properties and equipment
    
    
    
    
    
    
    4,463
    
    
    
    1,291
    
    
    
    5,754Capital expenditures
    
    
    (1,058
    )
    
    
    (25,740
    )
    
    
    (27,205
    )
    
    
    (54,003
    )Business acquisitions, net of cash acquired
    
    
    (752
    )
    
    
    (20,138
    )
    
    
    (13,352
    )
    
    
    (34,242
    )Cash used in investing activities of continuing
operations
    
    
    (1,810
    )
    
    
    (41,415
    )
    
    
    (39,266
    )
    
    
    (82,491
    )Cash used in investing activities of discontinued
operations
    
    
    
    
    
    
    (2,103
    )
    
    
    (16,849
    )
    
    
    (18,952
    )Net cash used in investing activities
    
    
    (1,810
    )
    
    
    (43,518
    )
    
    
    (56,115
    )
    
    
    (101,443
    )Cash flows from financing activities:Borrowings on lines of credit
    
    
    
    
    
    
    
    
    
    
    40,641
    
    
    
    40,641Payments on lines of credit
    
    
    
    
    
    
    
    
    
    
    (17,247
    )
    
    
    (17,247
    )Borrowings on long-term debt
    
    
    
    
    
    
    89,500
    
    
    
    8,425
    
    
    
    97,925Payments on long-term debt
    
    
    
    
    
    
    (61,005
    )
    
    
    (25,164
    )
    
    
    (86,169
    )Stock option exercises, employee stock purchases and
tax benefit on option exercises
    
    
    12,415
    
    
    
    
    
    
    
    
    
    
    
    12,415Intercompany
    
    
    18,081
    
    
    
    27,884
    
    
    
    (45,965
    )
    
    
    Cash provided by (used in) financing activities of
continuing operations
    
    
    30,496
    
    
    
    56,379
    
    
    
    (39,310
    )
    
    
    47,565Cash used in financing activities of discontinued
operations
    
    
    
    
    
    
    (12,119
    )
    
    
    (14,534
    )
    
    
    (26,653
    )Net cash provided by (used in) financing activities
    
    
    30,496
    
    
    
    44,260
    
    
    
    (53,844
    )
    
    
    20,912Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    (3,534
    )
    
    
    (3,534
    )Net (decrease) increase in cash and cash equivalents
    
    
    (1,042
    )
    
    
    4,693
    
    
    
    35,522
    
    
    
    39,173Cash and cash equivalents, beginning of period
    
    
    8
    
    
    
    3,392
    
    
    
    33,434
    
    
    
    36,834Cash and cash equivalents, end of period
    
    $
    (1,034
    )
    
    $
    8,085
    
    
    $
    68,956
    
    
    $
    76,007
 19




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##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 11.
    
    Discontinued OperationsIn August 2008, the Company received a binding offer for its Rossignol business for a
purchase price of 100.0 million euros, comprised of 75.0 million euros in cash and a 25.0
million euro sellers note. The purchase price will be adjusted for certain items including
a working capital adjustment and an anticipated fair value adjustment to the sellers note.
The closing of this transaction is subject to financing and other
conditions, and is
expected to close in the fall of 2008 after receipt of the required regulatory approvals and
the completion of required employee consultation procedures, primarily in France. The
business to be sold includes the related brands of Rossignol, Dynastar, Look and Lange.
During the three months ended April 30, 2008, the Company had 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 SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. 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 Rossignols 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 three months ended July 31, 2008, the Company performed the same assessment and
recorded additional impairments of approximately $6.9 million, primarily consisting of fixed
assets. Upon closing of the announced transaction, the Company expects to record additional
losses as the value of the net assets to be sold is expected to exceed net sales proceeds.
The actual losses to be incurred upon closing are currently estimated to be between $150
million and $200 million, net of expected tax benefits.In October 2007, the Company entered into an agreement to sell its golf equipment
business which includes 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. The golf equipment business assets are classified as held for sale
and the operations of the golf equipment business are classified as discontinued operations
for all periods presented. The Company closed this transaction during December 2007. The
Company used the net proceeds from this sale to repay indebtedness.The operating results of discontinued operations for both wintersports and golf equipment
included in the accompanying consolidated statements of operations are as follows:
 Three Months EndedJuly 31,In thousands
    
    2008
    
    
    2007Revenues, net
    
    $
    28,636
    
    
    $
    84,165Loss before income taxes
    
    
    (33,783
    )
    
    
    (55,055
    )Benefit for income taxes
    
    
    (3,564
    )
    
    
    (11,486
    )Loss from discontinued operations
    
    $
    (30,219
    )
    
    $
    (43,569
    )
 Nine Months EndedJuly 31,2008
    
    
    2007Revenues, net
    
    $
    185,797
    
    
    $
    309,275Loss before income taxes
    
    
    (368,667
    )
    
    
    (106,931
    )Benefit for income taxes
    
    
    (63,989
    )
    
    
    (23,946
    )Loss from discontinued operations
    
    $
    (304,678
    )
    
    $
    (82,985
    )
 20




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##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Asset impairments of $6.9 million and $247.1 million are included in loss before income
taxes for the three and nine months ended July 31, 2008, respectively. The net tax benefit
related to the asset impairment and the Companys classification of Rossignol and Cleveland
Golf as discontinued operations is approximately $2.6 million and $42.5 million during the
three and nine month periods ended July 31, 2008, respectively, and is included as a
component of the benefit for income taxes.The components of assets and liabilities held for sale are as follows:
 July 31,In thousands
    
    2008Current assets:Receivables, net
    
    $
    106,125Inventories
    
    
    207,501Other current assets
    
    
    45,206$
    358,832Current liabilities:Lines of credit and current debt
    
    $
    18,826Accounts payable
    
    
    74,612Other current liabilities
    
    
    51,444$
    144,882Non-current liabilities:Other non-current liabilities
    
    $
    7,736
 During the three months ended April 30, 2008 the Company reclassified a 50.0 million euro
term loan of Rossignol to short term as it was expected to be out of compliance with certain
profitability covenants to be measured on October 31, 2008. During the three months ended
July 31, 2008 the Company transferred the ownership of this debt to a non-Rossignol
subsidiary of the Company and obtained an amendment to the debt agreement to remove the
profitability covenants. This term loan is due in July 2010 and is classified in long-term
debt in the Companys balance sheet as of July 31, 2008.As a result of the transfer of ownership of this debt to a non-Rossignol subsidiary during
the three months ended July 31, 2008, the term loan was reclassified to continuing
operations, whereas at April 30, 2008 it was classified as discontinued operations. This
non-cash activity is presented in the Companys statement of cash flows as a borrowing on
long-term debt in cash flows from financing activities of continuing operations, and as cash
used in financing activities of discontinued operations.12.
    
    Income TaxesOn November 1, 2007, the Company adopted FIN 48. The evaluation of a tax position in
accordance with FIN 48 is a two-step process. The Company first is required to determine
whether an uncertain tax position may be recognized when it is more likely than not that a
tax position will be sustained upon examination, including resolution of any related appeals
or litigation processes, based on the technical merits of the position. A tax position that
meets the more-likely-than-not threshold is then measured to determine the
amount of benefit to recognize in the financial statements. If a tax position does not meet
the more-likely-than-not threshold, no benefit can be recognized.
 21




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QUIKSILVER, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 As a result of the adoption of FIN 48, the Company recognized a $21.3 million reduction in
retained earnings as of November 1, 2007. This adjustment consisted of an increase in the
Companys liability for unrecognized tax benefits of $30.4 million partially offset by an
increase to the Companys deferred tax assets of $2.0 million and an increase in the
Companys taxes receivable of $7.1 million. The total balance of unrecognized tax benefits,
including interest and penalties, was $37.4 million as of
November 1, 2007. The total amount of unrecognized tax benefits that, if recognized, would have had an impact
on the effective tax rate was $20.4 million before interest and penalties as of November 1,
2007.The Company includes interest and penalties related to unrecognized tax benefits in its
provision for income taxes in the accompanying condensed consolidated statements of
operations. Accrued interest and penalties are included in income taxes payable in the
condensed consolidated balance sheets. As of November 1, 2007, the Company had accrued $7.8
million in interest and penalties related to uncertain tax positions.The Companys significant jurisdictions, including the United States, France, Australia and
Canada, are subject to normal and regular examination for various years beginning in fiscal
year 2000. The Company completed a tax audit in the United States for fiscal years ending
2004 and 2005 and is currently under examination in France, Australia and Canada.The Company has evaluated its tax positions for which it is reasonably possible that the
total amounts of unrecognized tax benefits will significantly increase or decrease within 12
months. During the next 12 months, it is reasonably possible that the Companys liability
for uncertain tax positions may decrease by a significant amount as a result of the
resolution or payment of uncertain tax positions relating to intercompany transactions
between foreign affiliates and certain foreign withholding tax exposures. The liability
would decrease as a result of filing amended returns and paying the liabilities, resolving
the uncertainties in connection with a current tax examination, or the lapse of a statute of
limitation for such examination. The range of the decrease in the FIN 48 tax liability
which is reasonably possible in the next 12 months is not expected to exceed $11.8 million
before interest and penalties. During the three months ended July 31, 2008, the Company
recorded an $8.7 million reduction to the FIN 48 liability as a result of the resolution of
certain tax contingences during this period.Conclusion of the above matters could result in settlements for different amounts than the
Company has accrued as uncertain tax benefits. If a position for which the Company
concluded it was more likely than not that the tax position would be sustained is
subsequently not upheld, 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 those which have been accrued or extinguish a position through payment.13.
    
    Subsequent eventsIn August 2008, the Company received a binding offer for its Rossignol business for a
purchase price of 100.0 million euros, comprised of 75.0 million euros in cash and a 25.0
million euro sellers note. The purchase price will be adjusted for certain items including
a working capital adjustment and an anticipated fair value adjustment to the sellers
note. The closing of this transaction is subject to financing and
other conditions, and is
expected to close in the fall of 2008 after receipt of required regulatory approvals and the
completion of required employee consultation procedures, primarily in France. The business
to be sold includes the related brands of Rossignol, Dynastar, Look and Lange.In August 2008, certain of the Companys European subsidiaries entered into 100.0 million
euro secured financing facility which expires in August 2011. Under this facility, the
Company may borrow up to 100.0 million euros based upon the amount of accounts receivable
that are assigned to the lender to secure the debt. Outstanding borrowings under this
facility accrue interest at a rate of Euribor plus 0.55% plus
certain fees which are subject to a minimum of approximately $0.4 million annually. As of
September 9, 2008 the Company has approximately $57.2 million of borrowings outstanding
under this facility.
 22




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Quiksilver Quiksilver Quiksilver Roxy Boardriders Clubs Quiksilver Roxy Quiksilver Roxy
 Quiksilver
  Rossignol Dynastar Look Lange
 23




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##### Table of Contents



Results of Operations
  Three Months Ended
    
    Nine Months EndedJuly 31,
    
    July 31,Statements of Operations data
    
    2008
    
    2007
    
    2008
    
    2007Revenues, net
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    50.4
    
    
    
    47.7
    
    
    
    50.0
    
    
    
    47.7Selling, general and administrative expense
    
    
    41.1
    
    
    
    36.8
    
    
    
    41.3
    
    
    
    38.8Operating income
    
    
    9.3
    
    
    
    10.9
    
    
    
    8.7
    
    
    
    9.0Interest expense
    
    
    2.1
    
    
    
    2.2
    
    
    
    2.2
    
    
    
    2.4Foreign currency, minority interest and
other (income) expense
    
    
    (0.2
    )
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    0.2Income before provision for income taxes
    
    
    7.4
    
    
    
    8.6
    
    
    
    6.6
    
    
    
    6.4Other dataAdjusted EBITDA(1)
    
    
    12.7
    %
    
    
    13.9
    %
    
    
    11.9
    %
    
    
    12.0
    %
 
 (1)
    
    Adjusted EBITDA is defined as income 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 other GAAP measures, as a measure of profitability because Adjusted
EBITDA helps us to compare our performance on a consistent basis by removing from our
operating results the impact of our capital structure, the effect of operating in
different tax jurisdictions, the impact of our asset base, which can differ depending on
the book value of assets, the accounting methods used to compute depreciation and
amortization, the existence or timing of asset impairments and the effect of non-cash
stock-based compensation expense. We believe EBITDA is useful to investors as it is a
widely used measure of performance and the adjustments we make to EBITDA provide further
clarity on our profitability. We remove 24




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##### Table of Contents



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 income from continuing
operations to Adjusted EBITDA: Three Months Ended
    
    
    Nine Months EndedJuly 31,
    
    
    July 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Income from continuing operations
    
    $
    33,073
    
    
    $
    35,702
    
    
    $
    79,368
    
    
    $
    72,793Provision for income taxes
    
    
    8,677
    
    
    
    9,783
    
    
    
    29,273
    
    
    
    20,870Interest expense
    
    
    11,801
    
    
    
    11,881
    
    
    
    35,845
    
    
    
    35,420Depreciation and amortization
    
    
    14,842
    
    
    
    12,240
    
    
    
    42,935
    
    
    
    34,027Non-cash stock-based compensation expense
    
    
    3,320
    
    
    
    3,895
    
    
    
    9,871
    
    
    
    12,620Non-cash asset impairments
    
    
    
    
    
    
    
    
    
    
    350
    
    
    
    Adjusted EBITDA
    
    $
    71,713
    
    
    $
    73,501
    
    
    $
    197,642
    
    
    $
    175,730
 
 Three Months Ended July 31, 2008 Compared to Three Months Ended July 31, 2007
 Quiksilver Roxy DC Hawk Raisins Leilani Radio Fiji, Lib Technologies, Gnu Bent Metal Quiksilver Roxy DC Roxy DC Quiksilver Roxy DC Quiksilver Roxy Quiksilver DC
  25




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##### Table of Contents



Nine Months Ended July 31, 2008 Compared to Nine Months Ended July 31, 2007
  DC Quiksilver Roxy DC Quiksilver Roxy Quiksilver DC Roxy DC Roxy
 26




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##### Table of Contents



Roxy Quiksilver DC
     FIN 48.
  
 Financial Position, Capital Resources and Liquidity
  27




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##### Table of Contents



Cash Flows
  28




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##### Table of Contents



Trade Accounts Receivable and Inventories
   Commitments
  
 Critical Accounting Policies
  29




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##### Table of Contents



Revenue Recognition
  Accounts Receivable
  Inventories
  
    
    weakening economic conditions;
    
    terrorist acts or threats;
    
    unanticipated changes in consumer preferences;
    
    reduced customer confidence in the retail market; and
    
    unseasonable weather.
  Long-Lived Assets
  Goodwill
  30




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##### Table of Contents



Stock-Based Compensation Expense
   Income Taxes
   Foreign Currency Translation
   31




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##### Table of Contents



New Accounting Pronouncements
  
 Forward-Looking Statements
  
    
    our ability to close the pending sale of our Rossignol business and the price at which we
do so;
 
    
    our ability to obtain additional financing or to do so on reasonable terms:
 
    
    our ability to remain compliant with our debt covenants;
 
    
    our ability to achieve the financial results that we anticipate;
 
    
    our plans to expand internationally;
 
    
    our intention to introduce new products and enter into new joint ventures;
 
    
    our plans to open new retail stores;
 
    
    payments due on contractual commitments;
 
    
    future expenditures for capital projects;
 
    
    our ability to continue to maintain our brand image and reputation;
 
    
    integration of acquired businesses and future acquisitions;
 
    
    our ability to realize the expected benefits from certain asset dispositions;
 
    
    general economic and business conditions;
 
    
    foreign exchange rate fluctuations; and
 
    
    changes in political, social and economic conditions and local regulations, particularly in
Europe and Asia.
  32




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Foreign Currency
     
 Item 4. Controls and Procedures
    33




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##### Table of Contents



Item 1. Legal Proceedings
 Burnis L. Simon, Jr. v. Quicksilver, Inc.
(sic)
 
 Item 1A. Risk Factors
 Our
financial condition, results of operations and share price could be negatively impacted if we
are unable to sell the Rossignol Group in a timely manner.
 Rossignol Dynastar Look Lange
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  34




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##### Table of Contents



Item 6. Exhibits
 Exhibits
 2.1
    
    Stock Purchase Agreement between the Roger Cleveland Golf Company, Inc.,
Rossignol Ski Company, Incorporated, the Company and SRI Sports Limited dated
October 30, 2007 (incorporated by reference to Exhibit 2.3 of the Companys 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, the Company and SRI Sports
Limited dated December 7, 2007 (incorporated by reference to Exhibit 2.4 of the
Companys 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 Companys Current Report on Form 8-K
filed on August 27, 2008).3.1
    
    Restated Certificate of Incorporation of Quiksilver, Inc., as amended
(incorporated by reference to Exhibit 3.1 of the Companys 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 Companys Quarterly
Report on Form 10-Q for the quarter ended April 30, 2005).3.3
    
    Amended and Restated Bylaws of Quiksilver, Inc. (incorporated by reference to
Exhibit 3.1 of the Companys 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 Companys Current Report on Form 8-K filed July 25,
2005).10.1
    
    Seventh Amendment to Amended and Restated Credit Agreement dated July 31, 2008.10.2
    
    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
Companys Current Report on Form 8-K filed on August 5, 2008).10.3
    
    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 Companys Current
Report on Form 8-K filed on August 27, 2008).10.4
    
    Separation and Transition Agreement between David H. Morgan and Quiksilver, Inc.
dated August 24, 2008 (incorporated by reference to Exhibit 10.3 of the Companys
Current Report on Form 8-K filed on August 27, 2008). (1)10.5
    
    Amendment to Employment Agreement between Joseph Scirocco and Quiksilver, Inc.
dated June 13, 2008. (1)10.6
    
    English Translation of Amendment No.1 to the Credit Facility Agreement by and
among Pilot SAS, the Banks named therein, BNP Paribas as the Security Agent and Societe
Generale as the Credit Agent, dated August 14, 2008.
 35




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##### Table of Contents



31.1
    
    Rule 13a-14(a)/15d-14(a)
Certifications  Principal Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a)
Certifications  Principal Financial Officer32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2003  Chief Executive Officer32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2003  Chief Financial Officer
 
 (1)
    
    Management contract or compensatory plan 36




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##### Table of Contents



QUIKSILVER, INC., a Delaware corporationSeptember 9, 2008
    /s/ Brad L. HolmanBrad L. HolmanVice President of Accounting and Financial Reporting
(Principal Accounting Officer and Authorized Signatory) 37




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##### Table of Contents



Exhibit
Index
 Exhibit
No.
    
    Description2.1
    
    Stock Purchase Agreement between the Roger Cleveland Golf Company, Inc.,
Rossignol Ski Company, Incorporated, the Company and SRI Sports Limited dated
October 30, 2007 (incorporated by reference to Exhibit 2.3 of the Companys 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, the Company and SRI Sports
Limited dated December 7, 2007 (incorporated by reference to Exhibit 2.4 of the
Companys 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 Companys Current Report on Form 8-K
filed on August 27, 2008).3.1
    
    Restated Certificate of Incorporation of Quiksilver, Inc., as amended
(incorporated by reference to Exhibit 3.1 of the Companys 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 Companys Quarterly
Report on Form 10-Q for the quarter ended April 30, 2005).3.3
    
    Amended and Restated Bylaws of Quiksilver, Inc. (incorporated by reference to
Exhibit 3.1 of the Companys 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 Companys Current Report on Form 8-K filed July 25,
2005).10.1
    
    Seventh Amendment to Amended and Restated Credit Agreement dated July 31, 2008.10.2
    
    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
Companys Current Report on Form 8-K filed on August 5, 2008).10.3
    
    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 Companys Current
Report on Form 8-K filed on August 27, 2008).10.4
    
    Separation and Transition Agreement between David H. Morgan and Quiksilver, Inc.
dated August 24, 2008 (incorporated by reference to Exhibit 10.3 of the Companys
Current Report on Form 8-K filed on August 27, 2008). (1)10.5
    
    Amendment to Employment Agreement between Joseph Scirocco and Quiksilver, Inc.
dated June 13, 2008. (1)10.6
    
    English Translation of Amendment No.1 to the Credit Facility Agreement by and
among Pilot SAS, the Banks named therein, BNP Paribas as the Security Agent and Societe
Generale as the Credit Agent, dated August 14, 2008.31.1
    
    Rule 13a-14(a)/15d-14(a)
Certifications  Principal Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a)
Certifications  Principal Financial Officer32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2003  Chief Executive Officer32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2003  Chief Financial Officer
 
 (1)
    
    Management contract or compensatory plan