##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended October 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number 0-15131
 QUIKSILVER, INC.
  Delaware
    
    33-0199426(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)15202 Graham StreetHuntington Beach, California
    
    92649(Address of principal executive offices)
    
    (Zip Code)
 (714) 889-2200
  Title of
    
    Name of each exchangeeach class
    
    on which registeredCommon Stock
    
    New York Stock Exchange
 None  (Title of class)
 Yes þ No o
 Yes o No þ
 Yes þ No o
 þ
 Yes þ No o
 Yes o No þ
   DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



TABLE OF CONTENTS
 PagePART IItem 1.
    
    BUSINESSIntroduction
    
    
    1Segment Information
    
    
    2Products and Brands
    
    
    2Product Categories
    
    
    3Product Design
    
    
    4Promotion and Advertising
    
    
    4Customers and Sales
    
    
    5Retail Concepts
    
    
    6Seasonality
    
    
    7Production and Raw Materials
    
    
    7Imports and Import Restrictions
    
    
    8Trademarks and Licensing Agreements
    
    
    9Competition
    
    
    9Future Season Orders
    
    
    10Employees
    
    
    10Environmental Matters
    
    
    10Available Information
    
    
    10Forward-Looking Statements
    
    
    11Item 1A.
    
    RISK FACTORS
    
    
    12Item 1B.
    
    UNRESOLVED STAFF COMMENTS
    
    
    19Item 2.
    
    PROPERTIES
    
    
    19Item 3.
    
    LEGAL PROCEEDINGS
    
    
    20Item 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    20PART IIItem 5.
    
    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    21Item 6.
    
    SELECTED FINANCIAL DATA
    
    
    21Item 7.
    
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    23Item 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    37Item 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    38Item 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    38Item 9A.
    
    CONTROLS AND PROCEDURES
    
    
    38Item 9B.
    
    OTHER INFORMATION
    
    
    42PART IIIItem 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    43Item 11.
    
    EXECUTIVE COMPENSATION
    
    
    43Item 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    43Item 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    43Item 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    43PART IVItem 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    44INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    45SIGNATURES
    
    
    81Exhibit 10.5Exhibit 10.6Exhibit 10.20Exhibit 12.1Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




---



##### Table of Contents



PART I
 
 Item 1. BUSINESS
  
 Introduction
  Quiksilver
  Boardriders Club
 Quiksilver Roxy Quiksilvers Quiksilver
 1




---



##### Table of Contents



Segment Information
  
 Products and Brands
 Quiksilver Roxy Rossignol, Dynastar, Look, Lange Kerma
 Quiksilver
 Quiksilver Quiksilver Quiksilveredition Quiksilver
 Roxy
 Roxy Teenie Wahine Roxy Girl Roxy Roxy
 DC
 DC DCs DC
 Rossignol and Other Wintersports Brands
 Rossignol Rossignol
 2




---



##### Table of Contents




    
    DynastarDynastarsymbolizes technically
specific skis for committed skiers to use in
all the different experiences of alpine sports.
Dynastarhas a heritage of racing and
performance.
    
    LangeLangeis a ski boot brand, combining its
race boot prowess with a commitment to building
better, more comfortable boots for dedicated
skiers of every type.
    
    LookLookbindings have a winning history in
alpine ski racing. The focus of the Lookbrand
is the production of high quality, innovative
release bindings that perform at the highest
level.
    
    KermaWe produce poles that complement our ski
products from both a technical and aesthetic
viewpoint under the Kermabrand.
    
    Lib Technologies, Gnu, Bent MetalWe address
the core snowboard market through our Lib
Technologiesand Gnubrands of snowboards and
accessories and Bent Metalsnowboard bindings.
 Other Apparel Brands
  
    
    Raisins, Radio Fiji, LeilaniRaisinsand Radio Fijiare swimwear labels for the
juniors market, while Leilaniis our contemporary swimwear label.
    
    HawkTony Hawk, the world-famous skateboarder, is the inspiration for our Hawk
brand. Our Hawkproduct line targets boys and young men who identify with the
skateboarding lifestyle and recognize Tony Hawk from his broad media and video game
exposure.
    
    GotchaGotchais one of our European labels and is designed to address European
street fashion for young men.
 Cleveland Golf
 Cleveland
Golf Launcher CG Never
Compromise Cleveland Golf
 
 Product Categories
  Percentage of Revenues2005
    
    2004
    
    2003T-Shirts
    
    
    18
    %
    
    
    19
    %
    
    
    20
    %Accessories
    
    
    12
    
    
    
    14
    
    
    
    14Jackets, sweaters and technical outerwear.
    
    
    11
    
    
    
    12
    
    
    
    12Footwear
    
    
    11
    
    
    
    9
    
    
    
    5Wintersports equipment
    
    
    9
    
    
    
    2
    
    
    
    1Pants
    
    
    8
    
    
    
    10
    
    
    
    11Shirts
    
    
    7
    
    
    
    9
    
    
    
    10Swimwear, excluding boardshorts
    
    
    6
    
    
    
    7
    
    
    
    8Fleece
    
    
    4
    
    
    
    5
    
    
    
    6Shorts
    
    
    4
    
    
    
    5
    
    
    
    6Boardshorts
    
    
    4
    
    
    
    4
    
    
    
    4Tops and dresses
    
    
    4
    
    
    
    4
    
    
    
    3Golf clubs
    
    
    2
    
    
    
    
    
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  3




---



##### Table of Contents



Product Design
   
 Promotion and Advertising
   Quiksilvers Eddie Aikau Big Wave Invitational Roxy Pro Slopestyle Pro Bowlriders DC Quiksilver X-Games Winter
Olympics Ski World Cup Ski World
 4




---



##### Table of Contents



Cup, Winter Olympics, Freeride World Cup Winter X-Games
 Surfer Surfing Snowboard Canada Transworld
Skateboarding Golf Digest, Powder, Skieur Freeride MTV Riding Giants Union
 
 Customers and Sales
  Boardriders Clubs
  Quiksilver Roxy Roxy Quiksilver DC Raisins Leilani Radio Fiji Rossignol Dynastar Look Lange Kerma Lib Technologies, Bent Metal Gnu Cleveland Golf Never Compromise Quiksilver Roxy
   5




---



##### Table of Contents



Percentage of RevenuesDistribution Channel
    
    Americas
    
    Europe
    
    Asia/Pacific
    
    ConsolidatedCore market shops
    
    
    26
    %
    
    
    37
    %
    
    
    81
    %
    
    
    37
    %Specialty stores
    
    
    49
    
    
    
    41
    
    
    
    5
    
    
    
    41Department stores
    
    
    15
    
    
    
    5
    
    
    
    10
    
    
    
    10U.S. exports
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    5Distributors
    
    
    
    
    
    
    17
    
    
    
    4
    
    
    
    7Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Geographic segment
    
    
    48
    %
    
    
    40
    %
    
    
    12
    %
    
    
    100
    %
    Percentage of RevenuesGeographic Region
    
    2005
    
    2004
    
    2003United States
    
    
    42
    %
    
    
    44
    %
    
    
    45
    %Other Americas
    
    
    6
    
    
    
    5
    
    
    
    5France
    
    
    15
    
    
    
    15
    
    
    
    16United Kingdom and Spain
    
    
    12
    
    
    
    14
    
    
    
    15Other European countries
    
    
    13
    
    
    
    10
    
    
    
    9Asia/Pacific
    
    
    12
    
    
    
    12
    
    
    
    10Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
   
 Retail Concepts
 Quiksilver Boardriders Clubs Quiksilver Roxy Roxy Quiksilver Youth Hawk Gotcha Andaska Rossignol Quiksilver Roxy
 6




---



##### Table of Contents



Boardriders Clubs.
 Number of StoresAmericas
    
    Europe
    
    Asia/Pacific
    
    CombinedCompany
    
    
    
    
    
    Company
    
    
    
    
    
    Company
    
    
    
    
    
    CompanyStore Concept
    
    Owned
    
    Licensed
    
    Owned
    
    Licensed
    
    Owned
    
    Licensed
    
    Owned
    
    LicensedBoardriders
Clubs
    
    
    33
    
    
    
    11
    
    
    
    65
    
    
    
    128
    
    
    
    16
    
    
    
    19
    
    
    
    114
    
    
    
    158Roxystores
    
    
    3
    
    
    
    1
    
    
    
    18
    
    
    
    7
    
    
    
    8
    
    
    
    3
    
    
    
    29
    
    
    
    11Outlet stores
    
    
    31
    
    
    
    4
    
    
    
    15
    
    
    
    
    
    
    
    14
    
    
    
    1
    
    
    
    60
    
    
    
    5Other stores
    
    
    3
    
    
    
    2
    
    
    
    6
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    470
    
    
    
    18
    
    
    
    104
    
    
    
    137
    
    
    
    38
    
    
    
    23
    
    
    
    212
    
    
    
    178
 
 Seasonality
  Consolidated RevenuesDollar amounts in thousands
    
    2005
    
    2004
    
    2003Quarter ended January 31
    
    $
    342,860
    
    
    
    19
    %
    
    $
    256,142
    
    
    
    20
    %
    
    $
    192,080
    
    
    
    20
    %Quarter ended April 30
    
    
    426,853
    
    
    
    24
    
    
    
    322,579
    
    
    
    25
    
    
    
    262,210
    
    
    
    27Quarter ended July 31
    
    
    373,751
    
    
    
    21
    
    
    
    337,930
    
    
    
    27
    
    
    
    251,498
    
    
    
    26Quarter ended October 31
    
    
    637,405
    
    
    
    36
    
    
    
    350,288
    
    
    
    28
    
    
    
    269,217
    
    
    
    27$
    1,780,869
    
    
    
    100
    %
    
    $
    1,266,939
    
    
    
    100
    %
    
    $
    975,005
    
    
    
    100
    %
 
 Production and Raw Materials
  7




---



##### Table of Contents



Imports and Import Restrictions
    8




---



##### Table of Contents



Trademarks and Licensing Agreements
 Trademarks
 Quiksilver" Roxy Raisins , Radio Fiji, Leilani,
Quiksilveredition, Hawk, Fidra, Lib Tech, Gnu and Bent Metal, DCSHOECOUSA Rossignol" Dynastar" Lange" Look" Kerma" Cleveland Golf Never Compromise
  Licensing Agreements
 Quiksilver Roxy Quiksilver Roxy
 Gotcha Quiksilver Roxy
 Hawk Hawk Hawk Hawk Hawk Hawk Boardriders Clubs
 
 Competition
 Boardriders Clubs
 9




---



##### Table of Contents




    
    maintain our reputation for authenticity in the core boardriding and outdoor sports lifestyle demographics;
    
    continue to develop and respond to global fashion and lifestyle trends in our core markets;
    
    create innovative, high quality and stylish product at appropriate price points;
    
    continue to develop leading technologies in ski and golf equipment; and
    
    convey our outdoor sports lifestyle messages to consumers worldwide.
 
 Future Season Orders
  
 Employees
  
 Environmental Matters
  
 Available Information
  10




---



##### Table of Contents



Forward-Looking Statements
  
    
    our ability to fully realize the benefits we anticipate from our acquisition of Rossignol;
    
    the impact of our substantial leverage on our ability to generate cash flows or obtain financing to fund our
anticipated growth strategies and the cost of such financing;
    
    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;
    
    our ability to remain compliant with our debt covenants;
    
    integration of acquired businesses and future acquisitions;
    
    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.
  11




---



##### Table of Contents



Item 1A. RISK FACTORS
  Many factors may cause our net revenues, operating results and cash flows to fluctuate and possibly
decline which may result in declines in our stock price.
  
    
    fluctuations in market demand for our products;
    
    increased competition and pricing pressures;
    
    our ability to anticipate changing customer demands and preferences;
    
    our failure to efficiently manage our inventory levels;
    
    our inability to manage and maintain our debt obligations;
    
    seasonality in our business;
    
    maintaining our existing, or entry into new, sponsorships with our professional athletes;
    
    changes in our, and our competitors, business strategy or pricing;
    
    the timing of certain general and administrative expenses;
    
    completing acquisitions and the costs of integrating acquired operations;
    
    international currency fluctuations, operating challenges and trade regulations; and
    
    expenses related to the issuance of stock options to our employees.
  The apparel, sporting goods and footwear industries are each highly competitive, and if we fail to
compete effectively, we could lose our market position.
   12




---



##### Table of Contents



If we are unable to develop innovative and stylish products in response to rapid changes in
consumer demands and fashion trends, we may suffer a decline in our revenues and market share.
     War, acts of terrorism, or the threat of either could have an adverse effect on our ability to
procure our products and on the United States and/or international economies.
  Changes in foreign currency exchange or interest rates could affect our revenues and costs.
   13




---



##### Table of Contents



Our business could be harmed if we fail to maintain proper inventory levels.
  Our current and potential future acquisitions and related financings may place a significant debt
burden on us.
  Our significant debt obligations could limit our flexibility in managing our business and expose us
to certain risks.
  
    
    we may have difficulty satisfying our obligations under our senior notes or other indebtedness and, if we fail to
comply with these requirements, an event of default could result;
    
    we may be required to dedicate a substantial portion of our cash flow from operations to required payments on
indebtedness, thereby reducing the availability of cash flow for working capital, capital expenditures and other
general corporate activities;
    
    covenants relating to our indebtedness may limit our ability to obtain additional financing for working capital,
capital expenditures and other general corporate activities;
    
    covenants relating to our indebtedness may limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
    
    we may be more vulnerable to the impact of economic downturns and adverse developments in our business; and
    
    we may be placed at a competitive disadvantage against any less leveraged competitors.
  Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt
service obligations to increase significantly.
  Our success is dependent on our ability to protect our worldwide intellectual property rights, and
our inability to enforce these rights could harm our business.
  14




---



##### Table of Contents



Our products may infringe the intellectual property rights of others, which may cause us to incur
unexpected costs or prevent us from selling our products.
  Our current executive officers and management are critical to our success, and the loss of any of
these individuals could harm our business, brands and image.
  If we are unable to maintain and expand our endorsements by professional athletes, our ability to
market and sell our products may be harmed.
   15




---



##### Table of Contents



We could be negatively impacted if we fail to successfully integrate the businesses we acquire.
  
    
    distracting management from our business operations;
    
    losing key personnel and other employees;
    
    costs, delays, and inefficiencies associated with integrating acquired operations and personnel;
    
    the impairment of acquired assets and goodwill; and
    
    acquiring the contingent and other liabilities of the businesses we acquire.
   As a result of our acquisition of Rossignol, we face greater challenges in managing several brands.
  Employment related matters, such as unionization, may affect our profitability.
  We may be subject to restrictions due to our minority interest in Cleveland Golf.
  16




---



##### Table of Contents



Cyclical trends in apparel, sporting goods and footwear retailing could have a material adverse
effect on our results of operations.
  The demand for our products is seasonal and sales are dependent upon the weather.
  Factors affecting international commerce and our international operations may seriously harm our
financial condition.
  
    
    recessions in foreign economies;
    
    the adoption and expansion of trade restrictions;
    
    limitations on repatriation of earnings;
    
    difficulties in protecting our intellectual property or enforcing our intellectual property rights under the laws of
other countries;
    
    longer receivables collection periods and greater difficulty in collecting accounts receivable;
    
    difficulties in managing foreign operations;
    
    social, political and economic instability;
    
    unexpected changes in regulatory requirements;
    
    our ability to finance foreign operations;
    
    tariffs and other trade barriers; and
    
    U.S. government licensing requirements for exports.
  If the popularity of the sports associated with our brands were to decrease, our revenues could be
adversely affected and our results of operations could be impaired.
  17




---



##### Table of Contents



Our industry is subject to pricing pressures that may adversely impact our financial performance.
  
    
    we are forced to reduce our prices and we cannot reduce our production costs; or
    
    our production costs increase and we cannot increase our prices.
 Changing international trade regulations and the elimination of quotas on imports of textiles and
apparel may increase competition in the apparel industry.
  
    
    quotas imposed by bilateral textile agreements between the
countries where our apparel-producing facilities are located and
foreign countries; and
    
    customs duties imposed by the governments where our
apparel-producing facilities are located on imported products,
including raw materials.
   We rely on third-party manufacturers and problems with, or loss of, our suppliers or raw materials
could harm our business and results of operations.
   18




---



##### Table of Contents



Our failure to comply with, or the imposition of liability under, environmental laws and
regulations could result in significant costs.
  
 Item 1B. UNRESOLVED STAFF COMMENTS
  
 Item 2. PROPERTIES
  Approximate
    
    Current LeaseLocation
    
    Principal Use
    
    Sq. Ft.
    
    ExpirationHuntington Beach, California
    
    Corporate headquarters
    
    
    120,000
    
    
    
    2023
    *St Etienne de Crossey, France
    
    Wintersports manufacturing
    
    
    200,000
    
    
    
    2007Verrayes, Italy
    
    Wintersports manufacturing
    
    
    75,000
    
    
    
    2016
    *Huntington Beach, California
    
    Americas distribution center
    
    
    225,000
    
    
    
    2018
    *Huntington Beach, California
    
    Americas distribution center
    
    
    110,000
    
    
    
    2018
    *Huntington Beach, California
    
    Americas distribution center
    
    
    100,000
    
    
    
    2018
    *Huntington Beach, California
    
    Americas distribution center
    
    
    100,000
    
    
    
    2018
    *Huntington Beach, California
    
    Americas distribution center
    
    
    75,000
    
    
    
    2019
    *Huntington Beach, California
    
    Americas distribution center
    
    
    129,000
    
    
    
    2016Vista, California
    
    Americas distribution center
    
    
    98,000
    
    
    
    2006
    *Clearfield, Utah
    
    Americas distribution center
    
    
    48,000
    
    
    
    2006St. Jean de Luz, France
    
    European headquarters
    
    
    80,000
    
    
    
    2011St. Jean de Luz, France
    
    European distribution center
    
    
    100,000
    
    
    
    2007Hendaye, France
    
    European distribution center
    
    
    90,000
    
    
    
    2008Satolas, France
    
    European distribution center
    
    
    160,000
    
    
    
    2016Torquay, Australia
    
    Asia/Pacific headquarters
    
    
    54,000
    
    
    
    2017
    *Geelong, Australia
    
    Asia/Pacific distribution center
    
    
    81,000
    
    
    
    2018
    *
 
 *
    
    Includes extension periods exercisable at our option.  19




---



##### Table of Contents



Item 3. LEGAL PROCEEDINGS
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  20




---



##### Table of Contents



PART II
 
 Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
  High
    
    
    LowFiscal 20054th quarter ended October 31, 2005
    
    $
    16.61
    
    
    $
    10.683rd quarter ended July 31, 2005
    
    
    16.79
    
    
    
    14.312nd quarter ended April 30, 2005
    
    
    17.80
    
    
    
    13.031st quarter ended January 31, 2005
    
    
    15.55
    
    
    
    13.51Fiscal 20044th quarter ended October 31, 2004
    
    $
    13.85
    
    
    $
    9.693rd quarter ended July 31, 2004
    
    
    12.40
    
    
    
    10.022nd quarter ended April 30, 2004
    
    
    11.64
    
    
    
    8.381st quarter ended January 31, 2004
    
    
    9.15
    
    
    
    7.45
    
 Item 6. SELECTED FINANCIAL DATA
  21




---



##### Table of Contents



Years Ended October 31,Amounts in thousands, except ratios andper share data
    
    2005(1)(2)(3)
    
    
    2004(2)(3)
    
    
    2003(3)
    
    
    2002
    
    
    2001Statement of Income DataRevenues, net
    
    $
    1,780,869
    
    
    $
    1,266,939
    
    
    $
    975,005
    
    
    $
    705,484
    
    
    $
    620,621Income before provision for
income taxes
    
    
    158,346
    
    
    
    121,992
    
    
    
    90,067
    
    
    
    59,986
    
    
    
    45,412Net income
    
    
    107,120
    
    
    
    81,369
    
    
    
    58,516
    
    
    
    37,591
    
    
    
    28,021Net income per share(4).
    
    
    0.90
    
    
    
    0.71
    
    
    
    0.54
    
    
    
    0.40
    
    
    
    0.31Net income per share, assuming
dilution(4)
    
    
    0.86
    
    
    
    0.68
    
    
    
    0.52
    
    
    
    0.38
    
    
    
    0.29Weighted average common
shares
    
    
    118,920
    
    
    
    114,388
    
    
    
    108,448
    
    
    
    93,836
    
    
    
    91,808Weighted average common
shares outstanding, assuming
dilution(4)
    
    
    124,335
    
    
    
    119,288
    
    
    
    113,270
    
    
    
    97,888
    
    
    
    96,196Balance Sheet DataTotal assets
    
    $
    2,158,601
    
    
    $
    990,990
    
    
    $
    707,970
    
    
    $
    450,589
    
    
    $
    418,738Working capital
    
    
    458,857
    
    
    
    343,100
    
    
    
    286,625
    
    
    
    160,518
    
    
    
    132,416Lines of credit
    
    
    220,113
    
    
    
    10,801
    
    
    
    20,951
    
    
    
    32,498
    
    
    
    66,228Long-term debt
    
    
    691,181
    
    
    
    173,513
    
    
    
    123,419
    
    
    
    54,085
    
    
    
    70,464Stockholders equity
    
    
    732,882
    
    
    
    588,244
    
    
    
    446,508
    
    
    
    272,873
    
    
    
    216,594Other DataEBITDA(5)
    
    $
    222,160
    
    
    $
    155,229
    
    
    $
    119,519
    
    
    $
    82,975
    
    
    $
    70,162Current ratio
    
    
    1.7
    
    
    
    2.6
    
    
    
    3.0
    
    
    
    2.2
    
    
    
    1.8Return on average stockholders
equity(6)
    
    
    16.2
    
    
    
    15.7
    
    
    
    16.3
    
    
    
    15.4
    
    
    
    14.2
 
 (1)
    
    Fiscal 2005 includes the operations of Rossignol since August 1, 2005. See Note
2 of our consolidated financial statements.(2)
    
    Fiscal 2005 and fiscal 2004 include the operations of DC since its acquisition
effective May 1, 2004. See Note 2 of our consolidated financial statements.(3)
    
    Fiscal 2005, fiscal 2004 and fiscal 2003 include the operations of Asia/Pacific
since its acquisition effective December 1, 2002. See Note 2 of our consolidated financial
statements.(4)
    
    Per share amounts and shares outstanding have been adjusted to reflect two-for-one
stock splits effected on May 11, 2005 and May 9, 2003.(5)
    
    EBITDA is defined as net income before (i) interest expense, (ii) income tax
expense, and (iii) depreciation and amortization. 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 EBITDA, along with other GAAP measures, as a
measure of profitability because 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 and the impact of our asset base, which can differ
depending on the book value of assets and the accounting methods used to compute depreciation
and amortization. We believe it is useful to investors for the same reasons. EBITDA has
limitations as a profitability measure in that it does not include the interest expense on our
debts, our provisions for income taxes or the effect of our expenditures for capital assets
and certain intangible assets. 22




---



##### Table of Contents



Years Ended October 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Net income
    
    $
    107,120
    
    
    $
    81,369
    
    
    $
    58,516
    
    
    $
    37,591
    
    
    $
    28,021Income taxes
    
    
    51,226
    
    
    
    40,623
    
    
    
    31,551
    
    
    
    22,395
    
    
    
    17,391Interest
    
    
    21,950
    
    
    
    6,390
    
    
    
    8,267
    
    
    
    8,640
    
    
    
    10,873Depreciation and amortization
    
    
    41,864
    
    
    
    26,847
    
    
    
    21,185
    
    
    
    14,349
    
    
    
    13,877EBITDA
    
    $
    222,160
    
    
    $
    155,229
    
    
    $
    119,519
    
    
    $
    82,975
    
    
    $
    70,162
 
 (6)
    
    Computed based on net income divided by the average of beginning and ending
stockholders equity. 
 Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
 Quiksilver Quiksilver Quiksilver Roxy Quiksilver Roxy Quiksilver Roxy
 Rossignol Dynastar Lange Look Kerma Cleveland Golf Never Compromise
    23




---



##### Table of Contents



Years Ended October 31,In thousands
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Americas
    
    $
    843,677
    
    
    $
    616,818
    
    
    $
    492,442
    
    
    $
    418,008
    
    
    $
    391,575Europe
    
    
    712,310
    
    
    
    496,276
    
    
    
    386,226
    
    
    
    282,684
    
    
    
    223,877Asia/Pacific
    
    
    220,941
    
    
    
    148,733
    
    
    
    94,187
    
    
    
    
    
    
    
    Corporate operations
    
    
    3,941
    
    
    
    5,112
    
    
    
    2,150
    
    
    
    4,792
    
    
    
    5,169Total revenues, net.
    
    $
    1,780,869
    
    
    $
    1,266,939
    
    
    $
    975,005
    
    
    $
    705,484
    
    
    $
    620,621
  Results of Operations
  Years Ended October 31,2005
    
    
    2004
    
    
    2003Statement of Income DataRevenues, net
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    45.4
    
    
    
    45.6
    
    
    
    44.4Selling, general and administrative expense
    
    
    35.2
    
    
    
    35.2
    
    
    
    34.0Operating income
    
    
    10.2
    
    
    
    10.4
    
    
    
    10.4Interest expense
    
    
    1.2
    
    
    
    0.5
    
    
    
    0.9Foreign currency, minority interest and other expense
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.3Income before provision for income taxes
    
    
    8.9
    %
    
    
    9.6
    %
    
    
    9.2
    %Other dataEBITDA (1)
    
    
    12.5
    %
    
    
    12.3
    %
    
    
    12.3
    %
 
 (1)
    
    For a definition of EBITDA and a reconciliation of Net Income to EBITDA, see
footnote (5) to the table under Item 6. Selected Financial Data. 24




---



##### Table of Contents



Fiscal 2005 Compared to Fiscal 2004
 Revenues
  Quiksilver Young Mens, Boys,
Toddlers, Quiksilveredition DC, Hawk Roxy Roxy Girl Teenie Wahine DC Raisins Leilani Radio Fiji Rossignol Dynastar Look Lange Kerma Cleveland Golf Never Compromise Lib
Technologies Gnu, Bent Metal Roxy Quiksilver Young Mens Roxy DC
 Quiksilver Young Mens DC Roxy
 Roxy Quiksilver DC
 Gross Profit
  25




---



##### Table of Contents



Selling, General and Administrative Expense
  Non-operating Expenses
    Net Income and EBITDA
  Fiscal 2004 Compared to Fiscal 2003
 Revenues
  Lib
Technologies Gnu, Bent Metal Roxy DC Quiksilver Roxy DC
  26




---



##### Table of Contents



Quiksilver Young Mens DC Roxy
 Roxy Quiksilver DC
 Gross Profit
  Selling, General and Administrative Expense
  Non-operating Expenses
    Net Income and EBITDA
  Financial Position, Capital Resources and Liquidity
  27




---



##### Table of Contents



Operating Cash Flows
   Capital Expenditures
    Acquisitions
  28




---



##### Table of Contents



29




---



##### Table of Contents



Quiksilver Roxy
 Debt Structure
  October 31,In thousands
    
    2005European short-term credit arrangements
    
    $
    167,677Asia/Pacific short-term lines of credit
    
    
    31,656Americas short-term lines of credit
    
    
    20,780Americas Credit Facility
    
    
    71,150Americas long-term debt
    
    
    9,375European long-term debt
    
    
    158,911Senior Notes
    
    
    400,000Deferred purchase price obligation
    
    
    32,945Capital lease obligations and other borrowings
    
    
    18,800Total debt
    
    $
    911,294
     30




---



##### Table of Contents



31




---



##### Table of Contents



Contractual Obligations and Commitments
  Payments Due by PeriodTwo to
    
    
    Four to
    
    
    AfterOne
    
    
    Three
    
    
    Five
    
    
    FiveIn thousands
    
    Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalOperating lease obligations
    
    $
    47,787
    
    
    $
    78,460
    
    
    $
    61,331
    
    
    $
    136,023
    
    
    $
    323,601Long-term debt obligations(1)
    
    
    50,833
    
    
    
    58,186
    
    
    
    181,525
    
    
    
    400,637
    
    
    
    691,181Professional athlete sponsorships(2)
    
    
    24,306
    
    
    
    18,356
    
    
    
    2,893
    
    
    
    
    
    
    
    45,555Certain other obligations(3)
    
    
    93,430
    
    
    
    2,460
    
    
    
    1,014
    
    
    
    
    
    
    
    96,904$
    216,356
    
    
    $
    157,462
    
    
    $
    246,763
    
    
    $
    536,660
    
    
    $
    1,157,241
 
 (1)
    
    Excludes required interest payments. See Note 7 of Notes to Consolidated
Financial Statements for interest terms.(2)
    
    We establish relationships with professional athletes in order to promote our
products and brands. We have entered into endorsement agreements with professional athletes
in sports such as skiing, golf, surfing, skateboarding, snowboarding and windsurfing. Many of
these contracts provide incentives for magazine exposure and competitive victories while
wearing or using our products. It is not possible to determine the amounts we may be required
to pay under these agreements as they are subject to many variables. The amounts listed are
the approximate amounts of minimum obligations required to be paid under these contracts. The
estimated maximum amount that could be paid under existing contracts is approximately $70.4
million and would assume that all bonuses, victories, etc. are achieved during a five-year
period. The actual amounts paid under these agreements may be higher or lower than the
amounts listed as a result of the variable nature of these obligations.(3)
    
    Certain other obligations include approximately $92.2 million of contractual
letters of credit with maturity dates of less than one year and total payments related to a
consulting agreement entered into in connection with our Rossignol acquisition. We have the
option to acquire the minority interest in Cleveland Golf through a put/call arrangement
whereby the minority shareholders can require us to buy all of their interest in Cleveland
Golf after 4.5 years, and we can require them to sell us their interest after 7 years, each at
a purchase price generally determined by reference to a multiple of Cleveland Golfs annual
profit and our price-earnings ratio. The amount of this obligation is based on a formula of
Cleveland Golf earnings and our stock price, which cannot be determined and is not included in
this line item. In addition, we also enter into unconditional purchase obligations with
various vendors and suppliers of goods and services in the normal course of operations through
purchase orders or other documentation or that are undocumented except for an invoice. Such
unconditional purchase obligations are generally outstanding for periods less than a year and
are settled by cash payments upon delivery of goods and services and are not reflected in this
line item. Trade Accounts Receivable and Inventories
  32




---



##### Table of Contents



Inflation
  New Accounting Pronouncements
    33




---



##### Table of Contents



Joint Venture Arrangements
 Boardriders Club
  Critical Accounting Policies
  Revenue Recognition
  Accounts Receivable
  34




---



##### Table of Contents



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
  Income Taxes
  Foreign Currency Translation
  35




---



##### Table of Contents



Forward-Looking Statements
  
    
    our ability to fully realize the benefits we anticipate from our acquisition of Rossignol;
    
    the impact of our substantial leverage on our ability to generate cash flows or obtain financing to fund our
anticipated growth strategies and the cost of such financing;
    
    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;
    
    our ability to remain compliant with our debt covenants;
    
    integration of acquired businesses and future acquisitions;
    
    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.
  36




---



##### Table of Contents



Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Foreign Currency and Derivatives
    
    
    if we determine that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item;
    
    when the derivative expires or is sold, terminated or exercised;
    
    if it becomes probable that the forecasted transaction being hedged by the derivative will not occur;
    
    because a hedged firm commitment no longer meets the definition of a firm commitment; or
    
    if we determine that designation of the derivative as a hedge instrument is no longer appropriate.
  Translation of Results of International Subsidiaries
   37




---



##### Table of Contents



Interest Rates
  
 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 Item 9A. CONTROLS AND PROCEDURES
    38




---



##### Table of Contents



Managements Report on Internal Control Over Financial Reporting
  
    
    pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
our assets;
    
    provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that
our receipts and expenditures are being made only in accordance
with authorizations of our management and directors; and
    
    provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the financial
statements.
    39




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
      40




---



##### Table of Contents



41




---



##### Table of Contents



Item 9B. OTHER INFORMATION
  42




---



##### Table of Contents



PART III
 
 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  
 Item 11. EXECUTIVE COMPENSATION
  
 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  43




---



##### Table of Contents



PART IV
 
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  1.
    
    Consolidated Financial Statements
See Index to Consolidated Financial Statements on page 452.
    
    Exhibits
The Exhibits listed in the Exhibit Index, which appears immediately following the signature
page and is incorporated herein by reference, are filed as part of this Annual Report on Form 10-K.
 44




---



##### Table of Contents



QUIKSILVER, INC.
 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    46Consolidated Balance Sheets
October 31, 2005 and 2004
    
    
    47Consolidated Statements of Income
Years Ended October 31, 2005, 2004 and 2003
    
    
    48Consolidated Statements of Comprehensive Income
Years Ended October 31, 2005, 2004 and 2003
    
    
    48Consolidated Statements of Stockholders Equity
Years Ended October 31, 2005, 2004 and 2003
    
    
    49Consolidated Statements of Cash Flows
Years Ended October 31, 2005, 2004 and 2003
    
    
    50Notes to Consolidated Financial Statements
    
    
    51
 45




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal ControlIntegrated
Framework Treadway
  
 46




---



##### Table of Contents



QUIKSILVER, INC.
 
 CONSOLIDATED BALANCE SHEETS
October 31, 2005 and 2004
 In thousands, except share amounts
    
    2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    75,598
    
    
    $
    55,197Trade accounts receivable, net  Note 3
    
    
    599,486
    
    
    
    281,263Other receivables
    
    
    27,414
    
    
    
    16,165Inventories  Note 4
    
    
    386,396
    
    
    
    179,605Deferred income taxes  Note 13
    
    
    41,646
    
    
    
    22,299Prepaid expenses and other current assets
    
    
    21,819
    
    
    
    12,267Total current assets
    
    
    1,152,359
    
    
    
    566,796Fixed assets, net  Note 5
    
    
    241,979
    
    
    
    122,787Intangible assets, net  Notes 2 and 6
    
    
    247,702
    
    
    
    121,116Goodwill  Notes 2, 6 and 15
    
    
    449,377
    
    
    
    169,785Other assets
    
    
    43,955
    
    
    
    10,506Assets held for sale  Note 12
    
    
    23,229
    
    
    
    Total assets
    
    $
    2,158,601
    
    
    $
    990,990LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Lines of credit  Note 7
    
    $
    220,113
    
    
    $
    10,801Accounts payable
    
    
    212,407
    
    
    
    105,054Accrued liabilities  Note 8
    
    
    182,973
    
    
    
    79,095Current portion of long-term debt  Note 7
    
    
    50,833
    
    
    
    10,304Income taxes payable  Note 13
    
    
    27,176
    
    
    
    18,442Total current liabilities
    
    
    693,502
    
    
    
    223,696Long-term debt  Notes 7 and 18
    
    
    640,348
    
    
    
    163,209Deferred income taxes  Note 13
    
    
    81,628
    
    
    
    15,841Total liabilities
    
    
    1,415,478
    
    
    
    402,746Commitments and contingencies  Note 9Minority interest  Note 2
    
    
    10,241
    
    
    
    Stockholders equity  Note 10: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 - 124,093,392 (2005) and 120,339,046 (2004)
    
    
    1,241
    
    
    
    1,203Additional paid-in capital
    
    
    242,284
    
    
    
    200,118Treasury stock, 2,885,200 shares
    
    
    (6,778
    )
    
    
    (6,778
    )Retained earnings
    
    
    466,043
    
    
    
    358,923Accumulated other comprehensive income  Note 11
    
    
    30,092
    
    
    
    34,778Total stockholders equity
    
    
    732,882
    
    
    
    588,244Total liabilities and stockholders equity
    
    $
    2,158,601
    
    
    $
    990,990
  47




---



##### Table of Contents



QUIKSILVER, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
Years Ended October 31, 2005, 2004 and 2003
 In thousands, except per share amounts
    
    2005
    
    
    2004
    
    
    2003Revenues, net
    
    $
    1,780,869
    
    
    $
    1,266,939
    
    
    $
    975,005Cost of goods sold
    
    
    972,345
    
    
    
    688,780
    
    
    
    541,753Gross profit
    
    
    808,524
    
    
    
    578,159
    
    
    
    433,252Selling, general and administrative expense
    
    
    627,342
    
    
    
    446,221
    
    
    
    332,187Operating income
    
    
    181,182
    
    
    
    131,938
    
    
    
    101,065Interest expense
    
    
    21,950
    
    
    
    6,390
    
    
    
    8,267Foreign currency (gain) loss
    
    
    (106
    )
    
    
    2,861
    
    
    
    2,243Minority interest and other expense  Note 2
    
    
    992
    
    
    
    695
    
    
    
    488Income before provision for income taxes
    
    
    158,346
    
    
    
    121,992
    
    
    
    90,067Provision for income taxes  Note 13
    
    
    51,226
    
    
    
    40,623
    
    
    
    31,551Net income
    
    $
    107,120
    
    
    $
    81,369
    
    
    $
    58,516Net income per share  Note 1
    
    $
    0.90
    
    
    $
    0.71
    
    
    $
    0.54Net income per share, assuming dilution  Note 1
    
    $
    0.86
    
    
    $
    0.68
    
    
    $
    0.52Weighted average common shares outstanding
- Note 1
    
    
    118,920
    
    
    
    114,388
    
    
    
    108,448Weighted average common shares outstanding,
assuming dilution  Note 1
    
    
    124,335
    
    
    
    119,288
    
    
    
    113,270
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended October 31, 2005, 2004 and 2003
 In thousands
    
    2005
    
    
    2004
    
    
    2003Net income
    
    $
    107,120
    
    
    $
    81,369
    
    
    $
    58,516Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    (14,694
    )
    
    
    18,554
    
    
    
    26,799Net gain (loss) on derivative instruments, net
of tax of $(5,468) (2005), $1,792 (2004) and
$200 (2003) (2002)
    
    
    10,008
    
    
    
    (3,628
    )
    
    
    (544
    )Comprehensive income
    
    $
    102,434
    
    
    $
    96,295
    
    
    $
    84,771
  48




---



##### Table of Contents



QUIKSILVER, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years Ended October 31, 2005, 2004 and 2003
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Treasury
    
    
    Retained
    
    
    Comprehensive
    
    
    Stockholders'In thousands, except share amounts
    
    Shares
    
    
    Amounts
    
    
    Capital
    
    
    Stock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityBalance, November 1, 2002
    
    
    98,720,588
    
    
    $
    987
    
    
    $
    66,029
    
    
    $
    (6,778
    )
    
    $
    219,038
    
    
    $
    (6,403
    )
    
    $
    272,873Exercise of stock options
    
    
    3,967,402
    
    
    
    39
    
    
    
    10,722
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,761Tax benefit from exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    6,284
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,284Employee stock purchase
plan
    
    
    101,332
    
    
    
    1
    
    
    
    567
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    568Asia/Pacific acquisition
    
    
    11,251,712
    
    
    
    113
    
    
    
    71,138
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,251Net income and other
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,516
    
    
    
    26,255
    
    
    
    84,771Balance, October 31, 2003
    
    
    114,041,034
    
    
    
    1,140
    
    
    
    154,740
    
    
    
    (6,778
    )
    
    
    277,554
    
    
    
    19,852
    
    
    
    446,508Exercise of stock options
    
    
    2,997,440
    
    
    
    30
    
    
    
    8,730
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,760Tax benefit from exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    8,411
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,411Employee stock purchase
plan
    
    
    131,422
    
    
    
    1
    
    
    
    957
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    958DC acquisition
    
    
    3,169,150
    
    
    
    32
    
    
    
    27,280
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,312Net income and other
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81,369
    
    
    
    14,926
    
    
    
    96,295Balance, October 31, 2004
    
    
    120,339,046
    
    
    
    1,203
    
    
    
    200,118
    
    
    
    (6,778
    )
    
    
    358,923
    
    
    
    34,778
    
    
    
    588,244Exercise of stock options
    
    
    1,447,010
    
    
    
    14
    
    
    
    6,528
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,542Tax benefit from exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    5,109
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,109Employee stock purchase
plan
    
    
    157,298
    
    
    
    2
    
    
    
    1,644
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,646Rossignol acquisition
    
    
    2,150,038
    
    
    
    22
    
    
    
    28,885
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,907Net income and other
comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107,120
    
    
    
    (4,686
    )
    
    
    102,434Balance, October 31, 2005
    
    
    124,093,392
    
    
    $
    1,241
    
    
    $
    242,284
    
    
    $
    (6,778
    )
    
    $
    466,043
    
    
    $
    30,092
    
    
    $
    732,882
  49




---



##### Table of Contents



QUIKSILVER, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31, 2005, 2004 and 2003
 In thousands
    
    2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net income
    
    $
    107,120
    
    
    $
    81,369
    
    
    $
    58,516Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    41,864
    
    
    
    26,847
    
    
    
    21,185Provision for doubtful accounts
    
    
    3,621
    
    
    
    6,123
    
    
    
    5,755Loss on disposal of fixed assets
    
    
    3,444
    
    
    
    1,761
    
    
    
    183Foreign currency (gain) loss
    
    
    (221
    )
    
    
    (159
    )
    
    
    23Interest accretion
    
    
    1,319
    
    
    
    1,368
    
    
    
    902Deferred income taxes
    
    
    3,661
    
    
    
    2,811
    
    
    
    (2,924
    )Changes in operating assets and liabilities,
net of effects from business acquisitions:Trade accounts receivable
    
    
    (228,861
    )
    
    
    (33,851
    )
    
    
    (19,399
    )Other receivables
    
    
    8,949
    
    
    
    (1,022
    )
    
    
    (564
    )Inventories
    
    
    27,340
    
    
    
    (13,140
    )
    
    
    (30,673
    )Prepaid expenses and other current assets
    
    
    (761
    )
    
    
    1,124
    
    
    
    (2,848
    )Other assets
    
    
    (7,245
    )
    
    
    265
    
    
    
    (3,115
    )Accounts payable
    
    
    22,533
    
    
    
    22,013
    
    
    
    (1,394
    )Accrued liabilities
    
    
    7,549
    
    
    
    21,953
    
    
    
    912Income taxes payable
    
    
    8,274
    
    
    
    13,133
    
    
    
    10,032Net cash (used in) provided by operating
activities
    
    
    (1,414
    )
    
    
    130,595
    
    
    
    36,591Cash flows from investing activities:Capital expenditures
    
    
    (70,858
    )
    
    
    (52,457
    )
    
    
    (33,071
    )Business acquisitions, net of acquired cash 
Note 2
    
    
    (251,865
    )
    
    
    (70,619
    )
    
    
    (31,195
    )Net cash used in investing activities
    
    
    (322,723
    )
    
    
    (123,076
    )
    
    
    (64,266
    )Cash flows from financing activities:Borrowings on lines of credit
    
    
    123,976
    
    
    
    83,482
    
    
    
    99,110Payments on lines of credit
    
    
    (97,801
    )
    
    
    (63,945
    )
    
    
    (56,807
    )Borrowings on long-term debt
    
    
    630,456
    
    
    
    5,592
    
    
    
    16,126Payments on long-term debt
    
    
    (316,953
    )
    
    
    (14,478
    )
    
    
    (21,710
    )Stock option exercises and employee stock
purchases
    
    
    8,188
    
    
    
    9,718
    
    
    
    11,330Net cash provided by financing activities
    
    
    347,866
    
    
    
    20,369
    
    
    
    48,049Effect of exchange rate changes on cash
    
    
    (3,328
    )
    
    
    (557
    )
    
    
    4,895Net increase in cash and cash equivalents
    
    
    20,401
    
    
    
    27,331
    
    
    
    25,269Cash and cash equivalents, beginning of year
    
    
    55,197
    
    
    
    27,866
    
    
    
    2,597Cash and cash equivalents, end of year
    
    $
    75,598
    
    
    $
    55,197
    
    
    $
    27,866Supplementary cash flow information:Cash paid during the year for:Interest
    
    $
    19,013
    
    
    $
    5,009
    
    
    $
    5,893Income taxes
    
    $
    34,458
    
    
    $
    22,046
    
    
    $
    21,348Non-cash investing and financing activities:Deferred purchase price obligation  Note 2
    
    $
    32,508
    
    
    $
    6,460
    
    
    $
    4,535Common stock issued for business acquisitions
 Note 2
    
    $
    28,907
    
    
    $
    27,312
    
    
    $
    71,251
  50




---



##### Table of Contents



QUIKSILVER, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
 Note 1  Significant Accounting Policies
 Company Business
 Quiksilve Roxy DC
Shoes Hawk Raisins Radio Fiji Leilani Rossignol Dynastar Look Lange Kerma Rossignol DC Shoes Roxy Lib
Technologies Gnu Bent Metal Boardriders Club
  Principles of Consolidation
  Basis of Presentation
  Cash Equivalents
  Inventories
  Fixed Assets
  51




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
 Long-Lived Assets
  Goodwill and Intangible Assets
  Revenue Recognition
  Years Ended October 31,2005
    
    
    2004
    
    
    2003In thousandsProduct shipments, net
    
    $
    1,778,987
    
    
    $
    1,264,457
    
    
    $
    972,855Royalty income
    
    
    1,882
    
    
    
    2,482
    
    
    
    2,150$
    1,780,869
    
    
    $
    1,266,939
    
    
    $
    975,005
 Promotion and Advertising
  Research and Development
  Warranties
 52
    Table of Contents   QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
  Stock-Based Compensation
  Years Ended October 31,2005
    
    
    2004
    
    
    2003In thousands, except per share amountsNet income
    
    $
    107,120
    
    
    $
    81,369
    
    
    $
    58,516Less stock-based employee compensation
expense determined under the fair value based
method, net of tax tax
    
    
    12,442
    
    
    
    9,188
    
    
    
    5,656Pro forma net income
    
    $
    94,678
    
    
    $
    72,181
    
    
    $
    52,860Net income per share
    
    $
    0.90
    
    
    $
    0.71
    
    
    $
    0.54Pro forma net income per share
    
    $
    0.80
    
    
    $
    0.63
    
    
    $
    0.49Net income per share, assuming dilution
    
    $
    0.86
    
    
    $
    0.68
    
    
    $
    0.52Pro forma net income per share, assuming dilution
    
    $
    0.77
    
    
    $
    0.61
    
    
    $
    0.47
  Income Taxes
  Net Income per Share
  Stock Split
  53




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
 Foreign Currency and Derivatives
   Comprehensive Income
  Use of Estimates
  Fair Value of Financial Instruments
 
 New Accounting Pronouncements
   54
    Table of Contents   QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
  Note 2  Business Acquisitions
  55




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
  July 31,2005In thousandsCash acquired
    
    $
    64,396Accounts receivable
    
    
    96,763Inventory
    
    
    233,909Other current assets
    
    
    21,548Fixed assets
    
    
    115,321Deferred income taxes
    
    
    3,572Other assets
    
    
    3,296Amortizing intangible assets
    
    
    20,400Trademarks
    
    
    94,700Goodwill
    
    
    243,630Total assets acquired
    
    
    897,535Other liabilities
    
    
    178,999Long term debt and lines of credit
    
    
    365,126Deferred income taxes
    
    
    39,947Minority interest
    
    
    10,109Net assets acquired
    
    $
    303,354
    August 1,2005In thousandsInventory and other current assets
    
    $
    3,239Fixed assets
    
    
    4,839Amortizing intangible assets
    
    
    2,400Goodwill
    
    
    19,335Total assets acquired
    
    
    29,813Other liabilities
    
    
    7,419Net assets acquired
    
    $
    22,394
 56




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
  May 1,2004In thousandsCurrent assets
    
    $
    37,528Fixed assets
    
    
    1,818Deferred income taxes
    
    
    2,359Amortizing intangible assets
    
    
    5,633Trademarks
    
    
    36,000Goodwill
    
    
    54,081Total assets acquired
    
    
    137,419Other liabilities
    
    
    20,808Deferred income taxes
    
    
    18,292Net assets acquired
    
    $
    98,319
   57




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
   December 1,2002In thousandsCurrent assets
    
    $
    55,889Long-term assets
    
    
    6,325License agreements
    
    
    10,100Goodwill
    
    
    65,713Total assets acquired
    
    
    138,027Current liabilities
    
    
    38,890Net assets acquired
    
    $
    99,137
    Note 3  Allowance for Doubtful Accounts
  Years Ended October 31,2005
    
    
    2004
    
    
    2003In thousandsBalance, beginning of year
    
    $
    11,367
    
    
    $
    8,700
    
    
    $
    6,667Provision for doubtful accounts
    
    
    3,621
    
    
    
    6,123
    
    
    
    5,755Deductions
    
    
    (4,261
    )
    
    
    (3,456
    )
    
    
    (3,722
    )Balance, end of year
    
    $
    10,727
    
    
    $
    11,367
    
    
    $
    8,700
 58




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
  Note 4  Inventories
  October 31,2005
    
    
    2004In thousandsRaw materials
    
    $
    46,659
    
    
    $
    14,133Work in process.
    
    
    10,416
    
    
    
    7,698Finished goods
    
    
    329,321
    
    
    
    157,774$
    386,396
    
    
    $
    179,605
 Note 5  Fixed Assets
  October 31,2005
    
    
    2004In thousandsFurniture and other equipment
    
    $
    110,803
    
    
    $
    88,302Computer equipment
    
    
    63,760
    
    
    
    43,864Manufacturing equipment
    
    
    45,771
    
    
    
    Leasehold improvements
    
    
    85,491
    
    
    
    57,715Land use rights
    
    
    23,200
    
    
    
    21,620Land and buildings
    
    
    34,407
    
    
    
    2,383363,432
    
    
    
    213,884Accumulated depreciation and amortization
    
    
    (121,453
    )
    
    
    (91,097
    )$
    241,979
    
    
    $
    122,787
 Note 6  Intangible Assets and Goodwill
  October 31,2005
    
    
    2004Gross
    
    
    Amorti-
    
    
    Net Book
    
    
    Gross
    
    
    Amorti-
    
    
    Net BookAmount
    
    
    zation
    
    
    Value
    
    
    Amount
    
    
    zation
    
    
    ValueIn thousandsAmortizable trademarks
    
    $
    5,135
    
    
    $
    (1,349
    )
    
    $
    3,786
    
    
    $
    3,476
    
    
    $
    (692
    )
    
    $
    2,784Amortizable licenses
    
    
    10,081
    
    
    
    (2,940
    )
    
    
    7,141
    
    
    
    10,105
    
    
    
    (1,937
    )
    
    
    8,168Other amortizable intangibles
    
    
    28,757
    
    
    
    (2,022
    )
    
    
    26,735
    
    
    
    5,633
    
    
    
    (498
    )
    
    
    5,135Non-amortizable trademarks
    
    
    210,040
    
    
    
     ̄
    
    
    
    210,040
    
    
    
    105,029
    
    
    
    
    
    
    
    105,029$
    254,013
    
    
    $
    (6,311
    )
    
    $
    247,702
    
    
    $
    124,243
    
    
    $
    (3,127
    )
    
    $
    121,116
 59




---



##### Table of Contents





QUIKSILVER, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003






Note 7  Lines of Credit and Long-term Debt




October 31,2005
    
    
    2004In thousandsEuropean short-term credit arrangements
    
    $
    167,677
    
    
    $
    3,756Asia/Pacific short-term lines of credit
    
    
    31,656
    
    
    
    7,045Americas short-term lines of credit
    
    
    20,780
    
    
    
     ̄Americas Credit Facility
    
    
    71,150
    
    
    
    105,974Americas long-term debt
    
    
    9,375
    
    
    
    6,765European long-term debt
    
    
    158,911
    
    
    
    33,714Asia/Pacific long-term debt
    
    
    
    
    
    
    460Senior Notes
    
    
    400,000
    
    
    
    Deferred purchase price obligation
    
    
    32,945
    
    
    
    26,600Capital lease obligations and other borrowings
    
    
    18,800
    
    
    
    $
    911,294
    
    
    $
    184,314






60




---



##### Table of Contents





QUIKSILVER, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
















61




---



##### Table of Contents





QUIKSILVER, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003








2006
    
    $
    50,8332007
    
    
    36,8232008
    
    
    21,3632009
    
    
    10,6362010
    
    
    170,889Thereafter
    
    
    400,637$
    691,181


Note 8  Accrued Liabilities




October 31,2005
    
    
    2004In thousandsAccrued employee compensation and benefits
    
    $
    65,010
    
    
    $
    33,154Accrued sales and payroll taxes
    
    
    21,449
    
    
    
    2,553Derivative liability
    
    
    119
    
    
    
    6,362Amounts payable for business acquisitions
    
    
    14,091
    
    
    
    17,951Integration Plan and Pre-acquisition Restructuring Plan liabilities (Note 12)
    
    
    27,366
    
    
    
    Other liabilities
    
    
    54,938
    
    
    
    19,075$
    182,973
    
    
    $
    79,095




October 31,2005In thousandsAcquired balance, July 31, 2005
    
    $
    2,788Warranty expense
    
    
    671Repairs and replacements made
    
    
    (637
    )Foreign currency translation
    
    
    (12
    )Ending balance
    
    $
    2,810


62



---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
 Note 9  Commitments and Contingencies
 Operating Leases
  2006
    
    $
    47,7872007
    
    
    42,7982008
    
    
    35,6622009
    
    
    31,6932010
    
    
    29,638Thereafter
    
    
    136,023$
    323,601
  Professional Athlete Sponsorships
  2006
    
    $
    24,3062007
    
    
    10,5452008
    
    
    7,8112009
    
    
    2,2742010
    
    
    619$
    45,555
 Consulting Agreement
  Litigation
  Indemnities and Guarantees
  63




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
  Note 10  Stockholders Equity
   Years Ended October 31,2005
    
    
    2004
    
    
    2003Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceIn thousandsOutstanding, beginning of year
    
    
    15,084,168
    
    
    $
    5.56
    
    
    
    14,084,608
    
    
    $
    3.90
    
    
    
    15,341,356
    
    
    $
    3.07Granted
    
    
    3,877,800
    
    
    
    14.44
    
    
    
    4,030,000
    
    
    
    9.35
    
    
    
    2,836,000
    
    
    
    6.77Exercised
    
    
    (1,447,010
    )
    
    
    3.96
    
    
    
    (2,997,440
    )
    
    
    2.83
    
    
    
    (3,967,402
    )
    
    
    2.74Canceled
    
    
    (148,501
    )
    
    
    10.12
    
    
    
    (33,000
    )
    
    
    8.73
    
    
    
    (125,346
    )
    
    
    4.64Outstanding, end of year
    
    
    17,366,457
    
    
    $
    7.63
    
    
    
    15,084,168
    
    
    $
    5.56
    
    
    
    14,084,608
    
    
    $
    3.90Options exercisable, end of year
    
    
    9,161,422
    
    
    $
    4.77
    
    
    
    7,191,042
    
    
    $
    3.76
    
    
    
    7,920,570
    
    
    $
    3.01
  Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageRange of Exercise Prices
    
    Shares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    Price(Years)$1.64 - $3.27
    
    
    2,638,084
    
    
    
    2.8
    
    
    $
    2.61
    
    
    
    2,638,084
    
    
    $
    2.61$3.27 - $4.91
    
    
    4,371,224
    
    
    
    5.2
    
    
    
    3.87
    
    
    
    3,851,224
    
    
    
    3.92$4.91 - $6.54
    
    
    132,000
    
    
    
    6.4
    
    
    
    5.67
    
    
    
    132,000
    
    
    
    5.67$6.54 - $8.18
    
    
    2,736,678
    
    
    
    7.2
    
    
    
    6.80
    
    
    
    1,416,646
    
    
    
    6.83$8.18 - $9.82
    
    
    2,658,503
    
    
    
    8.0
    
    
    
    8.73
    
    
    
    638,823
    
    
    
    8.73$9.82 - $11.45
    
    
    1,062,668
    
    
    
    8.5
    
    
    
    11.07
    
    
    
    364,645
    
    
    
    11.00$11.45 - $14.72
    
    
    3,523,300
    
    
    
    9.2
    
    
    
    14.30
    
    
    
    120,000
    
    
    
    14.52$14.72 - $16.36
    
    
    244,000
    
    
    
    9.6
    
    
    
    16.30
    
    
    
    
    
    
    
    17,366,457
    
    
    
    6.7
    
    
    $
    7.63
    
    
    
    9,161,422
    
    
    $
    4.77
  64




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
  Note 11  Accumulated Other Comprehensive Income
  October 31,2005
    
    
    2004In thousandsForeign currency translation adjustment
    
    $
    27,730
    
    
    $
    42,424Gain (loss) on cash flow hedges and interest rate swaps
    
    
    2,362
    
    
    
    (7,646
    )$
    30,092
    
    
    $
    34,778
 Note 12  Rossignol Integration Plan and Pre-acquisition Restructuring Plan
  65




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
  FacilityWorkforce
    
    
    and Other
    
    
    TotalRecorded in purchase price allocation
    
    $
    3,673
    
    
    $
    1,574
    
    
    $
    5,247Adjusted to purchase price
allocation tax
    
    
    17,463
    
    
    
    752
    
    
    
    18,215Cash payments tax
    
    
    (17
    )
    
    
    (44
    )
    
    
    (61
    )Foreign currency translation tax
    
    
    (83
    )
    
    
    (6
    )
    
    
    (89
    )Balance, October 31, 2005
    
    $
    21,036
    
    
    $
    2,276
    
    
    $
    23,312
   WorkforceAcquired restructuring liability, July 31, 2005
    
    $
    13,882Cash payments
    
    
    (9,875
    )Foreign currency translation
    
    
    47Balance, October 31, 2005
    
    $
    4,054
 Note 13  Income Taxes
  Years Ended October 31,2005
    
    
    2004
    
    
    2003In thousandsCurrent:Federal
    
    $
    10,374
    
    
    $
    7,201
    
    
    $
    7,240State
    
    
    2,308
    
    
    
    2,539
    
    
    
    2,729Foreign
    
    
    34,883
    
    
    
    28,072
    
    
    
    24,50647,565
    
    
    
    37,812
    
    
    
    34,475Deferred:Federal
    
    
    2,072
    
    
    
    5,548
    
    
    
    1,956State
    
    
    262
    
    
    
    814
    
    
    
    (56
    )Foreign
    
    
    1,327
    
    
    
    (3,551
    )
    
    
    (4,824
    )3,661
    
    
    
    2,811
    
    
    
    (2,924
    )Provision for income taxes
    
    $
    51,226
    
    
    $
    40,623
    
    
    $
    31,551
 66




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
  Years Ended October 31,2005
    
    
    2004
    
    
    2003Computed expected statutory federal income
tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income taxes, net of federal income
tax benefit
    
    
    1.1
    
    
    
    0.6
    
    
    
    3.6Foreign tax rate differential
    
    
    (3.9
    )
    
    
    (2.4
    )
    
    
    (1.0
    )Foreign tax credit
    
    
    (0.5
    )
    
    
    
    
    
    
    (2.9
    )Other
    
    
    0.7
    
    
    
    0.1
    
    
    
    0.3Effective income tax rate
    
    
    32.4
    %
    
    
    33.3
    %
    
    
    35.0
    %
  October 31,2005
    
    
    2004In thousandsDeferred income tax assets:Allowance for doubtful accounts
    
    $
    10,113
    
    
    $
    7,631Other comprehensive income
    
    
    
    
    
    
    4,407Operating loss carryforwards
    
    
    8,873
    
    
    
    1,241Nondeductible accruals and other
    
    
    41,319
    
    
    
    17,01960,305
    
    
    
    30,298Deferred income tax liabilities:Depreciation and Amortization
    
    
    (25,833
    )
    
    
    (9,906
    )Other comprehensive loss
    
    
    (1,909
    )
    
    
    Intangibles
    
    
    (63,184
    )
    
    
    (12,502
    )Other
    
    
    
    
    
    
    (1,235
    )(90,926
    )
    
    
    (23,643
    )Deferred income taxes
    
    
    (30,621
    )
    
    
    6,655Valuation allowance
    
    
    (9,361
    )
    
    
    (197
    )Net deferred income taxes
    
    $
    (39,982
    )
    
    $
    6,458
    67




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
  Note 14  Employee Plans
 Retirement and additional pension plan benefits
   Three months endedOctober 31, 2005In thousandsNet periodic pension cost:Service cost
    
    $
    261Interest charge
    
    
    101Discounted return on assets
    
    
    Realized actuarial losses during the period
    
    
    61$
    423Benefit obligation:Acquired balance, July 31, 2005
    
    
    9,704Disbursements
    
    
    (143
    )Net periodic pension costs
    
    
    423Balance, end of period
    
    $
    9,984
  In thousands2006
    
    $
    6062007
    
    
    3162008
    
    
    5772009
    
    
    6682010
    
    
    470Thereafter
    
    
    3,600$
    6,237
  68




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
  Note 15  Segment and Geographic Information
   Percentage of Revenues2005
    
    
    2004
    
    
    2003T-Shirts
    
    
    18
    %
    
    
    19
    %
    
    
    20
    %Accessories
    
    
    12
    
    
    
    14
    
    
    
    14Jackets, sweaters and technical outerwear.
    
    
    11
    
    
    
    12
    
    
    
    12Footwear
    
    
    11
    
    
    
    9
    
    
    
    5Wintersports equipment
    
    
    9
    
    
    
    2
    
    
    
    1Pants
    
    
    8
    
    
    
    10
    
    
    
    11Shirts
    
    
    7
    
    
    
    9
    
    
    
    10Swimwear, excluding boardshorts
    
    
    6
    
    
    
    7
    
    
    
    8Fleece
    
    
    4
    
    
    
    5
    
    
    
    6Shorts
    
    
    4
    
    
    
    5
    
    
    
    6Boardshorts
    
    
    4
    
    
    
    4
    
    
    
    4Tops and dresses
    
    
    4
    
    
    
    4
    
    
    
    3Golf equipment
    
    
    2
    
    
    
    
    
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 69




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
  Years Ended October 31,2005
    
    
    2004
    
    
    2003In thousandsRevenues, net:Americas
    
    $
    843,677
    
    
    $
    616,818
    
    
    $
    492,442Europe
    
    
    712,310
    
    
    
    496,276
    
    
    
    386,226Asia/Pacific
    
    
    220,941
    
    
    
    148,733
    
    
    
    94,187Corporate operations
    
    
    3,941
    
    
    
    5,112
    
    
    
    2,150Consolidated
    
    $
    1,780,869
    
    
    $
    1,266,939
    
    
    $
    975,005Gross profit:Americas
    
    $
    335,356
    
    
    $
    251,357
    
    
    $
    197,434Europe
    
    
    362,172
    
    
    
    251,692
    
    
    
    189,462Asia/Pacific
    
    
    109,698
    
    
    
    73,152
    
    
    
    44,206Corporate operations
    
    
    1,298
    
    
    
    1,958
    
    
    
    2,150Consolidated
    
    $
    808,524
    
    
    $
    578,159
    
    
    $
    433,252Operating income:Americas
    
    $
    85,335
    
    
    $
    63,811
    
    
    $
    45,734Europe
    
    
    103,308
    
    
    
    73,517
    
    
    
    61,941Asia/Pacific
    
    
    29,600
    
    
    
    21,164
    
    
    
    12,168Corporate operations
    
    
    (37,061
    )
    
    
    (26,554
    )
    
    
    (18,778
    )Consolidated
    
    $
    181,182
    
    
    $
    131,938
    
    
    $
    101,065Identifiable assets:Americas
    
    $
    813,549
    
    
    $
    443,028
    
    
    $
    300,464Europe
    
    
    977,057
    
    
    
    413,454
    
    
    
    299,977Asia/Pacific
    
    
    313,993
    
    
    
    118,918
    
    
    
    95,835Corporate operations
    
    
    54,002
    
    
    
    15,590
    
    
    
    11,694Consolidated
    
    $
    2,158,601
    
    
    $
    990,990
    
    
    $
    707,970Goodwill:Americas
    
    $
    144,948
    
    
    $
    86,382
    
    
    $
    50,670Europe
    
    
    175,392
    
    
    
    70,057
    
    
    
    41,592Asia/Pacific
    
    
    129,037
    
    
    
    13,346
    
    
    
    6,571Consolidated
    
    $
    449,377
    
    
    $
    169,785
    
    
    $
    98,833
  Note 16  Derivative Financial Instruments
  70




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
     NotionalAmount
    
    Maturity
    
    Fair ValueIn thousandsUnited States dollar
    
    $
    162,897
    
    
    Nov. 2005 - Oct. 2006
    
    $
    4,252Canadian dollar
    
    
    637
    
    
    March 2006 - April 2006
    
    
    (38
    )Swiss franc
    
    
    781
    
    
    Feb. 2007
    
    
    10Interest rate instruments U.S. dollar
    
    
    9,513
    
    
    Oct. 2006 - Jan. 2007
    
    
    (49
    )Interest rate instruments euro
    
    
    31,962
    
    
    April 2006 - Sept. 2009
    
    
    (177
    )$
    205,790
    
    
    
    
    $
    3,998
 71




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
 Note 17  Quarterly Financial Data (Unaudited)
  Quarter EndedIn thousands, except per share amounts
    
    January 31
    
    
    April 30
    
    
    July 31
    
    
    October 31Year ended October 31, 2005Revenues, net
    
    $
    342,860
    
    
    $
    426,853
    
    
    $
    373,751
    
    
    $
    637,405Gross profit
    
    
    152,906
    
    
    
    193,365
    
    
    
    174,915
    
    
    
    287,338Net income
    
    
    14,214
    
    
    
    34,667
    
    
    
    24,635
    
    
    
    33,604Net income per share, assuming
dilution
    
    
    0.11
    
    
    
    0.28
    
    
    
    0.20
    
    
    
    0.27Trade accounts receivable
    
    
    252,097
    
    
    
    342,035
    
    
    
    428,266
    
    
    
    599,486Inventories
    
    
    236,819
    
    
    
    177,842
    
    
    
    438,336
    
    
    
    386,396Year ended October 31, 2004Revenues, net
    
    $
    256,142
    
    
    $
    322,579
    
    
    $
    337,930
    
    
    $
    350,288Gross profit
    
    
    113,669
    
    
    
    147,043
    
    
    
    150,407
    
    
    
    167,040Net income
    
    
    9,174
    
    
    
    27,790
    
    
    
    19,530
    
    
    
    24,875Net income per share, assuming
dilution
    
    
    0.08
    
    
    
    0.24
    
    
    
    0.16
    
    
    
    0.20Trade accounts receivable
    
    
    200,558
    
    
    
    257,122
    
    
    
    271,399
    
    
    
    281,263Inventories
    
    
    179,282
    
    
    
    127,318
    
    
    
    171,639
    
    
    
    179,605
 Note 18  Condensed Consolidating Financial Information and Subsequent Events
   72




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
 CONDENSED CONSOLIDATING BALANCE SHEET
 AT OCTOBER 31, 2005
 Wholly-owned
    
    
    Non-Guarantor
    
    
    GuarantorIn thousands
    
    Quiksilver, Inc.
    
    
    Subsidiaries(1)
    
    
    Subsidiaries
    
    
    Elimination
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,177
    
    
    $
    20,816
    
    
    $
    53,605
    
    
    $
    
    
    
    $
    75,598Trade accounts receivable, net
    
    
    
    
    
    
    207,120
    
    
    
    392,366
    
    
    
    
    
    
    
    599,486Other receivables
    
    
    920
    
    
    
    4,918
    
    
    
    21,576
    
    
    
    
    
    
    
    27,414Inventories
    
    
    
    
    
    
    118,548
    
    
    
    268,888
    
    
    
    (1,040
    )
    
    
    386,396Deferred income taxes
    
    
    
    
    
    
    22,531
    
    
    
    19,115
    
    
    
    
    
    
    
    41,646Prepaid expenses and other current
assets
    
    
    1,788
    
    
    
    6,588
    
    
    
    13,443
    
    
    
    
    
    
    
    21,819Total current assets
    
    
    3,885
    
    
    
    380,521
    
    
    
    768,993
    
    
    
    (1,040
    )
    
    
    1,152,359Fixed assets, net
    
    
    2,679
    
    
    
    66,604
    
    
    
    172,696
    
    
    
    
    
    
    
    241,979Intangible assets, net
    
    
    2,310
    
    
    
    47,960
    
    
    
    197,432
    
    
    
    
    
    
    
    247,702Goodwill
    
    
    
    
    
    
    177,841
    
    
    
    271,536
    
    
    
    
    
    
    
    449,377Investment in subsidiaries
    
    
    578,719
    
    
    
    
    
    
    
    
    
    
    
    (578,719
    )
    
    
    Other assets
    
    
    11,735
    
    
    
    4,933
    
    
    
    27,287
    
    
    
    
    
    
    
    43,955Assets held for sale
    
    
    
    
    
    
    4,225
    
    
    
    19,004
    
    
    
    
    
    
    
    23,229Total assets
    
    $
    599,328
    
    
    $
    682,084
    
    
    $
    1,456,948
    
    
    $
    (579,759
    )
    
    $
    2,158,601LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Lines of credit
    
    $
    
    
    
    $
    6,138
    
    
    $
    213,975
    
    
    $
    
    
    
    $
    220,113Accounts payable
    
    
    1,486
    
    
    
    78,859
    
    
    
    132,062
    
    
    
    
    
    
    
    212,407Accrued liabilities
    
    
    18,237
    
    
    
    29,777
    
    
    
    134,665
    
    
    
    294
    
    
    
    182,973Current portion of long-term debt
    
    
    
    
    
    
    1,230
    
    
    
    49,603
    
    
    
    
    
    
    
    50,833Income taxes payable
    
    
    
    
    
    
    14,872
    
    
    
    12,304
    
    
    
    
    
    
    
    27,176Intercompany balances
    
    
    (63,906
    )
    
    
    59,579
    
    
    
    4,327
    
    
    
    
    
    
    
    Total current liabilities
    
    
    (44,183
    )
    
    
    190,455
    
    
    
    546,936
    
    
    
    294
    
    
    
    693,502Long-term debt, net of current portion
    
    
    431,944
    
    
    
    76,456
    
    
    
    131,948
    
    
    
    
    
    
    
    640,348Deferred income taxes
    
    
    
    
    
    
    21,441
    
    
    
    60,187
    
    
    
    
    
    
    
    81,628Total liabilities
    
    
    387,761
    
    
    
    288,352
    
    
    
    739,071
    
    
    
    294
    
    
    
    1,415,478Minority interest
    
    
    
    
    
    
    
    
    
    
    10,241
    
    
    
    
    
    
    
    10,241Stockholders/invested equity
    
    
    211,567
    
    
    
    393,732
    
    
    
    707,636
    
    
    
    (580,053
    )
    
    
    732,882Total liabilities and stockholders
equity
    
    $
    599,328
    
    
    $
    682,084
    
    
    $
    1,456,948
    
    
    $
    (579,759
    )
    
    $
    2,158,601
 
 (1)
    
    Includes balance sheets for certain of the Companys domestic subsidiaries and the
Companys newly acquired domestic subsidiaries of Rossignol, except Cleveland Golf, from the
date of acquisition of July 31, 2005. 73




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
 CONDENSED CONSOLIDATING BALANCE SHEET
 AT OCTOBER 31, 2004
 Wholly-owned
    
    
    Non-Quiksilver,
    
    
    Guarantor
    
    
    GuarantorIn thousands
    
    Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Elimination
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    (1,070
    )
    
    $
    9,489
    
    
    $
    46,778
    
    
    $
    
    
    
    $
    55,197Trade accounts receivable, net
    
    
    
    
    
    
    125,732
    
    
    
    155,531
    
    
    
    
    
    
    
    281,263Other receivables
    
    
    5,033
    
    
    
    2,189
    
    
    
    14,273
    
    
    
    (5,330
    )
    
    
    16,165Inventories
    
    
    
    
    
    
    105,252
    
    
    
    75,035
    
    
    
    (682
    )
    
    
    179,605Deferred income taxes
    
    
    
    
    
    
    11,125
    
    
    
    11,174
    
    
    
    
    
    
    
    22,299Prepaid expenses and other current assets
    
    
    358
    
    
    
    4,866
    
    
    
    7,043
    
    
    
    
    
    
    
    12,267Total current assets
    
    
    4,321
    
    
    
    258,653
    
    
    
    309,834
    
    
    
    (6,012
    )
    
    
    566,796Fixed assets, net
    
    
    510
    
    
    
    53,456
    
    
    
    68,821
    
    
    
    
    
    
    
    122,787Intangible assets, net
    
    
    2,307
    
    
    
    48,831
    
    
    
    69,978
    
    
    
    
    
    
    
    121,116Goodwill
    
    
    
    
    
    
    77,738
    
    
    
    92,047
    
    
    
    
    
    
    
    169,785Investment in subsidiaries
    
    
    325,854
    
    
    
    
    
    
    
    
    
    
    
    (325,854
    )
    
    
    Other assets
    
    
    1,790
    
    
    
    714
    
    
    
    8,002
    
    
    
    
    
    
    
    10,506Total assets
    
    $
    334,782
    
    
    $
    439,392
    
    
    $
    548,682
    
    
    $
    (331,866
    )
    
    $
    990,990LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Lines of credit
    
    $
    
    
    
    $
    
    
    
    $
    10,801
    
    
    $
    
    
    
    $
    10,801Accounts payable
    
    
    1,689
    
    
    
    33,820
    
    
    
    69,545
    
    
    
    
    
    
    
    105,054Accrued liabilities
    
    
    19,810
    
    
    
    25,641
    
    
    
    39,080
    
    
    
    (5,436
    )
    
    
    79,095Current portion of long-term debt
    
    
    
    
    
    
    1,230
    
    
    
    9,074
    
    
    
    
    
    
    
    10,304Income taxes payable
    
    
    
    
    
    
    14,606
    
    
    
    3,836
    
    
    
    
    
    
    
    18,442Intercompany balances
    
    
    (114,273
    )
    
    
    2,774
    
    
    
    111,499
    
    
    
    
    
    
    
    Total current liabilities
    
    
    (92,774
    )
    
    
    78,071
    
    
    
    243,835
    
    
    
    (5,436
    )
    
    
    223,696Long-term debt, net of current portion
    
    
    46,178
    
    
    
    70,547
    
    
    
    49,155
    
    
    
    (2,671
    )
    
    
    163,209Deferred income taxes
    
    
    
    
    
    
    21,607
    
    
    
    (5,766
    )
    
    
    
    
    
    
    15,841Total liabilities
    
    
    (46,596
    )
    
    
    170,225
    
    
    
    287,224
    
    
    
    (8,107
    )
    
    
    402,746Stockholders/invested equity
    
    
    381,378
    
    
    
    269,167
    
    
    
    261,458
    
    
    
    (323,759
    )
    
    
    588,244Total liabilities and stockholders equity
    
    $
    334,782
    
    
    $
    439,392
    
    
    $
    548,682
    
    
    $
    (331,866
    )
    
    $
    990,990
 74




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
 CONDENSED CONSOLIDATING STATEMENT OF INCOME
 Year Ended October 31, 2005
 Wholly-owned
    
    
    Non-Quiksilver,
    
    
    Guarantor
    
    
    GuarantorIn thousands
    
    Inc.
    
    
    Subsidiaries(1)
    
    
    Subsidiaries
    
    
    Elimination
    
    
    ConsolidatedRevenues, net
    
    $
    2,904
    
    
    $
    809,018
    
    
    $
    1,003,298
    
    
    $
    (34,351
    )
    
    $
    1,780,869Cost of goods sold
    
    
    
    
    
    
    492,575
    
    
    
    491,150
    
    
    
    (11,380
    )
    
    
    972,345Gross profit
    
    
    2,904
    
    
    
    316,443
    
    
    
    512,148
    
    
    
    (22,971
    )
    
    
    808,524Selling, general and administrative
expense
    
    
    31,690
    
    
    
    238,373
    
    
    
    379,939
    
    
    
    (22,660
    )
    
    
    627,342Operating (loss) income
    
    
    (28,786
    )
    
    
    78,070
    
    
    
    132,209
    
    
    
    (311
    )
    
    
    181,182Interest expense
    
    
    12,940
    
    
    
    4,739
    
    
    
    4,271
    
    
    
    
    
    
    
    21,950Foreign currency (gain) loss
    
    
    (356
    )
    
    
    481
    
    
    
    (231
    )
    
    
    
    
    
    
    (106
    )Minority interest and other expense
    
    
    
    
    
    
    
    
    
    
    992
    
    
    
    
    
    
    
    992(Loss) income before provision for income
taxes
    
    
    (41,370
    )
    
    
    72,850
    
    
    
    127,177
    
    
    
    (311
    )
    
    
    158,346Provision for income taxes
    
    
    (14,972
    )
    
    
    29,078
    
    
    
    36,864
    
    
    
    256
    
    
    
    51,226Net (loss) income
    
    $
    (26,398
    )
    
    $
    43,772
    
    
    $
    90,313
    
    
    $
    (567
    )
    
    $
    107,120
 
 (1)
    
    Includes the results of operation for certain of the Companys domestic subsidiaries
and the Companys newly acquired domestic subsidiaries of Rossignol, except Cleveland Golf,
from the date of acquisition of July 31, 2005. 75




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
 CONDENSED CONSOLIDATING STATEMENT OF INCOME
 Year Ended October 31, 2004
 Non-Quiksilver,
    
    
    Guarantor
    
    
    GuarantorIn thousands
    
    Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Elimination
    
    
    ConsolidatedRevenues, net
    
    $
    685
    
    
    $
    648,119
    
    
    $
    644,819
    
    
    $
    (26,684
    )
    
    $
    1,266,939Cost of goods sold
    
    
    
    
    
    
    383,383
    
    
    
    312,558
    
    
    
    (7,161
    )
    
    
    688,780Gross profit
    
    
    685
    
    
    
    264,736
    
    
    
    332,261
    
    
    
    (19,523
    )
    
    
    578,159Selling, general and administrative
expense
    
    
    19,244
    
    
    
    195,545
    
    
    
    250,368
    
    
    
    (18,936
    )
    
    
    446,221Operating (loss) income
    
    
    (18,559
    )
    
    
    69,191
    
    
    
    81,893
    
    
    
    (587
    )
    
    
    131,938Interest (income) expense
    
    
    (7,156
    )
    
    
    2,569
    
    
    
    10,977
    
    
    
    
    
    
    
    6,390Foreign currency loss
    
    
    1,390
    
    
    
    1,403
    
    
    
    68
    
    
    
    
    
    
    
    2,861Other expense
    
    
    
    
    
    
    
    
    
    
    695
    
    
    
    
    
    
    
    695(Loss) income before provision for income
taxes
    
    
    (12,793
    )
    
    
    65,219
    
    
    
    70,153
    
    
    
    (587
    )
    
    
    121,992Provision for income taxes
    
    
    (4,804
    )
    
    
    24,271
    
    
    
    21,156
    
    
    
    
    
    
    
    40,623Net (loss) income
    
    $
    (7,989
    )
    
    $
    40,948
    
    
    $
    48,997
    
    
    $
    (587
    )
    
    $
    81,369
 76




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
 CONDENSED CONSOLIDATING STATEMENT OF INCOME
 Year Ended October 31, 2003
 Non-Quiksilver,
    
    
    Guarantor
    
    
    GuarantorIn thousands
    
    Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Elimination
    
    
    ConsolidatedRevenues, net
    
    $
    670
    
    
    $
    496,385
    
    
    $
    497,571
    
    
    $
    (19,621
    )
    
    $
    975,005Cost of goods sold
    
    
    
    
    
    
    296,586
    
    
    
    249,441
    
    
    
    (4,274
    )
    
    
    541,753Gross profit
    
    
    670
    
    
    
    199,799
    
    
    
    248,130
    
    
    
    (15,347
    )
    
    
    433,252Selling, general and administrative
expense
    
    
    13,202
    
    
    
    154,291
    
    
    
    179,960
    
    
    
    (15,266
    )
    
    
    332,187Operating (loss) income
    
    
    (12,532
    )
    
    
    45,508
    
    
    
    68,170
    
    
    
    (81
    )
    
    
    101,065Interest (income) expense
    
    
    (5,539
    )
    
    
    2,819
    
    
    
    10,987
    
    
    
    
    
    
    
    8,267Foreign currency loss
    
    
    558
    
    
    
    214
    
    
    
    1,471
    
    
    
    
    
    
    
    2,243Other expense
    
    
    
    
    
    
    
    
    
    
    488
    
    
    
    
    
    
    
    488(Loss) income before provision for income
taxes
    
    
    (7,551
    )
    
    
    42,475
    
    
    
    55,224
    
    
    
    (81
    )
    
    
    90,067Provision for income taxes
    
    
    (2,810
    )
    
    
    15,779
    
    
    
    18,582
    
    
    
    
    
    
    
    31,551Net (loss) income
    
    $
    (4,741
    )
    
    $
    26,696
    
    
    $
    36,642
    
    
    $
    (81
    )
    
    $
    58,516
 77




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
 CONSOLIDATING STATEMENT OF CASH FLOW
 Year Ended October 31, 2005
 Non-Quiksilver,
    
    
    Guarantor
    
    
    GuarantorIn thousands
    
    Inc.
    
    
    Subsidiaries(1)
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    (26,398
    )
    
    $
    43,772
    
    
    $
    89,746
    
    
    $
    107,120Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    246
    
    
    
    16,036
    
    
    
    25,582
    
    
    
    41,864Provision for doubtful accounts
    
    
    
    
    
    
    1,665
    
    
    
    1,956
    
    
    
    3,621Loss on sale of fixed assets
    
    
    (3
    )
    
    
    1,207
    
    
    
    2,240
    
    
    
    3,444Foreign currency gain
    
    
    (221
    )
    
    
    
    
    
    
    
    
    
    
    (221
    )Interest accretion
    
    
    
    
    
    
    
    
    
    
    1,319
    
    
    
    1,319Deferred income taxes
    
    
    
    
    
    
    1,783
    
    
    
    1,878
    
    
    
    3,661Changes in operating assets and
liabilities:Trade accounts receivable
    
    
    
    
    
    
    (62,277
    )
    
    
    (166,584
    )
    
    
    (228,861
    )Other receivables
    
    
    4,386
    
    
    
    (2,659
    )
    
    
    7,222
    
    
    
    8,949Inventories
    
    
    
    
    
    
    22,431
    
    
    
    4,909
    
    
    
    27,340Prepaid expenses and other
current assets
    
    
    (18
    )
    
    
    32
    
    
    
    (775
    )
    
    
    (761
    )Other assets
    
    
    421
    
    
    
    (1,623
    )
    
    
    (6,043
    )
    
    
    (7,245
    )Accounts payable
    
    
    (203
    )
    
    
    12,409
    
    
    
    10,327
    
    
    
    22,533Accrued liabilities
    
    
    (10,081
    )
    
    
    11,934
    
    
    
    5,696
    
    
    
    7,549Income taxes payable
    
    
    
    
    
    
    2,351
    
    
    
    5,923
    
    
    
    8,274Net cash (used in) provided by operating activities
    
    
    (31,871
    )
    
    
    47,061
    
    
    
    (16,604
    )
    
    
    (1,414
    )Cash flows from investing activities:Capital expenditures
    
    
    (2,473
    )
    
    
    (30,176
    )
    
    
    (38,209
    )
    
    
    (70,858
    )Business acquisitions, net of cash
acquired
    
    
    (231,948
    )
    
    
    (11,885
    )
    
    
    (8,032
    )
    
    
    (251,865
    )Net cash used in investing
activities
    
    
    (234,421
    )
    
    
    (42,061
    )
    
    
    (46,241
    )
    
    
    (322,723
    )Cash flows from financing activities:Borrowings on lines of credit
    
    
    
    
    
    
    6,208
    
    
    
    117,768
    
    
    
    123,976Payments on lines of credit
    
    
    
    
    
    
    (51,876
    )
    
    
    (45,925
    )
    
    
    (97,801
    )Borrowings on long-term debt
    
    
    484,843
    
    
    
    9,630
    
    
    
    135,983
    
    
    
    630,456Payments on long-term debt
    
    
    (140,705
    )
    
    
    (82,524
    )
    
    
    (93,724
    )
    
    
    (316,953
    )Proceeds from stock option exercises
    
    
    8,188
    
    
    
    
    
    
    
    
    
    
    
    8,188Intercompany
    
    
    (81,518
    )
    
    
    98,221
    
    
    
    (16,703
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    270,808
    
    
    
    (20,341
    )
    
    
    97,399
    
    
    
    347,866Effect of exchange rate changes on cash
    
    
    (2,269
    )
    
    
    493
    
    
    
    (1,552
    )
    
    
    (3,328
    )Net increase (decrease) in cash and cash
equivalents
    
    
    2,247
    
    
    
    (14,848
    )
    
    
    33,002
    
    
    
    20,401Cash and cash equivalents, beginning of
period
    
    
    (1,070
    )
    
    
    35,694
    
    
    
    20,573
    
    
    
    55,197Cash and cash equivalents, end of period
    
    $
    1,177
    
    
    $
    20,846
    
    
    $
    53,575
    
    
    $
    75,598
 
 (1)
    
    Includes the cash flows for certain of the Companys domestic subsidiaries and the
Companys newly acquired domestic subsidiaries of Rossignol, except Cleveland Golf, from the
date of acquisition of July 31, 2005. 78




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
 CONSOLIDATING STATEMENT OF CASH FLOW
 Year Ended October 31, 2004
 Non-Guarantor
    
    
    GuarantorIn thousands
    
    Quiksilver, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    (7,989
    )
    
    $
    40,948
    
    
    $
    48,410
    
    
    $
    81,369Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    722
    
    
    
    12,332
    
    
    
    13,793
    
    
    
    26,847Provision for doubtful accounts
    
    
    
    
    
    
    3,381
    
    
    
    2,742
    
    
    
    6,123Loss on sale of fixed assets
    
    
    
    
    
    
    792
    
    
    
    969
    
    
    
    1,761Foreign currency loss
    
    
    (159
    )
    
    
    
    
    
    
    
    
    
    
    (159
    )Interest accretion
    
    
    
    
    
    
    
    
    
    
    1,368
    
    
    
    1,368Deferred income taxes
    
    
    
    
    
    
    6,363
    
    
    
    (3,552
    )
    
    
    2,811Changes in operating assets and liabilities:Trade accounts receivable
    
    
    
    
    
    
    (33,098
    )
    
    
    (753
    )
    
    
    (33,851
    )Other receivables
    
    
    782
    
    
    
    203
    
    
    
    (2,007
    )
    
    
    (1,022
    )Inventories
    
    
    
    
    
    
    (5,176
    )
    
    
    (7,964
    )
    
    
    (13,140
    )Prepaid expenses and other current assets
    
    
    303
    
    
    
    2,070
    
    
    
    (1,249
    )
    
    
    1,124Other assets
    
    
    (288
    )
    
    
    959
    
    
    
    (406
    )
    
    
    265Accounts payable
    
    
    661
    
    
    
    1,169
    
    
    
    20,183
    
    
    
    22,013Accrued liabilities
    
    
    1,488
    
    
    
    15,194
    
    
    
    5,271
    
    
    
    21,953Income taxes payable
    
    
    
    
    
    
    15,753
    
    
    
    (2,620
    )
    
    
    13,133Net cash (used in) provided by operating activities
    
    
    (4,480
    )
    
    
    60,890
    
    
    
    74,185
    
    
    
    130,595Cash flows from investing activities:Capital expenditures
    
    
    (5,019
    )
    
    
    (18,524
    )
    
    
    (28,914
    )
    
    
    (52,457
    )Business acquisitions, net of cash acquired
    
    
    
    
    
    
    (65,074
    )
    
    
    (5,545
    )
    
    
    (70,619
    )Net cash used in investing activities
    
    
    (5,019
    )
    
    
    (83,598
    )
    
    
    (34,459
    )
    
    
    (123,076
    )Cash flows from financing activities:Borrowings on lines of credit
    
    
    
    
    
    
    75,000
    
    
    
    8,482
    
    
    
    83,482Payments on lines of credit
    
    
    (14,900
    )
    
    
    (27,921
    )
    
    
    (21,124
    )
    
    
    (63,945
    )Borrowings on long-term debt
    
    
    
    
    
    
    
    
    
    
    5,592
    
    
    
    5,592Payments on long-term debt
    
    
    
    
    
    
    (3,647
    )
    
    
    (10,831
    )
    
    
    (14,478
    )Proceeds from stock option exercises
    
    
    9,718
    
    
    
    
    
    
    
    
    
    
    
    9,718Intercompany
    
    
    14,846
    
    
    
    (20,884
    )
    
    
    6,038
    
    
    
    Net cash provided by financing activities
    
    
    9,664
    
    
    
    22,548
    
    
    
    (11,843
    )
    
    
    20,369Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    (557
    )
    
    
    (557
    )Net increase in cash and cash equivalents
    
    
    165
    
    
    
    (160
    )
    
    
    27,326
    
    
    
    27,331Cash and cash equivalents, beginning of period
    
    
    (1,235
    )
    
    
    9,649
    
    
    
    19,452
    
    
    
    27,866Cash and cash equivalents, end of period
    
    $
    (1,070
    )
    
    $
    9,489
    
    
    $
    46,778
    
    
    $
    55,197
 79




---



##### Table of Contents



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2005, 2004 and 2003
 CONSOLIDATING STATEMENT OF CASH FLOW
 Year Ended October 31, 2003
 Non-Guarantor
    
    
    GuarantorIn thousands
    
    Quiksilver, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    (4,741
    )
    
    $
    26,696
    
    
    $
    36,561
    
    
    $
    58,516Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    537
    
    
    
    9,667
    
    
    
    10,981
    
    
    
    21,185Provision for doubtful accounts
    
    
    
    
    
    
    3,689
    
    
    
    2,066
    
    
    
    5,755Loss on sale of fixed assets
    
    
    
    
    
    
    3
    
    
    
    180
    
    
    
    183Foreign currency loss
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    23Interest accretion
    
    
    
    
    
    
    
    
    
    
    902
    
    
    
    902Deferred income taxes
    
    
    
    
    
    
    685
    
    
    
    (3,609
    )
    
    
    (2,924
    )Changes in operating assets and liabilities:Trade accounts receivable
    
    
    
    
    
    
    (4,462
    )
    
    
    (14,937
    )
    
    
    (19,399
    )Other receivables
    
    
    (606
    )
    
    
    1,226
    
    
    
    (1,184
    )
    
    
    (564
    )Inventories
    
    
    
    
    
    
    (17,035
    )
    
    
    (13,638
    )
    
    
    (30,673
    )Prepaid expenses and other current assets
    
    
    (142
    )
    
    
    (407
    )
    
    
    (2,299
    )
    
    
    (2,848
    )Other assets
    
    
    (1,407
    )
    
    
    (899
    )
    
    
    (809
    )
    
    
    (3,115
    )Accounts payable
    
    
    201
    
    
    
    373
    
    
    
    (1,968
    )
    
    
    (1,394
    )Accrued liabilities
    
    
    7,564
    
    
    
    (5,867
    )
    
    
    (785
    )
    
    
    912Income taxes payable
    
    
    
    
    
    
    13,105
    
    
    
    (3,073
    )
    
    
    10,032Net cash provided by operating activities
    
    
    1,429
    
    
    
    26,774
    
    
    
    8,388
    
    
    
    36,591Cash flows from investing activities:Capital expenditures
    
    
    (634
    )
    
    
    (17,610
    )
    
    
    (14,827
    )
    
    
    (33,071
    )Business acquisitions, net of cash acquired
    
    
    (24,226
    )
    
    
    (5,750
    )
    
    
    (1,219
    )
    
    
    (31,195
    )Net cash used in investing activities
    
    
    (24,860
    )
    
    
    (23,360
    )
    
    
    (16,046
    )
    
    
    (64,266
    )Cash flows from financing activities:Borrowings on lines of credit
    
    
    38,421
    
    
    
    58,910
    
    
    
    1,779
    
    
    
    99,110Payments on lines of credit
    
    
    
    
    
    
    (56,807
    )
    
    
    
    
    
    
    (56,807
    )Borrowings on long-term debt
    
    
    
    
    
    
    
    
    
    
    16,126
    
    
    
    16,126Payments on long-term debt
    
    
    
    
    
    
    (13,730
    )
    
    
    (7,980
    )
    
    
    (21,710
    )Proceeds from stock option exercises
    
    
    11,330
    
    
    
    
    
    
    
    
    
    
    
    11,330Intercompany
    
    
    (27,607
    )
    
    
    20,849
    
    
    
    6,758
    
    
    
    Net cash provided by (used in) financing activities
    
    
    22,144
    
    
    
    9,222
    
    
    
    16,683
    
    
    
    48,049Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    4,895
    
    
    
    4,895Net increase in cash and cash equivalents
    
    
    (1,287
    )
    
    
    12,636
    
    
    
    13,920
    
    
    
    25,269Cash and cash equivalents, beginning of period
    
    
    52
    
    
    
    (2,987
    )
    
    
    5,532
    
    
    
    2,597Cash and cash equivalents, end of period
    
    $
    (1,235
    )
    
    $
    9,649
    
    
    $
    19,452
    
    
    $
    27,866
 80




---



##### Table of Contents



SIGNATURES
   QUIKSILVER, INC.  (Registrant)
 By:
    
    /s/ Robert B. McKnight, Jr.
    
    By:
    
    /s/ Steven L. BrinkRobert B. McKnight, Jr.
    
    
    
    Steven L. BrinkChairman of the Board andChief Executive Officer
    
    
    
    Chief Financial Officerand Treasurer
   Signatures
    
    Title
    
    Date Signed/s/ Robert B. McKnight, Jr.
    
    Chairman of the Board andChief Executive Officer(Principal Executive Officer)
    
    January 17, 2006Robert B. McKnight, Jr./s/ Steven L. Brink
    
    Chief Financial Officerand Treasurer(Principal Financial and Accounting Officer)
    
    January 17, 2006Steven L. Brink/s/ Bernard Mariette
    
    President and Director
    
    January 17, 2006Bernard Mariette/s/ Charles S. Exon
    
    Executive Vice President,General Counsel and DirectorCharles Exon
    
    
    January 17, 2006/s/ Douglas K. Ammerman
    
    Director
    
    January 17, 2006Douglas K. Ammerman/s/ William M. Barnum, Jr.
    
    Director
    
    January 17, 2006William M. Barnum, Jr.Director
    
    January 17, 2006Laurent Boix-Vives
 81




---



##### Table of Contents



Signatures
    
    Title
    
    Date Signed/s/ Charles E. Crowe
    
    Director
    
    January 17, 2006Charles E. Crowe/s/ Michael H. Gray
    
    Director
    
    January 17, 2006Michael H. Gray/s/ Timothy Harmon
    
    Director
    
    January 17, 2006Timothy Harmon/s/ Franck Riboud
    
    Director
    
    January 17, 2006Franck Riboud/s/ Tom Roach
    
    Director
    
    January 17, 2006Tom Roach
 82




---



##### Table of Contents



EXHIBIT INDEX
 DESCRIPTION
 ExhibitNumber2.1
    
    English Translation of the Acquisition Agreement, dated April 12, 2005, between the
Company and Mr. Laurent Boix-Vives, Ms. Jeannine Boix-Vives, Ms. Christine Simon, Ms.
Sylvie Bernard and SDI Société de Services et Développement (incorporated by reference
to Exhibit 10.1 of the Companys Current Report on Form 8-K filed on April 18, 2005).2.2
    
    Stock Purchase Agreement between the Company and the Sellers of DC Shoes, Inc.
dated March 8, 2004 (incorporated by reference to Exhibit 2.1 of the Companys Current
Report on Form 8-K filed on May 18, 2004).2.3
    
    First Amendment to the Stock Purchase Agreement between the Company and the Sellers
of DC Shoes, Inc. dated May 3, 2004 (incorporated by reference to Exhibit 2.2 of the
Companys Current Report on Form 8-K filed on May 18, 2004).2.4
    
    Merger Agreement, dated November 18, 2002, by and among Quiksilver, Inc.,
Quiksilver Australia Pty Ltd., QSJ Holdings Pty Ltd., Ug Manufacturing Co. Pty Ltd.,
Quiksilver Japan K.K., and certain shareholders of Ug Manufacturing Co. Pty Ltd. and
Quiksilver Japan K.K. (incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed on January 2, 2003).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 3.2 of the Companys Annual Report on Form 10-K for the fiscal year ended
October 31, 2003).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
    
    Registration Rights Agreement for the 6 7/8% Senior Notes due 2015 dated as of July
22, 2005, among Quiksilver, Inc., certain subsidiaries of Quiksilver, Inc. and the
purchasers listed therein (incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed July 25, 2005)10.2
    
    Purchase Agreement for the 67/8% Senior Notes due 2015
dated July 14, 2005, among Quiksilver, Inc., certain subsidiaries of Quiksilver, Inc.
and the purchasers listed therein (incorporated by reference to Exhibit 10.2 of the
Companys Quarterly Report on Form 10-Q for the quarter ended July 31, 2005).10.3
    
    English translation of Subscription Agreement for the 3.231% EUR 50,000,000 notes
due July, 2010 dated July 11, 2005 among Skis Rossignol S.A. and certain subsidiaries
and Societe Generale Bank & Trust (incorporated by reference to Exhibit 10.3 of the
Companys Quarterly Report on Form 10-Q for the quarter ended July 31, 2005).10.4
    
    Amended and Restated Credit Agreement, dated as of June 3, 2005, by and among the
Company, Quiksilver Americas, Inc., the Lenders named therein, JPMorgan Chase Bank,
N.A., as Administrative Agent, and J.P. Morgan Securities, Inc. as Sole Bookrunner and
Sole Lead Arranger (the Amended and Restated Credit Agreement) (incorporated by
reference to Exhibit 10.5 of the Companys Quarterly Report on Form 10-Q for the quarter
ended April 30, 2005).10.5
    
    First Amendment to the Amended and Restated Credit Agreement dated October 28, 2005.10.6
    
    Second Amendment to the Amended and Restated Credit Agreement dated January 13,
2006.
 83




---



##### Table of Contents



ExhibitNumber10.7
    
    Form of Indemnity Agreement between Quiksilver, Inc. and individual directors and
officers of Quiksilver, Inc. (incorporated by reference to Exhibit 10.5 of the Companys
Annual Report on Form 10-K for the year ended October 31, 1996).(1)10.8
    
    Quiksilver, Inc. Annual Incentive Plan, as restated (incorporated by reference to
Exhibit 10.2 of the Companys Quarterly Report on Form 10-Q for the quarter ended April
30, 2005).(1)10.9
    
    Quiksilver, Inc. 2000 Stock Incentive Plan, as amended and restated, together with
form Stock Option Agreements (incorporated by reference to Exhibit 10.4 of the Companys
Quarterly Report on Form 10-Q for the quarter ended April 30, 2005).(1)10.10
    
    Quiksilver, Inc. 1996 Stock Option Plan, together with form Stock Option Agreements
(incorporated by reference to Exhibit 10.1 of the Companys Quarterly Report on Form
10-Q for the quarter ended April 30, 1996).(1)10.11
    
    Quiksilver, Inc. 1998 Nonemployee Directors Stock Option Plan, together with form
Stock Option Agreement (incorporated by reference to Exhibit 10.9 of the Companys
Annual Report on Form 10-K for the year ended October 31, 2004).(1)10.12
    
    Employment Agreement between Robert B. McKnight, Jr. and Quiksilver, Inc. dated May
25, 2005 (incorporated by reference to Exhibit 10.1 of the Companys Current Report on
Form 8-K filed on May 27, 2005).(1)10.13
    
    Employment Agreement between Bernard Mariette and Quiksilver, Inc. dated May 25,
2005 (incorporated by reference to Exhibit 10.2 of the Companys Current Report on Form
8-K filed on May 27, 2005).(1)10.14
    
    Employment Agreement between Charles S. Exon and Quiksilver, Inc. dated May 25,
2005 (incorporated by reference to Exhibit 10.3 of the Companys Current Report on Form
8-K filed on May 27, 2005).(1)10.15
    
    Employment Agreement between Steven L. Brink and Quiksilver, Inc. dated May 25,
2005 (incorporated by reference to Exhibit 10.4 of the Companys Current Report on Form
8-K filed on May 27, 2005).(1)10.16
    
    Quiksilver, Inc. Written Description of Nonemployee Director Compensation
(incorporated by reference to Exhibit 10.19 of the Companys Annual Report on Form 10-K
for the year ended October 31, 2004).(1)10.17
    
    Quiksilver, Inc. Long Term Incentive Plan (incorporated by reference to Exhibit
10.20 of the Companys Annual Report on Form 10-K for the year ended October 31,
2004).(1)10.18
    
    Award grant under Quiksilver, Inc. Long-Term Incentive Plan dated January 26, 2005
(incorporated by reference to Exhibit 10.1 of the Companys Quarterly Report on Form
10-Q for the quarter ended January 31, 2005).(1)10.19
    
    English translation for the Roger Cleveland Shareholders Agreement between
Quiksilver, Rossignol Ski Company, Inc., Skis Rossignol, S.A., Laurent Boix-Vives,
Jeannine Boix-Vives, Christine Simon, Sylvie Bernard and SDI Société Service et
Developpement dated April 12, 2005 (incorporated by reference to Exhibit 2.7 of Exhibit
10.1 to the Companys Current Report of Form 8-K filed on April 18, 2005).10.20
    
    English Translation of the Service Provision Agreement between Quiksilver, Inc. and
Service Expansion International dated April 12, 2005.12.1
    
    Computation of Ratio of Earnings to Fixed Charges.21.1
    
    Subsidiaries of Quiksilver, Inc.23.1
    
    Consent of Deloitte & Touche LLP24.1
    
    Power of Attorney (included on signature page).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 200332.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section
906 of The Sarbanes-Oxley Act of 2003
 
 (1)
    
    Management contract or compensatory plan. 84