##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K (Mark One) þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended October 31, 2004 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
Registrants telephone number, including area code Securities registered pursuant to Section 12(b) of the Act: Title of
    
    Name of each exchangeeach class
    
    on which registeredCommon Stock
    
    New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act:None
(Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YesþNoo Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2). YesþNoo The aggregate market value of the Registrants Common Stock held by non-affiliates of the
Registrant was approximately $1.23 billion as of April 30, 2004, the last business day of
Registrants most recently completed second fiscal quarter. As of January 4, 2005, there were 58,741,674 shares of the Registrants Common Stock issued
and outstanding. DOCUMENTS INCORPORATED BY REFERENCE




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##### Table of Contents



TABLE OF CONTENTS PagePART IItem 1.
    
    BUSINESSIntroduction
    
    1Recent Developments
    
    1Segment Information
    
    2Products and Brands
    
    2Product Categories
    
    3Product Design
    
    3Promotion and Advertising
    
    4Customers and Sales
    
    5Retail Concepts
    
    6Seasonality
    
    7Production and Raw Materials
    
    7Imports and Import Restrictions
    
    8Trademarks and Licensing Agreements
    
    8Competition
    
    9Future Season Orders
    
    9Employees
    
    10Environmental Matters
    
    10Available Information
    
    10Forward-Looking Statements
    
    10Risk Factors
    
    11Item 2.
    
    PROPERTIES
    
    13Item 3.
    
    LEGAL PROCEEDINGS
    
    14Item 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    14PART IIItem 5.
    
    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    15Item 6.
    
    SELECTED FINANCIAL DATA
    
    16Item 7.
    
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    18Item 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    29Item 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    30Item 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    30Item 9A.
    
    CONTROLS AND PROCEDURES
    
    30Item 9B.
    
    OTHER INFORMATION
    
    31PART IIIItem 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    32Item 11.
    
    EXECUTIVE COMPENSATION
    
    32Item 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    32Item 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    32Item 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    32PART IVItem 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    33INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
    
    34SIGNATURES
    
    58EXHIBIT 3.1EXHIBIT 10.2EXHIBIT 10.3EXHIBIT 10.6EXHIBIT 10.9EXHIBIT 10.10EXHIBIT 10.19EXHIBIT 10.20EXHIBIT 10.21EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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PART I 
 Item 1. BUSINESS Unless the context indicates otherwise, when we refer to Quiksilver, we, us, our, or the
Company in this Form 10-K, we are referring to Quiksilver, Inc. and its subsidiaries on a
consolidated basis. Quiksilver, Inc. was incorporated in 1976 and was reincorporated in Delaware
in 1986. Our fiscal year ends on October 31, and references to fiscal 2004, fiscal 2003 or fiscal
2002 refer to the years ended October 31, 2004, 2003 or 2002, respectively. 
 Introduction We are a globally integrated company that designs, produces and distributes branded clothing,
accessories and related products for young-minded people. Our brands represent a casual
lifestyledriven from our authentic boardriding heritage. Our primary focus is apparel for young
men and young women under the Quiksilver, Roxy, Raisins, DC Shoes, Radio Fijiand Gotcha(Europe)
labels. We also manufacture apparel for boys (Quiksilver Boysand Hawk Clothing), girls (Roxy
Girl, Teenie Wahineand Raisins Girls), men (Quiksilvereditionand Fidra,our golf line) and women
(Leilaniswimwear), as well as snowboards, snowboard boots and bindings under the Lib Technologies,
DC Shoes, Gnu, Roxyand Bent Metallabels. We generate revenues primarily in the United States, Europe and the Asia/Pacific market. Our
products are sold primarily in surf shops, specialty stores, and our proprietary retail concept
Boardriders Club stores where we can best carry our authentic brand message to the consumer. Since acquiring Quiksilver International Pty Ltd., an Australian company (Quiksilver
International), in July 2000, we have owned all international rights to use the Quiksilverand
Roxytrademarks. Before then, we owned these intellectual property rights in the United States and
Mexico only, and operated under license agreements with Quiksilver International to use the
trademarks in other countries and territories. In December 2002, we took an additional step in consolidating global control of the Quiksilverand
Roxybrands by acquiring Ug Manufacturing Co. Pty Ltd., and Quiksilver Japan KK, our licensees
(through Quiksilver International) in Australia, Japan, New Zealand and other Southeast Asian
territories. By acquiring this group of companies, which we refer to as Quiksilver Asia/Pacific,
we created a global operating platform consisting of our Americas, European and Asia/Pacific
operations. We believe our 35-year history of continuing commitment to board sports and our development of
innovative products that relate to and reflect this fast growing global lifestyle give our company
and our brands a credibility and authenticity that is truly unique in our industry. Our
boardriding lifestyle generates products and images that are recognized around the world as symbols
of fun, freedom and individual expression. As the leader of the boardriding outdoor active
lifestyle, we are now carrying our products and brand message to a diversity of markets worldwide. 
 Recent Developments In May 2004, we acquired DC Shoes, Inc. (DC), a premier designer, producer and distributor of
action sports inspired footwear, apparel and related accessories in the U.S. and internationally.
DCs skateboard-driven image and lifestyle is complementary to our existing brands, and it is well
positioned within the global youth market. DCs brand transcends the traditional boundaries of
both footwear and skateboarding with a diverse product mix respected by boardriders as well as a
broad base of consumers. We believe that DCs business will benefit from our existing
infrastructure, and that we will benefit from DCs footwear expertise. 1




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Segment Information We operate exclusively in the consumer products industry segment. Beginning with fiscal 2003, we
have three geographic segments, the Americas, Europe and Asia/Pacific. The Americas segment
includes revenues primarily from the U.S. and Canada. The European segment includes revenues
primarily from Western Europe. The Asia/Pacific segment includes revenues primarily from
Australia, Japan, New Zealand and Indonesia. Royalties earned from various licensees in other
international territories are categorized in corporate operations. For information regarding the
revenues, operating profits and identifiable assets attributable to our geographic segments, see
Note 15 of our financial statements. 
 Products and Brands Our first product was the famous Quiksilverboardshort developed by two Australian surfers who
founded Quiksilver Australia in the late 1960s. The Quiksilverboardshort, identified by its
distinctive mountain and wave logo, became known in the core surfing world as a technically
innovative and stylish product. The reputation and popularity of the Quiksilverboardshort grew,
having been brought to the beaches of California and Southwest France in the 1970s by the founders
of our company and Quiksilver Europe. Since the first boardshort, our product lines have been
greatly expanded, but our brands continue to represent innovation and quality. In the 1990s we
called on the Quiksilverheritage to reach out to the girls market by creating the Roxybrand for
juniors, which has become our fastest growing brand. In 2004, we acquired the DC Shoesbrand from
its founders and expanded our presence in the action sports inspired footwear arena. In addition
to Quiksilver, Roxyand DC Shoes, we have developed a stable of other brands to address a wide
variety of consumers and markets. We believe this multibrand strategy will allow us to continue to
grow across a diverse range of products and distribution with broad appeal across gender, age
groups and geographies. Quiksilver Our Quiksilverproduct line now includes shirts, walkshorts, t-shirts, fleece, pants, jackets,
snowboardwear, footwear, hats, backpacks, wetsuits, watches, eyewear and other accessories.
Quiksilverhas also expanded demographically and currently includes young men, boys and toddlers.
Quiksilvereditionis our brand targeted at men. In fiscal 2004, the Quiksilverline of products
represented approximately 51% of our revenues. Roxy Our Roxybrand for young women is a surf-inspired collection that we introduced in fiscal 1991.
The Roxyline is branded with a heart logo composed of back-to-back images of the Quiksilver
mountain and wave logo and includes a full range of sportswear, swimwear, footwear, backpacks,
snowboardwear, snowboards, snowboard boots, fragrance, beauty care, bedroom furnishings and other
accessories for young women. Through fiscal 1997, Roxyincluded juniors sizes only, but was then
expanded as Teenie Wahineand Roxy Girlinto the girls categories. In fiscal 2004, the Roxy
product line accounted for approximately 33% of our revenues. DC Shoes Our recently acquired DC Shoeslabel specializes in performance skateboard shoes, snowboard boots,
sandals and apparel for both young men and juniors. This brand enhances our footwear expertise and
strengthens our presence in the core skateboard market. In fiscal 2004, the DC Shoesproduct line
accounted for approximately 7% of our revenues Other Brands In fiscal 2004, our other brands represented approximately 9% of our revenues.  
    Raisins, Radio Fiji, Leilani, Island Soul- Raisinsand Radio Fiji
are swimwear labels in the juniors category while Leilaniis a
contemporary swimwear label. We also produce Island Soulswimwear
for certain department store chains and specialty shops. 2




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
    Hawk- Tony Hawk, the world-famous skateboarder, is the
inspiration for our Hawk Clothingbrand. Our target audience for
the Hawkproduct line is boys who recognize Tony from his broad
media and video game exposure.
    Gotcha- Gotchais one of our European labels and gives us product
to address European street fashion for young men.
    Fidra Fidra, our golf apparel line, was conceived and developed
by golf industry pioneer, John Ashworth, and is endorsed by world
famous golfer, Ernie Els.
    Lib Tech, Gnu, Bent Metal We address the core snowboard market
through our Lib Technologies and Gnubrands of snowboards and
accessories and Bent Metalsnowboard bindings. 
 Product Categories The following table shows the approximate percentage of revenues attributable to each of our major
product categories during the last three fiscal years: Percentage of Revenues2004
    
    2003
    
    2002T-Shirts
    
    
    19
    %
    
    
    20
    %
    
    
    20
    %Accessories
    
    
    14
    
    
    
    14
    
    
    
    12Jackets, sweaters and snowboardwear
    
    
    12
    
    
    
    12
    
    
    
    12Pants
    
    
    10
    
    
    
    11
    
    
    
    11Shirts
    
    
    9
    
    
    
    10
    
    
    
    11Footwear
    
    
    9
    
    
    
    5
    
    
    
    4Swimwear, excluding boardshorts
    
    
    7
    
    
    
    8
    
    
    
    9Fleece
    
    
    5
    
    
    
    6
    
    
    
    7Shorts
    
    
    5
    
    
    
    6
    
    
    
    6Boardshorts
    
    
    4
    
    
    
    4
    
    
    
    3Tops and dresses
    
    
    4
    
    
    
    3
    
    
    
    3Snowboards, snowboard boots, bindings and accessories
    
    
    2
    
    
    
    1
    
    
    
    2100
    %
    
    
    100
    %
    
    
    100
    %
 Although our products are generally available throughout the year, demand for different categories
of product changes in the different seasons of the year. Sales of shorts, short-sleeve shirts,
t-shirts and swimwear are higher during the spring and summer seasons, and sales of pants,
long-sleeve shirts, fleece, jackets, sweaters, snowboardwear and snowboards are higher during the
fall and holiday seasons. We believe that the U.S. retail prices for our apparel products range from approximately $18 for a
t-shirt and $41 for a typical short to a range of $120 to $320 for a snowboard jacket. For
European products, retail prices range from approximately $35 for a t-shirt and about $61 for a
typical short to $220 for a basic snowboard jacket. Asia/Pacific t-shirts sell for approximately
$32, while shorts sell for approximately $54, and a basic snowboard jacket sells for approximately
$210. Retail prices for a typical skate shoe range from approximately $60 in the U.S. to
approximately $117 in Europe. 
 Product Design Our products are designed for young-minded people who live a casual lifestyle. Innovative design,
active fabrics and quality of workmanship are emphasized. Our design and merchandising teams
create seasonal product ranges for each of our brands. These design groups constantly monitor
local and global fashion trends. We believe our most valuable input comes from our own managers,
employees, sponsored athletes and independent sales representatives who are actively involved in
surfing, skateboarding, snowboarding and other sports in our core market. This connection with our
core market
continues to be the inspiration for our product and is key to our reputation for distinct and
authentic design. 3




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Our design centers in California, Europe, Australia and Japan develop and share designs and
merchandising themes and concepts that are globally consistent while reflecting local adaptations
for differences in geography, culture and taste. 
 Promotion and Advertising Our three-decade commitment to core marketing at the grass-roots level in the sport of surfing and
other youth boardriding activities is the foundation of the promotion and advertising of our brands
and products. The sponsorship of high profile athletes in outdoor, individual sports, including surfing,
skateboarding, snowboarding, windsurfing and golf is an important marketing vehicle for us. Many
of these athletes such as Kelly Slater, Lisa Anderson, Tom Carroll, Sofia Mulanovich, Tony Hawk,
Danny Way, Bastien Salabanzi, Robbie Naish, Danny Kass and Ernie Els have achieved world champion
status in their respective sports and are featured in our promotional content. We operate a
promotional fund that is used to sponsor portions of our international team of leading athletes,
produce promotional movies and videos featuring athletes wearing and/or using Quiksilverand Roxy
products, and organize surf, skate and snow contests and other events that have international
significance. Our core marketing is based on our sponsorship and support of surf, skateboard and snowboard
contests in markets where we distribute product. These events reinforce the reputations of our
brands as authentic among boardriders and non-boardriders alike. For example, the Quiksilver in
Memory of Eddie Aikau Big Wave Invitationalis held at Waimea Bay in Hawaii. Quiksilver Proevents
are held on the Gold Coast of Australia, the beaches of Southwestern France and the beaches of
Japan. The Roxy Prois held in Hawaii and other international locations. We also produce many
events in Europe, including the Grommets Trophysurfing event, the Slopestyle Prosnowboarding
event and the Bowlridersskateboarding event. The Quiksilver Airshows, which feature aerial surf
maneuvers, are held in New Zealand, Japan, Indonesia and Australia. Along with other international
contests, we also sponsor many regional and local events, such as surf camps and skate park tours,
for beginners and enthusiasts. Our DCathletes participate regularly in the X Games. Sixteen of
our DCathletes competed in the Summer X Games, earning 14 medals. We sponsor the Quiksilver Crossing, a continuing voyage of the Indies Trader, a surf exploration
vessel whose mission is to explore new surfing regions around the world and document the state of
the environment under a team of marine biologists. The Quiksilver Crossing,now in its sixth year,
began its voyage in the South Pacific, continued on through the Suez Canal to Europe in 2002,
visited the Caribbean in 2003, reached the east coast and Mississippi River of the U.S. in 2004 and
is heading for the west coast of the U.S. in 2005. Based on our international reputation for authenticity, compelling content and technical competence
in the youth market, we enter into co-branding arrangements. For example, Peugeot has produced
cars branded with Quiksilver, while Boost Mobile has produced and sold Roxy mobile phones in the
U.S. and Quiksilver and Roxy mobile phones in Australia, and Sony has produced a waterproof digital
camera branded with Quiksilverand original Quiksilver artwork. Our Quiksilver Entertainment division is also producing television programming, documentaries and
feature films, and publishing fiction and non-fiction books to transmit our boardriding lifestyle
to the core and mainstream audiences. We developed and produce 54321, a weekly series on Fuel TV
and Fox Sports Net, and we produced the Surf Girls reality series on MTV which has aired in the U.S.
and internationally. In 2004, we launched Union, a mainstream action sports film distribution
company. Union distributes the highest quality action sports films from the leading producers in
the action sports industry through a variety of mainstream channels, including over 1,000 retail
locations in the U.S., Europe, Japan, China, and Australia. 4




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Customers and Sales Our distribution strategy is premised on our longstanding belief that the integrity and success of
our brands is dependent on responsible growth and careful selection of the retail accounts where
our products are merchandised and sold. Our policy is to sell to retailers who provide an outstanding in-store experience for their
customers and who merchandise our products in a manner consistent with the image of our brands and
the quality of our products. Our customer base has for many years reflected our goal of
diversification of distribution to include surf shops, skate shops, snowboard shops, other
specialty stores, national specialty chains and select department stores. The foundation of our business is distribution of product through surf shops, skate shops,
snowboard shops, Boardriders Clubs and specialty stores where in-store shops, fixturing and
point-of-sale materials carry our brand message. This core distribution channel serves as a base
of legitimacy and long-term loyalty to us and our brands. Most of these stores stand alone or are
part of small chains. We also sell to independent specialty or active lifestyle stores and specialty chains not
specifically characterized as surf shops, skate shops or snowboard shops. This category includes
chains such as Pacific Sunwear, Nordstrom, Zumiez, Chicks Sporting Goods and Journeys, as well as
many independent active lifestyle stores and sports shops. We also sell to a limited number of
department stores, including Macys, Robinsons-May, Dillards, The Bon Marche and Burdines in the
U.S.; Le Printemps and Galeries Lafayette in France; Corte Ingles in Spain; and Lillywhites in
Great Britain. Many of our brands are sold through the same retail accounts; however, distribution can be
different depending on the brand and demographic group. Our Quiksilverproducts are sold in the
Americas to customers that have approximately 8,400 store locations combined. Likewise, Roxy
products are sold in the Americas to customers with approximately 8,350 store locations. Most of
these Roxylocations also carry Quiksilverproduct. In the Americas, DCproducts are carried in
approximately 5,000 stores, primarily in the U.S. and Canada. Our swimwear brands (Raisins,
Leilaniand Radio Fiji) are found in 10,400 stores, including many small, specialty swim locations,
while our wintersports hardgoods products are found in approximately 1,300 stores, including
primarily snowboard shops in the U.S. and Canada. Hawkbrands are carried in approximately 3,800
stores, primarily in the U.S. These stores include skate shops and department stores. Fidrais
carried in approximately 900 green grass stores primarily in the U.S. Our products are found in
approximately 6,800 store locations in Europe, and in approximately 2,100 store locations in
Asia/Pacific, in both cases primarily Quiksilverand Roxy. Distribution of DCproducts in Europe
and Asia/Pacific has been primarily through distributors. Our European segment accounted for approximately 39% and 40% of our consolidated revenues during
fiscal 2004 and 2003, respectively. Our Asia/Pacific segment accounted for approximately 12% and
10% of our consolidated revenues in fiscal 2004 and 2003, respectively. Other fiscal 2004 foreign
sales are in the Americas (Canada, Central and South America) and were approximately 5% of
consolidated revenues. The following table summarizes the approximate percentages of our fiscal 2004 revenues by
distribution channel: Percentage of RevenuesDistribution Channel
    
    Americas
    
    Europe
    
    Asia/Pacific
    
    ConsolidatedBoardriders Clubs,
in-store specialty
shops, surf, skate
and snow shops
    
    
    26
    %
    
    
    37
    %
    
    
    78
    %
    
    
    36
    %Specialty stores
    
    
    52
    
    
    
    46
    
    
    
    6
    
    
    
    45Department stores
    
    
    11
    
    
    
    7
    
    
    
    9
    
    
    
    9U.S. exports
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    5Distributors
    
    
    
    
    
    
    10
    
    
    
    7
    
    
    
    5Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Geographic segment
    
    
    49
    %
    
    
    39
    %
    
    
    12
    %
    
    
    100
    %
 5




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Our revenues are spread over a large wholesale customer base. During fiscal 2004, approximately
17% of our consolidated revenues were from our ten largest customers and no single customer
accounted for more than 4% of such revenues. Our products are sold by approximately 310 independent sales representatives in the Americas,
Europe and Asia/Pacific. In addition, we use approximately 60 local distributors in Europe, which
includes approximately 26 DCdistributors. Our other international DCbusiness uses approximately
20 distributors, primarily in Asia/Pacific and South America. Our sales representatives are
generally compensated on a commission basis. We employ retail merchandise coordinators who travel
between specified retail locations of our wholesale customers to further improve the presentation
of our product and build our image at the retail level. Our sales are globally diversified. The following table summarizes the approximate percentages of
our fiscal 2004 revenues by geographic region (excluding licensees): Percentage of RevenuesGeographic Region
    
    2004
    
    2003
    
    2002U.S. West Coast and Hawaii
    
    
    24
    %
    
    
    26
    %
    
    
    32
    %U.S. East Coast
    
    
    10
    
    
    
    11
    
    
    
    12Other U.S
    
    
    10
    
    
    
    8
    
    
    
    10Other Americas
    
    
    5
    
    
    
    5
    
    
    
    6France
    
    
    15
    
    
    
    16
    
    
    
    17United Kingdom and Spain
    
    
    14
    
    
    
    15
    
    
    
    14Other European countries
    
    
    10
    
    
    
    9
    
    
    
    9Asia/Pacific
    
    
    12
    
    
    
    10
    
    
    
    Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 We generally sell our products to customers on a net-30 to net-60 day basis in the Americas, and in
Europe and Asia/Pacific on a net-30 to net-90 day basis depending on the country and whether we
sell directly to retailers in the country or to a distributor. Some customers are on C.O.D. terms.
We generally do not reimburse our customers for marketing expenses, participate in markdown
programs with our customers, or offer goods on consignment. For additional information regarding our revenues, operating profits and identifiable assets
attributable to our geographic segments, see Note 15 of our financial statements. 
 Retail Concepts Quiksilverconcept stores (Boardriders Clubs) are an important part of our global retail strategy.
These stores are stocked primarily with Quiksilverand Roxyproduct, and their proprietary design
demonstrates the Companys history, authenticity and commitment to surfing and other boardriding
sports. We also have Roxystores, which are dedicated to the juniors customer, Quiksilver Youth
stores, Hawk Clothingstores, Gotchastores in Europe, Andaskashops in Europe that carry multiple
brands in the outdoor market, and other multibrand stores in Europe. We own 170 stores in selected markets that provide enhanced brand-building opportunities. In
territories where we operated our wholesale businesses during fiscal 2004, we had 164 stores with
independent retailers under license. We do not receive royalty income from these stores. Rather,
we provide the independent retailer with our retail expertise and store design concepts in exchange
for the independent retailer agreeing to maintain our brands at a minimum of 80% of the stores
inventory. Certain minimum purchase obligations are also required. Furthermore, in our licensed
territories, such as Turkey and South Africa, our licensees operate 76 Boardriders Clubs.We
receive royalty income from sales in these stores based on wholesale volume. We also distribute
our products through outlet stores generally
located in outlet malls in geographically diverse, non-urban locations. The total number of stores
open at October 31, 2004 was 410. 6




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The unit count of both company-owned and licensed stores at October 31, 2004, excluding stores in
licensed territories, is summarized in the following table: Number of StoresAmericas
    
    
    Europe
    
    
    Asia/Pacific
    
    
    CombinedStore Concept
    
    Company Owned
    
    
    Licensed
    
    
    Company Owned
    
    
    Licensed
    
    
    Company Owned
    
    
    Licensed
    
    
    Company Owned
    
    
    LicensedBoardriders
Clubs
    
    
    29
    
    
    
    12
    
    
    
    55
    
    
    
    114
    
    
    
    8
    
    
    
    17
    
    
    
    92
    
    
    
    143Roxystores
    
    
    3
    
    
    
    1
    
    
    
    11
    
    
    
    5
    
    
    
    3
    
    
    
    4
    
    
    
    17
    
    
    
    10Youth stores
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    2Hawkstores
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    Multibrand
stores
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Gotchastores
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Outlet stores
    
    
    31
    
    
    
    4
    
    
    
    12
    
    
    
    
    
    
    
    10
    
    
    
    1
    
    
    
    53
    
    
    
    567
    
    
    
    19
    
    
    
    82
    
    
    
    123
    
    
    
    21
    
    
    
    22
    
    
    
    170
    
    
    
    164
 
 Seasonality Our sales fluctuate from quarter to quarter primarily due to seasonal consumer demand patterns for
different categories of our products, and due to the effect that the Christmas season has on the
buying patterns of our customers. Consolidated RevenuesDollar amounts in thousands
    
    2004
    
    
    2003
    
    
    2002Quarter ended January 31
    
    $
    256,142
    
    
    
    20
    %
    
    $
    192,080
    
    
    
    20
    %
    
    $
    146,959
    
    
    
    21
    %Quarter ended April 30
    
    
    322,579
    
    
    
    25
    
    
    
    262,210
    
    
    
    27
    
    
    
    187,423
    
    
    
    26Quarter ended July 31
    
    
    337,930
    
    
    
    27
    
    
    
    251,498
    
    
    
    26
    
    
    
    175,044
    
    
    
    25Quarter ended October 31
    
    
    350,288
    
    
    
    28
    
    
    
    269,217
    
    
    
    27
    
    
    
    196,058
    
    
    
    28Total
    
    $
    1,266,939
    
    
    
    100
    %
    
    $
    975,005
    
    
    
    100
    %
    
    $
    705,484
    

    
    
    100
    %
 
 Production and Raw Materials Our apparel and accessories are generally sourced separately for the Americas, Europe and
Asia/Pacific operations. With the acquisition of Quiksilver Asia/Pacific in fiscal 2002, we now
control a sourcing office in Hong Kong that manages the majority of production for our Asia/Pacific
business and some of our Americas and European production. We believe that as we expand the Hong
Kong sourcing operations, more products can be sourced together and additional efficiences can be
obtained. Approximately 89% of our apparel and accessories are purchased or imported as finished
goods from suppliers principally in Hong Kong, China and the Far East, but also in Mexico, India,
North Africa, Portugal and other foreign countries. After being imported, many of these products
require embellishment such as screenprinting, dying, washing or embroidery. In the Americas, we
also produce goods that are manufactured by independent contractors from raw materials we provide.
Approximately 66% of this manufacturing is done in the U.S. with the balance in Mexico. We
manufacture our snowboards and skateboards in company-owned factories in the U.S. All products are manufactured based upon design specifications provided by us, whether they are
purchased or imported as finished goods or produced from raw materials provided by us. The majority of finished goods as well as raw materials must be committed to and purchased prior to
the receipt of customer orders. If we overestimate the demand for a particular product, excess
production can 7




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be distributed in our outlet stores or through secondary distribution channels. If we
overestimate a particular raw material, it can be used in garments for subsequent seasons or in
garments for distribution through our outlet stores or secondary distribution channels. During fiscal 2004, no single contractor of finished goods accounted for more than 3% of our
consolidated production. No single raw material supplier of fabric and trims accounted for more
than 14% of our expenditures for raw materials during fiscal 2004. We believe that numerous
qualified contractors and finished goods and raw materials suppliers are available to provide
additional capacity on an as-needed basis and that we enjoy favorable on-going relationships with
these contractors and suppliers. Although we continue to explore new sourcing opportunities for finished goods and raw materials, we
believe we have established solid working relationships over many years with vendors who are
financially stable and reputable, and who understand our product quality and delivery standards.
As part of our efforts to reduce costs and enhance our sourcing efficiency, we have shifted
increasingly to foreign suppliers. We research, test and add, as needed, alternate and/or back-up
suppliers. However, in the event of any unanticipated substantial disruption of our relationship
with, or performance by, key existing suppliers and/or contractors, there could be a short-term
adverse effect on our operations. 
 Imports and Import Restrictions We have for some time imported finished goods and raw materials for our domestic operations under
multilateral and bilateral trade agreements between the U.S. and a number of foreign countries,
including Hong Kong, India, China and Japan. These agreements imposed quotas on the amount and
type of textile and apparel products that were imported into the U.S. from the affected countries.
As of January 1, 2005, certain of these quotas have expired. We do not anticipate future quota
restrictions; however, if new restrictions or tariffs were imposed, we would not expect them to
materially or adversely affect our operations since we would be able to meet our needs domestically
or from countries not affected by the restrictions or tariffs on an annual basis. In Europe we operate in the European Union (EU), within which there are few trade barriers. We
sell to six other countries outside of France belonging to a trade union, which has some
restrictions on imports of textile products and their sources. We also operate under constraints
imposed on imports of finished goods and raw materials from outside the EU, including quotas and
duty charges. We do not anticipate that these restrictions will materially or adversely impact our
operations since we have always operated under such constraints, and the trend in Europe is
continuing toward unification. We retain independent buying agents, primarily in China, Hong Kong, India and other foreign
countries to assist us in selecting and overseeing the majority of our independent third party
manufacturing and sourcing of finished goods, fabrics, and blanks and other products. These agents
also monitor quota and other trade regulations and perform some quality control functions. We also
have approximately 55 employees in Hong Kong that are involved in sourcing and quality control
functions to assist in monitoring and coordinating our overseas production. By having employees in regions where we source our products, we enhance our ability to monitor
factories to ensure their compliance with our standards of manufacturing practices. Our policies
require every factory to comply with a code of conduct relating to factory working conditions and
the treatment of workers involved in the manufacture of products. 
 Trademarks and Licensing Agreements Trademarks We own the Quiksilver, Roxy and famous mountain and wave and heart logos in virtually every
country in the world. Other trademarks we own include Raisins, Radio Fiji, Leilani, Island
Soul, Quiksilveredition, Hawk, Fidra, Lib Tech, Gnu and Bent Metal.With the
acquisition of DC in 2004, we acquired DCSHOECOUSA, the DC Star logo and other trademarks. We apply for and register our trademarks throughout the world mainly for use on apparel and related
accessories and for retail services. We believe our trademarks and our other intellectual property
are 8




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crucial to the successful marketing and sale of our products, and we attempt to vigorously
prosecute and defend our rights throughout the world. Because of the success of our trademarks, we
are required to maintain global anti-counterfeiting programs to protect our brands. Licensing Agreements Since acquiring Quiksilver International in July 2000, we have owned the international rights to
use the Quiksilverand Roxytrademarks in substantially all apparel and related accessory product
classifications. With the acquisition of our Asia/Pacific licensees in 2002, we now directly
operate all of the global Quiksilverand Roxybusinesses with the exception of remaining licensees
in Argentina, South Korea and South Africa among others. We are currently negotiating new
licensing arrangements in Turkey and Mexico. We have a license agreement with Gotcha International, LP, which provides that we can sell products
primarily in Western Europe under the Gotchatrademark. We have entered into licensing agreements
in certain foreign territories with respect to several other of our non-Quiksilverand Roxybrands
where we believe operating efficiencies and brand protection may best be achieved through
licensees. In fiscal 2003, we terminated our domestic licensing agreement for Quiksilverand Roxy
watches and added watches to our technical accessory line. 
 Competition Competition is strong in the global beachwear, skateboard shoe, snowboardwear, casual sportswear
and snowboard markets in which we operate, and each territory can have different competitors. Our
direct competitors in the United States differ depending on distribution channel. Our principal
competitors in our core channel of surf shops and Boardriders Clubs in the United States include
Billabong, Volcom, ONeill and Hurley. Our competitors in the department store and specialty store
channels in the United States include Tommy Hilfiger, Abercrombie and Fitch, Nautica and Calvin
Klein. Our principal competitors in the skateboard shoe market are Sole Technology, Inc. and DVS
Shoe Company. In Europe, our principal competitors in the core channel include ONeill, Billabong,
Rip Curl, Oxbow and Chimsee. In Australia our primary competitors are Billabong and Rip Curl. In
broader European distribution, and in Asia/Pacific, our competitors also include brands such as
Nike, Adidas and Levis. Our principal competitors both in the United States and Europe in the
snowboardwear and snowboard markets, are Burton, K2 and a host of smaller manufacturers. Some of
our competitors may be significantly larger and have substantially greater resources than us. We compete primarily on the basis of successful brand management and product design and quality
born out of our ability to:  
    maintain our reputation for authenticity in the core boardriding lifestyle demographic,
    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, and
    convey our boardriding lifestyle message to young-minded consumers worldwide (see Risk Factors  Relating to Apparel
Industry). 
 Future Season Orders We generally receive wholesale orders for apparel products approximately two to four months prior
to the time the products are delivered to stores. All such orders are subject to cancellation for
late delivery. We generally sell our products on a season-by-season basis. Our Americas womens
product ranges are generally separated into four delivery seasons, Spring, Summer, Fall and
Holiday. Our mens divisions in the Americas combine the Spring and Summer seasons to achieve
three delivery seasons, while in Europe and Japan we have two seasons, Spring/Summer and
Autumn/Winter. Our Australian business in the southern hemisphere uses three seasons, Summer, High
Summer and Winter. At the end of November 2004 (based on the name of the northern hemisphere
delivery season), Spring 2005 forward orders totaled $412 million and were up 29% over the previous
years level of approximately $319 million. Our forward orders depend upon a number of factors and
can fluctuate based on the timing of trade shows, sales meetings and market weeks. The timing of
shipments also fluctuates from year to year and 9




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varies based on the production of goods. As a consequence, a comparison of forward orders from
season to season is not necessarily meaningful and may not be indicative of eventual shipments. 
 Employees At October 31, 2004, we had approximately 4,350 employees, consisting of approximately 2,450 in the
United States, approximately 1,300 in Europe and approximately 600 in Asia/Pacific. None of our
domestic employees are represented by a union, and approximately 25 of our foreign employees are
represented by a union. We have never experienced a work stoppage and consider our working
relationships with our employees to be good. 
 Environmental Matters Compliance with environmental laws and regulations did not have a significant impact on our capital
expenditures, earnings or competitive position during the last three fiscal years. 
 Available Information Our primary website is http://www.quiksilver.com. We make available free of charge, on or through
this website, our annual, quarterly and current reports, and any amendments to those reports, as
soon as reasonably practicable after electronically filing such reports with the Securities and
Exchange Commission. In addition, copies of the written charters for the committees of our board
of directors, our Corporate Governance Guidelines, our Code of Ethics for Senior Financial Officers
and our Code of Business Conduct and Ethics are also available on this website, and can be found
under the Investor Relations and Corporate Governance links. Copies are also available in print,
free of charge, by writing to Investor Relations, Quiksilver, Inc., 15202 Graham Street, Huntington
Beach, California 92649. We may post amendments or waivers of our Code of Ethics for Senior
Financial Officers and Code of Business Conduct and Ethics, if any, on our website. This website
address is intended to be an inactive textual reference only, and none of the information contained
on our website is part of this report or is incorporated in this report by reference. 
 Forward-Looking Statements Various statements in this Form 10-K or incorporated by reference into this Form 10-K, in future
filings by us with the SEC, in our press releases and in oral statements made by or with the
approval of authorized personnel constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current
expectations and are indicated by words or phrases such as anticipate, estimate, expect,
project, we believe, currently envisions and similar words or phrases and involve known and
unknown risks, uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Some of the factors that could affect our
financial performance or cause actual results to differ from our estimates in, or underlying, such
forward-looking statements are set forth under the heading of Risk Factors. Forward-looking
statements include statements regarding, among other items:  
    our anticipated growth strategies,
    our plans to expand internationally,
    our intention to introduce new products and enter into new joint ventures,
    our plans to open new retail stores,
    future renewals of our credit facilities,
    anticipated effective tax rates in future periods,
    payments due on contractual commitments,
    future expenditures for capital projects, and
    our ability to continue to maintain our brand image and reputation. 10




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These forward-looking statements are based largely on our expectations and are subject to a number
of risks and uncertainties, many of which are beyond our control. Actual results could differ
materially from these forward-looking statements as a result of the facts described in Risk
Factors including, among others, changes in the competitive marketplace, including the
introduction of new products or pricing changes by our competitors, changes in the economy, and
other events leading to a reduction in discretionary consumer spending. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks and uncertainties, we cannot
assure you that the forward-looking information contained in this Form 10-K will, in fact,
transpire. 
 Risk Factors Competition The apparel and footwear industries are highly competitive. We compete with numerous domestic and
foreign designers, brands and manufacturers of apparel, footwear, accessories and other products,
some of which are significantly larger and have greater resources than us. We believe that our
ability to compete effectively depends upon our continued ability to maintain our reputation for
authencity in our core boardriding market, our flexibility in responding to market demand and our
ability to manage our brands and offer fashion conscious consumers a wide variety of high quality
apparel at competitive prices. See Business  Competition. Changes in Fashion Trends We believe that our success depends in substantial part on our ability to anticipate, gauge and
respond to changing consumer demand and fashion trends in a timely manner. We attempt to minimize
the risk of changing fashion trends and product acceptance by closely monitoring retail sales
trends. However, if fashion trends shift away from our products, or if we otherwise misjudge the
market for our product lines, we may be faced with a significant amount of unsold finished goods
inventory or other conditions which could have a material adverse effect on us. Uncertainties in Apparel and Footwear Retailing The apparel and footwear industries historically have been subject to substantial cyclical
variations, and a recession in the general economy or uncertainties regarding future economic
prospects that affect consumer spending habits could have a material adverse effect on our results
of operations. While various retailers, including some of our customers, experienced financial
difficulties in the past three years which increased the risk of extending credit to such
retailers, our bad debt experience has been limited. Our Business is Subject to Seasonal Trends Historically, our operating results have been subject to seasonal trends when measured on a
quarterly basis. Our first fiscal quarter is traditionally weaker compared with our other fiscal
quarters. This trend is dependent on numerous factors, including the markets in which we operate,
holiday seasons, consumer demand, climate, economic conditions and numerous other factors beyond
our control. There can be no assurance that our historic operating patterns will continue in
future periods as we cannot influence or forecast many of these factors. Sourcing We are dependent upon third parties for the manufacture of substantially all of our products. The
inability of a manufacturer to ship orders of our products in a timely manner, including as a
result of local financial market disruption which could impair the ability of such suppliers to
finance their operations, or to meet quality standards, could cause us to miss the delivery date
requirements of our customers for those items, which could result in cancellation of orders,
refusal to accept deliveries or a reduction in purchase prices, any of which could have a material
adverse effect on our financial condition and results of operations. We have no long-term formal
arrangements with any of our suppliers of raw materials, and to date we have experienced only
limited difficulty in satisfying our raw materials requirements. Although we believe we could
replace such suppliers without a material adverse effect on us, there can be no assurance that such
suppliers could be replaced in a timely manner, and the loss of such suppliers could have a
material adverse effect on our short-term operating results. 11




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Impact of Potential Future Acquisitions From time to time, we have pursued, and may continue to pursue, acquisitions. For example, during
fiscal 2004, we completed the acquisition of DC using available lines of credit and common stock.
If one or more acquisitions results in us becoming substantially more leveraged on a consolidated
basis, our flexibility in responding to adverse changes in economic, business or market conditions
may be adversely affected. Risks Relating to International Operations We conduct a majority of our business outside of the United States and, particularly in light of
our recent acquisitions, we anticipate that revenue from foreign operations will account for an
increasingly larger portion of our future revenue. Our international operations are directly
related to and dependent on the volume of international trade and local market conditions. Our
international operations and international commerce are influenced by many factors, including:  
    changes in economic and political conditions and in governmental policies,
    changes in international and domestic customs regulations,
    wars, civil unrest, acts of terrorism and other conflicts,
    natural disasters,
    changes in tariffs, trade restrictions, trade agreements and taxation,
    difficulties in managing or overseeing foreign operations,
    limitations on the repatriation of funds because of foreign exchange controls,
    different liability standards, and
    difficulties in enforcing intellectual property laws of other countries. The occurrence or consequences of any of these factors may restrict our ability to operate in the
affected region and/or decrease the profitability of our operations in that region. Foreign Currency and Derivatives We are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates
relating to certain sales, royalty income, and product purchases of our international subsidiaries
that are denominated in currencies other than their functional currencies. We are also exposed to
foreign currency gains and losses resulting from domestic transactions that are not denominated in
U.S. dollars, and to fluctuations in interest rates related to our variable rate debt.
Furthermore, we are exposed to gains and losses resulting from the effect that fluctuations in
foreign currency exchange rates have on the reported results in our consolidated financial
statements due to the translation of the operating results and financial position of our
international subsidiaries. As part of our overall strategy to limit the level of exposure to the
risk of fluctuations in foreign currency exchange rates, we use various foreign currency exchange
contracts and intercompany loans. In addition, interest rate swaps are used to manage our exposure
to the risk of fluctuations in interest rates. Loss or Infringement of Our Trademarks We believe that our trademarks are important to our success and competitive position. The loss of
such trademarks, or the loss of the exclusive use of our trademarks, could have a material adverse
effect on our business, financial condition and results of operations. Accordingly, we devote
substantial resources to the establishment and protection of our trademarks on a worldwide basis.
We cannot assure that our actions taken to establish and protect our trademarks will be adequate to
prevent imitation of our products by others or to prevent others from seeking to block sales of our
products as violative of their trademarks and proprietary rights. Moreover, we cannot assure that
others will not assert rights in, or ownership of, our trademarks or that we will be able to
successfully resolve such conflicts. In addition, the laws of certain foreign countries may not
protect trademarks to the same extent as do the laws of the U.S. 12




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Internal controls Our internal controls over financial reporting may not be considered effective, which could result
in a loss of investor confidence in our financial reports and in turn have an adverse effect on our
stock price. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our Annual
Report on Form 10-K for the fiscal year ending October 31, 2005, we will be required to furnish a
report by our management on our internal controls over financial reporting. Such report will
contain, among other matters, an assessment of the effectiveness of our internal controls over
financial reporting as of the end of our fiscal year, including a statement as to whether or not
our internal controls over financial reporting are effective. This assessment must include
disclosure of any material weaknesses in our internal controls over financial reporting identified
by management. The report will also contain a statement that our independent registered public
accounting firm has issued an attestation report on managements assessment of internal controls. We are currently performing the system and process documentation needed to comply with Section 404
and the new standard issued by the Public Company Accounting Oversight Board. This process is both
costly and challenging. During this process, if we identify one or more material weaknesses in our
internal controls over financial reporting, we will be unable to assert that such internal controls
are effective. If we are unable to assert that our internal controls are effective as of October
31, 2005 (or if our independent registered public accounting firm is unable to attest that our
managements report is fairly stated or they are unable to express an opinion on our managements
evaluation or on the effectiveness of our internal controls), investors could lose confidence in
the accuracy and completeness of our financial reports, which in turn could have an adverse effect
on our stock price. 
 Item 2. PROPERTIES Certain information concerning our principal facilities in excess of 40,000 rentable square feet,
all of which are leased, is as follows: Approximate
    
    
    Current LeaseLocation
    
    Principal Use
    
    Sq. Ft.
    
    
    ExpirationHuntington Beach, California
    
    Corporate headquarters
    
    
    120,000
    
    
    
    2023
    *Huntington Beach, California
    
    Americas distribution center
    
    
    225,000
    
    
    
    2016
    *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
    *Vista, California
    
    Americas distribution center
    
    
    98,000
    
    
    
    2006
    *St. 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
    
    
    
    2008Torquay, Australia
    
    Asia/Pacific headquarters
    
    
    54,000
    
    
    
    2017
    *Geelong, Australia
    
    Asia/Pacific distribution center
    
    
    81,000
    
    
    
    2018
    *
   *
    
    Includes extension periods exercisable at our option. As of October 31, 2004, we operated 67 retail stores in the Americas, 82 European retail stores,
and 21 retail stores in Asia/Pacific on leased premises. The leases for our facilities required
aggregate annual rentals of approximately $31.5 million in fiscal 2004. We anticipate that we will
be able to extend those leases that expire in the near future on terms satisfactory to us or, if
necessary, locate substitute facilities on acceptable terms. 13




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##### Table of Contents



Item 3. LEGAL PROCEEDINGS We are involved from time to time in legal claims involving trademark and intellectual property,
licensing, employee relations and other matters incidental to our business. We believe the
resolution of any such matter currently pending will not have a material adverse effect on our
financial condition or results of operations. 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted for a vote of our stockholders during the fourth quarter of the fiscal
year ended October 31, 2004. 14




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##### Table of Contents



PART II 
 Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES Our common stock trades on the New York Stock Exchange (NYSE) under the symbol ZQK. The high
and low sales prices of our common stock, as reported by the NYSE for the two most recent fiscal
years, are set forth below. High
    
    
    LowFiscal 20044th quarter ended October 31, 2004
    
    $
    27.69
    
    
    $
    19.373rd quarter ended July 31, 2004
    
    
    24.80
    
    
    
    20.032nd quarter ended April 30, 2004
    
    
    23.28
    
    
    
    16.751st quarter ended January 31, 2004
    
    
    18.30
    
    
    
    14.91Fiscal 20034th quarter ended October 31, 2003
    
    $
    19.55
    
    
    $
    15.003rd quarter ended July 31, 2003
    
    
    18.75
    
    
    
    15.592nd quarter ended April 30, 2003 *
    
    
    16.77
    
    
    
    12.101st quarter ended January 31, 2003 *
    
    
    14.26
    
    
    
    11.73
   *
    
    Note: Prices have been adjusted to reflect a 2-for-1 stock split effected on May 9, 2003. We have historically reinvested our earnings in our business and have never paid a cash dividend.
No change in this practice is currently being considered. Our payment of cash dividends in the
future will be determined by the Board of Directors, considering conditions existing at that time,
including our earnings, financial requirements and condition, opportunities for reinvesting
earnings, business conditions and other factors. In addition, under our principal credit agreement
with a bank group, we must obtain the bank groups prior consent to pay dividends. On January 4, 2005, there were approximately 450 holders of record of our common stock and an
estimated 12,300 beneficial stockholders. 15




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Item 6. SELECTED FINANCIAL DATA The statement of income and balance sheet data shown below were derived from our consolidated
financial statements. Our consolidated financial statements as of October 31, 2004 and 2003 and
for each of the three years in the period ended October 31, 2004, included herein, have been
audited by Deloitte & Touche LLP , our independent registered public accounting firm. You
should read this selected financial data together with our consolidated financial statements and
related notes, as well as the discussion under the caption Managements Discussion and Analysis of
Financial Condition and Results of Operations. Years Ended October 31,Amounts in thousands, except per share data and ratios
    
    2004(1)(2)
    
    
    2003(2)
    
    
    2002
    
    
    2001
    
    
    2000Statement of Income DataRevenues, net
    
    $
    1,266,939
    
    
    $
    975,005
    
    
    $
    705,484
    
    
    $
    620,621
    
    
    $
    519,370Income before provision for income taxes
    
    
    121,992
    
    
    
    90,067
    
    
    
    59,986
    
    
    
    45,412
    
    
    
    51,862Net income
    
    
    81,369
    
    
    
    58,516
    
    
    
    37,591
    
    
    
    28,021
    
    
    
    31,836Net income per share (3)
    
    
    1.42
    
    
    
    1.08
    
    
    
    0.80
    
    
    
    0.61
    
    
    
    0.71Net income per share, assuming dilution (3)
    
    
    1.36
    
    
    
    1.03
    
    
    
    0.77
    
    
    
    0.58
    
    
    
    0.69Weighted average common shares
outstanding (3)
    
    
    57,194
    
    
    
    54,224
    
    
    
    46,918
    
    
    
    45,904
    
    
    
    44,812Weighted average common shares
outstanding, assuming dilution (3)
    
    
    59,644
    
    
    
    56,635
    
    
    
    48,944
    
    
    
    48,098
    
    
    
    46,464Balance Sheet DataTotal assets
    
    $
    990,990
    
    
    $
    707,970
    
    
    $
    450,589
    
    
    $
    418,738
    
    
    $
    358,742Working capital
    
    
    343,100
    
    
    
    286,625
    
    
    
    160,518
    
    
    
    132,416
    
    
    
    119,529Lines of credit
    
    
    10,801
    
    
    
    20,951
    
    
    
    32,498
    
    
    
    66,228
    
    
    
    49,203Long-term debt
    
    
    173,513
    
    
    
    123,419
    
    
    
    54,085
    
    
    
    70,464
    
    
    
    66,712Stockholders equity
    
    
    588,244
    
    
    
    446,508
    
    
    
    272,873
    
    
    
    216,594
    
    
    
    177,614Other DataEBITDA(4)
    
    $
    155,229
    
    
    $
    119,519
    
    
    $
    82,975
    
    
    $
    70,162
    
    
    $
    68,320Current ratio
    
    
    2.6
    
    
    
    3.0
    
    
    
    2.2
    
    
    
    1.8
    
    
    
    2.0Return on average stockholders equity (5)
    
    
    15.7
    
    
    
    16.3
    
    
    
    15.4
    
    
    
    14.2
    
    
    
    19.3
   (1)
    
    Fiscal 2004 includes the operations of DC since its acquisition effective May 1, 2004. See Note 2 of our financial statements.(2)
    
    Fiscal 2004 and fiscal 2003 include the operations of Asia/Pacific since its acquisition effective December 1, 2002. See Note 2 of our financial statements.(3)
    
    Per share amounts and shares outstanding have been adjusted to reflect a two-for-one stock split effected on May 9, 2003.(4)
    
    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 believe that EBITDA is a meaningful measure to
investors as it is a widely used measure of performance and our ability to meet liquidity
requirements in our industry. Following is the reconciliation of net income to EBITDA and
cash flows from operations: 16




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##### Table of Contents



Years Ended October 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Net income
    
    $
    81,369
    
    
    $
    58,516
    
    
    $
    37,591
    
    
    $
    28,021
    
    
    $
    31,836Income taxes
    
    
    40,623
    
    
    
    31,551
    
    
    
    22,395
    
    
    
    17,391
    
    
    
    20,026Interest
    
    
    6,390
    
    
    
    8,267
    
    
    
    8,640
    
    
    
    10,873
    
    
    
    6,435Depreciation and amortization
    
    
    26,847
    
    
    
    21,185
    
    
    
    14,349
    
    
    
    13,877
    
    
    
    10,023EBITDA
    
    $
    155,229
    
    
    $
    119,519
    
    
    $
    82,975
    
    
    $
    70,162
    
    
    $
    68,320EBITDA
    
    $
    155,229
    
    
    $
    119,519
    
    
    $
    82,975
    
    
    $
    70,162
    
    
    $
    68,320Less interest expense and provision for
income taxes
    
    
    (47,013
    )
    
    
    (39,818
    )
    
    
    (31,035
    )
    
    
    (28,264
    )
    
    
    (26,461
    )Other non-cash expenses
    
    
    11,904
    
    
    
    3,939
    
    
    
    3,548
    
    
    
    3,524
    
    
    
    3,226Changes in operating assets and liabilities,
net of effects from business acquisitions
    
    
    10,475
    
    
    
    (47,049
    )
    
    
    21,342
    
    
    
    (39,575
    )
    
    
    (49,185
    )Net cash provided by operating activities
    
    $
    130,595
    
    
    $
    36,591
    
    
    $
    76,830
    
    
    $
    5,847
    
    
    $
    (4,100
    )
   (5)
    
    Computed based on net income divided by the average of beginning and ending stockholders equity. 17




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##### Table of Contents



Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read together with our consolidated financial statements and
related notes, which are included in this report, and the Risk Factors information in the
Business section of this report. Overview We began our domestic operations in 1976 as a designer and manufacturer of Quiksilverbranded
boardshorts designed for the sport of surfing. We grew our business through the late 1980s by
expanding our Quiksilverproducts into a full range of sportswear, and we bought our U.S. trademark
from the Quiksilverbrands Australian founders in 1986. The distribution of our products was
primarily through surf shops. Since the early 1990s, we have diversified and grown our business
by increased sales of our Quiksilverproduct line, the creation of new brands such as Roxy, the
introduction of new products, the development of our retail operations, and acquisitions. We
acquired the European Quiksilverlicensee in 1991 to expand geographically, we purchased Quiksilver
International in 2000 to gain global ownership of the Quiksilverbrand, and we acquired Quiksilver
Asia/Pacific in December 2002 to unify our global operating platform and take advantage of
available synergies in product development and sourcing, among other things. In May 2004, we
acquired DC, a premier designer, producer and distributor of action sports inspired footwear,
apparel and related accessories in the U.S. and internationally. We also acquired various other

smaller businesses and brands. Brand building has been a key to our growth, and we have always
maintained our roots in the boardriding lifestyle. Today our products are sold throughout the
world, primarily in surf shops and specialty stores that provide an outstanding retail experience
for our customers. Over the last five years, our revenues have grown from $519 million in fiscal 2000 to $1.3 billion
in fiscal 2004. We design, produce and distribute clothing, accessories and related products
exclusively in the consumer products industry. We operate in three geographic segments, the
Americas, Europe and Asia/Pacific. The Americas segment includes revenues primarily from the U.S.
and Canada. The European segment includes revenues primarily from Western Europe. The
Asia/Pacific segment includes revenues primarily from Australia, Japan, New Zealand, and Indonesia.
Royalties earned from various licenses in other international territories are categorized in
corporate operations along with revenues from sourcing services for our licensees. Revenues by
segment are as follows: Years Ended October 31,In thousands
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Americas
    
    $
    616,818
    
    
    $
    492,442
    
    
    $
    418,008
    
    
    $
    391,575
    
    
    $
    333,075Europe
    
    
    496,276
    
    
    
    386,226
    
    
    
    282,684
    
    
    
    223,877
    
    
    
    182,614Asia/Pacific
    
    
    148,733
    
    
    
    94,187
    
    
    
    
    
    
    
    
    
    
    
    Corporate operations
    
    
    5,112
    
    
    
    2,150
    
    
    
    4,792
    
    
    
    5,169
    
    
    
    3,681Total revenues, net
    
    $
    1,266,939
    
    
    $
    975,005
    
    
    $
    705,484
    
    
    $
    620,621
    
    
    $
    519,370
 We operate in markets that are highly competitive, and our ability to evaluate and respond to
changing consumer demands and tastes is critical to our success. Shifts in consumer preferences
could have a negative effect on companies that misjudge these preferences. We believe that our
historical success is due to the development of an experienced team of designers, artists,
sponsored athletes, merchandisers, pattern makers, and cutting and sewing contractors. Its this
team and the heritage and current strength of our brands that has helped us remain in the forefront
of design in our markets. Our success in the future will depend on our ability to continue to
design products that are acceptable to the marketplace. There can be no assurance that we can do
this. The consumer products industry is fragmented, and in order to retain and/or grow our market
share, we must continue to be competitive in the areas of quality, brand image, distribution
methods, price, customer service, and intellectual property protection. 18




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##### Table of Contents



Results of Operations The table below shows the components in our statements of income and other data as a percentage of
revenues: Years Ended October 31,Statement of Income Data
    
    2004
    
    
    2003
    
    
    2002Revenues, net
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    45.6
    
    
    
    44.4
    
    
    
    40.6Selling, general and administrative expense
    
    
    35.2
    
    
    
    34.0
    
    
    
    30.7Operating income
    
    
    10.4
    
    
    
    10.4
    
    
    
    9.9Interest expense
    
    
    0.5
    
    
    
    0.9
    
    
    
    1.2Foreign currency and other expense
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.2Income before provision for income taxes
    
    
    9.6
    %
    
    
    9.2
    %
    
    
    8.5
    %Other dataEBITDA (1)
    
    
    12.3
    %
    
    
    12.3
    %
    
    
    11.8
    %
   (1)
    
    For a reconciliation of Net Income to EBITDA, see footnote (4) to the table
under Item 6. Selected Financial Data. Fiscal 2004 Compared to Fiscal 2003 Revenues Total net revenues increased 30% in fiscal 2004 to $1,266.9 million from $975.0 million in fiscal
2003 primarily as a result of increased unit sales, new products and the DC acquisition. Revenues
in the Americas increased 25%, European revenues increased 28%, and Asia/Pacific revenues increased
58%. We completed the acquisition of DC Shoes, Inc. effective May 1, 2004, which marks the
beginning of our third fiscal quarter. DC Shoes, Inc. designs, produces and distributes action
sports inspired footwear, apparel and related accessories. This new division, which operates in all
three of our business segments, is referred to in this report as DC and accounted for
approximately 9% of our consolidated revenue growth during the year ended October 31, 2004. Americas revenues in our mens category, which includes the Quiksilver Young Mens, Boys,
Toddlers, Wintersports, Quiksilveredition, DC, Hawk Clothingand Fidradivisions, increased 20% to
$310.8 million in fiscal 2004 from $258.8 million the year before. Americas revenues in our
womens category, which includes the Roxy, Roxy Girl, Teenie Wahine, DC, Raisins, Leilaniand
Radio Fijidivisions, increased 32% to $295.6 million from $223.1 million for those same periods.
Wintersports hardgoods are sold under the Lib Technologies, Gnu, Bent Metaland Roxybrands and
totaled $10.4 and $10.5 million in fiscal 2004 and 2003, respectively. Mens revenues in the
Americas increased primarily from the newly acquired DCdivision and to a lesser extent, the
Quiksilverdivision. The womens increase came primarily from the Roxydivision and, to a lesser
extent, the newly acquired DCdivision. We believe that our product design and marketing efforts
are resulting in increased consumer demand for our products in the Americas. European revenues were approximately 39% of our consolidated total in fiscal 2004. In U.S.
dollars, revenues in the mens category increased 24% to $364.7 million in fiscal 2004 from $293.1
million in the previous year. Womens revenues increased 41% to $131.6 million from $93.1 million
for those same periods. The European mens revenue increase came primarily from the Quiksilver
Young Mensdivision and, to a lesser extent, the DCdivision. The womens revenue increase
primarily reflects growth in the Roxydivision. Revenue growth was the largest in France, the
United Kingdom, and Spain. For consolidated financial statement reporting, euro results must be
translated into U.S. dollar amounts at average exchange rates, but this can distort performance
when exchange rates change from year to year. To understand our European fiscal 2004 growth and
better assess competitive performance and market share gains. We believe it is important to look
at revenues in euros as well, which is our operational currency in Europe. In euros, revenues grew
16% in fiscal 2004. This is lower than the 28% growth rate in U.S. dollars because the U.S. dollar
was worth fewer euros on average in fiscal 2004 compared to fiscal 2003. 19




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Asia/Pacific revenues were approximately 12% of our consolidated total in fiscal 2004. In U.S.
dollars, Asia/Pacific revenues increased 58% to $148.7 million in fiscal 2004 from $94.2 million in
the previous year. The increase came primarily the Roxydivision and, to a lesser extent, the
Quiksilverand DCdivisions. For consolidated financial statement reporting, Australian dollar
results must be translated into U.S. dollar amounts at average exchange rates, but as with our
European division this can distort performance when exchange rates change from year to year. In
Australian dollars, revenues grew 38% in fiscal 2004. This is lower than the 58% growth rate in
U.S. dollars because the U.S. dollar was worth fewer Australian dollars on average in fiscal 2004
compared to fiscal 2003. Gross Profit Our consolidated gross profit margin increased 120 basis points to 45.6% in fiscal 2004 from 44.4%
in the previous year. The gross profit margin in the Americas increased to 40.8% from 40.1%, our
European gross profit margin increased to 50.7% from 49.1%, and our Asia/Pacific gross profit
margin increased to 49.2% from 46.9%. The gross margin in all areas is increasing as we generate a
higher percentage of sales through company-owned retail stores. We earn higher gross margins on
sales in company-owned stores, but these higher gross margins are offset by store operating costs.
Additionally, in Europe and Asia/Pacific, the gross profit margin increased due to lower production
costs resulting from a stronger euro and Australian dollar versus the U.S. dollar in comparison to
the prior year. Selling, General and Administrative Expense Selling, general and administrative expense increased 34% in fiscal 2004 to $446.2 million from
$332.2 million in fiscal 2003. In the Americas, it increased 24% to $187.5 million from $151.7
million, in Europe it increased 40% to $178.2 million from $127.5 million, and in Asia/Pacific it
increased 62% to $52.0 million from $32.0 for those same periods. The increase among all three
divisions was primarily due to additional company-owned retail stores, the addition of DC effective
the beginning of our third fiscal quarter, additional marketing and expenses related to increased
sales volume. As a percentage of revenues, selling general and administrative expense increased to
35.2% in fiscal 2004 from 34.0% in fiscal 2003 primarily due to new company-owned retail stores and
increased marketing activities. Non-operating Expenses Interest expense decreased 23% to $6.4 million in fiscal 2004 compared to $8.3 million in fiscal
2003 primarily as a result of decreased debt levels and lower interest rates in Europe and in the
Americas. Foreign currency loss increased to $2.9 million in fiscal 2004 compared to $2.2 million in fiscal
2003. This increase was caused primarily by the increasing effect of the declining value of the
U.S. dollar during fiscal 2004 compared to the Euro and Australian dollar. These foreign currency
losses were substantially offset by higher operating profit in our international divisions
resulting from changes in foreign currency exchange rates. The Companys income tax rate decreased to 33.3% in fiscal 2004 from 35.0% in fiscal 2003. This
improvement resulted primarily because a higher percentage of our fiscal 2004 profits were
generated in countries with lower tax rates. Net Income and EBITDA Net income in fiscal 2004 increased 39% to $81.4 million, and earnings per share on a diluted basis
increased 32% to $1.36. EBITDA increased 30% in fiscal 2004 to $155.2 million. Fiscal 2003 Compared to Fiscal 2002 Revenues Total net revenues increased 38% in fiscal 2003 primarily as a result of increased unit sales and
new products. Revenues in the Americas increased 18%, and European revenues increased 37%.
Primarily because we acquired the business of our Australian and Japanese licensees in the first
quarter of fiscal 2003, our royalty income decreased to $2.2 million from $4.8 million. Instead we
reported product sales in this geographic region, which totaled $94.2 million in fiscal 2003. 20




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Americas revenues in our mens category increased 13% to $258.8 million in fiscal 2003 from $229.2
million the year before. Americas revenues in our womens category increased 25% to $223.1 million
from $178.4 million for those same periods. Wintersports hardgoods totaled $10.5 million in fiscal
2003 compared to $10.4 million in the previous year. Mens revenues in the Americas increased
generally across all divisions. The womens increase came from both the Roxyand Raisinsdivisions.
We believe that our product design and marketing efforts resulted in increased consumer demand for
our products in the Americas. European revenues were approximately 40% of our consolidated total in fiscal 2003. In U.S. dollars,
revenues in the mens category increased 41% to $293.1 million in fiscal 2003 from $208.3 million
in the previous year. Womens revenues increased 25% to $93.1 million from $74.4 million for those
same periods. Revenue growth was the largest in France, Spain and the United Kingdom. We believe
that our product design and marketing efforts resulted in increased consumer demand for our
products in the European market. In euros, revenues grew 15% in fiscal 2003. This is lower than
the 37% growth rate in U.S. dollars because the U.S. dollar was worth fewer euros on average in
fiscal 2003 compared to fiscal 2002. Gross Profit Our consolidated gross profit margin increased 380 basis points in fiscal 2003. The gross profit
margin in the Americas increased to 40.1% from 36.7%, while our European gross profit margin
increased to 49.1% from 45.3%. The Asia/Pacific gross profit margin was 46.9%. The Americas
improvement occurred primarily due to an increase in our gross profit margin in the first half of
fiscal 2003 because we lowered inventory levels toward the end of fiscal 2002. Consequently, our
end-of season clearance business was down compared to the year before, and our gross margins on
those sales were up. In the second half, the Americas gross profit margin was 39.3%. Our European
gross profit margin increased in the second half of fiscal 2003 primarily as a result of the weaker
U.S. dollar. Because a portion of our European product is
purchased with U.S. dollars, product costs in euros decrease as the U.S. dollar decreases in value
in comparison to the euro. Additionally, both the Americas and European gross profit margins
improved because we had a higher percentage of our sales through company-owned retail stores. Selling, General and Administrative Expense Selling, general and administrative expense increased 53% in fiscal 2003. In the Americas, it
increased 28% to $151.7 million from $118.2 million, and in Europe it increased 47% to $127.5
million from $86.6 million for those same periods. The Asia/Pacific segment added $32.0 million of
these expenses. Higher personnel costs and other costs related to increased sales volume were the
primary reasons for these increases. As a percentage of revenues, selling general and
administrative expense increased to 34.0% in fiscal 2003 from 30.7% in fiscal 2002. Selling,
general and administrative expense increased as a percentage of revenues primarily due to the
incremental operating costs of new company-owned retail stores, and to a lesser extent additional
marketing expenses. Non-operating Expenses Interest expense decreased 4% in fiscal 2003. Additional interest on debt incurred to acquire and
operate the new Asia/Pacific segment was more than offset by lower interest rates in Europe and in
the Americas. Foreign currency loss increased to $2.2 million in fiscal 2003 compared to $0.7 million in fiscal
2002. The increase was caused primarily by the increasing effect of the declining value of the
U.S. dollar during fiscal 2003 compared to the Euro and Australian dollar. These foreign currency
losses were substantially offset by higher operating profit in our international divisions
resulting from changes in foreign currency exchange rates. The Companys income tax rate decreased to 35.0% in fiscal 2003 from 37.3% in fiscal 2002. This
improvement resulted primarily because a higher percentage of our fiscal 2003 profits were
generated in countries with lower tax rates. 21




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Net Income and EBITDA Net income in fiscal 2003 increased 56% to $58.5 million, and earnings per share on a diluted basis
increased 34% to $1.03. EBITDA increased 44% in fiscal 2003 to $119.5 million. Financial Position, Capital Resources and Liquidity We finance our working capital needs and capital investments primarily with operating cash flows
and bank revolving lines of credit. Multiple banks in the U.S., Europe and Australia make these
lines of credit available. Term loans are used to supplement these lines of credit and are
typically used to finance long-term assets. Cash and cash equivalents totaled $55.2 million at October 31, 2004 versus $27.9 million at October
31, 2003. Working capital amounted to $343.1 million at October 31, 2004, compared to $286.6
million at October 31, 2003, an increase of 20%. We believe that our current cash balances, cash
flows and credit facilities are adequate to cover our cash needs for the foreseeable future.
Furthermore, we believe that increases in our credit facilities can be obtained if needed to fund
future growth. Operating Cash Flows We generated $130.6 million from operations in fiscal 2004 compared to $36.6 million in fiscal
2003. This $94.0 million increase was primarily caused by an increase in accounts payable,
partially offset by an increase in inventories, which together provided $8.9 million of cash in
fiscal 2004 compared to using $32.0 million the year before. In addition to this $40.9 million
improvement, operating cash flow also increased by $36.5 million due to higher net income adjusted
for noncash expenses. Increases in accounts receivable offset by changes in other working capital
components also generated $16.6 million of additional cash compared to the year before. We generated $36.6 million from operations in fiscal 2003 compared to $76.8 million in fiscal 2002.
This $40.2 million decrease was primarily caused by the increase in inventories combined with the
small decrease in accounts payable, which together used $32.1 million of cash, a $53.2 million
increase in cash used compared to $21.1 million of cash provided the year before. This more than
offset the $28.2 million increase in cash from higher net income adjusted for noncash expenses.
Changes in other working capital components also used $15.2 million of additional cash compared to
the year before. Capital Expenditures We have avoided high levels of capital expenditures for our manufacturing functions by using
independent contractors for sewing and other processes such as washing, dyeing and embroidery. We
perform the cutting process in-house in the Americas to enhance control and efficiency, and we
screenprint a portion of our product in-house in both the Americas and in Europe. Fiscal 2004 capital expenditures were $52.5 million, which was approximately $19.4 million higher
than the $33.1 million we spent in fiscal 2003. In fiscal 2004, we increased our investment in
company-owned retail stores and in computer systems. Investments in warehouse equipment and
fixtures continued in fiscal 2004 as in the previous years. New company-owned retail stores are again part of our plans in fiscal 2005. Computer hardware and
software will also be added to continuously improve systems. Capital spending for these and other
projects in fiscal 2005 is expected to range between $50 million and $55 million, depending on the
pace of our retail expansion. Acquisitions Effective May 1, 2004, we acquired DC. The initial purchase price, excluding transaction costs,
included cash of approximately $52.8 million, 1.6 million restricted shares of our common stock
valued at $27.3 million and the repayment of approximately $15.3 million in funded indebtedness.
Transaction costs totaled $2.9 million. Of the initial purchase
price, $63.4 million was paid in fiscal
2004, and $4.7 million will be paid in fiscal 2005 or later based on working capital at the date of
acquisition and the resolution of certain other contingencies. Additionally, the sellers are
entitled to future payments ranging from zero to $57 million if certain performance targets are
achieved during the four years ending October 31, 2007. The amount of 22




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goodwill initially recorded for the transaction would increase if such contingent payments were
made. Goodwill arises from synergies we believe can be achieved integrating DCs product lines and
operations with the Companys, and is not expected to be deductible for income tax purposes. As
of October 31, 2004 we have accrued $8.0 million based on achieving certain sales and earnings
targets, which is expected to be paid in fiscal 2005, thereby reducing additional future payments
to approximately $49.0 million. Effective December 1, 2003, we acquired the operations of our Swiss distributor, Sunshine Diffusion
SA. The initial purchase price was $1.6 million. The acquisition has been recorded using the
purchase method of accounting and resulted in goodwill of $0.7 million at the acquisition date,
which is not expected to be deductible for tax purposes. The sellers are entitled to future
payments denominated in euros ranging from zero to $1.4 million if certain sales targets are
achieved. Effective December 1, 2002, we acquired our licensees in Australia and Japan to unify our global
operating platform and take advantage of available syngergies in product development and sourcing,
among other things. In addition to the initial purchase price, the sellers are entitled to
payments denominated in Australian dollars that will be paid if certain sales and earnings targets
are achieved during the three years ending October 31, 2005. The amount of goodwill initially
recorded for the transaction would increase if such contingent payments are made. As of October
31, 2004, we have paid $4.0 million and accrued $5.2 million based on achieving targets, which is
expected to be paid in fiscal 2005, thereby reducing potential future payouts to approximately
$13.9 million. Debt Structure A syndication of U.S. banks finances our business in the Americas and internationally, European
banks finance our European business, and Australian and Japanese banks finance our Asia/Pacific
business. Our debt structure includes short-term lines of credit and long-term loans as follows: October 31,In thousands
    
    2004European short-term credit arrangements
    
    $
    3,756Asia/Pacific short-term lines of credit
    
    
    7,045Americas line of credit
    
    
    105,974Americas term loan
    
    
    6,765European long-term debt
    
    
    33,714Asia/Pacific long-term debt
    
    
    460Deferred purchase price obligation
    
    
    26,600Total debt
    
    $
    184,314
 In June 2003, we replaced our syndicated bank facility in the Americas with a new syndicated
revolving line of credit. The line of credit expires June 2006 and provides for borrowings up to
$200.0 million. The line of credit bears interest based on the banks reference rate or based on
LIBOR for borrowings committed to be outstanding for 30 days or longer. The weighted average
interest rate at October 31, 2004 was 3.0%. The line of credit can be accessed by some of our
foreign subsidiaries and includes a $75.0 million sublimit for letters of credit and a $35.0
million sublimit for borrowings in certain foreign currencies. The line of credit agreement
contains restrictive covenants, the most significant of which relates to maintaining certain
leverage and fixed charge coverage ratios. The payment of dividends is restricted, among other
things, and our U.S. assets, other than trademarks and other intellectual property, generally have
been pledged as collateral. We are currently in compliance with such covenants. In Europe, we have arrangements with several banks that provide approximately $85.0 million for
cash borrowings and approximately $74.0 million for letters of credit. These lines of credit
expire in October 2005, and we believe that the banks will continue to make these facilities
available with substantially similar terms. The amount outstanding on these lines of credit at
October 31, 2004 was $3.8 million at an average interest rate of 2.7%. In Asia/Pacific, we have revolving lines of credit with banks that provide up to approximately
$19.0 million for cash borrowings and letters of credit. These lines of credit will be reviewed by
the banks in January 23




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2005 and September 2005, and we believe the banks will continue to make these facilities available
with substantially similar terms. The amount outstanding on these lines of credit at October 31,
2004 was $7.0 million at an average interest rate of 1.4%. These line of credit commitments and agreements in the Americas, Europe and Asia/Pacific allow for
total maximum cash borrowings and letters of credit of $378.0 million. Commitments totaling $178.0
million expire in fiscal 2005, while $200.0 million expire in fiscal 2006. We had $116.8 million
of borrowings drawn on these lines of credit as of October 31, 2004, and letters of credit issued
at that time totaled $68.6 million. We also have a term loan with a single bank in the Americas that amounted to $6.8 million on
October 31, 2004 and is repayable in installments of $0.1 million per month with a final balloon
payment due in October 2007. We anticipate that these monthly payments and final balloon payment
will be paid from cash and borrowings on our Americas line of credit. This term loan was
established in April 2000 and is secured by the leasehold improvements at our headquarters in
Huntington Beach, California. The interest rate structure and restrictive covenants are
substantially the same as those under the line of credit. However, we entered into an interest
rate swap agreement, which was valued at a loss of $0.4 million at October 31, 2004, to fix the
interest rate at 8.4% per year. This swap agreement is effective through April 2007 and is an
effective hedge of the related interest rate exposure. In Europe, we also have $33.7 million of long-term debt with several banks, most of which is
collateralized by fixed assets. This debt bears interest at rates ranging generally from 2.6% to
5.9%. Principal and interest payments are required either monthly, quarterly or annually, and the
loans are due at various dates through 2011. Our financing activities provided $20.4 million and $48.0 million of cash in fiscal 2004 and 2003
respectively, as debt was increased to fund the capital expenditures and business acquisitions
discussed above. In fiscal 2002 debt was reduced, and our financing activities used $35.7 million. Contractual Obligations and Commitments We lease certain land and buildings under non-cancelable operating leases. The leases expire at
various dates through 2014, excluding extensions at our option, and contain various provisions for
rental adjustments including, in certain cases, adjustments based on increases in the Consumer
Price Index. The leases generally contain renewal provisions for varying periods of time. We also
have long-term debt and obligations related to business acquisitions. The former owners of DC are
entitled to future payments up to $57.0 million if certain performance targets are achieved through
October 31, 2007. In fiscal 2005, $8.0 million is expected to be paid based on the achievement of
certain sales and earnings targets and is reflected in our balance sheet at October 31, 2004 as a
component of accrued liabilities. Additional payments to the sellers, up to an additional $23.1
million, could be required for our acquisition of Asia/Pacific if certain sales and earnings
targets are achieved. In fiscal 2004, $4.0 million was paid and $5.2 million is included in our
balance sheet as a component of accrued liabilities and is expected to be paid in fiscal 2005. Our
deferred purchase price obligation of $26.6 million related to our acquisition of Quiksilver
International could increase based on the computed earnings of Quiksilver International through
June 2005. Our significant contractual obligations and commitments as of October 31, 2004,
excluding any additional payments that may be due if these acquired businesses achieve certain
performance targets in the future, are summarized in the following table: 24




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Payments Due by PeriodTwo to
    
    
    Four to
    
    
    AfterOne
    
    
    Three
    
    
    Five
    
    
    FiveIn thousands
    
    Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalOperating lease obligations
    
    $
    33,666
    
    
    $
    61,794
    
    
    $
    47,111
    
    
    $
    79,256
    
    
    $
    221,827Long-term debt obligations(1)
    
    
    10,304
    
    
    
    154,233
    
    
    
    8,131
    
    
    
    845
    
    
    
    173,513Professional athlete sponsorships(2)
    
    
    9,051
    
    
    
    8,258
    
    
    
    2,097
    
    
    
    
    
    
    
    19,406Certain purchase obligations(3)
    
    
    68,606
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,606$
    121,627
    
    
    $
    224,285
    
    
    $
    57,339
    
    
    $
    80,101
    
    
    $
    483,352
   (1)
    
    Excludes interest. 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 surfing, skateboarding, snowboarding, windsurfing and golf.
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 the Company is 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 $32.9 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)
    
    Amounts represent contractual letters of credit with maturity dates of less
than one year. In addition, the Company also enters 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 Our trade accounts receivable were $281.3 million at October 31, 2004 versus $224.4 million the
previous year, an increase of 25%. Of those totals, receivables in the Americas increased 54% to
$125.8 million compared to $81.9 million, European receivables increased 10% to $120.7 million from
$109.9 million and Asia/Pacific receivables increased 7% to $34.8 million from $32.6 million. The
Americas accounts receivable increase is primarily due to the newly acquired DCdivision. Accounts
receivable for DCssales to foreign distributors are reflected in the Americas. European and
Asia/Pacific accounts receivable both decreased less than 1% when measured in euros and Australian
dollars, respectively. Accounts receivable grew more slowly than revenues in Europe and
Asia/Pacific primarily because of improved collections. Included in accounts receivable are
approximately $18.9 million of Value Added Tax and Goods and Services Tax related to foreign
accounts receivable. Such taxes are not reported as net revenues and as such, must be accounted
for to accurately compute days sales outstanding. Our overall average days sales outstanding
decreased approximately one day at the end of fiscal 2004 compared to the end of fiscal 2003. Consolidated inventories increased 23% to $179.6 million at October 31, 2004 from $146.4 million
the year before. Inventories in the Americas increased 21% to $104.6 million from $86.4 million,
European inventories increased 23% to $53.7 million from $43.8 million, and Asia/Pacific
inventories increased 31% to $21.3 million from $16.2 million. Inventories in the Americas
increased primarily due to the newly acquired DCdivision. Inventories in Europe increased by
approximately $4.0 million as a result of the stronger euro in relation to the U.S. dollar. The
remaining increase in European inventories is primarily a result of increased inventory at new
retail locations. Asia/Pacific inventories increased by approximately $1.0 million as a result of
the stronger Australian dollar in relation to the U.S. dollar and also to support growth in our
Asia/Pacific wholesale business. Consolidated average inventory turnover was approximately 4.6 at
October 31, 2004 compared to approximately 4.0 at October 31, 2003. 25




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Inflation Inflation has been modest during the years covered by this report. Accordingly, inflation has had
an insignificant impact on our sales and profits. New Accounting Pronouncements In January 2003, the Financial Accounting Standards Board (FASB) issued FIN 46, Consolidation of
Variable Interest Entities and issued FIN 46 (R) in December 2003, which amended FIN 46. FIN 46
requires certain variable interest entities to be consolidated in certain circumstances by the
primary beneficiary even if it lacks a controlling financial interest. The adoption of FIN 46 and
FIN 46 (R) did not have a material impact our operational results or financial position since we do
not have any variable interest entities. In May 2003, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 150,
Accounting for Certain Financial Instruments With Characteristics of Both Liability and Equity.
SFAS No. 150 establishes standards for how companies classify and measure certain financial
instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise is effective at
the beginning of the first interim period beginning after June 15, 2003. We adopted the standard
on July 1, 2003. However, SFAS No. 150 did not have any impact on our consolidated financial
position, results of operations or cash flows. In December 2003, the Securities and Exchange Commission released Staff Accounting Bulletin (SAB)
No. 104, Revenue Recognition, which supersedes SAB 101, Revenue Recognition in Financial
Statements. SAB 104 clarifies existing guidance regarding revenues for contracts that contain
multiple deliverables to make it consistent with Emerging Issues Task Force (EITF) No.
00-21,Accounting for Revenue Arrangements with Multiple Deliverables. The adoption of SAB 104
did not have an impact on our revenue recognition policies, nor our financial position or results
of operations. In March 2004, the Emerging Issues Task Force (EITF) ratified EITF Issue No. 03-1 (EITF 03-1),
The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF
03-1 provides a three-step process for determining whether investments, including debt securities,
are other than temporarily impaired and requires additional disclosures in annual financial
statements. We do not expect the adoption of EITF 03-1 to have a material impact on our financial
position or results of operations because we do not hold any applicable investments. In November 2004, the FASB issued SFAS No. 151, Inventory Costs an amendment of ARB No. 43,
Chapter 4. SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight,
handling costs, and wasted materials (spoilage) should be recognized as current-period charges and
requires the allocation of fixed production overheads to inventory based on the normal capacity of
the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15,
2005. We do not expect the adoption of SFAS No. 151 to have a significant impact on our
consolidated financial position, results of operations or cash flows. In December 2004, the FASB issued SFAS No. 123 (R) Share-Based Payment. SFAS No. 123 (R)
requires that companies recognize compensation expense equal to the fair value of stock options or
other share based payments. The standard is effective for us beginning the fourth quarter of
fiscal 2005. The impact on our net income will include the remaining amortization of the fair
value of existing options currently disclosed as pro-forma expense in Note 1 and is contingent upon
the number of future options granted, the selected transition method and the selection of either
the Black-Scholes or the binomial lattice model for valuing options. The adoption of this standard
will have no impact on our cash flows. Joint Venture Arrangement In 2003, we formed a joint venture with Glorious Sun Enterprises, Ltd. to pursue opportunities to
develop our Quiksilver business in China. The joint venture is 50% owned by us and 50% owned by
Glorious Sun. Neither partner can independently control the joint venture, and accordingly, the
results of its operations are not consolidated in our financial statements. Rather, our pro-rata
share of the operating profits or losses are reported in our income statements as a component of
operating income, and our net 26




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investment is included in other assets. Our investment in the joint venture has not been material
to date, but additional capital contributions are anticipated as the joint venture ramps up its
business and annual business plans are approved by us and Glorious Sun. In 2004, we opened four
Boardriders Club stores, one in mainland China and three in Hong Kong. We also have an additional
six shops, located within larger department stores. Critical Accounting Policies Our consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. To prepare these financial statements, we must
make estimates and assumptions that affect the reported amounts of assets and liabilities. These
estimates also affect our reported revenues and expenses. Judgments must also be made about the
disclosure of contingent liabilities. Actual results could be significantly different from these
estimates. We believe that the following discussion addresses the accounting policies that are
necessary to understand and evaluate our reported financial results. Revenue Recognition Revenues are recognized when the risk of ownership and title passes to our customers. Generally,
we extend credit to our customers and do not require collateral. Our payment terms range from
net-30 to net-90, depending on the country or whether we sell directly to retailers in the country
or to a distributor. None of our sales agreements with any of our customers provide for any rights
of return. However, we do approve returns on a case-by-case basis at our sole discretion to
protect our brands and our image. We provide allowances for estimated returns when revenues are
recorded, and related losses have historically been within our expectations. If returns are higher
than our estimates, our earnings would be adversely affected. Accounts Receivable It is not uncommon for some of our customers to have financial difficulties from time to time.
This is normal given the wide variety of our account base, which includes small surf shops,
medium-sized retail chains, and some large department store chains. Throughout the year, we perform
credit evaluations of our customers, and we adjust credit limits based on payment history and the
customers current creditworthiness. We continuously monitor our collections and maintain a
reserve for estimated credit losses based on our historical experience and any specific customer
collection issues that have been identified. Historically, our losses have been consistent with
our estimates, but there can be no assurance that we will continue to experience the same credit
loss rates that we have experienced in the past. Unforeseen, material financial difficulties of
our customers could have an adverse impact on our profits. Inventories We value inventories at the cost to purchase and/or manufacture the product or the current
estimated market value of the inventory, whichever is lower. We regularly review our inventory
quantities on hand, and adjust inventory values for excess and obsolete inventory based primarily
on estimated forecasts of product demand and market value. Demand for our products could fluctuate
significantly. The demand for our products could be negatively affected by many factors, including
the following:  
    weakening economic conditions,  
    terrorist acts or threats,  
    unanticipated changes in consumer preferences,  
    reduced customer confidence in the retail market, and  
    unseasonable weather. Some of these factors could also interrupt the production and/or importation of our products or
otherwise increase the cost of our products. As a result, our operations and financial performance
could be negatively affected. Additionally, our estimates of product demand and/or market value
could be inaccurate, which could result in an understated or overstated provision required for
excess and obsolete inventory. 27




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Long-Lived Assets We acquire tangible and intangible assets in the normal course of our business. We evaluate the
recoverability of the carrying amount of these long-lived assets (including fixed assets,
trademarks licenses and other amortizable intangibles) whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. An impairment loss would be
recognized when the carrying value exceeds the undiscounted future cash flows estimated to result
from the use and eventual disposition of the asset. Impairments, if any, would be recognized in
operating earnings. We continually use judgment when applying these impairment rules to determine
the timing of the impairment tests, the undiscounted cash flows used to assess impairments, and the
fair value of a potentially impaired asset. The reasonableness of our judgment could significantly
affect the carrying value of our long-lived assets. Goodwill We evaluate the recoverability of goodwill at least annually based on a two-step impairment test.
The first step compares the fair value of each reporting unit with its carrying amount including
goodwill. If the carrying amount exceeds fair value, then the second step of the impairment test is
performed to measure the amount of any impairment loss. Fair value is computed based on estimated
future cash flows discounted at a rate that approximates our cost of capital. Such estimates are
subject to change, and we may be required to recognize impairment losses in the future. Income Taxes Current income tax expense is the amount of income taxes expected to be payable for the current
year. A deferred income tax asset or liability is established for the expected future consequences
of temporary differences in the financial reporting and tax bases of assets and liabilities. We
consider future taxable income and ongoing prudent and feasible tax planning strategies in
assessing the value of our deferred tax assets. If we determine that it is more likely than not
that these assets will not be realized, we would reduce the value of these assets to their expected
realizable value, thereby decreasing net income. Evaluating the value of these assets is
necessarily based on our judgment. If we subsequently determined that the deferred tax assets,
which had been written down would, in our judgment, be realized in the future, the value of the
deferred tax assets would be increased, thereby increasing net income in the period when that
determination was made. Foreign Currency Translation A significant portion of our revenues are generated in Europe, where we operate with the euro as
our functional currency, and a smaller portion of our revenues are generated in Asia/Pacific, where
we operate with the Australian dollar and Japanese Yen as our functional currencies. Our European
revenues in the United Kingdom are denominated in British pounds, and some European and
Asia/Pacific product is sourced in U.S. dollars, both of which result in exposure to gains and
losses that could occur from fluctuations in foreign exchange rates. We also have other foreign
currency obligations related to our acquisition of Quiksilver International and Asia/Pacific. Our
assets and liabilities that are denominated in foreign currencies are translated at the rate of
exchange on the balance sheet date. Revenues and expenses are translated using the average
exchange rate for the period. Gains and losses from translation of foreign subsidiary financial
statements are included in accumulated other comprehensive income or loss. As part of our overall strategy to manage our level of exposure to the risk of fluctuations in
foreign currency exchange rates, we enter into various foreign exchange contracts generally in the
form of forward contracts. For all contracts that qualify as cash flow hedges, we record the
changes in the fair value of the derivatives in other comprehensive income. We also use other
derivatives that do not qualify for hedge accounting to mitigate our exposure to currency risks.
These derivatives are marked to fair value with corresponding gains or losses recorded in earnings. Forward-Looking Statements Certain words in this report like believes, anticipates, expects, estimates and similar
expressions are intended to identify, in certain cases, forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known
and unknown risks, 28




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uncertainties and other factors that may cause actual results to differ materially from the
predicted results. Such factors include, among others, the following:  
    general economic and business conditions,  
    the acceptance in the marketplace of new products,  
    the availability of outside contractors at prices favorable to us,  
    the ability to source raw materials at prices favorable to us,  
    currency fluctuations,  
    changes in business strategy or development plans,  
    availability of qualified personnel,  
    changes in political, social and economic conditions and local
regulations, particularly in Europe and Asia and  
    other factors outlined in our previously filed public documents,
copies of which may be obtained without cost from us. Given these uncertainties, investors are cautioned not to place too much weight on such statements.
We are not obligated to update these forward-looking statements. 
 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to a variety of risks. Two of these risks are foreign currency fluctuations and
changes in interest rates that affect interest expense. (See also Note 16 of our financial
statements.) Foreign Currency and Derivatives We are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates
relating to certain sales, royalty income, and product purchases of our international subsidiaries
that are denominated in currencies other than their functional currencies. We are also exposed to
foreign currency gains and losses resulting from domestic transactions that are not denominated in
U.S. dollars, and to fluctuations in interest rates related to our variable rate debt.
Furthermore, we are exposed to gains and losses resulting from the effect that fluctuations in
foreign currency exchange rates have on the reported results in our consolidated financial
statements due to the translation of the operating results and financial position of our
international subsidiaries. We use various foreign currency exchange contracts and intercompany
loans as part of our overall strategy to manage the level of exposure to the risk of fluctuations
in foreign currency exchange rates. In addition, we use interest rate swaps to manage our exposure
to the risk of fluctuations in interest rates. Derivatives that do not qualify for hedge accounting but are used by management to mitigate
exposure to currency risks are marked to fair value with corresponding gains or losses recorded in
earnings. A loss of $2.7 million was recognized related to these types of contracts during fiscal
2004. For all qualifying cash flow hedges, the changes in the fair value of the derivatives are
recorded in other comprehensive income. As of October 31, 2004, we were hedging forecasted
transactions expected to occur in the following seventeen months. Assuming exchange rates at
October 31, 2004 remain constant, $5.2 million of losses, net of tax, related to hedges of these
transactions are expected to be reclassified into earnings over the next seventeen months. Also
included in accumulated other comprehensive income at October 31, 2004 is a $2.1 million loss, net
of tax, related to cash flow hedges of our long-term debt, which is denominated in Australian
dollars and matures through fiscal 2005, and the fair value of interest rate swaps, totaling a loss
of $0.3 million, net of tax, which is related to our U.S. dollar denominated long-term debt and
matures through fiscal 2007. On the date we enter into a derivative contract, we designate certain of the derivatives as a
hedge of the identified exposure. We formally document all relationships between hedging
instruments and hedged items, as well as the risk-management objective and strategy for entering
into various hedge transactions. We identify in this documentation the asset, liability, firm
commitment, or forecasted transaction that has been designated as a hedged item and indicate how
the hedging instrument is expected to hedge the risks related to the hedged item. We formally
measure effectiveness of our hedging relationships both at 29




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the hedge inception and on an ongoing basis in accordance with our risk management policy. We will
discontinue hedge accounting prospectively:  
    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. We enter into forward exchange and other derivative contracts with major banks and are exposed to
credit losses in the event of nonperformance by these banks. We anticipate, however, that these
banks will be able to fully satisfy their obligations under the contracts. Accordingly, we do not
obtain collateral or other security to support the contracts. Translation of Results of International Subsidiaries As discussed above, we are exposed to financial statement gains and losses as a result of
translating the operating results and financial position of our international subsidiaries. We
translate the local currency statements of income of our foreign subsidiaries into U.S. dollars
using the average exchange rate during the reporting period. Changes in foreign exchange rates
affect our reported profits and distort comparisons from year to year. We use various foreign
currency exchange contracts and intercompany loans to hedge the profit and loss effects of such
exposure, but accounting rules do not allow us to hedge the actual translation of sales and
expenses. By way of example, when the U.S. dollar strengthens compared to the euro, there is a negative
effect on our reported results for Quiksilver Europe. It takes more profits in euros to generate
the same amount of profits in stronger U.S. dollars. The opposite is also true. That is, when the
U.S. dollar weakens there is a positive effect. In fiscal 2004, the U.S. dollar weakened compared to the euro and the Australian dollar. As a
result, our European revenues increased 16% in euros compared to an increase of 28% in U.S.
dollars. Asia/Pacific revenues increased 38% in Australian dollars compared to an increase of 58%
in U.S. dollars. Interest Rates Most of our lines of credit and long-term debt bear interest based on LIBOR. Interest rates,
therefore, can move up or down depending on market conditions. As discussed above, we have entered
into interest rate swap agreements to hedge a portion of our exposure to such fluctuations. The
approximate amount of our remaining variable rate debt was $127.7 million at October 31, 2004, and
the average interest rate at that time was 2.9%. If interest rates were to increase by 10%, our
net income would be reduced by approximately $0.2 million based on these fiscal 2004 levels. 
 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item appears beginning on page 35. 
 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. 
 Item 9A. CONTROLS AND PROCEDURES We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the Exchange Act)) that are designed to ensure
that 30




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information required to be disclosed in our reports filed under the Exchange Act, is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and forms,
and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. We carried out an evaluation under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of October 31, 2004, the end of
the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were effective at the
reasonable assurance level as of October 31, 2004. There have been no changes in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended October 31, 2004 that
materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting. 
 Item 9B. OTHER INFORMATION Not applicable 31




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PART III 
 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required to be included by this item will be included in our proxy statement for
the 2005 Annual Meeting of Stockholders. That information is incorporated herein by reference to
that proxy statement, which will be filed with the Securities and Exchange Commission within 120
days of our fiscal year ended October 31, 2004. 
 Item 11. EXECUTIVE COMPENSATION The information required to be included by this item will be included in our proxy statement for
the 2005 Annual Meeting of Stockholders. That information is incorporated herein by reference to
that proxy statement, which will be filed with the Securities and Exchange Commission within 120
days of our fiscal year ended October 31, 2004. 
 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required to be included by this item will be included in our proxy statement for
the 2005 Annual Meeting of Stockholders. That information is incorporated herein by reference to
that proxy statement, which will be filed with the Securities and Exchange Commission within 120
days of our fiscal year ended October 31, 2004. 
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required to be included by this item will be included in our proxy statement for
the 2005 Annual Meeting of Stockholders. That information is incorporated herein by reference to
that proxy statement, which will be filed with the Securities and Exchange Commission within 120
days of our fiscal year ended October 31, 2004. 
 Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required to be included by this item will be included in our proxy statement for
the 2005 Annual Meeting of Stockholders. That information is incorporated herein by reference to
that proxy statement, which will be filed with the Securities and Exchange Commission within 120
days of our fiscal year ended October 31, 2004. 32




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PART IV 
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES The following documents are filed as part of this Annual Report on Form 10-K:  1.
    Consolidated Financial StatementsSee Index to Consolidated Financial Statements on page 342.
    ExhibitsThe 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. 33




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##### Table of Contents



QUIKSILVER, INC. 
  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Page REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    35CONSOLIDATED FINANCIAL STATEMENTSConsolidated Balance Sheets October 31, 2004 and 2003
    
    
    36Consolidated Statements of Income Years Ended October 31, 2004, 2003 and 2002
    
    
    37Consolidated Statements of Comprehensive Income Years Ended October 31, 2004, 2003 and 2002
    
    
    37Consolidated Statements of Stockholders Equity Years Ended October 31, 2004, 2003 and 2002
    
    
    38Consolidated Statements of Cash Flows Years Ended October 31, 2004, 2003 and 2002
    
    
    39Notes to Consolidated Financial Statements
    
    
    40
 34




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders
Quiksilver, Inc. We have audited the accompanying consolidated balance sheets of Quiksilver, Inc. and subsidiaries
(the Company) as of October 31, 2004 and 2003, and the related consolidated statements of income,
comprehensive income, stockholders equity and cash flows for each of the three years in the period
ended October 31, 2004. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of Quiksilver, Inc. and subsidiaries as of October 31, 2004 and 2003, and
the results of their operations and their cash flows for each of the three years in the period
ended October 31, 2004, in conformity with accounting principles generally accepted in the United
States of America. As discussed in Note 1 to the consolidated financial statements, in 2002 the Company changed its method of
accounting for goodwill and intangible assets. /s/ Deloitte & Touche LLP January 12, 2005
Costa Mesa, California 35




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QUIKSILVER, INC. 
 CONSOLIDATED BALANCE SHEETS
October 31, 2004 and 2003 In thousands, except share amounts
    
    2004
    
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    55,197
    
    
    $
    27,866Trade accounts receivable, net - Note 3
    
    
    281,263
    
    
    
    224,418Other receivables
    
    
    16,165
    
    
    
    7,617Inventories - Note 4
    
    
    179,605
    
    
    
    146,440Deferred income taxes - Note 13
    
    
    22,299
    
    
    
    17,472Prepaid expenses and other current assets
    
    
    12,267
    
    
    
    9,732Total current assets
    
    
    566,796
    
    
    
    433,545Fixed assets, net - Note 5
    
    
    122,787
    
    
    
    99,299Intangible assets, net - Notes 2 and 6
    
    
    121,116
    
    
    
    65,577Goodwill - Notes 2, 6 and 15
    
    
    169,785
    
    
    
    98,833Deferred income taxes - Note 13
    
    
    3⁄4
    
    
    
    1,984Other assets
    
    
    10,506
    
    
    
    8,732Total assets
    
    $
    990,990
    
    
    $
    707,970LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Lines of credit - Note 7
    
    $
    10,801
    
    
    $
    20,951Accounts payable
    
    
    105,054
    
    
    
    64,537Accrued liabilities - Note 8
    
    
    79,095
    
    
    
    41,759Current portion of long-term debt - Note 7
    
    
    10,304
    
    
    
    8,877Income taxes payable - Note 13
    
    
    18,442
    
    
    
    10,796Total current liabilities
    
    
    223,696
    
    
    
    146,920Long-term debt - Note 7
    
    
    163,209
    
    
    
    114,542Deferred income taxes - Note 13
    
    
    15,841
    
    
    
    3⁄4Total liabilities
    
    
    402,746
    
    
    
    261,462Commitments and contingencies - Note 9Stockholders equity - Note 10:Preferred stock, $.01 par value, authorized shares  5,000,000;
issued and outstanding shares - none
    
    
    3⁄4
    
    
    
    3⁄4Common stock, $.01 par value, authorized shares  85,000,000;
issued shares - 60,169,523 (2004) and 57,020,517 (2003)
    
    
    602
    
    
    
    570Additional paid-in capital
    
    
    200,719
    
    
    
    155,310Treasury stock, 1,442,600 shares
    
    
    (6,778
    )
    
    
    (6,778
    )Retained earnings
    
    
    358,923
    
    
    
    277,554Accumulated other comprehensive income  Note 11
    
    
    34,778
    
    
    
    19,852Total stockholders equity
    
    
    588,244
    
    
    
    446,508Total liabilities and stockholders equity
    
    $
    990,990
    
    
    $
    707,970
 See notes to consolidated financial statements. 36




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##### Table of Contents



QUIKSILVER, INC. 
 CONSOLIDATED STATEMENTS OF INCOME
Years Ended October 31, 2004, 2003 and 2002 In thousands, except per share amounts
    
    2004
    
    
    2003
    
    
    2002Revenues, net
    
    $
    1,266,939
    
    
    $
    975,005
    
    
    $
    705,484Cost of goods sold
    
    
    688,780
    
    
    
    541,753
    
    
    
    419,155Gross profit
    
    
    578,159
    
    
    
    433,252
    
    
    
    286,329Selling, general and administrative expense
    
    
    446,221
    
    
    
    332,187
    
    
    
    216,625Operating income
    
    
    131,938
    
    
    
    101,065
    
    
    
    69,704Interest expense
    
    
    6,390
    
    
    
    8,267
    
    
    
    8,640Foreign currency loss
    
    
    2,861
    
    
    
    2,243
    
    
    
    729Other expense
    
    
    695
    
    
    
    488
    
    
    
    349Income before provision for income taxes
    
    
    121,992
    
    
    
    90,067
    
    
    
    59,986Provision for income taxes - Note 13
    
    
    40,623
    
    
    
    31,551
    
    
    
    22,395Net income
    
    $
    81,369
    
    
    $
    58,516
    
    
    $
    37,591Net income per share - Note 1
    
    $
    1.42
    
    
    $
    1.08
    
    
    $
    0.80Net income per share, assuming dilution - Note 1
    
    $
    1.36
    
    
    $
    1.03
    
    
    $
    0.77Weighted average common shares outstanding - Note 1
    
    
    57,194
    
    
    
    54,224
    
    
    
    46,918Weighted average common shares outstanding,
assuming dilution - Note 1
    
    
    59,644
    
    
    
    56,635
    
    
    
    48,944
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended October 31, 2004, 2003 and 2002 In thousands
    
    2004
    
    
    2003
    
    
    2002Net income
    
    $
    81,369
    
    
    $
    58,516
    
    
    $
    37,591Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    18,554
    
    
    
    26,799
    
    
    
    6,896Net loss on derivative instruments, net of tax of
$1,792 (2004) $200 (2003) and $1,274 (2002)
    
    
    (3,628
    )
    
    
    (544
    )
    
    
    (2,279
    )Comprehensive income
    
    $
    96,295
    
    
    $
    84,771
    
    
    $
    42,208
 See notes to consolidated financial statements. 37




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QUIKSILVER, INC. 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years Ended October 31, 2004, 2003 and 2002 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Treasury
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityIn thousands, except share amountsBalance, November 1, 2001
    
    
    47,780,566
    
    
    $
    478
    
    
    $
    52,467
    
    
    $
    (6,778
    )
    
    $
    181,447
    
    
    $
    (11,020
    )
    
    $
    216,594Exercise of stock options
    
    
    918,692
    
    
    
    9
    
    
    
    4,139
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    4,148Tax benefit from exercise
of stock options
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    2,543
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    2,543Employee stock purchase
plan
    
    
    64,852
    
    
    
    1
    
    
    
    471
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    472Beach Street acquisition
    
    
    596,184
    
    
    
    6
    
    
    
    6,902
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    6,908Net income and other
comprehensive income
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    37,591
    
    
    
    4,617
    
    
    
    42,208Balance, October 31, 2002
    
    
    49,360,294
    
    
    
    494
    
    
    
    66,522
    
    
    
    (6,778
    )
    
    
    219,038
    
    
    
    (6,403
    )
    
    
    272,873Exercise of stock options
    
    
    1,983,701
    
    
    
    19
    
    
    
    10,742
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    10,761Tax benefit from exercise
of stock options
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    6,284
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    6,284Employee stock purchase
plan
    
    
    50,666
    
    
    
    1
    
    
    
    567
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    568Asia/Pacific Acquisition
    
    
    5,625,856
    
    
    
    56
    
    
    
    71,195
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    71,251Net income and other
comprehensive income
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    58,516
    
    
    
    26,255
    
    
    
    84,771Balance, October 31, 2003
    
    
    57,020,517
    
    
    
    570
    
    
    
    155,310
    
    
    
    (6,778
    )
    
    
    277,554
    
    
    
    19,852
    
    
    
    446,508Exercise of stock options
    
    
    1,498,720
    
    
    
    15
    
    
    
    8,745
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    8,760Tax benefit from exercise
of stock options
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    8,411
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    8,411Employee stock purchase
plan
    
    
    65,711
    
    
    
    1
    
    
    
    957
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    958DC Acquisition
    
    
    1,584,575
    
    
    
    16
    
    
    
    27,296
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    27,312Net income and other
comprehensive income
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    81,369
    
    
    
    14,926
    
    
    
    96,295Balance, October 31, 2004
    
    
    60,169,523
    
    
    $
    602
    
    
    $
    200,719
    
    
    $
    (6,778
    )
    
    $
    358,923
    
    
    $
    34,778
    
    
    $
    588,244
 See notes to consolidated financial statements. 38




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##### Table of Contents



QUIKSILVER, INC. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31, 2004, 2003 and 2002 In thousands
    
    2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net income
    
    $
    81,369
    
    
    $
    58,516
    
    
    $
    37,591Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    26,847
    
    
    
    21,185
    
    
    
    14,349Provision for doubtful accounts
    
    
    6,123
    
    
    
    5,755
    
    
    
    5,771Loss on disposal of fixed assets
    
    
    1,761
    
    
    
    183
    
    
    
    27Foreign currency (gain) loss
    
    
    (159
    )
    
    
    23
    
    
    
    75Interest accretion
    
    
    1,368
    
    
    
    902
    
    
    
    1,713Deferred income taxes
    
    
    2,811
    
    
    
    (2,924
    )
    
    
    (4,038
    )Changes in operating assets and liabilities, net of effects
from business acquisitions:Trade accounts receivable
    
    
    (33,851
    )
    
    
    (19,399
    )
    
    
    (13,663
    )Other receivables
    
    
    (1,022
    )
    
    
    (564
    )
    
    
    922Inventories
    
    
    (13,140
    )
    
    
    (30,673
    )
    
    
    16,444Prepaid expenses and other current assets
    
    
    1,124
    
    
    
    (2,848
    )
    
    
    (2,811
    )Other assets
    
    
    265
    
    
    
    (3,115
    )
    
    
    437Accounts payable
    
    
    22,013
    
    
    
    (1,394
    )
    
    
    4,661Accrued liabilities
    
    
    21,953
    
    
    
    912
    
    
    
    9,291Income taxes payable
    
    
    13,133
    
    
    
    10,032
    
    
    
    6,061Net cash provided by operating activities
    
    
    130,595
    
    
    
    36,591
    
    
    
    76,830Cash flows from investing activities:Capital expenditures
    
    
    (52,457
    )
    
    
    (33,071
    )
    
    
    (22,216
    )Business acquisitions, net of acquired cash - Note 2
    
    
    (70,619
    )
    
    
    (31,195
    )
    
    
    (20,676
    )Net cash used in investing activities
    
    
    (123,076
    )
    
    
    (64,266
    )
    
    
    (42,892
    )Cash flows from financing activities:Borrowings on lines of credit
    
    
    83,482
    
    
    
    99,110
    
    
    
    4,585Payments on lines of credit
    
    
    (63,945
    )
    
    
    (56,807
    )
    
    
    (39,584
    )Borrowings on long-term debt
    
    
    5,592
    
    
    
    16,126
    
    
    
    6,000Payments on long-term debt
    
    
    (14,478
    )
    
    
    (21,710
    )
    
    
    (11,309
    )Stock option exercises and employee stock purchases
    
    
    9,718
    
    
    
    11,330
    
    
    
    4,620Net cash provided by (used in) financing activities
    
    
    20,369
    
    
    
    48,049
    
    
    
    (35,688
    )Effect of exchange rate changes on cash
    
    
    (557
    )
    
    
    4,895
    
    
    
    (655
    )Net increase (decrease) in cash and cash equivalents
    
    
    27,331
    
    
    
    25,269
    
    
    
    (2,405
    )Cash and cash equivalents, beginning of year
    
    
    27,866
    
    
    
    2,597
    
    
    
    5,002Cash and cash equivalents, end of year
    
    $
    55,197
    
    
    $
    27,866
    
    
    $
    2,597Supplementary cash flow information:Cash paid during the year for:Interest
    
    $
    5,009
    
    
    $
    5,893
    
    
    $
    6,297Income taxes
    
    $
    22,046
    
    
    $
    21,348
    
    
    $
    18,914Non-cash investing and financing activities:Deferred purchase price obligation - Note 2
    
    $
    6,460
    
    
    $
    4,535
    
    
    $
    5,310Common stock issued for business acquisitions - Note 2
    
    $
    27,312
    
    
    $
    71,251
    
    
    $
    6,908
 See notes to consolidated financial statements. 39




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##### Table of Contents



QUIKSILVER, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended October 31, 2004, 2003 and 2002 Note 1 3⁄4 Significant Accounting Policies Company Business The Company designs, produces and distributes clothing, accessories and related products for
young-minded people and develops brands that represent a casual lifestyledriven from a boardriding
heritage. The Companys primary focus is apparel for young men and young women under the
Quiksilver, Roxy, Raisins, Radio Fiji, DC Shoes and Gotcha(Europe) labels. The Company also
manufactures apparel for boys (Quiksilver Boysand Hawk Clothing), girls (Roxy Girl, Teenie Wahine
and Raisins Girls), men (Quiksilveredition and Fidra) and women (Leilaniswimwear), as well as
snowboards, snowboard boots and bindings under the Lib Technologies, Gnu, Roxy, DC Shoesand Bent
Metallabels. Distribution is primarily in the United States, Europe and Australia and is
primarily based in surf shops, skate shops and other specialty stores that provide an outstanding
retail experience for the customer. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company competes in markets that are highly competitive. The Companys ability to evaluate and
respond to changing consumer demands and tastes is critical to its success. The Company believes
that consumer acceptance depends on product, image, design, fit and quality. Consequently, the
Company has developed an experienced team of designers, artists, merchandisers, pattern makers, and
cutting and sewing contractors that it believes has helped it remain in the forefront of design in
the areas in which it competes. The Company believes, however, that its continued success will
depend on its ability to promote its image and to design products acceptable to the marketplace. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Quiksilver, Inc. and
subsidiaries, including Na Pali, SAS and subsidiaries (Quiksilver Europe) and Quiksilver
Australia Pty Ltd. and subsidiaries (Quiksilver Asia/Pacific and Quiksilver International).
Intercompany accounts and transactions have been eliminated in consolidation. Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. Cash Equivalents Certificates of deposit and highly liquid short-term investments purchased with original maturities
of three months or less are considered cash equivalents. Carrying values approximate fair value. Inventories Inventories are valued at the lower of cost (first-in, first-out) or market. Management regularly
reviews the inventory quantities on hand and adjusts inventory values for excess and obsolete
inventory based primarily on estimated forecasts of product demand and market value. Fixed Assets Furniture, computer equipment, other equipment and buildings are recorded at cost and depreciated
on a straight-line basis over their estimated useful lives, which generally range from two to ten
years. Leasehold improvements are recorded at cost and amortized over their estimated useful lives
or related lease term, whichever is shorter. Land use rights for certain leased retail locations
are accounted for in the same manner as land and are reviewed periodically for impairment. 40




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Long-Lived Assets The Company accounts for the impairment and disposition of long-lived assets in accordance with
Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. In accordance with SFAS No. 144, management assesses potential
impairments of its long-lived assets whenever events or changes in circumstances indicate that an
assets carrying value may not be recoverable. An impairment loss would be recognized when the
carrying value exceeds the undiscounted future cash flows estimated to result from the use and
eventual disposition of the asset. The Company determined that no impairment loss was necessary as
of October 31, 2004. Goodwill and Intangible Assets The Company accounts for goodwill and intangible assets in accordance with SFAS No. 142, Goodwill
and Intangible Assets. Under SFAS No. 142, goodwill and intangible assets with indefinite lives
are no longer amortized but are tested for impairment annually and also in the event of an
impairment indicator. The Company completed the required transitional impairment test in the fiscal
year ended October 31, 2002 and the subsequent annual tests and determined that no impairment loss
was necessary. Any subsequent impairment losses will be reflected in operating income. Under SFAS
No. 142, the Company does not amortize goodwill or certain trademarks that are determined to have
an indefinite life. Other Assets Other assets includes a note receivable from an executive officer totaling $0.8 million at October
31, 2003 related to an international relocation that bore interest at a market rate and was secured
by a second trust deed on the executives residence. This note was repaid during fiscal 2004. Revenue Recognition Revenues are recognized upon the transfer of title and risk of ownership to customers. Allowances
for estimated returns and doubtful accounts are provided when revenues are recorded. Returns and
allowances are reported as reductions in revenues, whereas allowances for bad debts are reported as
a component of selling, general and administrative expense. Revenues in the Consolidated
Statements of Income includes the following: Years Ended October 31,In thousands
    
    2004
    
    
    2003
    
    
    2002Product shipments, net
    
    $
    1,264,457
    
    
    $
    972,855
    
    
    $
    700,692Royalty income
    
    
    2,482
    
    
    
    2,150
    
    
    
    4,792$
    1,266,939
    
    
    $
    975,005
    
    
    $
    705,484
 Promotion and Advertising The Companys promotion and advertising efforts include athlete sponsorships, world-class
boardriding contests, magazine advertisements, retail signage, television programs, cobranded
products, surf camps, skate parks tours and other events. For the fiscal years ended October 31,
2004, 2003 and 2002, these expenses totaled $66.5 million, $40.3 million and $35.5 million,
respectively. Advertising costs are expensed when incurred. Stock-Based Compensation The Company applies Accounting Principles Board Opinion 25 and related interpretations in
accounting for its stock option plans. No stock-based employee compensation expense is reflected
in net income, as all options granted under our stock option plans have exercise prices equal to
the market value of the underlying common stock on the grant dates. The following table contains
the pro forma disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation,
as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure. 41




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Years Ended October 31,In thousands, except per share amounts
    
    2004
    

    2003
    

    2002Actual net income
    
    $
    81,369
    
    
    $
    58,516
    
    
    $
    37,591Less stock-based employee compensation expense
determined under the fair value based method, net of
tax
    
    
    9,188
    
    
    
    5,656
    
    
    
    3,686Pro forma net income
    
    $
    72,181
    
    
    $
    52,860
    
    
    $
    33,905Actual net income per share
    
    $
    1.42
    
    
    $
    1.08
    
    
    $
    0.80Pro forma net income per share
    
    $
    1.26
    
    
    $
    0.97
    
    
    $
    0.72Actual net income per share, assuming dilution
    
    $
    1.36
    
    
    $
    1.03
    
    
    $
    0.77Pro forma net income per share, assuming dilution
    
    $
    1.22
    
    
    $
    0.94
    
    
    $
    0.70
 The fair value of each option grant was estimated as of the grant date using the Black-Scholes
option-pricing model for the years ended October 31, 2004, 2003 and 2002 assuming risk-free
interest rates of 4.0%, 4.3% and 3.9%, respectively, volatility of 56.1%, 59.3% and 63.4%,
respectively, zero dividend yield, and expected lives of 5.4, 4.8 and 4.9 years, respectively. The
weighted average fair value of options granted was $10.01, $9.78 and $5.40 for the years ended
October 31, 2004, 2003, and 2002, respectively. Income Taxes The Company accounts for income taxes using the asset and liability approach as promulgated by SFAS
No. 109, Accounting for Income Taxes. Deferred income tax assets and liabilities are established
for temporary differences between the financial reporting bases and the tax bases of the Companys
assets and liabilities at tax rates expected to be in effect when such assets or liabilities are
realized or settled. Deferred income tax assets are reduced by a valuation allowance if, in the
judgment of the Companys management, it is more likely than not that such assets will not be
realized. Net Income Per Share The Company reports basic and diluted earnings per share (EPS). Basic EPS is based on the
weighted average number of shares outstanding during the periods, while diluted EPS additionally
includes the dilutive effect of the Companys outstanding stock options computed using the treasury
stock method. For the years ended October 31, 2004, 2003 and 2002, the weighted average common
shares outstanding, assuming dilution, includes 2,450,000, 2,411,000 and 2,026,000, respectively,
of dilutive stock options. Stock Split During fiscal 2003, the Companys Board of Directors approved a two-for-one stock split that was
effected May 9, 2003. All share and per share information has been restated to reflect the stock
split. Foreign Currency and Derivatives The Companys primary functional currency is the U.S. dollar, while Quiksilver Europe functions in
euros and British Pounds, and Quiksilver Asia/Pacific functions in Australian dollars and Japanese
Yen. Assets and liabilities of the Company denominated in foreign currencies are translated at the
rate of exchange on the balance sheet date. Revenues and expenses are translated using the average
exchange rate for the period. Derivative financial instruments are recognized as either assets or liabilities in the balance
sheet and are measured at fair value. The accounting for changes in the fair value of a derivative
depends on the use and type of the derivative. The Companys derivative financial instruments
principally consist of foreign currency exchange contracts and interest rate swaps, which the
Company uses to manage its exposure to the risk of foreign currency exchange rates and variable
interest rates. The Companys objectives are to reduce the volatility of earnings and cash flows
associated with changes in foreign currency exchange and interest rates. The Company does not enter
into derivative financial instruments for speculative or trading purposes. 42




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##### Table of Contents



Comprehensive Income Comprehensive income includes all changes in stockholders equity except those resulting from
investments by, and distributions to, stockholders. Accordingly, the Companys Consolidated
Statements of Comprehensive Income include net income and foreign currency adjustments that arise
from the translation of the financial statements of Quiksilver Europe and Quiksilver Asia/Pacific
into U.S. dollars and fair value gains and losses on certain derivative instruments. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions. Such
estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates. Fair Value of Financial Instruments The carrying value of the Companys trade accounts receivable and accounts payable approximates
their fair value due to their short-term nature. The carrying value of the Companys lines of
credit and long-term debt approximates its fair value as these borrowings consist primarily of a
series of short-term notes at floating interest rates. Reclassifications Certain reclassifications were made to conform to current year presentation. New Accounting Pronouncements In January 2003, the Financial Accounting Standards Board (FASB) issued FIN 46, Consolidation of
Variable Interest Entities and issued FIN 46 ® in December 2003, which amended FIN 46. FIN 46
requires certain variable interest entities to be consolidated in certain circumstances by the
primary beneficiary even if it lacks a controlling financial interest. The adoption of FIN 46 and
FIN 46 ® did not have a material impact on the Companys operational results or financial
position since it does not have any variable interest entities. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments With
Characteristics of Both Liability and Equity. SFAS No. 150 establishes standards for how
companies classify and measure certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The Company adopted the standard on July 1, 2003, and it did
not have any significant impact on the Companys consolidated financial position, results of
operations or cash flows. In December 2003, the Securities and Exchange Commission released Staff Accounting Bulletin (SAB)
No. 104, Revenue Recognition, which supersedes SAB 101, Revenue Recognition in Financial
Statements. SAB 104 clarifies existing guidance regarding revenues for contracts that contain
multiple deliverables to make it consistent with Emerging Issues Task Force (EITF) No.
00-21,Accounting for Revenue Arrangements with Multiple Deliverables. The adoption of SAB 104 did
not have a material impact on the Companys revenue recognition policies, nor its financial
position or results of operations. In March 2004, the Emerging Issues Task Force (EITF) ratified EITF Issue No. 03-1 (EITF 03-1),
The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF
03-1 provides a three-step process for determining whether investments, including debt securities,
are other than temporarily impaired and requires additional disclosures in annual financial
statements. The Company does not expect the adoption of EITF 03-1 to have a material impact on its
financial position or results of operations because the Company does not hold any applicable
investments. In November 2004, the FASB issued SFAS No. 151, Inventory Costs an amendment of ARB No. 43,
Chapter 4. SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight,
handling costs, and wasted materials (spoilage) should be recognized as current-period charges and
requires the 43




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allocation of fixed production overheads to inventory based on the normal capacity of the
production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005.
The Company does not expect the adoption of SFAS No. 151 to have a significant impact on its
consolidated financial position, results of operations or cash flows. In December 2004, the FASB issued SFAS No. 123 (R) Share-Based Payment. SFAS No. 123 (R)
requires that companies recognize compensation expense equal to the fair value of stock options or
other share based payments. The standard is effective for the Company beginning the fourth quarter
of fiscal 2005. The impact on the Companys net income will include the remaining amortization of
the fair value of existing options currently disclosed as pro-forma expense in Note 1 and is
contingent upon the number of future options granted, the selected transition method and the
selection of either the Black-Scholes or the binominal lattice model for valuing options. The
adoption of this standard will have no impact on the Companys cash flows. Note 2 3⁄4 Business Acquisitions Effective May 1, 2004, the Company acquired DC Shoes, Inc. (DC), a premier designer, producer and
distributor of action sports inspired footwear, apparel and related accessories in the U.S. and
internationally. The operations of DC have been included in the Companys results since May 1,
2004. The initial purchase price, excluding transaction costs, includes cash of approximately
$52.8 million, 1.6 million restricted shares of the Companys common stock valued at $27.3 million
and the repayment of approximately $15.3 million in funded indebtedness. Transaction costs totaled
$2.9 million. The valuation of the common stock issued in connection with the acquisition was
based on its quoted market price for 5 days before and after the announcement date, discounted to
reflect the estimated effect of its trading restrictions. Of the
initial purchase price, $63.4 million was
paid in fiscal 2004, and $4.7 million will be paid in fiscal 2005 or later based on the resolution of
certain other contingencies. The sellers are entitled to future payments ranging from zero to
$57.0 million if certain performance targets are achieved during the four years ending October 31,
2007. The amount of goodwill initially recorded for the transaction would increase if such
contingent payments were made. As of October 31, 2004, $8.0 million was accrued based on achieving
certain sales and earnings targets, reducing potential future obligations to approximately $49.0
million. Goodwill arises from synergies the Company believes can be achieved integrating DCs
product lines and operations with the Companys, and is not expected to be deductible for income
tax purposes. Amortizing intangibles consist of non-compete agreements, customer relationships
and patents with estimated useful lives ranging from four to eighteen years. The following table summarizes the fair values of the assets acquired and the liabilities assumed
at the date of acquisition in accordance with the purchase method of accounting: May 1,In thousands
    
    2004Current 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
 Effective December 1, 2003, the Company acquired the operations of its Swiss distributor, Sunshine
Diffusion SA. The initial purchase price was $1.6 million. The acquisition has been recorded using
the purchase method of accounting and resulted in goodwill of $0.7 million at the acquisition date,
which is not 44




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expected to be deductible for tax purposes. The sellers are entitled to future payments denominated
in euros ranging from zero to $1.4 million if certain sales targets are achieved. The results of operations for each of the acquisitions are included in the Consolidated Statements
of Income from their respective acquisition dates. Assuming these fiscal 2004 acquisitions had
occurred as of November 1, 2002, consolidated net sales would have been $1,314.8 million and
$1,086.6 million for the years ended October 31, 2004 and 2003, respectively. Net income would
have been $78.8 million and $62.8 million, respectively, for those same periods, and diluted
earnings per share would have been $1.30 and $1.07, respectively. Effective December 1, 2002, the Company acquired its licensees in Australia and Japan to unify its
global operating platform and take advantage of available syngergies in product development and
sourcing, among other things. This group of companies is referred to herein as Quiksilver
Asia/Pacific and comprises two Australian operating companies, Ug Manufacturing Co. Pty Ltd. and
QSJ Holdings Pty Ltd., one Japanese operating company, Quiksilver Japan KK, and the holding
company, Quiksilver Australia Pty Ltd. Ug Manufacturing Co. Pty Ltd. was still owned by the
founders of the Quiksilver brand and was the original Quiksilver operating company that has been
producing Quiksilver products in Australia and surrounding countries and territories for over 30
years. Along with a Japanese partner, the founders also started Quiksilver Japan KK, which has
been the Quiksilver licensee in Japan for approximately 20 years. The operations of Quiksilver
Asia/Pacific have been included in the Companys results since December 1, 2002. The initial purchase price, excluding transaction costs, included cash of $25.3 million and 5.6
million shares of the Companys common stock valued at $71.3 million. Transaction costs totaled
$2.5 million. The valuation of the common stock issued in connection with the acquisition was
based on the quoted market price for 5 days before and after the announcement date. The initial
purchase price was subject to adjustment based on the closing balance sheet, which was finalized in
the third quarter of fiscal 2003. The sellers are entitled to future payments denominated in
Australian dollars ranging from up to $23.1 million if certain sales and earnings targets are
achieved during the three years ending October 31, 2005. The amount of goodwill initially recorded
for the transaction would increase if such contingent payments are made. As of October 31, 2004 we
have paid or accrued $9.2 million based on achieving certain sales and earnings targets. The following table summarizes the fair values of the assets acquired and liabilities assumed at
the date of acquisition in accordance with the purchase method of accounting. December 1,In thousands
    
    2002Current assets
    
    $
    55,889Long-term assets
    
    
    6,325License agreements
    
    
    10,100Goodwill
    
    
    65,713Total assets acquired
    
    
    138,027Current liabilities
    
    
    38,890Net assets acquired
    
    $
    99,137
 License agreements are being amortized over their remaining lives through June 2012. Goodwill is
not subject to amortization and is generally not expected to be deductible for tax purposes. Effective November 1, 2002, the Company acquired the operations of its European licensee for
eyewear and wetsuits, Omareef Europe, S.A. The initial purchase price was $5.2 million, which
included a cash payment of $4.9 million and assumed debt of $0.3 million. The acquisition was
recorded using the purchase method of accounting and resulted in goodwill of $3.5 million at the
acquisition date, which is not expected to be deductible for tax purposes. Effective February 1, 2003, the Company acquired its United States eyewear licensee, Q.S. Optics,
Inc. The initial purchase price was $2.9 million, which included a cash payment of $2.4 million
and assumed 45




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debt of $0.5 million. The acquisition was recorded using the purchase method of accounting and
resulted in goodwill of $2.1 million at the acquisition date. Goodwill is not subject to
amortization and is generally not expected to be deductible for tax purposes. Effective September 15, 2002, the Company acquired Beach Street, Inc. (Beach Street), a company
that operated 26 Quiksilver outlet stores. The results of Beach Streets operations have been
included in the consolidated financial statements since that date. As consideration for the
acquisition, the Company issued 596,184 shares of common stock valued at $6.9 million. The
acquisition was recorded using the purchase method of accounting. As a result of the acquisition,
the Company recorded goodwill of $8.1 million, which is not expected to be deductible for tax
purposes. Note 3 3⁄4 Allowance for Doubtful Accounts The allowance for doubtful accounts, which includes bad debts and returns and allowances, consists
of the following: Years Ended October 31,In thousands
    
    2004
    
    
    2003
    
    
    2002Balance, beginning of year
    
    $
    8,700
    
    
    $
    6,667
    
    
    $
    6,280Provision for doubtful accounts
    
    
    6,123
    
    
    
    5,755
    
    
    
    5,771Deductions
    
    
    (3,456
    )
    
    
    (3,722
    )
    
    
    (5,384
    )Balance, end of year
    
    $
    11,367
    
    
    $
    8,700
    
    
    $
    6,667
 The provision for doubtful accounts represents charges to selling, general and administrative
expense for estimated bad debts, whereas the provision for returns and allowance is reported as a
reduction of revenues. Note 4 3⁄4 Inventories Inventories consist of the following: October 31,In thousands
    
    2004
    
    
    2003Raw materials
    
    $
    14,133
    
    
    $
    10,708Work in process
    
    
    7,698
    
    
    
    8,426Finished goods
    
    
    157,774
    
    
    
    127,306$
    179,605
    
    
    $
    146,440
 46




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Note 5 3⁄4 Fixed Assets Fixed assets consist of the following: October 31,In thousands
    
    2004
    
    
    2003Furniture and other equipment
    
    $
    88,302
    
    
    $
    68,537Computer equipment
    
    
    43,864
    
    
    
    32,097Leasehold improvements
    
    
    57,715
    
    
    
    50,586Land use rights
    
    
    21,620
    
    
    
    15,643Land and buildings
    
    
    2,383
    
    
    
    2,207213,884
    
    
    
    169,070Accumulated depreciation and amortization
    
    
    (91,097
    )
    
    
    (69,771
    )$
    122,787
    
    
    $
    99,299
 Note 6 3⁄4 Intangible Assets and Goodwill A summary of intangible assets is as follows: October 31,2004
    
    
    2003Amorti-In thousands
    
    Gross Amount
    
    
    Amortization
    
    
    Net Book Value
    
    
    Gross Amount
    
    
    zation
    
    
    Net Book ValueAmortizable trademarks
    
    $
    3,476
    
    
    $
    (692
    )
    
    $
    2,784
    
    
    $
    2,453
    
    
    $
    (489
    )
    
    $
    1,964Amortizable licenses
    
    
    10,105
    
    
    
    (1,937
    )
    
    
    8,168
    
    
    
    10,105
    
    
    
    (926
    )
    
    
    9,179Other amortizable intangibles
    
    
    5,633
    
    
    
    (498
    )
    
    
    5,135
    
    
    
    
    
    
    
    
    
    
    
    Non-amortizable trademarks
    
    
    105,029
    
    
    
    
    
    
    
    105,029
    
    
    
    54,434
    
    
    
    
    
    
    
    54,434$
    124,243
    
    
    $
    (3,127
    )
    
    $
    121,116
    
    
    $
    66,992
    
    
    $
    (1,415
    )
    
    $
    65,577
 The change in non-amortizable trademarks is due primarily to the DC acquisition. Other amortizable
intangibles primarily include non-compete agreements, patents and customer relationships. Certain
trademarks and licenses will continue to be amortized by the Company using estimated useful lives
of 10 to 25 years with no residual values. Intangible amortization expense for the fiscal years
ended October 31, 2004 and 2003 was $1.7 million and $1.1 million, respectively. Annual
amortization expense, based on the Companys amortizable intangible assets as of October 31, 2004,
is estimated to be approximately $2.2 million in each of the fiscal years ending October 31, 2005
through 2007 and approximately $1.5 million in the fiscal years ending October 31, 2008 and 2009. Goodwill arose primarily from the acquisitions of Quiksilver Europe, The Raisin Company, Inc.,
Mervin, Freestyle SA, Beach Street, Quiksilver Asia/Pacific and DC Shoes, Inc. Goodwill increased
during the fiscal year ended October 31, 2004 as a result of the Companys acquisition of its Swiss
distributor, Sunshine Diffusion SA, from the contingent purchase price payment recorded related to
the acquisition of Quiksilver Asia/Pacific and as a result of the Companys acquisition of DC
Shoes, Inc. as described in Note 2 to these financial statements, and also due to foreign exchange
fluctuations. Changes to goowill for the fiscal year ended October 31, 2003 were primarily due to
the acquisition of Quiksilver Asia/Pacific and foreign exchange fluctuations. 47




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Note 7 3⁄4 Lines of Credit and Long-term Debt A summary of lines of credit and long-term debt is as follows: October 31,In thousands
    
    2004
    
    
    2003European short-term credit arrangements
    
    $
    3,756
    
    
    $
    12,351Asia/Pacific short-term lines of credit
    
    
    7,045
    
    
    
    8,600Americas line of credit
    
    
    105,974
    
    
    
    60,912Americas term loan
    
    
    6,765
    
    
    
    7,995European long-term debt
    
    
    33,714
    
    
    
    37,071Asia/Pacific long-term debt
    
    
    460
    
    
    
    438Deferred purchase price obligation
    
    
    26,600
    
    
    
    17,003$
    184,314
    
    
    $
    144,370
 In June 2003, the Company replaced its syndicated bank facility with a new syndicated revolving
line of credit (the Line of Credit). The Line of Credit expires June 2006 and provides for a
revolving line of credit of up to $200.0 million. The Line of Credit bears interest based on the
banks reference rate or based on LIBOR for borrowings committed to be outstanding for 30 days or
longer. The weighted average interest rate at October 31, 2004 was 3.0%. The Line of Credit can
be accessed by certain of the Companys foreign subsidiaries and includes a $75.0 million sublimit
for letters of credit and a $35.0 million sublimit for borrowings in certain foreign currencies.
As of October 31, 2004, $106.0 million was outstanding under this line of credit. The Line of Credit contains restrictive covenants. The most significant covenants relate to
maintaining certain leverage and fixed charge coverage ratios. The payment of dividends is
restricted, among other things, and the Companys U.S. assets, other than trademarks and other
intellectual property, generally have been pledged as collateral. At October 31, 2004, the Company
was in compliance with such covenants. The Company also has a term loan with a U.S. bank that initially totaled $12.3 million in April
2000. This term loan is repayable in installments of $0.1 million per month with a final maturity
in October 2007. The Company anticipates that these monthly payments and final balloon payment
will be paid from borrowings on the Line of Credit. This term loan is secured by the leasehold
improvements at the Companys Huntington Beach, California headquarters and bears interest
contractually based on LIBOR. However, in January 2000, the Company entered into an interest rate
swap agreement with a notional amount equal to the term loan, effective through April 2007, to fix
the interest rate at 8.4% per annum. The fair value of the interest rate swap at October 31, 2004
was a loss of $0.4 million. The restrictive covenants under this term loan are substantially the
same as those under the Line of Credit. The outstanding balance of this term loan at October 31,
2004 was $6.8 million. Quiksilver Europe has arrangements with banks that provide for maximum cash borrowings of
approximately $85.0 million in addition to approximately $74.0 million available for the issuance
of letters of credit. At October 31, 2004, these lines of credit bore interest at an average rate
of 2.7%, and $3.8 million was outstanding. The lines of credit expire in October 2005, and the
Company believes that these lines of credit will continue to be available with substantially
similar terms. Quiksilver Europe also has $33.7 million of long-term debt, the majority of which is collateralized
by land and buildings. This long-term debt bears interest at rates ranging generally from 2.6% to
5.9%, requires monthly, quarterly or annual principal and interest payments and is due at various
dates through 2011. Quiksilver Asia/Pacific has revolving lines of credit with banks that provide up to $19.0 million
for cash borrowings and letters of credit. These lines of credit will be reviewed by the banks in
January 2005 and September 2005, and the Company believes these lines of credit will continue to be
available with substantially similar terms. The amount outstanding on these lines of credit at
October 31, 2004 was $7.0 million at an average interest rate of 1.4%. 48




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As part of the acquisition of Quiksilver International in fiscal 2000, the Company was obligated to
make two additional purchase price payments, which are denominated in Australian dollars and are
contingent on the computed earnings of Quiksilver International through June 2005. These
obligations were discounted to present value as of the acquisition date, and in addition to
potentially increasing as this contingency is resolved, the carrying amount of the obligation
fluctuates based on changes in the exchange rate between Australian dollars and U.S. dollars. As a
result of Quiksilver Internationals operations for the 12 months ended June 30, 2004, the deferred
purchase price obligation was increased by $6.5 million with a corresponding increase to
trademarks. As of October 31, 2004, the remaining deferred purchase price obligation totaled $26.6
million. Short-term obligations that the Company has the intent and ability to refinance on a long-term
basis are classified as long-term debt. Principal payments on long-term debt are due approximately
as follows (in thousands): 2005
    
    $
    10,3042006
    
    
    142,2022007
    
    
    12,0312008
    
    
    5,3742009
    
    
    2,757Thereafter
    
    
    845$
    173,513
 Note 8 3⁄4 Accrued Liabilities Accrued liabilities consist of the following: October 31,In thousands
    
    2004
    
    
    2003Accrued employee compensation and benefits
    
    $
    33,154
    
    
    $
    25,010Accrued sales and payroll taxes
    
    
    2,553
    
    
    
    1,001Derivative liability
    
    
    6,362
    
    
    
    202Amounts payable for business acquisitions
    
    
    17,951
    
    
    
    Other liabilities
    
    
    19,075
    
    
    
    15,546$
    79,095
    
    
    $
    41,759
 Note 9 3⁄4 Commitments and Contingencies Operating Leases The Company leases certain land and buildings under long-term operating lease agreements. The
following is a schedule of future minimum lease payments required under such leases as of October
31, 2004 (in thousands): 2005
    
    $
    33,6662006
    
    
    32,5212007
    
    
    29,2732008
    
    
    25,5842009
    
    
    21,527Thereafter
    
    
    79,256$
    221,827
 Total rent expense was $31.5 million, $24.8 million and $14.9 million for the years ended October
31, 2004, 2003 and 2002, respectively. 49




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##### Table of Contents



Professional Athlete Sponsorships 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 surfing,
skateboarding, snowboarding, windsurfing and golf. Many of these contracts provide incentives for
magazine exposure and competitive victories while wearing or using our products. Such expenses are
an ordinary part of our operations and are expensed as incurred. The following is a schedule of
future estimated minimum payments required under such endorsement agreements as of October 31, 2004
(in thousands): 2005
    
    $
    9,0512006
    
    
    4,9502007
    
    
    3,3082008
    
    
    1,7292009
    
    
    368$
    19,406
 Litigation We are involved from time to time in legal claims involving trademark and intellectual property,
licensing, employee relations and other matters incidental to our business. We believe the
resolution of any such matter currently pending will not have a material adverse effect on our
financial condition or results of operations. Indemnities and Guarantees During its normal course of business, the Company has made certain indemnities, commitments and
guarantees under which it may be required to make payments in relation to certain transactions.
These include (i) intellectual property indemnities to the Companys customers and licensees in
connection with the use, sale and/or license of Company products, (ii) indemnities to various
lessors in connection with facility leases for certain claims arising from such facility or lease,
(iii) indemnities to vendors and service providers pertaining to claims based on the negligence or
willful misconduct of the Company, and (iv) indemnities involving the accuracy of representations
and warranties in certain contracts. The duration of these indemnities, commitments and guarantees
varies, and in certain cases, may be indefinite. The majority of these indemnities, commitments
and guarantees do not provide for any limitation of the maximum potential for future payments the
Company could be obligated to make. The Company has not recorded any liability for these
indemnities, commitments and guarantees in the accompanying consolidated balance sheets. Note 10 3⁄4 Stockholders Equity In March 2000, the Companys stockholders approved the Companys 2000 Stock Incentive Plan (the
2000 Plan), which generally replaced the Companys previous stock option plans. Under the 2000
Plan, 14,472,418 shares are reserved for issuance over its term, consisting of 6,472,418 shares
authorized under predecessor plans plus an additional 8,000,000 shares. Nonqualified and incentive
options may be granted to officers and employees selected by the plans administrative committee at
an exercise price not less than the fair market value of the underlying shares on the date of
grant. Payment by option holders upon exercise of an option may be made in cash or, with the
consent of the committee, by delivering previously outstanding shares of the Companys Common
Stock. Options vest over a period of time, generally three to five years, as designated by the
committee and are subject to such other terms and conditions as the committee determines. Certain
stock options have also been granted to employees of acquired businesses under other plans. 50




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Changes in shares under option are summarized as follows: Years Ended October 31,2004
    
    
    2003
    
    
    2002Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding, beginning of year
    
    
    7,042,304
    
    
    $
    7.79
    
    
    
    7,670,678
    
    
    $
    6.14
    
    
    
    7,145,364
    
    
    $
    5.71Granted
    
    
    2,015,000
    
    
    
    18.69
    
    
    
    1,418,000
    
    
    
    13.54
    
    
    
    1,466,000
    
    
    
    7.30Exercised
    
    
    (1,498,720
    )
    
    
    5.66
    
    
    
    (1,983,701
    )
    
    
    5.49
    
    
    
    (918,692
    )
    
    
    4.66Canceled
    
    
    (16,500
    )
    
    
    17.45
    
    
    
    (62,673
    )
    
    
    9.27
    
    
    
    (21,994
    )
    
    
    6.28Outstanding, end of year
    
    
    7,542,084
    
    
    $
    11.12
    
    
    
    7,042,304
    
    
    $
    7.79
    
    
    
    7,670,678
    
    
    $
    6.14Options exercisable, end of year
    
    
    3,595,521
    
    
    $
    7.52
    
    
    
    3,960,285
    
    
    $
    6.01
    
    
    
    4,652,982
    
    
    $
    5.36
 Outstanding stock options at October 31, 2004 consist of the following: Options Outstanding
    
    
    Options ExercisableWeightedRange of
    
    
    
    
    
    Average
    
    
    Weighted
    
    
    
    
    
    
    WeightedExercise
    
    
    
    
    
    Remaining
    
    
    Average
    
    
    
    
    
    
    AveragePrices
    
    Shares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    Price(Years)$2.23 - $4.45
    
    
    822,268
    
    
    
    1.8
    
    
    $
    3.78
    
    
    
    822,268
    
    
    $
    3.78$4.45 - $6.68
    
    
    1,027,874
    
    
    
    4.6
    
    
    
    5.96
    
    
    
    802,874
    
    
    
    5.95$6.68 - $8.90
    
    
    1,685,092
    
    
    
    6.3
    
    
    
    7.38
    
    
    
    1,071,729
    
    
    
    7.57$8.90 - $11.13
    
    
    541,344
    
    
    
    6.1
    
    
    
    9.23
    
    
    
    365,344
    
    
    
    9.24$11.13 - $13.35
    
    
    1,306,006
    
    
    
    8.1
    
    
    
    13.23
    
    
    
    391,308
    
    
    
    13.03$13.35 - $15.58
    
    
    142,000
    
    
    
    8.7
    
    
    
    15.23
    
    
    
    20,665
    
    
    
    15.27$15.58 - $17.80
    
    
    1,452,500
    
    
    
    9.0
    
    
    
    17.37
    
    
    
    61,333
    
    
    
    15.70$17.80 - $22.25
    
    
    565,000
    
    
    
    9.5
    
    
    
    22.13
    
    
    
    60,000
    
    
    
    21.507,542,084
    
    
    
    6.7
    
    
    $
    11.12
    
    
    
    3,595,521
    
    
    $
    7.52
 As of October 31, 2004, there were 2,379,065 shares of common stock that were available for future
grant. The Company began the Quiksilver Employee Stock Purchase Plan (the ESPP) in fiscal 2001, which
provides a method for employees of the Company to purchase common stock at a 15% discount from fair
market value as of the beginning or end of each purchasing period of six months, whichever is
lower. The ESPP covers substantially all full-time domestic and Australian employees who have at
least five months of service with the Company. The ESPP is intended to constitute an employee
stock purchase plan within the meaning of section 423 of the Internal Revenue Code of 1986, as
amended, and therefore the Company does not recognize compensation expense related to the ESPP.
During the years ended October 31, 2004, 2003 and 2002, 65,711, 50,666 and 64,852 shares of stock
were issued under the plan with proceeds to the Company of $1.0 million, $0.6 million and $0.5
million, respectively. 51




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Note 11 3⁄4 Accumulated Other Comprehensive Income The components of accumulated other comprehensive income (loss) include net income, changes in fair
value of derivative instruments qualifying as cash flow hedges, the fair value of interest rate
swaps and foreign currency translation adjustments. The components of accumulated other
comprehensive income (loss), net of tax, are as follows: October 31,In thousands
    
    2004
    
    
    2003Foreign currency translation adjustment
    
    $
    42,424
    
    
    $
    23,870Loss on cash flow hedges and interest rate swaps
    
    
    (7,646
    )
    
    
    (4,018
    )$
    34,778
    
    
    $
    19,852
 Note 12 3⁄4 Licensing Since acquiring Quiksilver International in July 2000, the Company owns all international rights to
use the Quiksilverand Roxytrademarks. Prior to this acquisition, the Company owned these
intellectual property rights in the United States and Mexico only, and operated under license
agreements with Quiksilver International Pty Ltd. to use the Quiksilverand Roxytrademarks in
other countries and territories. Quiksilver Europe has a license agreement with GotchaInternational, LP that resulted from the
Companys acquisition of Freestyle, SA, the European licensee of GotchaInternational, LP. The
license agreement provides that Quiksilver Europe can sell products under the Gotchatrademark and
tradename through 2015 in the territories covered by the license agreement (primarily Western
Europe). Royalties range from 2.8% to 4.0% of net sales, based on sales volume, with certain
minimum requirements. Promotional contributions are also required based on sales volume and range
from 1.0% to 1.5%. The Company licensed the use of the Quiksilverand Roxytrademarks in Mexico in exchange for
royalties of 4.5% of net sales after Mexican taxes. This license terminated in fiscal 2004. The
Company is currently negotiating new licensing arrangements in Turkey and Mexico. The Company also
licensed the use of the Quiksilverand Roxytrademarks on eyewear and licensed a chain of domestic
outlet stores. The eyewear licensee and this outlet store chain were acquired in fiscal 2003 and
fiscal 2002, respectively, and accordingly, the license agreements were eliminated. The Companys
license with its domestic watch licensee was terminated during the year ended October 31, 2002. Effective with the acquisition of Quiksilver International during fiscal 2000, the Company acquired
licenses for the use of the Quiksilverand Roxytrademarks in various countries and territories
around the world. The licensees are currently headquartered in South Africa, South Korea,
Argentina and Mauritius. These licensees pay the Company royalties ranging from 3% to 5% of the
licensees sales. The licensees headquartered in Australia, Japan and Indonesia were acquired
during fiscal 2003. 52




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Note 13 3⁄4 Income Taxes A summary of the provision for income taxes is as follows: Years Ended October 31,In thousands
    
    2004
    
    
    2003
    
    
    2002Current:Federal
    
    $
    7,201
    
    
    $
    7,240
    
    
    $
    10,874State
    
    
    2,539
    
    
    
    2,729
    
    
    
    2,545Foreign
    
    
    28,072
    
    
    
    24,506
    
    
    
    13,01437,812
    
    
    
    34,475
    
    
    
    26,433Deferred:Federal
    
    
    5,548
    
    
    
    1,956
    
    
    
    (2,435
    )State
    
    
    814
    
    
    
    (56
    )
    
    
    (530
    )Foreign
    
    
    (3,551
    )
    
    
    (4,824
    )
    
    
    (1,073
    )2,811
    
    
    
    (2,924
    )
    
    
    (4,038
    )Provision for income taxes
    
    $
    40,623
    
    
    $
    31,551
    
    
    $
    22,395
 A reconciliation of the effective income tax rate to a computed expected statutory federal income
tax rate is as follows: Years Ended October 31,2004
    
    
    2003
    
    
    2002Computed expected statutory federal income
tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income taxes, net of federal income
tax benefit
    
    
    0.6
    
    
    
    3.6
    
    
    
    2.2Foreign tax effect
    
    
    (2.4
    )
    
    
    (1.0
    )
    
    
    0.2Foreign tax credit
    
    
    
    
    
    
    (2.9
    )
    
    
    (0.1
    )Other
    
    
    0.1
    
    
    
    0.3
    
    
    
    Effective income tax rate
    
    
    33.3
    %
    
    
    35.0
    %
    
    
    37.3
    %
 The components of net deferred income taxes are as follows: October 31,In thousands
    
    2004
    
    
    2003Deferred income tax assets:Allowance for doubtful accounts
    
    $
    7,631
    
    
    $
    6,297Other comprehensive income
    
    
    4,407
    
    
    
    2,467Operating loss carryforwards
    
    
    1,044
    
    
    
    230Nondeductible accruals and other
    
    
    17,019
    
    
    
    14,36930,101
    
    
    
    23,363Deferred income tax liabilities:Depreciation and Amortization
    
    
    (22,408
    )
    
    
    (1,283
    )Other
    
    
    (1,235
    )
    
    
    (2,624
    )(23,643
    )
    
    
    (3,907
    )Net deferred income taxes
    
    $
    6,458
    
    
    $
    19,456
 The tax benefits from the exercise of certain stock options are reflected as additions to paid-in
capital. Income before provision for income taxes includes $70.1 million, $55.2 million and $34.0 million
from foreign jurisdictions for the years ended October 31, 2004, 2003 and 2002, respectively. The
Company does not provide for the U.S. federal, state or additional foreign income tax effects on
foreign earnings that 53




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##### Table of Contents



management intends to permanently reinvest. For the fiscal year ended October 31, 2004, foreign
earnings earmarked for permanent reinvestment totaled approximately $172.0 million. At October 31, 2004, the Company has state net operating loss carryforwards of approximately $5.3
million that will expire on various dates through 2014. In addition, the Company has foreign net
operating loss carryforwards of approximately $2.9 million and $1.0 million for years ended October
31, 2004 and 2003, respectively, which will be carried forward until fully utilized. Note 14 3⁄4 Employee Plans The Company maintains the Quiksilver 401(k) Employee Savings Plan and Trust (the 401(k) Plan).
This plan is generally available to all domestic employees with six months of service and is funded
by employee contributions and periodic discretionary contributions from the Company, which are
approved by the Companys Board of Directors. The Company made contributions of $0.7 million, $0.5
million and $0.4 million to the 401(k) Plan for the years ended October 31, 2004, 2003 and 2002,
respectively. Employees of the Companys French subsidary, Na Pali, SAS, with three months of service are covered
under the French Profit Sharing Plan (the French Profit Sharing Plan), which is mandated by law.
Compensation is earned under the French Profit Sharing Plan based on statutory computations with an
additional discretionary component. Funds are maintained by the Company and vest with the
employees after five years, although earlier disbursement is optional if certain personal events
occur or upon the termination of employment. Compensation expense of $2.3 million, $2.0 million
and $1.6 million was recognized related to the French Profit Sharing Plan for the fiscal years
ended October 31, 2004, 2003 and 2002, respectively. Note 15 3⁄4 Segment and Geographic Information Operating segments are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the Companys management in deciding how to
allocate resources and in assessing performance. The Company operates exclusively in the consumer
products industry in which the Company designs, produces and distributes clothing, accessories and
related products. Operating results of the Companys various product lines have been aggregated
because of their common economic and operating characteristics and their reliance on shared
operating functions. Within the consumer products industry, the Company has historically operated
in the Americas (primarily the U.S.) and Europe. Effective with its acquisition of Quiksilver
Asia/Pacific on December 1, 2002, the Company has added operations in Australia, Japan, New Zealand
and other Southeast Asian countries and territories. Accordingly, the Company revised its
geographic segments to include Asia/Pacific and corporate operations. Costs that support all three
geographic segments, including trademark protection, trademark maintenance and licensing functions
are part of corporate operations. Corporate operations also includes sourcing income and gross
profit earned from the Companys licensees. No single customer accounts for more than 10% of the
Companys revenues. 54




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##### Table of Contents



Although the Company operates in one industry segment, it produces different product lines within
the segment. The percentages of revenues attributable to each product line are as follows: Percentage of Revenues2004
    
    
    2003
    
    
    2002T-Shirts
    
    
    19
    %
    
    
    20
    %
    
    
    20
    %Accessories
    
    
    14
    
    
    
    14
    
    
    
    12Jackets, sweaters and snowboardwear
    
    
    12
    
    
    
    12
    
    
    
    12Pants
    
    
    10
    
    
    
    11
    
    
    
    11Shirts
    
    
    9
    
    
    
    10
    
    
    
    11Footwear
    
    
    9
    
    
    
    5
    
    
    
    4Swimwear, excluding boardshorts
    
    
    7
    
    
    
    8
    
    
    
    9Fleece
    
    
    5
    
    
    
    6
    
    
    
    7Shorts
    
    
    5
    
    
    
    6
    
    
    
    6Boardshorts
    
    
    4
    
    
    
    4
    
    
    
    3Tops and dresses
    
    
    4
    
    
    
    3
    
    
    
    3Snowboards, snowboard boots, bindings and accessories
    
    
    2
    
    
    
    1
    
    
    
    2100
    %
    
    
    100
    %
    
    
    100
    %
 Information related to the Companys geographical segments is as follows: Years Ended October 31,In thousands
    
    2004
    
    
    2003
    
    
    2002Revenues:Americas
    
    $
    616,818
    
    
    $
    492,442
    
    
    $
    418,008Europe
    
    
    496,276
    
    
    
    386,226
    
    
    
    282,684Asia/Pacific
    
    
    148,733
    
    
    
    94,187
    
    
    
    Corporate operations
    
    
    5,112
    
    
    
    2,150
    
    
    
    4,792Consolidated
    
    $
    1,266,939
    
    
    $
    975,005
    
    
    $
    705,484Gross profit:Americas
    
    $
    251,357
    
    
    $
    197,434
    
    
    $
    153,561Europe
    
    
    251,692
    
    
    
    189,462
    
    
    
    127,976Asia/Pacific
    
    
    73,152
    
    
    
    44,206
    
    
    
    Corporation operations
    
    
    1,958
    
    
    
    2,150
    
    
    
    4,792Consolidated
    
    $
    578,159
    
    
    $
    433,252
    
    
    $
    286,329Operating income:Americas
    
    $
    63,811
    
    
    $
    45,734
    
    
    $
    35,377Europe
    
    
    73,517
    
    
    
    61,941
    
    
    
    41,327Asia/Pacific
    
    
    21,164
    
    
    
    12,168
    
    
    
    Corporate operations
    
    
    (26,554
    )
    
    
    (18,778
    )
    
    
    (7,000
    )Consolidated
    
    $
    131,938
    
    
    $
    101,065
    
    
    $
    69,704Identifiable assets:Americas
    
    $
    443,028
    
    
    $
    300,464
    
    
    $
    226,715Europe
    
    
    413,454
    
    
    
    299,977
    
    
    
    204,759Asia/Pacific
    
    
    118,918
    
    
    
    95,835
    
    
    
    Corporate operations
    
    
    15,590
    
    
    
    11,694
    
    
    
    19,115Consolidated
    
    $
    990,990
    
    
    $
    707,970
    
    
    $
    450,589
 55




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##### Table of Contents



Years Ended October 31,In thousands
    
    2004
    
    
    2003
    
    
    2002Goodwill:Americas
    
    $
    86,382
    
    
    $
    50,670
    
    
    $
    15,686Europe
    
    
    70,057
    
    
    
    41,592
    
    
    
    11,292Asia/Pacific
    
    
    13,346
    
    
    
    6,571
    
    
    
    Consolidated
    
    $
    169,785
    
    
    $
    98,833
    
    
    $
    26,978
 Goodwill increased in the Americas, Europe and Asia/Pacific during the fiscal year ended October
31, 2004 as a result of the DC acquisition and a contingent payment related to the acquisition of
Quiksilver International. Goodwill increased in the Americas, Europe and Asia/Pacific during the
fiscal year ended October 31, 2003 as a result of the Companys acquisitions of its U.S. eyewear
licensee, its European licensee for eyewear and wetsuits and its licensees in Australia and Japan.
See Note 2 to these consolidated financial statements. Goodwill related to the acquisition of
Quiksilver Asia/Pacific and the trademark value was allocated to each respective geographic segment
based on where the benefits from these intangibles were estimated to be realized. France accounted for 38.4%, 39.6% and 41.1% of European net sales to unaffiliated customers for the
years ended October 31, 2004, 2003 and 2002, respectively, while the United Kingdom accounted for
18.7%, 21.5% and 20.6%, respectively, and Spain accounted for 17.0%, 16.5% and 15.2%, respectively. Note 16 3⁄4 Derivative Financial Instruments The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange
rates relating to certain sales, royalty income, and product purchases of its international
subsidiaries that are denominated in currencies other than their functional currencies. The
Company is also exposed to foreign currency gains and losses resulting from domestic transactions
that are not denominated in U.S. dollars, and to fluctuations in interest rates related to its
variable rate debt. Furthermore, the Company is exposed to gains and losses resulting from the
effect that fluctuations in foreign currency exchange rates have on the reported results in the
Companys consolidated financial statements due to the translation of the operating results and
financial position of the Companys international subsidiaries. As part of its overall strategy to
manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, the
Company uses various foreign currency exchange contracts and intercompany loans. In addition,
interest rate swaps are used to manage the Companys exposure to the risk of fluctuations in
interest rates. Derivatives that do not qualify for hedge accounting but are used by management to mitigate
exposure to currency risks are marked to fair value with corresponding gains or losses recorded in
earnings. A loss of $2.7 million was recognized related to these types of contracts during fiscal
2004. For all qualifying cash flow hedges, the changes in the fair value of the derivatives are
recorded in other comprehensive income. As of October 31, 2004, the Company was hedging forecasted
transactions expected to occur in the following seventeen months. Assuming exchange rates at
October 31, 2004 remain constant, $5.2 million of losses, net of tax, related to hedges of these
transactions are expected to be reclassified into earnings over the next seventeen months. Also
included in accumulated other comprehensive income at October 31, 2004 is a $2.1 million loss, net
of tax, related to cash flow hedges of the Companys long-term debt, which is denominated in
Australian dollars and matures through fiscal 2005, and the fair value of interest rate swaps,
totaling a loss of $0.3 million, net of tax, which is related to the Companys U.S. dollar
denominated long-term debt and mature through fiscal 2007. On the date the Company enters into a derivative contract, management designates the derivative as
a hedge of the identified exposure. The Company formally documents all relationships between
hedging instruments and hedged items, as well as the risk-management objective and strategy for
entering into various hedge transactions. In this documentation, the Company identifies the asset,
liability, firm commitment, or forecasted transaction that has been designated as a hedged item and
indicates how the hedging instrument is expected to hedge the risks related to the hedged item.
The Company formally measures effectiveness of its hedging relationships both at the hedge
inception and on an ongoing basis in accordance with its risk management policy. The Company would
discontinue hedge accounting 56




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##### Table of Contents



prospectively (i) if it is determined that the derivative is no longer effective in offsetting
changes in the cash flows of a hedged item, (ii) when the derivative expires or is sold,
terminated, or exercised, (iii) if it becomes probable that the forecasted transaction being hedged
by the derivative will not occur, (iv) because a hedged firm commitment no longer meets the
definition of a firm commitment, or (v) if management determines that designation of the derivative
as a hedge instrument is no longer appropriate. During the fiscal year ended October 31, 2004, the
Company reclassified into earnings a net loss of $3.6 million resulting from the expiration, sale,
termination, or exercise of derivative contracts. The Company enters into forward exchange and other derivative contracts with major banks and is
exposed to credit losses in the event of nonperformance by these banks. The Company anticipates,
however, that these banks will be able to fully satisfy their obligations under the contracts.
Accordingly, the Company does not obtain collateral or other security to support the contracts. A summary of derivative contracts at October 31, 2004 is as follows: Notional
    
    
    
    
    FairIn thousands
    
    Amount
    
    
    Maturity
    
    ValueU.S. dollars
    
    $
    165,242
    
    
    Nov 2004 - Mar 2006
    
    $
    (7,898
    )Australian dollars
    
    
    22,879
    
    
    Sept 2005
    
    
    4,773New Zealand dollars
    
    
    1,359
    
    
    Nov 2004
    
    
    (55
    )Interest rate swap
    
    
    6,765
    
    
    Jan 2007
    
    
    (444
    )$
    196,245
    
    
    
    
    $
    (3,624
    )
 Note 17 3⁄4 Quarterly Financial Data (Unaudited) A summary of quarterly financial data (unaudited) is as follows: Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterIn thousands,
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Endedexcept per share amounts
    
    January 31
    
    
    April 30
    
    
    July 31
    
    
    October 31Year 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
    
    
    0.16
    
    
    
    0.47
    
    
    
    0.32
    
    
    
    0.41Trade accounts receivable
    
    
    200,558
    
    
    
    257,122
    
    
    
    271,399
    
    
    
    281,263Inventories
    
    
    179,282
    
    
    
    127,318
    
    
    
    171,639
    
    
    
    179,605Year ended October 31, 2003Revenues, net
    
    $
    192,080
    
    
    $
    262,210
    
    
    $
    251,498
    
    
    $
    269,217Gross profit
    
    
    81,508
    
    
    
    118,583
    
    
    
    107,129
    
    
    
    126,032Net income
    
    
    6,568
    
    
    
    22,630
    
    
    
    11,918
    
    
    
    17,400Net income per share,
assuming dilution
    
    
    0.12
    
    
    
    0.40
    
    
    
    0.21
    
    
    
    0.30Trade accounts receivable
    
    
    173,511
    
    
    
    227,028
    
    
    
    217,924
    
    
    
    224,418Inventories
    
    
    144,237
    
    
    
    120,775
    
    
    
    159,493
    
    
    
    146,440
 57




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. Date: January 11, 2005 QUIKSILVER, INC.
(Registrant) By:
    
    /s/ Robert B. McKnight, Jr.
    
    By:
    
    /s/ Steven L. BrinkRobert B. McKnight, Jr.
    
    
    
    Steven L. BrinkChairman of the Board and
    
    
    
    Chief Financial OfficerChief Executive Officer
    
    
    
    and Treasurer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated. Signatures
    
    Title
    
    Date Signed/s/ Robert B. McKnight, Jr.

Robert B. McKnight, Jr.
    
    Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
    
    January 11, 2005/s/ Steven L. Brink

Steven L. Brink
    
    Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)
    
    January 11, 2005/s/ William M. Barnum, Jr.

William M. Barnum, Jr.
    
    Director
    
    January 11, 2005/s/ Charles E. Crowe

Charles E. Crowe
    
    Director
    
    January 11, 2005/s/ Michael H. Gray

Michael H. Gray
    
    Director
    
    January 11, 2005/s/ Robert G. Kirby

Robert G. Kirby
    
    Director
    
    January 11, 2005/s/ Bernard Mariette

Bernard Mariette
    
    Director
    
    January 11, 2005/s/ Franck Riboud

Franck Riboud
    
    Director
    
    January 11, 2005/s/ Tom Roach

Tom Roach
    
    Director
    
    January 11, 2005
 58




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##### Table of Contents



EXHIBIT INDEX ExhibitNumber
    
    Description3.1
    
    Restated Certificate of Incorporation, as amended.3.2
    
    Amended and Restated Bylaws (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).10.1
    
    JP Morgan Credit Agreement dated June 27, 2003 (incorporated by reference to
Exhibit 10.1 of the Companys Quarterly Report on Form 10-Q for the quarter ended
July 31, 2003).10.2
    
    First Amendment to the JP Morgan Credit Agreement dated May 3, 2004.10.3
    
    Second Amendment to the JP Morgan Credit Agreement dated November 2, 2004.10.4
    
    Share Purchase Agreement, dated July 27, 2000, by and among Quiksilver, Inc.,
Quiksilver Australia Pty Ltd, Quiksilver International Pty Ltd and Shareholders of
Quiksilver International Pty Ltd. (incorporated by reference to Exhibit 10.1 of
the Companys Current Report on Form 8-K dated July 27, 2000).10.5
    
    Form of Indemnity Agreement between the Company and individual Directors and
officers of the Company (incorporated by reference to Exhibit 10.5 of the
Companys Annual Report on Form 10-K for the fiscal year ended October 31, 1996).
(1)10.6
    
    Quiksilver, Inc. Stock Option Plan, as amended through
March 24, 1995, together with form Stock Option Agreements. (1)10.7
    
    Quiksilver, Inc. 1995 Nonemployee Directors Stock Option Plan, together with form Stock Option Agreement (incorporated by
reference to Exhibit 10.2 of the Companys Quarterly Report on Form 10-Q for the
quarter ended April 30, 1996). (1)10.8
    
    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)10.9
    
    Quiksilver, Inc. 1998 Nonemployee Directors Stock Option Plan, together with form Stock Option Agreement. (1)10.10
    
    Quiksilver, Inc. 2000 Stock Incentive Plan, as amended through March 26, 2004, together with form Stock Option Agreements. (1)10.11
    
    Employment Agreement between Robert B. McKnight, Jr. and the Company dated
August 1, 2004 (incorporated by reference to Exhibit 10.1 of the Companys
Quarterly Report on Form 10-Q for the quarter ended July 31, 2004). (1)10.12
    
    Employment Agreement between Bernard Mariette and the Company dated August 1,
2004 (incorporated by reference to Exhibit 10.2 of the Companys Quarterly Report
on Form 10-Q for the quarter ended July 31, 2004.) (1)10.13
    
    Employment Agreement between Charles S. Exon and the Company dated August 1,
2004 (incorporated by reference to Exhibit 10.3 of the Companys Quarterly Report
on Form 10-Q for the quarter ended July 31, 2004.) (1)10.14
    
    Employment Agreement between Steven L. Brink and the Company dated August 1,
2004 (incorporated by reference to Exhibit 10.4 of the Companys Quarterly Report
on Form 10-Q for the quarter ended July 31, 2004.) (1)10.15
    
    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 dated January 2, 2003).
 59




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##### Table of Contents



ExhibitNumber
    
    Description10.16
    
    Agreement and Plan of Merger and Reorganization by and among Quiksilver, Inc.,
QS Retail, Inc., Beach Street, Inc. and John Thompson and Diana Thompson dated as
of September 17, 2002 (incorporated by reference to Exhibit 10.19 of the
Companys Annual Report on Form 10-K for the year ended October 31, 2002).10.17
    
    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 dated March 8, 2004).10.18
    
    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 dated May 3, 2004).10.19
    
    Quiksilver, Inc. Written Description of Nonemployee Director Compensation. (1)10.20
    
    Quiksilver, Inc. Long Term Incentive Plan. (1)10.21
    
    Quiksilver, Inc. Annual Incentive Plan. (1)21.1
    
    Names and Jurisdictions of Subsidiaries.23.1
    
    Independent Auditors Consent.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. 60