##### Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

|           |  |                                                                                     
|---------- |  | ------------------------------------------------------------------------------------
|(Mark One)
|[X]        |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended October 31, 2003

OR

|     |  |                                                                                         
|---- |  | ----------------------------------------------------------------------------------------
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-15131

QUIKSILVER, INC.

(Exact name of registrant as specified in its charter)


|                                |  |                       
|------------------------------- |  | ----------------------
|Delaware                        |  | 33-0199426            
|(State or other jurisdiction of |  | (I.R.S. Employer      
|incorporation or organization)  |  | Identification Number)

|                                         |  |           
|---------------------------------------- |  | ----------
|15202 Graham Street                      |  |           
|Huntington 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 exchange  
|each class   |  | on which registered    
|             |  |                        
|Common 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. Yes  [X]  No  [  ]

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. [ü]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes  [X]  No  [  ]

The aggregate market value of the Registrants Common Stock held by
non-affiliates of the Registrant was approximately $895 million as of April 30,
2003, the last business day of Registrants most recently completed second
fiscal quarter.

As of January 20, 2004, there were 55,681,695 shares of the Registrants
Common Stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrants Proxy Statement for the Annual Meeting of
Stockholders to be held March 26, 2004 are incorporated by reference into Part
III of this Form 10-K.





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TABLE OF CONTENTS



|                                           |                                                                                                                      |                                     |  |  |  |  |  | 
|------------------------------------------ | -------------------------------------------------------------------------------------------------------------------- | ----------------------------------- |  |  |  |  |  | 
|PART I                                    
|                                           | Item 1. BUSINESS                                                                                                    
|                                           |                                                                                                                      | Introduction                       
|                                           |                                                                                                                      | Recent Developments                
|                                           |                                                                                                                      | Segment Information                
|                                           |                                                                                                                      | Products and Brands                
|                                           |                                                                                                                      | Product Categories                 
|                                           |                                                                                                                      | Product Design                     
|                                           |                                                                                                                      | Promotion and Advertising          
|                                           |                                                                                                                      | Customers and Sales                
|                                           |                                                                                                                      | Retail Concepts                    
|                                           |                                                                                                                      | Seasonality                        
|                                           |                                                                                                                      | Production and Raw Materials       
|                                           |                                                                                                                      | Imports and Import Restrictions    
|                                           |                                                                                                                      | Trademarks and Licensing Agreements
|                                           |                                                                                                                      | Competition                        
|                                           |                                                                                                                      | Future Season Orders               
|                                           |                                                                                                                      | Employees                          
|                                           |                                                                                                                      | Environmental Matters              
|                                           |                                                                                                                      | Available Information              
|                                           |                                                                                                                      | Forward-Looking Statements         
|                                           |                                                                                                                      | Risk Factors                       
|                                           | Item 2. PROPERTIES                                                                                                  
|                                           | Item 3. LEGAL PROCEEDINGS                                                                                           
|                                           | Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                         
|PART II                                   
|                                           | Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|                                           | Item 6. SELECTED FINANCIAL DATA                                                                                     
|                                           | Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                       
|                                           | Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS                                                
|                                           | Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                 
|                                           | Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                        
|                                           | Item 9A. CONTROLS AND PROCEDURES                                                                                    
|PART III                                  
|                                           | Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                         
|                                           | Item 11. EXECUTIVE COMPENSATION                                                                                     
|                                           | Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS             
|                                           | Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                             
|                                           | Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                     
|PART IV                                   
|                                           | Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                                            
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|SIGNATURES                                
|EXHIBIT INDEX                             
|EXHIBIT 3.2                               
|EXHIBIT 21.1                              
|EXHIBIT 23.1                              
|EXHIBIT 31.1                              
|EXHIBIT 31.2                              
|EXHIBIT 32.1                              
|EXHIBIT 32.2                              



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##### Table of Contents



TABLE OF CONTENTS

|                                           |  |                                                                                                                  |    |                                     |    |      |    | 
|------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------- | -- | ----------------------------------- | -- | ---- | -- | 
|                                           |  |                                                                                                                  |    |                                     |    | Page
|                                           |  |                                                                                                                  |    |                                     |    |     
|PART I                                     |  |                                                                                                                  |    |                                     |    |     
|Item 1.                                    |  | BUSINESS                                                                                                         |    |                                     |    |     
|                                           |  |                                                                                                                  |    | Introduction                        |    |      | 1  | 
|                                           |  |                                                                                                                  |    | Recent Developments                 |    |      | 1  | 
|                                           |  |                                                                                                                  |    | Segment Information                 |    |      | 2  | 
|                                           |  |                                                                                                                  |    | Products and Brands                 |    |      | 2  | 
|                                           |  |                                                                                                                  |    | Product Categories                  |    |      | 3  | 
|                                           |  |                                                                                                                  |    | Product Design                      |    |      | 3  | 
|                                           |  |                                                                                                                  |    | Promotion and Advertising           |    |      | 4  | 
|                                           |  |                                                                                                                  |    | Customers and Sales                 |    |      | 4  | 
|                                           |  |                                                                                                                  |    | Retail Concepts                     |    |      | 6  | 
|                                           |  |                                                                                                                  |    | Seasonality                         |    |      | 7  | 
|                                           |  |                                                                                                                  |    | Production and Raw Materials        |    |      | 7  | 
|                                           |  |                                                                                                                  |    | Imports and Import Restrictions     |    |      | 8  | 
|                                           |  |                                                                                                                  |    | Trademarks and Licensing Agreements |    |      | 8  | 
|                                           |  |                                                                                                                  |    | Competition                         |    |      | 9  | 
|                                           |  |                                                                                                                  |    | Future Season Orders                |    |      | 9  | 
|                                           |  |                                                                                                                  |    | Employees                           |    |      | 10 | 
|                                           |  |                                                                                                                  |    | Environmental Matters               |    |      | 10 | 
|                                           |  |                                                                                                                  |    | Available Information               |    |      | 10 | 
|                                           |  |                                                                                                                  |    | Forward-Looking Statements          |    |      | 10 | 
|                                           |  |                                                                                                                  |    | Risk Factors                        |    |      | 11 | 
|Item 2.                                    |  | PROPERTIES                                                                                                       |    |                                     | 13 |     
|Item 3.                                    |  | LEGAL PROCEEDINGS                                                                                                |    |                                     | 13 |     
|Item 4.                                    |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                              |    |                                     | 13 |     
|PART II                                   
|Item 5.                                    |  | MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES |    |                                     | 14 |     
|Item 6.                                    |  | SELECTED FINANCIAL DATA                                                                                          |    |                                     | 15 |     
|Item 7.                                    |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                            |    |                                     | 16 |     
|Item 7A.                                   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS                                                      |    |                                     | 27 |     
|Item 8.                                    |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                      |    |                                     | 29 |     
|Item 9.                                    |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                             |    |                                     | 29 |     
|Item 9A.                                   |  | CONTROLS AND PROCEDURES                                                                                          |    |                                     | 29 |     
|PART III                                  
|Item 10.                                   |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                               |    |                                     | 30 |     
|Item 11.                                   |  | EXECUTIVE COMPENSATION                                                                                           |    |                                     | 30 |     
|Item 12.                                   |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS                   |    |                                     | 30 |     
|Item 13.                                   |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                   |    |                                     | 30 |     
|Item 14.                                   |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                           |    |                                     | 30 |     
|PART IV                                   
|Item 15.                                   |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                                                  |    |                                     | 31 |     
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |  |                                                                                                                  | 32 |                                    
|SIGNATURES                                 |  |                                                                                                                  | 54 |                                    





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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 2003, fiscal 2002 or
fiscal 2001 refer to the years ended October 31, 2003, 2002 or 2001,
respectively. Unless otherwise indicated, the information in this Form 10-K
gives effect to a two-for-one stock split of our common stock effected on May
9, 2003 in the form of a stock dividend.




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, 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, Gnuand Bent Metallabels.

We generate revenues primarily in the United States, Europe and, since our
acquisition of Ug Manufacturing Co. Pty Ltd. (Australia) and Quiksilver Japan
KK, the Asia/Pacific markets. 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.

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 poised to carry our products and brand message to
a diversity of markets worldwide.




Recent Developments

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 the next 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 have created a global operating platform consisting of our
Americas, European and Asia/Pacific operations.

In addition, in September 2002, we acquired Beach Street, Inc., the owner and
operator of 26 Quiksilver outlet stores in the U.S. The operations of these
outlet stores have now been integrated into our existing retail stores
division.

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Segment Information

We operate exclusively in the consumer products industry segment. For fiscal
2003, we had three geographic segments, the Americas, Europe and Asia/Pacific.
The Americas segment includes revenues from the U.S., Canada and other exports
from the U.S. The European segment includes revenues primarily from Western
Europe. The Asia/Pacific segment includes revenues primarily from Australia,
New Zealand and Japan. 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 addition to
Quiksilverand Roxy, 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, snowboard-wear, 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 2003, the Quiksilverline of products
represented approximately 58% 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 Quiksilvermountain and wave logo and includes a
full range of sportswear, swimwear, footwear, backpacks, 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 2003, the Roxy
product line accounted for approximately 32% of our revenues.

Other Brands

In fiscal 2003, our other brands represented approximately 10% of our revenues.



| |  | Raisins, Radio Fiji, Leilani- Raisinsand Radio Fijiare swimwear
labels in the juniors category while Leilaniis a contemporary
swimwear label. We also produce private label swimwear.                                                                              
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Hawk- Tony Hawk, the world-famous skateboarder, is the inspiration
for our Hawk Clothingbrand which we added to our portfolio in fiscal
2000. Our target audience for the Hawkproduct line is boys who
recognize Tony from his broad media and video game exposure.
| 
| |  | Gotcha- We have added Gotchato our European labels to give us
product to address European street fashion for young men.                                                                                                                                            
| 
| |  | Fidra- We entered the golf apparel business in fiscal 2000 with a new
brand, Fidra, conceived and developed by golf industry pioneer, John
Ashworth, and endorsed by world famous golfer, Ernie Els.                                                               

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| |  | Lib Tech, Gnu, Bent Metal -We address the core snowboard market through our
Lib Technologies and Gnubrands of snowboards and accessories and Bent Metal
snowboard 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 Revenues
|                                                      |  |                       
|                                                      |  | 2003                   |     | 2002 |  | 2001
|                                                      |  |                        |     |      |  |     
|T-Shirts                                              |  |                        | 20  | %    |  |      | 20  | % |  |  | 20  | %
|Accessories                                           |  |                        | 14  |      |  |      | 12  |   |  |  | 12  |  
|Jackets, sweaters and snowboardwear                   |  |                        | 12  |      |  |      | 12  |   |  |  | 12  |  
|Pants                                                 |  |                        | 11  |      |  |      | 11  |   |  |  | 11  |  
|Shirts                                                |  |                        | 10  |      |  |      | 11  |   |  |  | 12  |  
|Swimwear, excluding boardshorts                       |  |                        | 8   |      |  |      | 9   |   |  |  | 9   |  
|Fleece                                                |  |                        | 6   |      |  |      | 7   |   |  |  | 6   |  
|Shorts                                                |  |                        | 6   |      |  |      | 6   |   |  |  | 6   |  
|Footwear                                              |  |                        | 5   |      |  |      | 4   |   |  |  | 3   |  
|Boardshorts                                           |  |                        | 4   |      |  |      | 3   |   |  |  | 4   |  
|Tops and dresses                                      |  |                        | 3   |      |  |      | 3   |   |  |  | 3   |  
|Snowboards, snowboard boots, bindings and accessories |  |                        | 1   |      |  |      | 2   |   |  |  | 2   |  
|                                                      |  |                        |     |      |  |      |     |   |  |  |     |  
|                                                      |  |                        | 100 | %    |  |      | 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 $45 for a typical short to a range of $130
to $330 for a snowboard jacket. For European products, retail prices range
from approximately $32 for a t-shirt and about $54 for a typical short to $200
for a basic snowboard jacket. Asia/Pacific t-shirts sell for approximately
$30, while shorts sell for approximately $56, and a basic snowboard jacket
sells for approximately $165.




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, snowboarding, skateboarding 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.

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.

Our longtime informal global process of sharing and cross-pollinating
Quiksilverand Roxydesigns, art, fabrics, samples and patterns has now been
formalized by our purchase of Quiksilver International and the integration of
Quiksilver Asia/Pacific into our operations.

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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.

An important marketing vehicle for us is our sponsorship of high profile
athletes in outdoor, individual sports, including surfing, snowboarding,
skateboarding, windsurfing and golf. Many of these athletes such as Kelly
Slater, Lisa Anderson, Tom Carroll, Tony Hawk, Robbie Naish, Danny Kass and
Ernie Els have achieved world champion status in their respective sports and
are featured in our promotional content. We also operate a promotional fund
that is used to sponsor our international team of leading athletes, produce
promotional movies and videos featuring athletes wearing and/or using
Quiksilverand Roxyproducts, and organize surfing contests and other events
that have international significance.

Our core marketing is based on our sponsorship and support of surf, snowboard
and skateboard contests in markets where we distribute product. These events
reinforce our reputation as an authentic, core brand among surfers and
non-surfers alike. For example, the Quiksilver in Memory of Eddie Aikau Big
Wave Invitationalis held at Waimea Bay in Hawaii, the Quiksilver Pro Fijiis
held near the islands of Tavarua and Namotu, and 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 Airshow, which
features aerial surf maneuvers, is 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.

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 fifth year, began its voyage
in the South Pacific, continued on through the Suez Canal to Europe in 2002,
visited the Caribbean in 2003, and will reach the U.S. in 2004.

As we have gained an international reputation for the authenticity and
compelling content of our boardriding lifestyle, we have entered into
co-branding arrangements to promote our brands. For example, Peugeot and
Toyota have produced cars branded with Quiksilverand Roxy, while Boost Mobile
has produced a Roxy mobile phone, and Sony has produced a waterproof digital
camera branded with Quiksilver.

Our Quiksilver Entertainment division is also producing programming to transmit
our boardriding lifestyle through television, movies, events, music and
publishing. For example, we developed 54321, a daily action sports news
magazine for Fox Sports Net, and produced the Surf Girls series on MTV about
competitive girls surfing.




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, specialty stores, national specialty chains
and select department stores.

The foundation of our business is distribution of product through surf shops,
Boardriders Clubs and specialty stores where in-store shops, fixturing and
point-of-sale materials carry our brand message. (We refer to our in-store
shops as Quiksvilles.) 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 or Quiksvilles. This
category includes chains such as Pacific Sunwear,

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Nordstrom, Zumiez, Chicks Sporting Goods and the Buckle, as well as many
independent active lifestyle stores, snowboard shops 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 7,700 store locations combined. Likewise, Roxyproducts are sold
in the Americas to customers with approximately 7,300 store locations. Most of
these Roxylocations also carry Quiksilverproduct. Our swimwear brands
(Raisins, Leilaniand Radio Fiji) are found in 10,300 stores, including many
small, specialty swim locations, while our wintersports hardgoods products are
found in approximately 700 stores, including primarily snowboard shops in the
U.S. and Canada. Fidrais carried in approximately 800 green grass stores
primarily in the U.S. Our products are found in approximately 6,500
store locations in Europe, and in approximately 2,200 store locations in Quiksilver Asia/Pacific, in both cases primarily Quiksilverand Roxy.

Our European segment accounted for approximately 40% of our consolidated
revenues during fiscal 2003, which is the same as in fiscal 2002. Our
Asia/Pacific segment accounted for approximately 10% of our consolidated
revenues in fiscal 2003. Other fiscal 2003 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 2003
revenues by distribution channel:

|                                              |       |          |                        |        |   |              |    |              |   |  |    |     |   |  |     |     |  
|--------------------------------------------- | ----- | -------- | ---------------------- | ------ | - | ------------ | -- | ------------ | - |  | -- | --- | - |  | --- | --- | -
|                                              |       |          | Percentage of Revenues
|                                              |       |          |                       
|Distribution Channel                          |       | Americas |                        | Europe |   | Asia/Pacific |    | Consolidated
|                                              |       |          |                        |        |   |              |    |             
|Boardriders Clubs, surf shops and Quiksvilles |       |          | 27                     | %      |   |              | 37 | %            |   |  | 77 | %   |   |  | 36  | %  
|Specialty stores                              |       |          | 48                     |        |   |              | 48 |              |   |  | 13 |     |   |  | 44  |    
|Department stores                             |       |          | 15                     |        |   |              | 6  |              |   |  | 10 |     |   |  | 11  |    
|U.S. exports                                  |       |          | 10                     |        |   |              |   |              |   |  |   |     |   |  | 5   |    
|European distributors                         |       |          |                       |        |   |              | 9  |              |   |  |   |     |   |  | 4   |    
|                                              |       |          |                        |        |   |              |    |              |   |  |    |     |   |  |     |    
|                                              | Total |          |                        | 100    | % |              |    | 100          | % |  |    | 100 | % |  |     | 100 | %
|                                              |       |          |                        |        |   |              |    |              |   |  |    |     |   |  |     |    
|Geographic segment                            |       |          | 50                     | %      |   |              | 40 | %            |   |  | 10 | %   |   |  | 100 | %  
|                                              |       |          |                        |        |   |              |    |              |   |  |    |     |   |  |     |    

Our revenues are spread over a large wholesale customer base. During fiscal
2003, approximately 19% of our consolidated revenues were from our ten largest
customers. No single customer accounted for more than 5% of our consolidated
revenues during fiscal 2003.

Our products are sold by approximately 300 independent sales representatives in
the Americas, Europe and Asia/Pacific. In addition, we use approximately 75
local distributors in Europe. 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.

5



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##### Table of Contents



Our sales are globally diversified. The following table summarizes the
approximate percentages of our fiscal 2003 revenues by geographic region
(excluding licensees):

|                           |       |      |                        |      |   |      |    |     |   |  |    |     |  
|-------------------------- | ----- | ---- | ---------------------- | ---- | - | ---- | -- | --- | - |  | -- | --- | -
|                           |       |      | Percentage of Revenues
|                           |       |      |                       
|Geographic Region          |       | 2003 |                        | 2002 |   | 2001
|                           |       |      |                        |      |   |     
|U.S. West Coast and Hawaii |       |      | 26                     | %    |   |      | 32 | %   |   |  | 33 | %  
|U.S. East Coast            |       |      | 11                     |      |   |      | 12 |     |   |  | 13 |    
|Other U.S.                 |       |      | 8                      |      |   |      | 10 |     |   |  | 11 |    
|Other Americas             |       |      | 5                      |      |   |      | 6  |     |   |  | 7  |    
|France                     |       |      | 16                     |      |   |      | 17 |     |   |  | 17 |    
|United Kingdom and Spain   |       |      | 15                     |      |   |      | 14 |     |   |  | 12 |    
|Other European countries   |       |      | 9                      |      |   |      | 9  |     |   |  | 7  |    
|Asia/Pacific               |       |      | 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. 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 a crucial part of our global
retail strategy. These stores are stocked primarily with
Quiksilver and Roxy product,
and their proprietary design demonstrates the Companys history, authenticity
and commitment to surfing and other boardriding sports. We also have Roxy
stores, which are dedicated to the juniors customer, Quiksilver Youthstores,
Hawk Clothingstores, and Gotchaand multibrand stores in Europe.

We own 138 stores in selected markets that provide enhanced brand-building
opportunities, but the majority of our full-price stores are owned by
independent retailers. In territories where we operated our wholesale
businesses during fiscal 2003, we had 149 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 94 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, 2003 was 381.

6



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##### Table of Contents



The unit count of both company-owned and licensed stores at October 31, 2003,
excluding stores in licensed territories, is summarized in the following table:

|                  |  |                  |    |          |  |              |    |          |  |       |    |          |  |         |     |          |  |  |    |         |  |  |    |  |  |  |     |  |  |  |     | 
|----------------- |  | ---------------- | -- | -------- |  | ------------ | -- | -------- |  | ----- | -- | -------- |  | ------- | --- | -------- |  |  | -- | ------- |  |  | -- |  |  |  | --- |  |  |  | --- | 
|                  |  | Number of Stores
|                  |  |                 
|                  |  | Americas         |    | Europe   |  | Asia/Pacific |    | Combined
|                  |  |                  |    |          |  |              |    |         
|                  |  | Company          |    |          |  |              |    | Company  |  |       |    |          |  | Company |     |          |  |  |    | Company |  |  |    | 
|Store Concept     |  | Owned            |    | Licensed |  | Owned        |    | Licensed |  | Owned |    | Licensed |  | Owned   |     | Licensed
|                  |  |                  |    |          |  |              |    |          |  |       |    |          |  |         |     |         
|Boardriders
Clubs |  |                  | 23 |          |  |              | 13 |          |  |       | 43 |          |  |         | 98  |          |  |  | 11 |         |  |  | 17 |  |  |  | 77  |  |  |  | 128 | 
|Roxystores        |  |                  | 3  |          |  |              | 2  |          |  |       | 3  |          |  |         | 7   |          |  |  | 2  |         |  |  | 3  |  |  |  | 8   |  |  |  | 12  | 
|Youth stores      |  |                  | 2  |          |  |              | 2  |          |  |       |   |          |  |         |    |          |  |  |   |         |  |  |   |  |  |  | 2   |  |  |  | 2   | 
|Hawkstores        |  |                  | 3  |          |  |              |   |          |  |       |   |          |  |         |    |          |  |  |   |         |  |  |   |  |  |  | 3   |  |  |  |    | 
|Multibrand
stores |  |                  |   |          |  |              |   |          |  |       |   |          |  |         | 2   |          |  |  |   |         |  |  |   |  |  |  |    |  |  |  | 2   | 
|Gotchastores      |  |                  |   |          |  |              |   |          |  |       | 2  |          |  |         | 5   |          |  |  |   |         |  |  |   |  |  |  | 2   |  |  |  | 5   | 
|Outlet stores     |  |                  | 29 |          |  |              |   |          |  |       | 10 |          |  |         |    |          |  |  | 7  |         |  |  |   |  |  |  | 46  |  |  |  |    | 
|                  |  |                  |    |          |  |              |    |          |  |       |    |          |  |         |     |          |  |  |    |         |  |  |    |  |  |  |     |  |  |  |     | 
|                  |  |                  | 60 |          |  |              | 17 |          |  |       | 58 |          |  |         | 112 |          |  |  | 20 |         |  |  | 20 |  |  |  | 138 |  |  |  | 149 | 
|                  |  |                  |    |          |  |              |    |          |  |       |    |          |  |         |     |          |  |  |    |         |  |  |    |  |  |  |     |  |  |  |     | 




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 Revenues
|                            |       |      |                      
|Dollar amounts in thousands |       | 2003 |                       | 2002    |  | 2001
|                            |       |      |                       |         |  |      |   
|Quarter ended January 31    |       | $    | 192,080               |         |  |      | 20 | %   |   | $ | 146,959 |         |  |  | 21 | %   |   | $ | 122,959 |         |  |  | 20 | %  
|Quarter ended April 30      |       |      | 262,210               |         |  |      | 27 |     |   |   | 187,423 |         |  |  | 26 |     |   |   | 169,546 |         |  |  | 27 |    
|Quarter ended July 31       |       |      | 251,498               |         |  |      | 26 |     |   |   | 175,044 |         |  |  | 25 |     |   |   | 156,656 |         |  |  | 25 |    
|Quarter ended October 31    |       |      | 269,217               |         |  |      | 27 |     |   |   | 196,058 |         |  |  | 28 |     |   |   | 171,460 |         |  |  | 28 |    
|                            |       |      |                       |         |  |      |    |     |   |   |         |         |  |  |    |     |   |   |         |         |  |  |    |    
|                            | Total |      | $                     | 975,005 |  |      |    | 100 | % |   | $       | 705,484 |  |  |    | 100 | % |   | $       | 620,621 |  |  |    | 100 | %
|                            |       |      |                       |         |  |      |    |     |   |   |         |         |  |  |    |     |   |   |         |         |  |  |    |    




Production and Raw Materials

Our apparel and accessories are generally sourced separately for the Americas,
Europe and Asia/Pacific operations. When cost-effective, categories are
sourced together. Approximately 88% 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 65% 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 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.

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During fiscal 2003, no single contractor of finished goods accounted for more
than 4% of our consolidated production. No single raw material supplier of
fabric and trims accounted for more than 13% of our expenditures for raw
materials during fiscal 2003. 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 impose quotas on the amount and type of textile
and apparel products that can be imported into the U.S. from the affected
countries. We do not anticipate that these restrictions will materially or
adversely affect our operations since we would be able to meet our needs
domestically or from countries not affected by the restrictions 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 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 50 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, Quiksilveredition, Hawk, Fidra,
Lib Tech, Gnu and Bent Metal.

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 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.

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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 the Asia/Pacific licensees (see Recent Developments) we now
directly operate all of the global Quiksilverand Roxybusinesses with the
exception of remaining licensees in Turkey, South Korea, South Africa and
Brazil, among others.

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 Roxywatches (see Item 3. Legal Proceedings) and added watches
to our technical accessory line.




Competition

Competition is strong in the global beachwear, snowboardwear, skate apparel,
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, Boardriders Clubs and Quiksvilles in the United
States include Billabong, Hurley, ONeill and Volcom. Our competitors in the
department store and specialty store channels in the United States include
Tommy Hilfiger, Abercrombie and Fitch, Nautica and Calvin Klein. 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 market 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 product ranges are separated into
four delivery seasons, Spring, Summer, Fall and Holiday, with the exception of
our mens divisions in the Americas which combined the Spring and Summer
seasons to achieve three delivery seasons. At the end of November 2003, our
Spring 2004 orders totaled $319.4 million and were up 6% over the previous
years level of $302.4 million without adjusting for changes in foreign
exchange rates. Out of that combined increase, orders in the Americas were up
3%, European orders were up 9% in euros, and Asia/Pacific orders were up 6% in
Australian dollars. 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 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.

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Employees

At October 31, 2003, we had approximately 3,400 employees, consisting of
approximately 2,000 in the United States, approximately 950 in Europe,
approximately 450 in Asia/Pacific. None of our domestic employees are
represented by a union, and less than five 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 website is http://www.quiksilver.com. We make available free of charge, on
or through our 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.
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,                        
| 
| |  | future expenditures for capital projects, and                             
| 
| |  | our ability to continue to maintain our brand image and reputation.       

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.

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Risk Factors

Competition

The apparel industry is highly competitive. We compete with numerous domestic
and foreign designers, brands and manufacturers of apparel, 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 Retailing

The apparel industry historically has 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.

Impact of Potential Future Acquisitions

From time to time, we have pursued, and may continue to pursue, acquisitions.
For example, during fiscal 2003, we completed the acquisition of the licensees
of our trademarks in Australia, Japan, New Zealand and several other countries
and territories in Southeast Asia 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.

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Risks Relating to International Operations

We conduct a significant portion 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. 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. 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.

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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 Lease
|Location                     |  | Principal Use                    |  | Sq. Ft. |         | Expiration 
|                             |  |                                  |  |         |         |            
|Huntington 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 | *
|St. Jean de Luz, France      |  | European headquarters            |  |         | 45,000  |             |  |               | 2009 |  
|St. Jean de Luz, France      |  | European distribution center     |  |         | 100,000 |             |  |               | 2007 |  
|Hendaye, France              |  | European distribution center     |  |         | 90,000  |             |  |               | 2008 |  
|Torquay, 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, 2003, we operated 60 retail stores in the Americas, 58
European retail stores, and 20 retail stores in Asia/Pacific on leased
premises. The leases for our facilities required aggregate annual rentals of
approximately $24.8 million in fiscal 2003. 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.




Item 3. LEGAL PROCEEDINGS

In March 2002, we filed a lawsuit against GMT Corporation, our then licensee
for watches in the U.S., and simultaneously terminated our license agreement
with GMT, based on our allegations that GMT was in material breach of the
agreement. GMT disputed our right to terminate and brought claims against us
for wrongful termination and other alleged breaches by us of the license
agreement. In January 2004, this dispute was litigated and we prevailed,
resulting in no material impact on our financial condition or results of
operations.

We are otherwise 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, 2003.

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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 |       | Low
|            |                                      |  |      |       |    
|Fiscal 2003 |                                      |  |      |       |     |  |   |      
|            | 4th quarter ended October 31, 2003   |  | $    | 19.55 |     |  | $ | 15.00 | 
|            | 3rd quarter ended July 31, 2003      |  |      | 18.75 |     |  |   | 15.59 | 
|            | 2nd quarter ended April 30, 2003 *   |  |      | 16.77 |     |  |   | 12.10 | 
|            | 1st quarter ended January 31, 2003 * |  |      | 14.26 |     |  |   | 11.73 | 
|Fiscal 2002 |                                      |  |      |       |     |  |   |      
|            | 4th quarter ended October 31, 2002 * |  | $    | 12.45 |     |  | $ | 8.63  | 
|            | 3rd quarter ended July 31, 2002 *    |  |      | 13.79 |     |  |   | 9.21  | 
|            | 2nd quarter ended April 30, 2002 *   |  |      | 12.84 |     |  |   | 8.45  | 
|            | 1st quarter ended January 31, 2002 * |  |      | 9.74  |     |  |   | 6.21  | 



|* 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 20, 2004, there were approximately 450 holders of record of our
common stock and an estimated 11,000 beneficial stockholders.

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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, 2003 and 2002 and for each of the three years in the period
ended October 31, 2003, included herein, have been audited by Deloitte & Touche
LLP, our independent auditors. 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            |  | 2003(1)                 |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                                                                  |  |                         |         |      |  |      |         |      |  |     
|Statement of Income Data                                          |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Revenues                                                          |  | $                       | 975,005 |      |  | $    | 705,484 |      |  | $    | 620,621 |  |  | $ | 519,370 |  |  | $ | 445,857 | 
|Income before provision for income taxes                          |  |                         | 90,067  |      |  |      | 59,986  |      |  |      | 45,412  |  |  |   | 51,862  |  |  |   | 44,867  | 
|Net income                                                        |  |                         | 58,516  |      |  |      | 37,591  |      |  |      | 28,021  |  |  |   | 31,836  |  |  |   | 26,584  | 
|Net income per share (2)                                          |  |                         | 1.08    |      |  |      | 0.80    |      |  |      | 0.61    |  |  |   | 0.71    |  |  |   | 0.60    | 
|Net income per share, assuming dilution (2)                       |  |                         | 1.03    |      |  |      | 0.77    |      |  |      | 0.58    |  |  |   | 0.69    |  |  |   | 0.57    | 
|Weighted average common shares
outstanding (2)                    |  |                         | 54,224  |      |  |      | 46,918  |      |  |      | 45,904  |  |  |   | 44,812  |  |  |   | 44,192  | 
|Weighted average common shares
outstanding, assuming dilution (2) |  |                         | 56,635  |      |  |      | 48,944  |      |  |      | 48,098  |  |  |   | 46,464  |  |  |   | 46,568  | 
|Balance Sheet Data                                                |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Total assets                                                      |  | $                       | 707,970 |      |  | $    | 450,589 |      |  | $    | 418,738 |  |  | $ | 358,742 |  |  | $ | 259,673 | 
|Working capital                                                   |  |                         | 286,625 |      |  |      | 160,518 |      |  |      | 132,416 |  |  |   | 119,529 |  |  |   | 109,823 | 
|Lines of credit                                                   |  |                         | 20,951  |      |  |      | 32,498  |      |  |      | 66,228  |  |  |   | 49,203  |  |  |   | 28,619  | 
|Long-term debt                                                    |  |                         | 123,419 |      |  |      | 54,085  |      |  |      | 70,464  |  |  |   | 66,712  |  |  |   | 28,184  | 
|Stockholders equity                                              |  |                         | 446,508 |      |  |      | 272,873 |      |  |      | 216,594 |  |  |   | 177,614 |  |  |   | 151,753 | 
|Current ratio                                                     |  |                         | 3.0     |      |  |      | 2.2     |      |  |      | 1.8     |  |  |   | 2.0     |  |  |   | 2.3     | 
|Return
on average stockholders equity (3)                        |  |                         | 16.3    |      |  |      | 15.4    |      |  |      | 14.2    |  |  |   | 19.3    |  |  |   | 19.7    | 



|(1) |  | Fiscal 2003 includes the operations of Asia/Pacific since its
acquisition effective December 1, 2002. See Note 2 of our financial
statements.                                                                             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Per share amounts and shares outstanding have been adjusted
to reflect a two-for-one stock split effected on May 9, 2003 and a
three-for-two stock split effected on April 23, 1999, each in the
form of a stock dividend.
|   
|(3) |  | Computed based on net income divided by the average of beginning and
ending stockholders equity.                                                                                                                         

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Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion below 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 Quiksilver
brands Australian founders in 1988. 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
Quiksilverlicensee in Europe in 1991 to expand geographically, we purchased
Quiksilver International in 2000 to gain global ownership of the Quiksilver
brand, and we acquired Quiksilver Asia/Pacific at the end of 2002 to unify our
global operating platform and take advantage of available synergies in product
development and sourcing, among other things. 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 $446 million in fiscal
1999 to $975 million in fiscal 2003. We design, produce and distribute
clothing, accessories and related products exclusively in the consumer products
industry. Through fiscal 2002, we had two geographic segments, the Americas
and Europe. We also now have the Asia/Pacific segment as a result of an
acquistion in fiscal 2003. The Americas segment includes revenues from the
U.S., Canada and other exports from the U.S. The European segment includes
revenues primarily from Western Europe. The Asia/Pacific segment includes
revenues primarily from Australia, New Zealand, and Japan. Royalties earned
from various licenses in other international territories are categorized in
corporate operations. Revenues by geographic segment are as follows:

|                     |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|-------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                     |  | Years Ended October 31,
|                     |  |                        
|In thousands         |  | 2003                    |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                     |  |                         |         |      |  |      |         |      |  |     
|Americas             |  | $                       | 492,442 |      |  | $    | 418,008 |      |  | $    | 391,575 |  |  | $ | 333,075 |  |  | $ | 290,363 | 
|Europe               |  |                         | 386,226 |      |  |      | 282,684 |      |  |      | 223,877 |  |  |   | 182,614 |  |  |   | 153,371 | 
|Asia/Pacific         |  |                         | 94,187  |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Corporate Operations |  |                         | 2,150   |      |  |      | 4,792   |      |  |      | 5,169   |  |  |   | 3,681   |  |  |   | 2,123   | 
|                     |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Total revenues       |  | $                       | 975,005 |      |  | $    | 705,484 |      |  | $    | 620,621 |  |  | $ | 519,370 |  |  | $ | 445,857 | 
|                     |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 

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.

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Results of Operations

The table below shows the components in our statements of income as a
percentage of revenues:

|                                            |  |                         |       |      |  |      |       |   |  |  |       |  
|------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                            |  | Years Ended October 31,
|                                            |  |                        
|                                            |  | 2003                    |       | 2002 |  | 2001
|                                            |  |                         |       |      |  |     
|Revenues                                    |  |                         | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | %
|Gross profit                                |  |                         | 44.4  |      |  |      | 40.6  |   |  |  | 38.3  |  
|Selling, general and administrative expense |  |                         | 34.0  |      |  |      | 30.7  |   |  |  | 29.2  |  
|                                            |  |                         |       |      |  |      |       |   |  |  |       |  
|Operating income                            |  |                         | 10.4  |      |  |      | 9.9   |   |  |  | 9.1   |  
|Interest expense                            |  |                         | 0.9   |      |  |      | 1.2   |   |  |  | 1.8   |  
|Foreign currency and other expense          |  |                         | 0.3   |      |  |      | 0.2   |   |  |  |      |  
|                                            |  |                         |       |      |  |      |       |   |  |  |       |  
|Income before provision for income taxes    |  |                         | 9.2   | %    |  |      | 8.5   | % |  |  | 7.3   | %
|                                            |  |                         |       |      |  |      |       |   |  |  |       |  

Fiscal 2003 Compared to Fiscal 2002

Revenues

Total 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 now
report product sales in this geographic region, which totaled $94.2 million in
fiscal 2003.

Americas revenues in our mens category, which includes the Quiksilver Young
Mens, Boys, Toddlers, Wintersports, Quiksilveredition, Hawk Clothing and Fidra
divisions, increased 13% to $258.8 million in fiscal 2003 from $229.2 million
the year before. Americas revenues in our womens category, which includes
the Roxy, Roxy Girl, Teenie Wahine, Raisins, Leilaniand Radio Fijidivisions,
increased 25% to $223.1 million from $178.4 million for those same periods.
Wintersports hardgoods are sold primarily under the Lib Technologies, Gnuand
Bent Metalbrands and 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 Roxy
and Raisinsdivisions. 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 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 are
resulting in increased consumer demand for our products in the European market.
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 2003 growth and better assess competitive
performance and market share gains, it is important to look at revenues in
euros as well, which is our operational currency in Europe. 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

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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. We earn higher gross margins on sales in
company-owned stores, but these higher gross margins are offset by store
operating costs.

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.

Interest Expense and Income Taxes

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.

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.

Net Income

Net income in fiscal 2003 increased 56%, and earnings per share on a diluted
basis increased 34%.

Fiscal 2002 Compared to Fiscal 2001

Revenues

Total revenues increased 14% in fiscal 2002 primarily as a result of increased
unit sales and new products. Revenues in the Americas increased 7%, and
European revenues increased 26%. Royalty income decreased in fiscal 2002 from
2001 because we acquired our domestic outlet store licensee during the fourth
quarter of fiscal year 2002 and terminated our domestic watch licensee.
Accordingly, royalty income was $4.8 million in fiscal 2002 compared to $5.2
million in fiscal 2001.

In the Americas, our mens revenues increased 7% to $229.2 million in fiscal
2002 from $214.3 million the year before. Womens revenues increased 8% to
$178.4 million from $165.9 million for those same periods. Wintersports
hardgoods totaled $10.4 million in fiscal 2002 compared to $11.3 million in the
previous year. Revenues in our mens category increased generally across all
divisions. The increase in our womens category was the result of increases in
both the Roxyand Raisinsdivisions. We believe that our product design and
marketing efforts resulted in increased consumer demand for our products.

European revenues were approximately 40% of our consolidated total in fiscal
2002. In U.S. dollars, revenues in our mens category increased 19% to $208.3
million in fiscal 2002 from $175.2 million in the previous year. Revenues in
our womens category increased 53% to $74.4 million from $48.7 million for
those same periods. Revenue growth was the largest in France, the United
Kingdom and Spain. 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 22% in fiscal 2002. This is lower than the 26% growth
rate in U.S. dollars because the U.S. dollar was worth fewer euros on average
in fiscal 2002 compared to fiscal 2001.

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Gross Profit

Our consolidated gross profit margin increased 230 basis points in fiscal 2002.
In the Americas, the gross profit margin increased to 36.7% from 34.7%, while
our European gross profit margin increased to 45.3% from 43.2%. The majority
of the improvement in the Americas gross profit margin was related to events in
the prior year. We recorded a $6.0 million write-down in the carrying value of
our domestic inventory in the fourth quarter of fiscal 2001. In the aftermath
of September 11, 2001, the market for consumer products, including casual
lifestyle apparel, experienced a dramatic falloff in demand and resulted in a
substantial amount of customer order cancellations. This phenomenon created an
industry wide glut of excess product available to the traditional off-price
channel thereby driving the price of certain seasonal product below cost.
Accordingly, a reduction in the carrying value of our domestic inventories was
required. We had no such reduction in fiscal 2002. The domestic gross profit
margin improved in the second half of fiscal 2002 because we lowered inventory
levels toward the end of the year. Consequently, our end-of season clearance
business was down compared to the year before, and our gross margins on those
sales were up. This offset lower domestic gross margins on sales of
end-of-season inventories in the first half of the year. Our European gross
profit margin increased primarily due to lower production costs. Additionally,
both the Americas and European gross profit margins improved because we had a
higher percentage of our 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.

Selling, General and Administrative Expense

Selling, general and administrative expense increased 20% in fiscal 2002. In
the Americas, it increased 9% to $118.2 million from $108.5 million, and in
Europe it increased 34% to $86.6 million from $64.8 million for those same
periods. 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 30.7% in
fiscal 2002 from 29.2% in fiscal 2001. Selling, general and administrative
expense increased as a percentage of revenues primarily due to the incremental
operating costs of new company-owned retail stores.

Interest Expense and Income Taxes

Interest expense decreased 21% in fiscal 2002. This decrease was due primarily
to lower average balances and lower interest rates on our debt in the Americas.

Our income tax rate decreased to 37.3% in fiscal 2002 from 38.3% in fiscal
2001. This improvement resulted primarily because a higher percentage of our
fiscal 2002 profits were generated in countries with lower tax rates. Our rate
also decreased because we adopted SFAS No. 142 during fiscal 2002 and
discontinued the amortization of certain intangible assets, which was not tax
deductible.

Net Income

Net income in fiscal 2002 increased 34%, and earnings per share on a diluted
basis increased 31%.

Financial Position, Capital Resources and Liquidity

We finance our working capital needs and capital investments with operating
cash flows and bank revolving lines of credit. Multiple banks in the U.S.,
Europe and, now, Australia and Japan, 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 $27.9 million at October 31, 2003 versus $2.6
million at October 31, 2002. Working capital amounted to $286.6 million at
October 31, 2003, compared to $160.5 million at October 31, 2002, an increase
of 79%. Our strategy is to keep cash balances low and maintain adequate
liquidity in our credit facilities to supplement operating cash flows as
needed. We believe that our current 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.

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Operating Cash Flows

We generated $36.6 million from operations in fiscal 2003 compared to $76.8
million in fiscal 2002. This $40.2 decrease was primarily caused by the
increase in inventories combined with the small decrease in accounts payable,
which together used $32.1 of cash, a $53.2 million increase in cash used
compared to $21.1 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 of
additional cash compared to the year before.

We generated $76.8 million from operations in fiscal 2002 compared to $5.8
million in fiscal 2001. This $71.0 million improvement resulted from several
factors. The largest factor was the decrease in inventories. We used $17.7
million in fiscal 2001 as inventories increased and accounts payable decreased.
By contrast, we generated $21.1 million in fiscal 2002 as inventories
decreased and trade accounts payable increased, an improvement of $38.8
million. Cash flows increased by $10.1 million from higher net income adjusted
for noncash expenses, and accounts receivable increased at a slower rate,
resulting in an $8.0 million improvement. The increases in accrued liabilities
and income taxes payable resulted in an additional $18.9 million of positive
cash flows 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 2003 capital expenditures were $33.1 million, which was approximately
$11.0 million higher than the $22.2 million we spent in fiscal 2002 and the
$22.6 million spent in fiscal 2001. In fiscal 2003, we increased our
investment in company-owned retail stores and in computer systems. Investments
in warehouse equipment, computer equipment and fixtures continued in fiscal
2003 as in the previous years.

New company-owned retail stores are again part of our plans in fiscal 2004.
Computer hardware and software will also be added to continuously improve
systems. Capital spending for these and other projects in fiscal 2004 is
expected to range between $35.0 million and $40.0 million, depending on the
pace of our retail expansion.

Acquisitions

Effective December 1, 2002, we acquired our licensees in Australia and Japan to
unify our global operating platform and take advantage of available synergies
in product development and sourcing, among other things. This group of
companies is referred to as 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
Asia/Pacific have been included in the Companys results since December 1,
2002.

The initial purchase price, excluding transaction costs, includes cash of $25.3
million and 5.6 million shares of our 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 zero 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.

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The following table summarizes the fair values of the assets acquired and
liabilities assumed at the date of acquisition.

|                      |  |   |         | 
|--------------------- |  | - | ------- | 
|In thousands          |  |   |         | 
|Current assets        |  | $ | 55,889  | 
|Long-term assets      |  |   | 6,325   | 
|License agreements    |  |   | 10,100  | 
|Goodwill              |  |   | 65,713  | 
|                      |  |   |         | 
|Total assets acquired |  |   | 138,027 | 
|Current liabilities   |  |   | 38,890  | 
|                      |  |   |         | 
|Net assets acquired   |  | $ | 99,137  | 
|                      |  |   |         | 

License agreements will be 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, we acquired the operations of our European licensee
for eyewear and wetsuits, Omareef Europe, S.A. The initial purchase price was
$5.2 million, and includes cash of $4.9 million and assumed debt of $0.3
million. This transaction was recorded using the purchase method of accounting
and resulted in goodwill of $3.5 million.

Effective February 1, 2003, we acquired our U.S. eyewear licensee, Q.S. Optics,
Inc. The initial purchase price was $2.9 million, and includes cash of $2.4
million and assumed debt of $0.5 million. The acquisition has been recorded
using the purchase method of accounting and resulted in goodwill of $2.1
million.

The operating results for each of the acquisitions are included in our
consolidated results since their acquisition dates. Assuming each of these
acquisitions had occurred as of November 1, 2001, consolidated revenues would
have been $981.6 million and $789.2 million for fiscal 2003 and 2002,
respectively. Net income would have been $58.5 million and $44.2 million,
respectively, for those same years, and diluted earnings per share would have
been $1.03 and $0.81, respectively.

Effective September 15, 2002, we acquired Beach Street, Inc., a company that
operates 26 Quiksilver outlet stores. The acquisition of Beach Street has
increased our control over our brands and distribution and has enabled us to
capture some incremental gross margin. We issued 596,184 shares of our common
stock valued at $6.9 million as consideration for the acquisition.

Effective July 1, 2000, we acquired Quiksilver International, an Australian
company that owns the worldwide trademark rights to the Quiksilverbrand name
(other than in the United States and Mexico where those rights were already
owned by us). The initial acquisition payment was $23.6 million, which
included cash consideration of $23.1 million and transaction costs, net of
imputed interest, of $0.5 million. Under the terms of the purchase agreement,
two additional payments were to be made. One was made at the end of fiscal
2002, and another is to be made at the end of fiscal 2005. These additional
payments, which are denominated in Australian dollars, are contingent on the
computed earnings of Quiksilver International through June 20, 2005, subject to
specified minimums. The deferred minimum purchase price payments, which were
discounted to present value, totaled $17.3 million at the date of the
acquisition and were included as a component of the purchase price recorded at
July 1, 2000. The payment made at the end of fiscal 2002 was increased by $9.6
million, with a corresponding increase to Trademarks, as a result of Quiksilver
Internationals operations for the two years ended June 30, 2002, resulting in
a total payment of $20.7 million. The obligation related to the remaining
deferred purchase price payment is reflected in our consolidated balance sheet
as a component of debt.

We believe that we have benefited and will continue to benefit from unified
ownership of the Quiksilverbrand worldwide. Global product decisions can be
controlled by us, and the opportunities for coordinated global sourcing and
marketing programs are enhanced.

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Debt Structure

A syndication of U.S. banks finances our business in the Americas, 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                            |  | 2003       
|                                        |  |            
|European short-term credit arrangements |  | $           | 12,351  | 
|Asia/Pacific short-term lines of credit |  |             | 8,600   | 
|Americas line of credit                 |  |             | 60,912  | 
|Americas term loan                      |  |             | 7,995   | 
|European long-term debt                 |  |             | 37,071  | 
|Asia/Pacific long-term debt             |  |             | 438     | 
|Deferred purchase price obligation      |  |             | 17,003  | 
|                                        |  |             |         | 
|Total debt                              |  | $           | 144,370 | 
|                                        |  |             |         | 

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 $170.0 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. However, the interest rate
on a portion of the borrowings under the facility is fixed through interest
rate swaps, which were valued at a loss of $0.3 million at October 31, 2003.
The weighted average interest rate at October 31, 2003 was 3.2%. 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 covenants relate 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. At October 31, 2003, we were in compliance with such covenants.

In Europe, we have arrangements with several banks that provide approximately
$76.0 million for cash borrowings and approximately $52.0 million for letters
of credit. These lines of credit expire on various dates through April 2004,
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, 2003 was $12.4 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 $18.0 million for cash borrowings and letters of credit.
These lines of credit will be reviewed by the banks in January 2004 and
September 2004, 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, 2003 was $8.6 million at an average interest
rate of 7.1%.

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
$316.0 million. Commitments totaling $146.0 million expire in fiscal 2004,
while $170.0 million expire in fiscal 2006. We had $81.9 million of borrowings
drawn on these lines of credit as of October 31, 2003, and letters of credit
issued at that time totaled $67.8 million.

We also have a term loan with a single bank in the Americas that amounted to
$8.0 million on October 31, 2003 and is repayable in installments of $0.1
million per month with a final balloon payment due on October 29, 2004. We
anticipate that these monthly payments and final balloon payment will be paid
from 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 $0.8 million at October 31, 2003, 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.

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In Europe, we also have $37.1 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 2.9% 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 $48.0 million of cash in fiscal 2003 as debt
was increased to fund the capital expenditures and business acquisitions
discussed above. By contrast in fiscal 2002 debt was reduced, and our
financing activities used $35.7 million. In fiscal 2001, $19.9 million was
provided by our financing activities to fund capital expenditures.

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.
Additional payments to the sellers, ranging from zero to $23.1 million, could
be required for our acquisition of Asia/Pacific if certain sales and earnings
targets are achieved. Our deferred purchase price obligation 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, 2003 are summarized
in the following table:

|                             |  |                        |         |       |  |        |         |         |  |       |        |  |  |   |        |  |  |   |         | 
|---------------------------- |  | ---------------------- | ------- | ----- |  | ------ | ------- | ------- |  | ----- | ------ |  |  | - | ------ |  |  | - | ------- | 
|                             |  | Payments Due by Period
|                             |  |                       
|                             |  |                        |         |       |  | Two to |         | Four to |  | After |        |  |  |  
|                             |  | One                    |         | Three |  | Five   |         | Five    |  |       |        | 
|In thousands                 |  | Year                   |         | Years |  | Years  |         | Years   |  | Total
|                             |  |                        |         |       |  |        |         |         |  |      
|Operating lease obligations  |  | $                      | 29,086  |       |  | $      | 53,832  |         |  | $     | 44,165 |  |  | $ | 48,403 |  |  | $ | 175,486 | 
|Long-term debt obligations   |  |                        | 8,877   |       |  |        | 100,809 |         |  |       | 11,772 |  |  |   | 1,961  |  |  |   | 123,419 | 
|Certain purchase obligations |  |                        | 67,785  |       |  |        |        |         |  |       |       |  |  |   |       |  |  |   | 67,785  | 
|                             |  |                        |         |       |  |        |         |         |  |       |        |  |  |   |        |  |  |   |         | 
|                             |  | $                      | 105,748 |       |  | $      | 154,641 |         |  | $     | 55,937 |  |  | $ | 50,364 |  |  | $ | 366,690 | 
|                             |  |                        |         |       |  |        |         |         |  |       |        |  |  |   |        |  |  |   |         | 

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, snowboarding, skateboarding,
windsurfing and golf. Many of these contracts provide incentives for magazine
exposure and competitive victories while wearing or using our products.
Accordingly, the amounts of future payments under the terms of these agreements
cannot be predicted with certainty. Such expenses are an ordinary part of our
operations and are expensed as incurred.

Trade Accounts Receivable and Inventories

Our trade accounts receivable were $224.4 million at October 31, 2003 versus
$168.2 million the previous year, an increase of 33%. Of those totals,
receivables in the Americas increased 1% to $81.9 million compared to $80.8
million, and European receivables increased 26% to $109.9 million from $87.4
million. The new Asia/Pacific segment added $32.6 million at October 31, 2003.
Accounts receivable grew more slowly than revenues in the Americas and Europe
primarily because of improved collections. The European accounts receivable
increase was only 6% as measured in euros. Our overall average days sales
outstanding decreased approximately three days at the end of fiscal 2003
compared to the end of fiscal 2002.

Consolidated inventories increased 53% to $146.4 million at October 31, 2003
from $95.9 million the year before. Inventories in the Americas increased 25%
to $86.4 million from $69.0 million, and European inventories increased 63% to
$43.8 million from $26.9 million. Inventories in the new Asia/Pacific division
totaled $16.2 million at October 31, 2003.

Inventories in the Americas increased primarily as a result of the earlier
production of current season goods, which increased inventories $6.0 million,
and a $7.0 million increase in inventories held based on

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assortment planning for the outlet stores that were acquired in the fourth
quarter of fiscal 2002. In addition, newly opened, company-owned retail stores
added about $3.0 million of additional inventory.

Inventories in Europe increased 63% as a result of several factors. The
stronger euro in relation to the U.S. dollar increased the U.S. dollar value of
European inventories by approximately $5.0 million. In addition, there was
approximately $5.0 million of current season goods on hand at October 31, 2003,
which were produced early compared to the previous year, and we had $3.0
million of inventory held for our company-owned outlet stores which was a new
practice in fiscal 2003.

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

Effective with our financial statements for the quarterly period ended April
30, 2003, we adopted the disclosure requirements of Statement of Financial
Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation
- Transition and Disclosure - an amendment of FASB Statement No. 123. SFAS
No. 148 amended SFAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amended the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. We apply Accounting Principles
Board Opinion 25 and related interpretations in accounting for our stock option
plans. No stock-based employee compensation expense is reflected in net
income, as all options granted under our stock option plans had 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:

|                                                                                            |  |                         |        |      |  |      |        |  |  |   |        | 
|------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                                                            |  | Years Ended October 31,
|                                                                                            |  |                        
|In thousands                                                                                |  | 2003                    |        | 2002 |  | 2001
|                                                                                            |  |                         |        |      |  |     
|Actual net income                                                                           |  | $                       | 58,516 |      |  | $    | 37,591 |  |  | $ | 28,021 | 
|Less stock-based employee compensation expense
determined under the fair value based method |  |                         | 5,656  |      |  |      | 3,686  |  |  |   | 3,189  | 
|                                                                                            |  |                         |        |      |  |      |        |  |  |   |        | 
|Pro forma net income                                                                        |  | $                       | 52,860 |      |  | $    | 33,905 |  |  | $ | 24,832 | 
|                                                                                            |  |                         |        |      |  |      |        |  |  |   |        | 
|Actual net income per share                                                                 |  | $                       | 1.08   |      |  | $    | 0.80   |  |  | $ | 0.61   | 
|                                                                                            |  |                         |        |      |  |      |        |  |  |   |        | 
|Pro forma net income per share                                                              |  | $                       | 0.97   |      |  | $    | 0.72   |  |  | $ | 0.54   | 
|                                                                                            |  |                         |        |      |  |      |        |  |  |   |        | 
|Actual net income per share, assuming dilution                                              |  | $                       | 1.03   |      |  | $    | 0.77   |  |  | $ | 0.58   | 
|                                                                                            |  |                         |        |      |  |      |        |  |  |   |        | 
|Pro forma net income per share, assuming dilution                                           |  | $                       | 0.94   |      |  | $    | 0.70   |  |  | $ | 0.52   | 
|                                                                                            |  |                         |        |      |  |      |        |  |  |   |        | 

In August 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 146, Accounting for Costs Associated with Exit or Disposal Activities,
which requires that costs associated with exit or disposal activities be
recognized when they are incurred rather than at the date of a commitment to an
exit or disposal plan. We have adopted this standard and will apply it when,
and if, we initiate exit or disposal activities.

In November 2002, the FASB issued FIN No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. FIN No. 45 elaborates on the disclosures to be made
by the guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also requires that
a guarantor recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The initial
recognition and measurement provisions of this interpretation are applicable on
a prospective basis to guarantees issued or modified after December 31, 2002.
While the provisions of the disclosure requirements began with our financial
statements for the three months ended January 31,
2003, the adoption of FIN No. 45 has not had a material impact on our
operational results or financial position.

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In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities. 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. Adopting FIN 46 will not have a
material impact on our operational results or financial position since we do
not have any variable interest entities.

Joint Venture Arrangement

We have 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 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. Our first Boardriders Club in mainland China is expected
to open in the second quarter of fiscal 2004 in the city of Shanghai.

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, which was
evident in the aftermath of September 11th. The demand for our products could
be negatively affected by many factors, including the following:

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| |  | weakening economic conditions,                       
|- |  | -----------------------------------------------------
| 
| |  | further 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.

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 and goodwill) 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 impairments 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

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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, 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 RISKS

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.

Changes in the fair value of the derivatives for all qualifying cash flow
hedges are recorded in other comprehensive income. Other derivatives not
qualifying for hedge accounting but used to mitigate exposure to currency risks
are marked to fair value with corresponding gains or losses recorded in
earnings. As of October 31, 2003, we were hedging forecasted foreign currency
transactions expected to occur in the following fourteen months. Assuming
exchange rates at October 31, 2003 remain constant,

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we expect $1.6 million of losses related to hedges of these transactions to be
reclassed into earnings over the next fourteen months. Also included in
accumulated other comprehensive income at October 31, 2003 is a $2.0 million
net charge related to cash flow hedges of our long-term debt, which is
denominated in Australian dollars and matures through fiscal 2005, and a $0.4
million net charge from interest rate swaps, which are related to our U.S.
dollar denominated long-term debt and mature through fisal 2007.

On the date we enter into a derivative contract, we designate the derivative 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
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.                  

During the fiscal year ended October 31, 2003, we reclassified into earnings a
net loss of $5.4 million resulting from the expiration, sale, termination or
exercise of derivative contracts. Additionally, we recognized a loss of $0.8
million during the fiscal year ended October 31, 2003 for changes in the value
of derivatives that were marked to fair value.

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 2003, the U.S. dollar weakened compared to the euro. As a result,
our European sales increased 15% in euros compared to the year before, but
increased 37% in U.S. dollars.

The Euro

The primary countries where our European subsidiary operates, with the
exception of the United Kingdom, adopted the euro as legal currency effective
January 1, 1999. At that time, exchange rates between the French franc and
certain other European currencies were fixed versus the euro. Euro denominated
currency began circulating as of January 1, 2002. Our European subsidiary
began processing transactions in euros as of November 1, 2001.

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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 $73.0 million at October 31, 2003, and the
average interest rate at that time was 3.3%. If interest rates were to
increase by 10%, our net income would be reduced by approximately $0.1 million
based on these fiscal 2003 levels.




Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item appears beginning on page 31.




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 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, 2003, 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, 2003.

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, 2003 that materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.

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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 2004 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, 2003.




Item 11. EXECUTIVE COMPENSATION

The information required to be included by this item will be included in our
proxy statement for the 2004 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, 2003.




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 2004 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, 2003.




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 2004 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, 2003.




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 2004 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, 2003.

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PART IV




Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

| |  |     |  |                                                           |  |                                                                                                                                                   
| |  | --- |  | --------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (a) |  | The following documents are filed as part of this report:
| |  |     |  |                                                           |  |                                                                                                                                                   
| |  |     |  | 1.                                                        |  | Consolidated Financial Statements                                                                                                                 
| |  |     |  |                                                           |  |                                                                                                                                                   
| |  |     |  |                                                           |  | See Index to Consolidated Financial Statements on page 32                                                                                       
| |  |     |  |                                                           |  |                                                                                                                                                   
| |  |     |  | 2.                                                        |  | Exhibits                                                                                                                                          
| |  |     |  |                                                           |  |                                                                                                                                                   
| |  |     |  |                                                           |  | See Exhibit Index on page 55                                                                                                                    
| |  |     |  |                                                           |  |                                                                                                                                                   
| |  | (b) |  | Reports on Form 8-K.                                     
| |  |     |  |                                                           |  |                                                                                                                                                   
| |  |     |  | 1.                                                        |  | The Company filed a report on Form 8-K on
December 18, 2003, to make a Regulation FD disclosure
regarding a press release dated December 18, 2003.

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QUIKSILVER, INC.




INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                  |                                                                                             |  |      |    | 
|--------------------------------- | ------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                  |                                                                                             |  | Page
|INDEPENDENT AUDITORS REPORT      |                                                                                             |  | 33   |   
|CONSOLIDATED FINANCIAL STATEMENTS |                                                                                             |  |      |   
|                                  | Consolidated Balance Sheets
October 31, 2003 and 2002                                       |  |      | 34 | 
|                                  | Consolidated Statements of Income
Years Ended October 31, 2003, 2002 and 2001               |  |      | 35 | 
|                                  | Consolidated Statements of Comprehensive Income
Years Ended October 31, 2003, 2002 and 2001 |  |      | 35 | 
|                                  | Consolidated Statements of Stockholders Equity
Years Ended October 31, 2003, 2002 and 2001 |  |      | 36 | 
|                                  | Consolidated Statements of Cash Flows
Years Ended October 31, 2003, 2002 and 2001           |  |      | 37 | 
|                                  | Notes to Consolidated Financial Statements                                                  |  |      | 38 | 

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INDEPENDENT AUDITORS REPORT

To The Board of Directors and Stockholders of
Quiksilver, Inc.:

We have audited the accompanying consolidated balance sheets of Quiksilver,
Inc. and subsidiaries as of October 31, 2003 and 2002, 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,
2003. 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 auditing standards generally
accepted in the United States of America. 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
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes 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, 2003 and 2002, and the results of their operations and their
cash flows for each of the three years in the period ended October 31, 2003, in
conformity with accounting principles generally accepted in the United States
of America.

As discussed in Note 1 to the financial statements, in 2002 the Company changed
its method of accounting for goodwill and intangible assets.

DELOITTE & TOUCHE LLP

January 20, 2004
Costa Mesa, California

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QUIKSILVER, INC.


CONSOLIDATED BALANCE SHEETS

October 31, 2003 and 2002


|                                           |                                                                                                                                       |                                            |         |         |         |  |        |         |         | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | ------- |  | ------ | ------- | ------- | 
|In thousands, except share amounts         |                                                                                                                                       | 2003                                       |         | 2002   
|                                           |                                                                                                                                       |                                            |         |         |         | 
|ASSETS                                     |                                                                                                                                       |                                            |         |         |         |  |        |        
|Current assets:                            |                                                                                                                                       |                                            |         |         |         |  |        |        
|                                           | Cash and cash equivalents                                                                                                             |                                            | $       | 27,866  |         |  | $      | 2,597   |        
|                                           | Trade accounts receivable, net - Note 3                                                                                               |                                            |         | 224,418 |         |  |        | 168,237 |        
|                                           | Other receivables                                                                                                                     |                                            |         | 7,617   |         |  |        | 7,415   |        
|                                           | Inventories - Note 4                                                                                                                  |                                            |         | 146,440 |         |  |        | 95,872  |        
|                                           | Deferred income taxes - Note 13                                                                                                       |                                            |         | 17,472  |         |  |        | 14,070  |        
|                                           | Prepaid expenses and other current assets                                                                                             |                                            |         | 9,732   |         |  |        | 6,638   |        
|                                           |                                                                                                                                       |                                            |         |         |         |  |        |        
|                                           |                                                                                                                                       | Total current assets                       |         |         | 433,545 |  |        |         | 294,829 | 
|Fixed assets, net - Notes 5 and 7          |                                                                                                                                       |                                            | 99,299  |         |         |  | 73,182 |        
|Intangible assets, net - Notes 2, 6 and 12 |                                                                                                                                       |                                            | 65,577  |         |         |  | 51,134 |        
|Goodwill - Notes 2, 6 and 15               |                                                                                                                                       |                                            | 98,833  |         |         |  | 26,978 |        
|Deferred income taxes - Note 13            |                                                                                                                                       |                                            | 1,984   |         |         |  | 1,411  |        
|Other assets                               |                                                                                                                                       |                                            | 8,732   |         |         |  | 3,055  |        
|                                           |                                                                                                                                       |                                            |         |         |         |  |        |        
|                                           |                                                                                                                                       | Total assets                               |         | $       | 707,970 |  |        | $       | 450,589 | 
|                                           |                                                                                                                                       |                                            |         |         |         |  |        |        
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                                                       |                                            |         |         |         |  |        |        
|Current liabilities:                       |                                                                                                                                       |                                            |         |         |         |  |        |        
|                                           | Lines of credit - Note 7                                                                                                              |                                            | $       | 20,951  |         |  | $      | 32,498  |        
|                                           | Accounts payable                                                                                                                      |                                            |         | 64,537  |         |  |        | 47,279  |        
|                                           | Accrued liabilities - Note 8                                                                                                          |                                            |         | 41,759  |         |  |        | 40,137  |        
|                                           | Current portion of long-term debt - Note 7                                                                                            |                                            |         | 8,877   |         |  |        | 10,680  |        
|                                           | Income taxes payable - Note 13                                                                                                        |                                            |         | 10,796  |         |  |        | 3,717   |        
|                                           |                                                                                                                                       |                                            |         |         |         |  |        |        
|                                           |                                                                                                                                       | Total current liabilities                  |         |         | 146,920 |  |        |         | 134,311 | 
|Long-term debt - Note 7                    |                                                                                                                                       |                                            | 114,542 |         |         |  | 43,405 |        
|                                           |                                                                                                                                       |                                            |         |         |         |  |        |        
|                                           |                                                                                                                                       | Total liabilities                          |         |         | 261,462 |  |        |         | 177,716 | 
|                                           |                                                                                                                                       |                                            |         |         |         |  |        |        
|Commitments and contingencies - Note 9     |                                                                                                                                       |                                            |         |         |         |  |        |        
|Stockholders equity - Note 10:            |                                                                                                                                       |                                            |         |         |         |  |        |        
|                                           | Preferred stock, $.01 par value, authorized shares - 5,000,000;
issued and outstanding shares - none                                  |                                            |         |        |         |  |        |        |        
|                                           | Common stock, $.01 par value, authorized shares -
85,000,000; issued and outstanding shares -
57,020,517 (2003) and 49,360,294 (2002) |                                            |         | 570     |         |  |        | 494     |        
|                                           | Additional paid-in capital                                                                                                            |                                            |         | 155,310 |         |  |        | 66,522  |        
|                                           | Treasury stock, 1,442,600 shares                                                                                                      |                                            |         | (6,778  | )       |  |        | (6,778  | )      
|                                           | Retained earnings                                                                                                                     |                                            |         | 277,554 |         |  |        | 219,038 |        
|                                           | Accumulated
other comprehensive income (loss)  Note 11                                                                               |                                            |         | 19,852  |         |  |        | (6,403  | )      
|                                           |                                                                                                                                       |                                            |         |         |         |  |        |        
|                                           |                                                                                                                                       | Total stockholders equity                 |         |         | 446,508 |  |        |         | 272,873 | 
|                                           |                                                                                                                                       |                                            |         |         |         |  |        |        
|                                           |                                                                                                                                       | Total liabilities and stockholders equity |         | $       | 707,970 |  |        | $       | 450,589 | 
|                                           |                                                                                                                                       |                                            |         |         |         |  |        |        

See notes to consolidated financial statements.

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QUIKSILVER, INC.

CONSOLIDATED STATEMENTS OF INCOME

Years Ended October 31, 2003, 2002 and 2001


|                                                                       |                  |      |         |         |  |      |         |         |  |   |         |         | 
|---------------------------------------------------------------------- | ---------------- | ---- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|In thousands, except per share amounts                                 |                  | 2003 |         | 2002    |  | 2001
|                                                                       |                  |      |         |         |  |      |        
|Revenues                                                               |                  | $    | 975,005 |         |  | $    | 705,484 |         |  | $ | 620,621 |        
|Cost of goods sold                                                     |                  |      | 541,753 |         |  |      | 419,155 |         |  |   | 382,762 |        
|                                                                       |                  |      |         |         |  |      |         |         |  |   |         |        
|                                                                       | Gross profit     |      |         | 433,252 |  |      |         | 286,329 |  |   |         | 237,859 | 
|Selling, general and administrative expense                            |                  |      | 332,187 |         |  |      | 216,625 |         |  |   | 181,220 |        
|                                                                       |                  |      |         |         |  |      |         |         |  |   |         |        
|                                                                       | Operating income |      |         | 101,065 |  |      |         | 69,704  |  |   |         | 56,639  | 
|Interest expense                                                       |                  |      | 8,267   |         |  |      | 8,640   |         |  |   | 10,873  |        
|Foreign currency loss (gain)                                           |                  |      | 2,243   |         |  |      | 729     |         |  |   | (95     | )      
|Other expense                                                          |                  |      | 488     |         |  |      | 349     |         |  |   | 449     |        
|                                                                       |                  |      |         |         |  |      |         |         |  |   |         |        
|Income before provision for income taxes                               |                  |      | 90,067  |         |  |      | 59,986  |         |  |   | 45,412  |        
|Provision for income taxes - Note 13                                   |                  |      | 31,551  |         |  |      | 22,395  |         |  |   | 17,391  |        
|                                                                       |                  |      |         |         |  |      |         |         |  |   |         |        
|Net income                                                             |                  | $    | 58,516  |         |  | $    | 37,591  |         |  | $ | 28,021  |        
|                                                                       |                  |      |         |         |  |      |         |         |  |   |         |        
|Net income per share - Note 1                                          |                  | $    | 1.08    |         |  | $    | 0.80    |         |  | $ | 0.61    |        
|                                                                       |                  |      |         |         |  |      |         |         |  |   |         |        
|Net income per share, assuming dilution - Note 1                       |                  | $    | 1.03    |         |  | $    | 0.77    |         |  | $ | 0.58    |        
|                                                                       |                  |      |         |         |  |      |         |         |  |   |         |        
|Weighted average common shares outstanding - Note 1                    |                  |      | 54,224  |         |  |      | 46,918  |         |  |   | 45,904  |        
|                                                                       |                  |      |         |         |  |      |         |         |  |   |         |        
|Weighted average common shares outstanding,
assuming dilution - Note 1 |                  |      | 56,635  |         |  |      | 48,944  |         |  |   | 48,098  |        
|                                                                       |                  |      |         |         |  |      |         |         |  |   |         |        

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended October 31, 2003, 2002 and 2001


|                                 |                                                                                             |      |        |        |   |      |        |        |   |   |        |        |  
|-------------------------------- | ------------------------------------------------------------------------------------------- | ---- | ------ | ------ | - | ---- | ------ | ------ | - | - | ------ | ------ | -
|In thousands                     |                                                                                             | 2003 |        | 2002   |   | 2001
|                                 |                                                                                             |      |        |        |   |      |       
|Net income                       |                                                                                             | $    | 58,516 |        |   | $    | 37,591 |        |   | $ | 28,021 |       
|Other comprehensive gain (loss): |                                                                                             |      |        |        |   |      |        |        |   |   |        |       
|                                 | Foreign currency translation adjustment                                                     |      |        | 26,799 |   |      |        | 6,896  |   |   |        | 2,274  |  
|                                 | Net loss on derivative instruments, net of tax of
$200 (2003) $1,274 (2002) and $839 (2001) |      |        | (544   | ) |      |        | (2,279 | ) |   |        | (1,195 | )
|                                 |                                                                                             |      |        |        |   |      |        |        |   |   |        |       
|Comprehensive income             |                                                                                             | $    | 84,771 |        |   | $    | 42,208 |        |   | $ | 29,100 |       
|                                 |                                                                                             |      |        |        |   |      |        |        |   |   |        |       

See notes to consolidated financial statements.

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QUIKSILVER, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Years Ended October 31, 2003, 2002 and 2001


|                                   |                                            |        |              |           |            |         |          |       |          |          |               |               |               |        |        |   |       |   |         |        |  |   |             |        |  |   |         |        | 
|---------------------------------- | ------------------------------------------ | ------ | ------------ | --------- | ---------- | ------- | -------- | ----- | -------- | -------- | ------------- | ------------- | ------------- | ------ | ------ | - | ----- | - | ------- | ------ |  | - | ----------- | ------ |  | - | ------- | ------ | 
|                                   |                                            |        |              |           |            |         |          |       |          |          |               |               |               |        |        |   |       |   |         |        |  |   | Accumulated |        |  |   |        
|                                   |                                            |        | Common Stock |           | Additional |         |          |       |          |          |               |               |               |        | Other  |   | Total
|                                   |                                            |        |              |           | Paid-in    |         | Treasury |       | Retained |          | Comprehensive |               | Stockholders
|In thousands, except share amounts |                                            | Shares |              | Amount    |            | Capital |          | Stock |          | Earnings |               | Income (Loss) |               | Equity
|                                   |                                            |        |              |           |            |         |          |       |          |          |               |               |               |        |       
|Balance, November 1, 2000          |                                            |        | 46,468,072   |           |            | $       | 464      |       |          | $        | 42,601        |               |               | $      | (6,778 | ) |       | $ | 153,426 |        |  | $ | (12,099     | )      |  | $ | 177,614 |       
|                                   | Exercise of stock options                  |        |              | 1,282,000 |            |         |          | 13    |          |          |               | 5,852         |               |        |        |  |       |   |         |       |  |   |             |       |  |   |         | 5,865  | 
|                                   | Tax benefit from exercise
of stock options |        |              |          |            |         |          |      |          |          |               | 3,778         |               |        |        |  |       |   |         |       |  |   |             |       |  |   |         | 3,778  | 
|                                   | Employee stock purchase
plan               |        |              | 30,494    |            |         |          | 1     |          |          |               | 236           |               |        |        |  |       |   |         |       |  |   |             |       |  |   |         | 237    | 
|                                   | Net income and other
comprehensive income  |        |              |          |            |         |          |      |          |          |               |              |               |        |        |  |       |   |         | 28,021 |  |   |             | 1,079  |  |   |         | 29,100 | 
|                                   |                                            |        |              |           |            |         |          |       |          |          |               |               |               |        |        |   |       |   |         |        |  |   |             |        |  |   |         |       
|Balance, October 31, 2001          |                                            |        | 47,780,566   |           |            |         | 478      |       |          |          | 52,467        |               |               |        | (6,778 | ) |       |   | 181,447 |        |  |   | (11,020     | )      |  |   | 216,594 |       
|                                   | Exercise of stock options                  |        |              | 918,692   |            |         |          | 9     |          |          |               | 4,139         |               |        |        |  |       |   |         |       |  |   |             |       |  |   |         | 4,148  | 
|                                   | Tax benefit from exercise
of stock options |        |              |          |            |         |          |      |          |          |               | 2,543         |               |        |        |  |       |   |         |       |  |   |             |       |  |   |         | 2,543  | 
|                                   | Employee stock purchase
plan               |        |              | 64,852    |            |         |          | 1     |          |          |               | 471           |               |        |        |  |       |   |         |       |  |   |             |       |  |   |         | 472    | 
|                                   | Beach Street acquisition                   |        |              | 596,184   |            |         |          | 6     |          |          |               | 6,902         |               |        |        |  |       |   |         |       |  |   |             |       |  |   |         | 6,908  | 
|                                   | Net income and other
comprehensive income  |        |              |          |            |         |          |      |          |          |               |              |               |        |        |  |       |   |         | 37,591 |  |   |             | 4,617  |  |   |         | 42,208 | 
|                                   |                                            |        |              |           |            |         |          |       |          |          |               |               |               |        |        |   |       |   |         |        |  |   |             |        |  |   |         |       
|Balance, October 31, 2002          |                                            |        | 49,360,294   |           |            |         | 494      |       |          |          | 66,522        |               |               |        | (6,778 | ) |       |   | 219,038 |        |  |   | (6,403      | )      |  |   | 272,873 |       
|                                   | Exercise of stock options                  |        |              | 1,983,701 |            |         |          | 19    |          |          |               | 10,742        |               |        |        |  |       |   |         |       |  |   |             |       |  |   |         | 10,761 | 
|                                   | Tax benefit from exercise
of stock options |        |              |          |            |         |          |      |          |          |               | 6,284         |               |        |        |  |       |   |         |       |  |   |             |       |  |   |         | 6,284  | 
|                                   | Employee stock purchase
plan               |        |              | 50,666    |            |         |          | 1     |          |          |               | 567           |               |        |        |  |       |   |         |       |  |   |             |       |  |   |         | 568    | 
|                                   | Asia/Pacific Acquisition                   |        |              | 5,625,856 |            |         |          | 56    |          |          |               | 71,195        |               |        |        |  |       |   |         |       |  |   |             |       |  |   |         | 71,251 | 
|                                   | Net income and other
comprehensive income  |        |              |          |            |         |          |      |          |          |               |              |               |        |        |  |       |   |         | 58,516 |  |   |             | 26,255 |  |   |         | 84,771 | 
|                                   |                                            |        |              |           |            |         |          |       |          |          |               |               |               |        |        |   |       |   |         |        |  |   |             |        |  |   |         |       
|Balance, October 31, 2003          |                                            |        | 57,020,517   |           |            | $       | 570      |       |          | $        | 155,310       |               |               | $      | (6,778 | ) |       | $ | 277,554 |        |  | $ | 19,852      |        |  | $ | 446,508 |       
|                                   |                                            |        |              |           |            |         |          |       |          |          |               |               |               |        |        |   |       |   |         |        |  |   |             |        |  |   |         |       

See notes to consolidated financial statements.

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QUIKSILVER, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended October 31, 2003, 2002 and 2001


|                                                     |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |         |        |        |         |  
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------------ | --------------------------------------------------------------------------------------- | --------------------------------------------------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | -
|In thousands                                         |                                                                                   | 2003                                                   |                                                                                         | 2002                                                |        | 2001  
|                                                     |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |       
|Cash flows from operating activities:                |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |        
|                                                     | Net income                                                                        |                                                        | $                                                                                       | 58,516                                              |        |        | $       | 37,591  |        |        | $       | 28,021  |       
|                                                     | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |         |       
|                                                     |                                                                                   |                                                        | Depreciation and amortization                                                           |                                                     |        | 21,185 |         |         |        | 14,349 |         |         |        | 13,877 |        
|                                                     |                                                                                   |                                                        | Provision for doubtful accounts                                                         |                                                     |        | 5,755  |         |         |        | 5,771  |         |         |        | 5,042  |        
|                                                     |                                                                                   |                                                        | Loss on sale of fixed assets                                                            |                                                     |        | 183    |         |         |        | 27     |         |         |        | 39     |        
|                                                     |                                                                                   |                                                        | Foreign currency loss                                                                   |                                                     |        | 23     |         |         |        | 75     |         |         |        | 140    |        
|                                                     |                                                                                   |                                                        | Interest accretion                                                                      |                                                     |        | 902    |         |         |        | 1,713  |         |         |        | 1,667  |        
|                                                     |                                                                                   |                                                        | Deferred income taxes                                                                   |                                                     |        | (2,924 | )       |         |        | (4,038 | )       |         |        | (3,364 | )      
|                                                     |                                                                                   |                                                        | Changes in operating assets and liabilities, net of effects
from business acquisitions: |                                                     |        |        |         |         |        |        |         |         |        |        |        
|                                                     |                                                                                   |                                                        |                                                                                         | Trade accounts receivable                           |        |        | (19,399 | )       |        |        | (13,663 | )       |        |        | (21,699 | )
|                                                     |                                                                                   |                                                        |                                                                                         | Other receivables                                   |        |        | (564    | )       |        |        | 922     |         |        |        | 301     |  
|                                                     |                                                                                   |                                                        |                                                                                         | Inventories                                         |        |        | (30,673 | )       |        |        | 16,444  |         |        |        | (16,492 | )
|                                                     |                                                                                   |                                                        |                                                                                         | Prepaid expenses and other current assets           |        |        | (2,848  | )       |        |        | (2,811  | )       |        |        | 2,190   |  
|                                                     |                                                                                   |                                                        |                                                                                         | Other assets                                        |        |        | (3,115  | )       |        |        | 437     |         |        |        | 871     |  
|                                                     |                                                                                   |                                                        |                                                                                         | Accounts payable                                    |        |        | (1,394  | )       |        |        | 4,661   |         |        |        | (1,224  | )
|                                                     |                                                                                   |                                                        |                                                                                         | Accrued liabilities                                 |        |        | 912     |         |        |        | 9,291   |         |        |        | (1,484  | )
|                                                     |                                                                                   |                                                        |                                                                                         | Income taxes payable                                |        |        | 10,032  |         |        |        | 6,061   |         |        |        | (2,038  | )
|                                                     |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |        
|                                                     |                                                                                   |                                                        |                                                                                         | Net cash provided by operating activities           |        |        | 36,591  |         |        |        | 76,830  |         |        |        | 5,847   |  
|                                                     |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |        
|Cash flows from investing activities:                |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |        
|                                                     | Proceeds from sales of fixed assets                                               |                                                        |                                                                                         |                                                    |        |        |         |        |        |        |         | 82      |       
|                                                     | Capital expenditures                                                              |                                                        |                                                                                         | (33,071                                             | )      |        |         | (22,216 | )      |        |         | (22,622 | )     
|                                                     | Business acquisitions, net of acquired cash - Note 2                              |                                                        |                                                                                         | (31,195                                             | )      |        |         | (20,676 | )      |        |         | (250    | )     
|                                                     |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |        
|                                                     |                                                                                   |                                                        |                                                                                         | Net cash used in investing activities               |        |        | (64,266 | )       |        |        | (42,892 | )       |        |        | (22,790 | )
|                                                     |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |        
|Cash flows from financing activities:                |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |        
|                                                     | Borrowings on lines of credit                                                     |                                                        |                                                                                         | 99,110                                              |        |        |         | 4,585   |        |        |         | 70,363  |       
|                                                     | Payments on lines of credit                                                       |                                                        |                                                                                         | (56,807                                             | )      |        |         | (39,584 | )      |        |         | (53,630 | )     
|                                                     | Borrowings on long-term debt                                                      |                                                        |                                                                                         | 16,126                                              |        |        |         | 6,000   |        |        |         | 7,872   |       
|                                                     | Payments on long-term debt                                                        |                                                        |                                                                                         | (21,710                                             | )      |        |         | (11,309 | )      |        |         | (10,824 | )     
|                                                     | Stock option exercises and employee stock purchases                               |                                                        |                                                                                         | 11,330                                              |        |        |         | 4,620   |        |        |         | 6,102   |       
|                                                     |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |        
|                                                     |                                                                                   |                                                        |                                                                                         | Net cash provided by (used in) financing activities |        |        | 48,049  |         |        |        | (35,688 | )       |        |        | 19,883  |  
|Effect of exchange rate changes on cash              |                                                                                   |                                                        | 4,895                                                                                   |                                                     |        |        | (655    | )       |        |        | (236    | )      
|                                                     |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |        
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                                        | 25,269                                                                                  |                                                     |        |        | (2,405  | )       |        |        | 2,704   |        
|Cash and cash equivalents, beginning of year         |                                                                                   |                                                        | 2,597                                                                                   |                                                     |        |        | 5,002   |         |        |        | 2,298   |        
|                                                     |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |        
|Cash and cash equivalents, end of year               |                                                                                   | $                                                      | 27,866                                                                                  |                                                     |        | $      | 2,597   |         |        | $      | 5,002   |        
|                                                     |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |        
|Supplementary cash flow information:                 |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |        
|                                                     | Cash paid during the year for:                                                    |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |         |       
|                                                     |                                                                                   | Interest                                               |                                                                                         | $                                                   | 5,893  |        |         | $       | 6,297  |        |         | $       | 8,984  |       
|                                                     |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |        
|                                                     |                                                                                   | Income taxes                                           |                                                                                         | $                                                   | 21,348 |        |         | $       | 18,914 |        |         | $       | 17,821 |       
|                                                     |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |        
|                                                     | Non-cash investing and financing activities:                                      |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |         |       
|                                                     |                                                                                   | Deferred purchase price obligation - Note 2            |                                                                                         | $                                                   | 4,535  |        |         | $       | 5,310  |        |         | $       | 4,267  |       
|                                                     |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |        
|                                                     |                                                                                   | Common stock issued for business acquisitions - Note 2 |                                                                                         | $                                                   | 71,251 |        |         | $       | 6,908  |        |         | $       |       |       
|                                                     |                                                                                   |                                                        |                                                                                         |                                                     |        |        |         |         |        |        |         |        

See notes to consolidated financial statements.

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QUIKSILVER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended October 31, 2003, 2002 and 2001

Note 1  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 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 (Leilani
swimwear), as well as snowboards, snowboard boots and bindings under the Lib
Technologies, Gnuand Bent Metallabels. Distribution is primarily in the
United States, Europe and Australia and is primarily based in surf shops and
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). 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.

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, 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. The cost of land use rights for certain leased retail locations
(totaling approximately $11.4 million at October 31, 2003) is included in, and
accounted for, as land in the accompanying consolidated financial statements
and is reviewed periodically for impairment.

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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.

Goodwill and Intangible Assets

Effective November 1, 2001, the Company adopted SFAS No. 142, Goodwill and
Intangible Assets, which revises the accounting for purchased 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 and the annual test and determined that
no impairment loss was necessary. Any subsequent impairment losses will be
reflected in operating income. With the adoption of SFAS No. 142, the Company
discontinued amortization of goodwill and certain trademarks that were
determined to have an indefinite life. Had amortization of goodwill and these
trademarks not been recorded in the fiscal year ended October 31, 2001, net
income would have increased by $2.6 million, net of taxes, and diluted earnings
per share would have increased by $0.10.

Other Assets

Other assets includes a $0.8 million note receivable from an executive officer
related to an international relocation that bears interest at a market rate and
is secured by a second trust deed on the executives residence.

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. Revenues in the Consolidated Statements of Income
includes the following:

|                  |  |                         |         |      |  |      |         |  |  |   |         | 
|----------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                  |  | Years Ended October 31,
|                  |  |                        
|In thousands      |  | 2003                    |         | 2002 |  | 2001
|                  |  |                         |         |      |  |     
|Product shipments |  | $                       | 972,855 |      |  | $    | 700,692 |  |  | $ | 615,452 | 
|Royalty income    |  |                         | 2,150   |      |  |      | 4,792   |  |  |   | 5,169   | 
|                  |  |                         |         |      |  |      |         |  |  |   |         | 
|                  |  | $                       | 975,005 |      |  | $    | 705,484 |  |  | $ | 620,621 | 
|                  |  |                         |         |      |  |      |         |  |  |   |         | 

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, 2003, 2002 and 2001,
these expenses totaled $40.3 million, $35.5 million and $26.6 million,
respectively.

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 had exercise prices equal to the market
value of the underlying common stock on the grant dates. If compensation
expense was determined based on the fair value method beginning with grants in
the year ended October 31, 1996, the Companys net income and net income per
share, assuming dilution would have been reduced to the pro forma amounts
indicated below:

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|                                                                                            |  |                         |        |      |  |      |        |  |  |   |        | 
|------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                                                            |  | Years Ended October 31,
|                                                                                            |  |                        
|In thousands                                                                                |  | 2003                    |        | 2002 |  | 2001
|                                                                                            |  |                         |        |      |  |     
|Actual net income                                                                           |  | $                       | 58,516 |      |  | $    | 37,591 |  |  | $ | 28,021 | 
|Less stock-based employee compensation expense
determined under the fair value based method |  |                         | 5,656  |      |  |      | 3,686  |  |  |   | 3,189  | 
|                                                                                            |  |                         |        |      |  |      |        |  |  |   |        | 
|Pro forma net income                                                                        |  | $                       | 52,860 |      |  | $    | 33,905 |  |  | $ | 24,832 | 
|                                                                                            |  |                         |        |      |  |      |        |  |  |   |        | 
|Actual net income per share                                                                 |  | $                       | 1.08   |      |  | $    | 0.80   |  |  | $ | 0.61   | 
|                                                                                            |  |                         |        |      |  |      |        |  |  |   |        | 
|Pro forma net income per share                                                              |  | $                       | 0.97   |      |  | $    | 0.72   |  |  | $ | 0.54   | 
|                                                                                            |  |                         |        |      |  |      |        |  |  |   |        | 
|Actual net income per share, assuming dilution                                              |  | $                       | 1.03   |      |  | $    | 0.77   |  |  | $ | 0.58   | 
|                                                                                            |  |                         |        |      |  |      |        |  |  |   |        | 
|Pro forma net income per share, assuming dilution                                           |  | $                       | 0.94   |      |  | $    | 0.70   |  |  | $ | 0.52   | 
|                                                                                            |  |                         |        |      |  |      |        |  |  |   |        | 

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, 2003, 2002 and 2001, the weighted average common shares
outstanding, assuming dilution, includes 2,411,000, 2,026,000 and 2,194,000,
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.

The Company adopted SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, on November 1, 2000. SFAS No. 133 affected the Companys
financial statements beginning with the first quarter of fiscal 2001 by
requiring that the Company recognize all derivatives as either assets or
liabilities measured at fair value. The accounting for changes in the fair
value of a derivative depends on the use of the derivative. The adoption of
SFAS No. 133 resulted in a transition adjustment of $0.8 million in the year
ended October 31, 2001 (net of tax effects of $0.5 million) that was recorded
as a cumulative-effect type adjustment in other comprehensive income to
recognize the fair value of derivatives that are designated as cash-flow
hedges.

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.

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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.

New Accounting Pronouncements

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure  an amendment of FASB Statement No.
123. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
Company has followed the prescribed format and provided the additional
disclosures required by SFAS No. 148.

In November 2002, the FASB issued FIN No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. FIN No. 45 elaborates on the disclosures to be made
by the guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also requires that
a guarantor recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The initial
recognition and measurement provisions of this interpretation are applicable on
a prospective basis to guarantees issued or modified after December 31, 2002,
while the provisions of the disclosure requirements are effective beginning
with our financial statements for the three months ended January 31, 2003. The
adoption of FIN No. 45 has not had a material impact on the Companys
operational results or financial position.

In August 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which requires that costs associated with
exit or disposal activities be recognized when they are incurred rather than at
the date of a commitment to an exit or disposal plan. The Company has adopted
this standard and will apply it when, and if, the Company initiates exit or
disposal activities.

In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities. 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. Adopting FIN 46 will not have a
material impact on the Companys operational results or financial position
since it does not have any variable interest entities.

Note 2  Business Acquisitions

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.

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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, includes 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 zero 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.

The initial allocation of the purchase price was made based on preliminary
financial statement information. Adjustments to this initial allocation
resulted from finalizing the valuation of acquired assets and liabilities and
the closing balance sheet of Quiksilver Asia/Pacific.

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          |  | 2002       
|                      |  |             |        
|Current assets        |  | $           | 55,889  | 
|Long-term assets      |  |             | 6,325   | 
|License agreements    |  |             | 10,100  | 
|Goodwill              |  |             | 65,713  | 
|                      |  |             |         | 
|Total assets acquired |  |             | 138,027 | 
|Current liabilities   |  |             | 38,890  | 
|                      |  |             |         | 
|Net 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 includes a cash payment of $4.9 million and
assumed debt of $0.3 million. The acquisition has been 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
includes a cash payment of $2.4 million and assumed debt of $0.5 million. The
acquisition has been 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.

The results of operations for all acquisitions are included in the consolidated
statements of income from their respective acquisition dates. Assuming these
fiscal 2003 acquisitions had occurred as of November 1, 2001, consolidated net
sales would have been $981.6 million and $789.2 million for the years ended
October 31, 2003 and 2002, respectively. Net income would have been $58.5
million and $44.2 million, respectively, for those same periods, and diluted
earnings per share would have been $1.03 and $0.81, respectively.

Effective September 15, 2002, the Company acquired Beach Street, Inc. (Beach
Street), a company that operates 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
has been recorded using

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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 tax deductible.

Note 3  Allowance for Doubtful Accounts

The allowance for doubtful accounts includes the following:

|                           |                                 |      |                         |        |   |      |       |        |   |   |       |        |  
|-------------------------- | ------------------------------- | ---- | ----------------------- | ------ | - | ---- | ----- | ------ | - | - | ----- | ------ | -
|                           |                                 |      | Years Ended October 31,
|                           |                                 |      |                        
|In thousands               |                                 | 2003 |                         | 2002   |   | 2001
|                           |                                 |      |                         |        |   |     
|Balance, beginning of year |                                 | $    | 6,667                   |        |   | $    | 6,280 |        |   | $ | 5,090 |       
|                           | Provision for doubtful accounts |      |                         | 5,755  |   |      |       | 5,771  |   |   |       | 5,042  |  
|                           | Deductions                      |      |                         | (3,722 | ) |      |       | (5,384 | ) |   |       | (3,852 | )
|                           |                                 |      |                         |        |   |      |       |        |   |   |       |       
|Balance, end of year       |                                 | $    | 8,700                   |        |   | $    | 6,667 |        |   | $ | 6,280 |       
|                           |                                 |      |                         |        |   |      |       |        |   |   |       |       

Note 4  Inventories

Inventories consist of the following:

|                |  |             |         |      |  |   |        | 
|--------------- |  | ----------- | ------- | ---- |  | - | ------ | 
|                |  | October 31,
|                |  |            
|In thousands    |  | 2003        |         | 2002
|                |  |             |         |     
|Raw materials   |  | $           | 10,708  |      |  | $ | 14,232 | 
|Work in process |  |             | 8,426   |      |  |   | 6,826  | 
|Finished goods  |  |             | 127,306 |      |  |   | 74,814 | 
|                |  |             |         |      |  |   |        | 
|                |  | $           | 146,440 |      |  | $ | 95,872 | 
|                |  |             |         |      |  |   |        | 

Note 5  Fixed Assets

Fixed assets consist of the following:

|                                          |  |             |         |      |  |   |         |  
|----------------------------------------- |  | ----------- | ------- | ---- |  | - | ------- | -
|                                          |  | October 31,
|                                          |  |            
|In thousands                              |  | 2003        |         | 2002
|                                          |  |             |         |     
|Furniture and equipment                   |  | $           | 116,277 |      |  | $ | 83,366  |  
|Leasehold improvements                    |  |             | 36,452  |      |  |   | 24,727  |  
|Land and buildings                        |  |             | 16,341  |      |  |   | 13,813  |  
|                                          |  |             |         |      |  |   |         |  
|                                          |  |             | 169,070 |      |  |   | 121,906 |  
|Accumulated depreciation and amortization |  |             | (69,771 | )    |  |   | (48,724 | )
|                                          |  |             |         |      |  |   |         |  
|                                          |  | $           | 99,299  |      |  | $ | 73,182  |  
|                                          |  |             |         |      |  |   |         |  

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Note 6  Intangible Assets and Goodwill

A summary of intangible assets is as follows:

|                           |  |             |        |         |  |          |        |        |  |         |        |          |  |   |        |  |  |   |      |   |  |   |        | 
|-------------------------- |  | ----------- | ------ | ------- |  | -------- | ------ | ------ |  | ------- | ------ | -------- |  | - | ------ |  |  | - | ---- | - |  | - | ------ | 
|                           |  | October 31,
|                           |  |            
|                           |  | 2003        |        | 2002   
|                           |  |             |        |        
|                           |  | Gross       |        | Amorti- |  | Net Book |        | Gross  |  | Amorti- |        | Net Book
|In thousands               |  | Amount      |        | zation  |  | Value    |        | Amount |  | zation  |        | Value   
|                           |  |             |        |         |  |          |        |        |  |         |        |         
|Amortizable trademarks     |  | $           | 2,453  |         |  | $        | (489   | )      |  | $       | 1,964  |          |  | $ | 2,002  |  |  | $ | (337 | ) |  | $ | 1,665  | 
|Amortizable licenses       |  |             | 10,105 |         |  |          | (926   | )      |  |         | 9,179  |          |  |   |       |  |  |   |     |   |  |   |       | 
|Non-amortizable trademarks |  |             | 54,434 |         |  |          |       |        |  |         | 54,434 |          |  |   | 49,469 |  |  |   |     |   |  |   | 49,469 | 
|                           |  |             |        |         |  |          |        |        |  |         |        |          |  |   |        |  |  |   |      |   |  |   |        | 
|                           |  | $           | 66,992 |         |  | $        | (1,415 | )      |  | $       | 65,577 |          |  | $ | 51,471 |  |  | $ | (337 | ) |  | $ | 51,134 | 
|                           |  |             |        |         |  |          |        |        |  |         |        |          |  |   |        |  |  |   |      |   |  |   |        | 

The change in non-amortizable trademarks is due primarily to an increase in the
deferred purchase price payment for the Quiksilver International acquisition.
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 year ended October 31, 2003 was
$1.1 million. Annual amortization expense, based on the Companys amortizable
intangible assets as of October 31, 2003, is estimated to be approximately $1.2
million in each of the fiscal years ending October 31, 2004 through 2007 and
approximately $1.1 million in the fiscal year ending October 31, 2008.

Goodwill arose primarily from the acquisitions of Quiksilver Europe, The Raisin
Company, Inc., Mervin, Freestyle SA, Beach Street and Quiksilver Asia/Pacific.
Changes to goodwill from October 31, 2001 reflect the acquisition of Beach
Street and foreign exchange fluctuations in fiscal 2002, and the acquisition of
Quiksilver Asia/Pacific and foreign exchange fluctuations in fiscal 2003.

Note 7  Lines of Credit and Long-term Debt

A summary of lines of credit and long-term debt is as follows:

|                                        |  |             |         |      |  |   |        | 
|--------------------------------------- |  | ----------- | ------- | ---- |  | - | ------ | 
|                                        |  | October 31,
|                                        |  |            
|In thousands                            |  | 2003        |         | 2002
|                                        |  |             |         |     
|European short-term credit arrangements |  | $           | 12,351  |      |  | $ | 12,110 | 
|Asia/Pacific short-term lines of credit |  |             | 8,600   |      |  |   |       | 
|Americas line of credit                 |  |             | 60,912  |      |  |   | 20,388 | 
|Americas term loans                     |  |             | 7,995   |      |  |   | 21,725 | 
|European long-term debt                 |  |             | 37,071  |      |  |   | 23,752 | 
|Asia/Pacific long-term debt             |  |             | 438     |      |  |   |       | 
|Deferred purchase price obligation      |  |             | 17,003  |      |  |   | 8,608  | 
|                                        |  |             |         |      |  |   |        | 
|                                        |  | $           | 144,370 |      |  | $ | 86,583 | 
|                                        |  |             |         |      |  |   |        | 

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 $170.0
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. However, the interest rate on a portion of the borrowings under the
facility is fixed through interest rate swaps, which were valued at a loss of
$0.3 million at October 31, 2003. The weighted average interest rate at October
31, 2003 was 3.2%. The Line of Credit can be accessed by certain of the
Companys foreign subsidiaries and includes a $75 million sublimit for letters
of credit and a $35 million sublimit for borrowings in certain foreign
currencies.

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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, 2003, 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 2004. 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 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, 2003 was a
loss of $0.8 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, 2003 was $8.0 million.

Quiksilver Europe has arrangements with banks that provide for maximum cash
borrowings of approximately $76.0 million in addition to approximately $52.0
million available for the issuance of letters of credit. At October 31, 2003,
these lines of credit bore interest at an average rate of 2.7%. The lines of
credit expire on various dates through April 2004, and the Company believes
that these lines of credit will continue to be available with substantially
similar terms. As of October 31, 2003, $12.4 million was outstanding under
these lines of credit.

Quiksilver Europe also has $37.1 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 2.9% 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 $18.0 million for cash borrowings and letters of credit. These lines of
credit will be reviewed by the banks in January 2004 and September 2004, 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, 2003 was $8.6 million at an average interest rate of 7.1%.

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 24 months ended June 30, 2002, the deferred purchase price
obligation was increased by $9.6 million, with a corresponding increase to
trademarks, and a payment of $20.7 million in fiscal 2002. As of October 31,
2003, the remaining deferred purchase price obligation totaled $17.0 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):

|           |  |   |         | 
|---------- |  | - | ------- | 
|2004       |  | $ | 8,877   | 
|2005       |  |   | 25,945  | 
|2006       |  |   | 74,864  | 
|2007       |  |   | 6,842   | 
|2008       |  |   | 4,930   | 
|Thereafter |  |   | 1,961   | 
|           |  |   |         | 
|           |  | $ | 123,419 | 
|           |  |   |         | 

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Note 8  Accrued Liabilities

Accrued liabilities consist of the following:

|                                           |  |             |        |      |  |   |        | 
|------------------------------------------ |  | ----------- | ------ | ---- |  | - | ------ | 
|                                           |  | October 31,
|                                           |  |            
|In thousands                               |  | 2003        |        | 2002
|                                           |  |             |        |     
|Accrued employee compensation and benefits |  |             | 25,010 |      |  | $ | 18,767 | 
|Accrued sales and payroll taxes            |  |             | 1,001  |      |  |   | 1,840  | 
|Derivative liability                       |  |             | 202    |      |  |   | 4,437  | 
|Other liabilities                          |  |             | 15,546 |      |  |   | 15,093 | 
|                                           |  |             |        |      |  |   |        | 
|                                           |  | $           | 41,759 |      |  | $ | 40,137 | 
|                                           |  |             |        |      |  |   |        | 

Note 9  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, 2003 (in thousands):

|           |  |   |         | 
|---------- |  | - | ------- | 
|2004       |  | $ | 29,086  | 
|2005       |  |   | 27,914  | 
|2006       |  |   | 25,918  | 
|2007       |  |   | 23,500  | 
|2008       |  |   | 20,665  | 
|Thereafter |  |   | 48,403  | 
|           |  |   |         | 
|           |  | $ | 175,486 | 
|           |  |   |         | 

Total rent expense was $24.8 million, $14.9 million and $11.1 million for the
years ended October 31, 2003, 2002 and 2001, respectively.

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, snowboarding, skateboarding,
windsurfing and golf. Many of these contracts provide incentives for magazine
exposure and competitive victories while wearing or using our products.
Accordingly, the amounts of future payments under the terms of these agreements
cannot be predicted with certainty. Such expenses are an ordinary part of our
operations and are expensed as incurred.

Litigation

In March 2002, the Company filed a lawsuit against GMT Corporation (GMT), its
then licensee for watches in the U.S., and simultaneously terminated its
license agreement with GMT based on allegations that GMT was in material breach
of the agreement. GMT disputed the Companys right to terminate and has
brought claims against the Company for wrongful termination and other alleged
breaches of the license agreement. In January 2004, this dispute was litigated
and the Company prevailed, resulting in no material impact on the Companys
financial condition or results of operations. Other legal claims against the
Company consist of matters incidental to the Companys business. In the
opinion of management, the outcome of these claims will not materially affect
the Companys consolidated financial position 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

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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  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, 11,672,418 shares are
reserved for issuance over its term, consisting of 6,472,418 shares authorized
under predecessor plans plus an additional 5,200,000 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.

Changes in shares under option are summarized as follows:

|                                                               |           |  |                         |            |       |   |          |       |       |  |           |           |          |   |      |      |  |  |           |            |   |   |      |      | 
|-------------------------------------------------------------- | --------- |  | ----------------------- | ---------- | ----- | - | -------- | ----- | ----- |  | --------- | --------- | -------- | - | ---- | ---- |  |  | --------- | ---------- | - | - | ---- | ---- | 
|                                                               |           |  | Years Ended October 31,
|                                                               |           |  |                        
|                                                               |           |  | 2003                    |            | 2002  |   | 2001    
|                                                               |           |  |                         |            |       |   |         
|                                                               |           |  |                         |            |       |   | Weighted |       |       |  |           |           | Weighted |   |      |      |  |  | Weighted 
|                                                               |           |  |                         |            |       |   | Average  |       |       |  |           |           | Average  |   |      |      |  |  | Average  
|                                                               |           |  | Shares                  |            | Price |   | Shares   |       | Price |  | Shares    |           | Price   
|                                                               |           |  |                         |            |       |   |          |       |       |  |           |           |         
|Outstanding, beginning of year                                 |           |  | 7,670,678               |            |       | $ | 6.14     |       |       |  | 7,145,364 |           |          | $ | 5.71 |      |  |  | 7,232,602 |            |   | $ | 5.01 |     
|                                                               | Granted   |  |                         | 1,418,000  |       |   |          | 13.54 |       |  |           | 1,466,000 |          |   |      | 7.30 |  |  |           | 1,284,200  |   |   |      | 8.65 | 
|                                                               | Exercised |  |                         | (1,983,701 | )     |   |          | 5.49  |       |  |           | (918,692  | )        |   |      | 4.66 |  |  |           | (1,282,000 | ) |   |      | 4.58 | 
|                                                               | Canceled  |  |                         | (62,673    | )     |   |          | 9.27  |       |  |           | (21,994   | )        |   |      | 6.28 |  |  |           | (89,438    | ) |   |      | 7.15 | 
|                                                               |           |  |                         |            |       |   |          |       |       |  |           |           |          |   |      |      |  |  |           |            |   |   |      |     
|Outstanding, end of year                                       |           |  | 7,042,304               |            |       | $ | 7.79     |       |       |  | 7,670,678 |           |          | $ | 6.14 |      |  |  | 7,145,364 |            |   | $ | 5.71 |     
|                                                               |           |  |                         |            |       |   |          |       |       |  |           |           |          |   |      |      |  |  |           |            |   |   |      |     
|Options exercisable, end of year                               |           |  | 3,960,285               |            |       | $ | 6.01     |       |       |  | 4,652,982 |           |          | $ | 5.36 |      |  |  | 4,680,484 |            |   | $ | 4.76 |     
|                                                               |           |  |                         |            |       |   |          |       |       |  |           |           |          |   |      |      |  |  |           |            |   |   |      |     
|Weighted average fair value of
options granted during the year |           |  |                         |            |       | $ | 9.78     |       |       |  |           |           |          | $ | 5.40 |      |  |  |           |            |   | $ | 5.35 |     
|                                                               |           |  |                         |            |       |   |          |       |       |  |           |           |          |   |      |      |  |  |           |            |   |   |      |     

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, 2003,
2002 and 2001 assuming risk-free interest rates of 4.3%, 3.9% and 4.9%,
respectively, volatility of 59.3%, 63.4% and 64.8%, respectively, zero dividend
yield, and expected lives of 4.8, 4.9 and 4.6 years, respectively.

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Outstanding stock options at October 31, 2003 consist of the following:

|         |                   |        |                     |           |                     |           |          |          |  |       |      |       |  |          |           |           |  |   |      |       | 
|-------- | ----------------- | ------ | ------------------- | --------- | ------------------- | --------- | -------- | -------- |  | ----- | ---- | ----- |  | -------- | --------- | --------- |  | - | ---- | ----- | 
|         |                   |        | Options Outstanding |           | Options Exercisable
|         |                   |        |                     |           |                    
|         |                   |        |                     |           |                     |           | Weighted |          |  |       |      |       |  |          |           |           |  |   |     
|Range of |                   |        |                     |           |                     | Average   |          | Weighted |  |       |      |       |  | Weighted
|Exercise |                   |        |                     |           |                     | Remaining |          | Average  |  |       |      |       |  | Average 
|Prices   |                   | Shares |                     | Life      |                     | Price     |          | Shares   |  | Price
|         |                   |        |                     |           |                     |           |          |          |  |      
|         |                   |        |                     |           |                     |           | (Years)  |          |  |       |      |       |  |          |           |           |  |   |     
|         | $  1.61 - $  3.21 |        |                     | 600,002   |                     |           |          | 1.4      |  |       | $    | 3.14  |  |          |           | 600,002   |  |   | $    | 3.14  | 
|         | $  3.21 - $  4.82 |        |                     | 829,770   |                     |           |          | 3.4      |  |       | $    | 4.10  |  |          |           | 829,770   |  |   | $    | 4.10  | 
|         | $  4.82 - $  6.42 |        |                     | 1,295,110 |                     |           |          | 4.7      |  |       | $    | 5.70  |  |          |           | 1,058,110 |  |   | $    | 5.62  | 
|         | $  6.42 - $  8.03 |        |                     | 1,953,131 |                     |           |          | 7.2      |  |       | $    | 7.17  |  |          |           | 832,276   |  |   | $    | 7.19  | 
|         | $  8.03 - $12.85  |        |                     | 936,291   |                     |           |          | 7.1      |  |       | $    | 9.32  |  |          |           | 530,127   |  |   | $    | 9.48  | 
|         | $12.85 - $14.45   |        |                     | 1,282,000 |                     |           |          | 9.1      |  |       | $    | 13.31 |  |          |           | 50,000    |  |   | $    | 13.28 | 
|         | $14.45 - $16.06   |        |                     | 146,000   |                     |           |          | 9.4      |  |       | $    | 15.47 |  |          |           | 60,000    |  |   | $    | 15.70 | 
|         |                   |        |                     |           |                     |           |          |          |  |       |      |       |  |          |           |           |  |   |      |      
|         |                   |        | 7,042,304           |           |                     |           | 6.2      |          |  | $     | 7.79 |       |  |          | 3,960,285 |           |  | $ | 6.01 |      
|         |                   |        |                     |           |                     |           |          |          |  |       |      |       |  |          |           |           |  |   |      |      

As of October 31, 2003, there were 1,577,565 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 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, 2003, 2002 and 2001, 50,666, 64,852 and 30,494 shares of stock were
issued under the plan with proceeds to the Company of $0.6 million, $0.5
million and $0.2 million, respectively.

Note 11  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                                     |  | 2003        |        | 2002
|                                                 |  |             |        |     
|Foreign currency translation adjustment          |  | $           | 23,870 |      |  | $ | (2,929 | )
|Loss on cash flow hedges and interest rate swaps |  |             | (4,018 | )    |  |   | (3,474 | )
|                                                 |  |             |        |      |  |   |        |  
|                                                 |  | $           | 19,852 |      |  | $ | (6,403 | )
|                                                 |  |             |        |      |  |   |        |  

Note 12  Licensing

Since acquiring Quiksilver International Pty Ltd, an Australian company, in
July 2000 (See Note 2  Acquisitions), the Company owns all international
rights to use the Quiksilvertrademark. 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 Quiksilvertrademark 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

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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
terminates in fiscal 2004. The Company also licensed the use of the Quiksilver
and 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. See Note 2  Acquisitions. 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 Quiksilvertrademark in
various countries and territories around the world. The licensees are
headquartered in Australia, Japan, Turkey, South Africa, Brazil, Indonesia,
Korea, Argentina, Chile and Mauritius. These licensees pay the Company
royalties ranging from 3% to 5% of the licensees sales. The licensees
headquartered in Australia and Japan were acquired during fiscal 2003. See
Note 2  Acquisitions.

Note 13  Income Taxes

A summary of the provision for income taxes is as follows:

|                           |         |      |                         |        |   |      |        |        |   |   |        |        |  
|-------------------------- | ------- | ---- | ----------------------- | ------ | - | ---- | ------ | ------ | - | - | ------ | ------ | -
|                           |         |      | Years Ended October 31,
|                           |         |      |                        
|In thousands               |         | 2003 |                         | 2002   |   | 2001
|                           |         |      |                         |        |   |     
|Current:                   |         |      |                         |        |   |      |        |        |   |   |        |       
|                           | Federal |      | $                       | 7,240  |   |      | $      | 10,874 |   |   | $      | 8,038  |  
|                           | State   |      |                         | 2,729  |   |      |        | 2,545  |   |   |        | 2,023  |  
|                           | Foreign |      |                         | 24,506 |   |      |        | 13,014 |   |   |        | 10,694 |  
|                           |         |      |                         |        |   |      |        |        |   |   |        |       
|                           |         |      | 34,475                  |        |   |      | 26,433 |        |   |   | 20,755 |       
|                           |         |      |                         |        |   |      |        |        |   |   |        |       
|Deferred:                  |         |      |                         |        |   |      |        |        |   |   |        |       
|                           | Federal |      |                         | 1,956  |   |      |        | (2,435 | ) |   |        | (2,506 | )
|                           | State   |      |                         | (56    | ) |      |        | (530   | ) |   |        | (640   | )
|                           | Foreign |      |                         | (4,824 | ) |      |        | (1,073 | ) |   |        | (218   | )
|                           |         |      |                         |        |   |      |        |        |   |   |        |       
|                           |         |      | (2,924                  | )      |   |      | (4,038 | )      |   |   | (3,364 | )     
|                           |         |      |                         |        |   |      |        |        |   |   |        |       
|Provision for income taxes |         | $    | 31,551                  |        |   | $    | 22,395 |        |   | $ | 17,391 |       
|                           |         |      |                         |        |   |      |        |        |   |   |        |       

A reconciliation of the effective income tax rate to a computed expected
statutory federal income tax rate is as follows:

|                                                      |  |                         |      |      |  |      |      |   |  |  |      |  
|----------------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                      |  | Years Ended October 31,
|                                                      |  |                        
|                                                      |  | 2003                    |      | 2002 |  | 2001
|                                                      |  |                         |      |      |  |     
|Computed expected statutory federal income
tax rate |  |                         | 35.0 | %    |  |      | 35.0 | % |  |  | 35.0 | %
|State income taxes, net of federal income
tax benefit |  |                         | 3.6  |      |  |      | 2.2  |   |  |  | 2.0  |  
|Foreign tax effect                                    |  |                         | (1.0 | )    |  |      | 0.2  |   |  |  | 1.9  |  
|Foreign tax credit                                    |  |                         | (2.9 | )    |  |      | (0.1 | ) |  |  | (0.6 | )
|Other                                                 |  |                         | 0.3  |      |  |      |     |   |  |  |     |  
|                                                      |  |                         |      |      |  |      |      |   |  |  |      |  
|Effective income tax rate                             |  |                         | 35.0 | %    |  |      | 37.3 | % |  |  | 38.3 | %
|                                                      |  |                         |      |      |  |      |      |   |  |  |      |  

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The components of net deferred income taxes are as follows:

|                                 |                                  |      |             |        |   |   |        |        |  
|-------------------------------- | -------------------------------- | ---- | ----------- | ------ | - | - | ------ | ------ | -
|                                 |                                  |      | October 31,
|                                 |                                  |      |            
|In thousands                     |                                  | 2003 |             | 2002  
|                                 |                                  |      |             |       
|Deferred income tax assets:      |                                  |      |             |        |   |   |        |       
|                                 | Allowance for doubtful accounts  |      | $           | 6,297  |   |   | $      | 5,718  |  
|                                 | Trademark amortization           |      |             |       |   |   |        | 993    |  
|                                 | Other comprehensive income       |      |             | 2,467  |   |   |        | 2,090  |  
|                                 | Nondeductible accruals and other |      |             | 14,641 |   |   |        | 9,124  |  
|                                 |                                  |      |             |        |   |   |        |       
|                                 |                                  |      | 23,405      |        |   |   | 17,925 |       
|                                 |                                  |      |             |        |   |   |        |       
|Deferred income tax liabilities: |                                  |      |             |        |   |   |        |       
|                                 | Goodwill amortization            |      |             | (1,091 | ) |   |        | (903   | )
|                                 | Depreciation                     |      |             | (740   | ) |   |        | (1,106 | )
|                                 | Other                            |      |             | (2,118 | ) |   |        | (435   | )
|                                 |                                  |      |             |        |   |   |        |       
|                                 |                                  |      | (3,949      | )      |   |   | (2,444 | )     
|                                 |                                  |      |             |        |   |   |        |       
|Net deferred income taxes        |                                  | $    | 19,456      |        |   | $ | 15,481 |       
|                                 |                                  |      |             |        |   |   |        |       

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 $55.2 million, $34.0 million
and $23.6 million from foreign jurisdictions for the years ended October 31,
2003, 2002 and 2001, respectively. The Company does not provide for the U.S.
federal, state or additional foreign income tax effects on foreign earnings
that management intends to permanently reinvest. For the fiscal year ended
October 31, 2003, foreign earnings earmarked for permanent reinvestment totaled
approximately $126.0 million.

Note 14  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 $0.5
million, $0.4 million and $0.4 million to the 401(k) Plan for the years ended
October 31, 2003, 2002 and 2001, 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 $2.0 million, $1.6 million and $1.0 million was
recognized related to the French Profit Sharing Plan for the fiscal years ended
October 31, 2003, 2002 and 2001, respectively.

Note 15  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 has revised its geographic segments
to include Asia/Pacific and corporate operations. Costs that support all three
geographic segments, including trademark protection and maintenance, licensing
functions and related royalty income are part of
corporate operations. Prior period segment disclosures have been revised to
conform to this new segment presentation. No single customer accounts for more
than 10% of the Companys revenues.

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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 Revenues
|                                                      |  |                       
|                                                      |  | 2003                   |     | 2002 |  | 2001
|                                                      |  |                        |     |      |  |     
|T-Shirts                                              |  |                        | 20  | %    |  |      | 20  | % |  |  | 20  | %
|Accessories                                           |  |                        | 14  |      |  |      | 12  |   |  |  | 12  |  
|Jackets, sweaters and snowboardwear                   |  |                        | 12  |      |  |      | 12  |   |  |  | 12  |  
|Pants                                                 |  |                        | 11  |      |  |      | 11  |   |  |  | 11  |  
|Shirts                                                |  |                        | 10  |      |  |      | 11  |   |  |  | 12  |  
|Swimwear, excluding boardshorts                       |  |                        | 8   |      |  |      | 9   |   |  |  | 9   |  
|Fleece                                                |  |                        | 6   |      |  |      | 7   |   |  |  | 6   |  
|Shorts                                                |  |                        | 6   |      |  |      | 6   |   |  |  | 6   |  
|Footwear                                              |  |                        | 5   |      |  |      | 4   |   |  |  | 3   |  
|Boardshorts                                           |  |                        | 4   |      |  |      | 3   |   |  |  | 4   |  
|Tops and dresses                                      |  |                        | 3   |      |  |      | 3   |   |  |  | 3   |  
|Snowboards, snowboard boots, bindings and accessories |  |                        | 1   |      |  |      | 2   |   |  |  | 2   |  
|                                                      |  |                        |     |      |  |      |     |   |  |  |     |  
|                                                      |  |                        | 100 | %    |  |      | 100 | % |  |  | 100 | %
|                                                      |  |                        |     |      |  |      |     |   |  |  |     |  

Information related to the Companys geographical segments is as follows:

|                     |                        |              |   |                         |         |      |   |         |         |  |   |         |         | 
|-------------------- | ---------------------- | ------------ | - | ----------------------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                     |                        |              |   | Years Ended October 31,
|                     |                        |              |   |                        
|In thousands         |                        | 2003         |   | 2002                    |         | 2001
|                     |                        |              |   |                         |         |     
|Revenues:            |                        |              |   |                         |         |      |   |         |         |  |   |        
|                     | Americas               |              | $ | 492,442                 |         |      | $ | 418,008 |         |  | $ | 391,575 |        
|                     | Europe                 |              |   | 386,226                 |         |      |   | 282,684 |         |  |   | 223,877 |        
|                     | Asia/Pacific           |              |   | 94,187                  |         |      |   |        |         |  |   |        |        
|                     | Corporate Operations   |              |   | 2,150                   |         |      |   | 4,792   |         |  |   | 5,169   |        
|                     |                        |              |   |                         |         |      |   |         |         |  |   |        
|                     |                        | Consolidated |   | $                       | 975,005 |      |   | $       | 705,484 |  |   | $       | 620,621 | 
|                     |                        |              |   |                         |         |      |   |         |         |  |   |        
|Gross profit:        |                        |              |   |                         |         |      |   |         |         |  |   |        
|                     | Americas               |              | $ | 197,434                 |         |      | $ | 153,561 |         |  | $ | 136,072 |        
|                     | Europe                 |              |   | 189,462                 |         |      |   | 127,976 |         |  |   | 96,618  |        
|                     | Asia/Pacific           |              |   | 44,206                  |         |      |   |        |         |  |   |        |        
|                     | Corporation Operations |              |   | 2,150                   |         |      |   | 4,792   |         |  |   | 5,169   |        
|                     |                        |              |   |                         |         |      |   |         |         |  |   |        
|                     |                        | Consolidated |   | $                       | 433,252 |      |   | $       | 286,329 |  |   | $       | 237,859 | 
|                     |                        |              |   |                         |         |      |   |         |         |  |   |        
|Operating income:    |                        |              |   |                         |         |      |   |         |         |  |   |        
|                     | Americas               |              | $ | 45,734                  |         |      | $ | 35,377  |         |  | $ | 27,601  |        
|                     | Europe                 |              |   | 61,941                  |         |      |   | 41,327  |         |  |   | 31,767  |        
|                     | Asia/Pacific           |              |   | 12,168                  |         |      |   |        |         |  |   |        |        
|                     | Corporate Operations   |              |   | (18,778                 | )       |      |   | (7,000  | )       |  |   | (2,729  | )      
|                     |                        |              |   |                         |         |      |   |         |         |  |   |        
|                     |                        | Consolidated |   | $                       | 101,065 |      |   | $       | 69,704  |  |   | $       | 56,639  | 
|                     |                        |              |   |                         |         |      |   |         |         |  |   |        
|Identifiable assets: |                        |              |   |                         |         |      |   |         |         |  |   |        
|                     | Americas               |              | $ | 300,464                 |         |      | $ | 226,715 |         |  | $ | 231,741 |        
|                     | Europe                 |              |   | 299,977                 |         |      |   | 204,759 |         |  |   | 172,517 |        
|                     | Asia/Pacific           |              |   | 95,835                  |         |      |   |        |         |  |   |        |        
|                     | Corporate Operations   |              |   | 11,694                  |         |      |   | 19,115  |         |  |   | 14,480  |        
|                     |                        |              |   |                         |         |      |   |         |         |  |   |        
|                     |                        | Consolidated |   | $                       | 707,970 |      |   | $       | 450,589 |  |   | $       | 418,738 | 
|                     |                        |              |   |                         |         |      |   |         |         |  |   |        

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|             |              |              |   |                         |        |      |   |        |        |  |   |        |        | 
|------------ | ------------ | ------------ | - | ----------------------- | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|             |              |              |   | Years Ended October 31,
|             |              |              |   |                        
|In thousands |              | 2003         |   | 2002                    |        | 2001
|             |              |              |   |                         |        |     
|Goodwill:    |              |              |   |                         |        |      |   |        |        |  |   |       
|             | Americas     |              | $ | 50,670                  |        |      | $ | 15,686 |        |  | $ | 7,572  |       
|             | Europe       |              |   | 41,592                  |        |      |   | 11,292 |        |  |   | 11,357 |       
|             | Asia/Pacific |              |   | 6,571                   |        |      |   |       |        |  |   |       |       
|             |              |              |   |                         |        |      |   |        |        |  |   |       
|             |              | Consolidated |   | $                       | 98,833 |      |   | $      | 26,978 |  |   | $      | 18,929 | 
|             |              |              |   |                         |        |      |   |        |        |  |   |       

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
United States eyewear licensee, its European licensee for eyewear and wetsuits
and its licensees in Australia and Japan, as described in Note 2 to the
financial statements. Goodwill increased in the Americas during the fiscal
year ended October 31, 2002 as a result of the Companys acquisition of Beach
Street, Inc., as described in Note 2 to the financial statements. Goodwill
related to the acquisition of Quiksilver Asia/Pacific and the trademark value
related to the acquisition of Quiksilver International have been allocated to
each respective geographic segment based on where the benefits from these
intangible asset are estimated to be realized.

France accounted for 39.6%, 41.1% and 45.9% of European net sales to
unaffiliated customers for the years ended October 31, 2003, 2002 and 2001,
respectively, while the United Kingdom accounted for 21.5%, 20.6% and 18.0%,
respectively, and Spain accounted for 16.5%, 15.2% and 14.3%, respectively.

Note 16  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.

For all qualifying cash flow hedges, the changes in the fair value of the
derivatives are recorded in other comprehensive income. Other derivatives,
which 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. As of October 31, 2003,
the Company was hedging forecasted foreign currency transactions expected to
occur in the following fourteen months. Assuming exchange rates at October 31,
2003 remain constant, $1.6 million of losses related to hedges of these
transactions are expected to be reclassified into earnings over the next
fourteen months. Also included in accumulated other comprehensive income at
October 31, 2003 is a $2.0 million net charge related to cash flow hedges of
the Companys long-term debt, which is denominated in Australian dollars and
matures through fiscal 2005, and a $0.4 million net charge from interest rate
swaps, which are 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 prospectively (i) if it is determined that the derivative is
no longer effective in offsetting changes in the cash

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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, 2003, the Company reclassified into
earnings a net loss of $5.4 million resulting from the expiration, sale,
termination, or exercise of derivative contracts. Additionally, a loss of $0.8
million was recognized in earnings during the fiscal year ended October 31,
2003 for changes in the value of derivatives that were marked to fair value.

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, 2003 is as follows:

|                   |  |          |         |          |  |                     |  |      |        |   |      |  
|------------------ |  | -------- | ------- | -------- |  | ------------------- |  | ---- | ------ | - | ---- | -
|                   |  | Notional |         |          |  |                     |  | Fair
|In thousands       |  | Amount   |         | Maturity |  | Value              
|                   |  |          |         |          |  |                    
|U.S. dollars       |  | $        | 55,004  |          |  | Nov 2003 - Dec 2004 |  | $    | (2,359 | )
|Australian dollars |  |          | 15,821  |          |  | Sept 2005           |  |      | 2,425  |  
|New Zealand Dollar |  |          | 1,122   |          |  | Dec 2003            |  |      | (27    | )
|Euro               |  |          | 40      |          |  | Nov 2003 - Dec 2004 |  |      | 3      |  
|Interest rate swap |  |          | 20,000  |          |  | Nov 2003            |  |      | (88    | )
|Interest rate swap |  |          | 6,250   |          |  | Oct 2004            |  |      | (163   | )
|Interest rate swap |  |          | 7,688   |          |  | Jan 2007            |  |      | (768   | )
|                   |  |          |         |          |  |                     |  |      |        |   |      |  
|                   |  | $        | 105,925 |          |  |                     |  |      |        | $ | (977 | )
|                   |  |          |         |          |  |                     |  |      |        |   |      |  

Note 17  Quarterly Financial Data (Unaudited)

A summary of quarterly financial data (unaudited) is as follows:

|                            |                                         |            |         |          |         |         |         |            |         |  |   |         |  |  |   |         | 
|--------------------------- | --------------------------------------- | ---------- | ------- | -------- | ------- | ------- | ------- | ---------- | ------- |  | - | ------- |  |  | - | ------- | 
|                            |                                         |            | Quarter |          | Quarter |         | Quarter |            | Quarter
|In thousands,               |                                         | Ended      |         | Ended    |         | Ended   |         | Ended     
|except per share amounts    |                                         | January 31 |         | April 30 |         | July 31 |         | October 31
|                            |                                         |            |         |          |         |         |         |           
|Year ended October 31, 2003 |                                         |            |         |          |         |         |         |            |         |  |   |         |  |  |   |        
|                            | Revenues                                |            | $       | 192,080  |         |         | $       | 262,210    |         |  | $ | 251,498 |  |  | $ | 269,217 | 
|                            | Gross profit                            |            |         | 81,508   |         |         |         | 118,583    |         |  |   | 107,129 |  |  |   | 126,032 | 
|                            | Net income                              |            |         | 6,568    |         |         |         | 22,630     |         |  |   | 11,918  |  |  |   | 17,400  | 
|                            | Net income per share,
assuming dilution |            |         | 0.12     |         |         |         | 0.40       |         |  |   | 0.21    |  |  |   | 0.30    | 
|                            | Trade accounts receivable               |            |         | 173,511  |         |         |         | 227,028    |         |  |   | 217,924 |  |  |   | 224,418 | 
|                            | Inventories                             |            |         | 144,237  |         |         |         | 120,775    |         |  |   | 159,493 |  |  |   | 146,440 | 
|Year ended October 31, 2002 |                                         |            |         |          |         |         |         |            |         |  |   |         |  |  |   |        
|                            | Revenues                                |            | $       | 146,959  |         |         | $       | 187,423    |         |  | $ | 175,044 |  |  | $ | 196,058 | 
|                            | Gross profit                            |            |         | 54,780   |         |         |         | 75,739     |         |  |   | 70,353  |  |  |   | 85,457  | 
|                            | Net income                              |            |         | 3,086    |         |         |         | 13,463     |         |  |   | 8,845   |  |  |   | 12,197  | 
|                            | Net income per share,
assuming dilution |            |         | 0.06     |         |         |         | 0.28       |         |  |   | 0.18    |  |  |   | 0.25    | 
|                            | Trade accounts receivable               |            |         | 145,021  |         |         |         | 171,669    |         |  |   | 165,675 |  |  |   | 168,237 | 
|                            | Inventories                             |            |         | 116,364  |         |         |         | 76,313     |         |  |   | 93,316  |  |  |   | 95,872  | 

53



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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 27, 2004

QUIKSILVER, INC.
(Registrant)

|    |  |                             |  |     |  |                        
|--- |  | --------------------------- |  | --- |  | -----------------------
|By: |  | /s/ Robert B. McKnight, Jr. |  | By: |  | /s/ Steven L. Brink    
|    |  |                             |  |     |  |                        
|    |  | Robert B. McKnight, Jr.     |  |     |  | Steven L. Brink        
|    |  | Chairman of the Board and   |  |     |  | Chief Financial Officer
|    |  | Chief 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. |  | Chairman of the Board and                    |  | January 27, 2004
|                            |  | Chief Executive Officer                      |  |                 
|Robert B. McKnight, Jr.     |  | (Principal Executive Officer)                |  |                 
|                            |  |                                              |  |                 
|/s/ Steven L. Brink         |  | Chief Financial Officer                      |  | January 27, 2004
|                            |  | and Treasurer                                |  |                 
|Steven L. Brink             |  | (Principal Financial and
Accounting Officer) |  |                 
|                            |  |                                              |  |                 
|/s/ William M. Barnum, Jr.  |  | Director                                     |  | January 27, 2004
|                            |  |                                              |  |                 
|William M. Barnum, Jr.      |  |                                              |  |                 
|                            |  |                                              |  |                 
|/s/ Charles E. Crowe        |  | Director                                     |  | January 27, 2004
|                            |  |                                              |  |                 
|Charles E. Crowe            |  |                                              |  |                 
|                            |  |                                              |  |                 
|/s/ Michael H. Gray         |  | Director                                     |  | January 27, 2004
|                            |  |                                              |  |                 
|Michael H. Gray             |  |                                              |  |                 
|                            |  |                                              |  |                 
|/s/ Harry Hodge             |  | Director                                     |  | January 27, 2004
|                            |  |                                              |  |                 
|Harry Hodge                 |  |                                              |  |                 
|                            |  |                                              |  |                 
|/s/ Robert G. Kirby         |  | Director                                     |  | January 27, 2004
|                            |  |                                              |  |                 
|Robert G. Kirby             |  |                                              |  |                 
|                            |  |                                              |  |                 
|/s/ Bernard Mariette        |  | Director                                     |  | January 27, 2004
|                            |  |                                              |  |                 
|Bernard Mariette            |  |                                              |  |                 
|                            |  |                                              |  |                 
|/s/ Franck Riboud           |  | Director                                     |  | January 27, 2004
|                            |  |                                              |  |                 
|Franck Riboud               |  |                                              |  |                 
|                            |  |                                              |  |                 
|/s/ Tom Roach               |  | Director                                     |  | January 27, 2004
|                            |  |                                              |  |                 
|Tom Roach                   |  |                                              |  |                 

54



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EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                          
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                          
|Number  |  | Description                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                          
|3.1     |  | Certificate of Incorporation as presently in effect
(incorporated to the Registrants Quarterly Report on Form 10-Q
for the three months ended April 30, 2003).                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                          
|3.2     |  | Bylaws as presently in effect.                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                          
|10.1    |  | Revolving Credit and Term Loan Agreement dated as of October 6,
2000 (incorporated by reference from the Companys Annual Report
on Form 10-K for the fiscal year ended October 31, 2000).                                                                                               
|        |  |                                                                                                                                                                                                                                                                                          
|10.2    |  | First Amendment to Revolving Credit and Term Loan Agreement
dated October 9, 2001 (Incorporated by reference from the
Companys Annual Report on Form 10-K for the fiscal year ended
October 31, 2001).                                                                                  
|        |  |                                                                                                                                                                                                                                                                                          
|10.3    |  | Second Amendment to Revolving Credit and Term Loan Agreement and
Consent thereunder dated June 28, 2002 (incorporated by reference
from the Companys Quarterly Report on Form 10-Q for the three
months ended July 31, 2002).                                                           
|        |  |                                                                                                                                                                                                                                                                                          
|10.4    |  | Term Loan Agreement dated as of April 25, 2000 (incorporated by
reference to Exhibit 10.2 of the Registrants Quarterly Report on
Form 10-Q for the three months ended April 30, 2000).                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                          
|10.5    |  | Second Amendment to term Loan Agreement dated October 12, 2000
(incorporated by reference from the Companys Annual Report on
Form 10-K for the fiscal year ended October 31, 2000).                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                          
|10.6    |  | JP Morgan Credit Agreement dated June 27, 2003 (incorporated by
reference from the Companys Quarterly Report on Form 10-Q for
the three months ended July 31, 2003).                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                          
|10.7    |  | 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 from the
Companys report on Form 8-K dated July 27, 2000).
|        |  |                                                                                                                                                                                                                                                                                          
|10.8    |  | Minority Shareholder Purchase Agreement, dated July 27, 2000, by
and among Quiksilver, Inc., Quiksilver Australia Pty Ltd and
Shareholders of Quiksilver International Pty Ltd. (incorporated
by reference from the Companys report on Form 8-K dated July 27,
2000).                   
|        |  |                                                                                                                                                                                                                                                                                          
|10.9    |  | Form of Indemnity Agreement between the Registrant and
individual Directors and officers of the Registrant
(incorporated by reference to Exhibit 10.5 of the Registrants
Annual Report on Form 10-K for the fiscal year ended October 31,
1996). (1)                                    
|        |  |                                                                                                                                                                                                                                                                                          
|10.10   |  | Quiksilver, Inc. Stock Option Plan dated March 24, 1995
(incorporated by reference to Exhibit 10.1 of the Registrants
Quarterly Report on Form 10-Q for the quarter ended April 30,
1995). (1)                                                                                          
|        |  |                                                                                                                                                                                                                                                                                          
|10.11   |  | Quiksilver, Inc. 1995 Nonemployee Directors Stock Option Plan
dated March 24, 1995 (incorporated by reference to Exhibit 10.2
of the Registrants Quarterly Report on Form 10-Q for the three
months ended April 30, 1996). (1)                                                         
|        |  |                                                                                                                                                                                                                                                                                          
|10.12   |  | Quiksilver, Inc. 1996 Stock Option Plan dated January 26, 1996
(incorporated by reference to Exhibit 10.1 of the Registrants
Quarterly Report on Form 10-Q for the three months ended April
30, 1996. (1)                                                                               
|        |  |                                                                                                                                                                                                                                                                                          
|10.13   |  | Quiksilver, Inc. 2000 Stock Incentive Plan (incorporated by
reference from the Companys Annual Report on Form 10-K for the
fiscal year ended October 31, 2000).                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                          
|10.14   |  | Employment Agreement between Robert B. McKnight, Jr. and
Registrant dated 2002 (incorporated by reference to Exhibit 10.13
of the Registrants Annual Report on Form 10-K for the year ended
October 31, 2002). (1)                                                                      





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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                                                                   
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                   
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                   
|10.15   |  | Services Agreement between Harry Hodge and Registrant dated
April 1, 1996 (incorporated by reference to Exhibit 10.11 of the
Registrants Annual Report on Form 10-K for the fiscal year ended
October 31, 1996). (1)                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                   
|10.16   |  | Employment Agreement between Steven L. Brink and Registrant
dated October 24, 1996 (incorporated by reference to Exhibit 10.12 of
the Registrants Annual Report on Form 10-K for the fiscal year ended
October 31, 1996). (1)                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                   
|10.17   |  | Services Agreement between Bernard Mariette and Registrant
dated November 1, 1998 (incorporated by reference from the
Companys Annual Report on Form 10-K for the fiscal year ended
October 31, 2000).                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                   
|10.18   |  | Employment Agreement between Charles Exon and Registrant dated
August 1, 2000 (incorporated by reference from the Companys
Annual Report on Form 10-K for the fiscal year ended October 31,
2001).                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                   
|10.19   |  | 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 from the
Companys report on Form 8-K dated January 2, 2003).
|        |  |                                                                                                                                                                                                                                                                                                                                                                   
|10.20   |  | 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 Registrants
Annual Report on Form 10-K for the year ended October 31, 2002).                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                   
|21.1    |  | Names and Jurisdictions of Subsidiaries.                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                   
|23.1    |  | Independent Auditors Consent.                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                   
|31.1    |  | Rule 13a-14(a)/15d-14(a) Certifications  Principal Executive Officer                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                   
|31.2    |  | Rule 13a-14(a)/15d-14(a) Certifications  Principal Financial Officer                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                   
|32.1    |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
to Section 906 of The Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                   
|32.2    |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
to Section 906 of The Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                            

(1) Management contract or compensatory plan.