##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington D.C. 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended October 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number 1-14229
 QUIKSILVER, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    33-0199426(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 15202 Graham Street
Huntington Beach, California
92649
 (714) 889-2200
  Title of
    
    Name of each exchangeeach class
    
    on which registeredCommon Stock
    
    New York Stock Exchange
 None
 Yes þ No o
 Yes o No þ
 Yes þ No o
 þ
  Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filer o
 Yes o No þ
   DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



TABLE OF CONTENTS
 PagePART IItem 1.
    
    BUSINESSIntroduction
    
    
    1Segment Information
    
    
    2Products and Brands
    
    
    2Product Categories
    
    
    3Product Design
    
    
    4Promotion and Advertising
    
    
    4Customers and Sales
    
    
    5Retail Concepts
    
    
    6Seasonality
    
    
    7Production and Raw Materials
    
    
    7Imports and Import Restrictions
    
    
    8Trademarks, Licensing Agreements and Patents
    
    
    8Competition
    
    
    9Future Season Orders
    
    
    10Employees
    
    
    10Environmental Matters
    
    
    10Available Information
    
    
    10Forward-Looking Statements
    
    
    11Item 1A.
    
    RISK FACTORS
    
    
    11Item 1B.
    
    UNRESOLVED STAFF COMMENTS
    
    
    19Item 2.
    
    PROPERTIES
    
    
    19Item 3.
    
    LEGAL PROCEEDINGS
    
    
    20Item 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    20PART IIItem 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    21Item 6.
    
    SELECTED FINANCIAL DATA
    
    
    21Item 7.
    
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    23Item 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    37Item 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    38Item 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    38Item 9A.
    
    CONTROLS AND PROCEDURES
    
    
    38Item 9B.
    
    OTHER INFORMATION
    
    
    42PART IIIItem 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    43Item 11.
    
    EXECUTIVE COMPENSATION
    
    
    43Item 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    43Item 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    43Item 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    43PART IVItem 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    44INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    45SIGNATURES
    
    
    94




---



##### 



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




---



##### 



Segment Information
  Products and Brands
 Quiksilver Roxy DCs Rossignol,
Dynastar, Look, Lange Kerma
 Quiksilver
 Quiksilver Quiksilver Quiksilveredition Quiksilver
 Roxy
 Roxy Teenie Wahine Roxy Girl Roxy Roxy
 Rossignol and Other Wintersports Brands
 Rossignol Rossignol
  
    
    DynastarDynastarsymbolizes technically
specific skis for committed skiers to use in
all the different experiences of alpine sports.
Dynastarhas a heritage of racing and
performance.
 
    
    LangeLangeis a ski boot brand, combining its
race boot prowess with a commitment to building
better, more comfortable boots for dedicated
skiers of every type.
 
    
    LookLookbindings have a winning history in
alpine ski racing. The focus of the Lookbrand
is the production of high quality, innovative
release bindings that perform at the highest
level.
 
    
    KermaWe produce poles that complement our ski
products from both a technical and aesthetic
viewpoint under the Kermabrand.
 
    
    Lib Technologies, Gnu, Bent MetalWe address
the core snowboard market through our Lib
Technologiesand Gnubrands of snowboards and
accessories and Bent Metalsnowboard bindings.
 2




---



##### 



DC
 DC DCs DC
 Cleveland Golf
 Cleveland
Golf HiBORE CG Never
Compromise
 Other Apparel Brands
  
    
    Raisins, Radio Fiji, LeilaniRaisinsand Radio Fijiare swimwear labels for the
juniors market, while Leilaniis our contemporary swimwear label.
 
    
    HawkTony Hawk, the world-famous skateboarder, is the inspiration for our Hawk
brand. Our Hawkbrand targets boys and young men who identify with the
skateboarding lifestyle and recognize Tony Hawk from his broad media and video game
exposure.
 
    
    GotchaGotchais one of our European labels and is designed to address European
street fashion for young men.
 Product Categories
  Percentage of Revenues2006(1)
    
    2005(1)
    
    2004Wintersports equipment
    
    
    18
    %
    
    
    9
    %
    
    
    2
    %T-Shirts
    
    
    13
    
    
    
    18
    
    
    
    19Accessories
    
    
    11
    
    
    
    12
    
    
    
    14Jackets, sweaters and technical outerwear
    
    
    11
    
    
    
    11
    
    
    
    12Footwear
    
    
    11
    
    
    
    11
    
    
    
    9Golf equipment
    
    
    7
    
    
    
    2
    
    
    
    Pants
    
    
    6
    
    
    
    8
    
    
    
    10Shirts
    
    
    6
    
    
    
    7
    
    
    
    9Swimwear, excluding boardshorts
    
    
    4
    
    
    
    6
    
    
    
    7Fleece
    
    
    4
    
    
    
    4
    
    
    
    5Shorts
    
    
    3
    
    
    
    4
    
    
    
    5Boardshorts
    
    
    3
    
    
    
    4
    
    
    
    4Tops and dresses
    
    
    3
    
    
    
    4
    
    
    
    4100
    %
    
    
    100
    %
    
    
    100
    %
 
 (1)
    
    These percentages were significantly impacted by our acquisition of Rossignol in
July 2005.   3




---



##### 



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




---



##### 



Surfer Surfing Snowboard Canada Transworld
Skateboarding Golf Digest, Powder, Skieur Freeride
 Customers and Sales
  Boardriders Clubs
  Quiksilver Roxy Roxy Quiksilver DC Raisins Leilani Radio Fiji Rossignol Dynastar Look Lange Kerma Lib Technologies, Bent Metal Gnu Cleveland Golf Never Compromise Quiksilver Roxy
   Percentage of RevenuesDistribution Channel
    
    Americas
    
    Europe
    
    Asia/Pacific
    
    ConsolidatedCore market shops
    
    
    28
    %
    
    
    35
    %
    
    
    66
    %
    
    
    35
    %Specialty stores
    
    
    46
    
    
    
    41
    
    
    
    25
    
    
    
    42Department stores
    
    
    14
    
    
    
    3
    
    
    
    9
    
    
    
    9U.S. exports
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    5Distributors
    
    
    2
    
    
    
    21
    
    
    
    
    
    
    
    9Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Geographic segment
    
    
    46
    %
    
    
    43
    %
    
    
    11
    %
    
    
    100
    %
 5




---



##### 



Percentage of RevenuesGeographic Region
    
    2006
    
    2005
    
    2004United States
    
    
    39
    %
    
    
    42
    %
    
    
    44
    %Other Americas
    
    
    7
    
    
    
    6
    
    
    
    5France
    
    
    14
    
    
    
    15
    
    
    
    15United Kingdom and Spain
    
    
    11
    
    
    
    12
    
    
    
    14Other European countries
    
    
    18
    
    
    
    13
    
    
    
    10Asia/Pacific
    
    
    11
    
    
    
    12
    
    
    
    12Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
   Retail Concepts
 Quiksilver Boardriders Clubs Quiksilver Roxy Roxy Quiksilver Youth Gotcha Andaska Rossignol Quiksilver Roxy
 Boardriders Clubs.
 6




---



##### 



Number of StoresAmericas
    
    Europe
    
    Asia/Pacific
    
    CombinedCompany
    
    
    
    
    
    Company
    
    
    
    
    
    Company
    
    
    
    
    
    CompanyStore Concept
    
    Owned
    
    Licensed
    
    Owned
    
    Licensed
    
    Owned
    
    Licensed
    
    Owned
    
    LicensedBoardriders
Clubs
    
    
    31
    
    
    
    15
    
    
    
    52
    
    
    
    155
    
    
    
    25
    
    
    
    19
    
    
    
    108
    
    
    
    189Shop-in-shops
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    57
    
    
    
    Roxystores
    
    
    3
    
    
    
    1
    
    
    
    7
    
    
    
    10
    
    
    
    10
    
    
    
    4
    
    
    
    20
    
    
    
    15Outlet stores
    
    
    39
    
    
    
    
    
    
    
    22
    
    
    
    1
    
    
    
    19
    
    
    
    2
    
    
    
    80
    
    
    
    3Other stores
    
    
    4
    
    
    
    2
    
    
    
    7
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    477
    
    
    
    18
    
    
    
    132
    
    
    
    168
    
    
    
    67
    
    
    
    25
    
    
    
    276
    
    
    
    211
 Seasonality
  Consolidated RevenuesDollar amounts in thousands
    
    2006
    
    2005
    
    2004Quarter ended January 31
    
    $
    541,142
    
    
    
    23
    %
    
    $
    342,860
    
    
    
    19
    %
    
    $
    256,142
    
    
    
    20
    %Quarter ended April 30
    
    
    516,928
    
    
    
    22
    
    
    
    426,853
    
    
    
    24
    
    
    
    322,579
    
    
    
    25Quarter ended July 31
    
    
    525,854
    
    
    
    22
    
    
    
    373,751
    
    
    
    21
    
    
    
    337,930
    
    
    
    27Quarter ended October 31
    
    
    778,364
    
    
    
    33
    
    
    
    637,405
    
    
    
    36
    
    
    
    350,288
    
    
    
    28$
    2,362,288
    
    
    
    100
    %
    
    $
    1,780,869
    
    
    
    100
    %
    
    $
    1,266,939
    
    
    
    100
    %
 Production and Raw Materials
   7




---



##### 



Imports and Import Restrictions
     Trademarks, Licensing Agreements and Patents
 Trademarks
 Quiksilver Roxy Raisins , Radio Fiji, Leilani,
Quiksilveredition, Hawk, Fidra, Lib Tech, Gnu and Bent Metal, DCSHOECOUSA Rossignol Dynastar Lange Look Kerma Cleveland Golf Never Compromise
 8




---



##### 



Licensing Agreements and Patents
 Quiksilver Roxy Quiksilver Roxy Quiksilver Roxy
 Gotcha Gotcha Quiksilver Roxy
 Hawk Hawk Hawk Hawk Hawk
  Competition
 Boardriders Clubs
 9




---



##### 



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




---



##### 



Forward-Looking Statements
  
    
    our ability to fully realize the benefits we anticipate from our acquisition of Rossignol;
 
    
    the impact of our substantial leverage on our ability to generate cash flows or obtain financing to fund our
anticipated growth strategies and the cost of such financing;
 
    
    our plans to expand internationally;
 
    
    our intention to introduce new products and enter into new joint ventures;
 
    
    our plans to open new retail stores;
 
    
    payments due on contractual commitments;
 
    
    future expenditures for capital projects;
 
    
    our ability to continue to maintain our brand image and reputation;
 
    
    our ability to remain compliant with our debt covenants;
 
    
    the integration of acquired businesses and future acquisitions;
 
    
    general economic and business conditions;
 
    
    foreign exchange rate fluctuations; and
 
    
    changes in political, social and economic conditions and local regulations, particularly in Europe and Asia.
  11




---



##### 



Item 1A. RISK FACTORS
  The apparel, sporting goods and footwear industries are each highly competitive, and if we fail to
compete effectively, we could lose our market position.
   If we are unable to develop innovative and stylish products in response to rapid changes in
consumer demands and fashion trends, we may suffer a decline in our revenues and market share.
     12




---



##### 



War, acts of terrorism, or the threat of either could have an adverse effect on our ability to
procure our products and on the United States and/or international economies.
  Changes in foreign currency exchange or interest rates could affect our revenues and costs.
   Our business could be harmed if we fail to maintain proper inventory levels.
  Our current and potential future acquisitions and related financings may place a significant debt
burden on us.
  13




---



##### 



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




---



##### 



Our products may infringe the intellectual property rights of others, which may cause us to incur
unexpected costs or prevent us from selling our products.
  Our current executive officers and management are critical to our success, and the loss of any of
these individuals could harm our business, brands and image.
  If we are unable to maintain and expand our endorsements by professional athletes, our ability to
market and sell our products may be harmed.
   We could be negatively impacted if we fail to successfully integrate the businesses we acquire.
  
    
    distracting management from our business operations;
 
    
    losing key personnel and other employees;
 
    
    costs, delays, and inefficiencies associated with integrating acquired operations and personnel;
 
    
    the impairment of acquired assets and goodwill; and
 
    
    acquiring the contingent and other liabilities of the businesses we acquire.
  15




---



##### 



Cyclical trends in apparel, sporting goods and footwear retailing could have a material adverse
effect on our results of operations.
  As a result of our acquisition of Rossignol, we face greater challenges in managing several brands.
  Employment related matters, such as unionization, may affect our profitability.
  We may be subject to restrictions due to our minority interest in Cleveland Golf.
  The demand for our products is seasonal and sales are dependent upon the weather.
  16




---



##### 



Factors affecting international commerce and our international operations may seriously harm our
financial condition.
  
    
    recessions in foreign economies;
    
    the adoption and expansion of trade restrictions;
    
    limitations on repatriation of earnings;
    
    difficulties in protecting our intellectual property or enforcing our intellectual property rights under the laws of
other countries;
    
    longer receivables collection periods and greater difficulty in collecting accounts receivable;
    
    difficulties in managing foreign operations;
    
    social, political and economic instability;
    
    unexpected changes in regulatory requirements;
    
    our ability to finance foreign operations;
    
    tariffs and other trade barriers; and
    
    U.S. government licensing requirements for exports.
  Quiksilver Roxy
 If the popularity of the sports associated with our brands were to decrease, our revenues could be
adversely affected and our results of operations could be impaired.
  Our industry is subject to pricing pressures that may adversely impact our financial performance.
  17




---



##### 



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




---



##### 



Our failure to comply with, or the imposition of liability under, environmental laws and
regulations could result in significant costs.
  Item 1B. UNRESOLVED STAFF COMMENTS
  Item 2. PROPERTIES
  Approximate
    
    Current LeaseLocation
    
    Principal Use
    
    Sq. Ft.
    
    ExpirationHuntington Beach, California
    
    Corporate headquarters
    
    
    120,000
    
    
    
    2023
    *St Etienne de Crossey, France
    
    Wintersports manufacturing
    
    
    200,000
    
    
    
    2007Verrayes, Italy
    
    Wintersports manufacturing
    
    
    75,000
    
    
    
    2016
    *Huntington Beach, California
    
    Americas distribution center
    
    
    225,000
    
    
    
    2018
    *Huntington Beach, California
    
    Americas distribution center
    
    
    112,000
    
    
    
    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
    
    
    
    2023
    *Huntington Beach, California
    
    Americas distribution center
    
    
    129,000
    
    
    
    2024Mira Loma, California
    
    Americas distribution center
    
    
    683,000
    
    
    
    2027
    *Vista, California
    
    Corporate headquarters
    
    
    98,000
    
    
    
    2007Ogden, Utah
    
    Americas distribution center
    
    
    104,000
    
    
    
    2016St. Jean de Luz, France
    
    European headquarters
    
    
    80,000
    
    
    
    2011St. Jean de Luz, France
    
    European distribution center
    
    
    100,000
    
    
    
    2007Hendaye, France
    
    European distribution center
    
    
    100,000
    
    
    
    2008Satolas, France
    
    European distribution center
    
    
    215,000
    
    
    
    2016Moirans, France
    
    European distribution center
    
    
    130,000
    
    
    
    2008Torquay, Australia
    
    Asia/Pacific headquarters
    
    
    54,000
    
    
    
    2024
    *Geelong, Australia
    
    Asia/Pacific distribution center
    
    
    81,000
    
    
    
    2018
    *
 
 *
    
    Includes extension periods exercisable at our option.  19




---



##### 



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




---



##### 



PART II
 Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
  High
    
    LowFiscal 20064th quarter ended October 31, 2006
    
    $
    14.30
    
    
    $
    11.833rd quarter ended July 31, 2006
    
    
    13.49
    
    
    
    12.002nd quarter ended April 30, 2006
    
    
    14.80
    
    
    
    13.191st quarter ended January 31, 2006
    
    
    14.26
    
    
    
    11.34Fiscal 20054th quarter ended October 31, 2005
    
    $
    16.61
    
    
    $
    10.683rd quarter ended July 31, 2005
    
    
    16.79
    
    
    
    14.312nd quarter ended April 30, 2005
    
    
    17.80
    
    
    
    13.031st quarter ended January 31, 2005
    
    
    15.55
    
    
    
    13.51
    Item 6. SELECTED FINANCIAL DATA
  21




---



##### 



Years Ended October 31,Amounts in thousands, except ratios andper share data
    
    2006(1)(2)(3)(4)
    
    2005(2)(3)(4)
    
    2004(3)(4)
    
    2003(4)
    
    2002Statement of Income DataRevenues, net
    
    $
    2,362,288
    
    
    $
    1,780,869
    
    
    $
    1,266,939
    
    
    $
    975,005
    
    
    $
    705,484Income before provision for
income taxes
    
    
    131,342
    
    
    
    158,346
    
    
    
    121,992
    
    
    
    90,067
    
    
    
    59,986Net income
    
    
    93,016
    
    
    
    107,120
    
    
    
    81,369
    
    
    
    58,516
    
    
    
    37,591Net income per share (5)
    
    
    0.76
    
    
    
    0.90
    
    
    
    0.71
    
    
    
    0.54
    
    
    
    0.40Net income per share, assuming
dilution (5)
    
    
    0.73
    
    
    
    0.86
    
    
    
    0.68
    
    
    
    0.52
    
    
    
    0.38Weighted average common
shares
    
    
    122,074
    
    
    
    118,920
    
    
    
    114,388
    
    
    
    108,448
    
    
    
    93,836Weighted average common
shares outstanding, assuming
dilution (5)
    
    
    127,744
    
    
    
    124,335
    
    
    
    119,288
    
    
    
    113,270
    
    
    
    97,888Balance Sheet DataTotal assets
    
    $
    2,447,228
    
    
    $
    2,158,601
    
    
    $
    990,990
    
    
    $
    707,970
    
    
    $
    450,589Working capital
    
    
    568,596
    
    
    
    458,857
    
    
    
    343,100
    
    
    
    286,625
    
    
    
    160,518Lines of credit
    
    
    315,891
    
    
    
    220,113
    
    
    
    10,801
    
    
    
    20,951
    
    
    
    32,498Long-term debt
    
    
    714,311
    
    
    
    691,181
    
    
    
    173,513
    
    
    
    123,419
    
    
    
    54,085Stockholders equity
    
    
    881,127
    
    
    
    732,882
    
    
    
    588,244
    
    
    
    446,508
    
    
    
    272,873Other DataEBITDA (6)
    
    $
    268,544
    
    
    $
    222,160
    
    
    $
    155,229
    
    
    $
    119,519
    
    
    $
    82,975Current ratio
    
    
    1.7
    
    
    
    1.7
    
    
    
    2.6
    
    
    
    3.0
    
    
    
    2.2Return on average stockholders
equity(7)
    
    
    11.5
    
    
    
    16.2
    
    
    
    15.7
    
    
    
    16.3
    
    
    
    15.4
 
 (1)
    
    Fiscal 2006 includes stock compensation expense related to the adoption of
Statement of Financial Accounting Standards No. 123(R).(2)
    
    Fiscal 2006 and 2005 includes the operations of Rossignol since August 1, 2005. See
Note 2 of our consolidated financial statements.(3)
    
    Fiscal 2006, fiscal 2005 and fiscal 2004 include the operations of DC since its
acquisition effective May 1, 2004. See Note 2 of our consolidated financial statements.(4)
    
    Fiscal 2006, fiscal 2005, fiscal 2004 and fiscal 2003 include the operations of
Asia/Pacific since its acquisition effective December 1, 2002. See Note 2 of our consolidated
financial statements.(5)
    
    Per share amounts and shares outstanding have been adjusted to reflect two-for-one
stock splits effected on May 11, 2005 and May 9, 2003.(6)
    
    EBITDA is defined as net income before (i) interest expense, (ii) income tax
expense, (iii) depreciation and amortization, and (iv) non-cash stock-based compensation
expense. EBITDA is not defined under generally accepted accounting principles (GAAP), and
it may not be comparable to similarly titled measures reported by other companies. We use
EBITDA, along with other GAAP measures, as a measure of profitability because EBITDA helps us
to compare our performance on a consistent basis by removing from our operating results the
impact of our capital structure, the effect of operating in different tax jurisdictions, the
impact of our asset base, which can differ depending on the book value of assets and the
accounting methods used to compute depreciation and amortization, and the effect of non-cash
stock-based compensation expense. We believe it is useful to investors for the same reasons.
EBITDA has limitations as a profitability measure in that it does not include the interest
expense on our debts, our provisions for income taxes, the effect of our expenditures for
capital assets and certain intangible assets and the effect of non-cash compensation expense.
Following is a reconciliation of net income to EBITDA: 22




---



##### 



Years Ended October 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Net income
    
    $
    93,016
    
    
    $
    107,120
    
    
    $
    81,369
    
    
    $
    58,516
    
    
    $
    37,591Income taxes
    
    
    38,326
    
    
    
    51,226
    
    
    
    40,623
    
    
    
    31,551
    
    
    
    22,395Interest
    
    
    50,836
    
    
    
    21,950
    
    
    
    6,390
    
    
    
    8,267
    
    
    
    8,640Depreciation and amortization
    
    
    65,615
    
    
    
    41,864
    
    
    
    26,847
    
    
    
    21,185
    
    
    
    14,349Non-cash stock compensation
expense
    
    
    20,751
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EBITDA
    
    $
    268,544
    
    
    $
    222,160
    
    
    $
    155,229
    
    
    $
    119,519
    
    
    $
    82,975
 
 (7)
    
    Computed based on net income divided by the average of beginning and ending
stockholders equity. Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
 Quiksilver Quiksilver Quiksilver Roxy Boardriders Clubs Quiksilver Roxy Quiksilver Roxy Rossignol Dynastar Lange Look Kerma Cleveland Golf Never Compromise
   23




---



##### 



Years Ended October 31,In thousands
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Americas
    
    $
    1,078,611
    
    
    $
    843,677
    
    
    $
    616,818
    
    
    $
    492,442
    
    
    $
    418,008Europe
    
    
    1,015,133
    
    
    
    712,310
    
    
    
    496,276
    
    
    
    386,226
    
    
    
    282,684Asia/Pacific
    
    
    263,158
    
    
    
    220,941
    
    
    
    148,733
    
    
    
    94,187
    
    
    
    Corporate operations
    
    
    5,386
    
    
    
    3,941
    
    
    
    5,112
    
    
    
    2,150
    
    
    
    4,792Total revenues, net
    
    $
    2,362,288
    
    
    $
    1,780,869
    
    
    $
    1,266,939
    
    
    $
    975,005
    
    
    $
    705,484
  Results of Operations
  Years Ended October 31,2006
    
    2005
    
    2004Statement of Income DataRevenues, net
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    45.8
    
    
    
    45.4
    
    
    
    45.6Selling, general and administrative expense
    
    
    38.0
    
    
    
    35.2
    
    
    
    35.2Operating income
    
    
    7.8
    
    
    
    10.2
    
    
    
    10.4Interest expense
    
    
    2.2
    
    
    
    1.2
    
    
    
    0.5Foreign currency, minority interest and other expense
    
    
    0.0
    
    
    
    0.1
    
    
    
    0.3Income before provision for income taxes
    
    
    5.6
    %
    
    
    8.9
    %
    
    
    9.6
    %Other dataEBITDA (1)
    
    
    11.4
    %
    
    
    12.5
    %
    
    
    12.3
    %
 
 (1)
    
    For a definition of EBITDA and a reconciliation of Net Income to EBITDA, see
footnote (6) to the table under Item 6. Selected Financial Data. Fiscal 2006 Compared to Fiscal 2005
 Revenues
  24




---



##### 



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




---



##### 



Selling, General and Administrative Expense
  Non-operating Expenses
    Net Income and EBITDA
  Fiscal 2005 Compared to Fiscal 2004
 Revenues
  DC Quiksilver Young Mens Roxy DC
 Quiksilver Young Mens
 26




---



##### 



DC Roxy
 Roxy Quiksilver DC
 Gross Profit
  Selling, General and Administrative Expense
  Non-operating Expenses
    27




---



##### 



Net Income and EBITDA
  Financial Position, Capital Resources and Liquidity
   Operating Cash Flows
   Capital Expenditures
   28




---



##### 



Acquisitions
     29




---



##### 



Debt Structure
  October 31,In thousands
    
    2006European short-term credit arrangements
    
    $
    261,593Asia/Pacific short-term lines of credit
    
    
    41,464Americas short-term lines of credit
    
    
    12,834Americas Credit Facility
    
    
    121,150Americas long-term debt
    
    
    4,305European long-term debt
    
    
    135,796Senior Notes
    
    
    400,000Deferred purchase price obligation
    
    
    34,701Capital lease obligations and other borrowings
    
    
    18,359Total debt
    
    $
    1,030,202
    30




---



##### 



31




---



##### 



Joint Ventures
 Quiksilver Roxy
 Contractual Obligations and Commitments
  Payments Due by PeriodTwo to
    
    
    Four to
    
    
    AfterOne
    
    
    Three
    
    
    Five
    
    
    FiveIn thousands
    
    Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalOperating lease obligations
    
    $
    68,611
    
    
    $
    116,517
    
    
    $
    92,739
    
    
    $
    121,950
    
    
    $
    399,817Long-term debt obligations(1)
    
    
    24,621
    
    
    
    39,180
    
    
    
    250,510
    
    
    
    400,000
    
    
    
    714,311Professional athlete sponsorships(2)
    
    
    27,042
    
    
    
    18,595
    
    
    
    3,401
    
    
    
    
    
    
    
    49,038Certain other obligations(3)
    
    
    84,882
    
    
    
    1,737
    
    
    
    507
    
    
    
    
    
    
    
    87,126$
    205,156
    
    
    $
    176,029
    
    
    $
    347,157
    
    
    $
    521,950
    
    
    $
    1,250,292
 
 (1)
    
    Excludes required interest payments. See Note 7 of Notes to Consolidated
Financial Statements for interest terms.(2)
    
    We establish relationships with professional athletes in order to promote our
products and brands. We have entered into endorsement agreements with professional athletes
in sports such as skiing, golf, surfing, skateboarding, snowboarding and windsurfing. Many of
these contracts provide incentives for magazine exposure and competitive victories while
wearing or using our products. It is not possible to determine the amounts we may be required
to pay under these agreements as they are subject to many variables. The amounts listed are
the approximate amounts of minimum obligations required to be paid under these contracts. The
estimated maximum amount that could be paid under existing contracts is approximately $75.2
million and would assume that all bonuses, victories, etc. are achieved during a five-year
period. The actual amounts paid under these agreements may be higher or lower than the
amounts listed as a result of the variable nature of these obligations.(3)
    
    Certain other obligations include approximately $83.7 million of
contractual letters of credit with maturity dates of less than one year and total payments
related to a consulting agreement entered into in connection with our Rossignol acquisition.
We have the option to acquire the minority interest in Cleveland Golf through a put/call
arrangement whereby the minority shareholders can require us to buy all of their interest in
Cleveland Golf after October 2009, and we can require them to sell us their interest after
April 2012, each at a purchase price generally determined by reference to a multiple of
Cleveland Golfs annual profit and our price-earnings ratio. The amount of this obligation is
based on a formula of Cleveland Golf earnings and our stock price, which cannot be determined
and is not included in this line item. We also enter into unconditional purchase obligations
with various vendors and suppliers of goods and services in the normal course of operations
through purchase orders or other documentation or that are undocumented except for an invoice.
Such unconditional purchase 32




---



##### 



obligations are generally outstanding for periods less than a
year and are settled by cash payments upon delivery of goods and services and are not
reflected in this line item. In addition, in certain circumstances we are required to acquire
additional equity interests from certain of our joint venture partners. The purchase price
applicable to these obligations are typically based on formulas that will be used to value the
joint venture operations at the time of purchase. These potential purchase amounts cannot be
determined in advance and are not included in this line item. Trade Accounts Receivable and Inventories
   Inflation
  New Accounting Pronouncements
     33




---



##### 



Critical Accounting Policies
  Revenue Recognition
  Accounts Receivable
  Inventories
  
    
    weakening economic conditions;
 
    
    terrorist acts or threats;
 
    
    unanticipated changes in consumer preferences;
 
    
    reduced customer confidence in the retail market; and
 
    
    unseasonable weather.
 34




---



##### 



Long-Lived Assets
  Goodwill
  Income Taxes
  Stock-Based Compensation Expense
   35




---



##### 



Foreign Currency Translation
   Forward-Looking Statements
  
    
    our ability to fully realize the benefits we anticipate from our acquisition of Rossignol;
    
    the impact of our substantial leverage on our ability to generate cash flows or obtain financing to fund our
anticipated growth strategies and the cost of such financing;
    
    our plans to expand internationally;
    
    our intention to introduce new products and enter into new joint ventures;
    
    our plans to open new retail stores;
    
    payments due on contractual commitments;
    
    future expenditures for capital projects;
    
    our ability to continue to maintain our brand image and reputation;
    
    our ability to remain compliant with our debt covenants;
    
    integration of acquired businesses and future acquisitions;
    
    general economic and business conditions;
    
    foreign exchange rate fluctuations; and
    
    changes in political, social and economic conditions and local regulations, particularly in Europe and Asia.
 36




---



##### 



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




---



##### 



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




---



##### 



39




---



##### 



Managements Report on Internal Control Over Financial Reporting
  
    
    pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
our assets;
 
    
    provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that
our receipts and expenditures are being made only in accordance
with authorizations of our management and directors; and
 
    
    provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the financial
statements.
    40




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
        
 41




---



##### 



Item 9B. OTHER INFORMATION
  42




---



##### 



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




---



##### 



PART IV
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  1.
    
    Consolidated Financial StatementsSee Index to Consolidated Financial Statements on page 442.
    
    ExhibitsThe Exhibits listed in the Exhibit Index, which appears immediately following the signature
page and is incorporated herein by reference, are filed as part of this Annual Report on Form 10-K.
 44




---



##### 



QUIKSILVER, INC.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageAudited consolidated financial statements of Quiksilver, Inc. as of and for each
of the three years in the period ended October 31, 2006Report of Independent Registered Public Accounting Firm
    
    
    46Consolidated Balance Sheets
October 31, 2006 and 2005
    
    
    47Consolidated Statements of Income
Years Ended October 31, 2006, 2005 and 2004
    
    
    48Consolidated Statements of Comprehensive Income
Years Ended October 31, 2006, 2005 and 2004
    
    
    48Consolidated Statements of Stockholders Equity
Years Ended October 31, 2006, 2005 and 2004
    
    
    49Consolidated Statements of Cash Flows
Years Ended October 31, 2006, 2005 and 2004
    
    
    50Notes to Consolidated Financial Statements
    
    
    51Audited financial statements of Roger Cleveland Golf Company, Inc. as of
October 31, 2006 and for the year in the period ending October 31,
2006 and the three months ended October 31, 2005Report of Independent Registered Public Accounting Firm
    
    
    82Balance Sheets
October 31, 2006 and 2005
    
    
    83Statements of Income and Comprehensive Income
Year Ended October 31, 2006 and the
Three Months Ended October 31, 2005
    
    
    84Statements of Stockholders Equity
Year Ended October 31, 2006 and the
Three Months Ended October 31, 2005
    
    
    84Statements of Cash Flows
Year Ended October 31, 2006 and the
Three Months Ended October 31, 2005
    
    
    85Notes to Financial Statements
    
    
    86
 45




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       
 46




---



##### 



QUIKSILVER, INC.
 CONSOLIDATED BALANCE SHEETS
October 31, 2006 and 2005
 In thousands, except share amounts
    
    2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    36,834
    
    
    $
    75,598Trade accounts receivable, net  Note 3
    
    
    721,562
    
    
    
    599,486Other receivables
    
    
    35,324
    
    
    
    27,414Inventories  Note 4
    
    
    425,864
    
    
    
    386,396Deferred income taxes  Note 13
    
    
    84,672
    
    
    
    41,646Prepaid expenses and other current assets
    
    
    28,926
    
    
    
    21,819Total current assets
    
    
    1,333,182
    
    
    
    1,152,359Fixed assets, net  Note 5
    
    
    282,334
    
    
    
    241,979Intangible assets, net  Notes 2 and 6
    
    
    248,206
    
    
    
    247,702Goodwill  Notes 2, 6 and 15
    
    
    515,710
    
    
    
    449,377Other assets
    
    
    45,954
    
    
    
    43,955Assets held for sale  Note 12
    
    
    21,842
    
    
    
    23,229Total assets
    
    $
    2,447,228
    
    
    $
    2,158,601LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Lines of credit  Note 7
    
    $
    315,891
    
    
    $
    220,113Accounts payable
    
    
    220,177
    
    
    
    212,407Accrued liabilities  Note 8
    
    
    201,087
    
    
    
    182,973Current portion of long-term debt  Note 7
    
    
    24,621
    
    
    
    50,833Income taxes payable  Note 13
    
    
    2,810
    
    
    
    27,176Total current liabilities
    
    
    764,586
    
    
    
    693,502Long-term debt  Notes 7 and 18
    
    
    689,690
    
    
    
    640,348Deferred income taxes and other long-term liabilities  Note 13
    
    
    100,632
    
    
    
    81,628Total liabilities
    
    
    1,554,908
    
    
    
    1,415,478Commitments and contingencies  Note 9Minority interest  Note 2
    
    
    11,193
    
    
    
    10,241Stockholders equity  Note 10:Preferred stock, $.01 par value, authorized shares - 5,000,000;
issued and outstanding shares  none
    
    
    3⁄4
    
    
    
    3⁄4Common stock, $.01 par value, authorized shares - 185,000,000;
issued shares  126,401,836 (2006) and 124,093,392 (2005)
    
    
    1,264
    
    
    
    1,241Additional paid-in capital
    
    
    274,488
    
    
    
    242,284Treasury stock, 2,885,200 shares
    
    
    (6,778
    )
    
    
    (6,778
    )Retained earnings
    
    
    559,059
    
    
    
    466,043Accumulated other comprehensive income  Note 11
    
    
    53,094
    
    
    
    30,092Total stockholders equity
    
    
    881,127
    
    
    
    732,882Total liabilities and stockholders equity
    
    $
    2,447,228
    
    
    $
    2,158,601
  47




---



##### 



QUIKSILVER, INC.
 CONSOLIDATED STATEMENTS OF INCOME
Years Ended October 31, 2006, 2005 and 2004
 In thousands, except per share amounts
    
    2006
    
    
    2005
    
    
    2004Revenues, net
    
    $
    2,362,288
    
    
    $
    1,780,869
    
    
    $
    1,266,939Cost of goods sold
    
    
    1,280,738
    
    
    
    972,345
    
    
    
    688,780Gross profit
    
    
    1,081,550
    
    
    
    808,524
    
    
    
    578,159Selling, general and administrative expense
    
    
    897,628
    
    
    
    627,342
    
    
    
    446,221Operating income
    
    
    183,922
    
    
    
    181,182
    
    
    
    131,938Interest expense
    
    
    50,836
    
    
    
    21,950
    
    
    
    6,390Foreign currency loss (gain)
    
    
    489
    
    
    
    (106
    )
    
    
    2,861Minority interest and other expense  Note 2
    
    
    1,255
    
    
    
    992
    
    
    
    695Income before provision for income taxes
    
    
    131,342
    
    
    
    158,346
    
    
    
    121,992Provision for income taxes  Note 13
    
    
    38,326
    
    
    
    51,226
    
    
    
    40,623Net income
    
    $
    93,016
    
    
    $
    107,120
    
    
    $
    81,369Net income per share  Note 1
    
    $
    0.76
    
    
    $
    0.90
    
    
    $
    0.71Net income per share, assuming dilution  Note 1
    
    $
    0.73
    
    
    $
    0.86
    
    
    $
    0.68Weighted average common shares outstanding
 Note 1
    
    
    122,074
    
    
    
    118,920
    
    
    
    114,388Weighted average common shares outstanding,
assuming dilution  Note 1
    
    
    127,744
    
    
    
    124,335
    
    
    
    119,288
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended October 31, 2006, 2005 and 2004
 In thousands
    
    2006
    
    
    2005
    
    
    2004Net income
    
    $
    93,016
    
    
    $
    107,120
    
    
    $
    81,369Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    27,311
    
    
    
    (14,694
    )
    
    
    18,554Net (loss) gain on derivative instruments, net
of tax of $2,101 (2006), $(5,468) (2005)
and $1,792 (2004)
    
    
    (4,309
    )
    
    
    10,008
    
    
    
    (3,628
    )Comprehensive income
    
    $
    116,018
    
    
    $
    102,434
    
    
    $
    96,295
  48




---



##### 



QUIKSILVER, INC.
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years Ended October 31, 2006, 2005 and 2004
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Treasury
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersIn thousands, except share amounts
    
    Shares
    
    
    Amounts
    
    
    Capital
    
    
    Stock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityBalance, November 1, 2003
    
    
    114,041,034
    
    
    
    1,140
    
    
    
    154,740
    
    
    
    (6,778
    )
    
    
    277,554
    
    
    
    19,852
    
    
    
    446,508Exercise of stock options
    
    
    2,997,440
    
    
    
    30
    
    
    
    8,730
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    8,760Tax benefit from exercise of
stock options
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    8,411
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    8,411Employee stock purchase
plan
    
    
    131,422
    
    
    
    1
    
    
    
    957
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    958DC acquisition
    
    
    3,169,150
    
    
    
    32
    
    
    
    27,280
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    27,312Net income and other
comprehensive income
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    81,369
    
    
    
    14,926
    
    
    
    96,295Balance, October 31, 2004
    
    
    120,339,046
    
    
    
    1,203
    
    
    
    200,118
    
    
    
    (6,778
    )
    
    
    358,923
    
    
    
    34,778
    
    
    
    588,244Exercise of stock options
    
    
    1,447,010
    
    
    
    14
    
    
    
    6,528
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    6,542Tax benefit from exercise of
stock options
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    5,109
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    5,109Employee stock purchase
plan
    
    
    157,298
    
    
    
    2
    
    
    
    1,644
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    1,646Rossignol acquisition
    
    
    2,150,038
    
    
    
    22
    
    
    
    28,885
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    28,907Net income and other
comprehensive loss
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    107,120
    
    
    
    (4,686
    )
    
    
    102,434Balance, October 31, 2005
    
    
    124,093,392
    
    
    
    1,241
    
    
    
    242,284
    
    
    
    (6,778
    )
    
    
    466,043
    
    
    
    30,092
    
    
    
    732,882Exercise of stock options
    
    
    1,289,351
    
    
    
    13
    
    
    
    5,119
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    5,132Tax benefit from exercise of
stock options
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3,976
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3,976Stock compensation expense
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    20,751
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    20,751Restricted stock
    
    
    800,000
    
    
    
    8
    
    
    
    (8
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Employee stock purchase
plan
    
    
    219,093
    
    
    
    2
    
    
    
    2,366
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    2,368Net income and other
comprehensive income
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    93,016
    
    
    
    23,002
    
    
    
    116,018Balance, October 31, 2006
    
    
    126,401,836
    
    
    $
    1,264
    
    
    $
    274,488
    
    
    $
    (6,778
    )
    
    $
    559,059
    
    
    $
    53,094
    
    
    $
    881,127
  49




---



##### 



QUIKSILVER, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31, 2006, 2005 and 2004
 In thousands
    
    2006
    
    
    2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    93,016
    
    
    $
    107,120
    
    
    $
    81,369Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    65,615
    
    
    
    41,864
    
    
    
    26,847Stock-based compensation
    
    
    20,751
    
    
    
    3⁄4
    
    
    
    3⁄4Provision for doubtful accounts
    
    
    3,826
    
    
    
    3,621
    
    
    
    6,123Loss on disposal of fixed assets
    
    
    1,205
    
    
    
    3,444
    
    
    
    1,761Foreign currency gain
    
    
    (487
    )
    
    
    (221
    )
    
    
    (159
    )Interest accretion
    
    
    3⁄4
    
    
    
    1,319
    
    
    
    1,368Minority interest and equity in earnings
    
    
    1,835
    
    
    
    3⁄4
    
    
    
    3⁄4Deferred income taxes
    
    
    7,917
    
    
    
    3,661
    
    
    
    2,811Changes in operating assets and liabilities,
net of effects from business acquisitions:Trade accounts receivable
    
    
    (111,433
    )
    
    
    (228,861
    )
    
    
    (33,851
    )Other receivables
    
    
    (11,354
    )
    
    
    8,949
    
    
    
    (1,022
    )Inventories
    
    
    (20,894
    )
    
    
    27,340
    
    
    
    (13,140
    )Prepaid expenses and other current assets
    
    
    (6,022
    )
    
    
    (761
    )
    
    
    1,124Other assets
    
    
    (3,283
    )
    
    
    (7,245
    )
    
    
    265Accounts payable
    
    
    830
    
    
    
    22,533
    
    
    
    22,013Accrued liabilities and other long-term liabilities
    
    
    (28,446
    )
    
    
    7,549
    
    
    
    21,953Income taxes payable
    
    
    (21,374
    )
    
    
    8,274
    
    
    
    13,133Net cash (used in) provided by operating
activities
    
    
    (8,298
    )
    
    
    (1,414
    )
    
    
    130,595Cash flows from investing activities:Proceeds from the sale of properties and equipment
    
    
    5,117
    
    
    
    3⁄4
    
    
    
    3⁄4Capital expenditures
    
    
    (97,934
    )
    
    
    (70,858
    )
    
    
    (52,457
    )Business acquisitions, net of acquired cash    Note 2
    
    
    (40,530
    )
    
    
    (251,865
    )
    
    
    (70,619
    )Net cash used in investing activities
    
    
    (133,347
    )
    
    
    (322,723
    )
    
    
    (123,076
    )Cash flows from financing activities:Borrowings on lines of credit
    
    
    315,719
    
    
    
    123,976
    
    
    
    83,482Payments on lines of credit
    
    
    (228,748
    )
    
    
    (97,801
    )
    
    
    (63,945
    )Borrowings on long-term debt
    
    
    158,013
    
    
    
    630,456
    
    
    
    5,592Payments on long-term debt
    
    
    (150,206
    )
    
    
    (316,953
    )
    
    
    (14,478
    )Stock option exercises, employee stock purchases
and tax benefit on option exercises
    
    
    11,212
    
    
    
    8,188
    
    
    
    9,718Net cash provided by financing activities
    
    
    105,990
    
    
    
    347,866
    
    
    
    20,369Effect of exchange rate changes on cash
    
    
    (3,109
    )
    
    
    (3,328
    )
    
    
    (557
    )Net (decrease) increase in cash and cash equivalents
    
    
    (38,764
    )
    
    
    20,401
    
    
    
    27,331Cash and cash equivalents, beginning of year
    
    
    75,598
    
    
    
    55,197
    
    
    
    27,866Cash and cash equivalents, end of year
    
    $
    36,834
    
    
    $
    75,598
    
    
    $
    55,197Supplementary cash flow information:Cash paid during the year for:Interest
    
    $
    50,241
    
    
    $
    19,013
    
    
    $
    5,009Income taxes
    
    $
    52,446
    
    
    $
    34,458
    
    
    $
    22,046Non-cash investing and financing activities:Deferred purchase price obligation  Note 2
    
    $
    24,967
    
    
    $
    32,508
    
    
    $
    6,460Common stock issued for business acquisitions
 Note 2
    
    $
    3⁄4
    
    
    $
    28,907
    
    
    $
    27,312
  50




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended October 31, 2006, 2005 and 2004
 Note 1 3⁄4 Significant Accounting Policies
 Company Business
 Quiksilve Roxy DC Shoes Hawk Raisins Radio Fiji Leilani Rossignol Dynastar Look Lange Kerma Rossignol DC Shoes Roxy Lib Technologies Gnu Bent Metal Boardriders Club
  Principles of Consolidation
  Basis of Presentation
  Cash Equivalents
  Inventories
  Fixed Assets
  51




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
 Long-Lived Assets
  Goodwill and Intangible Assets
  Revenue Recognition
  Years Ended October 31,In thousands
    
    2006
    
    
    2005
    
    
    2004Product shipments, net
    
    $
    2,357,766
    
    
    $
    1,778,987
    
    
    $
    1,264,457Royalty income
    
    
    4,522
    
    
    
    1,882
    
    
    
    2,482$
    2,362,288
    
    
    $
    1,780,869
    
    
    $
    1,266,939
 Promotion and Advertising
  Research and Development
  Warranties
  52




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
  Stock-Based Compensation
  Income Taxes
  Net Income per Share
  Stock Split
  Foreign Currency and Derivatives
   Comprehensive Income
  53




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
 Use of Estimates
  Fair Value of Financial Instruments
  New Accounting Pronouncements
      54




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
   Note 2 3⁄4 Business Acquisitions
 Rossignol Dynastar, Lange, Look Kerma Cleveland
Golf Never Compromise
 55




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
  July 31,In thousands
    
    2005Cash acquired
    
    $
    64,396Accounts receivable
    
    
    96,763Inventory
    
    
    232,525Other current assets
    
    
    21,548Fixed assets
    
    
    109,438Deferred income taxes
    
    
    3,572Other assets
    
    
    3,296Amortizing intangible assets
    
    
    20,400Trademarks
    
    
    94,700Goodwill
    
    
    292,168Total assets acquired
    
    
    938,806Other liabilities
    
    
    218,300Long term debt and lines of credit
    
    
    365,126Deferred income taxes
    
    
    40,657Minority interest
    
    
    10,109Net assets acquired
    
    $
    304,614
    August 1,In thousands
    
    2005Inventory and other current assets
    
    $
    3,239Fixed assets
    
    
    4,839Amortizing intangible assets
    
    
    450Goodwill
    
    
    21,393Total assets acquired
    
    
    29,921Other liabilities
    
    
    7,419Net assets acquired
    
    $
    22,502
  56




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
   May 1,In thousands
    
    2004Current assets
    
    $
    37,528Fixed assets
    
    
    1,818Deferred income taxes
    
    
    2,359Amortizing intangible assets
    
    
    5,633Trademarks
    
    
    36,000Goodwill
    
    
    54,081Total assets acquired
    
    
    137,419Other liabilities
    
    
    20,808Deferred income taxes
    
    
    18,292Net assets acquired
    
    $
    98,319
   57




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
 Note 3 3⁄4 Allowance for Doubtful Accounts
  Years Ended October 31,In thousands
    
    2006
    
    
    2005
    
    
    2004Balance, beginning of year
    
    $
    31,350
    
    
    $
    11,367
    
    
    $
    8,700Provision for doubtful accounts
    
    
    3,826
    
    
    
    3,621
    
    
    
    6,123Acquired balance
    
    
    
    
    
    
    20,623
    
    
    
    Deductions
    
    
    (2,336
    )
    
    
    (4,261
    )
    
    
    (3,456
    )Balance, end of year
    
    $
    32,840
    
    
    $
    31,350
    
    
    $
    11,367
  Note 4 3⁄4 Inventories
  October 31,In thousands
    
    2006
    
    
    2005Raw materials
    
    $
    40,951
    
    
    $
    46,659Work in process
    
    
    12,991
    
    
    
    10,416Finished goods
    
    
    371,922
    
    
    
    329,321$
    425,864
    
    
    $
    386,396
 Note 5 3⁄4 Fixed Assets
  October 31,In thousands
    
    2006
    
    
    2005Furniture and other equipment
    
    $
    145,337
    
    
    $
    110,803Computer equipment
    
    
    84,281
    
    
    
    63,760Manufacturing equipment
    
    
    55,973
    
    
    
    45,771Leasehold improvements
    
    
    104,248
    
    
    
    85,491Land use rights
    
    
    37,291
    
    
    
    23,200Land and buildings
    
    
    31,851
    
    
    
    34,407458,981
    
    
    
    363,432Accumulated depreciation and amortization
    
    
    (176,647
    )
    
    
    (121,453
    )$
    282,334
    
    
    $
    241,979
 58




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
 Note 6 3⁄4 Intangible Assets and Goodwill
  October 31,2006
    
    
    2005Gross
    
    
    Amorti-
    
    
    Net Book
    
    
    Gross
    
    
    Amorti-
    
    
    Net BookIn thousands
    
    Amount
    
    
    zation
    
    
    Value
    
    
    Amount
    
    
    zation
    
    
    ValueAmortizable trademarks
    
    $
    7,965
    
    
    $
    (2,659
    )
    
    $
    5,306
    
    
    $
    5,135
    
    
    $
    (1,349
    )
    
    $
    3,786Amortizable licenses
    
    
    10,332
    
    
    
    (4,047
    )
    
    
    6,285
    
    
    
    10,081
    
    
    
    (2,940
    )
    
    
    7,141Other amortizable intangibles
    
    
    27,379
    
    
    
    (5,484
    )
    
    
    21,895
    
    
    
    28,757
    
    
    
    (2,022
    )
    
    
    26,735Non-amortizable trademarks
    
    
    214,720
    
    
    
    3⁄4
    
    
    
    214,720
    
    
    
    210,040
    
    
    
    3⁄4
    
    
    
    210,040$
    260,396
    
    
    $
    (12,190
    )
    
    $
    248,206
    
    
    $
    254,013
    
    
    $
    (6,311
    )
    
    $
    247,702
   Note 7 3⁄4 Lines of Credit and Long-term Debt
  October 31,In thousands
    
    2006
    
    
    2005European short-term credit arrangements
    
    $
    261,593
    
    
    $
    167,677Asia/Pacific short-term lines of credit
    
    
    41,464
    
    
    
    31,656Americas short-term lines of credit
    
    
    12,834
    
    
    
    20,780Americas Credit Facility
    
    
    121,150
    
    
    
    71,150Americas long-term debt
    
    
    4,305
    
    
    
    9,375European long-term debt
    
    
    135,796
    
    
    
    158,911Senior Notes
    
    
    400,000
    
    
    
    400,000Deferred purchase price obligation
    
    
    34,701
    
    
    
    32,945Capital lease obligations and other borrowings
    
    
    18,359
    
    
    
    18,800$
    1,030,202
    
    
    $
    911,294
 59




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
       60




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
       2007
    
    $
    24,6212008
    
    
    21,7722009
    
    
    17,4082010
    
    
    234,5332011
    
    
    15,977Thereafter
    
    
    400,000$
    714,311
 Note 8 3⁄4 Accrued Liabilities
  October 31,In thousands
    
    2006
    
    
    2005Accrued employee compensation and benefits
    
    $
    69,281
    
    
    $
    65,010Accrued sales and payroll taxes
    
    
    21,988
    
    
    
    21,449Derivative liability
    
    
    2,456
    
    
    
    119Amounts payable for business acquisitions
    
    
    26,683
    
    
    
    14,091Integration Plan and Pre-acquisition Restructuring Plan liabilities (Note 12)
    
    
    52,012
    
    
    
    32,759Other liabilities
    
    
    28,667
    
    
    
    49,545$
    201,087
    
    
    $
    182,973
 61




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
  October 31,In thousands
    
    2006
    
    
    2005Beginning balance
    
    $
    2,810
    
    
    $
    Acquired balance
    
    
    
    
    
    
    2,788Warranty expense
    
    
    2,023
    
    
    
    671Repairs and replacements made
    
    
    (2,054
    )
    
    
    (649
    )Ending balance
    
    $
    2,779
    
    
    $
    2,810
 Note 9 3⁄4 Commitments and Contingencies
 Operating Leases
  2007
    
    $
    68,6112008
    
    
    60,4412009
    
    
    56,0762010
    
    
    48,9352011
    
    
    43,804Thereafter
    
    
    121,950$
    399,817
  Professional Athlete Sponsorships
  2007
    
    $
    27,0422008
    
    
    14,9952009
    
    
    3,6002010
    
    
    1,7402011
    
    
    1,661$
    49,038
 Consulting Agreement
  62




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
 Litigation
  Indemnities and Guarantees
  Note 10 3⁄4 Stockholders Equity
   Years Ended October 31,2006
    
    
    2005
    
    
    2004Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageIn thousands
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding, beginning of year
    
    
    17,366,457
    
    
    $
    7.63
    
    
    
    15,084,168
    
    
    $
    5.56
    
    
    
    14,084,608
    
    
    $
    3.90Granted
    
    
    2,338,300
    
    
    
    13.67
    
    
    
    3,877,800
    
    
    
    14.44
    
    
    
    4,030,000
    
    
    
    9.35Exercised
    
    
    (1,289,351
    )
    
    
    3.99
    
    
    
    (1,447,010
    )
    
    
    3.96
    
    
    
    (2,997,440
    )
    
    
    2.83Canceled
    
    
    (279,707
    )
    
    
    11.70
    
    
    
    (148,501
    )
    
    
    10.12
    
    
    
    (33,000
    )
    
    
    8.73Outstanding, end of year
    
    
    18,135,699
    
    
    $
    8.61
    
    
    
    17,366,457
    
    
    $
    7.63
    
    
    
    15,084,168
    
    
    $
    5.56Options exercisable, end of year
    
    
    11,177,173
    
    
    $
    6.29
    
    
    
    9,161,422
    
    
    $
    4.77
    
    
    
    7,191,042
    
    
    $
    3.76
  63




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
  Options Outstanding
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageRange of Exercise Prices
    
    Shares
    

    Life
    
    Price
    
    Shares
    
    Price(Years)$1.64  $3.27
    
    
    1,978,136
    
    
    
    2.1
    
    
    $
    2.69
    
    
    
    1,978,136
    
    
    $
    2.69$3.27  $4.91
    
    
    3,955,780
    
    
    
    4.2
    
    
    
    3.90
    
    
    
    3,955,780
    
    
    
    3.90$4.91  $6.54
    
    
    104,000
    
    
    
    5.5
    
    
    
    5.72
    
    
    
    104,000
    
    
    
    5.72$6.54  $8.18
    
    
    2,644,012
    
    
    
    6.2
    
    
    
    6.80
    
    
    
    2,056,012
    
    
    
    6.80$8.18  $9.82
    
    
    2,634,670
    
    
    
    7.0
    
    
    
    8.73
    
    
    
    1,366,659
    
    
    
    8.73$9.82  $11.45
    
    
    885,001
    
    
    
    7.5
    
    
    
    11.08
    
    
    
    511,986
    
    
    
    11.04$11.45  $14.72
    
    
    5,690,100
    
    
    
    8.6
    
    
    
    14.06
    
    
    
    1,111,770
    
    
    
    14.25$14.72  $16.36
    
    
    244,000
    
    
    
    8.6
    
    
    
    16.30
    
    
    
    92,830
    
    
    
    16.3118,135,699
    
    
    
    6.3
    
    
    $
    8.61
    
    
    
    11,177,173
    
    
    $
    6.29
  Weighted-AverageGrant DateShares
    
    
    Fair ValueNon-vested, beginning of year
    
    
    8,205,035
    
    
    $
    5.89Granted
    
    
    2,338,300
    
    
    
    6.32Vested
    
    
    (3,376,971
    )
    
    
    5.35Canceled
    
    
    (207,838
    )
    
    
    6.39Non-vested, end of year
    
    
    6,958,526
    
    
    $
    6.29
     64




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
    Years Ended October 31,In thousands, except per share amounts
    
    2005
    
    
    2004Net income
    
    $
    107,120
    
    
    $
    81,369Less stock-based employee compensation
expense determined under the fair value based
method, net of tax tax
    
    
    12,442
    
    
    
    9,188Pro forma net income
    
    $
    94,678
    
    
    $
    72,181Net income per share
    
    $
    0.90
    
    
    $
    0.71Pro forma net income per share
    
    $
    0.80
    
    
    $
    0.63Net income per share, assuming dilution
    
    $
    0.86
    
    
    $
    0.68Pro forma net income per share, assuming dilution
    
    $
    0.77
    
    
    $
    0.61
   65




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
  Note 11 3⁄4 Accumulated Other Comprehensive Income
  October 31,In thousands
    
    2006
    
    
    2005Foreign currency translation adjustment
    
    $
    55,041
    
    
    $
    27,730(Loss) gain on cash flow hedges and interest rate swaps
    
    
    (1,947
    )
    
    
    2,362$
    53,094
    
    
    $
    30,092
 Note 12 3⁄4 Rossignol Integration Plan and Pre-acquisition Restructuring Plan
  66




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
  FacilityIn thousands
    
    Workforce
    
    
    and Other
    
    
    TotalRecorded in purchase price allocation
    
    $
    3,673
    
    
    $
    1,574
    
    
    $
    5,247Adjustment to purchase price
allocation
    
    
    17,463
    
    
    
    752
    
    
    
    18,215Cash payments
    
    
    (17
    )
    
    
    (44
    )
    
    
    (61
    )Foreign currency translation
    
    
    (83
    )
    
    
    (6
    )
    
    
    (89
    )Balance, October 31, 2005
    
    
    21,036
    
    
    
    2,276
    
    
    
    23,312Adjustment to purchase price
allocation
    
    
    36,733
    
    
    
    5,130
    
    
    
    41,863Cash payments
    
    
    (14,974
    )
    
    
    (2,555
    )
    
    
    (17,529
    )Foreign currency translation
    
    
    2,689
    
    
    
    90
    
    
    
    2,779Balance, October 31, 2006
    
    $
    45,484
    
    
    $
    4,941
    
    
    $
    50,425
   In thousands
    
    WorkforceBalance, October 31, 2005
    
    $
    9,447Cash payments
    
    
    (6,926
    )Adjustment to purchase price allocation
    
    
    (1,015
    )Foreign currency translation
    
    
    81Balance, October 31, 2006
    
    $
    1,587
 Note 13 3⁄4 Income Taxes
  Years Ended October 31,In thousands
    
    2006
    
    
    2005
    
    
    2004Current:Federal
    
    $
    5,776
    
    
    $
    10,374
    
    
    $
    7,201State
    
    
    75
    
    
    
    2,308
    
    
    
    2,539Foreign
    
    
    25,299
    
    
    
    34,883
    
    
    
    28,07231,150
    
    
    
    47,565
    
    
    
    37,812Deferred:Federal
    
    
    (1,843
    )
    
    
    2,072
    
    
    
    5,548State
    
    
    (617
    )
    
    
    262
    
    
    
    814Foreign
    
    
    9,636
    
    
    
    1,327
    
    
    
    (3,551
    )7,176
    
    
    
    3,661
    
    
    
    2,811Provision for income taxes
    
    $
    38,326
    
    
    $
    51,226
    
    
    $
    40,623
 67




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
  Years Ended October 31,2006
    
    
    2005
    
    
    2004Computed expected statutory federal income
tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income taxes, net of federal income
tax benefit
    
    
    (0.3
    )
    
    
    1.1
    
    
    
    0.6Foreign tax rate differential
    
    
    (6.7
    )
    
    
    (1.9
    )
    
    
    (1.4
    )Foreign tax exempt income
    
    
    (5.5
    )
    
    
    (2.0
    )
    
    
    (1.0
    )Repatriation of foreign earnings, net of credits
    
    
    5.0
    
    
    
    (0.5
    )
    
    
    Other
    
    
    1.7
    
    
    
    0.7
    
    
    
    0.1Effective income tax rate
    
    
    29.2
    %
    
    
    32.4
    %
    
    
    33.3
    %
  October 31,In thousands
    
    2006
    
    
    2005Deferred income tax assets:Allowance for doubtful accounts
    
    $
    22,356
    
    
    $
    10,113Other comprehensive income
    
    
    5,915
    
    
    
    Operating loss carryforwards
    
    
    31,088
    
    
    
    8,873Nondeductible accruals and other
    
    
    54,086
    
    
    
    41,319113,445
    
    
    
    60,305Deferred income tax liabilities:Depreciation and Amortization
    
    
    (23,933
    )
    
    
    (25,833
    )Other comprehensive loss
    
    
    
    
    
    
    (1,909
    )Intangibles
    
    
    (63,295
    )
    
    
    (63,184
    )(87,228
    )
    
    
    (90,926
    )Deferred income taxes
    
    
    26,217
    
    
    
    (30,621
    )Valuation allowance
    
    
    (26,960
    )
    
    
    (9,361
    )Net deferred income taxes
    
    $
    (743
    )
    
    $
    (39,982
    )
     68




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
  Note 14 3⁄4 Employee Plans
 Retirement and additional pension plan benefits
   Year
    
    
    Three monthsended
    
    
    endedIn thousands
    
    October 31, 2006
    
    
    October 31, 2005Net periodic pension cost:Service cost
    
    $
    1,109
    
    
    $
    261Interest charge
    
    
    153
    
    
    
    101Realized actuarial (gains) losses during the period
    
    
    (529
    )
    
    
    61$
    733
    
    
    $
    423Benefit obligation:Balance, beginning of period
    
    
    9,984
    
    
    
    9,704Disbursements
    
    
    (1,375
    )
    
    
    (143
    )Net periodic pension costs
    
    
    733
    
    
    
    423Balance, end of period
    
    $
    9,342
    
    
    $
    9,984
  In thousands2007
    
    $
    3592008
    
    
    5222009
    
    
    5432010
    
    
    4342011
    
    
    560Thereafter
    
    
    6,924$
    9,342
  69




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
   Note 15 3⁄4 Segment and Geographic Information
   Percentage of Revenues2006
    
    
    2005
    
    
    2004Wintersports equipment
    
    
    18
    %
    
    
    9
    %
    
    
    2
    %T-Shirts
    
    
    13
    
    
    
    18
    
    
    
    19Accessories
    
    
    11
    
    
    
    12
    
    
    
    14Jackets, sweaters and technical outerwear
    
    
    11
    
    
    
    11
    
    
    
    12Footwear
    
    
    11
    
    
    
    11
    
    
    
    9Golf equipment
    
    
    7
    
    
    
    2
    
    
    
    Pants
    
    
    6
    
    
    
    8
    
    
    
    10Shirts
    
    
    6
    
    
    
    7
    
    
    
    9Swimwear, excluding boardshorts
    
    
    4
    
    
    
    6
    
    
    
    7Fleece
    
    
    4
    
    
    
    4
    
    
    
    5Shorts
    
    
    3
    
    
    
    4
    
    
    
    5Boardshorts
    
    
    3
    
    
    
    4
    
    
    
    4Tops and dresses
    
    
    3
    
    
    
    4
    
    
    
    4100
    %
    
    
    100
    %
    
    
    100
    %
 70




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
  Years
Ended October 31,In thousands
    
    2006
    
    
    2005
    
    
    2004Revenues, net:Americas
    
    $
    1,078,611
    
    
    $
    843,677
    
    
    $
    616,818Europe
    
    
    1,015,133
    
    
    
    712,310
    
    
    
    496,276Asia/Pacific
    
    
    263,158
    
    
    
    220,941
    
    
    
    148,733Corporate operations
    
    
    5,386
    
    
    
    3,941
    
    
    
    5,112Consolidated
    
    $
    2,362,288
    
    
    $
    1,780,869
    
    
    $
    1,266,939Gross profit:Americas
    
    $
    442,148
    
    
    $
    335,356
    
    
    $
    251,357Europe
    
    
    518,218
    
    
    
    362,172
    
    
    
    251,692Asia/Pacific
    
    
    118,866
    
    
    
    109,698
    
    
    
    73,152Corporate operations
    
    
    2,318
    
    
    
    1,298
    
    
    
    1,958Consolidated
    
    $
    1,081,550
    
    
    $
    808,524
    
    
    $
    578,159Operating income:Americas
    
    $
    98,860
    
    
    $
    85,335
    
    
    $
    63,811Europe
    
    
    115,082
    
    
    
    103,308
    
    
    
    73,517Asia/Pacific
    
    
    21,794
    
    
    
    29,600
    
    
    
    21,164Corporate operations
    
    
    (51,814
    )
    
    
    (37,061
    )
    
    
    (26,554
    )Consolidated
    
    $
    183,922
    
    
    $
    181,182
    
    
    $
    131,938Identifiable assets:Americas
    
    $
    851,260
    
    
    $
    813,549
    
    
    $
    443,028Europe
    
    
    1,198,803
    
    
    
    977,057
    
    
    
    413,454Asia/Pacific
    
    
    346,491
    
    
    
    313,993
    
    
    
    118,918Corporate operations
    
    
    50,674
    
    
    
    54,002
    
    
    
    15,590Consolidated
    
    $
    2,447,228
    
    
    $
    2,158,601
    
    
    $
    990,990Goodwill:Americas
    
    $
    132,674
    
    
    $
    144,948
    
    
    $
    86,382Europe
    
    
    255,558
    
    
    
    175,392
    
    
    
    70,057Asia/Pacific
    
    
    127,478
    
    
    
    129,037
    
    
    
    13,346Consolidated
    
    $
    515,710
    
    
    $
    449,377
    
    
    $
    169,785
  Note 16 3⁄4 Derivative Financial Instruments
  71




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
     NotionalIn thousands
    
    Amount
    
    
    Maturity
    
    Fair ValueUnited States dollar
    
    $
    349,652
    
    
    Nov. 2006 - Oct. 2008
    
    $
    (2,937
    )Canadian dollar
    
    
    15,612
    
    
    Dec. 2006 - May 2007
    
    
    264New Zealand dollar
    
    
    2,220
    
    
    Nov. 2006 - Jan. 2007
    
    
    (37
    )British pound
    
    
    665
    
    
    Jan. 2007
    
    
    (3
    )Interest rate instruments
    
    
    29,257
    
    
    Jan. 2007 - Sept. 2009
    
    
    30$
    397,406
    
    
    
    
    $
    (2,683
    )
 72




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
 Note 17 3⁄4 Quarterly Financial Data (Unaudited)
  Quarter EndedIn thousands, except per share amounts
    
    January 31
    
    April 30
    
    July 31
    
    October 31Year ended October 31, 2006Revenues, net
    
    $
    541,142
    
    
    $
    516,928
    
    
    $
    525,854
    
    
    $
    778,364Gross profit
    
    
    248,561
    
    
    
    234,490
    
    
    
    248,775
    
    
    
    349,724Net income
    
    
    18,603
    
    
    
    3,729
    
    
    
    5,336
    
    
    
    65,348Net income per share, assuming
dilution
    
    
    0.15
    
    
    
    0.03
    
    
    
    0.04
    
    
    
    0.51Trade accounts receivable
    
    
    533,468
    
    
    
    482,978
    
    
    
    492,414
    
    
    
    721,562Inventories
    
    
    406,542
    
    
    
    402,033
    
    
    
    516,366
    
    
    
    425,864Year ended October 31, 2005Revenues, net
    
    $
    342,860
    
    
    $
    426,853
    
    
    $
    373,751
    
    
    $
    637,405Gross profit
    
    
    152,906
    
    
    
    193,365
    
    
    
    174,915
    
    
    
    287,338Net income
    
    
    14,214
    
    
    
    34,667
    
    
    
    24,635
    
    
    
    33,604Net income per share, assuming
dilution
    
    
    0.11
    
    
    
    0.28
    
    
    
    0.20
    
    
    
    0.27Trade accounts receivable
    
    
    252,097
    
    
    
    342,035
    
    
    
    428,266
    
    
    
    599,486Inventories
    
    
    236,819
    
    
    
    177,842
    
    
    
    438,336
    
    
    
    386,396
 Note 18 3⁄4 Condensed Consolidating Financial Information
   73




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
 CONDENSED CONSOLIDATING BALANCE SHEET
 AT OCTOBER 31, 2006
 Wholly-owned
    
    
    
    
    
    
    Non-Quiksilver,
    
    
    Guarantor
    
    
    Cleveland
    
    
    GuarantorIn thousands
    
    Inc.
    
    
    Subsidiaries
    
    
    Golf
    
    
    Subsidiaries
    
    
    Elimination
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    8
    
    
    $
    1,537
    
    
    $
    1,855
    
    
    $
    33,434
    
    
    $
    
    
    
    $
    36,834Trade accounts receivable, net
    
    
    
    
    
    
    205,853
    
    
    
    36,987
    
    
    
    478,722
    
    
    
    
    
    
    
    721,562Other receivables
    
    
    1,190
    
    
    
    12,593
    
    
    
    708
    
    
    
    20,833
    
    
    
    
    
    
    
    35,324Inventories
    
    
    
    
    
    
    144,740
    
    
    
    27,122
    
    
    
    255,636
    
    
    
    (1,634
    )
    
    
    425,864Deferred income taxes
    
    
    
    
    
    
    14,459
    
    
    
    2,349
    
    
    
    67,864
    
    
    
    
    
    
    
    84,672Prepaid expenses and other
current assets
    
    
    1,703
    
    
    
    9,968
    
    
    
    1,953
    
    
    
    15,302
    
    
    
    
    
    
    
    28,926Total current assets
    
    
    2,901
    
    
    
    389,150
    
    
    
    70,974
    
    
    
    871,791
    
    
    
    (1,634
    )
    
    
    1,333,182Fixed assets, net
    
    
    6,343
    
    
    
    83,495
    
    
    
    3,801
    
    
    
    188,695
    
    
    
    
    
    
    
    282,334Intangible assets, net
    
    
    2,452
    
    
    
    79,197
    
    
    
    3,150
    
    
    
    163,407
    
    
    
    
    
    
    
    248,206Goodwill
    
    
    
    
    
    
    163,910
    
    
    
    2,472
    
    
    
    349,328
    
    
    
    
    
    
    
    515,710Investment in subsidiaries
    
    
    561,992
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (561,992
    )
    
    
    Other assets
    
    
    10,909
    
    
    
    4,730
    
    
    
    274
    
    
    
    30,041
    
    
    
    
    
    
    
    45,954Assets held for sale
    
    
    
    
    
    
    3,500
    
    
    
    
    
    
    
    18,342
    
    
    
    
    
    
    
    21,842Total assets
    
    $
    584,597
    
    
    $
    723,982
    
    
    $
    80,671
    
    
    $
    1,621,604
    
    
    $
    (563,626
    )
    
    $
    2,447,228LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Lines of credit
    
    $
    
    
    
    $
    209
    
    
    $
    
    
    
    $
    315,682
    
    
    $
    
    
    
    $
    315,891Accounts payable
    
    
    2,303
    
    
    
    89,181
    
    
    
    3,525
    
    
    
    125,168
    
    
    
    
    
    
    
    220,177Accrued liabilities
    
    
    13,535
    
    
    
    43,691
    
    
    
    6,085
    
    
    
    137,805
    
    
    
    (29
    )
    
    
    201,087Current portion of long-term debt
    
    
    
    
    
    
    4,305
    
    
    
    
    
    
    
    20,316
    
    
    
    
    
    
    
    24,621Income taxes payable
    
    
    
    
    
    
    14,277
    
    
    
    1,343
    
    
    
    (12,810
    )
    
    
    
    
    
    
    2,810Intercompany balances
    
    
    72,386
    
    
    
    17,351
    
    
    
    37,766
    
    
    
    (127,503
    )
    
    
    
    
    
    
    Total current liabilities
    
    
    88,224
    
    
    
    169,014
    
    
    
    48,719
    
    
    
    458,658
    
    
    
    (29
    )
    
    
    764,586Long-term debt, net of current
portion
    
    
    433,701
    
    
    
    122,150
    
    
    
    
    
    
    
    133,839
    
    
    
    
    
    
    
    689,690Deferred income taxes
    
    
    
    
    
    
    25,773
    
    
    
    (353
    )
    
    
    75,212
    
    
    
    
    
    
    
    100,632Total liabilities
    
    
    521,925
    
    
    
    316,937
    
    
    
    48,366
    
    
    
    667,709
    
    
    
    (29
    )
    
    
    1,554,908Minority interest
    
    
    
    
    
    
    11,193
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,193Stockholders/invested equity
    
    
    62,672
    
    
    
    395,852
    
    
    
    32,305
    
    
    
    953,895
    
    
    
    (563,597
    )
    
    
    881,127Total liabilities and
stockholders equity
    
    $
    584,597
    
    
    $
    723,982
    
    
    $
    80,671
    
    
    $
    1,621,604
    
    
    $
    (563,626
    )
    
    $
    2,447,228
 74




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
 CONDENSED CONSOLIDATING BALANCE SHEET
 AT OCTOBER 31, 2005
 Wholly-owned
    
    
    
    
    
    
    Non-Quiksilver,
    
    
    Guarantor
    
    
    Cleveland
    
    
    GuarantorIn thousands
    
    Inc.
    
    
    Subsidiaries
    
    
    Golf
    
    
    Subsidiaries
    
    
    Elimination
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,177
    
    
    $
    20,816
    
    
    $
    986
    
    
    $
    52,619
    
    
    $
    3⁄4
    
    
    $
    75,598Trade accounts receivable, net
    
    
    3⁄4
    
    
    
    207,120
    
    
    
    30,659
    
    
    
    361,707
    
    
    
    3⁄4
    
    
    
    599,486Other receivables
    
    
    920
    
    
    
    4,918
    
    
    
    3⁄4
    
    
    
    21,576
    
    
    
    3⁄4
    
    
    
    27,414Inventories
    
    
    3⁄4
    
    
    
    118,548
    
    
    
    36,758
    
    
    
    232,130
    
    
    
    (1,040
    )
    
    
    386,396Deferred income taxes
    
    
    3⁄4
    
    
    
    22,531
    
    
    
    1,774
    
    
    
    17,341
    
    
    
    3⁄4
    
    
    
    41,646Prepaid expenses and other
current assets
    
    
    1,788
    
    
    
    6,588
    
    
    
    3,096
    
    
    
    10,347
    
    
    
    3⁄4
    
    
    
    21,819Total current assets
    
    
    3,885
    
    
    
    380,521
    
    
    
    73,273
    
    
    
    695,720
    
    
    
    (1,040
    )
    
    
    1,152,359Fixed assets, net
    
    
    2,679
    
    
    
    66,604
    
    
    
    3,531
    
    
    
    169,165
    
    
    
    3⁄4
    
    
    
    241,979Intangible assets, net
    
    
    2,310
    
    
    
    83,331
    
    
    
    3,385
    
    
    
    158,676
    
    
    
    3⁄4
    
    
    
    247,702Goodwill
    
    
    3⁄4
    
    
    
    177,841
    
    
    
    2,472
    
    
    
    269,064
    
    
    
    3⁄4
    
    
    
    449,377Investment in subsidiaries
    
    
    578,719
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (578,719
    )
    
    
    Other assets
    
    
    11,735
    
    
    
    5,164
    
    
    
    259
    
    
    
    26,797
    
    
    
    3⁄4
    
    
    
    43,955Assets held for sale
    
    
    3⁄4
    
    
    
    4,225
    
    
    
    3⁄4
    
    
    
    19,004
    
    
    
    3⁄4
    
    
    
    23,229Total assets
    
    $
    599,328
    
    
    $
    717,686
    
    
    $
    82,920
    
    
    $
    1,338,426
    
    
    $
    (579,759
    )
    
    $
    2,158,601LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Lines of credit
    
    $
    3⁄4
    
    
    $
    6,138
    
    
    $
    1,000
    
    
    $
    212,975
    
    
    $
    3⁄4
    
    
    $
    220,113Accounts payable
    
    
    1,486
    
    
    
    78,859
    
    
    
    7,828
    
    
    
    124,234
    
    
    
    3⁄4
    
    
    
    212,407Accrued liabilities
    
    
    18,237
    
    
    
    29,777
    
    
    
    8,306
    
    
    
    126,359
    
    
    
    294
    
    
    
    182,973Current portion of long-term debt
    
    
    3⁄4
    
    
    
    1,230
    
    
    
    3⁄4
    
    
    
    49,603
    
    
    
    3⁄4
    
    
    
    50,833Income taxes payable
    
    
    3⁄4
    
    
    
    14,872
    
    
    
    (1,497
    )
    
    
    13,801
    
    
    
    3⁄4
    
    
    
    27,176Intercompany balances
    
    
    (63,906
    )
    
    
    49,338
    
    
    
    33,198
    
    
    
    (18,630
    )
    
    
    3⁄4
    
    
    
    3⁄4Total current liabilities
    
    
    (44,183
    )
    
    
    180,214
    
    
    
    48,835
    
    
    
    508,342
    
    
    
    294
    
    
    
    693,502Long-term debt, net of current
portion
    
    
    431,944
    
    
    
    76,456
    
    
    
    4,285
    
    
    
    127,663
    
    
    
    3⁄4
    
    
    
    640,348Deferred income taxes
    
    
    3⁄4
    
    
    
    35,605
    
    
    
    3
    
    
    
    46,020
    
    
    
    3⁄4
    
    
    
    81,628Total liabilities
    
    
    387,761
    
    
    
    292,275
    
    
    
    53,123
    
    
    
    682,025
    
    
    
    294
    
    
    
    1,415,478Minority Interest
    
    
    3⁄4
    
    
    
    10,241
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    10,241Stockholders/invested equity
    
    
    211,567
    
    
    
    415,170
    
    
    
    29,797
    
    
    
    656,401
    
    
    
    (580,053
    )
    
    
    732,882Total liabilities and
stockholders equity
    
    $
    599,328
    
    
    $
    717,686
    
    
    $
    82,920
    
    
    $
    1,338,426
    
    
    $
    (579,759
    )
    
    $
    2,158,601
 75




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
 CONDENSED CONSOLIDATING STATEMENT OF INCOME
 Year Ended October 31, 2006
 Wholly-owned
    
    
    
    
    
    
    Non-Quiksilver,
    
    
    Guarantor
    
    
    Cleveland
    
    
    GuarantorIn thousands
    
    Inc.
    
    
    Subsidiaries
    
    
    Golf
    
    
    Subsidiaries
    
    
    Elimination
    
    
    ConsolidatedRevenues, net
    
    $
    592
    
    
    $
    859,344
    
    
    $
    151,236
    
    
    $
    1,415,687
    
    
    $
    (64,571
    )
    
    $
    2,362,288Cost of goods sold
    
    
    
    
    
    
    520,399
    
    
    
    84,983
    
    
    
    714,919
    
    
    
    (39,563
    )
    
    
    1,280,738Gross profit
    
    
    592
    
    
    
    338,945
    
    
    
    66,253
    
    
    
    700,768
    
    
    
    (25,008
    )
    
    
    1,081,550Selling, general and administrative
expense
    
    
    49,142
    
    
    
    266,563
    
    
    
    58,624
    
    
    
    547,767
    
    
    
    (24,468
    )
    
    
    897,628Operating (loss) income
    
    
    (48,550
    )
    
    
    72,382
    
    
    
    7,629
    
    
    
    153,001
    
    
    
    (540
    )
    
    
    183,922Interest expense
    
    
    38,301
    
    
    
    3,934
    
    
    
    3,305
    
    
    
    5,296
    
    
    
    
    
    
    
    50,836Foreign currency (gain) loss
    
    
    (730
    )
    
    
    43
    
    
    
    
    
    
    
    1,176
    
    
    
    
    
    
    
    489Minority interest and other expense
    
    
    951
    
    
    
    
    
    
    
    
    
    
    
    304
    
    
    
    
    
    
    
    1,255(Loss) income before provision for
income taxes
    
    
    (87,072
    )
    
    
    68,405
    
    
    
    4,324
    
    
    
    146,225
    
    
    
    (540
    )
    
    
    131,342Provision for income taxes
    
    
    (23,684
    )
    
    
    25,520
    
    
    
    1,774
    
    
    
    34,716
    
    
    
    
    
    
    
    38,326Net (loss) income
    
    $
    (63,388
    )
    
    $
    42,885
    
    
    $
    2,550
    
    
    $
    111,509
    
    
    $
    (540
    )
    
    $
    93,016
 76




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
 CONDENSED CONSOLIDATING STATEMENT OF INCOME
 Year Ended October 31, 2005
 Wholly-owned
    
    
    
    
    
    
    Non-Quiksilver,
    
    
    Guarantor
    
    
    Cleveland
    
    
    GuarantorIn thousands
    
    Inc.
    
    
    Subsidiaries
    
    
    Golf
    
    
    Subsidiaries
    
    
    Elimination
    
    
    ConsolidatedRevenues, net
    
    $
    2,904
    
    
    $
    809,018
    
    
    $
    37,849
    
    
    $
    965,449
    
    
    $
    (34,351
    )
    
    $
    1,780,869Cost of goods sold
    
    
    
    
    
    
    492,575
    
    
    
    20,602
    
    
    
    470,548
    
    
    
    (11,380
    )
    
    
    972,345Gross profit
    
    
    2,904
    
    
    
    316,443
    
    
    
    17,247
    
    
    
    494,901
    
    
    
    (22,971
    )
    
    
    808,524Selling, general and administrative
expense
    
    
    31,690
    
    
    
    238,373
    
    
    
    14,316
    
    
    
    365,623
    
    
    
    (22,660
    )
    
    
    627,342Operating (loss) income
    
    
    (28,786
    )
    
    
    78,070
    
    
    
    2,931
    
    
    
    129,278
    
    
    
    (311
    )
    
    
    181,182Interest expense
    
    
    12,940
    
    
    
    4,739
    
    
    
    450
    
    
    
    3,821
    
    
    
    
    
    
    
    21,950Foreign currency (gain) loss
    
    
    (356
    )
    
    
    481
    
    
    
    (46
    )
    
    
    (185
    )
    
    
    
    
    
    
    (106
    )Other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    992
    
    
    
    
    
    
    
    992(Loss) income before provision for
income taxes
    
    
    (41,370
    )
    
    
    72,850
    
    
    
    2,527
    
    
    
    124,650
    
    
    
    (311
    )
    
    
    158,346Provision for income taxes
    
    
    (14,972
    )
    
    
    29,078
    
    
    
    679
    
    
    
    36,441
    
    
    
    
    
    
    
    51,226Net (loss) income
    
    $
    (26,398
    )
    
    $
    43,772
    
    
    $
    1,848
    
    
    $
    88,209
    
    
    $
    (311
    )
    
    $
    107,120
 77




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
 CONDENSED CONSOLIDATING STATEMENT OF INCOME
 Year Ended October 31, 2004
 Wholly-Owned
    
    
    Non-Quiksilver,
    
    
    Guarantor
    
    
    GuarantorIn thousands
    
    Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Elimination
    
    
    ConsolidatedRevenues, net
    
    $
    685
    
    
    $
    648,119
    
    
    $
    644,819
    
    
    $
    (26,684
    )
    
    $
    1,266,939Cost of goods sold
    
    
    3⁄4
    
    
    
    383,383
    
    
    
    312,558
    
    
    
    (7,161
    )
    
    
    688,780Gross profit
    
    
    685
    
    
    
    264,736
    
    
    
    332,261
    
    
    
    (19,523
    )
    
    
    578,159Selling, general and administrative
expense
    
    
    19,244
    
    
    
    195,545
    
    
    
    250,368
    
    
    
    (18,936
    )
    
    
    446,221Operating (loss) income
    
    
    (18,559
    )
    
    
    69,191
    
    
    
    81,893
    
    
    
    (587
    )
    
    
    131,938Interest (income) expense
    
    
    (7,156
    )
    
    
    2,569
    
    
    
    10,977
    
    
    
    3⁄4
    
    
    
    6,390Foreign currency loss
    
    
    1,390
    
    
    
    1,403
    
    
    
    68
    
    
    
    3⁄4
    
    
    
    2,861Other expense
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    695
    
    
    
    3⁄4
    
    
    
    695(Loss) income before provision for income
taxes
    
    
    (12,793
    )
    
    
    65,219
    
    
    
    70,153
    
    
    
    (587
    )
    
    
    121,992Provision for income taxes
    
    
    (4,804
    )
    
    
    24,271
    
    
    
    21,156
    
    
    
    3⁄4
    
    
    
    40,623Net (loss) income
    
    $
    (7,989
    )
    
    $
    40,948
    
    
    $
    48,997
    
    
    $
    (587
    )
    
    $
    81,369
 78




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
 CONSOLIDATING STATEMENT OF CASH FLOWS
 Year Ended October 31, 2006
 Wholly-owned
    
    
    
    
    
    
    Non-Guarantor
    
    
    Cleveland
    
    
    GuarantorIn thousands
    
    Quiksilver, Inc.
    
    
    Subsidiaries
    
    
    Golf
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    (63,388
    )
    
    $
    42,885
    
    
    $
    2,550
    
    
    $
    110,969
    
    
    $
    93,016Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    251
    
    
    
    19,597
    
    
    
    1,888
    
    
    
    43,879
    
    
    
    65,615Stock-based compensation
    
    
    20,751
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,751Provision for doubtful accounts
    
    
    
    
    
    
    (1,891
    )
    
    
    1,162
    
    
    
    4,555
    
    
    
    3,826Loss on sale of fixed assets
    
    
    
    
    
    
    257
    
    
    
    
    
    
    
    948
    
    
    
    1,205Foreign currency gain
    
    
    (68
    )
    
    
    (78
    )
    
    
    
    
    
    
    (341
    )
    
    
    (487
    )Minority interest and equity in earnings
    
    
    
    
    
    
    952
    
    
    
    
    
    
    
    883
    
    
    
    1,835Deferred income taxes
    
    
    
    
    
    
    887
    
    
    
    (931
    )
    
    
    7,961
    
    
    
    7,917Changes in operating assets and
liabilities:Trade accounts receivable
    
    
    
    
    
    
    (18,849
    )
    
    
    (7,490
    )
    
    
    (85,094
    )
    
    
    (111,433
    )Other receivables
    
    
    (270
    )
    
    
    (7,643
    )
    
    
    (674
    )
    
    
    (2,767
    )
    
    
    (11,354
    )Inventories
    
    
    
    
    
    
    (34,544
    )
    
    
    9,636
    
    
    
    4,014
    
    
    
    (20,894
    )Prepaid expenses and other
current assets assets
    
    
    174
    
    
    
    (3,489
    )
    
    
    1,109
    
    
    
    (3,816
    )
    
    
    (6,022
    )Other assets
    
    
    1,577
    
    
    
    115
    
    
    
    (15
    )
    
    
    (4,960
    )
    
    
    (3,283
    )Accounts payable
    
    
    817
    
    
    
    12,744
    
    
    
    (4,303
    )
    
    
    (8,428
    )
    
    
    830Accrued liabilities
    
    
    (3,436
    )
    
    
    2,783
    
    
    
    (2,221
    )
    
    
    (25,572
    )
    
    
    (28,446
    )Income taxes payable
    
    
    
    
    
    
    3,960
    
    
    
    2,840
    
    
    
    (28,174
    )
    
    
    (21,374
    )Net cash (used in) provided by
operating activities
    
    
    (43,592
    )
    
    
    17,686
    
    
    
    3,551
    
    
    
    14,057
    
    
    
    (8,298
    )Cash flows from investing activities:Proceeds from the sale of properties and
equipment
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    5,100
    
    
    
    5,117Capital expenditures
    
    
    (4,057
    )
    
    
    (35,142
    )
    
    
    (1,923
    )
    
    
    (56,812
    )
    
    
    (97,934
    )Business acquisitions, net of cash
acquired
    
    
    (3,074
    )
    
    
    (8,812
    )
    
    
    
    
    
    
    (28,644
    )
    
    
    (40,530
    )Net cash used in investing
activities
    
    
    (7,131
    )
    
    
    (43,937
    )
    
    
    (1,923
    )
    
    
    (80,356
    )
    
    
    (133,347
    )Cash flows from financing activities:Borrowings on lines of credit
    
    
    
    
    
    
    639
    
    
    
    2,735
    
    
    
    312,345
    
    
    
    315,719Payments on lines of credit
    
    
    
    
    
    
    (6,992
    )
    
    
    (7,735
    )
    
    
    (214,021
    )
    
    
    (228,748
    )Borrowings on long-term debt
    
    
    
    
    
    
    90,781
    
    
    
    4,000
    
    
    
    63,232
    
    
    
    158,013Payments on long-term debt
    
    
    (840
    )
    
    
    (41,972
    )
    
    
    (4,327
    )
    
    
    (103,067
    )
    
    
    (150,206
    )Proceeds from stock option exercises
    
    
    11,212
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,212Intercompany
    
    
    39,096
    
    
    
    (34,962
    )
    
    
    4,568
    
    
    
    (8,702
    )
    
    
    Net cash provided by (used in)
financing activities
    
    
    49,468
    
    
    
    7,494
    
    
    
    (759
    )
    
    
    49,787
    
    
    
    105,990Effect of exchange rate changes on cash
    
    
    86
    
    
    
    (522
    )
    
    
    
    
    
    
    (2,673
    )
    
    
    (3,109
    )Net (decrease) increase in cash and cash
equivalents
    
    
    (1,169
    )
    
    
    (19,279
    )
    
    
    869
    
    
    
    (19,185
    )
    
    
    (38,764
    )Cash and cash equivalents, beginning of period
    
    
    1,177
    
    
    
    20,816
    
    
    
    986
    
    
    
    52,619
    
    
    
    75,598Cash and cash equivalents, end of period
    
    $
    8
    
    
    $
    1,537
    
    
    $
    1,855
    
    
    $
    33,434
    
    
    $
    36,834
 79




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
 CONSOLIDATING STATEMENT OF CASH FLOWS
 Year Ended October 31, 2005
 Wholly-owned
    
    
    
    
    
    
    Non-Guarantor
    
    
    Cleveland
    
    
    GuarantorIn thousands
    
    Quiksilver, Inc.
    
    
    Subsidiaries
    
    
    Golf
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    (26,398
    )
    
    $
    43,772
    
    
    $
    1,848
    
    
    $
    87,898
    
    
    $
    107,120Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    246
    
    
    
    16,036
    
    
    
    513
    
    
    
    25,069
    
    
    
    41,864Provision for doubtful accounts
    
    
    3⁄4
    
    
    
    1,665
    
    
    
    3⁄4
    
    
    
    1,956
    
    
    
    3,621(Gain) loss on sale of fixed assets
    
    
    (3
    )
    
    
    1,207
    
    
    
    (5
    )
    
    
    2,245
    
    
    
    3,444Foreign currency gain
    
    
    (221
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (221
    )Interest accretion
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    1,319
    
    
    
    1,319Deferred income taxes
    
    
    3⁄4
    
    
    
    1,783
    
    
    
    (1,076
    )
    
    
    2,954
    
    
    
    3,661Changes in operating assets and
liabilities:Trade accounts receivable
    
    
    3⁄4
    
    
    
    (62,277
    )
    
    
    (5,459
    )
    
    
    (161,125
    )
    
    
    (228,861
    )Other receivables
    
    
    4,386
    
    
    
    (2,659
    )
    
    
    (709
    )
    
    
    7,931
    
    
    
    8,949Inventories
    
    
    3⁄4
    
    
    
    22,431
    
    
    
    (7,862
    )
    
    
    12,771
    
    
    
    27,340Prepaid expenses and other
current assets assets
    
    
    (18
    )
    
    
    32
    
    
    
    (339
    )
    
    
    (436
    )
    
    
    (761
    )Other assets
    
    
    421
    
    
    
    (1,623
    )
    
    
    (129
    )
    
    
    (5,914
    )
    
    
    (7,245
    )Accounts payable
    
    
    (203
    )
    
    
    12,409
    
    
    
    117
    
    
    
    10,210
    
    
    
    22,533Accrued liabilities
    
    
    (10,081
    )
    
    
    11,934
    
    
    
    1,050
    
    
    
    4,646
    
    
    
    7,549Income taxes payable
    
    
    3⁄4
    
    
    
    2,351
    
    
    
    1,873
    
    
    
    4,050
    
    
    
    8,274Net cash (used in) provided
by operating activities
    
    
    (31,871
    )
    
    
    47,061
    
    
    
    (10,178
    )
    
    
    (6,426
    )
    
    
    (1,414
    )Cash flows from investing activities:Capital expenditures
    
    
    (2,473
    )
    
    
    (30,176
    )
    
    
    (586
    )
    
    
    (37,623
    )
    
    
    (70,858
    )Business acquisitions, net of cash
acquired
    
    
    (231,948
    )
    
    
    (11,885
    )
    
    
    3⁄4
    
    
    
    (8,032
    )
    
    
    (251,865
    )Net cash used in investing
activities
    
    
    (234,421
    )
    
    
    (42,061
    )
    
    
    (586
    )
    
    
    (45,655
    )
    
    
    (322,723
    )Cash flows from financing activities:Borrowings on lines of credit
    
    
    3⁄4
    
    
    
    6,208
    
    
    
    1,000
    
    
    
    116,768
    
    
    
    123,976Payments on lines of credit
    
    
    3⁄4
    
    
    
    (51,876
    )
    
    
    3⁄4
    
    
    
    (45,925
    )
    
    
    (97,801
    )Borrowings on long-term debt
    
    
    484,843
    
    
    
    9,630
    
    
    
    3⁄4
    
    
    
    135,983
    
    
    
    630,456Payments on long-term debt
    
    
    (140,705
    )
    
    
    (82,524
    )
    
    
    (714
    )
    
    
    (93,010
    )
    
    
    (316,953
    )Proceeds from stock option exercises
    
    
    8,188
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    8,188Intercompany
    
    
    (81,518
    )
    
    
    124,396
    
    
    
    11,464
    
    
    
    (54,342
    )
    
    
    Net cash provided by financing activities
    
    
    270,808
    
    
    
    5,834
    
    
    
    11,750
    
    
    
    59,474
    
    
    
    347,866Effect of exchange rate changes on cash
    
    
    (2,269
    )
    
    
    493
    
    
    
    3⁄4
    
    
    
    (1,552
    )
    
    
    (3,328
    )Net increase in cash and cash
equivalents
    
    
    2,247
    
    
    
    11,327
    
    
    
    986
    
    
    
    5,841
    
    
    
    20,401Cash and cash equivalents, beginning of period
    
    
    (1,070
    )
    
    
    9,489
    
    
    
    
    
    
    
    46,778
    
    
    
    55,197Cash and cash equivalents, end of period
    
    $
    1,177
    
    
    $
    20,816
    
    
    $
    986
    
    
    $
    52,619
    
    
    $
    75,598
 80




---



##### 



QUIKSILVER, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
Years Ended October 31, 2006, 2005 and 2004
 CONSOLIDATING STATEMENT OF CASH FLOWS
 Year Ended October 31, 2004
 Non-Guarantor
    
    
    GuarantorIn thousands
    
    Quiksilver, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    (7,989
    )
    
    $
    40,948
    
    
    $
    48,410
    
    
    $
    81,369Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    722
    
    
    
    12,332
    
    
    
    13,793
    
    
    
    26,847Provision for doubtful accounts
    
    
    3⁄4
    
    
    
    3,381
    
    
    
    2,742
    
    
    
    6,123Loss on sale of fixed assets
    
    
    3⁄4
    
    
    
    792
    
    
    
    969
    
    
    
    1,761Foreign currency gain
    
    
    (159
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (159
    )Interest accretion
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    1,368
    
    
    
    1,368Deferred income taxes
    
    
    3⁄4
    
    
    
    6,363
    
    
    
    (3,552
    )
    
    
    2,811Changes in operating assets and liabilities:Trade accounts receivable
    
    
    3⁄4
    
    
    
    (33,098
    )
    
    
    (753
    )
    
    
    (33,851
    )Other receivables
    
    
    782
    
    
    
    203
    
    
    
    (2,007
    )
    
    
    (1,022
    )Inventories
    
    
    3⁄4
    
    
    
    (5,176
    )
    
    
    (7,964
    )
    
    
    (13,140
    )Prepaid expenses and other current assets
    
    
    303
    
    
    
    2,070
    
    
    
    (1,249
    )
    
    
    1,124Other assets
    
    
    (288
    )
    
    
    959
    
    
    
    (406
    )
    
    
    265Accounts payable
    
    
    661
    
    
    
    1,169
    
    
    
    20,183
    
    
    
    22,013Accrued liabilities
    
    
    1,488
    
    
    
    15,194
    
    
    
    5,271
    
    
    
    21,953Income taxes payable
    
    
    3⁄4
    
    
    
    15,753
    
    
    
    (2,620
    )
    
    
    13,133Net cash (used in) provided by operating activities
    
    
    (4,480
    )
    
    
    60,890
    
    
    
    74,185
    
    
    
    130,595Cash flows from investing activities:Capital expenditures
    
    
    (5,019
    )
    
    
    (18,524
    )
    
    
    (28,914
    )
    
    
    (52,457
    )Business acquisitions, net of cash acquired
    
    
    3⁄4
    
    
    
    (65,074
    )
    
    
    (5,545
    )
    
    
    (70,619
    )Net cash used in investing activities
    
    
    (5,019
    )
    
    
    (83,598
    )
    
    
    (34,459
    )
    
    
    (123,076
    )Cash flows from financing activities:Borrowings on lines of credit
    
    
    3⁄4
    
    
    
    75,000
    
    
    
    8,482
    
    
    
    83,482Payments on lines of credit
    
    
    (14,900
    )
    
    
    (27,921
    )
    
    
    (21,124
    )
    
    
    (63,945
    )Borrowings on long-term debt
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    5,592
    
    
    
    5,592Payments on long-term debt
    
    
    3⁄4
    
    
    
    (3,647
    )
    
    
    (10,831
    )
    
    
    (14,478
    )Proceeds from stock option exercises
    
    
    9,718
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    9,718Intercompany
    
    
    14,846
    
    
    
    (20,884
    )
    
    
    6,038
    
    
    
    3⁄4Net cash provided by (used in) financing activities
    
    
    9,664
    
    
    
    22,548
    
    
    
    (11,843
    )
    
    
    20,369Effect of exchange rate changes on cash
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (557
    )
    
    
    (557
    )Net increase (decrease) in cash and cash equivalents
    
    
    165
    
    
    
    (160
    )
    
    
    27,326
    
    
    
    27,331Cash and cash equivalents, beginning of period
    
    
    (1,235
    )
    
    
    9,649
    
    
    
    19,452
    
    
    
    27,866Cash and cash equivalents, end of period
    
    $
    (1,070
    )
    
    $
    9,489
    
    
    $
    46,778
    
    
    $
    55,197
 81




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
  .
    
 82




---



##### 



ROGER CLEVELAND GOLF COMPANY, INC.
 
 BALANCE SHEETS
 October 31,
    
    
    October 31,In thousands (except share amounts)
    
    2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,855
    
    
    $
    986Accounts receivable, less allowance for bad debts of $1,000
(2006) and $1,354 (2005)
    
    
    36,987
    
    
    
    30,659Income tax receivable
    
    
    
    
    
    
    1,497Inventories
    
    
    27,122
    
    
    
    36,758Deferred income taxes
    
    
    2,349
    
    
    
    1,774Prepaid expenses and other current assets
    
    
    2,661
    
    
    
    3,096Due from affiliates
    
    
    8,591
    
    
    
    2,326Total current assets
    
    
    79,565
    
    
    
    77,096Equipment and leasehold improvements, net
    
    
    3,801
    
    
    
    3,531Other intangible assets, net
    
    
    3,150
    
    
    
    3,385Goodwill
    
    
    2,472
    
    
    
    2,472Deferred income taxes
    
    
    353
    
    
    
    Other assets
    
    
    274
    
    
    
    259Total assets
    
    $
    89,615
    
    
    $
    86,743LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Line of credit
    
    $
    
    
    
    $
    1,000Accounts payable
    
    
    3,525
    
    
    
    7,828Accrued payroll and benefits
    
    
    2,677
    
    
    
    1,692Other accrued expenses
    
    
    3,408
    
    
    
    6,614Due to affiliates
    
    
    1,357
    
    
    
    524Income taxes payable
    
    
    1,343
    
    
    
    Total current liabilities
    
    
    12,310
    
    
    
    17,658Deferred income taxes
    
    
    
    
    
    
    3Long-term debt:Due to affiliates
    
    
    45,000
    
    
    
    35,000Other long-term debt
    
    
    
    
    
    
    4,285Total long-term debt
    
    
    45,000
    
    
    
    39,285Stockholders equity:Common stock no par value  500,000 shares authorized; 290,224
shares issued and outstanding
    
    
    22,000
    
    
    
    22,000Retained earnings
    
    
    10,305
    
    
    
    7,755Accumulated other comprehensive income
    
    
    
    
    
    
    42Total stockholders equity
    
    
    32,305
    
    
    
    29,797Total liabilities and stockholders equity
    
    $
    89,615
    
    
    $
    86,743
 83




---



##### 



ROGER CLEVELAND GOLF COMPANY, INC.
 
 STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 Year ended
    
    
    Three months endedIn thousands
    
    October 31, 2006
    
    
    October 31, 2005Revenues, net
    
    $
    151,236
    
    
    $
    37,849Cost of goods sold
    
    
    84,983
    
    
    
    20,602Gross profit
    
    
    66,253
    
    
    
    17,247Selling, general, and administrative expense
    
    
    58,702
    
    
    
    14,316Operating income
    
    
    7,551
    
    
    
    2,931Interest expense
    
    
    3,305
    
    
    
    450Other income
    
    
    (78
    )
    
    
    (46
    )Income before provision for income taxes
    
    
    4,324
    
    
    
    2,527Provision for income taxes
    
    
    1,774
    
    
    
    679Net income
    
    
    2,550
    
    
    
    1,848(Loss) gain on derivative instruments, net of tax
    
    
    (42
    )
    
    
    3Comprehensive income
    
    $
    2,508
    
    
    $
    1,851
 STATEMENTS OF STOCKHOLDERS EQUITY
 
 Year Ended October 31, 2006 and Three Months Ended October 31, 2005
 Accumulatedother
    
    
    TotalCommon Stock
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersIn thousands, except shares
    
    Shares
    
    
    Amounts
    
    
    Earnings
    
    
    Income
    
    
    EquityBalance, July 31, 2005
    
    
    290,224
    
    
    $
    22,000
    
    
    $
    5,907
    
    
    $
    39
    
    
    $
    27,946Unrealized gain on derivative
instruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Net income
    
    
    
    
    
    
    
    
    
    
    1,848
    
    
    
    
    
    
    
    1,848Balance, October 31, 2005
    
    
    290,224
    
    
    
    22,000
    
    
    
    7,755
    
    
    
    42
    
    
    
    29,797Unrealized loss on derivative
instruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42
    )
    
    
    (42
    )Net income
    
    
    
    
    
    
    
    
    
    
    2,550
    
    
    
    
    
    
    
    2,550Balance, October 31, 2006
    
    
    290,224
    
    
    $
    22,000
    
    
    $
    10,305
    
    
    $
    
    
    
    $
    32,305
 84




---



##### 



ROGER CLEVELAND GOLF COMPANY, INC.
 
 STATEMENTS OF CASH FLOWS
 Year ended
    
    
    Three months endedIn thousands
    
    October 31, 2006
    
    
    October 31, 2005Cash flows from operating activities:Net income
    
    $
    2,550
    
    
    $
    1,848Adjustments to reconcile net income to net cash used in
operating activities:Depreciation and amortization
    
    
    1,888
    
    
    
    513Gain on disposal of equipment
    
    
    
    
    
    
    (5
    )Deferred income taxes
    
    
    (931
    )
    
    
    (1,076
    )Changes in assets and liabilities:Accounts receivable, net
    
    
    (6,328
    )
    
    
    (5,459
    )Inventories
    
    
    9,636
    
    
    
    (7,862
    )Prepaid expenses and other current assets
    
    
    435
    
    
    
    (339
    )Other assets
    
    
    (15
    )
    
    
    68Accounts payable
    
    
    (4,303
    )
    
    
    117Due from affiliates and due to affiliates
    
    
    (5,432
    )
    
    
    (709
    )Accrued expenses
    
    
    (2,221
    )
    
    
    931Income taxes payable
    
    
    2,840
    
    
    
    1,873Net cash used in operating activities
    
    
    (1,881
    )
    
    
    (10,100
    )Cash flows from investing activities:Purchase of equipment and leasehold improvements
    
    
    (1,923
    )
    
    
    (664
    )Net cash used in investing activities
    
    
    (1,923
    )
    
    
    (664
    )Cash flows from financing activities:Proceeds from line of credit
    
    
    6,735
    
    
    
    1,000Payments on line of credit
    
    
    (7,735
    )
    
    
    (714
    )Proceeds from affiliate loans
    
    
    31,000
    
    
    
    42,000Payments of affiliate loans
    
    
    (21,000
    )
    
    
    (32,500
    )Payments of long-term debt
    
    
    (4,327
    )
    
    
    Net cash provided by financing activities
    
    
    4,673
    
    
    
    9,786Net increase (decrease) in cash
    
    
    869
    
    
    
    (978
    )Cash, beginning of period
    
    
    986
    
    
    
    1,964Cash, end of period
    
    $
    1,855
    
    
    $
    986Supplemental disclosures of cash flow information:Cash (received) paid during the period for:Interest
    
    $
    2,920
    
    
    $
    178Taxes
    
    $
    (162
    )
    
    $
    
 85




---



##### 



ROGER CLEVELAND GOLF COMPANY, INC.
 
 NOTES TO FINANCIAL STATEMENTS
 Note 1 3⁄4 Summary of Significant Accounting Policies
 Basis of Presentation
   Cash Equivalents
  Credit Risk
  Inventories
  Equipment and Leasehold Improvements
  Long-Lived Assets and Goodwill
  Goodwill and Other
Intangible Assets
 86




---



##### 



ROGER CLEVELAND GOLF COMPANY, INC.
 NOTES TO FINANCIAL STATEMENTS
 Revenue Recognition
  Accounting for Consideration Given
by a Vendor to a Customer (Including a Reseller of the Vendors Products)
 Warranties
  October 31,
    
    
    October 31,In thousands
    
    2006
    
    
    2005Balance, beginning of period
    
    $
    435
    
    
    $
    447Warranty expense
    
    
    400
    
    
    
    96Repairs and replacements made
    
    
    (487
    )
    
    
    (108
    )Balance, end of period
    
    $
    348
    
    
    $
    435
 Income Taxes
 Accounting for Income Taxes
 Advertising Costs
  Research and Development
  87




---



##### 



ROGER CLEVELAND GOLF COMPANY, INC.
 NOTES TO FINANCIAL STATEMENTS
 Use of Estimates
  Derivative Financial Instruments
  Fair Value of Financial Instruments
  New Accounting Pronouncements
    88




---



##### 



ROGER CLEVELAND GOLF COMPANY, INC.
 NOTES TO FINANCIAL STATEMENTS
    Note 2 3⁄4 Intangible Assets
  October 31,2006
    
    
    2005Gross
    
    
    Accumulated
    
    
    
    
    
    
    Gross
    
    
    AccumulatedIn thousands
    
    Amount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetTradenames and trademarks
    
    $
    3,100
    
    
    $
    (689
    )
    
    $
    2,411
    
    
    $
    3,100
    
    
    $
    (482
    )
    
    $
    2,618Patents
    
    
    1,643
    
    
    
    (1,371
    )
    
    
    272
    
    
    
    1,346
    
    
    
    (1,115
    )
    
    
    231Customer relationships
    
    
    700
    
    
    
    (233
    )
    
    
    467
    
    
    
    700
    
    
    
    (164
    )
    
    
    536$
    5,443
    
    
    $
    (2,293
    )
    
    $
    3,150
    
    
    $
    5,146
    
    
    $
    (1,761
    )
    
    $
    3,385
  Note 3 3⁄4 Inventories
  October 31,
    
    
    October 31,In thousands
    
    2006
    
    
    2005Raw materials
    
    $
    12,287
    
    
    $
    18,464Work in process
    
    
    41
    
    
    
    97Finished goods
    
    
    14,794
    
    
    
    18,197$
    27,122
    
    
    $
    36,758
 89




---



##### 



ROGER CLEVELAND GOLF COMPANY, INC.
 NOTES TO FINANCIAL STATEMENTS
 Note 4 3⁄4 Equipment and Leasehold Improvements
  Estimated
    
    
    October 31,
    
    
    October 31,In thousands
    
    useful life
    
    
    2006
    
    
    2005Leasehold improvements
    
    10 years
    
    $
    1,131
    
    
    $
    1,052Machinery and equipment
    
    
    3 to 7 years
    
    
    
    3,011
    
    
    
    2,451Office furniture and equipment
    
    
    3 to 5 years
    
    
    
    4,346
    
    
    
    3,816Transportation equipment
    
    3 years
    
    
    1,203
    
    
    
    729Construction in progress
    
    
    
    
    
    
    146
    
    
    
    2299,837
    
    
    
    8,277Accumulated depreciation and amortization
    
    
    
    
    
    
    (6,036
    )
    
    
    (4,746
    )$
    3,801
    
    
    $
    3,531
 Note 5 3⁄4 Debt
     90




---



##### 



ROGER CLEVELAND GOLF COMPANY, INC.
 NOTES TO FINANCIAL STATEMENTS
 Note 6 3⁄4 Income Taxes
  Year ended
    
    
    Three months endedIn thousands
    
    October 31, 2006
    
    
    October 31, 2005Current income taxes:Federal
    
    $
    2,186
    
    
    $
    1,750State
    
    
    492
    
    
    
    292,678
    
    
    
    1,779Deferred income taxes:Federal
    
    $
    (554
    )
    
    $
    (368
    )State
    
    
    (350
    )
    
    
    (732
    )(904
    )
    
    
    (1,100
    )$
    1,774
    
    
    $
    679
  In thousands
    
    2006
    
    
    2005Provision for income taxes at statutory rate
    
    
    35.0
    %
    
    
    35.0
    %State income taxes, net of federal income tax benefit
    
    
    2.1
    
    
    
    3.8Other
    
    
    3.9
    
    
    
    (11.9
    )Effective income tax rate
    
    
    41.0
    %
    
    
    26.9
    %
  October 31,
    
    
    October 31,In thousands
    
    2006
    
    
    2005Allowance for bad debts
    
    $
    425
    
    
    $
    576Prepaid expenses
    
    
    (258
    )
    
    
    (1,014
    )Accruals
    
    
    893
    
    
    
    1,000Other
    
    
    1,642
    
    
    
    1,209$
    2,702
    
    
    $
    1,771
  Note 7 3⁄4 Related Party Transactions
  October 31,
    
    
    October 31,In thousands
    
    2006
    
    
    2005Affiliated debt due to Quiksilver Americas, Inc.
    
    $
    45,000
    
    
    $
    35,000Amounts due to Parent and other Parent subsidiaries
    
    
    1,357
    
    
    
    524Amounts due from Parent and other Parent subsidiaries
    
    
    (8,591
    )
    
    
    (2,326
    )$
    37,766
    
    
    $
    33,198
  91




---



##### 



ROGER CLEVELAND GOLF COMPANY, INC.
 NOTES TO FINANCIAL STATEMENTS
   Note 8 3⁄4 Commitments and Contingencies
  In thousands2007
    
    $
    1,4582008
    
    
    1,4082009
    
    
    1,3872010
    
    
    1,2772011
    
    
    1,275Thereafter
    
    
    3,928$
    10,733
  In thousands2007
    
    $
    8,5162009
    
    
    6,3292009
    
    
    1,351$
    16,196
  Indemnities, Commitments, and Guarantees
  92




---



##### 



ROGER CLEVELAND GOLF COMPANY, INC.
 NOTES TO FINANCIAL STATEMENTS
  Litigation
  Note 9 3⁄4 Employee Incentive Plans and Agreements
   Note 10 3⁄4 Segment and Product Information
   Percentage of Revenues2006
    
    2005Woods
    
    
    56
    %
    
    
    51
    %Irons
    
    
    38
    
    
    
    44Putters
    
    
    3
    
    
    
    3Accessories and other
    
    
    3
    
    
    
    2100
    %
    
    
    100
    %
  Percentage of Revenues2006
    
    2005United States
    
    
    73
    %
    
    
    80
    %Asia/Pacific
    
    
    15
    
    
    
    10Europe
    
    
    8
    
    
    
    8Other Americas
    
    
    4
    
    
    
    2100
    %
    
    
    100
    %
 93




---



##### 



SIGNATURES
   QUIKSILVER, INC.
(Registrant)
 By:
    
    /s/ Robert B. McKnight, Jr.
    
    
    
    By:
    
    /s/ Steven L. BrinkRobert B. McKnight, Jr.
    
    
    
    
    
    Steven L. BrinkChairman of the Board and
    
    
    
    
    
    Chief Financial OfficerChief Executive Officer
    
    
    
    
    
    and Treasurer
   Signatures
    
    Title
    
    Date Signed/s/ Robert B. McKnight, Jr.

Robert B. McKnight, Jr.
    
    Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
    
    January 11, 2007/s/ Steven L. Brink

Steven L. Brink
    
    Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)
    
    January 11, 2007/s/ Bernard Mariette

Bernard Mariette
    
    President and Director
    
    January 11, 2007/s/ Charles S. Exon

Charles Exon
    
    Executive Vice President,
General Counsel and Director
    
    January 11, 2007/s/ Douglas K. Ammerman

Douglas K. Ammerman
    
    Director
    
    January 11, 2007/s/ William M. Barnum, Jr.

William M. Barnum, Jr.
    
    Director
    
    January 11, 2007
 94




---



##### 



Signatures
    
    Title
    
    Date SignedLaurent Boix-Vives
    
    Director
    
    January 11, 2007/s/ Charles E. Crowe

Charles E. Crowe
    
    Director
    
    January 11, 2007/s/ Michael H. Gray

Michael H. Gray
    
    Director
    
    January 11, 2007/s/ Timothy Harmon

Timothy Harmon
    
    Director
    
    January 11, 2007/s/ Heidi J. Ueberroth

Heidi J. Ueberroth
    
    Director
    
    January 11, 2007
 95




---



##### 



EXHIBIT INDEX
 ExhibitNumber
    
    DESCRIPTION2.1
    
    English Translation of the Acquisition Agreement, dated April 12, 2005, between the
Company and Mr. Laurent Boix-Vives, Ms. Jeannine Boix-Vives, Ms. Christine Simon, Ms. Sylvie
Bernard and SDI Société de Services et Développement (incorporated by reference to Exhibit
10.1 of the Companys Current Report on Form 8-K filed on April 18, 2005).2.2
    
    Stock Purchase Agreement between the Company and the Sellers of DC Shoes, Inc. dated
March 8, 2004 (incorporated by reference to Exhibit 2.1 of the Companys Current Report on
Form 8-K filed on May 18, 2004).2.3
    
    First Amendment to the Stock Purchase Agreement between the Company and the Sellers of
DC Shoes, Inc. dated May 3, 2004 (incorporated by reference to Exhibit 2.2 of the Companys
Current Report on Form 8-K filed on May 18, 2004).3.1
    
    Restated Certificate of Incorporation of Quiksilver, Inc., as amended (incorporated by
reference to Exhibit 3.1 of the Companys Annual Report on Form 10-K for the year ended
October 31, 2004).3.2
    
    Certificate of Amendment of Restated Certificate of Incorporation of Quiksilver, Inc.
(incorporated by reference to Exhibit 10.1 of the Companys Quarterly Report on Form 10-Q
for the quarter ended April 30, 2005).3.3
    
    Amended and Restated Bylaws of Quiksilver, Inc. (incorporated by reference to Exhibit
3.2 of the Companys Annual Report on Form 10-K for the year ended October 31, 2003).4.1
    
    Indenture for the 6 7/8% Senior Notes due 2015 dated July 22, 2005, among Quiksilver,
Inc., the subsidiary guarantors set forth therein and Wilmington Trust Company, as trustee,
including the form of Global Note attached thereto (incorporated by reference to Exhibit 4.1
of the Companys Current Report on Form 8-K filed July 25, 2005).10.1
    
    Registration Rights Agreement for the 6 7/8% Senior Notes due 2015 dated as of July 22,
2005, among Quiksilver, Inc., certain subsidiaries of Quiksilver, Inc. and the purchasers
listed therein (incorporated by reference to Exhibit 10.1 of the Companys Current Report on
Form 8-K filed July 25, 2005)10.2
    
    Purchase Agreement for the
67/8% Senior Notes due 2015
dated July 14, 2005, among Quiksilver, Inc., certain subsidiaries of Quiksilver, Inc. and
the purchasers listed therein (incorporated by reference to Exhibit 10.2 of the Companys
Quarterly Report on Form 10-Q for the quarter ended July 31, 2005).10.3
    
    English translation of Subscription Agreement for the 3.231% EUR 50,000,000 notes due
July, 2010 dated July 11, 2005 among Skis Rossignol S.A. and certain subsidiaries and
Societe Generale Bank & Trust (incorporated by reference to Exhibit 10.3 of the Companys
Quarterly Report on Form 10-Q for the quarter ended July 31, 2005).10.4
    
    Amended and Restated Credit Agreement, dated as of June 3, 2005, by and among the
Company, Quiksilver Americas, Inc., the Lenders named therein, JPMorgan Chase Bank, N.A., as
Administrative Agent, and J.P. Morgan Securities, Inc. as Sole Bookrunner and Sole Lead
Arranger (the Amended and Restated Credit Agreement) (incorporated by reference to Exhibit
10.5 of the Companys Quarterly Report on Form 10-Q for the quarter ended April 30, 2005).10.5
    
    First Amendment to the Amended and Restated Credit Agreement dated October 28, 2005
(incorporated by reference to Exhibit 10.5 of the Companys Annual Report on Form 10-K for
the year ended October 31, 2005).10.6
    
    Second Amendment to the Amended and Restated Credit Agreement dated January 17, 2006
(incorporated by reference to Exhibit 10.6 of the Companys Annual Report on Form 10-K for
the year ended October 31, 2005).
 96




---



##### 



ExhibitNumber
    
    DESCRIPTION10.7
    
    Third Amendment to the Amended and Restated Credit Agreement dated March 27, 2006.10.8
    
    Form of Indemnity Agreement between Quiksilver, Inc. and individual directors and
officers of Quiksilver, Inc. (1)10.9
    
    Quiksilver, Inc. Annual Incentive Plan, as restated (incorporated by reference to
Exhibit 10.2 of the Companys Quarterly Report on Form 10-Q for the quarter ended April 30,
2005).(1)10.10
    
    Quiksilver, Inc. 2000 Stock Incentive Plan, as amended and restated, together with form
Stock Option Agreements (incorporated by reference to Exhibit 10.1 of the Companys Current
Report on Form 8-K filed on March 28, 2006).(1)10.11
    
    Quiksilver, Inc. 1996 Stock Option Plan, together with form Stock Option Agreements. (1)10.12
    
    Quiksilver, Inc. 1998 Nonemployee Directors Stock Option Plan, together with form
Stock Option Agreement (incorporated by reference to Exhibit 10.9 of the Companys Annual
Report on Form 10-K for the year ended October 31, 2004).(1)10.13
    
    Employment Agreement between David Morgan and Quiksilver, Inc. dated December 22, 2006.
(1)10.14
    
    Employment Agreement between Robert B. McKnight, Jr. and Quiksilver, Inc. dated May 25,
2005 (incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K
filed on May 27, 2005).(1)10.15
    
    Amendment to Employment Agreement between Robert B. McKnight, Jr. and Quiksilver, Inc.
dated December 21, 2006. (1)10.16
    
    Employment Agreement between Bernard Mariette and Quiksilver, Inc. dated May 25, 2005
(incorporated by reference to Exhibit 10.2 of the Companys Current Report on Form 8-K filed
on May 27, 2005).(1)10.17
    
    Amendment to Employment Agreement between Bernard Mariette and Quiksilver, Inc. dated
December 21, 2006. (1)10.18
    
    Employment Agreement between Charles S. Exon and Quiksilver, Inc. dated May 25, 2005
(incorporated by reference to Exhibit 10.3 of the Companys Current Report on Form 8-K filed
on May 27, 2005).(1)10.19
    
    Amendment to Employment Agreement between Charles S. Exon and Quiksilver, Inc. dated
December 21, 2006. (1)10.20
    
    Employment Agreement between Steven L. Brink and Quiksilver, Inc. dated May 25, 2005
(incorporated by reference to Exhibit 10.4 of the Companys Current Report on Form 8-K filed
on May 27, 2005).(1)10.21
    
    Amendment to Employment Agreement between Steven L. Brink and Quiksilver, Inc. dated
December 21, 2006. (1)10.22
    
    Quiksilver, Inc. Written Description of Nonemployee Director Compensation.(1)10.23
    
    Quiksilver, Inc. Long Term Incentive Plan (incorporated by reference to Exhibit 10.20
of the Companys Annual Report on Form 10-K for the year ended October 31, 2004).(1)10.24
    
    Award grant under Quiksilver, Inc. Long-Term Incentive Plan dated January 25, 2006
(incorporated by reference to Exhibit 10.1 of the Companys Quarterly Report on Form 10-Q
for the quarter ended January 31, 2005).(1)10.25
    
    Award grant under Quiksilver, Inc. Long-Term Incentive Plan dated December 20, 2006.(1)10.26
    
    English translation for the Roger Cleveland Shareholders Agreement between Quiksilver,
Rossignol Ski Company, Inc., Skis Rossignol, S.A., Laurent Boix-Vives, Jeannine Boix-Vives,
Christine Simon, Sylvie Bernard and SDI Société Service et Developpement dated April 12,
2005 (incorporated by reference to Exhibit 2.7 of Exhibit 10.1 to the Companys Current
Report of Form 8-K filed on April 18, 2005).
 97




---



##### 



ExhibitNumber
    
    DESCRIPTION10.27
    
    English Translation of the Service Provision Agreement between Quiksilver, Inc. and
Service Expansion International dated April 12, 2005 (incorporated by reference to Exhibit
10.20 to the Companys Annual Report on Form 10-K for the year ended October 31, 2005).10.28
    
    Quiksilver, Inc. 2006 Restricted Stock Plan (incorporated by reference to Exhibit 10.2
to the Companys Current Report on Form 8-K filed on March 28, 2006). (1)10.29
    
    Standard Form of Restricted Stock Issuance Agreement under the Quiksilver, Inc. 2006
Restricted Stock Plan (incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on October 4, 2006). (1)10.30
    
    Amendments to executive officer base salaries effective as of November 1, 2006. (1)10.31
    
    Fourth Amendment to Amended and Restated Credit Agreement dated December 22, 2006.21.1
    
    Subsidiaries of Quiksilver, Inc.23.1
    
    Consent of Deloitte & Touche LLP24.1
    
    Power of Attorney (included on signature page).31.1
    
    Rule 13a-14(a)/15d-14(a) Certifications  Principal Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a) Certifications  Principal Financial Officer32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
The Sarbanes-Oxley Act of 200332.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
The Sarbanes-Oxley Act of 2003
 
 (1)
    
    Management contract or compensatory plan. 98