Exhibit 99.3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Quiksilver, Inc. and subsidiaries (the “Company”) as of October 31, 2009 and 2008, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended October 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2009 and 2008, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 12 to the consolidated financial statements, the Company changed its method of accounting for income tax uncertainties during the year ended October  31, 2008 as a result of adopting Accounting Standards Codification 740, “Accounting for Uncertainty in Income Taxes.” As discussed in Note 1 to the consolidated financial statements, the Company adopted guidance requiring retrospective application relating to non-controlling interests during the first quarter of fiscal 2010.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of October 31, 2009, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated January 12, 2010 (not presented herein) expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ Deloitte & Touche LLP

Costa Mesa, California
January 12, 2010 (June 25, 2010 as to the effect of the November 1, 2009 adoption of the new accounting standards requiring retrospective application described in Note 1)

QUIKSILVER, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended October 31, 2009, 2008 and 2007

In thousands, except per share amounts		2009				2008				2007
Revenues, net		$	1,977,526			$	2,264,636			$	2,047,072
Cost of goods sold			1,046,495				1,144,050				1,062,027
Gross profit			931,031				1,120,586				985,045
Selling, general and administrative expense			851,746				915,933				782,263
Asset impairments			10,737				65,797				—
Operating income			68,548				138,856				202,782
Interest expense, net			63,924				45,327				46,571
Foreign currency loss (gain)			8,633				(5,761	)			4,857
Other (income) expense			(387	)			29				195
(Loss) income before provision for income taxes			(3,622	)			99,261				151,159
Provision for income taxes			66,667				33,027				34,506
(Loss) income from continuing operations			(70,289	)			66,234				116,653
Loss from discontinued operations, net of tax			(118,827	)			(291,809	)			(237,846	)
Net loss			(189,116	)			(225,575	)			(121,193	)
Less: net (income) loss attributable to non-controlling interest			(2,926	)			(690	)			74
Net loss attributable to Quiksilver, Inc.		$	(192,042	)		$	(226,265	)		$	(121,119	)
(Loss) income per share from continuing operations attributable to Quiksilver, Inc.		$	(0.58	)		$	0.52			$	0.94
Loss per share from discontinued operations attributable to Quiksilver, Inc.			(0.94	)			(2.32	)			(1.92	)
Net loss per share attributable to Quiksilver, Inc.		$	(1.51	)		$	(1.80	)		$	(0.98	)
(Loss) income per share from continuing operations attributable to Quiksilver, Inc., assuming dilution		$	(0.58	)		$	0.51			$	0.90
Loss per share from discontinued operations attributable to Quiksilver, Inc., assuming dilution			(0.94	)			(2.25	)			(1.83	)
Net loss per share attributable to Quiksilver, Inc., assuming dilution		$	(1.51	)		$	(1.75	)		$	(0.93	)
Weighted average common shares outstanding			127,042				125,975				123,770
Weighted average common shares outstanding, assuming dilution			127,042				129,485				129,706
Amounts attributable to Quiksilver, Inc.:
(Loss) income from continuing operations		$	(73,215	)		$	65,544			$	116,727
Loss from discontinued operations, net of tax			(118,827	)			(291,809	)			(237,846	)
Net loss		$	(192,042	)		$	(226,265	)		$	(121,119	)

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Years Ended October 31, 2009, 2008 and 2007

In thousands		2009				2008				2007
Net loss		$	(189,116	)		$	(225,575	)		$	(121,193	)
Other comprehensive income (loss):
Foreign currency translation adjustment			99,798				(111,920	)			116,882
Reclassification adjustment for foreign currency translation included in current period loss from discontinued operations			(47,850	)			—				—
Net (loss) gain on derivative instruments, net of tax (benefit) provision of $(19,965) (2009), $26,322 (2008) and $(10,368) (2007)			(37,062	)			44,313				(21,859	)
Comprehensive loss			(174,230	)			(293,182	)			(26,170	)
Comprehensive income attributable to non-controlling interest			(2,926	)			(690	)			74
Comprehensive loss attributable to Quiksilver, Inc.		$	(177,156	)		$	(293,872	)		$	(26,096	)

See notes to consolidated financial statements.

QUIKSILVER, INC.

CONSOLIDATED BALANCE SHEETS
October 31, 2009 and 2008

In thousands, except share amounts		2009				2008
ASSETS
Current assets:
Cash and cash equivalents		$	99,516			$	53,042
Restricted cash			52,706				—
Trade accounts receivable, net			430,884				470,059
Other receivables			25,615				70,376
Income taxes receivable			—				10,738
Inventories			267,730				312,138
Deferred income taxes			76,638				12,220
Prepaid expenses and other current assets			37,333				25,869
Current assets held for sale			1,777				411,442
Total current assets			992,199				1,365,884
Restricted cash			—				46,475
Fixed assets, net			239,333				235,528
Intangible assets, net			142,954				144,434
Goodwill			333,758				299,350
Other assets			75,353				39,594
Deferred income taxes long-term			69,011				39,000
Total assets		$	1,852,608			$	2,170,265
LIABILITIES AND EQUITY
Current liabilities:
Lines of credit		$	32,592			$	238,317
Accounts payable			162,373				235,729
Accrued liabilities			116,274				93,548
Current portion of long-term debt			95,231				31,904
Income taxes payable			23,574				—
Liabilities related to assets held for sale			458				135,071
Total current liabilities			430,502				734,569
Long-term debt, net of current portion			911,430				790,097
Other long-term liabilities			46,643				35,095
Non-current liabilities related to assets held for sale			—				6,026
Total liabilities			1,388,575				1,565,787
Commitments and contingencies — Note 9
Equity:
Preferred stock, $.01 par value, authorized shares - 5,000,000; issued and outstanding shares — none			—				—
Common stock, $.01 par value, authorized shares - 185,000,000; issued shares - 131,484,363 (2009) and 130,622,566 (2008)			1,315				1,306
Additional paid-in capital			368,285				334,509
Treasury stock, 2,885,200 shares			(6,778	)			(6,778	)
(Accumulated deficit) retained earnings			(1,623	)			190,419
Accumulated other comprehensive income			95,396				80,510
Total Quiksilver, Inc. stockholders’ equity			456,595				599,966
Non-controlling interest			7,438				4,512
Total equity			464,033				604,478
Total liabilities and equity		$	1,852,608			$	2,170,265

See notes to consolidated financial statements.

QUIKSILVER, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended October 31, 2009, 2008 and 2007

																		Retained				Accumulated
										Additional								Earnings				Other				Non-
		Common Stock								Paid-in				Treasury				(Accumulated				Comprehensive				Controlling				Total
In thousands		Shares				Amounts				Capital				Stock				Deficit)				Income (Loss)				Interest				Equity
Balance, October 31, 2006			126,402			$	1,264			$	274,488			$	(6,778	)		$	559,059			$	53,094			$	1,694			$	882,821
Exercise of stock options			1,805				18				10,351				¾				¾				¾				¾				10,369
Tax benefit from exercise of stock options			¾				¾				2,896				¾				¾				¾				¾				2,896
Stock compensation expense			¾				¾				17,210				¾				¾				¾				¾				17,210
Restricted stock			42				¾				¾				¾				¾				¾				¾				¾
Employee stock purchase plan			92				1				1,106				¾				¾				¾				¾				1,107
Business acquisitions			¾				¾				¾				¾				¾				¾				(383	)			(383	)
Net loss and other comprehensive income			¾				¾				¾				¾				(121,119	)			95,023				(74	)			(26,170	)
Balance, October 31, 2007			128,341				1,283				306,051				(6,778	)			437,940				148,117				1,237				887,850
Exercise of stock options			1,828				18				6,719				¾				¾				¾				¾				6,737
Tax benefit from exercise of stock options			¾				¾				2,994				¾				¾				¾				¾				2,994
Stock compensation expense			¾				¾				13,002				¾				¾				¾				¾				13,002
Restricted stock			(103	)			(1	)			1				¾				¾				¾				¾				¾
Employee stock purchase plan			257				3				1,867				¾				¾				¾				¾				1,870
Business acquisitions			300				3				3,875				¾				¾				¾				2,585				6,463
Adjustment due to adoption of uncertain tax position guidance			¾				¾				¾				¾				(21,256	)			¾				¾				(21,256	)
Net loss and other comprehensive loss			¾				¾				¾				¾				(226,265	)			(67,607	)			690				(293,182	)
Balance, October 31, 2008			130,623				1,306				334,509				(6,778	)			190,419				80,510				4,512				604,478
Tax benefit from exercise of stock options			¾				¾				439				¾				¾				¾				¾				439
Stock compensation expense			¾				¾				8,884				¾				¾				¾				¾				8,884
Restricted stock			310				3				(3	)			¾				¾				¾				¾				¾
Employee stock purchase plan			551				6				855				¾				¾				¾				¾				861
Stock warrants issued			¾				¾				23,601				¾				¾				¾				¾				23,601
Net loss and other comprehensive income			¾				¾				¾				¾				(192,042	)			14,886				2,926				(174,230	)
Balance, October 31, 2009			131,484			$	1,315			$	368,285			$	(6,778	)		$	(1,623	)		$	95,396			$	7,438			$	464,033

See notes to consolidated financial statements.

QUIKSILVER, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31, 2009, 2008 and 2007

In thousands		2009				2008				2007
Cash flows from operating activities:
Net loss		$	(189,116	)		$	(225,575	)		$	(121,193	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Loss from discontinued operations			118,827				291,809				237,846
Depreciation and amortization			55,004				57,231				46,852
Stock-based compensation and tax benefit on option exercises			8,415				9,588				13,234
Provision for doubtful accounts			16,235				15,948				7,790
Loss on disposal of fixed assets			4,194				350				2,479
Foreign currency (gain) loss			(103	)			(2,618	)			1,266
Asset impairments			10,737				65,797				—
Non-cash interest			3,441				—				—
Equity in earnings			(2	)			1,121				(136	)
Deferred income taxes			43,234				(10,445	)			(15,412	)
Changes in operating assets and liabilities, net of effects from business acquisitions:
Trade accounts receivable			60,783				(16,179	)			(57,217	)
Other receivables			14,914				(7,446	)			(13,030	)
Inventories			78,039				(32,786	)			(19,563	)
Prepaid expenses and other current assets			(157	)			(1,333	)			988
Other assets			5,422				(1,776	)			(3,426	)
Accounts payable			(79,026	)			36,961				21,650
Accrued liabilities and other long-term liabilities			5,421				(14,871	)			43,064
Income taxes payable			36,091				13,688				36,657
Cash provided by operating activities of continuing operations			192,353				179,464				181,849
Cash provided by (used in) operating activities of discontinued operations			13,815				(107,302	)			(57,597	)
Net cash provided by operating activities			206,168				72,162				124,252
Cash flows from investing activities:
Capital expenditures			(54,564	)			(90,948	)			(78,276	)
Business acquisitions, net of acquired cash			—				(31,127	)			(41,257	)
Changes in restricted cash			—				(46,475	)			—
Cash used in investing activities of continuing operations			(54,564	)			(168,550	)			(119,533	)
Cash provided by (used in) investing activities of discontinued operations			21,848				103,811				(40,957	)
Net cash used in investing activities			(32,716	)			(64,739	)			(160,490	)
Cash flows from financing activities:
Borrowings on lines of credit			10,346				185,777				71,846
Payments on lines of credit			(237,025	)			(47,161	)			(17,247	)
Borrowings on long-term debt			895,268				240,389				209,311
Payments on long-term debt			(726,852	)			(198,793	)			(101,611	)
Payments of debt issuance costs			(47,478	)			—				—
Stock option exercises, employee stock purchases and tax benefit on option exercises			862				11,602				14,253
Cash (used in) provided by financing activities of continuing operations			(104,879	)			191,814				176,552
Cash used in financing activities of discontinued operations			(11,136	)			(224,794	)			(96,735	)
Net cash (used in) provided by financing activities			(116,015	)			(32,980	)			79,817
Effect of exchange rate changes on cash			(10,963	)			4,251				(6,065	)
Net increase (decrease) in cash and cash equivalents			46,474				(21,306	)			37,514
Cash and cash equivalents, beginning of year			53,042				74,348				36,834
Cash and cash equivalents, end of year		$	99,516			$	53,042			$	74,348
Supplementary cash flow information:
Cash paid (received) during the year for:
Interest		$	58,094			$	70,023			$	62,894
Income taxes		$	(5,794	)		$	31,049			$	17,454
Non-cash investing and financing activities:
Deferred purchase price obligation		$	—			$	—			$	26,356
Common stock issued for business acquisitions		$	—			$	3,878			$	—
Transfer of Rossignol debt to continuing operations		$	—			$	78,322			$	—
Stock warrants issued		$	23,601			$	—			$	—

See notes to consolidated financial statements

QUIKSILVER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended October 31, 2009, 2008 and 2007

Note 1 — Significant Accounting Policies

Company Business

Quiksilver, Inc. and its subsidiaries (the “Company”) design, produce and distribute branded apparel, footwear, accessories and related products. The Company’s apparel and footwear brands represent a casual lifestyle for young-minded people that connect with its boardriding culture and heritage. The Company’s Quiksilver, Roxy, DC and Hawk brands are synonymous with the heritage and culture of surfing, skateboarding and snowboarding, and its beach and water oriented swimwear brands include Raisins, Radio Fiji and Leilani. The Company makes snowboarding equipment under its DC, Roxy, Lib Technologies, Gnu and Bent Metal labels. The Company’s products are sold in over 90 countries in a wide range of distribution channels, including surf shops, skateboard shops, snowboard shops, its proprietary concept stores, other specialty stores and select department stores. Distribution is primarily in the United States, Europe and Australia.

In November 2008, the Company sold its Rossignol business, including the related brands of Rossignol, Dynastar, Look and Lange, and in December 2007, the Company sold its golf equipment business. As a result, the Company has classified its Rossignol wintersports and golf equipment businesses as discontinued operations for all periods presented.

The Company is highly leveraged; however, management believes that its cash flow from operations, together with its existing credit facilities and term loans will be adequate to fund the Company’s capital requirements for at least the next twelve months. During fiscal 2009, the Company closed a $153.1 million five year senior secured term loan, refinanced its existing asset-based credit facility with a new $200 million three year asset-based credit facility for its Americas segment, and refinanced its short-term uncommitted lines of credit in Europe with a new €268 million multi-year facility. The closing of these transactions enabled the Company to extend a significant portion of its short-term maturities to a long-term basis. The Company also believes that its short-term uncommitted lines of credit in Asia/Pacific will continue to be made available. If these lines of credit are not made available, then the Company could be adversely affected.

Adjustment for Retrospective Application of New Accounting Standard Adopted

At the beginning of fiscal 2010, the Company adopted new accounting guidance related to the presentation of non-controlling interests, which required retrospective application. The financial statements and accompanying notes presented in this report have been adjusted for the retrospective application of this new accounting standard.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Quiksilver, Inc. and subsidiaries, including Pilot, SAS and subsidiaries (“Quiksilver Europe”) and Quiksilver Australia Pty Ltd. and subsidiaries (“Quiksilver Asia/Pacific” and “Quiksilver International”). Intercompany accounts and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Cash Equivalents

Certificates of deposit and highly liquid short-term investments purchased with original maturities of three months or less are considered cash equivalents. Carrying values approximate fair value.

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or market. Management regularly reviews the inventory quantities on hand and adjusts inventory values for excess and obsolete inventory based primarily on estimated forecasts of product demand and market value.

Fixed Assets

Furniture and other equipment, computer equipment, manufacturing equipment and buildings are recorded at cost and depreciated on a straight-line basis over their estimated useful lives, which generally range from two to twenty years. Leasehold improvements are recorded at cost and amortized over their estimated useful lives or related lease term, whichever is shorter. Land use rights for certain leased retail locations are amortized to estimated residual value.

Long-Lived Assets

The Company accounts for the impairment and disposition of long-lived assets in accordance with ASC 360, “Property, Plant, and Equipment.” In accordance with ASC 360, management assesses potential impairments of its long-lived assets whenever events or changes in circumstances indicate that an asset’s carrying value may not be recoverable. An impairment loss is recognized when the carrying value exceeds the undiscounted future cash flows estimated to result from the use and eventual disposition of the asset. The Company recorded approximately $10.7 million, $10.4 million and zero in fixed asset impairments in continuing operations as of October 31, 2009, 2008 and 2007, respectively.

Goodwill and Intangible Assets

The Company accounts for goodwill and intangible assets in accordance with ASC 350, “Intangibles - Goodwill and Other.” Under ASC 350, goodwill and intangible assets with indefinite lives are not amortized but are tested for impairment annually and also in the event of an impairment indicator. The annual impairment test is a fair value test as prescribed by ASC 350 which includes assumptions such as growth and discount rates. The Company determined that there was no impairment loss in continuing operations as of October 31, 2009, recorded approximately $55.4 million in goodwill impairment in continuing operations as of October 31, 2008, and had previously determined that there was no impairment loss in continuing operations as of October 31, 2007.

Revenue Recognition

Revenues are recognized upon the transfer of title and risk of ownership to customers. Allowances for estimated returns and doubtful accounts are provided when revenues are recorded. Returns and allowances are reported as reductions in revenues, whereas allowances for bad debts are reported as a component of selling, general and administrative expense. Royalty income is recorded as earned. The Company performs ongoing credit evaluations of its customers and generally does not require collateral.

Revenues in the Consolidated Statements of Operations include the following:

		Year Ended October 31,
In thousands		2009				2008				2007
Product shipments, net		$	1,961,389			$	2,254,245			$	2,040,289
Royalty income			16,137				10,391				6,783
		$	1,977,526			$	2,264,636			$	2,047,072

Promotion and Advertising

The Company’s promotion and advertising efforts include athlete sponsorships, world-class boardriding contests, websites, magazine advertisements, retail signage, television programs, co-branded products, surf camps, skate park tours and other events. For the fiscal years ended October 31, 2009, 2008 and 2007, these expenses totaled $101.8 million, $122.1 million and $102.9 million, respectively. Advertising costs are expensed when incurred.

Income Taxes

The Company accounts for income taxes using the asset and liability approach as promulgated by the authoritative guidance included in ASC Subtopic 740 “Income Taxes.” Deferred income tax assets and liabilities are established for temporary differences between the financial reporting bases and the tax bases of the Company’s assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or settled. Deferred income tax assets are reduced by a valuation allowance if, in the judgment of the Company’s management, it is more likely than not that such assets will not be realized.

On November 1, 2007, the Company adopted the authoritative guidance included in ASC Subtopic 740 “Income Taxes.” This guidance clarifies the accounting for uncertainty in income taxes recognized in the financial statements. This guidance provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the tax position. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of its provision for income taxes.

Stock-Based Compensation Expense

The Company recognizes compensation expense for all stock-based payments net of an estimated forfeiture rate and only recognizes compensation cost for those shares expected to vest using the graded vested method over the requisite service period of the award. For option valuation, the Company determines the fair value using the Black-Scholes option-pricing model which requires the input of certain assumptions, including the expected life of the stock-based payment awards, stock price volatility and interest rates.

Net (Loss) Income per Share

The Company reports basic and diluted earnings per share (“EPS”). Basic EPS is based on the weighted average number of shares outstanding during the period, while diluted EPS additionally includes the dilutive effect of the Company’s outstanding stock options, warrants and shares of restricted stock computed using the treasury stock method. For the year ended October 31, 2009, the weighted average common shares outstanding, assuming dilution, does not include 1,048,000 of dilutive stock options and shares of restricted stock as the effect is anti-dilutive. For the years ended October 31, 2008 and 2007, the weighted average common shares outstanding, assuming dilution, includes 3,510,000 and 5,936,000 shares, respectively, of dilutive stock options and restricted stock. For the years ended October 31, 2009, 2008 and 2007, additional option shares outstanding of 14,861,000, 12,392,000 and 11,375,000, respectively, and warrant shares outstanding of 25,654,000, zero and zero, respectively, were excluded from the calculation of diluted EPS, as their effect would have been anti-dilutive.

Foreign Currency and Derivatives

The Company’s reporting currency is the U.S. dollar, while Quiksilver Europe’s functional currencies are primarily the euro and the British pound, and Quiksilver Asia/Pacific’s functional currencies are primarily the Australian dollar and the Japanese yen. Assets and liabilities of the Company denominated in foreign currencies are translated at the rate of exchange on the balance sheet date. Revenues and expenses are translated using the average exchange rate for the period.

Derivative financial instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair value. The accounting for changes in the fair value of a derivative depends on the use and type of the derivative. The Company’s derivative financial instruments principally consist of foreign currency exchange contracts and interest rate swaps, which the Company uses to manage its exposure to the risk of foreign currency exchange rates and variable interest rates. The Company’s objectives are to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange and interest rates. The Company does not enter into derivative financial instruments for speculative or trading purposes.

Comprehensive Loss

Comprehensive loss or income includes all changes in stockholders’ equity except those resulting from investments by, and distributions to, stockholders. Accordingly, the Company’s Consolidated Statements of Comprehensive Loss include its net loss and the foreign currency adjustments that arise from the translation of the financial statements of Quiksilver Europe, Quiksilver Asia/Pacific and the foreign entities within the Americas segment into U.S. dollars and fair value gains and losses on certain derivative instruments.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The carrying value of the Company’s trade accounts receivable and accounts payable approximates its fair value due to their short-term nature.

Subsequent Events

The Company evaluated all subsequent events through the time that it filed its consolidated financial statements in this Form 10-K with the Securities and Exchange Commission on January 12, 2010.

New Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) issued the Accounting Standards Codification (“ASC”) Subtopic 105 “Generally Accepted Accounting Principles,” which establishes the Accounting Standards Codification as the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The subsequent issuances of new standards will be in the form of Accounting Standards Updates that will be included in the codification. This guidance is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company updated its historical U.S. GAAP references to comply with the codification effective at the beginning of its fiscal quarter ending October 31, 2009. The adoption of this guidance did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows, since the codification is not intended to change U.S. GAAP.

In September 2006, the FASB issued authoritative guidance included in ASC Subtopic 820 “Fair Value Measurements and Disclosures,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company adopted this guidance at the beginning of its fiscal year ending October 31, 2009. The adoption of this guidance did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows. See note 15 for certain required disclosures related to this guidance.

In February 2007, the FASB issued authoritative guidance included in ASC Subtopic 825 “Financial Instruments,” which permits companies to choose to measure certain financial instruments and other items at fair value that are not currently required to be measured at fair value. This guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company adopted this guidance at the beginning of its fiscal year ending October 31, 2009. The adoption of this guidance did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows, since the Company did not elect the fair value option for any assets or liabilities.

In December 2007, the FASB issued authoritative guidance included in ASC Subtopic 805 “Business Combinations,” which requires the Company to record fair value estimates of contingent consideration and certain other potential liabilities during the original purchase price allocation, expense acquisition costs as incurred and does not permit certain restructuring activities to be recorded as a component of purchase accounting. In April 2009, the FASB issued additional guidance that requires assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value, only if fair value can be reasonably estimated and eliminates the requirement to disclose an estimate of the range of outcomes of recognized contingencies at the acquisition date. This guidance is effective for financial statements issued for fiscal years beginning on or after December 15, 2008. The Company will adopt this guidance at the beginning of its fiscal year ending October 31, 2010 for all prospective business acquisitions. The Company has not determined the effect that the adoption of this guidance will have on its consolidated financial statements, but the impact will be limited to any future acquisitions beginning in fiscal 2010, except for certain tax treatment of previous acquisitions.

In December 2007, the FASB issued authoritative guidance included in ASC Subtopic 810 “Consolidation,” which requires noncontrolling interests in subsidiaries to be included in the equity section of the balance sheet. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company will adopt this guidance at the beginning of its fiscal year ending October 31, 2010. In the year of adoption, presentation and disclosure requirements apply retrospectively to all periods presented. These presentation and disclosure requirements resulted in the reclassification of minority interest liability to equity on the accompanying consolidated balance sheets and the movement of minority interest expense to a separate line after net loss on the accompanying consolidated statements of operations. Other than these presentation and disclosure changes, the adoption of this guidance did not have a material effect on the Company's consolidated financial position, results of operations or cash flows.

In March 2008, the FASB issued authoritative guidance included in ASC Subtopic 815 “Derivatives and Hedging,” which requires enhanced disclosures to enable investors to better understand how and why derivatives are used and their effects on an entity’s financial position, financial performance and cash flows. This guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company adopted this guidance at the beginning of its fiscal quarter ending April 30, 2009. The adoption of this guidance did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows. See note 15 for certain required disclosures related to this guidance.

In April 2009, the FASB issued authoritative guidance included in ASC Subtopic 825 “Financial Instruments,” which enhances consistency in financial reporting by increasing the frequency of fair value disclosures. This guidance is effective for interim periods ending after June 15, 2009 and the Company adopted this guidance during the three months ending July 31, 2009. The adoption of this guidance did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows. See note 15 for certain required disclosures related to this guidance.

In May 2009, the FASB issued authoritative guidance included in ASC Subtopic 855 “Subsequent Events,” which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date, but before financial statements are issued or are available to be issued. Specifically, this guidance provides (i) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This guidance is effective for interim or annual financial periods ending after June 15, 2009, and is

to be applied prospectively. The Company adopted this guidance as of July 31, 2009. The adoption of this guidance did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows. See section above, entitled “Subsequent Events,” for certain required disclosures related to this guidance.

Adjustments for the Retrospective Application of New Accounting Standard Adopted on November 1, 2009

		Consolidated Statements of Operations
						Adjustments for				As
		As Previously				Non-Controlling				Currently
In thousands		Reported				Interest				Reported
Year Ended October 31, 2009
Other expense (income)		$	2,539			$	(2,926	)		$	(387	)
Loss before provision for income taxes			(6,548	)			2,926				(3,622	)
Year Ended October 31, 2008
Other expense		$	719			$	(690	)		$	29
Income before provision for income taxes			98,571				690				99,261
Year Ended October 31, 2007
Other expense		$	121			$	74			$	195
Income before provision for income taxes			151,233				(74	)			151,159
		Consolidated Balance Sheets
						Adjustments for				As
		As Previously				Non-Controlling				Currently
In thousands		Reported				Interest				Reported
As of October 31, 2009
Liabilities and Equity
Other long-term liabilities		$	54,081			$	(7,438	)		$	46,643
Total liabilities			1,396,013				(7,438	)			1,388,575
Non-controlling interest			—				7,438				7,438
As of October 31, 2008
Liabilities and Equity
Other long-term liabilities		$	39,607			$	(4,512	)		$	35,095
Total liabilities			1,570,299				(4,512	)			1,565,787
Non-controlling interest			—				4,512				4,512
		Consolidated Statements of Cash Flows
						Adjustments for				As
		As Previously				Non-Controlling				Currently
In thousands		Reported				Interest				Reported
Year Ended October 31, 2009
Net loss		$	(192,042	)		$	2,926			$	(189,116	)
Equity in earnings and minority interest			2,924				(2,926	)			(2	)
Year Ended October 31, 2008
Net loss		$	(226,265	)		$	690			$	(225,575	)
Equity in earnings and minority interest			1,811				(690	)			1,121
Year Ended October 31, 2007
Net loss		$	(121,119	)		$	(74	)		$	(121,193	)
Equity in earnings and minority interest			(210	)			74				(136	)

Note 2 — Business Acquisitions

The Company did not engage in any business acquisitions, nor pay cash related to any prior business acquisitions, during the year ended October 31, 2009. For the years ended October 31, 2008 and 2007, the Company paid cash of approximately $31.1 million and $41.3 million respectively, in connection with certain business acquisitions, of which $19.2 million and $20.2 million for those same years relates to payments to the former owners of DC Shoes, Inc. in connection with the achievement of certain sales and earnings targets. The remaining $11.9 million and $21.1 million for the years ended October 31, 2008 and 2007 relate primarily to insignificant acquisitions of certain distributors, licensees and retail store locations.

Effective June 1, 2008, the Company acquired an additional 29% of Quiksilver Brazil for an aggregate purchase price of approximately $7.7 million, which included 300,180 shares of its common stock and approximately $3.9 million in cash. As a result of this transaction, the Company increased its ownership in Quiksilver Brazil to 51%.

Note 3 — Allowance for Doubtful Accounts

The allowance for doubtful accounts, which includes bad debts and returns and allowances, consists of the following:

		Year Ended October 31,
In thousands		2009				2008				2007
Balance, beginning of year		$	31,331			$	21,100			$	15,758
Provision for doubtful accounts			16,235				15,948				7,790
Deductions			(355	)			(5,717	)			(2,448	)
Balance, end of year		$	47,211			$	31,331			$	21,100

The provision for doubtful accounts represents charges to selling, general and administrative expense for estimated bad debts, whereas the provision for returns and allowances is reported as a reduction of revenues.

Note 4 — Inventories

Inventories consist of the following:

		October 31,
In thousands		2009				2008
Raw materials		$	6,904			$	9,156
Work in process			5,230				7,743
Finished goods			255,596				295,239
		$	267,730			$	312,138

Note 5 — Fixed Assets

Fixed assets consist of the following:

		October 31,
In thousands		2009				2008
Furniture and other equipment		$	199,380			$	178,200
Computer equipment			101,505				103,472
Leasehold improvements			137,966				134,320
Land use rights			42,671				38,508
Land and buildings			6,368				4,600
			487,890				459,100
Accumulated depreciation and amortization			(248,557	)			(223,572	)
		$	239,333			$	235,528

During the three months ended October 31, 2009 and 2008, the Company recorded approximately $10.7 million and $10.4 million, respectively, in fixed asset impairments in continuing operations, primarily related to impairment of leasehold improvements on certain underperforming U.S. retail stores. These stores were not generating positive cash flows and are not expected to become profitable in the future. As a result, the Company is working to close these stores as soon as possible. Any charges associated with future rent commitments will be charged to future earnings upon store closure.

Note 6 — Intangible Assets and Goodwill

A summary of intangible assets is as follows:

		October 31,
		2009												2008
In thousands		Gross Amount				Amortization				Net Book Value				Gross Amount				Amortization				Net Book Value
Amortizable trademarks		$	19,472			$	(6,745	)		$	12,727			$	18,976			$	(5,559	)		$	13,417
Amortizable licenses			12,237				(8,464	)			3,773				9,103				(5,386	)			3,717
Other amortizable intangibles			8,318				(4,695	)			3,623				8,103				(3,942	)			4,161
Non-amortizable trademarks			122,831				—				122,831				123,139				—				123,139
		$	162,858			$	(19,904	)		$	142,954			$	159,321			$	(14,887	)		$	144,434

As of October 31, 2008 and in connection with its annual goodwill impairment test, the Company remeasured the value of its intangible assets in accordance with ASC 350, “Intangibles — Goodwill and Other,” and noted that the carrying value of assets of its Asia/Pacific segment were in excess of their estimated fair value. As a result, the Company recorded related goodwill impairment charges of approximately $55.4 million during the three months ended October 31, 2008. The fair value of assets was estimated using a combination of a discounted cash flow and market approach. The value implied by the test was affected by (1) reduced future cash flows expected for the Asia/Pacific segment, (2) the discount rates which were applied to future cash flows, and (3) current market estimates of value. The discount rates applied and current estimates of market values were affected by macro-economic conditions, contributing to the estimated decline in value. Goodwill in the Asia/Pacific segment arose primarily from the acquisition of the Company’s Australian and Japanese distributors in fiscal 2003, including subsequent earnout payments to the former owners of these businesses, and the acquisition of certain Australian retail store locations in fiscal 2005. For the years ended October 31, 2009 and 2007, there were no impairment charges resulting from the Company’s annual impairment test.

The change in non-amortizable trademarks is due primarily to foreign currency exchange fluctuations. Other amortizable intangibles primarily include non-compete agreements, patents and customer relationships. These amortizable intangibles are amortized on a straight-line basis over their estimated

useful lives. Certain trademarks and licenses will continue to be amortized using estimated useful lives of 10 to 25 years with no residual values. Intangible amortization expense for the fiscal years ended October 31, 2009, 2008 and 2007 was $3.2 million, $2.9 million and $2.6 million, respectively. Annual amortization expense, based on the Company’s amortizable intangible assets as of October 31, 2009, is estimated to be approximately $3.2 million in the fiscal year ending October 31, 2010, approximately $3.0 million in each of the fiscal years ending October 31, 2011 through October 31, 2013 and approximately $2.0 million in the fiscal year ending October 31, 2014.

Goodwill arose primarily from the acquisitions of Quiksilver Europe, Quiksilver Asia/Pacific and DC Shoes, Inc. Goodwill increased approximately $34.4 million during the fiscal year ended October 31, 2009, which was due to the effect of changes in foreign currency exchange rates. Goodwill decreased $99.5 million during the fiscal year ended October 31, 2008, which included a $55.4 million goodwill impairment in the Asia/Pacific segment. The remaining decrease was primarily due to $49.4 million related to the effect of changes in foreign currency exchange rates, which was partially offset by an increase to goodwill of approximately $5.3 million related to other insignificant acquisitions.

Note 7 — Lines of Credit and Long-term Debt

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

		October 31,
In thousands		2009				2008
European short-term credit arrangements		$	14			$	187,309
Asia/Pacific short-term lines of credit			32,578				51,008
Americas Credit Facility			—				142,500
Americas long-term debt			109,329				—
European long-term debt			389,029				172,907
European Credit Facility			38,243				47,218
Senior Notes			400,000				400,000
Deferred purchase price obligation			49,144				41,922
Capital lease obligations and other borrowings			20,916				17,454
		$	1,039,253			$	1,060,318

In July 2005, the Company issued $400 million in senior notes (“Senior Notes”), which bear a coupon interest rate of 6.875% and are due April 15, 2015. The Senior Notes were issued at par value and sold in accordance with Rule 144A and Regulation S. In December 2005, these Senior Notes were exchanged for publicly registered notes with identical terms. The Senior Notes are guaranteed on a senior unsecured basis by each of the Company’s domestic subsidiaries that guarantee any of its indebtedness or its subsidiaries’ indebtedness, or are obligors under its existing senior secured credit facility (the “Guarantors”). The Company may redeem some or all of the Senior Notes after April 15, 2010 at fixed redemption prices as set forth in the indenture related to such Senior Notes.

The Senior Notes indenture includes covenants that limit the ability of the Company and its restricted subsidiaries to, among other things: incur additional debt; pay dividends on their capital stock or repurchase their capital stock; make certain investments; enter into certain types of transactions with affiliates; limit dividends or other payments to the Company; use assets as security in other transactions; and sell certain assets or merge with or into other companies. If the Company experiences a change of control (as defined in the indenture), it will be required to offer to purchase the Senior Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest. The Company is currently in compliance with these covenants. In addition, the Company has approximately $7.1 million in unamortized debt issuance costs related to the Senior Notes included in other assets as of October 31, 2009.

On July 31, 2009, the Company entered into a $153.1 million five year senior secured term loan with funds affiliated with Rhône Capital LLC. In connection with the term loan, the Company issued warrants to purchase approximately 25.7 million shares of its common stock, representing 19.99% of the

outstanding equity of the Company at the time, with an exercise price of $1.86 per share. The warrants are fully vested and have a seven year term. The estimated fair value of these warrants at issuance was $23.6 million. This amount was recorded as a debt discount and will be amortized into interest expense over the term of the loan. In addition to this, the Company incurred approximately $15.8 million in debt issuance costs which are classified in prepaid expenses (short-term) and other assets (long-term) and are being amortized into interest expense over the five year term of the loan. The term loan is primarily secured by certain of the Company’s trademarks in the Americas and a first or second priority interest in substantially all property related to the Company’s Americas business. The term loan bears an interest rate of 15% on a $125 million tranche, with 6% of that interest payable in kind or in cash, at the Company’s option. The remaining tranche is denominated in euros (€20 million) and also bears an interest rate of 15%, with the full 15% payable in kind or cash at the Company’s option. The gross outstanding balance of the term loan at October 31, 2009 was $158.7 million, while the balance net of the debt discount and included on the balance sheet was $135.7 million. Net proceeds from the new term loan were used to reduce other borrowings and increase cash reserves. The term loan contains customary restrictive covenants and default provisions for loans of its type. The Company is currently in compliance with such covenants.

On July 31, 2009, the Company also entered into a new $200 million three year asset-based credit facility for its Americas segment (with the option to expand the facility to $250.0 million on certain conditions) which replaced its existing credit facility which was to expire in April 2010 (“Credit Facility”). The new Credit Facility, which expires in July 2012, includes a $100 million sublimit for letters of credit and bears interest at a rate of LIBOR plus a margin of 4.0% to 4.5%, depending upon availability. In connection with obtaining the Credit Facility, the Company incurred approximately $9.1 million in debt issuance costs which are classified in prepaid expenses (short-term) and other assets (long-term) and are being amortized into interest expense over the term of the Credit Facility. As of October 31, 2009, there were no borrowings outstanding under the Credit Facility, other than outstanding letters of credit, which totaled $34.7 million.

The Credit Facility is guaranteed by Quiksilver, Inc. and certain of its domestic and Canadian subsidiaries. The Credit Facility is secured by the Company’s U.S. and Canadian accounts receivable, inventory, certain intangibles, a second priority interest in substantially all other personal property and a second priority pledge of shares of certain of the Company’s domestic subsidiaries. The borrowing base is limited to certain percentages of eligible accounts receivable and inventory from participating subsidiaries. The Credit Facility contains customary default provisions and restrictive covenants for facilities of its type. The Company is currently in compliance with such covenants.

On July 31, 2009, the Company and certain of its European subsidiaries entered into a commitment with a group of lenders in Europe to refinance its European indebtedness. This refinancing, which closed and was funded on September 29, 2009, consists of two term loans totaling approximately $251.7 million (€170 million), an $85.9 million (€58 million) credit facility and a line of credit of $59.2 million (€40 million) for issuances of letters of credit. Together, these are referred to as the “European Facilities.” The maturity of these European Facilities is July 31, 2013. The term loans have minimum principal repayments due on January 31 and July 31 of each year, with €14.0 million due for each semi-annual payment in 2010, €17.0 million due for each semi-annual payment in 2011 and €27.0 million due for each semi-annual payment in 2012 and 2013. Amounts outstanding under the European Facilities bear interest at a rate of Euribor plus a margin of between 4.25% and 4.75%. The weighted average borrowing rate on the European Facilities was 5.09% as of October 31, 2009. In connection with obtaining the European Facilities, the Company incurred approximately $19.3 million in debt issuance costs which are classified in prepaid expenses (short-term) and other assets (long-term) and are being amortized into interest expense over the term of the European Facilities. As of October 31, 2009, there were borrowings of approximately $251.7 million outstanding on the two term loans, approximately $37.0 million outstanding on the credit facility, and approximately $26.6 million of outstanding letters of credit.

The European Facilities are guaranteed by Quiksilver, Inc. and secured by pledges of certain assets of its European subsidiaries, including certain trademarks of its European business and shares of certain

European subsidiaries. The European Facilities contain customary default provisions and covenants for transactions of this type. The Company is currently in compliance with such covenants.

In connection with the closing of the European Facilities, the Company refinanced an additional European term loan of $74.0 million (€50 million) such that its maturity date aligns with the European Facilities. This term loan has principal repayments due on January 31 and July 31 of each year, with €8.9 million due in the aggregate in 2011, €12.6 million due in the aggregate in 2012 and €28.5 million due in the aggregate in 2013. This extended term loan currently bears an interest rate of 3.23%, but will change to a variable rate of Euribor plus a margin of 4.8% beginning in July 2010. This term loan has the same security as the European Facilities and it contains customary default provisions and covenants for loans of its type. The Company is currently in compliance with such covenants.

In August 2008, Quiksilver Europe entered into a $148.0 million (€100 million) secured financing facility which expires in August 2011. Under this facility, Quiksilver Europe may borrow up to €100.0 million based upon the amount of accounts receivable that are pledged to the lender to secure the debt. Outstanding borrowings under this facility accrue interest at a rate of Euribor plus a margin of 0.55% (currently 1.34%). As of October 31, 2009, the Company had approximately $38.2 million of borrowings outstanding under this facility. This facility contains customary default provisions and covenants for facilities of its type. The Company is currently in compliance with such covenants.

Quiksilver Asia/Pacific has uncommitted revolving lines of credit with banks that provide up to $45.8 million ($50.3 million Australian dollars) for cash borrowings and letters of credit. These lines of credit are generally payable on demand, although the Company believes these lines of credit will continue to be available. The amount outstanding on these lines of credit at October 31, 2009 was $32.6 million, in addition to outstanding letters of credit of $3.4 million, at an average borrowing rate of 2.2%.

The Company’s current credit facilities allow for total maximum cash borrowings and letters of credit of $357.7 million. The Company’s total maximum borrowings and actual availability fluctuate depending on the extent of assets comprising the Company’s borrowing base under certain credit facilities. The Company had $107.8 million of borrowings drawn on these credit facilities as of October 31, 2009, and letters of credit issued at that time totaled $64.8 million. The amount of availability for borrowings under these facilities as of October 31, 2009 was $142.7 million, all of which was committed. Of this $142.7 million in committed capacity, $93.8 million can also be used for letters of credit. In addition to the $142.7 million of availability for borrowings, the Company also had $42.4 million in additional capacity for letters of credit in Europe and Asia/Pacific as of October 31, 2009.

In connection with the acquisition of Rossignol, the Company deferred payment of a portion of the purchase price. This deferred purchase price obligation is expected to be paid in 2010 and accrues interest equal to the 3-month Euribor plus 2.35% (3.14% as of October 31, 2009) and is denominated in euros. The carrying amount of the obligation fluctuates based on changes in the foreign currency exchange rate between euros and U.S. dollars. The Company has a cash collateralized guaranty to the former owner of Rossignol of $52.7 million. The cash related to this guaranty is classified as restricted cash on the balance sheet as of October 31, 2009. As of October 31, 2009, the deferred purchase price obligation totaled $49.1 million.

The Company also has approximately $20.9 million in capital leases and other borrowings as of October 31, 2009.

Approximate principal payments on long-term debt are as follows (in thousands):

2010		$	95,231
2011			105,759
2012			101,321
2013			164,000
2014			140,350
Thereafter			400,000
		$	1,006,661

The estimated fair values of the Company’s lines of credit and long-term debt are as follows (in thousands):

		October 31, 2009
		Carrying Amount				Fair Value
Lines of credit		$	32,592			$	32,592
Long-term debt			1,006,661				915,861
		$	1,039,253			$	948,453

The carrying value of the Company’s trade accounts receivable and accounts payable approximates its fair value due to their short-term nature.

Note 8 ¾ Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

		October 31,
		2009				2008
Accrued employee compensation and benefits		$	48,040			$	44,405
Accrued sales and payroll taxes			12,620				8,658
Derivative liability			20,611				—
Accrued interest			2,088				2,784
Other liabilities			32,915				37,701
		$	116,274			$	93,548

Note 9 ¾ Commitments and Contingencies

Operating Leases

The Company leases certain land and buildings under long-term operating lease agreements. The following is a schedule of future minimum lease payments required under such leases as of October 31, 2009 (in thousands):

2010		$	107,900
2011			98,382
2012			86,073
2013			76,052
2014			58,955
Thereafter			144,669
		$	572,031

Total rent expense was $119.2 million, $120.7 million and $93.0 million for the years ended October 31, 2009, 2008 and 2007, respectively.

Professional Athlete Sponsorships

The Company establishes relationships with professional athletes in order to promote its products and brands. The Company has entered into endorsement agreements with professional athletes in sports such as surfing, skateboarding, snowboarding, bmx and motocross. Many of these contracts provide incentives for magazine exposure and competitive victories while wearing or using the Company’s products. Such expenses are an ordinary part of the Company’s operations and are expensed as incurred. The following is a schedule of future estimated minimum payments required under such endorsement agreements as of October 31, 2009 (in thousands):

2010		$	18,649
2011			12,598
2012			6,451
2013			4,345
2014			2,787
Thereafter			500
		$	45,330

Under the Company’s current sponsorship agreement with Kelly Slater, in addition to the cash payment obligations included in the above table, the Company has agreed to propose to its shareholders a grant to Mr. Slater of 3 million shares of restricted stock. This restricted stock grant is subject to shareholder approval and would vest over a four year period. Should the grant not be approved by the Company’s shareholders, the Company may be required to compensate Mr. Slater with additional cash payments, which are not included in the table above.

Litigation

The Company is involved from time to time in legal claims involving trademark and intellectual property, licensing, employee relations and other matters incidental to its business. The Company believes the resolution of any such matter currently pending will not have a material adverse effect on its financial condition or results of operations or cash flows.

Indemnities and Guarantees

During its normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These include (i) intellectual property indemnities to the Company’s customers and licensees in connection with the use, sale and/or license of Company products, (ii) indemnities to various lessors in connection with facility leases for certain claims arising from such facilities or leases, (iii) indemnities to vendors and service providers pertaining to claims based on the negligence or willful misconduct of the Company, and (iv) indemnities involving the accuracy of representations and warranties in certain contracts. The duration of these indemnities, commitments and guarantees varies and, in certain cases, may be indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential for future payments the Company could be obligated to make. The Company has not recorded any liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets.

Note 10 ¾ Stockholders’ Equity

In March 2000, the Company’s stockholders approved the Company’s 2000 Stock Incentive Plan (the “2000 Plan”), which generally replaced the Company’s previous stock option plans. Under the 2000 Plan, 33,444,836 shares are reserved for issuance over its term, consisting of 12,944,836 shares authorized under predecessor plans plus an additional 20,500,000 shares. The plan was amended in March 2007 to allow for the issuance of restricted stock and restricted stock units. The maximum number of shares that may be reserved for issuance of restricted stock or restricted stock unit awards is 800,000. Nonqualified and incentive options may be granted to officers and employees selected by the plan’s administrative committee at an exercise price not less than the fair market value of the underlying shares on the date of grant. Options vest over a period of time, generally three years, as designated by the committee and are

subject to such other terms and conditions as the committee determines. Certain stock options have also been granted to employees of acquired businesses under other plans. The Company issues new shares for stock option exercises and restricted stock grants.

Changes in shares under option are summarized as follows:

		Year Ended October 31,
		2009								2008								2007
						Weighted Average								Weighted Average								Weighted Average
In thousands		Shares				Price				Shares				Price				Shares				Price
Outstanding, beginning of year			15,902,575			$	9.97				17,311,049			$	9.30				18,135,699			$	8.61
Granted			4,563,250				1.97				1,310,000				8.99				1,247,051				15.19
Exercised			—				—				(1,828,338	)			3.69				(1,804,515	)			5.74
Canceled			(4,556,724	)			11.21				(890,136	)			8.55				(267,186	)			13.48
Outstanding, end of year			15,909,101				7.32				15,902,575				9.97				17,311,049				9.30
Options exercisable, end of year			10,211,031				9.15				12,251,796				9.19				12,395,513				7.56

The aggregate intrinsic value of options exercised, outstanding and exercisable as of October 31, 2009 is zero, $0.6 and $0.1 million, respectively. The weighted average life of options outstanding and exercisable as of October 31, 2009 is 5.8 and 3.9 years, respectively.

Outstanding stock options at October 31, 2009 consist of the following:

		Options Outstanding								Options Exercisable
						Weighted Average				Weighted Average								Weighted Average
Range of Exercise Prices		Shares				Remaining Life				Exercise Price				Shares				Exercise Price
						(Years)
$1.04 - $2.56			4,412,250				9.5			$	1.97				45,000			$	1.56
$2.57 - $4.47			1,989,068				1.6				3.49				1,914,818				3.52
$4.48 - $5.96			686,676				1.3				4.78				686,676				4.78
$5.97 - $7.44			1,292,005				3.1				6.66				1,292,005				6.66
$7.45 - $8.93			2,035,500				4.1				8.57				2,002,165				8.57
$8.94 - $10.42			1,047,000				8.1				9.02				310,633				9.07
$10.43 - $11.90			616,001				4.5				11.08				616,001				11.08
$11.91 - $14.87			3,010,601				5.7				14.04				2,802,414				14.06
$14.88 - $16.36			820,000				6.7				15.75				541,319				15.86
			15,909,101				5.8				7.32				10,211,031				9.15

Changes in non-vested shares under option for the year ended October 31, 2009 are as follows:

						Weighted Average
						Grant Date
		Shares				Fair Value
Non-vested, beginning of year			3,650,779			$	5.88
Granted			4,563,250				1.00
Vested			(2,017,785	)			6.06
Canceled			(498,174	)			6.40
Non-vested, end of year			5,698,070				1.90

Of the 5.7 million non-vested shares under option as of October 31, 2009, approximately 4.8 million are expected to vest over their respective lives.

As of October 31, 2009, there were 1,269,652 shares of common stock that were available for future grant. Of these shares, 5,669 were available for issuance of restricted stock.

The Company uses the Black-Scholes option-pricing model to value stock-based compensation expense. Forfeitures are estimated at the date of grant based on historical rates and reduce the compensation expense recognized. The expected term of options granted is derived from historical data on employee exercises. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. Expected volatility is based on the historical volatility of the Company’s stock. The fair value of each option grant was estimated as of the grant date using the Black-Scholes option-pricing model for the years ended October 31, 2009, 2008 and 2007, assuming risk-free interest rates of 2.6%, 3.0% and 4.8%, respectively; volatility of 51.5%, 40.8% and 43.0%, respectively; zero dividend yield; and expected lives of 6.1, 5.7 and 5.6 years, respectively. The weighted average fair value of options granted was $1.00, $3.85 and $7.16 for the years ended October 31, 2009, 2008 and 2007, respectively. The Company records stock-based compensation expense using the graded vested method over the vesting period, which is generally three years. As of October 31, 2009, the Company had approximately $4.3 million of unrecognized compensation expense expected to be recognized over a weighted average period of approximately 2.2 years. Compensation expense was included as selling, general and administrative expense for fiscal 2009, 2008 and 2007.

In March 2006, the Company’s shareholders approved the 2006 Restricted Stock Plan and in March 2007, the Company’s shareholders approved an amendment to the 2000 Stock Incentive Plan whereby restricted shares and restricted stock units can be issued from such plan. Restricted stock issued under these plans vests over a period of time, generally three to five years, and may have certain performance based acceleration features which allow for earlier vesting.

Changes in restricted stock are as follows:

		Year Ended October 31,
		2009				2008				2007
Outstanding, beginning of year			721,003				842,000				800,000
Granted			590,000				330,000				87,000
Vested			(9,999	)			(17,329	)			—
Forfeited			(279,001	)			(433,668	)			(45,000	)
Outstanding, end of year			1,022,003				721,003				842,000

Compensation expense for restricted stock is determined using the intrinsic value method and forfeitures are estimated at the date of grant based on historical rates and reduce the compensation expense recognized. The Company monitors the probability of meeting the restricted stock performance criteria and will adjust the amortization period as appropriate. As of October 31, 2009, there had been no acceleration of the amortization period. As of October 31, 2009, the Company had approximately $1.1 million of unrecognized compensation expense expected to be recognized over a weighted average period of approximately 1.9 years.

The Company began the Quiksilver Employee Stock Purchase Plan (the “ESPP”) in fiscal 2001, which provides a method for employees of the Company to purchase common stock at a 15% discount from fair market value as of the beginning or end of each purchasing period of six months, whichever is lower. The ESPP covers substantially all full-time domestic and Australian employees who have at least five months of service with the Company. Since the adoption of guidance within ASC 718, “Stock Compensation,” compensation expense has been recognized for             shares issued under the ESPP. During the years ended October 31, 2009, 2008 and 2007, 550,798, 257,178 and 92,187 shares of stock were issued under the plan with proceeds to the Company of $0.9 million, $1.9 million and $1.1 million, respectively.

During the years ended October 31, 2009, 2008 and 2007, the Company recognized total compensation expense related to options, restricted stock and ESPP shares of approximately $8.4 million, $12.0 million and $16.1 million, respectively.

The Company issued warrants for approximately 25.7 million shares of its common stock in connection with the closing of its new five year senior secured term loan. See note 7 for further details.

Note 11 ¾ Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income include changes in fair value of derivative instruments qualifying as cash flow hedges and foreign currency translation adjustments. The components of accumulated other comprehensive income, net of tax, are as follows:

		October 31,
In thousands		2009				2008
Foreign currency translation adjustment		$	111,951			$	60,003
(Loss) gain on cash flow hedges			(16,555	)			20,507
		$	95,396			$	80,510

Note 12 ¾ Income Taxes

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

		Year Ended October 31,
In thousands		2009				2008				2007
Current:
Federal		$	3,221			$	4,403			$	(597	)
State			—				(572	)			399
Foreign			34,448				39,641				49,789
			37,669				43,472				49,591
Deferred:
Federal			24,699				(8,070	)			(5,103	)
State			8,166				(1,980	)			(770	)
Foreign			(3,867	)			(395	)			(9,212	)
			28,998				(10,445	)			(15,085	)
Provision for income taxes		$	66,667			$	33,027			$	34,506

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

		Year Ended October 31,
		2009				2008				2007
Computed “expected” statutory federal income tax rate			35.0	%			35.0	%			35.0	%
State income taxes, net of federal income tax benefit			150.2				(1.2	)			0.2
Foreign tax rate differential			505.5				(10.4	)			(8.7	)
Foreign tax exempt income			(174.3	)			(8.9	)			(5.3	)
Repatriation of foreign earnings, net of credits			—				0.7				0.4
Goodwill impairment			—				19.5				—
Stock-based compensation			(21.1	)			1.6				1.2
Uncertain tax positions			(116.5	)			(5.7	)			1.3
Valuation allowance			(2,016.7	)			2.2				—
Other			(202.4	)			0.5				(1.3	)
Effective income tax rate			(1,840.3	)%			33.3	%			22.8	%

The components of net deferred income taxes are as follows:

		Year Ended October 31,
In thousands		2009				2008
Deferred income tax assets:
Allowance for doubtful accounts		$	8,509			$	13,176
Depreciation and amortization			869				6,467
Unrealized gains and losses			13,349				—
Tax loss carryforwards			177,134				113,655
Accruals and other			66,780				55,133
Basis difference in Rossignol investment			—				147,621
			266,641				336,052
Deferred income tax liabilities:
Unrealized gains and losses			—				(8,689	)
Basis difference in receivables due from Rossignol			—				(111,845	)
Intangibles			(27,354	)			(25,633	)
			(27,354	)			(146,167	)
Deferred income taxes			239,287				189,885
Valuation allowance			(93,638	)			(138,665	)
Net deferred income taxes		$	145,649			$	51,220