UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-K

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

15202 Graham Street
Huntington Beach, California
92649
(Address of principal executive offices)
(Zip Code)

(714) 889-2200
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Common Stock		Name of each exchange on which registered New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant was approximately $685 million as of April 30, 2010, the last business day of Registrant’s most recently completed second fiscal quarter.

As of December 31, 2010, there were 164,430,427 shares of the Registrant’s Common Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held March 22, 2011 are incorporated by reference into Part III of this Form 10-K.

 

 

TABLE OF CONTENTS

				Page
PART I
Item 1.		BUSINESS			1
		Introduction			1
		Segment Information			1
		Products and Brands			2
		Product Categories			2
		Product Design			3
		Promotion and Advertising			3
		Customers and Sales			4
		Retail Concepts			5
		Seasonality			6
		Production and Raw Materials			6
		Imports and Import Restrictions			7
		Trademarks, Licensing Agreements and Patents			7
		Competition			8
		Future Season Orders			8
		Employees			8
		Environmental Matters			8
		Recent Dispositions			9
		Available Information			9
Item 1A.		RISK FACTORS			9
Item 1B.		UNRESOLVED STAFF COMMENTS			15
Item 2.		PROPERTIES			16
Item 3.		LEGAL PROCEEDINGS			16
Item 4.		REMOVED AND RESERVED			16
PART II
Item 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			17
Item 6.		SELECTED FINANCIAL DATA			17
Item 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			19
Item 7A.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			34
Item 8.		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			36
Item 9.		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			36
Item 9A.		CONTROLS AND PROCEDURES			36
Item 9B.		OTHER INFORMATION			39
PART III
Item 10.		DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			40
Item 11.		EXECUTIVE COMPENSATION			40
Item 12.		SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			40
Item 13.		CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE			40
Item 14.		PRINCIPAL ACCOUNTANT FEES AND SERVICES			40
PART IV
Item 15.		EXHIBITS AND FINANCIAL STATEMENT SCHEDULES			41
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS					42
SIGNATURES					83
EX-10.40
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I

Item 1. BUSINESS

Unless the context indicates otherwise, when we refer to “we,” “us,” “our,” or the “Company” in this Form 10-K, we are referring to Quiksilver, Inc. and its subsidiaries on a consolidated basis. Quiksilver, Inc. was incorporated in 1976 and was reincorporated in Delaware in 1986. Our fiscal year ends on October 31, and references to fiscal 2010, fiscal 2009 and fiscal 2008 refer to the years ended October 31, 2010, 2009 and 2008, respectively.

Introduction

We are a globally diversified company that designs, develops and distributes branded apparel, footwear, accessories and related products, catering to the casual, youth lifestyle associated with the sports of surfing, skateboarding and snowboarding. We market products across our three core brands, Quiksilver, Roxy and DC, which each target a distinct segment of the action sports market, as well as several smaller brands. Our products, designed by boardriders for boardriders and consumers aspiring to the action sports lifestyle, combine over 40 years of brand heritage, authenticity and design experience with the latest technical performance innovations available in the marketplace. We believe all three of our core brands are authentic within the action sports communities as well as the broader outdoor market.

We began operations in 1976 as a California company making boardshorts for surfers in the United States under a license agreement with the Quiksilver brand founders in Torquay, Australia. Our product offering expanded in the 1980s as we expanded our distribution channels. After going public in 1986 and purchasing the rights to the Quiksilver brand in the U.S., we further expanded our product offerings and began to diversify. In 1991, we acquired the European licensee of Quiksilver and introduced Roxy, our surf brand for teenage girls. We also expanded demographically in the 1990s by adding products for boys, girls, toddlers and men, and we introduced our proprietary retail store concept that displays the heritage and products of Quiksilver and Roxy. In 2000, we acquired the international Quiksilver and Roxy trademarks, and in 2002, we acquired our licensees in Australia and Japan. In 2004, we acquired DC to expand our presence in action sports inspired footwear.

Our products are sold in over 90 countries in a wide range of distribution channels, including surf shops, skateboard shops, snowboard shops, specialty stores, select department stores and 764 owned or licensed company stores. In fiscal 2010, more than 65% of our revenue was generated outside of the United States. Our corporate and Americas’ headquarters is in Huntington Beach, California, while our European headquarters is in St. Jean de Luz, France, and our Asia/Pacific headquarters is in Torquay, Australia.

In November 2008, we completed the sale of our Rossignol business, which included the brands Rossignol, Dynastar, Look and Lange. Our Rossignol business, including both wintersports equipment and related apparel, is classified as discontinued operations in this report. The remaining assets and related liabilities of our legacy Rossignol apparel business are classified as held for sale, and the operations are classified as discontinued in our consolidated financial statements. Also, as part of our acquisition of Rossignol in 2005, we acquired a majority interest in Roger Cleveland Golf Company, Inc. Our golf equipment operations were subsequently sold in December 2007 and are also classified as discontinued operations in our consolidated financial statements. As a result of these dispositions, the following information has been adjusted to exclude both our Rossignol and golf equipment businesses.

Segment Information

We have three operating segments consisting of the Americas, Europe and Asia/Pacific, each of which sells a full range of our products. The Americas segment includes revenues from the U.S., Canada and Latin America. The European segment includes revenues from Europe, the Middle East and Africa. The Asia/Pacific segment includes revenues primarily from Australia, Japan, New Zealand and Indonesia. Royalties earned from various licensees in other international territories are categorized in corporate operations, along with revenues from sourcing services to our licensees. For information regarding the

revenues, operating profits and identifiable assets attributable to our operating segments, see note 14 of our consolidated financial statements. Our Rossignol business has been removed from our segment reporting and is classified as a discontinued operation.

Products and Brands

Our brands are focused on different sports within the outdoor market. Quiksilver and Roxy are rooted in the sport of surfing and are leading brands representing the boardriding lifestyle, which includes not only surfing, but also skateboarding and snowboarding. DC’s reputation is based on its technical shoes made for skateboarding. We have developed a portfolio of other brands also inspired by surfing, skateboarding and snowboarding.

Quiksilver

We have grown our Quiksilver brand from its origins as a line of boardshorts to now include shirts, walkshorts, t-shirts, fleece, pants, jackets, snowboardwear, footwear, hats, backpacks, wetsuits, watches, eyewear and other accessories. Quiksilver has also expanded its target market beyond young men to include men, women, boys, girls, toddlers and infants. In fiscal 2010, the Quiksilver brand represented approximately 42% of our revenues from continuing operations.

Roxy

Our Roxy brand for young women is a surf-inspired collection that we introduced in 1991, and later expanded to include girls, toddlers and infants, with the Teenie Wahine and Roxy Girl brands. Roxy includes a full range of sportswear, swimwear, footwear, backpacks, snowboardwear, snowboards, bedroom furnishings and other accessories. In fiscal 2010, the Roxy brand accounted for approximately 29% of our revenues from continuing operations.

DC

Our DC brand specializes in performance skateboard shoes, snowboard boots, sandals and apparel for both young men and juniors. We believe that DC’s skateboard-driven image and lifestyle is well positioned within the global outdoor youth market and has appeal beyond its core skateboarding base. In fiscal 2010, the DC brand accounted for approximately 26% of our revenues from continuing operations.

Other Brands

In fiscal 2010, our other brands represented approximately 3% of our revenues from continuing operations.

•

Raisins, Radio Fiji, Leilani — Raisins and Radio Fiji are swimwear labels for the juniors market, while Leilani was our contemporary swimwear label. We sold our Raisins juniors swimwear label and Leilani contemporary label in April 2010 and we do not plan to produce swimwear under these brands in the future.

•

Hawk — Tony Hawk, the world-famous skateboarder, is the inspiration for our Hawk brand. Our Hawk brand targets boys and young men who identify with the skateboarding lifestyle and recognize Tony Hawk from his broad media and video game exposure.

•

Lib Technologies and Gnu — We address the core snowboard market through our Lib Technologies and Gnu brands of snowboards and accessories.

Product Categories

The following table shows the approximate percentage of our revenues from continuing operations attributable to each of our major product categories during the last three fiscal years:

		Percentage of Revenues
		2010				2009				2008
Apparel			64	%			66	%			65	%
Footwear			21				20				20
Accessories			15				14				15
			100	%			100	%			100	%

Although our products are generally available throughout the year, demand for different categories of products changes in the different seasons of the year. Sales of shorts, short-sleeve shirts, t-shirts and swimwear are higher during the spring and summer seasons, and sales of pants, long-sleeve shirts, fleece, jackets, sweaters and technical outerwear are higher during the fall and holiday seasons.

We believe that retail prices for our U.S. apparel products range from approximately $20 for a t-shirt and $43 for a typical short to $190 for a typical snowboard jacket. For our European products, in euros, retail prices range from approximately €22 for a t-shirt and about €50 for a typical short to €162 for a basic snowboard jacket. In Australian dollars, our Asia/Pacific t-shirts sell for approximately $39, while our shorts sell for approximately $60 and a basic snowboard jacket sells for approximately $250. Retail prices for our typical skate shoe are approximately $60 in the U.S. and approximately €67 in Europe.

Product Design

Our apparel, footwear, accessories and related products are designed for young-minded people who live a casual lifestyle. Innovative design, active fabrics and quality of workmanship are emphasized. Our design and merchandising teams create seasonal product ranges for each of our brands. These design groups constantly monitor local and global fashion trends. We believe our most valuable input comes from our own managers, employees, sponsored athletes and independent sales representatives who are actively involved in surfing, skateboarding, snowboarding and other sports in our core market. This connection with our core market continues to be the inspiration for our products and is key to our reputation for distinct and authentic design. Our design centers in California, Europe, Australia and Japan develop and share designs and merchandising themes and concepts that are globally consistent while reflecting local adaptations for differences in geography, culture and taste.

Promotion and Advertising

The strength of our brands is based on many years of grassroots efforts that have established their legitimacy. We have always sponsored athletes that use our products in their outdoor sports, such as surfing, snowboarding, skateboarding, bmx and motocross, and have sponsored events that showcase these sports. Over time, our brands have become closely identified not only with the underlying sports they represent, but also with the way of life that is associated with those who are active in such sports. Accordingly, our advertising efforts are focused on promoting the sports and related lifestyle in addition to advertising specific products. As our sports and lifestyle have grown in popularity, not only in the United States but also internationally, the visibility of our brands has increased.

We have relationships with athletes worldwide. These include such well-known personalities as Kelly Slater, Tony Hawk, Dane Reynolds, Robbie Naish, Travis Rice, Danny Way, Rob Dyrdek, Ken Block, Travis Pastrana, Sofia Mulanovich, Torah Bright and Sarah Burke. Along with these athletes, many of whom have achieved world champion status in their individual sports, we sponsor many amateurs and up-and-coming professionals. We believe that these athletes legitimize the performance of our products, form the basis for our advertising and promotional content, maintain a real connection with the core users of our products and create a general aspiration to the lifestyle that these athletes represent.

The events and promotions that we sponsor include world-class boardriding events, such as the Quiksilver Pro (Australia and Europe) and the Quiksilver In Memory of Eddie Aikau, which we believe is the most prestigious event among surfers. We also sponsor many women’s events and our Quiksilver, DC and Roxy athletes participate in the Summer and Winter X-Games as well as the Olympics. In addition, we sponsor many regional and local events, such as surf camps for beginners and enthusiasts, that reinforce the reputations of our brands as authentic among athletes and non-athletes alike.

Our brand messages are communicated through advertising, editorial content and other programming in both core and mainstream media. Coverage of our sports, athletes and related lifestyle forms the basis of content for core magazines, such as Surfer, Surfing and Transworld Skateboarding. Through our various entertainment initiatives, we are bringing our lifestyle message to an even broader audience through television, films, books and co-sponsored events and products.

Customers and Sales

We sell our products in over 90 countries around the world. We believe that the integrity and success of our brands is dependent, in part, upon our careful selection of the retailers to whom we sell our products. Therefore, we maintain a strict and controlled distribution channel to uphold and enhance the value of our brands.

The foundation of our business is the distribution of our products through surf shops, skateboard shops, snowboard shops and our proprietary concept stores, where the environment communicates our brand messages. This core distribution channel serves as a base of legitimacy and long-term loyalty to us and our brands. Most of these stores stand alone or are part of small chains.

Our products are also distributed through independent specialty or active lifestyle stores and specialty chains. This category includes chains in the United States such as Pacific Sunwear, Nordstrom, Zumiez, Dick’s Sporting Goods, Famous Footwear and Journeys, and chains in Europe such as Intersport and Sport 2000. This category also includes many independent active lifestyle stores and sports shops in the United States and around the world. A limited amount of our products are distributed through select department stores, including Macy’s and Bloomingdales in the United States; Galeries Lafayette in France; and El Corte Ingles in Spain.

Although many of our brands are sold through the same retail accounts, distribution can be different depending on the brand and demographic group. Our Quiksilver products are sold in the Americas to customers that have approximately 11,500 store locations combined. Likewise, Roxy products are sold in the Americas to customers with approximately 11,300 store locations. Most of these Roxy locations also carry Quiksilver products. In the Americas, DC products are carried in approximately 12,000 stores. Our Quiksilver, Roxy and DC apparel, footwear, accessories and related products are found in approximately 10,800 store locations in Europe, and in approximately 3,660 store locations in Asia/Pacific.

Our European segment accounted for approximately 40%, 40% and 41% of our consolidated revenues from continuing operations during fiscal 2010, 2009 and 2008, respectively. Our Asia/Pacific segment accounted for approximately 14%, 13% and 12% of our consolidated revenues from continuing operations in fiscal 2010, 2009 and 2008, respectively. Other non-U.S. sales are in the Americas segment (i.e., Canada and Latin America) and accounted for approximately 12%, 9% and 8% of consolidated revenues from continuing operations in fiscal 2010, 2009 and 2008, respectively.

The following table summarizes the approximate percentages of our fiscal 2010 revenues by distribution channel:

		Percentage of Revenues
Distribution Channel		Americas				Europe				Asia/Pacific				Consolidated
Core market shops			28	%			41	%			77	%			40	%
Specialty stores			33				43				19				35
Department stores			15				6				2				9
U.S. exports			23				—				—				11
Distributors			1				10				2				5
Total			100	%			100	%			100	%			100	%
Geographic segment			46	%			40	%			14	%			100	%

Our revenues are spread over a large wholesale customer base. During fiscal 2010, approximately 18% of our consolidated revenues from continuing operations were from our ten largest customers, while our largest customer accounted for less than 3% of such revenues.

Our products are sold by approximately 300 independent sales representatives in the Americas, Europe and Asia/Pacific. In addition, we use approximately 125 local distributors in Europe, Asia/Pacific and Latin America. Our sales representatives are generally compensated on a commission basis. We employ retail merchandise coordinators in the United States who travel between specified retail locations of our wholesale customers to further improve the presentation of our product and build our image at the retail level.

Our sales are globally diversified. The following table summarizes the approximate percentages of our consolidated revenues from continuing operations by geographic region (excluding licensees) for the fiscal years indicated:

		Percentage of Revenues
Geographic Region		2010				2009				2008
United States			34	%			38	%			39	%
Other Americas			12				9				8
France			11				11				13
United Kingdom and Spain			11				11				13
Other European countries			18				18				15
Asia/Pacific			14				13				12
Total			100	%			100	%			100	%

We generally sell our apparel, footwear, accessories and related products to wholesale customers on a net-30 to net-60 day basis in the Americas, and in Europe and Asia/Pacific on a net-30 to net-90 day basis depending on the country and whether we sell directly to retailers in the country or to a distributor. Some customers are on C.O.D. terms. We generally do not reimburse our customers for marketing expenses or participate in markdown programs with our customers. A limited amount of product is offered on consignment in our Asia/Pacific segment.

For additional information regarding our revenues, operating profits and identifiable assets attributable to our operating segments, see note 14 of our consolidated financial statements.

Retail Concepts

Quiksilver concept stores are an important part of our global retail strategy. These stores are stocked primarily with Quiksilver and Roxy product, and their proprietary design demonstrates our history, authenticity and commitment to surfing and other boardriding sports. We also have Roxy stores, which are dedicated to the juniors customer, Quiksilver Youth stores, and DC stores. In various territories, we also operate Quiksilver and Roxy shops that are part of larger department stores. These shops, which are typically smaller than a stand-alone shop but have many of the same operational characteristics, are referred to below as shop-in-shops.

As of October 31, 2010, we owned 540 stores in selected markets that provide enhanced brand-building opportunities. In territories where we operated our wholesale businesses, we had 224 stores with independent retailers under license. We do not receive royalty income from these licensed stores. Rather, we provide the independent retailer with our retail expertise and store design concepts in exchange for the independent retailer agreeing to maintain our brands at a minimum of 80% of the store’s inventory. Certain minimum purchase obligations are also required. In our licensed territories, such as Argentina and Turkey, our licensees operate 70 concept stores. We receive royalty income from sales in these stores based on the licensees’ revenues. We also distribute our products through outlet stores generally located in outlet malls in geographically diverse, non-urban locations. The total number of stores open at October 31, 2010 was 834. The unit count of both company-owned and licensed stores at October 31, 2010, excluding stores in licensed territories, is summarized in the following table:

		Number of Stores
		Americas								Europe								Asia/Pacific								Combined
		Company								Company								Company								Company
Store Concept		Owned				Licensed				Owned				Licensed				Owned				Licensed				Owned				Licensed
Quiksilver stores			53				16				126				163				38				13				217				192
Shop-in-shops			—				—				72				—				75				—				147				—
Roxy stores			3				2				18				13				11				3				32				18
Outlet stores			46				—				34				4				36				2				116				6
Other stores			4				2				22				3				2				3				28				8
			106				20				272				183				162				21				540				224

Seasonality

Our sales fluctuate from quarter to quarter primarily due to seasonal consumer demand patterns for different categories of our products, and due to the effect that the Christmas and holiday season has on the buying habits of our customers. Our consolidated revenues from continuing operations are summarized by quarter in the following table:

		Consolidated Revenues
Dollar amounts in thousands		2010								2009								2008
Quarter ended January 31		$	432,737				24	%		$	443,278				23	%		$	496,581				22	%
Quarter ended April 30			468,289				25				494,173				25				596,280				26
Quarter ended July 31			441,475				24				501,394				25				564,876				25
Quarter ended October 31			495,119				27				538,681				27				606,899				27
		$	1,837,620				100	%		$	1,977,526				100	%		$	2,264,636				100	%

Production and Raw Materials

Our apparel, footwear, accessories and related products are generally sourced separately for our Americas, Europe and Asia/Pacific operations. We own sourcing offices in Hong Kong, Shanghai and Dongguan that manage the majority of production for our Asia/Pacific business and some of our Americas and European production. We believe that as we align our sourcing and logistics operations, more products can be sourced together and additional efficiencies can be obtained. For the fiscal year ended October 31, 2010, approximately 84% of our apparel, footwear, accessories and related products were purchased or imported as finished goods from suppliers principally in China, Korea, Hong Kong, India, Vietnam and other parts of the far east, but also in Mexico, Turkey, Portugal and other foreign countries. After being imported, many of these products require embellishments such as screenprinting, dyeing, washing or embroidery. In the Americas, the remaining 16% of our production is manufactured by independent contractors from raw materials we provide, with a majority of this manufacturing done in Mexico and Central America, and the balance in the U.S.

The majority of our finished goods, as well as raw materials, must be committed to and purchased prior to the receipt of customer orders. If we overestimate the demand for a particular product, excess production can generally be distributed in our outlet stores or through secondary distribution channels. If we overestimate the purchase of a particular raw material, it can generally be used in garments for subsequent seasons or in garments for distribution through our outlet stores or secondary distribution channels.

During fiscal 2010, no single contractor of finished goods accounted for more than 7% of our consolidated production. Our largest raw material supplier accounted for 24% of our expenditures for raw materials during fiscal 2010, however, our raw materials expenditures only comprised 3% of our consolidated production costs. We believe that numerous qualified contractors, finished goods and raw materials suppliers are available to provide additional capacity on an as-needed basis and that we enjoy favorable on-going relationships with these contractors and suppliers. From time to time, however, our manufacturers may experience shortages of raw materials, which could result in delays in deliveries of our products by our manufacturers or in increased costs to us. For example, there is currently an acute shortage of cotton and other fabrics, which could materially increase our cost of goods.

Although we continue to explore new sourcing opportunities for finished goods and raw materials, we believe we have established solid working relationships over many years with vendors who are financially stable and reputable, and who understand our product quality and delivery standards. As part of our efforts to reduce costs and enhance our sourcing efficiency, we utilize foreign suppliers. We research, test and add, as needed, alternate and/or back-up suppliers. However, in the event of any unanticipated substantial disruption of our relationships with, or performance by, key existing suppliers and/or contractors, there could be a short-term adverse effect on our operations.

Imports and Import Restrictions

We have, for some time, imported finished goods and raw materials for our domestic operations under multilateral and bilateral trade agreements between the U.S. and a number of foreign countries, including Hong Kong, India and China. These agreements impose duties on the products that are imported into the U.S. from the affected countries. Increases in the amount of duties we pay could have an adverse effect on our operations and financial results.

In Europe, we operate in the European Union (“EU”) within which there are few trade barriers. We also operate under constraints imposed on imports of finished goods and raw materials from outside the EU, including quotas and duty charges. We do not anticipate that these restrictions will materially or adversely impact our operations since we have always operated under such constraints.

We retain independent buying agents, primarily in China, Hong Kong, India, Vietnam and other foreign countries, to assist us in selecting and overseeing the majority of our independent third party manufacturing and sourcing of finished goods, fabrics, blanks and other products. In addition, these agents monitor duties and other trade regulations and perform some quality control functions. We also have approximately 270 employees primarily in Hong Kong and China, and a limited number of employees in Vietnam and India, that are involved in sourcing and quality control functions to assist us in monitoring and coordinating our overseas production.

By having employees in regions where we source our products, we enhance our ability to monitor factories to ensure their compliance with our standards of manufacturing practices. Our policies require every factory to comply with a code of conduct relating to factory working conditions and the treatment of workers involved in the manufacture of products.

Trademarks, Licensing Agreements and Patents

Trademarks

We own the “Quiksilver” and “Roxy” trademarks and the famous mountain and wave and heart logos in virtually every country in the world. Other trademarks we own include “Hawk”, “Lib Tech”, “Gnu”, “Bent Metal”, “DCSHOECOUSA”, the “DC Star” logo and other trademarks.

We apply for and register our trademarks throughout the world mainly for use on apparel, footwear, accessories and related products and for retail services. We believe our trademarks and our other intellectual property are crucial to the successful marketing and sale of our products, and we attempt to vigorously prosecute and defend our rights throughout the world. Because of the success of our trademarks, we also maintain global anti-counterfeiting programs to protect our brands.

Licensing Agreements and Patents

We own rights throughout the world to use and license the Quiksilver and Roxy trademarks in apparel, footwear and related accessory product classifications. We also own rights throughout the world to use and license the DC related trademarks for the footwear, apparel and accessory products that we distribute under such brand. We directly operate all of the global Quiksilver and Roxy businesses with the exception of licensees in a few countries such as Argentina, Turkey and India. We have also licensed our Roxy trademark for snow skis, snow ski poles, snow ski boots and snow ski bindings in connection with our sale of Rossignol.

In April 2005, we licensed our Hawk brand in the United States to Kohl’s Stores, Inc., a department store chain with over 1,000 stores. Under the Kohl’s’ license agreement, Kohl’s has the exclusive right to manufacture and sell Hawk branded apparel and some related products in its U.S. stores and through its website. We receive royalties from Kohl’s based upon sales of Hawk branded products. Under the license agreement, we are responsible for product design, and Kohl’s manages sourcing, distribution, marketing and all other functions relating to the Hawk brand. The initial five-year term of the license agreement has expired, but Kohl’s exercised its option to extend the license agreement for an additional

five years. Kohl’s has two remaining five-year extensions, exercisable at its option. We retain the right to manufacture and sell Hawk branded products outside of North America.

Our patent portfolio contains patents and applications primarily related to wetsuits, skate shoes, watches, boardshorts, snowboards and snowboard boots.

Competition

Competition is strong in the global beachwear, skateboard shoe and casual sportswear markets in which we operate, and each territory can have different competitors. Our direct competitors in the United States differ depending on distribution channel. Our principal competitors in our core channel of surf shops and our concept stores in the United States include Billabong International Pty Ltd., Volcom, Inc., O’Neill, Inc., Hurley International LLC and Nike, Inc., with its Nike 6.0 brand. Our competitors in the department store and specialty store channels in the United States include Abercrombie & Fitch Co. and its Hollister brand. Our principal competitors in the skateboard shoe market are VF Outdoor, Inc. (Vans), Sole Technology, Inc. (Etnies), DVS Shoe Company and Nike, Inc., with its Nike SB brand. In Europe, our principal competitors in the core channel include O’Neill, Inc., Billabong International Pty Ltd., Rip Curl International Pty Ltd., Oxbow S.A. and Volcom, Inc. In Australia, our primary competitors are Billabong International Pty Ltd. and Rip Curl International Pty Ltd. In broader distribution, our competitors also include companies such as Adidas AG and Levi Strauss & Co. Some of our competitors may be significantly larger and have substantially greater resources than we have.

We compete primarily on the basis of successful brand management, product design and quality born out of our ability to:

•		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 products at appropriate price points; and
•		convey our outdoor sports lifestyle messages to consumers worldwide.

Future Season Orders

At the end of November 2010, our backlog totaled $478 million compared to $535 million the year before. Our backlog depends upon a number of factors and fluctuates based upon the timing of trade shows and sales meetings, the length and timing of various international selling seasons, changes in foreign currency exchange rates and market conditions. The timing of shipments also fluctuates from year to year based upon the production of goods and the ability to distribute our products in a timely manner. As a consequence, a comparison of backlog from season to season is not necessarily meaningful and may not be indicative of eventual shipments or forecasted revenues.

Employees

At October 31, 2010, we had approximately 6,200 full-time equivalent employees, consisting of approximately 2,600 in the United States, Canada, Mexico, and Brazil, approximately 2,200 in Europe and approximately 1,400 in Asia/Pacific. None of these employees are represented by trade unions. Certain French employees are represented by workers councils who negotiate with management on behalf of the employees. Management is generally required to share its plans with the workers councils, to the extent that these plans affect the represented employees. We have never experienced a work stoppage and consider our working relationships with our employees and the workers councils to be good.

Environmental Matters

Some of our facilities and operations have been or are subject to various federal, state and local environmental laws and regulations which govern, among other things, the use and storage of hazardous materials, the storage and disposal of solid and hazardous wastes, the discharge of pollutants into the air, water and land, and the cleanup of contamination. Some of our third party manufacturing partners use, among other things, inks and dyes, and produce related by-products and wastes. We have acquired

businesses and properties in the past, and may do so again in the future. In the event we or our predecessors fail or have failed to comply with environmental laws, or cause or have caused a release of hazardous substances or other environmental damage, whether at our sites or elsewhere, we could incur fines, penalties or other liabilities arising out of such noncompliance, releases or environmental damage. Compliance with and liabilities under environmental laws and regulations did not have a significant impact on our capital expenditures, results of operations or competitive position during the last three fiscal years.

Recent Dispositions

In 2005, we acquired Skis Rossignol, S.A., a wintersports and golf equipment manufacturer. The golf equipment operations were held by Rossignol’s majority-owned subsidiary, Roger Cleveland Golf Company, Inc. In December 2007, we sold Cleveland, including its related golf equipment brands and operations. The sale of Cleveland was structured as a stock sale in which the buyer acquired all of our golf equipment operations for a transaction value of $132.5 million, which included the repayment of Cleveland’s outstanding indebtedness to us. In November 2008, we completed the sale of our Rossignol business, including the related brands Rossignol, Dynastar, Look and Lange, pursuant to a stock purchase agreement for an aggregate purchase price of approximately $50.8 million, $38.1 million of which was paid in cash and the remaining $12.7 million of which was issued to us as a promissory note. The note was canceled in October 2009 in connection with the completion of the final working capital adjustment.

As a result of these dispositions, the Cleveland and Rossignol businesses have been classified as discontinued operations in our consolidated financial statements for all periods presented. The remaining Rossignol business assets and liabilities classified as held for sale as of October 31, 2010 primarily relate to the discontinued Rossignol apparel business.

Available Information

We file with the Securities and Exchange Commission (SEC) our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, proxy statements and registration statements. The public may read and copy any material we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain information from the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers, including us, that file electronically.

Our corporate website is http://www.quiksilverinc.com. We make available free of charge, on or through this website, our annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the SEC. In addition, copies of the written charters for the committees of our board of directors, our Corporate Governance Guidelines, our Code of Ethics for Senior Financial Officers and our Code of Business Conduct and Ethics are also available on this website, and can be found under the Investor Relations and Corporate Governance links. Copies are also available in print, free of charge, by writing to Investor Relations, Quiksilver, Inc., 15202 Graham Street, Huntington Beach, California 92649. We may post amendments or waivers of our Code of Ethics for Senior Financial Officers and Code of Business Conduct and Ethics, if any, on our website. This website address is intended to be an inactive textual reference only, and none of the information contained on our website is part of this report or is incorporated in this report by reference.

Item 1A. RISK FACTORS

Our business faces many risks. The risks described below may not be the only risks we face. Additional risks that we do not yet know of, or that we currently think are immaterial, may also impair our business operations or financial results. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could suffer and the trading price of our common stock or our senior notes could decline. You should consider the following risks before deciding to invest in, or maintain your investment in, our common stock or senior notes.

Continuing unfavorable economic conditions could have a material adverse effect on our results of operations.

The apparel and footwear industries have historically been subject to substantial cyclical variations. Our financial performance has been, and may continue to be, negatively affected by unfavorable economic conditions. Continued or further recessionary economic conditions may have a further adverse impact on our sales volumes, pricing levels and profitability. As domestic and international economic conditions change, trends in discretionary consumer spending become unpredictable and subject to reductions due to uncertainties about the future. When consumers reduce discretionary spending, purchases of specialty apparel and footwear tend to decline. A continuation of the general reduction in consumer discretionary spending in the domestic and international economies, as well as the impact of tight credit markets on us, our suppliers, other vendors or customers, could have a material adverse effect on our results of operations.

The apparel and footwear industries are each highly competitive, and if we fail to compete effectively, we could lose our market position.

The apparel and footwear industries are each highly competitive. We compete against a number of domestic and international designers, manufacturers, retailers and distributors of apparel and footwear. In order to compete effectively, we must (1) maintain the image of our brands and our reputation for authenticity in our core boardriding markets; (2) be flexible and innovative in responding to rapidly changing market demands on the basis of brand image, style, performance and quality; and (3) offer consumers a wide variety of high quality products at competitive prices.

The purchasing decisions of consumers are highly subjective and can be influenced by many factors, such as brand image, marketing programs and product design. A small number of our global competitors enjoy substantial competitive advantages, including greater financial resources for competitive activities, such as sales, marketing, strategic acquisitions and athlete endorsements. The number of our direct competitors and the intensity of competition may increase as we expand into other product lines or as other companies expand into our product lines. Our competitors may enter into business combinations or alliances that strengthen their competitive positions or prevent us from taking advantage of such combinations or alliances. Our competitors also may be able to respond more quickly and effectively than we can to new or changing opportunities, standards or consumer preferences. Also, if our sponsored athletes terminate their relationships with us and endorse the products of our competitors, we may be unable to obtain endorsements from other comparable athletes.

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.

The apparel and footwear industries are subject to constantly and rapidly changing consumer demands based on fashion trends and performance features. Our success depends, in part, on our ability to anticipate, gauge and respond to these changing consumer preferences in a timely manner while preserving the authenticity and image of our brands and the quality of our products.

As is typical with new products, market acceptance of new designs and products we may introduce is subject to uncertainty. In addition, we generally make decisions regarding product designs several months in advance of the time when consumer acceptance can be measured. If trends shift away from our products, or if we misjudge the market for our product lines, we may be faced with significant amounts of unsold inventory or other conditions which could have a material adverse effect on our results of operations.

The failure of new product designs or new product lines to gain market acceptance could also adversely affect our business and the image of our brands. Achieving market acceptance for new products may also require substantial marketing efforts and expenditures to expand consumer demand. These requirements could strain our management, financial and operational resources. If we do not continue to develop stylish and innovative products that provide better design and performance attributes than the products of our competitors, or if our future product lines misjudge consumer demands, we may lose consumer loyalty, which could result in a decline in our revenues and market share.

Our business could be harmed if we fail to maintain proper inventory levels.

We maintain an inventory of selected products that we anticipate will be in high demand. We may be unable to sell the products we have ordered in advance from manufacturers or that we have in our inventory. Inventory levels in excess of customer demand may result in inventory write-downs or the sale of excess inventory at discounted or closeout prices. These events could significantly harm our operating results and impair the image of our brands. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply quality products in a timely manner, we may experience inventory shortages, which might result in unfilled orders, negatively impact customer relationships, diminish brand loyalty and result in lost revenues, any of which could harm our business.

Difficulties in implementing our new global enterprise-wide reporting system could impact our ability to design, produce and ship our products on a timely basis.

We have announced the selection of the SAP Apparel and Footwear Solution as our core operational and financial system (“ERP”). The implementation of the ERP is a key part of our ongoing efforts to manage our business more effectively by eliminating redundancies and enhancing our overall cost structure and margin performance. Difficulties in shifting and integrating existing systems to this new ERP could impact our ability to design, produce and ship our products on a timely basis.

Changes in foreign currency exchange rates could affect our revenues and costs.

We are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to certain sales, royalty income, and product purchases of our international subsidiaries that are denominated in currencies other than their functional currencies. We are also exposed to foreign currency gains and losses resulting from U.S. transactions that are not denominated in U.S. dollars. If we are unsuccessful in hedging these potential losses, our operating results and cash flows could be significantly reduced. In some cases, as part of our risk management strategies, we may choose not to hedge such risks. If we misjudge these risks, there could be a material adverse effect on our operating results and financial position.

Furthermore, we are exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported results in our consolidated financial statements due to the translation of the statements of operations and balance sheets of our international subsidiaries into U.S. dollars. We may (but generally do not) use foreign currency exchange contracts to hedge the profit and loss effects of this translation effect because such exposures are generally non-cash in nature and because accounting rules would require us to mark these contracts to fair value in the statement of operations at the end of each financial reporting period. We translate our revenues and expenses at average exchange rates during the period. As a result, the reported revenues and expenses of our international subsidiaries would decrease if the U.S. dollar increased in value in relation to other currencies, including the euro, Australian dollar or Japanese yen.

Our debt obligations could limit our flexibility in managing our business and expose us to certain risks.

We are leveraged. Our degree of leverage may have negative consequences to us, including the following:

	•		we may have difficulty satisfying our obligations with respect to our 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 interest and, where applicable, principal 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;
	•		we may be subject to credit reductions and other changes in our business relationships with our suppliers, vendors and customers if they perceive that we would be unable to pay our debts to them in a timely manner;

	•		we have certain short term and uncommitted lines of credit in our Asia/Pacific segment that could be canceled on very short notice to us, requiring the use of cash on hand or available credit; and
	•		we may be placed at a competitive disadvantage against less leveraged competitors.

Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt service obligations.

Our ability to make interest payments on our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations sufficient to service our debt, fund our operations or make necessary capital expenditures. If we are unable to generate sufficient cash flow, we may be required to adopt one or more alternatives, such as restructuring or refinancing our debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will also depend on the credit and capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations and impair our liquidity and the operations of our business.

If our goodwill becomes impaired, we may be required to record a significant charge to our earnings.

We may be required to record future impairments of goodwill to the extent the fair value of any of our reporting units is less than its carrying value. As of October 31, 2010, the fair value of the Americas and Europe reporting units substantially exceeded their carrying value. For our Asia/Pacific reporting unit, the fair value exceeded the carrying value by approximately 9%. Our estimates of fair value are based on assumptions about future cash flows and growth rates of each reporting unit, discount rates applied to these cash flows and current market estimates of value. Based on the uncertainty of future growth rates and other assumptions used to estimate goodwill recoverability, future reductions in our expected cash flows for Asia/Pacific could cause a material non-cash impairment charge of goodwill, which could have a material adverse effect on our results of operations and financial condition.

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.

In the event of war or acts of terrorism or the escalation of existing hostilities, or if any are threatened, our ability to procure our products from our manufacturers for sale to our customers may be negatively affected. We import a substantial portion of our products from other countries. If it becomes difficult or impossible to import our products into the countries in which we sell our products, our sales and profit margins may be adversely affected. Additionally, war, military responses to future international conflicts and possible future terrorist attacks may lead to a downturn in the U.S. and/or international economies which could have a material adverse effect on our results of operations.

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.

Our success depends to a significant degree upon our ability to protect and preserve our intellectual property, including copyrights, trademarks, patents, service marks, trade dress, trade secrets and similar intellectual property. We rely on the intellectual property, patent, trademark and copyright laws of the United States and other countries to protect our proprietary rights. However, we may be unable to prevent third parties from using our intellectual property without our authorization, particularly in those countries where the laws do not protect our proprietary rights as fully as in the United States. The use of our intellectual property or similar intellectual property by others could reduce or eliminate any competitive advantage we have developed, causing us to lose sales or otherwise harm our business. From time to time, we resort to litigation to protect these rights, and these proceedings can be burdensome and costly and we may not prevail.

We have obtained some U.S. and foreign trademarks, patents and service mark registrations, and have applied for additional ones, but cannot guarantee that any of our pending applications will be approved by the applicable governmental authorities. The loss of trademarks, patents and service marks, or the loss

of the exclusive use of our trademarks, patents and service marks, could have a material adverse effect on our business, financial condition and results of operations. Accordingly, we devote substantial resources to the establishment and protection of our trademarks, patents and service marks on a worldwide basis and continue to evaluate the registration of additional trademarks, patents and service marks, as appropriate. We cannot assure you that our actions taken to establish and protect our trademarks, patents and service marks will be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as violative of their trademark, patent or other proprietary rights.

We may be subject to claims that our products have infringed upon the intellectual property rights of others, which may cause us to incur unexpected costs or prevent us from selling our products.

We cannot be certain that our products do not and will not infringe the intellectual property rights of others. We may be subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of the intellectual property rights of third parties by us or our customers in connection with their use of our products. Any such claims, whether or not meritorious, could result in costly litigation and divert the efforts of our personnel. Moreover, should we be found liable for infringement, we may be required to enter into licensing agreements (if available on acceptable terms or at all) or to pay damages and cease making or selling certain products. Moreover, we may need to redesign, discontinue or rename some of our products to avoid future infringement liability. Any of the foregoing could cause us to incur significant costs and prevent us from manufacturing or selling our products.

If we are unable to maintain our endorsements by professional athletes, our ability to market and sell our products may be harmed.

A key element of our marketing strategy has been to obtain endorsements from prominent athletes, which contribute to the authenticity and image of our brands. We believe that this strategy has been an effective means of gaining brand exposure worldwide and creating broad appeal for our products. We cannot assure you that we will be able to maintain our existing relationships with these individuals in the future or that we will be able to attract new athletes to endorse our products. We also are subject to risks related to the selection of athletes whom we choose to endorse our products. We may select athletes who are unable to perform at expected levels or who are not sufficiently marketable. In addition, negative publicity concerning any of our athletes could harm our brand and adversely impact our business. If we are unable in the future to secure prominent athletes and arrange athlete endorsements of our products on terms we deem to be reasonable, we may be required to modify our marketing platform and to rely more heavily on other forms of marketing and promotion, which may not prove to be effective. In any event, our inability to obtain endorsements from professional athletes could adversely affect our ability to market and sell our products, resulting in loss of revenues and a loss of profitability.

The demand for our products is seasonal and sales are dependent upon the weather.

Our revenues and operating results are subject to seasonal trends when measured on a quarterly basis. These trends are dependent on many factors, including the holiday seasons, weather, consumer demand, markets in which we operate and numerous other factors beyond our control. The seasonality of our business, unseasonable weather during our peak selling periods and/or misjudgment in consumer demands could have a material adverse effect on our financial condition and results of operations.

Factors affecting international commerce and our international operations may seriously harm our financial condition.

We generate the majority of our revenues from outside of the United States, and we anticipate that revenue from our international operations could account for an increasingly larger portion of our revenues in the future. Our international operations are directly related to, and dependent on, the volume of international trade and foreign market conditions. International commerce and our international operations are subject to many risks, including:

	•		recessions in foreign economies;
	•		fluctuations in foreign currency exchange rates;

	•		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;
	•		social, political and economic instability;
	•		unexpected changes in regulatory requirements;
	•		tariffs and other trade barriers; and
	•		U.S. government licensing requirements for exports.

The occurrence or consequences of any of these risks may restrict our ability to operate in the affected regions and decrease the profitability of our international operations, which may harm our financial condition.

We have established, and may continue to establish, joint ventures in various foreign territories with independent third party business partners to distribute and sell Quiksilver, Roxy, DC and other branded products in such territories. These joint ventures are subject to substantial risks and liabilities associated with their operations, as well as the risk that our relationships with our joint venture partners do not succeed in the manner that we anticipate. If our joint venture operations, or our relationships with our joint venture partners, are not successful, our results of operations and financial condition may be adversely affected.

Future sales of our common stock in the public market, or the issuance of other equity securities, may adversely affect the market price of our common stock and the value of our senior notes.

Sales of a substantial number of shares of our common stock or other equity-related securities in the public market could depress the market price of our senior notes, our common stock, or both. We cannot predict the effect that future sales of our common stock or other equity-related securities, including the exercise and/or sale of the equity securities held by funds affiliated with Rhône Capital LLC, would have on the market price of our common stock or the value of our senior notes.

Our industry is subject to pricing pressures that may adversely impact our financial performance.

We source many of our products offshore because manufacturing costs are generally less, primarily due to lower labor costs. Many of our competitors also source their product requirements offshore to achieve lower costs, possibly in locations with lower costs than our offshore operations, and those competitors may use these cost savings to reduce prices. To remain competitive, we may be forced to adjust our prices from time to time in response to these industry-wide pricing pressures. Our financial performance may be negatively affected by these pricing pressures if:

	•		we are forced to reduce our prices and we cannot reduce our production costs; or
	•		our production costs increase, particularly with respect to cotton and other commodities and raw materials, and we cannot increase our prices.

Uncertainty of changing international trade regulations and quotas on imports of textiles and apparel may adversely affect our business.

Future quotas, duties or tariffs may have a material adverse effect on our business, financial condition and results of operations. We currently import raw materials and/or finished garments into the majority of countries in which we sell our products. Substantially all of our import operations are subject to customs duties.

In addition, the countries in which our products are manufactured or to which they are imported may from time to time impose additional new quotas, duties, tariffs, requirements as to where raw materials must be purchased, additional workplace regulations or other restrictions on our imports, or otherwise adversely modify existing restrictions. Adverse changes in these costs and restrictions could harm our business.

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.

Substantially all of our apparel products are produced by independent manufacturers. We face the risk that these third-party manufacturers with whom we contract to produce our products may not produce and deliver our products on a timely basis, or at all. We cannot be certain that we will not experience operational difficulties with our manufacturers, such as reductions in the availability of production capacity, errors in complying with product specifications and regulatory and customer requirements, insufficient quality control, failures to meet production deadlines, increases in materials and manufacturing costs or other business interruptions or failures due to deteriorating economies. The failure of any manufacturer to perform to our expectations could result in supply shortages or delays for certain products and harm our business.

The capacity of our manufacturers to manufacture our products also is dependent, in part, upon the availability of raw materials. Our manufacturers may experience shortages of raw materials, particularly cotton and other fabrics, which could result in delays in deliveries of our products by our manufacturers or increased costs to us. For example, in the first quarter of our 2011 fiscal year, there is an acute shortage of cotton, which could materially increase our cost of goods. Any shortage of raw materials or inability of a manufacturer to manufacture or ship our products in a timely manner, or at all, could impair our ability to ship orders of our products in a cost-efficient, timely manner and could cause us to miss the delivery requirements of our customers. As a result, we could experience cancellations of orders, refusals to accept deliveries or reductions in our prices and margins, any of which could harm our financial performance and results of operations.

Employment related matters may affect our profitability.

As of October 31, 2010, we had no unionized employees, but certain French employees are represented by workers’ councils. As we have little control over union activities, we could face difficulties in the future should our workforce become unionized. There can be no assurance that we will not experience work stoppages or other labor problems in the future with our non-unionized employees or employees represented by workers’ councils.

Item 1B. UNRESOLVED STAFF COMMENTS

None.

Item 2. PROPERTIES

As of October 31, 2010, our principal facilities in excess of 40,000 square feet were as follows:

				Approximate				Current Lease
Location		Principal Use		Sq. Ft.				Expiration
Huntington Beach, California		Americas/corporate headquarters			120,000				2023	*
Huntington Beach, California		Americas/corporate headquarters			100,000				2013
Huntington Beach, California		Americas/corporate headquarters			76,000				2023	*
Mira Loma, California		Americas distribution center			683,000				2027	*
St. Jean de Luz, France		European headquarters			151,000				N/A	**
St. Jean de Luz, France		European distribution center			127,000				N/A	**
Rives, France		European distribution center			206,000				2016
Torquay, Australia		Asia/Pacific headquarters			54,000				2024	*
Geelong, Australia		Asia/Pacific distribution center			81,000				2018	*
Geelong, Australia		Asia/Pacific distribution center			134,000				2039	*

As of October 31, 2010, we operated 106 retail stores in the Americas, 272 retail stores in Europe, and 162 retail stores in Asia/Pacific on leased premises. The leases for our facilities, including retail stores, required aggregate annual rentals of approximately $126.9 million in fiscal 2010. We anticipate that we will be able to extend those leases that expire in the near future on terms satisfactory to us, or, if necessary, locate substitute facilities on acceptable terms. We believe that our corporate, distribution and retail leased facilities are suitable and adequate to meet our current needs.

Item 3. LEGAL PROCEEDINGS

We are involved from time to time in legal claims involving trademark and intellectual property, licensing, employee relations and contractual and other matters incidental to our business. We believe the resolution of any such matter currently threatened or pending will not have a material adverse effect on our financial condition, results of operations or liquidity.

Item 4. (REMOVED AND RESERVED)

Not applicable

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “ZQK.” The high and low sales prices of our common stock, as reported by the NYSE for the two most recent fiscal years, are set forth below.

		High				Low
Fiscal 2010
4th quarter ended October 31, 2010		$	4.80			$	3.37
3rd quarter ended July 31, 2010			5.79				3.53
2nd quarter ended April 30, 2010			6.09				1.98
1st quarter ended January 31, 2010			2.47				1.64
Fiscal 2009
4th quarter ended October 31, 2009		$	3.03			$	1.92
3rd quarter ended July 31, 2009			3.83				1.49
2nd quarter ended April 30, 2009			2.10				0.91
1st quarter ended January 31, 2009			3.09				0.80

We have historically reinvested our earnings in our business and have never paid a cash dividend. No change in this practice is currently being considered. Our payment of cash dividends in the future will be determined by our Board of Directors, considering conditions existing at that time, including our earnings, financial requirements and condition, opportunities for reinvesting earnings, business conditions and other factors. In addition, under the indentures related to our senior notes and under our other debt agreements, there are limits on the dividends and other payments that certain of our subsidiaries may pay to us and we must obtain prior consent to pay dividends to our stockholders above a pre-determined amount.

On December 31, 2010, there were 865 holders of record of our common stock and an estimated 16,280 beneficial stockholders.

Item 6. SELECTED FINANCIAL DATA

The statements of operations and balance sheet data shown below were derived from our consolidated financial statements. Our consolidated financial statements as of October 31, 2010 and 2009 and for each of the three years in the period ended October 31, 2010, included herein, have been audited by Deloitte & Touche LLP, our independent registered public accounting firm. You should read this selected financial data together with our consolidated financial statements and related notes, as well as the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

		Year Ended October 31,
Amounts in thousands, except ratios and
per share data		2010(1)(2)				2009(1)(2)				2008(1)(2)				2007(1)				2006(1)
Statements of Operations Data
Revenues, net		$	1,837,620			$	1,977,526			$	2,264,636			$	2,047,072			$	1,722,150
Income (loss) before provision for income taxes			15,333				(3,622	)			99,261				151,159				122,862
(Loss) income from continuing operations(3)			(11,514	)			(73,215	)			65,544				116,727				89,376
Income (loss) from discontinued operations(3)			1,830				(118,827	)			(291,809	)			(237,846	)			3,640
Net (loss) income(3)			(9,684	)			(192,042	)			(226,265	)			(121,119	)			93,016
(Loss) income per share from continuing operations(3)			(0.09	)			(0.58	)			0.52				0.94				0.73
Income (loss) per share from discontinued operations(3)			0.01				(0.94	)			(2.32	)			(1.92	)			0.03
Net (loss) income per share(3)			(0.07	)			(1.51	)			(1.80	)			(0.98	)			0.76
(Loss) income per share from continuing operations, assuming dilution(3)			(0.09	)			(0.58	)			0.51				0.90				0.70
Income (loss) per share from discontinued operations, assuming dilution(3)			0.01				(0.94	)			(2.25	)			(1.83	)			0.03
Net (loss) income per share, assuming dilution(3)			(0.07	)			(1.51	)			(1.75	)			(0.93	)			0.73
Weighted average common shares			135,334				127,042				125,975				123,770				122,074
Weighted average common shares outstanding, assuming dilution			135,334				127,042				129,485				129,706				127,744
Balance Sheet Data
Total assets		$	1,696,121			$	1,852,608			$	2,170,265			$	2,662,064			$	2,447,378
Working capital			537,439				561,697				631,315				631,857				598,714
Lines of credit			22,586				32,592				238,317				124,634				61,106
Long-term debt			706,187				1,006,661				822,001				732,812				598,434
Stockholders’ equity			610,368				456,595				599,966				886,613				881,127
Other Data
Adjusted EBITDA(4)		$	204,377			$	131,532			$	278,945			$	260,786			$	221,687
Current ratio			2.6				2.3				1.9				1.7				1.8
Return on average stockholders’ equity(5)			(2.2	)%			(13.9	)%			8.8	%			13.2	%			11.1	%

		Year Ended October 31,
Amounts in thousands		2010				2009				2008				2007				2006
(Loss) income from continuing operations attributable to Quiksilver, Inc.		$	(11,514	)		$	(73,215	)		$	65,544			$	116,727			$	89,376
Income tax expense			23,433				66,667				33,027				34,506				33,181
Interest expense, net			114,109				63,924				45,327				46,571				41,317
Depreciation and amortization			53,861				55,004				57,231				46,852				37,851
Non-cash stock-based compensation expense			12,831				8,415				12,019				16,130				19,962
Non-cash asset impairments			11,657				10,737				65,797				—				—
Adjusted EBITDA		$	204,377			$	131,532			$	278,945			$	260,786			$	221,687

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

The following discussion should be read together with our consolidated financial statements and related notes, which are included in this report, and the “Risk Factors”, set forth in Item 1A above.

Overview

We began operations in 1976 as a California company making boardshorts for surfers in the United States under a license agreement with the Quiksilver brand founders in Torquay, Australia. Our product offering expanded in the 1980s as we expanded our distribution channels. After going public in 1986 and purchasing the rights to the Quiksilver brand in the U.S., we further expanded our product offerings and began to diversify. In 1991, we acquired the European licensee of Quiksilver and introduced Roxy, our surf brand for teenage girls. We also expanded demographically in the 1990s by adding products for boys, girls, toddlers and men, and we introduced our proprietary retail store concept that displays the heritage and products of Quiksilver and Roxy. In 2000, we acquired the international Quiksilver and Roxy trademarks, and in 2002, we acquired our licensees in Australia and Japan. In 2004, we acquired DC Shoes, Inc. to expand our presence in action sports inspired footwear. In 2005, we acquired Skis Rossignol SA, a wintersports and golf equipment company.

In November 2008, we completed the sale of our Rossignol wintersports business, which included the brands Rossignol, Dynastar, Look and Lange for an aggregate purchase price of approximately $50.8 million. We incurred a pre-tax loss on the sale of Rossignol of approximately $212.3 million, partially offset by a tax benefit of approximately $89.4 million, recognized primarily during the three months ended January 31, 2009. Our Rossignol business, including both wintersports equipment and related apparel, is classified as discontinued operations. The assets and related liabilities of our remaining Rossignol apparel business are classified as held for sale, and the operations are classified as discontinued in our

consolidated financial statements. Also, as part of our acquisition of Rossignol in 2005, we acquired a majority interest in Roger Cleveland Golf Company, Inc. Our golf equipment operations were subsequently sold in December 2007 and are also classified as discontinued operations in our consolidated financial statements. As a result of these dispositions, the following information has been adjusted to exclude both our Rossignol wintersports and golf equipment businesses.

During our fiscal year ended October 31, 2010, we closed a $140 million debt-for-equity exchange with Rhône, completed an amendment to our Americas credit facility, and closed a new Americas term loan (the proceeds of which were used to repay the remaining outstanding balance of our Rhône term loans following the debt-for-equity exchange). Subsequent to our fiscal year end, we issued €200 million in seven year unsecured senior notes and used the proceeds to repay our European term loans. As a result, we have significantly improved our balance sheet and our liquidity position compared to the prior year. Specifically, with the completion of these transactions, we have extended virtually all of our short-term maturities to a long-term basis, which provides us with the financial and operational flexibility to fully pursue the many growth opportunities within our own brands.

Today our products are sold throughout the world, primarily in surf shops, skate shops, snow shops and specialty stores. We operate in the outdoor market of the sporting goods industry in which we design, produce and distribute branded apparel, footwear, accessories and related products. We operate in three segments, the Americas, Europe and Asia/Pacific. Our Americas segment includes revenues from the U.S., Canada and Latin America. Our European segment includes revenues from Europe, the Middle East and Africa. Our Asia/Pacific segment includes revenues primarily from Australia, Japan, New Zealand and Indonesia. Royalties earned from various licensees in other international territories are categorized in corporate operations along with revenues from sourcing services. Revenues by segment from continuing operations are as follows:

		Year Ended October 31,
In thousands		2010				2009				2008				2007				2006
Americas		$	843,078			$	929,691			$	1,061,370			$	995,801			$	831,583
Europe			728,952				792,627				933,119				803,395				660,127
Asia/Pacific			260,578				251,596				265,067				243,064				225,128
Corporate operations			5,012				3,612				5,080				4,812				5,312
Total revenues, net		$	1,837,620			$	1,977,526			$	2,264,636			$	2,047,072			$	1,722,150

We operate in markets that are highly competitive, and our ability to evaluate and respond to changing consumer demands and tastes is critical to our success. If we are unable to remain competitive and maintain our consumer loyalty, our business will be negatively affected. We believe that our historical success is due to the development of an experienced team of designers, artists, sponsored athletes, technicians, researchers, merchandisers, pattern makers and contractors. Our team and the heritage and current strength of our brands has helped us remain competitive in our markets. Our success in the future will depend, in part, on our ability to continue to design products that are desirable to the marketplace and competitive in the areas of quality, brand image, technical specifications, distribution methods, price, customer service and intellectual property protection.

Results of Operations

During our fiscal year ended October 31, 2010, we continued to face difficult market conditions resulting in reduced net revenues, however, we were able to significantly improve our gross profit margin and our Adjusted EBITDA.

The table below shows certain components in our statements of operations and other data as a percentage of revenues:

		Year Ended October 31,
		2010				2009				2008
Statements of Operations data
Revenues, net			100.0	%			100.0	%			100.0	%
Gross profit			52.6				47.1				49.5
Selling, general and administrative expense			45.3				43.1				40.4
Asset impairments			0.6				0.5				2.9
Operating income			6.7				3.5				6.2
Interest expense			6.2				3.2				2.0
Foreign currency and other (income) expense			(0.3	)			0.5				(0.2	)
Income (loss) before provision for income taxes			0.8	%			(0.2	)%			4.4	%
Other data
Adjusted EBITDA (1)			11.1	%			6.7	%			12.3	%

Our financial performance has been, and may continue to be, negatively affected by unfavorable global economic conditions. Continued or further deteriorating economic conditions are likely to have an adverse impact on our sales volumes, pricing levels and profitability. As domestic and international economic conditions change, trends in discretionary consumer spending become unpredictable and subject to reductions due to uncertainties about the future. When consumers reduce discretionary spending, purchases of apparel and footwear tend to decline. A general reduction in consumer discretionary spending in the domestic and international economies or uncertainties regarding future economic prospects could have a material adverse effect on our results of operations.

Fiscal 2010 Compared to Fiscal 2009

Revenues

Our total net revenues decreased 7% in fiscal 2010 to $1,837.6 million from $1,977.5 million in fiscal 2009. In constant currency, net revenues decreased 9% compared to the prior year. Our net revenues in each of the Americas, Europe and Asia/Pacific segments include apparel, footwear, accessories and related products for our Quiksilver, Roxy, DC and other brands, which primarily include Hawk, Lib Technologies, and Gnu.

In order to better understand growth rates in our foreign operating segments, we make reference to constant currency. Constant currency improves visibility into actual growth rates as it adjusts for the effect of changing foreign currency exchange rates from period to period. Constant currency is calculated by taking the ending foreign currency exchange rate (for balance sheet items) or the average foreign currency exchange rate (for income statement items) used in translation for the current period and applying that same rate to the prior period. Our European segment is translated into constant currency using euros and our Asia/Pacific segment is translated into constant currency using Australian dollars as these are the primary functional currencies of each segment. As such, this methodology does not account for movements in individual currencies within an operating segment (for example, non-euro currencies within our European segment and Japanese yen within our Asia/Pacific segment). A constant currency translation methodology that accounts for movements in each individual currency could yield a different result compared to using only euros and Australian dollars.

The following table presents revenues by segment in both historical currency and constant currency for the fiscal years ended October 31, 2009 and 2010:

In thousands		Americas				Europe				Asia/Pacific				Corporate				Total
Historical currency (as reported)
October 31, 2009		$	929,691			$	792,627			$	251,596			$	3,612			$	1,977,526
October 31, 2010			843,078				728,952				260,578				5,012				1,837,620
Percentage (decrease) increase			(9	%)			(8	%)			4	%							(7	%)
Constant currency (current year exchange rates)
October 31, 2009		$	929,691			$	783,871			$	303,136			$	3,612			$	2,020,310
October 31, 2010			843,078				728,952				260,578				5,012				1,837,620
Percentage decrease			(9	%)			(7	%)			(14	%)							(9	%)

Revenues in the Americas decreased 9% to $843.1 million for fiscal 2010 from $929.7 million in the prior year, while European revenues decreased 8% to $729.0 million from $792.6 million and Asia/Pacific revenues increased 4% to $260.6 million from $251.6 million for those same periods. The decrease in Americas’ net revenues was primarily attributable to generally weak economic conditions affecting both our retail and wholesale channels, with particular softness in the junior’s market. The decrease in the Americas came primarily from Roxy brand revenues and, to a lesser extent, Quiksilver brand revenues. These decreases were partially offset by slight growth in DC brand revenues. The decrease in Roxy brand revenues came from the apparel and footwear product lines and was partially offset by slight growth in the accessories product line. The decrease in Quiksilver brand revenues came from the apparel product line and was partially offset by growth in the accessories and footwear product lines. The increase in DC brand revenues came primarily from our footwear product line, while revenues from our apparel and accessories product lines were in line with the prior year. European net revenues decreased 7% in constant currency. The currency adjusted decrease in Europe came primarily from Roxy brand revenues and, to a lesser extent, Quiksilver brand revenues, partially offset by growth in DC brand revenues. The decrease in Roxy brand revenues came primarily from our apparel product line and, to a lesser extent, our accessories and footwear product lines. The decrease in Quiksilver brand revenues came primarily from our apparel product line and, to a lesser extent, our accessories and footwear product lines. The increase in DC brand revenues came primarily from growth in our apparel and accessories product lines, but was partially offset by a decline in our footwear product line. Asia/Pacific’s net revenues decreased 14% in constant currency. The currency adjusted decrease in Asia/Pacific revenues came across all brands and all major product lines. Our Asia/Pacific segment was particularly impacted by the generally weak economic conditions.

Gross Profit

Our consolidated gross profit margin increased to 52.6% in fiscal 2010 from 47.1% in the prior year. The gross profit margin in the Americas segment increased to 46.3% from 37.6% in the prior year, our European segment gross profit margin increased to 59.8% from 56.4%, and our Asia/Pacific segment gross profit margin increased to 54.2% from 53.9%. The increase in the Americas segment gross profit margin was primarily the result of less discounting in our wholesale business and, to a lesser extent, in our company-owned retail stores, less clearance business and improved sourcing. Our European segment gross profit margin increased primarily as a result of improved sourcing, improved margins in our company-owned retail stores and, to a lesser extent, improved margins on clearance business. In our Asia/Pacific segment, gross profit margin was generally flat compared to the prior year. Our gross profit margin in fiscal 2011 may be negatively impacted by the current shortage of cotton and other fabrics.

Selling, General and Administrative Expense

Our selling, general and administrative expense (“SG&A”) decreased 2% in fiscal 2010 to $832.1 million from $851.7 million in fiscal 2009. In the Americas segment, these expenses decreased 11% to $324.7 million in fiscal 2010 from $364.7 million in fiscal 2009, in our European segment, they were virtually unchanged at $340.1 million as compared to $341.8 million, and in our Asia/Pacific segment, SG&A increased 14% to $128.2 million from $112.4 million for those same periods. On a consolidated basis,

expense reductions in SG&A were partially offset by approximately $11.2 million in charges related to restructuring activities, including severance costs. As a percentage of revenues, SG&A increased to 45.3% of revenues in fiscal 2010 compared to 43.1% in fiscal 2009. In the Americas, SG&A as a percentage of revenues decreased to 38.5% compared to 39.2% in the prior year. In Europe, SG&A as a percentage of revenues increased to 46.7% compared to 43.1% and in Asia/Pacific, SG&A as a percentage of revenues increased to 49.2% compared to 44.7% in the prior year. The decrease in SG&A as a percentage of revenues in our Americas segment was primarily a result of lower overall expenses due to cost cutting, partially offset by lower revenues. The increase in SG&A as a percentage of revenues in our European segment was primarily caused by lower revenues and, to a lesser extent, the cost of operating additional retail stores. In our Asia/Pacific segment, the increase in SG&A as a percentage of revenues was primarily the result of lower revenues in constant currency.

Asset Impairments

Asset impairment charges totaled approximately $11.7 million in fiscal 2010 compared to approximately $10.7 million in fiscal 2009. The impairment charges for both years primarily relate to the impairment of leasehold improvements and other assets in certain retail stores. We analyzed the profitability of our retail stores and determined that a total of 24 stores were not generating sufficient cash flows to recover our investment, 8 of which are scheduled to close in 2011. We are evaluating the timing of the closure of the remaining 16 stores and any costs associated with future rent commitments for these stores will be charged to future earnings upon store closure. With respect to the fiscal 2009 impairment, we determined 14 stores were not generating sufficient cash flows to recover our investment. Of these 14 stores, 8 still remain open and are planned to close at lease expiration or sooner if an early termination agreement can be reached.

Non-operating Expenses

Net interest expense increased to $114.1 million in fiscal 2010 compared to $63.9 million in fiscal 2009 primarily as a result of $33.2 million of deferred debt issuance costs and debt discount that were written-off in the fourth quarter of fiscal 2010 as a result of our repayment of the total outstanding balance of the Rhône senior secured term loans. Including this amount, $56.7 million of the total interest expense for fiscal 2010 was non-cash interest.

Our foreign currency gain amounted to $5.9 million in fiscal 2010 compared to a loss of $8.6 million in fiscal 2009. The current year gain resulted primarily from the foreign currency exchange effect of certain non-U.S. dollar denominated liabilities, as well as certain U.S. dollar denominated assets of our foreign subsidiaries.

Our income tax expense was $23.4 million in fiscal 2010 compared to $66.7 million in fiscal 2009. Income tax expense in fiscal 2009 was unfavorably impacted by a non-cash valuation allowance adjustment of $72.8 million recorded against our deferred tax assets in the United States.

Loss from continuing operations and Adjusted EBITDA

Our loss from continuing operations attributable to Quiksilver, Inc. in fiscal 2010 was $11.5 million, or $0.09 per share on a diluted basis, compared to $73.2 million, or $0.58 per share on a diluted basis for fiscal 2009. Adjusted EBITDA increased 55% to $204.4 million in fiscal 2010 compared to $131.5 million in fiscal 2009. For a definition of Adjusted EBITDA and a reconciliation of income from continuing operations attributable to Quiksilver, Inc. to Adjusted EBITDA, see footnote (3) to the table under Item 6, Selected Financial Data.

Fiscal 2009 Compared to Fiscal 2008

Revenues

Our total net revenues decreased 13% in fiscal 2009 to $1,977.5 million from $2,264.6 million in fiscal 2008. In constant currency, net revenues decreased 8% compared to the prior year.

The following table presents revenues by segment in both historical currency and constant currency for the years ended October 31, 2008 and 2009:

In thousands		Americas				Europe				Asia/Pacific				Corporate				Total
Historical currency (as reported)
October 31, 2008		$	1,061,370			$	933,119			$	265,067			$	5,080			$	2,264,636
October 31, 2009			929,691				792,627				251,596				3,612				1,977,526
Percentage decrease			(12	%)			(15	%)			(5	%)							(13	%)
Constant currency (current year exchange rates)
October 31, 2008		$	1,061,370			$	849,423			$	231,137			$	5,080			$	2,147,010
October 31, 2009			929,691				792,627				251,596				3,612				1,977,526
Percentage (decrease) increase			(12	%)			(7	%)			9	%							(8	%)

Revenues in the Americas decreased 12% to $929.7 million for fiscal 2009 from $1,061.4 million in the prior year, while European revenues decreased 15% to $792.6 million from $933.1 million and Asia/Pacific revenues decreased 5% to $251.6 million from $265.1 million for those same periods. In the Americas, the decrease in net revenues came primarily from the Roxy and Quiksilver brands and, to a lesser extent, our DC brand across all product lines. European net revenues decreased 7% in constant currency. The constant currency decrease in Europe was driven by a decrease in revenues from our Roxy brand and, to a lesser extent, our Quiksilver brand, partially offset by growth in our DC brand. Decreases in Roxy and Quiksilver brand revenues came primarily from our apparel and, to a lesser extent, our accessories product lines. DC brand revenue growth came primarily from our apparel and footwear product lines. Asia/Pacific’s net revenues increased 9% in constant currency. This constant currency increase in Asia/Pacific’s net revenues came across all product lines, primarily from our Roxy and Quiksilver brands and, to a lesser extent, growth in our DC brand.

Gross Profit

Our consolidated gross profit margin decreased to 47.1% in fiscal 2009 from 49.5% in the previous year. The gross profit margin in the Americas segment decreased to 37.6% from 42.0% in the prior year, our European segment gross profit margin decreased to 56.4% from 57.0%, and our Asia/Pacific segment gross profit margin increased to 53.9% from 52.9%. The decrease in the Americas segment gross profit margin was due primarily to market related price compression in both our company-owned retail stores and our wholesale business. Our European segment gross profit margin decreased primarily as a result of negative foreign currency translation effects of certain European subsidiaries that do not use euros as their functional currency, partially offset by improvements to our margin due to the foreign currency exchange effect of sourcing goods in U.S. dollars. In our Asia/Pacific segment, our gross profit margin increase was primarily due to improved margins in Japan compared to the prior year.

Selling, General and Administrative Expense

Our SG&A decreased 7% in fiscal 2009 to $851.7 million from $915.9 million in fiscal 2008. In the Americas segment, these expenses decreased 2% to $364.7 million in fiscal 2009 from $372.0 million in fiscal 2008, in our European segment, they decreased 10% to $341.8 million from $380.4 million, and in our Asia/Pacific segment, SG&A decreased 4% to $112.4 million from $117.2 million for those same periods. On a consolidated basis, expense reductions in SG&A were partially offset by approximately $28.8 million in charges related to restructuring activities, including severance costs. As a percentage of revenues, SG&A increased to 43.1% of revenues in fiscal 2009 compared to 40.4% in fiscal 2008. In the Americas, SG&A as a percentage of revenues increased to 39.2% compared to 35.0%. In Europe, SG&A as a percentage of revenues increased to 43.1% compared to 40.8% and in Asia/Pacific, SG&A as a percentage of revenues increased to 44.7% compared to 44.2% in the prior year. The increase in SG&A as a percentage of revenues in our Americas segment was primarily due to lower revenues. Expense reductions were partially offset by $22.9 million in charges related to restructuring activities, including severance costs, and by $3.0 million of incremental bad debt charges. The increase in SG&A as a percentage of revenues in our European segment was primarily caused by lower revenues and, to a lesser extent, the cost of operating additional retail stores and severance costs of $4.1 million. In our

Asia/Pacific segment, the slight increase in SG&A as a percentage of revenues primarily related to the cost of operating additional retail stores.

Asset Impairments

Asset impairment charges totaled approximately $10.7 million in fiscal 2009 compared to approximately $65.8 million in fiscal 2008. The fiscal 2009 charge related to the impairment of leasehold improvements and other assets in certain retail stores, whereas the fiscal 2008 charge included $55.4 million of goodwill impairment in addition to approximately $10.4 million of impairment of leasehold improvements and other assets in certain retail stores.

Non-operating Expenses

Net interest expense increased to $63.9 million in fiscal 2009 compared to $45.3 million in fiscal 2008. This increase was primarily due to our recognition of additional interest expense that was previously allocated to the discontinued operations of Rossignol in fiscal 2008 and higher interest rates during the three months ended October 31, 2009 on our refinanced debt in Europe and the United States, partially offset by lower interest rates on our variable rate debt in Europe and the United States during the nine months ended July 31, 2009. Including both continuing and discontinued operations for the years ended October 31, 2009 and 2008, interest expense was $64.3 million and $59.3 million, respectively. In fiscal 2008, the discontinued Rossignol business was allocated interest based on intercompany borrowings.

Our foreign currency loss amounted to $8.6 million in fiscal 2009 compared to a gain of $5.8 million in fiscal 2008. The fiscal 2009 loss primarily resulted from the foreign currency exchange effect of certain non-U.S. dollar denominated liabilities and the settlement of certain foreign currency exchange contracts.

Our income tax expense was $66.7 million in fiscal 2009 compared to $33.0 million in fiscal 2008. Income tax expense in fiscal 2009 was unfavorably impacted by a non-cash valuation allowance adjustment of $72.8 million recorded against our deferred tax assets in the United States.

Loss / income from continuing operations and Adjusted EBITDA

Our loss from continuing operations attributable to Quiksilver, Inc. in fiscal 2009 was $73.2 million, or $0.58 per share on a diluted basis, compared to income from continuing operations attributable to Quiksilver, Inc. of $65.5 million, or $0.51 per share on a diluted basis for fiscal 2008. Adjusted EBITDA decreased to $131.5 million in fiscal 2009 compared to $278.9 million in fiscal 2008. For a definition of Adjusted EBITDA and a reconciliation of income from continuing operations attributable to Quiksilver, Inc. to Adjusted EBITDA, see footnote (3) to the table under Item 6, Selected Financial Data.

Financial Position, Capital Resources and Liquidity

We generally finance our working capital needs and capital investments with operating cash flows and bank revolving lines of credit. Multiple banks in the United States, Europe and Australia make these lines of credit available to us. Term loans are also used to supplement these lines of credit and are typically used to finance long-term assets. In fiscal 2005, we issued $400 million of unsecured senior notes (“Senior Notes”) to fund a portion of the Rossignol purchase price and to refinance certain existing indebtedness. In fiscal 2009, we closed the $153.1 million five year senior secured term loans with Rhône (“Rhône senior secured term loans”), refinanced our existing asset-based credit facility with a $200 million three year asset-based credit facility, and refinanced our short-term uncommitted lines of credit in Europe with a €268 million multi-year facility. The closing of these transactions enabled us to extend a significant portion of our short-term maturities to a long-term basis. However, the applicable interest rates on these refinanced obligations, particularly the Rhône senior secured term loans, were higher than the interest rates on the obligations they replaced. These higher interest rates are reflected in our net interest expense of $114.1 million for the fiscal year ended October 31, 2010, which represents an increase of $50.2 million in interest expense over the fiscal year ended October 31, 2009. However, $56.7 million of the total interest expense in fiscal 2010 was non-cash interest.

On August 9, 2010, we closed a debt-for-equity exchange pursuant to which a combined total of $140 million of principal balance outstanding under the Rhône senior secured term loans was exchanged for a total of 31.1 million shares of our common stock.

On August 27, 2010, we entered into an amendment to our existing $200 million asset-based credit facility for our Americas segment (as amended, the “Credit Facility”). The Credit Facility is a $150 million facility (with the option to expand the facility to $250 million on certain conditions) and the amendment, among other things, extended the maturity date of the Credit Facility to August 27, 2014 (compared to July 31, 2012 under the original facility) and changed the interest rate to LIBOR plus a margin of 2.5% to 3.0% (compared to LIBOR plus a margin of 4.0% to 4.5% under the original facility), depending upon availability.

On October 27, 2010, we entered into a $20.0 million term loan for our Americas segment. The maturity date of this term loan is August 27, 2014, such that it is aligned with the maturity of the Credit Facility. Proceeds from this term loan, together with approximately $6.0 million of cash on hand, were used to repay the remaining amounts outstanding under the Rhône senior secured term loans.

As a result of the debt-for-equity exchange and the subsequent repayment of the remaining amounts outstanding under the Rhône senior secured term loans, we recognized approximately $33.2 million in interest expense during the three months ended October 31, 2010 due to the write-off of the deferred debt issuance costs that were capitalized in connection with the issuance of the Rhône senior secured term loans, as well as the debt discount that was recorded upon the issuance of the warrants associated with such senior secured term loans. This charge was non-recurring, non-cash and non-operating. With the full repayment of these term loans, we expect to gain future annual interest expense savings of approximately $30.3 million.

The closing of these transactions enabled us to significantly de-lever our consolidated balance sheet. As of October 31, 2010, we had a total of approximately $729 million of indebtedness compared to a total of approximately $1,039 million of indebtedness at October 31, 2009. Our total indebtedness declined primarily as a result of the debt-for-equity exchange, scheduled repayments made on our European long-term debt, the payment of the deferred purchase price obligation from the Rossignol acquisition and the effect of changes in foreign currency exchange rates.

Subsequent to our fiscal year end, in December 2010, we issued €200 million (approximately $265 million at the date of issuance) in unsecured senior notes (“European Senior Notes”), which bear a coupon interest rate of 8.875% and are due December 15, 2017. The proceeds from this offering were used to repay our existing European term loans and to pay related fees and expenses. This transaction extended virtually all of our short-term maturities to a long-term basis.

As we used the proceeds from the European Senior Notes to repay our existing European term loans, we expect to recognize non-cash, non-operating charges during the fiscal quarter ending January 31, 2011 of approximately $13.0 million to write-off the deferred debt issuance costs related to such term loans. In addition, we anticipate the debt issuance costs associated with the issuance of the European Senior Notes will be approximately $9.0 million, which will be amortized into interest expense over the term of the European Senior Notes.

We believe that our cash flows from operations, together with our existing credit facilities, cash on hand and term loans will be adequate to fund our capital requirements for at least the next twelve months. We also believe that our short-term uncommitted lines of credit in Asia/Pacific will continue to be made available. If these lines of credit are not made available, we would plan to extinguish any related debt using cash on hand or other existing credit facilities.

During fiscal 2010, we obtained licenses from a software vendor in preparation for the implementation of a new global enterprise-wide reporting system. We are concluding the project planning stages and have begun implementation on a component of our business in the U.S. during January 2011. As a result of the selection of this new system, we are currently evaluating our existing systems to determine if any may no longer be used upon implementation of the new system. This evaluation could result in the write-off of any systems that will no longer be in use, causing us to record future impairment losses.

Unrestricted cash and cash equivalents totaled $120.6 million at October 31, 2010 versus $99.5 million at October 31, 2009. Working capital amounted to $537.4 million at October 31, 2010, compared to $561.7 million at October 31, 2009, a decrease of 4%.

Operating Cash Flows

Operating activities of continuing operations provided cash of $199.7 million in fiscal 2010 compared to $192.4 million in fiscal 2009. This $7.3 million increase was primarily due to the effect of our net loss and other non-cash charges, which amounted to $75.3 million, offset almost entirely by decreased cash provided from working capital of $68.0 million.

Capital Expenditures

We have historically avoided high levels of capital expenditures for our apparel production by using independent contractors for a vast majority of our production. Fiscal 2010 capital expenditures were $43.1 million, which was approximately $11.5 million less than the $54.6 million we spent in fiscal 2009. These investments include company-owned stores and ongoing investments in computer, warehouse and manufacturing equipment. As discussed above, we plan to implement a new global enterprise-wide reporting system. The implementation costs of this project are expected to increase our level of capital expenditures over the next three years and the ongoing maintenance of this system could also require higher levels of investment as compared to our current systems. Capital spending for these and other projects in fiscal 2011 is expected to be in the range of $75 million to $80 million. We intend to fund these expenditures from operating cash flows.

Acquisitions and Dispositions

We completed the sale of our Rossignol business in November 2008 for a sale price of approximately $50.8 million, comprised of $38.1 million in cash and a $12.7 million seller’s note. The note was canceled in October 2009 in connection with the completion of the final working capital adjustment. The business sold included the related brands of Rossignol, Dynastar, Look and Lange. In December 2007, we sold our golf equipment business for a transaction value of $132.5 million. In April 2010, we sold our Raisins and Leilani swimwear brand trademarks for a gain of approximately $1.3 million.

Debt Structure

We generally finance our working capital needs and capital investments with operating cash flows and bank revolving lines of credit. Multiple banks in the United States, Europe and Australia make these lines of credit available to us. Term loans are also used to supplement these lines of credit and are typically used to finance long-term assets. In July 2005, we issued $400 million of Senior Notes to fund a portion of the acquisition of Rossignol and to refinance certain existing indebtedness, and in September 2009, we refinanced our short-term uncommitted lines of credit in Europe with a multi-year facility, which included two term loans totaling €170 million. Subsequent to the end of our fiscal year, we issued €200 million of European Senior Notes, the proceeds of which were used to repay all outstanding European long-term debt. Our debt structure at October 31, 2010 includes short-term lines of credit and long-term debt as follows:

In thousands		U.S. Dollar				Non U.S. Dollar				Total
Asia/Pacific short-term credit arrangements		$	—			$	22,586			$	22,586
Short-term lines of credit			—				22,586				22,586
Americas credit facility			—				—				—
Americas term loan			20,000				—				20,000
European credit facilities			—				—				—
European long-term debt			—				265,222				265,222
Senior Notes			400,000				—				400,000
Capital lease obligations and other borrowings			—				20,965				20,965
Long-term debt			420,000				286,187				706,187
Total		$	420,000			$	308,773			$	728,773

In July 2005, we issued $400 million of 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 our domestic subsidiaries that guarantee any of our indebtedness or our subsidiaries’ indebtedness, or are obligors under our Credit Facility (the “Guarantors”). We may redeem some or all of the Senior Notes at fixed redemption prices as set forth in the indenture related to such Senior Notes.

The Senior Notes indenture includes covenants that limit our ability to, among other things: incur additional debt; pay dividends on our capital stock or repurchase our capital stock; make certain investments; enter into certain types of transactions with affiliates; limit dividends or other payments by our restricted subsidiaries to us; use assets as security in other transactions; and sell certain assets or merge with or into other companies. If we experience a change of control (as defined in the indenture), we 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. We are currently in compliance with these covenants. In addition, we have approximately $5.7 million in unamortized debt issuance costs related to the Senior Notes included in other assets as of October 31, 2010.

On July 31, 2009, we entered into the Credit Facility for our Americas segment, which replaced our existing credit facility which was to expire in April 2010. On August 27, 2010, we entered into an amendment to the Credit Facility. The amended Credit Facility is a $150 million facility (with the option to expand the facility to $250 million on certain conditions) and the amendment, among other things, extended the maturity date of the Credit Facility to August 27, 2014 (compared to July 31, 2012 under the original facility). The amended Credit Facility includes a $102.5 million sublimit for letters of credit and bears interest at a rate of LIBOR plus a margin of 2.5% to 3.0% depending upon availability. As of October 31, 2010, there were no borrowings outstanding under the Credit Facility. Outstanding letters of credit totaled $44.6 million as of October 31, 2010.

The Credit Facility is guaranteed by Quiksilver, Inc. and certain of our domestic and Canadian subsidiaries. The Credit Facility is secured by a first priority interest in our 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 our 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. We are currently in compliance with such covenants.

On October 27, 2010, we entered into a $20.0 million term loan for our Americas segment. The maturity date of this term loan is August 27, 2014, such that it is aligned with the maturity of the amended Credit Facility. The term loan has minimum principal repayments of $1.5 million due on June 30 and December 31 of each year, until the principal balance is reduced to $14.0 million. The term loan bears interest at the London Inter-Bank Offer (“LIBO”) rate plus 5.0% (currently 5.3%). The term loan is guaranteed by Quiksilver, Inc. and secured by a first priority interest in substantially all assets, excluding accounts receivable and inventory, of certain of our domestic subsidiaries and a second priority interest in the accounts receivable and inventory of certain of our domestic subsidiaries, in which the lenders under the Credit Facility have a first-priority security interest. The term loan contains customary default provisions and restrictive covenants for loans of its type. We are currently in compliance with such covenants.

On July 31, 2009, we entered into the $153.1 million five year Rhône senior secured term loans with funds affiliated with Rhône Capital LLC. In connection with the term loans, we issued warrants to purchase approximately 25.7 million shares of our common stock, representing 19.99% of our outstanding equity 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 was to be amortized into interest expense over the term of the loan. In addition to this, we incurred approximately $15.8 million in debt issuance costs which were also to be amortized into interest expense over the term of the loan.

On June 24, 2010, we entered into a debt-for-equity exchange agreement with Rhône Group LLC (“Rhône”), acting in its capacity as the administrative agent for the Rhône senior secured term loans. Pursuant to such agreement, a combined total of $140 million of principal balance outstanding under the Rhône senior secured term loans was exchanged for a total of 31.1 million shares of our common stock, which represents an exchange price of $4.50 per share. We closed the exchange on August 9, 2010, which reduced the outstanding balance under the Rhône senior secured term loans to approximately $23.9 million. Upon closing of the $20.0 million term loan in our Americas segment, we used the proceeds from such term loan, together with cash on hand, to repay the remaining amounts outstanding under the Rhône senior secured term loans.

On July 31, 2009, we entered into a commitment with a group of lenders in Europe to refinance our European indebtedness. This refinancing, which closed and was funded on September 29, 2009, consisted 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 was July 31, 2013. The term loans had 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 bore 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 5.3% as of October 31, 2010. In connection with obtaining the European Facilities, we incurred approximately $19.3 million in debt issuance costs which were being amortized into interest expense over the term of the European Facilities. As of October 31, 2010, there were borrowings of approximately $195.5 million (€140 million) outstanding on the two term loans, no borrowings outstanding on the credit facility, and approximately $21.9 million of outstanding letters of credit.

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

During fiscal 2009, in connection with the closing of the European Facilities, we refinanced an additional European term loan of $69.7 million (€50 million) such that its maturity date aligned with the European Facilities. This term loan had 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 term loan bore interest at a variable rate of Euribor plus a margin of 4.8% (5.5% as of October 31, 2010). This term loan had the same security as the European Facilities.

Subsequent to our fiscal year end, in December 2010, we issued €200 million (approximately $265 million at the date of issuance) of European Senior Notes, which bear a coupon interest rate of 8.875% and are due December 15, 2017. With the issuance of these European Senior Notes, we repaid the European Facilities and the additional European term loan (€190 million combined). As a result, the maturities of these obligations were effectively extended to December 2017. Therefore, we have reclassified the portion of these obligations that was scheduled to be due in our 2011 fiscal year from current portion of long-term debt to long-term debt on the accompanying consolidated balance sheet as of October 31, 2010.

The European Senior Notes are general senior obligations and are fully and unconditionally guaranteed on a senior basis by us and certain of our current and future U.S. and non-U.S. subsidiaries, subject to certain exceptions. We may redeem some or all of the European Senior Notes at fixed redemption prices as set forth in the indenture related to such European Senior Notes. The European Senior Notes indenture includes covenants that limit our ability to, among other things: incur additional debt; pay dividends on our capital stock or repurchase our capital stock; make certain investments; enter into certain types of transactions with affiliates; limit dividends or other payments by our restricted subsidiaries to us; use assets as security in other transactions; and sell certain assets or merge with or into other companies. We are currently in compliance with these covenants.

In August 2008, we entered into a $139.5 million (€100 million) secured financing facility which expires in August 2011. Under this facility, we 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% (1.47% as of October 31, 2010). As of October 31, 2010, we had no borrowings outstanding under this facility. This facility contains customary default provisions and covenants for facilities of its type. We are currently in compliance with such covenants.

Our Asia/Pacific segment has uncommitted revolving lines of credit with banks that provide up to $29.2 million ($29.7 million Australian dollars) for cash borrowings and letters of credit. These lines of credit are generally payable on demand, although we believe these lines of credit will continue to be available. The amount outstanding on these lines of credit at October 31, 2010 was $22.6 million, in addition to outstanding letters of credit of $3.6 million, at an average borrowing rate of 5.5%.

Our current credit facilities allow for total maximum cash borrowings and letters of credit of $325.9 million. Our total maximum borrowings and actual availability fluctuate depending on the extent of assets comprising our borrowing base under certain credit facilities. We had $22.6 million of borrowings drawn on these credit facilities as of October 31, 2010, and letters of credit issued at that time totaled $70.2 million. The amount of availability for borrowings under these facilities as of October 31, 2010 was $196.3 million, all of which was committed. Of this $196.3 million in committed capacity, $100.7 million can also be used for letters of credit. In addition to the $196.3 million of availability for borrowings, we also had $34.7 million in additional capacity for letters of credit in Europe and Asia/Pacific as of October 31, 2010.

We also had approximately $21.0 million in capital leases and other borrowings as of October 31, 2010.

Our financing activities from continuing operations used cash of $175.0 million in fiscal 2010, used cash of $104.9 million in fiscal 2009 and provided cash of $191.8 million in fiscal 2008. In fiscal 2010, we used cash flow from operations as well as existing cash to pay down debt. In fiscal 2009, we used cash flow from operations as well as the proceeds from the sale of Rossignol to pay down debt. In fiscal 2008, our debt increased to fund the operations of Rossignol.

Contractual Obligations and Commitments

We lease certain land and buildings under non-cancelable operating leases. The leases expire at various dates through 2028, excluding renewals at our option, and contain various provisions for rental adjustments including, in certain cases, adjustments based on increases in the Consumer Price Index. The leases generally contain renewal provisions for varying periods of time. We also have long-term debt related to business acquisitions. Our significant contractual obligations and commitments as of October 31, 2010 are summarized in the following table:

		Payments Due by Period
						Two to				Four to				After
		One				Three				Five				Five
In thousands		Year				Years				Years				Years				Total
Operating lease obligations		$	101,600			$	166,925			$	105,214			$	102,006			$	475,745
Long-term debt obligations(1)			5,182				14,379				421,404				265,222				706,187
Professional athlete sponsorships(2)			21,243				22,427				6,841				1,680				52,191
Certain other obligations(3)			70,163				—				—				—				70,163
		$	198,188			$	203,731			$	533,459			$	368,908			$	1,304,286

Off Balance Sheet Arrangements

Other than certain obligations and commitments described in the table above, we did not have any material off balance sheet arrangements as of October 31, 2010.

Trade Accounts Receivable and Inventories

Our trade accounts receivable were $368.4 million at October 31, 2010, compared to $430.9 million the year before, a decrease of 14%. Receivables in the Americas segment decreased 7%, while European segment receivables decreased 21% and Asia/Pacific segment receivables decreased 20%. In constant currency, consolidated trade accounts receivable also decreased 14%. The decrease in consolidated trade accounts receivable was a result of lower revenues and improved collections. European segment receivables in constant currency decreased 17% and Asia/Pacific segment receivables in constant currency decreased 26%. Included in trade accounts receivable are approximately $21.2 million of value added tax and goods and services tax related to foreign accounts receivable. Such taxes are not reported as net revenues and as such, are deducted from accounts receivable to more accurately compute days sales outstanding. Overall average days sales outstanding decreased by approximately 5 days at October 31, 2010 compared to October 31, 2009.

Consolidated inventories totaled $268.0 million as of October 31, 2010, compared to $267.7 million the year before, an increase of less than 1%. Inventories in the Americas segment increased 9%, while European segment inventories decreased 12% and Asia/Pacific segment inventories increased 4%. In constant currency, consolidated inventories also increased less than 1%. European segment inventories in constant currency decreased 7% and Asia/Pacific segment inventories in constant currency decreased 4%. Consolidated average inventory turnover decreased to 3.5 times per year at October 31, 2010 compared to 3.6 times per year at October 31, 2009.

Inflation

Inflation has been modest during the years covered by this report. Accordingly, inflation has had an insignificant impact on our sales and profits.

New Accounting Pronouncements

In December 2007, the FASB issued authoritative guidance included in Accounting Standard Codification (“ASC”) 805 “Business Combinations,” which requires us 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 that 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. We adopted this guidance at the beginning of our fiscal year ending October 31, 2010. The adoption of this guidance did not have a material effect on our consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued authoritative guidance included in ASC 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. We adopted this guidance at the beginning of our fiscal year ending October 31, 2010. In the year of adoption, presentation and disclosure requirements apply retrospectively to all periods presented. The adoption of this guidance did not have a material effect on our consolidated financial position, results of operations or cash flows.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. To prepare these financial statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities. These estimates also affect our reported revenues and expenses. Judgments must also be made about the disclosure of contingent liabilities. Actual results could be significantly different from these estimates. We believe that the following discussion addresses the accounting policies that are necessary to understand and evaluate our reported financial results.

Revenue Recognition

Revenues are recognized when the risk of ownership and title passes to our customers. Generally, we extend credit to our customers and do not require collateral. None of our sales agreements with any of our customers provide for any rights of return. However, we do approve returns on a case-by-case basis at our sole discretion to protect our brands and our image. We provide allowances for estimated returns when revenues are recorded, and related losses have historically been within our expectations. If returns are higher than our estimates, our results of operations would be adversely affected.

Accounts Receivable

It is not uncommon for some of our customers to have financial difficulties from time to time. This is normal given the wide variety of our account base, which includes small surf shops, medium-sized retail chains, and some large department store chains. Throughout the year, we perform credit evaluations of our customers, and we adjust credit limits based on payment history and the customer’s current creditworthiness. We continuously monitor our collections and maintain a reserve for estimated credit losses based on our historical experience and any specific customer collection issues that have been identified. We also use insurance on certain classes of receivables in our European segment. Historically, our losses have been consistent with our estimates, but there can be no assurance that we will continue to experience the same credit loss rates that we have experienced in the past. Unforeseen, material financial difficulties of our customers could have an adverse impact on our results of operations.

Inventories

We value inventories at the cost to purchase and/or manufacture the product or the current estimated market value of the inventory, whichever is lower. We regularly review our inventory quantities on hand, and adjust inventory values for excess and obsolete inventory based primarily on estimated forecasts of product demand and market value. Demand for our products could fluctuate significantly. The demand for our products could be negatively affected by many factors, including the following:

	•		weakening economic conditions;
	•		terrorist acts or threats;
	•		unanticipated changes in consumer preferences;
	•		reduced customer confidence; and
	•		unseasonable weather.

Some of these factors could also interrupt the production and/or importation of our products or otherwise increase the cost of our products. As a result, our operations and financial performance could be negatively affected. Additionally, our estimates of product demand and/or market value could be inaccurate, which could result in an understated or overstated provision required for excess and obsolete inventory.

Long-Lived Assets

We acquire tangible and intangible assets in the normal course of our business. We evaluate the recoverability of the carrying amount of these long-lived assets (including fixed assets, trademarks, licenses and other amortizable intangibles) whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when the carrying value exceeds the undiscounted future cash flows estimated to result from the use and eventual disposition of the asset. Impairments are recognized in operating earnings. We continually use judgment when applying these impairment rules to determine the timing of the impairment tests, the undiscounted

cash flows used to assess impairments, and the fair value of a potentially impaired asset. The reasonableness of our judgment could significantly affect the carrying value of our long-lived assets.

Goodwill

We evaluate the recoverability of goodwill at least annually based on a two-step impairment test. The first step compares the fair value of each reporting unit with its carrying amount, including goodwill. If the carrying amount exceeds fair value, then the second step of the impairment test is performed to measure the amount of any impairment loss. Fair value is computed based on estimated future cash flows discounted at a rate that approximates our cost of capital. Such estimates are subject to change, and we may be required to recognize impairment losses in the future.

As of October 31, 2010, the fair value of our Americas and Europe reporting units substantially exceeded their carrying values. For our Asia/Pacific reporting unit, the fair value exceeded the carrying value by approximately 9%. Goodwill allocated to our Asia/Pacific reporting unit was $75.9 million. Based on the uncertainty of future growth rates and other assumptions used to estimate goodwill recoverability in this reporting unit, future reductions in our expected cash flows for Asia/Pacific could cause a material impairment of goodwill.

Income Taxes

Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax asset or liability is established for the expected future consequences of temporary differences in the financial reporting and tax bases of assets and liabilities. We consider future taxable income and ongoing prudent and feasible tax planning strategies in assessing the value of our deferred tax assets. If we determine that it is more likely than not that these assets will not be realized, we would reduce the value of these assets to their expected realizable value, thereby decreasing net income. Evaluating the value of these assets is necessarily based on our judgment. If we subsequently determined that the deferred tax assets, which had been written down would, in our judgment, be realized in the future, the value of the deferred tax assets would be increased, thereby increasing net income in the period when that determination was made.

On November 1, 2007, we adopted the authoritative guidance included in ASC 740 “Income Taxes,” which 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. We recognize accrued interest and penalties related to unrecognized tax benefits as a component of our provision for income taxes. The application of this guidance can create significant variability in our tax rate from period to period based upon changes in or adjustments to our uncertain tax positions.

Stock-Based Compensation Expense

We recognize compensation expense for all stock-based payments net of an estimated forfeiture rate and only recognize compensation cost for those shares expected to vest using the graded vested method over the requisite service period of the award. For option valuation, we determine 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.

Foreign Currency Translation

A significant portion of our revenues are generated in Europe, where we operate with the euro as our functional currency, and a smaller portion of our revenues are generated in Asia/Pacific, where we operate with the Australian dollar and Japanese yen as our functional currencies. Our European revenues in the United Kingdom are denominated in British pounds, and substantial portions of our European and Asia/Pacific product is sourced in U.S. dollars, both of which result in exposure to gains and losses that could occur from fluctuations in foreign currency exchange rates. Revenues and expenses that are denominated in foreign currencies are translated using the average exchange rate for the period. Assets and liabilities are translated at the rate of exchange on the balance sheet date. Gains and losses from assets and liabilities denominated in a currency other than the functional currency of the entity on which they reside are generally recognized currently in our statement of operations. Gains and

losses from translation of foreign subsidiary financial statements into U.S. dollars are included in accumulated other comprehensive income or loss.

As part of our overall strategy to manage our level of exposure to the risk of fluctuations in foreign currency exchange rates, we enter into various foreign currency exchange contracts generally in the form of forward contracts. For all contracts that qualify as cash flow hedges, we record the changes in the fair value of the derivatives in other comprehensive income or loss.

Forward-Looking Statements

All statements included in this report, other than statements or characterizations of historical fact, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to, statements regarding the trends and uncertainties in our financial condition, liquidity and results of operations. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs, and certain assumptions made by us and speak only as of the date of this report. Forward-looking statements can often be identified by words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “likely,” “should,” “would,” “could,” “potential,” “continue,” “ongoing,” and similar expressions, and variations or negatives of these words. In addition, any statements that refer to expectations, projections, guidance, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statement as a result of various factors, including, but not limited to, the following:

	•		continuing deterioration of global economic conditions and credit and capital markets;
	•		our ability to remain compliant with our debt covenants;
	•		our ability to achieve the financial results that we anticipate;
	•		payments due on contractual commitments and other debt obligations;
	•		future expenditures for capital projects, including the implementation of our global enterprise-wide reporting system;
	•		our ability to continue to maintain our brand image and reputation;
	•		foreign currency exchange rate fluctuations;
	•		increases in production costs, particularly with respect to cotton and other commodities, and raw materials; and
	•		changes in political, social and economic conditions and local regulations, particularly in Europe and Asia.

These forward-looking statements are based largely on our expectations and are subject to a number of risks and uncertainties, many of which are beyond our control. Actual results could differ materially from these forward-looking statements as a result of the risks described in Item 1A. “Risk Factors” included in this report, and other factors. Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward-looking information contained herein will, in fact, transpire.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to a variety of risks. Two of these risks are foreign currency exchange rate fluctuations and changes in interest rates that affect interest expense. (See also note 15 of our consolidated financial statements).

Foreign Currency and Derivatives

We are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to certain sales, royalty income and product purchases of our international subsidiaries that are denominated in currencies other than their functional currencies. We are also exposed to foreign

currency gains and losses resulting from domestic transactions that are not denominated in U.S. dollars, and to fluctuations in interest rates related to our variable rate debt. Furthermore, we are exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported results in our consolidated financial statements due to the translation of the operating results and financial position of our international subsidiaries. We use various foreign currency exchange contracts and intercompany loans as part of our overall strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates.

On the date we enter into a derivative contract, we designate the derivative as a hedge of the identified exposure. We formally document all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for entering into various hedge transactions. We identify in this documentation the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and indicate how the hedging instrument is expected to hedge the risks related to the hedged item. We formally measure effectiveness of our hedging relationships both at the hedge inception and on an ongoing basis in accordance with our risk management policy. We will discontinue hedge accounting prospectively:

	•		if we determine that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item;
	•		when the derivative expires or is sold, terminated or exercised;
	•		if it becomes probable that the forecasted transaction being hedged by the derivative will not occur;
	•		because a hedged firm commitment no longer meets the definition of a firm commitment; or
	•		if we determine that designation of the derivative as a hedge instrument is no longer appropriate.

Derivatives that do not qualify or are no longer deemed effective to qualify for hedge accounting but are used by management to mitigate exposure to currency risks are marked to fair value with corresponding gains or losses recorded in earnings. A gain of $0.8 million was recognized related to these types of contracts during the fiscal year ended October 31, 2010. For all qualifying cash flow hedges, the changes in the fair value of the derivatives are recorded in other comprehensive income. As of October 31, 2010, we were hedging forecasted transactions expected to occur through July 2013. Assuming exchange rates at October 31, 2010 remain constant, $1.3 million of losses, net of tax, related to hedges of these transactions are expected to be reclassified into earnings over the next 33 months.

We enter into forward exchange and other derivative contracts with major banks and are exposed to foreign currency losses in the event of nonperformance by these banks. We anticipate, however, that these banks will be able to fully satisfy their obligations under the contracts. Accordingly, we do not obtain collateral or other security to support the contracts.

Translation of Results of International Subsidiaries

As discussed above, we are exposed to financial statement gains and losses as a result of translating the operating results and financial position of our international subsidiaries. We translate the local currency statements of operations of our foreign subsidiaries into U.S. dollars using the average exchange rate during the reporting period. Changes in foreign exchange rates affect our reported profits and can distort comparisons from year to year. We use various foreign currency exchange contracts and intercompany loans to hedge the profit and loss effects of such exposure, but accounting rules do not allow us to hedge the actual translation of sales and expenses.

By way of example, when the U.S. dollar strengthens compared to the euro, there is a negative effect on our reported results for our European operating segment. It takes more profits in euros to generate the same amount of profits in stronger U.S. dollars. The opposite is also true. That is, when the U.S. dollar weakens there is a positive effect on the translation of our reported results from our European operating segment. In addition, the statements of operations of our Asia/Pacific segment are translated from Australian dollars and Japanese yen into U.S. dollars, and there is a negative effect on our reported results for Asia/Pacific when the U.S. dollar is stronger in comparison to the Australian dollar or Japanese yen.

European revenues decreased 7% in euros during the fiscal year ended October 31, 2010 compared to the fiscal year ended October 31, 2009. As measured in U.S. dollars and reported in our consolidated

statements of operations, European revenues decreased 8% as a result of a stronger U.S. dollar versus the euro in comparison to the prior year.

Asia/Pacific revenues decreased 14% in Australian dollars during the fiscal year ended October 31, 2010 compared to the fiscal year ended October 31, 2009. As measured in U.S. dollars and reported in our consolidated statements of operations, Asia/Pacific revenues increased 4% as a result of a stronger Australian dollar and Japanese yen versus the U.S. dollar in comparison to the prior year.

Interest Rates

Most of our lines of credit bear interest based on LIBOR or EURIBOR plus a credit spread. Effective interest rates, therefore, will move up or down depending on market conditions. The credit spreads are subject to change based on financial performance and market conditions upon refinancing. Interest expense also includes financing fees and related costs and can be affected by foreign currency exchange rate movement upon translating non-U.S. dollar denominated interest into dollars for reporting purposes. The approximate amount of our remaining variable rate debt was $328.8 million at October 31, 2010, and the weighted average effective interest rate at that time was 5.1%. If interest rates or credit spreads were to increase by 10% (i.e. — to approximately 5.6%), our income before tax would be reduced by approximately $1.7 million based on these fiscal 2010 levels.

After giving effect to the issuance of the €200 million of European Senior Notes in December 2010 and the use of such proceeds to repay all outstanding European term loans, the approximate amount of our variable rate debt would have been $63.6 million at October 31, 2010, and the weighted average effective interest rate at that time would have been 3.7%. If interest rates or credit spreads were to increase by 10% (i.e. — to approximately 4.1%), our income before tax would be reduced by approximately $0.2 million based on our revised debt structure.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item appears beginning on page 41.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching our desired disclosure control objectives.

We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of October 31, 2010, the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that

our disclosure controls and procedures were effective, and were operating at the reasonable assurance level as of October 31, 2010.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter and year ended October 31, 2010 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control Over Financial Reporting

Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

	•		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 consolidated financial statements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over our financial reporting.

Management has used the framework set forth in the report entitled “Internal Control—Integrated Framework” published by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission to evaluate the effectiveness of its internal control over financial reporting. Management has concluded that its internal control over financial reporting was effective as of the end of the most recent fiscal year. Deloitte & Touche LLP has issued an attestation report (see below) on our internal control over financial reporting.

The foregoing has been approved by our management, including our Chief Executive Officer and Chief Financial Officer, who have been involved with the assessment and analysis of our internal controls over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Quiksilver, Inc.
Huntington Beach, California

We have audited the internal control over financial reporting of Quiksilver, Inc. and subsidiaries (the “Company”) as of October 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended October 31, 2010, of the Company and our report dated January 11, 2011, expressed an unqualified opinion on those financial statements.

/s/ Deloitte & Touche LLP

Costa Mesa, California
January 11, 2011

Item 9B. OTHER INFORMATION

None.

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required to be included by this item will be included under the headings “Election of Directors,” “Executive Compensation and Other Information,” and “Corporate Governance” in our proxy statement for the 2011 Annual Meeting of Stockholders. Such information is incorporated herein by reference to our proxy statement, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended October 31, 2010.

We have adopted a Code of Ethics for Senior Financial Officers in compliance with applicable rules of the Securities and Exchange Commission that applies to all of our employees, including our principal executive officer, our principal financial officer and our principal accounting officer or controller, or persons performing similar functions. We have posted a copy of this Code of Ethics on our website, at http://www.quiksilverinc.com. We intend to disclose any amendments to, or waivers from, any provision of this Code of Ethics by posting such information on such website.

Item 11. EXECUTIVE COMPENSATION

The information required to be included by this item will be included under the heading “Executive Compensation and Other Information” in our proxy statement for the 2011 Annual Meeting of Stockholders. Such information is incorporated herein by reference to our proxy statement, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended October 31, 2010.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required to be included by this item will be included under the heading “Ownership of Securities” in our proxy statement for the 2011 Annual Meeting of Stockholders. Such information is incorporated herein by reference to our proxy statement, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended October 31, 2010.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required to be included by this item will be included under the headings “Certain Relationships and Related Transactions” and “Corporate Governance” in our proxy statement for the 2011 Annual Meeting of Stockholders. Such information is incorporated herein by reference to our proxy statement, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended October 31, 2010.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required to be included by this item will be included under the heading “Independent Registered Public Accounting Firm” in our proxy statement for the 2011 Annual Meeting of Stockholders. Such information is incorporated herein by reference to our proxy statement, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended October 31, 2010.

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Annual Report on Form 10-K:

1.		Consolidated Financial Statements
		See “Index to Consolidated Financial Statements” on page 42.
2.		Exhibits
		The Exhibits listed in the Exhibit Index, which appears immediately following the signature page and is incorporated herein by reference, are filed as part of this Annual Report on Form 10-K.

QUIKSILVER, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

			Page
Audited consolidated financial statements of Quiksilver, Inc. as of October 31, 2010 and 2009 and for each of the three years in the period ended October 31, 2010
Report of Independent Registered Public Accounting Firm			43
Consolidated Statements of Operations Years Ended October 31, 2010, 2009 and 2008			44
Consolidated Statements of Comprehensive Income (Loss) Years Ended October 31, 2010, 2009 and 2008			45
Consolidated Balance Sheets October 31, 2010 and 2009			46
Consolidated Statements of Changes in Equity Years Ended October 31, 2010, 2009 and 2008			47
Consolidated Statements of Cash Flows Years Ended October 31, 2010, 2009 and 2008			48
Notes to Consolidated Financial Statements			49

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, 2010 and 2009, and the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for each of the three years in the period ended October 31, 2010. 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, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

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, 2010, 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 11, 2011, expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP

Costa Mesa, California
January 11, 2011

QUIKSILVER, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended October 31, 2010, 2009 and 2008

In thousands, except per share amounts		2010				2009				2008
Revenues, net		$	1,837,620			$	1,977,526			$	2,264,636
Cost of goods sold			870,372				1,046,495				1,144,050
Gross profit			967,248				931,031				1,120,586
Selling, general and administrative expense			832,066				851,746				915,933
Asset impairments			11,657				10,737				65,797
Operating income			123,525				68,548				138,856
Interest expense, net			114,109				63,924				45,327
Foreign currency (gain) loss			(5,917	)			8,633				(5,761	)
Other (income) expense			—				(387	)			29
Income (loss) before provision for income taxes			15,333				(3,622	)			99,261
Provision for income taxes			23,433				66,667				33,027
(Loss) income from continuing operations			(8,100	)			(70,289	)			66,234
Income (loss) from discontinued operations, net of tax			1,830				(118,827	)			(291,809	)
Net loss			(6,270	)			(189,116	)			(225,575	)
Less: net income attributable to non-controlling interest			(3,414	)			(2,926	)			(690	)
Net loss attributable to Quiksilver, Inc.		$	(9,684	)		$	(192,042	)		$	(226,265	)
(Loss) income per share from continuing operations attributable to Quiksilver, Inc.		$	(0.09	)		$	(0.58	)		$	0.52
Income (loss) per share from discontinued operations attributable to Quiksilver, Inc.		$	0.01			$	(0.94	)		$	(2.32	)
Net loss per share attributable to Quiksilver, Inc.		$	(0.07	)		$	(1.51	)		$	(1.80	)
(Loss) income per share from continuing operations attributable to Quiksilver, Inc., assuming dilution		$	(0.09	)		$	(0.58	)		$	0.51
Income (loss) per share from discontinued operations attributable to Quiksilver, Inc., assuming dilution		$	0.01			$	(0.94	)		$	(2.25	)
Net loss per share attributable to Quiksilver, Inc., assuming dilution		$	(0.07	)		$	(1.51	)		$	(1.75	)
Weighted average common shares outstanding			135,334				127,042				125,975
Weighted average common shares outstanding, assuming dilution			135,334				127,042				129,485
Amounts attributable to Quiksilver, Inc.:
(Loss) income from continuing operations		$	(11,514	)		$	(73,215	)		$	65,544
Income (loss) from discontinued operations, net of tax			1,830				(118,827	)			(291,809	)
Net loss		$	(9,684	)		$	(192,042	)		$	(226,265	)

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended October 31, 2010, 2009 and 2008

In thousands		2010				2009				2008
Net loss		$	(6,270	)		$	(189,116	)		$	(225,575	)
Other comprehensive income (loss):
Foreign currency translation adjustment			2,984				99,798				(111,920	)
Reclassification adjustment for foreign currency translation included in current period loss from discontinued operations			—				(47,850	)			—
Net gain (loss) on derivative instruments, net of tax provision (benefit) of $7,334 (2010), $(19,965) (2009) and $26,322 (2008)			15,302				(37,062	)			44,313
Comprehensive income (loss)			12,016				(174,230	)			(293,182	)
Comprehensive income attributable to non-controlling interest			(3,414	)			(2,926	)			(690	)
Comprehensive income (loss) attributable to Quiksilver, Inc.		$	8,602			$	(177,156	)		$	(293,872	)

See notes to consolidated financial statements.

QUIKSILVER, INC.

CONSOLIDATED BALANCE SHEETS
October 31, 2010 and 2009

In thousands, except share amounts		2010				2009
ASSETS
Current assets:
Cash and cash equivalents		$	120,593			$	99,516
Restricted cash			—				52,706
Trade accounts receivable, net			368,428				430,884
Other receivables			42,512				25,615
Inventories			268,037				267,730
Deferred income taxes			39,053				76,638
Prepaid expenses and other current assets			25,206				37,333
Current assets held for sale			12				1,777
Total current assets			863,841				992,199
Fixed assets, net			220,350				239,333
Intangible assets, net			140,567				142,954
Goodwill			332,488				333,758
Other assets			53,296				75,353
Deferred income taxes long-term			85,579				69,011
Total assets		$	1,696,121			$	1,852,608
LIABILITIES AND EQUITY
Current liabilities:
Lines of credit		$	22,586			$	32,592
Accounts payable			179,402				162,373
Accrued liabilities			115,009				116,274
Current portion of long-term debt			5,182				95,231
Income taxes payable			3,484				23,574
Liabilities related to assets held for sale			739				458
Total current liabilities			326,402				430,502
Long-term debt, net of current portion			701,005				911,430
Other long-term liabilities			49,119				46,643
Total liabilities			1,076,526				1,388,575
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 — 285,000,000; issued shares — 166,867,127 (2010) and 131,484,363 (2009)			1,669				1,315
Additional paid-in capital			513,102				368,285
Treasury stock, 2,885,200 shares			(6,778	)			(6,778	)
Accumulated deficit			(11,307	)			(1,623	)
Accumulated other comprehensive income			113,682				95,396
Total Quiksilver, Inc. stockholders’ equity			610,368				456,595
Non-controlling interest			9,227				7,438
Total equity			619,595				464,033
Total liabilities and equity		$	1,696,121			$	1,852,608