UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(Mark One)

For the fiscal year ended October 31, 2004

OR

Commission file number 0-15131

QUIKSILVER, INC.

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

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

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

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ 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. o

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

     The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant was approximately $1.23 billion as of April 30, 2004, the last business day of Registrant’s most recently completed second fiscal quarter.

     As of January 4, 2005, there were 58,741,674 shares of the Registrant’s Common Stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

TABLE OF CONTENTS

PART I

Item 1. BUSINESS

Unless the context indicates otherwise, when we refer to “Quiksilver”, “we”, “us”, “our”, or the “Company” in this Form 10-K, we are referring to Quiksilver, Inc. and its subsidiaries on a consolidated basis. Quiksilver, Inc. was incorporated in 1976 and was reincorporated in Delaware in 1986. Our fiscal year ends on October 31, and references to fiscal 2004, fiscal 2003 or fiscal 2002 refer to the years ended October 31, 2004, 2003 or 2002, respectively.

Introduction

We are a globally integrated company that designs, produces and distributes branded clothing, accessories and related products for young-minded people. Our brands represent a casual lifestyle—driven from our authentic boardriding heritage. Our primary focus is apparel for young men and young women under the Quiksilver, Roxy, Raisins, DC Shoes, Radio Fiji and Gotcha (Europe) labels. We also manufacture apparel for boys (Quiksilver Boys and Hawk Clothing), girls (Roxy Girl, Teenie Wahine and Raisins Girls), men (Quiksilveredition and Fidra, our golf line) and women (Leilani swimwear), as well as snowboards, snowboard boots and bindings under the Lib Technologies, DC Shoes, Gnu, Roxy and Bent Metal labels.

We generate revenues primarily in the United States, Europe and the Asia/Pacific market. Our products are sold primarily in surf shops, specialty stores, and our proprietary retail concept Boardriders Club stores where we can best carry our authentic brand message to the consumer.

Since acquiring Quiksilver International Pty Ltd., an Australian company (“Quiksilver International”), in July 2000, we have owned all international rights to use the Quiksilver and Roxy trademarks. Before then, we owned these intellectual property rights in the United States and Mexico only, and operated under license agreements with Quiksilver International to use the trademarks in other countries and territories.

In December 2002, we took an additional step in consolidating global control of the Quiksilver and Roxy brands by acquiring Ug Manufacturing Co. Pty Ltd., and Quiksilver Japan KK, our licensees (through Quiksilver International) in Australia, Japan, New Zealand and other Southeast Asian territories. By acquiring this group of companies, which we refer to as Quiksilver Asia/Pacific, we created a global operating platform consisting of our Americas, European and Asia/Pacific operations.

We believe our 35-year history of continuing commitment to board sports and our development of innovative products that relate to and reflect this fast growing global lifestyle give our company and our brands a credibility and authenticity that is truly unique in our industry. Our boardriding lifestyle generates products and images that are recognized around the world as symbols of fun, freedom and individual expression. As the leader of the boardriding outdoor active lifestyle, we are now carrying our products and brand message to a diversity of markets worldwide.

Recent Developments

In May 2004, we acquired DC Shoes, Inc. (“DC”), a premier designer, producer and distributor of action sports inspired footwear, apparel and related accessories in the U.S. and internationally. DC’s skateboard-driven image and lifestyle is complementary to our existing brands, and it is well positioned within the global youth market. DC’s brand transcends the traditional boundaries of both footwear and skateboarding with a diverse product mix respected by boardriders as well as a broad base of consumers. We believe that DC’s business will benefit from our existing infrastructure, and that we will benefit from DC’s footwear expertise.

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Segment Information

We operate exclusively in the consumer products industry segment. Beginning with fiscal 2003, we have three geographic segments, the Americas, Europe and Asia/Pacific. The Americas segment includes revenues primarily from the U.S. and Canada. The European segment includes revenues primarily from Western Europe. The Asia/Pacific segment includes revenues primarily from Australia, Japan, New Zealand and Indonesia. Royalties earned from various licensees in other international territories are categorized in corporate operations. For information regarding the revenues, operating profits and identifiable assets attributable to our geographic segments, see Note 15 of our financial statements.

Products and Brands

Our first product was the famous Quiksilver boardshort developed by two Australian surfers who founded Quiksilver Australia in the late 1960’s. The Quiksilver boardshort, identified by its distinctive mountain and wave logo, became known in the core surfing world as a technically innovative and stylish product. The reputation and popularity of the Quiksilver boardshort grew, having been brought to the beaches of California and Southwest France in the 1970’s by the founders of our company and Quiksilver Europe. Since the first boardshort, our product lines have been greatly expanded, but our brands continue to represent innovation and quality. In the 1990’s we called on the Quiksilver heritage to reach out to the girls market by creating the Roxy brand for juniors, which has become our fastest growing brand. In 2004, we acquired the DC Shoes brand from its founders and expanded our presence in the action sports inspired footwear arena. In addition to Quiksilver, Roxy and DC Shoes, we have developed a stable of other brands to address a wide variety of consumers and markets. We believe this multibrand strategy will allow us to continue to grow across a diverse range of products and distribution with broad appeal across gender, age groups and geographies.

Quiksilver

Our Quiksilver product line now includes shirts, walkshorts, t-shirts, fleece, pants, jackets, snowboardwear, footwear, hats, backpacks, wetsuits, watches, eyewear and other accessories. Quiksilver has also expanded demographically and currently includes young men, boys and toddlers. Quiksilveredition is our brand targeted at men. In fiscal 2004, the Quiksilver line of products represented approximately 51% of our revenues.

Roxy

Our Roxy brand for young women is a surf-inspired collection that we introduced in fiscal 1991. The Roxy line is branded with a heart logo composed of back-to-back images of the Quiksilver mountain and wave logo and includes a full range of sportswear, swimwear, footwear, backpacks, snowboardwear, snowboards, snowboard boots, fragrance, beauty care, bedroom furnishings and other accessories for young women. Through fiscal 1997, Roxy included juniors sizes only, but was then expanded as Teenie Wahine and Roxy Girl into the girls categories. In fiscal 2004, the Roxy product line accounted for approximately 33% of our revenues.

DC Shoes

Our recently acquired DC Shoes label specializes in performance skateboard shoes, snowboard boots, sandals and apparel for both young men and juniors. This brand enhances our footwear expertise and strengthens our presence in the core skateboard market. In fiscal 2004, the DC Shoes product line accounted for approximately 7% of our revenues

Other Brands

In fiscal 2004, our other brands represented approximately 9% of our revenues.

•	Raisins, Radio Fiji, Leilani, Island Soul - Raisins and Radio Fiji are swimwear labels in the juniors category while Leilani is a contemporary swimwear label. We also produce Island Soul swimwear for certain department store chains and specialty shops.

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•	Hawk - Tony Hawk, the world-famous skateboarder, is the inspiration for our Hawk Clothing brand. Our target audience for the Hawk product line is boys who recognize Tony from his broad media and video game exposure.
•	Gotcha - Gotcha is one of our European labels and gives us product to address European street fashion for young men.
•	Fidra – Fidra, our golf apparel line, was conceived and developed by golf industry pioneer, John Ashworth, and is endorsed by world famous golfer, Ernie Els.
•	Lib Tech, Gnu, Bent Metal — We address the core snowboard market through our Lib Technologies and Gnu brands of snowboards and accessories and Bent Metal snowboard bindings.

Product Categories

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

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

We believe that the U.S. retail prices for our apparel products range from approximately $18 for a t-shirt and $41 for a typical short to a range of $120 to $320 for a snowboard jacket. For European products, retail prices range from approximately $35 for a t-shirt and about $61 for a typical short to $220 for a basic snowboard jacket. Asia/Pacific t-shirts sell for approximately $32, while shorts sell for approximately $54, and a basic snowboard jacket sells for approximately $210. Retail prices for a typical skate shoe range from approximately $60 in the U.S. to approximately $117 in Europe.

Product Design

Our products are designed for young-minded people who live a casual lifestyle. Innovative design, active fabrics and quality of workmanship are emphasized. Our design and merchandising teams create seasonal product ranges for each of our brands. These design groups constantly monitor local and global fashion trends. We believe our most valuable input comes from our own managers, employees, sponsored athletes and independent sales representatives who are actively involved in surfing, skateboarding, snowboarding and other sports in our core market. This connection with our core market continues to be the inspiration for our product and is key to our reputation for distinct and authentic design.

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Our design centers in California, Europe, Australia and Japan develop and share designs and merchandising themes and concepts that are globally consistent while reflecting local adaptations for differences in geography, culture and taste.

Promotion and Advertising

Our three-decade commitment to core marketing at the grass-roots level in the sport of surfing and other youth boardriding activities is the foundation of the promotion and advertising of our brands and products.

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

Our core marketing is based on our sponsorship and support of surf, skateboard and snowboard contests in markets where we distribute product. These events reinforce the reputations of our brands as authentic among boardriders and non-boardriders alike. For example, the Quiksilver in Memory of Eddie Aikau Big Wave Invitational is held at Waimea Bay in Hawaii. Quiksilver Pro events are held on the Gold Coast of Australia, the beaches of Southwestern France and the beaches of Japan. The Roxy Pro is held in Hawaii and other international locations. We also produce many events in Europe, including the Grommets Trophy surfing event, the Slopestyle Pro snowboarding event and the Bowlriders skateboarding event. The Quiksilver Airshows, which feature aerial surf maneuvers, are held in New Zealand, Japan, Indonesia and Australia. Along with other international contests, we also sponsor many regional and local events, such as surf camps and skate park tours, for beginners and enthusiasts. Our DC athletes participate regularly in the X Games. Sixteen of our DC athletes competed in the Summer X Games, earning 14 medals.

We sponsor the Quiksilver Crossing, a continuing voyage of the Indies Trader, a surf exploration vessel whose mission is to explore new surfing regions around the world and document the state of the environment under a team of marine biologists. The Quiksilver Crossing, now in its sixth year, began its voyage in the South Pacific, continued on through the Suez Canal to Europe in 2002, visited the Caribbean in 2003, reached the east coast and Mississippi River of the U.S. in 2004 and is heading for the west coast of the U.S. in 2005.

Based on our international reputation for authenticity, compelling content and technical competence in the youth market, we enter into co-branding arrangements. For example, Peugeot has produced cars branded with Quiksilver, while Boost Mobile has produced and sold Roxy mobile phones in the U.S. and Quiksilver and Roxy mobile phones in Australia, and Sony has produced a waterproof digital camera branded with Quiksilver and original Quiksilver artwork.

Our Quiksilver Entertainment division is also producing television programming, documentaries and feature films, and publishing fiction and non-fiction books to transmit our boardriding lifestyle to the core and mainstream audiences. We developed and produce 54321, a weekly series on Fuel TV and Fox Sports Net, and we produced the Surf Girls reality series on MTV which has aired in the U.S. and internationally. In 2004, we launched Union, a mainstream action sports film distribution company. Union distributes the highest quality action sports films from the leading producers in the action sports industry through a variety of mainstream channels, including over 1,000 retail locations in the U.S., Europe, Japan, China, and Australia.

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Customers and Sales

Our distribution strategy is premised on our longstanding belief that the integrity and success of our brands is dependent on responsible growth and careful selection of the retail accounts where our products are merchandised and sold.

Our policy is to sell to retailers who provide an outstanding in-store experience for their customers and who merchandise our products in a manner consistent with the image of our brands and the quality of our products. Our customer base has for many years reflected our goal of diversification of distribution to include surf shops, skate shops, snowboard shops, other specialty stores, national specialty chains and select department stores.

The foundation of our business is distribution of product through surf shops, skate shops, snowboard shops, Boardriders Clubs and specialty stores where in-store shops, fixturing and point-of-sale materials carry our brand message. This core distribution channel serves as a base of legitimacy and long-term loyalty to us and our brands. Most of these stores stand alone or are part of small chains.

We also sell to independent specialty or active lifestyle stores and specialty chains not specifically characterized as surf shops, skate shops or snowboard shops. This category includes chains such as Pacific Sunwear, Nordstrom, Zumiez, Chicks Sporting Goods and Journeys, as well as many independent active lifestyle stores and sports shops. We also sell to a limited number of department stores, including Macy’s, Robinsons-May, Dillards, The Bon Marche and Burdines in the U.S.; Le Printemps and Galeries Lafayette in France; Corte Ingles in Spain; and Lillywhites in Great Britain.

Many of our brands are sold through the same retail accounts; however, distribution can be different depending on the brand and demographic group. Our Quiksilver products are sold in the Americas to customers that have approximately 8,400 store locations combined. Likewise, Roxy products are sold in the Americas to customers with approximately 8,350 store locations. Most of these Roxy locations also carry Quiksilver product. In the Americas, DC products are carried in approximately 5,000 stores, primarily in the U.S. and Canada. Our swimwear brands (Raisins, Leilani and Radio Fiji) are found in 10,400 stores, including many small, specialty swim locations, while our wintersports hardgoods products are found in approximately 1,300 stores, including primarily snowboard shops in the U.S. and Canada. Hawk brands are carried in approximately 3,800 stores, primarily in the U.S. These stores include skate shops and department stores. Fidra is carried in approximately 900 green grass stores primarily in the U.S. Our products are found in approximately 6,800 store locations in Europe, and in approximately 2,100 store locations in Asia/Pacific, in both cases primarily Quiksilver and Roxy. Distribution of DC products in Europe and Asia/Pacific has been primarily through distributors.

Our European segment accounted for approximately 39% and 40% of our consolidated revenues during fiscal 2004 and 2003, respectively. Our Asia/Pacific segment accounted for approximately 12% and 10% of our consolidated revenues in fiscal 2004 and 2003, respectively. Other fiscal 2004 foreign sales are in the Americas (Canada, Central and South America) and were approximately 5% of consolidated revenues.

The following table summarizes the approximate percentages of our fiscal 2004 revenues by distribution channel:

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Our revenues are spread over a large wholesale customer base. During fiscal 2004, approximately 17% of our consolidated revenues were from our ten largest customers and no single customer accounted for more than 4% of such revenues.

Our products are sold by approximately 310 independent sales representatives in the Americas, Europe and Asia/Pacific. In addition, we use approximately 60 local distributors in Europe, which includes approximately 26 DC distributors. Our other international DC business uses approximately 20 distributors, primarily in Asia/Pacific and South America. Our sales representatives are generally compensated on a commission basis. We employ retail merchandise coordinators who travel between specified retail locations of our wholesale customers to further improve the presentation of our product and build our image at the retail level.

Our sales are globally diversified. The following table summarizes the approximate percentages of our fiscal 2004 revenues by geographic region (excluding licensees):

We generally sell our products to customers on a net-30 to net-60 day basis in the Americas, and in Europe and Asia/Pacific on a net-30 to net-90 day basis depending on the country and whether we sell directly to retailers in the country or to a distributor. Some customers are on C.O.D. terms. We generally do not reimburse our customers for marketing expenses, participate in markdown programs with our customers, or offer goods on consignment.

For additional information regarding our revenues, operating profits and identifiable assets attributable to our geographic segments, see Note 15 of our financial statements.

Retail Concepts

Quiksilver concept stores (Boardriders Clubs) are an important part of our global retail strategy. These stores are stocked primarily with Quiksilver and Roxy product, and their proprietary design demonstrates the Company’s history, authenticity and commitment to surfing and other boardriding sports. We also have Roxy stores, which are dedicated to the juniors customer, Quiksilver Youth stores, Hawk Clothing stores, Gotcha stores in Europe, Andaska shops in Europe that carry multiple brands in the outdoor market, and other multibrand stores in Europe.

We own 170 stores in selected markets that provide enhanced brand-building opportunities. In territories where we operated our wholesale businesses during fiscal 2004, we had 164 stores with independent retailers under license. We do not receive royalty income from these stores. Rather, we provide the independent retailer with our retail expertise and store design concepts in exchange for the independent retailer agreeing to maintain our brands at a minimum of 80% of the store’s inventory. Certain minimum purchase obligations are also required. Furthermore, in our licensed territories, such as Turkey and South Africa, our licensees operate 76 Boardriders Clubs. We receive royalty income from sales in these stores based on wholesale volume. We also distribute our products through outlet stores generally located in outlet malls in geographically diverse, non-urban locations. The total number of stores open at October 31, 2004 was 410.

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The unit count of both company-owned and licensed stores at October 31, 2004, excluding stores in licensed territories, is summarized in the following table:

Seasonality

Our sales fluctuate from quarter to quarter primarily due to seasonal consumer demand patterns for different categories of our products, and due to the effect that the Christmas season has on the buying patterns of our customers.

Production and Raw Materials

Our apparel and accessories are generally sourced separately for the Americas, Europe and Asia/Pacific operations. With the acquisition of Quiksilver Asia/Pacific in fiscal 2002, we now control a sourcing office in Hong Kong that manages the majority of production for our Asia/Pacific business and some of our Americas and European production. We believe that as we expand the Hong Kong sourcing operations, more products can be sourced together and additional efficiences can be obtained. Approximately 89% of our apparel and accessories are purchased or imported as finished goods from suppliers principally in Hong Kong, China and the Far East, but also in Mexico, India, North Africa, Portugal and other foreign countries. After being imported, many of these products require embellishment such as screenprinting, dying, washing or embroidery. In the Americas, we also produce goods that are manufactured by independent contractors from raw materials we provide. Approximately 66% of this manufacturing is done in the U.S. with the balance in Mexico. We manufacture our snowboards and skateboards in company-owned factories in the U.S.

All products are manufactured based upon design specifications provided by us, whether they are purchased or imported as finished goods or produced from raw materials provided by us.

The majority of finished goods as well as raw materials must be committed to and purchased prior to the receipt of customer orders. If we overestimate the demand for a particular product, excess production can

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be distributed in our outlet stores or through secondary distribution channels. If we overestimate a particular raw material, it can be used in garments for subsequent seasons or in garments for distribution through our outlet stores or secondary distribution channels.

During fiscal 2004, no single contractor of finished goods accounted for more than 3% of our consolidated production. No single raw material supplier of fabric and trims accounted for more than 14% of our expenditures for raw materials during fiscal 2004. We believe that numerous qualified contractors and finished goods and raw materials suppliers are available to provide additional capacity on an as-needed basis and that we enjoy favorable on-going relationships with these contractors and suppliers.

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

Imports and Import Restrictions

We have for some time imported finished goods and raw materials for our domestic operations under multilateral and bilateral trade agreements between the U.S. and a number of foreign countries, including Hong Kong, India, China and Japan. These agreements imposed quotas on the amount and type of textile and apparel products that were imported into the U.S. from the affected countries. As of January 1, 2005, certain of these quotas have expired. We do not anticipate future quota restrictions; however, if new restrictions or tariffs were imposed, we would not expect them to materially or adversely affect our operations since we would be able to meet our needs domestically or from countries not affected by the restrictions or tariffs on an annual basis.

In Europe we operate in the European Union (“EU”), within which there are few trade barriers. We sell to six other countries outside of France belonging to a trade union, which has some restrictions on imports of textile products and their sources. We also operate under constraints imposed on imports of finished goods and raw materials from outside the EU, including quotas and duty charges. We do not anticipate that these restrictions will materially or adversely impact our operations since we have always operated under such constraints, and the trend in Europe is continuing toward unification.

We retain independent buying agents, primarily in China, Hong Kong, India and other foreign countries to assist us in selecting and overseeing the majority of our independent third party manufacturing and sourcing of finished goods, fabrics, and blanks and other products. These agents also monitor quota and other trade regulations and perform some quality control functions. We also have approximately 55 employees in Hong Kong that are involved in sourcing and quality control functions to assist in monitoring and coordinating our overseas production.

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

Trademarks and Licensing Agreements

Trademarks

We own the “Quiksilver”, “Roxy” and famous mountain and wave and heart logos in virtually every country in the world. Other trademarks we own include “Raisins”, “Radio Fiji”, “Leilani”, “Island Soul”, “Quiksilveredition”, “Hawk”, “Fidra”, “Lib Tech”, “Gnu” and “Bent Metal”. With the acquisition of DC in 2004, we acquired “DCSHOECOUSA”, the “DC Star” logo and other trademarks.

We apply for and register our trademarks throughout the world mainly for use on apparel and related accessories and for retail services. We believe our trademarks and our other intellectual property are

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crucial to the successful marketing and sale of our products, and we attempt to vigorously prosecute and defend our rights throughout the world. Because of the success of our trademarks, we are required to maintain global anti-counterfeiting programs to protect our brands.

Licensing Agreements

Since acquiring Quiksilver International in July 2000, we have owned the international rights to use the Quiksilver and Roxy trademarks in substantially all apparel and related accessory product classifications. With the acquisition of our Asia/Pacific licensees in 2002, we now directly operate all of the global Quiksilver and Roxy businesses with the exception of remaining licensees in Argentina, South Korea and South Africa among others. We are currently negotiating new licensing arrangements in Turkey and Mexico.

We have a license agreement with Gotcha International, LP, which provides that we can sell products primarily in Western Europe under the Gotcha trademark. We have entered into licensing agreements in certain foreign territories with respect to several other of our non-Quiksilver and Roxy brands where we believe operating efficiencies and brand protection may best be achieved through licensees. In fiscal 2003, we terminated our domestic licensing agreement for Quiksilver and Roxy watches and added watches to our technical accessory line.

Competition

Competition is strong in the global beachwear, skateboard shoe, snowboardwear, casual sportswear and snowboard markets in which we operate, and each territory can have different competitors. Our direct competitors in the United States differ depending on distribution channel. Our principal competitors in our core channel of surf shops and Boardriders Clubs in the United States include Billabong, Volcom, O’Neill and Hurley. Our competitors in the department store and specialty store channels in the United States include Tommy Hilfiger, Abercrombie and Fitch, Nautica and Calvin Klein. Our principal competitors in the skateboard shoe market are Sole Technology, Inc. and DVS Shoe Company. In Europe, our principal competitors in the core channel include O’Neill, Billabong, Rip Curl, Oxbow and Chimsee. In Australia our primary competitors are Billabong and Rip Curl. In broader European distribution, and in Asia/Pacific, our competitors also include brands such as Nike, Adidas and Levis. Our principal competitors both in the United States and Europe in the snowboardwear and snowboard markets, are Burton, K2 and a host of smaller manufacturers. Some of our competitors may be significantly larger and have substantially greater resources than us.

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

•	maintain our reputation for authenticity in the core boardriding lifestyle demographic,
•	continue to develop and respond to global fashion and lifestyle trends in our core markets,
•	create innovative, high quality and stylish product at appropriate price points, and
•	convey our boardriding lifestyle message to young-minded consumers worldwide (see “Risk Factors – Relating to Apparel Industry”).

Future Season Orders

We generally receive wholesale orders for apparel products approximately two to four months prior to the time the products are delivered to stores. All such orders are subject to cancellation for late delivery. We generally sell our products on a season-by-season basis. Our Americas women’s product ranges are generally separated into four delivery seasons, Spring, Summer, Fall and Holiday. Our men’s divisions in the Americas combine the Spring and Summer seasons to achieve three delivery seasons, while in Europe and Japan we have two seasons, Spring/Summer and Autumn/Winter. Our Australian business in the southern hemisphere uses three seasons, Summer, High Summer and Winter. At the end of November 2004 (based on the name of the northern hemisphere delivery season), Spring 2005 forward orders totaled $412 million and were up 29% over the previous year’s level of approximately $319 million. Our forward orders depend upon a number of factors and can fluctuate based on the timing of trade shows, sales meetings and market weeks. The timing of shipments also fluctuates from year to year and

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varies based on the production of goods. As a consequence, a comparison of forward orders from season to season is not necessarily meaningful and may not be indicative of eventual shipments.

Employees

At October 31, 2004, we had approximately 4,350 employees, consisting of approximately 2,450 in the United States, approximately 1,300 in Europe and approximately 600 in Asia/Pacific. None of our domestic employees are represented by a union, and approximately 25 of our foreign employees are represented by a union. We have never experienced a work stoppage and consider our working relationships with our employees to be good.

Environmental Matters

Compliance with environmental laws and regulations did not have a significant impact on our capital expenditures, earnings or competitive position during the last three fiscal years.

Available Information

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

Forward-Looking Statements

Various statements in this Form 10-K or incorporated by reference into this Form 10-K, in future filings by us with the SEC, in our press releases and in oral statements made by or with the approval of authorized personnel constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations and are indicated by words or phrases such as “anticipate”, “estimate”, “expect”, “project”, “we believe”, “currently envisions” and similar words or phrases and involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Some of the factors that could affect our financial performance or cause actual results to differ from our estimates in, or underlying, such forward-looking statements are set forth under the heading of “Risk Factors”. Forward-looking statements include statements regarding, among other items:

•	our anticipated growth strategies,
•	our plans to expand internationally,
•	our intention to introduce new products and enter into new joint ventures,
•	our plans to open new retail stores,
•	future renewals of our credit facilities,
•	anticipated effective tax rates in future periods,
•	payments due on contractual commitments,
•	future expenditures for capital projects, and
•	our ability to continue to maintain our brand image and reputation.

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These forward-looking statements are based largely on our expectations and are subject to a number of risks and uncertainties, many of which are beyond our control. Actual results could differ materially from these forward-looking statements as a result of the facts described in “Risk Factors” including, among others, changes in the competitive marketplace, including the introduction of new products or pricing changes by our competitors, changes in the economy, and other events leading to a reduction in discretionary consumer spending. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward-looking information contained in this Form 10-K will, in fact, transpire.

Risk Factors

Competition

The apparel and footwear industries are highly competitive. We compete with numerous domestic and foreign designers, brands and manufacturers of apparel, footwear, accessories and other products, some of which are significantly larger and have greater resources than us. We believe that our ability to compete effectively depends upon our continued ability to maintain our reputation for authencity in our core boardriding market, our flexibility in responding to market demand and our ability to manage our brands and offer fashion conscious consumers a wide variety of high quality apparel at competitive prices. See “Business – Competition.”

Changes in Fashion Trends

We believe that our success depends in substantial part on our ability to anticipate, gauge and respond to changing consumer demand and fashion trends in a timely manner. We attempt to minimize the risk of changing fashion trends and product acceptance by closely monitoring retail sales trends. However, if fashion trends shift away from our products, or if we otherwise misjudge the market for our product lines, we may be faced with a significant amount of unsold finished goods inventory or other conditions which could have a material adverse effect on us.

Uncertainties in Apparel and Footwear Retailing

The apparel and footwear industries historically have been subject to substantial cyclical variations, and a recession in the general economy or uncertainties regarding future economic prospects that affect consumer spending habits could have a material adverse effect on our results of operations. While various retailers, including some of our customers, experienced financial difficulties in the past three years which increased the risk of extending credit to such retailers, our bad debt experience has been limited.

Our Business is Subject to Seasonal Trends

Historically, our operating results have been subject to seasonal trends when measured on a quarterly basis. Our first fiscal quarter is traditionally weaker compared with our other fiscal quarters. This trend is dependent on numerous factors, including the markets in which we operate, holiday seasons, consumer demand, climate, economic conditions and numerous other factors beyond our control. There can be no assurance that our historic operating patterns will continue in future periods as we cannot influence or forecast many of these factors.

Sourcing

We are dependent upon third parties for the manufacture of substantially all of our products. The inability of a manufacturer to ship orders of our products in a timely manner, including as a result of local financial market disruption which could impair the ability of such suppliers to finance their operations, or to meet quality standards, could cause us to miss the delivery date requirements of our customers for those items, which could result in cancellation of orders, refusal to accept deliveries or a reduction in purchase prices, any of which could have a material adverse effect on our financial condition and results of operations. We have no long-term formal arrangements with any of our suppliers of raw materials, and to date we have experienced only limited difficulty in satisfying our raw materials requirements. Although we believe we could replace such suppliers without a material adverse effect on us, there can be no assurance that such suppliers could be replaced in a timely manner, and the loss of such suppliers could have a material adverse effect on our short-term operating results.

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Impact of Potential Future Acquisitions

From time to time, we have pursued, and may continue to pursue, acquisitions. For example, during fiscal 2004, we completed the acquisition of DC using available lines of credit and common stock. If one or more acquisitions results in us becoming substantially more leveraged on a consolidated basis, our flexibility in responding to adverse changes in economic, business or market conditions may be adversely affected.

Risks Relating to International Operations

We conduct a majority of our business outside of the United States and, particularly in light of our recent acquisitions, we anticipate that revenue from foreign operations will account for an increasingly larger portion of our future revenue. Our international operations are directly related to and dependent on the volume of international trade and local market conditions. Our international operations and international commerce are influenced by many factors, including:

•	changes in economic and political conditions and in governmental policies,
•	changes in international and domestic customs regulations,
•	wars, civil unrest, acts of terrorism and other conflicts,
•	natural disasters,
•	changes in tariffs, trade restrictions, trade agreements and taxation,
•	difficulties in managing or overseeing foreign operations,
•	limitations on the repatriation of funds because of foreign exchange controls,
•	different liability standards, and
•	difficulties in enforcing intellectual property laws of other countries.

The occurrence or consequences of any of these factors may restrict our ability to operate in the affected region and/or decrease the profitability of our operations in that region.

Foreign Currency and Derivatives

We are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to certain sales, royalty income, and product purchases of our international subsidiaries that are denominated in currencies other than their functional currencies. We are also exposed to foreign currency gains and losses resulting from domestic transactions that are not denominated in U.S. dollars, and to fluctuations in interest rates related to our variable rate debt. Furthermore, we are exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported results in our consolidated financial statements due to the translation of the operating results and financial position of our international subsidiaries. As part of our overall strategy to limit the level of exposure to the risk of fluctuations in foreign currency exchange rates, we use various foreign currency exchange contracts and intercompany loans. In addition, interest rate swaps are used to manage our exposure to the risk of fluctuations in interest rates.

Loss or Infringement of Our Trademarks

We believe that our trademarks are important to our success and competitive position. The loss of such trademarks, or the loss of the exclusive use of our trademarks, could have a material adverse effect on our business, financial condition and results of operations. Accordingly, we devote substantial resources to the establishment and protection of our trademarks on a worldwide basis. We cannot assure that our actions taken to establish and protect our trademarks will be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as violative of their trademarks and proprietary rights. Moreover, we cannot assure that others will not assert rights in, or ownership of, our trademarks or that we will be able to successfully resolve such conflicts. In addition, the laws of certain foreign countries may not protect trademarks to the same extent as do the laws of the U.S.

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Internal controls

Our internal controls over financial reporting may not be considered effective, which could result in a loss of investor confidence in our financial reports and in turn have an adverse effect on our stock price. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our Annual Report on Form 10-K for the fiscal year ending October 31, 2005, we will be required to furnish a report by our management on our internal controls over financial reporting. Such report will contain, among other matters, an assessment of the effectiveness of our internal controls over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal controls over financial reporting are effective. This assessment must include disclosure of any material weaknesses in our internal controls over financial reporting identified by management. The report will also contain a statement that our independent registered public accounting firm has issued an attestation report on management’s assessment of internal controls.

We are currently performing the system and process documentation needed to comply with Section 404 and the new standard issued by the Public Company Accounting Oversight Board. This process is both costly and challenging. During this process, if we identify one or more material weaknesses in our internal controls over financial reporting, we will be unable to assert that such internal controls are effective. If we are unable to assert that our internal controls are effective as of October 31, 2005 (or if our independent registered public accounting firm is unable to attest that our management’s report is fairly stated or they are unable to express an opinion on our management’s evaluation or on the effectiveness of our internal controls), investors could lose confidence in the accuracy and completeness of our financial reports, which in turn could have an adverse effect on our stock price.

Item 2. PROPERTIES

Certain information concerning our principal facilities in excess of 40,000 rentable square feet, all of which are leased, is as follows:

As of October 31, 2004, we operated 67 retail stores in the Americas, 82 European retail stores, and 21 retail stores in Asia/Pacific on leased premises. The leases for our facilities required aggregate annual rentals of approximately $31.5 million in fiscal 2004. We anticipate that we will be able to extend those leases that expire in the near future on terms satisfactory to us or, if necessary, locate substitute facilities on acceptable terms.

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Item 3. LEGAL PROCEEDINGS

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

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted for a vote of our stockholders during the fourth quarter of the fiscal year ended October 31, 2004.

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PART II

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

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

We have historically reinvested our earnings in our business and have never paid a cash dividend. No change in this practice is currently being considered. Our payment of cash dividends in the future will be determined by the Board of Directors, considering conditions existing at that time, including our earnings, financial requirements and condition, opportunities for reinvesting earnings, business conditions and other factors. In addition, under our principal credit agreement with a bank group, we must obtain the bank group’s prior consent to pay dividends.

On January 4, 2005, there were approximately 450 holders of record of our common stock and an estimated 12,300 beneficial stockholders.

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Item 6. SELECTED FINANCIAL DATA

The statement of income and balance sheet data shown below were derived from our consolidated financial statements. Our consolidated financial statements as of October 31, 2004 and 2003 and for each of the three years in the period ended October 31, 2004, included herein, have been audited by Deloitte & Touche LLP , our independent registered public accounting firm. You should read this selected financial data together with our consolidated financial statements and related notes, as well as the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

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

The following discussion should be read together with our consolidated financial statements and related notes, which are included in this report, and the “Risk Factors” information in the “Business” section of this report.

Overview

We began our domestic operations in 1976 as a designer and manufacturer of Quiksilver branded boardshorts designed for the sport of surfing. We grew our business through the late 1980’s by expanding our Quiksilver products into a full range of sportswear, and we bought our U.S. trademark from the Quiksilver brand’s Australian founders in 1986. The distribution of our products was primarily through surf shops. Since the early 1990’s, we have diversified and grown our business by increased sales of our Quiksilver product line, the creation of new brands such as Roxy, the introduction of new products, the development of our retail operations, and acquisitions. We acquired the European Quiksilver licensee in 1991 to expand geographically, we purchased Quiksilver International in 2000 to gain global ownership of the Quiksilver brand, and we acquired Quiksilver Asia/Pacific in December 2002 to unify our global operating platform and take advantage of available synergies in product development and sourcing, among other things. In May 2004, we acquired DC, a premier designer, producer and distributor of action sports inspired footwear, apparel and related accessories in the U.S. and internationally. We also acquired various other smaller businesses and brands. Brand building has been a key to our growth, and we have always maintained our roots in the boardriding lifestyle. Today our products are sold throughout the world, primarily in surf shops and specialty stores that provide an outstanding retail experience for our customers.

Over the last five years, our revenues have grown from $519 million in fiscal 2000 to $1.3 billion in fiscal 2004. We design, produce and distribute clothing, accessories and related products exclusively in the consumer products industry. We operate in three geographic segments, the Americas, Europe and Asia/Pacific. The Americas segment includes revenues primarily from the U.S. and Canada. The European segment includes revenues primarily from Western Europe. The Asia/Pacific segment includes revenues primarily from Australia, Japan, New Zealand, and Indonesia. Royalties earned from various licenses in other international territories are categorized in corporate operations along with revenues from sourcing services for our licensees. Revenues by segment are as follows:

We operate in markets that are highly competitive, and our ability to evaluate and respond to changing consumer demands and tastes is critical to our success. Shifts in consumer preferences could have a negative effect on companies that misjudge these preferences. We believe that our historical success is due to the development of an experienced team of designers, artists, sponsored athletes, merchandisers, pattern makers, and cutting and sewing contractors. It’s this team and the heritage and current strength of our brands that has helped us remain in the forefront of design in our markets. Our success in the future will depend on our ability to continue to design products that are acceptable to the marketplace. There can be no assurance that we can do this. The consumer products industry is fragmented, and in order to retain and/or grow our market share, we must continue to be competitive in the areas of quality, brand image, distribution methods, price, customer service, and intellectual property protection.

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Results of Operations

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

Fiscal 2004 Compared to Fiscal 2003

Revenues

Total net revenues increased 30% in fiscal 2004 to $1,266.9 million from $975.0 million in fiscal 2003 primarily as a result of increased unit sales, new products and the DC acquisition. Revenues in the Americas increased 25%, European revenues increased 28%, and Asia/Pacific revenues increased 58%. We completed the acquisition of DC Shoes, Inc. effective May 1, 2004, which marks the beginning of our third fiscal quarter. DC Shoes, Inc. designs, produces and distributes action sports inspired footwear, apparel and related accessories. This new division, which operates in all three of our business segments, is referred to in this report as “DC” and accounted for approximately 9% of our consolidated revenue growth during the year ended October 31, 2004.

Americas’ revenues in our men’s category, which includes the Quiksilver Young Men’s, Boys, Toddlers, Wintersports, Quiksilveredition, DC, Hawk Clothing and Fidra divisions, increased 20% to $310.8 million in fiscal 2004 from $258.8 million the year before. Americas’ revenues in our women’s category, which includes the Roxy, Roxy Girl, Teenie Wahine, DC, Raisins, Leilani and Radio Fiji divisions, increased 32% to $295.6 million from $223.1 million for those same periods. Wintersports hardgoods are sold under the Lib Technologies, Gnu, Bent Metal and Roxy brands and totaled $10.4 and $10.5 million in fiscal 2004 and 2003, respectively. Men’s revenues in the Americas increased primarily from the newly acquired DC division and to a lesser extent, the Quiksilver division. The women’s increase came primarily from the Roxy division and, to a lesser extent, the newly acquired DC division. We believe that our product design and marketing efforts are resulting in increased consumer demand for our products in the Americas.

European revenues were approximately 39% of our consolidated total in fiscal 2004. In U.S. dollars, revenues in the men’s category increased 24% to $364.7 million in fiscal 2004 from $293.1 million in the previous year. Women’s revenues increased 41% to $131.6 million from $93.1 million for those same periods. The European men’s revenue increase came primarily from the Quiksilver Young Men’s division and, to a lesser extent, the DC division. The women’s revenue increase primarily reflects growth in the Roxy division. Revenue growth was the largest in France, the United Kingdom, and Spain. For consolidated financial statement reporting, euro results must be translated into U.S. dollar amounts at average exchange rates, but this can distort performance when exchange rates change from year to year. To understand our European fiscal 2004 growth and better assess competitive performance and market share gains. We believe it is important to look at revenues in euros as well, which is our operational currency in Europe. In euros, revenues grew 16% in fiscal 2004. This is lower than the 28% growth rate in U.S. dollars because the U.S. dollar was worth fewer euros on average in fiscal 2004 compared to fiscal 2003.

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Asia/Pacific revenues were approximately 12% of our consolidated total in fiscal 2004. In U.S. dollars, Asia/Pacific revenues increased 58% to $148.7 million in fiscal 2004 from $94.2 million in the previous year. The increase came primarily the Roxy division and, to a lesser extent, the Quiksilver and DC divisions. For consolidated financial statement reporting, Australian dollar results must be translated into U.S. dollar amounts at average exchange rates, but as with our European division this can distort performance when exchange rates change from year to year. In Australian dollars, revenues grew 38% in fiscal 2004. This is lower than the 58% growth rate in U.S. dollars because the U.S. dollar was worth fewer Australian dollars on average in fiscal 2004 compared to fiscal 2003.

Gross Profit

Our consolidated gross profit margin increased 120 basis points to 45.6% in fiscal 2004 from 44.4% in the previous year. The gross profit margin in the Americas increased to 40.8% from 40.1%, our European gross profit margin increased to 50.7% from 49.1%, and our Asia/Pacific gross profit margin increased to 49.2% from 46.9%. The gross margin in all areas is increasing as we generate a higher percentage of sales through company-owned retail stores. We earn higher gross margins on sales in company-owned stores, but these higher gross margins are offset by store operating costs. Additionally, in Europe and Asia/Pacific, the gross profit margin increased due to lower production costs resulting from a stronger euro and Australian dollar versus the U.S. dollar in comparison to the prior year.

Selling, General and Administrative Expense

Selling, general and administrative expense increased 34% in fiscal 2004 to $446.2 million from $332.2 million in fiscal 2003. In the Americas, it increased 24% to $187.5 million from $151.7 million, in Europe it increased 40% to $178.2 million from $127.5 million, and in Asia/Pacific it increased 62% to $52.0 million from $32.0 for those same periods. The increase among all three divisions was primarily due to additional company-owned retail stores, the addition of DC effective the beginning of our third fiscal quarter, additional marketing and expenses related to increased sales volume. As a percentage of revenues, selling general and administrative expense increased to 35.2% in fiscal 2004 from 34.0% in fiscal 2003 primarily due to new company-owned retail stores and increased marketing activities.

Non-operating Expenses

Interest expense decreased 23% to $6.4 million in fiscal 2004 compared to $8.3 million in fiscal 2003 primarily as a result of decreased debt levels and lower interest rates in Europe and in the Americas.

Foreign currency loss increased to $2.9 million in fiscal 2004 compared to $2.2 million in fiscal 2003. This increase was caused primarily by the increasing effect of the declining value of the U.S. dollar during fiscal 2004 compared to the Euro and Australian dollar. These foreign currency losses were substantially offset by higher operating profit in our international divisions resulting from changes in foreign currency exchange rates.

The Company’s income tax rate decreased to 33.3% in fiscal 2004 from 35.0% in fiscal 2003. This improvement resulted primarily because a higher percentage of our fiscal 2004 profits were generated in countries with lower tax rates.

Net Income and EBITDA

Net income in fiscal 2004 increased 39% to $81.4 million, and earnings per share on a diluted basis increased 32% to $1.36. EBITDA increased 30% in fiscal 2004 to $155.2 million.

Fiscal 2003 Compared to Fiscal 2002

Revenues

Total net revenues increased 38% in fiscal 2003 primarily as a result of increased unit sales and new products. Revenues in the Americas increased 18%, and European revenues increased 37%. Primarily because we acquired the business of our Australian and Japanese licensees in the first quarter of fiscal 2003, our royalty income decreased to $2.2 million from $4.8 million. Instead we reported product sales in this geographic region, which totaled $94.2 million in fiscal 2003.

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Americas’ revenues in our men’s category increased 13% to $258.8 million in fiscal 2003 from $229.2 million the year before. Americas’ revenues in our women’s category increased 25% to $223.1 million from $178.4 million for those same periods. Wintersports hardgoods totaled $10.5 million in fiscal 2003 compared to $10.4 million in the previous year. Men’s revenues in the Americas increased generally across all divisions. The women’s increase came from both the Roxy and Raisins divisions. We believe that our product design and marketing efforts resulted in increased consumer demand for our products in the Americas.

European revenues were approximately 40% of our consolidated total in fiscal 2003. In U.S. dollars, revenues in the men’s category increased 41% to $293.1 million in fiscal 2003 from $208.3 million in the previous year. Women’s revenues increased 25% to $93.1 million from $74.4 million for those same periods. Revenue growth was the largest in France, Spain and the United Kingdom. We believe that our product design and marketing efforts resulted in increased consumer demand for our products in the European market. In euros, revenues grew 15% in fiscal 2003. This is lower than the 37% growth rate in U.S. dollars because the U.S. dollar was worth fewer euros on average in fiscal 2003 compared to fiscal 2002.

Gross Profit

Our consolidated gross profit margin increased 380 basis points in fiscal 2003. The gross profit margin in the Americas increased to 40.1% from 36.7%, while our European gross profit margin increased to 49.1% from 45.3%. The Asia/Pacific gross profit margin was 46.9%. The Americas improvement occurred primarily due to an increase in our gross profit margin in the first half of fiscal 2003 because we lowered inventory levels toward the end of fiscal 2002. Consequently, our end-of season clearance business was down compared to the year before, and our gross margins on those sales were up. In the second half, the Americas’ gross profit margin was 39.3%. Our European gross profit margin increased in the second half of fiscal 2003 primarily as a result of the weaker U.S. dollar. Because a portion of our European product is purchased with U.S. dollars, product costs in euros decrease as the U.S. dollar decreases in value in comparison to the euro. Additionally, both the Americas’ and European gross profit margins improved because we had a higher percentage of our sales through company-owned retail stores.

Selling, General and Administrative Expense

Selling, general and administrative expense increased 53% in fiscal 2003. In the Americas, it increased 28% to $151.7 million from $118.2 million, and in Europe it increased 47% to $127.5 million from $86.6 million for those same periods. The Asia/Pacific segment added $32.0 million of these expenses. Higher personnel costs and other costs related to increased sales volume were the primary reasons for these increases. As a percentage of revenues, selling general and administrative expense increased to 34.0% in fiscal 2003 from 30.7% in fiscal 2002. Selling, general and administrative expense increased as a percentage of revenues primarily due to the incremental operating costs of new company-owned retail stores, and to a lesser extent additional marketing expenses.

Non-operating Expenses

Interest expense decreased 4% in fiscal 2003. Additional interest on debt incurred to acquire and operate the new Asia/Pacific segment was more than offset by lower interest rates in Europe and in the Americas.

Foreign currency loss increased to $2.2 million in fiscal 2003 compared to $0.7 million in fiscal 2002. The increase was caused primarily by the increasing effect of the declining value of the U.S. dollar during fiscal 2003 compared to the Euro and Australian dollar. These foreign currency losses were substantially offset by higher operating profit in our international divisions resulting from changes in foreign currency exchange rates.

The Company’s income tax rate decreased to 35.0% in fiscal 2003 from 37.3% in fiscal 2002. This improvement resulted primarily because a higher percentage of our fiscal 2003 profits were generated in countries with lower tax rates.

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Net Income and EBITDA

Net income in fiscal 2003 increased 56% to $58.5 million, and earnings per share on a diluted basis increased 34% to $1.03. EBITDA increased 44% in fiscal 2003 to $119.5 million.

Financial Position, Capital Resources and Liquidity

We finance our working capital needs and capital investments primarily with operating cash flows and bank revolving lines of credit. Multiple banks in the U.S., Europe and Australia make these lines of credit available. Term loans are used to supplement these lines of credit and are typically used to finance long-term assets.

Cash and cash equivalents totaled $55.2 million at October 31, 2004 versus $27.9 million at October 31, 2003. Working capital amounted to $343.1 million at October 31, 2004, compared to $286.6 million at October 31, 2003, an increase of 20%. We believe that our current cash balances, cash flows and credit facilities are adequate to cover our cash needs for the foreseeable future. Furthermore, we believe that increases in our credit facilities can be obtained if needed to fund future growth.

Operating Cash Flows

We generated $130.6 million from operations in fiscal 2004 compared to $36.6 million in fiscal 2003. This $94.0 million increase was primarily caused by an increase in accounts payable, partially offset by an increase in inventories, which together provided $8.9 million of cash in fiscal 2004 compared to using $32.0 million the year before. In addition to this $40.9 million improvement, operating cash flow also increased by $36.5 million due to higher net income adjusted for noncash expenses. Increases in accounts receivable offset by changes in other working capital components also generated $16.6 million of additional cash compared to the year before.

We generated $36.6 million from operations in fiscal 2003 compared to $76.8 million in fiscal 2002. This $40.2 million decrease was primarily caused by the increase in inventories combined with the small decrease in accounts payable, which together used $32.1 million of cash, a $53.2 million increase in cash used compared to $21.1 million of cash provided the year before. This more than offset the $28.2 million increase in cash from higher net income adjusted for noncash expenses. Changes in other working capital components also used $15.2 million of additional cash compared to the year before.

Capital Expenditures

We have avoided high levels of capital expenditures for our manufacturing functions by using independent contractors for sewing and other processes such as washing, dyeing and embroidery. We perform the cutting process in-house in the Americas to enhance control and efficiency, and we screenprint a portion of our product in-house in both the Americas and in Europe.

Fiscal 2004 capital expenditures were $52.5 million, which was approximately $19.4 million higher than the $33.1 million we spent in fiscal 2003. In fiscal 2004, we increased our investment in company-owned retail stores and in computer systems. Investments in warehouse equipment and fixtures continued in fiscal 2004 as in the previous years.

New company-owned retail stores are again part of our plans in fiscal 2005. Computer hardware and software will also be added to continuously improve systems. Capital spending for these and other projects in fiscal 2005 is expected to range between $50 million and $55 million, depending on the pace of our retail expansion.

Acquisitions

Effective May 1, 2004, we acquired DC. The initial purchase price, excluding transaction costs, included cash of approximately $52.8 million, 1.6 million restricted shares of our common stock valued at $27.3 million and the repayment of approximately $15.3 million in funded indebtedness. Transaction costs totaled $2.9 million. Of the initial purchase price, $63.4 million was paid in fiscal 2004, and $4.7 million will be paid in fiscal 2005 or later based on working capital at the date of acquisition and the resolution of certain other contingencies. Additionally, the sellers are entitled to future payments ranging from zero to $57 million if certain performance targets are achieved during the four years ending October 31, 2007. The amount of

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goodwill initially recorded for the transaction would increase if such contingent payments were made. Goodwill arises from synergies we believe can be achieved integrating DC’s product lines and operations with the Company’s, and is not expected to be deductible for income tax purposes. As of October 31, 2004 we have accrued $8.0 million based on achieving certain sales and earnings targets, which is expected to be paid in fiscal 2005, thereby reducing additional future payments to approximately $49.0 million.

Effective December 1, 2003, we acquired the operations of our Swiss distributor, Sunshine Diffusion SA. The initial purchase price was $1.6 million. The acquisition has been recorded using the purchase method of accounting and resulted in goodwill of $0.7 million at the acquisition date, which is not expected to be deductible for tax purposes. The sellers are entitled to future payments denominated in euros ranging from zero to $1.4 million if certain sales targets are achieved.

Effective December 1, 2002, we acquired our licensees in Australia and Japan to unify our global operating platform and take advantage of available syngergies in product development and sourcing, among other things. In addition to the initial purchase price, the sellers are entitled to payments denominated in Australian dollars that will be paid if certain sales and earnings targets are achieved during the three years ending October 31, 2005. The amount of goodwill initially recorded for the transaction would increase if such contingent payments are made. As of October 31, 2004, we have paid $4.0 million and accrued $5.2 million based on achieving targets, which is expected to be paid in fiscal 2005, thereby reducing potential future payouts to approximately $13.9 million.

Debt Structure

A syndication of U.S. banks finances our business in the Americas and internationally, European banks finance our European business, and Australian and Japanese banks finance our Asia/Pacific business. Our debt structure includes short-term lines of credit and long-term loans as follows:

In June 2003, we replaced our syndicated bank facility in the Americas with a new syndicated revolving line of credit. The line of credit expires June 2006 and provides for borrowings up to $200.0 million. The line of credit bears interest based on the bank’s reference rate or based on LIBOR for borrowings committed to be outstanding for 30 days or longer. The weighted average interest rate at October 31, 2004 was 3.0%. The line of credit can be accessed by some of our foreign subsidiaries and includes a $75.0 million sublimit for letters of credit and a $35.0 million sublimit for borrowings in certain foreign currencies. The line of credit agreement contains restrictive covenants, the most significant of which relates to maintaining certain leverage and fixed charge coverage ratios. The payment of dividends is restricted, among other things, and our U.S. assets, other than trademarks and other intellectual property, generally have been pledged as collateral. We are currently in compliance with such covenants.

In Europe, we have arrangements with several banks that provide approximately $85.0 million for cash borrowings and approximately $74.0 million for letters of credit. These lines of credit expire in October 2005, and we believe that the banks will continue to make these facilities available with substantially similar terms. The amount outstanding on these lines of credit at October 31, 2004 was $3.8 million at an average interest rate of 2.7%.

In Asia/Pacific, we have revolving lines of credit with banks that provide up to approximately $19.0 million for cash borrowings and letters of credit. These lines of credit will be reviewed by the banks in January

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2005 and September 2005, and we believe the banks will continue to make these facilities available with substantially similar terms. The amount outstanding on these lines of credit at October 31, 2004 was $7.0 million at an average interest rate of 1.4%.

These line of credit commitments and agreements in the Americas, Europe and Asia/Pacific allow for total maximum cash borrowings and letters of credit of $378.0 million. Commitments totaling $178.0 million expire in fiscal 2005, while $200.0 million expire in fiscal 2006. We had $116.8 million of borrowings drawn on these lines of credit as of October 31, 2004, and letters of credit issued at that time totaled $68.6 million.

We also have a term loan with a single bank in the Americas that amounted to $6.8 million on October 31, 2004 and is repayable in installments of $0.1 million per month with a final balloon payment due in October 2007. We anticipate that these monthly payments and final balloon payment will be paid from cash and borrowings on our Americas’ line of credit. This term loan was established in April 2000 and is secured by the leasehold improvements at our headquarters in Huntington Beach, California. The interest rate structure and restrictive covenants are substantially the same as those under the line of credit. However, we entered into an interest rate swap agreement, which was valued at a loss of $0.4 million at October 31, 2004, to fix the interest rate at 8.4% per year. This swap agreement is effective through April 2007 and is an effective hedge of the related interest rate exposure.

In Europe, we also have $33.7 million of long-term debt with several banks, most of which is collateralized by fixed assets. This debt bears interest at rates ranging generally from 2.6% to 5.9%. Principal and interest payments are required either monthly, quarterly or annually, and the loans are due at various dates through 2011.

Our financing activities provided $20.4 million and $48.0 million of cash in fiscal 2004 and 2003 respectively, as debt was increased to fund the capital expenditures and business acquisitions discussed above. In fiscal 2002 debt was reduced, and our financing activities used $35.7 million.

Contractual Obligations and Commitments

We lease certain land and buildings under non-cancelable operating leases. The leases expire at various dates through 2014, excluding extensions at our option, and contain various provisions for rental adjustments including, in certain cases, adjustments based on increases in the Consumer Price Index. The leases generally contain renewal provisions for varying periods of time. We also have long-term debt and obligations related to business acquisitions. The former owners of DC are entitled to future payments up to $57.0 million if certain performance targets are achieved through October 31, 2007. In fiscal 2005, $8.0 million is expected to be paid based on the achievement of certain sales and earnings targets and is reflected in our balance sheet at October 31, 2004 as a component of accrued liabilities. Additional payments to the sellers, up to an additional $23.1 million, could be required for our acquisition of Asia/Pacific if certain sales and earnings targets are achieved. In fiscal 2004, $4.0 million was paid and $5.2 million is included in our balance sheet as a component of accrued liabilities and is expected to be paid in fiscal 2005. Our deferred purchase price obligation of $26.6 million related to our acquisition of Quiksilver International could increase based on the computed earnings of Quiksilver International through June 2005. Our significant contractual obligations and commitments as of October 31, 2004, excluding any additional payments that may be due if these acquired businesses achieve certain performance targets in the future, are summarized in the following table:

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Trade Accounts Receivable and Inventories

Our trade accounts receivable were $281.3 million at October 31, 2004 versus $224.4 million the previous year, an increase of 25%. Of those totals, receivables in the Americas increased 54% to $125.8 million compared to $81.9 million, European receivables increased 10% to $120.7 million from $109.9 million and Asia/Pacific receivables increased 7% to $34.8 million from $32.6 million. The Americas accounts receivable increase is primarily due to the newly acquired DC division. Accounts receivable for DC’s sales to foreign distributors are reflected in the Americas. European and Asia/Pacific accounts receivable both decreased less than 1% when measured in euros and Australian dollars, respectively. Accounts receivable grew more slowly than revenues in Europe and Asia/Pacific primarily because of improved collections. Included in accounts receivable are approximately $18.9 million of Value Added Tax and Goods and Services Tax related to foreign accounts receivable. Such taxes are not reported as net revenues and as such, must be accounted for to accurately compute days sales outstanding. Our overall average days sales outstanding decreased approximately one day at the end of fiscal 2004 compared to the end of fiscal 2003.

Consolidated inventories increased 23% to $179.6 million at October 31, 2004 from $146.4 million the year before. Inventories in the Americas increased 21% to $104.6 million from $86.4 million, European inventories increased 23% to $53.7 million from $43.8 million, and Asia/Pacific inventories increased 31% to $21.3 million from $16.2 million. Inventories in the Americas increased primarily due to the newly acquired DC division. Inventories in Europe increased by approximately $4.0 million as a result of the stronger euro in relation to the U.S. dollar. The remaining increase in European inventories is primarily a result of increased inventory at new retail locations. Asia/Pacific inventories increased by approximately $1.0 million as a result of the stronger Australian dollar in relation to the U.S. dollar and also to support growth in our Asia/Pacific wholesale business. Consolidated average inventory turnover was approximately 4.6 at October 31, 2004 compared to approximately 4.0 at October 31, 2003.

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Inflation

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

New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FIN 46, “Consolidation of Variable Interest Entities” and issued FIN 46 (R) in December 2003, which amended FIN 46. FIN 46 requires certain variable interest entities to be consolidated in certain circumstances by the primary beneficiary even if it lacks a controlling financial interest. The adoption of FIN 46 and FIN 46 (R) did not have a material impact our operational results or financial position since we do not have any variable interest entities.

In May 2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 150, “Accounting for Certain Financial Instruments With Characteristics of Both Liability and Equity.” SFAS No. 150 establishes standards for how companies classify and measure certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We adopted the standard on July 1, 2003. However, SFAS No. 150 did not have any impact on our consolidated financial position, results of operations or cash flows.

In December 2003, the Securities and Exchange Commission released Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,” which supersedes SAB 101, “Revenue Recognition in Financial Statements.” SAB 104 clarifies existing guidance regarding revenues for contracts that contain multiple deliverables to make it consistent with Emerging Issues Task Force (“EITF”) No. 00-21,“Accounting for Revenue Arrangements with Multiple Deliverables.” The adoption of SAB 104 did not have an impact on our revenue recognition policies, nor our financial position or results of operations.

In March 2004, the Emerging Issues Task Force (“EITF”) ratified EITF Issue No. 03-1 (“EITF 03-1”), “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. EITF 03-1 provides a three-step process for determining whether investments, including debt securities, are other than temporarily impaired and requires additional disclosures in annual financial statements. We do not expect the adoption of EITF 03-1 to have a material impact on our financial position or results of operations because we do not hold any applicable investments.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs an amendment of ARB No. 43, Chapter 4”. SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. We do not expect the adoption of SFAS No. 151 to have a significant impact on our consolidated financial position, results of operations or cash flows.

In December 2004, the FASB issued SFAS No. 123 (R) “Share-Based Payment”. SFAS No. 123 (R) requires that companies recognize compensation expense equal to the fair value of stock options or other share based payments. The standard is effective for us beginning the fourth quarter of fiscal 2005. The impact on our net income will include the remaining amortization of the fair value of existing options currently disclosed as pro-forma expense in Note 1 and is contingent upon the number of future options granted, the selected transition method and the selection of either the Black-Scholes or the binomial lattice model for valuing options. The adoption of this standard will have no impact on our cash flows.

Joint Venture Arrangement

In 2003, we formed a joint venture with Glorious Sun Enterprises, Ltd. to pursue opportunities to develop our Quiksilver business in China. The joint venture is 50% owned by us and 50% owned by Glorious Sun. Neither partner can independently control the joint venture, and accordingly, the results of its operations are not consolidated in our financial statements. Rather, our pro-rata share of the operating profits or losses are reported in our income statements as a component of operating income, and our net

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investment is included in other assets. Our investment in the joint venture has not been material to date, but additional capital contributions are anticipated as the joint venture ramps up its business and annual business plans are approved by us and Glorious Sun. In 2004, we opened four Boardriders Club stores, one in mainland China and three in Hong Kong. We also have an additional six shops, located within larger department stores.

Critical Accounting Policies

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

Revenue Recognition

Revenues are recognized when the risk of ownership and title passes to our customers. Generally, we extend credit to our customers and do not require collateral. Our payment terms range from net-30 to net-90, depending on the country or whether we sell directly to retailers in the country or to a distributor. None of our sales agreements with any of our customers provide for any rights of return. However, we do approve returns on a case-by-case basis at our sole discretion to protect our brands and our image. We provide allowances for estimated returns when revenues are recorded, and related losses have historically been within our expectations. If returns are higher than our estimates, our earnings would be adversely affected.

Accounts Receivable

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

Inventories

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

•	weakening economic conditions,

•	terrorist acts or threats,

•	unanticipated changes in consumer preferences,

•	reduced customer confidence in the retail market, and

•	unseasonable weather.

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

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Long-Lived Assets

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

Goodwill

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

Income Taxes

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

Foreign Currency Translation

A significant portion of our revenues are generated in Europe, where we operate with the euro as our functional currency, and a smaller portion of our revenues are generated in Asia/Pacific, where we operate with the Australian dollar and Japanese Yen as our functional currencies. Our European revenues in the United Kingdom are denominated in British pounds, and some European and Asia/Pacific product is sourced in U.S. dollars, both of which result in exposure to gains and losses that could occur from fluctuations in foreign exchange rates. We also have other foreign currency obligations related to our acquisition of Quiksilver International and Asia/Pacific. Our assets and liabilities that are denominated in foreign currencies are translated at the rate of exchange on the balance sheet date. Revenues and expenses are translated using the average exchange rate for the period. Gains and losses from translation of foreign subsidiary financial statements are included in accumulated other comprehensive income or loss.

As part of our overall strategy to manage our level of exposure to the risk of fluctuations in foreign currency exchange rates, we enter into various foreign exchange contracts generally in the form of forward contracts. For all contracts that qualify as cash flow hedges, we record the changes in the fair value of the derivatives in other comprehensive income. We also use other derivatives that do not qualify for hedge accounting to mitigate our exposure to currency risks. These derivatives are marked to fair value with corresponding gains or losses recorded in earnings.

Forward-Looking Statements

Certain words in this report like “believes”, “anticipates”, “expects”, “estimates” and similar expressions are intended to identify, in certain cases, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks,

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uncertainties and other factors that may cause actual results to differ materially from the predicted results. Such factors include, among others, the following:

•	general economic and business conditions,

•	the acceptance in the marketplace of new products,

•	the availability of outside contractors at prices favorable to us,

•	the ability to source raw materials at prices favorable to us,

•	currency fluctuations,

•	changes in business strategy or development plans,

•	availability of qualified personnel,

•	changes in political, social and economic conditions and local regulations, particularly in Europe and Asia and

•	other factors outlined in our previously filed public documents, copies of which may be obtained without cost from us.

Given these uncertainties, investors are cautioned not to place too much weight on such statements. We are not obligated to update these forward-looking statements.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to a variety of risks. Two of these risks are foreign currency fluctuations and changes in interest rates that affect interest expense. (See also Note 16 of our financial statements.)

Foreign Currency and Derivatives

We are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to certain sales, royalty income, and product purchases of our international subsidiaries that are denominated in currencies other than their functional currencies. We are also exposed to foreign currency gains and losses resulting from domestic transactions that are not denominated in U.S. dollars, and to fluctuations in interest rates related to our variable rate debt. Furthermore, we are exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported results in our consolidated financial statements due to the translation of the operating results and financial position of our international subsidiaries. We use various foreign currency exchange contracts and intercompany loans as part of our overall strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates. In addition, we use interest rate swaps to manage our exposure to the risk of fluctuations in interest rates.

Derivatives that do not qualify for hedge accounting but are used by management to mitigate exposure to currency risks are marked to fair value with corresponding gains or losses recorded in earnings. A loss of $2.7 million was recognized related to these types of contracts during fiscal 2004. For all qualifying cash flow hedges, the changes in the fair value of the derivatives are recorded in other comprehensive income. As of October 31, 2004, we were hedging forecasted transactions expected to occur in the following seventeen months. Assuming exchange rates at October 31, 2004 remain constant, $5.2 million of losses, net of tax, related to hedges of these transactions are expected to be reclassified into earnings over the next seventeen months. Also included in accumulated other comprehensive income at October 31, 2004 is a $2.1 million loss, net of tax, related to cash flow hedges of our long-term debt, which is denominated in Australian dollars and matures through fiscal 2005, and the fair value of interest rate swaps, totaling a loss of $0.3 million, net of tax, which is related to our U.S. dollar denominated long-term debt and matures through fiscal 2007.

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

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the hedge inception and on an ongoing basis in accordance with our risk management policy. We will discontinue hedge accounting prospectively:

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

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

Translation of Results of International Subsidiaries

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

By way of example, when the U.S. dollar strengthens compared to the euro, there is a negative effect on our reported results for Quiksilver Europe. It takes more profits in euros to generate the same amount of profits in stronger U.S. dollars. The opposite is also true. That is, when the U.S. dollar weakens there is a positive effect.

In fiscal 2004, the U.S. dollar weakened compared to the euro and the Australian dollar. As a result, our European revenues increased 16% in euros compared to an increase of 28% in U.S. dollars. Asia/Pacific revenues increased 38% in Australian dollars compared to an increase of 58% in U.S. dollars.

Interest Rates

Most of our lines of credit and long-term debt bear interest based on LIBOR. Interest rates, therefore, can move up or down depending on market conditions. As discussed above, we have entered into interest rate swap agreements to hedge a portion of our exposure to such fluctuations. The approximate amount of our remaining variable rate debt was $127.7 million at October 31, 2004, and the average interest rate at that time was 2.9%. If interest rates were to increase by 10%, our net income would be reduced by approximately $0.2 million based on these fiscal 2004 levels.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item appears beginning on page 35.

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

Not Applicable.

Item 9A. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that

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information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of October 31, 2004, the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of October 31, 2004.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended October 31, 2004 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. OTHER INFORMATION

Not applicable

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PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required to be included by this item will be included in our proxy statement for the 2005 Annual Meeting of Stockholders. That information is incorporated herein by reference to that proxy statement, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended October 31, 2004.

Item 11. EXECUTIVE COMPENSATION

The information required to be included by this item will be included in our proxy statement for the 2005 Annual Meeting of Stockholders. That information is incorporated herein by reference to that proxy statement, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended October 31, 2004.

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

The information required to be included by this item will be included in our proxy statement for the 2005 Annual Meeting of Stockholders. That information is incorporated herein by reference to that proxy statement, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended October 31, 2004.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required to be included by this item will be included in our proxy statement for the 2005 Annual Meeting of Stockholders. That information is incorporated herein by reference to that proxy statement, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended October 31, 2004.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required to be included by this item will be included in our proxy statement for the 2005 Annual Meeting of Stockholders. That information is incorporated herein by reference to that proxy statement, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended October 31, 2004.

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PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

1.	Consolidated Financial Statements
	See “Index to Consolidated Financial Statements” on page 34
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.

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QUIKSILVER, INC.

Page

34

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Quiksilver, Inc.

We have audited the accompanying consolidated balance sheets of Quiksilver, Inc. and subsidiaries (the “Company”) as of October 31, 2004 and 2003, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended October 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Quiksilver, Inc. and subsidiaries as of October 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

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

/s/ Deloitte & Touche LLP

January 12, 2005
Costa Mesa, California

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QUIKSILVER, INC.

CONSOLIDATED BALANCE SHEETS
October 31, 2004 and 2003

See notes to consolidated financial statements.

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QUIKSILVER, INC.

CONSOLIDATED STATEMENTS OF INCOME
Years Ended October 31, 2004, 2003 and 2002

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended October 31, 2004, 2003 and 2002

See notes to consolidated financial statements.

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QUIKSILVER, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended October 31, 2004, 2003 and 2002