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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

QUIKSILVER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	April 30,			October 31,
In thousands, except share amounts	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	96,818		$	75,598
Trade accounts receivable, less allowances of $19,875 (2006) and $10,727 (2005)		482,978			599,486
Other receivables		26,633			27,414
Inventories		402,033			386,396
Deferred income taxes		44,220			41,646
Prepaid expenses and other current assets		26,017			21,819

Total current assets		1,078,699			1,152,359

Fixed assets, less accumulated depreciation and amortization of $155,314 (2006) and $121,453 (2005)		266,096			241,979
Intangible assets, net		247,482			247,702
Goodwill		475,730			449,377
Other assets		45,464			43,955
Assets held for sale		18,944			23,229

Total assets	$	2,132,415		$	2,158,601


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Lines of credit	$	205,471		$	220,113
Accounts payable		197,193			212,407
Accrued liabilities		147,556			182,973
Current portion of long-term debt		16,267			50,833
Income taxes payable		—			27,176

Total current liabilities		566,487			693,502

Long-term debt, net of current portion		684,800			640,348
Deferred income taxes		74,340			81,628


Total liabilities		1,325,627			1,415,478


Minority interest		10,353			10,241

Stockholders’ equity:
Preferred stock, $.01 par value, authorized shares - 5,000,000; issued and outstanding shares - none		—			—
Common stock, $.01 par value, authorized shares - 185,000,000; issued shares – 125,158,289 (2006) and 124,093,392 (2005)		1,252			1,241
Additional paid-in capital		261,734			242,284
Treasury stock, 2,885,200 shares		(6,778	)		(6,778	)
Retained earnings		488,375			466,043
Accumulated other comprehensive income		51,852			30,092

Total stockholders’ equity		796,435			732,882

Total liabilities and stockholders’ equity	$	2,132,415		$	2,158,601

See notes to condensed consolidated financial statements.

QUIKSILVER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six months ended April 30,
In thousands	2006			2005
Cash flows from operating activities:
Net income	$	22,332		$	48,881
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		31,352			16,626
Stock based compensation		11,324			¾
Provision for doubtful accounts		3,210			3,624
(Gain) loss on sale of fixed assets		(19	)		283
Foreign currency (gain) loss		(256	)		465
Interest accretion		—			998
Minority interest and equity in earnings		911			—
Changes in operating assets and liabilities:
Trade accounts receivable		128,592			(63,018	)
Other receivables		1,003			638
Inventories		(2,044	)		3,031
Prepaid expenses and other current assets		(2,561	)		(5,627	)
Other assets		(3,377	)		(3,084	)
Accounts payable		(20,494	)		4,719
Accrued liabilities		(34,701	)		(9,364	)
Income taxes payable		(21,129	)		5,761

Net cash provided by operating activities		114,143			3,933


Cash flows from investing activities:
Capital expenditures		(42,736	)		(24,732	)
Deposit on planned acquisition		—			(59,588	)
Business acquisitions, net of cash acquired		(28,447	)		(21,389	)

Net cash used in investing activities		(71,183	)		(105,709	)


Cash flows from financing activities:
Borrowings on lines of credit		137,932			35,172
Payments on lines of credit		(174,759	)		(21,536	)
Borrowings on long-term debt		116,014			104,149
Payments on long-term debt		(107,367	)		(7,036	)
Proceeds from stock option exercises		4,666			3,494

Net cash (used in) provided by financing activities		(23,514	)		114,243

Effect of exchange rate changes on cash		1,774			345

Net increase in cash and cash equivalents		21,220			12,812
Cash and cash equivalents, beginning of period		75,598			55,197

Cash and cash equivalents, end of period	$	96,818		$	68,009


Supplementary cash flow information:
Cash paid during the period for:
Interest	$	23,712		$	4,482

Income taxes	$	32,859		$	16,443

See notes to condensed consolidated financial statements.

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.		Basis of Presentation

		The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statement presentation.

		Quiksilver, Inc. (the “Company”), in its opinion, has included all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the results of operations for the three and six months ended April 30, 2006 and 2005. The condensed consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes for the year ended October 31, 2005 included in the Company’s Annual Report on Form 10-K. Interim results are not necessarily indicative of results for the full year due to seasonal and other factors.

2.		New Accounting Pronouncements

		In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“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. The adoption of SFAS No. 151 did not have a significant impact on the Company’s consolidated financial position, results of operation or cash flows.

		In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” which replaces APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS No. 154 applies to all voluntary changes in accounting principles and requires retrospective application (a term defined by the statement) to prior periods’ financial statements, unless it is impracticable to determine the effect of a change. It also applies to changes required by an accounting pronouncement that does not include specific transition provisions. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company will adopt SFAS No. 154 in the first quarter of fiscal 2007, but does not expect the adoption of SFAS No. 154 to have a material impact on its financial condition, 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 Company adopted this standard during the six months ended April 30, 2006 using the modified prospective method. See Note 3 for a description of the impact of this standard on the Company’s financial statements.

3.		Stock Based Compensation

		On November 1, 2005, the Company adopted the fair value recognition provisions of SFAS No. 123(R). Prior to November 1, 2005, the Company had accounted for stock-based payments under the recognition and measurement provisions of Accounting Principles Board (“APB”) Opinion 25 and related interpretations, as permitted by SFAS No. 123, “Accounting for Stock-Based Compensation.” In accordance with APB 25, no compensation expense was required to be recognized for options granted that had an exercise price equal to the market value of the underlying common stock on the date of grant.

		Under the modified prospective method of SFAS No. 123(R), compensation expense was recognized during the six months ended April 30, 2006 and includes compensation expense for all stock-based payments granted prior to, but not yet vested as of November 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 and

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

compensation expense for all stock based payments granted after November 1, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). The Company’s financial results for the prior periods have not been restated.

		As a result of adopting SFAS No. 123(R), during the six months ended April 30, 2006, the Company’s net income is $7.9 million lower than if it had continued to account for stock based compensation under APB 25 as it did for the six months ended April 30, 2005. Basic and diluted earnings per share for the six months ended April 30, 2006 would have been $0.25 and $0.24, respectively, if the Company had not adopted SFAS No. 123(R), compared to basic and diluted earnings per share of $0.18 and $0.18, respectively. Compensation expense was included as selling, general and administrative expense for the period. The impact on cost of goods sold was not significant. The adoption of SFAS No. 123(R) had no impact on the Company’s cash flows.

		Consistent with the valuation method used for the disclosure only provisions of SFAS No. 123, the Company is using the Black-Scholes option-pricing model to value compensation expense. Forfeitures are estimated at the date of grant based on historical rates and reduce the compensation expense recognized. The expected term of options granted is derived from historical data on employee exercises. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. Expected volatility is based on the historical volatility of the Company’s stock. For the three months ended April 30, 2006 and 2005 options were valued assuming risk-free interest rates of 4.9% and 4.2%, respectively, volatility of 43.8% and 52.2%, respectively, zero dividend yield, and expected lives of 5.2 and 5.3 years, respectively. The weighted average fair value of options granted was $6.28 and $7.42 for the three months ended April 30, 2006 and 2005, respectively. The Company records stock compensation expense using the graded vested method over the vesting period, which is generally three years. As of April 30, 2006, the Company had approximately $25.1 million of unrecognized compensation expense expected to be recognized over a weighted average period of approximately 1.1 years.

		The reported net income and net income per share for the three months and six months ended April 30, 2005 have been presented below to reflect the impact of the adoption of SFAS No. 123(R) had the Company been required to adopt this standard for the six months ended April 30, 2005.


	Three Months Ended		Six Months Ended
	April 30, 2005		April 30, 2005
In thousands, except per share amounts

Actual net income	$	34,667	$	48,881
Less stock-based employee compensation expense, net of tax		3,781		5,594

Pro forma net income	$	30,886	$	43,287


Actual net income per share	$	0.29	$	0.41

Pro forma net income per share	$	0.26	$	0.37

Actual net income per share, assuming dilution	$	0.28	$	0.40

Pro forma net income per share, assuming dilution	$	0.25	$	0.35

On March 24, 2006, the Company’s shareholders approved the 2006 Restricted Stock Plan. A total of 1.0 million shares are reserved for issuance under the Restricted Stock Plan. As of April 30, 2006, no restricted shares have been granted under this plan.

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4.		Inventories

		Inventories consist of the following:


	April 30,		October 31,
In thousands	2006		2005
Raw materials	$	52,316	$	46,659
Work in-process		15,558		10,416
Finished goods		334,159		329,321

	$	402,033	$	386,396

5.		Intangible Assets and Goodwill

		A summary of intangible assets is as follows:


	April 30, 2006							October 31, 2005
						Net							Net
	Gross		Amorti-			Book		Gross		Amorti-			Book
In thousands	Amount		zation			Value		Amount		zation			Value
Amortizable trademarks	$	5,407	$	(1,561	)	$	3,846	$	5,135	$	(1,349	)	$	3,786
Amortizable licenses		10,207		(3,488	)		6,719		10,081		(2,940	)		7,141
Other amortizable intangibles		26,805		(3,768	)		23,037		28,757		(2,022	)		26,735
Non-amortizable trademarks		213,880		—			213,880		210,040		—			210,040

	$	256,299	$	(8,817	)	$	247,482	$	254,013	$	(6,311	)	$	247,702

Certain trademarks and licenses will continue to be amortized by the Company using estimated useful lives of 10 to 25 years with no residual values. Intangible amortization expense for the six months ended April 30, 2006 and 2005 was $2.6 million and $1.2 million, respectively. Annual amortization expense is estimated to be approximately $5.3 million in the fiscal year ending October 31, 2006, approximately $5.0 million in the fiscal year ending October 31, 2007 and approximately $3.8 million in the fiscal years ending October 31, 2009 and 2010. Goodwill related to the Company’s segments is as follows:


	April 30,		October 31,
In thousands	2006		2005
Americas	$	145,298	$	144,948
Europe		194,746		175,392
Asia/Pacific		135,686		129,037

	$	475,730	$	449,377

Goodwill increased $26.4 million during the six months ended April 30, 2006 as a result of approximately $15.1 million related to Rossignol and other acquisitions, and $11.3 million due to the effect of changes in foreign currency exchange rates.

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8.		Derivative Financial Instruments

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

		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 gain of $0.3 million was recognized related to these types of derivatives during the six months ended April 30, 2006. For all qualifying cash flow hedges, the changes in the fair value of the derivatives are recorded in other comprehensive income. As of April 30, 2006, the Company was hedging forecasted transactions expected to occur in the following 25 months. Assuming exchange rates at April 30, 2006 remain constant, $2.2 million of losses, net of tax, related to hedges of these transactions are expected to be reclassified into earnings over the next 25 months.

		On the date the Company enters into a derivative contract, management designates the derivative as a hedge of the identified exposure. The Company formally documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for entering into various hedge transactions. In this documentation, the Company identifies the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and indicates how the hedging instrument is expected to hedge the risks related to the hedged item. The Company formally measures effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis in accordance with its risk management policy. The Company would discontinue hedge accounting prospectively (i) if management determines that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item, (ii) when the derivative expires or is sold, terminated, or exercised, (iii) if it becomes probable that the forecasted transaction being hedged by the derivative will not occur, (iv) because a hedged firm commitment no longer meets the definition of a firm commitment, or (v) if management determines that designation of the derivative as a hedge instrument is no longer appropriate. During the six months ended April 30, 2006, the Company reclassified into earnings a net loss of $1.6 million resulting from the expiration, sale, termination, or exercise of derivative contracts.

		The Company enters into forward exchange and other derivative contracts with major banks and is exposed to credit losses in the event of nonperformance by these banks. The Company anticipates, however, that these banks will be able to fully satisfy their obligations under the contracts. Accordingly, the Company does not obtain collateral or other security to support the contracts.

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A summary of derivative contracts at April 30, 2006 is as follows:


	Notional			Fair
In thousands	Amount		Maturity	Value
United States dollar	$	296,417	May 2006 – May 2008	$	(3,560	)
Interest rate swap		38,182	Jan 2007 – Sept 2009		(77	)

	$	334,599		$	(3,637	)

9.		Business Acquisitions

		Effective July 31, 2005, the Company acquired Skis Rossignol SA (“Rossignol”), a wintersports and golf equipment manufacturer. Rossignol offers a full range of wintersports equipment under the Rossignol, Dynastar, Lange, Look and Kerma brands, and also sells golf products under the Cleveland Golf and Never Compromise brands. The Company has included the operations of Rossignol in its results since August 1, 2005. The purchase price, excluding transaction costs, included cash of approximately $208.3 million, approximately 2.2 million restricted shares of the Company’s common stock, valued at $28.9 million, a deferred purchase price obligation of approximately $32.5 million, a liability of approximately $16.9 million for the mandatory purchase of approximately 0.7 million outstanding public shares of Rossignol representing less than 5% of the share capital of Rossignol, and a liability of approximately $2.0 million for the estimated fair value of 0.1 million fully vested Rossignol stock options. Estimated transaction costs totaled approximately $16.0 million. The valuation of the common stock issued in connection with the acquisition was based on its quoted market price for the five days before and after the announcement date, discounted to reflect the estimated effect of its trading restrictions. The deferred purchase price obligation is expected to be paid in 2010 and will accrue interest equal to the 3-month euro interbank offered rate (“Euribor”) plus 2.35% (currently 5.2%). The mandatory purchase of the remaining Rossignol shares was required under French law as the Company had obtained over 95% of the outstanding shares of Rossignol through a combination of share purchases, including a public tender offer. The purchase of these shares was completed in the quarter ended October 31, 2005 and the Company now owns 100% of the shares in Rossignol. Upon the future exercise of the Rossignol stock options, the Company will purchase the newly issued shares from the Rossignol stock option holders, retaining 100% ownership in Rossignol. These Rossignol stock options are treated as variable for accounting purposes and subsequent changes in the value of these stock options are recorded as compensation expense in the Company’s consolidated statement of income. The Company acquired a majority interest in Cleveland Golf when it acquired Rossignol, but certain former owners of Cleveland Golf retained a minority interest of 36.37%. The Company and the minority owners have entered into a put/call arrangement whereby the minority owners of Cleveland Golf can require the Company to buy all of their interest in Cleveland Golf after 4.5 years and the Company can buy their interest at its option after 7 years, each at a purchase price generally determined by reference to a multiple of Cleveland Golf’s annual profits and the Company’s price-earnings ratio. As a result of the minority interest and put/call arrangement, the Company will account for Cleveland Golf as a step acquisition. In a step acquisition, where less than 100% of an entity is acquired, only a portion of the fair value adjustments are recorded in the acquiring company’s balance sheet equal to the percentage ownership in the acquired company. Based on this step acquisition accounting, the Company has recorded 63.63% of the fair value adjustments for Cleveland Golf in its balance sheet. Goodwill arises from synergies the Company believes can be achieved integrating Rossignol’s brands, products and operations with the Company’s, and is not expected to be deductible for income tax purposes. Amortizing intangibles consist of customer relationships, patents and athlete contracts with estimated useful lives of twenty, seven and two years, respectively. The acquired trademarks are non-amortizing as they have been determined to have indefinite lives.

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The allocation of purchase price is based on preliminary estimates and is subject to change (see Note 11). The following table summarizes the fair values of the assets acquired and the liabilities assumed at the date of the Rossignol acquisition in accordance with the purchase method of accounting:


	July 31,
In thousands	2005
Cash acquired	$	64,396
Accounts receivable		96,763
Inventory		233,909
Other current assets		21,548
Fixed assets		115,321
Deferred income taxes		3,572
Other assets		3,296
Amortizing intangible assets		20,400
Trademarks		94,700
Goodwill		248,312

Total assets acquired		902,217

Other liabilities		181,711
Long term debt and lines of credit		365,126
Deferred income taxes		40,657
Minority interest		10,109

Net assets acquired	$	304,614

		In connection with the acquisition of Rossignol, the Company has formulated the Rossignol Integration plan (“the Plan”). As of April 30, 2006 the Company has recognized approximately $29.1 million of liabilities related to the plan. See Note 11 for further description of the Plan.

		Effective August 1, 2005, the Company acquired 11 retail stores in Australia from Surfection Pty Ltd, Manly Boardriders Pty Ltd. and Sydney Boardriders Pty Ltd. (“Surfection”). The operations of Surfection have been included in the Company’s results since August 1, 2005. The initial purchase price, excluding transaction costs, included cash of approximately $21.4 million. Transaction costs totaled approximately $1.0 million. The sellers are entitled to additional payments ranging from zero to approximately $17.1 million if certain sales and margin targets are achieved through September 30, 2008. The amount of goodwill initially recorded for the transaction would increase if such contingent payments are made. Goodwill arises from synergies the Company believes can be achieved through Surfection’s retail expertise and store presence in key locations in Australia, and is not expected to be deductible for income tax purposes. Amortizing intangibles consist of non-compete agreements with estimated useful lives of five years.

		The allocation of purchase price is based on preliminary estimates and is subject to change based on the finalization of the purchase price allocation. The following table summarizes the fair values of the assets acquired and the liabilities assumed at the date of the Surfection acquisition in accordance with the purchase method of accounting:


	August 1,
In thousands	2005
Inventory and other current assets	$	3,239
Fixed assets		4,839
Amortizing intangible assets		450
Goodwill		21,285

Total assets acquired		29,813

Other liabilities		7,419

Net assets acquired	$	22,394

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company paid cash of approximately $28.4 million during the six months ended April 30, 2006, of which $5.8 million relates to a payment to the former owners of the Asia/Pacific business, $5.0 relates to a payment to the former owners of DC Shoes, Inc., and the remaining $17.6 million relates primarily to insignificant acquisitions of certain other distributors, licensees and retail store locations.

10.		Indemnities and Guarantees

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

11.		Rossignol Integration Plan and Pre-acquisition Restructuring Plan

		In connection with the acquisition of Rossignol, the Company has formulated the Rossignol Integration Plan (the “Plan”). The Plan covers the global operations of Rossignol and the Company’s existing businesses, and it includes the evaluation of facility relocations, nonstrategic business activities, redundant functions and other related items. The Company has not finalized the Plan, but as of April 30, 2006 has recognized approximately $29.1 million of liabilities related to the Plan, including employee relocation and severance costs, moving costs, and other costs related primarily to the consolidation of Rossignol’s administrative headquarters in Europe and the relocation of the Company’s wintersports equipment sales and distribution operations in the United States. These liabilities were included in the allocation of the purchase price for Rossignol in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” and EITF Issue No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination”. Costs that are not associated with the acquired company but relate to activities or employees of the Company’s existing operations are charged to earnings as incurred. Certain facilities owned by the acquired company are expected to be sold in connection with the Plan, while others are anticipated to be refinanced through sale-leaseback arrangements. Assets currently held for sale, primarily in the United States and France, total approximately $18.9 million at April 30, 2006. The Plan has not been finalized as it relates primarily to facilities outside of the United States, and the Company’s estimates of expected costs related to the U.S. aspects of the Plan may change. Accordingly, as uncertainties related to the Plan are resolved, additional liabilities related to facility relocations, the elimination of nonstrategic business activities and redundant functions, and other related costs could be recognized. These uncertainties are expected to be resolved within one year of the consummation date of the acquisition, and when determined, additional liabilities could be significant and would be recorded as adjustments to goodwill. If the Company has overestimated these costs, the excess will reduce goodwill in future periods. After finalization of the plan, if the Company has underestimated these costs, additional liabilities recognized more than one year after the consummation date of the acquisition will be recorded in earnings.

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Activity and liability balances recorded as part of the Plan are as follows:


				Facility
In thousands	Workforce			and Other			Total
Recorded in purchase price allocation	$	3,673		$	1,574		$	5,247
Adjustment to purchase price allocation		17,463			752			18,215
Cash payments		(17	)		(44	)		(61	)
Foreign currency translation		(83	)		(6	)		(89	)

Balance, October 31, 2005		21,036			2,276			23,312

Adjustment to purchase price allocation		3,751			1,885			5,636
Cash payments		(2,133	)		(94	)		(2,227	)
Foreign currency translation		1,052			223			1,275

Balance, April 30, 2006	$	23,706		$	4,290		$	27,996

		Prior to the acquisition of Rossignol, a restructuring plan was announced related to Rossignol’s French manufacturing facilities (“Pre-acquisition Restructuring Plan”). The costs associated with the Pre-acquisition Restructuring Plan consist of termination benefits achieved through voluntary early retirement and voluntary termination of certain employees.

		Activity and liability balances recorded as part of the Pre-acquisition Restructuring Plan are as follows:


In thousands	Workforce
Balance, October 31, 2005	$	4,054
Cash payments		(2,230	)
Adjustment to purchase price allocation		(1,454	)
Foreign currency translation		24

Balance, April 30, 2006	$	394

12.		Condensed Consolidating Financial Information

		The Company has $400 million in publicly registered senior notes. Obligations under the Company’s senior notes are fully and unconditionally guaranteed by certain of its existing domestic subsidiaries. Cleveland Golf is expected to be added as a guarantor subsidiary during the three months ended July 31, 2006. The Company is required to present condensed consolidating financial information for Quiksilver, Inc. and its domestic subsidiaries within the notes to the consolidated financial statements in accordance with the criteria established for parent companies in the SEC’s Regulation S-X, Rule 3-10(f). The following condensed consolidating financial information presents the results of operations, financial position and cash flows of Quiksilver Inc., its guarantor subsidiaries, its non-guarantor subsidiaries and the eliminations necessary to arrive at the information for the Company on a consolidated basis as of April 30, 2006 and October 31, 2005 and for the six months ended April 30, 2006 and 2005. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. Due to the seasonality of the Company’s quarterly operations, management has applied the estimated consolidated annual effective income tax rate to both the guarantor and non-guarantor subsidiaries for interim reporting purposes. In our consolidated financial statements for the fiscal year ending October 31, 2006, management will apply the actual income tax rate to both the guarantor and non-guarantor subsidiaries. These interim tax rates may differ from the actual annual effective income tax rates for both the guarantor and non-guarantor subsidiaries.

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEET

At April 30, 2006


			Wholly-owned			Non-
			Guarantor			Guarantor
In thousands	Quiksilver, Inc.		Subsidiaries			Subsidiaries			Elimination			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	357	$	14,860		$	81,601		$	—		$	96,818
Trade accounts receivable, net		—		160,736			322,242			—			482,978
Other receivables		761		1,953			23,919			—			26,633
Inventories		—		110,409			292,802			(1,178	)		402,033
Deferred income taxes		—		22,531			21,689			—			44,220
Prepaid expenses and other current assets		2,073		9,183			14,761			—			26,017

Total current assets		3,191		319,672			757,014			(1,178	)		1,078,699

Fixed assets, net		3,895		72,205			189,996			—			266,096
Intangible assets, net		2,504		47,736			197,242			—			247,482
Goodwill		—		125,025			350,705			—			475,730
Investment in subsidiaries		580,249		—			—			(580,249	)		—
Other assets		12,232		5,296			27,936			—			45,464
Assets held for sale		—		4,225			14,719			—			18,944

Total assets	$	602,071	$	574,159		$	1,537,612		$	(581,427	)	$	2,132,415


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Lines of credit	$	—	$	158		$	205,313		$	—		$	205,471
Accounts payable		1,216		50,332			145,645			—			197,193
Accrued liabilities		12,368		23,401			111,836			(49	)		147,556
Current portion of long-term debt		—		1,230			15,037			—			16,267
Income taxes payable		—		(2,581	)		2,581			—			—
Intercompany balances		45,225		9,593			(54,818	)		—			—

Total current liabilities		58,809		82,133			425,594			(49	)		566,487

Long-term debt, net of current portion		433,460		116,440			134,900			—			684,800
Deferred income taxes		—		32,122			42,218			—			74,340

Total liabilities		492,269		230,695			602,712			(49	)		1,325,627

Minority interest		10,353		—			—			—			10,353

Stockholders’/invested equity		99,449		343,464			934,900			(581,378	)		796,435

Total liabilities and stockholders’ equity	$	602,071	$	574,159		$	1,537,612		$	(581,427	)	$	2,132,415

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEET

At October 31, 2005


				Wholly-owned		Non-
				Guarantor		Guarantor
In thousands	Quiksilver, Inc.			Subsidiaries		Subsidiaries		Elimination			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	1,177		$	20,816	$	53,605	$	—		$	75,598
Trade accounts receivable, net		—			207,120		392,366		—			599,486
Other receivables		920			4,918		21,576		—			27,414
Inventories		—			118,548		268,888		(1,040	)		386,396
Deferred income taxes		—			22,531		19,115		—			41,646
Prepaid expenses and other current assets		1,788			6,588		13,443		—			21,819

Total current assets		3,885			380,521		768,993		(1,040	)		1,152,359

Fixed assets, net		2,679			66,604		172,696		—			241,979
Intangible assets, net		2,310			47,960		197,432		—			247,702
Goodwill		—			177,841		271,536		—			449,377
Investment in subsidiaries		578,719			—		—		(578,719	)		—
Other assets		11,735			4,933		27,287		—			43,955
Assets held for sale		—			4,225		19,004		—			23,229

Total assets	$	599,328		$	682,084	$	1,456,948	$	(579,759	)	$	2,158,601


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Lines of credit	$	—		$	6,138	$	213,975	$	—		$	220,113
Accounts payable		1,486			78,859		132,062		—			212,407
Accrued liabilities		18,237			29,777		134,665		294			182,973
Current portion of long-term debt		—			1,230		49,603		—			50,833
Income taxes payable		—			14,872		12,304		—			27,176
Intercompany balances		(63,906	)		59,579		4,327		—			—

Total current liabilities		(44,183	)		190,455		546,936		294			693,502

Long-term debt, net of current portion		431,944			76,456		131,948		—			640,348
Deferred income taxes		—			21,441		60,187		—			81,628

Total liabilities		387,761			288,352		739,071		294			1,415,478

Minority interest		—			—		10,241		—			10,241

Stockholders’/invested equity		211,567			393,732		707,636		(580,053	)		732,882

Total liabilities and stockholders’ equity	$	599,328		$	682,084	$	1,456,948	$	(579,759	)	$	2,158,601

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING STATEMENT OF CASH FLOW

Six Months Ended April 30, 2006


							Non-
				Guarantor			Guarantor
In thousands	Quiksilver, Inc.			Subsidiaries			Subsidiaries			Consolidated
Cash flows from operating activities:
Net income	$	(29,790	)	$	13,327		$	38,795		$	22,332
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		269			9,247			21,836			31,352
Stock based compensation		11,324			—			—			11,324
Provision for doubtful accounts		—			(1,355	)		4,565			3,210
Gain on sale of fixed assets		—			—			(19	)		(19	)
Foreign currency gain		(33	)		—			(223	)		(256	)
Minority interest		112			—			799			911
Changes in operating assets and liabilities:
Trade accounts receivable		—			45,254			83,338			128,592
Other receivables		159			2,980			(2,136	)		1,003
Inventories		—			7,798			(9,842	)		(2,044	)
Prepaid expenses and other current assets		501			(3,142	)		80			(2,561	)
Other assets		(16	)		(452	)		(2,909	)		(3,377	)
Accounts payable		(270	)		(28,812	)		8,588			(20,494	)
Accrued liabilities		(4,969	)		(2,051	)		(27,681	)		(34,701	)
Income taxes payable		—			(14,149	)		(6,980	)		(21,129	)

Net cash (used in) provided by operating activities		(22,713	)		28,645			108,211			114,143

Cash flows from investing activities:
Capital expenditures		(1,679	)		(14,652	)		(26,405	)		(42,736	)
Business acquisitions, net of cash acquired		(2,417	)		(5,000	)		(21,030	)		(28,447	)

Net cash used in investing activities		(4,096	)		(19,652	)		(47,435	)		(71,183	)

Cash flows from financing activities:
Borrowings on lines of credit		—			157			137,775			137,932
Payments on lines of credit		—			(6,376	)		(168,383	)		(174,759	)
Borrowings on long-term debt		(1,267	)		56,350			60,931			116,014
Payments on long-term debt		—			(16,366	)		(91,001	)		(107,367	)
Proceeds from stock option exercises		4,666			—			—			4,666
Intercompany		22,505			(48,192	)		25,687			—

Net cash provided by (used in) financing activities		25,904			(14,427	)		(34,991	)		(23,514	)

Effect of exchange rate changes on cash		85			(522	)		2,211			1,774

Net increase (decrease) in cash and cash equivalents		(820	)		(5,956	)		27,996			21,220
Cash and cash equivalents, beginning of period		1,177			20,816			53,605			75,598

Cash and cash equivalents, end of period	$	357		$	14,860		$	81,601		$	96,818

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING STATEMENT OF CASH FLOW

Six Months Ended April 30, 2005


							Non-
				Guarantor			Guarantor
In thousands	Quiksilver, Inc.			Subsidiaries			Subsidiaries			Consolidated
Cash flows from operating activities:
Net income	$	(10,148	)	$	18,452		$	40,577		$	48,881
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		79			7,342			9,205			16,626
Provision for doubtful accounts		—			1,206			2,418			3,624
Loss on sale of fixed assets		—			13			270			283
Foreign currency (gain) loss		(37	)		(102	)		604			465
Interest accretion		—			—			998			998
Changes in operating assets and liabilities:
Trade accounts receivable		—			(18,048	)		(44,970	)		(63,018	)
Other receivables		(4,056	)		2,394			2,300			638
Inventories		—			(137	)		3,168			3,031
Prepaid expenses and other current assets assets		(329	)		(2,154	)		(3,144	)		(5,627	)
Other assets		230			(932	)		(2,382	)		(3,084	)
Accounts payable		2,341			2,800			(422	)		4,719
Accrued liabilities		8,799			(16,714	)		(1,449	)		(9,364	)
Income taxes payable		—			2,205			3,556			5,761

Net cash (used in) provided by operating activities		(3,121	)		(3,675	)		10,729			3,933

Cash flows from investing activities:
Capital expenditures		(1,803	)		(9,462	)		(13,467	)		(24,732	)
Deposit on planned acquisition		(59,588	)		—			—			(59,588	)
Business acquisitions, net of cash acquired		(4,150	)		(11,824	)		(5,415	)		(21,389	)

Net cash used in investing activities		(65,541	)		(21,286	)		(18,882	)		(105,709	)

Cash flows from financing activities:
Borrowings on lines of credit		—			—			35,172			35,172
Payments on lines of credit		—			—			(21,536	)		(21,536	)
Borrowings on long-term debt		95,664			6,182			2,303			104,149
Payments on long-term debt		—			(627	)		(6,409	)		(7,036	)
Proceeds from stock option exercises		3,403			91			—			3,494
Intercompany		(26,775	)		15,495			11,280			—

Net cash provided by financing activities		72,292			21,141			20,810			114,243

Effect of exchange rate changes on cash		—			—			345			345

Net increase (decrease) in cash and cash equivalents		3,630			(3,820	)		13,002			12,812
Cash and cash equivalents, beginning of period		(1,070	)		9,489			46,778			55,197

Cash and cash equivalents, end of period	$	2,560		$	5,669		$	59,780		$	68,009

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context indicates otherwise, when we refer to “Quiksilver”, “we”, “us”, “our”, or the “Company” in this Form 10-Q, we are referring to Quiksilver, Inc. and its subsidiaries on a consolidated basis. You should read the following discussion and analysis in conjunction with our unaudited condensed consolidated financial statements and related notes thereto contained elsewhere in this report. The information contained in this quarterly report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our securities. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended October 31, 2005 and subsequent reports on Form 8-K, which discuss our business in greater detail. The section entitled “Risk Factors” set forth in Item 1A of our Annual Report on Form 10-K, and similar discussions in our other SEC filings, discuss some of the important risk factors that may affect our business, results of operations and financial condition. You should carefully consider those risks, in addition to the information in this report and in our other filings with the SEC, before deciding to purchase, hold or sell our securities.

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

In July 2005, we acquired Skis Rossignol, S.A., a wintersports and golf equipment manufacturer. Rossignol offers a full range of wintersports equipment under the Rossignol, Dynastar, Lange, Look and Kerma brands, and also sells golf products under the Cleveland Golf and Never Compromise brands. The acquisition was effective July 31, 2005 and we have included the operations of Rossignol in our results since August 1, 2005. In July 2005, we issued $400 million in senior notes that bear a coupon interest rate of 6.875% and are due April 15, 2015. These senior notes were used to fund a portion of the Rossignol purchase price and to refinance certain existing indebtedness.

Over the past 35 years, Quiksilver has been established as a leading global brand representing the casual, youth lifestyle associated with boardriding sports. With our acquisition of Rossignol, we have added a collection of leading ski equipment brands to our company that we believe will be the foundation for a full range of technical ski apparel, sportswear and accessories. Also, as part of our acquisition of Rossignol, we acquired a majority interest in Roger Cleveland Golf Company, Inc., a leading producer of wedges and golf clubs in the United States.

We believe that our acquisition of Rossignol provides us with multiple authentic brands in both snow and golf. We believe that Rossignol’s technical knowledge, combined with our current lifestyle brands, will enable us to produce and market apparel, equipment, footwear, accessories and related products for consumers in a broad cross section of the outdoor market. Furthermore, we believe the combination of our existing global expertise in branded apparel and footwear, along with Rossignol’s expertise in branded wintersports equipment, provide us with a diversified platform for continued growth and enhanced operating efficiencies. Our products are sold throughout the world, primarily in surf shops, ski shops, snow shops, skate shops and specialty stores.

Our acquisition of Rossignol has had, and is expected to continue to have a significant impact on our financial results. Our revenues and expenses have increased substantially. Also, our overall profit margins have been negatively impacted because Rossignol has historically generated lower profit margins than we have, and this trend is expected to continue in the foreseeable future. In addition, Rossignol’s business has historically been seasonal, with revenues and operating profits generally higher in August through December, which will affect our consolidated quarterly results. We are substantially more

leveraged as a result of the debt incurred in connection with the acquisition, and we have an increased amount of capital committed to manufacturing functions.

We operate in the outdoor market of the sporting goods industry in which we design, produce and distribute branded apparel, wintersports and golf equipment, footwear, accessories and related products. We operate in three 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.

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

Results of Operations

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


	Three Months Ended						Six Months Ended
	April 30,						April 30,
	2006			2005			2006			2005
Statement of Income data

Revenues, net		100.0	%		100.0	%		100.0	%		100.0	%
Gross profit		45.4			45.3			45.7			45.0
Selling, general and administrative expense		41.8			32.6			40.4			34.9

Operating income		3.6			12.7			5.3			10.1

Interest expense		2.3			0.8			2.3			0.7
Foreign currency, minority interest and other expense		0.2			(0.1	)		0.0			0.0

Income before provision for income taxes		1.1			12.0			3.0			9.4

Provision for income taxes		0.4			3.9			0.9			3.0

Net income		0.7	%		8.1	%		2.1	%		6.4	%


Other data

EBITDA⁽¹⁾		7.5	%		14.8	%		9.4	%		12.2	%

⁽¹⁾ EBITDA is defined as net income before (i) interest expense, (ii) income tax expense, (iii) depreciation and amortization, and (iv) non-cash stock based compensation expense. EBITDA is not defined under generally accepted accounting principles (“GAAP”), and it may not be comparable to similarly titled measures reported by other companies. We use EBITDA, along with other GAAP measures, as a measure of profitability because EBITDA helps us to compare our performance on a consistent basis by removing from our operating results the impact of our capital structure, the effect of operating in different tax jurisdictions, the impact of our asset base, which can differ depending on the book value of assets and the accounting methods used to compute depreciation and amortization, and the effect of non-cash stock based compensation expense. We believe it is useful to investors for the same reasons. EBITDA has limitations as a profitability measure in that it does not include the interest expense on our debts, our provisions for income taxes, the effect of our expenditures for capital assets and certain intangible assets and the effect of non-cash compensation expense. Following is a reconciliation of net income to EBITDA:


	Three Months Ended				Six Months Ended
	April 30,				April 30,
	2006		2005		2006		2005
Net income	$	3,729	$	34,667	$	22,332	$	48,881
Provision for income taxes		1,833		16,464		9,618		23,215
Interest expense		11,949		3,269		24,540		5,058
Depreciation and amortization		15,849		8,824		31,352		16,626
Non-cash stock compensation expense		5,564		—		11,324		—

EBITDA	$	38,924	$	63,224	$	99,166	$	93,780

Three Months Ended April 30, 2006 Compared to Three Months Ended April 30, 2005

Our total net revenues for the three months ended April 30, 2006 increased 21% to $516.9 million from $426.9 million in the comparable period of the prior year. Revenue from our Rossignol and Cleveland Golf businesses, which were acquired on July 31, 2005, totaled $86.2 million for the three months ended April 30, 2006. Revenues in the Americas increased 26% to $250.0 million for the three months ended April 30, 2006 from $199.2 million in the comparable period of the prior year, and European revenues increased 23% to $217.1 million from $176.3 million for those same periods. As measured in euros, Quiksilver Europe’s primary functional currency, revenues in the current year’s quarter increased 33% compared to the prior year. Asia/Pacific revenues decreased 4% to $48.2 million for the three months ended April 30, 2006 from $50.3 million for the three months ended April 30, 2005. In Australian dollars, Quiksilver Asia/Pacific’s primary functional currency, Asia/Pacific revenues increased 2% compared to the prior year.

In the Americas, revenues in our men’s category, which includes the Quiksilver Young Men’s, Boys, Toddlers, Quiksilveredition, Hawk and DC brands, increased 3% to $100.0 million from $97.1 million in the comparable period of the prior year, while revenues in our women’s category, which includes the Roxy, Roxy Girl, Teenie Wahine, DC, Raisins, Leilani and Radio Fiji brands, decreased 1% to $100.3 million from $101.7 million. Revenues from our wintersports and golf equipment brands which include Rossignol, Dynastar, Look, Lange, Kerma, Cleveland Golf, Never Compromise, Lib Technologies, Gnu, Bent Metal and Roxy equipment, totaled $49.4 million for the current year’s quarter compared to $0.4 million in the comparable period of the prior year. The increase in the Americas men’s revenues came primarily from the DC brand partially offset by a decrease in our Hawk revenue which no longer generates product revenue after our license of such brand to a third party. The decrease in the Americas women’s revenues came primarily from growth in the Roxy brand which was more than offset by a decrease in revenue due to the discontinuation of our private label swimwear product line. The increase in wintersports and golf equipment revenue came primarily from the newly acquired Rossignol and Cleveland Golf businesses. In Europe and as reported in dollars, men’s revenues increased 4% to $119.5 million from $115.3 million, while women’s revenues increased 6% to $64.7 million from $61.0 million. Our European wintersports and golf equipment revenue of $33.0 million came from our newly acquired Rossignol and Cleveland Golf businesses. The European men’s increase was primarily due to growth in the Quiksilver brand and to a lesser extent the DC brand, which were partially offset by the negative effects of changes in foreign currency exchange rates. As measured in euros, European men’s revenues increased 12%. The women’s revenue increase reflects growth in the Roxy brand partially offset by the negative effects of changes in foreign currency exchange rates. As measured in euros, Europen women’s revenues

increased 15%. In Asia/Pacific, the decrease in revenues came primarily from an increase in revenues due to our newly acquired Rossignol and Cleveland Golf businesses which was more than offset by decreases in our other brand revenues in Australia and the negative effects of changes in foreign currency exchange rates.

Our consolidated gross profit margin for the three months ended April 30, 2006 increased slightly to 45.4% from 45.3% in the comparable period of the prior year. The Americas’ gross profit margin increased to 41.3% from 38.5%, while the European gross profit margin decreased to 50.0% from 51.4%, and the Asia/Pacific gross profit margin decreased to 45.7% from 50.7% for those same periods. The increase in the Americas’ gross profit margin was primarily due to improved margins on our DC and Quiksilver brands and a higher percentage of sales through company owned retail stores where we earn both the wholesale and retail margins, partially offset by higher sales of our wintersports and golf equipment business, which operate at a lower gross margin than our other businesses. Our European gross profit margin decrease was primarily due to the negative impact of our newly acquired wintersports and golf equipment businesses partially offset by a higher percentage of sales through company-owned retail stores. In Asia/Pacific, the gross profit margin decrease was primarily due to sales from our lower margin wintersports and golf equipment businesses and lower margins on our other brands, partially offset by a higher percentage of sales through company-owned retail stores.

Selling, general and administrative expense (“SG&A”) for the three months ended April 30, 2006 increased 55% to $215.8 million from $139.3 million in the comparable period of the prior year. Americas’ SG&A increased 53% to $81.5 million from $53.3 million in the comparable period of the prior year, while European SG&A increased 69% to $96.2 million from $56.9 million and Asia/Pacific SG&A increased 27% to $24.3 million from $19.2 million for those same periods. As a percentage of revenues, SG&A increased to 41.8% for the three months ended April 30, 2006 from 32.6% for the three months ended April 30, 2005.

The consolidated increase in SG&A as a percentage of revenue was primarily caused by our newly acquired wintersports equipment business. This business has a seasonally low shipping period during the three months ended April 30, 2006, causing the ratio of SG&A to revenue to be negatively impacted. The consolidated increase in SG&A as a percentage of revenue also increased due to $5.5 million in stock based compensation expense recorded in the current period as a result of adopting SFAS No. 123(R) and the cost of additional retail stores.

Interest expense for the three months ended April 30, 2006 increased to $11.9 million from $3.3 million in the comparable period of the prior year. This increase was primarily due to debt incurred and assumed in connection with the acquisition of Rossignol.

Our foreign currency gain amounted to $0.5 million for the three months ended April 30, 2006 compared to a gain of $0.3 million in the comparable period of the prior year. These gains resulted primarily from the foreign currency contracts we used to hedge the risk of translating the results of our international subsidiaries into U.S. dollars.

The effective income tax rate for the three months ended April 30, 2006 was 33.0% compared to 32.2% for the three months ended April 30, 2005. Our effective income tax rate for the six months ended April 30, 2006 is 30.1%, which is lower than the prior year’s annual rate because a higher percentage of our 2006 profits are expected to be generated in countries with lower tax rates and from foreign tax credits.

Net income for the three months ended April 30, 2006 was $3.7 million or $0.03 per share on a diluted basis, compared to $34.7 million, or $0.28 per share on a diluted basis, in the comparable period of the prior year. Basic net income per share was $0.03 per share for the three months ended April 30, 2006 compared to $0.29 per share in the comparable period of the prior year. EBITDA decreased 38% to $38.9 million from $63.2 million for those same periods.

Six Months Ended April 30, 2006 Compared to Six Months Ended April 30, 2005

Our total net revenues for the six months ended April 30, 2006 increased 37% to $1,058.1 million from $769.7 million in the comparable period of the prior year. Our revenue from the Rossignol and Cleveland Golf businesses, which were acquired on July 31, 2005, totaled $277.9 million for the six months ended April 30, 2006. Revenues in the Americas increased 31% to $470.8 million for the six months ended April 30, 2006 from $358.5 million in the comparable period of the prior year, and European revenues increased 55% to $478.3 million from $308.9 million for those same periods. As measured in euros, revenues in the first six months of the current year increased 69% as compared to the prior year. Asia/Pacific revenues increased 6% to $106.6 million in the six months ended April 30, 2006 compared to $100.8 million in the comparable period of the prior year. As measured in Australian dollars, revenues increased 11% over the comparable period of the prior year.

In the Americas, revenues in our men’s category increased 8% to $183.8 million from $170.4 million in the comparable period of the prior year, while revenues in our women’s category decreased 1% to $183.9 million from $186.4 million. Revenues from our wintersports and golf brands totaled $101.0 million in the current year’s six-month period as compared to revenues of $1.7 million in the comparable period of the prior year. The increase in the Americas men’s revenues came primarily from an increase in the DC brand and to a lesser extent from the Quiksilver brand. The decrease in the Americas women’s revenues came primarily from growth in Roxy, which was more than offset by a decrease in revenue due to the discontinuation of our private label swimwear product line. The increase in wintersports and golf equipment revenue came primarily from the newly acquired Rossignol and Cleveland Golf businesses. In Europe and as reported in dollars, men’s revenues decreased 2% to $207.8 million from $212.1 million, while women’s revenues increased 14% to $110.1 million from $96.7 million. Our European wintersports and golf equipment revenue of $160.5 million came from our newly acquired Rossignol and Cleveland Golf businesses. The European men’s decrease was primarily due to growth in the Quiksilver and DC brands which were more than offset by the negative effects of changes in foreign currency exchange rates. As measured in euros, European men’s revenue increased 7%. The women’s increase reflects growth in the Roxy brand partially offset by the negative effects of changes in foreign currency exchange rates. As measured in euros, women’s revenues increased 24%. In Asia/Pacific, the increase in revenues came primarily from the newly acquired Rossignol and Cleveland Golf businesses, partially offset by decreases in our other brand revenue in Australia and to a lesser extent, decreases caused by the negative effects of changes in foreign currency exchange rates.

Our consolidated gross profit margin for the six months ended April 30, 2006 increased to 45.7% from 45.0% in the comparable period of the prior year. The Americas’ gross profit margin increased to 40.6% from 38.8%, while the European gross profit margin increased to 50.9% from 50.6%, and the Asia/Pacific gross profit margin decreased to 44.9% from 49.4% for those same periods. The increase in the Americas’ gross profit margin was primarily due to improved margins on our DC and Quiksilver brands, and a higher percentage of sales through company owned retail stores where we earn both the wholesale and retail margins, partially offset by higher sales from our wintersports and golf equipment businesses, which operate at a lower gross margin than our other businesses. Our European gross profit margin increase was primarily due to a higher percentage of our sales through company owned retail stores partially offset by sales from our newly acquired wintersports and golf equipment businesses. In Asia/Pacific, the gross profit margin decrease was primarily due to sales from our lower margin wintersports and golf equipment businesses and lower margins on our other brands, partially offset by a higher percentage of sales through company-owned retail stores.

SG&A for the six months ended April 30, 2006 increased 59% to $427.1 million from $268.8 million in the comparable period of the prior year. Americas’ SG&A increased 55% to $165.3 million from $107.0 million in the comparable period of the prior year, European SG&A increased 74% to $187.6 million from $107.5 million, and Asia/Pacific SG&A increased 31% to $47.2 million from $36.1 million for those same periods. As a percentage of revenues, SG&A increased to 40.4% for the six months ended April 30, 2006 from 34.9% for the six months ended April 30, 2005.

The consolidated increase in SG&A as a percentage of revenue was primarily due to increased SG&A expenses from our newly acquired wintersports equipment business. Our wintersports equipment

business has a seasonally low shipping period during the three months ended April 30, 2006, causing the ratio of SG&A to revenue to be negatively impacted. The consolidated increase in SG&A as a percentage of revenue also increased due to $11.3 million in stock based compensation recorded in the current period as a result of adopting SFAS No. 123(R) on November 1, 2005 and the cost of additional retail stores.

Interest expense for the six months ended April 30, 2006 increased to $24.5 million from $5.1 million in the comparable period of the prior year. This increase was primarily due to debt incurred and assumed in connection with the acquisition of Rossignol.

Our foreign currency gain amounted to $1.0 million for the six months ended April 30, 2006 compared to a loss of $0.2 million in the comparable period of the prior year. This gain and loss resulted primarily from the foreign currency contracts we used to hedge the risk of translating the results of our international subsidiaries into U.S. dollars.

The effective income tax rate for the six months ended April 30, 2006 decreased to 30.1% from 32.2% in the comparable period of the prior year. This improvement resulted primarily because a higher percentage of our 2006 profits are expected to be generated in countries with lower tax rates and from foreign tax credits.

Net income for the six months ended April 30, 2006 was $22.3 million or $0.18 per share on a diluted basis, compared to $48.9 million, or $0.40 per share on a diluted basis, in the comparable period of the prior year. Basic net income per share was $0.18 per share for the six months ended April 30, 2006 from $0.41 per share in the comparable period of the prior year. EBITDA increased 6% to $99.2 million from $93.8 million for those same periods.

Financial Position, Capital Resources and Liquidity

We generally finance our working capital needs and capital investments with operating cash flows and bank revolving lines of credit. Multiple banks in the United States, Europe and Australia make these lines of credit available to us. Term loans are also used to supplement these lines of credit and are typically used to finance long-term assets. In fiscal 2005, we issued $400 million of senior notes to fund a portion of the Rossignol purchase price and to refinance certain existing indebtedness.

The net increase in cash and cash equivalents for the six months ended April 30, 2006 was $21.2 million compared to $12.8 million in the comparable period of the prior year. Cash and cash equivalents totaled $96.8 million at April 30, 2006 compared to $75.6 million at October 31, 2005, while working capital was $512.2 million at April 30, 2006 compared to $458.9 million at October 31, 2005. We believe our current cash balance and current lines of credit are adequate to cover our seasonal working capital and other requirements for the foreseeable future, and that increases in our lines of credit can be obtained as needed to fund future growth.

Cash Flows

We generated $114.1 million of cash from operating activities in the six months ended April 30, 2006 compared to $3.9 million for the comparable period of the prior year. This $110.2 million increase in cash provided was primarily due to changes in accounts receivable, inventories and accounts payable. During the six months ended April 30, 2006, the decrease in accounts receivable provided cash of $128.6 million compared to cash used of $63.0 million during the six months ended April 30, 2005, an increase in cash provided of $191.6 million. The change in inventories, net of the change in accounts payable, used cash of $22.5 million during the six months ended April 30, 2006 compared to cash provided of $7.8 million for the same period of the prior year, a net decrease in cash provided of $30.3 million. An additional $51.1 million was used during the six months ended April 30, 2006 compared to the comparable period of the prior year primarily due to changes in other operating assets and liabilities.

Capital expenditures totaled $42.7 million for the six months ended April 30, 2006, compared to $24.7 million in the comparable period of the prior year. These investments include company-owned retail stores and ongoing investments in manufacturing, computer and warehouse equipment. We used $28.4 million of cash for acquisitions, of which $5.8 million relates to a payment to the former owners of our

Asia/Pacific business, $5.0 million relates to a payment to the former owners of DC Shoes, Inc., and the remaining $17.6 million relates primarily to acquisitions of certain other licensees, distributors and retail store locations.

During the six months ended April 30, 2006, net cash used in financing activities totaled $23.5 million, compared to $114.2 million provided by financing activities in the comparable period of the prior year. Borrowings decreased as we generated increased cash from our operating activities.

Trade Accounts Receivable and Inventories

Our trade accounts receivable decreased 19% to $483.0 million at April 30, 2006 from $599.5 million at October 31, 2005. Accounts receivable in the Americas decreased 21% to $216.3 million at April 30, 2006 from $273.0 million at October 31, 2005, while European accounts receivable decreased 15% to $223.8 million from $263.8 million, and Asia/Pacific accounts receivable decreased 32% to $42.9 million from $62.7 million for those same periods. Our April 30, 2006 balance sheet includes $123.0 million of accounts receivable from our newly acquired Rossignol and Cleveland Golf businesses. Accounts receivable related to our other businesses compared to April 30, 2005, increased 8% in the Americas, 6% in Europe and decreased 9% in Asia/Pacific. The increase in Americas accounts receivable from our other businesses primarily relates to the timing of collections from our customers. The increase in accounts receivable in our European segment from our other businesses primarily relates to higher revenues and the timing of shipments. The decrease in Asia/Pacific accounts receivable from our other businesses primarily relates to decreased sales in Australia. Included in accounts receivable are approximately $39.0 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 deducted from accounts receivable to accurately compute days sales outstanding. Overall average days sales outstanding increased by approximately 10 days at April 30, 2006 compared to April 30, 2005. Of this increase, seven days related to our newly acquired wintersports and golf equipment businesses, and the remaining three days related to the timing of collections from our customers in our other businesses in the Americas.

Consolidated inventories increased 4% to $402.0 million at April 30, 2006 from $386.4 million at October 31, 2005. Inventories in the Americas decreased 4% to $157.5 million from $164.4 million at October 31, 2005, while European inventories increased 10% to $194.6 million from $176.9 million, and Asia/Pacific inventories increased 11% to $49.9 million from $45.1 million for those same periods. Our April 30, 2006 inventory balance includes $191.0 million in inventories from our newly acquired Rossignol and Cleveland Golf businesses. Inventories related to our other businesses remained consistent in the Americas compared to April 30, 2005, while inventories in Europe increased 29%, and inventories in Asia/Pacific increased 74% for that same period. The increase in our European and Asia/Pacific inventories primarily relates to the increase in inventories due to additional retail locations, acquired licensees and distributors and increased inventory in Japan to support growth. Consolidated average annual inventory turnover was approximately 3.1 at April 30, 2006 compared to approximately 4.1 at April 30, 2005. Excluding the effect of the Rossignol and Cleveland Golf inventories, average inventory turnover was 3.9 at April 30, 2006.

Commitments

We paid $5.8 million related to the achievement of certain sales and earnings targets to the former owners of our Asia/Pacific business during the six months ended April 30, 2006. This amount represents the final payment related to this acquisition. In addition, we paid $5.0 million related to the achievement of certain sales and earnings targets to the former owners of DC Shoes, Inc.

In connection with the acquisition of Rossignol, we have formulated the Rossignol Integration Plan (the “Plan”). The Plan covers the global operations of Rossignol and our existing businesses, and it includes the evaluation of facility relocations, nonstrategic business activities, redundant functions and other related items. We have not finalized the Plan, but as of April 30, 2006 we had recognized $29.1 million of liabilities related to the Plan, including employee relocation and severance costs, moving costs, and other costs related primarily to the consolidation of Rossignol’s administrative headquarters in Europe and the relocation of our wintersports equipment sales and distribution operations in the United States. As of April 30, 2006, we have paid approximately $2.3 million related to these integration activities. Costs that are not associated with Rossignol but relate to activities or employees of our existing operations will be charged to earnings as incurred. Certain facilities owned by Rossignol are expected to be sold in

connection with the Plan, while others are anticipated to be refinanced through sale-leaseback arrangements. Assets currently held for sale, primarily in the United States and France, totaled approximately $18.9 million at April 30, 2006. The Plan has not been finalized as it relates to facilities outside of the United States, and our estimates of expected costs related to the U.S. aspects of the Plan may change. Accordingly, as uncertainties related to the Plan are resolved, additional liabilities related to facility relocations, the elimination of nonstrategic business activities and redundant functions, and other related costs could be recognized. These uncertainties are expected to be resolved within one year of the consummation date of the acquisition, and when determined, additional liabilities could be significant and would be recorded as adjustments to goodwill. If we have overestimated these costs, the excess will reduce goodwill in future periods. Conversely, if we have underestimated these costs, additional liabilities recognized more than one year after the consummation date of the acquisition will be recorded in earnings.

Critical Accounting Policies

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

Revenue Recognition

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

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.

Stock-Based Compensation Expense

Effective November 1, 2005, we adopted the fair value recognition provisions of SFAS 123(R), using the modified prospective transition method, and therefore have not restated prior periods’ results. Under this method we recognize compensation expense for all stock-based payments granted after November 1, 2005 and prior to but not yet vested as of November 1, 2005, in accordance with SFAS 123(R). Under the fair value recognition provisions of SFAS 123(R), we recognize stock-based compensation net of an estimated forfeiture rate and only recognize compensation cost for those shares expected to vest using the graded vested method over the requisite service period of the award. Prior to SFAS 123(R) adoption, we accounted for stock-based payments under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and accordingly, we were not required to recognize compensation expense for options granted that had an exercise price equal to the market value of the underlying common stock on the date of grant.

Determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the input of highly subjective assumptions, including the expected life of the stock-based payment awards and stock price volatility. We use the Black-Scholes option-pricing model to value compensation expense. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but the estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. See Note 3 to the Consolidated Condensed Financial Statements for a further discussion on stock-based compensation.

Forward-Looking Statements

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

•		our ability to achieve the financial results that we anticipate, or have experienced in the past;

•		our ability to fully realize the benefits we anticipate from our acquisition of Rossignol;

•		the impact of our substantial leverage on our ability to generate cash flows or obtain financing to fund our anticipated growth strategies and the cost of such financing;

•		our plans to expand internationally;

•		our intention to introduce new products and enter into new joint ventures;

•		our plans to open new retail stores;

•		payments due on contractual commitments;

•		future expenditures for capital projects;

•		our ability to continue to maintain our brand image and reputation;

•		our ability to remain compliant with our debt covenants;

•		integration of acquired businesses and future acquisitions;

•		general economic and business conditions;

•		foreign exchange rate fluctuations; and

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

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency

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 period to period. 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 because it takes more profits in euros to generate the same amount of profits in stronger U.S. dollars. In addition, the statements of income of Quiksilver Asia/Pacific are translated from Australian dollars and Japanese yen into U.S. dollars, and there is a negative effect on our reported results for Quiksilver Asia/Pacific when the U.S. dollar is stronger in comparison to Australian dollar or Japanese yen.

European revenues increased 69% in euros during the six months ended April 30, 2006 compared to the six months ended April 30, 2005. As measured in U.S. dollars and reported in our consolidated statements of income, European revenues increased 55% as a result of a stronger U.S. dollar versus the euro in comparison to the prior year.

Asia/Pacific revenues increased 11% in Australian dollars during the six months ended April 30, 2006 compared to the six months ended April 30, 2005. As measured in U.S. dollars and reported in our consolidated statements of income, Asia/Pacific revenues increased 6% as a result of a stronger U.S. dollar versus the Australian dollar in comparison to the prior year.

Our foreign currency and interest rate risks are discussed in our Annual Report on Form 10-K for the year ended October 31, 2005 in Item 7A.

Item 4. Controls and Procedures

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

We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of April 30, 2006, 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 April 30, 2006.

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 April 30, 2006 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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


	Three months ended April 30,
In thousands, except per share amounts	2006			2005
Revenues, net	$	516,928		$	426,853
Cost of goods sold		282,438			233,488

Gross profit		234,490			193,365

Selling, general and administrative expense		215,838			139,314

Operating income		18,652			54,051

Interest expense		11,949			3,269
Foreign currency gain		(496	)		(288	)
Minority interest and other expense		1,637			(61	)

Income before provision for income taxes		5,562			51,131

Provision for income taxes		1,833			16,464

Net income	$	3,729		$	34,667


Net income per share	$	0.03		$	0.29

Net income per share, assuming dilution	$	0.03		$	0.28


Weighted average common shares outstanding		122,018			118,169

Weighted average common shares outstanding, assuming dilution		127,790			123,791


	Six months ended April 30,
In thousands	2006			2005
Net income	$	22,332		$	48,881
Other comprehensive income (loss):
Foreign currency translation adjustment		26,329			7,340
Net unrealized (loss) income on derivative instruments, net of tax of $(2,255) (2006), $1,516 (2005)		(4,569	)		2,375

Comprehensive income	$	44,092		$	58,596


	Three Months Ended April 30,
In thousands	2006			2005
Revenues, net:
Americas	$	250,042		$	199,192
Europe		217,149			176,272
Asia/Pacific		48,247			50,331
Corporate operations		1,490			1,058

	$	516,928		$	426,853


Gross Profit:
Americas	$	103,166		$	76,697
Europe		108,512			90,595
Asia/Pacific		22,045			25,541
Corporate operations		767			532

	$	234,490		$	193,365


Operating Income:
Americas	$	21,657		$	23,425
Europe		12,350			33,704
Asia/Pacific		(2,289	)		6,340
Corporate operations		(13,066	)		(9,418	)

	$	18,652		$	54,051


	Six Months Ended April 30,
In thousands	2006			2005
Revenues, net:
Americas	$	470,760		$	358,466
Europe		478,301			308,862
Asia/Pacific		106,589			100,781
Corporate operations		2,420			1,604

	$	1,058,070		$	769,713


Gross profit:
Americas	$	190,948		$	139,121
Europe		243,220			156,223
Asia/Pacific		47,857			49,823
Corporate operations		1,026			1,104

	$	483,051		$	346,271


Operating income:
Americas	$	25,620		$	32,116
Europe		55,603			48,681
Asia/Pacific		679			13,695
Corporate operations		(25,994	)		(17,018	)

	$	55,908		$	77,474


Identifiable assets:
Americas	$	735,377		$	456,947
Europe		1,043,136			470,273
Asia/Pacific		296,482			142,650
Corporate operations		57,420			96,046

	$	2,132,415		$	1,165,916

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


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


Large Accelerated Filer þ		Accelerated Filer o		Non-Accelerated Filer o


	Page No.
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets April 30, 2006 and October 31, 2005		2

Condensed Consolidated Statements of Income Three Months Ended April 30, 2006 and 2005		3

Condensed Consolidated Statements of Income Six Months Ended April 30, 2006 and 2005		4

Condensed Consolidated Statements of Comprehensive Income Six Months Ended April 30, 2006 and 2005		4

Condensed Consolidated Statements of Cash Flows Six Months Ended April 30, 2006 and 2005		5

Notes to Condensed Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations		23

Three Months Ended April 30, 2006 Compared to Three Months Ended April 30, 2005		24

Six Months Ended April 30, 2006 Compared to Six Months Ended April 30, 2005		26

Financial Position, Capital Resources and Liquidity		27

Critical Accounting Policies		29

New Accounting Pronouncements		31

Forward-Looking Statements		32

Item 3. Quantitative and Qualitative Disclosures about Market Risk		33

Item 4. Controls and Procedures		33

Part II — OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders		34

Item 6. Exhibits		35

SIGNATURES		36
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32 1
EXHIBIT 32.2

6.		Accumulated Other Comprehensive Income

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

7.		Segment Information

		Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Company’s management in deciding how to allocate resources and in assessing performance. The Company operates in the outdoor market of the sporting goods industry in which the Company designs, produces and distributes clothing, winter sports and golf equipment, footwear, accessories and related products. The Company operates in three segments, the Americas, Europe and Asia/Pacific. Costs that support all three operating segments, including trademark protection, trademark maintenance and licensing functions are part of corporate operations. Corporate operations also includes sourcing income and gross profit earned from the Company’s licensees. The Company’s largest customer accounted for approximately 4% of the Company’s net revenues for the six months ended April 30, 2006.


				Wholly-owned			Non-
	Quiksilver,			Guarantor			Guarantor
In thousands	Inc.			Subsidiaries			Subsidiaries			Elimination			Consolidated
Revenues, net	$	197		$	390,924		$	702,119		$	(35,170	)	$	1,058,070
Cost of goods sold		—			238,653			360,093			(23,727	)		575,019

Gross profit		197			152,271			342,026			(11,443	)		483,051

Selling, general and administrative expense		24,871			131,190			282,440			(11,358	)		427,143

Operating (loss) income		(24,674	)		21,081			59,586			(85	)		55,908
Interest expense		18,515			2,023			4,002			—			24,540
Foreign currency loss (gain)		(683	)		(8	)		(302	)		—			(993	)
Minority interest and other expense		112			—			299			—			411

(Loss) income before provision for income taxes		(42,618	)		19,066			55,587			(85	)		31,950
Provision for income taxes		(12,828	)		5,739			16,707			—			9,618

Net (loss) income	$	(29,790	)	$	13,327		$	38,880		$	(85	)	$	22,332


	Votes For		Votes Withheld
Douglas K. Ammerman		107,791,308		3,906,957
William M. Barnum, Jr.		108,312,071		3,386,194
Laurent Boix-Vives		104,475,875		7,222,390
Charles E. Crowe		107,119,612		4,578,653
Charles S. Exon		107,112,101		4,586,164
Michael H. Gray		108,315,838		3,382,427
Timothy M. Harmon		109,791,864		1,906,401
Bernard Mariette		107,115,445		4,582,820
Robert B. McKnight, Jr.		108,775,389		2,922,876
Franck Riboud		81,152,219		30,546,046


	Votes		Votes		Votes		Broker
	For		Against		Abstained		Non-Votes
Amendment of the Quiksilver, Inc. 2000 Stock Incentive Plan		85,132,198		9,467,546		58,428		17,040,093
Approval of the Quiksilver, Inc. 2006 Restricted Stock Plan		61,489,011		33,049,981		64,403		17,094,670

	10.1		Quiksilver, Inc. 2000 Stock Incentive Plan, as amended and restated on March 24, 2006 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on March 28, 2006).

	10.2		Quiksilver, Inc. 2006 Restricted Stock Plan (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on March 28, 2006).

	31.1		Rule 13a-14(a)/15d-14(a) Certifications – Principal Executive Officer

	31.2		Rule 13a-14(a)/15d-14(a) Certifications – Principal Financial Officer

	32.1		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2003 – Chief Executive Officer

	32.2		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2003 – Chief Financial Officer


		QUIKSILVER, INC., a Delaware corporation

June 9, 2006		/s/ Steven L. Brink


		Steven L. Brink
		Chief Financial Officer and Treasurer
		(Principal Accounting Officer)

	Exhibit		Description
	10.1		Quiksilver, Inc. 2000 Stock Incentive Plan, as amended and restated on March 24, 2006 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on March 28, 2006).

	10.2		Quiksilver, Inc. 2006 Restricted Stock Plan (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on March 28, 2006).

	31.1		Rule 13a-14(a)/15d-14(a) Certifications — Principal Executive Officer

	31.2		Rule 13a-14(a)/15d-14(a) Certifications — Principal Financial Officer

	32.1		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2003 — Chief Executive Officer

	32.2		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2003 — Chief Financial Officer


Date: June 9, 2006		/s/ Robert B. McKnight, Jr.
		Robert B. McKnight, Jr.
		Chief Executive Officer (Principal Executive Officer)


/s/ Robert B. McKnight, Jr.
Robert B. McKnight, Jr.
Chief Executive Officer
June 9, 2006


/s/ Steven L. Brink
Steven L. Brink
Chief Financial Officer
June 9, 2006