e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended April 30, 2007


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

Commission file number 1-14229

QUIKSILVER, INC.

(Exact name of registrant as specified in its charter)


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

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

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

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

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

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

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

The number of shares outstanding of Registrant’s Common Stock,
par value $0.01 per share, at
June 4, 2007 was 124,493,814

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

QUIKSILVER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended April 30,
In thousands, except per share amounts	2007			2006

Revenues, net	$	603,799		$	516,928
Cost of goods sold		332,936			282,438

Gross profit		270,863			234,490

Selling, general and administrative expense		262,082			215,838

Operating income		8,781			18,652

Interest expense		14,789			11,949
Foreign currency loss (gain)		1,473			(496	)
Minority interest and other expense		(457	)		1,637

(Loss) income before (benefit) provision for income taxes		(7,024	)		5,562

(Benefit) provision for income taxes		(2,224	)		1,833

Net (loss) income	$	(4,800	)	$	3,729


Net (loss) income per share	$	(0.04	)	$	0.03

Net (loss) income per share, assuming dilution	$	(0.04	)	$	0.03


Weighted average common shares outstanding —		123,596			122,018

Weighted average common shares outstanding, assuming dilution		123,596			127,790

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three months ended April 30,
In thousands	2007			2006

Net (loss) income	$	(4,800	)	$	3,729
Other comprehensive income (loss):
Foreign currency translation adjustment		48,293			26,258
Net unrealized loss on derivative instruments, net of tax of $(4,971) (2007), $(1,894) (2006)		(10,175	)		(3,883	)

Comprehensive income	$	33,318		$	26,104

See notes to condensed consolidated financial statements.

QUIKSILVER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Six months ended April 30,
In thousands, except per share amounts	2007			2006

Revenues, net	$	1,156,323		$	1,058,070
Cost of goods sold		627,109			575,019

Gross profit		529,214			483,051

Selling, general and administrative expense		501,301			427,143

Operating income		27,913			55,908

Interest expense		30,343			24,540
Foreign currency loss (gain)		3,416			(993	)
Minority interest and other expense		(2,148	)		411

(Loss) income before (benefit) provision for income taxes		(3,698	)		31,950

(Benefit) provision for income taxes		(1,373	)		9,618

Net (loss) income	$	(2,325	)	$	22,332


Net (loss) income per share	$	(0.02	)	$	0.18

Net (loss) income per share, assuming dilution	$	(0.02	)	$	0.18


Weighted average common shares outstanding		123,323			121,721

Weighted average common shares outstanding, assuming dilution		123,323			127,479

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Six months ended April 30,
In thousands	2007			2006

Net (loss) income	$	(2,325	)	$	22,332
Other comprehensive income (loss):
Foreign currency translation adjustment		56,824			26,329
Net unrealized loss on derivative instruments, net of tax of $(5,510) (2007), $(2,255) (2006)		(11,291	)		(4,569	)

Comprehensive income	$	43,208		$	44,092

See notes to condensed consolidated financial statements.

QUIKSILVER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	April 30,			October 31,
In thousands, except share amounts	2007			2006

ASSETS
Current assets:
Cash and cash equivalents	$	64,455		$	36,834
Trade accounts receivable, less allowances of $34,339 (2007) and $32,840 (2006)		603,650			721,562
Other receivables		42,885			35,324
Inventories		463,313			425,864
Deferred income taxes		93,281			84,672
Prepaid expenses and other current assets		34,459			28,926

Total current assets		1,302,043			1,333,182

Fixed assets, less accumulated depreciation and amortization of $203,595 (2007) and $176,647 (2006)		313,756			282,334
Intangible assets, net		255,529			248,206
Goodwill		547,377			515,710
Other assets		42,741			45,954
Assets held for sale		19,494			21,842

Total assets	$	2,480,940		$	2,447,228


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Lines of credit	$	268,500		$	315,891
Accounts payable		226,728			220,177
Accrued liabilities		163,980			201,087
Current portion of long-term debt		26,108			24,621
Income taxes payable		748			2,810

Total current liabilities		686,064			764,586

Long-term debt, net of current portion		745,857			689,690
Deferred income taxes and other long-term liabilities		98,463			100,632


Total liabilities		1,530,384			1,554,908


Minority interest		10,072			11,193

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 — 127,352,347 (2007) and 126,401,836 (2006)		1,274			1,264
Additional paid-in capital		290,627			274,488
Treasury stock, 2,885,200 shares		(6,778	)		(6,778	)
Retained earnings		556,734			559,059
Accumulated other comprehensive income		98,627			53,094

Total stockholders’ equity		940,484			881,127

Total liabilities and stockholders’ equity	$	2,480,940		$	2,447,228

See notes to condensed consolidated financial statements.

QUIKSILVER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six months ended April 30,
In thousands	2007			2006

Cash flows from operating activities:
Net (loss) income	$	(2,325	)	$	22,332
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		34,116			31,352
Stock-based compensation		9,147			11,324
Provision for doubtful accounts		4,540			3,210
Gain on disposal of fixed assets		(514	)		(19	)
Foreign currency loss (gain)		903			(256	)
Minority interest and equity in earnings		(1,723	)		911
Changes in operating assets and liabilities, net of the effect from business acquisitions:
Trade accounts receivable		141,389			128,592
Other receivables		(5,787	)		1,003
Inventories		(17,056	)		(2,044	)
Prepaid expenses and other current assets		(4,693	)		(2,561	)
Other assets		4,333			(3,377	)
Accounts payable		(3,196	)		(20,494	)
Accrued liabilities and other long-term liabilities		(41,446	)		(34,701	)
Income taxes payable		(1,573	)		(21,129	)

Net cash provided by operating activities		116,115			114,143


Cash flows from investing activities:
Proceeds from the sale of properties and equipment		10,471			—
Capital expenditures		(53,544	)		(42,736	)
Business acquisitions, net of cash acquired		(34,138	)		(28,447	)

Net cash used in investing activities		(77,211	)		(71,183	)


Cash flows from financing activities:
Borrowings on lines of credit		45,258			137,932
Payments on lines of credit		(105,164	)		(174,759	)
Borrowings on long-term debt		104,262			116,014
Payments on long-term debt		(59,735	)		(107,367	)
Stock option exercises, employee stock purchases and tax benefit on option exercises		7,000			4,666

Net cash used in financing activities		(8,379	)		(23,514	)


Effect of exchange rate changes on cash		(2,904	)		1,774

Net increase in cash and cash equivalents		27,621			21,220
Cash and cash equivalents, beginning of period		36,834			75,598

Cash and cash equivalents, end of period	$	64,455		$	96,818


Supplementary cash flow information:
Cash paid (received) during the period for:
Interest	$	31,120		$	23,712

Income taxes	$	(1,926	)	$	32,859

See notes to condensed consolidated financial statements.

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2007 and 2006. 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, 2006 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.

		For the three and six months ended April 30, 2007, the potential dilutive effect of common stock equivalents was not included in the weighted average shares for the computation of diluted earnings per share, as the effect was antidilutive.

2.		New Accounting Pronouncements

		In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections,” (“SFAS No. 154”) 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 adopted this standard during the six months ended April 30, 2007. The adoption of this standard did not have a material impact on the Company’s financial condition, results of operations or cash flows.

		In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”). This interpretation clarifies the application of SFAS No. 109, “Accounting for Income Taxes,” by defining criteria that an individual tax position must meet for any part of the benefit of that position to be recognized in the Company’s financial statements and also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company expects to adopt FIN 48 on November 1, 2007. The Company is currently assessing the impact the adoption of FIN 48 will have on its financial position and results of operations.

		In September 2006, the Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive guidance on the SEC’s views regarding the process of quantifying materiality of financial statement misstatements. The Company adopted this standard during the six months ended April 30, 2007. The adoption of this accounting pronouncement did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

		In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company expects to adopt this standard at the beginning of the Company’s fiscal year

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

		ending October 31, 2009. The adoption of this accounting pronouncement is not expected to have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

		In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” (“SFAS No. 159”), which permits companies to choose to measure certain financial instruments and other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company has not determined the effect that the adoption of SFAS No. 159 will have on its consolidated financial statements.

3.		Stock-Based Compensation

		The Company accounts for stock-based compensation under the fair value recognition provisions of SFAS No. 123(R) “Share-Based Payment”. The Company uses 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 six months ended April 30, 2007 and 2006, options were valued assuming a risk-free interest rate of 4.8% and 4.5%, respectively, volatility of 43.1% and 44.9%, respectively, zero dividend yield, and an expected life of 5.6 and 5.2 years, respectively. The weighted average fair value of options granted was $7.19 and $6.32 for the six months ended April 30, 2007 and 2006, 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, 2007, the Company had approximately $16.4 million of unrecognized compensation expense expected to be recognized over a weighted average period of approximately 2.2 years. Compensation expense was included as selling, general and administrative expense for the period.

		Changes in shares under option for the six months ended April 30, 2007 are as follows:


				Weighted		Weighted		Aggregate
Dollar amounts in thousands,				Average		Average		Intrinsic
except per share amounts	Shares			Price		Life		Value

Outstanding, October 31, 2006		18,135,699		$	8.61
Granted		1,212,051			15.25
Exercised		(960,511	)		5.88			$	8,517
Canceled		(182,852	)		12.92


Outstanding, April 30, 2007		18,204,387		$	9.15		6.1	$	83,054


Options exercisable, April 30, 2007		12,970,902		$	7.33		5.2	$	79,832

Changes in non-vested shares under option for the six months ended April 30, 2007 are as follows:


				Weighted-
				Average Grant
	Shares			Date Fair Value
Non-vested, October 31, 2006		6,958,526		$	6.29
Granted		1,212,051			7.19
Vested		(2,920,675	)		5.86
Canceled		(16,417	)		6.83


Non-vested, April 30, 2007		5,233,485		$	6.71

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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

		Changes in restricted stock for the six months ended April 30, 2007 are as follows:


	Shares
Outstanding, October 31, 2006		800,000
Granted		35,000
Vested		—
Forfeited		(45,000	)

Outstanding, April 30, 2007		790,000

		Compensation expense is determined using the intrinsic value method and forfeitures are estimated at the date of grant based on historical rates and reduce the compensation expense recognized. The Company monitors the probability of meeting the restricted stock performance criteria and will adjust the amortization period as appropriate. As of April 30, 2007, there had been no acceleration of the amortization period. During the six months ended April 30, 2007, the Company recognized approximately $0.5 million in related compensation expense. As of April 30, 2007, the Company had approximately $8.5 million of unrecognized compensation expense expected to be recognized over a weighted average period of approximately 2.3 years.

4.		Inventories

Inventories consist of the following:


	April 30,		October 31,
In thousands	2007		2006

Raw materials	$	79,111	$	40,951
Work in-process		15,615		12,991
Finished goods		368,587		371,922

	$	463,313	$	425,864

5.		Intangible Assets and Goodwill

		A summary of intangible assets is as follows:


	April 30, 2007							October 31, 2006
						Net							Net
	Gross		Amorti-			Book		Gross		Amorti-			Book
In thousands	Amount		zation			Value		Amount		zation			Value

Amortizable trademarks	$	9,540	$	(3,365	)	$	6,175	$	7,965	$	(2,659	)	$	5,306
Amortizable licenses		11,153		(4,926	)		6,227		10,332		(4,047	)		6,285
Other amortizable intangibles		27,439		(7,257	)		20,182		27,379		(5,484	)		21,895
Non-amortizable trademarks		222,945		—			222,945		214,720		—			214,720

	$	271,077	$	(15,548	)	$	255,529	$	260,396	$	(12,190	)	$	248,206

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, 2007 and 2006 was $2.9 million and $2.6 million, respectively. Annual amortization expense is estimated to be approximately $5.7 million in the fiscal year ending October 31, 2007, approximately $4.1 million in the fiscal years ending October 31, 2008 through

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2010 and approximately $3.9 million in the fiscal year ending October 31, 2011. Goodwill related to the Company’s operating segments is as follows:


	April 30,		October 31,
In thousands	2007		2006

Americas	$	132,048	$	132,674
Europe		277,972		255,558
Asia/Pacific		137,357		127,478

	$	547,377	$	515,710

		Goodwill increased $31.7 million during the six months ended April 30, 2007. Of this amount, approximately $8.9 million related to acquisitions of certain other distributors and retail store locations, and $22.8 million related to the effect of changes in foreign currency exchange rates.

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:


	April 30,			October 31,
In thousands	2007			2006

Foreign currency translation adjustment	$	111,865		$	55,041
Loss on cash flow hedges and interest rate swaps		(13,238	)		(1,947	)

	$	98,627		$	53,094

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, wintersports 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, 2007.

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Information related to the Company’s operating segments is as follows:


	Three Months Ended April 30,
In thousands	2007			2006

Revenues, net:
Americas	$	279,810		$	250,042
Europe		268,829			217,149
Asia/Pacific		53,957			48,247
Corporate operations		1,203			1,490

	$	603,799		$	516,928


Gross profit:
Americas	$	111,274		$	103,166
Europe		133,040			108,512
Asia/Pacific		25,501			22,045
Corporate operations		1,048			767

	$	270,863		$	234,490


Operating income:
Americas	$	11,911		$	21,657
Europe		14,088			12,350
Asia/Pacific		(2,401	)		(2,289	)
Corporate operations		(14,817	)		(13,066	)

	$	8,781		$	18,652


	Six Months Ended April 30,
In thousands	2007			2006

Revenues, net:
Americas	$	520,368		$	470,760
Europe		522,826			478,301
Asia/Pacific		111,152			106,589
Corporate operations		1,977			2,420

	$	1,156,323		$	1,058,070


Gross profit:
Americas	$	208,023		$	190,948
Europe		268,364			243,220
Asia/Pacific		51,269			47,857
Corporate operations		1,558			1,026

	$	529,214		$	483,051


Operating income:
Americas	$	9,950		$	25,620
Europe		47,822			55,603
Asia/Pacific		(3,022	)		679
Corporate operations		(26,837	)		(25,994	)

	$	27,913		$	55,908


Identifiable assets:
Americas	$	831,020		$	735,377
Europe		1,257,820			1,043,136
Asia/Pacific		337,020			296,482
Corporate operations		55,080			57,420

	$	2,480,940		$	2,132,415

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 loss of $0.3 million was recognized related to these types of derivatives during the six months ended April 30, 2007. 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, 2007, the Company was hedging forecasted transactions expected to occur through July 2009. Assuming exchange rates at April 30, 2007 remain constant, $13.2 million of losses, net of tax, related to hedges of these transactions are expected to be reclassified into earnings over the next 27 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, 2007, the Company reclassified into earnings a net loss of $2.0 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
(Unaudited)

A summary of derivative contracts at April 30, 2007 is as follows:


	Notional			Fair
In thousands	Amount		Maturity	Value

United States dollar	$	461,261	May 2007 – Jul 2009	$	(21,857	)
British pound		32,954	May 2007 – Oct 2007		1,173
Canadian dollar		1,791	Jul 2007		(32	)
Interest rate swap		22,529	Apr 2008 – Sep 2009		(3	)

	$	518,535		$	(20,719	)

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. 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 6.4%). 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 October 2009 and the Company can buy their interest at its option after April 2012, 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 accounted 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 by integrating Rossignol’s brands, products and operations with the Company’s, and is not expected to be deductible for income tax purposes. Amortizable 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
(Unaudited)

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		232,525
Other current assets		21,548
Fixed assets		109,438
Deferred income taxes		3,572
Other assets		3,296
Amortizing intangible assets		20,400
Trademarks		94,700
Goodwill		292,168

Total assets acquired		938,806

Other liabilities		218,300
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. As of April 30, 2007, the Company had recognized approximately $65.3 million of liabilities related to this plan. See Note 11 for further description of this 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 $1.1 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 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		21,393

Total assets acquired		29,921

Other liabilities		7,419

Net assets acquired	$	22,502

The Company paid cash of approximately $34.1 million for business acquisitions during the six months ended April 30, 2007, of which $20.2 relates to a payment to the former owners of DC

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

		Shoes, Inc. related to the achievement of certain sales and earnings targets, and the remaining $13.9 million relates primarily to acquisitions of certain other distributors and retail store locations.

10.		Litigation, Indemnities and Guarantees

		The Company has been named in a class action lawsuit that alleges willful violation of the federal Fair and Accurate Credit Transaction Act based upon certain of the Company’s retail stores’ alleged electronic printing of receipts on which appeared more than the last five digits of customers’ credit or debit card number and/or the expiration date of such customers’ credit or debit card. The Company is currently unable to assess the extent of damages, if any, that could be awarded to the plaintiff class if it were to prevail. The Company intends to vigorously defend itself against the claims asserted. No provision has been made in the Company’s financial statements for the six months ended April 30, 2007.

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

		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. As of April 30, 2007 the Company had recognized approximately $65.3 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, the consolidation of Rossignol’s European distribution, the consolidation and realignment of certain European manufacturing facilities, 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 SFAS No. 141, “Business Combinations” and Emerging Issues Task Force (“EITF”) Issue No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination”. As of April 30, 2007, the Company also recognized approximately $1.4 million in inventory impairments relating to the realignment of its European manufacturing facilities. Costs that are not associated with the acquired company but relate to activities or employees of the Company’s existing operations are not significant and are charged to earnings. Certain land and facilities owned by the acquired company are expected to be sold during the next 12 months in connection with the Plan, while others are anticipated to be refinanced through sale-leaseback arrangements. Assets currently held for sale, primarily in France, totaled approximately $19.5 million at April 30, 2007. If the Company has overestimated these integration costs, the excess will reduce goodwill in future periods. If the Company has

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

		underestimated these integration costs, additional liabilities recognized will be recorded in earnings.

		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		36,733			5,130			41,863
Cash payments		(14,974	)		(2,555	)		(17,529	)
Foreign currency translation		2,689			90			2,779

Balance, October 31, 2006		45,484			4,941			50,425

Cash payments		(10,736	)		(2,347	)		(13,083	)
Foreign currency translation		2,904			521			3,425

Balance, April 30, 2007	$	37,652		$	3,115		$	40,767

		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, 2006	$	1,587
Cash payments		(346	)
Foreign currency translation		101

Balance, April 30, 2007	$	1,342

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 domestic subsidiaries. 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, 2007 and October 31, 2006 and for the six months ended April 30, 2007 and 2006. 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 the Company’s consolidated financial statements for the fiscal year ending October 31, 2007, 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
(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF INCOME
Six Months Ended April 30, 2007


				Wholly-owned						Non-
	Quiksilver,			Guarantor			Cleveland			Guarantor
In thousands	Inc.			Subsidiaries			Golf			Subsidiaries			Elimination			Consolidated
Revenues, net	$	21		$	411,780		$	62,336		$	715,600		$	(33,414	)	$	1,156,323
Cost of goods sold		—			246,923			41,405			358,250			(19,469	)		627,109

Gross profit		21			164,857			20,931			357,350			(13,945	)		529,214

Selling, general and administrative expense		25,702			157,189			28,613			303,152			(13,355	)		501,301

Operating (loss) income		(25,681	)		7,668			(7,682	)		54,198			(590	)		27,913
Interest expense		20,967			3,046			1,553			4,777			—			30,343
Foreign currency loss		1,006			209			—			2,201			—			3,416
Minority interest and other expense		(2,106	)		(10	)		—			(32	)		—			(2,148	)

(Loss) income before (benefit) provision for income taxes		(45,548	)		4,423			(9,235	)		47,252			(590	)		(3,698	)
(Benefit) provision for income taxes		(16,903	)		1,641			(3,427	)		17,316			—			(1,373	)

Net (loss) income	$	(28,645	)	$	2,782		$	(5,808	)	$	29,936		$	(590	)	$	(2,325	)

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Six Months Ended April 30, 2006


				Wholly-owned						Non-
	Quiksilver,			Guarantor			Cleveland			Guarantor
In thousands	Inc.			Subsidiaries			Golf			Subsidiaries			Elimination			Consolidated
Revenues, net	$	197		$	390,924		$	70,355		$	631,764		$	(35,170	)	$	1,058,070
Cost of goods sold		—			238,653			38,100			321,993			(23,727	)		575,019

Gross profit		197			152,271			32,255			309,771			(11,443	)		483,051

Selling, general and administrative expense		24,871			131,190			30,356			252,084			(11,358	)		427,143

Operating (loss) income		(24,674	)		21,081			1,899			57,687			(85	)		55,908
Interest expense		18,515			2,023			1,608			2,394			—			24,540
Foreign currency gain		(683	)		(8	)		(203	)		(99	)		—			(993	)
Minority interest and other expense		112			—			—			299			—			411

(Loss) income before (benefit) provision for income taxes		(42,618	)		19,066			494			55,093			(85	)		31,950
(Benefit) provision for income taxes		(12,828	)		5,739			149			16,558			—			9,618

Net (loss) income	$	(29,790	)	$	13,327		$	345		$	38,535		$	(85	)	$	22,332

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEET

At April 30, 2007


				Wholly-owned						Non-
	Quiksilver,			Guarantor			Cleveland			Guarantor
In thousands	Inc.			Subsidiaries			Golf			Subsidiaries			Elimination			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	(581	)	$	1,450		$	1,528		$	62,058		$	—		$	64,455
Trade accounts receivable, net		—			173,627			45,647			384,376			—			603,650
Other receivables		897			12,353			371			29,264			—			42,885
Inventories		—			140,430			32,732			292,376			(2,225	)		463,313
Deferred income taxes		—			20,356			2,349			70,576			—			93,281
Prepaid expenses and other current assets		1,591			10,550			1,167			21,151			—			34,459

Total current assets		1,907			358,766			83,794			859,801			(2,225	)		1,302,043

Fixed assets, net		6,750			86,958			3,445			216,603			—			313,756
Intangible assets, net		2,553			81,820			2,998			168,158			—			255,529
Goodwill		—			163,352			2,472			381,553			—			547,377
Investment in subsidiaries		561,992			—			—			—			(561,992	)		—
Other assets		10,542			15,811			304			16,084			—			42,741
Assets held for sale		—			—			—			19,494			—			19,494

Total assets	$	583,744		$	706,707		$	93,013		$	1,661,693		$	(564,217	)	$	2,480,940


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Lines of credit	$	—		$	—		$	—		$	268,500		$	—		$	268,500
Accounts payable		1,243			49,296			14,068			162,121			—			226,728
Accrued liabilities		14,112			18,189			5,519			126,160			—			163,980
Current portion of long-term debt		—			3,690			—			22,418			—			26,108
Income taxes payable		—			(12,432	)		(2,572	)		15,752			—			748
Intercompany balances		90,930			20,946			49,772			(161,648	)		—			—

Total current liabilities		106,285			79,689			66,787			433,303			—			686,064

Long-term debt, net of current portion		436,161			179,750			—			129,946			—			745,857
Deferred income taxes and other long-term liabilities		—			27,793			(353	)		71,023			—			98,463

Total liabilities		542,446			287,232			66,434			634,272			—			1,530,384

Minority interest		—			10,072			—			—			—			10,072
Stockholders’/invested equity		41,298			409,403			26,579			1,027,421			(564,217	)		940,484

Total liabilities and stockholders’ equity	$	583,744		$	706,707		$	93,013		$	1,661,693		$	(564,217	)	$	2,480,940

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEET

At October 31, 2006


			Wholly-owned					Non-
	Quiksilver,		Guarantor		Cleveland			Guarantor
In thousands	Inc.		Subsidiaries		Golf			Subsidiaries			Elimination			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	8	$	1,537	$	1,855		$	33,434		$	—		$	36,834
Trade accounts receivable, net		—		205,853		36,987			478,722			—			721,562
Other receivables		1,190		12,593		708			20,833			—			35,324
Inventories		—		144,740		27,122			255,636			(1,634	)		425,864
Deferred income taxes		—		14,459		2,349			67,864			—			84,672
Prepaid expenses and other current assets		1,703		9,968		1,953			15,302			—			28,926

Total current assets		2,901		389,150		70,974			871,791			(1,634	)		1,333,182

Fixed assets, net		6,343		83,495		3,801			188,695			—			282,334
Intangible assets, net		2,452		79,197		3,150			163,407			—			248,206
Goodwill		—		163,910		2,472			349,328			—			515,710
Investment in subsidiaries		561,992		—		—			—			(561,992	)		—
Other assets		10,909		4,730		274			30,041			—			45,954
Assets held for sale		—		3,500		—			18,342			—			21,842

Total assets	$	584,597	$	723,982	$	80,671		$	1,621,604		$	(563,626	)	$	2,447,228


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Lines of credit	$	—	$	209	$	—		$	315,682		$	—		$	315,891
Accounts payable		2,303		89,181		3,525			125,168			—			220,177
Accrued liabilities		13,535		43,691		6,085			137,805			(29	)		201,087
Current portion of long-term debt		—		4,305		—			20,316			—			24,621
Income taxes payable		—		14,277		1,343			(12,810	)		—			2,810
Intercompany balances		72,386		17,351		37,766			(127,503	)		—			—

Total current liabilities		88,224		169,014		48,719			458,658			(29	)		764,586

Long-term debt, net of current portion		433,701		122,150		—			133,839			—			689,690
Deferred income taxes and other long-term liabilities		—		25,773		(353	)		75,212			—			100,632

Total liabilities		521,925		316,937		48,366			667,709			(29	)		1,554,908

Minority interest		—		11,193		—			—			—			11,193
Stockholders’/invested equity		62,672		395,852		32,305			953,895			(563,597	)		881,127

Total liabilities and stockholders’ equity	$	584,597	$	723,982	$	80,671		$	1,621,604		$	(563,626	)	$	2,447,228

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Six Months Ended April 30, 2007


										Non-
	Quiksilver,			Guarantor			Cleveland			Guarantor
In thousands	Inc.			Subsidiaries			Golf			Subsidiaries			Consolidated
Cash flows from operating activities:
Net (loss) income	$	(28,645	)	$	2,782		$	(5,808	)	$	29,346		$	(2,325	)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		261			9,102			952			23,801			34,116
Stock-based compensation		9,147			—			—			—			9,147
Provision for doubtful accounts		—			1,412			828			2,300			4,540
Gain on disposal of fixed assets		—			—			—			(514	)		(514	)
Foreign currency loss		390			—			—			513			903
Minority interest and equity in earnings		—			(2,254	)		—			531			(1,723	)
Changes in operating assets and liabilities:
Trade accounts receivable		—			30,813			(9,488	)		120,064			141,389
Other receivables		293			240			338			(6,658	)		(5,787	)
Inventories		—			4,700			(5,610	)		(16,146	)		(17,056	)
Prepaid expenses and other current assets		112			(552	)		785			(5,038	)		(4,693	)
Other assets		367			1,991			(30	)		2,005			4,333
Accounts payable		(1,060	)		(40,056	)		10,543			27,377			(3,196	)
Accrued liabilities		1,007			(1,430	)		(566	)		(40,457	)		(41,446	)
Income taxes payable		—			(30,665	)		(3,915	)		33,007			(1,573	)

Net cash (used in) provided by operating activities		(18,128	)		(23,917	)		(11,971	)		170,131			116,115

Cash flows from investing activities:
Proceeds from the sale of properties and equipment		—			4,463			—			6,008			10,471
Capital expenditures		(770	)		(16,994	)		(444	)		(35,336	)		(53,544	)
Business acquisitions, net of cash acquired		(580	)		(20,206	)		—			(13,352	)		(34,138	)

Net cash used in investing activities		(1,350	)		(32,737	)		(444	)		(42,680	)		(77,211	)

Cash flows from financing activities:
Borrowings on lines of credit		—			—			4,000			41,258			45,258
Payments on lines of credit		—			(209	)		(4,000	)		(100,955	)		(105,164	)
Borrowings on long-term debt		—			96,500			—			7,762			104,262
Payments on long-term debt		—			(39,515	)		—			(20,220	)		(59,735	)
Stock option exercises, employee stock purchases and tax benefit on option exercises		7,000			—			—			—			7,000
Intercompany		11,884			(226	)		12,088			(23,746	)		—

Net cash provided by (used in) financing activities		18,884			56,550			12,088			(95,901	)		(8,379	)

Effect of exchange rate changes on cash		5			17			—			(2,926	)		(2,904	)

Net (decrease) increase in cash and cash equivalents		(589	)		(87	)		(327	)		28,624			27,621
Cash and cash equivalents, beginning of period		8			1,537			1,855			33,434			36,834

Cash and cash equivalents, end of period	$	(581	)	$	1,450		$	1,528		$	62,058		$	64,455

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Six Months Ended April 30, 2006


										Non-
	Quiksilver,			Guarantor			Cleveland			Guarantor
In thousands	Inc.			Subsidiaries			Golf			Subsidiaries			Consolidated
Cash flows from operating activities:
Net (loss) income	$	(29,790	)	$	13,327		$	345		$	38,450		$	22,332
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		269			9,247			1,046			20,790			31,352
Stock based compensation		11,324			—			—			—			11,324
Provision for doubtful accounts		—			(1,355	)		181			4,384			3,210
Gain on sale of fixed assets		—			—			—			(19	)		(19	)
Foreign currency gain		(33	)		—			—			(223	)		(256	)
Minority interest and equity in earnings		112			—			—			799			911
Changes in operating assets and liabilities:
Trade accounts receivable		—			45,254			(9,368	)		92,706			128,592
Other receivables		159			2,980			—			(2,136	)		1,003
Inventories		—			7,798			(7,177	)		(2,665	)		(2,044	)
Prepaid expenses and other current assets		501			(3,142	)		706			(626	)		(2,561	)
Other assets		(16	)		(452	)		(48	)		(2,861	)		(3,377	)
Accounts payable		(270	)		(28,812	)		(8	)		8,596			(20,494	)
Accrued liabilities		(4,969	)		(2,051	)		(1,384	)		(26,297	)		(34,701	)
Income taxes payable		—			(14,149	)		2,202			(9,182	)		(21,129	)

Net cash (used in) provided by operating activities		(22,713	)		28,645			(13,505	)		121,716			114,143

Cash flows from investing activities:
Capital expenditures		(1,679	)		(14,652	)		(1,228	)		(25,177	)		(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	)		(1,228	)		(46,207	)		(71,183	)

Cash flows from financing activities:
Borrowings on lines of credit		—			157			4,000			133,775			137,932
Payments on lines of credit		—			(6,376	)		(5,000	)		(163,383	)		(174,759	)
Borrowings on long-term debt		(1,267	)		56,350			—			60,931			116,014
Payments on long-term debt		—			(16,366	)		(4,327	)		(86,674	)		(107,367	)
Stock option exercises, employee stock purchases and tax benefit on option exercises		4,666			—			—			—			4,666
Intercompany		22,505			(48,192	)		25,063			624			—

Net cash provided by (used in) financing activities		25,904			(14,427	)		19,736			(54,727	)		(23,514	)

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

Net (decrease) increase in cash and cash equivalents		(820	)		(5,956	)		5,003			22,993			21,220
Cash and cash equivalents, beginning of period		1,177			20,816			986			52,619			75,598

Cash and cash equivalents, end of period	$	357		$	14,860		$	5,989		$	75,612		$	96,818

Following are the financial statements of Roger Cleveland Golf Company, Inc. Roger Cleveland Golf Company, Inc. is a guarantor subsidiary of Quiksilver Inc.’s publicly registered senior notes. As Roger Cleveland Golf Company, Inc. is not wholly owned by Quiksilver, Inc., these condensed financial statements are being furnished pursuant to Rule 10-01 of Regulation S-X.


Roger Cleveland Golf Company, Inc. Condensed Statement of Operations and Comprehensive Income (Unaudited) Three Months Ended April 30, 2007 and 2006			24

Roger Cleveland Golf Company, Inc. Condensed Statement of Operations and Comprehensive Income (Unaudited) Six Months Ended April 30, 2007 and 2006			25

Roger Cleveland Golf Company, Inc. Condensed Balance Sheets (Unaudited) April 30, 2007 and October 31, 2006			26

Roger Cleveland Golf Company, Inc. Condensed Statements of Cash Flows (Unaudited) Six Months Ended April 30, 2007 and 2006			27

Roger Cleveland Golf Company, Inc. Notes to Condensed Financial Statements (Unaudited)			28

ROGER CLEVELAND GOLF COMPANY, INC.

CONDENSED BALANCE SHEETS

(Unaudited)


	April 30,		October 31,
In thousands	2007		2006

ASSETS
Current assets:
Cash and cash equivalents	$	1,528	$	1,855
Accounts receivable, less allowance for bad debts of $945 (2007) and $1,000 (2006)		45,647		36,987
Income taxes receivable		2,572		—
Inventories		32,732		27,122
Deferred income taxes		2,349		2,349
Prepaid expenses and other current assets		1,538		2,661
Due from affiliates		8,973		8,591

Total current assets		95,339		79,565

Equipment and leasehold improvements, less accumulated depreciation and amortization of $6,733 (2007) and $6,036 (2006)		3,445		3,801
Other intangible assets, net		2,998		3,150
Goodwill		2,472		2,472
Deferred income taxes		353		353
Other assets		304		274

Total assets	$	104,911	$	89,615


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	14,068	$	3,525
Accrued payroll and benefits		2,300		2,677
Other accrued expenses		3,219		3,408
Due to affiliates		745		1,357
Income taxes payable		—		1,343

Total current liabilities		20,332		12,310

Long-term debt:
Due to affiliates		58,000		45,000

Total liabilities		78,332		57,310

Stockholders’ equity:
Common stock no par value – 500,000 shares authorized; 290,224 shares issued and outstanding		22,000		22,000
Retained earnings		4,579		10,305


Total stockholders’ equity		26,579		32,305


Total liabilities and stockholders’ equity	$	104,911	$	89,615

See notes to condensed financial statements.

ROGER CLEVELAND GOLF COMPANY, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six months ended April 30,
In thousands	2007			2006

Cash flows from operating activities:
Net (loss) income	$	(5,726	)	$	306
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		952			1,046
Changes in assets and liabilities:
Accounts receivable, net		(8,660	)		(9,187	)
Inventories		(5,610	)		(7,177	)
Prepaid expenses and other current assets		1,123			706
Other assets		(30	)		(48	)
Accounts payable		10,543			(8	)
Due from affiliates and due to affiliates		(994	)		(2,898	)
Accrued expenses		(566	)		(1,384	)
Income taxes payable		(3,915	)		2,202

Net cash used in operating activities		(12,883	)		(16,442	)


Cash flows from investing activities:
Purchase of equipment and leasehold improvements		(444	)		(1,228	)

Net cash used in investing activities		(444	)		(1,228	)


Cash flows from financing activities:
Proceeds from line of credit		4,000			4,000
Payments on line of credit		(4,000	)		(5,000	)
Proceeds from affiliate loans		23,000			28,000
Payments of affiliate loans		(10,000	)		—
Payment of long-term debt		—			(4,327	)

Net cash provided by financing activities		13,000			22,673


Net (decrease) increase in cash		(327	)		5,003
Cash, beginning of period		1,855			986

Cash, end of period	$	1,528		$	5,989


Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest	$	1,625		$	1,161

Taxes	$	405		$	(2,042	)

See notes to condensed financial statements.

ROGER CLEVELAND GOLF COMPANY, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1.		Basis of Presentation The accompanying unaudited condensed 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.

		Roger Cleveland Golf Company, Inc. (the “Company”) manufactures, markets, and distributes golf clubs and related accessories. The Company is owned 64% by certain subsidiaries of Quiksilver, Inc. (the “Parent”) and 36% by a group of individuals. The Parent acquired its majority interest in the Company on July 31, 2005, and as a result, the financial statements do not include financial statements for any periods prior to July 31, 2005. The Parent’s new basis is not reflected in the accompanying financial statements as these financial statements have been prepared on the carryover basis of accounting.

		The Parent has $400 million in publicly registered senior notes. In July 2006, the Company became a guarantor subsidiary of these senior notes, fully and unconditionally guaranteeing the senior note indebtedness of the Parent. Accordingly, the accompanying financial statements are being included in the Parent’s Form 10-Q in accordance with the SEC’s Regulation S-X, Rule 3-10.

2.		New Accounting Pronouncements In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections,” (“SFAS No. 154”) 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 adopted this standard during the six months ended April 30, 2007. The adoption of this standard did not have a material impact on the Company’s financial condition, results of operations or cash flows.

		In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”). This interpretation clarifies the application of SFAS No. 109, “Accounting for Income Taxes,” by defining criteria that an individual tax position must meet for any part of the benefit of that position to be recognized in the Company’s financial statements and also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company expects to adopt FIN 48 on November 1, 2007. The Company is currently assessing the impact the adoption of FIN 48 will have on its financial position and results of operations.

		In September 2006, the Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive guidance on the SEC’s views regarding the process of quantifying materiality of financial statement misstatements. The Company adopted this standard during the six months ended April 30, 2007. The adoption of this accounting pronouncement did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

ROGER CLEVELAND GOLF COMPANY, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

		In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company expects to adopt this standard at the beginning of the Company’s fiscal year ending October 31, 2009. The adoption of this accounting pronouncement is not expected to have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

		In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” (“SFAS No. 159”), which permits companies to choose to measure certain financial instruments and other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company has not determined the effect that the adoption of SFAS No. 159 will have on its consolidated financial statements.

3.		Intangible Assets The Company’s amortizing intangible assets consist of the following:


	April 30, 2007							October 31, 2006
	Gross		Amorti-							Amorti-
In thousands	Amount		zation			Net		Gross Amount		zation			Net
Tradenames and trademarks	$	3,100	$	(792	)	$	2,308	$	3,100	$	(689	)	$	2,411
Patents		1,746		(1,488	)		258		1,643		(1,371	)		272
Customer relationships		700		(268	)		432		700		(233	)		467

	$	5,546	$	(2,548	)	$	2,998	$	5,443	$	(2,293	)	$	3,150

		Amortization expense of intangible assets for the six months ended April 30, 2007 and 2006 was approximately $0.3 million and $0.4 million, respectively. Annual amortization expense for the fiscal year ending October 31, 2007 is estimated to be $0.6 million. Annual amortization expense for fiscal years ending October 31, 2008 through 2011 is estimated to be $0.3 million.

4.		Inventories

		Inventories consist of the following:


	April 30,		October 31,
In thousands	2007		2006
Raw materials	$	17,069	$	12,287
Work in process		302		41
Finished goods		15,361		14,794

	$	32,732	$	27,122

5.		Related Party Transactions

		Amounts due to affiliates consist of the following:


	April 30,			October 31,
In thousands	2007			2006
Affiliated debt due to Quiksilver Americas, Inc.	$	58,000		$	45,000
Amounts due to Parent and other Parent subsidiaries		745			1,357
Amounts due from Parent and other Parent subsidiaries		(8,973	)		(8,591	)

	$	49,772		$	37,766

ROGER CLEVELAND GOLF COMPANY, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

		Interest expense on borrowings from Quiksilver Americas, Inc. was approximately $1.5 million for the six months ended April 30, 2007 and 2006. The weighted average interest rate on these borrowings was 6.25% at April 30, 2007. This interest rate corresponds to the rate at which Quiksilver Americas, Inc. borrowed these funds, on the Company’s behalf, under the shared credit facility. Sales to Quiksilver, Inc. subsidiaries amounted to $11.4 million and $8.3 million for the six months ended April 30, 2007 and 2006, respectively.

6.		Indemnities, Commitments, 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, sales, and/or license of Company products; (ii) indemnities to vendors and service providers pertaining to claims based on the negligence or willful misconduct of the Company; (iii) indemnities involving the accuracy of representations and warranties in certain contracts; (iv) indemnities to directors and officers of the Company to the maximum extent permitted under the laws of the State of California; and (v) certain real estate leases under which the Company may be required to indemnify property owners for environmental and other liabilities, and other claims arising from the Company’s use of the applicable premises. In addition, the Company has made a contractual commitment to an employee providing for severance payments upon the occurrence of certain prescribed events. 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. Historically, the Company has not been obligated to make significant payments for these obligations, and no liabilities have been recorded for these indemnities, commitments, and guarantees in the accompanying balance sheets.

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,” “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 report 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, 2006 and subsequent reports on Form 8-K which discuss our business and related risks in greater detail and should be considered carefully 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 1991, we acquired the European licensee of Quiksilver and introduced Roxy, our surf brand for teenage girls. We also expanded demographically in the 1990s by adding products for boys, girls, toddlers and men, and we introduced our proprietary retail store concept, Boardriders Clubs, which display the heritage and products of Quiksilver and Roxy. In 2000, we acquired the international Quiksilver and Roxy trademarks, and in 2002, we acquired our licensees in Australia and Japan. In 2004, we acquired DC Shoes, Inc. to expand our presence in action sports-inspired footwear. In 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. Today our products are sold throughout the world, primarily in surf shops, snow shops, skate shops and specialty stores.

Since we acquired Rossignol, our business has become more seasonal. Our revenues and operating profits are generally higher in August through December, which affect our consolidated quarterly results.

Over the past 36 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 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 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,
Statement of Income data	2007			2006			2007			2006
Revenues, net		100.0	%		100.0	%		100.0	%		100.0	%
Gross profit		44.9			45.4			45.8			45.7
Selling, general and administrative expense		43.4			41.8			43.4			40.4

Operating income		1.5			3.6			2.4			5.3

Interest expense		2.4			2.3			2.6			2.3
Foreign currency, minority interest and other expense		0.3			0.2			0.1			0.0

(Loss) income before (benefit) provision for income taxes		(1.2	)		1.1			(0.3	)		3.0

(Benefit) provision for income taxes		(0.4	)		0.4			(0.1	)		0.9

Net (loss) income		(0.8	)%		0.7	%		(0.2	)%		2.1	%


Other data

EBITDA⁽¹⁾		4.9	%		7.5	%		6.0	%		9.4	%


⁽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,
	2007			2006		2007			2006
Net (loss) income	$	(4,800	)	$	3,729	$	(2,325	)	$	22,332
(Benefit) provision for income taxes		(2,224	)		1,833		(1,373	)		9,618
Interest expense		14,789			11,949		30,343			24,540
Depreciation and amortization		17,605			15,849		34,116			31,352
Non-cash stock compensation expense		4,309			5,564		9,147			11,324

EBITDA	$	29,679		$	38,924	$	69,908		$	99,166

Three Months Ended April 30, 2007 Compared to Three Months Ended April 30, 2006

Our total net revenues for the three months ended April 30, 2007 increased 17% to $603.8 million from $516.9 million in the comparable period of the prior year. Revenues in the Americas increased 12% to $279.8 million for the three months ended April 30, 2007 from $250.0 million in the comparable period of the prior year, and European revenues increased 24% to $268.8 million from $217.1 million for those same periods. As measured in euros, Europe’s primary functional currency, Europe’s revenues in the current year’s quarter increased 13% compared to the prior year. Asia/Pacific revenues increased 12% to $54.0 million for the three months ended April 30, 2007 from $48.2 million for the three months ended April 30, 2006. In Australian dollars, Asia/Pacific’s primary functional currency, Asia/Pacific revenues increased 3% compared to the prior year.

Our net revenues can be categorized into two general classifications: apparel brands and equipment brands. Our apparel brand revenue classification includes Quiksilver, Roxy, DC and our other apparel brands of Hawk, Gotcha, Raisins, Leilani and Radio Fiji. Our equipment brand revenue classification includes our Rossignol and other wintersports brands, comprising Rossignol, Dynastar, Look, Lange, Kerma, Lib Technologies, Gnu and Bent Metal, along with our golf brands of Cleveland Golf, Never Compromise and Fidra.

Our apparel brand revenues for the three months ended April 30, 2007 increased 21% to $519.1 million from $428.5 million for the three months ended April 30, 2006. This increase resulted from strength in our Roxy, Quiksilver, and DC brands, partially offset by a slight decrease in our other apparel brand revenues. Roxy and Quiksilver brand revenue growth came primarily from growth in apparel and, to a lesser extent, footwear and accessories product types. DC’s growth was primarily in footwear and, to a lesser extent, its apparel and accessories product types. Our equipment brand revenues decreased 4% during the three months ended April 30, 2007 to $83.5 million from $86.9 million for the three months ended April 30, 2006. The substantial majority of this decrease came from our golf equipment brand revenues while our wintersports equipment brand revenues only slightly decreased. The decrease in golf equipment brand revenues is primarily related to lower than expected demand for certain products caused by the timing of our product releases. While our wintersports brand revenues were largely unchanged, the current period’s revenues included lower sales offset by the positive effect of foreign currency exchange rates and, to a lesser extent, increases in wintersports equipment brand apparel. Preorders of our wintersports equipment products for the upcoming 2007/2008 winter season are expected to be lower than the prior year’s season due to decreased market demand caused by the lack of snowfall in many parts of Europe and the United States in the 2006/2007 winter season.


	Three Months Ended April 30,
	2007						2006
			Equip-						Equip-
	Apparel		ment				Apparel		ment
In thousands	Brands		Brands		Total		Brands		Brands		Total
Americas	$	235,724	$	44,086	$	279,810	$	200,242	$	49,800	$	250,042
Europe		232,587		36,242		268,829		184,149		33,000		217,149
Asia/Pacific		50,821		3,136		53,957		44,147		4,100		48,247
Corporate operations		¾		¾		1,203		¾		¾		1,490

	$	519,132	$	83,464	$	603,799	$	428,538	$	86,900	$	516,928

In the Americas, our apparel brand revenues for the three months ended April 30, 2007 increased 18%, while our equipment brand revenues decreased 11% compared to the three months ended April 30, 2006. In Europe, our apparel brand revenues for the three months ended April 30, 2007 increased 26%, and our equipment brand revenues increased 10% compared to the three months ended April 30, 2006. In Asia/Pacific, our apparel brand revenues for the three months ended April 30, 2007 increased 15%, while our equipment brand revenues decreased 24% compared to the three months ended April 30, 2006.

Our consolidated gross profit margin for the three months ended April 30, 2007 decreased to 44.9% from 45.4% in the comparable period of the prior year. The Americas’ gross profit margin decreased to 39.8% from 41.3%, and the European gross profit margin decreased to 49.5% from 50.0%, while the Asia/Pacific gross profit margin increased to 47.3% from 45.7% for those same periods. The decrease in the Americas’ gross profit margin was primarily due to lower margins in our wintersports and golf equipment businesses, paritally offset by improved margins in our apparel brands and a higher percentage of sales through company owned retail stores where we earn both the wholesale and retail margins. Our European gross profit margin decrease was primarily due to lower margins in our wintersports equipment business, partially offset by improved margins in our Quiksilver and Roxy apparel brands. In Asia/Pacific, the gross profit margin increase was primarily due to a higher percentage of sales through company-owned retail stores, partially offset by lower margins in our wintersports equipment brands.

Selling, general and administrative expense (“SG&A”) for the three months ended April 30, 2007 increased 21% to $262.1 million from $215.8 million in the comparable period of the prior year. Americas’ SG&A increased 22% to $99.4 million from $81.5 million in the comparable period of the prior year, while European SG&A increased 24% to $119.0 million from $96.2 million and Asia/Pacific SG&A increased 15% to $27.9 million from $24.3 million for those same periods. As a percentage of revenues, our SG&A increased to 43.4% for the three months ended April 30, 2007 from 41.8% for the three months ended April 30, 2006. The consolidated increase in our SG&A as a percentage of revenue was primarily caused by the cost of additional retail stores and increased distribution costs.

Interest expense for the three months ended April 30, 2007 increased to $14.8 million from $11.9 million in the comparable period of the prior year. This increase was primarily due to higher borrowing levels on our lines of credit to finance increased working capital needs and, to a lesser extent, higher interest rates on our variable-rate debt in Europe and the United States.

Our foreign currency loss amounted to $1.5 million for the three months ended April 30, 2007 compared to a gain of $0.5 million in the same period of last 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 and the foreign exchange effect of certain non-U.S. dollar denominated liabilities.

Our effective income tax rate for the three months ended April 30, 2007 was 31.7% compared to 33.0% for the three months ended April 30, 2006. The income tax rate for the three months ended April 30, 2007 was favorably impacted by certain changes in estimates relating to our foreign tax expense. Our estimated annual effective income tax rate is lower than the prior year’s annual rate primarily due to the higher impact of certain beneficial items included in our tax rate.

Our loss for the three months ended April 30, 2007 was $4.8 million or $0.04 per share on a diluted basis, compared to net income of $3.7 million, or $0.03 per share on a diluted basis, in the same period of the prior year. Basic net loss per share was $0.04 per share for the three months ended April 30, 2007 compared to net income of $0.03 per share in the same period of the prior year. EBITDA decreased 24% to $29.7 million from $38.9 million for those same periods.

Six Months Ended April 30, 2007 Compared to Six Months Ended April 30, 2006

Our total net revenues for the six months ended April 30, 2007 increased 9% to $1,156.3 million from $1,058.1 million in the comparable period of the prior year. Revenues in the Americas increased 11% to $520.4 million for the six months ended April 30, 2007 from $470.8 million in the comparable period of the prior year, and European revenues increased 9% to $522.8 million from $478.3 million for those same periods. As measured in euros, revenues in the first six months of the current year decreased slightly compared to the prior year. Asia/Pacific revenues increased 4% to $111.2 million in the six months ended April 30, 2007 compared to $106.6 million in the comparable period of the prior year. As measured in Australian dollars, revenues decreased 2% over the comparable period of the prior year.

Our apparel brand revenues for the six months ended April 30, 2007 increased 20% to $930.6 million from $777.8 million for the six months ended April 30, 2006. This increase resulted from strength in our Roxy, Quiksilver and DC brands. Our other apparel brand revenues decreased slightly compared to the first six months of fiscal 2006. Roxy and Quiksilver brand revenue growth came primarily from apparel and, to a lesser extent, footwear and accessories product types. DC’s growth was primarily in footwear and, to a lesser extent, its apparel and accessories product types. Our equipment brand revenues decreased 19% during the six months ended April 30, 2007 to $223.7 million from $277.9 million for the six months ended April 30, 2006. The substantial majority of this decrease came from Rossignol and our other wintersports brands. We shipped earlier during the current winter season compared to the year before, which resulted in higher revenues in the fourth quarter of our last full fiscal year ended October 31, 2006 compared to the comparable period of the prior year and lower revenues in the three months ended January 31, 2007 compared to the comparable period of the prior year. During the three months ended April 30, 2007, our wintersports equipment brand revenues only slightly decreased. For the combined six months, our wintersports brand revenues also decreased compared to the previous year as market demand was significantly lower this winter due to the lack of snowfall in many parts of Europe and the United States. The decrease in golf equipment brand revenue is primarily related to lower than expected demand for certain of its products caused by the timing of product releases.


	Six Months Ended April 30,
	2007						2006
			Equip-						Equip-
	Apparel		ment				Apparel		ment
In thousands	Brands		Brands		Total		Brands		Brands		Total
Americas	$	433,340	$	87,028	$	520,368	$	368,912	$	101,848	$	470,760
Europe		395,086		127,740		522,826		318,780		159,521		478,301
Asia/Pacific		102,203		8,949		111,152		90,065		16,524		106,589
Corporate operations		¾		¾		1,977		¾		¾		2,420

	$	930,629	$	223,717	$	1,156,323	$	777,757	$	277,893	$	1,058,070

In the Americas, our apparel brand revenues for the six months ended April 30, 2007 increased 17%, while our equipment brand revenues decreased 15% compared to the six months ended April 30, 2006. In Europe, our apparel brand revenues for the six months ended April 30, 2007 increased 24%, while our equipment brand revenues decreased 20% compared to the six months ended April 30, 2006. In Asia/Pacific, our apparel brand revenues for the six months ended April 30, 2007 increased 13%, while our equipment brand revenues decreased 46% compared to the six months ended April 30, 2006.

Our consolidated gross profit margin for the six months ended April 30, 2007 increased slightly to 45.8% from 45.7% in the comparable period of the prior year. The Americas’ gross profit margin decreased to 40.0% from 40.6%, while the European gross profit margin increased to 51.3% from 50.9%, and the Asia/Pacific gross profit margin increased to 46.1% from 44.9% for those same periods. The decrease in our Americas’ gross profit margin was primarily due to lower margins in our wintersports and golf equipment businesses, paritally offset by improved margins in our apparel brands and a higher percentage of sales through company owned retail stores where we earn both the wholesale and retail

margins. Our European gross profit margin increase was primarily due to improved margins in our Quiksilver and Roxy apparel brands, which were partially offset by lower margins in our wintersports equipment brands. In Asia/Pacific, the gross profit margin increase was primarily due to a higher percentage of sales through company-owned retail stores, partially offset by lower margins in our wintersports equipment brands.

SG&A for the six months ended April 30, 2007 increased 17% to $501.3 million from $427.1 million in the comparable period of the prior year. Americas’ SG&A increased 20% to $198.1 million from $165.3 million in the comparable period of the prior year, European SG&A increased 18% to $220.5 million from $187.6 million, and Asia/Pacific SG&A increased 15% to $54.3 million from $47.2 million for those same periods. As a percentage of revenues, our SG&A increased to 43.4% for the six months ended April 30, 2007 from 40.4% for the six months ended April 30, 2006. The consolidated increase in our SG&A as a percentage of revenue was primarily caused by the cost of additional retail stores and increased distribution costs.

Interest expense for the six months ended April 30, 2007 increased to $30.3 million from $24.5 million in the comparable period of the prior year. This increase was primarily due to higher borrowing levels on our lines of credit to finance increased working capital needs and, to a lesser extent, higher interest rates on our variable-rate debt in Europe and the United States.

Our foreign currency loss amounted to $3.4 million for the six months ended April 30, 2007 compared to a gain of $1.0 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 and the foreign exchange effect of certain non-U.S. dollar denominated liabilities.

Our effective income tax rate for the six months ended April 30, 2007 was 37.1% compared to 30.1% for the six months ended April 30, 2006. The income tax rate for the six months ended April 30, 2007 was favorably impacted by certain changes in estimates relating to our foreign tax expense. Our estimated annual effective income tax rate is lower than the prior year’s annual rate primarily due to the higher impact of certain beneficial items included in our tax rate.

Our loss for the six months ended April 30, 2007 was $2.3 million or $0.02 per share on a diluted basis, compared to net income of $22.3 million, or $0.18 per share on a diluted basis, in the same period of the prior year. Basic net loss per share was $0.02 per share for the six months ended April 30, 2007 compared to net income per share of $0.18 per share in the same period of the prior year. EBITDA decreased 30% to $69.9 million from $99.2 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 purchase price for our acquisition of Rossignol and to refinance certain existing indebtedness.

In April 2007, we exercised our option to expand the Americas credit facility from $250 million to $300 million (with a continuing option to expand the facility to $350 million under certain conditions).

The net increase in cash and cash equivalents for the six months ended April 30, 2007 was $27.6 million compared to $21.2 million in the comparable period of the prior year. Cash and cash equivalents totaled $64.5 million at April 30, 2007 compared to $36.8 million at October 31, 2006, while working capital was $616.0 million at April 30, 2007 compared to $568.6 million at October 31, 2006. 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 $116.1 million of cash from operating activities in the six months ended April 30, 2007 compared to $114.1 million for the same period of the prior year. This $2.0 million increase in cash provided was due to changes in accounts receivable, inventories and accounts payable offset by changes in net (loss) income, non-cash items and other operating assets and liabilities. During the six months ended April 30, 2007, the decrease in accounts receivable provided cash of $141.4 million compared to cash provided of $128.6 million during the six months ended April 30, 2006, an increase in cash provided of $12.8 million. The change in inventories, net of the change in accounts payable, used cash of $20.3 million during the six months ended April 30, 2007 compared to cash used of $22.5 million for the same period of the prior year, a net decrease in cash used of $2.2 million. The change in net (loss) income, non-cash items and other operating assets and liabilities resulted in a decrease in cash provided of $13.0 million during the six months ended April 30, 2007 compared to the comparable period of the prior year.

Capital expenditures totaled $53.5 million for the six months ended April 30, 2007, compared to $42.7 million in the comparable period of the prior year. These investments included company-owned retail stores and ongoing investments in manufacturing, computer and warehouse equipment. We also used $34.1 million of cash for acquisitions for the six months ended April 30, 2007, of which $20.2 million relates to a payment to the former owners of DC Shoes, Inc., and the remaining $13.9 million relates primarily to acquisitions of certain distributors and retail store locations.

During the six months ended April 30, 2007, net cash used in financing activities totaled $8.4 million, compared to $23.5 million used in 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 16% to $603.7 million at April 30, 2007 from $721.6 million at October 31, 2006. Accounts receivable in the Americas decreased 15% to $254.6 million at April 30, 2007 from $298.5 million at October 31, 2006, while European accounts receivable decreased 11% to $297.2 million from $335.5 million, and Asia/Pacific accounts receivable decreased 41% to $51.8 million from $87.6 million for those same periods. Compared to April 30, 2006, accounts receivable increased 18% in the Americas, 33% in Europe and 21% in Asia/Pacific. Included in accounts receivable are approximately $40.6 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 7 days at April 30, 2007 compared to April 30, 2006. This increase is primarily related to our wintersports and golf equipment brands. Our apparel brands days sales outstanding decreased by 2 days at April 30, 2007 compared to the same period of the prior year.

Consolidated inventories increased 9% to $463.3 million at April 30, 2007 from $425.9 million at October 31, 2006. Inventories in the Americas decreased 3% to $188.8 million from $194.1 million at October 31, 2006, while European inventories increased 17% to $205.9 million from $176.3 million, and Asia/Pacific inventories increased 24% to $68.6 million from $55.5 million for those same periods. Compared to April 30, 2006, inventories increased 20% in the Americas, 6% in Europe and 37% in Asia/Pacific. Consolidated average annual inventory turnover remained constant at approximately 3.1 at April 30, 2007 compared to April 30, 2006.

Commitments
We paid $20.2 million related to the achievement of certain sales and earnings targets to the former owners of DC Shoes, Inc. during the six months ended April 30, 2007.

In connection with our acquisition of Rossignol, we 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. As of April 30, 2007, we had recognized $65.3 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, the consolidation of Rossignol’s European distribution operations, the consolidation and realignment of certain European manufacturing facilities, and the relocation of our wintersports equipment sales and distribution operations in the United States. As of April 30, 2007, we have paid approximately $30.7 million related to these integration activities. If we have overestimated our integration costs, the excess will reduce goodwill in future periods. Conversely, if we have underestimated these costs, additional liabilities recognized will be recorded in earnings. Costs that are not associated with Rossignol but relate to activities or employees of our existing operations are not significant and are charged to earnings. 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 France, totaled approximately $19.5 million at April 30, 2007.

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 Statement of Financial Accounting Standards (“SFAS”) No. 123(R) “Share-Based Payment” (“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. 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.

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

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

New Accounting Pronouncements

See Note 2 to the Condensed Consolidated Financial Statements – New Accounting Pronouncements for a discussion of future pronouncements that may affect our financial reporting.

Forward-Looking Statements

Certain information included in this Form 10-Q and other materials filed or to be filed by us with the Securities and Exchange Commission (as well as information included in oral or written statements made by us or on our behalf), may contain forward-looking statements about our current and expected performance trends, growth plans, business goals and other matters. These statements may be contained in our filings with the Securities and Exchange Commission, in our press releases, in other written communications, and in oral statements made by or with the approval of one of our authorized officers. Words or phrases such as “believe,” “plan,” “anticipate,” “intend,” “expect,” “may,” “will,” “would,” “could,” “should” and similar expressions are intended to identify forward-looking statements. These statements, as well as any other statements that refer to projections of our future financial performance, our anticipated growth and trends in our business and other characterizations of future events or circumstances, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

We have identified and disclosed important factors, risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in forward-looking statements made by us, or on our behalf, or otherwise affect our business, results of operations and financial condition (see Part I, Item 1A, “Risk Factors” included in our most recent Form 10-K). These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the Securities and Exchange Commission. Because of these factors, risks and uncertainties, we caution against placing undue reliance on forward-looking statements. Although we believe that the assumptions underlying forward-looking statements are reasonable, any of the assumptions could be incorrect, and there can be no assurance that forward-looking statements will prove to be accurate. Forward-looking statements speak only as of the date on which they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise unless required to do so by securities laws.

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 the Australian dollar or Japanese yen.

European revenues increased only slightly in euros during the six months ended April 30, 2007 compared to the six months ended April 30, 2006. As measured in U.S. dollars and reported in our consolidated statements of income, European revenues increased 9% as a result of a stronger euro versus the U.S. dollar in comparison to the prior year.

Asia/Pacific revenues decreased 2% in Australian dollars during the six months ended April 30, 2007 compared to the six months ended April 30, 2006 As measured in U.S. dollars and reported in our consolidated statements of income, Asia/Pacific revenues increased 4% as a result of a stronger Australian dollar versus the U.S. 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, 2006 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, 2007, 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, 2007.

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, 2007 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

On February 27, 2007, a class action captioned Burnis L. Simon, Jr. v. Quicksilver, Inc. (sic), Case No. CV07-01326, was filed against us in the United States District Court for the Central District of California. The complaint alleges willful violation of the federal Fair and Accurate Credit Transactions Act (“FACTA”) based upon certain of our retail stores’ alleged electronic printing of receipts on which appeared more than the last five digits of customers’ credit or debit card numbers and/or the expiration of such customers’ credit or debit cards. The complaint seeks statutory damages of not less than $100 and not more than $1,000 for each violation, as well as unspecified punitive damages, attorneys’ fees and a permanent injunction from further engaging in violations of FACTA. The complaint does not allege that any class member has suffered actual damages. Similar complaints have been filed against a number of other retailers. We intend to vigorously defend against the claims asserted. However, the results of any litigation are inherently uncertain and we cannot assure that we will be able to successfully defend against such claims. We are currently unable to assess the extent of damages and/or other relief, if any, that could be awarded to the plaintiff class if it were to prevail.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table details the repurchases of our common stock that we made during the three months ended April 30, 2007:


	Total				Total Number of	Approximate Dollar
	Number of		Average		Shares Purchased as	Value of Shares That
	Shares		Price per		Part of Publicly	May Yet be Purchased
Period	Purchased		Share		Announced Plan	Under the Plan
February 1 – February 28	—			—	—	—
March 1 – March 31	—			—	—	—
April 1 – April 30	40,000	⁽¹⁾	$	0.01	—	—


⁽¹⁾		In April 2007, we repurchased and cancelled 40,000 unvested shares of restricted common stock from a terminating executive, for a price per share of $0.01 (i.e., the par value of such shares of restricted common stock), in accordance with the terms of our 2006 Restricted Stock Plan.

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

Our Annual Meeting of Stockholders was held on March 16, 2007. A total of 108,835,330 shares of our common stock were present or represented by proxy at the meeting, representing more than 87.56% of our shares outstanding as of the January 31, 2007 record date. The matters submitted for a vote and the related results are as follows:

Election of ten nominees to serve as directors until the next annual meeting and until their respective successors are elected and qualified. The result of the vote taken was as follows:


	Votes For		Votes Withheld
Douglas K. Ammerman		92,334,240		16,501,090
William M. Barnum, Jr.		105,499,790		3,335,540
Laurent Boix-Vives		51,972,125		56,863,205
Charles E. Crowe		105,448,869		3,386,461
Charles S. Exon		101,712,091		7,123,239
Michael H. Gray		105,500,234		3,335,096
Timothy M. Harmon		106,903,395		1,931,935
Bernard Mariette		103,601,297		5,234,033
Robert B. McKnight, Jr.		102,191,909		6,643,421
Heidi J. Ueberroth		107,400,075		1,435,255


	Votes		Votes		Votes		Broker
	For		Against		Abstained		Non-Votes
Amendment of the Quiksilver, Inc. 2000 Stock Incentive Plan		84,827,527		7,147,211		764,089		16,096,503
Amendment of the Quiksilver, Inc. 2000 Employee Stock Purchase Plan Plan		90,497,282		1,476,864		764,681		16,096,503

Item 6. Exhibits


Exhibits

2.1		English Translation of the Acquisition Agreement, dated April 12, 2005, between the Company and Mr. Laurent Boix-Vives, Ms. Jeannine Boix-Vives, Ms. Christine Simon, Ms. Sylvie Bernard and SDI Société de Services et Développement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on April 18, 2005).

2.2		Stock Purchase Agreement between the Company and the Sellers of DC Shoes, Inc. dated March 8, 2004 (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed on May 18, 2004).

2.3		First Amendment to the Stock Purchase Agreement between the Company and the Sellers of DC Shoes, Inc. dated May 3, 2004 (incorporated by reference to Exhibit 2.2 of the Company’s Current Report on Form 8-K filed on May 18, 2004).

3.1		Restated Certificate of Incorporation of Quiksilver, Inc., as amended (incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2004).

3.2		Certificate of Amendment of Restated Certificate of Incorporation of Quiksilver, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2005).

3.3		Amended and Restated Bylaws of Quiksilver, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2003).

4.1		Indenture for the 6 7/8% Senior Notes due 2015 dated July 22, 2005, among Quiksilver, Inc., the subsidiary guarantors set forth therein and Wilmington Trust Company, as trustee, including the form of Global Note attached thereto (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed July 25, 2005).

10.1		Quiksilver, Inc. 2000 Stock Incentive Plan, as amended and restated on March 16, 2007. ⁽¹⁾

10.2		Quiksilver, Inc. 2000 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on March 16, 2007). ⁽¹⁾

10.3		Employment Agreement between Joseph Scirocco and Quiksilver, Inc. dated April 12, 2007 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on April 17, 2007). ⁽¹⁾

10.4		Separation Agreement between Steven L. Brink and Quiksilver, Inc. dated April 13, 2007 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on April 17, 2007). ⁽¹⁾

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


⁽¹⁾	Management contract or compensatory plan


	Three months ended April 30,
In thousands	2007			2006

Revenues, net	$	41,527		$	46,843
Cost of goods sold		27,520			24,390

Gross profit		14,007			22,453

Selling, general, and administrative expense		14,794			15,834

Operating (loss) income		(787	)		6,619

Interest expense		805			900
Other income		—			(214	)

(Loss) income before (benefit) provision for income taxes		(1,592	)		5,933

(Benefit) provision for income taxes		(539	)		2,256

Net (loss) income and comprehensive (loss) income	$	(1,053	)	$	3,677


	Page No.
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited):

Quiksilver, Inc. Condensed Consolidated Statements of Operations Three Months Ended April 30, 2007 and 2006		3

Quiksilver, Inc. Condensed Consolidated Statements of Comprehensive Income Three Months Ended April 30, 2007 and 2006		3

Quiksilver, Inc. Condensed Consolidated Statements of Operations Six Months Ended April 30, 2007 and 2006		4

Quiksilver, Inc. Condensed Consolidated Statements of Comprehensive Income Six Months Ended April 30, 2007 and 2006		4

Quiksilver, Inc. Condensed Consolidated Balance Sheets April 30, 2007 and October 31, 2006		5

Quiksilver, Inc. Condensed Consolidated Statements of Cash Flows Six Months Ended April 30, 2007 and 2006		6

Quiksilver, Inc. Notes to Condensed Consolidated Financial Statements		7

Roger Cleveland Golf Company, Inc. Condensed Statement of Operations and Comprehensive Income Three Months Ended April 30, 2007 and 2006		24

Roger Cleveland Golf Company, Inc. Condensed Statement of Operations and Comprehensive Income Six Months Ended April 30, 2007 and 2006		25

Roger Cleveland Golf Company, Inc. Condensed Balance Sheets April 30, 2007 and October 31, 2006		26

Roger Cleveland Golf Company, Inc. Condensed Statements of Cash Flows Six Months Ended April 30, 2007 and 2006		27

Roger Cleveland Golf Company, Inc. Notes to Condensed Financial Statements		28

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

Results of Operations		32

Three Months Ended April 30, 2007 Compared to Three Months Ended April 30, 2006		33

Six Months Ended April 30, 2007 Compared to Six Months Ended April 30, 2006		35

Financial Position, Capital Resources and Liquidity		36

Critical Accounting Policies		38

New Accounting Pronouncements		40

Forward-Looking Statements		41


	Page No.
Item 3. Quantitative and Qualitative Disclosures About Market Risk		42

Item 4. Controls and Procedures		42

Part II — OTHER INFORMATION

Item 1. Legal Proceedings		43

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		43

Item 4. Submission of Matters to a Vote of Security Holders		44

Item 6. Exhibits		45

SIGNATURES		46
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2


	QUIKSILVER, INC., a Delaware corporation
June 11, 2007	/s/ Brad L. Holman
	Brad L. Holman
	Vice President of Accounting and Financial Reporting (Principal Accounting Officer and Authorized Signatory)