Note 20 — Condensed Consolidating Financial Information

In July 2013, the Company issued $225 million aggregate principal amount of its 2020 Notes. These notes were issued in a private offering that was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). They were offered within the United States only to qualified institutional buyers in accordance with Rule 144A under the Securities Act, and outside of the United States only to non-U.S. investors in accordance with Regulation S under the Securities Act. In November, 2013, these notes were exchanged for publicly registered notes with identical terms. Obligations under the Company’s 2020 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., QS Wholesale, Inc., the guarantor subsidiaries, the non-guarantor subsidiaries and the eliminations necessary to arrive at the information for the Company on a consolidated basis as of October 31, 2013 and October 31, 2012 and for each of fiscal 2013, 2012 and 2011. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.

Condensed Consolidating Statement of Operations

Year Ended October 31, 2013


In thousands	Quiksilver, Inc.			QS Wholesale, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

Revenues, net	$	464		$	422,210		$	472,864		$	1,158,281		$	(243,249	)	$	1,810,570
Cost of goods sold		—			252,103			330,655			548,582			(193,201	)		938,139


Gross profit		464			170,107			142,209			609,699			(50,048	)		872,431

Selling, general and administrative expense		54,002			131,560			137,148			559,152			(24,305	)		857,557
Asset impairments		—			1,646			5,939			4,742			—			12,327


Operating (loss)/income		(53,538	)		36,901			(878	)		45,805			(25,743	)		2,547

Interest expense, net		39,487			4,359			1			27,202			—			71,049
Foreign currency loss/(gain)		318			56			(4	)		4,319			—			4,689
Equity in earnings		138,111			2,739			—			—			(140,850	)		—


(Loss)/income before provision/(benefit) for income taxes		(231,454	)		29,747			(875	)		14,284			115,107			(73,191	)
Provision/(benefit) for income taxes		422			(665	)		(3,488	)		169,951			—			166,220


(Loss)/income from continuing operations		(231,876	)		30,412			2,613			(155,667	)		115,107			(239,411	)

(Loss)/income from discontinued operations		(689	)		—			5,211			1,353			11			5,886


Net (loss)/income		(232,565	)		30,412			7,824			(154,314	)		115,118			(233,525	)

Net loss attributable to non-controlling interest		—			—			—			960			—			960


Net (loss)/income attributable to Quiksilver, Inc.		(232,565	)		30,412			7,824			(153,354	)		115,118			(232,565	)

Other comprehensive loss		(12,494	)		—			—			(12,494	)		12,494			(12,494	)


Comprehensive (loss)/income attributable to Quiksilver, Inc.	$	(245,059	)	$	30,412		$	7,824		$	(165,848	)	$	127,612		$	(245,059	)

Condensed Consolidating Statement of Operations

Year Ended October 31, 2012


In thousands	Quiksilver, Inc.			QS Wholesale, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

Revenues, net	$	469		$	453,532		$	537,295		$	1,222,273		$	(271,720	)	$	1,941,849
Cost of goods sold		—			275,179			358,290			579,152			(212,091	)		1,000,530


Gross profit		469			178,353			179,005			643,121			(59,629	)		941,319

Selling, general and administrative expense		56,983			147,684			151,230			562,946			(30,593	)		888,250
Asset impairments		—			11			5,151			2,072			—			7,234


Operating (loss)/income		(56,514	)		30,658			22,624			78,103			(29,036	)		45,835

Interest expense, net		28,987			5,352			1			26,545			—			60,885
Foreign currency (gain)/loss		(173	)		(148	)		96			(1,484	)		—			(1,709	)
Equity in earnings		(74,572	)		4,674			—			—			69,898			—


(Loss)/income before provision/(benefit) for income taxes		(10,756	)		20,780			22,527			53,042			(98,934	)		(13,341	)
Provision/(benefit) for income taxes		—			1,144			(3,097	)		5,857			—			3,904


(Loss)/income from continuing operations		(10,756	)		19,636			25,624			47,185			(98,934	)		(17,245	)

Income from discontinued operations		—			—			5,721			2,080			(299	)		7,502


Net (loss)/income		(10,756	)		19,636			31,345			49,265			(99,233	)		(9,743	)

Net income attributable to non-controlling interest		—			—			—			(1,013	)		—			(1,013	)


Net (loss)/income attributable to Quiksilver, Inc.		(10,756	)		19,636			31,345			48,252			(99,233	)		(10,756	)

Other comprehensive loss		(29,715	)		—			—			(29,715	)		29,715			(29,715	)


Comprehensive (loss)/income attributable to Quiksilver, Inc.	$	(40,471	)	$	19,636		$	31,345		$	18,537		$	(69,518	)	$	(40,471	)

Condensed Consolidating Statement of Operations

Year Ended October 31, 2011


In thousands	Quiksilver, Inc.			QS Wholesale, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

Revenues, net	$	464		$	440,088		$	444,454		$	1,263,177		$	(231,856	)	$	1,916,327
Cost of goods sold		—			268,361			279,712			548,993			(180,525	)		916,541


Gross profit		464			171,727			164,742			714,184			(51,331	)		999,786

Selling, general and administrative expense		43,045			139,530			159,715			565,717			(25,631	)		882,376
Asset impairments		—			1,778			1,621			82,974			—			86,373


Operating (loss)/income		(42,581	)		30,419			3,406			65,493			(25,700	)		31,037

Interest expense, net		28,871			3,795			(1	)		41,152			—			73,817
Foreign currency loss/(gain)		30			(229	)		21			(101	)		—			(279	)
Equity in earnings		(50,224	)		(836	)		—			—			51,060			—


(Loss)/income before provision/(benefit) for income taxes		(21,258	)		27,689			3,386			24,442			(76,760	)		(42,501	)
Provision/(benefit) for income taxes		—			165			(3,971	)		(14,662	)		—			(18,468	)


(Loss)/income from continuing operations		(21,258	)		27,524			7,357			39,104			(76,760	)		(24,033	)

Income from discontinued operations		—			—			6,120			375			(332	)		6,163


Net (loss)/income		(21,258	)		27,524			13,477			39,479			(77,092	)		(17,870	)

Net income attributable to non-controlling interest		—			—			—			(3,388	)		—			(3,388	)


Net (loss)/income attributable to Quiksilver, Inc.		(21,258	)		27,524			13,477			36,091			(77,092	)		(21,258	)

Other comprehensive income		2,445			—			—			2,445			(2,445	)		2,445


Comprehensive (loss)/income attributable to Quiksilver, Inc.	$	(18,813	)	$	27,524		$	13,477		$	38,536		$	(79,537	)	$	(18,813	)

Condensed Consolidating Balance Sheet

October 31, 2013


In thousands	Quiksilver, Inc.		QS Wholesale, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	35	$	3,733	$	296	$	53,216	$	—		$	57,280
Trade accounts receivable, net		—		83,991		48,230		279,417		—			411,638
Other receivables		19		5,613		2,007		15,667		—			23,306
Inventories		—		43,405		93,074		224,695		(23,459	)		337,715
Deferred income taxes		—		24,624		—		6,482		(21,109	)		9,997
Prepaid expenses and other current assets		3,372		3,271		3,752		13,729		—			24,124
Intercompany balances		—		173,547		—		—		(173,547	)		—
Current portion of assets held for sale		—		—		26,051		25,475		(330	)		51,196

Total current assets		3,426		338,184		173,410		618,681		(218,445	)		915,256

Fixed assets, net		21,378		35,152		21,816		152,915		—			231,261
Intangible assets, net		4,487		44,596		1,154		84,359		—			134,596
Goodwill		—		103,880		7,675		150,070		—			261,625
Other assets		8,025		5,654		1,096		38,512		—			53,287
Deferred income taxes long-term		21,085		—		—		2,111		(23,196	)		—
Investment in subsidiaries		949,814		8,795		—		—		(958,609	)		—
Assets held for sale, net of current portion		—		—		1,676		22,769		—			24,445

Total assets	$	1,008,215	$	536,261	$	206,827	$	1,069,417	$	(1,200,250	)	$	1,620,470


LIABILITIES AND EQUITY
Current liabilities:
Lines of credit	$	—	$	—	$	—	$	—	$	—		$	—
Accounts payable		4,222		51,283		35,910		110,260		—			201,675
Accrued liabilities		17,900		9,921		6,929		86,795		—			121,545
Current portion of long-term debt		—		—		—		23,488		—			23,488
Income taxes payable		—		121		—		3,791		—			3,912
Deferred income taxes		20,365		—		744		—		(21,109	)		—
Intercompany balances		92,815		—		47,424		33,308		(173,547	)		—
Current portion of assets held for sale		689		—		3,773		11,958		—			16,420

Total current liabilities		135,991		61,325		94,780		269,600		(194,656	)		367,040

Long-term debt		500,896		—		—		306,916		—			807,812
Deferred income taxes long-term		—		41,039		2,053		—		(23,196	)		19,896
Other long-term liabilities		1,622		6,012		8,946		19,765		—			36,345
Assets held for sale, net of current portion		—		—		187		1,532		—			1,719

Total liabilities		638,509		108,376		105,966		597,813		(217,852	)		1,232,812

Stockholders’/invested equity:		369,706		427,885		100,861		453,652		(982,398	)		369,706
Non-controlling interest		—		—		—		17,952		—			17,952

Total liabilities and equity	$	1,008,215	$	536,261	$	206,827	$	1,069,417	$	(1,200,250	)	$	1,620,470

Condensed Consolidating Balance Sheet

October 31, 2012


In thousands	Quiksilver, Inc.		QS Wholesale, Inc.		Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	324	$	1,966	$	(1,831	)	$	41,364	$	—		$	41,823
Trade accounts receivable, net		—		80,522		83,018			247,234		—			410,774
Other receivables		20		2,767		1,703			26,524		—			31,014
Income taxes receivable		—		117		—			—		(117	)		—
Inventories		—		32,156		92,139			224,278		(21,696	)		326,877
Deferred income taxes		—		26,617		—			21,198		(21,408	)		26,407
Prepaid expenses and other current assets		2,277		4,463		4,399			14,321		—			25,460
Intercompany balances		—		218,896		—			—		(218,896	)		—
Current portion of assets held for sale		—		—		26,162			18,053		(701	)		43,514

Total current assets		2,621		367,504		205,590			592,972		(262,818	)		905,869

Fixed assets, net		18,802		39,175		24,656			153,110		—			235,743
Intangible assets, net		3,228		45,547		1,257			85,124		—			135,156
Goodwill		—		103,880		8,336			144,834		—			257,050
Other assets		2,753		2,083		594			41,958		—			47,388
Deferred income taxes long-term		21,686		—		—			138,716		(45,236	)		115,166
Investment in subsidiaries		1,087,924		12,180		—			—		(1,100,104	)		—
Assets held for sale, net of current portion		—		—		1,607			20,261		—			21,868

Total assets	$	1,137,014	$	570,369	$	242,040		$	1,176,975	$	(1,408,158	)	$	1,718,240


LIABILITIES AND EQUITY
Current liabilities:
Lines of credit	$	—	$	—	$	—		$	18,147	$	—		$	18,147
Accounts payable		6,995		39,542		55,024			92,772		—			194,333
Accrued liabilities		6,189		15,699		8,098			80,205		—			110,191
Current portion of long-term debt		—		8,594		—			10,053		—			18,647
Income taxes payable		—		—		—			1,476		(117	)		1,359
Deferred income taxes		20,902		—		506			—		(21,408	)		—
Intercompany balances		119,618		—		68,707			30,571		(218,896	)		—
Current portion of assets held for sale		—		—		5,335			8,604		—			13,939

Total current liabilities		153,704		63,835		137,670			241,828		(240,421	)		356,616

Long-term debt		400,000		60,700		—			260,475		—			721,175
Deferred income taxes long-term		—		42,951		2,285			—		(45,236	)		—
Other long-term liabilities		—		5,413		8,909			23,741		—			38,063
Assets held for sale, net of current portion		—		—		139			11		—			150

Total liabilities		553,704		172,899		149,003			526,055		(285,657	)		1,116,004

Stockholders’/invested equity:		583,310		397,470		93,037			631,994		(1,122,501	)		583,310
Non-controlling interest		—		—		—			18,926		—			18,926

Total liabilities and equity	$	1,137,014	$	570,369	$	242,040		$	1,176,975	$	(1,408,158	)	$	1,718,240

Condensed Consolidating Statement of Cash Flows

Year Ended October 31, 2013


In thousands	Quiksilver, Inc.			QS Wholesale, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net (loss)/income	$	(232,565	)	$	30,412		$	7,824		$	(154,314	)	$	115,118		$	(233,525	)
Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities:
Income from discontinued operations		689			—			(5,211	)		(1,353	)		(11	)		(5,886	)
Depreciation and Amortization		2,218			11,556			6,031			30,153			—			49,958
Stock based compensation		21,556			—			—			—			—			21,556
Provision for doubtful accounts		—			(129	)		(1,823	)		7,681			—			5,729
Asset impairments		—			1,646			5,939			4,742			—			12,327
Equity in earnings		138,111			2,739			—			613			(140,850	)		613
Non-cash interest expense		4,702			1,312			—			781						6,795
Deferred income taxes		—			(1,750	)		—			160,847			—			159,097
Other adjustments to reconcile net (loss)/income		316			27			(196	)		(1,529	)		—			(1,382	)
Changes in operating assets and liabilities:
Trade accounts receivable		—			(3,339	)		36,610			(34,491	)		—			(1,220	)
Inventories		—			(11,182	)		3,830			(30,251	)		25,743			(11,860	)
Other operating assets and liabilities		8,327			3,080			(20,748	)		32,027			—			22,686


Cash (used in)/provided by operating activities of continuing operations		(56,646	)		34,372			32,256			14,906			—			24,888
Cash provided by operating activities of discontinued operations		—			—			1,515			789			—			2,304

Net cash (used in)/provided by operating activities		(56,646	)		34,372			33,771			15,695			—			27,192

Cash flows from investing activities:
Proceeds from sale of fixed assets		55			—			12			792			—			859
Capital expenditures		(7,347	)		(6,606	)		(7,965	)		(30,264	)		—			(52,182	)


Cash used in investing activities of continuing operations		(7,292	)		(6,606	)		(7,953	)		(29,472	)		—			(51,323	)
Cash used in investing activities of discontinued operations		—			—			(268	)		(2,302	)		—			(2,570	)

Net cash used in investing activities		(7,292	)		(6,606	)		(8,221	)		(31,774	)		—			(53,893	)

Cash flows from financing activities:
Transactions with non-controlling interest owners		—			(58	)		—			—			—			(58	)
Borrowings on lines of credit		—			—			—			6,157			—			6,157
Payments on lines of credit		—			—			—			(22,561	)		—			(22,561	)
Borrowings on long-term debt		500,776			59,829			—			92,310			—			652,915
Payments on long-term debt		(400,000	)		(129,123	)		—			(53,333	)		—			(582,456	)
Payments of debt issuance costs		(9,965	)		(4,312	)		—			—			—			(14,277	)
Stock option exercises and employee stock purchases		9,944			—			—			—			—			9,944
Intercompany		(37,106	)		47,665			(23,423	)		12,864			—			—


Cash provided by/(used in) financing activities of continuing operations		63,649			(25,999	)		(23,423	)		35,437			—			49,664
Cash provided by financing activities of discontinued operations		—			—			—			—			—			—

Net cash provided by/(used in) financing activities		63,649			(25,999	)		(23,423	)		35,437			—			49,664

Effect of exchange rate changes on cash		—			—			—			(7,506	)		—			(7,506	)


Net (decrease)/increase in cash and cash equivalents		(289	)		1,767			2,127			11,852			—			15,457

Cash and cash equivalents, beginning of period		324			1,966			(1,831	)		41,364			—			41,823


Cash and cash equivalents, end of period	$	35		$	3,733		$	296		$	53,216		$	—		$	57,280

Condensed Consolidating Statement of Cash Flows

Year Ended October 31, 2012


In thousands	Quiksilver, Inc.			QS Wholesale, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net (loss)/income	$	(10,756	)	$	19,636		$	31,345		$	49,265		$	(99,233	)	$	(9,743	)
Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities:
Income from discontinued operations		—			—			(5,721	)		(2,080	)		299			(7,502	)
Depreciation and Amortization		2,088			11,314			6,483			32,533			—			52,418
Stock based compensation		22,552			—			—			—			—			22,552
Provision for doubtful accounts		—			(763	)		(1,307	)		6,100			—			4,030
Asset impairments		—			11			5,151			2,072			—			7,234
Equity in earnings		(74,572	)		4,674			—			282			69,898			282
Non-cash interest expense		1,490			1,506			—			689			—			3,685
Deferred income taxes		—			474			—			(9,095	)		—			(8,621	)
Other adjustments to reconcile net (loss)/income		(443	)		(94	)		130			(6,114	)		—			(6,521	)
Changes in operating assets and liabilities:
Trade accounts receivable		—			(7,227	)		(19,368	)		(24,155	)		—			(50,750	)
Inventories		—			23,444			(41,966	)		(3,331	)		29,036			7,183
Other operating assets and liabilities		5,918			(9,589	)		16,996			(42,144	)		—			(28,819	)


Cash (used in)/provided by operating activities of continuing operations		(53,723	)		43,386			(8,257	)		4,022			—			(14,572	)
Cash provided by operating activities of discontinued operations		—			—			(1,521	)		2,554			—			1,033

Net cash (used in)/provided by operating activities		(53,723	)		43,386			(9,778	)		6,576			—			(13,539	)

Cash flows from investing activities:
Proceeds from sale of fixed assets		—			43			2			8,153			—			8,198
Capital expenditures		(4,388	)		(13,744	)		(8,527	)		(36,684	)		—			(63,343	)


Cash used in investing activities of continuing operations		(4,388	)		(13,701	)		(8,525	)		(28,531	)		—			(55,145	)
Cash used in investing activities of discontinued operations		—			—			(309	)		(11,546	)		—			(11,855	)

Net cash used in investing activities		(4,388	)		(13,701	)		(8,834	)		(40,077	)		—			(67,000	)

Cash flows from financing activities:
Transactions with non-controlling interest owners		—			(11,000	)		—			—			—			(11,000	)
Borrowings on lines of credit		—			—			—			15,139			—			15,139
Payments on lines of credit		—			—			—			(12,641	)		—			(12,641	)
Borrowings on long-term debt		—			93,500			—			46,535			—			140,035
Payments on long-term debt		—			(70,800	)		—			(42,041	)		—			(112,841	)
Stock option exercises and employee stock purchases		2,241			—			—			—			—			2,241
Intercompany		56,177			(44,391	)		20,422			(32,208	)		—			—


Cash provided by/(used in) financing activities of continuing operations		58,418			(32,691	)		20,422			(25,216	)		—			20,933
Cash provided by financing activities of discontinued operations		—			—			—			—			—			—

Net cash provided by/(used in) financing activities		58,418			(32,691	)		20,422			(25,216	)		—			20,933

Effect of exchange rate changes on cash		—			—			—			(8,324	)		—			(8,324	)


Net increase/(decrease) in cash and cash equivalents		307			(3,006	)		1,810			(67,041	)		—			(67,930	)

Cash and cash equivalents, beginning of period		17			4,972			(3,641	)		108,405			—			109,753


Cash and cash equivalents, end of period	$	324		$	1,966		$	(1,831	)	$	41,364		$	—		$	41,823

Condensed Consolidating Statement of Cash Flows

Year Ended October 31, 2011


In thousands	Quiksilver, Inc.			QS Wholesale, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net (loss)/income	$	(21,258	)	$	27,524		$	13,477		$	39,479		$	(77,092	)	$	(17,870	)
Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities:
Income from discontinued operations		—			—			(6,120	)		(375	)		332			(6,163	)
Depreciation and Amortization		1,735			13,191			7,067			33,079			—			55,072
Stock based compensation		14,414			—			—			—			—			14,414
Provision for doubtful accounts		—			225			740			7,268			—			8,233
Asset impairments		—			1,778			1,621			82,974			—			86,373
Equity in earnings		(50,224	)		(994	)		—			(197	)		51,060			(355	)
Non-cash interest expense		1,387			1,808			—			15,917			—			19,112
Deferred income taxes		—			3,703			—			(31,951	)		—			(28,248	)
Other adjustments to reconcile net (loss)/income		72			351			130			(6,219	)		—			(5,666	)
Changes in operating assets and liabilities:
Trade accounts receivable		—			(8,811	)		(10,278	)		(10,021	)		—			(29,110	)
Inventories		—			(49,448	)		6,311			(50,720	)		25,700			(68,157	)
Other operating assets and liabilities		(17,134	)		5,146			7,739			30,273			—			26,024


Cash (used in)/provided by operating activities of continuing operations		(71,008	)		(5,527	)		20,687			109,507			—			53,659
Cash provided by/(used in) operating activities of discontinued operations		—			—			1,870			(1,380	)		—			490

Net cash (used in)/provided by operating activities		(71,008	)		(5,527	)		22,557			108,127			—			54,149

Cash flows from investing activities:
Proceeds from sale of fixed assets		—			5			10			12,531			—			12,546
Capital expenditures		(12,570	)		(21,726	)		(12,336	)		(42,396	)		—			(89,028	)
Payment for purchases of companies		—			—			(528	)		(5,050	)		—			(5,578	)


Cash used in investing activities of continuing operations		(12,570	)		(21,721	)		(12,854	)		(34,915	)		—			(82,060	)
Cash used in investing activities of discontinued operations		—			—			(562	)		—			—			(562	)

Net cash used in investing activities		(12,570	)		(21,721	)		(13,416	)		(34,915	)		—			(82,622	)

Cash flows from financing activities:
Borrowings on lines of credit		—			—			—			30,070			—			30,070
Payments on lines of credit		—			—			—			(35,303	)		—			(35,303	)
Borrowings on long-term debt		—			44,500			—			270,830			—			315,330
Payments on long term debt		—			(25,524	)		—			(259,152	)		—			(284,676	)
Payments of Debt and Equity Issuance Costs		—			—			—			(6,391	)		—			(6,391	)
Stock option exercises and employee stock purchases		4,129			—			—			—			—			4,129
Intercompany		79,302			(25,463	)		(13,247	)		(40,592	)		—			—


Cash provided by/(used in) financing activities of continuing operations		83,431			(6,487	)		(13,247	)		(40,538	)		—			23,159
Cash provided by financing activities of discontinued operations		—			—			—			—			—			—

Net cash provided by/(used in) financing activities		83,431			(6,487	)		(13,247	)		(40,538	)		—			23,159

Effect of exchange rate changes on cash		—			—			—			(5,526	)		—			(5,526	)


Net (decrease)/increase in cash and cash equivalents		(147	)		(33,735	)		(4,106	)		27,148			—			(10,840	)

Cash and cash equivalents, beginning of period		164			38,707			465			81,257			—			120,593


Cash and cash equivalents, end of period	$	17		$	4,972		$	(3,641	)	$	108,405		$	—		$	109,753