16.

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 “Secruities 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 existing 100% owned domestic subsidiaries.

In November 2013, the Company sold Mervin, a guarantor subsidiary, and in January 2014, the Company sold substantially all of the assets of Hawk, also a guarantor subsidiary. These subsidiaries continue to be presented in the “Guarantor Subsidiaries” column in the following condensed consolidating financial information where applicable. See note 15, “Discontinued Operations,” for further discussion regarding the disposition of these businesses.

The Company is required to present condensed consolidating financial information for Quiksilver, Inc. and its domestic subsidiaries within the notes to the condensed 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 100% owned guarantor subsidiaries, the non-guarantor subsidiaries and the eliminations necessary to arrive at the information for the Company on a consolidated basis as of January 31, 2014 and October 31, 2013 and for the first quarters of fiscal 2014 and 2013. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. The Company has applied the estimated consolidated annual effective income tax rate to both the guarantor and non-guarantor subsidiaries, adjusting for any discrete items, for interim reporting purposes. In the Company’s consolidated financial statements for the fiscal year ending October 31, 2014, management will apply the actual income tax rates to both the guarantor and non-guarantor subsidiaries. These interim tax rates may differ from the actual annual effective income tax rates for both the guarantor and non-guarantor subsidiaries.

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Operations

First Quarter Ended January 31, 2014


In thousands	Quiksilver, Inc.			QS Wholesale, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues, net	$	116		$	84,004		$	97,975		$	269,770		$	(59,253	)	$	392,612
Cost of goods sold		—			50,268			67,704			119,784			(44,980	)		192,776

Gross profit		116			33,736			30,271			149,986			(14,273	)		199,836
Selling, general and administrative expense		9,025			55,966			22,668			121,057			(4,932	)		203,784
Asset impairments		—			—			222			661			—			883

Operating (loss)/income		(8,909	)		(22,230	)		7,381			28,268			(9,341	)		(4,831	)
Interest expense, net		11,600			1,010			—			6,810			—			19,420
Foreign currency loss/(gain)		36			(10	)		(224	)		3,026			—			2,828
Equity in earnings		(35,932	)		74			—			—			35,858			—

Income/(loss) before (benefit)/provision for income taxes		15,387			(23,304	)		7,605			18,432			(45,199	)		(27,079	)
(Benefit)/provision for income taxes		—			(6,169	)		(3,945	)		5,729			—			(4,385	)

Income/(loss) from continuing operations		15,387			(17,135	)		11,550			12,703			(45,199	)		(22,694	)
Income from discontinued operations		—			23,922			13,531			164			—			37,617

Net income		15,387			6,787			25,081			12,867			(45,199	)		14,923
Net loss attributable to non-controlling interest		—			—			—			464			—			464

Net income attributable to Quiksilver, Inc.		15,387			6,787			25,081			13,331			(45,199	)		15,387
Other comprehensive loss		(14,422	)		—			—			(14,422	)		14,422			(14,422	)

Comprehensive income/(loss) attributable to Quiksilver, Inc.	$	965		$	6,787		$	25,081		$	(1,091	)	$	(30,777	)	$	965

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Operations

First Quarter Ended January 31, 2013


In thousands	Quiksilver, Inc.			QS Wholesale, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues, net	$	116		$	88,519		$	110,462		$	281,846		$	(68,754	)	$	412,189
Cost of goods sold		—			52,603			87,298			125,699			(63,184	)		202,416

Gross profit		116			35,916			23,164			156,147			(5,570	)		209,773
Selling, general and administrative expense		15,975			35,959			35,342			135,867			(6,804	)		216,339
Asset impairments		—			—			1,335			1,833			—			3,168

Operating (loss)/income		(15,859	)		(43	)		(13,513	)		18,447			1,234			(9,734	)
Interest expense, net		7,269			1,469			—			6,763			—			15,501
Foreign currency loss		154			14			64			2,833			—			3,065
Equity in earnings		7,847			(204	)		—			—			(7,643	)		—

(Loss)/income before (benefit)/provision for income taxes		(31,129	)		(1,322	)		(13,577	)		8,851			8,877			(28,300	)
(Benefit)/provision for income taxes		—			(1,187	)		90			4,046			—			2,949

(Loss)/income from continuing operations		(31,129	)		(135	)		(13,667	)		4,805			8,877			(31,249	)
(Loss)/income from discontinued operations		—			—			(170	)		769			26			625

Net (loss)/income		(31,129	)		(135	)		(13,837	)		5,574			8,903			(30,624	)
Net income attributable to non-controlling interest		—			—			—			(505	)		—			(505	)

Net (loss)/income attributable to Quiksilver, Inc.		(31,129	)		(135	)		(13,837	)		5,069			8,903			(31,129	)
Other comprehensive income		8,110			—			—			8,110			(8,110	)		8,110

Comprehensive (loss)/income attributable to Quiksilver, Inc.	$	(23,019	)	$	(135	)	$	(13,837	)	$	13,179		$	793		$	(23,019	)

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Balance Sheet

January 31, 2014


In thousands	Quiksilver, Inc.		QS Wholesale, Inc.		Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	34	$	7,258	$	(1,939	)	$	64,635	$	—		$	69,988
Restricted cash		—		60,214		—			403		—			60,617
Trade accounts receivable, net		—		70,576		35,269			232,878		—			338,723
Other receivables		58		2,746		3,715			20,759		—			27,278
Inventories, net		—		52,408		101,772			236,575		(30,609	)		360,146
Deferred income taxes - current		—		24,624		—			6,048		(21,109	)		9,563
Prepaid expenses and other current assets		2,433		5,914		3,614			17,282		—			29,243
Intercompany balances		—		176,329		—			—		(176,329	)		—
Current portion of assets held for sale		—		—		—			13,676		—			13,676

Total current assets		2,525		400,069		142,431			592,256		(228,047	)		909,234
Fixed assets, net		21,782		33,330		21,750			148,052		—			224,914
Intangible assets, net		4,962		44,362		1,121			84,220		—			134,665
Goodwill		—		103,880		7,676			146,682		—			258,238
Other assets		8,135		5,546		992			35,716		—			50,389
Deferred income taxes long-term		19,786		—		—			1,716		(21,502	)		—
Investment in subsidiaries		985,746		5,960		—			—		(991,706	)		—
Assets held for sale, net of current portion		—		—		—			23,715		—			23,715

Total assets	$	1,042,936	$	593,147	$	173,970		$	1,032,357	$	(1,241,255	)	$	1,601,155

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,524	$	38,976	$	20,565		$	106,940	$	—		$	168,005
Accrued liabilities		30,232		15,994		6,665			66,866		—			119,757
Current portion of long-term debt		—		15,798		—			27,626		—			43,424
Income taxes payable		—		1,185		—			728		—			1,913
Deferred income taxes - current		20,365		—		744			—		(21,109	)		—
Intercompany balances		121,442		—		30,302			24,585		(176,329	)		—
Current portion of assets held for sale		—		—		—			9,075		—			9,075

Total current liabilities		173,563		71,953		58,276			235,820		(197,438	)		342,174
Long-term debt, net of current portion		501,021		23,590		—			296,613		—			821,224
Other long-term liabilities		319		5,714		8,456			20,014		—			34,503
Deferred income taxes long-term		—		41,039		2,053			—		(21,502	)		21,590
Assets held for sale, net of current portion		—		—		—			1,577		—			1,577

Total liabilities		674,903		142,296		68,785			554,024		(218,940	)		1,221,068
Stockholders’/invested equity		368,033		450,851		105,185			466,279		(1,022,315	)		368,033
Non-controlling interest		—		—		—			12,054		—			12,054

Total liabilities and equity	$	1,042,936	$	593,147	$	173,970		$	1,032,357	$	(1,241,255	)	$	1,601,155

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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, net		—		43,405		93,074		224,695		(23,459	)		337,715
Deferred income taxes - current		—		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:
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 - current		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, net of current portion		500,896		—		—		306,916		—			807,812
Other long-term liabilities		1,622		6,012		8,946		19,765		—			36,345
Deferred income taxes long-term		—		41,039		2,053		—		(23,196	)		19,896
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

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Cash Flows

First Quarter Ended January 31, 2014


In thousands	Quiksilver, Inc.			QS Wholesale, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	15,387		$	6,787		$	25,081		$	12,867		$	(45,199	)	$	14,923
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
Income from discontinued operations		—			(23,922	)		(13,531	)		(164	)		—			(37,617	)
Depreciation and Amortization		585			2,589			1,330			6,041			—			10,545
Stock-based compensation		5,063			—			—			—			—			5,063
Provision for doubtful accounts		—			1,088			(209	)		783			—			1,662
Asset impairments		—			—			222			661			—			883
Equity in earnings		(35,932	)		74			—			352			35,858			352
Non-cash interest expense		462			239			—			213			—			914
Deferred income taxes		—			—			—			5			—			5
Other adjustments to reconcile net income		35			(9	)		(219	)		2,992			—			2,799
Changes in operating assets and liabilities:
Trade accounts receivable		—			12,327			13,169			38,707			—			64,203
Inventories		—			(9,271	)		(2,884	)		(29,849	)		9,341			(32,663	)
Other operating assets and liabilities		12,141			(11,998	)		(16,366	)		(18,962	)		—			(35,185	)

Cash (used in)/provided by operating activities of continuing operations		(2,259	)		(22,096	)		6,593			13,646			—			(4,116	)
Cash used in operating activities of discontinued operations		—			—			(1,861	)		(5,334	)		—			(7,195	)

Net cash (used in)/provided by operating activities		(2,259	)		(22,096	)		4,732			8,312			—			(11,311	)
Cash flows from investing activities:
Capital expenditures		(1,970	)		(2,397	)		(1,299	)		(4,892	)		—			(10,558	)
Changes in restricted cash		—			(60,214	)		—			(403	)		—			(60,617	)

Cash used in investing activities of continuing operations		(1,970	)		(62,611	)		(1,299	)		(5,295	)		—			(71,175	)
Cash provided by/(used in) investing activities of discontinued operations		—			58,060			18,991			(332	)		—			76,719

Net cash (used in)/provided by investing activities		(1,970	)		(4,551	)		17,692			(5,627	)		—			5,544
Cash flows from financing activities:
Borrowings on long-term debt		—			40,500			—			30,466			—			70,966
Payments on long-term debt		—			(18,500	)		—			(31,870	)		—			(50,370	)
Stock option exercises and employee stock purchases		3,138			—			—			—			—			3,138
Payments of debt issuance costs		(373	)		38			—			—			—			(335	)
Intercompany		1,463			8,134			(24,659	)		15,062			—			—

Cash provided by/(used in) financing activities of continuing operations		4,228			30,172			(24,659	)		13,658			—			23,399
Cash provided by financing activities of discontinued operations		—			—			—			—			—			—

Net cash provided by/(used in) financing activities		4,228			30,172			(24,659	)		13,658			—			23,399

Effect of exchange rate changes on cash		—			—			—			(4,924	)		—			(4,924	)

Net (decrease)/increase in cash and cash equivalents		(1	)		3,525			(2,235	)		11,419			—			12,708
Cash and cash equivalents, beginning of period		35			3,733			296			53,216			—			57,280

Cash and cash equivalents, end of period	$	34		$	7,258		$	(1,939	)	$	64,635		$	—		$	69,988

QUIKSILVER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Cash Flows

First Quarter Ended January 31, 2013


In thousands	Quiksilver, Inc.			QS Wholesale, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net (loss)/income	$	(31,129	)	$	(135	)	$	(13,837	)	$	5,574		$	8,903		$	(30,624	)
Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities:
Loss/(income) from discontinued operations		—			—			170			(769	)		(26	)		(625	)
Depreciation and Amortization		445			2,789			1,220			7,489			—			11,943
Stock-based compensation		7,336			—			—			—			—			7,336
Provision for doubtful accounts		—			226			(1,427	)		2,449			—			1,248
Asset impairments		—			—			1,335			1,833			—			3,168
Equity in earnings		7,847			(204	)		—			(11	)		(7,643	)		(11	)
Non-cash interest expense		392			330			—			189			—			911
Deferred income taxes		—			—			—			1,135			—			1,135
Other adjustments to reconcile net (loss)/income		154			—			(105	)		2,612			—			2,661
Changes in operating assets and liabilities:
Trade accounts receivable		—			14,023			35,553			35,962			—			85,538
Inventories		—			(19,663	)		(6,439	)		(41,888	)		(1,415	)		(69,405	)
Other operating assets and liabilities		1,707			7,235			(13,751	)		1,496			—			(3,313	)

Cash (used in)/provided by operating activities of continuing operations		(13,248	)		4,601			2,719			16,071			(181	)		9,962
Cash provided by operating activities of discontinued operations		—			—			8,512			4,661			181			13,354

Net cash (used in)/provided by operating activities		(13,248	)		4,601			11,231			20,732			—			23,316
Cash flows from investing activities:
Capital expenditures		(1,708	)		(1,517	)		(1,547	)		(7,328	)		—			(12,100	)

Cash used in investing activities of continuing operations		(1,708	)		(1,517	)		(1,547	)		(7,328	)		—			(12,100	)
Cash used in investing activities of discontinued operations		—			—			(33	)		(645	)		—			(678	)

Net cash used in investing activities		(1,708	)		(1,517	)		(1,580	)		(7,973	)		—			(12,778	)
Cash flows from financing activities:
Borrowings on lines of credit		—			—			—			1,963			—			1,963
Payments on lines of credit		—			—			—			(8,042	)		—			(8,042	)
Borrowings on long-term debt		—			23,000			—			24,879			—			47,879
Payments on long-term debt		—			(23,200	)		—			—			—			(23,200	)
Stock option exercises and employee stock purchases		3,319			—			—			—			—			3,319
Intercompany		11,732			(636	)		(11,742	)		646			—			—

Cash provided by/(used in) financing activities of continuing operations		15,051			(836	)		(11,742	)		19,446			—			21,919
Cash provided by financing activities of discontinued operations		—			—			—			—			—			—

Net cash provided by/(used in) financing activities		15,051			(836	)		(11,742	)		19,446			—			21,919
Effect of exchange rate changes on cash		—			—			—			(5,919	)		—			(5,919	)

Net increase/(decrease) in cash and cash equivalents		95			2,248			(2,091	)		26,286			—			26,538
Cash and cash equivalents, beginning of period		324			1,966			(1,831	)		41,364			—			41,823

Cash and cash equivalents, end of period	$	419		$	4,214		$	(3,922	)	$	67,650		$	—		$	68,361