##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934   Commission file number:
    000-51382
      Volcom, Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware(State or other
    jurisdiction of
    incorporation or organization)

33-0466919(I.R.S. Employer
    Identification No.)1740 Monrovia Avenue
    Costa Mesa, California(Address of principal
    executive offices)

92627(Zip Code)   (949) 646-2175
    (Registrants telephone number, including area
    code)
   Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon stock, $0.001 par value

The NASDAQ Global Select Market   Securities registered pursuant to Section 12(g) of the
    Act:
    None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 Large
    accelerated
    filer o     Accelerated
    filer þ     Non-accelerated
    filer o
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




---



##### 



TABLE OF
    CONTENTS
  PagePART I.Item 1.


Business


1Item 1A.


Risk
    Factors


13Item 1B.


Unresolved Staff
    Comments


20Item 2.


Properties


20Item 3.


Legal
    Proceedings


21Item 4.


Submission of
    Matters to a Vote of Security Holders


21PART II.Item 5.


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


21Item 6.


Selected Financial
    Data


24Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


26Item 7A.


Quantitative and
    Qualitative Disclosures about Market Risk


40Item 8.


Financial
    Statements and Supplementary Data


41Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


41Item 9A.


Controls and
    Procedures


41Item 9B.


Other
    Information


44PART III.Item 10.


Directors and
    Executive Officers and Corporate Governance


44Item 11.


Executive
    Compensation


44Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


44Item 13.


Certain
    Relationships and Related Transactions, and Director
    Independence


44Item 14.


Principal
    Accounting Fees and Services


44PART IV.Item 15.


Exhibits and
    Financial Statement Schedules


44EXHIBIT 10.9EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32   i




---



##### Table of Contents



Cautionary
    Note Regarding Forward-Looking Statements
  Form 10-K
  Form 10-K
 PART I  ITEM 1.
    BUSINESS




---



##### Table of Contents



www.sec.gov www.volcom.com
  Products
      T-Shirts and Fleece.
  Tops and Jackets.
 2




---



##### Table of Contents



Bottoms.
  Denim.
  Boardshorts.
  Outerwear. ®
  Accessories.
  Creedlers.
  Swim.
  V.co-Operative. V.co-Operative,
  
    styles designed in conjunction with team riders Shaun White,
    Mark Appleyard, Ozzie Wright, Ryan Sheckler, Dean Morrison,
    Bjorn Leines, Claire Bevilacqua and Dustin Dollin;
    the Bruce Irons Amphibulator boardshort, which includes
    high-performance features inspired and tested by professional
    surfer Bruce Irons; and
    the Geoff Rowley slim fit jean, which possesses proven
    durability and function with stretch denim.    Product
    Design
   3




---



##### Table of Contents



Manufacturing
    and Sourcing
       4




---



##### Table of Contents



back-up
    Imports
    and Import Restrictions
        Distribution
    and Sales
   5




---



##### Table of Contents



point-of-purchase
      case-by-case
    Licensing
   6




---



##### Table of Contents



Licensee

Initial Expiration Date

Extension Termination DateEurope


December 31, 2006 (expired)



N/AAustralia


June 30, 2007



June 30, 2012Brazil


December 31, 2008



December 31, 2013South Africa


December 31, 2006



December 31, 2011Indonesia


December 31, 2009



December 31, 2014     Advertising
    and Promotion
    Athlete
    Sponsorship
      Skateboarding
  
    Geoff Rowley  Geoff won the prestigious Thrasher
    Skater of the Year in 2001 and has been on the cover of many
    major skateboard publications. 7




---



##### Table of Contents




    Mark Appleyard  Mark was crowned the Transworld
    Street Skater of the Year in 2003, the Thrasher Skater of the
    Year in 2003 and won the Transworld Readers Choice Award
    for 2004.
    Ryan Sheckler  Ryan turned professional in 2003 at
    the age of thirteen. Since turning professional, he has been
    crowned the overall winner of the Dew Action Sports Tour in the
    skateboard park event and the athlete of the year for the entire
    tour in 2005 and 2006, placed first at the Vans Triple Crown in
    2005, the Slam City Jam in Vancouver, Canada in 2003, the 2003 X
    Games Park Final, the Gravity Games in 2003 and the LG Action
    Sports Contest in 2004. He also placed second at the 2005 World
    Globe Cup. Ryan is featured in the 2005 version of Tony
    Hawks Underground video game. He is also featured in the
    most recent version of Tony Hawks video game Project
    8. In addition, Ryan won the 2006 Champion of Globes
    Global Assault skateboard contest in Australia. Ryan was also
    selected as one of Sport Illustrateds Top 10 Crowd
    Pleasers of 2005. Fuel TV crowned Ryan the 2006 Skateboarder and
    Rider of the Year at the Arbys Action Sports Awards.
    Lauren Perkins  Lauren is a young skateboarder from
    Huntington Beach, California. She recently placed second at the
    Globe World Championship in Australia. Lauren was also recently
    featured on the cover of the womens action sports
    magazine, SG.  Snowboarding
  
    Shaun White  Shaun is one of the most versatile
    boardsport athletes in the world, performing at a championship
    level in both snowboarding and skateboarding. Shauns many
    achievements include: 2006 Winter Olympics gold medalist in the
    snowboard halfpipe, four-time X Games Champion, two-time
    Session-At-Vail
    Champion, Nippon Open Champion, Grand Prix in Lake Placid
    Champion, Air & Style Champion, Arctic Challenge
    Champion, U.S. Open Champion, and Vans Triple Crown
    Slopestyle and Super-Pipe Champion. Shaun was voted the 2006
    Rider of the Year by Transworld Snowboarding, received the 2006
    Readers Choice Award by Transworld Snowboarding and was ranked
    the top rider of the year by Snowboarder Magazine.
    Terje Haakonsen  Terjes championships include,
    among others, two-time Air & Style Champion, three-time
    U.S. Open Half-Pipe Champion, three-time International
    Snowboard Federation World Half-Pipe Champion, six-time Mt.
    Baker Banked Slalom Champion and five-time European Half-Pipe
    Champion. Recently, Terje set the world record (9.8 meters) for
    the biggest backside 360 at the 2007 Arctic Challenge.
    Bjorn Leines  Bjorn placed fourth in Slopestyle at
    the 2005 X Games, won the 2003 Red Bull Heavy Metal, has twice
    been ranked second by Snowboarder magazine for Rider of the
    Year, is a featured rider in Xbox games Amped and Amped 2 and
    has been a Transworld Snowboarding Magazine Readers Choice
    Award nominee.
    Janna Meyen  Janna is a 2004, 2005 and 2006 X Games
    gold medalist and was crowned the 2004 Womens Rider of the
    Year by Transworld Snowboarding Magazine. Her abilities range
    from big mountain riding to halfpipe, slopestyle and handrails.
    Elena Hight  Elena was the youngest member of the
    2006 U.S. Winter Olympic Snowboarding team and placed sixth
    at the Winter Olympic Halfpipe event. Elena won the Vans Cup
    snowboard halfpipe competition in 2007. She also won the Overall
    Burton Abominable Snow Jam in 2006, placed second at the first
    two Grand Prix of Snowboarding events of the
    2006/2007
    season and placed third at the Winter X Games in 2007. She was
    voted Womens 2006 Rookie of the Year by Transworld Snowboarding
    Magazine and the 2006 Grom of the Year at the Fuel Action Sports
    TV Awards.  Surfing
  
    Bruce Irons  Bruce is beginning his fourth year of
    the Association of Surfing Professionals, or ASP, World
    Championship Tour, or WCT. Bruce won the 2005 Eddie Aikau Big
    Wave Invitational at Waimea Bay in Hawaii and the Mr. Price
    Pro, a six-star WQS event. Bruce has also won the prestigious
    WCT Pipemasters event, held at the Banzai Pipeline on the North
    Shore of Oahu. Bruce was voted ASP Rookie of the Year for the
    2004 WCT season and finished in fourth place in the 2006 Surfer
    Magazine Readers Choice Poll. 8




---



##### Table of Contents




    Dean Morrison  Dean is one of the best Australian
    surfers and is also on the ASP WCT. He won the WCT event at his
    home break at Snapper Rock, Australia in 2003. Dean finished
    tenth in the world on the ASPs WCT tour in 2006. Dean has
    also been featured on many major magazine covers in Australia.
    Claire Bevilacqua  Claire is beginning her third year
    on the Womens World Championship Tour. She recently placed third
    in the Honolua Womens WCT event. In February 2006, Claire was
    crowned the 2005 ASP Womens Rookie of the Year. Claire
    placed sixth in the 2004 World Qualifying Series and placed
    third in the 2005 Bells Beach, Australia WCT contest.      Volcom
    Branded Events
        Print
    Advertisements
   9




---



##### Table of Contents



Music
      Film
    Alive We Ride, The
    Garden, Subjekt: Haakonsen, Magnaplasm, Chichagof The
    Bruce Movie. Escramble.
  Featured
    Artist Series
    Retail
   10




---



##### Table of Contents



The
    Volcom Pipehouse
  up-and-coming
  Online
    Marketing
  www.volcom.com sign-up Form 10-K.
  Competition
      
    maintain our reputation as a popular lifestyle brand among the
    skateboarding, snowboarding and surfing community and others who
    associate themselves with the action sports youth lifestyle;
    continue to develop and respond to global fashion and lifestyle
    trends in our target market;
    advance our brand as an authentic,
    anti-establishment brand while continuing to grow as
    a global business;
    design stylish, high-quality products at appropriate prices for
    our target market; and
    continue to convey our lifestyle message to our target market
    worldwide.  Principal
    Customers
   11




---



##### Table of Contents



Credit
    and Collection
    Trademarks
    Government
    Regulation
    Management
    Information Systems
    Employees
   12




---



##### Table of Contents



ITEM 1A.
    RISK
    FACTORS  Before deciding to purchase, hold or sell our common stock,
    you should carefully consider the risks described below in
    addition to the other cautionary statements and risks described
    elsewhere, and the other information contained, in this Report
    and in our other filings with the SEC, including our subsequent
    reports on
    Forms 10-Q
    and 8-K. The
    risks and uncertainties described below are not the only ones we
    face. Additional risks and uncertainties not presently known to
    us or that we currently deem immaterial may also affect our
    business. If any of these known or unknown risks or
    uncertainties actually occurs with material adverse effects on
    us, our business, financial condition and results of operations
    could be seriously harmed. In that event, the market price for
    our common stock will likely decline, and you may lose all or
    part of your investment.
  Our
    earnings may be adversely affected by the discontinuance of our
    licensing relationship in Europe and the additional expenses
    incurred while taking direct control of the Volcom brand in
    Europe.
    One
    retail customer represents a material amount of our revenues,
    and the loss of this retail customer or reduced purchases from
    this retail customer may have a material adverse effect on our
    operating results.
    If our
    new product initiatives are not accepted by our customers or if
    we are unable to maintain our margins, it could materially
    affect our financial performance.
   13




---



##### Table of Contents



If our
    marketing efforts do not effectively maintain and expand our
    brand name recognition, we may not be able to achieve our growth
    strategy.
    If we
    are unable to continue to develop innovative and stylish
    products, demand for our products may decrease and our brand
    image may be harmed.
      Changes
    in the mix of retailers to whom we distribute our products could
    impact our gross margin and brand image, which could have a
    material adverse effect on our results of
    operations.
    We may
    be unable to sustain our past growth or manage our future
    growth, which may have a material adverse effect on our future
    operating results.
     14




---



##### Table of Contents



Our
    business could be harmed if we fail to maintain proper inventory
    levels.
    If we
    are unable to maintain and expand our endorsements by
    professional athletes, our ability to market and sell our
    products may be harmed.
      If we
    fail to secure or protect our intellectual property rights,
    counterfeiters may be able to copy and sell imitations of our
    products and competitors may be able to use our designs, each of
    which could harm our reputation, reduce our revenues and
    increase our costs.
     15




---



##### Table of Contents



Our
    current executive officers and management personnel are critical
    to our success, and the loss of these individuals could harm our
    business, brand and image.
    Our
    ability to attract and retain qualified design and sales and
    marketing personnel is critical to our success, and any
    inability to attract and retain such personnel could harm our
    business.
    We do
    not have long-term contracts with any of our retailers, and the
    loss of orders for our products from our retailers may have a
    material adverse effect on our operating results.
    Any
    inability to receive timely deliveries from our manufacturers
    could harm our business.
   16




---



##### Table of Contents



If the
    United States continues to impose tariffs and import quota
    restrictions on products manufactured in China and we are unable
    to obtain sufficient product from countries other than China or
    from domestic sources, or if the products we obtain from these
    other countries or domestic sources are of insufficient quality,
    it could materially affect our gross margin and financial
    performance.
    Any
    shortage of raw materials could impair our ability to ship
    orders of our products in a cost-efficient manner or could cause
    us to miss the delivery requirements of our customers, which
    could harm our business.
    If we
    are required to establish new manufacturing relationships due to
    the termination of current key manufacturing relationships with
    large contractors such as Ningbo Jehson Textiles and Dragon
    Crowd, we would likely experience increased costs, disruptions
    in the manufacture and shipment of our products and a loss of
    revenue.
   17




---



##### Table of Contents



Our
    business could suffer if any of our or our licensees key
    manufacturers fails to use acceptable labor
    practices.
    We may
    not be able to compete effectively, which could cause our
    revenues and market share to decline.
      We may
    be adversely affected by the financial condition of our
    retailers.
    Our
    revenues and operating income fluctuate on a seasonal basis and
    decreases in sales or margins during our peak seasons could have
    a disproportionate effect on our overall financial condition and
    results of operations.
   18




---



##### Table of Contents



Cyclical
    economic trends in apparel retailing could have a material
    adverse effect on our results of operations.
    We
    face business, political, operational, financial and economic
    risks because a portion of our revenues are from international
    customers, substantially all of our products are sourced
    overseas and our licensees operate outside of the United
    States.
    
    difficulties obtaining domestic and foreign export, import and
    other governmental approvals, permits and licenses, and
    compliance with foreign laws, which could halt, interrupt or
    delay our operations if we cannot obtain such approvals, permits
    and licenses;
    difficulties encountered by our international licensees or us in
    staffing and managing foreign operations or international sales;
    transportation delays and difficulties of managing international
    distribution channels;
    longer payment cycles for, and greater difficulty collecting,
    accounts receivable and royalty payments;
    trade restrictions, higher tariffs, currency fluctuations or the
    imposition of additional regulations relating to import or
    export of our products, especially in China, where a large
    portion of our products are manufactured, which could force us
    to seek alternate manufacturing sources or increase our expenses;
    unexpected changes in regulatory requirements, royalties and
    withholding taxes that restrict the repatriation of earnings and
    effects on our effective income tax rate due to profits
    generated or lost in foreign countries;
    political and economic instability, including wars, terrorism,
    political unrest, boycotts, curtailment of trade and other
    business restrictions; and
    natural disasters.    Fluctuations
    in foreign currency exchange rates could harm our results of
    operations.
   19




---



##### Table of Contents



If the
    ownership of our common stock continues to be highly
    concentrated, it may prevent you and other stockholders from
    influencing significant corporate decisions and may result in
    conflicts of interest that could cause our stock price to
    decline.
    The
    market price of our common stock is highly volatile and may
    result in investors selling shares of our common stock at a
    loss.
    
    actual or anticipated variations in quarterly operating results;
    changes in financial estimates by securities analysts;
    conditions or trends in the fashion and boardsports
    industries; and
    changes in the market valuations of similar companies.  class-action
  ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES      Location

Use

Term

Square FeetCosta Mesa, California


Global headquarters



July 2014



104,000Irvine, California


Distribution center



September 2017



164,000Anglet,
    France(1)


European headquarters



May 2036



34,000     (1)
    
    We own the facilities located on
    the leased land in Anglet, France. 20




---



##### Table of Contents



ITEM 3.
    LEGAL
    PROCEEDINGS    ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES  Market
    Information and Holders
    Price Range ofCommon StockHigh


LowYear Ended December 31,
    2006First Quarter (March 31, 2006)

$
40.71


$
31.80Second Quarter (June 30, 2006)

$
37.78


$
27.13Third Quarter (September 30,
    2006)

$
32.16


$
18.52Fourth Quarter (December 31,
    2006)

$
33.25


$
23.91Year Ended December 31,
    2005Second Quarter (June 30, 2005)

$
26.77


$
26.77Third Quarter (September 30,
    2005)

$
35.77


$
25.10Fourth Quarter (December 31,
    2005)

$
35.68


$
26.24       Dividend
    Policy
    Unregistered
    Sale of Equity Securities and Issuer Purchases of Equity
    Securities
   21




---



##### Table of Contents



Equity
    Compensation Plans
    Number of SecuritiesRemaining AvailableNumber of Securities





for Future Issuanceto be Issued upon


Weighted Average


under EquityExercise of


Exercise Price of


Compensation PlansOutstanding Options,


Outstanding Options,


(Excluding SecuritiesWarrants and Rights


Warrants and Rights


Reflected in Column (a))Plan Category

(a)


(b)


(c)Equity compensation plans approved
    by security holders


487,700


$
19.00



2,162,756Equity compensation plans not
    approved by security holders


N/A



N/A



N/ATotal


487,700


$
19.00



2,162,756     Use of
    Proceeds
  Form S-1 No. 333-124498)
 22




---



##### Table of Contents



Performance
    Graph1
    
  Annual
    Percentage Return
  06/29/05


12/31/05


12/31/06Volcom, Inc



100.00




179.00




155.63NASDAQ Composite



100.00




108.44




123.31S&P Apparel,
    Accessories & Luxury Goods



100.00




105.53




136.92     1
 23




---



##### Table of Contents



ITEM 6.
    SELECTED
    FINANCIAL DATA  Form 10-K. Form 10-K.
  Year Ended December 31,2006


2005


2004


2003


2002(In thousands, except share and per share data)Consolidated Statements of
    Operations Data:Revenues:Product revenues

$
201,186


$
156,716


$
110,601


$
74,389


$
56,302Licensing revenues


4,072



3,235



2,574



1,877



833Total revenues


205,258



159,951



113,175



76,266



57,135Cost of goods sold


103,237



78,632



58,205



39,384



31,184Gross profit


102,021



81,319



54,970



36,882



25,951Selling, general and
    administrative expenses


58,417



42,939



30,585



22,919



18,123Operating income


43,604



38,380



24,385



13,963



7,828Other income (expense)


4,069



1,101



(6
)


106



(129
)Income before provision for income
    taxes


47,673



39,481



24,379



14,069



7,699Provision for income taxes(1)


18,920



10,475



374



214



215Income before equity in earnings
    of investee


28,753



29,006



24,005



13,855



7,484Equity in earnings of investee






331



588



407



129Net income

$
28,753


$
29,337


$
24,593


$
14,262


$
7,613Net income per share:Basic

$
1.19


$
1.36


$
1.28


$
0.75


$
0.41Diluted

$
1.18


$
1.34


$
1.26


$
0.73


$
0.39Weighted average shares
    outstanding:Basic


24,227,845



21,627,821



19,142,275



19,054,109



18,771,059Diluted


24,304,627



21,839,626



19,534,945



19,530,873



19,513,969     (1)
    
    For Federal and state income tax
    purposes we had elected to be treated as an S corporation
    from January 1, 2002 until our initial public offering on
    June 29, 2005, and during that period we were not subject
    to Federal or state income taxes, other than California
    franchise taxes of 1.5% on our corporate income. For all periods
    from and after June 29, 2005, we have become subject to the
    Federal and state income taxes applicable to a C corporation. As
    a result, our provision for income taxes, net income and net
    income per share data for 2004, 2003 and 2002 are not comparable
    to our provision for income taxes, net income and net income per
    share data for 2006 and 2005.  24




---



##### Table of Contents



Year Ended December 31,2005


2004


2003(In thousands, except per share data)Pro Forma Net Income
    Data(1):Income before provision for income
    taxes, as reported

$
39,481


$
24,379


$
14,069Pro forma provision for income
    taxes


16,223



10,178



5,909Pro forma income before equity in
    earnings of investee


23,258



14,201



8,160Equity in earnings of investee


331



588



407Pro forma net income

$
23,589


$
14,789


$
8,567Pro forma net income per share:Basic

$
1.09


$
0.77Diluted

$
1.08


$
0.76Pro forma weighted average shares
    outstanding:Basic


21,627,821



19,142,275Diluted


21,839,626



19,534,945   As of December 31,2006


2005


2004


2003


2002(In thousands)Consolidated Balance Sheet
    Data:Cash and cash equivalents

$
85,414


$
71,712


$
10,359


$
5,079


$
1,141Working capital


121,069



98,470



27,041



16,595



8,209Total assets


149,748



111,381



35,886



22,601



13,902Long-term capital lease
    obligations, less current portion


106



183



256



160



45Total stockholders equity


133,997



102,680



29,502



18,044



9,019     (1)
    
    Pro forma net income data reflects
    the provision for income taxes that would have been recorded had
    we been subject to Federal and state income taxes as a C
    corporation, and not been exempt from paying income taxes other
    than California franchise taxes due to our S corporation
    election, from January 1, 2002 to June 29, 2005. 25




---



##### Table of Contents



ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  The following discussion of our financial condition and
    results of operations should be read in conjunction with our
    consolidated financial statements and related notes included
    elsewhere in this
    Form 10-K.
    This discussion contains forward-looking statements that involve
    risks and uncertainties. Our actual results may differ
    materially from those anticipated in these forward-looking
    statements due to known and unknown risks, uncertainties and
    other factors, including those risks discussed in Item 1A.
    Risk Factors and elsewhere in this
    Form 10-K.
    Those risk factors expressly qualify all subsequent oral and
    written forward-looking statements attributable to us or persons
    acting on our behalf. We do not have any intention or obligation
    to update forward-looking statements included in this
    Form 10-K
    after the date of this
    Form 10-K,
    except as required by law.
  Overview
         26




---



##### Table of Contents



period-over-period
         27




---



##### Table of Contents



Share-Based Payment,
  Critical
    Accounting Policies
    Revenue
    Recognition
  case-by-case
   28




---



##### Table of Contents



Accounts
    Receivable
    Inventories
    
    unanticipated changes in consumer preferences;
    weakening economic conditions;
    terrorist acts or threats;
    reduced consumer confidence in the retail market; and
    unseasonable weather.    Goodwill
    and Intangible Assets
  Goodwill and Intangible Assets.
  Long-Lived
    Assets
   29




---



##### Table of Contents



Investments
    in Unconsolidated Investees
        Athlete
    Sponsorships
    Income
    Taxes
     30




---



##### Table of Contents



Stock-Based
    Compensation
  Share-Based Payment.
  Foreign
    Currency Translation
      General
       31




---



##### Table of Contents



Results
    of Operations
    Year Ended December 31,2006


2005


2004Revenues


100.0
%


100.0
%


100.0
%Cost of goods sold


50.3



49.2



51.4Gross profit


49.7



50.8



48.6Selling, general and
    administrative expenses


28.5



26.8



27.0Operating income


21.2



24.0



21.6Other income (expense)


2.0



0.7



(0.1
)Income before provision for income
    taxes


23.2



24.7



21.5Provision for income taxes


9.2



6.5



0.3Income before equity in earnings
    of investee


14.0



18.2



21.2Equity in earnings of investee


0.0



0.1



0.5Net income


14.0
%


18.3
%


21.7
%   Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
  Revenues
  period-over-period
       32




---



##### Table of Contents



Gross
    Profit
    Selling,
    General and Administrative Expenses
    Operating
    Income
    Other
    Income
    Provision
    for Income Taxes
     33




---



##### Table of Contents



Net
    Income
    Year
    Ended December 31, 2005 Compared to Year Ended
    December 31, 2004
  Revenues
  period-over-period
        Gross
    Profit
    Selling,
    General and Administrative Expenses
   34




---



##### Table of Contents



Operating
    Income
    Other
    Income (Expense)
    Provision
    for Income Taxes
      Net
    Income
    Liquidity
    and Capital Resources
   35




---



##### Table of Contents



Year Ended December 31,2006


2005


2004(In thousands)Cash and cash equivalents at
    beginning of period

$
71,712


$
10,359


$
5,079Cash flow from operating activities


20,956



22,985



19,424Cash flow from investing activities


(9,229
)


(2,657
)


(811
)Cash flow from financing activities


1,703



41,041



(13,333
)Effect of exchange rate changes on
    cash


272



(16
)


Cash and cash equivalents at end
    of period

$
85,414


$
71,712


$
10,359       (In thousands)


Attributable to$
(9,029
)

Decrease in cash flows from
    accounts receivable due to increased sales and timing of
    collections.(3,136
)

Decrease in excess tax benefits
    related to exercise of stock options.(584
)

Decrease in net income.4,043


Increase in cash flows from
    accounts payable, accrued expenses and other long-term
    liabilities due to timing of payments and increased payroll
    accruals and other liabilities.2,690


Increase in cash flows due to a
    slower growth rate in inventories.1,954


Increase in non-cash depreciation,
    provision for doubtful accounts and stock-based compensation.1,665


Increase in cash flows from income
    tax receivable/payable due to timing of payments made for income
    taxes.331


Increase in cash flows due to a
    decrease in equity in earnings of investee, net of dividends
    received.37


Net increase in cash flows from
    all other operating activities.$
(2,029
)

Total      36




---



##### Table of Contents



Credit
    Facilities
  sub-facilities).
  Contractual
    Obligations and Commitments
    Payments Due by PeriodTotal


2007


2008


2009


2010


2011


Thereafter(In thousands)Operating lease obligations

$
12,603


$
1,802


$
2,666


$
2,262


$
1,968


$
1,777


$
2,128Facility construction
    obligations(1)


747



747



















Capital lease obligations


197



87



76



34











Professional athlete sponsorships


6,308



4,084



1,840



384











Contractual letters of credit


873



873



















Total

$
20,728


$
7,593


$
4,582


$
2,680


$
1,968


$
1,777


$
2,128     (1)
    
    Based on a 1 Euro to 1.3203
    U.S. dollar exchange rate at December 31, 2006.   37




---



##### Table of Contents



Seasonality
      Backlog
   38




---



##### Table of Contents



Inflation
    Vulnerability
    Due to Concentrations
        Recent
    Accounting Pronouncements
  Inventory Costs, an
    Amendment of ARB No. 43, Chapter 4.
  Share-Based Payment.
  Accounting for Changes and Error Corrections Accounting Changes Reporting Accounting Changes in Interim
    Financial Statements.
  No. SFAS 123R-3, Transition Election Related to Accounting for the Tax Effects
    of Share-Based Payment Awards.
 39




---



##### Table of Contents



Accounting for Uncertainty in Income
    Taxes  an interpretation of FASB Statement
    No. 109.
  No. 06-03, How Taxes Collected from Customers and Remitted to
    Governmental Authorities Should Be Presented in the Income
    Statement (that is, Gross versus Net Presentation). 06-03 06-03
  Fair Value Measurements.
  Considering the Effects of
    Prior Year Misstatements When Quantifying Misstatements in
    Current Year Financial Statements.
  ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  Foreign
    Currency Risk
  marked-to-market
   40




---



##### Table of Contents



Interest
    Rate Risk
  sub-facilities)
  ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA    ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Disclosure
    Controls and Procedures
     41




---



##### Table of Contents



Internal
    Control Over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
  Managements
    Report on Internal Control Over Financial Reporting
  Rules 13a-15(f) 15d-15(f). Internal Control 
    Integrated Framework Internal
    Control  Integrated Framework
     President and Chief Executive Officer
 (Principal Executive Officer)
   Chief Financial Officer, Secretary and Treasurer
 (Principal Financial Officer)
   42




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    ON INTERNAL CONTROL OVER FINANCIAL REPORTING
     Managements Report on Internal Control
    Over Financial Reporting Internal Control  Integrated Framework
            
   43




---



##### Table of Contents



ITEM 9B.  OTHER
    INFORMATION   PART III ITEM 10.  DIRECTORS
    AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   ITEM 11.  EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTING FEES AND SERVICES   PART IV  ITEM 15.
    EXHIBITS,
    FINANCIAL STATEMENT SCHEDULES  page F-1
     44




---



##### Table of Contents



INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageReport of
    Independent Registered Public Accounting Firm


F-2Consolidated
    Balance Sheets as of December 31, 2006 and 2005


F-3Consolidated
    Statements of Operations for the years ended December 31,
    2006, 2005 and 2004


F-4Consolidated
    Statements of Stockholders Equity for the years ended
    December 31, 2006, 2005 and 2004


F-5Consolidated
    Statements of Cash Flows for the years ended December 31,
    2006, 2005 and 2004


F-6Notes to
    Consolidated Financial Statements


F-8  F-1




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Share-based Payment
  Internal Control 
    Integrated Framework
  
   F-2




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
 CONSOLIDATED
    BALANCE SHEETS  As of December 31,2006


2005(In thousands, except share data)AssetsCurrent assets:Cash and cash equivalents

$
85,414


$
71,712Accounts receivable 
    net of allowances of $1,323 (2006) and $730 (2005)


34,175



21,408Inventories


13,185



10,833Prepaid expenses and other current
    assets


1,383



1,366Income taxes receivable






479Deferred income taxes


2,353



1,110Total current assets


136,510



106,908Property and equipment 
    net


11,527



3,467Investments in unconsolidated
    investees


298



298Deferred income taxes


660



Intangible assets  net


386



451Goodwill


158



158Other assets


209



99Total assets

$
149,748


$
111,381Liabilities and
    Stockholders EquityCurrent liabilities:Accounts payable

$
8,764


$
5,779Accrued expenses and other current
    liabilities


6,175



2,587Income taxes payable


424



Current portion of capital lease
    obligations


78



72Total current liabilities


15,441



8,438Long-term capital lease obligations


106



183Other long-term liabilities


204



Deferred income taxes






80Commitments and contingencies
    (Note 9)Stockholders equity:Common stock, $.001 par
    value  60,000,000 shares authorized; 24,295,420
    (2006) and 24,214,120 (2005) shares issued and
    outstanding


24



24Additional paid-in capital


86,773



84,418Retained earnings


47,019



18,266Accumulated other comprehensive
    income (loss)


181



(28
)Total stockholders equity


133,997



102,680Total liabilities and
    stockholders equity

$
149,748


$
111,381    F-3




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF OPERATIONS  Year Ended December 31,2006


2005


2004(In thousands, except share and per share data)Revenues:Product revenues

$
201,186


$
156,716


$
110,601Licensing revenues


4,072



3,235



2,574Total revenues


205,258



159,951



113,175Cost of goods sold


103,237



78,632



58,205Gross profit


102,021



81,319



54,970Selling, general and
    administrative expenses


58,417



42,939



30,585Operating income


43,604



38,380



24,385Other income (expense):Interest income (expense), net


3,833



1,036



(6
)Dividend income from cost method
    investee


3



11



Foreign currency gain


233



54



Total other income (expense)


4,069



1,101



(6
)Income before provision for income
    taxes


47,673



39,481



24,379Provision for income taxes


18,920



10,475



374Income before equity in earnings
    of investee


28,753



29,006



24,005Equity in earnings of investee






331



588Net income

$
28,753


$
29,337


$
24,593Net income per share:Basic

$
1.19


$
1.36


$
1.28Diluted

$
1.18


$
1.34


$
1.26Weighted average shares
    outstanding:Basic


24,227,845



21,627,821



19,142,275Diluted


24,304,627



21,839,626



19,534,945Pro forma net income data
    (unaudited):Income before provision for income
    taxes, as reported





$
39,481


$
24,379Pro forma provision for income
    taxes






16,223



10,178Pro forma income before equity in
    earnings of investee






23,258



14,201Equity in earnings of investee






331



588Pro forma net income





$
23,589


$
14,789Pro forma net income per share
    (unaudited):Basic





$
1.09


$
0.77Diluted





$
1.08


$
0.76Pro forma weighted average shares
    outstanding (unaudited):Basic






21,627,821



19,142,275Diluted






21,839,626



19,534,945    F-4




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY  AccumulatedAdditional





OtherCommon Stock


Paid-In


Retained


Comprehensive


ComprehensiveShares


Amount


Capital


Earnings


Income


Income


Total(In thousands, except share data)Balance at January 1, 2004


19,054,109


$
19


$
1,045


$
16,815


$
165






$
18,044Exercise of stock options


116,596







5















5Stock-based compensation










31















31Distributions














(13,275
)










(13,275
)Comprehensive income:Net income














24,593






$
24,593



24,593Foreign currency translation of
    equity method investee


















104



104



104Comprehensive income





















$
24,697Balance at December 31, 2004


19,170,705


$
19


$
1,081


$
28,133


$
269






$
29,502Initial public offering, net of 
    offering costs


4,640,625



4



80,127















80,131Stock-based compensation










178















178Issuance of restricted stock


20,000























Exercise of stock options


382,790



1



199















200Tax benefits related to exercise
    of
    stock options










2,833















2,833Distributions














(39,204
)










(39,204
)Comprehensive income:Net income














29,337






$
29,337



29,337Foreign currency translation of
    equity method investee


















(269
)


(269
)


(269
)Foreign currency translation
    adjustment


















(28
)


(28
)


(28
)Comprehensive income





















$
29,040Balance at December 31, 2005


24,214,120


$
24


$
84,418


$
18,266


$
(28
)





$
102,680Stock-based compensation










812















812Issuance of restricted stock


15,000























Exercise of stock options


66,300







1,261















1,261Tax benefits related to exercise
    of
    stock options










282















282Comprehensive income:Net income














28,753






$
28,753



28,753Foreign currency translation
    adjustment


















209



209



209Comprehensive income





















$
28,962Balance at December 31, 2006


24,295,420


$
24


$
86,773


$
47,019


$
181






$
133,997    F-5




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended December 31,2006


2005


2004(In thousands)Cash flows from operating
    activities:Net income

$
28,753


$
29,337


$
24,593Adjustments to reconcile net
    income to net cash provided by
    operating activities:Depreciation and amortization


1,423



623



332Equity in earnings of investee,
    net of dividends received






(331
)


(361
)Provision for doubtful accounts


588



68



67Loss on disposal of property and
    equipment


64



30



Excess tax benefits related to
    exercise of stock options


(303
)


2,833



Stock-based compensation


812



178



31Deferred income taxes


(1,983
)


(1,150
)


11Changes in operating assets and
    liabilities:Accounts receivable


(13,248
)


(4,219
)


(6,815
)Inventories


(2,335
)


(5,025
)


(30
)Prepaid expenses and other current
    assets


12



(867
)


(110
)Income taxes receivable/payable


1,186



(479
)


(81
)Other assets


(97
)


(54
)


13Accounts payable


2,912



799



1,475Accrued expenses


2,977



1,242



299Other long-term liabilities


195







Net cash provided by operating
    activities


20,956



22,985



19,424Cash flows from investing
    activities:Purchase of property and equipment


(9,063
)


(2,933
)


(550
)Proceeds from sale of property and
    equipment


2







Proceeds from sale of equity
    method investee






1,391



Business acquisition, net of cash
    acquired


(168
)


(1,115
)


Purchase of additional shares in
    cost method investee










(261
)Net cash used in investing
    activities


(9,229
)


(2,657
)


(811
)Cash flows from financing
    activities:Proceeds from borrowings on line
    of credit










1,401Payments on line of credit










(1,401
)Principal payments on capital
    lease obligations


(71
)


(86
)


(63
)Proceeds from government grants


210







Proceeds from initial public
    offering, net of offering costs






80,131



Proceeds from the exercise of
    stock options


1,261



200



5Excess tax benefits related to
    exercise of stock options


303







Distributions to stockholders






(39,204
)


(13,275
)Net cash provided by (used in)
    financing activities


1,703



41,041



(13,333
)Effect of exchange rate changes
    on cash


272



(16
)


Net increase in cash and cash
    equivalents


13,702



61,353



5,280Cash and cash
    equivalents
    Beginning of period


71,712



10,359



5,079Cash and cash
    equivalents
    End of period

$
85,414


$
71,712


$
10,359Supplemental disclosures of
    cash flow information:Cash paid during the period for:Interest

$
14


$
21


$
21Income taxes


19,619



9,274



450    F-6




---



##### Table of Contents



Supplemental
    disclosures of noncash investing and financing
    activities:
       F-7




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
 NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  1.
    Organization
    and Summary of Significant Accounting Policies            Principles of Consolidation 
  Basis of Presentation
  Initial Public Offering
  Cash and Cash Equivalents
  Concentration of Credit Risks
   F-8




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Inventories (first-in,
  Property and Equipment
  Investments in Unconsolidated Investees
    Long-Lived Assets Accounting for the
    Impairment or Disposition of Long-Lived Assets.
  Goodwill and Intangible Assets Goodwill and Intangible Assets.
  Fair Value of Financial Instruments Disclosures about Fair Value of
    Financial Instruments,
 F-9




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Revenue Recognition
    Shipping and Handling
  Significant Concentrations
    Advertising and Promotion point-of-sale
  Income Taxes
   F-10




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Foreign Currency Translation
    S Corporation Distributions
  Stock Split
  Comprehensive Income
    Net Income Per Share Earnings Per Share.
 F-11




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Year Ended December 31,2006


2005


2004(In thousands, except share data)Numerator  Net income
    applicable to common stockholders

$
28,753


$
29,337


$
24,593Denominator:Weighted average common stock
    outstanding for 
    basic earnings per share


24,227,845



21,627,821



19,142,275Effect of dilutive securities:Stock options and restricted stock


76,782



211,805



392,670Adjusted weighted average common
    stock and assumed conversions for diluted earnings per share


24,304,627



21,839,626



19,534,945   Stock-Based Compensation Share-Based Payment
  Related-Party Transactions
  Use of Estimates in the Preparation of the Financial
    Statements
  Recent Accounting Pronouncements , Inventory Costs, an Amendment of ARB
    No. 43, Chapter 4.
  Share-Based Payment.
  Accounting for Changes and Error Corrections, Accounting Changes and
    SFAS No. 3, Reporting Accounting Changes in Interim
    Financial Statements.
 F-12




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    No. SFAS 123R-3, Transition Election Related to Accounting for the Tax Effects
    of Share-Based Payment Awards.
  Accounting for Uncertainty in Income
    Taxes  an interpretation of FASB Statement
    No. 109.
  No. 06-03, How Taxes Collected from Customers and Remitted to
    Governmental Authorities Should Be Presented in the Income
    Statement (that is, Gross versus Net Presentation). 06-03 06-03
  Fair Value Measurements.
  Considering the Effects of
    Prior Year Misstatements When Quantifying Misstatements in
    Current Year Financial Statements.
 F-13




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   2.
    Allowances
    for Doubtful Accounts and Product Returns  Allowance for


Allowance forDoubtful Accounts


Product Returns


Total(In thousands)Balance, January 1, 2004

$
132


$
73


$
205Provision


67



1,504Deductions


(53
)


(1,345
)Balance, December 31, 2004


146



232



378Provision


68



2,139Deductions


(24
)


(1,831
)Balance, December 31, 2005


190



540



730Provision


588



4,196Deductions


(283
)


(3,908
)Balance, December 31, 2006

$
495


$
828


$
1,323     3.
    Inventories    As of December 31,2006


2005(In thousands)Finished goods

$
12,959


$
10,188Work-in-process


41



312Raw materials


185



333$
13,185


$
10,833    F-14




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  4.
    Property
    and Equipment    As of December 31,2006


2005(In thousands)Furniture and fixtures

$
1,869


$
600Office equipment


1,180



1,062Computer equipment


2,173



1,141Leasehold improvements


1,241



128Land and building


2,004



2,004Construction in progress


5,709



14,176



4,935Less accumulated depreciation


(2,649
)


(1,468
)Property and equipment 
    net

$
11,527


$
3,467         5.
    Investment
    in Unconsolidated Investees  Volcom Europe
 F-15




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
     Volcom Australia
    6.
    Goodwill
    and Intangible Assets    As ofOctober 25, 2005(In thousands)Current assets

$
1,198Long-term assets


67Intangible assets


510Goodwill


158Total assets acquired


1,933Current liabilities


421Net assets acquired

$
1,512  F-16




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    As of December 31, 2006


As of December 31, 2005Gross Carrying


Accumulated


Gross Carrying


AccumulatedAmount


Amortization


Amount


Amortization(In thousands)Customer relationships

$
310


$
36


$
310


$
5Backlog


160



160



160



53Non-compete agreements


40



5



40



1Reacquired license rights


84



7







$
594


$
208


$
510


$
59     7.
    Accrued
    Expenses and Other Current Liabilities    As of December 31,2006


2005(In thousands)Payroll and related accruals

$
3,785


$
1,079Other


2,390



1,508$
6,175


$
2,587   8.
    Line of
    Credit  sub-facilities).
  9.
    Commitments
    and Contingencies  Operating Leases
 F-17




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
     Year Ending December 31,2007

$
1,8022008


2,6662009


2,2622010


1,9682011


1,777Thereafter


2,128$
12,603     Capital Leases
  Year Ending December 31,2007

$
872008


762009


34Total payments including interest


197Less interest portion


(13
)Total principal payments remaining
    at December 31, 2006

$
184Current portion of capital lease
    obligation

$
78Long-term portion of capital lease
    obligation


106Total capital lease obligation at
    December 31, 2006

$
184   Professional Athlete Sponsorships
 F-18




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Year Ending December 31,2007

$
4,0842008


1,8402009


384$
6,308     Litigation
  Indemnities and Guarantees
  10.
    Stockholders
    Equity  Accounting for Stock Issued to
    Employees Accounting for Stock-Based
    Compensation  Transition and Disclosure 
    an amendment of FASB Statement No. 123
   F-19




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  No. 123R-3,
       F-20




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Year EndedDecember 31, 2005(In thousands,except per share data)Net income:As reported

$
29,337Add: Stock-based employee
    compensation expense included in reported net income, net of
    related tax effects


33Deduct: Total stock-based employee
    compensation expense determined under fair value based method
    for all awards, net of related tax effects


(849
)Pro forma

$
28,521Basic net income per share:As reported

$
1.36Pro forma

$
1.32Diluted net income per share:As reported

$
1.34Pro forma

$
1.31     Stock Compensation Plans
  Stock Option Awards
 F-21




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      Years Ended December 31,2006


2005


2004Weighted-





Weighted-





Weighted-Average





Average





AverageNumber of


Exercise


Number of


Exercise


Number of


ExerciseOptions


Price


Options


Price


Options


PriceOutstanding, beginning of year


576,000


$
19.00






$




116,596


$
0.04Granted










586,526



19.00







Exercised


(66,300
)


19.00



(10,526
)


19.00



(116,596
)


0.04Canceled or forfeited


(22,000
)


19.00















Outstanding, end of year


487,700


$
19.00



576,000


$
19.00






$
Options exercisable, end of year


214,900


$
19.00



185,000


$
19.00






$
Weighted average fair value of
    options granted during the year





$







$
7.97






$
     Options Outstanding


Options ExercisableWeighted-


Weighted-





Weighted-Average


Average





AverageNumber of


Remaining


Exercise


Number of


ExerciseOptions


Life (yrs)


Price


Options


Price$19.00


487,700



8.5


$
19.00



214,900


$
19.00       Weighted-AverageNumber of


Grant-DateOptions


Fair ValueUnvested at January 1, 2006


366,000


$
9.14Granted






Vested


(71,200
)


Canceled or forfeited


(22,000
)

$
9.14Unvested at December 31, 2006


272,800


$
9.14    F-22




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Restricted Stock Awards
        Weighted-AverageShares of


Grant-DateRestricted Stock


Fair ValueOutstanding restricted stock at
    January 1, 2006


20,000


$
33.01Granted


15,000



27.00Vested


(4,000
)


33.01Canceled or forfeited






Outstanding restricted stock at
    December 31, 2006


31,000


$
30.09     Nonemployee Share-Based Compensation
 F-23




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   No. 96-18, Accounting for Equity Instruments That Are Issued to Other
    Than Employees for Acquiring, or in Conjunction with Selling,
    Goods or Services
    11.
    Retirement
    Savings Plan    12.
    Licensing   F-24




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
     Licensee

Initial Expiration Date


Extension Termination DateEurope


December 31, 2006



N/AAustralia


June 30, 2007



June 30, 2012Brazil


December 31, 2008



December 31, 2013South Africa


December 31, 2006



December 31, 2011Indonesia


December 31, 2009



December 31, 2014   13.
    Income
    Taxes      Years Ended December 31,2006


2005


2004(In thousands)Current

$
20,903


$
11,625


$
364Deferred


(1,983
)


(1,150
)


10$
18,920


$
10,475


$
374     Years Ended December 31,2006


2005Provision for taxes at
    U.S. Federal statutory rate


35.0
%


35.0
%State income taxes, net of Federal
    income tax benefit


4.8



4.1Effect of S corporation tax
    status






(11.8
)Equity in earnings of investee






0.3Foreign tax credit


(0.7
)


Other


0.6



(1.1
)Effective income tax rate


39.7
%


26.5
%  F-25




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    2006


2005(In thousands)Deferred tax assets:Accrued liabilities

$
301


$
173State income taxes


1,198



568Allowances for doubtful accounts
    and product returns


517



320Foreign net operating losses


700



9Other


364



58Total deferred tax assets


3,080



1,128Deferred tax liabilities:Intangible assets


(67
)


(98
)Total deferred tax liabilities


(67
)


(98
)Net deferred tax assets

$
3,013


$
1,030       14.
    Segment
    Information      Year Ended December 31,2006


2005


2004(In thousands)Mens

$
102,734


$
87,254


$
61,451Girls


67,250



51,463



35,362Snow


15,408



9,455



9,106Boys


11,860



7,133



3,785Other


3,934



1,411



897Subtotal product categories


201,186



156,716



110,601Licensing revenues


4,072



3,235



2,574Total consolidated revenues

$
205,258


$
159,951


$
113,175  F-26




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      Year Ended December 31,2006


2005


2004(In thousands)United States

$
157,581


$
128,159


$
93,812Canada


23,925



15,774



8,155Asia Pacific


7,225



6,622



5,174Other


12,455



6,161



3,460$
201,186


$
156,716


$
110,601     December 31, 2006


December 31, 2005(In thousands)United States

$
137,581


$
110,137Europe


12,167



1,244$
149,748


$
111,381   15.
    Subsequent
    Event (Unaudited)    16.
    Pro Forma
    Information (Unaudited)    Year Ended December 31,2005


2004(In thousands)Federal income taxes at the
    statutory rate

$
13,818


$
8,533State income taxes  net
    of Federal benefit


2,268



1,401Equity in earnings of investee


116



240Other


21



4Total pro forma income tax
    provision

$
16,223


$
10,178  F-27




---



##### Table of Contents



VOLCOM,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  17.
    Quarterly
    Financial Data (Unaudited)    Quarter EndedMarch 31


June 30


September 30


December 31Year ended December 31,
    2006Total revenues

$
41,596


$
46,051


$
61,049


$
56,562Gross profit


21,522



22,914



30,908



26,677Operating income


6,686



9,690



15,560



11,668Net income


4,426



6,532



10,163



7,632Net income per share, basic

$
0.18


$
0.27


$
0.42


$
0.31Net income per share, diluted

$
0.18


$
0.27


$
0.42


$
0.31Year ended December 31,
    2005Total revenues

$
31,691


$
35,853


$
51,192


$
41,215Gross profit


16,407



18,697



26,110



20,105Operating income


6,044



7,639



15,441



9,256Net income


6,262



4,630



11,292



7,153Net income per share, basic

$
0.33


$
0.24


$
0.47


$
0.30Net income per share, diluted

$
0.32


$
0.24


$
0.47


$
0.29    F-28




---



##### Table of Contents



SIGNATURES
      By:
    /s/  Richard
    R. Woolcott   President and Chief Executive Officer
      Signature

Title

Date/s/  Richard
    R. WoolcottRichard
    R. Woolcott

Chief Executive Officer
    (Principal Executive Officer)

March 14, 2007/s/  Douglas
    P. CollierDouglas
    P. Collier

Chief Financial Officer
    (Principal Financial Officer)

March 14, 2007/s/  René
    R. WoolcottRené
    R. Woolcott

Chairman of Board of Directors

March 14, 2007/s/  Douglas
    S. IngramDouglas
    S. Ingram

Director

March 14, 2007/s/  Anthony
    M. PalmaAnthony
    M. Palma

Director

March 14, 2007/s/  Joseph
    B. TysonJoseph
    B. Tyson

Director

March 14, 2007/s/  Carl
    W. WomackCarl
    W. Womack

Director

March 14, 2007/s/  Kevin
    G. WulffKevin
    G. Wulff

Director

March 14, 2007  F-29




---



##### Table of Contents



EXHIBIT INDEX
  Number

Description3
.1*

Restated Certificate of
    Incorporation of Volcom, Inc.3
.2*

Amended and Restated Bylaws of
    Volcom, Inc.3
.3*

Certificate of Amendment of
    Restated Certificate of Incorporation of Volcom, Inc.4
.1*

Specimen Common Stock certificate.10
.1*

Form of Indemnification Agreement
    between Volcom and each of its directors and officers.10
.2

Credit Agreement by and between
    Bank of the West and Volcom, Inc., dated as of July 20,
    2006 (incorporated by reference in the Companys Current
    Report on
    Form 8-K
    filed on July 24, 2006).10
.3*

Lease dated as of May 19,
    1999 by and between Griswold Industries and Stone Boardwear,
    Inc. (the predecessor entity to Volcom, Inc.) for the real
    property known as 1740 Monrovia Avenue, Costa Mesa.10
.4*

Form of 2005 Incentive Award Plan.10
.5*

Form of Restricted Stock Award
    Grant Notice and Agreement.10
.6*

Form of Stock Option Grant Notice
    and Agreement.10
.7*

Software License Agreement by and
    between Innovative Systems, LLC and Volcom Stone Board Wear,
    Inc., made and effective September 1, 2002.10
.8

Real Estate Development Agreement
    dated May 5, 2006 between Volcom SAS and Société
    dEquipement des Pays de lAdour (English Translation)
    (incorporated by reference in the Companys Current Report
    on
    Form 8-K
    filed on May 9, 2006).10
.9

Amended and Restated 2005
    Incentive Award Plan.21
.1

Subsidiaries of Volcom, Inc.23
.1

Consent of Independent Registered
    Public Accounting Firm (Deloitte & Touche LLP).31
.1

Certification of the Principal
    Executive Officer, as required pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002.31
.2

Certification of the Principal
    Financial Officer, as required pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002.32


Certifications of the Principal
    Executive Officer and Principal Financial Officer, as required
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     *
    
    Incorporated by reference to Volcom, Inc.s Registration
    Statement on
    Form S-1
    (File Number:
    333-124498)
    
    All current directors and executive officers of Volcom, Inc.
    have entered into the Indemnity Agreement with Volcom, Inc.