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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

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

For the quarterly period ended March 31, 2010

or



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

For the transition period from to

Commission file number:
000-51382





Volcom, Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 33-0466919                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

Volcom, Inc.

1740 Monrovia Avenue

Costa Mesa, CA 92627

(Address of principal executive offices, including zip code)

(949) 646-2175

(Registrants telephone number, including area code)





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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | þ
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a Smaller reporting company) |  | Smaller reporting company |  |  ̈

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

As of April 30, 2010, there were 24,374,362 shares of the registrants common stock, par value $0.001, outstanding.









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##### Table of Contents

VOLCOM, INC.

FORM 10-Q

INDEX



|                              |  |                                                                                                                |  |      
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------- |  | -----
|                              |  |                                                                                                                |  | Page 
|PART I. FINANCIAL INFORMATION |  |                                                                                                               
|                              |  |                                                                                                               
|Item 1.                       |  | Financial Statements                                                                                           |  | 3    
|                              |  | Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2010 and December 31, 2009                   |  | 3    
|                              |  | Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2010 and 2009 |  | 4    
|                              |  | Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2010 and 2009 |  | 5    
|                              |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                               |  | 6 14
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                          |  | 15   
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                     |  | 22   
|Item 4.                       |  | Controls and Procedures                                                                                        |  | 23   
|Item 4T.                      |  | Controls and Procedures                                                                                        |  | 23   
|                              | 
|PART II. OTHER INFORMATION    |  | 23                                                                                                            
|                              |  |                                                                                                               
|Item 1.                       |  | Legal Proceedings                                                                                              |  | 23   
|Item 1A.                      |  | Risk Factors                                                                                                   |  | 23   
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                    |  | 24   
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                |  | 24   
|Item 4.                       |  | Removed and Reserved                                                                                           |  | 24   
|Item 5.                       |  | Other Information                                                                                              |  | 24   
|Item 6.                       |  | Exhibits                                                                                                       |  | 24   
|                              | 
|SIGNATURES                    |  | 25                                                                                                            



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PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

VOLCOM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share and per share data)



|                                                                                                                       |  |               |         |                  |   |        
|---------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | ---------------- | - | -------
|                                                                                                                       |  | March 31,2010 |         | December 31,2009
|Assets                                                                                                                 |  |               |         |                  |   |        
|Current assets:                                                                                                        |  |               |         |                  |   |        
|Cash and cash equivalents                                                                                              |  | $             | 63,992  |                  | $ | 76,180 
|Short-term investments                                                                                                 |  |               | 45,000  |                  |   | 35,000 
|Accounts receivable  net of allowances of $7,751 (2010) and $8,626 (2009)                                             |  |               | 59,679  |                  |   | 53,792 
|Inventories                                                                                                            |  |               | 26,233  |                  |   | 33,250 
|Prepaid expenses and other current assets                                                                              |  |               | 5,204   |                  |   | 4,353  
|Income taxes receivable                                                                                                |  |               |        |                  |   | 725    
|Deferred income taxes                                                                                                  |  |               | 7,915   |                  |   | 7,700  
|                                                                                                                       |  |               |         |                  |   |        
|Total current assets                                                                                                   |  |               | 208,023 |                  |   | 211,000
|                                                                                                                       |  |               |         |                  |   |        
|Property and equipment  net                                                                                           |  |               | 25,640  |                  |   | 26,348 
|Investments in unconsolidated investees                                                                                |  |               | 330     |                  |   | 330    
|Deferred income taxes                                                                                                  |  |               | 3,541   |                  |   | 3,545  
|Intangible assets  net                                                                                                |  |               | 9,562   |                  |   | 9,784  
|Goodwill                                                                                                               |  |               | 1,254   |                  |   | 1,291  
|Other assets                                                                                                           |  |               | 792     |                  |   | 735    
|                                                                                                                       |  |               |         |                  |   |        
|Total assets                                                                                                           |  | $             | 249,142 |                  | $ | 253,033
|                                                                                                                       |  |               |         |                  |   |        
|Liabilities and Stockholders Equity                                                                                   |  |               |         |                  |   |        
|Current liabilities:                                                                                                   |  |               |         |                  |   |        
|Accounts payable                                                                                                       |  | $             | 10,627  |                  | $ | 22,788 
|Accrued expenses and other current liabilities                                                                         |  |               | 10,123  |                  |   | 9,957  
|Income taxes payable                                                                                                   |  |               | 2,691   |                  |   |       
|Current portion of capital lease obligations                                                                           |  |               | 20      |                  |   | 50     
|                                                                                                                       |  |               |         |                  |   |        
|Total current liabilities                                                                                              |  |               | 23,461  |                  |   | 32,795 
|                                                                                                                       |  |               |         |                  |   |        
|Other long-term liabilities                                                                                            |  |               | 1,200   |                  |   | 1,203  
|Income taxes payable  noncurrent                                                                                      |  |               | 68      |                  |   | 68     
|Commitments and contingencies (Note 8)                                                                                 |  |               |         |                  |   |        
|Stockholders equity:                                                                                                  |  |               |         |                  |   |        
|Common stock, $.001 par value  60,000,000 shares authorized; 24,374,362 (2010 and 2009) shares issued and outstanding |  |               | 24      |                  |   | 24     
|Additional paid-in capital                                                                                             |  |               | 92,731  |                  |   | 92,192 
|Retained earnings                                                                                                      |  |               | 131,213 |                  |   | 123,679
|Accumulated other comprehensive income                                                                                 |  |               | 445     |                  |   | 3,072  
|                                                                                                                       |  |               |         |                  |   |        
|Total stockholders equity                                                                                             |  |               | 224,413 |                  |   | 218,967
|                                                                                                                       |  |               |         |                  |   |        
|Total liabilities and stockholders equity                                                                             |  | $             | 249,142 |                  | $ | 253,033
|                                                                                                                       |  |               |         |                  |   |        

See accompanying notes to condensed consolidated
financial statements



3



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VOLCOM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share data)



|                                             |  |                             |            |   |      |   |           
|-------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | ----------
|                                             |  | Three Months EndedMarch 31,
|                                             |  | 2010                        |            |   | 2009
|Revenues:                                    |  |                             |            |   |      |   |           
|Product revenues                             |  | $                           | 76,834     |   |      | $ | 67,944    
|Licensing revenues                           |  |                             | 586        |   |      |   | 375       
|                                             |  |                             |            |   |      |   |           
|Total revenues                               |  |                             | 77,420     |   |      |   | 68,319    
|Cost of goods sold                           |  |                             | 35,425     |   |      |   | 33,937    
|                                             |  |                             |            |   |      |   |           
|Gross profit                                 |  |                             | 41,995     |   |      |   | 34,382    
|Selling, general and administrative expenses |  |                             | 31,008     |   |      |   | 28,034    
|                                             |  |                             |            |   |      |   |           
|Operating income                             |  |                             | 10,987     |   |      |   | 6,348     
|Other income:                                |  |                             |            |   |      |   |           
|Interest income, net                         |  |                             | 109        |   |      |   | 33        
|Foreign currency (loss) gain                 |  |                             | (10        | ) |      |   | 118       
|                                             |  |                             |            |   |      |   |           
|Total other income                           |  |                             | 99         |   |      |   | 151       
|                                             |  |                             |            |   |      |   |           
|Income before provision for income taxes     |  |                             | 11,086     |   |      |   | 6,499     
|Provision for income taxes                   |  |                             | 3,552      |   |      |   | 2,279     
|                                             |  |                             |            |   |      |   |           
|Net income                                   |  | $                           | 7,534      |   |      | $ | 4,220     
|                                             |  |                             |            |   |      |   |           
|Net income per share:                        |  |                             |            |   |      |   |           
|Basic                                        |  | $                           | 0.31       |   |      | $ | 0.17      
|Diluted                                      |  | $                           | 0.31       |   |      | $ | 0.17      
|Weighted average shares outstanding:         |  |                             |            |   |      |   |           
|Basic                                        |  |                             | 24,356,857 |   |      |   | 24,347,857
|Diluted                                      |  |                             | 24,376,971 |   |      |   | 24,357,044

See accompanying
notes to condensed consolidated financial statements



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VOLCOM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)



|                                                                                            |  |                             |         |   |      |   |         |  
|------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                            |  | Three Months EndedMarch 31, |        
|                                                                                            |  | 2010                        |         |   | 2009 |  
|Cash flows from operating activities:                                                       |  |                             |         |   |      |   |         |  
|Net income                                                                                  |  | $                           | 7,534   |   |      | $ | 4,220   |  
|Adjustments to reconcile net income to net cash (used in)/provided by operating activities: |  |                             |         |   |      |   |         |  
|Depreciation and amortization                                                               |  |                             | 1,517   |   |      |   | 1,765   |  
|Provision for doubtful accounts                                                             |  |                             | (217    | ) |      |   | 1,113   |  
|Loss on disposal of property and equipment                                                  |  |                             | 3       |   |      |   | 4       |  
|Stock-based compensation                                                                    |  |                             | 550     |   |      |   | 246     |  
|Deferred income taxes                                                                       |  |                             | (201    | ) |      |   | (78     | )
|Changes in operating assets and liabilities, net of effects of acquisition:                 |  |                             |         |   |      |   |         |  
|Accounts receivable                                                                         |  |                             | (8,010  | ) |      |   | (473    | )
|Inventories                                                                                 |  |                             | 6,532   |   |      |   | 4,135   |  
|Prepaid expenses and other current assets                                                   |  |                             | (904    | ) |      |   | 392     |  
|Income taxes receivable/payable                                                             |  |                             | 3,488   |   |      |   | 2,273   |  
|Other assets                                                                                |  |                             | (69     | ) |      |   | 37      |  
|Accounts payable                                                                            |  |                             | (11,608 | ) |      |   | (4,802  | )
|Accrued expenses and other current liabilities                                              |  |                             | 140     |   |      |   | (2,792  | )
|Other long-term liabilities                                                                 |  |                             | 14      |   |      |   | (30     | )
|                                                                                            |  |                             |         |   |      |   |         |  
|Net cash (used in)/provided by operating activities                                         |  |                             | (1,231  | ) |      |   | 6,010   |  
|                                                                                            |  |                             |         |   |      |   |         |  
|Cash flows from investing activities:                                                       |  |                             |         |   |      |   |         |  
|Purchase of property and equipment                                                          |  |                             | (1,005  | ) |      |   | (734    | )
|Business acquisitions, net of cash acquired                                                 |  |                             |        |   |      |   | (794    | )
|Purchase of short-term investments                                                          |  |                             | (20,000 | ) |      |   | (24,944 | )
|Sale of short-term investments                                                              |  |                             | 10,000  |   |      |   |        |  
|                                                                                            |  |                             |         |   |      |   |         |  
|Net cash used in investing activities                                                       |  |                             | (11,005 | ) |      |   | (26,472 | )
|                                                                                            |  |                             |         |   |      |   |         |  
|Cash flows from financing activities:                                                       |  |                             |         |   |      |   |         |  
|Principal payments on capital lease obligations                                             |  |                             | (4      | ) |      |   | (18     | )
|                                                                                            |  |                             |         |   |      |   |         |  
|Net cash used in financing activities                                                       |  |                             | (4      | ) |      |   | (18     | )
|                                                                                            |  |                             |         |   |      |   |         |  
|Effect of exchange rate changes on cash                                                     |  |                             | 52      |   |      |   | 814     |  
|                                                                                            |  |                             |         |   |      |   |         |  
|Net decrease in cash and cash equivalents                                                   |  |                             | (12,188 | ) |      |   | (19,666 | )
|Cash and cash equivalents Beginning of period                                              |  |                             | 76,180  |   |      |   | 79,613  |  
|                                                                                            |  |                             |         |   |      |   |         |  
|Cash and cash equivalents End of period                                                    |  | $                           | 63,992  |   |      | $ | 59,947  |  
|                                                                                            |  |                             |         |   |      |   |         |  
|Supplemental disclosures of cash flow information:                                          |  |                             |         |   |      |   |         |  
|Cash paid during the period for:                                                            |  |                             |         |   |      |   |         |  
|Interest                                                                                    |  | $                           | 1       |   |      | $ | 1       |  
|Income taxes                                                                                |  | $                           | 264     |   |      | $ | 331     |  

Supplemental disclosures of
noncash investing and financing activities:

At March 31, 2010 and 2009, the Company accrued for $207 and $20 of
property and equipment purchases, respectively.

See accompanying notes to condensed consolidated financial statements



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VOLCOM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 1  Basis of Presentation

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

In the opinion of management, the unaudited condensed consolidated
financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the condensed consolidated balance sheet as of March 31, 2010, the condensed consolidated statement of operations for
the three months ended March 31, 2010 and 2009, and the condensed consolidated statement of cash flows for the three months ended March 31, 2010 and 2009. The results of operations for the three months ended March 31, 2010 are not
necessarily indicative of the results to be expected for the year ending December 31, 2010. The condensed consolidated financial statements and notes thereto should be read in conjunction with the Companys consolidated annual financial
statements and notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

Note 2  Stock-Based Compensation

The Company accounts for stock-based compensation under the provisions of Accounting Standards Codification (ASC) 718. The
Company accounts for all stock-based compensation using a fair-value method and recognizes the fair value of each award as an expense over the service period. The Company uses the Black-Scholes option-pricing model to value compensation expense.
Forfeitures are estimated at the date of grant based on historical employee turnover rates and reduce the compensation expense recognized. Depending upon the option grant, the expected option term is based upon historical industry data on employee
exercises and managements expectation of exercise behavior, or is estimated based on the simplified method as prescribed in ASC 718. For options granted concurrently with the Companys initial public offering of common stock, the expected
volatility of the Companys stock price was based upon the historical volatility of similar entities whose share prices were publicly available. For options granted subsequent to the Companys offering, expected volatility is based on the
historical volatility of the Companys stock. The risk-free interest rate is based upon the current yield on U.S. Treasury securities having a term similar to the expected option term. Dividend yield is estimated at zero because the Company
does not anticipate paying dividends in the foreseeable future. The fair value of employee stock-based awards is amortized using the straight-line method over the vesting period.

During the three months ended March 31, 2010 and 2009, the Company recognized approximately $550,000, or $374,000 net of tax, and
$246,000, or $160,000 net of tax, respectively, in stock-based compensation expense, which includes the impact of all stock-based awards and is included in selling, general and administrative expenses.

Stock Compensation Plans In June 2005, the Companys Board of Directors and stockholders approved the 2005
Incentive Award Plan (the Incentive Plan), as amended and restated in February 2007, and re-approved by the stockholders in May 2009. A total of 2,300,000 shares of common stock were initially authorized and reserved for issuance under
the Incentive Plan for incentives such as stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares and deferred stock awards. The actual number of awards reserved for issuance under the Incentive
Plan automatically increases on the first trading day in January of each calendar year by an amount equal to 2% of the total number of shares of common stock outstanding on the last trading day in December of the preceding calendar year, but in no
event will any such annual increase exceed 750,000 shares. As of March 31, 2010, there were 3,410,629 shares available for issuance pursuant to new stock option grants or other equity awards. Under the Incentive Plan, stock options have been
granted at an exercise price equal to the fair market value of the Companys stock at the time of grant. The vesting period for stock options is determined by the Board of Directors or the Compensation Committee of the Board of Directors, as
applicable, and the stock options generally expire ten years from the date of grant or 90 days after employment or services are terminated.



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VOLCOM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(Continued)



Stock Option Awards In June 2005, the Companys Board of
Directors approved the grant of 586,526 options to purchase the Companys common stock. The Company granted these options under the Incentive Plan at the effective date of the Companys initial public offering at an exercise price of
$19.00, which was equal to the initial public offering price of the Companys common stock. The stock options have vesting terms whereby 10,526 options vested immediately, 210,000 options vested on December 15, 2005 and the remaining
366,000 options vest 20% per annum over 5 years. The fair value of these awards was calculated through the use of the Black-Scholes option-pricing model assuming an exercise price equal to the fair market value of the Companys stock and
the following additional significant weighted average assumptions: expected life of 4.2 years; volatility of 47.5%; risk-free interest rate of 3.73%; and no dividends during the expected term.

In May 2007, the Companys Board of Directors approved the grant of 2,000 options to purchase the Companys common stock to
each independent member of the Companys Board of Directors (10,000 options in total). The Company granted these options at the fair market value of the Companys common stock on the date of grant. The stock options vested one year from
the date of grant. The fair value of these awards was calculated through the use of the Black-Scholes option-pricing model assuming an exercise price equal to the fair market value of the Companys stock and the following additional significant
weighted average assumptions: expected life of 2.0 years; volatility of 55.7%; risk-free interest rate of 4.68%; and no dividends during the expected term.

In May 2008, the Companys Board of Directors approved the grant of 2,000 options to purchase the Companys common stock to
each independent member of the Companys Board of Directors (10,000 options in total). The Company granted these options at the fair market value of the Companys common stock on the date of grant. The stock options vested one year from
the date of grant. The fair value of these awards was calculated through the use of the Black-Scholes option-pricing model assuming an exercise price equal to the fair market value of the Companys stock and the following additional significant
weighted average assumptions: expected life of 2.0 years; volatility of 61.9%; risk-free interest rate of 2.38%; and no dividends during the expected term.

In May 2009, the Companys Board of Directors approved the grant of 670,000 options to purchase the Companys common stock. The
Company granted these options at the fair market value of the Companys common stock on the date of grant. The stock option vesting periods range from one to five years from the date of grant. The fair value of these awards was calculated
through the use of the Black-Scholes option-pricing model assuming an exercise price equal to the fair market value of the Companys stock and the following additional significant weighted average assumptions: expected life ranging from 1.0 to
6.5 years; volatility ranging from 69.7% to 90.7%; risk-free interest rate ranging from 0.53% to 3.22%; and no dividends during the expected term.

A summary of the Companys stock option activity under the Incentive Plan for the three months ended March 31, 2010 is as
follows:



|                               |  |                  |  |                               |       |                                           |          
|------------------------------ |  | ---------------- |  | ----------------------------- | ----- | ----------------------------------------- | ---------
|                               |  | Number ofOptions |  | Weighted-AverageExercisePrice |       | Weighted-AverageRemainingContractual Term
|Outstanding at January 1, 2010 |  | 1,103,158        |  | $                             | 16.52 |                                           |          
|Granted                        |  |                 |  |                               |      |                                           |          
|Exercised                      |  |                 |  |                               |      |                                           |          
|Canceled or forfeited          |  |                 |  |                               |      |                                           |          
|                               |  |                  |  |                               |       |                                           |          
|Outstanding at March 31, 2010  |  | 1,103,158        |  | $                             | 16.52 |                                           | 7.6 years
|                               |  |                  |  |                               |       |                                           |          
|Exercisable at March 31, 2010  |  | 367,658          |  | $                             | 19.80 |                                           | 5.4 years
|                               |  |                  |  |                               |       |                                           |          

As of March 31, 2010, there was unrecognized compensation expense of $4.8 million related to
unvested stock options, which the Company expects to recognize over a weighted-average period of 2.5 years. The aggregate intrinsic value of options exercised during each of the three month periods ended March 31, 2010 and 2009 was zero. The
aggregate intrinsic value of options outstanding and options exercisable as of March 31, 2010 was $3.6 million and $181,000, respectively.



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VOLCOM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(Continued)



Additional information regarding stock options outstanding as of March 31, 2010 is
as follows:



|                        |  |                     |  |                                     |  |                               |       |                  |         |                               |   |      
|----------------------- |  | ------------------- |  | ----------------------------------- |  | ----------------------------- | ----- | ---------------- | ------- | ----------------------------- | - | -----
|                        |  | Options Outstanding |  | Options Exercisable                
|Range of exercise price |  | Number ofOptions    |  | Weighted-AverageRemainingLife (yrs) |  | Weighted-AverageExercisePrice |       | Number ofOptions |         | Weighted-AverageExercisePrice
|$13.43                  |  | 8,000               |  | 9.2                                 |  | $                             | 13.43 |                  |        |                               |   |     
|$14.47                  |  | 660,100             |  | 9.1                                 |  | $                             | 14.47 |                  |        |                               |   |     
|$19.00                  |  | 415,058             |  | 5.3                                 |  | $                             | 19.00 |                  | 347,658 |                               | $ | 19.00
|$25.42                  |  | 10,000              |  | 8.1                                 |  | $                             | 25.42 |                  | 10,000  |                               | $ | 25.42
|$42.07                  |  | 10,000              |  | 7.1                                 |  | $                             | 42.07 |                  | 10,000  |                               | $ | 42.07

As of March 31,
2010, the total number of outstanding options vested or expected to vest (based on anticipated forfeitures) was 1,062,748, which had a weighted-average exercise price of $16.58. The weighted-average remaining life of these options was 7.6 years and
the aggregate intrinsic value was $3.4 million at March 31, 2010.

Restricted Stock Awards The
Companys Incentive Plan provides for awards of restricted shares of common stock. Restricted stock awards have time-based vesting and are subject to forfeiture if employment terminates prior to the end of the service period. Restricted stock
awards are valued at the grant date based upon the market price of the Companys common stock and the fair value of each award is charged to expense over the service period.

In 2005, the Company granted a total of 20,000 shares of restricted stock to employees. The restricted stock awards have a purchase price
of $.001 per share and vest 20% per year over a five-year period. The total fair value of the restricted stock awards is $660,000, of which $33,000 was amortized to expense during each of the three month periods ended March 31, 2010 and
2009.

In 2006, the Company granted a total of 15,000 shares of restricted stock to employees. The restricted stock awards
have a purchase price of $.001 per share and vest 20% per year over a five-year period. The total value of the restricted stock awards is $405,000, of which $20,000 was amortized to expense during each of the three month periods ended
March 31, 2010 and 2009.

In 2008, the Company granted 10,000 shares of restricted stock to a service provider. The
restricted stock award has a purchase price of $.001 per share and vests 20% per year over a five-year period. The total value of the restricted stock award is $254,000, of which $13,000 was amortized to expense during each of the three month
periods ended March 31, 2010 and 2009.

Restricted stock activity for the three months ended March 31, 2010 is as
follows:



|                                             |  |                           |   |  |                                      |      
|-------------------------------------------- |  | ------------------------- | - |  | ------------------------------------ | -----
|                                             |  | Shares ofRestricted Stock |   |  | Weighted-AverageGrant-DateFair Value
|Unvested restricted stock at January 1, 2010 |  | 18,000                    |   |  | $                                    | 27.64
|Granted                                      |  |                          |   |  |                                      |     
|Vested                                       |  | (1,500                    | ) |  | $                                    | 34.65
|Canceled or forfeited                        |  |                          |   |  |                                      |     
|                                             |  |                           |   |  |                                      |      
|Unvested restricted stock at March 31, 2010  |  | 16,500                    |   |  | $                                    | 27.00
|                                             |  |                           |   |  |                                      |      

As of March 31, 2010, there was unrecognized
compensation expense of $287,000 related to all unvested restricted stock awards, which the Company expects to recognize on a straight-line basis over a weighted average period of approximately 1.2 years.



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VOLCOM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(Continued)



Note 3  New Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2009-13, which amends the guidance in ASC 605. ASU No. 2009-13 eliminates the residual method of accounting for revenue on undelivered products and instead, requires companies to allocate revenue to each of the deliverable
products based on their relative selling price. In addition, this ASU expands the disclosure requirements surrounding multiple-deliverable arrangements. ASU No. 2009-13 will be effective for revenue arrangements entered into for
fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the impact ASU No. 2009-13 will have on its consolidated financial position and results of operations.

Note 4  Inventories

Inventories are as follows:



|                |  |                |        |                  |   |       
|--------------- |  | -------------- | ------ | ---------------- | - | ------
|                |  | March 31,2010  |        | December 31,2009
|                |  | (In thousands)
|Finished goods  |  | $              | 23,454 |                  | $ | 31,348
|Work-in-process |  |                | 291    |                  |   | 297   
|Raw materials   |  |                | 2,488  |                  |   | 1,605 
|                |  |                |        |                  |   |       
|                |  | $              | 26,233 |                  | $ | 33,250
|                |  |                |        |                  |   |       

Note 5  Property and Equipment

Property and equipment are as follows:



|                              |  |                |         |   |                  |   |         |  
|----------------------------- |  | -------------- | ------- | - | ---------------- | - | ------- | -
|                              |  | March 31,2010  |         |   | December 31,2009 |  
|                              |  | (In thousands) |        
|Furniture and fixtures        |  | $              | 8,903   |   |                  | $ | 8,750   |  
|Office equipment              |  |                | 2,574   |   |                  |   | 2,392   |  
|Computer equipment            |  |                | 7,236   |   |                  |   | 7,130   |  
|Leasehold improvements        |  |                | 11,013  |   |                  |   | 11,112  |  
|Building                      |  |                | 7,243   |   |                  |   | 7,614   |  
|Land                          |  |                | 4,723   |   |                  |   | 4,723   |  
|Construction in progress      |  |                | 789     |   |                  |   | 308     |  
|                              |  |                |         |   |                  |   |         |  
|                              |  |                | 42,481  |   |                  |   | 42,029  |  
|Less accumulated depreciation |  |                | (16,841 | ) |                  |   | (15,681 | )
|                              |  |                |         |   |                  |   |         |  
|Property and equipment  net  |  | $              | 25,640  |   |                  | $ | 26,348  |  
|                              |  |                |         |   |                  |   |         |  

Note 6  Intangible Assets

Intangible assets are as follows:



|                                       |  |                      |        |                         |   |                      |  |                         |        |  |   |      
|-------------------------------------- |  | -------------------- | ------ | ----------------------- | - | -------------------- |  | ----------------------- | ------ |  | - | -----
|                                       |  | As of March 31, 2010 |        | As of December 31, 2009
|                                       |  | Gross CarryingAmount |        | AccumulatedAmortization |   | Gross CarryingAmount |  | AccumulatedAmortization
|                                       |  | (In thousands)      
|Amortizing intangible assets           |  | $                    | 6,360  |                         | $ | 3,530                |  | $                       | 6,422  |  | $ | 3,396
|Non-amortizing trademarks              |  |                      | 6,300  |                         |   |                     |  |                         | 6,300  |  |   |     
|Other non-amortizing intangible assets |  |                      | 432    |                         |   |                     |  |                         | 458    |  |   |     
|                                       |  |                      |        |                         |   |                      |  |                         |        |  |   |      
|                                       |  | $                    | 13,092 |                         | $ | 3,530                |  | $                       | 13,180 |  | $ | 3,396
|                                       |  |                      |        |                         |   |                      |  |                         |        |  |   |      

Amortizing intangible assets include customer
relationships, trademarks, non-compete agreements, backlog, leasehold rights, athlete contracts and reacquired license rights. Other non-amortizing intangible assets consist of trademarks and land use rights. Amortizable intangible assets are
amortized by the Company using estimated useful lives of 3 months to 20 years with no residual values. Fluctuations in the gross carrying amounts of intangible assets associated with the Companys international subsidiaries are due to the
effect of changes in foreign currency exchange rates. Intangible amortization expense



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##### Table of Contents

VOLCOM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(Continued)



for the three months ended March 31, 2010 and 2009, was approximately $161,000 and $421,000, respectively. The Companys annual amortization expense is estimated to be approximately
$547,000, $449,000, $395,000, $344,000 and $289,000 in the fiscal years ending December 31, 2010, 2011, 2012, 2013 and 2014, respectively.

Note 7  Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities are as follows:



|                             |  |                |        |                  |   |      
|---------------------------- |  | -------------- | ------ | ---------------- | - | -----
|                             |  | March 31,2010  |        | December 31,2009
|                             |  | (In thousands)
|Payroll and related accruals |  | $              | 6,081  |                  | $ | 4,708
|Other                        |  |                | 4,042  |                  |   | 5,249
|                             |  |                |        |                  |   |      
|                             |  | $              | 10,123 |                  | $ | 9,957
|                             |  |                |        |                  |   |      

Note 8  Commitments and Contingencies

Litigation The Company is involved from time to time in litigation incidental to its business. In the opinion of
management, the resolution of any such matter currently pending will not have a material adverse effect on the Companys consolidated financial position or results of operations.

Indemnities and Guarantees During its normal course of business, the Company has made certain indemnities and
guarantees under which it may be required to make payments in relation to certain transactions. These include (i) intellectual property indemnities to the Companys customers and licensees in connection with the use, sale and license of
Company products, (ii) indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, (iii) indemnities to vendors and service providers pertaining to claims based on the
negligence or willful misconduct of the Company and (iv) indemnities involving the accuracy of representations and warranties in certain contracts. The duration of these indemnities, commitments and guarantees varies, and in certain cases, may
be indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation on the maximum potential future payments the Company could be obligated to make. The Company has not been required to record nor has it
recorded any liability for these indemnities, commitments and guarantees in the accompanying condensed consolidated balance sheets.

Note 9
 Earnings Per Share

Basic net income per common share is calculated by dividing net income by the weighted average
number of common shares outstanding during the reporting period. Diluted net income per common share reflects the effects of potentially dilutive securities, which consists solely of restricted stock and stock options using the treasury stock
method. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per share is as follows:



|                                                                                              |  |                                   |            |      |   |           
|--------------------------------------------------------------------------------------------- |  | --------------------------------- | ---------- | ---- | - | ----------
|                                                                                              |  | Three Months EndedMarch 31,      
|                                                                                              |  | 2010                              |            | 2009
|                                                                                              |  | (In thousands, except share data)
|Numerator  Net income                                                                        |  | $                                 | 7,534      |      | $ | 4,220     
|                                                                                              |  |                                   |            |      |   |           
|Denominator: Weighted average common stock outstanding for basic earnings per share           |  |                                   | 24,356,857 |      |   | 24,347,857
|Effect of dilutive securities:                                                                |  |                                   |            |      |   |           
|Stock options and restricted stock                                                            |  |                                   | 20,114     |      |   | 9,187     
|                                                                                              |  |                                   |            |      |   |           
|Adjusted weighted average common stock and assumed conversions for diluted earnings per share |  |                                   | 24,376,971 |      |   | 24,357,044
|                                                                                              |  |                                   |            |      |   |           

For the three months ended March 31, 2010 and
2009, 676,100 and 437,558 stock options, respectively, were excluded from the weighted-average number of shares outstanding because their effect would be antidilutive.



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##### Table of Contents

VOLCOM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(Continued)



Note 10  Fair Value Measurements of Financial Instruments

The Companys financial assets and liabilities are measured and reported on a fair value basis in accordance with ASC 820. ASC 820
defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosure about fair value measurements. It also establishes a three-level hierarchy of fair value
measurements for ranking the quality and reliability of the information used to determine fair values. ASC 820 requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:



| |  |  | Level 1  Quoted market prices in active markets for identical instruments
| | - |  | --------------------------------------------------------------------------



| |  |  | Level 2  Quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments that are not active;
and model-derived valuations in which all significant inputs are observable in active markets; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
| | - |  | ----------------------------------------------------------------------------------------------------------------

The Companys financial assets and liabilities include cash and cash equivalents, short-term investments, accounts receivable,
accounts payable and foreign currency exchange contracts. The Company believes the carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short term maturities. The fair value of
the Companys short-term investments is determined based on quoted market prices in active markets. The fair value of the Companys foreign currency exchange contracts is determined based on observable inputs that are corroborated by
market data.

The following table presents information on the Companys financial instruments (in thousands):



|                                    |                |                |                         |                   |         |        |                         |   |                |  |         |   |         |   |         |  |   |        |  |   |        |  |   |  
|----------------------------------- | -------------- | -------------- | ----------------------- | ----------------- | ------- | ------ | ----------------------- | - | -------------- |  | ------- | - | ------- | - | ------- |  | - | ------ |  | - | ------ |  | - | -
|                                    |                | March 31, 2010 |                         | December 31, 2009
|                                    |                |                | Fair Value Measurements |                   |         |        | Fair Value Measurements
|                                    | CarryingAmount |                | Level 1                 |                   | Level 2 |        | Level 3                 |   | CarryingAmount |  | Level 1 |   | Level 2 |   | Level 3
|Financial assets:                   |                |                |                         |                   |         |        |                         |   |                |  |         |   |         |   |         |  |   |        |  |   |        |  |   |  
|Short-term investments              |                | $              | 45,000                  |                   | $       | 45,000 |                         | $ |               |  | $       |  |         | $ | 35,000  |  | $ | 25,000 |  | $ | 10,000 |  | $ | 
|Foreign currency exchange contracts |                |                | 265                     |                   |         |       |                         |   | 265            |  |         |  |         |   | 79      |  |   |       |  |   | 79     |  |   | 
|Financial liabilities:              |                |                |                         |                   |         |        |                         |   |                |  |         |   |         |   |         |  |   |        |  |   |        |  |   |  
|Foreign currency exchange contracts |                | $              |                        |                   | $       |       |                         | $ |               |  | $       |  |         | $ | 48      |  |   |       |  | $ | 48     |  | $ | 

Note 11 
Derivative Financial Instruments

The Company is exposed to gains and losses resulting from fluctuations in foreign
currency exchange rates relating to certain sales, licensing revenues, and product purchases of its international subsidiaries that are denominated in currencies other than their functional currencies. The Company is also exposed to foreign currency
gains and losses resulting from domestic transactions that are not denominated in U.S. dollars. Furthermore, the Company is exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the
reported results in the Companys consolidated financial statements due to the translation of the operating results and financial position of the Companys international subsidiaries.

As part of its overall strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, the
Company enters into forward foreign currency exchange contracts to hedge a portion of its European operations U.S. dollar denominated inventory purchases. All of the Companys forward foreign currency exchange contracts qualified for hedge
accounting and the changes in the fair value of the derivatives are recorded in other comprehensive income. As of March 31, 2010, the Company was hedging forecasted transactions expected to occur through August 2010. Assuming exchange rates at
March 31, 2010 remain constant, $239,000 of gains, net of tax, related to hedges of these transactions are expected to be reclassified into earnings during the next five months.

On the date the Company enters into a derivative contract, the Company designates the derivatives as a hedge of the identified exposure.
The Company formally documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for entering into various hedge transactions. The Company identifies in this documentation the
asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and indicates how the hedging instrument is expected to hedge the risks related to the hedged item. The Company formally



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VOLCOM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(Continued)



measures effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis in accordance with the Companys risk management policy. The Company will discontinue
hedge accounting prospectively:



| |  |  | if the Company determines that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | when the derivative expires or is sold, terminated or exercised;
| | - |  | ----------------------------------------------------------------



| |  |  | if it becomes probable that the forecasted transaction being hedged by the derivative will not occur;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | if a hedged firm commitment no longer meets the definition of a firm commitment; or
| | - |  | -----------------------------------------------------------------------------------



| |  |  | if the Company determines that designation of the derivative as a hedge instrument is no longer appropriate.
| | - |  | ------------------------------------------------------------------------------------------------------------

The Company has entered into forward foreign currency exchange contracts with a bank and is exposed to foreign currency losses in the
event of nonperformance by this bank. The Company anticipates, however, that this bank will be able to fully satisfy its obligations under the contracts. Accordingly, the Company does not obtain collateral or other security to support the contracts.

As of March 31, 2010, the Company had U.S. dollar denominated forward foreign currency contracts outstanding to hedge a
portion of its European operations U.S. dollar denominated inventory purchases with a notional amount of $3.7 million and a fair value of $265,000, which mature from June 2010 through August 2010. All outstanding contracts were in a gain position
and the $265,000 asset is included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet. The Company did not have any forward foreign currency contracts outstanding at March 31, 2009.

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the
derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods which the hedged transaction affects earnings. The following table summarizes the effective portions
of gains (losses) of foreign exchange derivative instruments in the condensed consolidated statement of operations:



|                                                          |  |                                  |     |                                  |                    |        |   |      |          |  |                   
|--------------------------------------------------------- |  | -------------------------------- | --- | -------------------------------- | ------------------ | ------ | - | ---- | -------- |  | ------------------
|                                                          |  | Three Months EndedMarch 31, 2010 |     | Three Months EndedMarch 31, 2009
|                                                          |  | (In thousands)                  
|                                                          |  | Amount                           |     | Location                         |                    | Amount |   |      | Location
|Gain recognized in OCI on foreign currency derivatives    |  | $                                | 275 |                                  | OCI                |        | $ | 67   |          |  | OCI               
|Gain (loss) reclassified from accumulated OCI into income |  |                                  | 36  |                                  | Cost of goods sold |        |   | (242 | )        |  | Cost of goods sold

Note
12  Segment Information

Operating segments are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company operates exclusively in the consumer products industry in which the Company
designs, produces and distributes clothing, accessories, eyewear and related products. Based on the nature of the financial information that is received by the chief operating decision maker and the Companys internal reporting structure, the
Company operates in three operating and reportable segments, the United States, Europe and Electric. The United States segment primarily includes Volcom product revenues generated from customers in the United States, Canada, Asia Pacific, Central
America and South America that are served by the Companys United States and Japanese operations, as well as licensing revenues and revenues generated from Company-owned domestic retail stores, including Laguna Surf & Sport. The
European segment primarily includes Volcom product revenues generated from customers in Europe that are served by the Companys European operations. The Electric segment includes Electric product revenues generated from customers worldwide,
primarily in the United States, Canada, Europe and Asia Pacific. All intercompany revenues, expenses, payables and receivables are eliminated in consolidation and are not reviewed when evaluating segment performance. Each segments performance
is evaluated based on revenues, gross profit and operating income. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in the Companys Annual Report on Form 10-K for the
year ended December 31, 2009.



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VOLCOM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(Continued)



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



|                         |  |                             |        |      |   |        |  
|------------------------ |  | --------------------------- | ------ | ---- | - | ------ | -
|                         |  | Three Months EndedMarch 31, |       
|                         |  | 2010                        |        | 2009 |  
|                         |  | (In thousands)              |       
|Total revenues:          |  |                             |        |      |   |        |  
|United States            |  | $                           | 48,179 |      | $ | 42,420 |  
|Europe                   |  |                             | 23,626 |      |   | 21,678 |  
|Electric                 |  |                             | 5,615  |      |   | 4,221  |  
|                         |  |                             |        |      |   |        |  
|Consolidated             |  | $                           | 77,420 |      | $ | 68,319 |  
|                         |  |                             |        |      |   |        |  
|Gross profit:            |  |                             |        |      |   |        |  
|United States            |  | $                           | 24,224 |      | $ | 20,275 |  
|Europe                   |  |                             | 14,277 |      |   | 11,807 |  
|Electric                 |  |                             | 3,494  |      |   | 2,300  |  
|                         |  |                             |        |      |   |        |  
|Consolidated             |  | $                           | 41,995 |      | $ | 34,382 |  
|                         |  |                             |        |      |   |        |  
|Operating income (loss): |  |                             |        |      |   |        |  
|United States            |  | $                           | 2,744  |      | $ | 1,471  |  
|Europe                   |  |                             | 7,977  |      |   | 5,792  |  
|Electric                 |  |                             | 266    |      |   | (915   | )
|                         |  |                             |        |      |   |        |  
|Consolidated             |  | $                           | 10,987 |      | $ | 6,348  |  
|                         |  |                             |        |      |   |        |  



|                     |  |                |         |                  |   |        
|-------------------- |  | -------------- | ------- | ---------------- | - | -------
|                     |  | March 31,2010  |         | December 31,2009
|                     |  | (In thousands)
|Identifiable assets: |  |                |         |                  |   |        
|United States        |  | $              | 165,884 |                  | $ | 170,463
|Europe               |  |                | 62,043  |                  |   | 61,351 
|Electric             |  |                | 21,215  |                  |   | 21,219 
|                     |  |                |         |                  |   |        
|Consolidated         |  | $              | 249,142 |                  | $ | 253,033
|                     |  |                |         |                  |   |        

Although the Company operates within three reportable
segments, it has several different product categories within each segment, for which the revenues attributable to each product category are as follows:



|                   |  |                             |        |      |   |       
|------------------ |  | --------------------------- | ------ | ---- | - | ------
|                   |  | Three Months EndedMarch 31,
|                   |  | 2010                        |        | 2009
|                   |  | (In thousands)             
|Mens               |  | $                           | 42,870 |      | $ | 35,684
|Girls              |  |                             | 14,737 |      |   | 16,815
|Snow               |  |                             | 394    |      |   | 344   
|Boys               |  |                             | 5,786  |      |   | 4,290 
|Footwear           |  |                             | 2,878  |      |   | 2,442 
|Girls swim         |  |                             | 4,014  |      |   | 3,568 
|Electric           |  |                             | 5,615  |      |   | 4,221 
|Other              |  |                             | 540    |      |   | 580   
|                   |  |                             |        |      |   |       
|Product revenues   |  |                             | 76,834 |      |   | 67,944
|Licensing revenues |  |                             | 586    |      |   | 375   
|                   |  |                             |        |      |   |       
|Total revenues     |  | $                           | 77,420 |      | $ | 68,319
|                   |  |                             |        |      |   |       

The Electric product category includes revenues from
all Electric branded products including sunglasses, goggles and related clothing and accessories. Other includes revenues primarily related to the Companys Volcom Entertainment division, films and related accessories.

During the three months ended March 31, 2010 and 2009, approximately 10% and 12%, respectively, of product revenues were
attributable to one customer.



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##### Table of Contents

VOLCOM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(Continued)



The table below summarizes product revenues by geographic regions, which includes
revenues generated worldwide by our Electric operating segment and are allocated based on customer location.



|              |  |                             |        |      |   |       
|------------- |  | --------------------------- | ------ | ---- | - | ------
|              |  | Three Months EndedMarch 31,
|              |  | 2010                        |        | 2009
|              |  | (In thousands)             
|United States |  | $                           | 35,451 |      | $ | 31,259
|Europe        |  |                             | 24,608 |      |   | 22,699
|Canada        |  |                             | 8,812  |      |   | 6,836 
|Asia Pacific  |  |                             | 4,384  |      |   | 4,447 
|Other         |  |                             | 3,579  |      |   | 2,703 
|              |  |                             |        |      |   |       
|              |  | $                           | 76,834 |      | $ | 67,944
|              |  |                             |        |      |   |       

Long-lived assets (excluding deferred income tax
assets) by geographic region are as follows:



|              |  |                |        |                   |   |       
|------------- |  | -------------- | ------ | ----------------- | - | ------
|              |  | March 31,2010  |        | December 
31,2009
|              |  | (In thousands)
|United States |  | $              | 24,554 |                   | $ | 24,535
|Europe        |  |                | 9,933  |                   |   | 10,739
|Asia Pacific  |  |                | 3,091  |                   |   | 3,214 
|              |  |                |        |                   |   |       
|              |  | $              | 37,578 |                   | $ | 38,488
|              |  |                |        |                   |   |       



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##### Table of Contents

|Item 2. | 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 condensed consolidated financial
statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. 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. The section entitled Risk Factors set forth in Part II, Item 1A in this Quarterly Report on Form 10-Q, and similar discussions in our other
Securities and Exchange Commission, or SEC, filings, discuss some of the important risk factors that may affect our business, results of operations and financial condition. You should carefully consider those risks, in addition to the information in
this report and in our other filings with the SEC, before deciding to purchase, hold or sell our securities. We do not have any intention or obligation to update forward-looking statements included in this Quarterly Report on Form 10-Q after the
date of this Quarterly Report on Form 10-Q, except as required by law. In addition, the following discussion should be read in conjunction with the information presented in our audited consolidated financial statements and related notes contained in
our Annual Report on Form 10-K for our fiscal year ended December 31, 2009.

Overview

We are an innovative designer, marketer and distributor of premium quality young mens and young womens clothing, footwear, accessories and
related products under the Volcom brand name. We seek to offer products that appeal to participants in skateboarding, snowboarding, surfing and motocross, and those who affiliate themselves with the broader action sports youth lifestyle. Our
products, which include, among others, t-shirts, fleece, bottoms, tops, jackets, boardshorts, denim, outerwear, sandals, girls swimwear and a complete collection of kids and boys clothing, combine fashion, functionality and athletic performance. Our
designs are infused with an artistic and creative element that we believe differentiates our products from those of many of our competitors. We develop and introduce products that we believe set the industry standard for style and quality in each of
our product categories.

In 2008, we acquired all of the outstanding membership interests of Electric Visual Evolution LLC, or
Electric. Known for its Volt logo, Electric is a core action sports lifestyle brand. Electrics growing product line includes sunglasses, goggles, t-shirts, bags, hats, belts and other accessories. Electric is headquartered in Orange County,
California. In 2008, we also acquired the assets of Laguna Surf & Sport, a California-based retail chain currently operating two retail stores.

As part of our strategy to take direct control of our European operations, we constructed a new European headquarters in Anglet, France,
which was completed in February 2007, and delivered our first full season product line during the third quarter of 2007. We furthered our international expansion in 2008 by completing the acquisition of our distributor of Volcom branded products in
Japan. In 2009, we took direct control of the Volcom brand in the United Kingdom.

Volcom branded products are currently sold
throughout the United States and in over 40 countries internationally by either us or international licensees. We serve the United States, Europe, Canada, Latin America, Asia Pacific and Puerto Rico through our in-house sales personnel, independent
sales representatives and distributors. In these areas, Volcom branded products are sold to retailers that we believe merchandise our products in an environment that supports and reinforces our brand image and provide a superior in-store experience.
Our retail customers are primarily specialty boardsports retailers, several retail chains and select department stores.

In
Australia, Indonesia, South Africa, Brazil and Argentina (including Paraguay and Uruguay), we license the Volcom brand to entities that we believe have local market insight and strong relationships with retailers in their respective territories. We
receive royalties on the sales of Volcom branded products sold by our licensees. Our license agreements specify quality, design, marketing and distributing standards for the Volcom branded products distributed by our licensees. Our licensees are not
controlled and operated by us, and the amount of our licensing revenues could decrease in the future. As these license agreements expire, we may assume direct responsibility for serving these licensed territories.

The global macroeconomic environment has put pressure on discretionary consumer spending worldwide. While we believe that Volcom is well
positioned from a business and financial perspective, we are not immune to global economic conditions. Continued economic uncertainty may affect our business in a number of direct and indirect ways, including lower revenues, reduced profit margins
and increased costs, changes in interest and currency exchange rates, lack of credit availability and business disruptions due to difficulties experienced by suppliers and customers.



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Our revenues increased from $160.0 million in 2005 to $280.6 million in 2009. Our revenues
were $77.4 million for the three months ended March 31, 2010, an increase of $9.1 million, or 13.3%, compared to $68.3 million for the three months ended March 31, 2009. We believe our overall increase in revenues was driven primarily by
strong sell-through of Volcom and Electric products at retail, and solid in-season business.

Sales to Pacific Sunwear
decreased 10.4%, or $0.9 million, for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. We currently expect revenues from Pacific Sunwear to stay approximately flat in the second quarter of 2010
compared to the second quarter of 2009. It is unclear where our sales to Pacific Sunwear will trend in the longer term. Pacific Sunwear remains an important customer for us and we are working both internally and with Pacific Sunwear to maximize our
business with them. We believe our brand continues to be an important part of the Pacific Sunwear business. We also recognize that any customer concentration creates risks and we are, therefore, assessing strategies to lessen our concentration with
Pacific Sunwear.

Our gross margins are affected by our ability to accurately forecast demand and avoid excess inventory by
matching purchases of finished goods to orders, which decreases our percentage of sales at discount or close-out prices. Gross margins are also impacted by our ability to control our sourcing costs and, to a lesser extent, by changes in our product
mix and geographic distribution channel. Our gross margins have also historically been seasonal, with the first quarter having the highest margin. If we misjudge forecasting inventory levels or our sourcing costs increase and we are unable to raise
our prices, our gross margins may decline.

We currently source the majority of our products from third-party manufacturers
located primarily in China and Mexico. As a result, we may be adversely affected by the disruption of trade with these countries, the imposition of new regulations related to imports, duties, taxes and other charges on imports, and decreases in the
value of the U.S. dollar against foreign currencies. We seek to mitigate the possible disruption in product flow by diversifying our manufacturing across numerous manufacturers and by using manufacturers in countries that we believe to be
politically stable. We do not enter into long-term contracts with our third-party manufacturers. Rather, we typically enter into contracts with each manufacturer to produce one or more product lines for a particular selling season. This strategy has
enabled us to maintain flexibility in our sourcing.

Our products manufactured abroad are subject to U.S. customs laws, which
impose tariffs as well as import quota restrictions for textiles and apparel. Quota represents the right, pursuant to bilateral or other international trade arrangements, to export amounts of certain categories of merchandise into a country or
territory pursuant to a visa or license. Additionally, China offers a rebate tax on exports to control the amount of exports from China, which can affect our cost either positively or negatively. These potential cost increases, along with the rising
currency, raw material cost increases and labor shortages in China, may have an impact on our business. While we do not believe the limitations on imports from China will have a material effect on our operations, there may be increased pressure on
costs, and we intend to closely monitor our sourcing in China to avoid disruptions.

With the passage of the Consumer Product
Safety Improvement Act of 2008 and similar state laws, such as Californias Proposition 65, there are new requirements mandated for the textiles and apparel industries. These requirements relate to all metal and painted trim items and
certain other raw materials used in childrens apparel, as well as flammability standards in certain types of textiles. The Consumer Product Safety Commission, or CPSC, will require certification and testing for lead in paint and metal
trims, pointed or sharp edge items, Phthalates, and fabric flammability to meet the CPSCs limits. We will continue to monitor the situation and intend to abide by all rules and changes made by the CPSC and similar state laws. This could have a
negative impact on the cost of our goods and poses a potential risk if we do not adhere to these requirements.

Over the past
five years, our selling, general and administrative expenses have increased on an absolute dollar basis as we have increased our spending on marketing, advertising and promotions, strengthened our management team, hired additional personnel and made
investments in new territories and initiatives. As a percentage of revenues, our selling, general and administrative expenses have increased from 26.8% in 2005 to 39.5% in 2009. This increase was primarily due to additional expenses in the United
States segment associated with growth and brand building initiatives, including costs associated with our transition to a new warehouse facility in Irvine, California. In addition, we have made investments in our acquired distributors in Japan and
the UK, which has increased our selling, general and administrative expenses as a percentage of revenue. Our selling, general and administrative expenses have increased on an absolute dollar basis from $28.0 million for the three months ended
March 31, 2009 to $31.0 million for the three months ended March 31, 2010. This increase in absolute dollars was due primarily to increased marketing and personnel costs. Our selling, general and administrative expenses as a
percentage of revenues have decreased from 41.0% for the three months ended March 31, 2009 to 40.0% for the three months ended March 31, 2010. This decrease in selling, general and administrative expenses as a percentage of revenues was
due primarily to the leveraging of certain fixed costs over a higher revenue base in 2010.



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Critical Accounting Policies

The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and related disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate these estimates and assumptions
on an ongoing basis. We base our estimates on our historical experience and on various other factors which we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities and the amounts of certain expenses that are not readily apparent from other sources. The accounting policies that involve the most significant judgments, assumptions and estimates used in the preparation of our financial
statements are those related to revenue recognition, accounts receivable, inventories, goodwill and intangible assets, long-lived assets, income taxes, stock-based compensation and foreign currency translation. The judgments, assumptions and
estimates used in these areas by their nature involve risks and uncertainties, and in the event that any of them prove to be inaccurate in any material respect, it could have a material adverse effect on our reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. A summary of these critical accounting policies is included in Item 7 (Managements Discussion and Analysis
of Financial Condition and Results of Operations) of Part II, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009. There have been no material changes to the critical accounting policies disclosed in our Annual
Report on Form 10-K.

General

Our revenues consist of both our product revenues and our licensing revenues. Our product revenues are derived primarily from the sale of
young mens and young womens clothing, accessories and related products under the Volcom brand name. We offer Volcom branded apparel and accessory products in six main categories: mens, girls, boys, footwear, girls swim and snow. Product revenues
also include revenues from music and film sales. We also offer the full product line under the Electric brand name, including sunglasses, goggles, soft goods and other accessories. Amounts billed to customers for shipping and handling are included
in product revenues. Licensing revenues consist of royalties on Volcom product sales by our international licensees in Australia, Indonesia, South Africa, Brazil and Argentina (including Uruguay and Paraguay).

Our cost of goods sold consists primarily of product costs, retail packaging, freight costs associated with shipping goods to customers,
quality control and inventory shrinkage. There is no cost of goods sold associated with our licensing revenues.

Our selling,
general and administrative expenses consist primarily of wages and related payroll and employee benefit costs, handling costs, sales and marketing expenses, advertising costs, legal and accounting professional fees, insurance, utilities and other
facility related costs, such as rent and depreciation.

Results of Operations

The following table sets forth selected items in our consolidated statements of operations for the periods presented, expressed as a
percentage of revenues:



|                                             |  |                             |   |  |       |  
|-------------------------------------------- |  | --------------------------- | - |  | ----- | -
|                                             |  | Three Months EndedMarch 31, |  
|                                             |  | 2010                        |   |  | 2009  |  
|Revenues                                     |  | 100.0                       | % |  | 100.0 | %
|Cost of goods sold                           |  | 45.8                        |   |  | 49.7  |  
|                                             |  |                             |   |  |       |  
|Gross profit                                 |  | 54.2                        |   |  | 50.3  |  
|Selling, general and administrative expenses |  | 40.0                        |   |  | 41.0  |  
|                                             |  |                             |   |  |       |  
|Operating income                             |  | 14.2                        |   |  | 9.3   |  
|Other income                                 |  | 0.1                         |   |  | 0.2   |  
|                                             |  |                             |   |  |       |  
|Income before provision for income taxes     |  | 14.3                        |   |  | 9.5   |  
|Provision for income taxes                   |  | 4.6                         |   |  | 3.3   |  
|                                             |  |                             |   |  |       |  
|Net income                                   |  | 9.7                         | % |  | 6.2   | %
|                                             |  |                             |   |  |       |  

Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009

Revenues

Consolidated revenues were $77.4 million for the three months ended March 31, 2010, an increase of $9.1 million, or 13.3%, compared
to $68.3 million for the three months ended March 31, 2009. Revenues from our United States segment



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were $48.2 million for the three months ended March 31, 2010, an increase of $5.8 million, or 13.6% compared to $42.4 million for the three months ended March 31, 2009. Revenues from
our Europe segment were $23.6 million for the three months ended March 31, 2010, an increase of $1.9 million, or 9.0% compared to $21.7 million for the three months ended March 31, 2009. On a Euro to Euro basis, revenues in our European
segment increased approximately 2.9% for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. Revenues from our Electric segment were $5.6 million for the three months ended March 31, 2010, an
increase of $1.4 million, or 33.0% compared to $4.2 million for the three months ended March 31, 2009. We believe our overall increase in revenues was driven primarily by strong sell-through of Volcom and Electric products at retail, and solid
in-season reorder business.

Revenues from our five largest customers were $12.8 million for the three months ended
March 31, 2010, a decrease of $1.1 million, or 7.4%, compared to $13.9 million for the three months ended March 31, 2009. Excluding revenues from Pacific Sunwear, which decreased $0.9 million, or 10.4%, to $7.5 million, total revenues from
our remaining five largest customers decreased $0.2 million, or 2.8%, to $5.3 million for the three months ended March 31, 2010 from $5.5 million for the three months ended March 31, 2009. We currently expect revenues from Pacific Sunwear
to stay approximately flat in the second quarter of 2010 compared to the second quarter of 2009.

Consolidated product
revenues were $76.8 million for the three months ended March 31, 2010, an increase of $8.9 million, or 13.1%, compared to $67.9 million for the three months ended March 31, 2009. Revenues from mens products increased $7.2 million, or
20.1%, to $42.9 million for the three months ended March 31, 2010 compared to $35.7 million for the three months ended March 31, 2009. Revenues from boys products increased $1.5 million, or 34.9%, to $5.8 million for the three months ended
March 31, 2010 compared to $4.3 million for the three months ended March 31, 2009. Revenues from our Electric subsidiary increased $1.4 million, or 33.0%, to $5.6 million for the three months ended March 31, 2010 compared to $4.2
million for the three months ended March 31, 2009. Revenues from footwear products increased $0.5 million, or 17.9%, to $2.9 million for the three months ended March 31, 2010 compared to $2.4 million for the three months ended
March 31, 2009. Revenues from our girls swim line increased $0.4 million, or 12.5%, to $4.0 million for the three months ended March 31, 2010 compared to $3.6 million for the three months ended March 31, 2009. Revenues from girls
products decreased $2.1 million, or 12.4%, to $14.7 million for the three months ended March 31, 2010 compared to $16.8 million for the three months ended March 31, 2009.

Licensing revenues increased 56.2% to $0.6 million for the three months ended March 31, 2010 from $0.4 million for the three months
ended March 31, 2009.

Product revenues by geographic region include revenues from our Electric operating segment, and
are allocated based on customer location. Such product revenues in the United States were $35.5 million, or 46.1% of our product revenues, for the three months ended March 31, 2010, compared to $31.3 million, or 46.0% of our product revenues,
for the three months ended March 31, 2009. Product revenues in Europe were $24.6 million, or 32.0% of our product revenues, for the three months ended March 31, 2010, compared to $22.7 million, or 33.4% of our product revenues, for the
three months ended March 31, 2009. Product revenues in the rest of the world consist primarily of product revenues from sales in the Canadian and Asia Pacific regions, and do not include sales by our international licensees. Such product
revenues in the rest of the world were $16.7 million, or 21.9% of our product revenues, for the three months ended March 31, 2010 compared to $13.9 million, or 20.6% of our product revenues, for the three months ended March 31, 2009.

Gross Profit

Consolidated gross profit increased $7.6 million, or 22.1%, to $42.0 million for the three months ended March 31, 2010 compared to
$34.4 million for the three months ended March 31, 2009. Gross profit as a percentage of revenues, or gross margin, increased 390 basis points to 54.2% for the three months ended March 31, 2010 compared to 50.3% for the three months ended
March 31, 2009. Consolidated gross margin related specifically to product revenues increased 380 basis points to 53.9% for the three months ended March 31, 2010 compared to 50.1% for the three months ended March 31, 2009. Gross margin
on product from the U.S. segment increased 240 basis points to 49.7% for the three months ended March 31, 2010 compared to 47.3% for the three months ended March 31, 2009. This increase is primarily due to strong sell-through of our
product at retail. Gross margin from the European segment increased 590 basis points to 60.4% for the three months ended March 31, 2010 compared to 54.5% for the three months ended March 31, 2009, primarily due to strong demand for
product, which resulted in less liquidation sales during the three months ended March 31, 2010 compared to the three months ended March 31, 2009. Additionally, fewer low margin samples were shipped during the three months ended
March 31, 2010 compared to the three months ended March 31, 2009. Gross margin from the Electric segment increased 770 basis points to 62.2% for the three months ended March 31, 2010 compared to 54.5% for the three months ended
March 31, 2009 primarily due to better margins achieved on off-price sales, and sales of sunglasses that were purchased at a more favorable Euro to U.S. dollar exchange rate than last year.



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Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses increased $3.0 million, or 10.6%, to $31.0 million for the three months ended
March 31, 2010 compared to $28.0 million for the three months ended March 31, 2009. The increase in absolute dollars was due primarily to increased payroll and payroll related costs of $1.8 million, increased marketing and advertising
costs of $1.3 million, and increased commissions expense of $0.5 million associated with an increase in revenues between periods. These increases were offset by a decrease in bad debt expense of $1.3 million. The net increase in various other
expense categories was $0.7 million. Selling, general and administrative expenses as a percentage of revenue decreased 100 basis points to 40.0% for the three months ended March 31, 2010 compared to 41.0% for the three months ended
March 31, 2009. This decrease in selling, general and administrative expenses as a percentage of revenues was due primarily to the leveraging of certain fixed costs over a higher revenue base in 2010.

Operating Income

As a result of the factors above, operating income for the three months ended March 31, 2010 increased $4.7 million to $11.0 million
compared to $6.3 million for the three months ended March 31, 2009. Operating income as a percentage of revenue increased to 14.2% for the three months ended March 31, 2010 from 9.3% for the three months ended March 31, 2009.

Other Income

Other income primarily includes net interest income and foreign currency gains and losses. Interest income for the three months ended
March 31, 2010 and 2009 was $0.1 million and $33,000, respectively. The increase in interest income is due to higher returns on our cash and cash equivalents and short-term investments. Foreign currency gain (loss) decreased to a $10,000 loss
for the three months ended March 31, 2010 compared to a $0.1 million gain for the three months ended March 31, 2009 due primarily to fluctuations in the Euro and Canadian dollar exchange rates against the U.S. dollar.

Provision for Income Taxes

We have computed our provision for income taxes for the three months ended March 31, 2010 using an estimated effective annual tax
rate of 32.0% plus the tax impact of discrete items in the quarter. The provision for income taxes increased $1.3 million to $3.6 million for the three months ended March 31, 2010 compared to $2.3 million for the three months ended
March 31, 2009.

Net Income

As a result of the factors above, net income increased $3.3 million, or 78.5%, to $7.5 million for the three months ended March 31,
2010 from $4.2 million for the three months ended March 31, 2009.

Liquidity and Capital Resources

Our primary cash needs are working capital and capital expenditures. These sources of liquidity may be impacted by
fluctuations in demand for our products, ongoing investments in our infrastructure and expenditures on marketing and advertising.

The following table sets forth, for the periods indicated, our beginning balance of cash and cash equivalents, net cash flows from
operating, investing and financing activities and our ending balance of cash and cash equivalents:



|                                                 |  |                             |         |   |      |   |         |  
|------------------------------------------------ |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                 |  | Three Months EndedMarch 31, |        
|                                                 |  | 2010                        |         |   | 2009 |  
|                                                 |  | (In thousands)              |        
|Cash and cash equivalents at beginning of period |  | $                           | 76,180  |   |      | $ | 79,613  |  
|Cash flow from operating activities              |  |                             | (1,231  | ) |      |   | 6,010   |  
|Cash flow from investing activities              |  |                             | (11,005 | ) |      |   | (26,472 | )
|Cash flow from financing activities              |  |                             | (4      | ) |      |   | (18     | )
|Effect of exchange rate on cash                  |  |                             | 52      |   |      |   | 814     |  
|                                                 |  |                             |         |   |      |   |         |  
|Cash and cash equivalents at end of period       |  | $                           | 63,992  |   |      | $ | 59,947  |  
|                                                 |  |                             |         |   |      |   |         |  

Cash from operating activities consists primarily of net income adjusted for certain non-cash items
including depreciation and amortization, deferred income taxes, provision for doubtful accounts, loss on disposal of property and



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equipment, stock-based compensation and the effect of changes in working capital and other activities. For the three months ended March 31, 2010, cash used in operating activities was $1.2
million compared to cash provided by operating activities of $6.0 million for the three months ended March 31, 2009. The $7.2 million decrease in cash from operating activities between the periods was attributable to the following:



|               |        |   |                 |                                                                                                                                                        
|-------------- | ------ | - | --------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(In thousands) |        |   | Attributable to
|$              | (7,537 | ) |                 | Decrease in cash flows from accounts receivable due to the timing of sales and collections                                                             
|               | (6,806 | ) |                 | Decrease in cash flows from accounts payable due to the timing of payments between periods                                                             
|               | (1,578 | ) |                 | Decrease in non-cash provision for doubtful accounts, depreciation and amortization                                                                    
|               | (1,296 | ) |                 | Decrease in cash flows due to an increase in payments for prepaid expenses and other current assets between
periods                                    
|               | 3,314  |   |                 | Increase in net income                                                                                                                                 
|               | 2,932  |   |                 | Increase in cash flows from accrued expenses and other current liabilities due to an increase in payroll accruals and other
liabilities between periods
|               | 2,397  |   |                 | Increase in cash flows from inventories due to lower inventory levels between periods resulting from improved revenues over
the prior period           
|               | 1,215  |   |                 | Increase in cash flow from income taxes receivable/payable due to the timing of payments between periods                                               
|               | 118    |   |                 | Net increase in cash flows from all other operating activities                                                                                         
|               |        |   |                 |                                                                                                                                                        
|$              | (7,241 | ) |                 | Total                                                                                                                                                  
|               |        |   |                 |                                                                                                                                                        

Cash used in investing activities was $11.0 million and $26.5 million for the three months ended
March 31, 2010 and 2009, respectively. During the three months ended March 31, 2010, the cash used in investing activities was primarily due to the net purchase of short-term investments of $10.0 million, and purchases of property and
equipment of $1.0 million. During the three months ended March 31, 2009, the cash used in investing activities was primarily due to the purchase of short-term investments of $24.9 million and $0.8 million spent on taking direct control of the
UK territory from our UK distributor. Capital expenditures during the three months ended March 31, 2010 and 2009 included the ongoing purchase of investments in computer equipment, warehouse equipment, marketing initiatives and in-store
buildouts at customer retail locations.

Cash used in financing activities was $4,000 for the three months ended
March 31, 2010 compared to $18,000 for the three months ended March 31, 2009. Cash from financing activities is primarily due to principal payments on capital lease obligations.

We currently have no material cash commitments, except for our normal recurring trade payables, expense accruals, operating leases,
capital leases and athlete endorsement agreements. We believe that our cash and cash equivalents, short-term investments, cash flow from operating activities and available borrowings under our credit facility will be sufficient to meet all
requirements for at least the next twelve months.

Credit Facilities

We maintain a $40.0 million unsecured credit agreement with a bank (which includes a line of credit, foreign exchange facility and letter
of credit sub-facilities). The amended credit agreement, which expires on August 31, 2010, may be used to fund our working capital requirements. Borrowings under this agreement bear interest, at our option, either at the banks prime rate
(3.25% at March 31, 2010) or LIBOR plus 1.25%. Under this credit facility, we had $2.2 million outstanding in letters of credit at March 31, 2010. At March 31, 2010, there were no outstanding borrowings under this credit facility, and
$37.8 million was available under the credit facility. The credit agreement requires compliance with conditions precedent that must be satisfied prior to any borrowing, as well as ongoing compliance with specified affirmative and negative covenants,
including covenants related to our financial condition, including requirements that we maintain a minimum net profit after tax and a minimum earnings before interest, taxes, depreciation and amortization, or EBITDA. At March 31, 2010, we were
in compliance with all restrictive covenants.

Contractual Obligations and Commitments

We lease certain land and buildings under non-cancelable operating leases. The leases expire at various dates through 2036, excluding
extensions at our option, and contain provisions for rental adjustments, including in certain cases, adjustments based on increases in the Consumer Price Index. The leases generally contain renewal provisions for varying periods of time.



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In June 2008, we entered into a lease agreement for a new warehouse facility located in
close proximity to our existing European headquarters in France. The landlord has completed construction on the warehouse, and product shipments began in November 2009. The lease runs for a period of nine years, with an option to terminate
after six years.

We lease computer and office equipment pursuant to capital lease obligations. These leases bear interest at
rates ranging from 2.9% to 7.5% per year and expire at various dates through June 2010.

We establish relationships with
professional athletes in order to promote our products and brand. We have entered into endorsement agreements with professional skateboarding, snowboarding, surfing and motocross athletes. Additionally, many of these contracts provide incentives for
magazine exposure and competitive victories while wearing or using our products.

We did not have any off-balance sheet
arrangements or outstanding balances on our credit facility as of March 31, 2010. Our contractual letters of credit typically have maturity dates of less than one year. We use these letters of credit to purchase finished goods.

In connection with the 2008 acquisition of Electric, the sellers are eligible to receive $12.0 million in cash upon achieving certain
financial milestones through December 31, 2010.

Inflation

We do not believe inflation has had a material impact on our results of operations in the past. There can be no assurance that our
business will not be affected by inflation in the future.

Recent Accounting Pronouncements

See Note 3 to the Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements.



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|Item 3. | Quantitative and Qualitative Disclosures about Market Risk.
|------- | -----------------------------------------------------------

Foreign Currency Risk

In the normal course of business, we are exposed to foreign currency exchange rate risks (see Note 11 to the Condensed Consolidated
Financial Statements) that could impact our results of operations. We are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to certain sales, licensing revenues and product purchases of our
international subsidiaries that are denominated in currencies other than their functional currencies. We are also exposed to foreign currency gains and losses resulting from domestic transactions that are not denominated in U.S. dollars.
Furthermore, we are exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported results in our consolidated financial statements due to the translation of the operating results and
financial position of our international subsidiaries. Changes in foreign currency rates affect our results of operations and distort comparisons between periods. For example, when the U.S. dollar strengthens compared to the Euro, there is a negative
effect on our reported results from our European operation because it takes more profits in Euro to generate the same amount of profits in stronger U.S. dollars. We do not enter into foreign currency exchange contracts to hedge the translation of
operating results and financial position of our international subsidiaries.

A portion of our domestic sales are made in
Canadian dollars. Sales in Canada accounted for approximately 10.7% of our product revenues in 2009 and approximately 11.5% of our product revenues for the three months ended March 31, 2010. As a result, we are exposed to fluctuations in the
value of Canadian dollar denominated receivables and payables, foreign currency investments, primarily consisting of Canadian dollar deposits, and cash flows related to repatriation of those investments. A weakening of the Canadian dollar relative
to the U.S. dollar could negatively impact the profitability of our products sold in Canada and the value of our Canadian receivables, as well as the value of repatriated funds we may bring back to the United States from Canada. Account
balances denominated in Canadian dollars are marked-to-market every period using current exchange rates and the resulting changes in the account balance are included in our income statement as other income. If recent foreign currency market
volatility continues and the Canadian dollar weakens, our results could be adversely affected. Based on the balance of Canadian dollar receivables of $8.8 million at March 31, 2010, an assumed 10% strengthening of the U.S. dollar would
result in pretax foreign currency losses of $0.9 million.

We are exposed to foreign currency exchange rate risks between the
Euro and the U.S. dollar, as a portion of our European operations purchases inventory in U.S. dollars. This exposure is partially offset as a portion of our domestic Electric operations purchases inventory in Euros. In addition, we are also
exposed to foreign currency gains and losses resulting from various other European operations transactions that are denominated in U.S. dollars. A weakening of the Euro relative to the U.S. dollar could have a negative impact on our net
exposure of the Euro to the U.S. dollar. If recent foreign currency market volatility continues and the Euro weakens compared to the U.S. dollar, our results could be adversely affected. Based on our net Euro exposure of approximately $6.6
million at March 31, 2010, an assumed 10% strengthening of the U.S. dollar would result in pre-tax foreign currency losses of $0.9 million.

We generally purchase Volcom branded finished goods from our manufacturers in U.S. dollars. However, we source substantially all of
these finished goods abroad and their cost may be affected by changes in the value of the relevant currencies. Price increases caused by currency exchange rate fluctuations could increase our costs. If we are unable to increase our prices to a level
sufficient to cover the increased costs, it could adversely affect our margins and we may become less price competitive with companies who manufacture their products in the United States.

Interest Rate Risk

We maintain a $40.0 million unsecured credit agreement (which includes a line of credit, foreign exchange facility and letter of credit
sub-facilities) with no balance outstanding at March 31, 2010. The credit agreement, which expires on August 31, 2010, may be used to fund our working capital requirements. Borrowings under this agreement bear interest, at our option,
either at the banks prime rate (3.25% at March 31, 2010) or LIBOR plus 1.25%. Based on the average interest rate on our credit facility during 2009, and to the extent that borrowings were outstanding, we do not believe that a 10% change
in interest rates would have a material effect on our results of operations or financial condition.



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|Item 4. | Controls and Procedures.
|------- | ------------------------

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act
reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and that such information is accumulated and communicated to our management, including our
Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our
disclosure controls or procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the
benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our
company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be
detected.

We carried out an evaluation, under the supervision and with the participation of our management, including our
Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2010, the end of the quarterly period covered by this report. The evaluation of
our disclosure controls and procedures included a review of the disclosure controls and procedures objectives, design, implementation and the effect of the controls and procedures on the information generated for use in this report. In
the course of our evaluation, we sought to identify data errors, control problems or acts of fraud and to confirm the appropriate corrective actions, including process improvements, were being undertaken.

Based on the foregoing, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered
by this report, our disclosure controls and procedures were effective and were operating at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal controls over financial reporting.



|Item 4T. | Controls and Procedures.
|-------- | ------------------------

Not applicable.

PART II.

OTHER INFORMATION



|Item 1. | Legal Proceedings.
|------- | ------------------

We
are subject to various claims, complaints and legal actions in the normal course of business from time to time. We do not believe we have any currently pending litigation of which the outcome will have a material adverse effect on our operations or
financial position.



|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 Annual Report on Form 10-K for the year ended December 31, 2009 and subsequent reports on Form 8-K. Risks that could affect our actual performance include, but are not limited to those discussed in Part
I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2009. The following are the material changes and updates from the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K.



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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.

Pacific
Sunwear accounted for approximately 11% of our product revenues in 2009 and approximately 10% of our product revenues for the three months ended March 31, 2010. We do not have a long-term contract with Pacific Sunwear, and all of its purchases
from us have historically been on a purchase order basis. Sales to Pacific Sunwear decreased 42%, or $22.0 million, for 2009 compared to 2008, and decreased 10%, or $0.9 million, for the three months ended March 31, 2010 compared to the three
months ended March 31, 2009. We currently expect revenues from Pacific Sunwear to stay approximately flat in the second quarter of 2010 compared to the second quarter of 2009. We recognize that any customer concentration creates risks and we
are, therefore, assessing strategies to lessen our concentration with Pacific Sunwear. We cannot predict whether such strategies will reduce, in whole or in part, our sales concentration with Pacific Sunwear in the near or long term. Because Pacific
Sunwear has represented such a significant amount of our product revenues, our results of operations are likely to be adversely affected by any Pacific Sunwear decision to decrease its rate of purchases of our products. A decrease in its purchases
of our products, a cancellation of orders of our products or a change in the timing of its orders will have an additional adverse affect on our operating results.



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

We did not sell any unregistered equity securities or purchase any of our securities during the period ended March 31, 2010.



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------

None



|Item 4. | Removed and Reserved
|------- | --------------------



|Item 5. | Other Information.
|------- | ------------------

None



|Item 6. | Exhibits.
|------- | ---------



|     |  |                                                                                                                                                                                      
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|3.1* |  | 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                                                                                                                                                    
|     | 
|31.1 |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                               
|     | 
|31.2 |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                               
|     | 
|32   |  | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted 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)
|- | --------------------------------------------------------------------------------------------------------



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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.



|                   |  |                                                       
|------------------ |  | ------------------------------------------------------
|                   |  | Volcom, Inc.                                          
|                   | 
|Date: May 10, 2010 |  | /S/    DOUGLAS P.
COLLIER                             
|                   |  | Douglas P. Collier                                    
|                   |  | Executive Vice President, Chief Financial Officer,    
|                   |  | Secretary and Treasurer                               
|                   |  | (Principal Financial Officer and Authorized Signatory)



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INDEX TO EXHIBITS



|            |  |                                                                                                                                                                                      
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
No. |  | Description                                                                                                                                                                          
|            | 
|3.1*        |  | 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                                                                                                                                                    
|            | 
|31.1        |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                               
|            | 
|31.2        |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                               
|            | 
|32          |  | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted 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)
|- | --------------------------------------------------------------------------------------------------------



26