##### Table of Contents



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 September 30, 2007
 or
 o
    
    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
(State or other jurisdiction of 
incorporation or organization)
    
    33-0466919
(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)
 þ o
  þ o o
 o þ




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##### 



VOLCOM, INC.
 FORM 10-Q
INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2007 and December 31, 2006
    
    
    3Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2007 and 2006
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6  14Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15  28Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    29  30Item 4T. Controls and Procedures
    
    
    30PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31  32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults Upon Senior Securities
    
    
    33Item 4. Submission of Matters to a Vote of Security Holders
    
    
    33Item 5. Other Information
    
    
    33Item 6. Exhibits
    
    
    33SIGNATURES
    
    
    34EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  2




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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 data)
 September 30, 2007
    
    
    December 31, 2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    80,867
    
    
    $
    85,414Accounts receivable  net of allowances of
$2,685 (2007) and $1,323 (2006)
    
    
    67,615
    
    
    
    34,175Inventories
    
    
    16,703
    
    
    
    13,185Prepaid expenses and other current assets
    
    
    1,520
    
    
    
    1,383Deferred income taxes
    
    
    2,516
    
    
    
    2,353Total current assets
    
    
    169,221
    
    
    
    136,510Property and equipment  net
    
    
    22,724
    
    
    
    11,527Investments in unconsolidated investees
    
    
    298
    
    
    
    298Deferred income taxes
    
    
    713
    
    
    
    660Intangible assets  net
    
    
    365
    
    
    
    386Goodwill
    
    
    166
    
    
    
    158Other assets
    
    
    235
    
    
    
    209Total assets
    
    $
    193,722
    
    
    $
    149,748Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    13,902
    
    
    $
    8,764Accrued expenses and other current liabilities
    
    
    11,873
    
    
    
    6,175Income taxes payable
    
    
    2,675
    
    
    
    424Current portion of capital lease obligations
    
    
    80
    
    
    
    78Total current liabilities
    
    
    28,530
    
    
    
    15,441Long-term capital lease obligations
    
    
    45
    
    
    
    106Other long-term liabilities
    
    
    195
    
    
    
    204Income taxes payable  noncurrent
    
    
    132
    
    
    
    Commitments and contingencies (Note 9)Stockholders equity:Common stock, $.001 par value  60,000,000
shares authorized; 24,346,520 (2007) and
24,295,420 (2006) shares issued and
outstanding
    
    
    24
    
    
    
    24Additional paid-in capital
    
    
    88,865
    
    
    
    86,773Retained earnings
    
    
    73,111
    
    
    
    47,019Accumulated other comprehensive income
    
    
    2,820
    
    
    
    181Total stockholders equity
    
    
    164,820
    
    
    
    133,997Total liabilities and stockholders equity
    
    $
    193,722
    
    
    $
    149,748
  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 Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Product revenues
    
    $
    90,515
    
    
    $
    59,704
    
    
    $
    196,841
    
    
    $
    145,709Licensing revenues
    
    
    530
    
    
    
    1,345
    
    
    
    2,703
    
    
    
    2,987Total revenues
    
    
    91,045
    
    
    
    61,049
    
    
    
    199,544
    
    
    
    148,696Cost of goods sold
    
    
    45,178
    
    
    
    30,141
    
    
    
    99,477
    
    
    
    73,352Gross profit
    
    
    45,867
    
    
    
    30,908
    
    
    
    100,067
    
    
    
    75,344Selling, general and administrative expenses
    
    
    22,840
    
    
    
    15,348
    
    
    
    60,129
    
    
    
    43,408Operating income
    
    
    23,027
    
    
    
    15,560
    
    
    
    39,938
    
    
    
    31,936Other income:Interest income, net
    
    
    1,004
    
    
    
    1,048
    
    
    
    3,143
    
    
    
    2,762Dividend income from cost method
investee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Foreign currency gain (loss)
    
    
    (253
    )
    
    
    122
    
    
    
    278
    
    
    
    384Total other income
    
    
    751
    
    
    
    1,170
    
    
    
    3,421
    
    
    
    3,149Income before provision for income taxes
    
    
    23,778
    
    
    
    16,730
    
    
    
    43,359
    
    
    
    35,085Provision for income taxes
    
    
    9,260
    
    
    
    6,567
    
    
    
    17,139
    
    
    
    13,964Net income
    
    $
    14,518
    
    
    $
    10,163
    
    
    $
    26,220
    
    
    $
    21,121Net income per share:Basic
    
    $
    0.60
    
    
    $
    0.42
    
    
    $
    1.08
    
    
    $
    0.87Diluted
    
    $
    0.59
    
    
    $
    0.42
    
    
    $
    1.07
    
    
    $
    0.87Weighted average shares outstanding:Basic
    
    
    24,314,352
    
    
    
    24,217,204
    
    
    
    24,295,432
    
    
    
    24,210,801Diluted
    
    
    24,453,255
    
    
    
    24,235,173
    
    
    
    24,421,943
    
    
    
    24,286,406
  4




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VOLCOM, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 (in thousands)
 Nine Months EndedSeptember 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    26,220
    
    
    $
    21,121Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    1,941
    
    
    
    1,000Provision for doubtful accounts
    
    
    738
    
    
    
    464Excess tax benefits related to exercise of stock options
    
    
    (415
    )
    
    
    (116
    )Loss on disposal of property and equipment
    
    
    22
    
    
    
    8Stock-based compensation
    
    
    688
    
    
    
    607Deferred income taxes
    
    
    (161
    )
    
    
    (193
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (32,346
    )
    
    
    (15,021
    )Inventories
    
    
    (3,271
    )
    
    
    (1,864
    )Prepaid expenses and other current assets
    
    
    (120
    )
    
    
    (194
    )Income taxes receivable/payable
    
    
    2,689
    
    
    
    3,176Other assets
    
    
    (22
    )
    
    
    (118
    )Accounts payable
    
    
    4,534
    
    
    
    5,252Accrued expenses and other current liabilities
    
    
    3,254
    
    
    
    3,982Other long-term liabilities
    
    
    (24
    )
    
    
    Net cash provided by operating activities
    
    
    3,727
    
    
    
    18,104Cash flows from investing activities:Purchase of property and equipment
    
    
    (12,525
    )
    
    
    (5,693
    )Acquisition, net of cash required
    
    
    
    
    
    
    (168
    )Proceeds from sale of property and equipment
    
    
    16
    
    
    
    Net cash used in investing activities
    
    
    (12,509
    )
    
    
    (5,861
    )Cash flows from financing activities:Principal payments on capital lease obligations
    
    
    (58
    )
    
    
    (53
    )Cash received from government grants
    
    
    225
    
    
    
    Proceeds from exercise of stock options
    
    
    971
    
    
    
    543Excess tax benefits related to exercise of stock options
    
    
    415
    
    
    
    116Net cash provided by financing activities
    
    
    1,553
    
    
    
    606Effect of exchange rate changes on cash
    
    
    2,682
    
    
    
    Net (decrease)/increase in cash and cash equivalents
    
    
    (4,547
    )
    
    
    12,849Cash and cash equivalents Beginning of period
    
    
    85,414
    
    
    
    71,712Cash and cash equivalents End of period
    
    $
    80,867
    
    
    $
    84,561Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    23
    
    
    $
    11Income taxes
    
    $
    14,603
    
    
    $
    10,901
 Supplemental disclosures of noncash investing and financing activities:
   5




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VOLCOM, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
 Note 1  Basis of Presentation
   Note 2  Stock-Based Compensation
 Share-Based Payment Transition Election Related to Accounting for the Tax Effects of Share-Based
Payment Awards
    6




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VOLCOM, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (continued)
 Stock Compensation Plans
 Stock Option Awards
   Weighted-Average
    
    
    Weighted-AverageNumber of
    
    
    Exercise
    
    
    RemainingOptions
    
    
    Price
    
    
    Contractual TermOutstanding at January 1, 2007
    
    
    487,700
    
    
    $
    19.00Granted
    
    
    10,000
    
    
    $
    42.07Exercised
    
    
    (51,100
    )
    
    $
    19.00Canceled or forfeited
    
    
    (1,200
    )
    
    $
    19.00Outstanding at September 30, 2007
    
    
    445,400
    
    
    $
    19.52
    
    
    7.8 yearsExercisable at September 30, 2007
    
    
    231,700
    
    
    $
    19.00
    
    
    7.8 years
  7




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##### Table of Contents



VOLCOM, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (continued)
  Weighted-AverageNumber of
    
    
    Grant-DateOptions
    
    
    Fair VlueUnvested at January 1, 2007
    
    
    272,800
    
    
    $
    9.14Granted
    
    
    10,000
    
    
    
    14.25Vested
    
    
    (67,900
    )
    
    
    9.14Canceled or forfeited
    
    
    (1,200
    )
    
    
    9.14Unvested at September 30, 2007
    
    
    213,700
    
    
    $
    9.38
  Options Outstanding
    
    Options ExercisableWeighted-
    
    Weighted-
    
    
    
    
    
    Weighted-Average
    
    Average
    
    
    
    
    
    AverageNumber of
    
    Remaining
    
    Exercise
    
    Number of
    
    ExerciseRange of exercise price
    
    Options
    
    Life (yrs)
    
    Price
    
    Options
    
    Price$19.00
    
    
    435,400
    
    
    
    7.8
    
    
    $
    19.00
    
    
    
    231,700
    
    
    $
    19.00$42.07
    
    
    10,000
    
    
    
    9.6
    
    
    $
    42.07
    
    
    
    
    
    
    
    
  Restricted Stock Awards
    Weighted-AverageShares of
    
    
    Grant-DateRestricted Stock
    
    
    Fair ValueOutstanding restricted stock at January 1, 2007
    
    
    31,000
    
    
    $
    30.09Granted
    
    
    
    
    
    
    Vested
    
    
    (7,000
    )
    
    $
    30.43Canceled or forfeited
    
    
    
    
    
    
    Outstanding restricted stock at September 30, 2007
    
    
    24,000
    
    
    $
    30.00
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VOLCOM, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (continued)
 Note 3  New Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109.
 Fair Value Measurements.
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of SFAS No. 115
 Note 4  Inventories
  September 30, 2007
    
    
    December 31, 2006(In thousands)Finished goods
    
    $
    15,935
    
    
    $
    12,959Work-in-process
    
    
    212
    
    
    
    41Raw materials
    
    
    556
    
    
    
    185$
    16,703
    
    
    $
    13,185
 Note 5  Property and Equipment
  September 30, 2007
    
    
    December 31, 2006(In thousands)Furniture and fixtures
    
    $
    3,128
    
    
    $
    1,869Office equipment
    
    
    1,606
    
    
    
    1,180Computer equipment
    
    
    3,786
    
    
    
    2,173Leasehold improvements
    
    
    2,312
    
    
    
    1,241Building
    
    
    7,295
    
    
    
    254Land
    
    
    4,723
    
    
    
    1,750Construction in progress
    
    
    4,421
    
    
    
    5,70927,271
    
    
    
    14,176Less accumulated depreciation
    
    
    (4,547
    )
    
    
    (2,649
    )Property and equipment  net
    
    $
    22,724
    
    
    $
    11,527
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VOLCOM, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (continued)
    Note 6  Investments in Unconsolidated Investees
  Note 7 Intangible Assets
  As of September 30, 2007
    
    
    As of December 31, 2006Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization(In thousands)Customer relationships
    
    $
    325
    
    
    $
    63
    
    
    $
    310
    
    
    $
    36Backlog
    
    
    168
    
    
    
    168
    
    
    
    160
    
    
    
    160Non-compete agreements
    
    
    42
    
    
    
    8
    
    
    
    40
    
    
    
    5Reacquired license rights
    
    
    84
    
    
    
    15
    
    
    
    84
    
    
    
    7$
    619
    
    
    $
    254
    
    
    $
    594
    
    
    $
    208
  10




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VOLCOM, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (continued)
 Note 8  Accrued Expenses and Other Current Liabilities
  September 30, 2007
    
    
    December 31, 2006(In thousands)Payroll and related accruals
    
    $
    5,774
    
    
    $
    3,785Other
    
    
    6,099
    
    
    
    2,390$
    11,873
    
    
    $
    6,175
 Note 9  Commitments and Contingencies
 Litigation
 Indemnities and Guarantees
 Note 10  Earnings Per Share
 Earnings Per
Share
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands, except share data)Numerator  Net income
    
    $
    14,518
    
    
    $
    10,163
    
    
    $
    26,220
    
    
    $
    21,121Denominator: Weighted average common
stock outstanding for basic earnings
per share
    
    
    24,314,352
    
    
    
    24,217,204
    
    
    
    24,295,432
    
    
    
    24,210,801Effect of dilutive securities:Stock options and restricted stock
    
    
    138,903
    
    
    
    17,969
    
    
    
    126,511
    
    
    
    75,605Adjusted weighted average common
stock and assumed conversions for
diluted earnings per share
    
    
    24,453,255
    
    
    
    24,235,173
    
    
    
    24,421,943
    
    
    
    24,286,406
  11




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VOLCOM, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (continued)
 Note 11  Income Taxes
      Note 12  Segment Information
  12




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VOLCOM, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (continued)
  Three Months EndedSeptember 30,2007
    
    
    2006(In thousands)Total revenues:United States
    
    $
    65,215
    
    
    $
    59,917Europe
    
    
    25,830
    
    
    
    1,132Consolidated
    
    $
    91,045
    
    
    $
    61,049Gross profit:United States
    
    $
    31,298
    
    
    $
    30,511Europe
    
    
    14,569
    
    
    
    397Consolidated
    
    $
    45,867
    
    
    $
    30,908Operating income (loss):United States
    
    $
    13,509
    
    
    $
    16,361Europe
    
    
    9,518
    
    
    
    (801
    )Consolidated
    
    $
    23,027
    
    
    $
    15,560
 Nine Months EndedSeptember 30,2007
    
    
    2006(In thousands)Total revenues:United States
    
    $
    169,634
    
    
    $
    146,175Europe
    
    
    29,910
    
    
    
    2,521Consolidated
    
    $
    199,544
    
    
    $
    148,696Gross profit:United States
    
    $
    84,272
    
    
    $
    74,519Europe
    
    
    15,795
    
    
    
    825Consolidated
    
    $
    100,067
    
    
    $
    75,344Operating income (loss):United States
    
    $
    34,649
    
    
    $
    33,154Europe
    
    
    5,289
    
    
    
    (1,218
    )Consolidated
    
    $
    39,938
    
    
    $
    31,936Identifiable assets:United States
    
    $
    148,836
    
    
    $
    140,371Europe
    
    
    44,886
    
    
    
    5,707Consolidated
    
    $
    193,722
    
    
    $
    146,078
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)
    
    
    (In thousands)Mens
    
    $
    41,393
    
    
    $
    24,075
    
    
    $
    94,874
    
    
    $
    74,226Girls
    
    
    21,230
    
    
    
    18,454
    
    
    
    58,620
    
    
    
    47,958Snow
    
    
    20,443
    
    
    
    13,133
    
    
    
    20,971
    
    
    
    13,134Boys
    
    
    5,506
    
    
    
    3,097
    
    
    
    12,883
    
    
    
    8,484Footwear
    
    
    1,174
    
    
    
    
    
    
    
    4,977
    
    
    
    Girls swim
    
    
    97
    
    
    
    
    
    
    
    2,747
    
    
    
    Other
    
    
    672
    
    
    
    945
    
    
    
    1,769
    
    
    
    1,907Subtotal product categories
    
    
    90,515
    
    
    
    59,704
    
    
    
    196,841
    
    
    
    145,709Licensing revenues
    
    
    530
    
    
    
    1,345
    
    
    
    2,703
    
    
    
    2,987Total revenues
    
    $
    91,045
    
    
    $
    61,049
    
    
    $
    199,544
    
    
    $
    148,696
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VOLCOM, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (continued)
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)
    
    
    (In thousands)United States
    
    $
    48,821
    
    
    $
    47,075
    
    
    $
    127,427
    
    
    $
    114,383Canada
    
    
    11,126
    
    
    
    7,393
    
    
    
    25,782
    
    
    
    18,685Asia Pacific
    
    
    2,949
    
    
    
    2,821
    
    
    
    6,078
    
    
    
    5,330Europe
    
    
    25,830
    
    
    
    1,132
    
    
    
    29,910
    
    
    
    2,521Other
    
    
    1,789
    
    
    
    1,283
    
    
    
    7,644
    
    
    
    4,790$
    90,515
    
    
    $
    59,704
    
    
    $
    196,841
    
    
    $
    145,709
 14




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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 Item 1A of our Annual Report on
Form 10-K for the year ended December 31, 2006, as supplemented by Part II, Item 1A Risk Factors
of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2007 and June 30, 2007 and
by 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,
2006.
 Overview
     15




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16




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##### Table of Contents



Critical Accounting Policies
  Revenue Recognition
   Accounts Receivable
  17




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##### Table of Contents



Inventories
  
    
    changes in consumer preferences;
    
    buying patterns of our retailers;
    
    unseasonable weather; and
    
    weakened economic conditions.
  Goodwill and Intangible Assets
 Goodwill and
Intangible Assets
 Long-Lived Assets
  Investments in Unconsolidated Investees
   18




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Athlete Sponsorships
  Income Taxes
 Accounting for Uncertainty in Income Taxes
  Stock-Based Compensation
 Share-Based Payment
 Foreign Currency Translation
  19




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##### Table of Contents



General
    Results of Operations
  Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2007
    
    2006
    
    2007
    
    2006Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    49.6
    
    
    
    49.4
    
    
    
    49.9
    
    
    
    49.3Gross profit
    
    
    50.4
    
    
    
    50.6
    
    
    
    50.1
    
    
    
    50.7Selling, general and administrative
expenses
    
    
    25.1
    
    
    
    25.1
    
    
    
    30.1
    
    
    
    29.2Operating income
    
    
    25.3
    
    
    
    25.5
    
    
    
    20.0
    
    
    
    21.5Other income
    
    
    0.8
    
    
    
    1.9
    
    
    
    1.7
    
    
    
    2.1Income before provision for income taxes
    
    
    26.1
    
    
    
    27.4
    
    
    
    21.7
    
    
    
    23.6Provision for income taxes
    
    
    10.2
    
    
    
    10.8
    
    
    
    8.6
    
    
    
    9.4Net income
    
    
    15.9
    %
    
    
    16.6
    %
    
    
    13.1
    %
    
    
    14.2
    %
 Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006
 Revenues
  20




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Gross Profit
  21




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Selling, General and Administrative Expenses
  Operating Income
  Other Income
  Provision for Income Taxes
   Net Income
  22




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Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006
 Revenues
     23




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Gross Profit
  Selling, General and Administrative Expenses
  Operating Income
  Other Income
  Provision for Income Taxes
   24




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##### Table of Contents



Net Income
  Liquidity and Capital Resources
   Nine MonthsEnded September 30,2007
    
    
    2006(In thousands)Cash and cash equivalents at beginning of period
    
    $
    85,414
    
    
    $
    71,712Cash flow from operating activities
    
    
    3,727
    
    
    
    18,104Cash flow from investing activities
    
    
    (12,509
    )
    
    
    (5,861
    )Cash flow from financing activities
    
    
    1,553
    
    
    
    606Effect of exchange rate on cash
    
    
    2,682
    
    
    
    Cash and cash equivalents at end of period
    
    $
    80,867
    
    
    $
    84,561
  (In thousands)
    
    
    Attributable to$
    (17,325
    )
    
    Decrease in cash flows from accounts receivable due to the timing of sales
and collections and increased sales volumes and corresponding accounts
receivable balances as a result of the direct distribution of product
in Europe beginning in 2007(1,446
    )
    
    Decrease in cash flows from accrued expenses and other long-term
liabilities due to timing of payments, increased payroll accruals and
other liabilities(1,407
    )
    
    Decrease in
cash flows from inventory due to higher inventory levels in Europe as a result of the direct distribution of product beginning in 2007(786
    )
    
    Decrease in cash flows due to fluctuations in the income tax
receivable/payable balance and tax benefits related to stock option exercises between periods5,099
    
    
    Increase in net income1,296
    
    
    Increase in
non-cash depreciation and amortization, provision for doubtful accounts and stock-based compensation192
    
    
    Net increase in cash flows from all other operating activities$
    (14,377
    )
    
    Total
 25




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##### Table of Contents



Credit Facilities
  Contractual Obligations and Commitments
  Payments Due by Period(in thousands)Oct. 1 -Total
    
    
    Dec. 31, 2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterOperating lease obligations
    
    $
    14,689
    
    
    $
    790
    
    
    $
    3,038
    
    
    $
    2,536
    
    
    $
    2,252
    
    
    $
    2,074
    
    
    $
    3,999Capital lease obligations
    
    
    132
    
    
    
    22
    
    
    
    76
    
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    Professional athlete sponsorships
    
    
    3,445
    
    
    
    1,058
    
    
    
    1,997
    
    
    
    390
    
    
    
    
    
    
    
    
    
    
    
    Contractual letters of credit
    
    
    1,627
    
    
    
    1,627
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    19,893
    
    
    $
    3,497
    
    
    $
    5,111
    
    
    $
    2,960
    
    
    $
    2,252
    
    
    $
    2,074
    
    
    $
    3,999
 26




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Seasonality
   Inflation
  27




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##### Table of Contents



Vulnerability Due to Concentrations
    Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109.
 Fair Value Measurements.
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of SFAS No. 115
 28




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk.
 Foreign Currency Risk
     Interest Rate Risk
  
 Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  29




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 Item 4T. Controls and Procedures.
 Not applicable.
 30




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##### Table of Contents



PART II.
 OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 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, 2006, our Quarterly
Reports on Form 10-Q for the periods ended March 31, 2007 and June 30, 2007, and subsequent
reports on Forms 10-Q and 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, 2006 and in Part II, Item 1A in our Quarterly Reports on Form 10-Q for the periods
ended March 31, 2007 and June 30, 2007. 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 and our
Quarterly Reports on Form 10-Q .
 If we are required to establish new manufacturing relationships due to the termination of current
key manufacturing relationships with large contractors such as Ningbo Jehson Textiles and Dragon
Crowd or such manufacturers are no longer able to meet our needs, we would likely experience
increased costs, disruptions in the manufacture and shipment of our products and a loss of revenue.
  One retail customer represents a material amount of our revenues, and the loss of this retail
customer or continuing reduced purchases from this retail customer may have a material adverse
effect on our operating results.
  31




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##### Table of Contents



The current uncertainty surrounding the United States economy coupled with cyclical economic trends
in apparel retailing could have a material adverse effect on our results of operations.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
   32




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##### Table of Contents



Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
 31.1
    
    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    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
 33




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##### Table of Contents



SIGNATURE
  Volcom, Inc.Date: November 9, 2007
    
    /s/ Douglas P. Collier

Douglas P. CollierChief Financial Officer, Secretary and Treasurer(Principal Financial Officer and Authorized Signatory)
 34




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##### Table of Contents



INDEX TO EXHIBITS
 Exhibit No.
    
    Description31.1
    
    Certification of Principal Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 200232
    
    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
 35