##### 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 June 30, 2005
 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)
    
    94-0466919
(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)
 
 o þ
 o þ




---



VOLCOM, INC.
 FORM 10-Q
INDEX
 PagePART I.
    
    FINANCIAL INFORMATION
    
    3Item 1.
    
    Condensed and Consolidated Financial Statements (unaudited)
    
    3Condensed Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004
    
    3Condensed Consolidated Statements of Operations for the three- and six-month periods
ended June 30, 2005 and 2004
    
    4Condensed Consolidated Statements of Cash Flows for the six-months ended
June 30, 2005 and 2004
    
    5Notes to Condensed Consolidated Financial Statements
    
    6  11Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    12  31Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    31Item 4.
    
    Controls and Procedures
    
    32PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    33Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    33Item 3.
    
    Defaults Upon Senior Securities
    
    33Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    33Item 5.
    
    Other Information
    
    34Item 6.
    
    Exhibits
    
    34SIGNATURE
    
    
    
    35EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 VOLCOM, INC. AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share data)
 June 30, 2005
    
    
    December 31, 2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    10,359Accounts receivable  net of allowances of $644
(2005) and $378 (2004)
    
    
    21,644
    
    
    
    16,680Inventories
    
    
    11,763
    
    
    
    5,620Prepaid expenses and other current assets
    
    
    2,391
    
    
    
    483Deferred income taxes
    
    
    540
    
    
    
    9Total current assets
    
    
    36,338
    
    
    
    33,151Property and equipment  net
    
    
    3,426
    
    
    
    1,063Investments in unconsolidated investees
    
    
    298
    
    
    
    1,627Other assets
    
    
    100
    
    
    
    45Total assets
    
    $
    40,162
    
    
    $
    35,886Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    9,537
    
    
    $
    4,893Accrued expenses and other current liabilities
    
    
    5,726
    
    
    
    1,132Income taxes payable
    
    
    408
    
    
    
    Distributions payable to stockholders
    
    
    20,000
    
    
    
    Current portion of capital lease obligations
    
    
    73
    
    
    
    85Total current liabilities
    
    
    35,744
    
    
    
    6,110Long-term capital lease obligations
    
    
    220
    
    
    
    256Deferred income taxes
    
    
    121
    
    
    
    18Commitments
and contingencies (Note 9)Stockholders equity:Common stock, $.001 par value  60,000,000
shares authorized; 19,553,495 (2005) and
19,170,705 (2004) shares issued and
outstanding
    
    
    20
    
    
    
    19Additional paid-in capital
    
    
    4,236
    
    
    
    1,081Retained earnings (accumulated deficit)
    
    
    (179
    )
    
    
    28,133Other comprehensive income
    
    
    
    
    
    
    269Total stockholders equity
    
    
    4,077
    
    
    
    29,502Total liabilities and stockholders equity
    
    $
    40,162
    
    
    $
    35,886
  3




---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Product revenues
    
    $
    35,478
    
    
    $
    23,985
    
    
    $
    66,163
    
    
    $
    44,576Licensing revenues
    
    
    375
    
    
    
    388
    
    
    
    1,381
    
    
    
    1,028Total revenues
    
    
    35,853
    
    
    
    24,373
    
    
    
    67,544
    
    
    
    45,604Cost of goods sold
    
    
    17,156
    
    
    
    12,207
    
    
    
    32,440
    
    
    
    23,031Gross profit
    
    
    18,697
    
    
    
    12,166
    
    
    
    35,104
    
    
    
    22,573Selling, general and administrative expenses
    
    
    11,057
    
    
    
    6,755
    
    
    
    21,420
    
    
    
    14,333Operating income
    
    
    7,640
    
    
    
    5,411
    
    
    
    13,684
    
    
    
    8,240Other (expense) income:Interest expense, net
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )
    
    
    (4
    )Dividend income from cost method investee
    
    
    11
    
    
    
    
    
    
    
    11
    
    
    
    Foreign currency gain (loss)
    
    
    (93
    )
    
    
    (78
    )
    
    
    (117
    )
    
    
    (70
    )Total other (expense) income
    
    
    (82
    )
    
    
    (80
    )
    
    
    (108
    )
    
    
    (74
    )Income before provision for income taxes
    
    
    7,558
    
    
    
    5,331
    
    
    
    13,576
    
    
    
    8,166Provision for income taxes
    
    
    2,926
    
    
    
    84
    
    
    
    3,015
    
    
    
    132Net income before equity in earnings (loss)
of investee
    
    
    4,632
    
    
    
    5,247
    
    
    
    10,561
    
    
    
    8,034Equity in earnings (loss) of investee
    
    
    
    
    
    
    (131
    )
    
    
    331
    
    
    
    232Net income
    
    $
    4,632
    
    
    $
    5,116
    
    
    $
    10,892
    
    
    $
    8,266Net income per share:Basic
    
    $
    0.24
    
    
    $
    0.27
    
    
    $
    0.57
    
    
    $
    0.43Diluted
    
    $
    0.24
    
    
    $
    0.26
    
    
    $
    0.56
    
    
    $
    0.42Weighted average shares outstanding:Basic
    
    
    19,174,912
    
    
    
    19,170,705
    
    
    
    19,172,809
    
    
    
    19,113,048Diluted
    
    
    19,390,558
    
    
    
    19,534,522
    
    
    
    19,463,261
    
    
    
    19,533,337Pro forma net income data:Income before provision for income taxes, as
reported
    
    $
    7,558
    
    
    $
    5,331
    
    
    $
    13,576
    
    
    $
    8,166Pro forma provision for income taxes
    
    
    3,080
    
    
    
    2,119
    
    
    
    5,667
    
    
    
    3,422Pro forma net income before equity in
earnings (loss) of investee
    
    
    4,478
    
    
    
    3,212
    
    
    
    7,909
    
    
    
    4,744Equity in earnings (loss) of investee
    
    
    
    
    
    
    (131
    )
    
    
    331
    
    
    
    232Pro forma net income
    
    $
    4,478
    
    
    $
    3,081
    
    
    $
    8,240
    
    
    $
    4,976Pro forma net income per share:Basic
    
    $
    0.23
    
    
    $
    0.16
    
    
    $
    0.43
    
    
    $
    0.26Diluted
    
    $
    0.23
    
    
    $
    0.16
    
    
    $
    0.42
    
    
    $
    0.25Pro forma weighted average shares outstanding:Basic
    
    
    19,174,912
    
    
    
    19,170,705
    
    
    
    19,172,809
    
    
    
    19,113,048Diluted
    
    
    19,390,558
    
    
    
    19,534,522
    
    
    
    19,463,261
    
    
    
    19,533,337
  4




---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 Six Months EndedJune 30,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    10,892
    
    
    $
    8,266Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    257
    
    
    
    142Equity in earnings of investee
    
    
    (331
    )
    
    
    (232
    )Provision for doubtful accounts
    
    
    113
    
    
    
    67Tax benefits related to exercise of stock options
    
    
    2,833
    
    
    
    Stock-based compensation
    
    
    123
    
    
    
    15Deferred income taxes
    
    
    (428
    )
    
    
    2Changes in operating assets and liabilities:Accounts receivable
    
    
    (5,077
    )
    
    
    (5,239
    )Inventories
    
    
    (6,143
    )
    
    
    (2,220
    )Prepaid expenses and other current assets
    
    
    (193
    )
    
    
    3Other assets
    
    
    (55
    )
    
    
    Accounts payable
    
    
    4,644
    
    
    
    2,676Accrued expenses and other current liabilities
    
    
    3,989
    
    
    
    906Income taxes payable
    
    
    408
    
    
    
    (27
    )Net cash provided by operating activities
    
    
    11,032
    
    
    
    4,359Cash flows from investing activities:Purchase of property and equipment
    
    
    (2,620
    )
    
    
    (279
    )Proceeds from sale of equity method investee
    
    
    1,391
    
    
    
    Purchase of additional shares in cost method investee
    
    
    
    
    
    
    (261
    )Net cash used in investing activities
    
    
    (1,229
    )
    
    
    (540
    )Cash flows from financing activities:Principal payments capital lease obligations
    
    
    (48
    )
    
    
    (28
    )Prepaid initial public offering costs
    
    
    (1,110
    )
    
    
    Proceeds from exercise of stock options
    
    
    200
    
    
    
    5Distributions to stockholders
    
    
    (19,204
    )
    
    
    (6,869
    )Net cash used in financing activities
    
    
    (20,162
    )
    
    
    (6,892
    )Net decrease in cash and cash equivalents
    
    
    (10,359
    )
    
    
    (3,073
    )Cash and cash equivalents Beginning of period
    
    
    10,359
    
    
    
    5,079Cash and cash equivalents End of period
    
    $
    
    
    
    $
    2,006Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    11
    
    
    $
    11Income taxes
    
    
    200
    
    
    
    162
 Supplemental disclosures of noncash investing and financing activities:
     5




---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
 
 Note 1  Basis of Presentation
   Stockholders Equity 
 Note 2  Recent Developments
  Note 3  Stock-Based Compensation
 Accounting for Stock Issued to
Employees. Accounting for Stock-Based Compensation, Accounting for Equity Instruments That are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services.
 Accounting for Stock-Based
Compensation  Transition and Disclosure,
 6




---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  Three months
    
    
    Six monthsended June 30, 2005
    
    
    ended June 30, 2005(in thousands)Net income:As reported
    
    $
    4,632
    
    
    $
    10,892Deduct: Total
stock-based employee
compensation expense
determined under fair value
based method for all awards,
net of related tax effects
    
    
    (10
    )
    
    
    (10
    )Pro forma
    
    $
    4,622
    
    
    $
    10,882Basic net income per share:As reported
    
    $
    0.24
    
    
    $
    0.57Pro forma
    
    $
    0.24
    
    
    $
    0.57Diluted net income per share:As reported
    
    $
    0.24
    
    
    $
    0.56Pro forma
    
    $
    0.24
    
    
    $
    0.56
 Nonemployee Stock-Based Compensation
 Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services,
 7




---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  Note 4  New Accounting Pronouncements
 Inventory-Costs an Amendment of ARB No. 43, Chapter
4.
 Share-Based Payment.
 Note 5  Inventories
  June 30, 2005
    
    
    December 31, 2004(In thousands)Finished goods
    
    $
    11,111
    
    
    $
    5,042Work-in-process
    
    
    213
    
    
    
    220Raw materials
    
    
    439
    
    
    
    358$
    11,763
    
    
    $
    5,620
 Note 6  Investments in Unconsolidated Investees
   8




---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  Note 7  Accrued Expenses and Other Current Liabilities
  June 30, 2005
    
    
    December 31, 2004(In thousands)Payroll and related accruals
    
    $
    2,423
    
    
    $
    671Litigation settlement accrual
    
    
    1,000
    
    
    
    Other
    
    
    2,303
    
    
    
    461$
    5,726
    
    
    $
    1,132
 Note 8  Earnings Per Share
 Earnings Per
Share.
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except share data)Numerator  Net income
applicable to common
stockholders
    
    $
    4,632
    
    
    $
    5,116
    
    
    $
    10,892
    
    
    $
    8,266Denominator:Weighted average common stock
outstanding for basic
earnings per share
    
    
    19,174,912
    
    
    
    19,170,705
    
    
    
    19,172,809
    
    
    
    19,113,048Effect of dilutive securities:Stock options
    
    
    215,646
    
    
    
    363,817
    
    
    
    290,452
    
    
    
    420,289Adjusted weighted average
common stock and assumed
conversions for diluted
earnings per share
    
    
    19,390,558
    
    
    
    19,534,522
    
    
    
    19,463,261
    
    
    
    19,533,337
  Note 9  Commitments and Contingencies
 Litigation
 9




---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  Indemnities and Guarantees
 Note 10  Income Taxes
  Interim Financial Reporting
 Note 11  Segment Information
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands)Mens
    
    $
    21,115
    
    
    $
    14,267
    
    
    $
    38,947
    
    
    $
    27,078Girls
    
    
    12,402
    
    
    
    8,469
    
    
    
    23,764
    
    
    
    15,116Snow
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Boys
    
    
    1,530
    
    
    
    962
    
    
    
    2,715
    
    
    
    1,818Other
    
    
    431
    
    
    
    287
    
    
    
    737
    
    
    
    564
 10




---



##### Table of Contents



VOLCOM, INC. AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
 Subtotal product categories
    
    
    35,478
    
    
    
    23,985
    
    
    
    66,163
    
    
    
    44,576Licensing revenues
    
    
    375
    
    
    
    388
    
    
    
    1,381
    
    
    
    1,028Total revenues
    
    $
    35,853
    
    
    $
    24,373
    
    
    $
    67,544
    
    
    $
    45,604
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands)United States
    
    $
    28,655
    
    
    $
    20,432
    
    
    $
    52,776
    
    
    $
    36,531Canada
    
    
    3,743
    
    
    
    1,604
    
    
    
    7,757
    
    
    
    3,817Asia Pacific
    
    
    1,315
    
    
    
    1,057
    
    
    
    2,849
    
    
    
    2,443Other
    
    
    1,765
    
    
    
    892
    
    
    
    2,781
    
    
    
    1,785$
    35,478
    
    
    $
    23,985
    
    
    $
    66,163
    
    
    $
    44,576
  11




---



##### 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, including those risks discussed in Risk Factors and elsewhere in this Quarterly Report
on Form 10-Q . 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 for the year ended December 31, 2004, which are included in our prospectus filed
pursuant to Rule 424(b) under the Securities Act of 1933, as amended, with the Securities and
Exchange Commission on June 29, 2005.
 Overview
     12




---



##### Table of Contents




    
    fashion trends and changes in consumer preferences;
 
    
    changes in boardsports popularity and participation rates;
 
    
    general economic conditions, particularly changes in consumer discretionary spending; and
 
    
    actions by our existing competitors, such as new product introductions or pricing
strategies, or the emergence of new competitors.
  Critical Accounting Policies
  Revenue Recognition
   Accounts Receivable
  Inventories
  
    
    unanticipated changes in consumer preferences;
 13




---



##### Table of Contents




    
    weakening economic conditions;
 
    
    terrorist acts or threats;
 
    
    reduced consumer confidence in the retail market; and
 
    
    unseasonable weather.
  Long-Lived Assets
  Investments in Unconsolidated Investees
    Athlete Sponsorships
  14




---



##### Table of Contents



Income Taxes
   Foreign Currency Translation
  Results of Operations
  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    47.9
    
    
    
    50.1
    
    
    
    48.0
    
    
    
    50.5Gross profit
    
    
    52.1
    
    
    
    49.9
    
    
    
    52.0
    
    
    
    49.5Selling, general and administrative expenses
    
    
    30.8
    
    
    
    27.7
    
    
    
    31.7
    
    
    
    31.4Operating income
    
    
    21.3
    
    
    
    22.2
    
    
    
    20.3
    
    
    
    18.1Other (expense) income
    
    
    (0.2
    )
    
    
    (0.3
    )
    
    
    (0.2
    )
    
    
    (0.2
    )Income before provision for income taxes
    
    
    21.1
    
    
    
    21.9
    
    
    
    20.1
    
    
    
    17.9Provision for income taxes
    
    
    8.2
    
    
    
    0.4
    
    
    
    4.5
    
    
    
    0.3Net income before equity in earnings (loss) of investee
    
    
    12.9
    
    
    
    21.5
    
    
    
    15.6
    
    
    
    17.6Equity in earnings (loss) of investee
    
    
    0.0
    
    
    
    (0.5
    )
    
    
    0.5
    
    
    
    0.5Net income
    
    
    12.9
    
    
    
    21.0
    
    
    
    16.1
    
    
    
    18.1
 15




---



##### Table of Contents



Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
 Revenues
     Gross Profit
  Selling, General and Administrative Expenses
  16




---



##### Table of Contents



Operating Income
  Provision for Income Taxes
  Interim Financial Reporting
 Net Income
  Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
 Revenues
  17




---



##### Table of Contents



Gross Profit
  Selling, General and Administrative Expenses
  Operating Income
  18




---



##### Table of Contents



Provision for Income Taxes
  , Interim Financial Reporting
 Net Income
  Liquidity and Capital Resources
   Six MonthsEnded June 30,2005
    
    
    2004(In thousands)Cash and cash equivalents at beginning of
period
    
    $
    10,359
    
    
    $
    5,079Cash flow from operating activities
    
    
    11,032
    
    
    
    4,359Cash flow used in investing activities
    
    
    (1,229
    )
    
    
    (540
    )Cash flow used in financing activities
    
    
    (20,162
    )
    
    
    (6,892
    )Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    2,006
  19




---



##### Table of Contents



Credit Facilities
  20




---



##### Table of Contents



Contractual Obligations and Commitments
  Payments Due by Period(in thousands)July 1 Total
    
    
    Dec. 31, 2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    ThereafterOperating lease obligations
    
    $
    2,711
    
    
    $
    353
    
    
    $
    658
    
    
    $
    649
    
    
    $
    647
    
    
    $
    404
    
    
    $
    Capital lease obligations
    
    
    329
    
    
    
    46
    
    
    
    87
    
    
    
    87
    
    
    
    75
    
    
    
    34
    
    
    
    Professional athlete sponsorships
    
    
    6,329
    
    
    
    1,476
    
    
    
    2,487
    
    
    
    1,991
    
    
    
    375
    
    
    
    
    
    
    
    Litigation settlement
    
    
    1,000
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Distributions payable to stockholders
    
    
    20,000
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Contractual letters of credit
    
    
    100
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    30,469
    
    
    $
    22,975
    
    
    $
    3,232
    
    
    $
    2,727
    
    
    $
    1,097
    
    
    $
    438
    
    
    $
    
      21




---



##### Table of Contents



Seasonality
   Backlog
  Inflation
  Vulnerability Due to Concentrations
   22




---



##### Table of Contents



GAAP and Non-GAAP Financial Measures
  Three months
    
    
    Six monthsended
    
    
    endedJune 30, 2005
    
    
    June 30, 2005(In thousands, except percentages)Selling, general and administrative expenses
    
    $
    11,057
    
    
    $
    21,420Less: Settlement charge
    
    
    1,000
    
    
    
    1,000Selling, general and administrative expenses
excluding settlement charge
    
    
    10,057
    
    
    
    20,420Total revenues
    
    $
    35,853
    
    
    $
    67,544Selling, general and administrative expenses
excluding
settlement charge as a percent of total revenues
    
    
    28.1
    %
    
    
    30.2
    %Operating income
    
    $
    7,640
    
    
    $
    13,684Less: Settlement charge
    
    
    1,000
    
    
    
    1,000Operating income excluding settlement charge
    
    
    8,640
    
    
    
    14,684Total revenues
    
    $
    35,853
    
    
    $
    67,544Operating income excluding settlement charge
as a percent of total revenues
    
    
    24.1
    %
    
    
    21.7
    %
 Recent Accounting Pronouncements
 Inventory-Costs an Amendment of ARB No. 43,
Chapter 4.
 Share-Based Payment.
 23




---



##### Table of Contents



Risk Factors
 Certain statements contained in or incorporated by reference into this Quarterly Report on
Form 10-Q, or which are otherwise made by us or on our behalf, are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include statements that are predictive in nature, which depend upon or refer to future
events or conditions, which include words such as believes, plans, anticipates, estimates,
expects or similar expressions. In addition, any statements concerning future financial
performance, ongoing business strategies or prospects, and possible future actions, which may be
provided by our management, are also forward-looking statements. Forward-looking statements are
based on current expectations and projections about future events and are subject to risks,
uncertainties, and assumptions about our company, economic and market factors and the industry in
which we do business, among other things. These statements are not guaranties of future performance
and we undertake no obligation to publicly update any forward-looking statements, whether as a
result of new information, future events or otherwise. Actual events and results may differ
materially from those expressed or forecasted in forward-looking statements due to a number of
factors. Factors that could cause our actual performance and future events and actions to differ
materially from such forward-looking statements, include, but are not limited to those discussed
below and elsewhere in this Quarterly Report on Form 10-Q .
 If our marketing efforts do not effectively maintain and expand our brand name recognition, we may
not be able to achieve our growth strategy.
  If we are unable to continue to develop innovative and stylish products, demand for our products
may decrease and our brand image may be harmed.
   We may be unable to sustain our past growth or manage our future growth, which may have a material
adverse effect on our future operating results.
  24




---



##### Table of Contents



Our business could be harmed if we fail to maintain proper inventory levels.
  If we are unable to maintain and expand our endorsements by professional athletes, our ability to
market and sell our products may be harmed.
   If we fail to secure or protect our intellectual property rights, counterfeiters may be able to
copy and sell imitations of our products and competitors may be able to use our designs, each of
which could harm our reputation, reduce our revenues and increase our costs.
   25




---



##### Table of Contents



Our current executive officers and management personnel are critical to our success, and the loss
of these individuals could harm our business, brand and image.
  Our ability to attract and retain qualified design and sales and marketing personnel is critical to
our success, and any inability to attract and retain such personnel could harm our business.
  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.
  We do not have long-term contracts with any of our retailers, and the loss of orders of our
products from our retailers may have a material adverse effect on our operating results.
  Any inability to receive timely deliveries from our manufacturers could harm our business.
  26




---



##### Table of Contents



If the United States continues to impose tariffs and import quota restrictions on products
manufactured in China and we are unable to meet our manufacturing needs from countries other than
China or from domestic sources, it could materially affect our gross margin and financial
performance.
  Any shortage of raw materials could impair our ability to ship orders of our products in a
cost-efficient manner or could cause us to miss the delivery requirements of our customers, which
could harm our business.
  If we are required to establish new manufacturing relationships due to the termination of current
key manufacturing relationships with large contractors such as Ningbo Jehson Textiles and China
Ningbo CIXI, we would likely experience increased costs, disruptions in the manufacture and
shipment of our products and a loss of revenue.
  27




---



##### Table of Contents



Our business could suffer if any of our or our licensees key manufacturers fails to use acceptable
labor practices.
  We may not be able to compete effectively, which could cause our revenues and market share to
decline.
   We may be adversely affected by the discontinuance of our licensing relationship in Europe.
  We may be adversely affected by the financial condition of our retailers.
  Changes in the mix of retailers to whom we distribute our products could impact our gross margin
and brand image, which could have a material adverse effect on our results of operations.
  28




---



##### Table of Contents



Our revenues and operating income fluctuate on a seasonal basis and decreases in sales or margins
during our peak seasons could have a disproportionate effect on our overall financial condition and
results of operations.
  Cyclical trends in apparel retailing could have a material adverse effect on our results of
operations.
  We face business, political, operational, financial and economic risks because a portion of our
revenues are from international customers, substantially all of our products are sourced overseas
and our licensees operate outside of the United States.
  
    
    difficulties obtaining domestic and foreign export, import and other governmental
approvals, permits and licenses, and compliance with foreign laws, which could halt,
interrupt or delay our operations if we cannot obtain such approvals, permits and licenses,
and that could have a material adverse effect on our results of operations;
    
    difficulties encountered by our international licensees or us in staffing and managing
foreign operations or international sales, which could increase our expenses and decrease
our revenues and profitability;
    
    transportation delays and difficulties of managing international distribution channels,
which could halt, interrupt or delay our operations;
    
    longer payment cycles for, and greater difficulty collecting, accounts receivable and
royalty payments, which could reduce our revenues and harm our financial results;
    
    trade restrictions, higher tariffs, currency fluctuations or the imposition of additional
regulations relating to import or export of our products, especially in China, where a large
portion of our products are manufactured, which could force us to seek alternate
manufacturing sources or increase our expenses, either of which could have a material
adverse effect on our results of operations;
    
    unexpected changes in regulatory requirements, royalties and withholding taxes that
restrict the repatriation of earnings and effects on our effective income tax rate due to
profits generated or lost in foreign countries, which could have a material adverse effect
on our results of operations;
 29




---



##### Table of Contents




    
    political and economic instability, including wars, terrorism, political unrest,
boycotts, curtailment of trade and other business restrictions, any of which could
materially and adversely affect our revenues and results of operations; and
    
    natural disasters, which could have a material adverse effect on our results of
operations.
  Fluctuations in foreign currency exchange rates could harm our results of operations.
  We will incur significant expenses as a result of being a public company, which may negatively
impact our financial performance.
  Our internal controls over financial reporting may not be considered effective, which could result
in a loss of investor confidence in our financial reports and in turn have an adverse effect on our
stock price.
   30




---



##### Table of Contents



The market price of our common stock may be highly volatile and may result in investors selling
shares of our common stock at a loss.
  
    
    actual or anticipated variations in quarterly operating results;
    
    changes in financial estimates by securities analysts;
    
    conditions or trends in the fashion and boardsports industries; and
    
    changes in the market valuations of similar companies.
  Anti-takeover provisions in our charter documents and Delaware law may make an acquisition of us
more difficult.
  
    
    allow the authorized number of directors to be changed only by resolution of the board of
directors;
    
    authorize our board of directors to issue blank check preferred stock without stockholder
approval, which, if issued, would increase the number of outstanding shares of our capital
stock;
    
    establish advance notice requirements for nominations to our board of directors or for
proposals that can be acted on at stockholder meetings; and
    
    limit who may call stockholder meetings.
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
 Foreign Currency Risk
  31




---



##### Table of Contents



Interest Rate Risk
  
 Item 4. Controls and Procedures.
    32




---



##### Table of Contents



PART II.
 OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
    33




---



##### Table of Contents



Item 5. Other Information.
  
 Item 6. Exhibits.
 31.1
    
    Certification of Principal Executive Officer Required Under Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended31.2
    
    Certification of Principal Financial Officer Required Under Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended32
    
    Certification of Principal Executive Officer and Principal Financial Officer Required Under
Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350
 34




---



##### Table of Contents



SIGNATURE
  Volcom, Inc.Date: August 12, 2005
    /s/ Douglas P. CollierDouglas P. CollierChief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Authorized Signatory) 35




---



##### Table of Contents



INDEX TO EXHIBITS
 Exhibit No.
    
    Description31.1
    
    Certification of Principal Executive Officer Required Under Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended31.2
    
    Certification of Principal Financial Officer Required Under Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended32
    
    Certification of Principal Executive Officer and Principal Financial Officer Required Under
Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350
 36