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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, 2011

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
May 2, 2011, there were 24,415,780 shares of the registrants common stock, par value $0.001, outstanding.









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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, 2011 and December 31, 2010                   |    |      | 3  | 
|                              |  | Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2011 and 2010 |    |      | 4  | 
|                              |  | Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2011 and 2010 |    |      | 5  | 
|                              |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                               |    |      | 6  | 
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                          |    |      | 15 | 
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                     |    |      | 21 | 
|Item 4.                       |  | Controls and Procedures                                                                                        |    |      | 22 | 
|                              | 
|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                                                    |    |      | 23 | 
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                |    |      | 23 | 
|Item 4.                       |  | Removed and Reserved                                                                                           |    |      | 23 | 
|Item 5.                       |  | Other Information                                                                                              |    |      | 23 | 
|Item 6.                       |  | Exhibits                                                                                                       |    |      | 23 | 
|                              | 
|SIGNATURES                    |  |                                                                                                                | 24 |     



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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 31,2011 |         |  | December 31,2010 |  
|Assets                                                                                                                  |  |               |         |  |                  |   |         | 
|Current assets:                                                                                                         |  |               |         |  |                  |   |         | 
|Cash and cash equivalents                                                                                               |  | $             | 81,453  |  |                  | $ | 80,300  | 
|Short-term investments                                                                                                  |  |               | 9,987   |  |                  |   | 9,987   | 
|Accounts receivable  net of allowances of $7,812 (2011) and $8,275 (2010)                                              |  |               | 73,165  |  |                  |   | 66,542  | 
|Inventories                                                                                                             |  |               | 29,971  |  |                  |   | 41,449  | 
|Prepaid expenses and other current assets                                                                               |  |               | 6,628   |  |                  |   | 5,997   | 
|Income taxes receivable                                                                                                 |  |               | 136     |  |                  |   | 1,170   | 
|Deferred income taxes                                                                                                   |  |               | 9,460   |  |                  |   | 9,326   | 
|                                                                                                                        |  |               |         |  |                  |   |         | 
|Total current assets                                                                                                    |  |               | 210,800 |  |                  |   | 214,771 | 
|Property and equipment  net                                                                                            |  |               | 27,244  |  |                  |   | 26,652  | 
|Deferred income taxes                                                                                                   |  |               | 2,651   |  |                  |   | 2,651   | 
|Intangible assets  net                                                                                                 |  |               | 11,889  |  |                  |   | 10,872  | 
|Goodwill                                                                                                                |  |               | 1,635   |  |                  |   | 1,610   | 
|Other assets                                                                                                            |  |               | 1,065   |  |                  |   | 1,003   | 
|                                                                                                                        |  |               |         |  |                  |   |         | 
|Total assets                                                                                                            |  | $             | 255,284 |  |                  | $ | 257,559 | 
|                                                                                                                        |  |               |         |  |                  |   |         | 
|Liabilities and Stockholders Equity                                                                                    |  |               |         |  |                  |   |         | 
|Current liabilities:                                                                                                    |  |               |         |  |                  |   |         | 
|Accounts payable                                                                                                        |  | $             | 15,217  |  |                  | $ | 22,902  | 
|Accrued expenses and other current liabilities                                                                          |  |               | 13,611  |  |                  |   | 16,162  | 
|Current portion of capital lease obligations                                                                            |  |               | 19      |  |                  |   | 19      | 
|                                                                                                                        |  |               |         |  |                  |   |         | 
|Total current liabilities                                                                                               |  |               | 28,847  |  |                  |   | 39,083  | 
|Long-term capital lease obligations                                                                                     |  |               | 20      |  |                  |   | 23      | 
|Other long-term liabilities                                                                                             |  |               | 1,259   |  |                  |   | 1,261   | 
|Income taxes payable  non-current                                                                                      |  |               | 94      |  |                  |   | 131     | 
|Deferred income taxes  non-current                                                                                     |  |               | 101     |  |                  |   | 103     | 
|Commitments and contingencies (Note 8)                                                                                  |  |               |         |  |                  |   |         | 
|Stockholders equity:                                                                                                   |  |               |         |  |                  |   |         | 
|Common stock, $0.001 par value  60,000,000 shares authorized; 24,415,780 (2011 and 2010) shares issued and
outstanding |  |               | 24      |  |                  |   | 24      | 
|Additional paid-in capital                                                                                              |  |               | 95,110  |  |                  |   | 94,733  | 
|Retained earnings                                                                                                       |  |               | 126,164 |  |                  |   | 121,555 | 
|Accumulated other comprehensive income                                                                                  |  |               | 3,665   |  |                  |   | 646     | 
|                                                                                                                        |  |               |         |  |                  |   |         | 
|Total stockholders equity                                                                                              |  |               | 224,963 |  |                  |   | 216,958 | 
|                                                                                                                        |  |               |         |  |                  |   |         | 
|Total liabilities and stockholders equity                                                                              |  | $             | 255,284 |  |                  | $ | 257,559 | 
|                                                                                                                        |  |               |         |  |                  |   |         | 

See accompanying notes to condensed consolidated financial statements



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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, |           
|                                             |  | 2011                        |            |  | 2010 |  
|Revenues:                                    |  |                             |            |  |      |   |            |  
|Product revenues                             |  | $                           | 86,838     |  |      | $ | 76,834     |  
|Licensing revenues                           |  |                             | 299        |  |      |   | 586        |  
|                                             |  |                             |            |  |      |   |            |  
|Total revenues                               |  |                             | 87,137     |  |      |   | 77,420     |  
|Cost of goods sold                           |  |                             | 43,561     |  |      |   | 35,425     |  
|                                             |  |                             |            |  |      |   |            |  
|Gross profit                                 |  |                             | 43,576     |  |      |   | 41,995     |  
|Selling, general and administrative expenses |  |                             | 36,596     |  |      |   | 31,008     |  
|                                             |  |                             |            |  |      |   |            |  
|Operating income                             |  |                             | 6,980      |  |      |   | 10,987     |  
|Other income:                                |  |                             |            |  |      |   |            |  
|Interest income, net                         |  |                             | 55         |  |      |   | 109        |  
|Foreign currency gain (loss)                 |  |                             | 180        |  |      |   | (10        | )
|                                             |  |                             |            |  |      |   |            |  
|Total other income                           |  |                             | 235        |  |      |   | 99         |  
|                                             |  |                             |            |  |      |   |            |  
|Income before provision for income taxes     |  |                             | 7,215      |  |      |   | 11,086     |  
|Provision for income taxes                   |  |                             | 2,605      |  |      |   | 3,552      |  
|                                             |  |                             |            |  |      |   |            |  
|Net income                                   |  | $                           | 4,610      |  |      | $ | 7,534      |  
|                                             |  |                             |            |  |      |   |            |  
|Net income per share:                        |  |                             |            |  |      |   |            |  
|Basic                                        |  | $                           | 0.19       |  |      | $ | 0.31       |  
|Diluted                                      |  | $                           | 0.19       |  |      | $ | 0.31       |  
|Weighted average shares outstanding:         |  |                             |            |  |      |   |            |  
|Basic                                        |  |                             | 24,405,753 |  |      |   | 24,356,857 |  
|Diluted                                      |  |                             | 24,466,757 |  |      |   | 24,376,971 |  

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, |       
|                                                                                            |  | 2011                        |        |   | 2010 |  
|Cash flows from operating activities:                                                       |  |                             |        |   |      |   |         |  
|Net income                                                                                  |  | $                           | 4,610  |   |      | $ | 7,534   |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                             |        |   |      |   |         |  
|Depreciation and amortization                                                               |  |                             | 1,660  |   |      |   | 1,517   |  
|Provision for doubtful accounts                                                             |  |                             | 586    |   |      |   | (217    | )
|Loss on disposal of property and equipment                                                  |  |                             | 23     |   |      |   | 3       |  
|Stock-based compensation                                                                    |  |                             | 387    |   |      |   | 550     |  
|Deferred income taxes                                                                       |  |                             | (136   | ) |      |   | (201    | )
|Changes in operating assets and liabilities:                                                |  |                             |        |   |      |   |         |  
|Accounts receivable                                                                         |  |                             | (6,129 | ) |      |   | (8,010  | )
|Inventories                                                                                 |  |                             | 12,011 |   |      |   | 6,532   |  
|Prepaid expenses and other current assets                                                   |  |                             | (523   | ) |      |   | (904    | )
|Income taxes receivable/payable                                                             |  |                             | 831    |   |      |   | 3,488   |  
|Other assets                                                                                |  |                             | (54    | ) |      |   | (69     | )
|Accounts payable                                                                            |  |                             | (8,362 | ) |      |   | (11,608 | )
|Accrued expenses and other current liabilities                                              |  |                             | (3,252 | ) |      |   | 140     |  
|Other long-term liabilities                                                                 |  |                             | (10    | ) |      |   | 14      |  
|                                                                                            |  |                             |        |   |      |   |         |  
|Net cash provided by (used in) operating activities                                         |  |                             | 1,642  |   |      |   | (1,231  | )
|                                                                                            |  |                             |        |   |      |   |         |  
|Cash flows from investing activities:                                                       |  |                             |        |   |      |   |         |  
|Purchase of property and equipment                                                          |  |                             | (1,142 | ) |      |   | (1,005  | )
|Intangible assets acquired                                                                  |  |                             | (1,150 | ) |      |   |        |  
|Purchase of short-term investments                                                          |  |                             |       |   |      |   | (20,000 | )
|Sale of short-term investments                                                              |  |                             |       |   |      |   | 10,000  |  
|Proceeds from sale of property and equipment                                                |  |                             | 10     |   |      |   |        |  
|                                                                                            |  |                             |        |   |      |   |         |  
|Net cash used in investing activities                                                       |  |                             | (2,282 | ) |      |   | (11,005 | )
|                                                                                            |  |                             |        |   |      |   |         |  
|Cash flows from financing activities:                                                       |  |                             |        |   |      |   |         |  
|Principal payments on capital lease obligations                                             |  |                             | (4     | ) |      |   | (4      | )
|                                                                                            |  |                             |        |   |      |   |         |  
|Net cash used in financing activities                                                       |  |                             | (4     | ) |      |   | (4      | )
|                                                                                            |  |                             |        |   |      |   |         |  
|Effect of exchange rate changes on cash                                                     |  |                             | 1,797  |   |      |   | 52      |  
|                                                                                            |  |                             |        |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                                        |  |                             | 1,153  |   |      |   | (12,188 | )
|Cash and cash equivalents Beginning of period                                              |  |                             | 80,300 |   |      |   | 76,180  |  
|                                                                                            |  |                             |        |   |      |   |         |  
|Cash and cash equivalents End of period                                                    |  | $                           | 81,453 |   |      | $ | 63,992  |  
|                                                                                            |  |                             |        |   |      |   |         |  
|Supplemental disclosures of cash flow information:                                          |  |                             |        |   |      |   |         |  
|Cash paid during the period for:                                                            |  |                             |        |   |      |   |         |  
|Interest                                                                                    |  | $                           | 1      |   |      | $ | 1       |  
|Income taxes                                                                                |  | $                           | 1,930  |   |      | $ | 264     |  

Supplemental disclosures of
noncash investing and financing activities:

At March 31, 2011 and 2010, the Company accrued for $415 and $207 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, 2011, the condensed consolidated statements of operations for the three months ended March 31, 2011 and 2010, and the condensed consolidated statements of cash flows for the three months
ended March 31, 2011 and 2010. The results of operations for the three months ended March 31, 2011 are not necessarily indicative of the results to be expected for the year ending December 31, 2011. 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, 2010.

Note 2  Stock-Based Compensation

The Company accounts for stock-based compensation under the provisions of Accounting Standards Codification (ASC) 718,
Compensation  Stock Compensation (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, 2011 and 2010, the Company recognized approximately $387,000, or
$242,000 net of tax, and $550,000, or $374,000 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 in the accompanying
condensed consolidated statements of operations.

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, 2011, there were 3,881,945 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.

Stock Option Awards In May 2010, the Companys Board of Directors approved the grant of 2,000 options to
purchase the Companys common stock to each non-employee member of the Companys Board of Directors (12,000 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 vest 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 5.5 years; volatility of 65.2%; risk-free interest rate of 2.38%; and no dividends during the expected term.



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VOLCOM, INC. AND SUBSIDIARIES

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



On October 27, 2010, the Companys Board of Directors approved a special cash
dividend of $1.00 per share payable on each share of the Companys outstanding common stock, including any unvested shares of restricted common stock. The special dividend was paid on November 19, 2010 to stockholders of record at the
close of business on November 8, 2010. In accordance with the antidilution provisions set forth in the Companys Incentive Plan, each share of the Companys outstanding stock options was repriced to reflect the $1.00 per share
dividend, and the exercise price of each stock option outstanding was reduced by $1.00, which is reflected in the weighted-average exercise prices listed below. As the modification did not result in an increase in the fair value of the outstanding
stock options, no incremental stock based compensation was recorded.

A summary of the Companys stock option activity
under the Incentive Plan for the three months ended March 31, 2011 is as follows:



|                               |  |                  |           |   |                               |   |       |                                           |  |  |           | 
|------------------------------ |  | ---------------- | --------- | - | ----------------------------- | - | ----- | ----------------------------------------- |  |  | --------- | 
|                               |  | Number ofOptions |           |   | Weighted-AverageExercisePrice |   |       | Weighted-AverageRemainingContractual Term | 
|Outstanding at January 1, 2011 |  |                  | 1,038,980 |   |                               | $ | 15.62 |                                           |  |  |           | 
|Granted                        |  |                  |          |   |                               |   |      |                                           |  |  |           | 
|Exercised                      |  |                  |          |   |                               |   |      |                                           |  |  |           | 
|Canceled or forfeited          |  |                  | (560      | ) |                               |   | 13.47 |                                           |  |  |           | 
|                               |  |                  |           |   |                               |   |       |                                           |  |  |           | 
|Outstanding at March 31, 2011  |  |                  | 1,038,420 |   |                               | $ | 15.62 |                                           |  |  | 6.7 years | 
|                               |  |                  |           |   |                               |   |       |                                           |  |  |           | 
|Exercisable at March 31, 2011  |  |                  | 538,700   |   |                               | $ | 17.42 |                                           |  |  | 5.3 years | 
|                               |  |                  |           |   |                               |   |       |                                           |  |  |           | 

As of March 31, 2011, there was unrecognized compensation expense of $3.4 million related to
unvested stock options, which the Company expects to recognize over a weighted-average period of 2.9 years. The aggregate intrinsic value of options exercised during each of the three month periods ended March 31, 2011 and 2010 was zero. The
aggregate intrinsic value of options outstanding and options exercisable as of March 31, 2011 was $3.4 million and $883,000, respectively.

Additional information regarding stock options outstanding as of March 31, 2011 is as follows:



|               |  |                     |         |  |                                     |  |     |                               |  |   |                  |  |  |                               |         |  |  |   |       | 
|-------------- |  | ------------------- | ------- |  | ----------------------------------- |  | --- | ----------------------------- |  | - | ---------------- |  |  | ----------------------------- | ------- |  |  | - | ----- | 
|               |  | Options Outstanding |         |  | Options Exercisable                 | 
|Exercise price |  | Number ofOptions    |         |  | Weighted-AverageRemainingLife (yrs) |  |     | Weighted-AverageExercisePrice |  |   | Number ofOptions |  |  | Weighted-AverageExercisePrice |        
|$12.43         |  |                     | 8,000   |  |                                     |  | 8.2 |                               |  | $ | 12.43            |  |  |                               | 1,600   |  |  | $ | 12.43 | 
|$13.47         |  |                     | 613,520 |  |                                     |  | 8.1 |                               |  | $ | 13.47            |  |  |                               | 132,200 |  |  | $ | 13.47 | 
|$18.00         |  |                     | 384,900 |  |                                     |  | 4.3 |                               |  | $ | 18.00            |  |  |                               | 384,900 |  |  | $ | 18.00 | 
|$22.80         |  |                     | 12,000  |  |                                     |  | 9.1 |                               |  | $ | 22.80            |  |  |                               |        |  |  |   |      | 
|$24.42         |  |                     | 10,000  |  |                                     |  | 7.1 |                               |  | $ | 24.42            |  |  |                               | 10,000  |  |  | $ | 24.42 | 
|$41.07         |  |                     | 10,000  |  |                                     |  | 6.1 |                               |  | $ | 41.07            |  |  |                               | 10,000  |  |  | $ | 41.07 | 

As of March 31,
2011, the total number of outstanding options vested or expected to vest (based on anticipated forfeitures) was 1,010,657, which had a weighted-average exercise price of $15.68. The weighted-average remaining life of these options was 6.6 years and
the aggregate intrinsic value was $3.2 million at March 31, 2011. To the extent that the transaction discussed in Note 14 closes, all outstanding options would vest upon closing, anticipated forfeitures would be estimated at 0%, and therefore
the total number of options expected to vest would be 1,038,420, the weighted-average exercise price would be $15.62, and the aggregate intrinsic value would be $3.4 million at March 31, 2011.

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. During the three months ended March 31, 2011 and 2010, total amortization of restricted stock expense was $39,000 and $66,000, respectively.

In 2010, the Company granted 5,000 shares of restricted stock to a service provider. The restricted stock award has a
purchase price of $0.001 per share and vested 25% on the grant date and 25% per year over the following three years. The total grant-date fair value of the restricted stock award was $80,000.



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VOLCOM, INC. AND SUBSIDIARIES

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



Restricted stock activity for the three months ended March 31, 2011 is as follows:



|                                             |  |                           |        |   |                                      |   |       | 
|-------------------------------------------- |  | ------------------------- | ------ | - | ------------------------------------ | - | ----- | 
|                                             |  | Shares ofRestricted Stock |        |   | Weighted-AverageGrant-DateFair Value |  
|Unvested restricted stock at January 1, 2011 |  |                           | 12,750 |   |                                      | $ | 23.01 | 
|Granted                                      |  |                           |       |   |                                      |   |      | 
|Vested                                       |  |                           | (2,750 | ) |                                      |   | 26.15 | 
|Canceled or forfeited                        |  |                           |       |   |                                      |   |      | 
|                                             |  |                           |        |   |                                      |   |       | 
|Unvested restricted stock at March 31, 2011  |  |                           | 10,000 |   |                                      | $ | 22.15 | 
|                                             |  |                           |        |   |                                      |   |       | 

As of March 31, 2011, there was unrecognized compensation expense of $152,000 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 1.8 years.

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, Revenue Recognition (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 adoption of ASU No. 2009-13 did
not have an impact on the Companys consolidated financial position and results of operations.

Note 4  Inventories

Inventories are as follows:



|                |  |                |        |  |                  |   |        | 
|--------------- |  | -------------- | ------ |  | ---------------- | - | ------ | 
|                |  | March 31,2011  |        |  | December 31,2010 |  
|                |  | (In thousands) |       
|Finished goods  |  | $              | 26,543 |  |                  | $ | 38,974 | 
|Work-in-process |  |                | 396    |  |                  |   | 40     | 
|Raw materials   |  |                | 3,032  |  |                  |   | 2,435  | 
|                |  |                |        |  |                  |   |        | 
|                |  | $              | 29,971 |  |                  | $ | 41,449 | 
|                |  |                |        |  |                  |   |        | 

Note 5  Property and Equipment

Property and equipment are as follows:



|                              |  |                |         |   |                  |   |         |  
|----------------------------- |  | -------------- | ------- | - | ---------------- | - | ------- | -
|                              |  | March 31,2011  |         |   | December 31,2010 |  
|                              |  | (In thousands) |        
|Furniture and fixtures        |  | $              | 13,287  |   |                  | $ | 12,420  |  
|Office equipment              |  |                | 3,329   |   |                  |   | 3,254   |  
|Computer equipment            |  |                | 8,623   |   |                  |   | 8,433   |  
|Leasehold improvements        |  |                | 11,709  |   |                  |   | 11,447  |  
|Buildings                     |  |                | 7,524   |   |                  |   | 7,162   |  
|Land                          |  |                | 4,723   |   |                  |   | 4,723   |  
|Construction in progress      |  |                | 1,092   |   |                  |   | 709     |  
|                              |  |                |         |   |                  |   |         |  
|                              |  |                | 50,287  |   |                  |   | 48,148  |  
|Less accumulated depreciation |  |                | (23,043 | ) |                  |   | (21,496 | )
|                              |  |                |         |   |                  |   |         |  
|Property and equipment  net  |  | $              | 27,244  |   |                  | $ | 26,652  |  
|                              |  |                |         |   |                  |   |         |  



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VOLCOM, INC. AND SUBSIDIARIES

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



Note 6  Intangible Assets

Intangible assets are as follows:



|                                       |  |                      |        |  |                         |   |       |                      |  |   |                         |  |  |   |       | 
|-------------------------------------- |  | -------------------- | ------ |  | ----------------------- | - | ----- | -------------------- |  | - | ----------------------- |  |  | - | ----- | 
|                                       |  | As of March 31, 2011 |        |  | As of December 31, 2010 |  
|                                       |  | Gross CarryingAmount |        |  | AccumulatedAmortization |   |       | Gross CarryingAmount |  |   | AccumulatedAmortization | 
|                                       |  | (In thousands)       |       
|Amortizing intangible assets           |  | $                    | 8,463  |  |                         | $ | 4,469 |                      |  | $ | 8,389                   |  |  | $ | 4,201 | 
|Non-amortizing trademarks              |  |                      | 6,300  |  |                         |   |      |                      |  |   | 6,300                   |  |  |   |      | 
|Other non-amortizing intangible assets |  |                      | 1,595  |  |                         |   |      |                      |  |   | 384                     |  |  |   |      | 
|                                       |  |                      |        |  |                         |   |       |                      |  |   |                         |  |  |   |       | 
|                                       |  | $                    | 16,358 |  |                         | $ | 4,469 |                      |  | $ | 15,073                  |  |  | $ | 4,201 | 
|                                       |  |                      |        |  |                         |   |       |                      |  |   |                         |  |  |   |       | 

Amortizing intangible assets include customer relationships, trademarks, non-compete agreements, backlog,
leasehold rights, and athlete contracts. 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 three months to 20 years with no
residual values. The change in other non-amortizing intangible assets is related to the land use rights paid for a retail store in Bordeaux. Fluctuations in the gross carrying amounts of amortizing intangible assets associated with the
Companys international subsidiaries are due to the effect of changes in foreign currency exchange rates. Intangible amortization expense for the three months ended March 31, 2011 and 2010, was approximately $253,000 and $161,000,
respectively. The Companys annual amortization expense is estimated to be approximately $706,000, $496,000, $380,000, $322,000 and $257,000 in the fiscal years ending December 31, 2011, 2012, 2013, 2014 and 2015, respectively.

Note 7  Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities are as follows:



|                             |  |                |        |  |                  |   |        | 
|---------------------------- |  | -------------- | ------ |  | ---------------- | - | ------ | 
|                             |  | March 31,2011  |        |  | December 31,2010 |  
|                             |  | (In thousands) |       
|Payroll and related accruals |  | $              | 6,570  |  |                  | $ | 8,320  | 
|Other                        |  |                | 7,041  |  |                  |   | 7,842  | 
|                             |  |                |        |  |                  |   |        | 
|                             |  | $              | 13,611 |  |                  | $ | 16,162 | 
|                             |  |                |        |  |                  |   |        | 

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. See Note 14 for discussion of subsequent event litigation.

The Company is subject to various other claims, complaints and legal actions in the normal course of business from time to time. These other matters are, in the opinion of management, immaterial both
individually and in the aggregate with respect to the Companys consolidated financial position, liquidity or results of operations.

Income Taxes During the year ended December 31, 2010, the French tax authorities began an investigation into the appropriateness of the Companys tax positions associated
with the operations of its Swiss subsidiary, Volcom International SARL, for tax years beginning in 2008. The investigation specifically relates to intercompany transactions between certain of the Companys wholly-owned European
subsidiaries. Conclusion of this matter could result in payment of a different amount than the Company has accrued as uncertain tax benefits. If a position for which the Company concluded was more likely than not is subsequently not upheld, then the
Company would need to accrue and ultimately pay an additional amount, which may or may not be significant. The Company has recorded a tax liability of approximately $247,000 associated with this uncertain tax position as of March 31, 2011.

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.



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VOLCOM, INC. AND SUBSIDIARIES

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



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,       |           
|                                                                                              |  | 2011                              |            |  | 2010 |  
|                                                                                              |  | (In thousands, except share data) |           
|Numerator  Net income                                                                        |  | $                                 | 4,610      |  |      | $ | 7,534      | 
|                                                                                              |  |                                   |            |  |      |   |            | 
|Denominator: Weighted average common stock outstanding for basic earnings per share           |  |                                   | 24,405,753 |  |      |   | 24,356,857 | 
|Effect of dilutive securities:                                                                |  |                                   |            |  |      |   |            | 
|Stock options and restricted stock                                                            |  |                                   | 61,004     |  |      |   | 20,114     | 
|                                                                                              |  |                                   |            |  |      |   |            | 
|Adjusted weighted average common stock and assumed conversions for diluted earnings per share |  |                                   | 24,466,757 |  |      |   | 24,376,971 | 
|                                                                                              |  |                                   |            |  |      |   |            | 

For the three months ended March 31, 2011 and 2010, 583,520 and 676,100 stock options, respectively,
were excluded from the weighted-average number of shares outstanding because their effect would be antidilutive.

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, Fair Value Measurements and Disclosures (ASC 820). ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, 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, 2011 |         |                         | December 31, 2010 |        
|                                    | CarryingAmount |                |         | Fair Value Measurements |                   |         | CarryingAmount |  |         | Fair Value Measurements |      
|                                    |                |                | Level 1 |                         |                   | Level 2 |                |  | Level 3 |                         |       |  | Level 1 |   |   | Level 2 |  |   | Level 3 | 
|Financial assets:                   |                |                |         |                         |                   |         |                |  |         |                         |       |  |         |   |   |         |  |   |         |  |  |   |   |  |  |   |       |  |  |   |   | 
|Short-term investments              |                | $              | 9,987   |                         |                   | $       |               |  |         | $                       | 9,987 |  |         | $ |  |         |  | $ | 9,987   |  |  | $ |  |  |  | $ | 9,987 |  |  | $ |  | 
|Foreign currency exchange contracts |                |                |        |                         |                   |         |               |  |         |                         |      |  |         |   |  |         |  |   | 110     |  |  |   |  |  |  |   | 110   |  |  |   |  | 
|Financial liabilities:              |                |                |         |                         |                   |         |                |  |         |                         |       |  |         |   |   |         |  |   |         |  |  |   |   |  |  |   |       |  |  |   |   | 
|Foreign currency exchange contracts |                | $              | 652     |                         |                   | $       |               |  |         | $                       | 652   |  |         | $ |  |         |  | $ | 539     |  |  |   |  |  |  | $ | 539   |  |  | $ |  | 



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VOLCOM, INC. AND SUBSIDIARIES

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



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 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 condensed 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 and Australian 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 (OCI). As of March 31, 2011, the Company was hedging forecasted transactions expected to occur through March 2012. Assuming exchange rates at March 31, 2011 remain
constant, $534,000 of losses, net of tax, related to hedges of these transactions are expected to be reclassified into earnings during the next 12 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 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, 2011, the Company had U.S. dollar denominated forward foreign currency contracts outstanding to hedge a
portion of its European and Australian operations U.S. dollar denominated inventory purchases with a notional amount of $10.3 million and a net fair value of $(652,000), which mature from April 2011 through March 2012. All outstanding
contracts were in a loss position and the $652,000 liability is included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheet.

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 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, |     
|                                                              |  |                    |  | (In thousands)              |     
|                                                              |  | Location           |  | 2011                        |      |   | 2010 |  
|(Loss) gain recognized in OCI on foreign currency derivatives |  | OCI                |  | $                           | (478 | ) |      | $ | 275 | 
|(Loss) gain reclassified from accumulated OCI into income     |  | Cost of goods sold |  |                             | (255 | ) |      |   | 36  | 

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



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VOLCOM, INC. AND SUBSIDIARIES

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



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 four operating and reportable segments, the United States, Europe, Australia 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 Australian segment primarily includes Volcom
product revenues generated from customers in Australia and New Zealand that are served by the Companys Australian 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, 2010.

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



|                         |  |                             |         |   |                  |   |         | 
|------------------------ |  | --------------------------- | ------- | - | ---------------- | - | ------- | 
|                         |  | Three Months EndedMarch 31, |        
|                         |  | 2011                        |         |   | 2010             |  
|                         |  | (In thousands)              |        
|Total revenues:          |  |                             |         |   |                  |   |         | 
|United States            |  | $                           | 50,303  |   |                  | $ | 48,179  | 
|Europe                   |  |                             | 24,763  |   |                  |   | 23,626  | 
|Electric                 |  |                             | 6,916   |   |                  |   | 5,615   | 
|Australia                |  |                             | 5,155   |   |                  |   |        | 
|                         |  |                             |         |   |                  |   |         | 
|Consolidated             |  | $                           | 87,137  |   |                  | $ | 77,420  | 
|                         |  |                             |         |   |                  |   |         | 
|Gross profit:            |  |                             |         |   |                  |   |         | 
|United States            |  | $                           | 23,751  |   |                  | $ | 24,224  | 
|Europe                   |  |                             | 13,594  |   |                  |   | 14,277  | 
|Electric                 |  |                             | 4,017   |   |                  |   | 3,494   | 
|Australia                |  |                             | 2,214   |   |                  |   |        | 
|                         |  |                             |         |   |                  |   |         | 
|Consolidated             |  | $                           | 43,576  |   |                  | $ | 41,995  | 
|                         |  |                             |         |   |                  |   |         | 
|Operating income (loss): |  |                             |         |   |                  |   |         | 
|United States            |  | $                           | 897     |   |                  | $ | 2,744   | 
|Europe                   |  |                             | 5,990   |   |                  |   | 7,977   | 
|Electric                 |  |                             | 119     |   |                  |   | 266     | 
|Australia                |  |                             | (26     | ) |                  |   |        | 
|                         |  |                             |         |   |                  |   |         | 
|Consolidated             |  | $                           | 6,980   |   |                  | $ | 10,987  | 
|                         |  |                             |         |   |                  |   |         | 
|                         |  |                            
|                         |  | March 31,2011               |         |   | December 31,2010 |  
|                         |  | (In thousands)              |        
|Identifiable assets:     |  |                             |         |   |                  |   |         | 
|United States            |  | $                           | 155,887 |   |                  | $ | 159,640 | 
|Europe                   |  |                             | 63,924  |   |                  |   | 61,898  | 
|Electric                 |  |                             | 24,012  |   |                  |   | 24,604  | 
|Australia                |  |                             | 11,461  |   |                  |   | 11,417  | 
|                         |  |                             |         |   |                  |   |         | 
|Consolidated             |  | $                           | 255,284 |   |                  | $ | 257,559 | 
|                         |  |                             |         |   |                  |   |         | 



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VOLCOM, INC. AND SUBSIDIARIES

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



Although the Company operates within four 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, |       
|                            |  | 2011                        |        |  | 2010 |  
|                            |  | (In thousands)              |       
|Mens                        |  | $                           | 48,032 |  |      | $ | 42,870 | 
|Girls                       |  |                             | 16,555 |  |      |   | 14,737 | 
|Snow                        |  |                             | 800    |  |      |   | 394    | 
|Boys                        |  |                             | 6,839  |  |      |   | 5,786  | 
|Footwear                    |  |                             | 3,330  |  |      |   | 2,878  | 
|Girls swim                  |  |                             | 3,843  |  |      |   | 4,014  | 
|Electric                    |  |                             | 6,916  |  |      |   | 5,615  | 
|Other                       |  |                             | 523    |  |      |   | 540    | 
|                            |  |                             |        |  |      |   |        | 
|Subtotal product categories |  |                             | 86,838 |  |      |   | 76,834 | 
|Licensing revenues          |  |                             | 299    |  |      |   | 586    | 
|                            |  |                             |        |  |      |   |        | 
|Total revenues              |  | $                           | 87,137 |  |      | $ | 77,420 | 
|                            |  |                             |        |  |      |   |        | 

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.

The table below summarizes product revenues by geographic regions, which includes revenues generated worldwide by the Companys Electric operating segment and are allocated based on customer
location. Revenues generated by the Companys Australian subsidiary are included in the Asia Pacific geographic region.



|              |  |                             |        |  |      |   |        | 
|------------- |  | --------------------------- | ------ |  | ---- | - | ------ | 
|              |  | Three Months EndedMarch 31, |       
|              |  | 2011                        |        |  | 2010 |  
|              |  | (In thousands)              |       
|United States |  | $                           | 37,596 |  |      | $ | 35,451 | 
|Europe        |  |                             | 25,780 |  |      |   | 24,608 | 
|Canada        |  |                             | 9,681  |  |      |   | 8,812  | 
|Asia Pacific  |  |                             | 9,852  |  |      |   | 4,384  | 
|Other         |  |                             | 3,929  |  |      |   | 3,579  | 
|              |  |                             |        |  |      |   |        | 
|              |  | $                           | 86,838 |  |      | $ | 76,834 | 
|              |  |                             |        |  |      |   |        | 

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



|              |  |                |        |  |                  |   |        | 
|------------- |  | -------------- | ------ |  | ---------------- | - | ------ | 
|              |  | March 31,2011  |        |  | December 31,2010 |  
|              |  | (In thousands) |       
|United States |  | $              | 24,653 |  |                  | $ | 24,304 | 
|Europe        |  |                | 12,199 |  |                  |   | 10,536 | 
|Asia Pacific  |  |                | 4,981  |  |                  |   | 5,297  | 
|              |  |                |        |  |                  |   |        | 
|              |  | $              | 41,833 |  |                  | $ | 40,137 | 
|              |  |                |        |  |                  |   |        | 

Note 13  Acquisitions

In October 2010, the Company entered into an agreement for the transition and sale of certain assets of the Companys distributor of Volcom branded products in Spain, whereby the Company will take
direct control of the Spain territory beginning with the delivery of the Fall 2011 product line, which will begin shipping in approximately July 2011. The consideration related to this transition and acquisition agreement shall not exceed
1.9 million Euro (or approximately $2.7 million based on a 1 Euro to 1.4099 U.S. dollar exchange rate as of March 31, 2011), of which the Company made an initial payment of 700,000 Euro (approximately $972,000) in October 2010, and the
remaining 1.2 million Euro will be due upon the closing of the agreement on July 1, 2011. The acquisition is contingent upon the Spanish distributor delivering certain assets, customer information, certain inventory stock and other
sales and marketing tools through July 1, 2011.



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VOLCOM, INC. AND SUBSIDIARIES

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



In February 2011, the Company signed a definitive agreement to terminate the current
Volcom outlet license agreement and purchase the assets related to the operation of the 10 existing Volcom outlet stores from the current licensee. Under the terms of this agreement, the Company will pay $4.0 million in cash to the current
licensee upon the closing of the transaction, subject to certain indemnities. Additional consideration shall be paid by the Company within 20 days from the closing date for certain net assets, the value of which will be determined based upon
the fair value of such net assets as of the closing date. The Company anticipates completing the transaction by mid-2011.

Note 14
 Subsequent Events

On May 2, 2011, the Company, along with PPR, a French-based luxury goods group, jointly
announced that they have signed a definitive merger agreement whereby a new wholly owned subsidiary of PPR (Purchaser) will make a cash tender offer (the Offer) to acquire 100% of the shares of the Company for a price of
$24.50 share, for a total equity value of $607.5 million and an enterprise value of $516.1 million. Following consummation of the Offer, Purchaser will be merged with and into the Company (the Merger), with the Company surviving as
a wholly-owned subsidiary of PPR. The transaction is expected to be completed during the third quarter of 2011.

On
May 4, 2011, a putative class action lawsuit captioned Greenwood v. Volcom, Inc., et al., was filed in the Orange County Superior Court. The complaint names as defendants the members of the Companys board of directors, as well as the
Company, PPR and Purchaser. The plaintiff alleges that the Companys directors breached their fiduciary duties to the Companys stockholders in connection with the Offer and Merger, and further claims that the Company, PPR and Purchaser
aided and abetted those alleged breaches of fiduciary duty. The complaint alleges that the Offer and Merger involves an unfair price, an inadequate sales process, and that defendants agreed to the transactions to benefit themselves personally. The
complaint seeks injunctive relief, including to enjoin the Offer and Merger, imposition of a constructive trust, and an award of attorneys and other fees and costs, in addition to other relief. The Company believes the plaintiffs
allegations lack merit, and will contest them vigorously.



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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, 2010.

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 international operations, we established our own direct operations in Europe and
delivered our first full season product line in Europe 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. In August 2010, we acquired all of the outstanding common stock of Volcom Australia, a licensee of the Companys products located in Australia. In October 2010, we entered into an
agreement for the transition and sale of certain assets of our distributor of Volcom branded products in Spain, whereby we will take direct control of the Spain territory beginning with the delivery of the Fall 2011 product line, which will begin
shipping in approximately July 2011.

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, Australia, New Zealand, 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
Indonesia, South Africa (including Botswana, Namibia, Lesotho and Swaziland), 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. With the completion of the acquisition of Volcom Australia (our former Australian licensee) effective August 1, 2010, we experienced a decrease in our licensing revenues effective as of the date of the acquisition, and an
increase in selling, general and administrative expenses attributable to the operations of Volcom Australia. However, our product revenues should increase in Australia as we have begun to directly sell our products in this territory.

Our revenues were $87.1 million for the three months ended March 31, 2011, an increase of $9.7 million, or 12.6%, compared to $77.4
million for the three months ended March 31, 2010. This increase was primarily driven by $5.2 million of revenues from our recently acquired Australian operations. The remaining $4.5 million was attributable to strong sell-through of Volcom and
Electric products at retail, improved focus on product marketing and increased in-store merchandising efforts.



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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 continue to 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 line 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 and duties on products being imported from other countries. 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. Beginning in 2010, there have been widespread labor shortages reported in
China, which have adversely impacted our product costs and deliveries. Additionally, wages and raw material costs have increased in China, which has caused price increases. Recently, the price of cotton has risen significantly compared to the same
period last year. We have addressed these issues by sourcing with other suppliers and adjusting our wholesale prices, where possible, to offset these increases. While we do not believe the limitations on imports from China will have a material
effect on our operations, we have begun sourcing more in other countries, such as India, Bangladesh, Vietnam and Mexico. We believe there will be increased pressure on costs going forward, 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 28.5% in 2006 to 39.8% in 2010. 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 revenues.

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, foreign currency and derivatives, and stock-based compensation. The judgments, assumptions and
estimates used in these areas, by their nature, involve risks and uncertainties, and in the event



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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, 2010. 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 (through August 2010), Indonesia, South Africa, Brazil and Argentina.

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 condensed consolidated statements of operations for the periods presented, expressed as a percentage of revenues:



|                                             |  |                             |       |   |      |  |       |  
|-------------------------------------------- |  | --------------------------- | ----- | - | ---- |  | ----- | -
|                                             |  | Three Months EndedMarch 31, |      
|                                             |  | 2011                        |       |   | 2010 | 
|Revenues                                     |  |                             | 100.0 | % |      |  | 100.0 | %
|Cost of goods sold                           |  |                             | 50.0  |   |      |  | 45.8  |  
|                                             |  |                             |       |   |      |  |       |  
|Gross profit                                 |  |                             | 50.0  |   |      |  | 54.2  |  
|Selling, general and administrative expenses |  |                             | 42.0  |   |      |  | 40.0  |  
|                                             |  |                             |       |   |      |  |       |  
|Operating income                             |  |                             | 8.0   |   |      |  | 14.2  |  
|Other income                                 |  |                             | 0.3   |   |      |  | 0.1   |  
|                                             |  |                             |       |   |      |  |       |  
|Income before provision for income taxes     |  |                             | 8.3   |   |      |  | 14.3  |  
|Provision for income taxes                   |  |                             | 3.0   |   |      |  | 4.6   |  
|                                             |  |                             |       |   |      |  |       |  
|Net income                                   |  |                             | 5.3   | % |      |  | 9.7   | %
|                                             |  |                             |       |   |      |  |       |  

Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010

Revenues

Consolidated revenues were $87.1 million for the three months ended March 31, 2011, an increase of $9.7 million, or 12.6%, compared to $77.4 million for the three months ended March 31, 2010.
This increase was primarily driven by $5.2 million of revenues from our recently acquired Australian operations. The remaining $4.5 million was attributable to strong sell-through of Volcom and Electric products at retail, improved focus on product
marketing and increased in-store merchandising efforts. Revenues from our United States segment were $50.3 million for the three months ended March 31, 2011, an increase of $2.1 million, or 4.4% compared to $48.2 million for the three months
ended March 31, 2010. Revenues from our Europe segment were $24.8 million for the three months ended March 31, 2011, an increase of $1.2 million, or 4.8% compared to $23.6 million for the three months ended March 31, 2010. On a Euro
to Euro basis, revenues in our European segment increased approximately 6.2% for the three months ended March 31, 2011 compared to the three months ended March 31, 2010. Revenues from our Electric segment were $6.9 million for the three
months ended March 31, 2011, an increase of $1.3 million, or 23.2% compared to $5.6 million for the three months ended March 31, 2010. Revenues from our Australian segment, which was acquired on August 1, 2010, were $5.2 million for
the three months ended March 31, 2011.



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Revenues from our five largest full-price customers were $12.5 million for the three months
ended March 31, 2011, a decrease of $0.3 million, or 2.6%, compared to $12.8 million for the three months ended March 31, 2010. Excluding revenues from Pacific Sunwear, which decreased $0.8 million, or 10.7%, to $6.7 million, total
revenues from our remaining five largest full-price customers increased $0.5 million, or 8.9%, to $5.8 million for the three months ended March 31, 2011 from $5.3 million for the three months ended March 31, 2010.

Consolidated product revenues increased $10.0 million, or 13.0%, for the three months ended March 31, 2011 compared to the three
months ended March 31, 2010. Consolidated product revenues by category are presented below (dollars in thousands):



|                              |      |                             |        |      |                  |   |         |  |  |         |        |   |  |  |       |  
|----------------------------- | ---- | --------------------------- | ------ | ---- | ---------------- | - | ------- |  |  | ------- | ------ | - |  |  | ----- | -
|                              |      | Three Months EndedMarch 31, |        |      | Growth (Decline) |  
|                              | 2011 |                             |        | 2010 |                  |   | Dollars |  |  | Percent |       
|Mens                          |      | $                           | 48,032 |      |                  | $ | 42,870  |  |  | $       | 5,162  |   |  |  | 12.0  | %
|Girls                         |      |                             | 16,555 |      |                  |   | 14,737  |  |  |         | 1,818  |   |  |  | 12.3  |  
|Snow                          |      |                             | 800    |      |                  |   | 394     |  |  |         | 406    |   |  |  | 102.9 |  
|Boys                          |      |                             | 6,839  |      |                  |   | 5,786   |  |  |         | 1,053  |   |  |  | 18.2  |  
|Footwear                      |      |                             | 3,330  |      |                  |   | 2,878   |  |  |         | 452    |   |  |  | 15.7  |  
|Girls swim                    |      |                             | 3,843  |      |                  |   | 4,014   |  |  |         | (171   | ) |  |  | (4.3  | )
|Electric                      |      |                             | 6,916  |      |                  |   | 5,615   |  |  |         | 1,301  |   |  |  | 23.2  |  
|Other                         |      |                             | 523    |      |                  |   | 540     |  |  |         | (17    | ) |  |  | (3.2  | )
|                              |      |                             |        |      |                  |   |         |  |  |         |        |   |  |  |       |  
|Consolidated product revenues |      | $                           | 86,838 |      |                  | $ | 76,834  |  |  | $       | 10,004 |   |  |  | 13.0  | %
|                              |      |                             |        |      |                  |   |         |  |  |         |        |   |  |  |       |  

Licensing revenues decreased 48.9% to $0.3 million for the three months ended March 31, 2011 from $0.6
million for the three months ended March 31, 2010. The decrease in licensing revenues was primarily a result of the transition of our Australian operations from a licensee model to a direct control model. Licensing revenues will likely continue
to decrease in the near term as a result of this transition.

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 $37.6 million, or 43.3% of our product revenues, for the three months ended March 31, 2011, compared to $35.5 million, or
46.1% of our product revenues, for the three months ended March 31, 2010. Product revenues in Europe were $25.8 million, or 29.7% of our product revenues, for the three months ended March 31, 2011, compared to $24.6 million, or 32.0% of
our product revenues, for the three months ended March 31, 2010. 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 $23.4 million, or 27.0% of our product revenues, for the three months ended March 31, 2011 compared to $16.7 million, or 21.9% of our product revenues, for the three months ended
March 31, 2010.

Gross Profit

Consolidated gross profit increased $1.6 million, or 3.8%, to $43.6 million for the three months ended March 31, 2011 compared to $42.0 million for the three months ended March 31, 2010. Gross
profit as a percentage of revenues, or gross margin, decreased 420 basis points to 50.0% for the three months ended March 31, 2011 compared to 54.2% for the three months ended March 31, 2010. Consolidated gross margin related specifically
to product revenues decreased 410 basis points to 49.8% for the three months ended March 31, 2011 compared to 53.9% for the three months ended March 31, 2010. Gross margin on product from the United States segment decreased 280 basis
points to 46.9% for the three months ended March 31, 2011 compared to 49.7% for the three months ended March 31, 2010. This decrease is primarily due to more in-season discounted product sales and lower margins achieved on off-price sales
during the three months ended March 31, 2011 compared to the three months ended March 31, 2010. Gross margin from the European segment decreased 550 basis points to 54.9% for the three months ended March 31, 2011 compared to 60.4% for
the three months ended March 31, 2010, primarily due to more liquidation sales and shipment of more low margin samples during the three months ended March 31, 2011 compared to the same period last year. Gross margin from the Electric
segment decreased 410 basis points to 58.1% for the three months ended March 31, 2011 compared to 62.2% for the three months ended March 31, 2010 primarily due to lower margins achieved on off-price sales. Gross margin from the Australian
segment was 42.9% for the three months ended March 31, 2011.



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Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses increased $5.6 million, or 18.0%, to $36.6 million for the three months ended
March 31, 2011 compared to $31.0 million for the three months ended March 31, 2010. The increase in absolute dollars was due primarily to incremental expenses of $2.2 million associated with our recently acquired Australian licensee,
increased payroll and payroll related costs of $0.9 million, increased marketing and advertising costs of $0.8 million, and increased bad debt expense of $0.7 million. The net increase in various other expense categories was $1.0 million. Selling,
general and administrative expenses as a percentage of revenue increased 200 basis points to 42.0% for the three months ended March 31, 2011 compared to 40.0% for the three months ended March 31, 2010.

Operating Income

As a result of the factors above, operating income for the three months ended March 31, 2011 decreased $4.0 million to $7.0 million compared to $11.0 million for the three months ended March 31,
2010. Operating income as a percentage of revenues decreased to 8.0% for the three months ended March 31, 2011 from 14.2% for the three months ended March 31, 2010.

Other Income

Other income primarily includes net interest income and
foreign currency gains and losses. Interest income for each of the three month periods ended March 31, 2011 and 2010 was $0.1 million. Foreign currency gain (loss) increased to a $0.2 million gain for the three months ended March 31, 2011
compared to a $10,000 loss for the three months ended March 31, 2010 due primarily to fluctuations in the U.S. dollar, Euro, Canadian dollar, Australian dollar and Japanese yen exchange rates.

Provision for Income Taxes

We have computed our provision for income taxes for the three months ended March 31, 2011 using an estimated effective annual tax rate of 32.7% plus the tax impact of discrete items in the quarter.
The provision for income taxes decreased $1.0 million to $2.6 million for the three months ended March 31, 2011 compared to $3.6 million for the three months ended March 31, 2010.

Net Income

As a result of the factors above, net income decreased $2.9 million, or 38.8%, to $4.6 million for the three months ended March 31, 2011 from $7.5 million for the three months ended March 31,
2010.

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, |       
|                                                 |  | 2011                        |        |   | 2010 |  
|                                                 |  | (In thousands)              |       
|Cash and cash equivalents at beginning of period |  | $                           | 80,300 |   |      | $ | 76,180  |  
|Cash flow from operating activities              |  |                             | 1,642  |   |      |   | (1,231  | )
|Cash flow from investing activities              |  |                             | (2,282 | ) |      |   | (11,005 | )
|Cash flow from financing activities              |  |                             | (4     | ) |      |   | (4      | )
|Effect of exchange rate on cash                  |  |                             | 1,797  |   |      |   | 52      |  
|                                                 |  |                             |        |   |      |   |         |  
|Cash and cash equivalents at end of period       |  | $                           | 81,453 |   |      | $ | 63,992  |  
|                                                 |  |                             |        |   |      |   |         |  



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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 equipment, stock-based compensation and the effect of changes in working capital and other activities.
For the three months ended March 31, 2011, cash provided by operating activities was $1.6 million, compared to cash used in operating activities of $1.2 million for the three months ended March 31, 2010. The $2.8 million increase in cash
from operating activities between the periods was attributable to the following:



|               |         |  |                 |                                                                                                                                                           
|-------------- | ------- |  | --------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|(In thousands) |         |  | Attributable to
|               | $5,479  |  |                 | Increase in cash flows from inventories due to lower inventory levels between periods                                                                     
|               | 3,246   |  |                 | Increase in cash flows from accounts payable due to the timing of payments between periods                                                                
|               | 1,881   |  |                 | Increase in cash flows from accounts receivable due to the timing of sales and collections between
periods                                                
|               | 1,031   |  |                 | Increase in non-cash provision for doubtful accounts, depreciation and amortization, loss on disposal of property and
equipment, and deferred income taxes
|               | (3,392) |  |                 | Decrease in cash flows from accrued expenses due to the timing of payments between periods                                                                
|               | (2,924) |  |                 | Decrease in net income                                                                                                                                    
|               | (2,657) |  |                 | Decrease in cash flows due to the fluctuations in the income tax receivable/payable balance between
periods                                               
|               | 209     |  |                 | Net increase in cash flows from all other operating activities                                                                                            
|               |         |  |                 |                                                                                                                                                           
|               | $2,873  |  |                 | Total                                                                                                                                                     
|               |         |  |                 |                                                                                                                                                           

Cash used in investing activities was $2.3 million for the three months ended March 31, 2011
compared to $11.0 million for the three months ended March 31, 2010. During the three months ended March 31, 2011, the cash used in investing activities was primarily due to intangible assets acquired of $1.2 million related to land use
rights paid for a retail store in Bordeaux, and purchases of property and equipment of $1.1 million. 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. Capital expenditures during the three months ended March 31, 2011 and 2010 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 each of the three month periods ended March 31, 2011 and 2010. Cash from financing activities is primarily due to principal payments on capital lease obligations.

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 our capital requirements for at least the next 12 months. The following represents our material cash commitments:



| |  |  | the maximum consideration of 1.2 million Euro (or approximately $1.7 million based on a 1 Euro to 1.4099 U.S. dollar exchange rate at
March 31, 2011) related to our agreement for the transition and sale of certain assets of our Spain distributor;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the consideration of approximately $4.0 million related to our signed definitive agreement to purchase the assets related to the operation of the 10
existing Volcom outlet stores from our current licensee;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our normal recurring trade payables and expense accruals;
| | - |  | ---------------------------------------------------------



| |  |  | operating leases;
| | - |  | -----------------



| |  |  | capital leases; and
| | - |  | -------------------



| |  |  | athlete endorsement agreements
| | - |  | ------------------------------

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, 2012, 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, 2011) or LIBOR plus 1.25%. Under this credit facility, we had $1.0 million outstanding in letters of credit at March 31, 2011. At
March 31, 2011, there were no outstanding borrowings under this credit facility, and $39.0 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, 2011, we were in compliance with all restrictive covenants.



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Contractual Obligations and Commitments

We did not have any off-balance sheet arrangements or outstanding balances on our credit facility as of March 31, 2011. Our
contractual letters of credit typically have maturity dates of less than one year. We use these letters of credit to purchase finished goods.

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.

Our current capital lease obligations bear interest at rates of 8.0% per year, and expire in July 2012.

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. It is not
possible to determine the precise amounts that we will be required to pay under these agreements as they are subject to many variables.

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.



|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 11.6% of our product revenues in 2010 and approximately 11.1% of our product revenues for the
three months ended March 31, 2011. 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 $10.3
million at March 31, 2011, an assumed 10% strengthening of the U.S. dollar would result in pretax foreign currency losses of $1.1 million.

We are exposed to foreign currency exchange rate risks between the Euro, Japanese yen and Australian dollar against the U.S. dollar, as our foreign operations purchase a portion of their inventories in
U.S. dollars. In addition, we are also



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exposed to foreign currency gains and losses resulting from various other foreign operations transactions that are denominated in U.S. dollars. A weakening of these foreign currencies
relative to the U.S. dollar could have a negative impact on our net exposure of these foreign currencies to the U.S. dollar. If recent foreign currency market volatility continues and these foreign currencies weaken compared to the U.S. dollar,
our results could be adversely affected. Based on our net foreign currency exposure at March 31, 2011, an assumed 10% strengthening of the U.S. dollar would result in pre-tax foreign currency losses of $1.4 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, 2011.
The credit agreement, which expires on August 31, 2012, 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, 2011) or
LIBOR plus 1.25%. Based on the average interest rate on our credit facility during 2010, 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.



|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, 2011, 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.



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##### Table of Contents

PART II.

OTHER INFORMATION



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

The
information set forth under Note 8 to the Condensed Consolidated Financial Statements (unaudited), included in Part I, Item 1 of this Quarterly Report, is incorporated herein by reference.



|Item 1A. | Risk Factors.
|-------- | -------------

Before
deciding to purchase, hold or sell our common stock, you should carefully consider the risks 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, 2010 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, 2010. There are no material
changes or updates from the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K.



|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, 2011.



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

None



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



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

None



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



|     |  |                                                                                                                                                                                                                                         
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|2.1  |  | Agreement and Plan of Merger, dated as of May 2, 2011, by and among PPR S.A., Transfer Holding, Inc. and Volcom, Inc. (incorporated by reference in the Companys Current Report
on Form 8-K filed on May 4, 2011)                      
|     | 
|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                                                                                                                                                                                                       
|     | 
|10.1 |  | Share and Voting Agreement, dated May 2, 2011, by and among PPR S.A., Transfer Holding, Inc., Richard R. Woolcott and René R. Woolcott (incorporated by reference in the
Companys Current Report on Form 8-K filed on May 4, 2011)     
|     | 
|10.2 |  | Form of Change in Control Agreement substantially in the form entered into, by and between Volcom, Inc. and certain officers of the Company (incorporated by reference in the
Companys Current Report on Form 8-K filed on May 4, 2011)
|     | 
|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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##### Table of Contents

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, 2011 |  | /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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##### Table of Contents

INDEX TO EXHIBITS



|            |      |   |             |                                                                                                                                                                                                                                         
|----------- | ---- | - | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
No. |      |   | Description
|            |     
|            | 2.1  |   |             | Agreement and Plan of Merger, dated as of May 2, 2011, by and among PPR S.A., Transfer Holding, Inc. and Volcom, Inc. (incorporated by reference in the Companys Current Report
on Form 8-K filed on May 4, 2011)                      
|            |     
|            | 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                                                                                                                                                                                                       
|            |     
|            | 10.1 |   |             | Share and Voting Agreement, dated May 2, 2011, by and among PPR S.A., Transfer Holding, Inc., Richard R. Woolcott and René R. Woolcott (incorporated by reference in the
Companys Current Report on Form 8-K filed on May 4, 2011)     
|            |     
|            | 10.2 |   |             | Form of Change in Control Agreement substantially in the form entered into, by and between Volcom, Inc. and certain officers of the Company (incorporated by reference in the
Companys Current Report on Form 8-K filed on May 4, 2011)
|            |     
|            | 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)
|- | --------------------------------------------------------------------------------------------------------



25