##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For 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
    
    (I.R.S. Employerincorporation or organization)
    
    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)
 
 R £
 £ R
 o R




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VOLCOM, INC.
 FORM 10-Q
INDEX
 PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Condensed and Consolidated Financial Statements (unaudited)
    
    
    3Condensed Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004
    
    
    3Condensed Consolidated Statements of Operations for the three- and nine-month periods ended September 30, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine-months ended September 30, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    612Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    1335Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4.
    
    Controls and Procedures
    
    
    35PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    37Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3.
    
    Defaults Upon Senior Securities
    
    
    37Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    37Item 5.
    
    Other Information
    
    
    37Item 6.
    
    Exhibits
    
    
    37SIGNATURE
    
    
    
    
    38EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 VOLCOM, INC. AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (unaudited)
(in thousands, except share data)
 September 30, 2005
    
    
    December 31, 2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    65,687
    
    
    $
    10,359Accounts receivable  net of allowances of $826 (2005) and $378
(2004)
    
    
    27,781
    
    
    
    16,680Inventories
    
    
    11,566
    
    
    
    5,620Prepaid expenses and other current assets
    
    
    942
    
    
    
    483Deferred income taxes
    
    
    540
    
    
    
    9Total current assets
    
    
    106,516
    
    
    
    33,151Property and equipment  net
    
    
    3,402
    
    
    
    1,063Investments in unconsolidated investees
    
    
    298
    
    
    
    1,627Other assets
    
    
    98
    
    
    
    45Total assets
    
    $
    110,314
    
    
    $
    35,886Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    6,906
    
    
    $
    4,893Accrued expenses and other current liabilities
    
    
    3,026
    
    
    
    1,132Income taxes payable
    
    
    4,466
    
    
    
    Current portion of capital lease obligations
    
    
    71
    
    
    
    85Total current liabilities
    
    
    14,469
    
    
    
    6,110Long-term capital lease obligations
    
    
    202
    
    
    
    256Deferred income taxes
    
    
    121
    
    
    
    18Commitments and contingencies (Note 9)Stockholders equity:Common stock, $.001 par value  60,000,000 shares authorized;
24,214,120 (2005) and 19,170,705 (2004) shares issued and
outstanding
    
    
    24
    
    
    
    19Additional paid-in capital
    
    
    84,385
    
    
    
    1,081Retained earnings
    
    
    11,113
    
    
    
    28,133Other comprehensive income
    
    
    
    
    
    
    269Total stockholders equity
    
    
    95,522
    
    
    
    29,502Total liabilities and stockholders equity
    
    $
    110,314
    
    
    $
    35,886
  3




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##### Table of Contents



VOLCOM, INC. AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
(in thousands, except share and per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Product revenues
    
    $
    50,096
    
    
    $
    36,285
    
    
    $
    116,259
    
    
    $
    80,861Licensing revenues
    
    
    1,096
    
    
    
    928
    
    
    
    2,477
    
    
    
    1,956Total revenues
    
    
    51,192
    
    
    
    37,213
    
    
    
    118,736
    
    
    
    82,817Cost of goods sold
    
    
    25,082
    
    
    
    19,312
    
    
    
    57,522
    
    
    
    42,343Gross profit
    
    
    26,110
    
    
    
    17,901
    
    
    
    61,214
    
    
    
    40,474Selling, general and administrative expenses
    
    
    10,669
    
    
    
    8,107
    
    
    
    32,090
    
    
    
    22,440Operating income
    
    
    15,441
    
    
    
    9,794
    
    
    
    29,124
    
    
    
    18,034Other income (expense):Interest income (expense), net
    
    
    463
    
    
    
    (1
    )
    
    
    461
    
    
    
    (5
    )Dividend income from cost method investee
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    Foreign currency gain (loss)
    
    
    171
    
    
    
    18
    
    
    
    54
    
    
    
    (52
    )Total other income (expense)
    
    
    634
    
    
    
    17
    
    
    
    526
    
    
    
    (57
    )Income before provision for income taxes
    
    
    16,075
    
    
    
    9,811
    
    
    
    29,650
    
    
    
    17,977Provision for income taxes
    
    
    4,783
    
    
    
    139
    
    
    
    7,797
    
    
    
    271Income before equity in earnings of investee
    
    
    11,292
    
    
    
    9,672
    
    
    
    21,853
    
    
    
    17,706Equity in earnings of investee
    
    
    
    
    
    
    431
    
    
    
    331
    
    
    
    663Net income
    
    $
    11,292
    
    
    $
    10,103
    
    
    $
    22,184
    
    
    $
    18,369Net income per share:Basic
    
    $
    0.47
    
    
    $
    0.53
    
    
    $
    1.07
    
    
    $
    0.96Diluted
    
    $
    0.47
    
    
    $
    0.52
    
    
    $
    1.06
    
    
    $
    0.94Weighted average shares outstanding:Basic
    
    
    23,939,141
    
    
    
    19,170,705
    
    
    
    20,762,988
    
    
    
    19,132,694Diluted
    
    
    24,065,665
    
    
    
    19,535,137
    
    
    
    20,998,798
    
    
    
    19,534,364Pro forma net income data:Income before provision for income taxes,
as reported
    
    $
    16,075
    
    
    $
    9,811
    
    
    $
    29,650
    
    
    $
    17,977Pro forma provision for income taxes
    
    
    6,551
    
    
    
    3,998
    
    
    
    12,217
    
    
    
    7,596Pro forma income before equity in earnings
of investee
    
    
    9,524
    
    
    
    5,813
    
    
    
    17,433
    
    
    
    10,381Equity in earnings of investee
    
    
    
    
    
    
    431
    
    
    
    331
    
    
    
    663Pro forma net income
    
    $
    9,524
    
    
    $
    6,244
    
    
    $
    17,764
    
    
    $
    11,044Pro forma net income per share:Basic
    
    $
    0.40
    
    
    $
    0.33
    
    
    $
    0.86
    
    
    $
    0.58Diluted
    
    $
    0.40
    
    
    $
    0.32
    
    
    $
    0.85
    
    
    $
    0.57Pro forma weighted average shares outstanding:Basic
    
    
    23,939,141
    
    
    
    19,170,705
    
    
    
    20,762,988
    
    
    
    19,132,694Diluted
    
    
    24,065,665
    
    
    
    19,535,137
    
    
    
    20,998,798
    
    
    
    19,534,364
  4




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VOLCOM, INC. AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
(in thousands)
 Nine Months EndedSeptember 30,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    22,184
    
    
    $
    18,369Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    406
    
    
    
    230Equity in earnings of investee, net of dividends received
    
    
    (331
    )
    
    
    (436
    )Provision for doubtful accounts
    
    
    89
    
    
    
    65Loss on disposal of property and equipment
    
    
    30
    
    
    
    Tax benefits related to exercise of stock options
    
    
    2,833
    
    
    
    Stock-based compensation
    
    
    145
    
    
    
    23Deferred income taxes
    
    
    (428
    )
    
    
    2Changes in operating assets and liabilities:Accounts receivable
    
    
    (11,190
    )
    
    
    (8,549
    )Inventories
    
    
    (5,946
    )
    
    
    (1,537
    )Prepaid expenses and other current assets
    
    
    (459
    )
    
    
    (296
    )Other assets
    
    
    (53
    )
    
    
    (9
    )Accounts payable
    
    
    2,013
    
    
    
    927Accrued expenses and other current liabilities
    
    
    1,894
    
    
    
    1,222Income taxes payable
    
    
    4,466
    
    
    
    (15
    )Net cash provided by operating activities
    
    
    15,653
    
    
    
    9,996Cash flows from investing activities:Purchase of property and equipment
    
    
    (2,775
    )
    
    
    (478
    )Proceeds from sale of equity method investee
    
    
    1,391
    
    
    
    Purchase of additional shares in cost method investee
    
    
    
    
    
    
    (261
    )Net cash used in investing activities
    
    
    (1,384
    )
    
    
    (739
    )Cash flows from financing activities:Principal payments on capital lease obligations
    
    
    (68
    )
    
    
    (43
    )Proceeds from initial public offering, net of offering costs
    
    
    80,131
    
    
    
    Proceeds from exercise of stock options
    
    
    200
    
    
    
    5Distributions to stockholders
    
    
    (39,204
    )
    
    
    (11,375
    )Net cash provided by (used in) financing activities
    
    
    41,059
    
    
    
    (11,413
    )Net increase (decrease) in cash and cash equivalents
    
    
    55,328
    
    
    
    (2,156
    )Cash and cash equivalents Beginning of period
    
    
    10,359
    
    
    
    5,079Cash and cash equivalents End of period
    
    $
    65,687
    
    
    $
    2,923Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    15
    
    
    $
    16Income taxes
    
    
    925
    
    
    
    290
 Supplemental disclosures of noncash investing and financing activities:
   5




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VOLCOM, INC. AND SUBSIDIARY
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
 Note 1  Basis of Presentation
   Stockholders Equity 
 Note 2  Recent Developments
  Note 3  Stock-Based Compensation
 Accounting for Stock Issued to
Employees. Accounting for Stock-Based Compensation, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling Goods or Services.
  Accounting for Stock-Based
Compensation  Transition and Disclosure,
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VOLCOM, INC. AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  Three months ended
    
    
    Nine months endedSeptember 30, 2005
    
    
    September 30, 2005(in thousands)Net income:As reported
    
    $
    11,292
    
    
    $
    22,184Add: Stock-based employee
compensation expense
included in reported net
income, net of related tax
effects
    
    
    13
    
    
    
    13Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of related
tax effects
    
    
    (441
    )
    
    
    (450
    )Pro forma
    
    $
    10,864
    
    
    $
    21,747Basic net income per share:As reported
    
    $
    0.47
    
    
    $
    1.07Pro forma
    
    $
    0.45
    
    
    $
    1.05Diluted net income per share:As reported
    
    $
    0.47
    
    
    $
    1.06Pro forma
    
    $
    0.45
    
    
    $
    1.04
 Nonemployee Stock-Based Compensation
 Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services,
 7




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VOLCOM, INC. AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
   Note 4  New Accounting Pronouncements
 Inventory-Costs an Amendment of ARB No. 43, Chapter 4.
 Share-Based Payment.
 Share-Based Payment
 Note 5  Inventories
  September 30, 2005
    
    
    December 31, 2004(In thousands)Finished goods
    
    $
    10,775
    
    
    $
    5,042Work-in-process
    
    
    365
    
    
    
    220Raw materials
    
    
    426
    
    
    
    358$
    11,566
    
    
    $
    5,620
 8




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VOLCOM, INC. AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
 Note 6  Property and Equipment
  September 30, 2005
    
    
    December 31, 2004(In thousands)Furniture and fixtures
    
    $
    524
    
    
    $
    383Office equipment
    
    
    989
    
    
    
    673Computer equipment
    
    
    1,035
    
    
    
    817Leasehold improvements
    
    
    117
    
    
    
    74Land and building
    
    
    2,004
    
    
    
    4,669
    
    
    
    1,947Less accumulated depreciation
    
    
    (1,267
    )
    
    
    (884
    )Property and equipment  net
    
    $
    3,402
    
    
    $
    1,063
 Note 7  Investments in Unconsolidated Investees
   Note 8  Accrued Expenses and Other Current Liabilities
  September 30, 2005
    
    
    December 31, 2004(In thousands)Payroll and related accruals
    
    $
    2,019
    
    
    $
    671Other
    
    
    1,007
    
    
    
    461$
    3,026
    
    
    $
    1,132
 9




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VOLCOM, INC. AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
 Note 9  Commitments and Contingencies
 Litigation
  Indemnities and Guarantees
 Note 10  Stockholders Equity
   10




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VOLCOM, INC. AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
 Note 11  Earnings Per Share
 Earnings Per
Share.
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except share data)Numerator  Net income
    
    $
    11,292
    
    
    $
    10,103
    
    
    $
    22,184
    
    
    $
    18,369Denominator:Weighted average common stock
outstanding for basic earnings per
share
    
    
    23,939,141
    
    
    
    19,170,705
    
    
    
    20,762,988
    
    
    
    19,132,694Effect of dilutive securities:Stock options and restricted stock
    
    
    126,524
    
    
    
    364,432
    
    
    
    235,810
    
    
    
    401,670Adjusted weighted average common
stock and assumed conversions for
diluted earnings per share
    
    
    24,065,665
    
    
    
    19,535,137
    
    
    
    20,998,798
    
    
    
    19,534,364
  Note 12  Income Taxes
  Interim Financial Reporting
  Note 13  Segment Information
  11




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VOLCOM, INC. AND SUBSIDIARY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands)Mens
    
    $
    24,348
    
    
    $
    16,499
    
    
    $
    63,294
    
    
    $
    43,576Girls
    
    
    14,691
    
    
    
    10,065
    
    
    
    38,456
    
    
    
    25,182Snow
    
    
    8,377
    
    
    
    8,428
    
    
    
    8,377
    
    
    
    8,428Boys
    
    
    2,316
    
    
    
    879
    
    
    
    5,031
    
    
    
    2,697Other
    
    
    364
    
    
    
    414
    
    
    
    1,101
    
    
    
    978Subtotal product categories
    
    
    50,096
    
    
    
    36,285
    
    
    
    116,259
    
    
    
    80,861Licensing revenues
    
    
    1,096
    
    
    
    928
    
    
    
    2,477
    
    
    
    1,956Total revenues
    
    $
    51,192
    
    
    $
    37,213
    
    
    $
    118,736
    
    
    $
    82,817
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands)United States
    
    $
    41,763
    
    
    $
    31,127
    
    
    $
    94,539
    
    
    $
    67,658Canada
    
    
    4,848
    
    
    
    2,688
    
    
    
    12,605
    
    
    
    6,505Asia Pacific
    
    
    2,462
    
    
    
    1,883
    
    
    
    5,312
    
    
    
    4,326Other
    
    
    1,023
    
    
    
    587
    
    
    
    3,803
    
    
    
    2,372$
    50,096
    
    
    $
    36,285
    
    
    $
    116,259
    
    
    $
    80,861
  12




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 The following discussion of our financial condition and results of operations should be read
in conjunction with our condensed consolidated financial statements and related notes included
elsewhere in this Quarterly Report on Form 10-Q . This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ materially from
those anticipated in these forward-looking statements due to known and unknown risks, uncertainties
and other factors, including those risks discussed in Risk Factors and elsewhere in this
Quarterly Report on Form 10-Q . We do not have any intention or obligation to update forward-looking
statements included in this Quarterly Report on Form 10-Q after the date of this Quarterly Report
on Form 10-Q , except as required by law. In addition, the following discussion should be read in
conjunction with the information presented in our audited consolidated financial statements and
related notes for the year ended December 31, 2004, which are included in our prospectus filed
pursuant to Rule 424(b) under the Securities Act of 1933, as amended, with the Securities and
Exchange Commission on June 29, 2005.
 Overview
     13




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
    
    fashion trends and changes in consumer preferences;
    
    changes in boardsports popularity and participation rates;
    
    general economic conditions, particularly changes in consumer discretionary spending; and
    
    actions by our existing competitors, such as new product introductions or pricing
strategies, or the emergence of new competitors.
      14




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Critical Accounting Policies
  Revenue Recognition
  15




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Accounts Receivable
  Inventories
  
    
    unanticipated changes in consumer preferences;
    
    weakening economic conditions;
    
    terrorist acts or threats;
    
    reduced consumer confidence in the retail market; and
    
    unseasonable weather.
  Long-Lived Assets
  Investments in Unconsolidated Investees
  16




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Athlete Sponsorships
  Income Taxes
   Foreign Currency Translation
  17




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General
    Results of Operations
  Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    49.0
    
    
    
    51.9
    
    
    
    48.4
    
    
    
    51.1Gross profit
    
    
    51.0
    
    
    
    48.1
    
    
    
    51.6
    
    
    
    48.9Selling, general and administrative expenses
    
    
    20.8
    
    
    
    21.8
    
    
    
    27.0
    
    
    
    27.1Operating income
    
    
    30.2
    
    
    
    26.3
    
    
    
    24.6
    
    
    
    21.8Other income (expense)
    
    
    1.2
    
    
    
    0.1
    
    
    
    0.4
    
    
    
    (0.1
    )Income before provision for income taxes
    
    
    31.4
    
    
    
    26.4
    
    
    
    25.0
    
    
    
    21.7Provision for income taxes
    
    
    9.3
    
    
    
    0.4
    
    
    
    6.6
    
    
    
    0.3Income before equity in earnings of investee
    
    
    22.1
    
    
    
    26.0
    
    
    
    18.4
    
    
    
    21.4Equity in earnings of investee
    
    
    0.0
    
    
    
    1.2
    
    
    
    0.3
    
    
    
    0.8Net income
    
    
    22.1
    
    
    
    27.2
    
    
    
    18.7
    
    
    
    22.2
 Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004
 Revenues
  18




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Gross Profit
  Selling, General and Administrative Expenses
  Operating Income
  19




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##### Table of Contents



Other Income (Expense)
  Provision for Income Taxes
  Interim
Financial Reporting
 Net Income
  Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004
 Revenues
   20




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Gross Profit
  Selling, General and Administrative Expenses
  Operating Income
  21




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##### Table of Contents



Other
Income (Expense)
  Provision for Income Taxes
  Interim
Financial Reporting
 Net Income
  Liquidity and Capital Resources
   Nine MonthsEnded September 30,2005
    
    
    2004(In thousands)Cash and cash equivalents at beginning of period
    
    $
    10,359
    
    
    $
    5,079Cash flow from operating activities
    
    
    15,653
    
    
    
    9,996Cash flow from investing activities
    
    
    (1,384
    )
    
    
    (739
    )Cash flow from financing activities
    
    
    41,059
    
    
    
    (11,413
    )Cash and cash equivalents at end of period
    
    $
    65,687
    
    
    $
    2,923
  22




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Credit Facilities
  23




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Contractual Obligations and Commitments
  Payments Due by Period(in thousands)Oct. 1 Total
    
    
    Dec. 31, 2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    ThereafterOperating lease obligations
    
    $
    2,535
    
    
    $
    177
    
    
    $
    658
    
    
    $
    649
    
    
    $
    647
    
    
    $
    404
    
    
    $
    Capital lease obligations
    
    
    305
    
    
    
    22
    
    
    
    87
    
    
    
    87
    
    
    
    75
    
    
    
    34
    
    
    
    Professional athlete sponsorships
    
    
    5,613
    
    
    
    740
    
    
    
    2,502
    
    
    
    1,996
    
    
    
    375
    
    
    
    
    
    
    
    Contractual letters of credit
    
    
    517
    
    
    
    517
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    8,970
    
    
    $
    1,456
    
    
    $
    3,247
    
    
    $
    2,732
    
    
    $
    1,097
    
    
    $
    438
    
    
    $
    
     Seasonality
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Backlog
  Inflation
  Vulnerability Due to Concentrations
   Non-GAAP Financial Measures
  Nine months endedSeptember 30, 2005Selling, general and administrative expenses
    
    $
    32,090Less: Settlement charge
    
    
    1,000Selling, general and administrative expenses excluding settlement charge
    
    
    31,090Total revenues
    
    
    118,736Selling, general and administrative expenses excluding settlement charge
as a percent of total revenues
    
    
    26.2
    %Operating income
    
    $
    29,124Add back: Settlement charge
    
    
    1,000Operating income excluding settlement charge
    
    
    30,124Total revenues
    
    
    118,736Operating income excluding settlement charge as a percent of total revenues
    
    
    25.4
    %
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Recent Accounting Pronouncements
 Inventory-Costs an Amendment of ARB No. 43,
Chapter 4.
 Share-Based Payment
 Share-Based Payment
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Risk Factors
 Certain statements contained in or incorporated by reference into this Quarterly Report on
Form 10-Q, or which are otherwise made by us or on our behalf, are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include statements that are predictive in nature, which depend upon or refer to future
events or conditions, which include words such as believes, plans, anticipates, estimates,
expects or similar expressions. In addition, any statements concerning future financial
performance, ongoing business strategies or prospects, and possible future actions, which may be
provided by our management, are also forward-looking statements. Forward-looking statements are
based on current expectations and projections about future events and are subject to risks,
uncertainties, and assumptions about our company, economic and market factors and the industry in
which we do business, among other things. These statements are not guaranties of future performance
and we undertake no obligation to publicly update any forward-looking statements, whether as a
result of new information, future events or otherwise. Actual events and results may differ
materially from those expressed or forecasted in forward-looking statements due to a number of
factors. Factors that could cause our actual performance and future events and actions to differ
materially from such forward-looking statements, include, but are not limited to those discussed
below and elsewhere in this Quarterly Report on Form 10-Q .
 If our marketing efforts do not effectively maintain and expand our brand name recognition, we may
not be able to achieve our growth strategy.
  If we are unable to continue to develop innovative and stylish products, demand for our products
may decrease and our brand image may be harmed.
   We may be unable to sustain our past growth or manage our future growth, which may have a material
adverse effect on our future operating results.
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Our business could be harmed if we fail to maintain proper inventory levels.
  If we are unable to maintain and expand our endorsements by professional athletes, our ability to
market and sell our products may be harmed.
   If we fail to secure or protect our intellectual property rights, counterfeiters may be able to
copy and sell imitations of our products and competitors may be able to use our designs, each of
which could harm our reputation, reduce our revenues and increase our costs.
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Our current executive officers and management personnel are critical to our success, and the loss
of these individuals could harm our business, brand and image.
  Our ability to attract and retain qualified design and sales and marketing personnel is critical to
our success, and any inability to attract and retain such personnel could harm our business.
  One retail customer represents a material amount of our revenues, and the loss of this retail
customer or reduced purchases from this retail customer may have a material adverse effect on our
operating results.
  We do not have long-term contracts with any of our retailers, and the loss of orders of our
products from our retailers may have a material adverse effect on our operating results.
  29




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Any inability to receive timely deliveries from our manufacturers could harm our business.
  If the United States continues to impose tariffs and import quota restrictions on products
manufactured in China and we are unable to obtain sufficient product from countries other than China or from
domestic sources, or if the products we obtain from these other countries or domestic sources are
of insufficient quality, it could materially affect our gross margin and financial performance.
  Any shortage of raw materials could impair our ability to ship orders of our products in a
cost-efficient manner or could cause us to miss the delivery requirements of our customers, which
could harm our business.
  If we are required to establish new manufacturing relationships due to the termination of current
key manufacturing relationships with large contractors such as Ningbo Jehson Textiles and China
Ningbo CIXI (Dragon Crowd), we would likely experience increased costs, disruptions in the
manufacture and shipment of our products and a loss of revenue.
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Our business could suffer if any of our or our licensees key manufacturers fails to use acceptable
labor practices.
  We may not be able to compete effectively, which could cause our revenues and market share to
decline.
   We may be adversely affected by the discontinuance of our licensing relationship in Europe.
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##### Table of Contents



We may be adversely affected by the financial condition of our retailers.
  Changes in the mix of retailers to whom we distribute our products could impact our gross margin
and brand image, which could have a material adverse effect on our results of operations.
  Our revenues and operating income fluctuate on a seasonal basis and decreases in sales or margins
during our peak seasons could have a disproportionate effect on our overall financial condition and
results of operations.
  Cyclical trends in apparel retailing could have a material adverse effect on our results of
operations.
  We face business, political, operational, financial and economic risks because a portion of our
revenues are from international customers, substantially all of our products are sourced overseas
and our licensees operate outside of the United States.
  
    
    difficulties obtaining domestic and foreign export, import and other governmental
approvals, permits and licenses, and compliance with foreign laws, which could halt,
interrupt or delay our operations if we cannot obtain such approvals, permits and licenses,
and that could have a material adverse effect on our results of operations;
    
    difficulties encountered by our international licensees or us in staffing and managing
foreign operations or international sales, which could increase our expenses and decrease
our revenues and profitability;
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##### Table of Contents




    
    transportation delays and difficulties of managing international distribution channels,
which could halt, interrupt or delay our operations;
    
    longer payment cycles for, and greater difficulty collecting, accounts receivable and
royalty payments, which could reduce our revenues and harm our financial results;
    
    trade restrictions, higher tariffs, currency fluctuations or the imposition of
additional regulations relating to import or export of our products, especially in China,
where a large portion of our products are manufactured, which could force us to seek
alternate manufacturing sources or increase our expenses, either of which could have a
material adverse effect on our results of operations;
    
    unexpected changes in regulatory requirements, royalties and withholding taxes that
restrict the repatriation of earnings and effects on our effective income tax rate due to
profits generated or lost in foreign countries, which could have a material adverse effect
on our results of operations;
    
    political and economic instability, including wars, terrorism, political unrest,
boycotts, curtailment of trade and other business restrictions, any of which could
materially and adversely affect our revenues and results of operations; and
    
    natural disasters, which could have a material adverse effect on `our results of
operations.
  Fluctuations in foreign currency exchange rates could harm our results of operations.
  We will continue to incur significant expenses as a result of being a public company, which may
negatively impact our financial performance.
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##### Table of Contents



Our internal controls over financial reporting may not be considered effective, which could result
in a loss of investor confidence in our financial reports and in turn have an adverse effect on our
stock price.
    The market price of our common stock may be highly volatile and may result in investors selling
shares of our common stock at a loss.
  
    
    actual or anticipated variations in quarterly operating results;
    
    changes in financial estimates by securities analysts;
    
    conditions or trends in the fashion and boardsports industries; and
    
    changes in the market valuations of similar companies.
  Anti-takeover provisions in our charter documents and Delaware law may make an acquisition of us
more difficult.
  
    
    allow the authorized number of directors to be changed only by resolution of the board
of directors;
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##### Table of Contents




    
    authorize our board of directors to issue blank check preferred stock without
stockholder approval, which, if issued, would increase the number of outstanding shares of
our capital stock;
    
    establish advance notice requirements for nominations to our board of directors or for
proposals that can be acted on at stockholder meetings; and
    
    authorize only a majority of our incumbent board of directors, as defined, to fill vacant
directorships.
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
 Foreign Currency Risk
    Interest Rate Risk
  
 Item 4. Controls and Procedures.
  35




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36




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##### Table of Contents



PART II.
 OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
 31.1
    
    Certification of Principal Executive Officer Required Under Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended31.2
    
    Certification of Principal Financial Officer Required Under Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended32
    
    Certification of Principal Executive Officer and Principal Financial
Officer Required Under Rule 13a-14(b) of the Securities Exchange Act
of 1934, as amended, and 18 U.S.C. Section 1350
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##### Table of Contents



SIGNATURE
  Volcom, Inc.Date: November 11, 2005
    /s/ Douglas P. CollierDouglas P. CollierChief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Authorized
Signatory) 38




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##### Table of Contents



INDEX TO EXHIBITS
 Exhibit No.
    
    Description31.1
    
    Certification of Principal Executive Officer Required
Under Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended31.2
    
    Certification of Principal Financial Officer Required
Under Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended32
    
    Certification of Principal Executive Officer and
Principal Financial Officer Required Under Rule 13a-14(b)
of the Securities Exchange Act of 1934, as amended, and
18 U.S.C. Section 1350
 39