##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 000-51382
 
 Volcom, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    33-0466919
(I.R.S. Employer
Identification No.)
 Volcom, Inc.
1740 Monrovia Avenue
Costa Mesa, CA 92627
(Address of principal executive offices, including zip code)
 (949) 646-2175
(Registrants telephone number, including area code)
 þ o
  þ o o
 o þ




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##### Table of Contents



VOLCOM, INC.
 FORM 10-Q
INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2007 and December 31, 2006
    
    
    3Condensed Consolidated Statements of Operations (unaudited) for the three and six months
ended June 30, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June
30, 2007 and 2006
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6 - 15Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16  29Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    30Item 4T. Controls and Procedures
    
    
    30PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    32SIGNATURES
    
    
    33EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 VOLCOM, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share data)
 June 30, 2007
    
    
    December 31, 2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    84,933
    
    
    $
    85,414Accounts receivable  net of allowances of
$2,099 (2007) and $1,323 (2006)
    
    
    41,282
    
    
    
    34,175Inventories
    
    
    19,387
    
    
    
    13,185Prepaid expenses and other current assets
    
    
    1,776
    
    
    
    1,383Income taxes receivable
    
    
    22
    
    
    
    Deferred income taxes
    
    
    2,508
    
    
    
    2,353Total current assets
    
    
    149,908
    
    
    
    136,510Property and equipment  net
    
    
    20,383
    
    
    
    11,527Investments in unconsolidated investees
    
    
    298
    
    
    
    298Deferred income taxes
    
    
    675
    
    
    
    660Intangible assets  net
    
    
    361
    
    
    
    386Goodwill
    
    
    158
    
    
    
    158Other assets
    
    
    236
    
    
    
    209Total assets
    
    $
    172,019
    
    
    $
    149,748Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    16,992
    
    
    $
    8,764Accrued expenses and other current liabilities
    
    
    7,452
    
    
    
    6,175Income taxes payable
    
    
    
    
    
    
    424Current portion of capital lease obligations
    
    
    80
    
    
    
    78Total current liabilities
    
    
    24,524
    
    
    
    15,441Long-term capital lease obligations
    
    
    65
    
    
    
    106Other long-term liabilities
    
    
    195
    
    
    
    204Income taxes payable  noncurrent
    
    
    129
    
    
    
    Commitments and contingencies (Note 9)Stockholders equity:Common stock, $.001 par value  60,000,000
shares authorized; 24,333,420 (2007) and
24,295,420 (2006) shares issued and
outstanding
    
    
    24
    
    
    
    24Additional paid-in capital
    
    
    88,233
    
    
    
    86,773Retained earnings
    
    
    58,593
    
    
    
    47,019Accumulated other comprehensive income
    
    
    256
    
    
    
    181Total stockholders equity
    
    
    147,106
    
    
    
    133,997Total liabilities and stockholders equity
    
    $
    172,019
    
    
    $
    149,748
  3




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VOLCOM, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Product revenues
    
    $
    56,901
    
    
    $
    45,492
    
    
    $
    106,326
    
    
    $
    86,005Licensing revenues
    
    
    780
    
    
    
    559
    
    
    
    2,173
    
    
    
    1,642Total revenues
    
    
    57,681
    
    
    
    46,051
    
    
    
    108,499
    
    
    
    87,647Cost of goods sold
    
    
    29,888
    
    
    
    23,137
    
    
    
    54,299
    
    
    
    43,211Gross profit
    
    
    27,793
    
    
    
    22,914
    
    
    
    54,200
    
    
    
    44,436Selling, general and administrative expenses
    
    
    18,944
    
    
    
    13,224
    
    
    
    37,289
    
    
    
    28,060Operating income
    
    
    8,849
    
    
    
    9,690
    
    
    
    16,911
    
    
    
    16,376Other income:Interest income, net
    
    
    1,057
    
    
    
    977
    
    
    
    2,139
    
    
    
    1,715Dividend income from cost method investee
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Foreign currency gain
    
    
    493
    
    
    
    259
    
    
    
    531
    
    
    
    262Total other income
    
    
    1,550
    
    
    
    1,239
    
    
    
    2,670
    
    
    
    1,980Income before provision for income taxes
    
    
    10,399
    
    
    
    10,929
    
    
    
    19,581
    
    
    
    18,356Provision for income taxes
    
    
    4,179
    
    
    
    4,397
    
    
    
    7,879
    
    
    
    7,398Net income
    
    $
    6,220
    
    
    $
    6,532
    
    
    $
    11,702
    
    
    $
    10,958Net income per share:Basic
    
    $
    0.25
    
    
    $
    0.27
    
    
    $
    0.48
    
    
    $
    0.45Diluted
    
    $
    0.25
    
    
    $
    0.27
    
    
    $
    0.48
    
    
    $
    0.45Weighted average shares outstanding:Basic
    
    
    24,297,839
    
    
    
    24,214,523
    
    
    
    24,285,874
    
    
    
    24,207,537Diluted
    
    
    24,436,998
    
    
    
    24,310,679
    
    
    
    24,406,187
    
    
    
    24,311,960
  4




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VOLCOM, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 Six Months EndedJune 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    11,702
    
    
    $
    10,958Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    1,206
    
    
    
    630Provision for doubtful accounts
    
    
    437
    
    
    
    76Excess tax benefits related to exercise of stock options
    
    
    (293
    )
    
    
    (124
    )Loss on disposal of property and equipment
    
    
    16
    
    
    
    8Stock-based compensation
    
    
    441
    
    
    
    399Deferred income taxes
    
    
    (155
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (7,488
    )
    
    
    (8,416
    )Inventories
    
    
    (6,122
    )
    
    
    (341
    )Prepaid expenses and other current assets
    
    
    (386
    )
    
    
    255Income taxes receivable/payable
    
    
    (148
    )
    
    
    2,049Other assets
    
    
    (27
    )
    
    
    (117
    )Accounts payable
    
    
    8,133
    
    
    
    5,407Accrued expenses and other current liabilities
    
    
    641
    
    
    
    3,081Other long-term liabilities
    
    
    (15
    )
    
    
    Net cash provided by operating activities
    
    
    7,942
    
    
    
    13,865Cash flows from investing activities:Purchase of property and equipment
    
    
    (9,735
    )
    
    
    (2,611
    )Acquisition, net of cash required
    
    
    
    
    
    
    (168
    )Proceeds from sale of property and equipment
    
    
    15
    
    
    
    Net cash used in investing activities
    
    
    (9,720
    )
    
    
    (2,779
    )Cash flows from financing activities:Principal payments on capital lease obligations
    
    
    (39
    )
    
    
    (35
    )Cash received from government grants
    
    
    112
    
    
    
    Proceeds from exercise of stock options
    
    
    722
    
    
    
    411Excess tax benefits related to exercise of stock options
    
    
    293
    
    
    
    124Net cash provided by financing activities
    
    
    1,088
    
    
    
    500Effect of exchange rate changes on cash
    
    
    209
    
    
    
    38Net (decrease)/increase in cash and cash equivalents
    
    
    (481
    )
    
    
    11,624Cash and cash equivalents Beginning of period
    
    
    85,414
    
    
    
    71,712Cash and cash equivalents End of period
    
    $
    84,933
    
    
    $
    83,336Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    14
    
    
    $
    8Income taxes
    
    $
    8,181
    
    
    $
    5,304
 Supplemental disclosures of noncash investing and financing activities:
   5




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




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VOLCOM, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (continued)
 Stock Compensation Plans
 Stock Option Awards
   Weighted-Average
    
    
    Weighted-AverageNumber of
    
    
    Exercise
    
    
    RemainingOptions
    
    
    Price
    
    
    Contractual TermOutstanding at January 1, 2007
    
    
    487,700
    
    
    $
    19.00Granted
    
    
    10,000
    
    
    $
    42.07Exercised
    
    
    (38,000
    )
    
    $
    19.00Canceled or forfeited
    
    
    (1,200
    )
    
    $
    19.00Outstanding at June 30, 2007
    
    
    458,500
    
    
    $
    19.50
    
    
    8.0 yearsExercisable at June 30, 2007
    
    
    244,800
    
    
    $
    19.00
    
    
    8.0 years
  7




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VOLCOM, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (continued)
  Weighted-AverageNumber of
    
    
    Grant-DateOptions
    
    
    Fair ValueUnvested at January 1, 2007
    
    
    272,800
    
    
    $
    9.14Granted
    
    
    10,000
    
    
    
    14.25Vested
    
    
    (67,900
    )
    
    
    9.14Canceled or forfeited
    
    
    (1,200
    )
    
    
    9.14Unvested at June 30, 2007
    
    
    213,700
    
    
    $
    9.38
  Options Outstanding
    
    Options ExercisableWeighted-
    
    Weighted-
    
    
    
    
    
    Weighted-Average
    
    Average
    
    
    
    
    
    AverageNumber of
    
    Remaining
    
    Exercise
    
    Number of
    
    ExerciseRange of exercise price
    
    Options
    
    Life (yrs)
    
    Price
    
    Options
    
    Price$19.00
    
    
    448,500
    
    
    
    8.0
    
    
    $
    19.00
    
    
    
    244,800
    
    
    $
    19.00$42.07
    
    
    10,000
    
    
    
    9.9
    
    
    $
    42.07
    
    
    
    
    
    
    
    
  Restricted Stock Awards
   8




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VOLCOM, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (continued)
  Weighted-AverageShares of
    
    
    Grant-DateRestricted Stock
    
    
    Fair ValueOutstanding restricted stock at January 1, 2007
    
    
    31,000
    
    
    $
    30.09Granted
    
    
    
    
    
    
    Vested
    
    
    (1,500
    )
    
    $
    34.65Canceled or forfeited
    
    
    
    
    
    
    Outstanding restricted stock at June 30, 2007
    
    
    29,500
    
    
    $
    29.86
  Note 3  New Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109.
 Fair Value Measurements.
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of SFAS No. 115
 Note 4  Inventories
  June 30, 2007
    
    
    December 31, 2006(In thousands)Finished goods
    
    $
    19,038
    
    
    $
    12,959Work-in-process
    
    
    134
    
    
    
    41Raw materials
    
    
    215
    
    
    
    185$
    19,387
    
    
    $
    13,185
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VOLCOM, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (continued)
 Note 5  Property and Equipment
  June 30, 2007
    
    
    December 31, 2006(In thousands)Furniture and fixtures
    
    $
    2,794
    
    
    $
    1,869Office equipment
    
    
    2,264
    
    
    
    1,180Computer equipment
    
    
    2,830
    
    
    
    2,173Leasehold improvements
    
    
    2,226
    
    
    
    1,241Building
    
    
    7,070
    
    
    
    254Land
    
    
    4,723
    
    
    
    1,750Construction in progress
    
    
    2,287
    
    
    
    5,70924,194
    
    
    
    14,176Less accumulated depreciation
    
    
    (3,811
    )
    
    
    (2,649
    )Property and equipment  net
    
    $
    20,383
    
    
    $
    11,527
    Note 6  Investments in Unconsolidated Investees
  10




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VOLCOM, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (continued)
 Note 7 Intangible Assets
  As of June 30, 2007
    
    
    As of December 31, 2006Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization(In thousands)Customer relationships
    
    $
    307
    
    
    $
    51
    
    
    $
    310
    
    
    $
    36Backlog
    
    
    159
    
    
    
    159
    
    
    
    160
    
    
    
    160Non-compete agreements
    
    
    40
    
    
    
    7
    
    
    
    40
    
    
    
    5Reacquired license rights
    
    
    84
    
    
    
    12
    
    
    
    84
    
    
    
    7$
    590
    
    
    $
    229
    
    
    $
    594
    
    
    $
    208
  Note 8  Accrued Expenses and Other Current Liabilities
  June 30, 2007
    
    
    December 31, 2006(In thousands)Payroll and related accruals
    
    $
    4,262
    
    
    $
    3,785Other
    
    
    3,190
    
    
    
    2,390$
    7,452
    
    
    $
    6,175
 Note 9  Commitments and Contingencies
 Litigation
 Indemnities and Guarantees
 11




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VOLCOM, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (continued)
 Note 10  Earnings Per Share
 Earnings Per
Share
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands, except share data)Numerator  Net income
    
    $
    6,220
    
    
    $
    6,532
    
    
    $
    11,702
    
    
    $
    10,958Denominator:
Weighted average common stock outstanding
for basic earnings per share
    
    
    24,297,839
    
    
    
    24,214,523
    
    
    
    24,285,874
    
    
    
    24,207,537Effect of dilutive securities:Stock options and restricted stock
    
    
    139,159
    
    
    
    96,156
    
    
    
    120,313
    
    
    
    104,423Adjusted weighted average common stock
and assumed conversions for diluted
earnings per share
    
    
    24,436,998
    
    
    
    24,310,679
    
    
    
    24,406,187
    
    
    
    24,311,960
  Note 11  Income Taxes
      12




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VOLCOM, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (continued)
 Note 12  Segment Information
  13




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VOLCOM, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (continued)
  Three Months EndedJune 30,2007
    
    
    2006(In thousands)Total revenues:United States
    
    $
    55,205
    
    
    $
    45,613Europe
    
    
    2,476
    
    
    
    438Consolidated
    
    $
    57,681
    
    
    $
    46,051Gross profit:United States
    
    $
    27,296
    
    
    $
    22,810Europe
    
    
    497
    
    
    
    104Consolidated
    
    $
    27,793
    
    
    $
    22,914Operating income (loss):United States
    
    $
    11,301
    
    
    $
    10,032Europe
    
    
    (2,452
    )
    
    
    (342
    )Consolidated
    
    $
    8,849
    
    
    $
    9,690
 Six Months EndedJune 30,2007
    
    
    2006(In thousands)Total revenues:United States
    
    $
    104,419
    
    
    $
    86,258Europe
    
    
    4,080
    
    
    
    1,389Consolidated
    
    $
    108,499
    
    
    $
    87,647Gross profit:United States
    
    $
    52,974
    
    
    $
    44,008Europe
    
    
    1,226
    
    
    
    428Consolidated
    
    $
    54,200
    
    
    $
    44,436Operating income (loss):United States
    
    $
    21,140
    
    
    $
    16,793Europe
    
    
    (4,229
    )
    
    
    (417
    )Consolidated
    
    $
    16,911
    
    
    $
    16,376Identifiable assets:United States
    
    $
    148,306
    
    
    $
    130,541Europe
    
    
    23,713
    
    
    
    2,971Consolidated
    
    $
    172,019
    
    
    $
    133,512
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VOLCOM, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  (continued)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)
    
    
    (In thousands)Mens
    
    $
    28,810
    
    
    $
    25,380
    
    
    $
    53,482
    
    
    $
    50,151Girls
    
    
    20,313
    
    
    
    16,447
    
    
    
    37,390
    
    
    
    29,504Snow
    
    
    528
    
    
    
    2
    
    
    
    528
    
    
    
    2Boys
    
    
    4,043
    
    
    
    3,111
    
    
    
    7,377
    
    
    
    5,387Footwear
    
    
    1,689
    
    
    
    
    
    
    
    3,803
    
    
    
    Girls swim
    
    
    930
    
    
    
    
    
    
    
    2,650
    
    
    
    Other
    
    
    588
    
    
    
    552
    
    
    
    1,096
    
    
    
    961Subtotal product categories
    
    
    56,901
    
    
    
    45,492
    
    
    
    106,326
    
    
    
    86,005Licensing revenues
    
    
    780
    
    
    
    559
    
    
    
    2,173
    
    
    
    1,642Total revenues
    
    $
    57,681
    
    
    $
    46,051
    
    
    $
    108,499
    
    
    $
    87,647
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)
    
    
    (In thousands)United States
    
    $
    42,968
    
    
    $
    36,802
    
    
    $
    78,605
    
    
    $
    67,309Canada
    
    
    6,547
    
    
    
    5,341
    
    
    
    14,656
    
    
    
    11,291Asia Pacific
    
    
    1,582
    
    
    
    1,087
    
    
    
    3,129
    
    
    
    2,504Europe
    
    
    2,476
    
    
    
    438
    
    
    
    4,080
    
    
    
    1,390Other
    
    
    3,328
    
    
    
    1,824
    
    
    
    5,856
    
    
    
    3,511$
    56,901
    
    
    $
    45,492
    
    
    $
    106,326
    
    
    $
    86,005
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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. The section entitled Risk Factors set forth in Item 1A of our Annual Report on
Form 10-K for the year ended December 31, 2006, 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, 2006.
 Overview
     16




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17




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Critical Accounting Policies
  Revenue Recognition
   Accounts Receivable
  18




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##### Table of Contents



Inventories
  
    
    changes in consumer preferences;
    
    unseasonable weather; and
    
    weakened economic conditions.
  Goodwill and Intangible Assets
 Goodwill and
Intangible Assets
 Long-Lived Assets
  Investments in Unconsolidated Investees
  19




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Athlete Sponsorships
  Income Taxes
 Accounting for Uncertainty in Income Taxes
  Stock-Based Compensation
 Share-Based Payment
 20




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Foreign Currency Translation
   General
    21




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##### Table of Contents



Results of Operations
  Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2007
    
    2006
    
    2007
    
    2006Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    51.8
    
    
    
    50.2
    
    
    
    50.0
    
    
    
    49.3Gross profit
    
    
    48.2
    
    
    
    49.8
    
    
    
    50.0
    
    
    
    50.7Selling, general and administrative expenses
    
    
    32.9
    
    
    
    28.8
    
    
    
    34.4
    
    
    
    32.0Operating income
    
    
    15.3
    
    
    
    21.0
    
    
    
    15.6
    
    
    
    18.7Other income
    
    
    2.7
    
    
    
    2.7
    
    
    
    2.5
    
    
    
    2.2Income before provision for income taxes
    
    
    18.0
    
    
    
    23.7
    
    
    
    18.1
    
    
    
    20.9Provision for income taxes
    
    
    7.2
    
    
    
    9.5
    
    
    
    7.3
    
    
    
    8.4Net income
    
    
    10.8
    %
    
    
    14.2
    %
    
    
    10.8
    %
    
    
    12.5
    %
 Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006
 Revenues
    22




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Gross Profit
  Selling, General and Administrative Expenses
  Operating Income
  Other Income
  Provision for Income Taxes
  23




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Net Income
  Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
 Revenues
     24




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Gross Profit
  Selling, General and Administrative Expenses
  Operating Income
  Other Income
  Provision for Income Taxes
   Net Income
  25




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##### Table of Contents



Liquidity and Capital Resources
   Six MonthsEnded June 30,2007
    
    
    2006(In thousands)Cash and cash equivalents at beginning of period
    
    $
    85,414
    
    
    $
    71,712Cash flow from operating activities
    
    
    7,942
    
    
    
    13,865Cash flow from investing activities
    
    
    (9,720
    )
    
    
    (2,779
    )Cash flow from financing activities
    
    
    1,088
    
    
    
    500Effect of exchange rate on cash
    
    
    209
    
    
    
    38Cash and cash equivalents at end of period
    
    $
    84,933
    
    
    $
    83,336
  (In thousands)
    
    
    Attributable to$
    (5,781
    )
    
    Decrease in cash flows from inventory due to higher inventory levels in Europe as a result of the direct distribution of product beginning in 2007(2,455
    )
    
    Decrease in cash flows from accrued expenses and other long-term liabilities due to timing of payments, increased payroll accruals and other liabilities(2,197
    )
    
    Decrease in cash flows due to fluctuations in the income tax receivable/payable balance between periods(641
    )
    
    Decrease in cash flows due to an increase in prepaid expenses and other assets(324
    )
    
    Decrease in non-cash excess tax benefits related to exercise of stock options and change in deferred taxes2,726
    
    
    Increase in cash flows from accounts payable due to the timing of payments to vendors979
    
    
    Increase in
non-cash depreciation and amortization, provision for doubtful accounts and stock-based compensation928
    
    
    Increase in cash flows from accounts receivable due to the timing of sales and collections744
    
    
    Increase in net income98
    
    
    Net increase in cash flows from all other operating activities$
    (5,923
    )
    
    Total
  26




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##### Table of Contents



Credit Facilities
  Contractual Obligations and Commitments
  Payments Due by Period(in thousands)Jul. 1 -Total
    
    
    Dec. 31, 2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterOperating lease obligations
    
    $
    11,939
    
    
    $
    1,138
    
    
    $
    2,666
    
    
    $
    2,262
    
    
    $
    1,968
    
    
    $
    1,777
    
    
    $
    2,128Capital lease obligations
    
    
    153
    
    
    
    43
    
    
    
    76
    
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    Professional athlete sponsorships
    
    
    4,277
    
    
    
    2,048
    
    
    
    1,845
    
    
    
    384
    
    
    
    
    
    
    
    
    
    
    
    Contractual letters of credit
    
    
    3,290
    
    
    
    3,290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    19,659
    
    
    $
    6,519
    
    
    $
    4,587
    
    
    $
    2,680
    
    
    $
    1,968
    
    
    $
    1,777
    
    
    $
    2,128
    27




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##### Table of Contents



Seasonality
   Inflation
  Vulnerability Due to Concentrations
    28




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Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109.
 Fair Value Measurements.
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of SFAS No. 115
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
 Foreign Currency Risk
     29




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##### Table of Contents



Interest Rate Risk
  
 Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Control Over Financial Reporting
  
 Item 4T. Controls and Procedures.
 Not applicable.
 30




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##### Table of Contents



PART II.
 OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
 Before deciding to purchase, hold or sell our common stock, you should carefully consider the
risks described below in addition to the other cautionary statements and risks described elsewhere,
and the other information contained, in this Report and in our other filings with the SEC,
including our Annual Report on Form 10-K for the year ended December 31, 2006, our Quarterly Report
on Form 10-Q for the period ended March 31, 2007, and subsequent reports on Forms 10-Q and 8-K.
Risks that could affect our actual performance include, but are not limited to those discussed in
Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2006 and our
Quarterly Report on Form 10-Q for the period ended March 31, 2007. The following are the material
changes and updates from the risk factors previously disclosed in Part I, Item 1A in our Annual
Report on that Form 10-K and Form 10-Q .
 If we are required to establish new manufacturing relationships due to the termination of current
key manufacturing relationships with large contractors such as Ningbo Jehson Textiles and Dragon
Crowd or such manufacturers are no longer able to meet our needs, we would likely experience
increased costs, disruptions in the manufacture and shipment of our products and a loss of revenue.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
   31




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Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  1. Re-election of Directors
  Director Name
    
    For
    
    WithheldDouglas S. Ingram
    
    
    22,655,385
    
    
    
    262,653Anthony M. Palma
    
    
    22,906,640
    
    
    
    11,398Joseph B. Tyson
    
    
    22,907,940
    
    
    
    10,098Carl W. Womack
    
    
    22,908,556
    
    
    
    9,482René R. Woolcott
    
    
    22,907,838
    
    
    
    10,200Richard R. Woolcott
    
    
    22,908,258
    
    
    
    9,780Kevin G. Wulff
    
    
    22,827,439
    
    
    
    90,599
 2. Ratification of Appointment of Deloitte & Touche LLP
  For
    
    Against
    
    Abstain22,800,629
    
    114,922
    
    2,487
 
 Item 5. Other Information.
  
 Item 6. Exhibits.
 31.1
    
    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 32




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SIGNATURE
   Date: August 9, 2007
    /s/ Douglas P. CollierDouglas P. CollierChief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Authorized Signatory) 33




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##### Table of Contents



INDEX TO EXHIBITS
 Exhibit No.
    
    Description31.1
    
    Certification of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232
    
    Certification of Principal Executive Officer and Principal Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
 34