VLCM Valcom (MM)

Volcom, Inc. (NASDAQ: VLCM) today announced that for the fourth quarter ended December 31, 2005, total revenues increased 35.8% to $41.2 million, compared with $30.4 million in the fourth quarter of 2004. Gross profit as a percentage of total revenues increased to 48.8% for the fourth quarter of 2005 from 47.8% in the fourth quarter of 2004. Total revenues for the full year 2005 increased 41.3% to $160.0 million from $113.2 million in 2004. Gross profit as a percentage of total revenues increased to 50.8% for 2005 from 48.6% in 2004. "Volcom has become a premier international action sports brand, and our financial results for 2005 are testament to the strength of our company and our ability to remain connected to our core consumer base," said Richard Woolcott, Volcom's president and chief executive officer. "We intend to continue this momentum by maintaining our focus on running the business and carefully executing our plan for growth in the U.S. and abroad, while carrying on our commitment to staying true to the Volcom heritage." Operating income for the fourth quarter of 2005 increased 45.7% to $9.3 million, compared with $6.4 million for the fourth quarter of 2004. Operating margin increased to 22.5% for the fourth quarter of 2005 from 20.9% in the fourth quarter of 2004. Considering the change in tax status described below, the company believes that evaluating operating income for quarter-over-quarter comparisons is more reflective of its performance than are net income comparisons. Operating income for 2005 increased 57.4% to $38.4 million, compared with $24.4 million for 2004. Operating margin increased to 24.0% for 2005, compared with 21.5% in 2004. Net income for the fourth quarter of 2005, which includes a provision for income taxes using a 27.2% tax rate, increased to $7.2 million, or $0.29 per diluted share. Net income for the full year 2005, which includes a provision for income taxes using a 26.3% tax rate, totaled $29.3 million, or $1.34 per diluted share. In connection with the completion of its initial public offering, the company changed its tax status from an S corporation to a C corporation. As a result, the company recorded a provision for income taxes for the fourth quarter of 2005 using a 27.2% tax rate, which reflects the rate necessary to bring the year-to-date provision for income taxes in line with the company's annual tax rate of 26.3%. The tax rates for the fourth quarter and full year of 2005 compare to a 1.5% tax rate for the fourth quarter and full year of 2004, when the company was treated as an S corporation. The company will address full year 2006 and first quarter 2006 guidance on its earning call scheduled for approximately 4:30 p.m. EST. The conference call will be available to interested parties through a live audio Internet broadcast at www.volcom.com and www.earnings.com. About Volcom, Inc. Volcom is an innovative designer, marketer and distributor of premium quality young men's and women's clothing, accessories and related products. The Volcom brand, symbolized by The Stone, is athlete-driven, creative and forward thinking. Volcom has consistently followed its motto of "youth against establishment," and the brand is inspired by the energy of youth culture. Volcom branded products are sold throughout the United States and internationally. Volcom's news announcements and SEC filings are available through the company's website at www.volcom.com. Safe Harbor Statement Certain statements in this press release and oral statements made from time to time by representatives of the company are forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995, including statements in connection with or related to any discussion of or reference to our future operations, opportunities or financial performance. In particular, statements regarding our guidance, outlook for future business, financial performance, customer demand, growth and profitability all constitute forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts" or the negative of these terms or other comparable terminology. These forward-looking statements are based on management's current expectations but they involve a number of risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in the forward-looking statements as a result of risks and uncertainties, including, without limitation, changes in fashion trends and consumer preferences, boardsports popularity and participation rates, general economic conditions and the impact of trade safeguards with China, and additional factors which are detailed in our filings with the Securities and Exchange Commission, including the Risk Factors contained in our final prospectus relating to our secondary public offering filed with the Securities and Exchange Commission on December 6, 2005, pursuant to Rule 424(b) under the Securities Act of 1933, available at www.sec.gov. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Volcom is under no obligation, and expressly disclaims any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. -0- *T VOLCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except share and per share data) Three Months Ended Years Ended December 31, December 31, ----------------------- ----------------------- 2005 2004 2005 2004 ----------- ----------- ----------- ----------- Revenues: Product revenues $40,457 $29,740 $156,716 $110,601 Licensing revenues 758 618 3,235 2,574 ----------- ----------- ----------- ----------- Total revenues 41,215 30,358 159,951 113,175 Cost of goods sold 21,110 15,862 78,632 58,205 ----------- ----------- ----------- ----------- Gross profit 20,105 14,496 81,319 54,970 Selling, general and administrative expenses 10,849 8,145 42,939 30,585 ----------- ----------- ----------- ----------- Operating income 9,256 6,351 38,380 24,385 Other income (expense): Interest income (expense), net 575 (1) 1,036 (6) Dividend income from cost method investee -- -- 11 -- Foreign currency gain (loss) (1) 52 54 -- ----------- ----------- ----------- ----------- Total other income (expense) 574 51 1,101 (6) ----------- ----------- ----------- ----------- Income before provision for income taxes 9,830 6,402 39,481 24,379 Provision for income taxes 2,677 103 10,475 374 ----------- ----------- ----------- ----------- Net income before equity in (loss) earnings of investee 7,153 6,299 29,006 24,005 Equity in (loss) earnings of investee -- (75) 331 588 ----------- ----------- ----------- ----------- Net income $7,153 $6,224 $29,337 $24,593 =========== =========== =========== =========== Net income per share: Basic $0.30 $0.32 $1.36 $1.28 Diluted $0.29 $0.32 $1.34 $1.26 Weighted average shares outstanding: Basic 24,194,120 19,170,705 21,627,821 19,142,275 Diluted 24,330,546 19,535,603 21,839,626 19,534,945 Pro forma net income data: Income before provision for income taxes, as reported $9,830 $6,402 $39,481 $24,379 Pro forma provision for income taxes 4,006 2,578 16,223 10,178 ----------- ----------- ----------- ----------- Pro forma net income before equity in (loss) earnings of investee 5,824 3,824 23,258 14,201 Equity in (loss) earnings of investee -- (75) 331 588 ----------- ----------- ----------- ----------- Pro forma net income $5,824 $3,749 $23,589 $14,789 =========== =========== =========== =========== Pro forma net income per share: Basic $0.24 $0.20 $1.09 $0.77 Diluted $0.24 $0.19 $1.08 $0.76 Pro forma weighted average shares outstanding: Basic 24,194,120 19,170,705 21,627,821 19,142,275 Diluted 24,330,546 19,535,603 21,839,626 19,534,945 VOLCOM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share data) December December 31, 31, 2005 2004 ----------- ----------- Assets Current assets: Cash and cash equivalents $71,712 $10,359 Accounts receivable -- net of allowances 21,408 16,680 Inventories 10,833 5,620 Prepaid expenses and other current assets 1,366 483 Income tax receivable 479 -- Deferred income taxes 1,110 9 ----------- ----------- Total current assets 106,908 33,151 ----------- ----------- Property and equipment -- net 3,467 1,063 Investments in unconsolidated investees 298 1,627 Intangible assets, net 451 -- Goodwill 158 -- Other assets 99 45 ----------- ----------- Total assets $111,381 $35,886 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $5,779 $4,893 Accrued expenses and other current liabilities 2,587 1,132 Current portion of capital lease obligations 72 85 ----------- ----------- Total current liabilities 8,438 6,110 ----------- ----------- Long-term capital lease obligations 183 256 Deferred income taxes 80 18 Stockholders' equity: Common stock 24 19 Additional paid-in capital 84,418 1,081 Retained earnings 18,266 28,133 Accumulated other comprehensive income (28) 269 ----------- ----------- Total stockholders' equity 102,680 29,502 ----------- ----------- Total liabilities and stockholders' equity $111,381 $35,886 =========== =========== VOLCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Years Ended December 31, ----------------- 2005 2004 -------- -------- Cash flows from operating activities: Net income $29,337 $24,593 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 623 332 Equity in earnings of investee (331) (361) Provision for doubtful accounts 68 67 Loss on disposal of property and equipment 30 -- Tax benefits related to exercise of stock options 2,833 -- Stock-based compensation 178 31 Deferred income taxes (1,150) 11 Changes in operating assets and liabilities: Accounts receivable (4,219) (6,815) Inventories (5,025) (30) Prepaid expenses and other current assets (867) (110) Income taxes receivable (479) (81) Other assets (54) 13 Accounts payable 799 1,475 Accrued expenses 1,242 299 -------- -------- Net cash provided by operating activities 22,985 19,424 -------- -------- Cash flows from investing activities: Purchase of property and equipment (2,933) (550) Proceeds from sale of equity method investee 1,391 -- Business acquisition, net of cash acquired (1,115) -- Purchase of additional shares in cost method investee -- (261) -------- -------- Net cash used in investing activities (2,657) (811) -------- -------- Cash flows from financing activities: Proceeds from borrowings on line of credit -- 1,401 Payments on line of credit -- (1,401) Principal payments capital lease obligations (86) (63) Proceeds from initial public offering, net of offering costs 80,131 -- Proceeds from exercise of stock options 200 5 Distributions to stockholders (39,204) (13,275) -------- -------- Net cash provided by (used in) financing activities 41,041 (13,333) -------- -------- Effect of exchange rate changes on cash (16) -- -------- -------- Net increase in cash and cash equivalents 61,353 5,280 Cash and cash equivalents -- Beginning of period 10,359 5,079 -------- -------- Cash and cash equivalents -- End of period $71,712 $10,359 ======== ======== *T