Plans IPO worth up to $86.25 million.

Content source: OC Register, TWS.biz, and hoovers.com

Volcom, the brand voted ‘Manufacturer of the Year’ and’ Women’s Brand of the Year’ at the 8th Annual SIMA (USA) Surf Summit in May 2005, the brand with the anti-establishment reputation, is taking the most corporate of routes: It’s going public.

The Costa Mesa USA based Volcom filed documents with US government regulators last month announcing it plans to sell up to $86.25 million worth of common stock on the NASDAQ stock exchange, to be listed by the ticker symbol VLCM (proposed).

So how will the brand that prides itself for its “youth against establishment” marketing tag line do in the transparent world of public companies? No doubt, there will be challenges as it leaves the freedoms of operating as a privately held firm to a publicly traded--and scrutinized-- company. Of course, if Quiksilver and Billabong’s trajectory since going public is any indication, there will clearly be benefits too.

The company has reported its 2004 revenues at US$ 113.2-million dollars, compared to US$76.3-million for 2003, and US$ 57-million in 2002. 2004 revenues showed a 48.4-percent increase from the year before. Also of note is its 2004 net income, ringing in at US $24.6 million compared to US$ 14.3 million in 2003 and US$7.6-million in 2002.

Wachovia Securities, D.A. Davidson & Co. and Piper Jaffray will be underwriting the IPO. The company says it will use twenty-million of net proceeds to pay off debt, and the rest for facility upgrades, marketing, advertising, and developing infrastructure in Europe. This could mean purchasing back some or all of the European licensees for the brand. Volcom Australia’s license includes an option, which runs until June 2012.

While the typical Volcom customer may be surprised to hear that the company will be cozying up to Wall Street, retailers who work closely with Volcom in the USA are not shocked. In an article that appeared in the Orange County Register , Eric John, owner of Laguna Surf and Sport in Laguna Beach said "It is by far the most reliable company I deal with"

Back in Australia from the retailers ASB contacted the reaction to the news was positive… at least those with a Volcom account. “Good luck guys, go for it I reckon,” says Greg Clough from Aloha in Manly. “Its certainly not a negative” says Trevor Burns from Surfection. “ It sets Volcom up to be one of the top 3 or 4 players in the industry, and competition at that level has to be a good thing, right down to the depth of their ranges” Burns added. Boardwalk who currently don’t have an account with the brand stated ‘Fiscally it will be a good move, however with a tag line like Youth Against Establishment, there goes your street cred” said owner Mark Anderson.

The question of going public and potentially alienating the’ Volcom Army ‘ as its legions of fans are known is key to the discussion and debate. Employees of the company are fiercely protective of the brand. "These guys love their brand," says Eric John from Laguna Surf and Sport. "And they view themselves as the guardian of it." John sees value in that commitment.

However, while the pundits may argue and others eagerly anticipate the float, the jury is still out on the direction Volcom is heading. According to bulletin boards posted on US website www.sacklunch.com. Australian retailers like Little’s in Gosford argue that “kids don’t care about this stuff, the biggest concern is the potential for loss of creative control “ says owner Brett Little.

"It's like Business 101," says Dick Baker, chief executive of Ocean Pacific Apparel Corp. "To get to the next level, they had to do an IPO." One hurdle for Volcom, however, will be building the infrastructure to deal with the demands of being a public company, says Baker.

Gary Wright, co-owner of Killer Dana Surf Shop in Dana Point and San Clemente USA, believes Volcom can remain relevant to kids while wooing Wall Street.

"Quiksilver went public, and the brand has done nothing but improved”, Wright said. "Volcom has the same potential." And, unlike some other brands aimed at fickle teens, Volcom has remained hot. "They have never not been cool," says Becker Surfboards (USA) buyer, Carol Nielsen. "Kids always love having 'Volcom' across their chest."

Though the company reached $113.2 million in sales in 2004, it needs funds to grow and expand internationally. The route for most surfwear companies now has been to go public, take on partners or sell the company. Quiksilver, blazed the trail and is now with more than $1 billion in annual sales, and Billabong rocked the ASX in 2000 with a staggering $600m float. Hurley International, sold to Nike in 2002, Globe went public and most recently so did Vans and Reef when they formed part of Global apparel behemoth, VF Corporation.

CEO Richard Woolcott, 39, who grew up in Corona del Mar, started Volcom in his bedroom in 1991. A former Quiksilver employee and competitive surfer with a business degree, ‘Wooly’ grew the company methodically while focusing on grass roots marketing. His father, René, president of an investment firm, also provided the initial funding and acted as a mentor. René Woolcott is now the company chairman.

Though he was a huge surf rat growing up, Woolcott did stand out from other kids on the Corona del Mar High School surf team, said Carol Nielsen, whose husband was the coach. Dave Nielsen and also owned a surf bag company at the time. Woolcott asked a million questions about the business, says Nielsen, "He was different from the rest"

Woolcott and his Volcom devotees love pulling crazy stunts, stunts that irritate authorities and resonate with kids. Instead of paying for official marketing sponsorship at the U.S. Open of Surfing in Huntington Beach one year, the Volcom truck "broke down" at Pacific Coast Highway– the epicenter of the contest. With the hood of the truck up and traffic blocked, Volcom employees handed out Volcom gear to the crowds until police came along. Then the vehicle miraculously started up. John of Laguna Surf and Sport also remembers Woolcott dressing up as a big banana during a skateboard demonstration. It was like one thousand degrees out, and I said, 'what are you doing? You're the president of the company!' " John recalled. Australian retailers would remember similar ‘stunts’ being pulled by Tim Grainger and his team with their ‘kiss a fish’ store openings at SDS, Bondi Junction recently.

Volcom Australia remains tight lipped about the move, which is understandable with so much at stake. CEO John Clapham promises to ‘tell all’ once trading has started.

To download the entire US filing S-1 documentation go to www.hoovers.com (key word search: VOLCOM)

IPO Fact file on Volcom Australia:

During 1998, the Volcom USA obtained an 8.7% ownership interest in the common stock of a Volcom Australia for US$37,162. In March 2004, the Company purchased an additional 4.8% ownership interest in Volcom Australia for US$261,255, which brought the Company’s total ownership interest to 13.5% as of December 31, 2004. The investment is accounted for under the cost method, as the Company does not have the ability to exercise significant influence over the financial and operating policies of the investee. At December 31, 2003 and 2004, the Company’s investment in Volcom Australia was US$37,162 and US$298,417, respectively.

 In June 1997, the Company entered into a licensing agreement with this entity for the use of the Company’s trademark and designs on products manufactured and distributed in Australia and New Zealand. The agreement expires June 2012. Included in licensing revenues is US$277,468, US$426,305 and US$728,224 from Volcom Australia for the years ended December 31, 2002, 2003 and 2004, respectively.

Licensing revenues increased 37.1% to $2.6 million in 2004 from $1.9 million in 2003. The increase in licensing revenues was a result of increased sales by our international licensees, particularly those in Europe and Australia.

During the years ended December 31, 2002, 2003 and 2004, the Company recorded product revenues of approximately US $12,100, US$49,000 and US$65,300, respectively, from this investee. Included in accounts receivable at December 31, 2003 and 2004 is approximately US$6,500 and US$16,000, respectively, due from this entity.