~~UNITED STATES~~ SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X]		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended ~~March~~November 129, 2003 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 0-19402

VANS, INC.

(Exact Name of Registrant as Specified in its Charter)

DELAWARE (State or Other Jurisdiction of Incorporation or Organization) 33-0272893 (I.R.S. Employer Identification No.)


DELAWARE		33-0272893
(State or Other Jurisdiction		(I.R.S. Employer
of Incorporation or Organization)		Identification No.)

15700 Shoemaker Avenue
Santa Fe Springs, California 90670-5515
(Address of Principal Executive Offices) (Zip Code)

(562) 565-8267
(Registrant’s Telephone Number, Including Area Code)

Not applicable
(Former Name, Former Address and Formal Fiscal Year,
if Changed Since Last Report)

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 report(s), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]

Indicate bythe ~~check~~number ~~mark~~of ~~whether~~shares ~~the~~outstanding ~~registrant~~of iseach anof ~~accelerated~~the ~~filer (as~~registrant’s ~~defined~~classes inof ~~Rule 12b-2~~common stock, as of the ~~Exchange~~latest ~~Act)~~practicable date:17,935,109 shares of Common Stock, $.001 ~~YES~~par ~~[X]~~value, NOas ~~[ ]~~of January 7, 2004.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 17,998,787 shares of Common Stock, $.001 par value, as of April 9, 2003.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS.
	ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II
PART II OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
CERTIFICATIONS PURSUANT TO RULE 13a-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 10.1
Exhibit 10.1
EXHIBIT 10.2
Exhibit 10.2
EXHIBIT 31.1
Exhibit 10.3
EXHIBIT 31.2
Exhibit 10.4
EXHIBIT 32.1
Exhibit 99.1
EXHIBIT 32.2
Exhibit 99.2

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

VANS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(AMOUNTS IN THOUSANDS)

					MARCH 1,			MAY 31,
					NOVEMBER 29,			MAY 31,
					2003			~~2002~~2003
~~ASSETS~~				ASSETS
Current assets:
	Cash				$	53,162		$	28,447
	Cash and cash equivalents				$	63,872		$	52,844
	Marketable debt securities					—			27,544
	Accounts receivable, net of allowance for doubtful accounts of $2,569 and $2,297 at November 29, 2003, and May 31, 2003, respectively					34,306			25,596
	Accounts receivable, net of allowance for doubtful accounts of $2,414 and $1,718 at March 1, 2003, and May 31, 2002, respectively					41,934			28,024
	Inventories					42,554			63,955
	Inventories					50,123			48,835
	Deferred income taxes					2,603			3,055
	Deferred tax assets					9,394			9,260
	Prepaid expenses and other					10,658			11,617
	Prepaid and other expenses					10,279			14,957
		Total current assets				153,993			157,067
		Total current assets				164,892			157,067
	Property, plant and equipment, net					24,432			25,120
Property, plant and equipment, net of accumulated depreciation of $34,832 and $27,471 at March 1, 2003, and May 31, 2002, respectively						25,414			41,127
	Trademarks and patents, net of accumulated amortization of $1,637 and $1,378 at November 29, 2003, and May 31, 2003, respectively					15,286			15,533
Intangible assets , net of accumulated amortization of $1,211 and $643 at March 1, 2003, and May 31, 2002, respectively						15,657			15,926
	Goodwill					32,089			31,702
Goodwill						34,988			33,752
	Other assets					3,680			8,362
Other assets						8,601			8,855
		Total assets			$	229,480		$	237,784
		Total Assets			$	249,552		$	256,727
			LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable				$	2316,~~879~~193		$	2224,~~029~~484
	Accrued liabilities					10,480			10,197
	Lease termination liabilities					3,836			8,338
	Income taxes payable					653			2,946
	Accrued liabilities					14,780			13,307
		Total current liabilities				35,012			35,172
	Income taxes payable					6,927			3,296
Deferred tax liabilities						10,927			10,480
	Liabilities held in connection with disposal activities					108			1,543
Long-term debt						2,897			3,192
		Total current liabilities				41,844			50,968
		Total Liabilities				48,836			48,844
Deferred income taxes						2,186			2,383
Minority interest						1,976			3,576
Long-term debt						1,614			2,523
		Total liabilities				45,644			55,874
Minority interest						2,404			1,735
Stockholders’ equity:
Common stock, $.001 par value, 40,000 shares authorized, 17,920 and 18,302 shares issued and outstanding at March 1, 2003 and May 31, 2002, respectively						18			18
Common stock, $.001 par value, 40,000 shares authorized, 17,872 and 17,826 shares issued and outstanding at November 29, 2003, and May 31, 2003, respectively						18			18
Accumulated other comprehensive income (loss)						1,497			(2,344	)
Additional paid-in capital						188,470			188,275
Additional paid-in capital						187,505			189,462
Deferred compensation						(835	)		(976	)
Retained earnings						9,720			17,171
Retained deficit						(12,917	)		(12,856	)
		Total Stockholders’ Equity				198,740			204,307
Accumulated other comprehensive income						6,696			5,714
Total Liabilities and Stockholders’ Equity					$	249,552		$	256,727
		Total stockholders’ equity				181,432			180,175
Total liabilities and stockholders’ equity					$	229,480		$	237,784

See accompanying notes to condensed consolidated financial statements.

VANS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

			THIRTEEN WEEKS ENDED						~~THIRTY~~TWENTY-~~NINE~~SIX WEEKS ENDED
			MARCH 1,			MARCH 2,			MARCH 1,			MARCH 2,
			NOVEMBER 29,			NOVEMBER 30,			NOVEMBER 29,			NOVEMBER 30,
			2003			2002			2003			2002
Retail sales			$	2923,~~666~~681		$	3021,~~328~~872		$	8860,~~645~~478		$	8756,~~064~~274
National sales				2223,~~566~~872			2419,~~686~~243			9777,~~378~~763			~~103~~74,~~933~~812
International sales				2917,~~832~~630			2718,~~137~~388			8155,~~280~~629			7751,~~547~~448
	Net sales			8265,~~064~~183			8259,~~151~~503			~~267~~193,~~303~~870			~~268~~182,~~544~~534
Cost of sales				4333,~~028~~737			4431,~~414~~240			~~147~~103,~~118~~659			~~142~~103,~~208~~300
	Gross profit			3931,~~036~~446			3728,~~737~~263			~~120~~90,~~185~~211			~~126~~79,~~336~~234
Operating Expenses:
	Retail			1715,~~371~~439			15,~~670~~681			5232,~~066~~078			4432,~~232~~044
	Marketing, advertising and promotion			65,~~317~~851			85,~~284~~702			2215,~~796~~695			2616,~~640~~365
	Selling, distribution and administrative			1413,~~825~~526			1311,~~079~~147			4029,~~714~~879			3625,~~965~~889
	Impairment Charges			15,338			—			15,338			—
	Lease termination costs			1,921			—			3,892			—
	Amortization of intangibles			203			62			568			152
	Amortization of intangible assets			92			177			258			365
Total operating expenses				5436,~~054~~829			3732,~~095~~707			~~131~~81,~~482~~802			~~107~~74,~~989~~663
Income (loss) from operations				(155,~~018~~383	)		~~642~~(4,444	)		~~(11~~8,~~297~~409	)		184,~~347~~571
Interest income, net				254			234			679			944
Interest (income), net				(126	)		(157	)		(185	)		(425	)
Other (expense), net				(775	)		(159	)		(1,035	)		(251	)
Other (income) expense, net				453			(502	)		376			260
Income (loss) before taxes				(15,539	)		717			(11,653	)		19,040
Income (loss) from continuing operations before income taxes and minority interest				(5,710	)		(3,785	)		8,218			4,736
Income tax (benefit) expense				~~(5,965~~399	)		~~215~~(1,075	)		(41,~~799~~708	)		51,~~712~~506
Minority share of income (loss)				(368	)		19			597			990
Minority interest				417			594			1,483			965
Net income (loss)			$	(9,206	)	$	483		$	(7,451	)	$	12,338
Income (loss) from continuing operations				(6,526	)		(3,304	)		5,027			2,265
Loss from discontinued operations, net of tax				(163	)		(362	)		(5,088	)		(510	)
Net income (loss)			$	(6,689	)	$	(3,666	)	$	(61	)	$	1,755
Earnings (loss) per share information:
	Basic:
		Weighted average shares		17,920			17,695			17,999			17,681
		Income (loss) from continuing operations	$	(0.36	)	$	(0.18	)	$	0.28		$	0.13
		Net earnings (loss) per share	$	(0.51	)	$	0.03		$	(0.41	)	$	0.70
		Loss from discontinued operations		(0.01	)		(0.02	)		(0.28	)		(0.03	)
		Net income (loss)	$	(0.37	)	$	(0.20	)	$	0.00		$	0.10
		Basic weighted average common shares outstanding		17,852			17,910			17,840			18,038
	Diluted:
		Weighted average shares		17,920			18,310			17,999			18,403
		Income (loss) from continuing operations	$	(0.36	)	$	(0.18	)	$	0.28		$	0.13
		Net earnings (loss) per share	$	(0.51	)	$	0.03		$	(0.41	)	$	0.67
		Loss from discontinued operations		(0.01	)		(0.02	)		(0.28	)		(0.03	)
		Net income (loss)	$	(0.37	)	$	(0.20	)	$	0.00		$	0.10
		Diluted weighted average common shares outstanding		17,852			17,910			17,840			18,184

See accompanying notes to condensed consolidated financial statements.

VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(AMOUNTS IN THOUSANDS)

				THIRTY-NINE WEEKS ENDED
					TWENTY-SIX WEEKS ENDED
				MARCH 1,				MARCH 2,
					NOVEMBER 29,				NOVEMBER 30,
				~~2003~~	2003			~~2002~~	2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)				$	(7,451	)		$	12,338
Income from continuing operations					$	5,027			$	2,265
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Adjustments to reconcile income from continuing operations to net cash provided by (used in) operating activities:
	Depreciation and amortization				~~8,219~~	3,873			~~5,915~~	5,039
	Impairment charges				15,338				—
	Stock-based compensation expense					141				139
	Net loss on sale of property, plant and equipment				32				53
	Net loss on disposal of equipment					22				26
	Net (gain) on sale of investment				—				(40	)
	Non-cash lease termination costs					(177	)			—
	Minority share of income				~~597~~	1,483			~~990~~	965
	Provision for losses on accounts receivable				~~1,034~~	309			~~331~~	661
	Changes in assets and liabilities, net of effects of business acquisitions:
		Accounts receivable			~~(14,788~~	)(8,828	)		~~(9,815~~	)(3,551	)
		Inventories			~~(304~~	)21,581			~~(3,854~~	)3,557
		Deferred income taxes			~~313~~	255			~~385~~	1,016
		Prepaid and other expenses			4,678				(1,616	)
		Prepaid expenses				959				5,708
		Other assets			~~(150~~	)(432	)		~~(1,744~~	)(24	)
		Accounts payable			~~1,266~~	(8,291	)		~~(4,197~~	)(5,306	)
		Accrued liabilities			~~283~~	1,796			~~(1,688~~	)(3,124	)
		Income taxes payable			(2,294	)			1,199
		Lease termination liabilities				(4,502	)			—
Net cash provided by (used in) operating activities					6,773				(1,743	)
		Income taxes payable				3,631				3,855
CASH FLOWS FROM INVESTING ACTIVITIES:
		Net cash provided by continuing operations				16,847				11,226
Purchases of property, plant and equipment					(7,396	)			(16,298	)
		Net cash used in discontinued operations				(6,816	)			(131	)
Investments in other companies					(1,244	)			(5,510	)
		Net cash provided by operating activities				10,031				11,095
Purchases of marketable and debt securities					(1,006	)			(35,690	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of marketable and debt securities					3,514				587
Purchases of property, plant and equipment						(2,839	)			(6,372	)
Sales of marketable and debt securities					25,036				12,873
Investments in other companies						(497	)			(1,043	)
Proceeds from sale of property, plant and equipment					29				6
Purchases of marketable debt securities						—				(1,006	)
Proceeds from sale of investment					169				109
Maturities of marketable debt securities						—				2,746
Net cash provided by (used in) investing activities					19,102				(43,923	)
Sales of marketable debt securities						—				22,232
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from repayment of note receivable						5,103				18
Proceeds from (payments on) long term debt					(295	)			78
Proceeds from sale of investments						—				75
Consolidated subsidiary dividends paid to minority shareholders					(1,112	)			(1,101	)
			Net cash provided by investing activities			1,767				16,650
Proceeds from issuance of common stock					227				9,891
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for repurchase of common stock					(2,184	)			(601	)
Payments on long term debt						(909	)			(178	)
Net cash provided by (used in) financing activities					(3,364	)			8,267
Consolidated subsidiary dividends paid to minority shareholders						(814	)			(734	)
Effect of exchange rate changes on cash and cash equivalents					2,204				631
Proceeds from issuance of common stock						195				18
Net increase (decrease) in cash and cash equivalents					24,715				(36,768	)
Repurchases of common stock						—				(2,184	)
Cash and cash equivalents, beginning of period					28,447				59,748
			Net cash used in financing activities			(1,528	)			(3,078	)
Cash and cash equivalents, end of period				$	53,162			$	22,980
Effect of exchange rate changes on cash and cash equivalents						758				956
SUPPLEMENTAL CASH FLOW INFORMATION — AMOUNTS PAID FOR:
			Net increase (decrease) in cash and cash equivalents			11,028				25,623
	Interest			$	294			$	109
Cash and cash equivalents, beginning of period						52,844				28,447
	Income taxes paid (refund)			$	(2,222	)		$	4,901
Cash and cash equivalents, end of period					$	63,872			$	54,070
SUPPLEMENTAL CASH FLOW INFORMATION:
		Interest paid			$	130			$	215
		Income taxes paid (refund)			$	(1,964	)		$	(3,012	)

See accompanying notes to condensed consolidated financial statements.

VANS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. ~~Basis~~ ofSUMMARY ~~Presentation~~OF SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated financial statements included herein are unaudited and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of the interim periods presented. The results of operations for the current interim periods are not necessarily indicative of results to be expected for the current year. Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.Company

2 Vans is a leading global action sports and lifestyle company that merchandises, designs, sources and distributes VANS-branded active-casual and performance footwear, apparel and accessories. ~~Use~~ Action sports, including skateboarding, snowboarding, surfing, wakeboarding, BMX and motocross, are generally recognized for the fun, creativity and individual achievement experienced while attempting various tricks or maneuvers within these sports. Our focus has been proprietary branding with the goal of ~~Estimates~~creating a leadership position for our brand and a strong emotional connection with our customers. Our VANS brand targets 10 to 24 year-old participants, enthusiasts and emulators of the action sports culture. We have implemented a unique marketing plan to reach our customers through multiple points of contact which include owning and operating action sports entertainment events and venues, such as the VANS Triple Crown™ Series, VANS skateparks and the VANS High Cascade Snowboard Camp®, sponsoring professional and amateur athletes and the VANS Warped Tour®, as well as advertising in targeted print and television media.

~~The~~ We ~~preparation~~operate ofretail ~~financial~~stores ~~statements~~ in ~~conformity~~the ~~with~~U.S. ~~generally~~and ~~accepted~~Europe, ~~accounting~~and ~~principles~~design, ~~requires~~market ~~management to make estimates~~ and distribute ~~assumptions~~active-casual ~~that~~footwear, ~~affect~~apparel ~~the amounts reported in the consolidated financial statements~~ and ~~accompanying~~accessories, ~~notes.~~performance footwear ~~Significant~~for ~~estimates~~action ~~made in preparing the consolidated financial statements include~~sports, ~~among~~snowboard ~~others~~boots, ~~allowances~~conventional ~~for~~snowboard ~~doubtful~~boot bindings ~~accounts,~~under ~~inventory~~our ~~reserves~~AGENCY™ brand, ~~long~~step-~~lived~~in ~~asset~~snowboard ~~valuations,~~boot ~~deferred~~bindings ~~income~~under ~~tax~~our SWITCH® ~~asset valuation allowances~~brand, ~~litigation~~ and ~~other~~outerwear ~~contingencies~~worldwide. ToWe ~~the~~also ~~extent~~offer ~~there~~the ~~are~~PRO-TEC® ~~material~~line ~~differences~~of protective ~~between~~helmets ~~management’s estimates~~ and ~~actual~~pads ~~results,~~through ~~future~~our ~~results~~wholly-owned ofsubsidiary, ~~operations~~Pro-tec, ~~may be affected~~Inc.

~~3. Recent~~Basis ~~Accounting~~of ~~Pronouncements~~Presentation

Effective June 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which addresses the impairment for all tangible assets. The ~~adoption~~condensed ~~of SFAS 144 had no financial impact to our~~ consolidated financial statements. Inincluded ~~April~~herein ~~2002,~~are unaudited ~~the Financial Accounting Standards Board (“FASB”) issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44~~ and ~~64,~~reflect ~~Amendment~~all ~~of FASB Statement 13 and Technical Corrections” (“SFAS 145”)~~adjustments, which ~~became~~are, ~~effective for us~~ in ~~Fiscal 2003. SFAS 145 eliminates~~ the ~~classification~~opinion of debt extinguishment activity as extraordinary items; eliminates inconsistencies in lease modification treatment; and makes various technical corrections or clarifications of other existing authoritative pronouncements. The adoption of SFAS 145 had no financial impact to our consolidated financial statements. In July 2002management, necessary ~~the FASB issued SFAS No. 146, “Accounting For Costs Associated With Exit or Disposal Activities” (“SFAS 146”), which addresses financial accounting and reporting~~ for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS 146 had no financial impact to our consolidated financial statements. In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure” (“SFAS 148”), which permits two additional transition methods for companies that elect to adopt the fair~~-value-based~~ ~~method~~presentation of ~~accounting for stock-based employee compensation. The statement also expands~~ the ~~disclosure~~results ~~requirements for stock-based compensation. The provisions~~ of this statement apply to financial statements for fiscal years ending after December 15, 2002. The statement is not expected to have a material impact on our consolidated financial statements. In January 2003, the ~~FASB~~interim ~~issued FIN No~~periods presented. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires a company to recognize a liability for the obligations it has undertaken in issuing a guarantee. This liability would be recorded at the inception of a guarantee and would be measured at fair value. The ~~measurement~~results ~~provisions~~ of ~~this~~operations ~~statement apply prospectively to guarantees issued or modified after December 31, 2002. The disclosure provisions of the statement apply to financial statements~~ for ~~periods ending after December 15, 2002. We adopted this statement in~~ the ~~quarter~~current ~~ended~~interim ~~March~~period 1,are ~~2003, and it did~~ not necessarily ~~have~~indicative ~~an impact on our consolidated financial statements. In January 2003, the FASB issued FIN No. 46, “Consolidation~~ of ~~Variable~~results ~~Interest Entities” (“FIN 46”). FIN 46 requires a company~~ to ~~consolidate~~be aexpected variable interest entity if it is designated as the primary beneficiary of that entity even if the company does not have a majority of voting interests. A variable interest entity is generally defined as an entity which has insufficient equity to finance its activities or the owners of the entity lack the risk and rewards of ownership. The provisions of this statement apply at inception for ~~any entity created after January 31, 2003. For an entity created before February 1, 2003,~~ the ~~provisions~~current ofyear.

The accompanying unaudited condensed consolidated financial statements do not include certain footnotes and financial presentations as permitted by accounting principles generally accepted in the United States for interim purposes. Therefore, these financial statements should be read in conjunction with the our audited consolidated financial statements and notes thereto for the year ended May 31, 2003, included in our Annual Report on Form 10-K which is filed with the Securities and Exchange Commission.

As discussed further in Note 5, in Fiscal 2003 we made the decision to substantially exit the skatepark business. The results of operations for skateparks that have ceased operations are presented as discontinued operations in the accompanying unaudited condensed consolidated financial statements.

Use of Estimates

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. We regularly evaluate the estimates and assumptions related to allowances for doubtful accounts, sales returns and allowances, inventory reserves, goodwill and intangible asset valuations, long-lived asset valuations, deferred income tax valuation allowances, litigation and other contingencies. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. To the extent there are material differences between the estimates and actual results, future results of operations will be affected.

Revenue Recognition

Retail sales consist solely of sales through our U.S. retail stores and skatepark sessions and concessions. National sales include all U.S. sales except sales through our U.S. retail stores. International sales include all foreign sales as well as sales through the seven European stores we operated through the end of the second quarter of Fiscal 2004.

~~this~~ Retail ~~Interpretation~~revenue ~~must~~is berecognized ~~applied~~ at the ~~beginning~~point of ~~the~~sale. ~~first~~Wholesale ~~interim~~revenue oris recognized ~~annual~~when ~~period~~title ~~beginning~~passes ~~after~~and ~~June~~the ~~15,~~risks ~~2003~~and rewards of ownership have transferred to the customer. WeTitle ~~will~~generally ~~adopt~~passes upon the ~~provisions~~delivery of product ~~FIN~~to 46the incustomer or the ~~quarter~~customer’s ~~ending~~agent. ~~November~~Royalty ~~29,~~revenue ~~2003,~~is ~~for~~recognized as ~~existing~~it ~~entities~~is ~~that~~earned, ~~are~~based ~~within~~on the ~~scope~~terms of ~~this~~the ~~Interpretation~~underlying royalty agreement. Skatepark, ~~The~~event ~~statement~~and ~~also~~other ~~has~~revenues ~~disclosure~~are ~~requirements,~~recognized ~~some~~when ofthe ~~which~~related ~~are~~goods ~~required~~or services have been delivered to bethe ~~included~~customer inand ~~financial~~we ~~statements~~are ~~issued~~substantially ~~after~~free ~~January~~from future 31obligation, ~~2003.~~provided Onthat athe ~~preliminary~~fundamental ~~basis,~~criteria wefor dorevenue recognition ~~not~~have ~~believe~~been ~~FIN~~met. 46Concurrent ~~will~~with ~~have~~the anrecording ~~impact~~of onrevenues, ~~our~~provision is ~~consolidated~~made ~~financial~~for ~~statements~~estimated returns and allowances.

~~4. Inventory~~Cash Equivalents

As Cash ofand ~~March~~cash 1,equivalents ~~2003,~~consist ~~and~~of ~~May~~cash ~~31,~~and ~~2002,~~short-term ~~inventories~~investments ~~are~~with original ~~substantially~~maturities ~~comprised~~ of ~~finished~~ninety ~~goods~~days or less.

~~5. Earnings (Loss) Per Share~~Inventories

~~Basic~~ Inventories ~~earnings~~are ~~(loss)~~substantially ~~per~~comprised ~~share~~of ~~represents~~finished ~~net~~goods ~~earnings~~and ~~divided~~are byvalued at the ~~weighted-average~~lower ~~number~~ of ~~common~~cost ~~shares~~or ~~outstanding~~market ~~for~~(net ~~the~~realizable ~~period~~value). ~~Diluted~~Cost ~~earnings~~is ~~per~~determined ~~share~~using the ~~represents~~first-in, ~~net~~first-out ~~earnings~~(“FIFO”) ~~divided~~method. byWe ~~the~~provide ~~weighted-average~~inventory ~~number~~allowances ofbased on ~~shares~~estimates ~~outstanding, inclusive~~ of ~~all~~excess ~~potentially~~and ~~dilutive~~obsolete ~~common shares~~inventories. ~~The~~Such ~~reconciliations~~allowances ofare ~~basic~~permanent reductions toin ~~diluted~~the ~~weighted~~carrying ~~average~~value ~~shares~~of ~~are~~the ~~as follows (in thousands):~~inventory.

	THIRTEEN WEEKS ENDED				THIRTY-NINE WEEKS ENDED
	MARCH 1,		MARCH 2,		MARCH 1,		MARCH 2,
	2003		2002		2003		2002
Weighted average shares used in basic computation		17,920		17,695		17,999		17,681
Restricted stock Grant		—		100		—		105
Dilutive stock options		—		515		—		617
Weighted average shares used for dilutive computation		17,920		18,310		17,999		18,403

Goodwill and Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Intangible Assets,” we test goodwill for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis or more frequently if we believe indicators of impairment exist. The ~~following~~performance ~~shares~~of ~~were~~the ~~excluded~~test ~~from~~involves a two-step process. The first step of the ~~computation~~impairment test involves comparing the fair value of ~~diluted~~our reporting ~~earnings~~units with the reporting unit’s carrying amount, including goodwill. (We generally determine the fair value of our reporting units using a weighted average of the income approach and the market approach. If the carrying amount of our reporting units exceeds the reporting unit’s fair value, we perform the second step of the goodwill impairment test to determine the amount of any impairment loss~~) per~~. ~~share~~The assecond ~~their~~step ~~effect~~of ~~would~~the ~~have~~goodwill ~~been~~impairment ~~anti-dilutive~~test ~~(in~~involves comparing ~~thousands):~~the implied fair value of our reporting unit’s goodwill with the carrying amount of that goodwill.

	THIRTEEN WEEKS ENDED				THIRTY-NINE WEEKS ENDED
	MARCH 1,		MARCH 2,		MARCH 1,		MARCH 2,
	2003		2002		2003		2002
Restricted stock grants		79		—		84		—
Stock options		2,150		329		2,142		346

We account for long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present. Reviews are performed to determine whether the carrying value of assets is impaired, based on comparison to undiscounted expected future cash flows. If this comparison indicates that there is impairment, the impaired asset is written down to fair value, which is typically calculated using discounted expected future cash flows using a discount rate based upon our weighted average cost of capital adjusted for risks associated with the related operations. Impairment is based on the excess of the carrying amount over the fair value of those assets.

~~6. Income~~Other ~~Taxes~~Assets

~~Income~~ At ~~taxes~~May 31, ~~for~~2003, ~~the~~other ~~interim~~assets ~~periods~~included ~~were~~a ~~computed~~note ~~using~~receivable ~~the~~of ~~effective tax rate estimated to be applicable~~ $5.1 million, for ~~the full fiscal year,~~ which ispayment ~~subject~~was toreceived ~~ongoing~~in ~~review~~July ~~and evaluation by management~~2003.

~~7. Segment~~Contingent ~~Disclosures~~Consideration

~~Our~~ In ~~reportable~~connection ~~segments~~with ~~are~~certain ~~based~~of on our ~~three~~acquisitions, ~~distinct~~if ~~product~~designated ~~sales~~future performance ~~channels:~~goals ~~retail~~are satisfied, ~~national~~the ~~and~~aggregate ~~international.~~consideration ~~The~~for ~~retail~~these acquisitions ~~segment~~will ~~consists~~be ~~of our U~~increased.S. ~~retail~~Such ~~operations~~additional consideration, ~~which~~if ~~include~~earned, ~~our~~will be ~~domestic~~paid ~~retail~~in ~~stores~~the ~~and~~form ~~skateparks. The national segment consists~~ of ~~all~~cash ~~domestic~~or ~~operations~~unrestricted ~~outside~~shares of our ~~retail~~common ~~operations~~stock, ~~which~~and will ~~includes~~be ~~our~~accounted ~~domestic~~for ~~wholesale~~in ~~business,~~accordance ~~the~~with ~~VANS~~SFAS ~~Warped~~No. 141, ~~Tour®~~“Business ~~and~~Combinations” (“SFAS ~~the~~141”) ~~VANS~~which ~~High~~superceded ~~Cascade~~Accounting ~~Snowboard~~Principles ~~Camp®.~~Board ~~The~~(“APB”) ~~international~~Opinion ~~segment~~No. 16, ~~includes~~“Business ~~our~~Combinations,” ~~international~~as ~~wholesale~~of ~~business~~July 1, 2001, and ~~our~~Emerging ~~European~~Issues ~~retail~~Task ~~operations. The~~ Force (“~~Unallocated~~EITF”) ~~category~~Issue ~~below~~No. 95-8, ~~represents~~“Accounting ~~items~~for ~~necessary~~Contingent toConsideration ~~reconcile~~Paid to the Shareholders ~~consolidated~~of ~~financial~~an ~~statements,~~Acquired ~~which~~Enterprise ~~generally~~in ~~include~~a ~~corporate~~Purchase ~~activities~~Business ~~and operating costs not directly attributable to any one segment~~Combination.” ~~Our~~Any additional ~~chief~~consideration ~~operating~~paid ~~decision-maker~~will ~~evaluates~~be ~~the~~allocated ~~performance~~to ofgoodwill, ~~our~~which ~~segments~~will ~~based~~be periodically onreviewed ~~gross~~for ~~margin~~impairment. ~~and~~See ~~direct~~Note 3.

Income Taxes

We utilize the liability method of accounting for income taxes as set forth in SFAS No. 109, “Accounting for Income Taxes.” Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.

~~operating~~ Income ~~profit,~~taxes ~~excluding~~for ~~such~~the ~~unallocated~~interim ~~amounts.~~periods ~~Summary~~were ~~information~~computed byusing ~~segment~~the ~~follows~~effective (tax rate estimated to be applicable in ~~thousands):~~each jurisdiction for the full fiscal year, which is subject to ongoing review and evaluation by management.

			THIRTEEN WEEKS ENDED						THIRTY-NINE WEEKS ENDED
			MARCH 1,			MARCH 2,			MARCH 1,			MARCH 2,
			2003			2002			2003			2002
Net sales:
	Retail
		Skateparks	$	5,122		$	6,030		$	15,371		$	15,601
		Retail stores		24,544			24,298			73,274			71,463
	National
		Wholesale		22,498			24,593			86,954			101,933
		Other		68			93			10,424			2,000
	International			29,832			27,137			81,280			77,547
	Unallocated			—			—			—			—
Total net sales			$	82,064		$	82,151		$	267,303		$	268,544
Gross profit:
	Retail
		Skateparks	$	3,499		$	4,424		$	10,948		$	11,806
		Retail stores		12,005			12,546			38,619			39,402
	National
		Wholesale		8,253			9,505			31,685			40,351
		Other		(151	)		(37	)		427			429
	International			15,430			11,299			38,506			34,348
	Unallocated			—			—			—			—
Total net sales			$	39,036		$	37,737		$	120,185		$	126,336
Income (loss) from operations:
	Retail
		Skateparks	$	(13,472	)	$	232		$	(15,202	)	$	678
		Retail stores		(3,733	)		1,068			(2,635	)		6,298
	National
		Wholesale		4,076			6,923			19,692			31,579
		Other		(288	)		(171	)		(1	)		(6	)
	International			8,928			5,774			22,520			19,655
	Unallocated			(10,529	)		(13,184	)		(35,671	)		(39,857	)
Total net sales			$	(15,018	)	$	642		$	(11,297	)	$	18,347

Stock-Based Compensation

~~Included~~ We inaccount ~~skatepark~~for ~~and~~stock-based ~~retail~~awards ~~stores~~to ~~income~~employees ~~(loss)~~in accordance with APB Opinion No. ~~from~~25, ~~operations~~“Accounting for ~~the thirteen~~Stock ~~and~~Issued ~~thirty-nine~~to ~~weeks~~Employees” ~~ended~~(“APB ~~March 1~~25”), ~~2003,~~and ~~are~~have adopted ~~impairment~~the ~~charges~~disclosure-only alternative of ~~$12.5 million~~ ~~and~~SFAS $2No.9 ~~million~~123, ~~respectively~~“Accounting for Stock-Based Compensation” (“SFAS 123”).

8 In accordance with the requirements of the disclosure-only alternative of SFAS 123, set forth below are the assumptions used and pro forma statement of operations data giving effect to valuing stock-based awards to employees using the Black-Scholes option pricing model instead of the guidelines provided by APB 25. ~~Goodwill~~ Among other factors, the Black-Scholes model considers the expected life of the option and ~~Identifiable~~the ~~Intangible~~expected ~~Assets~~volatility of our stock price in arriving at an option valuation.

~~Effective~~ The ~~June~~per 1,share ~~2001,~~fair wevalue ~~adopted~~of ~~SFAS~~stock ~~Nos.~~options ~~141~~granted ~~and~~in ~~142~~connection onwith ~~“Business~~stock option ~~Combinations”~~plans ~~and~~has ~~“Goodwill~~been ~~and~~estimated ~~Other Intangible Assets”, which require that we prospectively cease amortization of goodwill and intangible assets~~ with ~~indefinite~~the ~~lives and instead conduct periodic tests of such assets for impairment. The~~ following ~~table~~weighted ~~summarizes our identifiable intangible assets and goodwill balances as of March 1, 2003 and May 31, 2002 (in thousands)~~average assumptions:

				MARCH 1, 2003							MAY 31, 2002
		FISCAL 2004				FISCAL 2003
				Gross				Gross
Expected life (in years)			5				5
				Carrying				Accumulated			Carrying		Accumulated
Volatility			0.74				0.75
				Amount				Amortization			Amount		Amortization
Risk-free interest rate			2.9	%			2.3	%
Intangible assets subject to amortization:
Dividend yield			0.0	%			0.0	%
	Trademarks and patents			$	5,097			$	(850	)	$	4,798	$	(605	)

The results of applying the requirements of the disclosure-only alternative to SFAS 123 to our stock-based awards to employees would approximate the following (in thousands, except per share data):


	THIRTEEN WEEKS ENDED						TWENTY-SIX WEEKS ENDED

	NOVEMBER 29,			NOVEMBER 30,			NOVEMBER 29,			NOVEMBER 30,
	2003			2002			2003			2002

Net income (loss) – as reported	$	(6,689	)	$	(3,666	)	$	(61	)	$	1,755
Add: Stock-based compensation expense included in net income – as reported		—			—			—			—
Deduct: Stock-based compensation expense determined under fair value method		(454	)		(261	)		(895	)		(471	)

Net income (loss) – pro forma	$	(7,143	)	$	(3,927	)	$	(956	)	$	1,284

Basic earnings (loss) per share – as reported	$	(0.37	)	$	(0.20	)	$	0.00		$	0.10

Basic earnings (loss) per share – pro forma	$	(0.40	)	$	(0.22	)	$	(0.05	)	$	0.07

Diluted earnings (loss) per share – as reported	$	(0.37	)	$	(0.20	)	$	0.00		$	0.10

Diluted earnings (loss) per share – pro forma	$	(0.40	)	$	(0.22	)	$	(0.05	)	$	0.07

For pro forma purposes, the estimated fair value of our stock-based awards to employees is amortized over the vesting period of the underlying instruments.

Reclassifications

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements

In July 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 146, “Accounting For Costs Associated With Exit or Disposal Activities” (“SFAS 146”), which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”). SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. As a result of the implementation of SFAS 146, the accounting for amounts recorded in connection with our decision to substantially exit the skatepark business was materially impacted. Under the

		MARCH 1, 2003					MAY 31, 2002
		Gross		Gross
		Carrying		Accumulated			Carrying		Accumulated
		Amount		Amortization			Amount		Amortization
Other			886		(361	)		886		(38	)
	Total	$	5,983	$	(1,211	)	$	5,684	$	(643	)

guidance of EITF 94-3, we would have recorded as an expense during the year ended May 31, 2003 (the period in which management committed to an exit plan for the skateparks), an estimate of certain costs that would be directly incurred in connection with skatepark closures. The most significant element of these costs is lease termination charges. With the implementation of SFAS 146, costs associated with exit activities are to be recorded in the period in which they are incurred. In the case of lease termination costs, this is the period in which we enter into an agreement with the landlord. Accordingly, our consolidated results of operations include lease termination charges in the periods in which we entered into an agreement. Additionally, other direct costs associated with closing skateparks will be expensed in future periods as they are incurred.

			Carrying		Carrying
			Amount		Amount
Intangible assets not subject to amortization:
	Goodwill		$	34,988	$	33,752
	Trademarks			10,885		10,885
		Total	$	45,873	$	44,637

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS 148”), which permits two additional transition methods for companies that elect to adopt the fair-value-based method of accounting for stock-based employee compensation. The statement also expands the disclosure requirements for stock-based compensation. The provisions of this statement apply to financial statements for fiscal years ending after December 15, 2002. The adoption of SFAS 148 had no material financial impact to our consolidated financial statements. We have provided the additional disclosures required by SFAS 148 for the thirteen and twenty-six week periods ended November 29, 2003, and November 30, 2002, elsewhere in Note 1.

~~Goodwill~~ In isJanuary ~~comprised~~2003, ofthe ~~$12~~FASB issued FIN No.7 ~~million~~46, ~~associated~~“Consolidation ~~with~~of ~~the~~Variable ~~acquisition~~Interest ofEntities” ~~our~~(“FIN ~~predecessor~~46”). FIN 46 requires a company; ~~$6.0 million~~to ~~associated~~consolidate ~~with~~a variable interest entity if it is designated as the ~~acquisition~~ primary beneficiary of ~~Mosa~~that entity ~~Extreme~~even ~~Sports,~~if ~~Inc.,~~the ~~now~~company ~~known~~does asnot ~~Pro-Tec,~~have ~~Inc~~a majority of voting interests. A ~~(“Pro-Tec”);~~variable ~~$5.8 million~~interest ~~related~~entity is generally defined as an entity that has insufficient equity to finance its activities or the ~~acquisition~~owners of ~~Global~~the ~~Accessories~~entity lack ~~Limited~~the ~~(now~~risk ~~known~~and asrewards ~~Vans~~of ~~Inc~~ownership. ~~Limited),~~The ~~our~~provisions ~~U.K.~~of ~~distributor;~~this ~~$4.6 million~~statement apply at ~~associated~~inception ~~with~~for ~~our~~any ~~snowboot~~entity ~~and~~created ~~bindings~~after ~~business;~~January 31, $42003.9 For an entity created before February ~~million~~1, ~~associated~~2003, the provisions of this Interpretation must be applied ~~with~~at ~~our~~the ~~acquisition~~beginning of athe ~~majority~~first ~~interest~~interim or annual period beginning after December 15, 2003. We will adopt the provisions of FIN 46 in the ~~VANS~~quarter ~~Warped~~ending February ~~Tour®;~~28, ~~and~~2004, ~~$1.0~~for ~~million~~existing ~~associated~~entities ~~with~~that are within the ~~acquisition~~scope of this ~~Compagnie~~Interpretation. ~~Sunspot~~The SAstatement ~~("Sunspot")~~also has disclosure requirements, some of which are required to be included in financial statements issued after January 31, 2003. Since we do not currently have any variable interest entities, the adoption of the provisions of FIN 46 is not expected to have a material impact on our ~~sales~~financial ~~agent~~position ~~for~~or ~~France~~results of operations.

~~Amortization expense for intangible assets subject to amortization was $203 and $62 for the thirteen-week periods ended March 1, 2003, and March~~ 2~~, 2002, respectively, and $568 and $152 for the thirty-nine week periods ended March 1, 2003, and March 2, 2002, respectively~~. ~~Future~~SUPPLEMENTAL ~~estimated~~FINANCIAL ~~amortization expense~~INFORMATION ~~for the remainder of Fiscal 2003, the next four years and thereafter is as~~ ~~follows (in thousands):~~

FISCAL YEAR ENDING MAY 31,:
2003		$	174
2004			443
2005			442
2006			442
2007			435
	Thereafter		2,836
		$	4,772

Goodwill and Identifiable Intangible Assets

~~9. Impairment~~ The following table summarizes our identifiable intangible assets and goodwill balances as of ~~Long-lived~~November 29, ~~Assets~~2003, and May 31, 2003:

As a result of continuing negative trends which have affected our skatepark and domestic retail business, we performed an assessment as of March 1, 2003, of the net carrying value of long-lived assets associated with our skateparks and domestic retail stores to determine whether these assets are fully recoverable. This assessment was performed in accordance with SFAS 144. As a result of this assessment, we have recorded impairment charges aggregating $15.3 million to write down the long-lived assets associated with 10 of our skateparks and some or all of the long-lived assets associated with certain of our retail stores to net realizable value. $12.5 million of this charge was recorded to fully write down the net carrying value of long-lived assets associated with the skateparks. The remaining $2.9 million of this charge was recorded to write down the net carrying value of long-lived assets associated with 17 of our 166 retail stores. Net realizable values were determined based upon discounted projected future cash flows for each skatepark and each retail store. The discount rate applied was based upon our weighted average cost of capital adjusted for the risks associated with these operations. See the discussion under the caption “Third Quarter Impairment Charges and Receivable Concession” in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


			NOVEMBER 29, 2003					MAY 31, 2003

			Gross					Gross
			Carrying		Accumulated			Carrying		Accumulated
			Amount		Amortization			Amount		Amortization

			(In thousands)
Intangible assets subject to amortization:
	Trademarks and patents		$	5,152	$	(1,141	)	$	5,140	$	(938	)
	Other			886		(496	)		886		(440	)

		Total	$	6,038	$	(1,637	)	$	6,026	$	(1,378	)

10. Derivatives and Hedging


			NOVEMBER		MAY
			29, 2003		31, 2003

			(In thousands)
Carrying amount of intangible assets not subject to amortization:
	Goodwill		$	32,089	$	31,702
	Trademarks			10,885		10,885

		Total	$	42,974	$	42,587

We Goodwill ~~are~~is ~~exposed~~comprised toof ~~foreign~~$12.7 million ~~currency~~associated ~~risk~~with ~~primarily~~the ~~through~~acquisition of our ~~wholly-owned~~predecessor ~~subsidiaries,~~company; ~~Vans~~$6.2 million ~~Europe~~associated BVwith ~~(“VEBV”),~~the ~~whose~~acquisition ~~functional~~of ~~currency~~Mosa Extreme isSports, ~~the euro~~Inc., ~~and~~now ~~Vans~~known as Pro-tec, Inc. ~~Limited~~ (“~~VIL~~Pro-tec”),; ~~whose~~$5.8 million related ~~functional~~to ~~currency~~the isacquisition ~~the~~of ~~British~~Global ~~sterling.~~Accessories ~~The~~Limited ~~currency~~(now ~~risk~~known isas ~~created~~Vans Inc. ~~because~~Limited), our ~~subsidiaries’ purchases of inventory are priced and settled in~~ U.SK. ~~dollars~~distributor; $4.9 million Toassociated ~~hedge~~with ~~this risk,~~ our acquisition ~~subsidiaries enter into cash flow hedges~~ of ~~forecasted~~a majority ~~inventory~~interest ~~purchases,~~in ~~thereby fixing~~ the ~~cost~~VANS ofWarped ~~the~~Tour®; ~~product and the associated gross margins in their functional currency~~$2. ~~As of March~~ 1, million ~~2003,~~associated ~~our~~with the ~~subsidiaries~~acquisition ~~hedged approximately 80%~~ of ~~forecasted~~Compagnie ~~purchases~~Sunspot ~~through~~SA ~~the end of Fiscal 2003.~~(“Sunspot”),

~~Gains~~our ~~and~~sales ~~losses~~agent ~~on cash flow hedges of forecasted transactions are recorded in other comprehensive income if the hedge accounting requirements set forth in FASB Statement No. 133, Accounting~~ for France; ~~Derivative Instruments~~ and ~~Hedging Activities~~$400,000 ~~are~~associated ~~met.~~with ~~Such gains and losses recorded in other comprehensive income are reclassified to cost of goods sold when~~ the ~~product~~acquisition ~~is sold and the revenue recognized. A portion~~ of ~~the~~certain ~~hedge~~assets ~~is de-designated when the forecasted purchase occurs~~ and liabilities ~~the U.S. dollar payable is recognized. All~~ of ~~the~~Max ~~existing~~MadHouse ~~gains~~GmbH or(“Max ~~losses~~MadHouse”), ~~included~~our inexclusive ~~accumulated~~sales ~~other~~agent for ~~comprehensive~~Germany, ~~income~~Austria ~~are~~and ~~expected to be reclassified into earnings within~~ the ~~next~~Czech ~~six months~~Republic.

11 Amortization expense for intangible assets subject to amortization was $92,000 and $177,000 for the thirteen week periods ended November 29, 2003, and November 30, 2002, respectively and $258,000 and $365,000 for the twenty-six week periods ended November 29, 2003, and November 30, 2002, respectively. Future ~~Comprehensive~~estimated ~~Income~~amortization expense for the remainder of Fiscal 2004, the next four years and thereafter is as follows (~~Loss~~in thousands):

Other comprehensive income (loss) refers to revenue, expenses, gains and losses that are recorded as an element of stockholders’ equity but are excluded from net income. Other comprehensive income is comprised of: (i) unrealized gains and losses on derivative instruments qualifying as cash flow hedges; and (ii) foreign currency translation adjustments. The components of total comprehensive income (loss) for the thirteen and thirty-nine week periods ended March 1, 2003, and March 2, 2002 were as follows (in thousands):


FISCAL YEAR ENDING MAY 31,:
2004		$	186
2005			446
2006			446
2007			439
2008			366
	Thereafter		2,518

		$	4,401

			THIRTEEN WEEKS ENDED						THIRTY-NINE WEEKS ENDED
			MARCH 1,			MARCH 2,			MARCH 1,			MARCH 2,
			2003			2002			2003			2002
Net income (loss)			$	(9,206	)	$	483		$	(7,451	)	$	12,338
Other comprehensive income (loss):
	Derivatives qualifying as hedges, net of tax:
		Net derivative gain (loss)		(481	)		131			(936	)		154
		Reclassifications to (income) expense		205			(38	)		351			7
	Foreign currency translation adjustments			2,293			(1,173	)		4,426			(3,169	)
Total comprehensive income (loss)			$	(7,189	)	$	(597	)	$	(3,610	)	$	9,330

Computation of Earnings Per Share

In Basic ~~connection~~earnings ~~with~~per ~~our~~share ~~implementation~~represents ofnet ~~new~~income ~~euro-based~~divided ~~systems~~by inthe weighted-average ~~Europe,~~number weof ~~recalculated~~common ~~the~~shares ~~cumulative~~outstanding ~~foreign~~for ~~currency~~the ~~translation~~period. ~~adjustment~~Diluted earnings ~~and~~per ~~recorded~~share arepresents ~~charge~~net toincome ~~other~~divided ~~comprehensive~~by ~~income~~the ~~aggregating~~weighted-average tonumber of $1shares outstanding,~~694~~ ~~during~~inclusive ~~the~~of ~~quarter~~all ~~ended~~potentially ~~December~~dilutive 1,common ~~2001,~~shares. ~~and~~The reconciliations ~~relating~~of basic to ~~prior~~diluted ~~periods~~weighted ~~dating~~average ~~back~~shares toare ~~fiscal~~as ~~1999.~~follows:

12. Purchase Acquisitions


	THIRTEEN WEEKS ENDED				TWENTY-SIX WEEKS ENDED

	NOVEMBER 29,		NOVEMBER 30,		NOVEMBER 29,		NOVEMBER 30,
	2003		2002		2003		2002

	(In thousands)
Weighted average shares used in basic computation		17,852		17,910		17,840		18,038
Restricted stock grant		—		—		—		87
Dilutive stock options		—		—		—		59

Weighted average shares used for dilutive computation		17,852		17,910		17,840		18,184

On The ~~June~~following ~~11,~~shares ~~2002,~~were weexcluded acquired 100% of the outstanding capital stock of Sunspot for cash consideration of $2.9 million. Of the total purchase price paid, $1.9 million was allocated to identifiable acquired assets and liabilities and the remaining $1.0 million was allocated to goodwill. In addition, we are required to pay additional cash consideration in connection with this acquisition based on the level of sales achieved by the acquired sales agent over each of the next five years in the period from the ~~acquisition~~computation ~~date through June 11, 2007. Although the amount~~ of ~~additional~~diluted earnings ~~consideration~~(loss) per toshare be paid cannot yet be determined, we currently estimate that $1.5 million will be paid in the current fiscal year and an aggregate of $9.0 million will be paid through June 11, 2007. Any such additional consideration will be allocated to goodwill. In February 2002, we acquired a 70% interest in the VANS Warped Tour®, a traveling lifestyle, music and sports festival that visits top young adult markets throughout North America, for $5.2 million. On April 15, 2002, we acquired 100% of the outstanding capital stock of Pro-Tec for $14.8 million. Pro-Tec manufactures and distributes PRO-TEC brand helmets, protective gear and pads for sports such as ~~skateboarding,~~their ~~snowboarding~~effect ~~and~~would ~~BMX riding. The results of operations for the VANS Warped Tour® and Pro-Tec~~ have been ~~included in our consolidated financial statements since the respective dates of acquisition.~~anti-dilutive:

In connection with the acquisition of Pro-Tec, if specified future performance targets are achieved during the fiscal years ending May 31, 2003 and 2004, the aggregate consideration for this acquisition will be increased by up to $5.0 million. Such additional consideration, if earned, will be paid either in cash or unrestricted shares of our common stock and will be allocated to goodwill.

THIRTEEN WEEKS ENDED

TWENTY-SIX WEEKS ENDED

NOVEMBER 29,

NOVEMBER 30,

NOVEMBER 29,

NOVEMBER 30,

2003

2002

2003

2002

(In thousands)

Restricted stock grants

—

Stock options

2,095

2,204

2,133

1,370

~~Selected~~Other ~~unaudited~~Comprehensive pro forma combined results of operations for the thirteen and thirty-nine week periods ended March 2, 2002, assuming the acquisitions of Sunspot, Pro-Tec and the VANS Warped Tour occurred on June 1, 2001, compared to our actual results for the thirteen and thirty-nine week periods ended March 1, 2003, are presented below (in thousands). Pro forma results for the thirteen and thirty-nine week periods ended March 1, 2003 did not differ materially from actual results for these periods.Income

	THIRTEEN WEEKS ENDED				THIRTY-NINE WEEKS ENDED
	MARCH 1, 2003		MARCH 2, 2002		MARCH 1, 2003		MARCH 2, 2002
	(ACTUAL)		(PRO FORMA)		(ACTUAL)		(PRO FORMA)
Net sales	$	82,064	$	84,549	$	267,303	$	287,814
Gross profit	$	39,036	$	39,103	$	120,185	$	134,031

Other comprehensive income refers to revenue, expenses, gains and losses that are recorded as an element of stockholders’ equity but are excluded from net income. Accumulated other comprehensive income is comprised of: (i) unrealized gains and losses on derivative instruments qualifying as cash flow hedges; and (ii) foreign currency translation adjustments. The components of other comprehensive income for the thirteen and twenty-six week periods ended November 29, 2003, and November 30, 2002, were as follows:

				THIRTEEN WEEKS ENDED	~~THIRTEEN WEEKS ENDED~~						TWENTY-SIX WEEKS ENDED	~~THIRTY-NINE WEEKS ENDED~~
					MARCH 1, 2003				MARCH 2, 2002			MARCH 1, 2003				MARCH 2, 2002
				NOVEMBER 29,				NOVEMBER 30,			NOVEMBER 29,				NOVEMBER 30,
					(ACTUAL)				(PRO FORMA)			(ACTUAL)				(PRO FORMA)
				2003				2002			2003				2002
Operating expenses					$	54,054			$	37,992		$	131,482			$	111,147
				(In thousands)
Net income (loss)				$	$(6,689	~~(9,206~~)	)	$	$(3,666	~~915~~)	$	$(61	~~(7,451~~)	)	$	$1,755	~~15,700~~
Per share information:
Other comprehensive income:
	Basic:
	Derivatives qualifying as hedges, net of tax:
		Net income (loss) per share			$	(0.51	)		$	0.05		$	(0.41	)		$	0.86
		Net derivative loss			(1,226	)			(65	)		(600	)			(455	)
			Weighted average common shares			17,920				18,284			17,999				18,270
		Reclassifications to expense			116				208			453				146
	Diluted:
	Foreign currency translation adjustments				4,637				302			1,128				2,133
		Net income (loss) per share			$	(0.51	)		$	0.05		$	(0.41	)		$	0.83
Total comprehensive income (loss)				$	(3,162	)		$	(3,221	)	$	920			$	3,579
			Weighted average common shares			17,920				18,898			17,999				18,992

133. ~~Revolving~~ ~~Credit Facility~~ACQUISITIONS

~~Through~~ On ~~March~~ June 1, 2003, we ~~maintained~~acquired ancertain ~~unsecured~~assets ~~revolving~~and ~~credit~~liabilities ~~facility~~of ~~pursuant~~Max MadHouse tofor ainitial ~~credit~~cash ~~agreement~~consideration ~~with~~of ~~several lenders in an amount not to exceed~~ $45117,000.0 ~~million.~~ The ~~credit~~assets ~~agreement~~and ~~permitted~~liabilities acquired usconstituted towhat ~~draw~~was ~~upon~~formerly the ~~credit~~business ~~facility~~of ~~for~~our ~~general~~exclusive ~~corporate~~sales agent ~~purposes,~~for ~~capital expenditures~~Germany, ~~acquisitions~~Austria and ~~stock~~the ~~repurchases~~Czech ~~and would have expired on April 30, 2004~~Republic. WeThe ~~had~~consideration for the acquisition ~~option~~was attributed to ~~pay~~acquired ~~interest~~identifiable onnet ~~revolving~~assets ~~credit~~and ~~facility~~goodwill. ~~advances~~In addition ~~at a rate equal~~ to ~~either~~the ~~LIBOR~~initial ~~plus~~purchase aprice ~~margin~~paid, orwe ~~the~~are ~~base~~required ~~rate~~to ~~plus~~pay aadditional cash ~~margin.~~consideration Atbased ~~March~~on 1,the ~~2003,~~level noof ~~amounts~~sales ~~were~~achieved ~~outstanding~~by ~~under~~ the ~~revolving~~acquired business ~~credit~~over ~~facility.~~the ~~Subsequent~~three-year toperiod ~~March~~ending 1May 31, ~~2003,~~2006. weAlthough ~~reached~~the ~~agreement~~aggregate amount ~~with~~of ~~the~~additional ~~lenders~~consideration to ~~terminate~~be ~~the~~paid ~~credit~~cannot ~~agreement~~yet ~~and~~be ~~replace~~determined, itwe currently ~~with~~estimate athat $~~20.0 million secured revolving credit facility. Under the new facility~~500,000 we will be ~~able~~paid toin ~~obtain advances for~~ the ~~issuance~~current offiscal ~~commercial~~year ~~letters of credit~~ and ~~standby~~an aggregate ~~letters~~ of ~~credit.~~$1 million ~~The~~in ~~new~~additional ~~facility~~consideration ~~will~~may be ~~secured by a security interest in a certificate of deposit held with the lending institution, and advances under the facility will bear interest at a rate equal to either the prime rate or LIBOR plus~~ required.~~20%.~~ ~~The~~Any ~~new~~such additional ~~facility~~consideration will ~~mature~~be onallocated ~~May 1, 2004 and is subject~~ to ~~the completion of loan documents~~goodwill. ~~The loan agreement for the new facility will contain less restrictive affirmative and negative covenants than the credit agreement for the prior facility.~~

14 On June 11, 2002, we acquired 100% of the outstanding capital stock of Sunspot for cash consideration of $2. ~~Commitments~~9 million. During the first quarter of Fiscal 2004, an additional $873,000 was paid as a result of the sales levels achieved by Sunspot during the year ended May 31, 2003. Of the total purchase consideration paid to date, $1.7 million was allocated to identifiable acquired assets and ~~Contingencies~~liabilities on the acquisition date and the remaining $2.1 million has been allocated to goodwill. In addition, we are required to pay additional cash consideration in connection with this acquisition based on the level of sales achieved by Sunspot through June 11, 2007. Although the aggregate amount of additional consideration to be paid cannot yet be determined, we currently estimate that $1 million will be paid in the current fiscal year and an aggregate of $4.4 million in additional consideration may be required. Any such additional consideration will be allocated to goodwill.

~~Vans,~~ Had ~~Inc. vs. Scott Brabson and Jay Rosendahl, in Arbitration before JAMS. The allegations we have made in this case and~~ the ~~companion~~acquisitions ~~lawsuit pending in Los Angeles Superior Court are described in our Annual Report on Form 10-K for Fiscal 2002. Updated disclosures regarding this case describing the arbitrator’s award~~ of ~~$8.0~~Max ~~million~~MadHouse toand usSunspot ~~are~~occurred ~~contained in two Forms 8-K we filed with the SEC~~ on ~~February 3~~June 1, ~~2003 and February 25~~2002, our ~~2003,~~results ~~respectively.~~of Nooperations ~~amounts have been recorded in the accompanying consolidated financial statements in connection with the arbitrator’s award. On March 10, 2003, Brabson filed~~ for ~~bankruptcy protection under~~ the ~~Federal~~thirteen ~~Bankruptcy~~week ~~laws. We believe that Brabson’s obligations to us are not dischargeable under such laws~~ and wetwenty-six ~~will~~week ~~file~~periods ended ~~a motion seeking an order from the bankruptcy judge to that effect. On March 18~~November 29, 2003, the bankruptcy judge in Rosendahl’s bankruptcy case granted our motion to lift the stay in that case to allow us to finalize the arbitrator’s award against Rosendahl. We will now file a motion requesting an order from the bankruptcy judge declaring that Rosendahl’s obligations to us are non-dischargeable. Gordana Brabson vs. Vans, Inc. et. al, Superior Court of California, County of Santa Barbara, case No. 01110315. This lawsuit was filed against Vans, two of Vans’ executive officers, and ~~certain other individuals and entities on December 6~~November 30, 2002, inwould connection with the above-mentioned litigation (the “Brabson and Rosendahl case”). Mrs. Brabson alleges causes of action for invasion of privacy, trespass, and intentional infliction of emotional distress relating to the investigation conducted in connection with that litigation. She seeks an unspecified amount of compensatory, special and punitive damages. We recently brought a so-called “SLAPP” motion to dismiss this case on the grounds that it was designed to inhibit our ability to pursue our remedies in the Brabson and Rosendahl case. The court denied this motion and we are proceeding with discovery. From time to time, the Company is involved in legal proceedings arising in the ordinary course of business. Management does not ~~expect that any of the legal proceedings in which the Company is currently involved will~~ have adiffered materially ~~material~~from ~~adverse~~our ~~impact~~reported ~~on future~~ results of operations ~~or liquidity. At March 1, 2003, we had letters of credit outstanding totaling $10.7 million. These letters of credit were issued~~ for ~~the~~these ~~purchase of inventory~~periods.

Additionally, in connection with our acquisition of Pro-tec on April 15, 2002, the acquisition agreement provides for additional consideration of up to $1.0 million to be paid by us if certain performance criteria are met during Fiscal 2004. Such additional consideration, if earned, will be paid either in cash or unrestricted shares of our common stock and will be allocated to goodwill.

4. COMMITMENTS AND CONTINGENCIES

Litigation

Vans, Inc. vs. Scott Brabson, Gordana Brabson, Jay Rosendahl, Heidi Rosendahl, et al, Superior Court for the County of Los Angeles, Case No. BC27031. The allegations we have made in this case, the companion arbitration, and the resulting arbitration award are described in our Annual Report on Form 10-K for Fiscal 2003, which is filed with the Securities and Exchange Commission. No material changes in the status of these matters have occurred since the filing of our Form 10-K for Fiscal 2003, and no amounts have been recorded in our condensed consolidated financial statements in connection with this matter.

Gordana Brabson vs. Vans, Inc. et. al, Superior Court of California, County of Santa Barbara, Case No. 01110315. This lawsuit was filed against Vans, one of Vans’ current executive officers, one of its former executive officers, and certain other individuals and entities on December 6, 2002, in connection with a lawsuit filed by us against the plaintiff, her husband and other individuals and entities in which we alleged that they engaged in a conspiracy to obtain unauthorized payments from certain of our factories in China. Mrs. Brabson alleged causes of action for invasion of privacy, trespass, and intentional infliction of emotional distress relating to the

~~ITEM~~investigation 2conducted in connection with that litigation. ~~MANAGEMENT’S~~An ~~DISCUSSION~~agreement to ~~AND~~settle ~~ANALYSIS~~this OFcase ~~FINANCIAL~~was ~~CONDITION~~reached ~~AND~~in ~~RESULTS~~the first quarter of Fiscal 2004, and OFsettlement ~~OPERATIONS~~documents are still being finalized. The terms of the settlement are confidential; however, no amounts have been recorded in the accompanying condensed consolidated financial statements in connection with this matter. The settlement of this case will not have a material adverse impact on our results of operations or financial condition.

~~FORWARD-LOOKING~~ Franklin ~~STATEMENTS~~C. Ferrana a/k/a Nikki Sixx vs. Vans, Inc., High Speed Productions, Inc. d/b/a Thrasher Magazine, Superior Court for the County of Los Angeles, Case No. BC303262. This lawsuit was filed on September 30, 2003, and alleges that Vans and Thrasher Magazine misappropriated the image of the plaintiff in an advertisement. The complaint seeks compensatory damages in excess of $1.0 million, disgorgement of profits, and punitive damages. In the second quarter of Fiscal 2004 we filed an answer in this matter denying the plaintiff’s allegations and asserting numerous affirmative defenses. The parties are currently engaged in discovery.

~~The~~From ~~following~~time discussion contains forward-looking statements about our revenues, earnings, spending, margins, orders, products, plans, strategies and objectives that involve risk and uncertainties. Forward-looking statements include any statement that may predict, forecast or imply future results, and may contain words like “believe,” “anticipate,” “expect,” “estimate,” “project,” or words similar to ~~those. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include~~time, ~~but~~we are ~~not~~involved ~~limited~~in ~~to,~~legal ~~those~~proceedings ~~discussed~~arising in the ~~text~~ordinary ~~and~~course ~~footnotes~~of ~~accompanying~~business. ~~certain~~Management ~~forward-looking~~does ~~statements,~~not ascurrently ~~well~~expect ~~as those~~that ~~discussed~~any ~~under the caption “Risk Factors” on page 14~~ of ~~our Annual~~ ~~Report on Form 10-K for~~ the ~~year~~legal ~~ended~~proceedings ~~May 31, 2002, and~~ in ~~our~~which press release dated March 20, 2003. Additionally, the recent outbreak of the severe acute respiratory syndrome (“SARS”) virus in southern China and Hong Kong could impact our ability to source products. Most of the factories that we ~~contract with~~ are ~~located~~currently ininvolved ~~southern~~will ~~China~~have ~~and our Asian offices are located in Hong Kong. Any significant interruption in our ability to send personnel to those areas to inspect and develop product or samples, or~~ a ~~high absenteeism rate at~~material ~~the factories or at our offices, could have an~~ adverse ~~effect~~impact on ~~our~~results ~~ability~~of ~~to finalize,~~operations ~~manufacture~~or ~~and~~financial ~~ship our products~~condition.

~~OVERVIEW~~Derivatives OFand ~~OUR BUSINESS~~Hedging

~~Vans~~We isare aexposed ~~leading~~to ~~global~~foreign ~~sports~~currency ~~and~~risk ~~lifestyle~~primarily ~~company~~through ~~that~~our ~~merchandises,~~wholly-owned ~~designs~~subsidiaries, ~~sources~~Vans ~~and~~Europe ~~distributes~~BV ~~VANS-branded active-casual and performance footwear~~(“VEBV”), ~~apparel~~whose ~~and~~functional ~~accessories~~currency ~~for~~is the ~~youth lifestyle~~ euro, and ~~for~~Vans ~~participants in Core Sports~~Inc.™ ~~Core~~Limited ~~Sports~~(“VIL”), ~~including~~whose ~~skateboarding,~~functional ~~snowboarding, surfing,~~currency ~~wakeboarding,~~is ~~BMX riding and motocross, are generally recognized for~~ the ~~fun, creativity and individual achievement experienced while attempting~~British ~~various tricks or maneuvers within these sports~~sterling. ~~Our~~This ~~focus~~currency ~~has~~risk ~~been~~is ~~proprietary branding~~primarily ~~with~~related ~~the~~to ~~goal~~purchases of ~~creating~~inventory aby our ~~leadership~~subsidiaries ~~position~~which ~~for~~are ~~our~~priced ~~brand~~ and ~~a strong~~settled ~~emotional~~in ~~connection~~U.S. ~~with our customers~~dollars. ~~Our~~To ~~VANS~~hedge ~~brand targets 10 to 24~~this ~~year old participants~~risk, ~~enthusiasts~~our ~~and~~subsidiaries ~~emulators~~enter ofinto ~~the~~cash ~~Core~~flow ~~Sports~~hedges ~~and California~~of ~~lifestyle.~~forecasted ~~We have implemented a unique marketing plan to reach our~~inventory ~~customers~~purchases, ~~through~~thereby ~~multiple~~fixing ~~points~~the cost of ~~contact~~the ~~which~~product ~~include owning~~ and ~~operating Core Sports entertainment events and venues, such as~~ the ~~VANS~~associated ~~Triple Crown™~~gross ~~Series,~~margins 11in ~~VANS~~their ~~skateparks~~functional ~~and~~currency. ~~the~~As ~~VANS~~of ~~High~~November 29, ~~Cascade~~2003, ~~Snowboard~~our ~~Camp®,~~subsidiaries ~~sponsoring~~hedged ~~numerous~~approximately ~~professional~~70% ~~and~~of ~~amateur~~forecasted ~~athletes~~inventory ~~and~~purchases through the ~~VANS Warped~~first ~~Tour®,~~quarter asof ~~well~~Fiscal ~~as advertising in targeted print and television media~~2005.

~~Over~~At ~~the past 18~~November ~~months~~29, ~~our business has been adversely impacted by a number of factors~~2003, ~~including~~we ~~the~~also ~~trend~~had ~~toward~~foreign ~~sales~~currency offorward ~~classic styles of many~~contracts ~~athletic~~outstanding ~~brands~~to ~~which~~purchase ~~has taken market share from us at mid-tier price points; the underperformance of our~~ U.S. ~~retail~~dollars ~~stores,~~using ~~although,~~Japanese ~~commencing~~yen. inThese Q3contracts were ~~Fiscal~~entered ~~2003,~~into ~~we began~~ to ~~experience~~hedge ~~some~~projected ~~relative~~future ~~improvements~~cash inflows ~~certain segments of our retail business; and a decline~~ in ~~sales~~connection inwith certain ~~international~~royalty ~~markets,~~payments ~~particularly~~to ~~Mexico~~be ~~and~~received ~~South America. Additionally, increased competition~~ from ~~large, free public skateparks, located in close proximity to~~ our ~~skateparks,~~licensee ~~has~~for ~~adversely~~Japan ~~impacted~~during ~~attendance and revenues at our skateparks and led us to write down~~ the ~~net carrying value of the~~ ~~long-lived~~remainder ~~assets~~ of ~~all~~Fiscal ~~of our skateparks, as discussed below~~2004.

~~THIRD~~ The ~~QUARTER~~following ~~IMPAIRMENT~~is ~~CHARGES~~a ~~AND~~summary ~~RECEIVABLE~~of ~~CONCESSION~~outstanding foreign currency forward contracts at November 29, 2003 (in thousands, except contract rates):

During Q3 Fiscal 2003, the negative trends which have affected our skatepark business and U.S. retail stores for the past year continued. For the quarter, comparable skatepark revenues decreased 34.5% and comparable store sales for our U.S. retail stores decreased 8.4%, following declines of 32.5% and 10.4%, respectively, for Q2 Fiscal 2003 and 35.0% and 5.6%, respectively, for Q1 Fiscal 2003. With respect to our skateparks, we retained a consultant in Q2 Fiscal 2003 to review our skatepark business. This consultant presented his findings to our Board of Directors in January 2003. The consultant’s study showed that, in order to produce break-even cash flows at the parks, we would need to introduce new pricing concepts, significantly increase skate session attendance, reduce operating expenses, and increase the retail performance in the parks. We began testing new pricing strategies in several of the parks in January 2003. As of the end of Q3 Fiscal 2003, the pricing strategies had produced little or no improvement in our skatepark business. As a result of that, the continued deterioration in skatepark revenues, and the continued decline in comparable store sales for our U.S. stores, as of the end of Q3 Fiscal 2003 we conducted the tests required by SFAS 144 to determine whether the long-lived assets associated with certain of our skateparks and U.S. retail stores were fully recoverable.


				AGGREGATE FAIR			NET UNREALIZED
CURRENCY	AGGREGATE		AVERAGE	VALUE OF FORWARD			LOSSES IN OTHER
HEDGED	NOTIONAL VALUE		CONTRACT RATE	CONTRACT LIABILITY			COMPREHENSIVE INCOME

Euro	$	17,700	1.14 dollars per euro	$	(903	)	$	765
Yen	$	1,490	110.88 yen per dollar	$	(22	)	$	24

	$	19,190		$	(925	)	$	789

~~Our~~In ~~analyses~~addition ~~indicated~~to ~~that~~hedging ~~the~~inventory ~~long-lived~~purchases ~~assets~~and ~~associated with 10 skateparks are not fully recoverable~~royalties, ~~the~~we ~~long-lived~~may ~~assets associated with 11~~also ~~retail~~hedge ~~stores~~other ~~are~~foreign ~~not~~currency ~~fully~~cash ~~recoverable,~~flow and ~~the~~balance ~~long-lived~~sheet ~~assets~~exposures ~~associated with~~as ~~six~~they ~~retail stores~~ are ~~only partially recoverable~~ identified.

~~Additionally,~~Net ~~during~~unrealized ~~the~~losses ~~quarter~~on foreign exchange contracts at November 29, we2003, were ~~executed~~included ~~two~~in ~~new~~accumulated ~~five-year~~other ~~license~~comprehensive income and are expected to be ~~agreements~~reclassified ~~with~~into ~~our~~earnings ~~licensee~~within ~~for~~the ~~Japan~~next ten months as the related underlying transactions affect earnings. InActual ~~connection~~amounts ultimately reclassified to earnings are dependent on the exchange rates in effect when derivative contracts that are currently outstanding mature.

Inventory purchase commitments.

At November 29, 2003, we had firm commitments to purchase inventory in the amount of $28.7 million. These commitments included contingent liabilities under open letters of credit with foreign suppliers aggregating $637,000.

5. DISCONTINUED OPERATIONS

In Fiscal 2003 we made the decision to substantially exit the skatepark business. This decision was driven by the proliferation of large, free public skateparks that have been constructed in close proximity to our skateparks over the past three years, and which

~~with~~adversely ~~the~~affected ~~negotiations~~attendance ~~for~~and ~~those~~revenues ~~agreements,~~at weour ~~agreed~~skateparks. When the decision to ~~concede~~substantially aexit ~~$375~~the skatepark business was made,~~000~~ we operated 11 ~~receivable~~skateparks ~~relating~~and were party to a ~~bag~~lease ~~and~~for ~~backpack~~the ~~license~~construction ~~agreement~~of ~~that~~an additional park to be opened in Sacramento, California in Fiscal 2004. Our skatepark in Bakersfield, California was closed in February 2003, before we ~~were~~made ~~not~~the ~~renewing~~decision (to substantially exit the ~~“License~~skatepark ~~Receivable”)~~business.

As aof ~~result~~November 29, 2003, we have closed four skateparks: Bakersfield, California; Denver, Colorado; Phoenix, Arizona; and Atlanta, Georgia. The Denver, Phoenix and Atlanta parks closed during the first quarter of Fiscal 2004. Of the ~~above~~eight skateparks that we continue to operate, we ~~incurred~~have reached agreements with the ~~pre-tax~~landlords ~~non-cash~~to ~~impairment~~close five of the parks generally over the ~~charges~~next ~~and~~six ~~conceded~~to eighteen months. We have also reached agreements to significantly reduce the ~~License~~future ~~Receivable~~rent asunder ~~follows:~~the leases for two of the three parks we expect to operate in the future.

	PRE-TAX AMOUNT OF
	NON-CASH CHARGES OR	LINE ITEM OF STATEMENT
ITEM	CONCESSION	OF OPERATIONS IMPACTED
• Write-down of skatepark long-lived assets	$12.5 million	Impairment Charges
• Write-down of retail store long-lived assets	$2.9 million	Impairment Charges
• Concession of receivable from Japanese licensee	$375,000	International Sales

Upon the closure of each of our skateparks, the related operating results are recast as discontinued operations in the consolidated statements of operations for all periods presented. Accordingly, the four skateparks we have closed through November 29, 2003, are presented as discontinued operations in the accompanying condensed consolidated statements of operations.

WeIn ~~have~~addition ~~retained a firm~~ to ~~assist~~the usfour inskateparks ~~negotiating~~we ~~rent~~have ~~concessions~~closed, orour discontinued ~~lease~~operations ~~terminations~~include ~~for~~the ~~our~~operating ~~skateparks.~~results Weof ~~expect~~a ~~such~~Triple ~~negotiations~~Crown tospecialty ~~result~~retail instore ~~cash~~that ~~charges~~was inclosed ~~future~~during ~~quarters~~the assecond wequarter ~~reach~~of ~~agreements~~Fiscal ~~with~~2004 ~~the~~as ~~landlords. The~~a ~~amount~~result of underperformance. ~~such~~In ~~charges~~connection ~~and~~with the ~~timing~~closure ~~thereof~~of ~~cannot~~this bestore, ~~determined~~we ~~by us at~~incurred ~~this~~pre-tax ~~time.~~lease Wetermination ~~expect~~charges ~~any~~of ~~cash~~$150,000, ~~payments~~which weare ~~make~~included inwithin ~~connection~~net loss ~~with~~from ~~such~~discontinued ~~charges to~~operations befor ~~funded~~the bythirteen ~~existing~~and ~~cash~~twenty-six ~~and~~week ~~cash~~periods ended ~~from~~November 29, ~~operations~~2003.

Summarized operating results for our discontinued operations were as follows:


	THIRTEEN WEEKS ENDED						TWENTY-SIX WEEKS ENDED

	NOVEMBER 29, 2003			NOVEMBER 30, 2002			NOVEMBER 29, 2003			NOVEMBER 30, 2002

				(In thousands)
Net sales	$	141		$	1,103		$	1,325		$	2,705
Gross profit		85			775			733			1,915
Lease termination costs		134			—			4,822			—
Net loss	$	(163	)	$	(362	)	$	(5,088	)	$	(510	)

Our results from continuing operations for the thirteen and twenty-six week periods ended November 29, 2003, include pre-tax lease termination costs of $1.9 million and $3.9 million, respectively, which relate to lease termination agreements reached during Fiscal 2004 for skateparks that we continued to operate as of November 29, 2003. Our November 29, 2003 balance sheet included lease termination liabilities aggregating $3.8 million and liabilities held in connection with disposal activities aggregating $108,000, representing the portion of skatepark lease termination costs that had not yet been paid.

6. SEGMENT DISCLOSURES

Our reportable segments are based on three distinct product sales channels: retail, national and international. The retail segment consists of U.S. retail operations, which include our domestic retail stores and skateparks. The national segment consists of all domestic operations outside of retail operations, which includes the domestic wholesale business, the VANS Warped Tour® and the VANS High Cascade Snowboard Camp®. The international segment includes the international wholesale business and European retail operations. The “Unallocated” category below represents items necessary to reconcile to the consolidated financial statements, which generally include corporate activities and operating costs not directly attributable to any one segment. Corporate activities are comprised of certain centralized selling and distribution costs incurred in the worldwide distribution of our products as well as corporate administrative costs. Such costs aggregated $11.5 million and $9.0 million for the thirteen week periods ended November 29, 2003, and November 30, 2002, respectively, and $27.0 million and $24.0 million for the twenty-six week periods ended November 29, 2003, and November 30, 2002, respectively. Unallocated operating costs are comprised of a substantial portion of our marketing, advertising and promotional costs, which are incurred to promote brand awareness and which are not directly associated with any one sales channel. Our chief operating decision-maker evaluates the performance of our segments based on gross margin and direct operating profit, excluding such unallocated amounts.

Summary information by segment follows:


			THIRTEEN WEEKS ENDED						TWENTY-SIX WEEKS ENDED

			NOVEMBER 29,			NOVEMBER 30,			NOVEMBER 29,			NOVEMBER 30,
			2003			2002			2003			2002

						(In thousands)
Net sales:
	Retail
		Skateparks	$	3,152		$	3,393		$	7,127		$	7,926
		Retail stores		20,529			18,479			53,351			48,348
	National
		Wholesale		23,727			19,098			66,590			64,456
		Other		145			145			11,173			10,356
	International			17,630			18,388			55,629			51,448

Total net sales			$	65,183		$	59,503		$	193,870		$	182,534

Gross profit:
	Retail
		Skateparks	$	2,314		$	2,480		$	5,073		$	5,878
		Retail stores		11,002			10,102			29,041			26,270
	National
		Wholesale		9,759			7,534			24,803			23,432
		Other		(32	)		(20	)		2,135			578
	International			8,403			8,167			29,159			23,076

Total gross profit			$	31,446		$	28,263		$	90,211		$	79,234

Income (loss) from operations:
	Retail
		Skateparks	$	(2,416	)	$	(967	)	$	(4,427	)	$	(881	)
		Retail stores		(1,918	)		(2,521	)		1,823			(52	)
	National
		Wholesale		6,503			3,765			17,299			15,616
		Other		(138	)		(148	)		1,785			287
	International			4,113			4,463			18,902			13,592
	Unallocated			(11,527	)		(9,036	)		(26,973	)		(23,991	)

Total income (loss) from operations			$	(5,383	)	$	(4,444	)	$	8,409		$	4,571

Included in skatepark income (loss) from operations for the thirteen week and twenty-six week periods ended November 29, 2003, are lease termination costs of $1.9 million and $3.9 million, respectively.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The following discussion contains forward-looking statements about our revenues, earnings, spending, margins, orders, products, plans, strategies and objectives that involve risk and uncertainties. Forward-looking statements include any statement that may predict, forecast or imply future results, and may contain words like “believe,” “anticipate,” “expect,” “estimate,” “project,” or words similar to those. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the text and footnotes accompanying certain forward-looking statements, as well as those discussed under the caption “Risk Factors” on page 14 of our Annual Report on Form 10-K for the year ended May 31, 2003, which is filed with the Securities and Exchange Commission, and in our press release dated December 19, 2003.

GENERAL OVERVIEW

Vans is a leading global action sports and lifestyle company that merchandises, designs, sources and distributes VANS-branded active-casual and performance footwear, apparel and accessories. Action sports, including skateboarding, snowboarding, surfing, wakeboarding, BMX and motocross, are generally recognized for the fun, creativity and individual achievement experienced while attempting various tricks or maneuvers within these sports. Our focus has been proprietary branding with the goal of creating a leadership position for our brand and a strong emotional connection with our customers. Our VANS brand targets 10 to 24 year-old participants, enthusiasts and emulators of the action sports culture. We have implemented a unique marketing plan to reach our customers through multiple points of contact which include owning and operating action sports entertainment events and venues, such as the VANS Triple Crown™ Series, VANS skateparks and the VANS High Cascade Snowboard Camp®, sponsoring professional and amateur athletes and the VANS Warped Tour®, as well as advertising in targeted print and television media.

RECENT DEVELOPMENTS IN OUR EXIT FROM THE SKATEPARK BUSINESS

As previously disclosed by us, in Fiscal 2003 we made the decision to substantially exit the skatepark business. This decision was driven by the proliferation of large, free public skateparks that have been constructed in close proximity to our skateparks over the past three years, and which adversely affected attendance and revenues at our skateparks. When the decision to substantially exit the skatepark business was made, we operated 11 skateparks and were party to a lease for the construction of an additional park to be opened in Sacramento, California in Fiscal 2004. Our skatepark in Bakersfield, California was closed in February 2003, before we made the decision to substantially exit the skatepark business.

As of November 29, 2003, we have closed four skateparks: Bakersfield, California; Denver, Colorado; Phoenix, Arizona; and Atlanta, Georgia. The Denver, Phoenix and Atlanta parks closed in the first quarter of Fiscal 2004. Of the eight skateparks that we continue to operate, we have reached agreements with the landlords to close five of the parks. Additionally, in the second quarter of Fiscal 2004 we reached agreements to significantly reduce the future rent payments under the leases for two of the three parks we expect to operate in the future. We currently plan to keep open three skateparks primarily to promote brand awareness, and we expect that all other parks will be closed generally over the next six to eighteen months.

Our operating results for the second quarter of Fiscal 2004 include pre-tax lease termination costs of $1.9 million related to two skatepark lease termination agreements that were reached during the quarter for parks that we continued to operate as of November 29, 2003; and our operating results for the first six months of Fiscal 2004 include pre-tax lease termination costs of $3.9 million related to three lease termination agreements that were reached during such period for parks that we continued to operate as of November 29, 2003. As discussed further in Note 5 to the Condensed Consolidated Financial Statements, the operating results for closed skateparks are presented as discontinued operations beginning in the period the skatepark is closed.

CRITICAL ACCOUNTING POLICIES

Our financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. Changes in the estimates or other judgements of matters inherently uncertain that are included within these accounting policies could result in a significant change to the information presented in the financial statements. We believe our most critical accounting policies relate to:

Revenue Recognition. We recognize product, skatepark, royalty, event and other revenue upon concluding that all of the fundamental criteria for revenue recognition have been met. We record wholesale revenues when title passes and the risks and rewards of ownership have passed to the customer. Retail store revenues are recorded at the time of sale. As part of our revenue recognition policy, we record estimated returns and miscellaneous claims from customers as reductions to revenues at the time revenues are recorded. We base our estimates on historical rates of product returns and claims as well as specific identification of outstanding claims and returns not yet received from customers. Actual returns and claims in any future period are inherently uncertain and thus may differ from our estimates.

Accounts Receivable. We provide allowances for doubtful accounts based on a number of factors including historical experience and past due status as well as individual customer circumstances such as ability to pay, bankruptcy, credit ratings and payment history. If actual market conditions are less favorable than those projected by us, additional provisions for doubtful accounts may be required.

Inventory. Inventories are valued at the lower of cost or market. Finished goods inventories are valued using the first-in, first-out method (“FIFO”). We ~~write-down~~provide ~~our~~reserves ~~inventories~~ for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market ~~value~~ value based upon assumptions about future demand and market conditions. IfThese reserves become permanent reductions in the carrying value of inventory until sold. If actual market conditions are less favorable than those projected by us, additional inventory write-downs may be required.

Impairment ~~Losses~~of on Property, Plant and Equipment. We evaluate the ~~carrying~~ carrying value of property, plant and equipment assets for impairment when the assets experience a negative event (i.e., significant downturn in operations, losses from operating units, natural disaster, etc.). When these events are identified, we ~~review~~evaluate ~~the~~future ~~last two~~undiscounted ~~years~~cash offlows ~~operations,~~related ~~for~~to ~~example,~~the ~~on a store-by-store basis and, if there~~relevant ~~are losses, we estimate future undiscounted cash flows~~assets. If the projected undiscounted cash flows do not exceed the carrying value of the assets, we write-down the assets to fair value based on discounted projected future cash flows. The most significant assumptions we use in this analysis are those made in estimating future discounted cash flows. In estimating cash flows, we generally use the financial assumptions in our current budget and our strategic ~~plan and modify them on a store-by-store basis if other factors should be~~

1214

plan and modify them on a store-by-store basis if other factors should be considered. The discount rate applied is based upon our weighted average ~~cost~~ cost of capital adjusted for the risks associated with the operations being analyzed. ~~As described in Note 9 to the Condensed Consolidated Financial~~ ~~Statements and above under the caption “Third Quarter Impairment Charges and~~ Receivable Concession,” we recorded impairment charges aggregating $15.3 million in Q3 Fiscal 2003 to write down the long-lived assets associated with 10 of our skateparks and some or all of the long-lived assets of 17 of our 166 retail stores to net realizable value. Although we believe the assumptions made regarding our long-lived assets are reasonable given our current operating performance, any change in market conditions could result in additional impairment losses.

~~Impairment losses on~~ Goodwill. Goodwill is tested for impairment annually as of March 31 at the reporting unit level unless a change in circumstances indicates more frequent impairment analysis is required. ~~The impairment~~Impairment, if any, is measured in part based on the estimated fair value of the reporting units with the recorded goodwill. Fair value is determined by using a combination of techniques, such as the traditional present value approach, the expected cash flow approach, and the multiple of earnings approach. The most significant assumptions we use in this analysis are those made in estimating future cash flows. In estimating future cash flows, we generally use the financial assumptions in our current budget and our strategic plan, subject to modification as considered necessary, including sales and expense growth rates and the discount rate we estimate to represent our cost of funds. Goodwill is comprised of $12.7 million associated with the acquisition of our predecessor company; $6.02 million associated with the acquisition of ~~Mosa Extreme Sports, Inc., now known as~~ Pro-~~Tec, Inc. (“Pro-Tec”)~~tec; $5.8 million related to the acquisition of Global Accessories Limited (now known as Vans Inc. Limited)~~, our U.K. distributor~~; $4.~~6 million associated with our snowboot and bindings business; $4.~~9 million associated with our acquisition of a majority interest in the VANS Warped Tour®; ~~and~~ $12.0 1 million associated with our acquisition of ~~Compagnie~~ Sunspot; SAand $400,000 ~~our~~associated with ~~sales~~the ~~agent~~acquisition ~~for~~of ~~France~~certain assets and liabilities of Max MadHouse.

Taxes. We record valuation allowances to reduce our deferred tax assets to amounts that we believe are more likely than not to be realized. Realization of deferred tax assets (such as net operating loss carryforwards) is dependent on future taxable earnings and is therefore uncertain. On a quarterly basis, we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income. To the extent we believe that recovery is not likely, we establish a valuation allowance against our deferred tax asset, increasing our income tax expense in the period such determination is made.

We have not recorded U.S. income tax expense for foreign earnings that we have determined to be indefinitely reinvested offshore, thus reducing our overall income tax expense. The amount of earnings designated as indefinitely reinvested offshore is based upon the actual deployment of such earnings in our offshore assets. Income tax considerations are also a factor in determining the amount of foreign earnings to be repatriated. In the event actual cash needs of our U.S. entities exceed our current expectations, we may need to repatriate foreign earnings which have been designated as indefinitely reinvested offshore. This would result in additional income tax expense being recorded. Because the determination of foreign earnings as indefinitely reinvested offshore involves future plans and expectations, there is a possibility that amounts determined to be indefinitely reinvested offshore may vary from our current expectations, thereby affecting future income tax expense.

On an interim basis, we separately estimate what our effective tax rate will be domestically and internationally for the full fiscal year and record a quarterly income tax provision in accordance with the anticipated annual rate for each of these jurisdictions. As the fiscal year progresses, we refine our estimate based upon actual events and earnings by jurisdiction during the year. This estimation process can result in significant changes to our expected effective tax rate. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected domestic and international annual rates.

RESULTS OF OPERATIONS

The following table sets forth our operating results, expressed as a percentage of net sales, for the periods indicated.

			THIRTEEN WEEKS ENDED						THIRTY-NINE WEEKS ENDED
			MARCH 1,			MARCH 2,			MARCH 1,			MARCH 2,
			2003			2002			2003			2002
Retail sales				36.1			36.9			33.2			32.4
National sales				27.5			30.0			36.4			38.7
International sales				36.4			33.0			30.4			28.9
	Net sales			100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales				52.4			54.1			55.0			53.0
	Gross profit			47.6			45.9			45.0			47.0
Operating expenses:
	Retail			21.2			19.1			19.5			16.5
	Marketing, advertising and promotion			7.7			10.1			8.5			9.9
	Selling, distribution and administrative			18.1			15.9			15.2			13.8
	Impairment charges			18.7			0.0			5.7			0.0
	Amortization of intangibles			0.2			0.1			0.2			0.1
Total operating expenses				65.9			45.2			49.2			40.2
Income (loss) from operations				(18.3	)		0.8			(4.2	)		6.8
Interest income, net				0.3			0.3			0.3			0.4
Other (expense), net				(0.9	)		(0.2	)		(0.4	)		(0.1	)
		Income (loss) before taxes		(18.9	)		0.9			(4.4	)		7.1
Income tax (benefit) expense				(7.3	)		0.3			(1.8	)		2.1
Minority share of income (loss)				(0.4	)		0.0			0.2			0.4
Net income (loss)				(11.2	)%		0.6	%		(2.8	)%		4.6	%

VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

QUARTERLY PERIOD ENDED MARCH 1, 2003 (“Q3 FISCAL 2003”), AS COMPARED TO QUARTERLY PERIOD ENDED MARCH 2, 2002 (“Q3 FISCAL 2002”)


				THIRTEEN WEEKS ENDED						TWENTY-SIX WEEKS ENDED

				NOVEMBER 29,			NOVEMBER 30,			NOVEMBER 29,			NOVEMBER 30,
				2003			2002			2003			2002

Retail sales					36.3	%		36.8	%		31.2	%		30.8	%
National sales					36.6			32.3			40.1			41.0
International sales					27.1			30.9			28.7			28.2

Net sales					100.0			100.0			100.0			100.0
Cost of sales					51.8			52.5			53.5			56.6

Gross profit					48.2			47.5			46.5			43.4
Operating expenses:
	Retail				23.7			26.4			16.5			17.6
	Marketing, advertising and promotion				9.0			9.6			8.1			9.0
	Selling, distribution and administrative				20.8			18.7			15.4			14.2
	Lease termination costs				2.9			0.0			2.0			0.0
	Amortization of intangibles				0.1			0.3			0.1			0.2

			Total operating expenses		56.5			55.0			42.2			40.9

		Income (loss) from operations			(8.3	)		(7.5	)		4.3			2.5
Interest (income), net					(0.2	)		(0.3	)		(0.1	)		(0.2	)
Other (income) expense, net					0.7			(0.8	)		0.2			0.1

		Income (loss) from continuing operations before income taxes and minority interest			(8.8	)		(6.4	)		4.2			2.6
Income tax (benefit) expense					0.6			(1.8	)		0.9			0.8
Minority interest					0.6			1.0			0.7			0.5

Income (loss) from continuing operations					(10.0	)		(5.6	)		2.6			1.3
Loss from discontinued operations, net of tax					(0.3	)		(0.6	)		(2.6	)		(0.3	)
Net income (loss)					(10.3	)%		(6.2	)%		0.0	%		1.0	%

~~Net Sales~~16

Net sales for Q3 Fiscal 2003 decreased slightly to $82.1 million from $82.2 million for Q3 Fiscal 2002. The sales decrease was the net effect of decreases in Retail and National sales, partially offset by the increase in International sales, as discussed below.

~~Retail.~~QUARTERLY ~~Retail~~PERIOD ~~sales,~~ENDED ~~which~~NOVEMBER ~~consist solely of sales through our U.S. retail stores and skatepark sessions and concessions~~29, ~~decreased slightly to $29.7 million in Q3 Fiscal~~ 2003 ~~from $30.3 million in Q3 Fiscal 2002. Comparable store sales~~ (~~excluding~~“Q2 ~~revenue~~FISCAL ~~from concessions and skate sessions at our skateparks~~2004”) declined by 8.4% year-over-year. The comparable store sales decrease was primarily related to the sluggish retail market and a year-over-year decline in average selling price of 2.8% across all of our stores. Revenues from concessions and skate sessions at our skateparks declined 21.4%, orAS ~~$580,000,~~COMPARED ~~year-over-year. The decline in skatepark revenue~~TO ~~was~~QUARTERLY ~~largely~~PERIOD ~~attributable~~ENDED toNOVEMBER ~~ongoing competition from free skateparks operated by local municipalities in nearly all of our skatepark markets. As discussed above~~30, ~~the~~2002 ~~continuing~~(“Q2 ~~decline~~FISCAL ~~in skatepark revenue led to the impairment charges we recorded in Q3 Fiscal~~ 2003.”)

~~National.~~Net ~~National sales, which include all U.S. sales except sales~~Sales ~~through our U.S. retail stores, decreased 8.6% to $22.6 million in Q3 Fiscal~~ 2003 from $24.7 million in Q3 Fiscal 2002. Excluding revenue from sales of protective gear products by Pro-Tec, which was acquired in the fourth quarter of fiscal year 2002, national sales were down 17.0% to $20.5 million. The decline in our national sales was due to weakness across all of our product lines.

~~International.~~Net ~~International~~ sales, ~~which~~for ~~include~~Q2 ~~sales~~Fiscal ~~through~~2004 ~~our seven European retail stores,~~ increased 9.95% to $2965.82 million ~~in Q3 Fiscal 2003~~ from $2759.1 5 million infor Q3Q2 Fiscal ~~2002.~~2003 ~~This~~and ~~increase~~included ~~was~~a ~~the~~15.2% ~~result~~year-over-year ofincrease ~~increased~~in ~~sales~~comparable instore ~~Europe~~sales ofworldwide ~~approximately~~(excluding ~~$5.7 million,~~merchandise ~~partially~~revenues ~~offset by decreased~~from ~~sales~~skateparks inexpected ~~Mexico~~to ofbe ~~approximately~~closed ~~$900,000,~~and ~~decreased~~revenues ~~sales~~from inconcessions ~~Asia~~and ofskate ~~approximately~~sessions ~~$800,000,~~at ~~decreased~~all ~~royalty~~of ~~payments from~~ our ~~licensee~~skateparks). ~~for~~The ~~Japan of~~sales ~~approximately~~increase ~~$500,000,~~was ~~decreased~~the ~~sales~~net ineffect ~~Canada~~ of ~~approximately $400,000~~ ~~and~~increases ~~the~~in ~~deconsolidation~~National ofand ~~our~~Retail ~~South~~sales, ~~American~~favorable ~~joint~~variances ~~ventures,~~in ~~which~~foreign ~~provided~~exchange ~~approximately~~rates ~~$400,000~~partially ofoffset ~~revenue~~by a decrease in Q3International ~~Fiscal~~sales, ~~2002~~as discussed below.

~~The $5~~Retail.~~7 million~~ Retail sales, ~~increase~~which inconsist ~~Europe~~solely ~~was~~of ~~primarily~~sales ~~due~~through toour aU.S. retail $4stores and skatepark sessions and concessions, increased 8.3% to $23.7 million ~~favorable variance~~ in ~~exchange~~Q2 ~~rates~~Fiscal ~~and~~2004 afrom $121.49 million ~~increase~~ in ~~unit~~ ~~sales~~Q2 ~~and~~Fiscal ~~local~~2003. ~~currency~~This ~~average~~increase was ~~selling~~driven ~~prices.~~by ~~The~~a ~~decreased~~14.0% ~~sales~~year-over-year increase in comparable U.S. store sales ~~Mexico,~~(excluding ~~Asia~~merchandise revenues from skateparks expected to be closed and revenues ~~Canada~~from ~~were~~concessions ~~primarily~~and ~~due~~skate tosessions ~~weakness~~at inall ~~local~~of ~~retail~~our ~~markets~~skateparks). The comparable ~~decrease~~store sales increase was fueled by growth in ~~royalty~~women’s and ~~payments~~kid’s footwear, as well as apparel, with the largest percentage increase from our women’s ~~licensee~~footware ~~for~~line. ~~Japan~~Comparable ~~was~~revenues ~~largely attributable~~from toconcessions ~~the~~and ~~concession~~skate ofsessions ~~the~~at our ~~License~~skateparks ~~Receivable~~declined ~~discussed~~21.9% ~~above~~year-over-year.

During Q2 Fiscal 2004, we reduced our U.S. retail store count to 149 total stores as a result of the closing of four stores. No skateparks were closed during Q2 Fiscal 2004. As discussed above under the caption “Recent Developments In Our Exit from the Skatepark Business,” we currently plan to keep open three skateparks, primarily to promote brand awareness, and we expect that all other parks will be closed generally over the next six to eighteen months.

National. National sales, which include all U.S. sales except sales through our U.S. retail stores, increased 24.1% to $23.9 million in Q2 Fiscal 2004 from $19.2 million in Q2 Fiscal 2003. This increase was primarily due to a 3.2% increase in average selling prices year-over-year and an 18.9% increase in units sold, which resulted from a greater-than-expected level of at-once orders for the quarter. The strongest increases in unit sales were in our women’s footwear business.

International. International sales, which include sales through our European stores, decreased 4.1% to $17.6 million in Q2 Fiscal 2004 from $18.4 million in Q2 Fiscal 2003. This decrease was primarily due to a $400,000 decrease in European sales and an approximately $600,000 decrease in sales in Mexico and South America, partially offset by a $200,000 increase in Canadian sales. The $400,000 sales decrease in Europe resulted from a $1.7 million decrease in sales on a constant-dollar basis, partially offset by a $1.3 million favorable variance in exchange rates relating to our direct operations in Europe. Sales by such operations are made in euros and British sterling and benefited from the weakening U.S. dollar during the quarter. The sales decline in Europe resulted from a 32.4% decrease in units sold, primarily due to a shift in shipments from Q2 Fiscal 2004 to Q1 Fiscal 2004 as compared to the comparable periods in the prior year, and an ongoing shift in fashion trends in Europe from skate-oriented footwear to fashionable athletic footwear.

Gross Profit

Gross profit increased 311.43% to $3931.04 million in Q3Q2 Fiscal ~~2003~~2004 from $3728.73 million in Q3Q2 Fiscal ~~2002~~2003. As a percentage of net sales, gross profit increased to 4748.62% for Q3Q2 Fiscal ~~2003~~2004, versus 4547.95% for Q3Q2 Fiscal ~~2002,~~2003 ~~primarily~~as ~~due~~a toresult of animproved ~~increase~~gross margins in the national and international sales channels, partly offset by decreased retail gross margins. Domestically, retail gross profit decreased as a percentage of ~~net~~ sales from 41 57.6% in Q2 Fiscal 2003 to 5156.72%. ~~The~~in ~~increase~~Q2 Fiscal in2004 ~~international~~as ~~gross~~a ~~profit~~result ~~was~~of ~~driven primarily~~decreased byskatepark ~~increased~~session revenues and decreased average selling prices, inprimarily ~~Europe.~~due ~~Domestically,~~to ~~retail~~the turnover of slow-moving inventory. National gross ~~profit~~profits ~~decreased~~increased as a percentage of ~~net~~ sales from 5639.0% in Q2 Fiscal 2003 to 5240.37% in Q2 Fiscal 2004 largely due to ~~decreased~~increased ~~sessions~~average ~~and~~selling prices ~~concessions~~in atQ2 ~~our~~Fiscal ~~skateparks,~~2004 and ~~gross~~a ~~profit~~reduction in wholesale markdowns versus those ~~from~~taken ~~National~~in ~~sales~~Q2 ~~decreased~~Fiscal 2003. Internationally, gross profit increased as a percentage of ~~net~~ sales from 3844.4% in Q2 Fiscal 2003 to 3547.97% ~~due~~ toin ~~continued~~Q2 ~~downward~~Fiscal ~~pricing~~2004 driven ~~pressure~~primarily ~~and~~by ~~the~~favorable ~~tough~~fluctuations ~~promotional environment~~ in exchange rates between the euro and U.S. dollar.

Loss from Operations

We incurred a loss from operations of $155.04 million in Q3Q2 Fiscal ~~2003,~~2004 versus ~~earnings from operations of~~ $~~642,000~~4.4 million in Q3Q2 Fiscal ~~2002~~2003. ~~Primarily~~Operating asexpenses ~~a result~~in ofQ2 ~~the~~Fiscal ~~impairment~~2004 increased ~~charges~~12.6% ofto $1536.38 million ~~discussed~~versus ~~above,~~$32.7 million ~~operating expenses~~ in Q3Q2 Fiscal 2003 ~~increased~~largely due ~~45.7%~~ to $~~54.~~1.9 million ~~from~~of ~~$37.1 million~~ skatepark lease termination costs incurred in Q3Q2 Fiscal ~~2002~~ 2004. See “Recent Developments in Our Exit from the Skatepark Business,” above. As a percentage of sales, operating expenses, ~~increased~~excluding tolease termination 65costs, decreased to 53.96% versus 4555.20% ~~last~~a year ago. The material components of the ~~increase~~decrease in operating expenses are discussed below.

~~Retail. Retail expenses increased 10.9% to $~~17~~.4 million in Q3 Fiscal 2003~~ ~~from $15.7 million in Q3 Fiscal 2002, primarily due to increased costs~~ ~~associated with the expansion of our retail division by the net addition of 10 new stores and one new skatepark since the same period in the prior year.~~

Marketing, advertising, and promotion. Marketing, advertising and promotion expenses decreased 23.7% to $6.3 million in Q3 Fiscal 2003 from $8.3 million in Q3 Fiscal 2002. This decrease was due to $2.7 million of planned reductions in U.S. media expenditures partially offset by increased expenditures in Europe of approximately $500,000 as a result of the continued expansion of our European business and approximately $200,000 in expenditures by Pro-Tec, which was acquired in the fourth quarter of fiscal year 2002.

Selling, distribution and administrative. Selling, distribution and administrative expenses increased 13.3% to $14.8 million in Q3 Fiscal 2003 from $13.1 million in Q3 Fiscal 2002 primarily due to increased costs of approximately $800,000 as a result of the

~~acquisition~~ Retail. ofRetail ~~Pro-Tec~~expenses ~~and~~decreased ~~increased~~slightly ~~costs~~to of$15.4 million ~~approximately~~in Q2 Fiscal 2004 versus $~~600,000~~15.7 million asin Q2 Fiscal 2003 primarily due to the net reduction of nine stores since the same period a year ago, partially offset by an increase in labor ~~result~~and ofrelated ~~growth~~costs in ~~our~~order ~~European~~to ~~business~~support the increased retail sales volume discussed above.

~~Impairment~~Marketing, ~~Charges~~advertising and promotion. ~~Please~~Marketing, ~~see~~advertising ~~the~~and ~~discussion~~promotion expenses ~~under~~increased ~~the~~2.6% ~~caption~~to ~~“Third~~$5.9 million in Q2 Fiscal 2004 from $5.7 million in ~~Quarter~~Q2 ~~Impairment~~Fiscal ~~Charges~~2003, ~~and~~primarily ~~Receivable~~due ~~Concession~~to increases in athlete sponsorships.”

~~Interest~~ Selling, ~~Income~~distribution and administrative. Selling, ~~Net~~distribution and administrative expenses increased 21.3% to $13.5 million in Q2 Fiscal 2004 from $11.1 million in Q2 Fiscal 2003, primarily as a result of an increase in bonus expense of $1.2 million due to the likely achievement of performance targets for Fiscal 2004, and net increased costs of approximately $700,000 related to our European business. The net increase in costs related to our European business was a result of an approximately $500,000 increase related to changes in exchange rates between European currencies, primarily the euro, and the U.S. dollar and by approximately $200,000 in increased costs on a constant-dollar basis, which was primarily a result of the acquisition of Max MadHouse.

~~Interest~~Lease ~~income,~~termination ~~net~~costs. ofPlease ~~interest~~see ~~expense,~~the ~~increased~~discussion ~~8.5%~~of tothese ~~$254,000~~costs ~~in Q3~~under ~~Fiscal~~the ~~2003~~caption ~~from~~“Recent ~~$234,000~~Developments in Q3Our ~~Fiscal~~Exit ~~2002.~~from ~~This~~the ~~increase~~Skatepark ~~was primarily due to a decreased level of interest expense incurred by our joint venture in Mexico~~Business.”

~~Other~~ Amortization ~~(Expense)~~of intangibles. Amortization of intangibles decreased slightly to $92,000 ~~Net~~in Q2 Fiscal 2004 compared to $177,000 in Q2 Fiscal 2003, as a result of certain assets acquired in the Pro-tec transaction being completely amortized in Fiscal 2003.

~~Other~~Interest (~~expense~~Income), ~~net, primarily consists of royalty payments received from~~Net ~~the non-footwear related licensing of our trademarks, exchange rate gains and~~ losses, and rental income. Other (expense), net, increased to $775,000 of expense for Q3 Fiscal 2003 from $159,000 of expense for Q3 Fiscal 2002, primarily due to losses generated on unhedged U.S. dollar denominated transactions within our European business as a result of fluctuations in foreign currency exchange rates between the U.S. dollar and European currencies.

~~Income~~ Interest ~~Tax~~ (~~Benefit~~income), ~~Expense~~net decreased to $126,000 in Q2 Fiscal 2004 from $157,000 in Q2 Fiscal 2003, primarily due to lower interest rates received on monies invested.

WeOther ~~recognized~~(Income) ~~a tax benefit of $6.0 million in Q3 Fiscal 2003 versus an expense of $215~~Expense,~~000~~ ~~in Q3 Fiscal 2002 as a result of the loss we incurred for~~Net ~~Q3 Fiscal 2003. Our effective tax rate was 38.4% in Q3 Fiscal 2003 and 30.0% in~~ Q3 Fiscal 2002. The increase in our effective tax rate was due to significant tax losses generated by our domestic business as a result of the impairment charges we recorded in Q3 Fiscal 2003 with respect to our skateparks and certain of our U.S. retail stores.

~~THIRTY~~ Other (income) expense, net, primarily consists of royalty payments received from the non-~~NINE~~footwear ~~WEEK~~related ~~PERIOD~~licensing ~~ENDED~~of ~~MARCH~~our 1trademarks, ~~2003~~exchange rate ~~(“FISCAL~~gains ~~2003~~and ~~NINE~~losses, ~~MONTHS”~~and rental income. Other (income) expense, ASnet, ~~COMPARED~~decreased TOto ~~THIRTY-NINE~~$453,000 ~~WEEK~~of ~~PERIOD~~expense ~~ENDED~~for ~~MARCH~~Q2 2Fiscal 2004 from $502,000 ~~2002~~of ~~(“FISCAL~~income ~~2002~~for Q2 ~~NINE~~Fiscal 2003, primarily due to unfavorable fluctuations in foreign currency ~~MONTHS”)~~exchange rates in Europe and Mexico.

~~Net~~Income ~~Sales~~Tax Expense

~~Net~~Income ~~sales~~tax ~~for~~expense ~~the~~increased ~~Fiscal~~to ~~2003~~$399,000 ~~Nine~~in ~~Months~~Q2 ~~decreased~~Fiscal ~~slightly~~2004 tofrom a $~~267~~1.31 million ~~from~~benefit ~~$268~~in Q2 Fiscal 2003.~~5 million~~ ~~for~~The ~~the~~increase ~~same~~in ~~period~~income ~~last~~tax expense ~~year.~~and ~~The~~related ~~sales~~effect ~~decrease~~on our effective tax rate are attributable to no tax ~~was~~benefit ~~the~~being ~~net~~recognized ~~effect~~against oflosses ~~increases~~sustained inby ~~Retail~~our ~~and~~U.S. ~~International~~operations ~~sales,~~in Q2 Fiscal 2004 offset by aincome tax expense provided against profits generated ~~decrease~~offshore. inWe ~~National~~have ~~sales,~~not recognized an income tax benefit related to losses generated by our U.S. operations as ~~discussed~~we ~~below~~expect such operations to generate a taxable loss for Fiscal 2004.

~~Retail.~~In ~~Retail~~future ~~sales~~periods, ~~which~~we ~~consist~~expect ~~solely of sales through~~ our ~~U.S. retail~~effective ~~stores~~tax ~~and~~rate ~~skatepark sessions and concessions, increased 1.8%~~ to ~~$88.6 million~~fluctuate inas the mix ~~Fiscal~~between ~~2003~~taxable ~~Nine~~income ~~Months~~or ~~from~~loss ~~$87.1 million~~generated in the ~~same~~U.S. ~~period~~and foreign ~~last~~jurisdictions ~~year~~changes. ~~This~~In ~~increase~~that ~~was~~regard, ~~primarily~~we ~~the~~expect ~~result~~our ofeffective ~~the~~tax ~~increase~~rate ~~in retail~~for ~~sales we experienced in Q1~~ Fiscal ~~2003,~~2004 ~~and~~to ~~was~~be ~~partially~~in ~~offset by~~ the ~~decline in~~range ~~retail~~of ~~sales~~approximately in26% Q2to ~~Fiscal 2003 and Q3 Fiscal 2003~~29%.* ~~Comparable~~Additionally, ~~store sales~~due ~~(excluding~~primarily ~~revenue~~to ~~from~~the ~~concessions~~closure ~~and~~of ~~skate~~skateparks, ~~sessions~~we atexpect our ~~skateparks) declined~~net ~~7.8%~~operating ~~year-over-year,~~loss carryforwards ~~primarily~~to ~~due~~reach toapproximately a$30 million. ~~year-over-year~~Since ~~decline~~we inanticipate ~~average~~providing ~~selling~~a ~~price~~full ofvaluation ~~5.2%~~allowance ~~across~~against ~~all~~these ofnet ~~our~~operating ~~stores. Comparable revenues~~loss ~~from~~carryforwards, ~~concessions~~we ~~and~~expect ~~skate~~our ~~sessions~~federal attax ~~our~~rate ~~skateparks~~for ~~declined 34~~U.1%S. earnings, orif ~~$2.5 million~~any, ~~year-over-year.~~to Asbe ~~discussed~~zero ~~above,~~ for the ~~decline~~next infew ~~skatepark~~years, ~~revenue was~~and ~~largely~~our ~~attributable~~state totax ~~the~~rate ~~ongoing~~for ~~competition~~U.S. ~~from~~earnings, ~~free~~if ~~skateparks operated~~any, byto ~~local~~be ~~municipalities~~seven inpercent.* ~~nearly~~See ~~all~~“Critical ofAccounting ~~our~~Policies ~~skatepark~~– ~~markets~~Taxes.”

~~National.~~* ~~National~~Note: ~~sales,~~This ~~which~~is ~~include~~a ~~all~~forward-looking Ustatement.S. ~~sales~~Our ~~except~~actual ~~sales through~~effective ~~our~~tax ~~U.S. retail stores~~rate, ~~decreased~~net ~~6.3%~~operating toloss ~~$97.4 million~~carryforwards inand ~~the~~valuation ~~Fiscal 2003~~allowances ~~Nine~~against ~~Months~~operating ~~from~~loss ~~$103.9 million~~carryforwards incould ~~the~~differ ~~same period last year~~materially. ~~Excluding revenue~~Important ~~from~~factors ~~sales~~that ofcould ~~protective~~cause ~~gear~~such bydifferences ~~Pro-Tec and revenue from the VANS Warped Tour®~~include, ~~both~~but ofare ~~which~~not ~~were~~limited ~~acquired~~to: in(i) ~~the~~changes ~~second half~~or ofexpected ~~fiscal~~changes ~~2002, national sales were down 22.8%~~ to ~~$80~~U.~~2 million~~S. ~~The decrease~~or ininternational ~~national~~tax ~~sales~~laws; ~~was~~and ~~primarily~~(ii) ~~due~~differences tobetween ~~the~~our ~~decrease~~forecasted ~~in sales in Q2 Fiscal 2003~~ and Q3actual ~~Fiscal~~operating ~~2003 which resulted from weakness across all product lines~~results.

~~International. International sales, which include sales through our seven~~18 ~~European stores, increased 4.8% to $81.3 million in the Fiscal 2003 Nine Months~~ from $77.5 million in the same period a year ago. This increase was primarily due to increased sales in Europe of $13.7 million, partially offset by reduced royalty payments from our licensee for Japan of approximately $1.1 million, decreased sales in Canada of approximately $1.0 million, decreased sales in Mexico and South America of approximately $2.3 million and $3.9 million, respectively, and decreased sales in Asia of approximately $1.7 million.

The $13.7 million sales increase in Europe was primarily due to a $7.6 million favorable variance in exchange rates and a $6.0 million increase in unit sales and local currency average selling prices. The decreased sales in Asia, Canada and Mexico were

~~primarily~~Minority ~~a result of weakness in local retail markets. The results for~~Interest ~~the Fiscal 2003 Nine Months only contain one month of sales for South America~~ ~~as a result of the deconsolidation of our South American joint ventures, as~~ ~~described above.~~

Minority interest decreased to $417,000 in Q2 Fiscal 2004 from $594,000 in Q2 Fiscal 2003, primarily as a result of decreased earnings from our Mexico subsidiary in Q2 Fiscal 2004.

Loss from Discontinued Operations, Net of Tax

As discussed more fully above under the caption “Recent Developments in Our Exit from the Skatepark Business,” in Fiscal 2003 we made the decision to substantially exit the skatepark business. Discontinued operations for all periods presented include the results of operations for the four skateparks that had been closed as of August 30, 2003, and the closure of one Triple Crown specialty retail store during Q2 Fiscal 2004. Losses from discontinued operations decreased to $163,000 in Q2 Fiscal 2004 from $362,000 in Q2 Fiscal 2003 primarily as a result of losses incurred in Q2 Fiscal 2003 by the four skateparks that were closed prior to Q2 Fiscal 2004. As we close additional skateparks in the future, the related operating results will be recast as discontinued operations in the consolidated statements of operations for all periods presented.

TWENTY-SIX WEEK PERIOD ENDED NOVEMBER 29, 2003 (“FISCAL 2004 SIX MONTHS”), AS COMPARED TO TWENTY-SIX WEEK PERIOD ENDED NOVEMBER 30, 2002 (“FISCAL 2003 SIX MONTHS”).

Net Sales

Net sales for the Fiscal 2004 Six Months increased 6.2% to $193.9 million from $182.5 million for the Fiscal 2003 Six Months and included a 14.3% year-over-year increase in comparable store sales worldwide (excluding merchandise revenues from skateparks expected to be closed and revenues from concessions and skate sessions at all of our skateparks). The sales increase was the net effect of increases in Retail, National and International sales and favorable variances in foreign exchange rates as discussed below.

Retail. Retail sales, which consist solely of sales through our U.S. retail stores and skatepark sessions and concessions, increased 7.5% to $60.5 million in the Fiscal 2004 Six Months from $56.3 million in the Fiscal 2003 Six Months. This increase was driven by a year-over-year increase in comparable U.S. store sales (excluding merchandise revenues from skateparks expected to be closed and revenues from concessions and skate sessions at all of our skateparks) of 13.3%. The comparable store sales increase was fueled by growth in our women’s and kids footwear lines as well as apparel. Comparable revenues from concessions and skate sessions at our eight skateparks declined 30.6% year-over-year.

During the Fiscal 2004 Six Months, we reduced our U.S. retail store count to 149 total stores as a result of closing three skateparks and the net closing of five stores. As discussed above under the caption “Recent Developments In Our Exit from the Skatepark Business,” we currently plan to keep open three skateparks primarily to promote brand awareness, and we expect that all other parks will be closed generally over the next six to eighteen months.

National. National sales, which include all U.S. sales except sales through our U.S. retail stores, increased 3.9% to $77.8 million in the Fiscal 2004 Six Months from $74.8 million in the Fiscal 2003 Six Months. This increase was primarily due to a 7.2% increase in units sold, partially offset by a 4.7% decrease in average selling prices year-over-year. The strongest increases in unit sales were in our women’s and kids footwear business. Additionally, we had an approximately $1.0 million or 11.6% year-over-year increase in revenues from the VANS Warped Tour®.

International. International sales, which include sales through our European stores, increased 8.1% to $55.6 million in the Fiscal 2004 Six Months from $51.4 million in the Fiscal 2003 Six Months. This increase was primarily due to a $4.0 million increase in European sales and a $1.0 million increase in royalties from our licensee for Japan, partially offset by an approximately $700,000 decrease in sales in Central America. The $4.0 million sales increase in Europe resulted from a $4.7 million favorable variance in exchange rates relating to our direct operations in Europe, partially offset by a $700,000 decrease in sales on a constant-dollar basis. The sales decline resulted from a 3.6% decrease in units sold and a 6.0% decrease in local currency average selling prices.

Gross Profit

Gross profit ~~decreased~~increased 413.9% to $~~120~~90.2 million in the Fiscal ~~2003~~2004 ~~Nine~~Six Months from $~~126~~79.32 million in the ~~same~~Fiscal ~~period~~2003 aSix ~~year ago~~Months. As a percentage of ~~net~~ net sales, gross profit ~~decreased~~increased to 4546.05% for the Fiscal ~~2003~~2004 ~~Nine~~Six Months, ~~versus~~ 47versus 43.04% for the ~~same~~Fiscal ~~period~~2003 Six Months as a ~~year~~result ~~ago,~~of ~~primarily~~improved ~~due~~gross tomargins in the ~~absence~~National ofand International sales channels. Domestically, retail gross ~~margin~~profit ~~contribution~~as ~~from~~a ~~the~~percentage ~~newly~~of ~~acquired~~sales ~~VANS~~was ~~Warped~~relatively ~~Tour~~flat inat Q1approximately ~~Fiscal~~56.4% ~~2003,~~on a ~~the~~period-to-period ~~liquidation~~basis. ofNational ~~certain~~gross ~~excess~~profits ~~inventory~~increased atas noa ~~margin~~percentage ~~which~~of sales ~~was~~from ~~reserved~~32.6% ~~for~~ in the ~~fourth~~Fiscal ~~quarter~~2003 ofSix ~~Fiscal~~Months ~~2002,~~to ~~reduced~~34.7% ~~royalty~~in ~~payments~~the ~~from~~Fiscal ~~our~~2004 Six ~~licensee~~Months ~~for~~largely ~~Japan,~~due ~~and~~to aincreased ~~decreased~~margin ~~number~~contribution offrom ~~skate~~the ~~sessions~~VANS atWarped ~~our skateparks.~~Tour® ~~The~~in ~~decrease~~the ~~was~~Fiscal ~~partially~~2004 ~~offset~~Six byMonths ~~improved~~and ~~gross~~a ~~margins~~reduction in Q3wholesale ~~Fiscal~~markdowns ~~2003.~~versus those taken in the

~~Loss from Operations~~19

We incurred a loss from operations of $11.3 million in the Fiscal 2003 Nine Months, versus earnings from operations of $18.3 million in the same period a year ago. Primarily as a result of the impairment charges we incurred in Q3 Fiscal 2003, operating expenses in the Fiscal 2003 Nine Months increased 21.8% to $131.5 million from $108.0 million the same period a year ago. As a percentage of sales, operating expenses increased to 49.2% versus 40.2% last year. The significant components of the increase in operating expenses are discussed below.

Retail. Retail expenses increased 17.7% to $52.1 million in the Fiscal 2003 Nine Months from $44.2 million in the same period a year ago, primarily due to increased costs associated with the expansion of our retail division by the net addition of 21 new stores and 4 skateparks since the beginning of Fiscal 2002.

Marketing, advertising and promotion. Marketing, advertising and promotion expenses decreased 14.4% to $22.8 million in the Fiscal 2003 Nine Months from $26.6 million in the same period a year ago, primarily due to a planned decrease in advertising expenditures.

Selling, distribution and administrative. Selling, distribution and administrative expenses increased 10.1% to $40.7 million in the Fiscal 2003 Nine Months versus $37.0 million in the same period a year ago primarily due to increased costs of approximately $2.3 million as a result of the acquisition of Pro-Tec and increased costs of approximately $2.0 million as a result of growth in our European business.

Impairment Charges. Please see the discussion under the caption “Third Quarter Impairment Charges and Receivable Concession.”

Interest Income, Net

Interest income, net of interest expense, decreased 28.1% to $679,000 in the Fiscal 2003 Nine Months from $944,000 in the Fiscal 2002 Nine Months. This decrease was primarily due to lower interest rates on monies invested by us.

Other (Expense), Net

Other (expense), net, primarily consists of royalty payments received from the non-footwear related licensing of our trademarks, exchange rate gains and losses, and rental income. Other (expense), net, increased to $1.0 million of expense for the Fiscal 2003 Nine Months from $251,000 of expense for the same period a year ago, primarily due to losses generated on unhedged U.S. dollar denominated transactions within our European business as a result of fluctuations in foreign currency exchange rates between the U.S. dollar and European currencies.

Income Tax (Benefit) Expense

We recognized a tax benefit of $4.8 million in the Fiscal 2003 Nine Months versus an expense of $5.7 million in the same period a year ago, primarily as a result of the losses we incurred in Q3 Fiscal 2003. Our effective tax rate was 41.2% in the Fiscal 2003 Nine Months and 30.0% in the same period a year ago. The increase in our effective tax rate was due to significant tax losses generated by our domestic business as a result of the impairment charges we recorded in Q3 Fiscal 2003 with respect to our skateparks and certain of our U.S. retail stores.

Fiscal 2003 Six Months. Internationally, gross profit increased as a percentage of sales from 44.8% in the Fiscal 2003 Six Months to 52.3% in the Fiscal 2004 Six Months driven primarily by favorable fluctuations in exchange rates between the euro and U.S. dollar and increased license income from Japan.

Income from Operations

We had income from operations of $8.4 million in the Fiscal 2004 Six Months versus $4.6 million in the Fiscal 2003 Six Months. Operating expenses in the Fiscal 2004 Six Months increased 9.6% to $81.8 million versus $74.7 million in the Fiscal 2003 Six Months largely due to $3.9 million of skatepark lease termination costs incurred in the Fiscal 2004 Six Months. See “Recent Developments in Our Exit from the Skatepark Business,” above. As a percentage of sales, operating expenses, excluding lease termination costs, decreased to 40.2% versus 40.9% a year ago. The material components of the decrease in operating expenses are discussed below.

Retail. Retail expenses increased slightly to $32.1 million in the Fiscal 2004 Six Months versus $32.0 million in the Fiscal 2003 Six Months, primarily due to increased labor and related costs in order to support the increased retail stales volume discussed above, partially offset by cost savings resulting from the net closing of two stores since the beginning of Fiscal 2003.

Marketing, advertising and promotion. Marketing, advertising and promotion expenses decreased 4.1% to $15.7 million in the Fiscal 2004 Six Months from $16.4 million in the Fiscal 2003 Six Months, primarily due to planned decreases in promotional activities related to trade shows and advertising costs.

Selling, distribution and administrative. Selling, distribution and administrative expenses increased 15.4% to $29.9 million in the Fiscal 2004 Six Months from $25.9 million in the Fiscal 2003 Six Months, primarily due to (i) net increased costs of approximately $1.2 million related to our European business, (ii) a $1.9 million increase in bonus expense due to the likely achievement of performance targets for Fiscal 2004, and (iii) $500,000 of employee severance costs incurred in Q1 Fiscal 2004 . The net increase in costs related to our European business was a result of an approximately $1.3 million increase related to changes in exchange rates between European currencies, primarily the euro, and the U.S. dollar.

Lease termination costs. Please see the discussion of these costs under the caption “Recent Developments in Our Exit from the Skatepark Business.”

Amortization of intangibles. Amortization of intangibles decreased slightly to $258,000 in the Fiscal 2004 Six Months compared to $365,000 in the Fiscal 2003 Six Months, as a result of certain assets acquired in the Pro-tec transaction being completely amortized in Fiscal 2003.

Interest (Income), Net

Interest (income), net decreased to $185,000 in the Fiscal 2004 Six Months from $425,000 in the Fiscal 2003 Six Months, primarily due to lower interest rates received on monies invested.

Other (Income) Expense, Net

Other (income) expense, net, primarily consists of royalty payments received from the non-footwear related licensing of our trademarks, exchange rate gains and losses, and rental income. Other (income) expense, net, increased to $376,000 of expense for the Fiscal 2004 Six Months from $260,000 of expense for the Fiscal 2003 Six Months, primarily due to unfavorable fluctuations in foreign currency exchange rates in Europe and Mexico and the non-recurrence of foreign currency transaction losses that occurred in Q1 Fiscal 2003 related to our business in Brazil and Argentina.

Income Tax Expense

Income tax expense increased to $1.7 million in the Fiscal 2004 Six Months from $1.5 million in the Fiscal 2003 Six Months, as a result of increased income from continuing operations, offset by a lower effective tax rate. Our effective tax rate was 20.8% in the Fiscal 2004 Six Months versus 31.8% in the Fiscal 2003 Six Months. The decrease in our effective tax rate was due to the absence of U.S. taxes in the Fiscal 2004 Six Months and the impact of lower tax rates internationally in the Fiscal 2004 Six Months versus the Fiscal 2003 Six Months. We have not recognized an income tax benefit related to losses generated by our U.S. operations as we expect such operations to generate a taxable loss for Fiscal 2004.

In future periods, we expect our effective tax rate to fluctuate as the mix between taxable income or loss generated in U.S. and foreign jurisdictions changes. In that regard, we expect our effective tax rate for Fiscal 2004 to be in the range of approximately 26% to 29%.* Additionally, due primarily to the closure of skateparks, we expect our net operating loss carryforwards to reach approximately $30 million. Since we anticipate providing a full valuation allowance against these net operating loss carryforwards, we expect our federal tax rate for U.S. earnings, if any, to be zero for the next few years, and our state tax rate for U.S. earnings, if any, to be seven percent.* See “Critical Accounting Policies – Taxes.”

Minority Interest

Minority interest increased to $1.5 million in the Fiscal 2004 Six Months from $1.0 in the Fiscal 2003 Six Months, primarily as a result of increased income produced by the VANS Warped Tour®.

Loss from Discontinued Operations, Net of Tax

As discussed more fully above under the caption “Recent Developments in Our Exit from the Skatepark Business,” in Fiscal 2003 we made the decision to substantially exit the skatepark business. Discontinued operations for all periods presented include the results of operations for the four skateparks that had been closed as of August 30, 2003, and the closure of a Triple Crown specialty retail store during Q2 Fiscal 2004. Losses from discontinued operations increased to $5.1 million in the Fiscal 2004 Six Months from $510,000 in the Fiscal 2003 Six Months primarily as a result of lease termination charges of $4.7 million incurred in connection with two of the three skateparks that were closed in the Fiscal 2004 Six Months. As we close additional skateparks in the future, the related operating results will be recast as discontinued operations in the consolidated statements of operations for all periods presented.

Liquidity and Capital Resources

Cash Flows

~~At March 1, 2003, we had $53.2 million of cash and marketable securities.~~ We have historically financed our operations with a combination of cash ~~flows~~ flows from operations, borrowings under a credit ~~facility~~facilities and the sale of ~~equity~~ equity securities. InAt ~~May~~November 29, ~~2001~~2003, we ~~completed~~had an$112.1 million ~~underwritten~~in ~~public offering of our~~working ~~common~~capital ~~stock.~~and ~~In connection with the offering, 2~~$63.89 million ~~shares~~in ofcash ~~our~~and ~~common stock~~cash ~~were~~equivalents. ~~sold~~This ~~for~~compares ~~net~~to working ~~proceeds~~capital of $60106.1 million. Inand ~~June~~cash ~~2001,~~and ancash ~~additional~~equivalents of $52.8 ~~420,000~~million ~~shares~~at ~~were~~May 31, ~~sold~~2003. ~~for~~Our ~~net~~working ~~proceeds~~capital ofincreased ~~$9.2 million~~during tothe ~~cover~~Fiscal 2004 ~~over-allotments.~~Six ~~Most~~Months ofprimarily ~~the~~as ~~remaining~~a ~~proceeds~~result of the ~~offering~~receipt ~~are~~of ~~currently~~$5.1 million in full payment ~~being~~of ~~used~~a ~~for~~note ~~general~~receivable ~~corporate~~held ~~purposes.~~in ~~Certain~~connection ofwith the ~~proceeds~~sale ~~were~~of ~~used~~our toformer Orange, ~~repurchase~~California ~~stock~~manufacturing ~~and repay debt~~facility.

WeDuring ~~experienced~~the anFiscal ~~inflow~~2004 ofSix ~~cash~~Months ~~from~~ operating activities ofprovided $610.~~8 million~~0 ~~for~~million ~~the~~of ~~Fiscal 2003 Nine Months~~cash, ~~compared~~including toa anusage ~~outflow~~ of $16.78 million ~~for~~of ~~the same~~cash ~~period~~in aconnection ~~year~~with discontinued ~~ago.~~operations, ~~Excluding~~versus ~~the impairment charges of~~ $1511.30 million, ~~we had~~of ~~a net~~ cash ~~outflow~~provided ofby ~~$8.6 million~~operating activities ~~during~~in the Fiscal 2003 ~~Nine~~Six Months~~. This~~, ~~usage~~which ofincluded cash ~~resulted~~usage ~~primarily~~of $131,000 from adiscontinued ~~seasonal increase in accounts receivable of $14~~operations.~~8 million~~ ~~and~~The anet ~~decrease~~increase in ~~income~~operating ~~taxes~~cash ~~payable~~flow ~~of $2.3~~from ~~million,~~continuing ~~partially~~operations ~~offset~~was by the ~~add-back~~result ~~for~~of ~~depreciation~~a ~~and amortization of~~ $8.2.8 million ~~and~~increase ~~a decrease~~ in ~~prepaids~~income offrom continuing ~~$4.7 million.~~operations, ~~Cash~~a ~~used~~higher reduction in ~~operations~~ ~~during~~inventory balances in the Fiscal 2004 ~~2002~~Six ~~Nine~~ Months ~~was~~compared ~~primarily due~~ to anthe ~~increase of~~same ~~$9.8 million~~period inlast ~~accounts receivable~~year, anoffset ~~increase~~by ofa ~~$3.8 million~~larger increase in ~~inventories,~~ anaccounts ~~increase~~receivable, ofa ~~$3.4 million~~smaller increase in prepaid ~~and~~expenses, ~~other assets~~ and a ~~decrease~~reduction in ~~short-term~~lease termination liabilities ofin ~~$5.9 million.~~the ~~These~~Fiscal ~~cash~~2004 ~~outflows~~Six ~~were~~Months ~~partially~~compared ~~offset~~to ~~by earnings and~~ the ~~add-back~~same ~~for~~period ~~depreciation~~last ~~and amortization~~year.

Accounts receivable, ~~net~~increased of$8.7 million ~~the~~to ~~allowance~~$34.3 million ~~for~~during ~~doubtful~~the Fiscal ~~accounts~~2004 Six Months, ~~increased~~ and inventory levels decreased from $2864.0 million at May 31, ~~2002~~2003, to $4142.96 million at ~~March~~November 129, 2003, primarily due to ~~increased~~the seasonal ~~sales~~increase in ~~Europe~~our U.S. ~~Inventories~~wholesale ~~increased~~business in connection with the back-to-school ~~$50~~selling season.~~1 million~~ atCompared ~~March 1,~~to ~~2003~~a year ago, ~~from~~our ~~$48.8 million~~inventory atlevels have ~~May 31,~~decreased ~~2002,~~7.2%. ~~primarily~~This ~~due~~decrease to was the ~~timing~~result of improved management of inventory ~~purchases~~levels and ~~shipments~~increased sales in our National and Retail business.

WeIn ~~had~~connection awith ~~net~~our ~~cash~~exiting ~~inflow~~the ~~from~~skatepark ~~investing~~business, ~~activities~~as ofmore ~~$19.1 million~~fully discussed inunder the ~~Fiscal~~ ~~2003~~caption ~~Nine~~“Recent ~~Months,~~Developments ~~compared~~in toOur aExit ~~net~~from ~~cash~~the ~~outflow~~Skatepark Business,” ~~of $43.9 million~~ in the ~~same~~ ~~period~~Fiscal a2004 ~~year~~Six ~~ago.~~Months ~~The~~we ~~net~~had ~~cash inflow was primarily~~ a ~~result~~net ofreduction ~~the liquidation~~ of ~~marketable and debt securities aggregating~~ $284.65 million, ~~partially~~in ~~offset~~lease bytermination ~~capital~~liabilities ~~expenditures of $7.4 million. The liquidation of marketable and debt securities was driven by our decision to move all invested funds into investments with maturities of less than ninety days~~ as a result of ~~flatness~~ in the ~~investment~~payment ~~yield~~of ~~curve. The net cash outflow in the Fiscal~~lease ~~2002~~termination ~~Nine~~costs ~~Months~~for ~~was~~skateparks ~~primarily~~that ~~due~~we towill ~~the~~be ~~purchase of $35~~closing.~~7 million~~ ~~of marketable~~In ~~and debt securities~~total, ~~capital~~we ~~expenditures of~~ paid $1614.31 million, ~~which was~~during ~~largely~~the ~~attributable~~Fiscal to2004 ~~new~~Six ~~retail~~Months ~~store~~in ~~and~~connection ~~skatepark~~with ~~openings, and our~~lease ~~purchase~~termination ofcosts ato ~~majority~~exit ~~interest in~~ the ~~VANS~~skatepark ~~Warped~~business. ~~Tour®~~Of ~~which~~the ~~was~~amounts ~~completed~~paid, ~~in Q3 Fiscal 2002~~$6.4 million

We* ~~had~~Note: aThis ~~net~~is ~~cash~~a ~~outflow~~forward-looking ~~from financing activities of $3~~statement.~~4 million~~ inOur ~~the Fiscal~~actual ~~2003~~effective ~~Nine~~tax ~~Months~~rate, ~~compared~~net tooperating aloss ~~net~~carryforwards ~~cash~~and ~~inflow~~valuation ofallowances ~~$8.3 million~~against ~~for~~operating ~~the same~~loss ~~period~~carryforwards acould ~~year~~differ ~~ago~~materially. ~~The~~Important ~~net~~factors ~~cash~~that ~~outflow~~could incause ~~the~~such ~~Fiscal~~differences ~~2003~~include, ~~Nine~~but ~~Months~~are ~~was primarily~~not ~~due~~limited to: ~~repurchases~~(i) ofchanges ~~our~~or ~~common~~expected ~~stock~~changes ~~totaling~~to $2U.~~2 million~~S. ~~The~~or ~~net cash~~international ~~inflow~~tax inlaws; ~~the~~and ~~Fiscal~~(ii) ~~2002~~differences ~~Nine~~between ~~Months was primarily due to the completion of the sale of~~ our ~~common~~forecasted ~~stock~~and inactual ~~the~~operating ~~public offering to cover over-allotments~~results.

~~The following table summarizes our contractual payment obligations and~~21 ~~commitments as of March 1, 2003:~~

		PAYMENT OBLIGATIONS BY FISCAL YEAR (IN THOUSANDS)
		2003		2004		2005		2006		2007		THEREAFTER		TOTAL
Operating Leases		$	4,430	$	17,568	$	17,002	$	16,225	$	16,056	$	52,471	$	123,752
Long-term debt			8		2,621		4		5		6		253		2,897
	Total	$	4,438	$	20,189	$	17,006	$	16,230	$	16,062	$	52,724	$	126,649

At March 1, 2003, we had letters of credit outstanding totaling $10.7 million. These letters of credit were issued for the purchase of inventory.

Borrowings

Through March 1, 2003, we maintained an unsecured revolving credit facility pursuant to a credit agreement with several lenders in an amount not to exceed $45.0 million. The credit agreement permitted us to draw upon the credit facility for general corporate purposes, capital expenditures, acquisitions and stock repurchases and would have expired on April 30, 2004. We had the option to pay interest on revolving credit facility advances at a rate equal to either LIBOR plus a margin, or the base rate plus a margin. At

~~March 1,~~related ~~2003,~~to noskateparks ~~amounts~~classified ~~were~~as ~~outstanding~~discontinued ~~under~~operations in the accompanying ~~revolving~~condensed ~~credit facility.~~consolidated ~~Subsequent~~financial tostatements. ~~March~~At November 129, 2003, ~~we reached agreement with the lenders~~ toour ~~terminate~~balance ~~the~~sheet ~~credit~~included ~~agreement~~lease ~~and~~termination ~~replace~~liabilities itof ~~with a~~ $203.08 million ~~secured revolving credit facility. Under the new facility, we will be able to obtain advances for the issuance of commercial letters of credit~~ and ~~standby letters~~ ofliabilities ~~credit.~~held ~~The new facility will be secured by a security interest~~ in ~~a certificate~~connection ~~of deposit held~~ with ~~the~~disposal ~~lending~~activities ~~institution,~~aggregating ~~and advances under~~$108,000, ~~the~~which ~~facility~~represents ~~will~~lease ~~bear~~termination ~~interest~~liabilities atrelated ~~a rate equal~~ to ~~either~~skateparks ~~the prime rate or~~classified ~~LIBOR~~as ~~plus~~discontinued operations.~~20%. The new facility will mature on May 1, 2004 and is subject to~~ ~~the completion of loan documents. The loan agreement for the new facility will~~ ~~contain less restrictive affirmative and negative covenants than the credit agreement for the prior facility.~~

~~Vans~~Investing ~~Latinoamericana,~~activities ~~our~~provided ~~subsidiary~~cash of $1.8 million in ~~Mexico,~~the ~~maintains~~Fiscal 2004 Six Months primarily as a ~~note~~result ~~payable to~~of ~~Tavistock~~the ~~Holdings~~repayment Aof the $5.G1 million note receivable described above., aThis 49was partially offset by $2.~~99%~~8 million ~~owner~~in capital expenditures and approximately $497,000 paid in connection with the purchase of ~~Vans~~certain ~~Latinoamericana~~of the assets and liabilities of Max MadHouse. ~~The~~In ~~loans~~the ~~evidenced~~Fiscal by2003 ~~the~~Six ~~note~~Months, ~~were~~investing ~~made~~activities byprovided ~~Tavistock~~$16.7 million, ~~pursuant~~due mainly to anet ~~shareholders’ agreement~~sales ~~requiring~~of ~~Tavistock~~marketable todebt ~~provide~~securities ~~operating~~of ~~capital~~$24.0 million, onoffset anby ~~as-needed~~capital ~~basis,~~expenditures of $6.4 million and approximately $1.0 million paid in connection with the ~~form~~acquisition of ~~loans~~Sunspot. toCapital ~~Vans~~expenditures ~~Latinoamericana.~~were Athigher ~~March 1,~~in ~~2003,~~ the Fiscal ~~aggregate~~2003 ~~outstanding~~Six ~~balance~~Months ~~under~~than in the ~~note~~Fiscal ~~was~~2004 $2Six Months as a result of new retail store and skatepark openings.~~5 million.~~

Cash used in financing activities was $1.5 million in the Fiscal 2004 Six Months, which was primarily the net result of cash outflows of $909,000 for net repayments of long-term debt and $814,000 in dividends paid to a minority shareholder of one of our subsidiaries, partially offset by $195,000 in proceeds from the issuance of common stock. In the Fiscal 2003 Six Months, financing activities used $3.1 million in cash, primarily consisting of $2.2 million in net cash outflows to purchase common stock pursuant to our stock repurchase program, $178,000 in net repayments of long-term debt, and $734,000 in dividends paid to the minority shareholder of one of our subsidiaries.

The following table summarizes our contractual payment obligations and commitments as of November 29, 2003:


		PAYMENT OBLIGATIONS BY FISCAL YEAR (IN THOUSANDS)

		2004		2005		2006		2007		2008		THEREAFTER		TOTAL

Operating leases		$	6,455	$	11,808	$	10,578	$	10,078	$	7,933	$	20,445	$	67,297
Long-term debt			109		1,240		5		5		5		250		1,614
Athlete license agreements			1,032		916		399		142		—		—		2,489

	Total	$	7,596	$	13,964	$	10,982	$	10,225	$	7,938	$	20,695	$	71,400

At November 29, 2003, we had firm commitments to purchase inventory in the amount of $28.7 million during the third and fourth quarters of Fiscal 2004. These commitments included contingent liabilities under open letters of credit with foreign suppliers aggregating $637,000.

Borrowings

We maintain a $20.0 million credit facility, which enables us to obtain advances for the issuance of commercial letters of credit and standby letters of credit. Outstanding letters of credit are secured by our cash balances. This facility matures on May 1, 2004. As of November 29, 2003, $637,000 in open commercial letters of credit were outstanding under this facility.

Vans Latinoamericana, our subsidiary for Mexico, maintains a note payable to Tavistock Holdings A.G., a 49.99% owner of Vans Latinoamericana. The loans evidenced by the note were made by Tavistock pursuant to a shareholders’ agreement requiring Tavistock to provide operating capital, on an as-needed basis, in the form of loans to Vans Latinoamericana. At November 29, 2003, the aggregate outstanding balance under the note was $1.2 million.

Share Repurchase Program

On September 21, 2001, we adopted a 1.0 million share repurchase program. AsThrough of the date of this report, we have repurchased 555,700 shares under the program for an aggregate of $3.3 million. We did not repurchase any ~~shares~~stock inunder Q3the ~~Fiscal~~program ~~2003,~~in ~~but~~the weFiscal ~~purchased~~2004 anSix ~~aggregate of 100,000 shares for an aggregate of $451,679 from March 2, 2003, through April 9, 2003~~Months. ~~The average~~ ~~price we paid for those shares was $4.52.~~

Capital Expenditures

Our future ~~material~~ commitments for capital expenditures are primarily related to the opening and remodeling of retail stores~~, including a planned opening of a store on Carnaby Street in London in Fiscal 2004~~. We ~~have opened six full price stores to date in Fiscal 2003 and currently do not~~ plan to open ~~any~~ ~~more~~three stores ~~in the balance of Fiscal 2003. We also plan to~~ and remodel, ~~two existing~~re-size ~~stores~~or ~~and~~ relocate ~~two~~eight existing stores induring the ~~balance~~remainder of Fiscal ~~2003~~2004. We estimate the aggregate cost of these openings, remodels and relocations to be approximately $1.39 million. ~~We recently reached an agreement with the~~ ~~landlord for our proposed Sacramento skatepark to terminate the lease for the~~ ~~park and not proceed with construction of the park. The agreement is subject~~ ~~to the approval of the landlord’s lender.~~

~~Capital Resources~~22

Our liquid asset position at March 1, 2003, consisted of cash and cash equivalents of $53.2 million. This compares to cash and cash equivalents of $28.4 million and marketable and debt securities of $27.5 million at May 31, 2002. We believe our capital resources, including the availability under the new credit facility and cash flow from operations, will be sufficient to fund our operations and capital expenditures for the foreseeable future.*

NEW ACCOUNTING PRONOUNCEMENTS

In April 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement 13 and Technical Corrections” (“SFAS 145”), which became effective for us in fiscal 2003. SFAS 145 eliminates the classification of debt extinguishment activity as extraordinary items; eliminates inconsistencies in lease modification treatment; and makes various technical corrections or clarifications of other existing authoritative pronouncements. The adoption of SFAS 145 had no financial impact to our consolidated financial statements.

InCapital ~~July 2002, the FASB issued SFAS No. 146, “Accounting For Costs~~Resources ~~Associated With Exit or Disposal Activities” (“SFAS 146”), which addresses~~ ~~financial accounting and reporting for costs associated with exit or disposal~~ activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS 146 had no financial impact to our consolidated financial statements.

InOur ~~December~~liquid ~~2002,~~asset ~~the~~position ~~FASB~~at ~~issued SFAS No.~~November ~~148~~29, ~~“Accounting~~2003, ~~for Stock-Based~~consisted ~~Compensation~~of -cash ~~Transition~~ and ~~Disclosure”~~cash equivalents ~~(“SFAS~~of ~~148”),~~$63.9 million. ~~which permits~~This ~~two~~compares ~~additional~~to ~~transition~~cash ~~methods~~and ~~for~~cash ~~companies~~equivalents ~~that~~of ~~elect~~$52.8 million toat ~~adopt the~~May 31, ~~fair-value-based~~2003. ~~method~~We ofbelieve ~~accounting~~our ~~for~~capital ~~stock-based~~resources ~~employee~~will ~~compensation.~~be sufficient to fund our ~~The~~operations ~~statement~~and ~~also~~capital ~~expands~~expenditures ~~the~~and ~~disclosure~~anticipated ~~requirements~~growth plan for ~~stock-based~~the ~~compensation~~foreseeable future.* ~~The~~Approximately ~~provisions~~$36.6 million of ~~this~~our ~~statement~~liquid asset ~~apply~~position toas ~~financial~~of ~~statements for~~November 29, ~~fiscal~~2003, ~~years~~is ~~ending~~held ~~after~~by ~~December 15,~~European ~~2002.~~subsidiaries ~~The~~of ~~statement~~Vans isand ~~not~~could ~~expected to~~be ~~have~~subject ato ~~material~~U.S. income ~~impact~~taxes onif ~~our~~it ~~consolidated~~is ~~financial~~repatriated ~~statements~~to Vans.

InRECENT ~~January~~ACCOUNTING ~~2003, the FASB issued FIN No. 45, “Guarantor’s Accounting and~~PRONOUNCEMENTS ~~Disclosure Requirements for Guarantees, Including Indirect Guarantees of~~ ~~Indebtedness of Others” (“FIN 45”). FIN 45 requires a company to recognize a~~ liability for the obligations it has undertaken in issuing a guarantee. This liability would be recorded at the inception of a guarantee and would be measured at fair value. The measurement provisions of this statement apply prospectively to guarantees issued or modified after December 31, 2002. The disclosure provisions of the statement apply to financial statements for periods ending after December 15, 2002. We adopted this statement in the quarter ended March 1, 2003, and it did not have an impact on our consolidated financial statements.

In ~~January~~July ~~2003~~2002, the FASB issued ~~FIN~~SFAS No. 46146, “~~Consolidation~~Accounting ofFor ~~Variable~~Costs ~~Interest~~Associated ~~Entities~~With Exit or Disposal Activities” (“~~FIN~~SFAS 46146”)., ~~FIN~~which ~~46 requires a company to consolidate a~~addresses ~~variable~~financial ~~interest~~accounting ~~entity~~and ifreporting itfor iscosts ~~designated~~associated aswith ~~the~~exit ~~primary~~or ~~beneficiary of that~~disposal ~~entity even if the company does not have a majority of voting interests. A variable interest entity is generally defined as an entity which has insufficient equity to finance its~~ activities ~~or the owners of the entity lack the risk~~ and ~~rewards~~nullifies ofEITF ~~ownership.~~Issue ~~The provisions of this statement apply at inception for any entity created after January 31, 2003~~No. ~~For an entity created before February~~ 194-3, ~~2003,~~“Liability ~~the~~Recognition ~~provisions of this Interpretation must be applied~~for atCertain ~~the~~Employee ~~beginning~~Termination ofBenefits ~~the~~and ~~first~~Other ~~interim~~Costs orto ~~annual~~Exit ~~period~~an ~~beginning after June 15,~~Activity ~~2003.~~(including WeCertain ~~will~~Costs ~~adopt~~Incurred ~~the provisions of FIN 46~~ in ~~the~~a ~~quarter~~Restructuring)” ~~ending~~(“EITF ~~November 29, 2003,~~94-3”). ~~for~~SFAS ~~existing entities that are within the scope of this interpretation.~~146 ~~The~~is ~~statement~~effective ~~also~~for ~~has~~exit ~~disclosure~~or ~~requirements,~~disposal ~~some~~activities ofthat ~~which~~ are ~~required~~initiated ~~to be included in financial statements issued~~ after ~~January~~ December 31, ~~2003~~2002. ~~On a~~ ~~preliminary basis, we do not believe FIN 46 will have an impact on our~~ ~~consolidated financial statements.~~

As a result of the implementation of SFAS 146, the accounting for amounts recorded in connection with our decision to substantially exit the skatepark business was materially impacted. Under the guidance of EITF 94-3, we would have recorded as an expense during the year ended May 31, 2003 (the period in which management committed to an exit plan for the skateparks), an estimate of certain costs that would be directly incurred in connection with skatepark closures. The most significant element of these costs is lease termination charges. With the implementation of SFAS 146, costs associated with exit activities are to be recorded in the period in which they are incurred. In the case of lease termination costs, this is the period in which we enter into an agreement with the landlord. Accordingly, our consolidated results of operations include lease termination charges in the periods in which we entered into an agreement. Additionally, other direct costs associated with closing skateparks will be expensed in future periods as they are incurred.

In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 requires a company to consolidate a variable interest entity if it is designated as the primary beneficiary of that entity even if the company does not have a majority of voting interests. A variable interest entity is generally defined as an entity that has insufficient equity to finance its activities or the owners of the entity lack the risk and rewards of ownership. The provisions of this statement apply at inception for any entity created after January 31, 2003. For an entity created before February 1, 2003, the provisions of this Interpretation must be applied at the beginning of the first interim or annual period beginning after December 15, 2003. We will adopt the provisions of FIN 46 in the quarter ending February 28, 2004, for existing entities that are within the scope of this Interpretation. The statement also has disclosure requirements, some of which are required to be included in financial statements issued after January 31, 2003. Since we do not currently have any variable interest entities, the adoption of the provisions of FIN 46 is not expected to have a material impact on our financial position or results of operations.

SEASONALITY

The following table contains unaudited selected quarterly financial data for the eight quarters ended ~~March~~November 129, 2003, and this data as a percentage of of net sales. In the opinion of management, this unaudited information has been prepared on the same basis as the ~~audited information and includes all~~ ~~adjustments necessary to fairly present the information set forth therein.~~ ~~Results of a particular quarter are not necessarily indicative of the results for any subsequent quarter.~~

~~UNAUDITED~~* ~~QUARTERLY~~Note: ~~RESULTS~~ This is a forward-looking statement. Our actual cash requirements could differ materially. Important factors that could cause our need for additional capital to change include: (~~DOLLARS~~i) INthe ~~THOUSANDS~~aggregate amount of cash we spend in connection with terminations and/or restructuring of leases for our skateparks; (ii) our rate of growth; (iii) the number of new stores we decide to open and the number of store remodels we undertake; (iv) the amount of stock we repurchase under our repurchase program; (v) our ability to effectively manage our inventory levels; (vi) timing differences in payment for our foreign-sourced product; (vii) slowing in the U.S., California or global economies which could materially impact our business; and (viii) the ability to repatriate cash held in our European subsidiaries to the United States without paying a significant amount of U.S. taxes thereon.

		QUARTER ENDED
		MAY 31,			SEPTEMBER 1,			DECEMBER 1,			MARCH 3,
		2001			2001			2001			2002
STATEMENT OF OPERATIONS DATA:
	Net sales	$	85,231		$	118,060		$	68,333		$	82,151
	Gross profit		37,519			55,339			33,260			37,737
	Earnings (loss) from operations		4,640			16,379			1,326			641
	Net income (loss)		2,699			11,343			512			483
AS A PERCENTAGE OF NET SALES:
	Net sales		100	%		100	%		100	%		100	%
	Gross profit		44			47			49			46
	Earnings (loss) from operations		6			14			2			1
	Net income (loss)		3			10			1			1
	Year-over-year comparable store sales increase		9.2	%		4.7	%		(8.9	)%		(5.1	)%

[Additional columns below]

[Continued from above table, first column(s) repeated]

		QUARTER ENDED
		MAY 31,			AUGUST 31,			NOVEMBER 30,			MARCH 1,
		2002(a)			2002			2002			2003(b)
STATEMENT OF OPERATIONS DATA:
	Net sales	$	63,807		$	124,633		$	60,606		$	82,064
	Gross profit		26,042			52,111			29,038			39,036
	Earnings (loss) from operations		(20,323	)		8,768			(5,047	)		(15,018	)
	Net income (loss)		(14,934	)		5,421			(3,666	)		(9,206	)
AS A PERCENTAGE OF NET SALES:
	Net sales		100	%		100	%		100	%		100	%
	Gross profit		41			42			48			48
	Earnings (loss) from operations		(32	)		7			(8	)		(18	)
	Net income (loss)		(23	)		4			(6	)		(11	)
	Year-over-year comparable store sales increase		(7.4	)%		(4.9	)%		(9.3	)%		(6.6	)%

(a)		Included in earnings (loss) from operations and net income (loss) are impairment charges aggregating $6,579.
(b)		Included in earnings (loss) from operations and net income (loss) are impairment charges aggregating $15,338.

~~Our~~audited ~~business~~information isand ~~seasonal,~~includes ~~with~~all ~~the~~adjustments ~~largest~~necessary ~~percentage~~to ~~of net income and~~fairly ~~U.S.~~present ~~sales realized in~~ the ~~first~~information ~~fiscal~~set ~~quarter~~forth ~~(June through August), the “back to school” selling months~~therein. InResults ~~addition,~~of ~~because snowboarding is~~ a ~~winter sport,~~particular ~~sales~~quarter ~~of our snowboard boots and the Switch Autolock® binding system~~are ~~have~~not ~~historically~~necessarily ~~been~~indicative ~~strongest~~of in the ~~first~~results ~~and~~for ~~second~~any ~~fiscal~~subsequent ~~quarters (June through November)~~quarter.

InUNAUDITED ~~addition~~CONSOLIDATED toQUARTERLY ~~seasonal fluctuations, our operating results fluctuate~~RESULTS ~~quarter-to-quarter~~(DOLLARS asIN ~~a result of the timing of marketing expenditures and~~THOUSANDS) ~~holidays, weather, timing of shipments, product mix, cost of materials and the~~ ~~mix between wholesale and retail channels. Because of such fluctuations, the~~ results of operations of any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year or any future quarter. In addition, there can be no assurance that our future results will be consistent with past results or the projections of securities analysts.


		QUARTER ENDED												QUARTER ENDED

		NOVEMBER 29,			AUGUST 30,			MAY 31,			MARCH 1,			NOVEMBER 30,			AUGUST 31,			MAY 31,			MARCH 2,
		2003			2003			2003			2003			2002			2002			2002			2002

STATEMENT OF OPERATIONS DATA:
	Net sales	$	65,183		$	128,687		$	62,373		$	80,769		$	59,503		$	123,031		$	62,464		$	80,253
	Gross profit		31,446			58,765			29,224			38,188			28,263			50,971			25,073			36,392
	Asset impairment charges		—			—			1,213			12,509			—			—			1,612			—
	Goodwill impairment charges		—			—			4,550			—			—			—			—			—
	Lease termination charges		1,921			1,971			7,893			—			—			—			—			—
	Income (loss) from continuing operations		(6,526	)		11,553			(19,542	)		(7,245	)		(3,304	)		5,569			(11,023	)		600
	Income (loss) from discontinued operations, net of tax		(163	)		(4,925	)		(3,034	)		(1,961	)		(362	)		(148	)		(3,911	)		(117	)
	Net income (loss)	$	(6,689	)	$	6,628		$	(22,576	)	$	(9,206	)	$	(3,666	)	$	5,421		$	(14,934	)	$	483
AS A PERCENTAGE OF NET SALES:
	Net sales		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%
	Gross profit		48			46			47			47			47			41			40			45
	Asset impairment charges		0			0			2			15			0			0			3			0
	Goodwill impairment charges		0			0			7			0			0			0			0			0
	Lease termination charges		3			2			13			0			0			0			0			0
	Income (loss) from continuing operations		(10	)		9			(31	)		(9	)		(6	)		5			(18	)		1
	Income (loss) from discontinued operations, net of tax		0			(4	)		(5	)		(2	)		(1	)		0			(6	)		0
	Net income		(10	)		5			(36	)		(11	)		(6	)		4			(24	)		1
	Comparable store sales Increase (decrease)		15.2	%		13.7	%		9.0	%		(6.6	)%		(9.3	)%		(4.9	)%		(7.4	)%		(5.1	)%

Our business is seasonal, with the largest percentage of net income and U.S. sales realized in the first fiscal quarter (June through August), the “back to school” selling months. In addition to seasonal fluctuations, our operating results fluctuate quarter-to-quarter as a result of the timing of marketing expenditures and holidays, weather, timing of shipments, product mix, cost of materials and the mix between wholesale and retail channels. Because of such fluctuations, the results of operations of any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year or any future quarter. In addition, there can be no assurance that our future results will be consistent with past results or the projections of securities analysts.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to market risk associated with changes in interest rates relates primarily to our cash and cash equivalents. At ~~March~~November 129, 2003, we ~~held~~ held $5363.29 million in cash and cash equivalents. Cash equivalents consist of ~~highly~~ highly liquid investments in federal treasury securities, commercial paper and ~~money~~ money market time deposits with original maturities of three months or less. Due to the relatively short-term nature of our cash equivalents, cost ~~approximates~~ approximates fair value. We do not use derivative or other financial instruments to hedge interest rate risks. A 1% decline in the annual yield on cash and cash equivalents would decrease our interest income by approximately $~~532~~639,000.

Foreign Currency Risk

We operate our business and sell our products in a number of countries throughout the world and, as a consequence, ~~the~~we ~~financial results of our international operations~~ are exposed to movements in foreign currency exchange rates between the local currencies of the foreign markets in which we operate and the U.S. dollar. Our foreign currency exposure is generally related to Europe, Mexico and Japan.

InOur ~~Fiscal~~primary ~~2002,~~foreign weexchange ~~were~~risk ~~subjected~~arises tofrom ~~foreign~~purchases ~~currency~~of ~~risk~~inventory in ~~South~~ ~~America~~U.S. ~~through~~dollars by our ~~involvement~~European insubsidiaries, ~~joint~~whose ~~venture~~functional ~~operations~~currencies inare ~~Brazil,~~the ~~Argentina~~euro and ~~Uruguay~~British sterling. ~~Our~~To ~~South~~hedge ~~America~~this ~~business~~risk, ~~was~~we ~~negatively~~utilize ~~impacted~~forward byforeign ~~weaknesses~~exchange incontracts ~~South~~and/or ~~American~~foreign ~~economies,~~currency ~~particularly~~options ~~Argentina.~~with Indurations ~~July~~of ~~2002,~~generally wefrom ~~made~~three ~~the decision~~ to ~~close~~12 months. ~~our~~We ~~joint~~generally ~~venture~~hedge ~~operations~~a insubstantial ~~South~~portion ~~America, and as~~ of ~~July 1,~~our projected ~~2002,~~exposure ~~the~~from ~~entities~~inventory purchases for ~~these~~the ~~joint~~coming ~~venture~~six ~~operations~~to ~~are~~12 months. noAs ~~longer~~of ~~consolidated in our balance sheet. At March~~November 129, 2003, ~~our~~we ~~remaining exposure~~had to$17.7 million ~~foreign~~outstanding ~~currency risk~~ in ~~South~~foreign ~~America~~exchange forward ~~consists~~contracts ofto ~~net~~hedge ~~trade receivables~~the ofeuro ~~$866,000~~against ~~from~~the ~~these joint ventures~~U.S. ~~Our~~dollar, ~~ability~~at toan ~~collect~~average ~~these~~contract ~~amounts~~rate isof ~~also~~$1.14 ~~subject~~per ~~to our ability to successfully liquidate our assets in South America~~euro.

~~Our~~At primary foreign exchange risk arises from purchases of inventory in U.S. dollars by our European subsidiaries, whose functional currencies are the euro and British sterling. To hedge this risk, we utilize forward foreign exchange contracts and/or foreign currency options with durations of generally from three to nine months. As of MarchNovember 129, 2003, we also had $51.25 million outstanding in foreign currency ~~exchange~~ forward contracts to purchase U.S. dollars~~, which~~ ~~were~~using ~~entered~~Japanese ~~into~~yen toat ~~hedge specific transactions denominated in~~an ~~currencies~~average ~~other~~contract ~~than~~rate ~~the respective local currency. $3.2 million~~ of ~~these forward contracts were to hedge the U~~110.S.9 ~~dollar~~yen ~~against~~per ~~the euro and $2.0 million of these contracts were to hedge the~~ U.S. dollar ~~against the British sterling~~. ~~Net~~These ~~unrealized~~forward ~~losses on foreign exchange~~ contracts ~~at March 1, 2003~~ ~~aggregated~~were $1.2 million, all of which is included in accumulated other comprehensive income and is expected to be reclassified into earnings within the next six months as the inventory related to the foreign exchange contracts is sold. During the period from March 2, 2003 through April 9, 2003, we entered into ~~additional forward contracts aggregating $7.0 million~~ to hedge ~~the U.S.~~projected ~~dollar~~future ~~against~~cash ~~the~~flows ~~euro.~~in ~~These~~connection ~~additional~~with certain ~~contracts~~royalty ~~are~~payments to ~~hedge~~be ~~a portion~~received offrom ~~projected~~our ~~inventory~~licensee ~~purchases~~for ~~that~~Japan ~~will occur~~ during the ~~first two~~ ~~quarters~~remainder of Fiscal 2004.

~~Revenues~~Net ~~from~~unrealized ~~euro-sourced~~gains/losses ~~and~~on ~~sterling-sourced~~foreign ~~operations~~exchange ~~aggregated~~contracts at November 29, 2003, aggregated a loss of $~~45.5 million~~789,000, all of which is included in accumulated other comprehensive income and ~~$17.3~~is expected to be reclassified into earnings within the next 12 ~~million,~~months ~~respectively,~~as ~~for~~the inventory related to the ~~Fiscal~~foreign ~~2003~~exchange contacts ~~Nine~~is ~~Months~~sold.

In addition to hedging inventory purchases and royalties, we may also hedge other foreign currency cash flow and balance sheet exposures as they are identified. We do not hold or issue derivative instruments for trading purposes.

Our financial performance can be affected by fluctuations in the value of the euro and British sterling when translating the financial statements of our European subsidiaries into U.S. dollars. Revenues from euro-sourced and sterling-sourced operations aggregated $7.6 million and $4.8 million, respectively, for Q2 Fiscal 2004 and $30.6 million and $10.8 million, respectively for the 2004 Fiscal Six Months.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, summarized and processed within time periods specified in the SEC’s rules and forms. As of athe ~~date~~end ~~within 90 days~~ of the ~~date~~period ofcovered by this report (the “Evaluation Date”), we carried out an evaluation, under the supervision and with the participation of ~~our~~ management, including our President and Chief Executive Officer and our Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 under the Exchange Act. Based upon this evaluation, our President and Chief Executive Officer and our Vice President and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective under Rule 13a-14.

20 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.

Executive Officer and our Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 under the Exchange Act . Based upon this evaluation, our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective under Rule 13a-14.

Additionally, our President and Chief Executive Officer and Senior Vice President and Chief Financial Officer determined, as of a date within 90 days of the date of this report, that there were no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the date of their evaluation.

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Vans, Inc. vs. Scott Brabson, ~~and~~Gordana Brabson, Jay Rosendahl, inHeidi Rosendahl, ~~Arbitration~~et ~~before~~al, Superior Court for the County of Los Angeles, Case No. ~~JAMS~~BC27031. The allegations we have made in this case, ~~and~~ the companion ~~lawsuit~~arbitration, ~~pending~~and inthe ~~Los~~resulting ~~Angeles~~arbitration ~~Superior~~award ~~Court~~ are described in our Annual Report on Form 10-K for Fiscal ~~2002.~~2003, ~~Updated~~which ~~disclosures~~is ~~regarding~~filed ~~this~~with ~~case~~the ~~describing~~Securities and Exchange ~~the~~Commission. ~~arbitrator’s~~No ~~award~~material changes in the status of ~~$8.0 million~~these tomatters ushave ~~are~~occurred since ~~contained~~the infiling ~~two~~of ~~Forms~~our 8Form 10-K wefor Fiscal 2003, and no amounts have been ~~filed~~recorded ~~with~~in ~~the~~our ~~SEC~~condensed onconsolidated ~~February 3,~~financial ~~2003~~statements ~~and~~in ~~February 25,~~connection ~~2003,~~with this ~~respectively~~matter.

OnGordana ~~March 10,~~Brabson ~~2003~~vs. Vans, ~~Brabson~~Inc. ~~filed~~et. ~~for~~al, ~~bankruptcy~~Superior ~~protection~~Court ~~under~~of ~~the~~California, ~~Federal~~County ~~Bankruptcy~~of ~~laws~~Santa Barbara, Case No. 01110315. WeThis ~~believe~~lawsuit ~~that~~was ~~Brabson~~filed against Vans, one of Vans’s ~~obligations~~current toexecutive usofficers, ~~are~~one ~~not~~of its former executive ~~dischargeable~~officers, ~~under~~and ~~such~~certain ~~laws~~other individuals and entities on December 6, 2002, in connection with a lawsuit filed by us against the plaintiff, her husband and other individuals and entities in which we ~~will~~alleged ~~file~~that they engaged in a conspiracy ~~motion~~to ~~seeking~~obtain anunauthorized ~~order~~payments from certain of our factories in ~~the~~China. ~~bankruptcy~~Mrs. Brabson ~~judge~~alleged causes of action for invasion of privacy, trespass, and intentional infliction of emotional distress relating to the investigation conducted in connection with that ~~effect~~litigation. An agreement to settle this case was reached in Q1 Fiscal 2004, and settlement documents are still being finalized. The terms of the settlement are confidential. The settlement of this case will not have a material adverse impact on our future results of operations or financial condition.

OnFranklin ~~March 18~~C. Ferrana a/k/a Nikki Sixx vs. Vans, ~~2003~~Inc., ~~the~~High ~~bankruptcy~~Speed Productions, ~~judge~~Inc. ind/b/a ~~Rosendahl’s~~Thrasher ~~bankruptcy~~Magazine, ~~case~~Superior Court for the County of Los ~~granted~~Angeles, ~~our~~Case ~~motion~~No. BC303262. toThis ~~lift~~lawsuit ~~the~~was ~~stay~~filed inon September 30, 2003, and alleges that ~~case~~Vans toand ~~allow~~Thrasher usMagazine tomisappropriated ~~finalize~~the image of the ~~arbitrator’s~~plaintiff ~~award~~in ~~against~~an ~~Rosendahl~~advertisement. WeThe ~~will~~complaint ~~now~~seeks ~~file~~compensatory adamages ~~motion~~in excess ~~requesting~~of an$1.0 million, disgorgement of profits, and punitive damages. In Q2 ~~order~~Fiscal ~~from~~2004 ~~the~~we ~~bankruptcy~~filed ~~judge~~an ~~declaring~~answer ~~that~~in ~~Rosendahl~~this matter denying the plaintiff’s allegations ~~obligations~~and toasserting us numerous affirmative defenses. The parties are currently ~~non-dischargeable~~engaged in discovery.

~~Gordana~~In ~~Brabson~~addition ~~vs.~~to ~~Vans,~~the ~~Inc. et. al~~foregoing, ~~Superior~~from ~~Court~~time ofto ~~California, County~~time ofwe ~~Santa~~are ~~Barbara,~~the ~~case~~subject ~~No. 01110315. This lawsuit was filed against Vans, two~~ of ~~Vans’ executive officers, and certain other individuals and~~ ~~entities~~claims ~~on December 6, 2002,~~ in ~~connection with~~ the ~~above-mentioned~~ordinary ~~litigation (the~~course ~~“Brabson and Rosendahl case”). Mrs. Brabson alleges causes~~ of action for invasion of privacy, trespass, and intentional infliction of emotional distress relating to the investigation conducted in connection with that litigation. She seeks an unspecified amount of compensatory, special and punitive damages. We recently brought a so-called “SLAPP” motion to dismiss this case on the grounds that it was designed to inhibit our ~~ability to pursue our remedies in the Brabson and Rosendahl case~~business. ~~The court denied this motion and we are proceeding~~ ~~with discovery.~~

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On October 28, 2003, we held our 2003 Annual Meeting of Stockholders. The following matters were voted on at the meeting: (i) the election of directors; (ii) the approval of Amendment No. 3 to the Vans, Inc. 2000 Long-Term Incentive Plan; (iii) the approval of a non-binding resolution to re-ratify and re-approve the Vans, Inc. Stockholder Rights Plan; and (iv) the ratification and approval of KPMG LLP as the Company’s independent auditors for Fiscal 2004.

The results of the voting on these matters (including the names of all persons elected as directors) are set forth below:


			VOTES
PROPOSAL	VOTES FOR		AGAINST/WITHHELD		ABSTENTIONS		BROKER NON-VOTES

Proposal No. 1
Election of Directors
Nominees:
Walter E. Schoenfeld		15,554,928		297,137		0		0
Gary H. Schoenfeld		15,707,228		144,837		0		0
Wilbur J. Fix		15,591,792		1,260,273		0		0
Gerald Grinstein		15,709,230		142,835		0		0
James R. Sulat		15,683,122		168,943		0		0
Kathleen M. Gardarian		14,620,124		1,231,941		0		0
Lisa M. Douglas		14,619,424		1,232,641		0		0
Charles G. Armstrong		15,682,020		170,045		0		0
Leonard R. Wilkens		14,620,132		1,231,933		0		0


			VOTES
PROPOSAL	VOTES FOR		AGAINST/WITHHELD		ABSTENTIONS		BROKER NON-VOTES

Approval of Proposal No. 2
Amendment No. 3 to 2000 Long-Term Incentive Plan		8,986,610		3,618,879		3,213,303		33,273
Proposal No. 3
Approval of Stockholder Rights Plan		8,823,880		3,822,534		3,200,403		5,248
Proposal No. 4
Ratification of KPMG LLP as Independent Auditors for Fiscal 2004		15,852,065		35,957		1,394		0

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

10.1		Employment Agreement ~~dated as of January 1, 2003,~~ between Vans, Inc. and ~~Cheryl~~Craig ~~Van~~E. ~~Doren~~Gosselin, dated September 18, 2003
10.2		Employment Agreement ~~dated as of March 19, 2003,~~ between Vans, Inc., and ~~Steven~~Dana AM. ~~Munn.~~Guidice, dated October 10, 2003
10.3		Third Amendment to Appendix B Payment Schedule, Trust Under Vans, Inc. Deferred Compensation Plan
31.1		Certification of Scott J. Blechman Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
10.4		Third Amendment to Vans, Inc. Deferred Compensation Agreement for Walter E. Schoenfeld
31.2		Certification of Gary H. Schoenfeld Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
99.1		Certification of Gary H. Schoenfeld Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Scott J. Blechman Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2		Certification of Andrew J. Greenebaum Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Gary H. Schoenfeld Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

21 (b) Reports on Form 8-K. We filed two reports on Form 8-K during the quarterly period ended November 29, 2003. The first report was dated September 17, 2003, and disclosed our pre-announcement of financial results for Q1 Fiscal 2004. The second report was dated September 25, 2003, and disclosed our actual Q1 Fiscal 2004 financial results.

(b) Reports on Form 8-K.

We filed the following reports on Form 8-K during the quarterly period ended March 1, 2003:

(i) Form 8-K filed December 20, 2002 reporting second quarter 2003 earnings (Items 7 and 9). (ii) Form 8-K filed February 3, 2003 reporting the arbitration decision in the matter of Vans, Inc. vs. Scott Brabson and Jay Rosendahl (Item 5). (iii) Form 8-K filed February 25, 2003 reporting confirmation of the arbitrator’s award in the matter of Vans, Inc. vs. Scott Brabson and Jay Rosendahl (Item 5).

SIGNATURES

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.

	VANS, INC. (Registrant)
	VANS, INC.
Date: April 11, 2003	By:	/s/ Scott J. Blechman SCOTT J. BLECHMAN Vice President-Finance and Controller (Authorized Signatory of the Registrant and Chief Accounting Officer)
	(Registrant)
Date: January 8, 2004	By:	/s/ Gary H. Schoenfeld
		GARY H. SCHOENFELD
		President and Chief Executive Officer
Date: January 8, 2004	By:	/s/ Scott J. Blechman
		SCOTT J. BLECHMAN
		Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

2328

CERTIFICATIONS PURSUANT TO RULE 13a-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Gary H. Schoenfeld, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Vans, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: April 11, 2003

/s/ Gary H. Schoenfeld Gary H. Schoenfeld President and Chief Executive Officer (Principal Executive Officer)

CERTIFICATIONS PURSUANT TO RULE 13a-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Andrew Greenebaum, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Vans, Inc.;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: April 11, 2003

/s/ Andrew J. Greenebaum Andrew J. Greenebaum Senior Vice President and Chief Financial Officer (Principal Financial Officer)

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Filing Compare · VANS INC