SECURITIES AND EXCHANGE COMMISSION

(Mark One)

Commission File Number 0-19402

VANS, INC.

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. [X] YES [  ] NO

     Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 17,944,787 shares of Common Stock, $.001 par value, as of April 2, 2004.

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [X] YES [  ] NO

Table of Contents

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

VANS, INC.

See accompanying notes to condensed consolidated financial statements.

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VANS, INC.

See accompanying notes to condensed consolidated financial statements.

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VANS, INC.

See accompanying notes to condensed consolidated financial statements.

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VANS, INC.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

     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. Over the past eight years 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. 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. 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 and the VANS High Cascade Snowboard Camp®; sponsoring professional and amateur athletes; and operating a summer musical tour known as the VANS Warped Tour®.

     We operate retail stores in the U.S. and Europe, and design, market and distribute active-casual footwear, apparel and accessories, performance footwear for action sports, snowboard boots, conventional snowboard boot bindings under our AGENCY™ brand, step-in snowboard boot bindings under our SWITCH® brand, and outerwear worldwide. We also offer the PRO-TEC® line of protective helmets and pads through our wholly-owned subsidiary, Pro-tec, Inc.

Basis of Presentation

     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 period are not necessarily indicative of results to be expected for the current year.

     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 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 our eight European stores.

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     Retail revenue is recognized at the point of sale. Wholesale revenue is recognized when title passes and the risks and rewards of ownership have transferred to the customer. Title generally passes upon the delivery of product to the customer or the customer’s agent. Royalty revenue is recognized as it is earned, based on the terms of the underlying royalty agreement. Skatepark, event and other revenues are recognized when the related goods or services have been delivered to the customer and we are substantially free from future obligation, provided that the fundamental criteria for revenue recognition have been met. Concurrent with the recording of revenues, provision is made for estimated returns and allowances.

Cash Equivalents

     Cash and cash equivalents consist of cash and short-term investments with original maturities of ninety days or less.

Inventories

     Inventories are substantially comprised of finished goods and are valued at the lower of cost or market (net realizable value). Cost is determined using the first-in, first-out (“FIFO”) method. We provide inventory allowances based on estimates of excess and obsolete inventories. Such allowances are permanent reductions in the carrying value of the inventory.

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 performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair value of our reporting 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. The second step of the goodwill impairment test involves comparing the implied fair value of our reporting unit’s goodwill with the carrying amount of that goodwill.

     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.

Other Assets

     At May 31, 2003, other assets included a note receivable of $5.1 million, for which payment was received in July 2003.

Contingent Consideration

     In connection with certain of our acquisitions, if designated future performance goals are satisfied, the aggregate consideration for these acquisitions will be increased. Such additional consideration, if earned, will be paid in the form of cash or unrestricted shares of our common stock, and will be accounted for in accordance with SFAS No. 141, “Business Combinations” (“SFAS 141”) which superceded Accounting Principles Board (“APB”) Opinion No. 16, “Business Combinations,” as of July 1, 2001, and Emerging Issues Task Force (“EITF”) Issue No. 95-8, “Accounting for Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase Business Combination.” Any additional consideration paid will be allocated to goodwill, which will be periodically reviewed for impairment. See 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.

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     Income taxes for the interim periods were computed using the effective tax rate estimated to be applicable in each jurisdiction for the full fiscal year, which is subject to ongoing review and evaluation by management.

Stock-Based Compensation

     We account for stock-based awards to employees in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and have adopted the disclosure-only alternative of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”).

     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. Among other factors, the Black-Scholes model considers the expected life of the option and the expected volatility of our stock price in arriving at an option valuation.

     The per share fair value of stock options granted in connection with stock option plans has been estimated with the following weighted average assumptions:

     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):

     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

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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 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 thirty-nine week periods ended February 28, 2004, and March 1, 2003, elsewhere in Note 1.

     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. In December 2003, the FASB revised FIN 46 (“FIN 46-R”) to exempt certain entities from its requirements and to clarify certain issues arising during the initial implementation of FIN 46. The provisions of FIN 46-R were adopted in the third quarter ended February 28, 2004; however, since we do not currently have any variable interest entities, the adoption of FIN 46-R did not have a material impact on our financial position or results of operations.

2. SUPPLEMENTAL FINANCIAL INFORMATION

Goodwill and Identifiable Intangible Assets

     The following table summarizes our identifiable intangible assets and goodwill balances as of February 28, 2004, and May 31, 2003:

     Goodwill is comprised of $12.7 million associated with the acquisition of our predecessor company; $6.2 million associated with the acquisition of Mosa Extreme Sports, Inc., now known as Pro-tec, Inc. (“Pro-tec”); $5.8 million related to the acquisition of Global Accessories Limited (now known as Vans Inc. Limited), our U.K. distributor; $4.9 million associated with our acquisition of a

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majority interest in the VANS Warped Tour®; $2.3 million associated with the acquisition of Compagnie Sunspot SA (“Sunspot”), our exclusive sales agent for France; and $400,000 associated with the acquisition of certain assets and liabilities of Max MadHouse GmbH (“Max MadHouse”), our exclusive sales agent for Germany, Austria and the Czech Republic.

     Amortization expense for intangible assets subject to amortization was $92,000 and $203,000 for the thirteen week periods ended February 28, 2004, and March 1, 2003, respectively, and $350,000 and $568,000 for the thirty-nine week periods ended February 28, 2004, and March 1, 2003, respectively. Future estimated amortization expense for the remainder of Fiscal 2004, the next four years and thereafter is as follows (in thousands):

Computation of Earnings Per Share

     Basic earnings per share represents net income divided by the weighted-average number of common shares outstanding for the period. Diluted earnings per share represents net income divided by the weighted-average number of shares outstanding, inclusive of all potentially dilutive common shares. The reconciliations of basic to diluted weighted average shares are as follows:

     The following shares were excluded from the computation of diluted earnings (loss) per share as their effect would have been anti-dilutive:

Other Comprehensive Income

     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 thirty-nine week periods ended February 28, 2004, and March 1, 2003, were as follows:

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3. ACQUISITIONS

     On June 1, 2003, we acquired certain assets and liabilities of Max MadHouse for initial cash consideration of $117,000. The assets and liabilities acquired constituted what was formerly the business of our exclusive sales agent for Germany, Austria and the Czech Republic. The consideration for the acquisition was attributed to acquired identifiable net assets and goodwill. In addition to the initial purchase price paid, we are required to pay additional cash consideration based on the level of sales achieved by the acquired business over the three-year period ending May 31, 2006. Although the aggregate amount of additional consideration to be paid cannot yet be determined, we currently estimate that $500,000 will be paid in the current fiscal year, of which $400,000 has been recorded within the accompanying condensed consolidated financial statements, and an aggregate of $1 million in additional consideration may be required. Any such additional consideration will be allocated to goodwill.

     On June 11, 2002, we acquired 100% of the outstanding capital stock of Sunspot for cash consideration of $2.9 million. During the first quarter of Fiscal 2004, an additional $900,000 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 liabilities on the acquisition date and the remaining $2.3 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 $4.5 million in additional consideration may be required. Any such additional consideration will be allocated to goodwill.

     Had the acquisitions of Max MadHouse and Sunspot occurred on June 1, 2002, our results of operations for the thirteen week and thirty-nine week periods ended February 28, 2004, and March 1, 2003, would not have differed materially from our reported results of operations for these 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. Recently, the District Court for the Central District of California entered a default judgment against the interests of certain of the defendants in this matter with respect to certain shoes, apparel and accessories (the “goods”) seized by the federal government in connection with the allegations we made in this case. The government granted our petition to obtain ownership of the goods. We intend to liquidate them as part of our effort to recover monies in this matter. Additionally, in Q3 Fiscal 2004, we entered into an agreement with the trustee of the bankruptcy estate of Scott Brabson (the “Estate”) whereby the Estate assigned any rights it may have had in certain bank accounts and other property that were subject to the preliminary injunction previously obtained in this case (the “Assigned Property”) in exchange for the assignment by us of any rights we may have had in certain U.S. bank accounts and the payment of additional monies to the Estate. The agreement is subject to approval by the U.S. bankruptcy court. A hearing on the

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motion to approve the agreement will be held on April 6, 2004. If the motion is approved by the court, we will be entitled to pursue the liquidation of the Assigned Property as part of our efforts to recover monies in 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 the lawsuit filed by us against the plaintiff, her husband and other individuals described above. The allegations are set forth in our Quarterly Report on Form 10-Q for the period ended November 29, 2003. An agreement to settle this case was reached in Q1 Fiscal 2004, and during Q3 Fiscal 2004, a settlement agreement was executed by the various parties to the case. The settlement agreement is subject to certain conditions, and 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.

     City of Dearborn Heights ACT 345 Police & Fire Retirement System, on behalf of Itself and all others similarly situated vs. Vans, Inc., Andrew J. Greenebaum and Gary Schoenfeld, United States District Court, Central District of California, Case No. CV04-0431. This putative class action lawsuit was filed against Vans, and one current and one former officer of Vans, on January 23, 2004. The complaint alleges that Vans and those individuals violated the federal securities laws by improperly inflating revenue and earnings during each fiscal quarter in the period from March 1998 through May 2001, and issuing false and misleading statements to the public about its business. Two additional putative class action lawsuits containing identical allegations have also been filed in the United States District Court for the Central District of California (Robert Lechter vs. Vans, Inc., Andrew J. Greenebaum and Gary H. Schoenfeld, Case No. CV04-0707, and Mary Ann Mason vs. Vans, Inc., Andrew J. Greenebaum and Gary H. Schoenfeld, Case No. 2:04CV01578). Additionally, on January 29, 2004, a shareholder derivative complaint containing allegations identical to the above federal lawsuits was filed in the Superior Court for the County of Los Angeles against Vans, as a nominal defendant, and the current members of the Board of Directors and certain former officers and directors of Vans alleging breaches of fiduciary duty and violations of the California Corporations Code. (Sherryl Halpern, derivatively on behalf of Vans, Inc. vs. Walter E. Schoenfeld, et al, Case No. BC309805). This case was subsequently consolidated with a second derivative complaint (Anne Ratnofsky, derivatively on behalf of Vans, Inc. vs. Walter E. Schoenfeld, et al, Case No. BC310782), and a consolidated complaint was filed. Discovery has commenced in the derivative case, but is stayed in the federal lawsuits pending a motion to consolidate the cases, the appointment of a lead plaintiff, and the filing of a motion to dismiss by Vans.

     Franklin 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. Recently, we were advised that Thrasher Magazine will be dismissed from the case. 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.

     From time to time, we are involved in legal proceedings arising in the ordinary course of business. Management does not currently expect that any of the legal proceedings in which we are currently involved will have a material adverse impact on our consolidated results of operations or financial condition.

Derivatives and Hedging

     We are exposed to foreign currency risk primarily through our wholly-owned subsidiaries, Vans Europe BV (“VEBV”), whose functional currency is the euro, and Vans Inc. Limited (“VIL”), whose functional currency is the British sterling. This currency risk is primarily related to purchases of inventory by our subsidiaries which are priced and settled in U.S. dollars. To hedge this risk, our subsidiaries enter into cash flow hedges of forecasted inventory purchases, thereby fixing the cost of the product and the associated gross margins in their functional currency. As of February 28, 2004, our subsidiaries hedged approximately 70% of forecasted inventory purchases through the fourth quarter of Fiscal 2005.

     At February 28, 2004, we also had foreign currency forward contracts outstanding to purchase U.S. dollars using Japanese yen. These contracts were entered into to hedge projected future cash flows in connection with certain royalty payments to be received from our licensee for Japan during the remainder of Fiscal 2004.

     The following is a summary of outstanding foreign currency forward contracts at February 28, 2004 (in thousands, except contract rates):

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     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.

     Net unrealized losses on foreign exchange contracts at February 28, 2004, were included in accumulated other comprehensive income and are expected to be reclassified into earnings within the next ten months as the related underlying transactions affect earnings. Actual 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 February 28, 2004, we had firm commitments to purchase inventory in the amount of $54.3 million. These commitments included contingent liabilities under open letters of credit with foreign suppliers aggregating $1.4 million.

Skatepark lease termination contingency

     As discussed further in Note 5, we have renegotiated the facility leases for two skateparks we expect to continue to operate in the future. Under the terms of one of these renegotiated lease agreements, we are required to pay up to $1.8 million if the landlord terminates the revised lease agreement prior to June 1, 2005. The amount of this lease termination payment decreases to $600,000 on a straight-line basis over the fifteen month period ending on May 31, 2005. If the landlord does not terminate the lease agreement by May 31, 2005, no amounts will be required to be paid. As of February 28, 2004, no amounts have been recorded in the accompanying condensed consolidated financial statements in connection with this contingency.

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 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 February 28, 2004, we had closed four skateparks: Bakersfield, California; Denver, Colorado; Phoenix, Arizona; and Atlanta, Georgia. Of those, the Denver, Phoenix and Atlanta parks closed during the first quarter of Fiscal 2004. The Bakersfield park closed in Fiscal 2003. Of the eight skateparks that we continued to operate, we had reached agreements with the landlords to close five of the parks generally over the next four to eighteen months. We have also reached agreements to significantly reduce the future rent under the leases for two of the three parks we expect to operate in the future.

     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 had closed through February 28, 2004, are presented as discontinued operations in the accompanying condensed consolidated statements of operations. Also see Note 7.

     In addition to the four skateparks we have closed, our discontinued operations include the operating results of a Triple Crown specialty retail store that was closed during the second quarter of Fiscal 2004 as a result of underperformance. In connection with the closure of this store, we incurred pre-tax lease termination charges of $150,000, which are included within net loss from discontinued operations for the thirty-nine week period ended February 28, 2004.

     Summarized operating results for our discontinued operations were as follows:

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     Our results from continuing operations for the thirty-nine week period ended February 28, 2004, include pre-tax lease termination costs of $3.9 million, which relate to lease termination agreements reached during Fiscal 2004 for skateparks that we continued to operate as of February 28, 2004. Our February 28, 2004 balance sheet included lease termination liabilities aggregating $596,000 and liabilities held in connection with disposal activities aggregating $84,000, 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 $12.6 million and $10.1 million for the thirteen week periods ended February 28, 2004, and March 1, 2003, respectively, and $39.6 million and $34.1 million for the thirty-nine week periods ended February 28, 2004, and March 1, 2003, 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:

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     Included in skatepark income (loss) from operations for the thirty-nine week period ended February 28, 2004, are lease termination costs of $3.9 million.

7. SUBSEQUENT EVENTS

     On March 6, 2004, we closed our skatepark in Houston, Texas. In the future, all historical results of operations for this skatepark will be presented within discontinued operations.

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

INTRODUCTION

General

     We are a leading global action sports and lifestyle company that merchandises, designs, sources and distributes VANS-branded active-casual and performance footwear, apparel and accessories. Over the past eight years 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. 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. 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 and the VANS High Cascade Snowboard Camp®; sponsoring professional and amateur athletes; and operating a summer musical tour known as the VANS Warped Tour®.

     In 1998, we expanded our business and marketing plan to include the operation of large-scale skateparks. Initially, this strategy was successful; however, the subsequent proliferation of large, free public skateparks that were constructed in close proximity to our skateparks adversely affected attendance and revenues at the parks. As a consequence, in Fiscal 2003 we made the decision to substantially exit the skatepark business.

     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.

     Through March 31, 2004, we have closed five skateparks: Bakersfield, California; Denver, Colorado; Phoenix, Arizona; Atlanta, Georgia; and Houston, Texas. Of those, the Denver, Phoenix and Atlanta parks closed in the first quarter of Fiscal 2004 and the Houston skatepark closed in March 2004. The Bakersfield park closed in Fiscal 2003. Of the seven skateparks that we continue to operate, we have reached agreements with the landlords to close four 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 four to eighteen months. The operating results for closed skateparks are presented as discontinued operations in our financial statements beginning in the period the skatepark is closed. Our operating results for the first nine months of Fiscal 2004 include pre-tax lease termination costs of $3.9 million related to two skateparks that we continued to operate as of February 28, 2004

     We operate retail stores in the U.S. and Europe, and design, market and distribute active-casual footwear, apparel and accessories, performance footwear for action sports, snowboard boots, conventional snowboard boot bindings under our AGENCY™ brand, step-in snowboard boot bindings under our SWITCH® brand, and outerwear worldwide. We also offer the PRO-TEC® line of protective helmets and pads through our wholly-owned subsidiary, Pro-tec, Inc.

Key Management Considerations

     In analyzing and managing our business, our management team focuses on a number of important metrics. We have three sales channels: U.S. retail, National and International. U.S. retail sales consist of revenues from our domestic retail stores and skateparks; National sales includes U.S. wholesale revenue as well as revenue from the VANS Warped Tour, the High Cascade Snowboard Camp, and revenue generated through our joint venture with Pacific Sunwear; and International sales include all international wholesale revenue, the largest portion of which is generated in Europe, income from our licensee for Japan, and revenue generated through our eight European retail stores. We frequently analyze gross margins and average selling prices within each of our sales channels. We also closely track wholesale sell-throughs for important wholesale customers; sell-throughs of new product in our retail stores; year-over-year sales through our retail stores that have been open more than one year (otherwise known as “comparable store sales”); and the impact of foreign currency fluctuations on our international sales.

     With respect to operating expenses, we focus most heavily on controlling costs associated with (i) our 155 retail stores, and (ii) marketing, advertising and promotion expenses. The largest components of our retail operating expenses are rent and labor. With

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respect to marketing, advertising and promotion expenses, the largest cost components relate to media advertisements and costs associated with athlete sponsorships and event promotions, including the operation of the VANS Triple Crown Series.

     We manage working capital and liquidity largely through the close monitoring of our inventory and accounts receivable. Inventory levels are constantly analyzed to ensure that the appropriate mix of inventory is in production and on hand and to ensure that slow-moving inventory is liquidated in a timely fashion. With respect to accounts receivable, we analyze and manage our accounts receivable aging to identify slow-paying and financially distressed customers in a timely fashion. As further discussed under “Critical Accounting Policies,” we provide allowances against inventories and accounts receivable, as necessary, to reflect what we believe to be the net realizable value of the underlying assets.

     We also routinely monitor the mix of forecasted and actual income or loss by jurisdiction, as well as tax rates by jurisdiction, to ascertain any impact they may have on our overall effective tax rate.

RECENT DEVELOPMENTS IN OUR BUSINESS

     During the quarterly period ended February 28, 2004 (“Q3 Fiscal 2004”), several putative federal securities class action lawsuits and two derivative lawsuits were filed against us and certain of our current and former officers and directors. The suits contain identical allegations. The federal suits allege violations of the federal securities laws by us and one current and one former officer of Vans, and the derivative suits allege violations of fiduciary duties and the California Corporations Code by each of our current directors and several of our former officers and directors. The suits are more fully discussed under “Part II – Other Information – Item 1. Legal Proceedings.”

     In March 2004, we closed our Houston skatepark, bringing to five the total number of parks we have closed through March 31, 2004. With the closure of the Houston skatepark, we now operate seven skateparks, four of which will be closed within the next four to eighteen months.

SUMMARY OF OUR RESULTS OF OPERATIONS FOR Q3 FISCAL 2004 AND THE FISCAL 2004 NINE MONTHS

     - Net sales for Q3 Fiscal 2004 were $88.6 million, a 9.7% increase versus the same period last year. The increase was attributable to sales growth from each of our three sales channels, U.S. Retail, National and International, of 9.8%, 14.3% and 6.0%, respectively. Net sales for the nine month period ended February 28, 2004 (the “Fiscal 2004 Nine Months”) were $282.4 million, up 7.3% versus the corresponding period a year ago. The increase was attributable to sales growth from each of the company’s three sales channels, U.S. Retail, National and International, of 8.3%, 6.3% and 7.3%, respectively.

     - Gross profit for Q3 Fiscal 2004 was 52.5% of net sales, up from 47.3% for Q3 Fiscal 2003. Gross profit for the Fiscal 2004 Nine Months was 48.4%, up from 44.6% for the corresponding period a year ago. On a quarterly and year-to-date basis, gross profit percentages were higher for all of our sales channels.

     - Operating expenses, excluding impairment charges, for Q3 Fiscal 2004 increased $1.1 million to $38.5 million, and was 43.5% as a percentage of net sales versus 46.3% for the same period a year ago. Operating expenses, excluding impairment charges and lease termination costs, for the Fiscal 2004 Nine Months increased $4.4 million to $116.4 million, and was 41.2% as a percentage of net sales versus 42.6% for the same period a year ago.

     - Income (loss) from continuing operations for Q3 Fiscal 2004 was $7.1 million versus a loss of $7.2 million for Q3 Fiscal 2003. Income from continuing operations for the Fiscal 2004 Nine Months was $12.1 million versus a loss of $5.0 million for the same period a year ago. The improvements for the quarter and year-to-date periods were the result of increased sales, improved profit margins, our ability to better leverage our operating infrastructure, and impairment charges of $12.5 million in Q3 Fiscal 2003.

     - Net income (loss) for Q3 Fiscal 2004 was $7.1 million versus a net loss of $9.2 million for Q3 Fiscal 2003. Net income (loss) for the Fiscal 2004 Nine Months was $7.1 million of income versus a net loss of $7.5 million during the same period a year ago.

     A more detailed analysis of our financial results for Q3 Fiscal 2004 and the Fiscal 2004 Nine Months is discussed below under “Analysis of Our Quarterly and Year-to-Date Results of Operations.”

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RESULTS OF OPERATIONS

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

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

ANALYSIS OF OUR QUARTERLY AND YEAR-TO-DATE RESULTS OF OPERATIONS

Net Sales

     Retail. Retail sales, which consist solely of sales through our U.S. retail stores and skatepark sessions and concessions, increased 9.8% in Q3 Fiscal 2004 and 8.3% for the Fiscal 2004 Nine Months. The increase was driven by a 14.4% and 13.6% year-over-year increase in comparable U.S. store sales, respectively (excluding merchandise revenues from skateparks expected to be closed and revenues from concessions and skate sessions at all of our skateparks). The comparable store sales increase was fueled by growth in women’s and kid’s footwear, as well as apparel, with the largest percentage increase from our women’s footwear line. Comparable revenues from concessions and skate sessions at our skateparks declined 11.0% and 24.7% year-over-year for Q3 Fiscal 2004 and the Fiscal 2004 Nine Months, respectively.

     During Q3 Fiscal 2004, we reduced our U.S. retail store count to 148 total stores as a result of closing one store. No skateparks were closed during Q3 Fiscal 2004. During the Fiscal 2004 Nine Months, we closed three skateparks and had a net closing of six stores. As discussed above under the caption “Introduction – General,” 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 four to eighteen months.

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     National. National sales, which include all U.S. sales except sales through our U.S. retail stores, increased 14.3% in Q3 Fiscal 2004 and 6.3% for the Fiscal 2004 Nine Months. The Q3 Fiscal 2004 increase was primarily due to a 1.5% increase in average selling prices year-over-year and a 15.0% increase in units sold, which primarily resulted from increases in women’s and kid’s footwear. The increase was partially offset by a decline in our Pro-tec helmet business primarily due to delays in the introduction of the SXP™ helmet line.

     The Fiscal 2004 Nine Months increase of 6.3% was primarily due to a 9.4% increase in units sold, led by women’s and kid’s footwear, partially offset by a 3.1% decline in average selling prices and a decline in our Pro-tec helmet business for the reasons described in the preceding paragraph.

     International. International sales, which include sales through our European stores, increased 6.0% in Q3 Fiscal 2003 and 7.3% for the Fiscal 2004 Nine Months. The increase in Q3 Fiscal 2003 was primarily due to increased European sales of $1.2 million, and increased sales to Canada and South America of $200,000 and $500,000, respectively. The $1.2 million sales increase in Europe resulted from a $3.8 million favorable variance in exchange rates related to our direct operations in Europe and the opening of our full-price retail store on Carnaby Street in London during Q3 Fiscal 2004, partially offset by a $2.6 million sales decline on a constant-dollar basis. Sales by such operations are made in euros and British sterling and benefited from the continued weakening of the U.S. dollar during the quarter. The constant-dollar sales decline in Europe resulted from a 2.3% decline in units sold, a 4.2% decrease in local currency average selling prices, and an ongoing shift in fashion trends in Europe from skate-oriented footwear to fashionable athletic footwear.

     The Fiscal 2004 Nine Months increase of 7.3% was primarily due to a $5.2 million increase in European sales and a $900,000 increase in royalties from our licensee for Japan, partially offset by an approximately $300,000 decrease in sales in Central America. The $5.2 million sales increase in Europe resulted from an $8.5 million favorable variance in exchange rates relating to our direct operations in Europe, partially offset by a $3.3 million decrease in sales on a constant-dollar basis. The constant-dollar sales decline resulted from a 7.5% decrease in local currency average selling prices, partially offset by a 1.7% increase in units sold.

Gross Profit

     In Q3 Fiscal 2004, our gross profit percentage improved 520 basis points versus the prior year, from 47.3% to 52.5%. For the Fiscal 2004 Nine Months, our gross margin percentage improved 380 basis points versus the prior year, from 44.6% to 48.4%. Each of our three sales channels experienced year-over-year gross profit improvement. In the U.S., Retail gross margins improved largely as a result of a higher proportion of sales at full margin due in part to reductions in planned promotions and better inventory management. Wholesale gross margins improved primarily due to improved average selling prices and reduced levels of markdowns. Both the Retail and National channels experienced improved average selling prices for the quarter led by men’s footwear and women’s footwear, respectively. Internationally, increases in gross profit were driven primarily by favorable fluctuations in exchange rates between the euro and U.S. dollar.

     The gross profit improvement for the Fiscal 2004 Nine Months was primarily due to improved margins from all three sale channels. Domestically, National margins improved largely due to increased margin contribution from the VANS Warped Tour®, improved average selling prices for women’s and kid’s footwear, and a reduction in wholesale markdowns versus those taken for the same period a year ago. Retail margins improved due to improved average selling prices for apparel. Internationally, gross profit increased primarily due to favorable fluctuations in exchange rates between the euro and U.S. dollar and increased license income from Japan.

Operating Expenses

     During Q3 Fiscal 2004 and the Fiscal 2004 Nine Months, operating expenses decreased 22.8% and 3.4%, respectively, versus the comparable prior year periods. Excluding impairment charges and lease termination costs, operating expenses increased 3.0% and 3.9% during Q3 Fiscal 2004 and the Fiscal 2004 Nine Months, respectively, as compared to the comparable prior year periods.

     As a percentage of net sales, operating expenses (excluding impairment charges and lease termination costs) improved to 43.5% and 41.2% for Q3 Fiscal 2004 and the Fiscal 2004 Nine Months, respectively, from 46.3% and 42.6%, respectively, in the same periods a year ago. The material components of operating expenses are discussed below.

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     Retail. Retail expenses decreased 3.9% in Q3 Fiscal 2004 and 1.2% for the Fiscal 2004 Nine Months primarily due to the net reduction of eleven stores since the same period a year ago, partially offset by an increase in labor and related costs in order to support the increased retail sales volume discussed above.

     Marketing, advertising and promotion. Marketing, advertising and promotion expenses increased 1.4% in Q3 Fiscal 2004 and decreased 2.6% for the Fiscal 2004 Nine Months. The decrease for the Fiscal 2004 Nine Months was due to planned decreases in trade show and advertising costs.

     Selling, distribution and administrative. Selling, distribution and administrative expenses increased 11.9% and 14.1% in Q3 Fiscal 2004 and the Fiscal 2004 Nine Months, respectively. The increases were primarily a result of increases in bonus expense of $920,000 and $2.8 million due to the likely achievement of performance targets for Fiscal 2004, and net increased costs of approximately $1.2 million and $2.2 million related to our European business during Q3 Fiscal 2004 and the Fiscal 2004 Nine Months, respectively. The increase in expenses associated with our European business for Q3 Fiscal 2004 and the Fiscal 2004 Nine Months primarily related to changes in exchange rates between European currencies, primarily the euro, and the U.S. dollar. Additionally, we incurred approximately $500,000 in employee severance costs for the Fiscal 2004 Nine Months.

     Lease termination costs. Please see the discussion of these costs under the caption “Introduction – General.”

Other Expense, Net

     Other expense, net, primarily consists of exchange rate losses, partially offset by royalty payments received from the non-footwear related licensing of our trademarks and rental income. Other expense, net, decreased $600,000 during Q3 Fiscal 2004 and decreased $500,000 for the Fiscal 2004 Nine Months, primarily due to decreased foreign currency losses.

Income Tax Expense

     Income tax expense increased $5.4 million and $5.6 million for Q3 Fiscal 2004 and the Fiscal 2004 Nine Months, respectively. The increase is the result of increased income from continuing operations, offset by a lower effective tax rate. Our effective tax rate was approximately 9.6% for Q3 Fiscal 2004 versus 38.0% for Q3 Fiscal 2003, and 15.2% for the Fiscal 2004 Nine Months versus 41.8% for the same period a year ago. The decrease in our effective tax rate for the Fiscal 2004 Nine Months and Q3 Fiscal 2003 was largely due to lower tax rates internationally for these periods. Further, 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. We expect our effective tax rate for Fiscal 2004 to be in the range of approximately 16% to 19%.*

     In future periods, two factors could cause our effective tax rate to materially fluctuate: (i) the extent to which the mix between taxable income or loss generated in U.S. and foreign jurisdictions varies from our forecasted mix of taxable income or loss; and (ii) the timing and amount of the release of valuation allowances relating to our net operating loss carryforwards.

     With regard to the second factor, we expect our net operating loss carryforwards, which primarily relate to the closure of our skateparks, to reach approximately $30 million. In the future, if we believe the tax benefit associated with our net operating losses will be realized, we would release all or a portion of the remaining valuation allowance. This would create a tax benefit in the quarter the valuation allowance is released and would cause our effective tax rate for that quarter to be much lower than subsequent quarters. Those subsequent quarters would then have an effective tax rate ranging from approximately 20% to 30% depending on the mix of earnings between the U.S. and foreign jurisdictions.* See “Critical Accounting Policies — Taxes.” The timing and amount of valuation allowances that may be released in any year or quarter depend on facts and circumstances existing at the time those decisions are made and a number of variables, such as our history of recurring earnings, the reliability of projections of future earnings, order backlogs and market conditions.

     After our net operating losses are fully realized or expire, we expect to have an effective tax rate of approximately 41% in the U.S. and approximately 15% internationally which on a blended basis would likely create a consolidated effective tax rate ranging from approximately 20% to 30% depending on the mix of earnings between the U.S. and foreign jurisdictions.*

Minority Interest

     Minority interest increased approximately $600,000 in Q3 Fiscal 2004, primarily as a result of smaller losses incurred by our Mexico subsidiary as compared to the same period a year ago. During the Fiscal 2004 Nine Months, minority interest increased $1.1 million, primarily as a result of increased income produced by the VANS Warped Tour® and our Mexico subsidiary.

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Loss from Discontinued Operations, Net of Tax

     As discussed more fully above under the caption “Introduction – General,” 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 February 28, 2004, and the closure of one Triple Crown specialty retail store during Q2 Fiscal 2004. There were no losses from discontinued operations in Q3 Fiscal 2004 as there were no skatepark closures during the quarter. For the Fiscal 2004 Nine Months, losses from discontinued operations increased to $5.1 million, primarily as a result of lease termination charges of $4.7 million incurred in connection with two of the three skateparks that were closed during the Fiscal 2004 Nine 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

     We have historically financed our operations with a combination of cash flows from operations, borrowings under credit facilities and the sale of equity securities. We currently rely on cash flows from operations to fund our operations, which we believe to be sufficient.* However, should a shortfall occur, we believe we could obtain borrowings under credit facilities, factor receivables or consider the sale of equity securities. At February 28, 2004, we had $121.6 million in working capital and $64.5 million in cash and cash equivalents. This compares to working capital of $106.1 million and cash and cash equivalents of $52.8 million at May 31, 2003. Our working capital increased during the Fiscal 2004 Nine Months primarily as a result of improved income from operations and the receipt of $5.1 million in full payment of a note receivable held in connection with the sale of our former Orange, California manufacturing facility, partially offset by lease termination payments for certain of our skateparks. Included in our cash and cash equivalents at February 28, 2004, is approximately $35.6 million currently deemed permanently invested in our international subsidiaries. Should these amounts be repatriated to the U.S., they would be subject to U.S. Federal and state income taxes.

     During the Fiscal 2004 Nine Months operating activities provided $12.0 million of cash, including a usage of $6.8 million of cash in connection with discontinued operations, versus $7.0 million of cash provided by operating activities in the Fiscal 2003 Nine Months, which included $700,000 of cash provided from discontinued operations. The net increase in operating cash flow from continuing operations was the result of a $17.1 million increase in income from continuing operations, a higher reduction in inventory and prepaid balances for the Fiscal 2004 Nine Months compared to the same period last year, offset by a larger increase in accounts receivable, a reduction in accounts payable, and a reduction in lease termination liabilities for the Fiscal 2004 Nine Months compared to the same period last year.

     Accounts receivable increased $20.9 million during the Fiscal 2004 Nine Months, and inventory levels decreased $18.8 million at February 28, 2004, primarily due to the seasonal nature of our U.S. wholesale business in connection with the spring and back-to-school selling seasons. Compared to a year ago, our inventory levels have decreased 9.8%. This decrease was the result of improved management of inventory levels and increased sales in our National and Retail business.

     In connection with our exiting the skatepark business, as more fully discussed under the caption “Introduction – General,” for the Fiscal 2004 Nine Months we had a net reduction of $7.7 million in lease termination liabilities as a result of the payment of lease termination costs for skateparks that we will be closing. In total, we paid $17.3 million during the Fiscal 2004 Nine Months in connection with lease termination costs to exit the skatepark business. Of the amounts paid, $6.3 million related to skateparks classified as discontinued operations in the accompanying condensed consolidated financial statements. At February 28, 2004, our balance sheet included lease termination liabilities of $596,000 and liabilities held in connection with disposal activities aggregating $84,000, which represents lease termination liabilities related to skateparks classified as discontinued operations.

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     Investing activities had cash usage of $77,000 in the Fiscal 2004 Nine Months primarily as a result of $4.5 million in capital expenditures and approximately $730,000 paid in connection with the purchase of certain of the assets and liabilities of our former sales agent for Germany, Max MadHouse Gmbh. This was partially offset by the repayment of the $5.1 million note receivable described above.

     Cash used in financing activities was $2.7 million in the Fiscal 2004 Nine Months, which was primarily the net result of cash outflows of $1.3 million for net repayments of debt and $1.6 million in dividends paid to a minority shareholder of one of our subsidiaries, partially offset by $222,000 in proceeds from the issuance of common stock.

The following table summarizes our contractual payment obligations and commitments as of February 28, 2004:

     At February 28, 2004, we had firm commitments to purchase inventory in the amount of $54.3 million during the third and fourth quarters of Fiscal 2004. These commitments included contingent liabilities under open letters of credit with foreign suppliers aggregating $1.4 million.

     In connection with the renegotiated facility lease for one of the skateparks we expect to continue to operate in the future, we are required to pay up to $1.8 million if the landlord terminates the revised lease agreement prior to June 1, 2005. The amount of this lease termination payment decreases to $600,000 on a straight-line basis over the fifteen month period ending on May 31, 2005. If the landlord does not terminate the lease agreement by May 31, 2005, no amounts will be required to be paid.

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 February 28, 2004, $1.4 million 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 February 28, 2004, the aggregate outstanding balance under the note was $815,000.

Capital Expenditures

     Our future commitments for capital expenditures are primarily related to the remodeling of retail stores. We estimate the aggregate cost of retail store remodelings for the remainder of Fiscal 2004 to be approximately $500,000.

Share Repurchase Program

     On September 21, 2001, we adopted a 1.0 million share repurchase program. Through 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 stock under the program in the Fiscal 2004 Nine Months.

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SEASONALITY

     The following table contains unaudited selected quarterly financial data for the eight quarters ended February 28, 2004, and this data as a percentage 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 CONSOLIDATED QUARTERLY RESULTS
(DOLLARS IN THOUSANDS)

     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.

RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2002, 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)” (“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 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

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an agreement. Additionally, other direct costs associated with closing skateparks will be expensed in future periods as they are incurred.

     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 thirty-nine week periods ended February 28, 2004, and March 1, 2003, in Note 1 to the Condensed Consolidated Financial Statements.

     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. In December 2003, the FASB revised FIN 46 (“FIN 46-R”) to exempt certain entities from its requirements and to clarify certain issues arising during the initial implementation of FIN 46. The provisions of FIN 46-R were adopted in the third quarter ended February 28, 2004; however, since we do not currently have any variable interest entities, the adoption of FIN 46-R did not have a material impact on our financial position or results of operations.

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 provide reserves for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. These 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 of Property, Plant and Equipment. We evaluate the 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 evaluate future undiscounted cash flows related to the relevant 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 considered. The discount rate applied is based upon our weighted average cost of capital adjusted for the risks associated with the operations being analyzed.

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     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. 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; $6.2 million associated with the acquisition of Pro-tec; $5.8 million related to the acquisition of Global Accessories Limited (now known as Vans Inc. Limited); $4.9 million associated with our acquisition of a majority interest in the VANS Warped Tour; $2.3 million associated with our acquisition of Sunspot; and $400,000 associated with the acquisition of 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 estimate what our anticipated annual effective tax rate will be and record a quarterly income tax provision in accordance with this anticipated rate. As the fiscal year progresses, we refine our estimates 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. The changes described in the preceding sentence and the recording of valuation allowances may create fluctuations in our overall effective tax rate from quarter to quarter.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

     The foregoing discussion of our business 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 March 24, 2004.

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 February 28, 2004, we held $64.5 million in cash and cash equivalents. Cash equivalents consist of highly liquid investments in federal treasury securities, commercial paper and 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 fair value. We do not use derivative or other financial instruments to hedge interest rate risk. A 1% decline in the annual yield on cash and cash equivalents held at February 24, 2004, would decrease our interest income by approximately $645,000.

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Foreign Currency Risk

     We operate our business and sell our products in a number of countries throughout the world and, as a consequence, we 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.

     Our 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 12 months. We generally hedge a substantial portion of our projected exposure from inventory purchases for the coming six to 12 months. As of February 28, 2004, we had $11.9 million outstanding in foreign exchange forward contracts to hedge the euro against the U.S. dollar, at an average contract rate of $1.14 per euro. During the period from February 29, 2004, through April 2, 2004, we entered into additional forward contracts aggregating $10.7 million to hedge the U.S. dollar against the euro, at an average contract rate of $1.21 per euro. These additional contracts are to hedge a portion of projected inventory purchases that will occur during the third and fourth quarters of Fiscal 2005.

     At February 28, 2004, we also had $785,000 outstanding in foreign currency forward contracts to purchase U.S. dollars using Japanese yen at an average contract rate of 110 yen per U.S. dollar. These forward contracts were entered into to hedge projected future cash flows in connection with certain royalty payments to be received from our licensee for Japan during the remainder of Fiscal 2004.

     Net unrealized gains/losses on foreign exchange contracts at February 28, 2004, aggregated a loss of $910,000, all of which is included in accumulated other comprehensive income and is expected to be reclassified into earnings within the next 12 months as the related inventory is sold and royalty revenues are recognized.

     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 $21.1 million and $5.5 million, respectively, for Q3 Fiscal 2004 and $51.7 million and $16.4 million, respectively for the 2004 Fiscal Nine 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 the end of the period covered by this report (the “Evaluation Date”), we carried out an evaluation, under the supervision and with the participation of 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.

     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.

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PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     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. Recently, the District Court for the Central District of California entered a default judgment against the interests of certain of the defendants in this matter with respect to certain shoes, apparel and accessories (the “goods”) seized by the federal government in connection with the allegations we made in this case. The government granted our petition to obtain ownership of the goods. We plan to liquidate them as part of our effort to recover monies in this matter. Additionally, in Q3 Fiscal 2004, we entered into an agreement with the trustee of the bankruptcy estate of Scott Brabson (the “Estate”) whereby the Estate assigned any rights it may have had in certain bank accounts and other property that were subject to the preliminary injunction previously obtained in this case in exchange for the assignment by us of any rights we may have had in certain U.S. bank accounts and the payment of additional monies to the Estate. The agreement is subject to approval by the U.S. bankruptcy court. A hearing on the motion to approve the agreement will be held on April 6, 2004. No amounts have been recorded in our condensed consolidated financial statements in connection with the outcome of 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 the lawsuit filed by us against the plaintiff, her husband and other individuals described above. The allegations are set forth in our Quarterly Report on Form 10-Q for the period ended November 29, 2003. An agreement to settle this case was reached in Q1 Fiscal 2004, and during Q3 Fiscal 2004, a settlement agreement was executed by the various parties to the case. The agreement is subject to certain conditions, and 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.

     City of Dearborn Heights ACT 345 Police & Fire Retirement System, on behalf of Itself and all others similarly situated vs. Vans, Inc., Andrew J. Greenebaum and Gary Schoenfeld, United States District Court, Central District of California, Case No. CV04-0431. This putative class action lawsuit was filed against Vans, and one current and one former officer of Vans, on January 23, 2004. The complaint alleges that Vans and those individuals violated the federal securities laws by improperly inflating revenue and earnings during each fiscal quarter in the period from March 1998 through May 2001, and issuing false and misleading statements to the public about its business. Two additional putative class action lawsuits containing identical allegations have also been filed in the United States District Court for the Central District of California (Robert Lechter vs. Vans, Inc., Andrew J. Greenebaum and Gary H. Schoenfeld, Case No. CV04-0707, and Mary Ann Mason vs. Vans, Inc., Andrew J. Greenebaum and Gary H. Schoenfeld, Case No. 2:04CV01578). Additionally, on January 29, 2004, a shareholder derivative complaint containing allegations identical to the above federal lawsuits was filed in the Superior Court for the County of Los Angeles against Vans, as a nominal defendant, and the current members of the Board of Directors and certain former officers and directors of Vans alleging breaches of fiduciary duty and violations of the California Corporations Code. (Sherryl Halpern, derivatively on behalf of Vans, Inc. vs. Walter E. Schoenfeld, et al, Case No. BC309805). This case was subsequently consolidated with a second derivative complaint (Anne Ratnofsky, derivatively on behalf of Vans, Inc. vs. Walter E. Schoenfeld, et al, Case No. BC310782), and a consolidated complaint was filed. Discovery has commenced in the derivative case, but is stayed in the federal lawsuits pending a motion to consolidate the cases, the appointment of a lead plaintiff, and the filing of a motion to dismiss by Vans.

     Franklin 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. The allegations made by the plaintiff in this case were disclosed in our quarterly report on Form 10-Q for the period ended August 30, 2003, and are further described in Note 4 to the Condensed Consolidated Financial Statements. Recently, we were advised that Thrasher Magazine will be dismissed from the case.

     In addition to the foregoing, from time to time we are the subject of claims in the ordinary course of our business.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits.

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(b)

Reports on Form 8-K. We filed four reports on Form 8-K during the quarterly period ended February 28, 2004. The first report was dated December 19, 2003, and disclosed our financial results for the period ended November 29, 2003. The second report was dated January 14, 2004, and disclosed new guidance for our projected financial results for Q3 Fiscal 2004. The third report was dated January 26, 2004, and disclosed the first putative class action securities lawsuit discussed above, and the fourth report was dated February 3, 2004, and disclosed the filing of the first derivative lawsuit discussed above.

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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.

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